e10vq
Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
     
þ   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended July 31, 2011
or
     
o   Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
 
Commission File Number: 1-15449
 
STEWART ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
     
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)
(504) 729-1400
(Registrant’s telephone number, including area code)
 
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large accelerated filer o   Accelerated filer  þ   Non-accelerated filer o   Smaller reporting company  o
        (Do not check if a smaller reporting company)    
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No þ
     The number of shares of the registrant’s Class A common stock, no par value per share, and Class B common stock, no par value per share, outstanding as of August 31, 2011, was 86,126,076 and 3,555,020, respectively.
 
 

 


 

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
INDEX
         
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 EX-10.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

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PART I. FINANCIAL INFORMATION
Item 1.   Financial Statements
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share amounts)
                 
    Three Months Ended July 31,  
    2011     2010  
Revenues:
               
Funeral
  $ 68,761     $ 66,685  
Cemetery
    55,596       55,873  
 
           
 
    124,357       122,558  
 
           
Costs and expenses:
               
Funeral
    54,380       51,938  
Cemetery
    48,225       48,188  
 
           
 
    102,605       100,126  
 
           
Gross profit
    21,752       22,432  
Corporate general and administrative expenses
    (7,069 )     (7,937 )
Hurricane related recoveries (charges), net
    12,349       (30 )
Net gain on dispositions
    11        
Other operating income, net
    512       607  
 
           
Operating earnings
    27,555       15,072  
Interest expense
    (5,500 )     (6,184 )
Loss on early extinguishment of debt
    (73 )     (106 )
Investment and other income, net
    30       62  
 
           
Earnings from continuing operations before income taxes
    22,012       8,844  
Income taxes
    10,026       2,816  
 
           
Earnings from continuing operations
    11,986       6,028  
 
           
Discontinued operations:
               
Earnings from discontinued operations before income taxes
          19  
Income taxes
          8  
 
           
Earnings from discontinued operations
          11  
 
           
 
               
Net earnings
  $ 11,986     $ 6,039  
 
           
 
               
Basic earnings per common share:
               
Earnings from continuing operations
  $ .13     $ .06  
Earnings from discontinued operations
           
 
           
Net earnings
  $ .13     $ .06  
 
           
 
               
Diluted earnings per common share:
               
Earnings from continuing operations
  $ .13     $ .06  
Earnings from discontinued operations
           
 
           
Net earnings
  $ .13     $ .06  
 
           
 
               
Weighted average common shares outstanding (in thousands):
               
Basic
    90,182       92,207  
 
           
Diluted
    90,741       92,499  
 
           
 
               
Dividends declared per common share
  $ .035     $ .03  
 
           
See accompanying notes to condensed consolidated financial statements.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share amounts)
                 
    Nine Months Ended July 31,  
    2011     2010  
Revenues:
               
Funeral
  $ 215,601     $ 209,465  
Cemetery
    167,685       165,138  
 
           
 
    383,286       374,603  
 
           
Costs and expenses:
               
Funeral
    162,784       158,538  
Cemetery
    144,754       143,310  
 
           
 
    307,538       301,848  
 
           
Gross profit
    75,748       72,755  
Corporate general and administrative expenses
    (20,358 )     (20,723 )
Hurricane related recoveries (charges), net
    12,245       (62 )
Net loss on dispositions
    (389 )      
Other operating income, net
    1,193       1,051  
 
           
Operating earnings
    68,439       53,021  
Interest expense
    (16,968 )     (18,531 )
Loss on early extinguishment of debt
    (1,884 )     (89 )
Investment and other income, net
    394       122  
 
           
Earnings from continuing operations before income taxes
    49,981       34,523  
Income taxes
    19,953       12,646  
 
           
Earnings from continuing operations
    30,028       21,877  
 
           
Discontinued operations:
               
Earnings from discontinued operations before income taxes
          65  
Income taxes
          25  
 
           
Earnings from discontinued operations
          40  
 
           
 
               
Net earnings
  $ 30,028     $ 21,917  
 
           
 
               
Basic earnings per common share:
               
Earnings from continuing operations
  $ .33     $ .24  
Earnings from discontinued operations
           
 
           
Net earnings
  $ .33     $ .24  
 
           
 
               
Diluted earnings per common share:
               
Earnings from continuing operations
  $ .33     $ .23  
Earnings from discontinued operations
           
 
           
Net earnings
  $ .33     $ .23  
 
           
 
               
Weighted average common shares outstanding (in thousands):
               
Basic
    90,497       92,124  
 
           
Diluted
    91,058       92,397  
 
           
 
               
Dividends declared per common share
  $ .095     $ .09  
 
           
See accompanying notes to condensed consolidated financial statements.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)
                 
    July 31, 2011     October 31, 2010  
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 66,571     $ 56,060  
Restricted cash and cash equivalents
    6,250        
Certificates of deposit and marketable securities
    671       10,000  
Receivables, net of allowances
    59,088       51,151  
Inventories
    35,799       35,708  
Prepaid expenses
    6,838       5,479  
Deferred income taxes, net
    29,137       28,312  
Assets held for sale
          27  
 
           
Total current assets
    204,354       186,737  
Receivables due beyond one year, net of allowances
    65,582       67,458  
Preneed funeral receivables and trust investments
    417,414       414,918  
Preneed cemetery receivables and trust investments
    220,364       209,287  
Goodwill
    247,038       247,038  
Cemetery property, at cost
    394,813       386,004  
Property and equipment, at cost:
               
Land
    44,286       43,518  
Buildings
    347,708       338,237  
Equipment and other
    195,440       191,428  
 
           
 
    587,434       573,183  
Less accumulated depreciation
    300,096       283,633  
 
           
Net property and equipment
    287,338       289,550  
Deferred income taxes, net
    83,543       98,025  
Cemetery perpetual care trust investments
    240,331       230,730  
Non-current assets held for sale
          1,214  
Other assets
    15,834       11,905  
 
           
Total assets
  $ 2,176,611     $ 2,142,866  
 
           
 
        (continued)

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)
                 
    July 31, 2011     October 31, 2010  
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities:
               
Current maturities of long-term debt
  $ 5     $ 5  
Accounts payable and accrued expenses
    22,958       24,797  
Accrued payroll and other benefits
    16,419       14,311  
Accrued insurance
    20,903       20,912  
Accrued interest
    4,177       4,197  
Estimated obligation to fund cemetery perpetual care trust
    12,407       13,253  
Other current liabilities
    9,869       12,132  
Income taxes payable
    1,754       2,533  
Liabilities associated with assets held for sale
          8  
 
           
Total current liabilities
    88,492       92,148  
Long-term debt, less current maturities
    316,848       314,027  
Deferred income taxes, net
    4,933       4,950  
Deferred preneed funeral revenue
    240,560       243,520  
Deferred preneed cemetery revenue
    260,088       258,044  
Deferred preneed funeral and cemetery receipts held in trust
    571,873       554,716  
Perpetual care trusts’ corpus
    239,092       229,240  
Long-term liabilities associated with assets held for sale
          714  
Other long-term liabilities
    19,776       20,023  
 
           
Total liabilities
    1,741,662       1,717,382  
 
           
Commitments and contingencies
               
 
           
Shareholders’ equity:
               
Preferred stock, $1.00 par value, 5,000,000 shares authorized; no shares issued
           
Common stock, $1.00 stated value:
               
Class A authorized 200,000,000 shares; issued and outstanding 86,845,776 and 88,739,140 shares at July 31, 2011 and October 31, 2010, respectively
    86,846       88,739  
Class B authorized 5,000,000 shares; issued and outstanding 3,555,020 shares at July 31, 2011 and October 31, 2010; 10 votes per share convertible into an equal number of Class A shares
    3,555       3,555  
Additional paid-in capital
    528,643       547,319  
Accumulated deficit
    (184,119 )     (214,147 )
Accumulated other comprehensive income:
               
Unrealized appreciation of investments
    24       18  
 
           
Total accumulated other comprehensive income
    24       18  
 
           
Total shareholders’ equity
    434,949       425,484  
 
           
Total liabilities and shareholders’ equity
  $ 2,176,611     $ 2,142,866  
 
           
See accompanying notes to condensed consolidated financial statements

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(Unaudited)
(Dollars in thousands, except per share amounts)
                                         
            Additional             Unrealized     Total  
    Common     Paid-In     Accumulated     Appreciation     Shareholders’  
    Stock(1)     Capital     Deficit     of Investments     Equity  
Balance October 31, 2010
  $ 92,294     $ 547,319     $ (214,147 )   $ 18     $ 425,484  
 
                                       
Comprehensive income:
                                       
Net earnings
                30,028             30,028  
 
                                       
Other comprehensive income:
                                       
Unrealized appreciation of investments, net of deferred tax expense of ($3)
                      6       6  
 
                             
Total other comprehensive income
                      6       6  
 
                             
Total comprehensive income
                30,028       6       30,034  
 
                                       
Restricted stock activity
    75       849                   924  
Issuance of common stock
    121       575                   696  
Stock options exercised
    258       888                   1,146  
Stock option expense
          842                   842  
Tax benefit associated with stock activity
          107                   107  
Purchase and retirement of common stock
    (2,347 )     (13,275 )                 (15,622 )
Dividends ($.095 per share)
          (8,662 )                 (8,662 )
 
                             
Balance July 31, 2011
  $ 90,401     $ 528,643     $ (184,119 )   $ 24     $ 434,949  
 
                             
 
(1)   Amount includes 86,846 and 88,739 shares (in thousands) of Class A common stock with a stated value of $1 per share as of July 31, 2011 and October 31, 2010, respectively, and includes 3,555 shares (in thousands) of Class B common stock.
See accompanying notes to condensed consolidated financial statements.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands, except per share amounts)
                 
    Nine Months Ended July 31,  
    2011     2010  
Cash flows from operating activities:
               
Net earnings
  $ 30,028     $ 21,917  
Adjustments to reconcile net earnings to net cash provided by operating activities:
               
Net loss on dispositions
    389        
Loss on early extinguishment of debt
    1,884       89  
Premiums paid on early extinguishment of debt
    (850 )      
Depreciation and amortization
    20,308       19,822  
Non-cash interest and amortization of discount on senior convertible notes
    3,957       4,549  
Provision for doubtful accounts
    3,859       3,065  
Share-based compensation
    2,275       1,970  
Excess tax benefits from share-based payment arrangements
    (154 )     (37 )
Provision for deferred income taxes
    16,566       11,082  
Estimated obligation to fund cemetery perpetual care trust
    72       31  
Other
    (206 )     (557 )
Changes in assets and liabilities:
               
Increase in receivables
    (14,014 )     (2,059 )
Increase in prepaid expenses
    (1,359 )     (1,011 )
(Increase) decrease in inventories and cemetery property
    (2,844 )     2,107  
Federal income tax refunds
    1,698       1,600  
Decrease in accounts payable and accrued expenses
    (2,029 )     (5,880 )
Net effect of preneed funeral production and maturities:
               
Decrease in preneed funeral receivables and trust investments
    4,683       11,313  
Decrease in deferred preneed funeral revenue
    (4,082 )     (2,600 )
Decrease in deferred preneed funeral receipts held in trust
    (1,098 )     (11,690 )
Net effect of preneed cemetery production and deliveries:
               
(Increase) decrease in preneed cemetery receivables and trust investments
    (5,342 )     287  
Decrease in deferred preneed cemetery revenue
    (1,503 )     (5,692 )
Increase in deferred preneed cemetery receipts held in trust
    8,959       765  
Increase (decrease) in other
    (730 )     74  
 
           
Net cash provided by operating activities
    60,467       49,145  
 
           
 
               
Cash flows from investing activities:
               
Proceeds from sales of certificates of deposit and marketable securities
    10,000       250  
Purchases of restricted cash equivalents, certificates of deposit and marketable securities
    (6,912 )     (15,661 )
Proceeds from sale of assets
    332       388  
Purchase of subsidiaries, net of cash acquired
    (9,110 )      
Additions to property and equipment
    (15,688 )     (11,564 )
Other
    103       136  
 
           
Net cash used in investing activities
    (21,275 )     (26,451 )
 
           
 
               
Cash flows from financing activities:
               
Proceeds of long-term debt
    200,000        
Repayments of long-term debt
    (200,004 )     (18,423 )
Retirement of common stock warrants
          (2,118 )
Issuance of common stock
    1,386       621  
Retirement of call options
          2,370  
Purchase and retirement of common stock
    (15,622 )      
Debt refinancing costs
    (5,933 )     (38 )
Dividends
    (8,662 )     (8,278 )
Excess tax benefits from share-based payment arrangements
    154       37  
 
           
Net cash used in financing activities
    (28,681 )     (25,829 )
 
           
 
               
Net increase (decrease) in cash
    10,511       (3,135 )
Cash and cash equivalents, beginning of period
    56,060       62,808  
 
           
Cash and cash equivalents, end of period
  $ 66,571     $ 59,673  
 
           
 
               
Supplemental cash flow information:
               
Cash paid during the period for:
               
Income taxes, net
  $ 2,215     $ 97  
Interest
  $ 13,613     $ 12,686  
Non-cash investing and financing activities:
               
Issuance of common stock to executive officers and directors
  $ 456     $ 414  
Issuance of restricted stock, net of forfeitures
  $ 924     $ 600  
See accompanying notes to condensed consolidated financial statements.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(1) Basis of Presentation
     (a) The Company
     Stewart Enterprises, Inc. (the “Company”) is a provider of funeral and cemetery products and services in the death care industry in the United States and Puerto Rico. Through its subsidiaries, the Company offers a complete line of funeral and cremation merchandise and services, along with cemetery property, merchandise and services, both at the time of need and on a preneed basis. As of July 31, 2011, the Company owned and operated 218 funeral homes and 141 cemeteries in 24 states within the United States and Puerto Rico. The Company has three operating and reportable segments consisting of a funeral segment, cemetery segment and corporate trust management segment.
     (b) Principles of Consolidation
     The accompanying condensed consolidated financial statements include the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.
     (c) Interim Disclosures
     The information as of July 31, 2011, and for the three and nine months ended July 31, 2011 and 2010, is unaudited but, in the opinion of management, reflects all adjustments, which are of a normal recurring nature, necessary to a fair statement of the results for the interim periods. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2010 (the “2010 Form 10-K”).
     The October 31, 2010 condensed consolidated balance sheet data was derived from audited financial statements in the Company’s 2010 Form 10-K, but does not include all disclosures required by accounting principles generally accepted in the United States of America, which are presented in the Company’s 2010 Form 10-K.
     The results of operations for the three and nine months ended July 31, 2011 are not necessarily indicative of the results to be expected for the fiscal year ending October 31, 2011.
     (d) Use of Estimates
     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates are disclosed in Note 2 in the Company’s 2010 Form 10-K.
     (e) Share-Based Compensation
     The Company has share-based compensation plans, which are described in more detail in Note 19 to the consolidated financial statements in the Company’s 2010 Form 10-K. Net earnings for the three months ended July 31, 2011 and 2010 include $281 and $265, respectively, of stock option expenses, all of which are included in corporate general and administrative expenses in the condensed consolidated statements of earnings. Net earnings for the nine months ended July 31, 2011 and 2010 include $842 and $805, respectively, of stock option expenses, all of which are included in corporate general and administrative expenses in the condensed consolidated statements of earnings. As of July 31, 2011, there was $2,656 of total unrecognized compensation costs related to nonvested stock options that is expected to be recognized over a weighted-average period of 2.9 years, of which $1,046 of total stock option expense is expected for fiscal year 2011. The expense related to restricted stock is reflected in corporate

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(1) Basis of Presentation—(Continued)
general and administrative expenses in the condensed consolidated statements of earnings and amounted to $333 and $205 for the three months ended July 31, 2011 and 2010, respectively, and $977 and $751 for the nine months ended July 31, 2011 and 2010, respectively. As of July 31, 2011, there was $1,134 of remaining future restricted stock expense to be recognized. Total restricted stock expense for fiscal year 2011 is expected to be $1,324.
     In November 2010, the Company issued 82,160 shares of Class A common stock and paid approximately $114 in cash to the independent directors of the Company. The expense related to this stock grant amounted to $456 and was recorded in corporate general and administrative expenses during the first quarter of fiscal year 2011. In November 2009, the Company issued 90,000 shares of Class A common stock and paid approximately $96 in cash to the independent directors of the Company. The expense related to this stock grant was $414 and was recorded in corporate general and administrative expenses during the first quarter of fiscal year 2010. Each of the shares received has a restriction requiring each independent director to hold the respective shares until completion of service as a member of the Board of Directors.
     The table below presents all stock options and restricted stock granted to employees during the nine months ended July 31, 2011:
                                 
            Weighted              
    Number of Shares     Average              
Grant Type   Granted     Price per Share     Vesting Period     Vesting Condition  
Stock options
    1,339,000     $ 6.25     Equal one-fourth   Service condition
 
                  portions over 4 years        
 
                         
 
                               
Restricted stock
    520,500     $ 6.25     Equal one-third   Market condition
 
                  portions over 3 years        
 
                         
     The fair value of the Company’s service based stock options granted in fiscal year 2011 is the estimated present value at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for the nine months ended July 31, 2011: expected dividend yield of 1.9 percent; expected volatility of 41.5 percent; risk-free interest rate of 1.9 percent; and an expected term of 4.8 years. During the nine months ended July 31, 2011, the Company granted 520,500 shares of restricted stock with market conditions based on achieving certain target stock prices in the fiscal years 2011, 2012 and 2013. The Company records the expense over the requisite service period. The market condition related to fiscal year 2011 was achieved during the second quarter of fiscal year 2011.
     (f) Purchase and Retirement of Common Stock
     Share repurchases are recorded at stated value with the amount in excess of stated value recorded as a reduction to additional paid-in capital. Share repurchases reduce the weighted average number of common shares outstanding during each period.
     On September 19, 2007, the Company announced a new stock repurchase program, authorizing the investment of up to $25,000 in the repurchase of the Company’s common stock. Repurchases under the program are limited to the Company’s Class A common stock, and can be made in the open market or in privately negotiated transactions at such times and in such amounts as management deems appropriate, depending upon market conditions and other factors. The program was increased by $25,000 in December 2007 and an additional $25,000 in June 2008 resulting in a $75,000 program. In June 2011, the program was further increased by $25,000 resulting in a $100,000 program. During the nine months ended July 31, 2011, the Company repurchased 2,347,200 shares of its Class A common stock for $15,552 at an average price of $6.63 per share. As of July 31, 2011, the Company has

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(1) Basis of Presentation—(Continued)
repurchased 9,724,598 shares of its Class A common stock since the start of the program for $68,090 at an average price of $7.00 per share and has $31,910 remaining available under this program.
     (g) Dividends
     In March 2005, the Company announced that its Board of Directors approved the initiation of a quarterly cash dividend of two and one-half cents per share of Class A and B common stock. In September 2009, the Company announced that it had increased the quarterly dividend rate to three cents per share of Class A and B common stock. In June 2011, the Company announced that it had increased the quarterly dividend rate to three and one-half cents per share of Class A and B common stock. Although the Company intends to pay regular quarterly cash dividends for the foreseeable future, the declaration and payment of future dividends are discretionary and will be subject to determination by the Board of Directors each quarter after its review of the Company’s financial performance. For the nine months ended July 31, 2011 and 2010, the Company paid $8,662 and $8,278, respectively, in dividends.
     (h) Receivables and Allowance for Doubtful Accounts
     The Company establishes an allowance for uncollectible installment contracts and trade accounts based on a range of percentages applied to accounts receivable aging categories. These percentages are based on an analysis of the Company’s historical collection and write-off experience. At-need funeral and other receivables are considered past due after 30 days. The Company records an allowance on its interest accruals similar to the corresponding principal aging categories. For accounts that are greater than 90 days past due, interest continues to be accrued, however, an allowance is established to fully reserve for the interest. Interest income on these receivables is recognized only to the extent the account becomes less than 90 days past due and then only on the non-reserved portion. Accounts are restored to normal accrual status only when interest and principal payments are brought current and future payments are reasonably assured.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(1) Basis of Presentation—(Continued)
     As of July 31, 2011 and October 31, 2010, the Company’s receivables and related allowances were as follows:
                 
    Receivables as of July 31, 2011     Receivables as of October 31, 2010  
    Ending Balance Collectively     Ending Balance Collectively  
    Evaluated for Impairment     Evaluated for Impairment  
Current receivables — at-need funeral
  $ 9,172     $ 9,153  
Current receivables — other
    55,209       47,736  
Receivables, due beyond one year — other
    73,314       75,782  
Preneed funeral receivables
    42,951       42,879  
Preneed cemetery receivables
    30,279       31,643  
 
           
Total
  $ 210,925     $ 207,193  
 
           
Total current receivables
    64,381       56,889  
Total noncurrent receivables
    146,544       150,304  
 
           
Total
  $ 210,925     $ 207,193  
 
           
     Other receivables are comprised primarily of receivables related to the sale of preneed property interment rights but also include income tax receivables, trade and other receivables and a receivable for hurricane related insurance proceeds (as discussed in Note 7).
                 
