##### Table of Contents



This report does not reflect the effect of certain adjustments described in the Explanatory
Note on page 2 including those that might result from completion of the deferred revenue project,
and accordingly, this report is being filed without the independent registered public accounting
firms review being completed and without the certifications of the Companys Chief Executive
Officer and Chief Financial Officer.
   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 1934For the quarterly period ended July 31, 2005
 OR
 o
    
    Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934For the transition period from  to
 
 Commission File Number: 1-15449
 
 STEWART ENTERPRISES, INC.
  LOUISIANA
    
    72-0693290(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)1333 South Clearview ParkwayJefferson, Louisiana
    
    70121(Address of principal executive offices)
    
    (Zip Code)
 
 Registrants telephone number, including area code: (504) 729-1400
 
 o þ
 þ o
 o o




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##### Table of Contents



EXPLANATORY NOTE
 Introduction
   The Deferred Revenue Project
     2




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##### Table of Contents



Other Adjustments
  Nine MonthsEndedJuly 31, 2005Net loss as reported in Form 10-Q
    
    $
    (124,256
    )Remove correction of an error for leases (1)
    
    
    1,140Net loss after adjustments
    
    $
    (123,116
    )Earnings (loss) per diluted share as reported in Form 10-Q
    
    $
    (1.14
    )Earnings (loss) per diluted share after adjustments
    
    $
    (1.13
    )
 
 (1)
    
    As discussed in Note 2 to the condensed consolidated financial statements included herein,
we reviewed our lease-related accounting practices and determined that certain adjustments
related to rent escalations and leasehold improvement amortization were necessary. The
cumulative effect of these adjustments for all prior periods amounted to a charge of $1.8
million ($1.1 million after tax, or $.01 per share). We evaluated the materiality of these
operating lease adjustments on our financial statements in the second quarter of fiscal year
2005 and concluded that the impact of these adjustments was not material. As a result, we
recorded the cumulative effect of these prior period adjustments of $1.8 million as non-cash
charges to funeral and cemetery costs in the second quarter of fiscal year 2005. Because we
are amending our Form 10-K for the year ended October 31, 2004 for the restatement discussed
in Note 1 to the condensed consolidated financial statements included herein, we are now
required to record the lease adjustments in the period they were actually incurred. In a
subsequent Form 10-Q amendment, we will remove the cumulative effect of this prior period
adjustment of $1.8 million ($1.1 million after tax) for the nine months ended July 31, 2005. 3




---



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 INDEX
 PagePart I.
    
    Financial InformationItem 1.          Financial Statements (Unaudited)Condensed Consolidated Statements of Earnings  Three Months Ended July 31, 2005 and 2004
    
    
    5Condensed Consolidated Statements of Earnings  Nine Months Ended July 31, 2005 and 2004
    
    
    6Condensed Consolidated Balance Sheets  July 31, 2005 and October 31, 2004
    
    
    7Condensed Consolidated Statement of Shareholders Equity  Nine Months Ended July 31, 2005
    
    
    9Condensed Consolidated Statements of Cash Flows  Nine Months Ended July 31, 2005 and 2004
    
    
    10Notes to Condensed Consolidated Financial Statements
    
    
    11Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    66Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    85Item 4. Controls and Procedures
    
    
    86Part II.
    
    Other InformationItem 1. Legal Proceedings
    
    
    87Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    89Item 5. Other Information
    
    
    90Item 6. Exhibits
    
    
    98Signatures
    
    
    100Amendment No. 1 to Employment Agreement - Everett N. KendrickAmendment No. 1 to Employment Agreement - Brent F. HeffronAmendment No. 1 to Employment Agreement - G. Kenneth Stephens, Jr.Amendment No. 1 to Employment Agreement - Randall L. StricklinSeparation Agreement - Michael K. CraneCalculation of Ratio of Earnings to Fixed Charges
   4




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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 July 31,2005
    
    
    2004(Restated)Revenues:Funeral
    
    $
    67,879
    
    
    $
    67,716Cemetery
    
    
    62,085
    
    
    
    60,557129,964
    
    
    
    128,273Costs and expenses:Funeral
    
    
    53,477
    
    
    
    50,142Cemetery
    
    
    47,577
    
    
    
    46,807101,054
    
    
    
    96,949Gross profit
    
    
    28,910
    
    
    
    31,324Corporate general and administrative expenses
    
    
    (5,545
    )
    
    
    (4,150
    )Separation charges (Note 14)
    
    
    (147
    )
    
    
    (1,085
    )Gains on dispositions and impairment (losses), net (Note 13)
    
    
    63
    
    
    
    304Other operating income, net
    
    
    571
    
    
    
    1,000Operating earnings
    
    
    23,852
    
    
    
    27,393Interest expense
    
    
    (6,456
    )
    
    
    (11,502
    )Loss on early extinguishment of debt (Note 15)
    
    
    (114
    )
    
    
    Investment and other income, net
    
    
    184
    
    
    
    76Earnings from continuing operations before income taxes
    
    
    17,466
    
    
    
    15,967Income taxes
    
    
    6,577
    
    
    
    5,823Earnings from continuing operations
    
    
    10,889
    
    
    
    10,144Discontinued operations (Note 13):Earnings from discontinued operations before income taxes
    
    
    590
    
    
    
    536Income tax benefit
    
    
    (157
    )
    
    
    (1,207
    )Earnings from discontinued operations
    
    
    747
    
    
    
    1,743Net earnings
    
    $
    11,636
    
    
    $
    11,887Basic earnings per common share:Earnings from continuing operations
    
    $
    .10
    
    
    $
    .09Earnings from discontinued operations
    
    
    .01
    
    
    
    .02Net earnings
    
    $
    .11
    
    
    $
    .11Diluted earnings per common share:Earnings from continuing operations
    
    $
    .10
    
    
    $
    .09Earnings from discontinued operations
    
    
    .01
    
    
    
    .02Net earnings
    
    $
    .11
    
    
    $
    .11Weighted average common shares outstanding (in thousands):Basic
    
    
    109,147
    
    
    
    107,067Diluted
    
    
    109,266
    
    
    
    108,068Dividends declared per common share
    
    $
    .025
    
    
    $
    
   5




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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)
 Nine Months Ended July 31,2005
    
    
    2004(Restated)Revenues:Funeral
    
    $
    214,547
    
    
    $
    214,218Cemetery
    
    
    177,464
    
    
    
    175,378392,011
    
    
    
    389,596Costs and expenses:Funeral
    
    
    161,531
    
    
    
    152,552Cemetery
    
    
    136,034
    
    
    
    132,302297,565
    
    
    
    284,854Gross profit
    
    
    94,446
    
    
    
    104,742Corporate general and administrative expenses
    
    
    (14,343
    )
    
    
    (12,684
    )Separation charges (Note 14)
    
    
    (147
    )
    
    
    (3,216
    )Gains on dispositions and impairment (losses), net (Note 13)
    
    
    1,300
    
    
    
    54Other operating income, net
    
    
    1,069
    
    
    
    1,948Operating earnings
    
    
    82,325
    
    
    
    90,844Interest expense
    
    
    (23,503
    )
    
    
    (35,976
    )Loss on early extinguishment of debt (Note 15)
    
    
    (32,822
    )
    
    
    Investment and other income (expense), net
    
    
    404
    
    
    
    (992
    )Earnings from continuing operations before income taxes and
cumulative effect of change in accounting principle
    
    
    26,404
    
    
    
    53,876Income taxes
    
    
    10,359
    
    
    
    20,015Earnings from continuing operations before cumulative effect of
change in accounting principle
    
    
    16,045
    
    
    
    33,861Discontinued operations (Note 13):Earnings from discontinued operations before income taxes
    
    
    969
    
    
    
    2,626Income tax benefit
    
    
    (48
    )
    
    
    (1,196
    )Earnings from discontinued operations
    
    
    1,017
    
    
    
    3,822Earnings before cumulative effect of change in accounting principle
    
    
    17,062
    
    
    
    37,683Cumulative effect of change in accounting principle (net of
$93,235 income tax benefit) (Note 3)
    
    
    (141,318
    )
    
    
    Net earnings (loss)
    
    $
    (124,256
    )
    
    $
    37,683Basic earnings (loss) per common share:Earnings from continuing operations before cumulative effect of
change in accounting principle
    
    $
    .14
    
    
    $
    .31Earnings from discontinued operations
    
    
    .01
    
    
    
    .04Cumulative effect of change in accounting principle
    
    
    (1.29
    )
    
    
    Net earnings (loss)
    
    $
    (1.14
    )
    
    $
    .35Diluted earnings (loss) per common share:Earnings from continuing operations before cumulative effect of
change in accounting principle
    
    $
    .14
    
    
    $
    .31Earnings from discontinued operations
    
    
    .01
    
    
    
    .04Cumulative effect of change in accounting principle
    
    
    (1.29
    )
    
    
    Net earnings (loss)
    
    $
    (1.14
    )
    
    $
    .35Weighted average common shares outstanding (in thousands):Basic
    
    
    109,243
    
    
    
    107,461Diluted
    
    
    109,430
    
    
    
    108,061Dividends declared per common share
    
    $
    .05
    
    
    $
    
   6




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##### Table of Contents



STEWART ENTERPRISES, INC.
 AND SUBSIDIARIES
 
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 (Dollars in thousands, except per share amounts)
 July 31,
    
    
    October 31,ASSETS
    
    2005
    
    
    2004(Restated)Current assets:Cash and cash equivalent investments
    
    $
    29,335
    
    
    $
    21,514Marketable securities
    
    
    1,290
    
    
    
    1,297Receivables, net of allowances
    
    
    62,709
    
    
    
    60,167Inventories
    
    
    37,258
    
    
    
    39,225Prepaid expenses
    
    
    3,626
    
    
    
    2,953Deferred income taxes, net
    
    
    4,198
    
    
    
    4,522Assets held for sale
    
    
    738
    
    
    
    10,493Total current assets
    
    
    139,154
    
    
    
    140,171Receivables due beyond one year, net of allowances
    
    
    76,721
    
    
    
    78,692Preneed funeral receivables and trust investments
    
    
    514,721
    
    
    
    503,808Preneed cemetery receivables and trust investments
    
    
    263,456
    
    
    
    258,176Goodwill
    
    
    267,859
    
    
    
    267,169Deferred charges (Note 3)
    
    
    19,565
    
    
    
    254,278Cemetery property, at cost
    
    
    370,189
    
    
    
    370,334Property and equipment, at cost:Land
    
    
    41,188
    
    
    
    39,527Buildings
    
    
    301,100
    
    
    
    296,720Equipment and other
    
    
    160,814
    
    
    
    156,205503,102
    
    
    
    492,452Less accumulated depreciation
    
    
    199,933
    
    
    
    189,362Net property and equipment
    
    
    303,169
    
    
    
    303,090Deferred income taxes, net
    
    
    138,123
    
    
    
    54,940Cemetery perpetual care trust investments
    
    
    218,829
    
    
    
    210,267Other assets
    
    
    1,417
    
    
    
    1,408Total assets
    
    $
    2,313,203
    
    
    $
    2,442,333
   7




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##### Table of Contents



STEWART ENTERPRISES, INC.
 AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 (Dollars in thousands, except per share amounts)
 July 31,
    
    
    October 31,LIABILITIES AND SHAREHOLDERS EQUITY
    
    2005
    
    
    2004(Restated)Current liabilities:Current maturities of long-term debt
    
    $
    3,232
    
    
    $
    1,725Accounts payable
    
    
    7,461
    
    
    
    9,075Accrued payroll
    
    
    12,198
    
    
    
    13,005Accrued insurance
    
    
    22,020
    
    
    
    21,430Accrued interest
    
    
    7,972
    
    
    
    11,315Other current liabilities
    
    
    10,609
    
    
    
    13,089Income taxes payable
    
    
    1,242
    
    
    
    130Liabilities associated with assets held for sale
    
    
    401
    
    
    
    6,491Total current liabilities
    
    
    65,135
    
    
    
    76,260Long-term debt, less current maturities
    
    
    407,552
    
    
    
    415,080Deferred preneed funeral revenue
    
    
    138,731
    
    
    
    156,967Deferred preneed cemetery revenue
    
    
    292,928
    
    
    
    284,258Non-controlling interest in funeral and cemetery trusts
    
    
    645,739
    
    
    
    627,344Other long-term liabilities
    
    
    11,063
    
    
    
    11,130Total liabilities
    
    
    1,561,148
    
    
    
    1,571,039Commitments and contingencies
    
    
    
    
    
    
    Non-controlling interest in perpetual care trusts
    
    
    216,633
    
    
    
    208,893Shareholders 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
105,114,486 and 104,330,101 shares at July 31, 2005
and October 31, 2004, respectively
    
    
    105,114
    
    
    
    104,330Class B authorized 5,000,000 shares; issued and outstanding
3,555,020 shares at July 31, 2005 and October 31, 2004;
10 votes per share; convertible into an equal number of
Class A shares
    
    
    3,555
    
    
    
    3,555Additional paid-in capital
    
    
    670,384
    
    
    
    673,630Accumulated deficit
    
    
    (242,815
    )
    
    
    (118,559
    )Unearned restricted stock compensation
    
    
    (814
    )
    
    
    (222
    )Accumulated other comprehensive loss:Unrealized depreciation of investments
    
    
    (2
    )
    
    
    Derivative financial instrument losses
    
    
    
    
    
    
    (333
    )Total accumulated other comprehensive losses
    
    
    (2
    )
    
    
    (333
    )Total shareholders equity
    
    
    535,422
    
    
    
    662,401Total liabilities and shareholders equity
    
    $
    2,313,203
    
    
    $
    2,442,333
   8




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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)
 Unearned
    
    
    Unrealized
    
    
    DerivativeAdditional
    
    
    
    
    
    
    Restricted
    
    
    Depreciation
    
    
    Financial
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Accumulated
    
    
    Stock
    
    
    of
    
    
    Instrument
    
    
    ShareholdersStock(1)
    
    
    Capital
    
    
    Deficit
    
    
    Compensation
    
    
    Investments
    
    
    Gains (Losses)
    
    
    EquityBalance October 31, 2004 - Restated
    
    $
    107,885
    
    
    $
    673,630
    
    
    $
    (118,559
    )
    
    $
    (222
    )
    
    $
    
    
    
    $
    (333
    )
    
    $
    662,401Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    (124,256
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (124,256
    )Other comprehensive income:Unrealized depreciation of investments,
net of deferred tax expense of ($1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Unrealized appreciation on derivative
instrument designated and qualifying
as a cash flow hedging instrument, net
of deferred tax expense of ($204)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    333
    
    
    
    333Total other comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    333
    
    
    
    331Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    (124,256
    )
    
    
    
    
    
    
    (2
    )
    
    
    333
    
    
    
    (123,925
    )Restricted stock activity
    
    
    166
    
    
    
    991
    
    
    
    
    
    
    
    (592
    )
    
    
    
    
    
    
    
    
    
    
    565Issuance of common stock
    
    
    76
    
    
    
    359
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    435Stock options exercised
    
    
    2,642
    
    
    
    10,464
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,106Tax benefit associated with stock options
exercised
    
    
    
    
    
    
    1,991
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,991Purchase and retirement of common stock
    
    
    (2,100
    )
    
    
    (11,585
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,685
    )Dividends ($.025 per share)
    
    
    
    
    
    
    (5,466
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,466
    )Balance July 31, 2005
    
    $
    108,669
    
    
    $
    670,384
    
    
    $
    (242,815
    )
    
    $
    (814
    )
    
    $
    (2
    )
    
    $
    
    
    
    $
    535,422
 
 (1)
    
    Amount includes 105,114 and 104,330 shares (in thousands) of Class A common stock
with a stated value of $1 per share as of July 31, 2005 and October 31, 2004, respectively,
and includes 3,555 shares (in thousands) of Class B common stock.   9




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##### Table of Contents



STEWART ENTERPRISES, INC.
 AND SUBSIDIARIES
 
 CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
 (Unaudited)
 (Dollars in thousands, except per share amounts)
 Nine Months Ended July 31,2005
    
    
    2004(Restated)Cash flows from operating activities:Net earnings (loss)
    
    $
    (124,256
    )
    
    $
    37,683Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:(Gains) on dispositions and impairment losses, net
    
    
    (2,368
    )
    
    
    (1,359
    )Cumulative effect of change in accounting principle
    
    
    141,318
    
    
    
    Loss on early extinguishment of debt
    
    
    32,822
    
    
    
    Depreciation and amortization
    
    
    16,235
    
    
    
    17,637Amortization of preneed selling costs
    
    
    
    
    
    
    20,955Provision for doubtful accounts
    
    
    5,306
    
    
    
    5,595Net loss realized on marketable securities
    
    
    
    
    
    
    1,203Provision for deferred income taxes
    
    
    9,935
    
    
    
