##### Table of Contents



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 January 31, 2007
 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.
  LOUISIANA
    
    72-0693290(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)1333 South Clearview ParkwayJefferson, Louisiana
    
    70121(Address of principal executive offices)
    
    (Zip Code)
 
 Registrants telephone number, including area code: (504) 729-1400
 
 þ o
  o þ o
 o þ




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##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 INDEX
 PagePart I.
    
    Financial InformationItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Statements of Earnings  Three Months Ended January 31, 2007 and 2006
    
    
    3Condensed Consolidated Balance Sheets  January 31, 2007 and October 31, 2006
    
    
    4Condensed Consolidated Statement of Shareholders Equity  Three Months Ended January 31, 2007
    
    
    6Condensed Consolidated Statements of Cash Flows  Three Months Ended January 31, 2007 and 2006
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    30Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 4.
    
    Controls and Procedures
    
    
    39Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    39Item 1A.
    
    Risk Factors
    
    
    40Item 6.
    
    Exhibits
    
    
    40Signatures
    
    
    41Certification Pursuant to Section 302Certification Pursuant to Section 906
  2




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
 (Unaudited)
 (Dollars in thousands, except per share amounts)
 Three Months Ended January 31,2007
    
    
    2006Revenues:Funeral
    
    $
    72,721
    
    
    $
    71,628Cemetery
    
    
    59,960
    
    
    
    54,454132,681
    
    
    
    126,082Costs and expenses:Funeral
    
    
    53,981
    
    
    
    53,785Cemetery
    
    
    47,647
    
    
    
    43,173101,628
    
    
    
    96,958Gross profit
    
    
    31,053
    
    
    
    29,124Corporate general and administrative expenses
    
    
    (7,042
    )
    
    
    (7,219
    )Hurricane related charges, net
    
    
    (1,850
    )
    
    
    (2,638
    )Separation charges
    
    
    (485
    )
    
    
    (154
    )Gains on dispositions and impairment (losses), net
    
    
    98
    
    
    
    Other operating income, net
    
    
    268
    
    
    
    977Operating earnings
    
    
    22,042
    
    
    
    20,090Interest expense
    
    
    (6,757
    )
    
    
    (7,528
    )Investment and other income, net
    
    
    1,050
    
    
    
    468Earnings from continuing operations before income taxes
    
    
    16,335
    
    
    
    13,030Income taxes
    
    
    4,327
    
    
    
    4,911Earnings from continuing operations
    
    
    12,008
    
    
    
    8,119Discontinued operations:Earnings (loss) from discontinued operations before income taxes
    
    
    (97
    )
    
    
    254Income tax benefit
    
    
    (15
    )
    
    
    (16
    )Earnings (loss) from discontinued operations
    
    
    (82
    )
    
    
    270Net earnings
    
    $
    11,926
    
    
    $
    8,389Basic earnings per common share:Earnings from continuing operations
    
    $
    .11
    
    
    $
    .08Earnings from discontinued operations
    
    
    
    
    
    
    Net earnings
    
    $
    .11
    
    
    $
    .08Diluted earnings per common share:Earnings from continuing operations
    
    $
    .11
    
    
    $
    .08Earnings from discontinued operations
    
    
    
    
    
    
    Net earnings
    
    $
    .11
    
    
    $
    .08Weighted average common shares outstanding (in thousands):Basic
    
    
    104,900
    
    
    
    108,504Diluted
    
    
    104,998
    
    
    
    108,522Dividends declared per common share
    
    $
    .025
    
    
    $
    .025
  3




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 (Dollars in thousands, except per share amounts)
 January 31,
    
    
    October 31,ASSETS
    
    2007
    
    
    2006Current assets:Cash and cash equivalents
    
    $
    50,116
    
    
    $
    43,870Marketable securities
    
    
    519
    
    
    
    239Receivables, net of allowances
    
    
    58,965
    
    
    
    72,527Inventories
    
    
    35,754
    
    
    
    36,372Prepaid expenses
    
    
    12,867
    
    
    
    6,428Deferred income taxes, net
    
    
    9,421
    
    
    
    10,502Assets held for sale
    
    
    
    
    
    
    881Total current assets
    
    
    167,642
    
    
    
    170,819Receivables due beyond one year, net of allowances
    
    
    76,687
    
    
    
    75,350Preneed funeral receivables and trust investments
    
    
    528,047
    
    
    
    517,963Preneed cemetery receivables and trust investments
    
    
    261,638
    
    
    
    258,212Goodwill
    
    
    275,212
    
    
    
    273,327Cemetery property, at cost
    
    
    370,195
    
    
    
    371,230Property and equipment, at cost:Land
    
    
    42,233
    
    
    
    41,448Buildings
    
    
    297,273
    
    
    
    294,172Equipment and other
    
    
    154,156
    
    
    
    150,004493,662
    
    
    
    485,624Less accumulated depreciation
    
    
    196,515
    
    
    
    190,061Net property and equipment
    
    
    297,147
    
    
    
    295,563Deferred income taxes, net
    
    
    177,089
    
    
    
    173,986Cemetery perpetual care trust investments
    
    
    235,189
    
    
    
    230,487Other assets
    
    
    13,419
    
    
    
    13,640Total assets
    
    $
    2,402,265
    
    
    $
    2,380,577
  4




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)
 January 31,
    
    
    October 31,LIABILITIES AND SHAREHOLDERS EQUITY
    
    2007
    
    
    2006Current liabilities:Current maturities of long-term debt
    
    $
    2,600
    
    
    $
    2,839Accounts payable
    
    
    15,654
    
    
    
    19,375Accrued payroll and other benefits
    
    
    12,617
    
    
    
    17,353Accrued insurance
    
    
    23,510
    
    
    
    21,803Accrued interest
    
    
    8,861
    
    
    
    5,822Other current liabilities
    
    
    12,604
    
    
    
    18,141Income taxes payable
    
    
    7,172
    
    
    
    3,703Liabilities associated with assets held for sale
    
    
    
    
    
    
    469Total current liabilities
    
    
    83,018
    
    
    
    89,505Long-term debt, less current maturities
    
    
    373,394
    
    
    
    374,020Deferred preneed funeral revenue
    
    
    273,613
    
    
    
    274,682Deferred preneed cemetery revenue
    
    
    294,750
    
    
    
    296,075Non-controlling interest in funeral and cemetery trusts
    
    
    672,549
    
    
    
    658,012Other long-term liabilities
    
    
    12,956
    
    
    
    12,410Total liabilities
    
    
    1,710,280
    
    
    
    1,704,704Commitments and contingenciesNon-controlling interest in perpetual care trusts
    
    
    234,284
    
    
    
    228,980Shareholders equity:Preferred stock, $1.00 par value, 5,000,000 shares
authorized; no shares issued
    
    
    
    
    
    
    Common stock, $1.00 stated value:Class A authorized 150,000,000 shares; issued and
outstanding 101,630,170 and 101,408,227 shares at
January 31, 2007 and October 31, 2006, respectively
    
    
    101,630
    
    
    
    101,408Class B authorized 5,000,000 shares; issued and
outstanding 3,555,020 shares at January 31, 2007 and
October 31, 2006, 10 votes per share, convertible
into an equal number of Class A shares
    
    
    3,555
    
    
    
    3,555Additional paid-in capital
    
    
    639,175
    
    
    
    640,648Accumulated deficit
    
    
    (286,789
    )
    
    
    (298,715
    )Accumulated other comprehensive income (loss):Unrealized appreciation (depreciation) of investments
    
    
    130
    
    
    
    (3
    )Total accumulated other comprehensive income (losses)
    
    
    130
    
    
    
    (3
    )Total shareholders equity
    
    
    457,701
    
    
    
    446,893Total liabilities and shareholders equity
    
    $
    2,402,265
    
    
    $
    2,380,577
  5




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
 (Unaudited)
 (Dollars in thousands, except per share amounts)
 Retained
    
    
    UnrealizedAdditional
    
    
    Earnings
    
    
    Appreciation
    
    
    TotalCommon
    
    
    Paid-In
    
    
    (Accumulated
    
    
    (Depreciation)
    
    
    ShareholdersStock(1)
    
    
    Capital
    
    
    Deficit)
    
    
    of Investments
    
    
    EquityBalance October 31, 2006
    
    $
    104,963
    
    
    $
    640,648
    
    
    $
    (298,715
    )
    
