Attached files
file | filename |
---|---|
EX-12 - EX-12 - STEWART ENTERPRISES INC | h80409exv12.htm |
EX-31.1 - EX-31.1 - STEWART ENTERPRISES INC | h80409exv31w1.htm |
EX-10.1 - EX-10.1 - STEWART ENTERPRISES INC | h80409exv10w1.htm |
EX-31.2 - EX-31.2 - STEWART ENTERPRISES INC | h80409exv31w2.htm |
EX-10.4 - EX-10.4 - STEWART ENTERPRISES INC | h80409exv10w4.htm |
EX-10.2 - EX-10.2 - STEWART ENTERPRISES INC | h80409exv10w2.htm |
EX-32.1 - EX-32.1 - STEWART ENTERPRISES INC | h80409exv32w1.htm |
EX-10.3 - EX-10.3 - STEWART ENTERPRISES INC | h80409exv10w3.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended January 31, 2011
or
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number: 1-15449
STEWART ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
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) |
(504) 729-1400
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act.) Yes o No þ
The number of shares of the registrants Class A common stock, no par value per share, and
Class B common stock, no par value per share, outstanding as of February 28, 2011, was 87,964,614
and 3,555,020, respectively.
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
INDEX
Page | ||||||||
3 | ||||||||
4 | ||||||||
6 | ||||||||
7 | ||||||||
8 | ||||||||
39 | ||||||||
48 | ||||||||
49 | ||||||||
49 | ||||||||
49 | ||||||||
50 | ||||||||
50 | ||||||||
50 | ||||||||
52 | ||||||||
EX-10.1 | ||||||||
EX-10.2 | ||||||||
EX-10.3 | ||||||||
EX-10.4 | ||||||||
EX-12 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 |
2
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended January 31, | ||||||||
2011 | 2010 | |||||||
Revenues: |
||||||||
Funeral |
$ | 73,866 | $ | 71,720 | ||||
Cemetery |
55,398 | 52,292 | ||||||
129,264 | 124,012 | |||||||
Costs and expenses: |
||||||||
Funeral |
53,478 | 52,449 | ||||||
Cemetery |
47,431 | 46,320 | ||||||
100,909 | 98,769 | |||||||
Gross profit |
28,355 | 25,243 | ||||||
Corporate general and administrative expenses |
(6,639 | ) | (6,670 | ) | ||||
Hurricane related charges, net |
(50 | ) | | |||||
Other operating income, net |
233 | 179 | ||||||
Operating earnings |
21,899 | 18,752 | ||||||
Interest expense |
(5,736 | ) | (6,456 | ) | ||||
Gain on early extinguishment of debt |
| 17 | ||||||
Investment and other income, net |
24 | 24 | ||||||
Earnings from continuing operations before income taxes |
16,187 | 12,337 | ||||||
Income taxes |
8,143 | 4,876 | ||||||
Earnings from continuing operations |
8,044 | 7,461 | ||||||
Discontinued operations: |
||||||||
Earnings from discontinued operations before income taxes |
| 42 | ||||||
Income taxes |
| 16 | ||||||
Earnings from discontinued operations |
| 26 | ||||||
Net earnings |
$ | 8,044 | $ | 7,487 | ||||
Basic earnings per common share: |
||||||||
Earnings from continuing operations |
$ | .09 | $ | .08 | ||||
Earnings from discontinued operations |
| | ||||||
Net earnings |
$ | .09 | $ | .08 | ||||
Diluted earnings per common share: |
||||||||
Earnings from continuing operations |
$ | .09 | $ | .08 | ||||
Earnings from discontinued operations |
| | ||||||
Net earnings |
$ | .09 | $ | .08 | ||||
Weighted average common shares outstanding (in thousands): |
||||||||
Basic |
90,867 | 92,053 | ||||||
Diluted |
91,177 | 92,234 | ||||||
Dividends declared per common share |
$ | .03 | $ | .03 | ||||
See accompanying notes to condensed consolidated financial statements.
3
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
January 31, 2011 | October 31, 2010 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 64,437 | $ | 56,060 | ||||
Certificates of deposit and marketable securities |
| 10,000 | ||||||
Receivables, net of allowances |
50,865 | 51,170 | ||||||
Inventories |
35,619 | 35,715 | ||||||
Prepaid expenses |
9,594 | 5,480 | ||||||
Deferred income taxes, net |
27,222 | 28,312 | ||||||
Total current assets |
187,737 | 186,737 | ||||||
Receivables due beyond one year, net of allowances |
65,467 | 67,458 | ||||||
Preneed funeral receivables and trust investments |
423,740 | 414,918 | ||||||
Preneed cemetery receivables and trust investments |
217,031 | 209,750 | ||||||
Goodwill |
247,038 | 247,038 | ||||||
Cemetery property, at cost |
387,008 | 386,094 | ||||||
Property and equipment, at cost: |
||||||||
Land |
43,726 | 43,518 | ||||||
Buildings |
340,104 | 338,264 | ||||||
Equipment and other |
192,463 | 191,428 | ||||||
576,293 | 573,210 | |||||||
Less accumulated depreciation |
289,388 | 283,637 | ||||||
Net property and equipment |
286,905 | 289,573 | ||||||
Deferred income taxes, net |
94,018 | 98,025 | ||||||
Cemetery perpetual care trust investments |
234,630 | 231,008 | ||||||
Non-current assets held for sale |
360 | 360 | ||||||
Other assets |
11,554 | 11,905 | ||||||
Total assets |
$ | 2,155,488 | $ | 2,142,866 | ||||
(continued)
4
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
January 31, 2011 | October 31, 2010 | |||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Current maturities of long-term debt |
$ | 5 | $ | 5 | ||||
Accounts payable and accrued expenses |
20,514 | 24,797 | ||||||
Accrued payroll and other benefits |
13,217 | 14,313 | ||||||
Accrued insurance |
20,365 | 20,912 | ||||||
Accrued interest |
6,142 | 4,197 | ||||||
Estimated obligation to fund cemetery perpetual care trust |
13,116 | 13,253 | ||||||
Other current liabilities |
9,028 | 12,138 | ||||||
Income taxes payable |
3,243 | 2,533 | ||||||
Total current liabilities |
85,630 | 92,148 | ||||||
Long-term debt, less current maturities |
314,951 | 314,027 | ||||||
Deferred income taxes, net |
5,063 | 4,950 | ||||||
Deferred preneed funeral revenue |
242,269 | 243,520 | ||||||
Deferred preneed cemetery revenue |
256,768 | 258,044 | ||||||
Deferred preneed funeral and cemetery receipts held in trust |
572,956 | 555,152 | ||||||
Perpetual care trusts corpus |
233,394 | 229,518 | ||||||
Other long-term liabilities |
20,341 | 20,023 | ||||||
Total liabilities |
1,731,372 | 1,717,382 | ||||||
Commitments and contingencies |
||||||||
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 200,000,000 shares; issued and
outstanding 87,843,636 and 88,739,140 shares at January
31, 2011 and October 31, 2010, respectively |
87,844 | 88,739 | ||||||
Class B authorized 5,000,000 shares; issued and
outstanding 3,555,020 shares at January 31, 2011 and
October 31, 2010; 10 votes per share convertible into
an equal number of Class A shares |
3,555 | 3,555 | ||||||
Additional paid-in capital |
538,805 | 547,319 | ||||||
Accumulated deficit |
(206,103 | ) | (214,147 | ) | ||||
Accumulated other comprehensive income: |
||||||||
Unrealized appreciation of investments |
15 | 18 | ||||||
Total accumulated other comprehensive income |
15 | 18 | ||||||
Total shareholders equity |
424,116 | 425,484 | ||||||
Total liabilities and shareholders equity |
$ | 2,155,488 | $ | 2,142,866 | ||||
See accompanying notes to condensed consolidated financial statements.
5
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
Additional | Unrealized | Total | ||||||||||||||||||
Common | Paid-In | Accumulated | Appreciation | Shareholders | ||||||||||||||||
Stock(1) | Capital | Deficit | of Investments | Equity | ||||||||||||||||
Balance October 31, 2010 |
$ | 92,294 | $ | 547,319 | $ | (214,147 | ) | $ | 18 | $ | 425,484 | |||||||||
Comprehensive income (loss): |
||||||||||||||||||||
Net earnings |
| | 8,044 | | 8,044 | |||||||||||||||
Other comprehensive loss: |
||||||||||||||||||||
Unrealized depreciation of
investments, net of
deferred tax benefit of
$2 |
| | | (3 | ) | (3 | ) | |||||||||||||
Total other comprehensive loss |
| | | (3 | ) | (3 | ) | |||||||||||||
Total comprehensive income
(loss) |
| | 8,044 | (3 | ) | 8,041 | ||||||||||||||
Restricted stock activity |
286 | 26 | | | 312 | |||||||||||||||
Issuance of common stock |
96 | 438 | | | 534 | |||||||||||||||
Stock options exercised |
70 | 193 | | | 263 | |||||||||||||||
Stock option expense |
| 311 | | | 311 | |||||||||||||||
Tax benefit associated with
stock activity |
| 28 | | | 28 | |||||||||||||||
Purchase and retirement of
common stock |
(1,347 | ) | (6,761 | ) | | | (8,108 | ) | ||||||||||||
Dividends ($.03 per share) |
| (2,749 | ) | | | (2,749 | ) | |||||||||||||
Balance January 31, 2011 |
$ | 91,399 | $ | 538,805 | $ | (206,103 | ) | $ | 15 | $ | 424,116 | |||||||||
(1) | Amount includes 87,844 and 88,739 shares (in thousands) of Class A common stock with a stated value of $1 per share as of January 31, 2011 and October 31, 2010, respectively, and includes 3,555 shares (in thousands) of Class B common stock. |
See accompanying notes to condensed consolidated financial statements.
6
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended January 31, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net earnings |
$ | 8,044 | $ | 7,487 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
||||||||
Gain on early extinguishment of debt |
| (17 | ) | |||||
Depreciation and amortization |
6,872 | 6,587 | ||||||
Non-cash interest and amortization of discount on senior convertible notes |
1,350 | 1,521 | ||||||
Provision for doubtful accounts |
1,301 | 1,674 | ||||||
Share-based compensation |
1,132 | 962 | ||||||
Excess tax benefits from share-based payment arrangements |
(51 | ) | (20 | ) | ||||
Provision for deferred income taxes |
7,152 | 3,569 | ||||||
Estimated obligation to fund cemetery perpetual care trust |
73 | | ||||||
Other |
(3 | ) | 20 | |||||
Changes in assets and liabilities: |
||||||||
Increase in receivables |
(860 | ) | (1,648 | ) | ||||
Increase in prepaid expenses |
(4,115 | ) | (4,825 | ) | ||||
(Increase) decrease in inventories and cemetery property |
227 | (3 | ) | |||||
Decrease in accounts payable and accrued expenses |
(5,203 | ) | (7,204 | ) | ||||
Net effect of preneed funeral production and maturities: |
||||||||
Decrease in preneed funeral receivables and trust investments |
562 | 3,031 | ||||||
Decrease in deferred preneed funeral revenue |
(1,435 | ) | (2,240 | ) | ||||
Increase (decrease) in deferred preneed funeral receipts held in trust |
199 | (3,324 | ) | |||||
Net effect of preneed cemetery production and deliveries: |
||||||||
(Increase) decrease in preneed cemetery receivables and trust investments |
(1,220 | ) | 781 | |||||
Decrease in deferred preneed cemetery revenue |
(1,278 | ) | (3,575 | ) | ||||
Increase (decrease) in deferred preneed cemetery receipts held in trust |
2,330 | (173 | ) | |||||
Increase in other |
157 | 170 | ||||||
Net cash provided by operating activities |
15,234 | 2,773 | ||||||
Cash flows from investing activities: |
||||||||
Proceeds from sales of certificates of deposit |
10,000 | | ||||||
Purchases of certificates of deposit and marketable securities |
(6 | ) | (5,000 | ) | ||||
Purchase of subsidiaries and other investments, net of cash acquired |
(1,809 | ) | | |||||
Additions to property and equipment |
(4,604 | ) | (4,297 | ) | ||||
Other |
28 | 39 | ||||||
Net cash provided by (used in) investing activities |
3,609 | (9,258 | ) | |||||
Cash flows from financing activities: |
||||||||
Repayments of long-term debt |
(1 | ) | (846 | ) | ||||
Retirement of common stock warrants |
| (107 | ) | |||||
Issuance of common stock |
341 | 115 | ||||||
Retirement of call options |
| 107 | ||||||
Purchase and retirement of common stock |
(8,108 | ) | | |||||
Debt refinancing costs |
| (38 | ) | |||||
Dividends |
(2,749 | ) | (2,794 | ) | ||||
Excess tax benefits from share-based payment arrangements |
51 | 20 | ||||||
Net cash used in financing activities |
(10,466 | ) | (3,543 | ) | ||||
Net increase (decrease) in cash |
8,377 | (10,028 | ) | |||||
Cash and cash equivalents, beginning of period |
56,060 | 62,808 | ||||||
Cash and cash equivalents, end of period |
$ | 64,437 | $ | 52,780 | ||||
Supplemental cash flow information: |
||||||||
Cash paid (received) during the period for: |
||||||||
Income taxes, net |
$ | 89 | $ | (44 | ) | |||
Interest |
$ | 2,482 | $ | 3,191 | ||||
Non-cash investing and financing activities: |
||||||||
Issuance of common stock to executive officers and directors |
$ | 456 | $ | 414 | ||||
Issuance of restricted stock, net of forfeitures |
$ | 424 | $ | 1,024 |
See accompanying notes to condensed consolidated financial statements.
7
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(1) Basis of Presentation
(a) The Company
Stewart Enterprises, Inc. (the Company) is a provider of funeral and cemetery products and
services in the death care industry in the United States. Through its subsidiaries, the Company
offers a complete line of funeral and cremation merchandise and services, along with cemetery
property, merchandise and services, both at the time of need and on a preneed basis. As of January
31, 2011, the Company owned and operated 218 funeral homes and 141 cemeteries in 24 states within
the United States and Puerto Rico. The Company has three operating and reportable segments
consisting of a funeral segment, cemetery segment and corporate trust management segment.
(b) Principles of Consolidation
The accompanying condensed consolidated financial statements include the Company and its
subsidiaries. All significant intercompany balances and transactions have been eliminated.
(c) Interim Disclosures
The information as of January 31, 2011, and for the three months ended January 31, 2011 and
2010, is unaudited but, in the opinion of management, reflects all adjustments, which are of a
normal recurring nature, necessary for a fair presentation of financial position and results of
operations for the interim periods. The accompanying condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and notes thereto
contained in the Companys Annual Report on Form 10-K for the fiscal year ended October 31, 2010
(the 2010 Form 10-K).
The October 31, 2010 condensed consolidated balance sheet data was derived from audited
financial statements in the Companys 2010 Form 10-K, but does not include all disclosures required
by accounting principles generally accepted in the United States of America, which are presented in
the Companys 2010 Form 10-K.
The results of operations for the three months ended January 31, 2011 are not necessarily
indicative of the results to be expected for the fiscal year ending October 31, 2011.
(d) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates. The
Companys significant estimates are disclosed in Note 2 in the Companys 2010 Form 10-K.
(e) Share-Based Compensation
The Company has share-based compensation plans, which are described in more detail in Note 19
to the consolidated financial statements in the Companys 2010 Form 10-K. Net earnings for the
three months ended January 31, 2011 and 2010 include $311 and $275, respectively, of stock option
expenses, all of which are included
in corporate general and administrative expenses in the condensed consolidated statements of
earnings. As of January 31, 2011, there was $3,561 of total unrecognized compensation costs
related to nonvested stock options that is expected to be recognized over a weighted-average period
of 3.3 years of which $1,154 of total stock option expense is expected for fiscal year 2011. The
expense related to restricted stock is reflected in corporate general and administrative expenses
in the condensed consolidated statements of earnings and amounted to $365 and $273 for the three
months ended January 31, 2011 and 2010, respectively. As of January 31, 2011, there was $2,359 of
8
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(1) Basis of Presentation(Continued)
remaining future restricted stock expense to be recognized. Total restricted stock expense for
fiscal year 2011 is expected to be $1,713.
In November 2010, the Company issued 82,160 shares of Class A common stock and paid
approximately $114 in cash to the independent directors of the Company. The expense related to
this stock grant amounted to $456 and was recorded in corporate general and administrative expenses
during the first quarter of 2011. Each of the shares received has a restriction requiring each
independent director to hold the respective shares until completion of service as a member of the
Board of Directors.
The table below presents all stock options and restricted stock granted to employees during
the three months ended January 31, 2011:
Weighted | ||||||||||||||||
Number of Shares | Average | |||||||||||||||
Grant Type | Granted | Price per Share | Vesting Period | Vesting Condition | ||||||||||||
Stock options |
1,326,000 | $ | 6.23 | Equal one-fourth portions over 4 years | Service condition | |||||||||||
Restricted stock |
515,500 | $ | 6.24 | Equal one-third portions over 3 years | Market condition |
The fair value of the Companys service based stock options granted in fiscal year 2011
is the estimated present value at the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions for the three months ended January 31, 2011:
expected dividend yield of 1.9 percent; expected volatility of 41.5 percent; risk-free interest
rate of 1.9 percent; and an expected term of 4.8 years. In the first quarter of 2011, the Company
granted 515,500 shares of restricted stock with market conditions based on achieving certain target
stock prices in the years 2011, 2012 and 2013. The Company records the expense over the requisite
service period.
