UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 31, 1997
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to ________
Commission File Number: 0-19508
STEWART ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
LOUISIANA 72-0693290
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
110 Veterans Memorial Boulevard
Metairie, Louisiana 70005
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (504) 837-5880
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
The number of shares of the Registrant's Class A Common Stock, no par
value per share, and Class B Common Stock, no par value per share,
outstanding as of September 12, 1997 was 46,874,315 and 1,777,510,
respectively.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
Consolidated Statements of Earnings -
Three Months Ended July 31, 1997................................ 3
Three Months Ended July 31, 1996 (Pro Forma for Change in
Accounting Principles)..................................... 3
Three Months Ended July 31, 1996 (As Reported).................. 3
Consolidated Statements of Earnings -
Nine Months Ended July 31, 1997................................. 4
Nine Months Ended July 31, 1996 (Pro Forma for Change in
Accounting Principles)..................................... 4
Nine Months Ended July 31, 1996 (As Reported)................... 4
Consolidated Balance Sheets -
July 31, 1997 and October 31, 1996.............................. 5
Consolidated Statements of Cash Flows -
Nine Months Ended July 31, 1997 and 1996........................ 7
Notes to Consolidated Financial Statements........................ 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................... 15
Part II. Other Information
Item 1. Legal Proceedings........................................ 21
Item 5. Other Information........................................ 21
Item 6. Exhibits and Reports on Form 8-K......................... 24
Signatures....................................................... 25
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended July 31,
---------------------------------------
1997 1996 1996
----------- ------------ ------------
(Pro Forma)(1) (As Reported)
Revenues:
Funeral............................ $ 75,350 $ 55,380 $ 56,971
Cemetery........................... 64,196 54,704 51,963
----------- ------------ ------------
139,546 110,084 108,934
----------- ------------ ------------
Costs and expenses:
Funeral............................ 52,559 37,908 37,908
Cemetery........................... 45,481 42,459 41,303
----------- ------------ ------------
98,040 80,367 79,211
----------- ------------ ------------
41,506 29,717 29,723
Corporate general and
administrative expenses.............. 3,423 2,884 2,884
----------- ------------ ------------
Operating earnings................. 38,083 26,833 26,839
Interest expense...................... (10,132) (6,558) (6,558)
Investment and other income........... 756 397 397
----------- ------------ ------------
Earnings before income taxes....... 28,707 20,672 20,678
Income taxes.......................... 9,656 7,752 7,754
----------- ------------ ------------
Net earnings....................... $ 19,051 $ 12,920 $ 12,924
=========== ============ ============
Earnings per common share.......... $ .42 $ .31 $ .31
=========== ============ ============
Weighted average common shares
outstanding (in thousands)........... 44,826 41,551 41,551
=========== ============ ============
Dividends per common share............ $ .02 $ .02
=========== ============
(1) Pro forma to reflect changes in the Company's accounting methods
effective November 1, 1996, as if such methods had been in effect during
fiscal year 1996.
See accompanying notes to consolidated financial statements.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share amounts)
Nine Months Ended July 31,
---------------------------------------
1997 1996 1996
----------- ------------ ------------
(Pro Forma)(1) (As Reported)
Revenues:
Funeral............................ $211,539 $160,237 $164,974
Cemetery........................... 178,841 160,883 155,140
----------- ------------ ------------
390,380 321,120 320,114
----------- ------------ ------------
Costs and expenses:
Funeral............................ 146,334 111,610 111,610
Cemetery........................... 128,383 122,206 120,459
----------- ------------ ------------
274,717 233,816 232,069
----------- ------------ ------------
115,663 87,304 88,045
Corporate general and
administrative expenses.............. 10,459 9,149 9,149
----------- ------------ ------------
Operating earnings................. 105,204 78,155 78,896
Interest expense...................... (29,165) (18,580) (18,580)
Investment and other income........... 2,322 1,804 1,804
----------- ------------ ------------
Earnings before income taxes
and cumulative effect of
change in accounting
principles...................... 78,361 61,379 62,120
Income taxes.......................... 27,035 23,017 23,295
----------- ------------ ------------
Earnings before cumulative effect
of change in accounting
principles...................... 51,326 38,362 38,825
----------- ------------ ------------
Cumulative effect of change in
accounting principles
(net of $2,230 income
tax benefit) (Note 2)................ (2,324) - -
----------- ------------ ------------
Net earnings....................... $ 49,002 $ 38,362 $ 38,825
=========== ============ ============
Earnings per common share:
Earnings before cumulative
effect of change in
accounting principles............ $ 1.19 $ .93 $ .94
Cumulative effect of change in
accounting principles............ (.05) - -
----------- ------------ ------------
Net earnings....................... $ 1.14 $ .93 $ .94
=========== ============ ============
Weighted average common shares
outstanding (in thousands)........... 42,955 41,315 41,315
=========== ============ ============
Dividends per common share............ $ .06 $ .046
=========== ============
(1) Pro forma to reflect changes in the Company's accounting methods
effective November 1, 1996, as if such methods had been in effect
during fiscal year 1996.
