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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q/A
 (Amendment No. 1)
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
 For the quarterly period ended July 31, 2005
 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
 
 o þ
 Yes
þ No
o




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EXPLANATORY NOTE
   Deferred Revenue Project
    Other Adjustments
  2




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3




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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 July 31, 2005 and 2004
    
    
    5Condensed Consolidated Statements of Earnings 
Nine Months Ended July 31, 2005 and 2004
    
    
    6Condensed Consolidated Balance Sheets 
July 31, 2005 and October 31, 2004
    
    
    7Condensed Consolidated Statement of Shareholders Equity 
Nine Months Ended July 31, 2005
    
    
    9Condensed Consolidated Statements of Cash Flows 
Nine Months Ended July 31, 2005 and 2004
    
    
    10Notes to Condensed Consolidated Financial Statements
    
    
    11Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    67Item 3. Quantitative and Qualitative Disclosures
About Market Risk
    
    
    85Item 4. Controls and Procedures
    
    
    86Part II. Other InformationItem 1. Legal Proceedings
    
    
    88Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    90Item 5. Other Information
    
    
    90Item 6. Exhibits
    
    
    99Signatures
    
    
    101Calculation of Ratio of Earnings to Fixed ChargesCertification pursuant to Section 302, President and CEOCertification pursuant to Section 302, Executive VP and CFOCertifications pursuant to Section 906, President, CEO, Executive VP and CFO
  4




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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
 (Unaudited)
 (Dollars in thousands, except per share amounts)
 Three Months Ended July 31,2005
    
    
    2004(Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)Revenues:Funeral
    
    $
    66,102
    
    
    $
    65,349Cemetery
    
    
    59,000
    
    
    
    56,767125,102
    
    
    
    122,116Costs and expenses:Funeral
    
    
    53,477
    
    
    
    50,195Cemetery
    
    
    47,578
    
    
    
    45,855101,055
    
    
    
    96,050Gross profit
    
    
    24,047
    
    
    
    26,066Corporate general and administrative expenses
    
    
    (5,545
    )
    
    
    (4,150
    )Separation charges (Note 14)
    
    
    (147
    )
    
    
    (1,085
    )Gains on dispositions and impairment (losses), net (Note 13)
    
    
    63
    
    
    
    304Other operating income, net
    
    
    571
    
    
    
    1,000Operating earnings
    
    
    18,989
    
    
    
    22,135Interest expense
    
    
    (6,456
    )
    
    
    (11,502
    )Loss on early extinguishment of debt (Note 15)
    
    
    (114
    )
    
    
    Investment and other income, net
    
    
    184
    
    
    
    76Earnings from continuing operations before income taxes
    
    
    12,603
    
    
    
    10,709Income taxes
    
    
    4,475
    
    
    
    3,824Earnings from continuing operations
    
    
    8,128
    
    
    
    6,885Discontinued operations (Note 13):Earnings from discontinued operations before income taxes
    
    
    590
    
    
    
    536Income tax benefit
    
    
    (157
    )
    
    
    (1,207
    )Earnings from discontinued operations
    
    
    747
    
    
    
    1,743Net earnings
    
    $
    8,875
    
    
    $
    8,628Basic earnings per common share:Earnings from continuing operations
    
    $
    .07
    
    
    $
    06Earnings from discontinued operations
    
    
    .01
    
    
    
    .02Net earnings
    
    $
    .08
    
    
    $
    .08Diluted earnings per common share:Earnings from continuing operations
    
    $
    .07
    
    
    $
    .06Earnings from discontinued operations
    
    
    .01
    
    
    
    .02Net earnings
    
    $
    .08
    
    
    $
    .08Weighted average common shares outstanding (in thousands):Basic
    
    
    109,147
    
    
    
    107,067Diluted
    
    
    109,266
    
    
    
    108,068Dividends declared per common share
    
    $
    .025
    
    
    $
    
  5




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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
 (Unaudited)
 (Dollars in thousands, except per share amounts)
 Nine Months Ended July 31,2005
    
    
    2004(Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)Revenues:Funeral
    
    $
    210,243
    
    
    $
    207,764Cemetery
    
    
    169,997
    
    
    
    163,960380,240
    
    
    
    371,724Costs and expenses:Funeral
    
    
    159,692
    
    
    
    152,962Cemetery
    
    
    136,034
    
    
    
    129,578295,726
    
    
    
    282,540Gross profit
    
    
    84,514
    
    
    
    89,184Corporate general and administrative expenses
    
    
    (14,343
    )
    
    
    (12,684
    )Separation charges (Note 14)
    
    
    (147
    )
    
    
    (3,216
    )Gains on dispositions and impairment (losses), net (Note 13)
    
    
    1,300
    
    
    
    (246
    )Other operating income, net
    
    
    1,069
    
    
    
    1,948Operating earnings
    
    
    72,393
    
    
    
    74,986Interest expense
    
    
    (23,503
    )
    
    
    (35,976
    )Loss on early extinguishment of debt (Note 15)
    
    
    (32,822
    )
    
    
    Investment and other income, net
    
    
    404
    
    
    
    108Earnings from continuing operations before income taxes and
cumulative effect of change in accounting principle
    
    
    16,472
    
    
    
    39,118Income taxes
    
    
    5,628
    
    
    
    14,812Earnings from continuing operations before cumulative effect of
change in accounting principle
    
    
    10,844
    
    
    
    24,306Discontinued operations (Note 13):Earnings from discontinued operations before income taxes
    
    
    969
    
    
    
    2,626Income tax benefit
    
    
    (48
    )
    
    
    (1,196
    )Earnings from discontinued operations
    
    
    1,017
    
    
    
    3,822Earnings before cumulative effect of change in accounting principle
    
    
    11,861
    
    
    
    28,128Cumulative effect of change in accounting principle (net of
$101,061 income tax benefit) (Note 3)
    
    
    (153,180
    )
    
    
    Net earnings (loss)
    
    $
    (141,319
    )
    
    $
    28,128Basic earnings (loss) per common share:Earnings from continuing operations before cumulative effect of
change in accounting principle
    
    $
    .10
    
    
    $
    .22Earnings from discontinued operations
    
    
    .01
    
    
    
    .04Cumulative effect of change in accounting principle
    
    
    (1.40
    )
    
    
    Net earnings (loss)
    
    $
    (1.29
    )
    
    $
    .26Diluted earnings (loss) per common share:Earnings from continuing operations before cumulative effect of
change in accounting principle
    
    $
    .10
    
    
    $
    .22Earnings from discontinued operations
    
    
    .01
    
    
    
    .04Cumulative effect of change in accounting principle
    
    
    (1.40
    )
    
    
    Net earnings (loss)
    
    $
    (1.29
    )
    
    $
    .26Weighted average common shares outstanding (in thousands):Basic
    
    
    109,243
    
    
    
    107,461Diluted
    
    
    109,430
    
    
    
    108,061Dividends declared per common share
    
    $
    .05
    
    
    $
    
  6




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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 (Dollars in thousands, except per share amounts)
 July 31,
    
    
    October 31,2005
    
    
    2004(Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)ASSETSCurrent assets:Cash and cash equivalent investments
    
    $
    29,335
    
    
    $
    21,514Marketable securities
    
    
    1,290
    
    
    
    1,297Receivables, net of allowances
    
    
    73,044
    
    
    
    69,133Inventories
    
    
    34,207
    
    
    
    36,174Prepaid expenses
    
    
    3,626
    
    
    
    2,953Deferred income taxes, net
    
    
    4,198
    
    
    
    7,674Assets held for sale
    
    
    738
    
    
    
    10,493Total current assets
    
    
    146,438
    
    
    
    149,238Receivables due beyond one year, net of allowances
    
    
    76,721
    
    
    
    78,692Preneed funeral receivables and trust investments
    
    
    514,721
    
    
    
    503,808Preneed cemetery receivables and trust investments
    
    
    263,456
    
    
    
    258,176Goodwill
    
    
    272,729
    
    
    
    272,729Deferred charges (Note 3)
    
    
    
    
    
    
    253,360Cemetery property, at cost
    
    
    365,889
    
    
    
    366,874Property and equipment, at cost:Land
    
    
    41,188
    
    
    
    39,527Buildings
    
    
    301,789
    
    
    
    295,567Equipment and other
    
    
    160,814
    
    
    
    156,205503,791
    
    
    
    491,299Less accumulated depreciation
    
    
    199,933
    
    
    
    189,552Net property and equipment
    
    
    303,858
    
    
    
    301,747Deferred income taxes, net
    
    
    189,746
    
    
    
    93,014Cemetery perpetual care trust investments
    
    
    218,829
    
    
    
    210,267Other assets
    
    
    20,982
    
    
    
    23,603Total assets
    
    $
    2,373,369
    
    
    $
    2,511,508
  7




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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)
 July 31,
    
    
    October 31,2005
    
    
    2004(Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    3,232
    
    
    $
    1,725Accounts payable
    
    
    8,251
    
    
    
    9,865Accrued payroll
    
    
    12,198
    
    
    
    13,005Accrued insurance
    
    
    22,020
    
    
    
    21,430Accrued interest
    
    
    7,972
    
    
    
    11,315Other current liabilities
    
    
    15,409
    
    
    
    17,889Income taxes payable
    
    
    454
    
    
    
    130Liabilities associated with assets held for sale
    
    
    401
    
    
    
    6,491Total current liabilities
    
    
    69,937
    
    
    
    81,850Long-term debt, less current maturities
    
    
    407,552
    
    
    
    415,080Deferred preneed funeral revenue
    
    
    291,818
    
    
    
    297,328Deferred preneed cemetery revenue
    
    
    286,691
    
    
    
    280,570Non-controlling interest in funeral and cemetery trusts
    
    
    645,739
    
    
    
    627,344Other long-term liabilities
    
    
    11,063
    
    
    
    12,465Total liabilities
    
    
    1,712,800
    
    
    
    1,714,637Commitments and contingencies
    
    
    
    
    
    
    Non-controlling interest in perpetual care trusts
    
    
    216,633
    
    
    
    208,893Shareholders equity:Preferred stock, $1.00 par value, 5,000,000 shares authorized;
no shares issued
    
    
    
    
    
    
    Common stock, $1.00 stated value:Class A authorized 150,000,000 shares; issued and outstanding
105,114,486 and 104,330,101 shares at July 31, 2005
and October 31, 2004, respectively
    
    
    105,114
    
    
    
    104,330Class B authorized 5,000,000 shares; issued and outstanding
3,555,020 shares at July 31, 2005 and October 31, 2004;
10 votes per share; convertible into an equal number of
Class A shares
    
    
    3,555
    
    
    
    3,555Additional paid-in capital
    
    
    670,384
    
    
    
    673,630Accumulated deficit
    
    
    (334,301
    )
    
    
    (192,982
    )Unearned restricted stock compensation
    
    
    (814
    )
    
    
    (222
    )Accumulated other comprehensive loss:Unrealized depreciation of investments
    
    
    (2
    )
    
    
    Derivative financial instrument losses
    
    
    
    
    
    
    (333
    )Total accumulated other comprehensive losses
    
    
    (2
    )
    
    
    (333
    )Total shareholders equity
    
    
    443,936
    
    
    
    587,978Total liabilities and shareholders equity
    
    $
    2,373,369
    
    
    $
    2,511,508
  8




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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
 (Unaudited)
 (Dollars in thousands, except per share amounts)
 Retained
    
    
    Unearned
    
    
    Unrealized
    
    
    DerivativeAdditional
    
    
    Earnings
    
    
    Restricted
    
    
    Depreciation
    
    
    Financial
    
    
    TotalCommon
    
    
    Paid-In
    
    
    (Accumulated
    
    
    Stock
    
    
    of
    
    
    Instrument
    
    
    ShareholdersStock(1)
    
    
    Capital
    
    
    Deficit)
    
    
    Compensation
    
    
    Investments
    
    
    Gains (Losses)
    
    
    Equity(Restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Restated)(Note 1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Note 1)Balance
October 31, 2004  as previously reported
    
    $
    107,885
    
    
    $
    673,630
    
    
    $
    3,298
    
    
    $
    (222
    )
    
    $
    
    
    
    $
    (333
    )
    
    $
    784,258Prior period adjustments
    
    
    
    
    
    
    
    
    
    
    (196,280
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (196,280
    )Balance
October 31, 2004  Restated (Note 1)
    
    $
    107,885
    
    
    $
    673,630
    
    
    $
    (192,982
    )
    
    $
    (222
    )
    
    $
    
    
    
    $
    (333
    )
    
    $
    587,978Comprehensive income (loss):Net loss-Restated (Note 1)
    
    
    
    
    
    
    
    
    
    
    (141,319
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (141,319
    )Other comprehensive income:Unrealized depreciation of investments,
net of deferred tax expense of ($1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Unrealized appreciation on derivative
instrument designated and qualifying
as a cash flow hedging instrument, net
of deferred tax expense of ($204)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    333
    
    
    
    333Total other comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    333
    
    
    
    331Total comprehensive income (loss)-Restated (Note 1)
    
    
    
    
    
    
    
    
    
    
    (141,319
    )
    
    
    
    
    
    
    (2
    )
    
    
    333
    
    
    
    (140,988
    )Restricted stock activity
    
    
    166
    
    
    
    991
    
    
    
    
    
    
    
    (592
    )
    
    
    
    
    
    
    
    
    
    
    565Issuance of common stock
    
    
    76
    
    
    
    359
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    435Stock options exercised
    
    
    2,642
    
    
    
    10,464
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,106Tax benefit associated with stock options exercised
    
    
    
    
    
    
    1,991
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,991Purchase and retirement of common stock
    
    
    (2,100
    )
    
    
    (11,585
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,685
    )Dividends ($.025 per share)
    
    
    
    
    
    
    (5,466
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,466
    )Balance
July 31, 2005  Restated (Note 1)
    
    $
    108,669
    
    
    $
    670,384
    
    
    $
    (334,301
    )
    
    $
    (814
    )
    
    $
    (2
    )
    
    $
    
    
    
    $
    443,936
 
 (1)
    
    Amount includes 105,114 and 104,330 shares (in thousands) of Class A common stock
with a stated value of $1 per share as of July 31, 2005 and October 31, 2004, respectively,
and includes 3,555 shares (in thousands) of Class B common stock.  9




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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
(Dollars in thousands, except per share amounts)
 Nine Months Ended July 31,2005
    
    
    2004(Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)Cash flows from operating activities:Net earnings (loss)
    
    $
    (141,319
    )
    
    $
    28,128Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:(Gains) on dispositions and impairment losses, net
    
    
    (2,368
    )
    
    
    (1,059
    )Cumulative effect of change in accounting principle
    
    
    153,180
    
    
    
    Loss on early extinguishment of debt
    
    
    32,822
    
    
    
    Premiums paid on early extinguishment of debt
    
    
    (25,463
    )
    
    
    Depreciation and amortization
    
    
    15,732
    
    
    
    17,675Amortization of preneed selling costs
    
    
    
    
    
    
    18,231Amortization of deferred financing costs
    
    
    1,011
    
    
    
    3,955Provision for doubtful accounts
    
    
    5,306
    
    
    
    5,595Net loss realized on marketable securities
    
    
    
    
    
    
    103Provision for deferred income taxes
    
    
    5,203
    
    
    
    10,056Tax benefit on stock options exercised
    
    
    1,991
    
    
    
    2,464Other
    
    
    782
    
    
    
    258Changes in assets and liabilities:(Increase) decrease in other receivables
    
    
    (10,129
    )
    
    
    22,501Decrease in inventories and cemetery property
    
    
    1,746
    
    
    
    1,839Decrease in accounts payable and accrued expenses
    
    
    (3,833
    )
    
    
    (11,268
    )Net effect of preneed funeral production and maturities
    
    
    (9,134
    )
    
    
    (15,987
    )Net effect of preneed cemetery production and deliveries
    
    
    10,507
    
    
    
    11,675Change in
deferred charges  prearranged acquisition costs
    
    
    
    
    
    
    (25,429
    )Decrease in other
    
    
    (2,307
    )
    
    
    (135
    )Net cash provided by operating activities
    
    
    33,727
    
    
    
    68,602Cash flows from investing activities:Proceeds from sales of marketable securities
    
    
    16
    
    
    
    1,121Proceeds from sale of assets, net
    
    
    9,731
    
    
    
    12,871Additions to property and equipment
    
    
    (17,896
    )
    
    
    (14,280
    )Other
    
    
    113
    
    
    
    208Net cash used in investing activities
    
    
    (8,036
    )
    
    
    (80
    )Cash flows from financing activities:Proceeds from long-term debt
    
    
    440,000
    
    
    
    Repayments of long-term debt
    
    
    (446,021
    )
    
    
    (64,748
    )Debt issue costs
    
    
    (6,247
    )
    
    
    Issuance of common stock
    
    
    13,541
    
    
    
    13,066Purchase and retirement of common stock
    
    
    (13,685
    )
    
    
    (19,349
    )Dividends
    
    
    (5,466
    )
    
    
    Other
    
    
    8
    
    
    
    Net cash used in financing activities
    
    
    (17,870
    )
    
    
    (71,031
    )Net increase (decrease) in cash
    
    
    7,821
    
    
    
    (2,509
    )Cash and cash equivalents, beginning of period
    
    
    21,514
    
    
    
    18,585Cash and cash equivalents, end of period
    
    $
    29,335
    
    
    $
    16,076Supplemental cash flow information:Cash paid (received) during the period for:Income taxes
    
    $
    3,700
    
    
    $
    (26,900
    )Interest
    
    $
    25,200
    
    
    $
    39,500
  10




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
(Dollars in thousands, except per share amounts)
 (1) Restatement
  (A)
    
    The incorrect determination of operating and reportable segments and reporting units
related to the application of FASB Statement No. 142, Goodwill and Other Intangible
Assets, (SFAS No. 142), which also had the effect of changing the charges recorded for
the assets sold as part of the Companys plan initiated in December 2003 (see Note 13) to
sell a number of businesses, and the net book value of assets held for sale on its balance
sheet.(B)
    
    Errors identified in revenue recognition of preneed cemetery merchandise and services
contracts and recognition of realized trust earnings on preneed cemetery and funeral
merchandise and services contracts.(C)
    
    Other miscellaneous adjustments, including adjustments for lease-related accounting
practices.
  Segments and Reporting Units
     11




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (1) Restatement(Continued)
  Deferred Revenue Project
    Other Adjustments
   12




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (1) Restatement(Continued)
 Effect of restating toAs Previously Reported-
    
    
    correct for the impact
    
    
    As Restated- ThreeThree Months Ended
    
    
    of the deferred
    
    
    Months EndedJuly 31, 2005(1)
    
    
    revenue project
    
    
    July 31, 2005Consolidated Statements of Earnings:Revenues:Funeral
    
    $
    67,879
    
    
    $
    (1,777
    )
    
    $
    66,102Cemetery
    
    
    62,085
    
    
    
    (3,085
    )
    
    
    59,000129,964
    
    
    
    (4,862
    )
    
    
    125,102Costs and expenses:Funeral
    
    
    53,477
    
    
    
    
    
    
    
    53,477Cemetery
    
    
    47,578
    
    
    
    
    
    
    
    47,578101,055
    
    
    
    
    
    
    
    101,055Gross profit
    
    
    28,909
    
    
    
    (4,862
    )
    
    
    24,047Corporate general and administrative expenses
    
    
    (5,545
    )
    
    
    
    
    
    
    (5,545
    )Separation charges
    
    
    (147
    )
    
    
    
    
    
    
    (147
    )Gains on dispositions and impairment (losses), net
    
    
    63
    
    
    
    
    
    
    
    63Other operating income, net
    
    
    571
    
    
    
    
    
    
    
    571Operating earnings
    
    
    23,851
    
    
    
    (4,862
    )
    
