UNITED STATES SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 1-15449
STEWART ENTERPRISES, INC.
| LOUISIANA (State or other jurisdiction of incorporation or organization) |
72-0693290 (I.R.S. Employer Identification No.) |
|
| 1333 South Clearview Parkway Jefferson, Louisiana (Address of principal executive offices) |
70121 (Zip Code) |
Registrant’s telephone number, including area code: (504) 729-1400
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the Registrant is an accelerated filer as defined in Rule 12b-2 of the Securities Exchange Act of 1934. Yes þ No o
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 May 31, 2005, was 106,143,977 and 3,555,020, respectively.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
INDEX
| Page | ||||||||
Part I. Financial Information |
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Item 1. Financial Statements (Unaudited) |
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| 4 | ||||||||
| 5 | ||||||||
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| 8 | ||||||||
| 9 | ||||||||
| 53 | ||||||||
| 65 | ||||||||
| 66 | ||||||||
| 66 | ||||||||
| 67 | ||||||||
| 68 | ||||||||
| 68 | ||||||||
| 76 | ||||||||
| 78 | ||||||||
| Exhibit 4.1 | ||||||||
| Calculation of Ratio of Earnings to Fixed Charges | ||||||||
| Preferability Letter regarding change in accounting principle | ||||||||
| Certification pursuant to Section 302 of Kenneth C. Budde | ||||||||
| Certification pursuant to Section 302 of Thomas M. Kitchen | ||||||||
| Certifications pursuant to Section 906 of Kenneth C. Budde and Thomas M. Kitchen | ||||||||
2
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share amounts)
| Three Months Ended April 30, | ||||||||
| 2005 | 2004 | |||||||
Revenues: |
||||||||
Funeral |
$ | 75,524 | $ | 71,582 | ||||
Cemetery |
61,139 | 59,511 | ||||||
| 136,663 | 131,093 | |||||||
Costs and expenses: |
||||||||
Funeral |
56,367 | 50,232 | ||||||
Cemetery |
45,196 | 44,043 | ||||||
| 101,563 | 94,275 | |||||||
Gross profit |
35,100 | 36,818 | ||||||
Corporate general and administrative expenses |
(4,582 | ) | (4,621 | ) | ||||
Separation charges (Note 13) |
— | (138 | ) | |||||
Gains on dispositions and impairment (losses), net (Note 12) |
421 | (315 | ) | |||||
Other operating income, net |
261 | 504 | ||||||
Operating earnings |
31,200 | 32,248 | ||||||
Interest expense |
(6,671 | ) | (11,953 | ) | ||||
Loss on early extinguishment of debt (Note 14) |
(30,057 | ) | — | |||||
Investment and other income, net |
111 | 57 | ||||||
Earnings (loss) from continuing operations before income taxes |
(5,417 | ) | 20,352 | |||||
Income tax expense (benefit) |
(1,519 | ) | 7,615 | |||||
Earnings (loss) from continuing operations |
(3,898 | ) | 12,737 | |||||
Discontinued operations (Note 12): |
||||||||
Earnings (loss) from discontinued operations before income taxes |
(186 | ) | 1,573 | |||||
Income tax benefit |
( 94 | ) | (447 | ) | ||||
Earnings (loss) from discontinued operations |
(92 | ) | 2,020 | |||||
Net earnings (loss) |
$ | (3,990 | ) | $ | 14,757 | |||
Basic earnings (loss) per common share: |
||||||||
Earnings (loss) from continuing operations |
$ | (.04 | ) | $ | .12 | |||
Earnings from discontinued operations |
— | .02 | ||||||
Net earnings (loss) |
$ | (.04 | ) | $ | .14 | |||
Diluted earnings (loss) per common share: |
||||||||
Earnings (loss) from continuing operations |
$ | (.04 | ) | $ | .12 | |||
Earnings from discontinued operations |
— | .02 | ||||||
Net earnings (loss) |
$ | (.04 | ) | $ | .14 | |||
Weighted average common shares outstanding (in thousands): |
||||||||
Basic |
109,506 | 107,438 | ||||||
Diluted |
109,506 | 108,400 | ||||||
Dividends declared per common share |
$ | .025 | $ | — | ||||
See accompanying notes to condensed consolidated financial statements.