    $
    (3
    )
    
    $
    446,893Comprehensive income:Net earnings
    
    
    
    
    
    
    
    
    
    
    11,926
    
    
    
    
    
    
    
    11,926Other comprehensive income:Unrealized appreciation
of investments, net of
deferred tax expense of
($81)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    133
    
    
    
    133Total other comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    133
    
    
    
    133Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    11,926
    
    
    
    133
    
    
    
    12,059Restricted stock activity
    
    
    46
    
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    26Issuance of common stock
    
    
    89
    
    
    
    444
    
    
    
    
    
    
    
    
    
    
    
    533Stock options exercised
    
    
    87
    
    
    
    386
    
    
    
    
    
    
    
    
    
    
    
    473Share-based compensation
    
    
    
    
    
    
    318
    
    
    
    
    
    
    
    
    
    
    
    318Tax benefit associated
with stock options
exercised
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    26Dividends ($.025 per share)
    
    
    
    
    
    
    (2,627
    )
    
    
    
    
    
    
    
    
    
    
    (2,627
    )Balance January 31, 2007
    
    $
    105,185
    
    
    $
    639,175
    
    
    $
    (286,789
    )
    
    $
    130
    
    
    $
    457,701
 
 (1)
    
    Amount includes 101,630 and 101,408 shares (in thousands) of Class A common stock
with a stated value of $1 per share as of January 31, 2007 and October 31, 2006,
respectively, and includes 3,555 shares (in thousands) of Class B common stock.  6




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (Dollars in thousands, except per share amounts)
 Three Months Ended January 31,2007
    
    
    2006Cash flows from operating activities:Net earnings
    
    $
    11,926
    
    
    $
    8,389Adjustments to reconcile net earnings to net cash provided by operating activities:(Gains) on dispositions and impairment losses, net
    
    
    (17
    )
    
    
    (298
    )Depreciation and amortization
    
    
    6,494
    
    
    
    6,081Provision for doubtful accounts
    
    
    2,238
    
    
    
    2,095Share-based compensation
    
    
    318
    
    
    
    424Excess tax benefits from share-based payment arrangements
    
    
    (37
    )
    
    
    Provision (benefit) for deferred income taxes
    
    
    (2,102
    )
    
    
    3,679Other
    
    
    66
    
    
    
    95Changes in assets and liabilities:Decrease in other receivables
    
    
    9,159
    
    
    
    4,029Decrease in inventories and cemetery property
    
    
    837
    
    
    
    1,589Decrease in accounts payable and accrued expenses
    
    
    (3,426
    )
    
    
    (5,078
    )Net effect of preneed funeral production and maturities:Decrease in preneed funeral receivables and trust investments
    
    
    77
    
    
    
    2,712Decrease in deferred preneed funeral revenue
    
    
    (2,891
    )
    
    
    (6,467
    )Increase (decrease) in funeral non-controlling interest
    
    
    (82
    )
    
    
    126Net effect of preneed cemetery production and deliveries:(Increase) decrease in preneed cemetery receivables and trust investments
    
    
    (1,000
    )
    
    
    11,402Decrease in deferred preneed cemetery revenue
    
    
    (1,325
    )
    
    
    (1,060
    )Increase in cemetery non-controlling interest
    
    
    3,312
    
    
    
    1,682Decrease in other
    
    
    (5,658
    )
    
    
    (2,176
    )Net cash provided by operating activities
    
    
    17,889
    
    
    
    27,224Cash flows from investing activities:Proceeds from sale of assets, net
    
    
    388
    
    
    
    9Purchase of subsidiaries, net of cash acquired
    
    
    (2,805
    )
    
    
    Insurance proceeds related to hurricane damaged properties
    
    
    1,400
    
    
    
    4,540Additions to property and equipment
    
    
    (7,777
    )
    
    
    (4,274
    )Other
    
    
    (37
    )
    
    
    15Net cash provided by (used in) investing activities
    
    
    (8,831
    )
    
    
    290Cash flows from financing activities:Repayments of long-term debt
    
    
    (865
    )
    
    
    (891
    )Issuance of common stock
    
    
    643
    
    
    
    Dividends
    
    
    (2,627
    )
    
    
    (2,717
    )Excess tax benefits from share-based payment arrangements
    
    
    37
    
    
    
    Other
    
    
    
    
    
    
    61Net cash used in financing activities
    
    
    (2,812
    )
    
    
    (3,547
    )Net increase in cash
    
    
    6,246
    
    
    
    23,967Cash and cash equivalents, beginning of period
    
    
    43,870
    
    
    
    40,605Cash and cash equivalents, end of period
    
    $
    50,116
    
    
    $
    64,572Supplemental cash flow information:Cash paid (received) during the period for:Income taxes
    
    $
    (1,370
    )
    
    $
    200Interest
    
    $
    3,600
    
    
    $
    3,200Non-cash investing and financing activities:Issuance of common stock to executive officers
    
    $
    363
    
    
    $
    Issuance of restricted stock
    
    $
    290
    
    
    $
    
  7




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Dollars in thousands, except per share amounts)
 (1) Basis of Presentation
 The Company
  Principles of Consolidation
  Interim Disclosures
    Use of Estimates
  Share-Based Compensation
  8




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (1) Basis
of Presentation  (Continued)
     Reclassifications
   Year Ended October 31,2006
    
    
    2005
    
    
    2004Decrease in preneed funeral receivables and trust investments
    
    $
    4,567
    
    
    $
    4,141
    
    
    $
    5,481Decrease in deferred preneed funeral revenue
    
    
    (15,375
    )
    
    
    (13,628
    )
    
    
    (14,162
    )Increase (decrease) in funeral non-controlling interest
    
    
    5,058
    
    
    
    2,449
    
    
    
    (5,603
    )Net effect of preneed funeral production and maturities
    
    
    (5,750
    )
    
    
    (7,038
    )
    
    
    (14,284
    )(Increase) decrease in preneed cemetery receivables and trust
investments
    
    $
    3,479
    
    
    $
    1,192
    
    
    $
    (2,646
    )Increase (decrease) in deferred preneed cemetery revenue
    
    
    10,235
    
    
    
    (8,313
    )
    
    
    7,073Increase in cemetery non-controlling interest
    
    
    11,686
    
    
    
    12,368
    
    
    
    1,994Net effect of preneed cemetery production and deliveries
    
    $
    25,400
    
    
    $
    5,247
    
    
    $
    6,421
 9




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (2) New
Accounting Principles
    (3) Preneed Funeral Activities
 Preneed Funeral Receivables and Trust Investments
  January 31, 2007
    
    
    October 31, 2006Trust assets
    
    $
    476,251
    
    
    $
    467,640Receivables from customers
    
    
    51,796
    
    
    
    50,323Preneed funeral receivables and trust
investments
    
    $
    528,047
    
    
    $
    517,963
  10




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (3) Preneed
Funeral Activities  (Continued)
 January 31, 2007Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    46,719
    
    
    $
    
    
    
    $
    
    
    
    $
    46,719U.S. Government, agencies and
municipalities
    
    
    18,042
    
    
    
    48
    
    
    
    (202
    )
    
    
    17,888Corporate bonds
    
    
    40,110
    
    
    
    572
    
    
    
    (291
    )
    
    
    40,391Preferred stocks
    
    
    73,175
    
    
    
    841
    
    
    
    (693
    )
    
    
    73,323Common stocks
    
    
    214,203
    
    
    
    31,169
    
    
    
    (2,973
    )
    
    
    242,399Mutual funds
    
    
    33,097
    
    
    
    1,741
    
    
    
    (221
    )
    
    
    34,617Insurance contracts and other
long-term investments
    
    
    19,395
    
    
    
    223
    
    
    
    
    
    
    
    19,618Trust investments
    
    $
    444,741
    
    
    $
    34,594
    
    
    $
    (4,380
    )
    
    
    474,955Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106.8
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,296Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    476,251
  January 31, 2007Due in one year or less
    
    $
    2,007Due in one to five years
    
    
    24,531Due in five to ten years
    
    
    31,415Thereafter
    
    
    326$
    58,279
    (4) Preneed Cemetery Merchandise and Service Activities
 Preneed Cemetery Receivables and Trust Investments
  11




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##### Table of Contents



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)
 January 31, 2007
    
    
    October 31, 2006Trust assets
    
    $
    207,459
    
    
    $
    201,983Receivables from customers
    
    
    54,179
    
    
    