    
    18,989Interest expense
    
    
    (6,456
    )
    
    
    
    
    
    
    (6,456
    )Loss on early extinguishment of debt
    
    
    (114
    )
    
    
    
    
    
    
    (114
    )Investment and other income, net
    
    
    184
    
    
    
    
    
    
    
    184Earnings from continuing operations before income
taxes
    
    
    17,465
    
    
    
    (4,862
    )
    
    
    12,603Income taxes
    
    
    6,576
    
    
    
    (2,101
    )
    
    
    4,475Earnings from continuing operations
    
    
    10,889
    
    
    
    (2,761
    )
    
    
    8,128Earnings from discontinued operations before
income taxes
    
    
    590
    
    
    
    
    
    
    
    590Income tax benefit
    
    
    (157
    )
    
    
    
    
    
    
    (157
    )Earnings from discontinued operations
    
    
    747
    
    
    
    
    
    
    
    747Net earnings
    
    $
    11,636
    
    
    $
    (2,761
    )
    
    $
    8,875Basic earnings per common share:Earnings from continuing operations
    
    $
    .10
    
    
    $
    (.03
    )
    
    $
    .07Earnings from discontinued operations
    
    
    .01
    
    
    
    
    
    
    
    .01Net earnings per share
    
    $
    .11
    
    
    $
    (.03
    )
    
    $
    .08Diluted earnings per common share:Earnings from continuing operations
    
    $
    .10
    
    
    $
    (.03
    )
    
    $
    .07Earnings from discontinued operations
    
    
    .01
    
    
    
    
    
    
    
    .01Net earnings per share
    
    $
    .11
    
    
    $
    (.03
    )
    
    $
    .08
 
 (1)
    
    The previously reported amounts represent amounts reported in the incomplete
Form 10-Q for the quarter ended July 31, 2005 filed on October 24, 2005 without the effects of
the deferred revenue project, before the completion of the review by the independent
registered public accounting firm and without the certifications of the Companys Chief
Executive Officer and Chief Financial Officer. 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)
 (1) Restatement(Continued)
 As Previously
    
    
    Effect of restating toReported- Nine
    
    
    correct for the impact
    
    
    
    
    
    
    As Restated- NineMonths Ended
    
    
    of the deferred
    
    
    Other
    
    
    Months EndedJuly 31, 2005(1)
    
    
    revenue project
    
    
    Adjustments(2)
    
    
    July 31, 2005Consolidated Statements of Earnings:Revenues:Funeral
    
    $
    214,547
    
    
    $
    (4,304
    )
    
    $
    
    
    
    $
    210,243Cemetery
    
    
    177,464
    
    
    
    (7,467
    )
    
    
    
    
    
    
    169,997392,011
    
    
    
    (11,771
    )
    
    
    
    
    
    
    380,240Costs and expenses:Funeral
    
    
    161,531
    
    
    
    
    
    
    
    (1,839
    )
    
    
    159,692Cemetery
    
    
    136,034
    
    
    
    
    
    
    
    
    
    
    
    136,034297,565
    
    
    
    
    
    
    
    (1,839
    )
    
    
    295,726Gross profit
    
    
    94,446
    
    
    
    (11,771
    )
    
    
    1,839
    
    
    
    84,514Corporate general and administrative
expenses
    
    
    (14,343
    )
    
    
    
    
    
    
    
    
    
    
    (14,343
    )Separation charges
    
    
    (147
    )
    
    
    
    
    
    
    
    
    
    
    (147
    )Gains on dispositions and impairment
(losses), net
    
    
    1,300
    
    
    
    
    
    
    
    
    
    
    
    1,300Other operating income, net
    
    
    1,069
    
    
    
    
    
    
    
    
    
    
    
    1,069Operating earnings
    
    
    82,325
    
    
    
    (11,771
    )
    
    
    1,839
    
    
    
    72,393Interest expense
    
    
    (23,503
    )
    
    
    
    
    
    
    
    
    
    
    (23,503
    )Loss on early extinguishment of debt
    
    
    (32,822
    )
    
    
    
    
    
    
    
    
    
    
    (32,822
    )Investment and other income, net
    
    
    404
    
    
    
    
    
    
    
    
    
    
    
    404Earnings from continuing operations
before income taxes
    
    
    26,404
    
    
    
    (11,771
    )
    
    
    1,839
    
    
    
    16,472Income taxes
    
    
    10,360
    
    
    
    (5,422
    )
    
    
    690
    
    
    
    5,628Earnings from continuing operations
before cumulative effect of change in
accounting principle
    
    
    16,044
    
    
    
    (6,349
    )
    
    
    1,149
    
    
    
    10,844Earnings from discontinued operations
before income taxes
    
    
    969
    
    
    
    
    
    
    
    
    
    
    
    969Income tax benefit
    
    
    (48
    )
    
    
    
    
    
    
    
    
    
    
    (48
    )Earnings from discontinued operations
    
    
    1,017
    
    
    
    
    
    
    
    
    
    
    
    1,017Earnings before cumulative effect of
change in accounting principles
    
    
    17,061
    
    
    
    (6,349
    )
    
    
    1,149
    
    
    
    11,861Cumulative effect of change in
accounting principles
    
    
    (141,318
    )
    
    
    (11,862
    )
    
    
    
    
    
    
    (153,180
    )Net loss
    
    $
    (124,257
    )
    
    $
    (18,211
    )
    
    $
    1,149
    
    
    $
    (141,319
    )Basic earnings (loss) per common share:Earnings from continuing operations
    
    $
    .14
    
    
    $
    (.05
    )
    
    $
    .01
    
    
    $
    .10Earnings from discontinued operations
    
    
    .01
    
    
    
    
    
    
    
    
    
    
    
    .01Cumulative effect of change in
accounting principles
    
    
    (1.29
    )
    
    
    (.11
    )
    
    
    
    
    
    
    (1.40
    )Net loss per share
    
    $
    (1.14
    )
    
    $
    (.16
    )
    
    $
    .01
    
    
    $
    (1.29
    )Diluted earnings (loss) per common
share:Earnings from continuing operations
    
    $
    .14
    
    
    $
    (.05
    )
    
    $
    .01
    
    
    $
    .10Earnings from discontinued operations
    
    
    .01
    
    
    
    
    
    
    
    
    
    
    
    .01Cumulative effect of change in
accounting principles
    
    
    (1.29
    )
    
    
    (.11
    )
    
    
    
    
    
    
    (1.40
    )Net loss per share
    
    $
    (1.14
    )
    
    $
    (.16
    )
    
    $
    .01
    
    
    $
    (1.29
    )
 
 (1)
    
    The previously reported amounts represent amounts reported in the incomplete
Form 10-Q for the quarter ended July 31, 2005 filed on October 24, 2005 without the effects of
the deferred revenue project, before the completion of the review by the independent
registered public accounting firm and without the certifications of the Companys Chief
Executive Officer and Chief Financial Officer.(2)
    
    Represents adjustments made to lease-related accounting practices. 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)
 (1) Restatement(Continued)
 Effect ofreclassifying fordiscontinuedoperations and
    
    
    
    
    
    
    Effect ofrestating to
    
    
    
    
    
    
    restating toAs Originally
    
    
    correct for
    
    
    As Previously
    
    
    correct for the
    
    
    
    
    
    
    As Restated -Reported- Three
    
    
    goodwill
    
    
    Reported- Three
    
    
    impact of the
    
    
    
    
    
    
    Three MonthsMonths Ended
    
    
    reporting unit
    
    
    Months Ended
    
    
    deferred
    
    
    Other
    
    
    EndedJuly 31, 2004(1)
    
    
    errors(2)
    
    
    July 31, 2004(3)
    
    
    revenue project
    
    
    Adjustments(4)
    
    
    July 31, 2004(5)Consolidated Statements of Earnings:Revenues:Funeral
    
    $
    67,285
    
    
    $
    431
    
    
    $
    67,716
    
    
    $
    (2,367
    )
    
    $
    
    
    
    $
    65,349Cemetery
    
    
    60,326
    
    
    
    231
    
    
    
    60,557
    
    
    
    (3,790
    )
    
    
    
    
    
    
    56,767127,611
    
    
    
    662
    
    
    
    128,273
    
    
    
    (6,157
    )
    
    
    
    
    
    
    122,116Costs and expenses:Funeral
    
    
    49,520
    
    
    
    622
    
    
    
    50,142
    
    
    
    
    
    
    
    53
    
    
    
    50,195Cemetery
    
    
    46,667
    
    
    
    140
    
    
    
    46,807
    
    
    
    (952
    )
    
    
    
    
    
    
    45,85596,187
    
    
    
    762
    
    
    
    96,949
    
    
    
    (952
    )
    
    
    53
    
    
    
    96,050Gross profit
    
    
    31,424
    
    
    
    (100
    )
    
    
    31,324
    
    
    
    (5,205
    )
    
    
    (53
    )
    
    
    26,066Corporate general and administrative
expenses
    
    
    (4,150
    )
    
    
    
    
    
    
    (4,150
    )
    
    
    
    
    
    
    
    
    
    
    (4,150
    )Separation charges
    
    
    (1,085
    )
    
    
    
    
    
    
    (1,085
    )
    
    
    
    
    
    
    
    
    
    
    (1,085
    )Gains on dispositions and impairment
(losses), net
    
    
    
    
    
    
    304
    
    
    
    304
    
    
    
    
    
    
    
    
    
    
    
    304Other operating income, net
    
    
    
    
    
    
    1,000
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000Operating earnings
    
    
    26,189
    
    
    
    1,204
    
    
    
    27,393
    
    
    
    (5,205
    )
    
    
    (53
    )
    
    
    22,135Interest expense
    
    
    (11,502
    )
    
    
    
    
    
    
    (11,502
    )
    
    
    
    
    
    
    
    
    
    
    (11,502
    )Investment and other income
(expense), net
    
    
    1,662
    
    
    
    (1,586
    )
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    76Earnings from continuing operations
before income taxes
    
    
    16,349
    
    
    
    (382
    )
    
    
    15,967
    
    
    
    (5,205
    )
    
    
    (53
    )
    
    
    10,709Income taxes
    
    
    5,984
    
    
    
    (161
    )
    
    
    5,823
    
    
    
    (1,979
    )
    
    
    (20
    )
    
    
    3,824Earnings from continuing operations
    
    
    10,365
    
    
    
    (221
    )
    
    
    10,144
    
    
    
    (3,226
    )
    
    
    (33
    )
    
    
    6,885Earnings (loss) from discontinued
operations before income taxes
    
    
    (483
    )
    
    
    1,019
    
    
    
    536
    
    
    
    
    
    
    
    
    
    
    
    536Income tax benefit
    
    
    (961
    )
    
    
    (246
    )
    
    
    (1,207
    )
    
    
    
    
    
    
    
    
    
    
    (1,207
    )Earnings from discontinued operations
    
    
    478
    
    
    
    1,265
    
    
    
    1,743
    
    
    
    
    
    
    
    
    
    
    
    1,743Net earnings
    
    $
    10,843
    
    
    $
    1,044
    
    
    $
    11,887
    
    
    $
    (3,226
    )
    
    $
    (33
    )
    
    $
    8,628Basic earnings per common share:Earnings from continuing operations
    
    $
    .10
    
    
    $
    (.01
    )
    
    $
    .09
    
    
    $
    (.03
    )
    
    $
    
    
    
    $
    .06Earnings from discontinued operations
    
    
    
    
    
    
    .02
    
    
    
    .02
    
    
    
    
    
    
    
    
    
    
    
    .02Net earnings per share
    
    $
    .10
    
    
    $
    .01
    
    
    $
    .11
    
    
    $
    (.03
    )
    
    $
    
    
    
    $
    .08Diluted earnings per common share:Earnings from continuing operations
    
    $
    .10
    
    
    $
    (.01
    )
    
    $
    .09
    
    
    $
    (.03
    )
    
    $
    
    
    
    $
    .06Earnings from discontinued operations
    
    
    
    
    
    
    .02
    
    
    
    .02
    
    
    
    
    
    
    
    
    
    
    
    .02Net earnings per share
    
    $
    .10
    
    
    $
    .01
    
    
    $
    .11
    
    
    $
    (.03
    )
    
    $
    
    
    
    $
    .08
 
 (1)
    
    The previously reported amounts represent amounts reported in the Form 10-Q for
the quarter ended July 31, 2004 filed on September 13, 2004.(2)
    
    Represents adjustments for the change in classification of discontinued operations
and the restatement of goodwill on the Companys consolidated balance sheet which had the
effect of changing the net book value of the assets the Company sold as part of its plan
initiated in December 2003 to sell a number of its businesses and the net book value of assets
held for sale on the consolidated balance sheet. Due to these changes and changes in the
classification of certain businesses between continuing operations and discontinued
operations, the gain or loss on those sales was re-evaluated resulting in an additional net
gain of $638 ($1,044 after tax) for the three months ended July 31, 2004 (an additional loss
of $282 relates to continuing operations and an additional gain of $920 relates to
discontinued operations). Additionally, certain items amounting to 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)
 (1) Restatement(Continued)
 
 $1,304, which includes the
adjusted net gain on sales of assets of $304, were reclassified from non-operating income
(expense) into operating earnings, which presentation is consistent with that utilized for the
year ended October 31, 2004 reported in the April 12, 2005 Form 8-K.(3)
    
    The previously reported amounts represent amounts reported in the incomplete Form
10-Q for the quarter ended July 31, 2005 filed on October 24, 2005 without the effects of the
deferred revenue project, before the completion of the review by the independent registered
public accounting firm and without the certifications of the Companys Chief Executive Officer
and Chief Financial Officer.(4)
    
    Represents adjustments which are immaterial individually and in the aggregate
relating to lease-related accounting practices and other miscellaneous adjustments.(5)
    
    Represents the July 2005 classification of continuing and discontinued operations. 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)
 (1)
    
    Restatement(Continued)
 Effect ofreclassifying fordiscontinuedoperations and
    
    
    
    
    
    
    Effect ofrestating to
    
    
    
    
    
    
    restating toAs Originally
    
    
    correct for
    
    
    As Previously
    
    
    correct for the
    
    
    
    
    
    
    As Restated -Reported- Nine
    
    
    goodwill
    
    
 Reported- Nine
    
    
    impact of the
    
    
    
    
    
    
    Nine MonthsMonths Ended
    
    
    reporting unit
    
    
    Months Ended
    
    
    deferred
    
    
    Other
    
    
    Ended July 31,July 31, 2004(1)
    
    
    errors(2)
    
    
     July 31, 2004(3)

    
    
    revenue project
    
    
    Adjustments(4)
    
    
    2004(5)Consolidated Statements of Earnings:Revenues:Funeral
    
    $
    212,830
    
    
    $
    1,388
    
    
    $
    214,218
    
    
    $
    (6,454
    )
    
    $
    
    
    
    $
    207,764Cemetery
    
    
    175,044
    
    
    
    334
    
    
    
    175,378
    
    
    
    (11,418
    )
    
    
    
    
    
    
    163,960387,874
    
    
    
    1,722
    
    
    
    389,596
    
    
    
    (17,872
    )
    
    
    
    
    
    
    371,724Costs and expenses:Funeral
    
    
    150,672
    
    
    
    1,880
    
    
    
    152,552
    
    
    
    
    
    
    
    410
    
    
    
    152,962Cemetery
    
    
    132,005
    
    
    
    297
    
    
    
    132,302
    
    
    
    (2,724
    )
    
    
    
    
    
    
    129,578282,677
    
    
    
    2,177
    
    
    
    284,854
    
    
    
    (2,724
    )
    
    
    410
    
    
    
    282,540Gross profit
    
    
    105,197
    
    
    
    (455
    )
    
    
    104,742
    
    
    
    (15,148
    )
    
    
    (410
    )
    
    
    89,184Corporate general and administrative
expenses
    
    
    (12,684
    )
    
    
    
    
    
    
    (12,684
    )
    
    
    
    
    
    
    
    
    
    
    (12,684
    )Separation charges
    
    
    (3,216
    )
    
    
    
    
    
    
    (3,216
    )
    
    
    
    
    
    
    
    
    
    
    (3,216
    )Gains on dispositions and impairment
(losses), net
    
    
    
    
    
    
    54
    
    
    
    54
    
    
    
    
    
    
    
    (300
    )
    
    
    (246
    )Other operating income, net
    
    
    
    
    
    
    1,948
    
    
    
    1,948
    
    
    
    
    
    
    
    
    
    
    
    1,948Operating earnings
    
    
    89,297
    
    
    
    1,547
    
    
    
    90,844
    
    
    
    (15,148
    )
    
    
    (710
    )
    
    
    74,986Interest expense
    
    
    (35,976
    )
    
    
    
    
    
    
    (35,976
    )
    
    
    
    
    
    
    
    
    
    
    (35,976
    )Investment and other income (expense),
net
    
    
    1,643
    
    
    
    (2,635
    )
    
    
    (992
    )
    
    
    
    
    
    
    1,100
    
    
    
    108Earnings from continuing operations
before income taxes
    
    
    54,964
    
    
    
    (1,088
    )
    
    
    53,876
    
    
    
    (15,148
    )
    
    
    390
    
    
    
    39,118Income taxes
    
    
    20,477
    
    
    
    (462
    )
    
    
    20,015
    
    
    
    (5,351
    )
    
    
    148
    
    
    
    14,812Earnings from continuing operations
    
    
    34,487
    
    
    
    (626
    )
    
    
    33,861
    
    
    
    (9,797
    )
    
    
    242
    
    
    
    24,306Earnings from discontinued operations
before income taxes
    
    
    1,742
    
    
    
    884
    
    
    
    2,626
    
    
    
    
    
    
    
    
    
    
    
    2,626Income tax benefit
    
    
    (1,099
    )
    
    
    (97
    )
    
    
    (1,196
    )
    
    
    
    
    
    
    
    
    
    
    (1,196
    )Earnings from discontinued operations
    
    
    2,841
    
    
    
    981
    
    
    
    3,822
    
    
    
    
    
    
    
    
    
    
    
    3,822Net earnings
    
    $
    37,328
    
    
    $
    355
    
    
    $
    37,683
    
    
    $
    (9,797
    )
    
    $
    242
    
    
    $
    28,128Basic earnings per common share:Earnings from continuing operations
    
    $
    .32
    
    
    $
    (.01
    )
    
    $
    .31
    
    
    $
    (.09
    )
    
    $
    
    
    
    $
    .22Earnings from discontinued operations
    
    
    .03
    
    
    
    .01
    
    
    
    .04
    
    
    
    
    
    
    
    
    
    
    
    .04Net earnings per share
    
    $
    .35
    
    
    $
    
    
    
    $
    .35
    
    
    $
    (.09
    )
    
    $
    
    
    
    $
    .26Diluted earnings per common share:Earnings from continuing operations
    
    $
    .32
    
    
    $
    (.01
    )
    
    $
    .31
    
    
    $
    (.09
    )
    
    $
    
    
    
    $
    .22Earnings from discontinued operations
    
    
    .03
    
    
    
    .01
    
    
    
    .04
    
    
    
    
    
    
    
    
    
    
    
    .04Net earnings per share
    
    $
    .35
    
    
    $
    
    
    
    $
    .35
    
    
    $
    (.09
    )
    
    $
    
    
    
    $
    .26
 
 (1)
    
    The previously reported amounts represent amounts reported in the Form 10-Q
for the quarter ended July 31, 2004 filed on September 13, 2004.(2)
    
    Represents adjustments for the change in classification of discontinued operations
and the restatement of goodwill on the Companys consolidated balance sheet which had the
effect of changing the net book value of the assets the Company sold as part of its plan
initiated in December 2003 to sell a number of its businesses and the net book value of assets
held for sale on the consolidated balance sheet. Due to these changes and changes in the
classification of certain businesses between continuing operations and discontinued
operations, the gain or loss on those sales was re-evaluated resulting in an additional net
gain of $6 ($355 after tax) for the nine months ended July 31, 2004 (an additional loss of
$441 relates to continuing operations and an additional gain of $447 related to discontinued
operations). Additionally, certain items amounting to 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)
 (1)
    
