##### 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, 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.
  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
 
 þ o
  Large accelerated filer þ
    
    Accelerated filer oNon-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 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, 2008 and 2007
    
    
    3Condensed Consolidated Balance Sheets  January 31, 2008 and October 31, 2007
    
    
    4Condensed Consolidated Statement of Shareholders Equity  Three Months Ended January 31, 2008
    
    
    6Condensed Consolidated Statements of Cash Flows  Three Months Ended January 31, 2008 and 2007
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    31Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 4. Controls and Procedures
    
    
    40Part II.
    
    Other InformationItem 1. Legal Proceedings
    
    
    40Item 1A. Risk Factors
    
    
    41Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 6. Exhibits
    
    
    41Signatures
    
    
    43Calculation of Ratio of Earnings to Fixed ChargesCertification Pursuant to Section 302 of Thomas J. Crawford, President and Chief Executive OfficerCertification Pursuant to Section 302 of Thomas M. Kitchen, Senior Executive Vice President and Chief Financial OfficerCertification Pursuant to Section 906 of Thomas J. Crawford, President and Chief Executive Officer, and Thomas M. Kitchen, Senior Executive Vice President and Chief Financial Officer
  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 31,2008
    
    
    2007Revenues:Funeral
    
    $
    73,449
    
    
    $
    72,163Cemetery
    
    
    56,824
    
    
    
    59,683130,273
    
    
    
    131,846Costs and expenses:Funeral
    
    
    55,447
    
    
    
    53,445Cemetery
    
    
    47,756
    
    
    
    47,404103,203
    
    
    
    100,849Gross profit
    
    
    27,070
    
    
    
    30,997Corporate general and administrative expenses
    
    
    (8,235
    )
    
    
    (7,042
    )Hurricane related recoveries (charges), net
    
    
    159
    
    
    
    (1,850
    )Separation charges
    
    
    
    
    
    
    (485
    )Gains on dispositions and impairment (losses), net
    
    
    147
    
    
    
    98Other operating income, net
    
    
    242
    
    
    
    267Operating earnings
    
    
    19,383
    
    
    
    21,985Interest expense
    
    
    (5,888
    )
    
    
    (6,757
    )Investment and other income, net
    
    
    720
    
    
    
    1,050Earnings from continuing operations before income taxes
    
    
    14,215
    
    
    
    16,278Income taxes
    
    
    5,330
    
    
    
    4,305Earnings from continuing operations
    
    
    8,885
    
    
    
    11,973Discontinued operations:Loss from discontinued operations before income taxes
    
    
    
    
    
    
    (40
    )Income taxes
    
    
    
    
    
    
    7Loss from discontinued operations
    
    
    
    
    
    
    (47
    )Net earnings
    
    $
    8,885
    
    
    $
    11,926Basic earnings per common share:Earnings from continuing operations
    
    $
    .09
    
    
    $
    .11Earnings from discontinued operations
    
    
    
    
    
    
    Net earnings
    
    $
    .09
    
    
    $
    .11Diluted earnings per common share:Earnings from continuing operations
    
    $
    .09
    
    
    $
    .11Earnings from discontinued operations
    
    
    
    
    
    
    Net earnings
    
    $
    .09
    
    
    $
    .11Weighted average common shares outstanding (in thousands):Basic
    
    
    96,784
    
    
    
    104,900Diluted
    
    
    97,019
    
    
    
    104,998Dividends 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
    
    2008
    
    
    2007Current assets:Cash and cash equivalents
    
    $
    30,375
    
    
    $
    71,545Marketable securities
    
    
    15,203
    
    
    
    262Receivables, net of allowances
    
    
    62,493
    
    
    
    60,615Inventories
    
    
    35,873
    
    
    
    36,061Prepaid expenses
    
    
    11,315
    
    
    
    6,355Deferred income taxes, net
    
    
    7,528
    
    
    
    8,621Total current assets
    
    
    162,787
    
    
    
    183,459Receivables due beyond one year, net of allowances
    
    
    81,684
    
    
    
    83,608Preneed funeral receivables and trust investments
    
    
    478,594
    
    
    
    515,053Preneed cemetery receivables and trust investments
    
    
    234,462
    
    
    
    255,679Goodwill
    
    
    273,188
    
    
    
    273,286Cemetery property, at cost
    
    
    377,554
    
    
    
    374,800Property and equipment, at cost:Land
    
    
    43,761
    
    
    
    43,767Buildings
    
    
    312,923
    
    
    
    310,968Equipment and other
    
    
    168,307
    
    
    
    164,246524,991
    
    
    
    518,981Less accumulated depreciation
    
    
    218,925
    
    
    
    213,063Net property and equipment
    
    
    306,066
    
    
    
    305,918Deferred income taxes, net
    
    
    195,419
    
    
    
    192,859Cemetery perpetual care trust investments
    
    
    225,524
    
    
    
    236,503Other assets
    
    
    17,181
    
    
    
    17,809Total assets
    
    $
    2,352,459
    
    
    $
    2,438,974
  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
    
    2008
    
    
    2007Current liabilities:Current maturities of long-term debt
    
    $
    130
    
    
    $
    198Accounts payable
    
    
    25,477
    
    
    
    26,606Accrued payroll and other benefits
    
    
    12,988
    
    
    
    16,316Accrued insurance
    
    
    20,564
    
    
    
    21,252Accrued interest
    
    
    6,468
    
    
    
    5,576Other current liabilities
    
    
    14,562
    
    
    
    17,958Income taxes payable
    
    
    4,083
    
    
    
    4,177Total current liabilities
    
    
    84,272
    
    
    
    92,083Long-term debt, less current maturities
    
    
    450,106
    
    
    
    450,115Deferred preneed funeral revenue
    
    
    253,920
    
    
    
    256,603Deferred preneed cemetery revenue
    
    
    284,859
    
    
    
    284,507Non-controlling interest in funeral and cemetery trusts
    
    
    627,083
    
    
    
    683,052Other long-term liabilities
    
    
    18,741
    
    
    
    13,869Total liabilities
    
    
    1,718,981
    
    
    
    1,780,229Commitments and contingenciesNon-controlling interest in perpetual care trusts
    
    
    224,331
    
    
    
    235,427Shareholders 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 92,505,295 and 94,865,387
shares at January 31, 2008 and October 31,
2007, respectively
    
    
    92,505
    
    
    
    94,865Class B authorized 5,000,000 shares; issued
and outstanding 3,555,020 shares at January
31, 2008 and October 31, 2007; 10 votes per
share convertible into an equal number of
Class A shares
    
    
    3,555
    
    
    
    3,555Additional paid-in capital
    
    
    563,978
    
    
    
    583,789Accumulated deficit
    
    
    (250,972
    )
    
    
    (258,902
    )Accumulated other comprehensive income:Unrealized appreciation of investments
    
    
    81
    
    
    
    11Total accumulated other comprehensive income
    
    
    81
    
    
    
    11Total shareholders equity
    
    
    409,147
    
    
    
    423,318Total liabilities and shareholders equity
    
    $
    2,352,459
    
    
    $
    2,438,974
  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)
 Additional
    
    
    
    
    
    
    Unrealized
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Accumulated
    
    
    Appreciation of
    
    
    ShareholdersStock(1)
    
    
    Capital
    
    
    Deficit
    
    
    Investments
    
    
    EquityBalance October 31, 2007
    
    $
    98,420
    
    
    $
    583,789
    
    
    $
    (258,902
    )
    
    $
    11
    
    
    $
    423,318Comprehensive income:Net earnings
    
    
    
    
    
    
    
    
    
    
    8,885
    
    
    
    
    
    
    
    8,885Other comprehensive income:Unrealized appreciation
of investments, net of
deferred tax expense of
($43)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70
    
    
    
    70Total other comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70
    
    
    
    70Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    8,885
    
    
    
    70
    
    
    
    8,955Cumulative effect of
adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    (955
    )
    
    
    
    
    
    
    (955
    )Restricted stock activity
    
    
    36
    
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    113Issuance of common stock
    
    
    132
    
    
    
    877
    
    
    
    
    
    
    
    
    
    
    
    1,009Stock options exercised
    
    
    226
    
    
    
    1,066
    
    
    
    
    
    
    
    
    
    
    
    1,292Share-based compensation
    
    
    
    
    
