e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended April 30, 2011
or
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o |
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number: 1-15449
STEWART ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
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LOUISIANA
(State or other jurisdiction of incorporation or organization)
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72-0693290
(I.R.S. Employer Identification No.) |
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1333 South Clearview Parkway
Jefferson, Louisiana
(Address of principal executive offices)
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70121
(Zip Code) |
(504) 729-1400
(Registrants telephone number, including area code)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act.) Yes o No þ
The number of shares of the registrants Class A common stock, no par value per share, and
Class B common stock, no par value per share, outstanding as of May 31, 2011, was 87,509,089 and
3,555,020, respectively.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
INDEX
2
PART I. FINANCIAL INFORMATION
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Item 1. |
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Financial Statements |
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share amounts)
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Three Months Ended April 30, |
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2011 |
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2010 |
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Revenues: |
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Funeral |
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$ |
72,974 |
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$ |
71,060 |
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Cemetery |
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56,691 |
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56,973 |
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129,665 |
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128,033 |
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Costs and expenses: |
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Funeral |
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54,926 |
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54,151 |
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Cemetery |
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49,098 |
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48,802 |
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104,024 |
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102,953 |
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Gross profit |
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25,641 |
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25,080 |
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Corporate general and administrative expenses |
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(6,650 |
) |
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(6,116 |
) |
Hurricane related charges, net |
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(54 |
) |
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(32 |
) |
Net loss on dispositions |
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(400 |
) |
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Other operating income, net |
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448 |
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265 |
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Operating earnings |
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18,985 |
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19,197 |
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Interest expense |
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(5,732 |
) |
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(5,891 |
) |
Loss on early extinguishment of debt |
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(1,811 |
) |
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Investment and other income, net |
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340 |
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36 |
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Earnings from continuing operations before income taxes |
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11,782 |
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13,342 |
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Income taxes |
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1,784 |
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4,954 |
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Earnings from continuing operations |
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9,998 |
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8,388 |
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Discontinued operations: |
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Earnings from discontinued operations before income taxes |
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4 |
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Income taxes |
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1 |
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Earnings from discontinued operations |
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3 |
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Net earnings |
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$ |
9,998 |
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$ |
8,391 |
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Basic earnings per common share: |
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Earnings from continuing operations |
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$ |
.11 |
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$ |
.09 |
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Earnings from discontinued operations |
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Net earnings |
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$ |
.11 |
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$ |
.09 |
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Diluted earnings per common share: |
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Earnings from continuing operations |
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$ |
.11 |
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$ |
.09 |
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Earnings from discontinued operations |
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Net earnings |
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$ |
.11 |
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$ |
.09 |
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Weighted average common shares outstanding (in thousands): |
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Basic |
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90,442 |
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92,113 |
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Diluted |
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91,066 |
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92,387 |
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Dividends declared per common share |
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$ |
.03 |
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$ |
.03 |
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See accompanying notes to condensed consolidated financial statements.
3
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share amounts)
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Six Months Ended April 30, |
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2011 |
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2010 |
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Revenues: |
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Funeral |
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$ |
146,840 |
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$ |
142,780 |
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Cemetery |
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112,089 |
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109,265 |
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258,929 |
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252,045 |
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Costs and expenses: |
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Funeral |
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108,404 |
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106,600 |
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Cemetery |
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96,529 |
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95,122 |
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204,933 |
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201,722 |
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Gross profit |
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53,996 |
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50,323 |
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Corporate general and administrative expenses |
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|
(13,289 |
) |
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(12,786 |
) |
Hurricane related charges, net |
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(104 |
) |
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|
(32 |
) |
Net loss on dispositions |
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(400 |
) |
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Other operating income, net |
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|
681 |
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|
444 |
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Operating earnings |
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40,884 |
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37,949 |
|
Interest expense |
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(11,468 |
) |
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(12,347 |
) |
Gain (loss) on early extinguishment of debt |
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(1,811 |
) |
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17 |
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Investment and other income, net |
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|
364 |
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60 |
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Earnings from continuing operations before income taxes |
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27,969 |
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|
25,679 |
|
Income taxes |
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9,927 |
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|
9,830 |
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|
|
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|
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Earnings from continuing operations |
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18,042 |
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|
15,849 |
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Discontinued operations: |
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Earnings from discontinued operations before income taxes |
|
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46 |
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Income taxes |
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|
|
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17 |
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|
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Earnings from discontinued operations |
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29 |
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|
|
|
|
|
|
|
|
|
|
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Net earnings |
|
$ |
18,042 |
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$ |
15,878 |
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Basic earnings per common share: |
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Earnings from continuing operations |
|
$ |
.20 |
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$ |
.17 |
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Earnings from discontinued operations |
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|
|
|
|
|
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|
|
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Net earnings |
|
$ |
.20 |
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$ |
.17 |
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Diluted earnings per common share: |
|
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|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
.20 |
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$ |
.17 |
|
Earnings from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net earnings |
|
$ |
.20 |
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$ |
.17 |
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
Weighted average common shares outstanding (in thousands): |
|
|
|
|
|
|
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|
Basic |
|
|
90,658 |
|
|
|
92,082 |
|
|
|
|
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Diluted |
|
|
91,125 |
|
|
|
92,332 |
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|
|
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Dividends declared per common share |
|
$ |
.06 |
|
|
$ |
.06 |
|
|
|
|
|
|
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|
See accompanying notes to condensed consolidated financial statements.
4
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)
|
|
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|
April 30, 2011 |
|
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October 31, 2010 |
|
ASSETS |
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Current assets: |
|
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|
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|
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Cash and cash equivalents |
|
$ |
78,310 |
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|
$ |
56,060 |
|
Certificates of deposit and marketable securities |
|
|
598 |
|
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|
10,000 |
|
Receivables, net of allowances |
|
|
48,836 |
|
|
|
51,151 |
|
Inventories |
|
|
35,793 |
|
|
|
35,708 |
|
Prepaid expenses |
|
|
7,671 |
|
|
|
5,479 |
|
Deferred income taxes, net |
|
|
28,405 |
|
|
|
28,312 |
|
Assets held for sale |
|
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27 |
|
|
|
|
|
|
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Total current assets |
|
|
199,613 |
|
|
|
186,737 |
|
Receivables due beyond one year, net of allowances |
|
|
64,267 |
|
|
|
67,458 |
|
Preneed funeral receivables and trust investments |
|
|
432,696 |
|
|
|
414,918 |
|
Preneed cemetery receivables and trust investments |
|
|
226,650 |
|
|
|
209,287 |
|
Goodwill |
|
|
247,038 |
|
|
|
247,038 |
|
Cemetery property, at cost |
|
|
387,641 |
|
|
|
386,004 |
|
Property and equipment, at cost: |
|
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|
|
|
|
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Land |
|
|
43,726 |
|
|
|
43,518 |
|
Buildings |
|
|
342,474 |
|
|
|
338,237 |
|
Equipment and other |
|
|
194,219 |
|
|
|
191,428 |
|
|
|
|
|
|
|
|
|
|
|
580,419 |
|
|
|
573,183 |
|
Less accumulated depreciation |
|
|
295,205 |
|
|
|
283,633 |
|
|
|
|
|
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Net property and equipment |
|
|
285,214 |
|
|
|
289,550 |
|
Deferred income taxes, net |
|
|
92,112 |
|
|
|
98,025 |
|
Cemetery perpetual care trust investments |
|
|
242,542 |
|
|
|
230,730 |
|
Non-current assets held for sale |
|
|
|
|
|
|
1,214 |
|
Other assets |
|
|
15,878 |
|
|
|
11,905 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,193,651 |
|
|
$ |
2,142,866 |
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|
(continued)
5
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)
|
|
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|
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|
April 30, 2011 |
|
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October 31, 2010 |
|
LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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|
|
|
|
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|
Current maturities of long-term debt |
|
$ |
5,817 |
|
|
$ |
5 |
|
Accounts payable and accrued expenses |
|
|
24,175 |
|
|
|
24,797 |
|
Accrued payroll and other benefits |
|
|
13,406 |
|
|
|
14,311 |
|
Accrued insurance |
|
|
20,850 |
|
|
|
20,912 |
|
Accrued interest |
|
|
2,018 |
|
|
|
4,197 |
|
Estimated obligation to fund cemetery perpetual care trust |
|
|
12,633 |
|
|
|
13,253 |
|
Other current liabilities |
|
|
9,495 |
|
|
|
12,132 |
|
Income taxes payable |
|
|
698 |
|
|
|
2,533 |
|
Liabilities associated with assets held for sale |
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|
|
|
|
|
8 |
|
|
|
|
|
|
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Total current liabilities |
|
|
89,092 |
|
|
|
92,148 |
|
Long-term debt, less current maturities |
|
|
315,891 |
|
|
|
314,027 |
|
Deferred income taxes, net |
|
|
4,906 |
|
|
|
4,950 |
|
Deferred preneed funeral revenue |
|
|
242,032 |
|
|
|
243,520 |
|
Deferred preneed cemetery revenue |
|
|
256,364 |
|
|
|
258,044 |
|
Deferred preneed funeral and cemetery receipts held in trust |
|
|
591,761 |
|
|
|
554,716 |
|
Perpetual care trusts corpus |
|
|
241,576 |
|
|
|
229,240 |
|
Long-term liabilities associated with assets held for sale |
|
|
|
|
|
|
714 |
|
Other long-term liabilities |
|
|
20,456 |
|
|
|
20,023 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,762,078 |
|
|
|
1,717,382 |
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, $1.00 par value, 5,000,000 shares authorized;
no shares issued |
|
|
|
|
|
|
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|
Common stock, $1.00 stated value: |
|
|
|
|
|
|
|
|
Class A authorized 200,000,000 shares; issued and
outstanding 87,646,189 and 88,739,140 shares at April
30, 2011 and October 31, 2010, respectively |
|
|
87,646 |
|
|
|
88,739 |
|
Class B authorized 5,000,000 shares; issued and
outstanding 3,555,020 shares at April 30, 2011 and
October 31, 2010; 10 votes per share convertible into
an equal number of Class A shares |
|
|
3,555 |
|
|
|
3,555 |
|
Additional paid-in capital |
|
|
536,450 |
|
|
|
547,319 |
|
Accumulated deficit |
|
|
(196,105 |
) |
|
|
(214,147 |
) |
Accumulated other comprehensive income: |
|
|
|
|
|
|
|
|
Unrealized appreciation of investments |
|
|
27 |
|
|
|
18 |
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income |
|
|
27 |
|
|
|
18 |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
431,573 |
|
|
|
425,484 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
2,193,651 |
|
|
$ |
2,142,866 |
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
6
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(Unaudited)
(Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Unrealized |
|
|
Total |
|
|
|
Common |
|
|
Paid-In |
|
|
Accumulated |
|
|
Appreciation |
|
|
Shareholders |
|
|
|
Stock(1) |
|
|
Capital |
|
|
Deficit |
|
|
of Investments |
|
|
Equity |
|
Balance October 31, 2010 |
|
$ |
92,294 |
|
|
$ |
547,319 |
|
|
$ |
(214,147 |
) |
|
$ |
18 |
|
|
$ |
425,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
18,042 |
|
|
|
|
|
|
|
18,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
appreciation of
investments, net of
deferred tax expense
of
($5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
18,042 |
|
|
|
9 |
|
|
|
18,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock activity |
|
|
84 |
|
|
|
506 |
|
|
|
|
|
|
|
|
|
|
|
590 |
|
Issuance of common stock |
|
|
107 |
|
|
|
500 |
|
|
|
|
|
|
|
|
|
|
|
607 |
|
Stock options exercised |
|
|
238 |
|
|
|
810 |
|
|
|
|
|
|
|
|
|
|
|
1,048 |
|
Stock option expense |
|
|
|
|
|
|
561 |
|
|
|
|
|
|
|
|
|
|
|
561 |
|
Tax benefit associated
with stock activity |
|
|
|
|
|
|
104 |
|
|
|
|
|
|
|
|
|
|
|
104 |
|
Purchase and retirement of
common stock |
|
|
(1,522 |
) |
|
|
(7,865 |
) |
|
|
|
|
|
|
|
|
|
|
(9,387 |
) |
Dividends ($.06 per share) |
|
|
|
|
|
|
(5,485 |
) |
|
|
|
|
|
|
|
|
|
|
(5,485 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance April 30, 2011 |
|
$ |
91,201 |
|
|
$ |
536,450 |
|
|
$ |
(196,105 |
) |
|
$ |
27 |
|
|
$ |
431,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amount includes 87,646 and 88,739 shares (in thousands) of Class A common stock
with a stated value of $1 per share as of April 30, 2011 and October 31, 2010, respectively,
and includes 3,555 shares (in thousands) of Class B common stock. |
See accompanying notes to condensed consolidated financial statements.
7
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30, |
|
|
|
2011 |
|
|
2010 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
18,042 |
|
|
$ |
15,878 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Net loss on dispositions |
|
|
400 |
|
|
|
|
|
(Gain) loss on early extinguishment of debt |
|
|
1,811 |
|
|
|
(17 |
) |
Premiums paid on early extinguishment of debt |
|
|
(777 |
) |
|
|
|
|
Depreciation and amortization |
|
|
13,575 |
|
|
|
13,194 |
|
Non-cash interest and amortization of discount on senior convertible notes |
|
|
2,636 |
|
|
|
3,046 |
|
Provision for doubtful accounts |
|
|
2,528 |
|
|
|
2,406 |
|
Share-based compensation |
|
|
1,661 |
|
|
|
1,500 |
|
Excess tax benefits from share-based payment arrangements |
|
|
(144 |
) |
|
|
(26 |
) |
Provision for deferred income taxes |
|
|
8,278 |
|
|
|
8,395 |
|
Estimated obligation to fund cemetery perpetual care trust |
|
|
73 |
|
|
|
|
|
Other |
|
|
(328 |
) |
|
|
12 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Decrease in receivables |
|
|
486 |
|
|
|
754 |
|
Increase in prepaid expenses |
|
|
(2,193 |
) |
|
|
(2,271 |
) |
(Increase) decrease in inventories and cemetery property |
|
|
(684 |
) |
|
|
1,106 |
|
Federal income tax refunds |
|
|
|
|
|
|
1,600 |
|
Decrease in accounts payable and accrued expenses |
|
|
(8,524 |
) |
|
|
(11,501 |
) |
Net effect of preneed funeral production and maturities: |
|
|
|
|
|
|
|
|
Decrease in preneed funeral receivables and trust investments |
|
|
4,083 |
|
|
|
5,925 |
|
Decrease in deferred preneed funeral revenue |
|
|
(1,674 |
) |
|
|
(2,104 |
) |
Decrease in deferred preneed funeral receipts held in trust |
|
|
(1,947 |
) |
|
|
(6,926 |
) |
Net effect of preneed cemetery production and deliveries: |
|
|
|
|
|
|
|
|
(Increase) decrease in preneed cemetery receivables and trust investments |
|
|
(3,901 |
) |
|
|
793 |
|
Decrease in deferred preneed cemetery revenue |
|
|
(1,682 |
) |
|
|
(5,679 |
) |
Increase in deferred preneed cemetery receipts held in trust |
|
|
3,935 |
|
|
|
325 |
|
Increase in other |
|
|
42 |
|
|
|
45 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
35,696 |
|
|
|
26,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Proceeds from sales of certificates of deposit and marketable securities |
|
|
10,000 |
|
|
|
250 |
|
Purchases of certificates of deposit and marketable securities |
|
|
(585 |
) |
|
|
(10,661 |
) |
Proceeds from sale of assets |
|
|
285 |
|
|
|
|
|
Purchase of subsidiaries and other investments, net of cash acquired |
|
|
(1,809 |
) |
|
|
|
|
Additions to property and equipment |
|
|
(8,762 |
) |
|
|
(8,366 |
) |
Other |
|
|
54 |
|
|
|
50 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(817 |
) |
|
|
(18,727 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds of long-term debt |
|
|
200,000 |
|
|
|
|
|
Repayments of long-term debt |
|
|
(194,190 |
) |
|
|
(847 |
) |
Retirement of common stock warrants |
|
|
|
|
|
|
(107 |
) |
Issuance of common stock |
|
|
1,199 |
|
|
|
471 |
|
Retirement of call options |
|
|
|
|
|
|
107 |
|
Purchase and retirement of common stock |
|
|
(9,387 |
) |
|
|
|
|
Debt refinancing costs |
|
|
(4,910 |
) |
|
|
(38 |
) |
Dividends |
|
|
(5,485 |
) |
|
|
(5,589 |
) |
Excess tax benefits from share-based payment arrangements |
|
|
144 |
|
|
|
26 |
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(12,629 |
) |
|
|
(5,977 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash |
|
|
22,250 |
|
|
|
1,751 |
|
Cash and cash equivalents, beginning of period |
|
|
56,060 |
|
|
|
62,808 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
78,310 |
|
|
$ |
64,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid (received) during the period for: |
|
|
|
|
|
|
|
|
Income taxes, net |
|
$ |
3,281 |
|
|
$ |
(430 |
) |
Interest |
|
$ |
11,105 |
|
|
$ |
9,728 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Issuance of common stock to executive officers and directors |
|
$ |
456 |
|
|
$ |
414 |
|
Issuance of restricted stock, net of forfeitures |
|
$ |
590 |
|
|
$ |
437 |
|
See accompanying notes to condensed consolidated financial statements.
8
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(1) Basis of Presentation
(a) The Company
Stewart Enterprises, Inc. (the Company) is a provider of funeral and cemetery products and
services in the death care industry in the United States and Puerto Rico. Through its
subsidiaries, the Company offers a complete line of funeral and cremation merchandise and services,
along with cemetery property, merchandise and services, both at the time of need and on a preneed
basis. As of April 30, 2011, the Company owned and operated 217 funeral homes and 140 cemeteries
in 24 states within the United States and Puerto Rico. The Company has three operating and
reportable segments consisting of a funeral segment, cemetery segment and corporate trust
management segment.
(b) Principles of Consolidation
The accompanying condensed consolidated financial statements include the Company and its
subsidiaries. All significant intercompany balances and transactions have been eliminated.
(c) Interim Disclosures
The information as of April 30, 2011, and for the three and six months ended April 30, 2011
and 2010, is unaudited but, in the opinion of management, reflects all adjustments, which are of a
normal recurring nature, necessary for a fair presentation of financial position and results of
operations for the interim periods. The accompanying condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and notes thereto
contained in the Companys Annual Report on Form 10-K for the fiscal year ended October 31, 2010
(the 2010 Form 10-K).
The October 31, 2010 condensed consolidated balance sheet data was derived from audited
financial statements in the Companys 2010 Form 10-K, but does not include all disclosures required
by accounting principles generally accepted in the United States of America, which are presented in
the Companys 2010 Form 10-K.
The results of operations for the three and six months ended April 30, 2011 are not
necessarily indicative of the results to be expected for the fiscal year ending October 31, 2011.
(d) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the 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. The
Companys significant estimates are disclosed in Note 2 in the Companys 2010 Form 10-K.
(e) Share-Based Compensation
The Company has share-based compensation plans, which are described in more detail in Note 19
to the consolidated financial statements in the Companys 2010 Form 10-K. Net earnings for the
three months ended April
30, 2011 and 2010 include $250 and $265, respectively, of stock option expenses, all of which
are included in corporate general and administrative expenses in the condensed consolidated
statements of earnings. Net earnings for the six months ended April 30, 2011 and 2010 include $561
and $540, respectively, of stock option expenses, all of which are included in corporate general
and administrative expenses in the condensed consolidated statements of earnings. As of April 30,
2011, there was $2,915 of total unrecognized compensation costs related to nonvested stock options
that is expected to be recognized over a weighted-average period of 3.1 years, of which $1,052 of
total stock option expense is expected for fiscal year 2011. The expense related to restricted
stock is reflected in
9
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(1) Basis of Presentation(Continued)
corporate general and administrative expenses in the condensed consolidated
statements of earnings and amounted to $279 and $273 for the three months ended April 30, 2011 and
2010, respectively, and $644 and $546 for the six months ended April 30, 2011 and 2010,
respectively. As of April 30, 2011, there was $1,488 of remaining future restricted stock expense
to be recognized. Total restricted stock expense for fiscal year 2011 is expected to be $1,340.
In November 2010, the Company issued 82,160 shares of Class A common stock and paid
approximately $114 in cash to the independent directors of the Company. The expense related to
this stock grant amounted to $456 and was recorded in corporate general and administrative expenses
during the first quarter of fiscal year 2011. In November 2009, the Company issued 90,000 shares
of Class A common stock and paid approximately $96 in cash to the independent directors of the
Company. The expense related to this stock grant was $414 and was recorded in corporate general
and administrative expenses during the first quarter of fiscal year 2010. Each of the shares
received has a restriction requiring each independent director to hold the respective shares until
completion of service as a member of the Board of Directors.
The table below presents all stock options and restricted stock granted to employees during
the six months ended April 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Number of Shares |
|
Average |
|
|
|
|
Grant Type |
|
Granted |
|
Price per Share |
|
Vesting Period |
|
Vesting Condition |
Stock options |
|
|
1,330,000 |
|
|
$ |
6.24 |
|
|
Equal one-fourth
portions over 4 years |
|
Service condition |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock |
|
|
518,000 |
|
|
$ |
6.24 |
|
|
Equal one-third portions over 3 years |
|
Market condition |
The fair value of the Companys service based stock options granted in fiscal year 2011
is the estimated present value at the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions for the six months ended April 30, 2011: expected
dividend yield of 1.9 percent; expected volatility of 41.5 percent; risk-free interest rate of 1.9
percent; and an expected term of 4.8 years. During the six months ended April 30, 2011, the
Company granted 518,000 shares of restricted stock with market conditions based on achieving
certain target stock prices in the fiscal years 2011, 2012 and 2013. The Company records the
expense over the requisite service period. The market condition related to fiscal year 2011 was
achieved during the second quarter of fiscal year 2011.
(f) Receivables and Allowance for Doubtful Accounts
The Company establishes an allowance for uncollectible installment contracts and trade
accounts based on a range of percentages applied to accounts receivable aging categories. These
percentages are based on an analysis of the Companys historical collection and write-off
experience. At-need funeral and other receivables are considered past due after 30 days. The
Company records an allowance on its interest accruals similar to the corresponding principal aging
categories. For accounts that are greater than 90 days past due, interest continues to be accrued,
however, an allowance is established to fully reserve for the interest. Interest income on these
receivables is recognized only to the extent the account becomes less than 90 days past due and
then only on the
non-reserved portion. Accounts are restored to normal accrual status only when interest and
principal payments are brought current and future payments are reasonably assured.
10
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(1) Basis of Presentation(Continued)
As of April 30, 2011 and October 31, 2010, the Companys receivables and related allowances
were as follows:
|
|
|
|
|
|
|
|
|
|
|
Receivables as of April 30, 2011 |
|
|
Receivables as of October 31, 2010 |
|
|
|
Ending Balance Collectively |
|
|
Ending Balance Collectively |
|
|
|
Evaluated for Impairment |
|
|
Evaluated for Impairment |
|
Current receivables at-need funeral |
|
$ |
9,182 |
|
|
$ |
9,153 |
|
Current receivables other |
|
|
45,147 |
|
|
|
47,736 |
|
Receivables, due beyond one year other |
|
|
72,199 |
|
|
|
75,782 |
|
Preneed funeral receivables |
|
|
42,797 |
|
|
|
42,879 |
|
Preneed cemetery receivables |
|
|
30,980 |
|
|
|
31,643 |
|
|
|
|
|
|
|
|
Total |
|
$ |
200,305 |
|
|
$ |
207,193 |
|
|
|
|
|
|
|
|
Total current receivables |
|
|
54,329 |
|
|
|
56,889 |
|
Total noncurrent receivables |
|
|
145,976 |
|
|
|
150,304 |
|
|
|
|
|
|
|
|
Total |
|
$ |
200,305 |
|
|
$ |
207,193 |
|
|
|
|
|
|
|
|
Other receivables are comprised primarily of receivables related to the sale of preneed
property interment rights but also include income tax receivables and trade and other receivables.
