Back to GetFilings.com
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended October 31, 1996
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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 Identification No.)
incorporation or organization)
110 Veterans Memorial Boulevard
Metairie, Louisiana 70005
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (504) 837-5880
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class A Common Stock, No Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes
X No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
The aggregate market value of the voting stock held by nonaffiliates
(affiliates being, for these purposes only, directors, executive
officers and holders of more than 5% of the Company's Class A Common
Stock) of the Registrant as of January 21, 1997 was approximately
$1,109,000,000.
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 January 21, 1997 was 40,168,965 and 1,777,510,
respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement in connection with the 1997 annual meeting of
shareholders, incorporated in Part III of this Report.
=============================================================================
PART I
Item 1. Business
The Company
Stewart Enterprises, Inc. (the "Company") is the third largest
provider of products and services in the death care industry in North
America. See "Business-Competition." The Company is a leader in the
industry's movement toward consolidation, the integration of funeral
home and cemetery operations, the establishment of combined facilities,
and complete death care planning and delivery. Through its
subsidiaries, the Company operates 308 funeral homes and 120 cemeteries
in 22 states, Puerto Rico, Mexico, Australia, New Zealand and Canada.
From the Company's initial public offering in October 1991 through
January 10, 1997, the Company has acquired 258 funeral homes and 91
cemeteries for purchase prices aggregating approximately $646 million.
The Company believes that it is distinguishable from its competitors
by the quality of its funeral homes and cemeteries, the depth and
experience of its management team, its decentralized management
structure, and the quality and value of its products and services. The
Company believes that it owns and operates one or more of the premier
death care facilities in each of its principal markets, which serve as a
centerpiece for a group or cluster of other properties in the same
metropolitan area. The Company considers a funeral home or cemetery to
be a "premier" facility if, when measured by such factors as tradition,
heritage, reputation, physical size, volume of business, available
inventory, name recognition, aesthetics and potential for development or
expansion, it is one of the most highly regarded facilities in its
market area.
The Company retains key managers of acquired companies and gives
them significant operational authority in order to assure the
continuation of high quality services and the maintenance of the
acquired firm's reputation and goodwill. Six of the Company's 12
executive officers joined the Company through acquisitions. The
Company's 12 executive officers have an average of more than 23 years of
experience in the death care industry.
Operating Strategy
The Company's operating strategy is to build market share and
increase profit margins by marketing and providing, both prior to and at
the time of need, a complete range of death care products and services
at competitive prices. In order to achieve those objectives, the
Company has acquired or developed in most of its markets one or more
premier facilities to serve as a centerpiece for a cluster of other
properties in the same area. Such clustering provides certain economies
of scale by, for example, enabling the Company's facilities to share
vehicles and employees, to reduce administrative expenses, to centralize
embalming services and to pool inventories of caskets and other
merchandise. Further, where feasible, the Company acquires, or
subsequently develops, combined operations in which a funeral home is
located at and is operated in conjunction with a Company-owned cemetery.
Although profit margins of cemetery operations are traditionally lower
than those of funeral homes, the Company's experience with combined
operations has demonstrated that the combination of a cemetery with a
funeral home can increase significantly the market share of the cemetery
and funeral home and provide cost savings through the sharing of
facilities and other resources, thereby increasing the overall
profitability of both.
The Company's operating strategy also emphasizes a decentralized
management structure under which funeral home and cemetery operations
are managed by five regional division presidents, each of whom is an
experienced death care industry executive, who has responsibility for
all operations in his geographic region. Although certain financial
management and policy matters are centralized, division presidents,
local funeral home directors and cemetery managers have substantial
autonomy in the manner in which their products and services are marketed
and delivered and their funeral homes and cemeteries are managed. The
Company believes that this strategy permits each local firm to maintain
its unique style of operation and to capitalize on its reputation and
goodwill, while maintaining centralized supervisory controls and
providing specialized services at the corporate level.
Effective January 1, 1997, the Company expanded its two North
American operating divisions to four. The new Western Division includes
the Company's operations in Canada and on the West Coast, which were
previously part of the Central Division. The new Southern Division
includes the Company's operations in Florida, Puerto Rico and Mexico,
which were previously part of the Eastern Division. These changes
should enable the Company to more efficiently meet the demands of future
growth and support the Company's philosophy of decentralized management.
The Company is a leader in the industry trend toward prearranged
funeral planning. The Company believes that extensive marketing of
death care prearrangements assures a backlog of future business and
builds current and future market share. The Company markets a complete
range of death care products and services on a prearranged basis through
a staff of approximately 2,900 commission sales counselors. Prearranged
plans are generally funded through trust, escrow or insurance
arrangements.
Acquisition Strategy
The Company's acquisition strategy is to expand in existing and new
markets by acquiring premier funeral homes and cemeteries that have the
potential to serve as a centerpiece for a group or cluster of other
properties that may be acquired subsequently in the same metropolitan
area. From the Company's initial public offering in October 1991
through January 10, 1997, it has acquired 258 funeral homes and 91
cemeteries and has entered 16 states, Puerto Rico and four foreign
countries.
The following table sets forth certain information with respect to
the Company's completed and pending acquisition activity.
Number of Aggregate
Funeral Homes Purchase Price
and Cemeteries (in millions)
________________ ________________
Properties owned at October 31, 1991 72 $ -
Acquisitions:
Fiscal year 1992 11 30.0
Fiscal year 1993 49 94.6
Fiscal year 1994 60 177.6
Fiscal year 1995 70 154.4
Fiscal year 1996 149 179.0
November 1, 1996 - January 10, 1997 10 10.7
Pending acquisitions, as of
January 10, 1997 24 82.8
_______________
Excludes funeral homes constructed by the Company.
The Company's acquisition strategy reflects a trend in the United
States death care industry of transition from small, family-owned firms
to large, professionally-managed, integrated, multiple-facility firms.
Opportunities for growth through the construction of new cemeteries and
funeral homes are limited because of a lack in many communities of
available or reasonably priced land with appropriate zoning and the
existence of an adequate number of funeral homes already serving a
mature market. Accordingly, companies in the death care industry can
achieve significant growth only by increasing market share through such
means as acquisitions, extensive marketing of prearranged products and
services and the development of combined operations.
The Company believes that the consolidation trend that began in the
United States a number of years ago has now begun to evolve in other
countries, particularly in Europe, Canada, Australia, New Zealand and
Mexico. The Company has acquired a total of 141 funeral homes and
cemeteries in Mexico, Australia, New Zealand and Canada since it first
entered foreign markets in the fourth quarter of fiscal year 1994, and
it believes that attractive expansion opportunities exist in those and
other foreign countries. During fiscal year 1996, the Company entered
New Zealand and Canada through the acquisition of 99 funeral homes and
cemeteries, and expanded its presence in Australia with the acquisition
of another three funeral homes there. The Company will continue to
explore expansion opportunities in foreign countries, although it
expects most of its expansion to continue to occur domestically, with
its primary focus on the midwestern and western United States.
Because combined operations and individual funeral homes typically
produce higher profit margins and cash flow than individual cemetery
operations, the Company seeks primarily to acquire combined operations,
premier cemeteries on or adjacent to which it can build and operate a
funeral home, or individual funeral homes and cemeteries that form the
basis for or strengthen a cluster of death care facilities. From the
Company's initial public offering in October 1991 through January 10,
1997, the Company has acquired or entered into currently outstanding
letters of intent or agreements in principle to acquire 278 funeral
homes and 95 cemeteries, 31 of which are combined operations. The
Company's fiscal year 1996 acquisitions of 134 funeral homes and 15
cemeteries included eight combined operations. Additionally, from
October 1991 through January 10, 1997, the Company has developed six
combined operations, one of which was developed in fiscal year 1996,
through the construction of funeral homes on existing cemeteries. In
evaluating a potential acquisition, the Company also considers factors
such as the size of the community the property serves, the size and
reputation of the property in the community, the proximity of the
property to other of the Company's funeral homes or cemeteries, the
opportunities for additional acquisitions and growth in the community,
and the potential for increasing the cemetery's profitability through
increasing prearranged marketing efforts. In keeping with the quality
of its existing properties, the Company is particularly careful about
the quality of the properties it seeks to acquire.
Operations
Funeral Operations. The Company's funeral homes offer a complete
range of services to meet families' funeral needs, including
prearrangement, family consultation, the sale of caskets and related
funeral products, the removal and preparation of remains, the use of
funeral home facilities for visitation and worship, and transportation
services. Most of the Company's funeral homes have a non-denominational
chapel on the premises, thereby permitting family visitation and
religious services to take place at one location, which reduces
transportation costs to the Company and inconvenience to the family.
In addition to traditional services, substantially all of the
Company's funeral homes offer cremation, which has become more common in
the United States in recent years. For the year ended October 31, 1996,
cremations accounted for approximately 21% of funeral services performed
by the Company in the United States. In Australia, New Zealand and
Mexico, cremations accounted for 63%, 71% and 46%, respectively, of
funeral services performed by the Company for the year ended October 31,
1996. On September 30, 1996, the Company entered Canadian markets with
the acquisition of the Urgel Bourgie firm. Historically, cremations
have accounted for approximately 50% of the funeral services performed
by Urgel Bourgie. While cremations within the United States often
result in lower average revenue when compared to traditional funeral
services, they generally produce higher gross profit margins than
traditional funeral services. In the Company's foreign markets,
cremations generally produce revenues comparable to those of traditional
funeral services in those markets.
In addition to at-need sales, the Company markets funeral
merchandise and services as well as cemetery property and merchandise on
a prearranged basis through a staff of approximately 2,900 commission
sales counselors. Prearranged funeral plans enable families to
establish in advance the type of service to be performed, the products
to be used and the cost of such products and services in accordance with
prices prevailing at the time the agreement is signed rather than when
the products and services are delivered. Prearranged funeral plans
permit families to eliminate the emotional strain of making death care
plans at the time of need and enable the Company to establish a portion
of its future market share. The Company believes that extensive
marketing of prearranged products and services produces a backlog of
future business and builds current and future market share. The Company
sold 37,545 prearranged funeral services during the fiscal year ended
October 31, 1996. At October 31, 1996, the Company had a backlog of
294,829 prearranged funeral services expected to be delivered some time
in the future.
Prearranged funeral plans generally are financed either through
trust funds or escrow accounts established by the Company, or through
insurance. The Company's selection of trust funds, escrow accounts or
insurance depends primarily on the regulatory requirements of each
jurisdiction in which it operates. In the case of trust- or escrow-
funded plans, local law or contracts with customers often require that
all or a portion of the payments received by the Company for prearranged
funeral plans be placed in trust funds or escrow accounts established by
the Company. In certain jurisdictions where trust or escrow
arrangements are neither statutorily nor contractually required, the
Company typically deposits on a voluntary basis a portion of the
payments received into escrow accounts to fund the future delivery of
prearranged funeral plans.
Prearranged funeral trust funds and escrow accounts, which amounted
to approximately $349 million at October 31, 1996, are designed to
provide funding for the future delivery of prearranged funeral services
sold by the Company. When a prearranged funeral is funded through a
trust fund or escrow account, generally a percentage of the sale price,
which is often paid in installments, can be retained by the Company to
defray costs related to the sale, and the remainder is placed in a trust
fund or escrow account. The percentage of the sale price placed in
trust funds or in escrow accounts varies among the different
jurisdictions in which the Company operates.
The Company does not recognize revenue from the sale of prearranged
funeral services until delivery. The Company does not recognize revenue
from sales of prearranged funeral merchandise until delivery in
jurisdictions where such sales are revocable by the customer; where such
sales are not revocable, revenue is recognized currently. The Company
recognizes as revenue on a current basis all dividends and interest
earned, and net capital gains realized, by all prearranged funeral trust
funds and escrow accounts except in those states where earnings revert
to the customer if a prearranged funeral service contract is cancelled.
Principal and earnings are withdrawn only as funeral services are
delivered or contracts are cancelled, except in jurisdictions that
permit earnings to be withdrawn currently and in unregulated
jurisdictions where escrow accounts are used.
Funeral operations accounted for approximately 52% of the Company's
revenues during the fiscal year ended October 31, 1996.
Cemetery Operations. The Company's cemetery operations involve the
sale of cemetery property and related cemetery merchandise, which
includes lots, lawn crypts, family and community mausoleums, monuments,
memorials and burial vaults, and interment services. Cemetery property
and merchandise sales are made at the time of need or on a prearranged
basis. Prearranged sales generally are financed by the Company through
installment sale contracts, the terms of which generally range from one
to seven years. Prearranged sales represented approximately 61% of
cemetery revenue during the fiscal year ended October 31, 1996.
Prearranged cemetery merchandise trust funds and escrow accounts,
which amounted to approximately $114 million at October 31, 1996, are
designed to provide funding for the future delivery of the prearranged
merchandise sold by the Company and are established in most of the
jurisdictions in which the Company operates. In certain jurisdictions,
local law or contracts with customers generally require that a portion
of the sale price received be placed in trust funds or escrow accounts;
however, in other jurisdictions where trust or escrow arrangements are
neither statutorily nor contractually required, the Company typically
makes deposits on a voluntary basis into escrow accounts. The Company
recognizes as revenue on a current basis all dividends and interest
earned, and net capital gains realized, by prearranged merchandise trust
funds or escrow accounts. At the same time, the liability for the
estimated cost to deliver cemetery merchandise is adjusted through a
charge to earnings to reflect inflationary merchandise cost increases.
The principal and earnings are withdrawn only as the merchandise is
delivered or contracts are cancelled.
The Company also provides maintenance of cemetery grounds pursuant
to perpetual care contracts and laws, or on a voluntary basis where
trust or escrow arrangements are neither contractually nor statutorily
required, by placing a portion, generally 10%, of the proceeds from
cemetery property sales into perpetual care trust funds or escrow
accounts. The income from these funds, which have been established in
most jurisdictions in which the Company operates cemeteries, is used for
maintenance of those cemeteries, but principal, including in some
jurisdictions net realized capital gains, generally must be held in
perpetuity. The Company recognizes and withdraws currently all dividend
and interest income earned and, where permitted, net capital gains
realized by perpetual care funds. Perpetual care trust funds and escrow
accounts amounted to approximately $145 million at October 31, 1996.
Cemetery operations accounted for approximately 48% of the Company's
revenues for the fiscal year ended October 31, 1996.
Combined Funeral and Cemetery Operations. Fifty of the Company's
120 cemeteries are combined operations. Many of these facilities are in
the Company's key markets, including New Orleans, Louisiana; Dallas,
Fort Worth and Houston, Texas; Miami, Orlando, Tampa and St. Petersburg,
Florida; Nashville and Knoxville, Tennessee; Mobile, Alabama; Baltimore,
Maryland; Philadelphia, Pennsylvania; Portland, Oregon; Los Angeles,
California; and Washington, D.C.
The Company began to develop and acquire combined facilities in 1979
because it believed that the operation of such facilities would permit
it to increase market share through the delivery of better and more
convenient services at competitive prices. Although profit margins of
cemetery operations typically are lower than those of funeral homes, the
Company's experience with combined operations has demonstrated that the
combination of a cemetery with a funeral home can increase significantly
the market share of the cemetery and funeral home, thereby increasing
the overall profitability of both. The enhanced purchasing power, more
sophisticated management systems and sharing of facilities, personnel
and equipment made possible by integration and combined facilities
results in lower average operating costs to the Company and allows the
Company to offer families the convenience of complete funeral home and
cemetery planning and services from a single supplier at a competitive
price.
