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 July 31, 2008
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 |
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Jefferson, Louisiana
(Address of principal executive offices)
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70121
(Zip Code) |
Registrants telephone number, including area code: (504) 729-1400
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 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. (Check one):
Large accelerated filer þ |
Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Securities 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 August 31, 2008, was 88,691,827 and
3,555,020, respectively.
STEWART
ENTERPRISES, INC.
AND SUBSIDIARIES
INDEX
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Page |
Part I. |
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Financial Information |
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Item 1.
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Financial Statements (Unaudited) |
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Condensed Consolidated Statements of Earnings
Three Months Ended July 31, 2008 and 2007 |
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3 |
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Condensed Consolidated Statements of Earnings
Nine Months Ended July 31, 2008 and 2007 |
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4 |
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Condensed Consolidated Balance Sheets
July 31, 2008 and October 31, 2007 |
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5 |
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Condensed Consolidated Statement of Shareholders Equity
Nine Months Ended July 31, 2008 |
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7 |
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Condensed Consolidated Statements of Cash Flows
Nine Months Ended July 31, 2008 and 2007 |
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8 |
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Notes to Condensed Consolidated Financial Statements |
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9 |
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Item 2.
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Managements Discussion and Analysis of
Financial Condition and Results of Operations
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37 |
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Item 3.
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Quantitative and Qualitative Disclosures
About Market Risk
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52 |
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Item 4.
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Controls and Procedures
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52 |
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Part II. |
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Other Information |
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Item 1.
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Legal Proceedings
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52 |
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Item 1A.
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Risk Factors
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53 |
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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54 |
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Item 5.
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Other Information
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54 |
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Item 6.
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Exhibits
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55 |
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Signatures
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57 |
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2
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 July 31, |
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2008 |
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2007 |
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Revenues: |
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Funeral |
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$ |
68,558 |
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$ |
66,914 |
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Cemetery |
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61,870 |
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60,665 |
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130,428 |
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127,579 |
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Costs and expenses: |
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Funeral |
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53,524 |
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52,589 |
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Cemetery |
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48,906 |
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48,481 |
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102,430 |
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101,070 |
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Gross profit |
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27,998 |
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26,509 |
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Corporate general and administrative expenses |
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(8,188 |
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(8,343 |
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Hurricane related charges, net |
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(341 |
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(210 |
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Separation charges |
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(48 |
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Gains on dispositions and impairment (losses), net |
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25 |
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(46 |
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Other operating income, net |
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407 |
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290 |
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Operating earnings |
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19,901 |
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18,152 |
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Interest expense |
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(6,000 |
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(6,222 |
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Loss on early extinguishment of debt |
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(677 |
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Investment and other income, net |
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593 |
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810 |
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Earnings from continuing operations before income taxes |
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14,494 |
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12,063 |
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Income taxes |
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5,365 |
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3,853 |
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Earnings from continuing operations |
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9,129 |
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8,210 |
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Discontinued operations: |
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Loss from discontinued operations before income taxes |
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(138 |
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Income tax benefit |
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(51 |
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Loss from discontinued operations |
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(87 |
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Net earnings |
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$ |
9,129 |
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$ |
8,123 |
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Basic earnings per common share: |
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Earnings from continuing operations |
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$ |
.10 |
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$ |
.08 |
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Earnings from discontinued operations |
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Net earnings |
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$ |
.10 |
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$ |
.08 |
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Diluted earnings per common share: |
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Earnings from continuing operations |
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$ |
.10 |
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$ |
.08 |
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Earnings from discontinued operations |
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Net earnings |
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$ |
.10 |
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$ |
.08 |
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Weighted average common shares outstanding (in thousands): |
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Basic |
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92,203 |
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102,479 |
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Diluted |
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92,414 |
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102,714 |
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Dividends declared per common share |
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$ |
.025 |
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$ |
.025 |
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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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Nine Months Ended July 31, |
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2008 |
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2007 |
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Revenues: |
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Funeral |
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$ |
218,862 |
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$ |
212,410 |
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Cemetery |
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178,658 |
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184,043 |
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397,520 |
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396,453 |
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Costs and expenses: |
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Funeral |
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163,260 |
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160,415 |
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Cemetery |
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143,558 |
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145,757 |
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306,818 |
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306,172 |
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Gross profit |
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90,702 |
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90,281 |
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Corporate general and administrative expenses |
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(24,226 |
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(23,129 |
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Hurricane related charges, net |
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(351 |
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(2,343 |
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Separation charges |
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(580 |
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Gains on dispositions and impairment (losses), net |
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153 |
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44 |
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Other operating income, net |
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753 |
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1,441 |
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Operating earnings |
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67,031 |
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65,714 |
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Interest expense |
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(17,981 |
) |
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(19,274 |
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Loss on early extinguishment of debt |
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(677 |
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Investment and other income, net |
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1,670 |
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2,427 |
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Earnings from continuing operations before income taxes |
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50,720 |
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48,190 |
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Income taxes |
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18,766 |
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14,191 |
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Earnings from continuing operations |
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31,954 |
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33,999 |
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Discontinued operations: |
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Loss from discontinued operations before income taxes |
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(519 |
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Income tax benefit |
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(198 |
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Loss from discontinued operations |
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(321 |
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Net earnings |
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$ |
31,954 |
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$ |
33,678 |
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Basic earnings per common share: |
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Earnings from continuing operations |
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$ |
.34 |
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$ |
.32 |
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Earnings from discontinued operations |
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Net earnings |
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$ |
.34 |
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$ |
.32 |
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Diluted earnings per common share: |
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Earnings from continuing operations |
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.34 |
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.32 |
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Earnings from discontinued operations |
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Net earnings |
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.34 |
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.32 |
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Weighted average common shares outstanding (in thousands): |
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Basic |
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94,504 |
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104,215 |
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Diluted |
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94,676 |
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104,384 |
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Dividends declared per common share |
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$ |
.075 |
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$ |
.075 |
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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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July 31, |
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October 31, |
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2008 |
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2007 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
48,693 |
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$ |
71,545 |
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Marketable securities |
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38 |
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262 |
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Receivables, net of allowances |
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78,248 |
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60,615 |
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Inventories |
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35,900 |
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36,061 |
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Prepaid expenses |
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8,927 |
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6,355 |
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Deferred income taxes, net |
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8,479 |
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8,621 |
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Total current assets |
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180,285 |
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183,459 |
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Receivables due beyond one year, net of allowances |
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69,802 |
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83,608 |
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Preneed funeral receivables and trust investments |
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439,821 |
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515,053 |
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Preneed cemetery receivables and trust investments |
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223,293 |
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255,679 |
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Goodwill |
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273,188 |
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273,286 |
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Cemetery property, at cost |
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377,137 |
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374,800 |
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Property and equipment, at cost: |
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Land |
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43,767 |
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43,767 |
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Buildings |
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317,035 |
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310,968 |
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Equipment and other |
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175,919 |
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164,246 |
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536,721 |
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518,981 |
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Less accumulated depreciation |
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230,580 |
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213,063 |
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Net property and equipment |
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306,141 |
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305,918 |
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Deferred income taxes, net |
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181,060 |
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192,859 |
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Cemetery perpetual care trust investments |
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207,425 |
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236,503 |
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Other assets |
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17,302 |
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17,809 |
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Total assets |
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$ |
2,275,454 |
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$ |
2,438,974 |
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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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July 31, |
|
|
October 31, |
|
|
|
2008 |
|
|
2007 |
|
LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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Current maturities of long-term debt |
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$ |
27 |
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$ |
198 |
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Accounts payable |
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23,286 |
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|
26,606 |
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Accrued payroll and other benefits |
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16,376 |
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|
16,316 |
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Accrued insurance |
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|
21,939 |
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|
21,252 |
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Accrued interest |
|
|
6,589 |
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|
|
5,576 |
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Other current liabilities |
|
|
15,461 |
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|
17,958 |
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Income taxes payable |
|
|
1,131 |
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|
|
4,177 |
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Total current liabilities |
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84,809 |
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|
92,083 |
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Long-term debt, less current maturities |
|
|
450,097 |
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|
450,115 |
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Deferred preneed funeral revenue |
|
|
250,482 |
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|
256,603 |
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Deferred preneed cemetery revenue |
|
|
279,855 |
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|
284,507 |
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Non-controlling interest in funeral and cemetery trusts |
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581,686 |
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|
683,052 |
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Other long-term liabilities |
|
|
19,749 |
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|
|
13,869 |
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|
|
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Total liabilities |
|
|
1,666,678 |
|
|
|
1,780,229 |
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Commitments and contingencies
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|
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|
|
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|
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Non-controlling interest in perpetual care trusts |
|
|
205,636 |
|
|
|
235,427 |
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Shareholders equity: |
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|
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Preferred stock, $1.00 par value, 5,000,000 shares
authorized; no shares issued |
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Common stock, $1.00 stated value: |
|
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|
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|
|
Class A authorized 200,000,000 shares; issued
and outstanding 88,681,765 and 94,865,387
shares at July 31, 2008 and October 31, 2007,
respectively |
|
|
88,682 |
|
|
|
94,865 |
|
Class B authorized 5,000,000 shares; issued
and outstanding 3,555,020 shares at July 31,
2008 and October 31, 2007; 10 votes per share
convertible into an equal number of Class A
shares |
|
|
3,555 |
|
|
|
3,555 |
|
Additional paid-in capital |
|
|
538,778 |
|
|
|
583,789 |
|
Accumulated deficit |
|
|
(227,903 |
) |
|
|
(258,902 |
) |
Accumulated other comprehensive income: |
|
|
|
|
|
|
|
|
Unrealized appreciation of investments |
|
|
28 |
|
|
|
11 |
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income |
|
|
28 |
|
|
|
11 |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
403,140 |
|
|
|
423,318 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
2,275,454 |
|
|
$ |
2,438,974 |
|
|
|
|
|
|
|
|
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 of |
|
|
Shareholders |
|
|
|
Stock (1) |
|
|
Capital |
|
|
Deficit |
|
|
Investments |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 31, 2007 |
|
$ |
98,420 |
|
|
$ |
583,789 |
|
|
$ |
(258,902 |
) |
|
$ |
11 |
|
|
$ |
423,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
31,954 |
|
|
|
|
|
|
|
31,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized appreciation
of investments, net of
deferred tax expense of
($9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
31,954 |
|
|
|
17 |
|
|
|
31,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of
adoption of FIN 48 |
|
|
|
|
|
|
|
|
|
|
(955 |
) |
|
|
|
|
|
|
(955 |
) |
Restricted stock activity |
|
|
28 |
|
|
|
332 |
|
|
|
|
|
|
|
|
|
|
|
360 |
|
Issuance of common stock |
|
|
160 |
|
|
|
1,013 |
|
|
|
|
|
|
|
|
|
|
|
1,173 |
|
Stock options exercised |
|
|
247 |
|
|
|
1,162 |
|
|
|
|
|
|
|
|
|
|
|
1,409 |
|
Share-based compensation |
|
|
|
|
|
|
1,431 |
|
|
|
|
|
|
|
|
|
|
|
1,431 |
|
Tax benefit associated
with stock options
exercised |
|
|
|
|
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
127 |
|
Purchase and retirement of
common stock |
|
|
(6,618 |
) |
|
|
(42,009 |
) |
|
|
|
|
|
|
|
|
|
|
(48,627 |
) |
Dividends ($.075 per share) |
|
|
|
|
|
|
(7,067 |
) |
|
|
|
|
|
|
|
|
|
|
(7,067 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 31, 2008 |
|
$ |
92,237 |
|
|
$ |
538,778 |
|
|
$ |
(227,903 |
) |
|
$ |
28 |
|
|
$ |
403,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amount includes 88,682 and 94,865 shares (in thousands) of Class A common stock
with a stated value of $1 per share as of July 31, 2008 and October 31, 2007, 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)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31, |
|
|
|
2008 |
|
|
2007 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
31,954 |
|
|
$ |
33,678 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
(Gains) on dispositions and impairment losses, net |
|
|
(153 |
) |
|
|
514 |
|
Depreciation and amortization |
|
|
21,188 |
|
|
|
20,033 |
|
Provision for doubtful accounts |
|
|
5,742 |
|
|
|
6,934 |
|
Share-based compensation |
|
|
1,431 |
|
|
|
1,146 |
|
Loss on early extinguishment of debt |
|
|
|
|
|
|
677 |
|
Excess tax benefits from share-based payment arrangements |
|
|
(171 |
) |
|
|
(108 |
) |
Provision for deferred income taxes |
|
|
5,844 |
|
|
|
5,062 |
|
Other |
|
|
973 |
|
|
|
1,160 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
(Increase) decrease in receivables |
|
|
(3,902 |
) |
|
|
1,652 |
|
Increase in prepaid expenses |
|
|
(2,574 |
) |
|
|
(3,193 |
) |
Increase in inventories and cemetery property |
|
|
(2,072 |
) |
|
|
(2,261 |
) |
Decrease in accounts payable and accrued expenses |
|
|
(477 |
) |
|
|
(6,545 |
) |
Net effect of preneed funeral production and maturities: |
|
|
|
|
|
|
|
|
(Increase) decrease in preneed funeral receivables and trust investments |
|
|
7,711 |
|
|
|
(665 |
) |
Decrease in deferred preneed funeral revenue |
|
|
(5,767 |
) |
|
|
(5,260 |
) |
Increase (decrease) in funeral non-controlling interest |
|
|
(5,395 |
) |
|
|
3,247 |
|
Net effect of preneed cemetery production and deliveries: |
|
|
|
|
|
|
|
|
Increase in preneed cemetery receivables and trust investments |
|
|
(52 |
) |
|
|
(2,710 |
) |
Decrease in deferred preneed cemetery revenue |
|
|
(4,652 |
) |
|
|
(7,884 |
) |
Increase in cemetery non-controlling interest |
|
|
3,712 |
|
|
|
9,238 |
|
Increase (decrease) in other |
|
|
(1,087 |
) |
|
|
84 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
52,253 |
|
|
|
54,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Proceeds from sales of marketable securities |
|
|
20,219 |
|
|
|
|
|
Purchases of marketable securities |
|
|
(19,955 |
) |
|
|
(148 |
) |
Proceeds from sale of assets, net |
|
|
358 |
|
|
|
1,645 |
|
Purchase of subsidiaries and other investments, net of cash acquired |
|
|
(1,378 |
) |
|
|
(6,134 |
) |
Insurance proceeds related to hurricane damaged properties |
|
|
|
|
|
|
1,400 |
|
Additions to property and equipment |
|
|
(20,370 |
) |
|
|
(23,120 |
) |
Other |
|
|
75 |
|
|
|
56 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(21,051 |
) |
|
|
(26,301 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from long-term debt |
|
|
|
|
|
|
250,000 |
|
Repayments of long-term debt |
|
|
(190 |
) |
|
|
(176,461 |
) |
Debt issue costs |
|
|
|
|
|
|
(5,572 |
) |
Proceeds from sale of common stock warrants |
|
|
|
|
|
|
43,850 |
|
Issuance of common stock |
|
|
1,659 |
|
|
|
2,521 |
|
Purchase of call options |
|
|
|
|
|
|
(60,000 |
) |
Purchase and retirement of common stock |
|
|
(48,627 |
) |
|
|
(64,201 |
) |
Dividends |
|
|
(7,067 |
) |
|
|
(7,724 |
) |
Excess tax benefits from share-based payment arrangements |
|
|
171 |
|
|
|
108 |
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(54,054 |
) |
|
|
(17,479 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
(22,852 |
) |
|
|
11,019 |
|
Cash and cash equivalents, beginning of period |
|
|
71,545 |
|
|
|
43,870 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
48,693 |
|
|
$ |
54,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Income taxes, net |
|
$ |
11,767 |
|
|
$ |
9,044 |
|
Interest |
|
$ |
15,799 |
|
|
$ |
18,096 |
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Issuance of common stock to executive officers and directors |
|
$ |
923 |
|
|
$ |
1,028 |
|
Issuance of restricted stock, net of forfeitures |
|
$ |
260 |
|
|
$ |
4,186 |
|
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 |
Stewart Enterprises, Inc. (the Company) is a provider of funeral and cemetery products and
services in the death care industry in the United States. Through its subsidiaries, the Company
offers a complete line of funeral merchandise and services, along with cemetery property,
merchandise and services, both at the time of need and on a preneed basis. As of July 31, 2008,
the Company owned and operated 221 funeral homes and 139 cemeteries in 24 states within the United
States and Puerto Rico. The Company has five operating and reportable segments consisting of a
corporate trust management segment and a funeral and cemetery segment for each of two geographic
areas: Eastern and Western.
|
(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.
The information as of July 31, 2008, and for the three and nine months ended July 31, 2008 and
2007, 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, 2007
(the 2007 Form 10-K).
The October 31, 2007 condensed consolidated balance sheet data was derived from audited
financial statements in the Companys 2007 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 2007 Form 10-K.
The results of operations for the three and nine months ended July 31, 2008 are not
necessarily indicative of the results to be expected for the fiscal year ending October 31, 2008.
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 2007 Form 10-K.
|
(e) |
|
Share-Based Compensation |
The Company has share-based compensation plans, which are described in more detail in Note 18
to the consolidated financial statements in the Companys 2007 Form 10-K. Net earnings for the
three months ended July
31, 2008 and 2007 include $481 and $455, respectively, of share-based compensation costs. Net
earnings for the nine months ended July 31, 2008 and 2007 include $1,431 and $1,146, respectively,
of share-based compensation costs all of which are included in corporate general and administrative
expenses in the condensed consolidated statements of earnings. As of July 31, 2008, there was
$3,017 of total unrecognized compensation costs related to nonvested share-based compensation that
is expected to be recognized over a weighted-average period of 2.53 years of which $1,819 of total
share-based compensation is expected for fiscal year 2008. The expense related to restricted stock
is reflected in earnings and amounted to $187 and $354 for the three months ended July 31, 2008
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) |
and 2007, respectively, and $557 and $501 for the nine months ended July 31, 2008 and 2007,
respectively.
On January 17, 2008, the Company issued a total of 72,000 shares of Class A common stock to
the independent directors of the Company. The expense related to this stock amounted to $531 and
was recorded in corporate general and administrative expenses during the first quarter of 2008.
Each independent director must hold at least 75 percent of the shares received 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 nine months ended July 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Number of Shares |
|
Exercise Price per |
|
|
|
|
Grant Type |
|
Granted |
|
Share |
|
Vesting Period |
|
Vesting Condition |
Stock Options
|
|
|
403,750 |
|
|
$ |
8.12 |
|
|
Primarily equal
one-fourth portions
over 4 years
|
|
Service condition |
Stock Options
|
|
|
157,500 |
|
|
$ |
8.34 |
|
|
Primarily equal
one-third portions
over 3 years
|
|
Market condition |
Restricted Stock
|
|
|
55,000 |
|
|
$ |
8.31 |
|
|
Primarily equal
one-third portions
over 3 years
|
|
Performance condition |
The fair value of the Companys service based stock options is the estimated present value at
grant date using the Black-Scholes option pricing model with the following weighted average
assumptions for the service based stock options granted during the nine months ended July 31, 2008:
expected dividend yield of 1.2 percent; expected volatility of 37.5 percent; risk-free interest
rate of 3.6 percent; and an expected term of 6.9 years. The Company also issued stock options in
the first and third quarters of fiscal year 2008 with market conditions based on reaching certain
target stock prices in fiscal years 2008, 2009 and 2010. The Company records this expense over the
requisite service period. The fair value of the Companys market based stock options is the
estimated present value at the grant date using the Monte Carlo lattice model approach with the
following weighted average assumptions for the market based stock options granted during the nine
months ended July 31, 2008: expected dividend yield of 1.2 percent; expected volatility of 31.0
percent; risk-free interest rate of 3.4 percent; and an expected term of 2.8 years.
Certain reclassifications have been made to the 2007 condensed consolidated statements of
earnings and cash flows in order for these periods to be comparable. Businesses sold in fiscal
year 2007 that met the criteria for discontinued operations have been classified as discontinued
operations for all periods presented. These reclassifications had no effect on net earnings or
operating cash flows.
