##### 



Item 8. Financial Statements and Supplementary Data
  PageReport of Independent Registered Public Accounting Firm
    
    
    2Consolidated Statements of Earnings for the Years Ended October
31, 2006, 2005 and 2004
    
    
    4Consolidated Balance Sheets as of October 31, 2006 and 2005
    
    
    5Consolidated Statements of Shareholders Equity for the Years
Ended October 31, 2006, 2005 and 2004
    
    
    7Consolidated Statements of Cash Flows for the Years Ended October
31, 2006, 2005 and 2004
    
    
    9Notes to Consolidated Financial Statements
    
    
    10Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule
    
    
    74Schedule II  Valuation and Qualifying Accounts
    
    
    75
 1




---



##### 



Report of Independent Registered Public Accounting Firm
 
  Consolidated financial statements
   Internal control over financial reporting
 Internal Control  Integrated Framework Internal Control  Integrated Framework
 2




---



##### 



3




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share amounts)
 Year Ended October 31,2006
    
    
    2005
    
    
    2004Revenues:Funeral
    
    $
    282,300
    
    
    $
    272,909
    
    
    $
    270,176Cemetery
    
    
    234,792
    
    
    
    219,046
    
    
    
    222,535517,092
    
    
    
    491,955
    
    
    
    492,711Costs and expenses:Funeral
    
    
    216,847
    
    
    
    211,324
    
    
    
    201,496Cemetery
    
    
    185,351
    
    
    
    178,561
    
    
    
    176,387402,198
    
    
    
    389,885
    
    
    
    377,883Gross profit
    
    
    114,894
    
    
    
    102,070
    
    
    
    114,828Corporate general and administrative expenses
    
    
    (31,739
    )
    
    
    (19,440
    )
    
    
    (17,097
    )Hurricane related recoveries (charges), net
    
    
    1,628
    
    
    
    (9,366
    )
    
    
    Separation charges
    
    
    (991
    )
    
    
    (1,507
    )
    
    
    (3,435
    )Gains on dispositions and impairment (losses), net
    
    
    (353
    )
    
    
    1,234
    
    
    
    (225
    )Other operating income, net
    
    
    1,308
    
    
    
    1,415
    
    
    
    2,090Operating earnings
    
    
    84,747
    
    
    
    74,406
    
    
    
    96,161Interest expense
    
    
    (29,633
    )
    
    
    (30,460
    )
    
    
    (47,335
    )Loss on early extinguishment of debt
    
    
    
    
    
    
    (32,822
    )
    
    
    Investment and other income, net
    
    
    3,676
    
    
    
    713
    
    
    
    178Earnings from continuing operations before income taxes and
cumulative effect of change in accounting principle
    
    
    58,790
    
    
    
    11,837
    
    
    
    49,004Income taxes
    
    
    21,251
    
    
    
    3,214
    
    
    
    18,130Earnings from continuing operations before cumulative
effect of change in accounting principle
    
    
    37,539
    
    
    
    8,623
    
    
    
    30,874Discontinued operations:Earnings (loss) from discontinued operations before income
taxes
    
    
    (136
    )
    
    
    1,246
    
    
    
    4,061Income tax expense (benefit)
    
    
    (190
    )
    
    
    15
    
    
    
    (1,757
    )Earnings from discontinued operations
    
    
    54
    
    
    
    1,231
    
    
    
    5,818Earnings before cumulative effect of change in accounting principle
    
    
    37,593
    
    
    
    9,854
    
    
    
    36,692Cumulative effect of change in accounting principle (net of
$101,061 in 2005 income tax benefit)
    
    
    
    
    
    
    (153,180
    )
    
    
    Net earnings (loss)
    
    $
    37,593
    
    
    $
    (143,326
    )
    
    $
    36,692Basic earnings (loss) per common share:Earnings from continuing operations before cumulative effect
of change in accounting principle
    
    $
    .35
    
    
    $
    .08
    
    
    $
    .29Earnings from discontinued operations
    
    
    
    
    
    
    .01
    
    
    
    .05Cumulative effect of change in accounting principle
    
    
    
    
    
    
    (1.40
    )
    
    
    Net earnings (loss)
    
    $
    .35
    
    
    $
    (1.31
    )
    
    $
    .34Diluted earnings (loss) per common share:Earnings from continuing operations before cumulative effect
of change in accounting principle
    
    $
    .35
    
    
    $
    .08
    
    
    $
    .29Earnings from discontinued operations
    
    
    
    
    
    
    .01
    
    
    
    .05Cumulative effect of change in accounting principle
    
    
    
    
    
    
    (1.40
    )
    
    
    Net earnings (loss)
    
    $
    .35
    
    
    $
    (1.31
    )
    
    $
    .34Weighted average common shares outstanding (in thousands):Basic
    
    
    106,855
    
    
    
    109,040
    
    
    
    107,522Diluted
    
    
    106,900
    
    
    
    109,205
    
    
    
    108,159Dividends declared per common share
    
    $
    .10
    
    
    $
    .075
    
    
    $
    
  4




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
 October 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    43,870
    
    
    $
    40,605Marketable securities
    
    
    239
    
    
    
    302Receivables, net of allowances
    
    
    72,499
    
    
    
    75,812Inventories
    
    
    36,358
    
    
    
    34,500Prepaid expenses
    
    
    6,428
    
    
    
    3,992Deferred income taxes, net
    
    
    10,502
    
    
    
    15,286Assets held for sale
    
    
    2,793
    
    
    
    4,428Total current assets
    
    
    172,689
    
    
    
    174,925Receivables due beyond one year, net of allowances
    
    
    75,350
    
    
    
    59,214Preneed funeral receivables and trust investments
    
    
    517,633
    
    
    
    501,621Preneed cemetery receivables and trust investments
    
    
    258,120
    
    
    
    257,356Goodwill
    
    
    272,976
    
    
    
    272,976Cemetery property, at cost
    
    
    371,071
    
    
    
    368,416Property and equipment, at cost:Land
    
    
    41,336
    
    
    
    41,336Buildings
    
    
    293,530
    
    
    
    285,635Equipment and other
    
    
    149,952
    
    
    
    158,018484,818
    
    
    
    484,989Less accumulated depreciation
    
    
    189,909
    
    
    
    195,379Net property and equipment
    
    
    294,909
    
    
    
    289,610Deferred income taxes, net
    
    
    173,986
    
    
    
    183,403Cemetery perpetual care trust investments
    
    
    230,203
    
    
    
    212,537Other assets
    
    
    13,640
    
    
    
    15,551Total assets
    
    $
    2,380,577
    
    
    $
    2,335,609
  5




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
 October 31,2006
    
    
    2005LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    2,839
    
    
    $
    3,168Accounts payable
    
    
    19,375
    
    
    
    10,758Accrued payroll and other benefits
    
    
    17,353
    
    
    
    14,918Accrued insurance
    
    
    21,803
    
    
    
    20,757Accrued interest
    
    
    5,822
    
    
    
    5,236Other current liabilities
    
    
    18,141
    
    
    
    20,167Income taxes payable
    
    
    3,703
    
    
    
    886Liabilities associated with assets held for sale
    
    
    942
    
    
    
    1,270Total current liabilities
    
    
    89,978
    
    
    
    77,160Long-term debt, less current maturities
    
    
    374,020
    
    
    
    406,859Deferred preneed funeral revenue
    
    
    274,700
    
    
    
    284,086Deferred preneed cemetery revenue
    
    
    295,989
    
    
    
    278,708Non-controlling interest in funeral and cemetery trusts
    
    
    657,607
    
    
    
    626,137Other long-term liabilities
    
    
    12,410
    
    
    
    11,442Total liabilities
    
    
    1,704,704
    
    
    
    1,684,392Commitments and contingencies (Note 19)Non-controlling interest in perpetual care trusts
    
    
    228,696
    
    
    
    211,213Non-controlling interest in perpetual care trusts
associated with assets held for sale
    
    
    284
    
    
    
    551Shareholders equity:Preferred stock, $1.00 par value, 5,000,000 shares
authorized; no shares issued
    
    
    
    
    
    
    Common stock, $1.00 stated value:Class A authorized 150,000,000 shares; issued
and outstanding 101,408,227 and 105,115,187
shares at October 31, 2006 and 2005,
respectively
    
    
    101,408
    
    
    
    105,115Class B authorized 5,000,000 shares; issued
and outstanding 3,555,020 shares at October
31, 2006 and 2005; 10 votes per share
convertible into an equal number of Class A
shares
    
    
    3,555
    
    
    
    3,555Additional paid-in capital
    
    
    640,648
    
    
    
    667,663Accumulated deficit
    
    
    (298,715
    )
    
    
    (336,308
    )Unearned restricted stock compensation
    
    
    
    
    
    
    (569
    )Accumulated other comprehensive loss:Unrealized depreciation of investments
    
    
    (3
    )
    
    
    (3
    )Total accumulated other comprehensive loss
    
    
    (3
    )
    
    
    (3
    )Total shareholders equity
    
    
    446,893
    
    
    
    439,453Total liabilities and shareholders equity
    
    $
    2,380,577
    
    
    $
    2,335,609
  6




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Dollars in thousands, except per share amounts)
 Retained
    
    
    
    
    
    
    Unrealized
    
    
    DerivativeAdditional
    
    
    Earnings
    
    
    Unearned
    
    
    Appreciation
    
    
    Financial
    
    
    TotalCommon
    
    
    Paid-In
    
    
    (Accumulated
    
    
    Restricted Stock
    
    
    (Depreciation)
    
    
    Instrument
    
    
    ShareholdersStock(1)
    
    
    Capital
    
    
    Deficit)
    
    
    Compensation
    
    
    of Investments
    
    
    Gains (Losses)
    
    
    EquityBalance October 31, 2003
    
    $
    107,727
    
    
    $
    676,439
    
    
    $
    (229,674
    )
    
    $
    
    
    
    $
    (115
    )
    
    $
    (1,646
    )
    
    $
    552,731Comprehensive income:Net earnings
    
    
    
    
    
    
    
    
    
    
    36,692
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,692Other comprehensive income:Unrealized appreciation of
investments, net of deferred
tax expense of ($50)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115
    
    
    
    
    
    
    
    115Termination of derivative
instrument designated and
qualifying as a cash flow
hedging instrument, net of
deferred tax expense of ($119)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    194
    
    
    
    194Unrealized appreciation on
derivative instrument
designated and qualifying as a
cash flow hedging instrument,
net of deferred tax expense of
($643)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,119
    
    
    
    1,119Total other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115
    
    
    
    1,313
    
    
    
    1,428Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    36,692
    
    
    
    
    
    
    
    115
    
    
    
    1,313
    
    
    
    38,120Restricted stock activity
    
    
    132
    
    
    
    541
    
    
    
    
    
    
    
    (222
    )
    
    
    
    
    
    
    
    
    
    
    451Issuance of common stock
    
    
    74
    
    
    
    347
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    421Stock options exercised
    
    
    2,713
    
    
    
    10,279
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,992Tax benefit associated with
stock options exercised
    
    
    
    
    
    
    2,612
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,612Purchase and retirement of
common stock
    
    
    (2,761
    )
    
    
    (16,588
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,349
    )Balance October 31, 2004
    
    $
    107,885
    
    
    $
    673,630
    
    
    $
    (192,982
    )
    
    $
    (222
    )
    
    $
    
    
    
    $
    (333
    )
    
    $
    587,978
 Unearned
    
    
    
    
    
    
    DerivativeAdditional
    
    
    
    
    
    
    Restricted
    
    
    Unrealized
    
    
    Financial
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Accumulated
    
    
    Stock
    
    
    Depreciation
    
    
    Instrument
    
    
    ShareholdersStock(1)
    
    
    Capital
    
    
    Deficit
    
    
    Compensation
    
    
    of Investments
    
    
    Gains (Losses)
    
    
    EquityBalance October 31, 2004
    
    $
    107,885
    
    
    $
    673,630
    
    
    $
    (192,982
    )
    
    $
    (222
    )
    
    $
    
    
    
    $
    (333
    )
    
    $
    587,978Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    (143,326
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (143,326
    )Other comprehensive income (loss):Unrealized depreciation of
investments, net of deferred tax
expense of ($2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )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)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    333
    
    
    
    330Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    (143,326
    )
    
    
    
    
    
    
    (3
    )
    
    
    333
    
    
    
    (142,996
    )Restricted stock activity
    
    
    155
    
    
    
    936
    
    
    
    
    
    
    
    (347
    )
    
    
    
    
    
    
    
    
    
    
    744Issuance of common stock
    
    
    76
    
    
    
    359
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    435Stock options exercised
    
    
    2,654
    
    
    
    10,513
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,167Tax benefit associated with stock
options exercised
    
    
    
    
    
    
    1,993
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,993Purchase and retirement of common
stock
    
    
    (2,100
    )
    
    
    (11,585
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,685
    )Dividends ($.075 per share)
    
    
    
    
    
    
    (8,183
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,183
    )Balance October 31, 2005
    
    $
    108,670
    
    
    $
    667,663
    
    
    $
    (336,308
    )
    
    $
    (569
    )
    
    $
    (3
    )
    
    $
    
    
    
    $
    439,453
  7




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Dollars in thousands, except per share amounts)
 Unearned
    
    
    UnrealizedAdditional
    
    
    
    
    
    
    Restricted
    
    
    Depreciation
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Accumulated
    
    
    Stock
    
    
    of
    
    
    ShareholdersStock(1)
    
    
    Capital
    
    
    Deficit
    
    
    Compensation
    
    
    Investments
    
    
    EquityBalance October 31, 2005
    
    $
    108,670
    
    
    $
    667,663
    
    
    $
    (336,308
    )
    
    $
    (569
    )
    
    $
    (3
    )
    
    $
    439,453Comprehensive income
    
    
    
    
    
    
    
    
    
    
    37,593
    
    
    
    
    
    
    
    
    
    
    
    37,593Adoption of SFAS No. 123R
    
    
    
    
    
    
    (569
    )
    
    
    
    
    
    
    569
    
    
    
    
    
    
    
    Restricted stock activity
    
    
    6
    
    
    
    327
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    333Issuance of common stock
    
    
    150
    
    
    
    648
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    798Stock options exercised
    
    
    33
    
    
    
    149
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182Share-based compensation
    
    
    
    
    
    
    1,203
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,203Purchase and retirement of common stock
    
    
    (3,896
    )
    
    
    (18,100
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,996
    )Dividends ($.10 per share)
    
    
    
    
    
    
    (10,673
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,673
    )Balance October 31, 2006
    
    $
    104,963
    
    
    $
    640,648
    
    
    $
    (298,715
    )
    
    $
    
    
    
    $
    (3
    )
    
    $
    446,893
 
 (1)
    
    Amount includes shares of Class A common stock with a stated value of $1 per share,
and includes 3,555 shares (in thousands) of Class B common stock.  8




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share amounts)
 Year Ended October 31,2006
    
    
    2005
    
    
    2004Cash flows from operating activities:Net earnings (loss)
    
