##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended October 31, 2007
 OR
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission File Number: 1-15449
 STEWART ENTERPRISES, INC.
  LOUISIANA
(State or other jurisdiction of incorporation or organization)
    
    72-0693290
(I.R.S. Employer Identification No.)1333 South Clearview Parkway 
Jefferson, Louisiana
(Address of principal executive offices)
    
    70121
(Zip Code)
 Registrants telephone number, including area code: (504) 729-1400
 
 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 Title of each Class 
Class A Common Stock, No Par Value 
Preferred Stock Purchase Rights
    
    Name of Exchange on which registered
The NASDAQ Stock Market LLC
The NASDAQ Stock Market LLC
 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
 
 þ o
 o þ
 þ o
 o
  þ o o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




---



##### 



Stewart Enterprises, Inc.
and Subsidiaries
 Index
 PagePART IItem 1.
    
    Business
    
    3Item 1A.
    
    Risk Factors
    
    9Item 1B.
    
    Unresolved Staff Comments
    
    16Item 2.
    
    Properties
    
    17Item 3.
    
    Legal Proceedings
    
    17Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    18Executive Officers of the Registrant
    
    18PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    20Item 6.
    
    Selected Financial Data
    
    21Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    24Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    45Item 8.
    
    Financial Statements and Supplementary Data
    
    47Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    119Item 9A.
    
    Controls and Procedures
    
    119Item 9B.
    
    Other Information
    
    120PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    120Item 11.
    
    Executive Compensation
    
    120Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    120Item 13.
    
    Certain Relationships and Related Transactions and Director Independence
    
    121Item 14.
    
    Principal Accounting Fees and Services
    
    121PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    121Signatures
    
    
    
    127Form of Restricted Stock AgreementForm of Stock Option AgreementCalculation of Ratio of Earnings to Fixed ChargesSubsidiaries of the CompanyConsent of PricewaterhouseCoopers LLPCertification Pursuant to Section 302 of President and CEOCertification Pursuant to Section 302 of Senior Executive VP and CFOCertification Pursuant to Section 906 of President and CEO and Senior Executive VP and CFO
  -2-




---



##### Table of Contents



Cautionary Note
  
 PART I
 
 Item 1. Business
 Operations
  General
  Funeral operations
 Cemetery operations
 3




---



##### Table of Contents



Combination funeral home and cemetery operations
 Third-party affiliations.
   Preneed arrangements
 4




---



##### Table of Contents



Customization, personalization and packages
 Enhanced cremation and alternative service offerings
 Trusts and escrow accounts
   5




---



##### Table of Contents



Management
  Centralized support services
 Financial information about industry and geographic segments
 Business Strategy
 Implement new long-term strategic plan
   6




---



##### Table of Contents



Improve key metrics.
   Continue focus on improving cash flow and controlling costs.
 Continue focus on customer and employee satisfaction.
 Maintain backlog through preneed marketing
 Deploy cash fl
 The Death Care Industry
 Industry consolidation
 7




---



##### Table of Contents



Importance of tradition; barriers to entry
 Continuing need for products and services; increasing number of deaths
 Growing demand for cremation
 Competition
  8




---



##### Table of Contents



Regulation
    Employees
  Additional Information
  
 Item 1A. Risk Factors
 Cautionary Statements
  9




---



##### Table of Contents



Risks Related to Our Business
 We have experienced a decline in funeral call volume for a number of years due to many factors,
such as the number of deaths and competition in our markets, our ability to identify changing
consumer preferences and various other factors, some of which are beyond our control.
  Price competition could reduce market share or cause us to reduce prices to retain or recapture
market share, either of which could reduce revenues and margins.
   Increased advertising and better marketing by competitors, as well as increased offering of
products or services over the Internet, could cause us to lose market share and revenues or cause
us to incur increased costs or to decrease prices in order to retain or recapture market share.
  If we are not able to respond effectively to changing consumer preferences, our market share,
revenues and profitability could decrease.
  Earnings from and principal of trusts and escrow accounts could be reduced by changes in stock and
bond prices and interest and dividend rates.
  10




---



##### Table of Contents



Increased preneed sales may have a negative impact on current cash flow and earnings.
  Increased costs may have a negative impact on earnings and cash flows.
  Our business is subject to the risk of losses due to hurricanes and other natural disasters.
  11




---



##### Table of Contents



Our Chairman may have a significant and disproportionate influence on the outcome of election of
directors and other matters presented for a vote of shareholders and this control may be exercised
in a manner that may conflict with the interests of shareholders.
  Servicing our debt will require a significant amount of cash, and our ability to generate
sufficient cash depends on many factors, some of which are beyond our control.
  We may be unable to repurchase our 6.25 percent senior notes and our senior convertible notes when
required by the holders, or to pay the cash portion of the conversion value upon conversion of our
senior convertible notes.
  12




---



##### Table of Contents



The call options we purchased and the warrants we sold contemporaneously with the sale of our
senior convertible notes may affect the trading price of our Class A common stock and the value of
the senior convertible notes.
  Exercise of the outstanding warrants could dilute the ownership interests of our existing
stockholders.
  The accounting method for our senior convertible notes is subject to change. Proposed new rules,
if adopted, would substantially increase our reported interest expense relating to the senior
convertible notes.
    Increases in interest rates would increase interest costs on our variable-rate long-term debt and
could have a material adverse effect on our net income and earnings per share.
 13




---



##### Table of Contents



.
 Our ability to maintain compliance with our covenants under our senior secured credit facility and
6.25 percent senior notes is dependent upon many factors. Covenant restrictions may also limit our
ability to operate our business.
   The payment of dividends on our common stock in the future is subject to uncertainties.
  Unanticipated litigation or negative developments in pending litigation or the SEC investigation
could have a material adverse effect on our financial statements.
  We may not be able to consummate significant acquisitions of or investments in death care or related businesses successfully.
  14




---



##### Table of Contents



The application of generally accepted accounting principles to our business is complex, and we have
had significant changes in the application of generally accepted accounting principles to our
business. No assurances can be given that we will not face similar issues in the future.
  Risks Related to the Death Care Industry
 Declines in the number of deaths in our markets can cause a decrease in revenues. Changes in the
number of deaths are not predictable from market to market or over the short term, and reliable
statistics on deaths in particular markets can be difficult to obtain.
   A weakening economy could decrease preneed sales and average revenue per at-need event.  Declines
in preneed cemetery property sales would reduce current revenue.  Declines in preneed funeral and
cemetery service and merchandise sales would reduce our backlog and could reduce our future
revenues and market share.
  We have experienced an increase in the proportion of lower-priced, non-traditional funeral services
and direct cremations, which we believe is part of the continuing national trend toward increased
cremation.
  15




---



##### Table of Contents



Because the funeral and cemetery businesses are high fixed-cost businesses, positive or negative
changes in revenue can have a disproportionately large effect on cash flow and profits.
  Changes or increases in, or failure to comply with, regulations applicable to our business could
increase costs or decrease cash flows.
   
 Item 1B. Unresolved Staff Comments
  16




---



##### Table of Contents



Item 2. Properties
  Number ofFuneral
    
    Number ofOperating Segment
    
    Homes
    
    Cemeteries
    
    Geographic AreasWestern Division  Funeral
    
    
    115
    
    
    
    
    
    
    Alabama, Arkansas,
California,
Illinois, Kansas,
Louisiana,
Mississippi,
Missouri, Nebraska,
Oregon, Texas,
WashingtonWestern Division  Cemetery
    
    
    
    
    
    
    47
    
    
    Alabama, Arkansas,
California, Kansas,
Louisiana,
Mississippi,
Missouri, Nebraska,
Oregon, Texas,
Washington,
WisconsinEastern Division  Funeral
    
    
    106
    
    
    
    
    
    
    Alabama, Florida,
Georgia, Maryland,
North Carolina,
Pennsylvania, South
Carolina,
Tennessee,
Virginia, West
Virginia and Puerto
RicoEastern Division  Cemetery
    
    
    
    
    
    
    92
    
    
    Alabama, Florida,
Georgia, Kentucky,
Maryland, North
Carolina, Ohio,
Pennsylvania, South
Carolina,
Tennessee,
Virginia, West
Virginia and Puerto
Rico221
    
    
    
    139
    
 Item 3. Legal Proceedings
    17




---



##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  
 Executive Officers of the Registrant
  Name
    
    Age
    
    PositionThomas J. Crawford
    
    
    54
    
    
    President, Chief Executive Officer and Director(1)Thomas M. Kitchen
    
    
    60
    
    
    Senior Executive Vice President, Chief Financial Officer and
Director(2)Brent F. Heffron
    
    
    58
    
    
    Executive Vice President and PresidentEastern Division(3)Lawrence B. Hawkins
    
    
    59
    
    
    Executive Vice President and PresidentInvestors Trust, Inc.G. Kenneth Stephens, Jr.
    
    
    46
    
    
    Executive Vice President and PresidentWestern Division(4)Kenneth G. Myers, Jr.
    
    
    50
    
    
    Senior Vice President of Finance(5)Larry Merington
    
    
    53
    
    
    Senior Vice President of Sales and Marketing(6)Martin de Laurèal
    
    
    56
    
    
    Senior Vice President of Corporate Development and Investor
Relations(7)Lisa T. Winningkoff
    
    
    40
    
    
    Vice President and Senior Administrative Officer(8)Lewis J. Derbes, Jr.
    
    
    36
    
    
    Vice President, Secretary and Treasurer(9)Angela M. Lacour
    
    
    35
    
    
    Vice President, Corporate Controller and Chief Accounting
Officer(10)
 
 (1)
    
    Mr. Crawford has served as our President, Chief Executive Officer and a Director
since March 31, 2007. Prior to that, he served on behalf of Sorenson Capital Partners, a
private equity group, as Chief Executive Officer of Erickson Companies, a regional residential
framing company with manufacturing operations in Arizona, California and Nevada. From 2003 to
2004, he was a Senior Consultant to Carew, International, a sales process consulting and
training company. He was Chairman, Chief Executive Officer and President of publicly-traded
The York Group, Inc., one of the largest casket manufacturers in the U.S., from 2000 until its
merger with Matthews International Corporation in 2002. From 1997 to 1999, he was Executive
Vice President of Sales and Marketing of Lozier Corporation, a manufacturer of retail display
fixtures and systems. From 1979 to 1997, he served in various positions with the Batesville
Casket Company, a leading manufacturer and supplier of caskets, including Vice President and
General Manager  Hardwood Products Group, Vice President of New Business Development, Vice
President of Marketing and Vice President of Logistics. Additionally, he held the positions
of Director of Corporate Development for both the Batesville Casket Company and its parent
company, Hillenbrand Industries.(2)
    
    Mr. Kitchen has served as Senior Executive Vice President since March 31, 2007 and
as Chief Financial Officer since December 2, 2004. He has also served as a director since
February 18, 2004. From June 30, 2006 until Mr. Crawfords appointment as President and Chief
Executive Officer on March 31, 2007, Mr. 18




---



##### Table of Contents



Kitchen served as acting Chief Executive Officer. From July 2003 until he became our Chief
Financial Officer, he served as an investment management consultant with Equitas Capital
Advisors, LLC. From 1987 to 1999, he was Chief Financial Officer of Avondale Industries, Inc.,
a publicly-traded company engaged in the design, construction, system integration and repair of
large, complex ships for commercial and government customers. He served as President of
Avondale from 1999 to 2002, after Avondales acquisition by Litton Industries, which was
subsequently acquired by Northrop Grumman Corporation.(3)
    
    Mr. Heffron has served as Executive Vice President and President of our Eastern
Division since July 14, 2005. From November 1, 1998 to July 13, 2005, he served as Executive
Vice President and President of our Southern Division.(4)
    
    Mr. Stephens has served as Executive Vice President and President of our Western
Division since July 14, 2005. From January 31, 2000 to July 13, 2005, he served as Senior
Vice President and President of our Eastern Division. From January 1, 1997 to January 30,
2000, he served as Chief Operating Officer of the Southern Region of our Eastern Division.(5)
    
    Mr. Myers has served as Senior Vice President of Finance since February 20, 2006. 
He has also served as a consultant to the Company from February 2005 to February 2006.  From
July 2004 through February 2006, he provided consulting services specializing in
Sarbanes-Oxley compliance. From 2001 to 2004, he was the Chief Executive Officer, President
and Director of Conrad Industries, a publicly-traded company engaged in the construction and
repair of government and commercial marine vessels. From 1992 to 2001, he served as Vice
President of Avondale Industries, Inc., a publicly-traded company engaged in the design,
construction, system integration and repair of large, complex ships for commercial and
government customers, which was subsequently acquired by Northrop Grumman Corporation.(6)
    
    Mr. Merington was appointed Senior Vice President of Sales and Marketing on
September 17, 2007. From 2005 to 2007, he was the Chief Operating Officer of Ace Bayou, a
furniture and pet products corporation in Kenner, Louisiana. From 2003 to 2005, Mr. Merington
was the Vice President of Business Development at New York Environmental Services, a medical
waste company. After the terrorist attack on the United States on September 11, 2001, he was
called to active duty for one year as a commander in the U.S. Air Force in Afghanistan. From
1996-2001, he served in various senior management roles at Browning-Ferris Industries before
becoming president of its Gas Services Division.(7)
    
    On November 1, 2007, Mr. de Laurèal was appointed Senior Vice President of Corporate
Development and Investor Relations. He joined the Company in 1977 and has held numerous
management positions, including serving as Vice President of Corporate Development in the
1990s.(8)
    
    Since December 2005, Ms. Winningkoff has served as Vice President and Senior
Administrative Officer.  From December 2004 to December 2005, she served as the Companys
Compensation and Benefits Director.  From July 2002 through December 2004, she served as the
Director of Compliance.  She joined the Company in June 1991 and held several financial and
accounting positions, including Assistant Treasurer and Director of Financial Reporting.(9)
    
    Mr. Derbes has served as Vice President, Secretary and Treasurer since May 2005. 
Prior to joining the Company, Mr. Derbes served as Chief Financial Officer of Conrad
Industries, a publicly-traded company engaged in the construction and repair of government and
commercial marine vessels, from 2002 through 2004 and as Operations Manager of Kirschmans
LLC, a furniture retailer, from late 2004 until joining the Company.(10)
    
    On July 10, 2006, Ms. Lacour was appointed Vice President, Corporate Controller and
Chief Accounting Officer. She joined the Company in February 1997, and has served in a
variety of financial and accounting positions including as Director of Financial Reporting
and, most recently, as Assistant Corporate Controller since March 2001. Prior to joining the
Company, Ms. Lacour was an auditor with KPMG LLP for four years. 19




---



##### Table of Contents



PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 Market Information
  High
    
    LowFiscal Year 2007Fourth Quarter
    
    $
    9.13
    
    
    $
    6.25Third Quarter
    
    
    8.43
    
    
    
    6.79Second Quarter
    
    
    8.50
    
    
    
    7.05First Quarter
    
    
    7.18
    
    
    
    5.88Fiscal Year 2006Fourth Quarter
    
    $
    6.40
    
    
    $
    5.07Third Quarter
    
    
    6.09
    
    
    
    4.96Second Quarter
    
    
    6.04
    
    
    
    4.87First Quarter
    
    
    5.93
    
    
    
    4.78
  Dividends
  Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  20




---



##### Table of Contents



Issuer Purchases of Equity Securities
 Total number of
    
    
    Maximum approximateshares purchased as
    
    
    dollar value of sharesTotal number
    
    
    Average price
    
    
    part of publicly
    
    
    that may yet beof shares
    
    
    paid per
    
    
    announced
    
    
    purchased under thePeriod
    
    purchased
    
    
    share
    
    
    plans or programs(1)
    
    
    plans or programsAugust 1, 2007
through August 31,
2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    September 1, 2007
through September
30, 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    October 1, 2007
through October 31,
2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Total
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
 
 (1)
    
    On September 19, 2007, we announced that our Board of Directors had authorized a new
$25.0 million stock repurchase program. Repurchases under the program are limited to our
Class A common stock, and are made in the open market or in privately negotiated transactions
at such times and in such amounts as management deemed appropriate, depending upon market
conditions and other factors. No repurchases were made during the fourth quarter of 2007. As
of December 20, 2007, we had repurchased 1.4 million shares for $11.4 million at an average
price of $8.14 per share under this program. On December 20, 2007, we announced a $25.0
million increase in this program. 
 Item 6. Selected Financial Data
 Reclassifications
  Comparability of Information in Selected Consolidated Financial Data Table
  
    
    In fiscal year 2004, we adopted Financial Accounting Standards Board Interpretation 46R,
Consolidation of Variable Interest Entities (FIN 46R).
    
    In fiscal year 2005, we changed our method of accounting for preneed selling costs.
    
    In fiscal year 2006, we adopted SFAS No. 123R, Share-Based Payment (SFAS No. 123R).
    
    All businesses sold in fiscal years 2003 through 2007 that met the criteria for
discontinued operations under SFAS No. 144 have been classified as discontinued operations
for all periods presented.
 
 21




---



##### Table of Contents



Selected Consolidated Financial Data
(Dollars in thousands, except per share amounts)
 Year Ended October 31,(1)2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Statement of Earnings Data:Total revenues
    
    $
    522,817
    
    
    $
    514,230
    
    
    $
    488,909
    
    
    $
    489,626
    
    
    $
    473,534Total gross profit
    
    
    112,430
    
    
    
    114,613
    
    
    
    101,479
    
    
    
    114,349
    
    
    
    97,563Earnings from continuing operations
    
    $
    39,314
    
    
    $
    37,580
    
    
    $
    8,303
    
    
    $
    30,575
    
    
    $
    1,034Earnings (loss) from discontinued
operations
    
    
    499
    
    
    
    13
    
    
    
    1,551
    
    
    
    6,117
    
    
    
    (19,066
    )Cumulative effect of change in
accounting principle (net of $101,061
income tax benefit in 2005)
    
    
    
    
    
    
    
    
    
    
    (153,180
    )(1)
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    39,813
    (2)(3)(4)(5)
    
    $
    37,593
    (3)(4)(5)
    
    $
    (143,326
    )(3)(4)(5)(6)
    
    $
    36,692
    (4)(5)
    
    $
    (18,032
    )(4)(5)(7)Per Share Data:Basic earnings (loss) per common share:Earnings from continuing operations
before cumulative effect of change
in accounting principle
    
    $
    .38
    
    
    $
    .35
    
    
    $
    .08
    
    
    $
    .28
    
    
    $
    .01Earnings (loss) from discontinued
operations
    
    
    .01
    
    
    
    
    
    
    
    .01
    
    
    
    .06
    
    
    
    (.18
    )Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    (1.40
    )
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    .39
    (2)(3)(4)(5)
    
    $
    .35
    (3)(4)(5)
    
    $
    (1.31
    )(1)(3)(4)(5)(6)
    
    $
    .34
    (4)(5)
    
    $
    (.17
    ) (4)(5)(7)Diluted earnings (loss) per common
share:Earnings from continuing operations
before cumulative effect of change
in accounting principle
    
    $
    .38
    
    
    $
    .35
    
    
    $

    .08
    
    
    $
    .28
    
    
    $
    .01Earnings (loss) from discontinued
operations
    
    
    .01
    
    
    
    
    
    
    
    .01
    
    
    
    .06
    
    
    
    (.18
    )Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    (1.40
    )
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    .39
    (2)(3)(4)(5)
    
    $
    .35
    (3)(4)(5)
    
    $
    (1.31)
    (1)(3)(4)(5)(6)
    
    $

   .34
    (4)(5)
    
    $
    (.17
    ) (4)(5)(7)Dividends declared per common share
    
    $
    .10
    
    
    $
    .10
    
    
    $
    .075
    
    
    $
    
    
    
    $
    
 Year Ended October 31,(8)2004
    
    
    2003Pro forma amounts assuming 2005 change in
accounting principle for preneed selling
costs was applied retroactively:Net earnings (loss)
    
