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, 1996
( ) 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: 0-19508
STEWART ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
LOUISIANA 72-0693290
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Veterans Memorial Boulevard
Metairie, Louisiana 70005
(Address of principal executive offices)
(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 ___
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 12, 1996 was 26,510,258 and
1,185,007, respectively.
2
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
INDEX
Part I. Financial Information Page
Item 1. Financial Statements:
Consolidated Statements of Earnings -
Three Months Ended April 30, 1996 and 1995 3
Consolidated Statements of Earnings -
Six Months Ended April 30, 1996 and 1995 4
Consolidated Balance Sheets -
April 30, 1996 and October 31, 1995 5
Consolidated Statements of Cash Flows -
Six Months Ended April 30, 1996 and 1995 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
Part II. Other Information
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote
of Security Holders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
3
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended April 30,
_____________________________
1996 1995
_________ _________
Revenues:
Funeral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,916 $ 46,700
Cemetery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,335 45,343
Construction and sales contracts . . . . . . . . . . . . . . . . . . 2,172 1,052
_________ _________
108,423 93,095
_________ _________
Costs and expenses:
Funeral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,333 32,993
Cemetery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,526 36,232
Construction and sales contracts . . . . . . . . . . . . . . . . . . 1,841 926
_________ _________
78,700 70,151
_________ _________
29,723 22,944
Corporate general and administrative expenses . . . . . . . . . . . . . 3,315 2,576
_________ _________
Operating earnings . . . . . . . . . . . . . . . . . . . . . . . . . 26,408 20,368
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,818) (6,376)
Investment and other income . . . . . . . . . . . . . . . . . . . . . . 856 378
_________ _________
Earnings before income taxes . . . . . . . . . . . . . . . . . . . . 21,446 14,370
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,043 5,317
_________ _________
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,403 $ 9,053
========= =========
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . $ .49 $ .41
========= =========
Weighted average common shares outstanding (in thousands) . . . . . . . 27,576 22,058
========= =========
Dividends per common share . . . . . . . . . . . . . . . . . . . . . . $ .02 $ .01
========= =========
See accompanying notes to consolidated financial statements.
4
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share amounts)
Six Months Ended April 30,
____________________________
1996 1995
_________ _________
Revenues:
Funeral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $108,003 $ 91,373
Cemetery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,989 87,901
Construction and sales contracts . . . . . . . . . . . . . . . . . . 3,188 2,593
_________ _________
211,180 181,867
Costs and expenses: _________ _________
Funeral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,702 65,197
Cemetery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,302 70,378
Construction and sales contracts . . . . . . . . . . . . . . . . . . 2,854 2,167
_________ _________
152,858 137,742
_________ _________
58,322 44,125
Corporate general and administrative expenses . . . . . . . . . . . . . 6,265 4,957
_________ _________
Operating earnings . . . . . . . . . . . . . . . . . . . . . . . . . 52,057 39,168
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,022) (11,641)
Investment and other income . . . . . . . . . . . . . . . . . . . . . . 1,407 703
__________ __________
Earnings before income taxes . . . . . . . . . . . . . . . . . . . . 41,442 28,230
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,541 10,445
__________ __________
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,901 $ 17,785
========== ==========
Earnings per common share . . . . . . . . . . . . . . . . . . . . . $ .94 $ .81
========== ==========
Weighted average common shares outstanding (in thousands) . . . . . . . 27,464 22,014
========== ==========
Dividends per common share . . . . . . . . . . . . . . . . . . . . . $ .04 $ .02
========== ==========
See accompanying notes to consolidated financial statements.
5
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)
April 30, October 31,
ASSETS 1996 1995
________ _________ ____________
Current assets:
Cash and cash equivalent investments . . . . . . . . . . . . . . . . $ 19,919 $ 18,226
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . 1,422 1,346
Receivables, net of allowances . . . . . . . . . . . . . . . . . . . 100,535 101,331
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,204 31,912
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 3,493 2,980
__________ ___________
Total current assets . . . . . . . . . . . . . . . . . . . . . . 157,573 155,795
Receivables due beyond one year, net of allowances . . . . . . . . . . 145,967 129,385
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 247,458 220,108
Deferred charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,101 65,332
Cemetery property, at cost . . . . . . . . . . . . . . . . . . . . . . 273,413 248,930
Property and equipment, at cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,153 36,654
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163,281 142,767
Equipment and other . . . . . . . . . . . . . . . . . . . . . . . . 74,022 68,115
___________ ___________
283,456 247,536
