<PAGE>
================================================================================
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 APRIL 30, 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
June 13, 1997 was 40,594,182 and 1,777,510, respectively.
================================================================================
<PAGE>
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Earnings --
Three Months Ended April 30, 1997 and 1996................... 3
Consolidated Statements of Earnings --
Six Months Ended April 30, 1997 and 1996..................... 4
Consolidated Balance Sheets --
April 30, 1997 and October 31, 1996.......................... 5
Consolidated Statements of Cash Flows --
Six Months Ended April 30, 1997 and 1996..................... 7
Notes to Consolidated Financial Statements.................... 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 19
Item 4. Submission of Matters to a Vote of Security Holders.. 19
Item 5. Other Information.................................... 19
Item 6. Exhibits and Reports on Form 8-K..................... 22
SIGNATURES.................................................... 23
2
<PAGE>
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30,
------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Revenues:
Funeral...................................... $ 71,604 $ 54,916
Cemetery..................................... 53,479 53,507
-------- --------
125,083 108,423
-------- --------
Costs and expenses:
Funeral...................................... 47,370 37,333
Cemetery..................................... 40,037 41,367
-------- --------
87,407 78,700
-------- --------
37,676 29,723
Corporate general and administrative expenses.. 3,181 3,315
-------- --------
Operating earnings........................... 34,495 26,408
Interest expense............................... (10,071) (5,818)
Investment and other income.................... 781 856
-------- --------
Earnings before income taxes................. 25,205 21,446
Income taxes................................... 8,703 8,043
-------- --------
Net earnings................................. $ 16,502 $ 13,403
======== ========
Earnings per common share.................... $ .39 $ .32
======== ========
Weighted average common shares outstanding
(in thousands)............................... 42,161 41,364
======== ========
Dividends per common share.................... $ .02 $ .013
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Revenues:
Funeral...................................... $140,510 $108,003
Cemetery..................................... 107,235 103,177
-------- --------
247,745 211,180
-------- --------
Costs and expenses:
Funeral...................................... 93,775 73,702
Cemetery..................................... 80,424 79,156
-------- --------
174,199 152,858
-------- --------
73,546 58,322
Corporate general and administrative expenses.. 7,036 6,265
-------- --------
Operating earnings........................... 66,510 52,057
Interest expense............................... (19,033) (12,022)
Investment and other income.................... 1,566 1,407
-------- --------
Earnings before income taxes................. 49,043 41,442
Income taxes................................... 17,165 15,541
-------- --------
Net earnings................................. $ 31,878 $ 25,901
======== ========
Earnings per common share.................... $ .76 $ .63
======== ========
Weighted average common shares outstanding
(in thousands)................................ 42,005 41,196
======== ========
Dividends per common share..................... $ .04 $ .027
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
ASSETS 1997 1996
------ ---------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalent investments.............. $ 25,056 $ 24,580
Marketable securities............................. 2,206 2,514
Receivables, net of allowances.................... 126,402 109,129
Inventories....................................... 34,715 31,044
Prepaid expenses.................................. 5,002 4,275
---------- ----------
Total current assets........................... 193,381 171,542
Receivables due beyond one year, net of allowances.. 168,870 147,961
Intangible assets................................... 374,243 301,309
Deferred charges.................................... 109,680 101,073
Cemetery property, at cost.......................... 315,803 314,377
Property and equipment, at cost:
Land.............................................. 68,145 63,653
Buildings......................................... 217,081 197,553
Equipment and other............................... 92,396 80,626
---------- ----------
377,622 341,832
Less accumulated depreciation..................... 76,952 69,088
---------- ----------
Net property and equipment........................ 300,670 272,744
Long-term investments............................... 51,820 48,407
Other assets........................................ 3,931 3,500
---------- ----------
$1,518,398 $1,360,913
========== ==========
</TABLE>
(continued)
5
<PAGE>
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
------------------------------------ --------- -----------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt............. $ 11,108 $ 4,240
Accounts payable................................. 10,471 11,889
Accrued payroll.................................. 12,316 12,612
Accrued insurance................................ 8,339 8,341
Accrued interest................................. 5,913 4,621
Accrued other.................................... 13,549 14,479
Estimated costs to complete mausoleums and lawn
crypts, and to deliver merchandise............. 2,359 3,552
Income taxes payable............................. 9,119 10,154
Deferred income taxes............................ 4,094 3,594
---------- ----------
Total current liabilities..................... 77,268 73,482
Long-term debt, less current maturities............ 638,963 515,901
Deferred income taxes.............................. 69,362 70,388
Deferred revenue................................... 148,323 137,874
Other long-term liabilities........................ 10,578 15,821
---------- ----------
Total liabilities............................. 944,494 813,466
---------- ----------
Commitments and contingencies (Notes 3 and 5)
Preferred stock, $1.00 par value, 5,000,000
shares authorized; no shares issued............... -- --
Shareholders' equity:
Common stock, $1.00 stated value:
Class A authorized 150,000,000 shares;
issued and outstanding 40,449,486
and 40,022,483 shares at April 30, 1997
and October 31, 1996, respectively......... 40,449 40,022
Class B authorized 5,000,000 shares;
issued and outstanding 1,777,510 shares
at April 30, 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....................... 311,076 306,706
Retained earnings................................ 245,509 215,314
Cumulative foreign translation adjustment........ (25,190) (19,058)
Unrealized appreciation of investments........... 282 2,685
---------- ----------
Total shareholders' equity.................... 573,904 547,447
---------- ----------
$1,518,398 $1,360,913