    $
    37,593
    
    
    $
    (143,326
    )
    
    $
    36,692Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:Cumulative effect of change in accounting principle
    
    
    
    
    
    
    153,180
    
    
    
    (Gains) on dispositions and impairment losses, net
    
    
    327
    
    
    
    (2,401
    )
    
    
    (2,222
    )Impairment of hurricane damaged properties
    
    
    
    
    
    
    11,661
    
    
    
    Loss on early extinguishment of debt
    
    
    
    
    
    
    32,822
    
    
    
    Premiums paid on early extinguishment of debt
    
    
    
    
    
    
    (25,463
    )
    
    
    Depreciation and amortization
    
    
    25,666
    
    
    
    25,709
    
    
    
    32,628Amortization of preneed selling costs
    
    
    
    
    
    
    
    
    
    
    24,952Provision for doubtful accounts
    
    
    6,795
    
    
    
    10,077
    
    
    
    7,107Share-based compensation
    
    
    1,203
    
    
    
    
    
    
    
    Excess tax benefits from share-based payment arrangements
    
    
    (11
    )
    
    
    
    
    
    
    Tax benefit on stock options exercised
    
    
    
    
    
    
    1,993
    
    
    
    2,612Net losses realized on marketable securities
    
    
    
    
    
    
    
    
    
    
    101Provision (benefit) for deferred income taxes
    
    
    14,281
    
    
    
    (543
    )
    
    
    8,768Other
    
    
    3,371
    
    
    
    518
    
    
    
    258Changes in assets and liabilities:(Increase) decrease in other receivables
    
    
    (22,256
    )
    
    
    (14,155
    )
    
    
    21,871(Increase) decrease in inventories and cemetery property
    
    
    (4,193
    )
    
    
    1,246
    
    
    
    2,081Increase in accounts payable and accrued expenses
    
    
    10,454
    
    
    
    7,018
    
    
    
    4,669Net effect of preneed funeral production and maturities:Decrease in preneed funeral receivables and trust investments
    
    
    4,567
    
    
    
    4,141
    
    
    
    5,481Decrease in deferred preneed funeral revenue
    
    
    (15,375
    )
    
    
    (13,628
    )
    
    
    (14,162
    )Increase (decrease) in funeral non-controlling interest
    
    
    5,058
    
    
    
    2,449
    
    
    
    (5,603
    )Net effect of preneed cemetery production and deliveries:(Increase) decrease in preneed cemetery receivables and
trust investments
    
    
    3,479
    
    
    
    1,192
    
    
    
    (2,646
    )Increase (decrease) in deferred preneed cemetery revenue
    
    
    10,235
    
    
    
    (8,313
    )
    
    
    7,073Increase in cemetery non-controlling interest
    
    
    11,686
    
    
    
    12,368
    
    
    
    1,994Change in deferred preneed selling costs
    
    
    
    
    
    
    
    
    
    
    (34,553
    )Decrease in other
    
    
    (2,779
    )
    
    
    (3,703
    )
    
    
    (3,445
    )Net cash provided by operating activities
    
    
    90,101
    
    
    
    52,842
    
    
    
    93,656Cash flows from investing activities:Proceeds from sales of marketable securities
    
    
    
    
    
    
    16
    
    
    
    1,121Proceeds from sale of assets, net
    
    
    1,218
    
    
    
    10,007
    
    
    
    19,775Insurance proceeds related to hurricane damaged properties
    
    
    6,000
    
    
    
    
    
    
    
    Additions to property and equipment
    
    
    (28,907
    )
    
    
    (22,569
    )
    
    
    (20,423
    )Other
    
    
    249
    
    
    
    149
    
    
    
    54Net cash provided by (used in) investing activities
    
    
    (21,440
    )
    
    
    (12,397
    )
    
    
    527Cash flows from financing activities:Proceeds from long-term debt
    
    
    
    
    
    
    440,000
    
    
    
    Repayments of long-term debt
    
    
    (33,168
    )
    
    
    (446,778
    )
    
    
    (85,310
    )Debt issue costs
    
    
    
    
    
    
    (6,257
    )
    
    
    Issuance of common stock
    
    
    368
    
    
    
    13,602
    
    
    
    13,413Purchase and retirement of common stock
    
    
    (21,996
    )
    
    
    (13,685
    )
    
    
    (19,349
    )Dividends
    
    
    (10,673
    )
    
    
    (8,183
    )
    
    
    Excess tax benefits from share-based payment arrangements
    
    
    11
    
    
    
    
    
    
    
    Other
    
    
    62
    
    
    
    (53
    )
    
    
    (8
    )Net cash used in financing activities
    
    
    (65,396
    )
    
    
    (21,354
    )
    
    
    (91,254
    )Net increase in cash
    
    
    3,265
    
    
    
    19,091
    
    
    
    2,929Cash and cash equivalents, beginning of year
    
    
    40,605
    
    
    
    21,514
    
    
    
    18,585Cash and cash equivalents, end of year
    
    $
    43,870
    
    
    $
    40,605
    
    
    $
    21,514Supplemental cash flow information:Cash paid (received) during the year for:Income taxes
    
    $
    4,200
    
    
    $
    2,000
    
    
    $
    (26,400
    )Interest
    
    $
    27,600
    
    
    $
    34,400
    
    
    $
    41,100Noncash investing and financing activities:Issuance of common stock to executive officers and directors
    
    $
    612
    
    
    $
    
    
    
    $
    Issuance of restricted stock
    
    $
    35
    
    
    $
    1,090
    
    
    $
    673
  9




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (1) The Company
  (2) Summary of Significant Accounting Policies
 Principles of Consolidation
  Use of Estimates
  Fair Value of Financial Instruments
     10




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (2) Summary of Significant Accounting Policies(Continued)
  Inventories
  Buildings and Equipment
   Preneed Selling Costs
  11




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (2) Summary of Significant Accounting Policies(Continued)
 Goodwill
      Stock-Based Compensation
  12




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (2) Summary of Significant Accounting Policies(Continued)
  Funeral Revenue
       13




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (2) Summary of Significant Accounting Policies(Continued)
  Cemetery Revenue
      14




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (2) Summary of Significant Accounting Policies(Continued)
    Preneed Funeral and Cemetery Merchandise and Services Trusts and Cemetery Perpetual
Care Trusts
    15




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (2) Summary of Significant Accounting Policies(Continued)
    Allowance for Doubtful Accounts
  Income Taxes
  16




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (2) Summary of Significant Accounting Policies(Continued)
     Earnings Per Common Share
  Derivatives
  Estimated Insurance Loss Liabilities
  17




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (2) Summary of Significant Accounting Policies(Continued)
      Dividends
  Leases
  18




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (2) Summary of Significant Accounting Policies(Continued)
 Business Interruption Insurance
  Computer Software
  Out of Period Adjustments
  (1)
    
    The Company overstated deferred revenue by $3,129 primarily at the time of
adoption of Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in
Financial Statements, in fiscal year 2001. The correction of this item resulted in
additional cemetery revenue in the current period ($3,537 was discovered, recorded and
disclosed in the July 31, 2006 Form 10-Q and the offsetting $408 correction was
recorded in the fourth quarter of fiscal year 2006).(2)
    
    The Company understated accounts payable by $4,023 as of October 31, 2005
because the Company failed to accrue for individually immaterial expenses incurred at
the individual funeral home and cemetery locations. The Company protocol was designed
to record expenses for a twelve month period and failed to consider the impact of
period end cutoff ($3,331 million was discovered, recorded and disclosed in the July
31, 2006 Form 10-Q and the remaining $692 correction was recorded in the fourth quarter
of 2006).(3)
    
    The Company misapplied its accounting policies related to the capitalization of
certain fixed assets primarily related to periods prior to 2004 and the depreciable
lives used for certain fixed assets resulting in a total error in net earnings of
$2,023 ($1,333 was discovered, recorded and disclosed in the July 31, 2006 Form 10-Q
and the remaining $690 error was recorded in the fourth quarter of fiscal 2006).(4)
    
    The Company incorrectly calculated its estimate of the reserve for
cancellations of preneed insurance sales. The reserve is recorded to reflect the
estimated effect on commissions recorded for future cancellations of these sales. The
Company determined there was an error in this reserve of $1,100. The correction of
this error resulted in an increase to funeral revenue in the current period.(5)
    
    The Company incorrectly calculated its non-compete amortization. The
correction of this error resulted in an increase to funeral expense of $1,371 and a
decrease in cemetery expense of $862 for a net increase in total expense of $509 in the
current period.(6)
    
    The Company also had miscellaneous adjustments amounting to $38.
 19




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (2) Summary of Significant Accounting Policies(Continued)
  Twelve Months EndedOctober 31, 2006Out of Period AdjustmentsIncrease (Decrease)Revenue:Funeral:Western division
    
    $
    1,083Eastern division
    
    
    514Total funeral revenue
    
    
    1,597Cemetery:Western division
    
    
    636Eastern division
    
    
    611Total cemetery revenue
    
    
    1,247Total revenues
    
    
    2,844Costs and expenses:Funeral:Western division
    
    
    2,471Eastern division
    
    
    3,105Total funeral costs and expenses
    
    
    5,576Cemetery:Western division
    
    
    705Eastern division
    
    
    (972
    )Total cemetery costs and expenses
    
    
    (267
    )Total costs and expenses
    
    
    5,309Gross profit:Funeral:Western division
    
    
    (1,388
    )Eastern division
    
    
    (2,591
    )Total funeral gross profit
    
    
    (3,979
    )Cemetery:Western division
    
    
    (69
    )Eastern division
    
    
    1,583Total cemetery gross profit
    
    
    1,514Total gross profit
    
    
    (2,465
    )Corporate general and administrative expenses
    
    
    (104
    )Operating earnings
    
    
    (2,569
    )Investment and other income, net
    
    
    281Earnings from continuing operations before income taxes
    
    
    (2,288
    )Income taxes
    
    
    (833
    )Net earnings
    
    $
    (1,455
    )
 20




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (2) Summary of Significant Accounting Policies(Continued)
 Reclassifications
     (3) Change in Accounting Principles and New Accounting Principles
 Stock-Based Compensation
   21




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (3) Change in Accounting Principles and New Accounting Principles(Continued)
 Preneed Selling Costs
   Other Accounting Pronouncements
    22




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (3) Change in Accounting Principles and New Accounting Principles(Continued)
    (4) Preneed Funeral Activities
 Preneed Funeral Receivables and Trust Investments
  October 31, 2006
    
    
    October 31, 2005Trust assets
    
    $
    467,326
    
    
    $
    445,721Receivables from customers
    
    
    50,307
    
    
    
    55,900Preneed funeral receivables and trust investments
    
    $
    517,633
    
    
    $
    501,621
  October 31, 2006Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other short-term
investments
    
    $
    49,708
    
    
    $
    
    
    
    $
    
    
    
    $
    49,708U.S. Government, agencies and municipalities
    
    
    14,495
    
    
    
    93
    
    
    
    (135
    )
    
    
    14,453Corporate bonds
    
    
    30,432
    
    
    
    718
    
    
    
    (195
    )
    
    
    30,955Preferred stocks
    
    
    78,334
    
    
    
    751
    
    
    
    (1,125
    )
    
    
    77,960Common stocks
    
    
    219,065
    
    
    
    24,142
    
    
    
    (3,616
    )
    
    
    239,591Mutual funds
    
    
    32,558
    
    
    
    902
    
    
    
    (158
    )
    
    
    33,302Insurance contracts and other long-term
investments
    
    
    19,443
    
    
    
    140
    
    
    
    
    
    
    
    19,583Trust investments
    
    $
    444,035
    
    
    $
    26,746
    
    
    $
    (5,229
    )
    
    $
    465,552Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104.8
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,525Less trust investments of assets held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (751
    )Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    467,326
 23




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (4) Preneed Funeral Activities(Continued)
  October 31, 2006Due in one year or less
    
    $
    2,307Due in one to five years
    
    
    18,943Due in five to ten years
    
    
    23,827Thereafter
    
    
    331$
    45,408
  October 31, 2005Adjusted Cost
    
    
    Unrealized
    
    
    UnrealizedBasis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    52,275
    
    
    $
    
    
    
    $
    
    
    
    $
    52,275U.S. Government, agencies and
municipalities
    
    
    7,421
    
    
    
    52
    
    
    
    (384
    )
    
    
    7,089Corporate bonds
    
    
    19,702
    
    
    
    679
    
    
    
    (566
    )
    
    
    19,815Preferred stocks
    
    
    68,419
    
    
    
    503
    
    
    
    (1,577
    )
    
    
    67,345Common stocks
    
    
    239,970
    
    
    
    13,803
    
    
    
    (9,812
    )
    
    
    243,961Mutual funds
    
    
    30,254
    
    
    
    215
    
    
    
    (247
    )
    
    
    30,222Insurance contracts and other
long-term investments
    
    
    23,190
    
    
    
    351
    
    
    
    
    
    
    
    23,541Trust investments
    
    $
    441,231
    
    
    $
    15,603
    
    
    $
    (12,586
    )
    
    $
    444,248Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100.7
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,096Less trust investments of assets
held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (623
    )Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    445,721
 Year Ended October 31,2006
    
    2005
    
    2004(1)Purchases
    
    $
    149,504
    
    
    $
    221,780
    
    
    $
    28,871Sales
    
    
    159,106
    
    
    
    152,417
    
    
    
    110,433Realized gains
    
    
    19,477
    
    
    
    12,968
    
    
    
    10,159Realized losses on sales
    
    
    (1,718
    )
    
    
    (7,256
    )
    
    
    (11,215
    )Other comprehensive income:Reduction (increase) in net unrealized losses
    
    
    21,517
    
    
    
    3,017
    
    
    
    (5,658
    )Reclassification to non-controlling interest
    
    
    (21,517
    )
    
    
    (3,017
    )
    
    
    5,658
 
 (1)
    
    Represents the six months ended October 31, 2004 as FIN 46R became effective on
April 30, 2004. 24




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (4) Preneed Funeral Activities(Continued)
   October 31, 2006Less than 12 Months
    
    
    12 Months or Greater
    
    
    TotalMarket
    
    
    Unrealized
    
    
    Market
    
    
    Unrealized
    
    
    Market
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S.
Government,
agencies and
municipalities
    
    $
    2,440
    
    
    $
    (16
    )
    
    $
    4,845
    
    
    $
    (119
    )
    
    $
    7,285
    
    
    $
    (135
    )Corporate bonds
    
    
    2,824
    
    
    
    (20
    )
    
    
    5,865
    
    
    
    (175
    )
    
    
    8,689
    
    
    
    (195
    )Preferred stocks
    
    
    4,892
    
    
    
    (242
    )
    
    
    34,909
    
    
    
    (883
    )
    
    
    39,801
    
    
    
    (1,125
    )Common stocks
    
    
    17,869
    
    
    
    (598
    )
    
    
    52,710
    
    
    
    (3,018
    )
    
