e10vq

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 April 30, 2007


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)

Registrant’s telephone number, including area code: (504) 729-1400

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 is a large accelerated filer, an accelerated filer or a non-accelerated filer as defined in Rule 12b-2 of the Securities Exchange Act of 1934.

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934.) 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 May 31, 2007, was 102,463,200 and 3,555,020, respectively.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share amounts)


	Three Months Ended April 30,
	2007			2006
Revenues:
Funeral	$	73,839		$	71,807
Cemetery		63,896			58,991

		137,735			130,798

Costs and expenses:
Funeral		54,944			53,395
Cemetery		50,075			45,445

		105,019			98,840

Gross profit		32,716			31,958
Corporate general and administrative expenses		(7,744	)		(7,256	)
Hurricane related recoveries (charges), net		(283	)		558
Separation charges		(47	)		(122	)
Gains on dispositions and impairment (losses), net		(8	)		159
Other operating income, net		883			36

Operating earnings		25,517			25,333
Interest expense		(6,295	)		(7,681	)
Investment and other income, net		567			652

Earnings from continuing operations before income taxes		19,789			18,304
Income taxes		6,011			6,901

Earnings from continuing operations		13,778			11,403

Discontinued operations:
Earnings (loss) from discontinued operations before income taxes		(281	)		8
Income tax benefit		(132	)		(36	)

Earnings (loss) from discontinued operations		(149	)		44


Net earnings	$	13,629		$	11,447


Basic earnings per common share:
Earnings from continuing operations	$	.13		$	.11
Earnings from discontinued operations		—			—

Net earnings	$	.13		$	.11


Diluted earnings per common share:
Earnings from continuing operations	$	.13		$	.11
Earnings from discontinued operations		—			—

Net earnings	$	.13		$	.11


Weighted average common shares outstanding (in thousands):
Basic		105,300			107,951

Diluted		105,540			108,035


Dividends declared per common share	$	.025		$	.025

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)


	Six Months Ended April 30,
	2007			2006
Revenues:
Funeral	$	146,501		$	143,402
Cemetery		123,807			113,372

		270,308			256,774


Costs and expenses:
Funeral		108,876			107,117
Cemetery		97,692			88,586

		206,568			195,703

Gross profit		63,740			61,071
Corporate general and administrative expenses		(14,786	)		(14,475	)
Hurricane related charges, net		(2,133	)		(2,080	)
Separation charges		(532	)		(276	)
Gains on dispositions and impairment (losses), net		90			159
Other operating income, net		1,151			1,012

Operating earnings		47,530			45,411
Interest expense		(13,052	)		(15,209	)
Investment and other income, net		1,617			1,120

Earnings from continuing operations before income taxes		36,095			31,322
Income taxes		10,326			11,808

Earnings from continuing operations		25,769			19,514

Discontinued operations:
Earnings (loss) from discontinued operations before income taxes		(349	)		274
Income tax benefit		(135	)		(48	)

Earnings (loss) from discontinued operations		(214	)		322


Net earnings	$	25,555		$	19,836


Basic earnings per common share:
Earnings from continuing operations	$	.24		$	.18
Earnings from discontinued operations		—			—

Net earnings	$	.24		$	.18


Diluted earnings per common share:
Earnings from continuing operations	$	.24		$	.18
Earnings from discontinued operations		—			—

Net earnings	$	.24		$	.18


Weighted average common shares outstanding (in thousands):
Basic		105,097			108,232

Diluted		105,248			108,260


Dividends declared per common share	$	.05		$	.05

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)


	April 30,		October 31,
	2007		2006
ASSETS

Current assets:
Cash and cash equivalents	$	46,545	$	43,870
Marketable securities		385		239
Receivables, net of allowances		57,460		72,499
Inventories		35,498		36,358
Prepaid expenses		10,757		6,428
Deferred income taxes, net		8,331		10,502
Assets held for sale		—		2,509

Total current assets		158,976		172,405
Receivables due beyond one year, net of allowances		76,947		75,350
Preneed funeral receivables and trust investments		530,228		517,633
Preneed cemetery receivables and trust investments		263,686		258,120
Goodwill		274,861		272,976
Cemetery property, at cost		371,107		371,071
Property and equipment, at cost:
Land		41,974		41,336
Buildings		297,916		293,530
Equipment and other		157,962		149,952

		497,852		484,818
Less accumulated depreciation		201,972		189,909

Net property and equipment		295,880		294,909
Deferred income taxes, net		179,294		173,986
Cemetery perpetual care trust investments		237,598		230,487
Other assets		14,326		13,640

Total assets	$	2,402,903	$	2,380,577

(continued)

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)


	April 30,			October 31,
	2007			2006
LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Current maturities of long-term debt	$	2,527		$	2,839
Accounts payable		16,045			19,375
Accrued payroll and other benefits		14,888			17,353
Accrued insurance		21,778			21,803
Accrued interest		5,485			5,822
Other current liabilities		11,591			18,141
Income taxes payable		5,825			3,703
Liabilities associated with assets held for sale		—			942

Total current liabilities		78,139			89,978
Long-term debt, less current maturities		360,771			374,020
Deferred preneed funeral revenue		270,493			274,700
Deferred preneed cemetery revenue		290,382			295,989
Non-controlling interest in funeral and cemetery trusts		681,294			657,607
Other long-term liabilities		13,707			12,410

Total liabilities		1,694,786			1,704,704

Commitments and contingencies
Non-controlling interest in perpetual care trusts		236,667			228,980


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 150,000,000 shares; issued and outstanding 102,295,505 and 101,408,227 shares at April 30, 2007 and October 31, 2006, respectively		102,296			101,408
Class B authorized 5,000,000 shares; issued and outstanding 3,555,020 shares at April 30, 2007 and October 31, 2006, 10 votes per share, convertible into an equal number of Class A shares		3,555			3,555
Additional paid-in capital		638,759			640,648
Accumulated deficit		(273,160	)		(298,715	)
Accumulated other comprehensive loss:
Unrealized depreciation of investments		—			(3	)

Total accumulated other comprehensive losses		—			(3	)

Total shareholders’ equity		471,450			446,893

Total liabilities and shareholders’ equity	$	2,402,903		$	2,380,577

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)


						Retained			Unrealized
			Additional			Earnings			Appreciation			Total
	Common		Paid-In			(Accumulated			(Depreciation)			Shareholders’
	Stock⁽¹⁾		Capital			Deficit)			of Investments			Equity

Balance October 31, 2006	$	104,963	$	640,648		$	(298,715	)	$	(3	)	$	446,893

Comprehensive income:
Net earnings		—		—			25,555			—			25,555

Other comprehensive income:
Unrealized appreciation of investments, net of deferred tax expense of ($2)		—		—			—			3			3

Total other comprehensive income		—		—			—			3			3

Total comprehensive income		—		—			25,555			3			25,558

Restricted stock activity		372		(267	)		—			—			105
Issuance of common stock		186		1,097			—			—			1,283
Stock options exercised		330		1,829			—			—			2,159
Share-based compensation		—		691			—			—			691
Tax benefit associated with stock options exercised		—		26			—			—			26
Dividends ($.05 per share)		—		(5,265	)		—			—			(5,265	)

Balance April 30, 2007	$	105,851	$	638,759		$	(273,160	)	$	—		$	471,450


⁽¹⁾		Amount includes 102,296 and 101,408 shares (in thousands) of Class A common stock with a stated value of $1 per share as of April 30, 2007 and October 31, 2006, respectively, and includes 3,555 shares (in thousands) of Class B common stock.

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)


	Six Months Ended April 30,
	2007			2006
Cash flows from operating activities:
Net earnings	$	25,555		$	19,836
Adjustments to reconcile net earnings to net cash provided by operating activities:
(Gains) losses on dispositions and impairment losses, net		265			(563	)
Depreciation and amortization		13,268			12,269
Provision for doubtful accounts		3,401			3,049
Share-based compensation		691			834
Excess tax benefits from share-based payment arrangements		(37	)		—
Provision (benefit) for deferred income taxes		(3,138	)		9,091
Other		806			187
Changes in assets and liabilities:
(Increase) decrease in other receivables		9,106			(1,170	)
(Increase) decrease in inventories and cemetery property		103			(50	)
Decrease in accounts payable and accrued expenses		(8,561	)		(3,485	)
Net effect of preneed funeral production and maturities:
(Increase) decrease in preneed funeral receivables and trust investments		(1,470	)		7,317
Decrease in deferred preneed funeral revenue		(6,132	)		(11,005	)
Increase (decrease) in funeral non-controlling interest		2,790			(1,073	)
Net effect of preneed cemetery production and deliveries:
(Increase) decrease in preneed cemetery receivables and trust investments		(2,956	)		8,763
Increase (decrease) in deferred preneed cemetery revenue		(5,575	)		4,045
Increase in cemetery non-controlling interest		8,550			4,145
Decrease in other		(4,135	)		(1,133	)

Net cash provided by operating activities		32,531			51,057


Cash flows from investing activities:
Proceeds from sale of assets, net		1,635			751
Purchase of subsidiaries, net of cash acquired		(2,805	)		—
Insurance proceeds related to hurricane damaged properties		1,400			5,300
Additions to property and equipment		(13,605	)		(9,949	)
Other		(106	)		19

Net cash used in investing activities		(13,481	)		(3,879	)


Cash flows from financing activities:
Repayments of long-term debt		(13,561	)		(31,650	)
Issuance of common stock		2,414			—
Purchase and retirement of common stock		—			(8,141	)
Dividends		(5,265	)		(5,405	)
Excess tax benefits from share-based payment arrangements		37			—
Other		—			61

Net cash used in financing activities		(16,375	)		(45,135	)


Net increase in cash		2,675			2,043
Cash and cash equivalents, beginning of period		43,870			40,605

Cash and cash equivalents, end of period	$	46,545		$	42,648


Supplemental cash flow information:
Cash paid (received) during the period for:
Income taxes	$	5,600		$	700
Interest	$	13,246		$	14,510

Non-cash investing and financing activities:
Issuance of common stock to executive officers and directors	$	1,028		$	—
Issuance of restricted stock, net of forfeitures	$	2,931		$	—

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. Through its subsidiaries, the Company offers a complete line of funeral merchandise and services, along with cemetery property, merchandise and services, both at the time of need and on a preneed basis. As of April 30, 2007, the Company owned and operated 226 funeral homes and 142 cemeteries in 25 states within the United States and Puerto Rico. The Company has five operating and reportable segments consisting of a corporate trust management segment and a funeral and cemetery segment for each of two geographic areas: Eastern and Western.

(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 April 30, 2007, and for the three and six months ended April 30, 2007 and 2006, is unaudited but, in the opinion of management, reflects all adjustments, which are of a normal recurring nature, necessary for a fair presentation of financial position and results of operations 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, 2006 (the “2006 Form 10-K”).

The October 31, 2006 condensed consolidated balance sheet data was derived from audited financial statements in the Company’s 2006 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 2006 Form 10-K.

The results of operations for the three and six months ended April 30, 2007 are not necessarily indicative of the results to be expected for the fiscal year ending October 31, 2007.

(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.

(e)

Share-Based Compensation

The Company has three share-based compensation plans, which are described in more detail in Note 18 to the consolidated financial statements of the Company’s 2006 Form 10-K. Net earnings for the three and six months ended April 30, 2007 include $373 ($260 after tax) and $691 ($477 after tax), respectively, of share-based compensation costs. Net earnings for the three and six months ended April 30, 2006 include $410 ($267 after tax) and $834 ($542 after tax), respectively, of share-based compensation costs all of which are included in corporate general and administrative expenses in the condensed consolidated statement of earnings. As of April 30, 2007, there was $3,714 of total unrecognized compensation costs related to nonvested share-based compensation that is expected to be recognized over a weighted-average period of 2.90 years of which $1,410 of total share-based

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(1) Basis of Presentation—(Continued)

compensation is expected for fiscal year 2007. The expense related to restricted stock is reflected in earnings and amounted to $79 and $92 for the three months ended April 30, 2007 and 2006, respectively, and $147 and $187 for the six months ended April 30, 2007 and 2006, respectively.

On February 28, 2007, the Company issued a total of 84,000 shares of Class A common stock to the independent directors of the Company. The expense related to this stock is reflected in earnings and amounted to $664 for the three and six months ended April 30, 2007. Each independent director must hold at least 75 percent of the shares received by him until he no longer serves as a member of the Board of Directors.

The table below presents all stock options and restricted stock granted to employees during fiscal year 2007:

Weighted

Number

Average

Exercise

Shares

Price per

Grant Type

Granted

Share

Vesting Period

Vesting Condition

Stock Options

488,500

6.34

Equal 25 percent portions over 4 years

Service Condition

Stock Options

540,000

7.83

Equal 25 percent portions over 3 years

Market Condition

Restricted Stock

52,500

6.33

Equal 25 percent portions over 4 years

Service Condition

Restricted Stock

510,000

7.83

Equal 33 percent portions over 3 years

Service, Market and Performance Conditions

(f)

Reclassifications

Certain reclassifications have been made to the 2006 condensed consolidated statements of earnings, balance sheet and cash flows in order for these periods to be comparable. All businesses sold in fiscal year 2007 and fiscal year 2006 that met the criteria for discontinued operations have been classified as discontinued operations for all periods presented. These reclassifications had no effect on net earnings, shareholders’ equity or operating cash flows.