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . 60,343 54,543
___________ ___________
Net property and equipment . . . . . . . . . . . . . .. . . . . . . 223,113 192,993
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . 43,235 40,191
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,941 3,379
__________ ___________
$1,160,801 $1,056,113
========== ===========
(continued)
6
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)
April 30, October 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
_____________________________________ ____________ _____________
Current liabilities:
Current maturities of long-term debt . . $ 5,519 $ 5,016
Accounts payable . . . . . . . . . . . . 13,919 16,659
Accrued payroll. . . . . . . . . . . . . 8,101 10,618
Accrued insurance. . . . . . . . . . . . 6,498 5,980
Accrued interest . . . . . . . . . . . . 4,452 4,215
Accrued other. . . . . . . . . . . . . . 13,220 13,444
Estimated costs to complete mausoleums and
lawn crypts, and to deliver merchandise . 4,529 6,494
Construction and sales contract liabilities. 874 1,552
Income taxes payable . . . . . . . . . . 7,339 4,015
Deferred income taxes. . . . . . . . . . 4,801 4,458
____________ _____________
Total current liabilities. . . . . . . 69,252 72,451
Long-term debt, less current maturities. . 381,031 317,451
Estimated costs to deliver merchandise,
less current portion . . . . . . . . . 4,917 8,188
Deferred income taxes. . . . . . . . . . . 57,867 51,524
Deferred revenue . . . . . . . . . . . . . 126,783 122,521
____________ _____________
Total liabilities. . . . . . . . . . . 639,850 572,135
____________ _____________
Commitments and contingencies (Notes 3 and 6)
Preferred stock, $1.00 par value, 5,000,000 shares
authorized; no shares issued. . . . . . . --- ---
Shareholders' equity:
Common stock, $1.00 stated value:
Class A authorized 150,000,000 shares;
issued and outstanding 26,484,424 and
26,157,092 shares at April 30, 1996
and October 31, 1995, respectively . . 26,484 26,157
Class B authorized 5,000,000 shares;
issued and outstanding 1,185,007 shares
at April 30, 1996 and October 31, 1995;
10 votes per share; convertible into
Class A . . . . . . . . . . . . . . . . 1,185 1,185
Additional paid-in capital . . . . . . . 316,497 305,618
Retained earnings. . . . . . . . . . . . 191,586 166,785
Cumulative foreign translation adjustment. (17,150) (19,123)
Unrealized appreciation of investments . 2,349 3,356
____________ _____________
Total shareholders equity . . . . . . 520,951 483,978
____________ _____________
$1,160,801 $1,056,113
============ =============
See accompanying notes to consolidated financial statements.
7
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands, except per share amounts)
Six Months Ended April 30,
__________________________
1996 1995
__________ __________
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . $ 25,901 $ 17,785
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization. . . . . 9,877 7,177
Provision for doubtful accounts. . . . 12,415 6,330
Provision (benefit) for deferred income taxes. . 496 (888)
Net gains on sale of marketable securities and
long-term investments. . . . . . . . . . . . . (942) ---
Changes in assets and liabilities net of effects
from acquisitions:
Increase in prearranged funeral trust
receivables. . . . . . . . . . . . . . . . (10,409) (5,414)
Increase in other receivables. . . . . . . . (15,188) (29,364)
Increase in prepaid expenses . . . . . . . . (296) (182)
Increase in deferred charges . . . . . . . . (3,721) (6,794)
Increase in inventories and cemetery property (1,694) (263)
Increase (decrease) in accounts payable and
accrued expenses . . . . . . . . . . . . . (2,683) 3,855
Decrease in estimated costs to complete mausoleums
and lawn crypts, and to deliver merchandise (6,110) (1,139)
Increase in deferred revenue . . . . . . . . 3,479 5,508
Decrease in other . . . . . . . . . . . . . . (425) (178)
_____________ _____________
Net cash provided by (used in) operating activities 10,700 (3,567)
_____________ _____________
8
(continued)
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands, except per share amounts)
Six Months Ended April 30,
___________________________
1996 1995
____________ __________
Cash flows from investing activities:
Proceeds from sale of marketable securities. $ 3,810 $ 6,557
Purchases of marketable securities and long-term
investments . . . . . . . . . . . . . . . . . (6,902) (6,655)
Purchases of subsidiaries, net of cash, seller
financing and stock issued . . . . . . . . . (43,774) (70,148)
Additions to property and equipment. . . . . . (17,590) (10,465)
Dispositions of property and equipment . . . . 48 279
____________ ____________
Net cash used in investing activities. . . . (64,408) (80,432)
____________ ____________
Cash flows from financing activities:
Proceeds from long-term debt . . . . . . . . . 66,000 172,668
Repayments of long-term debt . . . . . . . . . (10,902) (88,542)
Issuance of common stock . . . . . . . . . . . 1,406 756
Dividends. . . . . . . . . . . . . . . . . . . (1,100) (441)
____________ ____________
Net cash provided by financing activities. . 55,404 84,441
____________ ____________
Effect of exchange rates on cash and cash equivalents. (3) (943)
____________ _____________
Net increase (decrease) in cash. . . . . . . . . 1,693 (501)
Cash and cash equivalents, beginning of period . 18,226 9,214
____________ ______________
Cash and cash equivalents, end of period . . . . $ 19,919 $ 8,713
============ ==============
Supplemental cash flow information:
Cash paid during the period for:
Income taxes . . . . . . . . . . . . . $ 8,600 $ 9,400
Interest . . . . . . . . . . . . . . . $ 12,000 $ 11,600
Noncash investing and financing activity:
Subsidiaries acquired with common stock. . $ 9,800 $ 3,014
See accompanying notes to consolidated financial statements.