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30,
--------------------------
1997 1996
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings................................... $ 31,878 $ 25,901
Adjustments to reconcile net earnings
to net cash provided by (used in) operating
activities:
Depreciation and amortization............... 12,479 9,877
Provision for doubtful accounts............. 10,621 12,415
Net gains on sales of marketable
securities................................. (362) (942)
Provision for deferred income taxes......... 26 496
Changes in assets and liabilities
net of effects from acquisitions:
Increase in prearranged funeral
trust receivables........................ (13,449) (10,409)
Increase in other receivables............. (32,432) (15,188)
Increase in deferred charges and
intangible assets........................ (10,456) (3,721)
Increase in inventories and cemetery
property................................. (4,283) (1,694)
Decrease in accounts payable and
accrued expenses......................... (6,770) (2,683)
Decrease in estimated costs to
complete mausoleums and lawn crypts,
and to deliver merchandise............... (7,091) (6,110)
Increase in deferred revenue.............. 10,188 3,479
Increase (decrease) in other.............. 152 (721)
-------- ---------
Net cash provided by (used in) operating
activities.................................... (9,499) 10,700
-------- ---------
Cash flows from investing activities:
Proceeds from sales of marketable
securities.................................... 3,671 3,810
Purchases of marketable securities
and long-term investments..................... (6,858) (6,902)
Purchases of subsidiaries, net of
cash, seller financing
and stock issued.............................. (85,684) (43,774)
Additions to property and equipment............ (19,012) (17,590)
Other.......................................... 302 48
-------- ---------
Net cash used in investing
activities............................... (107,581) (64,408)
-------- ---------
</TABLE>
(continued)
7
<PAGE>
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30,
--------------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from long-term debt..................... $ 253,936 $ 66,000
Repayments of long-term debt..................... (132,941) (10,902)
Issuance of common stock......................... 4,334 1,406
Purchase and retirement of common stock.......... (5,925) --
Dividends........................................ (1,683) (1,100)
--------- --------
Net cash provided by financing activities..... 117,721 55,404
--------- --------
Effect of exchange rates on cash and cash
equivalents....................................... (165) (3)
--------- --------
Net increase in cash............................... 476 1,693
Cash and cash equivalents, beginning of period..... 24,580 18,226
--------- --------
Cash and cash equivalents, end of period........... $ 25,056 $ 19,919
========= ========
Supplemental cash flow information:
Cash paid during the period for:
Income taxes.................................. $ 17,400 $ 8,600
Interest...................................... $ 17,700 $ 12,000
Noncash investing and financing activity:
Subsidiaries acquired with common stock.......... $ 6,400 $ 9,800
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
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 April 30, 1997, the Company owned and operated 342 funeral homes and 123
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 six months ended April 30, 1997, foreign operations
contributed approximately 15% of total revenue and, as of April 30, 1997,
represented approximately 25% 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 April 30, 1997, and for the three and six months ended
April 30, 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 six months ended April 30, 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 six 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.
9
<PAGE>
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) ACQUISITION OF SUBSIDIARIES
During the six months ended April 30, 1997, the Company purchased 44 funeral
homes and four cemeteries, compared to 29 funeral homes and eight cemeteries
purchased during the six months ended April 30, 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 six
months ended April 30, 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.
10
<PAGE>
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(2) ACQUISITION OF SUBSIDIARIES--(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30,
--------------------------
1997 1996
-------- ---------
(UNAUDITED)
<S> <C> <C>
Revenues............................................ $258,560 $228,031
======== ========
Net earnings........................................ $ 30,993 $ 24,251
======== ========
Earnings per common share........................... $ .74 $ .59
======== ========
Weighted average common shares outstanding
(in thousands)..................................... 42,111 41,376
======== ========
</TABLE>
The effect of acquisitions at dates of purchase on the consolidated financial
statements was as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30,
----------------------------
1997 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets................................ $ 3,782 $ 7,306
Receivables due beyond one year............... 1,213 280
Cemetery property............................. 650 17,822
Property and equipment........................ 19,331 17,790
Deferred charges and other assets............. 372 777
Intangible assets............................. 78,616 29,234
Current liabilities........................... (5,753) (4,082)
Long-term debt................................ (5,281) (8,210)
Deferred income taxes......................... (841) (6,333)
Deferred revenue and other liabilities........ (16) (1,010)
------- -------
92,073 53,574
Common stock used for acquisitions............ 6,389 9,800
------- -------
Cash used for acquisitions.................... $85,684 $43,774
======= =======
</TABLE>
(3) 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.
11
<PAGE>
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(4) 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," is required to be implemented during the first
quarter of fiscal year 1998. The effect of these pronouncements on the Company's
consolidated financial condition and results of operations is not expected to be
material.
(5) SUBSEQUENT EVENTS
Subsequent to April 30, 1997, the Company has acquired or committed to acquire
24 funeral homes and three cemeteries for approximately $40,800.
On May 23, 1997, the Company filed a registration statement with the
Securities and Exchange Commission for the proposed sale of 4,750,000 shares of
Class A Common Stock (excluding the over-allotment option of 712,500 shares), of
which 500,000 shares are being offered by Frank B. Stewart, Jr., the Chairman of
the Board of the Company, and a trust established by Mr. and Mrs. Stewart. The
offering, scheduled to close near the end of June, is expected to generate net
proceeds of approximately $150,000 (excluding the over-allotment option) to be
used principally to fund the Company's ongoing business expansion program.