In the first quarter, the Company changed its presentation of activities related to its preneed funeral and cemetery trusts within the 2006 condensed consolidated statements of cash flows. Previously, all funeral and cemetery trust activities were included in the “net effect of preneed funeral production and maturities” and “net effect of preneed cemetery production and deliveries” line items. The Company now presents separate components of the funeral and cemetery trust activities within the following line items: changes in preneed receivables and trust investments, changes in deferred preneed revenue and changes in non-controlling interest. This new presentation has no effect on operating cash flows. The effect of the new presentation for the trust activities reflected in the consolidated statements of cash flows for the years ended October 31, 2006, 2005 and 2004 is presented below to update the disclosure from that included in the Company’s 2006 Form 10-K:

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(1) Basis of Presentation—(Continued)


	Year Ended October 31,
	2006			2005			2004

Decrease in preneed funeral receivables and trust investments	$	4,567		$	4,141		$	5,481
Decrease in deferred preneed funeral revenue		(15,375	)		(13,628	)		(14,162	)
Increase (decrease) in funeral non-controlling interest		5,058			2,449			(5,603	)

Net effect of preneed funeral production and maturities		(5,750	)		(7,038	)		(14,284	)


(Increase) decrease in preneed cemetery receivables and trust investments	$	3,479		$	1,192		$	(2,646	)
Increase (decrease) in deferred preneed cemetery revenue		10,235			(8,313	)		7,073
Increase in cemetery non-controlling interest		11,686			12,368			1,994

Net effect of preneed cemetery production and deliveries	$	25,400		$	5,247		$	6,421

(2) New Accounting Principles

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting and disclosure for uncertain tax positions in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” FIN 48 addresses the recognition, measurement, classification and disclosure issues related to the recording of financial statement benefits for income tax positions that have some degree of uncertainty. This interpretation is effective as of the beginning of an entity’s first fiscal year that begins after December 15, 2006, which corresponds to the Company’s fiscal year beginning November 1, 2007. The Company is currently evaluating the impact the adoption of FIN 48 will have on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which establishes a framework for measuring fair value in accordance with Generally Accepted Accounting Principles and expands disclosures about fair value measurements. This statement is effective as of the beginning of the entity’s first fiscal year that begins after November 15, 2007, which corresponds to the Company’s fiscal year beginning November 1, 2008. The Company is currently evaluating the impact the adoption of SFAS No. 157 will have on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”). This statement permits entities to choose to measure many financial assets and liabilities and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007, which corresponds to the Company’s fiscal year beginning November 1, 2008. The Company is currently evaluating the impact the adoption of SFAS No. 159 will have on its consolidated financial statements.

(3) Preneed Funeral Activities

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

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(3) Preneed Funeral Activities—(Continued)

receivables and trust investments in the condensed consolidated balance sheet at April 30, 2007 and October 31, 2006 are as follows:


	April 30, 2007		October 31, 2006
Trust assets	$	478,711	$	467,326
Receivables from customers		51,517		50,307

Preneed funeral receivables and trust investments	$	530,228	$	517,633

The cost and market values associated with preneed funeral merchandise and services trust assets at April 30, 2007 are detailed below. The adjusted cost basis of the funeral merchandise and services trust assets below reflects an other than temporary decline in the trust assets of approximately $78,362 as of April 30, 2007 from their original cost basis. The Company believes the unrealized losses reflected below of $5,917 related to trust investments are temporary in nature.


	April 30, 2007
	Adjusted		Unrealized		Unrealized
	Cost Basis		Gains		Losses			Market
Cash, money market and other short-term investments	$	39,611	$	—	$	—		$	39,611
U.S. Government, agencies and municipalities		19,783		111		(86	)		19,808
Corporate bonds		45,028		690		(391	)		45,327
Preferred stocks		72,515		682		(1,075	)		72,122
Common stocks		214,405		32,602		(4,152	)		242,855
Mutual funds		34,172		1,941		(213	)		35,900
Insurance contracts and other long- term investments		21,562		223		—			21,785

Trust investments	$	447,076	$	36,249	$	(5,917	)		477,408

Market value as a percentage of cost										106.8	%

Accrued investment income									1,303

Trust assets								$	478,711

The estimated maturities and market values of debt securities included above are as follows:


	April 30, 2007
Due in one year or less	$	1,580
Due in one to five years		26,975
Due in five to ten years		35,758
Thereafter		822

	$	65,135


	Three Months Ended April 30,					Six Months Ended April 30,
	2007		2006			2007			2006
Purchases	$	48,497	$	47,546		$	82,086		$	51,958
Sales		43,547		52,318			77,418			54,441
Realized gains on sales		2,619		6,504			4,768			6,624
Realized losses on sales		—		(814	)		(297	)		(1,718	)
Deposits		8,696		8,059			16,114			14,852
Withdrawals		11,576		14,742			22,806			26,302

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(3) Preneed Funeral Activities—(Continued)

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 current and long-term receivables. The components of preneed cemetery receivables and trust investments in the condensed consolidated balance sheet as of April 30, 2007 and October 31, 2006 are as follows:


	April 30, 2007		October 31, 2006
Trust assets	$	212,162	$	201,891
Receivables from customers		51,524		56,229

Preneed cemetery receivables and trust investments	$	263,686	$	258,120

The cost and market values associated with the preneed cemetery merchandise and services trust assets as of April 30, 2007 are detailed below. The adjusted cost basis of the cemetery merchandise and services trust assets below reflects an other than temporary decline in the trust assets of approximately $42,268 as of April 30, 2007 from their original cost basis. The Company believes the unrealized losses reflected below of $3,753 related to trust investments are temporary in nature.


	April 30, 2007
	Adjusted		Unrealized		Unrealized
	Cost Basis		Gains		Losses			Market
Cash, money market and other short-term investments	$	16,546	$	—	$	—		$	16,546
U.S. Government, agencies and municipalities		14,492		74		(47	)		14,519
Corporate bonds		10,552		305		(19	)		10,838
Preferred stocks		26,980		236		(416	)		26,800
Common stocks		103,366		11,964		(3,154	)		112,176
Mutual funds		28,540		456		(113	)		28,883
Insurance contracts and other long- term investments		1,907		—		(4	)		1,903

Trust investments	$	202,383	$	13,035	$	(3,753	)		211,665

Market value as a percentage of cost										104.6	%

Accrued investment income									497

Trust assets								$	212,162

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:


	April 30, 2007
Due in one year or less	$	2,807
Due in one to five years		12,351
Due in five to ten years		9,889
Thereafter		310

	$	25,357


	Three Months Ended April 30,					Six Months Ended April 30,
	2007		2006			2007			2006
Purchases	$	87,315	$	39,632		$	144,337		$	41,831
Sales		87,954		43,124			138,807			51,544
Realized gains on sales		3,519		4,830			6,320			5,076
Realized losses on sales		—		(961	)		(300	)		(1,307	)
Deposits		4,482		5,045			8,929			9,429
Withdrawals		5,267		4,941			9,404			21,338

Cash flows from preneed cemetery merchandise and services contracts are presented as operating cash flows in the Company’s condensed consolidated statement of cash flows.

(5) Cemetery Interment Rights and Perpetual Care Trusts

Earnings realized 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 $2,487 and $2,326 for the three months ended April 30, 2007 and 2006, respectively, and $4,845 and $4,939 for the six months ended April 30, 2007 and 2006, respectively.

The cost and market values of the trust investments held by the cemetery perpetual care trusts at April 30, 2007 are detailed below. The adjusted cost basis of the cemetery perpetual care trusts below reflects an other than temporary decline in the trust assets of $32,778 as of April 30, 2007 from their original cost basis. The Company believes the unrealized losses reflected below of $3,517 related to trust investments are temporary in nature.

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)


	April 30, 2007
	Adjusted		Unrealized		Unrealized
	Cost Basis		Gains		Losses			Market
Cash, money market and other short-term investments	$	18,626	$	—	$	—		$	18,626
U.S. Government, agencies and municipalities		10,076		63		(92	)		10,047
Corporate bonds		33,639		1,296		(112	)		34,823
Preferred stocks		63,999		1,367		(1,419	)		63,947
Common stocks		80,982		16,790		(1,846	)		95,926
Mutual funds		10,774		1,513		(47	)		12,240
Insurance contracts and other long-term investments		992		194		(1	)		1,185

Trust investments	$	219,088	$	21,223	$	(3,517	)		236,794

Market value as a percentage of cost										108.1	%

Accrued investment income									804

Trust assets								$	237,598

The estimated maturities and market values of debt securities included above are as follows:


	April 30, 2007
Due in one year or less	$	1,130
Due in one to five years		23,218
Due in five to ten years		19,327
Thereafter		1,195

	$	44,870


	Three Months Ended April 30,						Six Months Ended April 30,
	2007			2006			2007			2006
Purchases	$	12,899		$	22,936		$	32,766		$	36,987
Sales		10,247			14,494			32,773			25,451
Realized gains on sales		831			1,840			1,975			2,644
Realized losses on sales		(318	)		(2,958	)		(648	)		(3,026	)
Deposits		2,050			2,211			3,913			4,182
Withdrawals		2,273			2,762			5,421			4,934

During the three months ended April 30, 2007 and 2006, cemetery revenues were $63,896 and $58,991, respectively, of which $2,443 and $2,460, respectively, were required to be placed into perpetual care trusts and were recorded as revenues and expenses. During the six months ended April 30, 2007 and 2006, cemetery revenues were $123,807 and $113,372, respectively, of which $4,981 and $4,361, respectively, were required to be placed into perpetual care trusts and were recorded as revenues and expenses.

Cash flows from cemetery perpetual care contracts are presented as operating cash flows in the Company’s condensed consolidated statements of cash flows.

(6) Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care Trusts

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(6) Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care Trusts—(Continued)

The components of non-controlling interest in funeral and cemetery trusts and non-controlling interest in perpetual care trusts at April 30, 2007 are as follows:


										Non-controlling
	Non-controlling Interest									Interest in
	Preneed			Preneed						Perpetual
	Funeral			Cemetery			Total			Care Trusts
Trust assets at market value	$	478,711		$	212,162		$	690,873		$	237,598
Less:
Pending withdrawals		(9,165	)		(4,214	)		(13,379	)		(1,653	)
Pending deposits		2,316			1,484			3,800			722

Non-controlling interest	$	471,862		$	209,432		$	681,294		$	236,667

The components of non-controlling interest in funeral and cemetery trusts and non-controlling interest in perpetual care trusts at October 31, 2006 are as follows:


										Non-controlling
	Non-controlling Interest									Interest in
	Preneed			Preneed						Perpetual
	Funeral			Cemetery			Total			Care Trusts
Trust assets at market value	$	467,326		$	201,891		$	669,217		$	230,487
Less:
Pending withdrawals		(10,317	)		(5,175	)		(15,492	)		(2,300	)
Pending deposits		2,362			1,520			3,882			793

Non-controlling interest	$	459,371		$	198,236		$	657,607		$	228,980

Investment and other income, net

The components of investment and other income, net in the condensed consolidated statements of earnings for the three and six months ended April 30, 2007 and 2006 are detailed below.


	Three Months Ended						Six Months Ended
	April 30,						April 30,
	2007			2006			2007			2006
Non-controlling interest:
Realized gains	$	6,969		$	13,174		$	13,063		$	14,344
Realized losses		(318	)		(4,733	)		(1,245	)		(6,051	)
Interest income, dividend and other ordinary income		7,388			7,121			13,234			14,696
Trust expenses and income taxes		(2,909	)		(3,718	)		(5,436	)		(6,549	)

Net trust investment income		11,130			11,844			19,616			16,440
Non-controlling interest in funeral and cemetery trust investments		(8,898	)		(11,405	)		(15,065	)		(13,399	)
Non-controlling interest in perpetual care trust investments		(2,232	)		(439	)		(4,551	)		(3,041	)

Total non-controlling interest		—			—			—			—
Investment and other income, net ⁽¹⁾		567			652			1,617			1,120

Total investment and other income, net	$	567		$	652		$	1,617		$	1,120

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(6)

Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care Trusts—(Continued)


⁽¹⁾		Investment and other income, net consists of interest income primarily on the Company’s cash, cash equivalents and marketable securities not held in trust. For the six months ended April 30, 2007, the balance includes approximately $444 of interest income receivable from the Internal Revenue Service.

(7) Commitments and Contingencies

Litigation

Henrietta Torres and Teresa Fiore, on behalf of themselves and all others similarly situated and the General Public v. Stewart Enterprises, Inc., et al.; No. BC328961, on the docket of the Superior Court for the State of California for the County of Los Angeles, Central District. This purported class action was filed on February 17, 2005 on behalf of a nationwide class defined to include all persons who purchased funeral goods and/or services in the United States from defendants at any time on or after February 17, 2001. The suit named the Company and several of its Southern California affiliates as defendants and also sought to assert claims against a class of all entities located anywhere in the United States whose ultimate parent corporation has been the Company at any time on or after February 17, 2001.

In May 2005, the court ruled that this case was related to similar actions against Service Corporation International (“SCI”) and Alderwoods Group, Inc., and designated the SCI case as the lead case. The case against the Company effectively has been held in abeyance while the court tests plaintiff’s legal theories in the lead case. Rulings on legal issues in the lead case will apply equally in the case against the Company, and the court has allowed the Company to participate in hearings and briefings in the lead case.

As a result of demurrers, the plaintiff in the lead case amended her case twice. On January 31, 2006, however, the court overruled SCI’s demurrer to the third amended complaint and established a schedule leading to a hearing on a motion for summary judgment to test the viability of the named plaintiff’s claim against SCI. The third amended complaint in the lead case alleges that the SCI defendants violated the “Funeral Rule” promulgated by the Federal Trade Commission by failing to disclose that the prices charged to the plaintiffs for certain goods and services the SCI defendants obtained from third parties specifically on the plaintiff’s behalf exceeded what the defendants paid for them. The plaintiff alleges that by failing to comply with the Funeral Rule, defendants (i) breached contracts with the plaintiffs, (ii) were unjustly enriched, and (iii) engaged in unfair, unlawful and fraudulent business practices in violation of a provision of California’s Business and Professions Code. The plaintiff seeks restitution damages, disgorgement, interest, costs and attorneys’ fees.

In September and October 2006, the court granted the motion for summary judgment filed by the SCI affiliate with whom the plaintiff had contracted and entered a judgment of dismissal in favor of that SCI affiliate. On December 8, 2006, the plaintiff noticed an appeal of this judgment.

Because the matter is being appealed, the likelihood of liability and the extent of any damages cannot be reasonably assessed at this time. The Company intends to aggressively defend itself in this matter.

Funeral Consumers Alliance, Inc., et al. v. Service Corporation International, Alderwoods Group, Inc., Stewart Enterprises, Inc., Hillenbrand Industries, Inc., and Batesville Casket Co., number H-05-3394 on the docket of the United States District Court for the Southern District of Texas. This purported class action was originally filed on May 2, 2005, in the United States District Court for the Northern District of California, on behalf of a nationwide class defined to include all consumers who purchased a Batesville casket from the funeral home defendants at any time. The court consolidated it with five subsequently filed, substantially similar cases (the

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(7) Commitments and Contingencies—(Continued)

“Consolidated Consumer Cases”).

