-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V8XyGFiBCc4YS0NSsD4R/MrLPFoaRahKCtEWH9/wdJWVVEud4j99aFjyfwLWLG16 +b3Kig6lyvMWdIRiZDImqA== 0000906280-98-000021.txt : 19980130 0000906280-98-000021.hdr.sgml : 19980130 ACCESSION NUMBER: 0000906280-98-000021 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19980129 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEWART ENTERPRISES INC CENTRAL INDEX KEY: 0000878522 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200] IRS NUMBER: 720693290 STATE OF INCORPORATION: LA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19508 FILM NUMBER: 98516284 BUSINESS ADDRESS: STREET 1: 110 VETERANS MEMORIAL BLVD CITY: METAIRIE STATE: LA ZIP: 70005 BUSINESS PHONE: 5048375880 MAIL ADDRESS: STREET 1: 110 VETERANS MEMORIAL BLVD CITY: METARIE STATE: LA ZIP: 70005 10-K 1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-K (X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended October 31, 1997 ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 --------------------- Commission File Number: 0-19508 --------------------- STEWART ENTERPRISES, INC. (Exact name of registrant as specified in its charter) LOUISIANA 72-0693290 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 110 Veterans Memorial Boulevard Metairie, Louisiana 70005 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (504) 837-5880 --------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Class A Common Stock, No Par Value (Title of Class) --------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- --------------------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. --- The aggregate market value of the voting stock held by nonaffiliates (affiliates being, for these purposes only, directors, executive officers and holders of more than 5% of the Company's Class A Common Stock) of the Registrant as of January 21, 1998 was approximately $1,472,000,000. --------------------- The number of shares of the Registrant's Class A Common Stock, no par value per share, and Class B Common Stock, no par value per share, outstanding as of January 21, 1998 was 46,959,367 and 1,777,510, respectively. DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement in connection with the 1998 annual meeting of shareholders, incorporated in Part III of this Report. =============================================================================== Cautionary Note This Annual Report of Stewart Enterprises, Inc. (the "Company") on Form 10-K contains forward-looking statements in which the Company's management discusses factors it believes may affect the Company's performance in the future. Such statements typically are identified by terms expressing future expectations or projections of revenues, earnings, earnings per share, capital expenditures, gross profit margin and other financial items. All forward- looking statements, although made in good faith, are based on assumptions about future events and are therefore inherently uncertain, and actual results may differ materially from those expected or projected. Important factors that may cause the Company's actual results in the future to differ materially from expectations or projections in forward-looking statements include those described under the heading "Cautionary Statements" in Item 7. Forward- looking statements speak only as of the date of this report, and the Company undertakes no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur. PART 1 Item 1. Business General Stewart Enterprises, Inc. is the third largest provider of products and services in the death care industry in North America. Through its subsidiaries, the Company owns and operates 419 funeral homes and 131 cemeteries in 25 states within the United States, and in Puerto Rico, Mexico, Australia, New Zealand, Canada, Spain, Portugal and the Netherlands. The Company is a leader in the industry's trend toward consolidation and has acquired most of its current operations through acquisitions. The Company provides a complete range of death care products and services both at and prior to the time of need. The Company's funeral homes and cemeteries are located primarily in metropolitan areas and are generally organized in "clusters," which are groups of integrated funeral homes and cemeteries. The Company also develops combined cemetery and funeral home facilities, whereby the funeral home is located at and operated in conjunction with the cemetery. The Company believes that it owns and operates one or more of the premier death care facilities in each of its principal markets. The Company also believes that it is an industry leader in the marketing and sale of prearranged funeral and cemetery services and products. The Company has an experienced management team and a decentralized organizational structure that allows local funeral home directors and cemetery managers to best serve their location's particular needs. The Company has three principal objectives: (i) to provide the highest level of quality, service and value to each family it serves; (ii) to attract, retain and reward highly qualified individuals to operate its businesses; and (iii) to pursue a strategy of disciplined internal and external growth, with the ultimate goal of enhancing shareholder value. The Company's business was founded by the Stewart family in 1910, and the Company was incorporated as a Louisiana corporation in 1970. The Company's principal executive offices are located at 110 Veterans Memorial Boulevard, Metairie, Louisiana 70005, and its telephone number is 504-837-5880. The Death Care Industry The Company's management believes that the death care industry has several attractive fundamental characteristics. The industry is relatively stable and business failures are uncommon. Death care businesses in the