Foreign Operations. Since the Company first entered foreign markets
in the fourth quarter of fiscal year 1994, the Company has acquired a
total of 141 funeral homes and cemeteries in Mexico, Australia, New
Zealand and Canada. These properties generated approximately 10% of
consolidated total revenues for the year ended October 31, 1996, and
management expects these properties to generate slightly more than 10%
of consolidated total revenues for fiscal year 1997. In addition, these
properties accounted for approximately 34% of the Company's funeral home
and cemetery locations and approximately 18% of consolidated total
assets as of October 31, 1996. See Note 13 to the Company's
consolidated financial statements included in Item 8 herein.
In addition to the inherent risks generally associated with foreign
operations, fluctuations in the value of the foreign currency of the
country in which the Company operates relative to the U.S. dollar can
affect the value, in U.S. dollar terms, of the earnings derived from the
foreign operations and can result in foreign currency translation
adjustments that affect the Company's shareholders' equity or, in the
case of operations in highly inflationary economies, net earnings.
Furthermore, based on the three-year cumulative inflation rate in Mexico
as of October 31, 1996, the Company will be required to change its
method of reporting foreign currency translation adjustments for its
Mexican operations to the method prescribed for highly inflationary
economies during the first quarter of fiscal year 1997. As a result,
foreign currency translation adjustments for the Company's Mexican
operations will be reflected in results of operations, instead of in
shareholders' equity. Management does not expect this change to have a
material effect on the Company's results of operations.
There can be no assurance that expansion into foreign markets will
yield results comparable to those realized as a result of the Company's
expansion in the United States. Through fiscal year 1996, however, the
Company's foreign operations have produced results that do not deviate
significantly from management's expectations.
Trust Administration. The prearranged funeral, cemetery
merchandise and perpetual care trust funds and escrow accounts
established by the Company are generally administered by the Company's
wholly-owned subsidiary, Investors Trust, Inc. ("ITI"), a Texas
corporation with trust powers. Commercial banks serve as custodians of
the Texas funds and as trustees or custodians of the non-Texas funds.
ITI acts as trustee of all the Texas trusts and the Stewart Enterprises
Employees' Retirement Trust ("SEERT"), performs investment advisory
services for those trusts and the funeral, cemetery merchandise and
perpetual care funds established by the Company in all other
jurisdictions, and currently manages the Company's investment portfolio.
ITI is registered with the Securities and Exchange Commission under the
Investment Advisers Act of 1940.
At October 31, 1996, ITI had approximately $563 million in assets
under management on behalf of the funds described above, SEERT and the
Company. ITI is headed by Lawrence B. Hawkins, an executive officer of
the Company and a professional investment manager, who joined ITI in
early 1989 after serving for six years as the manager of ITI's accounts
for one of its prior investment advisers. ITI operates pursuant to a
formal investment policy that emphasizes conservation, diversification
and preservation of principal while seeking appropriate levels of
current income and capital appreciation.
Financial Information about Industry and Geographic Segments. For
financial information about the Company's industry and geographic
segments, including the identifiable assets of the Company by segment,
see Note 13 to the consolidated financial statements included in Item 8
herein.
Competition
The Company's funeral home and cemetery operations generally face
intense competition in local markets that typically are served by
numerous funeral home and cemetery firms. The Company also competes
with monument dealers, casket retailers and other non-traditional
providers of limited services or products. Because the market for death
care services is relatively stable, competition usually focuses on
increasing market share and selling prearranged products and services.
Market share is largely a function of goodwill and tradition, although
competitive pricing, professional service and attractive, well-
maintained and conveniently located facilities are also important.
Because of the significant role played by goodwill and tradition, market
share increases are usually gained over a long period of time.
Extensive marketing through media advertising, direct mailings and
personal sales calls has increased in recent years, especially with
respect to the sale of prearranged funeral services.
The Company's traditional burial and funeral service operations
face competition from the increasing number of cremations in the United
States. Industry studies indicate that the percentage of cremations has
increased throughout the 1980s and that cremation will represent
approximately 26% of the U.S. burial market by the year 2000, compared
with 14% in 1986. All of the Company's funeral homes in the United
States offer cremation, and the Company believes that it will be able to
maintain its competitive position by marketing full service cremations
in combination with traditional funeral services and memorialization.
The Company also faces intense competition in its acquisition
program, principally from two publicly-held funeral home and cemetery
management firms, Service Corporation International and The Loewen Group
Inc., both of which are substantially larger than the Company, although
a number of smaller companies also participate in the market. Much
acquisition activity appears to be concentrated on firms in metropolitan
regions, which are the areas of primary interest to the Company.
Furthermore, in the United States, prices for funeral home and cemetery
properties have increased substantially in recent years. Some of the
more attractive properties in some metropolitan markets have already
been acquired by competitors, and certain other markets are unattractive
because of such factors as size, demographics and the local regulatory
environment. Accordingly, no assurance can be given that the Company
will be successful in expanding its operations through acquisitions.
However, only a small portion of this highly fragmented industry has
been consolidated, and the Company believes that opportunities for
significant growth through acquisitions continue to exist.
Regulation
The Company's funeral home operations are regulated by the Federal
Trade Commission (the "FTC") under the FTC's Trade Regulation Rule on
Funeral Industry Practices, 16 CFR Part 453 (the "Funeral Rule"), which
went into effect on April 30, 1984, and was revised effective July 19,
1994.
The Funeral Rule defines certain acts or practices as unfair or
deceptive, and contains certain requirements to prevent these unfair or
deceptive acts or practices. The preventive requirements require a
funeral provider to give consumers accurate, itemized price information
and various other disclosures about funeral goods and services. In
addition, the preventive requirements prohibit a funeral provider from
(i) misrepresenting legal, crematory and cemetery requirements, (ii)
embalming for a fee without permission, (iii) requiring the purchase of
a casket for direct cremation, and (iv) requiring consumers to buy
certain funeral goods or services as a condition for furnishing other
funeral goods or services.
The Company's operations are also subject to extensive regulation,
supervision, and licensing under numerous federal, state and local laws
and regulations. The Company believes that it is in substantial
compliance with the Funeral Rule and all such laws and regulations.
State legislatures and regulatory agencies frequently propose new laws
and regulations, some of which, if enacted as proposed, could have a
material effect on the Company's operations and on the death care
industry in general. The Company cannot predict the outcome of any
proposed legislation or regulation or the effect that any such
legislation or regulation might have on the Company.
Employees
The Company and its subsidiaries employ approximately 7,500 persons,
and management believes that its relationship with its employees is
good. Approximately 275 of its employees who are employed in Maryland,
Pennsylvania, Puerto Rico, Mexico, Australia and Canada are represented
by the Laborers' International Union of North America, AFL-CIO, the
International Association of Machinists and Aerospace Workers, the
International Brotherhood of Teamsters of Puerto Rico, the Sindicato de
Trabajadores y Empleados de Establecimientos Comerciales, Tiendas de
Ropa y Almacenes en General del Distrito Federal, the Miscellaneous
Workers Union and Association des Travailleurs du Syndicat Canadien
(SCEP), respectively. No other employees of the Company or its
subsidiaries are members of a collective bargaining unit.
Item 2. Properties
All but 43 of the Company's 308 funeral home properties are owned by
subsidiaries of the Company. The leases with respect to the 43
properties have terms ranging from three to 20 years. Generally, the
Company has a right of first refusal and an option to purchase the
leased premises. An aggregate of $3.3 million of the Company's term
notes are secured by mortgages on some of the Company's funeral homes;
these notes were either assumed by the Company upon its acquisition of
the property or represent seller financing of the acquired property.
The Company owns 120 cemeteries covering a total of approximately
8,600 acres. Approximately 3,900 acres, or 45% of the total acreage, is
available for future development.
The Company's corporate headquarters occupy approximately 46,200
square feet of office space in a building in suburban New Orleans that
is leased from an affiliate of the Company. See "Certain Transactions,"
which is incorporated by reference herein from the Company's definitive
proxy statement relating to its 1997 annual meeting of shareholders.
Item 3. 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. On September 19, 1996, the
District Court entered a Consent Decree in Settlement which allowed the
Company to settle the case, without admitting liability and expressly
denying the matters alleged in the complaint, by paying a civil penalty
of $122,000 and agreeing to certain administrative requirements on a
prospective basis. Compliance with the administrative requirements will
not have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
Osiris Holding Co., S.A. de C.V. et al. vs. Jaime Arrangoiz Gayosso
et al., Ordinary Mercantile Proceedings in the Superior Court of Justice
of the Federal District of Mexico, United Mexican States, Thirteenth
Civil Court. This suit was brought in September 1994 by The Loewen
Group Inc. and a Mexican affiliate (collectively, "Loewen") against the
Company, the Mexican corporations acquired by the Company in August
1994, and the shareholders of those corporations. The suit alleges that
the sale of those corporations to the Company violated a previous option
granted by the shareholders to Loewen. The suit originally requested a
judicial declaration that Loewen properly exercised its option prior to
the purchase by the Company and that Loewen thereby acquired title to
the corporations. The suit also sought unspecified damages. The
Company believes the suit is without merit and intends to defend it
vigorously. The Company was advised by its Mexican counsel that Loewen
has dismissed the Company from the suit and has relinquished its claim
of ownership to the stock of the corporations, thereby limiting itself
to a claim for damages. Although the corporations, which are now
subsidiaries of the Company, remain defendants, the Company does not
believe that they have any liability for damages and believes that they
are entitled to indemnity from the sellers to the extent that they are
held liable.
Other. The Company and certain of its subsidiaries are parties to a
number of other legal proceedings that have arisen in the ordinary
course of business. While the outcome of these proceedings cannot be
predicted with certainty, management does not expect these matters to
have a material adverse effect on the consolidated financial position,
results of operations or cash flows of the Company.
The Company carries insurance with coverages and coverage limits
that it believes to be adequate in the death care industry. Although
there can be no assurance that such insurance is sufficient to protect
the Company against all contingencies, management believes that its
insurance protection is reasonable in view of the nature and scope of
the Company's operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 4(a). Executive Officers of the Registrant
The following table sets forth certain information with respect to
the executive officers of the Company. Executive officers are appointed
by and serve at the pleasure of the Board of Directors, subject in
certain cases to rights under existing employment agreements. Each of
the following has served the Company in the capacity indicated for more
than five years, except as indicated below.
Name Age Position
______ _____ _________
Frank B. Stewart, Jr. 61 Chairman of the Board
Joseph P. Henican, III 48 Vice Chairman of the Board and
Chief Executive Officer
William E. Rowe 50 President, Chief Operating Officer
and Director
Ronald H. Patron 52 Executive Vice President,
President-Corporate Division,
Chief Financial Officer and
Director
Gerard C. Alexander 57 Executive Vice President and
President-Central Division
Richard O. Baldwin, Jr. 50 Executive Vice President and
President-Corporate Development
Division
Brian J. Marlowe 50 Executive Vice President and
President-Eastern Division
Andrew H. McEachern 59 President-Australian Division
Lawrence B. Hawkins 48 Senior Vice President and
President-Investors Trust, Inc.
Brent F. Heffron 47 Senior Vice President and
President-Southern Division
Raymond C. Knopke, Jr. 41 Senior Vice President and
President-Western Division
Kenneth C. Budde 49 Senior Vice President-Finance,
Chief Accounting Officer,
Secretary and Treasurer
_____________________
Mr. Stewart served as interim Chief Executive Officer from November
1, 1994, upon the resignation of Lawrence M. Berner as President and
Chief Executive Officer, until February 1, 1995, when Joseph P.
Henican, III assumed the office of Chief Executive Officer.
Mr. Henican has served as Vice Chairman of the Board since May 1991,
and as Chief Executive Officer since February 1, 1995. Prior to
that time, he was a partner in the law firm Henican, James &
Cleveland, where he served as general counsel to the Company for
more than 13 years.
Mr. Rowe assumed the office of President on November 1, 1994 upon
the resignation of Lawrence M. Berner as President and Chief
Executive Officer. He became Senior Executive Vice President and
Chief Operating Officer in April 1994. Prior to that time, he
served as President of the Company's former Mid-Atlantic Division
since 1987 and as Executive Vice President and President of the
former Mid-Atlantic Division since May 1991. He became a director
of the Company in April 1994.
Mr. Alexander has served as Executive Vice President and President
of the Company's Central Division since August 1, 1995. Prior to
that time, he served as Executive Vice President and President of
the Company's former South Central Division.
Mr. Baldwin has served as Executive Vice President and President of
the Company's Corporate Development Division since August 1, 1995.
Prior to that time, he served as Executive Vice President and
President of the Company's former Southeast Division.
Mr. Marlowe has served as Executive Vice President and President of
the Company's Eastern Division since August 1, 1995. From April
1994 to July 1995, he served as Executive Vice President and
President of the Company's former Mid-Atlantic Division. From
November 1992 to April 1994 he served as Chief Operating Officer of
the Company's former Mid-Atlantic Division's Northern Region. Prior
to that time, he was the President of Richmond Memorial Parks, Inc.
and Executive Vice President of Parklawn Memorial Park, Inc.
Mr. McEachern has served as President of the Company's Australian
Division since December 1994. Prior to that time, he served as the
Chief Executive Officer and Managing Director of Credit Union
Australia Limited.
Mr. Heffron was appointed President of the Company's newly formed
Southern Division, effective January 1, 1997. From November 1992 to
December 1996, he served as President and Chief Operating Officer of
the Central Region of the Company's Eastern Division and Vice
President of the Company's former Mid-Atlantic Division. From
February 1992 to October 1992, Mr. Heffron served as President of
Catawba Memorial Park and Funeral Home, which was acquired by the
Company in February 1992. Prior to the acquisition, Mr. Heffron
served as President of Catawba Memorial Park and Funeral Home.
Mr. Knopke was appointed President of the Company's newly formed
Western Division, effective January 1, 1997. From December 1993 to
December 1996, he served as President and Chief Operating Officer of
the South Atlantic Region of the Company's Eastern Division. Prior
to that time, he served as President of Baldwin Fairchild Cemeteries
and Funeral Homes, which was acquired by the Company in 1983.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters
Market Information
The Company's Class A Common Stock is traded on the Nasdaq National
Market under the symbol STEI. The following table sets forth, for the
periods indicated, the range of high and low bid prices, as reported by
the Nasdaq National Market. Prices for fiscal year 1995 and for the
first three quarters of fiscal year 1996 have been adjusted to reflect a
three-for-two stock split effected in the form of a 50% stock dividend
on June 21, 1996. At January 8, 1997, there were 1,150 record holders
of the Company's Class A Common Stock.
High Low
_______ ______
Fiscal Year 1996
Fourth Quarter 36 26 3/4
Third Quarter 32 11/64 24 1/2
Second Quarter 31 24 43/64
First Quarter 26 11/64 21 11/64
Fiscal Year 1995
Fourth Quarter 24 20 11/64
Third Quarter 22 43/64 18 1/2
Second Quarter 18 21/64 15 53/64
First Quarter 16 1/2 15 1/2
Dividends
The Company declared quarterly dividends of $.007 per share on its
Class A and Class B Common Stock during the first three quarters of
fiscal year 1995, $.013 per share during the fourth quarter of fiscal
year 1995 and the first two quarters of fiscal year 1996, and $.02 per
share during the last two quarters of fiscal year 1996. The Company
intends to continue its current policy of declaring quarterly cash
dividends on the Class A and Class B Common Stock in the amount of $.02
per share. The declaration and payment of dividends is at the
discretion of the Board of Directors and will depend on the Company's
results of operations, financial condition, cash requirements, future
prospects and other factors deemed relevant by the Board. The most
restrictive of the Company's credit agreements restricts the payment of
dividends on, and repurchases of, the capital stock of the Company in
amounts in excess of 20% of the Company's consolidated net earnings for
the previous four fiscal quarters.
