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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, 1998
( ) 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 10, 1998 was 94,152,788 and 3,555,020, respectively.
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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Earnings -
Three Months Ended April 30, 1998 and 1997 3
Consolidated Statements of Earnings -
Six Months Ended April 30, 1998 and 1997 4
Consolidated Balance Sheets -
April 30, 1998 and October 31, 1997 5
Consolidated Statements of Cash Flows -
Six Months Ended April 30, 1998 and 1997 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED APRIL 30,
----------------------------
1998 1997
--------- ---------
Revenues:
Funeral $ 91,752 $ 69,613
Cemetery 62,826 58,509
--------- ---------
154,578 128,122
--------- ---------
Costs and expenses:
Funeral 61,209 47,370
Cemetery 43,823 41,892
--------- ---------
105,032 89,262
--------- ---------
Gross Profit 49,546 38,860
Corporate general and administrative expenses 4,144 3,181
--------- ---------
Operating earnings before performance-based
stock options 45,402 35,679
Performance-based stock options 76,762 -
--------- ---------
Operating earnings (loss) (31,360) 35,679
Interest expense (10,081) (10,071)
Investment and other income 1,676 781
--------- ---------
Earnings (loss) before income taxes (39,765) 26,389
Income taxes (13,719) 9,121
--------- ---------
Net earnings (loss) $ (26,046) $ 17,268
========= =========
Net earnings (loss) per share:
Basic $ (.27) $ .20
========= =========
Diluted $ (.27) $ .20
========= =========
Weighted average shares outstanding (in thousands):
Basic 97,547 84,323
========= =========
Diluted 97,547 85,213
========= =========
Dividends per share $ .01 $ .01
========= =========
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,
--------------------------
1998 1997
--------- ---------
Revenues:
Funeral $ 178,670 $ 136,189
Cemetery 125,217 114,645
--------- ---------
303,887 250,834
--------- ---------
Costs and expenses:
Funeral 120,070 93,775
Cemetery 88,154 82,902
--------- ---------
208,224 176,677
--------- ---------
Gross profit 95,663 74,157
Corporate general and administrative expenses 8,168 7,036
--------- ---------
Operating earnings before performance-based
stock options 87,495 67,121
Performance-based stock options 76,762 -
--------- ---------
Operating earnings 10,733 67,121
Interest expense (20,027) (19,033)
Investment and other income 3,034 1,566
--------- ---------
Earnings (loss) before income taxes and
cumulative effect of change in accounting
principles (6,260) 49,654
Income taxes (2,160) 17,379
--------- ---------
Earnings (loss) before cumulative effect of
change in accounting principles (4,100) 32,275
Cumulative effect of change in accounting
principles (net of $2,230 income tax benefit)
(Note 2) - (2,324)
--------- ---------
Net earnings (loss) $ (4,100) $ 29,951
========= =========
Basic earnings (loss) per share:
Earnings (loss) before cumulative effect of
change in accounting principles $ (.04) $ .38
Cumulative effect of change in accounting
principles - (.02)
--------- ---------
Net earnings (loss) $ (.04) $ .36
========= =========
Diluted earnings (loss) per share:
Earnings (loss) before cumulative effect of
change in accounting principles $ (.04) $ .38
Cumulative effect of change in accounting
principles - (.03)
--------- ---------
Net earnings (loss) $ (.04) $ .35
========= =========
Weighted average shares outstanding (in thousands):
Basic 97,473 84,009
========= =========
Diluted 97,473 85,003
========= =========
Dividends per share $ .02 $ .02
========= =========
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 1998 1997
------ ----------- -----------
Current assets:
Cash and cash equivalent investments $ 24,941 $ 31,640
Marketable securities . 3,861 4,615
Receivables, net of allowances 155,963 140,291
Inventories 49,070 43,044
Prepaid expenses 7,129 7,111
----------- -----------
Total current assets 240,964 226,701
Receivables due beyond one year, net of allowances 228,380 200,285
Intangible assets 454,013 415,723
Deferred charges 81,116 75,353
Cemetery property, at cost 316,959 310,628
Property and equipment, at cost:
Land 66,202 67,579
Buildings 258,068 244,421
Equipment and other 109,496 102,592
----------- -----------
433,766 414,592
Less accumulated depreciation 93,275 85,188
----------- -----------
Net property and equipment 340,491 329,404
Long-term investments 63,762 57,345
Other assets 37,110 21,799
----------- -----------
$ 1,762,795 $ 1,637,238
=========== ===========
APRIL 30, OCTOBER 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
------------------------------------ ------------ -----------
Current liabilities:
Current maturities of long-term debt $ 25,161 $ 33,973
Accounts payable 14,494 16,705
Accrued payroll 15,864 16,241
Accrued insurance 9,603 10,428
Accrued interest 9,690 7,581
Accrued other 13,427 16,283
Deferred income taxes 10,378 9,720
------------ -----------
