##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended April 30, 2007
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 
 Commission File Number: 1-15449
 
 STEWART ENTERPRISES, INC.
  LOUISIANA
(State or other jurisdiction of incorporation or organization)
    
    72-0693290
(I.R.S. Employer Identification No.)1333 South Clearview Parkway 
Jefferson, Louisiana
(Address of principal executive offices)
    
    70121
(Zip Code)
 
 Registrants telephone number, including area code: (504) 729-1400
 
 þ o
  þ o o
 o þ




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##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 INDEX
 PagePart I.
    
    Financial InformationItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Statements of Earnings 
Three Months Ended April 30, 2007 and 2006
    
    
    3Condensed Consolidated Statements of Earnings 
Six Months Ended April 30, 2007 and 2006
    
    
    4Condensed Consolidated Balance Sheets 
April 30, 2007 and October 31, 2006
    
    
    5Condensed Consolidated Statement of Shareholders Equity 
Six Months Ended April 30, 2007
    
    
    7Condensed Consolidated Statements of Cash Flows 
Six Months Ended April 30, 2007 and 2006
    
    
    8Notes to Condensed Consolidated Financial Statements
    
    
    9Item 2.
    
    Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    36Item 3.
    
    Quantitative and Qualitative Disclosures
About Market Risk
    
    
    49Item 4.
    
    Controls and Procedures
    
    
    49Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    50Item 1A.
    
    Risk Factors
    
    
    50Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    50Item 6.
    
    Exhibits
    
    
    50Signatures
    
    
    52Amendment No. 1 to Employment AgreementCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906
  2




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share amounts)
 Three Months Ended April 30,2007
    
    
    2006Revenues:Funeral
    
    $
    73,839
    
    
    $
    71,807Cemetery
    
    
    63,896
    
    
    
    58,991137,735
    
    
    
    130,798Costs and expenses:Funeral
    
    
    54,944
    
    
    
    53,395Cemetery
    
    
    50,075
    
    
    
    45,445105,019
    
    
    
    98,840Gross profit
    
    
    32,716
    
    
    
    31,958Corporate general and administrative expenses
    
    
    (7,744
    )
    
    
    (7,256
    )Hurricane related recoveries (charges), net
    
    
    (283
    )
    
    
    558Separation charges
    
    
    (47
    )
    
    
    (122
    )Gains on dispositions and impairment (losses), net
    
    
    (8
    )
    
    
    159Other operating income, net
    
    
    883
    
    
    
    36Operating earnings
    
    
    25,517
    
    
    
    25,333Interest expense
    
    
    (6,295
    )
    
    
    (7,681
    )Investment and other income, net
    
    
    567
    
    
    
    652Earnings from continuing operations before income taxes
    
    
    19,789
    
    
    
    18,304Income taxes
    
    
    6,011
    
    
    
    6,901Earnings from continuing operations
    
    
    13,778
    
    
    
    11,403Discontinued operations:Earnings (loss) from discontinued operations before income taxes
    
    
    (281
    )
    
    
    8Income tax benefit
    
    
    (132
    )
    
    
    (36
    )Earnings (loss) from discontinued operations
    
    
    (149
    )
    
    
    44Net earnings
    
    $
    13,629
    
    
    $
    11,447Basic earnings per common share:Earnings from continuing operations
    
    $
    .13
    
    
    $
    .11Earnings from discontinued operations
    
    
    
    
    
    
    Net earnings
    
    $
    .13
    
    
    $
    .11Diluted earnings per common share:Earnings from continuing operations
    
    $
    .13
    
    
    $
    .11Earnings from discontinued operations
    
    
    
    
    
    
    Net earnings
    
    $
    .13
    
    
    $
    .11Weighted average common shares outstanding (in thousands):Basic
    
    
    105,300
    
    
    
    107,951Diluted
    
    
    105,540
    
    
    
    108,035Dividends declared per common share
    
    $
    .025
    
    
    $
    .025
  3




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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)
 Six Months Ended April 30,2007
    
    
    2006Revenues:Funeral
    
    $
    146,501
    
    
    $
    143,402Cemetery
    
    
    123,807
    
    
    
    113,372270,308
    
    
    
    256,774Costs and expenses:Funeral
    
    
    108,876
    
    
    
    107,117Cemetery
    
    
    97,692
    
    
    
    88,586206,568
    
    
    
    195,703Gross profit
    
    
    63,740
    
    
    
    61,071Corporate general and administrative expenses
    
    
    (14,786
    )
    
    
    (14,475
    )Hurricane related charges, net
    
    
    (2,133
    )
    
    
    (2,080
    )Separation charges
    
    
    (532
    )
    
    
    (276
    )Gains on dispositions and impairment (losses), net
    
    
    90
    
    
    
    159Other operating income, net
    
    
    1,151
    
    
    
    1,012Operating earnings
    
    
    47,530
    
    
    
    45,411Interest expense
    
    
    (13,052
    )
    
    
    (15,209
    )Investment and other income, net
    
    
    1,617
    
    
    
    1,120Earnings from continuing operations before income taxes
    
    
    36,095
    
    
    
    31,322Income taxes
    
    
    10,326
    
    
    
    11,808Earnings from continuing operations
    
    
    25,769
    
    
    
    19,514Discontinued operations:Earnings (loss) from discontinued operations before income taxes
    
    
    (349
    )
    
    
    274Income tax benefit
    
    
    (135
    )
    
    
    (48
    )Earnings (loss) from discontinued operations
    
    
    (214
    )
    
    
    322Net earnings
    
    $
    25,555
    
    
    $
    19,836Basic earnings per common share:Earnings from continuing operations
    
    $
    .24
    
    
    $
    .18Earnings from discontinued operations
    
    
    
    
    
    
    Net earnings
    
    $
    .24
    
    
    $
    .18Diluted earnings per common share:Earnings from continuing operations
    
    $
    .24
    
    
    $
    .18Earnings from discontinued operations
    
    
    
    
    
    
    Net earnings
    
    $
    .24
    
    
    $
    .18Weighted average common shares outstanding (in thousands):Basic
    
    
    105,097
    
    
    
    108,232Diluted
    
    
    105,248
    
    
    
    108,260Dividends declared per common share
    
    $
    .05
    
    
    $
    .05
  4




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)
 April 30,
    
    
    October 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    46,545
    
    
    $
    43,870Marketable securities
    
    
    385
    
    
    
    239Receivables, net of allowances
    
    
    57,460
    
    
    
    72,499Inventories
    
    
    35,498
    
    
    
    36,358Prepaid expenses
    
    
    10,757
    
    
    
    6,428Deferred income taxes, net
    
    
    8,331
    
    
    
    10,502Assets held for sale
    
    
    
    
    
    
    2,509Total current assets
    
    
    158,976
    
    
    
    172,405Receivables due beyond one year, net of allowances
    
    
    76,947
    
    
    
    75,350Preneed funeral receivables and trust investments
    
    
    530,228
    
    
    
    517,633Preneed cemetery receivables and trust investments
    
    
    263,686
    
    
    
    258,120Goodwill
    
    
    274,861
    
    
    
    272,976Cemetery property, at cost
    
    
    371,107
    
    
    
    371,071Property and equipment, at cost:Land
    
    
    41,974
    
    
    
    41,336Buildings
    
    
    297,916
    
    
    
    293,530Equipment and other
    
    
    157,962
    
    
    
    149,952497,852
    
    
    
    484,818Less accumulated depreciation
    
    
    201,972
    
    
    
    189,909Net property and equipment
    
    
    295,880
    
    
    
    294,909Deferred income taxes, net
    
    
    179,294
    
    
    
    173,986Cemetery perpetual care trust investments
    
    
    237,598
    
    
    
    230,487Other assets
    
    
    14,326
    
    
    
    13,640Total assets
    
    $
    2,402,903
    
    
    $
    2,380,577
  5




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)
 April 30,
    
    
    October 31,2007
    
    
    2006LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    2,527
    
    
    $
    2,839Accounts payable
    
    
    16,045
    
    
    
    19,375Accrued payroll and other benefits
    
    
    14,888
    
    
    
    17,353Accrued insurance
    
    
    21,778
    
    
    
    21,803Accrued interest
    
    
    5,485
    
    
    
    5,822Other current liabilities
    
    
    11,591
    
    
    
    18,141Income taxes payable
    
    
    5,825
    
    
    
    3,703Liabilities associated with assets held for sale
    
    
    
    
    
    
    942Total current liabilities
    
    
    78,139
    
    
    
    89,978Long-term debt, less current maturities
    
    
    360,771
    
    
    
    374,020Deferred preneed funeral revenue
    
    
    270,493
    
    
    
    274,700Deferred preneed cemetery revenue
    
    
    290,382
    
    
    
    295,989Non-controlling interest in funeral and cemetery trusts
    
    
    681,294
    
    
    
    657,607Other long-term liabilities
    
    
    13,707
    
    
    
    12,410Total liabilities
    
    
    1,694,786
    
    
    
    1,704,704Commitments and contingenciesNon-controlling interest in perpetual care trusts
    
    
    236,667
    
    
    
    228,980Shareholders equity:Preferred stock, $1.00 par value, 5,000,000 shares
authorized; no shares issued
    
    
    
    
    
    
    Common stock, $1.00 stated value:Class A authorized 150,000,000 shares; issued
and outstanding 102,295,505 and 101,408,227
shares at April 30, 2007 and October 31,
2006, respectively
    
    
    102,296
    
    
    
    101,408Class B authorized 5,000,000 shares; issued
and outstanding 3,555,020 shares at April 30,
2007 and October 31, 2006, 10 votes per
share, convertible into an equal number of
Class A shares
    
    
    3,555
    
    
    
    3,555Additional paid-in capital
    
    
    638,759
    
    
    
    640,648Accumulated deficit
    
    
    (273,160
    )
    
    
    (298,715
    )Accumulated other comprehensive loss:Unrealized depreciation of investments
    
    
    
    
    
    
    (3
    )Total accumulated other comprehensive
losses
    
    
    
    
    
    
    (3
    )Total shareholders equity
    
    
    471,450
    
    
    
    446,893Total liabilities and shareholders equity
    
    $
    2,402,903
    
    
    $
    2,380,577
  6




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(Unaudited)(Dollars in thousands, except per share amounts)
 Retained
    
    
    UnrealizedAdditional
    
    
    Earnings
    
    
    Appreciation
    
    
    TotalCommon
    
    
    Paid-In
    
    
    (Accumulated
    
    
    (Depreciation)
    
    
    ShareholdersStock(1)
    
    
    Capital
    
    
    Deficit)
    
    
    of Investments
    
    
    EquityBalance October 31, 2006
    
    $
    104,963
    
    
    $
    640,648
    
    
    $
    (298,715
    )
    
    $
    (3
    )
    
    $
    446,893Comprehensive income:Net earnings
    
    
    
    
    
    
    
    
    
    
    25,555
    
    
    
    
    
    
    
    25,555Other comprehensive income:Unrealized appreciation
of investments, net of
deferred tax expense of
($2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Total other comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    25,555
    
    
    
    3
    
    
    
    25,558Restricted stock activity
    
    
    372
    
    
    
    (267
    )
    
    
    
    
    
    
    
    
    
    
    105Issuance of common stock
    
    
    186
    
    
    
    1,097
    
    
    
    
    
    
    
    
    
    
    
    1,283Stock options exercised
    
    
    330
    
    
    
    1,829
    
    
    
    
    
    
    
    
    
    
    
    2,159Share-based compensation
    
    
    
    
    
    
    691
    
    
    
    
    
    
    
    
    
    
    
    691Tax benefit associated
with stock options
exercised
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    26Dividends ($.05 per share)
    
    
    
    
    
    
    (5,265
    )
    
    
    
    
    
    
    
    
    
    
    (5,265
    )Balance April 30, 2007
    
    $
    105,851
    
    
    $
    638,759
    
    
    $
    (273,160
    )
    
    $
    
    
    
    $
    471,450
 
 (1)
    
