e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
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 January 31, 2009
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
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72-0693290 |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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1333 South Clearview Parkway |
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Jefferson, Louisiana
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70121 |
(Address of principal executive offices)
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(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):
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Large accelerated filer þ | |
Accelerated filer o | |
Non-accelerated filer o | |
Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the 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 February 27, 2009, was 89,164,401
and 3,555,020, respectively.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
INDEX
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 January 31, |
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2009 |
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2008 |
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Revenues: |
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Funeral |
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$ |
71,750 |
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$ |
73,449 |
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Cemetery |
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47,580 |
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56,824 |
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119,330 |
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130,273 |
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Costs and expenses: |
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Funeral |
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53,495 |
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55,447 |
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Cemetery |
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42,752 |
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47,756 |
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96,247 |
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103,203 |
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Gross profit |
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23,083 |
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27,070 |
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Corporate general and administrative expenses |
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(7,506 |
) |
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(8,235 |
) |
Hurricane related recoveries (charges), net |
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(315 |
) |
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159 |
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Gains on dispositions and impairment (losses), net |
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(63 |
) |
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147 |
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Other operating income, net |
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259 |
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242 |
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Operating earnings |
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15,458 |
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19,383 |
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Interest expense |
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(5,910 |
) |
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(5,888 |
) |
Investment and other income, net |
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41 |
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720 |
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Earnings before income taxes |
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9,589 |
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14,215 |
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Income taxes |
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3,873 |
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5,330 |
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Net earnings |
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$ |
5,716 |
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$ |
8,885 |
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Net earnings per common share: |
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Basic |
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$ |
.06 |
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$ |
.09 |
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Diluted |
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$ |
.06 |
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$ |
.09 |
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Weighted average common shares outstanding (in thousands): |
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Basic |
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91,824 |
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96,784 |
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Diluted |
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91,896 |
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97,019 |
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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 BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)
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January 31, 2009 |
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October 31, 2008 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
71,495 |
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$ |
72,574 |
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Marketable securities |
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61 |
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55 |
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Receivables, net of allowances |
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58,299 |
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59,129 |
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Inventories |
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36,806 |
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35,870 |
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Prepaid expenses |
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12,367 |
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7,317 |
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Deferred income taxes, net |
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8,050 |
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8,798 |
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Total current assets |
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187,078 |
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183,743 |
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Receivables due beyond one year, net of allowances |
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67,020 |
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70,671 |
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Preneed funeral receivables and trust investments |
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338,740 |
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368,412 |
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Preneed cemetery receivables and trust investments |
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170,049 |
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182,141 |
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Goodwill |
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247,236 |
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247,236 |
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Cemetery property, at cost |
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384,376 |
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375,832 |
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Property and equipment, at cost: |
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Land |
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42,343 |
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42,343 |
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Buildings |
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321,446 |
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319,839 |
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Equipment and other |
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181,160 |
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178,589 |
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544,949 |
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540,771 |
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Less accumulated depreciation |
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242,563 |
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236,243 |
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Net property and equipment |
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302,386 |
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304,528 |
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Deferred income taxes, net |
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180,528 |
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179,515 |
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Cemetery perpetual care trust investments |
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167,889 |
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173,090 |
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Non-current assets held for sale |
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2,873 |
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2,873 |
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Other assets |
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15,746 |
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16,474 |
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Total assets |
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$ |
2,063,921 |
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$ |
2,104,515 |
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(continued)
4
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)
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January 31, 2009 |
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October 31, 2008 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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Current maturities of long-term debt |
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$ |
12 |
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$ |
20 |
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Accounts payable |
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25,209 |
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27,652 |
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Accrued payroll and other benefits |
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12,081 |
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14,133 |
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Accrued insurance |
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21,129 |
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21,287 |
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Accrued interest |
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6,294 |
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5,864 |
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Estimated obligation to fund cemetery perpetual care trust |
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12,163 |
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13,281 |
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Other current liabilities |
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11,291 |
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16,198 |
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Income taxes payable |
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4,713 |
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2,061 |
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Total current liabilities |
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92,892 |
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100,496 |
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Long-term debt, less current maturities |
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450,094 |
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450,095 |
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Deferred preneed funeral revenue |
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243,128 |
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245,182 |
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Deferred preneed cemetery revenue |
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281,660 |
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275,835 |
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Deferred preneed funeral and cemetery receipts held in trust |
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437,585 |
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475,420 |
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Perpetual care trusts corpus |
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166,675 |
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171,371 |
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Other long-term liabilities |
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21,959 |
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20,479 |
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Total liabilities |
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1,693,993 |
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1,738,878 |
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Commitments and contingencies |
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Shareholders equity: |
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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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Class A authorized 200,000,000 shares; issued and
outstanding 89,164,401 and 88,693,127 shares at January
31, 2009 and October 31, 2008, respectively |
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89,164 |
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88,693 |
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Class B authorized 5,000,000 shares; issued and
outstanding 3,555,020 shares at January 31, 2009 and
October 31, 2008; 10 votes per share convertible into
an equal number of Class A shares |
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3,555 |
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3,555 |
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Additional paid-in capital |
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535,003 |
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536,902 |
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Accumulated deficit |
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(257,834 |
) |
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(263,550 |
) |
Accumulated other comprehensive income: |
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|
|
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Unrealized appreciation of investments |
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40 |
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37 |
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Total accumulated other comprehensive income |
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40 |
|
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37 |
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Total shareholders equity |
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369,928 |
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|
365,637 |
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Total liabilities and shareholders equity |
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$ |
2,063,921 |
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$ |
2,104,515 |
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See accompanying notes to condensed consolidated financial statements.
5
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(Unaudited)
(Dollars in thousands, except per share amounts)
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Additional |
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Unrealized |
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Total |
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Common |
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Paid-In |
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Accumulated |
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Appreciation |
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Shareholders |
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Stock(1) |
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Capital |
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Deficit |
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of Investments |
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Equity |
|
Balance October 31, 2008 |
|
$ |
92,248 |
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|
$ |
536,902 |
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|
$ |
(263,550 |
) |
|
$ |
37 |
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|
$ |
365,637 |
|
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|
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Comprehensive income: |
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|
|
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|
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|
|
|
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Net earnings |
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|
|
|
|
|
|
|
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|
5,716 |
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|
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|
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|
|
5,716 |
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|
|
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|
|
|
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|
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|
|
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Other comprehensive income: |
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|
|
|
|
|
|
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Unrealized appreciation
of investments, net of
deferred tax expense of
($2) |
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|
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|
3 |
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|
3 |
|
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|
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|
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|
|
|
|
|
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Total other comprehensive
income |
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|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
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|
|
3 |
|
|
|
|
|
|
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|
|
|
|
|
|
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|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
5,716 |
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3 |
|
|
|
5,719 |
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Restricted stock activity |
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|
348 |
|
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|
(193 |
) |
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|
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|
|
|
|
|
|
155 |
|
Issuance of common stock |
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|
123 |
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|
265 |
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|
|
|
|
|
|
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|
388 |
|
Stock option expense |
|
|
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|
|
|
324 |
|
|
|
|
|
|
|
|
|
|
|
324 |
|
Tax benefit associated
with stock activity |
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
23 |
|
Dividends ($.025 per share) |
|
|
|
|
|
|
(2,318 |
) |
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|
|
|
|
|
|
|
|
|
(2,318 |
) |
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
Balance January 31, 2009 |
|
$ |
92,719 |
|
|
$ |
535,003 |
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|
$ |
(257,834 |
) |
|
$ |
40 |
|
|
$ |
369,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1) |
|
Amount includes 89,164 and 88,693 shares (in thousands) of Class A common stock
with a stated value of $1 per share as of January 31, 2009 and October 31, 2008,
respectively, and includes 3,555 shares (in thousands) of Class B common stock. |
See accompanying notes to condensed consolidated financial statements.
6
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands, except per share amounts)
|
|
|
|
|
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|
Three Months Ended January 31, |
|
|
|
2009 |
|
|
2008 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
5,716 |
|
|
$ |
8,885 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
(Gains) on dispositions and impairment losses, net |
|
|
63 |
|
|
|
(147 |
) |
Depreciation and amortization |
|
|
7,394 |
|
|
|
6,962 |
|
Provision for doubtful accounts |
|
|
2,215 |
|
|
|
2,093 |
|
Share-based compensation |
|
|
802 |
|
|
|
1,198 |
|
Excess tax benefits from share-based payment arrangements |
|
|
|
|
|
|
(165 |
) |
Provision (benefit) for deferred income taxes |
|
|
(215 |
) |
|
|
1,866 |
|
Estimated obligation to fund cemetery perpetual care trust |
|
|
88 |
|
|
|
|
|
Other |
|
|
66 |
|
|
|
104 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
(Increase) decrease in receivables |
|
|
2,993 |
|
|
|
(2,030 |
) |
Increase in prepaid expenses |
|
|
(5,050 |
) |
|
|
(4,963 |
) |
Increase in inventories and cemetery property |
|
|
(1,043 |
) |
|
|
(2,576 |
) |
Decrease in accounts payable and accrued expenses |
|
|
(7,629 |
) |
|
|
(6,208 |
) |
Net effect of preneed funeral production and maturities: |
|
|
|
|
|
|
|
|
Decrease in preneed funeral receivables and trust investments |
|
|
3,910 |
|
|
|
2,758 |
|
Decrease in deferred preneed funeral revenue |
|
|
(2,054 |
) |
|
|
(2,329 |
) |
Decrease in deferred preneed funeral receipts held in trust |
|
|
(1,996 |
) |
|
|
(1,856 |
) |
Net effect of preneed cemetery production and deliveries: |
|
|
|
|
|
|
|
|
Decrease in preneed cemetery receivables and trust investments |
|
|
1,934 |
|
|
|
2,461 |
|
Increase (decrease) in deferred preneed cemetery revenue |
|
|
(1,645 |
) |
|
|
351 |
|
Increase (decrease) in deferred preneed cemetery receipts held in trust |
|
|
81 |
|
|
|
(1,919 |
) |
Increase (decrease) in other |
|
|
1,654 |
|
|
|
(387 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
7,284 |
|
|
|
4,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Proceeds from sales of marketable securities |
|
|
|
|
|
|
4,984 |
|
Purchases of marketable securities |
|
|
|
|
|
|
(19,802 |
) |
Proceeds from sale of assets |
|
|
292 |
|
|
|
338 |
|
Purchase of subsidiaries and other investments, net of cash acquired |
|
|
(1,623 |
) |
|
|
|
|
Additions to property and equipment |
|
|
(4,789 |
) |
|
|
(7,056 |
) |
Other |
|
|
1 |
|
|
|
10 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(6,119 |
) |
|
|
(21,526 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
|
(9 |
) |
|
|
(77 |
) |
Issuance of common stock |
|
|
83 |
|
|
|
1,380 |
|
Purchase and retirement of common stock |
|
|
|
|
|
|
(22,807 |
) |
Dividends |
|
|
(2,318 |
) |
|
|
(2,403 |
) |
Excess tax benefits from share-based payment arrangements |
|
|
|
|
|
|
165 |
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(2,244 |
) |
|
|
(23,742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash |
|
|
(1,079 |
) |
|
|
(41,170 |
) |
Cash and cash equivalents, beginning of period |
|
|
72,574 |
|
|
|
71,545 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
71,495 |
|
|
$ |
30,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Income taxes, net |
|
$ |
874 |
|
|
$ |
3,262 |
|
Interest |
|
$ |
5,125 |
|
|
$ |
4,982 |
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Issuance of common stock to executive officers and directors |
|
$ |
305 |
|
|
$ |
921 |
|
Issuance of restricted stock, net of forfeitures |
|
$ |
312 |
|
|
$ |
304 |
|
See accompanying notes to condensed consolidated financial statements.
7
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 January 31, 2009,
the Company owned and operated 220 funeral homes and 140 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 January 31, 2009, and for the three months ended January 31, 2009 and
2008, 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, 2008
(the 2008 Form 10-K).
The October 31, 2008 condensed consolidated balance sheet data was derived from audited
financial statements in the Companys 2008 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 2008 Form 10-K.
The results of operations for the three months ended January 31, 2009 are not necessarily
indicative of the results to be expected for the fiscal year ending October 31, 2009.
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 2008 Form 10-K.
|
(e) |
|
Share-Based Compensation |
The Company has share-based compensation plans, which are described in more detail in Note 19
to the consolidated financial statements in the Companys 2008 Form 10-K. Net earnings for the
three months ended January 31, 2009 and 2008 include $324 and $477, respectively, of stock option
expenses, all of which are included in corporate general and administrative expenses in the
condensed consolidated statements of earnings. As of January 31, 2009, there was $2,310 of total
unrecognized compensation costs related to nonvested stock options that is expected to be
recognized over a weighted-average period of 2.53 years of which $1,209 of total stock option
expense is expected for fiscal year 2009. The expense related to restricted stock is reflected in
earnings and amounted to $173 and $190 for the three months ended January 31, 2009 and 2008,
respectively.
8
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(1) |
|
Basis of Presentation(Continued) |
On November 18, 2008, the Company issued 15,000 shares of Class A common stock and paid $34 in
cash to each of the independent directors of the Company. The expense related to this stock grant
amounted to $305 and was recorded in corporate general and administrative expenses during the first
quarter of 2009. 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 three months ended January 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
Shares |
|
Exercise Price |
|
|
|
|
Grant Type |
|
Granted |
|
per Share |
|
Vesting Period |
|
Vesting Condition |
Stock options
|
|
|
586,750 |
|
|
$ |
2.65 |
|
|
Equal one-fourth
portions over 4
years
|
|
Service condition |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
390,000 |
|
|
$ |
3.09 |
|
|
Equal one-fourth
portions over 4
years
|
|
Service condition |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock
|
|
|
102,000 |
|
|
$ |
2.65 |
|
|
Equal one-third
portions over 3
years
|
|
Market condition |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock
|
|
|
195,000 |
|
|
$ |
3.09 |
|
|
Equal one-third
portions over 3
years
|
|
Market condition |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock
|
|
|
56,000 |
|
|
$ |
3.09 |
|
|
Equal one-third
portions over 3
years
|
|
Service 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 three months ended January 31, 2009: expected dividend yield of 3.6 percent;
expected volatility of 38.5 percent; risk-free interest rate of 1.6 percent; and an expected term
of 4.8 years. In the first quarter of 2009, the Company granted 297,000 shares of restricted stock
with market conditions based on reaching certain target stock prices in the years 2009, 2010 and
2011. The Company records the expense over the requisite service period.
Certain reclassifications have been made to the 2008 condensed consolidated statement of cash
flows in order for these periods to be comparable. These reclassifications had no effect on net
earnings or operating cash flows.
During the Companys review of Statement of Financial Accounting Standards (SFAS) No. 160,
Noncontrolling Interests in Consolidated Financial Statementamendments of ARB No. 51 (SFAS No.