United States traditionally have been relatively small family-owned enterprises transferred to successive generations within the family; however, the industry in the United States and in certain foreign countries is undergoing a transition in which family-owned firms are consolidating with larger organizations such as the Company. Management believes this trend results primarily from the desire of owners to address management succession and estate planning issues and to achieve liquidity and diversification of their investments. Management believes this trend also results from the willingness of consolidators to offer attractive prices due to the consolidators' belief that they can improve the profit margins of the acquired firms mainly through enhanced marketing and sales initiatives and economies of scale. In addition, management believes it can be difficult for new competitors to successfully enter existing markets by opening new cemeteries and funeral homes due to several factors, including the importance to families of reputation and goodwill developed over time, regulatory compliance complexities, zoning restrictions and the existence of an adequate number of facilities serving mature markets. According to the United States Bureau of the Census, the number of deaths in the United States is expected to increase by approximately 1% per year through 2010. In addition, industry studies indicate that while the death rate is declining slightly, the average age of the population in the United States is increasing. The aging of the population, particularly the "baby boomers" who have only recently begun to turn 50, represents a significant opportunity for firms such as the Company to expand their customer base and secure a portion of their future market share by actively marketing prearranged property, merchandise and services. Management believes that its principal target market for sales of prearranged cemetery property, merchandise and services is those age 50 and above, while those most inclined to prearrange their funeral service are typically age 60 and above. Operations Premier Facilities. The Company believes that it operates one or more of the premier death care facilities in each of its principal markets. The Company considers a facility to be "premier" if, when measured by such factors as tradition, heritage, reputation, physical size, volume of business, available inventory, name recognition, aesthetics and potential for development or expansion, it is one of the most highly regarded facilities in its market area. Clustering. The Company operates most of its funeral homes and cemeteries in "clusters." Clusters are groups of funeral homes and cemeteries located in close enough proximity to each other that their operations can be integrated to achieve economies of scale. For example, clustered facilities can share vehicles and employees, centralized embalming services and inventories of caskets and other merchandise, thus decreasing the Company's cost to operate each location. Furthermore, by virtue of their proximity to each other, clustered facilities create opportunities for more integrated, sophisticated management and oversight of their operations. Funeral Operations. Funeral operations accounted for approximately 55% of the Company's revenues for the fiscal year ended October 31, 1997. The Company's funeral homes offer a complete range of services and products to meet families' funeral needs, including consultation on a prearranged basis or at the time of need, removal and preparation of remains, the use of funeral home facilities for visitation, worship and funeral services, transportation services, flowers and caskets. In addition to traditional funeral services, all of the Company's funeral homes offer cremation products and services. Most of the Company's funeral homes have a non-denominational chapel on the premises, thereby permitting family visitation and religious services to take place at one location. As of October 31, 1997, the Company operated 401 funeral homes, 86 of which were leased. Cemetery Operations. Cemetery operations accounted for approximately 45% of the Company's revenues for the fiscal year ended October 31, 1997. The Company's cemetery operations involve the sale of cemetery property and related merchandise, including lots, lawn crypts, family and community mausoleums, monuments, memorials and burial vaults, along with the sale of burial site openings and closings. Cemetery property and merchandise sales are made at the time of need or on a prearranged basis. The Company also maintains cemetery grounds pursuant to perpetual care contracts or laws. Although profit margins of cemetery operations typically are lower than those of funeral operations, the Company believes that its cemetery properties help it to maintain market share, as families often return to a cemetery location where their ancestors are buried. In addition, the Company's clustering and combined facilities strategies help to improve the profitability of individual cemetery locations. As of October 31, 1997, the Company owned and operated 129 cemeteries. Combined Funeral Home and Cemetery Operations. Approximately 44% of the Company's cemeteries have a Company funeral home on site that is operated in conjunction with the cemetery. Many of these facilities are in the Company's key markets, including, among others, New Orleans, Louisiana; Dallas, Fort Worth and Houston, Texas; and Miami, Orlando, Tampa and St. Petersburg, Florida. The Company plans to construct approximately three funeral homes per fiscal year on a Company cemetery location. Although it generally takes several years before a newly constructed funeral home becomes profitable, the Company's experience with combined facilities has