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 July 31, 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

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 September 2, 2003, was 104,729,151 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. 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 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EX-10.1 Retirement Benefits Agreement
EX-10.2 Supplement to Employment Agreement
EX-10.3 Supplement to Employment Agreement
EX-10.4 Supplement to Employment Agreement
EX-10.5 Supplement to Employment Agreement
EX-12 Calculation of Ratio of Earnings
EX-31.1 Certifcation Pursuant to Section 302
EX-31.2 Certifcation Pursuant to Section 302
EX-32 Certifications Pursuant 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 July 31, 2003 and 2002	3
	Consolidated Statements of Earnings —
	Nine Months Ended July 31, 2003 and 2002	4
	Consolidated Balance Sheets —
	July 31, 2003 and October 31, 2002	5
	Consolidated Statement of Shareholders’ Equity —
	Nine Months Ended July 31, 2003	7
	Consolidated Statements of Cash Flows —
	Nine Months Ended July 31, 2003 and 2002	8
	Notes to Consolidated Financial Statements	10
	Item 2. Management’s Discussion and Analysis of
	Financial Condition and Results of Operations	37
	Item 3. Quantitative and Qualitative Disclosures
	About Market Risk	49
	Item 4. Controls and Procedures	51
Part II.	Other Information
	Item 1. Legal Proceedings	51
	Item 5. Other Information	51
	Item 6. Exhibits and Reports on Form 8-K	59
	Signatures	61

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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


		Three Months Ended July 31,

		2003			2002

Revenues:
	Funeral	$	73,513		$	83,265
	Cemetery		55,266			60,989

			128,779			144,254

Costs and expenses:
	Funeral		56,964			64,428
	Cemetery		43,905			46,430

			100,869			110,858

	Gross profit		27,910			33,396
Corporate general and administrative expenses			7,381			4,516
Loss on assets held for sale (Note 7)			—			18,500

	Operating earnings		20,529			10,380
Interest expense			(13,249	)		(15,560	)
Loss on early extinguishment of debt (Note 8)			(11,289	)		—
Investment income			66			152
Other income, net			459			583

	Loss before income taxes		(3,484	)		(4,445	)
Income tax benefit			(985	)		(1,959	)

	Net loss	$	(2,499	)	$	(2,486	)

Net loss per common share:
	Basic	$	(.02	)	$	(.02	)

	Diluted	$	(.02	)	$	(.02	)

Weighted average common shares outstanding (in thousands):
	Basic		108,386			107,961

	Diluted		108,386			107,961

See accompanying notes to consolidated financial statements.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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


		Nine Months Ended July 31,

		2003			2002

Revenues:
	Funeral	$	226,044		$	269,196
	Cemetery		167,316			179,616

			393,360			448,812

Costs and expenses:
	Funeral		171,847			198,626
	Cemetery		129,324			135,675

			301,171			334,301

	Gross profit		92,189			114,511
Corporate general and administrative expenses			15,863			12,401
Loss on assets held for sale (Note 7)			—			18,500

	Operating earnings		76,326			83,610
Interest expense			(40,405	)		(48,389	)
Loss on early extinguishment of debt (Note 8)			(11,289	)		—
Investment income			237			374
Other income, net			2,234			1,173

	Earnings before income taxes		27,103			36,768
Income taxes			10,638			13,702

	Net earnings	$	16,465		$	23,066

Net earnings per common share:
	Basic	$	.15		$	.21

	Diluted	$	.15		$	.21

Weighted average common shares outstanding (in thousands):
	Basic		108,242			107,807

	Diluted		108,266			108,355

See accompanying notes to consolidated financial statements.

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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


			July 31,		October 31,
ASSETS			2003		2002

Current assets:
	Cash and cash equivalent investments		$	19,370	$	28,190
	Marketable securities			2,289		2,588
	Receivables, net of allowances			68,391		86,827
	Inventories			43,178		41,666
	Prepaid expenses			3,422		2,815
	Deferred income taxes, net			1,764		1,348
	Assets held for sale			5,448		8,966

		Total current assets		143,862		172,400
Receivables due beyond one year, net of allowances				77,663		76,653
Prearranged receivables, net				1,216,392		1,200,914
Goodwill				491,323		491,323
Deferred charges				253,990		253,083
Cemetery property, at cost				387,691		388,065
Property and equipment, at cost:
	Land			44,555		44,402
	Buildings			308,782		304,125
	Equipment and other			159,949		154,389

				513,286		502,916
	Less accumulated depreciation			184,368		168,600

	Net property and equipment			328,918		334,316
Deferred income taxes, net				83,489		95,794
Other assets				1,243		3,036

		Total assets	$	2,984,571	$	3,015,584

(continued)

STEWART ENTERPRISES, INC.
AND SUBSIDIARIES

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


					July 31,			October 31,
LIABILITIES AND SHAREHOLDERS' EQUITY					2003			2002

Current liabilities:
	Current maturities of long-term debt (Note 8)				$	16,745		$	9,396
	Accounts payable					8,243			11,113
	Accrued payroll					9,728			11,813
	Accrued insurance					18,280			14,764
	Accrued interest					3,189			14,642
	Other current liabilities					15,235			15,883
	Liabilities associated with assets held for sale					2,174			2,911

			Total current liabilities			73,594			80,522
Long-term debt, less current maturities (Note 8)						502,737			542,548
Prearranged deferred revenue, net						1,559,645			1,561,533
Other long-term liabilities						17,166			18,718

			Total liabilities			2,153,142			2,203,321

Commitments and contingencies
Shareholders’ equity:
	Preferred stock, $1.00 par value, 5,000,000 shares authorized; no shares issued					—			—
	Common stock, $1.00 stated value:
			Class A authorized 150,000,000 shares; issued and outstanding 104,910,651 and 104,469,572 shares at July 31, 2003 and October 31, 2002, respectively			104,911			104,470
			Class B authorized 5,000,000 shares; issued and outstanding 3,555,020 shares at July 31, 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					678,673			677,087
	Retained earnings					47,069			30,604
	Accumulated other comprehensive loss:
		Unrealized depreciation of investments				(818	)		(965	)
		Derivative financial instrument losses				(1,961	)		(2,488	)

		Total accumulated other comprehensive loss				(2,779	)		(3,453	)

				Total shareholders’ equity		831,429			812,263

		Total liabilities and shareholders’ equity			$	2,984,571		$	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							16,465								16,465
	Other comprehensive income:
		Unrealized appreciation of investments								238						238
		Net deferred income tax expense on unrealized appreciation of investments								(91	)					(91	)
		Unrealized appreciation on derivative instrument designated and qualifying as a cash flow hedging instrument											849			849
		Deferred income tax expense on unrealized appreciation on derivative instrument designated and qualifying as a cash flow hedging instrument											(322	)		(322	)

		Total other comprehensive income		—		—		—		147			527			674

	Total comprehensive income			—		—		16,465		147			527			17,139
Issuance of common stock				441		1,586										2,027

Balance July 31, 2003			$	108,466	$	678,673	$	47,069	$	(818	)	$	(1,961	)	$	831,429

⁽¹⁾

Amount includes 104,911 and 104,470 shares (in thousands) of Class A common stock with a stated value of $1 per share as of July 31, 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)

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