See accompanying notes to consolidated financial statements.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)
July 31, October 31,
ASSETS 1997 1996
------ ------------ -------------
Current assets:
Cash and cash equivalent investments.......... $ 20,086 $ 24,580
Marketable securities......................... 2,340 2,514
Receivables, net of allowances................ 126,002 109,129
Inventories................................... 33,172 31,044
Prepaid expenses.............................. 5,199 4,275
------------ -------------
Total current assets....................... 186,799 171,542
Receivables due beyond one year,
net of allowances............................... 186,073 147,961
Intangible assets................................ 389,772 301,309
Deferred charges................................. 74,104 101,073
Cemetery property, at cost....................... 312,921 314,377
Property and equipment, at cost:
Land.......................................... 68,902 63,653
Buildings..................................... 234,951 197,553
Equipment and other........................... 97,389 80,626
------------ -------------
401,242 341,832
Less accumulated depreciation................. 81,614 69,088
------------ -------------
Net property and equipment.................... 319,628 272,744
Long-term investments............................ 62,638 48,407
Other assets..................................... 4,227 3,500
------------ -------------
$ 1,536,162 $ 1,360,913
============ =============
(continued)
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)
July 31, October 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
------------------------------------ ------------ ------------
Current liabilities:
Current maturities of
long-term debt........................... $ 30,430 $ 4,240
Accounts payable.......................... 14,179 11,889
Accrued payroll........................... 15,353 12,612
Accrued insurance......................... 7,133 8,341
Accrued interest.......................... 3,241 4,621
Accrued other............................. 12,699 14,479
Estimated costs to complete mausoleums
and lawn crypts, and to deliver
merchandise............................. 1,999 3,552
Income taxes payable...................... 12,828 10,154
Deferred income taxes..................... 5,854 3,594
------------ ------------
Total current liabilities.............. 103,716 73,482
Long-term debt,
less current maturities..................... 462,450 515,901
Deferred income taxes........................ 76,433 70,388
Deferred revenue............................. 80,278 137,874
Other long-term liabilities.................. 5,311 15,821
------------ ------------
Total liabilities...................... 728,188 813,466
------------ ------------
Commitments and contingencies (Notes 4 and 7)
Preferred stock, $1.00 par value,
5,000,000 shares authorized;
no shares issued............................ - -
Shareholders' equity:
Common stock, $1.00 stated value:
Class A authorized 150,000,000
shares; issued and outstanding
46,817,758 and 40,022,483 shares
at July 31, 1997 and October 31,
1996, respectively.................... 46,818 40,022
Class B authorized 5,000,000 shares;
issued and outstanding 1,777,510
shares at July 31, 1997 and October
31, 1996; 10 votes per share;
convertible into an equal number of
Class A shares........................ 1,778 1,778
Additional paid-in capital................ 520,048 306,706
Retained earnings......................... 261,661 215,314
Cumulative foreign
translation adjustment................... (26,443) (19,058)
Unrealized appreciation of
investments.............................. 4,112 2,685
------------ ------------
Total shareholders' equity............. 807,974 547,447
------------ ------------
$1,536,162 $1,360,913
============ ============
See accompanying notes to consolidated financial statements.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands, except per share amounts)
Nine Months Ended July 31,
--------------------------------
1997 1996
--------------- -------------
Cash flows from operating activities:
Net earnings................................ $ 49,002 $ 38,825
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization............ 19,435 15,865
Provision for doubtful accounts.......... 15,791 12,314
Cumulative effect of change in
accounting principles................... 2,324 -
Net gains on sales of marketable
securities.............................. (615) (1,438)
Provision (benefit) for deferred
income taxes............................ 214 (728)
Changes in assets and liabilities net of
effects from acquisitions:
Increase in prearranged funeral trust
receivables........................... (21,628) (13,619)
Increase in other receivables.......... (44,878) (24,193)
Increase in deferred charges and
intangible assets..................... (15,394) (4,326)
Increase in inventories and
cemetery property..................... (8,454) (5,418)
Decrease in accounts payable
and accrued expenses.................. (2,450) (6,257)
Decrease in estimated costs to
complete mausoleums and lawn crypts,
and to deliver merchandise............ (11,213) (5,214)
Increase in deferred revenue........... 1,254 5,912
Increase (decrease) in other........... 252 (1,051)
------------ ------------
Net cash provided by (used in) operating
activities................................. (16,360) 10,672
------------ ------------
Cash flows from investing activities:
Proceeds from sales of marketable
securities................................. 8,546 5,756
Purchases of marketable securities
and long-term investments.................. (14,321) (9,242)
Purchases of subsidiaries, net of cash,
seller financing and stock issued.......... (120,472) (52,958)
Additions to property and equipment......... (27,492) (23,099)
Other....................................... 1,015 627
------------ ------------
Net cash used in
investing activities.................. (152,724) (78,916)
------------ ------------
(continued)
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands, except per share amounts)
Nine Months Ended July 31,
-------------------------------
1997 1996
------------- --------------
Cash flows from financing activities:
Proceeds from long-term debt............... $ 310,682 $ 82,194
Repayments of long-term debt............... (350,125) (14,032)
Issuance of common stock................... 219,654 2,107
Purchase and retirement
of common stock........................... (11,943) -
Dividends.................................. (2,655) (1,932)
------------- --------------
Net cash provided by financing
activities............................. 165,613 68,337
------------- --------------
Effect of exchange rates on cash
and cash equivalents......................... (1,023) (412)
------------- --------------
Net decrease in cash.......................... (4,494) (319)
Cash and cash equivalents,
beginning of period.......................... 24,580 18,226
------------- --------------
Cash and cash equivalents,
end of period................................ $ 20,086 $ 17,907
============= ==============
Supplemental cash flow information:
Cash paid during the period for:
Income taxes............................ $ 23,900 $ 16,600
Interest................................ $ 30,500 $ 18,600
Noncash investing and financing activity:
Subsidiaries acquired
with common stock......................... $ 12,426 $ 11,636
See accompanying notes to consolidated financial statements.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(1) Basis of Presentation
(a) The Company
Stewart Enterprises, Inc. (the "Company") is the third largest provider
of products and services in the death care industry in North America.
Through its subsidiaries, the Company offers a complete line of funeral
merchandise and services, along with cemetery property, merchandise and
services.
As of July 31, 1997, the Company owned and operated 368 funeral homes and
127 cemeteries in 23 states within the United States, and in Puerto Rico,
Mexico, Australia, New Zealand, Canada and Spain. The Company commenced its
international operations in Mexico in August 1994, and entered Australia in
December 1994, New Zealand in April 1996, Canada in September 1996 and Spain
in April 1997. For the nine months ended July 31, 1997, foreign operations
contributed approximately 14% of total revenue and, as of July 31, 1997,
represented approximately 26% of total assets.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the Company
and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
(c) Interim Disclosures
The information as of July 31, 1997, and for the three and nine months
ended July 31, 1997 and 1996, is unaudited, but, in the opinion of
management, reflects all adjustments, which are of a normal recurring
nature, necessary for a fair presentation of financial position and results
of operations for the interim periods. The accompanying consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto contained in the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1996.