160), the Company determined that balances historically designated as non-controlling interest
in funeral and cemetery trusts and non-controlling interest in perpetual care trusts in its
condensed consolidated balance sheet do not meet the criteria for non-controlling interests as
prescribed by SFAS No. 160. SFAS No. 160 indicates that only a financial instrument classified as
equity in the trusts financial statements can be a non-controlling interest in the consolidated
financial statements. The interest related to the Companys funeral and cemetery merchandise and
services trusts is classified as a liability because the preneed contracts underlying these trusts
are unconditionally redeemable upon the occurrence of an event that is certain to occur. Since the
earnings from the Companys cemetery perpetual care trusts are used to support the maintenance of
its cemeteries and the Company cannot access the corpus, the Company believes the interest in these
trusts also retains the characteristics of a liability.
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) |
In light of this review, in the first quarter of fiscal year 2009, these line items in the
Companys condensed consolidated balance sheets as of January 31, 2009 and October 31, 2008 were
renamed. The line historically titled non-controlling interest in funeral and cemetery trusts
has been renamed deferred preneed funeral and cemetery receipts held in trust. In addition, the
line historically titled non-controlling interest in perpetual care trusts has been renamed
perpetual care trusts corpus and has been reclassified to be included in total liabilities.
These changes had no effect on total assets or shareholders equity.
(2) |
|
New Accounting Principles |
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157,
Fair Value Measurements (SFAS No. 157), which the Company adopted effective November 1, 2008.
The statement defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date,
establishes a framework for measuring fair value and expands disclosures about instruments measured
at fair value. SFAS No. 157 establishes a three-level valuation hierarchy for disclosure of fair
value measurements. The valuation hierarchy is based upon the transparency of inputs to the
valuation of an asset or liability as of the measurement date. The three levels are defined as
follows:
|
|
|
Level 1inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets; |
|
|
|
|
Level 2inputs to the valuation methodology include quoted prices for similar assets or
liabilities in active markets, and inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of the financial instrument;
quoted prices for identical or similar assets or liabilities in markets that are not
active; inputs other than quoted prices that are observable; inputs that are derived
principally from or corroborated by observable market data by correlation or other means;
and |
|
|
|
|
Level 3inputs to the valuation methodology are unobservable and significant to the fair
value measurement. |
An assets or liabilitys categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value measurement.
In February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-1, Application of FASB
Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements that Address Fair
Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 (FSP
FAS 157-1) and FSP FAS 157-2, Effective Date of FASB Statement No. 157 (FSP FAS 157-2). FSP
FAS 157-1 amends SFAS No. 157 to exclude SFAS No. 13, Accounting for Leases, and its related
accounting pronouncements that address leasing transactions. FSP FAS 157-2 provides a one-year
deferral of the effective date of SFAS No. 157 for non-financial assets and liabilities, except
those that are recognized or disclosed in the financial statements at fair value at least annually.
In accordance with FSP FAS 157-2, the Company adopted the provisions of SFAS No. 157 for its
financial assets and liabilities that are measured on a recurring basis at fair value, effective
November 1, 2008. These financial assets include the investments of the Companys preneed funeral
merchandise and services trusts, preneed cemetery merchandise and services trusts and cemetery
perpetual care trusts. For additional disclosures required by SFAS No. 157 for these assets, see
Notes 3 through 5 to the Companys condensed consolidated financial statements. The provisions of
SFAS No. 157 have not been applied to the Companys non-financial assets and liabilities. The
major categories of assets and liabilities that are subject to non-recurring fair value measurement
for which the provisions of SFAS No. 157 have not yet been applied are as follows: reporting units
measured at fair value in the goodwill impairment test under SFAS No. 142 and non-financial assets
and liabilities initially measured at fair value in a business combination under SFAS No. 141.
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) |
In October 2008, the FASB issued FSP FAS No. 157-3, Determining the Fair Value of a Financial
Asset When the Market for That Asset is Not Active (FSP FAS 157-3), which clarifies the
application of SFAS No. 157 in a market that is not active and provides an example to illustrate
key considerations in determining the fair value of a financial asset when the market for that
financial asset is not active. FSP FAS 157-3 is effective immediately, including prior periods for
which financial statements have not been issued. The Company adopted FSP FAS 157-3 effective with
the preparation of the Companys condensed consolidated financial statements for the quarter ended
January 31, 2009. The adoption of FSP FAS 157-3 had no impact on the Companys consolidated
results of operations, financial position or cash flows.
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 did not elect the fair value option under SFAS No. 159.
In December 2008, FASB Staff Position SFAS No. 140-4 and FASB Interpretation (FIN)
No. 46(R)-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and
Interests in Variable Interest Entities was issued. This pronouncement requires public entities
to provide additional disclosures about transfers of financial assets. It also amends FIN 46(R) to
require public enterprises to provide additional disclosures about their involvement with variable
interest entities. This FSP is effective for reporting periods ending after December 15, 2008,
which corresponds to the Companys first fiscal quarter of 2009. The adoption of this FSP had no
impact on the Companys consolidated financial statements but requires the Company to add
additional disclosures related to its variable interest entities, which consist of its preneed
funeral and cemetery merchandise and services trusts and cemetery perpetual care trusts
investments. The Companys accounting policies related to its preneed funeral and cemetery
merchandise and services trusts and cemetery perpetual care trusts are discussed in Note 2(k) of
the Companys 2008 Form 10-K. For further disclosures, see Notes 3, 4 and 5 to the condensed
consolidated financial statements included herein.
Other, not yet adopted
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 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 first fiscal year
beginning after December 15, 2008, which corresponds to the Companys fiscal year beginning
November 1, 2009. The Company does not expect this statement to have any impact on its
consolidated financial statements. However, as
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) |
described in Note 1(f), in light of the Companys review of SFAS No. 160, certain balances in
the condensed consolidated balance sheet were renamed and a line item historically classified
outside of liabilities was moved to be included in total liabilities.
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.
While the Company does not anticipate any impact on its net cash flows, the Company does expect to
record higher interest expense related to its senior convertible notes beginning in the Companys
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.
Preneed Funeral Receivables and Trust Investments
Preneed funeral receivables and trust investments represent trust assets and customer
receivables related to unperformed, price-guaranteed trust-funded preneed funeral contracts. The
components of preneed funeral receivables and trust investments in the condensed consolidated
balance sheets as of January 31, 2009 and October 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
|
October 31, |
|
|
|
2009 |
|
|
2008 |
|
Trust assets |
|
$ |
307,946 |
|
|
$ |
336,782 |
|
Receivables from customers |
|
|
42,376 |
|
|
|
44,796 |
|
|
|
|
|
|
|
|
|
|
|
350,322 |
|
|
|
381,578 |
|
Allowance for cancellations |
|
|
(11,582 |
) |
|
|
(13,166 |
) |
|
|
|
|
|
|
|
Preneed funeral receivables and trust investments |
|
$ |
338,740 |
|
|
$ |
368,412 |
|
|
|
|
|
|
|
|
The cost and market values associated with preneed funeral merchandise and services trust
assets as of January 31, 2009 are detailed below. Based on the Companys quarterly evaluation, the
cost basis of the funeral merchandise and services trust assets below reflects realized losses of
approximately $8,306 during the quarter ended January 31, 2009 from their original cost basis.
These realized losses are related to certain investments held that were rendered worthless or
practically worthless and to certain investments primarily in the consumer discretionary and
healthcare sectors that the Company determined it did not have the intent to hold until they
recover in value.
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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2009 |
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Cost Basis |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
|
|
|
|
Cash, money market and other
short-term investments |
|
$ |
36,513 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
36,513 |
|
|
|
|
|
U.S. Government, agencies and
municipalities |
|
|
9,685 |
|
|
|
345 |
|
|
|
(1 |
) |
|
|
10,029 |
|
|
|
|
|
Corporate bonds |
|
|
55,970 |
|
|
|
533 |
|
|
|
(6,372 |
) |
|
|
50,131 |
|
|
|
|
|
Preferred stocks |
|
|
63,933 |
|
|
|
25 |
|
|
|
(21,623 |
) |
|
|
42,335 |
|
|
|
|
|
Common stocks |
|
|
267,827 |
|
|
|
1,119 |
|
|
|
(139,846 |
) |
|
|
129,100 |
|
|
|
|
|
Mutual funds |
|
|
35,229 |
|
|
|
2 |
|
|
|
(13,880 |
) |
|
|
21,351 |
|
|
|
|
|
Insurance contracts and other long-
term investments |
|
|
19,127 |
|
|
|
1 |
|
|
|
(1,773 |
) |
|
|
17,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust investments |
|
$ |
488,284 |
|
|
$ |
2,025 |
|
|
$ |
(183,495 |
) |
|
|
306,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
307,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated maturities and market values of debt securities included above are as follows:
|
|
|
|
|
|
|
January 31, 2009 |
|
Due in one year or less |
|
$ |
7,003 |
|
Due in one to five years |
|
|
27,460 |
|
Due in five to ten years |
|
|
25,667 |
|
Thereafter |
|
|
30 |
|
|
|
|
|
|
|
$ |
60,160 |
|
|
|
|
|
Where quoted prices are available in an active market, investments held by the trusts are
classified as Level 1 investments pursuant to the three-level valuation hierarchy provided in SFAS
No. 157. The Companys Level 1 investments include cash, money market and other short-term
investments, common stock and mutual funds.
Where quoted market prices are not available for the specific security, then fair values are
estimated by using quoted prices of securities with similar characteristics. These investments are
U. S. Government, agencies and municipalities, corporate bonds and preferred stocks, all of which
are classified within Level 2 of the SFAS No. 157 valuation hierarchy.
The Companys Level 3 investments include insurance contracts and partnership investments.
The valuation of insurance contracts and partnership investments requires significant management
judgment due to the absence of quoted prices, inherent lack of liquidity and the long-term nature
of such assets. The fair market value of the insurance contracts was obtained from the insurance
companies sites showing the current face value of the contracts which is deemed to approximate
fair market value. The fair market value of the partnership investments was determined by using
their most recent unaudited financial statements and assessing the market value of the underlying
securities within the partnership.
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 inputs into the fair value of the Companys preneed funeral merchandise and services trust
investments are categorized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2009 |
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
Quoted Market |
|
Other |
|
Significant |
|
|
|
|
Prices in Active |
|
Observable |
|
Unobservable |
|
|
|
|
Markets |
|
Inputs |
|
Inputs |
|
Fair Market |
|
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Value |
Trust investments |
|
$ |
195,247 |
|
|
$ |
102,497 |
|
|
$ |
9,070 |
|
|
$ |
306,814 |
|
The change in the Companys preneed funeral merchandise and services trust investments with
significant unobservable inputs (Level 3) is as follows:
|
|
|
|
|
Fair market value, November 1, 2008 |
|
$ |
11,299 |
|
Total unrealized losses included in other comprehensive income (1) |
|
|
(1,714 |
) |
Purchases, sales, contributions, and distributions, net |
|
|
(515 |
) |
|
|
|
|
Fair market value, January 31, 2009 |
|
$ |
9,070 |
|
|
|
|
|
|
|
|
(1) |
|
All gains (losses) recognized in other comprehensive income for funeral trust
investments are attributable to the Companys preneed customers and are offset by a
corresponding increase (decrease) in deferred preneed funeral receipts held in trust. |
Activity related to preneed funeral trust investments is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2009 |
|
2008 |
Purchases |
|
$ |
641 |
|
|
$ |
6,386 |
|
Sales |
|
|
4,616 |
|
|
|
9,620 |
|
Realized gains from sales of investments |
|
|
508 |
|
|
|
893 |
|
Realized losses from sales of investments and other |
|
|
(8,501 |
) (1) |
|
|
(213 |
) |
Deposits |
|
|
6,359 |
|
|
|
8,393 |
|
Withdrawals |
|
|
11,052 |
|
|
|
11,928 |
|
|
|
|
(1) |
|
Includes $195 in losses from the sale of investments and $8,306 in losses related to certain
investments that were rendered worthless or practically worthless and to certain investments
that the Company determined it did not have the intent to hold until they recover in value. |
Cash flows from preneed funeral contracts are presented as operating cash flows in the
Companys condensed consolidated statements of cash flows.
(4) |
|
Preneed Cemetery Merchandise and Service Activities
|
Preneed Cemetery Receivables and Trust Investments
Preneed cemetery receivables and trust investments represent trust assets and customer
receivables for contracts sold in advance of when the merchandise or services are needed. The
receivables related to the sale of preneed property interment rights are included in the Companys
current and long-term receivables. The
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) |
components of preneed cemetery receivables and trust investments in the condensed consolidated
balance sheets as of January 31, 2009 and October 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
|
October 31, |
|
|
|
2009 |
|
|
2008 |
|
Trust assets |
|
$ |
138,186 |
|
|
$ |
148,533 |
|
Receivables from customers |
|
|
37,896 |
|
|
|
39,868 |
|
|
|
|
|
|
|
|
|
|
|
176,082 |
|
|
|
188,401 |
|
Allowance for cancellations |
|
|
(6,033 |
) |
|
|
(6,260 |
) |
|
|
|
|
|
|
|
Preneed cemetery receivables and trust investments |
|
$ |
170,049 |
|
|
$ |
182,141 |
|
|
|
|
|
|
|
|
The cost and market values associated with the preneed cemetery merchandise and services trust
assets as of January 31, 2009 are detailed below. Based on the Companys quarterly evaluation, the
cost basis of the cemetery merchandise and services trust assets below reflects realized losses of
approximately $3,221 during the quarter ended January 31, 2009 from their original cost basis.
These realized losses are related to certain investments held that were rendered worthless or
practically worthless and to certain investments primarily in the consumer discretionary and
healthcare sectors that the Company determined it did not have the intent to hold until they
recover in value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2009 |
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Cost Basis |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
|
|
|
|
Cash, money market and other
short-term investments |
|
$ |
18,345 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
18,345 |
|
|
|
|
|
U.S. Government, agencies and
municipalities |
|
|
11,596 |
|
|
|
940 |
|
|
|
|
|
|
|
12,536 |
|
|
|
|
|
Corporate bonds |
|
|
11,962 |
|
|
|
211 |
|
|
|
(805 |
) |
|
|
11,368 |
|
|
|
|
|
Preferred stocks |
|
|
24,121 |
|
|
|
|
|
|
|
(8,878 |
) |
|
|
15,243 |
|
|
|
|
|
Common stocks |
|
|
138,043 |
|
|
|
196 |
|
|
|
(73,438 |
) |
|
|
64,801 |
|
|
|
|
|
Mutual funds |
|
|
30,310 |
|
|
|
|
|
|
|
(15,119 |
) |
|
|
15,191 |
|
|
|
|
|
Other long-term investments |
|
|
272 |
|
|
|
|
|
|
|
(4 |
) |
|
|
268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust investments |
|
$ |
234,649 |
|
|
$ |
1,347 |
|
|
$ |
(98,244 |
) |
|
|
137,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
138,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated maturities and market values of debt securities included above are as follows:
|
|
|
|
|
|
|
January 31, 2009 |
|
Due in one year or less |
|
$ |
4,883 |
|
Due in one to five years |
|
|
11,948 |
|
Due in five to ten years |
|
|
6,871 |
|
Thereafter |
|
|
202 |
|
|
|
|
|
|
|
$ |
23,904 |
|
|
|
|
|
Where quoted prices are available in an active market, investments held by the trusts are
classified as Level 1 investments pursuant to the three-level valuation hierarchy provided in SFAS
No. 157. The Companys Level 1 investments include cash, money market and other short-term
investments, common stock and mutual funds.
