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EX-23 - EX-23 - STEWART ENTERPRISES INCh69045exv23.htm
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EX-31.1 - EX-31.1 - STEWART ENTERPRISES INCh69045exv31w1.htm
EX-32.1 - EX-32.1 - STEWART ENTERPRISES INCh69045exv32w1.htm
EX-31.2 - EX-31.2 - STEWART ENTERPRISES INCh69045exv31w2.htm
Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
     
þ   Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended October 31, 2009
OR
     
o   Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 1-15449
STEWART ENTERPRISES, INC.
(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
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
     
Title of each Class   Name of each Exchange on which registered
Class A Common Stock, No Par Value   The NASDAQ Stock Market LLC
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
 
     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No þ
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer þ  Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
     The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of April 30, 2009, was approximately $281,000,000.
     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 November 30, 2009, was 89,223,486 and 3,555,020, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement in connection with the 2010 annual meeting of shareholders are incorporated in Part III of this Report.
 
 

 


 

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
Index
                 
            Page
PART I            
 
  Item 1.   Business     3  
 
  Item 1A.   Risk Factors     10  
 
  Item 1B.   Unresolved Staff Comments     21  
 
  Item 2.   Properties     21  
 
  Item 3.   Legal Proceedings     21  
 
  Item 4.   Submission of Matters to a Vote of Security Holders     22  
 
      Executive Officers of the Registrant     22  
 
               
PART II            
 
  Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     24  
 
  Item 6.   Selected Financial Data     25  
 
  Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations     28  
 
  Item 7A.   Quantitative and Qualitative Disclosures About Market Risk     49  
 
  Item 8.   Financial Statements and Supplementary Data     51  
 
  Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     121  
 
  Item 9A.   Controls and Procedures     121  
 
  Item 9B.   Other Information     122  
 
               
PART III            
 
  Item 10.   Directors, Executive Officers and Corporate Governance     122  
 
  Item 11.   Executive Compensation     122  
 
  Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     122  
 
  Item 13.   Certain Relationships and Related Transactions and Director Independence     123  
 
  Item 14.   Principal Accounting Fees and Services     123  
 
               
PART IV            
 
  Item 15.   Exhibits and Financial Statement Schedules     123  
 
  Signatures         128  
 EX-12
 EX-21
 EX-23
 EX-31.1
 EX-31.2
 EX-32.1

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Cautionary Note
     This annual report contains forward-looking statements that are generally identifiable through the use of words such as “believe,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “project,” “will” and similar expressions. These forward-looking statements rely on assumptions, estimates and predictions that could be inaccurate and that are subject to risks and uncertainties that could cause actual results to differ materially. Important factors that may cause our actual results to differ materially from expectations reflected in our forward-looking statements include those described in Item 1A. “Risk Factors.” Forward-looking statements speak only as of the date of this report, and we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur.
PART I
Item 1. Business
Operations
     Founded in 1910, Stewart Enterprises, Inc. (the “Company”) is the second largest provider of funeral and cemetery products and services in the death care industry in the United States. Through our subsidiaries, we provide a complete range 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 October 31, 2009, our operations included 218 funeral homes and 140 cemeteries in 24 states within the United States and in Puerto Rico.
     General. We believe that we operate one or more of the premier death care facilities in each of our principal markets, which are primarily in larger metropolitan areas in the Southern, Western, Mid-Atlantic and Mid-Western states. In our view, a “premier” facility is one that is among the most highly regarded facilities in its market area in terms of a number of factors such as tradition, heritage, reputation, physical size, volume of business, available inventory, name recognition, aesthetics and/or potential for development or expansion. While funeral homes and cemeteries in the United States perform an average of approximately 110 funerals and 150 burials per year, our facilities perform an average of approximately 265 funerals and 320 burials per year. In addition, approximately 41 percent of our properties are located in California, Florida and Texas, which are three of the four states with the highest populations over age 65, an age group that represents a large portion of our target market.
     We operate most of our funeral homes and cemeteries in “clusters.” Clusters are groups of funeral homes and cemeteries located close enough to one another that their operations can be integrated to achieve economies of scale. For example, clustered facilities can share vehicles, embalming services, inventories of merchandise and, most significantly, personnel, including prearrangement sales personnel; thus, we are able to reduce our costs and expand our sales and marketing effectiveness at each location. By virtue of their proximity to one another, clustered facilities also create opportunities for more integrated and sophisticated management of operations.
     Funeral operations. Our funeral homes offer a complete range of funeral services and products both at the time of need and on a preneed basis. Our services and products include family consultation, removal and preparation of remains, the use of funeral home facilities for visitation, worship and funeral services, transportation services, flowers and caskets. In addition to traditional funeral services, all of our funeral homes offer cremation products and services. Most of our funeral homes have a non-denominational chapel on the premises, which allows family visitation and religious services to take place at the same location. We also earn commissions on the sale of insurance-funded preneed funeral contracts that will be funded by life insurance or annuity contracts issued by third party insurers when we act as an agent on the sale of the policies. Funeral operations accounted for 57 percent of our revenues for fiscal year 2009.
     Cemetery operations. Our cemetery operations sell cemetery property and related merchandise, including lots, lawn crypts, family and community mausoleums, monuments, markers and burial vaults, and also provide burial site openings and closings and inscriptions. We also provide cremation memorialization options including columbariums, cremation niches and cremation gardens. Cemetery property and merchandise sales are made both at the time of need and on a preneed basis. We also maintain cemetery grounds under cemetery perpetual care

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contracts and local laws. Cemetery operations accounted for approximately 43 percent of our revenues for fiscal year 2009, which is a significantly larger percentage than either of our two largest competitors. We believe this is a competitive advantage because families generally return to the same cemetery for multiple generations to bury family members, and the barriers to entry for cemeteries are significant. Cemetery property often becomes an important part of a family’s heritage, and family members who relocate are often returned to their home cemetery to be buried. We build on our relationships with our cemetery customers by offering additional cemetery property to related family members and by offering related products and services such as cemetery merchandise and funeral services at one of our funeral homes located on the cemetery grounds or nearby. Approximately 38 percent of our total cemetery acreage is available for future development.
     Combination funeral home and cemetery operations. Approximately 46 percent of our cemeteries have a funeral home onsite that is operated in conjunction with the cemetery, which we refer to as a combination operation. We believe combination operations represent a competitive advantage because they offer families the convenience of complete death care services at a single location. A family that is planning a burial in one of our cemeteries often perceives our onsite funeral home to be a more desirable location for funeral services than an unaffiliated offsite funeral home nearby. Thus, the call volume of the funeral home is enhanced by the heritage of the cemetery, and, over time, the volume of cemetery events increases as well. In addition, combination operations enhance our purchasing power, enable us to employ more sophisticated management systems and allow us to share facilities, equipment and personnel, including a preneed sales force, resulting in lower average operating costs and expanded marketing and sales opportunities. As a result, our combination operations usually generate higher operating margins compared to our stand-alone funeral homes and cemeteries. In addition to our combination operations, approximately 38 percent of our cemeteries are located within the same market as, and operated in conjunction with, one or more of our nearby funeral homes.
     Third-party affiliations. We have entered into various agreements with faith-based organizations, other non-profit entities and municipalities and plan to pursue more of these types of affiliations. In 1987, we entered into an agreement with the Catholic Archdiocese of New Orleans pursuant to which we constructed and own a mausoleum on one of our cemeteries, and the Archdiocese of New Orleans assists in the promotion of the sale of crypts in the mausoleum to Catholic parishioners of the Archdiocese of New Orleans. The Company pays the Archdiocese of New Orleans a percentage of the revenue from the sale of all crypts in the mausoleum. Additionally, in fiscal year 1994, we constructed a funeral home and mausoleum on the grounds of the New Orleans Cemetery of the Firemen’s Charitable and Benevolent Association, a non-profit organization. We own and operate the funeral home and mausoleum.
     In 1997, we entered into lease agreements with the Archdiocese of Los Angeles whereby we have the right to construct and operate funeral homes on the sites of up to nine cemeteries owned and operated by the Archdiocese. As of October 31, 2009, six of these funeral homes were operating. The leases expire in 2039, and we do not have an option to renew. We account for these leases as operating leases. In October 2007, we further expanded our relationship with the Archdiocese of Los Angeles and entered into a contract to manage the preneed sales at eleven of the Archdiocese of Los Angeles cemeteries.
     During fiscal year 2009, we entered into a new third-party agreement and 30 year lease, with no option to renew, with a municipality in Texas where we constructed and operate a funeral home on the municipally-owned cemetery. This agreement and the other third-party agreements provide us with many of the benefits of a combination operation without the capital outlay and business risks associated with purchasing or developing a new cemetery.
     We have a mausoleum construction and sales business, Acme Mausoleum Corporation (“ACME”), which constructs community mausoleums on third-party cemetery property and assists in the selling efforts for these crypts, primarily in Louisiana and Texas. In return for these services, ACME receives construction revenue and a sales commission for the crypts sold. Over the last 50 years, ACME has developed relationships with the Catholic Church in approximately 70 dioceses in 39 states.
     Preneed arrangements. We believe that we are distinguished from our competitors by our strong emphasis on, and more than 60-year history of experience with, preneed sales. Preneed plans enable families to specify in advance and prepay for cemetery property and funeral and cemetery services and products. Some of these preneed

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sales are funded by insurance arrangements and some by trust and escrow accounts. We market our preneed properties, services and products domestically through a full-time staff of approximately 1,100 commissioned sales counselors. We estimate that as of October 31, 2009 and October 31, 2008, the future value of our preneed backlog of funeral and cemetery products and services (including estimated future earnings on funds held in trust and build-up in the face value of third-party insurance contracts, in each case using a weighted annual projected return of 4.3 percent and 5.0 percent from our trusts for fiscal years 2009 and 2008, respectively, and a 2.0 percent build-up from the insurance contracts for fiscal years 2009 and 2008) represented approximately $1.7 billion of revenue to be recognized in the future as these prepaid products and services are delivered. Our methods for calculating the future value of our preneed backlog are discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7. Our expertise in preneed sales has historically developed out of, and now complements, our strong cemetery operations. This is because cemetery property, such as a burial plot, is usually the first purchase a family will make when considering preneed arrangements. We build on our relationships with our preneed cemetery property customers by offering them additional preneed products and services such as cemetery merchandise and funeral services. Our focus on preneed cemetery property sales is also important because these sales generate current revenues and higher current cash flows than other types of preneed sales.
     Trusts and escrow accounts. Because preneed services or merchandise will not be provided until the future, most states require that all or a portion of the customer payments under preneed contracts be placed into trust accounts. Generally, the earnings on and principal of the amounts placed in trust are not withdrawn until the underlying service or merchandise is delivered. In addition, pursuant to cemetery perpetual care contracts and laws, a portion, generally 10 percent, of the proceeds from cemetery property sales (interment rights) is deposited into perpetual care trusts. The income from these trusts is used to defray the cost of maintenance of those cemeteries, but principal, including in some jurisdictions net realized capital gains, must generally be held in perpetuity. Accordingly, we maintain three types of trusts and escrow accounts: (1) preneed funeral merchandise and services, (2) preneed cemetery merchandise and services and (3) cemetery perpetual care. Differing state laws govern preneed sales, including matters such as required deposits, permitted withdrawals and customers’ rights regarding contract cancellation, and generally require prudent investment of fund assets. Because of our focus on preneed sales and related trusting activities that accompany selling preneed, our business is impacted by changes in financial markets. For a discussion of the impact of recent financial market conditions on our trusts and related financial results, see Item 1A. “Risk Factors.” In addition, see Notes 4, 5 and 6 to the consolidated financial statements included in Item 8 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7.
     Notwithstanding the decline in the value of our trust portfolio during fiscal year 2008 and the first quarter of fiscal year 2009, we believe that the balances in our trusts and escrow accounts, along with expected future earnings on the balances, insurance proceeds and installment payments under contracts will be sufficient to cover our estimated cost of providing the related preneed services and products in the future. For additional information, see Item 1A. “Risk Factors” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
     Generally, our wholly-owned subsidiary, Investors Trust, Inc. (“ITI”), a Texas corporation with trust powers, serves as investment advisor for our investment portfolio and for our preneed funeral and cemetery merchandise and services trust and escrow accounts and our cemetery perpetual care trusts and escrow accounts. ITI provides investment advisory services for a fee based on the market value of the assets in the trust. Under state trust laws, we are allowed to charge the trusts a fee for managing the investment of the trust assets. We have elected to perform these services in-house, and the fees are recognized as income as the services are performed. For additional information, see Note 21 to the consolidated financial statements included in Item 8. ITI is registered with the Securities and Exchange Commission (“SEC”) under the Investment Advisers Act of 1940. As of October 31, 2009, ITI managed assets with a market value of approximately $710.4 million. Lawrence B. Hawkins, one of our executive officers and a professional investment manager, serves as President of ITI. The Investment Committee of our Board of Directors has adopted an investment policy statement that provides guidance on security selection, emphasizes diversification and balances long-term growth objectives with the need for current income. The long-term objectives are to preserve principal while seeking appropriate levels of current income and capital appreciation in order to provide returns that match or exceed inflation. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7.

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     Personalization. Our market research indicates that consumer preferences are shifting towards more personalized memorial services and merchandise for traditional burials as well as cremations. In response to these changing preferences, we trained our funeral arrangers and sales counselors company-wide to be more proficient in their ability to offer our customers a broad range of options, stressing our ability to design a personalized service that reflects the special interests and accomplishments of the deceased. We also changed the way our product offerings are displayed at our locations, making it easier for our customers to appreciate the many options available to them. We implemented this custom funeral planning program in all of our funeral homes and have begun the process of refreshing the training in order to keep our professionals up-to-date on our wider selection of merchandise and services. We hope through this program to provide greater value to our families, leading to higher revenue per event and improved customer satisfaction.
     Enhanced cremation offerings. A significant trend in the United States is an increasing preference of consumers for cremation. In fiscal years 2009, 2008 and 2007, 41 percent, 40 percent and 39 percent, respectively, of the funeral services we performed in our operations were cremations. According to industry estimates, 35 percent of funeral services in the United States during 2007 resulted in cremations, and cremations are expected to represent 46 percent of funeral services in the United States by the year 2015. All of our funeral homes offer cremation products and services. While the average revenue for a cremation service is generally lower than that of a traditional full-service funeral, we have found that these revenues can be substantially enhanced by our emphasis on customization. For example, in addition to a personalized memorial service to celebrate the life of the deceased, an enhanced cremation may include a casket, an urn and a niche in a mausoleum or columbarium in which to place the remains. We continue to market our products and services to address the rising demand for cremations. In late fiscal year 2009, we hired a vice president of cremation and in early fiscal year 2010, we hired a senior vice president of cremation, both with extensive industry and cremation experience, to support our current operations and sales teams in growing cremation revenue and profits. We hope to improve our ability to satisfy the needs of those interested in cremation, for example by making them aware of memorialization options in our cremation gardens and columbariums.
     We have 23 alternative service firms, generally located on the West Coast, that serve primarily cremation customers. These firms are generally located in leased premises and have lower overhead than traditional funeral homes. These firms primarily offer direct cremations with limited additional products and services. Although death care arrangements at these locations are typically less expensive than services at a traditional funeral home, it is not our goal to be the low-price leader in these markets.
     E-commerce. We have also begun using the Internet to create new sales channels and new consumer relationships. While we did not earn significant revenue from this activity in 2009, we anticipate that our revenue and profits from this activity will increase. During fiscal year 2009, we improved the internet websites of our funeral home and cemetery locations. Many people access our websites to obtain information about services for a deceased relative or friend, and often read an obituary or sign a guest book. We have added to our websites products and services that can be purchased to support the family of the deceased, including sending meals and flowers, making personal photobooks, and creating permanent online memorials. Visitors to the websites can also make travel arrangements online and buy books on grief management and related topics. We earn a commission from third-party vendors for any sales made on our websites.
     Management. We have an experienced management team. Many of our regional managers owned and operated their own funeral homes and cemeteries and joined us when we acquired their business. In addition, we have a senior management team with experience both in the industry and outside of the industry, which we believe allows us to introduce innovations effectively and improve the efficiencies of our existing businesses.
     Centralized support services. Our shared services center, which we opened in 1997, was developed for the standardization and centralization of all of our facilities’ administrative and support processes such as accounting, management reporting, payroll, trust administration, contract processing, accounts payable processing, accounts receivable collection and other services. It allows us to decrease our costs without diminishing service by creating significant savings on items such as trust administration fees, travel expenses, office supplies, overnight delivery and long distance telephone services.

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     Continuous improvement. We have taken steps over the last four years to improve our purchasing and processing efficiencies. For example in 2005, we had four geographic operating divisions, including four division presidents, four divisional chief financial officers and four divisional offices. In 2006, we instituted a companywide centralized purchasing department to leverage our size and negotiate more favorable supplier and vendor contracts. During 2007, we implemented a new companywide financial software system and in 2008 a new payroll system. In 2009, we eliminated our separate geographic operating divisions. We implemented a companywide image scanning system, and a new contract processing industry-specific software system, that will serve as a platform for a new point of sale system to be implemented in fiscal years 2010 and 2011. Also in fiscal year 2009, we piloted a new supplier invoice processing system that will improve the way we route, code and approve invoices for payment. Full implementation companywide is expected in fiscal year 2010. During 2008, we established a Continuous Improvement department to work solely on these efforts. We expect that these new systems and processes will improve productivity over time, and, as we look at our opportunities for growth, we expect to leverage the efficiencies that we have achieved.
     Financial information about industry and geographic segments. For financial information about our industry segments for fiscal years 2009, 2008 and 2007, see Note 21 to our consolidated financial statements included in Item 8.
Business Strategy
     Our business strategy aims to improve our revenues, profitability and cash flow by implementing our long-term strategic plan, which has three components: our “Best in Class” initiative, our “New Invention” initiative and our “Acquisition” initiative. We also aim to improve our operating efficiencies, increase our cremation revenues and effectively deploy our cash flow.
     Improve rooftop performance through our “Best in Class” initiative. During fiscal year 2009, we completed the initial implementation of the “Best in Class” component of our strategic plan. The initiative is designed to improve the performance of all of our rooftop locations, by repositioning us from more decentralized practices to more standardized “Best in Class” practices. We have given all managers the same key metrics by which they can measure their performance, and have provided tools to facilitate the sharing of best practices by key metrics across the organization. For example, one of the key metrics is the change in the number of funeral calls. If funeral calls are below expectations at a particular location, our program provides suggestions taken from our best performing locations that the manager can use to help grow funeral calls. We are also looking at locations that are not producing acceptable levels of profitability to determine if changes can be made to achieve “Best in Class” results or if divestiture is the more prudent option.
     Introduce new related revenue sources through our “New Invention” initiative. The “New Invention” component of our strategic plan seeks to generate new tangential growth opportunities not tied to the growth of our base business. An example of our progress with this initiative is our investment, along with other industry participants, in an internet start-up company called Tributes.com. Tributes.com offers consumers a means to create meaningful and lasting remembrances that either complement or substitute for traditional newspaper obituary notices. Previously, our locations incurred labor costs for preparing obituary notices, but did not receive any compensation from the publications that receive a fee for publishing the notice. Tributes.com is intended to allow us to capture market share in the existing obituary notice revenue stream in each of the communities in which we operate, and to increase that revenue stream by offering additional memorialization options. While Tributes, Inc. is still a start-up company, we believe it will have significant benefits to both our company and the industry. Additionally, during fiscal year 2009, we began using the websites of our businesses to create new sales channels. For additional information, see “Operations—E-Commerce.”
     Acquire businesses through our “Acquisition” initiative. The “Acquisition” component of our strategic plan is to acquire businesses and implement our “Best in Class” practices in them. Our “Acquisition” initiative is ongoing. During fiscal year 2009, we acquired one business for $1.6 million. Now that our “Best in Class” initiative has been implemented, we plan to focus more attention on this initiative in fiscal year 2010 and beyond. We will evaluate acquisition opportunities that make sense for our business strategy at prices we believe will result in satisfactory returns to our shareholders.

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     Improve operating efficiencies. During 2008, we established a Continuous Improvement department to coordinate our increased focus on improving our processes. This effort aims to eliminate waste and inefficiency, produce more timely and accurate information for management, and improve productivity over time. For examples of improvements in our operating efficiencies, see “Operations — Continuous improvement.”
     Increase cremation revenues. We are focused intently on improving our revenues from cremation customers. We have hired new management devoted solely to this effort and intend to continue to devote significant management resources to it. For additional information, see “Operations — Enhanced cremation offerings.”
     Deploy cash flow to improve shareholder returns. During the last five fiscal years, we have generated more than $50 million each year in cash flow from operations. As an indication of our board’s confidence in our company’s solid balance sheet and ability to continue to generate cash flow, in September 2009 our board increased our annual cash dividend by 20 percent to $0.12 per share. During fiscal year 2009, we repurchased $82.6 million principal amount of our outstanding senior convertible notes at a significant discount to their par value. In addition to investing in the initiatives discussed above in this section, during fiscal year 2009 we constructed and are operating a funeral home on a municipally-owned cemetery in Texas, and we constructed a new stand-alone funeral home. During fiscal year 2010, we plan to construct one additional stand-alone funeral home and one funeral home which is part of a combination operation. We will continue to evaluate the use of our cash to pay dividends, repurchase debt and stock, invest in our strategic initiatives, construct funeral homes on cemeteries of unaffiliated third parties or in strategic locations and make acquisitions of or investments in death care or related business, with a view towards choosing the best opportunities to enhance long-term shareholder returns.
The Death Care Industry
     Industry consolidation. Death care businesses in the United States have traditionally been relatively small, family-owned enterprises that have passed through successive generations within the family. The decade of the 1990s witnessed a trend of family-owned firms consolidating with larger organizations, but this trend slowed dramatically in 1999. As the number of consolidators participating in the acquisition market declined, those that remained generally applied significantly tighter pricing criteria, and many potential sellers withdrew their businesses from the market rather than pursuing transactions at lower prices. Our industry continues to be characterized by a large number of locally-owned, independent operations, with approximately 80 percent of industry revenue being generated by independently-owned operations. We estimate that our industry, which consists of approximately 22,000 funeral homes and 10,500 cemeteries in the United States, collectively generates approximately $15 billion in annual revenue.
     Large public death care companies have also experienced consolidation. Equity Corporation International, previously the fourth largest public death care company, merged with Service Corporation International (“SCI”) in 1999. Also in 1999, The Loewen Group, Inc., at the time the second largest death care company, entered into bankruptcy proceedings. Loewen emerged from bankruptcy as Alderwoods Group, Inc. in 2002 and was subsequently acquired by SCI in November 2006. In October 2009, SCI announced that it had entered into an agreement to acquire Keystone North America, Inc., the fifth largest death care company in North America.
     During the 1990s, we grew rapidly primarily through acquisitions of funeral homes and cemeteries both domestically and abroad, financed by new equity and debt. We ceased our acquisition activity in 1999 and developed strategies for improving our cash flow and reducing/restructuring debt. During fiscal year 2000 through fiscal year 2003, we completed our transitional strategies of improving our cash flow, restructuring and reducing our debt and selling our foreign assets. During fiscal years 2004 through 2007, we sold underperforming assets, refinanced and further reduced our debt and implemented new strategies to improve operations. During fiscal years 2008 and 2009, we focused on our new long-term strategic plan and on implementing new systems to further improve operations. We believe, at the appropriate pricing, that growing our organization through acquisitions can again be a good business strategy, as it will enable us to enjoy the important synergies and economies of scale from our existing infrastructure.
     Importance of tradition; barriers to entry. We believe it is difficult for new competitors to enter existing markets successfully by opening new cemeteries. The barriers to entry are lower in the funeral business. Entry into the cemetery market can be difficult due to several factors. Because families tend to return to the same cemetery for

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multiple generations to bury family members, it is difficult for new cemeteries to attract families. Additionally, mature markets, including many of the metropolitan areas where our cemeteries are located, are often served by an adequate number of existing cemeteries with sufficient land for additional plots, whereas land for new cemetery development is often scarce and expensive. Regulatory complexities and zoning restrictions also make entry into the cemetery market difficult. Finally, development of a new cemetery usually requires a significant capital investment that takes several years to produce a return.
     Continuing need for products and services; increasing number of deaths. There is an inevitable need for our products and services. Although the number of deaths in the United States will reflect short-term fluctuations, deaths in the United States are expected to increase at a steady, moderate pace over the long-term. According to the United States Bureau of the Census, the number of deaths in the United States is expected to increase by approximately 1 percent per year, from 2.4 million in 2007 to 2.6 million in 2010. Furthermore, the average age of the population in the United States is increasing. According to the United States Bureau of the Census, the United States population over 50 years of age is expected to increase by approximately 2 percent per year, from 76.8 million in 2000 to 118.1 million in 2020. We believe the aging of the population is particularly important because it expands our target market for preneed sales, as persons over the age of 50 are the most likely group to make preneed funeral and cemetery arrangements.
     Growing demand for cremation. A significant trend in the United States is an increasing preference of consumers for cremations. The trend toward cremations has been a significant concern for traditional funeral home and cemetery operators because cremations have typically included few, if any, additional products or services other than the cremation itself. We are focused intently on improving our revenues from cremations. We have hired new management devoted solely to this effort and intend to continue to devote significant management resources to it. For additional information, including information about our strategies to address this trend, see “Operations—Enhanced cremation offerings” above.
Competition
     Our funeral home and cemetery operations generally face intense competition in local markets that typically are served by numerous funeral home and cemetery firms. We also compete with monument dealers, casket retailers, low-cost funeral providers and crematories, and other non-traditional providers of limited services or products. Discount retailers have begun marketing caskets at prices that are sometimes substantially lower than what we offer. Consumers also can now buy caskets in funeral supply stores and directly from manufacturers, as well as over the Internet. Market share for funeral services and cemetery property is largely a function of goodwill, family heritage and tradition, although competitive pricing, professional service and attractive, well-maintained and conveniently located facilities are also important. Market share for funeral and cemetery merchandise is largely a function of price. Extensive marketing through media advertising, direct mailings and personal sales calls has increased in recent years, especially with respect to the sale of preneed funeral services.
Regulation
     Our funeral home operations are regulated by the Federal Trade Commission (the “FTC”) under the FTC’s Trade Regulation Rule on Funeral Industry Practices, 16 CFR Part 453 (the “Funeral Rule”), which went into effect on April 30, 1984, and was revised effective July 19, 1994. The FTC began reviewing the Funeral Rule in 1999 at which time it conducted hearings to receive input from industry and consumer groups. The FTC has concluded its review and determined that no revisions to the existing regulation are required.
     The Funeral Rule defines certain acts or practices as unfair or deceptive and contains certain requirements to prevent these acts or practices. The preventive measures require a funeral provider to give consumers accurate, itemized price information and various other disclosures about funeral goods and services and prohibit a funeral provider from: (1) misrepresenting legal, crematory and cemetery requirements; (2) embalming for a fee without permission; (3) requiring the purchase of a casket for direct cremation; and (4) requiring consumers to buy certain funeral goods or services as a condition for furnishing other funeral goods or services. On September 29, 2009, Representative Bobby L. Rush (D.-Ill.) introduced H.R. 3655 to direct the FTC to draft regulations to extend the Funeral Rule to cemeteries, crematories and sellers of caskets and other funeral merchandise and to require certain disclosures with respect to preneed sales of funeral services or funeral goods. The bill has been referred to the Committee on Energy and Commerce.

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     Our operations are also subject to extensive regulation, supervision and licensing under numerous federal, state and local laws and regulations. For example, state laws impose licensing requirements for funeral homes and funeral directors and regulate preneed sales including our preneed trust activities. Our embalming facilities are subject to stringent environmental and health regulations. We have a department that monitors compliance, and we believe that we are in substantial compliance with the Funeral Rule and all such laws and regulations. Federal, state and local legislative bodies and regulatory agencies frequently propose new laws and regulations, some of which could have a material effect on our operations and on the death care industry in general. We cannot predict the outcome of any proposed legislation or regulation or the effect that any such legislation or regulation might have on us.
Employees
     As of October 31, 2009, we employed approximately 5,400 persons (including approximately 4,100 full-time employees), and we believe that we maintain a good relationship with our employees. Approximately 140 of our employees are represented by labor unions or collective bargaining units.
Additional Information
     Our business was incorporated as a Louisiana corporation in 1970. Our principal executive offices are located at 1333 South Clearview Parkway, Jefferson, Louisiana 70121, and our telephone number is 504-729-1400. Our website address is www.stewartenterprises.com, where all of our public filings are available free of charge on the same day they are filed with the SEC. Information on our website is not part of this report. The SEC also maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The SEC’s website address is www.sec.gov.
Item 1A. Risk Factors
Cautionary Statements
     Our business is subject to significant risks. We caution readers that the following important factors, among others, in some cases have affected, and in the future, could affect, our actual consolidated results and could cause our actual consolidated results in the future to differ materially from the goals and expectations expressed in the forward-looking statements in this report and in any other forward-looking statements made by us or on our behalf.
Risks Related to our Business
Our earnings from our trusts can be reduced by declines in stock and bond prices and interest and dividend rates, which can have a significant adverse effect on our gross profit, net earnings and cash flows.
     Because of our preneed sales activities and the related state trusting requirements that accompany preneed sales, our business is impacted by changes in financial markets. We maintain three types of trusts: (1) preneed funeral merchandise and services, (2) preneed cemetery merchandise and services and (3) cemetery perpetual care. Our trust assets are generally invested in a mix of equity and fixed-income securities, and dividend and interest earnings and investment gains and losses are affected by financial market conditions that are not within our control. Generally, declines in market performance reduce the earnings in our trusts and reduce our earnings and cash flow. In addition, any significant or sustained investment losses could result in there being insufficient funds in the trusts to cover the cost of delivering services and merchandise in the future and result in there being less funds available to defray the costs of cemetery maintenance. Any such deficiency would have to be covered by operating cash flow, which could have a material adverse effect on our financial position and results of operations. In addition, our subsidiary ITI earns trust management fees based on the fair market value of the trusts managed; therefore, declines in the fair market value of the assets in the trusts decrease the amount of fees we collect and record for trust management.

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     In fiscal years 2009, 2008 and 2007, cemetery perpetual care trust earnings, funeral and cemetery merchandise and services trust earnings and ITI trust management fees comprised 6 percent, 7 percent and 7 percent of our revenue, respectively, and 31 percent, 36 percent and 33 percent of our gross profit, for each respective year. During fiscal year 2008 and the first quarter of fiscal year 2009, we experienced significant declines in the market value of our trust portfolio, in line with overall market declines during that time period. During fiscal year 2009, our preneed funeral and cemetery merchandise and services trusts experienced a total return of 15.4 percent, and our cemetery perpetual care trust experienced a total return of 19.9 percent. However, these improved returns did not restore all of the market value lost during fiscal year 2008. Declines in our perpetual care trust earnings and in revenue for fees we earn for managing our trusts impact current revenue, while earnings on preneed funeral merchandise and services and preneed cemetery merchandise and services are allocated to the underlying contracts and recognized as revenue when the underlying products or services are delivered. During fiscal year 2009, we recognized approximately $8.8 million less in revenue than we did in fiscal year 2008 from trust-related activities, or $29.3 million in fiscal year 2009 compared to $38.1 million in fiscal year 2008. Based on current market conditions and realized losses as of October 31, 2009, we believe the revenue from trust earnings recognized on delivery of preneed services and merchandise, cemetery perpetual care earnings and trust management fees for fiscal year 2010 would be about the same as for fiscal year 2009. If market conditions further deteriorate or we experience additional realized losses, trust-related revenue would likely decrease. The preneed contracts we manage are long-term in nature, and we believe the trust investments will appreciate in value over the long-term. However, whether they will appreciate and over what time period are unknown. Additional information regarding our trusts and related risks are described in the risk factors that follow.
Earnings in preneed funeral and cemetery merchandise and services trusts may be reduced by declines in stock and bond prices and will be reduced by declines in interest and dividend rates, resulting in lower future revenues and cash flows, and potential contract impairment charges.
     Declines in earnings in our preneed funeral and cemetery merchandise and services trusts can cause a decline in our reported future revenues and cash flows. With respect to these trusts, we defer recognition and generally withdrawal of dividends, interest income and realized earnings until the underlying product or service is delivered. Realized gains and losses generally have no immediate impact on our revenues, margins, earnings or cash flow, except to the extent there are tax consequences as described later in these risk factors. Dividends, interest income and realized gains and losses are allocated to the underlying contracts and will affect the amount of future revenue recognized, and cash withdrawn, at the time the specific contract is performed. In our preneed funeral and cemetery merchandise and services trusts, at October 31, 2009, the fair market value of the investments in the trusts of $520.9 million was $192.9 million lower than our original cost basis of $713.8 million. Unrealized gains and losses are not allocated to individual contracts; however, as gains and losses are realized, they are allocated to the underlying contracts and will affect the amount of earnings we recognize and cash we withdraw at the time the contracts are ultimately performed. As of October 31, 2009, we had $220.7 million in earnings that have been realized and allocated to contracts that we will recognize in the future when the underlying contracts are performed. Therefore, significant unrealized losses in these trusts, if they do not recover over time, can limit future earnings available to us. For fiscal years 2009 and 2008, funeral trust earnings included in our reported revenue amounted to $11.3 million and $13.2 million, respectively, and cemetery merchandise and service trust earnings amounted to $3.2 million and $4.2 million, respectively.
     If the fair market value of these trusts were to decline below the estimated costs to deliver the underlying products and services, we would record a charge to earnings to record a liability for the expected losses on the delivery of the associated contract. As of October 31, 2009, no such charge was required. For additional information, see Note 2(m) to the consolidated financial statements included in Item 8.
Realized capital losses in preneed funeral and cemetery merchandise and services trusts for which we are the grantor, if we have or expect insufficient offsetting capital gains, can cause increases in our current period effective tax rate and a reduction of our current period reported net earnings and a reduction in operating cash flows in future periods.
     Approximately one-half of the October 31, 2009 fair market value of our preneed funeral and cemetery merchandise and services trusts are trusts for which we are the grantor. For these trusts (unlike the remaining trusts for which the customers are the grantors), we retain the income tax characteristics of all earnings as realized in the

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trust. For example, capital gains and losses in the trusts are capital gains and losses on our tax returns. In addition, we must recognize these earnings currently for tax purposes, while for book purposes they are deferred until the contract is performed. For fiscal years 2009 and 2008, the trusts for which we are the grantor realized net losses of $5.1 million and $23.5 million, respectively.
     Realized capital losses in the trusts for which we are the grantor, if we have or expect insufficient offsetting capital gains, can require us to record a valuation allowance against the related deferred tax asset (capital loss carryforward), which increases our current period effective tax rate and reduces our current period reported net earnings. During fiscal year 2008, we recorded a tax valuation allowance of $7.4 million related to capital losses realized in our preneed funeral and cemetery merchandise and services trusts for which we are the grantor for tax purposes. We recorded an additional $0.4 million tax valuation allowance in fiscal year 2009. Essentially, the current period valuation allowance reflects the fact that, if we cannot generate capital gains in the future against which to use the tax benefit of the capital loss (which is limited to five years), when we perform the contract, we will recognize more income and pay higher taxes for tax purposes than we will for book purposes. This tax relationship does not occur with respect to trusts for which the customer is the grantor, because all of their earnings are service revenue and thus ordinary income to us, and we do not recognize the revenue for either tax or book purposes until the underlying contract is performed.
     As of October 31, 2009, we have approximately $123.4 million remaining in unrealized losses in trusts for which we are the grantor; hypothetically, if all of these losses were realized at once, this would have resulted in an additional valuation allowance of approximately $49.4 million, assuming a projected tax rate of 40 percent. We currently have only a limited amount of embedded capital gains in our trusts. Also, we have utilized all previous capital gains recorded in tax year 2008 and prior tax years to offset capital losses carried forward from earlier years. Accordingly, if we experience additional realized losses in these trusts and do not have or expect to have future capital gains available (within or outside the trusts) to offset these losses, we would record additional valuation allowances and related reductions of net income.
Earnings in cemetery perpetual care trusts may be reduced by declines in stock and bond prices and will be reduced by declines in interest and dividend rates, resulting in lower current and potentially future revenues and cash flows. In addition, we may be required to fund realized net capital losses in these trusts, which would have a negative effect on our earnings and cash flow.
     Pursuant to cemetery perpetual care contracts and laws, a portion, generally 10 percent, of the proceeds from cemetery property sales is deposited into perpetual care trusts. The income from these trusts, which have been established in most jurisdictions in which we operate cemeteries, is used for maintenance of those cemeteries, but principal must generally be held by the trust in perpetuity. The statutory provisions that create and regulate these trusts differ from state to state, as do the regulatory interpretations of the provisions. The trusts are reviewed regularly by the state regulatory authorities.
     We currently recognize all dividend and interest income earned and, in states where it is permitted, realized net capital gains generated by cemetery perpetual care trusts. We are currently utilizing some of the cash that could be withdrawn from the trusts to satisfy our $14.0 million funding obligation resulting from realized capital losses recorded in the fourth quarter of 2008 and fiscal year 2009. The remaining cash withdrawn is used to defray the costs of cemetery maintenance. Therefore, declines in these eligible distributable earnings in cemetery perpetual care trusts would cause a decline in cash flows. Likewise, sustained declines in these earnings would reduce future revenues and cash flows. As a result, we would need to devote more of our cash flow from other sources to continue to maintain our cemeteries at the same level. For fiscal 2009, earnings in these trusts contributed $6.8 million to cemetery revenue, which includes less than $0.1 million in capital gains. Unless current market conditions improve substantially, we expect to report earnings from the trusts in the future consistent with fiscal year 2009 or lower than we have historically earned.
     In our cemetery perpetual care trusts, at October 31, 2009, the fair market value of our investments of $204.7 million was $56.7 million lower than our original cost basis of $261.4 million. If we realize losses in our cemetery perpetual care trusts and the fair market value of the trust assets is less than the aggregate amounts required to be contributed to the trust, some states may require us to make cash deposits to the trust to cover the net realized loss or may require us to stop withdrawing earnings until future earnings cover the net realized loss.

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     In those states where we have withdrawn realized net capital gains in the past, regulators may seek replenishment of the realized net capital losses either by requiring a cash deposit to the trust or by prohibiting or restricting withdrawals of future earnings until they cover the loss. As of October 31, 2008, we recorded a $13.3 million estimated probable funding obligation as an increase in cemetery costs in fiscal year 2008, and we recorded an additional $3.4 million in fiscal year 2009. As of October 31, 2009, we had unrealized losses of $48.2 million in the trusts in these states. Because all of these trusts currently have assets with a fair market value less than the aggregate amounts required to be contributed to the trust, any additional realized net capital losses in these trusts may result in a corresponding funding liability and increase in cemetery costs.
     In those states where realized net capital gains have not been withdrawn, due to the different laws and our practices in those states, we do not believe that we will be required to replenish the realized net capital loss, and have not recorded a funding obligation; however, it is possible that regulators may disagree with our conclusion, and future funding obligations may exist. As of October 31, 2009, the realized net capital loss in these trusts was $3.5 million, and the unrealized capital loss was $19.8 million.
Our distributions from cemetery perpetual care trusts include net realized capital gains on investment sales in states where permitted. If regulations in these states are changed to no longer permit withdrawal of realized capital gains, our cemetery perpetual care trust eligible distributable earnings may be reduced in the future, which would reduce our earnings and cash flows.
     In states where permitted, we withdraw and recognize as revenue net realized capital gains on investment sales in cemetery perpetual care trusts. During fiscal year 2009, we recognized and withdrew less than $0.1 million of net realized capital gains in cemetery perpetual care trusts. Our portfolio mix in these states is more heavily weighted to investments that potentially generate capital gains, such as equities. In states where we do not withdraw capital gains, our portfolio mix is more heavily weighted to fixed income type securities. If states where capital gains are currently permitted to be withdrawn make changes in legislation or regulations to not allow capital gains to be withdrawn, our future revenues and cash flow may be reduced from historical levels until we are able to replace some or all of the investments that potentially generate capital gains with ones that generate more ordinary income such as fixed income securities. Given current economic conditions and market values, we may not be able to make that shift quickly without triggering capital losses that could require funding obligations.
Reduced market values of preneed funeral and cemetery merchandise and services trusts and cemetery perpetual care trusts will also reduce our trust management fees.
     The fees that our subsidiary, ITI, collects for managing the trusts are based on the fair market value of the trusts as determined by quoted market prices. Thus as market values decline, the earnings ITI collects and the cash we withdraw for managing the trusts is also reduced. To the extent market values do not improve, we will earn less in ITI fees than we have historically earned. During fiscal years 2009, 2008 and 2007, ITI trust management fees collected were approximately $8.0 million, $10.0 million and $11.2 million, respectively.
Our trust portfolio is invested in various sectors, some of which may be more susceptible to additional adverse impact from the current economic crisis.
     As of October 31, 2009, approximately 21 percent of our preneed funeral and cemetery merchandise and services trust portfolios and 37 percent of our cemetery perpetual care trust portfolios are invested in the financials sector. However, only seven percent of the total common stocks in our trust portfolios are in the financials sector. In addition, as of October 31, 2009, approximately 11 percent of our preneed funeral and cemetery merchandise and services trust portfolios and 7 percent of our cemetery perpetual care trust portfolios are invested in the information technology sector. The current economic crisis may result in greater declines to the fair market value of our investments in these and other sectors as compared to the performance of our overall trust portfolio and/or market benchmarks, including the S&P 500 Index. Each sector has particular risks associated with it, and depending on our asset allocation, sector mix, company-specific information and future economic events, our portfolio could be at risk for further decline. For additional information on the various sectors comprising our trust portfolio and related risks, see the section titled “Preneed-Backlog, Trust Portfolio and Cash Impact of Sales” included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7.

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A weakening economy could decrease preneed sales. A reduction in discretionary spending could also decrease amounts at-need customers are willing to pay, and could cause third-party insurance providers that fund our insurance-funded preneed funeral contracts to experience financial difficulties.
     A weakening economy that causes customers to reduce discretionary spending could cause, and we believe has caused in the past, a decline in preneed sales, and could also decrease the amounts at-need customers are willing to pay. Declines in preneed cemetery property sales and average revenue per at-need event would reduce current revenue. Declines in preneed funeral and cemetery service and merchandise sales would reduce our backlog and could reduce our future revenues and market share.
     A weakening economy could also impact our customers’ ability to pay, causing increased delinquencies, increased bad debt and decreased finance charge revenue which would reduce future earnings and cash flow. A weakening economy could also increase costs related to sales force turnover and commissions we are unable to recoup as contract cancellation rates increase. If a contract is cancelled before collecting a specified amount, the related commission is charged back to the sales counselor. If the sales counselor is no longer employed by us when the contract is cancelled, we are often unable to recoup that commission.
     Some of the preneed funeral contracts we sell are funded by life insurance or annuity contracts issued by third-party insurers. The net amount of these contracts that have not been fulfilled as of October 31, 2009 was $507.3 million. These contracts are not reflected in our consolidated balance sheet, but we include them when we discuss our anticipated “backlog” or anticipated future revenue from preneed funeral sales. Approximately 60 percent of these contracts have been funded by Forethought Life Insurance Company. If Forethought or other insurance companies that have issued policies to our customers experience financial difficulties, our potential future revenue associated with these contracts, and commissions we would receive from selling these types of contracts in the future, could be at risk. For a discussion of our revenue recognition policies for insurance-funded preneed funeral contracts, see Note 2(i) to our consolidated financial statements included in Item 8.
Continued economic crisis and financial and stock market declines could reduce future potential earnings and cash flows and could result in future goodwill impairments.
     In the fourth quarter of fiscal year 2008, we recorded a goodwill impairment charge of $26.0 million. As of October 31, 2009, goodwill amounted to $247.2 million, consisting of $198.5 million in the funeral segment and $48.7 million in the cemetery segment. Cemetery segments tend to be more sensitive to goodwill impairments with a heavier reliance on preneed sales which are impacted by changes in consumer sentiment and customer discretionary income. If current economic conditions worsen causing decreased revenues and increased costs or if the current economic conditions result in additional companies in which the trust portfolio is invested in filing for bankruptcy, we may have a triggering event which could result in further goodwill impairments.
Servicing our debt will require a significant amount of cash and our ability to generate sufficient cash depends on many factors, some of which are beyond our control.
     Our ability to make payments on and to refinance our debt depends on our ability to generate cash flow. We have a senior secured revolving credit facility due 2012, on which no amounts were drawn as of October 31, 2009, and $367.5 million in fixed-rate long-term debt becoming due in 2013 through 2016. We believe that our current level of cash on hand, projected cash flows from operations and available capacity under our senior secured revolving credit facility will be sufficient to meet our debt service and other cash requirements for the foreseeable future, although we will need to refinance the senior secured revolving credit facility and other long-term debt as they become due. Our ability to generate cash, to a significant extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. In addition, our ability to borrow funds in the future to make payments on our debt will depend on our meeting the financial covenants in our debt agreements. Our business may not generate cash flow from operations, and future borrowings may not be available to us under our senior secured revolving credit facility or otherwise in an amount sufficient to enable us to pay our debt or to fund other liquidity needs. As a result, we may need to refinance all or a portion of our debt on or before maturity. We may not be able to refinance any of our debt on favorable terms, or at all. Any inability to generate sufficient cash flow or refinance our debt on favorable terms could have a material adverse effect on our financial condition.