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts |
|
|
Allowance for Doubtful Accounts |
|
|
|
and Cancellations as of |
|
|
and Cancellations as of |
|
|
|
April 30, 2011 |
|
|
October 31, 2010 |
|
|
|
Ending Balance Collectively |
|
|
Ending Balance Collectively |
|
|
|
Evaluated for Impairment |
|
|
Evaluated for Impairment |
|
Current receivables at-need
funeral and other |
|
$ |
(5,493 |
) |
|
$ |
(5,738 |
) |
Receivables, due beyond one year other |
|
|
(7,932 |
) |
|
|
(8,324 |
) |
Preneed funeral receivables |
|
|
(11,673 |
) |
|
|
(11,753 |
) |
Preneed cemetery receivables |
|
|
(4,093 |
) |
|
|
(4,692 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
(29,191 |
) |
|
$ |
(30,507 |
) |
|
|
|
|
|
|
|
Total current receivables |
|
|
(5,493 |
) |
|
|
(5,738 |
) |
Total noncurrent receivables |
|
|
(23,698 |
) |
|
|
(24,769 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
(29,191 |
) |
|
$ |
(30,507 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts and Cancellations Rollforward |
|
|
|
Balance |
|
|
Charged to |
|
|
|
|
|
|
|
|
|
|
October 31, |
|
|
costs and |
|
|
|
|
|
|
Balance |
|
|
|
2010 |
|
|
expenses |
|
|
Write-offs |
|
|
April 30, 2011 |
|
Current receivables
at-need funeral and other |
|
$ |
5,738 |
|
|
|
1,034 |
|
|
|
(1,279 |
) |
|
$ |
5,493 |
|
Receivables, due beyond one year
other |
|
$ |
8,324 |
|
|
|
1,494 |
|
|
|
(1,886 |
) |
|
$ |
7,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,062 |
|
|
$ |
2,528 |
|
|
$ |
(3,165 |
) |
|
$ |
13,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has established allowances for preneed funeral and cemetery merchandise and
services trust receivables. Changes in these allowances have no effect on the condensed
consolidated statement of earnings but are recorded as reductions in preneed receivables and
preneed deferred revenue in the condensed consolidated balance sheet.
11
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(1) Basis of Presentation(Continued)
The following summarizes the Companys receivables aging analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables Aging Analysis |
|
|
|
as of April 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater than |
|
|
|
|
|
|
1 to 30 Days |
|
|
31 to 60 Days |
|
|
61 to 90 Days |
|
|
90 Days |
|
|
Total |
|
Receivables at-need funeral |
|
$ |
5,578 |
|
|
$ |
656 |
|
|
$ |
366 |
|
|
$ |
2,582 |
|
|
$ |
9,182 |
|
Receivables other |
|
|
94,978 |
|
|
|
3,245 |
|
|
|
2,268 |
|
|
|
16,855 |
|
|
|
117,346 |
|
Preneed funeral receivables |
|
|
29,127 |
|
|
|
949 |
|
|
|
433 |
|
|
|
12,288 |
|
|
|
42,797 |
|
Preneed cemetery receivables |
|
|
24,888 |
|
|
|
976 |
|
|
|
587 |
|
|
|
4,529 |
|
|
|
30,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
154,571 |
|
|
$ |
5,826 |
|
|
$ |
3,654 |
|
|
$ |
36,254 |
|
|
$ |
200,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(g) Reclassifications
Certain reclassifications have been made to the 2010 condensed consolidated statements of
earnings and balance sheet in order for these periods to be comparable. These reclassifications
had no effect on the Companys net earnings, total shareholders equity or cash flows.
(2) New Accounting Principles
In January 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-06, which
requires additional fair value disclosures. This guidance requires reporting entities to disclose
transfers in and out of Levels 1 and 2 and requires gross presentation of purchases, sales,
issuances and settlements in the Level 3 reconciliation of the three-tier fair value hierarchy.
This guidance is effective for interim and annual reporting periods beginning after December 15,
2009, except for the disclosures about purchases, sales, issuances and settlements related to Level
3 activity. Those disclosures are effective for fiscal years beginning after December 15, 2010 and
for interim periods within those fiscal years. The guidance on transfers between Levels 1 and 2
was adopted by the Company as of its second fiscal quarter ended April 30, 2010. The guidance on
Level 3 activity is effective for the Companys fiscal year beginning November 1, 2011. The
Company is currently evaluating the impact the adoption will have on its consolidated financial
statements.
In June 2009, the FASB issued guidance which amends the consolidation guidance for variable
interest entities. It will require additional disclosures about involvement with variable interest
entities and any significant changes in risk exposure due to that involvement. This guidance is
effective as of the beginning of the first annual reporting period that begins after November 15,
2009, which corresponds to the Companys fiscal year beginning November 1, 2010. The adoption of
this guidance did not have a material effect on the Companys financial statements.
In July 2010, the FASB issued ASU No. 2010-20, which requires new disclosures on finance
receivables and allowance for credit losses. The new disclosures are required for interim and
annual periods ending after December 15, 2010, although the disclosures of reporting period
activity are required for interim and annual periods beginning after December 15, 2010. In January
2011, the FASB issued ASU No. 2011-01, which delayed the effective date of ASU No. 2010-20 for
public companies with regard to the disclosures on trouble debt restructurings. The guidance was
adopted by the Company as of its first fiscal quarter ended January 31, 2011. The disclosures of
reporting period activity were effective for the Companys second fiscal quarter beginning February
1, 2011. The adoption of this guidance by the Company did not have a material effect on its
consolidated financial statements. See Note 1(f) for the required disclosures.
In April 2011, the FASB issued ASU No. 2011-02, which clarifies the guidance for identifying
restructuring of receivables that constitute a troubled debt restructuring for a creditor. This
guidance is effective for
the first interim or annual period beginning on or after June 15, 2011 and should be applied
retrospectively to the
12
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(2) New Accounting Principles(Continued)
beginning of the annual period of adoption, which corresponds to the
Companys fourth fiscal quarter beginning August 1, 2011. The Company is currently evaluating the
impact the adoption will have on its consolidated financial statements.
In May 2011, the FASB issued ASU No. 2011-04 regarding fair value measurements and
disclosures. This new guidance clarifies the application of existing fair value measurement
guidance and revises certain measurement and disclosure requirements to achieve convergence with
International Financial Reporting Standards. This guidance is effective for the first interim or
annual period beginning after December 15, 2011, which corresponds to the Companys second fiscal
quarter beginning February 1, 2012. The Company is currently evaluating the impact the adoption
will have on its consolidated financial statements.
(3) Preneed Funeral Activities
The Company maintains three types of trust and escrow accounts: (1) preneed funeral
merchandise and services, (2) preneed cemetery merchandise and services and (3) cemetery perpetual
care. The activity of these trust and escrow accounts is detailed below and in Notes 4 and 5.
Preneed Funeral Receivables and Trust Investments
Preneed funeral receivables and trust investments represent trust assets and customer
receivables related to unperformed, price-guaranteed trust-funded preneed funeral contracts. The
components of preneed funeral receivables and trust investments in the condensed consolidated
balance sheets as of April 30, 2011 and October 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
April 30, |
|
|
October 31, |
|
|
|
2011 |
|
|
2010 |
|
Trust assets |
|
$ |
401,572 |
|
|
$ |
383,792 |
|
Receivables from customers |
|
|
42,797 |
|
|
|
42,879 |
|
|
|
|
|
|
|
|
|
|
|
444,369 |
|
|
|
426,671 |
|
Allowance for cancellations |
|
|
(11,673 |
) |
|
|
(11,753 |
) |
|
|
|
|
|
|
|
Preneed funeral receivables and trust investments |
|
$ |
432,696 |
|
|
$ |
414,918 |
|
|
|
|
|
|
|
|
13
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(3) Preneed Funeral Activities(Continued)
The cost basis and market values associated with preneed funeral merchandise and services
trust assets as of April 30, 2011 are detailed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011 |
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Cost Basis |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
|
|
|
|
Cash, money market and other
short- term investments |
|
$ |
17,044 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
17,044 |
|
|
|
|
|
U.S. Government, agencies and
municipalities |
|
|
1,990 |
|
|
|
35 |
|
|
|
(1 |
) |
|
|
2,024 |
|
|
|
|
|
Corporate bonds |
|
|
27,352 |
|
|
|
1,582 |
|
|
|
|
|
|
|
28,934 |
|
|
|
|
|
Preferred stocks |
|
|
53,748 |
|
|
|
493 |
|
|
|
(1,782 |
) |
|
|
52,459 |
|
|
|
|
|
Common stocks |
|
|
231,361 |
|
|
|
3,513 |
|
|
|
(77,148 |
) |
|
|
157,726 |
|
|
|
|
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
26,045 |
|
|
|
2,877 |
|
|
|
(860 |
) |
|
|
28,062 |
|
|
|
|
|
Fixed income |
|
|
55,949 |
|
|
|
979 |
|
|
|
(761 |
) |
|
|
56,167 |
|
|
|
|
|
Commodity |
|
|
23,660 |
|
|
|
2,388 |
|
|
|
|
|
|
|
26,048 |
|
|
|
|
|
Real estate investment trusts |
|
|
7,987 |
|
|
|
771 |
|
|
|
|
|
|
|
8,758 |
|
|
|
|
|
World bond |
|
|
9,030 |
|
|
|
310 |
|
|
|
|
|
|
|
9,340 |
|
|
|
|
|
Insurance contracts and other
long-term investments |
|
|
13,840 |
|
|
|
45 |
|
|
|
(98 |
) |
|
|
13,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust investments |
|
$ |
468,006 |
|
|
$ |
12,993 |
|
|
$ |
(80,650 |
) |
|
$ |
400,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
401,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The cost basis and market values associated with preneed funeral merchandise and services
trust assets as of October 31, 2010 are detailed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2010 |
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Cost Basis |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
|
|
|
|
Cash, money market and other
short- term investments |
|
$ |
26,118 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
26,118 |
|
|
|
|
|
U.S. Government, agencies and
municipalities |
|
|
2,224 |
|
|
|
84 |
|
|
|
(1 |
) |
|
|
2,307 |
|
|
|
|
|
Corporate bonds |
|
|
44,077 |
|
|
|
2,887 |
|
|
|
(1 |
) |
|
|
46,963 |
|
|
|
|
|
Preferred stocks |
|
|
56,297 |
|
|
|
356 |
|
|
|
(2,220 |
) |
|
|
54,433 |
|
|
|
|
|
Common stocks |
|
|
234,946 |
|
|
|
925 |
|
|
|
(91,593 |
) |
|
|
144,278 |
|
|
|
|
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
27,154 |
|
|
|
185 |
|
|
|
(2,936 |
) |
|
|
24,403 |
|
|
|
|
|
Fixed income |
|
|
53,444 |
|
|
|
1,718 |
|
|
|
(767 |
) |
|
|
54,395 |
|
|
|
|
|
Commodity |
|
|
13,572 |
|
|
|
1,968 |
|
|
|
|
|
|
|
15,540 |
|
|
|
|
|
Insurance contracts and other
long-term investments |
|
|
14,171 |
|
|
|
146 |
|
|
|
(98 |
) |
|
|
14,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust investments |
|
$ |
472,003 |
|
|
$ |
8,269 |
|
|
$ |
(97,616 |
) |
|
$ |
382,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
383,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(3) Preneed Funeral Activities(Continued)
The estimated maturities and market values of debt securities included above are as follows:
|
|
|
|
|
|
|
April 30, 2011 |
|
Due in one year or less |
|
$ |
4,058 |
|
Due in one to five years |
|
|
19,185 |
|
Due in five to ten years |
|
|
7,697 |
|
Thereafter |
|
|
18 |
|
|
|
|
|
|
|
$ |
30,958 |
|
|
|
|
|
The Company is actively managing a covered call program on its equity securities within the
funeral merchandise and services trust in order to provide an opportunity for additional income.
As of April 30, 2011 and October 31, 2010, the Company had outstanding covered calls with a market
value of $76 and $311, respectively. These covered calls are included at market value in the
balance sheet line preneed funeral receivables and trust investments. For the three months ended
April 30, 2011 and 2010, the Company realized trust losses of approximately ($81) and ($17),
respectively, related to the covered call program. For the six months ended April 30, 2011 and
2010, the Company realized trust losses of ($227) and ($253), respectively, related to the covered
call program. These trust losses are accounted for in the same manner as other funeral merchandise
and services trust earnings and losses and flow through funeral revenue in the condensed
consolidated statements of earnings. Although the Company realized losses associated with the
covered call program for the three and six months ended April 30, 2011 and 2010, it continues to
hold the underlying securities against which these covered calls were issued. These underlying
securities appreciated in value by $1,383 and $651 for the three months ended April 30, 2011 and
2010, respectively, and $2,374 and $3,786 for the six months ended April 30, 2011 and 2010,
respectively.
Where quoted prices are available in an active market, investments held by the trusts are
classified as Level 1 investments pursuant to the three-level valuation hierarchy. The Companys
Level 1 investments include cash, money market and other short-term investments, common stocks and
mutual funds.
Where quoted market prices are not available for the specific security, then fair values are
estimated by using quoted prices of securities with similar characteristics. These investments are
primarily U. S. Government, agencies and municipalities, corporate bonds, convertible bonds and
preferred stocks, all of which are classified within Level 2 of the valuation hierarchy.
The Companys Level 3 investments include insurance contracts and partnership investments
purchased within the trusts. The valuation of insurance contracts and partnership investments
requires significant management judgment due to the absence of quoted prices, inherent lack of
liquidity and the long-term nature of such assets. The fair market value of the insurance
contracts is based upon the current face value of the contracts according to the respective
insurance companies which is deemed to approximate fair market value. The fair market value of the
partnership investments was determined by using their most recent audited financial statements and
assessing the market value of the underlying securities within the partnership.
The inputs into the fair value of the Companys preneed funeral merchandise and services trust
investments are categorized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
Quoted Market |
|
Other |
|
Significant |
|
|
|
|
Prices in Active |
|
Observable |
|
Unobservable |
|
|
|
|
Markets |
|
Inputs |
|
Inputs |
|
Fair Market |
|
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Value |
Trust investmentsApril 30, 2011 |
|
$ |
310,802 |
|
|
$ |
83,418 |
|
|
$ |
6,129 |
|
|
$ |
400,349 |
|
Trust investmentsOctober 31, 2010 |
|
$ |
272,173 |
|
|
$ |
103,703 |
|
|
$ |
6,780 |
|
|
$ |
382,656 |
|
15
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(3) Preneed Funeral Activities(Continued)
In connection with its revised trust asset allocation, the Company sold several Level 2
investments including corporate bonds and preferred stocks and increased its holdings in several
Level 1 investments such as highly diversified mutual funds invested in commodities, real estate
investment trusts and world bonds.
The change in the Companys preneed funeral merchandise and services trust investments with
significant unobservable inputs (Level 3) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
Six Months Ended April 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Fair market value, beginning balance |
|
$ |
6,383 |
|
|
$ |
8,735 |
|
|
$ |
6,780 |
|
|
$ |
8,662 |
|
Total unrealized losses included in
other comprehensive income
(1) |
|
|
|
|
|
|
(930 |
) |
|
|
|
|
|
|
(930 |
) |
Distributions and other, net |
|
|
(254 |
) |
|
|
73 |
|
|
|
(651 |
) |
|
|
146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair market value, ending balance |
|
$ |
6,129 |
|
|
$ |
7,878 |
|
|
$ |
6,129 |
|
|
$ |
7,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All gains (losses) recognized in other comprehensive income for funeral trust
investments are attributable to the Companys preneed customers and are offset by a
corresponding increase (decrease) in deferred preneed funeral receipts held in trust. |
Activity related to preneed funeral trust investments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
Six Months Ended April 30, |
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
Purchases |
|
$ |
27,759 |
|
|
$ |
14,709 |
|
|
$ |
72,048 |
|
|
$ |
15,558 |
|
Sales |
|
|
32,872 |
|
|
|
18,079 |
|
|
|
70,629 |
|
|
|
22,428 |
|
Realized gains from sales of investments |
|
|
1,591 |
|
|
|
809 |
|
|
|
4,409 |
|
|
|
1,437 |
|
Realized losses from sales of
investments and other |
|
|
(581 |
) |
|
|
(538 |
) |
|
|
(680 |
) |
|
|
(1,054 |
) |
Interest income, dividends and other
ordinary income |
|
|
3,477 |
|
|
|
2,542 |
|
|
|
6,813 |
|
|
|
4,887 |
|
Deposits (1) |
|
|
4,674 |
|
|
|
5,590 |
|
|
|
10,030 |
|
|
|
13,605 |
|
Withdrawals (1) |
|
|
11,930 |
|
|
|
10,070 |
|
|
|
22,315 |
|
|
|
22,047 |
|
|
|
|
(1) |
|
The Company historically sold a significant portion of its preneed funeral sales
through trust. Over time, the mix has shifted to a more significant portion being sold
through insurance versus trust, particularly in states where the trusting requirements are
high. |
The following tables show the gross unrealized losses and fair value of the preneed funeral
merchandise and services trust investments with unrealized losses aggregated by investment category
and length of time that individual securities have been in a continuous unrealized loss position as
of April 30, 2011 and October 31, 2010.
16
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(3) Preneed Funeral Activities(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011 |
|
|
|
Less than 12 Months |
|
|
12 Months or Greater |
|
|
Total |
|
|
|
Market |
|
|
Unrealized |
|
|
Market |
|
|
Unrealized |
|
|
Market |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
U.S.
Government,
agencies and
municipalities |
|
$ |
|
|
|
$ |
|
|
|
$ |
20 |
|
|
$ |
(1 |
) |
|
$ |
20 |
|
|
$ |
(1 |
) |
Preferred stocks |
|
|
|
|
|
|
|
|
|
|
31,268 |
|
|
|
(1,782 |
) |
|
|
31,268 |
|
|
|
(1,782 |
) |
Common stocks |
|
|
2,607 |
|
|
|
(529 |
) |
|
|
128,805 |
|
|
|
(76,619 |
) |
|
|
131,412 |
|
|
|
(77,148 |
) |
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
3,163 |
|
|
|
(860 |
) |
|
|
3,163 |
|
|
|
(860 |
) |
Fixed income |
|
|
341 |
|
|
|
(3 |
) |
|
|
4,234 |
|
|
|
(758 |
) |
|
|
4,575 |
|
|
|
(761 |
) |
Insurance contracts
and other long-term
investments |
|
|
30 |
|
|
|
(98 |
) |
|
|
|
|
|
|
|
|
|
|
30 |
|
|
|
(98 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,978 |
|
|
$ |
(630 |
) |
|
$ |
167,490 |
|
|
$ |
(80,020 |
) |
|
$ |
170,468 |
|
|
$ |
(80,650 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2010 |
|
|
|
Less than 12 Months |
|
|
12 Months or Greater |
|
|
Total |
|
|
|
Market |
|
|
Unrealized |
|
|
Market |
|
|
Unrealized |
|
|
Market |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
U.S.
Government,
agencies and
municipalities |
|
$ |
|
|
|
$ |
|
|
|
$ |
21 |
|
|
$ |
(1 |
) |
|
$ |
21 |
|
|
$ |
(1 |
) |
Corporate bonds |
|
|
896 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
896 |
|
|
|
(1 |
) |
Preferred stocks |
|
|
49 |
|
|
|
(1 |
) |
|
|
35,205 |
|
|
|
(2,219 |
) |
|
|
35,254 |
|
|
|
(2,220 |
) |
Common stocks |
|
|
(17 |
) |
|
|
(136 |
) |
|
|
136,483 |
|
|
|
(91,457 |
) |
|
|
136,466 |
|
|
|
(91,593 |
) |
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
20,298 |
|
|
|
(2,936 |
) |
|
|
20,298 |
|
|
|
(2,936 |
) |
Fixed income |
|
|
3,575 |
|
|
|
(3 |
) |
|
|
4,550 |
|
|
|
(764 |
) |
|
|
8,125 |
|
|
|
(767 |
) |
Insurance contracts
and other long-term
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(98 |
) |
|
|
|
|
|
|
(98 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,503 |
|
|
$ |
(141 |
) |
|
$ |
196,557 |
|
|
$ |
(97,475 |
) |
|
$ |
201,060 |
|
|
$ |
(97,616 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unrealized losses in the preneed funeral merchandise and services trust portfolio are
not considered to be other than temporary. For each of these securities, the Company evaluates
consensus analyst recommendations, ratings from established ratings agencies, concerns specific to
the issuer of the securities and overall market performance. Of the total unrealized losses at
April 30, 2011, 96 percent, or $77,148, were generated by common stock investments. Most of the
common stock investments are part of the S&P 500 Index. The Company generally expects its
portfolio performance to improve if the performance of the overall financial market improves, but
would also expect its performance to deteriorate if the overall financial market declines. The
Company believes these investments will recover in value and that it has sufficient liquidity from
cash and cash equivalents within the trusts, cash deposits of future preneed sales and cash
received from ordinary income to fund future services and allow the Company to hold these
investments until they recover in value.
The Companys policy for recognizing trust income follows the allocation of trust earnings to
individual contracts as stipulated in the Companys respective trust agreements for distributable
income. In substantially all of the Companys trusts, trust earnings which include dividends and
interest earned and net capital gains and losses realized by preneed funeral trust or escrow
accounts net of fees are allocated to individual contracts when earned or realized. In these
trusts, unrealized gains and losses are not allocated to individual contracts. The trust earnings
allocated to individual contracts are recognized as components of revenue along with the original
contract sales price when the underlying service or merchandise is actually performed or delivered.
Principal and earnings are
withdrawn only as the merchandise or services are delivered or contracts are cancelled, except
in jurisdictions that permit trust earnings to be withdrawn currently.
17
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(3) Preneed Funeral Activities(Continued)
Cash flows from preneed funeral contracts are presented as operating cash flows in the
Companys condensed consolidated statements of cash flows.
(4) Preneed Cemetery Merchandise and Service Activities
Preneed Cemetery Receivables and Trust Investments
Preneed cemetery receivables and trust investments represent trust assets and
customer receivables for contracts sold in advance of when the merchandise or services are needed.
The receivables related to the sale of preneed property interment rights are included in the
Companys current and long-term receivables. The components of preneed cemetery receivables and
trust investments in the condensed consolidated balance sheets as of April 30, 2011 and October 31,
2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
April 30, |
|
|
October 31, |
|
|
|
2011 |
|
|
2010 |
|
Trust assets |
|
$ |
199,763 |
|
|
$ |
182,336 |
|
Receivables from customers |
|
|
30,980 |
|
|
|
31,643 |
|
|
|
|
|
|
|
|
|
|
|
230,743 |
|
|
|
213,979 |
|
Allowance for cancellations |
|
|
(4,093 |
) |
|
|
(4,692 |
) |
|
|
|
|
|
|
|
Preneed cemetery receivables and trust investments |
|
$ |
226,650 |
|
|
$ |
209,287 |
|
|
|
|
|
|
|
|
The cost basis and market values associated with the preneed cemetery merchandise
and services trust assets as of April 30, 2011 are detailed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011 |
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Cost Basis |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
|
|
|
|
Cash, money market and other
short- term investments |
|
$ |
9,065 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9,065 |
|
|
|
|
|
U.S. Government, agencies and
municipalities |
|
|
1,106 |
|
|
|
28 |
|
|
|
(6 |
) |
|
|
1,128 |
|
|
|
|
|
Corporate bonds |
|
|
2,750 |
|
|
|
333 |
|
|
|
|
|
|
|
3,083 |
|
|
|
|
|
Preferred stocks |
|
|
19,967 |
|
|
|
182 |
|
|
|
(907 |
) |
|
|
19,242 |
|
|
|
|
|
Common stocks |
|
|
119,246 |
|
|
|
3,621 |
|
|
|
(38,579 |
) |
|
|
84,288 |
|
|
|
|
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
29,284 |
|
|
|
950 |
|
|
|
(4,213 |
) |
|
|
26,021 |
|
|
|
|
|
Fixed income |
|
|
26,633 |
|
|
|
491 |
|
|
|
|
|
|
|
27,124 |
|
|
|
|
|
Commodity |
|
|
14,679 |
|
|
|
1,427 |
|
|
|
|
|
|
|
16,106 |
|
|
|
|
|
Real estate investment trusts |
|
|
6,626 |
|
|
|
644 |
|
|
|
|
|
|
|
7,270 |
|
|
|
|
|
World bond |
|
|
5,230 |
|
|
|
169 |
|
|
|
|
|
|
|
5,399 |
|
|
|
|
|
Other long-term investments |
|
|
437 |
|
|
|
|
|
|
|
|
|
|
|
437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust investments |
|
$ |
235,023 |
|
|
$ |
7,845 |
|
|
$ |
(43,705 |
) |
|
$ |
199,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
199,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(4) Preneed Cemetery Merchandise and Service Activities(Continued)
The cost basis and market values associated with the preneed cemetery merchandise and services
trust assets as of October 31, 2010 are detailed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2010 |
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Cost Basis |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
|
|
|
|
Cash, money market and other
short- term investments |
|
$ |
12,719 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12,719 |
|
|
|
|
|
U.S. Government, agencies and
municipalities |
|
|
5,655 |
|
|
|
667 |
|
|
|
(2 |
) |
|
|
6,320 |
|
|
|
|
|
Corporate bonds |
|
|
11,790 |
|
|
|
950 |
|
|
|
(13 |
) |
|
|
12,727 |
|
|
|
|
|
Preferred stocks |
|
|
20,132 |
|
|
|
139 |
|
|
|
(1,182 |
) |
|
|
19,089 |
|
|
|
|
|
Common stocks |
|
|
122,529 |
|
|
|
1,223 |
|
|
|
(45,792 |
) |
|
|
77,960 |
|
|
|
|
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
30,291 |
|
|
|
50 |
|
|
|
(6,978 |
) |
|
|
23,363 |
|
|
|
|
|
Fixed income |
|
|
21,405 |
|
|
|
660 |
|
|
|
(6 |
) |
|
|
22,059 |
|
|
|
|
|
Commodity |
|
|
6,521 |
|
|
|
966 |
|
|
|
|
|
|
|
7,487 |
|
|
|
|
|
Other long-term investments |
|
|
592 |
|
|
|
3 |
|
|
|
|
|
|
|
595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust investments |
|
$ |
231,634 |
|
|
$ |
4,658 |
|
|
$ |
(53,973 |
) |
|
$ |
182,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
470 |
|
|
|
|
|
Less trust investments of assets
held for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(453 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
182,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated maturities and market values of debt securities included above are as follows:
|
|
|
|
|
|
|
April 30, 2011 |
|
Due in one year or less |
|
$ |
339 |
|
Due in one to five years |
|
|
2,234 |
|
Due in five to ten years |
|
|
1,545 |
|
Thereafter |
|
|
93 |
|
|
|
|
|
|
|
$ |
4,211 |
|
|
|
|
|
The Company is actively managing a covered call program on its equity securities within the
cemetery merchandise and services trust in order to provide an opportunity for additional income.