The Consolidated Consumer Cases allege that the defendants acted jointly to reduce competition from independent casket discounters and fix and maintain prices on caskets in violation of the federal antitrust laws and California’s Business and Professions Code. The plaintiffs seek treble damages, restitution, injunctive relief, interest, costs and attorneys’ fees.

At the defendants’ request, in late September 2005, the court transferred the Consolidated Consumer Cases to the United States District Court for the Southern District of Texas. The transferred Consolidated Consumer Cases have been consolidated before a single judge in the Southern District of Texas.

On November 10, 2006, after the court denied Defendants’ motions to dismiss, the Company answered the first amended consolidated class action complaint, denying liability and asserting various affirmative defenses. The court conducted a hearing on plaintiffs’ motion for class certification on December 4-7, 2006 and has taken the motion under advisement. Fact discovery has been completed, and expert discovery is ongoing.

In April 2007, the plaintiffs filed an expert report indicating that the damages sought from all defendants would be in the range of approximately $950 million to approximately $1.5 billion, before trebling. A successful plaintiff in an anti-trust case may elect to enforce any judgment against any or all of the co-defendants, who have no right of contribution against one another. Accordingly, any adverse judgment could have a material adverse effect on the Company’s financial condition and results of operations. The Company believes it has meritorious defenses to the substantive allegations asserted, to class certification, and to the plaintiffs’ damage theories and calculations, and the Company intends to aggressively defend itself in these proceedings.

Pioneer Valley Casket Co., Inc., et al. v. Service Corporation International, Alderwoods Group, Inc., Stewart Enterprises, Inc., Hillenbrand Industries, Inc., and Batesville Casket Co., number H-05-3399 (“Pioneer Valley Case”). This purported class action was filed on July 8, 2005, in the Northern District of California on behalf of a nationwide class of independent casket retailers. The casket retailers make allegations similar to those involved made in the Consolidated Consumer Cases reported above and seek treble damages, injunctive relief, interest, costs and attorneys’ fees.

Like the Consolidated Consumer Cases, in late September 2005, this matter was transferred to the United States District Court for the Southern District of Texas. The Pioneer Valley Case has been consolidated with the Consolidated Consumer Cases for purposes of discovery only.

On November 14, 2006, after the court denied Defendants’ motions to dismiss, the Company answered the first amended complaint, denying liability and asserting various defenses. The court conducted a hearing on plaintiffs’ motion for class certification on December 8, 2006 and has taken the motion under advisement. Fact discovery has been completed, and expert discovery is ongoing. In April 2007, the plaintiffs filed an expert report indicating that the damages sought from all defendants would be approximately $99 million, before trebling. A successful plaintiff in an anti-trust case may elect to enforce any judgment against any or all of the co-defendants, who have no right of contribution against one another. Accordingly, any adverse judgment could have a material adverse effect on the Company’s financial condition and results of operations. The Company believes it has meritorious defenses to the substantive allegations asserted, to class certification, and to the plaintiffs’ damage theories and calculations, and the Company intends to aggressively defend itself in these proceedings.

In Re: State Attorney General Civil Investigative Demands - On August 4, 2005, the Attorney General for the State of Maryland issued a civil investigative demand to the Company seeking documents and information relating to funeral and cemetery goods and services. Subsequently, the Attorneys General for the States of Florida

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(7) Commitments and Contingencies—(Continued)

and Connecticut issued a similar civil investigative demand to the Company. The Company has entered into arrangements allowing the Maryland and Florida Attorneys General to share in information provided by the Company with the attorneys general of certain other states. The Company is cooperating with the attorneys general and has provided information relevant to their investigations. Because these matters are in their preliminary stages, the likelihood of liability and the extent of any damages cannot be reasonably assessed at this time. The Company intends to aggressively defend itself in these matters.

Other Litigation

The Company is a defendant in a variety of other 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. Although there can be no assurance that such insurance is sufficient to protect the Company against all contingencies, management believes that its insurance protection is reasonable in view of the nature and scope of the Company’s operations.

Securities and Exchange Commission Investigation

In November 2006, the Company received a subpoena from the Securities and Exchange Commission (“SEC”), issued pursuant to a formal order of investigation, seeking documents and information related to the Company’s previously disclosed and completed deferred revenue project. In response to both the initial and subsequent related subpoenas, the Company has provided to the SEC documents and other information related to the deferred revenue project. The SEC has informed the Company that this is a fact-finding inquiry to determine whether there have been any violations of the federal securities laws. The SEC has also informed the Company that the investigation and subpoenas do not mean that the SEC has concluded that the Company, or anyone else, has violated any law or that the SEC has a negative opinion of any person, entity or security. The Company is cooperating fully with the investigation and continues to provide documents and other information as requested by the SEC.

(8) Reconciliation of Basic and Diluted Per Share Data


	Earnings		Shares		Per Share
	(Numerator)		(Denominator)		Data
Three Months Ended April 30, 2007
Earnings from continuing operations	$	13,778
Basic earnings per common share:
Earnings from continuing operations available to common shareholders	$	13,778		105,300	$	.13

Effect of dilutive securities:
Time-vest stock options assumed exercised and restricted stock				240

Diluted earnings per common share:
Earnings from continuing operations available to common shareholders plus time-vest stock options assumed exercised and restricted stock	$	13,778		105,540	$	.13

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
Three Months Ended April 30, 2006
Earnings from continuing operations	$	11,403
Basic earnings per common share:
Earnings from continuing operations available to common shareholders	$	11,403		107,951	$	.11

Effect of dilutive securities:
Time-vest stock options assumed exercised and restricted stock				84

Diluted earnings per common share:
Earnings from continuing operations available to common shareholders plus time-vest stock options assumed exercised and restricted stock	$	11,403		108,035	$	.11


	Earnings		Shares		Per Share
	(Numerator)		(Denominator)		Data
Six Months Ended April 30, 2007
Earnings from continuing operations	$	25,769
Basic earnings per common share:
Earnings from continuing operations available to common shareholders	$	25,769		105,097	$	.24

Effect of dilutive securities:
Time-vest stock options assumed exercised and restricted stock				151

Diluted earnings per common share:
Earnings from continuing operations available to common shareholders plus time-vest stock options assumed exercised and restricted stock	$	25,769		105,248	$	.24


	Earnings		Shares		Per Share
	(Numerator)		(Denominator)		Data
Six Months Ended April 30, 2006
Earnings from continuing operations	$	19,514
Basic earnings per common share:
Earnings from continuing operations available to common shareholders	$	19,514		108,232	$	.18

Effect of dilutive securities:
Time-vest stock options assumed exercised and restricted stock				28

Diluted earnings per common share:
Earnings from continuing operations available to common shareholders plus time-vest stock options assumed exercised and restricted stock	$	19,514		108,260	$	.18

Options to purchase 1,865 shares of common stock at a price of $7.31 per share were outstanding during the six months ended April 30, 2007, but were not included in the computation of diluted earnings per share because the

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)

exercise prices of the options were greater than the average market price of the common shares. These options expire on January 8, 2014. There were no options with exercise prices greater than the average market price of the common shares for the three months ended April 30, 2007. Options to purchase 1,135,400 and 1,468,734 shares of common stock at prices ranging from $6.90 to $7.03 per share and $5.44 to $7.03 per share were outstanding during the three and six months ended April 30, 2006, respectively, 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.

The Company includes Class A and Class B common stock in its diluted shares calculation. As of April 30, 2007, the Company’s Chairman, 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 five operating and reportable segments consisting of a corporate trust management segment and a funeral and cemetery segment for each of two geographic areas: Western and Eastern. The Company does not aggregate its operating segments. Therefore, its operating and reportable segments are the same.

The operating results of the Company’s businesses sold that meet the discontinued operations criteria in SFAS No. 144, “Accounting For Impairment or Disposal of Long-Lived Assets,” are reported in the discontinued operations section of the consolidated statements of earnings (see Note 12). The table below presents information about reported segments for the Company’s continuing operations.


	Funeral Revenue				Cemetery Revenue ⁽¹⁾				Total Revenue
	Three Months		Three Months		Three Months		Three Months		Three Months		Three Months
	Ended		Ended		Ended		Ended		Ended		Ended
	April 30, 2007		April 30, 2006		April 30, 2007		April 30, 2006		April 30, 2007		April 30, 2006
Western Division	$	37,624	$	37,139	$	23,067	$	21,792	$	60,691	$	58,931
Eastern Division		31,227		30,067		38,444		34,557		69,671		64,624
Corporate Trust Management ⁽²⁾		4,988		4,601		2,385		2,642		7,373		7,243

Total	$	73,839	$	71,807	$	63,896	$	58,991	$	137,735	$	130,798


	Funeral Revenue				Cemetery Revenue ⁽¹⁾				Total Revenue
	Six Months		Six Months		Six Months		Six Months		Six Months		Six Months
	Ended		Ended		Ended		Ended		Ended		Ended
	April 30, 2007		April 30, 2006		April 30, 2007		April 30, 2006		April 30, 2007		April 30, 2006
Western Division	$	75,461	$	74,006	$	44,926	$	41,141	$	120,387	$	115,147
Eastern Division		61,708		60,142		74,205		66,982		135,913		127,124
Corporate Trust Management ⁽²⁾		9,332		9,254		4,676		5,249		14,008		14,503

Total	$	146,501	$	143,402	$	123,807	$	113,372	$	270,308	$	256,774

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(9) Segment Data—(Continued)


	Funeral Gross Profit				Cemetery Gross Profit ⁽¹⁾				Total Gross Profit
	Three Months		Three Months		Three Months		Three Months		Three Months		Three Months
	Ended		Ended		Ended		Ended		Ended		Ended
	April 30, 2007		April 30, 2006		April 30, 2007		April 30, 2006		April 30, 2007		April 30, 2006
Western Division	$	7,703	$	8,101	$	4,845	$	4,586	$	12,548	$	12,687
Eastern Division		6,369		5,852		6,737		6,444		13,106		12,296
Corporate Trust Management ⁽²⁾		4,823		4,459		2,239		2,516		7,062		6,975

Total	$	18,895	$	18,412	$	13,821	$	13,546	$	32,716	$	31,958


	Funeral Gross Profit				Cemetery Gross Profit ⁽¹⁾				Total Gross Profit
	Six Months		Six Months		Six Months		Six Months		Six Months		Six Months
	Ended		Ended		Ended		Ended		Ended		Ended
	April 30, 2007		April 30, 2006		April 30, 2007		April 30, 2006		April 30, 2007		April 30, 2006
Western Division	$	16,386	$	15,821	$	8,889	$	8,340	$	25,275	$	24,161
Eastern Division		12,233		11,484		12,840		11,443		25,073		22,927
Corporate Trust Management ⁽²⁾		9,006		8,980		4,386		5,003		13,392		13,983

Total	$	37,625	$	36,285	$	26,115	$	24,786	$	63,740	$	61,071


	Net Preneed Funeral				Net Preneed Cemetery				Net Total Preneed
	Merchandise And				Merchandise and				Merchandise and
	Service Sales ⁽³⁾				Service Sales ⁽³⁾				Service Sales ⁽³⁾
	Three Months		Three Months		Three Months		Three Months		Three Months		Three Months
	Ended		Ended		Ended		Ended		Ended		Ended
	April 30, 2007		April 30, 2006		April 30, 2007		April 30, 2006		April 30, 2007		April 30, 2006
Western Division	$	16,668	$	14,208	$	4,080	$	4,667	$	20,748	$	18,875
Eastern Division		12,462		11,735		9,727		10,556		22,189		22,291

Total	$	29,130	$	25,943	$	13,807	$	15,223	$	42,937	$	41,166


	Net Preneed Funeral				Net Preneed Cemetery				Net Total Preneed
	Merchandise And				Merchandise and				Merchandise and
	Service Sales ⁽³⁾				Service Sales ⁽³⁾				Service Sales ⁽³⁾
	Six Months		Six Months		Six Months		Six Months		Six Months		Six Months
	Ended		Ended		Ended		Ended		Ended		Ended
	April 30, 2007		April 30, 2006		April 30, 2007		April 30, 2006		April 30, 2007		April 30, 2006
Western Division	$	28,770	$	26,564	$	8,109	$	8,472	$	36,879	$	35,036
Eastern Division		22,519		21,309		19,334		20,683		41,853		41,992

Total	$	51,289	$	47,873	$	27,443	$	29,155	$	78,732	$	77,028


⁽¹⁾		Perpetual care trust earnings are included in the revenues and gross profit of the related geographic segment and amounted to $2,487 and $2,326 for the three months ended April 30, 2007 and 2006, respectively, and $4,845 and $4,939 for the six months ended April 30, 2007 and 2006, respectively.

⁽²⁾		Corporate trust management consists of trust management fees and funeral and cemetery merchandise and service trust earnings recognized with respect to preneed contracts delivered during the period. Trust management fees are established by the Company at rates consistent with industry norms and are paid by the trusts to the Company’s subsidiary, Investors Trust, Inc. The trust earnings represent earnings realized over the life of the preneed contracts delivered during the relevant periods. Trust management fees included in funeral revenue for the three months ended April 30, 2007 and 2006 were $1,460 and $1,399, respectively, and funeral trust earnings for the three months ended April 30, 2007 and 2006 were $3,528 and $3,202, respectively. Trust management fees included in cemetery revenue for the three months ended April 30, 2007 and 2006 were

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(9) Segment Data—(Continued)


		$1,323 and $1,221, respectively, and cemetery trust earnings for the three months ended April 30, 2007 and 2006 were $1,062 and $1,421, respectively. Trust management fees included in funeral revenue for the six months ended April 30, 2007 and 2006 were $2,929 and $2,767, respectively, and funeral trust earnings for the six months ended April 30, 2007 and 2006 were $6,403 and $6,487, respectively. Trust management fees included in cemetery revenue for the six months ended April 30, 2007 and 2006 were $2,638 and $2,427, respectively, and cemetery trust earnings for the six months ended April 30, 2007 and 2006 were $2,038 and $2,822, respectively.

⁽³⁾		Preneed sales amounts represent total preneed funeral and cemetery service and merchandise sales generated in the applicable period, net of cancellations. These sales are deferred and are recorded as revenue in the period the services are performed or the merchandise is delivered.