Total current liabilities 98,617 110,931
Long-term debt, less current maturities 677,513 524,351
Deferred income taxes 81,572 85,454
Deferred revenue 86,334 88,088
Other long-term liabilities 9,606 8,844
------------ -----------
Total liabilities 953,642 817,668
------------ -----------
Commitments and contingencies (Notes 4 and 10)
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 94,152,788 and 93,807,568
shares at April 30, 1998 and October 31,
1997, respectively 94,153 93,808
Class B authorized 5,000,000 shares; issued
and outstanding 3,555,020 shares at April
30, 1998 and October 31, 1997; 10 votes
per share; convertible into an equal number
of Class A shares 3,555 3,555
Additional paid-in capital 484,261 477,499
Retained earnings 273,054 279,104
Cumulative foreign translation adjustment (50,074) (36,609)
Unrealized appreciation of investments 4,204 2,213
------------ -----------
Total shareholders' equity 809,153 819,570
------------ -----------
$ 1,762,795 $ 1,637,238
============ ===========
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,
--------------------------
1998 1997
Cash flows from operating activities: -------- --------
Net earnings (loss) $ (4,100) $ 29,951
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating
activities:
Performance-based stock options 76,762 -
Depreciation and amortization 15,115 12,479
Provision for doubtful accounts 12,327 11,640
Cumulative effect of change in accounting
principles - 2,324
Net gains on sales of marketable securities (1,632) (362)
Provision (benefit) for deferred income taxes (3,549) 26
Changes in assets and liabilities net of
effects from acquisitions:
Increase in prearranged funeral trust
receivables (10,002) (7,199)
Increase in other receivables (41,074) (32,432)
Increase in deferred charges and intangible
assets (9,533) (9,446)
Increase in inventories and cemetery property (4,855) (4,283)
Decrease in accounts payable and accrued
expenses (9,907) (6,556)
Decrease in estimated costs to complete
mausoleums and to deliver merchandise (13,597) (7,091)
Increase (decrease) in deferred revenue (4,300) 509
Increase in other 262 941
-------- --------
Net cash provided by (used in) operating
activities 1,917 (9,499)
-------- --------
Cash flows from investing activities:
Proceeds from sales of marketable securities 11,082 3,671
Purchases of marketable securities and long-term
investments (12,877) (6,858)
Purchases of subsidiaries, net of cash, seller
financing and stock issued (47,997) (85,684)
Additions to property and equipment (19,099) (19,012)
Other 1,837 302
-------- --------
Net cash used in investing activities (67,054) (107,581)
-------- --------
SIX MONTHS ENDED APRIL 30,
--------------------------
1998 1997
Cash flows from financing activities: --------- ---------
Proceeds from long-term debt $ 380,741 $ 253,936
Repayments of long-term debt (251,685) (132,941)
Retirement of performance-based stock options (69,431) -
Issuance of common stock 11,009 4,334
Purchase and retirement of common stock (9,101) (5,925)
Dividends (1,950) (1,683)
--------- ---------
Net cash provided by financing activities 59,583 117,721
--------- ---------
Effect of exchange rates on cash and cash
equivalents (1,145) (165)
--------- ---------
Net increase (decrease) in cash (6,699) 476
Cash and cash equivalents, beginning of period 31,640 24,580
--------- ---------
Cash and cash equivalents, end of period $ 24,941 $ 25,056
========= =========
Supplemental cash flow information:
Cash paid during the period for:
Income taxes $ 5,700 $ 17,400
Interest $ 17,900 $ 17,700
Noncash investing and financing activity:
Subsidiaries acquired with common stock $ 200 $ 6,400
See accompanying notes to consolidated financial statements.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) BASIS OF PRESENTATION
(a) The Company
Stewart Enterprises, Inc. (the "Company") is the third largest provider of
products and services in the death care industry in North America. Through its
subsidiaries, the Company offers a complete line of funeral merchandise and
services, along with cemetery property, merchandise and services.
As of April 30, 1998, the Company owned and operated 447 funeral homes and
133 cemeteries in 26 states within the United States, and in Puerto Rico,
Mexico, Australia, New Zealand, Canada, Spain, Portugal, the Netherlands and
Argentina. For the six months ended April 30, 1998, foreign operations
contributed approximately 15% of total revenue and, as of April 30, 1998,
represented approximately 19% of total assets.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the Company and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated.
(c) Interim Disclosures
The information as of April 30, 1998, and for the three and six months ended
April 30, 1998 and 1997, 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, 1997.
The results of operations for the three and six months ended April 30, 1998
are not necessarily indicative of the results to be expected for the fiscal
year ending October 31, 1998.
