STEWART ENTERPRISES INC - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

		For the quarterly period ended April 30, 2003

		OR

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

		For the transition period from to

Commission File Number: 1-15449

STEWART ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)


LOUISIANA (State or other jurisdiction of incorporation or organization)		72-0693290 (I.R.S. Employer Identification No.)

110 Veterans Memorial Boulevard Metairie, Louisiana (Address of principal executive offices)		70005 (Zip Code)

Registrant’s telephone number, including area code: (504) 837-5880

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 x No o

Indicate by check mark whether the Registrant is an accelerated filer as defined in Rule 12b-2 of the Securities Exchange Act of 1934. Yes X No

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 June 4, 2003, was 104,797,103 and 3,555,020, respectively.

TABLE OF CONTENTS


	CONSOLIDATED STATEMENTS OF EARNINGS
	CONSOLIDATED STATEMENTS OF EARNINGS
	CONSOLIDATED BALANCE SHEETS
	CONSOLIDATED BALANCE SHEETS
	CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Certifications
EXHIBIT INDEX
EX-3.1 Amended/Restated Articles of Incorporation
EX-12 Calculation of Ratio of Earnings
EX-99.1 Certifications Pusuant to Section 906

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

INDEX


		Page

Part I.	Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Earnings - Three Months Ended April 30, 2003 and 2002	3
	Consolidated Statements of Earnings - Six Months Ended April 30, 2003 and 2002	4
	Consolidated Balance Sheets - April 30, 2003 and October 31, 2002	5
	Consolidated Statement of Shareholders’ Equity - Six Months Ended April 30, 2003	7
	Consolidated Statements of Cash Flows - Six Months Ended April 30, 2003 and 2002	8
	Notes to Consolidated Financial Statements	10
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	47
	Item 4. Controls and Procedures	48
Part II.	Other Information
	Item 1. Legal Proceedings	49
	Item 4. Submission of Matters to a Vote of Security Holders	49
	Item 5. Other Information	49
	Item 6. Exhibits and Reports on Form 8-K	57
	Signatures	59
	Certifications	60

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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


		Three Months Ended April 30,

		2003			2002

Revenues:
	Funeral	$	75,795		$	90,848
	Cemetery		57,569			60,141

			133,364			150,989

Costs and expenses:
	Funeral		57,257			65,573
	Cemetery		43,211			45,277

			100,468			110,850

	Gross profit		32,896			40,139
Corporate general and administrative expenses			4,182			4,115

	Operating earnings		28,714			36,024
Interest expense			(13,579	)		(15,859	)
Investment income			84			98
Other income, net			90			510

	Earnings before income taxes		15,309			20,773
Income taxes			5,818			7,894

	Net earnings	$	9,491		$	12,879

Net earnings per common share:
	Basic	$	.09		$	.12

	Diluted	$	.09		$	.12

Weighted average common shares outstanding (in thousands):
	Basic		108,299			107,822

	Diluted		108,302			108,337

See accompanying notes to consolidated financial statements.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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


		Six Months Ended April 30,

		2003			2002

Revenues:
	Funeral	$	152,531		$	185,931
	Cemetery		112,050			118,627

			264,581			304,558

Costs and expenses:
	Funeral		114,883			134,198
	Cemetery		85,419			89,245

			200,302			223,443

	Gross profit		64,279			81,115
Corporate general and administrative expenses			8,482			7,885

	Operating earnings		55,797			73,230
Interest expense			(27,156	)		(32,829	)
Investment income			171			222
Other income, net			1,775			590

	Earnings before income taxes		30,587			41,213
Income taxes			11,623			15,661

	Net earnings	$	18,964		$	25,552

Net earnings per common share:
	Basic	$	.18		$	.24

	Diluted	$	.18		$	.24

Weighted average common shares outstanding (in thousands):
	Basic		108,169			107,729

	Diluted		108,196			108,289

See accompanying notes to consolidated financial statements.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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


			April 30,		October 31,
ASSETS			2003		2002

Current assets:
	Cash and cash equivalent investments (Note 12)		$	84,239	$	28,190
	Marketable securities			2,192		2,588
	Receivables, net of allowances			85,665		86,827
	Inventories			42,993		41,666
	Prepaid expenses			3,119		2,815
	Deferred income taxes, net			1,696		1,348
	Assets held for sale			5,475		8,966