9
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(1) Basis of Presentation
(a) Principles of Consolidation
The accompanying consolidated financial statements
include Stewart Enterprises, Inc. and its subsidiaries (the "Company").
All significant intercompany balances and transactions have been
eliminated.
(b) Interim Disclosures
The information as of April 30, 1996 and for the three
and six months ended April 30, 1996 and 1995 is unaudited, but in the
opinion of management, reflects all adjustments, which are of a normal
recurring nature, necessary for a fair presentation of financial position
and results of operations for the interim periods. The accompanying
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K for the fiscal year ended October
31, 1995.
The results of operations for the three and six months
ended April 30, 1996 are not necessarily indicative of the results to be
expected for the fiscal year ending October 31, 1996.
(2) Acquisition of Subsidiaries
During the six months ended April 30, 1996, the
Company purchased 29 funeral homes and eight cemeteries, compared to 34
funeral homes and eight cemeteries purchased during the six months ended
April 30, 1995.
These acquisitions have been accounted for by the
purchase method, and their results of operations are included in the
accompanying consolidated financial statements from the dates of
acquisition. The purchase price allocations for certain of these
acquisitions are based on preliminary information.
The following table reflects, on an unaudited pro
forma basis, the combined operations of the Company and the businesses
acquired during the six months ended April 30, 1996, as if such
acquisitions had taken place at the beginning of the respective periods
presented. Appropriate adjustments have been made to reflect the
accounting basis used in recording the acquisitions. These pro forma
results have been prepared for comparative purposes only and do not
purport to be indicative of the results of operations that would have
resulted had the combinations been in effect on the dates indicated, that
have resulted since the dates of acquisition or that may result in the
future.
10
(2) Acquisition of Subsidiaries--(continued)
Six Months Ended April 30,
__________________________
1996 1995
__________ ___________
(Unaudited)
Revenues . . . . . . . . . . . . . . $ 217,384 $ 192,142
=========== ===========
Net earnings . . . . . . . . . . . . $ 25,771 $ 17,360
=========== ===========
Earnings per common share. . . . . . $ .93 $ .78
=========== ===========
Weighted average common shares
outstanding (in thousands). . . . 27,627 22,269
=========== ===========
The effect of acquisitions at dates of purchase on the consolidated
financial statements was as follows:
Six Months Ended April 30,
___________________________
1996 1995
__________ ___________
Current assets . . . . . . . . . . . . . $ 7,306 $ 3,132
Receivables due beyond one year. . . . . 280 654
Cemetery property. . . . . . . . . . . . 17,822 43,572
Property and equipment . . . . . . . . . 17,790 33,325
Deferred charges and other assets. . . . 777 ---
Intangible assets. . . . . . . . . . . . 29,234 32,774
Current liabilities. . . . . . . . . . . (4,082) (14,965)
Long-term debt . . . . . . . . . . . . . (8,210) (574)
Deferred income taxes. . . . . . . . . . (6,333) (8,272)
Deferred revenue and other liabilities . (1,010) (16,484)
___________ ___________
53,574 73,162
Common stock used for acquisitions . . . 9,800 3,014
___________ ___________
Cash used for acquisitions . . . . . . . $ 43,774 $ 70,148
=========== ===========
(3) Contingencies
In December 1991, the United States Department of
Justice ("Justice Department"), on behalf of the Federal Trade Commission
("FTC"), filed a complaint against five of the Company's Texas funeral
home subsidiaries. The FTC originally sought unspecified civil penalties
and injunctive and other relief from each of the five subsidiaries. In
July 1993, the Justice Department filed a motion requesting civil
penalties of $2 million. In August 1994, the United States District
Court for the Northern District of Texas dismissed the complaint with
regard to all alleged violations by the funeral home subsidiaries;
however, on May 2, 1995, the Fifth Circuit Court of Appeals reversed the
District Court's dismissal. The case has been returned to the District
Court and a trial date has been set for September 3, 1996. On May 28,
1996, the funeral home subsidiaries filed their second motion to dismiss
the case.
11
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(3) Contingencies--(continued)
The Company was notified in September 1994 that a suit
was brought by a competitor regarding the Company's acquisition of
certain corporations in Mexico. The suit alleges that this acquisition
violated the competitor's previous option to acquire the same
corporations. The suit seeks unspecified damages. The Company believes
that the suit is without merit and intends to defend it vigorously. The
Company believes it is entitled to indemnification from the previous
owners of these corporations should an unfavorable outcome result.
Management does not believe these matters will have a
material adverse effect on the financial position, results of operations
or cash flows of the Company.
(4) Recent Accounting Standards
Statement of Position 94-6, "Disclosure of Certain
Significant Risks and Uncertainties," and SFAS No. 123, "Accounting for
Stock Based Compensation," are required to be implemented during the
Company's fiscal years ending October 31, 1996 and 1997, respectively.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" is required to be implemented for fiscal years beginning after
December 15, 1995. Accordingly, the Company will implement this
pronouncement during the fiscal year ending October 31, 1997. The effect
of these pronouncements on the Company's consolidated financial condition
and results of operations is not expected to be material.