12
<PAGE>
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
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 April 30, 1997 Compared to Three Months Ended April 30, 1996
Funeral Segment
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
-------------------- INCREASE
1997 1996 (DECREASE)
----- ----- ----------
(IN MILLIONS)
<S> <C> <C> <C>
FUNERAL REVENUE
---------------
Existing Operations......................... $47.7 $46.3 $ 1.4
Acquired Operations......................... 16.1 1.9 14.2
Revenue from prearranged funeral trust
funds and escrow accounts.................. 7.8 6.7 1.1
----- ----- -----
$71.6 $54.9 $16.7
===== ===== =====
FUNERAL COSTS
-------------
Existing Operations......................... $35.0 $36.0 $(1.0)
Acquired Operations......................... 12.4 1.3 11.1
----- ----- -----
$47.4 $37.3 $10.1
===== ===== =====
Funeral Segment Profit...................... $24.2 $17.6 $ 6.6
===== ===== =====
</TABLE>
Funeral revenue increased $16.7 million, or 30%, for the three months ended
April 30, 1997, compared to the corresponding period in 1996. The Company
experienced a $1.4 million increase in revenue from Existing Operations as a
result of an increase in sales of certain prearranged funeral merchandise and a
2% increase in the number of domestic funeral services performed by Existing
Operations (flat in total). Slightly offsetting this increase in revenue was a
3% decrease in the average revenue per domestic funeral service performed (.8%
decrease in total). Excluding the Miami, Florida area, however, where the
Company has been facing competition from low-cost funeral service providers, the
Company experienced a .5% decline in the average revenue per domestic funeral
service performed (1.4% increase in total). The decline in the average revenue.
The decline in the average revenue per funeral service performed was
attributable principally to selective price reductions in certain of the
Company's markets, particularly in the Miami area, in response to competition
from low-cost funeral service providers in those markets. This strategy has been
successful as the Company has experienced an increase in funeral services
performed in the markets affected; furthermore, price reductions are not
expected to continue.
The $1.0 million, or 3%, decrease in funeral costs for Existing Operations
resulted principally from the implementation of certain cost control measures,
including the Company's undertaking to centralize and standardize certain
financial and administrative functions. The improved profit margin achieved by
Existing Operations was attributable principally to the decline in costs
discussed above.
The increase in revenue and costs from Acquired Operations resulted primarily
from the Company's acquisition or construction of funeral homes from May 1996
through April 1997 which are not reflected in the 1996 period presented above.
13
<PAGE>
The $1.1 million increase in revenue from prearranged funeral trust funds and
escrow accounts was attributable to a 16% 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>
THREE MONTHS ENDED
APRIL 30,
-------------------- INCREASE
1997 1996 (DECREASE)
----- ----- ----------
(IN MILLIONS)
<S> <C> <C> <C>
CEMETERY REVENUE
----------------
Existing Operations......................... $49.6 $51.0 $(1.4)
Acquired Operations......................... 1.8 .4 1.4
Revenue from merchandise trust funds and
escrow accounts............................ 2.1 2.1 --
----- ----- -----
$53.5 $53.5 $ --
===== ===== =====
CEMETERY COSTS
--------------
Existing Operations......................... $38.5 $41.1 $(2.6)
Acquired Operations......................... 1.5 .3 1.2
----- ----- -----
$40.0 $41.4 $(1.4)
===== ===== =====
Cemetery Segment Profit..................... $13.5 $12.1 $ 1.4
===== ===== =====
</TABLE>
Cemetery revenue remained flat for the three months ended April 30, 1997,
compared to the corresponding period in 1996, due principally to a $1.4 million
decline in revenue from Existing Operations. The decline in revenue from
Existing Operations resulted principally from a decline in the yield on the
Company's perpetual care trust funds and escrow accounts.
Costs decreased during this same period by $1.4 million resulting principally
from the implementation of certain cost control measures, including the
Company's undertaking to centralize and standardize certain financial and
administrative functions, and the corresponding decline in revenue from Existing
Operations discussed above. The improved profit margin achieved by Existing
Operations was attributable principally to the decline in costs discussed above.
The increase in revenue and costs from Acquired Operations resulted primarily
from the Company's acquisition of cemeteries from May 1996 through April 1997
which are not reflected in the 1996 period presented above.
Other Segments and Activities
Interest expense increased $4.3 million during the second 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 6.5% to 6.6%. Approximately $411 million of the outstanding
borrowings at April 30, 1997 was subject to short-term variable interest rates
averaging approximately 6.3%.
The Company experienced a decline in its effective tax rate from 37.5% in the
second quarter of fiscal year 1996 to 34.5% in the same 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.