The results of operations for the three and nine months ended July 31,
1997 are not necessarily indicative of the results to be expected for the
fiscal year ending October 31, 1997.
(d) Foreign Currency Translation
In accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation," all assets and liabilities of the Company's
foreign subsidiaries are translated into U.S. dollars at the exchange rate
in effect at the end of the period, and revenues and expenses are translated
at average exchange rates prevailing during the period. The resulting
translation adjustments are reflected in a separate component of
shareholders' equity, except for translation adjustments arising from the
Company's operations in highly inflationary economies.
Based on the three-year cumulative inflation rate in Mexico as of October
31, 1996, the Company was required to change its method of reporting foreign
currency translation adjustments for its Mexican operations to the method
prescribed for highly inflationary economies during the first quarter of
fiscal year 1997. As a result, foreign currency translation adjustments for
the Company's Mexican operations are reflected in results of operations,
instead of in shareholders' equity. The effect of this change was not
material in the first nine months of fiscal year 1997, and management does
not expect this change to have a material effect on the Company's results of
operations for the full fiscal year.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(1) Basis of Presentation--(Continued)
(e) Per Share Data
Earnings per common share are computed by dividing net earnings by the
weighted average number of common shares outstanding during each period.
All share and per-share data for fiscal year 1996 have been adjusted for the
Company's three-for-two common stock split effective June 21, 1996.
(f) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(g) Reclassifications
Certain reclassifications have been made to the 1996 consolidated
financial statements to conform to the presentation used in the 1997
consolidated financial statements. These reclassifications had no effect on
net earnings or shareholders' equity.
(2) Change in Accounting Principles
The Company changed the following accounting principles effective
November 1, 1996:
(a) The Company now defers a portion of the earnings realized by
irrevocable prearranged funeral trust funds and escrow accounts in order to
offset the estimated effects of inflation on the future cost of performing
prearranged funeral services. Earnings realized in excess of those
deferred are recognized on a current basis, except in those jurisdictions
where earnings revert to a customer if a prearranged funeral service
contract is canceled. Previously, all such earnings were recognized as
realized.
(b) The Company now records all revenues and costs attributable to
prearranged sales of cemetery interment rights and related products when
customer contracts are signed. Allowances for customer cancellations and
refunds are provided at the date of sale based upon historical experience.
Previously, such sales generally were deferred under accounting principles
prescribed for sales of real estate. Under the Company's application of
this method of accounting for sales of real estate, revenues and costs were
deferred until 20% of the contract amount had been collected.
(c) The Company now records revenue and related costs attributable to
cemetery burial site openings and closings at the time of sale. Previously,
such sales were deferred until delivery.
The accounting changes were made principally for the following reasons:
(a) A portion of funeral trust earnings and increasing benefits under
insurance contracts is intended to cover increases in the future costs of
providing price guaranteed funeral services. The Company believes that
deferring such earnings to the extent of the increased costs of the services
to be provided will better match revenues and costs because
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(2) Change in Accounting Principles--(Continued)
the total funds available to satisfy the contract (principal and deferred
earnings) will be included in revenues with concurrent recognition of all
costs related to performance of the service when the funeral service is
performed.
(b) The cemetery accounting methods have been adopted because all
significant obligations of the Company, including delivery of products and
opening and closing the burial site, have been satisfied in the period the
contract is signed. Related costs are provided based on actual costs
incurred, firm commitments or reliable estimates. Historical experience is
the basis for making appropriate allowances for customer cancellations and
will be adjusted when required.
The cumulative effect of these changes on prior years resulted in a
decrease in net earnings for the nine months ended July 31, 1997 of $2,324
(net of a $2,230 income tax benefit), or $.05 per share. The effect of the
change in accounting principles resulted in an increase in net earnings of
$1,871, or $.04 per share, for the three months ended July 31, 1997, and
$2,268, or $.05 per share, for the nine months ended July 31, 1997.
The effect of the change on the first and second quarters of fiscal year
1997 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------
January 31, 1997 April 30, 1997
------------------ -----------------
(Unaudited)
<S> <C> <C>
Net earnings as originally reported............. $ 15,376 $ 16,502
Effect of change in accounting principles....... (369) 766
------------------ -----------------
Earnings before cumulative effect of change
in accounting principles..................... 15,007 17,268
Cumulative effect on prior years
(to October 31, 1996) of change in
accounting principles........................ (2,324) -
------------------ -----------------
Net earnings as restated........................ $ 12,683 $ 17,268
================== =================
Per share amounts:
Net earnings as originally reported............. $ .37 $ .39
Effect of change in accounting principles....... (.01) .02
------------------ -----------------
Earnings before cumulative effect of change
in accounting principles..................... .36 .41
Cumulative effect on prior years
(to October 31, 1996) of change
in accounting principles..................... (.06) -
------------------ -----------------
Net earnings as restated $ .30 $ .41
================== =================
</TABLE>
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(3) Acquisition of Subsidiaries
During the nine months ended July 31, 1997, the Company purchased 69
funeral homes and seven cemeteries, compared to 37 funeral homes and nine
cemeteries purchased during the nine months ended July 31, 1996.
These acquisitions have been accounted for by the purchase method, and
their results of operations are included in the accompanying consolidated
financial statements from the dates of acquisition. The purchase price
allocations for certain of these acquisitions are based on preliminary
information.
The following table reflects, on an unaudited pro forma basis, the
combined operations of the Company and the businesses acquired during the
nine months ended July 31, 1997, as if such acquisitions had taken place at
the beginning of the respective periods presented. Appropriate adjustments
have been made to reflect the accounting basis used in recording the
acquisitions. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of
operations that would have resulted had the combinations been in effect on
the dates indicated, that have resulted since the dates of acquisition, or
that may result in the future.