As of April 30, 2011 and October 31, 2010, the Company had outstanding covered calls with a market
value of $99 and $128, respectively. These covered calls are included at market value in the
balance sheet line preneed cemetery receivables and trust investments. For the three months
ended April 30, 2011 and 2010, the Company realized trust losses of approximately ($40) and ($26),
respectively, related to the covered call program. For the six months ended April 30, 2011 and
2010, the Company realized trust losses of ($130) and ($214), respectively, related to the covered
call program. These trust losses are accounted for in the same manner as other cemetery
merchandise and services trust earnings and losses and flow through cemetery revenue in the
condensed consolidated statements of earnings. Although the Company realized losses associated
with the covered call program for the three and six months ended April 30, 2011 and 2010, it
continues to hold the underlying securities against which these covered calls were issued. These
underlying securities appreciated in value by $693 and $503 for the three months ended April 30,
2011 and 2010, respectively, and $1,113 and $2,912 for the six months ended April 30, 2011 and
2010, respectively.
19
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(4) Preneed Cemetery Merchandise and Service Activities(Continued)
Where quoted prices are available in an active market, investments held by the trusts are
classified as Level 1 investments pursuant to the three-level valuation hierarchy. The Companys
Level 1 investments include cash, money market and other short-term investments, common stocks and
mutual funds.
Where quoted market prices are not available for the specific security, then fair values are
estimated by using quoted prices of securities with similar characteristics. These investments are
U. S. Government, agencies and municipalities, corporate bonds, convertible bonds and preferred
stocks, all of which are classified within Level 2 of the valuation hierarchy.
There are no Level 3 investments in the preneed cemetery merchandise and services trust
investment portfolio.
The inputs into the fair value of the Companys preneed cemetery merchandise and services
trust investments are categorized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
Quoted Market |
|
Other |
|
Significant |
|
|
|
|
Prices in Active |
|
Observable |
|
Unobservable |
|
|
|
|
Markets |
|
Inputs |
|
Inputs |
|
Fair Market |
|
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Value |
Trust investmentsApril 30, 2011 |
|
$ |
175,741 |
|
|
$ |
23,422 |
|
|
$ |
|
|
|
$ |
199,163 |
|
Trust investmentsOctober 31, 2010 |
|
$ |
144,048 |
|
|
$ |
38,271 |
|
|
$ |
|
|
|
$ |
182,319 |
|
In connection with its revised trust asset allocation, the Company sold several Level 2
investments including corporate bonds and preferred stocks and increased its holdings in several
Level 1 investments such as highly diversified mutual funds invested in commodities, real estate
investment trusts and world bonds.
Activity related to preneed cemetery merchandise and services trust investments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
Six Months Ended April 30, |
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
Purchases |
|
$ |
20,022 |
|
|
$ |
9,089 |
|
|
$ |
51,894 |
|
|
$ |
11,135 |
|
Sales |
|
|
19,389 |
|
|
|
10,449 |
|
|
|
47,773 |
|
|
|
12,769 |
|
Realized gains from sales of investments |
|
|
1,072 |
|
|
|
836 |
|
|
|
3,323 |
|
|
|
1,259 |
|
Realized losses from sales of
investments and other |
|
|
(209 |
) |
|
|
(637 |
) |
|
|
(549 |
) |
|
|
(1,518 |
) |
Interest income, dividends and other
ordinary income |
|
|
1,612 |
|
|
|
1,237 |
|
|
|
3,410 |
|
|
|
2,390 |
|
Deposits |
|
|
4,307 |
|
|
|
3,783 |
|
|
|
8,008 |
|
|
|
9,476 |
|
Withdrawals |
|
|
4,865 |
|
|
|
4,325 |
|
|
|
9,472 |
|
|
|
8,729 |
|
20
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(4) Preneed Cemetery Merchandise and Service Activities(Continued)
The following tables show the gross unrealized losses and fair value of the
preneed cemetery merchandise and services trust investments aggregated by investment category and
length of time that individual securities have been in a continuous unrealized loss position as of
April 30, 2011 and October 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011 |
|
|
|
Less than 12 Months |
|
|
12 Months or Greater |
|
|
Total |
|
|
|
Market |
|
|
Unrealized |
|
|
Market |
|
|
Unrealized |
|
|
Market |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
U.S. Government,
agencies and
municipalities |
|
$ |
272 |
|
|
$ |
(6 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
272 |
|
|
$ |
(6 |
) |
Preferred stocks |
|
|
|
|
|
|
|
|
|
|
12,270 |
|
|
|
(907 |
) |
|
|
12,270 |
|
|
|
(907 |
) |
Common stocks |
|
|
2,391 |
|
|
|
(57 |
) |
|
|
57,687 |
|
|
|
(38,522 |
) |
|
|
60,078 |
|
|
|
(38,579 |
) |
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
13,823 |
|
|
|
(4,213 |
) |
|
|
13,823 |
|
|
|
(4,213 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,663 |
|
|
$ |
(63 |
) |
|
$ |
83,780 |
|
|
$ |
(43,642 |
) |
|
$ |
86,443 |
|
|
$ |
(43,705 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2010 |
|
|
|
Less than 12 Months |
|
|
12 Months or Greater |
|
|
Total |
|
|
|
Market |
|
|
Unrealized |
|
|
Market |
|
|
Unrealized |
|
|
Market |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
U.S.
Government,
agencies and
municipalities |
|
$ |
517 |
|
|
$ |
(2 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
517 |
|
|
$ |
(2 |
) |
Corporate bonds |
|
|
627 |
|
|
|
(6 |
) |
|
|
493 |
|
|
|
(7 |
) |
|
|
1,120 |
|
|
|
(13 |
) |
Preferred stocks |
|
|
|
|
|
|
|
|
|
|
15,206 |
|
|
|
(1,182 |
) |
|
|
15,206 |
|
|
|
(1,182 |
) |
Common stocks |
|
|
1,957 |
|
|
|
(139 |
) |
|
|
66,544 |
|
|
|
(45,653 |
) |
|
|
68,501 |
|
|
|
(45,792 |
) |
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
22,582 |
|
|
|
(6,978 |
) |
|
|
22,582 |
|
|
|
(6,978 |
) |
Fixed income |
|
|
2,677 |
|
|
|
(3 |
) |
|
|
16 |
|
|
|
(3 |
) |
|
|
2,693 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,778 |
|
|
$ |
(150 |
) |
|
$ |
104,841 |
|
|
$ |
(53,823 |
) |
|
$ |
110,619 |
|
|
$ |
(53,973 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unrealized losses in the preneed cemetery merchandise and services trust portfolio
are not considered to be other than temporary. For each of these securities, the Company evaluates
consensus analyst recommendations, ratings from established ratings agencies, concerns specific to
the issuer of the securities and overall market performance. Of the total unrealized losses at
April 30, 2011, 98 percent, or $42,792, were generated by common stock and mutual fund-equity
investments. Most of the common stock investments are part of the S&P 500 Index, and the mutual
fund-equity investments are invested in small-cap, mid-cap and international mutual funds that are
highly diversified. The Company generally expects its portfolio performance to improve if the
performance of the overall financial market improves, but would also expect its performance to
deteriorate if the overall financial market declines. The Company believes these investments will
recover in value and that it has sufficient liquidity from cash and cash equivalents within the
trusts, cash deposits of future preneed sales and cash received from ordinary income to fund future
services and allow the Company to hold these investments until they recover in value.
The Companys policy for recognizing trust income follows the allocation of trust earnings to
individual contracts as stipulated in the Companys respective trust agreements for distributable
income. In substantially all of the Companys trusts, trust earnings which include dividends and
interest earned and net capital gains and losses realized by preneed cemetery trust or escrow
accounts net of fees are allocated to individual contracts when earned or realized. In these
trusts, unrealized gains and losses are not allocated to individual contracts. The trust earnings
allocated to individual contracts are recognized as components of revenue along with the original
sales price when the underlying service or merchandise is actually performed or delivered.
Principal and earnings are withdrawn only
as the merchandise or services are delivered or contracts are cancelled, except in
jurisdictions that permit trust earnings to be withdrawn currently.
21
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(4) Preneed Cemetery Merchandise and Service Activities(Continued)
Cash flows from preneed cemetery merchandise and services contracts are presented as operating
cash flows in the Companys condensed consolidated statements of cash flows.
(5) Cemetery Interment Rights and Perpetual Care Trusts
Earnings from cemetery perpetual care trust investments that the Company is legally
permitted to withdraw are recognized in current cemetery revenues and are used to defray cemetery
maintenance costs which are expensed as incurred. Recognized earnings related to these cemetery
perpetual care trust investments were $1,683 and $1,346 for the three months ended April 30, 2011
and 2010, respectively, and $3,993 and $3,819 for the six months ended April 30, 2011 and 2010,
respectively.
The cost basis and market values of the trust investments held by the cemetery
perpetual care trusts as of April 30, 2011 are detailed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011 |
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Cost Basis |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
|
|
|
|
Cash, money market and other
short-term investments |
|
$ |
7,659 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7,659 |
|
|
|
|
|
U.S. Government, agencies and
municipalities |
|
|
7,114 |
|
|
|
187 |
|
|
|
(95 |
) |
|
|
7,206 |
|
|
|
|
|
Corporate bonds |
|
|
31,897 |
|
|
|
1,142 |
|
|
|
(837 |
) |
|
|
32,202 |
|
|
|
|
|
Preferred stocks |
|
|
36,337 |
|
|
|
145 |
|
|
|
(4,663 |
) |
|
|
31,819 |
|
|
|
|
|
Common stocks |
|
|
92,143 |
|
|
|
1,748 |
|
|
|
(31,683 |
) |
|
|
62,208 |
|
|
|
|
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
8,464 |
|
|
|
595 |
|
|
|
(285 |
) |
|
|
8,774 |
|
|
|
|
|
Fixed income |
|
|
58,438 |
|
|
|
755 |
|
|
|
(1,420 |
) |
|
|
57,773 |
|
|
|
|
|
Commodity |
|
|
10,467 |
|
|
|
490 |
|
|
|
|
|
|
|
10,957 |
|
|
|
|
|
Real estate investment trusts |
|
|
5,922 |
|
|
|
357 |
|
|
|
|
|
|
|
6,279 |
|
|
|
|
|
Master limited partnerships |
|
|
8,587 |
|
|
|
162 |
|
|
|
|
|
|
|
8,749 |
|
|
|
|
|
World bond |
|
|
7,663 |
|
|
|
305 |
|
|
|
|
|
|
|
7,968 |
|
|
|
|
|
Other long-term investments |
|
|
245 |
|
|
|
|
|
|
|
(105 |
) |
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust investments |
|
$ |
274,936 |
|
|
$ |
5,886 |
|
|
$ |
(39,088 |
) |
|
$ |
241,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
242,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(5) Cemetery Interment Rights and Perpetual Care Trusts(Continued)
The cost basis and market values of the trust investments held by the cemetery perpetual care
trusts as of October 31, 2010 are detailed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2010 |
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Cost Basis |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
|
|
|
|
Cash, money market and other
short-term investments |
|
$ |
32,403 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
32,403 |
|
|
|
|
|
U.S. Government, agencies and
municipalities |
|
|
8,006 |
|
|
|
196 |
|
|
|
(54 |
) |
|
|
8,148 |
|
|
|
|
|
Corporate bonds |
|
|
31,086 |
|
|
|
1,334 |
|
|
|
(825 |
) |
|
|
31,595 |
|
|
|
|
|
Preferred stocks |
|
|
56,807 |
|
|
|
257 |
|
|
|
(6,376 |
) |
|
|
50,688 |
|
|
|
|
|
Common stocks |
|
|
90,284 |
|
|
|
1,042 |
|
|
|
(36,496 |
) |
|
|
54,830 |
|
|
|
|
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
5,783 |
|
|
|
49 |
|
|
|
(662 |
) |
|
|
5,170 |
|
|
|
|
|
Fixed income |
|
|
46,646 |
|
|
|
878 |
|
|
|
(304 |
) |
|
|
47,220 |
|
|
|
|
|
Other long-term investments |
|
|
401 |
|
|
|
2 |
|
|
|
(79 |
) |
|
|
324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust investments |
|
$ |
271,416 |
|
|
$ |
3,758 |
|
|
$ |
(44,796 |
) |
|
$ |
230,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
630 |
|
|
|
|
|
Less trust investments of assets
held for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(278 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
230,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated maturities and market values of debt securities included above are as follows:
|
|
|
|
|
|
|
April 30, 2011 |
|
Due in one year or less |
|
$ |
5,694 |
|
Due in one to five years |
|
|
17,481 |
|
Due in five to ten years |
|
|
11,451 |
|
Thereafter |
|
|
4,782 |
|
|
|
|
|
|
|
$ |
39,408 |
|
|
|
|
|
The Company is actively managing a covered call program on its equity securities within the
cemetery perpetual care trust in order to provide an opportunity for additional income. As of
April 30, 2011 and October 31, 2010, the Company had outstanding covered calls with a market value
of $49 and $111, respectively. These covered calls are included at market value in the balance
sheet line cemetery perpetual care trust investments. For the three months ended April 30, 2011
and 2010, the Company realized trust losses of approximately ($33) and ($18), respectively, related
to the covered call program. For the six months ended April 30, 2011 and 2010, the Company
realized trust losses of approximately ($118) and ($183), respectively, related to the covered call
program. These trust losses are accounted for in the same manner as other cemetery perpetual care
trust earnings and losses and flow through cemetery revenue in the condensed consolidated
statements of earnings. Although the Company realized losses associated with the covered call
program for the three and six months ended April 30, 2011 and 2010, it continues to hold the
underlying securities against which these covered calls were issued. These underlying securities
appreciated in value by $467 and $397 for the three months ended April 30, 2011 and 2010,
respectively, and $934 and $1,996 for the six months ended April 30, 2011 and 2010, respectively.
23
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(5) Cemetery Interment Rights and Perpetual Care Trusts(Continued)
Where quoted prices are available in an active market, investments held by the trusts are
classified as Level 1 investments pursuant to the three-level valuation hierarchy. The Companys
Level 1 investments include cash, money market and other short-term investments, common stocks and
mutual funds.
Where quoted market prices are not available for the specific security, then fair values are
estimated by using quoted prices of securities with similar characteristics. These investments are
primarily U. S. Government, agencies and municipalities, corporate bonds, convertible bonds and
preferred stocks, all of which are classified within Level 2 of the valuation hierarchy.
The Companys Level 3 investments include an investment in a partnership. The valuation of
partnership investments requires significant management judgment due to the absence of quoted
prices, inherent lack of liquidity and the long-term nature of such assets. The fair market value
of the partnership investment was determined by using its most recent audited financial statements
and assessing the market value of the underlying securities within the partnership.
The inputs into the fair value of the Companys cemetery perpetual care trust investments are
categorized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
Quoted Market |
|
Other |
|
Significant |
|
|
|
|
Prices in Active |
|
Observable |
|
Unobservable |
|
|
|
|
Markets |
|
Inputs |
|
Inputs |
|
Fair Market |
|
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Value |
Trust investmentsApril 30, 2011 |
|
$ |
170,366 |
|
|
$ |
71,228 |
|
|
$ |
140 |
|
|
$ |
241,734 |
|
Trust investmentsOctober 31, 2010 |
|
$ |
139,774 |
|
|
$ |
90,431 |
|
|
$ |
173 |
|
|
$ |
230,378 |
|
In connection with its revised trust asset allocation, the Company sold several
Level 2 investments including corporate bonds and preferred stocks and increased its holdings in
several Level 1 investments such as highly diversified mutual funds invested in commodities, real
estate investment trusts, master limited partnerships and world bonds.
The change in the Companys cemetery perpetual care trust investments with
significant unobservable inputs (Level 3) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
Six Months Ended April 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Fair market value, beginning balance |
|
$ |
106 |
|
|
$ |
168 |
|
|
$ |
173 |
|
|
$ |
226 |
|
Other |
|
|
34 |
|
|
|
82 |
|
|
|
(33 |
) |
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair market value, ending balance |
|
$ |
140 |
|
|
$ |
250 |
|
|
$ |
140 |
|
|
$ |
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In states where the Company withdraws and recognizes capital gains in its cemetery perpetual
care trusts, if it realizes net capital losses (i.e., losses in excess of capital gains) and the
fair market value of the trust assets is less than the aggregate amounts required to be contributed
to the trust, some states may require the Company to make cash deposits to the trusts or may
require the Company to stop withdrawing earnings until future earnings restore the initial corpus.
As of April 30, 2011 and October 31, 2010, the Company had a liability recorded for the estimated
probable funding obligation to restore the net realized losses of $12,633 and $13,253,
respectively. The Company recorded an additional $73 for the estimated probable funding obligation
for the six months ended April 30, 2011. The Company had earnings of $483 and $693 for the three
and six months ended April 30, 2011, respectively, within the trusts that it did not withdraw in
order to satisfy a portion of its estimated probable funding obligation. In those states where
realized net capital gains have not been withdrawn, the Company believes it is reasonably possible
but not probable that additional funding obligations may exist with an estimated amount of $2,333;
no charge has been recorded for these amounts as of April 30, 2011.
24
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(5) Cemetery Interment Rights and Perpetual Care Trusts(Continued)
Activity related to preneed cemetery perpetual care trust investments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
Six Months Ended April 30, |
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
Purchases |
|
$ |
40,289 |
|
|
$ |
22,930 |
|
|
$ |
81,244 |
|
|
$ |
39,102 |
|
Sales |
|
|
34,669 |
|
|
|
13,200 |
|
|
|
52,534 |
|
|
|
42,085 |
|
Realized gains from sales of investments |
|
|
416 |
|
|
|
2,258 |
|
|
|
932 |
|
|
|
4,283 |
|
Realized losses from sales of
investments and other |
|
|
(274 |
) |
|
|
(268 |
) |
|
|
(438 |
) |
|
|
(818 |
) |
Interest income, dividends and other
ordinary income |
|
|
2,492 |
|
|
|
2,177 |
|
|
|
5,324 |
|
|
|
4,338 |
|
Deposits |
|
|
1,869 |
|
|
|
1,895 |
|
|
|
3,399 |
|
|
|
3,733 |
|
Withdrawals |
|
|
1,423 |
|
|
|
2,121 |
|
|
|
3,644 |
|
|
|
3,009 |
|
During the three months ended April 30, 2011 and 2010, cemetery revenues were $56,691 and
$56,973, respectively, of which $2,327 and $2,311, respectively, were required to be placed into
perpetual care trusts and were recorded as revenues and expenses. During the six months ended
April 30, 2011 and 2010, cemetery revenues were $112,089 and $109,265, respectively, of which
$4,306 and $4,645, respectively, were required to be placed into perpetual care trusts and were
recorded as revenues and costs.
The following tables show the gross unrealized losses and fair value of the cemetery perpetual
care trust investments with unrealized losses aggregated by investment category and length of time
that individual securities have been in a continuous unrealized loss position as of April 30, 2011
and October 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011 |
|
|
|
Less than 12 Months |
|
|
12 Months or Greater |
|
|
Total |
|
|
|
Market |
|
|
Unrealized |
|
|
Market |
|
|
Unrealized |
|
|
Market |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
U.S. Government,
agencies and
municipalities |
|
$ |
1,998 |
|
|
$ |
(39 |
) |
|
$ |
79 |
|
|
$ |
(56 |
) |
|
$ |
2,077 |
|
|
$ |
(95 |
) |
Corporate bonds |
|
|
6,435 |
|
|
|
(131 |
) |
|
|
538 |
|
|
|
(706 |
) |
|
|
6,973 |
|
|
|
(837 |
) |
Preferred stocks |
|
|
|
|
|
|
|
|
|
|
25,210 |
|
|
|
(4,663 |
) |
|
|
25,210 |
|
|
|
(4,663 |
) |
Common stocks |
|
|
599 |
|
|
|
(186 |
) |
|
|
51,056 |
|
|
|
(31,497 |
) |
|
|
51,655 |
|
|
|
(31,683 |
) |
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
31 |
|
|
|
(1 |
) |
|
|
2,315 |
|
|
|
(284 |
) |
|
|
2,346 |
|
|
|
(285 |
) |
Fixed income |
|
|
21,546 |
|
|
|
(1,175 |
) |
|
|
890 |
|
|
|
(245 |
) |
|
|
22,436 |
|
|
|
(1,420 |
) |
Other long-term investments |
|
|
|
|
|
|
|
|
|
|
88 |
|
|
|
(105 |
) |
|
|
88 |
|
|
|
(105 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
30,609 |
|
|
$ |
(1,532 |
) |
|
$ |
80,176 |
|
|
$ |
(37,556 |
) |
|
$ |
110,785 |
|
|
$ |
(39,088 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2010 |
|
|
|
Less than 12 Months |
|
|
12 Months or Greater |
|
|
Total |
|
|
|
Market |
|
|
Unrealized |
|
|
Market |
|
|
Unrealized |
|
|
Market |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
U.S. Government,
agencies and
municipalities |
|
$ |
269 |
|
|
$ |
(1 |
) |
|
$ |
105 |
|
|
$ |
(53 |
) |
|
$ |
374 |
|
|
$ |
(54 |
) |
Corporate bonds |
|
|
2,786 |
|
|
|
(15 |
) |
|
|
682 |
|
|
|
(810 |
) |
|
|
3,468 |
|
|
|
(825 |
) |
Preferred stocks |
|
|
|
|
|
|
|
|
|
|
32,747 |
|
|
|
(6,376 |
) |
|
|
32,747 |
|
|
|
(6,376 |
) |
Common stocks |
|
|
717 |
|
|
|
(161 |
) |
|
|
51,334 |
|
|
|
(36,335 |
) |
|
|
52,051 |
|
|
|
(36,496 |
) |
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
4,674 |
|
|
|
(662 |
) |
|
|
4,674 |
|
|
|
(662 |
) |
Fixed income |
|
|
14,850 |
|
|
|
(15 |
) |
|
|
1,076 |
|
|
|
(289 |
) |
|
|
15,926 |
|
|
|
(304 |
) |
Other long-term investments |
|
|
|
|
|
|
|
|
|
|
88 |
|
|
|
(79 |
) |
|
|
88 |
|
|
|
(79 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
18,622 |
|
|
$ |
(192 |
) |
|
$ |
90,706 |
|
|
$ |
(44,604 |
) |
|
$ |
109,328 |
|
|
$ |
(44,796 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(5) Cemetery Interment Rights and Perpetual Care Trusts(Continued)
The unrealized losses in the cemetery perpetual care trust portfolio are not considered to be
other than temporary. For each of these securities, the Company evaluates consensus analyst
recommendations, ratings from established ratings agencies, concerns specific to the issuer of the
securities and overall market performance. Of the total unrealized losses at April 30, 2010, 93
percent, or $36,346, were generated by common stock and preferred stock investments. Most of the
common stock investments are part of the S&P 500 Index, and all preferred stocks had a rating of
investment grade at the time of purchase. The Company generally expects its portfolio performance
to improve if the performance of the overall financial market improves, but would also expect its
performance to deteriorate if the overall financial market declines. The Company believes these
investments will recover in value and that it has sufficient liquidity from cash and cash
equivalents within the trusts, cash deposits of future preneed sales and cash received from
ordinary income to fund future services and allow the Company to hold these investments until they
recover in value.