Sales of Unregistered Equity Securities
During the fourth quarter of fiscal year 1996, the Company did not
sell any unregistered equity securities.
Item 6. Selected Financial Data
The following selected consolidated financial data for the fiscal
years ended October 31, 1992 through 1996 are derived from the Company's
audited consolidated financial statements. The data set forth below
should be read in conjunction with the consolidated financial statements
of the Company and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing
elsewhere herein.
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
Year Ended October 31,
_________________________________________________________________
1996 1995 1994 1993 1992
_______ _______ ______ _______ ______
Statement of Earnings Data:
Revenues:
Funeral $ 225,461 $ 188,991 $ 116,266 $ 75,348 $ 61,493
Cemetery 207,926 179,831 138,092 107,315 83,338
___________ ____________ ___________ ___________ ___________
Total revenues 433,387 368,822 254,358 182,663 144,831
Gross profit:
Funeral 72,239 55,309 31,785 22,398 17,227
Cemetery(1) 45,879 34,434 25,812 19,032 14,446
___________ ____________ ___________ ___________ ___________
Total gross profit 118,118 89,743 57,597 41,430 31,673
Corporate general and
administrative (14,096) (11,113) (8,157) (7,223) (5,030)
___________ ____________ ___________ ___________ ___________
Operating earnings before performance-
based stock options 104,022 78,630 49,440 34,207 26,643
Performance-based stock options - (17,252) - - -
___________ ____________ ___________ ___________ ___________
Operating earnings 104,022 61,378 49,440 34,207 26,643
Interest expense (26,051) (22,815) (8,877) (6,540) (5,414)
Investment and other income 4,104 2,937 1,635 1,902 1,221
Distributions to prior ITI
shareholders - - - - (1,508)
___________ ____________ ___________ ___________ ___________
Earnings from continuing operations
before income taxes $ 82,075 $ 41,500 $ 42,198 $ 29,569 $ 20,942
=========== ============ =========== =========== ===========
Earnings from continuing
operations $ 51,297 $ 26,145 $ 27,253 $ 18,839 $ 14,195
=========== ============= =========== =========== ===========
Earnings per common share from
continuing operations $ 1.24 $ .72 $ .85 $ .71 $ .64
========== ============= ========== =========== ===========
Weighted average common shares
outstanding (in thousands) 41,410 36,386 31,910 26,535 22,239
========== ============= ========== =========== ==========
Dividends declared per common
share $ .066 $ .033 $ .027 $ .018 $ .005
========== ============ ========== =========== ===========
October 31,
________________________________________________________
1996 1995 1994 1993 1992
______ _______ _______ _______ ________
Balance Sheet Data:
Assets $ 1,365,941 $ 1,072,435 $ 759,390 $ 455,942 $ 299,996
Long-term debt, less current
maturities 515,901 317,451 260,913 122,517 82,740
Shareholders' equity 547,447 483,978 325,671 232,006 143,134
Selected Consolidated Operating Data
Year Ended October 31,
____________________________________________
1996 1995 1994 1993 1992
_______ _______ _______ ________ ______
Operating Data:
Funeral homes in operation at end
of period 298 161 105 76 48
At-need funerals performed 38,351 37,263 23,539 14,588 12,365
Prearranged funerals performed 15,422 9,225 7,571 6,320 5,449
_______ _______ _______ _________ ________
Total funerals performed 53,773 46,488 31,110 20,908 17,814
Prearranged funerals sold 37,545 33,787 26,637 17,859 15,250
Backlog of prearranged funerals
at end of period 294,829 222,532 183,886 130,610 112,801
Cemeteries in operation at end
of period 120 105 90 57 35
Interments performed 46,007 42,480 33,118 26,557 22,107
____________________________
Includes the Company's construction and sales operations, which
previously were classified as a separate industry segment.
Investors Trust, Inc. ("ITI"), which generally administers the
Company's trust funds and escrow accounts, was acquired by the
Company on November 1, 1992.
Includes a non-recurring, non-cash charge of $17.3 million ($10.9
million, or $.30 per share, after-tax) recorded during the third
quarter of fiscal year 1995 in connection with the vesting of the
Company's performance-based stock options.
Fiscal years 1992 and 1993 reflect the Company's three-for-two split
of its Class A and Class B Common Stock effected December 1, 1993 by
means of a 50% stock dividend. Additionally, all periods presented
reflect the Company's three-for-two split effected June 21, 1996 by
means of a 50% stock dividend.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
The death care industry in the United States is undergoing a
transition in which many family-owned firms are consolidating with
larger organizations such as the Company. In addition, the Company
believes that this trend has now begun to evolve in other countries,
particularly in Europe, Canada, Australia, New Zealand and Mexico.
Although the Company's future participation in this consolidation cannot
be guaranteed, the Company believes that it has been successful in
identifying and acquiring firms that have enhanced shareholder value,
and it will continue to explore expansion opportunities in foreign
countries, although it expects most of its expansion to continue to
occur in the United States.
Two other trends affecting the death care industry are the death
rate and average age of the population. Industry studies indicate that
while the death rate is declining slightly, the average age of the
population is increasing. This is expected to result in a long-term,
small, though stable, increase in the number of deaths, despite short-
term deviations. More importantly, because of the Company's emphasis on
prearranged sales, it anticipates that the aging of the population will
create additional opportunities for the Company to expand its customer
base since the principal market for these prearranged services is the
more mature and fastest growing segment of the population.
The Company's funeral and cemetery business includes prearranged
sales funded through trust and escrow arrangements, as well as
maintenance of cemetery grounds funded through perpetual care funds.
The Company's investment strategy for these funds is partially dependent
on the ability to withdraw net realized capital gains from these funds.
Such withdrawal is not permitted for perpetual care funds in certain
jurisdictions in which the Company operates. Accordingly, funds for
which net capital gains are permitted to be withdrawn typically are
invested in a diversified portfolio consisting principally of U.S.
government securities, other interest-bearing securities and preferred
stocks rated A or better, publicly-traded common stocks, money market
funds and other short-term investments.
The Company recognizes as revenue on a current basis all dividends
and interest earned and realized capital gains (including capital gains
in perpetual care funds from which net realized capital gains may be
withdrawn), from the sale of securities held in trust funds and escrow
accounts. The composition of trust and escrow income from funds,
especially those including common stock, can be materially affected by
prevailing interest rates and the performance of the stock market. In
managing its domestic funds, including those in Puerto Rico, which
include investments in common stock, the Company seeks an overall annual
rate of return within a range of 8.5-9.0%. In the past three years,
such funds have generated overall annual rates of return that
approximate that range. However, no assurance can be given that the
Company will be successful in achieving any particular rate of return.
Certain statements made herein 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. Forward-looking statements are based on assumptions about future
events and therefore are inherently uncertain; actual results may differ
materially from those projected. See "Cautionary Statements."
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 funeral homes opened during
either period being compared are referred to as "Acquired Operations."
Results of Operations
Year Ended October 31, 1996 Compared to Year Ended October 31, 1995
Funeral Segment
Year Ended
October 31,
_____________ Increase
1996 1995 (Decrease)
_______ ______ ____________
(In millions)
Funeral Revenue
_______________
Existing Operations $ 144.6 $ 146.5 $ (1.9)
Acquired Operations 52.2 19.5 32.7
Revenue from prearranged
funeral trust funds and
escrow accounts 28.7 23.0 5.7
________ ________ ________
$ 225.5 $ 189.0 $36.5
======== ======== ========
Funeral Costs
Existing Operations $ 112.7 $ 118.7 $(6.0)
Acquired Operations 40.5 15.0 25.5
________ ________ _________
$ 153.2 $ 133.7 $ 19.5
======== ======== =========
Funeral Segment Profit $ 72.3 $ 55.3 $ 17.0
======== ======== =========
Funeral revenue increased $36.5 million, or 19%, in fiscal year
1996, as compared with the prior fiscal year. The Company experienced a
$1.9 million decrease in revenue from Existing Operations as a result of
a decline in sales of certain prearranged funeral merchandise from
fiscal year 1995 to fiscal year 1996, and a $4.9 million decline in
funeral revenue from the Company's Mexican operations due to a 26%
devaluation of the Mexican peso from fiscal year 1995 to fiscal year
1996. Additionally, there was a 5.5% decrease in the number of domestic
funeral services performed by Existing Operations (6.7% total). The
decline in revenue was offset partially by a 7% increase in 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 $6.0 million, or 5%, decrease in funeral costs from Existing
Operations resulted principally from the implementation of certain cost
control measures, including contract negotiations with certain vendors,
a $3.6 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 noted above. Existing Operations
achieved improved profit margins resulting primarily from the increased
cost controls 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 in fiscal year 1996 which are not reflected in the 1995 period
presented above.
The $5.7 million increase in revenue from prearranged funeral trust
fund and escrow accounts was attributable to a 22% 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 an increase in the return on
the Company's domestic funds, which return is still within the Company's
goal of 8.5-9.0%. The return on the peso-denominated investments of the
Mexican subsidiaries, which comprise approximately 10% of the Company's
total funeral trust portfolio, averaged 23% for the fiscal year ended
October 31, 1996. The return on the Mexican funds partially offset the
26% devaluation and associated decline in funeral revenue discussed
above and the approximate 29% inflation experienced during the year.
Cemetery Segment
Year Ended
October 31,
_____________ Increase
1996 1995 (Decrease)
_______ ______ ____________
(In millions)
Cemetery Revenue
Existing Operations $ 179.1 $ 168.8 $ 10.3
Acquired Operations 19.7 5.5 14.2
Revenue from merchandise trust
funds and escrow accounts 9.1 5.5 3.6
________ ________ _________
$ 207.9 $ 179.8 $ 28.1
======== ======== =========
Cemetery Costs
Existing Operations $ 145.4 $ 140.5 $ 4.9
Acquired Operations 16.6 4.9 11.7
________ _______ __________
$ 162.0 $ 145.4 $ 16.6
======== ======= =========
Cemetery Segment Profit $ 45.9 $ 34.4 $ 11.5
======== ======= =========
Cemetery revenue increased $28.1 million, or 16%, in fiscal year
1996, as compared to fiscal year 1995, due principally to a $14.2
million increase in revenue from Acquired Operations and a $10.3 million
increase in revenue from Existing Operations. Costs increased during
this same period by $16.6 million, of which $11.7 million was
attributable to Acquired Operations. The $10.3 million, or 6%, increase
in revenue from Existing Operations, and the $4.9 million, or 3.5%,
increase in costs from Existing Operations were due principally to the
significant decrease in fiscal year 1996, as compared to fiscal year
1995, in the revenue and direct cost deferral required by the accounting
principles prescribed for sales of real estate. These factors and
others, including certain cost control measures implemented by the
Company, contributed to an increase in the profit margin of Existing
Operations. The increase in revenues and costs associated with Acquired
Operations resulted primarily from the acquisition of cemeteries during
fiscal year 1996 which are not reflected in the 1995 period presented
above.
The $3.6 million increase in revenue from merchandise trust funds
and escrow accounts was attributable principally to a 30% growth in the
average balance in the merchandise trust funds and escrow accounts,
resulting primarily from current year payments deposited into the funds,
along with funds added through acquisitions, coupled with an increase in
the return on the funds, which return is still within the Company's goal
of 8.5-9.0%.
Other
Corporate general and administrative expenses increased $3.0
million in fiscal year 1996, to 3.3% of revenue, as compared to 3.0% in
fiscal year 1995. The increase in these expenses is the result of
activities to support the Company's growth, including approximately $2.0
million expensed in an undertaking to centralize and standardize certain
financial and administrative functions. Management expects to incur
additional costs in fiscal year 1997 related to the continuous
improvement process, which costs are not expected to be material.
During the quarter ended July 31, 1995, the Company determined that
achievement of the objectives of its performance-based stock option plan
had become probable. In connection with this determination, the Company
recorded a non-cash charge of $17.3 million, or $10.9 million after tax,
in July 1995. Additionally, the Company accelerated the exercisability
of the options, thereby establishing the total charge to earnings. For
additional information about the Company's performance-based stock
option charge, see "Year Ended October 31, 1995 Compared to Year Ended
October 31, 1994--Other."
Interest expense increased $3.2 million during fiscal year 1996
when compared to fiscal year 1995. The increase resulted from an
increase in average borrowings, which was partially offset by a decrease
in average interest rates from 7.2% to 6.7%. Approximately $378.8
million of the outstanding borrowings at October 31, 1996 was subject to
short-term variable interest rates averaging approximately 6.2%.
Investment and other income increased $1.2 million during fiscal
year 1996 when compared to fiscal year 1995, due principally to a $1.6
million gain on the condemnation sale of land in fiscal year 1996.
The Company experienced an increase in its effective tax rate from
37.0% in fiscal year 1995 to 37.5% in fiscal year 1996. For fiscal year
1997, the Company anticipates that its effective tax rate will decline
slightly as a result of reducing the costs of foreign taxes.
Year Ended October 31, 1995 Compared to Year Ended October 31, 1994
Funeral Segment
Year Ended
October 31,
_____________
1995 1994 Increase
_______ ______ ____________
(In millions)
Funeral Revenue
Existing Operations $ 104.4 $ 84.4 $ 20.0
Acquired Operations 61.6 17.6 44.0
Revenue from prearranged funeral
trust funds and escrow accounts 23.0 14.3 8.7
________ ________ _________
$ 189.0 $ 116.3 $ 72.7
======== ======== ==========
Funeral Costs
Existing Operations $ 82.1 $ 70.2 $ 11.9
Acquired Operations 51.6 14.3 37.3
________ ________ _________
$ 133.7 $ 84.5 $ 49.2
======== ========= =========
Funeral Segment Profit $ 55.3 $ 31.8 $ 23.5
======== ========= =========
Funeral revenue increased $72.7 million, or 63%, in fiscal year
1995, as compared with the prior fiscal year. The increase was due
principally to revenue from Acquired Operations and a $20.0 million
increase in revenue from Existing Operations. The $20.0 million
increase in revenue from Existing Operations resulted principally from a
5.4% increase in the average revenue per funeral service performed, due
principally to price increases and improved merchandising, and the fact
that, in one area, certain merchandise previously sold through cemetery
operations is now being sold through funeral operations with the
associated revenues and costs recorded in the funeral segment. Slightly
offsetting this increase was a .6% decrease in the number of funeral
services performed by Existing Operations as compared to the prior
fiscal year. The increase in revenue from Acquired Operations resulted
primarily from the Company's acquisition or construction of funeral
homes during fiscal year 1995, which are not reflected in the 1994
period presented above.
The $8.7 million increase in revenue from prearranged funeral trust
funds and escrow accounts was attributable primarily to earnings on
funds added through the Company's acquisition of certain funeral homes
in Mexico in August 1994. The return on the Company's funeral trust
funds and escrow accounts, excluding those in Mexico, declined for the
year ended October 31, 1995; however, the return on the peso-denominated
investments of the Mexican subsidiaries, which comprise less than 10% of
the Company's total funeral trust portfolio, averaged approximately 29%
for the twelve-month period. The increased earnings on the Mexican
funeral trust funds partially offset a decline in earnings on the
Mexican operations that resulted from the high level of inflation
experienced in Mexico, which approximated 46% for the year ended October
31, 1995, and the approximate 52% devaluation of the peso since
November 1, 1994.