    
    70,579
    
    
    
    (3,616
    )Mutual funds
    
    
    2,196
    
    
    
    (88
    )
    
    
    2,429
    
    
    
    (70
    )
    
    
    4,625
    
    
    
    (158
    )Total
    
    $
    30,221
    
    
    $
    (964
    )
    
    $
    100,758
    
    
    $
    (4,265
    )
    
    $
    130,979
    
    
    $
    (5,229
    )
 October 31, 2005Less than 12 Months
    
    
    12 Months or Greater
    
    
    TotalMarket
    
    
    Unrealized
    
    
    Market
    
    
    Unrealized
    
    
    Market
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S.
Government,
agencies and
municipalities
    
    $
    5,591
    
    
    $
    (377
    )
    
    $
    100
    
    
    $
    (7
    )
    
    $
    5,691
    
    
    $
    (384
    )Corporate bonds
    
    
    7,023
    
    
    
    (566
    )
    
    
    
    
    
    
    
    
    
    
    7,023
    
    
    
    (566
    )Preferred stocks
    
    
    23,095
    
    
    
    (945
    )
    
    
    13,659
    
    
    
    (632
    )
    
    
    36,754
    
    
    
    (1,577
    )Common stocks
    
    
    60,047
    
    
    
    (3,115
    )
    
    
    59,513
    
    
    
    (6,697
    )
    
    
    119,560
    
    
    
    (9,812
    )Mutual funds
    
    
    8,183
    
    
    
    (117
    )
    
    
    3,877
    
    
    
    (130
    )
    
    
    12,060
    
    
    
    (247
    )Total
    
    $
    103,939
    
    
    $
    (5,120
    )
    
    $
    77,149
    
    
    $
    (7,466
    )
    
    $
    181,088
    
    
    $
    (12,586
    )
 (5) Preneed Cemetery Merchandise and Service Activities
 Preneed Cemetery Receivables and Trust Investments
  October 31, 2006
    
    
    October 31, 2005Trust assets
    
    $
    201,891
    
    
    $
    191,425Receivables from customers
    
    
    56,229
    
    
    
    65,931Preneed cemetery receivables and trust
investments
    
    $
    258,120
    
    
    $
    257,356
  25




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (5) Preneed Cemetery Merchandise and Service Activities(Continued)
  October 31, 2006Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    21,437
    
    
    $
    
    
    
    $
    
    
    
    $
    21,437U.S. Government, agencies and
municipalities
    
    
    13,348
    
    
    
    66
    
    
    
    (78
    )
    
    
    13,336Corporate bonds
    
    
    10,115
    
    
    
    320
    
    
    
    (23
    )
    
    
    10,412Preferred stocks
    
    
    32,926
    
    
    
    280
    
    
    
    (494
    )
    
    
    32,712Common stocks
    
    
    89,091
    
    
    
    9,426
    
    
    
    (2,356
    )
    
    
    96,161Mutual funds
    
    
    25,721
    
    
    
    309
    
    
    
    (3
    )
    
    
    26,027Insurance contracts and other
long-term investments
    
    
    571
    
    
    
    
    
    
    
    (4
    )
    
    
    567Trust investments
    
    $
    193,209
    
    
    $
    10,401
    
    
    $
    (2,958
    )
    
    $
    200,652Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103.8
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,331Less trust investments of assets
held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (92
    )Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    201,891
  October 31, 2006Due in one year or less
    
    $
    5,042Due in one to five
years
    
    
    9,407Due in five to ten
years
    
    
    8,730Thereafter
    
    
    569$
    23,748
  26




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (5) Preneed Cemetery Merchandise and Service Activities(Continued)
 October 31, 2005Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    12,377
    
    
    $
    
    
    
    $
    
    
    
    $
    12,377U.S. Government, agencies and
municipalities
    
    
    10,686
    
    
    
    27
    
    
    
    (76
    )
    
    
    10,637Corporate bonds
    
    
    8,893
    
    
    
    309
    
    
    
    (145
    )
    
    
    9,057Preferred stocks
    
    
    34,319
    
    
    
    296
    
    
    
    (861
    )
    
    
    33,754Common stocks
    
    
    104,999
    
    
    
    5,465
    
    
    
    (5,486
    )
    
    
    104,978Mutual funds
    
    
    19,018
    
    
    
    86
    
    
    
    (47
    )
    
    
    19,057Insurance contracts and other
long-term investments
    
    
    568
    
    
    
    2
    
    
    
    
    
    
    
    570Trust investments
    
    $
    190,860
    
    
    $
    6,185
    
    
    $
    (6,615
    )
    
    $
    190,430Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99.8
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,076Less trust investments of assets
held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (81
    )Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    191,425
 Year Ended October 31,2006
    
    2005
    
    2004(1)Purchases
    
    $
    115,257
    
    
    $
    133,501
    
    
    $
    31,930Sales
    
    
    131,166
    
    
    
    110,342
    
    
    
    52,704Realized gains on sales
    
    
    11,090
    
    
    
    9,260
    
    
    
    5,074Realized losses on sales
    
    
    (1,593
    )
    
    
    (2,997
    )
    
    
    (4,401
    )Other comprehensive income:Reduction (increase) in net unrealized losses
    
    
    7,443
    
    
    
    (430
    )
    
    
    (1,566
    )Reclassification to non-controlling interest
    
    
    (7,443
    )
    
    
    430
    
    
    
    1,566
 
 (1)
    
    Represents the six months ended October 31, 2004 as FIN 46R became effective on
April 30, 2004.   27




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (5) Preneed Cemetery Merchandise and Service Activities(Continued)
 October 31, 2006Less than 12 Months
    
    
    12 Months or Greater
    
    
    TotalMarket
    
    
    Unrealized
    
    
    Market
    
    
    Unrealized
    
    
    Market
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S.
Government,
agencies and
municipalities
    
    $
    7,543
    
    
    $
    (38
    )
    
    $
    1,520
    
    
    $
    (40
    )
    
    $
    9,063
    
    
    $
    (78
    )Corporate bonds
    
    
    745
    
    
    
    (2
    )
    
    
    692
    
    
    
    (21
    )
    
    
    1,437
    
    
    
    (23
    )Preferred stocks
    
    
    552
    
    
    
    (2
    )
    
    
    14,079
    
    
    
    (492
    )
    
    
    14,631
    
    
    
    (494
    )Common stocks
    
    
    5,726
    
    
    
    (162
    )
    
    
    26,406
    
    
    
    (2,194
    )
    
    
    32,132
    
    
    
    (2,356
    )Mutual funds
    
    
    
    
    
    
    
    
    
    
    2,463
    
    
    
    (3
    )
    
    
    2,463
    
    
    
    (3
    )Insurance contracts
and other long-term
investments
    
    
    15
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    (4
    )Total
    
    $
    14,581
    
    
    $
    (208
    )
    
    $
    45,160
    
    
    $
    (2,750
    )
    
    $
    59,741
    
    
    $
    (2,958
    )
 October 31, 2005Less than 12 Months
    
    
    12 Months or Greater
    
    
    TotalMarket
    
    
    Unrealized
    
    
    Market
    
    
    Unrealized
    
    
    Market
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S.
Government,
agencies and
municipalities
    
    $
    8,938
    
    
    $
    (70
    )
    
    $
    52
    
    
    $
    (6
    )
    
    $
    8,990
    
    
    $
    (76
    )Corporate bonds
    
    
    3,044
    
    
    
    (145
    )
    
    
    10
    
    
    
    
    
    
    
    3,054
    
    
    
    (145
    )Preferred stocks
    
    
    12,983
    
    
    
    (568
    )
    
    
    3,208
    
    
    
    (293
    )
    
    
    16,191
    
    
    
    (861
    )Common stocks
    
    
    29,198
    
    
    
    (1,666
    )
    
    
    37,434
    
    
    
    (3,820
    )
    
    
    66,632
    
    
    
    (5,486
    )Mutual funds
    
    
    11,371
    
    
    
    (47
    )
    
    
    
    
    
    
    
    
    
    
    11,371
    
    
    
    (47
    )Total
    
    $
    65,534
    
    
    $
    (2,496
    )
    
    $
    40,704
    
    
    $
    (4,119
    )
    
    $
    106,238
    
    
    $
    (6,615
    )
 (6) Cemetery Interment Rights and Perpetual Care Trusts
   28




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    16,531
    
    
    $
    2
    
    
    $
    (5
    )
    
    $
    16,528U.S. Government, agencies and
municipalities
    
    
    7,833
    
    
    
    45
    
    
    
    (127
    )
    
    
    7,751Corporate bonds
    
    
    24,912
    
    
    
    1,392
    
    
    
    (66
    )
    
    
    26,238Preferred stocks
    
    
    71,603
    
    
    
    1,338
    
    
    
    (1,578
    )
    
    
    71,363Common stocks
    
    
    83,839
    
    
    
    14,135
    
    
    
    (2,603
    )
    
    
    95,371Mutual funds
    
    
    10,681
    
    
    
    574
    
    
    
    (63
    )
    
    
    11,192Insurance contracts and other
long-term investments
    
    
    1,003
    
    
    
    91
    
    
    
    (19
    )
    
    
    1,075Trust investments
    
    $
    216,402
    
    
    $
    17,577
    
    
    $
    (4,461
    )
    
    $
    229,518Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106.1
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    969Less trust investments of assets
held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (284
    )Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    230,203
  October 31, 2006Due in one year or less
    
    $
    1,014Due in one to five
years
    
    
    20,619Due in five to ten
years
    
    
    10,906Thereafter
    
    
    1,450$
    33,989
  Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    20,172
    
    
    $
    
    
    
    $
    
    
    
    $
    20,172U.S. Government, agencies and
municipalities
    
    
    7,077
    
    
    
    36
    
    
    
    (127
    )
    
    
    6,986Corporate bonds
    
    
    18,817
    
    
    
    1,669
    
    
    
    (156
    )
    
    
    20,330Preferred stocks
    
    
    71,168
    
    
    
    642
    
    
    
    (4,187
    )
    
    
    67,623Common stocks
    
    
    87,406
    
    
    
    10,659
    
    
    
    (5,795
    )
    
    
    92,270Mutual funds
    
    
    3,557
    
    
    
    129
    
    
    
    (72
    )
    
    
    3,614Insurance contracts and other
long-term investments
    
    
    1,132
    
    
    
    45
    
    
    
    (26
    )
    
    
    1,151Trust investments
    
    $
    209,329
    
    
    $
    13,180
    
    
    $
    (10,363
    )
    
    $
    212,146Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101.3
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    942Less trust investments of assets
held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (551
    )Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    212,537
 29




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (6) Cemetery Interment Rights and Perpetual Care Trusts(Continued)
 Year Ended October 31,2006
    
    2005
    
    2004(1)Purchases
    
    $
    63,074
    
    
    $
    111,349
    
    
    $
    24,525Sales
    
    
    54,450
    
    
    
    98,774
    
    
    
    25,544Realized gains on sales
    
    
    4,853
    
    
    
    5,578
    
    
    
    1,165Realized losses on sales
    
    
    (3,456
    )
    
    
    (2,017
    )
    
    
    (2,411
    )Other comprehensive income:Reduction in net unrealized losses
    
    
    13,116
    
    
    
    2,817
    
    
    
    7,989Reclassification to non-controlling interest
    
    
    (13,116
    )
    
    
    (2,817
    )
    
    
    (7,989
    )
 
 (1)
    
    Represents the six months ended October 31, 2004 as FIN 46R became effective on
April 30, 2004.    October 31, 2006Less than 12 Months
    
    
    12 Months or Greater
    
    
    TotalMarket
    
    
    Unrealized
    
    
    Market
    
    
    Unrealized
    
    
    Market
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesCash, money
markets and other
short-term
investments
    
    $
    
    
    
    $
    
    
    
    $
    95
    
    
    $
    (5
    )
    
    $
    95
    
    
    $
    (5
    )U.S. Government,
agencies and
municipalities
    
    
    1,875
    
    
    
    (5
    )
    
    
    2,867
    
    
    
    (122
    )
    
    
    4,742
    
    
    
    (127
    )Corporate bonds
    
    
    1,623
    
    
    
    (13
    )
    
    
    1,238
    
    
    
    (53
    )
    
    
    2,861
    
    
    
    (66
    )Preferred stocks
    
    
    5,060
    
    
    
    (118
    )
    
    
    25,264
    
    
    
    (1,460
    )
    
    
    30,324
    
    
    
    (1,578
    )Common stocks
    
    
    1,414
    
    
    
    (114
    )
    
    
    27,243
    
    
    
    (2,489
    )
    
    
    28,657
    
    
    
    (2,603
    )Mutual funds
    
    
    772
    
    
    
    (38
    )
    
    
    642
    
    
    
    (25
    )
    
    
    1,414
    
    
    
    (63
    )Insurance contracts
and other long-term
investments
    
    
    
    
    
    
    
    
    
    
    87
    
    
    
    (19
    )
    
    
    87
    
    
    
    (19
    )Total
    
    $
    10,744
    
    
    $
    (288
    )
    
    $
    57,436
    
    
    $
    (4,173
    )
    
    $
    68,180
    
    
    $
    (4,461
    )
 30




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (6) Cemetery Interment Rights and Perpetual Care Trusts(Continued)
 October 31, 2005Less than 12 Months
    
    
    12 Months or Greater
    
    
    TotalMarket
    
    
    Unrealized
    
    
    Market
    
    
    Unrealized
    
    
    Market
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S.
Government,
agencies and
municipalities
    
    $
    4,148
    
    
    $
    (67
    )
    
    $
    1,334
    
    
    $
    (60
    )
    
    $
    5,482
    
    
    $
    (127
    )Corporate bonds
    
    
    955
    
    
    
    (89
    )
    
    
    810
    
    
    
    (67
    )
    
    
    1,765
    
    
    
    (156
    )Preferred stocks
    
    
    26,636
    
    
    
    (4,022
    )
    
    
    3,993
    
    
    
    (165
    )
    
    
    30,629
    
    
    
    (4,187
    )Common stocks
    
    
    20,636
    
    
    
    (1,618
    )
    
    
    33,768
    
    
    
    (4,177
    )
    
    
    54,404
    
    
    
    (5,795
    )Mutual funds
    
    
    1,002
    
    
    
    (26
    )
    
    
    893
    
    
    
    (46
    )
    
    
    1,895
    
    
    
    (72
    )Insurance contracts
and other long-term
investments
    
    
    460
    
    
    
    (26
    )
    
    
    
    
    
    
    
    
    
    
    460
    
    
    
    (26
    )Total
    
    $
    53,837
    
    
    $
    (5,848
    )
    
    $
    40,798
    
    
    $
    (4,515
    )
    
    $
    94,635
    
    
    $
    (10,363
    )
 (7) Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care Trusts
  Non-controllingNon-controlling Interest
    
    
    
    
    
    
    Interest inPreneed
    
    
    Preneed
    
    
    
    
    