    56,229Preneed cemetery receivables and trust investments
    
    $
    261,638
    
    
    $
    258,212
  January 31, 2007Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    15,384
    
    
    $
    
    
    
    $
    
    
    
    $
    15,384U.S. Government, agencies and
municipalities
    
    
    15,174
    
    
    
    38
    
    
    
    (140
    )
    
    
    15,072Corporate bonds
    
    
    11,902
    
    
    
    299
    
    
    
    (45
    )
    
    
    12,156Preferred stocks
    
    
    27,883
    
    
    
    261
    
    
    
    (296
    )
    
    
    27,848Common stocks
    
    
    99,137
    
    
    
    11,708
    
    
    
    (2,312
    )
    
    
    108,533Mutual funds
    
    
    27,050
    
    
    
    385
    
    
    
    (1
    )
    
    
    27,434Insurance contracts and other
long-term investments
    
    
    538
    
    
    
    
    
    
    
    (4
    )
    
    
    534Trust investments
    
    $
    197,068
    
    
    $
    12,691
    
    
    $
    (2,798
    )
    
    
    206,961Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105.0
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    498Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    207,459
  January 31, 2007Due in one year or less
    
    $
    5,075Due in one to five years
    
    
    12,428Due in five to ten years
    
    
    9,156Thereafter
    
    
    569$
    27,228
    12




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##### Table of Contents



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
   January 31, 2007Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    19,606
    
    
    $
    
    
    
    $
    
    
    
    $
    19,606U.S. Government, agencies and
municipalities
    
    
    9,804
    
    
    
    28
    
    
    
    (166
    )
    
    
    9,666Corporate bonds
    
    
    30,694
    
    
    
    1,193
    
    
    
    (171
    )
    
    
    31,716Preferred stocks
    
    
    65,049
    
    
    
    1,664
    
    
    
    (993
    )
    
    
    65,720Common stocks
    
    
    80,702
    
    
    
    16,167
    
    
    
    (1,988
    )
    
    
    94,881Mutual funds
    
    
    10,745
    
    
    
    1,001
    
    
    
    (72
    )
    
    
    11,674Insurance contracts and other
long-term investments
    
    
    992
    
    
    
    146
    
    
    
    (11
    )
    
    
    1,127Trust investments
    
    $
    217,592
    
    
    $
    20,199
    
    
    $
    (3,401
    )
    
    
    234,390Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107.7
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    799Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    235,189
  January 31, 2007Due in one year or less
    
    $
    775Due in one to five years
    
    
    23,066Due in five to ten years
    
    
    16,083Thereafter
    
    
    1,458$
    41,382
    13




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##### Table of Contents



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)
  (6) Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care Trusts
  Non-controlling Interest
    
    
    Non-controllingPreneed
    
    
    Preneed
    
    
    
    
    
    
    Interest in PerpetualFuneral
    
    
    Cemetery
    
    
    Total
    
    
    Care TrustsTrust assets at market value
    
    $
    476,251
    
    
    $
    207,459
    
    
    $
    683,710
    
    
    $
    235,189Less:Pending withdrawals
    
    
    (9,956
    )
    
    
    (4,760
    )
    
    
    (14,716
    )
    
    
    (1,674
    )Pending deposits
    
    
    2,155
    
    
    
    1,400
    
    
    
    3,555
    
    
    
    769Non-controlling interest
    
    $
    468,450
    
    
    $
    204,099
    
    
    $
    672,549
    
    
    $
    234,284
  Non-controlling Interest
    
    
    Non-controllingPreneed
    
    
    Preneed
    
    
    
    
    
    
    Interest in PerpetualFuneral
    
    
    Cemetery
    
    
    Total
    
    
    Care TrustsTrust assets at market value
    
    $
    467,640
    
    
    $
    201,983
    
    
    $
    669,623
    
    
    $
    230,487Less:Pending withdrawals
    
    
    (10,317
    )
    
    
    (5,175
    )
    
    
    (15,492
    )
    
    
    (2,300
    )Pending deposits
    
    
    2,362
    
    
    
    1,519
    
    
    
    3,881
    
    
    
    793Non-controlling interest
    
    $
    459,685
    
    
    $
    198,327
    
    
    $
    658,012
    
    
    $
    228,980
 Investment and other income, net
  14




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (6) Non-Controlling
Interest in Funeral and Cemetery Trusts and in Perpetual Care Trusts
 (Continued)
 Three Months
    
    
    Three MonthsEnded
    
    
    EndedJanuary 31, 2007
    
    
    January 31, 2006Non-controlling interest:Realized gains
    
    $
    6,094
    
    
    $
    1,170Realized losses
    
    
    (927
    )
    
    
    (1,318
    )Interest income, dividend and other ordinary income
    
    
    5,846
    
    
    
    7,575Trust expenses and income taxes
    
    
    (2,527
    )
    
    
    (2,831
    )Net trust investment income
    
    
    8,486
    
    
    
    4,596Non-controlling interest in funeral and cemetery trust investments
    
    
    (6,167
    )
    
    
    (1,994
    )Non-controlling interest in perpetual care trust investments
    
    
    (2,319
    )
    
    
    (2,602
    )Total non-controlling interest
    
    
    
    
    
    
    Investment and other income, net (1)
    
    
    1,050
    
    
    
    468Total investment and other income, net
    
    $
    1,050
    
    
    $
    468
 
 (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. For the three
months ended January 31, 2007, the balance includes approximately $444 of interest income
receivable from the Internal Revenue Service. (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
    15




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (7) Commitments
and Contingencies  (Continued)
   Funeral Consumers Alliance, Inc., et al. v. Service Corporation International, Alderwoods
Group, Inc., Stewart Enterprises, Inc., Hillenbrand Industries, Inc., and Batesville Casket Co.
     Ralph Lee Fancher, on behalf of himself and all others similarly
situated v. Service Corporation International, Alderwoods Group, Inc., Stewart Enterprises, Inc.,
Hillenbrand Industries, Inc., Aurora Casket Co., York Group, Inc., and Batesville Casket Co., ,
 Pioneer Valley Casket Co., Inc., et al. v. Service Corporation International, Alderwoods
Group, Inc.,
 16




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (7) Commitments
and Contingencies  (Continued)
 Stewart Enterprises, Inc., Hillenbrand Industries, Inc., and Batesville Casket Co.,
    In Re: State Attorney General Civil Investigative Demands
 Other Litigation
  Securities and Exchange Commission Investigation
  17




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##### Table of Contents



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)
    
    
    DataThree Months Ended January 31, 2007Earnings from continuing operations
    
    $
    12,008Basic earnings per common share:Earnings from continuing operations
available to common shareholders
    
    $
    12,008
    
    
    
    104,900
    
    
    $
    .11Effect of dilutive securities:Time-vest stock options assumed
exercised and restricted stock
    
    
    
    
    
    
    98Diluted earnings per common share:Earnings from continuing operations
available to common shareholders
plus time-vest stock options
assumed exercised and restricted
stock
    
    $
    12,008
    
    
    
    104,998
    
    
    $
    .11
 Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    DataThree Months Ended January 31, 2006Earnings from continuing operations
    
    $
    8,119Basic earnings per common share:Earnings from continuing operations
available to common shareholders
    
    $
    8,119
    
    
    
    108,504
    
    
    $
    .08Effect of dilutive securities:Time-vest stock options assumed
exercised and restricted stock
    
    
    
    
    
    
    18Diluted earnings per common share:Earnings from continuing operations
available to common shareholders
plus time-vest stock options
assumed exercised and restricted
stock
    
    $
    8,119
    
    
    
    108,522
    
    
    $
    .08
   (9) Segment Data
  18




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (9) Segment
Data  (Continued)
  Funeral Revenue
    
    
    Cemetery Revenue(1)
    
    
    Total RevenueThree Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedJanuary 31, 2007
    
    
    January 31, 2006
    
    
    January 31, 2007
    
    
    January 31, 2006
    
    
    January 31, 2007
    
    
    January 31, 2006Western Division
    
    $
    37,837
    
    
    $
    36,867
    
    
    $
    21,859
    
    
    $
    19,349
    
    
    $
    59,696
    
    
    $
    56,216Eastern Division
    
    
    30,541
    
    
    
    30,108
    
    
    
    35,810
    
    
    
    32,498
    
    
    
    66,351
    
    
    
    62,606Corporate Trust
Management
(2)
    