Funeral segment costs increased $49.2 million, or 58%, due
principally to Acquired Operations and an $11.9 million increase in
costs from Existing Operations. Existing Operations achieved improved
profit margins resulting primarily from the lower marginal cost and the
increased average revenue per funeral service mentioned above.
Cemetery Segment
Year Ended
October 31,
_____________
1995 1994 Increase
_______ ______ ____________
(In millions)
Cemetery Revenue
Existing Operations $ 132.9 $ 127.4 $ 5.5
Acquired Operations 41.4 7.7 33.7
Revenue from merchandise trust funds
and escrow accounts 5.5 3.0 2.5
________ ________ ________
$ 179.8 $ 138.1 $ 41.7
======== ======== =======
Cemetery Costs
Existing Operations $ 109.8 $ 105.1 $ 4.7
Acquired Operations 35.6 7.2 28.4
________ _______ _________
$ 145.4 $ 112.3 $ 33.1
========= ======= =========
Cemetery Segment Profit $ 34.4 $ 25.8 $ 8.6
========= ======= =========
Cemetery revenue increased $41.7 million, or 30%, in fiscal year
1995, as compared with the prior fiscal year. The increase was due
principally to a $33.7 million increase in revenue from Acquired
Operations and a $5.5 million increase in revenue from Existing
Operations. The $5.5 million, or 4%, increase in revenue from Existing
Operations was due principally to an increase in the yield on the
perpetual care trust funds and escrow accounts, coupled with an increase
in the average balance in those funds, increased sales activity and
price increases. Partially offsetting this increase is the fact that,
in one area, certain merchandise previously sold through cemetery
operations is now being sold through funeral operations with the
associated revenue and costs recorded in the funeral segment. Costs
increased during this same period by $33.1 million, or 29%, due to costs
associated with Acquired Operations, as well as normal inflationary
increases. The increase in revenues and costs associated with Acquired
Operations resulted primarily from the acquisition of cemeteries during
fiscal year 1995 which are not reflected in the 1994 period presented
above.
The $2.5 million increase in revenue from merchandise trust funds
and escrow accounts was attributable principally to a 58% growth in the
average balance in the merchandise trust funds and escrow accounts,
resulting primarily from current year payments deposited into the funds
and funds added through acquisitions, coupled with a slight increase in
the return on the funds.
Other
Corporate general and administrative expenses declined to 3.0% of
revenue for the year ended October 31, 1995, compared to 3.2% for the
same period in 1994, despite an aggregate increase of $2.9 million for
the current year. The increase in these expenses is the result of
activities to support the Company's growth.
From November 1, 1992 through October 31, 1995, the Company granted
performance-based options to certain officers and other employees for
the purchase of a total of 1,650,000 shares of Class A Common Stock at
exercise prices equal to the fair market value at the grant date, which
ranged from $9.55 to $16.00 per share. The agreements under which the
options were granted provided that the options were to become
exercisable on December 1, 1996 only if, at any time prior to November
1, 1996, the average of the closing sale price of a share of the
Company's Class A Common Stock over five consecutive trading days
equaled or exceeded $19.78, and the average annual compounded increase
in the Company's earnings per share for the four fiscal years ending
October 31, 1996 was at least 15%. Generally accepted accounting
principles require that a charge to earnings be recorded for
performance-based options for the difference between the exercise price
and the then-current stock price when achievement of the performance
objectives becomes probable.
During May 1995, the stock price objective was achieved, and in
July 1995, management determined that the achievement of the earnings
objective was probable. Accordingly, during the third quarter of fiscal
year 1995, the Company recorded a non-cash charge of $17.3 million
($10.9 million, or $.30 per share, after-tax) for the difference between
the option exercise prices and $21.58, the then-market price of the
Company's Class A Common Stock. Additionally, in July 1995 the
Compensation Committee of the Board of Directors accelerated the
exercisability of the options, thereby establishing the total charge to
earnings.
Interest expense increased $13.9 million during fiscal year 1995
when compared to fiscal year 1994. The increase resulted from an
increase in average borrowings, from $158.4 to $319.4 million, which was
attributable primarily to the Company's acquisition activity, coupled
with an increase in average interest rates from 5.6% to 7.2%.
Approximately $173.3 million of the outstanding borrowings at October
31, 1995 was subject to variable interest rates averaging approximately
7.5%.
Liquidity and Capital Resources
Cash and marketable securities of the Company were $27.1 million at
October 31, 1996, an increase of approximately $7.5 million from October
31, 1995. Net cash provided by operating activities was $11.6 million
for the year ended October 31, 1996, compared to net cash used in
operating activities of $1.8 million for the corresponding period in
1995. The change was due principally to an increase in net earnings and
a reduction in the growth of accounts receivable and deferred charges,
which were partially offset by a reduction in the growth of deferred
revenue and 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 under its uncollateralized revolving credit facility ("Credit
Facility") 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
bank's prime rate, LIBOR plus a specified spread or a certificate of
deposit rate plus a specified spread, at the Company's election.
On October 31, 1996, the Company and the lenders under the $350
million Credit Facility entered into an agreement whereby the $350
million facility was replaced with a $262 million facility between the
lenders and the Company, and an $88 million facility between the lenders
and two of the Company's subsidiaries which is guaranteed by the
Company. The terms and conditions of the new facilities are identical
to those contained in the Credit Facility. As of October 31, 1996,
amounts outstanding under the facilities discussed above amounted to
$215.8 million and $88.0 million, at weighted average interest rates of
6.04% and 6.48%, respectively.
In September 1996, the Company entered into a Bridge Loan Agreement
with the lead bank in the Company's Credit Facility in the amount of $75
million to facilitate the Company's acquisition of a foreign subsidiary.
Borrowings under this facility bear interest at the lending bank's prime
rate, LIBOR plus a specified spread or a certificate of deposit rate
plus a specified spread, at the Company's election, and have other terms
and conditions that are identical to those contained in the Credit
Facility. As of October 31, 1996, $75 million was outstanding under
this agreement and the weighted average interest rate was 6.01%. The
original maturity date of this facility was January 17, 1997, but
subsequent to fiscal year end, the maturity date was extended to
April 16, 1997. Management anticipates that this facility will be
refinanced on a long-term basis.
Long-term debt at October 31, 1996 amounted to $520.1 million,
compared to $322.5 million at October 31, 1995. The Company's long-term
debt consisted of $303.8 million under the Company's Credit Facility, a
$75.0 million Bridge loan, $125.0 million of senior notes and $16.3
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 $4.6
million of term notes incurred principally in connection with
acquisitions.
The Company's credit agreements, including agreements with the
holders of the Company's senior notes, require 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 1.0, .7, and .8 to one at October 31, 1996, 1995 and 1994,
respectively. As of October 31, 1996, the Company had $162.5 million of
additional borrowing capacity within this parameter, of which $54.5
million was available under its bank facilities.
The Company's ratio of earnings to fixed charges was 3.98, 2.72
(which includes the $17.3 million non-recurring, non-cash performance-
based stock option charge), 5.30, 5.15 and 4.57 for the fiscal years
ended October 31, 1996, 1995, 1994, 1993 and 1992, respectively.
Excluding the stock option charge, the Company's ratio of earnings to
fixed charges for fiscal year 1995 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.
In October 1996, the Company filed a shelf registration statement
with the Securities and Exchange Commission covering $300 million of
unsecured, unsubordinated debt securities. In December 1996, the
Company issued $100 million of those debt securities in the form of
6.70% Notes due 2003. Net proceeds were approximately $99.4 million, of
which $96.8 million was used to reduce balances outstanding under the
Company's bank facilities, with the remaining $2.6 million used for
acquisitions and general corporate purposes.
During fiscal year 1996, the Company completed the acquisition of
134 funeral homes and 15 cemeteries for purchase prices aggregating
approximately $179 million, including the issuance of approximately
466,000 shares of Class A Common Stock and $6.1 million of seller-
financed acquisition indebtedness.
Subsequent to fiscal year-end, the Company has completed the
acquisition of ten funeral homes for approximately $10.7 million. As of
January 10, 1997, the Company also had agreements in principle or
letters of intent to purchase 20 funeral homes and four cemeteries for
purchase prices aggregating approximately $82.8 million. If these
purchases are consummated, the amounts to be paid will be satisfied by a
combination of amounts available under the Company's Credit Facility,
seller financing and issuance of additional shares of the Company's
Class A Common Stock.
Although the Company has no material commitments for capital
expenditures, the Company contemplates capital expenditures, excluding
acquisitions, of approximately $35 million for the fiscal year ending
October 31, 1997, which includes 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 bank facilities. Additional debt and equity
financing will be required in connection with future acquisitions.
Inflation
Inflation has not had a significant impact on the Company's U.S.
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.
Based on the three-year cumulative inflation rate in Mexico as of
October 31, 1996, the Company will be required to change its method of
reporting foreign currency translation adjustments for its Mexican
operations to the method prescribed for highly inflationary economies
during the first quarter of fiscal year 1997. As a result, foreign
currency translation adjustments for the Company's Mexican operations
will be reflected in results of operations, instead of in shareholders'
equity. Management does not expect this change to have a material
effect on the Company's results of operations.
Other
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation," is required to be implemented during the
Company's fiscal year ending October 31, 1997. The effect of this
pronouncement on the Company's consolidated financial condition is not
expected to be material.
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 1997 include: (i) revenue
growth of at least 20%; and (ii) earnings per share growth of 20%. The
Company also expects to complete approximately $150-$200 million in
acquisitions, which is consistent with the $179 million, $154 million
and $178 million achieved in fiscal years 1996, 1995 and 1994,
respectively. For fiscal year 1997, the Company anticipates gross margin
improvement of approximately 20 to 40 basis points over its fiscal year
1996 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,
with 80% from domestic operations, including Puerto Rico, and 20% from
foreign operations; 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 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,
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 achieved 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 cannot predict whether or when a non-cash charge to
earnings may be required in connection with its performance-based stock
options. See "1995 Incentive Compensation Plan" in Note 11 to the
Company's consolidated financial statements included in Item 8 herein.
(6) 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.
(7) 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-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 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Page
Report of Independent Accountants 25
Consolidated Statements of Earnings for the Years Ended October
31, 1996, 1995 and 1994 26
Consolidated Balance Sheets as of October 31, 1996 and 1995 27
Consolidated Statements of Shareholders' Equity for the Years
Ended October 31, 1996, 1995 and 1994 29
Consolidated Statements of Cash Flows for the Years Ended
October 31, 1996, 1995 and 1994 30
Notes to Consolidated Financial Statements 32
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Stewart Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of
Stewart Enterprises, Inc. and Subsidiaries as of October 31, 1996 and
1995 and the related consolidated statements of earnings, shareholders'
equity and cash flows for each of the three years in the period ended
October 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Stewart Enterprises, Inc. and Subsidiaries as of October 31, 1996 and
1995, and the results of their operations and their cash flows for each
of the three years in the period ended October 31, 1996 in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New Orleans, Louisiana
December 13, 1996
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share amounts)
Year Ended October 31,
_________________________________
1996 1995 1994
_______ ________ ________
Revenues:
Funeral $ 225,461 $ 188,991 $ 116,266
Cemetery 207,926 179,831 138,092
___________ ___________ __________
433,387 368,822 254,358
___________ ___________ __________
Costs and expenses:
Funeral 153,222 133,682 84,481
Cemetery 162,047 145,397 112,280
___________ ___________ __________
315,269 279,079 196,761
___________ ___________ __________
118,118 89,743 57,597
Corporate general and administrative
expenses 14,096 11,113 8,157
___________ ___________ __________
Operating earnings before
performance-based stock options 104,022 78,630 49,440
Performance-based stock options - 17,252 -
___________ ___________ __________
Operating earnings 104,022 61,378 49,440
Interest expense (26,051) (22,815) (8,877)
Investment and other income 4,104 2,937 1,635
___________ ___________ __________
Earnings before income taxes 82,075 41,500 42,198
Income taxes 30,778 15,355 14,945
___________ ___________ __________
Net earnings $ 51,297 $ 26,145 $ 27,253
=========== =========== ===========
Earnings per common share $ 1.24 $ .72 $ .85
=========== =========== ===========
Weighted average common shares outstanding
(in thousands) 41,410 36,386 31,910
=========== =========== ===========
See accompanying notes to consolidated financial statements.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
October 31,
_______________________
ASSETS 1996 1995
_________ _________
Current assets:
Cash and cash equivalent investments $ 24,580 $ 18,226
Marketable securities 2,514 1,346
Receivables, net of allowances 109,129 99,156
Inventories 31,044 31,912
Prepaid expenses 4,275 2,980
____________ __________
Total current assets 171,542 153,620
Receivables due beyond one year, net of allowances 159,636 125,421
Intangible assets 312,154 220,108
Deferred charges 101,073 87,793
Cemetery property, at cost 290,848 248,930
Property and equipment, at cost:
Land 69,690 36,654
Buildings 197,553 143,565
Equipment and other 80,626 68,898
____________ __________
347,869 249,117
Less accumulated depreciation 69,088 56,124
____________ __________
Net property and equipment 278,781 192,993
Long-term investments 48,407 40,191
Other assets 3,500 3,379
____________ __________
$ 1,365,941 $1,072,435
============ ==========
(continued)
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
October 31,
_______________________
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
__________ __________
Current liabilities:
Current maturities of long-term debt $ 4,240 $ 5,016
Accounts payable 11,889 16,305
Accrued payroll 12,612 10,618
Accrued insurance 8,341 5,980
Accrued interest 4,621 4,215
Accrued other 14,479 14,996
Estimated costs to complete mausoleums and lawn
crypts, and to deliver merchandise 3,552 6,494
Income taxes payable 10,154 4,015
Deferred income taxes 3,594 4,458
_________ __________
Total current liabilities 73,482 72,097
Long-term debt, less current maturities 515,901 317,451
Deferred income taxes 63,741 51,524
Deferred revenue 149,549 136,641
Other long-term liabilities 15,821 10,744
__________ ___________
Total liabilities 818,494 588,457
Commitments and contingencies (Note 12)
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 40,022,483 and 39,235,638 shares
at October 31, 1996 and 1995, respectively 40,022 39,236
Class B authorized 5,000,000 shares; issued and
outstanding 1,777,510 shares at October 31, 1996
and 1995; 10 votes per share; convertible into
an equal number of Class A shares 1,778 1,778
Additional paid-in capital 306,706 291,946
Retained earnings 215,314 166,785
Cumulative foreign translation adjustment (19,058) (19,123)
Unrealized appreciation of investments 2,685 3,356
__________ __________
Total shareholders' equity 547,447 483,978
__________ __________
$ 1,365,941 $1,072,435
=========== ==========
See accompanying notes to consolidated financial statements.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
Common Stock
____________________ Unrealized
Shares Additional Foreign Appreciation Total
Class A Paid-In Retained Translation of Unearned Shareholders'
and B Amount Capital Earnings Adjustment Investments Compensation Equity
____________ _________ ________ ________ _________ _________ ___________ __________
(in thousands)
Balance October 31, 1993 28,646 $ 28,646 $ 88,386 $ 115,481 $ - $ - $(506) $ 232,007
Net earnings 27,253 27,253
Unearned compensation 253 253
Sales of common stock 4,101 4,101 61,962 66,063
Subsidiaries acquired with
common stock 84 84 1,288 1,372
Stock options exercised 8 8 54 62
Foreign translation
adjustment (490) (490)
Dividends ($.027 per
share) (849) (849)
_____________ _________ _________ _________ ________ _________ __________ ___________
Balance October 31, 1994 32,839 32,839 151,690 141,885 (490) - (253) 325,671
Net earnings 26,145 26,145
Unearned compensation 253 253
Sales of common stock 6,081 6,081 97,854 103,935
Subsidiaries acquired
with common stock 1,460 1,460 30,203 31,663
Stock options exercised 1,866 1,866 37,244 39,110
Purchase and retirement
of common stock (1,232) (1,232) (25,045) (26,277)
Foreign translation
adjustment (18,633) (18,633)
Unrealized appreciation
of investments 3,356 3,356
Dividends ($.033 per
share) (1,245) (1,245)
_____________ _________ _________ _________ ________ _________ __________ ___________
Balance October 31, 1995 41,014 41,014 291,946 166,785 (19,123) 3,356 - 483,978
Net earnings 51,297 51,297
Sales of common stock 38 38 841 879
Subsidiaries acquired with
common stock 466 466 11,785 12,251
Stock options exercised 526 526 10,061 10,587
Purchase and retirement of
common stock (244) (244) (7,927) (8,171)
Foreign translation
adjustment 65 65
Unrealized depreciation of
investments (671) (671)
Dividends ($.066 per
share) (2,768) (2,768)
_____________ _________ _________ _________ ________ _________ __________ ___________
Balance October 31, 1996 41,800 $ 41,800 $ 306,706 $ 215,314 $(19,058) $ 2,685 $ - $547,447
============= ========= ========= ========= ========= ========= ========== ===========
___________________
Share and per share information has been adjusted to give effect to the two three-
for-two common stock splits effective December 1, 1993, and June 21, 1996.