    11,541Other
    
    
    782
    
    
    
    258Changes in assets and liabilities:(Increase) decrease in other receivables
    
    
    (8,138
    )
    
    
    28,642Decrease in deferred charges
    
    
    1,432
    
    
    
    4,958Decrease in inventories and cemetery property
    
    
    1,746
    
    
    
    1,839Decrease in accounts payable and accrued expenses
    
    
    (3,833
    )
    
    
    (11,477
    )Net effect of preneed funeral production and maturities
    
    
    (13,438
    )
    
    
    (22,441
    )Net effect of preneed cemetery production and deliveries
    
    
    3,039
    
    
    
    257Change in
deferred charges  prearranged acquisition costs
    
    
    
    
    
    
    (25,429
    )Decrease in other
    
    
    (1,392
    )
    
    
    (1,260
    )Net cash provided by operating activities
    
    
    59,190
    
    
    
    68,602Cash flows from investing activities:Proceeds from sales of marketable securities
    
    
    16
    
    
    
    1,121Proceeds from sale of assets, net
    
    
    9,731
    
    
    
    12,871Additions to property and equipment
    
    
    (17,896
    )
    
    
    (14,280
    )Other
    
    
    113
    
    
    
    208Net cash used in investing activities
    
    
    (8,036
    )
    
    
    (80
    )Cash flows from financing activities:Proceeds from long-term debt
    
    
    440,000
    
    
    
    Repayments of long-term debt
    
    
    (446,021
    )
    
    
    (64,748
    )Debt issue costs and tender premium
    
    
    (31,710
    )
    
    
    Issuance of common stock
    
    
    13,541
    
    
    
    13,066Purchase and retirement of common stock
    
    
    (13,685
    )
    
    
    (19,349
    )Dividends
    
    
    (5,466
    )
    
    
    Other
    
    
    8
    
    
    
    Net cash used in financing activities
    
    
    (43,333
    )
    
    
    (71,031
    )Net increase (decrease) in cash
    
    
    7,821
    
    
    
    (2,509
    )Cash and cash equivalents, beginning of period
    
    
    21,514
    
    
    
    18,585Cash and cash equivalents, end of period
    
    $
    29,335
    
    
    $
    16,076Supplemental cash flow information:Cash paid (received) during the period for:Income taxes
    
    $
    3,700
    
    
    $
    (26,900
    )Interest
    
    $
    25,200
    
    
    $
    39,500
   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)
 (1) Restatement
     11




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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
(Dollars in thousands, except per share amounts)
 (1) Restatement(Continued)
   As Previously Reported(1)
    
    
    As Restated(1)Three Months Ended
    
    
    Nine Months Ended
    
    
    Three Months Ended
    
    
    Nine Months EndedJuly 31, 2004
    
    
    July 31, 2004
    
    
    July 31, 2004
    
    
    July 31, 2004Gains on dispositions and impairment
(losses), net (2)
    
    $
    586
    
    
    $
    495
    
    
    $
    304
    
    
    $
    54Operating earnings (2)
    
    
    26,189
    
    
    
    89,297
    
    
    
    27,393
    
    
    
    90,844Earnings from continuing operations before
income taxes
    
    
    16,349
    
    
    
    54,964
    
    
    
    15,967
    
    
    
    53,876Income taxes
    
    
    5,984
    
    
    
    20,477
    
    
    
    5,823
    
    
    
    20,015Earnings from continuing operations
    
    
    10,365
    
    
    
    34,487
    
    
    
    10,144
    
    
    
    33,861Earnings from discontinued operations
    
    
    478
    
    
    
    2,841
    
    
    
    1,743
    
    
    
    3,822Net earnings (3)
    
    $
    10,843
    
    
    $
    37,328
    
    
    $
    11,887
    
    
    $
    37,683Basic earnings per common share:Earnings from continuing operations
    
    $
    .10
    
    
    $
    .32
    
    
    $
    .09
    
    
    $
    .31Earnings from discontinued operations
    
    
    
    
    
    
    .03
    
    
    
    .02
    
    
    
    .04Net earnings per share
    
    $
    .10
    
    
    $
    .35
    
    
    $
    .11
    
    
    $
    .35Diluted earnings per common share:Earnings from continuing operations
    
    $
    .10
    
    
    $
    .32
    
    
    $
    .09
    
    
    $
    .31Earnings from discontinued operations
    
    
    
    
    
    
    .03
    
    
    
    .02
    
    
    
    .04Net earnings per share
    
    $
    .10
    
    
    $
    .35
    
    
    $
    .11
    
    
    $
    .35
 
 (1)
    The previously reported amounts represent amounts reported in the third quarter 2004
Form 10-Q using the third quarter 2004 classification of continuing and discontinued
operations. The restated amounts represent the third quarter 2005 classification of
continuing and discontinued operations.(2)
    In the Companys Form 10-Q for the quarter ended July 31, 2004, gains on
dispositions and impairment (losses) was included in the Other income, net line. Therefore,
it was not included in operating earnings. In the restated statement of earnings for the
three and nine months ended July 31, 2004, gains on dispositions and impairment (losses), net
is on its own line and is included in operating earnings. Three Months
    
    
    Nine MonthsEnded
    
    
    EndedJuly 31, 2004
    
    
    July 31, 2004(3) Net earnings, as previously
reported
    
    $
    10,843
    
    
    $
    37,328Changes in gains on dispositions and
impairment (losses), net, net of taxes
    
    
    1,044
    
    
    
    355Net earnings, as restated
    
    $
    11,887
    
    
    $
    37,683
  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)


(1) Restatement(Continued)




As Reported in theApril 12, 2005 Form 8-K(2)
    
    
    As Restated(2)October 31, 2004
    
    
    October 31, 2004Assets held for sale
    
    $
    3,590
    
    
    $
    10,493Total current assets
    
    
    134,491
    
    
    
    140,171Deferred income taxes
    
    
    43,124
    
    
    
    54,940Goodwill
    
    
    404,169
    
    
    
    267,169Total assets
    
    
    2,565,198
    
    
    
    2,442,333Liabilities associated with assets held for
sale
    
    
    2,388
    
    
    
    6,491Total current liabilities
    
    
    71,781
    
    
    
    76,260Retained earnings (accumulated deficit)
    
    
    3,298
    
    
    
    (118,559
    )Total shareholders equity (1)
    
    
    784,258
    
    
    
    662,401Total
liabilities and shareholders equity
    
    $
    2,565,198
    
    
    $
    2,442,333


October 31,2004(1)  Total shareholders
equity, as previously
reported
    
    $
    784,258Cumulative effect of change in accounting
principle (net of $16,310 income tax
benefit)
    
    
    (193,090
    )Reversal of original goodwill
impairment, net of tax
    
    
    66,900Change in gains on dispositions and
impairment (losses), net for 2003,
net of tax
    
    
    2,023Change in gains on dispositions and
impairment (losses), net for 2004, net
of tax
    
    
    2,310Total shareholders equity, as restated
    
    $
    662,401





|    |  |                                                                                                                                                                                                                                                  
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | The reported amounts from the April 12, 2005 Form 8-K represent the January 2005
classification of continuing and discontinued operations. The restated amounts represent the July
2005 classification of continuing and discontinued operations.

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)


(2) Basis of Presentation


The Company




Principles of Consolidation




Interim Disclosures








Use of Estimates




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)


(2) Basis of Presentation(Continued)


Fair Value of Financial Instruments








Inventories




Depreciation and Amortization




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)


(2) Basis of Presentation(Continued)


Long-lived Assets




Goodwill (Restated)










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)


(2) Basis of Presentation(Continued)








Goodwill
    
    
    Changes due to businesses
    
    
    GoodwillOctober 31, 2004
    
    
    held for sale
    
    
    July 31, 2005Central Division  Funeral
    
    $
    116,881
    
    
    $
    
    
    
    $
    116,881Western Division  Funeral
    
    
    
    
    
    
    
    
    
    
    Eastern Division  Funeral
    
    
    17,051
    
    
    
    
    
    
    
    17,051Southern Division Florida  Funeral
    
    
    46,199
    
    
    
    (40
    )
    
    
    46,159All Other  Funeral (1)
    
    
    17,571
    
    
    
    815
    
    
    
    18,386Total Funeral Goodwill
    
    $
    197,702
    
    
    $
    775
    
    
    $
    198,477Central Division  Cemetery
    
    $
    44,345
    
    
    $
    
    
    
    $
    44,345Western Division  Cemetery
    
    
    
    
    
    
    
    
    
    
    Eastern Division  Cemetery
    
    
    25,122
    
    
    
    (85
    )
    
    
    25,037Southern Division Florida  Cemetery
    
    
    
    
    
    
    
    
    
    
    All Other  Cemetery (1)
    
    
    
    
    
    
    
    
    
    
    Total Cemetery Goodwill
    
    $
    69,467
    
    
    $
    (85
    )
    
    $
    69,382Total Goodwill
    
    $
    267,169
    
    
    $
    690
    
    
    $
    267,859





|    |  |                                                            
|--- |  | -----------------------------------------------------------
|(1) |  | All Other includes the Companys operations in Puerto Rico.

Stock-Based Compensation




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)


(2) Basis of Presentation(Continued)




Three Months Ended
    
    
    Nine Months EndedJuly 31,
    
    
    July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(Restated)
    
    
    
    
    
    (Restated)Net earnings (loss)
    
    $
    11,636
    
    
    $
    11,887
    
    
    $
    (124,256
    )
    
    $
    37,683Stock-based employee compensation expense
included in reported net earnings, net of tax.
    
    
    133
    
    
    
    54
    
    
    
    351
    
    
    
    285Total stock-based employee compensation expense
determined under fair value-based method,
net of tax
    
    
    (416
    )
    
    
    (416
    )
    
    
    (1,351
    )
    
    
    (1,386
    )Pro forma net earnings (loss)
    
    $
    11,353
    
    
    $
    11,525
    
    
    $
    (125,256
    )
    
    $
    36,582Net earnings (loss) per common share:Basic  as reported
    
    $
    .11
    
    
    $
    .11
    
    
    $
    (1.14
    )
    
    $
    .35Basic  pro forma
    
    $
    .10
    
    
    $
    .11
    
    
    $
    (1.15
    )
    
    $
    .34Diluted  as reported
    
    $
    .11
    
    
    $
    .11
    
    
    $
    (1.14
    )
    
    $
    .35Diluted  pro forma
    
    $
    .10
    
    
    $
    .11
    
    
    $
    (1.14
    )
    
    $
    .34


Funeral Revenue






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)


(2) Basis of Presentation(Continued)










Cemetery Revenue






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)
 (2) Basis of Presentation(Continued)
      Allowance for Doubtful Accounts
   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)
 (2) Basis of Presentation(Continued)
 Income Taxes
      Earnings Per Common Share
   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)
 (2) Basis of Presentation(Continued)
   Derivatives
  Estimated Insurance Loss Liabilities
   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)
 (2) Basis of Presentation(Continued)
    Dividends
  Leases
     23




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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) Basis of Presentation(Continued)
  Reclassifications
  (3) Change in Accounting Principles and New Accounting Principles
 (a) Preneed Selling Costs
    24




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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) Change in Accounting Principles and New Accounting Principles(Continued)
 Three Months Ended
    
    
    Nine Months EndedJuly 31, 2005
    
    
    July 31, 2005Results under
    
    
    
    
    
    
    
    
    
    
    Results underAs Reported
    
    
    Changes
    
    
    Old Method
    
    
    As Reported
    
    
    Changes
    
    
    Old MethodEarnings from
continuing
operations before
cumulative effect of
change in accounting
principle
    
    $
    10,889
    
    
    $
    1,259
    
    
    $
    12,148
    
    
    $
    16,045
    
    
    $
    2,691
    
    
    $
    18,736Net earnings (loss)
    
    $
    11,636
    
    
    $
    1,257
    
    
    $
    12,893
    
    
    $
    (124,256
    )
    
    $
    143,542
    
    
    $
    19,286Basic earnings per
common share from
continuing operations
before cumulative
effect
of change in
accounting
principle
    
    $
    .10
    
    
    $
    .01
    
    
    $
    .11
    
    
    $
    .14
    
    
    $
    .03
    
    
    $
    .17Diluted earnings per
common share from
continuing operations
before cumulative
effect
of change in
accounting
principle
    
    $
    .10
    
    
    $
    .01
    
    
    $
    .11
    
    
    $
    .14
    
    
    $
    .03
    
    
    $
    .17Basic earnings (loss)
per common share
    
    $
    .11
    
    
    $
    .01
    
    
    $
    .12
    
    
    $
    (1.14
    )
    
    $
    1.32
    
    
    $
    .18Diluted earnings (loss)
per common share
    
    $
    .11
    
    
    $
    .01
    
    
    $
    .12
    
    
    $
    (1.14
    )
    
    $
    1.32
    
    
    $
    .18
  Three Months Ended
    
    
    Nine Months EndedJuly 31, 2004
    
    
    July 31, 2004As Reported
    
    
    
    
    
    
    
    
    
    
    As Reported- Restated
    
    
    Changes
    
    
    Pro Forma
    
    
    - Restated
    
    
    Changes
    
    
    Pro FormaGross profit:Funeral
    
    $
    17,574
    
    
    $
    (1,433
    )
    
    $
    16,141
    
    
    $
    61,666
    
    
    $
    (3,588
    )
    
    $
    58,078Cemetery
    
    
    13,750
    
    
    
    (128
    )
    
    
    13,622
    
    
    
    43,076
    
    
    
    (1,129
    )
    
    
    41,947$
    31,324
    
    
    $
    (1,561
    )
    
    $
    29,763
    
    
    $
    104,742
    
    
    $
    (4,717
    )
    
    $
    100,025Earnings from
continuing
operations
    
    $
    10,144
    
    
    $
    (967
    )
    
    $
    9,177
    
    
    $
    33,861
    
    
    $
    (2,924
    )
    
    $
    30,937Net earnings
    
    $
    11,887
    
    
    $
    (912
    )
    
    $
    10,975
    
    
    $
    37,683
    
    
    $
    (2,775
    )
    
    $
    34,908Basic earnings per
common share from
continuing operations
    
    $
    .09
    
    
    $
    
    
    
    $
    .09
    
    
    $
    .31
    
    
    $
    (.02
    )
    
    $
    .29Diluted earnings per
common share from
continuing operations
    
    $
    .09
    
    
    $
    (.01
    )
    
    $
    .08
    
    
    $
    .31
    
    
    $
    (.03
    )
    
    $
    .28Basic earnings per
common share
    
    $
    .11
    
    
    $
    (.01
    )
    
    $
    .10
    
    
    $
    .35
    
    
    $
    (.03
    )
    
    $
    .32Diluted earnings per
common share
    
    $
    .11
    
    
    $
    (.01
    )
    
    $
    .10
    
    
    $
    .35
    
    
    $
    (.03
    )
    
    $
    .32
  25




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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) Change in Accounting Principles and New Accounting Principles(Continued)
        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)
 (3) Change in Accounting Principles and New Accounting Principles(Continued)
    Other Accounting Pronouncements
     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)
 (3) Change in Accounting Principles and New Accounting Principles(Continued)
  (4) Preneed Funeral Activities
     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)
 (4) Preneed Funeral Activities(Continued)
 Preneed Funeral Receivables and Trust Investments
  July 31, 2005
    
    
    October 31, 2004Trust assets
    
    $
    454,743
    
    
    $
    439,625Receivables from customers
    
    
    59,978
    
    
    
    64,183Preneed funeral receivables and trust investments
    
    $
    514,721
    
    
    $
    503,808
    July 31, 2005Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    51,433
    
    
    $
    
    
    
    $
    
    
    
    $
    51,433U.S. Government, agencies
and municipalities
    
    
    6,452
    
    
    
    67
    
    
    
    (44
    )
    
    
    6,475Corporate bonds
    
    
    21,287
    
    
    
    1,010
    
    
    
    (370
    )
    
    
    21,927Preferred stocks
    
    
    67,511
    
    
    
    1,350
    
    
    
    (635
    )
    
    
    68,226Common stocks
    
    
    238,846
    
    
    
    19,973
    
    
    
    (7,758
    )
    
    
    251,061Mutual funds
    
    
    28,907
    
    
    
    1,025
    
    
    
    (133
    )
    
    
    29,799Insurance contracts and other long-
term investments
    
    
    23,666
    
    
    
    354
    
    
    
    
    
    
    
    24,020Trust investments
    
    $
    438,102
    
    
    $
    23,779
    
    
    $
    (8,940
    )
    
    $
    452,941Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103.4
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,995Less trust investments of assets held
for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (193
    )Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    454,743
  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)
 (4) Preneed Funeral Activities(Continued)
  July 31, 2005Due in one year or less
    
    $
    3,297Due in one to five years
    
    
    11,836Due in five to ten years
    
    
    12,958Thereafter
    
    
    311$
    28,402
   October 31, 2004Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    133,205
    