15
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(4) |
|
Preneed Cemetery Merchandise and Service Activities(Continued) |
Where quoted market prices are not available for the specific security, then fair values are
estimated by using quoted prices of securities with similar characteristics. These investments are
U. S. Government, agencies and municipalities, corporate bonds and preferred stocks, all of which
are classified within Level 2 of the SFAS No. 157 valuation hierarchy.
There are no Level 3 investments in the preneed cemetery merchandise and services trust
investment portfolio.
The inputs into the fair value of the Companys preneed cemetery merchandise and services
trust investments are categorized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2009 |
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
Quoted Market |
|
Other |
|
Significant |
|
|
|
|
Prices in Active |
|
Observable |
|
Unobservable |
|
|
|
|
Markets |
|
Inputs |
|
Inputs |
|
Fair Market |
|
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Value |
Trust investments |
|
$ |
98,814 |
|
|
$ |
38,938 |
|
|
$ |
|
|
|
$ |
137,752 |
|
Activity related to preneed cemetery merchandise and services trust investments is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2009 |
|
2008 |
Purchases |
|
$ |
1,153 |
|
|
$ |
2,911 |
|
Sales |
|
|
2,456 |
|
|
|
2,540 |
|
Realized gains from sales of investments |
|
|
104 |
|
|
|
353 |
|
Realized losses from sales of investments and other |
|
|
(4,464 |
) (1) |
|
|
(29 |
) |
Deposits |
|
|
4,033 |
|
|
|
4,204 |
|
Withdrawals |
|
|
3,768 |
|
|
|
4,511 |
|
|
|
|
(1) |
|
Includes $1,243 in losses from the sale of investments and $3,221 in losses related to
certain investments that were rendered worthless or practically worthless and to certain
investments that the Company determined it did not have the intent to hold until they recover
in value. |
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 $1,722 and $2,592 for the first quarters of 2009 and 2008,
respectively.
The cost and market values of the trust investments held by the cemetery perpetual care trusts
as of January 31, 2009 are detailed below. Based on the Companys quarterly evaluation, the cost
basis of the cemetery perpetual care trusts below reflects realized losses of approximately $84
during the quarter ended January 31, 2009 from their original cost basis. These realized losses
are related to certain investments held that were rendered worthless or practically worthless and
created estimated probable funding obligations to the cemetery perpetual care trusts.
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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2009 |
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Cost Basis |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
|
|
|
|
Cash, money market and other
short-term investments |
|
$ |
23,422 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
23,422 |
|
|
|
|
|
U.S. Government, agencies and
municipalities |
|
|
7,610 |
|
|
|
466 |
|
|
|
(89 |
) |
|
|
7,987 |
|
|
|
|
|
Corporate bonds |
|
|
45,172 |
|
|
|
635 |
|
|
|
(2,871 |
) |
|
|
42,936 |
|
|
|
|
|
Preferred stocks |
|
|
67,499 |
|
|
|
1 |
|
|
|
(32,182 |
) |
|
|
35,318 |
|
|
|
|
|
Common stocks |
|
|
106,181 |
|
|
|
2,234 |
|
|
|
(56,939 |
) |
|
|
51,476 |
|
|
|
|
|
Mutual funds |
|
|
8,830 |
|
|
|
|
|
|
|
(3,332 |
) |
|
|
5,498 |
|
|
|
|
|
Other long-term investments |
|
|
550 |
|
|
|
|
|
|
|
(119 |
) |
|
|
431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust investments |
|
$ |
259,264 |
|
|
$ |
3,336 |
|
|
$ |
(95,532 |
) |
|
|
167,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
167,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated maturities and market values of debt securities included above are as follows:
|
|
|
|
|
|
|
January 31, 2009 |
|
Due in one year or less |
|
$ |
1,959 |
|
Due in one to five years |
|
|
28,963 |
|
Due in five to ten years |
|
|
18,929 |
|
Thereafter |
|
|
1,072 |
|
|
|
|
|
|
|
$ |
50,923 |
|
|
|
|
|
Where quoted prices are available in an active market, investments held by the trusts are
classified as Level 1 investments pursuant to the three-level valuation hierarchy provided in SFAS
No. 157. The Companys Level 1 investments include cash, money market and other short-term
investments, common stock and mutual funds.
Where quoted market prices are not available for the specific security, then fair values are
estimated by using quoted prices of securities with similar characteristics. These investments are
U. S. Government, agencies and municipalities, corporate bonds and preferred stocks, all of which
are classified within Level 2 of the SFAS No. 157 valuation hierarchy.
The Companys Level 3 investments include an investment in a partnership. The valuation of
partnership investments requires significant management judgment due to the absence of quoted
prices, inherent lack of liquidity and the long-term nature of such assets. The fair market value
of the partnership investments was determined by using its most recent unaudited financial
statements and assessing the market value of the underlying securities within the partnership.
17
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(5) |
|
Cemetery Interment Rights and Perpetual Care Trusts(Continued) |
The inputs into the fair value of the Companys cemetery perpetual care trust investments are
categorized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2009 |
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
Quoted Market |
|
Other |
|
Significant |
|
|
|
|
Prices in Active |
|
Observable |
|
Unobservable |
|
|
|
|
Markets |
|
Inputs |
|
Inputs |
|
Fair market |
|
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
value |
Trust investments |
|
$ |
80,585 |
|
|
$ |
86,240 |
|
|
$ |
243 |
|
|
$ |
167,068 |
|
The change in the Companys cemetery perpetual care trust investments with significant
unobservable inputs (Level 3) is as follows:
|
|
|
|
|
Fair market value, November 1, 2008 |
|
$ |
611 |
|
Total unrealized losses included in other comprehensive income (1) |
|
|
(118 |
) |
Transfers out of Level 3 category |
|
|
(250 |
) |
|
|
|
|
Fair market value, January 31, 2009 |
|
$ |
243 |
|
|
|
|
|
|
|
|
(1) |
|
All gains (losses) recognized in other comprehensive income for cemetery perpetual
care trust investments are attributable to the Companys customers and are offset by a
corresponding increase (decrease) in perpetual care trusts corpus. |
In states where the Company withdraws and recognizes capital gains in its cemetery perpetual
care trusts, if it realizes net capital losses (i.e. losses in excess of capital gains in the
trust) and the fair market value of the trust assets is less than the aggregate amounts required to
be contributed to the trust, some states may require the Company to make cash deposits to the
trusts or may require the Company to stop withdrawing earnings until future earnings restore the
net realized losses. As of October 31, 2008, the Company recorded a liability for the estimated
probable funding obligation to restore the net realized losses as a result of fiscal year 2008
losses of $13,281, which was recognized as a realized loss in the consolidated statement of
earnings for the year ended October 31, 2008 in cemetery costs. In the first quarter of fiscal
year 2009, the Company recorded an additional $88 for the estimated probable funding obligation to
restore the net realized losses in the cemetery perpetual care trust, and contributed approximately
$734 to the trusts as part of its funding obligation.
Activity related to preneed cemetery perpetual care trust investments is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2009 |
|
2008 |
Purchases |
|
$ |
329 |
|
|
$ |
13,617 |
|
Sales |
|
|
1,806 |
|
|
|
12,123 |
|
Realized gains from sales of investments |
|
|
359 |
|
|
|
1,252 |
|
Realized losses from sales of investments and other |
|
|
(96 |
) (1) |
|
|
|
|
Deposits |
|
|
2,454 |
(2) |
|
|
1,973 |
|
Withdrawals |
|
|
1,587 |
|
|
|
2,813 |
|
|
|
|
(1) |
|
Includes $12 in losses from the sale of investments and $84 in losses related to certain
investments that were rendered worthless or practically worthless. |
|
(2) |
|
Includes $734 that the Company contributed to the cemetery perpetual care trusts in the first
quarter of 2009 as part of its funding obligation. |
18
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) |
During the three months ended January 31, 2009 and 2008, cemetery revenues were $47,580 and
$56,824, respectively, of which $1,613 and $2,232, 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) |
|
Deferred Preneed Funeral and Cemetery Receipts Held in Trust and Perpetual Care
Trusts Corpus |
The components of deferred preneed funeral and cemetery receipts held in trust in the
condensed consolidated balance sheet at January 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Receipts Held in Trust |
|
|
|
|
|
|
Preneed |
|
|
Preneed |
|
|
|
|
|
|
Funeral |
|
|
Cemetery |
|
|
Total |
|
Trust assets at market value |
|
$ |
307,946 |
|
|
$ |
138,186 |
|
|
$ |
446,132 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Pending withdrawals |
|
|
(7,821 |
) |
|
|
(4,269 |
) |
|
|
(12,090 |
) |
Pending deposits |
|
|
2,103 |
|
|
|
1,440 |
|
|
|
3,543 |
|
|
|
|
|
|
|
|
|
|
|
Deferred receipts held in trust |
|
$ |
302,228 |
|
|
$ |
135,357 |
|
|
$ |
437,585 |
|
|
|
|
|
|
|
|
|
|
|
The components of perpetual care trusts corpus in the condensed consolidated balance sheet at
January 31, 2009 are as follows:
|
|
|
|
|
|
|
Perpetual Care |
|
|
|
Trusts Corpus |
|
Trust assets at market value |
|
$ |
167,889 |
|
Less: |
|
|
|
|
Pending withdrawals |
|
|
(1,901 |
) |
Pending deposits |
|
|
687 |
|
|
|
|
|
Perpetual care trusts corpus |
|
$ |
166,675 |
|
|
|
|
|
19
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(6) |
|
Deferred Preneed Funeral and Cemetery Receipts Held in Trust and Perpetual Care Trusts Corpus(Continued) |
Investment and other income, net
The components of investment and other income, net in the condensed consolidated statements of
earnings for the three months ended January 31, 2009 and 2008 are detailed below.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
|
2009 |
|
|
2008 |
|
Realized gains from sales of investments |
|
$ |
971 |
|
|
$ |
2,498 |
|
Realized losses from sales of investments and other |
|
|
(13,061 |
) |
|
|
(242 |
) |
Interest income, dividend and other ordinary income |
|
|
6,737 |
|
|
|
8,095 |
|
Trust expenses and income taxes |
|
|
(2,134 |
) |
|
|
(2,706 |
) |
|
|
|
|
|
|
|
Net trust investment income (loss) |
|
|
(7,487 |
) |
|
|
7,645 |
|
Investment income of deferred preneed funeral and
cemetery receipts held in trust |
|
|
9,273 |
|
|
|
(4,597 |
) |
Investment income of perpetual care trusts corpus |
|
|
(1,786 |
) |
|
|
(3,048 |
) |
|
|
|
|
|
|
|
Total deferred preneed funeral and cemetery
receipts held in trust and perpetual care trusts
corpus |
|
|
|
|
|
|
|
|
Investment and other income, net (1) |
|
|
41 |
|
|
|
720 |
|
|
|
|
|
|
|
|
Total investment and other income, net |
|
$ |
41 |
|
|
$ |
720 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Investment and other income, net consists of interest income primarily on the
Companys cash, cash equivalents and marketable securities not held in trust. |
(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)
20
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(7) Commitments and Contingencies(Continued)
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. On
December 23, 2008, the court of appeals affirmed the summary judgment. On that basis, the Company
expects to move for dismissal of the case in which it is a defendant. 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.
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 took the motion under advisement. Fact discovery has been
completed, and expert discovery is complete with the exception of the deposition of one expert
witness. The court has entered an order staying the matter pending resolution of the motion for
class certification.
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. On November 24, 2008, the magistrate judge issued a Memorandum and Recommendation
that the plaintiffs motion for class certification be denied. Plaintiffs objections to the
magistrate judges recommendations are pending before the district court. A successful plaintiff
in an antitrust 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
21
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(7) Commitments and Contingencies(Continued)
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 took the
motion under advisement. Fact discovery has been completed, and expert discovery is complete with
the exception of the deposition of one expert witness. The court has entered an order staying the
matter pending resolution of the motion for class certification.
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. On November 24, 2008, the
magistrate judge issued a Memorandum and Recommendation that the plaintiffs motion for class
certification be denied. Plaintiffs objections to the magistrate judges recommendations are
pending before the district court. A successful plaintiff in an antitrust 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 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
As previously disclosed, in November 2006, the Company received a subpoena from the Securities
and Exchange Commission (SEC) issued pursuant to a formal order of investigation, seeking
documents and information related to the Companys previously disclosed and completed deferred
revenue project. On December 9, 2008, the SEC approved a settlement with the Company, bringing a
conclusion to the SECs investigation. Under the settlement, without admitting or denying the
SECs findings, the Company consented to an administrative cease
and desist order requiring future compliance with specified provisions of the federal securities
laws relating to reporting, books and records and internal accounting controls requirements. The
settlement does not require the Company to pay a monetary penalty.
22
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(7) Commitments and Contingencies(Continued)
Other Commitments and Contingencies
In those states where the Company has withdrawn realized net capital gains in the past from
its cemetery perpetual care trusts, regulators may seek replenishment of the realized net capital
losses either by requiring a cash deposit to the trust or by prohibiting or restricting withdrawals
of future earnings until they cover the loss. As of October 31, 2008, the Company recorded
$13,281 for an estimated probable funding obligation as an increase in cemetery costs in fiscal
year 2008 and recorded an additional $88 for the estimated probable funding obligation in the first
quarter of 2009. As of January 31, 2009, the Company had unrealized losses of $72,293 in the
trusts in these states. Because all of these trusts currently have assets with a fair market value
less than the aggregate amounts required to be contributed to the trust, any additional realized
net capital losses in these trusts may result in a corresponding funding liability and increase in
cemetery costs.
From time to time, unidentified contracts are presented to the Company relating to contracts
sold prior to the time the Company acquired certain businesses. In addition, from time to time,
the Company has identified in its backlog, certain contracts in which services or merchandise have
already been delivered. Using historical trends and statistical analysis, the Company has recorded
an estimated net liability for these items of approximately $7 million as of January 31, 2009 and
October 31, 2008.
The Company is required to maintain a bond ($28,851 as of January 31, 2009) to guarantee its
obligations relating to funds the Company withdrew in fiscal year 2001 from its preneed funeral
trusts in Florida. This amount would become senior secured debt if the Company was to borrow funds
under the revolving credit facility to extinguish the bond obligation by returning to the trusts
the amounts it previously withdrew that relate to the remaining undelivered preneed contracts.