Includes 1,778 shares (in thousands) of Class B Common Stock.
See accompanying notes to consolidated financial statements.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share amounts)
Year Ended October 31,
______________________________
1996 1995 1994
__________ ___________ __________
Cash flows from operating activities:
Net earnings $ 51,297 $ 26,145 $ 27,253
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 21,701 16,792 11,027
Performance-based stock options - 17,252 -
Provision for doubtful accounts 23,156 15,698 7,757
Net gains on sales of marketable
securities (2,098) (269) (873)
Provision (benefit) for deferred
income taxes (4,676) 1,761 (2,403)
Changes in assets and liabilities net
of effects from acquisitions:
(Increase) decrease in prearranged
funeral trust receivables (17,265) (15,207) 9,600
Increase in other receivables (35,918) (60,684) (31,580)
Increase in deferred charges (7,385) (19,290) (13,493)
Increase in inventories and cemetery
property (8,812) (4,603) (523)
Increase in accounts payable and accrued
expenses 2,682 7,675 2,390
Decrease in estimated costs to complete
mausoleums and lawn crypts, and
to deliver merchandise (10,256) (7,306) (3,705)
Increase in deferred revenue 250 19,877 14,731
Increase (decrease) in other (1,037) 349 198
____________ ___________ ___________
Net cash provided by (used in)
operating activities 11,639 (1,810) 20,379
____________ ___________ ___________
Cash flows from investing activities:
Proceeds from sale of marketable securities 8,648 7,010 6,055
Purchases of marketable securities and
long-term investments (16,317) (10,276) (25,273)
Purchases of subsidiaries, net of cash,
seller financing and stock issued (158,359) (99,691) (154,594)
Additions to property and equipment (26,332) (20,676) (16,997)
Other 471 2,770 (3,581)
___________ ____________ ____________
Net cash used in investing activities (191,889) (120,863) (194,390)
___________ ____________ ____________
(continued)
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share amounts)
Year Ended October 31,
_____________________________
1996 1995 1994
__________ _________ _________
Cash flows from financing activities:
Proceeds from long-term debt 277,259 202,700 263,468
Repayments of long-term debt (90,691) (165,310)(149,538)
Issuance of common stock 11,466 123,122 66,125
Purchase and retirement of common stock (8,171) (26,277) -
Dividends (2,768) (1,245) (849)
__________ __________ _________
Net cash provided by financing activities 187,095 132,990 179,206
__________ __________ _________
Effect of exchange rates on cash and
cash equivalents (491) (1,305) (110)
__________ __________ _________
Net increase in cash 6,354 9,012 5,085
Cash and cash equivalents, beginning of year 18,226 9,214 4,129
__________ __________ _________
Cash and cash equivalents, end of year $ 24,580 $ 18,226 $ 9,214
========== ========== =========
Supplemental cash flow information:
Cash paid during the year for:
Income taxes $ 25,100 $ 16,900 $18,300
Interest $ 26,100 $ 22,800 $ 8,900
Non cash investing and financing activities:
Subsidiaries acquired with common stock $ 12,251 $ 31,663 $ 1,372
Cemetery property acquired with
long-term debt $ - $ - $ 210
See accompanying notes to consolidated financial statements.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(1) Summary of Significant Accounting Policies
(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. For the year ended October 31, 1996, the
funeral and cemetery segments were approximately equal in size based on
revenue, and contributed approximately 60% and 40% of consolidated gross
profit, respectively.
As of October 31, 1996, the Company owned and operated 298 funeral
homes and 120 cemeteries in 22 states within the United States, and in
Puerto Rico, Mexico, Australia, New Zealand and Canada. The Company
commenced its international operations in Mexico in August 1994, and
entered Australia in December 1994, New Zealand in April 1996 and Canada
in September 1996. For fiscal year 1996, foreign operations contributed
approximately 10% of total revenue and 18% 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) 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.
(d) Fair Value of Financial Instruments
Estimated fair value amounts have been determined using available
market information and the valuation methodologies described below.
However, considerable judgment is required in interpreting market data
to develop estimates of fair value. Accordingly, the estimates
presented herein may not be indicative of the amounts the Company could
realize in a current market. The use of different market assumptions or
valuation methodologies may have a material effect on the estimated fair
value amounts.
The carrying amounts of cash and cash equivalents, marketable
securities and current receivables approximate fair value due to the
short-term nature of these instruments. The carrying amount of
receivables due beyond one year approximates fair value because they
bear interest at rates currently offered by the Company for receivables
with similar terms and maturities. The carrying amount of long-term
investments are stated at fair value as they are classified as available
for sale under the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The carrying value of the Company's long-term debt,
including current maturities, approximates fair value as it bears
interest at rates currently available to the Company for debt with
similar terms and maturities.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(1) Summary of Significant Accounting Policies--(Continued)
(e) Inventories
Inventories are stated at the lower of cost (specific
identification and first-in, first-out methods) or net realizable value.
(f) Depreciation and Amortization
Property and equipment are depreciated over their estimated useful
lives, ranging from 19 to 40 years and from three to 10 years,
respectively, primarily using the straight-line method.
Goodwill, or costs in excess of net assets of companies acquired,
totalled approximately $307,318 and $216,262 at October 31, 1996 and
1995, respectively, and is amortized principally over 40 years by the
straight-line method. The Company continually evaluates the
recoverability of this intangible asset by assessing whether the
amortization of the goodwill balance over its remaining life can be
recovered through undiscounted expected future cash flows. Other
intangible assets are amortized over five years by the straight-line
method. Accumulated amortization was approximately $19,506 and $11,743
as of October 31, 1996 and 1995, respectively.
(g) 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 the shareholders' equity, except for translation
adjustments arising from the Company's operations in highly inflationary
economies.
Based on the three-year cumulative inflation rate in Mexico as of
October 31, 1996, the Company will be required to change its method of
reporting foreign currency translation adjustments for its Mexican
operations to the method prescribed for highly inflationary economies
during the first quarter of fiscal year 1997. As a result, foreign
currency translation adjustments for the Company's Mexican operations
will be reflected in results of operations, instead of in shareholders'
equity. Management does not expect this change to have a material
effect on the Company's results of operations.
(h) Funeral Revenue
The Company sells prearranged funeral services and funeral
merchandise under contracts that provide for delivery of the services
and merchandise at the time of death. Prearranged funeral services are
recorded as funeral revenue in the period performed. Prearranged
funeral merchandise is recognized as revenue upon delivery in jurisdictions
where such sales are refundable to the customer; where such sales
are not refundable, revenue is recognized currently. Prearranged
funeral services and merchandise generally are financed either through
trust funds or escrow accounts established by the Company, or through
insurance. Principal amounts deposited in the trust funds or escrow
accounts are available to the Company as funeral services and merchandise
are delivered and are refundable to the customer in those situations
where state law provides for the return of those amounts under the
purchaser's option to cancel the contract. Certain jurisdictions provide
for non-refundable trust funds or escrow accounts where the Company
receives such amounts upon cancellation by the customer.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(1) Summary of Significant Accounting Policies--(Continued)
The Company recognizes as revenue on a current basis all dividends
and interest earned, and net capital gains realized, by all prearranged
funeral trust funds and escrow accounts except in those states where
earnings revert to the customer if a prearranged funeral service or
funeral merchandise contract is cancelled. Principal and earnings are
withdrawn only as funeral services and merchandise are delivered or
contracts are cancelled, except in jurisdictions that permit earnings to
be withdrawn currently and in unregulated jurisdictions where escrow
accounts are used.
Commissions and direct marketing costs relating to prearranged
funeral services and refundable prearranged funeral merchandise sales
are deferred and amortized as the funeral contracts are fulfilled,
whereas costs incurred related to the sale of non-refundable prearranged
funeral merchandise are expensed as incurred. Indirect costs of
marketing prearranged funeral services are expensed in the period in
which incurred.
Funeral services sold at the time of need are recorded as funeral
revenue in the period performed.
(i) Cemetery Revenue
Cemetery revenue is accounted for in accordance with the principles
prescribed for accounting for sales of real estate. Those principles
require, among other things, the receipt of a certain portion of an
installment sale price prior to the recognition of any revenue or cost
on a contract. The Company recognizes income currently from
unconstructed mausoleum crypts sold to the extent it has available
inventory. Costs of mausoleum and lawn crypts sold but not yet
constructed are based upon management's estimated cost to construct
these items.
In certain jurisdictions in which the Company operates, local law
or contracts with customers generally require that a portion of the sale
price of prearranged cemetery merchandise be placed in trust funds or
escrow accounts. In those jurisdictions where trust or escrow
arrangements are neither statutorily nor contractually required, the
Company typically deposits on a voluntary basis approximately 110% of
the cost of the cemetery merchandise into escrow accounts. The Company
recognizes as revenue on a current basis all dividends and interest
earned, and net capital gains realized, by prearranged merchandise trust
funds or escrow accounts. At the same time, the liability for the
estimated cost to deliver merchandise is adjusted through a charge to
earnings to reflect inflationary merchandise cost increases. Principal
and earnings are withdrawn only as the merchandise is delivered or
contracts are cancelled.
Pursuant to perpetual care contracts and laws, a portion, generally
10%, of the proceeds from cemetery property sales is deposited into
perpetual care trust funds or escrow accounts. In addition, in those
jurisdictions where trust or escrow arrangements are neither statutorily
nor contractually required, the Company typically deposits on a
voluntary basis a portion, generally 10%, of the sale price into escrow
accounts. The income from these funds, which have been established in
most jurisdictions in which the Company operates cemeteries, is used for
maintenance of those cemeteries, but principal, including in some
jurisdictions net realized capital gains, must generally be held in
perpetuity. Accordingly, the trust fund corpus is not reflected in the
consolidated financial statements, except for voluntary escrow funds
established by the Company, which are classified as long-term
investments. The Company recognizes and withdraws currently all
dividend and interest income earned and, where permitted, capital gains
realized by perpetual care funds.
A portion of the sales of cemetery property and merchandise is made
under installment contracts bearing interest at prevailing rates.
Finance charges are recognized as cemetery revenue under the effective
interest method over the terms of the related installment receivables.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(1) Summary of Significant Accounting Policies--(Continued)
(j) Income Taxes
The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between tax
bases and financial reporting bases of assets and liabilities. The
Company has not provided for possible U.S. federal income taxes on the
undistributed earnings of foreign subsidiaries that are considered to be
reinvested indefinitely.
(k) Earnings Per Common Share
Earnings per common share are computed by dividing net earnings by
the weighted average number of common shares outstanding during each
period, which have been adjusted for the Company's three-for-two common
stock split effective on June 21, 1996.
(l) Recent Accounting Standards
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation," is required to be implemented during the
Company's fiscal year ending October 31, 1997. The effect of this
pronouncement on the Company's consolidated financial condition is not
expected to be material.
(m) Reclassifications
Certain reclassifications have been made to the 1995 and 1994
consolidated financial statements to conform to the presentation used in
the 1996 consolidated financial statements. These reclassifications had
no effect on net earnings or shareholders' equity.
(2) Acquisition of Subsidiaries
During the year ended October 31, 1996, the Company purchased 134
funeral homes and 15 cemeteries. The aggregate purchase price was
approximately $179,000, including the issuance of approximately 466,000
shares of Class A Common Stock.
During the year ended October 31, 1995, the Company purchased 55
funeral homes and 15 cemeteries. The aggregate purchase price was
approximately $154,400, including the issuance of approximately
1,460,000 shares of Class A Common Stock.
During the year ended October 31, 1994, the Company purchased 27
funeral homes and 33 cemeteries. The aggregate purchase price was
approximately $177,600, including the issuance of approximately 84,000
shares of Class A Common Stock.
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.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(2) Acquisitions of Subsidiaries--(Continued)
The following table reflects, on an unaudited pro forma basis, the
combined operations of the Company and the businesses acquired during
fiscal year 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.
Year Ended October 31,
______________________
1996 1995
__________ ___________
(Unaudited)
Revenues $ 471,146 $ 424,463
============= =============
Net earnings $ 49,448 $ 22,666
============= =============
Earnings per common share $ 1.19 $ .62
============= =============
Weighted average common shares
outstanding (in thousands) 41,590 36,852
============= =============
The effect of acquisitions at dates of purchase on the consolidated
financial statements was as follows:
Year Ended October 31,
___________________________________
1996 1995 1994
___________ __________ __________
Current assets $ 21,380 $ 8,991 $ 13,786
Receivables due beyond one year 1,973 3,832 11,740
Cemetery property 25,260 46,482 94,059
Property and equipment 72,949 52,552 33,245
Deferred charges and other assets 9,889 3,787 4,843
Intangible assets 98,230 92,291 82,573
Current liabilities (10,396) (22,990) (29,820)
Long-term debt (10,388) (10,767) (7,060)
Deferred income taxes (15,640) (11,460) (20,698)
Deferred revenue and other liabilities (22,647) (31,364) (26,702)
____________ ____________ ___________
170,610 131,354 155,966
Common stock used for acquisitions 12,251 31,663 1,372
___________ ____________ ____________
Cash used for acquisitions $ 158,359 $ 99,691 $ 154,594
=========== ============ ============
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(3) Prearranged Funeral Services
The following summary reflects prearranged funeral services sold,
but not yet delivered, which are funded with trusts, escrow accounts and
insurance, and related prearranged funeral trust fund and escrow account
balances. The trust- and insurance-funded balances are not reflected in
the accompanying consolidated financial statements. Amounts which
represent the Company's voluntary deposits into escrow accounts in those
jurisdictions where trust or escrow arrangements are neither statutorily
nor contractually required aggregated $26,003 and $25,034 at October 31,
1996 and 1995, respectively, and are classified as long-term
investments. Amounts deposited in the trust funds and escrow accounts
and funded through insurance are available to the Company when the
services are performed. Funds held in trust or escrow are invested and
the revenue on the funds (including net realized capital gains) of
$28,709, $23,029 and $14,347 is reflected in funeral revenue for 1996,
1995 and 1994, respectively.