Nine Months Ended July 31,
------------------------------
1997 1996(1)
------------- ------------
(Unaudited)
Revenues.................................. $ 410,385 $ 357,407
============= ============
Earnings before cumulative effect
of change in accounting principles....... $ 49,588 $ 34,917
============= ============
Net earnings.............................. $ 47,264 $ 34,917
============= ============
Earnings per common share before
cumulative effect of change in
accounting principles.................... $ 1.15 $ .84
============= ============
Earnings per common share................. $ 1.10 $ .84
============= ============
Weighted average common shares outstanding
(in thousands)........................... $ 43,161 $ 41,659
============= ============
(1) Pro forma to reflect changes in the Company's accounting methods effective
November 1, 1996, as if such methods had been in effect during fiscal year
1996. See Note 2.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(3) Acquisition of Subsidiaries--(Continued)
The effect of acquisitions at dates of purchase on the consolidated
financial statements was as follows:
Nine Months Ended July 31,
---------------------------
1997 1996
---------- ----------
(Unaudited)
Current assets............................. $ 5,632 $ 7,438
Receivables due beyond one year............ 1,707 407
Cemetery property.......................... 2,953 24,540
Property and equipment..................... 34,514 22,812
Deferred charges and other assets.......... 722 963
Intangible assets.......................... 105,722 32,867
Current liabilities........................ (7,078) (4,849)
Long-term debt............................. (9,915) (8,593)
Deferred income taxes...................... (841) (8,943)
Deferred revenue and other liabilities..... (518) (2,048)
---------- ----------
132,898 64,594
Common stock used for acquisitions......... 12,426 11,636
---------- ----------
Cash used for acquisitions................. $120,472 $ 52,958
========== ==========
(4) Contingencies
The Company was notified in September 1994 that a suit was brought by a
competitor regarding the Company's acquisition of certain corporations in
Mexico. The suit alleges that this acquisition violated the competitor's
previous option to acquire the same corporations. The suit seeks
unspecified damages. The Company believes that the suit is without merit
and intends to defend it vigorously. The Company believes it is entitled to
indemnification from the previous owners of these corporations should an
unfavorable outcome result. Management does not believe this matter will
have a material adverse effect on the financial position, net earnings or
cash flows of the Company.
(5) Recent Accounting Standards
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," is required to be implemented during the
Company's fiscal year ending October 31, 1997. Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," and No. 129, "Disclosure
of Information about Capital Structure," are required to be implemented
during the first quarter of fiscal year 1998. Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," and No. 131,
"Disclosure about Segments of an Enterprise and Related Information," are
required to be implemented during the Company's fiscal year ending October
31, 1999. The effect of these pronouncements on the Company's consolidated
financial condition and results of operations is not expected to be
material.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(6) Equity Offering
During the third quarter of fiscal year 1997, the Company completed the
sale of 6,055,000 shares of Class A Common Stock, resulting in approximately
$211 million in net proceeds, which were used for acquisitions and general
corporate purposes.
(7) Subsequent Events
Subsequent to July 31, 1997, the Company has acquired or committed to
acquire 34 funeral homes and two cemeteries for approximately $43,544.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
Effective November 1, 1996, the Company changed accounting principles for
prearranged funeral and cemetery sales, as follows: (i) the Company now
defers a portion of the earnings realized by irrevocable prearranged funeral
trust funds and escrow accounts in order to offset the estimated effects of
inflation on the future cost of performing prearranged funeral services;
(ii) the Company now records all revenues and costs attributable to
prearranged sales of cemetery interment rights and related products at the
time the contract is signed; and (iii) the Company now records revenue and
related costs attributable to cemetery burial site openings and closings at
the time of sale. The accounting changes were made principally to provide a
better matching of revenues and expenses in the appropriate periods and to
more accurately reflect the Company's operations. See Note 2 to the
consolidated financial statements included herein.
These changes generally will result in reduced near-term funeral revenue
and gross profit, due to the deferral of a portion of the earnings from
funeral trust funds and escrow accounts until the funeral is performed.
These changes also will result in higher near-term cemetery revenue and
gross profit, due to the recognition under the accrual basis of accounting
of certain cemetery sales. The net effect is expected to result in
increased revenues and gross profit from amounts that would have been
reported under the Company's previous accounting methods. For the following
discussion, all comparisons to fiscal year 1996 data, unless otherwise
noted, reflect the pro forma effects of applying the new accounting
principles as if the changes had occurred on November 1, 1995.
For purposes of the following discussion, funeral homes and cemeteries
owned and operated for the entirety of each period being compared are
referred to as "Existing Operations." Correspondingly, funeral homes and
cemeteries acquired or funeral homes opened during either period being
compared are referred to as "Acquired Operations."
Results of Operations
Three Months Ended July 31, 1997 Compared to Three Months Ended July 31, 1996
Funeral Segment
<TABLE>
<CAPTION>
Three Months Ended
July 31,
--------------------
1997 1996 Increase
------- ------- --------
(In millions)
<S> <C> <C> <C>
Funeral Revenue
---------------
Existing Operations............................. $ 52.2 $ 50.7 $ 1.5
Acquired Operations............................. 16.1 .3 15.8
Revenue from prearranged funeral trust funds and
escrow accounts.............................. 7.1 4.4 2.7
------- ------- --------
$ 75.4 $ 55.4 $ 20.0
======= ======= ========
Funeral Costs
-------------
Existing Operations............................. $ 38.4 $ 37.7 $ .7
Acquired Operations............................. 14.2 .2 14.0
------- ------- --------
$ 52.6 $ 37.9 $ 14.7
======= ======= ========
Funeral Segment Profit.......................... $ 22.8 $ 17.5 $ 5.3
======= ======= ========
Funeral revenue increased $20.0 million, or 36%, for the three months
ended July 31, 1997, compared to the corresponding period in 1996. The
Company experienced a $1.5 million increase in revenue from Existing
Operations as a result of a 3.8% increase in the average revenue per
domestic funeral service performed by Existing Operations (3.9% increase in
total) due to price increases and improved merchandising. Slightly
offsetting this increase in revenue was a .2% decrease in the number of
domestic funeral services performed by Existing Operations (1.5% decrease
in total).
The increase in revenue and costs from Acquired Operations resulted
primarily from the Company's acquisition or construction of funeral homes
from August 1996 through July 1997 which are not reflected in the 1996
period presented above.