demonstrated that the combination of a funeral home with a cemetery can increase significantly the market share and profitability of both. The enhanced purchasing power, more sophisticated management systems and sharing of facilities, personnel and equipment made possible by combined facilities results in lower average operating costs to the Company and helps to increase market share by allowing the Company to offer families the convenience of complete funeral home and cemetery planning and services from a single location at a competitive price. Cremation. For the year ended October 31, 1997, cremations accounted for approximately 28% of funeral services performed by the Company in the United States and Puerto Rico. In Australia, New Zealand, Mexico, Canada and Spain, cremations accounted for approximately 62%, 64%, 49%, 55% and 10%, respectively, of funeral services performed by the Company during fiscal year 1997. In September 1997, the Company entered Portugal, where cremations accounted for approximately 14% of the funeral services performed by the firms acquired. Additionally, in fiscal year 1998, the Company has entered the Netherlands, where cremations accounted for approximately 70% of the funeral services performed by the firm acquired by the Company. While cremations in the United States often result in lower average revenue than traditional funeral services, they generally produce higher gross profit margins. In the Company's foreign markets, cremations generally produce revenues comparable to those of traditional funeral services in those markets. The cremation rate in the United States has been increasing and by 2000, cremations are expected to represent 24% of the United States burial market, according to industry estimates. The Company has been addressing this trend by providing cremation products and services at all of its funeral homes, including traditional funeral services and memorialization options for those choosing cremation. Additionally, the Company has plans to expand on the model developed by Sentinel Cremation Societies, Inc., which was acquired by the Company in fiscal year 1997 and is discussed below under the heading "Internal Growth Strategies." Prearrangements. The Company markets death care products and services on a prearranged basis through a staff of approximately 3,300 commission sales counselors. Prearranged plans enable families to establish in advance and prepay for the type of service to be performed, the products to be used and the cost of such products and services at prices prevailing at the time the agreement is signed, rather than when the products and services are delivered. Prearranged plans also permit families to eliminate the emotional strain of making death care decisions at the time of need. The Company believes that extensive marketing of prearranged products and services produces a backlog of future business and builds current and future market share. On average, over the past five years, the Company has sold nearly three prearranged funeral services for every one it has delivered out of the backlog. During the fiscal year ended October 31, 1997, the Company sold 48,676 prearranged funeral services, and as of October 31, 1997, had a backlog of 350,031 prearranged funeral services expected to be delivered some time in the future. Trust Funds and Escrow Accounts. Prearranged funeral plans are funded either through trust funds or escrow accounts established by the Company, or to a lesser extent through insurance, depending on the regulatory requirements in the relevant jurisdiction. When trust or escrow funding is used, a percentage of the sale price (the amount varies among jurisdictions), which is often paid in installments, is placed in a trust fund or escrow account and the remainder is retained by the Company to defray costs related to the sale. When insurance funding is used, payments received by the Company are used to pay premiums on insurance policies designed to cover the cost of providing the funeral service in the future. Principal and earnings (including interest, dividends and net realized capital gains) on the trust funds and escrow accounts, and amounts funded through insurance, generally are available to the Company only when the funeral service is performed. In limited circumstances, the Company receives principal amounts deposited in trust funds or escrow accounts upon cancellation of the contract by the customer. Additionally, the Company is permitted to withdraw earnings on a current basis in certain jurisdictions where trust funds are used and in unregulated jurisdictions where escrow accounts are used. As of October 31, 1997, the Company's prearranged funeral trust funds and escrow accounts totaled approximately $422 million. Prearranged cemetery merchandise is funded through trust funds and escrow accounts established by the Company, and the related principal and earnings generally are available to the Company only when the merchandise is delivered or contracts are cancelled. As of October 31, 1997, the Company's merchandise trust funds and escrow accounts totaled approximately $150 million. The Company funds its obligation to provide maintenance of cemetery grounds by placing a portion, generally 10%, of the proceeds from cemetery property sales into perpetual care trust funds or escrow accounts. Income from these funds is withdrawn and used for maintenance of the cemeteries, but principal, including in some jurisdictions net realized capital gains, generally must be held in perpetuity. As of October 31, 1997, the Company's perpetual care trust funds and escrow accounts totaled approximately $152 million. The accounting methods used to reflect the Company's prearranged funeral, merchandise and perpetual care trust funds and