    Allowance for Doubtful Accounts     Allowance for Doubtful Accounts  
    and Cancellations as of     and Cancellations as of  
    July 31, 2011     October 31, 2010  
    Ending Balance Collectively     Ending Balance Collectively  
    Evaluated for Impairment     Evaluated for Impairment  
Current receivables — at-need funeral and other
  $ (5,293 )   $ (5,738 )
Receivables, due beyond one year — other
    (7,732 )     (8,324 )
Preneed funeral receivables
    (11,576 )     (11,753 )
Preneed cemetery receivables
    (3,683 )     (4,692 )
 
           
Total
  $ (28,284 )   $ (30,507 )
 
           
Total current receivables
    (5,293 )     (5,738 )
Total noncurrent receivables
    (22,991 )     (24,769 )
 
           
Total
  $ (28,284 )   $ (30,507 )
 
           
                                 
    Allowance for Doubtful Accounts and Cancellations Rollforward  
    Balance —                     Balance —  
    October 31,     Charged to costs             July 31,  
    2010     and expenses     Write-offs     2011  
Current receivables — at-need funeral and other
  $ 5,738       1,568       (2,013 )   $ 5,293  
Receivables, due beyond one year — other
  $ 8,324       2,291       (2,883 )   $ 7,732  
 
                       
 
  $ 14,062       3,859       (4,896 )   $ 13,025  
 
                       
     The Company has established allowances for preneed funeral and cemetery merchandise and services trust receivables. Changes in these allowances have no effect on the condensed consolidated statement of earnings but are recorded as reductions in preneed receivables and preneed deferred revenue in the condensed consolidated balance sheet.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(1) Basis of Presentation—(Continued)
     The following summarizes the Company’s receivables aging analysis:
                                         
    Receivables Aging Analysis  
    as of July 31, 2011  
                            Greater than        
    1 to 30 Days     31 to 60 Days     61 to 90 Days     90 Days     Total  
Receivables — at-need funeral
  $ 5,677     $ 668     $ 298     $ 2,529     $ 9,172  
Receivables — other
    106,367       4,010       2,067       16,079       128,523  
Preneed funeral receivables
    29,351       924       507       12,169       42,951  
Preneed cemetery receivables
    24,508       1,113       517       4,141       30,279  
 
                             
 
  $ 165,903     $ 6,715     $ 3,389     $ 34,918     $ 210,925  
 
                             
     (i) Restricted Cash and Cash Equivalents
     In connection with its workers’ compensation and automobile liability program with its insurance carrier, the Company is required to maintain collateral in the amount of $6,250. In the past, the Company has posted letters of credit to meet the collateral requirement. In the third quarter of fiscal year 2011 in order to reduce the letter of credit fees, the Company posted cash to satisfy the collateral requirement by investing $6,250 in a money market fund comprised of short-term U.S. treasury securities. This amount is classified in the “restricted cash and cash equivalents” line in the current assets section of the condensed consolidated balance sheet as of July 31, 2011. Both methods of posting collateral are available to the Company in the future.
     (j) Reclassifications
     Certain reclassifications have been made to the 2010 condensed consolidated statements of earnings and balance sheet in order for these periods to be comparable. These reclassifications had no effect on the Company’s net earnings, total shareholders’ equity or cash flows.
(2) New Accounting Principles
     In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, which requires additional fair value disclosures. This guidance requires reporting entities to disclose transfers in and out of Levels 1 and 2 and requires gross presentation of purchases, sales, issuances and settlements in the Level 3 reconciliation of the three-tier fair value hierarchy. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements related to Level 3 activity. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The guidance on transfers between Levels 1 and 2 was adopted by the Company as of its second fiscal quarter ended April 30, 2010. The guidance on Level 3 activity is effective for the Company’s fiscal year beginning November 1, 2011. The Company is currently evaluating the impact the adoption will have on its disclosures in the notes to its consolidated financial statements.
     In June 2009, the FASB issued guidance which amends the consolidation guidance for variable interest entities. It requires additional disclosures about involvement with variable interest entities and any significant changes in risk exposure due to that involvement. This guidance is effective as of the beginning of the first annual reporting period that begins after November 15, 2009, which corresponds to the Company’s fiscal year beginning November 1, 2010. The adoption of this guidance did not have a material effect on the Company’s financial statements.
     In July 2010, the FASB issued ASU No. 2010-20, which requires new disclosures on finance receivables and allowance for credit losses. The new disclosures are required for interim and annual periods ending after December 15, 2010, although the disclosures of reporting period activity are required for interim and annual periods

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(2) New Accounting Principles—(Continued)
beginning after December 15, 2010. In January 2011, the FASB issued ASU No. 2011-01, which delayed the effective date of ASU No. 2010-20 for public companies with regard to the disclosures on troubled debt restructurings. The guidance was adopted by the Company as of its first fiscal quarter ended January 31, 2011. The disclosures of reporting period activity were effective for the Company’s second fiscal quarter beginning February 1, 2011. The adoption of this guidance by the Company did not have a material effect on its consolidated financial statements. See Note 1(h) for the required disclosures.
     In December 2010, the FASB issued ASU No. 2010-28 regarding the goodwill impairment test for reporting units with zero or negative carrying amounts. The guidance clarifies the steps to be performed to determine whether goodwill has been impaired and addresses the steps for reporting units with zero or negative carrying amounts. This guidance is effective for fiscal years (and interim periods within such years) beginning after December 15, 2010, which corresponds to the Company’s first fiscal quarter beginning November 1, 2011. The Company is currently evaluating the impact the adoption will have on its consolidated financial statements.
     In April 2011, the FASB issued ASU No. 2011-02, which clarifies the guidance for identifying restructuring of receivables that constitute a troubled debt restructuring for a creditor. This guidance is effective for the first interim or annual period beginning on or after June 15, 2011 and should be applied retrospectively to the beginning of the annual period of adoption, which corresponds to the Company’s fourth fiscal quarter beginning August 1, 2011. The Company believes the adoption of this guidance will have no impact on its consolidated financial statements.
     In May 2011, the FASB issued ASU No. 2011-04 regarding fair value measurements and disclosures. This new guidance clarifies the application of existing fair value measurement guidance and revises certain measurement and disclosure requirements to achieve convergence with International Financial Reporting Standards. This guidance is effective for the first interim or annual period beginning after December 15, 2011, which corresponds to the Company’s second fiscal quarter beginning February 1, 2012. In the period of adoption, the Company will include the required disclosures in its filings and believes the adoption will have no impact on its consolidated financial statements.
     In June 2011, the FASB issued ASU No. 2011-05 regarding the presentation of comprehensive income. This new guidance amends the previous application of comprehensive income and the requirements regarding presentation in the financial statements. It requires the disclosure of the components of comprehensive income, which the Company currently discloses in other sections of its filings, to be presented as part of one statement of comprehensive income, or as a separate statement of comprehensive income following the statement of earnings. This guidance is effective for fiscal years (and interim periods within such years) beginning after December 15, 2011, which corresponds to the Company’s first fiscal quarter beginning November 1, 2012. The Company is currently evaluating the impact the adoption will have on its consolidated financial statements.
(3) Preneed Funeral Activities
     The Company maintains three types of trust and escrow accounts: (1) preneed funeral merchandise and services, (2) preneed cemetery merchandise and services and (3) cemetery perpetual care. The activity of these trust and escrow accounts is detailed below and in Notes 4 and 5.
Preneed Funeral Receivables and Trust Investments
     Preneed funeral receivables and trust investments represent trust assets and customer receivables related to unperformed, price-guaranteed trust-funded preneed funeral contracts. The components of preneed funeral receivables and trust investments in the condensed consolidated balance sheets as of July 31, 2011 and October 31, 2010 are as follows:

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(3) Preneed Funeral Activities—(Continued)
                 
    July 31,     October 31,  
    2011     2010  
Trust assets
  $ 386,039     $ 383,792  
Receivables from customers
    42,951       42,879  
 
           
 
    428,990       426,671  
Allowance for cancellations
    (11,576 )     (11,753 )
 
           
Preneed funeral receivables and trust investments
  $ 417,414     $ 414,918  
 
           
     The cost basis and market values associated with preneed funeral merchandise and services trust assets as of July 31, 2011 are detailed below.
                                         
    July 31, 2011  
            Unrealized     Unrealized                
    Cost Basis     Gains     Losses     Market          
Cash, money market and other short- term investments
  $ 18,650     $     $     $ 18,650          
U.S. Government, agencies and municipalities
    1,718       58             1,776          
Corporate bonds
    25,396       1,590             26,986          
Preferred stocks
    37,232       195       (2,234 )     35,193          
Common stocks
    226,684       2,404       (85,637 )     143,451          
Mutual funds:
                                       
Equity
    19,148       1,179       (1,294 )     19,033          
Fixed income
    100,439       1,485       (793 )     101,131          
Commodity
    9,484       1       (379 )     9,106          
Real estate investment trusts
    15,076       505       (26 )     15,555          
Master limited partnerships
    136       1             137          
Insurance contracts and other long-term investments
    13,822       55             13,877          
 
                               
Trust investments
  $ 467,785     $ 7,473     $ (90,363 )   $ 384,895          
 
                                 
Market value as a percentage of cost
                                    82.3 %
 
                                     
Accrued investment income
                            1,144          
 
                                     
Trust assets
                          $ 386,039          
 
                                     

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(3) Preneed Funeral Activities—(Continued)
     The cost basis and market values associated with preneed funeral merchandise and services trust assets as of October 31, 2010 are detailed below.
                                         
    October 31, 2010  
            Unrealized     Unrealized                
    Cost Basis     Gains     Losses     Market          
Cash, money market and other short- term investments
  $ 26,118     $     $     $ 26,118          
U.S. Government, agencies and municipalities
    2,224       84       (1 )     2,307          
Corporate bonds
    44,077       2,887       (1 )     46,963          
Preferred stocks
    56,297       356       (2,220 )     54,433          
Common stocks
    234,946       925       (91,593 )     144,278          
Mutual funds:
                                       
Equity
    27,154       185       (2,936 )     24,403          
Fixed income
    53,444       1,718       (767 )     54,395          
Commodity
    13,572       1,968             15,540          
Insurance contracts and other long-term investments
    14,171       146       (98 )     14,219          
 
                               
Trust investments
  $ 472,003     $ 8,269     $ (97,616 )   $ 382,656          
 
                                 
Market value as a percentage of cost
                                    81.1 %
 
                                     
Accrued investment income
                            1,136          
 
                                     
Trust assets
                          $ 383,792          
 
                                     
     The estimated maturities and market values of debt securities included above are as follows:
         
    July 31, 2011  
Due in one year or less
  $ 2,088  
Due in one to five years
    19,886  
Due in five to ten years
    6,771  
Thereafter
    17  
 
     
 
  $ 28,762  
 
     
     The Company is actively managing a covered call program on its equity securities within the preneed funeral merchandise and services trusts in order to provide an opportunity for additional income. As of July 31, 2011 and October 31, 2010, the Company had outstanding covered calls with a market value of $63 and $311, respectively. These covered calls are included at market value in the balance sheet line “preneed funeral receivables and trust investments.” For the three months ended July 31, 2011 and 2010, the Company realized trust earnings of approximately $75 and $46, respectively, related to the covered call program. For the nine months ended July 31, 2011 and 2010, the Company realized trust losses of $152 and $207, respectively, related to the covered call program. These trust earnings and losses are accounted for in the same manner as other funeral merchandise and services trust earnings and losses and flow through funeral revenue in the condensed consolidated statements of earnings as the underlying contracts are delivered. Although the Company realized losses associated with the covered call program for the nine months ended July 31, 2011 and 2010, it continues to hold the underlying securities against which these covered calls were issued. These underlying securities appreciated in value by $1,983 and $3,739 for the nine months ended July 31, 2011 and 2010, respectively.
     Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy. The Company’s Level 1 investments include cash, money market and other short-term investments, common stocks and mutual funds.

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Table of Contents

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(3) Preneed Funeral Activities—(Continued)
     Where quoted market prices are not available for the specific security, then fair values are estimated by using quoted prices of securities with similar characteristics. These investments are primarily U. S. Government, agencies and municipalities, corporate bonds, convertible bonds and preferred stocks, all of which are classified within Level 2 of the valuation hierarchy.
     The Company’s Level 3 investments include insurance contracts and partnership investments purchased within the trusts. The valuation of insurance contracts and partnership investments requires significant management judgment due to the absence of quoted prices, inherent lack of liquidity and the long-term nature of such assets. The fair market value of the insurance contracts is based upon the current face value of the contracts according to the respective insurance companies which is deemed to approximate fair market value. The fair market value of the partnership investments was determined by using their most recent audited financial statements and assessing the market value of the underlying securities within the partnership.
     The inputs into the fair value of the Company’s preneed funeral merchandise and services trust investments are categorized as follows:
                                 
            Significant              
    Quoted Market     Other     Significant        
    Prices in Active     Observable     Unobservable        
    Markets     Inputs     Inputs     Fair Market  
    (Level 1)     (Level 2)     (Level 3)     Value  
Trust investments—July 31, 2011
  $ 314,664     $ 63,955     $ 6,276     $ 384,895  
Trust investments—October 31, 2010
  $ 272,173     $ 103,703     $ 6,780     $ 382,656  
     In connection with its revised investment policy, during the nine months ended July 31, 2011, the Company sold several Level 2 investments including corporate bonds and preferred stocks and increased its holdings in several Level 1 investments such as highly diversified mutual funds invested in fixed income securities and real estate investment trusts.
     The change in the Company’s preneed funeral merchandise and services trust investments with significant unobservable inputs (Level 3) is as follows:
                                 
    Three Months Ended July 31,     Nine Months Ended July 31,  
    2011     2010     2011     2010  
Fair market value, beginning balance
  $ 6,129     $ 7,878     $ 6,780     $ 8,662  
Total unrealized losses included in other comprehensive income (1)
    (590 )     (130 )     (590 )     (1,060 )
Distributions and other, net
    737       55       86       201  
 
                       
Fair market value, ending balance
  $ 6,276     $ 7,803     $ 6,276     $ 7,803  
 
                       
 
(1)    All gains (losses) recognized in other comprehensive income for funeral trust investments are attributable to the Company’s preneed customers and are offset by a corresponding increase (decrease) in deferred preneed funeral receipts held in trust.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(3) Preneed Funeral Activities—(Continued)
     Activity related to preneed funeral trust investments is as follows:
                                 
    Three Months Ended July 31,     Nine Months Ended July 31,  
    2011     2010     2011     2010  
Purchases
  $ 45,026     $ 12,117     $ 117,074     $ 27,675  
Sales
    48,397       8,609       119,026       31,037  
Realized gains from sales of investments
    3,058       260       7,467       1,697  
Realized losses from sales of investments and other
    (1,335 )     (3,729 )     (2,015 )     (4,783 )
Interest income, dividends and other ordinary income
    3,107       2,851       9,920       7,738  
Deposits (1)
    5,770       6,404       15,800       20,009  
Withdrawals (1)
    10,017       10,187       32,332       32,234  
 
(1)    The Company historically sold a significant portion of its preneed funeral sales through trust. Over time, the mix has shifted to a more significant portion being sold through insurance, particularly in states where the trusting requirements are high.
     The following tables show the gross unrealized losses and fair value of the preneed funeral merchandise and services trust investments with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of July 31, 2011 and October 31, 2010.
                                                 
    July 31, 2011  
    Less than 12 Months     12 Months or Greater     Total  
    Market     Unrealized     Market     Unrealized     Market     Unrealized  
    Value     Losses     Value     Losses     Value     Losses  
Preferred stocks
  $     $     $ 22,785     $ (2,234 )   $ 22,785     $ (2,234 )
Common stocks
    665       (54 )     128,155       (85,583 )     128,820       (85,637 )
Mutual funds:
                                               
Equity
                8,208       (1,294 )     8,208       (1,294 )
Fixed income
    19,874       (60 )     13,688       (733 )     33,562       (793 )
Commodity
    9,072       (379 )                 9,072       (379 )
Real estate investment trusts
    2,279       (26 )                 2,279       (26 )
 
                                   
Total
  $ 31,890     $ (519 )   $ 172,836     $ (89,844 )   $ 204,726     $ (90,363 )
 
                                   
                                                 
    October 31, 2010  
    Less than 12 Months     12 Months or Greater     Total  
    Market     Unrealized     Market     Unrealized     Market     Unrealized  
    Value     Losses     Value     Losses     Value     Losses  
U.S. Government, agencies and municipalities
  $     $     $ 21     $ (1 )   $ 21     $ (1 )
Corporate bonds
    896       (1 )                 896       (1 )
Preferred stocks
    49       (1 )     35,205       (2,219 )     35,254       (2,220 )
Common stocks
    (17 )     (136 )     136,483       (91,457 )     136,466       (91,593 )
Mutual funds:
                                               
Equity
                20,298       (2,936 )     20,298       (2,936 )
Fixed income
    3,575       (3 )     4,550       (764 )     8,125       (767 )
Insurance contracts and other long-term investments
                      (98 )           (98 )
 
                                   
Total
  $ 4,503     $ (141 )   $ 196,557     $ (97,475 )   $ 201,060     $ (97,616 )
 
                                   

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(3) Preneed Funeral Activities—(Continued)
     The unrealized losses in the preneed funeral merchandise and services trust portfolio are not considered to be other than temporary. For each of these securities, the Company evaluates consensus analyst recommendations, ratings from established ratings agencies, concerns specific to the issuer of the securities and overall market performance. Of the total unrealized losses at July 31, 2011, 95 percent, or $85,637, were generated by investments in common stock. Most of the common stock investments are part of the S&P 500 Index. The Company generally expects its portfolio performance to improve if the performance of the overall financial market improves, but would also expect its performance to deteriorate if the overall financial market declines. The Company believes these investments will recover in value and that it has sufficient liquidity from cash and cash equivalents within the trusts, cash deposits of future preneed sales and cash received from ordinary income to fund future services and allow the Company to hold these investments until they recover in value.
     The Company’s policy for recognizing trust income follows the allocation of trust earnings to individual contracts as stipulated in the Company’s respective trust agreements for distributable income. In substantially all of the Company’s trusts, trust earnings, which include dividends and interest earned and net capital gains and losses realized by preneed funeral trust or escrow accounts net of fees, are allocated to individual contracts when earned or realized. In these trusts, unrealized gains and losses are not allocated to individual contracts. The trust earnings allocated to individual contracts are recognized as components of revenue along with the original contract sales price when the underlying service or merchandise is actually performed or delivered. Principal and earnings are withdrawn only as the merchandise or services are delivered or contracts are cancelled, except in jurisdictions that permit trust earnings to be withdrawn currently.
     Cash flows from preneed funeral contracts are presented as operating cash flows in the Company’s condensed consolidated statements of cash flows.
(4) Preneed Cemetery Merchandise and Service Activities
Preneed Cemetery Receivables and Trust Investments
     Preneed cemetery receivables and trust investments represent trust assets and customer receivables for contracts sold in advance of when the merchandise or services are needed. The receivables related to the sale of preneed property interment rights are included in the Company’s current and long-term receivables. The components of preneed cemetery receivables and trust investments in the condensed consolidated balance sheets as of July 31, 2011 and October 31, 2010 are as follows:
                 
    July 31,     October 31,  
    2011     2010  
Trust assets
  $ 193,768     $ 182,336  
Receivables from customers
    30,279       31,643  
 
           
 
    224,047       213,979  
Allowance for cancellations
    (3,683 )     (4,692 )
 
           
Preneed cemetery receivables and trust investments
  $ 220,364     $ 209,287  
 
           

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(4) Preneed Cemetery Merchandise and Service Activities—(Continued)
     The cost basis and market values associated with the preneed cemetery merchandise and services trust assets as of July 31, 2011 are detailed below.
                                         
    July 31, 2011  
            Unrealized     Unrealized                
    Cost Basis     Gains     Losses     Market          
Cash, money market and other short- term investments
  $ 9,138     $     $     $ 9,138          
U.S. Government, agencies and municipalities
    2,085       88             2,173          
Corporate bonds
    2,657       147       (1 )     2,803          
Preferred stocks
    14,132       18       (1,167 )     12,983          
Common stocks
    117,630       2,233       (43,365 )     76,498          
Mutual funds:
                                       
Equity
    22,001       102       (5,291 )     16,812          
Fixed income
    54,806       718       (66 )     55,458          
Commodity
    6,157       2       (247 )     5,912          
Real estate investment trusts
    10,310       428             10,738          
Master limited partnerships
    97       6             103          
Other long-term investments
    581       5             586          
 
                               
Trust investments
  $ 239,594     $ 3,747     $ (50,137 )   $ 193,204          
 
                                 
Market value as a percentage of cost
                                    80.6 %
 
                                     
Accrued investment income
                            564          
 
                                     
Trust assets
                          $ 193,768          
 
                                     
     The cost basis and market values associated with the preneed cemetery merchandise and services trust assets as of October 31, 2010 are detailed below.
                                         