    
    477
    
    
    
    
    
    
    
    
    
    
    
    477Tax benefit associated
with stock options
exercised
    
    
    
    
    
    
    148
    
    
    
    
    
    
    
    
    
    
    
    148Purchase and retirement of
common stock
    
    
    (2,754
    )
    
    
    (20,053
    )
    
    
    
    
    
    
    
    
    
    
    (22,807
    )Dividends ($.025 per share)
    
    
    
    
    
    
    (2,403
    )
    
    
    
    
    
    
    
    
    
    
    (2,403
    )Balance January 31, 2008
    
    $
    96,060
    
    
    $
    563,978
    
    
    $
    (250,972
    )
    
    $
    81
    
    
    $
    409,147
 
 (1)
    
    Amount includes 92,505 and 94,865 shares (in thousands) of Class A common stock
with a stated value of $1 per share as of January 31, 2008 and October 31, 2007,
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 31,2008
    
    
    2007Cash flows from operating activities:Net earnings
    
    $
    8,885
    
    
    $
    11,926Adjustments to reconcile net earnings to net cash provided by operating activities:Gains on dispositions and impairment losses, net
    
    
    (147
    )
    
    
    (17
    )Depreciation and amortization
    
    
    6,962
    
    
    
    6,494Provision for doubtful accounts
    
    
    2,093
    
    
    
    2,238Share-based compensation
    
    
    477
    
    
    
    318Excess tax benefits from share-based payment arrangements
    
    
    (165
    )
    
    
    (37
    )Provision (benefit) for deferred income taxes
    
    
    1,866
    
    
    
    (2,102
    )Other
    
    
    825
    
    
    
    66Changes in assets and liabilities:(Increase) decrease in receivables
    
    
    (2,030
    )
    
    
    9,159Increase in prepaid expenses
    
    
    (4,963
    )
    
    
    (6,439
    )(Increase) decrease in inventories and cemetery property
    
    
    (2,576
    )
    
    
    837Decrease in accounts payable and accrued expenses
    
    
    (6,208
    )
    
    
    (3,426
    )Net effect of preneed funeral production and maturities:Decrease in preneed funeral receivables and trust investments
    
    
    2,758
    
    
    
    77Decrease in deferred preneed funeral revenue
    
    
    (2,329
    )
    
    
    (2,891
    )Decrease in funeral non-controlling interest
    
    
    (1,856
    )
    
    
    (82
    )Net effect of preneed cemetery production and deliveries:(Increase) decrease in preneed cemetery receivables and trust investments
    
    
    2,461
    
    
    
    (1,000
    )Increase (decrease) in deferred preneed cemetery revenue
    
    
    351
    
    
    
    (1,325
    )Increase (decrease) in cemetery non-controlling interest
    
    
    (1,919
    )
    
    
    3,312Increase (decrease) in other
    
    
    (387
    )
    
    
    781Net cash provided by operating activities
    
    
    4,098
    
    
    
    17,889Cash flows from investing activities:Proceeds from sales of marketable securities
    
    
    4,984
    
    
    
    Purchases of marketable securities
    
    
    (19,802
    )
    
    
    (66
    )Proceeds from sale of assets, net
    
    
    338
    
    
    
    388Purchase of subsidiaries, net of cash acquired
    
    
    
    
    
    
    (2,805
    )Insurance proceeds related to hurricane damaged properties
    
    
    
    
    
    
    1,400Additions to property and equipment
    
    
    (7,056
    )
    
    
    (7,777
    )Other
    
    
    10
    
    
    
    29Net cash used in investing activities
    
    
    (21,526
    )
    
    
    (8,831
    )Cash flows from financing activities:Repayments of long-term debt
    
    
    (77
    )
    
    
    (865
    )Issuance of common stock
    
    
    1,380
    
    
    
    643Purchase and retirement of common stock
    
    
    (22,807
    )
    
    
    Dividends
    
    
    (2,403
    )
    
    
    (2,627
    )Excess tax benefits from share-based payment arrangements
    
    
    165
    
    
    
    37Net cash used in financing activities
    
    
    (23,742
    )
    
    
    (2,812
    )Net increase (decrease) in cash
    
    
    (41,170
    )
    
    
    6,246Cash and cash equivalents, beginning of period
    
    
    71,545
    
    
    
    43,870Cash and cash equivalents, end of period
    
    $
    30,375
    
    
    $
    50,116Supplemental cash flow information:Cash paid (received) during the period for:Income taxes, net
    
    $
    3,262
    
    
    $
    (1,370
    )Interest
    
    $
    4,982
    
    
    $
    3,600Non-cash investing and financing activities:Issuance of common stock to executive officers and directors
    
    $
    921
    
    
    $
    363Issuance of restricted stock, net of forfeitures
    
    $
    304
    
    
    $
    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



STEWARD ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (1)
    
    Basis of Presentation(Continued)
   WeightedNumber
    
    
    Averageof Shares
    
    
    Exercise PriceGrant Type
    
    Granted
    
    
    per Share
    
    
    Vesting Period
    
    Vesting ConditionStock Options
    
    
    374,500
    
    
    $
    8.24
    
    
    Equal one-fourth percent portions over 4 years
    
    Service conditionStock Options
    
    
    135,000
    
    
    $
    8.47
    
    
    Equal one-third portions over 3 years
    
    Market conditionRestricted Stock
    
    
    45,000
    
    
    $
    8.47
    
    
    Equal one-third portions over 3 years
    
    Performance condition
 Reclassifications
  (2)
    
    New Accounting Principles
 Financial Accounting Standard Board (FASB) Interpretation No. 48, Accounting for Uncertainty in
Income Taxes  an Interpretation of FASB Statement No. 109 (FIN 48)
   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(Continued)
  Other, not yet adopted
      (3)
    
    Preneed Funeral Activities
 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)
   Preneed Funeral Receivables and Trust Investments
  January 31, 2008
    
    
    October 31, 2007Trust assets
    
    $
    442,343
    
    
    $
    477,335Receivables from customers
    
    
    47,251
    
    
    
    48,488489,594
    
    
    
    525,823Allowance for cancellations
    
    
    (11,000
    )
    
    
    (10,770
    )Preneed funeral receivables and trust investments
    
    $
    478,594
    
    
    $
    515,053
  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)
 (3)
    
    Preneed Funeral Activities(Continued)
 January 31, 2008Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    38,839
    
    
    $
    
    
    
    $
    
    
    
    $
    38,839U.S. Government, agencies and
municipalities
    
    
    19,231
    
    
    
    584
    
    
    
    (1
    )
    
    
    19,814Corporate bonds
    
    
    59,136
    
    
    
    1,290
    
    
    
    (1,519
    )
    
    
    58,907Preferred stocks
    
    
    65,014
    
    
    
    190
    
    
    
    (3,723
    )
    
    
    61,481Common stocks
    
    
    213,335
    
    
    
    18,079
    
    
    
    (22,443
    )
    
    
    208,971Mutual funds
    
    
    34,488
    
    
    
    565
    
    
    
    (2,227
    )
    
    
    32,826Insurance contracts and other long-term investments
    
    
    20,162
    
    
    
    87
    
    
    
    
    
    
    
    20,249Trust investments
    
    $
    450,205
    
    
    $
    20,795
    
    
    $
    (29,913
    )
    
    
    441,087Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98.0
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,256Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    442,343
  January 31, 2008Due in one year or less
    
    $
    2,856Due in one to five years
    
    
    35,099Due in five to ten years
    
    
    40,476Thereafter
    
    
    290$
    78,721
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedJanuary 31, 2008
    
    
    January 31, 2007Purchases
    
    $
    6,386
    
    
    $
    33,589Sales
    
    
    9,620
    
    
    
    33,871Realized gains on sales
    
    
    1,126
    
    
    
    2,614Realized losses on sales
    
    
    (213
    )
    
    
    (391
    )Impairment losses on
other than temporarily
impaired trust assets
    
    
    (4,361
    )
    
    
    (371
    )Deposits
    
    
    8,393
    
    
    
    7,419Withdrawals
    
    
    11,928
    
    
    
    11,230
  (4)
    
    Preneed Cemetery Merchandise and Service Activities
 Preneed Cemetery Receivables and Trust Investments
 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)
 (4)
    