    
    4,343
    
    
    
    4,653
    
    
    
    2,291
    
    
    
    2,607
    
    
    
    6,634
    
    
    
    7,260Total
    
    $
    72,721
    
    
    $
    71,628
    
    
    $
    59,960
    
    
    $
    54,454
    
    
    $
    132,681
    
    
    $
    126,082
 Funeral Gross Profit
    
    
    Cemetery Gross Profit(1)
    
    
    Total Gross ProfitThree Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedJanuary 31, 2007
    
    
    January 31, 2006
    
    
    January 31, 2007
    
    
    January 31, 2006
    
    
    January 31, 2007
    
    
    January 31, 2006Western Division
    
    $
    8,683
    
    
    $
    7,721
    
    
    $
    4,044
    
    
    $
    3,753
    
    
    $
    12,727
    
    
    $
    11,474Eastern Division
    
    
    5,875
    
    
    
    5,602
    
    
    
    6,122
    
    
    
    5,041
    
    
    
    11,997
    
    
    
    10,643Corporate Trust
Management
(2)
    
    
    4,182
    
    
    
    4,520
    
    
    
    2,147
    
    
    
    2,487
    
    
    
    6,329
    
    
    
    7,007Total
    
    $
    18,740
    
    
    $
    17,843
    
    
    $
    12,313
    
    
    $
    11,281
    
    
    $
    31,053
    
    
    $
    29,124
 Net Preneed Funeral Merchandise
    
    
    Net Preneed Cemetery Merchandise
    
    
    Net Total Preneed Merchandiseand Service Sales(3)
    
    
    and Service Sales(3)
    
    
    and Service Sales(3)Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedJanuary 31, 2007
    
    
    January 31, 2006
    
    
    January 31, 2007
    
    
    January 31, 2006
    
    
    January 31, 2007
    
    
    January 31, 2006Western Division
    
    $
    12,102
    
    
    $
    12,356
    
    
    $
    4,029
    
    
    $
    3,805
    
    
    $
    16,131
    
    
    $
    16,161Eastern Division
    
    
    10,061
    
    
    
    9,589
    
    
    
    9,612
    
    
    
    10,133
    
    
    
    19,673
    
    
    
    19,722Total
    
    $
    22,163
    
    
    $
    21,945
    
    
    $
    13,641
    
    
    $
    13,938
    
    
    $
    35,804
    
    
    $
    35,883
 
 (1)
    
    Perpetual care trust earnings are included in the revenues and gross profit of
the related geographic segment and amounted to $2,362 and $2,615 for the three months ended
January 31, 2007 and 2006, 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,
Investors 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 January 31, 2007 and 2006 were $1,468 and $1,368,
respectively, and funeral trust earnings for the three months ended January 31, 2007 and 2006
were $2,875 and $3,285, respectively. Trust management fees included in cemetery revenue for
the three months ended January 31, 2007 and 2006 were $1,315 and $1,206, respectively, and
cemetery trust earnings for the three months ended January 31, 2007 and 2006 were $976 and
$1,401, 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. 19




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (9) Segment
Data  (Continued)
  Three Months EndedJanuary 31,2007
    
    
    2006Gross profit for reportable segments
    
    $
    31,053
    
    
    $
    29,124Corporate general and administrative expenses
    
    
    (7,042
    )
    
    
    (7,219
    )Hurricane related charges, net
    
    
    (1,850
    )
    
    
    (2,638
    )Separation charges
    
    
    (485
    )
    
    
    (154
    )Gains on dispositions and impairment (losses), net
    
    
    98
    
    
    
    Other operating income, net
    
    
    268
    
    
    
    977Interest expense
    
    
    (6,757
    )
    
    
    (7,528
    )Investment and other income, net
    
    
    1,050
    
    
    
    468Earnings from continuing operations before income taxes
    
    $
    16,335
    
    
    $
    13,030
 20




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (10) Supplementary Information
  Three Months EndedJanuary 31,2007
    
    
    2006Service revenueFuneral
    
    $
    44,196
    
    
    $
    41,039Cemetery
    
    
    15,588
    
    
    
    15,71459,784
    
    
    
    56,753Merchandise revenueFuneral
    
    
    26,435
    
    
    
    28,552Cemetery
    
    
    40,255
    
    
    
    34,74766,690
    
    
    
    63,299Other revenueFuneral
    
    
    2,090
    
    
    
    2,037Cemetery
    
    
    4,117
    
    
    
    3,9936,207
    
    
    
    6,030Total revenue
    
    $
    132,681
    
    
    $
    126,082Service costsFuneral
    
    $
    14,486
    
    
    $
    13,257Cemetery
    
    
    10,312
    
    
    
    9,75524,798
    
    
    
    23,012Merchandise costsFuneral
    
    
    15,429
    
    
    
    16,982Cemetery
    
    
    23,783
    
    
    
    20,49639,212
    
    
    
    37,478General and administrative expensesFuneral
    
    
    24,066
    
    
    
    23,546Cemetery
    
    
    13,552
    
    
    
    12,92237,618
    
    
    
    36,468Total costs
    
    $
    101,628
    
    
    $
    96,958
  (11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes
  21




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##### Table of Contents



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
 (Continued)
  Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Three Months Ended January 31, 2007Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Funeral
    
    $
    
    
    
    $
    67,713
    
    
    $
    5,008
    
    
    $
    
    
    
    $
    72,721Cemetery
    
    
    
    
    
    
    54,547
    
    
    
    5,413
    
    
    
    
    
    
    
    59,960
    
    
    
    122,260
    
    
    
    10,421
    
    
    
    
    
    
    
    132,681Costs and expenses:Funeral
    
    
    
    
    
    
    50,799
    
    
    
    3,182
    
    
    
    
    
    
    
    53,981Cemetery
    
    
    
    
    
    
    43,385
    
    
    
    4,262
    
    
    
    
    
    
    
    47,647
    
    
    
    94,184
    
    
    
    7,444
    
    
    
    
    
    
    
    101,628Gross profit
    
    
    
    
    
    
    28,076
    
    
    
    2,977
    
    
    
    
    
    
    
    31,053Corporate general and
administrative expenses
    
    
    (7,042
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,042
    )Hurricane related charges, net
    
    
    (3
    )
    
    
    (1,847
    )
    
    
    
    
    
    
    
    
    
    
    (1,850
    )Separation charges
    
    
    (384
    )
    
    
    (101
    )
    
    
    
    
    
    
    
    
    
    
    (485
    )Gains on dispositions and
impairment (losses), net
    
    
    
    
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    98Other operating income, net
    
    
    30
    
    
    
    165
    
    
    
    73
    
    
    
    
    
    
    
    268Operating earnings (loss)
    
    
    (7,399
    )
    
    
    26,391
    
    
    
    3,050
    
    
    
    
    
    
    
    22,042Interest expense
    
    
    (1,757
    )
    
    
    (4,448
    )
    
    
    (552
    )
    
    
    
    
    
    
    (6,757
    )Investment and other income, net
    
    
    1,036
    
    
    
    13
    
    
    
    1
    
    
    
    
    
    
    
    1,050Equity in subsidiaries
    
    
    18,976
    
    
    
    137
    
    
    
    
    
    
    
    (19,113
    )
    
    
    Earnings from continuing
operations before income taxes
    
    
    10,856
    
    
    
    22,093
    
    
    
    2,499
    
    
    
    (19,113
    )
    
    
    16,335Income tax expense (benefit)
    
    
    (1,070
    )
    
    
    4,340
    
    
    
    1,057
    
    
    
    
    
    
    
    4,327Earnings from continuing
operations
    
    
    11,926
    
    
    
    17,753
    
    
    
    1,442
    
    
    
    (19,113
    )
    
    
    12,008Discontinued operations:Loss from discontinued
operations before income taxes
    
    
    
    
    
    
    (97
    )
    
    
    
    
    
    
    
    
    
    
    (97
    )Income tax benefit
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    (15
    )Loss from discontinued operations
    
    
    
    
    
    
    (82
    )
    
    
    
    
    
    
    
    
    
    
    (82
    )Net earnings
    
    
    11,926
    
    
    
    17,671
    
    
    
    1,442
    
    
    
    (19,113
    )
    
    
    11,926Other comprehensive income
(loss), net
    
    
    133
    
    
    
    
    
    
    
    (2
    )
    
    
    2
    
    
    