(2) |
|
New Accounting Principles |
Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty
in Income Taxes an Interpretation of FASB Statement No. 109 (FIN 48)
In July 2006, the FASB issued FIN 48, which clarifies the accounting and disclosure for uncertain tax positions in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. This interpretation
requires companies to use a prescribed model for assessing the
financial statement recognition and measurement of all tax positions taken or expected to be taken in tax returns. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure
10
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(2) |
|
New Accounting Principles(Continued) |
and transition. This interpretation was adopted by the Company on November 1, 2007. The
Company has reviewed its income tax positions and identified certain tax deductions or revenue
deferrals that are not certain. As a result of the adoption, the Company recognized a charge of
$955 to the November 1, 2007 accumulated deficit balance. As of the adoption date, the Company had
gross tax affected unrecognized tax benefits of $3,615 of which $551, if recognized, would affect
the effective tax rate. Also, as of the adoption date, we had accrued interest and penalties
related to the unrecognized tax benefits of $733. The Companys policy with respect to potential
penalties and interest is to record them as other expense and interest expense, respectively.
With few exceptions, the Company is no longer subject to U.S. federal, state and local, or
non-U.S. income tax examinations by tax authorities for fiscal years before 2002. During the nine
months ended July 31, 2008, we recognized an additional $178 in potential interest associated with
uncertain tax positions. To the extent tax, interest and penalties are not assessed with respect to
uncertain tax positions in the future, amounts accrued will be reduced and reflected as a reduction
of tax expense, interest expense or other expense.
Other, not yet adopted
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157),
which establishes a framework for measuring fair value in accordance with generally accepted
accounting principles (GAAP) and expands disclosures about fair value measurements. This
statement is effective for financial assets and liabilities as well as for any assets and
liabilities that are carried at fair value on a recurring basis in financial statements as of the
beginning of an entitys first fiscal year that begins after November 15, 2007, which corresponds
to the Companys fiscal year beginning November 1, 2008. In February 2008, the FASB issued a
one-year deferral for non-financial assets and liabilities to comply with SFAS No. 157. The
Company is currently evaluating the impact the adoption of SFAS No. 157 will have on its
consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities Including an Amendment of FASB Statement No. 115 (SFAS No. 159).
This statement permits entities to choose to measure many financial assets and liabilities and
certain other items at fair value. The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge accounting
provisions. This statement is effective as of the beginning of an entitys first fiscal year
beginning after November 15, 2007, which corresponds to the Companys fiscal year beginning
November 1, 2008. The Company is currently evaluating the impact the adoption of SFAS No. 159 will
have on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
141(R)) (SFAS No. 141R). SFAS No. 141R states that all business combinations, whether full,
partial, or step acquisitions, will result in all assets and liabilities of an acquired business
being recorded at their fair values at the acquisition date. In subsequent periods, contingent
liabilities will be measured at the higher of their acquisition date fair value or the estimated
amounts to be realized. SFAS No. 141R applies to all transactions or other events in which an
entity obtains control of one or more businesses. This statement is effective as of the beginning
of an entitys first fiscal year beginning after December 15, 2008, which corresponds to the Companys fiscal
year beginning November 1, 2009. This statement will apply to any future business combinations as
of that date.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statementamendments of ARB No. 51 (SFAS No. 160). SFAS No. 160 states that
accounting and reporting for minority interests will be recharacterized as noncontrolling interests
and classified as a component of shareholders equity. SFAS No. 160 applies to all entities that
prepare consolidated financial statements, except not-for-profit organizations, but will affect
only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or
that deconsolidate a subsidiary. This statement is effective as of the beginning of an entitys
11
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(2) New Accounting Principles(Continued)
first fiscal year beginning after December 15, 2008, which corresponds to the Companys fiscal year
beginning November 1, 2009. The Company is currently evaluating the impact the adoption of SFAS
No. 160 will have on its consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities an Amendment of FASB Statement No. 133 (SFAS No. 161). SFAS No. 161
changes the disclosure requirements for derivative instruments and hedging activities. Entities
are required to provide enhanced disclosures about (1) the ways in which an entity uses
derivatives, (2) the accounting for derivatives and hedging activities, and (3) the impact that
derivatives have (or could have) on an entitys financial position, financial performance and cash
flows. This statement is effective for financial statements of fiscal years and interim periods
beginning after November 15, 2008, with early adoption encouraged. The Company is currently
evaluating the impact, if any, that the adoption of SFAS No. 161 will have on its consolidated
financial statements.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS No. 162). This statement identifies sources of accounting principles and the
framework for selecting the principles to be used in the preparation of financial statements that
are presented in conformity with GAAP in the United States. SFAS No. 162 moves the hierarchy of
GAAP sources for non-governmental entities from the auditing literature to the accounting
literature. This statement will become effective 60 days following approval by the Securities and
Exchange Commission (SEC) of amendments made by the Public Company Accounting Oversight Board to
AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles. Any effect of applying SFAS No. 162 should be reported as a change in accounting
principle. The Company does not expect this statement to have any impact on its consolidated
financial statements.
In May 2008, FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments
That May be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP No. APB
14-1) was issued. FSP No. APB 14-1 states that convertible debt instruments that may be settled
in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of
Accounting Principles Board Opinion No. 14 and that issuers of such instruments should account
separately for the liability and equity components of the instruments in a manner that will reflect
the entitys nonconvertible debt borrowing rate when interest cost is recognized in subsequent
periods. This opinion is effective as of the beginning of an entitys first fiscal year beginning
after December 15, 2008, which corresponds to the Companys fiscal year beginning November 1, 2009,
and must be applied retrospectively to all periods presented. The Company is currently evaluating
the impact the adoption of FSP No. APB 14-1 will have on its consolidated financial statements, but
expects to record higher interest expense related to its senior convertible notes beginning in
fiscal year 2010.
(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 which is detailed below and in Notes 4 and 5. The Company marks its trust
portfolio to market value each quarter. Changes in the market value of the trusts are recorded by
increasing or decreasing trust assets included in the preneed funeral and cemetery receivables and
trust investments line items in the condensed consolidated balance sheet, with a corresponding
increase or decrease in the deferred preneed revenue and non-controlling interest line items in the
condensed consolidated balance sheet. Therefore, there is no effect on current period net income.
The Company determines whether or not the investment portfolio has an other than temporary
impairment on a security-by-security basis. A loss is considered other than temporary if the
security has a reduction in market value compared with its cost basis of 20 percent or more for a
period of six months or longer. In addition, the Company periodically reviews its investment
portfolio to determine if any of the temporarily impaired assets should
12
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(3) Preneed Funeral Activities(Continued)
be designated as other than
temporarily impaired due to changes in market conditions or concerns specific to the issuer of the
securities. If a loss is other than temporary, the cost basis of the security is adjusted downward
to its market value, which is allocated to the non-controlling interests in the trusts. This
affects the Companys footnote disclosure but does not have an effect on its financial statements,
since the trust portfolio is already marked to market value each quarter. Realized earnings on the
trust assets flow into and out of the statement of earnings through investment and other income,
net with no net effect on revenue or net earnings.
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. An
allowance for cancellations is estimated based on historical experience. The components of preneed
funeral receivables and trust investments in the condensed consolidated balance sheets at July 31,
2008 and October 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
July 31, 2008 |
|
|
October 31, 2007 |
|
Trust assets |
|
$ |
404,603 |
|
|
$ |
477,335 |
|
Receivables from customers |
|
|
45,975 |
|
|
|
48,488 |
|
|
|
|
|
|
|
|
|
|
|
450,578 |
|
|
|
525,823 |
|
Allowance for cancellations |
|
|
(10,757 |
) |
|
|
(10,770 |
) |
|
|
|
|
|
|
|
Preneed funeral receivables and trust investments |
|
$ |
439,821 |
|
|
$ |
515,053 |
|
|
|
|
|
|
|
|
The cost and market values associated with preneed funeral merchandise and services trust
assets as of July 31, 2008 are detailed below. The adjusted cost basis of the funeral merchandise
and services trust assets below reflects an other than temporary decline in the trust assets of
approximately $95,560 as of July 31, 2008 from their original cost basis. The Company believes the
unrealized losses reflected below of $44,134 related to trust investments are temporary in nature.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2008 |
|
|
Adjusted |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Cost Basis |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
|
|
|
|
Cash, money market and other
short-term investments |
|
$ |
32,672 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
32,672 |
|
|
|
|
|
U.S. Government, agencies and
municipalities |
|
|
12,584 |
|
|
|
268 |
|
|
|
(1 |
) |
|
|
12,851 |
|
|
|
|
|
Corporate bonds |
|
|
57,636 |
|
|
|
454 |
|
|
|
(4,470 |
) |
|
|
53,620 |
|
|
|
|
|
Preferred stocks |
|
|
72,954 |
|
|
|
100 |
|
|
|
(13,017 |
) |
|
|
60,037 |
|
|
|
|
|
Common stocks |
|
|
198,901 |
|
|
|
17,391 |
|
|
|
(23,995 |
) |
|
|
192,297 |
|
|
|
|
|
Mutual funds |
|
|
34,464 |
|
|
|
336 |
|
|
|
(2,651 |
) |
|
|
32,149 |
|
|
|
|
|
Insurance contracts and other long-
term investments |
|
|
19,629 |
|
|
|
104 |
|
|
|
|
|
|
|
19,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust investments |
|
$ |
428,840 |
|
|
$ |
18,653 |
|
|
$ |
(44,134 |
) |
|
|
403,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
404,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 estimated maturities and market values of debt securities included above are as follows:
|
|
|
|
|
|
|
July 31, 2008 |
|
Due in one year or less |
|
$ |
5,146 |
|
Due in one to five years |
|
|
32,810 |
|
Due in five to ten years |
|
|
28,459 |
|
Thereafter |
|
|
56 |
|
|
|
|
|
|
|
$ |
66,471 |
|
|
|
|
|
Activity related to preneed funeral trust investments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
Nine Months Ended July 31, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Purchases |
|
$ |
10,153 |
|
|
$ |
14,337 |
|
|
$ |
19,009 |
|
|
$ |
96,423 |
|
Sales |
|
|
7,743 |
|
|
|
15,128 |
|
|
|
20,517 |
|
|
|
92,546 |
|
Realized gains on sales |
|
|
1,087 |
|
|
|
1,020 |
|
|
|
2,825 |
|
|
|
6,782 |
|
Realized losses on sales |
|
|
(309 |
) |
|
|
(57 |
) |
|
|
(620 |
) |
|
|
(977 |
) |
Impairment losses on
other than temporarily
impaired trust assets |
|
|
(10,614 |
) |
|
|
|
|
|
|
(21,876 |
) |
|
|
(371 |
) |
Deposits |
|
|
8,129 |
|
|
|
8,250 |
|
|
|
24,111 |
|
|
|
24,364 |
|
Withdrawals |
|
|
11,362 |
|
|
|
11,137 |
|
|
|
35,499 |
|
|
|
33,943 |
|
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. An
allowance for cancellations is estimated based on historical experience. 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 July 31, 2008 and October 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
July 31, 2008 |
|
|
October 31, 2007 |
|
Trust assets |
|
$ |
186,846 |
|
|
$ |
215,541 |
|
Receivables from customers |
|
|
41,333 |
|
|
|
46,906 |
|
|
|
|
|
|
|
|
|
|
|
228,179 |
|
|
|
262,447 |
|
Allowance for cancellations |
|
|
(4,886 |
) |
|
|
(6,768 |
) |
|
|
|
|
|
|
|
Preneed cemetery receivables and trust investments |
|
$ |
223,293 |
|
|
$ |
255,679 |
|
|
|
|
|
|
|
|
The cost and market values associated with the preneed cemetery merchandise and services trust
assets as of July 31, 2008 are detailed below. The adjusted cost basis of the cemetery merchandise
and services trust assets below reflects an other than temporary decline in the trust assets of
approximately $49,728 as of July 31, 2008 from their original cost basis. The Company believes the
unrealized losses reflected below of $23,570 related to trust investments are temporary in nature.
14
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2008 |
|
|
|
Adjusted |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Cost Basis |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
|
|
|
|
Cash, money market and other
short-term investments |
|
$ |
15,496 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
15,496 |
|
|
|
|
|
U.S. Government, agencies and
municipalities |
|
|
13,908 |
|
|
|
550 |
|
|
|
(3 |
) |
|
|
14,455 |
|
|
|
|
|
Corporate bonds |
|
|
12,187 |
|
|
|
158 |
|
|
|
(868 |
) |
|
|
11,477 |
|
|
|
|
|
Preferred stocks |
|
|
26,054 |
|
|
|
20 |
|
|
|
(4,878 |
) |
|
|
21,196 |
|
|
|
|
|
Common stocks |
|
|
103,321 |
|
|
|
7,806 |
|
|
|
(12,968 |
) |
|
|
98,159 |
|
|
|
|
|
Mutual funds |
|
|
30,002 |
|
|
|
117 |
|
|
|
(4,853 |
) |
|
|
25,266 |
|
|
|
|
|
Insurance contracts and other long-term investments |
|
|
298 |
|
|
|
|
|
|
|
|
|
|
|
298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust investments |
|
$ |
201,266 |
|
|
$ |
8,651 |
|
|
$ |
(23,570 |
) |
|
|
186,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
186,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated maturities and market values of debt securities included above are as follows:
|
|
|
|
|
|
|
July 31, 2008 |
|
Due in one year or less |
|
$ |
3,700 |
|
Due in one to five years |
|
|
14,334 |
|
Due in five to ten years |
|
|
7,692 |
|
Thereafter |
|
|
206 |
|
|
|
|
|
|
|
$ |
25,932 |
|
|
|
|
|
Activity related to preneed cemetery merchandise and services trust investments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
Nine Months Ended July 31, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Purchases |
|
$ |
7,302 |
|
|
$ |
38,419 |
|
|
$ |
13,933 |
|
|
$ |
182,756 |
|
Sales |
|
|
3,356 |
|
|
|
36,162 |
|
|
|
10,014 |
|
|
|
174,969 |
|
Realized gains on sales |
|
|
577 |
|
|
|
2,634 |
|
|
|
1,650 |
|
|
|
9,372 |
|
Realized losses on sales |
|
|
(89 |
) |
|
|
(20 |
) |
|
|
(285 |
) |
|
|
(193 |
) |
Impairment losses on
other than temporarily
impaired trust assets |
|
|
(3,259 |
) |
|
|
(4 |
) |
|
|
(9,178 |
) |
|
|
(549 |
) |
Deposits |
|
|
4,815 |
|
|
|
4,622 |
|
|
|
13,432 |
|
|
|
13,551 |
|
Withdrawals |
|
|
4,327 |
|
|
|
4,926 |
|
|
|
14,897 |
|
|
|
14,329 |
|
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 realized 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 $2,635
15
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)
and $2,498 for the three months ended July 31, 2008
and 2007, respectively, and $8,040 and $7,323 for the nine months ended July 31, 2008 and 2007,
respectively.
The cost and market values of the trust investments held by the cemetery perpetual care trusts
as of July 31, 2008 are detailed below. The adjusted cost basis of the cemetery perpetual care
trusts below reflects an other than temporary decline in the trust assets of $40,118 as of July 31,
2008 from their original cost basis. The Company believes the unrealized losses reflected below of
$26,610 related to trust investments are temporary in nature.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2008 |
|
|
|
Adjusted |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Cost Basis |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
|
|
|
|
Cash, money market and other
short-term investments |
|
$ |
12,174 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12,174 |
|
|
|
|
|
U.S. Government, agencies and
municipalities |
|
|
8,934 |
|
|
|
300 |
|
|
|
(61 |
) |
|
|
9,173 |
|
|
|
|
|
Corporate bonds |
|
|
45,078 |
|
|
|
830 |
|
|
|
(2,076 |
) |
|
|
43,832 |
|
|
|
|
|
Preferred stocks |
|
|
68,749 |
|
|
|
13 |
|
|
|
(14,451 |
) |
|
|
54,311 |
|
|
|
|
|
Common stocks |
|
|
77,315 |
|
|
|
9,258 |
|
|
|
(9,413 |
) |
|
|
77,160 |
|
|
|
|
|
Mutual funds |
|
|
9,581 |
|
|
|
162 |
|
|
|
(609 |
) |
|
|
9,134 |
|
|
|
|
|
Insurance contracts and other
long-term investments |
|
|
708 |
|
|
|
80 |
|
|
|
|
|
|
|
788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust investments |
|
$ |
222,539 |
|
|
$ |
10,643 |
|
|
$ |
(26,610 |
) |
|
|
206,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
207,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated maturities and market values of debt securities included above are as follows:
|
|
|
|
|
|
|
July 31, 2008 |
|
Due in one year or less |
|
$ |
535 |
|
Due in one to five years |
|
|
31,483 |
|
Due in five to ten years |
|
|
20,383 |
|
Thereafter |
|
|
604 |
|
|
|
|
|
|
|
$ |
53,005 |
|
|
|
|
|
Activity related to preneed cemetery perpetual care trust investments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
Nine Months Ended July 31, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Purchases |
|
$ |
16,376 |
|
|
$ |
23,564 |
|
|
$ |
46,640 |
|
|
$ |
56,330 |
|
Sales |
|
|
17,841 |
|
|
|
14,331 |
|
|
|
42,899 |
|
|
|
47,104 |
|
Realized gains on sales |
|
|
1,287 |
|
|
|
1,749 |
|
|
|
4,334 |
|
|
|
4,136 |
|
Realized losses on sales |
|
|
|
|
|
|
(35 |
) |
|
|
(7 |
) |
|
|
(325 |
) |
Impairment losses on
other than temporarily
impaired trust assets |
|
|
(5,032 |
) |
|
|
|
|
|
|
(8,577 |
) |
|
|
(770 |
) |
Deposits |
|
|
2,186 |
|
|
|
2,153 |
|
|
|
6,147 |
|
|
|
6,066 |
|
Withdrawals |
|
|
2,350 |
|
|
|
2,357 |
|
|
|
7,351 |
|
|
|
7,778 |
|
During the three months ended July 31, 2008 and 2007, cemetery revenues were $61,870 and
$60,665, respectively, of which $2,210 and $2,677, respectively, were required to be placed into
perpetual care trusts and
16
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)
were recorded as revenues and expenses. During the nine months ended
July 31, 2008 and 2007, cemetery revenues were $178,658 and $184,043, respectively, of which $6,800
and $7,628, respectively, were required to be placed into perpetual care trusts and were recorded
as revenues and expenses.
Cash flows from cemetery perpetual care contracts are presented as operating cash flows in the
Companys condensed consolidated statements of cash flows.
(6) Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care Trusts
The components of non-controlling interest in funeral and cemetery trusts and non-controlling
interest in perpetual care trusts at July 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling |
|
|
|
Non-controlling Interest |
|
|
Interest in |
|
|
|
Preneed |
|
|
Preneed |
|
|
|
|
|
|
Perpetual |
|
|
|
Funeral |
|
|
Cemetery |
|
|
Total |
|
|
Care Trusts |
|
Trust assets at market value |
|
$ |
404,603 |
|
|
$ |
186,846 |
|
|
$ |
591,449 |
|
|
$ |
207,425 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pending withdrawals |
|
|
(9,090 |
) |
|
|
(4,214 |
) |
|
|
(13,304 |
) |
|
|
(2,570 |
) |
Pending deposits |
|
|
2,238 |
|
|
|
1,303 |
|
|
|
3,541 |
|
|
|
781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest |
|
$ |
397,751 |
|
|
$ |
183,935 |
|
|
$ |
581,686 |
|
|
$ |
205,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other income, net
The components of investment and other income, net in the condensed consolidated statements of
earnings for the three and nine months ended July 31, 2008 and 2007 are detailed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
Nine Months Ended July 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Non-controlling interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains |
|
$ |
2,951 |
|
|
$ |
5,403 |
|
|
$ |
8,809 |
|
|
$ |
20,290 |
|
Realized losses |
|
|
(398 |
) |
|
|
(112 |
) |
|
|
(912 |
) |
|
|
(1,495 |
) |
Impairment losses on other than
temporarily impaired trust assets |
|
|
(18,905 |
) |
|
|
(4 |
) |
|
|
(39,631 |
) |
|
|
(1,690 |
) |
Interest income, dividend and other
ordinary income |
|
|
7,876 |
|
|
|
7,644 |
|
|
|
23,257 |
|
|
|
20,878 |
|
Trust expenses and income taxes |
|
|
(2,639 |
) |
|
|
(3,135 |
) |
|
|
(8,380 |
) |
|
|
(8,571 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net trust investment income |
|
|
(11,115 |
) |
|
|
9,796 |
|
|
|
(16,857 |
) |
|
|
29,412 |
|
Non-controlling interest in funeral and
cemetery trust investment income |
|
|
9,182 |
|
|
|
(6,690 |
) |
|
|
18,140 |
|
|
|
(21,755 |
) |
Non-controlling interest in perpetual
care trust investment income |
|
|
1,933 |
|
|
|
(3,106 |
) |
|
|
(1,283 |
) |
|
|
(7,657 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-controlling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other income, net (1) |
|
|
593 |
|
|
|
810 |
|
|
|
1,670 |
|
|
|
2,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment and other income, net |
|
$ |
593 |
|
|
$ |
810 |
|
|
$ |
1,670 |
|
|
$ |
2,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Investment and other income, net consists of interest income primarily on the
Companys cash, cash equivalents and marketable securities not held in trust. |
17
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(7) Commitments and Contingencies
Litigation
Henrietta Torres and Teresa Fiore, on behalf of themselves and all others similarly situated
and the General Public v. Stewart Enterprises, Inc., et al.; No. BC328961, on the docket of the
Superior Court for the State of California for the County of Los Angeles, Central District. This
purported class action was filed on February 17, 2005 on behalf of a nationwide class defined to
include all persons who purchased funeral goods and/or services in the United States from
defendants at any time on or after February 17, 2001. The suit named the Company and several of
its Southern California affiliates as defendants and also sought to assert claims against a class
of all entities located anywhere in the United States whose ultimate parent corporation has been
the Company at any time on or after February 17, 2001.