    Preneed Cemetery Merchandise and Service Activities(Continued)
  January 31, 2008
    
    
    October 31, 2007Trust assets
    
    $
    196,422
    
    
    $
    215,541Receivables from customers
    
    
    44,343
    
    
    
    46,906240,765
    
    
    
    262,447Allowance for cancellations
    
    
    (6,303
    )
    
    
    (6,768
    )Preneed cemetery receivables and trust investments
    
    $
    234,462
    
    
    $
    255,679
  January 31, 2008Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    16,058
    
    
    $
    
    
    
    $
    
    
    
    $
    16,058U.S. Government, agencies and
municipalities
    
    
    15,391
    
    
    
    776
    
    
    
    
    
    
    
    16,167Corporate bonds
    
    
    12,173
    
    
    
    369
    
    
    
    (203
    )
    
    
    12,339Preferred stocks
    
    
    25,270
    
    
    
    30
    
    
    
    (1,773
    )
    
    
    23,527Common stocks
    
    
    104,973
    
    
    
    7,809
    
    
    
    (11,673
    )
    
    
    101,109Mutual funds
    
    
    29,958
    
    
    
    164
    
    
    
    (3,569
    )
    
    
    26,553Insurance contracts and other long-term investments
    
    
    184
    
    
    
    
    
    
    
    
    
    
    
    184Trust investments
    
    $
    204,007
    
    
    $
    9,148
    
    
    $
    (17,218
    )
    
    
    195,937Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96.0
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    485Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    196,422
  January 31, 2008Due in one year or less
    
    $
    2,274Due in one to five years
    
    
    16,205Due in five to ten years
    
    
    9,794Thereafter
    
    
    233$
    28,506
 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)
 (4)
    
    Preneed Cemetery Merchandise and Service Activities(Continued)
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedJanuary 31, 2008
    
    
    January 31, 2007Purchases
    
    $
    2,911
    
    
    $
    57,022Sales
    
    
    2,540
    
    
    
    50,853Realized gains on sales
    
    
    367
    
    
    
    3,157Realized losses on sales
    
    
    (29
    )
    
    
    (111
    )Impairment losses on
other than temporarily
impaired trust assets
    
    
    (2,303
    )
    
    
    (545
    )Deposits
    
    
    4,204
    
    
    
    4,447Withdrawals
    
    
    4,511
    
    
    
    4,137
  (5)
    
    Cemetery Interment Rights and Perpetual Care Trusts
   January 31, 2008Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    11,534
    
    
    $
    
    
    
    $
    
    
    
    $
    11,534U.S. Government, agencies and
municipalities
    
    
    11,779
    
    
    
    482
    
    
    
    (45
    )
    
    
    12,216Corporate bonds
    
    
    46,905
    
    
    
    1,893
    
    
    
    (417
    )
    
    
    48,381Preferred stocks
    
    
    61,207
    
    
    
    573
    
    
    
    (2,838
    )
    
    
    58,942Common stocks
    
    
    80,429
    
    
    
    11,464
    
    
    
    (9,296
    )
    
    
    82,597Mutual funds
    
    
    10,091
    
    
    
    431
    
    
    
    (387
    )
    
    
    10,135Insurance contracts and other
long-term investments
    
    
    808
    
    
    
    100
    
    
    
    (8
    )
    
    
    900Trust investments
    
    $
    222,753
    
    
    $
    14,943
    
    
    $
    (12,991
    )
    
    
    224,705Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100.9
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    819Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    225,524
  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)
 (5)
    
    Cemetery Interment Rights and Perpetual Care Trusts(Continued)
 January 31, 2008Due in one year or less
    
    $
    1,850Due in one to five years
    
    
    32,121Due in five to ten years
    
    
    25,988Thereafter
    
    
    638$
    60,597
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedJanuary 31, 2008
    
    
    January 31, 2007Purchases
    
    $
    13,617
    
    
    $
    19,867Sales
    
    
    12,123
    
    
    
    22,526Realized gains on sales
    
    
    1,252
    
    
    
    1,365Realized losses on sales
    
    
    
    
    
    
    (227
    )Impairment losses on
other than temporarily
impaired trust assets
    
    
    (2,152
    )
    
    
    (324
    )Deposits
    
    
    1,973
    
    
    
    1,863Withdrawals
    
    
    2,813
    
    
    
    3,148
   (6)
    
    Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care
Trusts
  Non-controlling InterestNon-controllingPreneed
    
    
    Preneed
    
    
    
    
    
    
    Interest in PerpetualFuneral
    
    
    Cemetery
    
    
    Total
    
    
    Care TrustsTrust assets at market value
    
    $
    442,343
    
    
    $
    196,422
    
    
    $
    638,765
    
    
    $
    225,524Less:Pending withdrawals
    
    
    (9,504
    )
    
    
    (5,623
    )
    
    
    (15,127
    )
    
    
    (1,899
    )Pending deposits
    
    
    2,259
    
    
    
    1,186
    
    
    
    3,445
    
    
    
    706Non-controlling interest
    
    $
    435,098
    
    
    $
    191,985
    
    
    $
    627,083
    
    
    $
    224,331
 Investment and other income, net
  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)
 (6)
    
    Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care
Trusts(Continued)
 Three Months
    
    
    Three MonthsEnded
    
    
    EndedJanuary 31, 2008
    
    
    January 31, 2007Non-controlling interest:Realized gains
    
    $
    2,745
    
    
    $
    7,136Realized losses
    
    
    (242
    )
    
    
    (729
    )Impairment losses on other than temporarily
impaired trust assets
    
    
    (8,816
    )
    
    
    (1,240
    )Interest income, dividend and other ordinary income
    
    
    8,095
    
    
    
    5,846Trust expenses and income taxes
    
    
    (2,706
    )
    
    
    (2,527
    )Net trust investment income
    
    
    (924
    )
    
    
    8,486Non-controlling interest in funeral and cemetery
trust investment income
    
    
    1,820
    
    
    
    (6,167
    )Non-controlling interest in perpetual care trust
investment income
    
    
    (896
    )
    
    
    (2,319
    )Total non-controlling interest
    
    
    
    
    
    
    Investment and other income, net (1)
    
    
    720
    
    
    
    1,050Total investment and other income, net
    
    $
    720
    
    
    $
    1,050
 
 (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, 2008 and 2007, the balance includes approximately $168 and $444,
respectively, of interest income related to the 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
   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)
    Funeral Consumers Alliance, Inc., et al. v. Service Corporation International,
Alderwoods Group, Inc., Stewart Enterprises, Inc., Hillenbrand Industries, Inc., and Batesville
Casket Co.
     Pioneer Valley Casket Co., Inc., et al. v. Service Corporation International, Alderwoods
Group, Inc., Stewart Enterprises, Inc., Hillenbrand Industries, Inc., and Batesville Casket Co.,
 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)
 (7) Commitments and Contingencies(Continued)
    In Re: State Attorney General Civil Investigative Demands
 Other Litigation
  Securities and Exchange Commission Investigation
  (8)
    
    Reconciliation of Basic and Diluted Per Share 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)
 (8)
    
    Reconciliation of Basic and Diluted Per Share Data(Continued)
 Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    DataThree
Months Ended January 31, 2008Earnings from continuing operations
    
    $
    8,885Basic earnings per common share:Earnings from continuing operations
available to common shareholders
    
    $
    8,885
    
    
    
    96,784
    
    
    $
    .09Effect of dilutive securities:Time-vest stock options assumed
exercised and restricted stock
    
    
    
    
    
    
    235Diluted earnings per common share:Earnings from continuing operations
available to common shareholders
plus time-vest stock options
assumed exercised and restricted
stock
    
    $
    8,885
    
    
    
    97,019
    
    
    $
    .09
 Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    DataThree
Months Ended January 31, 2007Earnings from continuing operations
    
    $
    11,973Basic earnings per common share:Earnings from continuing operations
available to common shareholders
    
    $
    11,973
    
    
    
    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
    
    $
    11,973
    
    
    
    104,998
    
    
    $
    .11
    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)
 (8)
    
    Reconciliation of Basic and Diluted Per Share Data(Continued)
  (9)
    
    Segment Data
  Funeral Revenue
    
    
    Cemetery Revenue(1)
    
    
    Total RevenueThree Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedJanuary 31, 2008
    