    133Comprehensive income
    
    $
    12,059
    
    
    $
    17,671
    
    
    $
    1,440
    
    
    $
    (19,111
    )
    
    $
    12,059
 22




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##### Table of Contents



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
 (Continued)
 Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Three Months Ended January 31, 2006Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Funeral
    
    $
    
    
    
    $
    66,769
    
    
    $
    4,859
    
    
    $
    
    
    
    $
    71,628Cemetery
    
    
    
    
    
    
    50,097
    
    
    
    4,357
    
    
    
    
    
    
    
    54,454
    
    
    
    116,866
    
    
    
    9,216
    
    
    
    
    
    
    
    126,082Costs and expenses:Funeral
    
    
    
    
    
    
    50,672
    
    
    
    3,113
    
    
    
    
    
    
    
    53,785Cemetery
    
    
    
    
    
    
    39,710
    
    
    
    3,463
    
    
    
    
    
    
    
    43,173
    
    
    
    90,382
    
    
    
    6,576
    
    
    
    
    
    
    
    96,958Gross profit
    
    
    
    
    
    
    26,484
    
    
    
    2,640
    
    
    
    
    
    
    
    29,124Corporate general and administrative
expenses
    
    
    (7,219
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,219
    )Hurricane related charges, net
    
    
    
    
    
    
    (2,638
    )
    
    
    
    
    
    
    
    
    
    
    (2,638
    )Separation charges
    
    
    (55
    )
    
    
    (99
    )
    
    
    
    
    
    
    
    
    
    
    (154
    )Other operating income, net
    
    
    16
    
    
    
    918
    
    
    
    43
    
    
    
    
    
    
    
    977Operating earnings (loss)
    
    
    (7,258
    )
    
    
    24,665
    
    
    
    2,683
    
    
    
    
    
    
    
    20,090Interest income (expense)
    
    
    9,735
    
    
    
    (15,586
    )
    
    
    (1,677
    )
    
    
    
    
    
    
    (7,528
    )Investment and other income, net
    
    
    468
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    468Equity in subsidiaries
    
    
    6,576
    
    
    
    
    
    
    
    
    
    
    
    (6,576
    )
    
    
    Earnings from continuing
operations before income taxes
    
    
    9,521
    
    
    
    9,079
    
    
    
    1,006
    
    
    
    (6,576
    )
    
    
    13,030Income taxes
    
    
    1,132
    
    
    
    3,398
    
    
    
    381
    
    
    
    
    
    
    
    4,911Earnings from continuing operations
    
    
    8,389
    
    
    
    5,681
    
    
    
    625
    
    
    
    (6,576
    )
    
    
    8,119Discontinued operations:Earnings (loss) from discontinued
operations before income taxes
    
    
    
    
    
    
    (41
    )
    
    
    295
    
    
    
    
    
    
    
    254Income tax benefit
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    
    
    
    
    (16
    )Earnings (loss) from discontinued
operations
    
    
    
    
    
    
    (25
    )
    
    
    295
    
    
    
    
    
    
    
    270Net earnings
    
    
    8,389
    
    
    
    5,656
    
    
    
    920
    
    
    
    (6,576
    )
    
    
    8,389Other comprehensive loss, net
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )
    
    
    2
    
    
    
    (2
    )Comprehensive income
    
    $
    8,387
    
    
    $
    5,656
    
    
    $
    918
    
    
    $
    (6,574
    )
    
    $
    8,387
 23




---



##### Table of Contents



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
 (Continued)
 Condensed Consolidating Balance Sheets
 January 31, 2007Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    46,762
    
    
    $
    1,762
    
    
    $
    1,592
    
    
    $
    
    
    
    $
    50,116Marketable securities
    
    
    282
    
    
    
    
    
    
    
    237
    
    
    
    
    
    
    
    519Receivables, net of allowances
    
    
    5,893
    
    
    
    49,071
    
    
    
    4,001
    
    
    
    
    
    
    
    58,965Inventories
    
    
    282
    
    
    
    32,591
    
    
    
    2,881
    
    
    
    
    
    
    
    35,754Prepaid expenses
    
    
    869
    
    
    
    10,320
    
    
    
    1,678
    
    
    
    
    
    
    
    12,867Deferred income taxes, net
    
    
    2,902
    
    
    
    6,519
    
    
    
    
    
    
    
    
    
    
    
    9,421Total current assets
    
    
    56,990
    
    
    
    100,263
    
    
    
    10,389
    
    
    
    
    
    
    
    167,642Receivables due beyond one year, net of
allowances
    
    
    9,524
    
    
    
    48,428
    
    
    
    18,735
    
    
    
    
    
    
    
    76,687Preneed funeral receivables and trust
investments
    
    
    
    
    
    
    516,947
    
    
    
    11,100
    
    
    
    
    
    
    
    528,047Preneed cemetery receivables and trust
investments
    
    
    
    
    
    
    248,508
    
    
    
    13,130
    
    
    
    
    
    
    
    261,638Goodwill
    
    
    
    
    
    
    255,425
    
    
    
    19,787
    
    
    
    
    
    
    
    275,212Cemetery property, at cost
    
    
    
    
    
    
    345,897
    
    
    
    24,298
    
    
    
    
    
    
    
    370,195Property and equipment, at cost
    
    
    38,901
    
    
    
    418,625
    
    
    
    36,136
    
    
    
    
    
    
    
    493,662Less accumulated depreciation
    
    
    22,654
    
    
    
    162,034
    
    
    
    11,827
    
    
    
    
    
    
    
    196,515Net property and equipment
    
    
    16,247
    
    
    
    256,591
    
    
    
    24,309
    
    
    
    
    
    
    
    297,147Deferred income taxes, net
    
    
    5,978
    
    
    
    157,438
    
    
    
    13,673
    
    
    
    
    
    
    
    177,089Cemetery perpetual care trust investments
    
    
    
    
    
    
    235,189
    
    
    
    
    
    
    
    
    
    
    
    235,189Other assets
    
    
    5,046
    
    
    
    7,273
    
    
    
    1,100
    
    
    
    
    
    
    
    13,419Equity in subsidiaries
    
    
    9,854
    
    
    
    6,081
    
    
    
    
    
    
    
    (15,935
    )
    
    
    Total assets
    
    $
    103,639
    
    
    $
    2,178,040
    
    
    $
    136,521
    
    
    $
    (15,935
    )
    
    $
    2,402,265LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    2,600
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,600Accounts payable
    
    
    466
    
    
    
    14,079
    
    
    
    1,109
    
    
    
    
    
    
    
    15,654Accrued expenses and other current
liabilities
    
    
    19,683
    
    
    
    41,594
    
    
    
    3,487
    
    
    
    
    
    
    
    64,764Total current liabilities
    
    
    22,749
    
    
    
    55,673
    
    
    
    4,596
    
    
    
    
    
    
    
    83,018Long-term debt, less current maturities
    
    
    343,394
    
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    373,394Intercompany payables, net
    
    
    (910,136
    )
    
    
    902,443
    
    
    
    7,693
    
    
    
    
    
    
    
    Deferred preneed funeral revenue
    
    
    
    
    
    
    225,915
    
    
    
    47,698
    
    
    
    
    
    
    
    273,613Deferred preneed cemetery revenue
    
    
    
    
    
    
    264,151
    
    
    
    30,599
    
    
    
    
    
    
    
    294,750Non-controlling interest in funeral and
cemetery trusts
    
    
    
    
    
    
    672,549
    
    
    
    
    
    
    
    
    
    
    
    672,549Other long-term liabilities
    
    
    10,855
    
    
    
    2,101
    
    
    
    
    
    
    
    
    
    
    
    12,956Negative equity in subsidiaries
    
    
    179,076
    
    
    
    
    
    
    
    
    
    
    
    (179,076
    )
    
    
    Total liabilities
    
    
    (354,062
    )
    
    
    2,122,832
    
    
    
    120,586
    
    
    
    (179,076
    )
    
    
    1,710,280Non-controlling interest in perpetual
care trusts
    
    
    
    
    
    
    234,284
    
    
    
    
    
    
    
    
    
    
    
    234,284Common stock
    
    
    105,185
    
    
    
    426
    
    
    
    52
    
    
    
    (478
    )
    
    
    105,185Other
    
    
    352,386
    
    
    
    (179,502
    )
    
    
    15,888
    
    
    
    163,614
    
    
    