(f) Receivables and Allowance for Doubtful Accounts
The Company establishes an allowance for uncollectible installment contracts and trade
accounts based on a range of percentages applied to accounts receivable aging categories. These
percentages are based on an analysis of the Companys historical collection and write-off
experience. At-need funeral and other receivables are considered past due after 30 days. The
Company records an allowance on its interest accruals similar to the
corresponding principal aging categories. For accounts that are greater than 90 days past
due, interest continues to be accrued, however, an allowance is established to fully reserve for
the interest. Interest income on these receivables is recognized only to the extent the account
becomes less than 90 days past due and then only on the non-reserved portion. Accounts are
restored to normal accrual status only when interest and principal payments are brought current and
future payments are reasonably assured.
9
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(1) Basis of Presentation(Continued)
As of January 31, 2011, the Companys receivables and related allowances were as follows:
Receivables as of January 31, 2011 | ||||
Ending Balance Collectively | ||||
Evaluated for Impairment | ||||
Current receivables at-need funeral |
$ | 10,495 | ||
Current receivables other |
45,973 | |||
Receivables, due beyond one year other |
73,728 | |||
Preneed funeral receivables |
42,367 | |||
Preneed cemetery receivables |
30,570 | |||
Total |
$ | 203,133 | ||
Total current receivables |
56,468 | |||
Total noncurrent receivables |
146,665 | |||
Total |
$ | 203,133 | ||
Allowance for Doubtful Accounts and | ||||
Cancellations as of January 31, 2011 | ||||
Ending Balance Collectively | ||||
Evaluated for Impairment | ||||
Current receivables at-need funeral and other |
$ | (5,603 | ) | |
Receivables, due beyond one year other |
(8,261 | ) | ||
Preneed funeral receivables |
(11,720 | ) | ||
Preneed cemetery receivables |
(4,419 | ) | ||
Total |
$ | (30,003 | ) | |
Total current receivables |
(5,603 | ) | ||
Total noncurrent receivables |
(24,400 | ) | ||
Total |
$ | (30,003 | ) | |
The following summarizes the aging of past due receivables:
Age Analysis of Past Due | ||||||||||||||||||||
Receivables as of January 31, 2011 | ||||||||||||||||||||
Greater than | ||||||||||||||||||||
31 to 60 Days | 61 to 90 Days | 90 Days Past | ||||||||||||||||||
1 to 30 Days | Past Due | Past Due | Due | Total | ||||||||||||||||
Receivables at-need funeral |
$ | 6,783 | $ | 727 | $ | 442 | $ | 2,543 | $ | 10,495 | ||||||||||
Receivables other |
95,245 | 5,020 | 2,490 | 16,946 | 119,701 | |||||||||||||||
Preneed funeral receivables |
28,483 | 1,029 | 583 | 12,272 | 42,367 | |||||||||||||||
Preneed cemetery receivables |
23,882 | 1,090 | 697 | 4,901 | 30,570 |
(g) Reclassifications
Certain reclassifications have been made to the 2010 condensed consolidated statement of
earnings in order for these periods to be comparable. These reclassifications had no effect on the
Companys net earnings, total shareholders equity or operating cash flows.
10
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(2) New Accounting Principles
In January 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-06, which
requires additional fair value disclosures. This guidance requires reporting entities to disclose
transfers in and out of Levels 1 and 2 and requires gross presentation of purchases, sales,
issuances and settlements in the Level 3 reconciliation of the three-tier fair value hierarchy.
This guidance is effective for interim and annual reporting periods beginning after December 15,
2009, except for the disclosures about purchases, sales, issuances and settlements related to Level
3 activity. Those disclosures are effective for fiscal years beginning after December 15, 2010 and
for interim periods within those fiscal years. The guidance on transfers between Levels 1 and 2
was adopted by the Company as of its second fiscal quarter ended April 30, 2010. The guidance on
Level 3 activity is effective for the Companys fiscal year beginning November 1, 2011. The
Company is currently evaluating the impact the adoption will have on its consolidated financial
statements.
In June 2009, the FASB issued guidance which amends the consolidation guidance for variable
interest entities. It will require additional disclosures about involvement with variable interest
entities and any significant changes in risk exposure due to that involvement. This guidance is
effective as of the beginning of the first annual reporting period that begins after November 15,
2009, which corresponds to the Companys fiscal year beginning November 1, 2010. The adoption of
this guidance did not have a material effect on the Companys financial statements.
In July 2010, the FASB issued ASU No. 2010-20, which requires new disclosures on finance
receivables and allowance for credit losses. The new disclosures are required for interim and
annual periods ending after December 15, 2010, although the disclosures of reporting period
activity are required for interim and annual periods beginning after December 15, 2010. In January
2011, the FASB issued ASU No. 2011-01, which delayed indefinitely the effective date of ASU No.
2010-20 for public companies with regard to the disclosures on trouble debt restructurings. The
guidance was adopted by the Company as of its first fiscal quarter ended January 31, 2011. See
Note 1(f) for the required disclosures. The disclosures of reporting period activity are effective
for the Companys second fiscal quarter beginning February 1, 2011. The adoption of this guidance
by the Company did not have a material effect on its consolidated financial statements.
(3) Preneed Funeral Activities
The Company maintains three types of trust and escrow accounts: (1) preneed funeral
merchandise and services, (2) preneed cemetery merchandise and services and (3) cemetery perpetual
care. The activity of these trust and escrow accounts is detailed below and in Notes 4 and 5.
Preneed Funeral Receivables and Trust Investments
Preneed funeral receivables and trust investments represent trust assets and customer
receivables related to unperformed, price-guaranteed trust-funded preneed funeral contracts. The
components of preneed funeral receivables and trust investments in the condensed consolidated
balance sheets as of January 31, 2011 and October 31, 2010 are as follows:
January 31, | October 31, | |||||||
2011 | 2010 | |||||||
Trust assets |
$ | 393,093 | $ | 383,792 | ||||
Receivables from customers |
42,367 | 42,879 | ||||||
435,460 | 426,671 | |||||||
Allowance for cancellations |
(11,720 | ) | (11,753 | ) | ||||
Preneed funeral receivables and trust investments |
$ | 423,740 | $ | 414,918 | ||||
11
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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(3) Preneed Funeral Activities(Continued)
The cost basis and market values associated with preneed funeral merchandise and services
trust assets as of January 31, 2011 are detailed below.
January 31, 2011 | ||||||||||||||||||||
Unrealized | Unrealized | |||||||||||||||||||
Cost Basis | Gains | Losses | Market | |||||||||||||||||
Cash, money market and other
short-term investments |
$ | 16,804 | $ | | $ | | $ | 16,804 | ||||||||||||
U.S. Government, agencies and
municipalities |
1,992 | 44 | (14 | ) | 2,022 | |||||||||||||||
Corporate bonds |
30,003 | 1,436 | (1 | ) | 31,438 | |||||||||||||||
Preferred stocks |
56,092 | 368 | (2,691 | ) | 53,769 | |||||||||||||||
Common stocks |
234,960 | 2,337 | (82,625 | ) | 154,672 | |||||||||||||||
Mutual funds: |
||||||||||||||||||||
Equity |
26,205 | 1,169 | (1,513 | ) | 25,861 | |||||||||||||||
Fixed income |
62,479 | 901 | (846 | ) | 62,534 | |||||||||||||||
Commodity |
23,634 | 1,149 | | 24,783 | ||||||||||||||||
Real estate investment trusts |
5,783 | 179 | | 5,962 | ||||||||||||||||
Insurance contracts and other
long-term investments |
14,080 | 73 | (98 | ) | 14,055 | |||||||||||||||
Trust investments |
$ | 472,032 | $ | 7,656 | $ | (87,788 | ) | $ | 391,900 | |||||||||||
Market value as a percentage of cost |
83.0 | % | ||||||||||||||||||
Accrued investment income |
1,193 | |||||||||||||||||||
Trust assets |
$ | 393,093 | ||||||||||||||||||
The cost basis and market values associated with preneed funeral merchandise and services
trust assets as of October 31, 2010 are detailed below.
October 31, 2010 | ||||||||||||||||||||
Unrealized | Unrealized | |||||||||||||||||||
Cost Basis | Gains | Losses | Market | |||||||||||||||||
Cash, money market and other
short-term investments |
$ | 26,118 | $ | | $ | | $ | 26,118 | ||||||||||||
U.S. Government, agencies and
municipalities |
2,224 | 84 | (1 | ) | 2,307 | |||||||||||||||
Corporate bonds |
44,077 | 2,887 | (1 | ) | 46,963 | |||||||||||||||
Preferred stocks |
56,297 | 356 | (2,220 | ) | 54,433 | |||||||||||||||
Common stocks |
234,946 | 925 | (91,593 | ) | 144,278 | |||||||||||||||
Mutual funds: |
||||||||||||||||||||
Equity |
27,154 | 185 | (2,936 | ) | 24,403 | |||||||||||||||
Fixed income |
53,444 | 1,718 | (767 | ) | 54,395 | |||||||||||||||
Commodity |
13,572 | 1,968 | | 15,540 | ||||||||||||||||
Insurance contracts and other
long-term investments |
14,171 | 146 | (98 | ) | 14,219 | |||||||||||||||
Trust investments |
$ | 472,003 | $ | 8,269 | $ | (97,616 | ) | $ | 382,656 | |||||||||||
Market value as a percentage of cost |
81.1 | % | ||||||||||||||||||
Accrued investment income |
1,136 | |||||||||||||||||||
Trust assets |
$ | 383,792 | ||||||||||||||||||
12
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(3) Preneed Funeral Activities(Continued)
The estimated maturities and market values of debt securities included above are as follows:
January 31, 2011 | ||||
Due in one year or less |
$ | 5,577 | ||
Due in one to five years |
19,974 | |||
Due in five to ten years |
7,890 | |||
Thereafter |
19 | |||
$ | 33,460 | |||
The Company is actively managing a covered call program on its equity securities within the
funeral merchandise and services trust in order to provide an opportunity for additional income.
As of January 31, 2011 and October 31, 2010, the Company had outstanding covered calls with a
market value of $246 and $311, respectively. These covered calls are included at market value in
the balance sheet line preneed funeral receivables and trust investments. For the three months
ended January 31, 2011 and 2010, the Company realized trust losses of approximately ($146) and
($235), respectively, related to the covered call program. These trust losses are accounted for in
the same manner as other funeral merchandise and services trust earnings and losses and flow
through funeral revenue in the statements of earnings. Although the Company realized losses
associated with the covered call program for the three months ended January 31, 2011 and 2010, it
continues to hold the underlying securities against which these covered calls were issued. For the
three months ended January 31, 2011 and 2010, these underlying securities appreciated in value by
$991 and $3,135, respectively, during the periods that the covered calls were outstanding.
Where quoted prices are available in an active market, investments held by the trusts are
classified as Level 1 investments pursuant to the three-level valuation hierarchy. The Companys
Level 1 investments include cash, money market and other short-term investments, common stock and
mutual funds.
Where quoted market prices are not available for the specific security, then fair values are
estimated by using quoted prices of securities with similar characteristics. These investments are
primarily U. S. Government, agencies and municipalities, corporate bonds, convertible bonds and
preferred stocks, all of which are classified within Level 2 of the valuation hierarchy.
The Companys Level 3 investments include insurance contracts and partnership investments
purchased within the trusts. The valuation of insurance contracts and partnership investments
requires significant management judgment due to the absence of quoted prices, inherent lack of
liquidity and the long-term nature of such assets. The fair market value of the insurance
contracts is based upon the current face value of the contracts according to the respective
insurance companies which is deemed to approximate fair market value. The fair market value of the
partnership investments was determined by using their most recent audited financial statements and
assessing the market value of the underlying securities within the partnership.
The inputs into the fair value of the Companys preneed funeral merchandise and services trust
investments are categorized as follows:
Significant | ||||||||||||||||
Quoted Market | Other | Significant | ||||||||||||||
Prices in Active | Observable | Unobservable | ||||||||||||||
Markets | Inputs | Inputs | Fair Market | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | Value | |||||||||||||
Trust investmentsJanuary 31, 2011 |
$ | 298,288 | $ | 87,229 | $ | 6,383 | $ | 391,900 | ||||||||
Trust investmentsOctober 31, 2010 |
$ | 272,173 | $ | 103,703 | $ | 6,780 | $ | 382,656 |
13
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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(3) Preneed Funeral Activities(Continued)
The change in the Companys preneed funeral merchandise and services trust investments with
significant unobservable inputs (Level 3) is as follows:
Three Months Ended January 31, | ||||||||
2011 | 2010 | |||||||
Fair market value, beginning balance |
$ | 6,780 | $ | 8,662 | ||||
Distributions and other, net |
(397 | ) | 73 | |||||
Fair market value, ending balance |
$ | 6,383 | $ | 8,735 | ||||
Activity related to preneed funeral trust investments is as follows:
Three Months Ended January 31, | ||||||||
2011 | 2010 | |||||||
Purchases |
$ | 44,289 | $ | 849 | ||||
Sales |
37,757 | 4,349 | ||||||
Realized gains from sales of investments |
2,818 | 628 | ||||||
Realized losses from sales of investments and other |
(99 | ) | (516 | ) | ||||
Interest income, dividends and other ordinary income |
3,336 | 2,346 | ||||||
Deposits |
5,356 | 8,015 | ||||||
Withdrawals |
10,385 | 11,977 |
14
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(3) Preneed Funeral Activities(Continued) |
The following tables show the gross unrealized losses and fair value of the preneed
funeral merchandise and services trust investments with unrealized losses aggregated by investment
category and length of time that individual securities have been in a continuous unrealized loss
position as of January 31, 2011 and October 31, 2010.
January 31, 2011 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Market | Unrealized | Market | Unrealized | Market | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
U.S. Government,
agencies and
municipalities |
$ | 556 | $ | (13 | ) | $ | 21 | $ | (1 | ) | $ | 577 | $ | (14 | ) | |||||||||
Corporate bonds |
1,382 | (1 | ) | | | 1,382 | (1 | ) | ||||||||||||||||
Preferred stocks |
949 | (1 | ) | 32,926 | (2,690 | ) | 33,875 | (2,691 | ) | |||||||||||||||
Common stocks |
15 | (111 | ) | 136,655 | (82,514 | ) | 136,670 | (82,625 | ) | |||||||||||||||
Mutual funds: |
||||||||||||||||||||||||
Equity |
| | 13,592 | (1,513 | ) | 13,592 | (1,513 | ) | ||||||||||||||||
Fixed income |
5,231 | (20 | ) | 4,464 | (826 | ) | 9,695 | (846 | ) | |||||||||||||||
Insurance contracts
and other long-term
investments |
30 | (98 | ) | | | 30 | (98 | ) | ||||||||||||||||
Total |
$ | 8,163 | $ | (244 | ) | $ | 187,658 | $ | (87,544 | ) | $ | 195,821 | $ | (87,788 | ) | |||||||||
October 31, 2010 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Market | Unrealized | Market | Unrealized | Market | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
U.S.
Government,
agencies and
municipalities |
$ | | $ | | $ | 21 | $ | (1 | ) | $ | 21 | $ | (1 | ) | ||||||||||
Corporate bonds |
896 | (1 | ) | | | 896 | (1 | ) | ||||||||||||||||
Preferred stocks |
49 | (1 | ) | 35,205 | (2,219 | ) | 35,254 | (2,220 | ) | |||||||||||||||
Common stocks |
(17 | ) | (136 | ) | 136,483 | (91,457 | ) | 136,466 | (91,593 | ) | ||||||||||||||
Mutual funds: |
||||||||||||||||||||||||
Equity |
| | 20,298 | (2,936 | ) | 20,298 | (2,936 | ) | ||||||||||||||||
Fixed income |
3,575 | (3 | ) | 4,550 | (764 | ) | 8,125 | (767 | ) | |||||||||||||||
Insurance contracts
and other long-term
investments |
| | | (98 | ) | | (98 | ) | ||||||||||||||||
Total |
$ | 4,503 | $ | (141 | ) | $ | 196,557 | $ | (97,475 | ) | $ | 201,060 | $ | (97,616 | ) | |||||||||
The unrealized losses in the preneed funeral merchandise and services trust portfolio are
not considered to be other than temporary. For each of these securities, the Company evaluates
consensus analyst recommendations, ratings from established ratings agencies, concerns specific to
the issuer of the securities and overall market performance. Of the total unrealized losses at
January 31, 2011, 94 percent, or $82,625, were generated by common stock investments. Most of the
common stock investments are part of the S&P 500 Index. The Company generally expects its
portfolio performance to improve if the performance of the overall financial market improves, but
would also expect its performance to deteriorate if the overall financial market declines. The
Company believes that it has sufficient liquidity from cash and cash equivalents within the trusts,
cash deposits of future preneed sales and cash received from ordinary income to fund future
services and allow the Company to hold these investments until they recover in value.
The Companys policy for recognizing trust income follows the allocation of trust earnings to
individual contracts as stipulated in the Companys respective trust agreements for distributable
income. In substantially all of the Companys trusts, trust earnings which include dividends and
interest earned and net capital gains and losses
realized by preneed funeral trust or escrow accounts net of fees are allocated to individual
contracts when earned or
15
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(3) Preneed Funeral Activities(Continued)
realized. In these trusts, unrealized gains and losses are not allocated
to individual contracts. The trust earnings allocated to individual contracts are recognized as
components of revenue along with the original contract sales price when the underlying service or
merchandise is actually delivered. Principal and earnings are withdrawn only as the merchandise or
services are delivered or contracts are cancelled, except in jurisdictions that permit trust
earnings to be withdrawn currently.
Cash flows from preneed funeral contracts are presented as operating cash flows in the
Companys condensed consolidated statements of cash flows.