    Amount includes 102,296 and 101,408 shares (in thousands) of Class A common stock
with a stated value of $1 per share as of April 30, 2007 and October 31, 2006, respectively,
and includes 3,555 shares (in thousands) of Class B common stock.  7




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)(Dollars in thousands, except per share amounts)
 Six Months Ended April 30,2007
    
    
    2006Cash flows from operating activities:Net earnings
    
    $
    25,555
    
    
    $
    19,836Adjustments to reconcile net earnings to net cash provided by operating activities:(Gains) losses on dispositions and impairment losses, net
    
    
    265
    
    
    
    (563
    )Depreciation and amortization
    
    
    13,268
    
    
    
    12,269Provision for doubtful accounts
    
    
    3,401
    
    
    
    3,049Share-based compensation
    
    
    691
    
    
    
    834Excess tax benefits from share-based payment arrangements
    
    
    (37
    )
    
    
    Provision (benefit) for deferred income taxes
    
    
    (3,138
    )
    
    
    9,091Other
    
    
    806
    
    
    
    187Changes in assets and liabilities:(Increase) decrease in other receivables
    
    
    9,106
    
    
    
    (1,170
    )(Increase) decrease in inventories and cemetery property
    
    
    103
    
    
    
    (50
    )Decrease in accounts payable and accrued expenses
    
    
    (8,561
    )
    
    
    (3,485
    )Net effect of preneed funeral production and maturities:(Increase) decrease in preneed funeral receivables and trust investments
    
    
    (1,470
    )
    
    
    7,317Decrease in deferred preneed funeral revenue
    
    
    (6,132
    )
    
    
    (11,005
    )Increase (decrease) in funeral non-controlling interest
    
    
    2,790
    
    
    
    (1,073
    )Net effect of preneed cemetery production and deliveries:(Increase) decrease in preneed cemetery receivables and trust investments
    
    
    (2,956
    )
    
    
    8,763Increase (decrease) in deferred preneed cemetery revenue
    
    
    (5,575
    )
    
    
    4,045Increase in cemetery non-controlling interest
    
    
    8,550
    
    
    
    4,145Decrease in other
    
    
    (4,135
    )
    
    
    (1,133
    )Net cash provided by operating activities
    
    
    32,531
    
    
    
    51,057Cash flows from investing activities:Proceeds from sale of assets, net
    
    
    1,635
    
    
    
    751Purchase of subsidiaries, net of cash acquired
    
    
    (2,805
    )
    
    
    Insurance proceeds related to hurricane damaged properties
    
    
    1,400
    
    
    
    5,300Additions to property and equipment
    
    
    (13,605
    )
    
    
    (9,949
    )Other
    
    
    (106
    )
    
    
    19Net cash used in investing activities
    
    
    (13,481
    )
    
    
    (3,879
    )Cash flows from financing activities:Repayments of long-term debt
    
    
    (13,561
    )
    
    
    (31,650
    )Issuance of common stock
    
    
    2,414
    
    
    
    Purchase and retirement of common stock
    
    
    
    
    
    
    (8,141
    )Dividends
    
    
    (5,265
    )
    
    
    (5,405
    )Excess tax benefits from share-based payment arrangements
    
    
    37
    
    
    
    Other
    
    
    
    
    
    
    61Net cash used in financing activities
    
    
    (16,375
    )
    
    
    (45,135
    )Net increase in cash
    
    
    2,675
    
    
    
    2,043Cash and cash equivalents, beginning of period
    
    
    43,870
    
    
    
    40,605Cash and cash equivalents, end of period
    
    $
    46,545
    
    
    $
    42,648Supplemental cash flow information:Cash paid (received) during the period for:Income taxes
    
    $
    5,600
    
    
    $
    700Interest
    
    $
    13,246
    
    
    $
    14,510Non-cash investing and financing activities:Issuance of common stock to executive officers and directors
    
    $
    1,028
    
    
    $
    Issuance of restricted stock, net of forfeitures
    
    $
    2,931
    
    
    $
    
  8




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (1) Basis of Presentation
 (a)
    
    The Company
  (b)
    
    Principles of Consolidation
  (c)
    
    Interim Disclosures
    (d)
    
    Use of Estimates
  (e)
    
    Share-Based Compensation
  9




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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (1) Basis of Presentation(Continued)
    WeightedNumber
    
    Averageof
    
    ExerciseShares
    
    Price perGrant Type
    
    Granted
    
    Share
    
    Vesting Period
    
    Vesting ConditionStock Options
    
    
    488,500
    
    
    $
    6.34
    
    
    Equal 25 percent portions over 4 years
    
    Service ConditionStock Options
    
    
    540,000
    
    
    $
    7.83
    
    
    Equal 25 percent portions over 3 years
    
    Market ConditionRestricted Stock
    
    
    52,500
    
    
    $
    6.33
    
    
    Equal 25 percent portions over 4 years
    
    Service ConditionRestricted Stock
    
    
    510,000
    
    
    $
    7.83
    
    
    Equal 33 percent portions over 3 years
    
    Service, Market and Performance Conditions
 (f)
    
    Reclassifications
  10-K
 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) Basis of Presentation(Continued)
 Year Ended October 31,2006
    
    
    2005
    
    
    2004Decrease in preneed funeral receivables and trust investments
    
    $
    4,567
    
    
    $
    4,141
    
    
    $
    5,481Decrease in deferred preneed funeral revenue
    
    
    (15,375
    )
    
    
    (13,628
    )
    
    
    (14,162
    )Increase (decrease) in funeral non-controlling interest
    
    
    5,058
    
    
    
    2,449
    
    
    
    (5,603
    )Net effect of preneed funeral production and maturities
    
    
    (5,750
    )
    
    
    (7,038
    )
    
    
    (14,284
    )(Increase) decrease in preneed cemetery receivables and trust
investments
    
    $
    3,479
    
    
    $
    1,192
    
    
    $
    (2,646
    )Increase (decrease) in deferred preneed cemetery revenue
    
    
    10,235
    
    
    
    (8,313
    )
    
    
    7,073Increase in cemetery non-controlling interest
    
    
    11,686
    
    
    
    12,368
    
    
    
    1,994Net effect of preneed cemetery production and deliveries
    
    $
    25,400
    
    
    $
    5,247
    
    
    $
    6,421
 (2) New Accounting Principles
    (3) Preneed Funeral Activities
 Preneed Funeral Receivables and Trust Investments
  11




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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (3) Preneed Funeral Activities(Continued)
  April 30, 2007
    
    
    October 31, 2006Trust assets
    
    $
    478,711
    
    
    $
    467,326Receivables from customers
    
    
    51,517
    
    
    
    50,307Preneed funeral receivables and trust
investments
    
    $
    530,228
    
    
    $
    517,633
  April 30, 2007Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other short-term
investments
    
    $
    39,611
    
    
    $
    
    
    
    $
    
    
    
    $
    39,611U.S. Government, agencies and municipalities
    
    
    19,783
    
    
    
    111
    
    
    
    (86
    )
    
    
    19,808Corporate bonds
    
    
    45,028
    
    
    
    690
    
    
    
    (391
    )
    
    
    45,327Preferred stocks
    
    
    72,515
    
    
    
    682
    
    
    
    (1,075
    )
    
    
    72,122Common stocks
    
    
    214,405
    
    
    
    32,602
    
    
    
    (4,152
    )
    
    
    242,855Mutual funds
    
    
    34,172
    
    
    
    1,941
    
    
    
    (213
    )
    
    
    35,900Insurance contracts and other long- term
investments
    
    
    21,562
    
    
    
    223
    
    
    
    
    
    
    
    21,785Trust investments
    
    $
    447,076
    
    
    $
    36,249
    
    
    $
    (5,917
    )
    
    
    477,408Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106.8
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,303Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    478,711
  April 30, 2007Due in one year or less
    
    $
    1,580Due in one to five years
    
    
    26,975Due in five to ten years
    
    
    35,758Thereafter
    
    
    822$
    65,135
 Three Months Ended April 30,
    
    Six Months Ended April 30,2007
    
    2006
    
    2007
    
    2006Purchases
    
    $
    48,497
    
    
    $
    47,546
    
    
    $
    82,086
    
    
    $
    51,958Sales
    
    
    43,547
    
    
    
    52,318
    
    
    
    77,418
    
    
    
    54,441Realized gains on sales
    
    
    2,619
    
    
    
    6,504
    
    
    
    4,768
    
    
    
    6,624Realized losses on sales
    
    
    
    
    
    
    (814
    )
    
    
    (297
    )
    
    
    (1,718
    )Deposits
    
    
    8,696
    
    
    
    8,059
    
    
    
    16,114
    
    
    
    14,852Withdrawals
    
    
    11,576
    
    
    
    14,742
    
    
    
    22,806
    
    
    
    26,302
 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)
 (3) Preneed Funeral Activities(Continued)
  (4) Preneed Cemetery Merchandise and Service Activities
 Preneed Cemetery Receivables and Trust Investments
  April 30, 2007
    
    
    October 31, 2006Trust assets
    
    $
    212,162
    
    
    $
    201,891Receivables from customers
    
    
    51,524
    
    
    
    56,229Preneed cemetery receivables and trust investments
    
    $
    263,686
    
    
    $
    258,120
  April 30, 2007Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other short-term
investments
    
    $
    16,546
    
    
    $
    
    
    
    $
    
    
    
    $
    16,546U.S. Government, agencies and municipalities
    
    
    14,492
    
    
    
    74
    
    
    
    (47
    )
    
    
    14,519Corporate bonds
    
    
    10,552
    
    
    
    305
    
    
    
    (19
    )
    
    
    10,838Preferred stocks
    
    
    26,980
    
    
    
    236
    
    
    
    (416
    )
    
    
    26,800Common stocks
    
    
    103,366
    
    
    
    11,964
    
    
    
    (3,154
    )
    
    
    112,176Mutual funds
    
    
    28,540
    
    
    
    456
    
    
    
    (113
    )
    
    
    28,883Insurance contracts and other long- term
investments
    
    
    1,907
    
    
    
    
    
    
    
    (4
    )
    
    
    1,903Trust investments
    
    $
    202,383
    
    
    $
    13,035
    
    
    $
    (3,753
    )
    
    
    211,665Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104.6
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    497Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    212,162
 13




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (4) Preneed Cemetery Merchandise and Service Activities(Continued)
  April 30, 2007Due in one year or less
    
    $
    2,807Due in one to five years
    
    
    12,351Due in five to ten years
    
    
    9,889Thereafter
    
    
    310$
    25,357
 Three Months Ended April 30,
    
    Six Months Ended April 30,2007
    
    2006
    
    2007
    
    2006Purchases
    
    $
    87,315
    
    
    $
    39,632
    
    
    $
    144,337
    
    
    $
    41,831Sales
    
    
    87,954
    
    
    
    43,124
    
    
    
    138,807
    
    
    
    51,544Realized gains on sales
    
    
    3,519
    
    
    
    4,830
    
    
    
    6,320
    
    
    
    5,076Realized losses on sales
    
    
    
    
    
    
    (961
    )
    
    
    (300
    )
    
    
    (1,307
    )Deposits
    
    
    4,482
    
    
    
    5,045
    
    
    
    8,929
    
    
    
    9,429Withdrawals
    
    
    5,267
    
    
    
    4,941
    
    
    
    9,404
    
    
    
    21,338
  (5) Cemetery Interment Rights and Perpetual Care Trusts
   14




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (5) Cemetery Interment Rights and Perpetual Care Trusts(Continued)
 April 30, 2007Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    18,626
    
    
    $
    
    
    
    $
    
    
    
    $
    18,626U.S. Government, agencies and
municipalities
    
    
    10,076
    
    
    
    63
    
    
    
    (92
    )
    
    
    10,047Corporate bonds
    
    
    33,639
    
    
    
    1,296
    
    
    
    (112
    )
    
    
    34,823Preferred stocks
    
    
    63,999
    
    
    
    1,367
    
    
    
    (1,419
    )
    
    
    63,947Common stocks
    
    
    80,982
    
    
    
    16,790
    
    
    
    (1,846
    )
    
    
    95,926Mutual funds
    
    
    10,774
    
    
    
    1,513
    
    
    
    (47
    )
    