    
    PerpetualFuneral
    
    
    Cemetery
    
    
    Total
    
    
    Care TrustsTrust assets at market value
    
    $
    467,326
    
    
    $
    201,891
    
    
    $
    669,217
    
    
    $
    230,203Less:Pending withdrawals
    
    
    (10,317
    )
    
    
    (5,175
    )
    
    
    (15,492
    )
    
    
    (2,300
    )Pending deposits
    
    
    2,362
    
    
    
    1,520
    
    
    
    3,882
    
    
    
    793Non-controlling interest
    
    $
    459,371
    
    
    $
    198,236
    
    
    $
    657,607
    
    
    $
    228,696
  Non-controllingNon-controlling Interest
    
    
    
    
    
    
    Interest inPreneed
    
    
    Preneed
    
    
    
    
    
    
    PerpetualFuneral
    
    
    Cemetery
    
    
    Total
    
    
    Care TrustsTrust assets at market value
    
    $
    445,721
    
    
    $
    191,425
    
    
    $
    637,146
    
    
    $
    212,537Less:Pending withdrawals
    
    
    (7,868
    )
    
    
    (6,104
    )
    
    
    (13,972
    )
    
    
    (1,866
    )Pending deposits
    
    
    1,648
    
    
    
    1,315
    
    
    
    2,963
    
    
    
    542Non-controlling interest
    
    $
    439,501
    
    
    $
    186,636
    
    
    $
    626,137
    
    
    $
    211,213
 Investment and other income (expense), net
  31




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (7) Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care Trusts(Continued)
 Year EndedOctober 31, 2006
    
    
    October 31, 2005
    
    
    October 31, 2004Non-controlling interest:Realized gains
    
    $
    35,420
    
    
    $
    27,806
    
    
    $
    16,398Realized losses
    
    
    (6,767
    )
    
    
    (12,270
    )
    
    
    (18,027
    )Interest income, dividends and other
ordinary income
    
    
    29,254
    
    
    
    26,393
    
    
    
    11,827Trust expenses and income taxes
    
    
    (12,069
    )
    
    
    (12,020
    )
    
    
    (5,887
    )Net trust investment income
    
    
    45,838
    
    
    
    29,909
    
    
    
    4,311Non-controlling interest in funeral and
cemetery trust investment income
    
    
    (37,761
    )
    
    
    (20,861
    )
    
    
    (3,206
    )Non-controlling interest in perpetual
care trust investment income
    
    
    (8,077
    )
    
    
    (9,048
    )
    
    
    (1,105
    )Total non-controlling interest
    
    
    
    
    
    
    
    
    
    
    Investment and other income, net (1)
    
    
    3,676
    
    
    
    713
    
    
    
    178Total investment and other income, net
    
    $
    3,676
    
    
    $
    713
    
    
    $
    178
 
 (1)
    
    Investment and other income, net is comprised of interest income primarily on the
Companys cash, cash equivalents and marketable securities not held in trust. (8) Marketable Securities and Restricted Investments
  (9) Receivables
 October 31,2006
    
    
    2005Current receivables are summarized as follows:Installment contracts due within one year
    
    $
    35,527
    
    
    $
    32,652Income tax receivables
    
    
    8,800
    
    
    
    17,754Receivable for hurricane related insurance proceeds
    
    
    10,000
    
    
    
    11,031Trade and other receivables
    
    
    16,830
    
    
    
    14,870Funeral receivables
    
    
    11,583
    
    
    
    9,644Allowance for doubtful accounts
    
    
    (6,652
    )
    
    
    (6,785
    )Amounts to be collected for cemetery perpetual care trusts
    
    
    (3,589
    )
    
    
    (3,354
    )Net current receivables
    
    $
    72,499
    
    
    $
    75,812Long-term receivables are summarized as follows:Installment contracts due beyond one year
    
    $
    85,904
    
    
    $
    78,142Income tax receivable
    
    
    8,485
    
    
    
    Allowance for doubtful accounts
    
    
    (10,888
    )
    
    
    (11,350
    )Amounts to be collected for cemetery perpetual care trusts
    
    
    (8,151
    )
    
    
    (7,578
    )Net long-term receivables
    
    $
    75,350
    
    
    $
    59,214
 32




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (9) Receivables(Continued)
   Years ending October 31,2007
    
    $
    72,4992008
    
    
    12,3722009
    
    
    18,8872010
    
    
    12,7612011
    
    
    9,637Thereafter
    
    
    21,693$
    147,849
 (10) Inventories and Cemetery Property
  October 31,2006
    
    
    2005Developed cemetery property
    
    $
    13,274
    
    
    $
    12,573Merchandise and supplies
    
    
    23,084
    
    
    
    21,927$
    36,358
    
    
    $
    34,500
  October 31,2006
    
    
    2005Developed cemetery property
    
    $
    99,248
    
    
    $
    96,702Undeveloped cemetery property
    
    
    271,823
    
    
    
    271,714$
    371,071
    
    
    $
    368,416
  33




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (11)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes
  Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Year Ended October 31, 2006Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Funeral
    
    $
    
    
    
    $
    263,057
    
    
    $
    19,243
    
    
    $
    
    
    
    $
    282,300Cemetery
    
    
    
    
    
    
    217,233
    
    
    
    17,559
    
    
    
    
    
    
    
    234,792
    
    
    
    480,290
    
    
    
    36,802
    
    
    
    
    
    
    
    517,092Costs and expenses:Funeral
    
    
    
    
    
    
    204,364
    
    
    
    12,483
    
    
    
    
    
    
    
    216,847Cemetery
    
    
    
    
    
    
    170,990
    
    
    
    14,361
    
    
    
    
    
    
    
    185,351
    
    
    
    375,354
    
    
    
    26,844
    
    
    
    
    
    
    
    402,198Gross profit
    
    
    
    
    
    
    104,936
    
    
    
    9,958
    
    
    
    
    
    
    
    114,894Corporate general and administrative
expenses
    
    
    (31,739
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,739
    )Hurricane related recoveries (charges), net
    
    
    (127
    )
    
    
    1,755
    
    
    
    
    
    
    
    
    
    
    
    1,628Separation charges
    
    
    (807
    )
    
    
    (184
    )
    
    
    
    
    
    
    
    
    
    
    (991
    )Gains on dispositions and impairment
(losses), net
    
    
    
    
    
    
    (278
    )
    
    
    (75
    )
    
    
    
    
    
    
    (353
    )Other operating income, net
    
    
    36
    
    
    
    974
    
    
    
    298
    
    
    
    
    
    
    
    1,308Operating earnings (loss)
    
    
    (32,637
    )
    
    
    107,203
    
    
    
    10,181
    
    
    
    
    
    
    
    84,747Interest income (expense)
    
    
    9,173
    
    
    
    (36,858
    )
    
    
    (1,948
    )
    
    
    
    
    
    
    (29,633
    )Investment and other income, net
    
    
    3,676
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,676Equity in subsidiaries
    
    
    48,652
    
    
    
    591
    
    
    
    
    
    
    
    (49,243
    )
    
    
    Earnings from continuing operations
before income taxes
    
    
    28,864
    
    
    
    70,936
    
    
    
    8,233
    
    
    
    (49,243
    )
    
    
    58,790Income tax expense (benefit)
    
    
    (8,729
    )
    
    
    23,609
    
    
    
    6,371
    
    
    
    
    
    
    
    21,251Earnings from continuing operations
    
    
    37,593
    
    
    
    47,327
    
    
    
    1,862
    
    
    
    (49,243
    )
    
    
    37,539Discontinued operations:Earnings (loss) from discontinued
operations before income taxes
    
    
    
    
    
    
    (474
    )
    
    
    338
    
    
    
    
    
    
    
    (136
    )Income tax benefit
    
    
    
    
    
    
    (190
    )
    
    
    
    
    
    
    
    
    
    
    (190
    )Earnings (loss) from discontinued
operations
    
    
    
    
    
    
    (284
    )
    
    
    338
    
    
    
    
    
    
    
    54Net earnings
    
    
    37,593
    
    
    
    47,043
    
    
    
    2,200
    
    
    
    (49,243
    )
    
    
    37,593Other comprehensive income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive income
    
    $
    37,593
    
    
    $
    47,043
    
    
    $
    2,200
    
    
    $
    (49,243
    )
    
    $
    37,593
 34




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (11)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes(Continued)
 Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Year Ended October 31, 2005Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Funeral
    
    $
    
    
    
    $
    252,889
    
    
    $
    20,020
    
    
    $
    
    
    
    $
    272,909Cemetery
    
    
    
    
    
    
    196,575
    
    
    
    22,471
    
    
    
    
    
    
    
    219,046
    
    
    
    449,464
    
    
    
    42,491
    
    
    
    
    
    
    
    491,955Costs and expenses:Funeral
    
    
    
    
    
    
    198,652
    
    
    
    12,672
    
    
    
    
    
    
    
    211,324Cemetery
    
    
    
    
    
    
    162,659
    
    
    
    15,902
    
    
    
    
    
    
    
    178,561
    
    
    
    361,311
    
    
    
    28,574
    
    
    
    
    
    
    
    389,885Gross profit
    
    
    
    
    
    
    88,153
    
    
    
    13,917
    
    
    
    
    
    
    
    102,070Corporate general and administrative
expenses
    
    
    (19,440
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,440
    )Hurricane related recoveries (charges), net
    
    
    (2,562
    )
    
    
    (6,804
    )
    
    
    
    
    
    
    
    
    
    
    (9,366
    )Separation charges
    
    
    (1,049
    )
    
    
    (458
    )
    
    
    
    
    
    
    
    
    
    
    (1,507
    )Gains on dispositions and impairment
(losses), net
    
    
    
    
    
    
    888
    
    
    
    346
    
    
    
    
    
    
    
    1,234Other operating income, net
    
    
    187
    
    
    
    728
    
    
    
    500
    
    
    
    
    
    
    
    1,415Operating earnings (loss)
    
    
    (22,864
    )
    
    
    82,507
    
    
    
    14,763
    
    
    
    
    
    
    
    74,406Interest income (expense)
    
    
    53,814
    
    
    
    (75,782
    )
    
    
    (8,492
    )
    
    
    
    
    
    
    (30,460
    )Loss on early extinguishment of debt
    
    
    (32,822
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,822
    )Investment and other income, net
    
    
    713
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    713Equity (loss) in subsidiaries
    
    
    (151,802
    )
    
    
    
    
    
    
    
    
    
    
    151,802
    
    
    
    Earnings (loss) from continuing
operations before income taxes
    
    
    (152,961
    )
    
    
    6,725
    
    
    
    6,271
    
    
    
    151,802
    
    
    
    11,837Income tax expense (benefit)
    
    
    (9,635
    )
    
    
    8,353
    
    
    
    4,496
    
    
    
    
    
    
    
    3,214Earnings (loss) from continuing
operations
    
    
    (143,326
    )
    
    
    (1,628
    )
    
    
    1,775
    
    
    
    151,802
    
    
    
    8,623Discontinued operations:Earnings (loss) from discontinued
operations before income taxes
    
    
    
    
    
    
    (67
    )
    
    
    1,313
    
    
    
    
    
    
    
    1,246Income tax expense
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    15Earnings (loss) from discontinued
operations
    
    
    
    
    
    
    (82
    )
    
    
    1,313
    
    
    
    
    
    
    
    1,231Earnings (loss) before cumulative
effect of change in accounting
principle
    
    
    (143,326
    )
    
    
    (1,710
    )
    
    
    3,088
    
    
    
    151,802
    
    
    
    9,854Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    (145,276
    )
    
    
    (7,904
    )
    
    
    
    
    
    
    (153,180
    )Net loss
    
    
    (143,326
    )
    
    
    (146,986
    )
    
    
    (4,816
    )
    
    
    151,802
    
    
    
    (143,326
    )Other comprehensive income, net
    
    
    330
    
    
    
    
    
    
    
    3
    
    
    
    (3
    )
    
    
    330Comprehensive loss
    
    $
    (142,996
    )
    
    $
    (146,986
    )
    
    $
    (4,813
    )
    
    $
    151,799
    
    
    $
    (142,996
    )
 35




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (11)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes(Continued)
 Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Year Ended October 31, 2004Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Funeral
    
    $
    
    
    
    $
    249,765
    
    
    $
    20,411
    
    
    $
    
    
    
    $
    270,176Cemetery
    
    
    
    
    
    
    198,731
    
    
    
    23,804
    
    
    
    
    
    
    
    222,535
    
    
    
    448,496
    
    
    
    44,215
    
    
    
    
    
    
    
    492,711Costs and expenses:Funeral
    
    
    
    
    
    
    188,761
    
    
    
    12,735
    
    
    
    
    
    
    
    201,496Cemetery
    
    
    
    
    
    
    158,347
    
    
    
    18,040
    
    
    
    
    
    
    
    176,387
    
    
    
    347,108
    
    
    
    30,775
    
    
    
    
    
    
    
    377,883Gross profit
    
    
    
    
    
    
    101,388
    
    
    
    13,440
    
    
    
    
    
    
    
    114,828Corporate general and administrative
expenses
    
    
    (17,097
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,097
    )Separation charges
    
    
    (1,853
    )
    
    
    (1,560
    )
    
    
    (22
    )
    
    
    
    
    
    
    (3,435
    )Gains on dispositions and impairment
(losses), net
    
    
    (300
    )
    
    
    (1,523
    )
    
    
    1,598
    
    
    
    
    
    
    
    (225
    )Other operating income, net
    
    
    160
    
    
    
    1,722
    
    
    
    208
    
    
    
    
    
    
    
    2,090Operating earnings (loss)
    
    
    (19,090
    )
    
    
    100,027
    
    
    
    15,224
    
    
    
    
    
    
    
    96,161Interest income (expense)
    
    
    34,097
    
    
    
    (78,807
    )
    
    
    (2,625
    )
    
    
    
    
    
    
    (47,335
    )Investment and other income, net
    
    
    178
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    178Equity in subsidiaries
    
    
    26,880
    
    
    
    
    
    
    
    
    
    
    
    (26,880
    )
    
    
    Earnings from continuing operations
before income taxes
    
    
    42,065
    
    
    
    21,220
    
    
    
    12,599
    
    
    
    (26,880
    )
    
    
    49,004Income taxes
    
    
    5,373
    
    
    
    8,469
    
    
    
    4,288
    
    
    
    
    
    
    
    18,130Earnings from continuing operations
    
    
    36,692
    
    
    
    12,751
    
    
    
    8,311
    
    
    
    (26,880
    )
    
    
    30,874Discontinued operations:Earnings from discontinued
operations before income taxes
    
    
    
    
    
    
    3,392
    
    
    
    669
    
    
    
    
    
    
    
    4,061Income tax benefit
    
    
    
    
    
    
    (1,757
    )
    
    
    
    
    
    
    
    
    
    
    (1,757
    )Earnings from discontinued operations
    
    
    
    
    
    
    5,149
    
    
    
    669
    
    
    
    
    
    
    
    5,818Net earnings
    
    
    36,692
    
    
    