    October 31, 2010  
            Unrealized     Unrealized                
    Cost Basis     Gains     Losses     Market          
Cash, money market and other short- term investments
  $ 12,719     $     $     $ 12,719          
U.S. Government, agencies and municipalities
    5,655       667       (2 )     6,320          
Corporate bonds
    11,790       950       (13 )     12,727          
Preferred stocks
    20,132       139       (1,182 )     19,089          
Common stocks
    122,529       1,223       (45,792 )     77,960          
Mutual funds:
                                       
Equity
    30,291       50       (6,978 )     23,363          
Fixed income
    21,405       660       (6 )     22,059          
Commodity
    6,521       966             7,487          
Other long-term investments
    592       3             595          
 
                               
Trust investments
  $ 231,634     $ 4,658     $ (53,973 )   $ 182,319          
 
                                 
Market value as a percentage of cost
                                    78.7 %
 
                                     
Accrued investment income
                            470          
Less trust investments of assets held for sale
                            (453 )        
 
                                     
Trust assets
                          $ 182,336          
 
                                     

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(4)     Preneed Cemetery Merchandise and Service Activities—(Continued)
     The estimated maturities and market values of debt securities included above are as follows:
         
    July 31, 2011  
Due in one year or less
  $ 529  
Due in one to five years
    1,814  
Due in five to ten years
    2,164  
Thereafter
    469  
 
     
 
  $ 4,976  
 
     
     The Company is actively managing a covered call program on its equity securities within the preneed cemetery merchandise and services trusts in order to provide an opportunity for additional income. As of July 31, 2011 and October 31, 2010, the Company had outstanding covered calls with a market value of $61 and $128, respectively. These covered calls are included at market value in the balance sheet line “preneed cemetery receivables and trust investments.” For the three months ended July 31, 2011 and 2010, the Company realized trust earnings of approximately $61 and $9, respectively, related to the covered call program. For the nine months ended July 31, 2011 and 2010, the Company realized trust losses of $69 and $205, respectively, related to the covered call program. These trust earnings and losses are accounted for in the same manner as other cemetery merchandise and services trust earnings and losses and flow through cemetery revenue in the condensed consolidated statements of earnings as the underlying contracts are delivered. Although the Company realized losses associated with the covered call program for the nine months ended July 31, 2011 and 2010, it continues to hold the underlying securities against which these covered calls were issued. These underlying securities appreciated in value by $732 and $2,823 for the nine months ended July 31, 2011 and 2010, respectively.
     Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy. The Company’s Level 1 investments include cash, money market and other short-term investments, common stocks and mutual funds.
     Where quoted market prices are not available for the specific security, then fair values are estimated by using quoted prices of securities with similar characteristics. These investments are U. S. Government, agencies and municipalities, corporate bonds, convertible bonds and preferred stocks, all of which are classified within Level 2 of the valuation hierarchy.
     There are no Level 3 investments in the preneed cemetery merchandise and services trust investment portfolio.
     The inputs into the fair value of the Company’s preneed cemetery merchandise and services trust investments are categorized as follows:
                                 
            Significant              
    Quoted Market     Other     Significant        
    Prices in Active     Observable     Unobservable        
    Markets     Inputs     Inputs     Fair Market  
    (Level 1)     (Level 2)     (Level 3)     Value  
Trust investments—July 31, 2011
  $ 175,125     $ 18,079     $     $ 193,204  
Trust investments—October 31, 2010
  $ 144,048     $ 38,271     $     $ 182,319  
     In connection with its revised investment policy, during the nine months ended July 31, 2011, the Company sold several Level 2 investments including corporate bonds and preferred stocks and increased its holdings in

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(4)     Preneed Cemetery Merchandise and Service Activities—(Continued)
several Level 1 investments such as highly diversified mutual funds invested in fixed income securities and real estate investment trusts.
     Activity related to preneed cemetery merchandise and services trust investments is as follows:
                                 
    Three Months Ended July 31,     Nine Months Ended July 31,  
    2011     2010     2011     2010  
Purchases
  $ 27,460     $ 9,739     $ 79,354     $ 20,874  
Sales
    27,557       3,054       75,330       15,823  
Realized gains from sales of investments
    2,165       170       5,488       1,429  
Realized losses from sales of investments and other
    (658 )     (281 )     (1,207 )     (1,799 )
Interest income, dividends and other ordinary income
    1,897       1,461       5,307       3,851  
Deposits
    4,451       4,303       12,459       13,779  
Withdrawals
    5,341       4,472       14,813       13,201  
     The following tables show the gross unrealized losses and fair value of the preneed cemetery merchandise and services trust investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of July 31, 2011 and October 31, 2010.
                                                 
    July 31, 2011  
    Less than 12 Months     12 Months or Greater     Total  
    Market     Unrealized     Market     Unrealized     Market     Unrealized  
    Value     Losses     Value     Losses     Value     Losses  
Corporate bonds
  $ 73     $ (1 )   $ 5     $     $ 78     $ (1 )
Preferred stocks
                10,189       (1,167 )     10,189       (1,167 )
Common stocks
    3,415       (419 )     59,177       (42,946 )     62,592       (43,365 )
Mutual funds:
                                               
Equity
                15,215       (5,291 )     15,215       (5,291 )
Fixed income
    16,281       (34 )     6,404       (32 )     22,685       (66 )
Commodity
    5,844       (247 )                 5,844       (247 )
 
                                   
Total
  $ 25,613     $ (701 )   $ 90,990     $ (49,436 )   $ 116,603     $ (50,137 )
 
                                   
                                                 
    October 31, 2010  
    Less than 12 Months     12 Months or Greater     Total  
    Market     Unrealized     Market     Unrealized     Market     Unrealized  
    Value     Losses     Value     Losses     Value     Losses  
U.S. Government, agencies and municipalities
  $ 517     $ (2 )   $     $     $ 517     $ (2 )
Corporate bonds
    627       (6 )     493       (7 )     1,120       (13 )
Preferred stocks
                15,206       (1,182 )     15,206       (1,182 )
Common stocks
    1,957       (139 )     66,544       (45,653 )     68,501       (45,792 )
Mutual funds:
                                               
Equity
                22,582       (6,978 )     22,582       (6,978 )
Fixed income
    2,677       (3 )     16       (3 )     2,693       (6 )
 
                                   
Total
  $ 5,778     $ (150 )   $ 104,841     $ (53,823 )   $ 110,619     $ (53,973 )
 
                                   
     The unrealized losses in the preneed cemetery merchandise and services trust portfolio are not considered to be other than temporary. For each of these securities, the Company evaluates consensus analyst recommendations, ratings from established ratings agencies, concerns specific to the issuer of the securities and overall market performance. Of the total unrealized losses at July 31, 2011, 97 percent, or $48,656, were generated

22


Table of Contents

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(4)     Preneed Cemetery Merchandise and Service Activities—(Continued)
by common stock and mutual fund-equity investments. Most of the common stock investments are part of the S&P 500 Index, and the mutual fund-equity investments are invested in small-cap, mid-cap and international mutual funds that are highly diversified. The Company generally expects its portfolio performance to improve if the performance of the overall financial market improves, but would also expect its performance to deteriorate if the overall financial market declines. The Company believes these investments will recover in value and that it has sufficient liquidity from cash and cash equivalents within the trusts, cash deposits of future preneed sales and cash received from ordinary income to fund future services and allow the Company to hold these investments until they recover in value.
     The Company’s policy for recognizing trust income follows the allocation of trust earnings to individual contracts as stipulated in the Company’s respective trust agreements for distributable income. In substantially all of the Company’s trusts, trust earnings, which include dividends and interest earned and net capital gains and losses realized by preneed cemetery trust or escrow accounts net of fees, are allocated to individual contracts when earned or realized. In these trusts, unrealized gains and losses are not allocated to individual contracts. The trust earnings allocated to individual contracts are recognized as components of revenue along with the original sales price when the underlying service or merchandise is actually performed or delivered. Principal and earnings are withdrawn only as the merchandise or services are delivered or contracts are cancelled, except in jurisdictions that permit trust earnings to be withdrawn currently.
     Cash flows from preneed cemetery merchandise and services contracts are presented as operating cash flows in the Company’s condensed consolidated statements of cash flows.
(5) Cemetery Interment Rights and Perpetual Care Trusts
     Earnings from cemetery perpetual care trust investments that the Company is legally permitted to withdraw are recognized in current cemetery revenues and are used to defray cemetery maintenance costs which are expensed as incurred. Recognized earnings related to these cemetery perpetual care trust investments were $1,988 and $2,186 for the three months ended July 31, 2011 and 2010, respectively, and $5,981 and $6,005 for the nine months ended July 31, 2011 and 2010, respectively.

23


Table of Contents

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(5)     Preneed Cemetery Merchandise and Service Activities—(Continued)
     The cost basis and market values of the trust investments held by the cemetery perpetual care trusts as of July 31, 2011 are detailed below.
                                         
    July 31, 2011  
            Unrealized     Unrealized                
    Cost Basis     Gains     Losses     Market          
Cash, money market and other short- term investments
  $ 7,167     $     $     $ 7,167          
U.S. Government, agencies and municipalities
    7,602       285       (62 )     7,825          
Corporate bonds
    31,117       1,265       (798 )     31,584          
Preferred stocks
    35,959       75       (5,612 )     30,422          
Common stocks
    89,025       1,464       (34,910 )     55,579          
Mutual funds:
                                       
Equity
    6,153       57       (583 )     5,627          
Fixed income
    84,419       1,162       (1,362 )     84,219          
Commodity
    7       4             11          
Real estate investment trusts
    7,834       186       (14 )     8,006          
Master limited partnerships
    9,244             (265 )     8,979          
Other long-term investments
    240             (103 )     137          
 
                               
Trust investments
  $ 278,767     $ 4,498     $ (43,709 )   $ 239,556          
 
                                 
Market value as a percentage of cost
                                    85.9 %
 
                                     
Accrued investment income
                            775          
 
                                     
Trust assets
                          $ 240,331          
 
                                     
     The cost basis and market values of the trust investments held by the cemetery perpetual care trusts as of October 31, 2010 are detailed below.
                                         
    October 31, 2010  
            Unrealized     Unrealized                
    Cost Basis     Gains     Losses     Market          
Cash, money market and other short- term investments
  $ 32,403     $     $     $ 32,403          
U.S. Government, agencies and municipalities
    8,006       196       (54 )     8,148          
Corporate bonds
    31,086       1,334       (825 )     31,595          
Preferred stocks
    56,807       257       (6,376 )     50,688          
Common stocks
    90,284       1,042       (36,496 )     54,830          
Mutual funds:
                                       
Equity
    5,783       49       (662 )     5,170          
Fixed income
    46,646       878       (304 )     47,220          
Other long-term investments
    401       2       (79 )     324          
 
                               
Trust investments
  $ 271,416     $ 3,758     $ (44,796 )   $ 230,378          
 
                                 
Market value as a percentage of cost
                                    84.9 %
 
                                     
Accrued investment income
                            630          
Less trust investments of assets held for sale
                            (278 )        
 
                                     
Trust assets
                          $ 230,730          
 
                                     

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Table of Contents

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(5)     Cemetery Interment Rights and Perpetual Care Trusts—(Continued)
     The estimated maturities and market values of debt securities included above are as follows:
         
    July 31, 2011  
Due in one year or less
  $ 5,411  
Due in one to five years
    18,124  
Due in five to ten years
    10,634  
Thereafter
    5,240  
 
     
 
  $ 39,409  
 
     
     The Company is actively managing a covered call program on its equity securities within the cemetery perpetual care trusts in order to provide an opportunity for additional income. As of July 31, 2011 and October 31, 2010, the Company had outstanding covered calls with a market value of $31 and $111, respectively. These covered calls are included at market value in the balance sheet line “cemetery perpetual care trust investments.” For the three months ended July 31, 2011 and 2010, the Company realized trust earnings of approximately $37 and $5, respectively, related to the covered call program. For the nine months ended July 31, 2011 and 2010, the Company realized trust losses of approximately $81 and $178, respectively, related to the covered call program. These trust earnings and losses are accounted for in the same manner as other cemetery perpetual care trust earnings and losses and flow through cemetery revenue in the condensed consolidated statements of earnings. Although the Company realized losses associated with the covered call program for the nine months ended July 31, 2011 and 2010, it continues to hold the underlying securities against which these covered calls were issued. These underlying securities appreciated in value by $700 and $1,905 for the nine months ended July 31, 2011 and 2010, respectively.
     Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy. The Company’s Level 1 investments include cash, money market and other short-term investments, common stocks and mutual funds.
     Where quoted market prices are not available for the specific security, then fair values are estimated by using quoted prices of securities with similar characteristics. These investments are primarily U. S. Government, agencies and municipalities, corporate bonds, convertible bonds and preferred stocks, all of which are classified within Level 2 of the valuation hierarchy.
     The Company’s Level 3 investments include an investment in a partnership. The valuation of partnership investments requires significant management judgment due to the absence of quoted prices, inherent lack of liquidity and the long-term nature of such assets. The fair market value of the partnership investment was determined by using its most recent audited financial statements and assessing the market value of the underlying securities within the partnership.
     The inputs into the fair value of the Company’s cemetery perpetual care trust investments are categorized as follows:
                                 
            Significant              
    Quoted Market     Other     Significant        
    Prices in Active     Observable     Unobservable        
    Markets     Inputs     Inputs     Fair Market  
    (Level 1)     (Level 2)     (Level 3)     Value  
Trust investments—July 31, 2011
  $ 169,588     $ 69,831     $ 137     $ 239,556  
Trust investments—October 31, 2010
  $ 139,774     $ 90,431     $ 173     $ 230,378  
     In connection with its revised investment policy, during the nine months ended July 31, 2011, the Company sold several Level 2 investments including corporate bonds and preferred stocks and increased its holdings in

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(5) Cemetery Interment Rights and Perpetual Care Trusts —(Continued)
several Level 1 investments such as highly diversified mutual funds invested in fixed income securities, master limited partnerships and real estate investment trusts.
     The change in the Company’s cemetery perpetual care trust investments with significant unobservable inputs (Level 3) is as follows:
                                 
    Three Months Ended July 31,     Nine Months Ended July 31,  
    2011     2010     2011     2010  
Fair market value, beginning balance
  $ 140     $ 250     $ 173     $ 226  
Total unrealized losses included in other comprehensive income(1)
    (24 )     (3 )     (24 )     (3 )
Transfers out of Level 3 category and other
    21       69       (12 )     93  
 
                       
Fair market value, ending balance
  $ 137     $ 316     $ 137     $ 316  
 
                       
 
(1)    All gains (losses) recognized in other comprehensive income for perpetual care trust investments are attributable to the Company’s customers and are offset by a corresponding increase (decrease) in perpetual care trusts’ corpus.
     In states where the Company withdraws and recognizes capital gains in its cemetery perpetual care trusts, if it realizes net capital losses (i.e., losses in excess of capital gains) and the fair market value of the trust assets is less than the aggregate amounts required to be contributed to the trust, some states may require the Company to make cash deposits to the trusts or may require the Company to stop withdrawing earnings until future earnings restore the initial corpus. As of July 31, 2011 and October 31, 2010, the Company had a liability recorded for the estimated probable funding obligation to restore the net realized losses of $12,407 and $13,253, respectively. The Company recorded an additional $72 for the estimated probable funding obligation for the nine months ended July 31, 2011. The Company had earnings of $225 and $918 for the three and nine months ended July 31, 2011, respectively, within the trusts that it did not withdraw in order to satisfy a portion of its estimated probable funding obligation. In those states where realized net capital gains have not been withdrawn, the Company believes it is reasonably possible but not probable that additional funding obligations may exist with an estimated amount of $2,002; no charge has been recorded for these amounts as of July 31, 2011.
     Activity related to preneed cemetery perpetual care trust investments is as follows:
                                 
    Three Months Ended July 31,     Nine Months Ended July 31,  
    2011     2010     2011     2010  
Purchases
  $ 29,705     $ 21,806     $ 110,949     $ 60,908  
Sales
    27,560       35,931       80,094       78,016  
Realized gains from sales of investments
    1,112       945       2,044       5,228  
Realized losses from sales of investments and other
    (72 )     (81 )     (510 )     (899 )
Interest income, dividends and other ordinary income
    2,171       2,072       7,495       6,410  
Deposits
    2,024       1,691       5,424       5,424  
Withdrawals
    1,374       1,838       5,018       4,847  
     During the three months ended July 31, 2011 and 2010, cemetery revenues were $55,596 and $55,873, respectively, of which $2,334 and $1,466, respectively, were required to be placed into perpetual care trusts and were recorded as revenues and expenses. During the nine months ended July 31, 2011 and 2010, cemetery revenues were $167,685 and $165,138, respectively, of which $6,640 and $6,110, respectively, were required to be placed into perpetual care trusts and were recorded as revenues and costs.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(5) Cemetery Interment Rights and Perpetual Care Trusts — (Continued)
     The following tables show the gross unrealized losses and fair value of the cemetery perpetual care trust investments with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of July 31, 2011 and October 31, 2010.
                                                 
    July 31, 2011  
    Less than 12 Months     12 Months or Greater     Total  
    Market     Unrealized     Market     Unrealized     Market     Unrealized  
    Value     Losses     Value     Losses     Value     Losses  
U.S. Government, agencies and municipalities
  $ 1,398     $ (7 )   $ 76     $ (55 )   $ 1,474     $ (62 )
Corporate bonds
    4,316       (93 )     859       (705 )     5,175       (798 )
Preferred stocks
                23,817       (5,612 )     23,817       (5,612 )
Common stocks
    663       (68 )     51,533       (34,842 )     52,196       (34,910 )
Mutual funds:
                                               
Equity
    3,002       (124 )     2,167       (459 )     5,169       (583 )
Fixed income
    24,341       (1,086 )     13,189       (276 )     37,530       (1,362 )
Real estate investment trusts
    1,476       (14 )                 1,476       (14 )
Master limited partnerships
    8,979       (265 )                 8,979       (265 )
Other long-term investments
                64       (103 )     64       (103 )
 
                                   
Total
  $ 44,175     $ (1,657 )   $ 91,705     $ (42,052 )   $ 135,880     $ (43,709 )
 
                                   
                                                 
    October 31, 2010  
    Less than 12 Months     12 Months or Greater     Total  
    Market     Unrealized     Market     Unrealized     Market     Unrealized  
    Value     Losses     Value     Losses     Value     Losses  
U.S. Government, agencies and municipalities
  $ 269     $ (1 )   $ 105     $ (53 )   $ 374     $ (54 )
Corporate bonds
    2,786       (15 )     682       (810 )     3,468       (825 )
Preferred stocks
                32,747       (6,376 )     32,747       (6,376 )
Common stocks
    717       (161 )     51,334       (36,335 )     52,051       (36,496 )
Mutual funds:
                                               
Equity
                4,674       (662 )     4,674       (662 )
Fixed income
    14,850       (15 )     1,076       (289 )     15,926       (304 )
Other long-term investments
                88       (79 )     88       (79 )
 
                                   
Total
  $ 18,622     $ (192 )   $ 90,706     $ (44,604 )   $ 109,328     $ (44,796 )
 
                                   
     The unrealized losses in the cemetery perpetual care trust portfolio are not considered to be other than temporary. For each of these securities, the Company evaluates consensus analyst recommendations, ratings from established ratings agencies, concerns specific to the issuer of the securities and overall market performance. Of the total unrealized losses at July 31, 2011, 93 percent, or $40,522, were generated by common stock and preferred stock investments. Most of the common stock investments are part of the S&P 500 Index, and all preferred stocks had a rating of investment grade at the time of purchase. The Company generally expects its portfolio performance to improve if the performance of the overall financial market improves, but would also expect its performance to deteriorate if the overall financial market declines. The Company believes these investments will recover in value and that it has sufficient liquidity from cash and cash equivalents within the trusts, cash deposits of future sales of property interment rights and cash received from ordinary income to fund future services and allow the Company to hold these investments until they recover in value.
     Cash flows from cemetery perpetual care contracts are presented as operating cash flows in the Company’s condensed consolidated statements of cash flows.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(6) Deferred Preneed Funeral and Cemetery Receipts Held in Trust and Perpetual Care Trusts’ Corpus
     The components of deferred preneed funeral and cemetery receipts held in trust in the condensed consolidated balance sheet at July 31, 2011 are as follows:
                         
    Deferred Receipts Held in Trust        
    Preneed     Preneed        
    Funeral     Cemetery     Total  
Trust assets at market value
  $ 386,039     $ 193,768     $ 579,807  
Less:
                       
Pending withdrawals
    (6,193 )     (5,346 )     (11,539 )
Pending deposits
    1,952       1,653       3,605  
 
                 
Deferred receipts held in trust
  $ 381,798     $ 190,075     $ 571,873  
 
                 
     The components of perpetual care trusts’ corpus in the condensed consolidated balance sheet at July 31, 2011 are as follows:
         
    Perpetual Care  
    Trusts’ Corpus  
Trust assets at market value
  $ 240,331  
Less:
       
Pending withdrawals
    (1,854 )
Pending deposits
    615  
 
     
Perpetual care trusts’ corpus
  $ 239,092  
 
     
Investment and other income, net
     The components of investment and other income, net in the condensed consolidated statements of earnings for the three and nine months ended July 31, 2011 and 2010 are detailed below.
                                 