(5) Foreign Currency Translation
The Company recorded a foreign currency translation
adjustment, which increased shareholders' equity by approximately $2.0
million, during the first six months of fiscal 1996 as a result of
exchange rate fluctuations of the Australian dollar and Mexican peso
relative to the United States dollar.
(6) Subsequent Events
On May 17, 1996, the Board of Directors of the Company
declared a three-for-two stock split of the Company's Class A and Class B
Common Stock. The split will be accomplished by way of a dividend paid
on June 21, 1996 to shareholders of record on May 28, 1996. Adjusted for
the split, earnings per share for the three months ended April 30, 1996
and 1995 would have been $.33 and $.27, respectively. For the comparable
six-month periods, adjusted earnings per share would have been $.63 and
$.54, respectively. The Board also confirmed its intention to maintain
the quarterly cash dividend of $.02 per share on the increased number of
shares outstanding.
Subsequent to April 30, 1996, the Company acquired
three funeral homes and one cemetery for approximately $7,706. The
Company currently has outstanding letters of intent or agreements in
principle to acquire nine funeral homes and one cemetery for purchase
prices aggregating approximately $9,014.
12
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
For purposes of the following discussion, funeral
homes and cemeteries owned and operated for the entirety of each period
being compared are referred to as "Existing Operations."
Correspondingly, funeral homes and cemeteries acquired or funeral homes
opened during either period being compared are referred to as "Acquired
Operations."
Results of Operations
Three Months Ended April 30, 1996 Compared to Three Months Ended
April 30, 1995.
Funeral Segment
Three Months Ended
April 30,
______________________ Increase
1996 1995 (Decrease)
________ ________ ___________
(In millions)
Funeral Revenue
_________________
Existing Operations. . . . . . . . . . . $ 40.8 $ 41.8 $ (1.0)
Acquired Operations. . . . . . . . . . . 7.4 .3 7.1
Revenue from prearranged funeral trust funds and
escrow accounts . . . . . . . . . . . . 6.7 4.6 2.1
_______ _______ _______
$ 54.9 $ 46.7 $ 8.2
======= ======= =======
Funeral Costs
______________
Existing Operations. . . . . . . . . . . $ 31.6 $ 32.8 $ (1.2)
Acquired Operations. . . . . . . . . . . 5.7 .2 5.5
_______ _______ ________
$ 37.3 $ 33.0 $ 4.3
======= ======= ========
Funeral Segment Profit . . . . . . . . . $ 17.6 $ 13.7 $ 3.9
======= ======= ========
Funeral revenue increased $8.2 million, or 18%, for the
three-month period ended April 30, 1996, compared to the same period in
1995. The Company experienced a $1.0 million decrease in revenue from
Existing Operations as a result of sales of certain prearranged funeral
merchandise being somewhat down from the second quarter of fiscal 1995 to
the second quarter of fiscal 1996, and a $.7 million decline in funeral
revenue from the Company's Mexican operations due to a 19% devaluation of
the peso from the second quarter of fiscal 1995 to the comparable period
in fiscal 1996. Additionally, there was an 11% decrease in the number of
funeral services performed by Existing Operations. The decline in
revenue was offset by a 12% increase in the average revenue per funeral
service performed due principally to price increases and improved
merchandising. The Company believes that the decline in the number of
funeral services performed is attributable to a decline in the number of
deaths in certain of the Company's markets and increased competition from
low-cost funeral service providers in certain markets. The Company does
not expect this decline to continue over the long term.
The $1.2 million, or 4%, decrease in funeral costs for
Existing Operations resulted principally from the implementation of
certain cost control measures, including contract negotiations with
certain vendors, a $.5 million decrease in costs attributable to the
Company's Mexican operations due to the devaluation of the Mexican peso
noted above, and the decline in funeral services discussed above.
13
The increase in revenue and costs from Acquired Operations
resulted primarily from the Company's acquisition or construction of
funeral homes from May 1995 through April 1996 which are not reflected in
the 1995 period presented above.
The $2.1 million increase in revenue from prearranged
funeral trust funds and escrow accounts was attributable to a 33% growth
in the average balance in such trust funds and escrow accounts, resulting
primarily from current year customer payments deposited into the funds,
funds added through acquisitions, and an increase in the return on the
Company's domestic funds. The return on the peso-denominated investments
of the Mexican subsidiaries, which comprise 11% of the Company's total
funeral trust portfolio, averaged 21% on an annualized basis for the
quarter, and partially offsets the 19% devaluation discussed above and
30% annualized inflation experienced in Mexico during the quarter.