(8) Reconciliation of Basic and Diluted Per Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
|
|
Shares |
|
|
Per Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Data |
|
Three Months Ended January 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
5,716 |
|
|
|
|
|
|
|
|
|
Basic earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings available to common shareholders |
|
$ |
5,716 |
|
|
|
91,824 |
|
|
$ |
.06 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options assumed exercised and restricted stock |
|
|
|
|
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings available to common shareholders plus
stock options assumed exercised and restricted
stock |
|
$ |
5,716 |
|
|
|
91,896 |
|
|
$ |
.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
|
|
Shares |
|
|
Per Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Data |
|
Three Months Ended January 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
8,885 |
|
|
|
|
|
|
|
|
|
Basic earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings available to common shareholders |
|
$ |
8,885 |
|
|
|
96,784 |
|
|
$ |
.09 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options assumed exercised and restricted stock |
|
|
|
|
|
|
235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings available to common shareholders plus
stock options assumed exercised and restricted
stock |
|
$ |
8,885 |
|
|
|
97,019 |
|
|
$ |
.09 |
|
|
|
|
|
|
|
|
|
|
|
23
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)
Options to purchase 1,764,013 shares of common stock at prices ranging from $3.09 to $8.47 per
share were antidilutive during the three months ended January 31, 2009. These options expire
between December 20, 2011 and January 5, 2016.
Options to purchase 242,167 shares of common stock at prices ranging from $6.73 to $8.24 per
share were antidilutive during the three months ended January 31, 2008.
For the three months ended January 31, 2009, 468,000 market based stock options and 712,000
market and performance based shares of restricted stock were not dilutive. For the three months
ended January 31, 2008, 675,000 market based stock options and 405,000 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 months ended January 31, 2009 and 2008, 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 first quarters of 2009 and 2008 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 January 31, 2009, the Companys Chairman, Frank B. Stewart, Jr., was the record holder of all of
the Companys shares of Class B common stock. The Companys Class A and B common stock are
substantially identical, except that holders of Class A common stock are entitled to one vote per
share, and holders of Class B common stock are entitled to ten votes per share. Each share of
Class B common stock is automatically converted into one share of Class A common stock upon
transfer to persons other than certain affiliates of Frank B. Stewart, Jr.
(9) Segment Data
The Company has 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 Company does not aggregate its operating segments. Therefore, its operating and
reportable segments are the same.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
January 31, 2009 |
|
|
January 31, 2008 |
|
|
January 31, 2009 |
|
|
January 31, 2008 |
|
|
January 31, 2009 |
|
|
January 31, 2008 |
|
Eastern Division |
|
$ |
30,134 |
|
|
$ |
30,482 |
|
|
$ |
26,069 |
|
|
$ |
32,169 |
|
|
$ |
56,203 |
|
|
$ |
62,651 |
|
Western Division |
|
|
38,012 |
|
|
|
38,431 |
|
|
|
19,621 |
|
|
|
22,362 |
|
|
|
57,633 |
|
|
|
60,793 |
|
Corporate Trust
Management
(2) |
|
|
3,604 |
|
|
|
4,536 |
|
|
|
1,890 |
|
|
|
2,293 |
|
|
|
5,494 |
|
|
|
6,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
71,750 |
|
|
$ |
73,449 |
|
|
$ |
47,580 |
|
|
$ |
56,824 |
|
|
$ |
119,330 |
|
|
$ |
130,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(9) Segment Data(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
January 31, 2009 |
|
|
January 31, 2008 |
|
|
January 31, 2009 |
|
|
January 31, 2008 |
|
|
January 31, 2009 |
|
|
January 31, 2008 |
|
Eastern Division |
|
$ |
5,837 |
|
|
$ |
5,339 |
|
|
$ |
847 |
|
|
$ |
3,288 |
|
|
$ |
6,684 |
|
|
$ |
8,627 |
|
Western Division |
|
|
9,005 |
|
|
|
8,364 |
|
|
|
2,340 |
|
|
|
3,761 |
|
|
|
11,345 |
|
|
|
12,125 |
|
Corporate Trust
Management
(2) |
|
|
3,413 |
|
|
|
4,299 |
|
|
|
1,641 |
|
|
|
2,019 |
|
|
|
5,054 |
|
|
|
6,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
18,255 |
|
|
$ |
18,002 |
|
|
$ |
4,828 |
|
|
$ |
9,068 |
|
|
$ |
23,083 |
|
|
$ |
27,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Preneed Funeral Merchandise |
|
|
Net Preneed Cemetery Merchandise |
|
|
Net Total Preneed Merchandise and |
|
|
|
and Service Sales (3) |
|
|
and Service Sales (3) |
|
|
Service Sales (3) |
|
|
|
Three Months |
|
|
Three Months |
|
|
Three Months |
|
|
Three Months |
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
January 31, 2009 |
|
|
January 31, 2008 |
|
|
January 31, 2009 |
|
|
January 31, 2008 |
|
|
January 31, 2009 |
|
|
January 31, 2008 |
|
Eastern Division |
|
$ |
7,682 |
|
|
$ |
9,353 |
|
|
$ |
7,452 |
|
|
$ |
8,229 |
|
|
$ |
15,134 |
|
|
$ |
17,582 |
|
Western Division |
|
|
11,050 |
|
|
|
12,559 |
|
|
|
3,327 |
|
|
|
3,760 |
|
|
|
14,377 |
|
|
|
16,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
18,732 |
|
|
$ |
21,912 |
|
|
$ |
10,779 |
|
|
$ |
11,989 |
|
|
$ |
29,511 |
|
|
$ |
33,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Perpetual care trust earnings are included in the revenues and gross profit of the
related geographic segment and amounted to $1,722 and $2,592 for the three months ended
January 31, 2009 and 2008, respectively. |
|
(2) |
|
Corporate trust management consists of trust management fees and funeral and
cemetery merchandise and services trust earnings recognized with respect to preneed contracts
delivered during the period. Trust management fees are established by the Company at rates
consistent with industry norms based on the fair market value of the assets managed and are
paid by the trusts to the Companys subsidiary, Investors Trust, Inc. The trust earnings
represent 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 January 31, 2009 and 2008 were $937 and $1,378, respectively, and funeral trust earnings
for the three months ended January 31, 2009 and 2008 were $2,667 and $3,158, respectively.
Trust management fees included in cemetery revenue for the three months ended January 31, 2009
and 2008 were $952 and $1,299, respectively, and cemetery trust earnings for the three months
ended January 31, 2009 and 2008 were $938 and $994, respectively. |
|
(3) |
|
Preneed sales amounts represent total preneed funeral trust and insurance sales and
cemetery service and merchandise trust sales generated in the applicable period, net of
cancellations. |
A reconciliation of total segment gross profit to total earnings before income taxes for the
three months ended January 31, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
|
2009 |
|
|
2008 |
|
Gross profit for reportable segments |
|
$ |
23,083 |
|
|
$ |
27,070 |
|
Corporate general and administrative expenses |
|
|
(7,506 |
) |
|
|
(8,235 |
) |
Hurricane related recoveries (charges), net |
|
|
(315 |
) |
|
|
159 |
|
Gains on dispositions and impairment (losses), net |
|
|
(63 |
) |
|
|
147 |
|
Other operating income, net |
|
|
259 |
|
|
|
242 |
|
Interest expense |
|
|
(5,910 |
) |
|
|
(5,888 |
) |
Investment and other income, net |
|
|
41 |
|
|
|
720 |
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
$ |
9,589 |
|
|
$ |
14,215 |
|
|
|
|
|
|
|
|
25
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 months ended
January 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
|
2009 |
|
|
2008 |
|
Service revenue |
|
|
|
|
|
|
|
|
Funeral |
|
$ |
45,306 |
|
|
$ |
45,436 |
|
Cemetery |
|
|
15,101 |
|
|
|
15,659 |
|
|
|
|
|
|
|
|
|
|
|
60,407 |
|
|
|
61,095 |
|
|
|
|
|
|
|
|
|
|
Merchandise revenue |
|
|
|
|
|
|
|
|
Funeral |
|
|
24,917 |
|
|
|
25,996 |
|
Cemetery |
|
|
29,027 |
|
|
|
37,204 |
|
|
|
|
|
|
|
|
|
|
|
53,944 |
|
|
|
63,200 |
|
|
|
|
|
|
|
|
|
|
Other revenue |
|
|
|
|
|
|
|
|
Funeral |
|
|
1,527 |
|
|
|
2,017 |
|
Cemetery |
|
|
3,452 |
|
|
|
3,961 |
|
|
|
|
|
|
|
|
|
|
|
4,979 |
|
|
|
5,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
119,330 |
|
|
$ |
130,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service costs |
|
|
|
|
|
|
|
|
Funeral |
|
$ |
14,668 |
|
|
$ |
15,321 |
|
Cemetery |
|
|
9,755 |
|
|
|
10,114 |
|
|
|
|
|
|
|
|
|
|
|
24,423 |
|
|
|
25,435 |
|
|
|
|
|
|
|
|
|
|
Merchandise costs |
|
|
|
|
|
|
|
|
Funeral |
|
|
15,006 |
|
|
|
16,079 |
|
Cemetery |
|
|
19,250 |
|
|
|
23,913 |
|
|
|
|
|
|
|
|
|
|
|
34,256 |
|
|
|
39,992 |
|
|
|
|
|
|
|
|
|
|
Facility expenses |
|
|
|
|
|
|
|
|
Funeral |
|
|
23,821 |
|
|
|
24,047 |
|
Cemetery |
|
|
13,747 |
|
|
|
13,729 |
|
|
|
|
|
|
|
|
|
|
|
37,568 |
|
|
|
37,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs |
|
$ |
96,247 |
|
|
$ |
103,203 |
|
|
|
|
|
|
|
|
Service revenue includes funeral service revenue, funeral trust earnings, insurance commission
revenue, burial site openings and closings and perpetual care trust earnings. Merchandise revenue
includes funeral merchandise revenue, flower sales, cemetery property sales revenue, cemetery
merchandise delivery revenue and merchandise trust earnings. Other revenue consists of finance
charge revenue and trust management fees. Service costs include the direct costs associated with
service revenue and preneed selling costs associated with preneed service sales. Merchandise costs
include the direct costs associated with merchandise revenue, preneed selling costs associated with
preneed merchandise sales and the Companys estimated obligation to fund the cemetery perpetual
care trusts.
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
The following tables present the condensed consolidating historical financial statements as of
January 31, 2009 and October 31, 2008 and for the three months ended January 31, 2009 and 2008, 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.
Condensed Consolidating Statements of Earnings and Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, 2009 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries- |
|
|
Subsidiaries- |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
|
|
|
$ |
66,871 |
|
|
$ |
399 |
|
|
$ |
4,480 |
|
|
$ |
|
|
|
$ |
71,750 |
|
Cemetery |
|
|
|
|
|
|
43,025 |
|
|
|
661 |
|
|
|
3,894 |
|
|
|
|
|
|
|
47,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,896 |
|
|
|
1,060 |
|
|
|
8,374 |
|
|
|
|
|
|
|
119,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
|
|
|
|
50,000 |
|
|
|
291 |
|
|
|
3,204 |
|
|
|
|
|
|
|
53,495 |
|
Cemetery |
|
|
|
|
|
|
38,811 |
|
|
|
636 |
|
|
|
3,305 |
|
|
|
|
|
|
|
42,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,811 |
|
|
|
927 |
|
|
|
6,509 |
|
|
|
|
|
|
|
96,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
21,085 |
|
|
|
133 |
|
|
|
1,865 |
|
|
|
|
|
|
|
23,083 |
|
Corporate general and administrative
expenses |
|
|
(7,506 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,506 |
) |
Hurricane related charges, net |
|
|
(276 |
) |
|
|
(39 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(315 |
) |
Gains on dispositions and impairment
(losses), net |
|
|
(8 |
) |
|
|
(55 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63 |
) |
Other operating income (expense), net |
|
|
(2 |
) |
|
|
244 |
|
|
|
1 |
|
|
|
16 |
|
|
|
|
|
|
|
259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) |
|
|
(7,792 |
) |
|
|
21,235 |
|
|
|
134 |
|
|
|
1,881 |
|
|
|
|
|
|
|
15,458 |
|
Interest expense |
|
|
819 |
|
|
|
(6,165 |
) |
|
|
(36 |
) |
|
|
(528 |
) |
|
|
|
|
|
|
(5,910 |
) |
Investment and other income, net |
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41 |
|
Equity in subsidiaries |
|
|
11,171 |
|
|
|
135 |
|
|
|
|
|
|
|
|
|
|
|
(11,306 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
4,239 |
|
|
|
15,205 |
|
|
|
98 |
|
|
|
1,353 |
|
|
|
(11,306 |
) |
|
|
9,589 |
|
Income tax expense (benefit) |
|
|
(1,477 |
) |
|
|
4,836 |
|
|
|
19 |
|
|
|
495 |
|
|
|
|
|
|
|
3,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
5,716 |
|
|
|
10,369 |
|
|
|
79 |
|
|
|
858 |
|
|
|
(11,306 |
) |
|
|
5,716 |
|
Other comprehensive income, net |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
(3 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
5,719 |
|
|
$ |
10,369 |
|
|
$ |
79 |
|
|
$ |
861 |
|
|
$ |
(11,309 |
) |
|
$ |
5,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 January 31, 2008 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries- |
|
|
Subsidiaries- |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
|
|
|
$ |
68,047 |
|
|
$ |
494 |
|
|
$ |
4,908 |
|
|
$ |
|
|
|
$ |
73,449 |
|
Cemetery |
|
|
|
|
|
|
51,072 |
|
|
|
827 |
|
|
|
4,925 |
|
|
|
|
|
|
|
56,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,119 |
|
|
|
1,321 |
|
|
|
9,833 |
|
|
|
|
|
|
|
130,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
|
|
|
|
51,773 |
|
|
|
308 |
|
|
|
3,366 |
|
|
|
|
|
|
|
55,447 |
|
Cemetery |
|
|
|
|
|
|
42,895 |
|
|
|
786 |
|
|
|
4,075 |
|
|
|
|
|
|
|
47,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,668 |
|
|
|
1,094 |
|
|
|
7,441 |
|
|
|
|
|
|
|
103,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
24,451 |
|
|
|
227 |
|
|
|
2,392 |
|
|
|
|
|
|
|
27,070 |
|
Corporate general and
administrative expenses |
|
|
(8,235 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,235 |
) |
Hurricane related recoveries, net |
|
|
|
|
|
|
|
|
|
|
159 |
|
|
|
|
|
|
|
|
|
|
|
159 |
|
Gains on dispositions and
impairment (losses), net |
|
|
|
|
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147 |
|
Other operating income, net |
|
|
21 |
|
|
|
159 |
|
|
|
|
|
|
|
62 |
|
|
|
|
|
|
|
242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) |
|
|
(8,214 |
) |
|
|
24,757 |
|
|
|
386 |
|
|
|
2,454 |
|
|
|
|
|
|
|
19,383 |
|
Interest expense |
|
|
(700 |
) |
|
|
(4,519 |
) |
|
|
(29 |
) |
|
|
(640 |
) |
|
|
|
|
|
|
(5,888 |
) |
Investment and other income, net |
|
|
702 |
|
|
|
13 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
720 |
|
Equity in subsidiaries |
|
|
16,326 |
|
|
|
198 |
|
|
|
|
|
|
|
|
|
|
|
(16,524 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
8,114 |
|
|
|
20,449 |
|
|
|
357 |
|
|
|
1,819 |
|
|
|
(16,524 |
) |
|
|
14,215 |
|