14
<PAGE>
Six Months Ended April 30, 1997 Compared to Six Months Ended April 30, 1996
Funeral Segment
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
-------------------- INCREASE
1997 1996 (DECREASE)
----- ----- ----------
(IN MILLIONS)
<S> <C> <C> <C>
FUNERAL REVENUE
---------------
Existing Operations......................... $ 93.4 $ 90.5 $ 2.9
Acquired Operations......................... 30.7 3.6 27.1
Revenue from prearranged funeral trust funds
and escrow accounts........................ 16.4 13.9 2.5
------ ------ -----
$140.5 $108.0 $32.5
====== ====== =====
FUNERAL COSTS
-------------
Existing Operations......................... $ 69.5 $ 71.2 $(1.7)
Acquired Operations......................... 24.3 2.5 21.8
------ ------ -----
$ 93.8 $ 73.7 $20.1
====== ====== =====
Funeral Segment Profit...................... $ 46.7 $ 34.3 $12.4
====== ====== =====
</TABLE>
Funeral revenue increased $32.5 million, or 30%, for the six months ended
April 30, 1997, compared to the corresponding period in 1996. The Company
experienced a $2.9 million increase in revenue from Existing Operations due
principally to an increase in sales of certain prearranged funeral merchandise.
For the first half of fiscal year 1997, the number of domestic funeral services
performed by Existing Operations was flat compared to the corresponding period
in fiscal year 1996 (2% decrease in total). Additionally, the average revenue
per domestic funeral service performed declined .6% (2.4% increase in total),
due principally to selective price reductions in certain of the Company's
markets, particularly in the Miami, Florida area, in response to competition
from low-cost funeral service providers in those markets. This strategy has been
successful as the Company has experienced an increase in funeral services
performed in the markets affected; furthermore, price reductions are not
expected to continue. Excluding the Miami area, the Company experienced a 2.3%
increase in the average revenue per domestic funeral service performed (5.7%
increase in total).
The $1.7 million, or 2%, decrease in funeral costs for Existing Operations
resulted principally from the implementation of certain cost control measures,
including the Company's undertaking to centralize and standardize certain
financial and administrative functions and the decline in funeral services
discussed above. The improved profit margin achieved by Existing Operations was
principally the result of the cost control measures discussed above.
The increase in revenue and costs from Acquired Operations resulted primarily
from the Company's acquisition or construction of funeral homes from May 1996
through April 1997 which are not reflected in the 1996 period presented above.
The $2.5 million increase in revenue from prearranged funeral trust fund and
escrow accounts was attributable to a 17% 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.
15
<PAGE>
Cemetery Segment
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
-------------------- INCREASE
1997 1996 (DECREASE)
----- ----- ----------
(IN MILLIONS)
<S> <C> <C> <C>
CEMETERY REVENUE
----------------
Existing Operations....................... $ 94.9 $ 96.7 $(1.8)
Acquired Operations....................... 5.9 1.7 4.2
Revenue from merchandise trust funds and
escrow accounts.......................... 6.4 4.8 1.6
------ ------ -----
$107.2 $103.2 $ 4.0
====== ====== =====
CEMETERY COSTS
--------------
Existing Operations....................... $ 75.5 $ 77.3 $(1.8)
Acquired Operations....................... 4.9 1.9 3.0
------ ------ -----
$ 80.4 $ 79.2 $ 1.2
====== ====== =====
Cemetery Segment Profit................... $ 26.8 $ 24.0 $ 2.8
====== ====== =====
</TABLE>
Cemetery revenue increased $4.0 million, or 4%, for the six months ended April
30, 1997, compared to the same period in 1996, due principally to a $4.2 million
increase in revenue from Acquired Operations. The $1.8 million decline in
revenue from Existing Operations was due principally to a decline in the yield
on the Company's perpetual care trust funds and escrow accounts. The Company
experienced a $1.8 million decrease in costs from Existing Operations,
attributable principally to certain cost control measures implemented by the
Company, including an undertaking to centralize and standardize certain
financial and administrative functions.
The increase in revenue and costs from Acquired Operations resulted primarily
from the Company's acquisition of cemeteries from May 1996 through April 1997
which are not reflected in the 1996 period presented above.
The $1.6 million increase in revenue from merchandise trust funds and escrow
accounts was attributable to a 21% 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
Corporate general and administrative expenses declined to 2.8% of sales for
the six months ended April 30, 1997 compared to 3.0% for the same period in
1996, despite an aggregate increase of $.8 million. The increase in these
expenses is the result of costs incurred in an undertaking to centralize and
standardize certain financial and administrative functions, along with
activities to support the Company's growth.
Interest expense increased $7.0 million during the first six 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 decrease in average
interest rates from 6.8% to 6.6%. Approximately $411 million of the outstanding
borrowings at April 30, 1997 was subject to short-term variable interest rates
averaging approximately 6.3%.
The Company experienced a decline in its effective tax rate from 37.5%, during
the first six months of fiscal year 1996 to 35% 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.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and marketable securities of the Company were $27.3 million at April 30,
1997, an increase of approximately $.2 million from October 31, 1996. The
Company used cash of $9.5 million in its operations for the six months ended
April 30, 1997, compared to providing cash of $10.7 million for the
corresponding period in 1996, due principally to an increase in the growth of
accounts receivable, deferred charges and intangible assets, offset by an
increase in net earnings, an increase in the growth of deferred revenue, 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 April 30, 1997 amounted to $650.1 million, compared to
$520.1 million at October 31, 1996. The Company's long-term debt consisted of
$410.9 million under the Company's revolving credit facilities, $225.0 million
of long-term notes and $14.2 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 $2.0 million of
term notes incurred principally in connection with acquisitions.