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Our same-store funeral call volumes have not increased significantly or have decreased for a number of years due to many factors, such as the number of deaths and competition in our markets, our ability to identify changing consumer preferences and various other factors, some of which are beyond our control.
     Our same-store funeral call volumes have not increased significantly or have decreased for a number of years due to many factors described elsewhere in this report including the number of deaths and intense competition in our markets, and our ability to identify changing consumer preferences. From fiscal years 2005 to 2009, we experienced same-store funeral call volume changes of 0.4 percent, (0.2) percent, (2.2) percent, 0 percent and (5.9) percent, respectively. We can give no assurance that we will be able to increase same-store funeral call volumes over the long term. Declines in same-store funeral calls can adversely affect revenues and profits if not offset by increases in average revenue per call or alternative sources of revenue.
Price competition could reduce market share or cause us to reduce prices to retain or recapture market share, either of which could reduce revenues and margins.
     Our funeral home and cemetery operations generally face intense competition in local markets that typically are served by numerous funeral homes and cemetery firms. We have historically experienced price competition primarily from independent funeral home and cemetery operators, and from monument dealers, casket retailers, low-cost funeral providers and other non-traditional providers of services or products including, in recent years, internet providers. From time to time, this price competition has caused us to lose market share in some markets. In other markets, we have had to reduce prices, thereby reducing profit margins in order to retain or recapture market share. Increased price competition in the future could further reduce revenues, profit margins and backlog and potentially impact our annual goodwill impairment analysis.
     Discount retailers sell caskets at prices substantially lower than prices we offer. Consumers also can now buy caskets in funeral supply stores and directly from manufacturers, as well as over the Internet. Competition from these sources could reduce our casket sales, which could adversely affect funeral revenues and margins.
Increased advertising and better marketing by competitors, as well as increased offering of products or services over the Internet, could cause us to lose market share and revenues or cause us to incur increased costs or to decrease prices in order to retain or recapture market share.
     In recent years, the marketing of preneed funeral services through television, radio and print advertising, direct mailings and personal sales calls has increased. Extensive advertising or effective marketing by competitors in local markets could cause us to lose market share and revenues or cause us to incur increased marketing costs. In addition, competitors may change the types or mix of products or services offered. These changes may attract customers, causing us to lose market share and revenue or to incur costs necessary to respond to competition by varying the types or mix of products or services offered by us. Also, increased use of the Internet by customers to research and/or purchase products and services could cause us to lose market share to competitors offering to sell products or services over the Internet.
If we are not able to respond effectively to changing consumer preferences, our market share, revenues and profitability could decrease.
     Future market share, revenues and profits will depend in part on our ability to anticipate, identify and respond to changing consumer preferences. We may not correctly anticipate or identify trends in consumer preferences, or we may identify them later than our competitors do. In addition, any strategies we may implement to address these trends may prove incorrect or ineffective.
Increased preneed sales may have a negative impact on current cash flow and earnings.
     Preneed sales of cemetery property and funeral and cemetery products and services, which are generally paid on an installment basis, are generally cash flow negative initially, primarily due to the commissions and other costs to acquire the sale and the fact that a portion of the sales proceeds is required to be placed into trusts or escrow

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accounts. We will continue to invest a significant portion of cash flow in preneed acquisition costs, which reduces cash flow available for other activities, and, to the extent preneed activities are increased, cash flow would be further reduced, and our ability to service debt could be adversely affected.
Increased costs, including potential increased health care costs, may have a negative impact on earnings and cash flows.
     We may not be successful in maintaining our margins and may incur additional costs. For example, in the past we have experienced increased property and casualty insurance costs primarily as a result of hurricanes and natural disasters and are currently experiencing increased health care costs. Pending health care reform legislation could further increase our health care costs. We have also incurred significant legal costs related to the unanticipated class action litigation. We incurred additional costs in fiscal year 2009 in conjunction with improving our business systems. Some of the costs impacting our business are largely beyond our control. To the extent that we are unable to pass these cost increases on to our customers, they will have a negative impact on our earnings and cash flows.
Our business is subject to the risk of losses due to hurricanes and other natural disasters.
     Our Company is headquartered in the New Orleans metropolitan area, and approximately 75 of our funeral homes and 45 of our cemeteries, along with our mausoleum construction and sales business, ACME Mausoleum, are located near the Gulf Coast in southern Texas, Louisiana, Mississippi, Alabama and Florida, along the eastern coasts of Florida, and North and South Carolina and in Puerto Rico. These areas are periodically threatened by hurricanes, which can damage our properties, interrupt our business and disrupt the lives of our customers and employees. We are also at risk for tornadoes at our locations in the midwestern United States and for earthquakes at our locations along the west coast of the United States. In fiscal year 2005, our business was adversely affected by Hurricanes Katrina, Wilma and Rita. In fiscal year 2008, Hurricane Ike impacted our Houston operations. Our insurance may not protect us from all material losses or expenses incurred in connection with a natural disaster.
We have an estimate included in our deferred revenue liability of approximately $3 million, and we may become aware of new information that would require us to increase that estimated liability.
     From time to time, unidentified contracts are presented to us primarily relating to contracts sold prior to the time we acquired certain businesses. In addition, from time to time, we have identified in our backlog, certain contracts in which services or merchandise have already been delivered. Using historical trends, and statistical analyses, we have recorded an estimated liability for these items of approximately $3 million as of October 31, 2009. To the extent we are made aware of contracts that exceed the estimated liability recorded, or cause us to conclude that we should increase the estimated liability recorded, we would have to record a charge to earnings for the estimated cost to deliver the products and services.
Our Chairman may have a significant and disproportionate influence on the outcome of election of directors and other matters presented for a vote of shareholders and this control may be exercised in a manner that may conflict with the interests of other shareholders.
     As of October 31, 2009, our Chairman, Frank B. Stewart, Jr., held 7,273,201 shares (or approximately 8.2 percent) of our outstanding Class A common stock and all of the 3,555,020 outstanding shares of our Class B common stock. There is no established public trading market for our Class B common stock. Because each share of Class B common stock is entitled to 10 votes on all matters presented for a vote by our shareholders, Mr. Stewart controls approximately 34 percent of our total voting power, while holding approximately 12 percent of our outstanding equity. Accordingly, Mr. Stewart may have a significant and disproportionate influence over the election of directors and other matters requiring the affirmative vote of our shareholders and this control may be exercised in a manner that may conflict with the interest of other shareholders. Additionally, because Louisiana law and our articles of incorporation require the affirmative vote of two-thirds of the voting power present to approve certain major transactions such as mergers and any amendments to our articles of incorporation, Mr. Stewart may have the ability to prevent the consummation of such actions, even if they are recommended by our Board of Directors and favored by a substantial majority of our shareholders.

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We may be unable to repurchase our 6.25 percent senior notes and our senior convertible notes when required by the holders, or to pay the cash portion of the conversion value upon conversion of our senior convertible notes. In addition, we are subject to counterparty risk on the call options relating to our senior convertible notes.
     Upon a change of control of our company as defined in the relevant indenture, holders of our 6.25 percent senior notes will have the right to require us to repurchase all or any part of their notes for cash at a price equal to 101 percent of the principal amount of the notes repurchased, plus any accrued and unpaid interest. In addition, upon fundamental change events specified in the relevant indenture, holders of our senior convertible notes may require us to purchase for cash all or a portion of their notes at a price equal to 100 percent of the principal amount of the notes plus accrued and unpaid interest. Also, upon conversion of our senior convertible notes, we will be required to deliver to the holders a cash payment equal to the lesser of the principal amount of the notes being converted or the conversion value of the notes. As a result, we may be required to pay significant amounts of cash to holders of the senior convertible notes upon conversion. We cannot assure you that we will have sufficient financial resources to make these payments when due. Any inability to make these payments would constitute an event of default under the indentures governing these notes and would also cause cross-defaults under the terms of our other debt agreements.
     Concurrently with the sale of our senior convertible notes, we purchased call options with respect to our Class A common stock from Bank of America/Merrill Lynch International and sold warrants to Bank of America/Merrill Lynch Financial Markets, Inc. The counterparties’ obligations to us under the call options and warrants are guaranteed by Bank of America/Merrill Lynch & Co., Inc. By simultaneously purchasing the call options and selling the warrants, we have effectively increased the conversion premium on the senior convertible notes to 55-65 percent above the market price of the Class A common stock at the time of the offering. The call options are expected to offset our exposure to dilution from conversion of the senior convertible notes because any shares we would be obligated to deliver to holders upon conversion would be delivered to us by the counterparty to the call options. This obligation is dependent upon the financial viability of the counterparty and guarantor. With the uncertainty in the United States financial markets, there are risks that the counterparty and guarantor may not remain financially viable or may seek bankruptcy protection. If the counterparty and guarantor are relieved of or cannot perform this obligation, then at the time of conversion, we may be required to issue additional shares based upon the initial conversion price of the notes and cause further dilution to our shareholders.
The call options we purchased and the warrants we sold contemporaneously with the sale of our senior convertible notes may affect the trading price of our Class A common stock and the value of the senior convertible notes.
     The counterparties to the call options we purchased and the warrants we sold may engage in hedging activities and modify their hedge positions from time to time prior to the conversion or maturity of our senior convertible notes, and particularly around the time of any conversion of the notes. These hedging activities may include purchasing and selling shares of our Class A common stock, or other of our securities, or other instruments, including over-the-counter derivative instruments. The effect, if any, of these activities on the trading price of our Class A common stock or the senior convertible notes will depend in part on market conditions at the time and cannot be reasonably predicted at this time. Any of these activities could adversely affect the trading price of our Class A common stock and the value of the senior convertible notes. For additional information about the call options we purchased and the warrants we sold, see Note 15 to our consolidated financial statements included in Item 8.
Exercise of the outstanding warrants could dilute the ownership interests of our existing stockholders.
     Concurrently with the sale of our senior convertible notes, we sold warrants expiring in 2014 to purchase approximately 11.3 million shares of Class A common stock at $12.93 per share and warrants expiring in 2016 to purchase approximately 11.3 million shares of Class A common stock at $13.76 per share. The warrants expiring in 2014 may not be exercised prior to the maturity of the senior convertible notes due in 2014, and the warrants expiring in 2016 may not be exercised prior to the maturity of the senior convertible notes due in 2016. The warrants may be settled in cash at our election. Exercise of the warrants could dilute the ownership interests of our existing stockholders. In connection with the fiscal year 2009 repurchases of our senior convertible notes, the number of shares of Class A common stock subject to the warrants was reduced to 7.0 million related to the senior

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convertible notes due in 2014 and 6.4 million related to the senior convertible notes due in 2016. For additional information, see Notes 15 and 17 to our consolidated financial statements included in Item 8.
The accounting method for our senior convertible notes will change beginning in fiscal year 2010 and will substantially increase our reported interest expense relating to the senior convertible notes, but will have no impact on cash interest paid or net reported cash flows.
     In May 2008, the Financial Accounting Standards Board (“FASB”) issued new guidance regarding the accounting for convertible debt instruments that may be settled in cash upon conversion. The new accounting guidance affects our senior convertible notes, will be effective for us beginning November 1, 2009 and must be applied retrospectively to all periods presented. This guidance will substantially increase our reported interest expense relating to the senior convertible notes. The retrospective application of this guidance will decrease our previously reported net earnings by $1.2 million, $3.6 million and $12.4 million for fiscal years 2007, 2008 and 2009, respectively. Included in the $12.4 million decrease for fiscal year 2009 is a decrease of the previously recorded pre-tax gain on the repurchase of the senior convertible notes of approximately $14.0 million. The impact as of November 1, 2009 is expected to result in a decrease in deferred tax assets totaling approximately $10.0 million, a decrease in long-term debt of approximately $27.8 million, an increase to additional paid-in capital of approximately $35.0 million and a decrease to retained earnings of approximately $17.2 million. It is estimated that annual earnings after taxes will be reduced between $1.0 million and $4.0 million over the remaining life of the convertible debt as a result of the required increase in non-cash interest expense from accretion of the debt discount under the effective interest rate method. The new accounting rules will have no impact on cash interest paid or net reported cash flows.
Increases in interest rates would increase interest costs on any variable-rate long-term debt and could have a material adverse effect on our net income and earnings per share.
     We have no variable-rate long-term debt agreements besides our senior secured revolving credit facility. Although we have no amounts currently drawn under the credit facility, any amounts borrowed in the future are subject to variable interest rates. Any significant increase in interest rates could increase our interest costs on our variable-rate long-term debt or indebtedness incurred in the future, which could decrease our net income and earnings per share materially.
Our ability to maintain compliance with our covenants under our senior secured revolving credit facility and 6.25 percent senior notes is dependent upon many factors. Covenant restrictions may also limit our ability to operate our business.
     Our senior secured revolving credit facility and the indenture governing the 6.25 percent senior notes contain, among other things, covenants that restrict our and our subsidiaries’ activities. Our senior secured revolving credit facility limits, among other things, our and the guarantors’ ability to: borrow money; pay dividends or distributions; purchase or redeem stock; make investments; engage in transactions with affiliates; engage in sale and leaseback transactions; consummate specified asset sales; effect a consolidation or merger or sell, transfer, lease, or otherwise dispose of all or substantially all of our assets; and create liens on our assets. In addition, our senior secured revolving credit facility contains specific limits on capital expenditures. Furthermore, our senior secured revolving credit facility requires us to maintain specified financial ratios and satisfy periodic financial condition tests. The indenture governing the 6.25 percent senior notes restricts our and the guarantors’ ability to create liens on assets, enter into sale and leaseback transactions and merge or consolidate with other companies. Our and our subsidiaries’ future indebtedness may contain similar or even more restrictive covenants. See Note 15 to the consolidated financial statements included in Item 8 for additional information on our debt covenants.
     These covenants may require that we take action to reduce our debt or to act in a manner contrary to our business objectives. In addition, events beyond our control, including changes in general economic and business conditions, may affect our ability to satisfy these covenants. We might not meet those covenants, and the lenders might not waive any failure to meet those covenants. A breach of any of those covenants could result in a default under such indebtedness. If an event of default under our senior secured credit facility occurs, the lenders could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. Any such declaration would also result in an event of default under the indenture governing the 6.25 percent senior notes. For additional information, see “Liquidity and Capital Resources” included in Item 7.

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The payment of dividends on our common stock in the future is subject to uncertainties.
     The declaration of dividends on our common stock in the future is subject to the discretion of our Board of Directors each quarter after its review of our financial performance. Our ability to pay dividends is restricted under our senior secured revolving credit facility. See Note 15 to the consolidated financial statements included in Item 8.
Unanticipated litigation or negative developments in pending litigation could have a material adverse effect on our financial statements.
     We are a defendant in the litigation described in Note 20 to the consolidated financial statements included in Item 8 and other litigation in the ordinary course of business. The outcome of litigation is inherently uncertain and adverse developments or outcomes can result in significant monetary damages, penalties or injunctive relief against us.
We may not be able to consummate significant acquisitions of or investments in death care or related businesses successfully.
     Although we have not made any significant acquisitions in recent years, we may in the future. Also, our “New Invention” initiative calls for us to seek to generate new tangential growth opportunities not tied to the growth of our base business. Any such acquisitions and investments have risks. We may fail to identify suitable candidates, and even if we do, we may not be able to successfully complete the transaction or integrate the new business into our existing business. We may not be able to find businesses for sale at prices we are willing to pay. Acquisition activity, if any, will also depend on our ability to enter new markets. Due in part to our lack of experience operating or investing in new areas and to the presence of competitors who have been in certain markets longer than we have, such acquisitions or investments may be more difficult or expensive than we anticipate.
The application of generally accepted accounting principles to our business is complex, and we have had significant changes in the application of generally accepted accounting principles to our business. No assurances can be given that we will not face similar issues in the future.
     Our industry is unusual because we often sell products and services many years prior to the time they are required to be delivered, and we are required by varying state laws to hold customer funds related to these sales in trust until the products and services are ultimately delivered. The accounting for these unusual features is complex, and in prior years there have been periodic changes in the application of generally accepted accounting principles to our business. Some of these changes have made it difficult to compare results from one period to the next. Such changes have also increased our administrative costs. We can give no assurances that we will not face similar issues in the future.
Risks Related to the Death Care Industry
Declines in the number of deaths in our markets can cause a decrease in revenues. Changes in the number of deaths are not predictable from market to market or over the short term, and reliable statistics on deaths in particular markets can be difficult to obtain.
     Declines in the number of deaths could cause at-need sales of funeral and cemetery services, property and merchandise to decline and could cause a decline in the number of preneed sales being delivered, both of which could decrease revenues. Although the United States Bureau of the Census estimates that the number of deaths in the United States will increase by approximately 1 percent per year from 2000 to 2010, longer life spans could reduce the rate of deaths. Changes in the number of deaths can vary among local markets and from quarter to quarter, and variations in the number of deaths in our markets or from quarter to quarter are not predictable. However, generally the number of deaths fluctuates with the seasons with more deaths occurring during the winter months primarily resulting from pneumonia and influenza. These variations can cause revenues to fluctuate.

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     Our comparisons of the change in the number of families served to the change in the number of deaths reported by the Centers for Disease Control and Prevention (“CDC”) from time to time may not necessarily be meaningful. The CDC receives weekly mortality reports from 122 cities and metropolitan areas in the United States within two to three weeks from the date of death and reports the total number of deaths occurring in these areas each week based on the reports received from state health departments. The comparability of our funeral calls to the CDC data is limited, as reports from the state health departments are often delayed, and the 122 cities reporting to the CDC are not necessarily comparable with the markets in which we operate.
We have experienced an increase in the proportion of lower-priced, non-traditional funeral services and direct cremations, which we believe is part of the continuing national trend toward increased cremation.
     Our traditional cemetery and funeral service operations face competition from the increasing number of cremations in the United States. Industry studies indicate that the percentage of cremations has steadily increased and that cremations will represent approximately 46 percent of deaths in the United States by the year 2015, compared to 35 percent in 2007. In fiscal years 2007, 2008 and 2009, 39 percent, 40 percent and 41 percent, respectively, of the funeral services we performed in our operations were cremations, and 56 percent of those were direct cremations. A full service cremation, which includes a funeral service, merchandise and memorialization of the remains in a mausoleum or columbarium niche or a burial of the remains, can result in funeral and cemetery revenue and profit margins similar to those of traditional funeral services and burials, although the cemetery property sale revenue would generally be lower. In contrast, a basic or direct cremation, with no funeral service or casket and no memorialization of the remains, produces no revenues for cemetery operations and lower revenues and profit margins for funeral operations when delivered through a traditional funeral home. During fiscal years 2007 through 2009, we experienced a reduction in the proportion of full service traditional funeral services and cremations and an increase in the proportion of lower-priced, non-traditional funeral services and direct cremations. A continuation of this trend would adversely affect the revenues and gross profits of our funeral and cemetery businesses. To address this trend, we have been intensifying our efforts to market full service cremations. In addition, the increasing trend towards cremations in the United States could cause us to lose market share to firms specializing in cremations.
Because the funeral and cemetery businesses are high fixed-cost businesses, positive or negative changes in revenue can have a disproportionately large effect on cash flow and profits.
     Funeral homes and cemetery businesses must incur many of the costs of operating and maintaining facilities, land and equipment regardless of the level of sales in any given period. For example, we must pay salaries, utilities, property taxes and maintenance costs on funeral homes and maintain the grounds of cemeteries regardless of the number of funeral services or interments performed. Because we cannot decrease these costs significantly or rapidly when we experience declines in sales, declines in sales can cause margins, profits and cash flow to decline at a greater rate than the decline in revenues.
Changes or increases in, or failure to comply with, regulations applicable to our business could increase costs or decrease cash flows.
     The death care industry is subject to extensive regulation and licensing requirements under federal, state and local laws. For example, the funeral home industry is regulated by the FTC, which requires funeral homes to take actions designed to protect consumers. State laws impose licensing requirements and regulate preneed sales including our preneed trust activities. Embalming facilities are subject to stringent environmental and health regulations. Compliance with these regulations is burdensome, and we are always at risk of not complying with the regulations.
     In addition, from time to time, governments and agencies propose to amend or add regulations, which could increase costs or decrease cash flows. For example, federal, state, Puerto Rican and other regulatory agencies have considered and may enact additional legislation or regulations that could affect the death care industry. Several jurisdictions and regulatory agencies have considered or are considering regulations that could require more liberal refund and cancellation policies for preneed sales of products and services, limit or eliminate our ability to use surety bonding, impose or increase trust requirements and prohibit the common ownership of funeral homes and cemeteries in the same market. If adopted by the regulatory authorities of the jurisdictions in which we operate, these and other possible proposals could have a material adverse effect on us, our financial condition, our results of

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operations, our cash flows and our future prospects. On September 29, 2009, Representative Bobby L. Rush (D.-Ill.) introduced H.R. 3655 to direct the FTC to draft regulations to extend the Funeral Rule to cemeteries, crematories and sellers of caskets and other funeral merchandise and to require certain disclosures with respect to preneed sales of funeral services or funeral goods. The bill has been referred to the Committee on Energy and Commerce.
Item 1B. Unresolved Staff Comments
     None.
Item 2. Properties
     The following table shows the number of funeral homes and cemeteries we operated in each of our operating segments as of October 31, 2009:
             
    Number of    
Operating Segment   Locations   Geographic Areas
 
           
Funeral
    218     Alabama, Arkansas, California, Florida, Georgia, Illinois, Kansas, Louisiana, Maryland, Mississippi, Missouri, Nebraska, North Carolina, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington, West Virginia and Puerto Rico
 
           
Cemetery
    140     Alabama, Arkansas, California, Florida, Georgia, Kansas, Kentucky, Louisiana, Maryland, Mississippi, Missouri, Nebraska, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington, West Virginia, Wisconsin and Puerto Rico
 
           
 
    358      
 
           
     As of October 31, 2009, approximately 77 percent of our 218 funeral home locations were owned by our subsidiaries, and approximately 23 percent were held under operating leases. The leases have terms ranging from one to 14 years, except for one lease that expires in 2032 and seven leases that expire in 2039 (six of which are with the Archdiocese of Los Angeles). An aggregate of $0.1 million of our term notes are secured by mortgages on some of our funeral homes; these notes were either assumed by us upon our acquisition of the property or represent seller financing for the acquired property.
     As of October 31, 2009, we owned 140 cemeteries covering a total of approximately 9,900 acres. Although approximately 38 percent of the total acreage is available for future development, life spans of our cemeteries can be extended by different types of cemetery development such as the construction of mausoleums, columbariums, niche spaces and cremation gardens.
     We own a 98,200 square-foot building in suburban New Orleans that we use for our corporate headquarters, shared services center, human resources, communications, internal audit and information systems departments.
Item 3. Legal Proceedings
     For a discussion of our current litigation, see Note 20 to the consolidated financial statements included in Item 8.
     In addition to the matters described in Note 20, 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, we do not expect these matters to have a material effect on our consolidated financial position, results of operations or cash flows.

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     We carry insurance with coverages and coverage limits that we believe to be adequate. Although there can be no assurance that such insurance is sufficient to protect us against all contingencies, we believe that our insurance protection is reasonable in view of the nature and scope of our operations.
Item 4. Submission of Matters to a Vote of Security Holders
     None.
Executive Officers of the Registrant
     The following table sets forth certain information with respect to our executive officers. Each of the following has served in the capacity indicated for more than five years, except as indicated below.
             
Name   Age   Position
 
           
Thomas J. Crawford
    56     President, Chief Executive Officer and Director(1)
 
           
Thomas M. Kitchen
    62     Senior Executive Vice President, Chief Financial Officer and Director(2)
 
           
Lawrence B. Hawkins
    61     Executive Vice President and President—Investors Trust, Inc.
 
           
Martin de Laurèal
    58     Senior Vice President of Corporate Development and Investor Relations(3)
 
           
Lewis J. Derbes, Jr.
    38     Senior Vice President of Finance, Treasurer and Secretary(4)
 
           
Christine Hunsaker
    43     Senior Vice President of Cremation(5)
 
           
Larry Merington
    55     Senior Vice President of Marketing(6)
 
           
Kenneth G. Myers, Jr.
    52     Senior Vice President of Operations(7)
 
           
G. Kenneth Stephens, Jr.
    48     Senior Vice President of Sales(8)
 
           
Lisa T. Winningkoff
    42     Vice President and Senior Administrative Officer(9)
 
           
Angela M. Lacour
    37     Vice President, Corporate Controller and Chief Accounting Officer(10)
 
(1)   Mr. Crawford has served as our President, Chief Executive Officer and a Director since March 31, 2007. Prior to that, he served on behalf of Sorenson Capital Partners, a private equity group, as Chief Executive Officer of Erickson Companies, a regional residential framing company with manufacturing operations in Arizona, California and Nevada. From 2003 to 2004, he was a Senior Consultant to Carew, International, a sales process consulting and training company. He was Chairman, Chief Executive Officer and President of publicly-traded The York Group, Inc., one of the largest casket manufacturers in the United States, from 2000 until its merger with Matthews International Corporation in 2002. From 1997 to 1999, he was Executive Vice President of Sales and Marketing of Lozier Corporation, a manufacturer of retail display fixtures and systems. From 1979 to 1997, he served in various positions with the Batesville Casket Company, a leading manufacturer and supplier of caskets, including Vice President and General Manager — Hardwood Products Group, Vice President of New Business Development, Vice President of Marketing and Vice President of Logistics. Additionally, he held the positions of Director of Corporate Development for both the Batesville Casket Company and its parent company, Hillenbrand Industries.

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(2)   Mr. Kitchen has served as Senior Executive Vice President since March 31, 2007 and as Chief Financial Officer since December 2, 2004. He has also served as a director since February 18, 2004. From June 30, 2006 until Mr. Crawford’s appointment as President and Chief Executive Officer on March 31, 2007, Mr. Kitchen served as acting Chief Executive Officer. From July 2003 until he became our Chief Financial Officer, he served as an investment management consultant with Equitas Capital Advisors, LLC. From 1987 to 1999, he was Chief Financial Officer of Avondale Industries, Inc., a publicly-traded company engaged in the design, construction, system integration and repair of large, complex ships for commercial and government customers. He served as President of Avondale from 1999 to 2002, after Avondale’s acquisition by Litton Industries, which was subsequently acquired by Northrop Grumman Corporation.
 
(3)   On November 1, 2007, Mr. de Laurèal was appointed Senior Vice President of Corporate Development and Investor Relations. He joined the Company in 1977 and has held numerous management positions. Mr. de Laurèal has also served as President of Acme Mausoleum Corporation since January 2007. From December 1995 to December 2003, he was Vice President of Investor Relations, and from December 2003 to November 2007, he was Senior Vice President of Investor and Corporate Relations.
 
(4)   On July 1, 2008, Mr. Derbes was appointed Senior Vice President of Finance, and continues his positions as Secretary and Treasurer. Prior to that time, he served as Vice President, Secretary and Treasurer of the Company since May 2005. Prior to joining the Company, Mr. Derbes served as Chief Financial Officer of Conrad Industries, a publicly-traded company engaged in the construction and repair of government and commercial marine vessels, from 2002 through 2004 and as Operations Manager of Kirschman’s LLC, a furniture retailer, from late 2004 until joining the Company.
 
(5)   On December 1, 2009, Ms. Hunsaker was appointed Senior Vice President of Cremation. From March 2009 through November 2009, she was a consultant to the Company in evaluating its cremation business and helping to identify targets for growth. From 2004 to the present, she owns and operates Paws, Whiskers & Wags, Your Pet Crematory, a pet cremation company in Atlanta helping over 3,000 clients annually. She worked for Service Corporation International twice in the past in various senior management positions addressing cremation revenue and growth. During her last assignment at SCI from 2002 to 2004, she was President of Cremation Services/Cremation Operations, North America, and led the expansion of National Cremation Society, SCI’s largest cremation brand. Prior to her employment at SCI, Ms. Hunsaker worked for the Batesville Casket Company and was part of the team that launched Options, Batesville’s cremation company.
 
(6)   On March 3, 2009, Mr. Merington was appointed Senior Vice President of Marketing. Prior to that time, he served as Senior Vice President of Sales and Marketing since September 17, 2007. From 2005 to 2007, he was the Chief Operating Officer of Ace Bayou, a furniture and pet products corporation in Kenner, Louisiana. From 2003 to 2005, Mr. Merington was the Vice President of Business Development at New York Environmental Services, a medical waste company. After the terrorist attack on the United States on September 11, 2001, he was called to active duty for one year as a commander in the United States Air Force in Afghanistan. From 1996-2001, he served in various senior management roles at Browning-Ferris Industries before becoming president of its Gas Services Division.
 
(7)   On June 26, 2008, Mr. Myers was appointed Senior Vice President of Operations. Prior to that time, he served as Senior Vice President of Finance of the Company since February 20, 2006. He has also served as a consultant to the Company from February 2005 to February 2006. From July 2004 through February 2006, he provided consulting services specializing in Sarbanes-Oxley compliance. From 2001 to 2004, he was the Chief Executive Officer, President and Director of Conrad Industries, a publicly-traded company engaged in the construction and repair of government and commercial marine vessels. From 1992 to 2001, he served as Vice President of Avondale Industries, Inc., a publicly-traded company engaged in the design, construction, system integration and repair of large, complex ships for commercial and government customers, which was subsequently acquired by Northrop Grumman Corporation.
 
(8)   On March 3, 2009, Mr. Stephens was appointed Senior Vice President of Sales. Prior to that time, he served as Executive Vice President and President of our former Western Division since July 14, 2005. From January 31, 2000 to July 13, 2005, he served as Senior Vice President and President of our former Eastern Division.

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(9)   Since December 2005, Ms. Winningkoff has served as Vice President and Senior Administrative Officer. From December 2004 to December 2005, she served as the Company’s Compensation and Benefits Director. From July 2002 through December 2004, she served as the Director of Compliance. She joined the Company in June 1991 and held several financial and accounting positions, including Assistant Treasurer and Director of Financial Reporting.
 
(10)   On July 10, 2006, Ms. Lacour was appointed Vice President, Corporate Controller and Chief Accounting Officer. She joined the Company in February 1997, and has served in a variety of financial and accounting positions including Director of Financial Reporting and, most recently, as Assistant Corporate Controller since March 2001. Prior to joining the Company, Ms. Lacour was an auditor with KPMG LLP for four years.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
     Our Class A common stock trades on the NASDAQ Global Select Market under the symbol STEI. On November 30, 2009, the closing sale price as reported by the NASDAQ Stock Market was $4.68. The following table sets forth, for the periods indicated, the range of high and low sale prices, as reported by the NASDAQ Stock Market. As of November 30, 2009, there were 984 record holders of our Class A common stock. Record holders include persons holding Class A common stock on behalf of one or more beneficial owners who are not holders of record.
                 
    High   Low
Fiscal Year 2009
               
Fourth Quarter
  $ 5.73     $ 4.57  
Third Quarter
    5.10       3.42  
Second Quarter
    3.98       1.67  
First Quarter
    5.30       2.55  
 
               
Fiscal Year 2008
               
Fourth Quarter
  $ 10.00     $ 4.07  
Third Quarter
    9.46       6.61  
Second Quarter
    7.20       5.37  
First Quarter
    9.08       6.82  
     There is no established public trading market for our Class B common stock. As of October 31, 2009, our Chairman, Frank B. Stewart, Jr., was the record holder of all of our shares of Class B common stock. Our Class A and Class 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. As of October 31, 2009, by virtue of his beneficial ownership of outstanding Class A and Class B common shares, Mr. Stewart controlled approximately 34 percent of our total voting power and held approximately 12 percent of our outstanding equity.
Dividends
     The Company has paid a quarterly cash dividend of two and one-half cents per share for its Class A and Class B common stock since April 2005, and in September 2009, the quarterly cash dividend was increased to three cents per share. Although we intend to pay regular quarterly cash dividends for the foreseeable future, the declaration and payment of future dividends are discretionary and will be subject to determination by the Board of Directors each quarter after its review of our financial performance. Our ability to pay dividends is subject to

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restrictions contained in our senior secured revolving credit facility. See Note 15 to the consolidated financial statements included in Item 8.
Equity Plan Information
     For information regarding compensation plans under which equity securities of the Company are authorized for issuance, see Part III, Item 12.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
     The table below shows purchases made by or on behalf of us, or of any “affiliated purchaser” as defined in SEC rules, of our equity securities registered pursuant to Section 12 of the Exchange Act, during the fourth quarter of fiscal year 2009.
Issuer Purchases of Equity Securities
                                 
                    Total number of     Maximum approximate  
                    shares purchased as     dollar value of shares  
    Total number             part of publicly     that may yet be  
    of shares     Average price paid     announced     purchased under the  
Period   purchased     per share     plans or programs(2)     plans or programs(2)  
August 1, 2009 through August 31, 2009
        $           $ 26,519,479  
September 1, 2009 through September 30, 2009
    4,471 (1)   $ 5.32       4,471     $ 26,495,706  
October 1, 2009 through October 31, 2009
        $           $ 26,495,706  
 
                         
Total
    4,471     $ 5.32       4,471     $ 26,495,706  
 
                       
 
(1)   As described in Note 15 to the consolidated financial statements, we acquired 15,936 shares of our Class A common stock during fiscal year 2009 (of which 4,471 were acquired during the fourth quarter) related to the settlement of call options and common stock warrants corresponding to senior convertible notes we purchased in the open market.
 
(2)   We announced a $25.0 million stock repurchase program on September 19, 2007, which was increased by $25.0 million in December 2007 and June 2008, resulting in a $75.0 million program. As of October 31, 2009, we had repurchased 6.6 million shares for $48.5 million at an average price of $7.31 per share and have $26.5 million remaining under this program.
Item 6. Selected Financial Data
     The tables below contain selected consolidated financial data as of and for the years ended October 31, 2005 through October 31, 2009. The tables should be read in conjunction with our consolidated financial statements and the notes thereto included in Item 8 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7.

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Selected Consolidated Financial Data
(Dollars in thousands, except per share amounts)
                                         
    Year Ended October 31,(1)  
    2009(2)     2008(3)     2007(4)     2006(5)     2005(6)  
Statement of Earnings Data:
                                       
Total revenues
  $ 487,807     $ 527,883     $ 522,817     $ 514,230     $ 488,909  
Total gross profit
    87,740       100,817       112,430       114,613       101,479  
 
                                       
Earnings (loss) from continuing operations
  $ 35,653     $ (3,693 )   $ 39,314     $ 37,580     $ 8,303  
Earnings from discontinued operations
                499       13       1,551  
Cumulative effect of change in accounting principle (net of $101,061 income tax benefit in 2005)
                            (153,180 ) (1)
 
                             
Net earnings (loss)
  $ 35,653     $ (3,693 )   $ 39,813     $ 37,593     $ (143,326 )
 
                             
 
                                       
Per Share Data:
                                       
Basic earnings (loss) per common share:
                                       
Earnings (loss) from continuing operations before cumulative effect of change in accounting principle
  $ .39     $ (.04 )   $ .38     $ .35     $ .08  
Earnings from discontinued operations
                .01             .01  
Cumulative effect of change in accounting principle
                            (1.40 )
 
                             
Net earnings (loss)
  $ .39     $ (.04 )   $ .39     $ .35     $ (1.31 )
 
                             
Diluted earnings (loss) per common share:
                                       
Earnings (loss) from continuing operations before cumulative effect of change in accounting principle
  $ .39     $ (.04 )   $ .38     $ .35     $ .08  
Earnings from discontinued operations
                .01             .01  
Cumulative effect of change in accounting principle
                            (1.40 )
 
                             
Net earnings (loss)
  $ .39     $ (.04 )   $ .39     $ .35     $ (1.31 )
 
                             
Dividends declared per common share
  $ .105     $ .10     $ .10     $ .10     $ .075  
 
                             
                                         
    October 31,
    2009   2008   2007   2006   2005
Balance Sheet Data:
                                       
Assets
  $ 2,109,001     $ 2,104,515     $ 2,438,974     $ 2,380,577     $ 2,335,609  
Long-term debt, less current maturities
    367,491       450,095       450,115       374,020       406,859  
Shareholders’ equity
    390,884       365,637       423,318       446,893       439,453  
Selected Consolidated Operating Data
                                         
    Year Ended October 31,
    2009   2008   2007   2006   2005
Operating Data:
                                       
Funeral homes in operation at end of period
    218       221       221       229       231  
 
                                       
At-need funerals performed
    35,581       37,589       38,072       38,937       39,264  
Prearranged funerals performed
    19,984       21,436       21,275       21,799       22,076  
 
                                       
 
                                       
Total funerals performed
    55,565       59,025       59,347       60,736       61,340  
 
                                       
Prearranged funerals sold
    26,966       28,390       29,953       30,738       28,967  
Backlog of prearranged funerals at end of period
    331,041 (7)     329,085       329,617       333,592       326,672  
 
                                       
Cemeteries in operation at end of period
    140       139       139       143       144  
Interments and inurnments performed
    45,068       47,953       49,283       52,255       52,436  

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(1)   Effective November 1, 2004, we changed our method of accounting for selling costs incurred related to new preneed funeral and cemetery service and merchandise sales to expense them as incurred, which resulted in a $254.2 million ($153.2 million after tax, or $1.40 per diluted share) charge for the cumulative effect of the change in accounting principle.
  Effective November 1, 2005, we began recording share-based compensation costs using the modified prospective application transition method. Our financial statements were not retrospectively adjusted to reflect this implementation. Accordingly, this implementation is reflected in our fiscal year 2009, 2008, 2007 and 2006 financial statements but not in our financial statements for fiscal year 2005.
 
  Effective November 1, 2007, we implemented the required guidance related to uncertain tax positions and recognized a $1.0 million charge to the November 1, 2007 accumulated deficit balance. For additional information, see Note 18 to the consolidated financial statements included in Item 8.
 
  All businesses sold that met the criteria for discontinued operations under applicable accounting guidance have been classified as discontinued operations for all periods presented. The operating data presented represents activity related to our total operations for the respective year.
 
  In May 2008, the FASB issued guidance related to the accounting for convertible debt instruments that may be settled in cash. This guidance applies to our senior convertible notes and is effective as of the beginning of an entity’s first fiscal year beginning after December 15, 2008, which corresponds to our fiscal year beginning November 1, 2009, and must be applied retrospectively to all periods presented. While there will be no impact on our cash interest paid or net reported cash flows, we will record higher interest expense in fiscal year 2010 as a result of the adoption of this guidance. The retrospective application will decrease our previously reported net earnings by $1.2 million, $3.6 million and $12.4 million for fiscal years 2007, 2008 and 2009, respectively. Included in the $12.4 million decrease for fiscal year 2009 is a decrease of the previously recorded pre-tax gain on the repurchase of the senior convertible notes of approximately $14.0 million. The impact as of November 1, 2009 is expected to result in a decrease in deferred tax assets totaling approximately $10.0 million, a decrease in long-term debt of approximately $27.8 million, an increase to additional paid-in capital of approximately $35.0 million and a decrease to retained earnings of approximately $17.2 million. It is estimated that annual earnings after taxes will be reduced between $1.0 million and $4.0 million over the remaining life of the convertible debt as a result of the required increase in non-cash interest expense from accretion of the debt discount under the effective interest rate method. For additional information, see Note 3 to the consolidated financial statements.
(2)    During fiscal year 2009, we recorded the following items:
    $20.1 million in gains on early extinguishment of debt due to open market purchases of our senior convertible notes (see Note 15 to the consolidated financial statements for additional information).
 
    $3.4 million in charges related to our estimated probable obligation to fund the cemetery perpetual care trust investment losses (see Note 6 to the consolidated financial statements).
 
    $0.4 million in net hurricane related expenses primarily related to the lawsuit we filed against our insurance carriers related to our Hurricane Katrina claim (see Note 23 to the consolidated financial statements).
 
    $0.3 million in separation charges related to the separation pay of a former executive officer and costs related to the reorganization of our operating structure (see Note 14 to the consolidated financial statements).
(3)    During fiscal year 2008, we recorded the following items:
    $26.0 million charge for goodwill impairment (see Note 13 to the consolidated financial statements).
 
    $13.3 million in charges related to our estimated probable obligation to fund the cemetery perpetual care trust investment losses (see Note 6 to the consolidated financial statements) and a $7.4 million tax valuation allowance as a result of realized trust investment losses (see Note 18 to the consolidated financial statements).
 
    $2.3 million in net hurricane related expenses related to Hurricanes Ike and Katrina (see Note 23 to the consolidated financial statements).

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(4)    During fiscal year 2007, we recorded the following items:
    A charge for the loss on early extinguishment of debt of $0.7 million as a result of our senior convertible debt transaction (see Note 15 to the consolidated financial statements).
 
    $2.5 million in net hurricane related expenses related to Hurricane Katrina (see Note 23 to the consolidated financial statements).
 
    $0.6 million in separation charges related to separation pay of former executive officers and additional reorganization costs for the 2005 restructuring of the divisions (see Note 14 to the consolidated financial statements).
(5)   During fiscal year 2006, we recorded the following items:
    $1.6 million in net hurricane related recoveries and $3.2 million in business interruption insurance proceeds related to Hurricane Katrina.
 
    $1.0 million in separation charges related to separation pay of former executive officers and additional reorganization costs for the 2005 restructuring of the divisions.
(6)    During fiscal year 2005, we recorded the following items:
    $9.4 million in net hurricane related expenses related to Hurricane Katrina.
 
    $1.5 million in severance charges related to the restructuring of our operating divisions.
 