    $
    30,739
    
    
    $
    (24,721
    )Basic earnings (loss) per common share
    
    $
    .28
    
    
    $
    (.23
    )Diluted earnings (loss) per common share
    
    $
    .28
    
    
    $
    (.23
    )
 October 31,2007
    
    2006
    
    2005
    
    2004
    
    2003Balance Sheet Data :Assets
    
    $
    2,438,974
    
    
    $
    2,380,577
    
    
    $
    2,335,609
    
    
    $
    2,511,508
    
    
    $
    2,504,161Long-term debt, less current maturities
    
    
    450,115
    
    
    
    374,020
    
    
    
    406,859
    
    
    
    415,080
    
    
    
    488,180Shareholders equity
    
    
    423,318
    
    
    
    446,893
    
    
    
    439,453
    
    
    
    587,978
    
    
    
    552,731
 22




---



##### Table of Contents



Selected Consolidated Operating Data
 Year Ended October 31,(1)2007
    
    2006
    
    2005
    
    2004
    
    2003Operating Data:Funeral homes in operation at end of period
    
    
    221
    
    
    
    229
    
    
    
    231
    
    
    
    242
    
    
    
    299At-need funerals performed
    
    
    38,072
    
    
    
    38,937
    
    
    
    39,264
    
    
    
    42,542
    
    
    
    48,544Prearranged funerals performed
    
    
    21,275
    
    
    
    21,799
    
    
    
    22,076
    
    
    
    23,891
    
    
    
    22,538Total funerals performed
    
    
    59,347
    
    
    
    60,736
    
    
    
    61,340
    
    
    
    66,433
    
    
    
    71,082Prearranged funerals sold
    
    
    29,953
    
    
    
    30,738
    
    
    
    28,967
    
    
    
    29,296
    
    
    
    28,563Backlog of prearranged funerals at end of
period
    
    
    329,617
    
    
    
    333,592
    
    
    
    326,672
    
    
    
    337,879
    
    
    
    347,785Cemeteries in operation at end of period
    
    
    139
    
    
    
    143
    
    
    
    144
    
    
    
    147
    
    
    
    148Interments performed
    
    
    49,283
    
    
    
    52,255
    
    
    
    52,436
    
    
    
    53,149
    
    
    
    53,830
 
 (1)
    
    Effective November 1, 2004, we changed our method of accounting for selling costs
incurred related to new preneed funeral and cemetery service and merchandise sales to expense
them as incurred, which resulted in a $254.2 million ($153.2 million after tax, or $1.40 per
diluted share) charge for the cumulative effect of the change in accounting principle. For
additional information, see Note 3(b) to the consolidated financial statements included in
Item 8.Effective April 30, 2004, we implemented FIN 46R which resulted in the consolidation of our
preneed funeral and cemetery merchandise and services trusts and our cemetery perpetual care
trusts. Our financial statements were not restated to reflect the implementation of FIN 46R.
Accordingly, the implementation of FIN 46R is reflected in our fiscal year 2004, 2005, 2006 and
2007 financial statements, but not in our financial statements for fiscal year 2003. The
implementation of FIN 46R affects classifications within the balance sheet, statement of
earnings and statement of cash flows, but has no material effect on shareholders equity, net
cash flow or the recognition and reporting of revenues or net earnings. For a more detailed
discussion, see Notes 2(k) and 4 through 7 to the consolidated financial statements included in
Item 8.Effective November 1, 2005, we implemented SFAS No. 123R, using the modified prospective
application transition method. Our financial statements were not restated to reflect this
implementation. Accordingly, the implementation of SFAS No. 123R is reflected in our fiscal
year 2007 and 2006 financial statements but not in our financial statements for fiscal years
2005, 2004 and 2003. For additional information, see Note 18 to the consolidated financial
statements included in Item 8.All businesses sold in fiscal years 2003 through 2007 that met the criteria for discontinued
operations under SFAS No. 144 have been classified as discontinued operations for all periods
presented. The operating data presented represents activity related to our total operations for
the respective year. See Note 2(w) to the consolidated financial statements included in Item 8.(2)
    
    In the third quarter of fiscal year 2007, we recorded a charge for the loss on early
extinguishment of debt of $0.7 million as a result of our senior convertible debt transaction.(3)
    
    In fiscal year 2006, we recorded $3.2 million in business interruption insurance
proceeds in funeral and cemetery revenue related to Hurricane Katrina, which struck the New
Orleans metropolitan area and Mississippi and Alabama Gulf Coasts on August 29, 2005. In
fiscal years 2007, 2006 and 2005, we also recorded $(2.5) million, $1.6 million and ($9.4)
million, respectively, in net recoveries (expenses) related to Hurricane Katrina. See Note 22
to the consolidated financial statements included in Item 8.(4)
    
    During fiscal years 2007 and 2006, we recorded $0.6 million and $1.0 million,
respectively, in separation
charges related to separation pay of former executive officers and additional reorganization
costs for the 2005 restructuring of the divisions. During the fourth quarter of 2005, we
restructured our operating divisions and 23




---



##### Table of Contents



incurred $1.5 million in related severance charges.
During fiscal years 2004 and 2003, we incurred $3.4 million and $2.5 million, respectively, in
separation charges related to severance and other costs associated with workforce reductions
announced in December 2003 and related to separation pay for former executive officers. See
Note 13 to the consolidated financial statements included in Item 8.(5)
    
    In fiscal year 2003, we incurred charges for the impairment of certain long-lived
assets related to our divestiture plan of $9.6 million in continuing operations and $22.2
million in discontinued operations In fiscal year 2004, we recorded gains on dispositions,
net of impairment losses, of ($0.2) million in continuing operations and $2.4 million in
discontinued operations. In fiscal year 2005, we recorded gains on dispositions, net of
impairment losses, of $1.3 million in continuing operations and $1.1 million in discontinued
operations. In fiscal year 2006, we recorded gains on dispositions, net of impairment losses,
of ($0.2) million in continuing operations. In fiscal year 2007, we have closed on the sale
of 11 businesses. See Note 12 to the consolidated financial statements included in Item 8.(6)
    
    In the first quarter of fiscal year 2005, we completed the refinancing of our senior
secured credit facility and recorded a charge for early extinguishment of debt of $2.7 million
to write off fees associated with the previous credit facility. In the second quarter of
fiscal year 2005, we completed the private offering of our 6.25 percent senior notes and
recorded a charge for early extinguishment of debt of $30.0 million representing the bond
tender premium, related fees and expenses and the write-off of unamortized fees related to our
10.75 percent senior subordinated notes. In the third quarter of fiscal year 2005, we
recorded a charge for early extinguishment of debt of $0.1 million representing the call
premium and write-off of remaining unamortized fees on the 10.75 percent senior subordinated
notes. For additional information, see Note 14 to the consolidated financial statements
included in Item 8.(7)
    
    In the third quarter of 2003, we incurred an $11.3 million charge related to the
redemption of our Remarketable Or Redeemable Securities (ROARS).(8)
    
    The pro forma data presented for fiscal years 2003 and 2004 is reported as if the
fiscal year 2005 change in accounting principle had occurred at the beginning of fiscal year
2003. 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview of Fiscal Year 2007
   24




---



##### Table of Contents



25




---



##### Table of Contents



Preneed  Backlog, Trust Portfolio and Cash Impact of Sales
 Overview
  Backlog
  Trust Portfolio
   1991-1999
    
    2000
    

        2001
    

        2002
    

        2003
    

        2004
    
    2005
    
    2006
    
    20078-9%
    
    
    5.8
    %
    
    
    6.3
    %
    
    
    4.3
    %
    
    
    4.8
    %
    
    
    2.6
    %
    
    
    4.3
    %
    
    
    5.1
    %
    
    
    4.8
    %
   26




---



##### Table of Contents



27




---



##### Table of Contents



Cash Impact of Preneed Sales
   Overview of Critical Accounting Policies
  Deferred Revenue and Revenue Recognition
    28




---



##### Table of Contents



Variable Interest Entities
  Allowance for Doubtful Accounts and Sales Cancellations
  Depreciation of Long-Lived Assets
  Valuation of Long-Lived Assets
  Valuation of Goodwill
   29




---



##### Table of Contents



Accounting for Income Taxes
   Preneed Selling Costs
  Estimated Insurance Loss Liabilities
  30




---



##### Table of Contents



Results of Operations
  31




---



##### Table of Contents



Comparison of Fiscal Year 2007 to Fiscal Year 2006
 Year Ended October 31, 2007 Compared to Year Ended October 31, 2006  Continuing Operations
 Funeral Operations
 Year Ended October 31,
    
    
    Increase2007
    
    
    2006
    
    
    (Decrease)(In millions)Funeral Revenue:Eastern Division
    
    $
    117.1
    
    
    $
    116.3
    
    
    $
    .8Western Division
    
    
    143.8
    
    
    
    146.1
    
    
    
    (2.3
    )Corporate Trust Management (1)
    
    
    18.4
    
    
    
    17.8
    
    
    
    .6Total Funeral Revenue
    
    $
    279.3
    
    
    $
    280.2
    
    
    $
    (.9
    )Funeral Costs:Eastern Division
    
    $
    99.3
    
    
    $
    97.9
    
    
    $
    1.4Western Division
    
    
    116.4
    
    
    
    116.6
    
    
    
    (.2
    )Corporate Trust Management (1)
    
    
    .7
    
    
    
    .5
    
    
    
    .2Total Funeral Costs
    
    $
    216.4
    
    
    $
    215.0
    
    
    $
    1.4Funeral Gross Profit:Eastern Division
    
    $
    17.8
    
    
    $
    18.4
    
    
    $
    (.6
    )Western Division
    
    
    27.4
    
    
    
    29.5
    
    
    
    (2.1
    )Corporate Trust Management (1)
    
    
    17.7
    
    
    
    17.3
    
    
    
    .4Total Funeral Gross Profit
    
    $
    62.9
    
    
    $
    65.2
    
    
    $
    (2.3
    )
 Change in Same-
    
    Same-StoreChange in Average
    
    Store Funeral
    
    Cremation RateSame-Store Analysis
    
    Revenue Per Call
    
    Services
    
    2007
    
    2006Eastern Division
    
    
    2.4
    %
    
    
    (1.3
    )%
    
    
    35.1
    %
    
    
    33.3
    %Western Division
    
    
    4.1
    %
    
    
    (2.8
    )%
    
    
    42.5
    %
    
    
    42.5
    %Total
    
    
    3.5
    %(1)
    
    
    (2.2
    )%
    
    
    39.3
    %
    
    
    38.6
    %
 
 (1)
    
    Corporate trust management consists of the trust management fees and funeral
merchandise and service trust earnings recognized with respect to preneed contracts delivered
during the period. Trust management fees are established by us at rates consistent with
industry norms and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust
earnings represent earnings realized over the life of the preneed contracts delivered during
the relevant periods. See Notes 4 and 7 to the consolidated financial statements included in
Item 8 for information regarding the cost basis and market value of the trust assets and
current performance of the trusts (i.e. current realized gains and losses, interest income and
dividends). Trust management fees included in funeral revenue for 2007 and 2006 were $5.9
million and $5.5 million, respectively. As corporate trust management is considered a
separate operating segment, trust earnings are included in total average revenue per call
presented, but not in the Eastern and Western divisions average revenue per call. Funeral
trust earnings recognized with respect to preneed contracts delivered included in funeral
revenue for 2007 and 2006 were $12.5 million and $12.3 million, respectively. Consolidated Operations  Funeral
  32




---



##### Table of Contents



Segment Discussion  Funeral
    Cemetery Operations
 Year Ended October 31,
    
    
    Increase2007
    
    
    2006
    
    
    (Decrease)(In millions)Cemetery Revenue:Eastern Division
    
    $
    143.2
    
    
    $
    136.8
    
    
    $
    6.4Western Division
    
    
    90.4
    
    
    
    87.8
    
    
    
    2.6Corporate Trust Management (1)
    
    
    9.9
    
    
    
    9.4
    
    
    
    .5Total Cemetery Revenue
    
    $
    243.5
    
    
    $
    234.0
    
    
    $
    9.5Cemetery Costs:Eastern Division
    
    $
    122.2
    
    
    $
    112.8
    
    
    $
    9.4Western Division
    
    
    71.2
    
    
    
    71.3
    
    
    
    (.1
    )Corporate Trust Management (1)
    
    
    .6
    
    
    
    .5
    
    
    
    .1Total Cemetery Costs
    
    $
    194.0
    
    
    $
    184.6
    
    
    $
    9.4Cemetery Gross Profit:Eastern Division
    
    $
    21.0
    
    
    $
    24.0
    
    
    $
    (3.0
    )Western Division
    
    
    19.2
    
    
    
    16.5
    
    
    
    2.7Corporate Trust Management (1)
    
    
    9.3
    
    
    
    8.9
    
    
    
    .4Total Cemetery Gross Profit
    
    $
    49.5
    
    
    $
    49.4
    
    
    $
    .1
 33




---



##### Table of Contents



(1)
    
    Corporate trust management consists of the trust management fees and cemetery
merchandise and service trust earnings recognized with respect to preneed contracts delivered
during the period. Trust management fees are established by us at rates consistent with
industry norms and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust
earnings represent earnings realized over the life of the preneed contracts delivered during
the relevant periods. See Notes 5 and 7 to the consolidated financial statements included in
Item 8 for information regarding the cost basis and market value of the trust assets and
current performance of the trusts (i.e. current realized gains and losses, interest income and
dividends). Trust management fees included in cemetery revenue for 2007 and 2006 were $5.3
million and $4.9 million and cemetery trust earnings recognized with respect to preneed
contracts delivered included in cemetery revenue for 2007 and 2006 were $4.6 million and $4.5
million, respectively. Perpetual care trust earnings are included in the revenues and gross
profit of the related geographic segment. Consolidated Operations  Cemetery
   Segment Discussion  Cemetery
   Discontinued Operations
  34




---



##### Table of Contents



Other
         Preneed Sales into and Deliveries out of the Backlog
  35




---



##### Table of Contents



Comparison of Fiscal Year 2006 to Fiscal Year 2005
 Overview of Fiscal Year 2006
      36




---



##### Table of Contents



Year Ended October 31, 2006 Compared to Year Ended October 31, 2005  Continuing Operations
 Year Ended October 31,
    
    
    Increase2006
    
    
    2005
    
    
    (Decrease)(In millions)Funeral Revenue:Eastern Division
    
    $
    116.3
    
    
    $
    113.0
    
    
    $
    3.3Western Division
    
    
    146.1
    
    
    
    138.8
    
    
    
    7.3Corporate Trust Management (1)
    
    
    17.8
    
    
    
    18.9
    
    
    
    (1.1
    )Total Funeral Revenue
    
    $
    280.2
    
    
    $
    270.7
    
    
    $
    9.5Funeral Costs:Eastern Division
    
    $
    97.9
    
    
    $
    94.5
    
    
    $
    3.4Western Division
    
    
    116.6
    
    
    
    114.5
    
    
    
    2.1Corporate Trust Management (1)
    
    
    .5
    
    
    
    .5
    
    
    
    Total Funeral Costs
    
    $
    215.0
    
    
    $
    209.5
    
    
    $
    5.5Funeral Gross Profit:Eastern Division
    
    $
    18.4
    
    
    $
    18.5
    
    
    $
    (.1
    )Western Division
    
    
    29.5
    
    
    
    24.3
    
    
    
    5.2Corporate Trust Management (1)
    
    
    17.3
    
    
    
    18.4
    
    
    
    (1.1
    )Total Funeral Gross Profit
    
    $
    65.2
    
    
    $
    61.2
    
    
    $
    4.0
 Same-StoreChange in Average
    
    Change in Same-Store
    
    Cremation RateSame-Store Analysis (2)
    
    Revenue Per Call
    
    Funeral Services
    
    2006
    
    2005Eastern Division
    
    
    3.3
    %
    
    
    (.7
    )%
    
    
    33.3
    %
    
    
    31.1
    %Western Division
    
    
    2.0
    %
    
    
    1.0
    %
    
    
    42.5
    %
    
    
    42.0
    %Total
    
    
    1.9
    %(1)(2)
    
    
    (.2
    )%
    
    
    38.6
    %
    
    
    37.3
    %
 
 (1)
    
    Corporate trust management consists of the trust management fees and funeral
merchandise and service trust earnings recognized with respect to preneed contracts delivered
during the period. Trust management fees are established by us at rates consistent with
industry norms and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust
earnings represent earnings realized over the life of the preneed contracts delivered during
the relevant periods. See Notes 4 and 7 to the consolidated financial statements included in
Item 8 for information regarding the cost basis and market value of the trust assets and
current performance of the trusts (i.e. current realized gains and losses, interest income and
dividends). Trust management fees included in funeral revenue for 2006 and 2005 were $5.5
million and $5.4 million, respectively. As corporate trust management is considered a
separate operating segment, trust earnings are included in the total average revenue per call
presented, not in the Eastern or Western divisions average revenue per call. Funeral trust
earnings recognized with respect to preneed contracts delivered included in funeral revenue
for 2006 and 2005 were $12.3 million and $13.5 million, respectively.(2)
    
    On August 29, 2005, Hurricane Katrina struck the New Orleans metropolitan area and
severely damaged three of our funeral homes located in that area, which is part of our Western
division. This same-store analysis includes these three funeral homes which had revenue of
$10.2 million and $8.1 million for fiscal years 2006 and 2005, respectively, and performed
1,575 and 1,726 funeral services in 2006 and 2005, respectively. Excluding these three
funeral homes, the increase in average revenue per call for the Western division and the
Company was 1.7 percent and 1.7 percent, respectively, and the change in same-store funeral
services for the Western division and the Company was 1.5 percent and 0.3 percent, respectively. 37




---



##### Table of Contents



Consolidated Operations  Funeral
   Segment Discussion  Funeral
    38




---



##### Table of Contents



Cemetery Operations
 Year Ended October 31,
    
    
    Increase2006
    
    
    2005
    
    
    (Decrease)(In millions)Cemetery Revenue:Eastern Division
    
    $
    136.8
    
    
    $
    127.4
    
    
    $
    9.4Western Division
    
    
    87.8
    
    
    
    79.6
    
    
    
    8.2Corporate Trust Management (1)
    
    
    9.4
    
    
    
    11.2
    
    
    
    (1.8
    )Total Cemetery Revenue
    
    $
    234.0
    
    
    $
    218.2
    
    
    $
    15.8Cemetery Costs:Eastern Division
    
    $
    112.8
    
    
    $
    111.7
    
    
    $
    1.1Western Division
    
    
    71.3
    
    
    
    65.7
    
    
    
    5.6Corporate Trust Management (1)
    
    
    .5
    
    
    
    .5
    
    
    
    Total Cemetery Costs
    
    $
    184.6
    
    
    $
    177.9
    
    
    $
    6.7Cemetery Gross Profit:Eastern Division
    
    $
    24.0
    
    
    $
    15.7
    
    
    $
    8.3Western Division
    
    
    16.5
    
    
    
    13.9
    
    
    
    2.6Corporate Trust Management (1)
    
    
    8.9
    
    
    
    10.7
    
    
    
    (1.8
    )Total Cemetery Gross Profit
    
    $
    49.4
    
    
    $
    40.3
    
    
    $
    9.1
 
 (1)
    
    Corporate trust management consists of the trust management fees and cemetery
merchandise and service trust earnings recognized with respect to preneed contracts delivered
during the period. Trust management fees are established by us at rates consistent with
industry norms and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust
earnings represent earnings realized over the life of the preneed contracts delivered during
the relevant periods. See Notes 5 and 7 to the consolidated financial statements included in
Item 8 for information regarding the cost basis and market value of the trust assets and
current performance of the trusts (i.e. current realized gains and losses, interest income and
dividends). Trust management fees included in cemetery revenue for 2006 and 2005 were $4.9
million and cemetery trust earnings recognized with respect to preneed contracts delivered
included in cemetery revenue for 2006 and 2005 were $4.5 million and $6.3 million,
respectively. Perpetual care trust earnings are included in the revenues and gross profit of
the related geographic segment. Consolidated Operations  Cemetery
    39