In May 1997, the Company filed a registration statement with the Securities
and Exchange Commission for the proposed sale of 4,750,000 shares of Class A
Common Stock (excluding the over-allotment option of 712,500 shares), of which
500,000 shares are being offered by Frank B. Stewart, Jr., the Chairman of the
Board of the Company, and a trust established by Mr. and Mrs. Stewart. The
offering, scheduled to close near the end of June, is expected to generate net
proceeds of approximately $150 million (excluding the over-allotment option), to
be used principally to fund the Company's ongoing business expansion program.
Pending use for such purpose, the net proceeds will be used to reduce the
balances outstanding on one or more of the Company's revolving credit
facilities.
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 1.13
to 1.0 and .95 to 1.0 as of April 30, 1997 and October 31, 1996, respectively.
As of April 30, 1997, the Company had $65.2 million of additional borrowing
capacity within this parameter, all of which was available under its revolving
credit facilities.
The Company's ratio of earnings to fixed charges was 3.47 for the six months
ended April 30, 1997, 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.
During the six months ended April 30, 1997, the Company completed acquisitions
of 44 funeral homes and four cemeteries for purchase prices aggregating
approximately $102 million, including the issuance of approximately 180,000
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.
17
<PAGE>
Subsequent to April 30, 1997, the Company completed the acquisition of 12
funeral homes and one cemetery for approximately $17.5 million. As of June 13,
1997, the Company also had letters of intent or agreements in principle to
acquire 12 funeral homes and two cemeteries for purchase prices aggregating
approximately $23.3 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 $35.0 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 six 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," is required to be implemented during
the first quarter of fiscal year 1998. The effect of these pronouncements on
the Company's consolidated financial condition and results of operations is not
expected to be material.
18
<PAGE>
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 April 30, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1997 annual meeting of shareholders was held on March 27, 1997.
All director nominees were elected. The voting tabulation was as follows:
Joseph P. Henican, III: 52,341,646 votes for; 246,946 votes withheld; Michael O.
Read: 52,335,305 votes for; 253,287 votes withheld. The proposal to ratify the
appointment of Coopers & Lybrand L.L.P., certified public accountants, as
independent auditors for the fiscal year ending October 31, 1997 was approved.
The voting tabulation was as follows: 52,517,190 votes for; 13,354 votes
against; and 58,048 abstentions.
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, which is consistent
with the $179 million, $154 million and $178 million achieved in fiscal years
1996, 1995 and 1994, respectively. For fiscal year 1997, the Company
anticipates gross margin improvement of approximately 40 to 50 basis points over
its fiscal year 1996 gross margin.
The Company's strategic plan for the future includes the following goals: (i)
achievement of $1 billion in revenue by fiscal year 2001; 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:
19
<PAGE>
(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.
20
<PAGE>
(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.
21
<PAGE>
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)
10.1 Lease Amendment dated April 30, 1997 between the Company and Stewart
Building Enterprise
10.2 Amendment No.1 dated January 1, 1997 to Employment Agreement dated
August 1, 1995 between the Company and Kenneth C. Budde
10.3 Amendment No.1 dated January 1, 1997 to Employment Agreement dated
August 1, 1995 between the Company and Lawrence B. Hawkins
10.4 Amendment No. 1 dated January 1, 1997 to Employment Agreement dated
January 1, 1997 between the Company and Raymond C. Knopke, Jr.
10.5 Amendment No. 1 dated January 1, 1997 to Employment Agreement dated
January 1, 1997 between the Company and Brent F. Heffron
10.6 Line of Credit Note by Brent F. Heffron to the Company dated February
27, 1997, in the amount of $250,000
12 Calculation of Ratio of Earnings to Fixed Charges
27 Financial data schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K on March 11, 1997 reporting, under "Item 5.
Other Events," the earnings release for the quarter ended January 31, 1997.
22
<PAGE>
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STEWART ENTERPRISES, INC.
June 16, 1997 /s/ RONALD H. PATRON
------------------------------------------
Ronald H. Patron
Chief Financial Officer
President--Corporate Division
June 16, 1997 /s/ KENNETH C. BUDDE
------------------------------------------
Kenneth C. Budde
Senior Vice President-Finance
Secretary and Treasurer
(Principal Accounting Officer)
23
<PAGE>
EXHIBIT 10.1
LEASE AMENDMENT
Consisting of one (1) typewritten page, this Lease Amendment is attached to and
forms a part of and amends that certain Lease between Stewart Building
Enterprise, Landlord, and Stewart Enterprises, Inc., Tenant, dated September 1,
1983, as previously amended, in the following particulars, to wit:
1) The Demised Premises are broken down as follows:
a) Ground Floor -- 7,802 RSF
b) Fourth Floor -- 19,874 RSF
c) Fifth Floor -- 21,485 RSF
------
Total Area -- 49,161 RSF
2) The new Base Monthly Rental effective June 1, 1997 is $53,257.75
3) The term is hereby extended through May 31, 1998.
All other terms and conditions of the Lease, not in conflict herewith, shall
remain in full force and effect.
THUS DONE AND EXECUTED this 30th day of April, 1997, in the presence of the
undersigned competent witnesses.
WITNESSES: STEWART ENTERPRISES, INC.
/s/ CHARI PERL BY:
- - ----------------------------------
/s/ EVELYN P. MAHER /s/ RONALD H. PATRON
- - ---------------------------------- -------------------------------
TITLE
TENANT
STEWART BUILDING ENTERPRISE
A LOUISIANA PARTNERSHIP
/s/ ELIZABETH ARIAS BY: /s/ JOHN C. MCNAMARA, JR.