escrow accounts are complex and are described in the notes to the Company's consolidated financial statements included in Item 8. Management believes that balances in the Company's trust funds and escrow accounts, and amounts funded by insurance, along with installment payments due under contracts, will be sufficient to cover the Company's estimated cost of providing the prearranged services and products currently under contract. For additional information, see Notes 5 and 6 to the Company's consolidated financial statements included in Item 8. Investment Management. The Company's prearranged funeral, merchandise and perpetual care trust funds and escrow accounts generally are administered by the Company's wholly-owned subsidiary, Investors Trust, Inc. ("ITI"), a Texas corporation with trust powers. ITI also provides investment advisory services to the Stewart Enterprises Employees' Retirement Trust ("SEERT") and currently manages the Company's investment portfolio. ITI is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. As of October 31, 1997, ITI had approximately $669 million in assets under management on behalf of the Company's trust funds and escrow accounts, SEERT and the Company. Lawrence B. Hawkins, an executive officer of the Company and a professional investment manager, serves as President of ITI. Mr. Hawkins joined ITI in 1989 after serving for six years as the manager of ITI's accounts for one of its prior investment advisers. ITI operates pursuant to a formal investment policy established by the Investment Committee of the Company's Board of Directors, with the assistance of third party professional financial consultants, that emphasizes conservation, diversification and preservation of principal while seeking appropriate levels of current income and capital appreciation. For additional information, see Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7. Management. The Company has an experienced team of managers, many of whom joined the Company through acquisitions. The Company's management structure is designed to allow local funeral home directors and cemetery managers substantial flexibility in deciding how their firms will be managed and their products and services will be priced and merchandised. At the same time, the Company establishes financial goals at the corporate level and maintains centralized supervisory controls. Finally, the Company provides centralized and standardized business support services primarily through its Shared Services Center described below. Currently, the Company is divided into four operating divisions in North America, each of which is managed by a division president and chief financial officer. These divisions are further divided into regions, each of which is managed by a regional chief operating officer. The Company's operations in Europe and Australasia are not considered separate operating divisions, but they are managed by local regional executives who report to certain of the Company's executive officers. From time to time, the Company may increase or realign the divisions and regions to accommodate expansion of the Company's operations. The Company also has a Corporate Development Division, which manages the Company's acquisition program, and a Corporate Division, which manages the Company's corporate services, accounting and financial operations and strategic planning. The Company has a Shared Services Center that provides centralized and standardized accounting, payroll, contract processing, collection and other services for all of the Company's domestic facilities, including those in Puerto Rico. In order to align the interests of the Company's managers with the long- term interests of its shareholders, the Company has granted options to purchase Company stock to approximately 150 managers. Approximately two- thirds of the stock options are performance-based, with the remaining one- third vesting over time, generally at the rate of 20% per year over five years, except for grants issued since the initial grant date which options vest over the remainder of the original five-year period. The exercisability of the performance-based options depends solely upon the attainment of a stock price objective. Specifically, the options become exercisable only if the average of the closing sale prices of a share of Company stock over 20 consecutive trading days equals or exceeds $52.87 by August 31, 2000; otherwise, the options will be forfeited. The target price of $52.87 was calculated to represent an average of 20% growth per year over five years over the stock price at the time the Company's 1995 Incentive Compensation Plan was adopted in August 1995. The exercise price of the options is equal to the market price of the Company's stock at the date of grant. Additional information with respect to the Company's stock options is contained in the notes to the Company's consolidated financial statements included in Item 8 and in the Company's proxy statements. Generally accepted accounting principles require that a charge to earnings of approximately $68 million be recorded for the performance-based options for the difference between the exercise price and the then-current stock price when achievement of the performance objective become probable. Foreign Operations. The Company first entered foreign markets in fiscal year 1994 and through January 20, 1998 has acquired a total of 180 properties outside the United States and Puerto Rico. For the fiscal year ended October 31, 1997, properties in foreign countries generated approximately 15% of consolidated total revenues and, as of October 31, 1997, accounted for approximately 33% of the Company's funeral home and cemetery locations and 19% of consolidated total assets. Financial Information about