    
    January 31, 2007
    
    
    January 31, 2008
    
    
    January 31, 2007
    
    
    January 31, 2008
    
    
    January 31, 2007Eastern Division
    
    $
    30,482
    
    
    $
    30,324
    
    
    $
    32,169
    
    
    $
    35,748
    
    
    $
    62,651
    
    
    $
    66,072Western Division
    
    
    38,431
    
    
    
    37,498
    
    
    
    22,362
    
    
    
    21,644
    
    
    
    60,793
    
    
    
    59,142Corporate Trust
Management
(2)
    
    
    4,536
    
    
    
    4,341
    
    
    
    2,293
    
    
    
    2,291
    
    
    
    6,829
    
    
    
    6,632Total
    
    $
    73,449
    
    
    $
    72,163
    
    
    $
    56,824
    
    
    $
    59,683
    
    
    $
    130,273
    
    
    $
    131,846Funeral 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, 2008
    
    
    January 31, 2007
    
    
    January 31, 2008
    
    
    January 31, 2007
    
    
    January 31, 2008
    
    
    January 31, 2007Eastern Division
    
    $
    5,339
    
    
    $
    5,884
    
    
    $
    3,288
    
    
    $
    6,112
    
    
    $
    8,627
    
    
    $
    11,996Western Division
    
    
    8,364
    
    
    
    8,653
    
    
    
    3,761
    
    
    
    4,020
    
    
    
    12,125
    
    
    
    12,673Corporate Trust
Management
(2)
    
    
    4,299
    
    
    
    4,181
    
    
    
    2,019
    
    
    
    2,147
    
    
    
    6,318
    
    
    
    6,328Total
    
    $
    18,002
    
    
    $
    18,718
    
    
    $
    9,068
    
    
    $
    12,279
    
    
    $
    27,070
    
    
    $
    30,997Net 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, 2008
    
    
    January 31, 2007
    
    
    January 31, 2008
    
    
    January 31, 2007
    
    
    January 31, 2008
    
    
    January 31, 2007Eastern Division
    
    $
    9,353
    
    
    $
    10,044
    
    
    $
    8,229
    
    
    $
    9,606
    
    
    $
    17,582
    
    
    $
    19,650Western Division
    
    
    12,559
    
    
    
    11,970
    
    
    
    3,760
    
    
    
    3,964
    
    
    
    16,319
    
    
    
    15,934Total
    
    $
    21,912
    
    
    $
    22,014
    
    
    $
    11,989
    
    
    $
    13,570
    
    
    $
    33,901
    
    
    $
    35,584
 
 (1)
    
    Perpetual care trust earnings are included in the revenues and gross profit of
the related geographic segment and amounted to $2,592 and $2,345 for the three months ended
January 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 January 31, 2008 and 2007 were $1,378 and $1,468,
respectively, and
funeral trust earnings for the three months ended January 31, 2008 and 2007 were $3,158 and
$2,873, 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)
 (9)
    
    Segment Data(Continued)
 respectively. Trust management fees included in cemetery revenue for the three months
ended January 31, 2008 and 2007 were $1,299 and $1,315, respectively, and cemetery trust
earnings for the three months ended January 31, 2008 and 2007 were $994 and $976, 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.  Three Months
    
    
    Three MonthsEnded
    
    
    EndedJanuary 31, 2008
    
    
    January 31, 2007Gross profit for reportable segments
    
    $
    27,070
    
    
    $
    30,997Corporate general and administrative expenses
    
    
    (8,235
    )
    
    
    (7,042
    )Hurricane related recoveries (charges), net
    
    
    159
    
    
    
    (1,850
    )Separation charges
    
    
    
    
    
    
    (485
    )Gains on dispositions and impairment (losses), net
    
    
    147
    
    
    
    98Other operating income, net
    
    
    242
    
    
    
    267Interest expense
    
    
    (5,888
    )
    
    
    (6,757
    )Investment and other income, net
    
    
    720
    
    
    
    1,050Earnings from continuing operations before income taxes
    
    $
    14,215
    
    
    $
    16,278
 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)
 (10)
    
    Supplementary Information
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedJanuary 31, 2008
    
    
    January 31, 2007Service revenueFuneral
    
    $
    45,436
    
    
    $
    43,847Cemetery
    
    
    15,659
    
    
    
    15,48361,095
    
    
    
    59,330Merchandise revenueFuneral
    
    
    25,996
    
    
    
    26,229Cemetery
    
    
    37,204
    
    
    
    40,08563,200
    
    
    
    66,314Other revenueFuneral
    
    
    2,017
    
    
    
    2,087Cemetery
    
    
    3,961
    
    
    
    4,1155,978
    
    
    
    6,202Total revenue
    
    $
    130,273
    
    
    $
    131,846Service costsFuneral
    
    $
    15,321
    
    
    $
    14,383Cemetery
    
    
    10,114
    
    
    
    10,26325,435
    
    
    
    24,646Merchandise costsFuneral
    
    
    16,079
    
    
    
    15,278Cemetery
    
    
    23,913
    
    
    
    23,67239,992
    
    
    
    38,950General and administrative expensesFuneral
    
    
    24,047
    
    
    
    23,784Cemetery
    
    
    13,729
    
    
    
    13,46937,776
    
    
    
    37,253Total costs
    
    $
    103,203
    
    
    $
    100,849
  (11)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior
Convertible Notes
  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 and Senior
Convertible Notes(Continued)
  Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Three Months Ended January 31, 2008Guarantor
    
    
    Guarantor
    
    
    Non-Subsidiaries-
    
    
    Subsidiaries-
    
    
    GuarantorParent
    
    
    Tier 1
    
    
    Tier 2
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Funeral
    
    $
    
    
    
    $
    68,047
    
    
    $
    494
    
    
    $
    4,908
    
    
    $
    
    
    
    $
    73,449Cemetery
    
    
    
    
    
    
    51,072
    
    
    
    827
    
    
    
    4,925
    
    
    
    
    
    
    
    56,824
    
    
    
    119,119
    
    
    
    1,321
    
    
    
    9,833
    
    
    
    
    
    
    
    130,273Costs and expenses:Funeral
    
    
    
    
    
    
    51,773
    
    
    
    308
    
    
    
    3,366
    
    
    
    
    
    
    
    55,447Cemetery
    
    
    
    
    
    
    42,895
    
    
    
    786
    
    
    
    4,075
    
    
    
    
    
    
    
    47,756
    
    
    
    94,668
    
    
    
    1,094
    
    
    
    7,441
    
    
    
    
    
    
    
    103,203Gross profit
    
    
    
    
    
    
    24,451
    
    
    
    227
    
    
    
    2,392
    
    
    
    
    
    
    
    27,070Corporate general and
administrative expenses
    
    
    (8,235
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,235
    )Hurricane related recoveries, net
    
    
    
    
    
    
    
    
    
    
    159
    
    
    
    
    
    
    
    
    
    
    
    159Gains on dispositions and
impairment (losses), net
    
    
    
    
    
    
    147
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    147Other operating income, net
    
    
    21
    
    
    
    159
    
    
    
    
    
    
    
    62
    
    
    
    
    
    
    
    242Operating earnings (loss)
    
    
    (8,214
    )
    
    
    24,757
    
    
    
    386
    
    
    
    2,454
    
    
    
    
    
    
    
    19,383Interest expense
    
    
    (700
    )
    
    
    (4,519
    )
    
    
    (29
    )
    
    
    (640
    )
    
    
    
    
    
    
    (5,888
    )Investment and other income, net
    
    
    702
    
    
    
    13
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    720Equity in subsidiaries
    
    
    16,326
    
    
    
    198
    
    
    
    
    
    
    
    
    
    
    
    (16,524
    )
    
    
    Earnings from continuing
operations before income taxes
    
    
    8,114
    
    
    
    20,449
    
    
    
    357
    
    
    
    1,819
    
    
    
    (16,524
    )
    
    
    14,215Income tax expense (benefit)
    
    
    (771
    )
    
    
    5,550
    
    
    
    83
    
    
    
    468
    
    
    
    
    
    
    
    5,330Net earnings
    
    
    8,885
    
    
    
    14,899
    
    
    
    274
    
    
    
    1,351
    
    
    
    (16,524
    )
    
    
    8,885Other comprehensive income, net
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    (27
    )
    