(d) Foreign Currency Translation
In accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation," all assets and liabilities of the Company's
foreign subsidiaries are translated into U.S. dollars at the exchange rate in
effect at the end of the period, and revenues and expenses are translated at
average exchange rates prevailing during the period. The resulting translation
adjustments are reflected in a separate component of shareholders' equity,
except for translation adjustments arising from operations in highly
inflationary economies.
During the first quarter of fiscal year 1997, the Company changed its method
of reporting foreign currency translation adjustments for its Mexican
operations to the method prescribed for highly inflationary economies. Under
that method, foreign currency translation adjustments are reflected in results
of operations, instead of in shareholders' equity. This change did not have a
material effect on the Company's results of operations for fiscal year 1997 or
the first six months of fiscal year 1998, and management does not expect this
change to have a material effect on the Company's results of operations for
fiscal year 1998.
(e) Per-Share Data
Effective November 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings Per Share," which requires the
presentation of basic and diluted earnings per share. Basic earnings per share
is computed by dividing net earnings by the weighted average number of common
shares outstanding during each period. Diluted earnings per 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 (in this case, exercise of
the Company's time-vest stock options) had been issued during each period. Any
potential common shares that are antidilutive are not included in the diluted
earnings per share calculation. See Note 7.
All share and per-share data have been adjusted for the Company's two-for-
one common stock split effected April 24, 1998. See Note 6.
(f) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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.
(g) Reclassifications
Certain reclassifications have been made to the 1997 consolidated financial
statements to conform to the presentation used in the 1998 consolidated
financial statements. These reclassifications had no effect on net earnings or
shareholders' equity.
(2) CHANGE IN ACCOUNTING PRINCIPLES
Effective November 1, 1996, the Company changed certain of its accounting
methods with respect to prearranged funeral and cemetery sales in order to
provide a better matching of revenues and costs. For further details, refer to
the Company's Annual Report on Form 10-K for the year ended October 31, 1997.
(3) ACQUISITIONS
During the six months ended April 30, 1998, the Company purchased 41 funeral
homes and two cemeteries, compared to 44 funeral homes and four cemeteries
purchased during the six months ended April 30, 1997.
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, 1998, 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.
SIX MONTHS ENDED APRIL 30,
--------------------------
1998 1997
---------- ----------
(UNAUDITED)
Revenues $ 311,387 $ 264,207
========== ==========
Operating earnings before performance-based stock
options $ 88,684 $ 68,870
========== ==========
Earnings (loss) before cumulative effect of change in
accounting principles $ (4,202) $ 31,859
========== ==========
Net earnings (loss) $ (4,202) $ 29,535
========== ==========
Basic earnings (loss) per share:
Earnings (loss) before cumulative effect of change
in accounting principles $ (.04) $ .38
========== ==========
Net earnings (loss) $ (.04) $ .35
========== ==========
Diluted earnings (loss) per share:
Earnings (loss) before cumulative effect of change
in accounting principles $ (.04) $ .37
========== ==========
Net earnings (loss) $ (.04) $ .35
========== ==========
Weighted average shares outstanding (in thousands):
Basic 97,476 84,019
========== ==========
Diluted 97,476 85,013
========== ==========
The effect of acquisitions at dates of purchase on the consolidated
financial statements was as follows:
SIX MONTHS ENDED APRIL 30,
--------------------------
1998 1997
-------- --------
(UNAUDITED)
Current assets $ 5,345 $ 3,782
Receivables due beyond one year - 1,213
Cemetery property 7,902 650
Property and equipment, net 7,792 19,331
Deferred charges and other assets 25 372
Intangible assets, net 46,977 78,616
Current liabilities (3,660) (5,753)
Long-term debt (15,279) (5,281)
Other long-term liabilities (905) (857)
-------- --------
48,197 92,073
Common stock used for acquisitions 200 6,389
-------- --------
Cash used for acquisitions $ 47,997 $ 85,684
======== ========
(4) CONTINGENCIES
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 this matter will have a material adverse
effect on the financial position, net earnings or cash flows of the Company.
(5) RECENT ACCOUNTING STANDARDS
Statements of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," No. 131, "Disclosure about Segments of an Enterprise and
Related Information," and No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits," are required to be implemented during the
Company's fiscal year ending October 31, 1999. The effect of these
pronouncements on the Company's consolidated financial condition and results of
operations is not expected to be material.
(6) STOCK SPLIT
In March 1998, the Board of Directors of the Company declared a two-for-one
split of the Company's Class A and Class B Common Stock. The split was
accomplished by way of a 100% stock dividend paid on April 24, 1998, to
shareholders of record on April 10, 1998. The Board of Directors also
confirmed its intention to maintain the quarterly dividend of $.02 per share on
the increased number of shares outstanding, beginning with the third quarter of
the Company's fiscal year ending October 31, 1998.