---



##### Table of Contents



Segment Discussion  Cemetery
   Discontinued Operations
  Other
      40




---



##### Table of Contents



Preneed Sales into and Deliveries out of the Backlog
   41




---



##### Table of Contents



Liquidity and Capital Resources
 Cash Flow
 Comparison of Fiscal Year 2007 to Fiscal Year 2006
    Comparison of Fiscal Year 2006 to Fiscal Year 2005
   42




---



##### Table of Contents



Stock Repurchase Plan
  Contractual Obligations and Commercial Commitments
   Payments Due by PeriodFiscal Year
    
    
    Fiscal Years
    
    
    Fiscal YearsContractual Obligations
    
    Total
    
    
    2008
    
    
    2009 - 2010
    
    
    2011 2012
    
    
    ThereafterLong-term debt obligations (1)
    
    $
    450.3
    
    
    $
    .2
    
    
    $
    
    
    
    $
    
    
    
    $
    450.1Interest on long-term debt (2)
    
    
    134.3
    
    
    
    21.0
    
    
    
    41.3
    
    
    
    41.3
    
    
    
    30.7Operating lease agreements (3)
    
    
    31.9
    
    
    
    4.3
    
    
    
    7.0
    
    
    
    3.7
    
    
    
    16.9Non-competition and other agreements (4)
    
    
    2.7
    
    
    
    1.7
    
    
    
    .7
    
    
    
    .3
    
    
    
    $
    619.2
    
    
    $
    27.2
    
    
    $
    49.0
    
    
    $
    45.3
    
    
    $
    497.7
 
 (1)
    
    See below for a breakdown of future scheduled principal payments and maturities of
our long-term debt by type as of October 31, 2007.(2)
    
    Includes contractual interest payments for our senior convertible notes, senior
notes and third-party debt.(3)
    
    Our noncancellable operating leases are primarily for land and buildings and expire
over the next 1 to 15 years, except for six leases that expire between 2032 and 2039. Our
future minimum lease payments as of October 31, 43




---



##### Table of Contents



2007 were $4.3 million, $3.9 million, $3.1 million, $2.1 million, $1.6 million and $16.9 million
for the years ending October 31, 2008, 2009, 2010, 2011, 2012 and later years, respectively.(4)
    
    We have entered into non-competition agreements with prior owners and key employees
of acquired subsidiaries that expire at various times through 2012. During fiscal year 2001,
we decided to relieve some of the prior owners and key employees of their obligations not to
compete; however, we will continue to make the payments in accordance with the contract terms.
This category also includes separation pay related to former executive officers.  OtherPrincipallySellerRevolving
    
    
    Senior
    
    
    
    
    
    
    Financing ofFiscal Year Ending
    
    Credit
    
    
    Convertible
    
    
    
    
    
    
    AcquiredOctober 31,
    
    Facility
    
    
    Notes
    
    
    Senior Notes
    
    
    Operations
    
    
    Total2008
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    .2
    
    
    $
    .22009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Thereafter
    
    
    
    
    
    
    250.0
    
    
    
    200.0
    
    
    
    .1
    
    
    
    450.1Total long-term debt
    
    $
    
    
    
    $
    250.0
    
    
    $
    200.0
    
    
    $
    .3
    
    
    $
    450.3
   Off-Balance Sheet Arrangements
  (1)
    
    the $30.8 million bond we are required to maintain to guarantee our obligations
relating to funds we withdrew in fiscal year 2001 from our preneed funeral trusts in
Florida, which is discussed in Note 19 to the consolidated financial statements included in
Item 8; and(2)
    
    the insurance-funded preneed funeral contracts, which will be funded by life insurance
or annuity contracts issued by third-party insurers, are not reflected in our consolidated
balance sheets, and are discussed in Note 2(j) to the consolidated financial statements
included in Item 8.
 Ratio of Earnings to Fixed Charges
  44




---



##### Table of Contents



Years ended October 31,2007
    
    2006
    
    2005
    
    2004
    
    20033.05 (1)
    
    
    2.83
    (2)
    
    
    1.34
    (3)(4)
    
    
    1.97
    (5)
    
    
    1.07
    (6)
 
 (1)
    
    Pretax earnings for fiscal year 2007 include a charge of $2.5 million related to
Hurricane Katrina, a charge of $0.6 million for separation charges primarily related to
separation pay of a former executive officer who retired in the first quarter of 2007 and $0.7
million for the loss on early extinguishment of debt related to the June 2007 senior
convertible debt transaction.(2)
    
    Pretax earnings for fiscal year 2006 includes a net recovery of $1.6 million related
to Hurricane Katrina, business interruption proceeds of $3.2 million related to Hurricane
Katrina, a charge of $1.0 million for separation charges related to July 2005 restructuring of
our divisions and the retirement of an executive officer and gains on dispositions, net of
impairment losses of ($0.2) million.(3)
    
    Pretax earnings for fiscal year 2005 include a charge of $9.4 million for expenses
related to Hurricane Katrina, a charge of $1.5 million for separation charges related to the
July 2005 restructuring of our divisions, $1.3 million of gains on disposition, net of
impairment losses and $32.8 million for the loss on early extinguishment of debt related to
the 2005 debt refinancings.(4)
    
    Excludes the cumulative effect of change in accounting principles.(5)
    
    Pretax earnings for fiscal year 2004 include charges of $3.4 million for severance
and other costs relating to the workforce reductions announced in December 2003 and separation
payments to a former executive officer and ($0.2) million in gains on dispositions, net of
impairment losses(6)
    
    Pretax earnings for fiscal year 2003 include a charge of $11.3 million for the loss
on early extinguishment of debt in connection with redemption of the ROARS, a noncash charge
of $9.6 million for long-lived asset impairment and a charge of $2.5 million for separation
payments to former executive officers.  Effect of Recent Accounting Standards
  Inflation
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  45




---



##### Table of Contents



Marketable Equity Securities
   Interest
      46




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data
  PageReport of Independent Registered Public Accounting Firm
    
    
    48Consolidated Statements of Earnings for the Years Ended October 31,
2007, 2006 and 2005
    
    
    50Consolidated Balance Sheets as of October 31, 2007 and 2006
    
    
    51Consolidated Statements of Shareholders Equity for the Years Ended
October 31, 2007, 2006 and 2005
    
    
    53Consolidated Statements of Cash Flows for the Years Ended October 31,
2007, 2006 and 2005
    
    
    55Notes to Consolidated Financial Statements
    
    
    56
 47




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Internal Control  Integrated Framework
    48




---



##### Table of Contents



49




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF EARNINGS
 (Dollars in thousands, except per share amounts)
 Year Ended October 31,2007
    
    
    2006
    
    
    2005Revenues:Funeral
    
    $
    279,330
    
    
    $
    280,237
    
    
    $
    270,713Cemetery
    
    
    243,487
    
    
    
    233,993
    
    
    
    218,196522,817
    
    
    
    514,230
    
    
    
    488,909Costs and expenses:Funeral
    
    
    216,375
    
    
    
    215,042
    
    
    
    209,523Cemetery
    
    
    194,012
    
    
    
    184,575
    
    
    
    177,907410,387
    
    
    
    399,617
    
    
    
    387,430Gross profit
    
    
    112,430
    
    
    
    114,613
    
    
    
    101,479Corporate general and administrative expenses
    
    
    (31,143
    )
    
    
    (31,739
    )
    
    
    (19,440
    )Hurricane related recoveries (charges), net
    
    
    (2,533
    )
    
    
    1,628
    
    
    
    (9,366
    )Separation charges
    
    
    (580
    )
    
    
    (991
    )
    
    
    (1,507
    )Gains on dispositions and impairment (losses), net
    
    
    (44
    )
    
    
    (153
    )
    
    
    1,311Other operating income, net
    
    
    1,651
    
    
    
    1,333
    
    
    
    1,373Operating earnings
    
    
    79,781
    
    
    
    84,691
    
    
    
    73,850Interest expense
    
    
    (25,065
    )
    
    
    (29,633
    )
    
    
    (30,460
    )Loss on early extinguishment of debt
    
    
    (677
    )
    
    
    
    
    
    
    (32,822
    )Investment and other income, net
    
    
    3,374
    
    
    
    3,676
    
    
    
    713Earnings from continuing operations before income
taxes and cumulative effect of change in accounting
principle
    
    
    57,413
    
    
    
    58,734
    
    
    
    11,281Income taxes
    
    
    18,099
    
    
    
    21,154
    
    
    
    2,978Earnings from continuing operations before
cumulative effect of change in accounting principle
    
    
    39,314
    
    
    
    37,580
    
    
    
    8,303Discontinued operations:Earnings (loss) from discontinued operations before
income taxes
    
    
    807
    
    
    
    (80
    )
    
    
    1,802Income tax expense (benefit)
    
    
    308
    
    
    
    (93
    )
    
    
    251Earnings from discontinued operations
    
    
    499
    
    
    
    13
    
    
    
    1,551Earnings before cumulative effect of change in accounting
principle
    
    
    39,813
    
    
    
    37,593
    
    
    
    9,854Cumulative effect of change in accounting principle (net
of $101,061 income tax benefit in 2005)
    
    
    
    
    
    
    
    
    
    
    (153,180
    )Net earnings (loss)
    
    $
    39,813
    
    
    $
    37,593
    
    
    $
    (143,326
    )Basic earnings (loss) per common share:Earnings from continuing operations before cumulative
effect of change in accounting principle
    
    $
    .38
    
    
    $
    .35
    
    
    $
    .08Earnings from discontinued operations
    
    
    .01
    
    
    
    
    
    
    
    .01Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (1.40
    )Net earnings (loss)
    
    $
    .39
    
    
    $
    .35
    
    
    $
    (1.31
    )Diluted earnings (loss) per common share:Earnings from continuing operations before cumulative
effect of change in accounting principle
    
    $
    .38
    
    
    $
    .35
    
    
    $
    .08Earnings from discontinued operations
    
    
    .01
    
    
    
    
    
    
    
    .01Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (1.40
    )Net earnings (loss)
    
    $
    .39
    
    
    $
    .35
    
    
    $
    (1.31
    )Weighted average common shares outstanding (in thousands):Basic
    
    
    102,584
    
    
    
    106,855
    
    
    
    109,040Diluted
    
    
    102,737
    
    
    
    106,900
    
    
    
    109,205Dividends declared per common share
    
    $
    .10
    
    
    $
    .10
    
    
    $
    .075
  50




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except per share amounts)
 October 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    71,545
    
    
    $
    43,870Marketable securities
    
    
    262
    
    
    
    239Receivables, net of allowances
    
    
    60,615
    
    
    
    72,554Inventories
    
    
    36,061
    
    
    
    36,252Prepaid expenses
    
    
    6,355
    
    
    
    6,428Deferred income taxes, net
    
    
    8,621
    
    
    
    10,502Assets held for sale
    
    
    
    
    
    
    349Total current assets
    
    
    183,459
    
    
    
    170,194Receivables due beyond one year, net of allowances
    
    
    83,608
    
    
    
    75,350Preneed funeral receivables and trust investments
    
    
    515,053
    
    
    
    513,695Preneed cemetery receivables and trust investments
    
    
    255,679
    
    
    
    257,930Goodwill
    
    
    273,286
    
    
    
    271,342Cemetery property, at cost
    
    
    374,800
    
    
    
    370,280Property and equipment, at cost:Land
    
    
    43,767
    
    
    
    41,185Buildings
    
    
    310,968
    
    
    
    290,874Equipment and other
    
    
    164,246
    
    
    
    149,067518,981
    
    
    
    481,126Less accumulated depreciation
    
    
    213,063
    
    
    
    188,826Net property and equipment
    
    
    305,918
    
    
    
    292,300Deferred income taxes, net
    
    
    192,859
    
    
    
    173,983Cemetery perpetual care trust investments
    
    
    236,503
    
    
    
    228,648Non-current assets held for sale
    
    
    
    
    
    
    13,265Other assets
    
    
    17,809
    
    
    
    13,590Total assets
    
    $
    2,438,974
    
    
    $
    2,380,577
  51




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
 October 31,2007
    
    
    2006LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    198
    
    
    $
    2,839Accounts payable
    
    
    26,606
    
    
    
    19,375Accrued payroll and other benefits
    
    
    16,316
    
    
    
    17,353Accrued insurance
    
    
    21,252
    
    
    
    21,803Accrued interest
    
    
    5,576
    
    
    
    5,822Other current liabilities
    
    
    17,958
    
    
    
    18,141Income taxes payable
    
    
    4,177
    
    
    
    3,703Total current liabilities
    
    
    92,083
    
    
    
    89,036Long-term debt, less current maturities
    
    
    450,115
    
    
    
    374,020Deferred preneed funeral revenue
    
    
    256,603
    
    
    
    270,267Deferred preneed cemetery revenue
    
    
    284,507
    
    
    
    296,324Non-controlling interest in funeral and cemetery trusts
    
    
    683,052
    
    
    
    653,814Non-current liabilities associated with assets held for sale
    
    
    
    
    
    
    8,833Other long-term liabilities
    
    
    13,869
    
    
    
    12,410Total liabilities
    
    
    1,780,229
    
    
    
    1,704,704Commitments and contingencies (Note 19)Non-controlling interest in perpetual care trusts
    
    
    235,427
    
    
    
    227,141Non-controlling interest in perpetual care trusts associated
with assets held for sale
    
    
    
    
    
    
    1,839Shareholders 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 94,865,387 and 101,408,227 shares at
October 31, 2007 and 2006, respectively
    
    
    94,865
    
    
    
    101,408Class B authorized 5,000,000 shares; issued and
outstanding 3,555,020 shares at October 31, 2007 and
2006; 10 votes per share convertible into an equal
number of Class A shares
    
    
    3,555
    
    
    
    3,555Additional paid-in capital
    
    
    583,789
    
    
    
    640,648Accumulated deficit
    
    
    (258,902
    )
    
    
    (298,715
    )Accumulated other comprehensive income (loss):Unrealized appreciation (depreciation) of investments
    
    
    11
    
    
    
    (3
    )Total accumulated other comprehensive income (loss)
    
    
    11
    
    
    
    (3
    )Total shareholders equity
    
    
    423,318
    
    
    
    446,893Total liabilities and shareholders equity
    
    $
    2,438,974
    
    
    $
    2,380,577
  52




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Dollars in thousands, except per share amounts)
 DerivativeUnearned
    
    
    Unrealized
    
    
    FinancialAdditional
    
    
    
    
    
    
    Restricted
    
    
    Depreciation
    
    
    Instrument
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Accumulated
    
    
    Stock
    
    
    of
    
    
    Gains
    
    
    ShareholdersStock(1)
    
    
    Capital
    
    
    Deficit
    
    
    Compensation
    
    
    Investments
    
    
    (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(continued)
 53




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Dollars in thousands, except per share amounts)
 UnearnedAdditional
    
    
    
    
    
    
    Restricted
    
    
    Unrealized
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Accumulated
    
    
    Stock
    
    
    Depreciation
    
    
    ShareholdersStock(1)
    
    
    Capital
    
    
    Deficit
    
    
    Compensation
    
    
    of Investments
    
    
    EquityBalance October 31, 2005
    
    $
    108,670
    
    
    $
    667,663
    
    
    $
    (336,308
    )
    
    $
    (569
    )
    
    $
    (3
    )
    
    $
    439,453Comprehensive income: net
earnings
    
    
    
    
    
    
    
    
    
    
    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
 UnrealizedAppreciation
    
    
    TotalCommon
    
    
    Additional Paid-In
    
    
    Accumulated
    
    
    (Depreciation)
    
    
    ShareholdersStock(1)
    
    
    Capital
    
    
    Deficit
    
    
    of Investments
    
    
    EquityBalance October 31, 2006
    
    $
    104,963
    
    
    $
    640,648
    
    
    $
    (298,715
    )
    
    $
    (3
    )
    
    $
    446,893Comprehensive income:Net earnings
    
    
    
    
    
    
    
    
    
    
    39,813
    
    
    
    
    
    
    
    39,813Other comprehensive income:Unrealized appreciation of
investments, net of deferred
tax expense of ($8)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    14Total other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    14Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    39,813
    
    
    
    14
    
    
    
    39,827Restricted stock activity
    
    
    531
    
    
    
    (144
    )
    
    
    
    
    
    
    
    
    
    
    387Issuance of common stock
    
    
    213
    
    
    
    1,249
    
    
    
    
    
    
    
    
    
    
    
    1,462Stock options exercised
    
    
    411
    
    
    
    2,221
    
    
    
    
    
    
    
    
    
    
    
    2,632Share-based compensation
    
    
    
    
    
    
    1,576
    
    
    
    
    
    
    
    
    
    
    
    1,576Tax benefit associated with
stock options exercised
    
    
    
    
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    76Purchase and retirement of
common stock
    
    
    (7,698
    )
    
    
    (56,503
    )
    
    
    
    
    
    
    
    
    
    
    (64,201
    )Purchase of call options, net of
tax benefit of $21,000
    
    
    
    
    
    
    (39,000
    )
    
    
    
    
    
    
    
    
    
    
    (39,000
    )Sale of common stock warrants
    
    
    
    
    
    
    43,850
    
    
    
    
    
    
    
    
    
    
    
    43,850Dividends ($.10 per share)
    
    
    
    
    
    
    (10,184
    )
    
    
    
    
    
    
    
    
    
    
    (10,184
    )Balance October 31, 2007
    
    $
    98,420
    
    
    $
    583,789
    
    
    $
    (258,902
    )
    
    $
    11
    
    
    $
    423,318
 
 (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.  54




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share amounts)
 Year Ended October 31,2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net earnings (loss)
    
    $
    39,813
    
    
    $
    37,593
    
    
    $
    (143,326
    )Adjustments 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
    
    
    (565
    )
    
    
    327
    
    
    
    (2,401
    )Impairment of hurricane damaged properties
    
    
    
    
    
    
    
    
    
    
    11,661Loss on early extinguishment of debt
    
    
    677
    
    
    
    
    
    
    
    32,822Premiums paid on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (25,463
    )Depreciation and amortization
    
    
    27,638
    
    
    
    25,666
    
    
    
    25,709Provision for doubtful accounts
    
    
    9,756
    
    
    
    6,795
    
    
    
    10,077Share-based compensation
    
    
    1,576
    
    
    
    1,203
    
    
    
    Excess tax benefits from share-based payment arrangements
    
    
    (153
    )
    
    
    (11
    )
    
    
    Tax benefit on stock options exercised
    
    
    
    
    
    
    
    
    
    
    1,993Provision (benefit) for deferred income taxes
    
    
    4,337
    
    
    
    14,281
    
    
    
    (543
    )Other
    
    
    2,019
    
    
    
    3,371
    
    
    
    518Changes in assets and liabilities:Increase in receivables
    
    
    (7,795
    )
    
    
    (22,256
    )
    
    
    (14,155
    )(Increase) decrease in inventories and cemetery property
    
    
    (4,365
    )
    
    
    (4,193
    )
    
    
    1,246Increase in accounts payable and accrued expenses
    
    
    1,741
    
    
    
    10,454
    
    
    
    7,018Net effect of preneed funeral production and maturities:Decrease in preneed funeral receivables and trust investments
    
    
    4,167
    
    
    
    4,567
    
    
    
    4,141Decrease in deferred preneed funeral revenue
    
    
    (15,435
    )
    
    
    (15,375
    )
    
    
    (13,628
    )Increase in funeral non-controlling interest
    
    
    10,867
    
    
    
    5,058
    
    
    
    2,449Net effect of preneed cemetery production and deliveries:Decrease in preneed cemetery receivables and trust investments
    
    
    5,042
    
    
    
    3,479
    
    
    
    1,192Increase (decrease) in deferred preneed cemetery revenue
    
    
    (11,807
    )
    
    
    10,235
    
    
    
    (8,313
    )Increase in cemetery non-controlling interest
    
    
    11,681
    
    
    
    11,686
    
    
    
    12,368Increase (decrease) in other
    
    
    2,747
    
    
    
    (2,779
    )
    
    
    (3,703
    )Net cash provided by operating activities
    
    
    81,941
    
    
    
    90,101
    
    
    