    
    12,240Insurance contracts and other
long-term investments
    
    
    992
    
    
    
    194
    
    
    
    (1
    )
    
    
    1,185Trust investments
    
    $
    219,088
    
    
    $
    21,223
    
    
    $
    (3,517
    )
    
    
    236,794Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108.1
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    804Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    237,598
  April 30, 2007Due in one year or less
    
    $
    1,130Due in one to five years
    
    
    23,218Due in five to ten years
    
    
    19,327Thereafter
    
    
    1,195$
    44,870
 Three Months Ended April 30,
    
    Six Months Ended April 30,2007
    
    2006
    
    2007
    
    2006Purchases
    
    $
    12,899
    
    
    $
    22,936
    
    
    $
    32,766
    
    
    $
    36,987Sales
    
    
    10,247
    
    
    
    14,494
    
    
    
    32,773
    
    
    
    25,451Realized gains on sales
    
    
    831
    
    
    
    1,840
    
    
    
    1,975
    
    
    
    2,644Realized losses on sales
    
    
    (318
    )
    
    
    (2,958
    )
    
    
    (648
    )
    
    
    (3,026
    )Deposits
    
    
    2,050
    
    
    
    2,211
    
    
    
    3,913
    
    
    
    4,182Withdrawals
    
    
    2,273
    
    
    
    2,762
    
    
    
    5,421
    
    
    
    4,934
   (6) Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care Trusts
 15




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (6) Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care Trusts(Continued)
  Non-controllingNon-controlling Interest
    
    
    Interest inPreneed
    
    
    Preneed
    
    
    
    
    
    
    PerpetualFuneral
    
    
    Cemetery
    
    
    Total
    
    
    Care TrustsTrust assets at market value
    
    $
    478,711
    
    
    $
    212,162
    
    
    $
    690,873
    
    
    $
    237,598Less:Pending withdrawals
    
    
    (9,165
    )
    
    
    (4,214
    )
    
    
    (13,379
    )
    
    
    (1,653
    )Pending deposits
    
    
    2,316
    
    
    
    1,484
    
    
    
    3,800
    
    
    
    722Non-controlling interest
    
    $
    471,862
    
    
    $
    209,432
    
    
    $
    681,294
    
    
    $
    236,667
  Non-controllingNon-controlling Interest
    
    
    Interest inPreneed
    
    
    Preneed
    
    
    
    
    
    
    PerpetualFuneral
    
    
    Cemetery
    
    
    Total
    
    
    Care TrustsTrust assets at market value
    
    $
    467,326
    
    
    $
    201,891
    
    
    $
    669,217
    
    
    $
    230,487Less:Pending withdrawals
    
    
    (10,317
    )
    
    
    (5,175
    )
    
    
    (15,492
    )
    
    
    (2,300
    )Pending deposits
    
    
    2,362
    
    
    
    1,520
    
    
    
    3,882
    
    
    
    793Non-controlling interest
    
    $
    459,371
    
    
    $
    198,236
    
    
    $
    657,607
    
    
    $
    228,980
 Investment and other income, net
  Three Months Ended
    
    
    Six Months EndedApril 30,
    
    
    April 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Non-controlling interest:Realized gains
    
    $
    6,969
    
    
    $
    13,174
    
    
    $
    13,063
    
    
    $
    14,344Realized losses
    
    
    (318
    )
    
    
    (4,733
    )
    
    
    (1,245
    )
    
    
    (6,051
    )Interest income, dividend and other
ordinary income
    
    
    7,388
    
    
    
    7,121
    
    
    
    13,234
    
    
    
    14,696Trust expenses and income taxes
    
    
    (2,909
    )
    
    
    (3,718
    )
    
    
    (5,436
    )
    
    
    (6,549
    )Net trust investment income
    
    
    11,130
    
    
    
    11,844
    
    
    
    19,616
    
    
    
    16,440Non-controlling interest in funeral and
cemetery trust investments
    
    
    (8,898
    )
    
    
    (11,405
    )
    
    
    (15,065
    )
    
    
    (13,399
    )Non-controlling interest in perpetual care
trust investments
    
    
    (2,232
    )
    
    
    (439
    )
    
    
    (4,551
    )
    
    
    (3,041
    )Total non-controlling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Investment and other income, net (1)
    
    
    567
    
    
    
    652
    
    
    
    1,617
    
    
    
    1,120Total investment and other income, net
    
    $
    567
    
    
    $
    652
    
    
    $
    1,617
    
    
    $
    1,120
 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)
 (6)
    
    Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care
Trusts(Continued)
 
 (1)
    
    Investment and other income, net consists of interest income primarily on the
Companys cash, cash equivalents and marketable securities not held in trust. For the six
months ended April 30, 2007, the balance includes approximately $444 of interest income
receivable from the Internal Revenue Service. (7) Commitments and Contingencies
 Litigation
 Henrietta Torres and Teresa Fiore, on behalf of themselves and all others similarly situated
and the General Public v. Stewart Enterprises, Inc., et al
     Funeral Consumers Alliance, Inc., et al. v. Service Corporation International, Alderwoods
Group, Inc., Stewart Enterprises, Inc., Hillenbrand Industries, Inc., and Batesville Casket Co.
 17




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (7) Commitments and Contingencies(Continued)
      Pioneer Valley Casket Co., Inc., et al. v. Service Corporation International, Alderwoods
Group, Inc., Stewart Enterprises, Inc., Hillenbrand Industries, Inc., and Batesville Casket Co.,
   In Re: State Attorney General Civil Investigative Demands
 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)
 (7) Commitments and Contingencies(Continued)
  Other Litigation
  Securities and Exchange Commission Investigation
  (8) Reconciliation of Basic and Diluted Per Share Data
 Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    DataThree Months Ended April 30, 2007Earnings from continuing operations
    
    $
    13,778Basic earnings per common share:Earnings from continuing
operations available to common
shareholders
    
    $
    13,778
    
    
    
    105,300
    
    
    $
    .13Effect of dilutive securities:Time-vest stock options assumed
exercised and restricted stock
    
    
    
    
    
    
    240Diluted earnings per common share:Earnings from continuing
operations available to common
shareholders plus time-vest stock
options assumed exercised and
restricted stock
    
    $
    13,778
    
    
    
    105,540
    
    
    $
    .13
 19




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (8) Reconciliation of Basic and Diluted Per Share Data(Continued)
 Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    DataThree Months Ended April 30, 2006Earnings from continuing operations
    
    $
    11,403Basic earnings per common share:Earnings from continuing
operations available to common
shareholders
    
    $
    11,403
    
    
    
    107,951
    
    
    $
    .11Effect of dilutive securities:Time-vest stock options assumed
exercised and restricted stock
    
    
    
    
    
    
    84Diluted earnings per common share:Earnings from continuing
operations available to common
shareholders plus time-vest stock
options assumed exercised and
restricted stock
    
    $
    11,403
    
    
    
    108,035
    
    
    $
    .11
 Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    DataSix Months Ended April 30, 2007Earnings from continuing operations
    
    $
    25,769Basic earnings per common share:Earnings from continuing
operations available to common
shareholders
    
    $
    25,769
    
    
    
    105,097
    
    
    $
    .24Effect of dilutive securities:Time-vest stock options assumed
exercised and restricted stock
    
    
    
    
    
    
    151Diluted earnings per common share:Earnings from continuing
operations available to common
shareholders plus time-vest
stock options assumed exercised
and restricted stock
    
    $
    25,769
    
    
    
    105,248
    
    
    $
    .24
 Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    DataSix Months Ended April 30, 2006Earnings from continuing operations
    
    $
    19,514Basic earnings per common share:Earnings from continuing
operations available to common
shareholders
    
    $
    19,514
    
    
    
    108,232
    
    
    $
    .18Effect of dilutive securities:Time-vest stock options assumed
exercised and restricted stock
    
    
    
    
    
    
    28Diluted earnings per common share:Earnings from continuing
operations available to common
shareholders plus time-vest
stock options assumed exercised
and restricted stock
    
    $
    19,514
    
    
    
    108,260
    
    
    $
    .18
  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)
 (8) Reconciliation of Basic and Diluted Per Share Data(Continued)
   (9) Segment Data
   Funeral Revenue
    
    
    Cemetery Revenue(1)
    
    
    Total RevenueThree Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedApril 30, 2007
    
    
    April 30, 2006
    
    
    April 30, 2007
    
    
    April 30, 2006
    
    
    April 30, 2007
    
    
    April 30, 2006Western Division
    
    $
    37,624
    
    
    $
    37,139
    
    
    $
    23,067
    
    
    $
    21,792
    
    
    $
    60,691
    
    
    $
    58,931Eastern Division
    
    
    31,227
    
    
    
    30,067
    
    
    
    38,444
    
    
    
    34,557
    
    
    
    69,671
    
    
    
    64,624Corporate Trust
Management
(2)
    
    
    4,988
    
    
    
    4,601
    
    
    
    2,385
    
    
    
    2,642
    
    
    
    7,373
    
    
    
    7,243Total
    
    $
    73,839
    
    
    $
    71,807
    
    
    $
    63,896
    
    
    $
    58,991
    
    
    $
    137,735
    
    
    $
    130,798
 Funeral Revenue
    
    
    Cemetery Revenue(1)
    
    
    Total RevenueSix Months
    
    
    Six Months
    
    
    Six Months
    
    
    Six Months
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedApril 30, 2007
    
    
    April 30, 2006
    
    
    April 30, 2007
    
    
    April 30, 2006
    
    
    April 30, 2007
    
    
    April 30, 2006Western Division
    
    $
    75,461
    
    
    $
    74,006
    
    
    $
    44,926
    
    
    $
    41,141
    
    
    $
    120,387
    
    
    $
    115,147Eastern Division
    
    
    61,708
    
    
    
    60,142
    
    
    
    74,205
    
    
    
    66,982
    
    
    
    135,913
    
    
    
    127,124Corporate Trust
Management
(2)
    
    
    9,332
    
    
    
    9,254
    
    
    
    4,676
    
    
    
    5,249
    
    
    
    14,008
    
    
    
    14,503Total
    
    $
    146,501
    
    
    $
    143,402
    
    
    $
    123,807
    
    
    $
    113,372
    
    
    $
    270,308
    
    
    $
    256,774
 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)
 (9) Segment Data(Continued)
 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
    
    
    EndedApril 30, 2007
    
    
    April 30, 2006
    
    
    April 30, 2007
    
    
    April 30, 2006
    
    
    April 30, 2007
    
    
    April 30, 2006Western Division
    
    $
    7,703
    
    
    $
    8,101
    
    
    $
    4,845
    
    
    $
    4,586
    
    
    $
    12,548
    
    
    $
    12,687Eastern Division
    
    
    6,369
    
    
    
    5,852
    
    
    
    6,737
    
    
    
    6,444
    
    
    
    13,106
    
    
    
    12,296Corporate Trust
Management
(2)
    
    
    4,823
    
    
    
    4,459
    
    
    
    2,239
    
    
    
    2,516
    
    
    
    7,062
    
    
    
    6,975Total
    
    $
    18,895
    
    
    $
    18,412
    
    
    $
    13,821
    
    
    $
    13,546
    
    
    $
    32,716
    
    
    $
    31,958
 Funeral Gross Profit
    
    
    Cemetery Gross Profit(1)
    
    
    Total Gross ProfitSix Months
    
    
    Six Months
    
    
    Six Months
    
    
    Six Months
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedApril 30, 2007
    
    
    April 30, 2006
    
    
    April 30, 2007
    
    
    April 30, 2006
    
    
    April 30, 2007
    
    
    April 30, 2006Western Division
    
    $
    16,386
    
    
    $
    15,821
    
    
    $
    8,889
    
    
    $
    8,340
    
    
    $
    25,275
    
    
    $
    24,161Eastern Division
    
    
    12,233
    
    
    
    11,484
    
    
    
    12,840
    
    
    
    11,443
    
    
    
    25,073
    
    
    
    22,927Corporate Trust
Management
(2)
    
    
    9,006
    
    
    
    8,980
    
    
    
    4,386
    
    
    
    5,003
    
    
    