3
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share amounts)
| Six Months Ended April 30, | ||||||||
| 2005 | 2004 | |||||||
Revenues: |
||||||||
Funeral |
$ | 147,026 | $ | 146,309 | ||||
Cemetery |
115,786 | 115,526 | ||||||
| 262,812 | 261,835 | |||||||
Costs and expenses: |
||||||||
Funeral |
108,426 | 102,128 | ||||||
Cemetery |
88,703 | 85,892 | ||||||
| 197,129 | 188,020 | |||||||
Gross profit |
65,683 | 73,815 | ||||||
Corporate general and administrative expenses |
(8,798 | ) | (8,534 | ) | ||||
Separation charges (Note 13) |
— | (2,131 | ) | |||||
Gains on dispositions and impairment (losses), net (Note 12) |
1,147 | 288 | ||||||
Other operating income, net |
505 | 943 | ||||||
Operating earnings |
58,537 | 64,381 | ||||||
Interest expense |
(17,047 | ) | (24,474 | ) | ||||
Loss on early extinguishment of debt (Note 14) |
(32,708 | ) | — | |||||
Investment and other income (expense), net |
219 | (1,068 | ) | |||||
Earnings from continuing operations before income taxes and
cumulative effect of change in accounting principle |
9,001 | 38,839 | ||||||
Income taxes |
4,008 | 14,640 | ||||||
Earnings from continuing operations before cumulative effect of
change in accounting principle |
4,993 | 24,199 | ||||||
Discontinued operations (Note 12): |
||||||||
Earnings from discontinued operations before income taxes |
127 | 2,001 | ||||||
Income tax expense (benefit) |
125 | (285 | ) | |||||
Earnings from discontinued operations |
2 | 2,286 | ||||||
Earnings before cumulative effect of change in accounting principle |
4,995 | 26,485 | ||||||
Cumulative effect of change in accounting principle (net of
$93,235 income tax benefit) (Note 2) |
(141,318 | ) | — | |||||
Net earnings (loss) |
$ | (136,323 | ) | $ | 26,485 | |||
Basic earnings (loss) per common share: |
||||||||
Earnings from continuing operations before cumulative effect of
change in accounting principle |
$ | .05 | $ | .22 | ||||
Earnings from discontinued operations |
— | .03 | ||||||
Cumulative effect of change in accounting principle |
(1.30 | ) | — | |||||
Net earnings (loss) |
$ | (1.25 | ) | $ | .25 | |||
Diluted earnings (loss) per common share: |
||||||||
Earnings from continuing operations before cumulative effect of
change in accounting principle |
$ | .05 | $ | .22 | ||||
Earnings from discontinued operations |
— | .02 | ||||||
Cumulative effect of change in accounting principle |
(1.29 | ) | — | |||||
Net earnings (loss) |
$ | (1.24 | ) | $ | .24 | |||
Weighted average common shares outstanding (in thousands): |
||||||||
Basic |
109,293 | 107,660 | ||||||
Diluted |
109,506 | 108,177 | ||||||
Dividends declared per common share |
$ | .025 | $ | — | ||||
See accompanying notes to condensed consolidated financial statements.