    
    $
    9
    
    
    $
    
    
    
    $
    133,214U.S. Government, agencies
and municipalities
    
    
    1,971
    
    
    
    115
    
    
    
    (26
    )
    
    
    2,060Corporate bonds
    
    
    22,826
    
    
    
    1,938
    
    
    
    
    
    
    
    24,764Preferred stocks
    
    
    62,947
    
    
    
    1,703
    
    
    
    (422
    )
    
    
    64,228Common stocks
    
    
    188,298
    
    
    
    3,692
    
    
    
    (13,214
    )
    
    
    178,776Mutual funds
    
    
    12,431
    
    
    
    322
    
    
    
    (73
    )
    
    
    12,680Insurance contracts and other long-
term investments
    
    
    23,631
    
    
    
    298
    
    
    
    
    
    
    
    23,929Trust investments
    
    $
    445,309
    
    
    $
    8,077
    
    
    $
    (13,735
    )
    
    $
    439,651Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98.7
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,002Less trust investments of assets
held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,028
    )Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    439,625
  30




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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 Funeral Activities(Continued)
 Deferred Preneed Funeral Revenue
  Insurance-Funded Preneed Funeral Contracts
  (5) Preneed Cemetery Merchandise and Service Activities
    31




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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) Preneed Cemetery Merchandise and Service Activities(Continued)
 Preneed Cemetery Receivables and Trust Investments
  July 31, 2005
    
    
    October 31, 2004Trust assets
    
    $
    204,684
    
    
    $
    194,008Receivables from customers
    
    
    58,772
    
    
    
    64,168Preneed cemetery receivables and trust investments
    
    $
    263,456
    
    
    $
    258,176
  July 31, 2005Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    27,414
    
    
    $
    
    
    
    $
    
    
    
    $
    27,414U.S. Government, agencies
and municipalities
    
    
    6,470
    
    
    
    96
    
    
    
    (18
    )
    
    
    6,548Corporate bonds
    
    
    10,077
    
    
    
    472
    
    
    
    (88
    )
    
    
    10,461Preferred stocks
    
    
    34,341
    
    
    
    705
    
    
    
    (317
    )
    
    
    34,729Common stocks
    
    
    106,048
    
    
    
    9,909
    
    
    
    (2,908
    )
    
    
    113,049Mutual funds
    
    
    10,410
    
    
    
    494
    
    
    
    (2
    )
    
    
    10,902Insurance contracts and other long-term
investments
    
    
    569
    
    
    
    1
    
    
    
    
    
    
    
    570Trust investments
    
    $
    195,329
    
    
    $
    11,677
    
    
    $
    (3,333
    )
    
    $
    203,673Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104.3
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,075Less trust investments of assets held
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64
    )Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    204,684
  July 31, 2005Due in one year or less
    
    $
    1,175Due in one to five years
    
    
    7,629Due in five to ten years
    
    
    7,618Thereafter
    
    
    587$
    17,009
  32




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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) Preneed Cemetery Merchandise and Service Activities(Continued)
   October 31, 2004Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    50,646
    
    
    $
    4
    
    
    $
    
    
    
    $
    50,650U.S. Government, agencies
and municipalities
    
    
    1,050
    
    
    
    21
    
    
    
    (4
    )
    
    
    1,067Corporate bonds
    
    
    10,690
    
    
    
    1,086
    
    
    
    
    
    
    
    11,776Preferred stocks
    
    
    24,287
    
    
    
    869
    
    
    
    (158
    )
    
    
    24,998Common stocks
    
    
    104,788
    
    
    
    2,482
    
    
    
    (5,934
    )
    
    
    101,336Mutual funds
    
    
    3,774
    
    
    
    70
    
    
    
    (2
    )
    
    
    3,842Insurance contracts and other long-term
investments
    
    
    569
    
    
    
    
    
    
    
    
    
    
    
    569Trust investments
    
    $
    195,804
    
    
    $
    4,532
    
    
    $
    (6,098
    )
    
    $
    194,238Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99.2
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    956Less trust investments of assets
held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,186
    )Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    194,008
 Deferred Preneed Cemetery Revenue
   33




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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) Cemetery Interment Rights and Perpetual Care Trusts
     July 31, 2005Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    18,818
    
    
    $
    
    
    
    $
    
    
    
    $
    18,818U.S. Government, agencies
and municipalities
    
    
    7,043
    
    
    
    87
    
    
    
    (51
    )
    
    
    7,079Corporate bonds
    
    
    18,816
    
    
    
    1,966
    
    
    
    (102
    )
    
    
    20,680Preferred stocks
    
    
    71,794
    
    
    
    1,468
    
    
    
    (1,596
    )
    
    
    71,666Common stocks
    
    
    86,082
    
    
    
    11,875
    
    
    
    (3,196
    )
    
    
    94,761Mutual funds
    
    
    3,550
    
    
    
    142
    
    
    
    (42
    )
    
    
    3,650Insurance contracts and other long-term
investments
    
    
    940
    
    
    
    77
    
    
    
    (4
    )
    
    
    1,013Trust investments
    
    $
    207,043
    
    
    $
    15,615
    
    
    $
    (4,991
    )
    
    $
    217,667Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105.1
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,162Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    218,829
  34




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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) Cemetery Interment Rights and Perpetual Care Trusts(Continued)
  July 31, 2005Due in one year or less
    
    $
    1,058Due in one to five years
    
    
    8,974Due in five to ten years
    
    
    16,345Thereafter
    
    
    1,382$
    27,759
   October 31, 2004Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    29,154
    
    
    $
    
    
    
    $
    (3
    )
    
    $
    29,151U.S. Government, agencies
and municipalities
    
    
    3,173
    
    
    
    62
    
    
    
    (97
    )
    
    
    3,138Corporate bonds
    
    
    19,368
    
    
    
    2,731
    
    
    
    (23
    )
    
    
    22,076Preferred stocks
    
    
    65,176
    
    
    
    2,571
    
    
    
    (46
    )
    
    
    67,701Common stocks
    
    
    78,531
    
    
    
    8,406
    
    
    
    (5,797
    )
    
    
    81,140Mutual funds
    
    
    5,072
    
    
    
    193
    
    
    
    (51
    )
    
    
    5,214Insurance contracts and other long-term
investments
    
    
    841
    
    
    
    43
    
    
    
    
    
    
    
    884Trust investments
    
    $
    201,315
    
    
    $
    14,006
    
    
    $
    (6,017
    )
    
    $
    209,304Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104.0
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    963Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    210,267
  35




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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) Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care Trusts
  Non-controlling InterestNon-controllingInterest inPreneed
    
    
    Preneed
    
    
    
    
    
    
    PerpetualFuneral
    
    
    Cemetery
    
    
    Total
    
    
    Care TrustsTrust assets at market value
    
    $
    454,743
    
    
    $
    204,684
    
    
    $
    659,427
    
    
    $
    218,829Less:Pending withdrawals
    
    
    (5,955
    )
    
    
    (10,838
    )
    
    
    (16,793
    )
    
    
    (2,789
    )Pending deposits
    
    
    1,650
    
    
    
    1,455
    
    
    
    3,105
    
    
    
    593Non-controlling interest
    
    $
    450,438
    
    
    $
    195,301
    
    
    $
    645,739
    
    
    $
    216,633
  Non-controlling InterestNon-controllingInterest inPreneed
    
    
    Preneed
    
    
    
    
    
    
    PerpetualFuneral
    
    
    Cemetery
    
    
    Total
    
    
    Care TrustsTrust assets at market value
    
    $
    439,625
    
    
    $
    194,008
    
    
    $
    633,633
    
    
    $
    210,267Less:Pending withdrawals
    
    
    (6,847
    )
    
    
    (2,797
    )
    
    
    (9,644
    )
    
    
    (1,951
    )Pending deposits
    
    
    1,788
    
    
    
    1,567
    
    
    
    3,355
    
    
    
    577Non-controlling interest
    
    $
    434,566
    
    
    $
    192,778
    
    
    $
    627,344
    
    
    $
    208,893
  36




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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) Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care
Trusts(Continued)
 Investment and other income, net
  Three Months
    
    
    Three Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    EndedJuly 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005Non-controlling interest:Realized gains
    
    $
    6,935
    
    
    $
    797
    
    
    $
    17,042Realized losses
    
    
    (229
    )
    
    
    (2,501
    )
    
    
    (9,869
    )Interest income, dividend and other ordinary income
    
    
    6,658
    
    
    
    5,783
    
    
    
    19,538Trust expenses and income taxes
    
    
    (2,880
    )
    
    
    (3,160
    )
    
    
    (9,192
    )Net trust investment income
    
    
    10,484
    
    
    
    919
    
    
    
    17,519Interest expense related to non-controlling interest in funeral
and cemetery trust investments
    
    
    (6,988
    )
    
    
    (201
    )
    
    
    (11,656
    )Interest expense related to non-controlling interest in
perpetual care trust investments
    
    
    (3,496
    )
    
    
    (718
    )
    
    
    (5,863
    )Total non-controlling interest
    
    
    
    
    
    
    
    
    
    
    Investment and other income, net (1)
    
    
    184
    
    
    
    76
    
    
    
    404Total investment and other income, net
    
    $
    184
    
    
    $
    76
    
    
    $
    404
 
 (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. (8) Commitments and Contingencies
 Henrietta Torres and Teresa Fiore, on behalf of themselves and all others similarly situated
and the General Public v. Stewart Enterprises, Inc., et al
   37




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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) Commitments and Contingencies(Continued)
    In re: Funeral Consumer Antitrust Litigation 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.
    38




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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) Commitments and Contingencies(Continued)
 Ralph Lee Fancher, on behalf of himself and all others similarly
situated v. Service Corporation International, Alderwoods Group, Inc., Stewart Enterprises, Inc.,
Hillenbrand Industries, Inc., Aurora Casket Co., York Group, Inc., and Batesville Casket Co.,
 Civil Investigative Demands
    39




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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) Reconciliation of Basic and Diluted Per Share Data
 Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    DataThree Months Ended July 31, 2005Earnings from continuing operations
    
    $
    10,889Basic earnings per common share:Earnings from continuing operations available to
common shareholders
    
    $
    10,889
    
    
    
    109,147
    
    
    $
    .10Effect of dilutive securities:Time-vest stock options assumed exercised and
restricted stock
    
    
    
    
    
    
    119Diluted earnings per common share:Earnings from continuing operations available to
common shareholders plus time-vest stock
options assumed exercised and restricted stock
    
    $
    10,889
    
    
    
    109,266
    
    
    $
    .10
 Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    DataThree Months Ended July 31, 2004 - RestatedEarnings from continuing operations
    
    $
    10,144Basic earnings per common share:Earnings from continuing operations available to
common shareholders
    
    $
    10,144
    
    
    
    107,067
    
    
    $
    .09Effect of dilutive securities:Time-vest stock options assumed exercised and
restricted stock
    
    
    
    
    
    
    1,001Diluted earnings per common share:Earnings from continuing operations available to
common shareholders plus time-vest stock options
assumed exercised and restricted stock
    
    $
    10,144
    
    
    
    108,068
    
    
    $
    .09
  40




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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) Reconciliation of Basic and Diluted Per Share Data(Continued)
 Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    DataNine Months Ended July 31, 2005Earnings from continuing operations before cumulative
effect of change in accounting principle
    
    $
    16,045Basic earnings per common share:Earnings from continuing operations before cumulative
effect of change in accounting principle available to
common shareholders
    
    $
    16,045
    
    
    
    109,243
    
    
    $
    .14Effect of dilutive securities:Time-vest stock options assumed exercised and
restricted stock
    
    
    
    
    
    
    187Diluted earnings per common share:Earnings from continuing operations before cumulative
effect of change in accounting principle available to
common shareholders plus time-vest stock options
assumed exercised and restricted stock
    
    $
    16,045
    
    
    
    109,430
    
    
    $
    .14
 Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    DataNine
Months Ended July 31, 2004  RestatedEarnings from continuing operations
    
    $
    33,861Basic earnings per common share:Earnings from continuing operations available to
common shareholders
    
    $
    33,861
    
    
    
    107,461
    
    
    $
    .31Effect of dilutive securities:Time-vest stock options assumed exercised and
restricted stock
    
    
    
    
    
    
    600Diluted earnings per common share:Earnings from continuing operations available to
common shareholders plus time-vest stock options
assumed exercised and restricted stock
    
    $
    33,861
    
    
    
    108,061
    
    
    $
    .31
   41




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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) Segment Data
         42




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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) Segment Data(Continued)
         43




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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) Segment Data(Continued)
 Funeral Revenue
    
    
    Cemetery Revenue(1)
    
    
    Total RevenueThree Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedJuly 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005
    
    
    July 31, 2004Central Division
    
    $
    20,572
    
    
    $
    20,086
    
    
    $
    19,469
    
    
    $
    18,388
    
    
    $
    40,041
    
    
    $
    38,474Western Division
    
    
    15,045
    
    
    
    14,662
    
    
    
    3,128
    
    
    
    3,821
    
    
    
    18,173
    
    
    
    18,483Eastern Division
    
    
    12,207
    
    
    
    12,070
    
    
    
    19,400
    
    
    
    18,577
    
    
    
    31,607
    
    
    
    30,647Southern
Division 
Florida
    
    
    10,654
    
    
    
    10,672
    
    
    
    13,104
    
    
    
    10,717
    
    
    
    23,758
    
    
    
    21,389All Other (2)
    
    
    3,117
    
    
    
    3,379
    
    
    
    3,850
    
    
    
    5,966
    
    
    
    6,967
    
    
    
    9,345Corporate Trust
Management
(3)
    
    
    6,284
    
    
    
    6,847
    
    
    
    3,134
    
    
    
    3,088
    
    
    
    9,418
    
    
    
    9,935Total
    
    $
    67,879
    
    
    $
    67,716
    
    
    $
    62,085
    
    
    $
    60,557
    
    
    $
    129,964
    
    
    $
    128,273
 Funeral Revenue
    
    
    Cemetery Revenue(1)
    
    
    Total RevenueNine Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedJuly 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005
    
    
    July 31, 2004Central Division
    
    $
    65,265
    
    
    $
    64,237
    
    
    $
    56,223
    
    
    $
    59,715
    
    
    $
    121,488
    
    
    $
    123,952Western Division
    
    
    46,369
    
    
    
    46,436
    
    
    
    9,429
    
    
    
    10,117
    
    
    
    55,798
    
    
    
    56,553Eastern Division
    
    
    40,365
    
    
    
    39,777
    
    
    
    54,802
    
    
    
    52,959
    
    
    
    95,167
    
    
    
    92,736Southern
Division 
Florida
    
    
    33,704
    
    
    
    32,991
    
    
    
    35,726
    
    
    
    32,559
    
    
    
    69,430
    
    
    
    65,550All Other (2)
    
    
    10,177
    
    
    
    10,129
    
    
    
    11,991
    
    
    
    10,675
    
    
    
    22,168
    
    
    
    20,804Corporate Trust
Management
(3)
    
    
    18,667
    
    
    
    20,648
    
    
    
    9,293
    
    
    
    9,353
    
    
    
    27,960
    
    
    
    30,001Total
    
    $
    214,547
    
    
    $
    214,218
    
    
    $
    177,464
    
    
    $
    175,378
    
    
    $
    392,011
    
    
    $
    389,596
 Funeral Gross Profit
    
    
    Cemetery Gross Profit(1)
    
    
    Total Gross ProfitThree Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedJuly 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005
    
    
    July 31, 2004Central Division
    
    $
    4,562
    
    
    $
    4,937
    
    
    $
    3,973
    
    
    $
    3,965
    
    
    $
    8,535
    
    
    $
    8,902Western Division
    
    
    894
    
    
    
    1,878
    
    
    
    189
    
    
    
    848
    
    
    
    1,083
    
    
    
    2,726Eastern Division
    
    
    1,709
    
    
    
    1,913
    
    
    
    3,434
    
    
    
    2,831
    
    
    
    5,143
    
    
    
    4,744Southern
Division 
Florida
    
    
    853
    
    
    
    1,490
    
    
    
    3,674
    
    
    
    2,018
    
    
    
    4,527
    
    
    
    3,508All Other (2)
    
    
    242
    
    
    
    650
    
    
    
    231
    
    
    
    1,151
    
    
    
    473
    
    
    
    1,801Corporate Trust
Management
(3)
    
    
    6,142
    
    
    
    6,706
    
    
    
    3,007
    
    
    
    2,937
    
    
    
    9,149
    
    
    
    9,643Total
    
    $
    14,402
    
    
    $
    17,574
    (4)
    
    $
    14,508
    
    
    $
    13,750
    (4)
    
    $
    28,910
    
    
    $
    31,324
    (4)
  44




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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) Segment Data(Continued)
 Funeral Gross Profit
    