Cemetery Segment
Three Months Ended
April 30,
______________________
1996 1995 Increase
________ ________ ___________
(In millions)
Cemetery Revenue
_________________
Existing Operations. . . . . . . . . . . $ 45.8 $ 44.0 $ 1.8
Acquired Operations. . . . . . . . . . . 3.4 .1 3.3
Revenue from merchandise trust funds and
escrow accounts . . . . . . . . . . . . 2.1 1.2 .9
_________ _________ ________
$ 51.3 $ 45.3 $ 6.0
========= ========= ========
Cemetery Costs
________________
Existing Operations. . . . . . . . . . . $ 36.7 $ 36.1 $ .6
Acquired Operations. . . . . . . . . . . 2.8 .1 2.7
________ ________ _______
$ 39.5 $ 36.2 $ 3.3
======== ======== =======
Cemetery Segment Profit. . . . . . . . . $ 11.8 $ 9.1 $ 2.7
======== ======== =======
Cemetery revenue increased $6.0 million, or 13% for the
three-month period ended April 30, 1996, compared to the same period in
1995. The increase was due principally to revenue from Acquired
Operations and a $1.8 million increase in revenue from Existing
Operations. The improved profit margins achieved by Existing Operations
were attributable to certain cost control measures implemented by the
Company, including vendor contract negotiations.
The increase in revenue and costs from Acquired Operations
resulted primarily from the Company's acquisition of cemeteries from May
1995 through April 1996 which are not reflected in the 1995 period
presented above.
Other Segments and Activities
Corporate general and administrative expenses increased to
3.1% of sales for the quarter ended April 30, 1996 compared to 2.8% for
the same period in 1995. The increase in these expenses is the result of
activities to support the Company's growth.
Interest expense decreased $.6 million during the second
quarter of fiscal 1996 when compared to the same period in 1995. The
decrease in interest expense resulted from a decrease in average interest
rates from 7.29% to 6.49%. Approximately $239.9 million of the
outstanding borrowings at April 30, 1996 was subject to short-term
variable interest rates averaging approximately 5.83%.
14
Six Months Ended April 30, 1996 Compared to Six Months Ended April 30, 1995
Funeral Segment
Six Months Ended
April 30,
______________________ Increase
1996 1995 (Decrease)
________ ________ ___________
(In millions)
Funeral Revenue
_________________
Existing Operations. . . . . . . . . . . $ 73.3 $ 75.4 $ (2.1)
Acquired Operations. . . . . . . . . . . 20.8 7.1 13.7
Revenue from prearranged funeral trust funds and
escrow accounts . . . . . . . . . . . . 13.9 8.9 5.0
_______ _______ ________
$108.0 $ 91.4 $ 16.6
======= ======= ========
Funeral Costs
__________________
Existing Operations. . . . . . . . . . . $ 57.3 $ 59.3 $ (2.0)
Acquired Operations. . . . . . . . . . . 16.4 5.9 10.5
_______ _______ _______
$ 73.7 $ 65.2 $ 8.5
======= ======= =======
Funeral Segment Profit . . . . . . . . . $ 34.3 $ 26.2 $ 8.1
======= ======= =======
Funeral revenue increased $16.6 million, or 18% for the
six-month period ended April 30, 1996, compared to the same period in
1995. The Company experienced a $2.1 million decrease in revenue from
Existing Operations as a result of sales of certain prearranged funeral
merchandise being somewhat down from the first six months of fiscal 1995
to the first six months of fiscal 1996, and a $3.1 million decline in
funeral revenue from the Company's Mexican operations due to a 48%
devaluation of the Mexican peso from the first six months of 1995 to the
comparable period in 1996. Additionally, there was a 6% decrease in the
number of funeral services performed by Existing Operations. The decline
in revenue was offset by a 6% increase in the average revenue per funeral
service performed due principally to price increases and improved
merchandising. The Company believes that the decline in the number of
funeral services performed is attributable to a decline in the number of
deaths in certain of the Company's markets and increased competition from
low-cost funeral service providers in certain markets. The Company does
not expect this decline to continue over the long term.
The $2.0 million, or 3%, decrease in funeral costs for
Existing Operations resulted principally from the implementation of
certain cost control measures, including contract negotiations with
certain vendors, a $2.3 million decrease in costs attributable to the
Company's Mexican operations due to the devaluation of the Mexican peso
noted above, and the decline in funeral services discussed above.
The increase in revenue from Acquired Operations resulted
primarily from the Company's acquisition or construction of funeral homes
from May 1995 through April 1996 which are not reflected in the 1995
period presented above.
The $5.0 million increase in revenue from prearranged
funeral trust fund and escrow accounts was attributable to a 28% growth
in the average balance in such trust funds and escrow accounts, resulting
primarily from current year customer payments deposited into the funds,
funds added through acquisitions, and an increase in the return on the
Company's domestic funds. The return on the peso-denominated investments
of the Mexican subsidiaries, which comprise 11% of the Company's total
funeral trust portfolio, averaged 24% on an annualized basis for the six
months, representing an increase from the 17% return in the comparable
prior period. The return on the Mexican funds partially offsets the 48%
devaluation discussed above and 36% annualized inflation experienced in
Mexico during the six-month period.