- - ---------------------------------- ----------------------------
MANAGING PARTNER
/s/ ELAINE A. MAYEUR LANDLORD
- - ----------------------------------
<PAGE>
EXHIBIT 10.2
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 to Employment Agreement is made as of the 1st day of
January 1997, by and between Stewart Enterprises, Inc., a Louisiana corporation
(the "Company"), and Kenneth C. Budde (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company has entered into an Employment Agreement (the
"Employment Agreement") with the Employee dated as of August 1, 1995; and
WHEREAS, the Company has approved, effective January 1, 1997, (i) an
increase in the Employee's annual base salary to $175,000, and (ii) an increase
in the Employee's maximum incentive bonus to $100,000, to reflect the scope of
the responsibility assumed by the Employee and his accomplishments over the past
several years.
NOW THEREFORE, the Company and the Employee agree as follows:
Article II Section 1 of the Employment Agreement is hereby amended to read
in its entirety as follows:
1. SALARY. For the period ending December 31, 1996, a salary ("Base
Salary") at the rate of $155,000 per fiscal year of the Company ("Fiscal
Year"), payable to the Employee at such intervals as other salaried
employees of the Company are paid. Commencing January 1, 1997, the Base
Salary shall be $175,000.
Article II Section 2 of the Employment Agreement is hereby amended to read
in its entirety as follows:
2. BONUS. For the period ending October 31, 1995, the Employee shall
be eligible to receive an incentive bonus, the amount of which shall be
determined pursuant to Paragraph 4 of the Prior Agreement. This incentive
bonus shall be paid in cash no later than 30 days following the filing of
the Company's annual report on Form 10-K for the Fiscal Year ending October
31, 1995. For the Fiscal Year ending October 31, 1996, the Employee shall
be eligible to receive a bonus (the "Bonus") of up to $75,000. For the
period beginning November 1, 1996, the Employee shall be eligible to
receive a bonus (the "Bonus") of up to $100,000 per Fiscal Year. The
-1-
<PAGE>
Bonus shall be comprised of two elements, the quantitative element and the
qualitative element:
(a) The quantitative element shall be equal to 75% of the maximum
Bonus and shall be based on the attainment of certain goals to be
established by the Company's Compensation Committee and Employee.
(b) The qualitative element shall be 25% of the maximum Bonus and
shall be awarded at the discretion of the Chief Financial Officer. The
Chief Financial Officer and Employee shall establish incentive goals and
other criteria for the award of the qualitative element.
The Bonus shall be paid in cash no later than 30 days following the
filing of the Company's annual report on Form 10-K for the Fiscal Year in
which the Bonus has been earned.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and signed as of the date indicated above.
STEWART ENTERPRISES, INC.
By: /s/ James W. McFarland
----------------------
James W. McFarland
Compensation Committee Chairman
EMPLOYEE:
/s/ Kenneth C. Budde
--------------------
Kenneth C. Budde
-2-
<PAGE>
EXHIBIT 10.3
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 to Employment Agreement is made as of the 1st day of
January 1997, by and between Stewart Enterprises, Inc., a Louisiana corporation
(the "Company"), and Lawrence B. Hawkins (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company has entered into an Employment Agreement (the
"Employment Agreement") with the Employee dated as of August 1, 1995; and
WHEREAS, the Company has approved, effective January 1, 1997, an increase
in the Employee's incentive bonus to $100,000 to reflect the scope of the
responsibility assumed by the Employee and his accomplishments over the past
several years.
NOW THEREFORE, the Company and the Employee agree as follows:
Article II Section 2 of the Employment Agreement is hereby amended to read
in its entirety as follows:
2. BONUS. For the period ending October 31, 1995, the Employee shall
be eligible to receive an incentive bonus, the amount of which shall be
determined pursuant to Paragraph 4 of the Prior Agreement. This incentive
bonus shall be paid in cash no later than 30 days following the filing of
the Company's annual report on Form 10-K for the Fiscal Year ending October
31, 1995. For the Fiscal Year ending October 31, 1996 the Employee shall
be eligible to receive a bonus (the "Bonus") of up to $75,000. For the
period beginning November 1, 1996, the Employee shall be eligible to
receive a Bonus (the "Bonus") of up to $100,000 per Fiscal Year. The Bonus
shall be comprised of two elements, the quantitative element and the
qualitative element:
(a) The quantitative element shall be equal to 75% of the maximum
Bonus and shall be based on the attainment of certain goals to be
established by the Company's Compensation Committee and Employee.
(b) The qualitative element shall be 25% of the maximum Bonus of
and shall be awarded at the discretion of the President. The President and
Employee shall establish incentive goals and other criteria for the award
of the qualitative element.
-1-
<PAGE>
The Bonus shall be paid in cash no later than 30 days following the
filing of the Company's annual report on Form 10-K for the Fiscal Year in
which the Bonus has been earned.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and signed as of the date indicated above.
STEWART ENTERPRISES, INC.