    Restatement(Continued)
 $2,002, which includes the adjusted net
gain on the sales of assets of $54, were reclassified from non-operating income (expense) into
operating earnings, which presentation is consistent with that utilized for the year ended October 31, 2004 reported
in the April 12, 2005 Form 8-K.(3)
    
    The previously reported amounts represent amounts reported in the incomplete Form
10-Q for the quarter ended July 31, 2005 filed on October 24, 2005 without the effects of the
deferred revenue project, before the completion of the review by the independent registered
public accounting firm and without the certifications of the Companys Chief Executive Officer
and Chief Financial Officer.(4)
    
    Represents adjustments which are immaterial individually and in the aggregate
relating to lease-related accounting practices and other miscellaneous adjustments.(5)
    
    Represents the July 2005 classification of continuing and discontinued operations. Effect of restatingto correct for theAs Previously
    
    
    impact of theReported July
    
    
    deferred revenue
    
    
    Other
    
    
    As Restated-31, 2005 (1)
    
    
    project
    
    
    adjustments(2)
    
    
    July 31, 2005Consolidated Balance Sheets:Assets held for sale
    
    $
    738
    
    
    $
    
    
    
    $
    
    
    
    $
    738Total current assets
    
    
    139,154
    
    
    
    8,966
    
    
    
    (1,682
    )
    
    
    146,438Deferred income taxes
    
    
    138,123
    
    
    
    50,840
    
    
    
    783
    
    
    
    189,746Goodwill
    
    
    267,859
    
    
    
    2,979
    
    
    
    1,891
    
    
    
    272,729Total assets
    
    
    2,313,203
    
    
    
    62,785
    
    
    
    (2,619
    )
    
    
    2,373,369Liabilities associated with assets held
for sale
    
    
    401
    
    
    
    
    
    
    
    
    
    
    
    401Total current liabilities
    
    
    65,135
    
    
    
    790
    
    
    
    4,012
    
    
    
    69,937Deferred preneed funeral revenue
    
    
    138,731
    
    
    
    157,892
    
    
    
    (4,805
    )
    
    
    291,818Deferred preneed cemetery revenue
    
    
    292,928
    
    
    
    (6,237
    )
    
    
    
    
    
    
    286,691Accumulated deficit
    
    
    (242,815
    )
    
    
    (89,660
    )
    
    
    (1,826
    )
    
    
    (334,301
    )Total shareholders equity
    
    
    535,422
    
    
    
    (89,660
    )
    
    
    (1,826
    )
    
    
    443,936Total liabilities and shareholders equity
    
    
    2,313,203
    
    
    
    62,785
    
    
    
    (2,619
    )
    
    
    2,373,369
 
 (1)
    
    The previously reported amounts represent amounts reported in the incomplete
Form 10-Q for the quarter ended July 31, 2005 filed on October 24, 2005 without the effects of
the deferred revenue project, before the completion of the review by the independent
registered public accounting firm and without the certifications of the Companys Chief
Executive Officer and Chief Financial Officer.(2)
    
    Represents adjustments which are immaterial individually and in the aggregate
relating to lease-related accounting practices and other miscellaneous adjustments. 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)
 (1)
    
    Restatement(Continued)
 Effect ofrestating to
    
    
    Effect of restating
    
    
    
    
    
    
    
    
    
    
    As RestatedAs Previously
    
    
    correct for
    
    
    to correct for the
    
    
    
    
    
    
    
    
    
    
    andReported 
    
    
    goodwill
    
    
    impact of the
    
    
    
    
    
    
    As Restated 
    
    
    Reclassified October 31,
    
    
    reporting
    
    
    deferred revenue
    
    
    Other
    
    
    October
    
    
    October 31,2004(1)
    
    
    unit errors
    
    
    project
    
    
    adjustments(2)
    
    
    31, 2004
    
    
    2004(3)Consolidated Balance Sheets:Assets held for sale
    
    $
    3,590
    
    
    $
    (15
    )
    
    $
    
    
    
    $
    
    
    
    $
    3,575
    
    
    $
    10,493Total current assets
    
    
    134,491
    
    
    
    (15
    )
    
    
    8,966
    
    
    
    (1,597
    )
    
    
    141,845
    
    
    
    149,238Deferred income taxes
    
    
    43,124
    
    
    
    11,794
    
    
    
    37,593
    
    
    
    481
    
    
    
    92,992
    
    
    
    93,014Goodwill
    
    
    404,169
    
    
    
    (131,400
    )
    
    
    2,980
    
    
    
    (2,976
    )
    
    
    272,773
    
    
    
    272,729Total assets
    
    
    2,565,198
    
    
    
    (121,857
    )
    
    
    69,226
    
    
    
    (1,081
    )
    
    
    2,511,486
    
    
    
    2,511,508Liabilities associated with assets held
for sale
    
    
    2,388
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,388
    
    
    
    6,491Total current liabilities
    
    
    71,781
    
    
    
    
    
    
    
    790
    
    
    
    5,176
    
    
    
    77,747
    
    
    
    81,850Deferred preneed funeral revenue
    
    
    156,164
    
    
    
    
    
    
    
    145,161
    
    
    
    (2,653
    )
    
    
    298,672
    
    
    
    297,328Deferred preneed cemetery revenue
    
    
    288,516
    
    
    
    
    
    
    
    (5,278
    )
    
    
    (1,963
    )
    
    
    281,275
    
    
    
    280,570Retained earnings (accumulated deficit)
    
    
    3,298
    
    
    
    (121,857
    )
    
    
    (71,447
    )
    
    
    (2,976
    )
    
    
    (192,982
    )
    
    
    (192,982
    )Total shareholders equity
    
    
    784,258
    
    
    
    (121,857
    )
    
    
    (71,447
    )
    
    
    (2,976
    )
    
    
    587,978
    
    
    
    587,978Total liabilities and shareholders equity
    
    
    2,565,198
    
    
    
    (121,857
    )
    
    
    69,226
    
    
    
    (1,081
    )
    
    
    2,511,486
    
    
    
    2,511,508
 
 (1)
    
    The previously reported amounts represent amounts reported in the April 12, 2005
Form 8-K.(2)
    
    Represents adjustments which are immaterial individually and in the aggregate
relating to lease-related accounting practices and other miscellaneous adjustments.(3)
    
    Represents the July 2005 classification of continuing and discontinued operations.  (2) Basis of Presentation
 The Company
  Principles of Consolidation
  19




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (2)
    
    Basis of Presentation(Continued)
 Interim Disclosures
    Use of Estimates
  Fair Value of Financial Instruments
    20




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (2)
    
    Basis of Presentation(Continued)
  Inventories
  Depreciation and Amortization
  Long-lived Assets
  Goodwill (Restated)
    21




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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (2)
    
    Basis of Presentation(Continued)
   Stock-Based Compensation
  Three Months Ended
    
    
    Nine Months EndedJuly 31,
    
    
    July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)Net earnings (loss)
    
    $
    8,875
    
    
    $
    8,628
    
    
    $
    (141,319
    )
    
    $
    28,128Stock-based employee compensation expense
included in reported net earnings, net of tax
    
    
    133
    
    
    
    54
    
    
    
    351
    
    
    
    285Total stock-based employee compensation expense
determined under fair value-based method,
net of tax
    
    
    (416
    )
    
    
    (416
    )
    
    
    (1,351
    )
    
    
    (1,386
    )Pro forma net earnings (loss)
    
    $
    8,592
    
    
    $
    8,266
    
    
    $
    (142,319
    )
    
    $
    27,027Net earnings (loss) per common share:Basic  as reported
    
    $
    .08
    
    
    $
    .08
    
    
    $
    (1.29
    )
    
    $
    .26Basic  pro forma
    
    $
    .08
    
    
    $
    .08
    
    
    $
    (1.30
    )
    
    $
    .25Diluted  as reported
    
    $
    .08
    
    
    $
    .08
    
    
    $
    (1.29
    )
    
    $
    .26Diluted  pro forma
    
    $
    .08
    
    
    $
    .08
    
    
    $
    (1.30
    )
    
    $
    .25
 22




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (2)
    
    Basis of Presentation(Continued)
 Funeral Revenue
      Cemetery Revenue
  23




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (2)
    
    Basis of Presentation(Continued)
       Allowance for Doubtful Accounts
  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)
 (2)
    
    Basis of Presentation(Continued)
 Income Taxes
      Earnings Per Common Share
   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)
 (2)
    
    Basis of Presentation(Continued)
   Derivatives
  Estimated Insurance Loss Liabilities
   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)
 (2)
    
    Basis of Presentation(Continued)
   Dividends
  Leases
   Reclassifications
    (3) Change in Accounting Principles and New Accounting Principles
 (a) Preneed Selling Costs
  27




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (3)
    
    Change in Accounting Principles and New Accounting
Principles  (Continued)
    Three Months Ended
    
    
    Nine Months EndedJuly 31, 2004
    
    
    July 31, 2004As Reported
    
    
    
    
    
    
    
    
    
    
    As Reported- Restated (Note 1)
    
    
    Changes
    
    
    Pro Forma
    
    
    - Restated (Note 1)
    
    
    Changes
    
    
    Pro FormaGross profit:Funeral
    
    $
    15,154
    
    
    $
    (1,433
    )
    
    $
    13,721
    
    
    $
    54,802
    
    
    $
    (3,587
    )
    
    $
    51,215Cemetery
    
    
    10,912
    
    
    
    (1,080
    )
    
    
    9,832
    
    
    
    34,382
    
    
    
    (3,854
    )
    
    
    30,528$
    26,066
    
    
    $
    (2,513
    )
    
    $
    23,553
    
    
    $
    89,184
    
    
    $
    (7,441
    )
    
    $
    81,743Earnings from
continuing
operations
    
    $
    6,885
    
    
    $
    (1,558
    )
    
    $
    5,327
    
    
    $
    24,306
    
    
    $
    (4,539
    )
    
    $
    19,767Net earnings
    
    $
    8,628
    
    
    $
    (1,502
    )
    
    $
    7,126
    
    
    $
    28,128
    
    
    $
    (4,389
    )
    
    $
    23,739Basic earnings per
common share from
continuing operations
    
    $
    .06
    
    
    $
    (.01
    )
    
    $
    .05
    
    
    $
    .22
    
    
    $
    (.04
    )
    
    $
    .18Diluted earnings per
common share from
continuing operations
    
    $
    .06
    
    
    $
    (.01
    )
    
    $
    .05
    
    
    $
    .22
    
    
    $
    (.04
    )
    
    $
    .18Basic earnings per
common share
    
    $
    .08
    
    
    $
    (.01
    )
    
    $
    .07
    
    
    $
    .26
    
    
    $
    (.04
    )
    
    $
    .22Diluted earnings per
common share
    
    $
    .08
    
    
    $
    (.01
    )
    
    $
    .07
    
    
    $
    .26
    
    
    $
    (.04
    )
    
    $
    .22
   28




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (3)
    
    Change in Accounting Principles and New Accounting
Principles(Continued)
      29




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (3)
    
    Change in Accounting Principles and New Accounting
Principles(Continued)
   Other Accounting Pronouncements
    (4) Preneed Funeral Activities
  30




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (4) Preneed Funeral Activities(Continued)
    Preneed Funeral Receivables and Trust Investments
  July 31, 2005
    
    
    October 31, 2004Trust assets
    
    $
    454,743
    
    
    $
    439,625Receivables from customers
    
    
    59,978
    
    
    
    64,183Preneed funeral receivables and trust investments
    
    $
    514,721
    
    
    $
    503,808
  31




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (4) Preneed Funeral Activities(Continued)
    July 31, 2005Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    51,433
    
    
    $
    
    
    
    $
    
    
    
    $
    51,433U.S. Government, agencies
and municipalities
    
    
    6,452
    
    
    
    67
    
    
    
    (44
    )
    
    
    6,475Corporate bonds
    
    
    21,287
    
    
    
    1,010
    
    
    
    (370
    )
    
    
    21,927Preferred stocks
    
    
    67,511
    
    
    
    1,350
    
    
    
    (635
    )
    
    
    68,226Common stocks
    
    
    238,846
    
    
    
    19,973
    
    
    
    (7,758
    )
    
    
    251,061Mutual funds
    
    
    28,907
    
    
    
    1,025
    
    
    
    (133
    )
    
    
    29,799Insurance contracts and other long-
term investments
    
    
    23,666
    
    
    
    354
    
    
    
    
    
    
    
    24,020Trust investments
    
    $
    438,102
    
    
    $
    23,779
    
    
    $
    (8,940
    )
    
    $
    452,941Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103.4
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,995Less trust investments of assets held
for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (193
    )Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    454,743
  July 31, 2005Due in one year or less
    
    $
    3,297Due in one to five years
    
    
    11,836Due in five to ten years
    
    
    12,958Thereafter
    
    
    311$
    28,402
  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)
 (4) Preneed Funeral Activities(Continued)
   October 31, 2004Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    133,205
    
    
    $
    9
    
    
    $
    
    
    
    $
    133,214U.S. Government, agencies
and municipalities
    
    
    1,971
    
    
    
    115
    
    
    
    (26
    )
    
    
    2,060Corporate bonds
    
    
    22,826
    
    
    
    1,938
    
    
    
    
    
    
    
    24,764Preferred stocks
    
    
    62,947
    
    
    
    1,703
    
    
    
    (422
    )
    
    
    64,228Common stocks
    
    
    188,298
    
    
    
    3,692
    
    
    
    (13,214
    )
    
    
    178,776Mutual funds
    
    
    12,431
    
    
    
    322
    
    
    
    (73
    )
    
    
    12,680Insurance contracts and other long-
term investments
    
    
    23,631
    
    
    
    298
    
    
    
    
    
    
    
    23,929Trust investments
    
    $
    445,309
    
    
    $
    8,077
    
    
    $
    (13,735
    )
    
    $
    439,651Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98.7
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,002Less trust investments of assets
held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,028
    )Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    439,625
 Deferred Preneed Funeral Revenue
  Insurance-Funded Preneed Funeral Contracts
  (5) Preneed Cemetery Merchandise and Service Activities
  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)
 (5) Preneed Cemetery Merchandise and Service Activities(Continued)
   Preneed Cemetery Receivables and Trust Investments
  July 31, 2005
    
    
    October 31, 2004Trust assets
    
    $
    204,684
    
    
    $
    194,008Receivables from customers
    
    
    58,772
    
    
    
    64,168Preneed cemetery receivables and trust investments
    
    $
    263,456
    
    
    $
    258,176
  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)
 (5) Preneed Cemetery Merchandise and Service Activities(Continued)
 July 31, 2005Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    27,414
    
    
    $
    
    
    
    $
    
    
    
    $
    27,414U.S. Government, agencies
and municipalities
    
    
    6,470
    
    
    
    96
    
    
    
    (18
    )
    
    
    6,548Corporate bonds
    
    
    10,077
    
    
    
    472
    
    
    
    (88
    )
    
    
    10,461Preferred stocks
    
    
    34,341
    
    
    
    705
    
    
    
    (317
    )
    
    
    34,729Common stocks
    
    
    106,048
    
    
    
    9,909
    
    
    
    (2,908
    )
    
    
    113,049Mutual funds
    
    
    10,410
    
    
    
    494
    
    
    
    (2
    )
    
    
    10,902Insurance contracts and other long-term
investments
    
    
    569
    
    
    
    1
    
    
    
    
    
    
    
    570Trust investments
    
    $
    195,329
    
    
    $
    11,677
    
    
    $
    (3,333
    )
    
    $
    203,673Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104.3
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,075Less trust investments of assets held
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64
    )Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    204,684
  July 31, 2005Due in one year or less
    
    $
    1,175Due in one to five years
    
    
    7,629Due in five to ten years
    
    
    7,618Thereafter
    
    
    587$
    17,009
   35




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (5) Preneed Cemetery Merchandise and Service Activities(Continued)
 October 31, 2004Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    50,646
    
    
    $
    4
    
    
    $
    
    
    
    $
    50,650U.S. Government, agencies
and municipalities
    
    
    1,050
    
    
    
    21
    
    
    
    (4
    )
    
    
    1,067Corporate bonds
    
    
    10,690
    
    
    
    1,086
    
    
    
    
    
    
    
    11,776Preferred stocks
    
    
    24,287
    
    
    
    869
    
    
    
    (158
    )
    
    
    24,998Common stocks
    
    
    104,788
    
    
    
    2,482
    
    
    
    (5,934
    )
    
    
    101,336Mutual funds
    
    
    3,774
    
    
    
    70
    
    
    
    (2
    )
    
    
    3,842Insurance contracts and other long-term
investments
    
    
    569
    
    
    
    
    
    
    
    
    
    
    
    569Trust investments
    
    $
    195,804
    
    
    $
    4,532
    
    
    $
    (6,098
    )
    
    $
    194,238Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99.2
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    956Less trust investments of assets
held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,186
    )Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    194,008
 Deferred Preneed Cemetery Revenue
  (6) Cemetery Interment Rights and Perpetual Care Trusts
    36




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (6) Cemetery Interment rights and Perpetual Care Trusts(Continued)
  July 31, 2005Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    18,818
    
    
    $
    
    
    
    $
    
    
    
    $
    18,818U.S. Government, agencies
and municipalities
    
    
    7,043
    
    
    
    87
    
    
    
    (51
    )
    
    
    7,079Corporate bonds
    
    
    18,816
    
    
    
    1,966
    
    
    
    (102
    )
    
    
    20,680Preferred stocks
    
    
    71,794
    
    
    
    1,468
    
    
    
    (1,596
    )
    
    
    71,666Common stocks
    
    
    86,082
    
    
    
    11,875
    
    
    
    (3,196
    )
    
    
    94,761Mutual funds
    
    
    3,550
    
    
    
    142
    
    
    
    (42
    )
    
    
    3,650Insurance contracts and other long-term
investments
    
    
    940
    
    
    
    77
    
    
    
    (4
    )
    
    
    1,013Trust investments
    
    $
    207,043
    
    
    $
    15,615
    
    
    $
    (4,991
    )
    
    $
    217,667Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105.1
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,162Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    218,829
  July 31, 2005Due in one year or less
    
    $
    1,058Due in one to five years
    
    
    8,974Due in five to ten years
    
    
    16,345Thereafter
    
    
    1,382$
    27,759
   37




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (6) Cemetery Interment rights and Perpetual Care Trusts(Continued)
 October 31, 2004Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    29,154
    
    
    $
    
    
    
    $
    (3
    )
    
    $
    29,151U.S. Government, agencies
and municipalities
    
    
    3,173
    
    
    
    62
    
    
    
    (97
    )
    
    
    3,138Corporate bonds
    
    
    19,368
    
    
    
    2,731
    
    
    
    (23
    )
    
    
    22,076Preferred stocks
    
    
    65,176
    
    
    
    2,571
    
    
    
    (46
    )
    
    
    67,701Common stocks
    
    
    78,531
    
    
    
    8,406
    
    
    
    (5,797
    )
    
    
    81,140Mutual funds
    
    
    5,072
    
    
    
    193
    
    
    
    (51
    )
    
    
    5,214Insurance contracts and other long-term
investments
    
    
    841
    
    
    
    43
    
    
    
    
    
    
    
    884Trust investments
    
    $
    201,315
    
    
    $
    14,006
    
    
    $
    (6,017
    )
    
    $
    209,304Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104.0
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    963Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    210,267
 (7) Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care Trusts
  Non-controlling InterestNon-controllingInterest inPreneed
    
    
    Preneed
    
    
    
    
    