15
Cemetery Segment
Six Months Ended
April 30,
______________________
1996 1995 Increase
________ ________ ___________
(In millions)
Cemetery Revenue
_________________
Existing Operations. . . . . . . . . . . $ 87.2 $ 84.1 $ 3.1
Acquired Operations. . . . . . . . . . . . 8.0 1.7 6.3
Revenue from merchandise trust funds and
escrow accounts . . . . . . . . . . . . 4.8 2.1 2.7
_______ ________ ________
$100.0 $ 87.9 $12.1
======= ======== ========
Cemetery Costs
_______________
Existing Operations. . . . . . . . . . . $ 69.1 $ 68.9 $ 0.2
Acquired Operations. . . . . . . . . . . 7.2 1.5 5.7
________ ________ _______
$ 76.3 $ 70.4 $ 5.9
======== ======== =======
Cemetery Segment Profit. . . . . . . . . $ 23.7 $ 17.5 $ 6.2
======== ======== =======
Cemetery revenue increased $12.1 million, or 14%, for the
six-month period ended April 30, 1996, compared to the same period in
1995. The increase was due principally to revenue from Acquired
Operations and a $3.1 million increase in revenue from Existing
Operations. The improved profit margins achieved by Existing Operations
were attributable to certain cost control measures implemented by the
Company, including vendor contract negotiations.
The increase in revenue and costs from Acquired Operations
resulted primarily from the Company's acquisition of cemeteries from May
1995 through April 1996 which are not reflected in the 1995 period
presented above.
The $2.7 million increase in revenue from merchandise
trust funds and escrow accounts was attributable to a 40% growth in the
average balance in the merchandise trust funds and escrow accounts,
resulting from current year customer payments deposited into the funds,
along with funds added through acquisitions, and an increase in the
return on the trust funds.
Other Segments and Activities
Corporate general and administrative expenses increased to
3.0% of sales for the six months ended April 30, 1996 compared to 2.7%
for the same period in 1995. The increase in these expenses is the
result of activities to support the Company's growth.
Interest expense increased $.4 million during the first
six months of fiscal 1996 when compared to the same period in 1995. The
increase in interest expense resulted from a slight increase in total
borrowings, offset by a decrease in average interest rates from 6.97% to
6.84%. Approximately $239.3 million of the outstanding borrowings at
April 30, 1996 was subject to short-term variable interest rates
averaging approximately 5.83%.
16
Liquidity and Capital Resources
Cash and marketable securities of the Company were $21.3
million at April 30, 1996, an increase of approximately $1.7 million from
October 31, 1995. The increase was principally attributable to funds
borrowed for general corporate purposes which were used in early May.
The Company provided cash of $10.7 million in its
operations for the six months ended April 30, 1996, compared to using
cash of $3.6 million for the corresponding period in 1995 due principally
to an increase in net earnings and collection of accounts receivable
offset by other working capital changes.
In December 1995, the Company entered into an Amended and
Restated Loan Agreement with a group of banks that increased the
aggregate amount available from $250 million to $350 million. The number
of participating banks increased from six to eight, and the maturity date
was extended to October 31, 2000. Interest is payable at a lending
banks's prime rate or certain optional rates at the Company's election.
Additionally, the Company has available with a separate financial
institution an uncollateralized revolving line of credit under which the
borrowings are limited to $10 million and interest is payable on terms
similar to those mentioned above.
Long-term debt at April 30, 1996 amounted to $386.5
million, compared to $322.5 million at October 31,1995. The Company's
long-term debt consisted of $239.3 million under the Company's bank
facilities, $125.0 million of senior long-term notes and $22.2 million of
term notes incurred principally in connection with the acquisition of
funeral home and cemetery properties. As of April 30, 1996, the Company
had available $119.2 under its bank facilities. All of the Company's
debt is uncollateralized, except for $3.3 million of term notes incurred
principally in connection with acquisitions.
During the six months ended April 30, 1996 and shortly
thereafter, the Company completed acquisitions of 32 funeral homes and
nine cemeteries for purchase prices aggregating approximately $70.4
million, including the issuance of 254,600 shares of Class A Common Stock
and $6.1 million of seller-financed acquisition indebtedness. The cash
portion of the purchase price of these acquisitions was funded with
advances under the Company's revolving credit facility.
Although the Company has no material commitments for
capital expenditures, the Company contemplates capital expenditures,
excluding acquisitions, of approximately $27.0 million for the fiscal
year ending October 31, 1996, which amount includes $12.9 million for the
construction of new funeral homes and refurbishing of funeral homes
recently acquired. Management expects that future capital requirements
will be satisfied through a combination of internally generated cash flow
and amounts available under its revolving credit agreements. Additional
debt and equity financing may be required in connection with future
acquisitions.
Other
The Company recorded a foreign currency translation
adjustment which increased shareholders' equity by approximately $2.0
million during the six months ended April 30, 1996 as a result of
exchange rate fluctuations of the Australian dollar and Mexican peso
relative to the United States dollar. The exchange rate fluctuation in
Mexico may cause a reduction in the U.S. dollar value of future earnings
from the Mexican operations, but this reduction is not expected to have a
material effect on the Company, based on the size of the Mexican
operations relative to the consolidated totals and management's
expectations that these operations will continue to be additive to
earnings per share. In conjunction with the devaluation of the Mexican
peso, the U.S. dollar value of the Company's Mexican funeral trust funds
has declined, but the Company's funeral trust earnings from these funds
have not been adversely affected due to substantially higher interest
rates than originally anticipated.