(7) RECONCILIATION OF BASIC AND DILUTED PER-SHARE DATA
EARNINGS SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) DATA
----------- ------------- ---------
THREE MONTHS ENDED APRIL 30, 1997
---------------------------------
Net earnings $ 17,268
===========
Basic earnings per share:
Net earnings available to common shareholders $ 17,268 84,323 $ .20
=========
Effect of dilutive securities:
Time-vest stock options assumed exercised - 890
----------- ---------
Diluted earnings per share:
Net earnings available to common shareholders
plus time-vest stock options assumed exercised $ 17,268 85,213 $ .20
=========== ========= =========
SIX MONTHS ENDED APRIL 30, 1997
-------------------------------
Earnings before cumulative effect of change in
accounting principles $ 32,275
===========
Basic earnings per share:
Earnings available to common shareholders $ 32,275 84,009 $ .38
=========
Effect of dilutive securities:
Time-vest stock options assumed exercised - 994
----------- ---------
Diluted earnings per share:
Earnings available to common shareholders
plus time-vest stock options assumed exercised $ 32,275 85,003 $ .38
=========== ========= =========
For the three and six months ended April 30, 1998, there is no difference
between basic and diluted loss per share as reported in the accompanying
consolidated financial statements. Since the Company reported losses in both
periods, the effect of any potential common shares that would have been issued
during the periods would have been antidilutive. Had the company reported
earnings in both periods, approximately 819,000 and 774,000 shares would have
been added to the diluted share count for time-vest stock options assumed
exercised for the three and six months ended April 30, 1998, respectively.
(8) PERFORMANCE-BASED STOCK OPTIONS
The Company's performance-based stock options granted under the Company's
1995 Incentive Compensation Plan and covering 4,855,886 shares, vested on
April 7, 1998 when the performance goal set in 1995 was met. The options, held
by 119 persons, vested when the average of the closing sale prices of a share
of the Company's Class A Common Stock equaled or exceeded $26.44 for 20
consecutive trading days, which goal represented a five-year 20% compounded
annual growth in the price per share of the stock from the Plan's inception.
Once the stock price performance target was achieved, the Company was
required by generally accepted accounting principles to record a non-recurring,
non-cash charge to earnings of approximately $76,762 (approximately $50,279, or
$.51 per share, after-tax) in the second quarter of fiscal year 1998. Although
this charge resulted in the Company reporting a loss for the three and six
months ended April 30, 1998, there will be no impact on future periods.
Additionally, to encourage optionees to exercise their options immediately
in order to renew the performance-based option program and to reduce potential
dilution from additional shares in the market, the Company offered to
repurchase the options for the difference between $27.31, the closing price on
the date on which the options vested, and the exercise price of the options.
The repurchase of certain of the options by the Company and the exercise of
the remaining options resulted in a cash outlay of approximately $69,431.
(9) PUBLIC OFFERING OF REMARKETABLE OR REDEEMABLE SECURITIES
In April 1998, the Company issued $200,000 of 6.40% Remarketable Or
Redeemable Securities (ROARS) due May 1, 2013 (remarketing date May 1, 2003).
The ROARS were priced to the public at 99.677% to yield 6.476%. Net proceeds
were approximately $203,631, including the remarketing payment by the
remarketing dealer for the right to remarket the securities after five years.
The proceeds were used to reduce balances outstanding under the Company's
existing revolving credit facilities.
The net effective rate to the Company, assuming the securities are redeemed
by the Company after five years, is 5.77%. If the securities are remarketed
after five years, the net effective rate is expected to be approximately 6.14%
over 15 years.
(10) SUBSEQUENT EVENTS
Subsequent to April 30, 1998, the Company has acquired or committed to
acquire 97 funeral homes and five cemeteries for purchase prices aggregating
approximately $108,359.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Effective November 1, 1996, the Company changed certain of its accounting
methods for prearranged funeral and cemetery sales in order to provide a better
matching of revenues and costs. For further details, refer to the Company's
Annual Report on Form 10-K for the year ended October 31, 1997.
For purposes of the following discussion, funeral homes and cemeteries owned
and operated for the entirety of both periods being compared are referred to as
"Existing Operations." Correspondingly, funeral homes and cemeteries acquired
or opened during either period being compared are referred to as "Acquired
Operations."
RESULTS OF OPERATIONS
Three Months Ended April 30, 1998 Compared to Three Months Ended April 30, 1997
Funeral Segment
THREE MONTHS ENDED
APRIL 30,
------------------
1998 1997 INCREASE
-------- -------- --------
(In millions)
FUNERAL REVENUE
---------------
Existing Operations $ 66.1 $ 61.9 $ 4.2
Acquired Operations 18.0 3.2 14.8
Revenue from prearranged funeral trust funds and
escrow accounts 7.7 4.5 3.2
-------- -------- --------
$ 91.8 $ 69.6 $ 22.2
======== ======== ========
FUNERAL COSTS
-------------
Existing Operations $ 45.7 $ 45.4 $ .3
Acquired Operations 15.5 2.0 13.5
-------- -------- --------
$ 61.2 $ 47.4 $ 13.8
======== ======== ========
Funeral Segment Profit $ 30.6 $ 22.2 $ 8.4
======== ======== ========
Funeral revenue increased $22.2 million, or 32%, for the three months ended
April 30, 1998, compared to the corresponding period in 1997. The Company
experienced a $4.2 million increase in revenue from Existing Operations as a
result of a 4.7% increase in the average revenue per domestic funeral service
performed by Existing Operations (8.9% increase in total, excluding the effect
of foreign currency translation), primarily due to price increases and improved
merchandising. Partially offsetting this increase in revenue was a 2.0%
decrease in the number of domestic funeral services performed by Existing
Operations (4.3% decrease in total).