    52,842Cash flows from investing activities:Proceeds from sales of marketable securities
    
    
    
    
    
    
    
    
    
    
    16Proceeds from sale of assets, net
    
    
    3,750
    
    
    
    1,218
    
    
    
    10,007Purchase of subsidiaries, net of cash acquired
    
    
    (5,203
    )
    
    
    
    
    
    
    Insurance proceeds related to hurricane damaged properties
    
    
    2,529
    
    
    
    6,000
    
    
    
    Additions to property and equipment
    
    
    (35,310
    )
    
    
    (28,907
    )
    
    
    (22,569
    )Other
    
    
    48
    
    
    
    249
    
    
    
    149Net cash used in investing activities
    
    
    (34,186
    )
    
    
    (21,440
    )
    
    
    (12,397
    )Cash flows from financing activities:Proceeds from long-term debt
    
    
    250,000
    
    
    
    
    
    
    
    440,000Repayments of long-term debt
    
    
    (176,547
    )
    
    
    (33,168
    )
    
    
    (446,778
    )Debt issue costs
    
    
    (6,217
    )
    
    
    
    
    
    
    (6,257
    )Proceeds from sale of common stock warrants
    
    
    43,850
    
    
    
    
    
    
    
    Issuance of common stock
    
    
    3,066
    
    
    
    368
    
    
    
    13,602Purchase and retirement of common stock
    
    
    (64,201
    )
    
    
    (21,996
    )
    
    
    (13,685
    )Purchase of call options
    
    
    (60,000
    )
    
    
    
    
    
    
    Dividends
    
    
    (10,184
    )
    
    
    (10,673
    )
    
    
    (8,183
    )Excess tax benefits from share-based payment arrangements
    
    
    153
    
    
    
    11
    
    
    
    Other
    
    
    
    
    
    
    62
    
    
    
    (53
    )Net cash used in financing activities
    
    
    (20,080
    )
    
    
    (65,396
    )
    
    
    (21,354
    )Net increase in cash
    
    
    27,675
    
    
    
    3,265
    
    
    
    19,091Cash and cash equivalents, beginning of year
    
    
    43,870
    
    
    
    40,605
    
    
    
    21,514Cash and cash equivalents, end of year
    
    $
    71,545
    
    
    $
    43,870
    
    
    $
    40,605Supplemental cash flow information:Cash paid during the year for:Income taxes
    
    $
    9,300
    
    
    $
    4,200
    
    
    $
    2,000Interest
    
    $
    24,800
    
    
    $
    27,600
    
    
    $
    34,400Noncash investing and financing activities:Issuance of common stock to executive officers and directors
    
    $
    1,028
    
    
    $
    612
    
    
    $
    Issuance of restricted stock, net of forfeitures
    
    $
    4,136
    
    
    $
    35
    
    
    $
    1,090
  55




---



##### Table of Contents



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
     56




---



##### Table of Contents



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
 57




---



##### Table of Contents



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
 58




---



##### Table of Contents



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
      59




---



##### Table of Contents



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
    60




---



##### Table of Contents



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
  61




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (2) Summary of Significant Accounting Policies(Continued)
     62




---



##### Table of Contents



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 and Sales Cancellations
  Income Taxes
   Earnings Per Common Share
   Purchase and Retirement of Common Stock
  63




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (2) Summary of Significant Accounting Policies(Continued)
  Derivatives
  Estimated Insurance Loss Liabilities
       64




---



##### Table of Contents



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
  Business Interruption Insurance
  Computer Software
  Out of Period Adjustments
  65




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (2) Summary of Significant Accounting Policies(Continued)
  (1)
    
    The Company overstated deferred revenue 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 fiscal year 2006.(2)
    
    The Company understated accounts payable 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)
    
    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.(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 and the correction of this error
resulted in an increase to funeral revenue.(5)
    
    The Company incorrectly calculated its non-compete amortization.(6)
    
    The Company also had other immaterial miscellaneous adjustments.
 66




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (2) Summary of Significant Accounting Policies(Continued)
 Year 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
    )
 Reclassifications
  67




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (2) Summary of Significant Accounting Policies(Continued)
 
   (3) Change in Accounting Principles and New Accounting Principles
 Stock-Based Compensation
    68




---



##### Table of Contents



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)
 Year EndedOctober 31, 2005Net loss
    
    $
    (143,326
    )Stock-based employee compensation expense included in reported net earnings, net of tax
    
    
    440Stock-based employee compensation expense determined under fair value-based method,
net of tax
    
    
    (1,696
    )Pro forma net loss
    
    $
    (144,582
    )Net loss per common share:Basic  as reported
    
    $
    (1.31
    )Basic  pro forma
    
    $
    (1.32
    )Diluted  as reported
    
    $
    (1.31
    )Diluted  pro forma
    
    $
    (1.32
    )
 Preneed Selling Costs
   Other Accounting Pronouncements
  69




---



##### Table of Contents



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
  70




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (4) Preneed Funeral Activities(Continued)
 October 31, 2007
    
    
    October 31, 2006Trust assets
    
    $
    477,335
    
    
    $
    463,721Receivables from customers
    
    
    37,718
    
    
    
    49,974Preneed funeral receivables and trust investments
    
    $
    515,053
    
    
    $
    513,695
  October 31, 2007Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other short-
term investments
    
    $
    39,349
    
    
    $
    
    
    
    $
    
    
    
    $
    39,349U.S. Government, agencies and
municipalities
    
    
    21,183
    
    
    
    192
    
    
    
    (46
    )
    
    
    21,329Corporate bonds
    
    
    54,324
    
    
    
    448
    
    
    
    (1,255
    )
    
    
    53,517Preferred stocks
    
    
    68,652
    
    
    
    243
    
    
    
    (5,754
    )
    
    
    63,141Common stocks
    
    
    217,780
    
    
    
    35,065
    
    
    
    (10,801
    )
    
    
    242,044Mutual funds
    
    
    34,165
    
    
    
    2,630
    
    
    
    (149
    )
    
    
    36,646Insurance contracts and other
long-term investments
    
    
    19,888
    
    
    
    91
    
    
    
    
    
    
    
    19,979Trust investments
    
    $
    455,341
    
    
    $
    38,669
    
    
    $
    (18,005
    )
    
    $
    476,005Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104.5
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,330Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    477,335
  October 31, 2007Due in one year or less
    
    $
    1,372Due in one to five years
    
    
    31,794Due in five to ten years
    
    
    41,390Thereafter
    
    
    290$
    74,846
  71




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (4) Preneed Funeral Activities(Continued)
 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,356
    )Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    463,721
  Year Ended October 31,2007
    
    
    2006
    
    
    2005Purchases
    
    $
    152,126
    
    
    $
    149,504
    
    
    $
    221,780Sales
    
    
    148,309
    
    
    
    159,106
    
    
    
    152,417Realized gains
    
    
    17,820
    
    
    
    19,477
    
    
    
    12,968Realized losses on sales
    
    
    (297
    )
    
    
    (1,718
    )
    
    
    (7,256
    )Other comprehensive income:Reduction (increase) in net unrealized losses
    
    
    (853
    )
    
    
    18,500
    
    
    
    8,675Reclassification to non-controlling interest
    
    
    853
    
    
    
    (18,500
    )
    
    
    (8,675
    )
   72




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (4) Preneed Funeral Activities(Continued)
 October 31, 2007Less than 12 Months
    
    
    12 Months or Greater
    
    
    TotalMarket
    
    
    Unrealized
    
    
    Market
    
    
    Unrealized
    
    
    Market
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. Government,
agencies and
municipalities
    
    $
    
    
    
    $
    
    
    
    $
    4,270
    
    
    $
    (46
    )
    
    $
    4,270
    
    
    $
    (46
    )Corporate bonds
    
    
    20,546
    
    
    
    (784
    )
    
    
    7,373
    
    
    
    (471
    )
    
    
    27,919
    
    
    
    (1,255
    )Preferred stocks
    
    
    19,427
    
    
    
    (1,239
    )
    
    
    33,413
    
    
    
    (4,515
    )
    
    
    52,840
    
    
    
    (5,754
    )Common stocks
    
    
    52,227
    
    
    
    (5,411
    )
    
    
    26,584
    
    
    
    (5,390
    )
    
    
    78,811
    
    
    
    (10,801
    )Mutual funds
    
    
    4,886
    
    
    
    (93
    )
    
    
    2,180
    
    
    
    (56
    )
    
    
    7,066
    
    
    
    (149
    )Total
    
    $
    97,086
    
    
    $
    (7,527
    )
    
    $
    73,820
    
    
    $
    (10,478
    )
    
    $
    170,906
    
    
    $
    (18,005
    )
 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
    )
 (5) Preneed Cemetery Merchandise and Service Activities
 Preneed Cemetery Receivables and Trust Investments
  October 31, 2007
    
    
    October 31, 2006Trust assets
    
    $
    215,541
    
    
    $
    201,701Receivables from customers
    
    
    40,138
    
    
    
    56,229Preneed cemetery receivables and trust investments
    
    $
    255,679
    
    
    $
    257,930
  73




---



##### Table of Contents



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, 2007Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other short-
term investments
    
    $
    16,955
    
    
    $
    
    
    
    $
    
    
    
    $
    16,955U.S. Government, agencies and
municipalities
    
    
    15,397
    
    
    
    223
    
    
    
    (13
    )
    
    
    15,607Corporate bonds
    
    
    11,451
    
    
    
    211
    
    
    
    (191
    )
    
    
    11,471Preferred stocks
    
    
    26,330
    
    
    
    42
    
    
    
    (2,209
    )
    
    
    24,163Common stocks
    
    
    106,478
    
    
    
    15,543
    
    
    
    (6,284
    )
    
    
    115,737Mutual funds
    
    
    29,958
    
    
    
    1,116
    
    
    
    (37
    )
    
    
    31,037Insurance contracts and other
long-term investments
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    64Trust investments
    
    $
    206,633
    
    
    $
    17,135
    
    
    $
    (8,734
    )
    
    $
    215,034Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104.1
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    507Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    215,541
  October 31, 2007Due in one year or less
    
    $
    2,181Due in one to five years
    
    
    15,994Due in five to ten years
    
    
    8,878Thereafter
    
    
    25$
    27,078
  74




---



##### Table of Contents



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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103.9
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,331Less trust investments of assets
held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (282
    )Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    201,701
  Year Ended October 31,2007
    
    2006
    
    2005Purchases
    
    $
    223,437
    
    
    $
    115,257
    
    
    $
    133,501Sales
    
    
    218,808
    
    
    
    131,166
    
    
    
    110,342Realized gains
    
    
    12,705
    
    
    
    11,090
    
    
    
    9,260Realized losses on sales
    
    
    (300
    )
    
    
    (1,593
    )
    
    
    (2,997
    )Other comprehensive income:Reduction in net unrealized losses
    
    
    958
    
    
    
    7,873
    
    
    
    1,136Reclassification to non-controlling interest
    
    
    (958
    )
    
    
    (7,873
    )
    
    
    (1,136
    )
   75




---



##### Table of Contents



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, 2007Less than 12 Months
    
    
    12 Months or Greater
    
    
    TotalMarket
    
    
    Unrealized
    
    
    Market
    
    
    Unrealized
    
    
    Market
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. Government,
agencies and
municipalities
    
    $
    199
    
    
    $
    (3
    )
    
    $
    1,191
    
    
    $
    (10
    )
    
    $
    1,390
    
    
    $
    (13
    )Corporate bonds
    
    
    4,279
    
    
    
    (176
    )
    
    
    396
    
    
    
    (15
    )
    
    
    4,675
    
    
    
    (191
    )Preferred stocks
    
    
    5,956
    
    
    
    (361
    )
    
    
    12,524
    
    
    
    (1,848
    )
    
    
    18,480
    
    
    
    (2,209
    )Common stocks
    
    
    38,118
    
    
    
    (3,647
    )
    
    
    12,088
    
    
    
    (2,637
    )
    
    
    50,206
    
    
    
    (6,284
    )Mutual funds
    
    
    3,053
    
    
    
    (31
    )
    
    
    2,662
    
    
    
    (6
    )
    
    
    5,715
    
    
    
    (37
    )Total
    
    $
    51,605
    
    
    $
    (4,218
    )
    
    $
    28,861
    
    
    $
    (4,516
    )
    
    $
    80,466
    
    
    $
    (8,734
    )
 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
    )
 (6) Cemetery Interment Rights and Perpetual Care Trusts
   76




---



##### Table of Contents



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, 2007Adjusted
    
    
    Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    MarketCash, money market and other
short-term investments
    
    $
    11,752
    
    
    $
    
    
    
    $
    
    
    
    $
    11,752U.S. Government, agencies and
municipalities
    
    
    12,303
    
    
    
    162
    
    
    
    (82
    )
    
    
    12,383Corporate bonds
    
    
    43,946
    
    
    
    1,183
    
    
    
    (460
    )
    
    
    44,669Preferred stocks
    
    
    62,349
    
    
    
    621
    
    
    
    (5,341
    )
    
    
    57,629Common stocks
    
    
    80,191
    
    
    
    18,626
    
    
    
    (3,514
    )
    
    
    95,303Mutual funds
    
    
    11,065
    
    
    
    1,985
    
    
    
    (85
    )
    
    
    12,965Insurance contracts and other
long-term investments
    
    
    817
    
    
    
    166
    
    
    
    (15
    )
    
    
    968Trust investments
    
    $
    222,423
    
    
    $
    22,743
    
    
    $
    (9,497
    )
    
    $
    235,669Market value as a percentage of cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106.0
    %Accrued investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    834Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    236,503
  October 31, 2007Due in one year or less
    
    $
    2,106Due in one to five years
    
    
    27,616Due in five to ten years
    
    
    26,527Thereafter
    
    
    803$
    57,052
  77




---



##### Table of Contents



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, 2006Adjusted
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,839
    )Trust assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    228,648
  Year Ended October 31,2007
    
    2006
    
    2005Purchases
    
    $
    65,172
    
    
    $
    63,074
    
    
    $
    111,349Sales
    
    
    57,921
    
    
    
    54,450
    
    
    
    98,774Realized gains on sales
    
    
    4,756
    
    
    
    4,853
    
    
    
    5,578Realized losses on sales
    
    
    (1,334
    )
    
    
    (3,456
    )
    
    
    (2,017
    )Other comprehensive income:Reduction (increase) in net unrealized losses
    
    
    130
    
    
    
    10,299
    
    
    
    (5,172
    )Reclassification to non-controlling interest
    
    
    (130
    )
    
    
    (10,299
    )
    
    
    5,172
    78




---



##### Table of Contents



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, 2007Less than 12 Months
    
    
    12 Months or Greater
    
    
    TotalMarket
    
    
    Unrealized
    
    
    Market
    
    
    Unrealized
    
    
    Market
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. Government,
agencies and
municipalities
    
    $
    523
    
    
    $
    (7
    )
    
    $
    1,919
    
    
    $
    (75
    )
    
    $
    2,442
    
    
    $
    (82
    )Corporate bonds
    
    
    13,594
    
    
    
    (338
    )
    
    
    2,407
    
    
    
    (122
    )
    
    
    16,001
    
    
    
    (460
    )Preferred stocks
    
    
    26,363
    
    
    
    (2,052
    )
    
    
    20,428
    
    
    
    (3,289
    )
    
    
    46,791
    
    
    
    (5,341
    )Common stocks
    
    
    17,094
    
    
    
    (2,256
    )
    
    
    6,795
    
    
    
    (1,258
    )
    
    
    23,889
    
    
    
    (3,514
    )Mutual funds
    
    
    1,434
    
    
    
    (61
    )
    
    
    339
    
    
    
    (24
    )
    
    
    1,773
    
    
    
    (85
    )Insurance contracts
and other long-term
investments
    
    
    40
    
    
    
    (7
    )
    
    
    99
    
    
    
    (8
    )
    
    
    139
    
    
    
    (15
    )Total
    
    $
    59,048
    
    
    $
    (4,721
    )
    
    $
    31,987
    
    
    $
    (4,776
    )
    
    $
    91,035
    
    
    $
    (9,497
    )
 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
    )
 (7) Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care Trusts
  Non-controlling InterestNon-controllingInterest inPreneed
    
    
    Preneed
    
    
    
    
    
    
    PerpetualFuneral
    
    
    Cemetery
    
    
    Total
    
    
    Care TrustsTrust assets at market value
    
    $
    477,335
    
    
    $
    215,541
    
    
    $
    692,876
    
    
    $
    236,503Less:Pending withdrawals
    
    
    (9,551
    )
    
    
    (4,528
    )
    
    
    (14,079
    )
    
    
    (1,907
    )Pending deposits
    
    
    2,607
    
    
    
    1,648
    
    
    
    4,255
    
    
    
    831Non-controlling interest
    
    $
    470,391
    
    
    $
    212,661
    
    
    $
    683,052
    
    
    $
    235,427
  79




---



##### Table of Contents



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)
 Non-controlling InterestNon-controllingInterest inPreneed
    
    
    Preneed
    
    
    
    
    
    
    PerpetualFuneral
    
    
    Cemetery
    
    
    Total
    
    
    Care TrustsTrust assets at market value
    
    $
    463,721
    
    
    $
    201,701
    
    
    $
    665,422
    
    
    $
    228,648Less:Pending withdrawals
    
    
    (10,316
    )
    
    
    (5,174
    )
    
    
    (15,490
    )
    
    
    (2,300
    )Pending deposits
    
    
    2,362
    
    
    
    1,520
    
    
    
    3,882
    
    
    
    793Non-controlling interest
    
    $
    455,767
    
    
    $
    198,047
    
    
    $
    653,814
    
    
    $
    227,141
 Investment and other income, net
  Year Ended October 31,2007
    
    
    2006
    
    
    2005Non-controlling interest:Realized gains
    
    $
    35,281
    
    
    $
    35,420
    
    
    $
    27,806Realized losses
    
    
    (1,931
    )
    
    
    (6,767
    )
    
    
    (12,270
    )Interest income, dividends and other
ordinary income
    
    
    32,478
    
    
    
    29,254
    
    
    
    26,393Trust expenses and income taxes
    
    
    (11,253
    )
    
    
    (12,069
    )
    
    
    (12,020
    )Net trust investment income
    
    
    54,575
    
    
    
    45,838
    
    
    
    29,909Non-controlling interest in funeral and
cemetery trust investment income
    
    
    (44,661
    )
    
    
    (37,761
    )
    
    
    (20,861
    )Non-controlling interest in perpetual care
trust investment income
    
    
    (9,914
    )
    
    
    (8,077
    )
    
    
    (9,048
    )Total non-controlling interest
    
    
    
    
    
    
    
    
    
    
    Investment and other income, net (1)
    
    
    3,374
    
    
    
    3,676
    
    
    
    713Total investment and other income, net
    
    $
    3,374
    
    
    $
    3,676
    
    
    $
    713
 
 (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. For the year
ended October 31, 2007, the balance includes approximately $594 of interest income receivable
from the Internal Revenue Service. (8) Marketable Securities and Restricted Investments
  80




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (9) Receivables
 October 31,2007
    
    
    2006Current receivables are summarized as follows:Installment contracts due within one year
    
    $
    44,070
    
    
    $
    35,134Income tax receivables
    
    
    1,833
    
    
    
    8,800Receivable for hurricane related insurance proceeds
    
    
    
    
    
    
    10,000Trade and other receivables
    
    
    15,114
    
    
    
    16,830Funeral receivables
    
    
    11,102
    
    
    
    11,940Allowance for doubtful accounts
    
    
    (8,142
    )
    
    
    (6,635
    )Amounts to be collected for cemetery perpetual care trusts
    
    
    (3,362
    )
    
    
    (3,515
    )Net current receivables
    
    $
    60,615
    
    
    $
    72,554Long-term receivables are summarized as follows:Installment contracts due beyond one year
    
    $
    90,453
    
    
    $
    85,904Income tax receivable
    
    
    10,880
    
    
    
    8,485Allowance for doubtful accounts
    
    
    (10,824
    )
    
    
    (10,888
    )Amounts to be collected for cemetery perpetual care trusts
    
    
    (6,901
    )
    