Income tax expense (benefit) |
|
|
(771 |
) |
|
|
5,550 |
|
|
|
83 |
|
|
|
468 |
|
|
|
|
|
|
|
5,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
8,885 |
|
|
|
14,899 |
|
|
|
274 |
|
|
|
1,351 |
|
|
|
(16,524 |
) |
|
|
8,885 |
|
Other comprehensive income, net |
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
27 |
|
|
|
(27 |
) |
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
8,955 |
|
|
$ |
14,899 |
|
|
$ |
274 |
|
|
$ |
1,378 |
|
|
$ |
(16,551 |
) |
|
$ |
8,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2009 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries- |
|
|
Subsidiaries- |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
63,289 |
|
|
$ |
6,384 |
|
|
$ |
34 |
|
|
$ |
1,788 |
|
|
$ |
|
|
|
$ |
71,495 |
|
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61 |
|
|
|
|
|
|
|
61 |
|
Receivables, net of allowances |
|
|
1,722 |
|
|
|
51,743 |
|
|
|
451 |
|
|
|
4,383 |
|
|
|
|
|
|
|
58,299 |
|
Inventories |
|
|
306 |
|
|
|
33,752 |
|
|
|
368 |
|
|
|
2,380 |
|
|
|
|
|
|
|
36,806 |
|
Prepaid expenses |
|
|
1,602 |
|
|
|
9,318 |
|
|
|
53 |
|
|
|
1,394 |
|
|
|
|
|
|
|
12,367 |
|
Deferred income taxes, net |
|
|
929 |
|
|
|
5,610 |
|
|
|
39 |
|
|
|
1,472 |
|
|
|
|
|
|
|
8,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
67,848 |
|
|
|
106,807 |
|
|
|
945 |
|
|
|
11,478 |
|
|
|
|
|
|
|
187,078 |
|
Receivables due beyond one year, net of
allowances |
|
|
|
|
|
|
51,604 |
|
|
|
411 |
|
|
|
15,005 |
|
|
|
|
|
|
|
67,020 |
|
Preneed funeral receivables and trust
investments |
|
|
|
|
|
|
329,642 |
|
|
|
|
|
|
|
9,098 |
|
|
|
|
|
|
|
338,740 |
|
Preneed cemetery receivables and trust
investments |
|
|
|
|
|
|
162,093 |
|
|
|
1,043 |
|
|
|
6,913 |
|
|
|
|
|
|
|
170,049 |
|
Goodwill |
|
|
|
|
|
|
227,401 |
|
|
|
48 |
|
|
|
19,787 |
|
|
|
|
|
|
|
247,236 |
|
Cemetery property, at cost |
|
|
|
|
|
|
347,438 |
|
|
|
11,384 |
|
|
|
25,554 |
|
|
|
|
|
|
|
384,376 |
|
Property and equipment, at cost |
|
|
51,415 |
|
|
|
453,394 |
|
|
|
1,934 |
|
|
|
38,206 |
|
|
|
|
|
|
|
544,949 |
|
Less accumulated depreciation |
|
|
31,811 |
|
|
|
195,433 |
|
|
|
866 |
|
|
|
14,453 |
|
|
|
|
|
|
|
242,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
19,604 |
|
|
|
257,961 |
|
|
|
1,068 |
|
|
|
23,753 |
|
|
|
|
|
|
|
302,386 |
|
Deferred income taxes, net |
|
|
26,188 |
|
|
|
148,313 |
|
|
|
|
|
|
|
9,183 |
|
|
|
(3,156 |
) |
|
|
180,528 |
|
Cemetery perpetual care trust investments |
|
|
|
|
|
|
157,928 |
|
|
|
6,711 |
|
|
|
3,250 |
|
|
|
|
|
|
|
167,889 |
|
Non-current assets held for sale |
|
|
|
|
|
|
2,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,873 |
|
Other assets |
|
|
8,936 |
|
|
|
5,742 |
|
|
|
3 |
|
|
|
1,065 |
|
|
|
|
|
|
|
15,746 |
|
Intercompany receivables |
|
|
833,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(833,592 |
) |
|
|
|
|
Equity in subsidiaries |
|
|
28,887 |
|
|
|
7,509 |
|
|
|
|
|
|
|
|
|
|
|
(36,396 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
985,055 |
|
|
$ |
1,805,311 |
|
|
$ |
21,613 |
|
|
$ |
125,086 |
|
|
$ |
(873,144 |
) |
|
$ |
2,063,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
$ |
12 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12 |
|
Accounts payable |
|
|
2,170 |
|
|
|
21,591 |
|
|
|
108 |
|
|
|
1,340 |
|
|
|
|
|
|
|
25,209 |
|
Accrued expenses and other current
liabilities |
|
|
15,186 |
|
|
|
49,645 |
|
|
|
17 |
|
|
|
2,823 |
|
|
|
|
|
|
|
67,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
17,368 |
|
|
|
71,236 |
|
|
|
125 |
|
|
|
4,163 |
|
|
|
|
|
|
|
92,892 |
|
Long-term debt, less current maturities |
|
|
450,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450,094 |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
3,156 |
|
|
|
|
|
|
|
(3,156 |
) |
|
|
|
|
Intercompany payables |
|
|
|
|
|
|
818,947 |
|
|
|
3,853 |
|
|
|
10,792 |
|
|
|
(833,592 |
) |
|
|
|
|
Deferred preneed funeral revenue |
|
|
|
|
|
|
197,661 |
|
|
|
|
|
|
|
45,467 |
|
|
|
|
|
|
|
243,128 |
|
Deferred preneed cemetery revenue |
|
|
|
|
|
|
253,601 |
|
|
|
333 |
|
|
|
27,726 |
|
|
|
|
|
|
|
281,660 |
|
Deferred preneed funeral and cemetery
receipts held in trust |
|
|
|
|
|
|
432,976 |
|
|
|
875 |
|
|
|
3,734 |
|
|
|
|
|
|
|
437,585 |
|
Perpetual care trusts corpus |
|
|
|
|
|
|
156,720 |
|
|
|
6,729 |
|
|
|
3,226 |
|
|
|
|
|
|
|
166,675 |
|
Other long-term liabilities |
|
|
17,597 |
|
|
|
4,238 |
|
|
|
|
|
|
|
124 |
|
|
|
|
|
|
|
21,959 |
|
Negative equity in subsidiaries |
|
|
130,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(130,068 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
615,127 |
|
|
|
1,935,379 |
|
|
|
15,071 |
|
|
|
95,232 |
|
|
|
(966,816 |
) |
|
|
1,693,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
92,719 |
|
|
|
102 |
|
|
|
324 |
|
|
|
52 |
|
|
|
(478 |
) |
|
|
92,719 |
|
Other |
|
|
277,169 |
|
|
|
(130,170 |
) |
|
|
6,218 |
|
|
|
29,762 |
|
|
|
94,190 |
|
|
|
277,169 |
|
Accumulated other comprehensive income |
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
40 |
|
|
|
(40 |
) |
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
369,928 |
|
|
|
(130,068 |
) |
|
|
6,542 |
|
|
|
29,854 |
|
|
|
93,672 |
|
|
|
369,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
985,055 |
|
|
$ |
1,805,311 |
|
|
$ |
21,613 |
|
|
$ |
125,086 |
|
|
$ |
(873,144 |
) |
|
$ |
2,063,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2008 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries- |
|
|
Subsidiaries- |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
65,593 |
|
|
$ |
4,332 |
|
|
$ |
22 |
|
|
$ |
2,627 |
|
|
$ |
|
|
|
$ |
72,574 |
|
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
55 |
|
Receivables, net of allowances |
|
|
2,987 |
|
|
|
51,137 |
|
|
|
546 |
|
|
|
4,459 |
|
|
|
|
|
|
|
59,129 |
|
Inventories |
|
|
300 |
|
|
|
32,821 |
|
|
|
361 |
|
|
|
2,388 |
|
|
|
|
|
|
|
35,870 |
|
Prepaid expenses |
|
|
1,282 |
|
|
|
4,618 |
|
|
|
37 |
|
|
|
1,380 |
|
|
|
|
|
|
|
7,317 |
|
Deferred income taxes, net |
|
|
1,395 |
|
|
|
6,117 |
|
|
|
55 |
|
|
|
1,231 |
|
|
|
|
|
|
|
8,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
71,557 |
|
|
|
99,025 |
|
|
|
1,021 |
|
|
|
12,140 |
|
|
|
|
|
|
|
183,743 |
|
Receivables due beyond one year, net of
allowances |
|
|
|
|
|
|
54,326 |
|
|
|
404 |
|
|
|
15,941 |
|
|
|
|
|
|
|
70,671 |
|
Preneed funeral receivables and trust
investments |
|
|
|
|
|
|
358,891 |
|
|
|
|
|
|
|
9,521 |
|
|
|
|
|
|
|
368,412 |
|
Preneed cemetery receivables and trust
investments |
|
|
|
|
|
|
173,484 |
|
|
|
1,047 |
|
|
|
7,610 |
|
|
|
|
|
|
|
182,141 |
|
Goodwill |
|
|
|
|
|
|
227,401 |
|
|
|
48 |
|
|
|
19,787 |
|
|
|
|
|
|
|
247,236 |
|
Cemetery property, at cost |
|
|
|
|
|
|
338,793 |
|
|
|
11,424 |
|
|
|
25,615 |
|
|
|
|
|
|
|
375,832 |
|
Property and equipment, at cost |
|
|
49,583 |
|
|
|
451,147 |
|
|
|
1,932 |
|
|
|
38,109 |
|
|
|
|
|
|
|
540,771 |
|
Less accumulated depreciation |
|
|
30,479 |
|
|
|
190,822 |
|
|
|
824 |
|
|
|
14,118 |
|
|
|
|
|
|
|
236,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
19,104 |
|
|
|
260,325 |
|
|
|
1,108 |
|
|
|
23,991 |
|
|
|
|
|
|
|
304,528 |
|
Deferred income taxes, net |
|
|
25,853 |
|
|
|
148,403 |
|
|
|
|
|
|
|
8,527 |
|
|
|
(3,268 |
) |
|
|
179,515 |
|
Cemetery perpetual care trust investments |
|
|
|
|
|
|
162,789 |
|
|
|
7,137 |
|
|
|
3,164 |
|
|
|
|
|
|
|
173,090 |
|
Non-current assets held for sale |
|
|
|
|
|
|
2,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,873 |
|
Other assets |
|
|
9,451 |
|
|
|
5,937 |
|
|
|
16 |
|
|
|
1,070 |
|
|
|
|
|
|
|
16,474 |
|
Intercompany receivables |
|
|
837,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(837,282 |
) |
|
|
|
|
Equity in subsidiaries |
|
|
28,082 |
|
|
|
7,374 |
|
|
|
|
|
|
|
|
|
|
|
(35,456 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
991,329 |
|
|
$ |
1,839,621 |
|
|
$ |
22,205 |
|
|
$ |
127,366 |
|
|
$ |
(876,006 |
) |
|
$ |
2,104,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
$ |
20 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
20 |
|
Accounts payable |
|
|
2,530 |
|
|
|
23,237 |
|
|
|
167 |
|
|
|
1,718 |
|
|
|
|
|
|
|
27,652 |
|
Accrued expenses and other current
liabilities |
|
|
15,496 |
|
|
|
54,683 |
|
|
|
13 |
|
|
|
2,632 |
|
|
|
|
|
|
|
72,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
18,046 |
|
|
|
77,920 |
|
|
|
180 |
|
|
|
4,350 |
|
|
|
|
|
|
|
100,496 |
|
Long-term debt, less current maturities |
|
|
450,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450,095 |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
3,268 |
|
|
|
|
|
|
|
(3,268 |
) |
|
|
|
|
Intercompany payables, net |
|
|
|
|
|
|
819,691 |
|
|
|
3,939 |
|
|
|
13,652 |
|
|
|
(837,282 |
) |
|
|
|
|
Deferred preneed funeral revenue |
|
|
|
|
|
|
199,867 |
|
|
|
|
|
|
|
45,315 |
|
|
|
|
|
|
|
245,182 |
|
Deferred preneed cemetery revenue |
|
|
|
|
|
|
248,098 |
|
|
|
324 |
|
|
|
27,413 |
|
|
|
|
|
|
|
275,835 |
|
Deferred preneed funeral and cemetery
receipts held in trust |
|
|
|
|
|
|
470,167 |
|
|
|
899 |
|
|
|
4,354 |
|
|
|
|
|
|
|
475,420 |
|
Perpetual care trusts corpus |
|
|
|
|
|
|
161,074 |
|
|
|
7,132 |
|
|
|
3,165 |
|
|
|
|
|
|
|
171,371 |
|
Other long-term liabilities |
|
|
17,114 |
|
|
|
3,241 |
|
|
|
|
|
|
|
124 |
|
|
|
|
|
|
|
20,479 |
|
Negative equity in subsidiaries |
|
|
140,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(140,437 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
625,692 |
|
|
|
1,980,058 |
|
|
|
15,742 |
|
|
|
98,373 |
|
|
|
(980,987 |
) |
|
|
1,738,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
92,248 |
|
|
|
102 |
|
|
|
324 |
|
|
|
52 |
|
|
|
(478 |
) |
|
|
92,248 |
|
Other |
|
|
273,352 |
|
|
|
(140,539 |
) |
|
|
6,139 |
|
|
|
28,904 |
|
|
|
105,496 |
|
|
|
273,352 |
|
Accumulated other comprehensive income |
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
37 |
|
|
|
(37 |
) |
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
365,637 |
|
|
|
(140,437 |
) |
|
|
6,463 |
|
|
|
28,993 |
|
|
|
104,981 |
|
|
|
365,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
991,329 |
|
|
$ |
1,839,621 |
|
|
$ |
22,205 |
|
|
$ |
127,366 |
|
|
$ |
(876,006 |
) |
|
$ |
2,104,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, 2009 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries- |
|
|
Subsidiaries- |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net cash provided by (used in)
operating activities |
|
$ |
(2,134 |
) |
|
$ |
7,005 |
|
|
$ |
103 |
|
|
$ |
2,310 |
|
|
$ |
|
|
|
$ |
7,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of assets |
|
|
292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292 |
|
Purchase of subsidiaries and other
investments, net of cash acquired |
|
|
|
|
|
|
(1,623 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,623 |
) |
Additions to property and equipment |
|
|
(1,908 |
) |
|
|
(2,587 |
) |
|
|
(5 |
) |
|
|
(289 |
) |
|
|
|
|
|
|
(4,789 |
) |
Other |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(1,616 |
) |
|
|
(4,209 |
) |
|
|
(5 |
) |
|
|
(289 |
) |
|
|
|
|
|
|
(6,119 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9 |
) |
Intercompany receivables (payables) |
|
|
3,690 |
|
|
|
(744 |
) |
|
|
(86 |
) |
|
|
(2,860 |
) |
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83 |
|
Dividends |
|
|
(2,318 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,318 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities |
|
|
1,446 |
|
|
|
(744 |
) |
|
|
(86 |
) |
|
|
(2,860 |
) |
|
|
|
|
|
|
(2,244 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
(2,304 |
) |
|
|
2,052 |
|
|
|
12 |
|
|
|
(839 |
) |
|
|
|
|
|
|
(1,079 |
) |
Cash and cash equivalents, beginning of
period |
|
|
65,593 |
|
|
|
4,332 |
|
|
|
22 |
|
|
|
2,627 |
|
|
|
|
|
|
|
72,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
63,289 |
|
|
$ |
6,384 |
|
|
$ |
34 |
|
|
$ |
1,788 |
|
|
$ |
|
|
|
$ |
71,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, 2008 |
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries- |
|
|
Subsidiaries- |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Tier 1 |
|
|
Tier 2 |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net cash provided by (used in) operating
activities |
|
$ |
(2,343 |
) |
|
$ |
3,005 |
|
|
$ |
369 |
|
|
$ |
3,067 |
|
|
$ |
|
|
|
$ |
4,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of marketable
securities |
|
|
4,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,984 |
|
Purchases of marketable securities |
|
|
(19,758 |
) |
|
|
|
|
|
|
|
|
|
|
(44 |
) |
|
|
|
|
|
|
(19,802 |
) |
Proceeds from sale of assets |
|
|
|
|
|
|
338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
338 |
|
Additions to property and equipment |
|
|
(1,725 |
) |
|
|
(4,770 |
) |
|
|
(267 |
) |
|
|
(294 |
) |
|
|
|
|
|
|
(7,056 |
) |
Other |
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(16,499 |
) |
|
|
(4,422 |
) |
|
|
(267 |
) |
|
|
(338 |
) |
|
|
|
|
|
|
(21,526 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
|
(77 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77 |
) |
Intercompany receivables (payables) |
|
|
40 |
|
|
|
3,286 |
|
|
|
(86 |
) |
|
|
(3,240 |
) |
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
1,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,380 |
|
Purchase and retirement of common stock |
|
|
(22,807 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,807 |
) |
Dividends |
|
|
(2,403 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,403 |
) |
Excess tax benefits from share-based
payment arrangements |
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities |
|
|
(23,702 |
) |
|
|
3,286 |
|
|
|
(86 |
) |
|
|
(3,240 |
) |
|
|
|
|
|
|
(23,742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
(42,544 |
) |
|
|
1,869 |
|
|
|
16 |
|
|
|
(511 |
) |
|
|
|
|
|
|
(41,170 |
) |
Cash and cash equivalents, beginning of
period |
|
|
63,202 |
|
|
|
6,685 |
|
|
|
36 |
|
|
|
1,622 |
|
|
|
|
|
|
|
71,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
20,658 |
|
|
$ |
8,554 |
|
|
$ |
52 |
|
|
$ |
1,111 |
|
|
$ |
|
|
|
$ |
30,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(12) Acquisitions
During the three months ended January 31, 2009, the Company acquired a new cemetery in its
Western division for approximately $1,623. This cemetery acquisition was accounted for under the
purchase method, and the acquired assets and liabilities (primarily deferred revenue of $7,471,
cemetery property of $5,661 and inventory of $2,857) were valued at their estimated fair values.