The $2.7 million increase in revenue from prearranged funeral trust funds
and escrow accounts was attributable to a 29% growth in the average balance
in such trust funds and escrow accounts, resulting primarily from current
year customer payments deposited into the funds and funds added through
acquisitions, coupled by a slight increase in the yield on the funds for the
third quarter of fiscal year 1997 compared to the corresponding period in
the prior year.
Cemetery Segment
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
July 31,
--------------------
1997 1996 Increase
-------- ------- --------
(In millions)
<S> <C> <C> <C>
Cemetery Revenue
----------------
Existing Operations................................. $ 59.7 $ 52.8 $ 6.9
Acquired Operations................................. 1.9 .3 1.6
Revenue from merchandise trust funds and
escrow accounts.................................... 2.6 1.6 1.0
-------- ------- --------
$ 64.2 $ 54.7 $ 9.5
======== ======= ========
Cemetery Costs
--------------
Existing Operations................................. $ 43.9 $ 42.2 $ 1.7
Acquired Operations................................. 1.6 .3 1.3
-------- ------- --------
$ 45.5 $ 42.5 $ 3.0
======== ======= ========
Cemetery Segment Profit............................. $ 18.7 $ 12.2 $ 6.5
======== ======= ========
Cemetery revenue increased $9.5 million, or 17%, for the three months
ended July 31, 1997, compared to the corresponding period in 1996, due
principally to a $6.9 million increase in revenue from Existing Operations.
The increase in revenue from Existing Operations resulted principally from
an increase in cemetery sales.
Costs increased during this same period by $3.0 million, due principally
to a $1.7 million increase in costs from Existing Operations, attributable
to the growth in revenue previously discussed. The improved profit margin
achieved by Existing Operations was attributable principally to a 13%
increase in cemetery sales by Existing Operations, the implementation of
certain cost control measures, including the Company's undertaking to
centralize and standardize certain financial and administrative functions,
and the inclusion of sales of openings and closings in both periods.
The increase in revenue and costs from Acquired Operations resulted
primarily from the Company's acquisition of cemeteries from August 1996
through July 1997 which are not reflected in the 1996 period presented
above.
The $1.0 million increase in revenue from merchandise trust funds and
escrow accounts was attributable to a 23% growth in the average balance in
the merchandise trust funds and escrow accounts, resulting from current year
customer payments deposited into the funds, along with funds added through
acquisitions, and an increase in the yield on the merchandise trust funds
and escrow accounts.
Other Segments and Activities
Interest expense increased $3.6 million during the third quarter of
fiscal year 1997 compared to the same period in 1996. The increase resulted
from an increase in average borrowings, coupled with a slight increase in
average interest rates from 6.4% in 1996 to 6.6% in 1997. Approximately
$250 million of the $492.9 million outstanding borrowings at July 31, 1997
was subject to short-term variable interest rates averaging approximately
6.4%.
The Company experienced a decline in its effective tax rate from 37.5% in
the third quarter of fiscal year 1996 to 33.6% in the comparable period in
fiscal year 1997, principally as a result of an increase in foreign source
income which has a lower effective tax rate than that experienced in the
United States, and the elimination of the Puerto Rican interest withholding
tax.
Nine Months Ended July 31, 1997 Compared to Nine Months Ended July 31, 1996
Funeral Segment
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
-------------------- Increase
1997 1996 (Decrease)
-------- -------- ----------
(In millions)
<S> <C>
Funeral Revenue <C> <C>
----------------
Existing Operations............................... $143.3 $138.8 $ 4.5
Acquired Operations............................... 51.7 8.5 43.2
Revenue from prearranged funeral trust funds and
escrow accounts.................................. 16.5 12.9 3.6
-------- -------- ----------
$211.5 $160.2 $ 51.3
======== ======== ==========
Funeral Costs
-------------
Existing Operations............................... $104.1 $105.5 $ (1.4)
Acquired Operations............................... 42.2 6.1 36.1
-------- -------- ----------
$146.3 $111.6 $ 34.7
======== ======== ==========
Funeral Segment Profit............................ $ 65.2 $ 48.6 $ 16.6
======== ======== ==========
</TABLE>
Funeral revenue increased $51.3 million, or 32%, for the nine months
ended July 31, 1997, compared to the corresponding period in 1996. The
Company experienced a $4.5 million increase in revenue from Existing
Operations due principally to a 2.8% increase in the average revenue per
domestic funeral service performed by Existing Operations (5.2% increase in
total), due to price increases and improved merchandising. Additionally,
the Company experienced a .2% increase in the number of funeral services
performed by Existing Operations (1.6% decrease in total).
The $1.4 million, or 1%, decrease in funeral costs for Existing
Operations resulted principally from the continued implementation of certain
cost control measures, including the Company's centralization and
standardization of certain financial and administrative functions, which
also contributed to the improved profit margin achieved by Existing
Operations.
The increase in revenue and costs from Acquired Operations resulted
primarily from the Company's acquisition or construction of funeral homes
from August 1996 through July 1997 which are not reflected in the 1996
period presented above.
The $3.6 million increase in revenue from prearranged funeral trust fund
and escrow accounts was attributable to a 25% growth in the average balance
in such trust funds and escrow accounts, resulting primarily from current
year customer payments deposited into the funds and funds added through
acquisitions, offset by a slight decline in the yield on the funds.
Cemetery Segment
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
--------------------
1997 1996 Increase
--------- ------- --------
(In millions)
<S> <C> <C>
Cemetery Revenue
----------------
Existing Operations................................ $158.5 $148.4 $ 10.1
Acquired Operations................................ 11.3 6.1 5.2
Revenue from merchandise trust funds and
escrow accounts................................... 9.0 6.4 2.6
--------- ------- --------
$178.8 $160.9 $ 17.9
========= ======= ========
Cemetery Costs
--------------
Existing Operations................................ $119.9 $118.1 $ 1.8
Acquired Operations................................ 8.5 4.1 4.4
--------- ------- --------
$ 128.4 $122.2 $ 6.2
========= ======= ========
Cemetery Segment Profit............................ $ 50.4 $ 38.7 $ 11.7
========= ======= ========
</TABLE>
Cemetery revenue increased $17.9 million, or 11%, for the nine months
ended July 31, 1997, compared to the same period in 1996, due principally to
a $10.1 million increase in revenue from Existing Operations. The increase
in revenue from Existing Operations resulted from an increase in cemetery
sales, offset by a decline in the yield on the Company's perpetual care
trust funds. The improved profit margin achieved by Existing Operations was
attributable principally to a 7% increase in cemetery sales by Existing
Operations, the implementation of certain cost control measures, including
the Company's undertaking to centralize and standardize certain financial
and administrative functions, and the inclusion of sales of openings and
closings in both periods.