(4) Preneed Cemetery Merchandise and Service Activities
Preneed Cemetery Receivables and Trust Investments
Preneed cemetery receivables and trust investments represent trust assets and customer
receivables for contracts sold in advance of when the merchandise or services are needed. The
receivables related to the sale of preneed property interment rights are included in the Companys
current and long-term receivables. The components of preneed cemetery receivables and trust
investments in the condensed consolidated balance sheets as of January 31, 2011 and October 31,
2010 are as follows:
January 31, | October 31, | |||||||
2011 | 2010 | |||||||
Trust assets |
$ | 190,880 | $ | 182,789 | ||||
Receivables from customers |
30,570 | 31,656 | ||||||
221,450 | 214,445 | |||||||
Allowance for cancellations |
(4,419 | ) | (4,695 | ) | ||||
Preneed cemetery receivables and trust investments |
$ | 217,031 | $ | 209,750 | ||||
The cost basis and market values associated with the preneed cemetery merchandise and services
trust assets as of January 31, 2011 are detailed below.
January 31, 2011 | ||||||||||||||||||||
Unrealized | Unrealized | |||||||||||||||||||
Cost Basis | Gains | Losses | Market | |||||||||||||||||
Cash, money market and other
short-term investments |
$ | 9,119 | $ | | $ | | $ | 9,119 | ||||||||||||
U.S. Government, agencies and
municipalities |
854 | 26 | (3 | ) | 877 | |||||||||||||||
Corporate bonds |
3,980 | 331 | (1 | ) | 4,310 | |||||||||||||||
Preferred stocks |
20,094 | 141 | (1,299 | ) | 18,936 | |||||||||||||||
Common stocks |
120,753 | 2,203 | (40,633 | ) | 82,323 | |||||||||||||||
Mutual funds: |
||||||||||||||||||||
Equity |
29,306 | 251 | (5,453 | ) | 24,104 | |||||||||||||||
Fixed income |
29,865 | 423 | (16 | ) | 30,272 | |||||||||||||||
Commodity |
14,100 | 623 | | 14,723 | ||||||||||||||||
Real estate investment trusts |
4,894 | 151 | | 5,045 | ||||||||||||||||
Other long-term investments |
612 | | | 612 | ||||||||||||||||
Trust investments |
$ | 233,577 | $ | 4,149 | $ | (47,405 | ) | $ | 190,321 | |||||||||||
Market value as a percentage of cost |
81.5 | % | ||||||||||||||||||
Accrued investment income |
559 | |||||||||||||||||||
Trust assets |
$ | 190,880 | ||||||||||||||||||
16
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(4) Preneed Cemetery Merchandise and Service Activities(Continued)
The cost basis and market values associated with the preneed cemetery merchandise and services
trust assets as of October 31, 2010 are detailed below.
October 31, 2010 | ||||||||||||||||||||
Unrealized | Unrealized | |||||||||||||||||||
Cost Basis | Gains | Losses | Market | |||||||||||||||||
Cash, money market and other
short-term investments |
$ | 12,719 | $ | | $ | | $ | 12,719 | ||||||||||||
U.S. Government, agencies and
municipalities |
5,655 | 667 | (2 | ) | 6,320 | |||||||||||||||
Corporate bonds |
11,790 | 950 | (13 | ) | 12,727 | |||||||||||||||
Preferred stocks |
20,132 | 139 | (1,182 | ) | 19,089 | |||||||||||||||
Common stocks |
122,529 | 1,223 | (45,792 | ) | 77,960 | |||||||||||||||
Mutual funds: |
||||||||||||||||||||
Equity |
30,291 | 50 | (6,978 | ) | 23,363 | |||||||||||||||
Fixed income |
21,405 | 660 | (6 | ) | 22,059 | |||||||||||||||
Commodity |
6,521 | 966 | | 7,487 | ||||||||||||||||
Other long-term investments |
592 | 3 | | 595 | ||||||||||||||||
Trust investments |
$ | 231,634 | $ | 4,658 | $ | (53,973 | ) | $ | 182,319 | |||||||||||
Market value as a percentage of cost |
78.7 | % | ||||||||||||||||||
Accrued investment income |
470 | |||||||||||||||||||
Trust assets |
$ | 182,789 | ||||||||||||||||||
The estimated maturities and market values of debt securities included above are as follows:
January 31, 2011 | ||||
Due in one year or less |
$ | 1,513 | ||
Due in one to five years |
2,305 | |||
Due in five to ten years |
1,268 | |||
Thereafter |
101 | |||
$ | 5,187 | |||
The Company is actively managing a covered call program on its equity securities within the
cemetery merchandise and services trust in order to provide an opportunity for additional income.
As of January 31, 2011 and October 31, 2010, the Company had outstanding covered calls with a
market value of $176 and $128, respectively. These covered calls are included at market value in
the balance sheet line preneed cemetery receivables and trust investments. For the three months
ended January 31, 2011 and 2010, the Company realized trust losses of approximately ($90) and
($187), respectively, related to the covered call program. These trust losses are accounted for in
the same manner as other cemetery merchandise and services trust earnings and losses and flow
through cemetery revenue in the statements of earnings. Although the Company realized losses
associated with the covered call program for the three months ended January 31, 2011 and 2010, it
continues to hold the underlying securities against which these covered calls were issued. For the
three months ended January 31, 2011 and 2010, these underlying securities appreciated in value by
$420 and $2,409, respectively, during the periods that the covered calls were outstanding.
Where quoted prices are available in an active market, investments held by the trusts are
classified as Level 1 investments pursuant to the three-level valuation hierarchy. The Companys
Level 1 investments include cash, money market and other short-term investments, common stock and
mutual funds.
17
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(4) Preneed Cemetery Merchandise and Service Activities(Continued)
Where quoted market prices are not available for the specific security, then fair values are
estimated by using quoted prices of securities with similar characteristics. These investments are
U. S. Government, agencies and municipalities, corporate bonds, convertible bonds and preferred
stocks, all of which are classified within Level 2 of the valuation hierarchy.
There are no Level 3 investments in the preneed cemetery merchandise and services trust
investment portfolio.
The inputs into the fair value of the Companys preneed cemetery merchandise and services
trust investments are categorized as follows:
Quoted Market | ||||||||||||||||
Prices in Active | Significant Other | Significant | ||||||||||||||
Markets | Observable Inputs | Unobservable Inputs | Fair Market | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | Value | |||||||||||||
Trust investmentsJanuary 31, 2011 |
$ | 166,054 | $ | 24,267 | $ | | $ | 190,321 | ||||||||
Trust investmentsOctober 31, 2010 |
$ | 144,048 | $ | 38,271 | $ | | $ | 182,319 |
Activity related to preneed cemetery merchandise and services trust investments is as follows:
Three Months Ended January 31, | ||||||||
2011 | 2010 | |||||||
Purchases |
$ | 31,872 | $ | 2,046 | ||||
Sales |
28,384 | 2,320 | ||||||
Realized gains from sales of investments |
2,251 | 423 | ||||||
Realized losses from sales of investments and other |
(340 | ) | (881 | ) | ||||
Interest income, dividends and other ordinary income |
1,798 | 1,152 | ||||||
Deposits |
3,701 | 5,693 | ||||||
Withdrawals |
4,607 | 4,404 |
18
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(4) Preneed Cemetery Merchandise and Service Activities(Continued)
The following tables show the gross unrealized losses and fair value of the preneed cemetery
merchandise and services trust investments aggregated by investment category and length of time
that individual securities have been in a continuous unrealized loss position as of January 31,
2011 and October 31, 2010.
January 31, 2011 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Market | Unrealized | Market | Unrealized | Market | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
U.S. Government
agencies and
municipalities |
$ | 111 | $ | (2 | ) | $ | 16 | $ | (1 | ) | $ | 127 | $ | (3 | ) | |||||||||
Corporate bonds |
819 | (1 | ) | | | 819 | (1 | ) | ||||||||||||||||
Preferred stocks |
| | 13,989 | (1,299 | ) | 13,989 | (1,299 | ) | ||||||||||||||||
Common stocks |
1,609 | (121 | ) | 61,944 | (40,512 | ) | 63,553 | (40,633 | ) | |||||||||||||||
Mutual funds: |
||||||||||||||||||||||||
Equity |
| | 20,848 | (5,453 | ) | 20,848 | (5,453 | ) | ||||||||||||||||
Fixed income |
4,279 | (16 | ) | | | 4,279 | (16 | ) | ||||||||||||||||
Total |
$ | 6,818 | $ | (140 | ) | $ | 96,797 | $ | (47,265 | ) | $ | 103,615 | $ | (47,405 | ) | |||||||||
October 31, 2010 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Market | Unrealized | Market | Unrealized | Market | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
U.S.
Government,
agencies and
municipalities |
$ | 517 | $ | (2 | ) | $ | | $ | | $ | 517 | $ | (2 | ) | ||||||||||
Corporate bonds |
627 | (6 | ) | 493 | (7 | ) | 1,120 | (13 | ) | |||||||||||||||
Preferred stocks |
| | 15,206 | (1,182 | ) | 15,206 | (1,182 | ) | ||||||||||||||||
Common stocks |
1,957 | (139 | ) | 66,544 | (45,653 | ) | 68,501 | (45,792 | ) | |||||||||||||||
Mutual funds: |
||||||||||||||||||||||||
Equity |
| | 22,582 | (6,978 | ) | 22,582 | (6,978 | ) | ||||||||||||||||
Fixed income |
2,677 | (3 | ) | 16 | (3 | ) | 2,693 | (6 | ) | |||||||||||||||
Total |
$ | 5,778 | $ | (150 | ) | $ | 104,841 | $ | (53,823 | ) | $ | 110,619 | $ | (53,973 | ) | |||||||||
The unrealized losses in the preneed cemetery merchandise and services trust portfolio
are not considered to be other than temporary. For each of these securities, the Company evaluates
consensus analyst recommendations, ratings from established ratings agencies, concerns specific to
the issuer of the securities and overall market performance. Of the total unrealized losses at
January 31, 2011, 97 percent, or $46,086, were generated by common stock and mutual fund-equity
investments. Most of the common stock investments are part of the S&P 500 Index, and the mutual
fund-equity investments are invested in small-cap, mid-cap and international mutual funds that are
highly diversified. The Company generally expects its portfolio performance to improve if the
performance of the overall financial market improves, but would also expect its performance to
deteriorate if the overall financial market declines. The Company believes that it has sufficient
liquidity from cash and cash equivalents within the trusts, cash deposits of future preneed sales
and cash received from ordinary income to fund future services and allow the Company to hold these
investments until they recover in value.
The Companys policy for recognizing trust income follows the allocation of trust earnings to
individual contracts as stipulated in the Companys respective trust agreements for distributable
income. In substantially all of the Companys trusts, trust earnings which include dividends and
interest earned and net capital gains and losses realized by preneed cemetery trust or escrow
accounts net of fees are allocated to individual contracts when earned or realized. In these
trusts, unrealized gains and losses are not allocated to individual contracts. The trust earnings
allocated to individual contracts are recognized as components of revenue along with the original
sales price when the underlying service or merchandise is actually delivered. Principal and
earnings are withdrawn only as the
19
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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(4) Preneed Cemetery Merchandise and Service Activities(Continued)
merchandise or services are delivered or contracts are cancelled, except in jurisdictions that
permit trust earnings to be withdrawn currently.
Cash flows from preneed cemetery merchandise and services contracts are presented as operating
cash flows in the Companys condensed consolidated statements of cash flows.
(5) Cemetery Interment Rights and Perpetual Care Trusts
Earnings from cemetery perpetual care trust investments that the Company is legally permitted
to withdraw are recognized in current cemetery revenues and are used to defray cemetery maintenance
costs which are expensed as incurred. Recognized earnings related to these cemetery perpetual care
trust investments were $2,310 and $2,473 for the three months ended January 31, 2011 and 2010,
respectively.
The cost basis and market values of the trust investments held by the cemetery perpetual care
trusts as of January 31, 2011 are detailed below.
January 31, 2011 | ||||||||||||||||||||
Cost Basis | Unrealized Gains |
Unrealized Losses |
Market | |||||||||||||||||
Cash, money market and other
short-term investments |
$ | 10,722 | $ | | $ | | $ | 10,722 | ||||||||||||
U.S. Government, agencies and
municipalities |
6,271 | 166 | (136 | ) | 6,301 | |||||||||||||||
Corporate bonds |
33,061 | 997 | (891 | ) | 33,167 | |||||||||||||||
Preferred stocks |
49,493 | 167 | (6,938 | ) | 42,722 | |||||||||||||||
Common stocks |
90,270 | 1,255 | (32,303 | ) | 59,222 | |||||||||||||||
Mutual funds: |
||||||||||||||||||||
Equity |
8,592 | 218 | (470 | ) | 8,340 | |||||||||||||||
Fixed income |
74,445 | 589 | (1,806 | ) | 73,228 | |||||||||||||||
Other long-term investments |
285 | | (79 | ) | 206 | |||||||||||||||
Trust investments |
$ | 273,139 | $ | 3,392 | $ | (42,623 | ) | $ | 233,908 | |||||||||||
Market value as a percentage of cost |
85.6 | % | ||||||||||||||||||
Accrued investment income |
722 | |||||||||||||||||||
Trust assets |
$ | 234,630 | ||||||||||||||||||
20
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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(5) Cemetery Interment Rights and Perpetual Care Trusts(Continued)
The cost basis and market values of the trust investments held by the cemetery perpetual care
trusts as of October 31, 2010 are detailed below.
October 31, 2010 | ||||||||||||||||||||
Cost Basis | Unrealized Gains | Unrealized Losses | Market | |||||||||||||||||
Cash, money market and other
short-term investments |
$ | 32,403 | $ | | $ | | $ | 32,403 | ||||||||||||
U.S. Government, agencies and
municipalities |
8,006 | 196 | (54 | ) | 8,148 | |||||||||||||||
Corporate bonds |
31,086 | 1,334 | (825 | ) | 31,595 | |||||||||||||||
Preferred stocks |
56,807 | 257 | (6,376 | ) | 50,688 | |||||||||||||||
Common stocks |
90,284 | 1,042 | (36,496 | ) | 54,830 | |||||||||||||||
Mutual funds: |
||||||||||||||||||||
Equity |
5,783 | 49 | (662 | ) | 5,170 | |||||||||||||||
Fixed income |
46,646 | 878 | (304 | ) | 47,220 | |||||||||||||||
Other long-term investments |
401 | 2 | (79 | ) | 324 | |||||||||||||||
Trust investments |
$ | 271,416 | $ | 3,758 | $ | (44,796 | ) | $ | 230,378 | |||||||||||
Market value as a percentage of cost |
84.9 | % | ||||||||||||||||||
Accrued investment income |
630 | |||||||||||||||||||
Trust assets |
$ | 231,008 | ||||||||||||||||||
The estimated maturities and market values of debt securities included above are as follows:
January 31, 2011 | ||||
Due in one year or less |
$ | 6,715 | ||
Due in one to five years |
17,846 | |||
Due in five to ten years |
10,429 | |||
Thereafter |
4,478 | |||
$ | 39,468 | |||
The Company is actively managing a covered call program on its equity securities within the
cemetery perpetual care trust in order to provide an opportunity for additional income. As of
January 31, 2011 and October 31, 2010, the Company had outstanding covered calls with a market
value of $114 and $111, respectively. These covered calls are included at market value in the
balance sheet line cemetery perpetual care trust investments. For the three months ended January
31, 2011 and 2010, the Company realized trust losses of approximately ($85) and ($165),
respectively, related to the covered call program. These trust losses are accounted for in the
same manner as other cemetery perpetual care trust earnings and losses and flow through cemetery
revenue in the statements of earnings. Although the Company realized losses associated with the
covered call program for the three months
ended January 31, 2011 and 2010, it continues to hold the underlying securities against which these
covered calls were issued. For the three months ended January 31, 2011 and 2010, these underlying
securities appreciated in value by $468 and $1,599, respectively, during the periods that the
covered calls were outstanding.
Where quoted prices are available in an active market, investments held by the trusts are
classified as Level 1 investments pursuant to the three-level valuation hierarchy. The Companys
Level 1 investments include cash, money market and other short-term investments, common stock and
mutual funds.
21
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(5) Cemetery Interment Rights and Perpetual Care Trusts(Continued)
Where quoted market prices are not available for the specific security, then fair values are
estimated by using quoted prices of securities with similar characteristics. These investments are
primarily U. S. Government, agencies and municipalities, corporate bonds, convertible bonds and
preferred stocks, all of which are classified within Level 2 of the valuation hierarchy.
The Companys Level 3 investments include an investment in a partnership. The valuation of
partnership investments requires significant management judgment due to the absence of quoted
prices, inherent lack of liquidity and the long-term nature of such assets. The fair market value
of the partnership investment was determined by using its most recent audited financial statements
and assessing the market value of the underlying securities within the partnership.
The inputs into the fair value of the Companys cemetery perpetual care trust investments are
categorized as follows:
Quoted Market | ||||||||||||||||
Prices in Active | Significant Other | Significant | ||||||||||||||
Markets | Observable Inputs | Unobservable Inputs | Fair Market | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | Value | |||||||||||||
Trust investmentsJanuary 31, 2011 |
$ | 151,612 | $ | 82,190 | $ | 106 | $ | 233,908 | ||||||||
Trust investmentsOctober 31, 2010 |
$ | 139,774 | $ | 90,431 | $ | 173 | $ | 230,378 |
The change in the Companys cemetery perpetual care trust investments with significant
unobservable inputs (Level 3) is as follows:
Three Months Ended January 31, | ||||||||
2011 | 2010 | |||||||
Fair market value, beginning balance |
$ | 173 | $ | 226 | ||||
Other |
(67 | ) | (58 | ) | ||||
Fair market value, ending balance |
$ | 106 | $ | 168 | ||||
In states where the Company withdraws and recognizes capital gains in its cemetery perpetual
care trusts, if it realizes net capital losses (i.e., losses in excess of capital gains in the
trust) and the fair market value of the trust assets is less than the aggregate amounts required to
be contributed to the trust, some states may require the Company to make cash deposits to the
trusts or may require the Company to stop withdrawing earnings until future earnings restore the
initial corpus. As of January 31, 2011 and October 31, 2010, the Company had a liability recorded
for the estimated probable funding obligation to restore the net realized losses of $13,116 and
$13,253, respectively. The Company recorded an additional $73 for the estimated probable funding
obligation for the quarter ended
January 31, 2011. The Company had earnings of $210 for the three months
ended January 31, 2011 within the trusts that it did not withdraw in order to satisfy a portion of
its estimated probable funding obligation. In those states where realized net capital gains have
not been withdrawn, the Company believes it is reasonably possible but not probable that additional
funding obligations may exist with an estimated amount of $2,369; no charge has been recorded for
these amounts as of January 31, 2011.