In May 2005, the court ruled that this case was related to similar actions against Service
Corporation International (SCI) and Alderwoods Group, Inc., and designated the SCI case as the
lead case. The case against the Company effectively has been held in abeyance while the court tests
plaintiffs legal theories in the lead case. Rulings on legal issues in the lead case will apply
equally in the case against the Company, and the court has allowed the Company to participate in
hearings and briefings in the lead case.
As a result of demurrers, the plaintiff in the lead case amended her case twice. On January
31, 2006, however, the court overruled SCIs demurrer to the third amended complaint and
established a schedule leading to a hearing on a motion for summary judgment to test the viability
of the named plaintiffs claim against SCI. The third amended complaint in the lead case alleges
that the SCI defendants violated the Funeral Rule promulgated by the Federal Trade Commission by
failing to disclose that the prices charged to the plaintiffs for certain goods and services the
SCI defendants obtained from third parties specifically on the plaintiffs behalf exceeded what the
defendants paid for them. The plaintiff alleges that by failing to comply with the Funeral Rule,
defendants (i) breached contracts with the plaintiffs, (ii) were unjustly enriched, and (iii)
engaged in unfair, unlawful and fraudulent business practices in violation of a provision of
Californias Business and Professions Code. The plaintiff seeks restitution damages, disgorgement,
interest, costs and attorneys fees.
In September and October 2006, the court granted the motion for summary judgment filed by the
SCI affiliate with whom the plaintiff had contracted and entered a judgment of dismissal in favor
of that SCI affiliate. On December 8, 2006, the plaintiff noticed an appeal of this judgment.
Because the matter is being appealed, the likelihood of liability and the extent of any
damages cannot be reasonably assessed at this time. The Company intends to aggressively defend
itself in this matter. The Company has not recorded a liability related to this litigation given
that it does not believe that a loss is probable and estimatable.
Funeral Consumers Alliance, Inc., et al. v. Service Corporation International, Alderwoods
Group, Inc., Stewart Enterprises, Inc., Hillenbrand Industries, Inc., and Batesville Casket Co.,
number H-05-3394 on the docket of the United States District Court for the Southern District of
Texas. This purported class action was originally filed on May 2, 2005, in the United States
District Court for the Northern District of California, on behalf of a nationwide class defined to
include all consumers who purchased a Batesville casket from the funeral home defendants at any
time. The court consolidated it with five subsequently filed, substantially similar cases (the
Consolidated Consumer Cases).
The Consolidated Consumer Cases allege that the defendants acted jointly to reduce competition
from independent casket discounters and fix and maintain prices on caskets in violation of the
federal antitrust laws and Californias Business and Professions Code. The plaintiffs seek treble
damages, restitution, injunctive relief, interest, costs and attorneys fees.
18
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(7) Commitments and Contingencies(Continued)
At the defendants request, in late September 2005, the court transferred the Consolidated
Consumer Cases to the United States District Court for the Southern District of Texas. The
transferred Consolidated Consumer Cases have been consolidated before a single judge in the
Southern District of Texas.
On November 10, 2006, after the court denied Defendants motions to dismiss, the Company
answered the first amended consolidated class action complaint, denying liability and asserting
various affirmative defenses. The court conducted a hearing on plaintiffs motion for class
certification on December 4-7, 2006 and has taken the motion under advisement. Fact discovery has
been completed, and expert discovery is ongoing.
In April 2007, the plaintiffs filed an expert report indicating that the damages sought from
all defendants would be in the range of approximately $950 million to approximately $1.5 billion,
before trebling. A successful plaintiff in an anti-trust case may elect to enforce any judgment
against any or all of the co-defendants, who have no right of contribution against one another.
Accordingly, any adverse judgment could have a material adverse effect on the Companys financial
condition and results of operations. The Company believes it has meritorious defenses to the
substantive allegations asserted, to class certification, and to the plaintiffs damage theories
and calculations, and the Company intends to aggressively defend itself in these proceedings. The
Company has not recorded a liability related to this litigation given that it does not believe that
a loss is probable and estimatable.
Pioneer Valley Casket Co., Inc., et al. v. Service Corporation International, Alderwoods
Group, Inc., Stewart Enterprises, Inc., Hillenbrand Industries, Inc., and Batesville Casket Co.,
number H-05-3399 (Pioneer Valley Case). This purported class action was filed on July 8, 2005, in
the Northern District of California on behalf of a nationwide class of independent casket
retailers. The casket retailers make allegations similar to those made in the Consolidated Consumer
Cases reported above and seek treble damages, injunctive relief, interest, costs and attorneys
fees.
Like the Consolidated Consumer Cases, in late September 2005, this matter was transferred to
the United States District Court for the Southern District of Texas. The Pioneer Valley Case has
been consolidated with the Consolidated Consumer Cases for purposes of discovery only.
On November 14, 2006, after the court denied Defendants motions to dismiss, the Company
answered the first amended complaint, denying liability and asserting various defenses. The court
conducted a hearing on plaintiffs motion for class certification on December 8, 2006 and has taken
the motion under advisement. Fact discovery has been completed, and expert discovery is ongoing.
In April 2007, the plaintiffs filed an expert report indicating that the damages sought from
all defendants would be approximately $99.0 million, before trebling. A successful plaintiff in an
anti-trust case may elect to enforce any judgment against any or all of the co-defendants, who have
no right of contribution against one another. Accordingly, any adverse judgment could have a
material adverse effect on the Companys financial condition and results of operations. The Company
believes it has meritorious defenses to the substantive allegations asserted, to class
certification, and to the plaintiffs damage theories and calculations, and the Company intends to
aggressively defend itself in these proceedings. The Company has not recorded a liability related
to this litigation given that it does not believe that a loss is probable and estimatable.
In Re: State Attorney General Civil Investigative Demands - On August 4, 2005, the Attorney
General for the State of Maryland issued a civil investigative demand to the Company seeking
documents and information relating to funeral and cemetery goods and services. Subsequently, the
Attorneys General for the States of Florida and Connecticut issued a similar civil investigative
demand to the Company. The Company has entered into arrangements allowing the Maryland and Florida
Attorneys General to share in information provided by the Company with the attorneys general of
certain other states. The Company has provided documents and information to the attorneys general,
and they have not sought any additional documents or information since 2006. The
19
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(7) Commitments and Contingencies(Continued)
Company will continue to cooperate with the attorneys general in their investigation if it is
called upon to do so.
Other Litigation
The Company is a defendant in a variety of other 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.
Securities and Exchange Commission Investigation
In November 2006, the Company received a subpoena from the SEC, issued pursuant to a formal
order of investigation, seeking documents and information related to the Companys previously
disclosed and completed deferred revenue project. In response to both the initial and subsequent
related subpoenas, the Company has provided to the SEC documents and other information. The
Company is cooperating fully with the investigation and is in discussions with the SEC in an effort
to resolve the matters raised by the inquiry. At this time, the Company is unable to predict the
timing or ultimate outcome of these discussions.
Employee Retention Plan
The Board of Directors adopted a retention plan on June 18, 2008 and amended it on August 1,
2008. The retention plan, as amended, is designed to encourage the continued employment of key
management personnel, including the executive officers, in the event of an impending change of
control of the Company and to alleviate concerns about the possible loss of employment upon a
change of control. The total cost, if all participants were to be terminated is approximately
$16,500.
Other
From time to time, unrecorded contracts are presented to the Company relating to contracts
sold prior to the Company acquiring certain businesses. In addition, from time to time, the
Company has identified in its backlog, related to such businesses, certain contracts in which
services or merchandise have already been performed. Using historical trends, and statistical
analysis, the Company has recorded an estimated liability for these items of approximately $7
million.
20
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
|
|
Shares |
|
|
Per Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Data |
|
Three Months Ended July 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
9,129 |
|
|
|
|
|
|
|
|
|
Basic earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations available to common
shareholders |
|
$ |
9,129 |
|
|
|
92,203 |
|
|
$ |
.10 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Time-vest stock options
assumed exercised and
restricted stock |
|
|
|
|
|
|
211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations available to common
shareholders plus time-vest
stock options assumed
exercised and restricted stock |
|
$ |
9,129 |
|
|
|
92,414 |
|
|
$ |
.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
|
|
Shares |
|
|
Per Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Data |
|
Three Months Ended July 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
8,210 |
|
|
|
|
|
|
|
|
|
Basic earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations available to common
shareholders |
|
$ |
8,210 |
|
|
|
102,479 |
|
|
$ |
.08 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Time-vest stock options
assumed exercised and
restricted stock |
|
|
|
|
|
|
235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations available to common
shareholders plus time-vest
stock options assumed
exercised and restricted stock |
|
$ |
8,210 |
|
|
|
102,714 |
|
|
$ |
.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
|
|
Shares |
|
|
Per Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Data |
|
Nine Months Ended July 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
31,954 |
|
|
|
|
|
|
|
|
|
Basic earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations available to common
shareholders |
|
$ |
31,954 |
|
|
|
94,504 |
|
|
$ |
.34 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Time-vest stock options
assumed exercised and
restricted stock |
|
|
|
|
|
|
172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations available to common
shareholders plus time-vest
stock options assumed
exercised and restricted stock |
|
$ |
31,954 |
|
|
|
94,676 |
|
|
$ |
.34 |
|
|
|
|
|
|
|
|
|
|
|
21
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 |
|
Nine Months Ended July 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
33,999 |
|
|
|
|
|
|
|
|
|
Basic earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations available to common
shareholders |
|
$ |
33,999 |
|
|
|
104,215 |
|
|
$ |
.32 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Time-vest stock options
assumed exercised and
restricted stock |
|
|
|
|
|
|
169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations available to common
shareholders plus time-vest
stock options assumed
exercised and restricted stock |
|
$ |
33,999 |
|
|
|
104,384 |
|
|
$ |
.32 |
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 829,759 and 773,719 shares of common stock at prices ranging from $5.84 to
$8.24 per share were antidilutive during the three and nine months ended July 31, 2008,
respectively. These options expire between May 15, 2013 and June 17, 2015.
There were no antidilutive options for the three months ended July 31, 2007. Options to
purchase 2,753 shares of common stock at a price of $7.31 per share were outstanding during the
nine months ended July 31, 2007, 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 the three and nine months ended July 31, 2008, 697,500 market based stock options and
415,000 market and performance based shares of restricted stock were not dilutive. For the three
and nine months ended July 31, 2007, 540,000 market based stock options and 360,000 market and
performance based shares of restricted stock were not dilutive. The market based stock options and
the market and performance based restricted stock were not dilutive because the market conditions
or performance conditions for the respective grants were not achieved during any of periods
presented.
For the three and nine months ended July 31, 2008 and 2007, a maximum of 25,000,000 shares of
the Companys Class A common stock related to the senior convertible notes and a maximum of
20,000,000 shares of Class A common stock under the common stock warrants associated with the June
2007 senior convertible debt transaction were also not dilutive, as the average price of the
Companys stock for the three and nine months ended July 31, 2008 and 2007 was less than the
conversion price of the senior convertible notes and strike price of the warrants.
The Company includes Class A and Class B common stock in its diluted shares calculation. As
of July 31, 2008, 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 10 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 five operating and reportable segments consisting of a corporate trust
management segment and a funeral and cemetery segment for each of two geographic areas: Eastern
and Western. The
22
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(9) Segment Data(Continued)
Company does not aggregate its operating segments. Therefore, its operating and reportable
segments are the same. The table below presents information about reported segments for the
Companys continuing operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Revenue |
|
|
Cemetery Revenue (1) |
|
|
Total Revenue |
|
|
|
Three Months |
|
|
Three Months |
|
|
Three Months |
|
|
Three Months |
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
July 31, 2008 |
|
|
July 31, 2007 |
|
|
July 31, 2008 |
|
|
July 31, 2007 |
|
|
July 31, 2008 |
|
|
July 31, 2007 |
|
Eastern Division |
|
$ |
28,105 |
|
|
$ |
27,671 |
|
|
$ |
32,839 |
|
|
$ |
34,344 |
|
|
$ |
60,944 |
|
|
$ |
62,015 |
|
Western Division |
|
|
35,843 |
|
|
|
34,666 |
|
|
|
26,738 |
|
|
|
23,855 |
|
|
|
62,581 |
|
|
|
58,521 |
|
Corporate Trust
Management
(2) |
|
|
4,610 |
|
|
|
4,577 |
|
|
|
2,293 |
|
|
|
2,466 |
|
|
|
6,903 |
|
|
|
7,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
68,558 |
|
|
$ |
66,914 |
|
|
$ |
61,870 |
|
|
$ |
60,665 |
|
|
$ |
130,428 |
|
|
$ |
127,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Revenue |
|
|
Cemetery Revenue (1) |
|
|
Total Revenue |
|
|
|
Nine Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
July 31, 2008 |
|
|
July 31, 2007 |
|
|
July 31, 2008 |
|
|
July 31, 2007 |
|
|
July 31, 2008 |
|
|
July 31, 2007 |
|
Eastern Division |
|
$ |
89,987 |
|
|
$ |
89,059 |
|
|
$ |
98,001 |
|
|
$ |
108,519 |
|
|
$ |
187,988 |
|
|
$ |
197,578 |
|
Western Division |
|
|
114,760 |
|
|
|
109,446 |
|
|
|
73,665 |
|
|
|
68,382 |
|
|
|
188,425 |
|
|
|
177,828 |
|
Corporate Trust
Management
(2) |
|
|
14,115 |
|
|
|
13,905 |
|
|
|
6,992 |
|
|
|
7,142 |
|
|
|
21,107 |
|
|
|
21,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
218,862 |
|
|
$ |
212,410 |
|
|
$ |
178,658 |
|
|
$ |
184,043 |
|
|
$ |
397,520 |
|
|
$ |
396,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Gross Profit |
|
|
Cemetery Gross Profit (1) |
|
|
Total Gross Profit |
|
|
|
Three Months |
|
|
Three Months |
|
|
Three Months |
|
|
Three Months |
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
July 31, 2008 |
|
|
July 31, 2007 |
|
|
July 31, 2008 |
|
|
July 31, 2007 |
|
|
July 31, 2008 |
|
|
July 31, 2007 |
|
Eastern Division |
|
$ |
3,914 |
|
|
$ |
3,059 |
|
|
$ |
4,434 |
|
|
$ |
4,735 |
|
|
$ |
8,348 |
|
|
$ |
7,794 |
|
Western Division |
|
|
6,718 |
|
|
|
6,915 |
|
|
|
6,468 |
|
|
|
5,115 |
|
|
|
13,186 |
|
|
|
12,030 |
|
Corporate Trust
Management
(2) |
|
|
4,402 |
|
|
|
4,351 |
|
|
|
2,062 |
|
|
|
2,334 |
|
|
|
6,464 |
|
|
|
6,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
15,034 |
|
|
$ |
14,325 |
|
|
$ |
12,964 |
|
|
$ |
12,184 |
|
|
$ |
27,998 |
|
|
$ |
26,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Gross Profit |
|
|
Cemetery Gross Profit (1) |
|
|
Total Gross Profit |
|
|
|
Nine Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
July 31, 2008 |
|
|
July 31, 2007 |
|
|
July 31, 2008 |
|
|
July 31, 2007 |
|
|
July 31, 2008 |
|
|
July 31, 2007 |
|
Eastern Division |
|
$ |
16,211 |
|
|
$ |
15,378 |
|
|
$ |
12,059 |
|
|
$ |
17,581 |
|
|
$ |
28,270 |
|
|
$ |
32,959 |
|
Western Division |
|
|
25,924 |
|
|
|
23,263 |
|
|
|
16,796 |
|
|
|
13,984 |
|
|
|
42,720 |
|
|
|
37,247 |
|
Corporate Trust
Management
(2) |
|
|
13,467 |
|
|
|
13,354 |
|
|
|
6,245 |
|
|
|
6,721 |
|
|
|
19,712 |
|
|
|
20,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
55,602 |
|
|
$ |
51,995 |
|
|
$ |
35,100 |
|
|
$ |
38,286 |
|
|
$ |
90,702 |
|
|
$ |
90,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Preneed Funeral |
|
|
Net Preneed Cemetery |
|
|
Net Total Preneed |
|
|
|
Merchandise and |
|
|
Merchandise and |
|
|
Merchandise and |
|
|
|
Service Sales (3) |
|
|
Service Sales (3) |
|
|
Service Sales (3) |
|
|
|
Three Months |
|
|
Three Months |
|
|
Three Months |
|
|
Three Months |
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
July 31, 2008 |
|
|
July 31, 2007 |
|
|
July 31, 2008 |
|
|
July 31, 2007 |
|
|
July 31, 2008 |
|
|
July 31, 2007 |
|
Eastern Division |
|
$ |
11,288 |
|
|
$ |
11,219 |
|
|
$ |
9,679 |
|
|
$ |
9,852 |
|
|
$ |
20,967 |
|
|
$ |
21,071 |
|
Western Division |
|
|
14,716 |
|
|
|
13,417 |
|
|
|
4,565 |
|
|
|
4,565 |
|
|
|
19,281 |
|
|
|
17,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
26,004 |
|
|
$ |
24,636 |
|
|
$ |
14,244 |
|
|
$ |
14,417 |
|
|
$ |
40,248 |
|
|
$ |
39,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(9) Segment Data(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Preneed Funeral |
|
|
Net Preneed Cemetery |
|
|
Net Total Preneed |
|
|
|
Merchandise |
|
|
Merchandise and |
|
|
Merchandise and |
|
|
|
and Service Sales (3) |
|
|
Service Sales (3) |
|
|
Service Sales (3) |
|
|
|
Nine Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
July 31, 2008 |
|
|
July 31, 2007 |
|
|
July 31, 2008 |
|
|
July 31, 2007 |
|
|
July 31, 2008 |
|
|
July 31, 2007 |
|
Eastern Division |
|
$ |
31,501 |
|
|
$ |
33,652 |
|
|
$ |
27,867 |
|
|
$ |
29,174 |
|
|
$ |
59,368 |
|
|
$ |
62,826 |
|
Western Division |
|
|
41,462 |
|
|
|
42,006 |
|
|
|
12,700 |
|
|
|
12,546 |
|
|
|
54,162 |
|
|
|
54,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
72,963 |
|
|
$ |
75,658 |
|
|
$ |
40,567 |
|
|
$ |
41,720 |
|
|
$ |
113,530 |
|
|
$ |
117,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Perpetual care trust earnings are included in the revenues and gross profit of the
related geographic segment and amounted to $2,635 and $2,498 for the three months ended July
31, 2008 and 2007, respectively, and $8,040 and $7,323 for the nine months ended July 31, 2008
and 2007, respectively. |
|
(2) |
|
Corporate trust management consists of trust management fees and funeral and
cemetery merchandise and service 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 and are paid by the trusts to the Companys subsidiary,
Investors Trust, Inc. The trust earnings represent earnings realized over the life of the
preneed contracts delivered during the relevant periods. Trust management fees included in
funeral revenue for the three months ended July 31, 2008 and 2007 were $1,264 and $1,472,
respectively, and funeral trust earnings for the three months ended July 31, 2008 and 2007
were $3,346 and $3,105, respectively. Trust management fees included in cemetery revenue for
the three months ended July 31, 2008 and 2007 were $1,255 and $1,345, respectively, and
cemetery trust earnings for the three months ended July 31, 2008 and 2007 were $1,038 and
$1,121, respectively. Trust management fees included in funeral revenue for the nine months
ended July 31, 2008 and 2007 were $3,957 and $4,400, respectively, and funeral trust earnings
for the nine months ended July 31, 2008 and 2007 were $10,158 and $9,505, respectively. Trust
management fees included in cemetery revenue for the nine months ended July 31, 2008 and 2007
were $3,844 and $3,983, respectively, and cemetery trust earnings for the nine months ended
July 31, 2008 and 2007 were $3,148 and $3,159, respectively. |
|
(3) |
|
Preneed sales amounts represent total preneed funeral and cemetery service and
merchandise sales generated in the applicable period, net of cancellations. These sales are
deferred and are recorded as revenue in the period the services are performed or the
merchandise is delivered. |
A reconciliation of total segment gross profit to total earnings from continuing operations
before income taxes for the three and nine months ended July 31, 2008 and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
Nine Months Ended July 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Gross profit for reportable segments |
|
$ |
27,998 |
|
|
$ |
26,509 |
|
|
$ |
90,702 |
|
|
$ |
90,281 |
|
Corporate general and administrative expenses |
|
|
(8,188 |
) |
|
|
(8,343 |
) |
|
|
(24,226 |
) |
|
|
(23,129 |
) |
Hurricane related charges, net |
|
|
(341 |
) |
|
|
(210 |
) |
|
|
(351 |
) |
|
|
(2,343 |
) |
Separation charges |
|
|
|
|
|
|
(48 |
) |
|
|
|
|
|
|
(580 |
) |
Gains on dispositions and impairment (losses), net |
|
|
25 |
|
|
|
(46 |
) |
|
|
153 |
|
|
|
44 |
|
Other operating income, net |
|
|
407 |
|
|
|
290 |
|
|
|
753 |
|
|
|
1,441 |
|
Interest expense |
|
|
(6,000 |
) |
|
|
(6,222 |
) |
|
|
(17,981 |
) |
|
|
(19,274 |
) |
Loss on early extinguishment of debt |
|
|
|
|
|
|
(677 |
) |
|
|
|
|
|
|
(677 |
) |
Investment and other income, net |
|
|
593 |
|
|
|
810 |
|
|
|
1,670 |
|
|
|
2,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before
income taxes |
|
$ |
14,494 |
|
|
$ |
12,063 |
|
|
$ |
50,720 |
|
|
$ |
48,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
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 nine months
ended July 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
Nine Months Ended July 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Service revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
42,795 |
|
|
$ |
40,341 |
|
|
$ |
136,202 |
|
|
$ |
128,709 |
|
Cemetery |
|
|
15,726 |
|
|
|
15,058 |
|
|
|
48,592 |
|
|
|
47,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,521 |
|
|
|
55,399 |
|
|
|
184,794 |
|
|
|
176,037 |
|
Merchandise revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
23,872 |
|
|
|
24,452 |
|
|
|
76,800 |
|
|
|
77,394 |
|
Cemetery |
|
|
42,227 |
|
|
|
41,087 |
|
|
|
118,299 |
|
|
|
124,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,099 |
|
|
|
65,539 |
|
|
|
195,099 |
|
|
|
201,412 |
|
Other revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
1,891 |
|
|
|
2,121 |
|
|
|
5,860 |
|
|
|
6,307 |
|
Cemetery |
|
|
3,917 |
|
|
|
4,520 |
|
|
|
11,767 |
|
|
|
12,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,808 |
|
|
|
6,641 |
|
|
|
17,627 |
|
|
|
19,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
130,428 |
|
|
$ |
127,579 |
|
|
$ |
397,520 |
|
|
$ |
396,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
15,403 |
|
|
$ |
15,235 |
|
|
$ |
45,979 |
|
|
$ |
44,253 |
|
Cemetery |
|
|
11,515 |
|
|
|
11,218 |
|
|
|
32,043 |
|
|
|
32,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,918 |
|
|
|
26,453 |
|
|
|
78,022 |
|
|
|
76,503 |
|
Merchandise costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
15,116 |
|
|
|
15,381 |
|
|
|
47,094 |
|
|
|
47,626 |
|
Cemetery |
|
|
23,615 |
|
|
|
24,123 |
|
|
|
69,818 |
|
|
|
73,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,731 |
|
|
|
39,504 |
|
|
|
116,912 |
|
|
|
120,793 |
|
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
23,005 |
|
|
|
21,973 |
|
|
|
70,187 |
|
|
|
68,536 |
|
Cemetery |
|
|
13,776 |
|
|
|
13,140 |
|
|
|
41,697 |
|
|
|
40,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,781 |
|
|
|
35,113 |
|
|
|
111,884 |
|
|
|
108,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs |
|
$ |
102,430 |
|
|
$ |
101,070 |
|
|
$ |
306,818 |
|
|
$ |
306,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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.