    17,900
    
    
    
    8,980
    
    
    
    (26,880
    )
    
    
    36,692Other comprehensive income, net
    
    
    1,428
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,428Comprehensive income
    
    $
    38,120
    
    
    $
    17,900
    
    
    $
    8,980
    
    
    $
    (26,880
    )
    
    $
    38,120
 36




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (11)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes(Continued)
 Condensed Consolidating Balance Sheets
 October 31, 2006Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalent investments
    
    $
    39,120
    
    
    $
    3,291
    
    
    $
    1,459
    
    
    $
    
    
    
    $
    43,870Marketable securities
    
    
    
    
    
    
    
    
    
    
    239
    
    
    
    
    
    
    
    239Receivables, net of allowances
    
    
    9,875
    
    
    
    58,942
    
    
    
    3,682
    
    
    
    
    
    
    
    72,499Inventories
    
    
    316
    
    
    
    33,190
    
    
    
    2,852
    
    
    
    
    
    
    
    36,358Prepaid expenses
    
    
    539
    
    
    
    3,598
    
    
    
    2,291
    
    
    
    
    
    
    
    6,428Deferred income taxes, net
    
    
    3,835
    
    
    
    6,667
    
    
    
    
    
    
    
    
    
    
    
    10,502Assets held for sale
    
    
    
    
    
    
    2,793
    
    
    
    
    
    
    
    
    
    
    
    2,793Total current assets
    
    
    53,685
    
    
    
    108,481
    
    
    
    10,523
    
    
    
    
    
    
    
    172,689Receivables due beyond one year, net of
allowances
    
    
    9,139
    
    
    
    47,035
    
    
    
    19,176
    
    
    
    
    
    
    
    75,350Preneed funeral receivables and trust
investments
    
    
    
    
    
    
    506,440
    
    
    
    11,193
    
    
    
    
    
    
    
    517,633Preneed cemetery receivables and trust
investments
    
    
    
    
    
    
    244,656
    
    
    
    13,464
    
    
    
    
    
    
    
    258,120Goodwill
    
    
    
    
    
    
    253,189
    
    
    
    19,787
    
    
    
    
    
    
    
    272,976Cemetery property, at cost
    
    
    
    
    
    
    346,559
    
    
    
    24,512
    
    
    
    
    
    
    
    371,071Property and equipment, at cost
    
    
    37,126
    
    
    
    411,002
    
    
    
    36,690
    
    
    
    
    
    
    
    484,818Less accumulated depreciation
    
    
    21,278
    
    
    
    156,354
    
    
    
    12,277
    
    
    
    
    
    
    
    189,909Net property and equipment
    
    
    15,848
    
    
    
    254,648
    
    
    
    24,413
    
    
    
    
    
    
    
    294,909Deferred income taxes, net
    
    
    6,124
    
    
    
    154,204
    
    
    
    13,658
    
    
    
    
    
    
    
    173,986Cemetery perpetual care trust investments
    
    
    
    
    
    
    230,203
    
    
    
    
    
    
    
    
    
    
    
    230,203Other assets
    
    
    5,312
    
    
    
    7,228
    
    
    
    1,100
    
    
    
    
    
    
    
    13,640Equity in subsidiaries
    
    
    8,551
    
    
    
    5,944
    
    
    
    
    
    
    
    (14,495
    )
    
    
    Total assets
    
    $
    98,659
    
    
    $
    2,158,587
    
    
    $
    137,826
    
    
    $
    (14,495
    )
    
    $
    2,380,577LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    2,839
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,839Accounts payable
    
    
    1,540
    
    
    
    16,579
    
    
    
    1,256
    
    
    
    
    
    
    
    19,375Accrued expenses and other current
liabilities
    
    
    15,197
    
    
    
    48,602
    
    
    
    3,023
    
    
    
    
    
    
    
    66,822Liabilities associated with assets
held for sale
    
    
    
    
    
    
    942
    
    
    
    
    
    
    
    
    
    
    
    942Total current liabilities
    
    
    19,576
    
    
    
    66,123
    
    
    
    4,279
    
    
    
    
    
    
    
    89,978Long-term debt, less current maturities
    
    
    344,020
    
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    374,020Intercompany payables, net
    
    
    (925,163
    )
    
    
    914,429
    
    
    
    10,734
    
    
    
    
    
    
    
    Deferred preneed funeral revenue
    
    
    
    
    
    
    227,306
    
    
    
    47,394
    
    
    
    
    
    
    
    274,700Deferred preneed cemetery revenue
    
    
    
    
    
    
    265,065
    
    
    
    30,924
    
    
    
    
    
    
    
    295,989Non-controlling interest in funeral and
cemetery trusts
    
    
    
    
    
    
    657,607
    
    
    
    
    
    
    
    
    
    
    
    657,607Other long-term liabilities
    
    
    10,386
    
    
    
    2,024
    
    
    
    
    
    
    
    
    
    
    
    12,410Negative equity in subsidiaries
    
    
    202,947
    
    
    
    
    
    
    
    
    
    
    
    (202,947
    )
    
    
    Total liabilities
    
    
    (348,234
    )
    
    
    2,132,554
    
    
    
    123,331
    
    
    
    (202,947
    )
    
    
    1,704,704Non-controlling interest in perpetual
care trusts
    
    
    
    
    
    
    228,696
    
    
    
    
    
    
    
    
    
    
    
    228,696Non-controlling interest in perpetual
care trusts associated with assets held
for sale
    
    
    
    
    
    
    284
    
    
    
    
    
    
    
    
    
    
    
    284Common stock
    
    
    104,963
    
    
    
    426
    
    
    
    52
    
    
    
    (478
    )
    
    
    104,963Other
    
    
    341,933
    
    
    
    (203,373
    )
    
    
    14,446
    
    
    
    188,927
    
    
    
    341,933Accumulated other comprehensive loss
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )
    
    
    3
    
    
    
    (3
    )Total shareholders equity
    
    
    446,893
    
    
    
    (202,947
    )
    
    
    14,495
    
    
    
    188,452
    
    
    
    446,893Total liabilities and shareholders equity
    
    $
    98,659
    
    
    $
    2,158,587
    
    
    $
    137,826
    
    
    $
    (14,495
    )
    
    $
    2,380,577
 37




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (11)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes(Continued)
 Condensed Consolidating Balance Sheets
 October 31, 2005Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalent investments
    
    $
    38,675
    
    
    $
    874
    
    
    $
    1,056
    
    
    $
    
    
    
    $
    40,605Marketable securities
    
    
    
    
    
    
    
    
    
    
    302
    
    
    
    
    
    
    
    302Receivables, net of allowances
    
    
    17,337
    
    
    
    52,924
    
    
    
    5,551
    
    
    
    
    
    
    
    75,812Inventories
    
    
    401
    
    
    
    27,233
    
    
    
    6,866
    
    
    
    
    
    
    
    34,500Prepaid expenses
    
    
    451
    
    
    
    3,378
    
    
    
    163
    
    
    
    
    
    
    
    3,992Deferred income taxes, net
    
    
    7,088
    
    
    
    8,196
    
    
    
    2
    
    
    
    
    
    
    
    15,286Assets held for sale
    
    
    
    
    
    
    3,825
    
    
    
    603
    
    
    
    
    
    
    
    4,428Total current assets
    
    
    63,952
    
    
    
    96,430
    
    
    
    14,543
    
    
    
    
    
    
    
    174,925Receivables due beyond one year, net of
allowances
    
    
    
    
    
    
    40,900
    
    
    
    18,314
    
    
    
    
    
    
    
    59,214Preneed funeral receivables and trust
investments
    
    
    
    
    
    
    490,400
    
    
    
    11,221
    
    
    
    
    
    
    
    501,621Preneed cemetery receivables and trust
investments
    
    
    
    
    
    
    238,946
    
    
    
    18,410
    
    
    
    
    
    
    
    257,356Goodwill
    
    
    
    
    
    
    253,189
    
    
    
    19,787
    
    
    
    
    
    
    
    272,976Cemetery property, at cost
    
    
    
    
    
    
    347,999
    
    
    
    20,417
    
    
    
    
    
    
    
    368,416Property and equipment, at cost
    
    
    35,078
    
    
    
    414,094
    
    
    
    35,817
    
    
    
    
    
    
    
    484,989Less accumulated depreciation
    
    
    19,744
    
    
    
    164,597
    
    
    
    11,038
    
    
    
    
    
    
    
    195,379Net property and equipment
    
    
    15,334
    
    
    
    249,497
    
    
    
    24,779
    
    
    
    
    
    
    
    289,610Deferred income taxes, net
    
    
    9,006
    
    
    
    160,782
    
    
    
    13,615
    
    
    
    
    
    
    
    183,403Cemetery perpetual care trust investments
    
    
    
    
    
    
    212,537
    
    
    
    
    
    
    
    
    
    
    
    212,537Other assets
    
    
    6,447
    
    
    
    8,025
    
    
    
    1,079
    
    
    
    
    
    
    
    15,551Equity in subsidiaries
    
    
    6,942
    
    
    
    5,353
    
    
    
    
    
    
    
    (12,295
    )
    
    
    Total assets
    
    $
    101,681
    
    
    $
    2,104,058
    
    
    $
    142,165
    
    
    $
    (12,295
    )
    
    $
    2,335,609LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    3,168
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,168Accounts payable
    
    
    513
    
    
    
    9,578
    
    
    
    667
    
    
    
    
    
    
    
    10,758Accrued expenses and other current
liabilities
    
    
    15,322
    
    
    
    43,681
    
    
    
    2,961
    
    
    
    
    
    
    
    61,964Liabilities of assets held for sale
    
    
    
    
    
    
    896
    
    
    
    374
    
    
    
    
    
    
    
    1,270Total current liabilities
    
    
    19,003
    
    
    
    54,155
    
    
    
    4,002
    
    
    
    
    
    
    
    77,160Long-term debt, less current maturities
    
    
    376,859
    
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    406,859Intercompany payables, net
    
    
    (992,609
    )
    
    
    968,998
    
    
    
    23,611
    
    
    
    
    
    
    
    Deferred preneed funeral revenue
    
    
    
    
    
    
    237,196
    
    
    
    46,890
    
    
    
    
    
    
    
    284,086Deferred preneed cemetery revenue
    
    
    
    
    
    
    253,341
    
    
    
    25,367
    
    
    
    
    
    
    
    278,708Non-controlling interest in funeral and
cemetery trusts
    
    
    
    
    
    
    626,137
    
    
    
    
    
    
    
    
    
    
    
    626,137Other long-term liabilities
    
    
    8,985
    
    
    
    2,457
    
    
    
    
    
    
    
    
    
    
    
    11,442Negative equity in subsidiaries
    
    
    249,990
    
    
    
    
    
    
    
    
    
    
    
    (249,990
    )
    
    
    Total liabilities
    
    
    (337,772
    )
    
    
    2,142,284
    
    
    
    129,870
    
    
    
    (249,990
    )
    
    
    1,684,392Non-controlling interest in perpetual
care trusts
    
    
    
    
    
    
    211,213
    
    
    
    
    
    
    
    
    
    
    
    211,213Non-controlling interest in perpetual
care trusts associated with assets held
for sale
    
    
    
    
    
    
    551
    
    
    
    
    
    
    
    
    
    
    
    551Common stock
    
    
    108,670
    
    
    
    426
    
    
    
    52
    
    
    
    (478
    )
    
    
    108,670Other
    
    
    330,786
    
    
    
    (250,416
    )
    
    
    12,246
    
    
    
    238,170
    
    
    
    330,786Accumulated other comprehensive loss
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )
    
    
    3
    
    
    
    (3
    )Total shareholders equity
    
    
    439,453
    
    
    
    (249,990
    )
    
    
    12,295
    
    
    
    237,695
    
    
    
    439,453Total liabilities and shareholders equity
    
    $
    101,681
    
    
    $
    2,104,058
    
    
    $
    142,165
    
    
    $
    (12,295
    )
    
    $
    2,335,609
 38




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (11)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes(Continued)
 Condensed Consolidating Statements of Cash Flows
 Year Ended October 31, 2006Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    1,968
    
    
    $
    74,465
    
    
    $
    13,668
    
    
    $
    
    
    
    $
    90,101Cash flows from investing activities:Proceeds from sale of assets, net
    
    
    
    
    
    
    485
    
    
    
    733
    
    
    
    
    
    
    
    1,218Insurance proceeds related to hurricane
damaged properties
    
    
    
    
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    
    6,000Additions to property and equipment
    
    
    (3,583
    )
    
    
    (24,139
    )
    
    
    (1,185
    )
    
    
    
    
    
    
    (28,907
    )Other
    
    
    10
    
    
    
    175
    
    
    
    64
    
    
    
    
    
    
    
    249Net cash used in investing activities
    
    
    (3,573
    )
    
    
    (17,479
    )
    
    
    (388
    )
    
    
    
    
    
    
    (21,440
    )Cash flows from financing activities:Repayments of long-term debt
    
    
    (33,168
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,168
    )Intercompany receivables (payables)
    
    
    67,446
    
    
    
    (54,569
    )
    
    
    (12,877
    )
    
    
    
    
    
    
    Issuance of common stock
    
    
    368
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    368Purchase and retirement of common stock
    
    
    (21,996
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,996
    )Dividends
    
    
    (10,673
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,673
    )Excess tax benefits from share-based
payment arrangements
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11Other
    
    
    62
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62Net cash provided by (used in) financing
activities
    
    
    2,050
    
    
    
    (54,569
    )
    
    
    (12,877
    )
    
    
    
    
    
    
    (65,396
    )Net increase in cash
    
    
    445
    
    
    
    2,417
    
    
    
    403
    
    
    
    
    
    
    
    3,265Cash and cash equivalents, beginning of
period
    
    
    38,675
    
    
    
    874
    
    
    
    1,056
    
    
    
    
    
    
    
    40,605Cash and cash equivalents, end of period
    
    $
    39,120
    
    
    $
    3,291
    
    
    $
    1,459
    
    
    $
    
    
    
    $
    43,870
 39




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (11)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes(Continued)
 Condensed Consolidating Statements of Cash Flows
 Year Ended October 31, 2005Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    19,560
    
    
    $
    15,860
    
    
    $
    17,422
    
    
    $
    
    
    
    $
    52,842Cash flows from investing activities:Proceeds from sales of marketable
securities
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    16Proceeds from sale of assets, net
    
    
    (402
    )
    
    
    7,944
    
    
    
    2,465
    
    
    
    
    
    
    
    10,007Additions to property and equipment
    
    
    (3,734
    )
    
    
    (15,132
    )
    
    
    (3,703
    )
    
    
    
    
    
    
    (22,569
    )Other
    
    
    
    
    
    
    156
    
    
    
    (7
    )
    
    
    
    
    
    
    149Net cash used in investing activities
    
    
    (4,136
    )
    
    
    (7,016
    )
    
    
    (1,245
    )
    
    
    
    
    