Its results of operations, which are considered immaterial, have been included since the
acquisition date.
(13) Consolidated Comprehensive Income
Consolidated comprehensive income for the three months ended January 31, 2009 and 2008 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
|
2009 |
|
|
2008 |
|
Net earnings |
|
$ |
5,716 |
|
|
$ |
8,885 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
Unrealized appreciation of
investments, net of deferred
tax expense of ($2) and ($43),
respectively |
|
|
3 |
|
|
|
70 |
|
Increase in net unrealized
losses associated with
available-for-sale securities
of the trusts |
|
|
(35,915 |
) |
|
|
(65,470 |
) |
Reclassification of the net
unrealized losses activity
attributable to the deferred
preneed funeral and cemetery
receipts held in trust and
perpetual care trusts corpus |
|
|
35,915 |
|
|
|
65,470 |
|
|
|
|
|
|
|
|
Total other comprehensive income |
|
|
3 |
|
|
|
70 |
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
5,719 |
|
|
$ |
8,955 |
|
|
|
|
|
|
|
|
(14) 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 Hurricanes Katrina and Ike. In September
2008, Hurricane Ike struck the Texas Gulf Coast and the Companys facilities in the area. The
Company has submitted its insurance claim related to Hurricane Ike. 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
$315 are reflected in the Hurricane related recoveries (charges), net line in the condensed
consolidated statement of earnings for the three months ended January 31, 2009 compared to net
recoveries of $159 for the same period in 2008. Net expenses recorded in fiscal year 2009
primarily relate to the lawsuit the Company filed against its insurance carriers related to its
Hurricane Katrina claim which is described below. For additional information on the effects of
Hurricanes Katrina and Ike on the Company, see Note 23 in the Companys 2008
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 significant 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 for April 2009. With the exception of any legal costs
related to this suit, the Company does not anticipate any additional charges related to Hurricane
Katrina.
33
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(15) Significant Risks and Uncertainties
During the first quarter of fiscal year 2009, there have been no material changes to the
Companys significant risks and uncertainties as disclosed in Note 24 to the Companys 2008 Form
10-K except for the following:
The Company has initiated discussions with members of its bank group regarding the renewal of
its $125,000 revolving credit facility which matures in November 2009. While the Company has
nothing drawn as of January 31, 2009, it does have $12,035 in letters of credit and a $28,851 bond
it is required to maintain to guarantee its obligations related to funds it withdrew in fiscal year
2001 from trusts in Florida. As of January 31, 2009, the Company has cash and cash equivalents of
$71,495. Given current credit market conditions, the Company expects a new revolving credit
facility to be more expensive than its existing facility and have tighter covenants, including,
potentially, more restrictive conditions on when the Company can pay dividends and repurchase
stock. The Company has entered into negotiations regarding structure, commitment levels, pricing
and covenant expectations. While the Company expects to renew or replace the current credit
facility with acceptable terms, if it is unable to negotiate a facility at acceptable terms, the
Company would be required to cover the letters of credit and may be required to cover the Florida
bond with existing cash on hand. As of January 31, 2009, the Company had sufficient cash on hand
to cover these funding obligations but if current economic conditions do not improve and it is
unable to secure a new credit facility, the Company will be required to continue to impose cost and
cash savings strategies which, for example, could result in the elimination of the dividend,
reduced capital expenditures and other cash savings initiatives.
(16) Subsequent Events
On March 3, 2009, the Company announced changes in its organizational structure, including the
elimination of the positions of Eastern and Western division presidents. G. Kenneth Stephens, Jr.,
formerly Executive Vice President and President of the Western division, will take on the role of
Senior Vice President of Sales. Brent F. Heffron, formerly Executive Vice President and President
of the Eastern division, will retire from the Company effective April 30, 2009.
As of February 28, 2009, the fair market value of the Companys preneed funeral and cemetery
merchandise and services trusts and cemetery perpetual care trusts declined approximately 8 percent
from January 31, 2009.
34
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following Managements Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) should be read in conjunction with our MD&A and Risk Factors contained in our
Form 10-K for the fiscal year ended October 31, 2008 (the 2008 Form 10-K), and in conjunction
with our consolidated financial statements included in this report and in our 2008 Form 10-K.
This report contains forward-looking statements that are generally identifiable through the
use of words such as believe, expect, intend, plan, estimate, anticipate, project,
will and similar expressions. These forward-looking statements rely on assumptions, estimates
and predictions that could be inaccurate and that are subject to risks and uncertainties that could
cause actual results to differ materially. Important factors that may cause our actual results to
differ materially from expectations reflected in our forward-looking statements include those
described in Risk Factors in our 2008 Form 10-K. Forward-looking statements speak only as of the
date of this report, and we undertake no obligation to update or revise such statements to reflect
new circumstances or unanticipated events as they occur.
Overview
General
We are the second largest provider of funeral and cemetery products and services in the death
care industry in the United States. As of January 31, 2009, we owned and operated 220 funeral
homes and 140 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, finance charges and
trust management fees. We also earn commissions on the sale of insurance-funded preneed funeral
contracts that will be funded by life insurance or annuity contracts issued by third-party insurers
when we act as an agent on the sale. For a more detailed discussion of our accounting for preneed
sales and trust and escrow account earnings, see MD&A included in Item 7 in our 2008 Form 10-K.
Financial Summary
Continued weakness in the economy and equity markets adversely impacted our financial results
for the quarter. For the first quarter of fiscal year 2009, net earnings decreased $3.2 million to
$5.7 million from $8.9 million for the first quarter of fiscal year 2008. Revenue decreased $10.9
million to $119.3 million for the quarter ended January 31, 2009. Funeral revenue decreased $1.7
million from $73.4 million in the first quarter of 2008 to $71.7 million in the first quarter of
2009. During the first quarter of 2009, our same-store funeral operations experienced an increase
in average revenue per traditional funeral service of 5.5 percent and an increase in average
revenue per cremation service of 8.9 percent due primarily to the continued refinement of new
funeral packages and pricing. These increases were partially offset by a quarter-over-quarter
decrease in funeral trust earnings resulting in an overall increase in the same-store average
revenue per funeral service of 6.0 percent. The increases in same-store average revenue were
offset by a 6.3 percent decrease in same-store funeral services performed. We experienced a $0.4
million decrease in funeral trust earnings recognized on the delivery of preneed services and
merchandise and a $0.5 million decrease in funeral trust management fees primarily due to the
decrease in the fair market value of our trust assets managed. Cemetery revenue decreased $9.2
million from $56.8 million for the quarter ended January 31, 2008 to $47.6 million for the quarter
ended January 31, 2009. This decrease is due primarily to a $7.2 million, or 27.9 percent,
decrease in cemetery property sales, net of discounts, due to current economic conditions, a $0.9
million decrease in cemetery perpetual care trust earnings and a $0.3 million decrease in cemetery
trust management fees primarily due to the decrease in the fair market value of our trust assets
managed. Consolidated gross profit decreased $3.9 million to $23.1 million primarily due to a $4.2
million decrease in cemetery gross profit, partially offset by a $0.3 million increase in funeral
gross profit.
Corporate general and administrative expenses decreased $0.7 million to $7.5 million for the
first quarter of 2009 primarily due to a decrease in professional fees and a reduction in
compensation, partially offset by an increase
35
in information technology costs. Investment and other income, net decreased $0.7 million to
$0.1 million due primarily to a decrease in the average rate earned on our cash balances. Our
weighted average diluted shares outstanding decreased to 91.9 million shares for the first quarter
of 2009 compared to 97.0 million shares for the same period of 2008, yielding a positive impact on
earnings per share.
Current economic conditions have continued to negatively impact our ability to close preneed
sales. For the first quarter of 2009, preneed cemetery property sales, net of discounts, declined
27.9 percent compared to the same period of last year, which decreased our cemetery revenue as
described above. In addition, net preneed funeral sales decreased 14.5 percent for the first
quarter of 2009 compared to the same period of last year, which does not impact current revenue,
but reduces our backlog and could reduce our future revenues.
In the second quarter of fiscal year 2009, in order to further implement our Best in Class
initiative, we changed our organizational structure in order to produce stronger results and
improve lines of communication by eliminating a layer of management, realigning one of our
executives to focus on sales and realigning another one of our executives to focus on new revenue
opportunities. All of the organizational changes are expected to result in approximately $1
million of annual savings.
As of January 31, 2009 and October 31, 2008, the fair market value of the investments in our
funeral and cemetery merchandise and services trusts were $278.4 million and $253.6 million,
respectively, lower than our cost basis. We review our investment portfolio quarterly, and as part
of that review during the quarter ended January 31, 2009, we determined that we no longer had the
intent to hold certain securities until they recovered their value. In addition, there were
certain securities that we deemed were practically worthless as of October 31, 2008 that further
declined in value during the quarter. As a result, for the first quarter of 2009, we realized
additional losses of $11.5 million in our funeral and cemetery merchandise trusts which we
allocated to the underlying contracts.
The preneed contracts we manage are long-term in nature, and we believe that the trust
investments will appreciate in value over the long-term. We continue to monitor our investment
portfolio closely. As of January 31, 2009 and October 31, 2008, we had $227.9 million and $240.9
million in earnings that have been realized and allocated to contracts that will be recognized when
the underlying contracts are performed.
In our cemetery perpetual care trusts, as of January 31, 2009 and October 31, 2008, the fair
market value of our investments was $92.2 million and $81.0 million, respectively, lower than our
cost basis. In addition, as part of our quarterly investment portfolio review, we realized losses
of $0.1 million in our cemetery perpetual care trusts, which resulted in the recording of an
additional funding obligation of $0.1 million included in cemetery costs in the statement of
earnings for the quarter ended January 31, 2009. See Note 5 to the condensed consolidated
financial statements for further information on the estimated probable funding obligation.
The sectors in which our trust investment portfolio is invested in have not changed materially
from that disclosed in our 2008 Form 10-K.
We anticipate that a sustained decline in the value of our trust investments could have
several negative impacts on our Company in the future. Unless the market values of our trusts
increase substantially, we expect to report lower earnings from our trusts which will reduce future
revenue. In addition, our trust management fees are based on the fair market value of the assets
managed; therefore, we expect to report lower trust management fees. In fiscal year 2008, cemetery
perpetual care trust earnings, funeral and cemetery merchandise and services trust earnings and
trust management fees comprised 7 percent of our revenue and 36 percent of our gross profit. In
our 2008 Form 10-K, we disclosed that based on then current market conditions and then current
realized losses, we believed the decrease in revenue from trust earnings recognized on delivery of
preneed services and merchandise, cemetery perpetual care trust earnings and trust management fees
for fiscal year 2009 could be as much as $10 million, or approximately 2 percent, of fiscal year
2008 revenue and approximately 10 percent of fiscal year 2008 gross profit. During the first
quarter of fiscal 2009, we realized a $2.2 million decrease in earnings related to trust
activities, of which $0.9 million related to the funeral segment and $1.3 million related to the
cemetery segment. This decrease is consistent with our previously announced expectations of a
reduction in revenue of approximately $10 million on an annual basis, and we continue to believe
that an approximate $10 million decline in revenue related to trust activities can be expected
based on current market conditions and current realized losses. If market conditions further
deteriorate and our investment portfolio experiences additional realized losses or we conclude we
36
are no longer able, or intend to hold our investment until they recover in value, it is likely
the decrease in revenue and gross profit could be significantly higher. Approximately two-thirds
of our funeral revenue and nearly 80 percent of our cemetery revenue, or approximately 70 percent
of our consolidated revenue, is not impacted by declines in the value of our trust investments.