Cash flows from cemetery perpetual care contracts are presented as operating cash flows in the
Companys condensed consolidated statements of cash flows.
(6) Deferred Preneed Funeral and Cemetery Receipts Held in Trust and Perpetual Care Trusts Corpus
The components of deferred preneed funeral and cemetery receipts held in trust in the
condensed consolidated balance sheet at April 30, 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Receipts Held in Trust |
|
|
|
|
|
|
Preneed |
|
|
Preneed |
|
|
|
|
|
|
Funeral |
|
|
Cemetery |
|
|
Total |
|
Trust assets at market value |
|
$ |
401,572 |
|
|
$ |
199,763 |
|
|
$ |
601,335 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Pending withdrawals |
|
|
(7,345 |
) |
|
|
(5,270 |
) |
|
|
(12,615 |
) |
Pending deposits |
|
|
1,954 |
|
|
|
1,087 |
|
|
|
3,041 |
|
|
|
|
|
|
|
|
|
|
|
Deferred receipts held in trust |
|
$ |
396,181 |
|
|
$ |
195,580 |
|
|
$ |
591,761 |
|
|
|
|
|
|
|
|
|
|
|
The components of perpetual care trusts corpus in the condensed consolidated balance sheet at
April 30, 2011 are as follows:
|
|
|
|
|
|
|
Perpetual Care |
|
|
|
Trusts Corpus |
|
Trust assets at market value |
|
$ |
242,542 |
|
Less: |
|
|
|
|
Pending withdrawals |
|
|
(1,612 |
) |
Pending deposits |
|
|
646 |
|
|
|
|
|
Perpetual care trusts corpus |
|
$ |
241,576 |
|
|
|
|
|
26
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(6) Deferred Preneed Funeral and Cemetery Receipts Held in Trust and Perpetual Care Trusts
Corpus(Continued)
Investment and other income, net
The components of investment and other income, net in the condensed consolidated statements of
earnings for the three and six months ended April 30, 2011 and 2010 are detailed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
Six Months Ended April 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Realized gains from sales of investments |
|
$ |
3,079 |
|
|
$ |
3,903 |
|
|
$ |
8,664 |
|
|
$ |
6,979 |
|
Realized losses from sales of investments and
other |
|
|
(1,064 |
) |
|
|
(1,443 |
) |
|
|
(1,667 |
) |
|
|
(3,390 |
) |
Interest income, dividends and other ordinary
income |
|
|
7,581 |
|
|
|
5,956 |
|
|
|
15,547 |
|
|
|
11,615 |
|
Trust expenses and income taxes |
|
|
(2,433 |
) |
|
|
(2,602 |
) |
|
|
(4,929 |
) |
|
|
(5,140 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net trust investment income |
|
|
7,163 |
|
|
|
5,814 |
|
|
|
17,615 |
|
|
|
10,064 |
|
Reclassification to deferred preneed
funeral and cemetery receipts held in
trust |
|
|
(5,459 |
) |
|
|
(2,646 |
) |
|
|
(13,557 |
) |
|
|
(3,996 |
) |
Reclassification to perpetual care trusts
corpus |
|
|
(1,704 |
) |
|
|
(3,168 |
) |
|
|
(4,058 |
) |
|
|
(6,068 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred preneed funeral and cemetery
receipts held in trust and perpetual care
trusts corpus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other income, net (1) |
|
|
340 |
|
|
|
36 |
|
|
|
364 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment and other income, net |
|
$ |
340 |
|
|
$ |
36 |
|
|
$ |
364 |
|
|
$ |
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Investment and other income, net generally consists of interest income primarily on
the Companys cash, cash equivalents and marketable securities not held in trust. For the
three and six months ended April 30, 2011, the balance includes approximately $323 of interest
income related to the recent resolution of an audit by the Internal Revenue Service. |
(7) Commitments and Contingencies
Litigation
The Company has been unable to finalize its negotiations with its insurance carriers related
to property damage and extra expenses, and business interruption damages, related to Hurricane
Katrina, and as a result filed suit against the carriers in August 2007. In 2007, the carriers
advanced an additional $1,100, which the Company has not recorded as income but as a liability
pending the outcome of the litigation. The suit involves numerous policy interpretation disputes,
among other issues, and no assurance can be given as to how much additional proceeds, if any, the
Company may recover from its insurers or the timing of the receipt of any additional proceeds.
The Company is a defendant in a variety of litigation matters that have arisen in the ordinary
course of business, which are covered by insurance or otherwise not considered to be material. The
Company carries insurance with coverages and coverage limits that it believes to be adequate.
Other Commitments and Contingencies
In those states where the Company has withdrawn realized net capital gains in the past from
its cemetery perpetual care trusts, regulators may seek replenishment of the realized net capital
losses either by requiring a cash deposit to the trust or by prohibiting or restricting withdrawals
of future earnings until they cover the loss. As of
27
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(7) Commitments and Contingencies(Continued)
April 30, 2011, the Company had $12,633 recorded as a liability for an estimated probable funding
obligation. As of April 30, 2011, the Company had net unrealized losses of approximately $30,332
in the cemetery perpetual care trusts in these states. Because some of these trusts currently have
assets with a fair market value less than the aggregate amounts required to be contributed to the
trust, any additional realized net capital losses in these trusts may result in an additional
corresponding funding liability and increase in cemetery costs.
From time to time, unidentified contracts are presented to the Company relating to contracts
sold prior to the time the Company acquired certain businesses. In addition, from time to time,
the Company has identified in its backlog, certain contracts in which services or merchandise have
previously been delivered. Using historical trends and statistical analysis, the Company has
recorded an estimated net liability for these items of approximately $3.0 million as of April 30,
2011 and October 31, 2010.
The Company is required to maintain a bond ($24,815 as of April 30, 2011) to guarantee its
obligations relating to funds the Company withdrew in fiscal year 2001 from its preneed funeral
trusts in Florida. This amount would become senior secured debt if the Company was required to
borrow funds under the senior secured revolving credit facility and return to the trusts the
amounts it previously withdrew that relate to the remaining undelivered preneed contracts in lieu
of this bond.
(8) Reconciliation of Basic and Diluted Per Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
|
|
Shares |
|
|
Per Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Data |
|
Three Months Ended April 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
9,998 |
|
|
|
|
|
|
|
|
|
Allocation of earnings to nonvested restricted stock |
|
|
(87 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations available to
common shareholders |
|
$ |
9,911 |
|
|
|
90,442 |
|
|
$ |
.11 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options assumed exercised |
|
|
|
|
|
|
624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations available to
common shareholders plus stock options assumed
exercised |
|
$ |
9,911 |
|
|
|
91,066 |
|
|
$ |
.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
|
|
Shares |
|
|
Per Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Data |
|
Three Months Ended April 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
8,388 |
|
|
|
|
|
|
|
|
|
Allocation of earnings to nonvested restricted stock |
|
|
(89 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations available to
common shareholders |
|
$ |
8,299 |
|
|
|
92,113 |
|
|
$ |
.09 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options assumed exercised |
|
|
|
|
|
|
274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations available to
common shareholders plus stock options assumed
exercised |
|
$ |
8,299 |
|
|
|
92,387 |
|
|
$ |
.09 |
|
|
|
|
|
|
|
|
|
|
|
28
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(8) Reconciliation of Basic and Diluted Per Share Data(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
|
|
Shares |
|
|
Per Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Data |
|
Six Months Ended April 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
18,042 |
|
|
|
|
|
|
|
|
|
Allocation of earnings to nonvested restricted stock |
|
|
(161 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations available to
common shareholders |
|
$ |
17,881 |
|
|
|
90,658 |
|
|
$ |
.20 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options assumed exercised |
|
|
|
|
|
|
467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations available to
common shareholders plus stock options assumed
exercised |
|
$ |
17,881 |
|
|
|
91,125 |
|
|
$ |
.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
|
|
Shares |
|
|
Per Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Data |
|
Six Months Ended April 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
15,849 |
|
|
|
|
|
|
|
|
|
Allocation of earnings to nonvested restricted stock |
|
|
(167 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations available to
common shareholders |
|
$ |
15,682 |
|
|
|
92,082 |
|
|
$ |
.17 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options assumed exercised |
|
|
|
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations available to
common shareholders plus stock options assumed
exercised |
|
$ |
15,682 |
|
|
|
92,332 |
|
|
$ |
.17 |
|
|
|
|
|
|
|
|
|
|
|
During the three months ended April 30, 2011, options to purchase 425,093 shares of common
stock at prices ranging from $8.06 to $8.47 per share were outstanding but were not included in the
computation of diluted earnings per share because the exercise prices of the options were greater
than the average market price of the common shares for that period. Additionally, weighted-average
shares outstanding for the three months ended April 30, 2011 exclude the effect of approximately
1,266,382 options because such options were not dilutive. These options expire between March 31,
2014 and March 12, 2018.
During the six months ended April 30, 2011, options to purchase 806,197 shares of common stock
at prices ranging from $6.83 to $8.47 per share were outstanding but were not included in the
computation of diluted earnings per share because the exercise prices of the options were greater
than the average market price of the common shares for that period. These options expire between
December 20, 2011 and March 12, 2018.
Options to purchase 1,285,255 shares of common stock at prices ranging from $5.84 to $8.47 per
share for the three months ended April 30, 2010 and options to purchase 1,312,058 shares of common
stock at prices ranging from $5.35 to $8.47 per share for the six months ended April 30, 2010 were
outstanding but were not included in the computation of diluted earnings per share because the
exercise prices of the options were greater than the average market price of the common shares for
those periods. Additionally, weighted average shares outstanding for the
29
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(8) Reconciliation of Basic and Diluted Per Share Data(Continued)
three and six months ended April 30, 2010 exclude the effect of approximately 959,006 and 4,173
options, respectively, because such options were not dilutive.
For the three and six months ended April 30, 2011, all of the outstanding 214,500 market based
stock options were dilutive as the respective market conditions had been previously achieved. For
the three and six months ended April 30, 2010, 438,000 market based stock options were not
dilutive. The market based stock options were not dilutive because the market conditions required
for vesting for the respective grants were not achieved during those periods.
For the three and six months ended April 30, 2011, a maximum of 13,153,500 shares of the
Companys Class A common stock related to the senior convertible notes and a maximum of 10,522,798
shares of Class A common stock under the common stock warrants associated with the June 2007 senior
convertible debt transaction were not dilutive, as the average price of the Companys stock for the
three and six months ended April 30, 2011 was less than the conversion price of the senior
convertible notes and strike price of the warrants. For the three and six months ended April 30,
2010, a maximum of 16,640,100 shares of the Companys Class A common stock related to the senior
convertible notes and a maximum of 13,312,080 shares of Class A common stock under the associated
common stock warrants were also not dilutive.
The Company includes Class A and Class B common stock in its diluted shares calculation. As
of April 30, 2011, the Companys Chairman, Frank B. Stewart, Jr., was the record holder of all of
the Companys shares of Class B common stock. The Companys Class A and B common stock are
substantially identical, except that holders of Class A common stock are entitled to one vote per share, and holders of Class B
common stock are entitled to ten votes per share. Each share of Class B common stock is
automatically converted into one share of Class A common stock upon transfer to persons other than
certain affiliates of Frank B. Stewart, Jr.
(9) Segment Data
The Company has determined that managements approach to operating the business indicates that
there are three operating and reportable segments: a funeral segment, a cemetery segment and a
corporate trust management segment. The Company does not aggregate its operating segments.
Therefore, its operating and reportable segments are the same. The tables below present
information about reported segments for the three and six months ended April 30, 2011 and 2010 for
the Companys continuing operations only. Prior period data has been retrospectively adjusted to
conform to this presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
|
Total Revenue |
|
|
|
Three Months |
|
|
Three Months |
|
|
Six Months |
|
|
Six Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
April 30, 2011 |
|
|
April 30, 2010 |
|
|
April 30, 2011 |
|
|
April 30, 2010 |
|
Funeral |
|
$ |
68,635 |
|
|
$ |
66,736 |
|
|
$ |
138,408 |
|
|
$ |
134,378 |
|
Cemetery(1) |
|
|
54,462 |
|
|
|
55,072 |
|
|
|
107,826 |
|
|
|
105,579 |
|
Corporate Trust Management(2) |
|
|
6,568 |
|
|
|
6,225 |
|
|
|
12,695 |
|
|
|
12,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
129,665 |
|
|
$ |
128,033 |
|
|
$ |
258,929 |
|
|
$ |
252,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(9) Segment Data(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Profit |
|
|
Total Gross Profit |
|
|
|
Three Months |
|
|
Three Months |
|
|
Six Months |
|
|
Six Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
April 30, 2011 |
|
|
April 30, 2010 |
|
|
April 30, 2011 |
|
|
April 30, 2010 |
|
Funeral |
|
$ |
13,920 |
|
|
$ |
12,778 |
|
|
$ |
30,436 |
|
|
$ |
28,199 |
|
Cemetery(1) |
|
|
5,565 |
|
|
|
6,457 |
|
|
|
11,711 |
|
|
|
10,868 |
|
Corporate Trust Management(2) |
|
|
6,156 |
|
|
|
5,845 |
|
|
|
11,849 |
|
|
|
11,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
25,641 |
|
|
$ |
25,080 |
|
|
$ |
53,996 |
|
|
$ |
50,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Total Preneed Merchandise |
|
|
Net Total Preneed Merchandise |
|
|
|
and Service Sales(3) |
|
|
and Service Sales(3) |
|
|
|
Three Months |
|
|
Three Months |
|
|
Six Months |
|
|
Six Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
April 30, 2011 |
|
|
April 30, 2010 |
|
|
April 30, 2011 |
|
|
April 30, 2010 |
|
Funeral |
|
$ |
24,558 |
|
|
$ |
26,342 |
|
|
$ |
44,004 |
|
|
$ |
45,295 |
|
Cemetery |
|
|
13,220 |
|
|
|
12,334 |
|
|
|
24,218 |
|
|
|
22,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
37,778 |
|
|
$ |
38,676 |
|
|
$ |
68,222 |
|
|
$ |
67,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Perpetual care trust earnings are included in the revenues and gross profit of the
cemetery segment and amounted to $1,683 and $1,346 for the three months ended April 30, 2011
and 2010, respectively, and $3,993 and $3,819 for the six months ended April 30, 2011 and
2010, respectively. |
|
(2) |
|
Corporate trust management consists of trust management fees and funeral and
cemetery merchandise and services trust earnings recognized with respect to preneed contracts
delivered during the period. Trust management fees are established by the Company at rates
consistent with industry norms based on the fair market value of the assets managed and are
paid by the trusts to the Companys subsidiary, Investors Trust, Inc. The trust earnings
represent the amount of distributable earnings as stipulated by the Companys respective trust
agreements that are generated by the trusts over the life of the preneed contracts and
allocated to those products and services delivered during the relevant periods. Trust
management fees included in funeral revenue for the three months ended April 30, 2011 and 2010
were $1,223 and $1,148, respectively, and funeral trust earnings recognized with respect to
preneed contracts delivered included in funeral revenue for the three months ended April 30,
2011 and 2010 were $3,115 and $3,176, respectively. Trust management fees included in
cemetery revenue for the three months ended April 30, 2011 and 2010 were $1,350 and $1,235,
respectively, and cemetery trust earnings recognized with respect to preneed contracts
delivered included in cemetery revenue for the three months ended April 30, 2011 and 2010 were
$880 and $666, respectively. |
|
|
|
Trust management fees included in funeral revenue for the six months ended April 30, 2011 and
2010 were $2,412 and $2,263, respectively, and funeral trust earnings for the six months ended
April 30, 2011 and 2010 were $6,020 and $6,139, respectively. Trust management fees included in
cemetery revenue for the six months ended April 30, 2011 and 2010 were $2,650 and $2,424,
respectively, and cemetery trust earnings for the six months ended April 30, 2011 and 2010 were
$1,613 and $1,262, respectively. |
|
(3) |
|
Preneed sales amounts represent total preneed funeral trust and insurance sales and
cemetery service and merchandise trust sales generated in the applicable period, net of
cancellations. |
31
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(9) Segment Data(Continued)
A reconciliation of total segment gross profit to total earnings from continuing operations
before income taxes for the three and six months ended April 30, 2011 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
Six Months Ended April 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Gross profit for reportable segments |
|
$ |
25,641 |
|
|
$ |
25,080 |
|
|
$ |
53,996 |
|
|
$ |
50,323 |
|
Corporate general and administrative expenses |
|
|
(6,650 |
) |
|
|
(6,116 |
) |
|
|
(13,289 |
) |
|
|
(12,786 |
) |
Hurricane related charges, net |
|
|
(54 |
) |
|
|
(32 |
) |
|
|
(104 |
) |
|
|
(32 |
) |
Net loss on dispositions |
|
|
(400 |
) |
|
|
|
|
|
|
(400 |
) |
|
|
|
|
Other operating income, net |
|
|
448 |
|
|
|
265 |
|
|
|
681 |
|
|
|
444 |
|
Interest expense |
|
|
(5,732 |
) |
|
|
(5,891 |
) |
|
|
(11,468 |
) |
|
|
(12,347 |
) |
Gain (loss) on early extinguishment of debt |
|
|
(1,811 |
) |
|
|
|
|
|
|
(1,811 |
) |
|
|
17 |
|
Investment and other income, net |
|
|
340 |
|
|
|
36 |
|
|
|
364 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before
income taxes |
|
$ |
11,782 |
|
|
$ |
13,342 |
|
|
$ |
27,969 |
|
|
$ |
25,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(10) Supplementary Information
The detail of certain income statement accounts is as follows for the three and six months
ended April 30, 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
Six Months Ended April 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Service revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
49,369 |
|
|
$ |
45,410 |
|
|
$ |
99,015 |
|
|
$ |
90,475 |
|
Cemetery |
|
|
14,435 |
|
|
|
15,238 |
|
|
|
30,624 |
|
|
|
30,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,804 |
|
|
|
60,648 |
|
|
|
129,639 |
|
|
|
121,284 |
|
Merchandise revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
21,589 |
|
|
|
23,981 |
|
|
|
43,995 |
|
|
|
48,997 |
|
Cemetery |
|
|
38,732 |
|
|
|
37,601 |
|
|
|
74,553 |
|
|
|
70,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,321 |
|
|
|
61,582 |
|
|
|
118,548 |
|
|
|
119,739 |
|
Other revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
2,016 |
|
|
|
1,669 |
|
|
|
3,830 |
|
|
|
3,308 |
|
Cemetery |
|
|
3,524 |
|
|
|
4,134 |
|
|
|
6,912 |
|
|
|
7,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,540 |
|
|
|
5,803 |
|
|
|
10,742 |
|
|
|
11,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
129,665 |
|
|
$ |
128,033 |
|
|
$ |
258,929 |
|
|
$ |
252,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
16,563 |
|
|
$ |
14,824 |
|
|
$ |
32,124 |
|
|
$ |
29,389 |
|
Cemetery |
|
|
10,424 |
|
|
|
10,551 |
|
|
|
20,770 |
|
|
|
20,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,987 |
|
|
|
25,375 |
|
|
|
52,894 |
|
|
|
49,743 |
|
Merchandise costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
14,084 |
|
|
|
14,489 |
|
|
|
28,229 |
|
|
|
29,001 |
|
Cemetery |
|
|
24,129 |
|
|
|
24,151 |
|
|
|
46,784 |
|
|
|
46,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,213 |
|
|
|
38,640 |
|
|
|
75,013 |
|
|
|
75,356 |
|
Facility expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
24,279 |
|
|
|
24,838 |
|
|
|
48,051 |
|
|
|
48,210 |
|
Cemetery |
|
|
14,545 |
|
|
|
14,100 |
|
|
|
28,975 |
|
|
|
28,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,824 |
|
|
|
38,938 |
|
|
|
77,026 |
|
|
|
76,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs |
|
$ |
104,024 |
|
|
$ |
102,953 |
|
|
$ |
204,933 |
|
|
$ |
201,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenue includes funeral service revenue, funeral trust earnings, insurance
commission revenue, burial site openings and closings and perpetual care trust earnings.
Merchandise revenue includes funeral merchandise revenue, flower sales, cemetery property sales
revenue, cemetery merchandise delivery revenue and merchandise trust earnings. Other revenue
consists of finance charge revenue and trust management fees. Service costs include the direct
costs associated with service revenue and preneed selling costs associated with preneed service
sales. Merchandise costs include the direct costs associated with merchandise revenue and preneed
selling costs associated with preneed merchandise sales.
33
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes
The following tables present the condensed consolidating historical financial statements as of
April 30, 2011 and October 31, 2010 and for the three and six months ended April 30, 2011 and 2010,
for the direct and indirect domestic subsidiaries of the Company that serve as guarantors of the
Companys 6.50 percent senior notes, 6.25 percent senior notes and its 3.125 percent and 3.375
percent senior convertible notes, and the financial results of the Companys subsidiaries that do
not serve as guarantors. Non-guarantor subsidiaries of the 6.50 percent senior notes and senior
convertible notes include the Puerto Rican subsidiaries, Investors Trust, Inc. and certain
immaterial domestic subsidiaries, which are not 100 percent owned, or are prohibited by law from
guaranteeing the 6.50 percent senior notes and senior convertible notes. The guarantor subsidiaries
of the 6.50 percent senior notes and senior convertible notes are 100 percent owned directly or
indirectly by the Company. The non-guarantor subsidiaries of the 6.25 percent senior notes are
identical to those of the 6.50 percent senior notes and senior convertible notes, except for three
immaterial non-100 percent owned subsidiaries which serve as guarantors of the 6.25 percent senior
notes. The guarantees are full and unconditional and joint and several. In the statements
presented within this footnote, Tier 2 guarantor subsidiaries represent the three immaterial
non-100 percent owned subsidiaries that do not guaranty the 6.50 percent senior notes and senior
convertible notes but do guaranty the 6.25 percent senior notes. Non-guarantor subsidiaries
represent the identical non-guarantor subsidiaries of the 6.50 percent senior notes, 6.25 percent
senior notes and senior convertible notes. In the condensed consolidating statements of earnings
and other comprehensive income, corporate general and administrative expenses and interest expense
of the parent are presented net of amounts charged to the guarantor and non-guarantor subsidiaries.