The improved profit margin achieved by Existing Operations resulted
principally from the increased average revenue per funeral service mentioned
above, implementation of certain cost control measures, including contract
negotiations with certain vendors, and the Company's centralization and
standardization of certain financial and administrative functions through its
Shared Services Center.
The increase in revenue and costs from Acquired Operations resulted
primarily from the Company's acquisition or construction of funeral homes from
May 1997 through April 1998 which are not reflected in the 1997 period
presented above.
The increase in revenue from prearranged funeral trust funds and escrow
accounts was attributable to a 29% growth in the average balance in such trust
funds and escrow accounts, resulting primarily from current year customer
payments deposited into the funds and funds added through acquisitions, coupled
with a slight increase in the average yield on such funds.
Cemetery Segment
THREE MONTHS ENDED
APRIL 30,
------------------
1998 1997 INCREASE
-------- -------- --------
(In millions)
CEMETERY REVENUE
----------------
Existing Operations $ 57.2 $ 56.3 $ .9
Acquired Operations 2.3 .1 2.2
Revenue from merchandise trust funds and
escrow accounts 3.3 2.1 1.2
-------- -------- --------
$ 62.8 $ 58.5 $ 4.3
======== ======== ========
CEMETERY COSTS
--------------
Existing Operations $ 41.8 $ 41.8 $ -
Acquired Operations 2.0 .1 1.9
-------- -------- --------
$ 43.8 $ 41.9 $ 1.9
======== ======== ========
Cemetery Segment Profit $ 19.0 $ 16.6 $ 2.4
======== ======== ========
Cemetery revenue increased $4.3 million, or 7%, for the three months ended
April 30, 1998, compared to the corresponding period in 1997, due principally
to a $2.2 million increase in revenue from Acquired Operations and a $1.2
million increase in revenue from merchandise trust funds and escrow accounts,
which are discussed below.
The improved profit margin achieved by Existing Operations was attributable
principally to an increase in cemetery sales, including burial site openings
and closings, and the continued implementation of certain cost control
measures, including contract negotiations with certain vendors and the
Company's centralization and standardization of certain financial and
administrative functions through its Shared Services Center.
The increase in revenue and costs from Acquired Operations resulted
primarily from the Company's acquisition or construction of cemeteries from May
1997 through April 1998 which are not reflected in the 1997 period presented
above.
The $1.2 million increase in revenue from merchandise trust funds and escrow
accounts was attributable to a 24% 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, coupled with an increase in the yield on the merchandise funds.
Other
During the quarter ended April 30, 1998, the Company achieved the
performance goal for the performance-based stock options granted under the
Company's 1995 Incentive Compensation Plan. As a result, the Company was
required to record a non-recurring, non-cash charge to earnings of
approximately $76.8 million (approximately $50.3 million or $.51 per share,
after-tax) in the second quarter of fiscal year 1998. Although this charge
resulted in the Company reporting a loss for the second quarter of fiscal year
1998, there will be no impact on future periods.
Additionally, to encourage optionees to exercise their options immediately
in order to renew the performance-based option program and to reduce potential
dilution from additional shares in the market, the Company offered to
repurchase the options for the difference between $27.31, the closing price on
the date on which the options vested, and the exercise price of the options.
The repurchase of certain of the options by the Company and the exercise of the
remaining options resulted in a cash outlay of approximately $69.4 million.
Interest expense was flat during the second quarter of fiscal year 1998
compared to the same period in 1997, as the result of a slight increase in
average borrowings, offset by a slight decrease in average interest rates from
6.6% in 1997 to 6.3% in 1998. Approximately $263.0 million of the $702.7
million outstanding borrowings at April 30, 1998 was subject to short-term
variable interest rates averaging approximately 6.2%.
