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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 15, 1999
STEWART ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
LOUISIANA 0-19508 72-0693290
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
110 Veterans Memorial Boulevard
Metairie, Louisiana 70005
(Address of principal executive offices) (Zip Code)
(504) 837-5880
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
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<PAGE>
ITEM 5. OTHER EVENTS
On December 15, 1999 the Company issued the following press release.
CONTACT: Kenneth C. Budde
Stewart Enterprises, Inc.
110 Veterans Memorial Boulevard
Metairie, Louisiana 70005
504/837-5880
FOR IMMEDIATE RELEASE
STEWART ENTERPRISES REPORTS FOURTH QUARTER AND FISCAL YEAR 1999 RESULTS;
CHANGE IN ACCOUNTING METHOD; AND REVISED 2000 OUTLOOK
Metairie, Louisiana, December 15, 1999. . . Stewart Enterprises, Inc.
(Nasdaq NMS: STEI) announced today its operating results for the fourth
quarter and the year ended October 31 and a change in its method of
accounting for earnings realized on its irrevocable prearranged funeral
trust funds. For periods beginning with the fiscal year ended October 31,
1999, the Company will now defer all earnings on its irrevocable
prearranged funeral trust funds until the underlying funeral service is
delivered. Previously, the Company recognized a portion of those earnings
and deferred the remainder to offset the estimated future effects of
inflation.
The Company announced that after the effect of the change in accounting
method, revenues for the fourth quarter increased 10 percent to $189.9
million, gross profit decreased 3 percent to $44.8 million, and diluted
earnings per share decreased 25 percent to $.15, from $172.7 million, $46.3
million and $.20, respectively, for the fourth quarter of 1998 presented on
a pro forma basis to reflect the change in accounting method. Fourth
quarter diluted per share performance reflects a 10 percent increase in the
weighted average number of shares outstanding from 98.7 million to 108.4
million, due principally to the Company's equity offering completed in
February 1999.
(more)
<PAGE>
Excluding the effect of the accounting change, revenues for the fourth
quarter increased 11 percent to $194.0 million, gross profit was flat at
$48.9 million, and earnings per share decreased 18 percent to $.18, from
$175.4 million, $49.0 million and $.22, respectively, for the fourth
quarter of 1998.
After the effect of the accounting change, for the twelve months ended
October 31, 1999, revenues increased 19 percent to $756.1 million, gross
profit increased 15 percent to $210.4 million, and net earnings increased 8
percent to $90.5 million, from $634.9 million, $182.5 million and $83.5
million, respectively, for fiscal year 1998. Diluted earnings per share
decreased 1 percent to $.84 in fiscal year 1999 from $.85 in fiscal year
1998. Fiscal year diluted per share performance reflects a 10 percent
increase in the weighted average number of shares outstanding from 98.4
million to 107.8 million, due principally to the Company's equity offering
completed in February 1999. The results discussed in this paragraph
exclude (1) the effect of the $50.1 million after-tax ($.47 per share)
cumulative effect of the change in accounting principle recorded in fiscal
year 1999 and (2) the $50.3 million after-tax ($.51 per share) stock option
charge recorded in fiscal year 1998. In addition, the 1998 results
discussed in this paragraph are on a pro forma basis to reflect the change
in accounting method.
Excluding the effect of the accounting change in 1999 and the stock option
charge in 1998, revenues increased 21 percent to $781.6 million, gross
profit increased 20 percent to $235.9 million, and net earnings increased
16 percent to $106.7 million, from $648.4 million, $196.0 million and $92.2
million, respectively, for fiscal year 1998. Diluted earnings per share
increased 5 percent to $0.99 in fiscal year 1999 from $0.94 in fiscal year
1998.
Kenneth C. Budde, Chief Financial Officer stated, "This is the second step
we have taken to change our method of accounting for funeral trust earnings
from the method that was prevalent in the industry at the time of our
initial public offering to the method that has become more prevalent since
then. In addition, the new method will improve the comparability of our
earnings with those of our principal competitors and also match revenue
recognition more closely with cash receipts. The new method will allow the
Company to take a longer-term view and increase its flexibility in managing
the funeral trust funds. This change does not impact cash flow but is
expected to reduce fiscal year 2000 earnings per share by approximately
$.10."