Industry and Geographic Segments. For financial information about the Company's industry and geographic segments, see Note 16 to the Company's consolidated financial statements included in Item 8. Internal Growth Strategies. The Company plans to increase market share by extensive marketing of prearranged services and products and by continuing to offer high quality services and products to families at competitive prices. The Company's strategy calls for it to increase the profitability of its funeral homes and cemetery operations primarily by continuing to achieve economies of scale through clustering and the development of combined facilities, through improved merchandising (by adjusting the mix of products and services offered to achieve higher sales and profits), selective price increases, obtaining volume discounts from suppliers and controlling costs. The Shared Services Center is a key component of the Company's plan to control costs. The Company expects to gain market share and improve profitability in the longer term partly through operating partnerships with third parties and by establishing a network of alternative services firms. In fiscal year 1997, the Company announced an agreement with the Archdiocese of Los Angeles whereby the Company will construct and operate six funeral homes on land leased by the Company from the Archdiocese at the site of six cemeteries owned and operated by the Archdiocese. Management believes that this partnership will allow the Company to enjoy the benefits of operating a funeral home on the grounds of a cemetery, without the capital investment of purchasing the cemetery. The Company also believes that partnerships such as this one also benefit the third parties by allowing them to compete with other cemeteries in their market that have funeral homes on their properties. To further expand upon this strategy, the Company is pursuing similar partnership opportunities with other cemetery operators. The construction of funeral homes is capital intensive, and newly-constructed funeral homes often do not yield profits for several years. No assurance can be given about whether, when or to what extent this strategy will contribute in any material respect to the Company's profits. During fiscal year 1997 the Company acquired Sentinel Cremation Societies, Inc. of California ("Sentinel"). Sentinel owns and operates thirteen service centers offering cremations and related products and services. Sentinel also sponsors two cremation societies, which together have more than 104,000 members. Members in the cremation society pay a small membership fee and receive a membership card indicating their wish to be cremated. Because Sentinel's offices generally operate from leased locations with a small staff, they have lower overhead than traditional funeral homes. The cost to the family for death care arrangements at a Sentinel location generally is less than at a traditional funeral home. The expansion of the Sentinel model is an example of the Company's effort to address the growing cremation market, and it offers a cost-saving alternative to the construction of a traditional funeral home. The Company plans to open additional service centers similar to the Sentinel model, although management expects this expansion to occur slowly while the Company further develops and tests the concept in new markets. No assurance can be given about whether, when or to what extent this strategy will contribute in any material respect to the Company's profits. Subsidiaries. Substantially all of the Company's operations are conducted through subsidiaries. Acquisitions Background. From October 31, 1991 through January 20, 1998, the Company has grown from 72 funeral homes and cemeteries in six states to 550 funeral homes and cemeteries in 25 states and eight foreign countries, almost entirely as a result of acquisitions. At the time of the Company's initial public offering in October 1991, the Company owned funeral homes and cemeteries in Louisiana, Texas, Florida, Virginia, West Virginia and Maryland. Since that time, the Company has expanded in the United States, primarily in the Southern and Mid-Atlantic states, and more recently in the Midwest and Pacific states. The Company entered Puerto Rico and Mexico in fiscal years 1993 and 1994, Australia, New Zealand and Canada in fiscal years 1995 and 1996, and Spain and Portugal in fiscal year 1997. The Company also has entered the Netherlands in fiscal year 1998. The Company has acquired a total of 180 funeral homes and cemeteries in Mexico, Australia, New Zealand, Canada, and Europe since it first entered those markets, and it believes that attractive expansion opportunities exist in those and other foreign countries. The following table sets forth certain information with respect to the Company's completed and pending acquisition activity:
Number of Aggregate Funeral Homes Purchase Price and Cemeteries (in millions) -------------- -------------- Properties owned as of October 31, 1991........................ 72 $ - Acquisitions(1): Fiscal year 1992....................... 11 30.0 Fiscal year 1993....................... 49 94.6 Fiscal year 1994....................... 60 177.6 Fiscal year 1995....................... 70 154.4 Fiscal year 1996....................... 149 179.0 Fiscal year 1997....................... 114 184.5 November 1, 1997 - January 20, 1998.... 19 39.5 Pending acquisitions, as of January 20, 1998...................... 44 39.2 ----------------------------- (1) Excludes funeral homes constructed by the Company.