By: /s/ James W. McFarland
----------------------
James W. McFarland
Compensation Committee Chairman
EMPLOYEE:
/s/ Lawrence B. Hawkins
-----------------------
Lawrence B. Hawkins
-2-
<PAGE>
EXHIBIT 10.4
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 to Employment Agreement is made as of the 1st day of
January 1997, by and between Stewart Enterprises, Inc., a Louisiana corporation
(the "Company"), and Raymond C. Knopke, Jr. (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company promoted the Employee to the position of Senior Vice
President effective January 1, 1997;
WHEREAS, the Company has entered into an Employment Agreement (the
"Employment Agreement") with the Employee dated as of January 1, 1997; and
WHEREAS, the Employment Agreement inadvertently and incorrectly described
Employee an Executive Vice President of the Company.
NOW THEREFORE, the Company and the Employee agree as follows:
Article I Section 1 of the Employment Agreement is hereby amended to read
in its entirety as follows:
1. CAPACITY AND DUTIES OF EMPLOYEE. The Employee is employed by the
Company to render services on behalf of the Company as Senior Vice
President. As the Senior Vice President, the Employee shall perform such
duties as are assigned to the individual holding such title by the
Company's Bylaws and such other duties, consistent with the Employee's job
title, as may be prescribed from time to time by the Board of Directors of
the Company (the "Board") and/or the Company's Chief Executive Officer.
Article III, Section 4, Paragraph (a), subparagraphs (i) and (ii) are
hereby amended to read in their entirety as follows:
(i) the assignment by the Board to the Employee of any duties or
responsibilities that are inconsistent with the Employee's status, title
and position as Senior Vice President;
(ii) any removal of the Employee from, or any failure to
reappoint or reelect the Employee to, the position of Senior Vice President
of the Company, except in connection with a termination of Employee's
status as an employee as permitted by this Agreement;
-1-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and signed as of the date indicated above.
STEWART ENTERPRISES, INC.
By: /s/ James W. McFarland
----------------------
James W. McFarland
Compensation Committee Chairman
EMPLOYEE:
/s/ Raymond C. Knopke, Jr.
--------------------------
Raymond C. Knopke, Jr.
-2-
<PAGE>
EXHIBIT 10.5
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 to Employment Agreement is made as of the 1st day of
January 1997, by and between Stewart Enterprises, Inc., a Louisiana corporation
(the "Company"), and Brent F. Heffron (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company promoted the Employee to the position of Senior Vice
President effective January 1, 1997;
WHEREAS, the Company has entered into an Employment Agreement (the
"Employment Agreement") with the Employee dated as of January 1, 1997; and
WHEREAS, the Employment Agreement inadvertently and incorrectly described
Employee an Executive Vice President of the Company.
NOW THEREFORE, the Company and the Employee agree as follows:
Article I Section 1 of the Employment Agreement is hereby amended to read
in its entirety as follows:
1. CAPACITY AND DUTIES OF EMPLOYEE. The Employee is employed by the
Company to render services on behalf of the Company as Senior Vice
President. As the Senior Vice President, the Employee shall perform such
duties as are assigned to the individual holding such title by the
Company's Bylaws and such other duties, consistent with the Employee's job
title, as may be prescribed from time to time by the Board of Directors of
the Company (the "Board") and/or the Company's Chief Executive Officer.
Article III, Section 4, Paragraph (a), subparagraphs (i) and (ii) are
hereby amended to read in their entirety as follows:
(i) the assignment by the Board to the Employee of any duties or
responsibilities that are inconsistent with the Employee's status, title
and position as Senior Vice President;
(ii) any removal of the Employee from, or any failure to
reappoint or reelect the Employee to, the position of Senior Vice President
of the
-1-
<PAGE>
Company, except in connection with a termination of Employee's status as an
employee as permitted by this Agreement;
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and signed as of the date indicated above.
STEWART ENTERPRISES, INC.
By: /s/ James W. McFarland
----------------------
James W. McFarland
Compensation Committee Chairman
EMPLOYEE:
/s/ Brent F. Heffron
--------------------
Brent F. Heffron
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<PAGE>
EXHIBIT 10.6
LINE OF CREDIT NOTE
-------------------
$250,000 FEBRUARY 27, 1997
METAIRIE, LOUISIANA
FOR VALUE RECEIVED, BRENT F. HEFFRON, an individual residing in the State
of Florida (the "Borrower"), hereby promises to pay to the order of STEWART
ENTERPRISES, INC., a Louisiana corporation (the "Lender"), the principal sum of
Two Hundred Fifty Thousand and No/100 ($250,000.00) Dollars or such lesser
amount as may constitute the unpaid principal amount advanced by Lender under
the terms and conditions of this line of credit note (the "Line of Credit
Note").
RECITALS
At the request of Borrower, Lender agrees to loan Borrower a principal
amount not to exceed $250,000.00 in accordance with the terms and conditions of
this Line of Credit Note. In order to secure the indebtedness evidenced by this
Line of Credit Note, Borrower agrees to pledge certain shares of the Class A
Common Stock of Stewart Enterprises, Inc. pursuant to the conditions and
stipulations of the Act of Pledge by Borrower and Lender of even date herewith.
TERMS AND CONDITIONS
If not sooner paid, the entire indebtedness evidenced by this Line of
Credit Note shall be due and payable upon the closing of a sale of Borrower's
former residence in Hickory, North Carolina.
Lender agrees to loan Borrower an amount not to exceed the principal amount
of $250,000.00, in advances of such amounts and at such intervals as Borrower
may require. On January 17, 1997, Borrower has requested and received from
Lender one advance in the amount of $50,000.00, which advance constitutes a
portion of the principal amount stated herein.