    352,386Accumulated other comprehensive income
(loss)
    
    
    130
    
    
    
    
    
    
    
    (5
    )
    
    
    5
    
    
    
    130Total shareholders equity
    
    
    457,701
    
    
    
    (179,076
    )
    
    
    15,935
    
    
    
    163,141
    
    
    
    457,701Total liabilities and shareholders equity
    
    $
    103,639
    
    
    $
    2,178,040
    
    
    $
    136,521
    
    
    $
    (15,935
    )
    
    $
    2,402,265
 24




---



##### Table of Contents



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
 (Continued)
 Condensed Consolidating Balance Sheets
 October 31, 2006Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    39,120
    
    
    $
    3,291
    
    
    $
    1,459
    
    
    $
    
    
    
    $
    43,870Marketable securities
    
    
    
    
    
    
    
    
    
    
    239
    
    
    
    
    
    
    
    239Receivables, net of allowances
    
    
    9,875
    
    
    
    58,970
    
    
    
    3,682
    
    
    
    
    
    
    
    72,527Inventories
    
    
    316
    
    
    
    33,204
    
    
    
    2,852
    
    
    
    
    
    
    
    36,372Prepaid expenses
    
    
    539
    
    
    
    3,598
    
    
    
    2,291
    
    
    
    
    
    
    
    6,428Deferred income taxes, net
    
    
    3,835
    
    
    
    6,667
    
    
    
    
    
    
    
    
    
    
    
    10,502Assets held for sale
    
    
    
    
    
    
    881
    
    
    
    
    
    
    
    
    
    
    
    881Total current assets
    
    
    53,685
    
    
    
    106,611
    
    
    
    10,523
    
    
    
    
    
    
    
    170,819Receivables due beyond one year, net of
allowances
    
    
    9,139
    
    
    
    47,035
    
    
    
    19,176
    
    
    
    
    
    
    
    75,350Preneed funeral receivables and trust
investments
    
    
    
    
    
    
    506,770
    
    
    
    11,193
    
    
    
    
    
    
    
    517,963Preneed cemetery receivables and trust
investments
    
    
    
    
    
    
    244,748
    
    
    
    13,464
    
    
    
    
    
    
    
    258,212Goodwill
    
    
    
    
    
    
    253,540
    
    
    
    19,787
    
    
    
    
    
    
    
    273,327Cemetery property, at cost
    
    
    
    
    
    
    346,718
    
    
    
    24,512
    
    
    
    
    
    
    
    371,230Property and equipment, at cost
    
    
    37,126
    
    
    
    411,808
    
    
    
    36,690
    
    
    
    
    
    
    
    485,624Less accumulated depreciation
    
    
    21,278
    
    
    
    156,506
    
    
    
    12,277
    
    
    
    
    
    
    
    190,061Net property and equipment
    
    
    15,848
    
    
    
    255,302
    
    
    
    24,413
    
    
    
    
    
    
    
    295,563Deferred income taxes, net
    
    
    6,124
    
    
    
    154,204
    
    
    
    13,658
    
    
    
    
    
    
    
    173,986Cemetery perpetual care trust investments
    
    
    
    
    
    
    230,487
    
    
    
    
    
    
    
    
    
    
    
    230,487Other assets
    
    
    5,312
    
    
    
    7,228
    
    
    
    1,100
    
    
    
    
    
    
    
    13,640Equity in subsidiaries
    
    
    8,551
    
    
    
    5,944
    
    
    
    
    
    
    
    (14,495
    )
    
    
    Total assets
    
    $
    98,659
    
    
    $
    2,158,587
    
    
    $
    137,826
    
    
    $
    (14,495
    )
    
    $
    2,380,577LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    2,839
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,839Accounts payable
    
    
    1,540
    
    
    
    16,579
    
    
    
    1,256
    
    
    
    
    
    
    
    19,375Accrued expenses and other current
liabilities
    
    
    15,197
    
    
    
    48,602
    
    
    
    3,023
    
    
    
    
    
    
    
    66,822Liabilities associated with assets
held for sale
    
    
    
    
    
    
    469
    
    
    
    
    
    
    
    
    
    
    
    469Total current liabilities
    
    
    19,576
    
    
    
    65,650
    
    
    
    4,279
    
    
    
    
    
    
    
    89,505Long-term debt, less current maturities
    
    
    344,020
    
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    374,020Intercompany payables, net
    
    
    (925,163
    )
    
    
    914,429
    
    
    
    10,734
    
    
    
    
    
    
    
    Deferred preneed funeral revenue
    
    
    
    
    
    
    227,288
    
    
    
    47,394
    
    
    
    
    
    
    
    274,682Deferred preneed cemetery revenue
    
    
    
    
    
    
    265,151
    
    
    
    30,924
    
    
    
    
    
    
    
    296,075Non-controlling interest in funeral and
cemetery trusts
    
    
    
    
    
    
    658,012
    
    
    
    
    
    
    
    
    
    
    
    658,012Other long-term liabilities
    
    
    10,386
    
    
    
    2,024
    
    
    
    
    
    
    
    
    
    
    
    12,410Negative equity in subsidiaries
    
    
    202,947
    
    
    
    
    
    
    
    
    
    
    
    (202,947
    )
    
    
    Total liabilities
    
    
    (348,234
    )
    
    
    2,132,554
    
    
    
    123,331
    
    
    
    (202,947
    )
    
    
    1,704,704Non-controlling interest in perpetual
care trusts
    
    
    
    
    
    
    228,980
    
    
    
    
    
    
    
    
    
    
    
    228,980Common stock
    
    
    104,963
    
    
    
    426
    
    
    
    52
    
    
    
    (478
    )
    
    
    104,963Other
    
    
    341,933
    
    
    
    (203,373
    )
    
    
    14,446
    
    
    
    188,927
    
    
    
    341,933Accumulated other comprehensive loss
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )
    
    
    3
    
    
    
    (3
    )Total shareholders equity
    
    
    446,893
    
    
    
    (202,947
    )
    
    
    14,495
    
    
    
    188,452
    
    
    
    446,893Total liabilities and shareholders equity
    
    $
    98,659
    
    
    $
    2,158,587
    
    
    $
    137,826
    
    
    $
    (14,495
    )
    
    $
    2,380,577
 25




---



##### Table of Contents



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
 (Continued)
 Condensed Consolidating Statements of Cash Flows
 Three Months Ended January 31, 2007Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating
activities
    
    $
    4,457
    
    
    $
    9,898
    
    
    $
    3,534
    
    
    $
    
    
    
    $
    17,889Cash flows from investing activities:Proceeds from sale of assets, net
    
    
    
    
    
    
    388
    
    
    
    
    
    
    
    
    
    
    
    388Purchases of subsidiaries, net of
cash acquired
    
    
    
    
    
    
    (2,805
    )
    
    
    
    
    
    
    
    
    
    
    (2,805
    )Insurance proceeds related to
hurricane damaged properties
    
    
    
    
    
    
    1,400
    
    
    
    
    
    
    
    
    
    
    
    1,400Additions to property and equipment
    
    
    (2,767
    )
    
    
    (4,651
    )
    
    
    (359
    )
    
    
    
    
    
    
    (7,777
    )Other
    
    
    (63
    )
    
    
    27
    
    
    
    (1
    )
    
    
    
    
    
    
    (37
    )Net cash used in investing activities
    
    
    (2,830
    )
    
    
    (5,641
    )
    
    
    (360
    )
    
    
    
    
    
    
    (8,831
    )Cash flows from financing activities:Repayments of long-term debt
    
    
    (865
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (865
    )Intercompany receivables (payables)
    
    
    8,827
    
    
    
    (5,786
    )
    
    
    (3,041
    )
    
    
    
    
    
    
    Issuance of common stock
    
    
    643
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    643Dividends
    
    
    (2,627
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,627
    )Excess tax benefits from share-based
payment arrangements
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37Net cash provided by (used in)
financing activities
    
    
    6,015
    
    
    
    (5,786
    )
    
    
    (3,041
    )
    
    
    
    
    
    
    (2,812
    )Net increase (decrease) in cash
    
    
    7,642
    
    
    
    (1,529
    )
    
    
    133
    
    
    
    
    
    
    
    6,246Cash and cash equivalents, beginning of
period
    
    
    39,120
    
    
    
    3,291
    
    
    
    1,459
    
    
    
    
    
    
    
