Mail Stop 0407
May 26, 2005
Via U.S. Mail and Fax (504) 729-1436
Mr. Thomas M. Kitchen
Chief Financial Officer
Stewart Enterprises Inc.
1333 South Clearview Parkway
Jefferson, Louisiana 70121
RE: Stewart Enterprises, Inc.
Form 10-K for the Fiscal Year Ended October 31, 2004
Filed January 11, 2005
Form 10-Q
For the Quarterly Period Ended January 31, 2005
File No. 1-15449
Dear Mr. Kitchen:
We have reviewed your supplemental response letter dated May
13, 2005 as well as your filings and have the following comments.
As
noted in our comment letter dated May 5, 2005, we have limited our
review to your financial statements and related disclosures and do
not intend to expand our review to other portions of your
documents.
Where indicated, we think you should revise your documents in
response to these comments. If you disagree, we will consider
your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 2004
General
1. In our prior comment letter dated May 5, 2005, we requested
that
the Company provide, in writing, a statement acknowledging that
* the Company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filings; and
* the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
Please furnish the requested statement in your response.
Item 1. Business, page 2
2. With regards to your agreements with the Catholic Archdioceses
of
Los Angeles and New Orleans as addressed in your response to our
prior comment 1, we have additional comments as follows
* Please clarify who owns the funeral homes constructed on land
leased from the Archdiocese of Los Angeles and tell us how you
account for the related assets, depreciation, and other lease-
related
expenses (income) in the financial statements. Tell us about the
terms of the leases.
* Tell us if amounts due from these leases are included in the
contractual obligations under operating lease agreements on page
32.
* In your response, you stated that "in exchange for the
Archdioceses` promotion of the mausoleum, the Company pays the
Archdiocese a percentage of the revenue from the sale of crypts in
the mausoleum." However, on the Form 10-K, it was stated that the
Company constructed a mausoleum "for the Catholic Church" and
"manages the sales relating to the mausoleum for the Church."
Please clarify the nature of the ownership and beneficial
interests
of each party based on the terms of the development contract and
any
related subsequent agreements and tell us how you accounted for
the
underlying transactions. Refer to SFAS 13 and SFAS 98 as
appropriate. In addition, tell us how you account for the
consideration paid to the Archdiocese in connection with the sale
of
crypts in the mausoleum. Refer to EITF 01-9.
* Refer to all the operating leases of land where you have
constructed funeral homes. Tell us if you evaluated the guidance
in
paragraph 17 of SFAS 143 in determining whether you have a legal
retirement obligation associated with the operation of your
operating leases specifically with regard to obligations at the
end
of the lease term to restore facilities to `original` condition
and/or removal of equipment.
3. We note that you entered into six leases that expire between
2032
and 2039 in which you have the right of first refusal and an
option
to purchase the leased premises. Please provide support for the
accounting of these leases as operating leases in view of the
option
to purchase the leased premises and the life of the leases.
Item 7. Management`s Discussion and Analysis of Financial
Condition
and Results of Operations
Trust Portfolio, page 21
4. We note your response to our prior comment 2. Please structure
your response to distinguish the impairment of your investment
portfolio from the impairment of your deferred assets (acquisition
costs). Tell us how you determine that the trusts are in a net
loss
position, and whether the loss is other than temporary.
5. We reiterate our prior comment 3. Please identify the
investments
with unrealized losses that have not been recognized as other than
temporary in tabular form as exemplified in Exhibit 03-1A of EITF
03-
1. We may have further comments, following a review of this
table.
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies
(k) Funeral Revenue, page 57
6. We note your response to our prior comment 9 and your cited
guidance that advertising activities and policy acquisition costs
should ... be accounted for in accordance with paragraphs 28 and
29
of SFAS 60.
* We object to your capitalization of advertising costs, unless
the
advertising activity can elicit a direct response resulting in an
identifiable preneed contract. Please revise or advise.
* We also note that you included Shared Services Center preneed
sales
acquisition support costs and preneed sales administrative costs
in
deferred acquisition costs. Tell us your consideration of
paragraph
27 of SFAS 60.
* Tell us if you are able to directly relate each element of
deferred
acquisition cost with a corresponding contract. Tell us your
consideration of paragraph 28 of SFAS 60.
(19) Long-term Debt, page 89
7. We note your response to our prior comment 16, including the
supplemental disclosure as required under Rule 5-02(19) (b) of
Regulation S-X. Further, in your response, you demonstrated your
analysis of the amended credit facility based on each lender`s
commitment before and after the modification of the credit terms,
per
your interpretation of EITF 96-19. However, it appears that in
the
old and the new agreements, the lenders entered into each
agreement
collectively as a group, with a third party named as
Administrative
Agent/ Collateral Agent. Per Implementation Guideline 3 of EITF
96-
19, the analysis should not "look through" the intermediary.
Please
revise your analysis of the borrowing capacity to determine
whether
there was a modification or extinguishment based on the cited
guideline.
(21) Income Taxes, page 21
8. We note your response to our prior comment 17 and your
interpretation of paragraph 35 of SFAS 109.
* On page 97, you indicated that "a valuation allowance of $
13,980
was required because the Company anticipated the majority of
(asset)
sales would generate capital losses due to the expected nature of
the
sales transactions; ... in 2004, a benefit was recorded since
there were sufficient capital gains in the current year available
to
offset these losses. Accordingly, the valuation allowance ... was
reduced to $9,556." Thus, it appears that the decrease in the
valuation allowance was due solely to income or loss recognized in
the current year in a category other than income from continuing
operations (i.e., asset sales from discontinued operations.) Tell
us
how you concluded that the change in the valuation allowance arose
from a change in your judgment involving continuing operations.
* Additionally, the schedule on the reconciliation of the
statutory
tax rate to the effective tax rate does not clearly depict the
effect
of the change in the valuation allowance in 2003 and 2004. Refer
to
paragraph 45(h) of SFAS 109 and revise or advise.
(24) Segment Data, page 104
9. We note your response to our prior comment 18. Please confirm
our
understanding of your response. In a facility that is a
combination
operation, are the operating results for the funeral home and
cemetery separately identifiable, separately managed by a segment
manager and reported to the respective operating segment?
10. Please refer to our prior comment 15 asserting that your
funeral
and cemetery businesses constitute your reportable segments. To
help
us understand better your response, please provide us the reports
provided to the chief operating decision maker to make decisions
about resources to be allocated to the segments and assess their
performance.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2005
11. Refer to your response to our prior comment 21 and the
disclosures regarding your plans with the businesses that were
previously accounted for assets held for sale as included on page
36
in the Form 10-Q for the first quarter of the current fiscal year.
* Tell us whether you are actively marketing these assets at
prices
that reflect the current fair market value of the businesses.
* Tell us the nature of businesses which you will sell as real
estate.
Refer to Example 11 in Appendix A of SFAS 144 and revise or
advise.
* * * *
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendment to expedite our review. Please furnish a cover
letter
with your amendment that keys your responses to our comments and
provides any requested supplemental information. Detailed cover
letters greatly facilitate our review. Please file your cover
letter
on EDGAR. Please understand that we may have additional comments
after reviewing your amendment and responses to our comments.
You may contact Kathryn Jacobson, Staff Accountant, at (202)
551-3365 or Ivette Leon, Assistant Chief Accountant, at (202) 551-
3351 if you have questions regarding comments on the financial
statements and related matters. Please contact Al Pappas at (202)
551-3378 or me at (202) 551-3810 with any other questions.
Sincerely,
Larry Spirgel
Assistant Director