At the time any advance is made hereunder, Lender shall cause a notation to
be made on Schedule A which shall include the amount and the date of such
advance. Such notation shall be binding on Lender and Borrower for any and all
purposes.
Borrower unconditionally promises to pay interest on each advance
comprising the unpaid principal amount of this Line of Credit Note from the date
of such advance until the maturity of this Line of Credit at a rate equal to the
six (6) month LIBOR Rate Option as
<PAGE>
defined in the Fifth Amended and Restated Loan Agreement by and among Stewart
Enterprises, Inc. and NationsBank of Texas, N.A., Citicorp USA, Inc., Hibernia
National Bank, First Union National Bank of North Carolina, SunTrust Bank,
Atlanta, formerly known as Trust Company Bank and Cooperatieve Centrale
Raiffeisen-Boerenleenbank, B.A., "Rabobank Nederland," New York Branch, Bank of
America National Trust and Savings Association, and First Interstate Bank of
Texas, N.A., as amended or restated from time to time, or under any replacement
thereof, in effect as of the date of such advance and upon the six month
anniversary of such advance (the "LIBOR Rate Option").
Any amounts due under this Line of Credit Note shall be payable in lawful
money of the United States of America at the offices of Lender, 110 Veterans
Boulevard, Metairie, Louisiana 70005, Attention: William E. Rowe, President, or
at such place as the legal holder hereof may designate in writing.
This Line of Credit Note may be prepaid in full or in part at any time
without penalty or premium. If prepaid in part, each such installment shall be
applied first to the payment of interest accrued and unpaid on the outstanding
principal balance, with the remainder applied to the outstanding principal.
In the event of a default in payment of any installment of interest hereof
as the same becomes due and such default is not cured within ten (10) days from
the due date, then in such event the legal holder hereof may, without further
notice, declare the remainder of the principal sum, together with all interest
accrued thereon, due and payable. Failure to exercise this option shall not
constitute a waiver of the right to exercise the same at any other time. All
past due payments of principal and interest under this Line of Credit Note shall
bear interest at the lesser of LIBOR Rate Option plus three (3%) percent, or the
maximum rate of interest permitted by law.
All parties to this Line of Credit Note, including Borrower and Lender,
hereby waive protest, presentment, notice of dishonor, and notice of
acceleration of maturity and agree to continue to remain bound for the payment
of principal, interest and all other sums due under this Line of Credit Note
notwithstanding any change or changes by way of release, exchange, modification
or substitution of any security for this Line of Credit Note or by way of any
extension or extensions of time for the payment of principal and interest; and
all parties waive all and every kind of notice of such change or changes and
agree that the same may be made without notice or consent of any of them.
Upon default, the legal holder hereof may employ an attorney to enforce its
rights and remedies and Borrower hereby agrees to pay such holder reasonable
attorney's fees not exceeding a sum equal to fifteen (15%) percent of the
outstanding balance owing on said Line of Credit Note, plus all other reasonable
expenses incurred by the holder in exercising any of the holder's rights and
remedies upon default. The legal holder's failure to exercise any right
<PAGE>
or remedy under the Line of Credit Note shall not be a waiver or release of such
rights or remedies or the right to exercise them at any time.
This Line of Credit Note is to be governed and construed in accordance with
the laws of the State of Louisiana.
IN WITNESS WHEREOF, Borrower and Lender have caused this Line of Credit
Note to be executed of the date and year first above written.
BORROWER:
/S/ BRENT F. HEFFRON
--------------------
BRENT F. HEFFRON
LENDER:
STEWART ENTERPRISES, INC.
BY: /S/ WILLIAM E. ROWE
-------------------
<PAGE>
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, SIX MONTHS
-------------------------------------------- ENDED
1992 1993 1994 1995 1996 APRIL 30, 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 $49,043
Fixed charges:
Interest expense....................... 5,414 6,540 8,877 22,815 26,051 19,033
Interest portion of lease expense...... 456 585 935 1,343 1,522 784
------- ------- ------- ------- -------- -------
Total fixed charges..................... 5,870 7,125 9,812 24,158 27,573 19,817
Earnings from continuing operations
before income taxes and fixed charges.. $26,812 $36,694 $52,010 $65,658 $109,648 $68,860
======= ======= ======= ======= ======== =======
Ratio of earnings to fixed charges...... 4.57 5.15 5.30 2.72 3.98 3.47
======= ======= ======= ======= ======== =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> APR-30-1997
<CASH> 25,056
<SECURITIES> 2,206
<RECEIVABLES> 126,402
<ALLOWANCES> 0
<INVENTORY> 34,715
<CURRENT-ASSETS> 193,381
<PP&E> 377,622
<DEPRECIATION> (76,952)
<TOTAL-ASSETS> 1,518,398
<CURRENT-LIABILITIES> 77,268
<BONDS> 638,963
0
0
<COMMON> 42,227
<OTHER-SE> 531,677
<TOTAL-LIABILITY-AND-EQUITY> 1,518,398
<SALES> 247,745
<TOTAL-REVENUES> 247,745
<CGS> 174,199
<TOTAL-COSTS> 174,199
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,033
<INCOME-PRETAX> 49,043
<INCOME-TAX> 17,165
<INCOME-CONTINUING> 31,878
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,878
<EPS-PRIMARY> .76
<EPS-DILUTED> 0
</TABLE>