    
    Cemetery Gross Profit(1)
    
    
    Total Gross ProfitNine Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedJuly 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005
    
    
    July 31, 2004Central Division
    
    $
    16,967
    
    
    $
    17,944
    
    
    $
    12,487
    
    
    $
    14,550
    
    
    $
    29,454
    
    
    $
    32,494Western Division
    
    
    4,863
    
    
    
    7,710
    
    
    
    1,216
    
    
    
    2,506
    
    
    
    6,079
    
    
    
    10,216Eastern Division
    
    
    6,716
    
    
    
    9,034
    
    
    
    8,841
    
    
    
    10,040
    
    
    
    15,557
    
    
    
    19,074Southern
Division 
Florida
    
    
    4,580
    
    
    
    4,959
    
    
    
    8,525
    
    
    
    6,852
    
    
    
    13,105
    
    
    
    11,811All Other (2)
    
    
    1,667
    
    
    
    1,799
    
    
    
    1,465
    
    
    
    233
    
    
    
    3,132
    
    
    
    2,032Corporate Trust
Management
(3)
    
    
    18,223
    
    
    
    20,220
    
    
    
    8,896
    
    
    
    8,895
    
    
    
    27,119
    
    
    
    29,115Total
    
    $
    53,016
    
    
    $
    61,666
    (4)
    
    $
    41,430
    
    
    $
    43,076
    (4)
    
    $
    94,446
    
    
    $
    104,742
    (4)
 Preneed Funeral Merchandise
    
    
    Preneed Cemetery Merchandise
    
    
    Total Preneed Merchandiseand Service Sales(5)
    
    
    and Service Sales(5)
    
    
    and Service Sales(5)Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedJuly 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005
    
    
    July 31, 2004Central Division
    
    $
    5,900
    
    
    $
    5,227
    
    
    $
    3,708
    
    
    $
    3,766
    
    
    $
    9,608
    
    
    $
    8,993Western Division
    
    
    8,166
    
    
    
    7,158
    
    
    
    1,042
    
    
    
    971
    
    
    
    9,208
    
    
    
    8,129Eastern Division
    
    
    4,733
    
    
    
    4,135
    
    
    
    7,098
    
    
    
    7,341
    
    
    
    11,831
    
    
    
    11,476Southern
Division 
Florida
    
    
    4,907
    
    
    
    4,677
    
    
    
    3,053
    
    
    
    3,174
    
    
    
    7,960
    
    
    
    7,851All Other (2)
    
    
    1,242
    
    
    
    1,193
    
    
    
    793
    
    
    
    929
    
    
    
    2,035
    
    
    
    2,122Total
    
    $
    24,948
    
    
    $
    22,390
    
    
    $
    15,694
    
    
    $
    16,181
    
    
    $
    40,642
    
    
    $
    38,571
 Preneed Funeral Merchandise
    
    
    Preneed Cemetery Merchandise
    
    
    Total Preneed Merchandiseand Service Sales(5)
    
    
    and Service Sales(5)
    
    
    and Service Sales(5)Nine Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedJuly 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005
    
    
    July 31, 2004Central Division
    
    $
    17,696
    
    
    $
    15,504
    
    
    $
    10,255
    
    
    $
    10,377
    
    
    $
    27,951
    
    
    $
    25,881Western Division
    
    
    21,118
    
    
    
    18,902
    
    
    
    2,902
    
    
    
    2,828
    
    
    
    24,020
    
    
    
    21,730Eastern Division
    
    
    13,495
    
    
    
    12,296
    
    
    
    20,353
    
    
    
    20,374
    
    
    
    33,848
    
    
    
    32,670Southern
Division 
Florida
    
    
    14,635
    
    
    
    13,996
    
    
    
    9,244
    
    
    
    9,726
    
    
    
    23,879
    
    
    
    23,722All Other (2)
    
    
    3,410
    
    
    
    3,627
    
    
    
    2,513
    
    
    
    2,933
    
    
    
    5,923
    
    
    
    6,560Total
    
    $
    70,354
    
    
    $
    64,325
    
    
    $
    45,267
    
    
    $
    46,238
    
    
    $
    115,621
    
    
    $
    110,563
 Total Funeral Assets
    
    
    Total Cemetery Assets
    
    
    Total AssetsJuly 31,
    
    
    October 31,
    
    
    July 31,
    
    
    October 31,
    
    
    July 31,
    
    
    October 31,2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Central Division
    
    $
    213,540
    
    
    $
    244,379
    
    
    $
    325,886
    
    
    $
    334,928
    
    
    $
    539,426
    
    
    $
    579,307Western Division
    
    
    73,557
    
    
    
    90,331
    
    
    
    62,550
    
    
    
    56,414
    
    
    
    136,107
    
    
    
    146,745Eastern Division
    
    
    69,040
    
    
    
    78,932
    
    
    
    327,726
    
    
    
    343,661
    
    
    
    396,766
    
    
    
    422,593Southern Division 
Florida
    
    
    134,178
    
    
    
    153,247
    
    
    
    235,687
    
    
    
    297,668
    
    
    
    369,865
    
    
    
    450,915All Other (2)
    
    
    53,687
    
    
    
    61,300
    
    
    
    73,125
    
    
    
    75,417
    
    
    
    126,812
    
    
    
    136,717Corporate Trust
Management
(3)
    
    
    454,743
    
    
    
    439,625
    
    
    
    204,684
    
    
    
    194,008
    
    
    
    659,427
    
    
    
    633,633Reconciling Items
(6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84,800
    
    
    
    72,423Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,313,203
    
    
    $
    2,442,333
  45




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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) Segment Data(Continued)
 Funeral Goodwill
    
    
    Cemetery Goodwill
    
    
    Total GoodwillJuly 31,
    
    
    October 31,
    
    
    July 31,
    
    
    October 31,
    
    
    July 31,
    
    
    October 31,2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Central Division
    
    $
    116,881
    
    
    $
    116,881
    
    
    $
    44,345
    
    
    $
    44,345
    
    
    $
    161,226
    
    
    $
    161,226Western Division
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Eastern Division
    
    
    17,051
    
    
    
    17,051
    
    
    
    25,037
    
    
    
    25,122
    
    
    
    42,088
    
    
    
    42,173Southern Division 
Florida
    
    
    46,159
    
    
    
    46,199
    
    
    
    
    
    
    
    
    
    
    
    46,159
    
    
    
    46,199All Other (2)
    
    
    18,386
    
    
    
    17,571
    
    
    
    
    
    
    
    
    
    
    
    18,386
    
    
    
    17,571Total
    
    $
    198,477
    
    
    $
    197,702
    
    
    $
    69,382
    
    
    $
    69,467
    
    
    $
    267,859
    
    
    $
    267,169
 
 1)
    
    Perpetual care trust earnings are included in the revenues and gross profit of
the related geographic segment.(2)
    
    All Other represents the Companys operations in Puerto Rico.(3)
    
    Corporate trust management consists of trust management fees and funeral and
cemetery merchandise and service trust earnings recognized with respect to preneed contracts
delivered during the period. Trust management fees are established by the Company at rates
consistent with industry norms and are paid by the trusts to the Companys subsidiary,
Investors Trust, Inc. The trust earnings represent earnings realized over the life of the
preneed contracts delivered during the relevant periods. Trust management fees included in
funeral revenue for the three months ended July 31, 2005 and 2004 were $1,350 and $1,323,
respectively, and funeral trust earnings for the three months ended July 31, 2005 and 2004
were $4,934 and $5,524, respectively. Trust management fees included in cemetery revenue for
the three months ended July 31, 2005 and 2004 were $1,256 and $1,131, respectively, and
cemetery trust earnings for the three months ended July 31, 2005 and 2004 were $1,878 and
$1,957, respectively. Trust management fees included in funeral revenue for the nine months
ended July 31, 2005 and 2004 were $4,027 and $4,199, respectively, and funeral trust earnings
for the nine months ended July 31, 2005 and 2004 were $14,640 and $16,449, respectively.
Trust management fees included in cemetery revenue for the nine months ended July 31, 2005 and
2004 were $3,721 and $3,525, respectively, and cemetery trust earnings for the nine months
ended July 31, 2005 and 2004 were $5,572 and $5,828, respectively.(4)
    
    Funeral and cemetery gross profit for the three and nine months ended July 31, 2004
do not include net preneed selling costs which would have been expensed if the accounting
change described in Note 3(a) had been implemented in fiscal year 2004. The effect of net
preneed selling costs is calculated by removing the amortization of deferred selling costs and
including in expense the preneed selling costs incurred during 2004. The result of that
calculation is the net preneed selling costs that would have reduced 2004 gross profit if the
accounting change had been implemented in fiscal year 2004. Net preneed funeral selling costs
amounted to $1,433 and $3,588 for the three and nine months ended July 31, 2004, respectively.
Net preneed cemetery selling costs amounted to $128 and $1,129 for the three and nine months
ended July 31, 2004, respectively.(5)
    
    Preneed sales amounts represent total preneed funeral and cemetery service and
merchandise sales generated in the applicable period, net of cancellations.(6)
    
    Reconciling items consist of unallocated corporate assets.  46




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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) Segment Data(Continued)
  Three Months Ended
    
    
    Nine Months EndedJuly 31,
    
    
    July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(Restated)
    
    
    
    
    
    
    (Restated)Gross profit for reportable segments
    
    $
    28,910
    
    
    $
    31,324
    
    
    $
    94,446
    
    
    $
    104,742Corporate general and administrative expenses
    
    
    (5,545
    )
    
    
    (4,150
    )
    
    
    (14,343
    )
    
    
    (12,684
    )Separation charges
    
    
    (147
    )
    
    
    (1,085
    )
    
    
    (147
    )
    
    
    (3,216
    )Gains on dispositions and impairment (losses), net
    
    
    63
    
    
    
    304
    
    
    
    1,300
    
    
    
    54Other operating income, net
    
    
    571
    
    
    
    1,000
    
    
    
    1,069
    
    
    
    1,948Interest expense
    
    
    (6,456
    )
    
    
    (11,502
    )
    
    
    (23,503
    )
    
    
    (35,976
    )Loss on early extinguishment of debt
    
    
    (114
    )
    
    
    
    
    
    
    (32,822
    )
    
    
    Investment and other income (expense), net
    
    
    184
    
    
    
    76
    
    
    
    404
    
    
    
    (992
    )Earnings from continuing operations
before
income taxes and cumulative effect of change
in accounting principle
    
    $
    17,466
    
    
    $
    15,967
    
    
    $
    26,404
    
    
    $
    53,876
  47




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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) Supplementary Information
  Three Months Ended
    
    
    Nine Months EndedJuly 31,
    
    
    July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Service revenueFuneral
    
    $
    38,748
    
    
    $
    38,004
    
    
    $
    121,756
    
    
    $
    120,378Cemetery
    
    
    16,052
    
    
    
    13,174
    
    
    
    44,804
    
    
    
    42,98254,800
    
    
    
    51,178
    
    
    
    166,560
    
    
    
    163,360Merchandise revenueFuneral
    
    
    27,116
    
    
    
    27,540
    
    
    
    86,783
    
    
    
    87,052Cemetery
    
    
    41,939
    
    
    
    43,148
    
    
    
    120,933
    
    
    
    119,29169,055
    
    
    
    70,688
    
    
    
    207,716
    
    
    
    206,343Other revenueFuneral
    
    
    2,015
    
    
    
    2,172
    
    
    
    6,008
    
    
    
    6,788Cemetery
    
    
    4,094
    
    
    
    4,235
    
    
    
    11,727
    
    
    
    13,1056,109
    
    
    
    6,407
    
    
    
    17,735
    
    
    
    19,893Total revenue
    
    $
    129,964
    
    
    $
    128,273
    
    
    $
    392,011
    
    
    $
    389,596Service costsFuneral
    
    $
    14,024
    
    
    $
    11,985
    
    
    $
    40,200
    
    
    $
    35,892Cemetery
    
    
    10,772
    
    
    
    10,412
    
    
    
    30,166
    
    
    
    29,12424,796
    
    
    
    22,397
    
    
    
    70,366
    
    
    
    65,016Merchandise costsFuneral
    
    
    15,877
    
    
    
    15,196
    
    
    
    48,698
    
    
    
    47,483Cemetery
    
    
    23,256
    
    
    
    23,320
    
    
    
    66,227
    
    
    
    64,10039,133
    
    
    
    38,516
    
    
    
    114,925
    
    
    
    111,583General and administrative expensesFuneral
    
    
    23,576
    
    
    
    22,961
    
    
    
    72,633
    
    
    
    69,177Cemetery
    
    
    13,549
    
    
    
    13,075
    
    
    
    39,641
    
    
    
    39,07837,125
    
    
    
    36,036
    
    
    
    112,274
    
    
    
    108,255Total costs
    
    $
    101,054
    
    
    $
    96,949
    
    
    $
    297,565
    
    
    $
    284,854
  48




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (12) Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes and
Senior Notes
  Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Three Months Ended July 31, 2005Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Funeral
    
    $
    
    
    
    $
    62,991
    
    
    $
    4,888
    
    
    $
    
    
    
    $
    67,879Cemetery
    
    
    
    
    
    
    56,395
    
    
    
    5,690
    
    
    
    
    
    
    
    62,085
    
    
    
    119,386
    
    
    
    10,578
    
    
    
    
    
    
    
    129,964Costs and expenses:Funeral
    
    
    
    
    
    
    50,119
    
    
    
    3,358
    
    
    
    
    
    
    
    53,477Cemetery
    
    
    
    
    
    
    43,606
    
    
    
    3,971
    
    
    
    
    
    
    
    47,577
    
    
    
    93,725
    
    
    
    7,329
    
    
    
    
    
    
    
    101,054Gross profit
    
    
    
    
    
    
    25,661
    
    
    
    3,249
    
    
    
    
    
    
    
    28,910Corporate general and administrative
expenses
    
    
    (5,545
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,545
    )Separation charges
    
    
    (147
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (147
    )Gains on dispositions and impairment
(losses), net
    
    
    
    
    
    
    (26
    )
    
    
    89
    
    
    
    
    
    
    
    63Other operating income, net
    
    
    79
    
    
    
    166
    
    
    
    326
    
    
    
    
    
    
    
    571Operating earnings (loss)
    
    
    (5,613
    )
    
    
    25,801
    
    
    
    3,664
    
    
    
    
    
    
    
    23,852Interest income (expense)
    
    
    14,483
    
    
    
    (18,562
    )
    
    
    (2,377
    )
    
    
    
    
    
    
    (6,456
    )Loss on early extinguishment of debt
    
    
    (114
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (114
    )Investment and other income, net
    
    
    184
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    184Earnings from continuing operations
before income taxes
    
    
    8,940
    
    
    
    7,239
    
    
    
    1,287
    
    
    
    
    
    
    
    17,466Income taxes
    
    
    2,926
    
    
    
    2,762
    
    
    
    889
    
    
    
    
    
    
    
    6,577Earnings from continuing operations
    
    
    6,014
    
    
    
    4,477
    
    
    
    398
    
    
    
    
    
    
    
    10,889Discontinued operations:Earnings (loss) from discontinued
operations before income taxes
    
    
    
    
    
    
    (281
    )
    
    
    871
    
    
    
    
    
    
    
    590Income tax benefit
    
    
    
    
    
    
    (157
    )
    
    
    
    
    
    
    
    
    
    
    (157
    )Earnings (loss) from discontinued
operations
    
    
    
    
    
    
    (124
    )
    
    
    871
    
    
    
    
    
    
    
    747Net earnings before equity in
subsidiaries
    
    
    6,014
    
    
    
    4,353
    
    
    
    1,269
    
    
    
    
    
    
    
    11,636Equity in subsidiaries
    
    
    5,622
    
    
    
    
    
    
    
    
    
    
    
    (5,622
    )
    
    
    Net earnings
    
    
    11,636
    
    
    
    4,353
    
    
    
    1,269
    
    
    
    (5,622
    )
    
    
    11,636Other comprehensive loss, net
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )
    
    
    2
    
    
    
    (2
    )Comprehensive income
    
    $
    11,634
    
    
    $
    4,353
    
    
    $
    1,267
    
    
    $
    (5,620
    )
    
    $
    11,634
  49




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (12) Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes and
Senior Notes(Continued)
 Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Three Months Ended July 31, 2004Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)Revenues:Funeral
    
    $
    
    
    
    $
    62,676
    
    
    $
    5,040
    
    
    $
    
    
    
    $
    67,716Cemetery
    
    
    
    
    
    
    54,634
    
    
    
    5,923
    
    
    
    
    
    
    
    60,557
    
    
    
    117,310
    
    
    
    10,963
    
    
    
    
    
    
    
    128,273Costs and expenses:Funeral
    
    
    
    
    
    
    46,998
    
    
    
    3,144
    
    
    
    
    
    
    
    50,142Cemetery
    
    
    
    
    