Condensed Consolidating Statements of Earnings and Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, 2011 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
|
|
|
$ |
67,909 |
|
|
$ |
562 |
|
|
$ |
4,503 |
|
|
$ |
|
|
|
$ |
72,974 |
|
Cemetery |
|
|
|
|
|
|
50,769 |
|
|
|
860 |
|
|
|
5,062 |
|
|
|
|
|
|
|
56,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,678 |
|
|
|
1,422 |
|
|
|
9,565 |
|
|
|
|
|
|
|
129,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
|
|
|
|
51,657 |
|
|
|
319 |
|
|
|
2,950 |
|
|
|
|
|
|
|
54,926 |
|
Cemetery |
|
|
|
|
|
|
44,495 |
|
|
|
696 |
|
|
|
3,907 |
|
|
|
|
|
|
|
49,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,152 |
|
|
|
1,015 |
|
|
|
6,857 |
|
|
|
|
|
|
|
104,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
22,526 |
|
|
|
407 |
|
|
|
2,708 |
|
|
|
|
|
|
|
25,641 |
|
Corporate general and
administrative expenses |
|
|
(6,650 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,650 |
) |
Hurricane related charges, net |
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54 |
) |
Net loss on dispositions |
|
|
|
|
|
|
(400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(400 |
) |
Other operating income, net |
|
|
110 |
|
|
|
273 |
|
|
|
1 |
|
|
|
64 |
|
|
|
|
|
|
|
448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) |
|
|
(6,594 |
) |
|
|
22,399 |
|
|
|
408 |
|
|
|
2,772 |
|
|
|
|
|
|
|
18,985 |
|
Interest income (expense) |
|
|
(1,009 |
) |
|
|
(4,256 |
) |
|
|
9 |
|
|
|
(476 |
) |
|
|
|
|
|
|
(5,732 |
) |
Loss on early extinguishment of debt |
|
|
(1,811 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,811 |
) |
Investment and other income, net |
|
|
340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
340 |
|
Equity in subsidiaries |
|
|
13,415 |
|
|
|
217 |
|
|
|
|
|
|
|
|
|
|
|
(13,632 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
4,341 |
|
|
|
18,360 |
|
|
|
417 |
|
|
|
2,296 |
|
|
|
(13,632 |
) |
|
|
11,782 |
|
Income tax expense (benefit) |
|
|
(5,657 |
) |
|
|
6,386 |
|
|
|
133 |
|
|
|
922 |
|
|
|
|
|
|
|
1,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
9,998 |
|
|
|
11,974 |
|
|
|
284 |
|
|
|
1,374 |
|
|
|
(13,632 |
) |
|
|
9,998 |
|
Other comprehensive income, net |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
(12 |
) |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
10,010 |
|
|
$ |
11,974 |
|
|
$ |
284 |
|
|
$ |
1,386 |
|
|
$ |
(13,644 |
) |
|
$ |
10,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior
Convertible Notes(Continued)
Condensed Consolidating Statements of Earnings and Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, 2010 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
|
|
|
$ |
66,260 |
|
|
$ |
470 |
|
|
$ |
4,330 |
|
|
$ |
|
|
|
$ |
71,060 |
|
Cemetery |
|
|
|
|
|
|
50,870 |
|
|
|
829 |
|
|
|
5,274 |
|
|
|
|
|
|
|
56,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,130 |
|
|
|
1,299 |
|
|
|
9,604 |
|
|
|
|
|
|
|
128,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
|
|
|
|
50,682 |
|
|
|
296 |
|
|
|
3,173 |
|
|
|
|
|
|
|
54,151 |
|
Cemetery |
|
|
|
|
|
|
44,133 |
|
|
|
649 |
|
|
|
4,020 |
|
|
|
|
|
|
|
48,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,815 |
|
|
|
945 |
|
|
|
7,193 |
|
|
|
|
|
|
|
102,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
22,315 |
|
|
|
354 |
|
|
|
2,411 |
|
|
|
|
|
|
|
25,080 |
|
Corporate general and administrative
expenses |
|
|
(6,116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,116 |
) |
Hurricane related recoveries
(charges), net |
|
|
(33 |
) |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
(32 |
) |
Other operating income, net |
|
|
26 |
|
|
|
149 |
|
|
|
3 |
|
|
|
87 |
|
|
|
|
|
|
|
265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) |
|
|
(6,123 |
) |
|
|
22,464 |
|
|
|
358 |
|
|
|
2,498 |
|
|
|
|
|
|
|
19,197 |
|
Interest income (expense) |
|
|
5 |
|
|
|
(5,420 |
) |
|
|
(3 |
) |
|
|
(473 |
) |
|
|
|
|
|
|
(5,891 |
) |
Investment and other income, net |
|
|
35 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36 |
|
Equity in subsidiaries |
|
|
11,560 |
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
(11,725 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations before income taxes |
|
|
5,477 |
|
|
|
17,210 |
|
|
|
355 |
|
|
|
2,025 |
|
|
|
(11,725 |
) |
|
|
13,342 |
|
Income tax expense (benefit) |
|
|
(2,914 |
) |
|
|
7,061 |
|
|
|
104 |
|
|
|
703 |
|
|
|
|
|
|
|
4,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
|
8,391 |
|
|
|
10,149 |
|
|
|
251 |
|
|
|
1,322 |
|
|
|
(11,725 |
) |
|
|
8,388 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued
operations before income taxes |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Income taxes |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued
operations |
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
8,391 |
|
|
|
10,152 |
|
|
|
251 |
|
|
|
1,322 |
|
|
|
(11,725 |
) |
|
|
8,391 |
|
Other comprehensive income, net |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
(1 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
8,392 |
|
|
$ |
10,152 |
|
|
$ |
251 |
|
|
$ |
1,323 |
|
|
$ |
(11,726 |
) |
|
$ |
8,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior
Convertible Notes(Continued)
Condensed Consolidating Statements of Earnings and Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30, 2011 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
|
|
|
$ |
136,608 |
|
|
$ |
1,046 |
|
|
$ |
9,186 |
|
|
$ |
|
|
|
$ |
146,840 |
|
Cemetery |
|
|
|
|
|
|
100,381 |
|
|
|
1,575 |
|
|
|
10,133 |
|
|
|
|
|
|
|
112,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236,989 |
|
|
|
2,621 |
|
|
|
19,319 |
|
|
|
|
|
|
|
258,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
|
|
|
|
101,747 |
|
|
|
612 |
|
|
|
6,045 |
|
|
|
|
|
|
|
108,404 |
|
Cemetery |
|
|
|
|
|
|
87,475 |
|
|
|
1,287 |
|
|
|
7,767 |
|
|
|
|
|
|
|
96,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189,222 |
|
|
|
1,899 |
|
|
|
13,812 |
|
|
|
|
|
|
|
204,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
47,767 |
|
|
|
722 |
|
|
|
5,507 |
|
|
|
|
|
|
|
53,996 |
|
Corporate general and
administrative expenses |
|
|
(13,289 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,289 |
) |
Hurricane related charges, net |
|
|
(104 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(104 |
) |
Net loss on dispositions |
|
|
|
|
|
|
(400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(400 |
) |
Other operating income, net |
|
|
128 |
|
|
|
434 |
|
|
|
1 |
|
|
|
118 |
|
|
|
|
|
|
|
681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) |
|
|
(13,265 |
) |
|
|
47,801 |
|
|
|
723 |
|
|
|
5,625 |
|
|
|
|
|
|
|
40,884 |
|
Interest income (expense) |
|
|
(1,835 |
) |
|
|
(8,721 |
) |
|
|
14 |
|
|
|
(926 |
) |
|
|
|
|
|
|
(11,468 |
) |
Loss on early extinguishment of debt |
|
|
(1,811 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,811 |
) |
Investment and other income, net |
|
|
364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364 |
|
Equity in subsidiaries |
|
|
25,007 |
|
|
|
387 |
|
|
|
|
|
|
|
|
|
|
|
(25,394 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
8,460 |
|
|
|
39,467 |
|
|
|
737 |
|
|
|
4,699 |
|
|
|
(25,394 |
) |
|
|
27,969 |
|
Income tax expense (benefit) |
|
|
(9,582 |
) |
|
|
14,664 |
|
|
|
243 |
|
|
|
4,602 |
|
|
|
|
|
|
|
9,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
18,042 |
|
|
|
24,803 |
|
|
|
494 |
|
|
|
97 |
|
|
|
(25,394 |
) |
|
|
18,042 |
|
Other comprehensive income, net |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
(9 |
) |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
18,051 |
|
|
$ |
24,803 |
|
|
$ |
494 |
|
|
$ |
106 |
|
|
$ |
(25,403 |
) |
|
$ |
18,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(11) |
|
Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior
Convertible Notes(Continued) |
Condensed Consolidating Statements of Earnings and Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30, 2010 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
|
|
|
$ |
133,104 |
|
|
$ |
955 |
|
|
$ |
8,721 |
|
|
$ |
|
|
|
$ |
142,780 |
|
Cemetery |
|
|
|
|
|
|
97,546 |
|
|
|
1,401 |
|
|
|
10,318 |
|
|
|
|
|
|
|
109,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
230,650 |
|
|
|
2,356 |
|
|
|
19,039 |
|
|
|
|
|
|
|
252,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
|
|
|
|
99,671 |
|
|
|
559 |
|
|
|
6,370 |
|
|
|
|
|
|
|
106,600 |
|
Cemetery |
|
|
|
|
|
|
85,706 |
|
|
|
1,269 |
|
|
|
8,147 |
|
|
|
|
|
|
|
95,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
185,377 |
|
|
|
1,828 |
|
|
|
14,517 |
|
|
|
|
|
|
|
201,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
45,273 |
|
|
|
528 |
|
|
|
4,522 |
|
|
|
|
|
|
|
50,323 |
|
Corporate general and
administrative expenses |
|
|
(12,786 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,786 |
) |
Hurricane related recoveries
(charges), net |
|
|
(87 |
) |
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
(32 |
) |
Other operating income, net |
|
|
42 |
|
|
|
292 |
|
|
|
3 |
|
|
|
107 |
|
|
|
|
|
|
|
444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) |
|
|
(12,831 |
) |
|
|
45,565 |
|
|
|
586 |
|
|
|
4,629 |
|
|
|
|
|
|
|
37,949 |
|
Interest expense |
|
|
(482 |
) |
|
|
(10,898 |
) |
|
|
(11 |
) |
|
|
(956 |
) |
|
|
|
|
|
|
(12,347 |
) |
Gain on early extinguishment of debt |
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
Investment and other income, net |
|
|
59 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60 |
|
Equity in subsidiaries |
|
|
23,497 |
|
|
|
245 |
|
|
|
|
|
|
|
|
|
|
|
(23,742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations before income taxes |
|
|
10,260 |
|
|
|
34,913 |
|
|
|
575 |
|
|
|
3,673 |
|
|
|
(23,742 |
) |
|
|
25,679 |
|
Income tax expense (benefit) |
|
|
(5,618 |
) |
|
|
14,068 |
|
|
|
178 |
|
|
|
1,202 |
|
|
|
|
|
|
|
9,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations |
|
|
15,878 |
|
|
|
20,845 |
|
|
|
397 |
|
|
|
2,471 |
|
|
|
(23,742 |
) |
|
|
15,849 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued
operations before income taxes |
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46 |
|
Income taxes |
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued
operations |
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
15,878 |
|
|
|
20,874 |
|
|
|
397 |
|
|
|
2,471 |
|
|
|
(23,742 |
) |
|
|
15,878 |
|
Other comprehensive loss, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
15,878 |
|
|
$ |
20,874 |
|
|
$ |
397 |
|
|
$ |
2,471 |
|
|
$ |
(23,742 |
) |
|
$ |
15,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior
Convertible Notes(Continued)
Condensed Consolidating Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries- |
|
|
Subsidiaries- |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
73,363 |
|
|
$ |
4,025 |
|
|
$ |
79 |
|
|
$ |
843 |
|
|
$ |
|
|
|
$ |
78,310 |
|
Certificates of deposit and marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
598 |
|
|
|
|
|
|
|
598 |
|
Receivables, net of allowances |
|
|
3,537 |
|
|
|
38,579 |
|
|
|
341 |
|
|
|
6,379 |
|
|
|
|
|
|
|
48,836 |
|
Inventories |
|
|
298 |
|
|
|
32,907 |
|
|
|
327 |
|
|
|
2,261 |
|
|
|
|
|
|
|
35,793 |
|
Prepaid expenses |
|
|
1,350 |
|
|
|
4,606 |
|
|
|
65 |
|
|
|
1,650 |
|
|
|
|
|
|
|
7,671 |
|
Deferred income taxes, net |
|
|
14,135 |
|
|
|
11,470 |
|
|
|
31 |
|
|
|
2,769 |
|
|
|
|
|
|
|
28,405 |
|
Intercompany receivables |
|
|
2,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,413 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
95,096 |
|
|
|
91,587 |
|
|
|
843 |
|
|
|
14,500 |
|
|
|
(2,413 |
) |
|
|
199,613 |
|
Receivables due beyond one year, net of allowances |
|
|
|
|
|
|
52,392 |
|
|
|
619 |
|
|
|
11,256 |
|
|
|
|
|
|
|
64,267 |
|
Preneed funeral receivables and trust investments |
|
|
|
|
|
|
422,939 |
|
|
|
|
|
|
|
9,757 |
|
|
|
|
|
|
|
432,696 |
|
Preneed cemetery receivables and trust investments |
|
|
|
|
|
|
219,176 |
|
|
|
1,170 |
|
|
|
6,304 |
|
|
|
|
|
|
|
226,650 |
|
Goodwill |
|
|
|
|
|
|
227,203 |
|
|
|
48 |
|
|
|
19,787 |
|
|
|
|
|
|
|
247,038 |
|
Cemetery property, at cost |
|
|
|
|
|
|
350,906 |
|
|
|
11,101 |
|
|
|
25,634 |
|
|
|
|
|
|
|
387,641 |
|
Property and equipment, at cost |
|
|
57,953 |
|
|
|
480,203 |
|
|
|
2,575 |
|
|
|
39,688 |
|
|
|
|
|
|
|
580,419 |
|
Less accumulated depreciation |
|
|
43,228 |
|
|
|
233,581 |
|
|
|
1,258 |
|
|
|
17,138 |
|
|
|
|
|
|
|
295,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
14,725 |
|
|
|
246,622 |
|
|
|
1,317 |
|
|
|
22,550 |
|
|
|
|
|
|
|
285,214 |
|
Deferred income taxes, net |
|
|
10,719 |
|
|
|
77,116 |
|
|
|
|
|
|
|
6,932 |
|
|
|
(2,655 |
) |
|
|
92,112 |
|
Cemetery perpetual care trust investments |
|
|
|
|
|
|
229,475 |
|
|
|
9,128 |
|
|
|
3,939 |
|
|
|
|
|
|
|
242,542 |
|
Other assets |
|
|
10,108 |
|
|
|
4,735 |
|
|
|
15 |
|
|
|
1,020 |
|
|
|
|
|
|
|
15,878 |
|
Intercompany receivables |
|
|
676,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(676,121 |
) |
|
|
|
|
Equity in subsidiaries |
|
|
15,825 |
|
|
|
9,275 |
|
|
|
|
|
|
|
|
|
|
|
(25,100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
822,594 |
|
|
$ |
1,931,426 |
|
|
$ |
24,241 |
|
|
$ |
121,679 |
|
|
$ |
(706,289 |
) |
|
$ |
2,193,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
$ |
5,817 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,817 |
|
Accounts payable, accrued expenses and other
current liabilities |
|
|
12,945 |
|
|
|
66,385 |
|
|
|
113 |
|
|
|
3,832 |
|
|
|
|
|
|
|
83,275 |
|
Intercompany payables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,413 |
|
|
|
(2,413 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
18,762 |
|
|
|
66,385 |
|
|
|
113 |
|
|
|
6,245 |
|
|
|
(2,413 |
) |
|
|
89,092 |
|
Long-term debt, less current maturities |
|
|
315,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
315,891 |
|
Deferred income taxes, net |
|
|
|
|
|
|
4,327 |
|
|
|
3,229 |
|
|
|
5 |
|
|
|
(2,655 |
) |
|
|
4,906 |
|
Intercompany payables |
|
|
|
|
|
|
661,804 |
|
|
|
1,592 |
|
|
|
12,725 |
|
|
|
(676,121 |
) |
|
|
|
|
Deferred preneed funeral revenue |
|
|
|
|
|
|
195,697 |
|
|
|
|
|
|
|
46,335 |
|
|
|
|
|
|
|
242,032 |
|
Deferred preneed cemetery revenue |
|
|
|
|
|
|
227,134 |
|
|
|
526 |
|
|
|
28,704 |
|
|
|
|
|
|
|
256,364 |
|
Deferred preneed funeral and cemetery receipts held
in trust |
|
|
|
|
|
|
583,505 |
|
|
|
1,071 |
|
|
|
7,185 |
|
|
|
|
|
|
|
591,761 |
|
Perpetual care trusts corpus |
|
|
|
|
|
|
228,517 |
|
|
|
9,148 |
|
|
|
3,911 |
|
|
|
|
|
|
|
241,576 |
|
Other long-term liabilities |
|
|
18,659 |
|
|
|
1,766 |
|
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
20,456 |
|
Negative equity in subsidiaries |
|
|
37,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,709 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
391,021 |
|
|
|
1,969,135 |
|
|
|
15,679 |
|
|
|
105,141 |
|
|
|
(718,898 |
) |
|
|
1,762,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
91,201 |
|
|
|
102 |
|
|
|
324 |
|
|
|
52 |
|
|
|
(478 |
) |
|
|
91,201 |
|
Other |
|
|
340,345 |
|
|
|
(37,811 |
) |
|
|
8,238 |
|
|
|
16,459 |
|
|
|
13,114 |
|
|
|
340,345 |
|
Accumulated other comprehensive income |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
27 |
|
|
|
(27 |
) |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
431,573 |
|
|
|
(37,709 |
) |
|
|
8,562 |
|
|
|
16,538 |
|
|
|
12,609 |
|
|
|
431,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
822,594 |
|
|
$ |
1,931,426 |
|
|
$ |
24,241 |
|
|
$ |
121,679 |
|
|
$ |
(706,289 |
) |
|
$ |
2,193,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior
Convertible Notes(Continued)
Condensed Consolidating Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2010 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
48,270 |
|
|
$ |
6,055 |
|
|
$ |
58 |
|
|
$ |
1,677 |
|
|
$ |
|
|
|
$ |
56,060 |
|
Certificates of deposit and marketable securities |
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
Receivables, net of allowances |
|
|
3,685 |
|
|
|
40,698 |
|
|
|
372 |
|
|
|
6,396 |
|
|
|
|
|
|
|
51,151 |
|
Inventories |
|
|
329 |
|
|
|
32,779 |
|
|
|
330 |
|
|
|
2,270 |
|
|
|
|
|
|
|
35,708 |
|
Prepaid expenses |
|
|
1,292 |
|
|
|
2,589 |
|
|
|
60 |
|
|
|
1,538 |
|
|
|
|
|
|
|
5,479 |
|
Deferred income taxes, net |
|
|
13,835 |
|
|
|
11,604 |
|
|
|
32 |
|
|
|
2,841 |
|
|
|
|
|
|
|
28,312 |
|
Assets held for sale |
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27 |
|
Intercompany receivables |
|
|
7,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,782 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
85,193 |
|
|
|
93,752 |
|
|
|
852 |
|
|
|
14,722 |
|
|
|
(7,782 |
) |
|
|
186,737 |
|
Receivables due beyond one year, net of allowances |
|
|
1,973 |
|
|
|
53,683 |
|
|
|
572 |
|
|
|
11,230 |
|
|
|
|
|
|
|
67,458 |
|
Preneed funeral receivables and trust investments |
|
|
|
|
|
|
405,296 |
|
|
|
|
|
|
|
9,622 |
|
|
|
|
|
|
|
414,918 |
|
Preneed cemetery receivables and trust investments |
|
|
|
|
|
|
201,960 |
|
|
|
1,123 |
|
|
|
6,204 |
|
|
|
|
|
|
|
209,287 |
|
Goodwill |
|
|
|
|
|
|
227,203 |
|
|
|
48 |
|
|
|
19,787 |
|
|
|
|
|
|
|
247,038 |
|
Cemetery property, at cost |
|
|
|
|
|
|
349,252 |
|
|
|
11,154 |
|
|
|
25,598 |
|
|
|
|
|
|
|
386,004 |
|
Property and equipment, at cost |
|
|
56,964 |
|
|
|
474,538 |
|
|
|
2,509 |
|
|
|
39,172 |
|
|
|
|
|
|
|
573,183 |
|
Less accumulated depreciation |
|
|
40,837 |
|
|
|
225,118 |
|
|
|
1,180 |
|
|
|
16,498 |
|
|
|
|
|
|
|
283,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
16,127 |
|
|
|
249,420 |
|
|
|
1,329 |
|
|
|
22,674 |
|
|
|
|
|
|
|
289,550 |
|
Deferred income taxes, net |
|
|
16,620 |
|
|
|
75,449 |
|
|
|
|
|
|
|
9,224 |
|
|
|
(3,268 |
) |
|
|
98,025 |
|
Cemetery perpetual care trust investments |
|
|
|
|
|
|
217,743 |
|
|
|
8,973 |
|
|
|
4,014 |
|
|
|
|
|
|
|
230,730 |
|
Non-current assets held for sale |
|
|
|
|
|
|
1,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,214 |
|
Other assets |
|
|
6,096 |
|
|
|
4,772 |
|
|
|
7 |
|
|
|
1,030 |
|
|
|
|
|
|
|
11,905 |
|
Intercompany receivables |
|
|
693,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(693,981 |
) |
|
|
|
|
Equity in subsidiaries |
|
|
15,612 |
|
|
|
8,888 |
|
|
|
|
|
|
|
|
|
|
|
(24,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
835,602 |
|
|
$ |
1,888,632 |
|
|
$ |
24,058 |
|
|
$ |
124,105 |
|
|
$ |
(729,531 |
) |
|
$ |
2,142,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
$ |
5 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5 |
|
Accounts payable, accrued expenses and other
current liabilities |
|
|
15,524 |
|
|
|
70,740 |
|
|
|
151 |
|
|
|
5,720 |
|
|
|
|
|
|
|
92,135 |
|
Liabilities associated with assets held for sale |
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
Intercompany payables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,782 |
|
|
|
(7,782 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
15,529 |
|
|
|
70,748 |
|
|
|
151 |
|
|
|
13,502 |
|
|
|
(7,782 |
) |
|
|
92,148 |
|
Long-term debt, less current maturities |
|
|
314,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
314,027 |
|
Deferred income taxes, net |
|
|
|
|
|
|
4,950 |
|
|
|
3,268 |
|
|
|
|
|
|
|
(3,268 |
) |
|
|
4,950 |
|
Intercompany payables |
|
|
|
|
|
|
683,501 |
|
|
|
2,099 |
|
|
|
8,381 |
|
|
|
(693,981 |
) |
|
|
|
|
Deferred preneed funeral revenue |
|
|
|
|
|
|
197,148 |
|
|
|
|
|
|
|
46,372 |
|
|
|
|
|
|
|
243,520 |
|
Deferred preneed cemetery revenue |
|
|
|
|
|
|
228,908 |
|
|
|
500 |
|
|
|
28,636 |
|
|
|
|
|
|
|
258,044 |
|
Deferred preneed funeral and cemetery receipts held
in trust |
|
|
|
|
|
|
546,876 |
|
|
|
1,049 |
|
|
|
6,791 |
|
|
|
|
|
|
|
554,716 |
|
Perpetual care trusts corpus |
|
|
|
|
|
|
216,379 |
|
|
|
8,923 |
|
|
|
3,938 |
|
|
|
|
|
|
|
229,240 |
|
Long-term liabilities associated with assets held
for sale |
|
|
|
|
|
|
714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
714 |
|
Other long-term liabilities |
|
|
18,050 |
|
|
|
1,920 |
|
|
|
|
|
|
|
53 |
|
|
|
|
|
|
|
20,023 |
|
Negative equity in subsidiaries |
|
|
62,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,512 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
410,118 |
|
|
|
1,951,144 |
|
|
|
15,990 |
|
|
|
107,673 |
|
|
|
(767,543 |
) |
|
|
1,717,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
92,294 |
|
|
|
102 |
|
|
|
324 |
|
|
|
52 |
|
|
|
(478 |
) |
|
|
92,294 |
|
Other |
|
|
333,172 |
|
|
|
(62,614 |
) |
|
|
7,744 |
|
|
|
16,362 |
|
|
|
38,508 |
|
|
|
333,172 |
|
Accumulated other comprehensive income |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
(18 |
) |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
425,484 |
|
|
|
(62,512 |
) |
|
|
8,068 |
|
|
|
16,432 |
|
|
|
38,012 |
|
|
|
425,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
835,602 |
|
|
$ |
1,888,632 |
|
|
$ |
24,058 |
|
|
$ |
124,105 |
|
|
$ |
(729,531 |
) |
|
$ |
2,142,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior
Convertible Notes(Continued)
Condensed Consolidating Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30, 2011 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net cash provided by operating activities |
|
$ |
3,606 |
|
|
$ |
30,200 |
|
|
$ |
645 |
|
|
$ |
1,245 |
|
|
$ |
|
|
|
$ |
35,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of certificates
of deposit |
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
Purchases of certificates of deposit
and marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(585 |
) |
|
|
|
|
|
|
(585 |
) |
Proceeds from sale of assets |
|
|
|
|
|
|
285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
285 |
|
Purchase of subsidiaries and other
investments, net of cash acquired |
|
|
|
|
|
|
(1,809 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,809 |
) |
Additions to property and equipment |
|
|
(922 |
) |
|
|
(7,254 |
) |
|
|
(117 |
) |
|
|
(469 |
) |
|
|
|
|
|
|
(8,762 |
) |
Other |
|
|
|
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities |
|
|
9,078 |
|
|
|
(8,724 |
) |
|
|
(117 |
) |
|
|
(1,054 |
) |
|
|
|
|
|
|
(817 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt |
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
Intercompany receivables (payables) |
|
|
25,038 |
|
|
|
(23,506 |
) |
|
|
(507 |
) |
|
|
(1,025 |
) |
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
|
(194,190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(194,190 |
) |
Issuance of common stock |
|
|
1,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,199 |
|
Purchase and retirement of common
stock |
|
|
(9,387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,387 |
) |
Debt refinancing costs |
|
|
(4,910 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,910 |
) |
Dividends |
|
|
(5,485 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,485 |
) |
Excess tax benefits from share-based
payment arrangements |
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities |
|
|
12,409 |
|
|
|
(23,506 |
) |
|
|
(507 |
) |
|
|
(1,025 |
) |
|
|
|
|
|
|
(12,629 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
25,093 |
|
|
|
(2,030 |
) |
|
|
21 |
|
|
|
(834 |
) |
|
|
|
|
|
|
22,250 |
|
Cash and cash equivalents, beginning of
period |
|
|
48,270 |
|
|
|
6,055 |
|
|
|
58 |
|
|
|
1,677 |
|
|
|
|
|
|
|
56,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
73,363 |
|
|
$ |
4,025 |
|
|
$ |
79 |
|
|
$ |
843 |
|
|
$ |
|
|
|
$ |
78,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior
Convertible Notes(Continued)
Condensed Consolidating Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30, 2010 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net cash provided by (used in)
operating activities |
|
$ |
(1,511 |
) |
|
$ |
24,505 |
|
|
$ |
661 |
|
|
$ |
2,800 |
|
|
$ |
|
|
|
$ |
26,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of marketable
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250 |
|
|
|
|
|
|
|
250 |
|
Purchases of certificates of deposit
and marketable securities |
|
|
(10,000 |
) |
|
|
|
|
|
|
|
|
|
|
(661 |
) |
|
|
|
|
|
|
(10,661 |
) |
Additions to property and equipment |
|
|
(1,430 |
) |
|
|
(6,416 |
) |
|
|
(75 |
) |
|
|
(445 |
) |
|
|
|
|
|
|
(8,366 |
) |
Other |
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(11,430 |
) |
|
|
(6,366 |
) |
|
|
(75 |
) |
|
|
(856 |
) |
|
|
|
|
|
|
(18,727 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
|
(847 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(847 |
) |
Intercompany receivables (payables) |
|
|
20,725 |
|
|
|
(17,604 |
) |
|
|
(588 |
) |
|
|
(2,533 |
) |
|
|
|
|
|
|
|
|
Retirement of common stock warrants |
|
|
(107 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(107 |
) |
Issuance of common stock |
|
|
471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
471 |
|
Retirement of call options |
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107 |
|
Debt refinancing costs |
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38 |
) |
Dividends |
|
|
(5,589 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,589 |
) |
Excess tax benefits from share based
payment arrangements |
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities |
|
|
14,748 |
|
|
|
(17,604 |
) |
|
|
(588 |
) |
|
|
(2,533 |
) |
|
|
|
|
|
|
(5,977 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
1,807 |
|
|
|
535 |
|
|
|
(2 |
) |
|
|
(589 |
) |
|
|
|
|
|
|
1,751 |
|
Cash and cash equivalents, beginning of
period |
|
|
56,734 |
|
|
|
5,096 |
|
|
|
52 |
|
|
|
926 |
|
|
|
|
|
|
|
62,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
58,541 |
|
|
$ |
5,631 |
|
|
$ |
50 |
|
|
$ |
337 |
|
|
$ |
|
|
|
$ |
64,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(12) Dispositions and Acquisitions
During the six months ended April 30, 2011, the Company acquired a new funeral home and
cemetery for approximately $1,809. This acquisition was accounted for under the purchase method,
and the acquired assets and liabilities (primarily cemetery property of approximately $1,045 and
property, plant and equipment of approximately $549) were valued at their estimated fair values.