A reconciliation of total segment gross profit to total earnings from continuing operations before income taxes for the three and six months ended April 30, 2007 and 2006 is as follows:


	Three Months Ended April 30,						Six Months Ended April 30,
	2007			2006			2007			2006
Gross profit for reportable segments	$	32,716		$	31,958		$	63,740		$	61,071
Corporate general and administrative expenses		(7,744	)		(7,256	)		(14,786	)		(14,475	)
Hurricane related recoveries (charges), net		(283	)		558			(2,133	)		(2,080	)
Separation charges		(47	)		(122	)		(532	)		(276	)
Gains on dispositions and impairment (losses), net		(8	)		159			90			159
Other operating income, net		883			36			1,151			1,012
Interest expense		(6,295	)		(7,681	)		(13,052	)		(15,209	)
Investment and other income, net		567			652			1,617			1,120

Earnings from continuing operations before income taxes	$	19,789		$	18,304		$	36,095		$	31,322

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 six months ended April 30, 2007 and 2006.


	Three Months Ended April 30,				Six Months Ended April 30,
	2007		2006		2007		2006
Service revenue
Funeral	$	44,872	$	41,312	$	89,010	$	82,323
Cemetery		16,858		15,793		32,427		31,498

		61,730		57,105		121,437		113,821

Merchandise revenue
Funeral		26,866		28,450		53,300		56,997
Cemetery		42,974		39,122		83,199		73,805

		69,840		67,572		136,499		130,802

Other revenue
Funeral		2,101		2,045		4,191		4,082
Cemetery		4,064		4,076		8,181		8,069

		6,165		6,121		12,372		12,151


Total revenue	$	137,735	$	130,798	$	270,308	$	256,774


Service costs
Funeral	$	14,745	$	13,774	$	29,198	$	26,991
Cemetery		10,815		10,334		21,121		20,083

		25,560		24,108		50,319		47,074

Merchandise costs
Funeral		17,108		17,049		32,544		34,034
Cemetery		25,460		22,908		49,223		43,381

		42,568		39,957		81,767		77,415

General and administrative expenses
Funeral		23,091		22,572		47,134		46,092
Cemetery		13,800		12,203		27,348		25,122

		36,891		34,775		74,482		71,214


Total costs	$	105,019	$	98,840	$	206,568	$	195,703

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 delivery 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.

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

The following tables present the condensed consolidating historical financial statements as of April 30, 2007 and October 31, 2006 and for the three and six months ended April 30, 2007 and 2006, for the direct and indirect domestic subsidiaries of the Company that serve as guarantors of 6.25 percent senior notes, and the financial results of the Company’s subsidiaries that do not serve as guarantors. Non-guarantor subsidiaries include the Puerto Rican subsidiaries, Investors Trust, Inc. and certain immaterial domestic subsidiaries, which are prohibited by law from guaranteeing the senior notes. The guarantees are full and unconditional and joint and several. The guarantor subsidiaries are wholly-owned directly or indirectly by the Company, except for three immaterial guarantor subsidiaries of which the Company is the majority owner.

Condensed Consolidating Statements of Earnings and Other Comprehensive Income


	Three Months Ended April 30, 2007
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenues:
Funeral	$	—		$	68,684		$	5,155		$	—		$	73,839
Cemetery		—			58,327			5,569			—			63,896

		—			127,011			10,724			—			137,735

Costs and expenses:
Funeral		—			51,868			3,076			—			54,944
Cemetery		—			46,354			3,721			—			50,075

		—			98,222			6,797			—			105,019

Gross profit		—			28,789			3,927			—			32,716
Corporate general and administrative expenses		(7,744	)		—			—			—			(7,744	)
Hurricane related charges, net		—			(283	)		—			—			(283	)
Separation charges		—			(47	)		—			—			(47	)
Gains on dispositions and impairment (losses), net		—			(8	)		—			—			(8	)
Other operating income, net		247			571			65			—			883

Operating earnings (loss)		(7,497	)		29,022			3,992			—			25,517
Interest expense		(1,824	)		(3,937	)		(534	)		—			(6,295	)
Investment and other income, net		550			13			4			—			567
Equity in subsidiaries		21,440			133			—			(21,573	)		—

Earnings from continuing operations before income taxes		12,669			25,231			3,462			(21,573	)		19,789
Income tax expense (benefit)		(960	)		6,061			910			—			6,011

Earnings from continuing operations		13,629			19,170			2,552			(21,573	)		13,778
Discontinued operations:
Loss from discontinued operations before income taxes		—			(281	)		—			—			(281	)
Income tax benefit		—			(132	)		—			—			(132	)

Loss from discontinued operations		—			(149	)		—			—			(149	)

Net earnings		13,629			19,021			2,552			(21,573	)		13,629
Other comprehensive income (loss), net		(130	)		—			5			(5	)		(130	)

Comprehensive income	$	13,499		$	19,021		$	2,557		$	(21,578	)	$	13,499

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—(Continued)

Condensed Consolidating Statements of Earnings and Other Comprehensive Income


	Three Months Ended April 30, 2006
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries		Eliminations			Consolidated
Revenues:
Funeral	$	—		$	66,850		$	4,957	$	—		$	71,807
Cemetery		—			53,796			5,195		—			58,991

		—			120,646			10,152		—			130,798

Costs and expenses:
Funeral		—			50,443			2,952		—			53,395
Cemetery		—			41,962			3,483		—			45,445

		—			92,405			6,435		—			98,840

Gross profit		—			28,241			3,717		—			31,958
Corporate general and administrative expenses		(7,256	)		—			—		—			(7,256	)
Hurricane related recoveries (charges), net		(135	)		693			—		—			558
Separation charges		(78	)		(44	)		—		—			(122	)
Gains on dispositions and impairment (losses), net		—			63			96		—			159
Other operating income (expense), net		21			(54	)		69		—			36

Operating earnings (loss)		(7,448	)		28,899			3,882		—			25,333
Interest income (expense)		3,420			(11,900	)		799		—			(7,681	)
Investment and other income, net		652			—			—		—			652
Equity in subsidiaries		12,305			186			—		(12,491	)		—

Earnings from continuing operations before income taxes		8,929			17,185			4,681		(12,491	)		18,304
Income tax expense (benefit)		(2,518	)		7,511			1,908		—			6,901

Earnings from continuing operations		11,447			9,674			2,773		(12,491	)		11,403

Discontinued operations:
Earnings (loss) from discontinued operations before income taxes		—			(34	)		42		—			8
Income tax benefit		—			(36	)		—		—			(36	)

Earnings from discontinued operations		—			2			42		—			44

Net earnings		11,447			9,676			2,815		(12,491	)		11,447
Other comprehensive loss, net		—			—			—		—			—

Comprehensive income	$	11,447		$	9,676		$	2,815	$	(12,491	)	$	11,447

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—(Continued)

Condensed Consolidating Statements of Earnings and Other Comprehensive Income


	Six Months Ended April 30, 2007
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenues:
Funeral	$	—		$	136,338		$	10,163		$	—		$	146,501
Cemetery		—			112,825			10,982			—			123,807

		—			249,163			21,145			—			270,308

Costs and expenses:
Funeral		—			102,618			6,258			—			108,876
Cemetery		—			89,709			7,983			—			97,692

		—			192,327			14,241			—			206,568

Gross profit		—			56,836			6,904			—			63,740
Corporate general and administrative expenses		(14,786	)		—			—			—			(14,786	)
Hurricane related charges, net		(3	)		(2,130	)		—			—			(2,133	)
Separation charges		(384	)		(148	)		—			—			(532	)
Gains on dispositions and impairment (losses), net		—			90			—			—			90
Other operating income, net		277			736			138			—			1,151

Operating earnings (loss)		(14,896	)		55,384			7,042			—			47,530
Interest expense		(3,581	)		(8,385	)		(1,086	)		—			(13,052	)
Investment and other income, net		1,586			26			5			—			1,617
Equity in subsidiaries		40,416			270			—			(40,686	)		—

Earnings from continuing operations before income taxes		23,525			47,295			5,961			(40,686	)		36,095
Income tax expense (benefit)		(2,030	)		10,389			1,967			—			10,326

Earnings from continuing operations		25,555			36,906			3,994			(40,686	)		25,769

Discontinued operations:
Loss from discontinued operations before income taxes		—			(349	)		—			—			(349	)
Income tax benefit		—			(135	)		—			—			(135	)

Loss from discontinued operations		—			(214	)		—			—			(214	)

Net earnings		25,555			36,692			3,994			(40,686	)		25,555
Other comprehensive income, net		3			—			3			(3	)		3

Comprehensive income	$	25,558		$	36,692		$	3,997		$	(40,689	)	$	25,558

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—(Continued)

Condensed Consolidating Statements of Earnings and Other Comprehensive Income


	Six Months Ended April 30, 2006
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenues:
Funeral	$	—		$	133,586		$	9,816		$	—		$	143,402
Cemetery		—			103,820			9,552			—			113,372

		—			237,406			19,368			—			256,774


Costs and expenses:
Funeral		—			101,053			6,064			—			107,117
Cemetery		—			81,640			6,946			—			88,586

		—			182,693			13,010			—			195,703

Gross profit		—			54,713			6,358			—			61,071
Corporate general and administrative expenses		(14,475	)		—			—			—			(14,475	)
Hurricane related charges, net		(135	)		(1,945	)		—			—			(2,080	)
Separation charges		(202	)		(74	)		—			—			(276	)
Gains on dispositions and impairment (losses), net		—			63			96			—			159
Other operating income, net		37			863			112			—			1,012

Operating earnings (loss)		(14,775	)		53,620			6,566			—			45,411
Interest income (expense)		13,155			(27,486	)		(878	)		—			(15,209	)
Investment and other income, net		1,120			—			—			—			1,120
Equity in subsidiaries		18,950			294			—			(19,244	)		—

Earnings from continuing operations before income taxes		18,450			26,428			5,688			(19,244	)		31,322
Income tax expense (benefit)		(1,386	)		10,905			2,289			—			11,808

Earnings from continuing operations		19,836			15,523			3,399			(19,244	)		19,514
Discontinued operations:
Earnings (loss) from discontinued operations before income taxes		—			(62	)		336			—			274
Income tax benefit		—			(48	)		—			—			(48	)

Earnings (loss) from discontinued operations		—			(14	)		336			—			322

Net earnings		19,836			15,509			3,735			(19,244	)		19,836
Other comprehensive loss, net		(2	)		—			(2	)		2			(2	)

Comprehensive income	$	19,834		$	15,509		$	3,733		$	(19,242	)	$	19,834

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—(Continued)

Condensed Consolidating Balance Sheets


	April 30, 2007
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	44,163		$	1,240		$	1,142	$	—		$	46,545
Marketable securities		—			—			385		—			385
Receivables, net of allowances		3,704			49,323			4,433		—			57,460
Inventories		324			32,400			2,774		—			35,498
Prepaid expenses		910			8,450			1,397		—			10,757
Deferred income taxes, net		2,634			5,697			—		—			8,331

Total current assets		51,735			97,110			10,131		—			158,976
Receivables due beyond one year, net of allowances		10,358			48,366			18,223		—			76,947
Preneed funeral receivables and trust investments		—			519,263			10,965		—			530,228
Preneed cemetery receivables and trust investments		—			250,865			12,821		—			263,686
Goodwill		—			255,074			19,787		—			274,861
Cemetery property, at cost		—			346,500			24,607		—			371,107
Property and equipment, at cost		39,752			421,777			36,323		—			497,852
Less accumulated depreciation		24,045			165,818			12,109		—			201,972

Net property and equipment		15,707			255,959			24,214		—			295,880
Deferred income taxes, net		4,533			161,245			13,516		—			179,294
Cemetery perpetual care trust investments		—			237,598			—		—			237,598
Other assets		4,785			8,441			1,100		—			14,326
Equity in subsidiaries		12,278			6,214			—		(18,492	)		—

Total assets	$	99,396		$	2,186,635		$	135,364	$	(18,492	)	$	2,402,903


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	2,527		$	—		$	—	$	—		$	2,527
Accounts payable		493			14,346			1,206		—			16,045
Accrued expenses and other current liabilities		15,658			39,958			3,951		—			59,567

Total current liabilities		18,678			54,304			5,157		—			78,139
Long-term debt, less current maturities		330,771			—			30,000		—			360,771
Intercompany payables, net		(893,138	)		889,309			3,829		—			—
Deferred preneed funeral revenue		—			222,531			47,962		—			270,493
Deferred preneed cemetery revenue		—			260,458			29,924		—			290,382
Non-controlling interest in funeral and cemetery trusts		—			681,294			—		—			681,294
Other long-term liabilities		11,580			2,127			—		—			13,707
Negative equity in subsidiaries		160,055			—			—		(160,055	)		—

Total liabilities		(372,054	)		2,110,023			116,872		(160,055	)		1,694,786

Non-controlling interest in perpetual care trusts		—			236,667			—		—			236,667

Common stock		105,851			426			52		(478	)		105,851
Other		365,599			(160,481	)		18,440		142,041			365,599
Accumulated other comprehensive income (loss)		—			—			—		—			—

Total shareholders’ equity		471,450			(160,055	)		18,492		141,563			471,450

Total liabilities and shareholders’ equity	$	99,396		$	2,186,635		$	135,364	$	(18,492	)	$	2,402,903

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—(Continued)

Condensed Consolidating Balance Sheets


	October 31, 2006
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	39,120		$	3,291		$	1,459		$	—		$	43,870
Marketable securities		—			—			239			—			239
Receivables, net of allowances		9,875			58,942			3,682			—			72,499
Inventories		316			33,190			2,852			—			36,358
Prepaid expenses		539			3,598			2,291			—			6,428
Deferred income taxes, net		3,835			6,667			—			—			10,502
Assets held for sale		—			2,509			—			—			2,509

Total current assets		53,685			108,197			10,523			—			172,405
Receivables due beyond one year, net of allowances		9,139			47,035			19,176			—			75,350
Preneed funeral receivables and trust investments		—			506,440			11,193			—			517,633
Preneed cemetery receivables and trust investments		—			244,656			13,464			—			258,120
Goodwill		—			253,189			19,787			—			272,976
Cemetery property, at cost		—			346,559			24,512			—			371,071
Property and equipment, at cost		37,126			411,002			36,690			—			484,818
Less accumulated depreciation		21,278			156,354			12,277			—			189,909

