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

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number: 1-15449

 

STEWART ENTERPRISES, INC.

(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

Part I. Financial Information			Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings — Three Months Ended July 31, 2011 and 2010			3
Condensed Consolidated Statements of Earnings — Nine Months Ended July 31, 2011 and 2010			4
Condensed Consolidated Balance Sheets — July 31, 2011 and October 31, 2010			5
Condensed Consolidated Statement of Shareholders’ Equity — Nine Months Ended July 31, 2011			7
Condensed Consolidated Statements of Cash Flows — Nine Months Ended July 31, 2011 and 2010			8
Notes to Condensed Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			49
Item 3. Quantitative and Qualitative Disclosures About Market Risk			64
Item 4. Controls and Procedures			64
Part II. Other Information
Item 1. Legal Proceedings			65
Item 1A. Risk Factors			65
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			65
Item 5. Other Information			65
Item 6. Exhibits			66
Signatures			68
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

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.

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.

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)

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

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

See accompanying notes to condensed consolidated financial statements.

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.

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

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

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.

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.

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

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:

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

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.

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

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

     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	)

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

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)