    
    PerpetualFuneral
    
    
    Cemetery
    
    
    Total
    
    
    Care TrustsTrust assets at market value
    
    $
    454,743
    
    
    $
    204,684
    
    
    $
    659,427
    
    
    $
    218,829Less:Pending withdrawals
    
    
    (5,955
    )
    
    
    (10,838
    )
    
    
    (16,793
    )
    
    
    (2,789
    )Pending deposits
    
    
    1,650
    
    
    
    1,455
    
    
    
    3,105
    
    
    
    593Non-controlling interest
    
    $
    450,438
    
    
    $
    195,301
    
    
    $
    645,739
    
    
    $
    216,633
  Non-controlling InterestNon-controllingInterest inPreneed
    
    
    Preneed
    
    
    
    
    
    
    PerpetualFuneral
    
    
    Cemetery
    
    
    Total
    
    
    Care TrustsTrust assets at market value
    
    $
    439,625
    
    
    $
    194,008
    
    
    $
    633,633
    
    
    $
    210,267Less:Pending withdrawals
    
    
    (6,847
    )
    
    
    (2,797
    )
    
    
    (9,644
    )
    
    
    (1,951
    )Pending deposits
    
    
    1,788
    
    
    
    1,567
    
    
    
    3,355
    
    
    
    577Non-controlling interest
    
    $
    434,566
    
    
    $
    192,778
    
    
    $
    627,344
    
    
    $
    208,893
 Investment and other income, net
  38




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (7) Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care Trusts(Continued)
 Three Months
    
    
    Three Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    EndedJuly 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005Non-controlling interest:Realized gains
    
    $
    6,935
    
    
    $
    797
    
    
    $
    17,042Realized losses
    
    
    (229
    )
    
    
    (2,501
    )
    
    
    (9,869
    )Interest income, dividend and other ordinary income
    
    
    6,658
    
    
    
    5,783
    
    
    
    19,538Trust expenses and income taxes
    
    
    (2,880
    )
    
    
    (3,160
    )
    
    
    (9,192
    )Net trust investment income
    
    
    10,484
    
    
    
    919
    
    
    
    17,519Interest expense related to non-controlling interest in funeral
and cemetery trust investments
    
    
    (6,988
    )
    
    
    (201
    )
    
    
    (11,656
    )Interest expense related to non-controlling interest in
perpetual
care trust investments
    
    
    (3,496
    )
    
    
    (718
    )
    
    
    (5,863
    )Total non-controlling interest
    
    
    
    
    
    
    
    
    
    
    Investment and other income, net (1)
    
    
    184
    
    
    
    76
    
    
    
    404Total investment and other income, net
    
    $
    184
    
    
    $
    76
    
    
    $
    404
 
 (1)
    
    Investment and other income, net consists of interest income primarily on the
Companys cash, cash equivalents and marketable securities not held in trust. (8) Commitments and Contingencies
 Henrietta Torres and Teresa Fiore, on behalf of themselves and all others similarly situated
and the General Public v. Stewart Enterprises, Inc., et al
    39




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (8) Commitments and Contingencies(Continued)
  In re: Funeral Consumer Antitrust Litigation Funeral Consumers Alliance, Inc, et al. v. Service Corporation International,
Alderwoods Group, Inc., Stewart Enterprises, Inc., Hillenbrand Industries, Inc., and Batesville
Casket Co.
   Pioneer Valley Casket Co., Inc., et al. v. Service Corporation International, Alderwoods
Group, Inc., Stewart Enterprises, Inc., Hillenbrand Industries, Inc., and Batesville Casket Co.
   Ralph Lee Fancher, on behalf of himself and all others similarly
situated v. Service Corporation International, Alderwoods Group, Inc., Stewart Enterprises, Inc.,
Hillenbrand Industries, Inc., Aurora Casket Co., York Group, Inc., and Batesville Casket Co.,
 Civil Investigative Demands
 40




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (8) Commitments and Contingencies(Continued)
    (9) Reconciliation of Basic and Diluted Per Share Data
 Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    DataThree Months Ended July 31, 2005  Restated (Note 1)Earnings from continuing operations
    
    $
    8,128Basic earnings per common share:Earnings from continuing operations available to
common shareholders
    
    $
    8,128
    
    
    
    109,147
    
    
    $
    .07Effect of dilutive securities:Time-vest stock options assumed exercised and
restricted stock
    
    
    
    
    
    
    119Diluted earnings per common share:Earnings from continuing operations available to
common shareholders plus time-vest stock
options assumed exercised and restricted stock
    
    $
    8,128
    
    
    
    109,266
    
    
    $
    .07
 Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    DataThree Months Ended July 31, 2004  Restated (Note 1)Earnings from continuing operations
    
    $
    6,885Basic earnings per common share:Earnings from continuing operations available to
common shareholders
    
    $
    6,885
    
    
    
    107,067
    
    
    $
    .06Effect of dilutive securities:Time-vest stock options assumed exercised and
restricted stock
    
    
    
    
    
    
    1,001Diluted earnings per common share:Earnings from continuing operations available to
common shareholders plus time-vest stock options
assumed exercised and restricted stock
    
    $
    6,885
    
    
    
    108,068
    
    
    $
    .06
 41




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (9) Reconciliation of Basic and Diluted Per Share Data(Continued)
 Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    DataNine Months Ended July 31, 2005  Restated (Note 1)Earnings from continuing operations before cumulative
effect of change in accounting principle
    
    $
    10,844Basic earnings per common share:Earnings from continuing operations before cumulative
effect of change in accounting principle available to
common shareholders
    
    $
    10,844
    
    
    
    109,243
    
    
    $
    .10Effect of dilutive securities:Time-vest stock options assumed exercised and
restricted stock
    
    
    
    
    
    
    187Diluted earnings per common share:Earnings from continuing operations before cumulative
effect of change in accounting principle available to
common shareholders plus time-vest stock options
assumed exercised and restricted stock
    
    $
    10,844
    
    
    
    109,430
    
    
    $
    .10
 Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    DataNine Months Ended July 31, 2004  Restated (Note 1)Earnings from continuing operations
    
    $
    24,306Basic earnings per common share:Earnings from continuing operations available to
common shareholders
    
    $
    24,306
    
    
    
    107,461
    
    
    $
    .22Effect of dilutive securities:Time-vest stock options assumed exercised and
restricted stock
    
    
    
    
    
    
    600Diluted earnings per common share:Earnings from continuing operations available to
common shareholders plus time-vest stock options
assumed exercised and restricted stock
    
    $
    24,306
    
    
    
    108,061
    
    
    $
    .22
  (10) Segment Data (Restated)
  42




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (10) Segment Data (Restated)(Continued)
         43




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (10) Segment Data (Restated)(Continued)
       44




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (10) Segment Data (Restated)(Continued)
 Funeral Revenue
    
    
    Cemetery Revenue(1)
    
    
    Total RevenueThree Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedJuly 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005
    
    
    July 31, 2004(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)Central Division
    
    $
    20,572
    
    
    $
    20,086
    
    
    $
    19,042
    
    
    $
    16,724
    
    
    $
    39,614
    
    
    $
    36,810Western Division
    
    
    15,045
    
    
    
    14,662
    
    
    
    3,091
    
    
    
    3,735
    
    
    
    18,136
    
    
    
    18,397Eastern Division
    
    
    12,207
    
    
    
    12,070
    
    
    
    17,973
    
    
    
    16,842
    
    
    
    30,180
    
    
    
    28,912Southern Division 
Florida
    
    
    10,654
    
    
    
    10,672
    
    
    
    12,325
    
    
    
    10,719
    
    
    
    22,979
    
    
    
    21,391All Other (2)
    
    
    3,117
    
    
    
    3,379
    
    
    
    3,815
    
    
    
    6,016
    
    
    
    6,932
    
    
    
    9,395Corporate Trust
Management
(3)
    
    
    4,507
    
    
    
    4,480
    
    
    
    2,754
    
    
    
    2,731
    
    
    
    7,261
    
    
    
    7,211Total
    
    $
    66,102
    
    
    $
    65,349
    
    
    $
    59,000
    
    
    $
    56,767
    
    
    $
    125,102
    
    
    $
    122,116
 Funeral Revenue
    
    
    Cemetery Revenue(1)
    
    
    Total RevenueNine Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedJuly 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005
    
    
    July 31, 2004(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)Central Division
    
    $
    65,265
    
    
    $
    64,237
    
    
    $
    55,069
    
    
    $
    56,628
    
    
    $
    120,334
    
    
    $
    120,865Western Division
    
    
    46,369
    
    
    
    46,436
    
    
    
    9,406
    
    
    
    9,820
    
    
    
    55,775
    
    
    
    56,256Eastern Division
    
    
    40,365
    
    
    
    39,777
    
    
    
    50,699
    
    
    
    47,696
    
    
    
    91,064
    
    
    
    87,473Southern Division 
Florida
    
    
    33,704
    
    
    
    32,991
    
    
    
    34,413
    
    
    
    31,566
    
    
    
    68,117
    
    
    
    64,557All Other (2)
    
    
    10,177
    
    
    
    10,129
    
    
    
    11,954
    
    
    
    10,497
    
    
    
    22,131
    
    
    
    20,626Corporate Trust
Management
(3)
    
    
    14,363
    
    
    
    14,194
    
    
    
    8,456
    
    
    
    7,753
    
    
    
    22,819
    
    
    
    21,947Total
    
    $
    210,243
    
    
    $
    207,764
    
    
    $
    169,997
    
    
    $
    163,960
    
    
    $
    380,240
    
    
    $
    371,724
 Funeral Gross Profit
    
    
    Cemetery Gross Profit(1)
    
    
    Total Gross ProfitThree Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedJuly 31, 2005
    
    
    July 31, 2004(1)
    
    
    July 31, 2005
    
    
    July 31, 2004(4)
    
    
    July 31, 2005
    
    
    July 31, 2004(4)(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)Central Division
    
    $
    4,562
    
    
    $
    4,934
    
    
    $
    3,546
    
    
    $
    2,763
    
    
    $
    8,108
    
    
    $
    7,697Western Division
    
    
    894
    
    
    
    1,863
    
    
    
    152
    
    
    
    786
    
    
    
    1,046
    
    
    
    2,649Eastern Division
    
    
    1,709
    
    
    
    1,879
    
    
    
    2,007
    
    
    
    1,577
    
    
    
    3,716
    
    
    
    3,456Southern Division 
Florida
    
    
    853
    
    
    
    1,489
    
    
    
    2,895
    
    
    
    2,019
    
    
    
    3,748
    
    
    
    3,508All Other (2)
    
    
    242
    
    
    
    650
    
    
    
    196
    
    
    
    1,187
    
    
    
    438
    
    
    
    1,837Corporate Trust
Management
(3)
    
    
    4,365
    
    
    
    4,339
    
    
    
    2,626
    
    
    
    2,580
    
    
    
    6,991
    
    
    
    6,919Total
    
    $
    12,625
    
    
    $
    15,154
    
    
    $
    11,422
    
    
    $
    10,912
    
    
    $
    24,047
    
    
    $
    26,066
 45




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (10) Segment Data (Restated)(Continued)
 Funeral Gross Profit
    
    
    Cemetery Gross Profit(1)
    
    
    Total Gross ProfitNine Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedJuly 31, 2005
    
    
    July 31, 2004(4)
    
    
    July 31, 2005
    
    
    July 31, 2004(4)
    
    
    July 31, 2005
    
    
    July 31, 2004(4)(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)Central Division
    
    $
    17,077
    
    
    $
    17,846
    
    
    $
    11,333
    
    
    $
    12,320
    
    
    $
    28,410
    
    
    $
    30,166Western Division
    
    
    5,283
    
    
    
    7,618
    
    
    
    1,193
    
    
    
    2,291
    
    
    
    6,476
    
    
    
    9,909Eastern Division
    
    
    7,982
    
    
    
    8,874
    
    
    
    4,738
    
    
    
    6,237
    
    
    
    12,720
    
    
    
    15,111Southern
Division 
Florida
    
    
    4,623
    
    
    
    4,915
    
    
    
    7,212
    
    
    
    6,135
    
    
    
    11,835
    
    
    
    11,050All Other (2)
    
    
    1,667
    
    
    
    1,783
    
    
    
    1,428
    
    
    
    104
    
    
    
    3,095
    
    
    
    1,887Corporate Trust
Management
(3)
    
    
    13,919
    
    
    
    13,766
    
    
    
    8,059
    
    
    
    7,295
    
    
    
    21,978
    
    
    
    21,061Total
    
    $
    50,551
    
    
    $
    54,802
    
    
    $
    33,963
    
    
    $
    34,382
    
    
    $
    84,514
    
    
    $
    89,184
 Preneed Funeral Merchandise
    
    
    Preneed Cemetery Merchandise
    
    
    Total Preneed Merchandiseand Service Sales(5)
    
    
    and Service Sales(5)
    
    
    and Service Sales(5)Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three MonthsEnded July
    
    
    Ended July
    
    
    Ended July
    
    
    Ended July
    
    
    Ended July
    
    
    Ended July31, 2005
    
    
    31, 2004
    
    
    31, 2005
    
    
    31, 2004
    
    
    31, 2005
    
    
    31, 2004(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)Central Division
    
    $
    5,900
    
    
    $
    5,227
    
    
    $
    3,708
    
    
    $
    3,766
    
    
    $
    9,608
    
    
    $
    8,993Western Division
    
    
    8,166
    
    
    
    7,158
    
    
    
    1,042
    
    
    
    971
    
    
    
    9,208
    
    
    
    8,129Eastern Division
    
    
    4,733
    
    
    
    4,135
    
    
    
    7,098
    
    
    
    7,341
    
    
    
    11,831
    
    
    
    11,476Southern
Division 
Florida
    
    
    4,907
    
    
    
    4,677
    
    
    
    3,053
    
    
    
    3,174
    
    
    
    7,960
    
    
    
    7,851All Other (2)
    
    
    1,242
    
    
    
    1,193
    
    
    
    793
    
    
    
    929
    
    
    
    2,035
    
    
    
    2,122Total
    
    $
    24,948
    
    
    $
    22,390
    
    
    $
    15,694
    
    
    $
    16,181
    
    
    $
    40,642
    
    
    $
    38,571
 Preneed Funeral Merchandise
    
    
    Preneed Cemetery Merchandise
    
    
    Total Preneed Merchandiseand Service Sales(5)
    
    
    and Service Sales(5)
    
    
    and Service Sales(5)Nine Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedJuly 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005
    
    
    July 31, 2004(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)Central Division
    
    $
    17,696
    
    
    $
    15,504
    
    
    $
    10,255
    
    
    $
    10,377
    
    
    $
    27,951
    
    
    $
    25,881Western Division
    
    
    21,118
    
    
    
    18,902
    
    
    
    2,902
    
    
    
    2,828
    
    
    
    24,020
    
    
    
    21,730Eastern Division
    
    
    13,495
    
    
    
    12,296
    
    
    
    20,353
    
    
    
    20,374
    
    
    
    33,848
    
    
    
    32,670Southern
Division 
Florida
    
    
    14,635
    
    
    
    13,996
    
    
    
    9,244
    
    
    
    9,726
    
    
    
    23,879
    
    
    
    23,722All Other (2)
    
    
    3,410
    
    
    
    3,627
    
    
    
    2,513
    
    
    
    2,933
    
    
    
    5,923
    
    
    
    6,560Total
    
    $
    70,354
    
    
    $
    64,325
    
    
    $
    45,267
    
    
    $
    46,238
    
    
    $
    115,621
    
    
    $
    110,563
 46




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (10) Segment Data (Restated)(Continued)
 Total Funeral Assets
    
    
    Total Cemetery Assets
    
    
    Total AssetsJuly 31,
    
    
    October 31,
    
    
    July 31,
    
    
    October 31,
    
    
    July 31,
    
    
    October 31,2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)Central Division
    
    $
    242,834
    
    
    $
    274,029
    
    
    $
    328,707
    
    
    $
    340,994
    
    
    $
    571,541
    
    
    $
    615,023Western Division
    
    
    75,058
    
    
    
    91,579
    
    
    
    62,459
    
    
    
    56,837
    
    
    
    137,517
    
    
    
    148,416Eastern Division
    
    
    68,155
    
    
    
    78,333
    
    
    
    327,756
    
    
    
    347,286
    
    
    
    395,911
    
    
    
    425,619Southern
Division 
Florida
    
    
    139,146
    
    
    
    158,725
    
    
    
    234,247
    
    
    
    297,157
    
    
    
    373,393
    
    
    
    455,882All Other (2)
    
    
    53,324
    
    
    
    60,921
    
    
    
    73,185
    
    
    
    75,318
    
    
    
    126,509
    
    
    
    136,239Corporate Trust
Management
(3)
    
    
    454,743
    
    
    
    439,625
    
    
    
    204,684
    
    
    
    194,008
    
    
    
    659,427
    
    
    
    633,633Reconciling Items
(6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109,071
    
    
    
    96,696Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,373,369
    
    
    $
    2,511,508
 Funeral Goodwill
    
    
    Cemetery Goodwill
    
    
    Total GoodwillJuly 31,
    
    
    October 31,
    
    
    July 31,
    
    
    October 31,
    
    
    July 31,
    
    
    October 31,2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)Central Division
    
    $
    116,881
    
    
    $
    116,881
    
    
    $
    49,787
    
    
    $
    49,787
    
    
    $
    166,668
    
    
    $
    166,668Western Division
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Eastern Division
    
    
    17,052
    
    
    
    17,052
    
    
    
    25,239
    
    
    
    25,239
    
    
    
    42,291
    
    
    
    42,291Southern
Division 
Florida
    
    
    46,199
    
    
    
    46,199
    
    
    
    
    
    
    
    
    
    
    
    46,199
    
    
    
    46,199All Other (2)
    
    
    17,571
    
    
    
    17,571
    
    
    
    
    
    
    
    
    
    
    
    17,571
    
    
    
    17,571Total
    
    $
    197,703
    
    
    $
    197,703
    
    
    $
    75,026
    
    
    $
    75,026
    
    
    $
    272,729
    
    
    $
    272,729
 
 (1)
    
    Perpetual care trust earnings are included in the revenues and gross profit of
the related geographic segment and amounted to $3,122 and $635 for the three months ended July
31, 2005 and 2004, respectively, and $5,822 and $5,271 for the nine months ended July 31, 2005
and 2004, respectively.(2)
    
    All Other represents the Companys operations in Puerto Rico.(3)
    
    Corporate trust management consists of trust management fees and funeral and
cemetery merchandise and service trust earnings recognized with respect to preneed contracts
delivered during the period. Trust management fees are established by the Company at rates
consistent with industry norms and are paid by the trusts to the Companys subsidiary,
Investors Trust, Inc. The trust earnings represent earnings realized over the life of the
preneed contracts delivered during the relevant periods. Trust management fees included in
funeral revenue for the three months ended July 31, 2005 and 2004 were $1,350 and $1,323,
respectively, and funeral trust earnings for the three months ended July 31, 2005 and 2004
were $3,157 and $3,157, respectively. Trust management fees included in cemetery revenue for
the three months ended July 31, 2005 and 2004 were $1,257 and $1,131, respectively, and
cemetery trust earnings for the three months ended July 31, 2005 and 2004 were $1,497 and
$1,600, respectively. Trust management fees included in funeral revenue for the nine months
ended July 31, 2005 and 2004 were $4,028 and $4,199, respectively, and funeral trust earnings
for the nine months ended July 31, 2005 and 2004 were $10,335 and $9,995, respectively. Trust
management fees included in cemetery revenue for the
nine months ended July 31, 2005 and 2004 were $3,721 and $3,526, respectively, and cemetery
trust earnings for the nine months ended July 31, 2005 and 2004 were $4,735 and $4,227,
respectively.(4)
    