In July 1994, pursuant to a Texas statute and the approval of the
Texas Banking Commissioner, the Company withdrew funds ("excess
earnings") in the amount of $18,800 from its Texas prearranged funeral
trust funds. The amount withdrawn was voluntarily transferred into a
funeral escrow account which the Company intends to use to fund future
prearranged funeral services. The funeral escrow fund is classified as
a long-term investment in the accompanying consolidated balance sheets.
October 31,
_______________________
1996 1995
__________ ___________
Trust or escrow funded:
Prearranged funeral services sold, but not delivered $ 445,301 $ 359,674
=========== ===========
Investments at market value $ 349,415 $ 261,823
Receivables to be collected on prearranged funeral
service contracts 97,053 96,346
__________ ___________
$ 446,468 $ 358,169
=========== ===========
Insurance-funded and other prearranged funeral services $ 141,725 $ 101,950
=========== ===========
Investments consist of:
U.S. Government, U.S. agencies and municipalities $ 67,852 $ 56,096
Corporate bonds 63,720 48,961
Preferred stocks 29,906 30,919
Common stocks 38,511 32,351
Money market funds and other short-term investments 110,540 59,326
Short-term fixed income foreign investments 33,585 24,945
___________ ___________
Total value at cost 344,114 252,598
Net unrealized appreciation 5,301 9,225
___________ ___________
Total value at market $ 349,415 $ 261,823
=========== ===========
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(4) Cemetery Revenue
The following summary reflects the Company's merchandise trust fund
and escrow account balances, as well as merchandise sold, but
undelivered, at current cost. Merchandise sold, but undelivered, is
reflected at current cost as a liability in the accompanying
consolidated balance sheets net of the related merchandise trust fund
and escrow account balances and accumulated earnings, except for $17,339
and $14,483 classified as long-term investments at October 31, 1996 and
1995, respectively. These amounts represent the Company's voluntary
deposits into escrow accounts in those jurisdictions where trust or
escrow arrangements are neither statutorily nor contractually required.
Amounts deposited in the trust funds and escrow accounts are invested
and the revenue on the funds (including net realized capital gains) of
$9,082, $5,471 and $3,020 is reflected in cemetery revenue for 1996,
1995 and 1994, respectively. Amounts deposited in merchandise trust
funds and escrow accounts that are invested in debt securities as of
October 31, 1996 totalled $42,381 and are scheduled to mature as
follows: $442 in less than one year; $23,508 in one through five years;
$17,059 in five through ten years; and $1,372 in more than ten years.
October 31,
___________________
1996 1995
_______ ______
Merchandise trust funds and escrow accounts:
Merchandise sold, but not delivered, at current cost $ 101,834 $ 87,480
========== ==========
Investments at market value $ 113,530 $ 89,125
Amounts to be collected on merchandise contracts 37,290 35,401
__________ _________
$ 150,820 $124,526
========== =========
Investments consist of:
U.S. Government, U.S. agencies and municipalities $ 25,194 $ 22,354
Corporate bonds 27,140 16,831
Preferred stocks 7,126 8,870
Common stocks 16,107 10,277
Money market funds and other short-term investments 34,934 27,323
___________ __________
Total value at cost 110,501 85,655
Net unrealized appreciation 3,029 3,470
___________ __________
Total value at market $ 113,530 $ 89,125
=========== ==========
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(4) Cemetery Revenue--(Continued)
The following summary reflects the Company's perpetual care trust
fund and escrow account balances. Since principal cannot be withdrawn,
these balances are not reflected in the accompanying financial
statements, except for $1,115 and $674, classified as long-term
investments as of October 31, 1996 and 1995, respectively, which
represent the Company's voluntary deposits into escrow accounts in those
jurisdictions where trust or escrow arrangements are neither statutorily
nor contractually required. Funds held in trust or escrow are invested,
and the earnings withdrawn from the trust funds and escrow accounts are
used for the maintenance of cemetery grounds. For the years ended
October 31, 1996, 1995 and 1994, such withdrawals, included in cemetery
revenue, totalled $15,056, $13,265 and $8,875, respectively.
October 31,
____________________
1996 1995
_________ _______
Perpetual care trust funds and escrow accounts:
Investments at market value $ 144,916 $ 134,487
Amounts to be collected under existing agreements 7,341 8,340
__________ _________
$ 152,257 $ 142,827
========== =========
Investments consist of:
U.S. Government, U.S. agencies and municipalities $ 29,400 $ 28,067
Corporate bonds 44,215 42,815
Preferred stocks 2,352 2,983
Common stocks 24,573 18,003
Money market funds and other short-term investments 34,859 26,917
Other long-term investments 129 3,522
__________ _________
Total value at cost 135,528 122,307
Net unrealized appreciation 9,388 12,180
__________ _________
Total value at market $ 144,916 $ 134,487
========== =========
(5) Cash and Cash Equivalent Investments
The following is a summary of cash and cash equivalent investments.
The Company considers all highly liquid investments with an original
maturity of three months or less to be a cash equivalent. The Company
deposits its cash and cash equivalent investments with high quality
credit institutions. Such balances typically exceed applicable FDIC
insurance limits.
October 31,
______________________
1996 1995
___________ ___________
Cash $ 19,790 $ 11,192
Cash equivalent investments 4,790 7,034
__________ ___________
$ 24,580 $ 18,226
========== ===========
(6) Marketable Securities and Long-term Investments
Marketable securities consist of investments in fixed maturities
and equity securities. The market value at October 31, 1996 and 1995
was $2,514 and $1,346, which included gross unrealized gains of $345 and
$301, respectively. The Company realized net gains on the sales of
securities of $2,098, $269 and $873 for the years ended October 31,
1996, 1995 and 1994, respectively. The cost of securities sold was
determined by using the average cost method.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(6) Marketable Securities and Long-term Investments--(Continued)
The market value of long-term investments at October 31, 1996 and
1995 was $48,407 and $40,191, which included gross unrealized gains of
$1,409 and $2,463, and gross unrealized losses of $437 and $396,
respectively. Amounts classified as long-term investments and invested
in debt securities as of October 31, 1996 totalled $17,150 and are
scheduled to mature as follows: $0 in less than one year; $4,723 in one
through five years; $12,334 in five through ten years; and $93 in more
than ten years. See Notes 3 and 4 which include details of the
Company's long-term investments.
(7) Receivables
October 31,
___________________
1996 1995
________ _________
Current receivables are summarized as follows:
Installment contracts due within one year $ 64,937 $ 57,689
Trade accounts, notes and other 10,610 8,845
Federal income tax receivable - 6,417
Allowance for sales cancellations and doubtful
accounts (2,996) (2,847)
Amount to be collected for perpetual care funds (2,401) (2,884)
__________ _________
70,150 67,220
Funeral receivables 36,032 29,483
Prearranged funeral trust receivable 2,947 2,453
__________ ________
Net current receivables $109,129 $ 99,156
========== =========
Long-term receivables are summarized as follows:
Installment contracts due beyond one year $119,357 $101,453
Allowance for sales cancellations (3,236) (3,307)
Amount to be collected for perpetual care funds (4,940) (5,456)
__________ _________
111,181 92,690
Prearranged funeral trust receivable 48,408 32,650
Other 47 81
__________ _________
Net long-term receivables $159,636 $125,421
========== =========
The Company's receivables as of October 31, 1996 are expected to
mature as follows:
Years ending October 31,
1997 $ 109,129
1998 33,955
1999 26,586
2000 20,915
2001 16,020
Later years 62,160
_________
$ 268,765
=========
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(8) Inventories and Cemetery Property
Inventories are comprised of the following:
October 31,
______________________
1996 1995
___________ __________
Developed cemetery property $ 15,837 $ 19,466
Merchandise and supplies 15,207 12,446
___________ ___________
$ 31,044 $ 31,912
=========== ===========
Cemetery property is comprised of the following:
October 31,
______________________
1996 1995
___________ __________
Developed cemetery property $ 61,185 $ 45,641
Undeveloped cemetery property 229,663 203,289
___________ ___________
$ 290,848 $248,930
=========== ===========
The Company evaluates the recoverability of the cost of undeveloped
cemetery property through comparison with undiscounted expected future
cash flows.
(9) Long-term Debt
The following is a summary of long-term debt:
October 31,
______________________
1996 1995
___________ __________
Credit Facility, amended as described below $ 303,811 $ 173,311
Bridge Loan 75,000 -
Senior Notes 125,000 125,000
Other, principally seller financing of
acquired operations or assumption upon
acquisition, bearing interest at rates from
3.0% to 15.0% (weighted average of 6.92% at
October 31, 1996), partially collateralized
by assets of subsidiaries, with maturities
through 2023 16,330 24,156
__________ __________
520,141 322,467
Less current maturities 4,240 5,016
__________ __________
$ 515,901 $ 317,451
========== ==========
In December 1995, the Company entered into an Amended and Restated
Loan Agreement with a group of banks that increased the aggregate amount
available under its uncollateralized revolving credit facility ("Credit
Facility") from $250,000 to $350,000. 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 bank's prime rate,
LIBOR plus a specified spread or a certificate of deposit rate plus a
specified spread, at the Company's election. The Credit Facility
provided for a commitment fee of .20% on the average daily amount of the
unadvanced portion. In February 1996 the commitment fee was reduced to
.18% as a result of the Company's debt rating.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(9) Long-term Debt--(Continued)
On October 31, 1996, the Company and the lenders under the $350,000
Credit Facility entered into an agreement whereby the $350,000 facility
was replaced with a $262,000 facility between the lenders and the
Company, and an $88,000 facility between the lenders and two of the
Company's subsidiaries which is guaranteed by the Company. The terms
and conditions of the new facilities are identical to those contained in
the Credit Facility. At October 31, 1996, $215,811 was outstanding
under the $262,000 facility, with a weighted average interest rate of
6.04%, and $88,000 was outstanding under the $88,000 facility, with a
weighted average rate of 6.48%.
Additionally, the Company has available with a separate financial
institution an uncollateralized revolving line of credit ("Revolving
Line of Credit Note") used to support the interim cash funding for
advances to be made under the Credit Facility in amounts less than
$5,000. Borrowings under the Revolving Line of Credit Note are limited
to $10,000 and interest is payable at the lending bank's prime rate or
certain optional rates at the Company's election. Periodically the
Company will pay down the Revolving Line of Credit Note using funds
drawn on the Credit Facility. There were no amounts outstanding under
the Revolving Line of Credit Note at October 31, 1996 and 1995.
Subsequent to fiscal year-end, the maturity of the Revolving Line of
Credit Note was extended to December 31, 1997.
In September 1996, the Company entered into a Bridge Loan Agreement
("Bridge Loan") with the lead bank in the Company's Credit Facility in
the amount of $75,000 to facilitate the Company's acquisition of a
foreign subsidiary. Borrowings under this facility bear interest at the
lending bank's prime rate, LIBOR plus a specified spread or a
certificate of deposit rate plus a specified spread, at the Company's
election, mature on January 17, 1997 and have other terms and conditions
that are identical to those contained in the Credit Facility. As of
October 31, 1996, $75,000 was outstanding under this agreement and the
weighted average interest rate was 6.01%. The Company has classified
the Bridge Loan as noncurrent in the accompanying consolidated balance
sheet as it has both the intent and ability to refinance this amount on
a long-term basis.
On December 21, 1993, the Company issued $50,000 of uncollateralized
senior notes, bearing interest at a rate of 6.04% and maturing on
November 30, 2003. Principal payments of $7,143 are due each year
commencing November 30, 1997, with the final payment due on November 30,
2003. On November 7, 1994, the Company issued $75,000 of
uncollateralized senior notes with an average maturity of seven years
and a weighted average interest rate of 8.44%. Principal payments are
due as follows: $15,000 on May 1, 1998, $16,667 on each of November 1,
2000, 2001 and 2002, and $10,000 on November 1, 2006.
In October 1996, the Company filed a shelf registration statement
with the Securities and Exchange Commission covering $300 million of
unsecured, unsubordinated debt securities. In December 1996, the
Company issued $100,000 of those debt securities in the form of 6.70%
Notes due 2003. Net proceeds were approximately $99,400, of which
$96,800 was used to reduce balances outstanding under the Company's bank
facilities, with the remaining $2,600 used for acquisitions and general
corporate purposes.
The bank loan agreements and senior note agreements contain various
restrictive covenants that limit consolidated funded indebtedness,
indebtedness of subsidiaries, the sale of assets to entities outside the
consolidated group and the payment of dividends on, and repurchases of,
the capital stock of the Company, and the bank loan agreements contain
change in control provisions. The amount of retained earnings available
for the payment of dividends at October 31, 1996 was approximately
$7,492. The Company also is required to maintain specified financial
ratios related to cash flow, net worth and fixed charges.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(9) Long-term Debt--(Continued)
Principal payments due on the long-term debt, excluding the Credit
Facility and the Bridge Loan, for the fiscal years ending October 31,
1997 through October 31, 2001 are approximately $4,240 in 1997, $24,627
in 1998, $8,443 in 1999, $8,849 in 2000 and $24,913 in 2001.
(10) Income Taxes
Income tax expense (benefit) is comprised of the following
components:
U.S. and
Possessions State Foreign Total
Year Ended October 31, ___________ _______ ________ _______
______________________
1996:
Current tax expense $ 31,128 $ 3,249 $ 1,077 $ 35,454
Deferred tax expense (benefit) (6,720) (307) 2,351 (4,676)
___________ ________ _________ _________
$ 24,408 $ 2,942 $ 3,428 $ 30,778
=========== ======== ========= =========
1995:
Current tax expense $ 10,610 $ 2,106 $ 878 $ 13,594
Deferred tax expense (benefit) (521) (509) 2,791 1,761
__________ _________ ________ __________
$ 10,089 $ 1,597 $ 3,669 $ 15,355
========== ========= ======== ==========
1994:
Current tax expense $ 15,379 $ 1,764 $ 205 $ 17,348
Deferred tax benefit (1,745) (658) - (2,403)
__________ _________ _________ __________
$ 13,634 $ 1,106 $ 205 $ 14,945
========== ========= ========= ==========
The reconciliation of the statutory tax rate to the effective tax
rate is as follows:
Year Ended October 31,
_____________________________
1996 1995 1994
______ _______ _______
Statutory tax rate 35.00% 35.00% 35.00%
Increases (reductions) in tax rate
resulting from:
State and U.S. possessions 6.21 7.45 2.03
Goodwill and other 2.52 1.35 .94
Dividend exclusion (1.03) (2.26) (2.55)
Foreign tax rate differential (2.88) (2.77) -
Foreign tax credit (2.32) (1.77) -
________ _________ _________
Effective tax rate 37.50% 37.00% 35.42%
======== ========= =========
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(10) Income Taxes--(Continued)
Deferred tax assets and liabilities consist of the following:
October 31,
_______________________
1996 1995
_________ _________
Deferred tax assets:
Deferred revenue on cemetery property and merchandise sales $ 18,466 $ 15,058
Deferred preneed sales and expenses 5,252 5,434
Estimated cost to deliver merchandise 3,293 1,944
Allowance for sales cancellations and doubtful accounts 1,131 1,369
Stock compensation 947 1,583
Other 991 436
___________ __________
30,080 25,824
____________ __________
Deferred tax liabilities:
Purchase accounting adjustments 78,857 64,689
Percentage of completion on long-term contracts 4,480 4,146
Equity method investments 2,005 2,244
Unrealized appreciation of investments 1,597 1,807
Foreign trust earnings 5,142 2,791
Goodwill 2,288 1,735
Depreciation 737 720
Other 2,309 3,674
____________ __________
97,415 81,806
____________ __________
$ 67,335 $55,982
============ ==========
Current net deferred liability $ 3,594 $ 4,458
Long-term net deferred liability 63,741 51,524
____________ __________
$ 67,335 $55,982
============ ==========
For the years ended October 31, 1996, 1995 and 1994, approximately
12%, 14% and 1%, respectively, of the Company's earnings before income
taxes (excluding the performance-based stock option charge in fiscal
year 1995), were generated from properties in foreign jurisdictions.