22
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(5) Cemetery Interment Rights and Perpetual Care Trusts(Continued)
Activity related to preneed cemetery perpetual care trust investments is as follows:
Three Months Ended | ||||||||
January 31, | ||||||||
2011 | 2010 | |||||||
Purchases |
$ | 40,955 | $ | 16,172 | ||||
Sales |
17,865 | 28,885 | ||||||
Realized gains from sales of investments |
516 | 2,025 | ||||||
Realized losses from sales of investments and other |
(164 | ) | (550 | ) | ||||
Interest income, dividends and other ordinary income |
2,905 | 2,161 | ||||||
Deposits |
1,530 | 1,838 | ||||||
Withdrawals |
2,221 | 888 |
During the three months ended January 31, 2011 and 2010, cemetery revenues were $55,398 and
$52,292, respectively, of which $1,979 and $2,334, respectively, were required to be placed into
perpetual care trusts and were recorded as revenues and expenses.
The following tables show the gross unrealized losses and fair value of the cemetery perpetual
care trust investments with unrealized losses aggregated by investment category and length of time
that individual securities have been in a continuous unrealized loss position as of January 31,
2011 and October 31, 2010.
January 31, 2011 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Market | Unrealized | Market | Unrealized | Market | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
U.S. Government,
agencies and
municipalities |
$ | 3,119 | $ | (82 | ) | $ | 88 | $ | (54 | ) | $ | 3,207 | $ | (136 | ) | |||||||||
Corporate bonds |
8,499 | (147 | ) | 1,419 | (744 | ) | 9,918 | (891 | ) | |||||||||||||||
Preferred stocks |
| | 32,195 | (6,938 | ) | 32,195 | (6,938 | ) | ||||||||||||||||
Common stocks |
3 | (47 | ) | 55,196 | (32,256 | ) | 55,199 | (32,303 | ) | |||||||||||||||
Mutual funds: |
||||||||||||||||||||||||
Equity |
2,806 | (22 | ) | 2,441 | (448 | ) | 5,247 | (470 | ) | |||||||||||||||
Fixed income |
31,056 | (1,531 | ) | 965 | (275 | ) | 32,021 | (1,806 | ) | |||||||||||||||
Other long-term investments |
| | 88 | (79 | ) | 88 | (79 | ) | ||||||||||||||||
Total |
$ | 45,483 | $ | (1,829 | ) | $ | 92,392 | $ | (40,794 | ) | $ | 137,875 | $ | (42,623 | ) | |||||||||
October 31, 2010 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Market | Unrealized | Market | Unrealized | Market | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
U.S. Government,
agencies and
municipalities |
$ | 269 | $ | (1 | ) | $ | 105 | $ | (53 | ) | $ | 374 | $ | (54 | ) | |||||||||
Corporate bonds |
2,786 | (15 | ) | 682 | (810 | ) | 3,468 | (825 | ) | |||||||||||||||
Preferred stocks |
| | 32,747 | (6,376 | ) | 32,747 | (6,376 | ) | ||||||||||||||||
Common stocks |
717 | (161 | ) | 51,334 | (36,335 | ) | 52,051 | (36,496 | ) | |||||||||||||||
Mutual funds: |
||||||||||||||||||||||||
Equity |
| | 4,674 | (662 | ) | 4,674 | (662 | ) | ||||||||||||||||
Fixed income |
14,850 | (15 | ) | 1,076 | (289 | ) | 15,926 | (304 | ) | |||||||||||||||
Other long-term investments |
| | 88 | (79 | ) | 88 | (79 | ) | ||||||||||||||||
Total |
$ | 18,622 | $ | (192 | ) | $ | 90,706 | $ | (44,604 | ) | $ | 109,328 | $ | (44,796 | ) | |||||||||
The unrealized losses in the cemetery perpetual care trust portfolio are not considered
to be other than temporary. For each of these securities, the Company evaluates consensus analyst
recommendations, ratings from established ratings agencies, concerns specific to the issuer of the
securities and overall market performance. Of the total unrealized losses at January 31, 2010, 92
percent, or $39,241, were generated by common stock and preferred stock investments. Most of the
common stock investments are part of the S&P 500 Index, and all preferred stocks
23
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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(5) Cemetery Interment Rights and Perpetual Care Trusts(Continued)
had a rating of investment grade at the time of purchase. The Company generally expects its
portfolio performance to improve if the performance of the overall financial market improves, but
would also expect its performance to deteriorate if the overall financial market declines. The
Company believes that it has sufficient liquidity from cash and cash equivalents within the trusts,
cash deposits of future preneed sales and cash received from ordinary income to fund future
services and allow the Company to hold these investments until they recover in value.
Cash flows from cemetery perpetual care contracts are presented as operating cash flows in the
Companys condensed consolidated statements of cash flows.
(6) Deferred Preneed Funeral and Cemetery Receipts Held in Trust and Perpetual Care Trusts
Corpus
The components of deferred preneed funeral and cemetery receipts held in trust in the
condensed consolidated balance sheet at January 31, 2011 are as follows:
Deferred Receipts Held in Trust | ||||||||||||
Preneed | Preneed | |||||||||||
Funeral | Cemetery | Total | ||||||||||
Trust assets at market value |
$ | 393,093 | $ | 190,880 | $ | 583,973 | ||||||
Less: |
||||||||||||
Pending withdrawals |
(8,802 | ) | (4,796 | ) | (13,598 | ) | ||||||
Pending deposits |
1,563 | 1,018 | 2,581 | |||||||||
Deferred receipts held in trust |
$ | 385,854 | $ | 187,102 | $ | 572,956 | ||||||
The components of perpetual care trusts corpus in the condensed consolidated balance sheet at
January 31, 2011 are as follows:
Perpetual Care | ||||
Trusts Corpus | ||||
Trust assets at market value |
$ | 234,630 | ||
Less: |
||||
Pending withdrawals |
(1,552 | ) | ||
Pending deposits |
316 | |||
Perpetual care trusts corpus |
$ | 233,394 | ||
24
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(6) Deferred Preneed Funeral and Cemetery Receipts Held in Trust and Perpetual Care Trusts
Corpus(Continued)
Investment and other income, net
The components of investment and other income, net in the condensed consolidated statements of
earnings for the three months ended January 31, 2011 and 2010 are detailed below.
Three Months Ended January 31, | ||||||||
2011 | 2010 | |||||||
Realized gains from sales of investments |
$ | 5,585 | $ | 3,076 | ||||
Realized losses from sales of investments and other |
(603 | ) | (1,947 | ) | ||||
Interest income, dividends and other ordinary income |
8,039 | 5,659 | ||||||
Trust expenses and income taxes |
(2,496 | ) | (2,538 | ) | ||||
Net trust investment income |
10,525 | 4,250 | ||||||
Reclassification to deferred preneed funeral and
cemetery receipts held in trust |
(8,098 | ) | (1,350 | ) | ||||
Reclassification to perpetual care trusts corpus |
(2,427 | ) | (2,900 | ) | ||||
Total deferred preneed funeral and cemetery receipts
held in trust and perpetual care trusts corpus |
| | ||||||
Investment and other income, net (1) |
24 | 24 | ||||||
Total investment and other income, net |
$ | 24 | $ | 24 | ||||
(1) | Investment and other income, net consists of interest income primarily on the Companys cash, cash equivalents and marketable securities not held in trust. |
(7) Commitments and Contingencies
Litigation
The Company has been unable to finalize its negotiations with its insurance carriers related
to property damage and extra expenses, and business interruption damages, related to Hurricane
Katrina, and as a result filed suit against the carriers in August 2007. In 2007, the carriers
advanced an additional $1,100, which the Company has not recorded as income but as a liability
pending the outcome of the litigation. The suit involves numerous policy interpretation disputes,
among other issues, and no assurance can be given as to how much additional proceeds, if any, the
Company may recover from its insurers or the timing of the receipt of any additional proceeds.
The Company is a defendant in a variety of litigation matters that have arisen in the ordinary
course of business, which are covered by insurance or otherwise not considered to be material. The
Company carries insurance with coverages and coverage limits that it believes to be adequate.
Other Commitments and Contingencies
In those states where the Company has withdrawn realized net capital gains in the past from
its cemetery perpetual care trusts, regulators may seek replenishment of the realized net capital
losses either by requiring a cash deposit to the trust or by prohibiting or restricting withdrawals
of future earnings until they cover the loss. As of January 31, 2011, the Company had $13,116
recorded as a liability for an estimated probable funding obligation. As of January 31, 2011, the
Company had net unrealized losses of approximately $34,192 in the cemetery perpetual care trusts in
these states. Because some of these trusts currently have assets with a fair market value less
than the aggregate amounts required to be contributed to the trust, any additional realized net
capital losses in these trusts may result in an additional corresponding funding liability and
increase in cemetery costs.
25
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(7) Commitments and Contingencies(Continued)
From time to time, unidentified contracts are presented to the Company relating to contracts
sold prior to the time the Company acquired certain businesses. In addition, from time to time,
the Company has identified in its backlog, certain contracts in which services or merchandise have
previously been delivered. Using historical trends and statistical analysis, the Company has
recorded an estimated net liability for these items of approximately $3.0 million as of January 31,
2011 and October 31, 2010.
The Company is required to maintain a bond ($24,815 as of January 31, 2011) to guarantee its
obligations relating to funds the Company withdrew in fiscal year 2001 from its preneed funeral
trusts in Florida. This amount would become senior secured debt if the Company was required to
borrow funds under the senior secured revolving credit facility and return to the trusts the
amounts it previously withdrew that relate to the remaining undelivered preneed contracts in lieu
of this bond.
(8) Reconciliation of Basic and Diluted Per Share Data
Earnings | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Data | ||||||||||
Three Months Ended January 31, 2011 |
||||||||||||
Earnings from continuing operations |
$ | 8,044 | ||||||||||
Allocation of earnings to nonvested restricted stock |
(85 | ) | ||||||||||
Basic earnings per common share: |
||||||||||||
Earnings from continuing operations available to
common shareholders |
$ | 7,959 | 90,867 | $ | .09 | |||||||
Effect of dilutive securities: |
||||||||||||
Stock options assumed exercised |
310 | |||||||||||
Diluted earnings per common share: |
||||||||||||
Earnings from continuing operations available to
common shareholders plus stock options assumed
exercised |
$ | 7,959 | 91,177 | $ | .09 | |||||||
Earnings | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Data | ||||||||||
Three Months Ended January 31, 2010 |
||||||||||||
Earnings from continuing operations |
$ | 7,461 | ||||||||||
Allocation of earnings to nonvested restricted stock |
(83 | ) | ||||||||||
Basic earnings per common share: |
||||||||||||
Earnings from continuing operations available to
common shareholders |
$ | 7,378 | 92,053 | $ | .08 | |||||||
Effect of dilutive securities: |
||||||||||||
Stock options assumed exercised |
181 | |||||||||||
Diluted earnings per common share: |
||||||||||||
Earnings from continuing operations available to
common shareholders plus stock options assumed
exercised |
$ | 7,378 | 92,234 | $ | .08 | |||||||
During the three months ended January 31, 2011, options to purchase 1,834,102 shares of
common stock at prices ranging from $6.22 to $8.47 per share were outstanding but were not included
in the computation of diluted earnings per share because the exercise prices of the options
were greater than the average market price of the common shares for that period. Additionally,
weighted-average shares outstanding for the three months ended
26
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(8) Reconciliation of Basic and Diluted Per Share Data(Continued)
January 31, 2011 exclude the effect of approximately 2,500 options because such options were not
dilutive. These options expire between December 20, 2011 and January 31, 2018.
Options to purchase 2,074,986 shares of common stock at prices ranging from $5.04 to $8.47 per
share for the three months ended January 31, 2010, were outstanding but were not included in the
computation of diluted earnings per share because the exercise prices of the options were greater
than the average market price of the common shares for those periods.
For the three months ended January 31, 2011, all of the outstanding 214,500 market based stock
options were dilutive as the respective market conditions had been previously achieved. For the
three months ended January 31, 2010, 438,000 market based stock options were not dilutive. The
market based stock options were not dilutive because the market conditions required for vesting for
the respective grants were not achieved during that period.
For the three months ended January 31, 2011, a maximum of 13,153,500 shares of the Companys
Class A common stock related to the senior convertible notes and a maximum of 10,522,798 shares of
Class A common stock under the common stock warrants associated with the June 2007 senior
convertible debt transaction were not dilutive, as the average price of the Companys stock for the
three months ended January 31, 2011 was less than the conversion price of the senior convertible
notes and strike price of the warrants. For the three months ended January 31, 2010, a maximum of
16,640,100 shares of the Companys Class A common stock related to the senior convertible notes and
a maximum of 13,312,080 shares of Class A common stock under the associated common stock warrants
were also not dilutive.
The Company includes Class A and Class B common stock in its diluted shares calculation. As
of January 31, 2011, the Companys Chairman, Frank B. Stewart, Jr., was the record holder of all of
the Companys shares of Class B common stock. The Companys Class A and B common stock are
substantially identical, except that holders of Class A common stock are entitled to one vote per
share, and holders of Class B common stock are entitled to ten votes per share. Each share of
Class B common stock is automatically converted into one share of Class A common stock upon
transfer to persons other than certain affiliates of Frank B. Stewart, Jr.
(9) Segment Data
The Company has determined that managements approach to operating the business indicates that
there are three operating and reportable segments: a funeral segment, a cemetery segment and a
corporate trust management segment. The Company does not aggregate its operating segments.
Therefore, its operating and reportable segments are the same. The tables below present
information about reported segments for the three months ended January 31, 2011 and 2010 for the
Companys continuing operations only. Prior period data has been retrospectively adjusted to
conform to this presentation.
Total Revenue | ||||||||
Three Months | Three Months | |||||||
Ended | Ended | |||||||
January 31, 2011 | January 31, 2010 | |||||||
Funeral |
$ | 69,772 | $ | 67,642 | ||||
Cemetery(1) |
53,364 | 50,507 | ||||||
Corporate Trust Management(2) |
6,128 | 5,863 | ||||||
Total |
$ | 129,264 | $ | 124,012 | ||||
27
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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(9) Segment Data(Continued)
Total Gross Profit | ||||||||
Three Months | Three Months | |||||||
Ended | Ended | |||||||
January 31, 2011 | January 31, 2010 | |||||||
Funeral |
$ | 16,516 | $ | 15,422 | ||||
Cemetery(1) |
6,145 | 4,410 | ||||||
Corporate Trust Management(2) |
5,694 | 5,411 | ||||||
Total |
$ | 28,355 | $ | 25,243 | ||||
Net Total Preneed Merchandise and | ||||||||
Service Sales(3) | ||||||||
Three Months | Three Months | |||||||
Ended | Ended | |||||||
January 31, 2011 | January 31, 2010 | |||||||
Funeral |
$ | 19,446 | $ | 18,952 | ||||
Cemetery |
10,998 | 10,204 | ||||||
Total |
$ | 30,444 | $ | 29,156 | ||||
(1) | Perpetual care trust earnings are included in the revenues and gross profit of the cemetery segment and amounted to $2,310 and $2,473 for the three months ended January 31, 2011 and 2010, respectively. | |
(2) | Corporate trust management consists of trust management fees and funeral and cemetery merchandise and services trust earnings recognized with respect to preneed contracts delivered during the period. Trust management fees are established by the Company at rates consistent with industry norms based on the fair market value of the assets managed and are paid by the trusts to the Companys subsidiary, Investors Trust, Inc. The trust earnings represent the amount of distributable earnings as stipulated by the Companys respective trust agreements that are generated by the trusts over the life of the preneed contracts and allocated to those products and services delivered during the relevant periods. Trust management fees included in funeral revenue for the three months ended January 31, 2011 and 2010 were $1,190 and $1,115, respectively, and funeral trust earnings recognized with respect to preneed contracts delivered included in funeral revenue for the three months ended January 31, 2011 and 2010 were $2,905 and $2,963, respectively. Trust management fees included in cemetery revenue for the three months ended January 31, 2011 and 2010 were $1,300 and $1,189, respectively, and cemetery trust earnings recognized with respect to preneed contracts delivered included in cemetery revenue for the three months ended January 31, 2011 and 2010 were $733 and $596, respectively. | |
(3) | Preneed sales amounts represent total preneed funeral trust and insurance sales and cemetery service and merchandise trust sales generated in the applicable period, net of cancellations. |
28
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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(9) Segment Data(Continued)
A reconciliation of total segment gross profit to total earnings from continuing operations
before income taxes for the three months ended January 31, 2011 and 2010 is as follows:
Three Months Ended January 31, | ||||||||
2011 | 2010 | |||||||
Gross profit for reportable segments |
$ | 28,355 | $ | 25,243 | ||||
Corporate general and administrative expenses |
(6,639 | ) | (6,670 | ) | ||||
Hurricane related charges, net |
(50 | ) | | |||||
Other operating income, net |
233 | 179 | ||||||
Interest expense |
(5,736 | ) | (6,456 | ) | ||||
Gain on early extinguishment of debt |
| 17 | ||||||
Investment and other income, net |
24 | 24 | ||||||
Earnings from continuing operations before income taxes |
$ | 16,187 | $ | 12,337 | ||||
29
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(10) Supplementary Information
The detail of certain income statement accounts is as follows for the three months ended
January 31, 2011 and 2010.