4
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)
| April 30, | October 31, | |||||||
| 2005 | 2004 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalent investments |
$ | 18,450 | $ | 21,514 | ||||
Marketable securities |
1,292 | 1,297 | ||||||
Receivables, net of allowances |
61,599 | 59,461 | ||||||
Inventories |
37,750 | 39,455 | ||||||
Prepaid expenses |
3,657 | 2,954 | ||||||
Deferred income taxes, net |
4,212 | 4,522 | ||||||
Assets held for sale (Note 12) |
— | 3,590 | ||||||
Total current assets |
126,960 | 132,793 | ||||||
Receivables due beyond one year, net of allowances |
77,244 | 79,879 | ||||||
Preneed funeral receivables and trust investments |
498,898 | 504,882 | ||||||
Preneed cemetery receivables and trust investments |
260,143 | 259,459 | ||||||
Goodwill |
405,627 | 405,136 | ||||||
Deferred charges (Note 2) |
19,696 | 254,834 | ||||||
Cemetery property, at cost |
370,519 | 371,094 | ||||||
Property and equipment, at cost: |
||||||||
Land |
41,746 | 40,525 | ||||||
Buildings |
298,168 | 294,916 | ||||||
Equipment and other |
168,358 | 163,427 | ||||||
| 508,272 | 498,868 | |||||||
Less accumulated depreciation |
206,926 | 197,576 | ||||||
Net property and equipment |
301,346 | 301,292 | ||||||
Deferred income taxes, net |
134,106 | 43,124 | ||||||
Cemetery perpetual care trust investments |
211,503 | 210,267 | ||||||
Other assets |
1,417 | 1,408 | ||||||
Total assets |
$ | 2,407,459 | $ | 2,564,168 | ||||
(continued)
5
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)
| April 30, | October 31, | |||||||
| 2005 | 2004 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Current maturities of long-term debt (Note 14) |
$ | 5,087 | $ | 1,725 | ||||
Accounts payable |
8,210 | 9,075 | ||||||
Accrued payroll |
10,589 | 13,005 | ||||||
Accrued insurance |
22,697 | 21,430 | ||||||
Accrued interest |
4,708 | 11,315 | ||||||
Other current liabilities |
10,057 | 13,089 | ||||||
Income taxes payable |
616 | 130 | ||||||
Liabilities associated with assets held for sale (Note 12) |
— | 2,388 | ||||||
Total current liabilities |
61,964 | 72,157 | ||||||
Long-term debt, less current maturities |
413,377 | 415,080 | ||||||
Deferred preneed funeral revenue |
145,554 | 158,311 | ||||||
Deferred preneed cemetery revenue |
282,736 | 284,963 | ||||||
Non-controlling interest in funeral and cemetery trusts |
628,615 | 629,376 | ||||||
Other long-term liabilities |
10,636 | 11,130 | ||||||
Total liabilities |
1,542,882 | 1,571,017 | ||||||
Commitments and contingencies |
— | — | ||||||
Non-controlling interest in perpetual care trusts |
209,833 | 208,893 | ||||||
Shareholders’ equity: |
||||||||
Preferred stock, $1.00 par value, 5,000,000 shares authorized;
no shares issued |
— | — | ||||||
Common stock, $1.00 stated value: |
||||||||
Class A authorized 150,000,000 shares; issued and outstanding
106,143,977 and 104,330,101 shares at April 30, 2005
and October 31, 2004, respectively |
106,144 | 104,330 | ||||||
Class B authorized 5,000,000 shares; issued and outstanding
3,555,020 shares at April 30, 2005 and October 31, 2004;
10 votes per share; convertible into an equal number of
Class A shares |
3,555 | 3,555 | ||||||
Additional paid-in capital |
679,098 | 673,630 | ||||||
Retained earnings (accumulated deficit) |
(133,025 | ) | 3,298 | |||||
Unearned restricted stock compensation |
(1,028 | ) | (222 | ) | ||||
Accumulated other comprehensive loss: |
||||||||
Derivative financial instrument losses |
— | (333 | ) | |||||
Total accumulated other comprehensive losses |
— | (333 | ) | |||||
Total shareholders’ equity |
654,744 | 784,258 | ||||||
Total liabilities and shareholders’ equity |
$ | 2,407,459 | $ | 2,564,168 | ||||
See accompanying notes to condensed consolidated financial statements.