    
    (8,151
    )Net long-term receivables
    
    $
    83,608
    
    
    $
    75,350
   Years ending October 31,2008
    
    $
    60,6152009
    
    
    22,1702010
    
    
    13,1572011
    
    
    12,9102012
    
    
    9,885Thereafter
    
    
    25,486$
    144,223
 (10) Inventories and Cemetery Property
  October 31,2007
    
    
    2006Developed cemetery property
    
    $
    12,518
    
    
    $
    13,274Merchandise and supplies
    
    
    23,543
    
    
    
    22,978$
    36,061
    
    
    $
    36,252
 81




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (10) Inventories and Cemetery Property(Continued)
  October 31,2007
    
    
    2006Developed cemetery property
    
    $
    104,058
    
    
    $
    99,010Undeveloped cemetery property
    
    
    270,742
    
    
    
    271,270$
    374,800
    
    
    $
    370,280
  (11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes
   82




---



##### Table of Contents



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
Notes and Senior Convertible Notes(Continued)
 Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Year Ended October 31, 2007Guarantor
    
    
    Guarantor
    
    
    Non-Subsidiaries-
    
    
    Subsidiaries-
    
    
    GuarantorParent
    
    
    Tier 1
    
    
    Tier 2
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Funeral
    
    $
    
    
    
    $
    257,783
    
    
    $
    1,558
    
    
    $
    19,989
    
    
    $
    
    
    
    $
    279,330Cemetery
    
    
    
    
    
    
    218,836
    
    
    
    3,193
    
    
    
    21,458
    
    
    
    
    
    
    
    243,487
    
    
    
    476,619
    
    
    
    4,751
    
    
    
    41,447
    
    
    
    
    
    
    
    522,817Costs and expenses:Funeral
    
    
    
    
    
    
    202,721
    
    
    
    1,036
    
    
    
    12,618
    
    
    
    
    
    
    
    216,375Cemetery
    
    
    
    
    
    
    175,070
    
    
    
    2,492
    
    
    
    16,450
    
    
    
    
    
    
    
    194,012
    
    
    
    377,791
    
    
    
    3,528
    
    
    
    29,068
    
    
    
    
    
    
    
    410,387Gross profit
    
    
    
    
    
    
    98,828
    
    
    
    1,223
    
    
    
    12,379
    
    
    
    
    
    
    
    112,430Corporate general and administrative
expenses
    
    
    (31,143
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,143
    )Hurricane related charges, net
    
    
    (4
    )
    
    
    (965
    )
    
    
    (1,564
    )
    
    
    
    
    
    
    
    
    
    
    (2,533
    )Separation charges
    
    
    (384
    )
    
    
    (196
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (580
    )Gains on dispositions and impairment
(losses), net
    
    
    4
    
    
    
    (45
    )
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (44
    )Other operating income, net
    
    
    361
    
    
    
    1,054
    
    
    
    2
    
    
    
    234
    
    
    
    
    
    
    
    1,651Operating earnings (loss)
    
    
    (31,166
    )
    
    
    98,676
    
    
    
    (339
    )
    
    
    12,610
    
    
    
    
    
    
    
    79,781Interest expense
    
    
    8,718
    
    
    
    (31,481
    )
    
    
    (189
    )
    
    
    (2,113
    )
    
    
    
    
    
    
    (25,065
    )Loss on early extinguishment of debt
    
    
    (677
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (677
    )Investment and other income, net
    
    
    3,266
    
    
    
    94
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    3,374Equity in subsidiaries
    
    
    59,324
    
    
    
    530
    
    
    
    
    
    
    
    
    
    
    
    (59,854
    )
    
    
    Earnings (loss) from continuing
operations before income taxes
    
    
    39,465
    
    
    
    67,819
    
    
    
    (528
    )
    
    
    10,511
    
    
    
    (59,854
    )
    
    
    57,413Income tax expense (benefit)
    
    
    (348
    )
    
    
    16,041
    
    
    
    (186
    )
    
    
    2,592
    
    
    
    
    
    
    
    18,099Earnings (loss) from continuing
operations
    
    
    39,813
    
    
    
    51,778
    
    
    
    (342
    )
    
    
    7,919
    
    
    
    (59,854
    )
    
    
    39,314Discontinued operations:Earnings from discontinued
operations before income taxes
    
    
    
    
    
    
    807
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    807Income taxes
    
    
    
    
    
    
    308
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    308Earnings from discontinued operations
    
    
    
    
    
    
    499
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    499Net earnings (loss)
    
    
    39,813
    
    
    
    52,277
    
    
    
    (342
    )
    
    
    7,919
    
    
    
    (59,854
    )
    
    
    39,813Other comprehensive income , net
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    (14
    )
    
    
    14Comprehensive income (loss)
    
    $
    39,827
    
    
    $
    52,277
    
    
    $
    (342
    )
    
    $
    7,933
    
    
    $
    (59,868
    )
    
    $
    39,827
 83




---



##### Table of Contents



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
Notes and Senior Convertible Notes-(Continued)
 Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Year Ended October 31, 2006Guarantor
    
    
    Guarantor
    
    
    Non-Subsidiaries-
    
    
    Subsidiaries-
    
    
    GuarantorParent
    
    
    Tier 1
    
    
    Tier 2
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Funeral
    
    $
    
    
    
    $
    259,673
    
    
    $
    1,321
    
    
    $
    19,243
    
    
    $
    
    
    
    $
    280,237Cemetery
    
    
    
    
    
    
    213,343
    
    
    
    3,091
    
    
    
    17,559
    
    
    
    
    
    
    
    233,993
    
    
    
    473,016
    
    
    
    4,412
    
    
    
    36,802
    
    
    
    
    
    
    
    514,230Costs and expenses:Funeral
    
    
    
    
    
    
    201,744
    
    
    
    815
    
    
    
    12,483
    
    
    
    
    
    
    
    215,042Cemetery
    
    
    
    
    
    
    167,577
    
    
    
    2,637
    
    
    
    14,361
    
    
    
    
    
    
    
    184,575
    
    
    
    369,321
    
    
    
    3,452
    
    
    
    26,844
    
    
    
    
    
    
    
    399,617Gross profit
    
    
    
    
    
    
    103,695
    
    
    
    960
    
    
    
    9,958
    
    
    
    
    
    
    
    114,613Corporate general and administrative
expenses
    
    
    (31,739
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,739
    )Hurricane related recoveries (charges), net
    
    
    (127
    )
    
    
    2,463
    
    
    
    (708
    )
    
    
    
    
    
    
    
    
    
    
    1,628Separation charges
    
    
    (807
    )
    
    
    (184
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (991
    )Gains on dispositions and impairment
(losses), net
    
    
    
    
    
    
    (78
    )
    
    
    
    
    
    
    (75
    )
    
    
    
    
    
    
    (153
    )Other operating income (expense), net
    
    
    36
    
    
    
    1,048
    
    
    
    (49
    )
    
    
    298
    
    
    
    
    
    
    
    1,333Operating earnings (loss)
    
    
    (32,637
    )
    
    
    106,944
    
    
    
    203
    
    
    
    10,181
    
    
    
    
    
    
    
    84,691Interest expense
    
    
    9,173
    
    
    
    (36,441
    )
    
    
    (417
    )
    
    
    (1,948
    )
    
    
    
    
    
    
    (29,633
    )Investment and other income, net
    
    
    3,676
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,676Equity in subsidiaries
    
    
    48,652
    
    
    
    591
    
    
    
    
    
    
    
    
    
    
    
    (49,243
    )
    
    
    Earnings (loss) from continuing
operations before income taxes
    
    
    28,864
    
    
    
    71,094
    
    
    
    (214
    )
    
    
    8,233
    
    
    
    (49,243
    )
    
    
    58,734Income tax expense (benefit)
    
    
    (8,729
    )
    
    
    23,570
    
    
    
    (58
    )
    
    
    6,371
    
    
    
    
    
    
    
    21,154Earnings (loss) from continuing
operations
    
    
    37,593
    
    
    
    47,524
    
    
    
    (156
    )
    
    
    1,862
    
    
    
    (49,243
    )
    
    
    37,580Discontinued operations:Earnings (loss) from discontinued
operations before income taxes
    
    
    
    
    
    
    (418
    )
    
    
    
    
    
    
    338
    
    
    
    
    
    
    
    (80
    )Income tax benefit
    
    
    
    
    
    
    (93
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (93
    )Earnings (loss) from discontinued
operations
    
    
    
    
    
    
    (325
    )
    
    
    
    
    
    
    338
    
    
    
    
    
    
    
    13Net earnings (loss)
    
    
    37,593
    
    
    
    47,199
    
    
    
    (156
    )
    
    
    2,200
    
    
    
    (49,243
    )
    
    
    37,593Other comprehensive income (loss), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive income (loss)
    
    $
    37,593
    
    
    $
    47,199
    
    
    $
    (156
    )
    
    $
    2,200
    
    
    $
    (49,243
    )
    
    $
    37,593
 84




---



##### Table of Contents



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
Notes and Senior Convertible Notes-(Continued)
 Condensed Consolidating Statements of Earnings and Other Comprehensive Income
 Year Ended October 31, 2005Guarantor
    
    
    Guarantor
    
    
    Non-Subsidiaries-
    
    
    Subsidiaries-
    
    
    GuarantorParent
    
    
    Tier 1
    
    
    Tier 2
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Funeral
    
    $
    
    
    
    $
    249,291
    
    
    $
    1,402
    
    
    $
    20,020
    
    
    $
    
    
    
    $
    270,713Cemetery
    
    
    
    
    
    
    192,983
    
    
    
    2,742
    
    
    
    22,471
    
    
    
    
    
    
    
    218,196
    
    
    
    442,274
    
    
    
    4,144
    
    
    
    42,491
    
    
    
    
    
    
    
    488,909Costs and expenses:Funeral
    
    
    
    
    
    
    196,111
    
    
    
    740
    
    
    
    12,672
    
    
    
    
    
    
    
    209,523Cemetery
    
    
    
    
    
    
    159,500
    
    
    
    2,505
    
    
    
    15,902
    
    
    
    
    
    
    
    177,907
    
    
    
    355,611
    
    
    
    3,245
    
    
    
    28,574
    
    
    
    
    
    
    
    387,430Gross profit
    
    
    
    
    
    
    86,663
    
    
    
    899
    
    
    
    13,917
    
    
    
    
    
    
    
    101,479Corporate general and administrative
expenses
    
    
    (19,440
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,440
    )Hurricane related charges, net
    
    
    (2,562
    )
    
    
    (6,573
    )
    
    
    (231
    )
    
    
    
    
    
    
    
    
    
    
    (9,366
    )Separation charges
    
    
    (1,049
    )
    
    
    (458
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,507
    )Gains on dispositions and impairment
(losses), net
    
    
    
    
    
    
    965
    
    
    
    
    
    
    
    346
    
    
    
    
    
    
    
    1,311Other operating income, net
    
    
    187
    
    
    
    683
    
    
    
    3
    
    
    
    500
    
    
    
    
    
    
    
    1,373Operating earnings (loss)
    
    
    (22,864
    )
    
    
    81,280
    
    
    
    671
    
    
    
    14,763
    
    
    
    
    
    
    
    73,850Interest expense
    
    
    53,814
    
    
    
    (74,808
    )
    
    
    (974
    )
    
    
    (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 and
cumulative effect of change in
accounting principle
    
    
    (152,961
    )
    
    
    6,472
    
    
    
    (303
    )
    
    
    6,271
    
    
    
    151,802
    
    
    
    11,281Income tax expense (benefit)
    
    
    (9,635
    )
    
    
    8,244
    
    
    
    (127
    )
    
    
    4,496
    
    
    
    
    
    
    
    2,978Earnings (loss) from continuing
operations before cumulative effect
of change in accounting principle
    
    
    (143,326
    )
    
    
    (1,772
    )
    
    
    (176
    )
    
    
    1,775
    
    
    
    151,802
    
    
    
    8,303Discontinued operations:Earnings from discontinued
operations before income taxes
    
    
    
    
    
    
    489
    
    
    
    
    
    
    
    1,313
    
    
    
    
    
    
    
    1,802Income taxes
    
    
    
    
    
    
    251
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    251Earnings from discontinued operations
    
    
    
    
    
    
    238
    
    
    
    
    
    
    
    1,313
    
    
    
    
    
    
    
    1,551Earnings (loss) before cumulative
effect of change in accounting
principle
    
    
    (143,326
    )
    
    
    (1,534
    )
    
    
    (176
    )
    
    
    3,088
    
    
    
    `          151,802
    
    
    
    9,854Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    (144,976
    )
    
    
    (300
    )
    
    
    (7,904
    )
    
    
    
    
    
    
    (153,180
    )Net loss
    
    
    (143,326
    )
    
    
    (146,510
    )
    
    
    (476
    )
    
    
    (4,816
    )
    
    
    151,802
    
    
    
    (143,326
    )Other comprehensive income, net
    
    
    330
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    (3
    )
    
    
    330Comprehensive loss
    
    $
    (142,996
    )
    
    $
    (146,510
    )
    
    $
    (476
    )
    
    $
    (4,813
    )
    
    $
    151,799
    
    
    $
    (142,996
    )
 85




---



##### Table of Contents



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
Notes and Senior Convertible Notes-(Continued)
 Condensed Consolidating Balance Sheets
 October 31, 2007Guarantor
    
    
    Guarantor
    
    
    Non-Subsidiaries-
    
    
    Subsidiaries-
    
    
    GuarantorParent
    
    
    Tier 1
    
    
    Tier 2
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    63,202
    
    
    $
    6,685
    
    
    $
    36
    
    
    $
    1,622
    
    
    $
    
    
    
    $
    71,545Marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    262
    
    
    
    
    
    
    
    262Receivables, net of allowances
    
    
    4,054
    
    
    
    51,619
    
    
    
    103
    
    
    
    4,839
    
    
    
    
    
    
    
    60,615Inventories
    
    
    368
    
    
    
    32,765
    
    
    
    328
    
    
    
    2,600
    
    
    
    
    
    
    
    36,061Prepaid expenses
    
    
    950
    
    
    
    4,306
    
    
    
    3
    
    
    
    1,096
    
    
    
    
    
    
    
    6,355Deferred income taxes, net
    
    
    1,334
    
    
    
    5,785
    
    
    
    78
    
    
    
    1,424
    
    
    
    
    
    
    
    8,621Total current assets
    
    
    69,908
    
    
    
    101,160
    
    
    
    548
    
    
    
    11,843
    
    
    
    
    
    
    
    183,459Receivables due beyond one year, net of
allowances
    
    
    10,358
    
    
    
    53,926
    
    
    
    928
    
    
    
    18,396
    
    
    
    
    
    
    
    83,608Preneed funeral receivables and trust
investments
    
    
    
    
    
    
    504,534
    
    
    
    
    
    
    
    10,519
    
    
    
    
    
    
    
    515,053Preneed cemetery receivables and trust
investments
    
    
    
    
    
    
    245,056
    
    
    
    1,199
    
    
    
    9,424
    
    
    
    
    
    
    
    255,679Goodwill
    
    
    
    
    
    
    253,451
    
    
    
    48
    
    
    
    19,787
    
    
    
    
    
    
    
    273,286Cemetery property, at cost
    
    
    
    
    
    
    338,274
    
    
    
    11,408
    
    
    
    25,118
    
    
    
    
    
    
    
    374,800Property and equipment, at cost
    
    
    43,395
    
    
    
    436,588
    
    
    
    1,699
    
    
    
    37,299
    
    
    
    
    
    
    
    518,981Less accumulated depreciation
    
    
    26,701
    
    
    
    172,924
    
    
    
    663
    
    
    
    12,775
    
    
    
    
    
    
    
    213,063Net property and equipment
    
    
    16,694
    
    
    
    263,664
    
    
    
    1,036
    
    
    
    24,524
    
    
    
    
    
    
    
    305,918Deferred income taxes, net
    
    
    29,238
    
    
    
    156,254
    
    
    
    
    
    
    
    9,913
    
    
    
    (2,546
    )
    
    
    192,859Cemetery perpetual care trust investments
    
    
    
    
    
    
    224,182
    
    
    
    8,322
    
    
    
    3,999
    
    
    
    
    
    
    
    236,503Other assets
    
    
    9,664
    
    
    
    7,039
    
    
    
    16
    
    
    
    1,090
    
    
    
    
    
    
    
    17,809Equity in subsidiaries
    
    
    21,124
    
    
    
    6,826
    
    
    
    
    
    
    
    
    
    
    
    (27,950
    )
    
    
    Total assets
    
    $
    156,986
    
    
    $
    2,154,366
    
    
    $
    23,505
    
    
    $
    134,613
    
    
    $
    (30,496
    )
    
    $
    2,438,974LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    198
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    198Accounts payable
    
    
    2,196
    
    
    
    21,284
    
    
    
    1,075
    
    
    
    2,051
    
    
    
    
    
    
    
    26,606Accrued expenses and other current
liabilities
    
    
    16,654
    
    
    
    45,934
    
    
    
    
    
    
    
    2,691
    
    
    
    
    
    
    
    65,279Total current liabilities
    
    
    19,048
    
    
    
    67,218
    
    
    
    1,075
    
    
    
    4,742
    
    
    
    
    
    
    
    92,083Long-term debt, less current maturities
    
    
    450,115
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450,115Deferred income tax
    
    
    
    
    
    
    
    
    
    
    2,546
    
    
    
    
    
    
    
    (2,546
    )
    
    
    Intercompany payables, net
    
    
    (897,546
    )
    
    
    869,802
    
    
    
    4,419
    
    
    
    23,325
    
    
    
    
    
    
    
    Deferred preneed funeral revenue
    
    
    
    
    
    
    212,166
    
    
    
    
    
    
    
    44,437
    
    
    
    
    
    
    
    256,603Deferred preneed cemetery revenue
    
    
    
    
    
    
    255,266
    
    
    
    515
    
    
    
    28,726
    
    
    
    
    
    
    
    284,507Non-controlling interest in funeral and
cemetery trusts
    
    
    
    
    
    
    674,977
    
    
    
    1,119
    
    
    
    6,956
    
    
    
    
    
    
    
    683,052Other long-term liabilities
    
    
    11,717
    
    
    
    2,152
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,869Negative equity in subsidiaries
    
    
    150,334
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150,334
    )
    
    
    Total liabilities
    
    
    (266,332
    )
    
    
    2,081,581
    
    
    
    9,674
    
    
    
    108,186
    
    
    
    (152,880
    )
    
    
    1,780,229Non-controlling interest in perpetual
care trusts
    
    
    
    
    
    
    223,119
    
    
    
    8,309
    
    
    
    3,999
    
    
    
    
    
    
    
    235,427Common stock
    
    
    98,420
    
    
    
    102
    
    
    
    324
    
    
    
    52
    
    
    
    (478
    )
    
    
    98,420Other
    
    
    324,887
    
    
    
    (150,436
    )
    
    
    5,198
    
    
    
    22,365
    
    
    
    122,873
    
    
    
    324,887Accumulated other comprehensive income
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    (11
    )
    
    
    11Total shareholders equity
    
    
    423,318
    
    
    
    (150,334
    )
    
    
    5,522
    
    
    
    22,428
    
    
    
    122,384
    
    
    
    423,318Total liabilities and shareholders equity
    
    $
    156,986
    
    
    $
    2,154,366
    
    
    $
    23,505
    
    
    $
    134,613
    
    
    $
    (30,496
    )
    
    $
    2,438,974
 86




---



##### Table of Contents



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
Notes and Senior Convertible Notes-(Continued)
 Condensed Consolidating Balance Sheets
 October 31, 2006Guarantor
    
    
    Guarantor
    
    
    Non-Subsidiaries-
    
    
    Subsidiaries-
    
    
    GuarantorParent
    
    
    Tier 1
    
    
    Tier 2
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    39,120
    
    
    $
    3,254
    
    
    $
    37
    
    
    $
    1,459
    
    
    $
    
    
    
    $
    43,870Marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    239
    
    
    
    
    