Three Months Ended January 31, | ||||||||
2011 | 2010 | |||||||
Service revenue |
||||||||
Funeral |
$ | 49,634 | $ | 45,043 | ||||
Cemetery |
16,189 | 15,571 | ||||||
65,823 | 60,614 | |||||||
Merchandise revenue |
||||||||
Funeral |
22,417 | 25,038 | ||||||
Cemetery |
35,821 | 33,141 | ||||||
58,238 | 58,179 | |||||||
Other revenue |
||||||||
Funeral |
1,815 | 1,639 | ||||||
Cemetery |
3,388 | 3,580 | ||||||
5,203 | 5,219 | |||||||
Total revenue |
$ | 129,264 | $ | 124,012 | ||||
Service costs |
||||||||
Funeral |
$ | 15,561 | $ | 14,560 | ||||
Cemetery |
10,345 | 9,752 | ||||||
25,906 | 24,312 | |||||||
Merchandise costs |
||||||||
Funeral |
14,145 | 14,518 | ||||||
Cemetery |
22,655 | 22,203 | ||||||
36,800 | 36,721 | |||||||
Facility expenses |
||||||||
Funeral |
23,772 | 23,371 | ||||||
Cemetery |
14,431 | 14,365 | ||||||
38,203 | 37,736 | |||||||
Total costs |
$ | 100,909 | $ | 98,769 | ||||
Service revenue includes funeral service revenue, funeral trust earnings, insurance
commission revenue, burial site openings and closings and perpetual care trust earnings.
Merchandise revenue includes funeral merchandise revenue, flower sales, cemetery property sales
revenue, cemetery merchandise delivery revenue and merchandise trust earnings. Other revenue
consists of finance charge revenue and trust management fees. Service costs include the direct
costs associated with service revenue and preneed selling costs associated with preneed service
sales. Merchandise costs include the direct costs associated with merchandise revenue and preneed
selling costs associated with preneed merchandise sales.
30
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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior
Convertible Notes
The following tables present the condensed consolidating historical financial statements as of
January 31, 2011 and October 31, 2010 and for the three months ended January 31, 2011 and 2010, for
the direct and indirect domestic subsidiaries of the Company that serve as guarantors of the
Companys 6.25 percent senior notes and its 3.125 percent and 3.375 percent senior convertible
notes, and the financial results of the Companys subsidiaries that do not serve as guarantors.
Non-guarantor subsidiaries of the 6.25 percent senior notes include the Puerto Rican subsidiaries,
Investors Trust, Inc. and certain immaterial domestic subsidiaries, which are prohibited by law
from guaranteeing the senior notes. The guarantor subsidiaries of the 6.25 percent senior notes are
wholly-owned directly or indirectly by the Company, except for three immaterial guarantor
subsidiaries of which the Company is the majority owner. The non-guarantor subsidiaries of the
senior convertible notes are identical to those of the 6.25 percent senior notes but also include
three immaterial non-wholly owned subsidiaries and any future non-wholly owned subsidiaries. The
guarantees are full and unconditional and joint and several. In the statements presented within
this footnote, Tier 2 guarantor subsidiaries represent the three immaterial non-wholly owned
subsidiaries that do not guaranty the senior convertible notes but do guaranty the 6.25 percent
senior notes. Non-guarantor subsidiaries represent the identical non-guarantor subsidiaries of the
6.25 percent senior notes and senior convertible notes. In the condensed consolidating statements
of earnings and other comprehensive income, corporate general and administrative expenses and
interest expense of the parent are presented net of amounts charged to the guarantor and
non-guarantor subsidiaries.
Condensed Consolidating Statements of Earnings and Other Comprehensive Income
Three Months Ended January 31, 2011 | ||||||||||||||||||||||||
Guarantor | Guarantor | Non- | ||||||||||||||||||||||
Subsidiaries- | Subsidiaries- | Guarantor | ||||||||||||||||||||||
Parent | Tier 1 | Tier 2 | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Revenues: |
||||||||||||||||||||||||
Funeral |
$ | | $ | 68,699 | $ | 484 | $ | 4,683 | $ | | $ | 73,866 | ||||||||||||
Cemetery |
| 49,612 | 715 | 5,071 | | 55,398 | ||||||||||||||||||
| 118,311 | 1,199 | 9,754 | | 129,264 | |||||||||||||||||||
Costs and expenses: |
||||||||||||||||||||||||
Funeral |
| 50,090 | 293 | 3,095 | | 53,478 | ||||||||||||||||||
Cemetery |
| 42,980 | 591 | 3,860 | | 47,431 | ||||||||||||||||||
| 93,070 | 884 | 6,955 | | 100,909 | |||||||||||||||||||
Gross profit |
| 25,241 | 315 | 2,799 | | 28,355 | ||||||||||||||||||
Corporate general and
administrative expenses |
(6,639 | ) | | | | | (6,639 | ) | ||||||||||||||||
Hurricane related charges, net |
(50 | ) | | | | | (50 | ) | ||||||||||||||||
Other operating income, net |
18 | 161 | | 54 | | 233 | ||||||||||||||||||
Operating earnings (loss) |
(6,671 | ) | 25,402 | 315 | 2,853 | | 21,899 | |||||||||||||||||
Interest income (expense) |
(826 | ) | (4,465 | ) | 5 | (450 | ) | | (5,736 | ) | ||||||||||||||
Investment and other income, net |
24 | | | | | 24 | ||||||||||||||||||
Equity in subsidiaries |
11,592 | 170 | | | (11,762 | ) | | |||||||||||||||||
Earnings before income taxes |
4,119 | 21,107 | 320 | 2,403 | (11,762 | ) | 16,187 | |||||||||||||||||
Income tax expense (benefit) |
(3,925 | ) | 8,278 | 110 | 3,680 | | 8,143 | |||||||||||||||||
Net earnings (loss) |
8,044 | 12,829 | 210 | (1,277 | ) | (11,762 | ) | 8,044 | ||||||||||||||||
Other comprehensive loss, net |
(3 | ) | | | (3 | ) | 3 | (3 | ) | |||||||||||||||
Comprehensive income (loss) |
$ | 8,041 | $ | 12,829 | $ | 210 | $ | (1,280 | ) | $ | (11,759 | ) | $ | 8,041 | ||||||||||
31
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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(11) | Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes(Continued) |
Condensed Consolidating Statements of Earnings and Other Comprehensive Income
Three Months Ended January 31, 2010 | ||||||||||||||||||||||||
Guarantor | Guarantor | Non- | ||||||||||||||||||||||
Subsidiaries- | Subsidiaries- | Guarantor | ||||||||||||||||||||||
Parent | Tier 1 | Tier 2 | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Revenues: |
||||||||||||||||||||||||
Funeral |
$ | | $ | 66,844 | $ | 485 | $ | 4,391 | $ | | $ | 71,720 | ||||||||||||
Cemetery |
| 46,676 | 572 | 5,044 | | 52,292 | ||||||||||||||||||
| 113,520 | 1,057 | 9,435 | | 124,012 | |||||||||||||||||||
Costs and expenses: |
||||||||||||||||||||||||
Funeral |
| 48,989 | 263 | 3,197 | | 52,449 | ||||||||||||||||||
Cemetery |
| 41,573 | 620 | 4,127 | | 46,320 | ||||||||||||||||||
| 90,562 | 883 | 7,324 | | 98,769 | |||||||||||||||||||
Gross profit |
| 22,958 | 174 | 2,111 | | 25,243 | ||||||||||||||||||
Corporate general and administrative
expenses |
(6,670 | ) | | | | | (6,670 | ) | ||||||||||||||||
Hurricane related charges, net |
(54 | ) | | 54 | | | | |||||||||||||||||
Other operating income, net |
16 | 143 | | 20 | | 179 | ||||||||||||||||||
Operating earnings (loss) |
(6,708 | ) | 23,101 | 228 | 2,131 | | 18,752 | |||||||||||||||||
Interest expense |
(487 | ) | (5,478 | ) | (8 | ) | (483 | ) | | (6,456 | ) | |||||||||||||
Gain on early extinguishment of debt |
17 | | | | | 17 | ||||||||||||||||||
Investment and other income, net |
24 | | | | | 24 | ||||||||||||||||||
Equity in subsidiaries |
11,937 | 80 | | | (12,017 | ) | | |||||||||||||||||
Earnings from continuing operations
before income taxes |
4,783 | 17,703 | 220 | 1,648 | (12,017 | ) | 12,337 | |||||||||||||||||
Income tax expense (benefit) |
(2,704 | ) | 7,007 | 74 | 499 | | 4,876 | |||||||||||||||||
Earnings from continuing operations |
7,487 | 10,696 | 146 | 1,149 | (12,017 | ) | 7,461 | |||||||||||||||||
Discontinued operations: |
||||||||||||||||||||||||
Earnings from discontinued
operations before income taxes |
| 42 | | | | 42 | ||||||||||||||||||
Income taxes |
| 16 | | | | 16 | ||||||||||||||||||
Earnings from discontinued operations |
| 26 | | | | 26 | ||||||||||||||||||
Net earnings |
7,487 | 10,722 | 146 | 1,149 | (12,017 | ) | 7,487 | |||||||||||||||||
Other comprehensive loss, net |
(1 | ) | | | (1 | ) | 1 | (1 | ) | |||||||||||||||
Comprehensive income |
$ | 7,486 | $ | 10,722 | $ | 146 | $ | 1,148 | $ | (12,016 | ) | $ | 7,486 | |||||||||||
32
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(11) Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior
Convertible Notes(Continued)
Condensed Consolidating Balance Sheets
January 31, 2011 | ||||||||||||||||||||||||
Guarantor | Guarantor | Non-Guarantor | ||||||||||||||||||||||
Parent | Subsidiaries-Tier 1 | Subsidiaries-Tier 2 | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 57,033 | $ | 5,412 | $ | 61 | $ | 1,931 | $ | | $ | 64,437 | ||||||||||||
Receivables, net of allowances |
3,685 | 40,463 | 463 | 6,254 | | 50,865 | ||||||||||||||||||
Inventories |
319 | 32,756 | 326 | 2,218 | | 35,619 | ||||||||||||||||||
Prepaid expenses |
1,610 | 6,199 | 93 | 1,692 | | 9,594 | ||||||||||||||||||
Deferred income taxes, net |
13,366 | 11,136 | 26 | 2,694 | | 27,222 | ||||||||||||||||||
Intercompany receivables |
1,930 | | | | (1,930 | ) | | |||||||||||||||||
Total current assets |
77,943 | 95,966 | 969 | 14,789 | (1,930 | ) | 187,737 | |||||||||||||||||
Receivables due beyond one year, net of
allowances |
42 | 53,446 | 561 | 11,418 | | 65,467 | ||||||||||||||||||
Preneed funeral receivables and trust
investments |
| 414,167 | | 9,573 | | 423,740 | ||||||||||||||||||
Preneed cemetery receivables and trust
investments |
| 209,885 | 1,140 | 6,006 | | 217,031 | ||||||||||||||||||
Goodwill |
| 227,203 | 48 | 19,787 | | 247,038 | ||||||||||||||||||
Cemetery property, at cost |
| 350,192 | 11,121 | 25,695 | | 387,008 | ||||||||||||||||||
Property and equipment, at cost |
57,191 | 477,180 | 2,533 | 39,389 | | 576,293 | ||||||||||||||||||
Less accumulated depreciation |
42,022 | 229,315 | 1,231 | 16,820 | | 289,388 | ||||||||||||||||||
Net property and equipment |
15,169 | 247,865 | 1,302 | 22,569 | | 286,905 | ||||||||||||||||||
Deferred income taxes, net |
13,478 | 76,522 | | 6,702 | (2,684 | ) | 94,018 | |||||||||||||||||
Cemetery perpetual care trust investments |
| 221,768 | 8,931 | 3,931 | | 234,630 | ||||||||||||||||||
Non-current assets held for sale |
| 360 | | | | 360 | ||||||||||||||||||
Other assets |
5,672 | 4,850 | 7 | 1,025 | | 11,554 | ||||||||||||||||||
Intercompany receivables |
695,586 | | | | (695,586 | ) | | |||||||||||||||||
Equity in subsidiaries |
14,372 | 9,058 | | | (23,430 | ) | | |||||||||||||||||
Total assets |
$ | 822,262 | $ | 1,911,282 | $ | 24,079 | $ | 121,495 | $ | (723,630 | ) | $ | 2,155,488 | |||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Current maturities of long-term debt |
$ | 5 | $ | | $ | | $ | | $ | | $ | 5 | ||||||||||||
Accounts payable, accrued expenses and
other current liabilities |
15,150 | 64,838 | 146 | 5,491 | | 85,625 | ||||||||||||||||||
Intercompany payables |
| | | 1,930 | (1,930 | ) | | |||||||||||||||||
Total current liabilities |
15,155 | 64,838 | 146 | 7,421 | (1,930 | ) | 85,630 | |||||||||||||||||
Long-term debt, less current maturities |
314,951 | | | | | 314,951 | ||||||||||||||||||
Deferred income taxes |
| 4,487 | 3,260 | | (2,684 | ) | 5,063 | |||||||||||||||||
Intercompany payables |
| 680,499 | 1,926 | 13,161 | (695,586 | ) | | |||||||||||||||||
Deferred preneed funeral revenue |
| 196,028 | | 46,241 | | 242,269 | ||||||||||||||||||
Deferred preneed cemetery revenue |
| 227,601 | 494 | 28,673 | | 256,768 | ||||||||||||||||||
Deferred preneed funeral and cemetery
receipts held in trust |
| 564,955 | 1,057 | 6,944 | | 572,956 | ||||||||||||||||||
Perpetual care trusts corpus |
| 220,603 | 8,918 | 3,873 | | 233,394 | ||||||||||||||||||
Other long-term liabilities |
18,357 | 1,954 | | 30 | | 20,341 | ||||||||||||||||||
Negative equity in subsidiaries |
49,683 | | | | (49,683 | ) | | |||||||||||||||||
Total liabilities |
398,146 | 1,960,965 | 15,801 | 106,343 | (749,883 | ) | 1,731,372 | |||||||||||||||||
Common stock |
91,399 | 102 | 324 | 52 | (478 | ) | 91,399 | |||||||||||||||||
Other |
332,702 | (49,785 | ) | 7,954 | 15,085 | 26,746 | 332,702 | |||||||||||||||||
Accumulated other comprehensive income |
15 | | | 15 | (15 | ) | 15 | |||||||||||||||||
Total shareholders equity |
424,116 | (49,683 | ) | 8,278 | 15,152 | 26,253 | 424,116 | |||||||||||||||||
Total liabilities and shareholders equity |
$ | 822,262 | $ | 1,911,282 | $ | 24,079 | $ | 121,495 | $ | (723,630 | ) | $ | 2,155,488 | |||||||||||
33
Table of Contents
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(11) | Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes(Continued) |
Condensed Consolidating Balance Sheets
October 31, 2010 | ||||||||||||||||||||||||
Guarantor | Guarantor | Non- | ||||||||||||||||||||||
Subsidiaries- | Subsidiaries- | Guarantor | ||||||||||||||||||||||
Parent | Tier 1 | Tier 2 | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 48,270 | $ | 6,055 | $ | 58 | $ | 1,677 | $ | | $ | 56,060 | ||||||||||||
Certificates of deposit and marketable
securities |
10,000 | | | | | 10,000 | ||||||||||||||||||
Receivables, net of allowances |
3,685 | 40,717 | 372 | 6,396 | | 51,170 | ||||||||||||||||||
Inventories |
329 | 32,786 | 330 | 2,270 | | 35,715 | ||||||||||||||||||
Prepaid expenses |
1,292 | 2,590 | 60 | 1,538 | | 5,480 | ||||||||||||||||||
Deferred income taxes, net |
13,835 | 11,604 | 32 | 2,841 | | 28,312 | ||||||||||||||||||
Intercompany receivables |
7,782 | | | | (7,782 | ) | | |||||||||||||||||
Total current assets |
85,193 | 93,752 | 852 | 14,722 | (7,782 | ) | 186,737 | |||||||||||||||||
Receivables due beyond one year, net of
allowances |
1,973 | 53,683 | 572 | 11,230 | | 67,458 | ||||||||||||||||||
Preneed funeral receivables and trust
investments |
| 405,296 | | 9,622 | | 414,918 | ||||||||||||||||||
Preneed cemetery receivables and trust
investments |
| 202,423 | 1,123 | 6,204 | | 209,750 | ||||||||||||||||||
Goodwill |
| 227,203 | 48 | 19,787 | | 247,038 | ||||||||||||||||||
Cemetery property, at cost |
| 349,342 | 11,154 | 25,598 | | 386,094 | ||||||||||||||||||
Property and equipment, at cost |
56,964 | 474,565 | 2,509 | 39,172 | | 573,210 | ||||||||||||||||||
Less accumulated depreciation |
40,837 | 225,122 | 1,180 | 16,498 | | 283,637 | ||||||||||||||||||
Net property and equipment |
16,127 | 249,443 | 1,329 | 22,674 | | 289,573 | ||||||||||||||||||
Deferred income taxes, net |
16,620 | 75,449 | | 9,224 | (3,268 | ) | 98,025 | |||||||||||||||||
Cemetery perpetual care trust investments |
| 218,021 | 8,973 | 4,014 | | 231,008 | ||||||||||||||||||
Non-current assets held for sale |
| 360 | | | | 360 | ||||||||||||||||||
Other assets |
6,096 | 4,772 | 7 | 1,030 | | 11,905 | ||||||||||||||||||
Intercompany receivables |
693,981 | | | | (693,981 | ) | | |||||||||||||||||
Equity in subsidiaries |
15,612 | 8,888 | | | (24,500 | ) | | |||||||||||||||||
Total assets |
$ | 835,602 | $ | 1,888,632 | $ | 24,058 | $ | 124,105 | $ | (729,531 | ) | $ | 2,142,866 | |||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Current maturities of long-term debt |
$ | 5 | $ | | $ | | $ | | $ | | $ | 5 | ||||||||||||
Accounts payable, accrued expenses and
other current liabilities |
15,524 | 70,748 | 151 | 5,720 | | 92,143 | ||||||||||||||||||
Intercompany payables |
| | | 7,782 | (7,782 | ) | | |||||||||||||||||
Total current liabilities |
15,529 | 70,748 | 151 | 13,502 | (7,782 | ) | 92,148 | |||||||||||||||||
Long-term debt, less current maturities |
314,027 | | | | | 314,027 | ||||||||||||||||||
Deferred income taxes, net |
| 4,950 | 3,268 | | (3,268 | ) | 4,950 | |||||||||||||||||
Intercompany payables |
| 683,501 | 2,099 | 8,381 | (693,981 | ) | | |||||||||||||||||
Deferred preneed funeral revenue |
| 197,148 | | 46,372 | | 243,520 | ||||||||||||||||||
Deferred preneed cemetery revenue |
| 228,908 | 500 | 28,636 | | 258,044 | ||||||||||||||||||
Deferred preneed funeral and cemetery
receipts held in trust |
| 547,312 | 1,049 | 6,791 | | 555,152 | ||||||||||||||||||
Perpetual care trusts corpus |
| 216,657 | 8,923 | 3,938 | | 229,518 | ||||||||||||||||||
Other long-term liabilities |
18,050 | 1,920 | | 53 | | 20,023 | ||||||||||||||||||
Negative equity in subsidiaries |
62,512 | | | | (62,512 | ) | | |||||||||||||||||
Total liabilities |
410,118 | 1,951,144 | 15,990 | 107,673 | (767,543 | ) | 1,717,382 | |||||||||||||||||
Common stock |
92,294 | 102 | 324 | 52 | (478 | ) | 92,294 | |||||||||||||||||
Other |