    $32.8 million in charges for the loss on early extinguishment of debt related to the refinancing of the senior secured credit facility and the completion of the private offering of our 6.25 percent senior notes.
(7)    Our backlog of preneed funerals is comprised of trust-funded contracts and insurance-funded contracts. As described in Note 2(i) to the consolidated financial statements included in Item 8, insurance-funded preneed funeral contracts are not reflected in our consolidated balance sheets. As of October 31, 2009, our preneed funeral backlog is comprised of 193,637 trust-funded contracts and 137,404 insurance-funded contracts.
Item 7. 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 October 31, 2009, we owned and operated 218 funeral homes and 140 cemeteries in 24 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, finance charges and trust management fees. We also earn commissions on the sale of insurance-funded preneed funeral contracts that will be funded by life insurance or annuity contracts issued by third-party insurers when we act as an agent on the sale.
General
     During fiscal year 2009, we focused on improving our business and effectively deploying our cash, despite the challenges of the current economic environment, to position our Company for future growth as the economy improves. During the year, we reported net earnings of $35.7 million, or $.39 per diluted share and generated $84.9 million in operating cash flow. We increased our common stock dividend rate by 20 percent and repurchased $82.6 million aggregate principal amount of our senior convertible notes in the open market for an aggregate purchase price of $60.8 million, a substantial discount. Our tax planning strategies yielded a combination of refunds and reductions of income tax payments totaling approximately $31.6 million utilized in 2009. We successfully refinanced our revolving credit facility, which was set to mature in November 2009. At $304.7 million as of October 31, 2009, our net debt is at its lowest level in more than 10 years.
     Like many other businesses, our operating results were negatively affected by current economic conditions. In particular, our cemetery property sales decreased significantly; however, approximately 40 percent of the decline occurred in Florida where the current economic environment is having the largest impact. These purchases are often

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made by families prior to the time of need and are thus often discretionary; we are optimistic that these sales will improve as the overall economy improves. During the fourth quarter of 2009, we achieved the highest quarterly cemetery property sales for fiscal year 2009. Net preneed funeral sales declined substantially during the first quarter of 2009, but improved as the year progressed, and increased 0.3 percent in fiscal year 2009 compared to fiscal year 2008. Adverse financial market conditions in the latter part of 2008 and early part of 2009 caused a decrease in our revenue from trust-related activities. During fiscal year 2009, we recognized approximately $8.8 million less in revenue than we did in fiscal year 2008 from trust-related activities, or $29.3 million in fiscal year 2009 compared to $38.1 million in fiscal year 2008. Based on current market conditions and realized losses as of October 31, 2009, we believe our revenue from trust-related activities for fiscal year 2010 would be about the same as for fiscal year 2009. With the improvements in the financial markets during 2009, the total return on our trust portfolios improved also with a total return of 15.4 percent in our preneed funeral and cemetery merchandise and services trusts and a 19.9 percent return in our cemetery perpetual care trust. During late fiscal 2008, the Company engaged a new investment consultant to review the portfolio. We reviewed alternative asset allocation models and selected a new asset allocation that is more heavily weighted toward fixed income securities. As a result, we have taken advantage of the rebound in the financial markets to rebalance the trust portfolio. We have reduced our exposure to common equities and have increased our investment in fixed income securities where we intend to generate a reasonable rate of return with a lower overall volatility for the investments. We plan to continue to reduce the volatility of our investment portfolio by adjusting our asset allocation as the financial markets improve.
     During fiscal year 2009, we completed the initial implementation of the “Best in Class” component of our strategic plan, and began to generate new revenue from our e-commerce initiatives. We constructed one funeral home on a third-party cemetery and one stand-alone funeral home, and in fiscal year 2010, we plan to construct one stand-alone funeral home and one combination funeral home. We also acquired one business for $1.6 million in fiscal year 2009. We completed the implementation of a new industry-specific contract processing software system, which will serve as a platform for a new point of sale system to be implemented in fiscal years 2010 and 2011. Also in fiscal year 2009, we implemented a companywide image scanning system and piloted a new supplier invoice processing system. We expect that these new systems and processes will improve productivity over time, and, as we look at our opportunities for growth, we expect to leverage the efficiencies that we have achieved.
     During fiscal year 2009 compared to fiscal year 2008, same-store funeral services performed declined 5.9 percent, which reflects a decline in deaths in our markets and a decrease in low-end cremation events in our West Coast operations. However, we began to experience positive trends in the fourth quarter of 2009. Same-store calls were essentially equal to the prior year quarter, a significant improvement from each of the previous quarters of this fiscal year. We also face challenges from customers’ increasing preference for cremation, which has been a significant concern for traditional funeral home and cemetery operators like us because cremations have typically included few, if any, additional products or services other than the cremation itself, and can result in lower revenue and profits than traditional services. We are addressing funeral service volumes and increases in cremations through our “Best in Class” initiative, enhanced sales and marketing efforts and our emphasis on personalization. We are intensifying our efforts to market full service cremations, including better marketing of our memorialization options for our cremation consumers. In addition, in late fiscal year 2009, we hired a vice-president of cremation and in early fiscal year 2010, we hired a senior vice-president of cremation, both with extensive industry and cremation experience, to support our current operations and sales teams in growing cremation revenue and profits. For the year ended October 31, 2009, we achieved a 3.1 percent increase in our average revenue per traditional funeral service and a 5.7 percent increase in our average revenue per cremation service. Additional information about our business and strategies can be found in Item 1. “Business.”
Financial Summary for Fiscal Year 2009
     For fiscal year 2009, net earnings were $35.7 million compared to a net loss of $3.7 million for fiscal year 2008. Net earnings for fiscal year 2009 included a $20.1 million pre-tax gain on the early extinguishment of debt related to our open market repurchases of $82.6 million aggregate principal amount of our senior convertible notes during fiscal year 2009. The net loss for fiscal year 2008 included a $26.0 million goodwill impairment charge.
     Revenue decreased $40.1 million to $487.8 million for fiscal year 2009. Funeral revenue decreased $10.3 million to $276.3 million primarily due to a $3.1 million decline in funeral revenue related to trust activities and a 5.9 percent decrease in our same-store funeral services performed. During fiscal year 2009, our same-store funeral

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operations experienced an increase in average revenue per traditional funeral service of 3.1 percent and an increase in average revenue per cremation service of 5.7 percent. These increases were partially offset by a shift in mix to lower-priced cremation services and a decrease in trust earnings which resulted in an overall increase of 2.6 percent in the same-store average revenue per funeral service. For the year ended October 31, 2009, we had a 0.3 percent increase in net preneed funeral sales. Cemetery revenue decreased $29.8 million to $211.5 million primarily due to a $13.7 million, or 13.2 percent, decrease in cemetery property sales, net of discounts, a $5.8 million decrease in cemetery merchandise delivered and services performed and a $5.7 million decrease in cemetery revenue related to trust activities, of which $3.9 million of the decrease relates to cemetery perpetual care earnings. Consolidated gross profit decreased $13.1 million to $87.7 million due to a $3.2 million decrease in funeral gross profit and a $9.9 million decrease in cemetery gross profit. Funeral gross profit decreased due to the decrease in trust-related revenue, as noted above. Cemetery gross profit decreased primarily due to the decrease in revenue, as noted above, partially offset by a decrease in charges associated with the estimated probable funding obligation to restore the net realized losses in certain of our cemetery perpetual care trusts which declined from the $13.3 million charge recorded during fiscal year 2008 to a $3.4 million charge recorded during fiscal year 2009.
     Corporate general and administrative expenses decreased $1.9 million to $30.7 million for fiscal year 2009 primarily due to fiscal year 2008 charges for professional services related to the Board’s evaluation of strategic alternatives to maximize shareholder value in connection with our response to an unsolicited acquisition proposal. We incurred $0.4 million in hurricane related charges in fiscal year 2009 compared to $2.3 million in hurricane related charges for fiscal year 2008 related to Hurricanes Katrina and Ike. During 2009, Hurricane Katrina charges consisted of litigation expenses incurred as the Company pursues its claim against its insurer. Interest expense for the period decreased $1.8 million to $22.3 million for fiscal year 2009 due to the repurchase of our senior convertible notes in the open market. Investment and other income, net decreased $2.3 million to $0.1 million primarily due to a decrease in the average rate earned on our cash balances.
     Cash flow provided by operating activities for the year ended October 31, 2009 was $84.9 million compared to $84.5 million for fiscal year 2008. The increase in operating cash flow is primarily due to a combination of tax refunds and reductions of income tax payments in fiscal year 2009 amounting to $31.6 million compared to $21.8 million in tax refunds and reductions of income tax payments in fiscal year 2008. The increase in net cash flows from tax refunds and reductions of income tax payments was partially offset by the funding of $2.7 million of the estimated probable funding obligation related to our cemetery perpetual care trust in 2009, $1.7 million of cash outflows related to Hurricanes Katrina and Ike in 2009, coupled with the timing of payments to vendors and payroll payments.
Preneed-Backlog, Trust Portfolio and Cash Impact of Sales
Overview
     We believe that preneed funeral and cemetery property sales are two of the primary drivers of sustainable long-term growth in the number of families served by our funeral homes and cemeteries. Our preneed funeral service and merchandise sales and preneed cemetery service and merchandise sales are deferred into our backlog while our preneed cemetery property sales are recognized currently in accordance with the retail land sale provisions of ASC 360-Property, Plant and Equipment. For a detailed discussion of our revenue recognition policies and how we account for our at-need sales, preneed sales and trust earnings, see Notes 2(i), 2(j), 2(k), and Notes 4 through 7 to the consolidated financial statements included in Item 8.
Backlog
     We estimate that as of October 31, 2009 and 2008 the future value of our preneed funeral and cemetery services and merchandise backlog represented approximately $1.7 billion of revenue to be recognized in the future as these prepaid products and services are delivered. This is made up of approximately $1.1 billion from trust and $0.6 billion from insurance. This represents the face value of the backlog taking into account current realized earnings not yet recognized and current unrealized gains and losses plus the earnings that are projected on the funds held in trust and the estimated build-up in the face value of insurance contracts. It assumes no future preneed sales and assumes maturities each year consistent with our experience, with the majority of existing contracts expected to mature over the next 15 years. In addition, in fiscal years 2009 and 2008, the analysis assumes a weighted annual return of 4.3 percent and 5.0 percent, respectively, projected from our trusts over the expected life of the contracts

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and a 2 percent build-up from the insurance contracts. Actual results could differ from our assumptions used in the calculation. Proceeds of these insurance policies may be used by customers for other purposes and are portable to other funeral service providers or for completely separate purposes. As of October 31, 2009 and October 31, 2008, the value of the preneed backlog, excluding any future earnings on the funds held in trust and any build-up in the face value of insurance contracts, but including unrealized earnings and losses on the funds held in trust and realized earnings and losses on the funds held in trust not yet recognized as revenue, was approximately $1.5 billion.
Supplemental Trust Portfolio Information
     We maintain three types of trusts and escrow accounts: (1) preneed funeral merchandise and services, (2) preneed cemetery merchandise and services and (3) cemetery perpetual care. The size of the trusts depends primarily upon the level of preneed sales and maturities, the amount of dividend and interest income and investment gains or losses and funds added through acquisitions, if any.
     As of October 31, 2009, approximately 9 percent of our portfolio was invested in cash, 30 percent in fixed-income securities, 14 percent in preferred stocks, 44 percent in equities and 3 percent in other investments. Because approximately 44 percent of our total trust portfolio is currently invested in equities, we would generally expect our portfolio performance to improve if the performance of the overall stock market improves, but we would also expect its performance to deteriorate if the overall stock market declines.
     During late fiscal 2008, the Company engaged a new investment consultant to review the portfolio. We reviewed alternative asset allocation models and selected a new asset allocation that is more heavily weighted toward fixed income securities. As a result, we have taken advantage of the rebound in the financial markets to rebalance the trust portfolio. We have reduced our exposure to common equities and have increased our investment in fixed income securities where we intend to generate a reasonable rate of return with a lower overall volatility for the investments. We plan to continue to reduce the volatility of our investment portfolio by adjusting our asset allocation as the financial markets improve.
     The following table presents the overall annual realized return in our domestic trusts for the years 1991 to 2009. The returns represent interest, dividends and realized capital gains or losses but not unrealized capital gains or losses.
                                                                                 
1991-1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009
8-9%
    5.8 %     6.3 %     4.3 %     4.8 %     2.6 %     4.3 %     5.1 %     4.8 %     (3.3 )%     (.4 )%
     During fiscal year 2009, we experienced positive trends in the overall market and in our preneed and perpetual care trusts. For the year ended October 31, 2009, our preneed funeral and cemetery merchandise and services trusts experienced a total return, including both realized and unrealized losses, of 15.4 percent, and our cemetery perpetual care trusts experienced a total return, including both realized and unrealized losses, of 19.9 percent.
     The table below presents the total returns of our trusts including realized and unrealized gains and losses.
                 
    Funeral and Cemetery    
    Merchandise and   Cemetery Perpetual
    Services Trusts   Care Trusts
For the year ended October 31, 2009
    15.4 %     19.9 %
For the last three years ended October 31, 2009
    (4.1 )%     (1.8 )%
For the last five years ended October 31, 2009
    1.2 %     1.7 %
For the last ten years ended October 31, 2009
    1.8 %     2.4 %
     In our preneed funeral and cemetery merchandise and services trusts, as of October 31, 2009 and October 31, 2008, the fair market value of the investments in the trusts were $192.9 million and $253.6 million, respectively, lower than our cost basis. We review our investment portfolio quarterly, and as part of that review during fiscal year 2009, we determined that we no longer had the intent to hold certain securities until they recovered their value. In addition, there were certain securities that we deemed were practically worthless as of October 31, 2008 that further declined in value during fiscal year 2009. As a result, for fiscal year 2009, we realized additional losses of $12.1

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million in our funeral and cemetery merchandise and services trusts. These losses were allocated to the underlying contracts and will affect the amount of future revenue recognized, and cash withdrawn, at the time the specific contract is performed.
     The preneed contracts we manage are long-term in nature, and we believe that the trust investments will appreciate in value over the long-term. We continue to monitor our investment portfolio closely. As of October 31, 2009 and October 31, 2008, we had $220.7 million and $240.9 million, respectively, in earnings that have been realized and allocated to contracts that will be recognized in the future as the underlying contracts are performed.
     In our cemetery perpetual care trusts, as of October 31, 2009 and October 31, 2008, the fair market value of our investments were $56.7 million and $81.0 million, respectively, lower than our cost basis. In addition, during fiscal year 2009, we realized losses of $3.4 million in our cemetery perpetual care trusts. This loss resulted in the recording of an additional funding obligation of $3.4 million included in cemetery costs in the statement of earnings for fiscal year 2009. See Note 6 to the consolidated financial statements for further information on the estimated probable funding obligation.
     Securities representing unrealized losses totaling $258.8 million were also in a loss position at October 31, 2008, up from $254.8 million at the end of last year. Based upon our review of the specific underlying securities, we continue to believe we have the ability and intent to hold these investments for the forecasted recovery period, and therefore, do not believe the losses on these securities should be realized. For each of these securities, we evaluate consensus analyst recommendations, ratings from established ratings agencies and overall market performance. Most of our common stocks are part of the S&P 500 Index, and all preferred stocks and corporate bonds had a rating of “A” or better at the time of purchase. We believe that we have sufficient cash and cash equivalents within the trusts, from cash deposits of future preneed sales and cash received from ordinary income to fund future services and allow us to hold these investments until they recover in value. Of the $258.8 million, approximately 12 percent, or $31.9 million, were generated by preferred stock investments and 78 percent, or $202.6 million, were generated by common stock investments. The market value of these securities represents approximately 49 percent of the market value of the securities in our trust portfolio. The preferred stocks are primarily in the financial services sector which has experienced a significant decline in market value due to the current economic crisis. The vast majority of these companies were rated “A” or better at the time of purchase by S&P, Moody’s or Fitch, and most continue to pay dividends. Although we cannot predict future stock prices, our management expects that the financial services sector, in particular, and the overall S&P 500 will recover and that these stocks may recover along with them.
     The table below presents the sectors in which our trust portfolio is invested and the percentage of each sector in the total trust portfolio as of October 31, 2009.
                 
    Funeral and Cemetery    
    Merchandise and   Cemetery Perpetual
    Services Trusts   Care Trusts
Sector   Percentage of Portfolio   Percentage of Portfolio
Financials
    21 %     37 %
Mutual Funds — Fixed Income
    14 %     16 %
Cash
    10 %     9 %
Information Technology
    11 %     7 %
Mutual Funds — Equity
    8 %     3 %
Healthcare
    7 %     5 %
Consumer Discretionary
    6 %     8 %
Energy
    5 %     3 %
Consumer Staples
    5 %     4 %
Industrials
    4 %     3 %
Telecommunications
    3 %     3 %
Government
    2 %     2 %
Utilities
    1 %      
Materials
    1 %      
Mortgage Securities
           
Miscellaneous
    2 %      

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     Investments in the financials sector represented 21 percent, or $107.3 million of fair market value, of our preneed funeral and cemetery merchandise and services portfolios; however, only seven percent, or $17.2 million, of the common stock within the preneed funeral and cemetery merchandise and services trust portfolio is invested in the financials sector. Investments in the financials sector represent 37 percent, or $75.9 million, of our cemetery perpetual care portfolio as of October 31, 2009, with only eight percent or $4.9 million of the common stock within the cemetery perpetual care trust portfolio invested in the financials sector. This sector has unrealized losses of $69.8 million as of October 31, 2009 in our preneed funeral and cemetery merchandise and services trusts, $23.3 million of which relate to preferred stock investments. With respect to our cemetery perpetual care trust portfolio, the financials sector has unrealized losses of $29.2 million as of October 31, 2009, $18.8 million of which relate to preferred stock investments. Risks associated with the financials sector include risk of failure of various large financial institutions, government regulation, interest rates, cost of capital funds, credit losses and volatility in financial markets.
     We also have concentrations in other sectors that may be more susceptible to additional adverse impact from the economic crisis, primarily the information technology sector. The information technology sector has unrealized losses of $42.3 million as of October 31, 2009 in our preneed funeral and cemetery merchandise and services trusts and unrealized losses of $10.7 million as of October 31, 2009 in our cemetery perpetual care trusts. The information technology sector risks include overall economic conditions, short product cycles, rapid obsolescence of products, competition and government regulation.
     We perform a separate analysis to determine whether our preneed contracts are in a loss position. None were in a loss position in fiscal year 2009. For additional information, see Note 2(m) to the consolidated financial statements and “Overview of Critical Accounting Policies” herein.
     We generate revenue related to the trusts from investment management fees earned by our subsidiary, ITI. In fiscal year 2009, these fees amounted to $8.0 million. These fees are based on the fair market value of the investments in the funeral and cemetery merchandise and services trust portfolio and cemetery perpetual care trusts, and significant changes in the fair market value of the portfolio impact the fees earned. To the extent the fair market values of our trust assets are less than those values prevailing during 2009, we would recognize less revenue from management fees than we earned in 2009 and than we have historically earned.
Impact of Preneed Sales on Near-Term Cash
     The impact of preneed sales on near-term cash flow depends primarily on the commissions paid on the sale, the timing of the tax payments on the sale, the portion of the sale required to be placed into trust and the terms of the particular contracts such as the size of the down payment required and the length of the contract. We generally pay commissions to our preneed sales counselors based on a percentage of the total preneed contract price, but only to the extent cash is paid by the customer. If the initial cash installment paid by the customer is not sufficient to cover the entire commission, the remaining commission is paid from subsequent customer installments. However, because we are required to place a portion of each cash installment paid by the customer into trust, we may be required to use our own cash to cover a portion of the commission due on the installment from the customer. Accordingly, preneed sales are generally cash flow negative initially, but may become cash flow positive at varying times over the life of the contract, depending upon the trusting requirements and the terms of the particular contract. Commissions related to preneed funeral and preneed cemetery services and merchandise sales are expensed as incurred.
     Cash flows related to earnings in our trusts, deposits and withdrawals and related matters and our cemetery perpetual care funding obligations are described in Notes 4, 5 and 6 of the consolidated financial statements.
Overview of 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 2(b) to the consolidated financial statements included in Item 8. We believe that of our significant accounting policies, the following are both most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective or complex judgment. See Note 2 to the consolidated financial statements included in Item 8.

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Deferred Revenue and Revenue Recognition
     Funeral revenue is recognized when funeral services are ultimately performed. Our funeral receivables included in current receivables primarily consist of amounts due for funeral services already performed. We sell price-guaranteed prearranged funeral contracts through various programs providing for future funeral services at prices prevailing when the agreements are signed. Revenues associated with sales of prearranged funeral contracts, which include accumulated trust earnings, are deferred until such time that the funeral services are ultimately performed. See Note 2(i) to the consolidated financial statements included in Item 8.
     Revenue associated with cemetery merchandise and services is recognized when the service is performed or merchandise is delivered. Revenue associated with preneed cemetery property interment rights is recognized in accordance with the retail land sales provision of ASC 360-Property, Plant and Equipment. Under this guidance, revenue from constructed cemetery property is not recognized until 10 percent of the sales price has been collected. Revenue related to the preneed sale of cemetery property prior to completion of its construction is recognized on a percentage of completion method of accounting. Revenue associated with sales of preneed merchandise and services is not recognized until the merchandise is delivered or the services are ultimately performed. See Note 2(j) to the consolidated financial statements included in Item 8.
     We defer all dividends and interest earned and net capital gains and losses realized by preneed funeral trust and preneed cemetery merchandise trust accounts until the underlying service or the merchandise is delivered. Unrealized capital gains and losses are not allocated to specific contracts.
     From time to time, unidentified contracts are presented to us primarily relating to contracts sold prior to the time we acquired certain businesses. In addition, from time to time, we have identified in our backlog, certain contracts in which services or merchandise have already been delivered. Using historical trends and statistical analysis, we record an estimated net liability for these items.
Perpetual Care Funding Obligation
     Certain states allow us to withdraw realized capital gains from cemetery perpetual care trusts, and other states prohibit these withdrawals. These earnings and related funds are intended to defray cemetery maintenance costs and are recorded as revenue. In the event that we have been allowed to withdraw realized gains and there are realized losses in the trust, we may determine we have a funding obligation to restore the net realized losses of the trust. A charge is recorded in the statement of earnings at the time it is considered probable that we will be required to restore the realized losses.
Loss Contract Analysis
     Each quarter we perform an analysis to determine whether our preneed contracts are in a loss position, which would necessitate a charge to earnings. For this analysis, we add the sales prices of the underlying contracts and realized earnings, then subtract realized losses to derive the net amount of proceeds for contracts as of that particular balance sheet date. We then consider unrealized gains and losses based on current market prices quoted for the investments, but we do not include future expected returns on the investments in our analysis. We compare the amount of adjusted proceeds after considering net unrealized gains and losses to the estimated direct costs to deliver the contracts, which consist primarily of funeral and cemetery merchandise costs and salaries, supplies and equipment related to the delivery of a preneed contract. If a deficiency were to exist, we would record a charge to earnings and a corresponding liability for the expected loss on the delivery of those contracts from our deferred revenue. Due to the positive margins of our preneed contracts and the trust portfolio returns we have experienced in prior years, there is currently capacity for additional market depreciation before a contract loss would occur.
Variable Interest Entities
     We consolidate our preneed funeral and cemetery merchandise and services trusts and our cemetery perpetual care trusts. For a more detailed discussion of our accounting policies including our policy for determining

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whether a loss in an investment in our trust portfolio should be considered realized and for determining whether impairments in debt securities are temporary or other than temporary, see Notes 2(k) and 4 through 7 to the consolidated financial statements included in Item 8. Insurance-funded preneed funeral contracts are not recorded on our balance sheet, as described in Note 2(i) to the consolidated financial statements included in Item 8.
Allowance for Doubtful Accounts and Sales Cancellations
     Management must make estimates of the uncollectibility of our accounts receivable. We establish a reserve for uncollectible installment contracts and trade accounts based on a range of percentages applied to accounts receivable aging categories. These percentages are based on an analysis of our historical collection and write-off experience. In addition, we establish a reserve for sales cancellations for cemetery property sales based on historical cancellations and recent write-off activity. This reserve is recorded as a reduction in cemetery revenue. We also establish an allowance for cancellations of insurance and third-party commissions based on historical experience for cancellations of insurance contracts within the period of refundability. These estimates are impacted by a number of factors, including changes in the economy and demographic or competitive changes in our areas of operation. If circumstances change, our estimates of the recoverability of amounts due to us could change by a material amount.
Depreciation of Long-Lived Assets
     Buildings and equipment are recorded at cost and are depreciated over their estimated useful lives, primarily using the straight-line method. Buildings and building improvement items are generally depreciated over a period ranging from 10 to 40 years. Equipment is generally depreciated over the following ranges: light equipment, 5 to 10 years; heavy equipment, 10 years; computer equipment, 3 to 4 years; and crematory equipment, 5 to 20 years. Vehicles are generally depreciated over 5 to 7 years. Leasehold improvements are depreciated over the shorter of the term of the lease or the life of the asset. These estimates of the useful lives may be affected by such factors as changes in regulatory requirements or changing market conditions.
Valuation of Long-Lived Assets
     We review the carrying value of our long-lived assets whenever events or circumstances indicate that the carrying amount may not be recoverable. This review is based on our projections of anticipated undiscounted future cash flows and compares the estimated undiscounted future cash flows expected to be generated by those assets to the carrying amount of those assets. The net carrying value of any assets not fully recoverable would be reduced to fair value. While we believe that our estimates of undiscounted future cash flows are reasonable, different assumptions regarding such cash flows and comparable sales values could materially affect our evaluations.
Valuation of Goodwill
     In our determination of reporting units for goodwill impairment testing purposes, both qualitative and quantitative characteristics are evaluated. Gross margins are analyzed for purposes of determining whether or not our operating regions are considered economically similar. Qualitative factors include the nature of our products and services, consistency of products and services and the delivery of those products and services in our funeral homes and cemeteries, the similarity of class of customers across all locations and regulations in different jurisdictions. Based on our evaluation, we have eight reporting units. Because goodwill impairment tests are applied at the reporting unit level, a change in reporting unit can have a material effect on the outcome of the test. See Note 2(g) to the consolidated financial statements included in Item 8 for additional information.
     Goodwill of a reporting unit must be tested for impairment on at least an annual basis. We conduct our annual goodwill impairment analysis during the fourth quarter of each fiscal year. In addition to an annual review, we assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value of goodwill may be greater than its fair value. Factors we consider important that could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the manner of the use of our assets or the strategy for our overall business and significant negative industry or economic trends.
     Goodwill was allocated to these reporting units based on the implied fair value of goodwill. The implied fair value of a reporting unit’s goodwill is determined in a manner similar to the amount of goodwill determined in a

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business combination. That is, we allocate the fair value of the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. We calculated the fair value, or enterprise value, for each of the reporting units based on a discounted cash flow analysis.
     In reviewing goodwill for impairment, we first compare the fair value of each of our reporting units with their carrying amounts (including goodwill). If the carrying amount of a reporting unit (including goodwill) exceeds its fair value, we then measure the amount of impairment of the reporting unit’s goodwill by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. An impairment charge is recorded when the carrying amount of goodwill exceeds its implied fair value. This step of our impairment test involves determining estimates of the fair values of our assets and liabilities. If these estimates or their related assumptions change in the future, including if we project lower cash flow in the future for a reporting unit than we projected when we performed our fiscal 2009 impairment test, we may be required to record an impairment charge.
     Our goodwill impairment test involves estimates and management judgment. The discounted cash flow valuation uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions and may differ from actual future cash flows. We test our results by comparing them to the trading multiples of companies in our industry and supplier industries calculated as enterprise value divided by EBITDA. We also reviewed multiples used in recent acquisition transactions within the industry. In projecting our cash flows, we used growth rates of three to five percent. We adjusted the results for our estimate of the impact of the realized losses in our trusts on our cash flows. For the discount rate, we used 9.1 percent, which reflected our weighted average cost of capital determined based on our industry and our supplier industries and capital structure as adjusted for equity risk premiums and size risk premiums based on our market capitalization. Fair value is calculated as the sum of the projected discounted cash flows of the reporting units over the next five years and terminal value at the end of those five years. The terminal value is calculated as the projected EBITDA at the end of the five year period divided by the discount rate minus terminal growth rates ranging from 2 to 3.5 percent. We considered a sensitivity analysis of the terminal values and used the midpoint enterprise value as our best estimate.
Accounting for Income Taxes
     As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax expense together with assessing temporary differences resulting from the different treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent we believe that recovery is not likely, we establish a valuation allowance. The following items are reviewed to determine if a valuation allowance is required: net operating losses (federal, state and United States possessions), capital loss carry forwards and deferred tax assets (federal, state and United States possessions). To the extent we establish a valuation allowance or increase this allowance in a period, we include an expense within the tax provision in the statement of earnings.
     Approximately one-half of the October 31, 2009 fair market value of our preneed funeral and cemetery merchandise and services trusts are in trusts for which we are the grantor. For these trusts (unlike the remaining trusts for which the customers are the grantors), we retain the income tax characteristics of all earnings as realized in the trust. For example, capital gains and losses in the trusts are capital gains and losses on our tax returns. In addition, we must recognize these earnings currently for tax purposes, while for book purposes they are deferred.
     Realized capital losses in the trusts for which we are the grantor, if we have or expect insufficient offsetting capital gains, can require us to record a valuation allowance against the related deferred tax asset (capital loss carryforward), which increases our current period effective tax rate and reduces our current period reported net earnings. Essentially, the current period valuation allowance reflects the fact that, if we cannot generate capital gains in the future against which to use the tax benefit of the capital loss (which is limited to five years), when we perform the contract, we will recognize more income and pay higher taxes for tax purposes than we will for book purposes. This tax relationship does not occur with respect to trusts for which the customer is the grantor, because

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all of their earnings are service revenue and thus ordinary income to us, and we do not recognize the revenue for either tax or book purposes until the underlying contract is performed.
     During the first quarter of fiscal year 2008, we adopted the guidance on uncertain tax positions in ASC 740-Income Taxes. This guidance prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We have reviewed our income tax positions and identified certain tax deductions or revenue deferrals that are not certain.
     With few exceptions, we are no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for fiscal years before 2006. To the extent tax, interest and penalties are not assessed with respect to uncertain tax positions in the future, amounts accrued will be reduced and reflected as a reduction of tax expense, interest expense or “other” expense.
     Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to change our allowance, which could materially impact our financial condition and results of operations.
Estimated Insurance Loss Liabilities
     We purchase comprehensive general liability, automobile liability and workers compensation insurance coverages structured within a large deductible/self-insured retention premium rating program. This program results in the Company being primarily self-insured for claims and associated costs and losses covered by these policies but below our deductible. With respect to health insurance, we purchase individual and aggregate stop loss coverage with a large deductible. This program results in the Company being primarily self-insured for claims and associated costs up to the amount of the deductible, with claims in excess of the deductible amount being covered by insurance. We also have insurance coverage related to property damage, incremental costs and property operating expenses we incurred due to damage caused by hurricanes and other natural disasters. Our policy is to record such amounts when recovery is probable, which generally means we have reached an agreement with the insurance company. For additional information, see Note 23 to the consolidated financial statements included in Item 8. We accrue for legal costs related to loss contingencies as the services are provided. If a settlement is determined to be probable, then an estimate is recorded for the settlement at that time. For additional information, see Note 2(t) to the consolidated financial statements included in Item 8.
Results of Operations
     The following discussion segregates the financial results of our operations into our three segments, grouped by our funeral and cemetery operations. Effective as of the second quarter of fiscal year 2009, we have three operating and reportable segments consisting of a funeral segment, cemetery segment and a corporate trust management segment. For a discussion of our segments, see Note 21 to the consolidated financial statements included in Item 8. Prior period data has been retrospectively adjusted to conform to the new segment presentation. As there have been no material acquisitions or construction of new locations in fiscal years 2009 and 2008, results from continuing operations reflect those of same-store locations.

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Comparison of Fiscal Year 2009 to Fiscal Year 2008
Year Ended October 31, 2009 Compared to Year Ended October 31, 2008
Funeral Operations
                         
    Year Ended October 31,  
                    Increase  
    2009     2008     (Decrease)  
    (In millions)  
Funeral Revenue:
                       
Funeral Home Locations
  $ 261.1     $ 268.3     $ (7.2 )
Corporate Trust Management (1)
    15.2       18.3       (3.1 )
 
                 
Total Funeral Revenue
  $ 276.3     $ 286.6     $ (10.3 )
 
                 
 
                       
Funeral Costs:
                       
Funeral Home Locations
  $ 210.3     $ 217.5     $ (7.2 )
Corporate Trust Management (1)
    .9       .8       .1  
 
                 
Total Funeral Costs
  $ 211.2     $ 218.3     $ (7.1 )
 
                 
 
                       
Funeral Gross Profit:
                       
Funeral Home Locations
  $ 50.8     $ 50.8     $  
Corporate Trust Management (1)
    14.3       17.5       (3.2 )
 
                 
Total Funeral Gross Profit
  $ 65.1     $ 68.3     $ (3.2 )
 
                 
Same-Store Analysis for the Years Ended October 31, 2009 and 2008
             
Change in Average Revenue   Change in Same-Store   Same-Store Cremation Rate
Per Funeral Service   Funeral Services   2009   2008
2.6%(1)
  (5.9)%   41.0%   40.0%
 
(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 based on the fair market value of assets managed and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the amount of earnings realized by the trusts over the life of the preneed contracts and allocated to those products and services delivered during the relevant periods. See Notes 3 and 6 to the 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 fiscal years 2009 and 2008 were $3.9 million and $5.1 million, respectively. Funeral trust earnings recognized in funeral revenue for fiscal years 2009 and 2008 with respect to preneed contracts delivered were $11.3 million and $13.2 million, respectively.
     Funeral revenue decreased $10.3 million, or 3.6 percent, from $286.6 million for the year ended October 31, 2008 to $276.3 million for the year ended October 31, 2009. The decrease in funeral revenue is primarily due to a $3.1 million decline in funeral revenue related to trust activities and a 5.9 percent, or 3,479 event, decrease in our same-store funeral services performed, to 55,545 events. We believe the decline is primarily due to a reduced number of deaths in our markets, when compared with the comparable prior year period. An additional 39 percent of the total decline is due to a 1,342 call decline in our West Coast operations, resulting from a decrease in low-end cremation events. Finally, we experienced a 222 call decline, or 6 percent of the total decline, in funeral services due to an additional day in the second quarter of 2008 associated with leap year. These revenue decreases were partially offset by an increase in average revenue per traditional funeral service of 3.1 percent and an increase in average revenue per cremation service of 5.7 percent. These average revenue increases were partially offset by a shift in mix to lower-priced cremation services and a decrease in funeral trust earnings resulting in an overall increase in our same-store average revenue per funeral service of 2.6 percent. The cremation rate for our same-store operations was 41.0 percent for the year ended October 31, 2009 compared to 40.0 percent for fiscal year 2008.

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     Funeral gross profit decreased $3.2 million to $65.1 million for the year ended October 31, 2009 compared to $68.3 million for the same period of 2008, due to the decrease in trust-related revenue as noted above.
Cemetery Operations
                         
    Year Ended October 31,  
                    Increase  
    2009     2008     (Decrease)  
    (In millions)  
Cemetery Revenue:
                       
Cemetery Locations
  $ 204.2     $ 232.2     $ (28.0 )
Corporate Trust Management (1)
    7.3       9.1       (1.8 )
 
                 
Total Cemetery Revenue
  $ 211.5     $ 241.3     $ (29.8 )
 
                 
 
                       
Cemetery Costs:
                       
Cemetery Locations
  $ 187.9     $ 207.9     $ (20.0 )
Corporate Trust Management (1)
    1.0       .9       .1  
 
                 
Total Cemetery Costs
  $ 188.9     $ 208.8     $ (19.9 )
 
                 
 
                       
Cemetery Gross Profit:
                       
Cemetery Locations
  $ 16.3     $ 24.3     $ (8.0 )
Corporate Trust Management (1)
    6.3       8.2       (1.9 )
 
                 
Total Cemetery Gross Profit
  $ 22.6     $ 32.5     $ (9.9 )
 
                 
 
(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 based on the fair market value of assets managed and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the amount of earnings realized by the trusts over the life of the preneed contracts and allocated to those products and services delivered during the relevant periods. See Notes 4 and 6 to the 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 fiscal years 2009 and 2008 were $4.1 million and $4.9 million, respectively, and cemetery trust earnings included in cemetery revenue for fiscal years 2009 and 2008 recognized with respect to preneed contracts delivered were $3.2 million and $4.2 million, respectively. Perpetual care trust earnings of $6.8 million and $10.7 million, respectively, for fiscal years 2009 and 2008 are included in the revenues and gross profit of the cemetery segment. See Notes 5 and 6 to the consolidated financial statements included herein for information regarding the cemetery perpetual care trusts.
     Cemetery revenue decreased $29.8 million from $241.3 million for the year ended October 31, 2008 to $211.5 million for the year ended October 31, 2009. This decrease is primarily due to a $13.7 million, or 13.2 percent, decrease in cemetery property sales, net of discounts, due primarily to current economic conditions. Approximately 40 percent of the decline in cemetery property sales occurred in Florida where the current economic environment is having the largest impact. We also experienced a $5.8 million decrease in cemetery merchandise delivered and services performed primarily due to a decline in deaths in our markets. Merchandise delivered was also impacted by a decline in merchandise sales due in part to the current economy. In addition, we experienced a $5.7 million decrease in cemetery revenue related to trust activities, of which $3.9 million of the decrease relates to cemetery perpetual care trust earnings.
     Cemetery gross profit decreased $9.9 million to $22.6 million for the year ended October 31, 2009 compared to $32.5 million for the same period of 2008. The decrease in gross profit is primarily due to the decrease in revenue, as noted above, partially offset by a decrease in the estimated probable funding obligation to restore the net realized losses in certain of our cemetery perpetual care trusts which declined from a $13.3 million charge recorded during fiscal year 2008 to a $3.4 million charge recorded during fiscal year 2009.

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Other
     Corporate general and administrative expenses decreased $1.9 million to $30.7 million for the year ended October 31, 2009 primarily due to $1.8 million in fiscal year 2008 charges for professional services related to the Board’s evaluation of strategic alternatives to maximize shareholder value in connection with our response to an unsolicited acquisition proposal.
     We incurred $0.4 million in net hurricane related charges in fiscal year 2009 compared to $2.3 million in fiscal year 2008 related to Hurricanes Katrina and Ike. The net expenses in fiscal years 2009 and 2008 associated with Hurricane Katrina primarily relate to the lawsuit we filed against our insurance carriers related to our Hurricane Katrina claim.
     Interest expense decreased $1.8 million to $22.3 million for the year ended October 31, 2009 primarily due to the repurchase of our senior convertible notes in the open market.
     Investment and other income, net decreased $2.3 million to $0.1 million due primarily to an approximate 150 basis-point decrease in the average rate earned on our cash balances. In light of economic and market conditions, we decided to seek stable investments in money-market funds invested in United States treasury securities. These investments realize a lower return.
     During fiscal year 2008, we recorded a noncash goodwill impairment charge of $26.0 million related to the cemetery operating segment.
     In fiscal year 2009, we purchased $37.6 million aggregate principal amount of our 3.125 percent senior convertible notes due 2014 and $45.0 million aggregate principal amount of our 3.375 percent senior convertible notes due 2016 in the open market, for an aggregate purchase price of $60.8 million, a substantial discount. As a result, we recorded a $20.1 million pre-tax net gain on the early extinguishment of debt during the year ended October 31, 2009.
     The effective tax rate for the year ended October 31, 2009 was 35.5 percent compared to 119.7 percent for the same period in 2008. The increased rate in fiscal year 2008 was primarily due to the $26.0 million goodwill impairment charge, of which $25.0 million was non-deductible for tax purposes. This increase was coupled with a $7.4 million valuation allowance on the unrealized capital loss carryforward of approximately $18.8 million, net of capital gains, attributable to the realized losses associated with investments of certain trusts which are recognized for tax purposes and deferred for book purposes.
     Long-term receivables decreased $7.7 million from October 31, 2008 to October 31, 2009 primarily due to the decline in current year cemetery property sales of 13.2 percent and collections of prior period sales exceeding receivables for new sales. Cemetery property increased $8.7 million primarily due to a cemetery acquisition in the first quarter of fiscal 2009. Current deferred income taxes increased $12.9 million due in large part to an increase in the net operating loss resulting from the change in tax accounting policy, discussed in Note 18 to the consolidated financial statements. Long-term deferred income taxes decreased $56.1 million from October 31, 2008 to October 31, 2009 primarily due to the change in tax accounting policy, discussed in Note 18 to the consolidated financial statements. Preneed funeral receivables and trust investments, preneed cemetery receivables and trust investments, cemetery perpetual care trust investments, deferred preneed funeral and cemetery receipts held in trust and perpetual care trusts’ corpus were all positively impacted by the recent improvement in the market value of our trust assets. For additional information, see Notes 4, 5 and 6 to our consolidated financial statements included herein.
     Accounts payable and accrued expenses decreased $4.7 million from October 31, 2008 to October 31, 2009 primarily due to the timing of payables related to professional fees and vendor payments. We automated payments to one of our major vendors which impacted the timing of payments. The estimated probable funding obligation to restore the net realized losses in certain of our cemetery perpetual care trusts increased $0.7 million from October 31, 2008 to October 31, 2009 primarily due to the $3.4 million charge in fiscal year 2009 to fund the perpetual care trusts, partially offset by the funding of $2.7 million of the estimated probable funding obligation. We purchased $82.6 million aggregate principal amount of our senior convertible notes during the year ended October 31, 2009 resulting in a decrease in long-term debt.

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Preneed Sales into the Backlog
     Net preneed funeral sales increased 0.3 percent during the year ended October 31, 2009 compared to the corresponding period in 2008.
     The revenues from our preneed funeral and cemetery merchandise and service sales are deferred into our backlog and are not included in our operating results presented above. We had $146.2 million in net preneed funeral and cemetery merchandise and service sales (including $77.4 million related to insurance-funded preneed funeral contracts) during the year ended October 31, 2009 to be recognized in the future as these prepaid products and services are delivered, compared to net sales of $151.0 million (including $76.5 million related to insurance-funded preneed funeral contracts) for the corresponding period in 2008. Insurance-funded preneed funeral contracts which will be funded by life insurance or annuity contracts issued by third-party insurers are not reflected in the condensed consolidated balance sheets.
Comparison of Fiscal Year 2008 to Fiscal Year 2007
Year Ended October 31, 2008 Compared to Year Ended October 31, 2007
Funeral Operations
                         
    Year Ended October 31,  
                    Increase  
    2008     2007     (Decrease)  
    (In millions)  
Funeral Revenue:
                       
Funeral Home Locations
  $ 268.3     $ 260.9     $ 7.4  
Corporate Trust Management (1)
    18.3       18.4       (.1 )
 
                 
Total Funeral Revenue
  $ 286.6     $ 279.3     $ 7.3  
 
                 
 
                       
Funeral Costs:
                       
Funeral Home Locations
  $ 217.5     $ 215.7     $ 1.8  
Corporate Trust Management (1)
    .8       .7       .1  
 
                 
Total Funeral Costs
  $ 218.3     $ 216.4     $ 1.9  
 
                 
 
                       
Funeral Gross Profit:
                       
Funeral Home Locations
  $ 50.8     $ 45.2     $ 5.6  
Corporate Trust Management (1)
    17.5       17.7       (.2 )
 
                 
Total Funeral Gross Profit
  $ 68.3     $ 62.9     $ 5.4  
 
                 
Same-Store Analysis for the Years Ended October 31, 2008 and 2007
             
Change in Average Revenue   Change in Same-Store   Same-Store Cremation Rate
Per Funeral Service   Funeral Services   2008   2007
3.0%(1)
  —%   39.8%   39.3%
 
(1)   Corporate trust management consists of the trust management fees and funeral merchandise and services trust earnings recognized with respect to preneed contracts delivered during the period. Trust management fees are established by us at rates consistent with industry norms based on the fair market value of assets managed and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the amount of earnings realized by the trusts over the life of the preneed contracts and allocated to those products and services delivered during the relevant periods. See Notes 4 and 7 to the consolidated financial statements included in Item 8 for information regarding the cost basis and market value of the trust assets and current performance of the trusts (i.e. current realized gains and losses, interest income and dividends). Trust management fees included in funeral revenue for 2008 and 2007 were $5.1 million and $5.9 million, respectively. Funeral trust earnings recognized in funeral revenue for 2008 and 2007 with respect to preneed contracts delivered were $13.2 million and $12.5 million, respectively.

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     Funeral revenue increased $7.3 million, or 2.6 percent, from $279.3 million for the year ended October 31, 2007 to $286.6 million for the year ended October 31, 2008. Our same-store funeral services performed remained flat with a 15 event decrease to 58,462 events. Our same-store funeral operations achieved a 2.7 percent increase in the average revenue per traditional funeral service and a 4.1 percent increase in the average revenue per cremation service due primarily to the continued refinement of new funeral packages and pricing. These increases along with a year-over-year increase in funeral trust earnings resulted in an overall increase in our same-store average revenue per funeral service of 3.0 percent. The cremation rate for our same-store operations was 39.8 percent for the year ended October 31, 2008 compared to 39.3 percent for the corresponding period in 2007.
     Funeral gross profit increased $5.4 million to $68.3 million for fiscal year 2008 compared to $62.9 million for fiscal year 2007 primarily due to the increase in revenue, as noted above. Funeral gross profit margin increased 130 basis points to 23.8 percent for fiscal year 2008 from 22.5 percent for the same period in 2007.
Cemetery Operations
                         
    Year Ended October 31,  
                    Increase  
    2008     2007     (Decrease)  
    (In millions)  
 
                       
Cemetery Revenue:
                       
Cemetery Locations
  $ 232.2     $ 233.6     $ (1.4 )
Corporate Trust Management (1)
    9.1       9.9       (.8 )
 
                 
Total Cemetery Revenue
  $ 241.3     $ 243.5     $ (2.2 )
 
                 
 
                       
Cemetery Costs:
                       
Cemetery Locations
  $ 207.9     $ 193.4     $ 14.5  
Corporate Trust Management (1)
    .9       .6       .3  
 
                 
Total Cemetery Costs
  $ 208.8     $ 194.0     $ 14.8  
 
                 
 
                       
Cemetery Gross Profit:
                       
Cemetery Locations
  $ 24.3     $ 40.2     $ (15.9 )
Corporate Trust Management (1)
    8.2       9.3       (1.1 )
 
                 
Total Cemetery Gross Profit
  $ 32.5     $ 49.5     $ (17.0 )
 
                 
 
(1)   Corporate trust management consists of the trust management fees and cemetery merchandise and services trust earnings recognized with respect to preneed contracts delivered during the period. Trust management fees are established by us at rates consistent with industry norms based on the fair market value of the assets managed and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the amount of earnings realized by the trust over the life of the preneed contracts and allocated to those products and services delivered during the relevant periods. See Notes 5 and 7 to the consolidated financial statements included in Item 8 for information regarding the cost basis and market value of the trust assets and current performance of the trusts (i.e. current realized gains and losses, interest income and dividends). Trust management fees included in cemetery revenue for 2008 and 2007 were $4.9 million and $5.3 million and cemetery trust earnings recognized in cemetery revenue for 2008 and 2007 with respect to preneed contracts delivered were $4.2 million and $4.6 million, respectively. Perpetual care trust earnings of $10.7 million and $10.2 million for fiscal years 2008 and 2007, respectively, are included in the revenues and gross profit of the cemetery segment.
     Cemetery revenue decreased $2.2 million, or 0.9 percent, from $243.5 million for the year ended October 31, 2007 to $241.3 million for the year ended October 31, 2008. The decrease is due primarily to an $8.2 million, or 7.3 percent, decrease in cemetery property sales, net of discounts, due to current economic conditions. In addition, we experienced a $3.6 million decrease in construction on various cemetery projects. In the prior year, we experienced growth due to focused efforts to reduce the production backlog in existing cemetery projects. These decreases were partially offset by a $3.2 million, or 3.5 percent, increase in cemetery merchandise delivered and services performed, a $2.8 million increase in cemetery commission income related to a new program to manage the cemetery sales at eleven Archdiocese of Los Angeles cemeteries and a $2.1 million increase related to the leasing of our mineral rights at one of our cemeteries to an outside third party.