    
    (12,397
    )Cash flows from financing activities:Proceeds from long-term debt
    
    
    440,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    440,000Repayments of long-term debt
    
    
    (446,778
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (446,778
    )Intercompany receivables (payables)
    
    
    31,052
    
    
    
    (15,595
    )
    
    
    (15,457
    )
    
    
    
    
    
    
    Debt issue costs
    
    
    (6,257
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,257
    )Issuance of common stock
    
    
    13,602
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,602Purchase and retirement of common
stock
    
    
    (13,685
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,685
    )Dividends
    
    
    (8,183
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,183
    )Other
    
    
    (53
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53
    )Net cash provided by (used in)
financing activities
    
    
    9,698
    
    
    
    (15,595
    )
    
    
    (15,457
    )
    
    
    
    
    
    
    (21,354
    )Net increase (decrease) in cash
    
    
    25,122
    
    
    
    (6,751
    )
    
    
    720
    
    
    
    
    
    
    
    19,091Cash and cash equivalents, beginning of
period
    
    
    13,553
    
    
    
    7,625
    
    
    
    336
    
    
    
    
    
    
    
    21,514Cash and cash equivalents, end of period
    
    $
    38,675
    
    
    $
    874
    
    
    $
    1,056
    
    
    $
    
    
    
    $
    40,605
 40




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (11)
    
    Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes(Continued)
 Condensed Consolidating Statements of Cash Flows
 Year Ended October 31, 2004Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    56,549
    
    
    $
    17,668
    
    
    $
    19,439
    
    
    $
    
    
    
    $
    93,656Cash flows from investing activities:Proceeds from sales of marketable
securities
    
    
    1,121
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,121Proceeds from sale of assets, net
    
    
    (1,474
    )
    
    
    20,549
    
    
    
    700
    
    
    
    
    
    
    
    19,775Additions to property and equipment
    
    
    (4,256
    )
    
    
    (15,489
    )
    
    
    (678
    )
    
    
    
    
    
    
    (20,423
    )Other
    
    
    
    
    
    
    85
    
    
    
    (31
    )
    
    
    
    
    
    
    54Net cash provided by (used in)
investing activities
    
    
    (4,609
    )
    
    
    5,145
    
    
    
    (9
    )
    
    
    
    
    
    
    527Cash flows from financing activities:Repayments of long-term debt
    
    
    (85,310
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (85,310
    )Intercompany receivables (payables)
    
    
    33,892
    
    
    
    (14,710
    )
    
    
    (19,182
    )
    
    
    
    
    
    
    Issuance of common stock
    
    
    13,413
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,413Purchase and retirement of common
stock
    
    
    (19,349
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,349
    )Other
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )Net cash used in financing activities
    
    
    (57,362
    )
    
    
    (14,710
    )
    
    
    (19,182
    )
    
    
    
    
    
    
    (91,254
    )Net increase (decrease) in cash
    
    
    (5,422
    )
    
    
    8,103
    
    
    
    248
    
    
    
    
    
    
    
    2,929Cash and cash equivalents, beginning of
period
    
    
    18,975
    
    
    
    (478
    )
    
    
    88
    
    
    
    
    
    
    
    18,585Cash and cash equivalents, end of period
    
    $
    13,553
    
    
    $
    7,625
    
    
    $
    336
    
    
    $
    
    
    
    $
    21,514
 41




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (12)
    
    Discontinued Operations, Assets Held for Sale and Impairment Charges
      42




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (12)
    
    Discontinued Operations, Assets Held for Sale and Impairment Charges(Continued)
  October 31, 2006
    
    
    October 31, 2005AssetsReceivables, net of allowances
    
    $
    30
    
    
    $
    115Inventories and other current assets
    
    
    31
    
    
    
    80Net property and equipment
    
    
    999
    
    
    
    2,026Preneed funeral receivables and trust investments
    
    
    782
    
    
    
    644Preneed cemetery receivables and trust investments
    
    
    92
    
    
    
    81Other assets
    
    
    416
    
    
    
    603Cemetery property
    
    
    159
    
    
    
    328Cemetery perpetual care trust investments
    
    
    284
    
    
    
    551Assets held for sale
    
    $
    2,793
    
    
    $
    4,428LiabilitiesDeferred preneed funeral revenue
    
    
    14
    
    
    
    378Deferred preneed cemetery revenue
    
    
    86
    
    
    
    188Non-controlling interest in funeral and cemetery trust
    
    
    842
    
    
    
    704Liabilities associated with assets held for sale
    
    $
    942
    
    
    $
    1,270Non-controlling interest in perpetual care trusts
associated with assets held for sale
    
    $
    284
    
    
    $
    551
 Year Ended October 31,2006
    
    
    2005
    
    
    2004Revenue:Funeral
    
    $
    763
    
    
    $
    1,849
    
    
    $
    12,534Cemetery
    
    
    262
    
    
    
    787
    
    
    
    1,527$
    1,025
    
    
    $
    2,636
    
    
    $
    14,061Gross profit:Funeral
    
    $
    (179
    )
    
    $
    (148
    )
    
    $
    844Cemetery
    
    
    9
    
    
    
    221
    
    
    
    568(170
    )
    
    
    73
    
    
    
    1,412Gains on dispositions and impairment (losses), net
    
    
    26
    
    
    
    1,167
    
    
    
    2,447Other operating income, net
    
    
    8
    
    
    
    6
    
    
    
    202Earnings (loss) from discontinued operations
before income taxes
    
    $
    (136
    )
    
    $
    1,246
    
    
    $
    4,061
 (13)
    
    Separation Charges
   43




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (13)
    
    Separation Charges(Continued)
   (14)
    
    Long-term Debt
 October 31, 2006
    
    
    October 31, 2005Long-term debt:Senior secured credit facility:Revolving credit facility
    
    $
    
    
    
    $
    Term Loan B
    
    
    175,904
    
    
    
    208,1026.25% senior notes due 2013
    
    
    200,000
    
    
    
    200,000Other, principally seller
financing of acquired
operations or assumption upon
acquisition, weighted average
interest rates of 3.5% as of
October 31, 2006 and 2005,
respectively, partially
secured by assets of
subsidiaries, with maturities
through 2022
    
    
    955
    
    
    
    1,925Total long-term debt
    
    
    376,859
    
    
    
    410,027Less current maturities
    
    
    2,839
    
    
    
    3,168$
    374,020
    
    
    $
    406,859
    44




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (14)
    
    Long-term Debt(Continued)
    
    
    Maintenance on a rolling four quarter basis of a maximum consolidated leverage ratio
(funded debt (net of domestic cash, cash equivalents and marketable securities) divided by
EBITDA (as defined))  Maximum 3.50x,
    
    Maintenance on a rolling four quarter basis of a minimum consolidated interest coverage
ratio (EBITDA (as defined) divided by interest expense)  Minimum 2.50x, and
    
    Maintenance on a rolling four quarter basis of a maximum consolidated senior secured
leverage ratio (total funded senior secured debt divided by EBITDA (as defined))  Maximum
3.00x with step-downs.
    45




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (14)
    
    Long-term Debt(Continued)
         46




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (14)
    
    Long-term Debt(Continued)
     (15)
    
    Guarantees
    47




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (15)
    
    Guarantees(Continued)
  (16)
    
    Reconciliation of Basic and Diluted Per Share Data
 Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    DataYear Ended October 31, 2006Earnings from continuing operations
    
    $
    37,539Basic earnings per common share:Earnings from continuing operations available to common
shareholders
    
    $
    37,539
    
    
    
    106,855
    
    
    $
    .35Effect of dilutive securities:Time-vest stock options assumed exercised and restricted stock
    
    
    
    
    
    
    45Diluted earnings per common share:Earnings from continuing operations available to common
shareholders plus time-vest stock options assumed exercised
and restricted stock
    
    $
    37,539
    
    
    
    106,900
    
    
    $
    .35
 Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    DataYear Ended October 31, 2005Earnings from continuing operations before cumulative effect of
change of accounting principle
    
    $
    8,623Basic earnings per common share:Earnings from continuing operations before cumulative effect
of change of accounting principle available to common
shareholders
    
    $
    8,623
    
    
    
    109,040
    
    
    $
    .08Effect of dilutive securities:Time-vest stock options assumed exercised and restricted stock
    
    
    
    
    
    
    165Diluted 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
    
    $
    8,623
    
    
    
    109,205
    
    
    $
    .08
 Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    DataYear Ended October 31, 2004Earnings from continuing operations
    
    $
    30,874Basic earnings per common share:Earnings from continuing operations available to common
shareholders
    
    $
    30,874
    
    
    
    107,522
    
    
    $
    .29Effect of dilutive securities:Time-vest stock options assumed exercised and restricted stock
    
    
    
    
    
    
    637Diluted earnings per common share:Earnings from continuing operations available to common
shareholders plus time-vest stock options assumed exercised
and restricted stock
    
    $
    30,874
    
    
    
    108,159
    
    
    $
    .29
 48




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (16)
    
    Reconciliation of Basic and Diluted Per Share Data(Continued)
     (17)
    
    Income Taxes
  Continuing OperationsU.S. andPossessions
    
    
    State
    
    
    TotalsYear Ended October 31,2006:Current tax expense
    
    $
    1,783
    
    
    $
    5,057
    
    
    $
    6,840Deferred tax expense
    
    
    14,251
    
    
    
    160
    
    
    
    14,411$
    16,034
    
    
    $
    5,217
    
    
    $
    21,2512005:Current tax expense
    
    $
    1,790
    
    
    $
    1,952
    
    
    $
    3,742Deferred tax expense (benefit)
    
    
    198
    
    
    
    (726
    )
    
    
    (528
    )$
    1,988
    
    
    $
    1,226
    
    
    $
    3,2142004:Current tax expense
    
    $
    4,394
    
    
    $
    2,590
    
    
    $
    6,984Deferred tax expense
    
    
    10,794
    
    
    
    352
    
    
    
    11,146$
    15,188
    
    
    $
    2,942
    
    
    $
    18,130
 49




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (17) Income Taxes  (Continued)
 Discontinued OperationsU.S. andPossessions
    
    
    State
    
    
    TotalsYear Ended October 31,2006:Current tax benefit
    
    $
    (56
    )
    
    $
    (4
    )
    
    $
    (60
    )Deferred tax benefit
    
    
    (130
    )
    
    
    
    
    
    
    (130
    )$
    (186
    )
    
    $
    (4
    )
    
    $
    (190
    )2005:Current tax expense
    
    $
    27
    
    
    $
    3
    
    
    $
    30Deferred tax benefit
    
    
    (15
    )
    
    
    
    
    
    
    (15
    )$
    12
    
    
    $
    3
    
    
    $
    152004:Current tax expense
    
    $
    595
    
    
    $
    26
    
    
    $
    621Deferred tax expense (benefit)
    
    
    (2,398
    )
    
    
    20
    
    
    
    (2,378
    )$
    (1,803
    )
    
    $
    46
    
    
    $
    (1,757
    )
  Year Ended October 31,2006
    
    2005
    
    2004Statutory tax rate
    
    
    35.00
    %
    
    
    35.00
    %
    
    
    35.00
    %Increases (reductions) in tax rate resulting from:State income tax
    
    
    4.66
    
    
    
    6.71
    
    
    
    3.90U.S. possession income tax
    
    
    2.48
    
    
    
    6.31
    
    
    
    1.77Nondeductible expenses and other
    
    
    .27
    
    
    
    6.41
    
    
    
    .59Dividend exclusion
    
    
    (3.47
    )
    
    
    (20.40
    )
    
    
    (2.39
    )Basis adjustment on sale of businesses
    
    
    
    
    
    
    (2.48
    )
    
    
    .11Valuation allowance
    
    
    .86
    
    
    
    
    
    
    
    (1.98
    )Work opportunity tax credit
    
    
    (.20
    )
    
    
    (4.40
    )
    
    
    Settlement of federal tax audit
    
    
    (3.45
    )
    
    
    
    
    
    
    Effective tax rate
    
    
    36.15
    %
    
    
    27.15
    %
    
    
    37.00
    %
 50




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (17) Income Taxes  (Continued)
  October 31,2006
    
    
    2005Deferred tax assets:Accrued expenses
    
    $
    6,204
    
    
    $
    6,870Allowance for sales cancellations and doubtful accounts
    
    
    6,242
    
    
    
    5,634Capital loss carryover (1)
    
    
    5,271
    
    
    
    10,360Deductible foreign taxes (2)
    
    
    
    
    
    
    2,918Deductible Texas taxes related to Texas audits
    
    
    704
    
    
    
    Deferred preneed sales and expenses
    
    
    206,974
    
    
    
    202,061Deferred compensation
    
    
    3,731
    
    
    
    3,266Foreign tax credit
    
    
    
    
    
    
    1,778Inventory writedown
    
    
    1,050
    
    
    
    1,068Lease obligations
    
    
    631
    
    
    
    730Loss on worthless stock
    
    
    4,546
    
    
    
    4,546Loss on impairment of assets held for sale
    
    
    
    
    
    
    1,777Net operating loss carryover (3)
    
    
    
    
    
    
    6,404Non-compete amortization
    
    
    3,519
    
    
    
    4,535Other
    
    
    686
    
    
    
    686Share-based compensation
    
    
    573
    
    
    
    State income taxes (4)
    
    
    33,143
    
    
    
    33,329U.S. possession income tax (5)
    
    
    17,105
    
    
    
    14,657290,379
    
    
    
    300,619Valuation allowance (6)
    
    
    (10,457
    )
    
    
    (10,220
    )279,922
    
    
    
    290,399Deferred tax liabilities:Depreciation
    
    
    1,857
    
    
    
    2,755Goodwill amortization
    
    
    23,114
    
    
    
    18,725Partnership interest
    
    
    2,037
    
    
    
    2,037Purchase accounting adjustments
    
    
    68,426
    
    
    
    68,19395,434
    
    
    
    91,710$
    184,488
    
    
    $
    198,689Current net deferred asset
    
    $
    10,502
    
    
    $
    15,286Long-term net deferred asset
    
    
    173,986
    
    
    
    183,403$
    184,488
    
    
    $
    198,689
 
 (1)
    
    This tax benefit of $5,271 is calculated on a gross capital loss carryover of
$15,060, of which, $10,647 is available until the end of fiscal year 2007, and $4,413 is
available until the end of fiscal year 2009.(2)
    
    In the fourth quarter of fiscal year 2006, the Company decided it would amend its
federal income tax return in prior years to deduct foreign tax payments previously carried
forward which will generate an expected tax benefit of $2,542. As a result of electing to
treat the foreign taxes as a deduction in the prior years returns, the Company will reduce
taxable income and generate a tax refund which has been recorded in taxes receivable.(3)
    
    The Company fully utilized its federal net operating loss carryover in 2006.(4)
    
    A significant component of this balance is a gross state net operating loss
carryover of approximately $198,816 ($10,252 net of a federal benefit). This loss is not
concentrated in any one state, but instead, is widespread in states whose carryover period
averages from 15 to 20 years. The first substantial amount subject to expiration 51