25
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
July 31, 2008 and October 31, 2007 and for the three and nine months ended July 31, 2008 and 2007,
for the direct and indirect domestic subsidiaries of the Company that serve as guarantors of the
Companys 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 6.25 percent senior notes include the Puerto Rican subsidiaries,
Investors Trust, Inc. and certain immaterial domestic subsidiaries, which are prohibited by law
from guaranteeing the senior notes. The guarantor subsidiaries of the 6.25 percent senior notes are
wholly-owned directly or indirectly by the Company, except for three immaterial guarantor
subsidiaries of which the Company is the majority owner. The non-guarantor subsidiaries of the
senior convertible notes are identical to those of the 6.25 percent senior notes but also include
three immaterial non-wholly owned subsidiaries and any future non-wholly owned subsidiaries. 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-wholly owned
subsidiaries that do not guaranty the senior convertible notes but do guaranty the 6.25 percent
senior notes. Non-guarantor subsidiaries represent the identical non-guarantor subsidiaries of the
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.
The condensed consolidating statements of earnings and other comprehensive income for the nine
months ended July 31, 2007 has been revised to correct $1,295 of hurricane related charges that
were previously included in the Tier 1 guarantor subsidiaries column but should have been included
in the Tier 2 guarantor subsidiaries column. These revisions had no impact on the consolidated
totals or the totals for guarantor subsidiaries in the Companys condensed consolidating statements
of earnings and other comprehensive income for the three and nine months ended July 31, 2007 and no
impact on the condensed consolidating balance sheet as of October 31, 2007 or condensed
consolidating statement of cash flows for the nine months ended July 31, 2007.
26
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 July 31, 2008 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries- |
|
|
Subsidiaries- |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
|
|
|
$ |
63,398 |
|
|
$ |
381 |
|
|
$ |
4,779 |
|
|
$ |
|
|
|
$ |
68,558 |
|
Cemetery |
|
|
|
|
|
|
56,046 |
|
|
|
842 |
|
|
|
4,982 |
|
|
|
|
|
|
|
61,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,444 |
|
|
|
1,223 |
|
|
|
9,761 |
|
|
|
|
|
|
|
130,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
|
|
|
|
49,648 |
|
|
|
265 |
|
|
|
3,611 |
|
|
|
|
|
|
|
53,524 |
|
Cemetery |
|
|
|
|
|
|
44,114 |
|
|
|
698 |
|
|
|
4,094 |
|
|
|
|
|
|
|
48,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,762 |
|
|
|
963 |
|
|
|
7,705 |
|
|
|
|
|
|
|
102,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
25,682 |
|
|
|
260 |
|
|
|
2,056 |
|
|
|
|
|
|
|
27,998 |
|
Corporate general and
administrative expenses |
|
|
(8,188 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,188 |
) |
Hurricane related charges, net |
|
|
(402 |
) |
|
|
|
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
(341 |
) |
Gains on dispositions and
impairment (losses), net |
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25 |
|
Other operating income, net |
|
|
22 |
|
|
|
341 |
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) |
|
|
(8,568 |
) |
|
|
26,048 |
|
|
|
321 |
|
|
|
2,100 |
|
|
|
|
|
|
|
19,901 |
|
Interest expense |
|
|
(1,585 |
) |
|
|
(3,869 |
) |
|
|
(40 |
) |
|
|
(506 |
) |
|
|
|
|
|
|
(6,000 |
) |
Investment and other income, net |
|
|
563 |
|
|
|
29 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
593 |
|
Equity in subsidiaries |
|
|
16,458 |
|
|
|
(74 |
) |
|
|
|
|
|
|
|
|
|
|
(16,384 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations before income
taxes |
|
|
6,868 |
|
|
|
22,134 |
|
|
|
281 |
|
|
|
1,595 |
|
|
|
(16,384 |
) |
|
|
14,494 |
|
Income tax expense (benefit) |
|
|
(2,261 |
) |
|
|
7,236 |
|
|
|
195 |
|
|
|
195 |
|
|
|
|
|
|
|
5,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
9,129 |
|
|
|
14,898 |
|
|
|
86 |
|
|
|
1,400 |
|
|
|
(16,384 |
) |
|
|
9,129 |
|
Other comprehensive loss, net |
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
4 |
|
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
9,103 |
|
|
$ |
14,898 |
|
|
$ |
86 |
|
|
$ |
1,396 |
|
|
$ |
(16,380 |
) |
|
$ |
9,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
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 July 31, 2007 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries- |
|
|
Subsidiaries- |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
|
|
|
$ |
61,689 |
|
|
$ |
379 |
|
|
$ |
4,846 |
|
|
$ |
|
|
|
$ |
66,914 |
|
Cemetery |
|
|
|
|
|
|
54,757 |
|
|
|
794 |
|
|
|
5,114 |
|
|
|
|
|
|
|
60,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,446 |
|
|
|
1,173 |
|
|
|
9,960 |
|
|
|
|
|
|
|
127,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
|
|
|
|
49,259 |
|
|
|
276 |
|
|
|
3,054 |
|
|
|
|
|
|
|
52,589 |
|
Cemetery |
|
|
|
|
|
|
43,819 |
|
|
|
636 |
|
|
|
4,026 |
|
|
|
|
|
|
|
48,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,078 |
|
|
|
912 |
|
|
|
7,080 |
|
|
|
|
|
|
|
101,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
23,368 |
|
|
|
261 |
|
|
|
2,880 |
|
|
|
|
|
|
|
26,509 |
|
Corporate general and administrative
expenses |
|
|
(8,343 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,343 |
) |
Hurricane related charges, net |
|
|
|
|
|
|
(210 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(210 |
) |
Separation charges |
|
|
|
|
|
|
(48 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48 |
) |
Gains on dispositions and impairment
(losses), net |
|
|
|
|
|
|
(46 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46 |
) |
Other operating income, net |
|
|
19 |
|
|
|
215 |
|
|
|
|
|
|
|
56 |
|
|
|
|
|
|
|
290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) |
|
|
(8,324 |
) |
|
|
23,279 |
|
|
|
261 |
|
|
|
2,936 |
|
|
|
|
|
|
|
18,152 |
|
Interest expense |
|
|
(2,158 |
) |
|
|
(3,242 |
) |
|
|
(37 |
) |
|
|
(785 |
) |
|
|
|
|
|
|
(6,222 |
) |
Loss on early extinguishment of debt |
|
|
(677 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(677 |
) |
Investment and other income, net |
|
|
792 |
|
|
|
13 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
810 |
|
Equity in subsidiaries |
|
|
19,346 |
|
|
|
510 |
|
|
|
|
|
|
|
|
|
|
|
(19,856 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
before income taxes |
|
|
8,979 |
|
|
|
20,560 |
|
|
|
224 |
|
|
|
2,156 |
|
|
|
(19,856 |
) |
|
|
12,063 |
|
Income tax expense (benefit) |
|
|
856 |
|
|
|
3,406 |
|
|
|
85 |
|
|
|
(494 |
) |
|
|
|
|
|
|
3,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
|
8,123 |
|
|
|
17,154 |
|
|
|
139 |
|
|
|
2,650 |
|
|
|
(19,856 |
) |
|
|
8,210 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
before income taxes |
|
|
|
|
|
|
(138 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(138 |
) |
Income tax benefit |
|
|
|
|
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
|
|
|
|
(87 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
8,123 |
|
|
|
17,067 |
|
|
|
139 |
|
|
|
2,650 |
|
|
|
(19,856 |
) |
|
|
8,123 |
|
Other comprehensive income (loss), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
8,123 |
|
|
$ |
17,067 |
|
|
$ |
139 |
|
|
$ |
2,650 |
|
|
$ |
(19,856 |
) |
|
$ |
8,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31, 2008 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries- |
|
|
Subsidiaries- |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
|
|
|
$ |
202,495 |
|
|
$ |
1,410 |
|
|
$ |
14,957 |
|
|
$ |
|
|
|
$ |
218,862 |
|
Cemetery |
|
|
|
|
|
|
161,205 |
|
|
|
2,565 |
|
|
|
14,888 |
|
|
|
|
|
|
|
178,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
363,700 |
|
|
|
3,975 |
|
|
|
29,845 |
|
|
|
|
|
|
|
397,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
|
|
|
|
151,970 |
|
|
|
898 |
|
|
|
10,392 |
|
|
|
|
|
|
|
163,260 |
|
Cemetery |
|
|
|
|
|
|
129,453 |
|
|
|
2,155 |
|
|
|
11,950 |
|
|
|
|
|
|
|
143,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
281,423 |
|
|
|
3,053 |
|
|
|
22,342 |
|
|
|
|
|
|
|
306,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
82,277 |
|
|
|
922 |
|
|
|
7,503 |
|
|
|
|
|
|
|
90,702 |
|
Corporate general and
administrative expenses |
|
|
(24,226 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,226 |
) |
Hurricane related charges, net |
|
|
(779 |
) |
|
|
37 |
|
|
|
391 |
|
|
|
|
|
|
|
|
|
|
|
(351 |
) |
Gains on dispositions and
impairment (losses), net |
|
|
|
|
|
|
153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153 |
|
Other operating income, net |
|
|
79 |
|
|
|
509 |
|
|
|
1 |
|
|
|
164 |
|
|
|
|
|
|
|
753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) |
|
|
(24,926 |
) |
|
|
82,976 |
|
|
|
1,314 |
|
|
|
7,667 |
|
|
|
|
|
|
|
67,031 |
|
Interest expense |
|
|
(3,318 |
) |
|
|
(12,916 |
) |
|
|
(113 |
) |
|
|
(1,634 |
) |
|
|
|
|
|
|
(17,981 |
) |
Investment and other income, net |
|
|
1,614 |
|
|
|
50 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
1,670 |
|
Equity in subsidiaries |
|
|
54,263 |
|
|
|
418 |
|
|
|
|
|
|
|
|
|
|
|
(54,681 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations before income taxes |
|
|
27,633 |
|
|
|
70,528 |
|
|
|
1,201 |
|
|
|
6,039 |
|
|
|
(54,681 |
) |
|
|
50,720 |
|
Income tax expense (benefit) |
|
|
(4,321 |
) |
|
|
21,280 |
|
|
|
399 |
|
|
|
1,408 |
|
|
|
|
|
|
|
18,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
31,954 |
|
|
|
49,248 |
|
|
|
802 |
|
|
|
4,631 |
|
|
|
(54,681 |
) |
|
|
31,954 |
|
Other comprehensive income, net |
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
(17 |
) |
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
31,971 |
|
|
$ |
49,248 |
|
|
$ |
802 |
|
|
$ |
4,648 |
|
|
$ |
(54,698 |
) |
|
$ |
31,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31, 2007 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries- |
|
|
Subsidiaries- |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
|
|
|
$ |
196,247 |
|
|
$ |
1,154 |
|
|
$ |
15,009 |
|
|
$ |
|
|
|
|
212,410 |
|
Cemetery |
|
|
|
|
|
|
165,634 |
|
|
|
2,313 |
|
|
|
16,096 |
|
|
|
|
|
|
|
184,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
361,881 |
|
|
|
3,467 |
|
|
|
31,105 |
|
|
|
|
|
|
|
396,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
|
|
|
|
150,321 |
|
|
|
782 |
|
|
|
9,312 |
|
|
|
|
|
|
|
160,415 |
|
Cemetery |
|
|
|
|
|
|
131,879 |
|
|
|
1,869 |
|
|
|
12,009 |
|
|
|
|
|
|
|
145,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
282,200 |
|
|
|
2,651 |
|
|
|
21,321 |
|
|
|
|
|
|
|
306,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
79,681 |
|
|
|
816 |
|
|
|
9,784 |
|
|
|
|
|
|
|
90,281 |
|
Corporate general and
administrative expenses |
|
|
(23,129 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,129 |
) |
Hurricane related charges, net |
|
|
(3 |
) |
|
|
(1,045 |
) |
|
|
(1,295 |
) |
|
|
|
|
|
|
|
|
|
|
(2,343 |
) |
Separation charges |
|
|
(384 |
) |
|
|
(196 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(580 |
) |
Gains on dispositions and
impairment (losses), net |
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
Other operating income, net |
|
|
296 |
|
|
|
950 |
|
|
|
1 |
|
|
|
194 |
|
|
|
|
|
|
|
1,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) |
|
|
(23,220 |
) |
|
|
79,434 |
|
|
|
(478 |
) |
|
|
9,978 |
|
|
|
|
|
|
|
65,714 |
|
Interest expense |
|
|
(5,739 |
) |
|
|
(11,511 |
) |
|
|
(153 |
) |
|
|
(1,871 |
) |
|
|
|
|
|
|
(19,274 |
) |
Loss on early extinguishment of debt |
|
|
(677 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(677 |
) |
Investment and other income, net |
|
|
2,378 |
|
|
|
39 |
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
2,427 |
|
Equity in subsidiaries |
|
|
59,762 |
|
|
|
758 |
|
|
|
|
|
|
|
|
|
|
|
(60,520 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
operations before income taxes |
|
|
32,504 |
|
|
|
68,720 |
|
|
|
(631 |
) |
|
|
8,117 |
|
|
|
(60,520 |
) |
|
|
48,190 |
|
Income tax expense (benefit) |
|
|
(1,174 |
) |
|
|
14,126 |
|
|
|
(234 |
) |
|
|
1,473 |
|
|
|
|
|
|
|
14,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
operations |
|
|
33,678 |
|
|
|
54,594 |
|
|
|
(397 |
) |
|
|
6,644 |
|
|
|
(60,520 |
) |
|
|
33,999 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued
operations before income taxes |
|
|
|
|
|
|
(519 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(519 |
) |
Income tax benefit |
|
|
|
|
|
|
(198 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(198 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
|
|
|
|
(321 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(321 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
|
33,678 |
|
|
|
54,273 |
|
|
|
(397 |
) |
|
|
6,644 |
|
|
|
(60,520 |
) |
|
|
33,678 |
|
Other comprehensive income, net |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
(3 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
33,681 |
|
|
$ |
54,273 |
|
|
$ |
(397 |
) |
|
$ |
6,647 |
|
|
$ |
(60,523 |
) |
|
$ |
33,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2008 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries- |
|
|
Subsidiaries- |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
38,871 |
|
|
$ |
7,889 |
|
|
$ |
33 |
|
|
$ |
1,900 |
|
|
$ |
|
|
|
$ |
48,693 |
|
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
38 |
|
Receivables, net of allowances |
|
|
20,552 |
|
|
|
52,704 |
|
|
|
484 |
|
|
|
4,508 |
|
|
|
|
|
|
|
78,248 |
|
Inventories |
|
|
334 |
|
|
|
32,768 |
|
|
|
316 |
|
|
|
2,482 |
|
|
|
|
|
|
|
35,900 |
|
Prepaid expenses |
|
|
1,602 |
|
|
|
5,834 |
|
|
|
64 |
|
|
|
1,427 |
|
|
|
|
|
|
|
8,927 |
|
Deferred income taxes, net |
|
|
1,253 |
|
|
|
5,969 |
|
|
|
56 |
|
|
|
1,201 |
|
|
|
|
|
|
|
8,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
62,612 |
|
|
|
105,164 |
|
|
|
953 |
|
|
|
11,556 |
|
|
|
|
|
|
|
180,285 |
|
Receivables due beyond one year, net of
allowances |
|
|
|
|
|
|
53,429 |
|
|
|
376 |
|
|
|
15,997 |
|
|
|
|
|
|
|
69,802 |
|
Preneed funeral receivables and trust
investments |
|
|
|
|
|
|
429,604 |
|
|
|
|
|
|
|
10,217 |
|
|
|
|
|
|
|
439,821 |
|
Preneed cemetery receivables and trust
investments |
|
|
|
|
|
|
213,545 |
|
|
|
1,134 |
|
|
|
8,614 |
|
|
|
|
|
|
|
223,293 |
|
Goodwill |
|
|
|
|
|
|
253,353 |
|
|
|
48 |
|
|
|
19,787 |
|
|
|
|
|
|
|
273,188 |
|
Cemetery property, at cost |
|
|
|
|
|
|
340,144 |
|
|
|
11,540 |
|
|
|
25,453 |
|
|
|
|
|
|
|
377,137 |
|
Property and equipment, at cost |
|
|
47,965 |
|
|
|
449,078 |
|
|
|
1,829 |
|
|
|
37,849 |
|
|
|
|
|
|
|
536,721 |
|
Less accumulated depreciation |
|
|
29,414 |
|
|
|
186,602 |
|
|
|
780 |
|
|
|
13,784 |
|
|
|
|
|
|
|
230,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
18,551 |
|
|
|
262,476 |
|
|
|
1,049 |
|
|
|
24,065 |
|
|
|
|
|
|
|
306,141 |
|
Deferred income taxes, net |
|
|
32,913 |
|
|
|
144,865 |
|
|
|
|
|
|
|
6,592 |
|
|
|
(3,310 |
) |
|
|
181,060 |
|
Cemetery perpetual care trust investments |
|
|
|
|
|
|
195,457 |
|
|
|
8,355 |
|
|
|
3,613 |
|
|
|
|
|
|
|
207,425 |
|
Other assets |
|
|
9,836 |
|
|
|
6,375 |
|
|
|
16 |
|
|
|
1,075 |
|
|
|
|
|
|
|
17,302 |
|
Intercompany receivables |
|
|
839,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(839,387 |
) |
|
|
|
|
Equity in subsidiaries |
|
|
26,156 |
|
|
|
7,244 |
|
|
|
|
|
|
|
|
|
|
|
(33,400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
989,455 |
|
|
$ |
2,011,656 |
|
|
$ |
23,471 |
|
|
$ |
126,969 |
|
|
$ |
(876,097 |
) |
|
$ |
2,275,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
$ |
27 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
27 |
|
Accounts payable |
|
|
2,011 |
|
|
|
19,674 |
|
|
|
105 |
|
|
|
1,496 |
|
|
|
|
|
|
|
23,286 |
|
Accrued expenses and other current
liabilities |
|
|
15,649 |
|
|
|
43,018 |
|
|
|
9 |
|
|
|
2,820 |
|
|
|
|
|
|
|
61,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
17,687 |
|
|
|
62,692 |
|
|
|
114 |
|
|
|
4,316 |
|
|
|
|
|
|
|
84,809 |
|
Long-term debt, less current maturities |
|
|
450,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450,097 |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
3,310 |
|
|
|
|
|
|
|
(3,310 |
) |
|
|