17
Statement of Position 94-6, "Disclosure of Certain
Significant Risks and Uncertainties," and SFAS No. 123, "Accounting for
Stock Based Compensation," are required to be implemented during the
Company's fiscal years ending October 31, 1996 and 1997, respectively.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" is required to be implemented for fiscal years beginning after
December 15, 1995. Accordingly, the Company will implement this
pronouncement during the fiscal year ending October 31, 1997. The effect
of these pronouncements on the Company's consolidated financial condition
and results of operations is not expected to be material.
18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
United States of America v. Restland Funeral Home, Inc.,
Laurel Land Funeral Home, Inc., Singing Hills Funeral Home, Inc.,
Bluebonnet Hills Funeral Home, Inc., and Laurel Land Funeral Home of Fort
Worth, Inc., United States District Court for the Northern District of
Texas. On December 3, 1991, the United States Department of Justice (the
"Justice Department"), on behalf of the Federal Trade Commission (the
"FTC"), filed a complaint against five of the Company's Texas funeral
home subsidiaries. The complaint alleged that the funeral home
subsidiaries had violated certain requirements of the Funeral Rule
concerning funeral industry practices, including the disclosure of price
information and the delivery of itemized written statements for funeral
goods and services selected. The FTC originally sought unspecified civil
penalties and injunctive and other relief from each of the funeral home
subsidiaries. In July 1993, the Justice Department filed a motion
requesting civil penalties of $2 million. In August 1994, the District
Court dismissed the complaint with regard to all alleged violations by
the funeral home subsidiaries; however, on May 2, 1995, the Fifth Circuit
Court of Appeals reversed the District Court's dismissal. The case has
been returned to the District Court and a trial date has been set for
September 3, 1996. On May 28, 1996, the funeral home subsidiaries filed
their second motion to dismiss the case. Management does not believe
this matter will have a material adverse effect on the financial
position, results of operations or cash flows of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 1996 annual meeting of shareholders was held
on March 7, 1996, at which 21,554,501 shares of Class A Common Stock
having one vote per share and 1,185,007 shares of Class B Common Stock
having ten votes per share were present in person or by proxy. The
voting tabulation was as follows:
(i) Election of the following individuals to three-year
terms on the Board of Directors:
Ronald H. Patron: 33,372,605 votes for, 31,966 votes
withheld; William E. Rowe: 33,368,795 votes for,
35,776 votes withheld; James W. Mc Farland: 33,367,543
votes for, 37,028 votes withheld.
The following directors' terms of office continued
after the meeting:
Joseph P. Henican, III, Michael O. Read, Frank B.
Stewart, Jr., Darwin C. Fenner, and John P. Laborde.
(ii)Proposal to approve the Amended and Restated 1991
Incentive Compensation Plan: 24,310,382 votes for,
8,540,114 votes against, 292,491 abstentions, and
261,584 broker non-votes.
(iii)Proposal to approve the Amended and Restated 1995
Incentive Compensation Plan: 30,120,007 votes for,
2,728,582 votes against, 294,398 abstentions, and
261,584 broker non-votes.
(iv)Proposal to approve the Directors' Stock Option Plan:
30,271,901 votes for, 2,609,385 votes against,
322,247 abstentions, and 201,038 broker non-votes.
(v) Proposal to approve an amendment to the Company's
Articles of Incorporation to increase the number of
authorized shares of Class A Common Stock, no par
value per share, from 50 million shares to 150 million
shares: 28,224,261 votes for, 5,104,046 votes
against, 27,037 abstentions, and 49,227 broker non-votes.
(vi)Proposal to ratify the appointment of Coopers &
Lybrand L.L.P., certified public accountants, as
independent auditors for the fiscal year ending
October 31, 1996: 33,349,836 votes for, 36,121 votes
against, and 18,614 abstentions.
19
Item 5. Other Information
Forward-looking Statements
The Company's goals for fiscal year 1996 include revenue
growth of at least 20%, earnings per share growth of 15-20%, and
completion of $150 million to $200 million in acquisitions, and the
Company currently believes that these goals will be achieved. This level
of acquisition activity is consistent with fiscal year 1995 levels of
$154.4 million and fiscal year 1994 levels of $177.6 million. These
projections are based on assumptions about future events and are
therefore inherently uncertain; actual results may differ materially from
those projected. See "Cautionary Statements," below.
Cautionary Statements
Certain statements made herein or elsewhere by or on
behalf of the Company that are not historical facts are forward-looking
statements made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The Company cautions readers
that the following important factors, among others, in some cases have
affected, and in the future could affect, the Company's actual results
and could cause the Company's actual consolidated results in the future
to differ materially from the projections made in the forward-looking
statements above and in any other forward-looking statements made by, or
on behalf of, the Company:
(1) Achieving projected revenue growth depends upon sustaining
the level of acquisition activity experienced by the Company in the last
two fiscal years. Higher levels of acquisition activity will increase
anticipated revenues, and lower levels of acquisition activity will
decrease anticipated revenues. The level of acquisition activity depends
not only on the number of properties acquired but also on the size of the
acquisitions; for example, one large acquisition could increase
substantially the level of acquisition activity and, consequently,
revenues. Several important factors, among others, affect the Company's
ability to consummate acquisitions:
(a) The Company may be unable to find a sufficient number
of businesses for sale at prices the Company is
willing to pay.