    
    
    239Receivables, net of allowances
    
    
    9,875
    
    
    
    57,294
    
    
    
    1,703
    
    
    
    3,682
    
    
    
    
    
    
    
    72,554Inventories
    
    
    316
    
    
    
    32,804
    
    
    
    280
    
    
    
    2,852
    
    
    
    
    
    
    
    36,252Prepaid expenses
    
    
    539
    
    
    
    4,212
    
    
    
    12
    
    
    
    1,665
    
    
    
    
    
    
    
    6,428Deferred income taxes, net
    
    
    3,835
    
    
    
    5,482
    
    
    
    
    
    
    
    1,185
    
    
    
    
    
    
    
    10,502Assets held for sale
    
    
    
    
    
    
    349
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    349Total current assets
    
    
    53,685
    
    
    
    103,395
    
    
    
    2,032
    
    
    
    11,082
    
    
    
    
    
    
    
    170,194Receivables due beyond one year, net of
allowances
    
    
    9,139
    
    
    
    46,086
    
    
    
    949
    
    
    
    19,176
    
    
    
    
    
    
    
    75,350Preneed funeral receivables and trust
investments
    
    
    
    
    
    
    502,502
    
    
    
    
    
    
    
    11,193
    
    
    
    
    
    
    
    513,695Preneed cemetery receivables and trust
investments
    
    
    
    
    
    
    243,619
    
    
    
    847
    
    
    
    13,464
    
    
    
    
    
    
    
    257,930Goodwill
    
    
    
    
    
    
    251,507
    
    
    
    48
    
    
    
    19,787
    
    
    
    
    
    
    
    271,342Cemetery property, at cost
    
    
    
    
    
    
    335,160
    
    
    
    10,608
    
    
    
    24,512
    
    
    
    
    
    
    
    370,280Property and equipment, at cost
    
    
    37,126
    
    
    
    406,776
    
    
    
    1,311
    
    
    
    35,913
    
    
    
    
    
    
    
    481,126Less accumulated depreciation
    
    
    21,278
    
    
    
    155,524
    
    
    
    524
    
    
    
    11,500
    
    
    
    
    
    
    
    188,826Net property and equipment
    
    
    15,848
    
    
    
    251,252
    
    
    
    787
    
    
    
    24,413
    
    
    
    
    
    
    
    292,300Deferred income taxes, net
    
    
    8,526
    
    
    
    158,129
    
    
    
    
    
    
    
    10,071
    
    
    
    (2,743
    )
    
    
    173,983Cemetery perpetual care trust investments
    
    
    
    
    
    
    216,456
    
    
    
    8,136
    
    
    
    4,056
    
    
    
    
    
    
    
    228,648Non-current assets held for sale
    
    
    
    
    
    
    13,265
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,265Other assets
    
    
    5,312
    
    
    
    7,178
    
    
    
    
    
    
    
    1,100
    
    
    
    
    
    
    
    13,590Equity in subsidiaries
    
    
    14,391
    
    
    
    6,296
    
    
    
    
    
    
    
    
    
    
    
    (20,687
    )
    
    
    Total assets
    
    $
    106,901
    
    
    $
    2,134,845
    
    
    $
    23,407
    
    
    $
    138,854
    
    
    $
    (23,430
    )
    
    $
    2,380,577LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    2,839
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,839Accounts payable
    
    
    2,346
    
    
    
    14,243
    
    
    
    1,530
    
    
    
    1,256
    
    
    
    
    
    
    
    19,375Accrued expenses and other current
liabilities
    
    
    15,197
    
    
    
    48,441
    
    
    
    161
    
    
    
    3,023
    
    
    
    
    
    
    
    66,822Total current liabilities
    
    
    20,382
    
    
    
    62,684
    
    
    
    1,691
    
    
    
    4,279
    
    
    
    
    
    
    
    89,036Long-term debt, less current maturities
    
    
    344,020
    
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    374,020Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    2,743
    
    
    
    
    
    
    
    (2,743
    )
    
    
    Intercompany payables, net
    
    
    (923,919
    )
    
    
    914,855
    
    
    
    2,522
    
    
    
    6,542
    
    
    
    
    
    
    
    Deferred preneed funeral revenue
    
    
    
    
    
    
    226,097
    
    
    
    
    
    
    
    44,170
    
    
    
    
    
    
    
    270,267Deferred preneed cemetery revenue
    
    
    
    
    
    
    265,890
    
    
    
    1,772
    
    
    
    28,662
    
    
    
    
    
    
    
    296,324Non-controlling interest in funeral and
cemetery trusts
    
    
    
    
    
    
    646,509
    
    
    
    655
    
    
    
    6,650
    
    
    
    
    
    
    
    653,814Non-current liabilities associated with
assets held for sale
    
    
    
    
    
    
    8,833
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,833Other long-term liabilities
    
    
    10,386
    
    
    
    2,024
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,410Negative equity in subsidiaries
    
    
    209,139
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (209,139
    )
    
    
    Total liabilities
    
    
    (339,992
    )
    
    
    2,126,892
    
    
    
    9,383
    
    
    
    120,303
    
    
    
    (211,882
    )
    
    
    1,704,704Non-controlling interest in perpetual
care trusts
    
    
    
    
    
    
    214,925
    
    
    
    8,160
    
    
    
    4,056
    
    
    
    
    
    
    
    227,141Non-controlling interest in perpetual
care trusts associated with assets held
for sale
    
    
    
    
    
    
    1,839
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,839Common stock
    
    
    104,963
    
    
    
    102
    
    
    
    324
    
    
    
    52
    
    
    
    (478
    )
    
    
    104,963Other
    
    
    341,933
    
    
    
    (208,913
    )
    
    
    5,540
    
    
    
    14,446
    
    
    
    188,927
    
    
    
    341,933Accumulated other comprehensive loss
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    3
    
    
    
    (3
    )Total shareholders equity
    
    
    446,893
    
    
    
    (208,811
    )
    
    
    5,864
    
    
    
    14,495
    
    
    
    188,452
    
    
    
    446,893Total liabilities and shareholders equity
    
    $
    106,901
    
    
    $
    2,134,845
    
    
    $
    23,407
    
    
    $
    138,854
    
    
    $
    (23,430
    )
    
    $
    2,380,577
 87




---



##### Table of Contents



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
Notes and Senior Convertible Notes-(Continued)
 Condensed Consolidating Statements of Cash Flows
 Year Ended October 31, 2007Guarantor
    
    
    Guarantor
    
    
    Non-Subsidiaries-
    
    
    Subsidiaries-
    
    
    GuarantorParent
    
    
    Tier 1
    
    
    Tier 2
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in) operating
activities
    
    $
    637
    
    
    $
    68,417
    
    
    $
    (1,838
    )
    
    $
    14,725
    
    
    $
    
    
    
    $
    81,941Cash flows from investing activities:Proceeds from sale of assets, net
    
    
    
    
    
    
    3,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,750Purchases of subsidiaries, net of cash
acquired
    
    
    
    
    
    
    (5,203
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,203
    )Insurance proceeds related to
hurricane damaged properties
    
    
    
    
    
    
    2,439
    
    
    
    90
    
    
    
    
    
    
    
    
    
    
    
    2,529Additions to property and equipment
    
    
    (6,648
    )
    
    
    (27,167
    )
    
    
    (150
    )
    
    
    (1,345
    )
    
    
    
    
    
    
    (35,310
    )Other
    
    
    
    
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48Net cash used in investing activities
    
    
    (6,648
    )
    
    
    (26,133
    )
    
    
    (60
    )
    
    
    (1,345
    )
    
    
    
    
    
    
    (34,186
    )Cash flows from financing activities:Proceeds from long-term debt
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000Repayments of long-term debt
    
    
    (146,547
    )
    
    
    
    
    
    
    
    
    
    
    (30,000
    )
    
    
    
    
    
    
    (176,547
    )Intercompany receivables (payables)
    
    
    20,173
    
    
    
    (38,853
    )
    
    
    1,897
    
    
    
    16,783
    
    
    
    
    
    
    
    Debt issue costs
    
    
    (6,217
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,217
    )Proceeds from sale of common stock
warrants
    
    
    43,850
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,850Issuance of common stock
    
    
    3,066
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,066Purchase and retirement of common stock
    
    
    (64,201
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64,201
    )Purchase of call options
    
    
    (60,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (60,000
    )Dividends
    
    
    (10,184
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,184
    )Excess tax benefits from share-based
payment arrangements
    
    
    153
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    153Net cash provided by (used in)
financing activities
    
    
    30,093
    
    
    
    (38,853
    )
    
    
    1,897
    
    
    
    (13,217
    )
    
    
    
    
    
    
    (20,080
    )Net increase (decrease) in cash
    
    
    24,082
    
    
    
    3,431
    
    
    
    (1
    )
    
    
    163
    
    
    
    
    
    
    
    27,675Cash and cash equivalents, beginning of
period
    
    
    39,120
    
    
    
    3,254
    
    
    
    37
    
    
    
    1,459
    
    
    
    
    
    
    
    43,870Cash and cash equivalents, end of period
    
    $
    63,202
    
    
    $
    6,685
    
    
    $
    36
    
    
    $
    1,622
    
    
    $
    
    
    
    $
    71,545
 88




---



##### Table of Contents



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
Notes and Senior Convertible Notes-(Continued)
 Condensed Consolidating Statements of Cash Flows
 Year Ended October 31, 2006Guarantor
    
    
    Guarantor
    
    
    Non-Subsidiaries-
    
    
    Subsidiaries-
    
    
    GuarantorParent
    
    
    Tier 1
    
    
    Tier 2
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    1,968
    
    
    $
    73,676
    
    
    $
    789
    
    
    $
    13,668
    
    
    $
    
    
    
    $
    90,101Cash flows from investing activities:Proceeds from sale of assets, net
    
    
    
    
    
    
    485
    
    
    
    
    
    
    
    733
    
    
    
    
    
    
    
    1,218Insurance proceeds related to
hurricane damaged properties
    
    
    
    
    
    
    5,616
    
    
    
    384
    
    
    
    
    
    
    
    
    
    
    
    6,000Additions to property and equipment
    
    
    (3,583
    )
    
    
    (23,970
    )
    
    
    (169
    )
    
    
    (1,185
    )
    
    
    
    
    
    
    (28,907
    )Other
    
    
    10
    
    
    
    175
    
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    249Net cash provided by (used in)
investing activities
    
    
    (3,573
    )
    
    
    (17,694
    )
    
    
    215
    
    
    
    (388
    )
    
    
    
    
    
    
    (21,440
    )Cash flows from financing activities:Repayments of long-term debt
    
    
    (33,168
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,168
    )Intercompany receivables (payables)
    
    
    67,446
    
    
    
    (53,602
    )
    
    
    (967
    )
    
    
    (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
    
    
    
    (53,602
    )
    
    
    (967
    )
    
    
    (12,877
    )
    
    
    
    
    
    
    (65,396
    )Net increase in cash
    
    
    445
    
    
    
    2,380
    
    
    
    37
    
    
    
    403
    
    
    
    
    
    
    
    3,265Cash and cash equivalents, beginning of
period
    
    
    38,675
    
    
    
    874
    
    
    
    
    
    
    
    1,056
    
    
    
    
    
    
    
    40,605Cash and cash equivalents, end of period
    
    $
    39,120
    
    
    $
    3,254
    
    
    $
    37
    
    
    $
    1,459
    
    
    $
    
    
    
    $
    43,870
 89




---



##### Table of Contents



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
Notes and Senior Convertible Notes-(Continued)
 Condensed Consolidating Statements of Cash Flows
 Year Ended October 31, 2005Guarantor
    
    
    Guarantor
    
    
    Non-Subsidiaries-
    
    
    Subsidiaries-
    
    
    GuarantorParent
    
    
    Tier 1
    
    
    Tier 2
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    19,560
    
    
    $
    14,703
    
    
    $
    1,157
    
    
    $
    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
    )
    
    
    (15,015
    )
    
    
    (117
    )
    
    
    (3,703
    )
    
    
    
    
    
    
    (22,569
    )Other
    
    
    
    
    
    
    156
    
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    149Net cash used in investing activities
    
    
    (4,136
    )
    
    
    (6,899
    )
    
    
    (117
    )
    
    
    (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
    
    
    
    (14,555
    )
    
    
    (1,040
    )
    
    
    (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
    
    
    
    (14,555
    )
    
    
    (1,040
    )
    
    
    (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
 90




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (12) Discontinued Operations and Acquisitions
    October 31, 2006AssetsReceivables, net of allowances
    
    $
    22Inventories and other current assets
    
    
    327Assets held for sale
    
    $
    349Net property and equipment
    
    
    3,610Preneed funeral receivables and trust investments
    
    
    4,778Preneed cemetery receivables and trust investments
    
    
    224Deferred charges and other assets
    
    
    2,100Deferred income taxes, net
    
    
    4Cemetery property
    
    
    710Cemetery perpetual care trust investments
    
    
    1,839Non-current assets held for sale
    
    $
    13,265LiabilitiesDeferred preneed funeral revenue
    
    
    3,624Deferred preneed cemetery revenue
    
    
    574Non-controlling interest in funeral and cemetery trusts
    
    
    4,635Non-current liabilities associated with assets held for sale
    
    $
    8,833Non-controlling interest in perpetual care trusts associated with assets held for sale
    
    $
    1,839
 91




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (12) Discontinued Operations and Acquisitions-(Continued)
 Year Ended October 31,2007
    
    
    2006
    
    
    2005Revenue:Funeral
    
    $
    1,851
    
    
    $
    2,826
    
    
    $
    4,045Cemetery
    
    
    937
    
    
    
    1,061
    
    
    
    1,637$
    2,788
    
    
    $
    3,887
    
    
    $
    5,682Gross profit:Funeral
    
    $
    110
    
    
    $
    79
    
    
    $
    247Cemetery
    
    
    88
    
    
    
    32
    
    
    
    417198
    
    
    
    111
    
    
    
    664Gains on dispositions and impairment (losses), net
    
    
    609
    
    
    
    (174
    )
    
    
    1,090Other operating income (expense), net
    
    
    
    
    
    
    (17
    )
    
    
    48Earnings (loss) from discontinued operations
before income taxes
    
    $
    807
    
    
    $
    (80
    )
    
    $
    1,802
 Acquisitions
  (13) Separation Charges
   92




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (14) Long-term Debt
 October 31, 2007
    
    
    October 31, 2006Long-term debt:3.125% senior convertible notes due 2014
    
    $
    125,000
    
    
    $
    3.375% senior convertible notes due 2016
    
    
    125,000
    
    
    
    Senior secured credit facility:Revolving credit facility
    
    
    
    
    
    
    Term Loan B
    
    
    
    
    
    
    175,9046.25% senior notes due 2013
    
    
    200,000
    
    
    
    200,000Other, principally seller financing of
acquired operations or assumption upon
acquisition, weighted average interest
rates of 4.5% and 3.5% as of October
31, 2007 and October 31, 2006,
respectively, partially secured by
assets of subsidiaries, with maturities
through 2022
    
    
    313
    
    
    
    955Total long-term debt
    
    
    450,313
    
    
    
    376,859Less current maturities
    
    
    198
    
    
    
    2,839$
    450,115
    
    
    $
    374,020
 Senior Convertible Notes
    93




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (14) Long-term Debt-(Continued)
         94




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (14) Long-term Debt-(Continued)
   Senior Secured Credit Facility
     
    
    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.
  95




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (14) Long-term Debt-(Continued)
     Senior Notes
     96




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (14) Long-term Debt-(Continued)
     Other
    (15) Guarantees
    97




---



##### Table of Contents



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, 2007Earnings from continuing operations
    
    $
    39,314Basic earnings per common share:Earnings from continuing
operations available to common
shareholders
    
    $
    39,314
    
    
    
    102,584
    
    
    $
    .38Effect of dilutive securities:Time-vest stock options assumed
exercised and restricted stock
    
    
    
    
    
    
    153Diluted earnings per common share:Earnings from continuing
operations available to common
shareholders plus time-vest
stock options assumed exercised
and restricted stock
    
    $
    39,314
    
    
    
    102,737
    
    
    $
    .38
 98




---



##### Table of Contents



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)
 Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    DataYear Ended October 31, 2006Earnings from continuing operations
    
    $
    37,580Basic earnings per common share:Earnings from continuing
operations available to common
shareholders
    
    $
    37,580
    
    
    
    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
    
    $
    37,580
    
    
    
    106,900
    
    
    $
    .35
 Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    DataYear Ended October 31, 2005Earnings from continuing
operations before cumulative
effect of change in accounting
principle
    
    $
    8,303Basic earnings per common share:Earnings from continuing
operations before cumulative
effect of change in accounting
principle available to common
shareholders
    
    $
    8,303
    
    
    
    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
    
    $
    8,303
    
    
    
    109,205
    
    
    $
    .08
   99




---



##### Table of Contents



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. and 
Possessions
    
    
    State
    
    
    TotalsYear Ended October 31,2007:Current tax expense
    
    $
    10,582
    
    
    $
    3,180
    
    
    $
    13,762Deferred tax expense
    
    
    1,725
    
    
    
    2,612
    
    
    
    4,337$
    12,307
    
    
    $
    5,792
    
    
    $
    18,0992006:Current tax expense
    
    $
    1,680
    
    
    $
    5,053
    
    
    $
    6,733Deferred tax expense
    
    
    14,247
    
    
    
    174
    
    
    
    14,421$
    15,927
    
    
    $
    5,227
    
    
    $
    21,1542005:Current tax expense
    
    $
    1,548
    
    
    $
    1,930
    
    
    $
    3,478Deferred tax expense (benefit)
    
    
    227
    
    
    
    (727
    )
    
    
    (500
    )$
    1,775
    
    
    $
    1,203
    
    
    $
    2,978
 100




---



##### Table of Contents



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 31,2007:Current tax expense
    
    $
    269
    
    
    $
    39
    
    
    $
    308Deferred tax expense
    
    
    
    
    
    
    
    
    
    
    $
    269
    
    
    $
    39
    
    
    $
    3082006:Current tax expense (benefit)
    
    $
    51
    
    
    $
    (4
    )
    
    $
    47Deferred tax benefit
    
    
    (126
    )
    
    
    (14
    )
    
    
    (140
    )$
    (75
    )
    
    $
    (18
    )
    
    $
    (93
    )2005:Current tax expense
    
    $
    269
    
    
    $
    25
    
    
    $
    294Deferred tax benefit
    
    
    (43
    )
    
    
    
    
    
    
    (43
    )$
    226
    
    
    $
    25
    
    
    $
    251
  Year Ended October 31,2007
    
    2006
    
    2005Statutory tax rate
    
    
    35.00
    %
    
    
    35.00
    %
    
    
    35.00
    %Increases (reductions) in tax rate resulting from:State income tax
    
    
    3.68
    
    
    
    4.67
    
    
    
    7.09U.S. possession income tax
    
    
    (.79
    )
    
    
    2.48
    
    
    
    6.62Nondeductible expenses and other
    
    
    .04
    
    
    
    .13
    
    
    
    6.12Dividend exclusion
    
    
    (3.13
    )
    
    
    (3.47
    )
    
    
    (21.41
    )Basis adjustment on sale of businesses
    
    
    
    
    
    
    
    
    
    
    (2.41
    )Valuation allowance
    
    
    (3.27
    )
    
    
    .86
    
    
    
    Work opportunity tax credit
    
    
    
    
    
    
    (.20
    )
    
    
    (4.61
    )Settlement of federal tax audit
    
    
    
    
    
    
    (3.45
    )
    
    
    Effective tax rate
    
    
    31.53
    %
    
    
    36.02
    %
    
    
    26.40
    %
 101




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (17) Income Taxes(Continued)
  October 31,2007
    
    
    2006Deferred tax assets:Accrued expenses
    
    $
    5,297
    
    
    $
    6,204Allowance for sales cancellations and doubtful accounts
    
    
    6,638
    
    
    
    6,242Capital loss carryover (1)
    
    
    
    
    
    
    5,271Deductible Texas taxes related to Texas audits
    
    
    