    13,392
    
    
    
    13,983Total
    
    $
    37,625
    
    
    $
    36,285
    
    
    $
    26,115
    
    
    $
    24,786
    
    
    $
    63,740
    
    
    $
    61,071
 Net Preneed Funeral
    
    
    Net Preneed Cemetery
    
    
    Net Total PreneedMerchandise And
    
    
    Merchandise and
    
    
    Merchandise andService Sales(3)
    
    
    Service Sales(3)
    
    
    Service Sales(3)Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedApril 30, 2007
    
    
    April 30, 2006
    
    
    April 30, 2007
    
    
    April 30, 2006
    
    
    April 30, 2007
    
    
    April 30, 2006Western Division
    
    $
    16,668
    
    
    $
    14,208
    
    
    $
    4,080
    
    
    $
    4,667
    
    
    $
    20,748
    
    
    $
    18,875Eastern Division
    
    
    12,462
    
    
    
    11,735
    
    
    
    9,727
    
    
    
    10,556
    
    
    
    22,189
    
    
    
    22,291Total
    
    $
    29,130
    
    
    $
    25,943
    
    
    $
    13,807
    
    
    $
    15,223
    
    
    $
    42,937
    
    
    $
    41,166
 Net Preneed Funeral
    
    
    Net Preneed Cemetery
    
    
    Net Total PreneedMerchandise And
    
    
    Merchandise and
    
    
    Merchandise andService Sales(3)
    
    
    Service Sales(3)
    
    
    Service Sales(3)Six Months
    
    
    Six Months
    
    
    Six Months
    
    
    Six Months
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedApril 30, 2007
    
    
    April 30, 2006
    
    
    April 30, 2007
    
    
    April 30, 2006
    
    
    April 30, 2007
    
    
    April 30, 2006Western Division
    
    $
    28,770
    
    
    $
    26,564
    
    
    $
    8,109
    
    
    $
    8,472
    
    
    $
    36,879
    
    
    $
    35,036Eastern Division
    
    
    22,519
    
    
    
    21,309
    
    
    
    19,334
    
    
    
    20,683
    
    
    
    41,853
    
    
    
    41,992Total
    
    $
    51,289
    
    
    $
    47,873
    
    
    $
    27,443
    
    
    $
    29,155
    
    
    $
    78,732
    
    
    $
    77,028
 
 (1)
    
    Perpetual care trust earnings are included in the revenues and gross profit of
the related geographic segment and amounted to $2,487 and $2,326 for the three months ended
April 30, 2007 and 2006, respectively, and $4,845 and $4,939 for the six months ended April 30, 2007 and 2006, respectively.(2)
    
    Corporate trust management consists of trust management fees and funeral and
cemetery merchandise and service trust earnings recognized with respect to preneed contracts
delivered during the period. Trust management fees are established by the Company at rates
consistent with industry norms and are paid by the trusts to the Companys subsidiary,
Investors Trust, Inc. The trust earnings represent earnings realized over the life of the
preneed contracts delivered during the relevant periods. Trust management fees included in
funeral revenue for the three months ended April 30, 2007 and 2006 were $1,460 and $1,399,
respectively, and funeral trust earnings for the three months ended April 30, 2007 and 2006
were $3,528 and $3,202, respectively. Trust management fees included in cemetery revenue for
the three months ended April 30, 2007 and 2006 were 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)
 (9) Segment Data(Continued)
 $1,323 and $1,221, respectively, and cemetery trust earnings for the three months ended April
30, 2007 and 2006 were $1,062 and $1,421, respectively. Trust management fees included in
funeral revenue for the six months ended April 30, 2007 and 2006 were $2,929 and $2,767,
respectively, and funeral trust earnings for the six months ended April 30, 2007 and 2006 were
$6,403 and $6,487, respectively. Trust management fees included in cemetery revenue for the six
months ended April 30, 2007 and 2006 were $2,638 and $2,427, respectively, and cemetery trust
earnings for the six months ended April 30, 2007 and 2006 were $2,038 and $2,822, respectively.(3)
    
    Preneed sales amounts represent total preneed funeral and cemetery service and
merchandise sales generated in the applicable period, net of cancellations. These sales are
deferred and are recorded as revenue in the period the services are performed or the
merchandise is delivered.
  Three Months Ended April 30,
    
    
    Six Months Ended April 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Gross profit for reportable segments
    
    $
    32,716
    
    
    $
    31,958
    
    
    $
    63,740
    
    
    $
    61,071Corporate general and administrative expenses
    
    
    (7,744
    )
    
    
    (7,256
    )
    
    
    (14,786
    )
    
    
    (14,475
    )Hurricane related recoveries (charges), net
    
    
    (283
    )
    
    
    558
    
    
    
    (2,133
    )
    
    
    (2,080
    )Separation charges
    
    
    (47
    )
    
    
    (122
    )
    
    
    (532
    )
    
    
    (276
    )Gains on dispositions and impairment (losses), net
    
    
    (8
    )
    
    
    159
    
    
    
    90
    
    
    
    159Other operating income, net
    
    
    883
    
    
    
    36
    
    
    
    1,151
    
    
    
    1,012Interest expense
    
    
    (6,295
    )
    
    
    (7,681
    )
    
    
    (13,052
    )
    
    
    (15,209
    )Investment and other income, net
    
    
    567
    
    
    
    652
    
    
    
    1,617
    
    
    
    1,120Earnings from continuing operations before
income taxes
    
    $
    19,789
    
    
    $
    18,304
    
    
    $
    36,095
    
    
    $
    31,322
 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)
 (10) Supplementary Information
  Three Months Ended April 30,
    
    
    Six Months Ended April 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Service revenueFuneral
    
    $
    44,872
    
    
    $
    41,312
    
    
    $
    89,010
    
    
    $
    82,323Cemetery
    
    
    16,858
    
    
    
    15,793
    
    
    
    32,427
    
    
    
    31,49861,730
    
    
    
    57,105
    
    
    
    121,437
    
    
    
    113,821Merchandise revenueFuneral
    
    
    26,866
    
    
    
    28,450
    
    
    
    53,300
    
    
    
    56,997Cemetery
    
    
    42,974
    
    
    
    39,122
    
    
    
    83,199
    
    
    
    73,80569,840
    
    
    
    67,572
    
    
    
    136,499
    
    
    
    130,802Other revenueFuneral
    
    
    2,101
    
    
    
    2,045
    
    
    
    4,191
    
    
    
    4,082Cemetery
    
    
    4,064
    
    
    
    4,076
    
    
    
    8,181
    
    
    
    8,0696,165
    
    
    
    6,121
    
    
    
    12,372
    
    
    
    12,151Total revenue
    
    $
    137,735
    
    
    $
    130,798
    
    
    $
    270,308
    
    
    $
    256,774Service costsFuneral
    
    $
    14,745
    
    
    $
    13,774
    
    
    $
    29,198
    
    
    $
    26,991Cemetery
    
    
    10,815
    
    
    
    10,334
    
    
    
    21,121
    
    
    
    20,08325,560
    
    
    
    24,108
    
    
    
    50,319
    
    
    
    47,074Merchandise costsFuneral
    
    
    17,108
    
    
    
    17,049
    
    
    
    32,544
    
    
    
    34,034Cemetery
    
    
    25,460
    
    
    
    22,908
    
    
    
    49,223
    
    
    
    43,38142,568
    
    
    
    39,957
    
    
    
    81,767
    
    
    
    77,415General and administrative expensesFuneral
    
    
    23,091
    
    
    
    22,572
    
    
    
    47,134
    
    
    
    46,092Cemetery
    
    
    13,800
    
    
    
    12,203
    
    
    
    27,348
    
    
    
    25,12236,891
    
    
    
    34,775
    
    
    
    74,482
    
    
    
    71,214Total costs
    
    $
    105,019
    
    
    $
    98,840
    
    
    $
    206,568
    
    
    $
    195,703
  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)
 (11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes
  Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Three Months Ended April 30, 2007Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Funeral
    
    $
    
    
    
    $
    68,684
    
    
    $
    5,155
    
    
    $
    
    
    
    $
    73,839Cemetery
    
    
    
    
    
    
    58,327
    
    
    
    5,569
    
    
    
    
    
    
    
    63,896
    
    
    
    127,011
    
    
    
    10,724
    
    
    
    
    
    
    
    137,735Costs and expenses:Funeral
    
    
    
    
    
    
    51,868
    
    
    
    3,076
    
    
    
    
    
    
    
    54,944Cemetery
    
    
    
    
    
    
    46,354
    
    
    
    3,721
    
    
    
    
    
    
    
    50,075
    
    
    
    98,222
    
    
    
    6,797
    
    
    
    
    
    
    
    105,019Gross profit
    
    
    
    
    
    
    28,789
    
    
    
    3,927
    
    
    
    
    
    
    
    32,716Corporate general and
administrative expenses
    
    
    (7,744
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,744
    )Hurricane related charges, net
    
    
    
    
    
    
    (283
    )
    
    
    
    
    
    
    
    
    
    
    (283
    )Separation charges
    
    
    
    
    
    
    (47
    )
    
    
    
    
    
    
    
    
    
    
    (47
    )Gains on dispositions and
impairment (losses), net
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    (8
    )Other operating income, net
    
    
    247
    
    
    
    571
    
    
    
    65
    
    
    
    
    
    
    
    883Operating earnings (loss)
    
    
    (7,497
    )
    
    
    29,022
    
    
    
    3,992
    
    
    
    
    
    
    
    25,517Interest expense
    
    
    (1,824
    )
    
    
    (3,937
    )
    
    
    (534
    )
    
    
    
    
    
    
    (6,295
    )Investment and other income, net
    
    
    550
    
    
    
    13
    
    
    
    4
    
    
    
    
    
    
    
    567Equity in subsidiaries
    
    
    21,440
    
    
    
    133
    
    
    
    
    
    
    
    (21,573
    )
    
    
    Earnings from continuing
operations before income taxes
    
    
    12,669
    
    
    
    25,231
    
    
    
    3,462
    
    
    
    (21,573
    )
    
    
    19,789Income tax expense (benefit)
    
    
    (960
    )
    
    
    6,061
    
    
    
    910
    
    
    
    
    
    
    
    6,011Earnings from continuing
operations
    
    
    13,629
    
    
    
    19,170
    
    
    
    2,552
    
    
    
    (21,573
    )
    
    
    13,778Discontinued operations:Loss from discontinued
operations before income taxes
    
    
    
    
    
    
    (281
    )
    
    
    
    
    
    
    
    
    
    
    (281
    )Income tax benefit
    
    
    
    
    
    
    (132
    )
    
    
    
    
    
    
    
    
    
    
    (132
    )Loss from discontinued operations
    
    
    
    
    
    
    (149
    )
    
    
    
    
    
    
    
    
    
    
    (149
    )Net earnings
    
    
    13,629
    
    
    
    19,021
    
    
    
    2,552
    
    
    
    (21,573
    )
    
    
    13,629Other comprehensive income
(loss), net
    
    
    (130
    )
    
    
    
    
    
    
    5
    
    
    
    (5
    )
    
    
    (130
    )Comprehensive income
    
    $
    13,499
    
    
    $
    19,021
    
    
    $
    2,557
    
    
    $
    (21,578
    )
    
    $
    13,499
 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)
 (11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes(Continued)
 Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Three Months Ended April 30, 2006Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Funeral
    
    $
    
    
    
    $
    66,850
    
    
    $
    4,957
    
    
    $
    
    
    
    $
    71,807Cemetery
    
    
    
    
    
    
    53,796
    
    
    
    5,195
    
    
    
    
    
    
    
    58,991
    
    
    
    120,646
    
    
    
    10,152
    
    
    
    
    
    
    
    130,798Costs and expenses:Funeral
    
    
    
    
    
    
    50,443
    
    
    
    2,952
    
    
    
    
    
    
    
    53,395Cemetery
    
    
    
    
    
    
    41,962
    
    
    
    3,483
    
    
    
    
    
    
    
    45,445
    
    
    
    92,405
    
    
    
    6,435
    
    
    
    
    
    
    