The increase in revenue and costs from Acquired Operations resulted
primarily from the Company's acquisition of cemeteries from August 1996
through July 1997 which are not reflected in the 1996 period presented
above.
The $2.6 million increase in revenue from merchandise trust funds and
escrow accounts was attributable to a 25% growth in the average balance in
the merchandise trust funds and escrow accounts, resulting from current year
customer payments deposited into the funds, along with funds added through
acquisitions, and an increase in the yield on the merchandise trust funds
and escrow accounts.
Other Segments and Activities
Interest expense increased $10.6 million during the first nine months of
fiscal year 1997 compared to the same period in 1996. The increase in
interest expense resulted from an increase in total borrowings, offset by a
slight decrease in average interest rates from 6.7% in 1996 to 6.6% in 1997.
Approximately $250 million of the $492.9 million outstanding borrowings at
July 31,1997 was subject to short-term variable interest rates averaging
approximately 6.4%.
The Company experienced a decline in its effective tax rate from 37.5%,
during the first nine months of fiscal year 1996 to 34.5% for the
corresponding period in fiscal year 1997, principally as a result of an
increase in foreign source income which has a lower effective tax rate than
that experienced in the United States, and the elimination of the Puerto
Rican interest withholding tax.
Liquidity and Capital Resources
Cash and marketable securities of the Company were $22.4 million at July
31, 1997, a decrease of approximately $4.7 million from October 31, 1996.
The Company used cash of $16.4 million in its operations for the nine months
ended July 31, 1997, compared to providing cash of $10.7 million for the
corresponding period in 1996, due principally to an increase in the growth
of receivables, offset by an increase in net earnings and other working
capital changes.
In October 1996, the Company filed a shelf registration statement with
the Securities and Exchange Commission covering $300 million of unsecured,
unsubordinated debt securities. In December 1996, the Company issued $100
million of those debt securities in the form of 6.70% Notes due 2003. Net
proceeds were approximately $99.4 million, of which $96.8 million was used
to reduce balances outstanding under the Company's revolving credit
facilities, with the remaining $2.6 million used for acquisitions and
general corporate purposes.
In April 1997, the Company completed the syndication of a new $600
million revolving credit facility, which replaced its existing $262
million, $88 million and $75 million revolving credit facilities.
Long-term debt at July 31, 1997 amounted to $492.9 million, compared to
$520.1 million at October 31, 1996. The Company's long-term debt consisted
of $250.0 million under the Company's revolving credit facilities, $225.0
million of long-term notes and $17.9 million of term notes incurred
principally in connection with the acquisition of funeral home and cemetery
properties. All of the Company's debt is uncollateralized, except for
approximately $1.7 million of term notes incurred principally in connection
with acquisitions.
During the third quarter of fiscal year 1997, the Company completed the
sale of 6,055,000 shares of Class A Common Stock, resulting in approximately
$211 million in net proceeds, which were used for acquisitions and general
corporate purposes.
The most restrictive of the Company's credit agreements require it to
maintain a debt-to-equity ratio no higher than 1.25 to 1.0. The Company has
managed its capitalization within that limit, with a ratio of total debt to
equity of .61 to 1.0 and .95 to 1.0 as of July 31, 1997 and October 31,
1996, respectively. As of July 31, 1997, the Company had $514.8 million of
additional borrowing capacity within this parameter, of which $357.7 million
was available under its revolving credit facilities.
The Company's ratio of earnings to fixed charges was 3.58 for the nine
months ended July 31, 1997 (excluding the cumulative effect of a change in
accounting principles), and 3.98, 2.72 (including a $17.3 million non-
recurring, non-cash performance-based stock option charge), 5.30, 5.15 and
4.57 for the fiscal years ended October 31, 1996, 1995, 1994, 1993 and 1992,
respectively. Excluding the stock option charge, the Company's ratio of
earnings to fixed charges for fiscal year 1995 would have been 3.43. For
purposes of computing the ratio of earnings to fixed charges, earnings
consist of pretax earnings plus fixed charges (excluding interest
capitalized during the period). Fixed charges consist of interest expense,
capitalized interest, amortization of debt expense and discount or premium
relating to any indebtedness and the portion of rental expense that
management believes to be representative of the interest component of rental
expense. All prior year amounts reflect the Company's previous accounting
methods which were in effect at that time.
During the nine months ended July 31, 1997, the Company completed
acquisitions of 69 funeral homes and seven cemeteries for purchase prices
aggregating approximately $141 million, including the issuance of
approximately 344,000 shares of Class A Common Stock. The cash portion of
the purchase price of these acquisitions was funded with advances under the
Company's revolving credit facilities.
Subsequent to July 31, 1997, the Company completed the acquisition of ten
funeral homes for approximately $7.8 million. As of September 12, 1997, the
Company also had letters of intent or agreements in principle to acquire 24
funeral homes and two cemeteries for purchase prices aggregating
approximately $35.7 million. If these purchases are consummated, the
amounts to be paid will be satisfied by borrowings under the Company's
revolving credit facilities.
Although the Company has no material commitments for capital
expenditures, the Company contemplates capital expenditures, excluding
acquisitions, of approximately $35 million for the fiscal year ending
October 31, 1997, including construction of new funeral homes and
refurbishing of funeral homes recently acquired.
Management expects that future capital requirements will be satisfied
through a combination of internally generated cash flow and amounts
available under its revolving credit facilities. Additional debt and equity
financing may be required in connection with future acquisitions.