(more)
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William E. Rowe, President and Chief Executive Officer, commented, "I have
had limited time to assess our situation from my new position, but I have
not been reluctant to recommend significant changes to our Board of
Directors that I am confident are in the long-term interest of the Company
and our stockholders. I believe the accounting change furthers those
interests."
Mr. Rowe added, "Fiscal year 2000 will be a year of change for Stewart
Enterprises. Management will continue to look hard at the way we run our
businesses and make changes that we think are necessary to improve results
in the markets where our performance suffered in 1999. Among other things,
we will be adapting to pricing pressures from low-cost funeral providers
that we have experienced in some markets in order to recapture market
share. We plan to respond by reducing prices where appropriate, by reducing
costs by moving to smaller funeral buildings and consolidating funeral
facilities where appropriate, and by transitioning some of our funeral
businesses to emphasize alternative services."
Mr. Rowe commented further, "My highest priority has been to make an
accurate assessment of where we are now and where we are going in fiscal
year 2000. I have been working closely with our senior management team to
refine our 2000 budget, with particular emphasis on analyzing the effects
of price increases on market share and the tendency of some consumers to
choose lower-priced products and services. Our analysis has convinced us
that we must use restraint when making pricing decisions and reduce prices
in a few markets in order to protect and improve market share. In order to
give our field executives the flexibility we think they need to make
decisions that are in the long-term interest of our stockholders, we have
revised our budget estimates and now believe that our earnings per share in
fiscal year ending October 31, 2000, under the new accounting method,
should be in the $.68-$.72 range."
Mr. Rowe continued, "We are working very hard to formulate and implement
long-term strategies and to make changes where appropriate to prepare this
Company to operate effectively in this new environment. We have great
assets in our people and in our properties that provide us with the
ingredients necessary to compete effectively in the marketplace. Our goal
for fiscal year 2000 will be to establish a solid platform of financial
performance and results that are not only sustainable, but from which we
can continue to grow at a pace that our stockholders will find attractive."
(more)
<PAGE>
Fourth Quarter 1999 Highlights
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All 1999 results discussed below reflect the effect of the change in
accounting method, and all 1998 results are presented on a pro forma basis
to reflect the change in accounting method as if it had been implemented at
the beginning of the period, unless otherwise stated.
Funeral revenues for the fourth quarter of 1999 increased 12 percent to
$113.8 million compared to $101.2 million in the fourth quarter of 1998.
Funeral margins decreased 110 basis points to 25.4 percent from 26.5
percent in the fourth quarter of 1998.
Funeral revenues from the Company's core operations were flat in the fourth
quarter of 1999 as compared to the corresponding period in 1998. The
Company experienced a 1.1 percent decline in the number of domestic funeral
services performed by its core operations, coupled with a decrease in the
average revenue per domestic funeral service performed by those operations
of 1.4 percent to $3,202 compared to the fourth quarter of 1998. The
average revenue per funeral service performed by all of the Company's core
operations increased 1.3 percent to $2,727 over the comparable quarter of
1998 (excluding effects of foreign currency translation), partially offset
by a 0.4 percent decrease in the number of funeral services performed by
those operations.
Of the total funerals performed in the fourth quarter of 1999, 19.4 percent
were delivered out of the Company's backlog of preneed funerals, as
compared to 19.3 percent in the fourth quarter of 1998. For the quarter,
domestic cremations as a percentage of total domestic funerals performed
were 35.5 percent compared to 35.2 percent in the comparable period of
1998.
Cemetery revenues for the fourth quarter of 1999 increased 6 percent to
$76.1 million compared to $71.5 million in the fourth quarter of 1998.
Cemetery revenues from the Company's core operations decreased by 4.3
percent from the corresponding period of 1998 as a result of a decline in
preneed sales. Cemetery margins decreased 640 basis points from 27.3
percent to 20.9 percent, due principally to not achieving expected preneed
property and merchandise sales in certain key markets.
(more)
<PAGE>
Fiscal Year 1999 Highlights
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All 1999 results discussed below reflect the effect of the change in
accounting method, and all 1998 results are presented on a pro forma basis
to reflect the change in accounting method as if it had been implemented at
the beginning of the fiscal year, unless otherwise stated.