In addition, each quarter we perform an analysis to determine whether our preneed contracts
are in a loss position, which would necessitate a charge to earnings. When we review our backlog
for potential loss contracts, we consider the impact of the market value of our trust assets. We
look at unrealized gains and losses based on current market prices quoted for the investments, but
we do not include anticipated future returns on the investments in our analysis. If a deficiency
were to exist, we would record a charge to earnings and a corresponding liability for the expected
loss on the delivery of those contracts in our backlog. Due to the positive margins of our preneed
contracts and the trust portfolio returns we have experienced in prior years, there is currently
capacity for additional market depreciation before a contract loss would result.
For additional information regarding our preneed funeral and cemetery merchandise and services
trusts and our cemetery perpetual care trusts, see Notes 3, 4, and 5 to the condensed consolidated
financial statements included herein. The increase in these losses is primarily a result of the
declines in the equity markets since the end of our fiscal year.
The following table presents our trust portfolio returns including realized and unrealized
gains and losses.
|
|
|
|
|
|
|
|
|
|
|
Funeral and |
|
|
|
|
Cemetery |
|
|
|
|
Merchandise and |
|
Cemetery Perpetual |
|
|
Services Trusts |
|
Care Trusts |
For the quarter ended January 31, 2009 |
|
|
(6.8 |
)% |
|
|
(5.2 |
)% |
For the last three years ended January 31, 2009 |
|
|
(8.3 |
)% |
|
|
(7.0 |
)% |
For the last five years ended January 31, 2009 |
|
|
(3.2 |
)% |
|
|
(2.8 |
)% |
Cash flow provided by operating activities for the first quarter of 2009 was $7.3 million
compared to $4.1 million for the same period of last year. The increase in operating cash flow is
primarily due to a decrease in net tax payments in the current year. We paid $3.3 million in net
tax payments in the first quarter of 2008 compared to $0.9 million in net tax payments in the first
quarter of 2009.
Critical Accounting Policies
The consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America, which require us to make estimates and
assumptions (see Note 1(d) to the condensed consolidated financial statements). Our critical
accounting policies are those that are both important to the portrayal of our financial condition
and results of operations and require managements most difficult, subjective and complex judgment.
These critical accounting policies are discussed in MD&A in our 2008 Form 10-K. There have been
no changes to our critical accounting policies since the filing of our 2008 Form 10-K.
Results of Operations
The following discussion segregates the financial results into our various segments, grouped
by our funeral and cemetery operations. For a discussion of our segments, see Note 9 to the
condensed consolidated financial statements included herein. As there have been no material
acquisitions or construction of new locations in fiscal years 2009 and 2008, results essentially
reflect those of same-store locations.
37
Three Months Ended January 31, 2009 Compared to Three Months Ended January 31, 2008
Funeral Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
2009 |
|
|
2008 |
|
|
(Decrease) |
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
Funeral Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Division |
|
$ |
30.1 |
|
|
$ |
30.5 |
|
|
$ |
(.4 |
) |
Western Division |
|
|
38.0 |
|
|
|
38.4 |
|
|
|
(.4 |
) |
Corporate Trust Management (1) |
|
|
3.6 |
|
|
|
4.5 |
|
|
|
(.9 |
) |
|
|
|
|
|
|
|
|
|
|
Total Funeral Revenue |
|
$ |
71.7 |
|
|
$ |
73.4 |
|
|
$ |
(1.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Division |
|
$ |
24.2 |
|
|
$ |
25.1 |
|
|
$ |
(.9 |
) |
Western Division |
|
|
29.0 |
|
|
|
30.1 |
|
|
|
(1.1 |
) |
Corporate Trust Management (1) |
|
|
.2 |
|
|
|
.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Funeral Costs |
|
$ |
53.4 |
|
|
$ |
55.4 |
|
|
$ |
(2.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Division |
|
$ |
5.9 |
|
|
$ |
5.4 |
|
|
$ |
.5 |
|
Western Division |
|
|
9.0 |
|
|
|
8.3 |
|
|
|
.7 |
|
Corporate Trust Management (1) |
|
|
3.4 |
|
|
|
4.3 |
|
|
|
(.9 |
) |
|
|
|
|
|
|
|
|
|
|
Total Funeral Gross Profit |
|
$ |
18.3 |
|
|
$ |
18.0 |
|
|
$ |
.3 |
|
|
|
|
|
|
|
|
|
|
|
Same-Store Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Average |
|
|
|
|
|
|
Revenue Per |
|
Change in Same-Store |
|
Same-Store |
|
|
Funeral Service |
|
Funeral Services |
|
Cremation Rate |
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
Eastern Division |
|
|
6.0 |
% |
|
|
(3.6 |
)% |
|
|
36.6 |
% |
|
|
36.3 |
% |
Western Division |
|
|
7.3 |
% |
|
|
(8.3 |
)% |
|
|
43.0 |
% |
|
|
43.3 |
% |
Total |
|
|
6.0 |
% (1) |
|
|
(6.3 |
)% |
|
|
40.3 |
% |
|
|
40.3 |
% |
|
|
|
(1) |
|
Corporate trust management consists of the trust management fees and funeral
merchandise and services trust earnings recognized with respect to preneed contracts delivered
during the period. Trust management fees are established by the Company at rates consistent
with industry norms based on the fair market value of assets managed and are paid by the
trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the amount of
earnings realized by the trusts over the life of the preneed contracts and allocated to those
products and services delivered during the relevant periods. See Notes 3 and 6 to the
condensed consolidated financial statements included herein for information regarding the cost
basis and market value of the trust assets and current performance of the trusts (i.e.,
current realized gains and losses, interest income and dividends). Trust management fees
included in funeral revenue for the three months ended January 31, 2009 and 2008 were $0.9
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, but not in the Eastern or Western divisions average revenue per
funeral service. Funeral trust earnings recognized with respect to preneed contracts
delivered included in funeral revenue for the three months ended January 31, 2009 and 2008
were $2.7 million and $3.1 million, respectively. |
Consolidated OperationsFuneral
Funeral revenue decreased $1.7 million, or 2.3 percent, from $73.4 million in the first
quarter of 2008 to $71.7 million in the first quarter of 2009. During the first quarter of 2009,
our same-store funeral operations experienced an increase in average revenue per traditional
funeral service of 5.5 percent and an increase in average
revenue per cremation service of 8.9 percent due primarily to the continued refinement of new
funeral packages and
38
pricing. These increases were partially offset by a quarter-over-quarter
decrease in funeral trust earnings resulting in an overall increase in our same-store average
revenue per funeral service of 6.0 percent. The cremation rate for our same-store operations
remained flat quarter-over-quarter at 40.3 percent. During the first quarter of 2009, our
same-store funeral services performed decreased 6.3 percent, or 978 events, to 14,514 events. We
also experienced a $0.4 million decrease in trust earnings recognized on the delivery of preneed
services and merchandise and a $0.5 million decrease in trust management fees primarily due to the
decrease in the fair market value of our trust assets managed.
Funeral gross profit increased $0.3 million to $18.3 million for the first quarter of 2009
compared to $18.0 million for the same period of 2008, primarily due to a $2.0 million decrease in
expenses, partially offset by the decrease in revenue, noted above. The decrease in expenses is
primarily due to a decrease in merchandise costs resulting from decreased volume and a decrease in
salaries and wages due to effective labor management.
Segment DiscussionFuneral
Funeral revenue in the Eastern division funeral segment decreased $0.4 million primarily due
to a decrease in the number of funeral services performed by our same-store operations of 3.6
percent, partially offset by an increase in the average revenue per funeral service in our
same-store operations of 6.0 percent. Funeral revenue in the Western division funeral segment
decreased $0.4 million primarily due to a decrease in the number of funeral services performed by
our same-store operations of 8.3 percent, partially offset by an increase in the average revenue
per funeral service in our same-store operations of 7.3 percent. Funeral revenue in the corporate
trust management segment decreased $0.9 million due to a $0.4 million decrease in funeral trust
earnings and a $0.5 million decline in trust management fees.
Funeral gross profit for the Eastern division funeral segment increased $0.5 million primarily
due to a $0.9 million decrease in expenses, partially offset by the decrease in revenue, as
discussed above. The decrease in expenses is primarily due to a decrease in merchandise costs due
to decreased volume and a decrease in salaries and wages due to effective labor management.
Funeral gross profit for the Western division funeral segment increased $0.7 million due to a $1.1
million decrease in expenses, partially offset by a decrease in revenue, as discussed above. The
decrease in expenses is primarily due to a decrease in merchandise costs due to decreased volume.
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 January 31, |
|
|
|
2009 |
|
|
2008 |
|
|
Decrease |
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
Cemetery Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Division |
|
$ |
26.1 |
|
|
$ |
32.2 |
|
|
$ |
(6.1 |
) |
Western Division |
|
|
19.6 |
|
|
|
22.3 |
|
|
|
(2.7 |
) |
Corporate Trust Management (1) |
|
|
1.9 |
|
|
|
2.3 |
|
|
|
(.4 |
) |
|
|
|
|
|
|
|
|
|
|
Total Cemetery Revenue |
|
$ |
47.6 |
|
|
$ |
56.8 |
|
|
$ |
(9.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Division |
|
$ |
25.2 |
|
|
$ |
28.9 |
|
|
$ |
(3.7 |
) |
Western Division |
|
|
17.3 |
|
|
|
18.6 |
|
|
|
(1.3 |
) |
Corporate Trust Management (1) |
|
|
.3 |
|
|
|
.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cemetery Costs |
|
$ |
42.8 |
|
|
$ |
47.8 |
|
|
$ |
(5.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Division |
|
$ |
.9 |
|
|
$ |
3.3 |
|
|
$ |
(2.4 |
) |
Western Division |
|
|
2.3 |
|
|
|
3.7 |
|
|
|
(1.4 |
) |
Corporate Trust Management (1) |
|
|
1.6 |
|
|
|
2.0 |
|
|
|
(.4 |
) |
|
|
|
|
|
|
|
|
|
|
Total Cemetery Gross Profit |
|
$ |
4.8 |
|
|
$ |
9.0 |
|
|
$ |
(4.2 |
) |
|
|
|
|
|
|
|
|
|
|
39
|
|
|
(1) |
|
Corporate trust management consists of trust management fees and cemetery
merchandise and services trust earnings recognized with respect to preneed contracts delivered
during the period. Trust management fees are established by the Company at rates consistent
with industry norms based on the fair market value of assets managed and are paid by the
trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the amount of
earnings realized by the trusts over the life of the preneed contracts and allocated to those
products and services delivered during the relevant periods. See Notes 4 and 6 to the
condensed consolidated financial statements included herein for information regarding the cost
basis and market value of the trust assets and current performance of the trusts (i.e.,
current realized gains and losses, interest income and dividends). Trust management fees
included in cemetery revenue for the three months ended January 31, 2009 and 2008 were $1.0
million and $1.3 million, respectively, and cemetery trust earnings recognized with respect to
preneed contracts delivered included in cemetery revenue for the three months ended January
31, 2009 and 2008 were $0.9 million and $1.0 million, respectively. Perpetual care trust
earnings are included in the revenues and gross profit of the related geographic segment. See
Notes 5 and 6 to the condensed consolidated financial statements included herein for
information regarding the cemetery perpetual care trusts. |
Consolidated OperationsCemetery
Cemetery revenue decreased $9.2 million from $56.8 million for the quarter ended January 31,
2008 to $47.6 million for the quarter ended January 31, 2009. This decrease is primarily due to a
$7.2 million, or 27.9 percent, decrease in cemetery property sales, net of discounts, due to
current economic conditions, a $0.9 million decrease in cemetery perpetual care trust earnings and
a $0.3 million decrease in trust management fees primarily due to the decrease in the fair market
value of our trust assets managed.
Cemetery gross profit decreased $4.2 million to $4.8 million for the first quarter of 2009
compared to $9.0 million for the same period of 2008. The decrease in gross profit is primarily
due to the decrease in cemetery revenue, as discussed above, partially offset by a $5.0 million
decrease in expenses. The decrease in cemetery expenses is primarily due to a decrease in property
and selling costs resulting from the decline in cemetery property sales.
Segment DiscussionCemetery
Cemetery revenue in the Eastern division cemetery segment decreased $6.1 million primarily due
to a $4.8 million, or 29.5 percent, decrease in cemetery property sales, net of discounts, due to
current economic conditions, and a $0.8 million decline in cemetery perpetual care trust earnings.
Cemetery revenue in the Western division cemetery segment decreased $2.7 million primarily due to a
$2.4 million, or 25.1 percent, decrease in cemetery property sales, net of discounts, due to
current economic conditions. Cemetery revenue in the corporate trust management segment decreased
$0.4 million due to a $0.3 million decline in trust management fees and a $0.1 million decline in
cemetery trust earnings.
Cemetery gross profit for the Eastern division cemetery segment decreased $2.4 million
primarily due to the decrease in revenue, as discussed above, partially offset by a $3.7 million
decrease in expenses. Cemetery gross profit for the Western division cemetery segment decreased
$1.4 million primarily due to the decrease in revenue, as discussed above, partially offset by a
$1.3 million decrease in expenses. The decrease in expenses for both the Eastern and Western
division is primarily due to a decrease in property and selling costs resulting from the decline in
cemetery property sales.
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. For
further discussion of assumptions and methodologies employed, see Note 2(g) to our 2008 Form 10-K.
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.
40
While the current economic downturn has negatively impacted cemetery property sales in our
Western division in the quarter ended January 31, 2009, a triggering event requiring an impairment
assessment did not occur. Our annual impairment test included projected performance for the
Western division. With only three months elapsing since that evaluation, we do not believe there
has been a fundamental change in our projected future results for this division. However, if
economic conditions and current performance in the Western division do not improve, a triggering
event could occur in the future, and we therefore may be required to perform an interim goodwill
impairment test, and an impairment charge could result. As of January 31, 2009, we have $48.7
million of cemetery goodwill recorded related to the Western division cemetery reporting unit which
would be the maximum potential charge, although the amount of any charge would depend on the
results of the fair value assessment required under Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets, and cannot be predicted with any certainty at this
time. All other cemetery goodwill was previously impaired.
Other
Corporate general and administrative expenses decreased $0.7 million to $7.5 million for the
first quarter of 2009 primarily due to a decrease in professional fees and a reduction in
compensation, partially offset by an increase in information technology costs.
The effective tax rate for the three months ended January 31, 2009 was 40.4 percent compared
to 37.5 percent for the same period in 2008. The change in the 2009 tax rate from the 2008 tax
rate was primarily due to a $0.3 million tax expense attributable to an increase in the valuation
allowance on our capital loss carryforward.
We incurred $0.3 million in hurricane related charges in the first quarter of fiscal 2009
primarily due to litigation costs associated with our Hurricane Katrina insurance claim, compared
to a $0.1 million hurricane related recovery during the first quarter of fiscal 2008 related to
Hurricane Katrina. We are continuing to pursue claims with our insurance carriers as described in
Note 14 to the condensed consolidated financial statements.
Investment and other income, net decreased $0.7 million to $0.1 million due primarily to a
decrease in the average rate earned on our cash balances from 3.56 percent in the first quarter of
2008 to 0.22 percent in the first quarter of 2009.