    98,840Gross profit
    
    
    
    
    
    
    28,241
    
    
    
    3,717
    
    
    
    
    
    
    
    31,958Corporate general and administrative
expenses
    
    
    (7,256
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,256
    )Hurricane related recoveries
(charges), net
    
    
    (135
    )
    
    
    693
    
    
    
    
    
    
    
    
    
    
    
    558Separation charges
    
    
    (78
    )
    
    
    (44
    )
    
    
    
    
    
    
    
    
    
    
    (122
    )Gains on dispositions and impairment
(losses), net
    
    
    
    
    
    
    63
    
    
    
    96
    
    
    
    
    
    
    
    159Other operating income (expense), net
    
    
    21
    
    
    
    (54
    )
    
    
    69
    
    
    
    
    
    
    
    36Operating earnings (loss)
    
    
    (7,448
    )
    
    
    28,899
    
    
    
    3,882
    
    
    
    
    
    
    
    25,333Interest income (expense)
    
    
    3,420
    
    
    
    (11,900
    )
    
    
    799
    
    
    
    
    
    
    
    (7,681
    )Investment and other income, net
    
    
    652
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    652Equity in subsidiaries
    
    
    12,305
    
    
    
    186
    
    
    
    
    
    
    
    (12,491
    )
    
    
    Earnings from continuing
operations before income taxes
    
    
    8,929
    
    
    
    17,185
    
    
    
    4,681
    
    
    
    (12,491
    )
    
    
    18,304Income tax expense (benefit)
    
    
    (2,518
    )
    
    
    7,511
    
    
    
    1,908
    
    
    
    
    
    
    
    6,901Earnings from continuing operations
    
    
    11,447
    
    
    
    9,674
    
    
    
    2,773
    
    
    
    (12,491
    )
    
    
    11,403Discontinued operations:Earnings (loss) from discontinued
operations before income taxes
    
    
    
    
    
    
    (34
    )
    
    
    42
    
    
    
    
    
    
    
    8Income tax benefit
    
    
    
    
    
    
    (36
    )
    
    
    
    
    
    
    
    
    
    
    (36
    )Earnings from discontinued
operations
    
    
    
    
    
    
    2
    
    
    
    42
    
    
    
    
    
    
    
    44Net earnings
    
    
    11,447
    
    
    
    9,676
    
    
    
    2,815
    
    
    
    (12,491
    )
    
    
    11,447Other comprehensive loss, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive income
    
    $
    11,447
    
    
    $
    9,676
    
    
    $
    2,815
    
    
    $
    (12,491
    )
    
    $
    11,447
 26




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes(Continued)
 Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Six Months Ended April 30, 2007Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Funeral
    
    $
    
    
    
    $
    136,338
    
    
    $
    10,163
    
    
    $
    
    
    
    $
    146,501Cemetery
    
    
    
    
    
    
    112,825
    
    
    
    10,982
    
    
    
    
    
    
    
    123,807
    
    
    
    249,163
    
    
    
    21,145
    
    
    
    
    
    
    
    270,308Costs and expenses:Funeral
    
    
    
    
    
    
    102,618
    
    
    
    6,258
    
    
    
    
    
    
    
    108,876Cemetery
    
    
    
    
    
    
    89,709
    
    
    
    7,983
    
    
    
    
    
    
    
    97,692
    
    
    
    192,327
    
    
    
    14,241
    
    
    
    
    
    
    
    206,568Gross profit
    
    
    
    
    
    
    56,836
    
    
    
    6,904
    
    
    
    
    
    
    
    63,740Corporate general and administrative
expenses
    
    
    (14,786
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,786
    )Hurricane related charges, net
    
    
    (3
    )
    
    
    (2,130
    )
    
    
    
    
    
    
    
    
    
    
    (2,133
    )Separation charges
    
    
    (384
    )
    
    
    (148
    )
    
    
    
    
    
    
    
    
    
    
    (532
    )Gains on dispositions and impairment
(losses), net
    
    
    
    
    
    
    90
    
    
    
    
    
    
    
    
    
    
    
    90Other operating income, net
    
    
    277
    
    
    
    736
    
    
    
    138
    
    
    
    
    
    
    
    1,151Operating earnings (loss)
    
    
    (14,896
    )
    
    
    55,384
    
    
    
    7,042
    
    
    
    
    
    
    
    47,530Interest expense
    
    
    (3,581
    )
    
    
    (8,385
    )
    
    
    (1,086
    )
    
    
    
    
    
    
    (13,052
    )Investment and other income, net
    
    
    1,586
    
    
    
    26
    
    
    
    5
    
    
    
    
    
    
    
    1,617Equity in subsidiaries
    
    
    40,416
    
    
    
    270
    
    
    
    
    
    
    
    (40,686
    )
    
    
    Earnings from continuing
operations before income taxes
    
    
    23,525
    
    
    
    47,295
    
    
    
    5,961
    
    
    
    (40,686
    )
    
    
    36,095Income tax expense (benefit)
    
    
    (2,030
    )
    
    
    10,389
    
    
    
    1,967
    
    
    
    
    
    
    
    10,326Earnings from continuing operations
    
    
    25,555
    
    
    
    36,906
    
    
    
    3,994
    
    
    
    (40,686
    )
    
    
    25,769Discontinued operations:Loss from discontinued operations
before income taxes
    
    
    
    
    
    
    (349
    )
    
    
    
    
    
    
    
    
    
    
    (349
    )Income tax benefit
    
    
    
    
    
    
    (135
    )
    
    
    
    
    
    
    
    
    
    
    (135
    )Loss from discontinued operations
    
    
    
    
    
    
    (214
    )
    
    
    
    
    
    
    
    
    
    
    (214
    )Net earnings
    
    
    25,555
    
    
    
    36,692
    
    
    
    3,994
    
    
    
    (40,686
    )
    
    
    25,555Other comprehensive income, net
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    (3
    )
    
    
    3Comprehensive income
    
    $
    25,558
    
    
    $
    36,692
    
    
    $
    3,997
    
    
    $
    (40,689
    )
    
    $
    25,558
 27




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (11)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Notes(Continued)
 Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Six Months Ended April 30, 2006Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Funeral
    
    $
    
    
    
    $
    133,586
    
    
    $
    9,816
    
    
    $
    
    
    
    $
    143,402Cemetery
    
    
    
    
    
    
    103,820
    
    
    
    9,552
    
    
    
    
    
    
    
    113,372
    
    
    
    237,406
    
    
    
    19,368
    
    
    
    
    
    
    
    256,774Costs and expenses:Funeral
    
    
    
    
    
    
    101,053
    
    
    
    6,064
    
    
    
    
    
    
    
    107,117Cemetery
    
    
    
    
    
    
    81,640
    
    
    
    6,946
    
    
    
    
    
    
    
    88,586
    
    
    
    182,693
    
    
    
    13,010
    
    
    
    
    
    
    
    195,703Gross profit
    
    
    
    
    
    
    54,713
    
    
    
    6,358
    
    
    
    
    
    
    
    61,071Corporate general and
administrative expenses
    
    
    (14,475
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,475
    )Hurricane related charges, net
    
    
    (135
    )
    
    
    (1,945
    )
    
    
    
    
    
    
    
    
    
    
    (2,080
    )Separation charges
    
    
    (202
    )
    
    
    (74
    )
    
    
    
    
    
    
    
    
    
    
    (276
    )Gains on dispositions and
impairment (losses), net
    
    
    
    
    
    
    63
    
    
    
    96
    
    
    
    
    
    
    
    159Other operating income, net
    
    
    37
    
    
    
    863
    
    
    
    112
    
    
    
    
    
    
    
    1,012Operating earnings (loss)
    
    
    (14,775
    )
    
    
    53,620
    
    
    
    6,566
    
    
    
    
    
    
    
    45,411Interest income (expense)
    
    
    13,155
    
    
    
    (27,486
    )
    
    
    (878
    )
    
    
    
    
    
    
    (15,209
    )Investment and other income, net
    
    
    1,120
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,120Equity in subsidiaries
    
    
    18,950
    
    
    
    294
    
    
    
    
    
    
    
    (19,244
    )
    
    
    Earnings from continuing
operations before income
taxes
    
    
    18,450
    
    
    
    26,428
    
    
    
    5,688
    
    
    
    (19,244
    )
    
    
    31,322Income tax expense (benefit)
    
    
    (1,386
    )
    
    
    10,905
    
    
    
    2,289
    
    
    
    
    
    
    
    11,808Earnings from continuing
operations
    
    
    19,836
    
    
    
    15,523
    
    
    
    3,399
    
    
    
    (19,244
    )
    
    
    19,514Discontinued operations:Earnings (loss) from
discontinued operations
before income taxes
    
    
    
    
    
    
    (62
    )
    
    
    336
    
    
    
    
    
    
    
    274Income tax benefit
    
    
    
    
    
    
    (48
    )
    
    
    
    
    
    
    
    
    
    
    (48
    )Earnings (loss) from
discontinued operations
    
    
    
    
    
    
    (14
    )
    
    
    336
    
    
    
    
    
    
    
    322Net earnings
    
    
    19,836
    
    
    
    15,509
    
    
    
    3,735
    
    
    
    (19,244
    )
    
    
    19,836Other comprehensive loss, net
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )
    
    
    2
    
    
    
    (2
    )Comprehensive income
    
    $
    19,834
    
    
    $
    15,509
    
    
    $
    3,733
    
    
    $
    (19,242
    )
    
    $
    19,834
 28




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (11)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Notes(Continued)
 Condensed Consolidating Balance Sheets
 April 30, 2007Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    44,163
    
    
    $
    1,240
    
    
    $
    1,142
    
    
    $
    
    
    
    $
    46,545Marketable securities
    
    
    
    
    
    
    
    
    
    
    385
    
    
    
    
    
    
    
    385Receivables, net of allowances
    
    
    3,704
    
    
    
    49,323
    
    
    
    4,433
    
    
    
    
    
    
    
    57,460Inventories
    
    
    324
    
    
    
    32,400
    
    
    
    2,774
    
    
    
    
    
    
    
    35,498Prepaid expenses
    
    
    910
    
    
    
    8,450
    
    
    
    1,397
    
    
    
    
    
    
    
    10,757Deferred income taxes, net
    
    
    2,634
    
    
    
    5,697
    
    
    
    
    
    
    
    
    
    
    
    8,331Total current assets
    
    
    51,735
    
    
    
    97,110
    
    
    
    10,131
    
    
    
    
    
    
    
    158,976Receivables due beyond one year, net of
allowances
    
    
    10,358
    
    
    
    48,366
    
    
    
    18,223
    
    
    
    
    
    
    
    76,947Preneed funeral receivables and trust
investments
    
    
    
    
    
    
    519,263
    
    
    
    10,965
    
    
    
    
    
    
    
    530,228Preneed cemetery receivables and trust
investments
    
    
    
    
    
    
    250,865
    
    
    
    12,821
    
    
    
    
    
    
    
    263,686Goodwill
    
    
    
    
    
    
    255,074
    
    
    
    19,787
    
    
    
    
    
    
    
    274,861Cemetery property, at cost
    
    
    
    
    
    
    346,500
    
    
    
    24,607
    
    
    
    
    
    
    
    371,107Property and equipment, at cost
    
    
    39,752
    
    
    
    421,777
    
    
    
    36,323
    
    
    
    
    
    
    
    497,852Less accumulated depreciation
    
    
    24,045
    
    
    
    165,818
    
    
    
    12,109
    
    
    
    
    
    
    
    201,972Net property and equipment
    
    
    15,707
    
    
    
    255,959
    
    
    
    24,214
    
    
    
    
    
    
    
    295,880Deferred income taxes, net
    
    
    4,533
    
    
    
    161,245
    
    
    
    13,516
    
    
    
    
    
    
    
    179,294Cemetery perpetual care trust investments
    
    
    
    
    
    
    237,598
    
    
    
    
    
    
    
    
    
    
    
    237,598Other assets
    
    
    4,785
    
    
    
    8,441
    
    
    
    1,100
    
    
    
    
    
    
    