    
    70Comprehensive income
    
    $
    8,955
    
    
    $
    14,899
    
    
    $
    274
    
    
    $
    1,378
    
    
    $
    (16,551
    )
    
    $
    8,955
 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 and Senior
Convertible Notes(Continued)
 Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Three Months Ended January 31, 2007Guarantor
    
    
    Guarantor
    
    
    Non-Subsidiaries-
    
    
    Subsidiaries-
    
    
    GuarantorParent
    
    
    Tier 1
    
    
    Tier 2
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Funeral
    
    $
    
    
    
    $
    66,788
    
    
    $
    367
    
    
    $
    5,008
    
    
    $
    
    
    
    $
    72,163Cemetery
    
    
    
    
    
    
    53,554
    
    
    
    716
    
    
    
    5,413
    
    
    
    
    
    
    
    59,683
    
    
    
    120,342
    
    
    
    1,083
    
    
    
    10,421
    
    
    
    
    
    
    
    131,846Costs and expenses:Funeral
    
    
    
    
    
    
    50,026
    
    
    
    237
    
    
    
    3,182
    
    
    
    
    
    
    
    53,445Cemetery
    
    
    
    
    
    
    42,571
    
    
    
    571
    
    
    
    4,262
    
    
    
    
    
    
    
    47,404
    
    
    
    92,597
    
    
    
    808
    
    
    
    7,444
    
    
    
    
    
    
    
    100,849Gross profit
    
    
    
    
    
    
    27,745
    
    
    
    275
    
    
    
    2,977
    
    
    
    
    
    
    
    30,997Corporate general and administrative
expenses
    
    
    (7,042
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,042
    )Hurricane related charges, net
    
    
    (3
    )
    
    
    (556
    )
    
    
    (1,291
    )
    
    
    
    
    
    
    
    
    
    
    (1,850
    )Separation charges
    
    
    (384
    )
    
    
    (101
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (485
    )Gains on dispositions and impairment
(losses), net
    
    
    
    
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98Other operating income, net
    
    
    30
    
    
    
    164
    
    
    
    
    
    
    
    73
    
    
    
    
    
    
    
    267Operating earnings (loss)
    
    
    (7,399
    )
    
    
    27,350
    
    
    
    (1,016
    )
    
    
    3,050
    
    
    
    
    
    
    
    21,985Interest expense
    
    
    (1,757
    )
    
    
    (4,390
    )
    
    
    (58
    )
    
    
    (552
    )
    
    
    
    
    
    
    (6,757
    )Investment and other income, net
    
    
    1,036
    
    
    
    13
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1,050Equity in subsidiaries
    
    
    18,976
    
    
    
    91
    
    
    
    
    
    
    
    
    
    
    
    (19,067
    )
    
    
    Earnings (loss) from continuing
operations before income taxes
    
    
    10,856
    
    
    
    23,064
    
    
    
    (1,074
    )
    
    
    2,499
    
    
    
    (19,067
    )
    
    
    16,278Income tax expense (benefit)
    
    
    (1,070
    )
    
    
    4,720
    
    
    
    (402
    )
    
    
    1,057
    
    
    
    
    
    
    
    4,305Earnings (loss) from continuing
operations
    
    
    11,926
    
    
    
    18,344
    
    
    
    (672
    )
    
    
    1,442
    
    
    
    (19,067
    )
    
    
    11,973Discontinued operations:Loss from discontinued operations
before income taxes
    
    
    
    
    
    
    (40
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40
    )Income taxes
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7Loss from discontinued operations
    
    
    
    
    
    
    (47
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47
    )Net earnings (loss)
    
    
    11,926
    
    
    
    18,297
    
    
    
    (672
    )
    
    
    1,442
    
    
    
    (19,067
    )
    
    
    11,926Other comprehensive income (loss), net
    
    
    133
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    2
    
    
    
    133Comprehensive income (loss)
    
    $
    12,059
    
    
    $
    18,297
    
    
    $
    (672
    )
    
    $
    1,440
    
    
    $
    (19,065
    )
    
    $
    12,059
 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 and Senior
Convertible Notes(Continued)
 Condensed Consolidating Balance Sheets
 January 31, 2008Guarantor
    
    
    Guarantor
    
    
    Non-Subsidiaries-
    
    
    Subsidiaries-
    
    
    GuarantorParent
    
    
    Tier 1
    
    
    Tier 2
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    20,658
    
    
    $
    8,554
    
    
    $
    52
    
    
    $
    1,111
    
    
    $
    
    
    
    $
    30,375Marketable securities
    
    
    14,897
    
    
    
    
    
    
    
    
    
    
    
    306
    
    
    
    
    
    
    
    15,203Receivables, net of allowances
    
    
    4,019
    
    
    
    53,287
    
    
    
    693
    
    
    
    4,494
    
    
    
    
    
    
    
    62,493Inventories
    
    
    331
    
    
    
    32,667
    
    
    
    327
    
    
    
    2,548
    
    
    
    
    
    
    
    35,873Prepaid expenses
    
    
    1,301
    
    
    
    8,713
    
    
    
    33
    
    
    
    1,268
    
    
    
    
    
    
    
    11,315Deferred income taxes, net
    
    
    773
    
    
    
    5,334
    
    
    
    69
    
    
    
    1,352
    
    
    
    
    
    
    
    7,528Total current assets
    
    
    41,979
    
    
    
    108,555
    
    
    
    1,174
    
    
    
    11,079
    
    
    
    
    
    
    
    162,787Receivables due beyond one year, net of
allowances
    
    
    10,358
    
    
    
    53,558
    
    
    
    411
    
    
    
    17,357
    
    
    
    
    
    
    
    81,684Preneed funeral receivables and trust
investments
    
    
    
    
    
    
    468,586
    
    
    
    
    
    
    
    10,008
    
    
    
    
    
    
    
    478,594Preneed cemetery receivables and trust
investments
    
    
    
    
    
    
    224,461
    
    
    
    1,145
    
    
    
    8,856
    
    
    
    
    
    
    
    234,462Goodwill
    
    
    
    
    
    
    253,353
    
    
    
    48
    
    
    
    19,787
    
    
    
    
    
    
    
    273,188Cemetery property, at cost
    
    
    
    
    
    
    340,693
    
    
    
    11,547
    
    
    
    25,314
    
    
    
    
    
    
    
    377,554Property and equipment, at cost
    
    
    45,114
    
    
    
    440,853
    
    
    
    1,688
    
    
    
    37,336
    
    
    
    
    
    
    
    524,991Less accumulated depreciation
    
    
    27,759
    
    
    
    177,377
    
    
    
    675
    
    
    
    13,114
    
    
    
    
    
    
    
    218,925Net property and equipment
    
    
    17,355
    
    
    
    263,476
    
    
    
    1,013
    
    
    
    24,222
    
    
    
    
    
    
    
    306,066Deferred income taxes, net
    
    
    30,362
    
    
    
    159,648
    
    
    
    
    
    
    
    8,601
    
    
    
    (3,192
    )
    
    
    195,419Cemetery perpetual care trust investments
    
    
    
    
    
    
    213,376
    
    
    
    8,145
    
    
    
    4,003
    
    
    
    
    
    
    
    225,524Other assets
    
    
    9,289
    
    
    
    6,791
    
    
    
    16
    
    
    
    1,085
    
    
    
    
    
    
    
    17,181Intercompany receivables
    
    
    898,460
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (898,460
    )
    
    
    Equity in subsidiaries
    
    
    22,578
    
    
    
    7,024
    
    
    
    
    
    
    
    
    
    
    
    (29,602
    )
    
    
    Total assets
    
    $
    1,030,381
    
    
    $
    2,099,521
    
    
    $
    23,499
    
    
    $
    130,312
    
    
    $
    (931,254
    )
    
    $
    2,352,459LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    130
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    130Accounts payable
    
    
    2,594
    
    
    
    20,507
    
    
    
    501
    
    
    
    1,875
    
    
    
    
    
    
    
    25,477Accrued expenses and other current
liabilities
    
    
    16,212
    
    
    
    40,146
    
    
    
    29
    
    
    
    2,278
    
    
    
    
    
    
    
    58,665Total current liabilities
    
    
    18,936
    
    
    
    60,653
    
    
    
    530
    
    
    
    4,153
    
    
    
    
    
    
    