|
|
Intercompany payables |
|
|
|
|
|
|
822,442 |
|
|
|
3,994 |
|
|
|
12,951 |
|
|
|
(839,387 |
) |
|
|
|
|
Deferred preneed funeral revenue |
|
|
|
|
|
|
204,797 |
|
|
|
|
|
|
|
45,685 |
|
|
|
|
|
|
|
250,482 |
|
Deferred preneed cemetery revenue |
|
|
|
|
|
|
251,924 |
|
|
|
322 |
|
|
|
27,609 |
|
|
|
|
|
|
|
279,855 |
|
Non-controlling interest in funeral and
cemetery trusts |
|
|
|
|
|
|
575,057 |
|
|
|
1,035 |
|
|
|
5,594 |
|
|
|
|
|
|
|
581,686 |
|
Other long-term liabilities |
|
|
16,491 |
|
|
|
3,134 |
|
|
|
|
|
|
|
124 |
|
|
|
|
|
|
|
19,749 |
|
Negative equity in subsidiaries |
|
|
102,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102,040 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
586,315 |
|
|
|
1,920,046 |
|
|
|
8,775 |
|
|
|
96,279 |
|
|
|
(944,737 |
) |
|
|
1,666,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest in perpetual
care trusts |
|
|
|
|
|
|
193,650 |
|
|
|
8,372 |
|
|
|
3,614 |
|
|
|
|
|
|
|
205,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
92,237 |
|
|
|
102 |
|
|
|
324 |
|
|
|
52 |
|
|
|
(478 |
) |
|
|
92,237 |
|
Other |
|
|
310,875 |
|
|
|
(102,142 |
) |
|
|
6,000 |
|
|
|
26,996 |
|
|
|
69,146 |
|
|
|
310,875 |
|
Accumulated other comprehensive income |
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
(28 |
) |
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
403,140 |
|
|
|
(102,040 |
) |
|
|
6,324 |
|
|
|
27,076 |
|
|
|
68,640 |
|
|
|
403,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
989,455 |
|
|
$ |
2,011,656 |
|
|
$ |
23,471 |
|
|
$ |
126,969 |
|
|
$ |
(876,097 |
) |
|
$ |
2,275,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
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, 2007 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries- |
|
|
Subsidiaries- |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
63,202 |
|
|
$ |
6,685 |
|
|
$ |
36 |
|
|
$ |
1,622 |
|
|
$ |
|
|
|
$ |
71,545 |
|
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262 |
|
|
|
|
|
|
|
262 |
|
Receivables, net of allowances |
|
|
4,054 |
|
|
|
51,619 |
|
|
|
103 |
|
|
|
4,839 |
|
|
|
|
|
|
|
60,615 |
|
Inventories |
|
|
368 |
|
|
|
32,765 |
|
|
|
328 |
|
|
|
2,600 |
|
|
|
|
|
|
|
36,061 |
|
Prepaid expenses |
|
|
950 |
|
|
|
4,306 |
|
|
|
3 |
|
|
|
1,096 |
|
|
|
|
|
|
|
6,355 |
|
Deferred income taxes, net |
|
|
1,334 |
|
|
|
5,785 |
|
|
|
78 |
|
|
|
1,424 |
|
|
|
|
|
|
|
8,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
69,908 |
|
|
|
101,160 |
|
|
|
548 |
|
|
|
11,843 |
|
|
|
|
|
|
|
183,459 |
|
Receivables due beyond one year, net of allowances |
|
|
10,358 |
|
|
|
53,926 |
|
|
|
928 |
|
|
|
18,396 |
|
|
|
|
|
|
|
83,608 |
|
Preneed funeral receivables and trust investments |
|
|
|
|
|
|
504,534 |
|
|
|
|
|
|
|
10,519 |
|
|
|
|
|
|
|
515,053 |
|
Preneed cemetery receivables and trust investments |
|
|
|
|
|
|
245,056 |
|
|
|
1,199 |
|
|
|
9,424 |
|
|
|
|
|
|
|
255,679 |
|
Goodwill |
|
|
|
|
|
|
253,451 |
|
|
|
48 |
|
|
|
19,787 |
|
|
|
|
|
|
|
273,286 |
|
Cemetery property, at cost |
|
|
|
|
|
|
338,274 |
|
|
|
11,408 |
|
|
|
25,118 |
|
|
|
|
|
|
|
374,800 |
|
Property and equipment, at cost |
|
|
43,395 |
|
|
|
436,588 |
|
|
|
1,699 |
|
|
|
37,299 |
|
|
|
|
|
|
|
518,981 |
|
Less accumulated depreciation |
|
|
26,701 |
|
|
|
172,924 |
|
|
|
663 |
|
|
|
12,775 |
|
|
|
|
|
|
|
213,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
16,694 |
|
|
|
263,664 |
|
|
|
1,036 |
|
|
|
24,524 |
|
|
|
|
|
|
|
305,918 |
|
Deferred income taxes, net |
|
|
29,238 |
|
|
|
156,254 |
|
|
|
|
|
|
|
9,913 |
|
|
|
(2,546 |
) |
|
|
192,859 |
|
Cemetery perpetual care trust investments |
|
|
|
|
|
|
224,182 |
|
|
|
8,322 |
|
|
|
3,999 |
|
|
|
|
|
|
|
236,503 |
|
Other assets |
|
|
9,664 |
|
|
|
7,039 |
|
|
|
16 |
|
|
|
1,090 |
|
|
|
|
|
|
|
17,809 |
|
Intercompany receivables |
|
|
897,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(897,546 |
) |
|
|
|
|
Equity in subsidiaries |
|
|
21,124 |
|
|
|
6,826 |
|
|
|
|
|
|
|
|
|
|
|
(27,950 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,054,532 |
|
|
$ |
2,154,366 |
|
|
$ |
23,505 |
|
|
$ |
134,613 |
|
|
$ |
(928,042 |
) |
|
$ |
2,438,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
$ |
198 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
198 |
|
Accounts payable |
|
|
2,196 |
|
|
|
21,284 |
|
|
|
1,075 |
|
|
|
2,051 |
|
|
|
|
|
|
|
26,606 |
|
Accrued expenses and other current liabilities |
|
|
16,654 |
|
|
|
45,934 |
|
|
|
|
|
|
|
2,691 |
|
|
|
|
|
|
|
65,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
19,048 |
|
|
|
67,218 |
|
|
|
1,075 |
|
|
|
4,742 |
|
|
|
|
|
|
|
92,083 |
|
Long-term debt, less current maturities |
|
|
450,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450,115 |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
2,546 |
|
|
|
|
|
|
|
(2,546 |
) |
|
|
|
|
Intercompany payables |
|
|
|
|
|
|
869,802 |
|
|
|
4,419 |
|
|
|
23,325 |
|
|
|
(897,546 |
) |
|
|
|
|
Deferred preneed funeral revenue |
|
|
|
|
|
|
212,166 |
|
|
|
|
|
|
|
44,437 |
|
|
|
|
|
|
|
256,603 |
|
Deferred preneed cemetery revenue |
|
|
|
|
|
|
255,266 |
|
|
|
515 |
|
|
|
28,726 |
|
|
|
|
|
|
|
284,507 |
|
Non-controlling interest in funeral and cemetery
trusts |
|
|
|
|
|
|
674,977 |
|
|
|
1,119 |
|
|
|
6,956 |
|
|
|
|
|
|
|
683,052 |
|
Other long-term liabilities |
|
|
11,717 |
|
|
|
2,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,869 |
|
Negative equity in subsidiaries |
|
|
150,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150,334 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
631,214 |
|
|
|
2,081,581 |
|
|
|
9,674 |
|
|
|
108,186 |
|
|
|
(1,050,426 |
) |
|
|
1,780,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest in perpetual care trusts |
|
|
|
|
|
|
223,119 |
|
|
|
8,309 |
|
|
|
3,999 |
|
|
|
|
|
|
|
235,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
98,420 |
|
|
|
102 |
|
|
|
324 |
|
|
|
52 |
|
|
|
(478 |
) |
|
|
98,420 |
|
Other |
|
|
324,887 |
|
|
|
(150,436 |
) |
|
|
5,198 |
|
|
|
22,365 |
|
|
|
122,873 |
|
|
|
324,887 |
|
Accumulated other comprehensive income |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
(11 |
) |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
423,318 |
|
|
|
(150,334 |
) |
|
|
5,522 |
|
|
|
22,428 |
|
|
|
122,384 |
|
|
|
423,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1,054,532 |
|
|
$ |
2,154,366 |
|
|
$ |
23,505 |
|
|
$ |
134,613 |
|
|
$ |
(928,042 |
) |
|
$ |
2,438,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31, 2008 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries- |
|
|
Subsidiaries- |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
$ |
(22,882 |
) |
|
$ |
63,484 |
|
|
$ |
464 |
|
|
$ |
11,187 |
|
|
$ |
|
|
|
$ |
52,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of marketable securities |
|
|
19,969 |
|
|
|
|
|
|
|
|
|
|
|
250 |
|
|
|
|
|
|
|
20,219 |
|
Purchases of marketable securities |
|
|
(19,952 |
) |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(19,955 |
) |
Proceeds from sale of assets, net |
|
|
|
|
|
|
358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
358 |
|
Purchase of subsidiaries and other investments,
net of cash acquired |
|
|
(1,378 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,378 |
) |
Additions to property and equipment |
|
|
(5,147 |
) |
|
|
(14,399 |
) |
|
|
(42 |
) |
|
|
(782 |
) |
|
|
|
|
|
|
(20,370 |
) |
Other |
|
|
|
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(6,508 |
) |
|
|
(13,966 |
) |
|
|
(42 |
) |
|
|
(535 |
) |
|
|
|
|
|
|
(21,051 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
|
(190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(190 |
) |
Intercompany receivables (payables) |
|
|
59,113 |
|
|
|
(48,314 |
) |
|
|
(425 |
) |
|
|
(10,374 |
) |
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
1,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,659 |
|
Purchase and retirement of common stock |
|
|
(48,627 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,627 |
) |
Dividends |
|
|
(7,067 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,067 |
) |
Excess tax benefits from share-based payment
arrangements |
|
|
171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
5,059 |
|
|
|
(48,314 |
) |
|
|
(425 |
) |
|
|
(10,374 |
) |
|
|
|
|
|
|
(54,054 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
(24,331 |
) |
|
|
1,204 |
|
|
|
(3 |
) |
|
|
278 |
|
|
|
|
|
|
|
(22,852 |
) |
Cash and cash equivalents, beginning of period |
|
|
63,202 |
|
|
|
6,685 |
|
|
|
36 |
|
|
|
1,622 |
|
|
|
|
|
|
|
71,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
38,871 |
|
|
$ |
7,889 |
|
|
$ |
33 |
|
|
$ |
1,900 |
|
|
$ |
|
|
|
$ |
48,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(Continued) |
Condensed Consolidating Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31, 2007 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries- |
|
|
Subsidiaries- |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
$ |
(13,518 |
) |
|
$ |
58,627 |
|
|
$ |
(250 |
) |
|
$ |
9,940 |
|
|
$ |
|
|
|
$ |
54,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(148 |
) |
|
|
|
|
|
|
(148 |
) |
Proceeds from sale of assets, net |
|
|
|
|
|
|
1,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,645 |
|
Purchase of subsidiaries and other investments,
net of cash acquired |
|
|
|
|
|
|
(6,134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,134 |
) |
Insurance proceeds related to hurricane damaged
properties |
|
|
|
|
|
|
1,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,400 |
|
Additions to property and equipment |
|
|
(5,436 |
) |
|
|
(16,651 |
) |
|
|
(69 |
) |
|
|
(964 |
) |
|
|
|
|
|
|
(23,120 |
) |
Other |
|
|
|
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(5,436 |
) |
|
|
(19,684 |
) |
|
|
(69 |
) |
|
|
(1,112 |
) |
|
|
|
|
|
|
(26,301 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt |
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
Repayments of long-term debt |
|
|
(146,461 |
) |
|
|
|
|
|
|
|
|
|
|
(30,000 |
) |
|
|
|
|
|
|
(176,461 |
) |
Intercompany receivables (payables) |
|
|
11,629 |
|
|
|
(33,786 |
) |
|
|
300 |
|
|
|
21,857 |
|
|
|
|
|
|
|
|
|
Debt issue costs |
|
|
(5,572 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,572 |
) |
Proceeds from sale of common stock warrants |
|
|
43,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,850 |
|
Issuance of common stock |
|
|
2,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,521 |
|
Purchase of call options |
|
|
(60,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,000 |
) |
Purchase and retirement of common stock |
|
|
(64,201 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,201 |
) |
Dividends |
|
|
(7,724 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,724 |
) |
Excess tax benefits from share-based payment
arrangements |
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
24,150 |
|
|
|
(33,786 |
) |
|
|
300 |
|
|
|
(8,143 |
) |
|
|
|
|
|
|
(17,479 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
5,196 |
|
|
|
5,157 |
|
|
|
(19 |
) |
|
|
685 |
|
|
|
|
|
|
|
11,019 |
|
Cash and cash equivalents, beginning of period |
|
|
39,120 |
|
|
|
3,254 |
|
|
|
37 |
|
|
|
1,459 |
|
|
|
|
|
|
|
43,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
44,316 |
|
|
$ |
8,411 |
|
|
$ |
18 |
|
|
$ |
2,144 |
|
|
$ |
|
|
|
$ |
54,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12) |
|
Dispositions and Acquisitions |
Dispositions
The Company recorded net gains on dispositions and impairment losses for continuing operations
of $25 and $153 for the three and nine months ended July 31, 2008, respectively. For the three and
nine months ended July 31, 2007, net gains on dispositions and impairment losses amounted to ($46)
and $44, respectively, for continuing operations and ($203) and ($558), respectively, for
discontinued operations. The Company sold one immaterial funeral home from the Western Division
funeral segment during the nine months ended July 31, 2008. The change in goodwill from October
31, 2007 to July 31, 2008 is a result of this sale.
Acquisitions
During the nine months ended July 31, 2008, the Company acquired an investment in an outside business for approximately $1,378. During the nine months
ended July 31, 2007, the Company purchased two properties for approximately $3,328 and a new
funeral home in its Eastern Division for approximately $2,800. This funeral home
34
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(12) |
|
Discontinued Operations and Acquisitions(Continued) |
acquisition was accounted for under the purchase method, and the acquired assets and liabilities
were valued at their estimated fair values. Its results of operations have been included since the
acquisition date. The excess purchase price over the fair value of net assets acquired for this
funeral home was allocated to goodwill.
The Company recorded $350 for separation pay in the nine months ended July 31, 2007 related to
the retirement of a former executive officer, but will make the payments over a two-year period in
accordance with the terms of the retirement agreement. As of July 31, 2008, the Company has $278
in remaining payments under all executive officer separation agreements. The Company also recorded
approximately $230 in the nine months ended July 31, 2007 primarily related to the reorganization
of its divisions during fiscal year 2005. Reorganization costs in 2007 primarily relate to a lease
agreement for which the Company is committed through 2009. In the third quarter of 2007, the
Company entered into a sublease of this property; however, this sublease does not cover the full
cost of the original lease.
(14) |
|
Consolidated Comprehensive Income |
Consolidated comprehensive income for the three and nine months ended July 31, 2008 and 2007
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
Nine Months Ended July 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net earnings |
|
$ |
9,129 |
|
|
$ |
8,123 |
|
|
$ |
31,954 |
|
|
$ |
33,678 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized appreciation (depreciation)
of investments, net of deferred tax
(expense) benefit of $17, $, ($9),
and ($2), respectively |
|
|
(26 |
) |
|
|
|
|
|
|
17 |
|
|
|
3 |
|
(Increase) reduction in net unrealized
losses associated with
available-for-sale securities of the
trusts |
|
|
(45,065 |
) |
|
|
(23,628 |
) |
|
|
(98,678 |
) |
|
|
(8,384 |
) |
Reclassification of the net unrealized
losses activity attributable to the
non-controlling interest holders |
|
|
45,065 |
|
|
|
23,628 |
|
|
|
98,678 |
|
|
|
8,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
(26 |
) |
|
|
|
|
|
|
17 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
9,103 |
|
|
$ |
8,123 |
|
|
$ |
31,971 |
|
|
$ |
33,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15) |
|
Hurricane Related Charges |
The Company has insurance coverage related to property damage, incremental costs and property
operating expenses it incurred due to damage caused by Hurricane Katrina. The insurance policies
also provide coverage for
interruption to the business, including lost profits, and reimbursement for other expenses and
costs incurred relating to the damages and losses suffered. Net expenses of $341 and $210 for the
three months ended July 31, 2008 and 2007, respectively, and $351 and $2,343 for the nine months
ended July 31, 2008 and 2007, respectively, are reflected in the Hurricane related charges, net
line in the condensed consolidated statements of earnings. Net expenses recorded in fiscal year
2008 primarily relate to the lawsuit the Company filed against its insurance carriers which is
described below. The Company received $10,000 in hurricane related insurance proceeds including
$3,169 in business interruption insurance proceeds during the first quarter of 2007, all of which
was recorded in receivables as of October 31, 2006. No additional insurance proceeds were recorded
in the nine months ended July 31, 2008 or 2007. For additional information on the effects of
Hurricane Katrina on the Company, see Note 22 to the
35
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(15) |
|
Hurricane Related Charges(Continued) |
consolidated financial statements in the Companys 2007 Form 10-K.