333,172 | (62,614 | ) | 7,744 | 16,362 | 38,508 | 333,172 | |||||||||||||||||
Accumulated other comprehensive income |
18 | | | 18 | (18 | ) | 18 | |||||||||||||||||
Total shareholders equity |
425,484 | (62,512 | ) | 8,068 | 16,432 | 38,012 | 425,484 | |||||||||||||||||
Total liabilities and shareholders equity |
$ | 835,602 | $ | 1,888,632 | $ | 24,058 | $ | 124,105 | $ | (729,531 | ) | $ | 2,142,866 | |||||||||||
34
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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(11) | Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes(Continued) |
Condensed Consolidating Statements of Cash Flows
Three Months Ended January 31, 2011 | ||||||||||||||||||||||||
Guarantor | Guarantor | Non- | ||||||||||||||||||||||
Subsidiaries- | Subsidiaries- | Guarantor | ||||||||||||||||||||||
Parent | Tier 1 | Tier 2 | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Net cash provided by operating activities |
$ | 3,765 | $ | 9,698 | $ | 228 | $ | 1,543 | $ | | $ | 15,234 | ||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Proceeds from sales of certificates of
deposit |
10,000 | | | | | 10,000 | ||||||||||||||||||
Purchases of certificates of deposit
and marketable securities |
| | | (6 | ) | | (6 | ) | ||||||||||||||||
Purchase of subsidiaries and other
investments, net of cash acquired |
| (1,809 | ) | | | | (1,809 | ) | ||||||||||||||||
Additions to property and equipment |
(592 | ) | (3,749 | ) | (52 | ) | (211 | ) | | (4,604 | ) | |||||||||||||
Other |
| 28 | | | | 28 | ||||||||||||||||||
Net cash provided by (used in)
investing activities |
9,408 | (5,530 | ) | (52 | ) | (217 | ) | | 3,609 | |||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Repayments of long-term debt |
(1 | ) | | | | | (1 | ) | ||||||||||||||||
Intercompany receivables (payables) |
6,056 | (4,811 | ) | (173 | ) | (1,072 | ) | | | |||||||||||||||
Issuance of common stock |
341 | | | | | 341 | ||||||||||||||||||
Purchase and retirement of common stock |
(8,108 | ) | | | | | (8,108 | ) | ||||||||||||||||
Dividends |
(2,749 | ) | | | | | (2,749 | ) | ||||||||||||||||
Excess tax benefits from share-based
payment arrangements |
51 | | | | | 51 | ||||||||||||||||||
Net cash used in financing activities |
(4,410 | ) | (4,811 | ) | (173 | ) | (1,072 | ) | | (10,466 | ) | |||||||||||||
Net increase (decrease) in cash |
8,763 | (643 | ) | 3 | 254 | | 8,377 | |||||||||||||||||
Cash and cash equivalents, beginning of
period |
48,270 | 6,055 | 58 | 1,677 | | 56,060 | ||||||||||||||||||
Cash and cash equivalents, end of period |
$ | 57,033 | $ | 5,412 | $ | 61 | $ | 1,931 | $ | | $ | 64,437 | ||||||||||||
35
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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(11) | Condensed Consolidating Financial Statements of Guarantors of Senior Notes and Senior Convertible Notes(Continued) |
Condensed Consolidating Statements of Cash Flows
Three Months Ended January 31, 2010 | ||||||||||||||||||||||||
Guarantor | Guarantor | Non- | ||||||||||||||||||||||
Subsidiaries- | Subsidiaries- | Guarantor | ||||||||||||||||||||||
Parent | Tier 1 | Tier 2 | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Net cash provided by (used in)
operating activities |
$ | (131 | ) | $ | 1,411 | $ | 380 | $ | 1,113 | $ | | $ | 2,773 | |||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Purchases of certificates of deposit |
(5,000 | ) | | | | | (5,000 | ) | ||||||||||||||||
Additions to property and equipment |
(366 | ) | (3,725 | ) | (76 | ) | (130 | ) | | (4,297 | ) | |||||||||||||
Other |
| 39 | | | | 39 | ||||||||||||||||||
Net cash used in investing activities |
(5,366 | ) | (3,686 | ) | (76 | ) | (130 | ) | | (9,258 | ) | |||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Repayments of long-term debt |
(846 | ) | | | | | (846 | ) | ||||||||||||||||
Intercompany receivables (payables) |
(3,276 | ) | 3,202 | (320 | ) | 394 | | | ||||||||||||||||
Retirement of common stock warrants |
(107 | ) | | | | | (107 | ) | ||||||||||||||||
Issuance of common stock |
115 | | | | | 115 | ||||||||||||||||||
Retirement of call options |
107 | | | | | 107 | ||||||||||||||||||
Debt refinancing costs |
(38 | ) | | | | | (38 | ) | ||||||||||||||||
Dividends |
(2,794 | ) | | | | | (2,794 | ) | ||||||||||||||||
Excess tax benefits from share based
payment arrangements |
20 | | | | | 20 | ||||||||||||||||||
Net cash provided by (used in)
financing activities |
(6,819 | ) | 3,202 | (320 | ) | 394 | | (3,543 | ) | |||||||||||||||
Net increase (decrease) in cash |
(12,316 | ) | 927 | (16 | ) | 1,377 | | (10,028 | ) | |||||||||||||||
Cash and cash equivalents, beginning of
period |
56,734 | 5,096 | 52 | 926 | | 62,808 | ||||||||||||||||||
Cash and cash equivalents, end of period |
$ | 44,418 | $ | 6,023 | $ | 36 | $ | 2,303 | $ | | $ | 52,780 | ||||||||||||
36
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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(12) | Dispositions and Acquisitions |
During the three months ended January 31, 2011, the Company acquired a new funeral home and
cemetery for approximately $1,809. This acquisition was accounted for under the purchase method,
and the acquired assets and liabilities (primarily cemetery property of approximately $1,045 and
property, plant and equipment of approximately $549) were valued at their estimated fair values.
The results of operations for these businesses, which are considered immaterial, have been included
in consolidated results since the acquisition date.
Assets associated with assets held for sale are presented in the non-current assets held for
sale line in the condensed consolidated balance sheet. As of January 31, 2011 and October 31,
2010, non-current assets held for sale consists of $360 of net property and equipment held for
sale.
(13) | Consolidated Comprehensive Income |
Consolidated comprehensive income for the three months ended January 31, 2011 and 2010 is as
follows:
Three Months Ended January 31, | ||||||||
2011 | 2010 | |||||||
Net earnings |
$ | 8,044 | $ | 7,487 | ||||
Other comprehensive income (loss): |
||||||||
Unrealized depreciation of investments, net
of deferred tax benefit of $2 and $1,
respectively |
(3 | ) | (1 | ) | ||||
Reduction in net unrealized losses
associated with available-for-sale
securities of the trusts |
17,081 | 20,230 | ||||||
Reclassification of the net unrealized
losses activity attributable to the deferred
preneed funeral and cemetery receipts held
in trust and perpetual care trusts corpus |
(17,081 | ) | (20,230 | ) | ||||
Total other comprehensive loss |
(3 | ) | (1 | ) | ||||
Total comprehensive income |
$ | 8,041 | $ | 7,486 | ||||
(14) | Long-term Debt |
January 31, 2011 | October 31, 2010 | |||||||
Long-term debt: |
||||||||
3.125% senior convertible notes due
2014, net of unamortized discount of
$9,626 and $10,275 as of January 31,
2011 and October 31, 2010, respectively |
$ | 76,790 | $ | 76,141 | ||||
3.375% senior convertible notes due
2016, net of unamortized discount of
$7,042 and $7,318 as of January 31,
2011 and October 31, 2010, respectively |
38,077 | 37,801 | ||||||
Senior secured revolving credit facility |
| | ||||||
6.25% senior notes due 2013 |
200,000 | 200,000 | ||||||
Other, principally seller financing of
acquired operations or assumption upon
acquisition, weighted average interest
rate of 8.0% as of January 31, 2011 and
October 31, 2010, partially secured by
assets of subsidiaries, with maturities
through 2022 |
89 | 90 | ||||||
Total long-term debt |
314,956 | 314,032 | ||||||
Less current maturities |
5 | 5 | ||||||
$ | 314,951 | $ | 314,027 | |||||
37
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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
(Unaudited)
(Dollars in thousands, except per share amounts)
(14) | Long-term Debt(Continued) |
Fair Value
As of January 31, 2011, the carrying values of the Companys 3.125 percent senior convertible
notes due 2014 (the 2014 Notes) and 3.375 percent senior convertible notes due 2016 (the 2016
Notes), including accrued interest, were $76,910 and $38,145, respectively, compared to fair
values of $84,700 and $42,282, respectively. The aggregate principal amounts outstanding of the
2014 Notes and 2016 Notes as of January 31, 2011 were $86,416 and $45,119, respectively. As of
January 31, 2011, the carrying value of the Companys 6.25 percent senior notes, including accrued
interest, was $205,729 compared to a fair value of $205,726.
(15) | Income Taxes |
In January 2011, the government of Puerto Rico signed into law corporate tax rate
changes that decreased the top tax rate for businesses from 39 percent to 30 percent. The Company
will benefit from this reduced rate while paying taxes in the future. However, as a result of this
change, the Company was required to revalue its previously recorded Puerto Rico-related deferred
tax asset using the 30 percent current top tax rate. During the three months ended January 31,
2011, the Company recorded a one-time, non-cash charge of $2.9 million ($4.5 million charge less a
federal tax benefit of $1.6 million) in order to decrease the Puerto Rican deferred tax asset
balance. The Puerto Rican deferred tax asset balance decreased from approximately $19.4 million at
the previously required 39 percent tax rate to approximately $14.9 million at the newly-enacted 30
percent tax rate. This change in deferred tax assets increased the Companys income tax expense
for the quarter ended January 31, 2011 by $2.9 million. Income tax expense for the three months
ended January 31, 2011 was also impacted by a $0.9 million overall reduction in the tax valuation
allowance primarily due to the reduction in the portion of the valuation allowance related to
capital losses.
(16) | Subsequent Events |
As of February 28, 2011, the fair market value of the Companys preneed funeral and cemetery
merchandise and services trusts and cemetery perpetual care trusts increased 1.2 percent, or
approximately $9,996, from January 31, 2011.
38
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following Managements Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) should be read in conjunction with our MD&A and Risk Factors contained in our
Form 10-K for the fiscal year ended October 31, 2010 (the 2010 Form 10-K), and in conjunction
with our consolidated financial statements included in this report and in our 2010 Form 10-K.
This report contains forward-looking statements that are generally identifiable through the
use of words such as believe, expect, intend, plan, estimate, anticipate, project,
will and similar expressions. These forward-looking statements rely on assumptions, estimates
and predictions that could be inaccurate and that are subject to risks and uncertainties that could
cause actual results to differ materially. Important factors that may cause our actual results to
differ materially from expectations reflected in our forward-looking statements include those
described in Risk Factors in our 2010 Form 10-K and in this report. Forward-looking statements
speak only as of the date of this report, and we undertake no obligation to update or revise such
statements to reflect new circumstances or unanticipated events as they occur.
Overview
General
We are the second largest provider of funeral and cemetery products and services in the death
care industry in the United States. As of January 31, 2011, we owned and operated 218 funeral
homes and 141 cemeteries in 24 states within the United States and Puerto Rico. We sell cemetery
property and funeral, cremation and cemetery products and services both at the time of need and on
a preneed basis. Our revenues in each period are derived primarily from at-need sales, preneed
sales delivered out of our backlog during the period (including the accumulated trust earnings or
build-up in the face value of insurance contracts related to these preneed deliveries), preneed
cemetery property sales and other items such as perpetual care trust earnings, finance charges and
trust management fees. We also earn commissions on the sale of insurance-funded preneed funeral
contracts that will be funded by life insurance or annuity contracts issued by third-party insurers
when we act as an agent on the sale. For a more detailed discussion of our accounting for preneed
sales and trust and escrow account earnings, see MD&A included in Item 7 in our 2010 Form 10-K.
In January 2011, Puerto Rico passed new tax legislation that decreased the top tax rate for
businesses from 39 percent to 30 percent. As a result, we revalued our previously recorded Puerto
Rican deferred tax assets. While we will benefit from lower cash taxes in the future, the tax rate
change resulted in a one-time $2.9 million, net, non-cash charge to decrease the deferred tax
assets related to Puerto Rican operations.
Financial Summary
For the first quarter of fiscal year 2011, net earnings increased $0.6 million to $8.1 million
from $7.5 million for the first quarter of fiscal year 2010. Revenue increased $5.2 million to
$129.3 million for the quarter ended January 31, 2011. Funeral revenue increased $2.1 million to
$73.9 million in the first quarter of 2011. During the first quarter of 2011, our same-store
funeral operations experienced an increase in average revenue per traditional funeral service of
1.4 percent and an increase in average revenue per cremation service of 4.8 percent. We also
experienced a 1.1 percent increase in same-store funeral services performed. Cemetery revenue
increased $3.1 million to $55.4 million for the quarter ended January 31, 2011. This increase is
due primarily to a $2.1 million, or 10.2 percent, increase in cemetery property sales and a $0.9
million increase in construction during the period on various cemetery projects. Consolidated
gross profit increased $3.1 million to $28.4 million for the quarter ending January 31, 2011,
primarily due to a $2.0 million increase in cemetery gross profit and a $1.1 million increase in
funeral gross profit.
Interest expense decreased $0.8 million to $5.7 million during the first quarter of 2011
primarily due to the significant repurchases of our senior convertible notes in the open market
throughout fiscal year 2010. The effective tax rate for the first quarter of 2011 increased to
50.3 percent from 39.5 percent for the same period in 2010. The increase was primarily due to the
change in Puerto Rican tax legislation enacted on January 31, 2011 that resulted in
39
Table of Contents
a one-time, non-cash charge to income tax expense of $2.9 million, net. This charge was
partially offset by a tax benefit of $0.9 million primarily due to the reduction in the valuation
allowance for capital losses.
During the first quarter of 2011, we purchased 1.3 million shares of our Class A outstanding
common stock for approximately $8.1 million under our share repurchase program. We have $14.4
million remaining under the program authorized by the Board of Directors.
For the first quarter of 2011, preneed cemetery property sales increased 10.2 percent compared
to the same period of last year, which increased our cemetery revenue as described above. Our net
preneed funeral sales increased 2.6 percent during the first quarter of 2011 compared to the first
quarter of 2010. Preneed funeral sales are deferred until a future period and have no impact on
current revenue.
Our operations provided cash of $15.2 million for the three months ended January 31, 2011,
compared to $2.8 million for the same period of last year. The increase in operating cash flow is
due in part to a $0.6 million improvement in net earnings, which included the $2.9 million, net,
non-cash charge to Puerto Rican income tax expense. In addition, we effectively managed our
working capital during the first quarter of fiscal year 2011 and were able to increase cash flow
due to the timing of our trust withdrawals and deposits.
We are planning to develop cremation gardens and other cremation projects in our cemeteries
over the next few years. We have successfully completed our first cremation garden in Orlando,
Florida, and we currently have seven projects under construction with 12 more under feasibility
review. We are working to complete a number of these projects in fiscal year 2011 and expect to spend
up to $5 million. This spending represents a shift from traditional cemetery inventory spending to
cremation inventory spending.