    
    
    
    704Deferred preneed sales and expenses
    
    
    213,463
    
    
    
    206,974Deferred compensation
    
    
    4,420
    
    
    
    3,731Inventory writedown
    
    
    1,022
    
    
    
    1,050Original issue discount on purchased call options
    
    
    20,321
    
    
    
    Lease obligations
    
    
    675
    
    
    
    631Loss on worthless stock
    
    
    
    
    
    
    4,546Non-compete amortization
    
    
    2,358
    
    
    
    3,519Other
    
    
    1,173
    
    
    
    683Share-based compensation
    
    
    1,095
    
    
    
    573State income taxes (2)
    
    
    32,342
    
    
    
    33,143U.S. possession income tax (3)
    
    
    16,860
    
    
    
    17,105305,664
    
    
    
    290,376Valuation allowance (4)
    
    
    (4,032
    )
    
    
    (10,457
    )301,632
    
    
    
    279,919Deferred tax liabilities:Depreciation
    
    
    2,854
    
    
    
    1,857Goodwill amortization
    
    
    27,617
    
    
    
    23,114Partnership interest
    
    
    2,037
    
    
    
    2,037Purchase accounting adjustments
    
    
    67,644
    
    
    
    68,426100,152
    
    
    
    95,434$
    201,480
    
    
    $
    184,485Current net deferred asset
    
    $
    8,621
    
    
    $
    10,502Long-term net deferred asset
    
    
    192,859
    
    
    
    173,983$
    201,480
    
    
    $
    184,485
 
 (1)
    
    This tax benefit of $5,271 as of October 31, 2006 is calculated on a gross capital
loss carryover of $15,060, of which $10,647 was available until the end of fiscal year 2007
and $4,413 was available until the end of fiscal year 2009. As of October 31, 2006, a
valuation allowance of $3,393 was recorded on the capital loss carryover scheduled to expire
in 2007. During fiscal year 2007, the Company utilized both the 2007 and 2009 capital loss
carryforwards resulting in a release of the valuation allowance.(2)
    
    A significant component of this balance is a gross state net operating loss
carryover of approximately $176,238 ($7,439 net of a federal tax 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. During fiscal year 2007, the Company adjusted
its previously recorded valuation allowance from $313 to $1,962 as it was determined that the
net operating loss carryforwards in two states were not likely to be utilized prior to their
expiration due to additional operating losses incurred in 2007. This change is the net effect
of recording reductions to the reserve of $299 offset by additions to the reserve of $1,948. 102




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (17) Income Taxes(Continued)
 
 (3)
    
    This U.S. possession is Puerto Rico. A significant component of this balance is a
net operating loss carryover of $8,165 ($2,070 net of a federal benefit). Puerto Ricos
allowable carryforward period is 7 years from the date incurred. In 2007, the Company reduced
its previously recorded valuation allowance from $2,205 to $2,070, which represents a full
reserve on the operating loss carryover asset. This change is the net effect of recording
reductions to the reserve of $1,076 for utilizations of the net operating loss carryover at
one entity and additions to the reserve of $941 for additional operating losses incurred in
2007 for a separate entity. The remaining deferred tax asset balance of $14,790 is for timing
differences relating primarily to deferred preneed sales and expenses for which no valuation
allowance has been recorded as management believes it is more likely than not that this asset
will be realized in future periods.(4)
    
    During fiscal year 2007, the Company reduced its valuation allowance from $10,457 to
$4,032 which represents a reduction of $3,393 attributable to its utilization of its capital
loss carryover and a reduction of $4,546 related to the write-off of both the deferred tax
asset and related valuation allowance for a worthless stock deduction for which recognition
was determined to be remote in fiscal year 2007. These reductions were offset by $1,514 of
net increases to the reserve attributable to the net operating loss changes noted in items (2)
and (3) above. Finally, at the end of 2007, the entire balance of the valuation allowance of
$4,032 is attributable to the net operating loss carryforwards in certain states and Puerto
Rico.   .
   103




---



##### Table of Contents



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
  Stewart Enterprises Puerto Rico Employees Retirement Trust
  104




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (18) Benefit Plans(Continued)
 Non-qualified Supplemental Retirement and Deferred Compensation Plan
  Supplemental Executive Retirement Plan
  Compensation Plans
   Employee Stock Purchase Plan
  105




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (18) Benefit Plans(Continued)
  Stock-Based Compensation
  2007
    
    
    2006
    
    
    2005Number 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
    
    
    1,441,294
    
    
    $
    6.15
    
    
    
    1,468,734
    
    
    $
    6.62
    
    
    
    3,521,393
    
    
    $
    5.26Granted
    
    
    1,039,167
    
    
    $
    7.12
    
    
    
    473,060
    
    
    $
    5.37
    
    
    
    1,182,100
    
    
    $
    6.96Exercised
    
    
    (411,511
    )
    
    $
    6.40
    
    
    
    (33,334
    )
    
    $
    5.44
    
    
    
    (2,982,460
    )
    
    $
    5.16Forfeited
    
    
    (168,221
    )
    
    $
    6.63
    
    
    
    (467,166
    )
    
    $
    6.89
    
    
    
    (252,299
    )
    
    $
    6.57Outstanding at end of year
    
    
    1,900,729
    
    
    $
    6.58
    
    
    
    1,441,294
    
    
    $
    6.15
    
    
    
    1,468,734
    
    
    $
    6.62Exercisable at end of year
    
    
    471,353
    
    
    $
    5.90
    
    
    
    645,665
    
    
    $
    6.10
    
    
    
    233,338
    
    
    $
    5.44Weighted-average fair value of
options granted
    
    
    
    
    
    $
    2.84
    
    
    
    
    
    
    $
    2.27
    
    
    
    
    
    
    $
    4.06
 Year Ended October 31, 2007Aggregate Intrinsic ValueOptions outstanding as of October 31, 2007
    
    $
    4,731Options exercisable as of October 31, 2007
    
    $
    1,496Options exercised during 2007
    
    $
    539
 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 ExercisableWeightedNumber
    
    
    Average
    
    
    Weighted
    
    
    Number
    
    
    Weighted
    
    
    WeightedRange of
    
    Outstanding at
    
    
    Remaining
    
    
    Average
    
    
    Exercisable at
    
    
    Average
    
    
    RemainingExercise Prices
    
    10/31/2007
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    10/31/2007
    
    
    Exercise Price
    
    
    Contractual Life$5.06 - $5.86
    
    
    569,912
    
    
    5.51 years
    
    $
    5.40
    
    
    
    307,903
    
    
    $
    5.36
    
    
    5.67 years$6.33 - $6.90
    
    
    786,317
    
    
    5.35 years
    
    $
    6.57
    
    
    
    163,450
    
    
    $
    6.90
    
    
    4.14 years$7.31 - $7.37
    
    
    184,500
    
    
    6.53 years
    
    $
    7.37
    
    
    
    
    
    
    $
    
    
    
    
    $8.06
    
    
    360,000
    
    
    6.42 years
    
    $
    8.06
    
    
    
    
    
    
    $
    
    
    
    
    $5.06 to $8.06
    
    
    1,900,729
    
    
    5.71 years
    
    $
    6.58
    
    
    
    471,353
    
    
    $
    5.14
    
    
    5.90 years
 106




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (18) Benefit Plans(Continued)
 Weighted AverageYear Ended
    
    Grant-DateOctober 31, 2007
    
    Fair ValueNonvested options as of November 1, 2006
    
    
    795,629
    
    
    $
    3.18Granted
    
    
    1,039,167
    
    
    $
    2.84Vested
    
    
    (237,199
    )
    
    $
    3.22Forfeited
    
    
    (168,221
    )
    
    $
    3.63Nonvested options as of October 31, 2007
    
    
    1,429,376
    
    
    $
    2.87
   Restricted Stock
  (In shares)
    
    2007(1)
    
    2006(2)
    
    2005(3)Nonvested restricted stock at beginning of year
    
    
    97,398
    
    
    
    190,866
    
    
    
    160,334Granted
    
    
    565,000
    
    
    
    31,998
    
    
    
    166,500Vested
    
    
    (29,801
    )
    
    
    (125,466
    )
    
    
    (125,335
    )Forfeited
    
    
    (25,650
    )
    
    
    
    
    
    
    (10,633
    )Nonvested restricted stock at end of year
    
    
    606,947
    
    
    
    97,398
    
    
    
    190,866
 
 (1)
    
    On January 8, 2007, the Company granted 52,500 shares of restricted stock to a group
of executive officers of which vests in equal 25 percent portions on January 8, 2008, 2009,
2010 and 2011. On March 31, 2007, the Company granted 340,000 shares of restricted stock to an executive officer consisting of 100,000
shares conditional on service, 120,000 shares conditional on certain performance criteria and
120,000 shares conditional on certain market criteria. On May 16, 2007, the Company granted
170,000 shares of restricted stock to an executive officer consisting of 50,000 shares
conditional on service, 60,000 shares conditional on 107




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (18) Benefit Plans(Continued)
 
 certain performance criteria and 60,000 shares conditional on certain market criteria. The
restricted shares based on service conditions vest in equal one-third portions on the
anniversary date of the respective grant dates. The performance conditions are based on
meeting certain return on equity targets in each of the years 2008, 2009 and 2010. The
Company assesses the probability of achieving these targets each reporting period in
determining the requisite service period in which to record compensation expense. The market
conditions are based on reaching certain target stock prices in the years 2008, 2009 and 2010.
The Company records the expense over the requisite service period. On September 17, 2007, the
Company granted 2,500 shares of restricted  stock to an executive officer of which 34
percent vest on September 17, 2008, 33 percent vest on September 17, 2009 and 33 percent vest
on September 17, 2010.(2)
    
    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.(3)
    
    On November 18, 2004, the Company granted 72,000 shares of restricted stock to an
executive officer which became fully vested on June 30, 2006. On December 20, 2004, the
Company granted 58,000 shares of restricted stock to executive officers, which 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. 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
   108




---



##### Table of Contents



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.
     Pioneer Valley Casket Co., Inc., et al. v. Service Corporation International, Alderwoods
Group, Inc.,
 109




---



##### Table of Contents



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)
 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
  110




---



##### Table of Contents



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
     111




---



##### Table of Contents



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
        112




---



##### Table of Contents



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 Revenue2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005Eastern Division
    
    $
    117,164
    
    
    $
    116,283
    
    
    $
    113,012
    
    
    $
    143,233
    
    
    $
    136,807
    
    
    $
    127,436
    
    
    $
    260,397
    
    
    $
    253,090
    
    
    $
    240,448Western Division
    
    
    143,771
    
    
    
    146,094
    
    
    
    138,817
    
    
    
    90,354
    
    
    
    87,829
    
    
    
    79,566
    
    
    
    234,125
    
    
    
    233,923
    
    
    
    218,383Corporate Trust
Management
(2)
    
    
    18,395
    
    
    
    17,860
    
    
    
    18,884
    
    
    
    9,900
    
    
    
    9,357
    
    
    
    11,194
    
    
    
    28,295
    
    
    
    27,217
    
    
    
    30,078Total
    
    $
    279,330
    
    
    $
    280,237
    
    
    $
    270,713
    
    
    $
    243,487
    
    
    $
    233,993
    
    
    $
    218,196
    
    
    $
    522,817
    
    
    $
    514,230
    
    
    $
    488,909
 113




---



##### Table of Contents



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 Profit2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005Eastern Division
    
    $
    17,846
    
    
    $
    18,387
    
    
    $
    18,493
    
    
    $
    20,993
    
    
    $
    24,030
    
    
    $
    15,687
    
    
    $
    38,839
    
    
    $
    42,417
    
    
    $
    34,180Western Division
    
    
    27,442
    
    
    
    29,495
    
    
    
    24,329
    
    
    
    19,204
    
    
    
    16,522
    
    
    
    13,862
    
    
    
    46,646
    
    
    
    46,017
    
    
    
    38,191Corporate Trust
Management
(2)
    
    
    17,667
    
    
    
    17,313
    
    
    
    18,368
    
    
    
    9,278
    
    
    
    8,866
    
    
    
    10,740
    
    
    
    26,945
    
    
    
    26,179
    
    
    
    29,108Total
    
    $
    62,955
    
    
    $
    65,195
    
    
    $
    61,190
    
    
    $
    49,475
    
    
    $
    49,418
    
    
    $
    40,289
    
    
    $
    112,430
    
    
    $
    114,613
    
    
    $
    101,479
 Net Preneed Funeral
    
    
    Net Preneed Cemetery
    
    
    Net Total PreneedMerchandise and Service Sales(3)
    
    
    Merchandise and Service Sales (3)
    
    
    Merchandise and Service Sales(3)2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005Eastern Division
    
    $
    44,837
    
    
    $
    47,288
    
    
    $
    42,904
    
    
    $
    38,939
    
    
    $
    42,123
    
    
    $
    42,360
    
    
    $
    83,776
    
    
    $
    89,411
    
    
    $
    85,264Western Division
    
    
    57,792
    
    
    
    56,470
    
    
    
    48,523
    
    
    
    16,797
    
    
    
    17,720
    
    
    
    16,521
    
    
    
    74,589
    
    
    
    74,190
    
    
    
    65,044Total
    
    $
    102,629
    
    
    $
    103,758
    
    
    $
    91,427
    
    
    $
    55,736
    
    
    $
    59,843
    
    
    $
    58,881
    
    
    $
    158,365
    
    
    $
    163,601
    
    
    $
    150,308
 Depreciation and Amortization
    
    
    Depreciation and Amortization
    
    
    Depreciation and AmortizationFuneral
    
    
    Cemetery
    
    
    Total2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005Eastern Division
    
    $
    6,720
    
    
    $
    7,615
    
    
    $
    7,590
    
    
    $
    4,418
    
    
    $
    3,340
    
    
    $
    3,871
    
    
    $
    11,138
    
    
    $
    10,955
    
    
    $
    11,461Western Division
    
    
    6,782
    
    
    
    6,702
    
    
    
    7,011
    
    
    
    2,572
    
    
    
    2,504
    
    
    
    2,590
    
    
    
    9,354
    
    
    
    9,206
    
    
    
    9,601Reconciling Items
(4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,146
    
    
    
    5,505
    
    
    
    4,647Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    27,638
    
    
    $
    25,666
    
    
    $
    25,709
 Additions to Long-Lived Assets
    
    
    Additions to Long-Lived Assets
    
    
    Additions to Long-Lived AssetsFuneral(5)
    
    
    Cemetery(5)
    
    
    Total(5)2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005Eastern Division
    
    $
    5,304
    
    
    $
    3,740
    
    
    $
    5,896
    
    
    $
    11,882
    
    
    $
    8,602
    
    
    $
    8,968
    
    
    $
    17,186
    
    
    $
    12,342
    
    
    $
    14,864Western Division
    
    
    14,070
    
    
    
    11,285
    
    
    
    6,354
    
    
    
    10,538
    
    
    
    10,526
    
    
    
    5,831
    
    
    
    24,608
    
    
    
    21,811
    
    
    
    12,185Reconciling Items
(4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,703
    
    
    
    5,329
    
    
    
    6,428Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    49,497
    
    
    $
    39,482
    
    
    $
    33,477
 Funeral Goodwill
    
    
    Cemetery Goodwill
    
    
    Total Goodwill2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Eastern Division
    
    $
    91,091
    
    
    $
    89,147
    
    
    $
    25,952
    
    
    $
    25,952
    
    
    $
    117,043
    
    
    $
    115,099Western Division
    
    
    107,522
    
    
    
    107,522
    
    
    
    48,721
    
    
    
    48,721
    
    
    
    156,243
    
    
    
    156,243Total
    
    $
    198,613
    
    
    $
    196,669
    
    
    $
    74,673
    
    
    $
    74,673
    
    
    $
    273,286
    
    
    $
    271,342
 Assets held for Sale-Funeral
    
    
    Assets held for Sale-Cemetery
    
    
    Assets held for Sale-Total2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Eastern Division
    
    $
    
    
    
    $
    2,118
    
    
    $
    
    
    
    $
    995
    
    
    $
    
    
    
    $
    3,113Western Division
    
    
    
    
    
    
    7,545
    
    
    
    
    
    
    
    2,956
    
    
    
    
    
    
    
    10,501Total
    
    $
    
    
    
    $
    9,663
    
    
    $
    
    
    
    $
    3,951
    
    
    $
    
    
    
    $
    13,614
 
 (1)
    
    Perpetual care trust earnings of $10,164, $10,079 and $8,106 for fiscal years 2007,
2006 and 2005, respectively, are included in the revenue and gross profit data of the related
geographic segment.(2)
    
    Corporate trust management consists of the trust management fees and funeral and
cemetery merchandise and 114




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (20) Segment Data(Continued)
 
 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 2007, 2006 and 2005 were $5,881, $5,528 and $5,383, respectively, and
funeral trust earnings recognized with respect to preneed contracts delivered included in
funeral revenue for 2007, 2006 and 2005 were $12,514, $12,332 and $13,501, respectively.
Trust management fees included in cemetery revenue for 2007, 2006 and 2005 were $5,343, $4,894
and $4,945, respectively, and cemetery trust earnings recognized with respect to preneed
contracts delivered included in cemetery revenue for 2007, 2006 and 2005 were $4,557, $4,463
and $6,249, respectively.(3)
    
    Preneed sales amounts represent total preneed funeral trust and insurance sales and
cemetery service and merchandise trust 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 31,2007
    
    
    2006
    
    
    2005Gross profit for reportable segments
    
    $
    112,430
    
    
    $
    114,613
    
    
    $
    101,479Corporate general and administrative expenses
    
    
    (31,143
    )
    
    
    (31,739
    )
    
    
    (19,440
    )Hurricane related recoveries (charges), net
    
    
    (2,533
    )
    
    
    1,628
    
    
    
    (9,366
    )Separation charges
    
    
    (580
    )
    
    
    (991
    )
    
    
    (1,507
    )Gains on dispositions and impairment (losses), net
    
    
    (44
    )
    
    
    (153
    )
    
    
    1,311Other operating income, net
    
    
    1,651
    
    
    
    1,333
    
    
    
    1,373Interest expense
    
    
    (25,065
    )
    
    
    (29,633
    )
    
    
    (30,460
    )Loss on early extinguishment of debt
    
    
    (677
    )
    
    
    
    
    
    
    (32,822
    )Investment and other income, net
    
    
    3,374
    
    
    
    3,676
    
    
    
    713Earnings from continuing operations before income
taxes and cumulative effect of change in
accounting principle
    
    $
    57,413
    
    
    $
    58,734
    
    
    $
    11,281
 (21) Supplementary Information
  115




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (21) Supplementary Information (Continued)
 Year Ended October 31,2007
    
    
    2006
    
    
    2005Service revenueFuneral
    
    $
    169,680
    
    
    $
    165,418
    
    
    $
    153,920Cemetery
    
    
    60,002
    
    
    
    62,436
    
    
    
    58,130229,682
    
    
    
    227,854
    
    
    
    212,050Merchandise revenueFuneral
    
    
    101,232
    
    
    
    106,718
    
    
    
    108,830Cemetery
    
    
    166,772
    
    
    
    155,406
    
    
    
    144,567268,004
    
    
    
    262,124
    
    
    
    253,397Other revenueFuneral
    
    
    8,418
    
    
    
    8,101
    
    
    
    7,963Cemetery
    
    
    16,713
    
    
    
    16,151
    
    
    
    15,49925,131
    
    
    
    24,252
    
    
    
    23,462Total revenue
    
    $
    522,817
    
    
    $
    514,230
    
    
    $
    488,909Service costsFuneral
    
    $
    59,540
    
    
    $
    56,434
    
    
    $
    50,989Cemetery
    
    
    40,649
    
    
    
    42,170
    
    
    
    40,641100,189
    
    
    
    98,604
    
    
    
    91,630Merchandise costsFuneral
    
    
    63,187
    
    
    
    64,728
    
    
    
    66,356Cemetery
    
    
    97,904
    
    
    
    90,527
    
    
    
    86,523161,091
    
    
    
    155,255
    
    
    