Net property and equipment		15,848			254,648			24,413			—			294,909
Deferred income taxes, net		6,124			154,204			13,658			—			173,986
Cemetery perpetual care trust investments		—			230,487			—			—			230,487
Other assets		5,312			7,228			1,100			—			13,640
Equity in subsidiaries		8,551			5,944			—			(14,495	)		—

Total assets	$	98,659		$	2,158,587		$	137,826		$	(14,495	)	$	2,380,577


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	2,839		$	—		$	—		$	—		$	2,839
Accounts payable		1,540			16,579			1,256			—			19,375
Accrued expenses and other current liabilities		15,197			48,602			3,023			—			66,822
Liabilities associated with assets held for sale		—			942			—			—			942

Total current liabilities		19,576			66,123			4,279			—			89,978
Long-term debt, less current maturities		344,020			—			30,000			—			374,020
Intercompany payables, net		(925,163	)		914,429			10,734			—			—
Deferred preneed funeral revenue		—			227,306			47,394			—			274,700
Deferred preneed cemetery revenue		—			265,065			30,924			—			295,989
Non-controlling interest in funeral and cemetery trusts		—			657,607			—			—			657,607
Other long-term liabilities		10,386			2,024			—			—			12,410
Negative equity in subsidiaries		202,947			—			—			(202,947	)		—

Total liabilities		(348,234	)		2,132,554			123,331			(202,947	)		1,704,704

Non-controlling interest in perpetual care trusts		—			228,980			—			—			228,980

Common stock		104,963			426			52			(478	)		104,963
Other		341,933			(203,373	)		14,446			188,927			341,933
Accumulated other comprehensive loss		(3	)		—			(3	)		3			(3	)

Total shareholders’ equity		446,893			(202,947	)		14,495			188,452			446,893

Total liabilities and shareholders’ equity	$	98,659		$	2,158,587		$	137,826		$	(14,495	)	$	2,380,577

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—(Continued)

Condensed Consolidating Statements of Cash Flows


	Six Months Ended April 30, 2007
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations		Consolidated

Net cash provided by (used in) operating activities	$	(719	)	$	25,990		$	7,260		$	—	$	32,531

Cash flows from investing activities:
Proceeds from sale of assets, net		—			1,635			—			—		1,635
Purchases of subsidiaries, net of cash acquired		—			(2,805	)		—			—		(2,805	)
Insurance proceeds related to hurricane damaged properties		—			1,400			—			—		1,400
Additions to property and equipment		(3,688	)		(9,386	)		(531	)		—		(13,605	)
Other		—			35			(141	)		—		(106	)

Net cash used in investing activities		(3,688	)		(9,121	)		(672	)		—		(13,481	)

Cash flows from financing activities:
Repayments of long-term debt		(13,561	)		—			—			—		(13,561	)
Intercompany receivables (payables)		25,825			(18,920	)		(6,905	)		—		—
Issuance of common stock		2,414			—			—			—		2,414
Dividends		(5,265	)		—			—			—		(5,265	)
Excess tax benefits from share- based payment arrangements		37			—			—			—		37

Net cash provided by (used in) financing activities		9,450			(18,920	)		(6,905	)		—		(16,375	)

Net increase (decrease) in cash		5,043			(2,051	)		(317	)		—		2,675
Cash and cash equivalents, beginning of period		39,120			3,291			1,459			—		43,870

Cash and cash equivalents, end of period	$	44,163		$	1,240		$	1,142		$	—	$	46,545

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—(Continued)

Condensed Consolidating Statements of Cash Flows


	Six Months Ended April 30, 2006
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations		Consolidated
Net cash provided by operating activities	$	15,349		$	30,631		$	5,077		$	—	$	51,057

Cash flows from investing activities:
Proceeds from sale of assets, net		—			19			732			—		751
Insurance proceeds related to hurricane damaged properties		—			5,300			—			—		5,300
Additions to property and equipment		(1,278	)		(8,417	)		(254	)		—		(9,949	)
Other		—			37			(18	)		—		19

Net cash provided by (used in) investing activities		(1,278	)		(3,061	)		460			—		(3,879	)

Cash flows from financing activities:
Repayments of long-term debt		(31,650	)		—			—			—		(31,650	)
Intercompany receivables (payables)		26,046			(20,692	)		(5,354	)		—		—
Purchase and retirement of common stock		(8,141	)		—			—			—		(8,141	)
Dividends		(5,405	)		—			—			—		(5,405	)
Other		61			—			—			—		61

Net cash used in financing activities		(19,089	)		(20,692	)		(5,354	)		—		(45,135	)

Net increase (decrease) in cash		(5,018	)		6,878			183			—		2,043
Cash and cash equivalents, beginning of period		38,675			874			1,056			—		40,605

Cash and cash equivalents, end of period	$	33,657		$	7,752		$	1,239		$	—	$	42,648

(12)

Discontinued Operations and Acquisitions

The Company recorded net gains on dispositions and impairment (losses) of ($8) and $159 for the three months ended April 30, 2007 and 2006, respectively, and $90 and $159 for the six months ended April 30, 2007 and 2006, respectively in continuing operations related to real estate. The Company also recorded net gains on dispositions and impairment (losses) related to discontinued operations of ($273) and $106 for the three months ended April 30, 2007 and 2006, respectively, and ($355) and $404 for the six months ended April 30, 2007 and 2006, respectively, which is reflected in the discontinued operations section of the condensed consolidated statement of earnings, all of which relates to businesses sold. The Company sold three facilities in the first half of fiscal year 2007, and its assets and liabilities were reclassified from their respective lines in the October 31, 2006 balance sheet and included in the “assets held for sale” and “liabilities associated with assets held for sale” line items.

A summary of the assets and liabilities included in the “assets held for sale” and “liabilities associated with assets held for sale” line items at October 31, 2006 and the operating results of the discontinued operations for the three and six months ended April 30, 2007 and 2006, respectively, are as follows:

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(12)

Discontinued Operations and Acquisitions—(Continued)


	October 31, 2006

Assets

Receivables, net of allowances	$	30
Inventories and other current assets		31
Net property and equipment		999
Preneed funeral receivables and trust investments		782
Preneed cemetery receivables and trust investments		92
Other assets		416
Cemetery property		159

Assets held for sale	$	2,509


Liabilities

Deferred preneed funeral revenue	$	14
Deferred preneed cemetery revenue		86
Non-controlling interest in funeral and cemetery trusts		842

Liabilities associated with assets held for sale	$	942


	Three Months Ended						Six Months Ended
	April 30,						April 30,
	2007			2006			2007			2006

Revenue:
Funeral	$	37		$	202		$	117		$	395
Cemetery		44			19			94			104

		81			221			211			499

Gross profit:
Funeral		(28	)		(53	)		(34	)		(108	)
Cemetery		20			(45	)		40			(22	)

		(8	)		(98	)		6			(130	)

Gains on dispositions and impairment (losses), net		(273	)		106			(355	)		404

Earnings (loss) from discontinued operations before income taxes	$	(281	)	$	8		$	(349	)	$	274

Acquisitions

On December 12, 2006, the Company acquired a new funeral home in the Eastern Division’s Southern Region for approximately $2,800. This funeral home serves approximately 250 families per year and is located in Florida. This acquisition has been accounted for under the purchase method, and the acquired assets and liabilities have been valued at their estimated fair values. Its results of operations have been included since the acquisition date. The excess purchase price over the fair value of net assets acquired was allocated to goodwill, which amounted to approximately $1,885.

(13)

Separation Charges

The Company recorded $350 for separation pay in the first half of 2007 related to the retirement of a former executive officer, but will make the payments over a two-year period in accordance with the terms of the retirement agreement. The Company also recorded approximately $147 in the first half of 2007 compared to $276 in the first half of 2006 related to the reorganization of its divisions during fiscal year 2005. The remaining costs related to the

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

(13)

Separation Charges—(Continued)

reorganization are the result of a lease agreement for which the Company is committed through 2009. The Company is in the process of negotiating a sublease of this property.

(14)

Consolidated Comprehensive Income

Consolidated comprehensive income for the three and six months ended April 30, 2007 and 2006 is as follows:


	Three Months Ended						Six Months Ended
	April 30,						April 30,
	2007			2006			2007			2006
Net earnings	$	13,629		$	11,447		$	25,555		$	19,836
Other comprehensive income (loss):
Unrealized appreciation (depreciation) of investments, net of deferred tax (expense) benefit of $79, ($2) and $1, respectively		(130	)		—			3			(2	)
(Increase) reduction in net unrealized losses associated with available-for-sale securities of the trusts		415			(6,767	)		57,320			22,331
Reclassification of the net unrealized losses activity attributable to the non-controlling interest holders		(415	)		6,767			(57,320	)		(22,331	)

Total other comprehensive income (loss)		(130	)		—			3			(2	)

Total comprehensive income	$	13,499		$	11,447		$	25,558		$	19,834

(15)

Hurricane Related Charges

The Company has insurance coverage related to property damage, incremental costs and property operating expenses it incurred due to damage caused by Hurricane Katrina. The insurance policies also provide coverage for interruption to the business, including lost profits, and reimbursement for other expenses and costs incurred relating to the damages and losses suffered. As of April 30, 2007, the Company had incurred approximately $33,358 (of which $31,225 was incurred as of October 31, 2006) in total expenses related to Hurricane Katrina including the write-off of damaged buildings, equipment and inventory, demolition costs, debris removal, record restoration, general cleanup, temporary living facilities for employees, relocation expenses and other costs. The Company is expensing non-capitalizable costs related to Hurricane Katrina as incurred. As of April 30, 2007, the Company has recorded insurance proceeds of $23,562 and business interruption insurance proceeds of $3,169, all of which were recorded as of October 31, 2006, and no additional insurance proceeds were recorded in the first six months of 2007. The Company received $10,000 in hurricane related insurance proceeds during the first quarter of fiscal year 2007, all of which was recorded in current receivables as of October 31, 2006. Net expenses of $283 are reflected in the “Hurricane related recoveries (charges), net” line item in the condensed consolidated statement of earnings for the three months ended April 30, 2007 compared to net recoveries of $558 for the same period in 2006. For the six months ended April 30, 2007 and 2006, the Company recorded net expenses of $2,133 and $2,080, respectively. For additional information on the effects of Hurricane Katrina on the Company, see Note 22 to the consolidated financial statements in the Company’s 2006 Form 10-K.

(16)

Income Taxes

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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

At October 31, 2006, the Company had $10,647 of a capital loss carryforward that was set to expire by the end of fiscal year 2007. A valuation allowance of $3,393 was established due to the uncertainty of future capital gains. The Company generated $10,737 of capital gains in the first six months of fiscal year 2007. Therefore, the Company was able to utilize the entire net capital loss carryforward due to expire at the end of fiscal year 2007 and accordingly reduced the valuation allowance for the capital loss carryforward to zero. As a result of this reduction, the Company recognized a tax benefit of $1,527 and $3,393 for the three and six months ended April 30, 2007, respectively.

(17)

Subsequent Events

In May 2007, the Company acquired a funeral home for approximately $2,398 to expand its business in North Carolina.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are the second largest provider of funeral and cemetery products and services in the death care industry in the United States. As of May 31, 2007, we owned and operated 226 funeral homes and 142 cemeteries in 25 states within the United States and Puerto Rico.

We sell cemetery property and funeral 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 and finance charges. For a more detailed discussion of our accounting for preneed sales and trust and escrow account earnings, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 in our Annual Report on Form 10-K for the fiscal year ended October 31, 2006 (the “2006 Form 10-K”).

For the second quarter of fiscal year 2007, net earnings increased $2.3 million to $13.7 million from $11.4 million for the second quarter of fiscal year 2006. Earnings from continuing operations for the quarter increased $2.4 million to $13.8 million from $11.4 million for the corresponding period in the prior year.

Revenues increased $6.9 million to $137.7 million for the quarter ended April 30, 2007. Funeral revenue increased $2.0 million, due primarily to a 4.1 percent increase in same-store average revenue per funeral service and increased insurance commission revenue, partially offset by a 1.7 percent decrease in funeral calls. Cemetery revenue increased $4.9 million due primarily to an increase in revenue related to various construction projects and increased gross cemetery property sales, partially offset by decreased merchandise delivery revenue. Consolidated gross profit increased $0.8 million due to a $0.5 million increase in funeral gross profit and a $0.3 million increase in cemetery gross profit, due primarily to the increases in funeral and cemetery revenue discussed above.

Corporate general and administrative expenses increased $0.5 million. We recorded a $0.3 million charge related to Hurricane Katrina in the second quarter of fiscal year 2007 compared to a $0.5 million recovery for the same period in 2006. Interest expense for the quarter-to-date period decreased $1.4 million to $6.3 million for the second quarter of 2007 due to a $29.3 million decrease in average debt outstanding and a 61 basis point decrease in the average rate during the quarter. The decline in the average rate is due primarily to additional interest incurred in the second quarter of 2006 on our 6.25 percent senior notes as a result of our inability to timely complete a required exchange offer. The exchange offer was completed in June 2006. We also recognized a $1.5 million tax benefit due to the utilization of a capital loss carryforward.

For the second quarter of fiscal year 2007, we had a 12.3 percent increase in preneed funeral sales and a 4.7 percent increase in gross cemetery property sales compared to the same period last year.

For the six months ended April 30, 2007, net earnings increased $5.8 million to $25.6 million from $19.8 million for the same period of fiscal year 2006. Earnings from continuing operations for the six month period increased $6.3 million to $25.8 million from $19.5 million for the corresponding period in the prior year.

Revenues increased $13.5 million to $270.3 million for the six months ended April 30, 2007. Funeral revenue increased $3.1 million, due primarily to a 4.9 percent increase in same-store average revenue per funeral service and increased insurance commission revenue, partially offset by a 3.6 percent decrease in funeral calls. Cemetery revenue increased $10.4 million due primarily to an increase in revenue related to various construction projects and increased gross cemetery property sales, partially offset by decreased merchandise delivery revenue. Consolidated gross profit increased $2.6 million due to a $1.3 million increase in funeral gross profit and a $1.3 million increase in cemetery gross profit, due primarily to the increases in funeral and cemetery revenue discussed above.

Corporate general and administrative expenses increased $0.3 million. We recorded a $2.1 million charge related to Hurricane Katrina in the first half of fiscal year 2007 and 2006. Interest expense decreased $2.1 million to $13.1 million for the six months ended April 30, 2007 due to a $31.3 million decrease in average debt outstanding and a 30 basis point decrease in the average rate during the period due to penalty interest in 2006. We also recognized a $3.4 million tax benefit due to the utilization of a capital loss carryforward.