(b) In most of its existing markets and in many new
markets the Company desires to enter, the Company
competes for acquisitions with two other public
companies that are substantially larger than the
Company. These competitors, and others, may be
willing to pay higher prices for businesses than the
Company or may cause the Company to pay more to
acquire a business than the Company would otherwise
have to pay in the absence of such competition. Thus,
the aggressiveness of the Company's competitors in
pricing acquisitions affects the Company's ability to
complete acquisitions at prices it finds attractive.
(c) Achieving the Company's projected acquisition activity
depends on the Company's ability to enter new markets.
Due in part to the Company's lack of experience
operating in new areas and to the presence of
competitors who have been in certain markets longer
than the Company, such entry may be more difficult or
expensive than anticipated by the Company.
(2) The level of revenues is also affected by the volume and
prices of properties, products and services sold. The annual sales
targets set by the Company are very aggressive, and the inability of the
Company to achieve planned increases in volume or prices could cause the
Company not to meet anticipated levels of revenue. The ability of the
Company to achieve volume or price increases at any location depends on
numerous factors, including the local economy, the local death rate and
competition.
20
(3) Another important component of revenue is earnings from
the Company's trust funds and escrow accounts, which are determined by
the size of, and returns (which include dividends, interest and realized
capital gains) on, the funds. The performance of such funds is related
primarily to market conditions that are not within the Company's control.
The size of the funds depends on the level of sales, funds added through
acquisitions and the amount of returns that may be reinvested.
(4) Future revenue is also affected by the level of
prearranged sales in prior periods. The level of prearranged sales may
be adversely affected by numerous factors, including deterioration in the
economy, which causes individuals to have less discretionary income.
(5) In addition to the factors discussed above, earnings per
share may be affected by other important factors, including the
following:
(a) The ability of the Company to achieve projected
economies of scale in markets where it has "clusters"
or combined facilities.
(b) Whether acquired businesses perform at pro forma
levels used by management in the valuation process.
(c) The ability of the Company to manage its growth in
terms of implementing internal controls and
information gathering systems and retaining or
attracting key personnel, among other things.
(d) The amount, and rate of growth in, the Company's
corporate general and administrative expenses.
(e) Changes in interest rates, which can increase or
decrease the amount the Company pays on borrowings
with variable rates of interest.
(f) The Company's debt/equity ratio, the number of shares
of common stock outstanding and the portion of the
Company's debt that has fixed or variable interest
rates.
(g) The impact on the Company's financial statements of
nonrecurring accounting charges that may result from
the Company's ongoing evaluation of its business
strategies, asset valuations and organizational
structures.
(h) Changes in government regulation, including tax rates
and structures.
(i) Unanticipated outcomes of legal proceedings.
(j) Changes in accounting policies and practices adopted
voluntarily or required to be adopted by generally
accepted accounting principles.
The Company also cautions readers that it assumes no
obligation to update, or publicly release any revisions to, forward-
looking statements made herein or any other forward-looking statements
made by or on behalf of the Company.
For additional information about the Company's business,
see the Company's Form 10-K for the fiscal year ended October 31, 1995.
21
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Amended and Restated Articles of Incorporation
of the Company, as amended(1)
3.2 By-laws of the Company, as amended(2)
4.1 See Exhibits 3.1 and 3.2 for provisions of the
Company's Amended and Restated Articles of
Incorporation and By-laws defining the rights
of holders of Class A and Class B Common Stock
4.2 Specimen of Class A Common Stock certificate(3)
10 Promissory Note by Stewart Enterprises, Inc.
to SunTrust Bank, Atlanta, in the amount of
$10,000,000, dated January 11, 1996
27 Financial data schedule
_____________________________
(1) Incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter
ended January 31, 1996.
(2) Incorporated by reference from Exhibit 3.2 to
the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1995.
(3) Incorporated by reference from the Company's
Registration Statement on Form S-1
(Registration No. 33-42336) filed with the
Commission on August 21, 1991.
(b) Reports on Form 8-K
The Company filed a Form 8-K on March 7, 1996 reporting,
under "Item 5. Other Events," the earnings release for
the quarter ended January 31, 1996.
The Company also filed a Form 8-K on March 20, 1996
reporting, under "Item 5. Other Events," pro forma
financial information concerning certain acquisitions
during the period from November 1, 1994 through March 20,
1996.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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.
STEWART ENTERPRISES, INC.
June 13, 1996 /s/ RONALD H. PATRON
_________________________
Ronald H. Patron
Chief Financial Officer
President-Corporate Division
June 13, 1996 /s/ KENNETH C. BUDDE
__________________________
Kenneth C. Budde
Senior Vice President-Finance
Secretary and Treasurer
(Principal Accounting Officer)