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     Cemetery gross profit decreased $17.0 million from $49.5 million in fiscal year 2007 to $32.5 million in fiscal year 2008. The decrease in cemetery gross profit is primarily due to a $13.3 million charge recorded in the fourth quarter of 2008 for our estimated probable funding obligation to restore the net realized losses in certain of our cemetery perpetual care trusts, included in cemetery costs. See Note 6 to the consolidated financial statements for additional information.
Other
     Corporate general and administrative expenses increased $1.5 million to $32.6 million for fiscal year 2008. The increase was primarily due to a $2.3 million increase in information technology costs due in part to the implementation of new business systems and a web development project in the current year, a $1.8 million increase in costs related to our evaluation of the unsolicited acquisition proposal received from Service Corporation International in the third quarter of 2008 and a $1.5 million increase in costs related to the continuous improvement initiative that began in the first quarter of 2008. The increases were partially offset by a $2.0 million decrease in professional fees primarily due to a decrease in litigation expense and a $1.0 million decrease in depreciation expense for the year ended October 31, 2008 due to the accelerated depreciation in the prior year of our previous computer software systems associated with the implementation of the new business systems in the prior year.
     We recorded $0.6 million in separation charges during the year ended October 31, 2007 primarily related to separation pay of a former executive officer who retired in the first quarter of 2007.
     As a result of the annual goodwill impairment evaluation performed in the fourth quarter of 2008, we recorded a goodwill impairment charge of $26.0 million for the year ended October 31, 2008. For additional information, see Note 13 to the consolidated financial statements included in Item 8.
     We incurred $2.3 million in hurricane related charges in fiscal 2008 primarily related to Hurricane Ike and Hurricane Katrina. In September 2008, Hurricane Ike struck the Texas Gulf Coast and our facilities in that area were affected resulting in a $1.2 million charge primarily for debris cleanup and repairs. The $1.1 million charge in fiscal year 2008 in relation to Hurricane Katrina primarily relates to legal costs associated with ongoing insurance claims. We incurred $2.5 million in hurricane related charges for the same period of 2007 primarily due to repairs at locations damaged by Hurricane Katrina. We are continuing to pursue claims with our insurance carriers as described in Note 23 to the consolidated financial statements.
     Interest expense decreased $1.0 million to $24.1 million for the year ended October 31, 2008 primarily due to a 123 basis-point decrease in the average rate, partially offset by a $52.7 million increase in the average debt outstanding.
     Other operating income, net decreased $0.8 million to $0.9 million for the year ended October 31, 2008. The decrease is primarily due to the sale of excess cemetery property in the second quarter of fiscal year 2007 and proceeds related to the sale of an investment during fiscal year 2007.
     Investment and other income, net decreased $1.0 million to $2.4 million due primarily to a decrease in the average rate earned on our cash balances from 4.75 percent in fiscal year 2007 to 1.67 percent in fiscal year 2008. In light of economic and market conditions, we decided to seek stable investments in money-market funds invested in United States treasury securities. These investments realize a lower average rate on cash.
     As a result of the $250.0 million senior convertible note transaction in June 2007, we recorded a $0.7 million charge for the loss on early extinguishment of debt during fiscal year 2007.
     The effective tax rate for continuing operations for the year ended October 31, 2008 was 119.7 percent compared to 31.5 percent for the same period in 2007. The increased rate in 2008 was primarily due to the $26.0 million goodwill impairment charge recorded in the fourth quarter of fiscal year 2008, of which $25.0 million was non-deductible for tax purposes. This increase was coupled with a $7.4 million valuation allowance recorded on the unrealized capital loss carryforward of approximately $18.8 million, net of capital gains, attributable to the write-down of investments of certain trusts which are recognized for tax purposes and deferred for book purposes. We concluded a valuation allowance for the capital loss carryforward was necessary because it was uncertain whether

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we could generate any taxable capital gains within the carryforward period. 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, coupled with a tax benefit of $0.8 million attributable to the completion and settlement of an audit by the Commonwealth of Puerto Rico for tax periods 1999, 2000 and 2001.
     As of November 1, 2007, we adopted the required accounting guidance related to uncertain tax positions. We have reviewed our income tax positions and identified certain tax deductions or revenue deferrals that are not certain. The cumulative effect of adopting this guidance has been recorded as a $1.0 million increase to the November 1, 2007 opening balance of accumulated deficit, a $3.4 million increase in deferred tax assets and a $4.4 million increase in other long-term liabilities. For additional information, see Note 18 to the consolidated financial statements included herein.
     Our weighted average diluted shares outstanding decreased to 93.8 million shares for the year ended October 31, 2008 compared to 102.7 million shares for the same period in 2007. The decrease is primarily due to our $75.0 million stock repurchase program in which we had repurchased as of October 31, 2008, $48.4 million, or 6.6 million shares, of our Class A common stock, yielding a positive impact on earnings per share.
Preneed Sales into the Backlog
     Preneed funeral sales decreased 5.2 percent for the year ended October 31, 2008 compared to the same period in 2007 due in part to economic conditions.
     The revenues from our preneed funeral and cemetery merchandise and service sales are deferred into our backlog and are not included in our operating results presented above. We had $151.0 million in net preneed funeral and cemetery merchandise and services sales (including $76.5 million related to insurance-funded preneed funeral contracts) during the year ended October 31, 2008 to be recognized in the future as these prepaid products and services are delivered, compared to net sales of $158.4 million (including $76.9 million related to insurance-funded preneed funeral contracts) for the corresponding period in 2007.
Liquidity and Capital Resources
General
     We generate cash in our operations primarily from at-need sales, preneed sales that turn at-need, funds we are able to withdraw from our trusts and escrow accounts when preneed sales turn at-need, monies collected on preneed sales that are not required to be trusted and cemetery perpetual care trust earnings. Over the last five years, we have generated annually over $50 million in cash flow from operations. We have historically satisfied our working capital requirements with cash flows from operations. We believe that our current level of cash on hand, projected cash flows from operations and available capacity under our $95.0 million senior secured revolving credit facility will be sufficient to meet our cash requirements for the foreseeable future, although we will need to refinance the senior secured revolving credit facility in 2012 and long-term debt becoming due in 2013 through 2016, as described below.
     On June 2, 2009, we entered into a new $95.0 million senior secured revolving credit facility that replaced our previous $125.0 million revolving credit facility which was set to mature in November 2009. As a result, we recorded a $0.1 million charge for the loss on early extinguishment of debt in the third quarter of 2009. As of October 31, 2009, we had no amounts drawn on the new senior secured revolving credit facility, and our availability under the senior secured revolving credit facility, after giving consideration to $11.2 million outstanding letters of credit and the $27.1 million Florida bond, was $56.7 million. We may also request the addition of a new tranche of term loans, an increase in the commitments to the senior secured revolving credit facility or a combination thereof not to exceed $30.0 million. Our $200.0 million senior notes mature on February 15, 2013 and are currently redeemable at the redemption prices set forth in the indenture and described in Note 15 to the consolidated financial statements. We also have $167.4 million in senior convertible notes outstanding as of October 31, 2009 which mature in 2014 and in 2016. See the table below under “Contractual Obligations and Commercial Commitments” for further information on our long-term debt obligations.

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     We plan to continue to evaluate our options for deployment of cash flow as opportunities arise. We believe that the use of our cash to pay dividends, repurchase debt and stock, construct funeral homes on cemeteries of unaffiliated third parties or in strategic locations and make acquisitions of or investments in death care or related businesses are all attractive options. We believe that growing our organization through acquisitions and investments is a good business strategy, as it will enable us to enjoy the important synergies and economies of scale from our existing infrastructure. We have also redesigned our websites to support e-commerce initiatives that will provide new revenue opportunities in the future and have invested in improving our business processes. We regularly review acquisition and other strategic opportunities, which may require us to draw on our senior secured revolving credit facility or pursue additional debt or equity financing. We plan to spend approximately $6 million in fiscal year 2010 for the construction of two funeral homes, one of which is a stand-alone funeral home and one of which is part of a combination operation.
     Beginning in the fourth quarter of 2009, we increased our quarterly cash dividend on our Class A and B common stock from two and one-half cents per share to three cents per share. Dividends paid amounted to $9.7 million for fiscal year 2009. The declaration and payment of future dividends are discretionary and will be subject to determination by the Board of Directors each quarter after its review of our financial performance. In addition, during the year ended October 31, 2009, we purchased $37.6 million aggregate principal amount of our 3.125 percent senior convertible notes due 2014 and $45.0 million aggregate principal amount of our 3.375 percent senior convertible notes due 2016 in the open market at significant discounts. As a result of these transactions, we recorded $20.2 million in pre-tax gains on early extinguishment of debt during the year ended October 31, 2009. The annual cash interest savings from the debt purchased during the year ended October 31, 2009 is $2.7 million. We also have a $75.0 million stock repurchase program, of which $26.5 million remains available as of October 31, 2009. Repurchases under the program are limited to our Class A common stock, and are made in the open market or in privately negotiated transactions at such times and in such amounts as management deems appropriate, depending upon market conditions and other factors.
     During the third quarter of 2009, the Internal Revenue Service approved a change in one of our tax accounting policies that will result in a combination of refunds and reductions of federal income tax payments totaling approximately $32.0 million. Of that amount, $17.9 million was received as a refund in fiscal year 2009, approximately $1.6 million is expected to be received as a refund by the end of the first quarter of 2010, approximately $8.0 million was used to offset estimated tax payments during fiscal 2009, and the remaining approximately $4.5 million is expected to be used to offset future federal income tax payments. The change relates to our tax accounting policy for preneed contracts in one state. For those contracts, we were recognizing income for tax purposes (and paying taxes) relating to amounts received from customers and placed in trust at the time the cash was received from the customers. This policy related to approximately $89.4 million of income that was taxed prior to the actual delivery of the merchandise or services. The change permits us to defer recognition of income for tax purposes (and pay taxes) with respect to those amounts until the time the service is actually performed or the merchandise is actually delivered and cash is withdrawn from the trust, which generally aligns our book and tax accounting for these amounts and is consistent with our approach in the other states. The change essentially allowed us to apply the approximately $89.4 million reversal of previously reported taxable income to reduce taxable income for fiscal years 2006, 2007, 2008, 2009 and potentially part of 2010. We will eventually have to pay federal income taxes with respect to the $89.4 million as the related preneed contracts are performed in the future.
     We are continuing to review all of our tax accounting policies to determine opportunities to improve our current tax position. Several possible changes are being considered that could result in potential tax refunds or reductions in future tax payments. At this time, we cannot predict with certainty what, if any, additional refunds or reduced payments we will obtain.
Cash Flow
Comparison of Fiscal Year 2009 to Fiscal Year 2008
     Our operations provided cash of $84.9 million for the year ended October 31, 2009, compared to $84.5 million for the corresponding period in 2008. The increase in operating cash flow is primarily due to a combination of tax refunds and reductions of income tax payments in fiscal year 2009 amounting to $31.6 million compared to $21.8 million in tax refunds and reductions of income tax payments in fiscal year 2008. The increase in net cash flows from tax refunds and reductions of

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income tax payments was partially offset by the funding of $2.7 million of the estimated probable funding obligation related to our cemetery perpetual care trust in 2009, $1.7 million of cash outflows related to Hurricanes Katrina and Ike in 2009, coupled with the timing of payments to vendors and payroll payments.
     Our investing activities resulted in a net cash outflow of $22.3 million for the year ended October 31, 2009, compared to a net cash outflow of $27.4 million for the comparable period in 2008. The change is due in part to a decline in capital expenditures due to a change in our policy to expand our fleet leasing program. For the year ended October 31, 2009, capital expenditures amounted to $21.2 million, which included $13.1 million for maintenance capital expenditures, $5.9 million for growth initiatives and $2.2 million related to the implementation of new business systems. For the year ended October 31, 2008, capital expenditures were $27.0 million, which included $17.4 million for maintenance capital expenditures, $1.0 million for growth initiatives, $2.9 million related to Hurricane Katrina and $5.7 million related to the implementation of new business systems. We also purchased a cemetery business in the first quarter of fiscal year 2009 resulting in a net cash outflow of $1.6 million.
     Our financing activities resulted in a net cash outflow of $72.3 million for the year ended October 31, 2009, compared to a net cash outflow of $56.1 million for the comparable period in 2008. We had $60.9 million in repayments of long-term debt in 2009 due primarily to the purchases of our senior convertible notes, compared to $0.2 million in repayments in 2008. In fiscal year 2008, we made $48.6 million in stock repurchases under our current stock repurchase plan, compared to less than $0.1 million in stock repurchases during 2009.
Comparison of Fiscal Year 2008 to Fiscal Year 2007
     Our operations provided cash of $84.5 million for the year ended October 31, 2008, compared to $81.9 million for the corresponding period in 2007. The increase in operating cash flow is primarily due to $9.3 million in net tax payments made in fiscal year 2007 compared to $4.0 million in net tax refunds received in fiscal year 2008, which included approximately $21.8 million in tax refunds in 2008 compared to $5.8 million in refunds in 2007. These increases are partially offset by $3.2 million of business interruption insurance proceeds and $1.3 million of insurance proceeds, net of expenses, related to Hurricane Katrina, received in fiscal year 2007. In addition, in fiscal year 2007, we withdrew $2.1 million of unusual trust withdrawals related to the deferred revenue project and received $2.1 million due to the execution of a lease of our mineral rights at one of our cemeteries to an outside third party.
     Our investing activities resulted in a net cash outflow of $27.4 million for the year ended October 31, 2008, compared to a net cash outflow of $34.2 million for the comparable period in 2007. The change is primarily due to the fact that we purchased several properties in 2007 resulting in a net cash outflow of $5.2 million compared to $1.4 million in 2008 and due to a decline in capital expenditures related to Hurricane Katrina. For the year ended October 31, 2008, capital expenditures amounted to $27.0 million, which included $17.4 million for maintenance capital expenditures, $1.0 million for growth initiatives, $2.9 million related to Hurricane Katrina and $5.7 million related to the implementation of new business systems. For the year ended October 31, 2007, capital expenditures were $35.3 million, which included $18.9 million for maintenance capital expenditures, $3.5 million for growth initiatives, $8.4 million related to Hurricane Katrina and $4.5 million related to the implementation of new business systems. In the year ended October 31, 2008, there were no insurance proceeds related to hurricane damaged properties compared to $2.5 million in the same period in 2007.
     Our financing activities resulted in a net cash outflow of $56.1 million for the year ended October 31, 2008, compared to a net cash outflow of $20.1 million for the comparable period in 2007. This change is primarily due to net debt proceeds of $73.5 million ($250.0 million in proceeds of long-term debt and $176.5 million in repayments of long-term debt) in 2007. There were $0.2 million in debt repayments in 2008. In June 2007, we issued $250.0 million in senior convertible notes. As part of this debt transaction, we prepaid the remaining balance of our Term Loan B for $164.0 million, sold common stock warrants and purchased call options resulting in a net cash outflow of $16.2 million and recorded debt issuance costs of $6.2 million. Also, as part of this debt transaction, we repurchased approximately 7.7 million shares of our Class A common stock for $64.2 million, compared to $48.6 million in cash outflows related to our stock repurchase program in 2008.

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Contractual Obligations and Commercial Commitments
     As of October 31, 2009, our outstanding debt balance totaled $367.5 million. We have contractual obligations requiring future cash payments under existing contractual arrangements. The following table details our known future cash payments (in millions) related to various contractual obligations as of October 31, 2009.
                                         
    Payments Due by Period  
            Fiscal Year     Fiscal Years     Fiscal Years        
Contractual Obligations   Total     2010     2011-2012     2013-2014     Thereafter  
Long-term debt obligations (1)
  $ 367.5     $     $     $ 287.4     $ 80.1  
Interest on long-term debt (2)
    76.4       17.9       35.9       17.1       5.5  
Operating lease agreements (3)
    31.0       4.5       6.0       3.8       16.7  
Purchase obligations (4)
    2.7       2.7                    
Non-competition and other agreements (5)
    1.5       .4       .5       .2       .4  
 
                             
 
  $ 479.1     $ 25.5     $ 42.4     $ 308.5     $ 102.7  
 
                             
 
(1)   See below for a breakdown of future scheduled principal payments and maturities of our long-term debt by type as of October 31, 2009.
 
(2)   Includes contractual interest payments for our senior convertible notes, senior notes and third-party debt.
 
(3)   Our noncancellable operating leases are primarily for land and buildings and expire over the next 1 to 14 years, except for eight leases that expire between 2032 and 2039. Our future minimum lease payments for all operating leases as of October 31, 2009 were $4.5 million, $3.3 million, $2.7 million, $2.1 million, $1.7 million and $16.7 million for the years ending October 31, 2010, 2011, 2012, 2013, 2014 and later years, respectively.
 
(4)   Represents a construction contract for a funeral home.
 
(5)   This category includes payments pursuant to non-competition agreements with prior owners and key employees of acquired businesses and separation pay related to former executive officers.
     The following table details our known potential or possible future cash payments related to the specified contingent obligations as of October 31, 2009.
                                         
    Expiration by Period  
            Fiscal Year     Fiscal Years     Fiscal Years        
Contingent Obligations   Total     2010     2011-2012     2013-2014     Thereafter  
Cemetery perpetual care trust funding obligation(1)
  $ 14.0     $ 14.0     $     $     $  
Long-term obligations related to uncertain tax positions(2)
    3.5                         3.5  
 
                             
 
  $ 17.5     $ 14.0     $     $     $ 3.5  
 
                             
 
(1)   In those states where we have withdrawn realized net capital gains in the past from our cemetery perpetual care trusts, regulators may seek replenishment of the realized net capital losses either by requiring a cash deposit to the trust or by prohibiting or restricting withdrawals of future earnings until they cover the loss. The estimated probable funding obligation in the cemetery perpetual care trusts in these states was $14.0 million as of October 31, 2009, and we recorded this as an increase in cemetery costs in fiscal years 2009 and 2008. As of October 31, 2009, we had unrealized losses of $48.2 million in the trusts in these states. Because some of these trusts currently have assets with a fair market value less than the aggregate amounts required to be contributed to the trust, any additional realized net capital losses in these trusts may result in a corresponding funding liability and increase in cemetery costs. In those states where realized net capital gains have not been withdrawn, we believe it is reasonably possible that additional funding obligations may exist with an estimated amount of approximately $3.5 million.
 
(2)   As discussed in Note 18 to the consolidated financial statements included in Item 8, we adopted the required

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    accounting guidance related to uncertain tax positions on November 1, 2007. In accordance with this guidance, as of October 31, 2009, we recorded $3.5 million of unrecognized tax benefits and related interest and penalties. Due to the uncertainty regarding the timing and completion of audits and possible outcomes, it is not possible to estimate the range of increase and decrease and the timing thereof of any potential cash payments.
     As of October 31, 2009, our outstanding debt balance was $367.5 million, consisting of $167.4 million in senior convertible notes, $200.0 million of 6.25 percent senior notes and $0.1 million of other debt. There were no amounts drawn on the senior secured revolving credit facility. The following table reflects future scheduled principal payments and maturities of our long-term debt (in millions) as of October 31, 2009.
                                         
                            Other        
    Senior                     Principally        
    Secured                     Seller        
    Revolving     Senior             Financing of        
Fiscal Year Ending   Credit     Convertible             Acquired        
October 31,   Facility     Notes     Senior Notes     Operations     Total  
2010
  $     $     $     $     $  
2011
                             
2012
                             
2013
                200.0             200.0  
2014
          87.4                   87.4  
Thereafter
          80.0             .1       80.1  
 
                             
Total long-term debt
  $     $ 167.4     $ 200.0     $ .1     $ 367.5  
 
                             
Off-Balance Sheet Arrangements
     Our off-balance sheet arrangements as of October 31, 2009 consist of the following two items:
(1)   the $27.1 million bond we are required to maintain to guarantee our obligations relating to funds we withdrew in fiscal year 2001 from our preneed funeral trusts in Florida, which is discussed in Note 20 to the consolidated financial statements included in Item 8; and
(2)   the insurance-funded preneed funeral contracts, which will be funded by life insurance or annuity contracts issued by third-party insurers, are not reflected in our consolidated balance sheets, and are discussed in Note 2(i) to the consolidated financial statements included in Item 8.
Ratio of Earnings to Fixed Charges
     Our ratio of earnings to fixed charges was as follows:
                 
Years ended October 31,
2009   2008   2007   2006   2005
3.29 (1)
  1.72 (2)   3.05 (3)   2.83 (4)   1.34 (5)(6)
 
(1)   Pre-tax earnings for fiscal year 2009 include a $20.1 million pre-tax net gain on the early extinguishment of debt due to fiscal year 2009 debt repurchases, a $3.4 million charge related to the estimated probable funding obligation to fund the cemetery perpetual care trust net realized losses, a $0.4 million charge for hurricane related expenses, a $0.3 million charge for separation charges primarily related to the retirement of an executive officer and gains on dispositions, net of impairment losses of ($0.2) million.
 
(2)   Pre-tax earnings for fiscal year 2008 include a charge of $2.3 million related to Hurricanes Katrina and Ike, a charge of $26.0 million for impairment of goodwill, a $13.3 million charge related to the estimated probable obligation to fund the cemetery perpetual care trust net realized losses and gains on dispositions, net of impairment losses of ($0.4) million.
 
(3)   Pre-tax earnings for fiscal year 2007 include a charge of $2.5 million related to Hurricane Katrina, a charge of

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    $0.6 million for separation charges primarily related to separation pay of a former executive officer who retired in the first quarter of 2007 and $0.7 million for the loss on early extinguishment of debt related to the June 2007 senior convertible debt transaction.
 
(4)   Pre-tax earnings for fiscal year 2006 includes a net recovery of $1.6 million related to Hurricane Katrina, business interruption proceeds of $3.2 million related to Hurricane Katrina, a charge of $1.0 million for separation charges related to July 2005 restructuring of our divisions and the retirement of an executive officer and gains on dispositions, net of impairment losses of ($0.2) million.
 
(5)   Pre-tax earnings for fiscal year 2005 include a charge of $9.4 million for expenses related to Hurricane Katrina, a charge of $1.5 million for separation charges related to the July 2005 restructuring of our divisions, $1.3 million of gains on disposition, net of impairment losses and $32.8 million for the loss on early extinguishment of debt related to the 2005 debt refinancings.
 
(6)   Excludes the cumulative effect of change in accounting principles.
     For purposes of computing the ratio of earnings to fixed charges, earnings consist of pre-tax earnings from continuing operations 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.
Effect of Recent Accounting Standards
     For additional information on changes in accounting principles and new accounting principles, see Note 3 to the consolidated financial statements included in Item 8.
Inflation
     Inflation has not had a significant impact on our operations over the past three years, nor is it expected to have a significant impact in the foreseeable future.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
     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.
Marketable Equity Securities
     As of October 31, 2009 and 2008, our marketable equity securities subject to market risk consisted principally of investments held by our preneed funeral and cemetery merchandise and services trusts and our cemetery perpetual care trusts and escrow accounts and had fair values of $378.2 million and $387.4 million, respectively, which were determined using final sale prices quoted on stock exchanges. Each 10 percent change in the average market prices of the equity securities held in our preneed funeral and cemetery merchandise and services trusts and our cemetery perpetual care trusts would result in a change of approximately $37.8 million and $38.7 million, respectively, in the fair value of such accounts.
     Our preneed funeral and cemetery merchandise and services trusts and our cemetery perpetual care trusts and escrow accounts, all of which are managed by ITI, are further discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, and in Notes 4, 5 and 6 to our consolidated

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financial statements included in Item 8. ITI operates pursuant to a formal investment policy as discussed in “Operations” included in Item 1.
Interest
     We have entered into various fixed- and variable-rate debt obligations, which are detailed in Note 15 to our consolidated financial statements included in Item 8.
     As of October 31, 2009, our long-term fixed-rate debt consists of our $200.0 million 6.25 percent senior notes, $87.4 million 3.125 percent senior convertible notes, $80.0 million 3.375 percent senior convertible notes and our third-party debt. There was nothing drawn on our $95.0 million senior secured revolving credit facility. As of October 31, 2009 and 2008, the carrying values of our long-term fixed-rate debt, including accrued interest, were approximately $371.7 million and $455.1 million, respectively, compared to fair values of $339.4 million and $331.6 million, respectively. Fair values were determined using quoted market prices. Each approximate 10 percent change in the average interest rates applicable to determine the fair value of such debt, 70 basis points for 2009 and 115 basis points for 2008, would result in changes of approximately $9.0 million and $17.6 million, respectively, in the fair values of these instruments. If these instruments are held to maturity, no change in fair value will be realized.
     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, entering into interest rate swaps or refinancing any balances outstanding under our variable-rate senior secured revolving credit facility with fixed-rate debt.
     As of October 31, 2009 and 2008, our fixed-income securities subject to market risk consisted principally of investments in our preneed funeral and cemetery merchandise and services trusts and our cemetery perpetual care trusts and escrow accounts and had aggregate quoted market values of $112.9 million and $131.5 million, respectively. Each 10 percent change in interest rates on these fixed-income securities would result in changes of approximately $2.3 million and $3.1 million, respectively, in the fair values of such securities based on discounted expected future cash flows. If these securities are held to maturity, no change in fair value will be realized.
     As of October 31, 2009 and 2008, our mutual funds, money market and other short-term investments subject to market risk, including amounts held in preneed funeral and cemetery merchandise and services trusts, and in our cemetery perpetual care trusts, had carrying values approximating their fair values of $236.1 million and $138.6 million, respectively. Under our current accounting methods, a change in the average interest rate earned by our preneed funeral and cemetery merchandise and services trusts would not result in a change in our current pre-tax earnings. As such, as of October 31, 2009 and 2008, only $58.8 million and $25.3 million, respectively, of these short-term investments, which includes amounts in the cemetery perpetual care trusts and other short-term investments not held in trust, were subject to changes in interest rates. Each 10 percent change in average interest rates applicable to such investments, 10 basis points for 2009 and 2008, would result in changes of less than $0.1 million for 2009 and 2008 in our pre-tax earnings.
     The fixed-income securities, mutual funds, money market and other short-term investments owned by us are principally invested in our preneed funeral and cemetery merchandise and services trusts and our cemetery perpetual care trusts and escrow accounts, which are managed by ITI. ITI operates pursuant to a formal investment policy approved by the Investment Committee of our Board of Directors as discussed above.

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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Stewart Enterprises, Inc.
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Stewart Enterprises, Inc. and its subsidiaries at October 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2009 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
December 17, 2009

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share amounts)
                         
    Year Ended October 31,  
    2009     2008     2007  
 
                       
Revenues:
                       
Funeral
  $ 276,330     $ 286,607     $ 279,330  
Cemetery
    211,477       241,276       243,487  
 
                 
 
    487,807       527,883       522,817  
 
                 
 
                       
Costs and expenses:
                       
Funeral
    211,201       218,228       216,375  
Cemetery
    188,866       208,838       194,012  
 
                 
 
    400,067       427,066       410,387  
 
                 
Gross profit
    87,740       100,817       112,430  
Corporate general and administrative expenses
    (30,670 )     (32,611 )     (31,143 )
Impairment of goodwill
          (25,952 )      
Hurricane related charges, net
    (380 )     (2,297 )     (2,533 )
Separation charges
    (275 )           (580 )
Gains on dispositions and impairment (losses), net
    (218 )     (353 )     (44 )
Other operating income, net
    1,250       819       1,651  
 
                 
Operating earnings
    57,447       40,423       79,781  
Interest expense
    (22,353 )     (24,115 )     (25,065 )
Gain (loss) on early extinguishment of debt
    20,078             (677 )
Investment and other income, net
    92       2,406       3,374  
 
                 
Earnings from continuing operations before income taxes
    55,264       18,714       57,413  
Income taxes
    19,611       22,407       18,099  
 
                 
Earnings (loss) from continuing operations
    35,653       (3,693 )     39,314  
 
                 
Discontinued operations:
                       
Earnings from discontinued operations before income taxes
                807  
Income taxes
                308  
 
                 
Earnings from discontinued operations
                499  
 
                 
 
                       
Net earnings (loss)
  $ 35,653     $ (3,693 )   $ 39,813  
 
                 
 
                       
Basic earnings (loss) per common share:
                       
Earnings (loss) from continuing operations
  $ .39     $ (.04 )   $ .38  
Earnings from discontinued operations
                .01  
 
                 
Net earnings (loss)
  $ .39     $ (.04 )   $ .39  
 
                 
 
                       
Diluted earnings (loss) per common share:
                       
Earnings (loss) from continuing operations
  $ .39     $ (.04 )   $ .38  
Earnings from discontinued operations
                .01  
 
                 
Net earnings (loss)
  $ .39     $ (.04 )   $ .39  
 
                 
 
                       
Weighted average common shares outstanding (in thousands):
                       
Basic
    91,898       93,795       102,584  
 
                 
Diluted
    91,995       93,795       102,737  
 
                 
 
                       
Dividends declared per common share
  $ .105     $ .10     $ .10  
 
                 
See accompanying notes to consolidated financial statements.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
                 
    October 31,  
    2009     2008  
ASSETS                
Current assets:
               
Cash and cash equivalents
  $ 62,808     $ 72,574  
Marketable securities
          55  
Receivables, net of allowances
    59,439       59,129  
Inventories
    36,156       35,870  
Prepaid expenses
    6,748       7,317  
Deferred income taxes, net
    21,715       8,798  
 
           
Total current assets
    186,866       183,743  
Receivables due beyond one year, net of allowances
    63,011       70,671  
Preneed funeral receivables and trust investments
    389,512       368,412  
Preneed cemetery receivables and trust investments
    193,417       182,141  
Goodwill
    247,236       247,236  
Cemetery property, at cost
    385,977       377,271  
Property and equipment, at cost:
               
Land
    43,677       43,677  
Buildings
    329,685       319,463  
Equipment and other
    187,100       178,534  
 
           
 
    560,462       541,674  
Less accumulated depreciation
    261,005       236,066  
 
           
Net property and equipment
    299,457       305,608  
Deferred income taxes, net
    123,395       179,515  
Cemetery perpetual care trust investments
    205,476       173,090  
Non-current assets held for sale
          354  
Other assets
    14,654       16,474  
 
           
Total assets
  $ 2,109,001     $ 2,104,515  
 
           
(continued)

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
                 
    October 31,  
    2009     2008  
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY                
 
               
Current liabilities:
               
Current maturities of long-term debt
  $ 5     $ 20  
Accounts payable and accrued expenses
    25,604       30,279  
Accrued payroll and other benefits
    15,200       14,133  
Accrued insurance
    20,504       21,287  
Accrued interest
    4,561       5,864  
Estimated obligation to fund cemetery perpetual care trust
    14,010       13,281  
Other current liabilities
    14,099       13,571  
Income taxes payable
    2,028       2,061  
 
           
Total current liabilities
    96,011       100,496  
Long-term debt, less current maturities
    367,491       450,095  
Deferred preneed funeral revenue
    247,825       245,182  
Deferred preneed cemetery revenue
    266,964       275,835  
Deferred preneed funeral and cemetery receipts held in trust
    514,787       475,420  
Perpetual care trusts’ corpus
    204,168       171,371  
Other long-term liabilities
    20,871       20,479  
 
           
Total liabilities
    1,718,117       1,738,878  
 
           
Commitments and contingencies (Note 20)
               
 
           
Shareholders’ equity:
               
Preferred stock, $1.00 par value, 5,000,000 shares authorized; no shares issued
           
Common stock, $1.00 stated value:
               
Class A authorized 200,000,000 shares; issued and outstanding 89,128,700 and 88,693,127 shares at October 31, 2009 and 2008, respectively
    89,129       88,693  
Class B authorized 5,000,000 shares; issued and outstanding 3,555,020 shares at October 31, 2009 and 2008; 10 votes per share convertible into an equal number of Class A shares
    3,555       3,555  
Additional paid-in capital
    526,062       536,902  
Accumulated deficit
    (227,897 )     (263,550 )
Accumulated other comprehensive income :
               
Unrealized appreciation of investments
    35       37  
 
           
Total accumulated other comprehensive income
    35       37  
 
           
Total shareholders’ equity
    390,884       365,637  
 
           
Total liabilities and shareholders’ equity
  $ 2,109,001     $ 2,104,515  
 
           
See accompanying notes to consolidated financial statements.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands, except per share amounts)
                                         
                            Unrealized        
                            Appreciation     Total  
    Common     Additional 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
                39,813             39,813  
 
                                       
Other comprehensive income:
                                       
Unrealized appreciation of investments, net of deferred tax expense of ($8)
                      14       14  
 
                             
Total other comprehensive income
                      14       14  
 
                             
Total comprehensive income
                39,813       14       39,827  
 
                                       
Restricted stock activity
    531       (144 )                 387  
Issuance of common stock
    213       1,249                   1,462  
Stock options exercised
    411       2,221                   2,632  
Stock option expense
          1,576                   1,576  
Tax benefit associated with stock options exercised
          76                   76  
Purchase and retirement of common stock
    (7,698 )     (56,503 )                 (64,201 )
Purchase of call options, net of tax benefit of $21,000
          (39,000 )                 (39,000 )
Sale of common stock warrants
          43,850                   43,850  
Dividends ($.10 per share)
          (10,184 )                 (10,184 )
 
                             
Balance October 31, 2007
  $ 98,420     $ 583,789     $ (258,902 )   $ 11     $ 423,318  
 
                             
(continued)

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands, except per share amounts)
                                         
                            Unrealized     Total  
    Common     Additional Paid-In     Accumulated     Appreciation     Shareholders’  
    Stock(1)     Capital     Deficit     of Investments     Equity  
 
                                       
Balance October 31, 2007
  $ 98,420     $ 583,789     $ (258,902 )   $ 11     $ 423,318  
 
                                       
Comprehensive income (loss):
                                       
Net loss
                (3,693 )           (3,693 )
 
                                       
Other comprehensive income:
                                       
Unrealized appreciation of investments, net of deferred tax expense of ($15)
                      26       26  
 
                             
Total other comprehensive income
                      26       26  
 
                             
Total comprehensive income (loss)
                (3,693 )     26       (3,667 )
Cumulative effect of adoption of uncertain tax position guidance in ASC 740
                (955 )           (955 )
Restricted stock activity
    9       440                   449  
Issuance of common stock
    172       1,082                   1,254  
Stock options exercised
    265       1,249                   1,514  
Stock option expense
          1,544                   1,544  
Tax benefit associated with stock options exercised
          181                   181  
Purchase and retirement of common stock
    (6,618 )     (42,009 )                 (48,627 )
Dividends ($.10 per share)
          (9,374 )                 (9,374 )
 
                             
Balance October 31, 2008
  $ 92,248     $ 536,902     $ (263,550 )   $ 37     $ 365,637  
 
                             
                                         
                            Unrealized        
                            Appreciation     Total  
    Common     Additional Paid-In     Accumulated     (Depreciation)     Shareholders’  
    Stock(1)     Capital     Deficit     of Investments     Equity  
 
                                       
Balance October 31, 2008
  $ 92,248     $ 536,902     $ (263,550 )   $ 37     $ 365,637  
 
                                       
Comprehensive income (loss):
                                       
Net earnings
                35,653             35,653  
 
                                       
Other comprehensive loss:
                                       
Unrealized depreciation of investments, net of deferred tax benefit of $2
                      (2 )     (2 )
 
                             
Total other comprehensive loss
                      (2 )     (2 )
 
                             
Total comprehensive income (loss)
                35,653       (2 )     35,651  
Restricted stock activity
    270       373                   643  
Issuance of common stock
    182       422                   604  
Stock option expense
          1,180                   1,180  
Tax benefit associated with stock activity
          (126 )                 (126 )
Purchase and retirement of common stock
    (16 )     (59 )                 (75 )
Retirement of call options, net of tax expense of $3,050
          5,664                   5,664  
Retirement of common stock warrants
          (8,560 )                 (8,560 )
Dividends ($.105 per share)
          (9,734 )                 (9,734 )
 
                             
Balance October 31, 2009
  $ 92,684     $ 526,062     $ (227,897 )   $ 35     $ 390,884  
 
                             
 
(1)   Amount includes shares of Class A common stock with a stated value of $1 per share, and includes 3,555 shares (in thousands) of Class B common stock.
See accompanying notes to consolidated financial statements.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share amounts)
                         
    Year Ended October 31,  
    2009     2008     2007  
Cash flows from operating activities:
                       
Net earnings (loss)
  $ 35,653     $ (3,693 )   $ 39,813  
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
                       
(Gains) on dispositions and impairment losses, net
    218       353       (565 )
Impairment of goodwill
          25,952        
(Gain) loss on early extinguishment of debt
    (20,078 )           677  
Depreciation and amortization
    29,381       28,275       27,638  
Provision for doubtful accounts
    7,916       7,995       9,756  
Share-based compensation
    2,204       2,819       2,687  
Excess tax benefits from share-based payment arrangements
          (227 )     (153 )
Provision for deferred income taxes
    16,914       7,174       4,337  
Estimated obligation to fund cemetery perpetual care trust
    3,421       13,281        
Other
    158       443       908  
Changes in assets and liabilities:
                       
(Increase) decrease in receivables
    4,216       (3,058 )     (10,260 )
(Increase) decrease in prepaid expenses
    569       (1,031 )     73  
Increase in inventories and cemetery property
    (553 )     (2,509 )     (4,365 )
Federal income tax refunds
    18,018       15,165       2,465  
Increase (decrease) in accounts payable and accrued expenses
    (7,674 )     2,623       1,741  
Net effect of preneed funeral production and maturities:
                       
Decrease in preneed funeral receivables and trust investments
    16,335       36,604       4,167  
Increase (decrease) in deferred preneed funeral revenue
    2,642       (11,067 )     (15,435 )
Increase (decrease) in deferred preneed funeral receipts held in trust
    (13,932 )     (30,642 )     10,867  
Net effect of preneed cemetery production and deliveries:
                       
Decrease in preneed cemetery receivables and trust investments
    12,069       15,910       5,042  
Decrease in deferred preneed cemetery revenue
    (16,276 )     (8,673 )     (11,807 )
Increase (decrease) in deferred preneed cemetery receipts held in trust
    (7,482 )     (9,599 )     11,681  
Increase (decrease) in other
    1,176       (1,572 )     2,674  
 
                 
Net cash provided by operating activities
    84,895       84,523       81,941  
 
                 
 
                       
Cash flows from investing activities:
                       
Proceeds from sales of marketable securities
    250       20,219        
Purchases of marketable securities
    (197 )     (19,956 )     (1 )
Proceeds from sale of assets
    724       599       3,750  
Purchase of subsidiaries and other investments, net of cash acquired
    (1,923 )     (1,378 )     (5,203 )
Insurance proceeds related to hurricane damaged properties
                2,529  
Additions to property and equipment
    (21,238 )     (26,995 )     (35,310 )
Other
    49       144       49  
 
                 
Net cash used in investing activities
    (22,335 )     (27,367 )     (34,186 )
 
                 
 
                       
Cash flows from financing activities:
                       
Proceeds from long-term debt
                250,000  
Repayments of long-term debt
    (60,860 )     (198 )     (176,547 )
Debt issue costs
                (6,217 )
Proceeds from sale of common stock warrants
                43,850  
Retirement of common stock warrants
    (8,560 )            
Issuance of common stock
    299       1,845       3,066  
Purchase of call options
                (60,000 )
Retirement of call options
    8,714              
Purchase and retirement of common stock
    (75 )     (48,627 )     (64,201 )
Debt refinancing costs
    (2,110 )            
Dividends
    (9,734 )     (9,374 )     (10,184 )
Excess tax benefits from share-based payment arrangements
          227       153  
 
                 
Net cash used in financing activities
    (72,326 )     (56,127 )     (20,080 )
 
                 
 
                       
Net increase (decrease) in cash
    (9,766 )     1,029       27,675  
Cash and cash equivalents, beginning of year
    72,574       71,545       43,870  
 
                 
Cash and cash equivalents, end of year
  $ 62,808     $ 72,574     $ 71,545  
 
                 
 
                       
Supplemental cash flow information:
                       
Cash paid (received) during the year for:
                       
Income taxes, net
  $ (14,353 )   $ (3,980 )   $ 9,276  
Interest
  $ 22,331     $ 22,120     $ 24,772  
Non-cash investing and financing activities:
                       
Issuance of common stock to executive officers and directors
  $ 305     $ 923     $ 1,028  
Issuance of restricted stock, net of forfeitures
  $ 20     $ 162     $ 4,136  
See accompanying notes to consolidated financial statements.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(1) 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 October 31, 2009, the Company owned and operated 218 funeral homes and 140 cemeteries in 24 states within the United States and Puerto Rico. As discussed in Note 21, effective for the second quarter of fiscal year 2009, the Company has three operating and reportable segments consisting of a funeral segment, cemetery segment and corporate trust management segment.
(2) Summary of Significant Accounting Policies
     (a) Principles of Consolidation
     The accompanying consolidated financial statements include the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.
     (b) Use of Estimates
     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 and these differences could be material.
     (c) Fair Value of Financial Instruments
     Estimated fair value amounts have been determined using available market information and the valuation methodologies described below. However, considerable judgment is required in interpreting market data to develop estimates of fair value. The use of different market assumptions or valuation methodologies could have a material effect on the estimated fair value amounts.
     The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company deposits its cash and cash equivalents with financial institutions. Such balances typically exceed applicable FDIC insurance limits. The carrying amounts of cash and cash equivalents and current receivables approximate fair value due to the short-term nature of these instruments. The carrying amount of receivables due beyond one year approximates fair value because they bear interest at rates currently offered by the Company for receivables with similar terms and maturities.
     The carrying amounts of securities included in preneed funeral trust investments, preneed cemetery trust investments and cemetery perpetual care trust investments are stated at fair value, as described in Note 2(k).
     The Company records debt at cost, but determines the fair value for disclosure purposes. The fair value of the Company’s long-term variable-rate and fixed-rate debt is estimated using quoted market prices, where applicable, or future cash flows discounted at rates for similar types of borrowing arrangements as discussed in Note 15. The senior convertible notes issued in fiscal year 2007 are accounted for as a liability with a carrying amount equal to their principal amount in the consolidated balance sheet and the embedded conversion option in the senior convertible notes has not been accounted for as a separate derivative.
     The call options purchased and warrants sold contemporaneously with the sale of the senior convertible notes are equity contracts that meet the scope exception of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815-Derivatives and Hedging and hence do not need to be marked-to-market through earnings. In addition, since the call option and warrant transactions are accounted for as equity

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(2) Summary of Significant Accounting Policies—(Continued)
transactions, the payment associated with the purchase of the call options and the proceeds received from the issuance of the warrants were recorded in additional paid-in capital in stockholders’ equity as separate equity transactions.
     (d) Inventories
     Inventories are stated at the lower of cost (average cost and first-in, first-out methods) or net realizable value. The portion of developed cemetery property that management estimates will be used in the next twelve months is included in inventories. Such estimates are based on the Company’s projected results. Included in inventory are various cemetery construction projects. The Company allocates costs of these construction projects to the number of units in the respective project.
     (e) Buildings and Equipment
     Buildings and equipment are recorded at cost and are depreciated over their estimated useful lives, primarily using the straight-line method. Building and building improvement items are generally depreciated over a period ranging from 10 to 40 years. Equipment is generally depreciated over the following ranges: light equipment, 5 to 10 years; heavy equipment, 10 years; computer equipment, 3 to 4 years; and crematory equipment, 5 to 20 years. Vehicles are depreciated over 5 to 7 years. Leasehold improvements are depreciated over the shorter of the term of the lease or the life of the asset. Maintenance and repairs are charged to expense whereas renewals and major replacements that extend the assets’ useful lives are capitalized. For the fiscal years ended October 31, 2009, 2008 and 2007, depreciation expense totaled $26,662, $25,456 and $25,146, respectively.
     The Company reviews for continued appropriateness the carrying value of its long-lived assets whenever events and circumstances indicate a potential impairment. This review is based on its projections of anticipated undiscounted future cash flows. If indicators of impairment are present, the Company evaluates the undiscounted future cash flows expected to be generated by those assets compared to the carrying amount of those assets. The net carrying value of assets not recoverable are reduced to fair value. While the Company believes that its estimates of undiscounted future cash flows are reasonable, different assumptions regarding such cash flows and comparable sales values could materially affect its evaluations.
     (f) Preneed Selling Costs
     Preneed selling costs related to the acquisition of new prearranged funeral and cemetery service and merchandise sales are charged to expense as incurred. Preneed selling costs related to the acquisition of new prearranged cemetery property sales are deferred.
     (g) Goodwill
     The Company’s evaluation of the goodwill of its operations previously consisted of 13 reporting units. As discussed in Note 21, in the second quarter of 2009, the Company eliminated its two geographical divisions of Western and Eastern and the positions of Western and Eastern division presidents from its organizational structure, which resulted in a change to the Company’s operating and reportable segments from five to three segments. In conjunction with the reorganization, the Company has re-evaluated its reporting units for its evaluation of goodwill and has reduced the number of reporting units from 13 to eight reporting units. Those reporting units are: the funeral operating segment comprised of three reporting units (Southern, Southwestern, Northern, Midwestern, Western-South and Central regions aggregated; Puerto Rico region; and Western-North and Southeastern regions aggregated); the cemetery operating segment comprised of five reporting units (Southwestern and Western-South regions aggregated; Northern, Central and Southeastern regions aggregated; Southern and Midwestern regions aggregated; Puerto Rico region; and Western-North region).