External Growth Strategy. Management believes that only a relatively small part of the death care industry has been consolidated and that additional consolidation opportunities exist. The Company actively pursues acquisition opportunities both domestically and internationally and plans to continue to do so. Where feasible, the Company seeks to acquire premier firms that either may be integrated with an existing cluster or that may serve as a base for the formation of a new cluster, and that have strong management willing to remain with the Company. In evaluating a potential acquisition, the Company also considers factors such as the size of the community the property serves and the potential for increasing the property's profitability through increased prearranged marketing efforts and other means. The Company expects most of its expansion to continue to occur domestically, although it continues to pursue international acquisitions, primarily in Europe, Latin America and the Pacific Rim. Management believes it follows a disciplined approach to acquisitions. Currently, the Company's objective is to pay no more than eight times management's estimate of what the acquired firm's EBIT (earnings before interest and taxes) will be for the first twelve months after the acquisition. Management prices each acquisition so that the acquired firm is expected to be additive to Company earnings per share in the first twelve months after its acquisition. The Company created its Corporate Development Division in fiscal year 1995 to further coordinate the Company's acquisition activities. The Division was expanded in fiscal year 1997 to include, in addition to its six full-time employees, six field representatives focusing on domestic candidates and three representatives focusing on European candidates. These representatives devote their full time to identifying and developing candidates and assisting in negotiations, and they are paid on a commission basis. Divisional and regional management of the Company also work with the Corporate Development Division in identifying and developing candidates and assisting in negotiations. Assimilation. The Company seeks to retain key managers of acquired companies in order to assure the continuation of the acquired firm's goodwill, and frequently enters into management or consulting agreements and non-compete agreements with owners and key managers of acquired firms. In addition, the Company generally continues to operate acquired businesses under their existing names. Acquired firms initially, however, generally have lower gross profit margins than the Company's existing businesses. The Company strives to improve the margins of acquired businesses primarily by increasing prearranged sales, integrating the firm into the Company's marketing program, assisting local managers in evaluating merchandising and pricing strategies, and standardizing and centralizing certain business support functions through the Shared Services Center. Management believes that the Company has been improving its ability to assimilate acquired firms and improve their margins. Competition The Company's funeral home and cemetery operations generally face intense competition in local markets that typically are served by numerous funeral home and cemetery firms. To a lesser degree, the Company also competes with monument dealers, casket retailers and other non-traditional providers of limited services or products. Because the market for death care services is relatively stable, competition usually focuses on increasing market share and selling prearranged products and services. Market share is largely a function of goodwill and tradition, although competitive pricing, professional service and attractive, well-maintained and conveniently located facilities are also important. Because of the significant role played by goodwill and tradition, market share increases are usually gained over a long period of time. Extensive marketing through media advertising, direct mailings and personal sales calls has increased in recent years, especially with respect to the sale of prearranged funeral services. The Company's traditional burial and funeral service operations face competition from the increasing number of cremations in the United States. Industry studies indicate that the percentage of cremations has increased throughout the 1980s and that cremation will represent approximately 24% of the United States burial market by the year 2000, compared with 14% in 1986. All of the Company's funeral homes in the United States offer cremation, and the Company believes that it will be able to maintain its competitive position by marketing full service cremations in combination with traditional funeral services and memorialization. Additionally, development of the Sentinel concept by the Company represents another opportunity for the Company to serve cremation customers. The Company also faces intense competition in its acquisition program, principally from the other publicly-traded death care firms, Service Corporation International, The Loewen Group Inc., Equity Corporation International and Carriage Services, Inc., although a number of smaller companies also participate in the market. Much acquisition activity appears to be concentrated on firms in metropolitan regions, which are the areas of primary interest to the Company. Furthermore, in the United States, prices for funeral home and cemetery properties have increased in recent years. Some of the more attractive properties in some metropolitan markets have already been acquired by competitors, and certain other markets are unattractive because of such factors as size, demographics and the local regulatory environment. Only a small portion of this highly fragmented industry has been consolidated, and the Company believes that opportunities for significant growth through acquisitions continue to exist. However, no assurance can be given that the Company will be successful in expanding its operations