		Total current assets		225,379		172,400
Receivables due beyond one year, net of allowances				76,000		76,653
Prearranged receivables, net				1,207,590		1,200,914
Goodwill				491,323		491,323
Deferred charges				252,848		253,083
Cemetery property, at cost				388,294		388,065
Property and equipment, at cost:
	Land			44,670		44,402
	Buildings			305,772		304,125
	Equipment and other			156,645		154,389

				507,087		502,916
	Less accumulated depreciation			178,312		168,600

	Net property and equipment			328,775		334,316
Deferred income taxes, net				86,142		95,794
Other assets				1,214		3,036

		Total assets	$	3,057,565	$	3,015,584

(continued)

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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


					April 30,			October 31,
LIABILITIES AND SHAREHOLDERS' EQUITY					2003			2002

Current liabilities:
	Current maturities of long-term debt (Note 12)				$	64,079		$	6,689
	Accounts payable					8,070			11,113
	Accrued payroll					8,790			13,903
	Accrued insurance					16,856			14,764
	Accrued interest					14,372			14,642
	Accrued other					8,817			10,978
	Liabilities associated with assets held for sale					2,146			2,911

			Total current liabilities			123,130			75,000
Long-term debt, less current maturities						530,394			545,255
Prearranged deferred revenue, net						1,549,043			1,561,533
Other long-term liabilities						22,022			21,533

			Total liabilities			2,224,589			2,203,321

Commitments and contingencies (Note 3)
Shareholders’ equity:
	Preferred stock, $1.00 par value, 5,000,000 shares authorized; no shares issued					—			—
	Common stock, $1.00 stated value:
			Class A authorized 150,000,000 shares; issued and outstanding 104,797,103 and 104,469,572 shares at April 30, 2003 and October 31, 2002, respectively			104,797			104,470
			Class B authorized 5,000,000 shares; issued and outstanding 3,555,020 shares at April 30, 2003 and October 31, 2002; 10 votes per share; convertible into an equal number of Class A shares			3,555			3,555
	Additional paid-in capital					678,353			677,087
	Retained earnings					49,568			30,604
	Accumulated other comprehensive loss:
		Unrealized depreciation of investments				(877	)		(965	)
		Derivative financial instrument losses				(2,420	)		(2,488	)

		Total accumulated other comprehensive loss				(3,297	)		(3,453	)

				Total shareholders’ equity		832,976			812,263

		Total liabilities and shareholders’ equity			$	3,057,565		$	3,015,584

See accompanying notes to consolidated financial statements.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(Unaudited)
(Dollars in thousands, except per share amounts)


									Unrealized
									Appreciation			Derivative
					Additional				(Depreciation)			Financial			Total
			Common		Paid-In		Retained		of			Instrument			Shareholders'
			Stock⁽¹⁾		Capital		Earnings		Investments			Gains (Losses)			Equity

Balance October 31, 2002			$	108,025	$	677,087	$	30,604	$	(965	)	$	(2,488	)	$	812,263
Comprehensive income:
	Net earnings							18,964								18,964
	Other comprehensive income:
		Unrealized appreciation of investments								144						144
		Net deferred income tax expense on unrealized appreciation of investments								(56	)					(56	)
		Unrealized appreciation on derivative instrument designated and qualifying as a cash flow hedging instrument											109			109
		Deferred income tax expense on unrealized appreciation on derivative instrument designated and qualifying as a cash flow hedging instrument											(41	)		(41	)

		Total other comprehensive income		—		—		—		88			68			156

	Total comprehensive income			—		—		18,964		88			68			19,120
Issuance of common stock				327		1,266										1,593

Balance April 30, 2003			$	108,352	$	678,353	$	49,568	$	(877	)	$	(2,420	)	$	832,976

⁽¹⁾

Amount includes 104,797 and 104,470 shares (in thousands) of Class A common stock with a stated value of $1 per share as of April 30, 2003 and October 31, 2002, respectively, and includes 3,555 shares (in thousands) of Class B common stock

See accompanying notes to consolidated financial statements.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands, except per share amounts)

Six Months Ended April 30,

2003

2002

Cash flows from operating activities:

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