    84,272Long-term debt, less current maturities
    
    
    450,106
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450,106Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    3,192
    
    
    
    
    
    
    
    (3,192
    )
    
    
    Intercompany payables
    
    
    
    
    
    
    874,042
    
    
    
    4,333
    
    
    
    20,085
    
    
    
    (898,460
    )
    
    
    Deferred preneed funeral revenue
    
    
    
    
    
    
    209,435
    
    
    
    
    
    
    
    44,485
    
    
    
    
    
    
    
    253,920Deferred preneed cemetery revenue
    
    
    
    
    
    
    257,313
    
    
    
    420
    
    
    
    27,126
    
    
    
    
    
    
    
    284,859Non-controlling interest in funeral and
cemetery trusts
    
    
    
    
    
    
    619,361
    
    
    
    1,069
    
    
    
    6,653
    
    
    
    
    
    
    
    627,083Other long-term liabilities
    
    
    15,803
    
    
    
    2,938
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,741Negative equity in subsidiaries
    
    
    136,389
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (136,389
    )
    
    
    Total liabilities
    
    
    621,234
    
    
    
    2,023,742
    
    
    
    9,544
    
    
    
    102,502
    
    
    
    (1,038,041
    )
    
    
    1,718,981Non-controlling interest in perpetual
care trusts
    
    
    
    
    
    
    212,168
    
    
    
    8,159
    
    
    
    4,004
    
    
    
    
    
    
    
    224,331Common stock
    
    
    96,060
    
    
    
    102
    
    
    
    324
    
    
    
    52
    
    
    
    (478
    )
    
    
    96,060Other
    
    
    313,006
    
    
    
    (136,491
    )
    
    
    5,472
    
    
    
    23,716
    
    
    
    107,303
    
    
    
    313,006Accumulated other comprehensive income
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    38
    
    
    
    (38
    )
    
    
    81Total shareholders equity
    
    
    409,147
    
    
    
    (136,389
    )
    
    
    5,796
    
    
    
    23,806
    
    
    
    106,787
    
    
    
    409,147Total liabilities and shareholders equity
    
    $
    1,030,381
    
    
    $
    2,099,521
    
    
    $
    23,499
    
    
    $
    130,312
    
    
    $
    (931,254
    )
    
    $
    2,352,459
 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 and Senior
Convertible Notes(Continued)
 Condensed Consolidating Balance Sheets
 October 31, 2007Guarantor
    
    
    Guarantor
    
    
    Non-Subsidiaries-
    
    
    Subsidiaries-
    
    
    GuarantorParent
    
    
    Tier 1
    
    
    Tier 2
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    63,202
    
    
    $
    6,685
    
    
    $
    36
    
    
    $
    1,622
    
    
    $
    
    
    
    $
    71,545Marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    262
    
    
    
    
    
    
    
    262Receivables, net of allowances
    
    
    4,054
    
    
    
    51,619
    
    
    
    103
    
    
    
    4,839
    
    
    
    
    
    
    
    60,615Inventories
    
    
    368
    
    
    
    32,765
    
    
    
    328
    
    
    
    2,600
    
    
    
    
    
    
    
    36,061Prepaid expenses
    
    
    950
    
    
    
    4,306
    
    
    
    3
    
    
    
    1,096
    
    
    
    
    
    
    
    6,355Deferred income taxes, net
    
    
    1,334
    
    
    
    5,785
    
    
    
    78
    
    
    
    1,424
    
    
    
    
    
    
    
    8,621Total current assets
    
    
    69,908
    
    
    
    101,160
    
    
    
    548
    
    
    
    11,843
    
    
    
    
    
    
    
    183,459Receivables due beyond one year, net of
allowances
    
    
    10,358
    
    
    
    53,926
    
    
    
    928
    
    
    
    18,396
    
    
    
    
    
    
    
    83,608Preneed funeral receivables and trust
investments
    
    
    
    
    
    
    504,534
    
    
    
    
    
    
    
    10,519
    
    
    
    
    
    
    
    515,053Preneed cemetery receivables and trust
investments
    
    
    
    
    
    
    245,056
    
    
    
    1,199
    
    
    
    9,424
    
    
    
    
    
    
    
    255,679Goodwill
    
    
    
    
    
    
    253,451
    
    
    
    48
    
    
    
    19,787
    
    
    
    
    
    
    
    273,286Cemetery property, at cost
    
    
    
    
    
    
    338,274
    
    
    
    11,408
    
    
    
    25,118
    
    
    
    
    
    
    
    374,800Property and equipment, at cost
    
    
    43,395
    
    
    
    436,588
    
    
    
    1,699
    
    
    
    37,299
    
    
    
    
    
    
    
    518,981Less accumulated depreciation
    
    
    26,701
    
    
    
    172,924
    
    
    
    663
    
    
    
    12,775
    
    
    
    
    
    
    
    213,063Net property and equipment
    
    
    16,694
    
    
    
    263,664
    
    
    
    1,036
    
    
    
    24,524
    
    
    
    
    
    
    
    305,918Deferred income taxes, net
    
    
    29,238
    
    
    
    156,254
    
    
    
    
    
    
    
    9,913
    
    
    
    (2,546
    )
    
    
    192,859Cemetery perpetual care trust investments
    
    
    
    
    
    
    224,182
    
    
    
    8,322
    
    
    
    3,999
    
    
    
    
    
    
    
    236,503Other assets
    
    
    9,664
    
    
    
    7,039
    
    
    
    16
    
    
    
    1,090
    
    
    
    
    
    
    
    17,809Intercompany 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
    )
    
    $
    2,438,974LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    198
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    198Accounts payable
    
    
    2,196
    
    
    
    21,284
    
    
    
    1,075
    
    
    
    2,051
    
    
    
    
    
    
    
    26,606Accrued expenses and other current
liabilities
    
    
    16,654
    
    
    
    45,934
    
    
    
    
    
    
    
    2,691
    
    
    
    
    
    
    
    65,279Total current liabilities
    
    
    19,048
    
    
    
    67,218
    
    
    
    1,075
    
    
    
    4,742
    
    
    
    
    
    
    
    92,083Long-term debt, less current maturities
    
    
    450,115
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450,115Deferred income tax
    
    
    
    
    
    
    
    
    
    
    2,546
    
    
    
    
    
    
    
    (2,546
    )
    
    
    Intercompany payables
    
    
    
    
    
    
    869,802
    
    
    
    4,419
    
    
    
    23,325
    
    
    
    (897,546
    )
    
    
    Deferred preneed funeral revenue
    
    
    
    
    
    
    212,166
    
    
    
    
    
    
    
    44,437
    
    
    
    
    
    
    
    256,603Deferred preneed cemetery revenue
    
    
    
    
    
    
    255,266
    
    
    
    515
    
    
    
    28,726
    
    
    
    
    
    
    
    284,507Non-controlling interest in funeral and
cemetery trusts
    
    
    
    
    
    
    674,977
    
    
    
    1,119
    
    
    
    6,956
    
    
    
    
    
    
    
    683,052Other long-term liabilities
    
    
    11,717
    
    
    
    2,152
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,869Negative equity in subsidiaries
    
    
    150,334
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150,334
    )
    
    
    Total liabilities
    
    
    631,214
    
    
    
    2,081,581
    
    
    
    9,674
    
    
    
    108,186
    
    
    
    (1,050,426
    )
    
    
    1,780,229Non-controlling interest in perpetual
care trusts
    
    
    
    
    
    
    223,119
    
    
    
    8,309
    
    
    
    3,999
    
    
    
    
    
    
    
    235,427Common stock
    
    
    98,420
    
    
    
    102
    
    
    
    324
    
    
    
    52
    
    
    
    (478
    )
    
    
    98,420Other
    
    
    324,887
    
    
    
    (150,436
    )
    
    
    5,198
    
    
    
    22,365
    
    
    
    122,873
    
    
    
    324,887Accumulated other comprehensive income
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    (11
    )
    
    
    11Total shareholders equity
    
    
    423,318
    
    
    
    (150,334
    )
    
    
    5,522
    
    
    
    22,428
    
    
    
    122,384
    
    
    
    423,318Total liabilities and shareholders equity
    
    $
    1,054,532
    
    
    $
    2,154,366
    
    
    $
    23,505
    
    
    $
    134,613
    
    
    $
    (928,042
    )
    