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(2) Summary of Significant Accounting Policies—(Continued)
     Goodwill of a reporting unit must be tested for impairment on at least an annual basis. The Company conducts its annual goodwill impairment analysis during the fourth quarter of each fiscal year. In addition to an annual review, the Company assesses the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value may be greater than fair value. Factors the Company considers important that could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the manner of the use of the Company’s assets or the strategy for its overall business and significant negative industry or economic trends.
     Goodwill was allocated to these reporting units based on the implied fair value of goodwill. The implied fair value of a reporting unit’s goodwill is determined in a manner similar to the amount of goodwill determined in a business combination. That is, the Company allocates the fair value of the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. The Company calculated the fair value, or enterprise value, for each of the reporting units based on a discounted cash flow analysis.
     In reviewing goodwill for impairment, the Company first compares the fair value of each of its reporting units with its carrying amount (including goodwill). If the carrying amount of a reporting unit (including goodwill) exceeds its fair value, the Company then measures the amount of impairment of the reporting unit’s goodwill by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. An impairment charge is recorded when the carrying amount of goodwill exceeds its implied fair value. This step of the impairment test involves determining estimates of fair values of the Company’s assets and liabilities.
     The Company’s goodwill impairment test involves estimates and management judgment. The Company determines fair value of each reporting unit using a discounted cash flow valuation methodology. The discounted cash flow valuation uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions and may differ from actual future cash flows. The Company tests its results by comparing them to the trading multiples of companies in its industry and supplier industries calculated as enterprise value divided by EBITDA. The Company also reviewed multiples used in recent acquisition transactions within the industry. In projecting its cash flows, the Company used growth rates of three to five percent. The Company adjusted the results for its estimate of the impact of the realized losses in its trusts on its cash flows. For the discount rate, the Company used 9.1 percent, which reflected its weighted average cost of capital determined based on its industry and supplier industries and capital structure as adjusted for equity risk premiums and size risk premiums based on its market capitalization. Fair value is calculated as the sum of the projected discounted cash flows of the reporting units over the next five years and terminal value at the end of those five years. The terminal value is calculated as the projected EBITDA at the end of the five year period divided by the discount rate minus terminal growth rates ranging from 2 to 3.5 percent. The Company considered a sensitivity analysis of the terminal values and used the midpoint enterprise value as its best estimate.
     (h) Stock-Based Compensation
     The Company’s stock-based compensation cost for each period is the expense related to all share-based compensation arrangements vesting in the period based on the estimated grant date fair value. See Note 19 for additional information.
     (i) Funeral Revenue
     The Company sells price-guaranteed prearranged funeral services and merchandise under contracts that provide for delivery of the services and merchandise at the time of death. Prearranged funeral services are recorded as funeral revenue in the period the funeral is performed. Prearranged funeral merchandise is recognized as revenue upon delivery. When a contract turns at-need or the merchandise is delivered, the contract face value along with

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(2) Summary of Significant Accounting Policies—(Continued)
related trust dividends, interest income and gains and losses allocated to individual contracts as per the applicable trust agreement are included in revenue. Prior to performing the funeral or delivering of the merchandise, such sales and related trust earnings are deferred. Funeral services and merchandise sold at the time of need are recorded as funeral revenue in the period the funeral is performed or the merchandise is delivered. The Company records cash advance items such as public transportation arranged on behalf of a customer on a net basis. Discounts are also recorded on a net basis in revenue. The Company presents all taxes assessed by governmental authorities on its revenue-producing transactions (i.e., sales taxes) as well as the recoveries from its customers from these taxes on a net basis in its consolidated financial statements.
     Because preneed services or merchandise will not be provided until the future, most states require that all or a portion of the customer payments under these contracts be protected for the benefit of the customers pursuant to applicable law. Some or all of the funds may be required to be placed into trust accounts (“trust-funded preneed funeral contracts”). Alternatively, where allowed, customers may purchase a life insurance or annuity policy from third-party insurance companies to fund their preneed funeral contracts (“insurance-funded preneed funeral contracts”). The funeral goods and services selected at the time of contract origination will be funded by the insurance policy proceeds, which include increasing insurance benefits. Under either customer funding option, the Company enters into a preneed funeral contract with the customer to provide funeral services in the future. See discussion of insurance-funded preneed funeral contracts below.
     When a trust-funded preneed funeral contract is entered into, the Company records an asset (included in preneed funeral receivables and trust investments) and a corresponding liability (included in deferred preneed funeral revenues) for the contract price. Principal amounts deposited in the trust or escrow accounts generally range from 70 percent to 90 percent of each installment received. The sale of caskets is treated in some jurisdictions in the same manner as the sale of cemetery merchandise and in some jurisdictions as the sale of funeral services for trusting purposes. As the customer makes payments on the contract prior to performance by the Company, the Company deposits into the related trust the required portion of the payment and reclassifies the corresponding amount from deferred preneed funeral revenues into deferred preneed funeral and cemetery receipts held in trust.
     The Company’s policy for recognizing trust income follows the allocation of trust earnings to individual contracts as stipulated in the Company’s respective trust agreements for distributable income. In substantially all of the Company’s trusts, dividends and interest earned and net capital gains and losses realized by preneed funeral trust or escrow accounts net of fees are allocated to individual contracts when earned or realized. In these trusts, unrealized gains and losses are not allocated to contracts. The trust earnings allocated to individual contracts are recognized as components of revenue along with the original contract sales price when the underlying service or merchandise is delivered. Principal and earnings are withdrawn only as the merchandise or services are delivered or contracts are cancelled, except in jurisdictions that permit trust earnings to be withdrawn currently.
     Deferred preneed funeral revenue represents future funeral contract revenues. In addition to amounts receivable from customers and amounts received from customers that are not required to be trusted, this includes distributed and distributable trust investment earnings associated with unperformed trust-funded preneed funeral contracts where the related cash or investments are not held in trust accounts (generally because the Company was permitted to withdraw the cash from the trust before performance of the service or delivery of the merchandise). Future funeral contract revenues and non-distributable net trust investment earnings where the related cash or investments are held in trust accounts are included in deferred preneed funeral and cemetery receipts held in trust.
     Upon cancellation of a trust-funded preneed funeral contract, a customer is generally entitled to receive a refund of the funds held in trust. In many jurisdictions, the Company may be obligated to fund any shortfall if the amounts deposited by the customer exceed the funds in trust including investment income at the time of cancellation. If the fair market value of the trusts were to decline below the estimated costs to deliver the underlying products and services, the Company would record a charge to earnings to record a liability for the expected loss on the delivery of contracts in the Company’s backlog. Based upon the analysis described in Note 2(m), no loss

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(2) Summary of Significant Accounting Policies—(Continued)
amounts have been required to be recognized for the years ended October 31, 2009, 2008 and 2007. See Note 2(m) below.
     Insurance-funded price-guaranteed preneed funeral contracts that will be funded by life insurance or annuity contracts issued by third-party insurers are not reflected in the consolidated balance sheet. The net amount of these contracts that have not been fulfilled as of October 31, 2009 and 2008 was $507,349 and $477,069, respectively. With insurance-funded preneed funeral contracts, the Company earns a commission because it acts as an agent on the sale of the policies. Customer payments of premiums on the insurance policies are sent directly to the insurance company, and the insurance premium receivables and related customer payments are not recorded on the Company’s financial statements. Insurance commissions are recognized as revenue as earned, net of an allowance for cancellations. This allowance amounted to $3,446 and $3,299 for October 31, 2009 and 2008, respectively. The costs related to the commissions are expensed as incurred. Proceeds of these policies may be used by customers for other purposes and are portable to other funeral service providers or for completely separate purposes. As a result, nothing more is recorded until the contracted service or merchandise is delivered, and these contracts are not included in deferred revenue. At that time, the face amount of the contract and the build-up in the face value of the contract (i.e., the policy proceeds) are recorded as funeral revenue, as well as the related costs to deliver the contract, and a receivable from the insurance company for the policy proceeds is recorded as a funeral receivable.
     (j) Cemetery Revenue
     The Company sells price-guaranteed preneed cemetery merchandise and services under contracts that provide for delivery of the merchandise and services at the time of need. Preneed cemetery merchandise and service sales are recorded as cemetery revenue in the period the merchandise is delivered or service is performed. Prior to that time, such sales are deferred. Cemetery merchandise and services sold at the time of need are recorded as cemetery revenue in the period the service is performed or the merchandise is delivered. Discounts are recorded on a net basis in revenue. The Company presents all taxes assessed by governmental authorities on its revenue-producing transactions (i.e., sales taxes) as well as the recoveries from its customers from these taxes on a net basis in its consolidated financial statements.
     Some or all of the funds received under preneed cemetery contracts for merchandise or services may be required to be placed into trust accounts, pursuant to applicable state law. With respect to the preneed sale of cemetery merchandise, the Company is generally required to place in trust 30 percent to 50 percent of each installment received. With respect to the preneed sale of cemetery services, the Company is generally required to place in trust 70 percent to 90 percent of each installment received. When a trust-funded preneed cemetery contract is entered into, the Company records an asset (included in preneed cemetery receivables and trust investments) and a corresponding liability (included in deferred preneed cemetery revenues) for the contract price. As the customer makes payments on the contract prior to performance by the Company, the Company deposits into the related trust the required portion of the payment and reclassifies the corresponding amount from deferred preneed cemetery revenues into deferred preneed funeral and cemetery receipts held in trust.
     Deferred preneed cemetery revenue represents future preneed cemetery revenues to be recognized upon delivery of merchandise or performance of services. In addition to the amounts receivable from customers and amounts not required to be trusted, this includes distributed and distributable trust investment earnings associated with unperformed preneed cemetery services or undelivered preneed cemetery merchandise where the related cash or investments are not held in trust accounts (generally because the Company was permitted to withdraw the cash from the trust before performance of the service or delivery of the merchandise). Future contract revenues and non-distributable net trust investment earnings where the related cash or investments are held in trust accounts are included in deferred preneed funeral and cemetery receipts held in trust.

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Table of Contents

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(2) Summary of Significant Accounting Policies—(Continued)
     The Company’s policy for recognizing trust income follows the allocation of trust earnings to individual contracts as stipulated in the Company’s respective trust agreements for distributable income. In substantially all of the Company’s trusts, dividends and interest earned and net capital gains and losses realized by preneed cemetery trust or escrow accounts net of fees are allocated to individual contracts when earned or realized. In these trusts, unrealized gains and losses are not allocated to contracts. The trust earnings allocated to individual contracts are recognized as components of revenue along with the original contract sales price when the underlying service or merchandise is delivered. Principal and earnings are withdrawn only as the merchandise or services are delivered or contracts are cancelled, except in jurisdictions that permit trust earnings to be withdrawn currently.
     The Company sells price-guaranteed cemetery contracts providing for property interment rights. For preneed sales of interment rights (cemetery property), the associated revenue and all costs to acquire the sale are recognized in accordance with the retail land sales provisions of ASC 360-Property, Plant and Equipment. Under this guidance, recognition of revenue and costs must be deferred until 10 percent of the property sale price has been collected. Until the 10 percent has been collected, the Company records all payments received as deposits, does not record receivables and continues to report the inventory in its financial statements. As of October 31, 2009 and 2008, the amount of inventory included in the Company’s consolidated balance sheets on which the 10 percent collection requirement has not been met was $1,008 and $1,122, respectively. Revenue related to the preneed sale of cemetery property prior to the completion of its construction is recognized on a percentage of completion method of accounting as construction occurs. The Company measures the percentage of completion by taking the costs incurred to date and dividing that number by the total projected cost of the project.
     Pursuant to cemetery perpetual care contracts and laws, a portion, generally 10 percent, of the proceeds from cemetery property sales is deposited into perpetual care trusts. The income from these trusts, which have been established in most jurisdictions in which the Company operates cemeteries, is used for maintenance of those cemeteries, but principal, including in some jurisdictions net realized capital gains, must generally be held in perpetuity. As payments are received, the Company generally funds the perpetual care trust in the same proportion as the payment bears to the contract amount. For example, if the Company receives 20 percent of the contract price, it places in trust 20 percent of the total amount it is required to place in the cemetery perpetual care trust for that contract. The Company currently recognizes and withdraws all dividend and interest income earned and, where permitted, capital gains realized by cemetery perpetual care funds. The Company is currently utilizing some of the cash that could be withdrawn from the trusts to satisfy its funding obligation resulting from realized capital losses recorded in the fourth quarter of 2008 and fiscal year 2009.
     If the Company realizes net losses in those states that allowed it to withdraw capital gains, these states may require the Company to make cash deposits to the trust to cover the net loss, or may require the Company to stop withdrawing earnings until future earnings cover the net losses.
     Some of the Company’s sales of cemetery property and merchandise are made under installment contracts bearing interest at prevailing rates. Interest rates on cemetery property contracts range from 4.9 percent to 15.0 percent and have a weighted average interest rate of 9.0 percent. Finance charges are recognized as cemetery revenue under the effective interest method over the terms of the related installment receivables that are 90 days outstanding or less.
     (k) Preneed Funeral and Cemetery Merchandise and Services Trusts and Cemetery Perpetual Care Trusts
     As of April 30, 2004, the Company implemented the FASB’s applicable guidance on the consolidation of variable interest entities. This resulted in the consolidation of the Company’s preneed funeral and cemetery merchandise and services trusts and the Company’s cemetery perpetual care trusts. The implementation affected certain line items in the consolidated balance sheet and statement of earnings as described below, but had no impact on net earnings. Also, the implementation did not result in any net changes to the Company’s consolidated statement of cash flows, but does require disclosure of certain financing and investing activities. See Notes 4, 5 and 6.

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Table of Contents

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(2) Summary of Significant Accounting Policies—(Continued)
     Although this guidance required consolidation of the preneed funeral and cemetery merchandise and services trusts and cemetery perpetual care trusts, it did not change the legal relationships among the trusts, the Company and its customers. In the case of preneed funeral and cemetery merchandise and services trusts, the customers are the legal beneficiaries. In the case of cemetery perpetual care trusts, the Company does not have a legal right to the cemetery perpetual care trust assets. For these reasons, upon consolidation of the trusts, the Company recognized these third-party interests in the trusts in its financial statements. The Company classifies deposits to the funeral and cemetery merchandise and services trusts as “deferred preneed funeral and cemetery receipts held in trust” and classifies deposits to the cemetery perpetual care trusts as “perpetual care trusts’ corpus,” both within the liabilities section of the balance sheet.
     All of these trusts hold investments in cash and marketable equity and debt securities, which are reported at fair value, with the related realized and unrealized gains and losses excluded from earnings and initially reported as a separate component of accumulated other comprehensive income or loss in the Company’s consolidated balance sheet. These earnings are then reclassified to deferred preneed funeral and cemetery receipts held in trust in the Company’s consolidated balance sheet. Distributable income according to the regulatory requirements, which are primarily dividends, interest income and gains and losses allocated to individual accounts as per the applicable trust agreement, are included in the determination of revenue in accordance with the Company’s revenue recognition policy.
     In order to determine if a loss should be considered realized and included as a component of future revenue recorded as contracts turn at need, the Company looks at specific changes in market conditions or concerns specific to the issuer of the securities. In addition, the Company assesses the likelihood that there is sufficient cash and cash equivalents within the trusts from future preneed sales and ordinary income to fund future services which would allow the Company to hold these investments until they are estimated to recover in value. Further, the Company evaluates its intent at the individual trust level with respect to those securities. This evaluation is performed each quarter. In conjunction with its quarterly evaluation of the investments in the preneed funeral and cemetery merchandise and services trusts and cemetery perpetual care trusts, the Company makes a determination about whether impairments in its debt securities are temporary or other than temporary in nature. Based on the analysis performed by the Company, it does not consider any of its debt security investments to be other than temporarily impaired as of October 31, 2009.
     In the case of cemetery perpetual care trusts, the Company recognizes investment earnings in cemetery revenues when such earnings are realized and permitted to be legally withdrawn by the Company (with a corresponding debit to perpetual care trusts’ corpus). Certain states allow the Company to withdraw realized capital gains, and other states prohibit these withdrawals. These earnings and related funds are intended to defray cemetery maintenance costs and are recorded as revenue. In the event that the Company has been allowed to withdraw realized gains and there are realized losses in the trust, the Company may determine it has a funding obligation to restore the net realized losses of the trust. A charge is recorded in the statement of earnings at the time it is considered probable that the Company will be required to restore the realized losses.
     See Notes 4, 5 and 6 for fair market value information for the Company’s preneed funeral trust investments, preneed cemetery trust investments and cemetery perpetual care trust investments. The Company has included as realized losses common and preferred stocks issued by companies in bankruptcy or under a Federal rescue program where the securities issued have become worthless or practically worthless as well as certain securities for which it considers the recovery of value to be remote.
     Cash flows from preneed funeral and cemetery merchandise and services contracts and cemetery perpetual care contracts are presented as operating cash flows in the Company’s consolidated statements of cash flows, with related unrealized gains and losses excluded and flow through accumulated other comprehensive income or loss in the Company’s consolidated balance sheet.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(2) Summary of Significant Accounting Policies—(Continued)
     (l) Trust Fee Revenue
     Trust management fees related to the preneed funeral and cemetery merchandise and services trusts and cemetery perpetual care trusts are earned by the Company based on the fair market value of the investments in the trusts. These fees are established by the Company at rates consistent with industry norms and are paid by the trusts to the Company’s subsidiary, ITI.
     (m) Loss Contract Impairment Analysis
     Each quarter, the Company performs an analysis to determine whether its preneed contracts are in a loss position, which would necessitate a charge to earnings. For this analysis, the Company adds the sales prices of the underlying contracts and realized earnings, then subtracts realized losses to derive the net amount of proceeds for contracts as of that particular balance sheet date. The Company then considers unrealized gains and losses based on current market prices quoted for the investments, but does not include future expected returns on the investments in its analysis. The Company compares the amount of adjusted proceeds after considering net unrealized gains and losses to the estimated direct costs to deliver the contracts, which consist primarily of funeral and cemetery merchandise costs and salaries, supplies and equipment related to the delivery of a preneed contract. If a deficiency were to exist, the Company would record a charge to earnings and a corresponding liability for the expected loss on the delivery of those contracts from its deferred revenue. No amounts were recognized during fiscal years 2009, 2008 or 2007.
     (n) Allowance for Doubtful Accounts and Sales Cancellations
     The Company establishes an allowance for doubtful accounts based on a range of percentages applied to accounts receivable aging categories. These percentages are based on historical collection and write-off experience. The Company establishes a reserve for cancellations for cemetery property sales based on historical cancellations and recent write-off activity. This reserve is recorded as a reduction of cemetery revenue. The Company establishes an allowance for preneed funeral and cemetery merchandise and services trust receivables. This reserve is recorded as a reduction in preneed receivables and preneed deferred revenue. The Company also establishes an allowance for cancellations for insurance and third-party commissions based on historical experience for cancellations of insurance contracts within the period of refundability.
     (o) Income Taxes
     Income taxes are accounted for using the asset and liability method under which deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes for a change in tax rates is recognized in income in the period that includes the enactment date. Management provides a valuation allowance against the deferred tax asset for amounts which are not considered more likely than not to be realized. For additional information see Note 18.
     For the purpose of calculating income taxes for discontinued operations, earnings (loss) from discontinued operations is segregated into two categories: operating results and gain or loss on dispositions. Operating results are tax affected in the ordinary manner (i.e., income tax expense on net operating income, income tax benefit on net operating loss).

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(2) Summary of Significant Accounting Policies—(Continued)
     (p) Business Combinations
     Tangible and intangible assets acquired and liabilities assumed in a business combination are recorded at fair value, and goodwill is recognized for any difference between the purchase price and the fair value of the acquired tangible and intangible assets.
     (q) Earnings Per Common Share
     Basic earnings per common share is computed by dividing net earnings by the weighted average number of common shares outstanding during each period. Diluted earnings per common share is computed by dividing net earnings by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during each period as discussed in Note 17.
     For purposes of calculating the effect of the Company’s senior convertible notes on diluted earnings per share, any shares issuable upon conversion are accounted for under the net share settlement method. The effect of the net share settlement method is that the shares potentially issuable upon conversion of the senior convertible notes are only included in the calculation of earnings per share to the extent the conversion value of the senior convertible notes exceeds their principal amount. In this case, the Company would include in diluted shares the number of shares of Class A common stock necessary to settle the conversion if it occurred at that time. The warrants are included in the calculation of diluted earnings per share to the extent the effect is dilutive using the treasury stock method. The call options are not considered in the diluted earnings per share calculation.
     (r) Purchase and Retirement of Common Stock
     Share repurchases are recorded at stated value with the amount in excess of stated value recorded as a reduction to additional paid-in capital. Share repurchases reduce the weighted average number of common shares outstanding during each period.
     On September 19, 2007, the Company announced a new stock repurchase program, authorizing the investment of up to $25,000 in the repurchase of the Company’s common stock. Repurchases under the program are limited to the Company’s Class A common stock, and can be made in the open market or in privately negotiated transactions at such times and in such amounts as management deems appropriate, depending upon market conditions and other factors. On December 20, 2007, the Company announced a $25,000 increase in this program. On June 19, 2008, the Company announced an additional $25,000 increase to the program, which increased the program to $75,000. As of October 31, 2009, the Company has repurchased 6,634,136 shares of its Class A common stock for $48,504 at an average price of $7.31 per share and has $26,496 remaining available under this program.
     (s) Derivatives
     The Company accounts for derivative financial instruments under ASC 815 — Derivatives and Hedging.
     (t) Estimated Insurance Loss Liabilities
     The Company purchases comprehensive general liability, automobile liability and workers compensation insurance coverages structured within a large deductible/self-insured retention premium rating program. This program results in the Company being primarily self-insured for claims and associated costs and losses covered by these policies but below our deductible. Historical insurance industry experience indicates some degree of inherent variability in assessing the ultimate amount of losses associated with the types of claims covered by the program. This is especially true due to the extended period of time that transpires between when the claim might occur and the full settlement of such claim, often many years. The Company continually evaluates the receivables due from its insurance carriers as well as loss estimates associated with claims and losses related to these insurance coverages

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(2) Summary of Significant Accounting Policies—(Continued)
with information obtained from its primary insurer.
     With respect to health insurance, the Company purchases individual and aggregate stop loss coverage with a large deductible. This program results in the Company being primarily self-insured for claims and associated costs up to the amount of the deductible, with claims in excess of the deductible amount being covered by insurance. Expected claims are based on actuarial estimates; actual claims may differ from those estimates. The Company continually evaluates its claims experience related to this coverage with information obtained from its insurer.
     Assumptions used in preparing these estimates are based on factors such as claim settlement patterns, claim development trends, claim frequency and severity patterns, inflationary trends and data reasonableness. Together these factors will generally affect the analysis and determination of the “best estimate” of the projected ultimate claim losses. The results of these evaluations are used to assess the reasonableness of the Company’s insurance loss liability.
     The estimated liability on the uninsured litigation and employment-related claims are established by management based upon the recommendations of professionals who perform a review of both reported claims and estimate a liability for incurred but not reported claims. These liabilities include the estimated settlement costs. Although management believes estimated liabilities related to uninsured claims are adequately recorded, it is possible that actual results could significantly differ from the recorded liabilities.
     The Company also has insurance coverage related to property damage, incremental costs and property operating expenses it incurs due to damage caused by hurricanes and other natural disasters. The Company’s policy is to record such amounts when recovery is probable, which generally means it has reached an agreement with the insurance company.
     The Company accrues for legal costs related to loss contingencies as the services are provided. If a settlement is determined to be probable, then an estimate is recorded for the settlement at that time.
     (u) Dividends
          In March 2005, the Company announced that its Board of Directors approved the initiation of a quarterly cash dividend of two and one-half cents per share of Class A and B common stock. In September 2009, the Company announced that it had increased the quarterly dividend rate to three cents per share of Class A and B common stock. Although the Company intends to pay regular quarterly cash dividends for the foreseeable future, the declaration and payment of future dividends are discretionary and will be subject to determination by the Board of Directors each quarter after its review of the Company’s financial performance. For the years ended October 31, 2009, 2008 and 2007, the Company paid $9,734, $9,374 and $10,184, respectively, in dividends.
     (v) Leases
     The Company has noncancellable operating leases, primarily for land and buildings, that expire over the next one to 14 years, with the exception of eight leases that expire between 2032 and 2039. As of October 31, 2009, approximately 77 percent of the Company’s 218 funeral locations were owned by the Company’s subsidiaries and approximately 23 percent were held under operating leases. The Company records operating lease expense for leases with escalating rents on a straight-line basis over the life of the lease, including reasonably assured lease renewals. The Company amortizes leasehold improvements in an operating lease over the shorter of their economic lives or the lease term, including reasonably assured lease renewals.
     (w) Computer Software
     The Company capitalizes computer software systems and depreciates them over their useful lives.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(2) Summary of Significant Accounting Policies—(Continued)
     (x) Out of Period Adjustments
     In 2007, the Company discovered adjustments that related to prior accounting periods. The Company does not believe these adjustments were quantitatively or qualitatively material to its financial position, results of operations and cash flows for the year ended October 31, 2007 or to any of its prior annual or quarterly financial statements. As a result, the Company did not restate any prior period financial statements. The net impact of the adjustments in 2007 is an increase in gross profit of $1,247 and an increase to net earnings of $843.
     (y) Reclassifications
     Certain reclassifications have been made to the 2008 and 2007 consolidated financial statements in order for these periods to be comparable. The reclassifications in themselves had no effect on the Company’s total net income or loss, total shareholders’ equity or the net increase or decrease in cash.
     Authoritative guidance on noncontrolling interests in consolidated financial statements was issued in December 2007. During the Company’s review of this guidance, the Company determined that balances historically designated as “non-controlling interest in funeral and cemetery trusts” and “non-controlling interest in perpetual care trusts” in its consolidated balance sheet do not meet the criteria for noncontrolling interests as prescribed by this guidance, which indicates that only a financial instrument classified as equity in the trusts’ financial statements can be a noncontrolling interest in the consolidated financial statements. The interest related to the Company’s funeral and cemetery merchandise and services trusts is classified as a liability because the preneed contracts underlying these trusts are unconditionally redeemable upon the occurrence of an event that is certain to occur. Since the earnings from the Company’s cemetery perpetual care trusts are used to support the maintenance of its cemeteries and the Company cannot access the initial corpus, the Company believes the interest in these trusts also retains the characteristics of a liability.
     In light of this review, in the first quarter of fiscal year 2009, these line items in the Company’s consolidated balance sheets as of January 31, 2009 and October 31, 2008 were renamed. The line historically titled “non-controlling interest in funeral and cemetery trusts” has been renamed “deferred preneed funeral and cemetery receipts held in trust.” In addition, the line historically titled “non-controlling interest in perpetual care trusts” has been renamed “perpetual care trusts’ corpus” and has been reclassified to be included in total liabilities. These changes had no effect on total assets or shareholders’ equity.
(3) Change in Accounting Principles and New Accounting Principles
     In September 2006, the FASB issued ASC 820-Fair Value Measurements and Disclosures (“ASC 820”), which the Company adopted effective November 1, 2008. This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date, establishes a framework for measuring fair value and expands disclosures about instruments measured at fair value. ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
    Level 1—inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;
 
    Level 2—inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable; inputs that are

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(3) Change in Accounting Principles and New Accounting Principles—(Continued)
      derived principally from or corroborated by observable market data by correlation or other means; and
 
    Level 3—inputs to the valuation methodology are unobservable and significant to the fair value measurement.
     An asset’s or liability’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
     In February 2008, the FASB issued guidance that amends ASC 820 to exclude ASC 840 — Leases and its related accounting pronouncements that address leasing transactions from its scope. The FASB also issued guidance in February 2008 which provides a one-year deferral of the effective date of ASC 820 for non-financial assets and liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. The Company adopted the provisions of ASC 820 for its financial assets and liabilities that are measured on a recurring basis at fair value, effective November 1, 2008. These financial assets include the investments of the Company’s preneed funeral merchandise and services trusts, preneed cemetery merchandise and services trusts and cemetery perpetual care trusts. For additional disclosures required by ASC 820 for these assets, see Notes 4 through 6 to the Company’s consolidated financial statements. The provisions of ASC 820 have not been applied to the Company’s non-financial assets and liabilities. The major categories of assets and liabilities that are subject to non-recurring fair value measurement for which the provisions of ASC 820 have not yet been applied are as follows: reporting units measured at fair value in the goodwill impairment test under ASC 350-Intangibles—Goodwill and Other, and non-financial assets and liabilities initially measured at fair value in a business combination under ASC 805-Business Combinations.
     In December 2008, the FASB issued guidance regarding disclosures by public entities about transfers of financial assets and interests in variable interest entities. This guidance requires public entities to provide additional disclosures about transfers of financial assets and to provide additional disclosures about their involvement with variable interest entities. This guidance is effective for reporting periods ending after December 15, 2008, which corresponds to the Company’s first fiscal quarter of 2009. The adoption had no impact on the Company’s consolidated financial statements but requires the Company to add additional disclosures related to its variable interest entities, which consist of its preneed funeral and cemetery merchandise and services trusts and cemetery perpetual care trusts investments. The Company’s accounting policies related to its preneed funeral and cemetery merchandise and services trusts and cemetery perpetual care trusts are discussed in Note 2(k). For further disclosures, see Notes 4, 5 and 6 to the consolidated financial statements included herein.
     In April 2009, the FASB issued authoritative guidance requiring companies to disclose the fair value of financial instruments within interim financial statements, adding to the current requirements to provide those disclosures annually. The Company adopted this guidance effective with the preparation of the Company’s condensed consolidated financial statements for the quarter ended July 31, 2009.
     In April 2009, the FASB issued amended guidance that modifies the requirements for recognizing other than temporary impairment on debt securities and significantly changes the impairment model for such securities. It also modifies the presentation of other-than-temporary impairment losses and increases related disclosure requirements. The Company adopted this guidance effective with the preparation of the Company’s condensed consolidated financial statements for the quarter ended July 31, 2009. The adoption did not have a material impact on the Company’s consolidated results of operations, financial position or cash flows.
     In May 2009, the FASB issued ASC 855-Subsequent Events (“ASC 855”). This guidance does not apply to subsequent events or transactions that are within the scope of other applicable generally accepted accounting principles that provide different guidance on the accounting treatment for subsequent events or transactions. ASC 855 applies to both interim financial statements and annual financial statements and should not result in significant changes in the subsequent events that are reported. ASC 855 introduces the concept of financial statements being

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(3) Change in Accounting Principles and New Accounting Principles—(Continued)
available to be issued. It requires the disclosure of the date through which a Company has evaluated subsequent events and the basis for that date, whether that represents the date the financial statements were issued or were available to be issued. ASC 855 should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. The Company adopted this guidance effective with the preparation of the Company’s condensed consolidated financial statements for the quarter ended July 31, 2009 and has included the required disclosures in this Form 10-K in Note 25.
     In June 2009, the FASB issued ASC 105-Generally Accepted Accounting Principles (“ASC 105”). This guidance requires the FASB Accounting Standards Codification to become the source of authoritative U.S. accounting and reporting standards for nongovernmental entities in addition to the guidance issued by the Securities and Exchange Commission (“SEC”). The FASB Accounting Standards Codificaton significantly changes the way financial statement preparers, auditors and academics perform accounting research. The Company adopted ASC 105 effective with the preparation of the Company’s consolidated financial statements for the year ended October 31, 2009 and included the required disclosures. The adoption did not have any impact on the Company’s consolidated results of operations, financial position or cash flows.
Other, not yet adopted
     In December 2007, the FASB issued ASC 805-Business Combinations (“ASC 805”). This guidance states that all business combinations, whether full, partial or step acquisitions, will result in all assets and liabilities of an acquired business being recorded at their fair values at the acquisition date. In subsequent periods, contingent liabilities will be measured at the higher of their acquisition date fair value or the estimated amounts to be realized. ASC 805 applies to all transactions or other events in which an entity obtains control of one or more businesses. This statement is effective as of the beginning of an entity’s first fiscal year beginning after December 15, 2008, which corresponds to the Company’s fiscal year beginning November 1, 2009. This guidance will apply to any future business combinations as of that date.
     In December 2007, the FASB amended guidance regarding noncontrolling interests in consolidated financial statements. This guidance states that accounting and reporting for minority interests will be recharacterized as noncontrolling interests and classified as a component of shareholders’ equity. This guidance applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. This guidance is effective as of the beginning of an entity’s first fiscal year beginning after December 15, 2008, which corresponds to the Company’s fiscal year beginning November 1, 2009. The Company does not expect this guidance to have any impact on its consolidated financial statements. However, as described in Note 2(y), in light of the Company’s review of this guidance, certain balances in the condensed consolidated balance sheets were renamed and a line item historically classified outside of liabilities was moved to be included in total liabilities.
     In May 2008, the FASB issued guidance regarding the accounting for convertible debt instruments that may be settled in cash upon conversion. The guidance applies to the Company’s senior convertible notes and states that issuers of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) should account separately for the liability and equity components of the instruments in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This guidance is effective as of the beginning of an entity’s first fiscal year beginning after December 15, 2008, which corresponds to the Company’s fiscal year beginning November 1, 2009, and must be applied retrospectively to all periods presented. While there will be no impact on the Company’s cash interest paid or net reported cash flows, the Company will record higher interest expense in fiscal year 2010 as a result. It is estimated that annual earnings after taxes will be reduced between $1,000 and $4,000 over the remaining life of the convertible debt as a result of the required increase in non-cash interest expense from accretion of the debt discount under the effective interest

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(3) Change in Accounting Principles and New Accounting Principles—(Continued)
rate method. After considering the retrospective treatment, the impact on the October 31, 2009 consolidated balance sheet is expected to result in the following:
         
    Increase
    (Decrease)
Deferred tax assets
  $ (10,000 )
Long-term debt
    (27,800 )
Additional paid-in capital
    35,000  
Retained earnings
    (17,200 )
     The impact on the fiscal year 2009 statement of earnings, as applied retrospectively, is expected to result in the following:
         
Increase to interest expense
  $ 5,400  
Decrease to gain on early extinguishment of debt
    14,000  
Decrease to income taxes
    (7,000 )
 
     
Decrease to net earnings
  $ 12,400  
 
     
     In June 2008, the FASB issued guidance on determining whether instruments granted in share-based payment transactions are participating securities. This guidance states whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. Unvested share-based payment awards that contain nonforfeitable rights to dividends are participating securities. Dividends are paid by the Company on shares of restricted stock, whether vested or nonvested, at the same rate as dividends on normal shares of the Company’s stock. In addition, restricted stockholders are not required to return the dividends to the Company if their shares of nonvested restricted stock do not vest. Therefore, under this guidance, the Company must include outstanding nonvested restricted stock in the basic weighted average share calculation used to calculate basic earnings per share. This is effective for financial statements issued for fiscal years beginning after December 15, 2008, which corresponds to the Company’s fiscal year beginning November 1, 2009, and must be applied retrospectively to all periods presented (including interim financial statements, summaries of earnings and selected financial data). The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements. As of October 31, 2009, the Company had 729,665 shares of nonvested restricted stock which is less than one percent of its total October 31, 2009 outstanding common share balance of 92,683,720.
     In June 2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 166, “Accounting for Transfers of Financial Assets.” It will require more information about transfers of financial assets, including securitization transactions, and enhanced disclosures when companies have continuing exposure to the risks related to transferred financial assets. Additionally, it eliminates the concept of a qualifying special-purpose entity. This statement is effective as of the beginning of the first annual reporting period that begins after November 15, 2009, which corresponds to the Company’s fiscal year beginning November 1, 2010. The Company is evaluating the impact the adoption will have on its consolidated financial statements.
     In June 2009, FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R).” This guidance amends the consolidation guidance for variable interest entities. Also, it will require additional disclosures about involvement with variable interest entities and any significant changes in risk exposure due to that involvement. This guidance is effective as of the beginning of the first annual reporting period that begins after November 15, 2009, which corresponds to the Company’s fiscal year beginning November 1, 2010. The Company is evaluating the impact the adoption will have on its consolidated financial statements.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(4) 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 receivables and trust investments in the consolidated balance sheets as of October 31, 2009 and 2008 are as follows:
                 
    October 31, 2009     October 31, 2008  
Trust assets
  $ 358,430     $ 336,782  
Receivables from customers
    43,225       44,796  
 
           
 
    401,655       381,578  
Allowances for cancellations
    (12,143 )     (13,166 )
 
           
Preneed funeral receivables and trust investments
  $ 389,512     $ 368,412  
 
           
     The cost and market values associated with preneed funeral merchandise and services trust assets as of October 31, 2009 are detailed below. Based on the Company’s evaluation, the cost basis of the funeral merchandise and services trust assets below reflects realized losses for the year ended October 31, 2009 in the trust assets of approximately $8,668 from their original cost basis. These realized losses are related to certain investments held that were rendered worthless or practically worthless and to certain investments that the Company determined it did not have the intent to hold until they recover in value.
                                         
    October 31, 2009  
            Unrealized     Unrealized                
    Cost Basis     Gains     Losses     Market          
Cash, money market and other short-term investments
  $ 28,979     $     $     $ 28,979          
U.S. Government, agencies and municipalities
    6,044       214       (1 )     6,257          
Corporate bonds
    39,007       1,650       (1,458 )     39,199          
Preferred stocks
    56,885       9       (10,394 )     46,500          
Common stocks
    248,750       848       (106,788 )     142,810          
Mutual funds:
                                       
Equity
    28,841       20       (7,486 )     21,375          
Fixed income
    56,193       448       (916 )     55,725          
Insurance contracts and other long-term investments
    19,054       112       (2,594 )     16,572          
 
                               
Trust investments
  $ 483,753     $ 3,301     $ (129,637 )   $ 357,417          
 
                                 
Market value as a percentage of cost
                                    73.9 %
 
                                     
Accrued investment income
                            1,013          
 
                                     
Trust assets
                          $ 358,430          
 
                                     
     The cost and market values associated with preneed funeral merchandise and services trust assets as of October 31, 2008 are detailed below.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(4) Preneed Funeral Activities—(Continued)
                                         
    October 31, 2008          
            Unrealized     Unrealized                
    Cost Basis     Gains     Losses     Market          
Cash, money market and other short-term investments
  $ 35,355     $     $     $ 35,355          
U.S. Government, agencies and municipalities
    11,585       157       (4 )     11,738          
Corporate bonds
    56,661       67       (9,078 )     47,650          
Preferred stocks
    68,300       12       (21,906 )     46,406          
Common stocks
    272,598       1,847       (124,156 )     150,289          
Mutual funds:
                                       
Equity
    28,972       10       (9,680 )     19,302          
Fixed income
    6,256       1       (1,084 )     5,173          
Insurance contracts and other long-term investments
    19,645       104       (63 )     19,686          
 
                               
Trust investments
  $ 499,372     $ 2,198     $ (165,971 )   $ 335,599          
 
                                 
Market value as a percentage of cost
                                    67.2 %
 
                                     
Accrued investment income
                            1,183          
 
                                     
Trust assets
                          $ 336,782          
 
                                     
     The estimated maturities and market values of debt securities included above are as follows:
         
    October 31, 2009  
Due in one year or less
  $ 616  
Due in one to five years
    31,263  
Due in five to ten years
    13,551  
Thereafter
    26  
 
     
 
  $ 45,456  
 
     
     The Company is actively managing a covered call program on its equity securities within the funeral merchandise and services trust. As of October 31, 2009, the Company has outstanding covered calls with a market value of $424. These covered calls constitute a hedge on $20,672, or approximately 14.5 percent, of the common stock portion of the Company’s portfolio within the funeral merchandise and services trust and also provide an opportunity for income. For the year ended October 31, 2009, the Company realized trust earnings of approximately $464 related to the covered call program.
     Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy provided in ASC 820. The Company’s Level 1 investments include cash, money market and other short-term investments, common stock and mutual funds.
     Where quoted market prices are not available for the specific security, then fair values are estimated by using quoted prices of securities with similar characteristics. These investments are primarily U. S. Government, agencies and municipalities, corporate bonds and preferred stocks, all of which are classified within Level 2 of the valuation hierarchy.
     The Company’s Level 3 investments include insurance contracts and partnership investments. The valuation of insurance contracts and partnership investments requires significant management judgment due to the absence of quoted prices, inherent lack of liquidity and the long-term nature of such assets. The fair market value of the insurance contracts was obtained from the insurance companies’ sites showing the current face value of the contracts which is deemed to approximate fair market value. The fair market value of the partnership investments

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(4) Preneed Funeral Activities—(Continued)
was determined by using their most recent audited financial statements and assessing the market value of the underlying securities within the partnership.
     The inputs into the fair value of the Company’s preneed funeral merchandise and services trust investments are categorized as follows:
                                 
    October 31, 2009
    Quoted Market   Significant        
    Prices in Active   Other Observable   Significant    
    Markets   Inputs   Unobservable Inputs   Fair Market
    (Level 1)   (Level 2)   (Level 3)   Value
Trust investments
  $ 256,799     $ 91,956     $ 8,662     $ 357,417  
     The change in the Company’s preneed funeral merchandise and services trust investments with significant unobservable inputs (Level 3) is as follows:
         
Fair market value, November 1, 2008
  $ 11,299  
Total unrealized losses included in other comprehensive income (1)
    (2,554 )
Purchases, sales, contributions, and distributions, net
    (83 )
 
     
Fair market value, October 31, 2009
  $ 8,662  
 
     
 
(1)   All gains (losses) recognized in other comprehensive income for funeral trust investments are attributable to the Company’s preneed customers and are offset by a corresponding increase (decrease) in deferred preneed funeral receipts held in trust.
     Activity related to preneed funeral trust investments is as follows:
                         
    Year Ended October 31,
    2009   2008   2007
Purchases
  $ 53,739     $ 18,839     $ 152,126  
Sales
    54,120       24,072       148,309  
Realized gains from sales of investments
    2,566       2,572       13,690  
Realized losses from sales of investments and other
    (11,167 ) (1)     (24,868 ) (2)     (1,183 )
Interest income, dividend and other ordinary income
    11,328       13,478       16,764  
Deposits
    26,540       31,520       32,120  
Withdrawals
    41,085       46,403       44,433  
 
                       
Other comprehensive income:
                       
Reduction (increase) in net unrealized losses
    37,437       (109,761 )     3,753  
Reclassification to deferred preneed funeral receipts held in trust
    (37,437 )     109,761       (3,753 )
 
(1)   Includes $2,499 in losses from the sale of investments and $8,668 in losses related to certain investments that were rendered worthless or practically worthless and to certain investments that the Company determined it did not have the intent to hold until they recover in value.
 