    Three Months Ended July 31,     Nine Months Ended July 31,  
    2011     2010     2011     2010  
Realized gains from sales of investments
  $ 6,335     $ 1,375     $ 14,999     $ 8,354  
Realized losses from sales of investments and other
    (2,065 )     (4,091 )     (3,732 )     (7,481 )
Interest income, dividends and other ordinary income
    7,175       6,384       22,722       17,999  
Trust expenses and income taxes
    (2,808 )     (2,223 )     (7,737 )     (7,363 )
 
                       
Net trust investment income
    8,637       1,445       26,252       11,509  
Reclassification to deferred preneed funeral and cemetery receipts held in trust
    (6,319 )     758       (19,876 )     (3,238 )
Reclassification to perpetual care trusts’ corpus
    (2,318 )     (2,203 )     (6,376 )     (8,271 )
 
                       
Total deferred preneed funeral and cemetery receipts held in trust and perpetual care trusts’ corpus
                       
Investment and other income, net (1)
    30       62       394       122  
 
                       
Total investment and other income, net
  $ 30     $ 62     $ 394     $ 122  
 
                       
 
(1)    Investment and other income, net generally consists of interest income primarily on the Company’s cash, cash equivalents and marketable securities not held in trust. For the nine months ended July 31, 2011, the balance

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(6)   Deferred Preneed Funeral and Cemetery Receipts Held in Trust and Perpetual Care Trusts’ Corpus—(Continued)
     
includes approximately $327 of interest income related to the recent resolution of an audit by the Internal Revenue Service.     
(7) Commitments and Contingencies
Litigation
     The Company was unable to finalize its negotiations with its insurance carrier related to damages from Hurricane Katrina, and as a result filed suit against the carrier in August 2007. In 2007, the carrier advanced an additional $1,100, which the Company did not record as income but as a liability pending the resolution of the ongoing litigation. In August 2011, the insurance litigation was settled, and the Company will receive $11,325 in additional insurance proceeds. As of July 31, 2011, the Company recorded these insurance proceeds and the $1,100 received in 2007 discussed above in the “hurricane related recoveries (charges), net” line in the condensed consolidated statements of earnings for the three and nine months ended July 31, 2011. The Company also recorded the $11,325 in insurance proceeds in current receivables in the condensed consolidated balance sheet as of July 31, 2011.
     The Company is a defendant in a variety of litigation matters that have arisen in the ordinary course of business, which are covered by insurance or otherwise not considered to be material. The Company carries insurance with coverages and coverage limits that it believes to be adequate.
Other Commitments and Contingencies
     In those states where the Company has withdrawn realized net capital gains in the past from its cemetery perpetual care trusts, regulators may seek replenishment of the realized net capital losses either by requiring a cash deposit to the trust or by prohibiting or restricting withdrawals of future earnings until they cover the loss. As of July 31, 2011, the Company had $12,407 recorded as a liability for an estimated probable funding obligation. As of July 31, 2011, the Company had net unrealized losses of approximately $34,730 in the cemetery perpetual care trusts in these states. Because some of these trusts currently have assets with a fair market value less than the aggregate amounts required to be contributed to the trust, any additional realized net capital losses in these trusts may result in an additional corresponding funding liability and increase in cemetery costs.
     From time to time, unidentified contracts are presented to the Company relating to contracts sold prior to the time the Company acquired certain businesses. In addition, from time to time, the Company has identified in its backlog, certain contracts in which services or merchandise have previously been delivered. Using historical trends and statistical analyses, the Company has recorded an estimated net liability for these items of approximately $2.0 million and $3.0 million as of July 31, 2011 and October 31, 2010, respectively.
     The Company is required to maintain a bond ($23,456 as of July 31, 2011) to guarantee its obligations relating to funds the Company withdrew in fiscal year 2001 from its preneed funeral trusts in Florida. This amount would become senior secured debt if the Company was required to borrow funds under the senior secured revolving credit facility and return to the trusts the amounts it previously withdrew that relate to the remaining undelivered preneed contracts in lieu of this bond.

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Table of Contents

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(8) Reconciliation of Basic and Diluted Per Share Data
                         
    Earnings     Shares     Per Share  
    (Numerator)     (Denominator)     Data  
Three Months Ended July 31, 2011
                       
Earnings from continuing operations
  $ 11,986                  
Allocation of earnings to nonvested restricted stock
    (103 )                
Basic earnings per common share:
                       
Earnings from continuing operations available to common shareholders
  $ 11,883       90,182     $ .13  
 
                   
Effect of dilutive securities:
                       
Stock options assumed exercised
            559          
 
                     
Diluted earnings per common share:
                       
Earnings from continuing operations available to common shareholders plus stock options assumed exercised
  $ 11,883       90,741     $ .13  
 
                 
                         
    Earnings     Shares     Per Share  
    (Numerator)     (Denominator)     Data  
Three Months Ended July 31, 2010
                       
Earnings from continuing operations
  $ 6,028                  
Allocation of earnings to nonvested restricted stock
    (63 )                
 
                     
Basic earnings per common share:
                       
Earnings from continuing operations available to common shareholders
  $ 5,965       92,207     $ .06  
 
                   
Effect of dilutive securities:
                       
Stock options assumed exercised
            292          
 
                     
Diluted earnings per common share:
                       
Earnings from continuing operations available to common shareholders plus stock options assumed exercised
  $ 5,965       92,499     $ .06  
 
                 

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(8) Reconciliation of Basic and Diluted Per Share Data—(Continued)
                         
    Earnings     Shares     Per Share  
    (Numerator)     (Denominator)     Data  
Nine Months Ended July 31, 2011
                       
Earnings from continuing operations
  $ 30,028                  
Allocation of earnings to nonvested restricted stock
    (263 )                
 
                   
Basic earnings per common share:
                       
Earnings from continuing operations available to common shareholders
  $ 29,765       90,497     $ .33  
 
                   
Effect of dilutive securities:
                       
Stock options assumed exercised
            561          
 
                     
Diluted earnings per common share:
                       
Earnings from continuing operations available to common shareholders plus stock options assumed exercised
  $ 29,765       91,058     $ .33  
 
                 
                         
    Earnings     Shares     Per Share  
    (Numerator)     (Denominator)     Data  
Nine Months Ended July 31, 2010
                       
Earnings from continuing operations
  $ 21,877                  
Allocation of earnings to nonvested restricted stock
    (226 )                
 
                     
Basic earnings per common share:
                       
Earnings from continuing operations available to common shareholders
  $ 21,651       92,124     $ .24  
 
                   
Effect of dilutive securities:
                       
Stock options assumed exercised
            273          
 
                     
Diluted earnings per common share:
                       
Earnings from continuing operations available to common shareholders plus stock options assumed exercised
  $ 21,651       92,397     $ .23  
 
                 
     During the three months ended July 31, 2011, options to purchase 435,253 shares of common stock at prices ranging from $7.57 to $8.47 per share were outstanding but were not included in the computation of diluted earnings per share because the exercise prices of the options were greater than the average market price of the common shares for that period. Additionally, weighted-average shares outstanding for the three months ended July 31, 2011 exclude the effect of approximately 1,086,000 options because such options were not dilutive. These options expire between January 8, 2014 and July 2, 2018.
     During the nine months ended July 31, 2011, options to purchase 500,573 shares of common stock at prices ranging from $7.31 to $8.47 per share were outstanding but were not included in the computation of diluted earnings per share because the exercise prices of the options were greater than the average market price of the common shares for that period. These options expire between January 8, 2014 and July 2, 2018.
     Options to purchase 1,149,289 shares of common stock at prices ranging from $6.33 to $8.47 per share for the three months ended July 31, 2010 and options to purchase 1,273,571 shares of common stock at prices ranging from $5.84 to $8.47 per share for the nine months ended July 31, 2010 were outstanding but were not included in the computation of diluted earnings per share because the exercise prices of the options were greater than the average market price of the common shares for those periods. Additionally, weighted average shares outstanding for the three and nine months ended July 31, 2010 exclude the effect of approximately 943,495 and 2,750 options, respectively, because such options were not dilutive.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(8) Reconciliation of Basic and Diluted Per Share Data—(Continued)
     For the three and nine months ended July 31, 2011, all of the outstanding 214,500 market based stock options were dilutive as the respective market conditions had been previously achieved. For the three and nine months ended July 31, 2010, 438,000 market based stock options were not dilutive. The market based stock options were not dilutive because the market conditions required for vesting for the respective grants were not achieved during those periods.
     For the three and nine months ended July 31, 2011, a maximum of 13,153,500 shares of the Company’s Class A common stock related to the senior convertible notes and a maximum of 10,522,798 shares of Class A common stock under the common stock warrants associated with the June 2007 senior convertible debt transaction were not dilutive, as the average price of the Company’s stock for the three and nine months ended July 31, 2011 was less than the conversion price of the senior convertible notes and strike price of the warrants. For the three and nine months ended July 31, 2010, a maximum of 14,640,100 shares of the Company’s Class A common stock related to the senior convertible notes and a maximum of 11,712,080 shares of Class A common stock under the associated common stock warrants were also not dilutive.
     The Company includes Class A and Class B common stock in its diluted shares calculation. As of July 31, 2011, the Chairman of the Company’s Board of Directors, Frank B. Stewart, Jr., was the record holder of all of the Company’s shares of Class B common stock. The Company’s Class A and B common stock are substantially identical, except that holders of Class A common stock are entitled to one vote per share, and holders of Class B common stock are entitled to ten votes per share. Each share of Class B common stock is automatically converted into one share of Class A common stock upon transfer to persons other than certain affiliates of Frank B. Stewart, Jr.
(9) Segment Data
     The Company has determined that management’s approach to operating the business indicates that there are three operating and reportable segments: a funeral segment, a cemetery segment and a corporate trust management segment. The Company does not aggregate its operating segments. Therefore, its operating and reportable segments are the same. The tables below present information about reported segments for the three and nine months ended July 31, 2011 and 2010 for the Company’s continuing operations only. Prior period data has been retrospectively adjusted to conform to this presentation.
                                 
    Total Revenue     Total Revenue  
    Three Months     Three Months     Nine Months     Nine Months  
    Ended     Ended     Ended     Ended  
    July 31, 2011     July 31, 2010     July 31, 2011     July 31, 2010  
Funeral
  $ 64,846     $ 63,069     $ 203,254     $ 197,447  
Cemetery(1)
    53,544       54,023       161,370       159,603  
Corporate Trust Management(2)
    5,967       5,466       18,662       17,553  
 
                       
Total
  $ 124,357     $ 122,558     $ 383,286     $ 374,603  
 
                       

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(9) Segment Data—(Continued)
                                 
    Total Gross Profit     Total Gross Profit  
    Three Months     Three Months     Nine Months     Nine Months  
    Ended     Ended     Ended     Ended  
    July 31, 2011     July 31, 2010     July 31, 2011     July 31, 2010  
Funeral
  $ 10,703     $ 11,327     $ 41,139     $ 39,527  
Cemetery(1)
    5,544       6,025       17,255       16,893  
Corporate Trust Management(2)
    5,505       5,080       17,354       16,335  
 
                       
Total
  $ 21,752     $ 22,432     $ 75,748     $ 72,755  
 
                       
                                 
    Net Total Preneed Merchandise     Net Total Preneed Merchandise  
    and Service Sales(3)     and Service Sales(3)  
    Three Months     Three Months     Nine Months     Nine Months  
    Ended     Ended     Ended     Ended  
    July 31, 2011     July 31, 2010     July 31, 2011     July 31, 2010  
Funeral
  $ 26,283     $ 25,526     $ 70,287     $ 70,821  
Cemetery
    13,162       12,975       37,380       35,513  
 
                       
Total
  $ 39,445     $ 38,501     $ 107,667     $ 106,334  
 
                       
 
(1)   Perpetual care trust earnings are included in the revenues and gross profit of the cemetery segment and amounted to $1,988 and $2,186 for the three months ended July 31, 2011 and 2010, respectively, and $5,981 and $6,005 for the nine months ended July 31, 2011 and 2010, respectively.
 
(2)   Corporate trust management consists of trust management fees and funeral and cemetery merchandise and services 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 based on the fair market value of the assets managed and are paid by the trusts to the Company’s subsidiary, Investors Trust, Inc. The trust earnings represent the amount of distributable earnings as stipulated by the Company’s respective trust agreements that are generated by the trusts over the life of the preneed contracts and allocated to those products and services delivered during the relevant periods. Trust management fees included in funeral revenue for the three months ended July 31, 2011 and 2010 were $1,201 and $1,107, respectively, and funeral trust earnings recognized with respect to preneed contracts delivered included in funeral revenue for the three months ended July 31, 2011 and 2010 were $2,714 and $2,509, respectively. Trust management fees included in cemetery revenue for the three months ended July 31, 2011 and 2010 were $1,349 and $1,197, respectively, and cemetery trust earnings recognized with respect to preneed contracts delivered included in cemetery revenue for the three months ended July 31, 2011 and 2010 were $703 and $653, respectively.

Trust management fees included in funeral revenue for the nine months ended July 31, 2011 and 2010 were $3,614 and $3,369, respectively, and funeral trust earnings for the nine months ended July 31, 2011 and 2010 were $8,733 and $8,648, respectively. Trust management fees included in cemetery revenue for the nine months ended July 31, 2011 and 2010 were $4,000 and $3,621, respectively, and cemetery trust earnings for the nine months ended July 31, 2011 and 2010 were $2,315 and $1,915, 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.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(9) Segment Data—(Continued)
     A reconciliation of total segment gross profit to total earnings from continuing operations before income taxes for the three and nine months ended July 31, 2011 and 2010 is as follows:
                                 
    Three Months Ended July 31,     Nine Months Ended July 31,  
    2011     2010     2011     2010  
Gross profit for reportable segments
  $ 21,752     $ 22,432     $ 75,748     $ 72,755  
Corporate general and administrative expenses
    (7,069 )     (7,937 )     (20,358 )     (20,723 )
Hurricane related recoveries (charges), net
    12,349       (30 )     12,245       (62 )
Net gain (loss) on dispositions
    11             (389 )      
Other operating income, net
    512       607       1,193       1,051  
Interest expense
    (5,500 )     (6,184 )     (16,968 )     (18,531 )
Loss on early extinguishment of debt
    (73 )     (106 )     (1,884 )     (89 )
Investment and other income, net
    30       62       394       122  
 
                       
Earnings from continuing operations before income taxes
  $ 22,012     $ 8,844     $ 49,981     $ 34,523  
 
                       

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(10) Supplementary Information
     The detail of certain income statement accounts is as follows for the three and nine months ended July 31, 2011 and 2010.
                                 
    Three Months Ended July 31,     Nine Months Ended July 31,  
    2011     2010     2011     2010  
Service revenue
                               
Funeral
  $ 47,078     $ 45,050     $ 146,096     $ 135,568  
Cemetery
    14,642       14,272       45,266       45,081  
 
                       
 
    61,720       59,322       191,362       180,649  
Merchandise revenue
                               
Funeral
    19,816       19,884       63,808       68,838  
Cemetery
    37,479       38,035       112,031       108,777  
 
                       
 
    57,295       57,919       175,839       177,615  
Other revenue
                               
Funeral
    1,867       1,751       5,697       5,059  
Cemetery
    3,475       3,566       10,388       11,280  
 
                       
 
    5,342       5,317       16,085       16,339  
 
                       
 
                               
Total revenue
  $ 124,357     $ 122,558     $ 383,286     $ 374,603  
 
                       
 
                               
Service costs
                               
Funeral
  $ 16,722     $ 15,609     $ 48,838     $ 44,966  
Cemetery
    11,313       10,455       32,084       30,810  
 
                       
 
    28,035       26,064       80,922       75,776  
Merchandise costs
                               
Funeral
    13,414       13,236       41,650       42,270  
Cemetery
    23,197       23,299       69,981       69,654  
 
                       
 
    36,611       36,535       111,631       111,924  
Facility expenses
                               
Funeral
    24,244       23,093       72,296       71,302  
Cemetery
    13,715       14,434       42,689       42,846  
 
                       
 
    37,959       37,527       114,985       114,148  
 
                       
 
                               
Total costs
  $ 102,605     $ 100,126     $ 307,538     $ 301,848  
 
                       
     Service revenue includes funeral service revenue, funeral trust earnings, insurance commission revenue, burial site openings and closings and perpetual care trust earnings. Merchandise revenue includes funeral merchandise revenue, flower sales, cemetery property sales revenue, cemetery merchandise delivery revenue and merchandise trust earnings. Other revenue consists of finance charge revenue and trust management fees. Service costs include the direct costs associated with service revenue and preneed selling costs associated with preneed service sales. Merchandise costs include the direct costs associated with merchandise revenue and preneed selling costs associated with preneed merchandise sales.

35


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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes
     The following tables present the condensed consolidating historical financial statements as of July 31, 2011 and October 31, 2010 and for the three and nine months ended July 31, 2011 and 2010, for the direct and indirect domestic subsidiaries of the Company that serve as guarantors of the Company’s 6.50 percent senior notes and its 3.125 percent and 3.375 percent senior convertible notes, and the financial results of the Company’s subsidiaries that do not serve as guarantors. Non-guarantor subsidiaries of the 6.50 percent senior notes and senior convertible notes include the Puerto Rican subsidiaries, Investors Trust, Inc. and certain immaterial domestic subsidiaries, which are not 100 percent owned, or are prohibited by law from guaranteeing the 6.50 percent senior notes and senior convertible notes. The guarantor subsidiaries of the 6.50 percent senior notes and senior convertible notes are 100 percent owned directly or indirectly by the Company. The guarantees are full and unconditional and joint and several. In the condensed consolidating statements of earnings and other comprehensive income, corporate general and administrative expenses and interest expense of the parent are presented net of amounts charged to the guarantor and non-guarantor subsidiaries.
Condensed Consolidating Statements of Earnings and Other Comprehensive Income
                                         
    Three Months Ended July 31, 2011  
            Guarantor     Non-Guarantor              
    Parent     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Revenues:
                                       
Funeral
  $     $ 63,745     $ 5,016     $     $ 68,761  
Cemetery
          49,599       5,997             55,596  
 
                             
 
          113,344       11,013             124,357  
 
                             
Costs and expenses:
                                       
Funeral
          51,102       3,278             54,380  
Cemetery
          43,764       4,461             48,225  
 
                             
 
          94,866       7,739             102,605  
 
                             
Gross profit
          18,478       3,274             21,752  
Corporate general and administrative expenses
    (7,069 )                       (7,069 )
Hurricane related recoveries, net
    4,174       6,683       1,492             12,349  
Net gain on dispositions
          11                   11  
Other operating income, net
    13       419       80             512  
 
                             
Operating earnings (loss)
    (2,882 )     25,591       4,846             27,555  
Interest expense
    (764 )     (4,247 )     (489 )           (5,500 )
Loss on early extinguishment of debt
    (73 )                       (73 )
Investment and other income, net
    30                         30  
Equity in subsidiaries
    12,521       218             (12,739 )      
 
                             
Earnings before income taxes
    8,832       21,562       4,357       (12,739 )     22,012  
Income tax expense (benefit)
    (3,154 )     11,485       1,695             10,026  
 
                             
Net earnings
    11,986       10,077       2,662       (12,739 )     11,986  
Other comprehensive loss, net
    (3 )           (3 )     3       (3 )
 
                             
Comprehensive income
  $ 11,983     $ 10,077     $ 2,659     $ (12,736 )   $ 11,983  
 
                             

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)
Condensed Consolidating Statements of Earnings and Other Comprehensive Income
                                         
    Three Months Ended July 31, 2010  
            Guarantor     Non-Guarantor              
    Parent     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Revenues:
                                       
Funeral
  $     $ 61,904     $ 4,781     $     $ 66,685  
Cemetery
          50,435       5,438             55,873  
 
                             
 
          112,339       10,219             122,558  
 
                             
Costs and expenses:
                                       
Funeral
          48,586       3,352             51,938  
Cemetery
          43,741       4,447             48,188  
 
                             
 
          92,327       7,799             100,126  
 
                             
Gross profit
          20,012       2,420             22,432  
Corporate general and administrative expenses
    (7,937 )                       (7,937 )
Hurricane related charges, net
    (30 )                       (30 )
Other operating income, net
    18       547       42             607  
 
                             
Operating earnings (loss)
    (7,949 )     20,559       2,462             15,072  
Interest expense
    (690 )     (5,025 )     (469 )           (6,184 )
Loss on early extinguishment of debt
    (106 )                       (106 )
Investment and other income, net
    62                         62  
Equity in subsidiaries
    9,171       413             (9,584 )      
 
                             
Earnings from continuing operations before income taxes
    488       15,947       1,993       (9,584 )     8,844  
Income tax expense (benefit)
    (5,551 )     7,058       1,309             2,816  
 
                             
Earnings from continuing operations
    6,039       8,889       684       (9,584 )     6,028  
Discontinued operations:
                                       
Earnings from discontinued operations before income taxes
          19                   19  
Income taxes
          8                   8  
 