Our weighted average diluted shares outstanding decreased to 91.9 million shares for the first
quarter of 2009 compared to 97.0 million shares for the same period of 2008, yielding a positive
impact on earnings per share.
Prepaid expenses increased $5.1 million from October 31, 2008 to January 31, 2009 primarily
due to annual premiums paid in the first quarter of fiscal year 2009 for property, general
liability and other insurance. Preneed funeral receivables and trust investments, preneed cemetery
receivables and trust investments, cemetery perpetual care trust investments, deferred preneed
funeral and cemetery receipts held in trust and perpetual care trusts corpus were all impacted by
the recent decline in the 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.
Accrued payroll decreased $2.1 million from October 31, 2008 to January 31, 2009 due primarily
to fiscal year 2008 annual bonuses paid in the first quarter of 2009. Other current liabilities
decreased $4.9 million from October 31, 2008 to January 31, 2009 primarily due to a $2.7 million
decrease in accrued property taxes, as 80 percent of our property taxes are paid in the months of
December and January each year, and a $1.1 million decline in accrued Hurricane Ike related
expenses which were paid in the first quarter of 2009. The estimated probable funding obligation
to restore the net realized losses in certain of our cemetery perpetual care trusts decreased $1.1
million primarily due to the Company funding certain of these cemetery perpetual care trusts in the
first quarter of fiscal year 2009.
Preneed Sales into the Backlog
Net preneed funeral sales decreased 14.5 percent during the first quarter of 2009 compared to
the corresponding period in 2008 due to current economic conditions.
41
The revenues from our preneed funeral and cemetery merchandise and service sales are deferred
into our backlog and are not included in our operating results presented above. We had $35.7
million in gross preneed funeral and cemetery merchandise and services sales (including $16.3
million related to insurance-funded preneed funeral contracts) during the first quarter of 2009 to
be recognized in the future (net of cancellations) as these prepaid products and services are
delivered, compared to gross sales of $38.9 million (including $16.8 million related to
insurance-funded preneed funeral contracts) for the corresponding period in 2008. 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.
Liquidity and Capital Resources
General
We generate cash in our operations primarily from at-need sales, preneed sales that turn
at-need, funds we are able to withdraw from our trusts and escrow accounts when preneed sales turn
at-need, monies collected on preneed sales that are not required to be trusted and cemetery
perpetual care trust earnings. Over the last five years, we have generated more than $50.0 million
each year in cash flow from operations. We have historically satisfied our working capital
requirements with cash flows from operations. We believe that our current level of cash on hand,
projected cash flows from operations and available capacity under our $125.0 million revolving
credit facility will be sufficient to meet our cash requirements for the foreseeable future,
although we will need to renew or replace our revolving credit facility which matures in November
2009 and will need to refinance long-term debt becoming due in 2013 through 2016, as described
below.
As described in the OverviewRecent Events section of MD&A in our 2008 Form 10-K, during our
2008 fiscal year and particularly during our fourth fiscal quarter of 2008, the United States and
global economies experienced substantial declines. The anticipated future effect of these events
on our cash flow is described in that section and in Item 1A. Risk Factors in our 2008 Form 10-K.
We have initiated discussions with members of our bank group regarding the renewal of the
$125.0 million revolving credit facility which matures in November 2009. While we have nothing
drawn as of January 31, 2009, we do have $12.0 million in letters of credit and a $28.9 million
bond we are required to maintain to guarantee our obligations related to funds we withdrew in
fiscal year 2001 from trusts in Florida. As of January 31, 2009, we had cash and cash equivalents
of $71.5 million. Given current credit market conditions, we expect a new revolving credit
facility to be more expensive than our existing facility and have tighter covenants, including,
potentially, more restrictive conditions on when we can pay dividends and repurchase stock. We
have entered into negotiations regarding structure, commitment levels, pricing and covenant
expectations. While we expect to renew or replace the current credit facility with acceptable
terms, if we are unable to negotiate a facility at acceptable terms, we would be required to cover
the letters of credit and may be required to cover the Florida bond with existing cash on hand. As
of January 31, 2009, we had sufficient cash on hand to cover these funding obligations but if
current economic conditions do not improve and we are unable to secure a new credit facility, we
will be required to continue to impose cost and cash savings strategies which, for example, could
result in the elimination of the dividend, reduced capital expenditures and other cash savings
initiatives. Our availability under the revolving credit facility, after giving consideration to
the aforementioned outstanding letters of credit and bond, was $84.1 million as of January 31,
2009. Our $200.0 million senior notes mature on February 15, 2013 and are currently redeemable at
the redemption prices set forth in the indenture. 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 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 debt and 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 existing 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.
42
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 $2.3 million for three months ended January 31, 2009. 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 January
31, 2009. 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.
Cash Flow
Our operations provided cash of $7.3 million for the three months ended January 31, 2009,
compared to $4.1 million for the corresponding period in 2008. The increase is primarily due to a
decrease in net tax payments in the current year. We paid $3.3 million in net tax payments in the
first quarter of 2008 compared to $0.9 million in net tax payments in the first quarter of 2009.
Our investing activities resulted in a net cash outflow of $6.1 million for the three months
ended January 31, 2009, compared to a net cash outflow of $21.5 million for the comparable period
in 2008. The change is primarily due to net purchases of marketable securities of $14.8 million in
the first quarter of 2008 compared to none in the first quarter of 2009. We also purchased a
cemetery business in the first quarter of fiscal year 2009 resulting in a net cash outflow of $1.6
million. For the three months ended January 31, 2009, capital expenditures amounted to $4.8
million, which included $3.1 million for maintenance capital expenditures, $0.4 million for growth
initiatives and $1.3 million related to the implementation of new business systems. For the three
months ended January 31, 2008, capital expenditures were $7.1 million, which included $3.2 million
for maintenance capital expenditures, $0.3 million for growth initiatives, $2.2 million related to
Hurricane Katrina and $1.4 million related to the implementation of new business systems.
Our financing activities resulted in a net cash outflow of $2.2 million for the three months
ended January 31, 2009, compared to a net cash outflow of $23.7 million for the comparable period
in 2008. This change is due to $22.8 million in stock repurchases made under our current stock
repurchase plan in the first quarter of 2008. There were no stock repurchases during first quarter
of 2009.
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 January 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
Contractual Obligations |
|
Total |
|
|
1 year |
|
|
1 3 years |
|
|
3 5 years |
|
|
5 years |
|
Long-term debt obligations (1) |
|
$ |
450.1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
200.0 |
|
|
$ |
250.1 |
|
Interest on long-term debt (2) |
|
|
109.4 |
|
|
|
20.6 |
|
|
|
41.3 |
|
|
|
35.0 |
|
|
|
12.5 |
|
Operating and capital lease obligations (3) |
|
|
29.4 |
|
|
|
3.4 |
|
|
|
6.0 |
|
|
|
3.5 |
|
|
|
16.5 |
|
Non-competition and other agreements (4) |
|
|
.9 |
|
|
|
.4 |
|
|
|
.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
589.8 |
|
|
$ |
24.4 |
|
|
$ |
47.8 |
|
|
$ |
238.5 |
|
|
$ |
279.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See below for a breakdown of our future scheduled principal payments and maturities
of our long-term debt by type as of January 31, 2009. |
|
(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 14 years, except for seven leases that expire between 2032 and 2039. Our
future minimum lease payments as of January 31, 2009 are $3.4 million, $3.5 million, $2.5
million, $2.0 million, $1.5 million and $16.5 million for the years ending October 31, 2009,
2010, 2011, 2012, 2013 and later years, respectively. |
43
|
|
|
(4) |
|
We have entered into non-competition agreements with prior owners and key employees
of acquired subsidiaries that expire at various times through 2012. During fiscal year 2001,
we decided to relieve some of the prior owners and key employees of their obligations not to
compete; however, we will continue to make the payments in accordance with the contract terms.
This category also includes separation pay related to former executive officers. |
The following table details our known potential or possible future cash payments related to
various contingent obligations (in millions) as of January 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration by Period |
|
|
|
|
|
|
|
Less than 1 |
|
|
|
|
|
|
|
|
|
|
More than |
|
Contingent Obligations |
|
Total |
|
|
year |
|
|
1 3 years |
|
|
3 5 years |
|
|
5 years |
|
Cemetery perpetual
care trust funding
obligations
(1) |
|
$ |
12.2 |
|
|
$ |
12.2 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Long-term obligations
related to uncertain
tax positions
(2) |
|
|
5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17.3 |
|
|
$ |
12.2 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In those states where we have withdrawn realized net capital gains in the past from
our cemetery perpetual care trusts, regulators may seek replenishment of the realized net
capital losses either by requiring a cash deposit to the trust or by prohibiting or
restricting withdrawals of future earnings until they cover the loss. The estimated probable
funding obligation in the cemetery perpetual care trusts in these states was $12.2 million as
of January 31, 2009. As of January 31, 2009, we had unrealized losses of $72.3 million in the
trusts in these states. Because all of these trusts currently have assets with a fair market
value less than the aggregate amounts required to be contributed to the trust, any additional
realized net capital losses in these trusts may result in a corresponding funding liability
and increase in cemetery costs. In those states where realized net capital gains have not
been withdrawn, we believe it is reasonably possible that additional funding obligations may
exist with an estimated range of up to approximately $1.2 million. |
|
(2) |
|
We adopted the provisions of FASB Interpretation No. 48, Accounting for Income
Taxes an Interpretation of FASB Statement No. 109 (FIN 48), on November 1, 2007. In
accordance with the provisions of FIN 48, as of January 31, 2009, we have recorded $5.1
million of unrecognized tax benefits and related interest and penalties. Due to the
uncertainty regarding the timing and completion of audits and possible outcomes, it is not
possible to estimate the range of increase and decrease and the timing thereof of any
potential cash payments. |
As of January 31, 2009, our outstanding debt balance was $450.1 million, consisting of $250.0
million in 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 January 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principally |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seller |
|
|
|
|
|
|
Revolving |
|
|
Senior |
|
|
|
|
|
|
Financing |
|
|
|
|
|
|
Credit |
|
|
Convertible |
|
|
Senior |
|
|
of Acquired |
|
|
|
|
Fiscal Years Ending October 31, |
|
Facility |
|
|
Notes |
|
|
Notes |
|
|
Operations |
|
|
Total |
|
2009 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
200.0 |
|
|
|
|
|
|
|
200.0 |
|
Thereafter |
|
|
|
|
|
|
250.0 |
|
|
|
|
|
|
|
.1 |
|
|
|
250.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
|
|
|
$ |
250.0 |
|
|
$ |
200.0 |
|
|
$ |
.1 |
|
|
$ |
450.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements as of January 31, 2009 consist of the following items:
|
|
|
(1) |
|
the $28.9 million bond we are required to maintain to guarantee our obligations
relating to funds we withdrew in fiscal year 2001 from our preneed funeral trusts in
Florida, which is discussed above and in Note 20 to the consolidated financial
statements in our 2008 Form 10-K; and |
|
(2) |
|
the insurance-funded preneed funeral contracts, which will be funded by life
insurance or annuity contracts issued by third-party insurers, are not reflected in our
condensed consolidated balance sheets, and are discussed in Note 2(i) to the
consolidated financial statements in our 2008 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, 2008, filed with the Securities
and Exchange Commission (SEC) on December 18, 2008. 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,
2008. For a discussion of fair market value as of January 31, 2009 of investments in our trusts,
see Notes 3, 4 and 5 to the condensed consolidated financial statements included herein.
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
As of November 1, 2008, the Company began the implementation of Hanlon Management Information
Systems (HMIS), which is an integrated software system targeted specifically to the death care
industry in areas such as customer data, billing information, products and services sold and/or
delivered, collections, accounts receivables and property inventory. As of January 31, 2009, the
implementation was complete on regions covering less than 10 percent of consolidated revenue and
gross profit. The Company expects the implementation to be completed in all of its regions by the
end of fiscal year 2009. In connection with this implementation, the Company expects to improve
its internal controls over financial reporting by increasing its reliance on automated controls.
During the first quarter of 2009, the Company supplemented its automated internal controls with
additional manual and detective controls as it implemented the new system.
With the exception of the HMIS implementation described above, there have been no changes in
the Companys internal control over financial reporting during the quarter ended January 31, 2009
that have materially
affected, or are reasonably likely to materially affect, the Companys internal control over
financial reporting.
45
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.
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, we do not expect these matters to
have a material adverse effect on our consolidated financial position, results of operations or
cash flows.
We carry insurance with coverages and coverage limits that we believe to be adequate.
Although there can be no assurance that such insurance is sufficient to protect us against all
contingencies, we believe that our insurance protection is reasonable in view of the nature and
scope of our operations.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in our 2008
Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
During the three months ended January 31, 2009, there were no stock repurchases under our
current $75.0 million stock repurchase program. As of January 31, 2009, there is $26.6 million
remaining available under this program.
Item 6. Exhibits
3.1 |
|
Amended and Restated Articles of Incorporation of the Company, as amended and restated as of
April 3, 2008 (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on
Form 10-Q for the quarter ended April 30, 2008) |
|
3.2 |
|
By-laws of the Company, as amended and restated as of September 8, 2008 (incorporated by
reference to Exhibit 3.2 to the Companys Quarterly Report on Form 10-Q for the quarter ended
July 31, 2008) |
|
4.1 |
|
See Exhibits 3.1 and 3.2 for provisions of the Companys Amended and Restated Articles of
Incorporation, as amended, and By-laws, as amended, defining the rights of holders of Class A
and Class B common stock |
|
4.2 |
|
Specimen of Class A common stock certificate (incorporated by reference to Exhibit 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) |
46
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) |
|
10.1 |
|
Amendment No. 1 to the Amended and Restated Stewart Enterprises, Inc. Supplemental Retirement
and Deferred Compensation Plan effective December 17, 2008 |
|
10.2 |
|
Amended and Restated Stewart Enterprises, Inc. Executive Officer Annual Incentive Plan |
|
10.3 |
|
Amendment No. 1 to the Amended and Restated Stewart Enterprises, Inc. Supplemental Executive
Retirement Plan effective January 26, 2009 |
|
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 |
47
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.
|
|
March 11, 2009 |
/s/ THOMAS M. KITCHEN
|
|
|
Thomas M. Kitchen |
|
|
Senior Executive Vice President and
Chief Financial Officer |
|
|
|
|
|
March 11, 2009 |
/s/ ANGELA M. LACOUR
|
|
|
Angela M. Lacour |
|
|
Vice President
Corporate Controller
Chief Accounting Officer |
|
48
Exhibit Index
10.1 |
|
Amendment No. 1 to the Amended and Restated Stewart Enterprises, Inc. Supplemental Retirement
and Deferred Compensation Plan effective December 17, 2008 |
|
10.2 |
|
Amended and Restated Stewart Enterprises, Inc. Executive Officer Annual Incentive Plan |
|
10.3 |
|
Amendment No. 1 to the Amended and Restated Stewart Enterprises, Inc. Supplemental Executive
Retirement Plan effective January 26, 2009 |
|
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 |
49