    14,326Equity in subsidiaries
    
    
    12,278
    
    
    
    6,214
    
    
    
    
    
    
    
    (18,492
    )
    
    
    Total assets
    
    $
    99,396
    
    
    $
    2,186,635
    
    
    $
    135,364
    
    
    $
    (18,492
    )
    
    $
    2,402,903LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    2,527
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,527Accounts payable
    
    
    493
    
    
    
    14,346
    
    
    
    1,206
    
    
    
    
    
    
    
    16,045Accrued expenses and other current
liabilities
    
    
    15,658
    
    
    
    39,958
    
    
    
    3,951
    
    
    
    
    
    
    
    59,567Total current liabilities
    
    
    18,678
    
    
    
    54,304
    
    
    
    5,157
    
    
    
    
    
    
    
    78,139Long-term debt, less current maturities
    
    
    330,771
    
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    360,771Intercompany payables, net
    
    
    (893,138
    )
    
    
    889,309
    
    
    
    3,829
    
    
    
    
    
    
    
    Deferred preneed funeral revenue
    
    
    
    
    
    
    222,531
    
    
    
    47,962
    
    
    
    
    
    
    
    270,493Deferred preneed cemetery revenue
    
    
    
    
    
    
    260,458
    
    
    
    29,924
    
    
    
    
    
    
    
    290,382Non-controlling interest in funeral and
cemetery trusts
    
    
    
    
    
    
    681,294
    
    
    
    
    
    
    
    
    
    
    
    681,294Other long-term liabilities
    
    
    11,580
    
    
    
    2,127
    
    
    
    
    
    
    
    
    
    
    
    13,707Negative equity in subsidiaries
    
    
    160,055
    
    
    
    
    
    
    
    
    
    
    
    (160,055
    )
    
    
    Total liabilities
    
    
    (372,054
    )
    
    
    2,110,023
    
    
    
    116,872
    
    
    
    (160,055
    )
    
    
    1,694,786Non-controlling interest in perpetual
care trusts
    
    
    
    
    
    
    236,667
    
    
    
    
    
    
    
    
    
    
    
    236,667Common stock
    
    
    105,851
    
    
    
    426
    
    
    
    52
    
    
    
    (478
    )
    
    
    105,851Other
    
    
    365,599
    
    
    
    (160,481
    )
    
    
    18,440
    
    
    
    142,041
    
    
    
    365,599Accumulated other comprehensive income
(loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total shareholders equity
    
    
    471,450
    
    
    
    (160,055
    )
    
    
    18,492
    
    
    
    141,563
    
    
    
    471,450Total liabilities and shareholders equity
    
    $
    99,396
    
    
    $
    2,186,635
    
    
    $
    135,364
    
    
    $
    (18,492
    )
    
    $
    2,402,903
 29




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (11)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Notes(Continued)
 Condensed Consolidating Balance Sheets
 October 31, 2006Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    39,120
    
    
    $
    3,291
    
    
    $
    1,459
    
    
    $
    
    
    
    $
    43,870Marketable securities
    
    
    
    
    
    
    
    
    
    
    239
    
    
    
    
    
    
    
    239Receivables, net of allowances
    
    
    9,875
    
    
    
    58,942
    
    
    
    3,682
    
    
    
    
    
    
    
    72,499Inventories
    
    
    316
    
    
    
    33,190
    
    
    
    2,852
    
    
    
    
    
    
    
    36,358Prepaid expenses
    
    
    539
    
    
    
    3,598
    
    
    
    2,291
    
    
    
    
    
    
    
    6,428Deferred income taxes, net
    
    
    3,835
    
    
    
    6,667
    
    
    
    
    
    
    
    
    
    
    
    10,502Assets held for sale
    
    
    
    
    
    
    2,509
    
    
    
    
    
    
    
    
    
    
    
    2,509Total current assets
    
    
    53,685
    
    
    
    108,197
    
    
    
    10,523
    
    
    
    
    
    
    
    172,405Receivables due beyond one year, net of
allowances
    
    
    9,139
    
    
    
    47,035
    
    
    
    19,176
    
    
    
    
    
    
    
    75,350Preneed funeral receivables and trust
investments
    
    
    
    
    
    
    506,440
    
    
    
    11,193
    
    
    
    
    
    
    
    517,633Preneed cemetery receivables and trust
investments
    
    
    
    
    
    
    244,656
    
    
    
    13,464
    
    
    
    
    
    
    
    258,120Goodwill
    
    
    
    
    
    
    253,189
    
    
    
    19,787
    
    
    
    
    
    
    
    272,976Cemetery property, at cost
    
    
    
    
    
    
    346,559
    
    
    
    24,512
    
    
    
    
    
    
    
    371,071Property and equipment, at cost
    
    
    37,126
    
    
    
    411,002
    
    
    
    36,690
    
    
    
    
    
    
    
    484,818Less accumulated depreciation
    
    
    21,278
    
    
    
    156,354
    
    
    
    12,277
    
    
    
    
    
    
    
    189,909Net property and equipment
    
    
    15,848
    
    
    
    254,648
    
    
    
    24,413
    
    
    
    
    
    
    
    294,909Deferred income taxes, net
    
    
    6,124
    
    
    
    154,204
    
    
    
    13,658
    
    
    
    
    
    
    
    173,986Cemetery perpetual care trust investments
    
    
    
    
    
    
    230,487
    
    
    
    
    
    
    
    
    
    
    
    230,487Other assets
    
    
    5,312
    
    
    
    7,228
    
    
    
    1,100
    
    
    
    
    
    
    
    13,640Equity in subsidiaries
    
    
    8,551
    
    
    
    5,944
    
    
    
    
    
    
    
    (14,495
    )
    
    
    Total assets
    
    $
    98,659
    
    
    $
    2,158,587
    
    
    $
    137,826
    
    
    $
    (14,495
    )
    
    $
    2,380,577LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    2,839
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,839Accounts payable
    
    
    1,540
    
    
    
    16,579
    
    
    
    1,256
    
    
    
    
    
    
    
    19,375Accrued expenses and other current
liabilities
    
    
    15,197
    
    
    
    48,602
    
    
    
    3,023
    
    
    
    
    
    
    
    66,822Liabilities associated with assets
held for sale
    
    
    
    
    
    
    942
    
    
    
    
    
    
    
    
    
    
    
    942Total current liabilities
    
    
    19,576
    
    
    
    66,123
    
    
    
    4,279
    
    
    
    
    
    
    
    89,978Long-term debt, less current maturities
    
    
    344,020
    
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    374,020Intercompany payables, net
    
    
    (925,163
    )
    
    
    914,429
    
    
    
    10,734
    
    
    
    
    
    
    
    Deferred preneed funeral revenue
    
    
    
    
    
    
    227,306
    
    
    
    47,394
    
    
    
    
    
    
    
    274,700Deferred preneed cemetery revenue
    
    
    
    
    
    
    265,065
    
    
    
    30,924
    
    
    
    
    
    
    
    295,989Non-controlling interest in funeral and
cemetery trusts
    
    
    
    
    
    
    657,607
    
    
    
    
    
    
    
    
    
    
    
    657,607Other long-term liabilities
    
    
    10,386
    
    
    
    2,024
    
    
    
    
    
    
    
    
    
    
    
    12,410Negative equity in subsidiaries
    
    
    202,947
    
    
    
    
    
    
    
    
    
    
    
    (202,947
    )
    
    
    Total liabilities
    
    
    (348,234
    )
    
    
    2,132,554
    
    
    
    123,331
    
    
    
    (202,947
    )
    
    
    1,704,704Non-controlling interest in perpetual
care trusts
    
    
    
    
    
    
    228,980
    
    
    
    
    
    
    
    
    
    
    
    228,980Common stock
    
    
    104,963
    
    
    
    426
    
    
    
    52
    
    
    
    (478
    )
    
    
    104,963Other
    
    
    341,933
    
    
    
    (203,373
    )
    
    
    14,446
    
    
    
    188,927
    
    
    
    341,933Accumulated other comprehensive loss
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )
    
    
    3
    
    
    
    (3
    )Total shareholders equity
    
    
    446,893
    
    
    
    (202,947
    )
    
    
    14,495
    
    
    
    188,452
    
    
    
    446,893Total liabilities and shareholders equity
    
    $
    98,659
    
    
    $
    2,158,587
    
    
    $
    137,826
    
    
    $
    (14,495
    )
    
    $
    2,380,577
 30




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (11)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Notes(Continued)
 Condensed Consolidating Statements of Cash Flows
 Six Months Ended April 30, 2007Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in)
operating activities
    
    $
    (719
    )
    
    $
    25,990
    
    
    $
    7,260
    
    
    $
    
    
    
    $
    32,531Cash flows from investing activities:Proceeds from sale of assets, net
    
    
    
    
    
    
    1,635
    
    
    
    
    
    
    
    
    
    
    
    1,635Purchases of subsidiaries, net of
cash acquired
    
    
    
    
    
    
    (2,805
    )
    
    
    
    
    
    
    
    
    
    
    (2,805
    )Insurance proceeds related to
hurricane damaged properties
    
    
    
    
    
    
    1,400
    
    
    
    
    
    
    
    
    
    
    
    1,400Additions to property and equipment
    
    
    (3,688
    )
    
    
    (9,386
    )
    
    
    (531
    )
    
    
    
    
    
    
    (13,605
    )Other
    
    
    
    
    
    
    35
    
    
    
    (141
    )
    
    
    
    
    
    
    (106
    )Net cash used in investing activities
    
    
    (3,688
    )
    
    
    (9,121
    )
    
    
    (672
    )
    
    
    
    
    
    
    (13,481
    )Cash flows from financing activities:Repayments of long-term debt
    
    
    (13,561
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,561
    )Intercompany receivables (payables)
    
    
    25,825
    
    
    
    (18,920
    )
    
    
    (6,905
    )
    
    
    
    
    
    
    Issuance of common stock
    
    
    2,414
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,414Dividends
    
    
    (5,265
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,265
    )Excess tax benefits from share-
based payment arrangements
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37Net cash provided by (used in)
financing activities
    
    
    9,450
    
    
    
    (18,920
    )
    
    
    (6,905
    )
    
    
    
    
    
    
    (16,375
    )Net increase (decrease) in cash
    
    
    5,043
    
    
    
    (2,051
    )
    
    
    (317
    )
    
    
    
    
    
    
    2,675Cash and cash equivalents, beginning of
period
    
    
    39,120
    
    
    
    3,291
    
    
    
    1,459
    
    
    
    
    
    
    
    43,870Cash and cash equivalents, end of period
    
    $
    44,163
    
    
    $
    1,240
    
    
    $
    1,142
    
    
    $
    
    
    
    $
    46,545
 31




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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (11)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Notes(Continued)
 Condensed Consolidating Statements of Cash Flows
 Six Months Ended April 30, 2006Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating
activities
    
    $
    15,349
    
    
    $
    30,631
    
    
    $
    5,077
    
    
    $
    
    
    
    $
    51,057Cash flows from investing activities:Proceeds from sale of assets, net
    
    
    
    
    
    
    19
    
    
    
    732
    
    
    
    
    
    
    
    751Insurance proceeds related to
hurricane damaged properties
    
    
    
    
    
    
    5,300
    
    
    
    
    
    
    
    
    
    
    
    5,300Additions to property and
equipment
    
    
    (1,278
    )
    
    
    (8,417
    )
    
    
    (254
    )
    
    
    
    
    
    
    (9,949
    )Other
    
    
    
    
    
    
    37
    
    
    
    (18
    )
    
    
    
    
    
    
    19Net cash provided by (used in)
investing activities
    
    
    (1,278
    )
    
    
    (3,061
    )
    
    
    460
    
    
    
    
    
    
    
    (3,879
    )Cash flows from financing activities:Repayments of long-term debt
    
    
    (31,650
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,650
    )Intercompany receivables
(payables)
    
    
    26,046
    
    
    
    (20,692
    )
    
    
    (5,354
    )
    
    
    
    
    
    
    Purchase and retirement of common
stock
    
    
    (8,141
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,141
    )Dividends
    
    
    (5,405
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,405
    )Other
    
    
    61
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61Net cash used in financing
activities
    