    
    42,362
    
    
    
    4,445
    
    
    
    
    
    
    
    46,807
    
    
    
    89,360
    
    
    
    7,589
    
    
    
    
    
    
    
    96,949Gross profit
    
    
    
    
    
    
    27,950
    
    
    
    3,374
    
    
    
    
    
    
    
    31,324Corporate general and administrative
expenses
    
    
    (4,150
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,150
    )Separation charges
    
    
    (1,085
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,085
    )Gains on dispositions and impairment
(losses), net
    
    
    
    
    
    
    (170
    )
    
    
    474
    
    
    
    
    
    
    
    304Other operating income, net
    
    
    28
    
    
    
    863
    
    
    
    109
    
    
    
    
    
    
    
    1,000Operating earnings (loss)
    
    
    (5,207
    )
    
    
    28,643
    
    
    
    3,957
    
    
    
    
    
    
    
    27,393Interest income (expense)
    
    
    10,246
    
    
    
    (19,697
    )
    
    
    (2,051
    )
    
    
    
    
    
    
    (11,502
    )Investment and other income, net
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76Earnings from continuing operations
before income taxes
    
    
    5,115
    
    
    
    8,946
    
    
    
    1,906
    
    
    
    
    
    
    
    15,967Income taxes
    
    
    1,665
    
    
    
    3,335
    
    
    
    823
    
    
    
    
    
    
    
    5,823Earnings from continuing operations
    
    
    3,450
    
    
    
    5,611
    
    
    
    1,083
    
    
    
    
    
    
    
    10,144Discontinued operations:Earnings from discontinued operations
before income taxes
    
    
    
    
    
    
    532
    
    
    
    4
    
    
    
    
    
    
    
    536Income tax benefit
    
    
    
    
    
    
    (1,207
    )
    
    
    
    
    
    
    
    
    
    
    (1,207
    )Earnings from discontinued operations
    
    
    
    
    
    
    1,739
    
    
    
    4
    
    
    
    
    
    
    
    1,743Net earnings before equity in
subsidiaries
    
    
    3,450
    
    
    
    7,350
    
    
    
    1,087
    
    
    
    
    
    
    
    11,887Equity in subsidiaries
    
    
    8,437
    
    
    
    
    
    
    
    
    
    
    
    (8,437
    )
    
    
    Net earnings
    
    
    11,887
    
    
    
    7,350
    
    
    
    1,087
    
    
    
    (8,437
    )
    
    
    11,887Other comprehensive income, net
    
    
    287
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    287Comprehensive income
    
    $
    12,174
    
    
    $
    7,350
    
    
    $
    1,087
    
    
    $
    (8,437
    )
    
    $
    12,174
  50




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (12)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated
Notes and Senior Notes(Continued)
 Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Nine Months Ended July 31, 2005Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Funeral
    
    $
    
    
    
    $
    199,164
    
    
    $
    15,383
    
    
    $
    
    
    
    $
    214,547Cemetery
    
    
    
    
    
    
    160,262
    
    
    
    17,202
    
    
    
    
    
    
    
    177,464
    
    
    
    359,426
    
    
    
    32,585
    
    
    
    
    
    
    
    392,011Costs and expenses:Funeral
    
    
    
    
    
    
    151,732
    
    
    
    9,799
    
    
    
    
    
    
    
    161,531Cemetery
    
    
    
    
    
    
    124,236
    
    
    
    11,798
    
    
    
    
    
    
    
    136,034
    
    
    
    275,968
    
    
    
    21,597
    
    
    
    
    
    
    
    297,565Gross profit
    
    
    
    
    
    
    83,458
    
    
    
    10,988
    
    
    
    
    
    
    
    94,446Corporate general and administrative
expenses
    
    
    (14,343
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,343
    )Separation charges
    
    
    (147
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (147
    )Gains on dispositions and impairment
(losses), net
    
    
    
    
    
    
    961
    
    
    
    339
    
    
    
    
    
    
    
    1,300Other operating income, net
    
    
    240
    
    
    
    416
    
    
    
    413
    
    
    
    
    
    
    
    1,069Operating earnings (loss)
    
    
    (14,250
    )
    
    
    84,835
    
    
    
    11,740
    
    
    
    
    
    
    
    82,325Interest income (expense)
    
    
    40,043
    
    
    
    (57,375
    )
    
    
    (6,171
    )
    
    
    
    
    
    
    (23,503
    )Loss on early extinguishment of debt
    
    
    (32,822
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,822
    )Investment and other income, net
    
    
    404
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    404Earnings (loss) from continuing
operations before income taxes
    
    
    (6,625
    )
    
    
    27,460
    
    
    
    5,569
    
    
    
    
    
    
    
    26,404Income tax expense (benefit)
    
    
    (2,505
    )
    
    
    10,233
    
    
    
    2,631
    
    
    
    
    
    
    
    10,359Earnings (loss) from continuing
operations
    
    
    (4,120
    )
    
    
    17,227
    
    
    
    2,938
    
    
    
    
    
    
    
    16,045Discontinued operations:Earnings (loss) from discontinued
operations before income taxes
    
    
    
    
    
    
    (246
    )
    
    
    1,215
    
    
    
    
    
    
    
    969Income tax benefit
    
    
    
    
    
    
    (48
    )
    
    
    
    
    
    
    
    
    
    
    (48
    )Earnings (loss) from discontinued
operations
    
    
    
    
    
    
    (198
    )
    
    
    1,215
    
    
    
    
    
    
    
    1,017Earnings (loss) before cumulative effect
of change in accounting principle
    
    
    (4,120
    )
    
    
    17,029
    
    
    
    4,153
    
    
    
    
    
    
    
    17,062Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    (131,395
    )
    
    
    (9,923
    )
    
    
    
    
    
    
    (141,318
    )Net loss before equity (loss) in
subsidiaries
    
    
    (4,120
    )
    
    
    (114,366
    )
    
    
    (5,770
    )
    
    
    
    
    
    
    (124,256
    )Equity (loss) in subsidiaries
    
    
    (120,136
    )
    
    
    
    
    
    
    
    
    
    
    120,136
    
    
    
    Net loss
    
    
    (124,256
    )
    
    
    (114,366
    )
    
    
    (5,770
    )
    
    
    120,136
    
    
    
    (124,256
    )Other comprehensive income (loss), net
    
    
    331
    
    
    
    
    
    
    
    (2
    )
    
    
    2
    
    
    
    331Comprehensive loss
    
    $
    (123,925
    )
    
    $
    (114,366
    )
    
    $
    (5,772
    )
    
    $
    120,138
    
    
    $
    (123,925
    )
  51




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (12)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes and
Senior Notes(Continued)
 Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Nine Months Ended July 31, 2004Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)Revenues:Funeral
    
    $
    
    
    
    $
    198,637
    
    
    $
    15,581
    
    
    $
    
    
    
    $
    214,218Cemetery
    
    
    
    
    
    
    157,290
    
    
    
    18,088
    
    
    
    
    
    
    
    175,378
    
    
    
    355,927
    
    
    
    33,669
    
    
    
    
    
    
    
    389,596Costs and expenses:Funeral
    
    
    
    
    
    
    142,898
    
    
    
    9,654
    
    
    
    
    
    
    
    152,552Cemetery
    
    
    
    
    
    
    118,697
    
    
    
    13,605
    
    
    
    
    
    
    
    132,302
    
    
    
    261,595
    
    
    
    23,259
    
    
    
    
    
    
    
    284,854Gross profit
    
    
    
    
    
    
    94,332
    
    
    
    10,410
    
    
    
    
    
    
    
    104,742Corporate general and administrative
expenses
    
    
    (12,684
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,684
    )Separation charges
    
    
    (1,567
    )
    
    
    (1,629
    )
    
    
    (20
    )
    
    
    
    
    
    
    (3,216
    )Gains on dispositions and impairment
(losses), net
    
    
    
    
    
    
    (676
    )
    
    
    730
    
    
    
    
    
    
    
    54Other operating income (expense), net
    
    
    297
    
    
    
    1,666
    
    
    
    (15
    )
    
    
    
    
    
    
    1,948Operating earnings (loss)
    
    
    (13,954
    )
    
    
    93,693
    
    
    
    11,105
    
    
    
    
    
    
    
    90,844Interest income (expense)
    
    
    29,670
    
    
    
    (59,364
    )
    
    
    (6,282
    )
    
    
    
    
    
    
    (35,976
    )Investment and other income (expense),
net
    
    
    (992
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (992
    )Earnings from continuing operations
before income taxes
    
    
    14,724
    
    
    
    34,329
    
    
    
    4,823
    
    
    
    
    
    
    
    53,876Income taxes
    
    
    4,468
    
    
    
    12,865
    
    
    
    2,682
    
    
    
    
    
    
    
    20,015Earnings from continuing operations
    
    
    10,256
    
    
    
    21,464
    
    
    
    2,141
    
    
    
    
    
    
    
    33,861Discontinued operations:Earnings from discontinued operations
before income taxes
    
    
    
    
    
    
    2,555
    
    
    
    71
    
    
    
    
    
    
    
    2,626Income tax benefit
    
    
    
    
    
    
    (1,196
    )
    
    
    
    
    
    
    
    
    
    
    (1,196
    )Earnings from discontinued operations
    
    
    
    
    
    
    3,751
    
    
    
    71
    
    
    
    
    
    
    
    3,822Net earnings before equity in
subsidiaries
    
    
    10,256
    
    
    
    25,215
    
    
    
    2,212
    
    
    
    
    
    
    
    37,683Equity in subsidiaries
    
    
    27,427
    
    
    
    
    
    
    
    
    
    
    
    (27,427
    )
    
    
    Net earnings
    
    
    37,683
    
    
    
    25,215
    
    
    
    2,212
    
    
    
    (27,427
    )
    
    
    37,683Other comprehensive income, net
    
    
    1,888
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,888Comprehensive income
    
    $
    39,571
    
    
    $
    25,215
    
    
    $
    2,212
    
    
    $
    (27,427
    )
    
    $
    39,571
  52




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (12)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes and
Senior Notes(Continued)
 Condensed Consolidating Balance Sheets
 July 31, 2005Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalent investments
    
    $
    22,937
    
    
    $
    6,147
    
    
    $
    251
    
    
    $
    
    
    
    $
    29,335Marketable securities
    
    
    
    
    
    
    
    
    
    
    1,290
    
    
    
    
    
    
    
    1,290Receivables, net of allowances
    
    
    7,993
    
    
    
    41,520
    
    
    
    13,196
    
    
    
    
    
    
    
    62,709Inventories
    
    
    438
    
    
    
    29,966
    
    
    
    6,854
    
    
    
    
    
    
    
    37,258Prepaid expenses
    
    
    666
    
    
    
    2,712
    
    
    
    248
    
    
    
    
    
    
    
    3,626Deferred income taxes, net
    
    
    2,145
    
    
    
    2,053
    
    
    
    
    
    
    
    
    
    
    
    4,198Assets held for sale
    
    
    
    
    
    
    738
    
    
    
    
    
    
    
    
    
    
    
    738Total current assets
    
    
    34,179
    
    
    
    83,136
    
    
    
    21,839
    
    
    
    
    
    
    
    139,154Receivables due beyond one year, net of
allowances
    
    
    
    
    
    
    63,575
    
    
    
    13,146
    
    
    
    
    
    
    
    76,721Preneed funeral receivables and trust
investments
    
    
    
    
    
    
    503,230
    
    
    
    11,491
    
    
    
    
    
    
    
    514,721Preneed cemetery receivables and trust
investments
    
    
    
    
    
    
    244,686
    
    
    
    18,770
    
    
    
    
    
    
    
    263,456Goodwill
    
    
    
    
    
    
    247,513
    
    
    
    20,346
    
    
    
    
    
    
    
    267,859Deferred charges
    
    
    3,770
    
    
    
    14,846
    
    
    
    949
    
    
    
    
    
    
    
    19,565Cemetery property, at cost
    
    
    
    
    
    
    349,896
    
    
    
    20,293
    
    
    
    
    
    
    
    370,189Property and equipment, at cost
    
    
    34,095
    
    
    
    432,789
    
    
    
    36,218
    
    
    
    
    
    
    
    503,102Less accumulated depreciation
    
    
    19,000
    
    
    
    170,046
    
    
    
    10,887
    
    
    
    
    
    
    
    199,933Net property and equipment
    
    
    15,095
    
    
    
    262,743
    
    
    
    25,331
    
    
    
    
    
    
    
    303,169Deferred income taxes, net
    
    
    12,808
    
    
    
    105,828
    
    
    
    19,487
    
    
    
    
    
    
    
    138,123Cemetery perpetual care trust investments
    
    
    
    
    
    
    218,829
    
    
    
    
    
    
    
    
    
    
    
    218,829Other assets
    
    
    105
    
    
    
    1,312
    
    
    
    
    
    
    
    
    
    
    
    1,417Total assets
    
    $
    65,957
    
    
    $
    2,095,594
    
    
    $
    151,652
    
    
    $
    
    
    
    $
    2,313,203LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    3,232
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,232Accounts payable
    
    
    137
    
    
    
    7,101
    
    
    
    223
    
    
    
    
    
    
    
    7,461Accrued expenses and other current
liabilities
    
    
    15,046
    
    
    
    34,357
    
    
    
    4,638
    
    
    
    
    
    
    
    54,041Liabilities associated with assets held
for sale
    
    
    
    
    
    
    401
    
    
    
    
    
    
    
    
    
    
    
    401Total current liabilities
    
    
    18,415
    
    
    
    41,859
    
    
    
    4,861
    
    
    
    
    
    
    
    65,135Long-term debt, less current maturities
    
    
    377,552
    
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    407,552Intercompany payables, net
    
    
    (1,011,181
    )
    
    
    989,119
    
    
    
    22,062
    
    
    
    
    
    
    
    Deferred preneed funeral revenue
    
    
    
    
    
    
    76,371
    
    
    
    62,360
    
    
    
    
    
    
    
    138,731Deferred preneed cemetery revenue
    
    
    
    
    
    
    265,500
    
    
    
    27,428
    
    
    
    
    
    
    
    292,928Non-controlling interest in funeral and
cemetery trusts
    
    
    
    
    
    
    645,739
    
    
    
    
    
    
    
    
    
    
    
    645,739Other long-term liabilities
    
    
    145,749
    
    
    
    2,157
    
    
    
    
    
    
    
    (136,843
    )
    
    
    11,063Total liabilities
    
    
    (469,465
    )
    
    
    2,020,745
    
    
    
    146,711
    
    
    
    (136,843
    )
    
    
    1,561,148Non-controlling interest in perpetual care
trusts
    
    
    
    
    
    
    216,633
    
    
    
    
    
    
    
    
    
    
    
    216,633Common stock
    
    
    108,669
    
    
    
    426
    
    
    
    52
    
    
    
    (478
    )
    
    
    108,669Other
    
    
    426,755
    
    
    
    (142,210
    )
    
    
    4,891
    
    
    
    137,319
    
    
    
    426,755Accumulated other comprehensive loss
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )
    
    
    2
    
    
    
    (2
    )Total shareholders equity
    
    
    535,422
    
    
    
    (141,784
    )
    
    
    4,941
    
    
    
    136,843
    
    
    
    535,422Total liabilities and shareholders equity
    
    $
    65,957
    
    
    $
    2,095,594
    
    
    $
    151,652
    
    
    $
    
    
    
    $
    2,313,203
  53




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (12)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated
Notes and Senior Notes(Continued)
 Condensed Consolidating Balance Sheets
 October 31, 2004Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)ASSETSCurrent assets:Cash and cash equivalent investments
    
    $
    13,553
    
    
    $
    7,625
    
    
    $
    336
    
    
    $
    
    
    
    $
    21,514Marketable securities
    
    
    
    
    
    
    16
    
    
    
    1,281
    
    
    
    
    
    
    
    1,297Receivables, net of allowances
    
    
    4,551
    
    
    
    41,087
    
    
    
    14,529
    
    
    
    
    
    
    
    60,167Inventories
    
    
    389
    
    
    
    32,228
    
    
    
    6,608
    
    
    
    
    
    
    
    39,225Prepaid expenses
    
    
    822
    
    
    
    2,117
    
    
    
    14
    
    
    
    
    
    
    
    2,953Deferred income taxes, net
    
    
    2,263
    
    
    
    2,259
    
    
    
    
    
    
    
    
    
    
    
    4,522Assets held for sale
    
    
    
    
    
    
    7,393
    
    
    
    3,100
    
    
    
    
    
    
    
    10,493Total current assets
    
    
    21,578
    
    
    
    92,725
    
    
    
    25,868
    
    
    
    
    
    
    
    140,171Receivables due beyond one year, net of
allowances
    
    
    98
    
    
    
    64,139
    
    
    
    14,455
    
    
    
    
    
    
    