The results of operations for these businesses, which are considered immaterial, have been included
in consolidated results since the acquisition date.
Assets and liabilities associated with assets held for sale are presented in the assets held
for sale, non-current assets held for sale, liabilities associated with assets held for sale
and long-term liabilities associated with assets held for sale lines in the condensed
consolidated balance sheet. As of October 31, 2010, assets held for sale and liabilities
associated with assets held for sale were comprised of the following:
|
|
|
|
|
|
|
October 31, 2010 |
|
Assets |
|
|
|
|
Receivables |
|
$ |
20 |
|
Inventories |
|
|
7 |
|
|
|
|
|
Assets held for sale |
|
$ |
27 |
|
|
|
|
|
|
|
|
|
|
Net property and equipment |
|
$ |
383 |
|
Cemetery property |
|
|
90 |
|
Preneed cemetery receivables and trust investments |
|
|
463 |
|
Cemetery perpetual care trust investments |
|
|
278 |
|
|
|
|
|
Non-current assets held for sale |
|
$ |
1,214 |
|
|
|
|
|
Liabilities |
|
|
|
|
Liabilities associated with assets held for sale |
|
$ |
8 |
|
|
|
|
|
|
|
|
|
|
Deferred preneed cemetery receipts held in trust |
|
$ |
436 |
|
Perpetual care trusts corpus |
|
|
278 |
|
|
|
|
|
Long-term liabilities associated with assets held for sale |
|
$ |
714 |
|
|
|
|
|
(13) Consolidated Comprehensive Income
Consolidated comprehensive income for the three and six months ended April 30, 2011 and 2010
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
Six Months Ended April 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Net earnings |
|
$ |
9,998 |
|
|
$ |
8,391 |
|
|
$ |
18,042 |
|
|
$ |
15,878 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized appreciation of
investments, net of deferred
tax expense of ($7), ($1) and
($5), respectively |
|
|
12 |
|
|
|
1 |
|
|
|
9 |
|
|
|
|
|
Reduction in net unrealized
losses associated with
available-for-sale securities
of the trusts |
|
|
25,900 |
|
|
|
35,437 |
|
|
|
42,981 |
|
|
|
55,667 |
|
Reclassification of the net
unrealized losses activity
attributable to the deferred
preneed funeral and cemetery
receipts held in trust and
perpetual care trusts corpus |
|
|
(25,900 |
) |
|
|
(35,437 |
) |
|
|
(42,981 |
) |
|
|
(55,667 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income |
|
|
12 |
|
|
|
1 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
10,010 |
|
|
$ |
8,392 |
|
|
$ |
18,051 |
|
|
$ |
15,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(14) Long-term Debt
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011 |
|
|
October 31, 2010 |
|
Long-term debt: |
|
|
|
|
|
|
|
|
3.125% senior convertible notes due
2014, net of unamortized discount of
$8,966 and $10,275 as of April 30, 2011
and October 31, 2010, respectively |
|
$ |
77,450 |
|
|
$ |
76,141 |
|
3.375% senior convertible notes due
2016, net of unamortized discount of
$6,760 and $7,318 as of April 30, 2011
and October 31, 2010, respectively |
|
|
38,359 |
|
|
|
37,801 |
|
Senior secured revolving credit facility |
|
|
|
|
|
|
|
|
6.50% senior notes due 2019 |
|
|
200,000 |
|
|
|
|
|
6.25% senior notes due 2013 |
|
|
5,812 |
|
|
|
200,000 |
|
Other, principally seller financing of
acquired operations or assumption upon
acquisition, weighted average interest
rate of 8.0% as of April 30, 2011 and
October 31, 2010, partially secured by
assets of subsidiaries, with maturities
through 2022 |
|
|
87 |
|
|
|
90 |
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
321,708 |
|
|
|
314,032 |
|
Less current maturities |
|
|
5,817 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
$ |
315,891 |
|
|
$ |
314,027 |
|
|
|
|
|
|
|
|
Fair Value
As of April 30, 2011, the carrying values of the Companys 3.125 percent senior convertible
notes due 2014 (the 2014 Notes) and 3.375 percent senior convertible notes due 2016 (the 2016
Notes), including accrued interest, were $78,245 and $38,807, respectively, compared to fair
values of $90,128 and $46,357, respectively. The aggregate principal amounts outstanding of the
2014 Notes and 2016 Notes as of April 30, 2011 were $86,416 and $45,119, respectively. As of April
30, 2011, the carrying value of the Companys 6.50 percent senior notes, including accrued
interest, was $200,433 compared to a fair value of $202,194. The carrying value of the Companys
6.25 percent notes, including accrued interest, was $5,888 compared to a fair value of $5,812 as of
April 30, 2011.
Senior Secured Revolving Credit Facility
On April 20, 2011, the Company amended its $95,000 senior secured revolving credit facility
which was set to mature in June 2012. The amended senior secured revolving credit facility matures
on April 20, 2016 and was increased to $150,000 and includes a $30,000 sublimit for the issuance of
standby letters of credit and a $10,000 sublimit for swingline loans. The Company may also request
the addition of a new tranche of term loans, an increase in the commitments to the amended senior
secured revolving credit facility or a combination thereof not to exceed $50,000. As of April 30,
2011, there were no amounts drawn on the amended senior secured revolving credit facility, and the
Companys availability for future borrowings under the facility, after giving consideration to its
$7,500 of outstanding letters of credit and $24,815 reserve for its Florida bond, was $117,685.
During the quarter ended April 30, 2011, the Company recorded a charge for the loss on early
extinguishment of debt of $88 to write-off a portion of the unamortized fees on the prior
agreement. The remaining fees related to the prior agreement and the fees incurred for the amended
agreement were $2,311 (of which $1,313 was paid in cash as of April 30, 2011) and will be amortized
over the term of the new credit facility.
The interest rate on the amended senior secured revolving credit facility ranges from LIBOR
plus 225.0 to 275.0 basis points, and was LIBOR plus 250.0 basis points at closing. The Company
pays a quarterly commitment fee ranging from 40 to 50 basis points annually based on the undrawn
portion of the commitments.
43
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(14) Long-term Debt(Continued)
The amended senior secured revolving credit facility is governed by the following financial
covenants:
|
|
|
Maintenance on a rolling four quarter basis of a maximum consolidated adjusted leverage
ratio (total funded debt (net of eligible securities and readily marketable securities, but
in no event greater than $30,000) divided by EBITDA (as defined)) of not more than 4.75 to
1.00; |
|
|
|
|
Maintenance on a rolling four quarter basis of a maximum consolidated senior secured
leverage ratio (total funded senior secured debt divided by EBITDA (as defined)) of not
more than 2.00 to 1.00; and |
|
|
|
|
Maintenance on a rolling four quarter basis of a minimum consolidated interest coverage
ratio (EBITDAR (as defined) divided by interest expense paid in cash plus rent expense less
certain transaction costs to the extent such constitutes cash interest expense) of not
less than 2.60 to 1.00 |
The covenants include limitations on (i) liens, (ii) mergers, consolidations and asset sales,
(iii) the incurrence of debt, (iv) dividends, stock redemptions and the redemption and/or
prepayment of other debt, (v) capital expenditures, (vi) investments and acquisitions, (vii)
transactions with affiliates and (viii) a change of control. If there is no default or event of
default, the Company may pay cash dividends and repurchase its stock, provided that the aggregate
amount of the dividends and stock repurchased plus other types of restricted payments in any fiscal
year does not exceed $30,000 plus any positive amounts available in the discretionary basket. As
of April 30, 2011, the amount available to pay dividends or repurchase stock was $206,927. The
agreement also limits capital expenditures in any fiscal year to $45,000, with a provision for the
carryover of permitted but unused amounts. The lenders under the amended senior secured credit
facility can accelerate all obligations under the facility and terminate the revolving credit
commitments if an event of default occurs and is continuing.
Obligations under the amended senior secured revolving credit facility are guaranteed by
substantially all existing and future direct and indirect domestic subsidiaries of the Company
formed under the laws of any one of the states or the District of Columbia of the United States of
America (SEI Guarantors).
The lenders under the amended senior secured revolving credit facility have a first priority
perfected security interest in (1) all of the capital stock or other equity interests of each of
the domestic subsidiaries of the Company whether now existing or hereafter created or acquired
other than certain excluded immaterial subsidiaries and 65 percent of the voting capital stock of
all direct foreign subsidiaries whether now existing or hereafter acquired and (2) all other
present and future assets and properties of the Company and the SEI Guarantors except (a) real
property, (b) vehicles, (c) assets to which applicable law or regulation prohibits security
interest therein or requires the consent of a third party, (d) contract rights in which a security
interest without the approval of the other party to the contract would constitute a default
thereunder, (e) any assets with respect to which a security interest cannot be perfected and (f) a
certain securities account to be maintained for the benefit of one of the Companys umbrella
insurance policies.
Senior Notes
On April 4, 2011, the Company commenced a cash tender offer and consent solicitation for any
and all of its outstanding $200,000 aggregate principal amount 6.25 percent senior notes due 2013
(the 6.25 percent notes) and a solicitation of consents to amend the indenture governing the 6.25
percent notes (the Indenture). On April 15, 2011, the Company announced that it had received the
requisite consents to amend the Indenture and accordingly entered into a supplemental indenture,
dated April 15, 2011 (the Supplemental Indenture), to the Indenture with U.S. Bank National
Association, as trustee for the 6.25 percent notes. On April 18, 2011, the Company purchased a
total of $194,188 in aggregate principal amount of its outstanding 6.25 percent notes in the offer
for an aggregate purchase price (including consent payments) of $194,673 plus $2,124 in accrued and
unpaid interest. During the quarter ended April 30, 2011, the Company recorded a charge for the
loss on early extinguishment of debt of $1,723 representing $777 for related fees and expenses and
$946 for the write-off of the remaining unamortized fees on the 6.25 percent senior notes.
44
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(14) Long-term Debt(Continued)
The Company funded the tender offer for the 6.25 percent senior notes with a portion of its
available cash and the net proceeds of the issuance of $200,000 6.50 percent senior notes due 2019
(the 6.50 percent notes), which were issued April 18, 2011. As of April 30, 2011, fees incurred
for the new 6.50 percent senior notes amounted to $4,293 (of which $3,597 was paid in cash as of
April 30, 2011) and will be amortized over the term of the 6.50 percent senior notes. The Company
redeemed the remaining $5,812 of the 6.25 percent senior notes in May 2011 at the redemption price
of 100 percent of the principal amount, plus accrued and unpaid interest to the redemption date.
The 6.50 percent notes are governed by an indenture dated April 18, 2011. The Company will
pay interest on the 6.50 percent notes on April 15 and October 15 of each year, beginning October
15, 2011. The 6.50 percent notes will mature on April 15, 2019. The indenture governing the 6.50
percent notes contains affirmative and negative covenants that will, among other things, limit the
Companys and the SEI Guarantors ability to engage in sale and leaseback transactions, effect a
consolidation or merger or sell, transfer, lease, or otherwise dispose of all or substantially all
assets, and create liens on assets. Upon the occurrence of a change in control (as defined in the
indenture), each holder of the 6.50 percent notes will have the right to require the Company to
purchase that holders 6.50 percent notes for a cash price equal to 101 percent of their principal
amount. The 6.50 percent notes are redeemable on or after April 15, 2014 at redemption prices
specified in the indenture, and prior to April 15, 2014 at a make-whole premium described in the
indenture. Upon the occurrence of certain events of default (as defined in the indenture), the
trustee or the holders of the 6.50 percent notes may declare all outstanding 6.50 percent notes to
be due and payable immediately.
The 6.50 percent notes are guaranteed, jointly and severally, by the Guarantors (as defined in
the indenture), and are the Companys, and the guarantees of the 6.50 percent notes are the
Guarantors, general unsecured and unsubordinated obligations, and rank equally in right of payment
with all of the Companys, in the case of the 6.50 percent notes, and the SEI Guarantors, in the
case of their guarantees of the 6.50 percent notes, existing and future unsubordinated
indebtedness.
In connection with the issuance of the 6.50 percent notes, the Company entered into a
registration rights agreement dated as of April 18, 2011 whereby the Company agreed to offer to
exchange the 6.50 percent notes for a new issue of substantially identical notes registered under
the Securities Act. Under the registration rights agreement, the Company is required to file an
exchange offer registration statement with the Securities and Exchange Commission, use its
reasonable best efforts to cause the exchange offer registration statement to be declared effective
and consummate the exchange offer within 210 days after April 18, 2011. In the event the Company
breaches its obligations under the registration rights agreement, it will be obligated to pay
additional interest to the holders of the 6.50 percent notes.
(15) Income Taxes
In January 2011, the government of Puerto Rico signed into law corporate tax rate
changes that decreased the top tax rate for businesses from 39 percent to 30 percent. The Company
will benefit from this reduced rate when paying taxes in the future. However, as a result of this
change, the Company was required to revalue its previously recorded Puerto Rican-related deferred
tax asset using the 30 percent current top tax rate. During the six months ended April 30, 2011,
the Company recorded a one-time, non-cash charge of $2.9 million ($4.5 million charge less a
federal tax benefit of $1.6 million) in order to decrease the Puerto Rican deferred tax asset
balance. The Puerto Rican deferred tax asset balance decreased from approximately $19.4 million at
the previously required 39 percent tax rate to approximately $14.9 million at the newly-enacted 30
percent tax rate. This change in deferred tax assets increased the Companys income tax expense
for the six months ended April 30, 2011 by $2.9 million. Income tax expense for the six months
ended April 30, 2011 was also impacted by a $3.3 million overall reduction in the tax valuation
allowance primarily due to the reduction in the portion of the valuation allowance related to
capital losses associated with the positive performance of the Companys trust portfolio.
45
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(16) Subsequent Events
As of May 31, 2011, the fair market value of the Companys preneed funeral and cemetery
merchandise and services trusts and cemetery perpetual care trusts declined 0.7 percent, or
approximately $5,900, from April 30, 2011.
Subsequent to April 30, 2011, the Company purchased an additional 155,600 shares of its Class
A common stock for approximately $1,200 at an average price of $7.67 per share. There is $11,927
remaining available under the Companys $75,000 stock repurchase program.
46
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following Managements Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) should be read in conjunction with our MD&A and Risk Factors contained in our
Form 10-K for the fiscal year ended October 31, 2010 (the 2010 Form 10-K), and in conjunction
with our consolidated financial statements included in this report and in our 2010 Form 10-K.
This report contains forward-looking statements that are generally identifiable through the
use of words such as believe, expect, intend, plan, estimate, anticipate, project,
will and similar expressions. These forward-looking statements rely on assumptions, estimates
and predictions that could be inaccurate and that are subject to risks and uncertainties that could
cause actual results to differ materially. Important factors that may cause our actual results to
differ materially from expectations reflected in our forward-looking statements include those
described in Risk Factors in our 2010 Form 10-K and in this report. Forward-looking statements
speak only as of the date of this report, and we undertake no obligation to update or revise such
statements to reflect new circumstances or unanticipated events as they occur.
Overview
General
We are the second largest provider of funeral and cemetery products and services in the death
care industry in the United States and Puerto Rico. As of April 30, 2011, we owned and operated
217 funeral homes and 140 cemeteries in 24 states within the United States and Puerto Rico. We
sell cemetery property and funeral, cremation and cemetery products and services both at the time
of need and on a preneed basis. Our revenues in each period are derived primarily from at-need
sales, preneed sales delivered out of our backlog during the period (including the accumulated
trust earnings or build-up in the face value of insurance contracts related to these preneed
deliveries), preneed cemetery property sales and other items such as perpetual care trust earnings,
finance charges and trust management fees. We also earn commissions on the sale of
insurance-funded preneed funeral contracts that will be funded by life insurance or annuity
contracts issued by third-party insurers when we act as an agent on the sale. For a more detailed
discussion of our accounting for preneed sales and trust and escrow account earnings, see MD&A
included in Item 7 in our 2010 Form 10-K.
Financial Summary
For the second quarter of fiscal year 2011, net earnings increased $1.6 million to $10.0
million from $8.4 million for the second quarter of fiscal year 2010. Revenue increased $1.6
million to $129.6 million for the quarter ended April 30, 2011, reflecting a $1.9 million increase
in funeral revenue to $72.9 million. During the second quarter of 2011, our same-store funeral
operations experienced an increase in average revenue per traditional funeral service of 1.8
percent and an increase in average revenue per cremation service of 4.1 percent. We also
experienced a 0.8 percent increase in same-store funeral services performed. Cemetery revenue
decreased $0.3 million to $56.7 million for the quarter ended April 30, 2011. This decrease is
primarily due to a $0.9 million decrease in construction during the period on various cemetery
projects. In addition, we experienced a $0.3 million reduction in finance charges primarily due to
reduced interest rates and a $0.3 million increase in the reserve for cancellations. Consolidated
gross profit increased $0.5 million to $25.6 million for the quarter ending April 30, 2011,
primarily due to a $1.1 million increase in funeral gross profit, partially offset by a $0.6
million decrease in cemetery gross profit.
Corporate general and administrative expenses increased $0.5 million to $6.7 million for the
second quarter of 2011 primarily due to spending on various growth initiatives. During the second
quarter of 2011, we donated land and a building, resulting in a loss on disposition of $0.4
million. We recorded a tax benefit for the donation that exceeded the loss. The effective tax
rate for the second quarter of 2011 decreased to 15.1 percent from 37.1 percent for the same period
in 2010. Due in part to the favorable performance of our trust portfolio, we recorded a $2.5
million tax benefit from a reduction in the valuation allowance related to our capital loss carry
forward.
During the quarter ended April 30, 2011, we completed refinancing transactions which
significantly extended our debt maturity profile at favorable terms. We completed a private
offering of $200.0 million 6.50
47
percent senior notes due 2019 and repurchased $194.2 million of our $200.0 million outstanding
6.25 percent senior notes due in 2013. We redeemed the remaining $5.8 million 6.25 percent senior
notes outstanding in May 2011 at par. We also amended our $95.0 million revolving credit facility,
which was undrawn and scheduled to mature in June 2012, to increase its size to $150.0 million and
extend its maturity date to April 2016. The amended senior secured revolving credit facility
remains undrawn. As a result of these transactions, we recorded a $1.8 million charge for early
extinguishment of debt during the three months ended April 30, 2011. For additional information,
see Note 14 to the condensed consolidated financial statements included herein.
During the second quarter of 2011, we purchased 0.2 million shares of our Class A outstanding
common stock for approximately $1.3 million under our share repurchase program.
For the second quarter of 2011, preneed cemetery property sales increased 5.9 percent compared
to the same period of last year. Our net preneed funeral sales decreased 6.8 percent during the
second quarter of 2011 compared to the second quarter of 2010. While preneed funeral sales
decreased from the prior year, our goal is for preneed funeral sales to exceed preneed maturities.
For the second quarter of 2011, preneed funeral sales exceeded preneed deliveries by $3.3 million.
Preneed funeral sales are deferred until a future period and have no impact on current revenue.
For the first half of fiscal year 2011, net earnings increased $2.2 million to $18.1 million
from $15.9 million for the same period of fiscal year 2010. Revenue increased $6.9 million to
$259.0 million for the six months ended April 30, 2011. Funeral revenue increased $4.1 million to
$146.9 million in the first half of 2011. During the six months ended April 30, 2011, our
same-store funeral operations experienced an increase in average revenue per traditional funeral
service of 1.6 percent and an increase in average revenue per cremation service of 4.4 percent. We
also experienced a 0.9 percent increase in same-store funeral services performed. Cemetery revenue
increased $2.8 million to $112.1 million for the six months ended April 30, 2011. This increase is
due primarily to a $3.5 million, or 7.9 percent, increase in cemetery property sales, partially
offset by a $1.1 million decrease in cemetery merchandise delivered. Consolidated gross profit
increased $3.7 million to $54.0 million for the six months ended April 30, 2011, primarily due to a
$2.3 million increase in funeral gross profit and a $1.4 million increase in cemetery gross profit.
Corporate general and administrative expenses increased $0.5 million to $13.3 million for the
first six month period of fiscal 2011, primarily due to spending on various growth initiatives.
During the first six months of 2011, we donated land and a building, resulting in a loss on
disposition of $0.4 million. We recorded a tax benefit for the donation that exceeded the loss.
Interest expense decreased $0.8 million to $11.5 million during the first half of 2011 primarily
due to the significant repurchases of a portion of our senior convertible notes in the open market
throughout fiscal year 2010. The effective tax rate for the six months ended April 30, 2011 was
35.5 percent compared to 38.3 percent for the same period in 2010. Due in part to the favorable
performance of our trust portfolio, we recorded a $3.4 million tax benefit attributable to a
reduction in our valuation allowance primarily related to our capital loss carry forward. This
benefit was partially offset by a charge to income tax expense in the first quarter of 2011 as a
result of the revaluation of our Puerto Rican deferred tax assets due to a change in Puerto Rican
tax legislation.