(11) Benefit Plans
Stewart Enterprises Employees' Retirement Trust
The Company has a defined contribution retirement plan, the "Stewart
Enterprises Employees' Retirement Trust (A Profit-Sharing Plan)
("SEERT")." This plan covers substantially all employees with more than
one year of service who have attained the age of 21. Contributions are
made to the plan at the discretion of the Company's Board of Directors.
Additionally, employees who participate may contribute up to 15% of
their earnings. The first 5% of such employee contributions are
eligible for Company matching contributions at the rate of $.25 for each
$1.00 contributed. The Company's expense, including the Company's
matching contributions, for the fiscal years ended October 31, 1996,
1995 and 1994 was approximately $2,550, $2,250 and $1,540, respectively.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(11) Benefit Plans--(Continued)
Non-qualified Supplemental Retirement and Deferred Compensation Plan
In January 1994, the Company developed a non-qualified key employee
defined contribution supplemental retirement plan, which provides
certain highly compensated employees the opportunity to accumulate
deferred compensation which cannot be accumulated under SEERT due to
certain limitations. Contributions are made to the plan at the
discretion of the Company's Board of Directors. Additionally, employees
who participate may contribute up to 15% of their earnings. The first
5% of such employee contributions are eligible for Company matching
contributions at the rate of $.25 for each $1.00 contributed. The
Company's expense, including the Company's matching contributions, for
the fiscal years ended October 31, 1996, 1995 and 1994 was approximately
$116, $53 and $0, respectively.
1991 Incentive Compensation Plan
In May 1991, the Company adopted the 1991 Incentive Compensation
Plan, pursuant to which officers and other employees of the Company
could be granted stock options, stock awards, restricted stock,
performance share awards or cash awards by the Compensation Committee of
the Board of Directors. After October 31, 1995, no additional awards
have been or will be granted under this plan. From September 25, 1992
through October 31, 1995, the Company granted options that become
exercisable based upon the passage of time to officers and other
employees for the purchase of a total of 1,452,938 shares of Class A
Common Stock at exercise prices equal to the fair market value at the
grant date, which ranged from $8.89 to $16.00 per share. The options
generally are exercisable in 25% annual increments over the four years
following their grant, except that options granted during fiscal year
1995 are exercisable 50% per year over the next two years. On July 25,
1995, the Compensation Committee accelerated by two months the
exercisability of options scheduled to become exercisable September 25,
1995. As of October 31, 1996, 986,492 options scheduled to become
exercisable based upon the passage of time had been exercised.
From November 1, 1992 through October 31, 1995, the Company granted
performance-based options to certain officers and other employees for
the purchase of a total of 1,650,000 shares of Class A Common Stock at
exercise prices equal to the fair market value at the grant date, which
ranged from $9.55 to $16.00 per share. The agreements under which the
options were granted provided that the options were to become
exercisable on December 1, 1996 only if, at any time prior to November
1, 1996, the average of the closing sale prices of a share of the
Company's Class A Common Stock over five consecutive trading days
equaled or exceeded $19.78, and the average annual compounded increase
in the Company's earnings per share for the four fiscal years ending
October 31, 1996 was at least 15%. Generally accepted accounting
principles require that a charge to earnings be recorded for these
performance-based options for the difference between the exercise price
and the then-current stock price when achievement of the performance
objectives becomes probable.
During May 1995, the stock price objective was achieved, and in July
1995, management determined that the achievement of the earnings
objective was probable. Accordingly, during the third quarter of fiscal
year 1995, the Company recorded a non-cash charge of $17,252 ($10,869,
or $.30 per share, after-tax) for the difference between the option
exercise prices and $21.58, the then-market price of the Company's Class
A Common Stock. Additionally, in July 1995 the Compensation Committee
accelerated the exercisability of the performance-based options, thereby
establishing the total charge to earnings. As of October 31, 1996,
1,425,000 performance-based options had been exercised.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(11) Benefit Plans--(Continued)
Pursuant to the Company's 1991 Incentive Compensation Plan, each
director and certain former directors of the Company who are not
employees of the Company have received options to purchase 5,625 shares
of the Company's Class A Common Stock on each of February 16, 1993, and
November 1, 1993, 1994 and 1995. Persons who are not employees of the
Company who joined the Board between option grant dates and certain
former directors received a reduced number of options based on the
number of months of service on the Board prior to the next grant date.
The options become exercisable on October 31 following the date of
grant, but may be exercised earlier if the director dies, retires from
the Board on or after reaching age 65 or becomes disabled. The options
expire on October 31, 1997. The exercise price of the options was 80%
of the fair market value of the Class A Common Stock on the date of
grant. As of October 31, 1996, 121,875 options had been granted pursuant
to these provisions of the Plan, and 27,837 options had been exercised.
1995 Incentive Compensation Plan
In August 1995 the Board of Directors adopted, and in December 1995
and December 1996 amended, the 1995 Incentive Compensation Plan,
pursuant to which officers and other employees of the Company may be
granted stock options, stock awards, restricted stock, stock
appreciation rights, performance share awards or cash awards by the
Compensation Committee of the Board of Directors. From September 7,
1995 through October 31, 1996, the Company granted options to officers
and other employees for the purchase of a total of 3,028,706 shares of
Class A Common Stock at exercise prices equal to the fair market value
at the grant dates, which ranged from $21.00 to $22.17 per share. Two-
thirds of the options become exercisable in full on the first day
between the date of grant and August 31, 2000 that the average of the
closing sale prices of a share of the Company's Class A Common Stock for
the 20 preceding consecutive trading days equals or exceeds $52.87,
which represents a 20% annual compounded growth in the price of a share
of the Company's Class A Common Stock over five years. Generally
accepted accounting principles require that a charge to earnings be
recorded for the performance-based options for the difference between
the exercise price and the then-current stock price when achievement of
the performance objective becomes probable. The remaining options
generally become exercisable in 20% annual increments beginning on
September 7, 1996. The Compensation Committee may accelerate the
exercisability of any option at any time at its discretion and the
options become immediately exercisable in the event of a change of
control of the Company, as defined in the plan. All of the options
expire on October 31, 2001. As of October 31, 1996, 2,889 options had
been exercised under this plan.
Directors' Stock Option Plan
Effective January 2, 1996, the Board of Directors adopted, and in
December 1996 amended, the Directors' Stock Option Plan, pursuant to
which each director of the Company who is not an employee of the Company
was granted an option on January 2, 1996 to purchase 36,000 shares of
the Company's Class A Common Stock for $24.67 per share. The options
become exercisable in 25% annual increments beginning January 2, 1997.
The Compensation Committee may accelerate the exercisability of any
option at any time at its discretion and the options become immediately
exercisable in the event of a change of control of the Company, as
defined in the plan. All of the options expire on January 2, 2001. As
of October 31, 1996, no options had been exercised under this plan.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(11) Benefit Plans--(Continued)
Employee Stock Purchase Plan
On July 1, 1992, the Company adopted an "Employee Stock Purchase
Plan" and reserved 1,125,000 shares of Class A Common Stock for purchase
by eligible employees, as defined. The plan provides to eligible
employees the opportunity to purchase Company Class A Common Stock semi-
annually on June 30 and December 31. The purchase price is established
at a 15% discount from fair market value, as defined. As of October 31,
1996, 165,577 shares had been acquired under this plan.
(12) Commitments, Contingencies and Related Party Transactions
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 $2,000.
On September 19, 1996, the District Court entered a Consent Decree in
Settlement which allowed the Company to settle the case, without
admitting liability and expressly denying the matters alleged in the
complaint, by paying a civil penalty of $122 and agreeing to certain
administrative requirements on a prospective basis. Compliance with the
administrative requirements will not have a material adverse effect on
the financial position, results of operations or cash flows of the
Company.
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.
The Company is a party to certain other legal proceedings in the
ordinary course of its business but does not regard any such proceedings
as material.
As of October 31, 1996, the Company had advanced approximately $677,
including accrued interest, to fund premiums on a split-dollar, "second-
to-die" life insurance policy on behalf of the Company's Chairman, Mr.
Frank B. Stewart, Jr., and Mrs. Stewart. The advances are
collateralized by the assignment of other insurance policies and the
pledge of Class A Common Stock of the Company. In 1992, the Company
agreed to continue to advance such premiums for a twelve-year period and
will be repaid at the earlier of (a) the surrender of the policy, (b)
the deaths of Mr. and Mrs. Stewart, or (c) 60 days following payment in
full of all premiums on the policy.
The Company has noncancellable operating leases, primarily for land
and buildings, that expire over the next three to 20 years, except for
one lease which expires in 2032. Rent expense under these leases was
$3,997, $3,533 and $2,408 for the years ended October 31, 1996, 1995 and
1994, respectively. The Company's future minimum lease payments as of
October 31, 1996 are $4,135, $3,169, $2,421, $1,871, $1,365 and $13,816
for the years ending October 31, 1997, 1998, 1999, 2000, 2001 and later
years, respectively. Additionally, the Company has entered into non-
compete agreements with prior owners of acquired subsidiaries that
expire through 2005. The Company's future non-compete payments as of
October 31, 1996 for the same periods are $5,874, $5,663, $5,032,
$4,356, $4,002 and $10,547, respectively.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(13) Segment Data
The Company conducts funeral and cemetery operations in the United
States, including Puerto Rico, and in Canada. The Company conducts
funeral operations in Mexico, Australia and New Zealand.
Corporate
and
Funeral Cemetery Eliminations Consolidated
_________ __________ _____________ ____________
Revenue
October 31, 1996 $ 225,461 207,926 - $ 433,387
October 31, 1995 $ 188,991 179,831 - $ 368,822
October 31, 1994 $ 116,266 138,092 - $ 254,358
Operating earnings or loss before
performance-based stock options
October 31, 1996 $ 72,239 45,879 (14,096) $ 104,022
October 31, 1995 $ 55,309 34,434 (11,113) $ 78,630
October 31, 1994 $ 31,785 25,812 (8,157) $ 49,440
Identifiable assets
October 31, 1996 $ 776,214 579,237 10,490 $1,365,941
October 31, 1995 $ 506,994 548,668 16,773 $1,072,435
October 31, 1994 $ 298,412 447,093 13,885 $ 759,390
Depreciation and amortization
October 31, 1996 $ 12,960 7,830 911 $ 21,701
October 31, 1995 $ 10,257 5,765 770 $ 16,792
October 31, 1994 $ 6,348 4,131 548 $ 11,027
Capital expenditures
October 31, 1996 $ 81,450 16,442 1,389 $ 99,281
October 31, 1995 $ 58,758 13,548 922 $ 73,228
October 31, 1994 $ 35,785 13,189 1,268 $ 50,242
___________________
Includes the Company's construction and sales operations, which
previously were classified as a separate industry segment.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(13) Segment Data--(Continued)
U.S. and
Possessions Foreign Consolidated
_______________ ___________ _____________
Revenue
October 31, 1996 $ 391,437 41,950 $ 433,387
October 31, 1995 $ 333,558 35,264 $ 368,822
October 31, 1994 $ 250,938 3,420 $ 254,358
Operating earnings before performance-
based stock options
October 31, 1996 $ 88,812 15,210 $ 104,022
October 31, 1995 $ 66,213 12,417 $ 78,630
October 31, 1994 $ 48,474 966 $ 49,440
Identifiable assets
October 31, 1996 $ 1,114,452 251,489 $1,365,941
October 31, 1995 $ 980,510 91,925 $1,072,435
October 31, 1994 $ 725,083 34,307 $ 759,390
_________________________
Includes the Company's operations in the United States and the
Commonwealth of Puerto Rico.
The Company's foreign operations began in the countries and on the
dates indicated: Mexico - August 1994; Australia - December 1994;
New Zealand - April 1996; and Canada - October 1996.
(14) Quarterly Financial Data (Unaudited)
First Second Third Fourth
_________ ___________ _________ ________
Year Ended October 31, 1996
_____________________________
Revenues $102,757 $108,423 $108,934 $113,273
Gross profit 28,599 29,723 29,723 30,073
Net earnings 12,498 13,403 12,924 12,472
Earnings per common share .30 .32 .31 .30
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(14) Quarterly Financial Data (Unaudited)--(Continued)
First Second Third Fourth
_________ _______ _________ ________
Year Ended October 31, 1995
___________________________
Revenues $88,772 $93,095 $91,524 $95,431
Gross profit 21,181 22,943 22,705 22,914
Net earnings (loss) 8,732 9,053 (1,383) 9,743
Earnings (loss) per common share .26 .27 (.04) .24
____________________
Restated to reflect the Company's three-for-two stock split
effective June 21, 1996.
Excluding the effect of the $17,252 ($10,869, or $.28 per share,
after-tax third quarter effect) non-recurring, non-cash charge
required in connection with the vesting of performance-based stock
options, net earnings and earnings per share were $9,486 and $.24,
respectively.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information regarding executive officers required by Item 10 may
be found under Item 4(a) of this report.
The information regarding directors and compliance with Section
16(a) of the Securities Exchange Act of 1934, as amended, required by
Item 10 is incorporated by reference to the Registrant's definitive
proxy statement relating to its 1997 annual meeting of shareholders,
which proxy statement will be filed pursuant to Regulation 14A within
120 days after the end of the last fiscal year.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference to
the Registrant's definitive proxy statement relating to its 1997 annual
meeting of shareholders, which proxy statement will be filed pursuant to
Regulation 14A within 120 days after the end of the last fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated by reference to
the Registrant's definitive proxy statement relating to its 1997 annual
meeting of shareholders, which proxy statement will be filed pursuant to
Regulation 14A within 120 days after the end of the last fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated by reference to
the Registrant's definitive proxy statement relating to its 1997 annual
meeting of shareholders, which proxy statement will be filed pursuant to
Regulation 14A within 120 days after the end of the last fiscal year.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report:
(1) Financial Statements
The Company's consolidated financial statements listed below have
been filed as part of this report:
Page
Report of Independent Accountants 25
Consolidated Statements of Earnings for the Years Ended October 31,
1996, 1995 and 1994 26
Consolidated Balance Sheets as of October 31, 1996 and 1995 27
Consolidated Statements of Shareholders' Equity for the Years Ended
October 31, 1996, 1995 and 1994 29
Consolidated Statements of Cash Flows for the Years Ended October
31, 1996, 1995 and 1994 30
Notes to Consolidated Financial Statements 32
(2) Financial Statement Schedule for the years ended October 31,
1996, 1995 and 1994
Report of Independent Accountants on Financial Statement Schedule 53
Schedule II-Valuation and Qualifying Accounts 54
All other schedules are omitted because they are not applicable or
not required, or the information appears in the financial statements or
notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
The Board of Directors
Stewart Enterprises, Inc.:
Our report on the consolidated financial statements of Stewart
Enterprises, Inc. and Subsidiaries is included in Item 8 of this Form
10-K. In connection with our audits of such financial statements, we
have also audited the related financial statement schedule listed in
Item 14(a) of this Form 10-K. This financial statement schedule is the
responsibility of the Company's management.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information
required to be included therein.