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 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 the Company may recover
from its insurers, if any, or the timing of the receipt of any additional proceeds. A trial date
has been set in Federal Court on December 1, 2008. With the exception of any legal costs related
to this suit, the Company does not anticipate any additional charges related to Hurricane Katrina.
The Company has been advised that the congressional Joint Committee on Taxation approved its
requested refund of approximately $10,400 and interest of approximately $2,000 related to the
Companys amended federal income tax returns for fiscal years ended October 31, 1997 through 2000
and 2002 through 2004. As of October 31, 2007, this amount was classified in receivables due
beyond one year on the Companys condensed consolidated balance sheet. As a result of the approval
and the expectation that the refund will be received within the next 12 months, the receivable was
reclassified to current receivables as of July 31, 2008.
During the third quarter of 2008, the Company filed with the IRS (in connection with the
filing of its October 31, 2007 federal income tax return) an application to change its tax
accounting method with regards to the taxation of preneed services. This change resulted in an
increase in income tax receivables of $8,912 and a corresponding decrease in deferred income taxes
in the condensed consolidated balance sheet. The Company received $4,345 of this refund in August
2008, which was recorded in current receivables as of July 31, 2008. The remaining amount of
$4,567 was applied against tax payments due by the Company on July 15, 2008, which reduced income
taxes payable as of July 31, 2008.
On September 1, 2008, Hurricane Gustav made landfall in southern Louisiana. The Companys
corporate headquarters building and its New Orleans funeral homes and cemeteries sustained minor
damages and were able to restore operations shortly thereafter.
36
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
General
We are the second largest provider of funeral and cemetery products and services in the death
care industry in the United States. As of August 31, 2008, we owned and operated 221 funeral homes
and 139 cemeteries in 24 states within the United States and Puerto Rico. We sell cemetery
property and funeral 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, insurance
commissions and finance charges. For a more detailed discussion of our accounting for preneed
sales and trust and escrow account earnings, see Managements Discussion and Analysis of Financial
Condition and Results of Operations included in Item 7 in our Annual Report on Form 10-K for the
fiscal year ended October 31, 2007 (the 2007 Form 10-K).
Our focus for fiscal year 2008 is our Best in Class initiative, which aims to improve
performance at the individual locations by giving all managers the same key metrics by which they
can measure their performance and by providing tools to facilitate the sharing of best practices by
key metric. We also seek to strengthen our performance-oriented company culture and to refocus
managements time and attention on improving field operations. The goal of our Best in Class
initiative is to generate a higher return on assets and to grow profits and cash flow at our
existing funeral homes and cemeteries. For additional information, see Item 1 in our 2007 Form
10-K. We are currently also implementing continuous improvement initiatives. During the third
quarter of 2008, we formalized a Continuous Improvement department which was formed to execute
the plans to strengthen and streamline our processes to eliminate waste and inefficiencies.
Our results can be affected by the number of deaths in our markets. The number of deaths in
the United States is expected to increase at a steady, moderate pace over the long-term; however,
the number can fluctuate from market to market and period to period. Although we have experienced
a decline in funeral service volume for several years, our funeral service volumes have increased
1.4 percent thus far in fiscal year 2008. For additional information, see Item 1 in our 2007 Form
10-K. We are addressing funeral service volumes through our Best in Class initiative and
enhanced sales and marketing efforts for both at-need and preneed sales.
Families have been showing an increasing preference for cremation. This trend has been a
significant concern for traditional funeral home and cemetery operators like us because cremations
have typically included few, if any, additional products or services other than the cremation
itself, and can result in lower revenue and profits than traditional services. For additional
information, see Item 1 in our 2007 Form 10-K. To address this trend, we have increased our
efforts to market full service funerals and cremations. Our other efforts to increase our funeral
and cemetery revenue include our funeral package pricing and our emphasis on customization. For
additional information, see Item 1 in our 2007 Form 10-K. We are also increasing our focus on
expanding the types of death care products and services we offer our customers. For the nine
months ended July 31, 2008, we achieved a 1.9 percent increase in our average revenue per
traditional funeral service and a 3.2 percent increase in our average revenue per cremation
service.
Current economic conditions have impacted our ability to timely close preneed sales. Through
the first nine months of 2008, preneed cemetery property sales, net of discounts, declined 5.0
percent, which decreases our cemetery revenue. In addition, preneed funeral and cemetery service
and merchandise sales decreased 2.4 percent for the nine-month period which does not impact current
revenue but reduces our backlog and could reduce our future revenues. Current economic conditions
could also decrease prices at-need customers are willing to pay, but we have not seen this trend
occur through the first nine months of 2008 as our overall funeral average revenue, including trust
earnings, increased 2.3 percent.
In addition, the cost of certain commodities, particularly copper, which represents a large
component of our bronze markers sold in our cemetery business, has increased significantly. In the
first quarter of 2008, we were impacted by escalating merchandise and energy costs and we have
taken steps to counter this impact. Some of the
37
costs impacting our business are largely beyond our control. To the extent that we are unable
to continue to pass these cost increases on to our customers, they will have a negative impact on
our earnings and cash flows.
Recent changes in the financial markets have not had a significant adverse effect on our
current results of operations or cash flows, although declines in the values of investments in our
trust and escrow accounts have reduced their carrying value on our condensed consolidated balance
sheet. Prolonged market downturns can affect the returns on our trusts and escrow accounts, which
can adversely affect our revenue and profits over the longer term. For additional information, see
Items 1 and 1A in our 2007 Form 10-K. The contracts our trusts relate to are long-term in nature,
and we can manage the portfolio to mitigate the effects we are currently experiencing. It is more
significant to focus on annual returns over a longer period of time which will present a better
picture of our portfolio. Our five year total annual returns including the third quarter of 2008
were 4.2 percent for the funeral and cemetery merchandise trusts and 3.5 percent for the cemetery
perpetual care trust.
As previously disclosed, during the third quarter of fiscal 2008, Service Corporation
International (SCI) made proposals to acquire all of our stock for cash. In a letter dated July
21, 2008, SCI offered $11.00 per share in cash for all of our outstanding shares, subject to the
negotiation of mutually satisfactory definitive written agreements and the completion of certain
limited, confirmatory due diligence. Our Board of Directors unanimously approved the formation of
a committee of independent directors (the Independent Committee) to evaluate alternatives
available to us to maximize shareholder value. The Independent Committee has commenced the process
of working with its advisors and management to collect information and analyze all strategic
alternatives available to the Company. Neither the Independent Committee nor the Board intends to
provide any update with respect to the Independent Committees review of potential strategic
alternatives until the Board has approved a definitive course of action.
Financial Summary
For the third quarter of fiscal year 2008, net earnings increased $1.0 million to $9.1 million
from $8.1 million for the third quarter of fiscal year 2007. Earnings from continuing operations
for the quarter increased $0.9 million to $9.1 million from $8.2 million for the corresponding
period in the prior year.
Revenue from continuing operations increased $2.8 million to $130.4 million for the quarter
ended July 31, 2008. Funeral revenue from continuing operations increased $1.6 million from $66.9
million in the third quarter of 2007 to $68.5 million in the third quarter of 2008. During the
third quarter of 2008, our same-store funeral operations experienced an increase in average revenue
per traditional funeral service of 2.3 percent and an increase in average revenue per cremation
service of 6.3 percent due primarily to the continued refinement of new funeral packages and
pricing. These increases along with a quarter-over-quarter increase in funeral trust earnings
resulted in an overall increase in our same-store average revenue per funeral service of 3.5
percent. Despite the increases in same-store average revenue, we experienced a 1.2 percent
decrease in same-store funeral services performed. Cemetery revenue from continuing operations
increased $1.2 million from $60.7 million for the quarter ended July 31, 2007 to $61.9 million for
the quarter ended July 31, 2008. This increase is due primarily to a $1.4 million increase in
construction on various cemetery projects and a $0.8 million increase in cemetery merchandise
delivered and services performed. Consolidated gross profit increased $1.5 million to $28.0
million.
Interest expense decreased $0.2 million to $6.0 million for the third quarter of 2008 due to a
118 basis point decrease in the average rate primarily related to the issuance of the $250.0
million senior convertible notes in fiscal year 2007. We also recorded a $0.7 million charge for
the loss on early extinguishment of debt in the third quarter of 2007 related to the $250.0 million
senior convertible note transaction. Our weighted average diluted shares outstanding decreased to
92.4 million shares for the quarter ended July 31, 2008 compared to 102.7 million shares for the
same period of 2007, yielding a positive impact on earnings per share.
For the third quarter of fiscal year 2008, we had a 5.6 percent increase in net preneed
funeral sales and a 4.4 percent decrease in cemetery property sales, net of discounts, compared to
the same period of last year.
For the nine months ended July 31, 2008, net earnings decreased $1.7 million to $32.0 million
from $33.7 million for the same period of fiscal year 2007. Earnings from continuing operations
for the first nine months of fiscal year 2008 decreased $2.0 million to $32.0 million from $34.0
million for the corresponding period in the prior
38
year. The earnings decrease is due primarily to an increase in income tax expense of $4.5
million due to $4.2 million in income tax benefits utilized in the first nine months of 2007.
Revenue from continuing operations increased $1.1 million to $397.6 million for the nine
months ended July 31, 2008. Funeral revenue from continuing operations increased $6.5 million from
$212.4 million in the first nine months of 2007 to $218.9 million in the first nine months of 2008.
During the nine months ended July 31, 2008, our same-store funeral operations achieved an increase
in average revenue per traditional funeral service of 1.9 percent and an increase in average
revenue per cremation service of 3.2 percent due primarily to the continued refinement of new
funeral packages and pricing. These increases were offset by a shift in mix to lower-priced
cremation services resulting in an overall increase in our same-store average revenue per funeral
service, including trust earnings, of 2.3 percent. We also experienced an increase in same-store
funeral services performed of 1.4 percent. Cemetery revenue from continuing operations decreased
$5.4 million from $184.1 million for the nine months ended July 31, 2007 to $178.7 million for the
nine months ended July 31, 2008. This decrease is due primarily to a $4.3 million decrease in
construction on various cemetery projects and a $4.2 million, or 5.0 percent, decrease in cemetery
property sales, net of discounts, due in part to current economic conditions. The decreases were
partially offset by a $2.5 million, or 3.7 percent, increase in cemetery merchandise delivered and
services performed. Consolidated gross profit increased $0.4 million to $90.7 million primarily
due to a $3.6 million increase in funeral gross profit, partially offset by a $3.2 million decrease
in cemetery gross profit, due primarily to the changes in funeral and cemetery revenue discussed
above.
Corporate general and administrative expenses increased $1.1 million to $24.2 million for the
first nine months of 2008. This increase was primarily due to a $1.5 million increase in costs
related to the continuous improvement initiative that began in the first quarter of fiscal year
2008 and a $1.4 million increase in information technology costs due in part to the implementation
of new business systems and a web development project in the current year. The increases were
partially offset by a $1.1 million decrease in professional fees and a $0.9 million decrease in
depreciation expense for the nine months ended July 31, 2008 due to the accelerated depreciation in
the prior year of our previous computer software systems associated with the implementation of the
new business systems in the prior year. We incurred $0.4 million in hurricane related charges in
the first nine months of fiscal year 2008 compared to $2.3 million in hurricane related charges for
the same period in 2007. Interest expense for the period decreased $1.3 million to $18.0 million
for the first nine months of 2008 due to a 174 basis point decrease in the average rate primarily
related to the issuance of the $250.0 million senior convertible notes in fiscal year 2007. As a
result of the $250.0 million senior convertible note transaction in June 2007, we recorded a $0.7
million charge for the loss on early extinguishment of debt during the nine months ended July 31,
2007. Our weighted average diluted shares outstanding decreased to 94.7 million shares for the
nine months ended July 31, 2008 compared to 104.4 million shares for the same period of 2007,
yielding a positive impact on earnings per share.
For the nine months ended July 31, 2008, we had a 3.6 percent decrease in net preneed funeral
sales and a 5.0 percent decrease in cemetery property sales, net of discounts, compared to the same
period of last year due in part to current economic conditions.
Cash flow provided by operating activities for the nine months ended July 31, 2008 was $52.3
million compared to $54.8 million for the same period of last year. The decrease is primarily due
to $3.2 million of business interruption insurance proceeds and $1.5 million of insurance proceeds,
net of expenses, related to Hurricane Katrina, received in fiscal year 2007. In addition, the
Company paid $9.0 million in net tax payments in the first nine months of 2007 compared to net tax
payments of $11.8 million in the first nine months of 2008.
For the nine months ended July 31, 2008, we made $48.4 million in stock repurchases under our
current stock repurchase program.
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 Managements Discussion and Analysis
39
of Financial Condition and Results of Operations in our 2007 Form 10-K.
There have been no changes to our critical accounting policies since the filing of our 2007
Form 10-K, except for the adoption of Financial Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for Uncertainty in Income Taxes an Interpretation of Statement of Financial
Accounting Standards Statement No. 109 (FIN 48) during the first quarter of fiscal year 2008.
FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken
or expected to be taken in a tax return and also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
We have reviewed our income tax positions and identified certain tax deductions or revenue
deferrals that are not certain. As a result of the adoption, we recognized a charge of $1.0 million
to the November 1, 2007 accumulated deficit balance. As of the adoption date, we had unrecognized
tax benefits of $3.6 million of which $0.6 million, if recognized, would affect the effective tax
rate. Also, as of the adoption date, we had accrued interest and penalties related to the
unrecognized tax benefits of $0.7 million. Our policy with respect to potential penalties and
interest is to record them as other expense and interest expense, respectively.
With few exceptions, we are no longer subject to U.S. federal, state and local or non-U.S.
income tax examinations by tax authorities for fiscal years before 2002. To the extent tax,
interest and penalties are not assessed with respect to uncertain tax positions in the future,
amounts accrued will be reduced and reflected as a reduction of tax expense, interest expense or
other expense.
Significant management judgment is required in determining our provision for income taxes,
deferred tax assets and liabilities and any valuation allowance recorded against our net deferred
tax assets. In the event that actual results differ from these estimates or we adjust these
estimates in future periods, we may need to change our allowance, which could materially impact our
financial condition and results of operations.
Results of Operations
The following discussion segregates the financial results of our continuing operations 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 2008 and 2007,
results from continuing operations essentially reflect those of same-store locations.
40
Three Months Ended July 31, 2008 Compared to Three Months Ended July 31, 2007Continuing
Operations
Funeral Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
|
(In millions) |
|
Funeral Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Division |
|
$ |
28.1 |
|
|
$ |
27.7 |
|
|
$ |
.4 |
|
Western Division |
|
|
35.8 |
|
|
|
34.7 |
|
|
|
1.1 |
|
Corporate Trust Management (1) |
|
|
4.6 |
|
|
|
4.5 |
|
|
|
.1 |
|
|
|
|
|
|
|
|
|
|
|
Total Funeral Revenue |
|
$ |
68.5 |
|
|
$ |
66.9 |
|
|
$ |
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Division |
|
$ |
24.2 |
|
|
$ |
24.6 |
|
|
$ |
(.4 |
) |
Western Division |
|
|
29.1 |
|
|
|
27.8 |
|
|
|
1.3 |
|
Corporate Trust Management (1) |
|
|
.2 |
|
|
|
.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Funeral Costs |
|
$ |
53.5 |
|
|
$ |
52.6 |
|
|
$ |
.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Division |
|
$ |
3.9 |
|
|
$ |
3.1 |
|
|
$ |
.8 |
|
Western Division |
|
|
6.7 |
|
|
|
6.9 |
|
|
|
(.2 |
) |
Corporate Trust Management (1) |
|
|
4.4 |
|
|
|
4.3 |
|
|
|
.1 |
|
|
|
|
|
|
|
|
|
|
|
Total Funeral Gross Profit |
|
$ |
15.0 |
|
|
$ |
14.3 |
|
|
$ |
.7 |
|
|
|
|
|
|
|
|
|
|
|
Same-Store Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Average |
|
Change in |
|
Same-Store |
|
|
Revenue Per |
|
Same-Store |
|
Cremation Rate |
|
|
Funeral Service |
|
Funeral Services |
|
2008 |
|
2007 |
Eastern Division |
|
|
2.0 |
% |
|
|
(.3 |
)% |
|
|
36.5 |
% |
|
|
36.2 |
% |
Western Division |
|
|
4.1 |
% |
|
|
(1.9 |
)% |
|
|
42.2 |
% |
|
|
42.6 |
% |
Total |
|
|
3.5 |
% (1) |
|
|
(1.2 |
)% |
|
|
39.7 |
% |
|
|
39.8 |
% |
|
|
|
(1) |
|
Corporate trust management consists of trust management fees and funeral merchandise
and service 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 and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust
earnings represent the earnings realized over the life of the preneed contracts 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 July 31, 2008 and 2007 were $1.3 million and $1.4 million, respectively.
As corporate trust management is considered a separate operating segment, trust earnings are
included in the total average revenue per funeral service presented, not in the Eastern or
Western divisions average revenue per funeral service. Funeral trust earnings for the three
months ended July 31, 2008 and 2007 were $3.3 million and $3.1 million, respectively. |
Consolidated OperationsFuneral
Funeral revenue from continuing operations increased $1.6 million, or 2.4 percent, from $66.9
million in the third quarter of 2007 to $68.5 million in the third quarter of 2008. During the
third quarter of 2008, our same-store funeral operations experienced an increase in average revenue
per traditional funeral service of 2.3 percent and an increase in average revenue per cremation
service of 6.3 percent due primarily to the continued refinement of new funeral packages and
pricing. These increases along with a quarter-over-quarter increase in funeral trust
41
earnings resulted in an overall increase in our same-store average revenue per funeral service of 3.5
percent. The cremation rate for our same-store operations was 39.7 percent for the three months ended July
31, 2008 compared to 39.8 percent for the corresponding period in 2007. During the third quarter
of 2008, our same-store funeral services performed decreased 1.2 percent, or 174 events, to 13,911
events.
Funeral gross profit increased $0.7 million to $15.0 million for the third quarter of 2008
compared to $14.3 million for the same period of 2007. This increase is primarily due to the $1.6
million increase in funeral revenue, as discussed above. Funeral gross profit margin increased 50
basis points to 21.9 percent for the third quarter of 2008 from 21.4 percent for the same period of
2007.
Segment DiscussionFuneral
Funeral revenue in the Eastern division funeral segment increased $0.4 million primarily due
to an increase in the average revenue per funeral service in our same-store operations of 2.0
percent due primarily to the continued refinement of new funeral packages and pricing, partially
offset by a decrease in the number of funeral services performed by our same-store operations of
0.3 percent. Funeral revenue in the Western division funeral segment increased $1.1 million
primarily due to a 4.1 percent increase in the average revenue per funeral service in our
same-store operations due primarily to the continued refinement of new funeral packages and
pricing, partially offset by a 1.9 percent decrease in the number of funeral services performed by
same-store operations. Funeral revenue in the corporate trust management segment increased $0.1
million due to a $0.2 million increase in funeral trust earnings, partially offset by a $0.1
million decline in trust management fees.
Funeral gross profit for the Eastern division funeral segment increased $0.8 million primarily
due to an increase in revenue, as discussed above, and a decrease in expenses. The decrease in
expenses is primarily due to a decrease in salaries and wages. Funeral gross profit for the
Western division funeral segment decreased $0.2 million. As demonstrated in the table above, the
same-store cremation rate increased for the Eastern division and decreased for the Western
division.