(2)   Includes $865 in losses from the sale of investments and $24,003 in losses related to certain investments that were rendered worthless or practically worthless.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(4) Preneed Funeral Activities—(Continued)
     The following table shows the gross unrealized losses and fair value of the preneed funeral merchandise and services trust investments with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of October 31, 2009 and 2008.
                                                 
    October 31, 2009  
    Less than 12 Months     12 Months or Greater     Total  
    Market     Unrealized     Market     Unrealized     Market     Unrealized  
    Value     Losses     Value     Losses     Value     Losses  
U.S. Government, agencies and municipalities
  $     $     $ 21     $ (1 )   $ 21     $ (1 )
Corporate bonds
                10,154       (1,458 )     10,154       (1,458 )
Preferred stocks
    493       (7 )     43,519       (10,387 )     44,012       (10,394 )
Common stocks
    1,000       (276 )     133,428       (106,512 )     134,428       (106,788 )
Mutual funds:
                                               
Equity
                21,237       (7,486 )     21,237       (7,486 )
Fixed income
    318       (1 )     4,539       (915 )     4,857       (916 )
Insurance contracts and other long-term investments
    1,203       (1,060 )     2,016       (1,534 )     3,219       (2,594 )
 
                                   
Total
  $ 3,014     $ (1,344 )   $ 214,914     $ (128,293 )   $ 217,928     $ (129,637 )
 
                                   
                                                 
    October 31, 2008  
    Less than 12 Months     12 Months or Greater     Total  
    Market     Unrealized     Market     Unrealized     Market     Unrealized  
    Value     Losses     Value     Losses     Value     Losses  
U.S. Government, agencies and municipalities
  $ 1,147     $ (3 )   $ 21     $ (1 )   $ 1,168     $ (4 )
Corporate bonds
    20,609       (2,027 )     21,258       (7,051 )     41,867       (9,078 )
Preferred stocks
    9,055       (6,686 )     36,445       (15,220 )     45,500       (21,906 )
Common stocks
    51,658       (25,033 )     86,718       (99,123 )     138,376       (124,156 )
Mutual funds:
                                               
Equity
    16,557       (8,200 )     2,628       (1,480 )     19,185       (9,680 )
Fixed income
    67             5,079       (1,084 )     5,146       (1,084 )
Insurance contracts and other long-term investments
    3,510             58       (63 )     3,568       (63 )
 
                                   
Total
  $ 102,603     $ (41,949 )   $ 152,207     $ (124,022 )   $ 254,810     $ (165,971 )
 
                                   
     The unrealized losses in the preneed funeral merchandise and services trust portfolio are not considered to be other than temporary. For each of these securities, the Company evaluates consensus analyst recommendations, ratings from established ratings agencies, any concerns specific to the issuer of the securities and overall market performance. Of the total unrealized losses at October 31, 2009, 90 percent, or $117,182, were generated by common stock and preferred stock investments. Most of the common stock investments are part of the S&P 500 Index, and all preferred stocks had a rating of “A” or better at the time of purchase. Because approximately 40 percent of the Company’s preneed funeral trust portfolio is currently invested in common stock, the Company generally expects its portfolio performance to improve if the performance of the overall stock market improves, but would also expect its performance to deteriorate if the overall stock market declines. The preferred stocks are primarily in the financial services sector which experienced a significant decline in market value during late 2008 and early 2009 due to the current economic crisis. The Company believes that it has sufficient cash and cash equivalents within the trusts and from cash deposits of future preneed sales and cash received from ordinary income to fund future services and allow the Company to hold these investments until they recover in value.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(5) Preneed Cemetery Merchandise and Service Activities
Preneed Cemetery Receivables and Trust Investments
     Preneed cemetery receivables and trust investments represent trust assets and customer receivables for contracts sold in advance of when the merchandise or services are needed. The receivables related to the sale of preneed property interment rights are included in the Company’s current and long-term receivables discussed in Note 9. The components of preneed cemetery receivables and trust investments in the consolidated balance sheets as of October 31, 2009 and 2008 are as follows:
                 
    October 31, 2009     October 31, 2008  
Trust assets
  $ 163,938     $ 148,533  
Receivables from customers
    35,718       39,868  
 
           
 
    199,656       188,401  
Allowance for cancellations
    (6,239 )     (6,260 )
 
           
Preneed cemetery receivables and trust investments
  $ 193,417     $ 182,141  
 
           
     The cost and market values associated with the preneed cemetery merchandise and services trust assets as of October 31, 2009 are detailed below. Based on the Company’s evaluation, the cost basis of the cemetery merchandise and services trust assets below reflects realized losses for the year ended October 31, 2009 in the trust assets of approximately $3,455 from their original cost basis. These realized losses are related to certain investments held that were rendered worthless or practically worthless and to certain investments that the Company determined it did not have the intent to hold until they recover in value.
                                         
    October 31, 2009  
            Unrealized     Unrealized                
    Cost Basis     Gains     Losses     Market          
Cash, money market and other short-term investments
  $ 15,123     $     $     $ 15,123          
U.S. Government, agencies and municipalities
    9,259       678             9,937          
Corporate bonds
    7,554       552       (74 )     8,032          
Preferred stocks
    20,831       46       (4,363 )     16,514          
Common stocks
    127,942       714       (54,254 )     74,402          
Mutual funds:
                                       
Equity
    30,291       15       (9,980 )     20,326          
Fixed income
    18,530       125       (4 )     18,651          
Other long-term investments
    562             (8 )     554          
 
                               
Trust investments
  $ 230,092     $ 2,130     $ (68,683 )   $ 163,539          
 
                                 
Market value as a percentage of cost
                                    71.1 %
 
                                     
Accrued investment income
                            399          
 
                                     
Trust assets
                          $ 163,938          
 
                                     

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(5) Preneed Cemetery Merchandise and Service Activities—(Continued)
     The cost and market values associated with the preneed cemetery merchandise and services trust assets as of October 31, 2008 are detailed below.
                                         
    October 31, 2008  
            Unrealized     Unrealized                
    Cost Basis     Gains     Losses     Market          
Cash, money market and other short-term investments
  $ 15,939     $     $     $ 15,939          
U.S. Government, agencies and municipalities
    12,960       647       (5 )     13,602          
Corporate bonds
    12,399       15       (1,859 )     10,555          
Preferred stocks
    25,589       1       (8,828 )     16,762          
Common stocks
    140,654       303       (67,576 )     73,381          
Mutual funds:
                                       
Equity
    30,291             (12,575 )     17,716          
Fixed income
    19             (6 )     13          
Other long-term investments
    107             (15 )     92          
 
                               
Trust investments
  $ 237,958     $ 966     $ (90,864 )   $ 148,060          
 
                                 
Market value as a percentage of cost
                                    62.2 %
 
                                     
Accrued investment income
                            473          
 
                                     
Trust assets
                          $ 148,533          
 
                                     
     The estimated maturities and market values of debt securities included above are as follows:
         
    October 31, 2009  
Due in one year or less
  $ 2,801  
Due in one to five years
    10,081  
Due in five to ten years
    4,921  
Thereafter
    166  
 
     
 
  $ 17,969  
 
     
     The Company is actively managing a covered call program on its equity securities within the cemetery merchandise and services trust. As of October 31, 2009, the Company has outstanding covered calls with a market value of $308. These covered calls constitute a hedge on $14,345, or approximately 19.3 percent, of the common stock portion of the Company’s portfolio within the cemetery merchandise and services trust and also provide an opportunity for income. For the year ended October 31, 2009, the Company realized trust earnings of approximately $284 related to the covered call program.
     Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy provided in ASC 820. The Company’s Level 1 investments include cash, money market and other short-term investments, common stock and mutual funds.
     Where quoted market prices are not available for the specific security, then fair values are estimated by using quoted prices of securities with similar characteristics. These investments are U. S. Government, agencies and municipalities, corporate bonds and preferred stocks, all of which are classified within Level 2 of the valuation hierarchy.
     There are no Level 3 investments in the preneed cemetery merchandise and services trust investment portfolio.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(5) Preneed Cemetery Merchandise and Service Activities—(Continued)
     The inputs into the fair value of the Company’s preneed cemetery merchandise and services trust investments are categorized as follows:
                                 
    October 31, 2009
    Quoted Market   Significant   Significant    
    Prices in Active   Other Observable   Unobservable    
    Markets   Inputs   Inputs   Fair Market
    (Level 1)   (Level 2)   (Level 3)   Value
 
                               
Trust investments
  $ 129,032     $ 34,507     $  —     $ 163,539  
     Activity related to preneed cemetery merchandise and services trust investments is as follows:
                         
    Year Ended October 31,  
    2009     2008     2007  
Purchases
  $ 24,628     $ 16,492     $ 223,437  
Sales
    23,104       12,081       218,808  
Realized gains from sales of investments
    1,131       1,460       10,697  
Realized losses from sales of investments and other
    (8,831 ) (1)     (14,307 ) (2)     (302 )
Interest income, dividend and other ordinary income
    5,005       6,486       5,894  
Deposits
    18,540       17,619       18,185  
Withdrawals
    21,364       19,354       20,844  
 
                       
Other comprehensive income:
                       
Reduction (increase) in net unrealized losses
    23,345       (57,469 )     2,774  
Reclassification to deferred preneed cemetery receipts held in trust
    (23,345 )     57,469       (2,774 )
 
(1)   Includes $5,376 in losses from the sale of investments and $3,455 in losses related to certain investments that were rendered worthless or practically worthless and to certain investments that the Company determined it did not have the intent to hold until they recover in value.
 
(2)   Includes $434 in losses from the sale of investments and $13,873 in losses related to certain investments that were rendered worthless or practically worthless.
     The following table shows the gross unrealized losses and fair value of the preneed cemetery merchandise and services trust investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of October 31, 2009 and 2008.
                                                 
    October 31, 2009  
    Less than 12 Months     12 Months or Greater     Total  
    Market     Unrealized     Market     Unrealized     Market     Unrealized  
    Value     Losses     Value     Losses     Value     Losses  
Corporate bonds
  $     $     $ 1,045     $ (74 )   $ 1,045     $ (74 )
Preferred stocks
                16,356       (4,363 )     16,356       (4,363 )
Common stocks
    1,755       (464 )     67,374       (53,790 )     69,129       (54,254 )
Mutual funds:
                                               
Equity
                20,186       (9,980 )     20,186       (9,980 )
Fixed income
    20             15       (4 )     35       (4 )
Other long-term investments
                      (8 )           (8 )
 
                                   
Total
  $ 1,775     $ (464 )   $ 104,976     $ (68,219 )   $ 106,751     $ (68,683 )
 
                                   

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(5) Preneed Cemetery Merchandise and Service Activities—(Continued)
                                                 
    October 31, 2008  
    Less than 12 Months     12 Months or Greater     Total  
    Market     Unrealized     Market     Unrealized     Market     Unrealized  
    Value     Losses     Value     Losses     Value     Losses  
U.S. Government, agencies and municipalities
  $ 458     $ (3 )   $ 201     $ (2 )   $ 659     $ (5 )
Corporate bonds
    5,371       (312 )     3,819       (1,547 )     9,190       (1,859 )
Preferred stocks
    4,587       (3,128 )     12,069       (5,700 )     16,656       (8,828 )
Common stocks
    18,227       (12,604 )     51,495       (54,972 )     69,722       (67,576 )
Mutual funds:
                                               
Equity
    13,599       (10,201 )     4,117       (2,374 )     17,716       (12,575 )
Fixed income
                13       (6 )     13       (6 )
Other long-term investments
                40       (15 )     40       (15 )
 
                                   
Total
  $ 42,242     $ (26,248 )   $ 71,754     $ (64,616 )   $ 113,996     $ (90,864 )
 
                                   
     The unrealized losses in the preneed cemetery merchandise and services trust portfolio are not considered to be other than temporary. For each of these securities, the Company evaluates consensus analyst recommendations, ratings from established ratings agencies, any concerns specific to the issuer of the securities and overall market performance. Of the total unrealized losses at October 31, 2009, 85 percent, or $58,617, were generated by common stock and preferred stock investments. Most of the common stock investments are part of the S&P 500 Index, and all preferred stocks had a rating of “A” or better at the time of purchase. Because approximately 45 percent of the Company’s preneed cemetery merchandise and service trusts portfolio is currently invested in common stock, the Company generally expects its portfolio performance to improve if the performance of the overall stock market improves, but would also expect its performance to deteriorate if the overall stock market declines. The preferred stocks are primarily in the financial services sector which experienced a significant decline in market value in late 2008 and early 2009 due to the current economic crisis. The Company believes that it has sufficient cash and cash equivalents within the trusts and from cash deposits of future preneed sales and cash received from ordinary income to fund future services and allow the Company to hold these investments until they recover in value.
(6) 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 $6,840, $10,660 and $10,164 for the years ended October 31, 2009, 2008 and 2007, respectively.
     The cost and market values of the trust investments held by the cemetery perpetual care trusts as of October 31, 2009 are detailed below. Based on the Company’s evaluation, the cost basis of the cemetery perpetual care trusts below reflects realized losses for the year ended October 31, 2009 of approximately $3,418 from their original cost basis. These realized losses are related to certain investments held that were rendered worthless or practically worthless and to certain investments that the Company determined it did not have the intent to hold until they recover in value.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(6) Cemetery Interment Rights and Perpetual Care Trusts—(Continued)
                                         
    October 31, 2009  
            Unrealized     Unrealized                
    Cost Basis     Gains     Losses     Market          
Cash, money market and other short-term investments
  $ 17,784     $     $     $ 17,784          
U.S. Government, agencies and municipalities
    5,416       394       (82 )     5,728          
Corporate bonds
    42,735       2,088       (1,085 )     43,738          
Preferred stocks
    58,421       2       (17,137 )     41,286          
Common stocks
    96,831       2,663       (42,792 )     56,702          
Mutual funds:
                                       
Equity
    6,838       25       (1,560 )     5,303          
Fixed income
    32,561       1,340       (342 )     33,559          
Other long-term investments
    766       4       (177 )     593          
 
                               
Trust investments
  $ 261,352     $ 6,516     $ (63,175 )   $ 204,693          
 
                                 
Market value as a percentage of cost
                                    78.3 %
 
                                     
Accrued investment income
                            783          
 
                                     
Trust assets
                          $ 205,476          
 
                                     
     The cost and market values of the trust investments held by the cemetery perpetual care trusts as of October 31, 2008 are detailed below.
                                         
    October 31, 2008
            Unrealized     Unrealized                
    Cost Basis     Gains     Losses     Market          
Cash, money market and other short-term investments
  $ 16,920     $     $     $ 16,920          
U.S. Government, agencies and municipalities
    8,739       292       (96 )     8,935          
Corporate bonds
    44,287       397       (5,709 )     38,975          
Preferred stocks
    67,514             (26,299 )     41,215          
Common stocks
    106,347       3,427       (50,431 )     59,343          
Mutual funds:
                                       
Equity
    6,740             (2,103 )     4,637          
Fixed income
    2,086             (472 )     1,614          
Other long-term investments
    594       28       (11 )     611          
 
                               
Trust investments
  $ 253,227     $ 4,144     $ (85,121 )   $ 172,250          
 
                                 
Market value as a percentage of cost
                                    68.0 %
 
                                     
Accrued investment income
                            840          
 
                                     
Trust assets
                          $ 173,090          
 
                                     

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(6) Cemetery Interment Rights and Perpetual Care Trusts—(Continued)
     The estimated maturities and market values of debt securities included above are as follows:
         
    October 31, 2009  
Due in one year or less
  $ 11,939  
Due in one to five years
    23,747  
Due in five to ten years
    13,199  
Thereafter
    581  
 
     
 
  $ 49,466  
 
     
     The Company is actively managing a covered call program on its equity securities within the cemetery perpetual care trust. As of October 31, 2009, the Company has outstanding covered calls with a market value of $220. These covered calls constitute a hedge on $9,361, or approximately 16.5 percent, of the common stock portion of the Company’s portfolio within the cemetery perpetual care trust and also provide an opportunity for current income. For the year ended October 31, 2009, the Company realized trust earnings of approximately $177 related to the covered call program.
     Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy provided in ASC 820. The Company’s Level 1 investments include cash, money market and other short-term investments, common stock and mutual funds.
     Where quoted market prices are not available for the specific security, then fair values are estimated by using quoted prices of securities with similar characteristics. These investments are primarily U. S. Government, agencies and municipalities, corporate bonds and preferred stocks, all of which are classified within Level 2 of the valuation hierarchy.
     The Company’s Level 3 investments include an investment in a partnership. The valuation of partnership investments requires significant management judgment due to the absence of quoted prices, inherent lack of liquidity and the long-term nature of such assets. The fair market value of the partnership investments was determined by using its most recent audited financial statements and assessing the market value of the underlying securities within the partnership.
     The inputs into the fair value of the Company’s cemetery perpetual care trust investments are categorized as follows:
                                 
    October 31, 2009
            Significant        
    Quoted Market   Other   Significant    
    Prices in Active   Observable   Unobservable    
    Markets   Inputs   Inputs   Fair market
    (Level 1)   (Level 2)   (Level 3)   value
 
                               
Trust investments
  $ 113,715     $ 90,752     $ 226     $ 204,693  
     The change in the Company’s cemetery perpetual care trust investments with significant unobservable inputs (Level 3) is as follows:
         
Fair market value, November 1, 2008
  $ 611  
Total unrealized losses included in other comprehensive income (1)
    (177 )
Transfers out of Level 3 category
    (208 )
 
     
Fair market value, October 31, 2009
  $ 226  
 
     

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(6) Cemetery Interment Rights and Perpetual Care Trusts—(Continued)
 
(1)   All gains (losses) recognized in other comprehensive income for cemetery perpetual care trust investments are attributable to the Company’s customers and are offset by a corresponding increase (decrease) in perpetual care trusts’ corpus.
     In states where the Company withdraws and recognizes capital gains in its cemetery perpetual care trusts, if it realizes net capital losses (i.e. losses in excess of capital gains in the trust) and the fair market value of the trust assets is less than the aggregate amounts required to be contributed to the trust, some states may require the Company to make cash deposits to the trusts or may require the Company to stop withdrawing earnings until future earnings restore the net realized losses. As of October 31, 2008, the Company had a liability recorded for the estimated probable funding obligation to restore the net realized losses as a result of fiscal year 2008 losses of $13,281, which was recognized as a realized loss in the consolidated statement of earnings for the year ended October 31, 2008 in cemetery costs. The Company recorded an additional $3,421 for the estimated probable funding obligation to restore the net realized losses in the cemetery perpetual care trust during fiscal year 2009. Also, during fiscal year 2009, the Company contributed approximately $734 to the trusts as part of its funding obligation and had earnings of $1,958 within the trusts that it did not withdraw from the trusts in order to satisfy its estimated probable funding obligation. As of October 31, 2009, the Company’s estimated probable funding obligation was $14,010. In those states where realized net capital gains have not been withdrawn, the Company believes it is reasonably possible that additional funding obligations may exist with an estimated amount of approximately $3,500.
     Activity related to preneed cemetery perpetual care trust investments is as follows:
                         
    Year Ended October 31,
    2009   2008   2007
Purchases
  $ 31,856     $ 54,315     $ 65,172  
Sales
    24,798       53,902       57,921  
Realized gains from sales of investments
    1,822       4,498       4,173  
Realized losses from sales of investments and other
    (4,416 ) (1)     (14,173 ) (3)     (359 )
Interest income, dividend and other ordinary income
    9,570       10,520       9,820  
Deposits
    8,754 (2)     8,295       8,158  
Withdrawals
    5,339       10,081       10,536  
 
                       
Other comprehensive income:
                       
Reduction (increase) in net unrealized losses
    24,318       (61,717 )     (77 )
Reclassification to perpetual care trusts’ corpus
    (24,318 )     61,717       77  
 
(1)   Includes $998 in losses from the sale of investments and $3,418 in losses related to certain investments that were rendered worthless or practically worthless and to certain investments that the Company determined it did not have the intent to hold until they recover in value.
 
(2)   Includes $734 that the Company contributed to the cemetery perpetual care trusts as part of its funding obligation during the year ended October 31, 2009.
 
(3)   Includes $530 in losses from the sale of investments and $13,643 in losses related to certain investments that were rendered worthless or practically worthless.
     During the years ended October 31, 2009, 2008 and 2007, cemetery revenues were $211,477, $241,276 and $243,487, respectively, of which $7,701, $9,322 and $7,748, respectively, were required to be placed into perpetual care trusts and were recorded as revenues and expenses.
     The following table shows the gross unrealized losses and fair value of the cemetery perpetual care trust investments with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of October 31, 2009 and 2008.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(6) Cemetery Interment Rights and Perpetual Care Trusts—(Continued)
                                                 
    October 31, 2009  
    Less than 12 Months     12 Months or Greater     Total  
    Market     Unrealized     Market     Unrealized     Market     Unrealized  
    Value     Losses     Value     Losses     Value     Losses  
U.S. Government, agencies and municipalities
  $ 270     $ (81 )   $ 6     $ (1 )   $ 276     $ (82 )
Corporate bonds
    600       (124 )     1,732       (961 )     2,332       (1,085 )
Preferred stocks
                40,784       (17,137 )     40,784       (17,137 )
Common stocks
    (38 )     (473 )     50,445       (42,319 )     50,407       (42,792 )
Mutual funds:
                                               
Equity
    43       (11 )     5,034       (1,549 )     5,077       (1,560 )
Fixed income
    118             1,096       (342 )     1,214       (342 )
Other long-term investments
    201       (177 )                 201       (177 )
 
                                   
Total
  $ 1,194     $ (866 )   $ 99,097     $ (62,309 )   $ 100,291     $ (63,175 )
 
                                   
                                                 
    October 31, 2008  
    Less than 12 Months     12 Months or Greater     Total  
    Market     Unrealized     Market     Unrealized     Market     Unrealized  
    Value     Losses     Value     Losses     Value     Losses  
U.S. Government, agencies and municipalities
  $ 324     $ (1 )   $ 627     $ (95 )   $ 951     $ (96 )
Corporate bonds
    15,652       (2,352 )     12,281       (3,357 )     27,933       (5,709 )
Preferred stocks
    8,752       (6,227 )     32,463       (20,072 )     41,215       (26,299 )
Common stocks
    17,832       (8,252 )     34,352       (42,179 )     52,184       (50,431 )
Mutual funds:
                                               
Equity
    4,501       (2,075 )     90       (28 )     4,591       (2,103 )
Fixed income
    258       (14 )     1,078       (458 )     1,336       (472 )
Other long-term investments
                (12 )     (11 )     (12 )     (11 )
 
                                   
Total
  $ 47,319     $ (18,921 )   $ 80,879     $ (66,200 )   $ 128,198     $ (85,121 )
 
                                   
     The unrealized losses in the cemetery perpetual care trust portfolio are not considered to be other than temporary. For each of these securities, the Company evaluates consensus analyst recommendations, ratings from established ratings agencies, any concerns specific to the issuer of the securities and overall market performance. Of the total unrealized losses at October 31, 2009, 95 percent, or $59,929, were generated by common stock and preferred stock investments. Most of the common stock investments are part of the S&P 500 Index, and all preferred stocks had a rating of “A” or better at the time of purchase. Because approximately 28 percent of the Company’s cemetery perpetual care trusts portfolio is currently invested in common stock, the Company generally expects its portfolio performance to improve if the performance of the overall stock market improves, but would also expect its performance to deteriorate if the overall stock market declines. The preferred stocks are primarily in the financial services sector which experienced a significant decline in market value in late 2008 and early 2009 due to the current economic crisis. The Company believes that it has sufficient cash and cash equivalents within the trusts and from cash deposits of future preneed sales and cash received from ordinary income to fund future services and allow the Company to hold these investments until they recover in value.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(7) Deferred Preneed Funeral and Cemetery Receipts Held in Trust and Perpetual Care Trusts’ Corpus
     The components of deferred preneed funeral and cemetery receipts held in trust in the consolidated balance sheet at October 31, 2009 are as follows:
                         
    Deferred Receipts Held in Trust        
    Preneed     Preneed        
    Funeral     Cemetery     Total  
Trust assets at market value
  $ 358,430     $ 163,938     $ 522,368  
Less:
                       
Pending withdrawals
    (9,080 )     (5,740 )     (14,820 )
Pending deposits
    4,141       3,098       7,239  
 
                 
Deferred receipts held in trust
  $ 353,491     $ 161,296     $ 514,787  
 
                 
     The components of perpetual care trusts’ corpus in the consolidated balance sheet at October 31, 2009 are as follows:
         
    Perpetual Care  
    Trusts’ Corpus  
Trust assets at market value
  $ 205,476  
Less:
       
Pending withdrawals
    (2,134 )
Pending deposits
    826  
 
     
Perpetual care trusts’ corpus
  $ 204,168  
 
     
     The components of deferred preneed funeral and cemetery receipts held in trust in the consolidated balance sheet at October 31, 2008 are as follows:
                         
    Deferred Receipts Held in Trust        
    Preneed     Preneed        
    Funeral     Cemetery     Total  
Trust assets at market value
  $ 336,782     $ 148,533     $ 485,315  
Less:
                       
Pending withdrawals
    (8,926 )     (4,362 )     (13,288 )
Pending deposits
    2,131       1,262       3,393  
 
                 
Deferred receipts held in trust
  $ 329,987     $ 145,433     $ 475,420  
 
                 
     The components of perpetual care trusts’ corpus in the consolidated balance sheet at October 31, 2008 are as follows:
         
    Perpetual Care  
    Trusts’ Corpus  
Trust assets at market value
  $ 173,090  
Less:
       
Pending withdrawals
    (2,442 )
Pending deposits
    723  
 
     
Perpetual care trusts’ corpus
  $ 171,371  
 
     
Investment and other income, net
     The components of investment and other income, net in the consolidated statement of earnings for the years ended October 31, 2009, 2008 and 2007 are detailed below.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(7) Deferred Preneed Funeral and Cemetery Receipts Held in Trust and Perpetual Care Trusts’ Corpus—(Continued)
                         
    Year Ended October 31,  
    2009     2008     2007  
Realized gains from sales of investments
  $ 5,519     $ 8,530     $ 28,560  
Realized losses from sales of investments and other
    (24,414 )     (53,348 )     (1,844 )
Interest income, dividends and other ordinary income
    25,903       30,484       32,478  
Trust expenses and income taxes
    (8,331 )     (10,601 )     (11,253 )
 
                 
Net trust investment income (loss)
    (1,323 )     (24,935 )     47,941  
Investment income (loss) of deferred preneed funeral and cemetery receipts held in trusts
    5,525       22,875       (37,635 )
Investment income (loss) of perpetual care trusts’ corpus
    (4,202 )     2,060       (10,306 )
 
                 
Total deferred preneed funeral and cemetery receipts held in trust and perpetual care trusts’ corpus
                 
Investment and other income, net (1)
    92       2,406       3,374  
 
                 
Total investment and other income, net
  $ 92     $ 2,406     $ 3,374  
 
                 
 
(1)   Investment and other income, net is comprised of interest income primarily on the Company’s cash, cash equivalents and marketable securities not held in trust.
(8) Marketable Securities and Restricted Investments
     The market value of marketable securities as of October 31, 2009 and 2008 was $902 and $1,055, respectively, which included gross unrealized gains of $54 and $58 for fiscal years 2009 and 2008, respectively, and no unrealized losses for both years. As of October 31, 2009, $1,000 is classified as a long-term asset in the line item “Other assets” in the consolidated balance sheet, which includes $902 of marketable securities and $98 of cash. As of October 31, 2008, $1,000 is classified as a long-term asset in “Other assets” in the consolidated balance sheet, all of which is marketable securities. The Company is required by Texas statutes to maintain a minimal capital level of $1,000, of which 40 percent must be in readily marketable investments.
(9) Receivables
                 
    October 31,  
    2009     2008  
Current receivables are summarized as follows:
               
Installment contracts due within one year
  $ 39,023     $ 44,039  
Income tax receivables
    6,767       1,077  
Trade and other receivables
    14,905       14,942  
Funeral receivables
    9,322       9,740  
Allowance for doubtful accounts
    (7,390 )     (7,215 )
Amounts to be collected for cemetery perpetual care trusts
    (3,188 )     (3,454 )
 
           
Net current receivables
  $ 59,439     $ 59,129  
 
           
Long-term receivables are summarized as follows:
               
Installment contracts due beyond one year
  $ 79,229     $ 87,115  
Income tax receivables
    33       77  
Allowance for doubtful accounts
    (9,778 )     (9,689 )
Amounts to be collected for cemetery perpetual care trusts
    (6,473 )     (6,832 )
 
           
Net long-term receivables
  $ 63,011     $ 70,671  
 
           

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(9)   Receivables—(continued)
     Installment contracts due within one year and due beyond one year include receivables in the Company’s preneed cemetery property sales only. Receivables for preneed funeral and cemetery merchandise and services sales are included in preneed funeral receivables and trust investments and preneed cemetery receivables and trust investments as discussed in Notes 4 and 5.
     The Company’s receivables as of October 31, 2009 are expected to be collected as follows:
         
Years ending October 31,
       
2010
  $ 59,439  
2011
    18,678  
2012
    14,574  
2013
    10,611  
2014
    7,364  
Thereafter
    11,784  
 
     
 
  $ 122,450  
 
     
(10)   Inventories and Cemetery Property
     Inventories are comprised of the following:
                 
    October 31,  
    2009     2008  
Developed cemetery property
  $ 10,331     $ 12,223  
Merchandise and supplies
    25,825       23,647  
 
           
 
  $ 36,156     $ 35,870  
 
           
     Cemetery property is comprised of the following:
                 
    October 31,  
    2009     2008  
Developed cemetery property
  $ 112,511     $ 106,861  
Undeveloped cemetery property
    273,466       270,410  
 
           
 
  $ 385,977     $ 377,271  
 
           
     The portion of developed cemetery property that management estimates will be used in the next twelve months is included in inventories. Included in the non-current developed portion of cemetery property are $14,157 and $13,860 related to cemetery property under development as of October 31, 2009 and 2008, respectively.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(11)   Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes
     The following tables present the condensed consolidating historical financial statements as of October 31, 2009 and October 31, 2008 and for the fiscal years ended October 31, 2009, 2008 and 2007, for the direct and indirect domestic subsidiaries of the Company that serve as guarantors of the Company’s 6.25 percent senior notes and its 3.125 percent and 3.375 percent senior convertible notes, and the financial results of the Company’s subsidiaries that do not serve as guarantors. Non-guarantor subsidiaries of the 6.25 percent senior notes include the Puerto Rican subsidiaries, Investors Trust, Inc. and certain immaterial domestic subsidiaries, which are prohibited by law from guaranteeing the senior notes. The guarantor subsidiaries of the 6.25 percent senior notes are wholly-owned directly or indirectly by the Company, except for three immaterial guarantor subsidiaries of which the Company is the majority owner. The non-guarantor subsidiaries of the senior convertible notes are identical to those of the 6.25 percent senior notes but also include three immaterial non-wholly owned subsidiaries and any future non-wholly owned subsidiaries. The guarantees are full and unconditional and joint and several. In the statements presented within this footnote, Tier 2 guarantor subsidiaries represent the three immaterial non-wholly owned subsidiaries that do not guaranty the senior convertible notes but do guaranty the 6.25 percent senior notes. Non-guarantor subsidiaries represent the identical non-guarantor subsidiaries of the 6.25 percent senior notes and senior convertible notes. In the condensed consolidating statements of earnings and other comprehensive income, corporate general and administrative expenses and interest expense of the parent are presented net of amounts charged to the guarantor and non-guarantor subsidiaries.
     Certain reclassifications have been made to the October 31, 2008 non-guarantor balance sheet related to prior period dividends declared. The reclassifications had no effect on the consolidated or guarantor balance sheets as of October 31, 2008.
Condensed Consolidating Statements of Earnings and Other Comprehensive Income
                                                 
    Year Ended October 31, 2009  
            Guarantor     Guarantor     Non-              
            Subsidiaries-     Subsidiaries-     Guarantor              
    Parent     Tier 1     Tier 2     Subsidiaries     Eliminations     Consolidated  
Revenues:
                                               
Funeral
  $     $ 256,731     $ 1,866     $ 17,733     $     $ 276,330  
Cemetery
          190,386       2,915       18,176             211,477  
 
                                   
 
          447,117       4,781       35,909             487,807  
 
                                   
Costs and expenses:
                                               
Funeral
          197,605       1,176       12,420             211,201  
Cemetery
          171,811       2,540       14,515             188,866  
 
                                   
 
          369,416       3,716       26,935             400,067  
 
                                   
Gross profit
          77,701       1,065       8,974             87,740  
 
                                   
Corporate general and administrative expenses
    (30,670 )                             (30,670 )
Hurricane related recoveries (charges), net
    (720 )     340                         (380 )
Separation charges
    (55 )     (220 )                       (275 )
Gains on dispositions and impairment (losses), net
    (8 )     (88 )           (122 )           (218 )
Other operating income, net
    211       903       2       134             1,250  
 
                                   
Operating earnings (loss)
    (31,242 )     78,636       1,067       8,986             57,447  
Interest expense
    3,594       (23,800 )     (118 )     (2,029 )           (22,353 )
Gain on early extinguishment of debt
    20,078                               20,078  
Investment and other income, net
    91       1                         92  
Equity in subsidiaries
    40,860       747                   (41,607 )      
 
                                   
Earnings before income taxes
    33,381       55,584       949       6,957       (41,607 )     55,264  
Income tax expense (benefit)
    (2,272 )     20,030       262       1,591             19,611  
 
                                   
Net earnings
    35,653       35,554       687       5,366       (41,607 )     35,653  
Other comprehensive loss, net
    (2 )                 (2 )     2       (2 )
 
                                   
Comprehensive income
  $ 35,651     $ 35,554     $ 687     $ 5,364     $ (41,605 )   $ 35,651  
 
                                   

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(11)   Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)
Condensed Consolidating Statements of Earnings and Other Comprehensive Income
                                                 
    Year Ended October 31, 2008  
            Guarantor     Guarantor     Non-              
            Subsidiaries-     Subsidiaries-     Guarantor              
    Parent     Tier 1     Tier 2     Subsidiaries     Eliminations     Consolidated  
Revenues:
                                               
Funeral
  $     $ 265,015     $ 1,954     $ 19,638     $     $ 286,607  
Cemetery
          217,123       3,432       20,721             241,276  
 
                                   
 
          482,138       5,386       40,359             527,883  
 
                                   
Costs and expenses:
                                               
Funeral
          203,125       1,217       13,886             218,228  
Cemetery
          189,878       2,927       16,033             208,838  
 
                                   
 
          393,003       4,144       29,919             427,066  
 
                                   
Gross profit
          89,135       1,242       10,440             100,817  
 
                                   
Corporate general and administrative expenses
    (32,611 )                             (32,611 )
Impairment of goodwill
          (25,952 )                       (25,952 )
Hurricane related recoveries (charges), net
    (1,448 )     (1,165 )     316                   (2,297 )
Gains on dispositions and impairment (losses), net
    126       (479 )                       (353 )
Other operating income, net
    101       497       2       219             819  
 
                                   
Operating earnings (loss)
    (33,832 )     62,036       1,560       10,659             40,423  
Interest expense
    3,391       (25,237 )     (155 )     (2,114 )           (24,115 )
Investment and other income, net
    2,219       179             8             2,406  
Equity in subsidiaries
    17,783       548                   (18,331 )      
 
                                   
Earnings (loss) before income taxes
    (10,439 )     37,526       1,405       8,553       (18,331 )     18,714  
Income tax expense (benefit)
    (6,746 )     26,675       464       2,014             22,407  
 
                                   
Net earnings (loss)
    (3,693 )     10,851       941       6,539       (18,331 )     (3,693 )
Other comprehensive income, net
    26                   26       (26 )     26  
 
                                   
Comprehensive income (loss)
  $ (3,667 )   $ 10,851     $ 941     $ 6,565     $ (18,357 )   $ (3,667 )
 
                                   

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

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(11)   Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)
Condensed Consolidating Balance Sheets
                                                 
    October 31, 2009  
            Guarantor     Guarantor     Non-              
            Subsidiaries-     Subsidiaries-     Guarantor              
    Parent     Tier 1     Tier 2     Subsidiaries     Eliminations     Consolidated  
ASSETS
                                               
Current assets:
                                               
Cash and cash equivalents
  $ 56,734     $ 5,096     $ 52     $ 926     $     $ 62,808  
Receivables, net of allowances
    7,062       47,388       504       4,485             59,439  
Inventories
    269       33,440       312       2,135             36,156  
Prepaid expenses
    1,218       3,804       38       1,688             6,748  
Deferred income taxes, net
    9,006       11,168       47       1,494             21,715  
 
                                   
Total current assets
    74,289       100,896       953       10,728             186,866  
Receivables due beyond one year, net of allowances
          48,783       420       13,808             63,011  
Preneed funeral receivables and trust investments
          379,899             9,613             389,512  
Preneed cemetery receivables and trust investments
          185,447       1,124       6,846             193,417  
Goodwill
          227,401       48       19,787             247,236  
Cemetery property, at cost
          348,627       11,315       26,035             385,977  
Property and equipment, at cost
    53,956       466,187       2,183       38,136             560,462  
Less accumulated depreciation
    36,015       208,806       994       15,190             261,005  
 
                                   
Net property and equipment
    17,941       257,381       1,189       22,946             299,457  
Deferred income taxes, net
    8,325       107,636             10,415       (2,981 )     123,395  
Cemetery perpetual care trust investments
          193,616       8,207       3,653             205,476  
Other assets
    8,402       5,196       6       1,050             14,654  
Intercompany receivables
    771,490                         (771,490 )      
Equity in subsidiaries
    15,065       8,121                   (23,186 )      
 
                                   
Total assets
  $ 895,512     $ 1,863,003     $ 23,262     $ 124,881     $ (797,657 )   $ 2,109,001  
 
                                   
 
                                               
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                               
Current liabilities:
                                               
Current maturities of long-term debt
  $ 5     $     $     $     $     $ 5  
Accounts payable, accrued expenses and other current liabilities
    15,209       75,920       199       4,678             96,006  
 
                                   
Total current liabilities
    15,214       75,920       199       4,678             96,011  
Long-term debt, less current maturities
    367,491                               367,491  
Deferred income taxes
                2,981             (2,981 )      
Intercompany payables
          747,847       3,402       20,241       (771,490 )      
Deferred preneed funeral revenue
          200,990             46,835             247,825  
Deferred preneed cemetery revenue
          239,177       277       27,510             266,964  
Deferred preneed funeral and cemetery receipts held in trust
          507,912       1,045       5,830             514,787  
Perpetual care trusts’ corpus
          192,324       8,208       3,636             204,168  
Other long-term liabilities
    17,040       3,716             115             20,871  
Negative equity in subsidiaries
    104,883                         (104,883 )      
 
                                   
Total liabilities
    504,628       1,967,886       16,112       108,845       (879,354 )     1,718,117  
 
                                   
Common stock
    92,684       102       324       52       (478 )     92,684  
Other
    298,165       (104,985 )     6,826       15,949       82,210       298,165  
Accumulated other comprehensive income
    35                   35       (35 )     35  
 
                                   
Total shareholders’ equity
    390,884       (104,883 )     7,150       16,036       81,697       390,884  
 
                                   
Total liabilities and shareholders’ equity
  $ 895,512     $ 1,863,003     $ 23,262     $ 124,881     $ (797,657 )   $ 2,109,001  
 
                                   

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(11)   Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)
Condensed Consolidating Balance Sheets
                                                 
    October 31, 2008  
                            Non-              
            Guarantor     Guarantor     Guarantor              
    Parent     Subsidiaries-Tier 1     Subsidiaries-Tier 2     Subsidiaries     Eliminations     Consolidated  
ASSETS
                                               
Current assets:
                                               
Cash and cash equivalents
  $ 65,593     $ 4,332     $ 22     $ 2,627     $     $ 72,574  
Marketable securities
                      55             55  
Receivables, net of allowances
    2,987       51,137       546       4,459             59,129  
Inventories
    300       32,821       361       2,388             35,870  
Prepaid expenses
    1,282       4,618       37       1,380             7,317  
Deferred income taxes, net
    1,395       6,117       55       1,231             8,798  
 
                                   
Total current assets
    71,557       99,025       1,021       12,140             183,743  
Receivables due beyond one year, net of allowances
          54,326       404       15,941             70,671  
Preneed funeral receivables and trust investments
          358,891             9,521             368,412  
Preneed cemetery receivables and trust investments
          173,484       1,047       7,610             182,141  
Goodwill
          227,401       48       19,787             247,236  
Cemetery property, at cost
          340,232       11,424       25,615             377,271  
Property and equipment, at cost
    49,583       452,050       1,932       38,109             541,674  
Less accumulated depreciation
    30,479       190,645       824       14,118             236,066  
 
                                   
Net property and equipment
    19,104       261,405       1,108       23,991             305,608  
Deferred income taxes, net
    25,853       148,403             8,527       (3,268 )     179,515  
Cemetery perpetual care trust investments
          162,789       7,137       3,164             173,090  
Non-current assets held for sale
          354                         354  
Other assets
    9,451       5,937       16       1,070             16,474  
Intercompany receivables
    849,862                         (849,862 )      
Equity in subsidiaries
    15,502       7,374                   (22,876 )      
 
                                   
Total assets
  $ 991,329     $ 1,839,621     $ 22,205     $ 127,366     $ (876,006 )   $ 2,104,515  
 
                                   
 
                                               
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                               
Current liabilities:
                                               
Current maturities of long-term debt
  $ 20     $     $     $     $     $ 20  
Accounts payable, accrued expenses and other current liabilities
    18,026       77,920       180       4,350             100,476  
 
                                   
Total current liabilities
    18,046       77,920       180       4,350             100,496  
Long-term debt, less current maturities
    450,095                               450,095  
Deferred income taxes
                3,268             (3,268 )      
Intercompany payables
          819,691       3,939       26,232       (849,862 )      
Deferred preneed funeral revenue
          199,867             45,315             245,182  
Deferred preneed cemetery revenue
          248,098       324       27,413             275,835  
Deferred preneed funeral and cemetery receipts held in trust
          470,167       899       4,354             475,420  
Perpetual care trusts’ corpus
          161,074       7,132       3,165             171,371  
Other long-term liabilities
    17,114       3,241             124             20,479  
Negative equity in subsidiaries
    140,437                         (140,437 )      
 
                                   
Total liabilities
    625,692       1,980,058       15,742       110,953       (993,567 )     1,738,878  
 
                                   
Common stock
    92,248       102       324       52       (478 )     92,248  
Other
    273,352       (140,539 )     6,139       16,324       118,076       273,352  
Accumulated other comprehensive income
    37                   37       (37 )     37  
 
                                   
Total shareholders’ equity
    365,637       (140,437 )     6,463       16,413       117,561       365,637  
 
                                   
Total liabilities and shareholders’ equity
  $ 991,329     $ 1,839,621     $ 22,205     $ 127,366     $ (876,006 )   $ 2,104,515  
 
                                   

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(11)   Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)
Condensed Consolidating Statements of Cash Flows
                                                 
    Year Ended October 31, 2009  
            Guarantor     Guarantor     Non-              
            Subsidiaries-     Subsidiaries-     Guarantor              
    Parent     Tier 1     Tier 2     Subsidiaries     Eliminations     Consolidated  
 
                                               
Net cash provided by operating activities
  $ 15,586     $ 58,085     $ 775     $ 10,449     $     $ 84,895  
 
                                   
Cash flows from investing activities:
                                               
Proceeds from sales of marketable securities
                      250             250  
Purchases of marketable securities
                      (197 )           (197 )
Proceeds from sale of assets
    292       202             230             724  
Purchases of subsidiaries and other investments, net of cash acquired
    (300 )     (1,623 )                       (1,923 )
Additions to property and equipment
    (5,024 )     (15,305 )     (208 )     (701 )           (21,238 )
Other
          49                         49  
 
                                   
Net cash used in investing activities
    (5,032 )     (16,677 )     (208 )     (418 )           (22,335 )
 
                                   
Cash flows from financing activities:
                                               
Repayments of long-term debt
    (60,860 )                             (60,860 )
Intercompany receivables (payables)
    52,913       (40,644 )     (537 )     (11,732 )            
Retirement of common stock warrants
    (8,560 )                             (8,560 )
Issuance of common stock
    299                               299  
Retirement of call options
    8,714                               8,714  
Purchase and retirement of common stock
    (75 )                             (75 )
Debt refinancing costs
    (2,110 )                             (2,110 )
Dividends
    (9,734 )                             (9,734 )
 
                                   
Net cash used in financing activities
    (19,413 )     (40,644 )     (537 )     (11,732 )           (72,326 )
 
                                   
Net increase (decrease) in cash
    (8,859 )     764       30       (1,701 )           (9,766 )
Cash and cash equivalents, beginning of period
    65,593       4,332       22       2,627             72,574  
 
                                   
Cash and cash equivalents, end of period
  $ 56,734     $ 5,096     $ 52     $ 926     $     $ 62,808  
 
                                   

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)
Condensed Consolidating Statements of Cash Flows
                                                 
    Year Ended October 31, 2008  
            Guarantor     Guarantor     Non-              
            Subsidiaries-     Subsidiaries-     Guarantor              
    Parent     Tier 1     Tier 2     Subsidiaries     Eliminations     Consolidated  
 
                                               
Net cash provided by operating activities
  $ 5,618     $ 66,856     $ 614     $ 11,435     $     $ 84,523  
 
                                   
Cash flows from investing activities:
                                               
Proceeds from sales of marketable securities
    19,969                   250             20,219  
Purchases of marketable securities
    (19,953 )                 (3 )           (19,956 )
Proceeds from sale of assets
          599                         599  
Purchases of subsidiaries and other investments, net of cash acquired
    (1,378 )                             (1,378 )
Additions to property and equipment
    (6,956 )     (18,887 )     (148 )     (1,004 )           (26,995 )
Other
          144                         144  
 
                                   
Net cash used in investing activities
    (8,318 )     (18,144 )     (148 )     (757 )           (27,367 )
 
                                   
Cash flows from financing activities:
                                               
Repayments of long-term debt
    (198 )                             (198 )
Intercompany receivables (payables)
    61,218       (51,065 )     (480 )     (9,673 )            
Issuance of common stock
    1,845                               1,845  
Purchase and retirement of common stock
    (48,627 )                             (48,627 )
Dividends
    (9,374 )                             (9,374 )
Excess tax benefits from share-based payment arrangements
    227                               227  
 
                                   
Net cash provided by (used in) financing activities
    5,091       (51,065 )     (480 )     (9,673 )           (56,127 )
 
                                   
Net increase (decrease) in cash
    2,391       (2,353 )     (14 )     1,005             1,029  
Cash and cash equivalents, beginning of period
    63,202       6,685       36       1,622             71,545  
 
                                   
Cash and cash equivalents, end of period
  $ 65,593     $ 4,332     $ 22     $ 2,627     $     $ 72,574  
 
                                   

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes—(Continued)
Condensed Consolidating Statements of Cash Flows
                                                 
    Year Ended October 31, 2007  
            Guarantor     Guarantor     Non-              
            Subsidiaries-     Subsidiaries-     Guarantor              
    Parent     Tier 1     Tier 2     Subsidiaries     Eliminations     Consolidated  
 
                                               
Net cash provided by (used in) operating activities
  $ 637     $ 68,417     $ (1,838 )   $ 14,725     $     $ 81,941  
 
                                   
Cash flows from investing activities:
                                               
Purchases of marketable securities
                      (1 )           (1 )
Proceeds from sale of assets
          3,750                         3,750  
Purchases of subsidiaries and other investments, net of cash acquired
          (5,203 )                       (5,203 )
Insurance proceeds related to hurricane damaged properties
          2,439       90                   2,529  
Additions to property and equipment
    (6,648 )     (27,167 )     (150 )     (1,345 )           (35,310 )
Other
          48             1             49  
 
                                   
Net cash used in investing activities
    (6,648 )     (26,133 )     (60 )     (1,345 )           (34,186 )
 
                                   
Cash flows from financing activities:
                                               
Proceeds from long-term debt
    250,000                               250,000  
Repayments of long-term debt
    (146,547 )                 (30,000 )           (176,547 )
Intercompany receivables (payables)
    20,173       (38,853 )     1,897       16,783              
Debt issue costs
    (6,217 )                             (6,217 )
Proceeds from sale of common stock warrants
    43,850                               43,850  
Issuance of common stock
    3,066                               3,066  
Purchase of call options
    (60,000 )                             (60,000 )
Purchase and retirement of common stock
    (64,201 )                             (64,201 )
Dividends
    (10,184 )                             (10,184 )
Excess tax benefits from share-based payment arrangements
    153                               153  
 
                                   
Net cash provided by (used in) financing activities
    30,093       (38,853 )     1,897       (13,217 )           (20,080 )
 
                                   
Net increase (decrease) in cash
    24,082       3,431       (1 )     163             27,675  
Cash and cash equivalents, beginning of period
    39,120       3,254       37       1,459             43,870  
 
                                   
Cash and cash equivalents, end of period
  $ 63,202     $ 6,685     $ 36     $ 1,622     $     $ 71,545  
 
                                   

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(12) Dispositions and Acquisitions
     In fiscal years 2009, 2008 and 2007, the Company recorded gains on dispositions, net of impairment losses, of ($218), ($353) and ($44) in continuing operations, respectively, and $609 in discontinued operations in fiscal year 2007.
     Assets associated with assets held for sale are presented in the “non-current assets held for sale” line in the consolidated balance sheet. As of October 31, 2008, non-current assets held for sale consists of $354 of land, buildings and equipment that was designated as held for sale in fiscal year 2009, and subsequently sold in fiscal year 2009. Cemetery property and land that was previously designated as held for sale at October 31, 2008 was no longer for sale at October 31, 2009.
Acquisitions
     During the year ended October 31, 2009, the Company acquired a new cemetery for approximately $1,623. This cemetery acquisition was accounted for under the purchase method, and the acquired assets and liabilities (primarily deferred revenue of approximately $7,500, cemetery property of approximately $5,700 and inventory of approximately $2,900) were valued at their estimated fair values. Its results of operations, which are considered immaterial, have been included since the acquisition date.
     During the year ended October 31, 2008, the Company acquired an investment in an outside business for approximately $1,378, which is accounted for under the cost method of accounting. During fiscal year 2009, the Company invested an additional $300 in this business.
     During the year ended October 31, 2007, the Company purchased a property for approximately $2,398 and a new funeral home for approximately $2,805. This funeral home acquisition was accounted for under the purchase method, and the acquired assets and liabilities were valued at their estimated fair values. Its results of operations have been included since the acquisition date.
(13) Impairment of Goodwill
     There were no goodwill impairment charges for the years ended October 31, 2009 and 2007. When the Company performed its fiscal year 2008 evaluation of goodwill during the fourth quarter of 2008, a noncash goodwill impairment charge of $25,952 related to the aggregated Northern and Central regions of the former Eastern division cemetery operating segment was required. In calculating the goodwill impairment charge, the fair value of the reporting units was determined using a discounted cash flow valuation approach. See Note 2(g) for a discussion of the Company’s reporting units and its annual goodwill impairment evaluation methodology.
     Goodwill in excess of net assets of companies acquired totaled $247,236 as of October 31, 2009 and 2008, respectively. The Company has approximately $30,431 of tax deductible goodwill which is being amortized for tax purposes.
     Goodwill and changes to goodwill by operating segment from October 31, 2007 to October 31, 2008 is presented below.
                         