    Funeral and cemetery gross profit for the three and nine months ended July 31, 2004 do
not include net preneed selling costs which would have been expensed if the accounting
change described in Note 3(a) had been implemented in fiscal year 2004. The effect of net
preneed selling costs is calculated by removing the amortization of deferred selling costs
and including in expense the preneed selling costs incurred during 2004. The result of
that calculation is the net preneed selling costs that would have reduced 2004 gross profit
if the accounting change had been implemented in fiscal year 2004. Net preneed funeral
selling costs amounted to 47




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (10) Segment Data (Restated)(Continued)
 
 $1,433 and $3,587 for the three and nine months ended July 31,
2004, respectively. Net preneed cemetery selling costs amounted to $1,080 and $3,854 for
the three and nine months ended July 31, 2004, respectively.(5)
    
    Preneed sales amounts represent total preneed funeral and cemetery service and
merchandise sales generated in the applicable period, net of cancellations.(6)
    
    Reconciling items consist of unallocated corporate assets.  Three Months Ended
    
    
    Nine Months EndedJuly 31,
    
    
    July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)Gross profit for reportable segments
    
    $
    24,047
    
    
    $
    26,066
    
    
    $
    84,514
    
    
    $
    89,184Corporate general and administrative expenses
    
    
    (5,545
    )
    
    
    (4,150
    )
    
    
    (14,343
    )
    
    
    (12,684
    )Separation charges
    
    
    (147
    )
    
    
    (1,085
    )
    
    
    (147
    )
    
    
    (3,216
    )Gains on dispositions and impairment (losses), net
    
    
    63
    
    
    
    304
    
    
    
    1,300
    
    
    
    (246
    )Other operating income, net
    
    
    571
    
    
    
    1,000
    
    
    
    1,069
    
    
    
    1,948Interest expense
    
    
    (6,456
    )
    
    
    (11,502
    )
    
    
    (23,503
    )
    
    
    (35,976
    )Loss on early extinguishment of debt
    
    
    (114
    )
    
    
    
    
    
    
    (32,822
    )
    
    
    Investment and other income, net
    
    
    184
    
    
    
    76
    
    
    
    404
    
    
    
    108Earnings from continuing operations
before
income taxes and cumulative effect of change
in accounting principle
    
    $
    12,603
    
    
    $
    10,709
    
    
    $
    16,472
    
    
    $
    39,118
 48




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (11) Supplementary Information (Restated)
  Three Months Ended
    
    
    Nine Months EndedJuly 31,
    
    
    July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)Service revenueFuneral
    
    $
    37,860
    
    
    $
    36,821
    
    
    $
    119,604
    
    
    $
    117,151Cemetery
    
    
    16,052
    
    
    
    13,174
    
    
    
    44,804
    
    
    
    42,98253,912
    
    
    
    49,995
    
    
    
    164,408
    
    
    
    160,133Merchandise revenueFuneral
    
    
    26,228
    
    
    
    26,357
    
    
    
    84,631
    
    
    
    83,825Cemetery
    
    
    38,854
    
    
    
    39,358
    
    
    
    113,465
    
    
    
    107,87265,082
    
    
    
    65,715
    
    
    
    198,096
    
    
    
    191,697Other revenueFuneral
    
    
    2,014
    
    
    
    2,172
    
    
    
    6,008
    
    
    
    6,788Cemetery
    
    
    4,094
    
    
    
    4,234
    
    
    
    11,728
    
    
    
    13,1066,108
    
    
    
    6,406
    
    
    
    17,736
    
    
    
    19,894Total revenue
    
    $
    125,102
    
    
    $
    122,116
    
    
    $
    380,240
    
    
    $
    371,724Service costsFuneral
    
    $
    14,024
    
    
    $
    11,985
    
    
    $
    40,200
    
    
    $
    35,892Cemetery
    
    
    10,772
    
    
    
    10,412
    
    
    
    30,166
    
    
    
    29,12424,796
    
    
    
    22,397
    
    
    
    70,366
    
    
    
    65,016Merchandise costsFuneral
    
    
    15,877
    
    
    
    15,196
    
    
    
    48,698
    
    
    
    47,733Cemetery
    
    
    23,256
    
    
    
    22,368
    
    
    
    66,227
    
    
    
    61,37639,133
    
    
    
    37,564
    
    
    
    114,925
    
    
    
    109,109General and administrative expensesFuneral
    
    
    23,576
    
    
    
    23,014
    
    
    
    70,794
    
    
    
    69,337Cemetery
    
    
    13,550
    
    
    
    13,075
    
    
    
    39,641
    
    
    
    39,07837,126
    
    
    
    36,089
    
    
    
    110,435
    
    
    
    108,415Total costs
    
    $
    101,055
    
    
    $
    96,050
    
    
    $
    295,726
    
    
    $
    282,540
 49




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (12) Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes
and Senior Notes (Restated)
  Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Three Months Ended July 31, 2005Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)Revenues:Funeral
    
    $
    
    
    
    $
    61,214
    
    
    $
    4,888
    
    
    $
    
    
    
    $
    66,102Cemetery
    
    
    
    
    
    
    53,345
    
    
    
    5,655
    
    
    
    
    
    
    
    59,000
    
    
    
    114,559
    
    
    
    10,543
    
    
    
    
    
    
    
    125,102Costs and expenses:Funeral
    
    
    
    
    
    
    50,119
    
    
    
    3,358
    
    
    
    
    
    
    
    53,477Cemetery
    
    
    
    
    
    
    43,607
    
    
    
    3,971
    
    
    
    
    
    
    
    47,578
    
    
    
    93,726
    
    
    
    7,329
    
    
    
    
    
    
    
    101,055Gross profit
    
    
    
    
    
    
    20,833
    
    
    
    3,214
    
    
    
    
    
    
    
    24,047Corporate general and administrative
expenses
    
    
    (5,545
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,545
    )Separation charges
    
    
    (147
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (147
    )Gains on dispositions and impairment
(losses) , net
    
    
    
    
    
    
    (26
    )
    
    
    89
    
    
    
    
    
    
    
    63Other operating income, net
    
    
    79
    
    
    
    166
    
    
    
    326
    
    
    
    
    
    
    
    571Operating earnings (loss)
    
    
    (5,613
    )
    
    
    20,973
    
    
    
    3,629
    
    
    
    
    
    
    
    18,989Interest income (expense)
    
    
    14,483
    
    
    
    (18,562
    )
    
    
    (2,377
    )
    
    
    
    
    
    
    (6,456
    )Loss on early extinguishment of debt
    
    
    (114
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (114
    )Investment and other income, net
    
    
    184
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    184Equity in subsidiaries
    
    
    2,762
    
    
    
    
    
    
    
    
    
    
    
    (2,762
    )
    
    
    Earnings from continuing operations
before income taxes
    
    
    11,702
    
    
    
    2,411
    
    
    
    1,252
    
    
    
    (2,762
    )
    
    
    12,603Income taxes
    
    
    2,827
    
    
    
    796
    
    
    
    852
    
    
    
    
    
    
    
    4,475Earnings from continuing operations
    
    
    8,875
    
    
    
    1,615
    
    
    
    400
    
    
    
    (2,762
    )
    
    
    8,128Discontinued operations:Earnings (loss) from discontinued
operations before income taxes
    
    
    
    
    
    
    (281
    )
    
    
    871
    
    
    
    
    
    
    
    590Income tax benefit
    
    
    
    
    
    
    (157
    )
    
    
    
    
    
    
    
    
    
    
    (157
    )Earnings (loss) from discontinued
operations
    
    
    
    
    
    
    (124
    )
    
    
    871
    
    
    
    
    
    
    
    747Net earnings
    
    
    8,875
    
    
    
    1,491
    
    
    
    1,271
    
    
    
    (2,762
    )
    
    
    8,875Other comprehensive loss, net
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )
    
    
    2
    
    
    
    (2
    )Comprehensive income
    
    $
    8,873
    
    
    $
    1,491
    
    
    $
    1,269
    
    
    $
    (2,760
    )
    
    $
    8,873
 50




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (12) Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes
and Senior Notes (Restated)
 Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Three Months Ended July 31, 2004Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)Revenues:Funeral
    
    $
    
    
    
    $
    60,309
    
    
    $
    5,040
    
    
    $
    
    
    
    $
    65,349Cemetery
    
    
    
    
    
    
    50,793
    
    
    
    5,974
    
    
    
    
    
    
    
    56,767
    
    
    
    111,102
    
    
    
    11,014
    
    
    
    
    
    
    
    122,116Costs and expenses:Funeral
    
    
    
    
    
    
    47,051
    
    
    
    3,144
    
    
    
    
    
    
    
    50,195Cemetery
    
    
    
    
    
    
    41,396
    
    
    
    4,459
    
    
    
    
    
    
    
    45,855
    
    
    
    88,447
    
    
    
    7,603
    
    
    
    
    
    
    
    96,050Gross profit
    
    
    
    
    
    
    22,655
    
    
    
    3,411
    
    
    
    
    
    
    
    26,066Corporate general and administrative
expenses
    
    
    (4,150
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,150
    )Separation charges
    
    
    (1,085
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,085
    )Gains on dispositions and impairment
(losses), net
    
    
    
    
    
    
    (170
    )
    
    
    474
    
    
    
    
    
    
    
    304Other operating income, net
    
    
    28
    
    
    
    863
    
    
    
    109
    
    
    
    
    
    
    
    1,000Operating earnings (loss)
    
    
    (5,207
    )
    
    
    23,348
    
    
    
    3,994
    
    
    
    
    
    
    
    22,135Interest income (expense)
    
    
    10,246
    
    
    
    (19,697
    )
    
    
    (2,051
    )
    
    
    
    
    
    
    (11,502
    )Investment and other income, net
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76Equity in subsidiaries
    
    
    5,191
    
    
    
    
    
    
    
    
    
    
    
    (5,191
    )
    
    
    Earnings from continuing operations
before income taxes
    
    
    10,306
    
    
    
    3,651
    
    
    
    1,943
    
    
    
    (5,191
    )
    
    
    10,709Income taxes
    
    
    1,678
    
    
    
    1,323
    
    
    
    823
    
    
    
    
    
    
    
    3,824Earnings from continuing operations
    
    
    8,628
    
    
    
    2,328
    
    
    
    1,120
    
    
    
    (5,191
    )
    
    
    6,885Discontinued operations:Earnings from discontinued operations
before income taxes
    
    
    
    
    
    
    532
    
    
    
    4
    
    
    
    
    
    
    
    536Income tax benefit
    
    
    
    
    
    
    (1,207
    )
    
    
    
    
    
    
    
    
    
    
    (1,207
    )Earnings from discontinued operations
    
    
    
    
    
    
    1,739
    
    
    
    4
    
    
    
    
    
    
    
    1,743Net earnings
    
    
    8,628
    
    
    
    4,067
    
    
    
    1,124
    
    
    
    (5,191
    )
    
    
    8,628Other comprehensive income, net
    
    
    287
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    287Comprehensive income
    
    $
    8,915
    
    
    $
    4,067
    
    
    $
    1,124
    
    
    $
    (5,191
    )
    
    $
    8,915
 51




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (12) Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes
and Senior Notes (Restated)
 Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Nine Months Ended July 31, 2005Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)Revenues:Funeral
    
    $
    
    
    
    $
    194,860
    
    
    $
    15,383
    
    
    $
    
    
    
    $
    210,243Cemetery
    
    
    
    
    
    
    152,832
    
    
    
    17,165
    
    
    
    
    
    
    
    169,997
    
    
    
    347,692
    
    
    
    32,548
    
    
    
    
    
    
    
    380,240Costs and expenses:Funeral
    
    
    
    
    
    
    149,893
    
    
    
    9,799
    
    
    
    
    
    
    
    159,692Cemetery
    
    
    
    
    
    
    124,236
    
    
    
    11,798
    
    
    
    
    
    
    
    136,034
    
    
    
    274,129
    
    
    
    21,597
    
    
    
    
    
    
    
    295,726Gross profit
    
    
    
    
    
    
    73,563
    
    
    
    10,951
    
    
    
    
    
    
    
    84,514Corporate general and administrative
expenses
    
    
    (14,343
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,343
    )Separation charges
    
    
    (147
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (147
    )Gains on dispositions and impairment
(losses), net
    
    
    
    
    
    
    961
    
    
    
    339
    
    
    
    
    
    
    
    1,300Other operating income, net
    
    
    240
    
    
    
    416
    
    
    
    413
    
    
    
    
    
    
    
    1,069Operating earnings (loss)
    
    
    (14,250
    )
    
    
    74,940
    
    
    
    11,703
    
    
    
    
    
    
    
    72,393Interest income (expense)
    
    
    40,043
    
    
    
    (57,375
    )
    
    
    (6,171
    )
    
    
    
    
    
    
    (23,503
    )Loss on early extinguishment of debt
    
    
    (32,822
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,822
    )Investment and other income, net
    
    
    404
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    404Equity (loss) in subsidiaries
    
    
    (137,703
    )
    
    
    
    
    
    
    
    
    
    
    137,703
    
    
    
    Earnings (loss) from continuing
operations before income taxes
    
    
    (144,328
    )
    
    
    17,565
    
    
    
    5,532
    
    
    
    137,703
    
    
    
    16,472Income tax expense (benefit)
    
    
    (3,009
    )
    
    
    6,145
    
    
    
    2,492
    
    
    
    
    
    
    
    5,628Earnings (loss) from continuing
operations
    
    
    (141,319
    )
    
    
    11,420
    
    
    
    3,040
    
    
    
    137,703
    
    
    
    10,844Discontinued operations:Earnings (loss) from discontinued
operations before income taxes
    
    
    
    
    
    
    (246
    )
    
    
    1,215
    
    
    
    
    
    
    
    969Income tax benefit
    
    
    
    
    
    
    (48
    )
    
    
    
    
    
    
    
    
    
    
    (48
    )Earnings (loss) from discontinued
operations
    
    
    
    
    
    
    (198
    )
    
    
    1,215
    
    
    
    
    
    
    
    1,017Earnings (loss) before cumulative effect
of change in accounting principle
    
    
    (141,319
    )
    
    
    11,222
    
    
    
    4,255
    
    
    
    137,703
    
    
    
    11,861Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    (145,276
    )
    
    
    (7,904
    )
    
    
    
    
    
    
    (153,180
    )Net loss
    
    
    (141,319
    )
    
    
    (134,054
    )
    
    
    (3,649
    )
    
    
    137,703
    
    
    
    (141,319
    )Other comprehensive income (loss), net
    
    
    331
    
    
    
    
    
    
    
    (2
    )
    
    
    2
    
    
    
    331Comprehensive loss
    
    $
    (140,988
    )
    
    $
    (134,054
    )
    
    $
    (3,651
    )
    
    $
    137,705
    
    
    $
    (140,988
    )
 52




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (12) Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes
and Senior Notes (Restated)
 Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Nine Months Ended July 31, 2004Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)Revenues:Funeral
    
    $
    
    
    
    $
    192,183
    
    
    $
    15,581
    
    
    $
    
    
    
    $
    207,764Cemetery
    
    
    
    
    
    
    146,050
    
    
    
    17,910
    
    
    
    
    
    
    
    163,960
    
    
    
    338,233
    
    
    
    33,491
    
    
    
    
    
    
    
    371,724Costs and expenses:Funeral
    
    
    
    
    
    
    143,292
    
    
    
    9,670
    
    
    
    
    
    
    
    152,962Cemetery
    
    
    
    
    
    
    116,022
    
    
    
    13,556
    
    
    
    
    
    
    
    129,578
    
    
    
    259,314
    
    
    
    23,226
    
    
    
    
    
    
    
    282,540Gross profit
    
    
    
    
    
    
    78,919
    
    
    
    10,265
    
    
    
    
    
    
    
    89,184Corporate general and administrative
expenses
    
    
    (12,684
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,684
    )Separation charges
    
    
    (1,567
    )
    
    
    (1,629
    )
    
    
    (20
    )
    
    
    
    
    
    
    (3,216
    )Gains on dispositions and impairment
(losses), net
    
    
    (300
    )
    
    
    (676
    )
    
    
    730
    
    
    
    
    
    
    
    (246
    )Other operating income (expense), net
    
    
    297
    
    
    
    1,666
    
    
    
    (15
    )
    
    
    
    
    
    
    1,948Operating earnings (loss)
    
    
    (14,254
    )
    
    
    78,280
    
    
    
    10,960
    
    
    
    
    
    
    
    74,986Interest income (expense)
    
    
    29,670
    
    
    
    (59,364
    )
    
    
    (6,282
    )
    
    
    
    
    
    
    (35,976
    )Investment and other income, net
    
    
    108
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108Equity in subsidiaries
    
    
    17,430
    
    
    
    
    
    
    
    
    
    
    
    (17,430
    )
    
    
    Earnings from continuing operations
before income taxes
    
    
    32,954
    
    
    
    18,916
    
    
    
    4,678
    
    
    
    (17,430
    )
    
    
    39,118Income taxes
    
    
    4,826
    
    
    
    7,204
    
    
    
    2,782
    
    
    
    
    
    
    
    14,812Earnings from continuing operations
    
    
    28,128
    
    
    
    11,712
    
    
    
    1,896
    
    
    
    (17,430
    )
    
    
    24,306Discontinued operations:Earnings from discontinued operations
before income taxes
    
    
    
    
    
    
    2,555
    
    
    
    71
    
    
    
    
    
    
    
    2,626Income tax benefit
    
    
    
    
    
    
    (1,196
    )
    
    
    
    
    
    
    
    
    
    
    (1,196
    )Earnings from discontinued operations
    
    
    
    
    
    
    3,751
    
    
    
    71
    
    
    
    
    
    
    
    3,822Net earnings
    
    
    28,128
    
    
    
    15,463
    
    
    
    1,967
    
    
    
    (17,430
    )
    
    
    28,128Other comprehensive income, net
    
    
    1,206
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,206Comprehensive income
    
    $
    29,334
    
    
    $
    15,463
    
    
    $
    1,967
    
    
    $
    (17,430
    )
    
    $
    29,334
 53




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (12) Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes
and Senior Notes (Restated)
 Condensed Consolidating Balance Sheets
 July 31, 2005Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Restated)
    
    
    Restated)
    
    
    Restated)
    
    
    Restated)
    
    
    Restated)(Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)ASSETSCurrent assets:Cash and cash equivalent investments
    
    $
    22,937
    
    
    $
    6,147
    
    
    $
    251
    
    
    $
    
    
    
    $
    29,335Marketable securities
    
    
    
    
    
    
    
    
    
    
    1,290
    
    
    
    
    
    
    
    1,290Receivables, net of allowances
    
    
    16,959
    
    
    
    49,659
    
    
    
    6,426
    
    
    
    
    
    
    
    73,044Inventories
    
    
    438
    
    
    
    27,100
    
    
    
    6,669
    
    
    
    
    
    
    
    34,207Prepaid expenses
    
    
    666
    
    
    
    2,712
    
    
    
    248
    
    
    
    
    
    
    
    3,626Deferred income taxes, net
    
    
    2,145
    
    
    
    2,053
    
    
    
    
    
    
    
    
    
    
    
    4,198Assets held for sale
    
    
    
    
    
    
    738
    
    
    
    
    
    
    
    
    
    
    
    738Total current assets
    
    
    43,145
    
    
    
    88,409
    
    
    
    14,884
    
    
    
    
    
    
    
    146,438Receivables due beyond one year, net of
allowances
    
    
    
    
    
    
    56,805
    
    
    
    19,916
    
    
    
    
    
    
    
    76,721Preneed funeral receivables and trust
investments
    
    
    
    
    
    
    503,230
    
    
    
    11,491
    
    
    
    
    
    
    
    514,721Preneed cemetery receivables and trust
investments
    
    
    
    
    
    
    244,686
    
    
    
    18,770
    
    
    
    
    
    
    
    263,456Goodwill
    
    
    
    
    
    
    252,383
    
    
    
    20,346
    
    
    
    
    
    
    
    272,729Cemetery property, at cost
    
    
    
    
    
    
    345,596
    
    
    
    20,293
    
    
    
    
    
    
    
    365,889Property and equipment, at cost
    
    
    34,095
    
    
    
    433,478
    
    
    
    36,218
    
    
    
    
    
    
    
    503,791Less accumulated depreciation
    
    
    19,000
    
    
    
    170,046
    
    
    
    10,887
    
    
    
    
    
    
    
    199,933Net property and equipment
    
    
    15,095
    
    
    
    263,432
    
    
    
    25,331
    
    
    
    
    
    
    
    303,858Deferred income taxes, net
    
    
    12,808
    
    
    
    163,924
    
    
    
    13,014
    
    
    
    
    
    
    
    189,746Cemetery perpetual care trust investments.
    