For the first half of fiscal year 2007, we had a 7.1 percent increase in preneed funeral sales and a 10.0 percent increase in gross cemetery property sales compared to the same period last year.

Cash flow from operations decreased from $51.1 million for the six months ended April 30, 2006 to $32.5 million for the six months ended April 30, 2007 due primarily to $11.1 million of trust withdrawals associated with the deferred revenue project in the first half of 2006, increased customer collections following Hurricane Katrina in the first half of 2006 and an increase in annual property and casualty insurance premiums and income taxes paid in the first half of 2007. The overall decrease was offset by $1.7 million of cash inflows in excess of expenditures related to Hurricane Katrina in the first half of 2007 compared to $1.1 million of cash outflows for the same period in 2006.

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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2006 Form 10-K. There have been no changes to our critical accounting policies since the filing of our 2006 Form 10-K.

Results of Operations

The following discussion segregates the financial results of our continuing operations into our various segments, grouped by our funeral and cemetery operations. For a discussion of discontinued operations, see Note 12 to the condensed consolidated financial statements included herein. For a discussion of our segments, see Note 9 to the condensed consolidated financial statements included herein. As there have been no material acquisitions or construction of new locations in fiscal years 2007 and 2006, results from continuing operations essentially reflect those of same-store locations.

Three Months Ended April 30, 2007 Compared to Three Months Ended April 30, 2006—Continuing Operations

Funeral Operations


	Three Months Ended April 30,
					Increase
	2007		2006		(Decrease)
			(In millions)

Funeral Revenue:
Eastern Division	$	31.2	$	30.1	$	1.1
Western Division		37.6		37.1		.5
Corporate Trust Management ⁽¹⁾		5.0		4.6		.4

Total Funeral Revenue	$	73.8	$	71.8	$	2.0


Funeral Costs:
Eastern Division	$	24.8	$	24.2	$	.6
Western Division		29.9		29.0		.9
Corporate Trust Management ⁽¹⁾		.2		.2		—

Total Funeral Costs	$	54.9	$	53.4	$	1.5


Funeral Gross Profit:
Eastern Division	$	6.4	$	5.9	$	.5
Western Division		7.7		8.1		(.4	)
Corporate Trust Management ⁽¹⁾		4.8		4.4		.4

Total Funeral Gross Profit	$	18.9	$	18.4	$	.5

Same-Store Analysis


	Change in Average			Change in Same-Store			Cremation Rate
	Revenue Per Call			Funeral Services			2007			2006
Eastern Division		3.5	%		.3	%		34.7	%		33.4	%
Western Division		3.5	%		(3.1	%)		42.3	%		42.2	%
Total		4.1	% ⁽¹⁾		(1.7	%)		39.0	%		38.5	%


⁽¹⁾		Corporate trust management consists of trust management fees and funeral merchandise and service trust earnings recognized with respect to preneed contracts delivered during the period. Trust management fees are established by the Company at rates consistent with industry norms and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the earnings realized over the life of the contract for those preneed contracts 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 April 30, 2007 and 2006 were $1.5 million and $1.4 million, respectively. As corporate trust management is considered a separate operating segment, trust earnings are included in the total average revenue per call presented, not in the Eastern or Western divisions’ average revenue per call. Funeral trust earnings for the three months ended April 30, 2007 and 2006 were $3.5 million and $3.2 million, respectively.

Consolidated Operations — Funeral

Funeral revenue from continuing operations increased $2.0 million, or 2.8 percent, for the three months ended April 30, 2007, compared to the corresponding period in 2006. Our same-store businesses had a 3.9 percent increase in the average revenue per traditional funeral service and an 8.2 percent increase in the average revenue per cremation service. The increases in the average revenue per traditional and cremation funeral services were in part due to the implementation of new funeral package pricing, which provides value to our families by simplifying the selection process while enhancing the services we provide. These increases along with a quarter-over-quarter increase in funeral trust earnings resulted in an overall increase of 4.1 percent in the average revenue per funeral service for our same-store businesses. The increase in funeral revenue for the period is also due to a $1.0 million

increase in insurance commission revenue. We sell preneed products and services through both trust-funded and third-party insurance-funded arrangements, and earn a commission on the preneed insurance sales. Preneed funeral insurance sales increased 19.6 percent for the period. We experienced a 1.7 percent decrease in the number of same-store funeral services performed, or 262 events, to 15,475 total same-store funeral services performed.

Funeral gross profit increased $0.5 million to $18.9 million for the second quarter ended April 30, 2007 due to the increases in revenue discussed above. Funeral gross profit margin from continuing operations was 25.6 percent for the second quarters of fiscal year 2007 and 2006. The cremation rate for our same-store operations was 39.0 percent for the three months ended April 30, 2007 compared to 38.5 percent for the corresponding period in 2006.

Segment Discussion — Funeral

Funeral revenue in the Eastern division funeral segment increased primarily due to an increase in the average revenue per funeral service in same-store businesses of 3.5 percent and an increase in the number of funeral services performed by same-store businesses of 0.3 percent. Funeral revenue in the Western division funeral segment increased primarily due to an increase in the average revenue per funeral service in same-store businesses of 3.5 percent and an increase in insurance commission revenue, partially offset by a decrease in the number of funeral services performed by same-store businesses of 3.1 percent. Funeral revenue in the corporate trust management segment increased primarily due to a $0.3 million increase in funeral trust earnings and a $0.1 million increase in trust management fees.

Funeral gross profit margin for the Eastern division funeral segment increased primarily due to the increase in funeral service revenue as discussed above. Funeral gross profit margin for the Western division funeral segment decreased primarily due to the decrease in the number of funeral services performed discussed above and an increase in preneed selling costs. As demonstrated in the table above, the same-store cremation rate increased for the Eastern and Western division funeral segments.

Cemetery Operations


	Three Months Ended April 30,
					Increase
	2007		2006		(Decrease)
			(In millions)

Cemetery Revenue:
Eastern Division	$	38.4	$	34.5	$	3.9
Western Division		23.0		21.8		1.2
Corporate Trust Management ⁽¹⁾		2.4		2.6		(.2	)

Total Cemetery Revenue	$	63.8	$	58.9	$	4.9


Cemetery Costs:
Eastern Division	$	31.7	$	28.1	$	3.6
Western Division		18.2		17.2		1.0
Corporate Trust Management ⁽¹⁾		.1		.1		—

Total Cemetery Costs	$	50.0	$	45.4	$	4.6


Cemetery Gross Profit:
Eastern Division	$	6.7	$	6.4	$	.3
Western Division		4.8		4.6		.2
Corporate Trust Management ⁽¹⁾		2.3		2.5		(.2	)

Total Cemetery Gross Profit	$	13.8	$	13.5	$	.3


⁽¹⁾		Corporate trust management consists of trust management fees and cemetery merchandise and service trust earnings recognized with respect to preneed contracts delivered during the period. Trust management fees are established by the Company at rates consistent with industry norms and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the earnings realized over the life of the contract for those


		preneed contracts 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 April 30, 2007 and 2006 were $1.3 million and $1.2 million, respectively, and cemetery trust earnings for the three months ended April 30, 2007 and 2006 were $1.1 million and $1.4 million, respectively. Perpetual care trust earnings are included in the revenues and gross profit of the related geographic segment.

Consolidated Operations — Cemetery

Cemetery revenue from continuing operations increased $4.9 million, or 8.3 percent, for the three months ended April 30, 2007, compared to the corresponding period in 2006, primarily due to an increase in construction during the quarter on various cemetery projects and a 4.7 percent increase in gross cemetery property sales, partially offset by a decrease in merchandise delivery revenue. Gross cemetery property sales increased from $26.2 million in the second quarter of 2006 to $27.4 million in the second quarter of 2007. The increase in cemetery property sales was due in part to serving customers interested in large cemetery property purchases. Gross cemetery property sales represent the aggregate contract price of cemetery property sale contracts entered into during the period. Revenue related to the sale of cemetery property prior to its construction is recognized on a percentage of completion method of accounting as construction occurs.

We experienced an annualized average return, excluding unrealized gains and losses, of 4.4 percent in our perpetual care trusts for the quarter ended April 30, 2007 resulting in revenue of $2.5 million, compared to 4.4 percent for the corresponding period in 2006 resulting in revenue of $2.3 million.

Cemetery gross profit increased $0.3 million from $13.5 million in the second quarter of 2006 to $13.8 million in the second quarter of 2007, due to the increases in revenues discussed above. Cemetery gross profit margin from continuing operations decreased from 22.9 percent in the second quarter of fiscal year 2006 to 21.6 percent in the second quarter of fiscal year 2007. The decrease is due primarily to increased merchandise costs and decreased merchandise delivery revenue.

Segment Discussion — Cemetery

Cemetery revenue in the Eastern division segment increased $3.9 million primarily due to an increase in construction during the quarter on various cemetery development projects, offset by decreased merchandise delivery revenue. Cemetery revenue in the Western division segment increased $1.2 million primarily due to an increase in revenue from the sale of cemetery property and an increase in perpetual care trust earnings, offset by a decrease in construction during the quarter on various cemetery development projects. Revenue related to the sale of cemetery property prior to its construction is recognized on a percentage of completion method of accounting as construction occurs. Cemetery revenue in the corporate trust management segment decreased primarily due to a $0.3 million decrease in cemetery trust earnings.

Cemetery gross profit margin for the Eastern division cemetery segment decreased due to decreased merchandise delivery revenue and increased merchandise costs. The cemetery gross profit margin for the Western division cemetery segment decreased primarily due to increased property and preneed merchandise selling costs.

Discontinued Operations

The operating results of those businesses sold in fiscal years 2007 and 2006 are reported in the discontinued operations section of the condensed consolidated statements of earnings. There were two businesses sold in the second quarter of 2007. Revenues for the three months ended April 30, 2007 were less than $0.1 million compared to revenues of $0.2 million for the corresponding period in 2006.

Other

The effective tax rate for our continuing operations for the three months ended April 30, 2007 was 30.4 percent compared to 37.7 percent for the same period in 2006. The reduced rate in 2007 was primarily caused by a tax benefit of $1.5 million attributable to the utilization of a capital loss carryforward which was not previously recorded because the Company was uncertain it could generate sufficient capital gain income prior to its expiration at the end of fiscal year 2007. The effective tax rate exclusive of this benefit would have been 38.1 percent.

Corporate general and administrative expenses for the three months ended April 30, 2007 increased $0.5 million compared to the same period in 2006 due primarily to costs related to the issuance of stock grants and the accelerated depreciation of the Company’s current computer software systems due to the implementation of the two new business systems, partially offset by decreased professional fees. The second quarter of fiscal year 2006 included professional fees related to restated Securities and Exchange Commission (“SEC”) filings.

For the three months ended April 30, 2007, we recorded a net charge of $0.3 million related to Hurricane Katrina compared to a $0.5 million recovery for the same period in 2006. The timing of the receipt of insurance proceeds is not in line with the timing of cash spending related to Hurricane Katrina. We are continuing to work with our insurance carriers on remaining claims. For additional information, see Note 15 to the condensed consolidated financial statements included herein.

Depreciation and amortization from continuing operations and total operations was $6.8 million and $6.2 million for the second quarters of fiscal years 2007 and 2006, respectively. The increase is primarily due to the accelerated depreciation of our current computer software systems due to the implementation of two new business systems, as described above.

Interest expense decreased $1.4 million to $6.3 million for the second quarter of 2007, due to a $29.3 million decrease in average debt outstanding. In addition, we experienced a 61 basis point decrease in the average rate due primarily to additional interest incurred in the second quarter of 2006 on our 6.25 percent senior notes as a result of our inability to timely complete a required exchange offer.

Other operating income, net, increased $0.8 million to $0.9 million for the second quarter of 2007 from $0.1 million for the second quarter of 2006. The increase was primarily due to the sale of excess cemetery property and proceeds related to the sale of an investment.

Preneed Sales into and Deliveries out of the Backlog

Preneed funeral sales increased 12.3 percent during the second quarter of 2007 compared to the corresponding period in 2006.

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 added $48.1 million in preneed sales to our funeral and cemetery merchandise and services backlog (including $21.6 million related to insurance-funded preneed funeral contracts) during the three months ended April 30, 2007 to be recognized in the future (net of cancellations) as these prepaid products and services are delivered, compared to sales of $46.2 million (including $18.0 million related to insurance-funded preneed funeral contracts) for the corresponding period in 2006. 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 sheet. Revenues recognized on deliveries out of our preneed funeral and cemetery merchandise and services backlog, including accumulated trust earnings related to these preneed deliveries, amounted to $38.6 million for the three months ended April 30, 2007, compared to $38.5 million for the corresponding period in 2006, resulting in net additions to the backlog of $9.5 million and $7.7 million for the three months ended April 30, 2007 and 2006, respectively.

Six Months Ended April 30, 2007 Compared to Six Months Ended April 30, 2006—Continuing Operations

Funeral Operations


	Six Months Ended April 30,
	2007		2006		Increase
			(In millions)
Funeral Revenue:
Eastern Division	$	61.7	$	60.1	$	1.6
Western Division		75.5		74.0		1.5
Corporate Trust Management ⁽¹⁾		9.3		9.3		—

Total Funeral Revenue	$	146.5	$	143.4	$	3.1


Funeral Costs:
Eastern Division	$	49.5	$	48.6	$	.9
Western Division		59.1		58.2		.9
Corporate Trust Management ⁽¹⁾		.3		.3		—

Total Funeral Costs	$	108.9	$	107.1	$	1.8


Funeral Gross Profit:
Eastern Division	$	12.2	$	11.5	$	.7
Western Division		16.4		15.8		.6
Corporate Trust Management ⁽¹⁾		9.0		9.0		—

Total Funeral Gross Profit	$	37.6	$	36.3	$	1.3

Same-Store Analysis


	Change in Average			Change in Same-Store			Cremation Rate
	Revenue Per Call			Funeral Services			2007			2006
Eastern Division		5.2	%		(2.6	%)		34.4	%		33.0	%
Western Division		4.7	%		(4.2	%)		42.2	%		42.6	%
Total		4.9	% ⁽¹⁾		(3.6	%)		38.9	%		38.6	%


⁽¹⁾		Corporate trust management consists of trust management fees and funeral merchandise and service trust earnings recognized with respect to preneed contracts delivered during the period. Trust management fees are established by the Company at rates consistent with industry norms and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the earnings realized over the life of the contract for those preneed contracts 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 six months ended April 30, 2007 and 2006 were $2.9 million and $2.8 million, respectively. As corporate trust management is considered a separate operating segment, trust earnings are included in the total average revenue per call presented, not in the Eastern or Western divisions’ average revenue per call. Funeral trust earnings for the six months ended April 30, 2007 and 2006 were $6.4 million and $6.5 million, respectively.