    43,870Cash and cash equivalents, end of period
    
    $
    46,762
    
    
    $
    1,762
    
    
    $
    1,592
    
    
    $
    
    
    
    $
    50,116
 26




---



##### Table of Contents



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
 (Continued)
 Condensed Consolidating Statements of Cash Flows
 Three Months Ended January 31, 2006Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating
activities
    
    $
    6,713
    
    
    $
    15,780
    
    
    $
    4,731
    
    
    $
    
    
    
    $
    27,224Cash flows from investing activities:Proceeds from sale of assets, net
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    9Insurance proceeds related to
hurricane damaged properties
    
    
    
    
    
    
    4,540
    
    
    
    
    
    
    
    
    
    
    
    4,540Additions to property and
equipment
    
    
    (551
    )
    
    
    (3,571
    )
    
    
    (152
    )
    
    
    
    
    
    
    (4,274
    )Other
    
    
    
    
    
    
    23
    
    
    
    (8
    )
    
    
    
    
    
    
    15Net cash provided by (used in)
investing activities
    
    
    (551
    )
    
    
    1,001
    
    
    
    (160
    )
    
    
    
    
    
    
    290Cash flows from financing activities:Repayments of long-term debt
    
    
    (891
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (891
    )Intercompany receivables
(payables)
    
    
    18,745
    
    
    
    (14,391
    )
    
    
    (4,354
    )
    
    
    
    
    
    
    Dividends
    
    
    (2,717
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,717
    )Other
    
    
    61
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61Net cash provided by (used in)
financing activities
    
    
    15,198
    
    
    
    (14,391
    )
    
    
    (4,354
    )
    
    
    
    
    
    
    (3,547
    )Net increase in cash
    
    
    21,360
    
    
    
    2,390
    
    
    
    217
    
    
    
    
    
    
    
    23,967Cash and cash equivalents, beginning
of period
    
    
    38,675
    
    
    
    874
    
    
    
    1,056
    
    
    
    
    
    
    
    40,605Cash and cash equivalents, end of
period
    
    $
    60,035
    
    
    $
    3,264
    
    
    $
    1,273
    
    
    $
    
    
    
    $
    64,572
 (12) Discontinued Operations and Acquisitions
   27




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##### Table of Contents



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)
 October 31, 2006AssetsReceivables, net of allowances
    
    $
    2Inventories and other current assets
    
    
    17Net property and equipment
    
    
    345Preneed funeral receivables and trust investments
    
    
    452Deferred charges and other assets
    
    
    65Assets held for sale
    
    $
    881LiabilitiesDeferred preneed funeral revenue
    
    $
    32Non-controlling interest in funeral and cemetery trusts
    
    
    437Liabilities associated with assets held for sale
    
    $
    469
 Three Months
    
    
    Three MonthsEnded
    
    
    EndedJanuary 31, 2007
    
    
    January 31, 2006Revenue:Funeral
    
    $
    21
    
    
    $
    161Cemetery
    
    
    
    
    
    
    11$
    21
    
    
    $
    172Gross profit:Funeral
    
    $
    (16
    )
    
    $
    (26
    )Cemetery
    
    
    
    
    
    
    (18
    )(16
    )
    
    
    (44
    )Gains on dispositions and impairment (losses), net
    
    
    (81
    )
    
    
    298Earnings (loss) from discontinued operations
before income taxes
    
    $
    (97
    )
    
    $
    254
 Acquisitions
  (13) Separation Charges
  28




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (14) Consolidated Comprehensive Income
  Three Months Ended January 31,2007
    
    
    2006Net earnings
    
    $
    11,926
    
    
    $
    8,389Other comprehensive income (loss):Unrealized appreciation (depreciation)
of investments, net of deferred tax
(expense) benefit of ($81) and $1,
respectively
    
    
    133
    
    
    
    (2
    )Reduction in net unrealized losses
associated with available-for-sale
securities of the trusts
    
    
    56,905
    
    
    
    29,098Reclassification of the net unrealized
losses activity attributable to the
non-controlling interest holders
    
    
    (56,905
    )
    
    
    (29,098
    )Total other comprehensive income (loss)
    
    
    133
    
    
    
    (2
    )Total comprehensive income
    
    $
    12,059
    
    
    $
    8,387
 (15) Hurricane Related Charges
   (16) Subsequent Events
   29




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
        Critical Accounting Policies
  30




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##### Table of Contents



Results of Operations
  Three Months Ended January 31, 2007 Compared to Three Months Ended January 31, 2006Continuing
Operations
 Funeral Operations
 Three Months Ended January 31,Increase2007
    
    
    2006
    
    
    (Decrease)(In millions)Funeral Revenue:Eastern Division
    
    $
    30.5
    
    
    $
    30.1
    
    
    $
    .4Western Division
    
    
    37.8
    
    
    
    36.9
    
    
    
    .9Corporate Trust Management (1)
    
    
    4.4
    
    
    
    4.6
    
    
    
    (.2
    )Total Funeral Revenue
    
    $
    72.7
    
    
    $
    71.6
    
    
    $
    1.1Funeral Costs:Eastern Division
    
    $
    24.7
    
    
    $
    24.5
    
    
    $
    .2Western Division
    
    
    29.1
    
    
    
    29.2
    
    
    
    (.1
    )Corporate Trust Management (1)
    
    
    .2
    
    
    
    .1
    
    
    
    .1Total Funeral Costs
    
    $
    54.0
    
    
    $
    53.8
    
    
    $
    .2Funeral Gross Profit:Eastern Division
    
    $
    5.8
    
    
    $
    5.6
    
    
    $
    .2Western Division
    
    
    8.7
    
    
    
    7.7
    
    
    
    1.0Corporate Trust Management (1)
    
    
    4.2
    
    
    
    4.5
    
    
    
    (.3
    )Total Funeral Gross Profit
    
    $
    18.7
    
    
    $
    17.8
    
    
    $
    .9
 Same-Store Analysis
 Change inAverage
    
    Change in Same-Store
    
    Cremation RateRevenue Per Call
    
    Funeral Services
    
    2007
    
    2006Eastern Division
    
    
    7.2
    %
    
    
    (5.5
    %)
    
    
    34.1
    %
    
    
    32.6
    %Western Division
    
    
    5.5
    %
    
    
    (5.6
    %)
    
    
    42.3
    %
    
    
    43.0
    %Total
    
    
    5.5
    % (1)
    
    
    (5.5
    %)
    
    
    38.8
    %
    
    
    38.6
    %
 
 (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 us at rates consistent with industry norms
and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust earnings
represent the earnings realized over the life of the contract for those 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 January 31, 2007 and 2006 were $1.5 million and $1.3 million,
respectively. As corporate trust management is considered a separate operating 31




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##### Table of Contents



segment, trust earnings are included in the total average revenue per call presented, not in the Eastern or
Western divisions average revenue per call. Funeral trust earnings for the three months
ended January 31, 2007 and 2006 were $2.9 million and $3.3 million, respectively. Consolidated Operations  Funeral
   Segment Discussion  Funeral
   32




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##### Table of Contents



Cemetery Operations
 Three Months Ended January 31,Increase2007
    
    
    2006
    
    
    (Decrease)(In millions)Cemetery Revenue:Eastern Division
    
    $
    35.8
    
    
    $
    32.5
    
    
    $
    3.3Western Division
    
    
    21.9
    
    
    
    19.4
    
    
    
    2.5Corporate Trust Management (1)
    
    
    2.3
    
    
    
    2.6
    
    
    
    (.3
    )Total Cemetery Revenue
    
    $
    60.0
    
    
    $
    54.5
    
    
    $
    5.5Cemetery Costs:Eastern Division
    
    $
    29.7
    
    
    $
    27.5
    
    
    $
    2.2Western Division
    
    
    17.9
    
    
    
    15.6
    
    
    
    2.3Corporate Trust Management (1)
    
    
    .1
    
    
    
    .1
    
    
    
    Total Cemetery Costs
    
    $
    47.7
    
    
    $
    43.2
    
    
    $
    4.5Cemetery Gross Profit:Eastern Division
    
    $
    6.1
    
    
    $
    5.0
    
    
    $
    1.1Western Division
    
    
    4.0
    
    
    
    3.8
    
    
    
    .2Corporate Trust Management (1)
    
    
    2.2
    
    
    
    2.5
    
    
    