    
    
    
    
    
    218,829
    
    
    
    
    
    
    
    
    
    
    
    218,829Other assets
    
    
    6,683
    
    
    
    13,350
    
    
    
    949
    
    
    
    
    
    
    
    20,982Equity in subsidiaries
    
    
    8,110
    
    
    
    5,353
    
    
    
    
    
    
    
    (13,463
    )
    
    
    Total assets
    
    $
    85,841
    
    
    $
    2,155,997
    
    
    $
    144,994
    
    
    $
    (13,463
    )
    
    $
    2,373,369LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    3,232
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,232Accounts payable
    
    
    137
    
    
    
    7,891
    
    
    
    223
    
    
    
    
    
    
    
    8,251Accrued expenses and other current
liabilities
    
    
    15,046
    
    
    
    37,917
    
    
    
    5,090
    
    
    
    
    
    
    
    58,053Liabilities associated with assets held
for sale
    
    
    
    
    
    
    401
    
    
    
    
    
    
    
    
    
    
    
    401Total current liabilities
    
    
    18,415
    
    
    
    46,209
    
    
    
    5,313
    
    
    
    
    
    
    
    69,937Long-term debt, less current maturities
    
    
    377,552
    
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    407,552Intercompany payables, net
    
    
    (1,000,026
    )
    
    
    978,865
    
    
    
    21,161
    
    
    
    
    
    
    
    Deferred preneed funeral revenue
    
    
    
    
    
    
    244,749
    
    
    
    47,069
    
    
    
    
    
    
    
    291,818Deferred preneed cemetery revenue
    
    
    
    
    
    
    258,703
    
    
    
    27,988
    
    
    
    
    
    
    
    286,691Non-controlling interest in funeral and
cemetery trusts
    
    
    
    
    
    
    645,739
    
    
    
    
    
    
    
    
    
    
    
    645,739Other long-term liabilities
    
    
    8,906
    
    
    
    2,157
    
    
    
    
    
    
    
    
    
    
    
    11,063Negative equity in subsidiaries
    
    
    237,058
    
    
    
    
    
    
    
    
    
    
    
    (237,058
    )
    
    
    Total liabilities
    
    
    (358,095
    )
    
    
    2,176,422
    
    
    
    131,531
    
    
    
    (237,058
    )
    
    
    1,712,800Non-controlling interest in perpetual care
trusts
    
    
    
    
    
    
    216,633
    
    
    
    
    
    
    
    
    
    
    
    216,633Common stock
    
    
    108,669
    
    
    
    426
    
    
    
    52
    
    
    
    (478
    )
    
    
    108,669Other
    
    
    335,269
    
    
    
    (237,484
    )
    
    
    13,413
    
    
    
    224,071
    
    
    
    335,269Accumulated other comprehensive loss
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )
    
    
    2
    
    
    
    (2
    )Total shareholders equity
    
    
    443,936
    
    
    
    (237,058
    )
    
    
    13,463
    
    
    
    223,595
    
    
    
    443,936Total liabilities and shareholders equity
    
    $
    85,841
    
    
    $
    2,155,997
    
    
    $
    144,994
    
    
    $
    (13,463
    )
    
    $
    2,373,369
 54




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (12) Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes
and Senior Notes (Restated)
 Condensed Consolidating Balance Sheets
 October 31, 2004Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)ASSETSCurrent assets:Cash and cash equivalent investments
    
    $
    13,553
    
    
    $
    7,625
    
    
    $
    336
    
    
    $
    
    
    
    $
    21,514Marketable securities
    
    
    
    
    
    
    16
    
    
    
    1,281
    
    
    
    
    
    
    
    1,297Receivables, net of allowances
    
    
    19,207
    
    
    
    42,450
    
    
    
    7,476
    
    
    
    
    
    
    
    69,133Inventories
    
    
    389
    
    
    
    29,362
    
    
    
    6,423
    
    
    
    
    
    
    
    36,174Prepaid expenses
    
    
    822
    
    
    
    2,117
    
    
    
    14
    
    
    
    
    
    
    
    2,953Deferred income taxes, net
    
    
    2,263
    
    
    
    5,411
    
    
    
    
    
    
    
    
    
    
    
    7,674Assets held for sale
    
    
    
    
    
    
    7,393
    
    
    
    3,100
    
    
    
    
    
    
    
    10,493Total current assets
    
    
    36,234
    
    
    
    94,374
    
    
    
    18,630
    
    
    
    
    
    
    
    149,238Receivables due beyond one year, net of
allowances
    
    
    98
    
    
    
    57,086
    
    
    
    21,508
    
    
    
    
    
    
    
    78,692Preneed funeral receivables and trust
investments
    
    
    
    
    
    
    487,840
    
    
    
    15,968
    
    
    
    
    
    
    
    503,808Preneed cemetery receivables and trust
investments
    
    
    
    
    
    
    232,493
    
    
    
    25,683
    
    
    
    
    
    
    
    258,176Goodwill
    
    
    
    
    
    
    247,567
    
    
    
    25,162
    
    
    
    
    
    
    
    272,729Deferred charges
    
    
    
    
    
    
    237,825
    
    
    
    15,535
    
    
    
    
    
    
    
    253,360Cemetery property, at cost
    
    
    
    
    
    
    341,233
    
    
    
    25,641
    
    
    
    
    
    
    
    366,874Property and equipment, at cost
    
    
    31,845
    
    
    
    426,969
    
    
    
    32,485
    
    
    
    
    
    
    
    491,299Less accumulated depreciation
    
    
    17,273
    
    
    
    162,434
    
    
    
    9,845
    
    
    
    
    
    
    
    189,552Net property and equipment
    
    
    14,572
    
    
    
    264,535
    
    
    
    22,640
    
    
    
    
    
    
    
    301,747Deferred income taxes, net
    
    
    12,808
    
    
    
    67,198
    
    
    
    13,008
    
    
    
    
    
    
    
    93,014Cemetery perpetual care trust investments.
    
    
    
    
    
    
    210,267
    
    
    
    
    
    
    
    
    
    
    
    210,267Other assets
    
    
    8,835
    
    
    
    13,560
    
    
    
    1,208
    
    
    
    
    
    
    
    23,603Equity in subsidiaries
    
    
    11,761
    
    
    
    5,353
    
    
    
    
    
    
    
    (17,114
    )
    
    
    Total assets
    
    $
    84,308
    
    
    $
    2,259,331
    
    
    $
    184,983
    
    
    $
    (17,114
    )
    
    $
    2,511,508LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    1,725
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,725Accounts payable
    
    
    1,090
    
    
    
    8,452
    
    
    
    323
    
    
    
    
    
    
    
    9,865Accrued expenses and other current
liabilities
    
    
    17,992
    
    
    
    39,680
    
    
    
    6,097
    
    
    
    
    
    
    
    63,769Liabilities associated with assets held
for sale
    
    
    
    
    
    
    4,777
    
    
    
    1,714
    
    
    
    
    
    
    
    6,491Total current liabilities
    
    
    20,807
    
    
    
    52,909
    
    
    
    8,134
    
    
    
    
    
    
    
    81,850Long-term debt, less current maturities
    
    
    385,080
    
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    415,080Intercompany payables, net
    
    
    (1,022,830
    )
    
    
    973,226
    
    
    
    49,604
    
    
    
    
    
    
    
    Deferred preneed funeral revenue
    
    
    
    
    
    
    250,556
    
    
    
    46,772
    
    
    
    
    
    
    
    297,328Deferred preneed cemetery revenue
    
    
    
    
    
    
    247,211
    
    
    
    33,359
    
    
    
    
    
    
    
    280,570Non-controlling interest in funeral and
cemetery trusts
    
    
    
    
    
    
    627,344
    
    
    
    
    
    
    
    
    
    
    
    627,344Other long-term liabilities
    
    
    10,269
    
    
    
    2,196
    
    
    
    
    
    
    
    
    
    
    
    12,465Negative equity in subsidiaries
    
    
    103,004
    
    
    
    
    
    
    
    
    
    
    
    (103,004
    )
    
    
    Total liabilities
    
    
    (503,670
    )
    
    
    2,153,442
    
    
    
    167,869
    
    
    
    (103,004
    )
    
    
    1,714,637Non-controlling interest in perpetual care
trusts
    
    
    
    
    
    
    208,893
    
    
    
    
    
    
    
    
    
    
    
    208,893Common stock
    
    
    107,885
    
    
    
    426
    
    
    
    52
    
    
    
    (478
    )
    
    
    107,885Other
    
    
    480,426
    
    
    
    (103,430
    )
    
    
    17,062
    
    
    
    86,368
    
    
    
    480,426Accumulated other comprehensive loss
    
    
    (333
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (333
    )Total shareholders equity
    
    
    587,978
    
    
    
    (103,004
    )
    
    
    17,114
    
    
    
    85,890
    
    
    
    587,978Total liabilities and shareholders equity
    
    $
    84,308
    
    
    $
    2,259,331
    
    
    $
    184,983
    
    
    $
    (17,114
    )
    
    $
    2,511,508
 55




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (12) Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes
and Senior Notes (Restated)
 Condensed Consolidating Statements of Cash Flows
 Nine Months Ended July 31, 2005Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)Net cash provided by (used in)
operating activities
    
    $
    (4,039
    )
    
    $
    24,857
    
    
    $
    12,909
    
    
    $
    
    
    
    $
    33,727Cash flows from investing activities:Proceeds from sales of marketable
securities
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    16Proceeds from sale of assets, net
    
    
    (328
    )
    
    
    7,594
    
    
    
    2,465
    
    
    
    
    
    
    
    9,731Additions to property and equipment
    
    
    (2,751
    )
    
    
    (11,647
    )
    
    
    (3,498
    )
    
    
    
    
    
    
    (17,896
    )Other
    
    
    
    
    
    
    98
    
    
    
    15
    
    
    
    
    
    
    
    113Net cash used in investing activities
    
    
    (3,079
    )
    
    
    (3,939
    )
    
    
    (1,018
    )
    
    
    
    
    
    
    (8,036
    )Cash flows from financing activities:Proceeds from long-term debt
    
    
    440,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    440,000Repayments of long-term debt
    
    
    (446,021
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (446,021
    )Intercompany receivables (payables)
    
    
    34,372
    
    
    
    (22,396
    )
    
    
    (11,976
    )
    
    
    
    
    
    
    Debt issue costs
    
    
    (6,247
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,247
    )Issuance of common stock
    
    
    13,541
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,541Purchase and retirement of common
stock
    
    
    (13,685
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,685
    )Dividends
    
    
    (5,466
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,466
    )Other
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Net cash provided by (used in)
financing activities
    
    
    16,502
    
    
    
    (22,396
    )
    
    
    (11,976
    )
    
    
    
    
    
    
    (17,870
    )Net increase (decrease) in cash
    
    
    9,384
    
    
    
    (1,478
    )
    
    
    (85
    )
    
    
    
    
    
    
    7,821Cash and cash equivalents, beginning of
period
    
    
    13,553
    
    
    
    7,625
    
    
    
    336
    
    
    
    
    
    
    
    21,514Cash and cash equivalents, end of
period
    
    $
    22,937
    
    
    $
    6,147
    
    
    $
    251
    
    
    $
    
    
    
    $
    29,335
 56




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (12) Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes
and Senior Notes (Restated)
 Condensed Consolidating Statements of Cash Flows
 Nine Months Ended July 31, 2004Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)Net cash provided by operating
activities
    
    $
    45,504
    
    
    $
    18,266
    
    
    $
    4,832
    
    
    $
    
    
    
    $
    68,602Cash flows from investing activities:Proceeds from sales of marketable
securities
    
    
    1,121
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,121Proceeds from sale of assets, net
    
    
    (1,203
    )
    
    
    14,074
    
    
    
    
    
    
    
    
    
    
    
    12,871Additions to property and equipment
    
    
    (2,393
    )
    
    
    (11,452
    )
    
    
    (435
    )
    
    
    
    
    
    
    (14,280
    )Other
    
    
    
    
    
    
    199
    
    
    
    9
    
    
    
    
    
    
    
    208Net cash provided by (used in)
investing
activities
    
    
    (2,475
    )
    
    
    2,821
    
    
    
    (426
    )
    
    
    
    
    
    
    (80
    )Cash flows from financing activities:Repayments of long-term debt
    
    
    (64,748
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64,748
    )Intercompany receivables (payables)
    
    
    24,868
    
    
    
    (20,120
    )
    
    
    (4,748
    )
    
    
    
    
    
    
    Issuance of common stock
    
    
    13,066
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,066Purchase and retirement of common
stock
    
    
    (19,349
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,349
    )Net cash used in financing activities
    
    
    (46,163
    )
    
    
    (20,120
    )
    
    
    (4,748
    )
    
    
    
    
    
    
    (71,031
    )Net increase (decrease) in cash
    
    
    (3,134
    )
    
    
    967
    
    
    
    (342
    )
    
    
    
    
    
    
    (2,509
    )Cash and cash equivalents, beginning of
period
    
    
    18,975
    
    
    
    (478
    )
    
    
    88
    
    
    
    
    
    
    
    18,585Cash and cash equivalents, end of
period
    
    $
    15,841
    
    
    $
    489
    
    
    $
    (254
    )
    
    $
    
    
    
    $
    16,076
 57




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (13) Discontinued Operations, Assets Held for Sale and Impairment Charges
    58




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (13) Discontinued
Operations, Assets held for Sale and Impairment charges(Continued)
  July 31, 2005
    
    
    October 31, 2004(Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)AssetsReceivables, net of allowances
    
    $
    44
    
    
    $
    519Inventories and other current assets
    
    
    200
    
    
    
    1,093Net property and equipment
    
    
    147
    
    
    
    3,851Preneed funeral receivables and trust investments
    
    
    193
    
    
    
    2,433Preneed cemetery receivables and trust investments
    
    
    65
    
    
    
    1,283Deferred income taxes, net
    
    
    49
    
    
    
    Deferred charges and other assets
    
    
    40
    
    
    
    1,314Assets held for sale
    
    $
    738
    
    
    $
    10,493LiabilitiesDeferred income taxes, net
    
    $
    
    
    
    $
    188Deferred preneed funeral revenue
    
    
    87
    
    
    
    2,384Deferred preneed cemetery revenue
    
    
    52
    
    
    
    705Other long-term liabilities
    
    
    5
    
    
    
    Non-controlling interest in funeral and cemetery trusts
    
    
    257
    
    
    
    3,214Liabilities associated with assets held for sale
    
    $
    401
    
    
    $
    6,491
 Three Months Ended
    
    
    Nine Months EndedJuly 31,
    
    
    July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    (Note 1)Revenue:Funeral
    
    $
    139
    
    
    $
    2,551
    
    
    $
    685
    
    
    $
    10,317Cemetery
    
    
    82
    
    
    
    199
    
    
    
    493
    
    
    
    964$
    221
    
    
    $
    2,750
    
    
    $
    1,178
    
    
    $
    11,281Gross profit:Funeral
    
    $
    (52
    )
    
    $
    188
    
    
    $
    (264
    )
    
    $
    898Cemetery
    
    
    19
    
    
    
    35
    
    
    
    166
    
    
    
    357(33
    )
    
    
    223
    
    
    
    (98
    )
    
    
    1,255Gains on dispositions and impairment (losses), net
    
    
    622
    
    
    
    277
    
    
    
    1,068
    
    
    
    1,305Other operating income (expense), net
    
    
    1
    
    
    
    36
    
    
    
    (1
    )
    
    
    66Earnings from discontinued operations
before
income taxes
    
    $
    590
    
    
    $
    536
    
    
    $
    969
    
    
    $
    2,626
 (14) Separation Charges
  59




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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (14) Separation Charges(Continued)
   60




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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (15) Long-term Debt
 July 31, 2005
    
    
    October 31, 2004Long-term debt:Senior secured credit facility:Revolving credit facility
    
    $
    
    
    
    $
    59,000Term Loan B
    
    
    208,651
    
    
    
    54,0056.25% senior notes due 2013
    
    
    200,000
    
    
    
    10.75% senior subordinated notes due 2008
    
    
    
    
    
    
    300,000Other, principally seller financing of acquired operations
or assumption upon acquisition, weighted average
interest rates of 3.6% and 4.6% as of July 31, 2005
and October 31, 2004, respectively, partially secured
by assets of subsidiaries, with maturities through 2022
    
    
    2,133
    
    
    
    3,800Total long-term debt
    
    
    410,784
    
    
    
    416,805Less current maturities
    
    
    3,232
    
    
    
    1,725$
    407,552
    
    
    $
    415,080
     61




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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (15) Long-term Debt(Continued)
         62




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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (15) Long-term Debt(Continued)
     63




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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (16) Consolidated Comprehensive Income
  Nine Months Ended July 31,2005
    
    
    2004(Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)Net earnings (loss)
    
    $
    (141,319
    )
    
    $
    28,128Other comprehensive income:Unrealized appreciation (depreciation) of investments, net of deferred tax
expense of ($1) and ($50), respectively
    
    
    (2
    )
    
    
    115Termination of derivative instrument designated and qualifying as a
cash flow hedging instrument, net of deferred tax expense of
($119)
    
    
    
    
    
    
    194Unrealized appreciation on derivative instrument designated and
qualifying as a cash flow hedging instrument, net of deferred tax
expense of ($204) and ($507), respectively
    
    
    333
    
    
    
    897Reduction (increase) in net unrealized losses associated with available-for-sale
securities of the trusts
    
    
    33,797
    
    
    
    (3,639
    )Reclassification of the net unrealized losses activity attributable to the
non-controlling interest holders
    
    
    (33,797
    )
    
    
    3,639Total other comprehensive income
    
    
    331
    
    
    
    1,206Total comprehensive income (loss)
    
    $
    (140,988
    )
    
    $
    29,334
 (17) Guarantees
    64




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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
 (17) Guarantees(Continued)
  (18) Related Party Transactions
     (19) Subsequent Events
  65




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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousand, except per share amounts)
 (19) Subsequent Events(Continued)
      66




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Restatement of Historical Financial Statements
  (A)
    
    The incorrect determination of operating and reportable segments and reporting units
related to the application of FASB Statement No. 142, Goodwill and Other Intangible
Assets, (SFAS No. 142), which also had the effect of changing the charges recorded for
the assets sold as part of our plan initiated in December 2003 to sell a number of
businesses, and the net book value of assets held for sale on our balance sheet.(B)
    
    Errors identified in revenue recognition of preneed cemetery merchandise and services
contracts and recognition of realized trust earnings on preneed cemetery and funeral
merchandise and services contracts.(C)
    
    Other miscellaneous adjustments, including adjustments for lease-related accounting
practices.
  Segments and Reporting Units
     67




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Deferred Revenue Project
    Other Adjustments
   General
   68




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69




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##### Table of Contents



Critical Accounting Policies
  Preneed Selling Costs
 70




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Results of Operations
   71




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Three Months Ended July 31, 2005 Compared to Three Months Ended July 31, 2004Continuing Operations
 Funeral Operations
 Three Months EndedJuly 31,
    