    78,692Preneed funeral receivables and trust
investments
    
    
    
    
    
    
    487,840
    
    
    
    15,968
    
    
    
    
    
    
    
    503,808Preneed cemetery receivables and trust
investments
    
    
    
    
    
    
    232,493
    
    
    
    25,683
    
    
    
    
    
    
    
    258,176Goodwill
    
    
    
    
    
    
    242,007
    
    
    
    25,162
    
    
    
    
    
    
    
    267,169Deferred charges
    
    
    4,859
    
    
    
    229,507
    
    
    
    19,912
    
    
    
    
    
    
    
    254,278Cemetery property, at cost
    
    
    
    
    
    
    345,533
    
    
    
    24,801
    
    
    
    
    
    
    
    370,334Property and equipment, at cost
    
    
    31,845
    
    
    
    426,969
    
    
    
    33,638
    
    
    
    
    
    
    
    492,452Less accumulated depreciation
    
    
    17,273
    
    
    
    161,931
    
    
    
    10,158
    
    
    
    
    
    
    
    189,362Net property and equipment
    
    
    14,572
    
    
    
    265,038
    
    
    
    23,480
    
    
    
    
    
    
    
    303,090Deferred income taxes, net
    
    
    12,808
    
    
    
    29,198
    
    
    
    12,934
    
    
    
    
    
    
    
    54,940Cemetery perpetual care trust investments
    
    
    
    
    
    
    210,267
    
    
    
    
    
    
    
    
    
    
    
    210,267Other assets
    
    
    104
    
    
    
    1,304
    
    
    
    
    
    
    
    
    
    
    
    1,408Total assets
    
    $
    54,019
    
    
    $
    2,200,051
    
    
    $
    188,263
    
    
    $
    
    
    
    $
    2,442,333LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    1,725
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,725Accounts payable
    
    
    1,090
    
    
    
    7,662
    
    
    
    323
    
    
    
    
    
    
    
    9,075Accrued expenses and other current
liabilities
    
    
    17,992
    
    
    
    35,332
    
    
    
    5,645
    
    
    
    
    
    
    
    58,969Liabilities associated with assets held
for sale
    
    
    
    
    
    
    4,777
    
    
    
    1,714
    
    
    
    
    
    
    
    6,491Total current liabilities
    
    
    20,807
    
    
    
    47,771
    
    
    
    7,682
    
    
    
    
    
    
    
    76,260Long-term debt, less current maturities
    
    
    385,080
    
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    415,080Intercompany payables, net
    
    
    (1,041,358
    )
    
    
    1,001,193
    
    
    
    40,165
    
    
    
    
    
    
    
    Deferred preneed funeral revenue
    
    
    
    
    
    
    95,911
    
    
    
    61,056
    
    
    
    
    
    
    
    156,967Deferred preneed cemetery revenue
    
    
    
    
    
    
    245,495
    
    
    
    38,763
    
    
    
    
    
    
    
    284,258Non-controlling interest in funeral and
cemetery trusts
    
    
    
    
    
    
    627,344
    
    
    
    
    
    
    
    
    
    
    
    627,344Other long-term liabilities
    
    
    27,089
    
    
    
    860
    
    
    
    
    
    
    
    (16,819
    )
    
    
    11,130Total liabilities
    
    
    (608,382
    )
    
    
    2,018,574
    
    
    
    177,666
    
    
    
    (16,819
    )
    
    
    1,571,039Non-controlling interest in perpetual care
trusts
    
    
    
    
    
    
    208,893
    
    
    
    
    
    
    
    
    
    
    
    208,893Common stock
    
    
    107,885
    
    
    
    426
    
    
    
    52
    
    
    
    (478
    )
    
    
    107,885Other
    
    
    554,849
    
    
    
    (27,842
    )
    
    
    10,545
    
    
    
    17,297
    
    
    
    554,849Accumulated other comprehensive loss
    
    
    (333
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (333
    )Total shareholders equity
    
    
    662,401
    
    
    
    (27,416
    )
    
    
    10,597
    
    
    
    16,819
    
    
    
    662,401Total liabilities and shareholders equity
    
    $
    54,019
    
    
    $
    2,200,051
    
    
    $
    188,263
    
    
    $
    
    
    
    $
    2,442,333
  54




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (12)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated
Notes and Senior Notes(Continued)
 Condensed Consolidating Statements of Cash Flows
 Nine Months Ended July 31, 2005Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    21,424
    
    
    $
    24,857
    
    
    $
    12,909
    
    
    $
    
    
    
    $
    59,190Cash flows from investing activities:Proceeds from sales of marketable securities
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    16Proceeds from sale of assets, net
    
    
    (328
    )
    
    
    7,594
    
    
    
    2,465
    
    
    
    
    
    
    
    9,731Additions to property and equipment
    
    
    (2,751
    )
    
    
    (11,647
    )
    
    
    (3,498
    )
    
    
    
    
    
    
    (17,896
    )Other
    
    
    
    
    
    
    98
    
    
    
    15
    
    
    
    
    
    
    
    113Net cash used in investing activities
    
    
    (3,079
    )
    
    
    (3,939
    )
    
    
    (1,018
    )
    
    
    
    
    
    
    (8,036
    )Cash flows from financing activities:Proceeds from long-term debt
    
    
    440,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    440,000Repayments of long-term debt
    
    
    (446,021
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (446,021
    )Intercompany receivables (payables)
    
    
    34,372
    
    
    
    (22,396
    )
    
    
    (11,976
    )
    
    
    
    
    
    
    Debt issue costs and tender premium
    
    
    (31,710
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,710
    )Issuance of common stock
    
    
    13,541
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,541Purchase and retirement of common
stock
    
    
    (13,685
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,685
    )Dividends
    
    
    (5,466
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,466
    )Other
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Net cash used in financing activities
    
    
    (8,961
    )
    
    
    (22,396
    )
    
    
    (11,976
    )
    
    
    
    
    
    
    (43,333
    )Net increase (decrease) in cash
    
    
    9,384
    
    
    
    (1,478
    )
    
    
    (85
    )
    
    
    
    
    
    
    7,821Cash and cash equivalents, beginning of
period
    
    
    13,553
    
    
    
    7,625
    
    
    
    336
    
    
    
    
    
    
    
    21,514Cash and cash equivalents, end of
period
    
    $
    22,937
    
    
    $
    6,147
    
    
    $
    251
    
    
    $
    
    
    
    $
    29,335
  55




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (12)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes and
Senior Notes  (Continued)
 Condensed Consolidating Statements of Cash Flows
 Nine Months Ended July 31, 2004Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating
activities
    
    $
    45,504
    
    
    $
    18,266
    
    
    $
    4,832
    
    
    $
    
    
    
    $
    68,602Cash flows from investing activities:Proceeds from sales of marketable
securities
    
    
    1,121
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,121Proceeds from sale of assets, net
    
    
    (1,203
    )
    
    
    14,074
    
    
    
    
    
    
    
    
    
    
    
    12,871Additions to property and equipment
    
    
    (2,393
    )
    
    
    (11,452
    )
    
    
    (435
    )
    
    
    
    
    
    
    (14,280
    )Other
    
    
    
    
    
    
    199
    
    
    
    9
    
    
    
    
    
    
    
    208Net cash provided by (used in)
investing
activities
    
    
    (2,475
    )
    
    
    2,821
    
    
    
    (426
    )
    
    
    
    
    
    
    (80
    )Cash flows from financing activities:Repayments of long-term debt
    
    
    (64,748
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64,748
    )Intercompany receivables (payables)
    
    
    24,868
    
    
    
    (20,120
    )
    
    
    (4,748
    )
    
    
    
    
    
    
    Issuance of common stock
    
    
    13,066
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,066Purchase and retirement of common
stock
    
    
    (19,349
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,349
    )Net cash used in financing activities
    
    
    (46,163
    )
    
    
    (20,120
    )
    
    
    (4,748
    )
    
    
    
    
    
    
    (71,031
    )Net increase (decrease) in cash
    
    
    (3,134
    )
    
    
    967
    
    
    
    (342
    )
    
    
    
    
    
    
    (2,509
    )Cash and cash equivalents, beginning of
period
    
    
    18,975
    
    
    
    (478
    )
    
    
    88
    
    
    
    
    
    
    
    18,585Cash and cash equivalents, end of
period
    
    $
    15,841
    
    
    $
    489
    
    
    $
    (254
    )
    
    $
    
    
    
    $
    16,076
  56




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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)
    
    Discontinued Operations, Assets Held for Sale and Impairment Charges
     57




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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)
    
    Discontinued Operations, Assets Held for Sale and Impairment Charges(Continued)
   July 31, 2005
    
    
    October 31, 2004RestatedAssetsReceivables, net of allowances
    
    $
    44
    
    
    $
    519Inventories and other current assets
    
    
    200
    
    
    
    1,093Net property and equipment
    
    
    147
    
    
    
    3,851Preneed funeral receivables and trust investments
    
    
    193
    
    
    
    2,433Preneed cemetery receivables and trust investments
    
    
    65
    
    
    
    1,283Deferred income taxes, net
    
    
    49
    
    
    
    Deferred charges and other assets
    
    
    40
    
    
    
    1,314Assets held for sale
    
    $
    738
    
    
    $
    10,493LiabilitiesDeferred income taxes, net
    
    $
    
    
    
    $
    188Deferred preneed funeral revenue
    
    
    87
    
    
    
    2,384Deferred preneed cemetery revenue
    
    
    52
    
    
    
    705Other long-term liabilities
    
    
    5
    
    
    
    Non-controlling interest in funeral and cemetery trusts
    
    
    257
    
    
    
    3,214Liabilities associated with assets held for sale
    
    $
    401
    
    
    $
    6,491
 Three Months Ended
    
    
    Nine Months EndedJuly 31,
    
    
    July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(Restated)
    
    
    
    
    
    
    (Restated)Revenue:Funeral
    
    $
    139
    
    
    $
    2,551
    
    
    $
    685
    
    
    $
    10,317Cemetery
    
    
    82
    
    
    
    199
    
    
    
    493
    
    
    
    964$
    221
    
    
    $
    2,750
    
    
    $
    1,178
    
    
    $
    11,281Gross profit:Funeral
    
    $
    (52
    )
    
    $
    188
    
    
    $
    (264
    )
    
    $
    898Cemetery
    
    
    19
    
    
    
    35
    
    
    
    166
    
    
    
    357(33
    )
    
    
    223
    
    
    
    (98
    )
    
    
    1,255Gains on dispositions and impairment (losses), net
    
    
    622
    
    
    
    277
    
    
    
    1,068
    
    
    
    1,305Other operating income (expense), net
    
    
    1
    
    
    
    36
    
    
    
    (1
    )
    
    
    66Earnings from discontinued operations before
income taxes
    
    $
    590
    
    
    $
    536
    
    
    $
    969
    
    
    $
    2,626
  58




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (14)
    
    Separation Charges
    (15)
    
    Long-term Debt
 July 31, 2005
    
    
    October 31, 2004Long-term debt:Senior secured credit facility:Revolving credit facility
    
    $
    
    
    
    $
    59,000Term Loan B
    
    
    208,651
    
    
    
    54,0056.25% senior notes due 2013
    
    
    200,000
    
    
    
    10.75% senior subordinated notes due 2008
    
    
    
    
    
    
    300,000Other, principally seller financing of acquired operations
or assumption upon acquisition, weighted average
interest rates of 3.6% and 4.6% as of July 31, 2005
and October 31, 2004, respectively, partially secured
by assets of subsidiaries, with maturities through 2022
    
    
    2,133
    
    
    
    3,800Total long-term debt
    
    
    410,784
    
    
    
    416,805Less current maturities
    
    
    3,232
    
    
    
    1,725$
    407,552
    
    
    $
    415,080
    59




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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)
    
    Long-term Debt(Continued)
        60




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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) Long-term Debt(Continued)
          61




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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) Long-term Debt(Continued)
   (16) Consolidated Comprehensive Income
  Nine Months Ended July 31,2005
    
    
    2004(Restated)Net earnings (loss)
    
    $
    (124,256
    )
    
    $
    37,683Other comprehensive income:Reclassification adjustment for realized loss on investments, net of
deferred tax benefit of $454
    
    
    
    
    
    
    740Unrealized appreciation (depreciation) of investments, net of deferred tax
expense of ($1) and ($14), respectively
    
    
    (2
    )
    
    
    57Termination of derivative instrument designated and qualifying as a
cash flow hedging instrument, net of deferred tax expense of
($119)
    
    
    
    
    
    
    194Unrealized appreciation on derivative instrument designated and
qualifying as a cash flow hedging instrument, net of deferred tax
expense of ($204) and ($507), respectively
    
    
    333
    
    
    
    897Reduction (increase) in net unrealized losses associated with available-
for-sale securities of the trusts
    
    
    33,797
    
    
    
    (3,639
    )Reclassification of the net unrealized losses activity attributable to the
non-controlling interest holders
    
    
    (33,797
    )
    
    
    3,639Total other comprehensive income
    
    
    331
    
    
    
    1,888Total comprehensive income (loss)
    
    $
    (123,925
    )
    
    $
    39,571
  62




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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)
 (17) Guarantees
     (18) Related Party Transactions
    63




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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)
 (18) Related Party Transactions(Continued)
   (19) Deferred Revenue
    (20) Subsequent Events
   64




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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)
 (20) Subsequent Events(Continued)
     65




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Restatement of Historical Financial Statements
    General
     66




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##### Table of Contents



67




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##### Table of Contents



Critical Accounting Policies
  Preneed Selling Costs
   68




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##### Table of Contents



Results of Operations
   Three Months Ended July 31, 2005 Compared to Three Months Ended July 31, 2004  Continuing Operations
Funeral Operations
  69




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##### Table of Contents



Funeral Operations Three Months EndedJuly 31,
    
    
    Increase2005
    
    
    2004
    
    
    (Decrease)(In millions)Funeral Revenue:Central Division
    
    $
    20.6
    
    
    $
    20.1
    
    
    $
    .5Western Division
    
    
    15.0
    
    
    
    14.6
    
    
    
    .4Eastern Division
    
    
    12.2
    
    
    
    12.1
    
    
    
    .1Southern Division  Florida
    
    
    10.7
    
    
    
    10.7
    
    
    
     ̄All Other (1)
    
    
    3.1
    
    
    
    3.4
    
    
    
    (.3
    )Corporate Trust Management (2)
    
    
    6.3
    
    
    
    6.8
    
    
    
    (.5
    )Total Funeral Revenue
    
    $
    67.9
    
    
    $
    67.7
    
    
    $
    .2Funeral Costs:Central Division
    
    $
    16.0
    
    
    $
    15.1
    
    
    $
    .9Western Division
    
    
    14.2
    
    
    
    12.8
    
    
    
    1.4Eastern Division
    
    
    10.5
    
    
    
    10.2
    
    
    
    .3Southern Division  Florida
    
    
    9.8
    
    
    
    9.2
    
    
    
    .6All Other (1)
    
    
    2.9
    
    
    
    2.7
    
    
    
    .2Corporate Trust Management (2)
    
    
    .1
    
    
    
    .1
    
    
    
     ̄Total Funeral Costs
    
    $
    53.5
    
    
    $
    50.1
    (3)
    
    $
    3.4
    (3)Funeral Gross Profit:Central Division
    
    $
    4.6
    
    
    $
    5.0
    
    
    $
    (.4
    )Western Division
    
    
    .8
    
    
    
    1.8
    
    
    
    (1.0
    )Eastern Division
    
    
    1.7
    
    
    
    1.9
    
    
    
    (.2
    )Southern Division  Florida
    
    
    .9
    
    
    
    1.5
    
    
    
    (.6
    )All Other (1)
    
    
    .2
    
    
    
    .7
    
    
    
    (.5
    )Corporate Trust Management (2)
    
    
    6.2
    
    
    
    6.7
    
    
    
    (.5
    )Total Funeral Gross Profit
    
    $
    14.4
    
    
    $
    17.6
    (3)
    
    $
    (3.2
    ) (3)
 Same-Store Analysis
 Change in
    
    
    Change inAverage Revenue
    
    
    Same-Store Funeral
    
    
    Cremation RatePer Call
    
    
    Services
    
    
    2005
    
    
    2004Central Division
    
    
    4.3
    %
    
    
    .8
    %
    
    
    22.0
    %
    
    
    22.0
    %Western Division
    
    
    .8
    %
    
    
    3.7
    %
    
    
    57.3
    %
    
    
    56.1
    %Eastern Division
    
    
    1.8
    %
    
    
    (.7
    )%
    
    
    26.2
    %
    
    
    25.7
    %Southern Division  Florida
    
    
    4.3
    %
    
    
    2.1
    %
    
    
    40.5
    %
    
    
    40.7
    %All Other (1)
    
    
    (2.3
    %)
    
    
    (2.5
    %)
    