Cemetery Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
|
(In millions) |
|
Cemetery Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Division |
|
$ |
32.8 |
|
|
$ |
34.3 |
|
|
$ |
(1.5 |
) |
Western Division |
|
|
26.8 |
|
|
|
23.9 |
|
|
|
2.9 |
|
Corporate Trust Management (1) |
|
|
2.3 |
|
|
|
2.5 |
|
|
|
(.2 |
) |
|
|
|
|
|
|
|
|
|
|
Total Cemetery Revenue |
|
$ |
61.9 |
|
|
$ |
60.7 |
|
|
$ |
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Division |
|
$ |
28.4 |
|
|
$ |
29.6 |
|
|
$ |
(1.2 |
) |
Western Division |
|
|
20.3 |
|
|
|
18.7 |
|
|
|
1.6 |
|
Corporate Trust Management (1) |
|
|
.2 |
|
|
|
.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cemetery Costs |
|
$ |
48.9 |
|
|
$ |
48.5 |
|
|
$ |
.4 |
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Division |
|
$ |
4.4 |
|
|
$ |
4.7 |
|
|
$ |
(.3 |
) |
Western Division |
|
|
6.5 |
|
|
|
5.2 |
|
|
|
1.3 |
|
Corporate Trust Management (1) |
|
|
2.1 |
|
|
|
2.3 |
|
|
|
(.2 |
) |
|
|
|
|
|
|
|
|
|
|
Total Cemetery Gross Profit |
|
$ |
13.0 |
|
|
$ |
12.2 |
|
|
$ |
.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Corporate trust management consists of trust management fees and cemetery
merchandise and service 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 and are paid by the trusts to our subsidiary, Investors Trust, Inc. The
trust earnings represent the earnings realized over the life of the preneed contracts
delivered during the relevant periods. See Notes 4 and 6 to the condensed consolidated
financial statements |
42
|
|
|
|
|
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 July
31, 2008 and 2007 were $1.3 million and $1.4 million, respectively, and cemetery trust earnings
for the three months ended July 31, 2008 and 2007 were $1.0 million and $1.1 million,
respectively. Perpetual care trust earnings are included in the revenues and gross profit of
the related geographic segment. |
Consolidated OperationsCemetery
Cemetery revenue from continuing operations increased $1.2 million, or 2.0 percent, from $60.7
million for the quarter ended July 31, 2007 to $61.9 million for the quarter ended July 31, 2008.
This increase is primarily due to a $1.4 million increase in construction on various cemetery
projects and a $0.8 million increase in cemetery merchandise delivered and services performed.
These increases were partially offset by a $1.2 million, or 4.4 percent, decrease in cemetery
property sales, net of discounts, due in part to current economic conditions.
Perpetual care trust earnings for the quarter ended July 31, 2008 amounted to $2.6 million
compared to $2.5 million for the same period in 2007.
Cemetery gross profit increased $0.8 million to $13.0 million for the third quarter of 2008
compared to $12.2 million for the same period of 2007. The increase in gross profit is primarily
due to the increase in revenue, as discussed above. Cemetery gross profit margin increased by 90
basis points to 21.0 percent for the third quarter of 2008 from 20.1 percent for the same period of
2007.
Segment DiscussionCemetery
Cemetery revenue in the Eastern division cemetery segment decreased $1.5 million primarily due
to a $1.9 million decrease in revenue recognition resulting from contracts for which we have not
collected 10 percent of the sale. Cemetery revenue in the Western division cemetery segment
increased $2.9 million primarily due to a $1.4 million increase in construction on various cemetery
projects. Cemetery revenue in the corporate trust management segment decreased $0.2 million due to
a $0.1 million decline in cemetery trust earnings and a $0.1 million decline in trust management
fees.
Cemetery gross profit for the Eastern division cemetery segment decreased $0.3 million due to
the decrease in cemetery revenue, as discussed above, partially offset by a decrease in expenses.
The decrease in cemetery expenses is primarily due to the decline in cemetery costs related to
contracts for which we have not collected 10 percent of the sale. Cemetery gross profit for the
Western division cemetery segment increased $1.3 million primarily due to an increase in revenue as
discussed above.
Goodwill of a reporting unit must be tested for impairment on at least an annual basis. We
conduct our annual goodwill impairment analysis during the fourth quarter of each fiscal year. In
addition to an annual review, we assess the impairment of goodwill whenever events or changes in
circumstances indicate that the carrying value of goodwill may be greater than its fair value.
Factors we consider important that could trigger an impairment review include significant
underperformance relative to historical or projected future operating results, significant changes
in the manner of the use of our assets or the strategy for our overall business and significant
negative industry or economic trends.
While the current economic downturn has continued to impact cemetery property sales in our
Eastern division in the quarter ended July 31, 2008, a triggering event has not occurred. As of
July 31, 2008, we have $26.0 million of cemetery goodwill recorded related to the Eastern division
which would be the maximum potential future charge, although the amount of any future charge would
depend on the results of the fair value assessment required under Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets (SFAS No. 142), and cannot be
predicted with any certainty at this time.
Other
The effective tax rate for continuing operations for the three months ended July 31, 2008 was
37.0 percent
43
compared to 31.9 percent for the same period in 2007. The reduced rate in 2007 was
primarily due to a tax benefit of $0.8 million attributable to the completion of an audit by the Commonwealth of Puerto Rico for
tax periods 1999, 2000 and 2001.
We incurred $0.3 million in hurricane related charges in the third quarter of fiscal 2008
primarily due to legal costs associated with ongoing litigation. We incurred $0.2 million in
hurricane related charges for the third quarter of fiscal 2007 primarily due to repairs at
locations damaged by Hurricane Katrina. We are continuing to pursue claims with our insurance
carriers as described in Note 15 to the condensed consolidated financial statements.
Interest expense decreased $0.2 million to $6.0 million for the third quarter of 2008 due to a
118 basis point decrease in the average rate during the quarter primarily related to the issuance
of the $250.0 million senior convertible notes in fiscal year 2007. The senior convertible notes
carry an average interest rate of 3.25 percent.
Investment and other income, net decreased $0.2 million to $0.6 million due primarily to a
decrease in the average rate earned on our cash balances from 4.83 percent in the third quarter of
2007 to 1.42 percent in the third quarter of 2008.
As a result of the $250.0 million senior convertible note transaction in June 2007, we
recorded a charge for the loss on the early extinguishment of debt of $0.7 million during the third
quarter of 2007.
Our weighted average diluted shares outstanding decreased to 92.4 million shares for the
quarter ended July 31, 2008 compared to 102.7 million shares for the same period in 2007. The
decrease is primarily due to our stock repurchase program in which we have repurchased $48.4
million, or 6.6 million shares, of our Class A common stock, yielding a positive impact on earnings
per share. In June 2008, we announced an increase in the stock repurchase program from $50.0
million to $75.0 million leaving us with $26.6 million available under the current program.
Preneed Sales into and Deliveries out of the Backlog
Net preneed funeral sales increased 5.6 percent during the third quarter of 2008 compared to
the corresponding period in 2007 despite current economic conditions.
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 added $45.7
million in gross preneed sales to our funeral and cemetery merchandise and services backlog
(including $19.6 million related to insurance-funded preneed funeral contracts) during the three
months ended July 31, 2008 to be recognized in the future (net of cancellations) as these prepaid
products and services are delivered, compared to gross sales of $44.5 million (including $18.8
million related to insurance-funded preneed funeral contracts) for the corresponding period in
2007. 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
sheet. Revenues recognized on deliveries out of our preneed funeral and cemetery merchandise and
services backlog, including accumulated trust earnings related to these preneed deliveries,
amounted to $37.5 million for the three months ended July 31, 2008, compared to $35.5 million for
the corresponding period in 2007, resulting in net additions to the backlog of $8.2 million and
$9.0 million for the three months ended July 31, 2008 and 2007, respectively.
44
Nine Months Ended July 31, 2008 Compared to Nine Months Ended July 31, 2007Continuing Operations
Funeral Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31, |
|
|
|
2008 |
|
|
2007 |
|
|
Increase |
|
|
|
(In millions) |
|
Funeral Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Division |
|
$ |
90.0 |
|
|
$ |
89.1 |
|
|
$ |
.9 |
|
Western Division |
|
|
114.8 |
|
|
|
109.4 |
|
|
|
5.4 |
|
Corporate Trust Management (1) |
|
|
14.1 |
|
|
|
13.9 |
|
|
|
.2 |
|
|
|
|
|
|
|
|
|
|
|
Total Funeral Revenue |
|
$ |
218.9 |
|
|
$ |
212.4 |
|
|
$ |
6.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Division |
|
$ |
73.8 |
|
|
$ |
73.7 |
|
|
$ |
.1 |
|
Western Division |
|
|
88.9 |
|
|
|
86.2 |
|
|
|
2.7 |
|
Corporate Trust Management (1) |
|
|
.6 |
|
|
|
.5 |
|
|
|
.1 |
|
|
|
|
|
|
|
|
|
|
|
Total Funeral Costs |
|
$ |
163.3 |
|
|
$ |
160.4 |
|
|
$ |
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Division |
|
$ |
16.2 |
|
|
$ |
15.4 |
|
|
$ |
.8 |
|
Western Division |
|
|
25.9 |
|
|
|
23.2 |
|
|
|
2.7 |
|
Corporate Trust Management (1) |
|
|
13.5 |
|
|
|
13.4 |
|
|
|
.1 |
|
|
|
|
|
|
|
|
|
|
|
Total Funeral Gross Profit |
|
$ |
55.6 |
|
|
$ |
52.0 |
|
|
$ |
3.6 |
|
|
|
|
|
|
|
|
|
|
|
Same-Store Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Average |
|
Change in |
|
Same-Store |
|
|
Revenue Per |
|
Same-Store |
|
Cremation Rate |
|
|
Funeral Service |
|
Funeral Services |
|
2008 |
|
2007 |
Eastern Division |
|
|
.5 |
% |
|
|
.4 |
% |
|
|
35.9 |
% |
|
|
35.0 |
% |
Western Division |
|
|
3.6 |
% |
|
|
2.1 |
% |
|
|
42.9 |
% |
|
|
42.3 |
% |
Total |
|
|
2.3 |
% (1) |
|
|
1.4 |
% |
|
|
39.9 |
% |
|
|
39.2 |
% |
|
|
|
(1) |
|
Corporate trust management consists of trust management fees and funeral merchandise
and service 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 and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust
earnings represent the earnings realized over the life of the preneed contracts 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
nine months ended July 31, 2008 and 2007 were $4.0 million and $4.4 million, respectively. As
corporate trust management is considered a separate operating segment, trust earnings are
included in the total average revenue per funeral service presented, not in the Eastern or
Western divisions average revenue per funeral service. Funeral trust earnings for the nine
months ended July 31, 2008 and 2007 were $10.1 million and $9.5 million, respectively. |
Consolidated OperationsFuneral
Funeral revenue from continuing operations increased $6.5 million, or 3.1 percent, from $212.4
million for the nine months ended July 31, 2007 to $218.9 million for the nine months ended July
31, 2008. We achieved a 1.4 percent increase in same-store funeral services performed, or 614
events, to 45,126 events. Our
same-store funeral operations achieved a 1.9 percent increase in the average revenue per
traditional funeral service and a 3.2 percent increase in the average revenue per cremation service
due primarily to the continued refinement of new funeral packages and pricing. These increases
were offset by a shift in mix to lower-priced cremation services resulting in an overall increase
in our same-store average revenue per funeral service, including trust earnings, of 2.3 percent.
45
The cremation rate for our same-store operations was 39.9 percent for the nine months ended July
31, 2008 compared to 39.2 percent for the corresponding period in 2007.
Funeral gross profit increased $3.6 million to $55.6 million for the first nine months of
fiscal year 2008 compared to $52.0 million for the same period of fiscal year 2007 primarily due to
the increase in revenue, as noted above. Funeral gross profit margin increased 90 basis points to
25.4 percent for the first nine months of fiscal year 2008 from 24.5 percent for the same period in
2007.
Segment DiscussionFuneral
Funeral revenue in the Eastern division funeral segment increased $0.9 million primarily due
to a 0.5 percent increase in average revenue per funeral service in same-store operations and a 0.4
percent increase in the number of funeral services performed by same-store operations. Funeral
revenue in the Western division funeral segment increased $5.4 million primarily due to a 3.6
percent increase in the average revenue per funeral service in same-store operations and a 2.1
percent increase in the number of funeral services performed by same-store operations. Funeral
revenue in the corporate trust management segment increased $0.2 million primarily due to a $0.6
million increase in funeral trust earnings, partially offset by a $0.4 million decrease in trust
management fees.
Funeral gross profit for the Eastern division funeral segment increased $0.8 million primarily
due to an increase in revenue, as discussed above. Funeral gross profit for the Western division
funeral segment increased $2.7 million primarily due to an increase in revenue, as discussed above.
As demonstrated in the table above, the same-store cremation rate increased for both the Eastern
and Western division.
Cemetery Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 31, |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
Cemetery Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Division |
|
$ |
98.0 |
|
|
$ |
108.5 |
|
|
$ |
(10.5 |
) |
Western Division |
|
|
73.7 |
|
|
|
68.4 |
|
|
|
5.3 |
|
Corporate Trust Management (1) |
|
|
7.0 |
|
|
|
7.2 |
|
|
|
(.2 |
) |
|
|
|
|
|
|
|
|
|
|
Total Cemetery Revenue |
|
$ |
178.7 |
|
|
$ |
184.1 |
|
|
$ |
(5.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Division |
|
$ |
86.0 |
|
|
$ |
91.0 |
|
|
$ |
(5.0 |
) |
Western Division |
|
|
56.9 |
|
|
|
54.4 |
|
|
|
2.5 |
|
Corporate Trust Management (1) |
|
|
.7 |
|
|
|
.4 |
|
|
|
.3 |
|
|
|
|
|
|
|
|
|
|
|
Total Cemetery Costs |
|
$ |
143.6 |
|
|
$ |
145.8 |
|
|
$ |
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Division |
|
$ |
12.0 |
|
|
$ |
17.5 |
|
|
$ |
(5.5 |
) |
Western Division |
|
|
16.8 |
|
|
|
14.0 |
|
|
|
2.8 |
|
Corporate Trust Management (1) |
|
|
6.3 |
|
|
|
6.8 |
|
|
|
(.5 |
) |
|
|
|
|
|
|
|
|
|
|
Total Cemetery Gross Profit |
|
$ |
35.1 |
|
|
$ |
38.3 |
|
|
$ |
(3.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Corporate trust management consists of trust management fees and cemetery
merchandise and service 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 and are paid by the trusts to our subsidiary, Investors Trust, Inc. The
trust earnings represent the earnings realized over the life of the preneed contracts
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 nine months ended July 31, 2008 and 2007 were $3.8 million and $4.0 million,
respectively, and cemetery trust earnings for both the nine months ended July 31, 2008 and
2007 were $3.2 million. Perpetual care trust earnings are included in the revenues and gross
profit of the |
46
|
|
|
|
|
related geographic segment. |
Consolidated OperationsCemetery
Cemetery revenue from continuing operations decreased $5.4 million, or 2.9 percent, from
$184.1 million for the nine month period ending July 31, 2007 to $178.7 million for the nine month
period ending July 31, 2008. The decrease is due primarily to a $4.3 million decrease in
construction on various cemetery projects. Last year, we experienced growth due to focused efforts
to reduce the production backlog in existing cemetery projects. We also experienced a $4.2
million, or 5.0 percent, decrease in cemetery property sales, net of discounts, due in part to
current economic conditions. The decreases were partially offset by a $2.5 million, or 3.7
percent, increase in cemetery merchandise delivered and services performed.
Perpetual care trust earnings for the nine months ended July 31, 2008 amounted to $8.0 million
compared to $7.3 million for the nine months ended July 31, 2007.
Cemetery gross profit decreased $3.2 million from $38.3 million in the first nine months of
fiscal year 2007 to $35.1 million in the first nine months of fiscal year 2008. Cemetery gross
profit margin decreased 120 basis points to 19.6 percent in the first nine months of fiscal year
2008 from 20.8 percent in the first nine months of fiscal year 2007. The decrease in gross profit
is primarily related to the decrease in cemetery revenue, as noted above.
Segment DiscussionCemetery
Cemetery revenue in the Eastern division cemetery segment decreased $10.5 million primarily
due to a $5.8 million decrease in construction during the first nine months of fiscal year 2008 on
various cemetery development projects and a $3.7 million, or 6.8 percent, decrease in cemetery
property sales, net of discounts, due in part to current economic conditions. Cemetery revenue in
the Western division cemetery segment increased $5.3 million primarily due to a $1.8 million
increase in cemetery commission income related to a new program to manage the cemetery sales of the
Archdiocese of Los Angeles, a $1.6 million increase related to the leasing of our mineral rights at
one of our cemeteries to an outside third-party and a $1.6 million increase in cemetery merchandise
delivered and services performed. Cemetery revenue in the corporate trust management segment
decreased $0.2 million due to a $0.2 million decline in trust management fees.
Cemetery gross profit for the Eastern division cemetery segment decreased $5.5 million due to
the decrease in cemetery revenue, as discussed above, partially offset by a decrease in expenses.
The decrease in cemetery expenses is primarily due to a decrease in costs on construction on
various cemetery projects. Cemetery gross profit for the Western division cemetery segment
increased $2.8 million primarily due to an increase in revenue, as discussed above.
Goodwill of a reporting unit must be tested for impairment on at least an annual basis. We
conduct our annual goodwill impairment analysis during the fourth quarter of each fiscal year. In
addition to an annual review, we assess the impairment of goodwill whenever events or changes in
circumstances indicate that the carrying value of goodwill may be greater than its fair value.
Factors we consider important that could trigger an impairment review include significant
underperformance relative to historical or projected future operating results, significant changes
in the manner of the use of our assets or the strategy for our overall business and significant
negative industry or economic trends.
While the current economic downturn has continued to impact cemetery property sales in our
Eastern division in the quarter ended July 31, 2008, a triggering event has not occurred. As of
July 31, 2008, we have $26.0 million of cemetery goodwill recorded related to the Eastern division
which would be the maximum potential future charge, although the amount of any future charge would
depend on the results of the fair value assessment required under SFAS No. 142, Goodwill and Other
Intangible Assets, and cannot be predicted with any certainty at this time.
Other
The effective tax rate for continuing operations for the nine months ended July 31, 2008 was
37.0 percent
47
compared to 29.4 percent for the same period in 2007. The reduced rate in 2007 was primarily
due to a tax benefit of $3.4 million resulting from the utilization of a capital loss carryforward,
which was not previously recorded because we were uncertain we could generate sufficient capital
gain income prior to its expiration at the end of fiscal 2007. We also recorded a tax benefit of
$0.8 million in the nine months ended July 31, 2007 attributable to the completion of an audit by
the Commonwealth of Puerto Rico for tax periods 1999, 2000 and 2001. The difference between the
effective tax rate and the statutory tax rate of 35.0 percent is primarily due to a percentage
increase caused by state income taxes offset by a percentage decrease caused by a dividend
exclusion.
As of November 1, 2007, we adopted FIN 48, which clarifies the accounting and disclosure for
uncertain tax positions in accordance with SFAS No. 109, Accounting for Income Taxes. We have
reviewed our income tax positions and identified certain tax deductions or revenue deferrals that
are not certain. The cumulative effect of adopting FIN 48 has been recorded as a $1.0 million
increase to the November 1, 2007 opening balance of accumulated deficit, a $3.4 million increase in
deferred tax assets and a $4.4 million increase in other long-term liabilities. For additional
information on FIN 48, see Note 2 to the condensed consolidated financial statements included
herein.
Corporate general and administrative expenses increased $1.1 million to $24.2 million for the
first nine months of fiscal 2008. The increase was primarily due to a $1.5 million increase in
costs related to the continuous improvement initiative that began in the first quarter of 2008 and
a $1.4 million increase in information technology costs due in part to the implementation of new
business systems and a web development project in the current year. The increases were partially
offset by a $1.1 million decrease in professional fees and a $0.9 million decrease in depreciation
expense for the nine months ended July 31, 2008 due to the accelerated depreciation in the prior
year of our previous computer software systems associated with the implementation of the new
business systems in the prior year.
We recorded $0.6 million in separation charges during the nine months ended July 31, 2007
primarily related to separation pay of a former executive officer who retired in the first quarter
of 2007.
We incurred $0.4 million in hurricane related charges in the first nine months of fiscal 2008
primarily due to legal costs associated with ongoing litigation, compared to $2.3 million in
hurricane related charges for the same period in 2007 primarily due to repairs at locations damaged
by Hurricane Katrina. We are continuing to pursue claims with our insurance carriers as described
in Note 15 to the condensed consolidated financial statements.
Interest expense decreased $1.3 million to $18.0 million for the nine months ended July 31,
2008 due to a 174 basis point decrease in the average rate primarily related to the issuance of the
$250.0 million senior convertible notes in fiscal year 2007. The senior convertible notes carry an
average interest rate of 3.25 percent.
Other operating income, net decreased $0.7 million to $0.8 million for the nine months ended
July 31, 2008. The decrease is primarily due to the sale of excess cemetery property and proceeds
related to the sale of an investment during the nine months ended July 31, 2007.
Investment and other income, net decreased $0.7 million to $1.7 million due primarily to a
decrease in the average rate earned on our cash balances from 4.82 percent in the first nine months
of fiscal year 2007 to 2.08 percent for the first nine months of fiscal year 2008.