    
    Increase2005
    
    
    2004
    
    
    (Decrease)(In millions)(Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)Funeral Revenue:Central Division
    
    $
    20.6
    
    
    $
    20.1
    
    
    $
    .5Western Division
    
    
    15.0
    
    
    
    14.6
    
    
    
    .4Eastern Division
    
    
    12.2
    
    
    
    12.1
    
    
    
    .1Southern Division  Florida
    
    
    10.7
    
    
    
    10.7
    
    
    
    All Other (1)
    
    
    3.1
    
    
    
    3.4
    
    
    
    (.3
    )Corporate Trust Management (2)
    
    
    4.5
    
    
    
    4.5
    
    
    
    Total Funeral Revenue
    
    $
    66.1
    
    
    $
    65.4
    
    
    $
    .7Funeral Costs:Central Division
    
    $
    16.0
    
    
    $
    15.2
    
    
    $
    .8Western Division
    
    
    14.2
    
    
    
    12.8
    
    
    
    1.4Eastern Division
    
    
    10.5
    
    
    
    10.2
    
    
    
    .3Southern Division  Florida
    
    
    9.8
    
    
    
    9.2
    
    
    
    .6All Other (1)
    
    
    2.9
    
    
    
    2.7
    
    
    
    .2Corporate Trust Management (2)
    
    
    .1
    
    
    
    .1
    
    
    
    Total Funeral Costs
    
    $
    53.5
    
    
    $
    50.2
    (3)
    
    $
    3.3
    (3)Funeral Gross Profit:Central Division
    
    $
    4.6
    
    
    $
    4.9
    
    
    $
    (.3
    )Western Division
    
    
    .8
    
    
    
    1.8
    
    
    
    (1.0
    )Eastern Division
    
    
    1.7
    
    
    
    1.9
    
    
    
    (.2
    )Southern Division  Florida
    
    
    .9
    
    
    
    1.5
    
    
    
    (.6
    )All Other (1)
    
    
    .2
    
    
    
    .7
    
    
    
    (.5
    )Corporate Trust Management (2)
    
    
    4.4
    
    
    
    4.4
    
    
    
    Total Funeral Gross Profit
    
    $
    12.6
    
    
    $
    15.2
    (3)
    
    $
    (2.6
    ) (3)
 Same-Store Analysis
 Change in Average
    
    Change in Same-Store
    
    Cremation RateRevenue Per Call
    
    Funeral Services
    
    2005
    
    2004Central Division
    
    
    4.3
    %
    
    
    .8
    %
    
    
    22.0
    %
    
    
    22.0
    %Western Division
    
    
    .8
    %
    
    
    3.7
    %
    
    
    57.3
    %
    
    
    56.1
    %Eastern Division
    
    
    1.8
    %
    
    
    (.7
    )%
    
    
    26.2
    %
    
    
    25.7
    %Southern Division  Florida
    
    
    4.3
    %
    
    
    2.1
    %
    
    
    40.5
    %
    
    
    40.7
    %All Other (1)
    
    
    (2.3
    %)
    
    
    (2.5
    %)
    
    
    18.0
    %
    
    
    14.8
    %Total
    
    
    2.0
    %
    
    
    2.3
    %
    
    
    37.2
    %
    
    
    36.3
    %
 
 (1)
    
    All Other represents our operations in Puerto Rico.(2)
    
    Corporate trust management consists of trust management fees and funeral merchandise
and service trust earnings recognized with respect to preneed contracts delivered during the
period. Trust management fees are established by us at rates consistent with industry norms
and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust earnings
represent earnings realized over the life of the preneed contracts delivered during the
relevant periods. See Notes 4 and 7 to the consolidated financial statements included herein
for information regarding the cost basis and market value of the trust assets and current
performance of the trusts (i.e., current
 72




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##### Table of Contents



realized gains and losses, interest income and
dividends). Trust management fees included in funeral revenue for the three months ended July
31, 2005 and 2004 were $1.4 million and $1.3 million, respectively, and funeral trust earnings
for the three months ended July 31, 2005 and 2004 were $3.1 million and $3.2 million,
respectively.(3)
    
    Funeral costs from continuing operations for the three months ended July 31, 2004 do not include net preneed
selling costs of $1.4 million, which would have been expensed if the accounting change described above had been implemented in fiscal year 2004.
Had we included these costs in 2004, funeral gross profit from continuing operations for the three months ended July 31, 2005 would have decreased
$1.2 million from $13.8 million for the three months ended July 31, 2004.
 Consolidated Operations  Funeral
    Segment Discussion  Funeral
   73




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Cemetery Operations
 Three Months EndedJuly 31,
    
    
    Increase2005
    
    
    2004
    
    
    (Decrease)(In millions)(Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)Cemetery Revenue:Central Division
    
    $
    19.1
    
    
    $
    16.7
    
    
    $
    2.4Western Division
    
    
    3.1
    
    
    
    3.7
    
    
    
    (.6
    )Eastern Division
    
    
    18.0
    
    
    
    16.9
    
    
    
    1.1Southern Division  Florida
    
    
    12.3
    
    
    
    10.7
    
    
    
    1.6All Other (1)
    
    
    3.8
    
    
    
    6.0
    
    
    
    (2.2
    )Corporate Trust Management (2)
    
    
    2.7
    
    
    
    2.7
    
    
    
    Total Cemetery Revenue
    
    $
    59.0
    
    
    $
    56.7
    
    
    $
    2.3Cemetery Costs:Central Division
    
    $
    15.5
    
    
    $
    14.0
    
    
    $
    1.5Western Division
    
    
    3.0
    
    
    
    2.9
    
    
    
    .1Eastern Division
    
    
    16.0
    
    
    
    15.3
    
    
    
    .7Southern Division  Florida
    
    
    9.4
    
    
    
    8.7
    
    
    
    .7All Other (1)
    
    
    3.6
    
    
    
    4.8
    
    
    
    (1.2
    )Corporate Trust Management (2)
    
    
    .1
    
    
    
    .1
    
    
    
    Total Cemetery Costs
    
    $
    47.6
    
    
    $
    45.8
    (3)
    
    $
    1.8
    (3)Cemetery Gross Profit:Central Division
    
    $
    3.6
    
    
    $
    2.7
    
    
    $
    .9Western Division
    
    
    .1
    
    
    
    .8
    
    
    
    (.7
    )Eastern Division
    
    
    2.0
    
    
    
    1.6
    
    
    
    .4Southern Division  Florida
    
    
    2.9
    
    
    
    2.0
    
    
    
    .9All Other (1)
    
    
    .2
    
    
    
    1.2
    
    
    
    (1.0
    )Corporate Trust Management (2)
    
    
    2.6
    
    
    
    2.6
    
    
    
    Total Cemetery Gross Profit
    
    $
    11.4
    
    
    $
    10.9
    (3)
    
    $
    .5
    (3)
 
 (1)
    
    All Other represents our operations in Puerto Rico.(2)
    
    Corporate trust management consists of trust management fees and cemetery
merchandise and service trust earnings recognized with respect to preneed contracts delivered
during the period. Trust management fees are established by us at rates consistent with
industry norms and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust
earnings represent earnings realized over the life of the preneed contracts delivered during
the relevant periods. See Notes 5 and 7 to the consolidated financial statements included
herein for information regarding the cost basis and market value of the trust assets and
current performance of the trusts (i.e., current realized gains and losses, interest income
and dividends). Trust management fees included in cemetery revenue for the three months ended
July 31, 2005 and 2004 were $1.3 million and $1.1 million, respectively, and cemetery trust
earnings for the three months ended July 31, 2005 and 2004 were $1.4 million and $1.6 million,
respectively. Perpetual care trust earnings are included in the revenues and gross profit of
the related geographic segment.(3)
    
    Cemetery costs from continuing operations for the three months ended July 31, 2004
do not include net preneed selling costs of $1.1 million, which would have been expensed if
the accounting change described above had been implemented in fiscal year 2004. Had we
included these costs in 2004, cemetery gross profit from continuing operations for the three
months ended July 31, 2005 would have increased $1.6 million from $9.8 million for the three
months ended July 31, 2004.
 Consolidated Operations  Cemetery
  74




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Segment Discussion  Cemetery
   Discontinued Operations
  Other
   75




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##### Table of Contents



Preneed Sales into and Deliveries out of the Backlog
   76




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##### Table of Contents



Nine Months Ended July 31, 2005 Compared to Nine Months Ended July 31, 2004  Continuing
Operations
 Funeral Operations
 Nine Months EndedJuly 31,
    
    
    Increase2005
    
    
    2004
    
    
    (Decrease)(In millions)(Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)Funeral Revenue:Central Division
    
    $
    65.2
    
    
    $
    64.3
    
    
    $
    .9Western Division
    
    
    46.4
    
    
    
    46.4
    
    
    
    Eastern Division
    
    
    40.4
    
    
    
    39.8
    
    
    
    .6Southern Division  Florida
    
    
    33.7
    
    
    
    33.0
    
    
    
    .7All Other (1)
    
    
    10.2
    
    
    
    10.1
    
    
    
    .1Corporate Trust Management (2)
    
    
    14.3
    
    
    
    14.2
    
    
    
    .1Total Funeral Revenue
    
    $
    210.2
    
    
    $
    207.8
    
    
    $
    2.4Funeral Costs:Central Division
    
    $
    48.2
    
    
    $
    46.4
    
    
    $
    1.8Western Division
    
    
    41.1
    
    
    
    38.8
    
    
    
    2.3Eastern Division
    
    
    32.4
    
    
    
    30.9
    
    
    
    1.5Southern Division  Florida
    
    
    29.1
    
    
    
    28.1
    
    
    
    1.0All Other (1)
    
    
    8.5
    
    
    
    8.4
    
    
    
    .1Corporate Trust Management (2)
    
    
    .4
    
    
    
    .4
    
    
    
    Total Funeral Costs
    
    $
    159.7
    
    
    $
    153.0
    (3)
    
    $
    6.7
    (3)Funeral Gross Profit:Central Division
    
    $
    17.0
    
    
    $
    17.9
    
    
    $
    (.9
    )Western Division
    
    
    5.3
    
    
    
    7.6
    
    
    
    (2.3
    )Eastern Division
    
    
    8.0
    
    
    
    8.9
    
    
    
    (.9
    )Southern Division  Florida
    
    
    4.6
    
    
    
    4.9
    
    
    
    (.3
    )All Other (1)
    
    
    1.7
    
    
    
    1.7
    
    
    
    Corporate Trust Management (2)
    
    
    13.9
    
    
    
    13.8
    
    
    
    .1Total Funeral Gross Profit
    
    $
    50.5
    
    
    $
    54.8
    (3)
    
    $
    (4.3
    ) (3)
 Same-Store Analysis
 Change in Average
    
    Change in Same-Store
    
    Cremation RateRevenue Per Call
    
    Funeral Services
    
    2005
    
    2004Central Division
    
    
    3.8
    %
    
    
    
    
    
    
    22.3
    %
    
    
    21.7
    %Western Division
    
    
    2.2
    %
    
    
    (1.3
    %)
    
    
    58.6
    %
    
    
    57.3
    %Eastern Division
    
    
    .8
    %
    
    
    1.3
    %
    
    
    25.4
    %
    
    
    25.9
    %Southern Division  Florida
    
    
    4.4
    %
    
    
    3.2
    %
    
    
    39.7
    %
    
    
    39.4
    %All Other (1)
    
    
    3.1
    %
    
    
    .8
    %
    
    
    16.2
    %
    
    
    14.1
    %Total
    
    
    2.8
    %
    
    
    .2
    %
    
    
    37.0
    %
    
    
    36.4
    %
 
 (1)
    
    All Other represents our operations in Puerto Rico.(2)
    
    Corporate trust management consists of trust management fees and funeral merchandise
and service trust
 77




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##### Table of Contents



earnings recognized with respect to preneed contracts delivered during the
period. Trust management fees are established by us at rates consistent with industry norms
and are paid by the trusts to our subsidiary, Investors
Trust, Inc. The trust earnings represent earnings realized over the life of the preneed
contracts delivered during the relevant periods. See Notes 4 and 7 to the consolidated
financial statements included herein for information regarding the cost basis and market value
of the trust assets and current performance of the trusts (i.e., current realized gains and
losses, interest income and dividends). Trust management fees included in funeral revenue for
the nine months ended July 31, 2005 and 2004 were $4.0 million and $4.2 million, respectively,
and funeral trust earnings for the nine months ended July 31, 2005 and 2004 were $10.3 million
and $10.0 million, respectively.(3)
    
    Funeral costs from continuing operations for the nine months ended July 31, 2004 do
not include net preneed selling costs of $3.6 million, which would have been expensed if the
accounting change described above had been implemented in fiscal year 2004. Had we included
these costs in 2004, funeral gross profit from continuing operations for the nine months ended
July 31, 2005 would have decreased $0.7 million from $51.2 million for the nine months ended
July 31, 2004.
 Consolidated Operations  Funeral
   Segment Discussion  Funeral
   78




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Cemetery Operations
 Nine Months EndedJuly 31,
    
    
    Increase2005
    
    
    2004
    
    
    (Decrease)(In millions)(Restated)
    
    
    (Restated)(Note 1)
    
    
    (Note 1)Cemetery Revenue:Central Division
    
    $
    55.0
    
    
    $
    56.6
    
    
    $
    (1.6
    )Western Division
    
    
    9.4
    
    
    
    9.8
    
    
    
    (.4
    )Eastern Division
    
    
    50.7
    
    
    
    47.7
    
    
    
    3.0Southern Division  Florida
    
    
    34.4
    
    
    
    31.6
    
    
    
    2.8All Other (1)
    
    
    12.0
    
    
    
    10.5
    
    
    
    1.5Corporate Trust Management (2)
    
    
    8.5
    
    
    
    7.8
    
    
    
    .7Total Cemetery Revenue
    
    $
    170.0
    
    
    $
    164.0
    
    
    $
    6.0Cemetery Costs:Central Division
    
    $
    43.7
    
    
    $
    44.3
    
    
    $
    (.6
    )Western Division
    
    
    8.2
    
    
    
    7.5
    
    
    
    .7Eastern Division
    
    
    46.0
    
    
    
    41.5
    
    
    
    4.5Southern Division  Florida
    
    
    27.2
    
    
    
    25.4
    
    
    
    1.8All Other (1)
    
    
    10.5
    
    
    
    10.4
    
    
    
    .1Corporate Trust Management (2)
    
    
    .4
    
    
    
    .5
    
    
    
    (.1
    )Total Cemetery Costs
    
    $
    136.0
    
    
    $
    129.6
    (3)
    
    $
    6.4
    (3)Cemetery Gross Profit:Central Division
    
    $
    11.3
    
    
    $
    12.3
    
    
    $
    (1.0
    )Western Division
    
    
    1.2
    
    
    
    2.3
    
    
    
    (1.1
    )Eastern Division
    
    
    4.7
    
    
    
    6.2
    
    
    
    (1.5
    )Southern Division  Florida
    
    
    7.2
    
    
    
    6.2
    
    
    
    1.0All Other (1)
    
    
    1.5
    
    
    
    .1
    
    
    
    1.4Corporate Trust Management (2)
    
    
    8.1
    
    
    
    7.3
    
    
    
    .8Total Cemetery Gross Profit
    
    $
    34.0
    
    
    $
    34.4
    (3)
    
    $
    (.4
    ) (3)
 
 (1)
    
    All Other represents our operations in Puerto Rico.(2)
    
    Corporate trust management consists of trust management fees and cemetery
merchandise and service trust earnings recognized with respect to preneed contracts delivered
during the period. Trust management fees are established by us at rates consistent with
industry norms and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust
earnings represent earnings realized over the life of the preneed contracts delivered during
the relevant periods. See Notes 5 and 7 to the consolidated financial statements included
herein for information regarding the cost basis and market value of the trust assets and
current performance of the trusts (i.e., current realized gains and losses, interest income
and dividends). Trust management fees included in cemetery revenue for the nine months ended
July 31, 2005 and 2004 were $3.7 million and $3.5 million, respectively, and cemetery trust
earnings for the nine months ended July 31, 2005 and 2004 were $4.8 million and $4.3 million,
respectively. Perpetual care trust earnings are included in the revenues and gross profit of the related
geographic segment.(3)
    
    Cemetery costs from continuing operations for the nine months ended July 31, 2004 do
not include net preneed selling costs of $3.8 million which would have been expensed if the
accounting change described above had been implemented in fiscal year 2004. Had we included
these costs in 2004, cemetery gross profit from continuing operations for the nine months
ended July 31, 2005 would have increased $3.4 million from $30.6 million for the nine months
ended July 31, 2004.
 Consolidated Operations  Cemetery
  79




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Segment Discussion  Cemetery
   Discontinued Operations
  Other
   80




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Preneed Sales into and Deliveries out of the Backlog
   81




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##### Table of Contents



Liquidity and Capital Resources
 Cash Flow
    Contractual Obligations and Commercial Commitments
  Payments Due by PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsLong-term debt obligations (1)
    
    $
    410.8
    
    
    $
    3.2
    
    
    $
    5.4
    
    
    $
    4.4
    
    
    $
    397.8Interest on long-term debt (2)
    
    
    172.4
    
    
    
    24.4
    
    
    
    48.5
    
    
    
    47.8
    
    
    
    51.7Operating lease obligations (3)
    
    
    35.5
    
    
    
    1.2
    
    
    
    7.9
    
    
    
    6.8
    
    
    
    19.6Non-competition and other agreements (4)
    
    
    6.9
    
    
    
    .8
    
    
    
    4.0
    
    
    
    1.5
    
    
    
    .6$
    625.6
    
    
    $
    29.6
    
    
    $
    65.8
    
    
    $
    60.5
    
    
    $
    469.7
 82




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##### Table of Contents



(1)
    
    See below for a breakdown of our future scheduled principal payments and maturities
of our long-term debt by type as of September 30, 2005.(2)
    
    Includes contractual interest payments for our revolving credit facility, Term Loan
B, senior notes and third-party debt. The interest on the revolving credit facility and Term
Loan B was calculated based on interest rates in effect as of July 31, 2005.(3)
    
    Our noncancellable operating leases are primarily for land and buildings and expire
over the next one to 15 years, except for six leases that expire between 2032 and 2039. Our
future minimum lease payments as of July 31, 2005 are $1.2 million, $4.2 million, $3.7
million, $2.9 million, $3.9 million and $19.6 million for the years ending October 31, 2005,
2006, 2007, 2008, 2009 and later years, respectively.(4)
    
    We have entered into non-competition agreements with prior owners and key employees
of acquired subsidiaries that expire through 2012. This category also includes separation pay
related to a former executive officer.
       83




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##### Table of Contents



Other,PrincipallySellerFiscal
    
    Revolving
    
    
    
    
    
    
    
    
    
    
    Financing ofYear Ending
    
    Credit
    
    
    Term
    
    
    Senior
    
    
    AcquiredOctober 31,
    
    Facility
    
    
    Loan B
    
    
    Notes
    
    
    Operations
    
    
    Total2005
    
    $
    
    
    
    $
    .6
    
    
    $
    
    
    
    $
    .1
    
    
    $
    .72006
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    1.0
    
    
    
    3.22007
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    .6
    
    
    
    2.82008
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    .2
    
    
    
    2.42009
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    
    
    
    
    2.2Thereafter
    
    
    
    
    
    
    199.3
    
    
    
    200.0
    
    
    
    .1
    
    
    
    399.4Total long-term debt
    
    $
    
    
    