                             
Earnings from discontinued operations
          11                   11  
 
                             
Net earnings
    6,039       8,900       684       (9,584 )     6,039  
Other comprehensive income, net
    12             12       (12 )     12  
 
                             
Comprehensive income
  $ 6,051     $ 8,900     $ 696     $ (9,596 )   $ 6,051  
 
                             

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)
Condensed Consolidating Statements of Earnings and Other Comprehensive Income
                                         
    Nine Months Ended July 31, 2011  
            Guarantor     Non-Guarantor              
    Parent     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Revenues:
                                       
Funeral
  $     $ 200,353     $ 15,248     $     $ 215,601  
Cemetery
          149,980       17,705             167,685  
 
                             
 
          350,333       32,953             383,286  
 
                             
Costs and expenses:
                                       
Funeral
          152,849       9,935             162,784  
Cemetery
          131,239       13,515             144,754  
 
                             
 
          284,088       23,450             307,538  
 
                             
Gross profit
          66,245       9,503             75,748  
Corporate general and administrative expenses
    (20,358 )                       (20,358 )
Hurricane related recoveries, net
    4,070       6,683       1,492             12,245  
Net loss on dispositions
          (389 )                 (389 )
Other operating income, net
    141       853       199             1,193  
 
                             
Operating earnings (loss)
    (16,147 )     73,392       11,194             68,439  
Interest expense
    (2,599 )     (12,968 )     (1,401 )           (16,968 )
Loss on early extinguishment of debt
    (1,884 )                       (1,884 )
Investment and other income, net
    394                         394  
Equity in subsidiaries
    37,528       605             (38,133 )      
 
                             
Earnings before income taxes
    17,292       61,029       9,793       (38,133 )     49,981  
Income tax expense (benefit)
    (12,736 )     26,149       6,540             19,953  
 
                             
Net earnings
    30,028       34,880       3,253       (38,133 )     30,028  
Other comprehensive income, net
    6             6       (6 )     6  
 
                             
Comprehensive income
  $ 30,034     $ 34,880     $ 3,259     $ (38,139 )   $ 30,034  
 
                             

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)
Condensed Consolidating Statements of Earnings and Other Comprehensive Income
                                         
    Nine Months Ended July 31, 2010  
            Guarantor     Non-Guarantor              
    Parent     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Revenues:
                                       
Funeral
  $     $ 195,008     $ 14,457     $     $ 209,465  
Cemetery
          147,981       17,157             165,138  
 
                             
 
          342,989       31,614             374,603  
 
                             
Costs and expenses:
                                       
Funeral
          148,257       10,281             158,538  
Cemetery
          129,447       13,863             143,310  
 
                             
 
          277,704       24,144             301,848  
 
                             
Gross profit
          65,285       7,470             72,755  
Corporate general and administrative expenses
    (20,723 )                       (20,723 )
Hurricane related recoveries (charges), net
    (117 )           55             (62 )
Other operating income, net
    60       839       152             1,051  
 
                             
Operating earnings (loss)
    (20,780 )     66,124       7,677             53,021  
Interest expense
    (1,172 )     (15,923 )     (1,436 )           (18,531 )
Loss on early extinguishment of debt
    (89 )                       (89 )
Investment and other income, net
    121       1                   122  
Equity in subsidiaries
    32,668       658             (33,326 )      
 
                             
Earnings from continuing operations before income taxes
    10,748       50,860       6,241       (33,326 )     34,523  
Income tax expense (benefit)
    (11,169 )     21,126       2,689             12,646  
 
                             
Earnings from continuing operations
    21,917       29,734       3,552       (33,326 )     21,877  
Discontinued operations:
                                       
Earnings from discontinued operations before income taxes
          65                   65  
Income taxes
          25                   25  
 
                             
Earnings from discontinued operations
          40                   40  
 
                             
Net earnings
    21,917       29,774       3,552       (33,326 )     21,917  
Other comprehensive income, net
    12             12       (12 )     12  
 
                             
Comprehensive income
  $ 21,929     $ 29,774     $ 3,564     $ (33,338 )   $ 21,929  
 
                             

39


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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(11)   Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)
Condensed Consolidating Balance Sheets
                                         
    July 31, 2011  
            Guarantor     Non-Guarantor              
    Parent     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
ASSETS
                                       
Current assets:
                                       
Cash and cash equivalents
  $ 51,448     $ 13,962     $ 1,161     $     $ 66,571  
Restricted cash and cash equivalents
    6,250                         6,250  
Certificates of deposit and marketable securities
                671             671  
Receivables, net of allowances
    5,897       45,225       7,966             59,088  
Inventories
    333       32,909       2,557             35,799  
Prepaid expenses
    1,572       3,353       1,913             6,838  
Deferred income taxes, net
    15,001       11,337       2,799             29,137  
Intercompany receivables
    2,895                   (2,895 )      
 
                             
Total current assets
    83,396       106,786       17,067       (2,895 )     204,354  
Receivables due beyond one year, net of allowances
          53,657       11,925             65,582  
Preneed funeral receivables and trust investments
          407,800       9,614             417,414  
Preneed cemetery receivables and trust investments
          212,993       7,371             220,364  
Goodwill
          227,203       19,835             247,038  
Cemetery property, at cost
          358,554       36,259             394,813  
Property and equipment, at cost
    58,623       486,171       42,640             587,434  
Less accumulated depreciation
    44,461       236,850       18,785             300,096  
 
                             
Net property and equipment
    14,162       249,321       23,855             287,338  
Deferred income taxes, net
    3,096       76,046       4,401               83,543  
Cemetery perpetual care trust investments
          227,428       12,903             240,331  
Other assets
    9,891       4,913       1,030             15,834  
Intercompany receivables
    688,801                   (688,801 )      
Equity in subsidiaries
    13,893       9,493             (23,386 )      
 
                             
Total assets
  $ 813,239     $ 1,934,194     $ 144,260     $ (715,082 )   $ 2,176,611  
 
                             
 
                                       
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                       
Current liabilities:
                                       
Current maturities of long-term debt
  $ 5     $     $     $     $ 5  
Accounts payable, accrued expenses and other current liabilities
    15,085       68,890       4,512             88,487  
Intercompany payables
                2,895       (2,895 )      
 
                             
Total current liabilities
    15,090       68,890       7,407       (2,895 )     88,492  
Long-term debt, less current maturities
    316,848                         316,848  
Deferred income taxes, net
          4,353       580             4,933  
Intercompany payables
          672,881       15,920       (688,801 )      
Deferred preneed funeral revenue
          193,908       46,652             240,560  
Deferred preneed cemetery revenue
          230,762       29,326             260,088  
Deferred preneed funeral and cemetery receipts held in trust
          563,804       8,069             571,873  
Perpetual care trusts’ corpus
          226,203       12,889             239,092  
Other long-term liabilities
    18,720       1,025       31             19,776  
Negative equity in subsidiaries
    27,632                   (27,632 )      
 
                             
Total liabilities
    378,290       1,961,826       120,874       (719,328 )     1,741,662  
 
                             
Common stock
    90,401       102       376       (478 )     90,401  
Other
    344,524       (27,734 )     22,986       4,748       344,524  
Accumulated other comprehensive income
    24             24       (24 )     24  
 
                             
Total shareholders’ equity
    434,949       (27,632 )     23,386       4,246       434,949  
 
                             
Total liabilities and shareholders’ equity
  $ 813,239     $ 1,934,194     $ 144,260     $ (715,082 )   $ 2,176,611  
 
                             

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(11)   Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)
Condensed Consolidating Balance Sheets
                                         
    October 31, 2010  
            Guarantor     Non-Guarantor              
    Parent     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
ASSETS
                                       
Current assets:
                                       
Cash and cash equivalents
  $ 48,270     $ 6,055     $ 1,735     $     $ 56,060  
Certificates of deposit and marketable securities
    10,000                         10,000  
Receivables, net of allowances
    3,685       40,698       6,768             51,151  
Inventories
    329       32,779       2,600             35,708  
Prepaid expenses
    1,292       2,589       1,598             5,479  
Deferred income taxes, net
    13,835       11,604       2,873             28,312  
Assets held for sale
          27                   27  
Intercompany receivables
    7,782                   (7,782 )      
 
                             
Total current assets
    85,193       93,752       15,574       (7,782 )     186,737  
Receivables due beyond one year, net of allowances
    1,973       53,683       11,802             67,458  
Preneed funeral receivables and trust investments
          405,296       9,622             414,918  
Preneed cemetery receivables and trust investments
          201,960       7,327             209,287  
Goodwill
          227,203       19,835             247,038  
Cemetery property, at cost
          349,252       36,752             386,004  
Property and equipment, at cost
    56,964       474,538       41,681             573,183  
Less accumulated depreciation
    40,837       225,118       17,678             283,633  
 
                             
Net property and equipment
    16,127       249,420       24,003             289,550  
Deferred income taxes, net
    16,620       75,449       5,956             98,025  
Cemetery perpetual care trust investments
          217,743       12,987             230,730  
Non-current assets held for sale
          1,214                   1,214  
Other assets
    6,096       4,772       1,037             11,905  
Intercompany receivables
    693,981                   (693,981 )      
Equity in subsidiaries
    15,612       8,888             (24,500 )      
 
                             
Total assets
  $ 835,602     $ 1,888,632     $ 144,895     $ (726,263 )   $ 2,142,866  
 
                             
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                       
Current liabilities:
                                       
Current maturities of long-term debt
  $ 5     $     $     $     $ 5  
Accounts payable, accrued expenses and other current liabilities
    15,524       70,740       5,871             92,135  
Liabilities associated with assets held for sale
          8                   8  
Intercompany payables
                7,782       (7,782 )      
 
                             
Total current liabilities
    15,529       70,748       13,653       (7,782 )     92,148  
Long-term debt, less current maturities
    314,027                         314,027  
Deferred income taxes, net
          4,950                   4,950  
Intercompany payables
          683,501       10,480       (693,981 )      
Deferred preneed funeral revenue
          197,148       46,372             243,520  
Deferred preneed cemetery revenue
          228,908       29,136             258,044  
Deferred preneed funeral and cemetery receipts held in trust
          546,876       7,840             554,716  
Perpetual care trusts’ corpus
          216,379       12,861             229,240  
Long-term liabilities associated with assets held for sale
          714                   714  
Other long-term liabilities
    18,050       1,920       53             20,023  
Negative equity in subsidiaries
    62,512                   (62,512 )      
 
                             
Total liabilities
    410,118       1,951,144       120,395       (764,275 )     1,717,382  
 
                             
Common stock
    92,294       102       376       (478 )     92,294  
Other
    333,172       (62,614 )     24,106       38,508       333,172  
Accumulated other comprehensive income
    18             18       (18 )     18  
 
                             
Total shareholders’ equity
    425,484       (62,512 )     24,500       38,012       425,484  
 
                             
Total liabilities and shareholders’ equity
  $ 835,602     $ 1,888,632     $ 144,895     $ (726,263 )   $ 2,142,866  
 
                             

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(11)   Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)
Condensed Consolidating Statements of Cash Flows
                                           
    Nine Months Ended July 31, 2011  
            Guarantor     Non-Guarantor                
    Parent     Subsidiaries     Subsidiaries     Eliminations       Consolidated  
Net cash provided by operating activities
  $ 13,590     $ 41,931     $ 4,946     $       $ 60,467  
 
                               
Cash flows from investing activities:
                                         
Proceeds from sales of certificates of deposit
    10,000                           10,000  
Purchases of restricted cash equivalents and marketable securities
    (6,250 )           (662 )             (6,912 )
Proceeds from sale of assets
          332                     332  
Purchase of subsidiaries, net of cash acquired
          (9,110 )                   (9,110 )
Additions to property and equipment
    (1,730 )     (12,920 )     (1,038 )             (15,688 )
Other
          103                     103  
 
                               
Net cash provided by (used in) investing activities
    2,020       (21,595 )     (1,700 )             (21,275 )
 
                               
Cash flows from financing activities:
                                         
Proceeds from long-term debt
    200,000                           200,000  
Intercompany receivables (payables)
    16,249       (12,429 )     (3,820 )              
Repayments of long-term debt
    (200,004 )                         (200,004 )
Issuance of common stock
    1,386                           1,386  
Purchase and retirement of common stock
    (15,622 )                         (15,622 )
Debt refinancing costs
    (5,933 )                         (5,933 )
Dividends
    (8,662 )                         (8,662 )
Excess tax benefits from share-based payment arrangements
    154                           154  
 
                               
Net cash used in financing activities
    (12,432 )     (12,429 )     (3,820 )             (28,681 )
 
                               
Net increase (decrease) in cash
    3,178       7,907       (574 )             10,511  
Cash and cash equivalents, beginning of period
    48,270       6,055       1,735               56,060  
 
                               
Cash and cash equivalents, end of period
  $ 51,448     $ 13,962     $ 1,161     $       $ 66,571  
 
                               

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(11)   Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)
Condensed Consolidating Statements of Cash Flows
                                         
    Nine Months Ended July 31, 2010  
            Guarantor     Non-Guarantor              
    Parent     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Net cash provided by operating activities
  $ 955     $ 44,143     $ 4,047     $     $ 49,145  
 
                             
Cash flows from investing activities:
                                       
Proceeds from sales of marketable securities
                250             250  
Purchases of certificates of deposit and marketable securities
    (15,000 )           (661 )           (15,661 )
Proceeds from sale of assets
          388                   388  
Additions to property and equipment
    (2,320 )     (8,424 )     (820 )           (11,564 )
Other
          136                   136  
 
                             
Net cash used in investing activities
    (17,320 )     (7,900 )     (1,231 )           (26,451 )
 
                             
Cash flows from financing activities:
                                       
Repayments of long-term debt
    (18,423 )                       (18,423 )
Intercompany receivables (payables)
    37,914       (34,272 )     (3,642 )            
Retirement of common stock warrants
    (2,118 )                       (2,118 )
Issuance of common stock
    621                         621  
Retirement of call options
    2,370                         2,370  
Debt refinancing costs
    (38 )                       (38 )
Dividends
    (8,278 )                       (8,278 )
Excess tax benefits from share based payment arrangements
    37                         37  
 
                             
Net cash provided by (used in) financing activities
    12,085       (34,272 )     (3,642 )           (25,829 )
 
                             
Net increase (decrease) in cash
    (4,280 )     1,971       (826 )           (3,135 )
Cash and cash equivalents, beginning of period
    56,734       5,096       978             62,808  
 
                             
Cash and cash equivalents, end of period
  $ 52,454     $ 7,067     $ 152     $     $ 59,673  
 
                             

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(12) Acquisitions and Dispositions
     During the nine months ended July 31, 2011, the Company acquired two funeral homes and two cemeteries for approximately $9,110. The acquisitions were accounted for under the purchase method, and the acquired assets and liabilities (primarily cemetery property of approximately $6,069, deferred revenue of approximately $4,668 and property, plant and equipment of approximately $2,885) were valued at their estimated fair values. The results of operations for these businesses, which are considered immaterial, have been included in consolidated results since the acquisition date.
     Assets and liabilities associated with assets held for sale are presented in the “assets held for sale,” “non-current assets held for sale,” “liabilities associated with assets held for sale” and “long-term liabilities associated with assets held for sale” lines in the condensed consolidated balance sheet. As of October 31, 2010, assets held for sale and liabilities associated with assets held for sale were comprised of the following:
         
    October 31, 2010  
Assets
       
Receivables
  $ 20  
Inventories
    7  
 
     
Assets held for sale
  $ 27  
 
     
 
Net property and equipment
  $ 383  
Cemetery property
    90  
Preneed cemetery receivables and trust investments
    463  
Cemetery perpetual care trust investments
    278  
 
     
Non-current assets held for sale
  $ 1,214  
 
     
Liabilities
       
Liabilities associated with assets held for sale
  $ 8  
 
     
 
Deferred preneed cemetery receipts held in trust
  $ 436  
Perpetual care trusts’ corpus
    278  
 
     
Long-term liabilities associated with assets held for sale
  $ 714  
 
     
(13) Consolidated Comprehensive Income
     Consolidated comprehensive income for the three and nine months ended July 31, 2011 and 2010 is as follows:
                                 
    Three Months Ended July 31,     Nine Months Ended July 31,  
    2011     2010     2011     2010  
Net earnings
  $ 11,986     $ 6,039     $ 30,028     $ 21,917  
Other comprehensive income (loss):
                               
Unrealized appreciation (depreciation) of investments, net of deferred tax benefit (expense) of $2, ($6), ($3) and ($6), respectively
    (3 )     12       6       12  
(Increase) reduction in net unrealized losses associated with available-for-sale securities of the trusts
    (31,772 )     (17,308 )     11,209       38,359  
Reclassification of the net unrealized (increases) losses activity attributable to the deferred preneed funeral and cemetery receipts held in trust and perpetual care trusts’ corpus
    31,772       17,308       (11,209 )     (38,359 )
 
                       
Total other comprehensive income (loss)
    (3 )     12       6       12  
 
                       
Total comprehensive income
  $ 11,983     $ 6,051     $ 30,034     $ 21,929  
 
                       

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(14) Long-term Debt
                 
    July 31, 2011     October 31, 2010  
Long-term debt:
               
3.125% senior convertible notes due 2014, net of unamortized discount of $8,294 and $10,275 as of July 31, 2011 and October 31, 2010, respectively
  $ 78,122     $ 76,141  
3.375% senior convertible notes due 2016, net of unamortized discount of $6,474 and $7,318 as of July 31, 2011 and October 31, 2010, respectively
    38,645       37,801  
Senior secured revolving credit facility
           
6.50% senior notes due 2019
    200,000        
6.25% senior notes due 2013
          200,000  
Other, principally seller financing of acquired operations or assumption upon acquisition, weighted average interest rate of 8.0% as of July 31, 2011 and October 31, 2010, partially secured by assets of subsidiaries, with maturities through 2022
    86       90  
 
           
Total long-term debt
    316,853       314,032  
Less current maturities
    5       5  
 
           
 
  $ 316,848     $ 314,027  
 
           
Fair Value
     As of July 31, 2011, the carrying values of the Company’s 3.125 percent senior convertible notes due 2014 (the “2014 Notes”) and 3.375 percent senior convertible notes due 2016 (the “2016 Notes”), including accrued interest, were $78,242 and $38,714, respectively, compared to fair values of $88,264 and $45,017, respectively. The aggregate principal amounts outstanding of the 2014 Notes and 2016 Notes as of July 31, 2011 were $86,416 and $45,119, respectively. As of July 31, 2011, the carrying value of the Company’s 6.50 percent senior notes, including accrued interest, was $203,683 compared to a fair value of $204,681.
Senior Secured Revolving Credit Facility
     On April 20, 2011, the Company amended its $95,000 senior secured revolving credit facility which was set to mature in June 2012. The amended senior secured revolving credit facility matures on April 20, 2016 and was increased to $150,000 and includes a $30,000 sublimit for the issuance of standby letters of credit and a $10,000 sublimit for swingline loans. The Company may also request the addition of a new tranche of term loans, an increase in the commitments to the amended senior secured revolving credit facility or a combination thereof not to exceed $50,000. As of July 31, 2011, there were no amounts drawn on the amended senior secured revolving credit facility, and the Company’s availability for future borrowings under the facility, after giving consideration to its $1,137 of outstanding letters of credit and $23,456 reserve for its Florida bond, was $125,407. During the nine months ended July 31, 2011, the Company recorded a charge for the loss on early extinguishment of debt of $88 to write-off a portion of the unamortized fees on the prior agreement. The remaining fees related to the prior agreement and the fees incurred for the amended agreement were $2,368 (of which $1,568 was paid in cash as of July 31, 2011) and will be amortized over the term of the new credit facility.
     The interest rate on the amended senior secured revolving credit facility ranges from LIBOR plus 225.0 to 275.0 basis points, and was LIBOR plus 250.0 basis points at closing. The Company pays a quarterly commitment fee ranging from 40 to 50 basis points annually based on the undrawn portion of the commitments.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(14) Long-term Debt—(Continued)
     The amended senior secured revolving credit facility is governed by the following financial covenants:
    Maintenance on a rolling four quarter basis of a maximum consolidated adjusted leverage ratio (total funded debt (net of eligible securities and readily marketable securities, but in no event greater than $30,000) divided by EBITDA (as defined)) of not more than 4.75 to 1.00;
 
    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)) — of not more than 2.00 to 1.00; and
 