Other
Based on the three-year cumulative inflation rate in Mexico as of October
31, 1996, the Company was required to change its method of reporting foreign
currency translation adjustments for its Mexican operations to the method
prescribed for highly inflationary economies during the first quarter of
fiscal year 1997. As a result, foreign currency translation adjustments for
the Company's Mexican operations are reflected in results of operations,
instead of in shareholders' equity. The effect of this change was not
material for the first nine months of fiscal year 1997, and management does
not expect this change to have a material effect on the Company's results of
operations for the full fiscal year.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation," is required to be implemented during the
Company's fiscal year ending October 31, 1997. Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," and No. 129, "Disclosure
of Information about Capital Structure," are required to be implemented
during the first quarter of fiscal year 1998. Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," and No. 131,
"Disclosure about Segments of an Enterprise and Related Information," are
required to be implemented during the Company's fiscal year ending October
31, 1999. The effect of these pronouncements on the Company's consolidated
financial condition and results of operations is not expected to be
material.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There has been no change in the status of the Company's material legal
proceedings during the quarter ended July 31, 1997.
Item 5. Other Information
Forward-Looking Statements
Certain statements made herein or elsewhere by, or on behalf of, the
Company that are not historical facts are intended to be forward-looking
statements within the meaning of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995.
The Company's goals for fiscal year 1997 include: (i) revenue growth of
at least 20%; and (ii) earnings per share growth of 20%, and the Company
currently believes that these goals will be achieved. The Company also
expects to complete approximately $150-$200 million in acquisitions in
fiscal year 1997, and $200-$225 million in acquisitions in fiscal year 1998,
compared to the $179 million, $154 million and $178 million achieved in
fiscal years 1996, 1995 and 1994, respectively. For fiscal year 1997, the
Company anticipates funeral gross margin improvement of approximately 50 to
75 basis points over its fiscal year 1996 funeral gross margin presented on
a pro forma basis to reflect the Company's recent change in accounting
methods, with substantial improvement in cemetery segment gross margins from
fiscal year 1996 to fiscal year 1997.
The Company's strategic plan for the future includes the following goals:
(i) achievement of $1 billion in revenue by fiscal year 2001; and (ii)
earnings per share growth of 20% annually.
Forward-looking statements are based on assumptions about future events
and are therefore inherently uncertain; actual results may differ materially
from those projected. See "Cautionary Statements," below.
Cautionary Statements
The Company cautions readers that the following important factors, among
others, in some cases have affected, and in the future could affect, the
Company's actual consolidated results and could cause the Company's actual
consolidated results in the future to differ materially from the projections
made in the forward-looking statements above and in any other forward-
looking statements made by, or on behalf of, the Company.
(1) Achieving projected revenue growth depends upon sustaining the level
of acquisition activity experienced by the Company in the last three fiscal
years. Higher levels of acquisition activity will increase anticipated
revenues, and lower levels of acquisition activity will decrease anticipated
revenues. The level of acquisition activity depends not only on the number
of properties acquired, but also on the size of the acquisitions; for
example, one large acquisition could increase substantially the level of
acquisition activity and, consequently, revenues. Several important
factors, among others, affect the Company's ability to consummate
acquisitions:
(a) The Company may be unable to find a sufficient number of businesses
for sale at prices the Company is willing to pay.
(b) In most of its existing markets and in many new markets, including
foreign markets, that the Company desires to enter, the Company
competes for acquisitions with two other public companies that are
substantially larger than the Company. These competitors, and
others, may be willing to pay higher prices for businesses than the
Company or may cause the Company to pay more to acquire a business
than the Company would otherwise have to pay in the absence of such
competition. Thus, the aggressiveness of the Company's competitors
in pricing acquisitions affects the Company's ability to complete
acquisitions at prices it finds attractive.
(c) Achieving the Company's projected acquisition activity depends on
the Company's ability to enter new markets, including foreign
markets. Due in part to the Company's lack of experience operating
in new areas and to the presence of competitors who have been in
certain markets longer than the Company, such entry may be more
difficult or expensive than anticipated by the Company.
(2) The level of revenues also is affected by the volume and prices of
the properties, products and services sold. The annual sales targets set by
the Company are very aggressive, and the inability of the Company to achieve
planned increases in volume or prices could cause the Company not to meet
anticipated levels of revenue. The ability of the Company to achieve volume
or price increases at any location depends on numerous factors, including
the local economy, the local death rate and competition.
(3) Another important component of revenue is earnings from the Company's
trust funds and escrow accounts, which are determined by the size of, and
returns (which include dividends, interest and realized capital gains) on,
the funds. The performance of the funds is related primarily to market
conditions that are not within the Company's control. The size of the funds
depends on the level of sales, funds added through acquisitions and the
amount of returns that may be reinvested.
(4) Future revenue also is affected by the level of prearranged sales in
prior periods. The level of prearranged sales may be adversely affected by
numerous factors, including deterioration in the economy, which causes
individuals to have less discretionary income.
(5) The Company cannot predict whether or when a non-cash charge to
earnings may be required in connection with its performance-based stock
options. See "1995 Incentive Compensation Plan" in Note 11 to the
consolidated financial statements included in the Company's Form 10-K for
the year ended October 31, 1996.
(6) The Company first entered foreign markets in the fourth quarter of
fiscal year 1994 and no assurance can be given that the Company will
continue to be successful in expanding in foreign markets or that any
expansion in foreign markets will yield results comparable to those realized
as a result of the Company's expansion in the United States.
(7) In addition to the factors discussed above, earnings per share may be
affected by other important factors, including the following:
(a) The ability of the Company to achieve projected economies of scale
in markets where it has "clusters" or combined facilities.
(b) Whether acquired businesses perform at pro forma levels used by
management in the valuation process.
(c) The ability of the Company to manage its growth in terms of
implementing internal controls and information gathering systems
and retaining or attracting key personnel, among other things.
(d) The amount and rate of growth in the Company's corporate general
and administrative expenses.
(e) Changes in interest rates, which can increase or decrease the
amount the Company pays on borrowings with variable rates of
interest.
(f) The Company's debt-to-equity ratio, the number of shares of common
stock outstanding and the portion of the Company's debt that has
fixed or variable interest rates.