    $
    208.7
    
    
    $
    200.0
    
    
    $
    2.0
    
    
    $
    410.7
     Off-Balance Sheet Arrangements
  (1)
    
    the $41.1 million bond we are required to maintain to guarantee our obligations
relating to funds we withdrew in fiscal year 2001 from our preneed funeral trusts in
Florida, which is discussed above; and
 (2)
    
    the insurance-funded preneed funeral contracts, which will be funded by life insurance
or annuity contracts issued by third-party insurers, are not reflected in our consolidated
balance sheets, and are discussed in Note 4 to the condensed consolidated financial
statements included herein.
 Ratio of Earnings to Fixed Charges
 84




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##### Table of Contents



Nine MonthsEnded
    
    Years Ended October 31,July 31, 2005
    
    2004
    
    2003
    
    2002
    
    2001(Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)(Note 1)
    
    (Note 1)
    
    (Note 1)
    
    (Note 1)
    
    (Note 1)
    
    20001.65(1)(5)
    
    
    1.98
    (2)
    
    
    1.08
    (3)
    
    
    1.27
    (4)(5)
    
    
    
    (5)(6)
    
    
    2.54
 
 (1)
    
    Pretax earnings for the nine months ended July 31, 2005 include $1.3 million of
gains on dispositions and impairment (losses), net and a charge of $32.8 million for the loss
on early extinguishment of debt.(2)
    
    Pretax earnings for fiscal year 2004 includes separation charges of $3.4 million for
costs related to workforce reductions and separation pay to a former executive officer and
($0.2) million in gains on dispositions and impairment (losses), net.(3)
    
    Pretax earnings for fiscal year 2003 include a charge of $11.3 million for the loss
on early extinguishment of debt in connection with redemption of the ROARS, a noncash charge
of $10.2 million for long-lived asset impairment and a charge of $2.5 million for separation
payments to former executive officers.(4)
    
    Pretax earnings for fiscal year 2002 include a noncash charge of $18.5 million in
connection with the write-down of assets held for sale.(5)
    
    Excludes the cumulative effect of change in accounting principles.(6)
    
    Pretax earnings for fiscal year 2001 include a noncash charge of $269.2 million in
connection with the write-down of assets held for sale and other charges and a $9.1 million
charge for the loss on early extinguishment of debt. As a result of these charges, our
earnings for fiscal year 2001 were insufficient to cover our fixed charges, and an additional
$229.9 million in pretax earnings would have been required to eliminate the coverage
deficiency.
  Inflation
  Recent Accounting Standards
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   85




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Interest
     
 Item 4. Controls and Procedures
 Restatement
  Evaluation of Disclosure Controls and Procedures
   86




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87




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##### Table of Contents



Managements Remediation Initiatives
   Changes in Internal Control Over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Henrietta Torres and Teresa Fiore, on behalf of themselves and all others similarly situated
and the General Public v. Stewart Enterprises, Inc., et al.;
    88




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##### Table of Contents



In re: Funeral Consumer Antitrust Litigation  Funeral Consumers Alliance, Inc, et al. v. Service Corporation International,
Alderwoods Group, Inc., Stewart Enterprises, Inc., Hillenbrand Industries, Inc., and Batesville
Casket Co.
   Pioneer Valley Casket Co., Inc., et al. v. Service Corporation International, Alderwoods
Group, Inc., Stewart Enterprises, Inc.,
Hillenbrand Industries, Inc., and Batesville Casket Co.
   Ralph Lee Fancher, on behalf of himself and all others similarly
situated v. Service Corporation International, Alderwoods Group, Inc., Stewart Enterprises, Inc.,
Hillenbrand Industries, Inc., Aurora Casket Co., York Group, Inc., and Batesville Casket Co.,
 Civil Investigative Demands
 89




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 Issuer Purchases of Equity Securities
 Total number of
    
    
    Maximum approximateshares purchased
    
    
    dollar value of sharesTotal number
    
    
    
    
    
    
    as part of
    
    
    that may yet beof shares
    
    
    Average price
    
    
    publicly-announced
    
    
    purchased under thePeriod
    
    purchased
    
    
    paid per share
    
    
    plans or programs(1)
    
    
    plans or programsMay 1, 2005 through
May 31, 2005
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    30,129,265June 1, 2005
through June 30, 2005
    
    
    638,800
    
    
    $
    6.39
    
    
    
    638,800
    
    
    $
    26,046,679July 1, 2005 through
July 31, 2005
    
    
    561,200
    
    
    $
    6.92
    
    
    
    561,200
    
    
    $
    22,161,798Total
    
    
    1,200,000
    
    
    $
    6.64
    
    
    
    1,200,000
    
    
    $
    22,161,798
 
 (1)
    
    On June 26, 2003, we announced that our Board of Directors had approved a stock
repurchase program that allows us to invest up to $25.0 million in repurchases of our Class A
common stock. In June 2004, the Board of Directors increased the program limit by an
additional $3.0 million to $28.0 million. On March 17, 2005, we substantially completed our
$28.0 million stock repurchase program, having repurchased 4,400,000 shares since its
inception. On March 28, 2005, we announced a $30.0 million stock repurchase program.
Repurchases under the program are limited to our Class A common stock and are made in the open
market or in privately negotiated transactions at such times and in such amounts as management
deems appropriate, depending on market conditions and other factors. Since the inception of
the program through July 31, 2005, we have repurchased and retired 1,200,000 shares at an
average price of $6.64 per share.
 
 Item 5. Other Information
 Forward-Looking Statements
  90




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##### Table of Contents



(1)
    
    The average revenue per traditional and cremation funeral service performed was
expected to increase by approximately 2 percent to 3 percent, excluding any impact from
funeral trust earnings. Increases in average revenue per funeral service performed may be
partially offset by a decrease in the number of families served by continuing operations
in 2005 as compared to 2004. The upper end of the forecast range assumed that these
businesses would serve the same number of families during fiscal year 2005 as in 2004, and
the lower end assumed a possible reduction in the number of families served of up to 2
percent.(2)
    
    Cemetery property sales were expected to increase by 4 percent to 8 percent.(3)
    
    Total revenue from trust earnings, including earnings recognition from funeral,
cemetery merchandise and perpetual care trusts, was expected to be down from that
recognized in 2004.(4)
    
    While we intended to control costs, we did not anticipate further cost cuts as
significant as those implemented in 2004.(5)
    
    As a result of refinancing the senior secured credit facility in November 2004 and
refinancing substantially all of our 10.75 percent senior subordinated notes in February
2005, combined with continued debt reduction, interest expense was expected to decrease
significantly for fiscal year 2005. During the first nine months of fiscal year 2005, we
recorded charges for the early extinguishment of debt of $32.8 million.(6)
    
    We expected to spend approximately $2.0 million on our Sarbanes Oxley Section 404
compliance effort. This represented external costs and does not include personnel
allocated to the project.
  Cautionary Statements
  91




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Risks Related to Our Business
 We have recently been required to restate previously issued financial statements and have
discovered material weaknesses in our internal controls over financial reporting, which caused us
to be unable to timely file our Form 10-Q for the quarter ended July 31, 2005 and our Form 10-K for
the fiscal year ended October 31, 2005 with the Securities and Exchange Commission.
   We are subject to a delisting proceeding by The Nasdaq Stock Market.
  The delay in filing our SEC reports has also resulted in an increase in the interest rate payable
on our 6.25 percent senior notes, and we cannot predict when the increase will be reduced.
  Failure to achieve and maintain effective internal controls over financial reporting in accordance
with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on the market price
of our common stock and our access to capital.
 92




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##### Table of Contents



From fiscal years 1994 to 2004, we have experienced a decline in funeral call volume due to many
factors, such as the number of deaths and competition in our markets, our ability to identify
changing consumer preferences and various other factors, some of which are beyond our control.
  Our business is subject to the risk of losses due to hurricanes.
   We may experience declines in preneed sales due to numerous factors, including a weakening economy.
Declines in preneed property sales would reduce current revenue. Declines in preneed funeral and
cemetery service and merchandise sales would reduce our backlog and could reduce our future
revenues and market share.
  Price competition could reduce market share or cause us to reduce prices to retain or recapture
market share, either of which could reduce revenues and margins.
 93




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##### Table of Contents



Increased advertising and better marketing by competitors, as well as increased offering of
products or services over the Internet, could cause us to lose market share and revenues or cause
us to incur increased costs in order to retain or recapture market share.
  If we are not able to respond effectively to changing consumer preferences, our market share,
revenues and profitability could decrease.
  Earnings from and principal of trusts and escrow accounts could be reduced by changes in stock and
bond prices and interest and dividend rates.
   94




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Increased preneed sales may have a negative impact on cash flow and earnings.
  Increased costs may have a negative impact on earnings and cash flows.
   Our Chairman Emeritus may have a significant and disproportionate influence on the outcome of
election of directors and other matters presented for a vote of shareholders and this control may
be exercised in a manner that may conflict with the interests of shareholders.
  Servicing our debt will require a significant amount of cash, and our ability to generate
sufficient cash depends on many factors, some of which are beyond our control.
  95




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##### Table of Contents



Increases in interest rates would increase interest costs on our variable-rate long-term debt and
could have a material adverse effect on our net income and earnings per share.
 .
 Our ability to maintain compliance with our covenants under our senior secured credit facility and
6.25 percent senior notes is dependent upon many factors, one of which is our ability to file
timely reports with the SEC. Covenant restrictions may also limit our ability to operate our
business.
     96




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##### Table of Contents



The payment of dividends on our common stock in the future is subject to uncertainties.
  Unanticipated litigation or negative developments in pending litigation could have a material
adverse effect on our financial statements.
  Our projections do not include any earnings from acquisition activity. Several important factors,
among others, may affect our ability to consummate acquisitions.
  We have had significant changes in the application of generally accepted accounting principles to
our business. No assurances can be given that we will not face similar issues in the future.
  Risks Related to the Death Care Industry
 Declines in the number of deaths in our markets can cause a decrease in revenues. Changes in the
number of deaths are not predictable from market to market or over the short term.
   97




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##### Table of Contents



The increasing number of cremations in the United States could cause revenues to decline because we
could lose market share to firms specializing in cremations. In addition, basic cremations produce
no revenues for cemetery operations and lesser funeral revenues and, in certain cases, lesser
profit margins than traditional funerals.
  Because the funeral and cemetery businesses are high fixed-cost businesses, positive or negative
changes in revenue can have a disproportionately large effect on cash flow and profits.
  Changes or increases in, or failure to comply with, regulations applicable to our business could
increase costs or decrease cash flows.
   98




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##### Table of Contents



Item 6. Exhibits
  3.1
    
    Amended and Restated Articles of Incorporation of the Company, as amended and restated as of
May 7, 2003 (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on
Form 10-Q for the quarter ended April 30, 2003)3.2
    
    By-laws of the Company, as amended and restated as of November 19, 2004 (incorporated by
reference to Exhibit 3.1 to the Companys Current Report on Form 8-K dated November 22, 2004)4.1
    
    See Exhibits 3.1 and 3.2 for provisions of the Companys Amended and Restated Articles of
Incorporation, as amended, and By-laws, as amended, defining the rights of holders of Class A
and Class B common stock4.2
    
    Specimen of Class A common stock certificate (incorporated by reference to Exhibit 4.2 to
Amendment No. 3 to the Companys Registration Statement on Form S-1 (Registration No.
33-42336) filed with the Commission on October 7, 1991)4.3
    
    Rights Agreement, dated as of October 28, 1999, between Stewart Enterprises, Inc. and
ChaseMellon Shareholder Services, L.L.C. as Rights Agent (incorporated by reference to Exhibit
1 to the Companys Form 8-A dated November 3, 1999)4.4
    
    Credit Agreement dated June 29, 2001 by and among the Company, Empresas Stewart-Cementerios
and Empresas Stewart-Funerarias, as Borrowers, Bank of America, N.A., as Administrative Agent,
Collateral Agent and as a Lender, Deutsche Banc Alex. Brown, Inc., as Syndication Agent,
Bankers Trust Company, as a Lender and the other Lenders party thereto from time to time
(incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated
June 29, 2001) and Amendment No. 1 to the Credit Agreement dated April 25, 2003 (incorporated
by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated May 1, 2003) and
Amendment No. 2 to the Credit Agreement dated February 18, 2004 (incorporated by reference to
Exhibit 4.4 to the Companys Quarterly Report on Form 10-Q for the quarter ended January 31,
2004)4.5
    
    Amended and Restated Credit Agreement dated November 19, 2004 by and among the Company,
Empresas Stewart-Cementerios and Empresas Stewart-Funerarias, as Borrowers, Bank of America,
N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer and The
Other Lenders party hereto (incorporated by reference to Exhibit 4.1 to the Companys Current
Report on Form 8-K dated November 22, 2004)4.6
    
    Indenture dated June 29, 2001 by and among Stewart, the Guarantors named therein and Firstar
Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to the Companys Form S-4
dated August 14, 2001) and First Supplemental Indenture, dated as of February 2, 2005 by and
among Stewart Enterprises, Inc., the Guarantors thereunder and U.S. Bank National Association,
as Trustee, supplementing the Indenture (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K dated February 2, 2005) and Second Supplemental
Indenture, dated as of February 28, 2005 by and among The Lincoln Memorial Park Cemetery
Association, a subsidiary of Stewart Enterprises, Inc., Stewart Enterprises, Inc., the other
Guarantors and U.S. National Bank Association, as trustee (incorporated by reference to
Exhibit 4.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended April 30,
2005)4.7
    
    Form of 10.75 percent Senior Subordinated Note due 2008 (incorporated by reference to Exhibit
4.2 to the Companys Form S-4 dated August 14, 2001)4.8
    
    Indenture dated as of February 11, 2005 by and among Stewart Enterprises, Inc., the
Guarantors thereunder and U.S. Bank National Association, as Trustee, with respect to the 6.25
percent Senior Notes due 2013 (incorporated by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K dated February 11, 2005)
 99




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##### Table of Contents



4.9
    
    Form of 6.25 percent Senior Note due 2013 (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K dated February 11, 2005)10.1
    
    Amendment No. 1 to Appendix A to Employment Agreement dated October 11, 2005, effective July
14, 2005, between the Company and Everett N. Kendrick10.2
    
    Amendment No. 1 to Appendix A to Employment Agreement dated October 11, 2005, effective July
14, 2005, between the Company and Brent F. Heffron10.3
    
    Amendment No. 1 to Appendix A to Employment Agreement dated October 11, 2005, effective July
14, 2005, between the Company and G. Kenneth Stephens, Jr.10.4
    
    Amendment No. 1 to Appendix A to Employment Agreement dated October 11, 2005, effective July
14, 2005, between the Company and Randall L. Stricklin10.5
    
    Separation Agreement by and between the Company and Michael K. Crane dated October 11, 200512
    
    Calculation of Ratio of Earnings to Fixed Charges31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Kenneth C. Budde,
President and Chief Executive Officer31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen,
Executive Vice President and Chief Financial Officer32
    
    Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of Kenneth C. Budde,
President and Chief Executive Officer, and Thomas M. Kitchen, Executive Vice President and
Chief Financial Officer
 100




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##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 SIGNATURES
  STEWART ENTERPRISES, INC.February 22, 2006
    /s/ THOMAS M. KITCHENThomas M. KitchenExecutive Vice President and
Chief Financial OfficerFebruary 22, 2006
    /s/ MICHAEL G. HYMELMichael G. HymelVice President
Corporate Controller
Chief Accounting Officer 101




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##### Table of Contents



Index to Exhibits
 3.1
    
    Amended and Restated Articles of Incorporation of the Company, as amended and restated as of
May 7, 2003 (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on
Form 10-Q for the quarter ended April 30, 2003)3.2
    
    By-laws of the Company, as amended and restated as of November 19, 2004 (incorporated by
reference to Exhibit 3.1 to the Companys Current Report on Form 8-K dated November 22, 2004)4.1
    
    See Exhibits 3.1 and 3.2 for provisions of the Companys Amended and Restated Articles of
Incorporation, as amended, and By-laws, as amended, defining the rights of holders of Class A
and Class B common stock4.2
    
    Specimen of Class A common stock certificate (incorporated by reference to Exhibit 4.2 to
Amendment No. 3 to the Companys Registration Statement on Form S-1 (Registration No.
33-42336) filed with the Commission on October 7, 1991)4.3
    
    Rights Agreement, dated as of October 28, 1999, between Stewart Enterprises, Inc. and
ChaseMellon Shareholder Services, L.L.C. as Rights Agent (incorporated by reference to Exhibit
1 to the Companys Form 8-A dated November 3, 1999)4.4
    
    Credit Agreement dated June 29, 2001 by and among the Company, Empresas Stewart-Cementerios
and Empresas Stewart-Funerarias, as Borrowers, Bank of America, N.A., as Administrative Agent,
Collateral Agent and as a Lender, Deutsche Banc Alex. Brown, Inc., as Syndication Agent,
Bankers Trust Company, as a Lender and the other Lenders party thereto from time to time
(incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated
June 29, 2001) and Amendment No. 1 to the Credit Agreement dated April 25, 2003 (incorporated
by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated May 1, 2003) and
Amendment No. 2 to the Credit Agreement dated February 18, 2004 (incorporated by reference to
Exhibit 4.4 to the Companys Quarterly Report on Form 10-Q for the quarter ended January 31,
2004)4.5
    
    Amended and Restated Credit Agreement dated November 19, 2004 by and among the Company,
Empresas Stewart-Cementerios and Empresas Stewart-Funerarias, as Borrowers, Bank of America,
N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer and The
Other Lenders party hereto (incorporated by reference to Exhibit 4.1 to the Companys Current
Report on Form 8-K dated November 22, 2004)4.6
    
    Indenture dated June 29, 2001 by and among Stewart, the Guarantors named therein and Firstar
Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to the Companys Form S-4
dated August 14, 2001) and First Supplemental Indenture, dated as of February 2, 2005 by and
among Stewart Enterprises, Inc., the Guarantors thereunder and U.S. Bank National Association,
as Trustee, supplementing the Indenture (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K dated February 2, 2005) and Second Supplemental
Indenture, dated as of February 28, 2005 by and among The Lincoln Memorial Park Cemetery
Association, a subsidiary of Stewart Enterprises, Inc., Stewart Enterprises, Inc., the other
Guarantors and U.S. National Bank Association, as trustee (incorporated by reference to
Exhibit 4.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended April 30,
2005)4.7
    
    Form of 10.75 percent Senior Subordinated Note due 2008 (incorporated by reference to Exhibit
4.2 to the Companys Form S-4 dated August 14, 2001)4.8
    
    Indenture dated as of February 11, 2005 by and among Stewart Enterprises, Inc., the
Guarantors thereunder and U.S. Bank National Association, as Trustee, with respect to the 6.25
percent Senior Notes due 2013 (incorporated by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K dated February 11, 2005)




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##### Table of Contents



4.9
    
    Form of 6.25 percent Senior Note due 2013 (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K dated February 11, 2005)10.1
    
    Amendment No. 1 to Appendix A to Employment Agreement dated October 11, 2005, effective July
14, 2005, between the Company and Everett N. Kendrick10.2
    
    Amendment No. 1 to Appendix A to Employment Agreement dated October 11, 2005, effective July
14, 2005, between the Company and Brent F. Heffron10.3
    
    Amendment No. 1 to Appendix A to Employment Agreement dated October 11, 2005, effective July
14, 2005, between the Company and G. Kenneth Stephens, Jr.10.4
    
    Amendment No. 1 to Appendix A to Employment Agreement dated October 11, 2005, effective July
14, 2005, between the Company and Randall L. Stricklin10.5
    
    Separation Agreement by and between the Company and Michael K. Crane dated October 11, 200512
    
    Calculation of Ratio of Earnings to Fixed Charges31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Kenneth C. Budde,
President and Chief Executive Officer31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen,
Executive Vice President and Chief Financial Officer32
    
    Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of Kenneth C. Budde,
President and Chief Executive Officer, and Thomas M. Kitchen, Executive Vice President and
Chief Financial Officer