As a result of the $250.0 million senior convertible note transaction in June 2007, we
recorded a $0.7 million charge for the loss on early extinguishment of debt during the nine months
ended July 31, 2007.
Our weighted average diluted shares outstanding decreased to 94.7 million shares for the nine
months ended July 31, 2008 compared to 104.4 million shares for the same period in 2007. The
decrease is primarily due to our $75.0 million stock repurchase program in which we have
repurchased $48.4 million, or 6.6 million shares, of our Class A common stock, yielding a positive
impact on earnings per share.
Cash and cash equivalents decreased $22.9 million from October 31, 2007 to July 31, 2008
primarily due to $48.4 million in stock repurchases that occurred under our current stock
repurchase program. Current receivables increased $17.6 million from October 31, 2007 to July 31,
2008 primarily due to a $10.4 million income tax refund
48
receivable being reclassified from receivables due beyond one year to current receivables as
of July 31, 2008 and a $4.3 million income tax receivable recorded in the third quarter of 2008
related to a change in income tax accounting methods. Deferred income taxes decreased $11.8
million from October 31, 2007 to July 31, 2008 primarily due to a change in income tax accounting
methods which resulted in an $8.9 million reduction. See Note 16 to the condensed consolidated
financial statements for additional information on these income tax related items that occurred in
the third quarter of 2008. The increase in other long-term liabilities of $5.9 million from
October 31, 2007 to July 31, 2008 was primarily due to a
$4.5 million increase due to the adoption
of FIN 48 in the first quarter of 2008.
Preneed funeral receivables and trust investments, preneed cemetery receivables and trust
investments, cemetery perpetual care trust investments, non-controlling interest in funeral and
cemetery trusts and non-controlling interest in perpetual care trusts were all impacted by the
recent decline in market value of our trust assets due to a broad based decline in the overall
financial markets. For additional information, see Notes 3, 4 and 5 to our condensed consolidated
financial statements included herein.
Preneed Sales into and Deliveries out of the Backlog
Net preneed funeral sales decreased 3.6 percent during the nine months ended July 31, 2008
compared to the corresponding period in 2007 due in part to current economic conditions.
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 added $129.6
million in preneed sales to our funeral and cemetery merchandise and services backlog (including
$56.4 million related to insurance-funded preneed funeral contracts) during the nine months ended
July 31, 2008 to be recognized in the future (net of cancellations) as these prepaid products and
services are delivered, compared to sales of $132.8 million (including $56.3 million related to
insurance-funded preneed funeral contracts) for the corresponding period in 2007. 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 sheet. Revenues
recognized on deliveries out of our preneed funeral and cemetery merchandise and services backlog,
including accumulated trust earnings related to these preneed deliveries, amounted to $114.7
million for the nine months ended July 31, 2008, compared to $109.6 million for the corresponding
period in 2007, resulting in net additions to the backlog of $14.9 million and $23.2 million for
the nine months ended July 31, 2008 and 2007, respectively.
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 and monies collected on preneed sales that are not required to be trusted. 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 $125.0 million revolving credit facility will be sufficient to meet our cash
requirements for the foreseeable future, although we will need to refinance long-term debt becoming
due in 2013 through 2016, as described below.
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 pay dividends, repurchase stock, construct funeral
homes on cemeteries of unaffiliated third parties and make acquisitions of or investments in death
care or related businesses are 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 infrastructure. We regularly review
acquisition and other strategic opportunities, which may require us to draw on our revolving credit
facility or pursue additional debt or equity financing.
We have initiated discussions with members of our bank group regarding the renewal of the
$125.0 million revolving credit facility which is set to expire in November 2009. As of July 31,
2008, there were no amounts
49
drawn on the facility. Our availability under the revolving credit facility, after giving
consideration to $14.6 million in outstanding letters of credit and a $30.8 million bond we are
required to maintain to guarantee our obligations related to funds we withdrew in fiscal year 2001
from trust funds in Florida, was $79.6 million as of July 31, 2008. Our $200.0 million senior
notes are not redeemable until February 15, 2009 and mature on February 15, 2013. We also have
$250.0 million in senior convertible notes, half of which mature in 2014 and the other half of
which 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 two and one-half cents per share on our Class A
and B common stock, which amounted to $7.1 million for the nine months ended July 31, 2008.
Although we intend to pay regular quarterly cash dividends for the foreseeable future, 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, of which $26.6 million remains available as of July 31,
2008. 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
deemed appropriate, depending upon market conditions and other factors.
Cash Flow
Our operations provided cash of $52.3 million for the nine months ended July 31, 2008,
compared to $54.8 million for the corresponding period in 2007. The decrease is primarily due to
$3.2 million of business interruption insurance proceeds and $1.5 million of insurance proceeds,
net of expenses, related to Hurricane Katrina, received in fiscal year 2007. In addition, we paid
$9.0 million in net tax payments in the first nine months of 2007 compared to net tax payments of
$11.8 million in the first nine months of 2008.
Our investing activities resulted in a net cash outflow of $21.1 million for the nine months
ended July 31, 2008, compared to a net cash outflow of $26.3 million for the comparable period in
2007. The change is primarily due to the fact that we purchased several properties in the nine
months ended July 31, 2007 resulting in a net cash outflow of $6.1 million compared to $1.4 million
in the nine months ended July 31, 2008. For the nine months ended July 31, 2008, capital
expenditures amounted to $20.4 million, which included $12.4 million for maintenance capital
expenditures, $0.5 million for growth initiatives, $2.9 million related to Hurricane Katrina and
$4.6 million related to the implementation of new business systems. For the nine months ended July
31, 2007, capital expenditures were $23.1 million, which included $11.5 million for maintenance
capital expenditures, $2.2 million for growth initiatives, $5.5 million related to Hurricane
Katrina and $3.9 million related to the implementation of new business systems. In the nine months
ended July 31, 2008, there were no insurance proceeds related to hurricane damaged properties
compared to $1.4 million in the same period in 2007.
Our financing activities resulted in a net cash outflow of $54.1 million for the nine months
ended July 31, 2008, compared to a net cash outflow of $17.5 million for the comparable period in
2007. This change is primarily due to net debt proceeds of $73.5 million ($250.0 million in
proceeds of long-term debt and $176.5 million in repayments of long-term debt) in the nine months
ended July 31, 2007. There were $0.2 million in debt repayments in the nine months ended July 31,
2008. In June 2007, we issued $250.0 million in senior convertible notes. As part of this debt
transaction, we prepaid the remaining balance of our Term Loan B for $164.0 million, sold common
stock warrants and purchased call options resulting in a net cash outflow of $16.2 million and
recorded debt issuance costs of $5.6 million. Also, as part of this debt transaction, we
repurchased approximately 7.7 million shares of our Class A common stock for $64.2 million,
compared to $48.6 million in cash outflows related to our current stock repurchase program for the
same period in 2008.
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 July 31, 2008.
50
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|
|
Payments Due by Period |
|
|
|
|
|
|
|
Less Than |
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|
|
|
|
|
|
|
|
|
More Than |
|
Contractual Obligations |
|
Total |
|
|
1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
5 Years |
|
Long-term debt obligations (1) |
|
$ |
450.1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
200.0 |
|
|
$ |
250.1 |
|
Interest on long-term debt (2) |
|
|
119.4 |
|
|
|
20.6 |
|
|
|
41.3 |
|
|
|
41.3 |
|
|
|
16.2 |
|
Operating and capital lease obligations (3) |
|
|
28.9 |
|
|
|
1.1 |
|
|
|
7.2 |
|
|
|
3.7 |
|
|
|
16.9 |
|
Non-competition and other agreements (4) |
|
|
1.4 |
|
|
|
.4 |
|
|
|
.7 |
|
|
|
.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
599.8 |
|
|
$ |
22.1 |
|
|
$ |
49.2 |
|
|
$ |
245.3 |
|
|
$ |
283.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See below for a breakdown of our future scheduled principal payments and maturities
of our long-term debt by type as of July 31, 2008. |
|
(2) |
|
Includes contractual interest payments for our senior convertible notes, senior
notes and third-party debt. |
|
(3) |
|
Our noncancellable operating leases are primarily for land and buildings and expire
over the next one to 15 years, except for six leases that expire between 2032 and 2039. In
the first quarter of 2008, we entered into a capital lease for equipment with a two-year term
for approximately $0.4 million. Our future minimum lease payments as of July 31, 2008 are
$1.1 million, $4.1 million, $3.1 million, $2.1 million, $1.6 million, and $16.9 million for
the years ending October 31, 2008, 2009, 2010, 2011, 2012 and later years, respectively. |
|
(4) |
|
We have entered into non-competition agreements with prior owners and key employees
of acquired subsidiaries that expire at various times through 2012. This category also
includes separation pay related to former executive officers. |
We have contingent obligations that include uncertain tax positions for which we are unable to
make an estimate of the timing of future cash settlements at this time.
As of July 31, 2008, our outstanding debt balance was $450.1 million, consisting of $250.0
million of senior convertible notes, $200.0 million of 6.25 percent senior notes and $0.1 million
of other debt. There were no amounts drawn on the revolving credit facility. The following table
reflects future scheduled principal payments and maturities of our long-term debt (in millions) as
of July 31, 2008.
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|
|
|
|
|
Other, Principally |
|
|
|
|
|
|
Revolving |
|
|
Senior |
|
|
|
|
|
|
|
Seller Financing |
|
|
|
|
Fiscal Year Ending |
|
Credit |
|
|
Convertible |
|
|
Senior |
|
|
of Acquired |
|
|
|
|
October 31, |
|
Facility |
|
|
Notes |
|
|
Notes |
|
|
Operations |
|
|
Total |
|
2008 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
250.0 |
|
|
|
200.0 |
|
|
|
.1 |
|
|
|
450.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
|
|
|
$ |
250.0 |
|
|
$ |
200.0 |
|
|
$ |
.1 |
|
|
$ |
450.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements as of July 31, 2008 consist of the following items:
|
(1) |
|
the $30.8 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 19 to the consolidated financial
statements in our 2007 Form 10-K; and |
51
|
(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 2007 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
Annual Report on Form 10-K for the fiscal year ended October 31, 2007, filed with the Securities
and Exchange Commission (SEC) on December 21, 2007. Except as described below, there have been
no material changes in the Companys market risk from that disclosed in our Form 10-K for the
fiscal year ended October 31, 2007. For a discussion of market value as of July 31, 2008 of
investments in our trusts, see Notes 3, 4 and 5 to the condensed consolidated financial statements
included herein.
As of July 31, 2008 and October 31, 2007, the carrying values of our long-term fixed-rate
debt, including accrued interest, were approximately $456.2 million and $455.7 million,
respectively, compared to fair values of $457.7 million and $457.1 million, respectively. Fair
values were determined using quoted market prices. Each approximate 10 percent change in the
average interest rates applicable to determine the fair value of such debt, 50 basis points for
July 31, 2008 and October 31, 2007 would result in changes of approximately $11.9 million and $13.3
million, respectively, in the fair values 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 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. 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 July 31, 2008 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.
52
In addition to the matters in Note 7, we and certain of our subsidiaries are parties to a
number of other legal proceedings that have arisen in the ordinary course of business. While the
outcome of these proceedings cannot be predicted with certainty, management does not expect these
matters to have a material adverse effect on 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, management believes that our insurance protection is reasonable in view of the
nature and scope of our operations.
Item 1A. Risk Factors
Except as described below, there have been no material changes from the risk factors
previously disclosed in our 2007 Form 10-K.
Our 2007 Form 10-K described the risks associated with a proposed change in accounting for our
senior convertible notes. In May 2008, the final version of Financial Accounting Standards Board
(FASB) Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May be
Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP No. APB 14-1), was
issued, and the new accounting rules will be effective for us beginning November 1, 2009 and must
be applied retrospectively to all periods presented. We are currently evaluating the impact FSP
No. APB 14-1 will have on our consolidated financial statements, but expect to record higher
interest expense related to our senior convertible notes beginning in fiscal year 2010.
Potential continuing uncertainty resulting from the recent Service Corporation International
(SCI) acquisition proposal and related matters may adversely affect our business and cause
volatility in the trading price of our common stock.
On July 7, 2008, our Board of Directors rejected an unsolicited proposal from SCI to acquire
all of our outstanding shares for $9.50 per share in cash. In a letter dated June 25, 2008, SCI
invited us to enter into negotiations regarding the possible combination of the two companies. In
the letter, SCI stated that were it to be given access to certain non-public,
non-competitively-sensitive information about our overhead and trust management structure, it might
be able to improve its offer, suggesting a potential range of $10.25 per share to $11.25 per share.
Our Board of Directors carefully evaluated the terms of the proposal and unanimously concluded
that it is in the best interests of Stewart Enterprises and its shareholders to reject the proposal
as inadequate.
On July 23, 2008, we issued a press release announcing that our Board of Directors met to
consider another letter from SCI dated July 21, 2008 offering $11.00 per share in cash for all of
our outstanding shares, subject to the negotiation of mutually satisfactory definitive written
agreements and the completion of certain limited, confirmatory due diligence. At the meeting, our
Board of Directors unanimously approved the formation of a committee of independent directors (the
Independent Committee) to evaluate alternatives available to us to maximize shareholder value,
and authorized the Independent Committee to hire an investment banker or other advisors as it deems
appropriate.
On August 28, 2008, we announced that the Independent Committee has retained Goldman, Sachs &
Co. as financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP as special legal counsel, in
connection with the Boards evaluation of strategic alternatives available to us to maximize
shareholder value. We also announced that the Independent Committee has commenced the process of
working with its advisors and management to collect information and analyze all strategic
alternatives available to us. The Independent Committee intends to conduct a thorough evaluation
of all strategic alternatives to determine the course of action that is in the best interests of
the Company and its shareholders. Neither the Independent Committee nor the Board intends to
provide any update with respect to the review of potential strategic alternatives until the Board
has approved a definitive course of action.
On August 28, 2008, we also announced that Chairman of the Board, Frank B. Stewart, Jr., who
currently controls approximately 34 percent of our voting power, has advised the Board that he is
fully supportive of the process being undertaken by the Independent Committee, has not made any
decisions regarding the outcome of the
53
process, and plans to wait until the Board has had the opportunity to review the appropriate
information and analysis presented by the Independent Committee to the full Board before making any
decisions regarding his plans or views. Under Louisiana law and our articles of incorporation, the
affirmative vote of at least two-thirds of the voting power present is required to approve certain
major transactions, including a merger, and any amendments to our articles of incorporation.
The review and consideration of the SCI proposal and other strategic alternatives has been,
and may continue to be, a distraction for our management and employees and will require a
significant amount of our time and resources. SCIs proposal may also create uncertainty for our
current and potential customers and other business partners, which may cause them to terminate, or
not to renew or enter into, arrangements with us. This has also created uncertainty for our
employees, and this uncertainty could cause low morale and may adversely affect our ability to
retain key employees and to hire new talent. These consequences, alone or in combination, may harm
our business.
We also believe that as a result of SCIs proposal and the speculation concerning the
potential sale, the trading price of our common stock may be subject to wide price fluctuations.
There can be no assurance whether a transaction will occur or at what price. If a transaction does
not occur, or the market perceives a transaction as unlikely to happen, our stock price may
decline.
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
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1) |
|
plans or programs |
May 1, 2008 through May 31, 2008 |
|
|
1,000,000 |
|
|
$ |
6.91 |
|
|
|
1,000,000 |
|
|
$ |
5,918,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 1, 2008 through June 30, 2008 |
|
|
268,708 |
|
|
$ |
6.75 |
|
|
|
268,708 |
|
|
$ |
29,104,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2008 through July 31, 2008 |
|
|
349,492 |
|
|
$ |
7.25 |
|
|
|
349,492 |
|
|
$ |
26,571,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,618,200 |
|
|
$ |
6.96 |
|
|
|
1,618,200 |
|
|
$ |
26,571,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On September 19, 2007, we announced that our Board of Directors had authorized a new
$25.0 million stock repurchase 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. On December 20, 2007, we announced a $25.0 million increase in
this program. On June 19, 2008, we announced an additional $25.0 million increase to the
program, which increased the program to $75.0 million. As of July 31, 2008, we had
repurchased 6.6 million shares for $48.4 million at an average price of $7.32 per share under
this program. |
Item 5. Other Information
On September 8, 2008, the Board of Directors approved an amendment to our bylaws and to our
indemnity agreements with directors primarily designed to make clear that a directors rights to
indemnification and advancement of expenses vest at the time he begins to serve as a director,
cannot be diminished after that time, and continue after he ceases to serve as a director. The
amended and restated bylaws and the amendment to the indemnity agreements are filed as exhibits to
this report.
54
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 |
|
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 4.2 to
Amendment No. 3 to the Companys Registration Statement on Form S-1 (Registration No.
33-42336) filed with the Commission on October 7, 1991) |
|
4.3 |
|
Rights Agreement, dated as of October 28, 1999, between Stewart Enterprises, Inc. and
ChaseMellon Shareholder Services, L.L.C. as Rights Agent (incorporated by reference to Exhibit
1 to the Companys Form 8-A filed November 4, 1999) |
|
4.4 |
|
Amendment No. 1 to the Rights Agreement dated June 26, 2007 between Stewart Enterprises, Inc.
and Mellon Investor Services LLC (incorporated by reference to Exhibit 4.4 to the Companys
Current Report on Form 8-K filed June 27, 2007) |
|
4.5 |
|
Amended and Restated Credit Agreement dated November 19, 2004 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 November 23, 2004) |
|
4.6 |
|
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) |
|
4.7 |
|
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) |
|
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) |
|
4.10 |
|
Registration Rights Agreement dated June 27, 2007 by and among Stewart Enterprises, Inc., the
guarantors named therein and the Initial Purchasers (incorporated by reference to Exhibit 4.3
to the Companys Current Report on Form 8-K filed June 27, 2007) |
55
10.1 |
|
Amendment No. 2 to Employment Agreement dated May 1, 2008 between the Company and Thomas J.
Crawford (incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report on Form
10-Q for the quarter ended April 30, 2008) |
|
10.2 |
|
Amendment No. 1 to Employment Agreement dated May 1, 2008 between the Company and Thomas M.
Kitchen (incorporated by reference to Exhibit 10.2 to the Companys Quarterly Report on Form
10-Q for the quarter ended April 30, 2008) |
|
10.3 |
|
Stewart Enterprises, Inc. Retention Plan and Summary Plan Description effective June 18, 2008 |
|
10.4 |
|
Amended and Restated Stewart Enterprises, Inc. Retention Plan and Summary Plan Description
effective August 1, 2008 |
|
10.5 |
|
Form of First Amendment to Indemnity Agreements between Stewart Enterprises, Inc. and its
Directors |
|
10.6 |
|
Amendment to Stewart Enterprises, Inc. Supplemental Executive Retirement Plan effective June
17, 2008 |
|
31.1 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas J. Crawford,
President and Chief Executive Officer |
|
31.2 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen, Senior
Executive Vice President and Chief Financial Officer |
|
32.1 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of Thomas J. Crawford,
President and Chief Executive Officer, and Thomas M. Kitchen, Senior Executive Vice President
and Chief Financial Officer |
56
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.
|
|
September 9, 2008 |
/s/ THOMAS M. KITCHEN
|
|
|
Thomas M. Kitchen |
|
|
Senior Executive Vice President and
Chief Financial Officer |
|
|
|
|
|
September 9, 2008 |
/s/ ANGELA M. LACOUR
|
|
|
Angela M. Lacour |
|
|
Vice President
Corporate Controller
Chief Accounting Officer |
|
|
57
Exhibit Index
3.2 |
|
By-laws of the Company, as amended and restated as of September 8, 2008 |
|
10.3 |
|
Stewart Enterprises, Inc. Retention Plan and Summary Plan Description effective June 18, 2008 |
|
10.4 |
|
Amended and Restated Stewart Enterprises, Inc. Retention Plan and Summary Plan Description
effective August 1, 2008 |
|
10.5 |
|
Form of First Amendment to Indemnity Agreements between Stewart Enterprises, Inc. and its
Directors |
|
10.6 |
|
Amendment to Stewart Enterprises, Inc. Supplemental Executive Retirement Plan effective June
17, 2008 |
|
31.1 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas J. Crawford,
President and Chief Executive Officer |
|
31.2 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen, Senior
Executive Vice President and Chief Financial Officer |
|
32.1 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of Thomas J. Crawford,
President and Chief Executive Officer, and Thomas M. Kitchen, Senior Executive Vice President
and Chief Financial Officer |
58