    Maintenance on a rolling four quarter basis of a minimum consolidated interest coverage ratio (EBITDAR (as defined) divided by interest expense paid in cash plus rent expense less certain transaction costs to the extent such constitutes cash interest expense) — of not less than 2.60 to 1.00
     The covenants include limitations on (i) liens, (ii) mergers, consolidations and asset sales, (iii) the incurrence of debt, (iv) dividends, stock redemptions and the redemption and/or prepayment of other debt, (v) capital expenditures, (vi) investments and acquisitions, (vii) transactions with affiliates and (viii) a change of control. If there is no default or event of default, the Company may pay cash dividends and repurchase its stock, provided that the aggregate amount of the dividends and stock repurchased plus other types of restricted payments in any fiscal year does not exceed $30,000 plus any positive amounts available in the discretionary basket. As of July 31, 2011, the amount available to pay dividends or repurchase stock was $208,274. The agreement also limits capital expenditures in any fiscal year to $45,000, with a provision for the carryover of permitted but unused amounts. The lenders under the amended senior secured credit facility can accelerate all obligations under the facility and terminate the revolving credit commitments if an event of default occurs and is continuing.
     Obligations under the amended senior secured revolving credit facility are guaranteed by substantially all existing and future direct and indirect domestic subsidiaries of the Company formed under the laws of any one of the states or the District of Columbia of the United States of America (“SEI Guarantors”).
     The lenders under the amended senior secured revolving credit facility have a first priority perfected security interest in (1) all of the capital stock or other equity interests of each of the domestic subsidiaries of the Company whether now existing or hereafter created or acquired other than certain excluded immaterial subsidiaries and 65 percent of the voting capital stock of all direct foreign subsidiaries whether now existing or hereafter acquired and (2) all other present and future assets and properties of the Company and the SEI Guarantors except (a) real property, (b) vehicles, (c) assets to which applicable law or regulation prohibits security interest therein or requires the consent of a third party, (d) contract rights in which a security interest without the approval of the other party to the contract would constitute a default thereunder, (e) any assets with respect to which a security interest cannot be perfected and (f) a certain securities account to be maintained for the benefit of one of the Company’s umbrella insurance policies.
Senior Notes
     On April 4, 2011, the Company commenced a cash tender offer for any and all of its outstanding $200,000 aggregate principal amount 6.25 percent senior notes due 2013 (the “6.25 percent notes”) and a solicitation of consents to amend the indenture governing the 6.25 percent notes (the “Indenture”). On April 15, 2011, the Company announced that it had received the requisite consents to amend the Indenture and accordingly entered into a supplemental indenture, dated April 15, 2011 (the “Supplemental Indenture”), to the Indenture with U.S. Bank National Association, as trustee for the 6.25 percent notes. On April 18, 2011, the Company purchased a total of $194,188 in aggregate principal amount of its outstanding 6.25 percent notes in the offer for an aggregate purchase price (including consent payments) of $194,673 plus $2,124 in accrued and unpaid interest. The Company redeemed the remaining $5,812 of the 6.25 percent senior notes in May 2011 at the redemption price of 100 percent of the principal amount, plus accrued and unpaid interest to the redemption date. During the nine months ended July 31, 2011, the Company recorded a charge for the loss on early extinguishment of debt of $1,796 representing $850

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(14) Long-term Debt — (Continued)
for related fees and expenses and $946 for the write-off of the remaining unamortized fees on the 6.25 percent senior notes.
     The Company funded the tender offer for the 6.25 percent senior notes with a portion of its available cash and the net proceeds of the issuance of $200,000 6.50 percent senior notes due 2019 (the “6.50 percent notes”), which were issued April 18, 2011. As of July 31, 2011, fees incurred for the new 6.50 percent senior notes amounted to $4,375 (of which $4,365 was paid in cash as of July 31, 2011) and will be amortized over the term of the 6.50 percent senior notes.
     The 6.50 percent notes are governed by an indenture dated April 18, 2011. The Company will pay interest on the 6.50 percent notes on April 15 and October 15 of each year, beginning October 15, 2011. The 6.50 percent notes will mature on April 15, 2019. The indenture governing the 6.50 percent notes contains affirmative and negative covenants that will, among other things, limit the Company’s and the SEI Guarantors’ ability to engage in sale and leaseback transactions, effect a consolidation or merger or sell, transfer, lease, or otherwise dispose of all or substantially all assets, and create liens on assets. Upon the occurrence of a change in control (as defined in the indenture), each holder of the 6.50 percent notes will have the right to require the Company to purchase that holder’s 6.50 percent notes for a cash price equal to 101 percent of their principal amount. The 6.50 percent notes are redeemable on or after April 15, 2014 at redemption prices specified in the indenture, and prior to April 15, 2014 at a “make-whole” premium described in the indenture. Upon the occurrence of certain events of default (as defined in the indenture), the trustee or the holders of the 6.50 percent notes may declare all outstanding 6.50 percent notes to be due and payable immediately.
     The 6.50 percent notes are guaranteed, jointly and severally, by the SEI Guarantors, and are the Company’s, and the guarantees of the 6.50 percent notes are the SEI Guarantors’, general unsecured and unsubordinated obligations, and rank equally in right of payment with all of the Company’s, in the case of the 6.50 percent notes, and the SEI Guarantors’, in the case of their guarantees of the 6.50 percent notes, existing and future unsubordinated indebtedness.
     In connection with the issuance of the 6.50 percent notes, the Company entered into a registration rights agreement dated as of April 18, 2011 whereby the Company agreed to offer to exchange the 6.50 percent notes for a new issue of substantially identical notes registered under the Securities Act. The Company filed the required exchange offer registration statement with the Securities and Exchange Commission in June 2011 and completed the exchange offer in July 2011.
(15) Income Taxes
     In January 2011, the government of Puerto Rico signed into law corporate tax rate changes that decreased the top tax rate for businesses from 39 percent to 30 percent. The Company will benefit from this reduced rate when paying taxes in the future. However, as a result of this change, the Company was required to revalue its previously recorded Puerto Rican-related deferred tax asset using the 30 percent current top tax rate. During the nine months ended July 31, 2011, the Company recorded a one-time, non-cash charge of $2.9 million ($4.5 million charge less a federal tax benefit of $1.6 million) in order to decrease the Puerto Rican deferred tax asset balance. The Puerto Rican deferred tax asset balance decreased from approximately $19.4 million at the previously required 39 percent tax rate to approximately $14.9 million at the newly-enacted 30 percent tax rate. This change in deferred tax assets increased the Company’s income tax expense for the nine months ended July 31, 2011 by $2.9 million. Income tax expense for the nine months ended July 31, 2011 was also impacted by a $1.8 million overall reduction in the tax valuation allowance primarily due to the reduction in the portion of the valuation allowance related to capital losses associated with the performance of the Company’s trust portfolio during the nine months ended July 31, 2011.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(16) Subsequent Events
     As of August 31, 2011, the fair market value of the Company’s preneed funeral and cemetery merchandise and services trusts and cemetery perpetual care trusts declined 2.8 percent, or approximately $23,100, from July 31, 2011.
     Subsequent to July 31, 2011 through August 31, 2011, the Company purchased an additional 719,700 shares of its Class A common stock for approximately $4,469 at an average price of $6.21 per share. As of August 31, 2011, there is $27,441 remaining available under the Company’s $100,000 stock repurchase program.
     In August 2011, the Company announced changes to its management organizational structure in order to better integrate the Company’s operations and sales activities and to enhance customer service. The Company also announced the separation of its operations into two operating divisions, Eastern division and Western division.
     Also in August 2011, the Company purchased a building it was previously leasing for approximately $4,600.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
          The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our MD&A and Risk Factors contained in our Form 10-K for the fiscal year ended October 31, 2010 (the “2010 Form 10-K”), and in conjunction with our consolidated financial statements included in this report and in our 2010 Form 10-K.
          This report contains forward-looking statements that are generally identifiable through the use of words such as “believe,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “project,” “will” and similar expressions. These forward-looking statements rely on assumptions, estimates and predictions that could be inaccurate and that are subject to risks and uncertainties that could cause actual results to differ materially. Important factors that may cause our actual results to differ materially from expectations reflected in our forward-looking statements include those described in Risk Factors in our 2010 Form 10-K and in this report. Forward-looking statements speak only as of the date of this report, and we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur.
Overview
General
          We are the second largest provider of funeral and cemetery products and services in the death care industry in the United States and Puerto Rico. As of July 31, 2011, we owned and operated 218 funeral homes and 141 cemeteries in 24 states within the United States and Puerto Rico. We sell cemetery property and funeral, cremation and cemetery products and services both at the time of need and on a preneed basis. Our revenues in each period are derived primarily from at-need sales, preneed sales delivered out of our backlog during the period (including the accumulated trust earnings or build-up in the face value of insurance contracts related to these preneed deliveries), preneed cemetery property sales and other items such as perpetual care trust earnings, finance charges and trust management fees. We also earn commissions on the sale of insurance-funded preneed funeral contracts that will be funded by life insurance or annuity contracts issued by third-party insurers when we act as an agent on the sale. For a more detailed discussion of our accounting for preneed sales and trust and escrow account earnings, see MD&A included in Item 7 in our 2010 Form 10-K.
Financial Summary
          For the third quarter of fiscal year 2011, net earnings increased $6.0 million to $12.0 million from $6.0 million for the third quarter of fiscal year 2010. This increase is primarily due to a $12.4 million insurance settlement related to the successful resolution of our litigation related to Hurricane Katrina damages, which increased net earnings for the third quarter of 2011 by approximately $7.3 million. This increase was partially offset by $1.6 million of tax expense recorded in the third quarter of 2011, attributable to an increase in our valuation allowance on our capital loss carry forward primarily as a result of the performance of our trust portfolio during the quarter. Revenue increased $1.8 million to $124.4 million for the quarter ended July 31, 2011, reflecting a $2.1 million increase in funeral revenue to $68.8 million. During the third quarter of 2011, our same-store funeral operations experienced an increase in average revenue per traditional funeral service of 0.9 percent and an increase in average revenue per cremation service of 3.7 percent. We also experienced a 0.5 percent increase in same-store funeral services performed. Cemetery revenue decreased $0.3 million to $55.6 million for the quarter ended July 31, 2011. This decrease is primarily due to a $0.7 million decrease in construction during the period on various cemetery projects, coupled with a $0.3 million reduction in finance charges primarily due to reduced interest rates in this low interest rate environment. These changes were partially offset by a $0.8 million increase in cemetery merchandise delivered and services performed. Consolidated gross profit decreased $0.7 million to $21.8 million for the quarter ending July 31, 2011, primarily due to a $0.4 million decrease in funeral gross profit and a $0.3 million decrease in cemetery gross profit. Funeral gross profit was impacted in the current quarter by an increase in expenses, primarily resulting from changes made in our compensation packages to incentivize improvements in operational performance. In addition, during the third quarter of 2011 we experienced an increase in our funeral bad debt, coupled with slight increases in direct merchandise and services and energy costs. Cemetery gross profit in the prior year was positively impacted by $1.1 million of perpetual care deposits related to prior cancellations which we used to offset our perpetual care expenses.

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          Corporate general and administrative expenses decreased $0.9 million to $7.1 million for the third quarter of 2011, compared to $8.0 million for the same period of 2010. During the third quarter of 2010, we experienced increased litigation costs primarily related to the settlement of pending litigation. In addition, we realized cost savings from our continuous improvement initiatives, resulting in a decrease in expenses in the current year. These decreases were partially offset by an additional $0.6 million incurred on various growth initiatives in the third quarter of 2011, compared to the same period of last year. In August 2011, we successfully settled insurance litigation related to Hurricane Katrina damages for $12.4 million, including $1.1 million previously advanced by the insurer. Interest expense decreased $0.7 million to $5.5 million during the third quarter of fiscal year 2011 due in part to the significant repurchases of a portion of our senior convertible notes in the open market that occurred throughout fiscal year 2010. The effective tax rate for the third quarter of 2011 was 45.5 percent compared to 31.8 percent for the same period in 2010. The change in the tax rate was primarily due to a $1.6 million tax expense recorded in the third quarter of 2011, attributable to an increase in our valuation allowance on our capital loss carry forward. This change was primarily as a result of the performance of our trust portfolio during the quarter. As discussed in the risk factors and critical accounting policies in our 2010 Form 10-K, the capital loss carry forward valuation allowance may fluctuate from period to period based on the amount of capital losses realized and available capital gains in trust funds where we are the grantor.
          In June 2011, we increased the quarterly dividend rate to $.035 per share from $.030 per share, and added $25.0 million to our share repurchase program. During the third quarter of 2011, we repurchased 0.8 million shares of our outstanding Class A common stock for $6.2 million under our share repurchase program. Subsequent to quarter-end, we repurchased an additional 0.7 million shares of our outstanding Class A common stock for $4.5 million. As of August 31, 2011, we had $27.4 million remaining under the $100.0 million program authorized by the Board of Directors.
          For the third quarter of 2011, preneed cemetery property sales increased 0.7 percent compared to the same period of last year. Excluding the Florida markets, which have been heavily impacted by the economy, cemetery property sales increased $1.1 million, or 5.4 percent, compared to the third quarter of 2010. Our net preneed funeral sales increased 3.0 percent during the third quarter of 2011 compared to the third quarter of 2010. Preneed funeral sales are deferred until a future period and have no impact on current revenue.
          For the nine months ended July 31, 2011, net earnings increased $8.1 million to $30.0 million from $21.9 million for the same period of fiscal year 2010. This increase is primarily due to a $12.4 million insurance settlement related to the successful resolution of our litigation related to Hurricane Katrina damages, which increased net earnings for the third quarter of 2011 by approximately $7.3 million. Revenue increased $8.7 million to $383.3 million for the nine months ended July 31, 2011. Funeral revenue increased $6.1 million to $215.6 million in the first nine months of 2011. During the nine months ended July 31, 2011, our same-store funeral operations experienced an increase in average revenue per traditional funeral service of 1.4 percent and an increase in average revenue per cremation service of 4.2 percent. We also experienced a 0.8 percent increase in same-store funeral services performed. Cemetery revenue increased $2.6 million to $167.7 million for the nine months ended July 31, 2011. This increase is due primarily to a $3.7 million, or 5.3 percent, increase in cemetery property sales, partially offset by a $1.3 million reduction in finance charges primarily due to reduced interest rates in this low interest rate environment. Consolidated gross profit increased $3.0 million to $75.7 million for the nine months ended July 31, 2011, primarily due to a $1.9 million increase in funeral gross profit and a $1.1 million increase in cemetery gross profit. Cemetery gross profit in the prior year was positively impacted by $1.1 million of perpetual care deposits related to prior cancellations which we used to offset our perpetual care expenses.
          Corporate general and administrative expenses decreased $0.4 million to $20.3 million for the first nine months of fiscal 2011, compared to $20.7 million for the same period of 2010. During the first nine months of 2010, we experienced increased litigation costs primarily related to the settlement of pending litigation. In addition, we realized cost savings from our continuous improvement initiatives, resulting in a decrease of expenses in the current year. These decreases were partially offset by an additional $1.4 million incurred on various growth initiatives in the first nine months of 2011, compared to the same period of last year. In August 2011, we successfully settled insurance litigation related to Hurricane Katrina damages for $12.4 million, including $1.1 million previously advanced by the insurer. Interest expense decreased $1.6 million to $17.0 million during the first nine months of 2011 primarily due to the significant repurchases of a portion of our senior convertible notes in the open market

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throughout fiscal year 2010. The effective tax rate for the nine months ended July 31, 2011 was 39.9 percent compared to 36.6 percent for the same period in 2010. The increased rate in 2011 is primarily due to a $2.9 million charge to income tax expense in the first quarter of 2011 as a result of the revaluation of our deferred tax asset due to a change in Puerto Rican tax legislation. This charge to tax expense was partially offset by a $1.8 million tax benefit in the first nine months of 2011, primarily from a reduction in the valuation allowance related to our capital loss carry forward, due in part to the performance of our trust portfolio during the first nine months of 2011.
          For the nine months ended July 31, 2011, preneed cemetery property sales increased 5.3 percent compared to the same period of last year, which increased our cemetery revenue as described above. Excluding the Florida markets, which have been heavily impacted by the economy, cemetery property sales increased $4.8 million, or 8.6 percent, compared to the nine months ended July 31, 2010. Our net preneed funeral sales decreased 0.8 percent during the nine months ended July 31, 2011 compared to the same period of 2010.
          During the nine months ended July 31, 2011, we completed refinancing transactions which significantly extended our debt maturity profile at favorable terms. We completed a private offering of $200.0 million 6.50 percent senior notes due 2019 and repurchased $194.2 million of our $200.0 million outstanding 6.25 percent senior notes due in 2013. We redeemed the remaining $5.8 million 6.25 percent senior notes outstanding in May 2011 at par. We also amended our $95.0 million revolving credit facility, which was undrawn and scheduled to mature in June 2012, to increase its size to $150.0 million and extend its maturity date to April 2016. The amended senior secured revolving credit facility remains undrawn. As a result of these transactions, we recorded a $1.9 million charge for early extinguishment of debt during the nine months ended July 31, 2011. For additional information, see Note 14 to the condensed consolidated financial statements included herein.
          During the first nine months of 2011, we purchased 2.3 million shares of our outstanding Class A common stock for $15.6 million under our share repurchase program.
          Our operations provided cash of $60.5 million for the nine months ended July 31, 2011, compared to $49.1 million for the same period of last year. The increase in operating cash flow is primarily due to an improvement in net earnings, coupled with the timing of trust withdrawals and deposits. These increases were partially offset by an $11.3 million receivable recorded in the first nine months of fiscal year 2011 primarily due to our Hurricane Katrina insurance settlement coupled with an increase in net state tax payments during the same period. We expect to receive the $11.3 million in cash during the fourth quarter of fiscal year 2011.
          We are planning to develop cremation gardens and other cremation projects in our cemeteries over the next few years. We have successfully completed eight cremation projects, and we currently have nine projects under construction with more than 20 additional projects under feasibility review. We are working to complete a number of these projects in fiscal year 2011 and expect to spend up to $5 million. This spending represents a shift from traditional cemetery inventory spending to cremation inventory spending.
          During the third quarter of fiscal year 2011, we experienced a decline in our preneed and perpetual care trusts associated with the decline of the overall financial markets. Specifically, our preneed funeral and cemetery merchandise and services trusts experienced a total decline, including both realized and unrealized gains and losses, of 3.0 percent, and our cemetery perpetual care trusts experienced a total decline, including both realized and unrealized gains and losses, of 1.3 percent. As of July 31, 2011, the fair market value of our preneed funeral and cemetery merchandise and services trusts and our cemetery perpetual care trusts was $817.7 million, an improvement of 2.8 percent, or $22.3 million, from October 31, 2010 and 7.1 percent, or $54.3 million, from July 31, 2010.
          As of July 31, 2011 and October 31, 2010, the fair market values of the investments in our funeral and cemetery merchandise and services trusts were $129.3 million and $138.6 million, respectively, lower than our cost basis. In our cemetery perpetual care trusts, as of July 31, 2011 and October 31, 2010, the fair market values of our investments were $39.2 million and $41.0 million, respectively, lower than our cost basis.
          The preneed contracts we manage are long-term in nature, and we believe that the trust investments will appreciate in value over the long-term. We continue to monitor our investment portfolio closely. As of July 31, 2011 and October 31, 2010, we had $220.5 million and $212.1 million, respectively, in distributable earnings in our

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funeral and cemetery merchandise and services trusts that have been previously realized and allocated to contracts that will be recognized in the future as the underlying contracts are ultimately performed.
          As of August 31, 2011, the fair market value of our preneed funeral and cemetery merchandise and services trusts and our cemetery perpetual care trusts decreased 2.8 percent, or approximately $23.1 million from July 31, 2011, which is consistent with the decline in the overall financial markets.
          The sectors in which our trust investment portfolio is invested have not materially changed from that disclosed in our 2010 Form 10-K except as described below.
          Passive investments such as cash and highly diversified mutual funds represented 47 percent, or $271.2 million, of the fair market value of our preneed funeral and cemetery merchandise and services trust portfolios as of July 31, 2011, compared to 35 percent, or $195.3 million, as of October 31, 2010. Passive investments represented 44 percent, or $105.3 million, of the fair market value of our cemetery perpetual care trust portfolio as of July 31, 2011, compared to 37 percent, or $84.8 million, as of October 31, 2010. We believe increasing our trusts’ passive investments is an attractive approach to increasing the diversification of our trust portfolio, while reducing individual issuer exposure.
          During fiscal 2011, we have significantly reduced the individual issuer financials sector concentration in our trust portfolio. As of July 31, 2011, individual issuer investments in the financials sector represented 13 percent, or $74.2 million of the fair market value, of our preneed funeral and cemetery merchandise and services portfolios, compared to 20 percent, or $115.7 million as of October 31, 2010. Of the fair market value within the financial sector at July 31, 2011, 57 percent related to preferred stock, 22 percent related to fixed-income securities and 21 percent related to common stock investments. As of July 31, 2011, individual issuer investments in the financials sector represented 21 percent, or $49.5 million of the fair market value, of our cemetery perpetual care portfolio, compared to 30 percent, or $69.0 million as of October 31, 2010. Of the fair market value within the financial sector at July 31, 2011, 60 percent related to preferred stock, 32 percent related to fixed-income securities and 8 percent related to common stock investments. Individual issuer investments in this sector have unrealized losses of $38.0 million as of July 31, 2011 in our preneed funeral and cemetery merchandise and services trusts, $3.8 million of which relate to preferred stock investments. With respect to our cemetery perpetual care trust portfolio, the individual issuer investments in the financials sector have unrealized losses of $10.1 million as of July 31, 2011, $3.7 million of which relate to preferred stock investments.
          Each quarter we perform an analysis to determine whether our preneed contracts are in a loss position, which would necessitate a charge to earnings. When we review our backlog for potential loss contracts, we consider the impact of the market value of our trust assets. We look at unrealized gains and losses based on current market prices quoted for the investments, and we do not include anticipated future returns on the investments in our analysis. If a deficiency were to exist, we would record a charge to earnings and a corresponding liability for the expected loss on the delivery of those contracts in our backlog. Due to the significant positive margins of our preneed contracts and the trust portfolio returns we have experienced in prior years and deferred on our consolidated balance sheet until delivery, currently there is sufficient capacity for additional market depreciation before a contract loss would result.
          For additional information regarding our preneed funeral and cemetery merchandise and services trusts and our cemetery perpetual care trusts, including further information on the estimated probable funding obligation, see Notes 3, 4 and 5 to the condensed consolidated financial statements included in this report.