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (17) Income Taxes(Continued)
 
 is $2,991, which will expire in 2009. A valuation allowance of $313 was recorded in fiscal year
2006 for the entire loss carryover in two instances where the ability to generate future income
before the expiration period is uncertain.(5)
    
    This U.S. possession is Puerto Rico. A significant component of this balance is a
net operating loss carry-forward of $8,699 ($2,205 net of a federal benefit). Puerto Ricos
allowable carry-forward period is 7 years from the date incurred. In 2006 $1,378 was added to
the valuation allowance on this carry-over amount which will partially expire in 2010 and
fully expire in 2013. As a result, this net operating loss is fully reserved at the end of
2006.(6)
    
    This valuation allowance of $10,457 is attributable to the following deferred tax
assets at the end of fiscal 2006: $3,393 against the capital loss carryover, $4,546 against
potential worthless stock deductions attributable to the Companys tax basis in the stock of
unliquidated subsidiaries, $2,205 for net operating loss carryforwards for U.S. possessions
and $313 for net operating loss carryforwards for certain states.    .
  52




---



##### 



STEWART ENTERPRISES, INC.  AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Dollars in thousands, except per share amounts)
 (17) Income Taxes(Continued)
        (18) Benefit Plans
 Stewart Enterprises Employees Retirement Trust
  53




---



##### 



STEWART ENTERPRISES, INC.  AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Dollars in thousands, except per share amounts)
 (18) Benefit Plans  (Continued)
  Stewart Enterprises Puerto Rico Employees Retirement Trust
  Non-qualified Supplemental Retirement and Deferred Compensation Plan
  Supplemental Executive Retirement Plan
  1995 Incentive Compensation Plan
  54




---



##### 



STEWART ENTERPRISES, INC.  AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Dollars in thousands, except per share amounts)
 (18) Benefit Plans  (Continued)
          55




---



##### 



STEWART ENTERPRISES, INC.  AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Dollars in thousands, except per share amounts)
 (18) Benefit Plans  (Continued)
    2000 Incentive Compensation Plan
   Directors Stock Option Plan
  2000 Directors Stock Option Plan
  56




---



##### 



STEWART ENTERPRISES, INC.  AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Dollars in thousands, except per share amounts)
 (18) Benefit Plans  (Continued)
  2005 Directors Stock Plan
  Employee Stock Purchase Plan
  Stock-Based Compensation
   57




---



##### 



STEWART ENTERPRISES, INC.  AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Dollars in thousands, except per share amounts)
 (18) Benefit Plans  (Continued)
 2006
    
    2005
    
    2004Number of
    
    Weighted
    
    Number of
    
    Weighted
    
    Number of
    
    WeightedShares
    
    Average
    
    Shares
    
    Average
    
    Shares
    
    AverageUnderlying
    
    Exercise
    
    Underlying
    
    Exercise
    
    Underlying
    
    ExerciseOptions
    
    Prices
    
    Options
    
    Prices
    
    Options
    
    PricesOutstanding at beginning of year
    
    
    1,468,734
    
    
    $
    6.62
    
    
    
    3,521,393
    
    
    $
    5.26
    
    
    
    6,787,624
    
    
    $
    7.09Granted
    
    
    473,060
    
    
    $
    5.37
    
    
    
    1,182,100
    
    
    $
    6.96
    
    
    
    923,083
    
    
    $
    5.48Exercised
    
    
    (33,334
    )
    
    $
    5.44
    
    
    
    (2,982,460
    )
    
    $
    5.16
    
    
    
    (2,974,461
    )
    
    $
    5.07Forfeited
    
    
    (467,166
    )
    
    $
    6.89
    
    
    
    (252,299
    )
    
    $
    6.57
    
    
    
    (1,214,853
    )
    
    $
    16.08Outstanding at end of year
    
    
    1,441,294
    
    
    $
    6.15
    
    
    
    1,468,734
    
    
    $
    6.62
    
    
    
    3,521,393
    
    
    $
    5.26Exercisable at end of year
    
    
    645,665
    
    
    $
    6.10
    
    
    
    233,338
    
    
    $
    5.44
    
    
    
    3,288,062
    
    
    $
    5.25Weighted-average fair value of
options granted
    
    
    
    
    
    $
    2.27
    
    
    
    
    
    
    $
    4.06
    
    
    
    
    
    
    $
    2.22
 Year Ended October 31, 2006Aggregate Intrinsic ValueOptions outstanding as of October 31, 2006
    
    $
    575Options exercisable as of October 31, 2006
    
    $
    282Options exercised during 2006
    
    $
    13
  Options Outstanding
    
    
    Options ExercisableNumber
    
    
    Weighted
    
    
    
    
    
    
    Number
    
    
    WeightedOutstanding
    
    
    Average
    
    
    Weighted
    
    
    Exercisable
    
    
    Average
    
    
    WeightedRange of
    
    at
    
    
    Remaining
    
    
    Average
    
    
    at
    
    
    Remaining
    
    
    AverageExercise Prices
    
    10/31/2006
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    10/31/2006
    
    
    Contractual Life
    
    
    Exercise Price$5.06
    
    
    254,500
    
    
    6.08 years
    
    $
    5.06
    
    
    
    63,621
    
    
    6.08 years
    
    $
    5.06$5.35
    
    
    31,750
    
    
    6.64 years
    
    $
    5.35
    
    
    
    
    
    
    
    
    
    
    $
    $5.44
    
    
    283,334
    
    
    7.14 years
    
    $
    5.44
    
    
    
    283,334
    
    
    7.14 years
    
    $
    5.44$5.86
    
    
    12,739
    
    
    6.08 years
    
    $
    5.86
    
    
    
    3,185
    
    
    6.08 years
    
    $
    5.86$5.86
    
    
    154,821
    
    
    6.53 years
    
    $
    5.86
    
    
    
    
    
    
    
    
    
    
    $
    $6.90
    
    
    560,400
    
    
    5.14 years
    
    $
    6.90
    
    
    
    151,775
    
    
    5.14 years
    
    $
    6.90$7.03
    
    
    143,750
    
    
    5.05 years
    
    $
    7.03
    
    
    
    143,750
    
    
    5.05 years
    
    $
    7.03$5.06 to $7.03
    
    
    1,441,294
    
    
    5.88 years
    
    $
    6.15
    
    
    
    645,665
    
    
    6.10 years
    
    $
    6.10
 Weighted AverageYear Ended
    
    Grant-DateOctober 31, 2006
    
    Fair ValueNonvested options as of November 1, 2005
    
    
    1,235,396
    
    
    $
    3.92Granted
    
    
    473,060
    
    
    $
    2.27Vested
    
    
    (445,661
    )
    
    $
    3.46Forfeited
    
    
    (467,166
    )
    
    $
    3.95Nonvested options as of October 31, 2006
    
    
    795,629
    
    
    $
    3.18
  58




---



##### 



STEWART ENTERPRISES, INC.  AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Dollars in thousands, except per share amounts)
 (18) Benefit Plans  (Continued)
   Year Ended October 31,2005
    
    
    2004Net earnings (loss)
    
    $
    (143,326
    )
    
    $
    36,692Stock-based employee compensation
expense included in reported net
earnings, net of tax
    
    
    440
    
    
    
    403Stock-based employee compensation
expense determined under fair
value-based method, net of tax
    
    
    (1,696
    )
    
    
    (1,870
    )Pro forma net earnings (loss)
    
    $
    (144,582
    )
    
    $
    35,225Net earnings (loss) per common share:Basic  as reported
    
    $
    (1.31
    )
    
    $
    .34Basic  pro forma
    
    $
    (1.32
    )
    
    $
    .33Diluted  as reported
    
    $
    (1.31
    )
    
    $
    .34Diluted  pro forma
    
    $
    (1.32
    )
    
    $
    .33
 Stock Repurchase Plan
  Restricted Stock
  59




---



##### 



STEWART ENTERPRISES, INC.  AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Dollars in thousands, except per share amounts)
 (18) Benefit Plans  (Continued)
 2006(1)
    
    2005(2)
    
    2004(3)Nonvested restricted stock at beginning of year
    
    
    190,866
    
    
    
    160,334
    
    
    
    Granted
    
    
    31,998
    
    
    
    166,500
    
    
    
    271,000Vested
    
    
    (125,466
    )
    
    
    (125,335
    )
    
    
    Forfeited
    
    
    
    
    
    
    (10,633
    )
    
    
    (110,666
    )Nonvested restricted stock at end of year
    
    
    97,398
    
    
    
    190,866
    
    
    
    160,334
 
 (1)
    
    On May 11, 2006, the Company granted 31,998 shares of restricted stock to certain
executive officers, which vest in equal 25 percent portions on May 11, 2007, 2008, 2009 and
2010.(2)
    
    On November 18, 2004, the Company granted 72,000 shares of restricted stock to an
executive officer of which no shares have been cancelled as of October 31, 2006 and 16,872
shares were withheld to cover the tax obligation related to the vested restricted stock as of
October 31, 2006. The restricted stock vested 25 percent on November 18, 2005, and became
fully vested on June 30, 2006. On December 20, 2004, the Company granted 58,000 shares of
restricted stock to executive officers. The restricted stock vests 25 percent on December 20,
2005, 25 percent on December 20, 2006 and 50 percent on December 20, 2007. On December 20,
2004, the Company also granted 36,500 shares of restricted stock to executive officers, which
vest in equal 25 percent portions on December 20, 2005, 2006, 2007 and 2008 of which 7,300
shares have been cancelled as of October 31, 2006.(3)
    
    On December 22, 2003, the Company granted 271,000 shares of restricted stock to its
executive officers of which 113,999 shares have been cancelled as of October 31, 2006 and
37,454 shares were withheld to cover the tax obligation related to the vested restricted stock
as of October 31, 2006. The restricted stock vested in equal one-third portions at October
31, 2004, October 31, 2005 and October 31, 2006. Other
  (19) Commitments, Contingencies and Related Party Transactions
 Litigation
 Henrietta Torres and Teresa Fiore, on behalf of themselves and all others similarly situated
and the General Public v. Stewart Enterprises, Inc., et al
   60




---



##### 



STEWART ENTERPRISES, INC.  AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Dollars in thousands, except per share amounts)
 (19) Commitments, Contingencies and Related Party Transactions  (Continued)
    Funeral Consumers Alliance, Inc., et al. v. Service Corporation International, Alderwoods
Group, Inc., Stewart Enterprises, Inc., Hillenbrand Industries, Inc., and Batesville Casket Co.
     Ralph Lee Fancher, on behalf of himself and all others similarly
situated v. Service Corporation International, Alderwoods Group, Inc., Stewart Enterprises, Inc.,
Hillenbrand Industries, Inc., Aurora Casket Co., York Group, Inc., and Batesville Casket Co., ,
 61




---



##### 



STEWART ENTERPRISES, INC.  AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Dollars in thousands, except per share amounts)
 (19) Commitments, Contingencies and Related Party Transactions  (Continued)
  Pioneer Valley Casket Co., Inc., et al. v. Service Corporation International, Alderwoods
Group, Inc., Stewart Enterprises, Inc., Hillenbrand Industries, Inc., and Batesville Casket Co.,
    In Re: State Attorney General Civil Investigative Demands
 Other Litigation
   Securities and Exchange Commission Investigation
  62




---



##### 



STEWART ENTERPRISES, INC.  AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Dollars in thousands, except per share amounts)
 (19) Commitments, Contingencies and Related Party Transactions  (Continued)
  Leases
  Other Commitments and Contingencies
   Related Party Transactions
    63




---



##### 



STEWART ENTERPRISES, INC.  AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Dollars in thousands, except per share amounts)
 (19) Commitments, Contingencies and Related Party Transactions  (Continued)
   (20) Segment Data
      64




---



##### 



STEWART ENTERPRISES, INC.  AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Dollars in thousands, except per share amounts)
 (20) Segment Data  (Continued)
         Funeral Revenue
    
    
    Cemetery Revenue(1)
    
    
    Total Revenue2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Eastern Division
    
    $
    116,992
    
    
    $
    113,854
    
    
    $
    108,110
    
    
    $
    136,862
    
    
    $
    127,510
    
    
    $
    121,978
    
    
    $
    253,854
    
    
    $
    241,364
    
    
    $
    230,088Western Division
    
    
    147,449
    
    
    
    140,171
    
    
    
    143,378
    
    
    
    88,570
    
    
    
    80,342
    
    
    
    89,925
    
    
    
    236,019
    
    
    
    220,513
    
    
    
    233,303Corporate Trust
Management
(2)
    
    
    17,859
    
    
    
    18,884
    
    
    
    18,688
    
    
    
    9,360
    
    
    
    11,194
    
    
    
    10,632
    
    
    
    27,219
    
    
    
    30,078
    
    
    
    29,320Total
    
    $
    282,300
    
    
    $
    272,909
    
    
    $
    270,176
    
    
    $
    234,792
    
    
    $
    219,046
    
    
    $
    222,535
    
    
    $
    517,092
    
    
    $
    491,955
    
    
    $
    492,711
 65




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (20) Segment Data(Continued)
 Funeral Gross Profit
    
    
    Cemetery Gross Profit(1)
    
    
    Total Gross Profit2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Eastern Division
    
    $
    18,412
    
    
    $
    18,616
    
    
    $
    19,190
    
    
    $
    24,005
    
    
    $
    15,685
    
    
    $
    16,915
    
    
    $
    42,417
    
    
    $
    34,301
    
    
    $
    36,105Western Division
    
    
    29,730
    
    
    
    24,602
    
    
    
    31,341
    
    
    
    16,567
    
    
    
    14,059
    
    
    
    19,186
    
    
    
    46,297
    
    
    
    38,661
    
    
    
    50,527Corporate Trust
Management
(2)
    
    
    17,311
    
    
    
    18,367
    
    
    
    18,149
    
    
    
    8,869
    
    
    
    10,741
    
    
    
    10,047
    
    
    
    26,180
    
    
    
    29,108
    
    
    
    28,196Total
    
    $
    65,453
    
    
    $
    61,585
    
    
    $
    68,680
    
    
    $
    49,441
    
    
    $
    40,485
    
    
    $
    46,148
    
    
    $
    114,894
    
    
    $
    102,070
    
    
    $
    114,828
 Net Preneed Funeral
    
    
    Net Preneed Cemetery
    
    
    Net Total PreneedMerchandise and Service Sales(3)
    
    
    Merchandise and Service Sales(3)
    
    
    Merchandise and Service Sales(3)2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Eastern Division
    
    $
    47,209
    
    
    $
    42,982
    
    
    $
    40,065
    
    
    $
    42,129
    
    
    $
    42,385
    
    
    $
    44,293
    
    
    $
    89,338
    
    
    $
    85,367
    
    
    $
    84,358Western Division
    
    
    56,797
    
    
    
    49,670
    
    
    
    48,172
    
    
    
    18,034
    
    
    