Six Months Ended April 30, 1998 Compared to Six Months Ended April 30, 1997
Funeral Segment
SIX MONTHS ENDED
APRIL 30,
------------------ Increase
1998 1997 (DECREASE)
-------- -------- ----------
(In millions)
FUNERAL REVENUE
---------------
Existing Operations $ 129.4 $ 121.4 $ 8.0
Acquired Operations 36.6 5.3 31.3
Revenue froM prearranged funeral trust funds and
escrow accounts 12.7 9.5 3.2
-------- -------- -------
$ 178.7 $ 136.2 $ 42.5
======== ======== =======
FUNERAL COSTS
-------------
Existing Operations $ 89.3 $ 90.2 $ (.9)
Acquired Operations 30.8 3.6 27.2
-------- -------- -------
$ 120.1 $ 93.8 $ 26.3
======== ======== =======
Funeral Segment Profit $ 58.6 $ 42.4 $ 16.2
======== ======== =======
Funeral revenue increased $42.5 million, or 31%, for the six months ended
April 30, 1998, compared to the corresponding period in 1997. The Company
experienced an $8.0 million increase in revenue from Existing Operations as a
result of a 5.1% increase in the average revenue per domestic funeral service
performed by Existing Operations (8.9% increase in total, excluding the effect
of foreign currency translation), primarily due to price increases and improved
merchandising. Slightly offsetting this increase in revenue was a 1.1% decrease
in the number of domestic funeral services performed by Existing Operations
(2.7% decrease in total).
The $.9 million, or 1%, decrease in funeral costs from Existing Operations
resulted principally from the implementation of certain cost control measures,
including contract negotiations with certain vendors and the Company's
centralization and standardization of certain financial and administrative
functions through its Shared Services Center. Existing Operations achieved
improved profit margins resulting primarily from these increased cost control
measures and the increased average revenue per funeral service mentioned above.
The increase in revenue and costs from Acquired Operations resulted
primarily from the Company's acquisition or construction of funeral homes from
May 1997 through April 1998 which are not reflected in the 1997 period
presented above.
The increase in revenue from prearranged funeral trust funds 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 and funds added through acquisitions, offset
by a slight decline in the average yield on such funds.
Cemetery Segment
SIX MONTHS ENDED
APRIL 30,
------------------- Increase
1998 1997 (DECREASE)
-------- -------- ----------
(In millions)
CEMETERY REVENUE
----------------
Existing Operations $ 114.8 $ 108.0 $ 6.8
Acquired Operations 4.3 .2 4.1
Revenue from merchandise trust funds and
escrow accounts 6.1 6.4 (.3)
-------- -------- -------
$ 125.2 $ 114.6 $ 10.6
======== ======== =======
CEMETERY COSTS
--------------
Existing Operations $ 84.3 $ 82.7 $ 1.6
Acquired Operations 3.9 .2 3.7
-------- -------- -------
$ 88.2 $ 82.9 $ 5.3
======== ======== =======
Cemetery Segment Profit $ 37.0 $ 31.7 $ 5.3
======== ======== =======
Cemetery revenue increased $10.6 million, or 9%, for the six months ended
April 30, 1998, compared to the corresponding period in 1997, due principally
to a $6.8 million increase in revenue from Existing Operations. The increase in
revenue from Existing Operations resulted primarily from an increase in
cemetery sales, including burial site openings and closings.
The improved profit margin achieved by Existing Operations was attributable
principally to the increase in cemetery sales discussed above and the
implementation of certain cost control measures, including contract
negotiations with certain vendors and the Company's centralization and
standardization of certain financial and administrative functions through its
Shared Services Center.
The increase in revenue and costs from Acquired Operations resulted
primarily from the Company's acquisition or construction of cemeteries from May
1997 through April 1998 which are not reflected in the 1997 period presented
above.
Other
In April 1998, the Company achieved the performance goal for the
performance-based stock options granted under the Company's 1995 Incentive
Compensation Plan. As a result, the Company was required to record a non-
recurring, non-cash charge to earnings of approximately $76.8 million
(approximately $50.3 million, or .51 per share, after-tax) in April 1998.
Although this charge resulted in the Company reporting a loss for the six
months ended April 30, 1998, there will be no impact on future periods.
Additionally, to encourage optionees to exercise their options immediately
in order to renew the performance-based option program and to reduce potential
dilution from additional shares in the market, the Company offered to
repurchase the options for the difference between $27.31, the closing price on
the date on which the options vested, and the exercise price of the options.
The repurchase of certain of the options by the Company and the exercise of the
remaining options resulted in a cash outlay of approximately $69.4 million.
Interest expense increased $1.0 million during the first six months of
fiscal year 1998 compared to the same period in 1997, resulting principally
from an increase in average borrowings. Approximately $263.0 million of the
$702.7 million outstanding borrowings at April 30, 1998 was subject to short-
term variable interest rates averaging approximately 6.2%.
LIQUIDITY AND CAPITAL RESOURCES
Cash and marketable securities of the Company were $28.8 million at April
30, 1998, a decrease of approximately $7.5 million from October 31, 1997. The
Company's cash provided by operations totalled $1.9 million for the six months
ended April 30, 1998, compared to a $9.5 million use of cash for the
corresponding period in 1997, due principally to an increase in net earnings
excluding the effect of the non-cash performance-based stock option charge,
offset by an increase in receivables and other working capital changes.