    
    18.0
    %
    
    
    14.8
    %Total
    
    
    1.0
    %
    
    
    2.3
    %
    
    
    37.2
    %
    
    
    36.3
    %
 
 (1)
    
    All Other represents our operations in Puerto Rico.(2)
    
    Corporate trust management consists of trust management fees and funeral
merchandise and service trust earnings recognized with respect to preneed contracts delivered
during the period. Trust management fees are established by us at rates consistent with
industry norms and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust
earnings represent earnings realized over the life of the preneed contracts delivered during
the relevant periods. See Notes 4 and 7 to the 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  70




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for the three months ended July 31, 2005 and 2004 were $1.4 million and $1.3
million, respectively, and funeral trust earnings for the three months ended July
31, 2005 and 2004 were $4.9 million and $5.5 million, respectively.(3)
    
    Funeral costs from continuing operations for the three months ended July 31, 2004 do not include net preneed
selling costs of $1.5 million, which would have been expensed if the accounting change described above had
been implemented in fiscal year 2004. Had we included these costs in 2004, funeral gross profit from continuing
operations for the three months ended July 31, 2005 would have decreased $1.7 million from $16.1 million for the three months ended July 31, 2004. Consolidated Operations  Funeral
    Segment Discussion  Funeral
    71




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Cemetery Operations
 Three Months EndedJuly 31,
    
    
    Increase2005
    
    
    2004
    
    
    (Decrease)(In millions)Cemetery Revenue:Central Division
    
    $
    19.5
    
    
    $
    18.4
    
    
    $
    1.1Western Division
    
    
    3.1
    
    
    
    3.8
    
    
    
    (.7
    )Eastern Division
    
    
    19.4
    
    
    
    18.6
    
    
    
    .8Southern Division  Florida
    
    
    13.1
    
    
    
    10.7
    
    
    
    2.4All Other (1)
    
    
    3.9
    
    
    
    5.9
    
    
    
    (2.0
    )Corporate Trust Management (2)
    
    
    3.1
    
    
    
    3.1
    
    
    
    Total Cemetery Revenue
    
    $
    62.1
    
    
    $
    60.5
    
    
    $
    1.6Cemetery Costs:Central Division
    
    $
    15.5
    
    
    $
    14.4
    
    
    $
    1.1Western Division
    
    
    3.0
    
    
    
    3.0
    
    
    
    Eastern Division
    
    
    16.0
    
    
    
    15.7
    
    
    
    .3Southern
Division  Florida
    
    
    9.4
    
    
    
    8.7
    
    
    
    .7All Other (1)
    
    
    3.6
    
    
    
    4.8
    
    
    
    (1.2
    )Corporate Trust Management (2)
    
    
    .1
    
    
    
    .2
    
    
    
    (.1
    )Total Cemetery Costs
    
    $
    47.6
    
    
    $
    46.8
    (3)
    
    $
    .8
    (3)Cemetery Gross Profit:Central Division
    
    $
    4.0
    
    
    $
    4.0
    
    
    $
    Western Division
    
    
    .1
    
    
    
    .8
    
    
    
    (.7
    )Eastern Division
    
    
    3.4
    
    
    
    2.9
    
    
    
    .5Southern
Division  Florida
    
    
    3.7
    
    
    
    2.0
    
    
    
    1.7All Other (1)
    
    
    .3
    
    
    
    1.1
    
    
    
    (.8
    )Corporate Trust Management (2)
    
    
    3.0
    
    
    
    2.9
    
    
    
    .1Total Cemetery Gross Profit
    
    $
    14.5
    
    
    $
    13.7
    (3)
    
    $
    .8
    (3)
 
 (1)
    
    All Other represents our operations in Puerto Rico.(2)
    
    Corporate trust management consists of trust management fees and cemetery
merchandise and service trust earnings recognized with respect to preneed contracts delivered
during the period. Trust management fees are established by us at rates consistent with
industry norms and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust
earnings represent earnings realized over the life of the preneed contracts delivered during
the relevant periods. See Notes 5 and 7 to the consolidated financial statements included
herein for information regarding the cost basis and market value of the trust assets and
current performance of the trusts (i.e., current realized gains and losses, interest income
and dividends). Trust management fees included in cemetery revenue for the three months ended
July 31, 2005 and 2004 were $1.2 million and $1.1 million, respectively, and cemetery trust
earnings for the three months ended July 31, 2005 and 2004 were $1.9 million and $2.0 million,
respectively. Perpetual care trust earnings are included in the revenues and gross profit of
the related geographic segment.(3)
    
    Cemetery costs from continuing operations for the three months ended July 31, 2004
do not include net preneed selling costs of $0.1 million, which would have been expensed if
the accounting change described above had been implemented in fiscal year 2004. Had we
included these costs in 2004, cemetery gross profit from continuing operations for the three
months ended July 31, 2005 would have increased $ 0.9 million from $13.6 million for the three
months ended July 31, 2004. Consolidated Operations  Cemetery
   72




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Segment Discussion  Cemetery
   Discontinued Operations
  Other
    73




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Preneed Sales into and Deliveries out of the Backlog
    74




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75




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Nine
Months Ended July 31, 2005 Compared to Nine Months Ended July 31, 2004  Continuing Operations
 Funeral Operations
 Nine Months EndedJuly 31,
    
    
    Increase2005
    
    
    2004
    
    
    (Decrease)(In millions)Funeral Revenue:Central Division
    
    $
    65.2
    
    
    $
    64.3
    
    
    $
    .9Western Division
    
    
    46.4
    
    
    
    46.4
    
    
    
    Eastern Division
    
    
    40.4
    
    
    
    39.8
    
    
    
    .6Southern
Division  Florida
    
    
    33.7
    
    
    
    33.0
    
    
    
    .7All Other (1)
    
    
    10.2
    
    
    
    10.1
    
    
    
    .1Corporate Trust Management (2)
    
    
    18.6
    
    
    
    20.6
    
    
    
    (2.0
    )Total Funeral Revenue
    
    $
    214.5
    
    
    $
    214.2
    
    
    $
    .3Funeral Costs:Central Division
    
    $
    48.3
    
    
    $
    46.3
    
    
    $
    2.0Western Division
    
    
    41.5
    
    
    
    38.7
    
    
    
    2.8Eastern Division
    
    
    33.7
    
    
    
    30.8
    
    
    
    2.9Southern
Division  Florida
    
    
    29.1
    
    
    
    28.1
    
    
    
    1.0All Other (1)
    
    
    8.5
    
    
    
    8.3
    
    
    
    .2Corporate Trust Management (2)
    
    
    .4
    
    
    
    .4
    
    
    
    Total Funeral Costs
    
    $
    161.5
    
    
    $
    152.6
    (3)
    
    $
    8.9
    (3)Funeral Gross Profit:Central Division
    
    $
    16.9
    
    
    $
    18.0
    
    
    $
    (1.1
    )Western Division
    
    
    4.9
    
    
    
    7.7
    
    
    
    (2.8
    )Eastern Division
    
    
    6.7
    
    
    
    9.0
    
    
    
    (2.3
    )Southern Division  Florida
    
    
    4.6
    
    
    
    4.9
    
    
    
    (.3
    )All Other (1)
    
    
    1.7
    
    
    
    1.8
    
    
    
    (.1
    )Corporate Trust Management (2)
    
    
    18.2
    
    
    
    20.2
    
    
    
    (2.0
    )Total Funeral Gross Profit
    
    $
    53.0
    
    
    $
    61.6
    (3)
    
    $
    (8.6
    ) (3)
 Same-Store Analysis
 Change inAverage Revenue
    
    Change in Same-Store
    
    Cremation RatePer Call
    
    Funeral Services
    
    2005
    
    2004Central Division
    
    
    3.8
    %
    
    
    
    
    
    
    22.3
    %
    
    
    21.7
    %Western Division
    
    
    2.2
    %
    
    
    (1.3
    %)
    
    
    58.6
    %
    
    
    57.3
    %Eastern Division
    
    
    .8
    %
    
    
    1.3
    %
    
    
    25.4
    %
    
    
    25.9
    %Southern
Division  Florida
    
    
    4.4
    %
    
    
    3.2
    %
    
    
    39.7
    %
    
    
    39.4
    %All Other (1)
    
    
    3.1
    %
    
    
    .8
    %
    
    
    16.2
    %
    
    
    14.1
    %Total
    
    
    1.8
    %
    
    
    .2
    %
    
    
    37.0
    %
    
    
    36.4
    %
 
 (1)
    
    All Other represents our operations in Puerto Rico.(2)
    
    Corporate trust management consists of trust management fees and funeral merchandise
and service trust earnings recognized with respect to preneed contracts delivered during the
period. Trust management fees are established by us at rates consistent with industry norms
and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust earnings
represent earnings realized over the life of the preneed contracts delivered during the
relevant periods. See Notes 4 and 7 to the consolidated financial statements included herein
for information regarding the cost basis and market value of the trust assets and current
performance of the trusts (i.e., current realized gains and losses, interest income and
dividends). Trust management fees included in funeral revenue for the nine months ended July
31, 2005 and 2004 were $4.0 million and $4.2 million, respectively, and funeral  76




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trust earnings for the nine months ended July 31, 2005 and 2004 were $14.6 million and $16.4
million, respectively.(3)
    
    Funeral costs from continuing operations for the nine months ended July 31, 2004 do
not include net preneed selling costs of $3.6 million, which would have been expensed if the
accounting change described above had been implemented in fiscal year 2004. Had we included
these costs in 2004, funeral gross profit from continuing operations for the nine months ended
July 31, 2005 would have decreased $5.0 million from $58.0 million for the nine months ended
July 31, 2004. Consolidated Operations  Funeral
   Segment Discussion  Funeral
    77




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Cemetery Operations
 Nine Months EndedJuly 31,
    
    
    Increase2005
    
    
    2004
    
    
    (Decrease)(In millions)Cemetery Revenue:Central Division
    
    $
    56.2
    
    
    $
    59.7
    
    
    $
    (3.5
    )Western Division
    
    
    9.5
    
    
    
    10.1
    
    
    
    (.6
    )Eastern Division
    
    
    54.8
    
    
    
    53.0
    
    
    
    1.8Southern
Division  Florida
    
    
    35.7
    
    
    
    32.5
    
    
    
    3.2All Other (1)
    
    
    12.0
    
    
    
    10.7
    
    
    
    1.3Corporate Trust Management (2)
    
    
    9.3
    
    
    
    9.4
    
    
    
    (.1
    )Total Cemetery Revenue
    
    $
    177.5
    
    
    $
    175.4
    
    
    $
    2.1Cemetery Costs:Central Division
    
    $
    43.8
    
    
    $
    45.2
    
    
    $
    (1.4
    )Western Division
    
    
    8.2
    
    
    
    7.6
    
    
    
    .6Eastern Division
    
    
    46.0
    
    
    
    42.9
    
    
    
    3.1Southern
Division  Florida
    
    
    27.2
    
    
    
    25.7
    
    
    
    1.5All Other (1)
    
    
    10.5
    
    
    
    10.4
    
    
    
    .1Corporate Trust Management (2)
    
    
    .4
    
    
    
    .5
    
    
    
    (.1
    )Total Cemetery Costs
    
    $
    136.1
    
    
    $
    132.3
    (3)
    
    $
    3.8
    (3)Cemetery Gross Profit:Central Division
    
    $
    12.4
    
    
    $
    14.5
    
    
    $
    (2.1
    )Western Division
    
    
    1.3
    
    
    
    2.5
    
    
    
    (1.2
    )Eastern Division
    
    
    8.8
    
    
    
    10.1
    
    
    
    (1.3
    )Southern
Division  Florida
    
    
    8.5
    
    
    
    6.8
    
    
    
    1.7All Other (1)
    
    
    1.5
    
    
    
    .3
    
    
    
    1.2Corporate Trust Management (2)
    
    
    8.9
    
    
    
    8.9
    
    
    
    Total Cemetery Gross Profit
    
    $
    41.4
    
    
    $
    43.1
    (3)
    
    $
    (1.7
    ) (3)
 
 (1)
    
    All Other represents our operations in Puerto Rico.(2)
    
    Corporate trust management consists of trust management fees and cemetery
merchandise and service trust earnings recognized with respect to preneed contracts delivered
during the period. Trust management fees are established by us at rates consistent with
industry norms and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust
earnings represent earnings realized over the life of the preneed contracts delivered during
the relevant periods. See Notes 5 and 7 to the consolidated financial statements included
herein for information regarding the cost basis and market value of the trust assets and
current performance of the trusts (i.e., current realized gains and losses, interest income
and dividends). Trust management fees included in cemetery revenue for the nine months ended
July 31, 2005 and 2004 were $3.7 million and $3.5 million, respectively, and cemetery trust
earnings for the nine months ended July 31, 2005 and 2004 were $5.6 million and $5.9 million,
respectively. Perpetual care trust earnings are included in the revenues and gross profit of
the related geographic segment.(3)
    
    Cemetery costs from continuing operations for the nine months ended July 31, 2004 do
not include net preneed selling costs of $1.1 million which would have been expensed if the
accounting change described above had been implemented in fiscal year 2004. Had we included
these costs in 2004, cemetery gross profit from continuing operations for the nine months
ended July 31, 2005 would have decreased $0.6 million from $42.0 million for the nine months
ended July 31, 2004. Consolidated Operations  Cemetery
   78




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Divisional Discussion  Cemetery
   Discontinued Operations
  Other
    79




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80




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##### Table of Contents



Preneed Sales into and Deliveries out of the Backlog
   Liquidity and Capital Resources
 Cash Flow
     81




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##### Table of Contents



Contractual Obligations and Commercial Commitments
  Payments Due by PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsLong-term debt obligations (1)
    
    $
    410.8
    
    
    $
    3.2
    
    
    $
    5.4
    
    
    $
    4.4
    
    
    $
    397.8Interest on long-term debt (2)
    
    
    172.4
    
    
    
    24.4
    
    
    
    48.5
    
    
    
    47.8
    
    
    
    51.7Operating lease obligations (3)
    
    
    35.5
    
    
    
    1.2
    
    
    
    7.9
    
    
    
    6.8
    
    
    
    19.6Non-competition and other agreements (4)
    
    
    6.9
    
    
    
    .8
    
    
    
    4.0
    
    
    
    1.5
    
    
    
    .6$
    625.6
    
    
    $
    29.6
    
    
    $
    65.8
    
    
    $
    60.5
    
    
    $
    469.7
 
 (1)
    
    See below for a breakdown of our future scheduled principal payments and maturities
of our long-term debt by type as of September 30, 2005.(2)
    
    Includes contractual interest payments for our revolving credit facility, Term Loan
B, senior notes and third-party debt. The interest on the revolving credit facility and Term
Loan B was calculated based on interest rates in effect as of July 31, 2005.(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. Our
future minimum lease payments as of July 31, 2005 are $1.2 million, $4.2 million, $3.7
million, $2.9 million, $3.9 million and $19.6 million for the years ending October 31, 2005,
2006, 2007, 2008, 2009 and later years, respectively.(4)
    
    We have entered into non-competition agreements with prior owners and key employees
of acquired subsidiaries that expire through 2012. This category also includes separation pay
related to a former executive officer.      82




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Other,PrincipallySellerFiscal
    
    Revolving
    
    
    
    
    
    
    
    
    
    
    Financing ofYear Ending
    
    Credit
    
    
    Term
    
    
    Senior
    
    
    AcquiredOctober 31,
    
    Facility
    
    
    Loan B
    
    
    Notes
    
    
    Operations
    
    
    Total2005
    
    $
    
    
    
    $
    .6
    
    
    $
    
    
    
    $
    .1
    
    
    $
    .72006
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    1.0
    
    
    
    3.22007
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    .6
    
    
    
    2.82008
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    .2
    
    
    
    2.42009
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    
    
    
    
    2.2Thereafter
    
    
    
    
    
    
    199.3
    
    
    
    200.0
    
    
    
    .1
    
    
    
    399.4Total long-term debt
    
    $
    
    
    
    $
    208.7
    
    
    $
    200.0
    
    
    $
    2.0
    
    
    $
    410.7
       83




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Off-Balance Sheet Arrangements
  (1)
    
    the $41.1 million bond we are required to maintain to guarantee our obligations
relating to funds we withdrew in fiscal year 2001 from our preneed funeral trusts in
Florida, which is discussed above and in Note 23 to the consolidated financial statements
in our Amended 2004 Form 10-K; and(2)
    
    the insurance-funded preneed funeral contracts, which will be funded by life insurance
or annuity contracts issued by third-party insurers, are not reflected in our consolidated
balance sheets, and are discussed in Note 4 to the condensed consolidated financial
statements included herein.
 Ratio of Earnings to Fixed Charges
  Nine MonthsEnded
    
    Years Ended October 31,July 31,
    
    2004
    
    2003
    
    20022005
    
    (Restated)
    