    October 31, 2007     Changes     October 31, 2008  
 
                       
Funeral
  $ 198,613     $ (98 )   $ 198,515  
Cemetery
    74,673       (25,952 ) (1)     48,721  
 
                 
Total Goodwill
  $ 273,286     $ (26,050 )   $ 247,236  
 
                 
 
(1)   Goodwill impairment charge recorded as a result of the fiscal year 2008 annual goodwill impairment test.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(14) Separation Charges
     The Company previously had five operating and reportable segments consisting of a corporate trust management segment and a funeral and cemetery segment for each of the two geographical divisions (each with a division president): Western and Eastern. As described in Note 21, in the second quarter of 2009, the Company eliminated its two geographic divisions of Western and Eastern and the positions of Western and Eastern division presidents from its organizational structure and now has three operating segments: a funeral segment, a cemetery segment and a corporate trust management segment. During the year ended October 31, 2009, the Company recorded $275 in total separation charges related to the reorganization.
     During fiscal year 2007, the Company recorded $580 in total separation charges.
(15) Long-term Debt
                 
    October 31, 2009     October 31, 2008  
Long-term debt:
               
3.125% senior convertible notes due 2014
  $ 87,416     $ 125,000  
3.375% senior convertible notes due 2016
    79,985       125,000  
Senior secured revolving credit facility
           
6.25% senior notes due 2013
    200,000       200,000  
Other, principally seller financing of acquired operations or assumption upon acquisition, weighted average interest rates of 8.0% and 7.7% as of October 31, 2009 and October 31, 2008, respectively, partially secured by assets of subsidiaries, with maturities through 2022
    95       115  
 
           
Total long-term debt
    367,496       450,115  
Less current maturities
    5       20  
 
           
 
  $ 367,491     $ 450,095  
 
           
Fair Value
     As of October 31, 2009, the carrying values, including accrued interest, of the Company’s 3.125 percent senior convertible notes due 2014 and 3.375 percent senior convertible notes due 2016 were $88,220 and $80,780, respectively, compared to fair values of $75,217 and $67,033, respectively. As of October 31, 2008, the carrying values of the Company’s 3.125 percent senior convertible notes due 2014 and 3.375 percent senior convertible notes due 2016, including accrued interest, were $126,150 and $126,242, respectively, compared to fair values of $81,634 and $81,286, respectively.
     As of October 31, 2009 and 2008, the carrying values of the Company’s 6.25 percent senior notes, including accrued interest, were $202,604 and $202,604, respectively, compared to fair values of $197,096 and $168,531, respectively.
Senior Secured Revolving Credit Facility
     On June 2, 2009, the Company entered into a new senior secured revolving credit facility which replaced the previous $125,000 revolving credit facility that was set to mature in November 2009. The new senior secured revolving credit facility matures on June 2, 2012, and includes a $95,000 revolving credit facility, a $30,000 sublimit for the issuance of standby letters of credit and a $10,000 sublimit for swingline loans. As of October 31, 2009, there were no amounts drawn on the senior secured revolving credit facility, and the Company’s availability under the senior secured revolving credit facility, after giving consideration to $11,224 outstanding letters of credit and the $27,047 Florida bond, was $56,729. The Company may also request the addition of a new tranche of term loans, an increase in the commitments to the senior secured revolving credit facility or a combination thereof not to exceed $30,000. During fiscal year 2009, the Company recorded a charge for the loss on early extinguishment of

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(15) Long-term Debt—(Continued)
debt of $91 to write-off a portion of the unamortized fees on the prior agreement. The remaining fees related to the prior agreement and the fees incurred for the new agreement were $2,202 (of which $2,110 was paid in cash as of October 31, 2009) and will be amortized over the term of the new credit facility.
     The leverage-based grid pricing for the interest rate on the new senior secured revolving credit facility ranges from LIBOR plus 300 to 400 basis points based on the Company’s consolidated leverage ratio and was LIBOR plus 400 basis points at October 31, 2009. The Company also has a base rate option, and swingline loans bear interest at the base rate which is the highest of (a) the federal funds rate plus 0.50 percent, (b) the prime rate or (c) the Eurodollar rate plus 1 percent; plus a spread ranging from 200 to 300 basis points depending on the Company’s consolidated leverage ratio. The annual commitment fee is 75 basis points payable quarterly.
          The new senior secured revolving credit facility is governed by the following financial covenants at all times:
    Maintenance on a rolling four quarter basis of a maximum consolidated senior secured leverage ratio (total funded senior secured debt divided by EBITDA (as defined)) — Maximum 1.25x;
 
    Maintenance on a rolling four quarter basis of a minimum consolidated interest coverage ratio (EBITDAR (as defined) divided by interest expense paid in cash plus rent expense) — Minimum 2.50x through January 31, 2010 and 2.60x thereafter; and
 
    Maintenance at all times of a minimum cash balance of the greater of $20,000 or the then outstanding amount of all letters of credit obligations.
     In addition, the new senior secured revolving credit facility is governed by the following additional financial covenant only when a loan under the facility is outstanding:
    Maintenance on a rolling four quarter basis of a maximum consolidated leverage ratio (funded debt (net of domestic cash, cash equivalents and marketable securities) divided by EBITDA (as defined)) — Maximum 5.0x through January 31, 2010, 4.75x from February 1, 2010 through January 31, 2011 and 4.50x thereafter.
     The covenants include limitations on liens, limitations on mergers, consolidations and asset sales, limitations on incurrence of debt, limitations on dividends, stock redemptions and the redemption, repurchase and/or prepayment of other debt, limitation on capital expenditures, limitations on investments and acquisitions and limitations on transactions with affiliates. If there is no default or event of default, the Company may pay cash dividends and repurchase its stock, provided that the aggregate amount of the dividends and stock repurchased plus other types of restricted payments in any fiscal year does not exceed $30,000 plus any positive amounts in the discretionary basket. As of October 31, 2009, the amount available to pay dividends or repurchase stock was $143,581. In addition, the Company may prepay its debt without limitation as long as it has $35,000 in cash and marketable securities. If the Company’s cash and marketable securities are below $35,000, the Company is limited to $25,000 of debt prepayments in any twelve month period. The agreement also limits capital expenditures in any fiscal year to $40,000, with a provision for the carryover of permitted but unused amounts. The lenders under the senior secured revolving credit facility can accelerate all obligations under the facility and terminate the revolving credit commitment if an event of default occurs and is continuing.
     Obligations under the senior secured revolving credit facility are guaranteed by substantially all existing and future direct and indirect domestic subsidiaries of the Company formed under the laws of any one of the states or the District of Columbia of the United States of America (“SEI Guarantors”).
     The lenders under the new senior secured revolving credit facility have received a first priority perfected security interest in (1) all of the capital stock or other equity interests of each of the domestic subsidiaries of the Company whether now existing or hereafter created or acquired other than certain excluded immaterial subsidiaries

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(15) Long-term Debt—(Continued)
and 65 percent of the voting capital stock of all direct foreign subsidiaries whether now existing or hereafter acquired and (2) all other present and future assets and properties of the Company and the SEI Guarantors except (a) real property, (b) vehicles, (c) assets to which applicable law or regulation prohibits security interest therein or requires the consent of a third party, (d) contract rights in which a security interest without the approval of the other party to the contract would constitute a default thereunder and (e) any assets with respect to which a security interest cannot be perfected.
Senior Convertible Notes
     On June 27, 2007, the Company issued in a private placement $125,000 aggregate principal amount of 3.125 percent senior convertible notes due 2014 (the “2014 Notes”) and $125,000 aggregate principal amount of 3.375 percent senior convertible notes due 2016 (the “2016 Notes” and together with the 2014 Notes, the “senior convertible notes”). In connection with the sale of the senior convertible notes, the Company also sold common stock warrants for approximately $43,850, as described below. Total proceeds from the issuance of the senior convertible notes and sale of the common stock warrants was approximately $293,850. The Company used approximately $163,978 of the proceeds to prepay the remaining balance of the Company’s Term Loan B at par value (the Company had previously paid $13,098 of principal payments during 2007 prior to the extinguishment of the debt), including accrued interest, and used $60,000 for the purchase of call options as described below. The Company also used approximately $64,201 of the proceeds to repurchase 7,698,000 shares of the Company’s Class A common stock in negotiated transactions. The Company incurred debt issuance costs of approximately $6,217 for investment bank fees, legal fees and other costs related to the transaction. Debt issuance costs were capitalized and will be amortized over the terms of the senior convertible notes or until they become convertible. The Company recorded a charge for the loss on early extinguishment of debt of $677 as of October 31, 2007 which represents the write-off of remaining Term Loan B deferred charges.
     The 2014 Notes and 2016 Notes are governed by separate indentures dated as of June 27, 2007, among the Company, the Guarantors named therein and the trustee. The 2014 Notes mature July 15, 2014, and the 2016 Notes mature July 15, 2016. The 2014 Notes bear interest at a rate of 3.125 percent per annum, and the 2016 Notes bear interest at a rate of 3.375 percent per annum. Interest is payable semiannually in arrears on January 15 and July 15 of each year, commencing January 15, 2008.
     Holders may convert their senior convertible notes based on a conversion rate of 90.4936 shares of the Company’s Class A common stock per $1,000 principal amount of senior convertible notes (which is equal to an initial conversion price of approximately $11.05 per share), subject to adjustment: (1) during any fiscal quarter beginning after October 31, 2007, if the closing price of the Company’s Class A common stock for a specified period in the prior quarter is more than 130 percent of the conversion price per share, (2) for a specified period after five trading days in which the trading price of the notes for each trading day was less than 95 percent of the product of the closing price of the Company’s Class A common stock and the then applicable conversion rate, (3) if specified distributions to holders of the Company’s Class A common stock occur, (4) if a fundamental change occurs or (5) during the last month prior to the maturity date of the notes. None of these conditions had been met during fiscal years 2009 or 2008.
     Upon conversion, in lieu of shares of the Company’s Class A common stock, for each $1,000 principal amount of senior convertible notes converted, a holder will receive an amount in cash equal to the lesser of (1) $1,000 or (2) the conversion value, determined in the manner set forth in the indentures, of the number of shares of the Company’s Class A common stock equal to the conversion rate. If the conversion value exceeds $1,000, the Company will also deliver, at the Company’s election, cash or Class A common stock or a combination of cash and Class A common stock with respect to such excess amount, subject to the limitations in the indentures. If a holder elects to convert its senior convertible notes in connection with certain fundamental change transactions, the Company will pay, to the extent described in the indentures, a make whole premium by increasing the conversion rate applicable to such senior convertible notes.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(15) Long-term Debt—(Continued)
     Upon specified fundamental change events, holders will have the option to require the Company to purchase for cash all or any portion of their senior convertible notes at a price equal to 100 percent of the principal amount of the senior convertible notes plus accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date.
     The senior convertible notes are the Company’s senior unsecured obligations. The senior convertible notes are guaranteed, fully and unconditionally, jointly and severally, on an unsecured senior basis, by all of the Company’s subsidiaries that are guarantors of the Company’s 6.25 percent senior notes, except for three immaterial non-wholly owned subsidiaries and except for any future non-wholly owned subsidiaries. The indentures contain events of default which, if they occur, entitle the holders of the senior convertible notes to declare the senior convertible notes immediately due and payable.
     Also, in connection with the sale of the senior convertible notes, the Company purchased call options with respect to its Class A common stock from Bank of America/Merrill Lynch International. The call options cover, subject to anti-dilution adjustments, 11,311,700 shares of Class A common stock for each series of senior convertible notes, at strike prices that correspond to the initial conversion price of the notes. The call options are expected to offset the Company’s exposure to dilution from conversion of the senior convertible notes because any shares the Company would be obligated to deliver to holders upon conversion of the senior convertible notes would be delivered to the Company by the counterparty to the call options. The Company paid approximately $60,000 for the call options.
     The Company also entered into warrant transactions whereby it sold to Bank of America/Merrill Lynch Financial Markets warrants expiring in 2014 and 2016 to acquire, subject to customary anti-dilution adjustments, 11,311,700 and 11,311,700 shares of Class A common stock, respectively. The strike prices of the sold warrants expiring in 2014 and 2016 are $12.93 per share of Class A common stock and $13.76 per share of Class A common stock, respectively. The warrants expiring in 2014 and 2016 may not be exercised prior to the maturity of the 2014 Notes and 2016 Notes, respectively. The Company can elect to settle the warrants in cash or Class A common stock, subject to certain conditions. The Company received approximately $43,850 for the warrants. In connection with the fiscal year 2009 purchases of the Company’s senior convertible notes described below, the number of shares subject to the warrants was reduced to 6,993,280 related to the 2014 Notes and 6,398,800 related to the 2016 Notes.
     The price of the call options is treated for tax purposes as interest expense, which amortizes over the lives of the notes. Accordingly, the Company will have a tax benefit of approximately $21,000 over the lives of the senior convertible notes. The sale of the warrants is not expected to have any tax consequences to the Company.
     By selling the warrants, the Company used the proceeds to offset much of the cost of the call options. By simultaneously purchasing the call options and selling the warrants, the Company has effectively increased the conversion premium on the senior convertible notes to 55-65 percent above the market price of the Class A common stock at the time of the offering.
     As of October 31, 2009, the Company purchased $37,584 aggregate principal amount of its 3.125 percent senior convertible notes due 2014 and $45,015 aggregate principal amount of its 3.375 percent senior convertible notes due 2016 in the open market. In connection with these debt purchases, corresponding call options and common stock warrants were also terminated. The total value of the call options terminated that Bank of America/Merrill Lynch would have been required to pay the Company was $8,714 for the fiscal year ended October 31, 2009. The total value of the common stock warrants terminated that would have required a payment from the Company to Bank of America/Merrill Lynch was $8,560 as of October 31, 2009. In connection with the debt purchases that occurred during the fiscal year 2009, the value of the call options was greater than the value of the warrants. This amount was settled by Bank of America/Merrill Lynch delivering 15,936 of the Company’s shares to the Company which reduced the number of the Company’s outstanding common shares.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(15) Long-term Debt—(Continued)
     As a result of the debt purchases at significant discounts, the Company recorded $20,169 in pre-tax gains on early extinguishment of debt during the fiscal year ended October 31, 2009, respectively, which represents the discount on the purchase of the senior convertible notes less the write-off of remaining deferred charges.
Senior Notes
     On February 11, 2005, the Company issued $200,000 6.25 percent senior notes due 2013 (the “6.25 percent senior notes”). The 6.25 percent senior notes are governed by the terms of an indenture dated as of February 11, 2005. For each twelve month period beginning on February 15, 2009, the Company may redeem the 6.25 percent senior notes in whole or in part at redemption prices of 103.125 percent in 2009, 101.563 percent in 2010 and 100 percent in 2011 and thereafter, plus any accrued and unpaid interest. In addition, upon a change of control of the Company, holders of the 6.25 percent senior notes will have the right to require the Company to repurchase all or any part of their 6.25 percent senior notes for cash at a price equal to 101 percent of the aggregate principal amount of the 6.25 percent senior notes repurchased, plus any accrued and unpaid interest.
     The 6.25 percent senior notes are guaranteed, jointly and severally, by the SEI Guarantors, and are the Company’s senior unsecured obligations and the guarantees of the 6.25 percent senior notes are the SEI Guarantors’ senior unsecured obligations.
     The indenture contains affirmative and negative covenants that, among other things, limit the Company and the SEI Guarantors’ ability to engage in sale and leaseback transactions, effect a consolidation or merger or sale, transfer, lease, or otherwise dispose of all or substantially all assets, and create liens on assets. The indenture also contains customary events of default. Upon the occurrence of certain events of default, the Trustee or the holders of the 6.25 percent senior notes may declare all outstanding 6.25 percent senior notes to be due and payable immediately.
Other
     As of October 31, 2009, the Company’s subsidiaries had approximately $95 of long-term debt that represents notes the subsidiaries issued as part of the purchase price of acquired businesses or debt the subsidiaries assumed in connection with acquisitions. All of this debt is secured by liens on the stock or assets of the related subsidiaries.
     Scheduled principal payments of the Company’s long-term debt for the fiscal years ending October 31, 2010 through October 31, 2014, are approximately $5 in 2010, $5 in 2011, $5 in 2012, $200,006 in 2013 and $87,422 in 2014. Scheduled principal payments thereafter are $80,053.
     As of October 31, 2009, the Company was in compliance with the covenants in its debt agreements.
(16) Guarantees
     The Company’s obligations under its senior secured revolving credit facility, 6.25 percent senior notes and its 3.125 percent and 3.375 percent senior convertible notes are guaranteed by all of its existing and future direct and indirect subsidiaries formed under the laws of the United States, any state thereof or the District of Columbia, except for specified excluded subsidiaries. For additional information regarding the senior secured revolving credit facility, senior convertible notes, and senior notes, see Note 15.
     All obligations under the senior secured revolving credit facility, including the guarantees and any interest rate protection and other hedging agreements with any lender or its affiliates, are secured by a first priority perfected security interest as described in Note 15.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(16) Guarantees—(Continued)
     As discussed in Note 2(i), the Company sells insurance-funded price-guaranteed preneed funeral contracts that will be funded by life insurance or annuity contracts issued by third-party insurers which are not reflected in the consolidated balance sheet. The net amount of these contracts that have not been fulfilled as of October 31, 2009 and 2008 was $507,349 and $477,069, respectively.
     Louisiana law gives Louisiana corporations broad powers to indemnify their present and former directors and officers and those of affiliated corporations against expenses incurred in the defense of any lawsuit to which they are made parties by reason of their positions. The Company’s By-laws make mandatory the indemnification of directors and officers permitted by Louisiana law. The Company has in effect a directors’ and officers’ liability insurance policy that provides for indemnification of its officers and directors against losses arising from claims asserted against them in their capacities as officers and directors, subject to limitations and conditions set forth in such policy. The Company has also entered into indemnity agreements with each director pursuant to which the Company has agreed, subject to certain exceptions, to purchase and maintain directors’ liability insurance. The agreements also provide that the Company will indemnify each director against any costs and expenses, judgments, settlements and fines incurred in connection with any claim involving him or her by reason of his or her position as director, provided that the director meets certain standards of conduct.
(17) Reconciliation of Basic and Diluted Per Share Data
                         
    Earnings     Shares     Per Share  
    (Numerator)     (Denominator)     Data  
Year Ended October 31, 2009
                       
Earnings from continuing operations
  $ 35,653                  
 
                     
Basic earnings per common share:
                       
Earnings from continuing operations available to common shareholders
  $ 35,653       91,898     $ .39  
 
                   
Effect of dilutive securities:
                       
Stock options assumed exercised and restricted stock
            97          
 
                     
Diluted earnings per common share:
                       
Earnings from continuing operations available to common shareholders plus stock options assumed exercised and restricted stock
  $ 35,653     $ 91,995     $ .39  
 
                 
                         
    Loss     Shares     Per Share  
    (Numerator)     (Denominator)     Data  
Year Ended October 31, 2008
                       
Loss from continuing operations
  $ (3,693 )                
 
                     
Basic loss per common share:
                       
Loss from continuing operations available to common shareholders
  $ (3,693 )     93,795     $ (.04 )
 
                   
Effect of dilutive securities:
                       
Stock options assumed exercised and restricted stock
                     
 
                     
Diluted loss per common share:
                       
Loss from continuing operations available to common shareholders plus stock options assumed exercised and restricted stock
  $ (3,693 )     93,795     $ (.04 )
 
                 

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(17) Reconciliation of Basic and Diluted Per Share Data—(Continued)
                         
    Earnings     Shares     Per Share  
    (Numerator)     (Denominator)     Data  
Year Ended October 31, 2007
                       
Earnings from continuing operations
  $ 39,314                  
 
                     
Basic earnings per common share:
                       
Earnings from continuing operations available to common shareholders
  $ 39,314       102,584     $ .38  
 
                   
Effect of dilutive securities:
                       
Stock options assumed exercised and restricted stock
            153          
 
                     
Diluted earnings per common share:
                       
Earnings from continuing operations available to common shareholders plus stock options assumed exercised and restricted stock
  $ 39,314       102,737     $ .38  
 
                 
     During the fiscal year ended October 31, 2009, options to purchase 1,607,525 shares of common stock at prices ranging from $5.06 to $8.47 per share were outstanding but were not included in the computation of diluted earnings per share because the exercise prices of the options were greater than the average market price of the common shares for those periods. These options expire between December 20, 2011 and September 2, 2016.
     Common stock equivalents are excluded in the calculation of weighted average shares outstanding when a company reports a net loss from continuing operations for a period. The number of potentially antidilutive shares excluded from the calculation of diluted earnings per share was 1,733,139 for the fiscal year ended October 31, 2008 because of the net loss from continuing operations for this period.
     Options to purchase 392,212 shares of common stock at prices ranging from $6.33 to $7.31 per share for the fiscal year ended October 31, 2007 were outstanding but were not included in the computation of diluted earnings per share because the exercise prices of the options were greater than the average market price of the common shares for this period.
     For the fiscal year ended October 31, 2009, 438,000 market based stock options and 612,000 market and performance based shares of restricted stock were not dilutive. For the fiscal year ended October 31, 2008, 468,000 market based stock options and 415,000 market and performance based shares of restricted stock were not dilutive. For the fiscal year ended October 31, 2007, 540,000 market based stock options and 360,000 market and performance based shares of restricted stock were not dilutive. The market based stock options and the market and performance based restricted stock were not dilutive because the market conditions or performance conditions for the respective grants were not achieved during any of the periods presented.
     For the fiscal year ended October 31, 2009, a maximum of 16,740,100 shares of the Company’s Class A common stock related to the senior convertible notes and a maximum of 13,392,080 shares of Class A common stock under the common stock warrants associated with the June 2007 senior convertible debt transaction were not dilutive, as the average price of the Company’s stock for the fiscal year ended October 31, 2009 was less than the conversion price of the senior convertible notes and strike price of the warrants. For the fiscal years ended October 31, 2008 and 2007, respectively, a maximum of 25,000,000 shares of the Company’s Class A common stock related to the senior convertible notes and a maximum of 20,000,000 shares of Class A common stock under the associated common stock warrants were also not dilutive. As discussed in Note 15, during the fiscal year ended October 31, 2009, the Company purchased $82,599 of its senior convertible notes in the open market which resulted in associated common stock warrants being terminated. This accounts for the decrease in the Class A common stock related to the senior convertible notes and associated common stock warrants that could potentially be included in the diluted earnings per share calculations as of October 31, 2009.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(17) Reconciliation of Basic and Diluted Per Share Data—(Continued)
     The Company includes Class A and Class B common stock in its diluted shares calculation. As of October 31, 2009, 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.
(18) Income Taxes
     Income tax expense is comprised of the following components:
                         
    Continuing Operations  
    U.S. and              
    Possessions     State     Totals  
Year Ended October 31,
                       
2009:
                       
Current tax expense
  $ 1,043     $ 1,654     $ 2,697  
Deferred tax expense
    15,706       1,208       16,914  
 
                 
 
  $ 16,749     $ 2,862     $ 19,611  
 
                 
 
                       
2008:
                       
Current tax expense
  $ 13,048     $ 2,185     $ 15,233  
Deferred tax expense
    4,962       2,212       7,174  
 
                 
 
  $ 18,010     $ 4,397     $ 22,407  
 
                 
 
                       
2007:
                       
Current tax expense
  $ 10,582     $ 3,180     $ 13,762  
Deferred tax expense
    1,725       2,612       4,337  
 
                 
 
  $ 12,307     $ 5,792     $ 18,099  
 
                 
                         
    Discontinued Operations  
    U.S. and              
    Possessions     State     Totals  
Year Ended October 31,
                       
2009:
                       
Current tax expense
  $     $     $  
Deferred tax expense
                 
 
                 
 
  $     $     $  
 
                 
 
                       
2008:
                       
Current tax expense
  $     $     $  
Deferred tax expense
                 
 
                 
 
  $     $     $  
 
                 
 
                       
2007:
                       
Current tax expense
  $ 269     $ 39     $ 308  
Deferred tax expense
                 
 
                 
 
  $ 269     $ 39     $ 308  
 
                 

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(18) Income Taxes—(Continued)
     The reconciliation of the statutory tax rate to the effective tax rate is as follows for continuing operations:
                         
    Year Ended October 31,
    2009   2008   2007
Statutory tax rate
    35.00 %     35.00 %     35.00 %
Increases (reductions) in tax rate resulting from:
                       
State income tax
    3.36       14.19       3.68  
U.S. possession income tax
    (1.22 )     (2.35 )     (.79 )
Nondeductible expenses and other
    .29       .75       .04  
Dividend exclusion
    (2.60 )     (9.77 )     (3.13 )
Goodwill impairment
          46.77        
Valuation allowance
    .66       35.14       (3.27 )
 
                       
 
                       
Effective tax rate
    35.49 %     119.73 %     31.53 %
 
                       
     Deferred tax assets and liabilities consist of the following:
                 
    October 31,  
    2009     2008  
Deferred tax assets:
               
Accrued expenses
  $ 7,772     $ 6,629  
Allowance for sales cancellations and doubtful accounts
    6,009       5,917  
Capital loss carryover
    10,017       8,242  
Deferred preneed sales and expenses
    175,339       204,069  
Deferred compensation
    5,256       4,843  
Inventory writedown
    1,012       1,022  
Original issue discount on purchased call options
    10,657       18,254  
Lease obligations
    712       718  
Net operating loss carryover
    7,135        
Non-compete amortization
    413       1,232  
Other
    2,019       1,503  
Share-based compensation
    2,016       1,816  
State income taxes (1)
    32,332       32,086  
U.S. possession income tax (2)
    15,016       16,077  
 
           
 
    275,705       302,408  
Valuation allowance (3)
    (10,194 )     (10,649 )
 
           
 
    265,511       291,759  
 
           
Deferred tax liabilities:
               
Depreciation
    12,647       4,396  
Goodwill amortization
    34,227       31,060  
Deferral on gain on early extinguishment of debt
    5,071        
Partnership interest
    1,879       1,221  
Purchase accounting adjustments (primarily cemetery property)
    66,577       66,769  
 
           
 
    120,401       103,446  
 
           
 
  $ 145,110     $ 188,313  
 
           
 
               
Current net deferred asset
  $ 21,715     $ 8,798  
Long-term net deferred asset
    123,395       179,515  
 
           
 
  $ 145,110     $ 188,313  
 
           

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(18) Income Taxes—(Continued)
 
(1)   A significant component of this balance is a gross state net operating loss carryover of approximately $275,088 ($11,025 net of federal tax). This loss is not concentrated in any one state, but instead, is widespread in states whose carryover period averages from 15 to 20 years. During fiscal year 2009, the Company adjusted its previously recorded valuation allowance from $2,087 to $2,317. The increased valuation allowance resulted in a current period tax expense of $230.
 
(2)   This U.S. possession is Puerto Rico. A component of this balance is a net operating loss carryover of $402 ($102 net of federal tax). In 2009, the Company reduced its previously recorded valuation allowance from $1,162 to $102 as a result of its net operating loss utilization for the period of $4,167. The reduced valuation allowance resulted in a current period tax benefit of $1,060.
 
(3)   During fiscal 2009, the Company decreased its valuation allowance from $10,649 to $10,194. This was the result of recording net decreases to the reserve of $830 attributable to the net operating loss changes noted in items (1) and (2) above, offset by a $375 increase in the reserve on the Company’s capital loss carryover. At the end of fiscal year 2009, the breakdown of the valuation allowance is $7,775 attributable to the capital loss carryover and $2,419 attributable to the net operating loss carryforwards in certain states and Puerto Rico.
     During the third quarter of fiscal year 2009, the Internal Revenue Service approved a change in one of the Company’s tax accounting policies that will result in a combination of refunds and reductions of federal income tax payments totaling approximately $32,000. Of that amount, $17,900 was received as a refund in fiscal year 2009, approximately $1,600 is expected to be received as a refund by the end of the first quarter of 2010, approximately $8,000 was used to offset estimated tax payments during fiscal 2009 and the remaining approximately $4,500 is expected to be used to offset future federal income tax payments. The change relates to the Company’s tax accounting policy for preneed contracts in one state. For those contracts, the Company was recognizing income for tax purposes (and paying taxes) relating to amounts received from customers and placed in trust at the time the cash was received from the customers. This policy resulted in approximately $89,400 of income that was taxed prior to the actual delivery of the merchandise or services. The change permits the Company to defer recognition of income for tax purposes (and pay taxes) with respect to those amounts until the time the service is actually performed or the merchandise is actually delivered and cash is withdrawn from the trust, which generally aligns the Company’s book and tax accounting for these amounts and is consistent with the Company’s approach in the other states. The change essentially allowed the Company to apply the approximately $89,400 reversal of previously reported taxable income to reduce taxable income for fiscal years 2006, 2007, 2008, 2009 and potentially part of 2010. The Company will eventually have to pay federal income taxes with respect to the $89,400 as the related preneed contracts are performed in the future.
     During the third quarter of 2008, the Company filed with the Internal Revenue Service (in connection with the filing of its October 31, 2007 federal income tax return) an application to change its tax accounting method with regard to the taxation of preneed services. This change resulted in an increase in income tax receivables of $8,912 and a corresponding decrease in deferred income taxes in the balance sheet. The Company received $4,345 of this refund in August 2008. The remaining amount of $4,567 was applied against tax payments due by the Company on July 15, 2008, which reduced income taxes payable.
     During the fourth quarter of fiscal 2008, the Company was advised that the congressional Joint Committee on Taxation approved its requested refund of approximately $10,400 and interest of approximately $2,700 related to its amended federal income tax returns for fiscal years ended October 31, 1997 through 2000 and 2002 through 2004. All but $500 of interest was received by October 31, 2008. Also in the fourth quarter of fiscal year 2008, the Company recorded a $25,952 goodwill impairment charge, of which $25,009 was non-deductible for tax purposes.
     During fiscal 2007, the Company recognized a combined non-recurring tax benefit of $4,180, of which $787 is attributable to the completion of an audit by the Commonwealth of Puerto Rico for tax periods 1999 to 2001, and $3,393 is attributable to a reduced valuation allowance on its capital loss carryover which was due to expire at

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(18) Income Taxes—(Continued)
the end of 2007. In September of 2007 it reached a settlement with the taxing authority which enabled it to record a partial recovery of $1,211 ($787 net of federal tax) on the $2,550 ($1,657 net of federal tax) that had been previously reserved. The $3,393 reduction in the valuation allowance was the result of the Company’s ability to generate sufficient capital gain income prior to the 2007 expiration date on the loss carryover.
     On November 1, 2007, the Company adopted the uncertain tax position guidance in ASC 740-Income Taxes. A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefit is as follows:
         
Gross unrecognized tax benefits at November 1, 2008
  $ 3,920  
Reductions for tax for prior years positions
    (689 )
Additions for tax for current year positions
     
Reduction in tax relating to settlements with taxing authorities
    (140 )
Reduction in tax as a result of a lapse of applicable statute of limitations
    (324 )
 
     
Gross unrecognized tax benefits at October 31, 2009
  $ 2,767  
 
     
     The total amount of gross unrecognized tax benefit that, if recognized, would affect the effective tax rate was $255 at October 31, 2009. The Company’s policy with respect to potential penalties and interest is to record them as “other” expense and interest expense, respectively. As of October 31, 2009, the Company had accrued interest and penalties related to the unrecognized tax benefits of $735. During fiscal year 2009, an additional $211 of interest was accrued for uncertain tax positions and $583 of interest and penalties was reduced due to payments and lapse of applicable statute of limitations.
     With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for fiscal years before 2006. During the next fiscal year, certain open tax years will close and the statute of limitations will lapse. If this occurs, the Company would reduce the unrecognized tax benefits by $186. Also, accrued interest and penalties will be reduced by $223 due to the close of those tax years.
(19) Benefit Plans
Stewart Enterprises Employees’ Retirement Trust
     The Company has a defined contribution retirement plan, the “Stewart Enterprises Employees’ Retirement Trust (A Profit-Sharing Plan)” (“SEERT”). All regular employees are eligible to participate in this plan. New employees are automatically enrolled in the plan at a three percent contribution rate after 60 days of employment, unless they elect not to participate. Contributions are made to the plan at the discretion of the Company’s Board of Directors. Additionally, employees who participate may contribute 100 percent of their earnings, up to the limit set by the Internal Revenue Code. Employee contributions of up to six percent of earnings are eligible for Company matching contributions at the rate of $.50 for each $1.00 contributed. The Company’s expense, including the Company’s matching contributions, for the fiscal years ended October 31, 2009, 2008 and 2007 was approximately $3,013, $2,923 and $3,138, respectively.
Stewart Enterprises Puerto Rico Employees’ Retirement Trust
     On January 1, 2003, the Stewart Enterprises Puerto Rico Employees’ Retirement Trust, a defined contribution retirement plan, became effective when the Company adopted the Banco Popular de Puerto Rico Master Defined Contribution Retirement Plan. Employees in Puerto Rico who were formerly participating in the Stewart Enterprises Employees’ Retirement Trust had their account balances transferred to this plan in February 2003. Individuals employed in Puerto Rico by the Company or certain of its subsidiaries and affiliates are eligible to participate in this plan. Contributions are made to the plan at the discretion of the Company’s Board of Directors. Eligible employees may contribute up to 100 percent of their earnings, up to a maximum annual contribution of $9.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(19) Benefit Plans—(Continued)
Employee contributions of up to six percent of earnings are eligible for Company matching contributions at the rate of $0.50 for each $1.00 contributed. Additional contributions may also be made to this plan at the discretion of the Company’s Board of Directors. The Company’s expense, including the Company’s matching contributions, for the fiscal years ended October 31, 2009, 2008 and 2007 was $69, $74 and $85, respectively.
Non-qualified Supplemental Retirement and Deferred Compensation Plan
     The Company has a non-qualified key employee defined contribution supplemental retirement plan, which provides certain highly compensated employees the opportunity to accumulate deferred compensation which cannot be accumulated under the SEERT due to certain limitations. Contributions are made to the plan at the discretion of the Company’s Board of Directors. Additionally, employees who participate may contribute up to 15 percent of their earnings. The first 5 percent of such employee contributions are eligible for Company matching contributions at the rate of $.50 for each $1.00 contributed. The Company’s expense, including the Company’s matching contributions, for the fiscal years ended October 31, 2009, 2008 and 2007 was approximately $258, $186 and $318, respectively.
Supplemental Executive Retirement Plan
     On April 1, 2002, the Company adopted an unfunded, non-qualified retirement plan, the “Stewart Enterprises, Inc. Supplemental Executive Retirement Plan” (“SERP”), to provide for the payment of pension benefits to a select group of highly-compensated management employees as approved by the Compensation Committee of the Company’s Board of Directors. The retirement plan is non-contributory and provides retirement benefits based on final average compensation, position and the participant’s age, years of service or years of participation in the SERP. The Company’s expense for the fiscal years ended October 31, 2009, 2008 and 2007 was $2,400, $2,468 and $2,448, respectively. The Company’s liability as of October 31, 2009 and 2008 was $12,969 and $11,380, respectively, and is presented in other current liabilities and other long-term liabilities in the consolidated balance sheet.
Compensation Plans
     In April 2007, the Company’s shareholders approved the 2007 Stock Incentive Plan (“Stock Plan”) and the Company’s Executive Officer Annual Incentive Plan (“Incentive Plan”) at its annual shareholders’ meeting. The Stock Plan replaces the Company’s 1995 Incentive Compensation Plan, 2000 Incentive Compensation Plan and 2005 Directors’ Stock Plan. No future grants will be made through these prior plans. The Compensation Committee of the Company’s Board of Directors administers the Stock Plan and has the authority to make awards under the Stock Plan including setting the terms of the awards. A total of 5,000,000 shares of the Company’s Class A common stock are authorized to be issued under the Stock Plan. Officers, directors and key employees will be eligible to receive incentives under the Stock Plan when designated as a Stock Plan participant by the Committee.
     The Incentive Plan was presented to the shareholders for approval in order to qualify the quantitative portion of the annual incentive award as fully deductible performance-based compensation under Section 162(m) of the Internal Revenue Code. The Incentive Plan is administered by the Compensation Committee of the Company’s Board of Directors, and it applies to each of the five fiscal years during the period beginning November 1, 2007 and ending October 31, 2012, unless terminated earlier by the Compensation Committee. Any executive officer may be designated by the Compensation Committee as a participant in the Incentive Plan for any year. No participant may be paid a bonus under the Incentive Plan of more than $1,500 for any fiscal year. The Compensation Committee may determine to pay bonuses under the Incentive Plan in whole or in part in cash or stock. Any such stock will be issued through the Company’s stock-based incentive plans.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(19) Benefit Plans—(Continued)
Employee Stock Purchase Plan
     On July 1, 1992, the Company adopted an Employee Stock Purchase Plan. This plan was terminated and replaced by the 2003 Employee Stock Purchase Plan (the “Employee Stock Plan”), which was approved by the Company’s shareholders at its 2003 annual meeting. The Company authorized 1,000,000 shares for issuance under the Employee Stock Plan. The Employee Stock Plan provides to eligible employees the opportunity to purchase the Company’s Class A common stock on a quarterly basis. The purchase price is established at a 15 percent discount from fair market value, as defined in the Employee Stock Plan. Since the inception of the Plan through October 31, 2009, 478,559 shares had been acquired under this Plan.
Share-Based Compensation
     Stock Options
     For the years ended October 31, 2009, 2008 and 2007, stock option expenses amounted to $1,180, $1,544 and $1,576, respectively, which are included in corporate general and administrative expenses in the consolidated statements of earnings. As of October 31, 2009, there was $1,263 of total unrecognized compensation costs related to nonvested stock options that are expected to be recognized over a weighted-average period of 2.18 years. The following table is a summary of the Company’s stock options outstanding as of October 31, 2009, 2008 and 2007, and the changes that occurred during fiscal years 2009, 2008 and 2007.
                                                 
    2009   2008   2007
    Number of   Weighted   Number of   Weighted   Number of   Weighted
    Shares   Average   Shares   Average   Shares   Average
    Underlying   Exercise   Underlying   Exercise   Underlying   Exercise
    Options   Prices   Options   Prices   Options   Prices
Outstanding at beginning of year
    2,141,679     $ 7.10       1,900,729     $ 6.58       1,441,294     $ 6.15  
Granted
    979,500     $ 2.83       561,250     $ 8.18       1,039,167     $ 7.12  
Exercised
        $       (264,862 )   $ 5.71       (411,511 )   $ 6.40  
Forfeited
    (256,617 )   $ 5.60       (55,438 )   $ 6.75       (168,221 )   $ 6.63  
 
                                               
Outstanding at end of year
    2,864,562     $ 5.78       2,141,679     $ 7.10       1,900,729     $ 6.58  
 
                                               
Exercisable at end of year
    1,067,954     $ 6.73       781,307     $ 6.73       471,353     $ 5.90  
 
                                               
 
                                               
Weighted-average fair value of options granted
          $ 0.71             $ 2.18             $ 2.84  
         
    Year Ended October 31, 2009
    Aggregate Intrinsic Value
Options outstanding as of October 31, 2009
  $ 1,573  
Options exercisable as of October 31, 2009
  $  
Options exercised during 2009
  $  
         
    Year Ended October 31, 2008
    Aggregate Intrinsic Value
Options outstanding as of October 31, 2008
  $ 21  
Options exercisable as of October 31, 2008
  $ 15  
Options exercised during 2008
  $ 790  

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(19) Benefit Plans—(Continued)
     The following table further describes the Company’s stock options outstanding as of October 31, 2009.
                                                 
    Options Outstanding     Options Exercisable  
            Weighted                     Weighted        
    Number     Average     Weighted     Number     Average     Weighted  
Range of   Outstanding at     Remaining     Average     Exercisable at     Remaining     Average  
Exercise Prices   10/31/2009     Contractual Life     Exercise Price     10/31/2009     Contractual Life     Exercise Price  
$2.65
    552,500     6.13 years     $ 2.65                 $  
$3.09
    340,000     6.18 years     $ 3.09                 $  
$5.06 - $5.86
    309,144     3.35 years     $ 5.37       268,150     3.25 years     $ 5.32  
$6.33 - $6.90
    673,918     3.30 years     $ 6.60       487,501     2.96 years     $ 6.68  
$7.31 - $7.65
    211,000     4.67 years     $ 7.40       67,750     4.62 years     $ 7.39  
$8.06 - $8.47
    778,000     4.79 years     $ 8.19       244,553     4.77 years     $ 8.19  
 
                                   
$2.65 - $8.47
    2,864,562     4.70 years     $ 5.78       1,067,954     3.56 years     $ 6.73  
 
                                   
                 
            Weighted Average
    Year Ended   Grant-Date
    October 31, 2009   Fair Value
Nonvested options as of November 1, 2008
    1,360,372     $ 2.35  
Granted
    979,500     $ 0.71  
Vested
    (319,459 )   $ 2.31  
Forfeited
    (223,805 )   $ 1.63  
 
               
Nonvested options as of October 31, 2009
    1,796,608     $ 1.55  
 
               
     The fair value of the Company’s service based stock options is the estimated present value at grant date using the Black-Scholes option pricing model with the following weighted average assumptions for fiscal years 2009, 2008 and 2007: expected dividend yield of 2.2 percent, 1.4 percent and 1.1 percent; expected volatility of 38.4 percent, 38.2 percent and 47.7 percent; risk-free interest rate of 3.2 percent, 4.2 percent and 4.4 percent; and an expected term of 4.9 years, 5.0 years and 7.0 years. In 2008 and 2007, the Company issued stock options with market conditions based on reaching certain target stock prices in the years 2008, 2009 and 2010. The Company records this expense over the requisite service period. In fiscal year 2008, the target stock prices were met, and in fiscal year 2009, the target stock prices were not met. The fair value of the Company’s market based stock options is the estimated present value at the grant date using the Monte Carlo lattice model approach with the following weighted average assumptions for fiscal years 2009, 2008 and 2007: expected dividend yield of 1.3 percent; expected volatility of 37.9 percent, 37.9 percent and 39.9 percent; risk-free interest rate of 4.3 percent, 4.3 percent and 4.5 percent; and an expected term of 3.4 years, 3.4 years and 3.5 years. The expected dividend yield is based on the Company’s annual dividend payout at grant date. Expected volatility is based on the historical volatility of the Company’s stock for a period approximating the expected term. The risk-free interest rate is based on the U.S. treasury yield in effect at the time of grant over the expected term. The expected term of service based options is calculated using the simplified method which is the average of the vesting term and contractual term.
     Likewise, the fair value of shares acquired through the Employee Stock Plan is estimated quarterly using the Black-Scholes option pricing model with the following weighted average assumptions for fiscal years 2009, 2008 and 2007, respectively: expected dividend yield of 3.2 percent, 1.4 percent and 1.5 percent; expected volatility of 42.0 percent, 37.2 percent and 42.5 percent; risk-free interest rate of 0.2 percent, 2.3 percent and 5.0 percent; and an expected term of 0.3 years, 0.3 years and 0.3 years.
      Restricted Stock
     The expense related to restricted stock granted in fiscal years 2009, 2008 and 2007 is reflected in earnings and amounted to $719, $744 and $447, respectively. Once granted, the restricted stock is included in total shares outstanding but is not included in the weighted average number of common shares outstanding in each period used

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(19) Benefit Plans—(Continued)
to calculate basic earnings per common share until the shares vest. The table below is a summary of the Company’s restricted stock activity for fiscal years 2009, 2008 and 2007.
                         