For the six months ended April 30, 2011, preneed cemetery property sales increased 7.9 percent
compared to the same period of last year, which increased our cemetery revenue as described above.
Our net preneed funeral sales decreased 2.8 percent during the six months ended April 30, 2011
compared to the same period of 2010. For the first half of fiscal year 2011, preneed funeral sales
exceeded preneed deliveries by $2.5 million.
As previously discussed, we completed the refinancings of our $200.0 million 6.25 percent
senior notes due 2013 and amended our senior secured revolving credit facility during the quarter
ended April 30, 2011. As a result, we recorded a $1.8 million charge for the early extinguishment
of debt during the first six months ended April 30, 2011.
During the first half of 2011, we purchased 1.5 million shares of our Class A outstanding
common stock for approximately $9.4 million under our share repurchase program. Subsequent to
quarter-end, we repurchased an additional 0.2 million shares of our outstanding Class A common
stock for $1.2 million. We currently have $11.9 million remaining under the $75.0 million program
authorized by the Board of Directors.
48
Our operations provided cash of $35.7 million for the six months ended April 30, 2011,
compared to $26.5 million for the same period of last year. The increase in operating cash flow is
due in part to an improvement in net earnings and the timing of trust withdrawals and deposits,
partially offset by an increase in net state tax payments.
We are planning to develop cremation gardens and other cremation projects in our cemeteries
over the next few years. We have successfully completed five cremation projects, and we currently
have eight projects under construction with more than 20 additional projects under feasibility
review. We are working to complete a number of these projects in fiscal year 2011 and expect to
spend up to $5 million. This spending represents a shift from traditional cemetery inventory
spending to cremation inventory spending.
During the second quarter of fiscal year 2011, we experienced positive trends in the overall
financial markets and in our preneed and perpetual care trusts. Specifically, our preneed funeral
and cemetery merchandise and services trusts experienced a total return, including both realized
and unrealized gains and losses, of 4.8 percent, and our cemetery perpetual care trusts experienced
a total return, including both realized and unrealized gains and losses, of 3.6 percent. As of
April 30, 2011, the fair market value of our preneed funeral and cemetery merchandise and services
trusts and our cemetery perpetual care trusts was $841.2 million, an improvement of 5.8 percent, or
$45.9 million, from October 31, 2010 and 7.3 percent, or $57.4 million, from April 30, 2010.
As of April 30, 2011 and October 31, 2010, the fair market values of the investments in our
funeral and cemetery merchandise and services trusts were $103.5 million and $138.6 million,
respectively, lower than our cost basis. In our cemetery perpetual care trusts, as of April 30,
2011 and October 31, 2010, the fair market values of our investments were $33.2 million and $41.0
million, respectively, lower than our cost basis.
The preneed contracts we manage are long-term in nature, and we believe that the trust
investments will appreciate in value over the long-term. We continue to monitor our investment
portfolio closely. As of April 30, 2011 and October 31, 2010, we had $217.7 million and $212.1
million, respectively, in distributable earnings in our funeral and cemetery merchandise and
services trusts that have been realized and allocated to contracts that will be recognized in the
future as the underlying contracts are ultimately performed.
As of May 31, 2011, the fair market value of our preneed funeral and cemetery merchandise and
services trusts and our cemetery perpetual care trusts decreased 0.7 percent, or approximately $5.9
million from April 30, 2011.
The sectors in which our trust investment portfolio is invested have not materially changed
from that disclosed in our 2010 Form 10-K except as described below.
Passive investments such as cash and highly diversified mutual funds represented 41 percent,
or $245.9 million, of the fair market value of our preneed funeral and cemetery merchandise and
services trust portfolios as of April 30, 2011, compared to 35 percent, or $195.3 million, as of
October 31, 2010. Passive investments represented 40 percent, or $96.4 million, of the fair market
value of our cemetery perpetual care trust portfolio as of April 30, 2011, compared to 37 percent,
or $84.8 million, as of October 31, 2010. We believe increasing our trusts passive investments is
an attractive approach to increasing the diversification of our trust portfolio.
During fiscal 2011, we have reduced the individual issuer financials sector concentration in
our trust portfolio. As of April 30, 2011, individual issuer investments in the financials sector
represented 17 percent, or $101.2 million of the fair market value, of our preneed funeral and
cemetery merchandise and services portfolios, compared to 20 percent, or $115.7 million as of
October 31, 2010. Of the fair market value at April 30, 2011, 64 percent related to preferred
stock, 19 percent related to fixed-income securities and 17 percent related to common stock
investments. As of April 30, 2011, individual issuer investments in the financials sector
represented 21 percent, or $51.7 million of the fair market value, of our cemetery perpetual care
portfolio, compared to 30 percent, or $69.0 million as of October 31, 2010. Of the fair market
value at April 30, 2011, 60 percent related to preferred stock, 32 percent related to fixed-income
securities and 8 percent related to common stock investments. Individual issuer investments in
this sector have unrealized losses of $34.9 million as of April 30, 2011 in our preneed funeral and
cemetery merchandise and services trusts, $2.5 million of which relate to preferred stock
investments. With
49
respect to our cemetery perpetual care trust portfolio, the individual issuer investments in
the financials sector have unrealized losses of $8.6 million as of April 30, 2011, $2.7 million of
which relate to preferred stock investments.
Each quarter we perform an analysis to determine whether our preneed contracts are in a loss
position, which would necessitate a charge to earnings. When we review our backlog for potential
loss contracts, we consider the impact of the market value of our trust assets. We look at
unrealized gains and losses based on current market prices quoted for the investments, but we do
not include anticipated future returns on the investments in our analysis. If a deficiency were to
exist, we would record a charge to earnings and a corresponding liability for the expected loss on
the delivery of those contracts in our backlog. Due to the significant positive margins of our
preneed contracts and the trust portfolio returns we have experienced in prior years and deferred
on our consolidated balance sheet until delivery, currently there is sufficient capacity for
additional market depreciation before a contract loss would result.
For additional information regarding our preneed funeral and cemetery merchandise and services
trusts and our cemetery perpetual care trusts, including further information on the estimated
probable funding obligation, see Notes 3, 4 and 5 to the condensed consolidated financial
statements included in this report.
The following table presents our trust portfolio total returns including realized and
unrealized gains and losses.
|
|
|
|
|
|
|
|
|
|
|
Funeral and Cemetery |
|
|
|
|
Merchandise and |
|
Cemetery Perpetual |
|
|
Services Trusts(1) |
|
Care Trusts(1) |
For the quarter ended April 30, 2011 |
|
|
4.8 |
% |
|
|
3.6 |
% |
For the last twelve months ended April 30, 2011 |
|
|
13.1 |
% |
|
|
10.4 |
% |
For the last five years ended April 30, 2011 |
|
|
3.3 |
% |
|
|
4.3 |
% |
|
|
|
(1) |
|
Periods less than a year represent actual returns. Periods of one year or
more represent annualized returns. |
Critical Accounting Policies
The consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America, which require us to make estimates and
assumptions (see Note 1(d) to the condensed consolidated financial statements). Our critical
accounting policies are those that are both important to the portrayal of our financial condition
and results of operations and require managements most difficult, subjective and complex judgment.
These critical accounting policies are discussed in MD&A in our 2010 Form 10-K. There have been
no significant changes to our critical accounting policies since the filing of our 2010 Form 10-K.
Results of Operations
The following discussion segregates our financial results into our various segments, grouped
by our funeral and cemetery operations. For a discussion of our segments, see Note 9 to the
condensed consolidated financial statements included herein. As there have been no material
acquisitions or construction of new locations in fiscal years 2011 and 2010, results essentially
reflect those of same-store locations.
50
Three Months Ended April 30, 2011 Compared to Three Months Ended April 30, 2010
Funeral Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
|
2011 |
|
|
2010 |
|
|
Increase |
|
|
|
(In millions) |
|
Funeral Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Home Locations |
|
$ |
68.6 |
|
|
$ |
66.7 |
|
|
$ |
1.9 |
|
Corporate Trust Management (1) |
|
|
4.3 |
|
|
|
4.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Funeral Revenue |
|
$ |
72.9 |
|
|
$ |
71.0 |
|
|
$ |
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Home Locations |
|
$ |
54.7 |
|
|
$ |
53.9 |
|
|
$ |
.8 |
|
Corporate Trust Management (1) |
|
|
.2 |
|
|
|
.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Funeral Costs |
|
$ |
54.9 |
|
|
$ |
54.1 |
|
|
$ |
.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Home Locations |
|
$ |
13.9 |
|
|
$ |
12.8 |
|
|
$ |
1.1 |
|
Corporate Trust Management (1) |
|
|
4.1 |
|
|
|
4.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Funeral Gross Profit |
|
$ |
18.0 |
|
|
$ |
16.9 |
|
|
$ |
1.1 |
|
|
|
|
|
|
|
|
|
|
|
Same-Store Analysis for the Three Months Ended April 30, 2011 and 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Average Revenue |
|
Change in Same-Store |
|
Same-Store Cremation Rate |
Per Funeral Service |
|
Funeral Services |
|
2011 |
|
2010 |
1.3% (1) |
|
|
0.8 |
% |
|
|
43.2 |
% |
|
|
42.1 |
% |
|
|
|
(1) |
|
Corporate trust management consists of the trust management fees and funeral
merchandise and services trust earnings recognized with respect to preneed contracts delivered
during the period. Trust management fees are established by the Company at rates consistent
with industry norms based on the fair market value of assets managed and are paid by the
trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the amount of
distributable earnings as stipulated by our respective trust agreements that are generated by
the trusts over the life of the preneed contracts and allocated to those products and services
delivered during the relevant periods. See Notes 3 and 6 to the condensed consolidated
financial statements included herein for information regarding the cost basis and market value
of the trust assets and current performance of the trusts (i.e., current realized gains and
losses, interest income and dividends). Trust management fees included in funeral revenue for
the three months ended April 30, 2011 and 2010 were $1.2 million and $1.1 million,
respectively. Funeral trust earnings recognized in funeral revenue for the three months ended
April 30, 2011 and 2010 were $3.1 million and $3.2 million, respectively. |
Funeral revenue increased $1.9 million, or 2.7 percent, to $72.9 million in the second quarter
of 2011 from $71.0 million in the second quarter of 2010. During the second quarter of 2011, our
same-store funeral operations experienced an increase in average revenue per traditional funeral
service of 1.8 percent and an increase in average revenue per cremation service of 4.1 percent.
These averages were partially offset by a shift in mix to lower-priced cremation services resulting
in an overall improvement in same-store average revenue per funeral service of 1.3 percent.
Same-store funeral services increased 0.8 percent, or 106 events. The cremation rate for our
same-store operations was 43.2 percent for the second quarter of 2011 compared to 42.1 percent for
the second quarter of 2010.
Funeral gross profit increased $1.1 million, or 6.5 percent, to $18.0 million for the second
quarter of 2011 compared to $16.9 million for the same period of 2010, primarily due to the $1.9
million increase in revenue, as noted above. Funeral gross profit margin improved 90 basis points
to 24.7 percent for the second quarter of 2011 from 23.8 percent for the same period of 2010.
51
Cemetery Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
|
(In millions) |
|
Cemetery Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Locations |
|
$ |
54.5 |
|
|
$ |
55.1 |
|
|
$ |
(.6 |
) |
Corporate Trust Management (1) |
|
|
2.2 |
|
|
|
1.9 |
|
|
|
.3 |
|
|
|
|
|
|
|
|
|
|
|
Total Cemetery Revenue |
|
$ |
56.7 |
|
|
$ |
57.0 |
|
|
$ |
(.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Locations |
|
$ |
48.9 |
|
|
$ |
48.6 |
|
|
$ |
.3 |
|
Corporate Trust Management (1) |
|
|
.2 |
|
|
|
.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cemetery Costs |
|
$ |
49.1 |
|
|
$ |
48.8 |
|
|
$ |
.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Locations |
|
$ |
5.6 |
|
|
$ |
6.5 |
|
|
$ |
(.9 |
) |
Corporate Trust Management (1) |
|
|
2.0 |
|
|
|
1.7 |
|
|
|
.3 |
|
|
|
|
|
|
|
|
|
|
|
Total Cemetery Gross Profit |
|
$ |
7.6 |
|
|
$ |
8.2 |
|
|
$ |
(.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Corporate trust management consists of trust management fees and cemetery
merchandise and services trust earnings recognized with respect to preneed contracts delivered
during the period. Trust management fees are established by the Company at rates consistent
with industry norms based on the fair market value of assets managed and are paid by the
trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the amount of
distributable earnings as stipulated by our respective trust agreements that are generated by
the trusts over the life of the preneed contracts and allocated to those products and services
delivered during the relevant periods. See Notes 4 and 6 to the condensed consolidated
financial statements included herein for information regarding the cost basis and market value
of the trust assets and current performance of the trusts (i.e., current realized gains and
losses, interest income and dividends). Trust management fees included in cemetery revenue
for the three months ended April 30, 2011 and 2010 were $1.3 million and $1.2 million,
respectively, and cemetery trust earnings recognized included in cemetery revenue for the
three months ended April 30, 2011 and 2010 were $0.9 million and $0.7 million, respectively.
Perpetual care trust earnings were $1.7 million and $1.4 million for the three months ended
April 30, 2011 and 2010, respectively, and are included in the revenues and gross profit of
the cemetery segment. See Notes 5 and 6 to the condensed consolidated financial statements
included herein for information regarding the cemetery perpetual care trusts. |
Cemetery revenue decreased $0.3 million, or 0.5 percent, to $56.7 million for the quarter
ended April 30, 2011 from $57.0 million for the quarter ended April 30, 2010. This decrease is due
primarily to a $0.9 million decrease in construction during the period on various cemetery
projects. In addition, we experienced a $0.3 million reduction in finance charges primarily due to
reduced interest rates and a $0.3 million increase in the reserve for cancellations. These changes
were partially offset by a $1.4 million, or 5.9 percent, improvement in cemetery property sales.
Cemetery gross profit decreased $0.6 million, or 7.3 percent, to $7.6 million for the second
quarter of 2011 compared to $8.2 million for the same period of last year. The decrease in
cemetery gross profit is primarily due to the decrease in revenue, as noted above, coupled with a
slight increase in operating expenses. Cemetery gross profit margin declined 100 basis points to
13.4 percent for the second quarter of 2011 from 14.4 percent for the same period of 2010.
Other
Corporate general and administrative expenses increased $0.5 million to $6.7 million for the
second quarter of 2011, primarily due to spending on various growth initiatives.
52
During the second quarter of 2011, we donated land and a building, resulting in a loss on
disposition of $0.4 million. We recorded a tax benefit for the donation that exceeded the loss.
The effective tax rate for the three months ended April 30, 2011 was 15.1 percent reduced from
37.1 percent for the same period in 2010. Due in part to the favorable performance of our trust
portfolio, we recorded a $2.5 million tax benefit from a reduction in the valuation allowance
related to our capital loss carry forward.
During the quarter ended April 30, 2011, we completed refinancing transactions which
significantly extended our debt maturity profile at favorable terms. We completed a private
offering of $200.0 million 6.50 percent senior notes due 2019 and repurchased $194.2 million of our
$200.0 million outstanding 6.25 percent senior notes due in 2013. We redeemed the remaining $5.8
million 6.25 percent senior notes outstanding in May 2011 at par. We also amended our $95.0
million revolving credit facility, which was undrawn and scheduled to mature in June 2012, to
increase its size to $150.0 million and extend its maturity date to April 2016. The amended senior
secured revolving credit facility remains undrawn. As a result of these transactions, we recorded
a charge for the early extinguishment of debt of $1.8 million during the quarter ended April 30,
2011.
During the second quarter of 2011, we repurchased 0.2 million shares of our Class A
outstanding common stock for approximately $1.3 million under our stock repurchase program.
Preneed Sales into the Backlog
Net preneed funeral sales decreased 6.8 percent during the second quarter of 2011 compared to
the corresponding period in 2010. While preneed funeral sales decreased from the prior year, our
goal is for preneed funeral sales to exceed preneed maturities. For the second quarter of 2011,
preneed funeral sales exceeded preneed deliveries by $3.3 million. Preneed funeral sales are
deferred until a future period and have no impact on current revenue.
The revenues from our preneed funeral and cemetery merchandise and service sales are deferred
into our backlog and are not included in our operating results presented above. We had $37.8
million in net preneed funeral and cemetery merchandise and services sales (including $19.7 million
related to insurance-funded preneed funeral contracts) during the second quarter of 2011 to be
recognized in the future as these prepaid products and services are actually delivered, compared to
net preneed funeral and cemetery merchandise and services sales of $38.7 million (including $20.8
million related to insurance-funded preneed funeral contracts) for the corresponding period in
2010. Insurance-funded preneed funeral contracts which will be funded by life insurance or annuity
contracts issued by third-party insurers are not reflected in the condensed consolidated balance
sheets.
53
Six Months Ended April 30, 2011 Compared to Six Months Ended April 30, 2010
Funeral Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30, |
|
|
|
2011 |
|
|
2010 |
|
|
Increase |
|
|
|
(In millions) |
|
Funeral Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Home Locations |
|
$ |
138.5 |
|
|
$ |
134.4 |
|
|
$ |
4.1 |
|
Corporate Trust Management (1) |
|
|
8.4 |
|
|
|
8.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Funeral Revenue |
|
$ |
146.9 |
|
|
$ |
142.8 |
|
|
$ |
4.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Home Locations |
|
$ |
108.0 |
|
|
$ |
106.2 |
|
|
$ |
1.8 |
|
Corporate Trust Management (1) |
|
|
.4 |
|
|
|
.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Funeral Costs |
|
$ |
108.4 |
|
|
$ |
106.6 |
|
|
$ |
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Home Locations |
|
$ |
30.5 |
|
|
$ |
28.2 |
|
|
$ |
2.3 |
|
Corporate Trust Management (1) |
|
|
8.0 |
|
|
|
8.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Funeral Gross Profit |
|
$ |
38.5 |
|
|
$ |
36.2 |
|
|
$ |
2.3 |
|
|
|
|
|
|
|
|
|
|
|
Same-Store Analysis for the Six Months Ended April 30, 2011 and 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Average Revenue |
|
Change in Same-Store |
|
Same-Store Cremation Rate |
Per Funeral Service |
|
Funeral Services |
|
2011 |
|
2010 |
1.4% (1) |
|
|
0.9 |
% |
|
|
42.5 |
% |
|
|
41.7 |
% |
|
|
|
(1) |
|
Corporate trust management consists of the trust management fees and funeral
merchandise and services trust earnings recognized with respect to preneed contracts delivered
during the period. Trust management fees are established by the Company at rates consistent
with industry norms based on the fair market value of assets managed and are paid by the
trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the amount of
distributable earnings as stipulated by our respective trust agreements that are generated by
the trusts over the life of the preneed contracts and allocated to those products and services
delivered during the relevant periods. See Notes 3 and 6 to the condensed consolidated
financial statements included herein for information regarding the cost basis and market value
of the trust assets and current performance of the trusts (i.e., current realized gains and
losses, interest income and dividends). Trust management fees included in funeral revenue for
the six months ended April 30, 2011 and 2010 were $2.4 million and $2.2 million, respectively.
Funeral trust earnings recognized in funeral revenue for the six months ended April 30, 2011
and 2010 were $6.0 million and $6.2 million, respectively. |
Funeral revenue increased $4.1 million, or 2.9 percent, to $146.9 million in the first half of
fiscal 2011 from $142.8 million in the same period of 2010. During the six months ended April 30,
2011, our same-store funeral operations experienced an increase in average revenue per traditional
funeral service of 1.6 percent and an increase in average revenue per cremation service of 4.4
percent. These averages were partially offset by a shift in mix to lower-priced cremation services
resulting in an overall improvement in same-store average revenue per funeral service of 1.4
percent. Same-store funeral services increased 0.9 percent, or 260 events. The cremation rate for
our same-store operations was 42.5 percent for the six months ended April 30, 2011 compared to 41.7
percent for the same period in 2010.
Funeral gross profit increased $2.3 million, or 6.4 percent, to $38.5 million for the first
half of fiscal 2011 compared to $36.2 million for the same period of 2010, primarily due to the
$4.1 million increase in revenue, as noted above. Funeral gross profit margin improved 80 basis
points to 26.2 percent for the six months ended April 30, 2011 from 25.4 percent for the same
period of 2010.
54
Cemetery Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30, |
|
|
|
2011 |
|
|
2010 |
|
|
Increase |
|
|
|
(In millions) |
|
Cemetery Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Locations |
|
$ |
107.8 |
|
|
$ |
105.6 |
|
|
$ |
2.2 |
|
Corporate Trust Management (1) |
|
|
4.3 |
|
|
|
3.7 |
|
|
|
.6 |
|
|
|
|
|
|
|
|
|
|
|
Total Cemetery Revenue |
|
$ |
112.1 |
|
|
$ |
109.3 |
|
|
$ |
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Locations |
|
$ |
96.1 |
|
|
$ |
94.7 |
|
|
$ |
1.4 |
|
Corporate Trust Management (1) |
|
|
.5 |
|
|
|
.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cemetery Costs |
|
$ |
96.6 |
|
|
$ |
95.2 |
|
|
$ |
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Locations |
|
$ |
11.7 |
|
|
$ |
10.9 |
|
|
$ |
.8 |
|
Corporate Trust Management (1) |
|
|
3.8 |
|
|
|
3.2 |
|
|
|
.6 |
|
|
|
|
|
|
|
|
|
|
|
Total Cemetery Gross Profit |
|
$ |
15.5 |
|
|
$ |
14.1 |
|
|
$ |
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Corporate trust management consists of trust management fees and cemetery
merchandise and services trust earnings recognized with respect to preneed contracts delivered
during the period. Trust management fees are established by the Company at rates consistent
with industry norms based on the fair market value of assets managed and are paid by the
trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the amount of
distributable earnings as stipulated by our respective trust agreements that are generated by
the trusts over the life of the preneed contracts and allocated to those products and services
delivered during the relevant periods. See Notes 4 and 6 to the condensed consolidated
financial statements included herein for information regarding the cost basis and market value
of the trust assets and current performance of the trusts (i.e., current realized gains and
losses, interest income and dividends). Trust management fees included in cemetery revenue
for the six months ended April 30, 2011 and 2010 were $2.7 million and $2.4 million,
respectively, and cemetery trust earnings recognized included in cemetery revenue for the six
months ended April 30, 2011 and 2010 were $1.6 million and $1.3 million, respectively.
Perpetual care trust earnings were $4.0 million and $3.8 million for the six months ended
April 30, 2011 and 2010, respectively, and are included in the revenues and gross profit of
the cemetery segment. See Notes 5 and 6 to the condensed consolidated financial statements
included herein for information regarding the cemetery perpetual care trusts. |
Cemetery revenue increased $2.8 million, or 2.6 percent, to $112.1 million for the six months
ended April 30, 2011 from $109.3 million for the six months ended April 30, 2010. This improvement
is due primarily to a $3.5 million, or 7.9 percent, increase in cemetery property sales, partially
offset by a $1.1 million decrease in cemetery merchandise delivered.
Cemetery gross profit increased $1.4 million, or 9.9 percent, to $15.5 million for the first
half of fiscal 2011 compared to $14.1 million for the same period of 2010. The increase in
cemetery gross profit is primarily due to the $2.8 million increase in revenue, as noted above.
Cemetery gross profit margin improved 90 basis points to 13.8 percent for the six months ended
April 30, 2011 from 12.9 percent for the same period of 2010.
Other
Corporate general and administrative expenses increased $0.5 million to $13.3 million for the
six months ended April 30, 2011, primarily due to spending on various growth initiatives.
During the first six months of 2011, we donated land and a building, resulting in a loss on
disposition of $0.4 million. We recorded a tax benefit for the donation that exceeded the loss.
55
Interest expense decreased $0.8 million to $11.5 million during the six months ended April 30,
2011 primarily due to the significant repurchases of a portion of our senior convertible notes in
the open market that occurred throughout fiscal year 2010.
The effective tax rate for the six months ended April 30, 2011 was 35.5 percent compared to
38.3 percent for the same period in 2010. Due in part to the favorable performance of our trust
portfolio, we recorded a $3.4 million tax benefit attributable to a reduction in our valuation
allowance primarily related to our capital loss carry forward. This benefit was partially offset
by a $2.9 million charge to income tax expense in the first quarter of 2011 as a result of the
revaluation of our Puerto Rican deferred tax assets due to a change in Puerto Rican tax
legislation.