through acquisitions. Regulation The Company's funeral home operations are regulated by the Federal Trade Commission (the "FTC") under the FTC's Trade Regulation Rule on Funeral Industry Practices, 16 CFR Part 453 (the "Funeral Rule"), which went into effect on April 30, 1984, and was revised effective July 19, 1994. The Funeral Rule defines certain acts or practices as unfair or deceptive, and contains certain requirements to prevent these unfair or deceptive acts or practices. The preventive requirements require a funeral provider to give consumers accurate, itemized price information and various other disclosures about funeral goods and services. In addition, the preventive requirements prohibit a funeral provider from: (i) misrepresenting legal, crematory and cemetery requirements; (ii) embalming for a fee without permission; (iii) requiring the purchase of a casket for direct cremation; and (iv) requiring consumers to buy certain funeral goods or services as a condition for furnishing other funeral goods or services. The Company's operations are also subject to extensive regulation, supervision, and licensing under numerous federal, state and local laws and regulations. The Company believes that it is in substantial compliance with the Funeral Rule and all such laws and regulations. State legislatures and regulatory agencies frequently propose new laws and regulations, some of which, if enacted as proposed, could have a material effect on the Company's operations and on the death care industry in general. The Company cannot predict the outcome of any proposed legislation or regulation, or the effect that any such legislation or regulation might have on the Company. Employees The Company and its subsidiaries employ approximately 9,300 persons, and management believes that its relationship with its employees is good. Approximately 330 of its employees who are employed in Maryland, Pennsylvania, Puerto Rico, Mexico, Australia and Canada are represented by the Laborers' International Union of North America-AFL-CIO, the International Association of Machinists and Aerospace Workers, the International Brotherhood of Teamsters of Puerto Rico, the Sindicato de Trabajadores y Empleados de Establecimientos Comerciales and Tiendas de Ropa y Almacenes en General del Distrito Federal, the Miscellaneous Workers Union and Association des Travailleurs du Parc Commemoratif de Montreal Inc. Syndicat Canadien (SCEP), respectively. No other employees of the Company or its subsidiaries are members of a collective bargaining unit. Item 2. Properties As of October 31, 1997, all but 86 of the Company's 401 funeral home locations were owned by subsidiaries of the Company. The leases with respect to the 86 properties have terms ranging from two to 44 years. Generally, the Company has a right of first refusal and an option to purchase the leased premises. An aggregate of $1.7 million of the Company's term notes are secured by mortgages on some of the Company's funeral homes; these notes were either assumed by the Company upon its acquisition of the property or represent seller financing of the acquired property. As of October 31, 1997, the Company owned 129 cemeteries covering a total of approximately 8900 acres. Approximately 4,000 acres, or 45% of the total acreage, is available for future development. The Company's corporate headquarters occupy approximately 49,200 square feet of office space in a building in suburban New Orleans that is leased from an affiliate of the Company. See "Certain Transactions," which is incorporated by reference herein from the Company's definitive proxy statement relating to its 1998 annual meeting of shareholders. Item 3. Legal Proceedings Osiris Holding Co., S.A. de C.V. et al. vs. Jaime Arrangoiz Gayosso et al., Ordinary Mercantile Proceedings in the Superior Court of Justice of the Federal District of Mexico, United Mexican States, Thirteenth Civil Court. This suit was brought in September 1994 by The Loewen Group Inc. and a Mexican affiliate (collectively, "Loewen") against the Company, the Mexican corporations acquired by the Company in August 1994, and the shareholders of those corporations. The suit alleges that the sale of those corporations to the Company violated a previous option granted by the shareholders to Loewen. The suit originally requested a judicial declaration that Loewen properly exercised its option prior to the purchase by the Company and that Loewen thereby acquired title to the corporations. The suit also sought unspecified damages. The Company believes the suit is without merit and intends to defend it vigorously. The Company was advised by its Mexican counsel that Loewen has dismissed the Company from the suit and has relinquished its claim of ownership to the stock of the corporations, thereby limiting itself to a claim for damages. Although the corporations, which are now subsidiaries of the Company, remain defendants, the Company does not believe that they have any liability for damages and believes that they are entitled to indemnity from the sellers to the extent that they are held liable. Other. The Company and certain of its subsidiaries are parties to a number of other legal proceedings that have arisen in the ordinary course of business. While the outcome of these proceedings cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. The Company carries insurance with coverages and coverage limits that it believes to be adequate in the death care industry. Although there can be no assurance that such insurance is sufficient to protect the Company against all contingencies, management believes that its insurance protection is reasonable in view of the nature and scope of the Company's operations. Item 4. Submission of Matters to a Vote of Security Holders None. Item 4(a). Executive Officers of the Registrant The following table sets forth certain information with respect to the executive officers of the Company. Executive officers are appointed by and serve at the pleasure of the Board of Directors, subject in all cases, except in Mr. Stewart's case, to rights under existing employment agreements. Each of the following has served the Company in the capacity indicated for more than five years, except as indicated below.