    (Restated)
    
    (Restated)
    
    2001
    
    20002.05(1)(5)
    
    
    2.35
    (2)
    
    
    1.47
    (3)
    
    
    1.73
    (4)(5)
    
    
    -
    (5)(6)
    
    
    2.54
 
 (1)
    
    Pretax earnings for the nine months ended July 31, 2005 include $1.3 million of
gains on dispositions and impairment (losses), net and a charge of $32.8 million for the loss
on early extinguishment of debt.(2)
    
    Pretax earnings for fiscal year 2004 includes separation charges of $3.4 million for
costs related to workforce reductions and separation pay to a former executive officer and
$0.1 million in gains on dispositions and impairment (losses), net.(3)
    
    Pretax earnings for fiscal year 2003 include a charge of $11.3 million for the loss
on early extinguishment of debt in connection with redemption of the ROARS, a noncash charge
of $10.5 million for long-lived asset impairment and a charge of $2.5 million for separation
payments to former executive officers.(4)
    
    Pretax earnings for fiscal year 2002 include a noncash charge of $18.5 million in
connection with the write-down of assets held for sale.(5)
    
    Excludes the cumulative effect of change in accounting principles.(6)
    
    Pretax earnings for fiscal year 2001 include a noncash charge of $269.2 million in
connection with the write-down of assets held for sale and other charges and a $9.1 million
charge for the loss on early extinguishment of debt. As a result of these charges, our
earnings for fiscal year 2001 were insufficient to cover our fixed charges, and an additional
$198.6 million in pretax earnings would have been required to eliminate the coverage
deficiency.  Inflation
  Recent Accounting Standards
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  84




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Interest
      85




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Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
     Managements Remediation Initiatives
   86




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Henrietta Torres and Teresa Fiore, on behalf of themselves and all others similarly situated
and the General Public v. Stewart Enterprises, Inc., et al.;
    In re: Funeral Consumer Antitrust Litigation   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.
  87




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##### Table of Contents



Ralph Lee Fancher, on behalf of himself and all others similarly
situated v. Service Corporation International, Alderwoods Group, Inc., Stewart Enterprises, Inc.,
Hillenbrand Industries, Inc., Aurora Casket Co., York Group, Inc., and Batesville Casket Co.,
 Civil Investigative Demands
    88




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 Issuer Purchases of Equity Securities
 Total number of
    
    
    Maximum approximateshares purchased
    
    
    dollar value of sharesTotal number
    
    
    
    
    
    
    as part of
    
    
    that may yet beof shares
    
    
    Average price
    
    
    publicly-announced
    
    
    purchased under thePeriod
    
    purchased
    
    
    paid per share
    
    
    plans or programs(1)
    
    
    plans or programsMay 1, 2005 through
May 31, 2005
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    30,129,265June 1, 2005
through June 30, 2005
    
    
    638,800
    
    
    $
    6.39
    
    
    
    638,800
    
    
    $
    26,046,679July 1, 2005 through
July 31, 2005
    
    
    561,200
    
    
    $
    6.92
    
    
    
    561,200
    
    
    $
    22,161,798Total
    
    
    1,200,000
    
    
    $
    6.64
    
    
    
    1,200,000
    
    
    $
    22,161,798
 
 (1)
    On June 26, 2003, we announced that our Board of Directors had approved a stock
repurchase program that allows us to invest up to $25.0 million in repurchases of our Class A
common stock. In June 2004, the Board of Directors increased the program limit by an
additional $3.0 million to $28.0 million. On March 17, 2005, we substantially completed our
$28.0 million stock repurchase program, having repurchased 4,400,000 shares since its
inception. On March 28, 2005, we announced a $30.0 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 on market conditions and other factors. Since the inception of
the program through July 31, 2005, we have repurchased and retired 1,200,000 shares at an
average price of $6.64 per share.  89




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Item 5. Other Information
 Forward-Looking Statements
       (1)
    
    The average revenue per traditional and cremation funeral service performed was
expected to increase by approximately 2 percent to 3 percent, excluding any impact from
funeral trust earnings. Increases in average revenue per funeral service performed may be
partially offset by a decrease in the number of families served by continuing operations
in 2005 as compared to 2004. The upper end of the forecast range assumed that these
businesses would serve the same number of families during fiscal year 2005 as in
  90




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2004, and the lower end assumed a possible reduction in the number of families served of up to 2
percent.(2)
    
    Cemetery property sales were expected to increase by 4 percent to 8 percent.(3)
    
    Total revenue from trust earnings, including earnings recognition from funeral,
cemetery merchandise and
perpetual care trusts, was expected to be down from that recognized in 2004.(4)
    
    While we intended to control costs, we did not anticipate further cost cuts as
significant as those implemented in 2004.(5)
    
    As a result of refinancing the senior secured credit facility in November 2004 and
refinancing substantially all of our 10.75 percent senior subordinated notes in February
2005, combined with continued debt reduction, interest expense was expected to decrease
significantly for fiscal year 2005. During the first nine months of fiscal year 2005, we
recorded charges for the early extinguishment of debt of $32.8 million.(6)
    
    We expected to spend approximately $2.0 million on our Sarbanes Oxley Section 404
compliance effort. This represented external costs and does not include personnel
allocated to the project.
    Cautionary Statements
  Risks Related to Our Business
 In completing our deferred revenue project, we may uncover unanticipated issues during our review
of the remaining preneed contracts, which could result in a larger than expected impact to our
previously reported financial information.
  Our completed Form 10-Q for the period ended July 31, 2005 will be filed late, which could result
in several adverse consequences to our business and to the trading price of and market for our
Class A Common Stock.
   91




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We have experienced a decline in funeral call volume due to many factors, such as the number of
deaths and competition in our markets, our ability to identify changing consumer preferences and
various other factors, some of which are beyond our control.
  We may experience declines in preneed sales due to numerous factors, including changes made to
contract terms and sales force compensation and a weakening economy. Declines in preneed property
sales would reduce current revenue. Declines in preneed funeral and cemetery service and
merchandise sales would reduce our backlog and could reduce our future market share.
  Price competition could reduce market share or cause us to reduce prices to retain or recapture
market share, either of which could reduce revenues and margins.
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Increased advertising or better marketing by competitors, or increased activity by competitors
offering products or services over the Internet, could cause us to lose market share and revenues
or cause us to incur increased costs in order to retain or recapture our market share.
  If we are not able to respond effectively to changing consumer preferences, our market share,
revenues and profitability could decrease.
  Earnings from and principal of trusts and escrow accounts could be reduced by changes in stock and
bond prices and interest and dividend rates or by a decline in the size of the funds.
   Increased preneed sales may have a negative impact on cash flow and earnings.
  93




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Increased costs may have a negative impact on earnings and cash flows.
   Our ability to dispose of our businesses at prices consistent with our expectations depends on
several factors, many of which are beyond our control. Any changes in expected sales prices or
carrying values of these businesses could result in additional impairment charges or could
adversely affect our ability to sell these businesses at prices we are willing to accept.
  Our Chairman Emeritus may have a significant and disproportionate influence on the outcome of
election of directors and other matters presented for a vote of shareholders and this control may
be exercised in a manner that may conflict with the interests of shareholders.
   94




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Servicing our debt will require a significant amount of cash, and our ability to generate
sufficient cash depends on many factors, some of which are beyond our control.
  Increases in interest rates would increase interest costs on our variable-rate long-term debt and
could have a material adverse effect on our net income and earnings per share.
 .
 Covenant restrictions under our senior secured credit facility and our 6.25 percent senior note
indenture may limit our ability to operate our business.
   Our projections do not include any earnings from acquisition activity. Several important factors,
among others, may affect our ability to consummate acquisitions.
   95




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Failure to achieve and maintain effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act could have a material adverse effect on our internal control over financial
reporting, which could impact the market price of our common stock and our access to capital.
     Risks Related to the Death Care Industry
 Declines in the number of deaths in our markets can cause a decrease in revenues. Changes in the
number of deaths are not predictable from market to market or over the short term.
    96




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The increasing number of cremations in the United States could cause revenues to decline because we
could lose market share to firms specializing in cremations. In addition, basic cremations produce
no revenues for cemetery operations and lesser funeral revenues and, in certain cases, lesser
profit margins than traditional funerals.
  Because the funeral and cemetery businesses are high fixed-cost businesses, positive or negative
changes in revenue can have a disproportionately large effect on cash flow and profits.
  Changes or increases in, or failure to comply with, regulations applicable to our business could
increase costs or decrease cash flows.
    97




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Item 6. Exhibits
 (a)
    
    Exhibits3.1
    
    Amended and Restated Articles of Incorporation of the Company, as amended and restated as of
May 7, 2003 (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on
Form 10-Q for the quarter ended April 30, 2003)3.2
    
    By-laws of the Company, as amended and restated as of November 19, 2004 (incorporated by
reference to Exhibit 3.1 to the Companys Current Report on Form 8-K dated November 22, 2004)4.1
    
    See Exhibits 3.1 and 3.2 for provisions of the Companys Amended and Restated Articles of
Incorporation, as amended, and By-laws, as amended, defining the rights of holders of Class A
and Class B common stock4.2
    
    Specimen of Class A common stock certificate (incorporated by reference to Exhibit 4.2 to
Amendment No. 3 to the Companys Registration Statement on Form S-1 (Registration No.
33-42336) filed with the Commission on October 7, 1991)4.3
    
    Rights Agreement, dated as of October 28, 1999, between Stewart Enterprises, Inc. and
ChaseMellon Shareholder Services, L.L.C. as Rights Agent (incorporated by reference to Exhibit
1 to the Companys Form 8-A dated November 3, 1999)4.4
    
    Credit Agreement dated June 29, 2001 by and among the Company, Empresas Stewart-Cementerios
and Empresas Stewart-Funerarias, as Borrowers, Bank of America, N.A., as Administrative Agent,
Collateral Agent and as a Lender, Deutsche Banc Alex. Brown, Inc., as Syndication Agent,
Bankers Trust Company, as a Lender and the other Lenders party thereto from time to time
(incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated
June 29, 2001) and Amendment No. 1 to the Credit Agreement dated April 25, 2003 (incorporated
by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated May 1, 2003) and
Amendment No. 2 to the Credit Agreement dated February 18, 2004 (incorporated by reference to
Exhibit 4.4 to the Companys Quarterly Report on Form 10-Q for the quarter ended January 31,
2004)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 dated November 22, 2004)4.6
    
    Indenture dated June 29, 2001 by and among Stewart, the Guarantors named therein and Firstar
Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to the Companys Form S-4
dated August 14, 2001) and First Supplemental Indenture, dated as of February 2, 2005 by and
among Stewart Enterprises, Inc., the Guarantors thereunder and U.S. Bank National Association,
as Trustee, supplementing the Indenture (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K dated February 2, 2005) and Second Supplemental
Indenture, dated as of February 28, 2005 by and among The Lincoln Memorial Park Cemetery
Association, a subsidiary of Stewart Enterprises, Inc., Stewart Enterprises, Inc., the other
Guarantors and U.S. National Bank Association, as trustee (incorporated by reference to
Exhibit 4.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended April 30,
2005)4.7
    
    Form of 10.75 percent Senior Subordinated Note due 2008 (incorporated by reference to Exhibit
4.2 to the Companys Form S-4 dated August 14, 2001)4.8
    
    Indenture dated as of February 11, 2005 by and among Stewart Enterprises, Inc., the
Guarantors thereunder and U.S. Bank National Association, as Trustee, with respect to the 6.25
percent Senior Notes due 2013 (incorporated by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K dated February 11, 2005)
  98




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4.9
    
    Form of 6.25 percent Senior Note due 2013 (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K dated February 11, 2005)10.1
    
    Amendment No. 1 to Appendix A to Employment Agreement dated October 11, 2005, effective July
14, 2005, between the Company and Everett N. Kendrick10.2
    
    Amendment No. 1 to Appendix A to Employment Agreement dated October 11, 2005, effective July
14, 2005, between the Company and Brent F. Heffron10.3
    
    Amendment No. 1 to Appendix A to Employment Agreement dated October 11, 2005, effective July
14, 2005, between the Company and G. Kenneth Stephens, Jr.10.4
    
    Amendment No. 1 to Appendix A to Employment Agreement dated October 11, 2005, effective July
14, 2005, between the Company and Randall L. Stricklin10.5
    
    Separation Agreement by and between the Company and Michael K. Crane dated October 11, 200512
    
    Calculation of Ratio of Earnings to Fixed Charges
  99




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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 SIGNATURES
  STEWART ENTERPRISES, INC.October 24, 2005
    
    /s/ THOMAS M. KITCHENThomas M. KitchenExecutive Vice President andChief Financial OfficerOctober 24, 2005
    
    /s/ MICHAEL G. HYMELMichael G. HymelVice PresidentCorporate ControllerChief Accounting Officer
 100




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Exhibit Index
 3.1
    
    Amended and Restated Articles of Incorporation of the Company, as amended and restated as of
May 7, 2003 (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on
Form 10-Q for the quarter ended April 30, 2003)3.2
    
    By-laws of the Company, as amended and restated as of November 19, 2004 (incorporated by
reference to Exhibit 3.1 to the Companys Current Report on Form 8-K dated November 22, 2004)4.1
    
    See Exhibits 3.1 and 3.2 for provisions of the Companys Amended and Restated Articles of
Incorporation, as amended, and By-laws, as amended, defining the rights of holders of Class A
and Class B common stock4.2
    
    Specimen of Class A common stock certificate (incorporated by reference to Exhibit 4.2 to
Amendment No. 3 to the Companys Registration Statement on Form S-1 (Registration No.
33-42336) filed with the Commission on October 7, 1991)4.3
    
    Rights Agreement, dated as of October 28, 1999, between Stewart Enterprises, Inc. and
ChaseMellon Shareholder Services, L.L.C. as Rights Agent (incorporated by reference to Exhibit
1 to the Companys Form 8-A dated November 3, 1999)4.4
    
    Credit Agreement dated June 29, 2001 by and among the Company, Empresas Stewart-Cementerios
and Empresas Stewart-Funerarias, as Borrowers, Bank of America, N.A., as Administrative Agent,
Collateral Agent and as a Lender, Deutsche Banc Alex. Brown, Inc., as Syndication Agent,
Bankers Trust Company, as a Lender and the other Lenders party thereto from time to time
(incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated
June 29, 2001) and Amendment No. 1 to the Credit Agreement dated April 25, 2003 (incorporated
by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated May 1, 2003) and
Amendment No. 2 to the Credit Agreement dated February 18, 2004 (incorporated by reference to
Exhibit 4.4 to the Companys Quarterly Report on Form 10-Q for the quarter ended January 31,
2004)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 dated November 22, 2004)4.6
    
    Indenture dated June 29, 2001 by and among Stewart, the Guarantors named therein and Firstar
Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to the Companys Form S-4
dated August 14, 2001) and First Supplemental Indenture, dated as of February 2, 2005 by and
among Stewart Enterprises, Inc., the Guarantors thereunder and U.S. Bank National Association,
as Trustee, supplementing the Indenture (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K dated February 2, 2005) and Second Supplemental
Indenture, dated as of February 28, 2005 by and among The Lincoln Memorial Park Cemetery
Association, a subsidiary of Stewart Enterprises, Inc., Stewart Enterprises, Inc., the other
Guarantors and U.S. National Bank Association, as trustee (incorporated by reference to
Exhibit 4.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended April 30,
2005)4.7
    
    Form of 10.75 percent Senior Subordinated Note due 2008 (incorporated by reference to Exhibit
4.2 to the Companys Form S-4 dated August 14, 2001)4.8
    
    Indenture dated as of February 11, 2005 by and among Stewart Enterprises, Inc., the
Guarantors thereunder and U.S. Bank National Association, as Trustee, with respect to the 6.25
percent Senior Notes due 2013 (incorporated by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K dated February 11, 2005)




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4.9
    
    Form of 6.25 percent Senior Note due 2013 (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K dated February 11, 2005)10.1
    
    Amendment No. 1 to Appendix A to Employment Agreement dated October 11, 2005, effective July
14, 2005, between the Company and Everett N. Kendrick10.2
    
    Amendment No. 1 to Appendix A to Employment Agreement dated October 11, 2005, effective July
14, 2005, between the Company and Brent F. Heffron10.3
    
    Amendment No. 1 to Appendix A to Employment Agreement dated October 11, 2005, effective July
14, 2005, between the Company and G. Kenneth Stephens, Jr.10.4
    
    Amendment No. 1 to Appendix A to Employment Agreement dated October 11, 2005, effective July
14, 2005, between the Company and Randall L. Stricklin10.5
    
    Separation Agreement by and between the Company and Michael K. Crane dated October 11, 200512
    
    Calculation of Ratio of Earnings to Fixed Charges