    
    (19,089
    )
    
    
    (20,692
    )
    
    
    (5,354
    )
    
    
    
    
    
    
    (45,135
    )Net increase (decrease) in cash
    
    
    (5,018
    )
    
    
    6,878
    
    
    
    183
    
    
    
    
    
    
    
    2,043Cash and cash equivalents, beginning
of period
    
    
    38,675
    
    
    
    874
    
    
    
    1,056
    
    
    
    
    
    
    
    40,605Cash and cash equivalents, end of
period
    
    $
    33,657
    
    
    $
    7,752
    
    
    $
    1,239
    
    
    $
    
    
    
    $
    42,648
 (12)
    
    Discontinued Operations and Acquisitions
   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)
 (12)
    
    Discontinued Operations and Acquisitions(Continued)
 October 31, 2006AssetsReceivables, net of allowances
    
    $
    30Inventories and other current assets
    
    
    31Net property and equipment
    
    
    999Preneed funeral receivables and trust investments
    
    
    782Preneed cemetery receivables and trust investments
    
    
    92Other assets
    
    
    416Cemetery property
    
    
    159Assets held for sale
    
    $
    2,509LiabilitiesDeferred preneed funeral revenue
    
    $
    14Deferred preneed cemetery revenue
    
    
    86Non-controlling interest in funeral and cemetery trusts
    
    
    842Liabilities associated with assets held for sale
    
    $
    942
 Three Months Ended
    
    
    Six Months EndedApril 30,
    
    
    April 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue:Funeral
    
    $
    37
    
    
    $
    202
    
    
    $
    117
    
    
    $
    395Cemetery
    
    
    44
    
    
    
    19
    
    
    
    94
    
    
    
    10481
    
    
    
    221
    
    
    
    211
    
    
    
    499Gross profit:Funeral
    
    
    (28
    )
    
    
    (53
    )
    
    
    (34
    )
    
    
    (108
    )Cemetery
    
    
    20
    
    
    
    (45
    )
    
    
    40
    
    
    
    (22
    )(8
    )
    
    
    (98
    )
    
    
    6
    
    
    
    (130
    )Gains on
dispositions and
impairment
(losses), net
    
    
    (273
    )
    
    
    106
    
    
    
    (355
    )
    
    
    404Earnings (loss)
from
discontinued
operations
before income
taxes
    
    $
    (281
    )
    
    $
    8
    
    
    $
    (349
    )
    
    $
    274
 Acquisitions
  (13)
    
    Separation Charges
  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)
 (13)
    
    Separation Charges(Continued)
  (14)
    
    Consolidated Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedApril 30,
    
    
    April 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net earnings
    
    $
    13,629
    
    
    $
    11,447
    
    
    $
    25,555
    
    
    $
    19,836Other comprehensive income (loss):Unrealized appreciation
(depreciation) of investments,
net of deferred tax (expense)
benefit of $79, ($2) and $1,
respectively
    
    
    (130
    )
    
    
    
    
    
    
    3
    
    
    
    (2
    )(Increase) reduction in net
unrealized losses associated
with available-for-sale
securities of the trusts
    
    
    415
    
    
    
    (6,767
    )
    
    
    57,320
    
    
    
    22,331Reclassification of the net
unrealized losses activity
attributable to the
non-controlling interest
holders
    
    
    (415
    )
    
    
    6,767
    
    
    
    (57,320
    )
    
    
    (22,331
    )Total other comprehensive
income (loss)
    
    
    (130
    )
    
    
    
    
    
    
    3
    
    
    
    (2
    )Total comprehensive income
    
    $
    13,499
    
    
    $
    11,447
    
    
    $
    25,558
    
    
    $
    19,834
 (15)
    
    Hurricane Related Charges
  (16)
    
    Income Taxes
 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)
  (17)
    
    Subsequent Events
  35




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
         36




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##### Table of Contents



Critical Accounting Policies
  Results of Operations
  37




---



##### Table of Contents



Three Months Ended April 30, 2007 Compared to Three Months Ended April 30, 2006Continuing
Operations
 Funeral Operations
 Three Months Ended April 30,Increase2007
    
    
    2006
    
    
    (Decrease)(In millions)Funeral Revenue:Eastern Division
    
    $
    31.2
    
    
    $
    30.1
    
    
    $
    1.1Western Division
    
    
    37.6
    
    
    
    37.1
    
    
    
    .5Corporate Trust Management (1)
    
    
    5.0
    
    
    
    4.6
    
    
    
    .4Total Funeral Revenue
    
    $
    73.8
    
    
    $
    71.8
    
    
    $
    2.0Funeral Costs:Eastern Division
    
    $
    24.8
    
    
    $
    24.2
    
    
    $
    .6Western Division
    
    
    29.9
    
    
    
    29.0
    
    
    
    .9Corporate Trust Management (1)
    
    
    .2
    
    
    
    .2
    
    
    
    Total Funeral Costs
    
    $
    54.9
    
    
    $
    53.4
    
    
    $
    1.5Funeral Gross Profit:Eastern Division
    
    $
    6.4
    
    
    $
    5.9
    
    
    $
    .5Western Division
    
    
    7.7
    
    
    
    8.1
    
    
    
    (.4
    )Corporate Trust Management (1)
    
    
    4.8
    
    
    
    4.4
    
    
    
    .4Total Funeral Gross Profit
    
    $
    18.9
    
    
    $
    18.4
    
    
    $
    .5
 Same-Store Analysis
 Change in Average
    
    Change in Same-Store
    
    Cremation RateRevenue Per Call
    
    Funeral Services
    
    2007
    
    2006Eastern Division
    
    
    3.5
    %
    
    
    .3
    %
    
    
    34.7
    %
    
    
    33.4
    %Western Division
    
    
    3.5
    %
    
    
    (3.1
    %)
    
    
    42.3
    %
    
    
    42.2
    %Total
    
    
    4.1
    % (1)
    
    
    (1.7
    %)
    
    
    39.0
    %
    
    
    38.5
    %
 
 (1)
    
    Corporate trust management consists of trust management fees and funeral merchandise
and service trust earnings recognized with respect to preneed contracts delivered during the
period. Trust management fees are established by the Company at rates consistent with
industry norms and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust
earnings represent the earnings realized over the life of the contract for those preneed
contracts delivered during the relevant periods. See Notes 3 and 6 to the condensed
consolidated financial statements included herein for information regarding the cost basis and
market value of the trust assets and current performance of the trusts (i.e., current realized
gains and losses, interest income and dividends). Trust management fees included in funeral
revenue for the three months ended April 30, 2007 and 2006 were $1.5 million and $1.4 million,
respectively. As corporate trust management is considered a separate operating segment, trust
earnings are included in the total average revenue per call presented, not in the Eastern or
Western divisions average revenue per call. Funeral trust earnings for the three months
ended April 30, 2007 and 2006 were $3.5 million and $3.2 million, respectively. Consolidated Operations  Funeral
  38




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##### Table of Contents



Segment Discussion  Funeral
   Cemetery Operations
 Three Months Ended April 30,Increase2007
    
    
    2006
    
    
    (Decrease)(In millions)Cemetery Revenue:Eastern Division
    
    $
    38.4
    
    
    $
    34.5
    
    
    $
    3.9Western Division
    
    
    23.0
    
    
    
    21.8
    
    
    
    1.2Corporate Trust Management (1)
    
    
    2.4
    
    
    
    2.6
    
    
    
    (.2
    )Total Cemetery Revenue
    
    $
    63.8
    
    
    $
    58.9
    
    
    $
    4.9Cemetery Costs:Eastern Division
    
    $
    31.7
    
    
    $
    28.1
    
    
    $
    3.6Western Division
    
    
    18.2
    
    
    
    17.2
    
    
    
    1.0Corporate Trust Management (1)
    
    
    .1
    
    
    
    .1
    
    
    
    Total Cemetery Costs
    
    $
    50.0
    
    
    $
    45.4
    
    
    $
    4.6Cemetery Gross Profit:Eastern Division
    
    $
    6.7
    
    
    $
    6.4
    
    
    $
    .3Western Division
    
    
    4.8
    
    
    
    4.6
    
    
    
    .2Corporate Trust Management (1)
    
    
    2.3
    
    
    
    2.5
    
    
    
    (.2
    )Total Cemetery Gross Profit
    
    $
    13.8
    
    
    $
    13.5
    
    
    $
    .3
 
 (1)
    
    Corporate trust management consists of trust management fees and cemetery
merchandise and service trust earnings recognized with respect to preneed contracts delivered
during the period. Trust management fees are established by the Company at rates consistent
with industry norms and are paid by the trusts to our subsidiary, Investors Trust, Inc. The
trust earnings represent the earnings realized over the life of the contract for those 39




---



##### Table of Contents



preneed contracts delivered during the relevant periods. See Notes 4 and 6 to the condensed
consolidated financial statements
included herein for information regarding the cost basis and market value of the trust assets
and current performance of the trusts (i.e., current realized gains and losses, interest income
and dividends). Trust management fees included in cemetery revenue for the three months ended
April 30, 2007 and 2006 were $1.3 million and $1.2 million, respectively, and cemetery trust
earnings for the three months ended April 30, 2007 and 2006 were $1.1 million and $1.4 million,
respectively. Perpetual care trust earnings are included in the revenues and gross profit of
the related geographic segment. Consolidated Operations  Cemetery
    Segment Discussion  Cemetery
   Discontinued Operations
  Other
 40




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##### Table of Contents



Preneed Sales into and Deliveries out of the Backlog
   Six Months Ended April 30, 2007 Compared to Six Months Ended April 30, 2006Continuing
Operations
 41




---



##### Table of Contents



Funeral Operations
 Six Months Ended April 30,2007
    
    
    2006
    
    
    Increase(In millions)Funeral Revenue:Eastern Division
    
    $
    61.7
    
    
    $
    60.1
    
    
    $
    1.6Western Division
    
    
    75.5
    
    
    
    74.0
    
    
    
    1.5Corporate Trust Management (1)
    
    
    9.3
    
    
    
    9.3
    
    
    
    Total Funeral Revenue
    
    $
    146.5
    
    
    $
    143.4
    
    
    $
    3.1Funeral Costs:Eastern Division
    
    $
    49.5
    
    
    $
    48.6
    
    
    $
    .9Western Division
    
    
    59.1
    
    
    
    58.2
    
    
    
    .9Corporate Trust Management (1)
    
    
    .3
    
    
    
    .3
    
    
    
    Total Funeral Costs
    
    $
    108.9
    
    
    $
    107.1
    
    
    $
    1.8Funeral Gross Profit:Eastern Division
    
    $
    12.2
    
    
    $
    11.5
    
    
    $
    .7Western Division
    
    
    16.4
    
    
    
    15.8
    
    
    
    .6Corporate Trust Management (1)
    
    
    9.0
    
    
    
    9.0
    
    
    
    Total Funeral Gross Profit
    
    $
    37.6
    
    
    $
    36.3
    
    
    $
    1.3
 Same-Store Analysis
 Change in Average
    
    Change in Same-Store
    
    Cremation RateRevenue Per Call
    
    Funeral Services
    
    2007
    
    2006Eastern Division
    
    
    5.2
    %
    
    
    (2.6
    %)
    
    
    34.4
    %
    
    
    33.0
    %Western Division
    
    
    4.7
    %
    
    
    (4.2
    %)
    
    
    42.2
    %
    
    
    42.6
    %Total
    
    
    4.9
    % (1)
    
    
    (3.6
    %)
    
    
    38.9
    %
    
    
    38.6
    %
 
 (1)
    