Long-term debt at April 30, 1998 amounted to $702.7 million, compared to
$558.3 million at October 31, 1997. The Company's long-term debt consisted of
$263.0 million under the Company's revolving credit facilities, $423.6 million
of long-term notes, including the Remarketable or Redeemable Securities (ROARS)
discussed below, and $16.1 million of term notes incurred principally in
connection with the acquisition of funeral home and cemetery properties. All
of the Company's debt is uncollateralized, except for approximately $1.6
million of term notes incurred principally in connection with acquisitions.
In April 1998, the Company issued $200 million of 6.40% ROARS due May 1,
2013 (remarketing date May 1, 2003). The ROARS were priced to the public at
99.677% to yield 6.476%. Net proceeds were approximately $203.6 million,
including the remarketing payment by the remarketing dealer for the right to
remarket the securities after five years. The proceeds were used to reduce
balances outstanding under the Company's existing revolving credit facilities.
The net effective rate to the Company, assuming the securities are redeemed by
the Company after five years, is 5.77%. If the securities are remarketed after
five years, the net effective rate is expected to be approximately 6.14% over
15 years.
The most restrictive of the Company's credit agreements requires it to
maintain a debt-to-equity ratio no higher than 1.25 to 1.0. The Company has
managed its capitalization within that limit, with a ratio of total debt to
equity of .9 to 1.0 and .7 to 1.0 as of April 30, 1998 and October 31, 1997,
respectively. As of April 30, 1998, the Company had $305.3 million of
additional borrowing capacity within this parameter, all of which was available
under its revolving credit facilities.
The Company's ratio of earnings to fixed charges was .70 for the six months
ended April 30, 1998, which includes the $50.3 million non-recurring, non-cash
performance-based stock option charge. Excluding the stock option charge, the
Company's ratio of earnings to fixed charges was 4.33. As a result of the
stock option charge recorded in the second quarter of fiscal year 1998, the
Company's earnings through the first half of fiscal year 1998 were insufficient
to cover its fixed charges, and an additional $6.3 million in pretax earnings
would have been required to eliminate the coverage deficiency. Management
anticipates that this deficiency will be eliminated during the third quarter of
fiscal year 1998.
For the fiscal years ended October 31, 1997, 1996, 1995, 1994 and 1993, the
Company's ratio of earnings to fixed charges was as follows: 3.65 (excluding
the cumulative effect of the change in accounting principles), 3.98, 2.72
(including the $17.3 million non-recurring, non-cash performance-based stock
option charge), 5.30 and 5.15, respectively. Excluding the stock option charge
in fiscal year 1995, the Company's ratio of earnings to fixed charges would
have been 3.43. For purposes of computing the ratio of earnings to fixed
charges, earnings consist of pretax earnings 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. Fiscal year 1996 and prior amounts reflect the Company's previous
accounting methods which were in effect at that time.
During the six months ended April 30, 1998, the Company completed
acquisitions of 41 funeral homes and two cemeteries for purchase prices
aggregating approximately $65.7 million, including the issuance of
approximately 9,300 shares of Class A Common Stock and $7.1 million of seller-
financed acquisition indebtedness. The cash portion of the purchase price of
these acquisitions was funded primarily with advances under the Company's
revolving credit facilities.
Subsequent to April 30, 1998, the Company has acquired or committed to
acquire 97 funeral homes and five cemeteries for purchase prices aggregating
approximately $108.4 million. If these purchases are consummated, the amounts
to be paid will be satisfied by borrowings under the Company's revolving credit
facilities.
Although the Company has no material commitments for capital expenditures,
the Company contemplates capital expenditures, excluding acquisitions, of
approximately $40.0 million for the fiscal year ending October 31, 1998,
including 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 facilities. Additional debt and equity financing
may be required in connection with future acquisitions. In addition, the
Company monitors its mix of fixed and floating rate debt obligations in light
of changing market conditions and may from time to time decide to alter that
mix by, for example, refinancing balances outstanding under its floating rate
revolving credit facility with public or private fixed rate debt, or by
entering into interest rate swaps or similar interest rate hedging
transactions.
INFLATION
Inflation has not had a significant impact on the Company's United States
operations over the past three years, nor is it expected to have a significant
impact in the foreseeable future. The Mexican economy, however, currently is
experiencing inflation rates substantially in excess of those in the United
States.
During the first quarter of fiscal year 1997, the Company changed its method
of reporting foreign currency translation adjustments for its Mexican
operations to the method prescribed for highly inflationary economies. Under
that method, foreign currency translation adjustments are reflected in results
of operations, instead of in shareholders' equity. This change did not have a
material effect on the Company's results of operations for fiscal year 1997 or
the six months ended April 30, 1998, and management does not expect this change
to have a material effect on the Company's results of operations for fiscal
year 1998.