Funeral revenues for 1999 increased 22 percent to $445.9 million compared
to $365.6 million in 1998. Funeral margins decreased 20 basis points to
28.5 percent from 28.7 percent in fiscal year 1998.
Funeral revenues from the Company's core operations increased by 3.6
percent in fiscal year 1999 over fiscal year 1998. The Company experienced
an increase in the average revenue per domestic funeral service of .7
percent to $3,320 in fiscal year 1999 as compared to fiscal year 1998,
offset by a 2.2 percent decline in the number of funeral services performed
by those operations. The average revenue per funeral service performed by
all of the Company's core operations increased 3.1 percent to $2,924 over
fiscal year 1998 (excluding effects of foreign currency translation),
partially offset by a 2.5 percent decrease in the number of funeral
services performed by those operations.
Of the total funerals performed in fiscal year 1999, 18.7 percent were
delivered out of the Company's backlog of preneed funerals, as compared to
21.2 percent in fiscal year 1998. As of October 31, 1999, the Company had
a backlog of over 442,000 preneed funerals that are expected to generate
over $1.5 billion in future funeral revenue. For the year, domestic
cremations as a percentage of total domestic funerals performed were 35.7
percent compared to 34.5 percent in the comparable period of 1998.
Cemetery revenues for 1999 increased 15 percent to $310.2 million compared
to $269.3 million in 1998. Cemetery revenues from the Company's core
operations increased by 3.8 percent over 1998 as a result of an increase in
preneed sales. Cemetery margins decreased 190 basis points from 28.8
percent to 26.9 percent.
In fiscal year 1999, the Company expanded its operations domestically and
internationally with the acquisition of 83 funeral homes and 17 cemeteries
for $156.4 million. These businesses are expected to generate annualized
revenues of $70.1 million and serve over 21,500 families worldwide.
(more)
<PAGE>
William E. Rowe, Chief Executive Officer, commented, "Even with the
challenges and changes that faced us in fiscal year 1999, we achieved 19
percent growth in revenues, 15 percent growth in gross profit, and 8
percent growth in earnings for the year before the cumulative effect of the
accounting change. Our Company has had to adapt to changing environments
since 1910 - and we have always done so successfully. I am honored to be
the new Chief Executive Officer of Stewart Enterprises, and I am excited
about leading our Company as we change our strategy from growth driven
primarily by acquisitions to growth driven primarily by improved operating
performance and internal growth initiatives."
Mr. Rowe added, "Just last week, I was very pleased to announce the
appointment of Brian Marlowe to Chief Operating Officer. Brian has over 30
years of experience in the death care industry as an owner and operator for
many years prior to joining Stewart. He is the current President of our
Eastern Division and is the immediate past President of ICFA, one of the
leading industry associations. Our Company is fortunate to have Brian as
our Chief Operating Officer as we renew our focus on growth through
operations."
"While we have always emphasized the importance of our internal growth
strategies, they now have become our primary focus. We have budgeted $25
million for internal growth initiatives in fiscal year 2000, some of which
is earmarked for the completion of the construction of the Archdiocese of
Los Angeles funeral homes. All growth initiatives will be approved by
senior management and evaluated based on expected internal rates of return.
Those projects are anticipated to include construction of funeral homes on
some of our cemeteries and development of third party relationships and
alternative service firms."
Kenneth C. Budde, Chief Financial Officer, commented, "In the current
environment, improving cash flow has become a major financial focus. For
fiscal year 1999, our operating cash flow was approximately $15 to $20
million, which is expected to grow to $80 to $100 million in fiscal year
2000. This expected increase is primarily driven by a significant decline
in the growth of the Company's installment receivables."
(more)
<PAGE>
Founded in 1910, Stewart Enterprises is the third largest provider of
products and services in the death care industry in North America,
currently owning and operating 634 funeral homes and 161 cemeteries in
North America, South America, Europe and the Pacific Rim.