    $
    2,438,974
 26




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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 and Senior
Convertible Notes(Continued)
 Condensed Consolidating Statements of Cash Flows
 Three Months Ended January 31, 2008Guarantor
    
    
    Guarantor
    
    
    Non-Subsidiaries-
    
    
    Subsidiaries-
    
    
    GuarantorParent
    
    
    Tier 1
    
    
    Tier 2
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in) operating
activities
    
    $
    (2,343
    )
    
    $
    3,005
    
    
    $
    369
    
    
    $
    3,067
    
    
    $
    
    
    
    $
    4,098Cash flows from investing activities:Proceeds from sales of marketable
securities
    
    
    4,984
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,984Purchases of marketable securities
    
    
    (19,758
    )
    
    
    
    
    
    
    
    
    
    
    (44
    )
    
    
    
    
    
    
    (19,802
    )Proceeds from sale of assets, net
    
    
    
    
    
    
    338
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    338Additions to property and equipment
    
    
    (1,725
    )
    
    
    (4,770
    )
    
    
    (267
    )
    
    
    (294
    )
    
    
    
    
    
    
    (7,056
    )Other
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10Net cash used in investing activities
    
    
    (16,499
    )
    
    
    (4,422
    )
    
    
    (267
    )
    
    
    (338
    )
    
    
    
    
    
    
    (21,526
    )Cash flows from financing activities:Repayments of long-term debt
    
    
    (77
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77
    )Intercompany receivables (payables)
    
    
    40
    
    
    
    3,286
    
    
    
    (86
    )
    
    
    (3,240
    )
    
    
    
    
    
    
    Issuance of common stock
    
    
    1,380
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,380Purchase and retirement of common stock
    
    
    (22,807
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,807
    )Dividends
    
    
    (2,403
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,403
    )Excess tax benefits from share-based
payment arrangements
    
    
    165
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    165Net cash provided by (used in)
financing activities
    
    
    (23,702
    )
    
    
    3,286
    
    
    
    (86
    )
    
    
    (3,240
    )
    
    
    
    
    
    
    (23,742
    )Net increase (decrease) in cash
    
    
    (42,544
    )
    
    
    1,869
    
    
    
    16
    
    
    
    (511
    )
    
    
    
    
    
    
    (41,170
    )Cash and cash equivalents, beginning of
period
    
    
    63,202
    
    
    
    6,685
    
    
    
    36
    
    
    
    1,622
    
    
    
    
    
    
    
    71,545Cash and cash equivalents, end of period
    
    $
    20,658
    
    
    $
    8,554
    
    
    $
    52
    
    
    $
    1,111
    
    
    $
    
    
    
    $
    30,375
 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)
 (11)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior
Convertible Notes(Continued)
 Condensed Consolidating Statements of Cash Flows
 Three Months Ended January 31, 2007Guarantor
    
    
    Guarantor
    
    
    Non-Subsidiaries-
    
    
    Subsidiaries-
    
    
    GuarantorParent
    
    
    Tier 1
    
    
    Tier 2
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in)
operating activities
    
    $
    4,457
    
    
    $
    12,341
    
    
    $
    (2,443
    )
    
    $
    3,534
    
    
    $
    
    
    
    $
    17,889Cash flows from investing activities:Purchases of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (66
    )
    
    
    
    
    
    
    (66
    )Proceeds from sale of assets, net
    
    
    
    
    
    
    388
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    388Purchase of subsidiaries, net of
cash acquired
    
    
    
    
    
    
    (2,805
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,805
    )Insurance proceeds related to
hurricane damaged properties
    
    
    
    
    
    
    1,310
    
    
    
    90
    
    
    
    
    
    
    
    
    
    
    
    1,400Additions to property and equipment
    
    
    (2,767
    )
    
    
    (4,647
    )
    
    
    (4
    )
    
    
    (359
    )
    
    
    
    
    
    
    (7,777
    )Other
    
    
    (63
    )
    
    
    27
    
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    29Net cash provided by (used in)
investing activities
    
    
    (2,830
    )
    
    
    (5,727
    )
    
    
    86
    
    
    
    (360
    )
    
    
    
    
    
    
    (8,831
    )Cash flows from financing activities:Repayments of long-term debt
    
    
    (865
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (865
    )Intercompany receivables (payables)
    
    
    8,827
    
    
    
    (8,134
    )
    
    
    2,348
    
    
    
    (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
    
    
    
    (8,134
    )
    
    
    2,348
    
    
    
    (3,041
    )
    
    
    
    
    
    
    (2,812
    )Net increase (decrease) in cash
    
    
    7,642
    
    
    
    (1,520
    )
    
    
    (9
    )
    
    
    133
    
    
    
    
    
    
    
    6,246Cash and cash equivalents, beginning of
period
    
    
    39,120
    
    
    
    3,254
    
    
    
    37
    
    
    
    1,459
    
    
    
    
    
    
    
    43,870Cash and cash equivalents, end of period
    
    $
    46,762
    
    
    $
    1,734
    
    
    $
    28
    
    
    $
    1,592
    
    
    $
    
    
    
    $
    50,116
 (12)
    
    Dispositions and Acquisitions
 Dispositions
  Acquisitions
  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)
 (13)
    
    Separation Charges
  (14)
    
    Consolidated Comprehensive Income
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedJanuary 31, 2008
    
    
    January 31, 2007Net earnings
    
    $
    8,885
    
    
    $
    11,926Other comprehensive income:Unrealized appreciation of
investments, net of deferred
tax expense of ($43) and ($81),
respectively
    
    
    70
    
    
    
    133(Increase) decrease reduction
in net unrealized losses
associated with
available-for-sale securities
of the trusts
    
    
    (57,547
    )
    
    
    14,829Reclassification of the net
unrealized losses activity
attributable to the
non-controlling interest
holders
    
    
    57,547
    
    
    
    (14,829
    )Total other comprehensive income
    
    
    70
    
    
    
    133Total comprehensive income
    
    $
    8,955
    
    
    $
    12,059
 (15)
    
    Hurricane Related Charges
   29




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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)
 (15)
    
    Hurricane Related Charges(Continued)
  30




---



##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
        31




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##### Table of Contents



Critical Accounting Policies
      Results of Operations
  32




---



##### Table of Contents



Three Months Ended January 31, 2008 Compared to Three Months Ended January 31, 2007Continuing
Operations
 Funeral Operations
 Three Months Ended January 31,Increase2008
    
    
    2007
    
    
    (Decrease)(In millions)Funeral Revenue:Eastern Division
    
    $
    30.5
    
    
    $
    30.3
    
    
    $
    .2Western Division
    
    
    38.4
    
    
    
    37.5
    
    
    
    .9Corporate Trust Management (1)
    
    
    4.5
    
    
    
    4.3
    
    
    
    .2Total Funeral Revenue
    
    $
    73.4
    
    
    $
    72.1
    
    
    $
    1.3Funeral Costs:Eastern Division
    
    $
    25.1
    
    
    $
    24.4
    
    
    $
    .7Western Division
    
    
    30.1
    
    
    
    28.8
    
    
    
    1.3Corporate Trust Management (1)
    
    
    .2
    
    
    
    .2
    
    
    
    Total Funeral Costs
    
    $
    55.4
    
    
    $
    53.4
    
    
    $
    2.0Funeral Gross Profit:Eastern Division
    
    $
    5.4
    
    
    $
    5.9
    
    
    $
    (.5
    )Western Division
    
    
    8.3
    
    
    
    8.7
    
    
    
    (.4
    )Corporate Trust Management (1)
    
    
    4.3
    
    
    
    4.1
    
    
    
    .2Total Funeral Gross Profit
    
    $
    18.0
    
    
    $
    18.7
    
    
    $
    (.7
    )
 Same-Store Analysis
 Change inAverage
    
    
    Change in Same-Store
    
    
    Same-StoreRevenue Per Call
    
    
    Funeral Services
    
    
    Cremation Rate2008
    
    
    2007Eastern Division
    
    
    (2.9
    )%
    
    
    1.8
    %
    
    
    35.9
    %
    
    
    34.2
    %Western Division
    
    
    1.0
    %
    
    
    2.5
    %
    
    
    43.4
    %
    
    
    42.2
    %Total
    
    
    