    Corporate trust management consists of trust management fees and funeral merchandise
and service trust earnings recognized with respect to preneed contracts delivered during the
period. Trust management fees are established by the Company at rates consistent with
industry norms and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust
earnings represent the earnings realized over the life of the contract for those preneed
contracts delivered during the relevant periods. See Notes 3 and 6 to the condensed
consolidated financial statements included herein for information regarding the cost basis and
market value of the trust assets and current performance of the trusts (i.e., current realized
gains and losses, interest income and dividends). Trust management fees included in funeral
revenue for the six months ended April 30, 2007 and 2006 were $2.9 million and $2.8 million,
respectively. As corporate trust management is considered a separate operating segment, trust
earnings are included in the total average revenue per call presented, not in the Eastern or
Western divisions average revenue per call. Funeral trust earnings for the six months ended
April 30, 2007 and 2006 were $6.4 million and $6.5 million, respectively. Consolidated Operations  Funeral
  42




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##### Table of Contents



Segment Discussion  Funeral
   Cemetery Operations
 Six Months Ended April 30,Increase2007
    
    
    2006
    
    
    (Decrease)(In millions)Cemetery Revenue:Eastern Division
    
    $
    74.2
    
    
    $
    67.0
    
    
    $
    7.2Western Division
    
    
    44.9
    
    
    
    41.1
    
    
    
    3.8Corporate Trust Management (1)
    
    
    4.7
    
    
    
    5.3
    
    
    
    (.6
    )Total Cemetery Revenue
    
    $
    123.8
    
    
    $
    113.4
    
    
    $
    10.4Cemetery Costs:Eastern Division
    
    $
    61.4
    
    
    $
    55.5
    
    
    $
    5.9Western Division
    
    
    36.0
    
    
    
    32.8
    
    
    
    3.2Corporate Trust Management (1)
    
    
    .3
    
    
    
    .3
    
    
    
    Total Cemetery Costs
    
    $
    97.7
    
    
    $
    88.6
    
    
    $
    9.1Cemetery Gross Profit:Eastern Division
    
    $
    12.8
    
    
    $
    11.5
    
    
    $
    1.3Western Division
    
    
    8.9
    
    
    
    8.3
    
    
    
    .6Corporate Trust Management (1)
    
    
    4.4
    
    
    
    5.0
    
    
    
    (.6
    )Total Cemetery Gross Profit
    
    $
    26.1
    
    
    $
    24.8
    
    
    $
    1.3
 
 (1)
    
    Corporate trust management consists of trust management fees and cemetery
merchandise and service trust earnings recognized with respect to preneed contracts delivered
during the period. Trust management fees are established by the Company at rates consistent
with industry norms and are paid by the trusts to our subsidiary, 43




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##### Table of Contents



Investors Trust, Inc. The trust earnings represent the earnings realized over the life of the contract for those preneed
contracts delivered during the relevant periods. See Notes 4 and 6 to the condensed
consolidated financial statements included herein for information regarding the cost basis and market value of the trust assets
and current performance of the trusts (i.e., current realized gains and losses, interest income
and dividends). Trust management fees included in cemetery revenue for the six months ended
April 30, 2007 and 2006 were $2.7 million and $2.5 million, respectively, and cemetery trust
earnings for the six months ended April 30, 2007 and 2006 were $2.0 million and $2.8 million,
respectively. Perpetual care trust earnings are included in the revenues and gross profit of
the related geographic segment. Consolidated Operations  Cemetery
    Segment Discussion  Cemetery
   Discontinued Operations
  Other
 44




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##### Table of Contents



Preneed Sales into and Deliveries out of the Backlog
 45




---



##### Table of Contents



Liquidity and Capital Resources
 Cash Flow
    46




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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)
    
    $
    363.3
    
    
    $
    2.5
    
    
    $
    4.5
    
    
    $
    156.2
    
    
    $
    200.1Interest on long-term debt (2)
    
    
    127.1
    
    
    
    24.3
    
    
    
    48.0
    
    
    
    42.2
    
    
    
    12.6Operating lease obligations (3)
    
    
    29.7
    
    
    
    2.2
    
    
    
    6.9
    
    
    
    3.5
    
    
    
    17.1Non-competition and other agreements (4)
    
    
    3.7
    
    
    
    1.0
    
    
    
    2.2
    
    
    
    .4
    
    
    
    .1$
    523.8
    
    
    $
    30.0
    
    
    $
    61.6
    
    
    $
    202.3
    
    
    $
    229.9
 
 (1)
    
    See below for a breakdown of our future scheduled principal payments and maturities
of our long-term debt by type as of April 30, 2007.(2)
    
    Includes contractual interest payments for our revolving credit facility, Term Loan
B, senior notes and third-party debt. The interest on the revolving credit facility and Term
Loan B was calculated based on interest rates in effect as of April 30, 2007.(3)
    
    Our noncancellable operating leases are primarily for land and buildings and expire
over the next one to 12 years, except for six leases that expire between 2032 and 2039. Our
future minimum lease payments as of April 30, 2007 are $2.2 million, $3.6 million, $3.3
million, $2.5 million, $1.0 million, and $17.1 million for the years ending October 31, 2007,
2008, 2009, 2010, 2011 and later years, respectively.(4)
    
    We have entered into non-competition agreements with prior owners and key employees
of acquired subsidiaries that expire through 2012. This category also includes separation pay
related to former executive officers.  Other, PrincipallyRevolving
    
    
    
    
    
    
    
    
    
    
    Seller FinancingFiscal Year Ending
    
    Credit
    
    
    Term
    
    
    Senior
    
    
    of AcquiredOctober 31,
    
    Facility
    
    
    Loan B
    
    
    Notes
    
    
    Operations
    
    
    Total2007
    
    $
    
    
    
    $
    1.1
    
    
    $
    
    
    
    $
    .2
    
    
    $
    1.32008
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    .2
    
    
    
    2.42009
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    
    
    
    
    2.22010
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    
    
    
    
    2.22011
    
    
    
    
    
    
    103.5
    
    
    
    
    
    
    
    
    
    
    
    103.5Thereafter
    
    
    
    
    
    
    51.6
    
    
    
    200.0
    
    
    
    .1
    
    
    
    251.7Total long-term debt
    
    $
    
    
    
    $
    162.8
    
    
    $
    200.0
    
    
    $
    .5
    
    
    $
    363.3
   47




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##### Table of Contents



Off-Balance Sheet Arrangements
  (1)
    
    the $30.8 million bond we are required to maintain to guarantee our obligations
relating to funds we withdrew in fiscal year 2001 from our preneed funeral trusts in
Florida, which is discussed above and in Note 19 to the consolidated financial
statements in our 2006 Form 10-K; and
 (2)
    
    the insurance-funded preneed funeral contracts, which will be funded by life
insurance or annuity contracts issued by third-party insurers, are not reflected in our
consolidated balance sheets, and are discussed in Note 2(i) to the consolidated
financial statements in our 2006 Form 10-K.
 Ratio of Earnings to Fixed Charges
  Six Months Ended
    
    Years Ended October 31,April 30, 2007
    
    2006
    
    2005
    
    2004
    
    2003
    
    20023.47 (1)
    
    2.83 (2)
    
    1.36 (3)(7)
    
    1.98 (4)
    
    1.09 (5)
    
    1.27(6)(7)
  (1)
    
    Pretax earnings for the six months ended April 30, 2007 include a charge of $2.1
million related to Hurricane Katrina, a charge of $0.5 million for separation charges
primarily related to separation pay of a former executive officer who retired in the first
quarter of 2007 and gains on dispositions, net of impairment losses of $0.1 million.(2)
    
    Pretax earnings for fiscal year 2006 include a net recovery of $1.6 million related
to Hurricane Katrina, business interruption insurance proceeds of $3.2 million related to
Hurricane Katrina, a charge of $1.0 million for separation charges related to the July 2005
restructuring of our divisions and the retirement of an executive officer and gains on
dispositions, net of impairment losses of ($0.3) million.(3)
    
    Pretax earnings for fiscal year 2005 include a charge of $9.4 million for expenses
related to Hurricane Katrina, a charge of $1.5 million for separation charges related to the
July 2005 restructuring of our divisions, $1.2 million of gains on dispositions, net of
impairment losses and $32.8 million for the loss on early extinguishment of debt related to
the 2005 debt refinancings.(4)
    
    Pretax earnings for fiscal year 2004 include separation charges of $3.4 million for
severance and other costs related to workforce reductions announced in December 2003 and
separation pay to a former executive officer and ($0.2) million in gains on dispositions, net
of impairment losses.(5)
    
    Pretax earnings for fiscal year 2003 include a charge of $11.3 million for the loss
on early extinguishment of debt in connection with redemption of the ROARS, a noncash charge
of $9.6 million for long-lived asset impairment and a charge of $2.5 million for separation
payments to former executive officers.(6)
    
    Pretax earnings for fiscal year 2002 include a noncash charge of $18.5 million in
connection with the write-down of assets held for sale.(7)
    
    Excludes the cumulative effect of change in accounting principles.  48




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##### Table of Contents



Recent Accounting Standards
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   Interest
    
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
   49




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
    
 Item 1A. Risk Factors
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 6. Exhibits
 3.1
    
    Amended and Restated Articles of Incorporation of the Company, as amended and restated as of
April 20, 2006 (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on
Form 10-Q for the quarter ended April 30, 2006)
 50




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##### Table of Contents



3.2
    
    By-laws of the Company, as amended and restated as of April 20, 2006 (incorporated by
reference to Exhibit 3.2 of the Companys Quarterly Report on Form 10-Q for the quarter ended
April 30, 2006)4.1
    
    See Exhibits 3.1 and 3.2 for provisions of the Companys Amended and Restated Articles of
Incorporation, as amended, and By-laws, as amended, defining the rights of holders of Class A
and Class B common stock4.2
    
    Specimen of Class A common stock certificate (incorporated by reference to Exhibit 4.2 to
Amendment No. 3 to the Companys Registration Statement on Form S-1 (Registration No.
33-42336) filed with the Commission on October 7, 1991)4.3
    
    Rights Agreement, dated as of October 28, 1999, between Stewart Enterprises, Inc. and
ChaseMellon Shareholder Services, L.L.C. as Rights Agent (incorporated by reference to Exhibit
1 to the Companys Form 8-A dated November 3, 1999)4.4
    
    Amended and Restated Credit Agreement dated November 19, 2004 by and among the Company,
Empresas Stewart-Cementerios and Empresas Stewart-Funerarias, as Borrowers, Bank of America,
N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer and The
Other Lenders party hereto (incorporated by reference to Exhibit 4.1 to the Companys Current
Report on Form 8-K dated November 22, 2004)4.5
    
    Indenture dated as of February 11, 2005 by and among Stewart Enterprises, Inc., the
Guarantors thereunder and U.S. Bank National Association, as Trustee, with respect to the 6.25
percent Senior Notes due 2013 (incorporated by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K dated February 11, 2005)4.6
    
    Form of 6.25 percent Senior Note due 2013 (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K dated February 11, 2005)10.1
    
    Employment Agreement dated February 20, 2007 between the Company and Thomas J. Crawford
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated
February 15, 2007)10.2
    
    Employment Agreement dated May 14, 2007 between the Company and Thomas M. Kitchen
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated
May 14, 2007)10.3
    
    Amendment No. 1 to Employment Agreement dated February 20, 2007, effective May 14, 2007,
between the Company and Thomas J. Crawford31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas J. Crawford,
President and Chief Executive Officer31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen, Senior
Executive Vice President and Chief Financial Officer32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of Thomas J. Crawford,
President and Chief Executive Officer, and Thomas M. Kitchen, Senior Executive Vice President
and Chief Financial Officer
 51




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 SIGNATURES
  STEWART ENTERPRISES, INC.June 11, 2007
    /s/ THOMAS M. KITCHENThomas M. KitchenSenior Executive Vice President and
Chief Financial OfficerJune 11, 2007
    /s/ ANGELA M. LACOURAngela M. LacourVice President
Corporate Controller
Chief Accounting Officer 52




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##### Table of Contents



Exhibit Index
 10.3
    
    Amendment No. 1 to Employment Agreement dated February 20, 2007, effective May 14, 2007,
between the Company and Thomas J. Crawford31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas J. Crawford,
President and Chief Executive Officer31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen, Senior
Executive Vice President and Chief Financial Officer32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of Thomas J. Crawford,
President and Chief Executive Officer, and Thomas M. Kitchen, Senior Executive Vice President
and Chief Financial Officer
 53