(In shares)   2009(1)     2008(2)     2007(3)  
Nonvested restricted stock at beginning of year
    510,887       606,947       97,398  
Granted
    353,000       55,000       565,000  
Vested
    (72,390 )     (151,060 )     (29,801 )
Forfeited
    (61,832 )           (25,650 )
 
                 
Nonvested restricted stock at end of year
    729,665       510,887       606,947  
 
                 
 
(1)   On December 15, 2008, the Company granted 102,000 shares of restricted stock to certain employees with market conditions based on achieving certain target stock prices in the years 2009, 2010 and 2011. On January 5, 2009, the Company granted 195,000 shares of restricted stock to executive officers conditional on the same market criteria mentioned above. Also on January 5, 2009, the Company granted 56,000 shares of restricted stock to certain employees which vest in equal one-third portions over three years. The market conditions discussed above were not met in 2009.
 
(2)   On December 19, 2007, the Company granted 45,000 shares of restricted stock to executive officers and on June 26, 2008, the Company granted 10,000 shares of restricted stock to an executive officer conditional on certain performance criteria. The performance conditions are based on meeting certain return on equity targets in each of the years 2008, 2009 and 2010. The Company assesses the probability of achieving these targets each reporting period in determining the requisite service period in which to record compensation expense. The performance conditions were not met in 2008 or 2009.
 
(3)   On January 8, 2007, the Company granted 52,500 shares of restricted stock to a group of executive officers which vests in equal 25 percent portions over four years. On March 31, 2007, the Company granted 340,000 shares of restricted stock to an executive officer consisting of 100,000 shares conditional on service, 120,000 shares conditional on certain performance criteria and 120,000 shares conditional on certain market criteria. On May 16, 2007, the Company granted 170,000 shares of restricted stock to an executive officer consisting of 50,000 shares conditional on service, 60,000 shares conditional on certain performance criteria and 60,000 shares conditional on certain market criteria. The restricted shares based on service conditions vest in equal one-third portions on the anniversary date of the respective grant dates. The performance conditions are based on meeting certain return on equity targets in each of the years 2008, 2009 and 2010 and were not achieved in 2008 or 2009. The Company assesses the probability of achieving these targets each reporting period in determining the requisite service period in which to record compensation expense. The market conditions are based on reaching certain target stock prices in the years 2008, 2009 and 2010 and were achieved in 2008 and were not achieved in 2009. The Company records the expense over the requisite service period. On September 17, 2007, the Company granted 2,500 shares of restricted stock to an executive officer which vest in equal one-third portions over three years.
      Other
     On November 18, 2008, the Company issued 15,000 shares of Class A common stock and paid $34 in cash to each of the independent directors of the Company. The expense related to this stock grant amounted to $305 and was recorded in corporate general and administrative expenses during the first quarter of 2009. Each independent director must hold all of the shares received until completion of service as a member of the Board of Directors.
     On January 17, 2008, the Company issued a total of 72,000 shares of Class A common stock to the independent directors of the Company. The expense related to this stock amounted to $531 and was recorded in corporate general and administrative expenses during the first quarter of 2008. Each independent director must hold at least 75 percent of the shares received until completion of service as a member of the Board of Directors.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(19) Benefit Plans—(Continued)
     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 amounted to $664 and was recorded in corporate general and administrative expenses during the second quarter of 2007. Each independent director must hold at least 75 percent of the shares received until completion of service as a member of the Board of Directors.
     In fiscal years 2008 and 2007, the Company granted 48,682 shares and 57,481 shares, respectively, of Class A common stock to executive officers as part of their previous year-end bonuses. The expense related to these shares was reflected in earnings in fiscal years 2007 and 2006 and amounted to $390 and $364, respectively.
(20) Commitments, Contingencies and Related Party Transactions
Litigation
     Funeral Consumers Alliance, Inc., et al. v. Service Corporation International, Alderwoods Group, Inc., Stewart Enterprises, Inc., Hillenbrand Industries, Inc., and Batesville Casket Co., 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 “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. Fact discovery has been completed, and expert discovery is complete with the exception of the deposition of one expert witness.
     In April 2007, the plaintiffs filed an expert report indicating that the amounts sought from all defendants as damages to the proposed class would be in the range of approximately $950 million to approximately $1.5 billion, before trebling. Accordingly, any judgment in favor of the proposed class could have a material adverse effect on the Company’s financial condition and results of operations.
     On March 26, 2009, the court denied plaintiffs’ motion for class certification. The United States Court of Appeals for the Fifth Circuit denied plaintiffs’ petition for permission to appeal on June 19, 2009, and denied plaintiffs’ motion for reconsideration on July 29, 2009.
     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. The Company has not recorded a liability related to this litigation given that it does not believe that a loss is probable and estimable.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(20) Commitments, Contingencies and Related Party Transactions—(Continued)
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.
Leases
     The Company has noncancellable operating leases, primarily for land and buildings that expire over the next 1 to 14 years, except for eight leases that expire between 2032 and 2039. Rent payments under these leases were $4,708, $4,638 and $4,478 for the years ended October 31, 2009, 2008 and 2007, respectively. The Company’s future minimum lease payments as of October 31, 2009 are $4,554, $3,320, $2,666, $2,112, $1,659 and $16,659 for the years ending October 31, 2010, 2011, 2012, 2013, 2014 and later years, respectively.
Other Commitments and Contingencies
     In those states where the Company has withdrawn realized net capital gains in the past from its cemetery perpetual care trusts, regulators may seek replenishment of the realized net capital losses either by requiring a cash deposit to the trust or by prohibiting or restricting withdrawals of future earnings until they cover the loss. As of October 31, 2008, the Company had $13,281 recorded as a liability for an estimated probable funding obligation as an increase in cemetery costs in fiscal year 2008. The Company recorded an additional $3,421 for the estimated probable funding obligation and funded $2,692 of the estimated probable funding obligation in fiscal year 2009. As of October 31, 2009, the Company’s estimated probable funding obligation was $14,010. As of October 31, 2009, the Company had unrealized losses of approximately $48,217 in cemetery perpetual care trusts in these states. Because all of these trusts currently have assets with a fair market value less than the aggregate amounts required to be contributed to the trust, any additional realized net capital losses in these trusts may result in a corresponding funding liability and increase in cemetery costs.
     From time to time, unidentified contracts are presented to the Company relating to contracts sold prior to the time the Company acquired certain businesses. In addition, from time to time, the Company has identified in its backlog, certain contracts in which services or merchandise have already been delivered. Using historical trends and statistical analysis, the Company has recorded an estimated net liability for these items of approximately $3.0 million and $7.0 million as of October 31, 2009 and 2008, respectively.
     The Company has entered into non-compete agreements with prior owners of acquired subsidiaries that expire through 2018. Non-compete agreements are included in the “other assets” line in the consolidated balance sheet and amounted to $5,927 and $5,921 as of October 31, 2009 and 2008, respectively. The Company’s future non-compete payments as of October 31, 2009 are $342, $342, $168, $100, $100 and $400 for the years ending October 31, 2010, 2011, 2012, 2013, 2014 and thereafter, respectively.
     The Company is required to maintain a bond ($27,047 as of October 31, 2009) to guarantee its obligations relating to funds the Company withdrew in fiscal year 2001 from its preneed funeral trusts in Florida. This amount would become senior secured debt if the Company was required to borrow funds under the senior secured revolving credit facility to extinguish the bond obligation by returning to the trusts the amounts it previously withdrew that relate to the remaining undelivered preneed contracts.
Related Party Transactions
     In March 2009, the Company announced the retirement of an executive officer effective April 30, 2009. As part of the related retirement agreement, the Company must pay the former executive officer $175 in equal bi-weekly installments over a one-year period commencing after the retirement date. The Company recorded the $175 charge in the second quarter of fiscal year 2009 but will make the payments in accordance with the agreement.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(20) Commitments, Contingencies and Related Party Transactions—(Continued)
     In November 2006, the Company announced the retirement of an executive officer effective December 31, 2006. As part of the related separation agreement, the Company must pay the executive officer $350 in equal bi-weekly installments over a two-year period commencing six months after the retirement date. The Company recorded the $350 charge in the first quarter of fiscal year 2007 but will make the payments in accordance with the agreement.
     In January 1998, the Company discontinued an insurance policy on the life of Mr. Frank B. Stewart, Jr., Chairman of the Company. In order to purchase a replacement policy, The Stewart Family Special Trust borrowed $685 from the Company pursuant to a promissory note due 180 days after the death of Mr. Stewart. Interest on the note accrues annually at a rate equal to the Company’s cost of borrowing under its senior secured revolving credit facility and is payable when the principal becomes due. The amount of the loan was equal to the cash value received by the Company upon the discontinuance of the prior insurance policy. The loan proceeds were used by the trust to purchase a single premium policy on the life of Mr. Stewart. Certain of the beneficiaries of The Stewart Family Special Trust are members of Mr. Stewart’s family. The loan was approved by all of the disinterested members of the Board of Directors. The outstanding balance of the loan at October 31, 2009, including accrued interest, was approximately $1,328.
(21) Segment Data
     The Company previously had five operating and reportable segments consisting of a corporate trust management segment and a funeral and cemetery segment for each of the two geographical divisions (each with a division president): Western and Eastern. In the second quarter of 2009, the Company eliminated its two geographical divisions of Western and Eastern and the positions of Western and Eastern division presidents from its organizational structure in order to maximize the benefits of its Best in Class initiative, improve efficiencies and provide more focus on the development of new revenue opportunities. As of October 31, 2009, the Company’s Chief Executive Officer and Chief Financial Officer meet monthly with the Senior Vice President of Operations to discuss operational performance. There is also a president of the Company’s wholly-owned subsidiary, Investor’s Trust, Inc. (“ITI”), who reports to the Chief Financial Officer. The Company’s Senior Vice President of Operations acts as the segment manager for the funeral and cemetery businesses and the Executive Vice President and President of ITI acts as segment manager for corporate trust.
     The Company has determined that its Chief Executive Officer and Chief Financial Officer remain the chief operating decision makers (“CODM”) as they make decisions about the Company’s overall resource allocation and assessment of performance. In order to re-evaluate the Company’s segments, the CODM review of the Company’s operational performance and management compensation were considered. Based on its evaluation, the Company has determined that managements’ approach to operating the business indicates that there are three operating and reportable segments: a funeral segment, a cemetery segment and a corporate trust management segment. The Company does not aggregate its operating segments. Therefore, its operating and reportable segments are the same.
     The corporate trust management segment includes (1) the funeral and cemetery service and merchandise trust earnings recognized for GAAP purposes, which are further described below, and (2) fee income related to the Company’s wholly-owned subsidiary, ITI. Trust assets and the earnings on those assets are associated exclusively with preneed sales. Because preneed services and merchandise will not be provided until an unknown future date, most states require that all or a portion of the customer payments under preneed contracts be placed in trust or escrow accounts for the benefit of the customers.
     ITI serves as investment advisor to the Company’s trust funds. ITI provides investment advisory services to the trusts for a fee. The Company has elected to perform these services in-house, and the fees are recognized as income as earned.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(21) Segment Data—(Continued)
     The corporate trust management segment revenues reflect (1) investment management fees earned and (2) the realized earnings related to preneed contracts delivered, which are the earnings realized over the life of the contracts delivered during the relevant period. Earnings recognition in this segment is unrelated to investment results in the current period. Current investment results of the funeral and cemetery merchandise and services trusts are deferred until the underlying products and services are delivered and are not reflected in the statement of earnings but are disclosed in Notes 4, 5 and 7 along with the cost and market value of the trust assets. The Company’s fee income related to management of its trust assets, the investment income recognized on preneed contracts delivered and the trust assets are referred to as “corporate trust management” for the benefit of the segments.
     Perpetual care trust earnings are reported in the cemetery segment, as these revenues are recognized currently and are used to maintain the cemeteries. Perpetual care trust earnings and the cost and market values of the perpetual care trust assets are presented in Note 6.
     The accounting policies of the Company’s segments are the same as those described in Note 2. The Company evaluates the performance of its segments and allocates resources to them using a variety of profitability metrics. The most comprehensive of these measures is gross profit.
     The Company also measures its preneed sales growth year-over-year. Preneed sales and the accounting for these sales are discussed in Notes 2(i), 2(j) and 2(k). Although the Company does not consider its preneed selling activities to be a separate segment, the Company is providing additional disclosure of preneed funeral and cemetery merchandise and service sales in its segment footnote as preneed sales are reviewed monthly by the Company’s CODM to assess performance and allocate resources. Preneed sales are strategically significant to the Company as those sales are one of the primary drivers of market share protection and growth. As such, the CODM reviews the preneed sales data in addition to revenue and gross profit. Information on segment assets is not disclosed as it is not reviewed by the CODM.
     The Company’s operations are product-based. As such, the Company’s primary reportable segments presented in the following table are based on products and services.
     The Company’s funeral homes offer a complete range of funeral services and products both at the time of need and on a preneed basis. The Company’s services and products include family consultation, removal and preparation of remains, the use of funeral home facilities for visitation, worship and funeral services, transportation services, flowers and caskets. In addition to traditional funeral services, all of the Company’s funeral homes offer cremation products and services. The Company’s cemetery operations involve the sale of cemetery property and related merchandise, including lots, lawn crypts, family and community mausoleums, columbariums, cremation niches, cremation gardens, monuments, memorials and burial vaults, along with the sale of burial site openings and closings and inscriptions. Cemetery property and merchandise sales are made both at the time of need and on a preneed basis.
     The Company incurs certain costs that benefit all of the funeral homes and cemeteries, such as management compensation, headquarters overhead, insurance costs and legal and professional fees. These costs are allocated to the facilities using various methods including their proportionate share of sales (which can include preneed sales) or payroll. These costs are included in funeral and cemetery costs.
     The Company incurs certain other costs at its shared services center that benefit all of the funeral homes and cemeteries, such as the costs to process contracts, make collections, pay vendors, deliver information system services and deliver human resource services. These costs are allocated using various methods including their proportionate share of sales (which can include preneed sales) and the number of employees. These costs are included in funeral and cemetery costs.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(21) Segment Data—(Continued)
     The table below presents information about reported segments for the fiscal years ended October 31, 2009, 2008 and 2007 for the Company’s continuing operations only. Prior period data has been retrospectively adjusted to conform to the new segment presentation.
                         
    Total Revenue  
    2009     2008     2007  
Funeral
  $ 261,162     $ 268,295     $ 260,935  
Cemetery(1)
    204,181       232,163       233,587  
Corporate Trust Management(2)
    22,464       27,425       28,295  
 
                 
Total
  $ 487,807     $ 527,883     $ 522,817  
 
                 
                         
    Total Gross Profit  
    2009     2008     2007  
Funeral
  $ 50,834     $ 50,841     $ 45,288  
Cemetery(1)
    16,266       24,219       40,197  
Corporate Trust Management(2)
    20,640       25,757       26,945  
 
                 
Total
  $ 87,740     $ 100,817     $ 112,430  
 
                 
                         
    Total Net Preneed  
    Merchandise and Service Sales(3)  
    2009     2008     2007  
Funeral
  $ 97,580     $ 97,326     $ 102,629  
Cemetery
    48,629       53,644       55,736  
 
                 
Total
  $ 146,209     $ 150,970     $ 158,365  
 
                 
                         
    Depreciation and Amortization  
    Total  
    2009     2008     2007  
Funeral
  $ 16,015     $ 14,811     $ 13,502  
Cemetery
    8,337       6,955       6,990  
Reconciling Items(4)
    5,029       6,509       7,146  
 
                 
Total
  $ 29,381     $ 28,275     $ 27,638  
 
                 
                         
    Additions to Long-Lived Assets  
    Total(5)  
    2009     2008     2007  
Funeral
  $ 9,949     $ 11,286     $ 19,374  
Cemetery
    20,851       18,539       22,420  
Reconciling Items(4)
    4,924       7,686       7,703  
 
                 
Total
  $ 35,724     $ 37,511     $ 49,497  
 
                 
                 
    Total Goodwill  
    2009     2008  
Funeral
  $ 198,515     $ 198,515  
Cemetery
    48,721       48,721  
 
           
Total
  $ 247,236     $ 247,236  
 
           
 
(1)   Perpetual care trust earnings of $6,840, $10,660 and $10,164 for fiscal years 2009, 2008 and 2007, respectively, are included in the revenue and gross profit data of the cemetery segment.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(21) Segment Data—(Continued)
 
(2)   Corporate trust management consists of the trust management fees and funeral and cemetery merchandise and services trust earnings recognized with respect to preneed contracts delivered during the period. Trust management fees are established by the Company at rates consistent with industry norms based on the fair market value of the assets managed and are paid by the trusts to the Company’s subsidiary, Investors Trust, Inc. The trust earnings represent earnings realized over the life of the preneed contracts delivered during the relevant periods. Trust management fees included in funeral revenue for 2009, 2008 and 2007 were $3,912, $5,075 and $5,881, respectively, and funeral trust earnings recognized with respect to preneed contracts delivered included in funeral revenue for 2009, 2008 and 2007 were $11,256, $13,237 and $12,514, respectively. Trust management fees included in cemetery revenue for 2009, 2008 and 2007 were $4,062, $4,949 and $5,343, respectively, and cemetery trust earnings recognized with respect to preneed contracts delivered included in cemetery revenue for 2009, 2008 and 2007 were $3,234, $4,164 and $4,557, respectively.
 
(3)   Preneed sales amounts represent total preneed funeral trust and insurance sales and cemetery service and merchandise trust sales generated in the applicable period, net of cancellations.
 
(4)   Reconciling items consist of unallocated corporate assets, depreciation and amortization on unallocated corporate assets, amortization of deferred financing costs and additions to corporate long-lived assets.
 
(5)   Long-lived assets include cemetery property and net property and equipment.
     A reconciliation of total segment gross profit to total earnings from continuing operations before income taxes for the fiscal years ended October 31, 2009, 2008 and 2007, is as follows:
                         
    Year Ended October 31,  
    2009     2008     2007  
Gross profit for reportable segments
  $ 87,740     $ 100,817     $ 112,430  
Corporate general and administrative expenses
    (30,670 )     (32,611 )     (31,143 )
Impairment of goodwill
          (25,952 )      
Hurricane related charges, net
    (380 )     (2,297 )     (2,533 )
Separation charges
    (275 )           (580 )
Gains on dispositions and impairment (losses), net
    (218 )     (353 )     (44 )
Other operating income, net
    1,250       819       1,651  
Interest expense
    (22,353 )     (24,115 )     (25,065 )
Gain (loss) on early extinguishment of debt
    20,078             (677 )
Investment and other income, net
    92       2,406       3,374  
 
                 
Earnings from continuing operations before income taxes
  $ 55,264     $ 18,714     $ 57,413  
 
                 

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(22) Supplementary Information
     The detail of certain income statement accounts is as follows for the fiscal years ended October 31, 2009, 2008 and 2007.
                         
    Year Ended October 31,  
    2009     2008     2007  
Service revenue
                       
Funeral
  $ 175,147     $ 178,839     $ 169,680  
Cemetery
    60,438       65,260       60,002  
 
                 
 
    235,585       244,099       229,682  
 
                       
Merchandise revenue
                       
Funeral
    95,098       100,164       101,232  
Cemetery
    137,310       160,602       166,772  
 
                 
 
    232,408       260,766       268,004  
 
                       
Other revenue
                       
Funeral
    6,085       7,604       8,418  
Cemetery
    13,729       15,414       16,713  
 
                 
 
    19,814       23,018       25,131  
 
                 
Total revenue
  $ 487,807     $ 527,883     $ 522,817  
 
                 
 
                       
Service costs
                       
Funeral
  $ 58,212     $ 61,520     $ 59,540  
Cemetery
    42,067       44,054       40,649  
 
                 
 
    100,279       105,574       100,189  
 
                       
Merchandise costs
                       
Funeral
    57,974       61,852       63,187  
Cemetery
    92,063       108,343       97,904  
 
                 
 
    150,037       170,195       161,091  
 
                       
Facility expenses
                       
Funeral
    95,015       94,856       93,648  
Cemetery
    54,736       56,441       55,459  
 
                 
 
    149,751       151,297       149,107  
 
                 
Total costs
  $ 400,067     $ 427,066     $ 410,387  
 
                 
     Service revenue includes funeral service revenue, funeral trust earnings, insurance commission revenue, burial site openings and closings and perpetual care trust earnings. Merchandise revenue includes funeral merchandise revenue, flower sales, cemetery property sales revenue, cemetery merchandise delivery revenue and merchandise trust earnings. Other revenue consists of finance charge revenue and trust management fees. Service costs include the direct costs associated with service revenue and preneed selling costs associated with preneed service sales. Merchandise costs include the direct costs associated with merchandise revenue, preneed selling costs associated with preneed merchandise sales and the Company’s $3,421 and $13,281 estimated obligation to fund the cemetery perpetual care trusts for the fiscal years ended October 31, 2009 and 2008, respectively.
(23) 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 Hurricanes Katrina and Ike. In August 2005, Hurricane Katrina struck the Company’s South Louisiana operations. In September 2008, Hurricane Ike struck the Texas Gulf Coast and the Company’s facilities in the area. 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.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(23) Hurricane Related Charges—(Continued)
     The Company recorded hurricane related charges of $380, $2,297 and $2,533 for the years ended October 31, 2009, 2008 and 2007, respectively. In fiscal year 2009, the Company received $300 in insurance proceeds related to Hurricane Ike. The Hurricane Katrina charges for fiscal year 2009 primarily relate to legal costs associated with ongoing litigation as described below.
     The Company has been unable to finalize its negotiations with its insurance carriers related to property damage and extra expenses, and business interruption damages, related to Hurricane Katrina, and filed suit against the carriers in August 2007. In 2007, the carriers advanced an additional $1,100, which the Company has not recorded as income but as a liability pending the outcome of the litigation. The suit involves numerous significant policy interpretation disputes, among other issues, and no assurance can be given as to how much additional proceeds the Company may recover from its insurers, if any, or the timing of the receipt of any additional proceeds. With the exception of any legal costs related to this suit, the Company does not anticipate any additional charges related to Hurricane Katrina.
(24) Significant Risks and Uncertainties
Concentrations of Investments
     The Company’s preneed funeral and cemetery merchandise and services trusts and cemetery perpetual care trusts are invested in various industry sectors, including the financial services sector. There are various risks associated with this sector including the failure of various large financial institutions, government regulation, interest rates, cost of capital funds, credit losses and volatility in the financial markets. As described in Notes 4, 5 and 6, the market values of the trusts experienced a significant decline from the cost basis during late fiscal year 2008 and early fiscal year 2009. As of October 31, 2009, the Company has a concentration in the financial services sector with 21 percent of fair market value of its preneed funeral and cemetery merchandise and services portfolios and 37 percent of its cemetery perpetual care portfolio invested in the financial services sector. See Notes 2(i), 2(j) and 2(k) for the Company’s policy outlining how realized losses could impact future revenue and additional potential funding obligations for cemetery perpetual care trusts.
Customer Installment Receivables
     The Company has gross installment contract receivables of $118,252 relating to cemetery property sales as of October 31, 2009. The continued economic downturn could impact the ability of customers to meet payment obligations.
Deferred Tax Assets
     In addition to the potential additional realized losses described above in the Company’s trust investment portfolios, further realized capital losses in the trusts for which the Company is the grantor, to the extent there are insufficient offsetting capital gains, may result in additional valuation allowances against the related deferred tax asset (capital loss carryforward).
(25) Subsequent Events
     The Company has evaluated subsequent events for recognition and disclosure through December 17, 2009, which was the date the Company filed this Form 10-K with the Securities and Exchange Commission.
     As of November 30, 2009, the fair market value of the Company’s preneed funeral and cemetery merchandise and services trusts and cemetery perpetual care trusts increased three percent, or approximately $21,500, from October 31, 2009.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(25) Subsequent Events—(Continued)
     In November 2009, the Company issued 90,000 shares of Class A common stock and paid approximately $96 in cash to the independent directors of the Company. Each independent director must hold all of the shares received until completion of service as a member of the Board of Directors.
(26) Quarterly Financial Data (Unaudited)
     Quarterly financial data for fiscal years 2009 and 2008 is presented below.
                                 
Year Ended October 31, 2009(1)   First   Second   Third   Fourth
Revenues
  $ 119,330     $ 126,618     $ 117,752     $ 124,107  
Gross profit
    23,083       25,595       19,333       19,729  
Net earnings
    5,716       13,202       10,838       5,897  
Net earnings per common share:
                               
Basic
    .06       .14       .12       .06  
Diluted
    .06       .14       .12       .06  
                                 
Year Ended October 31, 2008(2)   First   Second   Third   Fourth
Revenues
  $ 130,273     $ 136,819     $ 130,428     $ 130,363  
Gross profit
    27,070       35,634       27,998       10,115  
Net earnings (loss)
    8,885       13,940       9,129       (35,647 )
Net earnings (loss) per common share:
                               
Basic
    .09       .15       .10       (.39 )
Diluted
    .09       .15       .10       (.39 )
 
(1)   First quarter of fiscal year 2009 includes a charge of $315 in net hurricane related costs and an $88 charge for the estimated probable obligation to fund the cemetery perpetual care trusts. Second quarter of fiscal year 2009 includes a charge of $205 related to net hurricane related costs, $275 in separation charges, a $3,112 charge related to the Company’s estimated probable obligation to fund the cemetery perpetual care trusts and an $8,671 gain on the early extinguishment of debt. Third quarter of fiscal year 2009 includes $(117) in net gains and dispositions and impairment (losses), a $23 charge related to the Company’s estimated probable obligation to fund the cemetery perpetual care trusts and an $8,533 gain on the early extinguishment of debt. Fourth quarter of fiscal year 2009 includes a net recovery of $186 related to hurricane related costs, a $199 charge related to the Company’s estimated probable obligation to fund the cemetery perpetual care trusts and a $2,874 gain on the early extinguishment of debt.
 
(2)   First quarter of fiscal year 2008 includes a recovery of $159 in net hurricane related costs and $147 in net gains on dispositions and impairment (losses). Second quarter of fiscal year 2008 includes a charge of $169 related to net hurricane related costs. Third quarter of fiscal year 2008 includes a charge of $341 related to net hurricane related costs. Fourth quarter of fiscal year 2008 includes a charge of $1,946 related to net hurricane related costs, $25,952 for goodwill impairment, a $13,281 charge related to the Company’s estimated probable obligation to fund the cemetery perpetual care trusts, a tax valuation allowance of $7,400 and ($506) in net gains on dispositions and impairment (losses).
     Changes in the number of deaths can vary among local markets and from quarter to quarter, and variations in the number of deaths in the Company’s markets or from quarter to quarter are not predictable. However, generally the number of deaths fluctuates with the seasons with more deaths occurring during the winter months primarily resulting from pneumonia and influenza. These variations can cause revenues to fluctuate.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
     None.
Item 9A. 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 that 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 Securities and Exchange Commission’s (“SEC”) rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, 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 Chief Executive Officer and the Chief Financial Officer, of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
Management’s Report on Internal Control over Financial Reporting
     Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.
     Management assessed the effectiveness of the Company’s internal control over financial reporting as of October 31, 2009. In making this assessment, management used the criteria described in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management concluded that the Company maintained effective internal control over financial reporting as of October 31, 2009.
     The effectiveness of the Company’s internal control over financial reporting as of October 31, 2009 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Changes in Internal Control over Financial Reporting
     As of November 1, 2008, the Company began the implementation of a new contract processing system, which is an integrated software system targeted specifically to the death care industry in areas such as customer data, billing information, products and services sold and/or delivered, collections, accounts receivables and property inventory. As of July 31, 2009, the implementation was completed in all of the Company’s regions. In connection with this implementation, the Company expects to improve its internal controls over financial reporting by increasing its reliance on automated controls. During the year ended October 31, 2009, the Company supplemented its automated internal controls with additional manual and detective controls as it implemented the new system. There was a particular focus on revenue completeness and cut-off with additional manual and analytic procedures performed during the transition to the new system.

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     With the exception of this implementation described above, there have been no changes in the Company’s internal control over financial reporting during the year ended October 31, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
     None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
     The information regarding executive officers required by Item 10 may be found under Item 4 of this report.
     We have adopted the Stewart Enterprises, Inc. Code of Business Conduct and Ethics (the “code”), a code of ethics that applies to all employees, including our Chief Executive Officer, Chief Financial Officer and Corporate Controller. The code is available at the Company website where all of its public filings are available free of charge on the same day they are filed with the SEC. The Company’s website address is www.stewartenterprises.com. Any substantive amendments to the code, or any waivers granted for any directors or our Chief Executive Officer, Chief Financial Officer or Corporate Controller will be disclosed in a report on Form 8-K.
     The remaining information required by Item 10 is incorporated by reference to the Registrant’s definitive proxy statement relating to its 2010 annual meeting of shareholders, which proxy statement will be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year.
Item 11. Executive Compensation
     The information required by Item 11 is incorporated by reference to the Registrant’s definitive proxy statement relating to its 2010 annual meeting of shareholders, which proxy statement will be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year.
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Equity Compensation Plan Information
     The following table provides information about our common stock that may be issued under equity compensation plans as of October 31, 2009:
                         
                    Number of Securities  
                    Remaining Available For  
                    Future Issuance Under  
    Number of Securities to be     Weighted-Average     Equity Compensation  
    Issued Upon Exercise of     Exercise Price of     Plans (Excluding Securities  
    Outstanding Options,     Outstanding Options,     Reflected in the First  
Plan Category   Warrants and Rights     Warrants and Rights     Column)(1)  
Equity compensation plans approved by security holders
    3,594,227     $ 5.76       3,226,592  
Equity compensation plans not approved by security holders
                 
 
                 
Total
    3,594,227     $ 5.76       3,226,592  
 
(1)   Includes 2,705,151 shares of our common stock under the 2007 Stock Incentive Plan, which are issuable as stock appreciation rights, restricted stock, performance shares or stock awards. This also includes 521,441 shares remaining to be granted under the 2003 Employee Stock Purchase Plan.

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     The remaining information required by Item 12 is incorporated by reference to the Registrant’s definitive proxy statement relating to its 2010 annual meeting of shareholders, which proxy statement will be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year.
Item 13. Certain Relationships and Related Transactions and Director Independence
     The information required by Item 13 is incorporated by reference to the Registrant’s definitive proxy statement relating to its 2010 annual meeting of shareholders, which proxy statement will be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year.
Item 14. Principal Accounting Fees and Services
     The information required by Item 14 is incorporated by reference to the Registrant’s definitive proxy statement relating to its 2010 annual meeting of shareholders, which proxy statement will be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as part of this report:
     (1) Financial Statements
     The Company’s consolidated financial statements listed below have been filed as part of this report:
     All other schedules are omitted because they are not applicable or not required, or the information appears in the financial statements or notes thereto.

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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(Unaudited)
(Dollars in thousands)
                                         
COLUMN A   COLUMN B   COLUMN C   COLUMN D   COLUMN E   COLUMN F
    Balance at
beginning
  Charged to
costs and
                  Balance at
Description   of period   expenses   Other changes   Write-offs   end of period
Current—Allowance for doubtful accounts:
                                       
Year ended October 31,
                                       
2009
  $ 7,215       3,407             (3,232 )   $ 7,390  
2008
  $ 8,142       3,412             (4,339 )   $ 7,215  
2007
  $ 6,635       4,188             (2,681 )   $ 8,142  
 
Due after one year—Allowance for doubtful accounts:
                                       
Year ended October 31,
                                       
2009
  $ 9,689       4,509             (4,420 )   $ 9,778  
2008
  $ 10,824       4,583             (5,718 )   $ 9,689  
2007
  $ 10,888       5,568             (5,632 )   $ 10,824  
 
Deferred tax asset valuation allowance
   
Year ended October 31,
                                       
2009
  $ 10,649       (455 )               $ 10,194  
2008
  $ 4,032       6,617                 $ 10,649  
2007
  $ 10,457       (1,595 )           (4,830 ) (1)   $ 4,032  
 
(1)   This is primarily related to the write-off of both the deferred tax asset and related valuation allowance for a worthless stock deduction for which recognition was determined to be remote in fiscal year 2007.
Item 15(a)(3) Exhibits
3.1   Amended and Restated Articles of Incorporation of the Company, as amended and restated as of April 3, 2008 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2008)
 
3.2   By-laws of the Company, as amended and restated as of September 8, 2008 (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2008)
 
4.1   See Exhibits 3.1 and 3.2 for provisions of the Company’s Amended and Restated Articles of Incorporation, as amended, and By-laws, as amended, defining the rights of holders of Class A and Class B common stock
 
4.2   Specimen of Class A common stock certificate (incorporated by reference to Exhibit 3 to the Company’s Registration Statement on Form 8-A/A filed with the Commission on June 21, 2007)
 
4.3   Second Amended and Restated Credit Agreement dated June 2, 2009 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 thereto (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed June 3, 2009)
 
4.4   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

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    (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed February 14, 2005)
 
4.5   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 filed February 14, 2005)
 
4.6   Indenture dated June 27, 2007 by and among Stewart Enterprises, Inc., the guarantors named therein and U.S. Bank National Association, as Trustee, with respect to 3.125 percent Senior Convertible Notes due 2014 (including Form of 3.125 percent Senior Convertible Notes due 2014) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed June 27, 2007)
 
4.7   Indenture dated June 27, 2007 by and among Stewart Enterprises, Inc., the guarantors named therein and U.S. Bank National Association, as Trustee, with respect to 3.375 percent Senior Convertible Notes due 2016 (including Form of 3.375 percent Senior Convertible Notes due 2016) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed June 27, 2007)
The Company hereby agrees to furnish to the Commission, upon request, a copy of the instruments which define the rights of holders of the Company’s long-term debt. None of such instruments (other than those included as exhibits herein) represent long-term debt in excess of 10 percent of the Company’s consolidated total assets.
 
Management Contracts and Compensatory Plans or Arrangements
10.1   Form of Indemnity Agreement between the Company and its Directors and Executive Officers (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended October 31, 2004, filed January 11, 2005) (the “Original 2004 Form 10-K”); Form of First Amendment to Indemnity Agreements between Stewart Enterprises, Inc. and its Directors (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2008)
 
10.2   Amended and Restated Employment Agreement between the Company and Thomas J. Crawford dated December 16, 2008 (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended October 31, 2008)
 
10.3   Amended and Restated Employment Agreement between the Company and Thomas M. Kitchen dated December 16, 2008 (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the year ended October 31, 2008)
 
10.4   Retirement Agreement dated October 26, 2006, effective November 2, 2006, between the Company and Everett N. Kendrick (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed November 3, 2006)
 
10.5   Form of Stock Option Agreement between the Company and its Executive Officers (incorporated by reference to Exhibit 10.27 to the Original 2004 Form 10-K)
 
10.6   Form of Restricted Stock Agreement between the Company and its Executive Officers (incorporated by reference to Exhibit 10.28 to the Original 2004 Form 10-K)
 
10.7   Form of Restricted Stock Agreement under the Stewart Enterprises, Inc. 2007 Stock Incentive Plan between the Company and its Executive Officers (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended October 31, 2007)
 
10.8   Form of Stock Option Agreement under the Stewart Enterprises, Inc. 2007 Stock Incentive Plan between the Company and its Executive Officers (incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the year ended October 31, 2007)

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10.9   Confirmation of OTC Convertible Note Hedge dated as of June 21, 2007 by and between Stewart Enterprises, Inc. and Merrill Lynch International (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 27, 2007)
 
10.10   Confirmation of OTC Convertible Note Hedge dated as of June 21, 2007 by and between Stewart Enterprises, Inc. and Merrill Lynch International (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed June 27, 2007)
 
10.11   Confirmation of OTC Warrant Transaction dated as of June 21, 2007 by and between Stewart Enterprises, Inc. and Merrill Lynch Financial Markets (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed June 27, 2007)
 
10.12   Confirmation of OTC Warrant Transaction dated as of June 21, 2007 by and between Stewart Enterprises, Inc. and Merrill Lynch Financial Markets (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed June 27, 2007)
 
10.13   Stewart Enterprises, Inc. 2007 Stock Incentive Plan (incorporated by reference to Appendix A to the Company’s definitive proxy statement for the year ended October 31, 2006)
 
10.14   Amended and Restated Stewart Enterprises, Inc. Executive Officer Annual Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2009)
 
10.15   Amended and Restated 2003 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended October 31, 2006)
 
10.16   2000 Incentive Compensation Plan (incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2000, Commission File No. 1-5449)
 
10.17   Amended and Restated Stewart Enterprises, Inc. Retention Plan and Summary Plan Description effective August 1, 2008 (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2008)
 
10.18   Amended and Restated Stewart Enterprises, Inc. Supplemental Retirement and Deferred Compensation Plan effective January 1, 2008 (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the year ended October 31, 2008); Amendment No. 1 to the Amended and Restated Stewart Enterprises, Inc. Supplemental Retirement and Deferred Compensation Plan effective December 17, 2008 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2009)
 
10.19   Amended and Restated Stewart Enterprises, Inc. Supplemental Executive Retirement Plan effective January 1, 2008 (incorporated by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the year ended October 31, 2008); Amendment No. 1 to the Amended and Restated Stewart Enterprises, Inc. Supplemental Executive Retirement Plan effective January 26, 2009 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2009)
 
10.20   Retirement Agreement by and between the Company and Brent F. Heffron dated March 13, 2009 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 17, 2009)
 
 
12   Calculation of Ratio of Earnings to Fixed Charges
 
21   Subsidiaries of the Company

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23   Consent of PricewaterhouseCoopers LLP
 
31.1   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas J. Crawford, President and Chief Executive Officer
 
31.2   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen, Senior Executive Vice President and Chief Financial Officer
 
32.1   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of Thomas J. Crawford, President and Chief Executive Officer, and Thomas M. Kitchen, Senior Executive Vice President and Chief Financial Officer

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SIGNATURES
     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on December 17, 2009.
         
  STEWART ENTERPRISES, INC.
 
 
  By:   /s/ THOMAS J. CRAWFORD    
    Thomas J. Crawford   
    President, Chief Executive Officer and a Director   
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
         
Signature   Title   Date
 
       
/s/ THOMAS J. CRAWFORD
 
Thomas J. Crawford
(Principal Executive Officer)
  President, Chief Executive Officer
and a Director
  December 17, 2009
 
       
/s/ THOMAS M. KITCHEN
 
Thomas M. Kitchen
(Principal Financial Officer)
  Senior Executive Vice President,
Chief Financial Officer and a
Director
  December 17, 2009
 
       
/s/ ANGELA M. LACOUR
 
Angela M. Lacour
(Principal Accounting Officer)
  Vice President,
Corporate Controller and
Chief Accounting Officer
  December 17, 2009
 
       
/s/ FRANK B. STEWART, JR.
 
Frank B. Stewart, Jr.
  Chairman of the Board    December 17, 2009
 
       
/s/ ALDEN J. McDONALD, JR.
 
Alden J. McDonald, Jr.
  Director    December 17, 2009
 
       
/s/ JAMES W. McFARLAND
 
James W. McFarland
  Director    December 17, 2009
 
       
/s/ RONALD H. PATRON
 
Ronald H. Patron
  Director    December 17, 2009
 
       
/s/ MICHAEL O. READ
 
Michael O. Read
  Director    December 17, 2009
 
       
/s/ ASHTON J. RYAN, JR.
 
Ashton J. Ryan, Jr.
  Director    December 17, 2009

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Exhibit Index
12   Calculation of Ratio of Earnings to Fixed Charges
 
21   Subsidiaries of the Company
 
23   Consent of PricewaterhouseCoopers LLP
31.1   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas J. Crawford, President and Chief Executive Officer
 
31.2   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen, Senior Executive Vice President and Chief Financial Officer
 
32.1   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of Thomas J. Crawford, President and Chief Executive Officer, and Thomas M. Kitchen, Senior Executive Vice President and Chief Financial Officer

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