COOPERS & LYBRAND L.L.P.
New Orleans, Louisiana
December 13, 1996
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
_________ ________ ________ ________ _________
Additions
________________________
Balance at Charged to Charged to
beginning costs and other Deductions Balance at end
Description of period expenses accounts -write-offs of period
____________ ___________ __________ ____________ ____________ ______________
Current-Allowance for contract
cancellations and doubtful accounts:
Year ended October 31,
1996 $ 2,847 13,580 445 13,876 $ 2,996
1995 $ 2,800 8,923 1,174 10,050 $ 2,847
1994 $ 2,783 4,748 2,721 7,452 $ 2,800
Due after one year-Allowance for
contract cancellations and doubtful
accounts:
Year ended October 31,
1996 $ 3,307 9,576 797 10,444 $ 3,236
1995 $ 3,803 6,775 1,504 8,775 $ 3,307
1994 $ 3,334 3,009 2,133 4,673 $ 3,803
Accumulated amortization of intangible
assets:
Year ended October 31,
1996 $ 11,743 7,763 - - $ 19,506
1995 $ 6,335 5,408 - - $ 11,743
1994 $ 3,423 2,912 - - $ 6,335
________________
Amounts charged to other accounts represent principally the opening
balance in the allowance for contract cancellations and doubtful
accounts for acquired companies.
Item 14(a)(3) 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, 1995 (the "1995 10-K"))
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)
4.3 Indenture dated as of December 1, 1996 by and between the Company
and Citibank, N.A. as Trustee (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated
December 5, 1996)
4.4 Form of 6.70% Note due 2003 (incorporated by reference to Exhibit
4.2 to the Company's Current Report on Form 8-K dated December 5,
1996)
4.5 Fifth Amended and Restated Loan Agreement by and among the
Company, its subsidiaries and NationsBank of Texas, N.A.,
Citicorp, USA, Inc., Hibernia National Bank, First Union National
Bank of North Carolina, SunTrust Bank, Atlanta, Cooperatieve
Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New
York Branch, Bank of America National Trust and Savings
Association, and First Interstate Bank of Texas, N.A. dated
December 11, 1995 (incorporated by reference to Exhibit 10.59 to
the 1995 10-K), as amended by the First Amendment thereto, dated
as of October 31, 1996
The Company hereby agrees to furnish to the Commission, upon request, a
copy of the instruments which define the rights of holders of the
Company's long-term debt. None of such instruments (other than those
included as exhibits herein) represents long-term debt in excess of 10%
of the Company's consolidated total assets.
10.1 Lease Agreement dated September 1, 1983 between Stewart Building
Enterprise and Stewart Enterprises, Inc. and amendments thereto
dated June 18, 1990 and May 23, 1991 (incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form S-1
(Registration No. 33-42336) filed with the Commission on
August 21, 1991 (the "1991 Registration Statement"); dated June 1,
1992 (incorporated by reference to Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31,
1992); dated June 1, 1993 (incorporated by reference to Exhibit
10.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended October 31, 1993); dated October 28, 1994 and dated
November 30, 1994 (incorporated by reference to Exhibit 10.1 to
the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1994); and dated May 27, 1997
10.2 Split-Dollar Agreement dated January 10, 1992 between the Company,
Roy A. Perrin, Jr., Trustee, on behalf of all Trustees of the
Elisabeth Felder Stewart 1988 Trust and of the Frank B. Stewart,
III 1988 Trust, and Frank B. Stewart, Jr. (incorporated by
reference to Exhibit 10.39 to the 1992 10-K)
10.3 Promissory Note by the Company to Frank B. Stewart, Jr. in the
amount of $2,590,997 dated November 1, 1992, and amendment thereto
dated January 1, 1994 (incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the quarter
ended January 31, 1995)
10.4 Lease dated June 29, 1990 between Richard O. Baldwin, Jr. and
Baldwin-Fairchild Funeral Homes, Inc. (incorporated by reference
to Exhibit 10.7 to the 1991 Registration Statement)
10.5 Promissory Note by S.E. Mid-Atlantic, Inc. to Brian J. Marlowe in
the amount of $3,797,331 dated January 1, 1994 (incorporated by
reference to Exhibit 10.37 to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1994 (the "1994 10-K"))
________________________
Management Contracts and Compensatory Plans or Arrangements
10.6 Form of Indemnity Agreement between the Company and its directors
and executive officers (incorporated by reference to Exhibit 10.25
to the 1991 Registration Statement), and amendment dated September
18, 1996
10.7 Stock Option Agreement between the Company and Frank B. Stewart,
Jr. dated September 25, 1992 (incorporated by reference to Exhibit
10.22 to the 1992 10-K)
10.8 Stock Option Agreements between the Company and Joseph P. Henican,
III dated February 1, 1995 (incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended July 31, 1995)
10.9 Employment Agreement dated August 1, 1995, and Change of Control
Agreement dated December 5, 1995, between the Company and Joseph
P. Henican, III (incorporated by reference to Exhibits 10.16 and
10.20, respectively, to the 1995 10-K)
10.10 Stock Option Agreement dated September 7, 1995 (time-vest), dated
September 7, 1995 (performance-based), and dated December 5, 1995
(performance-based), between the Company and Joseph P. Henican,
III (incorporated by reference to Exhibits 10.17, 10.18 and 10.19,
respectively, to the 1995 10-K)
10.11 Stock Option Agreement between the Company and William E. Rowe
dated September 25, 1992 (incorporated by reference to Exhibit
10.28 to the 1992 10-K) and addenda thereto dated April 15, 1994
(incorporated by reference to Exhibit 10.24 to the 1994 10-K)
10.12 Stock Option Agreements between the Company and William E. Rowe
dated April 15, 1994 (incorporated by reference to Exhibit 10.25
to the 1994 10-K)
10.13 Stock Option Agreements between the Company and William E. Rowe
dated November 1, 1994 (incorporated by reference to Exhibit 10.3
to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1995)
10.14 Employment Agreement dated August 1, 1995, and Change of Control
Agreement dated December 5, 1995, between the Company and William
E. Rowe (incorporated by reference to Exhibits 10.25 and 10.29,
respectively, to the 1995 10-K)
10.15 Stock Option Agreement dated September 7, 1995 (time-vest), dated
September 7, 1995 (performance-based), and dated December 5, 1995
(performance-based) between the Company and William E. Rowe
(incorporated by reference to Exhibits 10.26, 10.27 and 10.28,
respectively, to the 1995 10-K)
10.16 Stock Option Agreement between the Company and Ronald H. Patron
dated September 25, 1992 (incorporated by reference to Exhibit
10.24 to the 1992 10-K)
10.17 Employment Agreement dated August 1, 1995, and Change of Control
Agreement dated December 5, 1995, between the Company and Ronald
H. Patron (incorporated by reference to Exhibits 10.32 and 10.36,
respectively, to the 1995 10-K)
10.18 Stock Option Agreement dated September 7, 1995 (time-vest), dated
September 7, 1995 (performance-based) and dated December 5, 1995
(performance-based), between the Company and Ronald H. Patron
(incorporated by reference to Exhibits 10.33, 10.34 and 10.35,
respectively, to the 1995 10-K)
10.19 Stock Option Agreement between the Company and Gerard C. Alexander
dated September 25, 1992 (incorporated by reference to Exhibit
10.25 to the 1992 10-K)
10.20 Employment Agreement dated August 1, 1995, and Change of Control
Agreement dated December 5, 1995, between the Company and Gerard
C. Alexander (incorporated by reference to Exhibits 10.39 and
10.43, respectively, to the 1995 10-K)
10.21 Stock Option Agreement dated September 7, 1995 (time-vest), dated
September 7, 1995 (performance-based), and dated December 5, 1995
(performance-based), between the Company and Gerard C. Alexander
(incorporated by reference to Exhibits 10.40, 10.41 and 10.42,
respectively, to the 1995 10-K)
10.22 Stock Option Agreement between the Company and Richard O. Baldwin,
Jr. dated September 25, 1992
10.23 Employment Agreement between the Company and Richard O. Baldwin
dated August 1, 1995
10.24 Stock Option Agreement between the Company and Richard O. Baldwin
dated September 7, 1995 (time-vest)
10.25 Stock Option Agreement between the Company and Richard O. Baldwin
dated September 7, 1995 (performance-based)
10.26 Stock Option Agreement between the Company and Richard O. Baldwin
dated December 5, 1995 (performance-based)
10.27 Change of Control Agreement between the Company and Richard O.
Baldwin dated December 5, 1995
10.28 Stock Option Agreement between the Company and Brian J. Marlowe
dated April 15, 1994 (incorporated by reference to Exhibit 10.26
to the 1994 10-K)
10.29 Stock Option Agreements between the Company and Brian J. Marlowe
dated November 1, 1994 (incorporated by reference to Exhibit 10.4
to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1995)
10.30 Employment Agreement dated August 1, 1995, and Change of Control
Agreement dated December 5, 1995, between the Company and Brian J.
Marlowe (incorporated by reference to Exhibits 10.47 and 10.51,
respectively, to the 1995 10-K)
10.31 Stock Option Agreement dated September 7, 1995 (time-vest), dated
September 7, 1995 (performance-based) and dated December 5, 1995
(performance-based), between the Company and Brian J. Marlowe
(incorporated by reference to Exhibits 10.48, 10.49 and 10.50,
respectively, to the 1995 10-K)
10.32 Employment Agreement between the Company and Andrew H. McEachern
dated December 9, 1994 (incorporated by reference to Exhibit 10.17
to the 1994 10-K)
10.33 Stock Option Agreement between the Company and Andrew H. McEachern
dated December 9, 1994 (incorporated by reference to Exhibit 10.27
to the 1994 10-K)
10.34 Stock Option Agreement between the Company and Kenneth C. Budde
dated September 25, 1992
10.35 Employment Agreement between the Company and Kenneth C. Budde
dated August 1, 1995
10.36 Stock Option Agreement between the Company and Kenneth C. Budde
dated September 7, 1995 (time-vest)
10.37 Stock Option Agreement between the Company and Kenneth C. Budde
dated September 7, 1995 (performance-based)
10.38 Stock Option Agreement between the Company and Kenneth C. Budde
dated December 5, 1995 (performance-based)
10.39 Change of Control Agreement between the Company and Kenneth C.
Budde dated December 5, 1995
10.40 Stock Option Agreement between the Company and Lawrence B. Hawkins
dated September 25, 1992
10.41 Employment Agreement between the Company and Lawrence B. Hawkins
dated August 1, 1995
10.42 Stock Option Agreement between the Company and Lawrence B. Hawkins
dated September 7, 1995 (time-vest)
10.43 Stock Option Agreement between the Company and Lawrence B. Hawkins
dated September 7, 1995 (performance-based)
10.44 Stock Option Agreement between the Company and Lawrence B. Hawkins
dated December 5, 1995 (performance-based)
10.45 Change of Control Agreement between the Company and Lawrence B.
Hawkins dated December 5, 1995
10.46 Stock Option Agreement between the Company and Brent F. Heffron
dated September 25, 1992
10.47 Stock Option Agreement between the Company and Brent F. Heffron
dated September 7, 1995 (time-vest)
10.48 Stock Option Agreement between the Company and Brent F. Heffron
dated September 7, 1995 (performance-based)
10.49 Stock Option Agreement between the Company and Brent F. Heffron
dated December 5, 1995 (performance-based)
10.50 Stock Option Agreement between the Company and Raymond C. Knopke,
Jr. dated September 25, 1992
10.51 Stock Option Agreement between the Company and Raymond C. Knopke,
Jr. dated September 7, 1995 (time-vest)
10.52 Stock Option Agreement between the Company and Raymond C. Knopke,
Jr. dated September 7, 1995 (performance-based)
10.53 Stock Option Agreement between the Company and Raymond C. Knopke,
Jr. dated December 5, 1995 (performance-based)
10.54 The Stewart Enterprises Employees' Retirement Trust (incorporated
by reference to Exhibit 10.20 to the 1991 Registration Statement)
and amendment thereto dated January 1, 1994 (incorporated by
reference to Exhibit 10.28 to the 1994 10-K)
10.55 The Stewart Enterprises Supplemental Retirement and Deferred
Compensation Plan (incorporated by reference to Exhibit 10.29 to
the 1994 10-K)
10.56 Amended and Restated Stewart Enterprises, Inc. 1991 Incentive
Compensation Plan
10.57 Amended and Restated Stewart Enterprises, Inc. 1995 Incentive
Compensation Plan
10.58 Amended and Restated Directors' Stock Option Plan
________________________
12 Calculation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of the Company
23 Consent of Coopers & Lybrand L.L.P.
27 Financial data schedule
________________________
(b) Reports on Form 8-K
The Company filed a Form 8-K on September 10, 1996 reporting,
under "Item 5. Other Events," the earnings release for the quarter ended
July 31, 1996.
The Company also filed a Form 8-K on October 9, 1996 reporting,
under "Item 2. Acquisition and Disposition of Assets," the acquisition
of the Urgel Bourgie firm in Canada; under "Item 5. Other Events," the
press release announcing its acquisition of Urgel Bourgie; and under
"Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits," pro forma financial information concerning certain
acquisitions during the period from November 1, 1994 through September
30, 1996, including the Urgel Bourgie acquisition, as well as audited
financial statements for the Urgel Bourgie firm, as required by
Regulation S-X, Rule 3-05(b).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on January 22, 1997.
STEWART ENTERPRISES, INC.
By: /s/ JOSEPH P. HENICAN, III
____________________________
Joseph P. Henican, III
Vice Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and on the dates indicated.
Signature Title Date
/s/ FRANK B. STEWART, JR. Chairman of the Board January 22, 1997
____________________________
Frank B. Stewart, Jr.
/s/ JOSEPH P. HENICAN, III Vice Chairman of the Board January 22, 1997
_____________________________ and Chief Executive Officer
Joseph P. Henican, III
(Principal Executive Officer)
/s/ WILLIAM E. ROWE President, Chief Operating January 22, 1997
____________________________ Officer and a Director
William E. Rowe
/s/ RONALD H. PATRON Chief Financial Officer, January 22, 1997
___________________________ President-Corporate Division
Ronald H. Patron and a Director
(Principal Financial Officer)
/s/ KENNETH C. BUDDE Senior Vice President- January 22, 1997
____________________________ Corporate Division,
Kenneth C. Budde Treasurer and Secretary
(Principal Accounting Officer)
/s/ DARWIN C. FENNER Director January 22, 1997
______________________________
Darwin C. Fenner
/s/ MICHAEL O. READ Director January 22, 1997
_______________________________
Michael O. Read
/s/ JOHN P. LABORDE Director January 22, 1997
_______________________________
John P. Laborde
/s/ JAMES W. McFARLAND Director January 22, 1997
_______________________________
James W. McFarland