Consolidated Operations — Funeral

Funeral revenue from continuing operations increased $3.1 million, or 2.2 percent, for the six months ended April 30, 2007, compared to the corresponding period in 2006. Our same-store businesses had a 4.5 percent increase in the average revenue per traditional funeral service and a 9.1 percent increase in the average revenue per cremation service. The increases in the average revenue per traditional and cremation funeral services were in part due to the implementation of new funeral package pricing, which provides value to our families by simplifying the selection process while enhancing the services we provide. Funeral trust earnings decreased slightly. These factors resulted in an overall increase of 4.9 percent in the same-store average revenue per funeral service for our same-store businesses. The increase in funeral revenue for the period is also due to a $1.5 million increase in insurance commission revenue. We sell preneed products and services through both trust-funded and third-party insurance-

funded arrangements, and earn a commission on the preneed insurance sales. Preneed funeral insurance sales increased 6.0 percent for the six months ended April 30, 2007 compared to the same period in 2006. We experienced a 3.6 percent decrease in the number of same-store funeral services performed, or 1,133 events, to 30,678 total same-store funeral services performed.

Funeral gross profit increased $1.3 million to $37.6 million for the first half of fiscal year 2007. Funeral gross profit margin from continuing operations increased to 25.7 percent for the first half of fiscal year 2007 compared to 25.3 percent for the same period in 2006 due primarily to the increases in revenue discussed above. The increase in the funeral gross profit margin was partially offset by increased property, casualty and general liability insurance costs incurred during the first six months of 2007. The cremation rate for our same-store operations was 38.9 percent for the six months ended April 30, 2007 compared to 38.6 percent for the corresponding period in 2006.

Segment Discussion — Funeral

Funeral revenue in the Eastern division funeral segment increased primarily due to an increase in the average revenue per funeral service in same-store businesses of 5.2 percent, partially offset by a decrease in the number of funeral services performed by the same-store businesses of 2.6 percent. Funeral revenue in the Western division funeral segment increased primarily due to an increase in the average revenue per funeral service in same-store businesses of 4.7 percent and an increase in insurance commission revenue, partially offset by a decrease in the number of funeral services performed by same-store businesses of 4.2 percent. Funeral revenue in the corporate trust management segment remained flat.

Funeral gross profit margin for the Eastern and Western division funeral segments increased primarily due to the increases in funeral service revenue as discussed above, partially offset by increased property, casualty and general liability insurance costs incurred during the first six months of 2007. As demonstrated in the table above, the same-store cremation rate increased for the Eastern division funeral segment and decreased for the Western division funeral segment.

Cemetery Operations


	Six Months Ended April 30,
					Increase
	2007		2006		(Decrease)
			(In millions)
Cemetery Revenue:
Eastern Division	$	74.2	$	67.0	$	7.2
Western Division		44.9		41.1		3.8
Corporate Trust Management ⁽¹⁾		4.7		5.3		(.6	)

Total Cemetery Revenue	$	123.8	$	113.4	$	10.4


Cemetery Costs:
Eastern Division	$	61.4	$	55.5	$	5.9
Western Division		36.0		32.8		3.2
Corporate Trust Management ⁽¹⁾		.3		.3		—

Total Cemetery Costs	$	97.7	$	88.6	$	9.1


Cemetery Gross Profit:
Eastern Division	$	12.8	$	11.5	$	1.3
Western Division		8.9		8.3		.6
Corporate Trust Management ⁽¹⁾		4.4		5.0		(.6	)

Total Cemetery Gross Profit	$	26.1	$	24.8	$	1.3


⁽¹⁾		Corporate trust management consists of trust management fees and cemetery merchandise and service trust earnings recognized with respect to preneed contracts delivered during the period. Trust management fees are established by the Company at rates consistent with industry norms and are paid by the trusts to our subsidiary,


		Investors Trust, Inc. The trust earnings represent the earnings realized over the life of the contract for those preneed contracts 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 six months ended April 30, 2007 and 2006 were $2.7 million and $2.5 million, respectively, and cemetery trust earnings for the six months ended April 30, 2007 and 2006 were $2.0 million and $2.8 million, respectively. Perpetual care trust earnings are included in the revenues and gross profit of the related geographic segment.

Consolidated Operations — Cemetery

Cemetery revenue from continuing operations increased $10.4 million, or 9.2 percent, for the six months ended April 30, 2007, compared to the corresponding period in 2006, primarily due to an increase in construction during the period on various cemetery projects and a 10.0 percent increase in gross cemetery property sales, partially offset by a decrease in merchandise delivery revenue. Gross cemetery property sales increased from $50.6 million in the first half of 2006 to $55.7 million in the first half of 2007. The increase in cemetery property sales was due in part to serving customers interested in large cemetery property purchases. Gross cemetery property sales represent the aggregate contract price of cemetery property sale contracts entered into during the period. Revenue related to the sale of cemetery property prior to its construction is recognized on a percentage of completion method of accounting as construction occurs.

We experienced an annualized average return, excluding unrealized gains and losses, of 4.2 percent in our perpetual care trusts for the six months ended April 30, 2007 resulting in revenue of $4.8 million, compared to 4.6 percent for the corresponding period in 2006 resulting in revenue of $5.0 million.

Cemetery gross profit increased $1.3 million from $24.8 million in the first half of fiscal year 2006 to $26.1 million in the first half of fiscal year 2007, due to the increases in revenues discussed above. Cemetery gross profit margin from continuing operations decreased from 21.9 percent in the first half of fiscal year 2006 to 21.1 percent in the first half of fiscal year 2007. The decrease is due primarily to increased merchandise costs, decreased merchandise delivery revenue and increased property, casualty and general liability insurance costs.

Segment Discussion — Cemetery

Cemetery revenue in the Eastern division segment increased $7.2 million primarily due to an increase in construction during the first half of fiscal year 2007 on various cemetery development projects and an increase in revenue from the sale of cemetery property, partially offset by a decrease in merchandise delivery revenue. Cemetery revenue in the Western division segment increased $3.8 million primarily due to an increase in revenue from the sale of cemetery property. Revenue related to the sale of cemetery property prior to its construction is recognized on a percentage of completion method of accounting as construction occurs. Cemetery revenue in the corporate trust management segment decreased primarily due to a $0.8 million decrease in cemetery trust earnings.

Cemetery gross profit margin for the Eastern division cemetery segment increased due to the increased cemetery revenue discussed above. The cemetery gross profit margin for the Western division cemetery segment decreased due to increased property and preneed merchandise selling costs.

Discontinued Operations

The operating results of those businesses sold in fiscal years 2007 and 2006 are reported in the discontinued operations section of the condensed consolidated statements of earnings. There were three businesses sold in the first half of 2007. Revenues for the six months ended April 30, 2007 and 2006 were $0.2 million and $0.5 million, respectively.

Other

The effective tax rate for our continuing operations for the six months ended April 30, 2007 was 28.6 percent compared to 37.7 percent for the same period in 2006. The reduced rate in 2007 was primarily caused by a tax benefit of $3.4 million attributable to the utilization of a capital loss carryforward which was not previously recorded because the Company was uncertain it could generate sufficient capital gain income prior to its expiration at the end of fiscal year 2007. The effective tax rate exclusive of this benefit would have been 38.0 percent.

Corporate general and administrative expenses for the six months ended April 30, 2007 increased $0.3 million compared to the same period in 2006 due primarily to costs related to stock grants and the accelerated depreciation of our current computer software systems due to the implementation of the two new business systems, partially offset by decreased professional fees. The first half of fiscal year 2006 included professional fees related to restated SEC filings.

We recorded $0.5 million of separation charges primarily related to the separation pay of a former executive officer who retired in the first quarter of 2007. For additional information, see Note 13 to the condensed consolidated financial statements included herein.

Depreciation and amortization from continuing operations and total operations was $13.3 million and $12.3 million for the first half of fiscal years 2007 and 2006, respectively. The increase is primarily due to the accelerated depreciation of our current computer software systems due to the implementation of two new business systems, as described above.

Interest expense decreased $2.1 million to $13.1 million for the six months ended April 30, 2007, due to a $31.3 million decrease in average debt outstanding. In addition, we experienced a 30 basis point decrease in the average rate due to additional interest incurred in the first half of 2006 on our 6.25 senior notes as a result of our inability to timely complete a required exchange offer. The exchange offer was completed in June 2006.

Investment and other income, net, increased $0.5 million to $1.6 million in the first half of fiscal year 2007, primarily due to $0.4 million of interest income receivable from the Internal Revenue Service.

We experienced a $15.0 million decrease in current receivables from October 31, 2006 to April 30, 2007 primarily due to declines in insurance receivables. We recorded $10.0 million in insurance proceeds receivable related to Hurricane Katrina at October 31, 2006 and received the entire amount during the first quarter of 2007. Prepaid expenses increased $4.3 million from October 31, 2006 to April 30, 2007 primarily due to increases in prepaid property insurance. A $6.1 million property insurance payment was made in November 2006, and through the second quarter of 2007, half of it has been expensed. There was no prepaid property insurance in the prepaid expense balance at October 31, 2006.

The decrease in accounts payable of $3.3 million from October 31, 2006 to April 30, 2007 was due primarily to approximately $1.2 million of accrued expenses at October 31, 2006 related to the implementation of our two new business systems and approximately $2.1 million due to timing of payment of invoices. Accrued payroll decreased $2.5 million due primarily to fiscal year 2006 bonuses, which were accrued at October 31, 2006 and paid in the first quarter of fiscal year 2007, offset by the fiscal year 2007 bonus accrual recorded during the first six months of fiscal year 2007. The decline in other current liabilities of $6.6 million from October 31, 2006 to April 30, 2007 was primarily due to a $2.0 million decrease in accrued property taxes and the payment of approximately $1.7 million in Hurricane Katrina related items. Approximately 80 percent of our property taxes are paid in the months of December and January each year.

As of April 30, 2007, our outstanding debt totaled $363.3 million of which approximately 55 percent was subject to fixed rates averaging 6.2 percent, and 45 percent was subject to short-term variable rates averaging approximately 7.1 percent.

Preneed Sales into and Deliveries out of the Backlog

Preneed funeral sales increased 7.1 percent during the first half of fiscal year 2007 compared to the corresponding period in 2006.

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 added $88.7 million in preneed sales to our funeral and cemetery merchandise and services backlog (including $37.5 million related to insurance-funded preneed funeral contracts) during the six months ended April 30, 2007 to be recognized in the future (net of cancellations) as these prepaid products and services are delivered, compared to sales of $86.7 million (including $35.4 million related to insurance-funded preneed funeral contracts) for the corresponding period in 2006. 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 sheet. Revenues recognized on deliveries out of our preneed funeral and cemetery merchandise and services backlog, including accumulated trust earnings related to these preneed deliveries, amounted to $74.4 million for the six months ended April 30, 2007, compared to $75.3 million for the corresponding period in 2006, resulting in net additions to the backlog of $14.3 million and $11.4 million for the six months ended April 30, 2007 and 2006, respectively.

Liquidity and Capital Resources

Cash Flow

Our operations provided cash of $32.5 million for the six months ended April 30, 2007, compared to $51.1 million for the corresponding period in 2006. The decrease is primarily due to cash inflows of $11.1 million for trust withdrawals associated with the deferred revenue project in the first half of 2006. Operating cash flow in the first half of 2006 was also enhanced as a result of an increase in customer collections following the delay in collection processing during the fourth quarter of 2005 due to Hurricane Katrina. Additionally, the decrease is due to an increase in annual property and casualty insurance premiums that were paid in the first quarter of 2007, which is reflected in the “other” category under changes in assets and liabilities. Also, $5.6 million of tax payments (net of refunds) were made during the first half of fiscal year 2007 compared to $0.7 million for the comparable period in 2006 due to a net operating loss carryforward utilized in fiscal year 2006. The overall decrease was partially offset by $1.7 million of cash inflows in excess of expenditures related to Hurricane Katrina in the first half of 2007 compared to $1.1 million of cash outflows for the same period in 2006.

Our investing activities resulted in a net cash outflow of $13.5 million for the six months ended April 30, 2007, compared to a net cash outflow of $3.9 million for the comparable period in 2006. For the first half of fiscal year 2007, capital expenditures amounted to $13.6 million, which included $7.1 million for maintenance capital expenditures, $1.3 million for growth initiatives, $1.9 million related to Hurricane Katrina and $3.3 million related to the implementation of two new business systems. For the six months ended April 30, 2006, capital expenditures were $10.0 million, which included $8.1 million for maintenance capital expenditures, $0.2 million for growth initiatives and $1.7 million related to Hurricane Katrina. We also purchased a funeral home in the first quarter of fiscal year 2007 resulting in a net cash outflow of $2.8 million. In the first half of 2007, there was a net cash inflow of $1.4 million for insurance proceeds related to hurricane damaged properties compared to $5.3 million in the same period in 2006.

Our financing activities resulted in a net cash outflow of $16.4 million for the six months ended April 30, 2007, compared to a net cash outflow of $45.1 million for the comparable period in 2006. This change is primarily due to debt repayments of $13.6 million in the first half of 2007 compared to $31.7 million in the first half of 2006. Also, stock repurchases under our then stock repurchase program amounted to $8.1 million in the first half of 2006. There were also issuances of common stock of $2.4 million in the first half of 2007 primarily as a result of stock option exercises. There were no stock option exercises in the first six months of 2006.

Contractual Obligations and Commercial Commitments

As of April 30, 2007, our outstanding debt balance was $363.3 million. The following table details our known future cash payments (in millions) related to various contractual obligations as of April 30, 2007.