    152,879General and administrative expensesFuneral
    
    
    93,648
    
    
    
    93,880
    
    
    
    92,178Cemetery
    
    
    55,459
    
    
    
    51,878
    
    
    
    50,743149,107
    
    
    
    145,758
    
    
    
    142,921Total costs
    
    $
    410,387
    
    
    $
    399,617
    
    
    $
    387,430
  (22) Hurricane Related Charges
  -116-




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (22) Hurricane Related Charges (Continued)
     (23) Subsequent Events
  (24) Quarterly Financial Data (Unaudited)
  Year Ended October 31, 2007(1)
    
    First
    
    Second
    
    Third
    
    FourthRevenues
    
    $
    131,847
    
    
    $
    137,032
    
    
    $
    127,578
    
    
    $
    126,360Gross profit
    
    
    30,998
    
    
    
    32,782
    
    
    
    26,505
    
    
    
    22,145Net earnings
    
    
    11,926
    
    
    
    13,629
    
    
    
    8,123
    
    
    
    6,135Net earnings per common share:Basic
    
    
    .11
    
    
    
    .13
    
    
    
    .08
    
    
    
    .06Diluted
    
    
    .11
    
    
    
    .13
    
    
    
    .08
    
    
    
    .06
 Year Ended October 31, 2006(2)
    
    First
    
    Second
    
    Third
    
    FourthRevenues
    
    $
    125,220
    
    
    $
    130,084
    
    
    $
    128,613
    
    
    $
    130,313Gross profit
    
    
    29,058
    
    
    
    31,965
    
    
    
    25,514
    
    
    
    28,076Net earnings
    
    
    8,389
    
    
    
    11,447
    
    
    
    7,334
    
    
    
    10,423Net earnings per common share:Basic
    
    
    .08
    
    
    
    .11
    
    
    
    .07
    
    
    
    .10Diluted
    
    
    .08
    
    
    
    .11
    
    
    
    .07
    
    
    
    .10
 -117-




---



##### Table of Contents



STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 (24) Quarterly Financial Data (Unaudited)(Continued)
 
 (1)
    
    First quarter of fiscal year 2007 includes a charge of $1,850 in net hurricane
related costs, $485 in separation pay for a former executive officer and $98 in net gains on
dispositions and impairment (losses) in continuing operations. Second quarter of fiscal year
2007 includes a charge of $283 related to net hurricane related costs and $47 in separation
charges. Third quarter of fiscal year 2007 includes a charge of $210 related to net hurricane
related costs, ($46) in net gains on dispositions and impairment (losses) in continuing
operations, $48 in separation charges and $677 for the loss on early extinguishment of debt.
Fourth quarter of fiscal year 2007 includes a charge of $190 related to net hurricane related
costs and ($88) in net gains on dispositions and impairment (losses) in continuing operations.(2)
    
    First quarter of fiscal year 2006 includes a charge of $2,638 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 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
related to net hurricane related costs and ($306) 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(v).  -118-




---



##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Disclosure Controls and Procedures
   Managements Report on Internal Control over Financial Reporting
   Internal Control  Integrated Framework
  Changes in Internal Control over Financial Reporting
   -119-




---



##### Table of Contents



Item 9B. Other Information
 Brent F. Heffron,
   
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
    
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
 Equity Compensation Plan Information
  Number of SecuritiesRemaining Available ForFuture Issuance UnderNumber of Securities to be
    
    
    Weighted-Average
    
    
    Equity CompensationIssued Upon Exercise of
    
    
    Exercise Price of
    
    
    Plans (Excluding SecuritiesOutstanding Options,
    
    
    Outstanding Options,
    
    
    Reflected in the FirstPlan Category
    
    Warrants and Rights
    
    
    Warrants and Rights
    
    
    Column)(1)Equity compensation
plans approved by
security holders
    
    
    2,507,676
    
    
    $
    6.85
    
    
    
    5,302,377Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    2,507,676
    
    
    $
    6.85
    
    
    
    5,302,377
 
 (1)
    
    Includes 4,636,833 shares of our common stock under the 2007 Stock Incentive Plan, which are
issuable as stock appreciation rights, restricted stock, performance shares or stock awards.
This also includes 665,544 shares remaining to be granted under the 2003 Employee Stock
Purchase Plan.  -120-




---



##### Table of Contents



Item 13. Certain Relationships and Related Transactions and Director Independence
  
 Item 14. Principal Accounting Fees and Services
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (a) Documents filed as part of this report:
   PageReport of Independent Registered Public Accounting Firm
    
    
    48Consolidated Statements of Earnings for the Years Ended October 31, 2007, 2006 and 2005
    
    
    50Consolidated Balance Sheets as of October 31, 2007 and 2006
    
    
    51Consolidated Statements of Shareholders Equity for the Years Ended October 31, 2007,
2006 and 2005
    
    
    53Consolidated Statements of Cash Flows for the Years Ended October 31, 2007, 2006 and 2005
    
    
    55Notes to Consolidated Financial Statements
    
    
    56(2) Financial Statement Schedule for the years ended October 31, 2007, 2006 and 2005
Schedule IIValuation and Qualifying Accounts
    
    
    122
  -121-




---



##### Table of Contents



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
    
    
    
    
    
    
    
    
    
    Balance atDescription
    
    of period
    
    expenses
    
    Other Changes
    
    Write-offs
    
    end of periodCurrentAllowance for doubtful
accounts:Year ended October 31,2007
    
    $
    6,635
    
    
    
    4,188
    
    
    
    
    
    
    
    (2,681
    )
    
    $
    8,1422006
    
    $
    6,785
    
    
    
    2,579
    
    
    
    (23
    )
    
    
    (2,706
    )
    
    $
    6,6352005
    
    $
    5,518
    
    
    
    3,771
    
    
    
    3
    
    
    
    (2,507
    )
    
    $
    6,785Due after one yearAllowance for
doubtful accounts:Year ended October 31,2007
    
    $
    10,888
    
    
    
    5,568
    
    
    
    
    
    
    
    (5,632
    )
    
    $
    10,8242006
    
    $
    11,350
    
    
    
    4,216
    
    
    
    
    
    
    
    (4,678
    )
    
    $
    10,8882005
    
    $
    8,022
    
    
    
    6,306
    
    
    
    
    
    
    
    (2,978
    )
    
    $
    11,350Deferred tax asset valuation allowanceYear ended October 31,2007
    
    $
    10,457
    
    
    
    (1,595
    )
    
    
    
    
    
    
    (4,830
    ) (1)
    
    $
    4,0322006
    
    $
    10,220
    
    
    
    237
    
    
    
    
    
    
    
    
    
    
    $
    10,4572005
    
    $
    9,744
    
    
    
    476
    
    
    
    
    
    
    
    
    
    
    $
    10,220
 
 (1)
    
    This is primarily related to the write-off of both the deferred tax
asset and related valuation allowance for a worthless stock deduction for which recognition
was determined to be remote in fiscal year 2007. -122-




---



##### Table of Contents



Item 15(a)(3) Exhibits
 3.1
    
    Amended and Restated Articles of Incorporation of the Company, as amended and restated as of
April 20, 2006 (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on
Form 10-Q for the quarter ended April 30, 2006)3.2
    
    By-laws of the Company, as amended and restated as of April 20, 2006 (incorporated by
reference to Exhibit 3.2 to the Companys Quarterly Report on Form 10-Q for the quarter ended
April 30, 2006)4.1
    
    See Exhibits 3.1 and 3.2 for provisions of the Companys Amended and Restated Articles of
Incorporation, as amended, and By-laws, as amended, defining the rights of holders of Class A
and Class B common stock4.2
    
    Specimen of Class A common stock certificate (incorporated by reference to Exhibit 4.2 to
Amendment No. 3 to the Companys Registration Statement on Form S-1 (Registration No.
33-42336) filed with the Commission on October 7, 1991)4.3
    
    Rights Agreement, dated as of October 28, 1999, between Stewart Enterprises, Inc. and
ChaseMellon Shareholder Services, L.L.C. as Rights Agent (incorporated by reference to Exhibit
1 to the Companys Form 8-A dated November 3, 1999)4.4
    
    Amendment No. 1 to the Rights Agreement dated June 26, 2007 between Stewart Enterprises, Inc.
and Mellon Investor Services LLC (incorporated by reference to Exhibit 4.4 to the Companys
Current Report on Form 8-K filed June 27, 2007)4.5
    
    Amended and Restated Credit Agreement dated November 19, 2004 by and among the Company,
Empresas Stewart-Cementerios and Empresas Stewart-Funerarias, as Borrowers, Bank of America,
N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer and The
Other Lenders party hereto (incorporated by reference to Exhibit 4.1 to the Companys Current
Report on Form 8-K dated November 22, 2004)4.6
    
    Indenture dated as of February 11, 2005 by and among Stewart Enterprises, Inc., the
Guarantors thereunder and U.S. Bank National Association, as Trustee, with respect to the 6.25
percent Senior Notes due 2013 (incorporated by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K dated February 11, 2005)4.7
    
    Form of 6.25 percent Senior Note due 2013 (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K dated February 11, 2005)4.8
    
    Indenture dated June 27, 2007 by and among Stewart Enterprises, Inc., the guarantors named
therein and U.S. Bank National Association, as Trustee, with respect to 3.125 percent Senior
Convertible Notes due 2014 (including Form of 3.125 percent Senior Convertible Notes due 2014)
(incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed
June 27, 2007)4.9
    
    Indenture dated June 27, 2007 by and among Stewart Enterprises, Inc., the guarantors named
therein and U.S. Bank National Association, as Trustee, with respect to 3.375 percent Senior
Convertible Notes due 2016 (including Form of 3.375 percent Senior Convertible Notes due 2016)
(incorporated by reference to Exhibit 4.2 to the Companys Current Report on Form 8-K filed
June 27, 2007)4.10
    
    Registration Rights Agreement dated June 27, 2007 by and among Stewart Enterprises, Inc., the
guarantors named therein and the Initial Purchases (incorporated by reference to Exhibit 4.3
to the Companys Current Report on Form 8-K filed June 27, 2007)
 -123-




---



##### Table of Contents



10.1
    
    Form of Indemnity Agreement between the Company and its Directors and Executive Officers
(incorporated by reference to Exhibit 10.3 to the Companys Annual Report on Form 10-K for the
year ended October 31, 2004, filed January 11, 2005) (the Original 2004 Form 10-K)
 10.2
    
    Retirement Agreement by and between the Company and Kenneth C. Budde dated June 6, 2006
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated
June 6, 2006)
 10.3
    
    Employment Agreement dated February 20, 2007 between the Company and Thomas J. Crawford
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed
February 21, 2007); Amendment No. 1 to Employment Agreement dated February 20, 2007, effective
May 14, 2007, between the Company and Thomas J. Crawford (incorporated by reference to Exhibit
10.3 to the Companys Quarterly Report on Form 10-Q for the quarter ended April 30, 2007)
 10.4
    
    Employment Agreement dated May 14, 2007 between the Company and Thomas M. Kitchen
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed
May 17, 2007)
 10.5
    
    Separation Agreement dated October 11, 2005, effective July 14, 2005, between the Company and
Michael K. Crane (incorporated by reference to Exhibit 10.5 to the Companys Form 10-Q for the
quarter ended July 31, 2005)
 10.6
    
    Retirement Agreement dated October 26, 2006, effective November 2, 2006, between the Company
and Everett N. Kendrick (incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K dated November 2, 2006)
 10.7
    
    Form of Stock Option Agreement between the Company and its Executive Officers (incorporated
by reference to Exhibit 10.27 to the Original 2004 Form 10-K)
 10.8
    
    Form of Restricted Stock Agreement between the Company and its Executive Officers
(incorporated by reference to Exhibit 10.28 to the Original 2004 Form 10-K)
 10.9
    
    Form of Restricted Stock Agreement under the Stewart Enterprises, Inc. 2007 Stock Incentive
Plan between the Company and its Executive Officers
 10.10
    
    Form of Stock Option Agreement under the Stewart Enterprises, Inc. 2007 Stock Incentive Plan
between the Company and its Executive Officers
 10.11
    
    Purchase Agreement dated June 21, 2007 by and among Stewart Enterprises, Inc., the
guarantors listed on Schedule A thereto and the Initial Purchases (incorporated by reference
to Exhibit 10.1 to the Companys Current Report on Form 8-K filed June 27, 2007)
 10.12
    
    Confirmation of OTC Convertible Note Hedge dated as of June 21, 2007 by and between Stewart
Enterprises, Inc. and Merrill Lynch International (incorporated by reference to Exhibit 10.2
to the Companys Current Report on Form 8-K filed June 27, 2007)
 -124-




---



##### Table of Contents



10.13
    
    Confirmation of OTC Convertible Note Hedge dated as of June 21, 2007 by and between Stewart
Enterprises, Inc. and Merrill Lynch International (incorporated by reference to Exhibit 10.3
to the Companys Current Report on Form 8-K filed June 27, 2007)
 10.14
    
    Confirmation of OTC Warrant Transaction dated as of June 21, 2007 by and between Stewart
Enterprises, Inc. and Merrill Lynch Financial Markets (incorporated by reference to Exhibit
10.4 to the Companys Current Report on Form 8-K filed June 27, 2007)
 10.15
    
    Confirmation of OTC Warrant Transaction dated as of June 21, 2007 by and between Stewart
Enterprises, Inc. and Merrill Lynch Financial Markets (incorporated by reference to Exhibit
10.5 to the Companys Current Report on Form 8-K filed June 27, 2007)
 10.16
    
    The Stewart Enterprises Employees Retirement Trust (incorporated by reference to Exhibit
10.20 to the 1991 Registration Statement); Amendment thereto dated January 1, 1994
(incorporated by reference to Exhibit 10.28 to the Company Annual Report on Form 10-K for the
fiscal year ended October 31, 1994 (the 1994 10-K, Commission File No. 1-5449); and
Amendment thereto dated January 1, 2002 (incorporated by reference to Exhibit 10.54 to the
2001 10-K, Commission File No. 1-5449); Amendment thereto dated January 1, 2003 (incorporated
by reference to Exhibit 10.34 to the 2002 10-K, Commission File No. 1-5449); Amendment dated
September 24, 2003 (incorporated by reference to Exhibit 10.3 to the Companys Quarterly
Report on Form 10-Q for the quarter ended January 31, 2004); Amendment thereto dated January
1, 2004 (incorporated by reference to Exhibit 10.29 to the Original 2004 Form 10-K); Amendment
thereto dated March 28, 2005 (incorporated by reference to Exhibit 10.1 to the Companys
Annual Report on Form 10-K for the year ended October 31, 2005); Amendment No. 10 to the
Stewart Enterprises Employees Retirement Trust (incorporated by reference to Exhibit 10.2 in
the Companys Quarterly Report on Form 10-Q for the quarter ended April 30, 2006)
 10.17
    
    Stewart Enterprises Puerto Rico Employees Retirement Trust Summary Plan Description dated
January 1, 2003 (incorporated by reference to Exhibit 10.31 of the Companys Annual Report on
Form 10-K for the year ended October 31, 2005); Amendment No. 1 dated January 1, 2005
(incorporated by reference to Exhibit 10.4 to the Companys Annual Report on Form 10-K for the
year ended October 31, 2005)
 10.18
    
    1165(e) Plan Adoption Agreement related to the Stewart Enterprises Puerto Rico Employees
Retirement Trust, amended effective as of October 31, 2001 (incorporated by reference to
Exhibit 10.32 of the Companys Annual Report on Form 10-K for the year ended October 31, 2005)
 10.19
    
    Stewart Enterprises, Inc. 2007 Stock Incentive Plan (incorporated by reference to Appendix A
to the Companys definitive proxy statement for the year ended October 31, 2006)
 10.20
    
    2007 Executive Officer Annual Incentive Plan (incorporated by reference to Appendix B to the
Companys definitive proxy statement for the year ended October 31, 2006)
 10.21
    
    2003 Employee Stock Purchase Plan (incorporated by reference to Exhibit B in the Companys
definitive proxy statement for the year ended October 31, 2002); Amended and Restated 2003
Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.3 to the Companys
Annual Report on Form 10-K for the year ended October 31, 2006)
 10.22
    
    2000 Incentive Compensation Plan (incorporated by reference to Exhibit 10.45 to the
Companys Annual Report on Form 10-K for the fiscal year ended October 31, 2000, Commission
File No. 1-5449)
 10.23
    
    The Stewart Enterprises, Inc. Supplemental Retirement and Deferred Compensation Plan for
certain highly compensated executives (incorporated by reference to Exhibit 10.3 to the
Companys Quarterly Report on Form 10-Q for the Quarter ended July 31, 2001, Commission File
No. 1-5449); Amendment No. 1 dated January 1, 2005 (incorporated by reference to Exhibit 10.2
to the Companys Annual Report on Form 10-K for the year ended October 31, 2005)
 -125-




---



##### Table of Contents



10.24
    
    Stewart Enterprises, Inc. Supplemental Executive Retirement Plan (incorporated by reference
to Exhibit 10.12 to the Companys Quarterly Report on Form 10-Q for the Quarter ended April
30, 2002); Amendment No. 1 dated April 1, 2005 (incorporated by reference to Exhibit 10.3 to
the Companys Annual Report on Form 10-K for the year ended October 31, 2005)
 
 12
    
    Calculation of Ratio of Earnings to Fixed Charges21
    
    Subsidiaries of the Company23
    
    Consent of PricewaterhouseCoopers LLP
 31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas J. Crawford,
President and Chief Executive Officer
 31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen, Senior
Executive Vice President and Chief Financial Officer
 32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of Thomas J. Crawford,
President and Chief Executive Officer, and Thomas M. Kitchen, Senior Executive Vice President
and Chief Financial Officer
 -126-




---



##### Table of Contents



SIGNATURES
  STEWART ENTERPRISES, INC.By:
    
    /s/ THOMAS J. CRAWFORDThomas J. CrawfordPresident, Chief Executive Officer and a Director
  Signature
    
    Title
    
    Date/s/ THOMAS J. CRAWFORD
    
    President, Chief Executive Officer
    
    December 21, 2007Thomas J. Crawford
    
    and a Director(Principal Executive Officer)/s/ THOMAS M. KITCHEN
    
    Senior Executive Vice President,
    
    December 21, 2007Thomas M. Kitchen
    
    Chief Financial Officer and a(Principal Financial Officer)
    
    Director/s/ ANGELA M. LACOUR
    
    Vice President,
    
    December 21, 2007Angela M. Lacour
    
    Corporate
Controller and(Principal Accounting Officer)
    
    Chief Accounting Officer/s/ FRANK B. STEWART, JR.
    
    Chairman of the Board
    
    December 21, 2007Frank B. Stewart, Jr./s/ ALDEN J. McDONALD, JR.
    
    Director
    
    December 21, 2007Alden J. McDonald, Jr./s/ JAMES W. McFARLAND
    
    Director
    
    December 21, 2007James W. McFarland/s/ RONALD H. PATRON
    
    Director
    
    December 21, 2007Ronald H. Patron/s/ MICHAEL O. READ
    
    Director
    
    December 21, 2007Michael O. Read/s/ ASHTON J. RYAN, JR.
    
    Director
    
    December 21, 2007Ashton J. Ryan, Jr.
 -127-




---



##### Table of Contents



Exhibit Index
 10.9
    
    Form of Restricted Stock Agreement under the Stewart Enterprises, Inc. 2007 Stock Incentive
Plan between the Company and its Executive Officers10.10
    
    Form of Stock Option Agreement under the Stewart Enterprises, Inc. 2007 Stock Incentive Plan
between the Company and its Executive Officers12
    
    Calculation of Ratio of Earnings to Fixed Charges21
    
    Subsidiaries of the Company23
    
    Consent of PricewaterhouseCoopers LLP31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas J. Crawford,
President and Chief Executive Officer31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen, Senior
Executive Vice President and Chief Financial Officer32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of Thomas J. Crawford,
President and Chief Executive Officer, and Thomas M. Kitchen, Senior Executive Vice President
and Chief Financial Officer
 -128-