As previously discussed, we completed the refinancings of our $200.0 million 6.25 percent
senior notes due 2013 and amended our senior secured revolving credit facility during the quarter
ended April 30, 2011. As a result, we recorded a $1.8 million charge for the early extinguishment
of debt during the six months ended April 30, 2011.
During the first six months of 2011, we repurchased 1.5 million shares of our Class A common
stock for $9.4 million under our stock repurchase program.
Cash and cash equivalents increased $22.3 million from October 31, 2010 to April 30, 2011
primarily due to the maturity of $10.0 million in certificates of deposits and marketable
securities in the first quarter of 2011 and an increase in cash from operations in the first six
months of 2011. Current and long-term receivables decreased $2.3 million and $3.2 million,
respectively, from October 31, 2010 to April 30, 2011 primarily due to collections of prior period
sales exceeding receivables for new sales and the collection of income taxes receivable. Prepaid
expenses increased $2.2 million from October 31, 2010 to April 30, 2011 primarily due to annual
premiums paid in the first quarter of fiscal year 2011 for property, general liability and other
insurance. Long-term deferred income taxes decreased $5.9 million from October 31, 2010 to April
30, 2011 primarily due to the utilization of net operating losses and the non-cash adjustment to
our Puerto Rican deferred tax asset, as previously discussed. Other assets increased $4.0 from
October 31, 2010 to April 30, 2011 due primarily to $5.8 million of deferred charges recorded in
the second quarter of 2011 related to the refinancing of our senior notes and senior secured
revolving credit facility. Preneed funeral receivables and trust investments, preneed cemetery
receivables and trust investments, cemetery perpetual care trust investments, deferred preneed
funeral and cemetery receipts held in trust and perpetual care trusts corpus were all positively
impacted by the improvement in the market value of our trust assets during the six months ended
April 30, 2011. For additional information, see Notes 3, 4 and 5 to our condensed consolidated
financial statements included herein.
Current maturities of long-term debt increased $5.8 million from October 31, 2010 to April 30,
2011, due to the remaining outstanding 6.25 percent senior notes due 2013 being called for
redemption in April 2011, and redeemed in May 2011 at par. Accrued interest declined $2.2 million
from October 31, 2010 to April 30, 2011 due to additional interest payments made in relation to the
refinancing of the 6.25 percent senior notes due 2013. Other current liabilities decreased $2.6
million from October 31, 2010 to April 30, 2011 primarily due to the timing of the payment of our
property taxes, which are typically paid at the end of the calendar year.
Preneed Sales into the Backlog
Net preneed funeral sales decreased 2.8 percent during the six months ended April 30, 2011
compared to the corresponding period in 2010. While preneed funeral sales decreased from the prior
year, our goal is for preneed funeral sales to exceed preneed maturities. For the first half of
2011, preneed funeral sales exceeded preneed deliveries by $2.5 million. Preneed funeral sales are
deferred until a future period and have no impact on current revenue.
The revenues from our preneed funeral and cemetery merchandise and service sales are deferred
into our backlog and are not included in our operating results presented above. We had $68.2
million in net preneed funeral and cemetery merchandise and services sales (including $35.7 million
related to insurance-funded preneed funeral contracts) during the six months ended April 30, 2011
to be recognized in the future as these prepaid products and services are actually delivered,
compared to net preneed funeral and cemetery merchandise and services sales of $67.8 million
(including $37.0 million related to insurance-funded preneed funeral contracts) for the
corresponding
56
period in 2010. Insurance-funded preneed funeral contracts which will be funded by life
insurance or annuity contracts issued by third-party insurers are not reflected in the condensed
consolidated balance sheets.
Liquidity and Capital Resources
General
We generate cash in our operations primarily from at-need sales, preneed sales that turn
at-need, funds we are able to withdraw from our trusts and escrow accounts when preneed sales turn
at-need, monies collected on preneed sales that are not required to be placed in trust and cemetery
perpetual care trust earnings. Over the last five years, we have generated more than $50.0 million
each year in cash flow from operations. We have historically satisfied our working capital
requirements with cash flows from operations. We believe that our current level of cash on hand,
projected cash flows from operations and available capacity under our amended $150.0 million senior
secured revolving credit facility will be sufficient to meet our cash requirements for the
foreseeable future.
In April 2011, we completed a tender offer and consent solicitation for any and all of our
$200.0 million 6.25 percent senior notes due 2013. As of April 30, 2011, we purchased a total of
$194.2 million in aggregate principal amount of the 6.25 percent senior notes in the offer for an
aggregate purchase price (including consent payments) of $194.7 million plus $2.1 million in
accrued and unpaid interest. The tender offer was funded with the net proceeds of the issuance of
$200.0 million 6.50 percent senior notes due 2019 and with available cash. The remaining $5.8
million of the 6.25 percent senior notes were redeemed in May 2011 at par, plus accrued and unpaid
interest. Also in April 2011, we amended our $95.0 million senior secured revolving credit
facility which was set to mature in June 2012. The amended senior secured revolving credit
facility matures on April 20, 2016, was increased to $150.0 million and includes a $30.0 million
sublimit for the issuance of standby letters of credit and a $10.0 million sublimit for swingline
loans. We may also request the addition of a new tranche of term loans, an increase in the
commitments to the amended senior secured revolving credit facility or a combination thereof not to
exceed $50.0 million. As a result of these debt transactions occurring during the quarter ended
April 30, 2011, we recorded a $1.8 million charge for the loss on early extinguishment of debt.
See Note 14 to the condensed consolidated financial statements for further information. As of
April 30, 2011, we had no amounts drawn on the amended $150.0 million senior secured revolving
credit facility, and our availability under the facility, after giving consideration to $7.5
million outstanding letters of credit and the $24.8 million Florida bond, was $117.7 million. We
also have outstanding $131.5 million principal amount in senior convertible notes as of April 30,
2011, of which $86.4 million mature in 2014 and $45.1 million mature in 2016. See the table below
under Contractual Obligations and Commercial Commitments for further information on our long-term
debt obligations.
We currently pay quarterly cash dividends of three cents per share on our Class A and B common
stock, which amounted to $5.5 million for the six months ended April 30, 2011. The declaration and
payment of future dividends are discretionary and will be subject to determination by the Board of
Directors each quarter after its review of our financial performance. We also have a $75.0 million
stock repurchase program, under which we purchased 1.5 million shares of our Class A common stock
for approximately $9.4 million during the first half of fiscal 2011. In May 2011, we purchased an
additional 0.2 million shares of our Class A common stock for approximately $1.2 million and
currently have $11.9 million remaining available under the program. Repurchases under the program
are limited to our Class A common stock, and are made in the open market or in privately negotiated
transactions at such times and in such amounts as management deems appropriate, depending upon
market conditions and other factors.
We plan to continue to evaluate our options for deployment of cash flow as opportunities
arise. We believe that the use of our cash to make acquisitions of or investments in death care or
related businesses, construct funeral homes on existing cemeteries, cemeteries of unaffiliated
third parties or in strategic locations, develop inventory, pay dividends and repurchase debt and
stock are all attractive options. We believe that growing our organization through acquisitions
and investments is a good business strategy, as it will enable us to enjoy the important synergies
and economies of scale from our existing infrastructure. We are working on several e-commerce
initiatives that we expect will provide new revenue opportunities in the future and are continuing
to invest in further improving our business processes. We are planning to develop cremation
gardens and other cremation projects in our cemeteries over the next few years. We have
successfully completed five cremation projects, and we currently have eight projects under
construction with more than 20 additional projects under feasibility review. We are
57
working to complete a number of these projects in fiscal year 2011 and expect to spend up to
$5 million. This spending represents a shift from traditional cemetery inventory spending to
cremation inventory spending. We regularly review acquisition and other strategic opportunities,
which may require us to draw on our senior secured revolving credit facility or pursue additional
debt or equity financing.
We are continuing to review all of our tax accounting methods to determine opportunities to
further improve our current tax position. Several possible changes are being considered that could
result in potential reductions in future tax payments. At this time, we cannot predict with
certainty what, if any, reductions in future tax payments we will obtain. However, we currently do
not expect that these potential reductions in future tax payments, if obtained, will be as
substantial as those obtained in fiscal years 2009 and 2010.
Cash Flow
Our operations provided cash of $35.7 million for the six months ended April 30, 2011,
compared to $26.5 million for the same period of last year. The increase in operating cash flow is
due in part to an improvement in net earnings and the timing of trust withdrawals and deposits,
partially offset by an increase in net state tax payments.
Our investing activities resulted in a net cash outflow of $0.8 million for the six months
ended April 30, 2011, compared to a net cash outflow of $18.7 million for the comparable period in
2010. The change is primarily due to a $19.8 million net change related to purchases and sales of
certificates of deposit. There were $10.0 million in proceeds from the sale of certificates of
deposit during the first half of fiscal year 2011 compared to $10.7 million in purchases of
certificates of deposit and marketable securities during the first half of fiscal year 2010. For
the six months ended April 30, 2011, capital expenditures amounted to $8.8 million, which included
$7.2 million for maintenance capital expenditures, $1.0 million for growth initiatives and $0.6
million related to the implementation of new business systems. For the six months ended April 30,
2010, capital expenditures were $8.4 million, which included $6.0 million for maintenance capital
expenditures, $1.7 million for growth initiatives and $0.7 million related to the implementation of
new business systems. We also purchased a funeral and cemetery business in the first half of
fiscal year 2011 resulting in a net cash outflow of $1.8 million.
Our financing activities resulted in a net cash outflow of $12.6 million for the six months
ended April 30, 2011, compared to a net cash outflow of $6.0 million for the comparable period in
2010. The change is primarily due to $9.4 million in stock repurchases during the six months ended
April 30, 2011 compared to none in the same period of 2010. This is offset by net debt proceeds of
$5.8 million ($200.0 million in proceeds of long-term debt and $194.2 million in repayments of
long-term debt) during the six months ended April 30, 2011 compared to $0.8 million of debt
repayments in the same period of fiscal year 2010. In April 2011, we issued $200.0 million of 6.50
percent senior notes due 2019 and repurchased $194.2 million of 6.25 percent senior notes due 2013,
as described in Note 14 to the condensed consolidated financial statements. We also paid $4.9
million in debt refinancing costs during the six months ended April 30, 2011 related to the senior
notes transactions and refinancing of the senior secured revolving credit facility.
Contractual Obligations and Commercial Commitments
We have contractual obligations requiring future cash payments under existing contractual
arrangements. The following table details our known future cash payments (in millions) related to
various contractual obligations as of April 30, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
Contractual Obligations |
|
Total |
|
|
1 year |
|
|
1 3 years |
|
|
3 5 years |
|
|
5 years |
|
Long-term debt obligations (1) |
|
$ |
337.4 |
|
|
$ |
5.8 |
|
|
$ |
|
|
|
$ |
86.4 |
|
|
$ |
245.2 |
|
Interest on long-term debt (2) |
|
|
121.9 |
|
|
|
17.2 |
|
|
|
34.5 |
|
|
|
30.4 |
|
|
|
39.8 |
|
Operating lease obligations (3) |
|
|
28.5 |
|
|
|
4.3 |
|
|
|
6.0 |
|
|
|
3.1 |
|
|
|
15.1 |
|
Purchase obligations (4) |
|
|
1.9 |
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-competition and other agreements (5) |
|
|
1.0 |
|
|
|
.3 |
|
|
|
.2 |
|
|
|
.3 |
|
|
|
.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
490.7 |
|
|
$ |
29.5 |
|
|
$ |
40.7 |
|
|
$ |
120.2 |
|
|
$ |
300.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
(1) |
|
See below for a breakdown of our future scheduled principal payments and maturities
of our long-term debt by type as of April 30, 2011. |
|
(2) |
|
Includes contractual interest payments for our senior convertible notes, 6.50
percent senior notes due 2019, 6.25 percent senior notes due 2013 and third-party debt. |
|
(3) |
|
Our noncancellable operating leases are primarily for land and buildings and expire
over the next one to 20 years, except for eight leases that expire between 2032 and 2039.
This category also includes leases under our vehicle fleet leasing program. Our future
minimum lease payments for all operating leases as of April 30, 2011 are $2.4 million, $3.7
million, $3.1 million, $2.1 million, $1.5 million and $15.7 million for the years ending
October 31, 2011, 2012, 2013, 2014, 2015 and later years, respectively. |
|
(4) |
|
Represents a construction contract for a funeral home currently under construction. |
|
(5) |
|
This category includes payments pursuant to non-competition agreements with prior
owners and key employees of acquired businesses. |
The following table details our known potential or possible future cash payments related to
the contingent obligations specified below (in millions) as of April 30, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration by Period |
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
Contingent Obligations |
|
Total |
|
|
1 year |
|
|
1 3 years |
|
|
3 5 years |
|
|
5 years |
|
Cemetery perpetual care trust funding obligations (1) |
|
$ |
12.6 |
|
|
$ |
12.6 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Long-term obligations related to uncertain tax positions (2) |
|
|
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14.8 |
|
|
$ |
12.6 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In those states where we have withdrawn realized net capital gains in the past from
our cemetery perpetual care trusts, regulators may seek replenishment of the subsequent
realized net capital losses either by requiring a cash deposit to the trust or by prohibiting
or restricting withdrawals of future earnings until they cover the loss. The estimated
probable funding obligation in the cemetery perpetual care trusts in these states was $12.6
million as of April 30, 2011. As of April 30, 2011, we had net unrealized losses of $30.3
million in the trusts in these states. Because some of these trusts currently have assets
with a fair market value less than the aggregate amounts required to be contributed to the
trust, any additional realized net capital losses in these trusts may result in a
corresponding funding liability and increase in cemetery costs. In those states where
realized net capital gains have not been withdrawn, we believe it is reasonably possible but
not probable that additional funding obligations may exist with an estimated amount of
approximately $2.3 million; no charge has been recorded for these amounts as of April 30,
2011. |
|
(2) |
|
In accordance with the required accounting guidance on uncertain tax positions, as
of April 30, 2011, we have recorded $2.2 million of unrecognized tax benefits and related
interest and penalties. Due to the uncertainty regarding the timing and completion of audits
and possible outcomes, it is not possible to estimate the range of increase and decrease and
the timing of any potential cash payments. |
As of April 30, 2011, our outstanding long-term debt obligations amounted to $337.4 million,
consisting of $86.4 million in 3.125 percent senior convertible notes due 2014, $45.1 million in
3.375 percent senior convertible notes due 2016, $5.8 million of 6.25 percent senior notes due
2013, $200.0 million of 6.50 percent senior notes due 2019 and $0.1 million of other debt. There
were no amounts drawn on the senior secured revolving credit facility. The following table
reflects future scheduled principal payments and maturities of our long-term debt (in millions) as
of April 30, 2011.
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, |
|
|
|
|
|
|
Senior |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principally |
|
|
|
|
|
|
Secured |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seller |
|
|
|
|
|
|
Revolving |
|
|
Senior |
|
|
Senior |
|
|
Senior |
|
|
Financing |
|
|
|
|
|
|
Credit |
|
|
Convertible |
|
|
Notes Due |
|
|
Notes Due |
|
|
of Acquired |
|
|
|
|
Fiscal Years Ending October 31, |
|
Facility |
|
|
Notes |
|
|
2013 |
|
|
2019 |
|
|
Operations |
|
|
Total |
|
2011 |
|
$ |
|
|
|
$ |
|
|
|
$ |
5.8 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5.8 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
|
|
|
86.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86.4 |
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
45.1 |
|
|
|
|
|
|
|
200.0 |
|
|
|
.1 |
|
|
|
245.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
|
|
|
$ |
131.5 |
|
|
$ |
5.8 |
|
|
$ |
200.0 |
|
|
$ |
.1 |
|
|
$ |
337.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We redeemed the remaining $5.8 million of the 6.25 percent senior notes in May 2011 at par.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements as of April 30, 2011 consist of the following items:
|
(1) |
|
the $24.8 million bond we are required to maintain to guarantee our obligations
relating to funds we withdrew in fiscal year 2001 from our preneed funeral trusts in
Florida, which is discussed above and in Note 20 to the consolidated financial
statements in our 2010 Form 10-K; and |
|
|
(2) |
|
the insurance-funded preneed funeral contracts, which will be funded by life
insurance or annuity contracts issued by third-party insurers, are not reflected in our
condensed consolidated balance sheets, and are discussed in Note 2(i) to the
consolidated financial statements in our 2010 Form 10-K. |
Recent Accounting Standards
See Note 2 to the condensed consolidated financial statements included herein.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosure about market risk is presented in Item 7A in our 2010
Form 10-K, filed with the Securities and Exchange Commission (SEC) on December 16, 2010. For a
discussion of fair market value as of April 30, 2011 of investments in our trusts, see Notes 3, 4
and 5 to the condensed consolidated financial statements included herein. The following disclosure
discusses only those instances in which market risk has changed by more than 10 percent from the
annual disclosures.
As of April 30, 2011 and October 31, 2010, the carrying values of our long-term fixed-rate
debt, including accrued interest, were approximately $323.5 million and $317.9 million,
respectively, compared to fair values of $344.6 million and $328.3 million, respectively. Fair
values were determined using quoted market prices. As of April 30, 2011, each approximate 10
percent, or 50 basis point, change in the average interest rate applicable to determine the fair
value of such debt would result in a change of approximately $8.8 million in the fair value of
these instruments. As of October 31, 2010, each approximate 10 percent, or 55 basis point, change
in the average interest rate applicable to determine the fair value of such debt would result in a
change of approximately $5.7 million in the fair value of these instruments. If these instruments
are held to maturity, no change in fair value will be realized.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports the Company files or submits under the
Securities Exchange Act of 1934 is
60
recorded, processed, summarized and reported within the time periods specified in the SEC
rules and forms, and that such information is accumulated and communicated to the Companys
management, including its Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as
appropriate to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, the Company carried out an evaluation
under the supervision and with the participation of the Companys Disclosure Committee and
management, including the CEO and CFO, of the effectiveness of the Companys disclosure controls
and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon this evaluation, the CEO and
CFO concluded that the Companys disclosure controls and procedures were effective as of the end of
the period covered by this report.
Changes in Internal Control over Financial Reporting
There have been no changes in the Companys internal control over financial reporting during
the quarter ended April 30, 2011 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a discussion of our current litigation, see Note 7 to the condensed consolidated financial
statements included herein.
We and certain of our subsidiaries are parties to a number of legal proceedings that have
arisen in the ordinary course of business. While the outcome of these proceedings cannot be
predicted with certainty, we do not expect these matters to have a material adverse effect on our
consolidated financial position, results of operations or cash flows.
We carry insurance with coverages and coverage limits that we believe to be adequate.
Although there can be no assurance that such insurance is sufficient to protect us against all
contingencies, we believe that our insurance protection is reasonable in view of the nature and
scope of our operations.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in our 2010
Form 10-K.
61
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of |
|
Maximum |
|
|
|
|
|
|
|
|
|
|
shares |
|
approximate dollar |
|
|
|
|
|
|
|
|
|
|
purchased as |
|
value of shares that |
|
|
Total number |
|
Average |
|
part of publicly- |
|
may yet be |
|
|
of shares |
|
price paid |
|
announced plans |
|
purchased under the |
Period |
|
purchased |
|
per share |
|
or programs |
|
plans or programs(1) |
February 1, 2011 through February 28, 2011 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
14,394,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 1, 2011 through March 31, 2011 |
|
|
175,200 |
|
|
$ |
7.27 |
|
|
|
175,200 |
|
|
$ |
13,120,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2011 through April 30, 2011 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
13,120,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
175,200 |
|
|
$ |
7.27 |
|
|
|
175,200 |
|
|
$ |
13,120,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We announced a $25.0 million stock repurchase program in September 2007, which was
increased by $25.0 million in December 2007 and June 2008, resulting in a $75.0 million
program. As of April 30, 2011, we had repurchased 8.9 million shares for $61.9 million at an
average price of $6.95 per share and had $13.1 million remaining under this program. In May
2011, we repurchased an additional 0.2 million shares for $1.2 million at an average price of
$7.67 per share and currently have $11.9 million remaining available under the program. |
Item 6. Exhibits
3.1 |
|
Amended and Restated Articles of Incorporation of the Company, as amended and restated as of
April 3, 2008 (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on
Form 10-Q for the quarter ended April 30, 2008) |
|
3.2 |
|
By-laws of the Company, as amended and restated as of September 8, 2008 (incorporated by
reference to Exhibit 3.2 to the Companys Quarterly Report on Form 10-Q for the quarter ended
July 31, 2008) |
|
4.1 |
|
See Exhibits 3.1 and 3.2 for provisions of the Companys 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 3 to the
Companys Registration Statement on Form 8-A/A filed with the Commission on June 21, 2007) |
|
4.3 |
|
Third Amended and Restated Credit Agreement dated April 20, 2011 by and among the Company,
Empresas Stewart-Cementerios and Empresas Stewart-Funerarias, as Borrowers, Bank of America,
N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer and The
Other Lenders party hereto (incorporated by reference to Exhibit 4.1 to the Companys Current
Report on Form 8-K filed April 21, 2011) |
|
4.4 |
|
Indenture dated as of February 11, 2005 by and among Stewart Enterprises, Inc., the
Guarantors thereunder and U.S. Bank National Association, as Trustee, with respect to the 6.25
percent Senior Notes due 2013 (incorporated by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K filed February 14, 2005 (File No. 001-15449)) and Supplemental
Indenture dated as of April 15, 2011 by and among Stewart Enterprises, Inc., the subsidiary
guarantors and U.S. Bank National Associations as trustee (incorporated by reference to
Exhibit 4.1 to the Companys Current Report on Form 8-K filed April 18, 2011) |
62
4.5 |
|
Form of 6.25 percent Senior Note due 2013 (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed February 14, 2005 (File No. 001-15449)) |
|
4.6 |
|
Indenture dated as of April 18, 2011 by and among Stewart Enterprises, Inc., the Guarantors
and U.S. Bank National Association, as Trustee, with respect to the 6.50 percent Senior Notes
due 2019 (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K
filed April 19, 2011) |
|
4.7 |
|
Form of 6.50 percent Senior Note due 2019 (incorporated by reference to Exhibit 4.2 to the
Companys Current Report on Form 8-K filed April 19, 2011) |
|
4.8 |
|
Indenture dated June 27, 2007 by and among Stewart Enterprises, Inc., the guarantors named
therein and U.S. Bank National Association, as Trustee, with respect to 3.125 percent Senior
Convertible Notes due 2014 (including Form of 3.125 percent Senior Convertible Notes due 2014)
(incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed
June 27, 2007) |
|
4.9 |
|
Indenture dated June 27, 2007 by and among Stewart Enterprises, Inc., the guarantors named
therein and U.S. Bank National Association, as Trustee, with respect to 3.375 percent Senior
Convertible Notes due 2016 (including Form of 3.375 percent Senior Convertible Notes due 2016)
(incorporated by reference to Exhibit 4.2 to the Companys Current Report on Form 8-K filed
June 27, 2007) |
|
10.1 |
|
Registration Rights Agreement dated as of April 18, 2011 by and among Stewart Enterprises,
Inc., the Guarantors and the Initial Purchasers (incorporated by reference to Exhibit 10.1 to
the Companys Current Report on Form 8-K filed April 19, 2011) |
|
31.1 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen,
President and Chief Executive Officer |
|
31.2 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Lewis J. Derbes, Jr.,
Senior Vice President, Chief Financial Officer and Treasurer |
|
32.1 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of Thomas M. Kitchen,
President and Chief Executive Officer, and Lewis J. Derbes, Jr., Senior Vice President, Chief
Financial Officer and Treasurer |
63
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
STEWART ENTERPRISES, INC.
|
|
June 8, 2011 |
/s/ LEWIS J. DERBES, JR.
|
|
|
Lewis J. Derbes, Jr. |
|
|
Senior Vice President,
Chief Financial Officer and Treasurer |
|
|
|
|
|
June 8, 2011 |
/s/ ANGELA M. LACOUR
|
|
|
Angela M. Lacour |
|
|
Vice President,
Corporate Controller and
Chief Accounting Officer |
|
64
Exhibit Index
31.1 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen,
President and Chief Executive Officer |
31.2 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Lewis J. Derbes, Jr.,
Senior Vice President, Chief Financial Officer and Treasurer |
32.1 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of Thomas M. Kitchen,
President and Chief Executive Officer, and Lewis J. Derbes, Jr., Senior Vice President, Chief
Financial Officer and Treasurer |
65