	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⁾	$	363.3	$	2.5	$	4.5	$	156.2	$	200.1
Interest on long-term debt ⁽²⁾		127.1		24.3		48.0		42.2		12.6
Operating lease obligations ⁽³⁾		29.7		2.2		6.9		3.5		17.1
Non-competition and other agreements ⁽⁴⁾		3.7		1.0		2.2		.4		.1

	$	523.8	$	30.0	$	61.6	$	202.3	$	229.9


⁽¹⁾		See below for a breakdown of our future scheduled principal payments and maturities of our long-term debt by type as of April 30, 2007.

⁽²⁾		Includes contractual interest payments for our revolving credit facility, Term Loan B, senior notes and third-party debt. The interest on the revolving credit facility and Term Loan B was calculated based on interest rates in effect as of April 30, 2007.

⁽³⁾		Our noncancellable operating leases are primarily for land and buildings and expire over the next one to 12 years, except for six leases that expire between 2032 and 2039. Our future minimum lease payments as of April 30, 2007 are $2.2 million, $3.6 million, $3.3 million, $2.5 million, $1.0 million, and $17.1 million for the years ending October 31, 2007, 2008, 2009, 2010, 2011 and later years, respectively.

⁽⁴⁾		We have entered into non-competition agreements with prior owners and key employees of acquired subsidiaries that expire through 2012. This category also includes separation pay related to former executive officers.

As of April 30, 2007, our outstanding debt balance was $363.3 million, consisting of $162.8 million in Term Loan B, $200.0 million of 6.25 percent senior notes and $0.5 million of other debt. There were no amounts drawn on the revolving credit facility. The following table reflects future scheduled principal payments and maturities of our long-term debt (in millions) as of April 30, 2007.


							Other, Principally
	Revolving						Seller Financing
Fiscal Year Ending	Credit		Term		Senior		of Acquired
October 31,	Facility		Loan B		Notes		Operations		Total
2007	$	—	$	1.1	$	—	$	.2	$	1.3
2008		—		2.2		—		.2		2.4
2009		—		2.2		—		—		2.2
2010		—		2.2		—		—		2.2
2011		—		103.5		—		—		103.5
Thereafter		—		51.6		200.0		.1		251.7

Total long-term debt	$	—	$	162.8	$	200.0	$	.5	$	363.3

We are required to maintain a bond of $30.8 million to guarantee our obligations relating to funds we withdrew in fiscal year 2001 from our preneed funeral trusts in Florida. We substituted a bond to guarantee performance under certain preneed funeral contracts and agreed to maintain unused credit facilities in an amount that will equal or exceed the bond amount. We believe that cash flow from operations will be sufficient to cover our estimated cost of providing the prearranged services and products in the future. We also have $13.0 million of outstanding letters of credit as of April 30, 2007.

As of April 30, 2007, there were no amounts drawn on our $125.0 million revolving credit facility. As of April 30, 2007, our availability under the revolving credit facility, after giving consideration to the aforementioned

letters of credit and remaining bond obligation, was $81.2 million.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements as of April 30, 2007 consist of the following items:

(1)

the $30.8 million bond we are required to maintain to guarantee our obligations relating to funds we withdrew in fiscal year 2001 from our preneed funeral trusts in Florida, which is discussed above and in Note 19 to the consolidated financial statements in our 2006 Form 10-K; and

(2)

the insurance-funded preneed funeral contracts, which will be funded by life insurance or annuity contracts issued by third-party insurers, are not reflected in our consolidated balance sheets, and are discussed in Note 2(i) to the consolidated financial statements in our 2006 Form 10-K.

Ratio of Earnings to Fixed Charges

Our ratio of earnings to fixed charges was as follows:


Six Months Ended	Years Ended October 31,
April 30, 2007	2006	2005	2004	2003	2002
3.47 ⁽¹⁾	2.83 ⁽²⁾	1.36 ⁽³⁾⁽⁷⁾	1.98 ⁽⁴⁾	1.09 ⁽⁵⁾	1.27⁽⁶⁾⁽⁷⁾


⁽¹⁾		Pretax earnings for the six months ended April 30, 2007 include a charge of $2.1 million related to Hurricane Katrina, a charge of $0.5 million for separation charges primarily related to separation pay of a former executive officer who retired in the first quarter of 2007 and gains on dispositions, net of impairment losses of $0.1 million.

⁽²⁾		Pretax earnings for fiscal year 2006 include a net recovery of $1.6 million related to Hurricane Katrina, business interruption insurance proceeds of $3.2 million related to Hurricane Katrina, a charge of $1.0 million for separation charges related to the July 2005 restructuring of our divisions and the retirement of an executive officer and gains on dispositions, net of impairment losses of ($0.3) million.

⁽³⁾		Pretax earnings for fiscal year 2005 include a charge of $9.4 million for expenses related to Hurricane Katrina, a charge of $1.5 million for separation charges related to the July 2005 restructuring of our divisions, $1.2 million of gains on dispositions, net of impairment losses and $32.8 million for the loss on early extinguishment of debt related to the 2005 debt refinancings.

⁽⁴⁾		Pretax earnings for fiscal year 2004 include separation charges of $3.4 million for severance and other costs related to workforce reductions announced in December 2003 and separation pay to a former executive officer and ($0.2) million in gains on dispositions, net of impairment losses.

⁽⁵⁾		Pretax earnings for fiscal year 2003 include a charge of $11.3 million for the loss on early extinguishment of debt in connection with redemption of the ROARS, a noncash charge of $9.6 million for long-lived asset impairment and a charge of $2.5 million for separation payments to former executive officers.

⁽⁶⁾		Pretax earnings for fiscal year 2002 include a noncash charge of $18.5 million in connection with the write-down of assets held for sale.

⁽⁷⁾		Excludes the cumulative effect of change in accounting principles.

For purposes of computing the ratio of earnings to fixed charges, earnings consist of pretax earnings plus fixed charges (excluding interest capitalized during the period). Fixed charges consist of interest expense, capitalized interest, amortization of debt expense and discount or premium relating to any indebtedness and the portion of rental expense that management believes to be representative of the interest component of rental expense.

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 Annual Report on Form 10-K for the fiscal year ended October 31, 2006, filed with the Securities and Exchange Commission on January 16, 2007. The following disclosure discusses only those instances in which market risk has changed by more than 10 percent from the annual disclosures.

The market risk inherent in our market risk sensitive instruments and positions is the potential change arising from increases or decreases in the prices of marketable equity securities and interest rates as discussed below. Generally, our market risk sensitive instruments and positions are characterized as “other than trading.” Our exposure to market risk as discussed below includes “forward-looking statements” and represents an estimate of possible changes in fair value or future earnings that would occur assuming hypothetical future movements in equity markets or interest rates. Our views on market risk are not necessarily indicative of actual results that may occur and do not represent the maximum possible gains and losses that may occur. Actual gains and losses, fluctuations in equity markets, interest rates and the timing of transactions may differ from those estimated.

Interest

We have entered into various fixed-rate and variable-rate debt obligations, which are detailed in Note 14 to our consolidated financial statements included in our 2006 Form 10-K and in the “Liquidity and Capital Resources” section of our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included herein.

Our variable-rate debt consists of our Term Loan B and revolving credit facility. As of April 30, 2007 and October 31, 2006, the carrying value of our Term Loan B including accrued interest was $164.8 million and $178.1 million, respectively, compared to a fair value of $165.2 million and $177.9 million, respectively. As of April 30, 2007 and October 31, 2006, there were no amounts drawn on the revolving credit facility. As of April 30, 2007, each approximate 10 percent, or 80 basis-point, change in the average interest rate applicable to this debt would result in a change of approximately $0.9 million in our pretax earnings. As of October 31, 2006, each approximate 10 percent, or 75 basis-point, change in the average interest rate applicable to this debt would result in a change of approximately $1.1 million in our pretax earnings. Fair value was determined using quoted market prices, where applicable, or future cash flows discounted at market rates for similar types of borrowing arrangements.

We monitor our mix of fixed- and variable-rate debt obligations in light of changing market conditions and from time to time may alter that mix by, for example, refinancing balances outstanding under our variable-rate senior secured credit facility with fixed-rate debt or by entering into interest rate swaps.

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 design and operation of the Company’s disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e). 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 April 30, 2007 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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.

In addition to the matters in Note 7, we and certain of our subsidiaries are parties to a number of other legal proceedings that have arisen in the ordinary course of business. While the outcome of these proceedings cannot be predicted with certainty, management does 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, management believes that our insurance protection is reasonable in view of the nature and scope of our operations.

Item 1A. Risk Factors

Our 2006 Form 10-K described the risks associated with our search for a new chief executive officer. On February 21, 2007, we announced that Thomas J. Crawford has been appointed as our new President and Chief Executive Officer, and as a director of our company. Otherwise, there have been no material changes from the risk factors previously disclosed in the 2006 Form 10-K.

Item 4. Submission of Matters to a Vote of Security Holders

Our 2007 annual meeting of shareholders was held on April 5, 2007. All director nominees were elected. The voting tabulation was as follows: Thomas J. Crawford: 117,787,268 votes for, 3,315,990 votes withheld; Thomas M. Kitchen: 116,659,482 votes for, 4,443,776 votes withheld; Alden J. McDonald, Jr.: 116,176,021 votes for, 4,927,237 votes withheld; James W. McFarland: 116,303,805 votes for, 4,799,453 votes withheld; Ronald H. Patron: 117,147,521 votes for, 3,955,737 votes withheld; Michael O. Read: 116,167,146 votes for, 4,936,112 votes withheld; Ashton J. Ryan, Jr.: 116,321,362 votes for, 4,781,896 votes withheld; Frank B. Stewart, Jr.: 112,690,891 votes for, 8,412,367 votes withheld. The proposal to adopt the Stewart Enterprises, Inc. 2007 Stock Incentive Plan was approved. The voting tabulation was as follows: 102,828,717 votes for, 4,830,546 votes against and 132,907 abstentions. The proposal to adopt the Stewart Enterprises, Inc. Executive Officer Annual Incentive Plan was approved. The voting tabulation was as follows: 103,208,966 votes for, 4,409,065 votes against and 174,139 abstentions.

Item 6. Exhibits

3.1

Amended and Restated Articles of Incorporation of the Company, as amended and restated as of April 20, 2006 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2006)

3.2		By-laws of the Company, as amended and restated as of April 20, 2006 (incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2006)

4.1		See Exhibits 3.1 and 3.2 for provisions of the Company’s Amended and Restated Articles of Incorporation, as amended, and By-laws, as amended, defining the rights of holders of Class A and Class B common stock

4.2		Specimen of Class A common stock certificate (incorporated by reference to Exhibit 4.2 to Amendment No. 3 to the Company’s Registration Statement on Form S-1 (Registration No. 33-42336) filed with the Commission on October 7, 1991)

4.3		Rights Agreement, dated as of October 28, 1999, between Stewart Enterprises, Inc. and ChaseMellon Shareholder Services, L.L.C. as Rights Agent (incorporated by reference to Exhibit 1 to the Company’s Form 8-A dated November 3, 1999)

4.4		Amended and Restated Credit Agreement dated November 19, 2004 by and among the Company, Empresas Stewart-Cementerios and Empresas Stewart-Funerarias, as Borrowers, Bank of America, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer and The Other Lenders party hereto (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated November 22, 2004)

4.5		Indenture dated as of February 11, 2005 by and among Stewart Enterprises, Inc., the Guarantors thereunder and U.S. Bank National Association, as Trustee, with respect to the 6.25 percent Senior Notes due 2013 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated February 11, 2005)

4.6		Form of 6.25 percent Senior Note due 2013 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated February 11, 2005)

10.1		Employment Agreement dated February 20, 2007 between the Company and Thomas J. Crawford (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 15, 2007)

10.2		Employment Agreement dated May 14, 2007 between the Company and Thomas M. Kitchen (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 14, 2007)

10.3		Amendment No. 1 to Employment Agreement dated February 20, 2007, effective May 14, 2007, between the Company and Thomas J. Crawford

31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas J. Crawford, President and Chief Executive Officer

31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen, Senior Executive Vice President and Chief Financial Officer

32.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of Thomas J. Crawford, President and Chief Executive Officer, and Thomas M. Kitchen, Senior Executive Vice President and Chief Financial Officer


			Page
Part I.	Financial Information

	Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Statements of Earnings — Three Months Ended April 30, 2007 and 2006			3

	Condensed Consolidated Statements of Earnings — Six Months Ended April 30, 2007 and 2006			4

	Condensed Consolidated Balance Sheets — April 30, 2007 and October 31, 2006			5

	Condensed Consolidated Statement of Shareholders’ Equity — Six Months Ended April 30, 2007			7

	Condensed Consolidated Statements of Cash Flows — Six Months Ended April 30, 2007 and 2006			8

	Notes to Condensed Consolidated Financial Statements			9

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		36

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		49

	Item 4.	Controls and Procedures		49

Part II.	Other Information

	Item 1.	Legal Proceedings		50

	Item 1A.	Risk Factors		50

	Item 4.	Submission of Matters to a Vote of Security Holders		50

	Item 6.	Exhibits		50

	Signatures			52
Amendment No. 1 to Employment Agreement
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification Pursuant to Section 906


	STEWART ENTERPRISES, INC.
June 11, 2007	/s/ THOMAS M. KITCHEN
	Thomas M. Kitchen
	Senior Executive Vice President and Chief Financial Officer


June 11, 2007	/s/ ANGELA M. LACOUR
	Angela M. Lacour
	Vice President Corporate Controller Chief Accounting Officer


	STEWART ENTERPRISES, INC.
Dated: May 14, 2007	By:	/s/ JAMES W. MCFARLAND
		James W. McFarland
		Compensation Committee Chairman

	EMPLOYEE:
Dated: May 14, 2007	/s/ THOMAS J. CRAWFORD
	Thomas J. Crawford

	a)		designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a)		all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


/s/ THOMAS J. CRAWFORD
Thomas J. Crawford
President and Chief Executive Officer (Principal Executive Officer)

1.		I have reviewed this report on Form 10-Q of Stewart Enterprises, Inc.;

2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) and have:


/s/ THOMAS M. KITCHEN
Thomas M. Kitchen
Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)



	/s/ THOMAS J. CRAWFORD
	Thomas J. Crawford
	President and Chief Executive Officer


	/s/ THOMAS M. KITCHEN
	Thomas M. Kitchen
	Senior Executive Vice President and Chief Financial Officer