During the first quarter of fiscal year 2011, we experienced positive trends in the overall
financial markets and in our preneed and perpetual care trusts. Specifically, our preneed funeral
and cemetery merchandise and services trusts experienced a total return, including both realized
and unrealized gains and losses, of 4.7 percent, and our cemetery perpetual care trusts experienced
a total return, including both realized and unrealized gains and losses, of 2.3 percent. As of
January 31, 2011, the fair market value of our preneed funeral and cemetery merchandise and
services trusts and our cemetery perpetual care trusts were $816.1 million, or an improvement of
9.0 percent or $67.6 million, from January 31, 2010, which included a 2.6 percent, or $20.8 million
improvement, since October 31, 2010.
As of January 31, 2011 and October 31, 2010, the fair market value of the investments in our
funeral and cemetery merchandise and services trusts were $123.4 million and $138.6 million,
respectively, lower than our cost basis. In our cemetery perpetual care trusts, as of January 31,
2011 and October 31, 2010, the fair market value of our investments were $39.2 million and $41.0
million, respectively, lower than our cost basis.
The preneed contracts we manage are long-term in nature, and we believe that the trust
investments will appreciate in value over the long-term. We continue to monitor our investment
portfolio closely. As of January 31, 2011 and October 31, 2010, we had $216.6 million and $212.1
million, respectively, in distributable earnings that have been realized and allocated to contracts
that will be recognized in the future as the underlying contracts are ultimately performed.
As of February 28, 2011, the fair market value of our preneed funeral and cemetery merchandise
and services trusts and our cemetery perpetual care trusts increased 1.2 percent, or approximately
$10.0 million from January 31, 2011.
The sectors in which our trust investment portfolio is invested have not materially changed
from that disclosed in our 2010 Form 10-K.
Each quarter we perform an analysis to determine whether our preneed contracts are in a loss
position, which would necessitate a charge to earnings. When we review our backlog for potential
loss contracts, we consider the impact of the market value of our trust assets. We look at
unrealized gains and losses based on current market prices quoted for the investments, but we do
not include anticipated future returns on the investments in our analysis. If a deficiency were to
exist, we would record a charge to earnings and a corresponding liability for the
40
Table of Contents
expected loss on the delivery of those contracts in our backlog. Due to the significant
positive margins of our preneed contracts and the trust portfolio returns we have experienced in
prior years and deferred on our consolidated balance sheet until delivery, currently there is
sufficient capacity for additional market depreciation before a contract loss would result.
For additional information regarding our preneed funeral and cemetery merchandise and services
trusts and our cemetery perpetual care trusts, including further information on the estimated
probable funding obligation, see Notes 3, 4 and 5 to the condensed consolidated financial
statements included in this report.
The following table presents our trust portfolio returns including realized and unrealized
gains and losses.
Funeral and Cemetery | ||||||||
Merchandise and | Cemetery Perpetual | |||||||
Services Trusts(1) | Care Trusts(1) | |||||||
For the quarter ended January 31, 2011 |
4.7 | % | 2.3 | % | ||||
For the last twelve months ended January 31, 2011 |
14.9 | % | 12.3 | % | ||||
For the last five years ended January 31, 2011 |
2.7 | % | 3.6 | % |
(1) | Periods less than a year represent actual returns. Periods of one year or more represent annualized returns. |
Critical Accounting Policies
The consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America, which require us to make estimates and
assumptions (see Note 1(d) to the condensed consolidated financial statements). Our critical
accounting policies are those that are both important to the portrayal of our financial condition
and results of operations and require managements most difficult, subjective and complex judgment.
These critical accounting policies are discussed in MD&A in our 2010 Form 10-K. There have been
no significant changes to our critical accounting policies since the filing of our 2010 Form 10-K.
Results of Operations
The following discussion segregates the financial results into our various segments, grouped
by our funeral and cemetery operations. For a discussion of our segments, see Note 9 to the
condensed consolidated financial statements included herein. As there have been no material
acquisitions or construction of new locations in fiscal years 2011 and 2010, results essentially
reflect those of same-store locations.
41
Table of Contents
Three Months Ended January 31, 2011 Compared to Three Months Ended January 31, 2010
Funeral Operations
Three Months Ended January 31, | ||||||||||||
Increase | ||||||||||||
2011 | 2010 | (Decrease) | ||||||||||
(In millions) | ||||||||||||
Funeral Revenue: |
||||||||||||
Funeral Home Locations |
$ | 69.8 | $ | 67.7 | $ | 2.1 | ||||||
Corporate Trust Management (1) |
4.1 | 4.1 | | |||||||||
Total Funeral Revenue |
$ | 73.9 | $ | 71.8 | $ | 2.1 | ||||||
Funeral Costs: |
||||||||||||
Funeral Home Locations |
$ | 53.3 | $ | 52.2 | $ | 1.1 | ||||||
Corporate Trust Management (1) |
.2 | .3 | (.1 | ) | ||||||||
Total Funeral Costs |
$ | 53.5 | $ | 52.5 | $ | 1.0 | ||||||
Funeral Gross Profit: |
||||||||||||
Funeral Home Locations |
$ | 16.5 | $ | 15.5 | $ | 1.0 | ||||||
Corporate Trust Management (1) |
3.9 | 3.8 | .1 | |||||||||
Total Funeral Gross Profit |
$ | 20.4 | $ | 19.3 | $ | 1.1 | ||||||
Same-Store Analysis for the Three Months Ended January 31, 2011 and 2010
Change in Average Revenue | Change in Same-Store | |||||||||||
Per Funeral Service | Funeral Services | Same-Store Cremation Rate | ||||||||||
2011 | 2010 | |||||||||||
1.6% (1) | 1.1% | 41.7% | 41.2% |
(1) | Corporate trust management consists of the trust management fees and funeral merchandise and services trust earnings recognized with respect to preneed contracts delivered during the period. Trust management fees are established by the Company at rates consistent with industry norms based on the fair market value of assets managed and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the amount of distributable earnings as stipulated by our respective trust agreements that are generated by the trusts over the life of the preneed contracts and allocated to those products and services delivered during the relevant periods. See Notes 3 and 6 to the condensed consolidated financial statements included herein for information regarding the cost basis and market value of the trust assets and current performance of the trusts (i.e., current realized gains and losses, interest income and dividends). Trust management fees included in funeral revenue for the three months ended January 31, 2011 and 2010 were $1.2 million and $1.1 million, respectively. Funeral trust earnings recognized in funeral revenue for the three months ended January 31, 2011 and 2010 were $2.9 million and $3.0 million, respectively. |
Funeral revenue increased $2.1 million, or 2.9 percent, to $73.9 million in the first quarter
of 2011 from $71.8 million in the first quarter of 2010. During the first quarter of 2011, our
same-store funeral operations experienced an increase in average revenue per traditional funeral
service of 1.4 percent and an increase in average revenue per cremation service of 4.8 percent.
These averages were partially offset by a shift in mix to lower-priced cremation services resulting
in an overall improvement in same-store average revenue per funeral service of 1.6 percent.
Same-store funeral services increased 1.1 percent, or 154 events. The cremation rate for our
same-store operations was 41.7 percent for the first quarter of 2011 compared to 41.2 percent for
the first quarter of 2010.
Funeral gross profit increased $1.1 million, or 5.7 percent, to $20.4 million for the first
quarter of 2011 compared to $19.3 million for the same period of 2010, primarily due to the $2.1
million increase in revenue, as noted above. Funeral gross profit margin improved 70 basis points
to 27.6 percent for the first quarter of 2011 from 26.9 percent for the same period of 2010.
42
Table of Contents
Cemetery Operations
Three Months Ended January 31, | ||||||||||||
2011 | 2010 | Increase | ||||||||||
(In millions) | ||||||||||||
Cemetery Revenue: |
||||||||||||
Cemetery Locations |
$ | 53.4 | $ | 50.5 | $ | 2.9 | ||||||
Corporate Trust Management (1) |
2.0 | 1.8 | .2 | |||||||||
Total Cemetery Revenue |
$ | 55.4 | $ | 52.3 | $ | 3.1 | ||||||
Cemetery Costs: |
||||||||||||
Cemetery Locations |
$ | 47.2 | $ | 46.1 | $ | 1.1 | ||||||
Corporate Trust Management (1) |
.2 | .2 | | |||||||||
Total Cemetery Costs |
$ | 47.4 | $ | 46.3 | $ | 1.1 | ||||||
Cemetery Gross Profit: |
||||||||||||
Cemetery Locations |
$ | 6.2 | $ | 4.4 | $ | 1.8 | ||||||
Corporate Trust Management (1) |
1.8 | 1.6 | .2 | |||||||||
Total Cemetery Gross Profit |
$ | 8.0 | $ | 6.0 | $ | 2.0 | ||||||
(1) | Corporate trust management consists of trust management fees and cemetery merchandise and services trust earnings recognized with respect to preneed contracts delivered during the period. Trust management fees are established by the Company at rates consistent with industry norms based on the fair market value of assets managed and are paid by the trusts to our subsidiary, Investors Trust, Inc. The trust earnings represent the amount of distributable earnings as stipulated by our respective trust agreements that are generated by the trusts over the life of the preneed contracts and allocated to those products and services delivered during the relevant periods. See Notes 4 and 6 to the condensed consolidated financial statements included herein for information regarding the cost basis and market value of the trust assets and current performance of the trusts (i.e., current realized gains and losses, interest income and dividends). Trust management fees included in cemetery revenue for the three months ended January 31, 2011 and 2010 were $1.3 million and $1.2 million, respectively, and cemetery trust earnings recognized included in cemetery revenue for the three months ended January 31, 2011 and 2010 were $0.7 million and $0.6 million, respectively. Perpetual care trust earnings were $2.3 million and $2.4 million for the three months ended January 31, 2011 and 2010, respectively, and are included in the revenues and gross profit of the cemetery segment. See Notes 5 and 6 to the condensed consolidated financial statements included herein for information regarding the cemetery perpetual care trusts. |
Cemetery revenue increased $3.1 million, or 5.9 percent, to $55.4 million for the quarter
ended January 31, 2011 from $52.3 million for the quarter ended January 31, 2010. This improvement
is due primarily to a $2.1 million, or 10.2 percent, increase in cemetery property sales and a $0.9
million increase in construction during the period on various cemetery projects.
Cemetery gross profit increased $2.0 million, or 33.3 percent, to $8.0 million for the first
quarter of 2011 compared to $6.0 million for the quarter ended January 31, 2010. The increase in
cemetery gross profit is primarily due to the $3.1 million increase in revenue, as noted above.
Cemetery gross profit margin improved 290 basis points to 14.4 percent for the first quarter of
2011 from 11.5 percent for the same period of 2010.
Other
Interest expense decreased $0.8 million to $5.7 million during the first quarter of fiscal
year 2011 primarily due to the significant repurchases of a portion of our senior convertible notes
in the open market that occurred throughout fiscal year 2010.
The effective tax rate for the three months ended January 31, 2011 was 50.3 percent compared
to 39.5 percent for the same period in 2010. The increase was primarily due to a change in Puerto
Rican tax legislation
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enacted on January 31, 2011 that decreased the top tax rate for businesses from 39 percent to
30 percent. As a result we revalued our previously recorded deferred tax assets. While we will
benefit from lower cash taxes in the future, the tax rate change resulted in a one-time, non-cash
charge to income tax expense of $2.9 million, net. This charge was partially offset by a tax
benefit of $0.9 million primarily due to the reduction in the valuation allowance for capital
losses.
Cash and cash equivalents increased $8.4 million from October 31, 2010 to January 31, 2011
primarily due to the maturity of $10.0 million in certificate of deposits and marketable securities
in the first quarter of 2011. Prepaid expenses increased $4.1 million from October 31, 2010 to
January 31, 2011 primarily due to annual premiums paid in the first quarter of fiscal year 2011 for
property, general liability and other insurance. Long-term deferred income taxes decreased $4.0
million from October 31, 2010 to January 31, 2011 primarily due to the utilization of net operating
losses in the first quarter of 2011 and the non-cash adjustment to our Puerto Rican deferred tax
asset, as previously discussed. Preneed funeral receivables and trust investments, preneed
cemetery receivables and trust investments, cemetery perpetual care trust investments, deferred
preneed funeral and cemetery receipts held in trust and perpetual care trusts corpus were all
positively impacted by the improvement in the market value of our trust assets during the three
months ended January 31, 2011. For additional information, see Notes 3, 4 and 5 to our condensed
consolidated financial statements included herein.
Accounts payable decreased $4.3 million from October 31, 2010 to January 31, 2011 primarily
due to the timing of payables related to property, plant and equipment and inventory. Accrued
payroll decreased $1.1 million from October 31, 2010 to January 31, 2011 primarily due to fiscal
year 2010 incentive compensation paid in the first quarter of 2011 and due to the timing of the
payroll period at quarter end. Other current liabilities decreased $3.1 million from October 31,
2010 to January 31, 2011 primarily due to a $2.7 million decline resulting from the timing of our
property taxes, which are typically paid at the end of the calendar year.
Preneed Sales into the Backlog
Net preneed funeral sales increased 2.6 percent during the first quarter of 2011 compared to
the corresponding period in 2010.
The revenues from our preneed funeral and cemetery merchandise and service sales are deferred
into our backlog and are not included in our operating results presented above. We had $30.4
million in net preneed funeral and cemetery merchandise and services sales (including $16.5 million
related to insurance-funded preneed funeral contracts) during the first quarter of 2011 to be
recognized in the future as these prepaid products and services are actually delivered, compared to
net sales of $29.2 million (including $16.2 million related to insurance-funded preneed funeral
contracts) for the corresponding period in 2010. Insurance-funded preneed funeral contracts which
will be funded by life insurance or annuity contracts issued by third-party insurers are not
reflected in the condensed consolidated balance sheets.
Liquidity and Capital Resources
General
We generate cash in our operations primarily from at-need sales, preneed sales that turn
at-need, funds we are able to withdraw from our trusts and escrow accounts when preneed sales turn
at-need, monies collected on preneed sales that are not required to be placed in trust and cemetery
perpetual care trust earnings. Over the last five years, we have generated more than $50.0 million
each year in cash flow from operations. We have historically satisfied our working capital
requirements with cash flows from operations. We believe that our current level of cash on hand,
projected cash flows from operations and available capacity under our $95.0 million senior secured
revolving credit facility will be sufficient to meet our cash requirements for the foreseeable
future, although we will need to refinance the senior secured revolving credit facility on or
before 2012 and long-term debt becoming due in 2013 through 2016, as described below.
We have begun discussions with various financial institutions regarding the potential
refinancing of the senior secured revolving credit facility and senior notes to take advantage of
favorable market conditions. Based on these discussions, we currently expect to refinance this
debt well in advance of their maturities and may increase the
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size of the senior secured revolving credit facility. As of January 31, 2011, we had no
amounts drawn on the $95.0 million senior secured revolving credit facility, and our availability
under the senior secured revolving credit facility, after giving consideration to $7.5 million
outstanding letters of credit and the $24.8 million Florida bond, was $62.7 million. Our $200.0
million senior notes mature on February 15, 2013 and are currently redeemable at 100 percent of
their principal amount plus accrued and unpaid interest to the redemption date. We also have
$131.5 million principal amount in senior convertible notes as of January 31, 2011 of which $86.4
million mature in 2014 and $45.1 million mature in 2016. See the table below under Contractual
Obligations and Commercial Commitments for further information on our long-term debt obligations.
We currently pay quarterly cash dividends of three cents per share on our Class A and B common
stock, which amounted to $2.7 million for the three months ended January 31, 2011. The declaration
and payment of future dividends are discretionary and will be subject to determination by the Board
of Directors each quarter after its review of our financial performance. We also have a $75.0
million stock repurchase program, under which we purchased 1.3 million shares of our Class A common
stock for approximately $8.1 million during the first quarter of 2011 and $14.4 million remains
available under the program as of January 31, 2011. Repurchases under the program are limited to
our Class A common stock, and are made in the open market or in privately negotiated transactions
at such times and in such amounts as management deems appropriate, depending upon market conditions
and other factors.
We plan to continue to evaluate our options for deployment of cash flow as opportunities
arise. We believe that the use of our cash to make acquisitions of or investments in death care or
related businesses, construct funeral homes on existing cemeteries, cemeteries of unaffiliated
third parties or in strategic locations, pay dividends and repurchase debt and stock are all
attractive options. We believe that growing our organization through acquisitions and investments
is a good business strategy, as it will enable us to enjoy the important synergies and economies of
scale from our existing infrastructure. We are working on several e-commerce initiatives that we
expect will provide new revenue opportunities in the future and are continuing to invest in further
improving our business processes. We are planning to develop cremation gardens and other cremation
projects in our cemeteries over the next few years. We have successfully completed our first
cremation garden in Orlando, Florida, and we currently have seven projects under construction with
12 more under feasibility review. We are working to complete a number of these projects in fiscal year
2011 and expect to spend up to $5 million. This spending represents a shift from traditional
cemetery inventory spending to cremation inventory spending. We regularly review acquisition and
other strategic opportunities, which may require us to draw on our senior secured revolving credit
facility or pursue additional debt or equity financing.
We are continuing to review all of our tax accounting methods to determine opportunities to
further improve our current tax position. Several possible changes are being considered that could
result in potential reductions in future tax payments. At this time, we cannot predict with
certainty what, if any, reductions in future tax payments we will obtain. However, we currently do
not expect that these potential reductions in future tax payments, if obtained, will be as
substantial as those obtained in fiscal years 2009 and 2010.
Cash Flow
Our operations provided cash of $15.2 million for the three months ended January 31, 2011,
compared to $2.8 million for the same period of last year. The increase in operating cash flow is
due in part to a $0.6 million improvement in net earnings, which included the net $2.9 million
non-cash charge to Puerto Rican income tax expense. In addition, we effectively managed our
working capital during the first quarter of fiscal year 2011 and were able to increase cash flow
due to the timing of our trust withdrawals and deposits.