6
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(Unaudited)
(Dollars in thousands, except per share amounts)
| Retained | Unearned | Derivative | ||||||||||||||||||||||
| Additional | Earnings | Restricted | Financial | Total | ||||||||||||||||||||
| Common | Paid-In | (Accumulated | Stock | Instrument | Shareholders’ | |||||||||||||||||||
| Stock (1) | Capital | Deficit) | Compensation | Gains (Losses) | Equity | |||||||||||||||||||
Balance October 31, 2004 |
$ | 107,885 | $ | 673,630 | $ | 3,298 | $ | (222 | ) | $ | (333 | ) | $ | 784,258 | ||||||||||
Comprehensive income (loss): |
||||||||||||||||||||||||
Net loss |
(136,323 | ) | (136,323 | ) | ||||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||
Unrealized appreciation on derivative
instrument designated and qualifying as
a cash flow hedging instrument, net of
deferred tax expense of ($204) |
333 | 333 | ||||||||||||||||||||||
Total other comprehensive income |
— | — | — | — | 333 | 333 | ||||||||||||||||||
Total comprehensive income (loss) |
— | — | (136,323 | ) | — | 333 | (135,990 | ) | ||||||||||||||||
Restricted stock activity |
166 | 992 | (806 | ) | 352 | |||||||||||||||||||
Issuance of common stock |
37 | 183 | 220 | |||||||||||||||||||||
Stock options exercised |
2,511 | 9,877 | 12,388 | |||||||||||||||||||||
Tax benefit associated with stock options
exercised |
1,939 | 1,939 | ||||||||||||||||||||||
Purchase and retirement of common stock |
(900 | ) | (4,781 | ) | (5,681 | ) | ||||||||||||||||||
Dividends ($.025 per share) |
(2,742 | ) | (2,742 | ) | ||||||||||||||||||||
Balance April 30, 2005 |
$ | 109,699 | $ | 679,098 | $ | (133,025 | ) | $ | (1,028 | ) | $ | — | $ | 654,744 | ||||||||||
| (1) | Amount includes 106,144 and 104,330 shares (in thousands) of Class A common stock with a stated value of $1 per share as of April 30, 2005 and October 31, 2004, respectively, and includes 3,555 shares (in thousands) of Class B common stock. |
See accompanying notes to condensed consolidated financial statements.
7
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands, except per share amounts)
| Six Months Ended April 30, | ||||||||
| 2005 | 2004 | |||||||
Cash flows from operating activities: |
||||||||
Net earnings (loss) |
$ | (136,323 | ) | $ | 26,485 | |||
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities: |
||||||||
(Gains) on dispositions and impairment losses, net |
(1,494 | ) | (1,619 | ) | ||||
Cumulative effect of change in accounting principle |
141,318 | — | ||||||
Loss on early extinguishment of debt |
32,708 | — | ||||||
Depreciation and amortization |
10,827 | 11,700 | ||||||
Amortization of preneed selling costs |
— | 13,758 | ||||||
Provision for doubtful accounts |
3,063 | 4,197 | ||||||
Net loss realized on marketable securities |
— | 1,194 | ||||||
Provision for deferred income taxes |
2,193 | 6,057 | ||||||
Other |
771 | 197 | ||||||
Changes in assets and liabilities: |
||||||||
(Increase) decrease in other receivables |
(4,127 | ) | 28,548 | |||||
Decrease in deferred charges |
960 | 2,810 | ||||||
(Increase) decrease in inventories and cemetery property |
1,794 | (77 | ) | |||||
Increase (decrease) in accounts payable and accrued expenses |
( 9,130 | ) | 1,096 | |||||
Net effect of preneed funeral production and maturities |
(10,362 | ) | (16,899 | ) | ||||
Net effect of preneed cemetery production and deliveries |
(2,117 | ) | 1,383 | |||||
Change in deferred charges – prearranged acquisition costs |
— | (16,763 | ) | |||||
Decrease in other |
(1,062 | ) | (1,188 | ) | ||||
Net cash provided by operating activities |
29,019 | 60,879 | ||||||
Cash flows from investing activities: |
||||||||
Proceeds from sales of marketable securities |
16 | 1,019 | ||||||
Proceeds from sale of assets, net |
6,385 | 8,938 | ||||||
Additions to property and equipment |
(12,968 | ) | (8,333 | ) | ||||
Other |
(188 | ) | 47 | |||||
Net cash provided by (used in) investing activities |
(6,755 | ) | 1,671 | |||||
Cash flows from financing activities: |
||||||||
Proceeds from long-term debt |
440,000 | — | ||||||
Repayments of long-term debt |
(438,341 | ) | (48,158 | ) | ||||
Debt issue costs and tender premium |
(31,180 | ) | — | |||||
Issuance of common stock |
12,608 | 4,711 | ||||||
Purchase and retirement of common stock |
(5,681 | ) | (10,692 | ) | ||||