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          The following table presents our trust portfolio total returns including realized and unrealized gains and losses.
                 
    Funeral and Cemetery        
    Merchandise and     Cemetery Perpetual  
    Services Trusts(1)     Care Trusts(1)  
For the quarter ended July 31, 2011
    (3.0 )%     (1.3 )%
For the last twelve months ended July 31, 2011
    12.2 %     9.4 %
For the last five years ended July 31, 2011
    3.0 %     4.0 %
 
(1)   Periods less than a year represent actual returns. Periods of one year or more represent annualized returns.
Critical Accounting Policies
          The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions (see Note 1(d) to the condensed consolidated financial statements). Our critical accounting policies are those that are both important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgment. These critical accounting policies are discussed in MD&A in our 2010 Form 10-K. There have been no significant changes to our critical accounting policies since the filing of our 2010 Form 10-K.
Results of Operations
          The following discussion segregates our financial results into our various segments, grouped by our funeral and cemetery operations. For a discussion of our segments, see Note 9 to the condensed consolidated financial statements included herein. During the nine months ended July 31, 2011, we acquired two funeral homes and two cemeteries for approximately $9.1 million, the majority of which relates to an acquisition occurring in July 2011. The results of operations of these businesses, which are considered immaterial for the periods presented, have been included in consolidated results since the acquisition date. For additional information, see Note 12 to the condensed consolidated financial statements included herein.
Three Months Ended July 31, 2011 Compared to Three Months Ended July 31, 2010
Funeral Operations
                         
    Three Months Ended July 31,  
                    Increase  
    2011     2010     (Decrease)  
            (In millions)          
Funeral Revenue:
                       
Funeral Home Locations
  $ 64.9     $ 63.1     $ 1.8  
Corporate Trust Management (1)
    3.9       3.6       .3  
 
                 
Total Funeral Revenue
  $ 68.8     $ 66.7     $ 2.1  
 
                 
 
                       
Funeral Costs:
                       
Funeral Home Locations
  $ 54.2     $ 51.7     $ 2.5  
Corporate Trust Management (1)
    .2       .2        
 
                 
Total Funeral Costs
  $ 54.4     $ 51.9     $ 2.5  
 
                 
 
                       
Funeral Gross Profit:
                       
Funeral Home Locations
  $ 10.7     $ 11.4     $ (.7 )
Corporate Trust Management (1)
    3.7       3.4       .3  
 
                 
Total Funeral Gross Profit
  $ 14.4     $ 14.8     $ (.4 )
 
                 

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Same-Store Analysis for the Three Months Ended July 31, 2011 and 2010
                         
Change in Average Revenue   Change in Same-Store   Same-Store Cremation Rate
Per Funeral Service   Funeral Services   2011   2010
0.4% (1)
    0.5 %     43.1 %     42.3 %
 
(1)   Corporate trust management consists of the trust management fees and funeral merchandise and services 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 based on the fair market value of assets managed and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the amount of distributable earnings as stipulated by our respective trust agreements that are generated by the trusts over the life of the preneed contracts and allocated to those products and services delivered during the relevant periods. See Notes 3 and 6 to the condensed consolidated financial statements included herein for information regarding the cost basis and market value of the trust assets and current performance of the trusts (i.e., current realized gains and losses, interest income and dividends). Trust management fees included in funeral revenue for the three months ended July 31, 2011 and 2010 were $1.2 million and $1.1 million, respectively. Funeral trust earnings recognized in funeral revenue for the three months ended July 31, 2011 and 2010 were $2.7 million and $2.5 million, respectively.
          Funeral revenue increased $2.1 million, or 3.1 percent, to $68.8 million in the third quarter of 2011 from $66.7 million in the third quarter of 2010. During the third quarter of 2011, our same-store funeral operations experienced an increase in average revenue per traditional funeral service of 0.9 percent and an increase in average revenue per cremation service of 3.7 percent. These averages were partially offset by a shift in mix to lower-priced cremation services resulting in an overall improvement in same-store average revenue per funeral service of 0.4 percent. Same-store funeral services increased 0.5 percent, or 61 events. The cremation rate for our same-store operations was 43.1 percent for the third quarter of 2011 compared to 42.3 percent for the third quarter of 2010.
          Funeral gross profit decreased $0.4 million, or 2.7 percent, to $14.4 million for the third quarter of 2011 compared to $14.8 million for the same period of 2010, primarily due to an increase in funeral expenses. The increase in funeral expenses is due in part to an increase in compensation in the current year, primarily resulting from changes made in our compensation packages to incentivize improvements in operational performance. In addition, during the third quarter of 2011 we experienced an increase in our funeral bad debt, coupled with slight increases in direct merchandise and services and energy costs.

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Cemetery Operations
                         
    Three Months Ended July 31,  
                    Increase  
    2011     2010     (Decrease)  
            (In millions)          
Cemetery Revenue:
                       
Cemetery Locations
  $ 53.5     $ 54.1     $ (.6 )
Corporate Trust Management (1)
    2.1       1.8       .3  
 
                 
Total Cemetery Revenue
  $ 55.6     $ 55.9     $ (.3 )
 
                 
 
                       
Cemetery Costs:
                       
Cemetery Locations
  $ 48.0     $ 48.0     $  
Corporate Trust Management (1)
    .2       .2        
 
                 
Total Cemetery Costs
  $ 48.2     $ 48.2     $  
 
                 
 
                       
Cemetery Gross Profit:
                       
Cemetery Locations
  $ 5.5     $ 6.1     $ (.6 )
Corporate Trust Management (1)
    1.9       1.6       .3  
 
                 
Total Cemetery Gross Profit
  $ 7.4     $ 7.7     $ (.3 )
 
                 
 
(1)   Corporate trust management consists of trust management fees and cemetery merchandise and services 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 based on the fair market value of assets managed and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the amount of distributable earnings as stipulated by our respective trust agreements that are generated by the trusts over the life of the preneed contracts and allocated to those products and services delivered during the relevant periods. See Notes 4 and 6 to the condensed consolidated financial statements included herein for information regarding the cost basis and market value of the trust assets and current performance of the trusts (i.e., current realized gains and losses, interest income and dividends). Trust management fees included in cemetery revenue for the three months ended July 31, 2011 and 2010 were $1.4 million and $1.1 million, respectively, and cemetery trust earnings recognized included in cemetery revenue for both the three months ended July 31, 2011 and 2010 were $0.7 million. Perpetual care trust earnings were $2.0 million and $2.2 million for the three months ended July 31, 2011 and 2010, respectively, and are included in the revenues and gross profit of the cemetery segment. See Notes 5 and 6 to the condensed consolidated financial statements included herein for information regarding the cemetery perpetual care trusts.
          Cemetery revenue decreased $0.3 million, or 0.5 percent, to $55.6 million for the quarter ended July 31, 2011 from $55.9 million for the quarter ended July 31, 2010. This decrease is due primarily to a $0.7 million decrease in construction during the period on various cemetery projects, coupled with a $0.3 million reduction in finance charges primarily due to reduced interest rates in this low interest rate environment. These changes were partially offset by a $0.8 million increase in cemetery merchandise delivered and services performed.
          Cemetery property sales improved $0.2 million, or 0.7 percent, compared to the third quarter of 2010. Excluding the Florida markets, which have been heavily impacted by the current economy, cemetery property sales increased $1.1 million, or 5.4 percent, compared to the third quarter of 2010.
          Cemetery gross profit decreased $0.3 million, or 3.9 percent, to $7.4 million for the third quarter of 2011 compared to $7.7 million for the same period of last year. Cemetery gross profit in the prior year was positively impacted by $1.1 million of perpetual care deposits related to prior cancellations which we used to offset our perpetual care expenses.

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Other
          Corporate general and administrative expenses decreased $0.9 million to $7.1 million for the third quarter of 2011, compared to $8.0 million for the same period of 2010. During the third quarter of 2010, we experienced increased litigation costs primarily related to the settlement of pending litigation. In addition, we realized cost savings from our continuous improvement initiatives, resulting in a decrease in expenses in the current year. These decreases were partially offset by an additional $0.6 million incurred on various growth initiatives in the third quarter of 2011, compared to the same period of last year.
          In August 2011, we successfully settled insurance litigation related to Hurricane Katrina damages for $12.4 million, including $1.1 million previously advanced by the insurer. As of July 31, 2011, we recorded $11.3 million of these insurance proceeds as a current receivable. We expect to receive $11.3 million in cash as a result of this settlement during the fourth quarter of 2011.
          Interest expense decreased $0.7 million to $5.5 million during the third quarter of fiscal year 2011 due in part to the significant repurchases of a portion of our senior convertible notes in the open market that occurred throughout fiscal year 2010.
          The effective tax rate for the three months ended July 31, 2011 was 45.5 percent compared to 31.8 percent for the same period in 2010. The change in the tax rate was primarily due to a $1.6 million tax expense recorded in the third quarter of 2011, attributable to an increase in our valuation allowance on our capital loss carry forward. This change was primarily a result of the performance of our trust portfolio during the quarter.
          During the third quarter of 2011, we repurchased 0.8 million shares of our outstanding Class A common stock for $6.2 million under our share repurchase program.
Preneed Sales into the Backlog
          Net preneed funeral sales increased 3.0 percent during the third quarter of 2011 compared to the corresponding period in 2010. Preneed funeral sales are deferred until a future period and have no impact on current revenue.
          The revenues from our preneed funeral and cemetery merchandise and service sales are deferred into our backlog and are not included in our operating results presented above. We had $39.4 million in net preneed funeral and cemetery merchandise and services sales (including $20.7 million related to insurance-funded preneed funeral contracts) during the third quarter of 2011 to be recognized in the future as these prepaid products and services are actually delivered, compared to net preneed funeral and cemetery merchandise and services sales of $38.5 million (including $19.1 million related to insurance-funded preneed funeral contracts) for the corresponding period in 2010. Insurance-funded preneed funeral contracts which will be funded by life insurance or annuity contracts issued by third-party insurers are not reflected in the condensed consolidated balance sheets.

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Nine Months Ended July 31, 2011 Compared to Nine Months Ended July 31, 2010
Funeral Operations
                         
    Nine Months Ended July 31,  
    2011     2010     Increase  
            (In millions)          
Funeral Revenue:
                       
Funeral Home Locations
  $ 203.3     $ 197.5     $ 5.8  
Corporate Trust Management (1)
    12.3       12.0       .3  
 
                 
Total Funeral Revenue
  $ 215.6     $ 209.5     $ 6.1  
 
                 
 
                       
Funeral Costs:
                       
Funeral Home Locations
  $ 162.1     $ 158.0     $ 4.1  
Corporate Trust Management (1)
    .7       .6       .1  
 
                 
Total Funeral Costs
  $ 162.8     $ 158.6     $ 4.2  
 
                 
 
                       
Funeral Gross Profit:
                       
Funeral Home Locations
  $ 41.2     $ 39.5     $ 1.7  
Corporate Trust Management (1)
    11.6       11.4       .2  
 
                 
Total Funeral Gross Profit
  $ 52.8     $ 50.9     $ 1.9  
 
                 
Same-Store Analysis for the Nine Months Ended July 31, 2011 and 2010
                         
Change in AverageRevenue   Change in Same-Store   Same-Store Cremation Rate
Per Funeral Service   Funeral Services   2011   2010
1.1% (1)
    0.8 %     42.6 %     41.9 %
 
(1)   Corporate trust management consists of the trust management fees and funeral merchandise and services 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 based on the fair market value of assets managed and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the amount of distributable earnings as stipulated by our respective trust agreements that are generated by the trusts over the life of the preneed contracts and allocated to those products and services delivered during the relevant periods. See Notes 3 and 6 to the condensed consolidated financial statements included herein for information regarding the cost basis and market value of the trust assets and current performance of the trusts (i.e., current realized gains and losses, interest income and dividends). Trust management fees included in funeral revenue for the nine months ended July 31, 2011 and 2010 were $3.6 million and $3.4 million, respectively. Funeral trust earnings recognized in funeral revenue for the nine months ended July 31, 2011 and 2010 were $8.7 million and $8.6 million, respectively.
          Funeral revenue increased $6.1 million, or 2.9 percent, to $215.6 million in the first nine months of fiscal year 2011 from $209.5 million in the same period of 2010. During the nine months ended July 31, 2011, our same-store funeral operations experienced an increase in average revenue per traditional funeral service of 1.4 percent and an increase in average revenue per cremation service of 4.2 percent. These averages were partially offset by a shift in mix to lower-priced cremation services resulting in an overall improvement in same-store average revenue per funeral service of 1.1 percent. Same-store funeral services increased 0.8 percent, or 321 events. The cremation rate for our same-store operations was 42.6 percent for the nine months ended July 31, 2011, compared to 41.9 percent for the same period in 2010.
          Funeral gross profit increased $1.9 million, or 3.7 percent, to $52.8 million for the first nine months of fiscal year 2011 compared to $50.9 million for the same period of 2010, primarily due to the $6.1 million increase in revenue, as noted above. Funeral gross profit margin improved 20 basis points to 24.5 percent for the nine months ended July 31, 2011 from 24.3 percent for the same period of 2010.

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Cemetery Operations
                         
    Nine Months Ended July 31,  
    2011     2010     Increase  
            (In millions)          
Cemetery Revenue:
                       
Cemetery Locations
  $ 161.4     $ 159.6     $ 1.8  
Corporate Trust Management (1)
    6.3       5.5       .8  
 
                 
Total Cemetery Revenue
  $ 167.7     $ 165.1     $ 2.6  
 
                 
 
                       
Cemetery Costs:
                       
Cemetery Locations
  $ 144.2     $ 142.7     $ 1.5  
Corporate Trust Management (1)
    .6       .6        
 
                 
Total Cemetery Costs
  $ 144.8     $ 143.3     $ 1.5  
 
                 
 
                       
Cemetery Gross Profit:
                       
Cemetery Locations
  $ 17.2     $ 16.9     $ .3  
Corporate Trust Management (1)
    5.7       4.9       .8  
 
                 
Total Cemetery Gross Profit
  $ 22.9     $ 21.8     $ 1.1  
 
                 
 
(1)   Corporate trust management consists of trust management fees and cemetery merchandise and services 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 based on the fair market value of assets managed and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the amount of distributable earnings as stipulated by our respective trust agreements that are generated by the trusts over the life of the preneed contracts and allocated to those products and services delivered during the relevant periods. See Notes 4 and 6 to the condensed consolidated financial statements included herein for information regarding the cost basis and market value of the trust assets and current performance of the trusts (i.e., current realized gains and losses, interest income and dividends). Trust management fees included in cemetery revenue for the nine months ended July 31, 2011 and 2010 were $4.0 million and $3.6 million, respectively, and cemetery trust earnings recognized included in cemetery revenue for the nine months ended July 31, 2011 and 2010 were $2.3 million and $1.9 million, respectively. Perpetual care trust earnings were $6.0 million for both the nine months ended July 31, 2011 and 2010 and are included in the revenues and gross profit of the cemetery segment. See Notes 5 and 6 to the condensed consolidated financial statements included herein for information regarding the cemetery perpetual care trusts.
          Cemetery revenue increased $2.6 million, or 1.6 percent, to $167.7 million for the nine months ended July 31, 2011 compared to $165.1 million for the nine months ended July 31, 2010. This improvement is due primarily to a $3.7 million, or 5.3 percent, increase in cemetery property sales. Excluding the Florida markets, which have been heavily impacted by the current economy, cemetery property sales increased $4.8 million, or 8.6 percent, compared to the nine months ended July 31, 2010. These increases were partially offset by a $1.3 million reduction in finance charges primarily due to reduced interest rates in this low interest rate environment.
          Cemetery gross profit increased $1.1 million, or 5.0 percent, to $22.9 million for the first nine months of fiscal 2011 compared to $21.8 million for the same period of 2010. Cemetery gross profit in the prior year was positively impacted by $1.1 million of perpetual care deposits related to prior cancellations which we used to offset our perpetual care expenses. The increase in cemetery gross profit is primarily due to the $2.6 million increase in revenue, as noted above.
Other
          Corporate general and administrative expenses decreased $0.4 million to $20.3 million for the nine months ended July 31, 2011, compared to $20.7 million for the same period of 2010. During the first nine months of 2010, we experienced increased litigation costs primarily related to the settlement of pending litigation. In addition, we realized cost savings from our continuous improvement initiatives, resulting in a decrease of expenses in the current

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year. These decreases were partially offset by an additional $1.4 million incurred on various growth initiatives in the first nine months of 2011, compared to the same period of last year.
          In August 2011, we successfully settled insurance litigation related to Hurricane Katrina damages for $12.4 million, including $1.1 million previously advanced by the insurer. As of July 31, 2011, we recorded $11.3 million of these insurance proceeds as a current receivable. We expect to receive $11.3 million in cash as a result of this settlement during the fourth quarter of 2011.
          During the first nine months of 2011, we donated land and a building, resulting in a loss on disposition of $0.4 million. We recorded a tax benefit for the donation that exceeded the loss.
          Interest expense decreased $1.6 million to $17.0 million during the nine months ended July 31, 2011 primarily due to the significant repurchases of a portion of our senior convertible notes in the open market that occurred throughout fiscal year 2010.
          The effective tax rate for the nine months ended July 31, 2011 was 39.9 percent compared to 36.6 percent for the same period in 2010. The increased rate in 2011 is primarily due to a $2.9 million charge to income tax expense in the first quarter of 2011 as a result of the revaluation of our deferred tax asset due to a change in Puerto Rican tax legislation. This charge to tax expense was partially offset by a $1.8 million tax benefit in the first nine months of 2011, primarily from a reduction in the valuation allowance related to our capital loss carry forward, due in part to the performance of our trust portfolio during the first nine months of 2011.
          During the nine months ended July 31, 2011, we completed refinancing transactions which significantly extended our debt maturity profile at favorable terms. We completed a private offering of $200.0 million 6.50 percent senior notes due 2019 and repurchased $194.2 million of our $200.0 million outstanding 6.25 percent senior notes due in 2013. We redeemed the remaining $5.8 million 6.25 percent senior notes outstanding in May 2011 at par. We also amended our $95.0 million revolving credit facility, which was undrawn and scheduled to mature in June 2012, to increase its size to $150.0 million and extend its maturity date to April 2016. The amended senior secured revolving credit facility remains undrawn. As a result of these transactions, we recorded a charge for the early extinguishment of debt of $1.9 million during the nine months ended July 31, 2011.
          During the first nine months of 2011, we repurchased 2.3 million shares of our outstanding Class A common stock for $15.6 million under our share repurchase program.
          Cash and cash equivalents increased $10.5 million from October 31, 2010 to July 31, 2011 primarily due to the maturity of $10.0 million in certificates of deposits and marketable securities in the first quarter of 2011. Restricted cash and cash equivalents of $6.3 million represents investments in a money market fund compromised of short-term investments and was established to reduce costs by replacing letters of credit posted as collateral for insurance policies with cash equivalent collateral. Both methods of posting collateral are available in the future. For additional information, see Note 1(i) to our condensed consolidated financial statements included herein. Current receivables increased $7.9 million from October 31, 2011 to July 31, 2011 primarily due to an $11.3 million receivable related to the settlement of our litigation related to Hurricane Katrina damages, partially offset by collections of prior period sales exceeding receivables for new sales. Prepaid expenses increased $1.4 million from October 31, 2010 to July 31, 2011 primarily due to annual premiums paid in the first quarter of fiscal year 2011 for property, general liability and other insurance. Long-term receivables decreased $1.9 million from October 31, 2010 to July 31, 2011 primarily due to the collection of income taxes receivable. Long-term deferred income taxes decreased $14.5 million from October 31, 2010 to July 31, 2011 primarily due to the utilization of net operating losses and the non-cash adjustment to our Puerto Rican deferred tax asset, as previously discussed. Other assets increased $3.9 million from October 31, 2010 to July 31, 2011 due primarily to $5.9 million of deferred charges recorded in the second quarter of 2011 related to the refinancing of our senior notes and senior secured revolving credit facility. Preneed funeral receivables and trust investments, preneed cemetery receivables and trust investments, cemetery perpetual care trust investments, deferred preneed funeral and cemetery receipts held in trust and perpetual care trusts’ corpus were all positively impacted by the improvement in the market value of our trust assets during the nine months ended July 31, 2011. For additional information, see Notes 3, 4 and 5 to our condensed consolidated financial statements included herein.