    %
    
    
    2.2
    %
    
    
    40.1
    %
    
    
    38.9
    %
 
 (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 both
the three months ended January 31, 2008 and 2007 was $1.4 million. As corporate trust
management is considered a separate operating 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, 2008 and 2007
were $3.1 million and $2.9 million, respectively. Consolidated OperationsFuneral
  33




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##### Table of Contents



Segment DiscussionFuneral
   Cemetery Operations
 Three Months Ended January 31,Increase2008
    
    
    2007
    
    
    (Decrease)(In millions)Cemetery Revenue:Eastern Division
    
    $
    32.2
    
    
    $
    35.8
    
    
    $
    (3.6
    )Western Division
    
    
    22.3
    
    
    
    21.6
    
    
    
    .7Corporate Trust Management (1)
    
    
    2.3
    
    
    
    2.3
    
    
    
    Total Cemetery Revenue
    
    $
    56.8
    
    
    $
    59.7
    
    
    $
    (2.9
    )Cemetery Costs:Eastern Division
    
    $
    28.9
    
    
    $
    29.6
    
    
    $
    (.7
    )Western Division
    
    
    18.6
    
    
    
    17.6
    
    
    
    1.0Corporate Trust Management (1)
    
    
    .3
    
    
    
    .2
    
    
    
    .1Total Cemetery Costs
    
    $
    47.8
    
    
    $
    47.4
    
    
    $
    .4Cemetery Gross Profit:Eastern Division
    
    $
    3.3
    
    
    $
    6.2
    
    
    $
    (2.9
    )Western Division
    
    
    3.7
    
    
    
    4.0
    
    
    
    (.3
    )Corporate Trust Management (1)
    
    
    2.0
    
    
    
    2.1
    
    
    
    (.1
    )Total Cemetery Gross Profit
    
    $
    9.0
    
    
    $
    12.3
    
    
    $
    (3.3
    )
 
 (1)
    
    Corporate trust management consists of trust management fees and cemetery
merchandise and service trust 34




---



##### Table of Contents



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 both the three months ended January 31, 2008 and 2007 was $1.3 million, and cemetery trust
earnings for both the three months ended January 31, 2008 and 2007 was $1.0 million.
Perpetual care trust earnings are included in the revenues and gross profit of the related
geographic segment. Consolidated OperationsCemetery
    Segment DiscussionCemetery
   Other
  35




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##### Table of Contents



Preneed Sales into and Deliveries out of the Backlog
  36




---



##### Table of Contents



Liquidity and Capital Resources
 Cash Flow
    Contractual Obligations and Commercial Commitments
  37




---



##### Table of Contents



Payments Due by PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsLong-term debt obligations (1)
    
    $
    450.2
    
    
    $
    .1
    
    
    $
    
    
    
    $
    
    
    
    $
    450.1Interest on long-term debt (2)
    
    
    129.8
    
    
    
    20.6
    
    
    
    41.3
    
    
    
    41.3
    
    
    
    26.6Operating and capital lease obligations (3)
    
    
    31.2
    
    
    
    3.4
    
    
    
    7.2
    
    
    
    3.7
    
    
    
    16.9Non-competition and other agreements (4)
    
    
    2.3
    
    
    
    1.3
    
    
    
    .7
    
    
    
    .3
    
    
    
    $
    613.5
    
    
    $
    25.4
    
    
    $
    49.2
    
    
    $
    45.3
    
    
    $
    493.6
 
 (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, 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 January 31, 2008 are
$3.4 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.   Other,PrincipallySellerRevolving
    
    
    Senior
    
    
    
    
    
    
    FinancingFiscal Year Ending
    
    Credit
    
    
    Convertible
    
    
    Senior
    
    
    of AcquiredOctober 31,
    
    Facility
    
    
    Notes
    
    
    Notes
    
    
    Operations
    
    
    Total2008
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    .2
    
    
    $
    .22009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Thereafter
    
    
    
    
    
    
    250.0
    
    
    
    200.0
    
    
    
    
    
    
    
    450.0Total long-term debt
    
    $
    
    
    
    $
    250.0
    
    
    $
    200.0
    
    
    $
    .2
    
    
    $
    450.2
   38




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##### Table of Contents



Off-Balance Sheet Arrangements
  (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(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.
 Ratio of Earnings to Fixed Charges
  Three Months Ended
    
    Years Ended October 31,January 31, 2008
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    20033.21(1)
    
    
    3.05
    (2)
    
    
    2.83
    (3)
    
    
    1.34
    (4)(5)
    
    
    1.97
    (6)
    
    
    1.07
    (7)
 
 (1)
    
    Pretax earnings for the three months ended January 31, 2008 include a net recovery
of $0.1 million related to Hurricane Katrina and gains on dispositions, net of impairment
losses of $0.1 million.(2)
    
    Pretax earnings for fiscal year 2007 include a charge of $2.5 million related to
Hurricane Katrina, a charge of $0.6 million for separation charges primarily related to
separation pay of a former executive officer who retired in the first quarter of 2007 and $0.7
million for the loss on early extinguishment of debt related to the June 2007 senior
convertible debt transaction.(3)
    
    Pretax earnings for fiscal year 2006 include a net recovery of $1.6 million related
to Hurricane Katrina, business interruption proceeds of $3.2 million related to Hurricane
Katrina, a charge of $1.0 million for separation charges related to July 2005 restructuring of
our divisions and the retirement of an executive officer and gains on dispositions, net of
impairment losses of ($0.2) million.(4)
    
    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, $1.3 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.(5)
    
    Excludes the cumulative effect of change in accounting principles.(6)
    
    Pretax earnings for fiscal year 2004 include charges of $3.4 million for severance
and other costs relating to the workforce reductions announced in December 2003 and separation
payments to a former executive officer and ($0.2) million in gains on dispositions, net of
impairment losses.(7)
    
    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 non-cash charge
of $9.6 million for long-lived asset impairment and a charge of $2.5 million for separation
payments to former executive officers.  39




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##### Table of Contents



Recent Accounting Standards
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4.
    
    Controls and Procedures
 Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
    40




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##### Table of Contents



Item 1A.
    
    Risk Factors
  
 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
    
    
    Maximumshares
    
    
    approximate dollarpurchased as
    
    
    value of shares thatTotal number
    
    
    Average
    
    
    part of publicly-
    
    
    may yet beof shares
    
    
    price paid
    
    
    announced plans
    
    
    purchased under thePeriod
    
    purchased
    
    
    per share
    
    
    or programs(1)
    
    
    plans or programsNovember 1,
2007 through
November 30, 2007
    
    
    500,000
    
    
    $
    8.14
    
    
    
    500,000
    
    
    $
    20,931,580December 1, 2007
through December
31, 2007
    
    
    1,235,306
    
    
    $
    8.29
    
    
    
    1,235,306
    
    
    $
    35,688,833January 1, 2008
through January 31,
2008
    
    
    1,018,943
    
    
    $
    8.26
    
    
    
    1,018,943
    
    
    $
    27,275,151Total
    
    
    2,754,249
    
    
    $
    8.25
    
    
    
    2,754,249
    
    
    $
    27,275,151
 
 (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. As of March 4, 2008, we had repurchased 3,577,000 shares for $28.0 million at
an average price of $7.83 per share under this program. 
 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 December 18, 2007 (incorporated by
reference to Exhibit 3.2 of the Companys Current Report on Form 8-K filed on December 26,
2007)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 filed November 4, 1999)
 41




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##### Table of Contents



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)12
    
    Calculation of Ratio of Earnings to Fixed Charges31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas J. Crawford,
President and Chief Executive Officer31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen, Senior
Executive Vice President and Chief Financial Officer32.1
    
    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
 42




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 SIGNATURES
  STEWART ENTERPRISES, INC.March 10, 2008
    
    /s/ THOMAS M. KITCHENThomas M. KitchenSenior Executive Vice President andChief Financial OfficerMarch 10, 2008
    
    /s/ ANGELA M. LACOURAngela M. LacourVice PresidentCorporate ControllerChief Accounting Officer
 43




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##### Table of Contents



Exhibit Index
 12
    
    Calculation of Ratio of Earnings to Fixed Charges31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas J. Crawford,
President and Chief Executive Officer31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen, Senior
Executive Vice President and Chief Financial Officer32.1
    
    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
 44