    16,788
    
    
    
    18,013
    
    
    
    74,831
    
    
    
    66,458
    
    
    
    66,185Total
    
    $
    104,006
    
    
    $
    92,652
    
    
    $
    88,237
    
    
    $
    60,163
    
    
    $
    59,173
    
    
    $
    62,306
    
    
    $
    164,169
    
    
    $
    151,825
    
    
    $
    150,543
 Depreciation and Amortization
    
    
    Depreciation and Amortization
    
    
    Depreciation and AmortizationFuneral
    
    
    Cemetery
    
    
    Total2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Eastern Division
    
    $
    7,615
    
    
    $
    7,590
    
    
    $
    12,984
    
    
    $
    3,340
    
    
    $
    3,871
    
    
    $
    12,063
    
    
    $
    10,955
    
    
    $
    11,461
    
    
    $
    25,047Western Division
    
    
    6,702
    
    
    
    7,011
    
    
    
    14,551
    
    
    
    2,504
    
    
    
    2,590
    
    
    
    7,862
    
    
    
    9,206
    
    
    
    9,601
    
    
    
    22,413Reconciling Items
(4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,505
    
    
    
    4,647
    
    
    
    10,120Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    25,666
    
    
    $
    25,709
    
    
    $
    57,580
 Additions to Long-Lived Assets
    
    
    Additions to Long-Lived Assets
    
    
    Additions to Long-Lived AssetsFuneral(5)
    
    
    Cemetery(5)
    
    
    Total(5)2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Eastern Division
    
    $
    3,740
    
    
    $
    5,896
    
    
    $
    4,380
    
    
    $
    8,602
    
    
    $
    8,968
    
    
    $
    9,153
    
    
    $
    12,342
    
    
    $
    14,864
    
    
    $
    13,533Western Division
    
    
    11,285
    
    
    
    6,354
    
    
    
    5,249
    
    
    
    10,526
    
    
    
    5,831
    
    
    
    6,527
    
    
    
    21,811
    
    
    
    12,185
    
    
    
    11,776Reconciling Items (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,329
    
    
    
    6,428
    
    
    
    5,405Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    39,482
    
    
    $
    33,477
    
    
    $
    30,714
 Total Funeral Assets
    
    
    Total Cemetery Assets
    
    
    Total Assets2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Eastern Division
    
    $
    261,033
    
    
    $
    273,387
    
    
    $
    652,228
    
    
    $
    675,727
    
    
    $
    913,261
    
    
    $
    949,114Western Division
    
    
    310,820
    
    
    
    272,025
    
    
    
    387,932
    
    
    
    359,247
    
    
    
    698,752
    
    
    
    631,272Corporate Trust Management
    
    
    468,077
    
    
    
    446,344
    
    
    
    201,983
    
    
    
    191,506
    
    
    
    670,060
    
    
    
    637,850Reconciling Items (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,504
    
    
    
    117,373Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,380,577
    
    
    $
    2,335,609
 Funeral Goodwill
    
    
    Cemetery Goodwill
    
    
    Total Goodwill2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Eastern Division
    
    $
    89,374
    
    
    $
    89,374
    
    
    $
    25,965
    
    
    $
    25,965
    
    
    $
    115,339
    
    
    $
    115,339Western Division
    
    
    108,690
    
    
    
    108,690
    
    
    
    48,947
    
    
    
    48,947
    
    
    
    157,637
    
    
    
    157,637Total
    
    $
    198,064
    
    
    $
    198,064
    
    
    $
    74,912
    
    
    $
    74,912
    
    
    $
    272,976
    
    
    $
    272,976
 Assets held for Sale-Funeral
    
    
    Assets held for Sale-Cemetery
    
    
    Assets held for Sale-Total2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Eastern Division
    
    $
    1,025
    
    
    $
    1,634
    
    
    $
    775
    
    
    $
    1,000
    
    
    $
    1,800
    
    
    $
    2,634Western Division
    
    
    993
    
    
    
    1,537
    
    
    
    
    
    
    
    257
    
    
    
    993
    
    
    
    1,794Total
    
    $
    2,018
    
    
    $
    3,171
    
    
    $
    775
    
    
    $
    1,257
    
    
    $
    2,793
    
    
    $
    4,428
 
 (1)
    
    Perpetual care trust earnings of $10,121, $8,175 and $6,375 for fiscal years
2006, 2005 and 2004, respectively, are included in the revenue and gross profit data of the
related geographic segment. 66




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (20) Segment Data(Continued)
 
 (2)
    
    Corporate trust management consists of the 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 2006, 2005 and 2004 were $5,528, $5,383 and $5,543, respectively, and
funeral trust earnings recognized with respect to preneed contracts delivered included in
funeral revenue for 2006, 2005 and 2004 were $12,331, $13,501 and $13,145, respectively.
Trust management fees included in cemetery revenue for 2006, 2005 and 2004 were $4,894, $4,945
and $4,731, respectively, and cemetery trust earnings recognized with respect to preneed
contracts delivered included in cemetery revenue for 2006, 2005 and 2004 were $4,466, $6,249
and $5,901, respectively.(3)
    
    Preneed sales amounts represent total preneed funeral and cemetery service and
merchandise sales generated in the applicable period, net of cancellations.(4)
    
    Reconciling items consist of unallocated corporate assets, depreciation and
amortization on unallocated corporate assets and additions to corporate long-lived assets.(5)
    
    Long-lived assets include cemetery property and net property and equipment.  Year Ended October 31,2006
    
    
    2005
    
    
    2004Gross profit for reportable segments
    
    $
    114,894
    
    
    $
    102,070
    
    
    $
    114,828Corporate general and administrative expenses
    
    
    (31,739
    )
    
    
    (19,440
    )
    
    
    (17,097
    )Hurricane related recoveries (charges), net
    
    
    1,628
    
    
    
    (9,366
    )
    
    
    Separation charges
    
    
    (991
    )
    
    
    (1,507
    )
    
    
    (3,435
    )Gains on dispositions and impairment (losses), net
    
    
    (353
    )
    
    
    1,234
    
    
    
    (225
    )Other operating income, net
    
    
    1,308
    
    
    
    1,415
    
    
    
    2,090Interest expense
    
    
    (29,633
    )
    
    
    (30,460
    )
    
    
    (47,335
    )Loss on early extinguishment of debt
    
    
    
    
    
    
    (32,822
    )
    
    
    Investment and other income, net
    
    
    3,676
    
    
    
    713
    
    
    
    178Earnings from continuing operations before income
taxes and cumulative effect of change in
accounting principle
    
    $
    58,790
    
    
    $
    11,837
    
    
    $
    49,004
 67




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (21) Supplementary Information
  Year Ended October 31,2006
    
    
    2005
    
    
    2004Service revenueFuneral
    
    $
    165,608
    
    
    $
    155,037
    
    
    $
    150,827Cemetery
    
    
    62,733
    
    
    
    58,130
    
    
    
    56,577228,341
    
    
    
    213,167
    
    
    
    207,404Merchandise revenueFuneral
    
    
    108,584
    
    
    
    109,908
    
    
    
    110,390Cemetery
    
    
    155,903
    
    
    
    145,417
    
    
    
    148,832264,487
    
    
    
    255,325
    
    
    
    259,222Other revenueFuneral
    
    
    8,108
    
    
    
    7,964
    
    
    
    8,959Cemetery
    
    
    16,156
    
    
    
    15,499
    
    
    
    17,12624,264
    
    
    
    23,463
    
    
    
    26,085Total revenue
    
    $
    517,092
    
    
    $
    491,955
    
    
    $
    492,711Service costsFuneral
    
    $
    56,399
    
    
    $
    51,561
    
    
    $
    58,309Cemetery
    
    
    42,358
    
    
    
    40,641
    
    
    
    38,53298,757
    
    
    
    92,202
    
    
    
    96,841Merchandise costsFuneral
    
    
    65,738
    
    
    
    67,016
    
    
    
    50,751Cemetery
    
    
    90,631
    
    
    
    86,607
    
    
    
    85,430156,369
    
    
    
    153,623
    
    
    
    136,181General and administrative expensesFuneral
    
    
    94,710
    
    
    
    92,747
    
    
    
    92,436Cemetery
    
    
    52,362
    
    
    
    51,313
    
    
    
    52,425147,072
    
    
    
    144,060
    
    
    
    144,861Total costs
    
    $
    402,198
    
    
    $
    389,885
    
    
    $
    377,883
  (22) Hurricane Related Charges
  68




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (22) Hurricane Related Charges(Continued)
      69




---



##### 

\

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (22) Hurricane Related Charges(Continued)
  (23) Quarterly Financial Data (Unaudited)
  First
    
    Second
    
    Third
    
    FourthYear Ended October 31, 2006(1)Revenues
    
    $
    125,976
    
    
    $
    130,798
    
    
    $
    129,286
    
    
    $
    131,032Gross profit
    
    
    29,113
    
    
    
    31,958
    
    
    
    25,458
    
    
    
    28,365Net earnings
    
    
    8,389
    
    
    
    11,447
    
    
    
    7,334
    
    
    
    10,423Net earnings per common share:Basic
    
    
    .08
    
    
    
    .11
    
    
    
    .07
    
    
    
    .10Diluted
    
    
    .08
    
    
    
    .11
    
    
    
    .07
    
    
    
    .10
 First
    
    Second
    
    Third
    
    FourthYear Ended October 31, 2005(2)Revenues
    
    $
    121,820
    
    
    $
    131,868
    
    
    $
    124,369
    
    
    $
    113,898Gross profit
    
    
    27,152
    
    
    
    33,180
    
    
    
    23,991
    
    
    
    17,747Net earnings (loss)
    
    
    (145,277
    )
    
    
    (4,917
    )
    
    
    8,875
    
    
    
    (2,007
    )Net earnings (loss) per common share:Basic
    
    
    (1.33
    )
    
    
    (.04
    )
    
    
    .08
    
    
    
    (.02
    )Diluted
    
    
    (1.33
    )
    
    
    (.04
    )
    
    
    .08
    
    
    
    (.02
    )
 
 (1)
    
    First quarter of fiscal year 2006 includes a charge of $2,638 ($1,583 after tax, or
$.01 per share) in net hurricane related costs and $154 in separation pay for a former
executive officer. Second quarter of fiscal year 2006 includes a recovery of $558 related to
net hurricane related costs, $159 in net gains on dispositions and impairment (losses) in
continuing operations and $122 in separation pay for a former executive officer. Third
quarter of fiscal year 2006 includes a recovery of $1,072 ($643 after tax, or $.01 per share)
related to net hurricane related costs and $680 in separation pay for a former executive
officer. Fourth quarter of fiscal year 2006 includes a recovery of $2,636 ($1,687 after tax,
or $.01 per share) related to net hurricane related costs and ($505) in net gains on
dispositions and impairment (losses) in continuing operations. Third and fourth quarters of
fiscal year 2006 also contain out of period adjustments as described in Note 2(u).(2)
    
    First quarter of fiscal year 2005 includes a charge of $2,651 ($1,723 after tax,
or $.02 per share) for early extinguishment of debt in connection with the refinancing of the
Companys senior secured credit facility and $813 in net gains on dispositions and impairment
(losses) in continuing operations. First quarter of 2005 also includes a charge of $254,240
($153,180 after tax, or $1.40 per share) for the cumulative effect of change in accounting
principle related to preneed selling costs, as described in Notes 2(f) and 3(b). Second
quarter of fiscal year 2005 includes a charge of $30,057 ($19,210 after tax, or $.18 per
share) for early extinguishment of debt in connection with the refinancing of the Companys
senior subordinated notes and $364 in net gains on dispositions and impairment (losses) in
continuing operations. Third quarter of fiscal year 2005 includes an additional charge of
$114 for early extinguishment of debt in connection with the refinancing of the Companys
senior subordinated notes. Third quarter of fiscal year 2005 also includes a charge of $147
relating to the reorganization of the Companys divisions and $56 in net gains on dispositions
and impairment (losses) in continuing operations. Fourth quarter of fiscal year 2005 includes
a charge of $9,366 ($5,228 after tax, or $.05 per share) in net hurricane related costs and
$1,360 ($850 after tax, or $.01 per share) relating to the reorganization of the Companys
divisions and separation pay of a former executive officer. 70




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(23) Quarterly Financial Data (Unaudited)
 (23) Quarterly Financial Data (Unaudited)(Continued)
  (24) Subsequent Events
    (25) Subsequent Events (Unaudited)
  Funeral Consumers Alliance, Inc., et al. v. Service
Corporation International, Alderwoods Group, Inc., Stewart Enterprises, Inc., Hillenbrand
Industries, Inc., and Batesville Casket Co.,
   71




---



##### 



Item 9A. Controls and Procedures
 Disclosure Controls and Procedures.
   Managements Report on Internal Control over Financial Reporting
   Internal Control  Integrated Framework
  Remediation of Prior Material Weaknesses
   72




---



##### 



Changes in Internal Control over Financial Reporting
  73




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
FINANCIAL STATEMENT SCHEDULE
 
  
 74




---



##### 



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS
(Unaudited)
(Dollars in thousands)
 COLUMN A
    
    COLUMN B
    
    COLUMN C
    
    COLUMN D
    
    COLUMN E
    
    COLUMN FBalance at
    
    Charged tobeginning
    
    costs and
    
    Other
    
    
    
    
    
    Balance atDescription
    
    of period
    
    expenses
    
    Changes(1)
    
    Write-offs
    
    end of periodCurrentAllowance for
doubtful accounts:Year ended October 31,2006
    
    $
    6,785
    
    
    
    2,579
    
    
    
    (6
    )
    
    
    (2,706
    )
    
    $
    6,6522005
    
    $
    5,518
    
    
    
    3,771
    
    
    
    3
    
    
    
    (2,507
    )
    
    $
    6,7852004
    
    $
    4,528
    
    
    
    2,416
    
    
    
    40
    
    
    
    (1,466
    )
    
    $
    5,518Due after one
yearAllowance for doubtful
accounts:Year ended October 31,2006
    
    $
    11,350
    
    
    
    4,216
    
    
    
    
    
    
    
    (4,678
    )
    
    $
    10,8882005
    
    $
    8,022
    
    
    
    6,306
    
    
    
    
    
    
    
    (2,978
    )
    
    $
    11,3502004
    
    $
    5,590
    
    
    
    4,691
    
    
    
    
    
    
    
    (2,259
    )
    
    $
    8,022Deferred tax asset
valuation allowanceYear ended October 31,2006
    
    $
    10,220
    
    
    
    237
    
    
    
    
    
    
    
    
    
    
    $
    10,4572005
    
    $
    9,744
    
    
    
    476
    
    
    
    
    
    
    
    
    
    
    $
    10,2202004
    
    $
    11,985
    
    
    
    (2,241
    )
    
    
    
    
    
    
    
    
    
    $
    9,744
 
 (1)
    
    Amounts charged to other accounts represent the reduction due to the assets held for
sale and the reduction due to asset sales completed. 75