(g) The impact on the Company's financial statements of nonrecurring
accounting charges that may result from the Company's ongoing
evaluation of its business strategies, asset valuations and
organizational structures.
(h) Changes in government regulation, including tax rates and
structures.
(i) Unanticipated outcomes of legal proceedings.
(j) Changes in accounting policies and practices adopted voluntarily or
required to be adopted by generally accepted accounting principles.
The Company also cautions readers that it assumes no obligation to update
or publicly release any revisions to forward-looking statements made herein
or any other forward-looking statements made by, or on behalf of, the
Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Amended and Restated Articles of Incorporation of the Company, as
amended, (incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended January 31,
1996)
3.2 By-laws of the Company, as amended (incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1995)
4.1 See Exhibits 3.1 and 3.2 for provisions of the Company's Amended and
Restated Articles of Incorporation, as amended, and By-laws, as
amended, defining the rights of holders of Class A and Class B
Common Stock
4.2 Specimen of Class A Common Stock certificate (incorporated by
reference to Exhibit 4.2 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No. 33-42336) filed
with the Commission on October 7, 1991)
4.3 Credit Agreement by and among the Company, its subsidiaries and
Citicorp USA, Inc., Bank of America Illinois, and NationsBank of
Texas, N.A. dated April 14, 1997 (incorporated by reference to
Exhibit 4.2 to the Company's Registration Statement on Form S-3
(Registration No. 333-27771) filed with the Commission on May 23,
1997)
12 Calculation of Ratio of Earnings to Fixed Charges
18 Letter from Coopers & Lybrand L.L.P. regarding change in accounting
principles
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K on May 23, 1997 reporting, under "Item
5. Other Events," a press release announcing the proposed public
offering of 4,750,000 shares of Class A Common Stock, including 500,000
shares to be offered by the Selling Shareholders.
The Company filed a Form 8-K on June 9, 1997 reporting, under "Item
5. Other Events," the earnings release for the quarter ended April 30,
1997, and announcement of construction and operation of mortuaries on
land leased by Catholic Cemeteries of the Archdiocese of Los Angeles.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STEWART ENTERPRISES, INC.
September 12, 1997 /s/ RONALD H. PATRON
----------------------------
Ronald H. Patron
Chief Financial Officer
President-Corporate Division
September 12, 1997 /s/ KENNETH C. BUDDE
----------------------------
Kenneth C. Budde
Senior Vice President-Finance
Secretary and Treasurer
(Principal Accounting Officer)
EXHIBIT 12
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Years Ended October 31, Nine Months
-------------------------------------------------------- Ended
1992 1993 1994 1995 1996 July 31, 1997
-------- -------- -------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Earnings from continuing
operations before income taxes...... $ 20,942 $ 29,569 $ 42,198 $ 41,500 $ 82,075 $ 78,361 (1)
Fixed charges:
Interest expense.................... 5,414 6,540 8,877 22,815 26,051 29,165
Interest portion of
lease expense...................... 456 585 935 1,343 1,522 1,176
-------- -------- -------- -------- --------- -------------
Total fixed charges................... 5,870 7,125 9,812 24,158 27,573 30,341
Earnings from continuing
operations before income
taxes and fixed charges............. $ 26,812 $ 36,694 $ 52,010 $ 65,658 $109,648 $108,702(1)
======== ======== ======== ======== ======== ============
Ratio of earnings to
fixed charges....................... 4.57 5.15 5.30 2.72 3.98 3.58(1)
======== ======== ======== ======== ======== ============
(1) Excludes cumulative effect of change in accounting principles of $2,324
(net of $2,230 income tax benefit).
</TABLE>
EXHIBIT 18
September 12, 1997
Mr. Ronald H. Patron
Chief Financial Officer
Stewart Enterprises, Inc.
110 Veterans Memorial Blvd., 5th Floor
Metairie, LA 70005
Dear Mr. Patron:
We are providing this letter to you for inclusion as an exhibit to your Form
10-Q filing pursuant to Item 601 of Regulation S-K.
We have read management's justification for the change in accounting methods
as follows: (1) to defer on a current basis a portion of the earnings
realized by all prearranged funeral trust funds and escrow accounts for the
estimated effects of inflation on the cost of performing prearranged funeral
services in the future; (2) to record at the time of sale the revenue and
costs related to prearranged sales of cemetery interment rights and related
products; and (3) to record at the time of sale the revenue and costs
associated with the prearranged sale of burial site openings and closings.
Based on our reading of the data and discussions with Company officials of
the business judgment and business planning factors relating to the change,
we believe management's justification to be reasonable. Accordingly, in
reliance on management's determination as regards elements of business
judgment and business planning, we concur that the newly adopted accounting
principles described above are preferable in the Company's circumstances to
the methods previously applied.
We have not audited any financial statements of Stewart Enterprises, Inc. as
of any date or for any period subsequent to October 31, 1996, nor have we
audited the application of the changes in accounting principle disclosed in
Form 10-Q of Stewart Enterprises, Inc. For the three and nine months ended
July 31, 1997; accordingly, our comments are subject to revision on
completion of an audit of the financial statements that include the
accounting changes.
Very truly yours,
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> JUL-31-1997
<CASH> 20,086
<SECURITIES> 2,340
<RECEIVABLES> 126,002
<ALLOWANCES> 0
<INVENTORY> 33,172
<CURRENT-ASSETS> 186,799
<PP&E> 401,242
<DEPRECIATION> 81,614
<TOTAL-ASSETS> 1,536,162
<CURRENT-LIABILITIES> 103,716
<BONDS> 462,450
0
0
<COMMON> 48,596
<OTHER-SE> 759,378
<TOTAL-LIABILITY-AND-EQUITY> 1,536,162
<SALES> 390,380
<TOTAL-REVENUES> 390,380
<CGS> 274,717
<TOTAL-COSTS> 274,717
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,165
<INCOME-PRETAX> 78,361
<INCOME-TAX> 27,035
<INCOME-CONTINUING> 51,326
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (2,324)
<NET-INCOME> 49,002
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.14
</TABLE>