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Statements made herein that are not historical facts are forward-looking
statements. The Company's actual results could differ materially due to
several important factors including the following: the Company's ability to
make acquisitions and enter new markets; the economy, death rate,
competition and consumer preferences in the Company's domestic and foreign
markets; the Company's ability to increase prices, retain market share, and
meet preneed sales targets; financial market conditions, including stock
and bond prices and interest rates; the Company's ability to access
secondary equity and debt markets; the Company's ability to achieve
economies of scale and manage growth; the performance of acquired
businesses; the effect of unanticipated legal proceedings; and the
Company's ability and that of its significant vendors to achieve Year 2000
compliance on a timely basis. Such factors, and others, are more fully
described in Item 5 of the Company's Form 10-Q for the quarter ended July
31, 1999. The Company assumes no obligation to update information
contained herein.
###
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<PAGE>
STEWART ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended October 31,
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1999 1998 1998
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<S> <C> <C> <C>
Revenues: (Pro forma)(1) (As reported)
Funeral $ 113,846 $ 101,180 $ 103,864
Cemetery 76,072 71,526 71,526
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Total revenues 189,918 172,706 175,390
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Costs and expenses:
Funeral 84,962 74,408 74,408
Cemetery 60,138 51,992 51,992
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Total costs and expenses 145,100 126,400 126,400
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Gross profit 44,818 46,306 48,990
Corporate general and administrative expenses 5,801 4,314 4,314
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Operating earnings 39,017 41,992 44,676
Interest expense, net (13,456) (12,265) (12,265)
Other income 524 1,391 1,391
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Earnings before income taxes 26,085 31,118 33,802
Income taxes 9,521 11,129 12,124
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Net earnings $ 16,564 $ 19,989 $ 21,678
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Earnings per share:
Basic $ 0.15 $ 0.20 $ 0.22
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Diluted $ 0.15 $ 0.20 $ 0.22
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Weighted average shares outstanding (in thousands):
Basic 108,445 98,026 98,026
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Diluted 108,445 98,674 98,674
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Dividends per share $ 0.02 $ 0.02 $ 0.02
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</TABLE>
(1) Reflects change in the Company's accounting method, effective November 1,
1998.
STEWART ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------------
1999 1998 1998
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<S> <C> <C> <C>
Revenues: (Pro forma)(1) (As reported)
Funeral $ 445,877 $ 365,603 $ 379,095
Cemetery 310,231 269,270 269,270
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Total revenues 756,108 634,873 648,365
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Costs and expenses:
Funeral 319,002 260,669 260,669
Cemetery 226,705 191,712 191,712
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Total costs and expenses 545,707 452,381 452,381
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Gross profit 210,401 182,492 195,984
Corporate general and administrative expenses 19,161 16,621 16,621
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Operating earnings before performance-based stock options 191,240 165,871 179,363
Performance-based stock options - 76,762 76,762
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Operating earnings 191,240 89,109 102,601
Interest expense, net (52,174) (41,792) (41,792)
Other income 3,485 4,155 4,155
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Earnings before income taxes and cumulative effect
of change in accounting principle 142,551 51,472 64,964
Income taxes 52,031 18,273 23,062
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Earnings before cumulative effect of change in accounting principle 90,520 33,199 41,902
Cumulative effect of change in accounting principle,
net of a $28,798 income tax benefit (50,101) - -
------------- ------------- -------------
Net earnings $ 40,419 $ 33,199 $ 41,902
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Basic earnings per share:
Earnings before cumulative effect of change in accounting principle $ 0.84 $ 0.34 $ 0.43
Cumulative effect of change in accounting principle (0.47) - -
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Net earnings $ 0.37 $ 0.34 0.43
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Diluted earnings per share:
Earnings before cumulative effect of change in accounting principle $ 0.84 $ 0.34 $ 0.43
Cumulative effect of change in accounting principle (0.47) - -
------------- ------------- -------------
Net earnings $ 0.37 $ 0.34 $ 0.43
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Weighted average shares outstanding (in thousands):
Basic 107,452 97,691 97,691
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Diluted 107,834 98,444 98,444
============= ============= =============
Dividends per common share $ 0.08 $ 0.06 $ 0.06
============= ============= =============
</TABLE>
(1) Reflects change in the Company's accounting method, effective November
1, 1998.
<PAGE>
SIGNATURE
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.
December 15, 1999 /s/ KENNETH C. BUDDE
-----------------------------------
Kenneth C. Budde
Executive Vice President
Chief Financial Officer