    (.3
    )Total Cemetery Gross Profit
    
    $
    12.3
    
    
    $
    11.3
    
    
    $
    1.0
 
 (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 us at rates consistent with
industry norms and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust
earnings represent the earnings realized over the life of the contract for those 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 three months ended January 31, 2007 and 2006 were $1.3 million and $1.2
million, respectively, and cemetery trust earnings for the three months ended January 31, 2007
and 2006 were $1.0 million and $1.4 million, respectively. Perpetual care trust earnings are
included in the revenues and gross profit of the related geographic segment. Consolidated Operations  Cemetery
    33




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##### Table of Contents



Segment Discussion  Cemetery
   Discontinued Operations
  Other
       34




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##### Table of Contents



Preneed Sales into and Deliveries out of the Backlog
   35




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##### Table of Contents



Liquidity and Capital Resources
 Cash Flow
    Contractual Obligations and Commercial Commitments
  Payments Due by PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsLong-term debt obligations (1)
    
    $
    376.0
    
    
    $
    2.6
    
    
    $
    4.5
    
    
    $
    168.8
    
    
    $
    200.1Interest on long-term debt (2)
    
    
    140.7
    
    
    
    25.3
    
    
    
    50.0
    
    
    
    46.6
    
    
    
    18.8Operating lease obligations (3)
    
    
    30.8
    
    
    
    3.3
    
    
    
    6.9
    
    
    
    3.5
    
    
    
    17.1Non-competition and other agreements (4)
    
    
    4.2
    
    
    
    1.5
    
    
    
    2.2
    
    
    
    .4
    
    
    
    .1$
    551.7
    
    
    $
    32.7
    
    
    $
    63.6
    
    
    $
    219.3
    
    
    $
    236.1
 
 (1)
    
    See below for a breakdown of our future scheduled principal payments and maturities
of our long-term debt by type as of January 31, 2007.(2)
    
    Includes contractual interest payments for our revolving credit facility, Term Loan
B, senior notes and third-party debt. The interest on the revolving credit facility and Term
Loan B was calculated based on interest rates in effect as of January 31, 2007.(3)
    
    Our noncancellable operating leases are primarily for land and buildings and expire
over the next one to 12 years, except for six leases that expire between 2032 and 2039. Our
future minimum lease payments as of January 31, 2007 are $3.3 million, $3.6 million, $3.3
million, $2.5 million, $1.0 million, and $17.1 million for the years ending October 31, 2007,
2008, 2009, 2010, 2011 and later years, respectively. 36




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##### Table of Contents



(4)
    
    We have entered into non-competition agreements with prior owners and key employees
of acquired subsidiaries that expire through 2012. This category also includes separation pay
related to former executive officers.  Other,PrincipallyRevolving
    
    
    
    
    
    
    
    
    
    
    Seller FinancingFiscal Year Ending
    
    Credit
    
    
    Term
    
    
    Senior
    
    
    of AcquiredOctober 31,
    
    Facility
    
    
    Loan B
    
    
    Notes
    
    
    Operations
    
    
    Total2007
    
    $
    
    
    
    $
    1.7
    
    
    $
    
    
    
    $
    .3
    
    
    $
    2.02008
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    .2
    
    
    
    2.42009
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    
    
    
    
    2.22010
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    
    
    
    
    2.22011
    
    
    
    
    
    
    115.5
    
    
    
    
    
    
    
    
    
    
    
    115.5Thereafter
    
    
    
    
    
    
    51.6
    
    
    
    200.0
    
    
    
    .1
    
    
    
    251.7Total long-term debt
    
    $
    
    
    
    $
    175.4
    
    
    $
    200.0
    
    
    $
    .6
    
    
    $
    376.0
   Off-Balance Sheet Arrangements
  (1)
    
    the $41.1 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 2006 Form 10-K; and(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
consolidated balance sheets, and are discussed in Note 2(i) to the consolidated
financial statements in our 2006 Form 10-K.
 Ratio of Earnings to Fixed Charges
  Three Months Ended
    
    Years Ended October 31,January 31, 2007
    
    2006
    
    2005
    
    2004
    
    2003
    
    20023.17(1)
    
    
    2.83
    (2)
    
    
    1.36
    (3)(7)
    
    
    1.98
    (4)
    
    
    1.09
    (5)
    
    
    1.27
    (6)(7)
 
 (1)
    
    Pretax earnings for the first quarter of fiscal year 2007 include a charge of $1.9
million related to Hurricane Katrina, a charge of $0.5 million for separation charges
primarily related to separation pay of a former executive 37




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##### Table of Contents



officer who retired in the first
quarter of 2007 and gains on dispositions, net of impairment losses of $0.1 million.(2)
    
    Pretax earnings for fiscal year 2006 include a net recovery of $1.6 million related
to Hurricane Katrina, business interruption insurance proceeds of $3.2 million related to
Hurricane Katrina, a charge of $1.0 million for separation charges related to the July 2005
restructuring of our divisions and the retirement of an executive officer and gains on
dispositions, net of impairment losses of ($0.3) million.(3)
    
    Pretax earnings for fiscal year 2005 include a charge of $9.4 million for expenses
related to Hurricane Katrina, a charge of $1.5 million for separation charges related to the
July 2005 restructuring of our divisions, $1.2 million of gains on dispositions, net of
impairment losses and $32.8 million for the loss on early extinguishment of debt related to
the 2005 debt refinancings.(4)
    
    Pretax earnings for fiscal year 2004 include separation charges of $3.4 million
for severance and other costs related to workforce reductions announced in December 2003 and
separation pay to a former executive officer and ($0.2) million in gains on dispositions, net
of impairment losses.(5)
    
    Pretax earnings for fiscal year 2003 include a charge of $11.3 million for the loss
on early extinguishment of debt in connection with redemption of the ROARS, a noncash charge
of $9.6 million for long-lived asset impairment and a charge of $2.5 million for separation
payments to former executive officers.(6)
    
    Pretax earnings for fiscal year 2002 include a noncash charge of $18.5 million
in connection with the write-down of assets held for sale.(7)
    
    Excludes the cumulative effect of change in accounting principles.  Recent Accounting Standards
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   Interest
  38




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##### Table of Contents



Item 4. Controls and Procedures
 Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
   39




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##### Table of Contents



Item 1A. Risk Factors
  
 Item 6. Exhibits
 3.1
    
    Amended and Restated Articles of Incorporation of the Company, as amended and restated as of
April 20, 2006 (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on
Form 10-Q for the quarter ended April 30, 2006)3.2
    
    By-laws of the Company, as amended and restated as of April 20, 2006 (incorporated by
reference to Exhibit 3.2 of the Companys Quarterly Report on Form 10-Q for the quarter ended
April 30, 2006)4.1
    
    See Exhibits 3.1 and 3.2 for provisions of the Companys Amended and Restated Articles of
Incorporation, as amended, and By-laws, as amended, defining the rights of holders of Class A
and Class B common stock4.2
    
    Specimen of Class A common stock certificate (incorporated by reference to Exhibit 4.2 to
Amendment No. 3 to the Companys Registration Statement on Form S-1 (Registration No.
33-42336) filed with the Commission on October 7, 1991)4.3
    
    Rights Agreement, dated as of October 28, 1999, between Stewart Enterprises, Inc. and
ChaseMellon Shareholder Services, L.L.C. as Rights Agent (incorporated by reference to Exhibit
1 to the Companys Form 8-A dated November 3, 1999)4.4
    
    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 dated November 22, 2004)4.5
    
    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 dated February 11, 2005)4.6
    
    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 dated February 11, 2005)10.1
    
    Employment Agreement dated February 20, 2007 between the Company and Thomas J. Crawford
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated
February 15, 2007)31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen, Acting
Chief Executive Officer and Chief Financial Officer32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of Thomas M. Kitchen, Acting
Chief Executive Officer and Chief Financial Officer
 40




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 SIGNATURES
  STEWART ENTERPRISES, INC.March 12, 2007
    
    /s/ THOMAS M. KITCHENThomas M. KitchenActing Chief Executive Officer andChief Financial OfficerMarch 12, 2007
    
    /s/ ANGELA M. LACOURAngela M. LacourVice PresidentCorporate ControllerChief Accounting Officer
 41




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##### Table of Contents



Exhibit Index
 31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen, Acting
Chief Executive Officer and Chief Financial Officer32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of Thomas M. Kitchen, Acting
Chief Executive Officer and Chief Financial Officer
 42