Our investing activities resulted in a net cash inflow of $3.6 million for the three
months ended January 31, 2011, compared to a net cash outflow of $9.3 million for the comparable
period in 2010. The change is primarily due to a $15.0 million net change related to purchases and
sales of certificates of deposit. There were $10.0 million in proceeds from the sale of
certificates of deposit during the first
quarter of fiscal year 2011 compared to $5.0 million in purchases of certificates of deposit
during the first quarter of fiscal year 2010. For the three months ended January 31, 2011, capital
expenditures amounted to $4.6 million, which included $4.1 million for maintenance capital
expenditures and $0.5 million for growth initiatives. For the three months ended January 31, 2010,
capital
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expenditures were $4.3 million, which included $2.9 million for maintenance capital
expenditures, $1.2 million for growth initiatives and $0.2 million related to the implementation of
new business systems. We also purchased a funeral and cemetery business in the first quarter of
fiscal year 2011 resulting in a net cash outflow of $1.8 million.
Our financing activities resulted in a net cash outflow of $10.5 million for the three months
ended January 31, 2011, compared to a net cash outflow of $3.5 million for the comparable period in
2010. The change primarily is due to repurchases of common stock under our current stock
repurchase program. During the three months ended January 31, 2011, there were $8.1 million in
stock repurchases compared to none in the same period of 2010.
Contractual Obligations and Commercial Commitments
We have contractual obligations requiring future cash payments under existing contractual
arrangements. The following table details our known future cash payments (in millions) related to
various contractual obligations as of January 31, 2011.
Payments Due by Period | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
Contractual Obligations | Total | 1 year | 1 - 3 years | 3 - 5 years | 5 years | |||||||||||||||
Long-term debt obligations (1) |
$ | 331.6 | $ | | $ | 200.0 | $ | 86.4 | $ | 45.2 | ||||||||||
Interest on long-term debt (2) |
49.1 | 16.7 | 27.2 | 4.4 | .8 | |||||||||||||||
Operating lease obligations (3) |
29.8 | 3.6 | 6.8 | 3.7 | 15.7 | |||||||||||||||
Purchase obligations (4) |
2.3 | 2.3 | | | | |||||||||||||||
Non-competition and other agreements (5) |
1.2 | .4 | .3 | .2 | .3 | |||||||||||||||
$ | 414.0 | $ | 23.0 | $ | 234.3 | $ | 94.7 | $ | 62.0 | |||||||||||
(1) | See below for a breakdown of our future scheduled principal payments and maturities of our long-term debt by type as of January 31, 2011. | |
(2) | Includes contractual interest payments for our senior convertible notes, senior notes and third-party debt. | |
(3) | Our noncancellable operating leases are primarily for land and buildings and expire over the next one to 20 years, except for eight leases that expire between 2032 and 2039. This category also includes leases under our vehicle fleet leasing program. Our future minimum lease payments for all operating leases as of January 31, 2011 are $3.6 million, $3.7 million, $3.1 million, $2.2 million, $1.5 million and $15.7 million for the years ending October 31, 2011, 2012, 2013, 2014, 2015 and later years, respectively. | |
(4) | Represents a construction contract for a funeral home currently under construction. | |
(5) | This category includes payments pursuant to non-competition agreements with prior owners and key employees of acquired businesses. |
The following table details our known potential or possible future cash payments related to
the contingent obligations specified below (in millions) as of January 31, 2011.
Expiration by Period | ||||||||||||||||||||
More than | ||||||||||||||||||||
Contingent Obligations | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | 5 years | |||||||||||||||
Cemetery perpetual
care trust funding
obligations
(1) |
$ | 13.1 | $ | 13.1 | $ | | $ | | $ | | ||||||||||
Long-term obligations
related to uncertain
tax positions
(2) |
2.2 | | | | 2.2 | |||||||||||||||
$ | 15.3 | $ | 13.1 | $ | | $ | | $ | 2.2 | |||||||||||
(1) | In those states where we have withdrawn realized net capital gains in the past from our cemetery perpetual care trusts, regulators may seek replenishment of the subsequent realized net capital losses either by requiring a cash deposit to the trust or by prohibiting or restricting withdrawals of future earnings until they cover the loss. The estimated probable funding obligation in the cemetery perpetual care trusts in these states was $13.1 million as |
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of January 31, 2011. As of January 31, 2011, we had net unrealized losses of $34.2 million in the trusts in these states. Because some of these trusts currently have assets with a fair market value less than the aggregate amounts required to be contributed to the trust, any additional realized net capital losses in these trusts may result in a corresponding funding liability and increase in cemetery costs. In those states where realized net capital gains have not been withdrawn, we believe it is reasonably possible but not probable that additional funding obligations may exist with an estimated amount of approximately $2.4 million; no charge has been recorded for these amounts as of January 31, 2011. | ||
(2) | In accordance with the required accounting guidance on uncertain tax positions, as of January 31, 2011, we have recorded $2.2 million of unrecognized tax benefits and related interest and penalties. Due to the uncertainty regarding the timing and completion of audits and possible outcomes, it is not possible to estimate the range of increase and decrease and the timing of any potential cash payments. |
As of January 31, 2011, our outstanding long-term debt obligations amounted to $331.6 million,
consisting of $86.4 million in 3.125 percent senior convertible notes due 2014, $45.1 million in
3.375 percent senior convertible notes due 2016, $200.0 million of 6.25 percent senior notes due
2013 and $0.1 million of other debt. There were no amounts drawn on the senior secured revolving
credit facility. The following table reflects future scheduled principal payments and maturities
of our long-term debt (in millions) as of January 31, 2011.
Senior | ||||||||||||||||||||
Secured | Other, Principally | |||||||||||||||||||
Revolving | Seller Financing | |||||||||||||||||||
Credit | Senior Convertible | Senior | of Acquired | |||||||||||||||||
Fiscal Years Ending October 31, | Facility | Notes | Notes | Operations | Total | |||||||||||||||
2011 |
$ | | $ | | $ | | $ | | $ | | ||||||||||
2012 |
| | | | | |||||||||||||||
2013 |
| | 200.0 | | 200.0 | |||||||||||||||
2014 |
| 86.4 | | | 86.4 | |||||||||||||||
2015 |
| | | | | |||||||||||||||
Thereafter |
| 45.1 | | .1 | 45.2 | |||||||||||||||
Total long-term debt |
$ | | $ | 131.5 | $ | 200.0 | $ | .1 | $ | 331.6 | ||||||||||
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements as of January 31, 2011 consist of the following items:
(1) | the $24.8 million bond we are required to maintain to guarantee our obligations relating to funds we withdrew in fiscal year 2001 from our preneed funeral trusts in Florida, which is discussed above and in Note 20 to the consolidated financial statements in our 2010 Form 10-K; and | ||
(2) | the insurance-funded preneed funeral contracts, which will be funded by life insurance or annuity contracts issued by third-party insurers, are not reflected in our condensed consolidated balance sheets, and are discussed in Note 2(i) to the consolidated financial statements in our 2010 Form 10-K. |
Ratio of Earnings to Fixed Charges
Our ratio of earnings to fixed charges was as follows:
Three Months Ended | Years ended October 31, | |||||||||||||||||||
January 31, 2011 | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
3.59 (1) |
2.69 | (2) | 2.21 | (3) | 1.40 | (4) | 2.85 | (5) | 2.82 | (6) |
(1) | Pre-tax earnings for the three months ended January 31, 2011 include a $0.1 million charge for hurricane related expenses. | |
(2) | Pre-tax earnings for fiscal year 2010 include a $1.0 million pre-tax net loss on the early extinguishment of debt due to fiscal year 2010 debt repurchases. |
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(3) | Pre-tax earnings for fiscal year 2009 include a $6.2 million pre-tax net gain on the early extinguishment of debt due to fiscal year 2009 debt repurchases, a $3.4 million charge related to the estimated probable funding obligation to fund the cemetery perpetual care trust net realized losses, a $0.4 million charge for hurricane related expenses, a $0.3 million charge for separation charges primarily related to the retirement of an executive officer and net impairment losses on dispositions of ($0.2) million. | |
(4) | Pre-tax earnings for fiscal year 2008 include a charge of $2.3 million related to Hurricanes Katrina and Ike, a charge of $26.0 million for impairment of goodwill, a $13.3 million charge related to the estimated probable obligation to fund the cemetery perpetual care trust net realized losses and net impairment losses on dispositions of ($0.4) million. | |
(5) | Pre-tax earnings for fiscal year 2007 include a charge of $2.5 million related to Hurricane Katrina, a charge of $0.6 million for separation charges primarily related to separation pay of a former executive officer who retired in the first quarter of 2007 and $0.7 million for the loss on early extinguishment of debt related to the June 2007 senior convertible debt transaction. | |
(6) | Pre-tax earnings for fiscal year 2006 include a net recovery of $1.6 million related to Hurricane Katrina, business interruption proceeds of $3.2 million related to Hurricane Katrina, a charge of $1.0 million for separation charges related to July 2005 restructuring of our divisions and the retirement of an executive officer and net impairment losses on dispositions of ($0.2) million. |
For purposes of computing the ratio of earnings to fixed charges, earnings consist of pre-tax
earnings from continuing operations plus fixed charges (excluding interest capitalized during the
period). Fixed charges consist of interest expense, amortization of 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.
Recent Accounting Standards
See Note 2 to the condensed consolidated financial statements included herein.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosure about market risk is presented in Item 7A in our 2010
Form 10-K, filed with the Securities and Exchange Commission (SEC) on December 16, 2010. For a
discussion of fair market value as of January 31, 2011 of investments in our trusts, see Notes 3, 4
and 5 to the condensed consolidated financial statements included herein. The following disclosure
discusses only those instances in which market risk has changed by more than 10 percent from the
annual disclosures.
As of January 31, 2011 and October 31, 2010, the carrying values of our long-term fixed-rate
debt, including accrued interest, were approximately $320.9 million and $317.9 million,
respectively, compared to fair values of $332.8 million and $328.3 million, respectively. Fair
values were determined using quoted market prices. As of January 31, 2011, each approximate 10
percent, or 55 basis point, change in the average interest rate applicable to determine the fair
value of such debt would result in a change of approximately $4.8 million in the fair value of
these instruments. As of October 31, 2010, each approximate 10 percent, or 55 basis point, change
in the average interest rate applicable to determine the fair value of such debt would result in a
change of approximately $5.7 million in the fair value of these instruments. If these instruments
are held to maturity, no change in fair value will be realized.
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Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports the Company files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the SEC rules and forms, and that such information is accumulated and
communicated to the Companys management, including its Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), as appropriate to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, the Company carried out an evaluation
under the supervision and with the participation of the Companys Disclosure Committee and
management, including the CEO and CFO, of the effectiveness of the Companys disclosure controls
and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon this evaluation, the CEO and
CFO concluded that the Companys disclosure controls and procedures were effective as of the end of
the period covered by this report.
Changes in Internal Control over Financial Reporting
There have been no changes in the Companys internal control over financial reporting during
the quarter ended January 31, 2011 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a discussion of our current litigation, see Note 7 to the condensed consolidated financial
statements included herein.
We and certain of our subsidiaries are parties to a number of legal proceedings that have
arisen in the ordinary course of business. While the outcome of these proceedings cannot be
predicted with certainty, we do not expect these matters to have a material effect on our
consolidated financial position, results of operations or cash flows.
We carry insurance with coverages and coverage limits that we believe to be adequate.
Although there can be no assurance that such insurance is sufficient to protect us against all
contingencies, we believe that our insurance protection is reasonable in view of the nature and
scope of our operations.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in our 2010
Form 10-K.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Issuer Purchases of Equity Securities
Maximum approximate | ||||||||||||||||
Total number of | dollar value of shares | |||||||||||||||
shares purchased as | that may yet be | |||||||||||||||
Total number | part of | purchased under the | ||||||||||||||
of shares | Average price paid | publicly-announced | plans or | |||||||||||||
Period | purchased | per share | plans or programs | programs(1) | ||||||||||||
November 1,
2010 through
November 30, 2010 |
847,200 | $ | 5.65 | 847,200 | $ | 17,672,180 | ||||||||||
December 1, 2010
through December
31, 2010 |
| $ | | | $ | 17,672,180 | ||||||||||
January 1, 2011
through January 31,
2011 |
500,000 | $ | 6.56 | 500,000 | $ | 14,394,009 | ||||||||||
Total |
1,347,200 | $ | 5.99 | 1,347,200 | $ | 14,394,009 | ||||||||||
(1) | We announced a $25.0 million stock repurchase program in September 2007, which was increased by $25.0 million in December 2007 and June 2008, resulting in a $75.0 million program. As of January 31, 2011, we had repurchased 8.7 million shares for $60.6 million at an average price of $6.95 per share and have $14.4 million remaining under this program. |
Item 5. Other Information
Thomas J. Crawford, President, Chief Executive Officer, and a director of the Company, will
retire from all positions with the Company effective as of the Companys annual meeting of
shareholders on April 7, 2011. The Board has appointed Thomas M. Kitchen to succeed Mr. Crawford
as President and Chief Executive Officer, effective as of the annual meeting. Mr. Kitchen
currently serves as Senior Executive Vice President, Chief Financial Officer, and a director of the
Company. The Board has appointed Lewis J. Derbes, Jr. as the Companys Senior Vice President and
Chief Financial Officer to succeed Mr. Kitchen. Mr. Derbes currently serves as the Companys
Senior Vice President of Finance, Secretary and Treasurer. For additional information, see the
Companys Form 8-K and Form 8-K/A filed January 28, 2011 and February 2, 2011, respectively, and
the Companys proxy statement for its 2011 annual meeting of shareholders, filed February 25, 2011.
Item 6. Exhibits
3.1 | Amended and Restated Articles of Incorporation of the Company, as amended and restated as of April 3, 2008 (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended April 30, 2008) | |
3.2 | By-laws of the Company, as amended and restated as of September 8, 2008 (incorporated by reference to Exhibit 3.2 to the Companys Quarterly Report on Form 10-Q for the quarter ended July 31, 2008) | |
4.1 | See Exhibits 3.1 and 3.2 for provisions of the Companys Amended and Restated Articles of Incorporation, as amended, and By-laws, as amended, defining the rights of holders of Class A and Class B common stock | |
4.2 | Specimen of Class A common stock certificate (incorporated by reference to Exhibit 3 to the Companys Registration Statement on Form 8-A/A filed with the Commission on June 21, 2007) |
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4.3 | Second Amended and Restated Credit Agreement dated June 2, 2009 by and among the Company, Empresas Stewart-Cementerios and Empresas Stewart-Funerarias, as Borrowers, Bank of America, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer and The Other Lenders party hereto (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed June 3, 2009) | |
4.4 | Indenture dated as of February 11, 2005 by and among Stewart Enterprises, Inc., the Guarantors thereunder and U.S. Bank National Association, as Trustee, with respect to the 6.25 percent Senior Notes due 2013 (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed February 14, 2005 (File No. 001-15449)) | |
4.5 | Form of 6.25 percent Senior Note due 2013 (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed February 14, 2005 (File No. 001-15449)) | |
4.6 | Indenture dated June 27, 2007 by and among Stewart Enterprises, Inc., the guarantors named therein and U.S. Bank National Association, as Trustee, with respect to 3.125 percent Senior Convertible Notes due 2014 (including Form of 3.125 percent Senior Convertible Notes due 2014) (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed June 27, 2007) | |
4.7 | Indenture dated June 27, 2007 by and among Stewart Enterprises, Inc., the guarantors named therein and U.S. Bank National Association, as Trustee, with respect to 3.375 percent Senior Convertible Notes due 2016 (including Form of 3.375 percent Senior Convertible Notes due 2016) (incorporated by reference to Exhibit 4.2 to the Companys Current Report on Form 8-K filed June 27, 2007) | |
10.1 | Employment Agreement between the Company and Thomas M. Kitchen dated February 24, 2011 | |
10.2 | Form of Restricted Stock Agreement under the Stewart Enterprises, Inc. 2010 Stock Incentive Plan between the Company and its Executive Officers | |
10.3 | Form of Stock Option Agreement under the Stewart Enterprises, Inc. 2010 Stock Incentive Plan between the Company and its Executive Officers | |
10.4 | Consulting Agreement between the Company and Thomas J. Crawford dated February 24, 2011 | |
12 | Calculation of Ratio of Earnings to Fixed Charges | |
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas J. Crawford, President and Chief Executive Officer | |
31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen, Senior Executive Vice President and Chief Financial Officer | |
32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of Thomas J. Crawford, President and Chief Executive Officer, and Thomas M. Kitchen, Senior Executive Vice President and Chief Financial Officer |
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STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
STEWART ENTERPRISES, INC. |
||||
March 9, 2011 | /s/ THOMAS M. KITCHEN | |||
Thomas M. Kitchen | ||||
Senior Executive Vice President
and Chief Financial Officer |
||||
March 9, 2011 | /s/ ANGELA M. LACOUR | |||
Angela M. Lacour | ||||
Vice President Corporate Controller Chief Accounting Officer |
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Exhibit Index
10.1 | Employment Agreement between the Company and Thomas M. Kitchen dated February 24, 2011 | |
10.2 | Form of Restricted Stock Agreement under the Stewart Enterprises, Inc. 2010 Stock Incentive Plan between the Company and its Executive Officers | |
10.3 | Form of Stock Option Agreement under the Stewart Enterprises, Inc. 2010 Stock Incentive Plan between the Company and its Executive Officers | |
10.4 | Consulting Agreement between the Company and Thomas J. Crawford dated February 24, 2011 | |
12 | Calculation of Ratio of Earnings to Fixed Charges | |
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas J. Crawford, President and Chief Executive Officer | |
31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Thomas M. Kitchen, Senior Executive Vice President and Chief Financial Officer | |
32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of Thomas J. Crawford, President and Chief Executive Officer, and Thomas M. Kitchen, Senior Executive Vice President and Chief Financial Officer |
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