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          Accounts payable decreased $1.8 million from October 31, 2010 to July 31, 2011 primarily due to the timing of payables related to property, plant and equipment and inventory. Accrued payroll increased $2.1 million from October 31, 2010 to July 31, 2011 due to the timing of the payroll period at quarter end. Other current liabilities decreased $2.2 million from October 31, 2010 to July 31, 2011 primarily due to the timing of the payment of our property taxes, which are typically paid at the end of the calendar year, and due the reversal of the $1.1 million liability related to Hurricane Katrina insurance proceeds, which had been advanced to us in 2007.
Preneed Sales into the Backlog
          Net preneed funeral sales decreased 0.8 percent during the nine months ended July 31, 2011 compared to the corresponding period in 2010. Preneed funeral sales are deferred until a future period and have no impact on current revenue.
          The revenues from our preneed funeral and cemetery merchandise and service sales are deferred into our backlog and are not included in our operating results presented above. We had $107.7 million in net preneed funeral and cemetery merchandise and services sales (including $56.6 million related to insurance-funded preneed funeral contracts) during the nine months ended July 31, 2011 to be recognized in the future as these prepaid products and services are actually delivered, compared to net preneed funeral and cemetery merchandise and services sales of $106.3 million (including $56.1 million related to insurance-funded preneed funeral contracts) for the corresponding period in 2010. Insurance-funded preneed funeral contracts which will be funded by life insurance or annuity contracts issued by third-party insurers are not reflected in the condensed consolidated balance sheets.
Liquidity and Capital Resources
General
          We generate cash in our operations primarily from at-need sales, preneed sales that turn at-need, funds we are able to withdraw from our trusts and escrow accounts when preneed sales turn at-need, monies collected on preneed sales that are not required to be placed in trust and items such as cemetery perpetual care trust earnings and finance charges. Over the last five years, we have generated more than $50.0 million each year in cash flow from operations. We have historically satisfied our working capital requirements with cash flows from operations. We believe that our current level of cash on hand, projected cash flows from operations and available capacity under our amended $150.0 million senior secured revolving credit facility will be sufficient to meet our cash requirements for the foreseeable future.
          In April 2011, we completed a tender offer and consent solicitation for our $200.0 million 6.25 percent senior notes due 2013 and purchased a total of $194.2 million in aggregate principal amount of the 6.25 percent senior notes in the offer for an aggregate purchase price (including consent payments) of $194.7 million plus $2.1 million in accrued and unpaid interest. The remaining $5.8 million of the 6.25 percent senior notes were redeemed in May 2011 at par, plus accrued and unpaid interest. The tender offer was funded with the net proceeds of the issuance of $200.0 million 6.50 percent senior notes due 2019 and with available cash. Also in April 2011, we amended our $95.0 million senior secured revolving credit facility which was set to mature in June 2012. The amended senior secured revolving credit facility matures on April 20, 2016, was increased to $150.0 million and includes a $30.0 million sublimit for the issuance of standby letters of credit and a $10.0 million sublimit for swingline loans. We may also request the addition of a new tranche of term loans, an increase in the commitments to the amended senior secured revolving credit facility or a combination thereof not to exceed $50.0 million. As a result of these debt transactions occurring during the nine months ended July 31, 2011, we recorded a $1.9 million charge for the loss on early extinguishment of debt. See Note 14 to the condensed consolidated financial statements for further information. As of July 31, 2011, we had no amounts drawn on the amended $150.0 million senior secured revolving credit facility, and our availability under the facility, after giving consideration to $1.1 million outstanding letters of credit and the $23.5 million Florida bond, was $125.4 million. We also have outstanding $131.5 million principal amount in senior convertible notes as of July 31, 2011, of which $86.4 million mature in 2014 and $45.1 million mature in 2016. See the table below under “Contractual Obligations and Commercial Commitments” for further information on our long-term debt obligations.

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          Beginning in the third quarter of fiscal year 2011, we increased our quarterly cash dividend on our Class A and B common stock from three cents per share to three and one-half cents per share. Dividends amounted to $8.7 million for the nine months ended July 31, 2011 compared to $8.3 million during the same period in fiscal year 2010. The declaration and payment of future dividends are discretionary and will be subject to determination by the Board of Directors each quarter after its review of our financial performance. In June 2011, we increased our stock repurchase program by $25.0 million resulting in a $100.0 million program. Under the program, we purchased 2.3 million shares of our Class A common stock for approximately $15.6 million during the nine months ended July 31, 2011. In August 2011, we purchased an additional 0.7 million shares of our Class A common stock for approximately $4.5 million and as of August 31, 2011, had $27.4 million remaining available under the program. Repurchases under the program are limited to our Class A common stock, and are made in the open market or in privately negotiated transactions at such times and in such amounts as management deems appropriate, depending upon market conditions and other factors.
          We plan to continue to evaluate our options for deployment of cash flow as opportunities arise. We believe that the use of our cash to make acquisitions of or investments in death care or related businesses, construct funeral homes on existing cemeteries, cemeteries of unaffiliated third parties or in strategic locations, develop inventory, pay dividends and repurchase debt and stock are all attractive options. We believe that growing our organization through acquisitions and investments is a good business strategy, as it will enable us to enjoy the important synergies and economies of scale from our existing infrastructure. We are working on several e-commerce initiatives that we expect will provide new revenue opportunities in the future and are continuing to invest in further improving our business processes. We are planning to develop cremation gardens and other cremation projects in our cemeteries over the next few years. We have successfully completed eight cremation projects, and we currently have nine projects under construction with more than 20 additional projects under feasibility review. We are working to complete a number of these projects in fiscal year 2011 and expect to spend up to $5 million. This spending represents a shift from traditional cemetery inventory spending to cremation inventory spending. We regularly review acquisition and other strategic opportunities, which may require us to draw on our senior secured revolving credit facility or pursue additional debt or equity financing. During the nine months ended July 31, 2011, we invested $9.1 million of available cash in acquisitions.
          We had been unable to finalize negotiations with our insurance carrier related to damages from Hurricane Katrina, and as a result filed suit against the carrier in August 2007. In August 2011, the insurance litigation was settled, and we will receive $11.3 million in additional insurance proceeds. We recorded this settlement amount, in addition to the $1.1 million previously advanced by the insurer, in the “hurricane related recoveries (charges), net” line in the condensed consolidated statements of earnings for the three and nine months ended July 31, 2011. We recorded $11.3 million of the settlement amount in current receivables in the condensed consolidated balance sheet as of July 31, 2011, and we expect to receive the actual cash proceeds in the fourth quarter of fiscal year 2011.
          We are continuing to review all of our tax accounting methods to determine opportunities to further improve our current tax position. Several possible changes are being considered that could result in potential reductions in future tax payments. At this time, we cannot predict with certainty what, if any, reductions in future tax payments we will obtain. However, we currently do not expect that these potential reductions in future tax payments, if obtained, will be as substantial as those obtained in fiscal years 2009 and 2010.
Cash Flow
          Our operations provided cash of $60.5 million for the nine months ended July 31, 2011, compared to $49.1 million for the same period of last year. The increase in operating cash flow is primarily due to an improvement in net earnings, coupled with the timing of trust withdrawals and deposits. These increases were partially offset by an $11.3 million receivable recorded in the first nine months of fiscal year 2011 due to our Hurricane Katrina insurance settlement coupled with an increase in net state tax payments during the same period. We expect to receive the $11.3 million settlement in cash during the fourth quarter of fiscal year 2011.
          Our investing activities resulted in a net cash outflow of $21.3 million for the nine months ended July 31, 2011, compared to a net cash outflow of $26.5 million for the comparable period in 2010. The change is primarily due to an $18.5 million net change related to purchases and sales of certificates of deposit, marketable securities and restricted cash equivalents. During the third quarter of fiscal year 2011, we replaced a letter of credit by posting

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cash to satisfy collateral requirements with insurance carriers and invested the cash collateral in a money market fund, as described in Note 1(i) to the condensed consolidated financial statements. Both methods of posting collateral are available in the future. We also purchased two funeral and cemetery businesses in the first nine months of fiscal year 2011 resulting in a net cash outflow of $9.1 million. For the nine months ended July 31, 2011, capital expenditures amounted to $15.7 million, which included $12.9 million for maintenance capital expenditures, $2.1 million for growth initiatives and $0.7 million related to the implementation of new business systems. For the nine months ended July 31, 2010, capital expenditures were $11.6 million, which included $8.5 million for maintenance capital expenditures, $2.3 million for growth initiatives and $0.8 million related to the implementation of new business systems. The increase in maintenance capital expenditures is primarily due to several large building improvement projects we undertook in 2011 that were substantially completed by the end of the third quarter of fiscal year 2011 as well as increased vehicle and equipment purchases as we assess lease versus purchase decisions for our fleet.
          Our financing activities resulted in a net cash outflow of $28.7 million for the nine months ended July 31, 2011, compared to a net cash outflow of $25.8 million for the comparable period in 2010. The change is primarily due to $15.6 million in stock repurchases during the nine months ended July 31, 2011 compared to none in the same period of 2010. This was offset by $18.4 million in debt repayments that occurred during the nine months ended July 31, 2010. During the nine months ended July 31, 2011, we issued $200.0 million of 6.50 percent senior notes due 2019 and repurchased $200.0 million of 6.25 percent senior notes due 2013, as described in Note 14 to the condensed consolidated financial statements. We also paid $5.9 million in debt refinancing costs during the nine months ended July 31, 2011 related to the senior notes transactions and refinancing of the senior secured revolving credit facility.
Contractual Obligations and Commercial Commitments
          We have contractual obligations requiring future cash payments under existing contractual arrangements. The following table details our known future cash payments (in millions) related to various contractual obligations as of July 31, 2011.
                                         
    Payments Due by Period  
            Less than                     More than  
Contractual Obligations   Total     1 year     1-3 years     3-5 years     5 years  
Long-term debt obligations (1)
  $ 331.6     $     $ 86.4     $ 45.1     $ 200.1  
Interest on long-term debt (2)
    119.6       17.1       34.5       29.0       39.0  
Operating lease obligations (3)
    27.3       4.0       5.6       2.9       14.8  
Purchase obligations (4)
    1.2       1.2                    
Non-competition and other agreements (5)
    .9       .3       .2       .2       .2  
 
                             
Total
  $ 480.6     $ 22.6     $ 126.7     $ 77.2     $ 254.1  
 
                             
 
(1)   See below for a breakdown of our future scheduled principal payments and maturities of our long-term debt by type as of July 31, 2011.
 
(2)   Includes contractual interest payments for our senior convertible notes, 6.50 percent senior notes due 2019 and third-party debt.
 
(3)   Our noncancellable operating leases are primarily for land and buildings and expire over the next one to 20 years, except for eight leases that expire between 2032 and 2039. This category also includes leases under our vehicle fleet leasing program. Our future minimum lease payments for all operating leases as of July 31, 2011 are $1.2 million, $3.7 million, $3.1 million, $2.1 million, $1.5 million and $15.7 million for the years ending October 31, 2011, 2012, 2013, 2014, 2015 and later years, respectively.
 
(4)   Represents a construction contract for a funeral home currently under construction.
 
(5)   This category includes payments pursuant to non-competition agreements with prior owners and key employees of acquired businesses.

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          The following table details our known potential or possible future cash payments related to the contingent obligations specified below (in millions) as of July 31, 2011.
                                         
    Expiration by Period  
            Less than                     More than  
Contingent Obligations   Total     1 year     1-3 years     3-5 years     5 years  
Cemetery perpetual care trust funding obligations (1)
  $ 12.4     $ 12.4     $     $     $  
Long-term obligations related to uncertain tax positions (2)
    1.5                         1.5  
 
                             
 
  $ 13.9     $ 12.4     $     $     $ 1.5  
 
                             
 
(1)   In those states where we have withdrawn realized net capital gains in the past from our cemetery perpetual care trusts, regulators may seek replenishment of the subsequent realized net capital losses either by requiring a cash deposit to the trust or by prohibiting or restricting withdrawals of future earnings until they cover the loss. The estimated probable funding obligation in the cemetery perpetual care trusts in these states was $12.4 million as of July 31, 2011. As of July 31, 2011, we had net unrealized losses of $34.7 million in the trusts in these states. Because some of these trusts currently have assets with a fair market value less than the aggregate amounts required to be contributed to the trust, any additional realized net capital losses in these trusts may result in a corresponding funding liability and increase in cemetery costs. In those states where realized net capital gains have not been withdrawn, we believe it is reasonably possible but not probable that additional funding obligations may exist with an estimated amount of approximately $2.0 million; no charge has been recorded for these amounts as of July 31, 2011.
 
(2)   In accordance with the required accounting guidance on uncertain tax positions, as of July 31, 2011, we have recorded $1.5 million of unrecognized tax benefits and related interest and penalties. Due to the uncertainty regarding the timing and completion of audits and possible outcomes, it is not possible to estimate the range of increase and decrease and the timing of any potential cash payments.
          As of July 31, 2011, our outstanding long-term debt obligations amounted to $331.6 million, consisting of $86.4 million in 3.125 percent senior convertible notes due 2014, $45.1 million in 3.375 percent senior convertible notes due 2016, $200.0 million of 6.50 percent senior notes due 2019 and $0.1 million of other debt. There were no amounts drawn on the senior secured revolving credit facility. The following table reflects future scheduled principal payments and maturities of our long-term debt (in millions) as of July 31, 2011.
                                         
                            Other,        
    Senior                     Principally        
    Secured                     Seller        
    Revolving     Senior             Financing        
Fiscal Years Ending   Credit     Convertible     Senior     of Acquired        
October 31,   Facility     Notes     Notes Due 2019     Operations     Total  
2011
  $     $     $     $     $  
2012
                             
2013
                             
2014
          86.4                   86.4  
2015
                             
Thereafter
          45.1       200.0       .1       245.2  
 
                             
Total long-term debt
  $     $ 131.5     $ 200.0     $ .1     $ 331.6  
 
                             
Off-Balance Sheet Arrangements
          Our off-balance sheet arrangements as of July 31, 2011 consist of the following items:
  (1)   the $23.5 million bond we are required to maintain to guarantee our obligations relating to funds we withdrew in fiscal year 2001 from our preneed funeral trusts in Florida, which is discussed above and in Note 20 to the consolidated financial statements in our 2010 Form 10-K; and

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  (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 condensed consolidated balance sheets, and are discussed in Note 2(i) to the consolidated financial statements in our 2010 Form 10-K.
Recent Accounting Standards
          See Note 2 to the condensed consolidated financial statements included herein.
Item 3.   Quantitative and Qualitative Disclosures About Market Risk
          Quantitative and qualitative disclosure about market risk is presented in Item 7A in our 2010 Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on December 16, 2010. For a discussion of fair market value as of July 31, 2011 of investments in our trusts, see Notes 3, 4 and 5 to the condensed consolidated financial statements included herein. The following disclosure discusses only those instances in which market risk has changed by more than 10 percent from the annual disclosures.
          As of July 31, 2011 and October 31, 2010, the carrying values of our long-term fixed-rate debt, including accrued interest, were approximately $320.7 million and $317.9 million, respectively, compared to fair values of $338.0 million and $328.3 million, respectively. Fair values were determined using quoted market prices. As of July 31, 2011, each approximate 10 percent, or 50 basis point, change in the average interest rate applicable to determine the fair value of such debt would result in a change of approximately $8.4 million in the fair value of these instruments. As of October 31, 2010, each approximate 10 percent, or 55 basis point, change in the average interest rate applicable to determine the fair value of such debt would result in a change of approximately $5.7 million in the fair value of these instruments. If these instruments are held to maturity, no change in fair value will be realized.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
          The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure.
          As of the end of the period covered by this report, the Company carried out an evaluation under the supervision and with the participation of the Company’s Disclosure Committee and management, including the CEO and CFO, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon this evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
          There have been no changes in the Company’s internal control over financial reporting during the quarter ended July 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION
Item 1.   Legal Proceedings
          For a discussion of our current litigation, see Note 7 to the condensed consolidated financial statements included herein.
          We and certain of our subsidiaries are parties to a number of legal proceedings that have arisen in the ordinary course of business. While the outcome of these proceedings cannot be predicted with certainty, we do not expect these matters to have a material adverse effect on our consolidated financial position, results of operations or cash flows.
          We carry insurance with coverages and coverage limits that we believe to be adequate. Although there can be no assurance that such insurance is sufficient to protect us against all contingencies, we believe that our insurance protection is reasonable in view of the nature and scope of our operations.
Item 1A. Risk Factors
          There have been no material changes from the risk factors previously disclosed in our 2010 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Issuer Purchases of Equity Securities
                                 
                    Total number of     Maximum  
                    shares     approximate dollar  
                    purchased as     value of shares that  
    Total number     Average     part of publicly-     may yet be  
    of shares     price paid     announced plans     purchased under the  
Period   purchased     per share     or programs     plans or programs(1)  
May 1, 2011 through May 31, 2011
    155,600     $ 7.67       155,600     $ 11,927,331  
 
                               
June 1, 2011 through June 30, 2011
        $           $ 36,927,331  
 
                               
July 1, 2011 through July 31, 2011
    669,200     $ 7.50       669,200     $ 31,909,691  
 
                           
 
                               
Total
    824,800     $ 7.53       824,800     $ 31,909,691  
 
                           
 
(1)   We announced a $25.0 million stock repurchase program in September 2007, which was increased by $25.0 million in December 2007, June 2008 and June 2011, resulting in a $100.0 million program. As of July 31, 2011, we had repurchased 9.7 million shares for $68.1 million at an average price of $7.00 per share since the inception of the program in 2007. In August 2011, we repurchased an additional 0.7 million shares for $4.5 million at an average price of $6.21 per share and as of August 31, 2011, had $27.4 million remaining available under the program.
Item 5. Other Information
          We had been unable to finalize negotiations with our insurance carrier related to damages from Hurricane Katrina, and as a result filed suit against the carrier in August 2007. On August 31, 2011, the insurance litigation was settled, pursuant to an agreement between the Company and certain of its subsidiaries and RSUI Indemnity Company. Pursuant to the settlement agreement, we will receive $11.3 million in additional insurance proceeds no later than five business days after the date of the agreement. We recorded this settlement amount, in addition to the $1.1 million previously advanced by the insurer, in the “hurricane related recoveries (charges), net” line in the condensed consolidated statements of earnings for the three and nine months ended July 31, 2011. We recorded

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$11.3 million of the settlement amount in current receivables in the condensed consolidated balance sheet as of July 31, 2011, and we expect to receive the actual cash proceeds in the fourth quarter of fiscal year 2011.
Item 6.   Exhibits
3.1   Amended and Restated Articles of Incorporation of the Company, as amended and restated as of April 3, 2008 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2008)
 
3.2   By-laws of the Company, as amended and restated as of September 8, 2008 (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2008)
 
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 stock
 
4.2   Specimen of Class A common stock certificate (incorporated by reference to Exhibit 3 to the Company’s Registration Statement on Form 8-A/A filed with the Commission on June 21, 2007)
 
4.3   Third Amended and Restated Credit Agreement dated April 20, 2011 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 filed April 21, 2011)
 
4.4   Indenture dated as of April 18, 2011 by and among Stewart Enterprises, Inc., the Guarantors and U.S. Bank National Association, as Trustee, with respect to the 6.50 percent Senior Notes due 2019 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed April 19, 2011)
 
4.5   Form of 6.50 percent Senior Note due 2019 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed April 19, 2011)
 
4.6   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)
 
4.7   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)
 
10.1   Settlement Agreement between the Company and certain of its subsidiaries and RSUI Indemnity Company dated August 31, 2011
 
31.1   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen, President and Chief Executive Officer
 
31.2   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Lewis J. Derbes, Jr., Senior Vice President, Chief Financial Officer and Treasurer
 
32.1   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of Thomas M. Kitchen, President and Chief Executive Officer, and Lewis J. Derbes, Jr., Senior Vice President, Chief Financial Officer and Treasurer

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101   The following materials from Stewart Enterprises, Inc.’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2011 formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Earnings, (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statement of Shareholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
SIGNATURES
          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  STEWART ENTERPRISES, INC.
 
 
September 7, 2011  /s/ LEWIS J. DERBES, JR.    
  Lewis J. Derbes, Jr.   
  Senior Vice President,
Chief Financial Officer and Treasurer 
 
 
     
September 7, 2011  /s/ ANGELA M. LACOUR    
  Angela M. Lacour   
  Senior Vice President of Finance
and Chief Accounting Officer 
 

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Exhibit Index
10.1   Settlement Agreement between the Company and certain of its subsidiaries and RSUI Indemnity Company dated August 31, 2011
 
31.1   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen, President and Chief Executive Officer
 
31.2   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Lewis J. Derbes, Jr., Senior Vice President, Chief Financial Officer and Treasurer
 
32.1   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of Thomas M. Kitchen, President and Chief Executive Officer, and Lewis J. Derbes, Jr., Senior Vice President, Chief Financial Officer and Treasurer
 
101   The following materials from Stewart Enterprises, Inc.’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2011 formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Earnings, (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statement of Shareholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

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