OTHER
Statements of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," No. 131, "Disclosure about Segments of an Enterprise
and Related Information," and No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits," are required to be implemented during the
Company's fiscal year ending October 31, 1999. The effect of these
pronouncements on the Company's consolidated financial condition and results of
operations is not expected to be material.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There has been no change in the status of the Company's material legal
proceedings during the quarter ended April 30, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1998 annual meeting of shareholders was held on March 27,
1998. All director nominees were elected. The voting tabulation was as
follows: Frank B. Stewart, Jr.: 121,165,970 votes for; 821,622 votes withheld;
Darwin C. Fenner: 121,114,510 votes for; 873,082 votes withheld; John P.
Laborde: 121,151,382 votes for; 836,210 votes withheld. The proposal to ratify
the appointment of Coopers & Lybrand L.L.P., certified public accountants, as
independent auditors for the fiscal year ending October 31, 1998 was approved.
The voting tabulation was as follows: 121,771,062 votes for; 33,188 votes
against; and 183,342 abstentions. All amounts have been adjusted for the
Company's two-for-one stock split effective April 24, 1998.
ITEM 5. OTHER INFORMATION
FORWARD-LOOKING STATEMENTS
Certain statements made herein or elsewhere by, or on behalf of, the Company
that are not historical facts are intended to be forward-looking statements
within the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995.
The Company's goals for fiscal year 1998 include: (i) revenue growth of at
least 20%; and (ii) earnings per share growth of 20%. The Company also
projects approximately $200-$225 million in acquisitions, which represents a
slight increase over the $185 million, $179 million, and $154 million achieved
in fiscal years 1997, 1996 and 1995, respectively. For fiscal year 1998, the
Company projects gross margin improvement of approximately 150 to 160 basis
points over its fiscal year 1997 gross margin.
The Company's strategic plan for the future includes the following goals:
(i) achievement of $1 billion in revenue by fiscal year 2001; and (ii) earnings
per share growth of 20% annually.
Forward-looking statements 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
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 consolidated 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 three 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, including
foreign markets, that the Company desires to enter, the Company
competes for acquisitions with the other publicly-traded death care
firms. 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, including foreign 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 also is affected by the volume and prices of the
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.
(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 the 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 also is 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) The Company first entered foreign markets in the fourth quarter of
fiscal year 1994, and no assurance can be given that the Company will continue
to be successful in expanding in foreign markets, or that any expansion in
foreign markets will yield results comparable to those realized as a result of
the Company's expansion in the United States.
(6) 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 and whether, and the rate at
which, management is able to increase the profitability of acquired
businesses.
(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-to-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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Articles of Incorporation of the Company, as amended,
(incorporated by reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended January 31, 1996)
3.2 By-laws of the Company, as amended (incorporated by reference to Exhibit
3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1997)
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 4.2 to Amendment No. 3 to the Company's Registration Statement on
Form S-1 (Registration No. 33-42336) filed with the Commission on October
7, 1991)
--------------------
Management Contracts and Compensatory Plans or Arrangements
10.1 Amendment No. 1 dated January 1, 1997 to Change of Control Agreement dated
December 5, 1995 between the Company and Lawrence B. Hawkins
10.2 Amendment No. 1 dated August 1, 1997 to Change of Control Agreement dated
December 5, 1995 between the Company and Richard O. Baldwin, Jr.
10.3 Amendment No. 1 dated November 1, 1997 to Change of Control Agreement
dated January 1, 1997 between the Company and Brent F. Heffron
10.4 Amendment No. 1 dated November 1, 1997 to Change of Control Agreement
dated January 1, 1997 between the Company and Raymond C. Knopke, Jr.
--------------------
12 Calculation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K on March 10, 1998 reporting, under "Item 5.
Other Events," the earnings release for the quarter ended January 31, 1998.
The Company filed a Form 8-K on April 9, 1998 reporting, under "Item 5.
Other Events," the press release announcing the achievement of the performance
objective for performance-based stock options granted under the Company's 1995
Incentive Compensation Plan.
The Company filed a Form 8-K on April 17, 1998 reporting, under "Item 5.
Other Events," the press release announcing the offering of $200 million of
Remarketable Or Redeemable Securities due 2013.
The Company filed a Form 8-K on April 24, 1998 reporting, under "Item 5.
Other Events," the press release announcing the completion of the offering of
$200 million of Remarketable Or Redeemable Securities due 2013, and the
acquisition of 18 funeral homes in Buenos Aires, Argentina.
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 12, 1998 /s/ Kenneth C. Budde
---------------------
Kenneth C. Budde
Executive Vice President
President- Corporate Division
Chief Financial Officer
June 12, 1998 /s/ Michael G. Hymel
---------------------
Michael G. Hymel
Vice President
Corporate Controller