Name Age Position ---- --- -------- Frank B. Stewart, Jr........ 62 Chairman of the Board(1) Joseph P. Henican, III...... 49 Vice Chairman of the Board and Chief Executive Officer(2) William E. Rowe............. 51 President, Chief Operating Officer and Director(3) Ronald H. Patron............ 53 Executive Vice President, President-Corporate Division, Chief Financial Officer and Director Gerard C. Alexander......... 58 Executive Vice President and President-Central Division(4) Richard O. Baldwin, Jr...... 51 Executive Vice President and President-Corporate Development Division(5) Brian J. Marlowe............ 51 Executive Vice President and President-Eastern Division(6) Lawrence B. Hawkins......... 49 Senior Vice President and President-Investors Trust, Inc. Brent F. Heffron............ 48 Senior Vice President and President-Southern Division(7) Raymond C. Knopke, Jr....... 42 Senior Vice President and President-Western Division(8) Kenneth C. Budde............ 50 Senior Vice President-Finance, Chief Accounting Officer, Secretary and Treasurer - --------------------- (1) Mr. Stewart served as interim Chief Executive Officer from November 1, 1994, upon the resignation of Lawrence M. Berner as President and Chief Executive Officer, until February 1, 1995, when Joseph P. Henican, III assumed the office of Chief Executive Officer. (2) Mr. Henican has served as Vice Chairman of the Board since May 1991, and as Chief Executive Officer since February 1, 1995. Prior to that time, he was a partner in the law firm Henican, James & Cleveland, where he served as general counsel to the Company for more than 13 years. (3) Mr. Rowe assumed the office of President on November 1, 1994 upon the resignation of Lawrence M. Berner as President and Chief Executive Officer. He became Senior Executive Vice President and Chief Operating Officer in April 1994. Prior to that time, he served as President of the Company's former Mid-Atlantic Division since 1987 and as Executive Vice President and President of the former Mid-Atlantic Division since May 1991. He became a director of the Company in April 1994. (4) Mr. Alexander has served as Executive Vice President and President of the Company's Central Division since August 1, 1995. Prior to that time, he served as Executive Vice President and President of the Company's former South Central Division. (5) Mr. Baldwin has served as Executive Vice President and President of the Company's Corporate Development Division since August 1, 1995. Prior to that time, he served as Executive Vice President and President of the Company's former Southeast Division. (6) Mr. Marlowe has served as Executive Vice President and President of the Company's Eastern Division since August 1, 1995. From April 1994 to July 1995, he served as Executive Vice President and President of the Company's former Mid-Atlantic Division. From November 1992 to April 1994 he served as Chief Operating Officer of the Company's former Mid-Atlantic Division's Northern Region. (7) Mr. Heffron has served as Senior Vice President and President of the Company's Southern Division since January 1, 1997. From November 1992 to December 1996, he served as President and Chief Operating Officer of the Central Region of the Company's Eastern Division and Vice President of the Company's former Mid-Atlantic Division. (8) Mr. Knopke has served as Senior Vice President and President of the Company's Western Division since January 1, 1997. From December 1993 to December 1996, he served as President and Chief Operating Officer of the South Atlantic Region of the Company's Eastern Division. Prior to that time, he served as President of Baldwin Fairchild Cemeteries and Funeral Homes, which was acquired by the Company in 1983.
PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters Market Information The Company's Class A Common Stock trades on the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol STEI. The following table sets forth, for the periods indicated, the range of high and low sales prices, as reported by the Nasdaq National Market. Prices for the first three quarters of fiscal year 1996 have been adjusted to reflect a three-for-two stock split effected in the form of a 50% stock dividend on June 21, 1996. As of January 6, 1998, there were 1,469 record holders of the Company's Class A Common Stock. High Low ---- --- Fiscal Year 1997 Fourth Quarter ............................. 45 7/8 36 3/8 Third Quarter ............................. 46 32 1/4 Second Quarter ............................. 38 32 First Quarter ............................. 39 3/4 32 3/4 Fiscal Year 1996 Fourth Quarter ............................. 37 26 1/4 Third Quarter ............................. 33 24 1/2 Second Quarter ............................. 31 27/64 24 43/64 First Quarter ............................. 26 43/64 21 11/64 Dividends The Company declared quarterly dividends of $.013 per share on its Class A and Class B Common Stock during the first two quarters of fiscal year 1996, and $.02 per share during the last two quarters of fiscal year 1996 and each quarter of fiscal year 1997. The Company intends to continue its current policy of declaring quarterly cash dividends on the Class A and Class B Common Stock in the amount of $.02 per share. The declaration and payment of dividends is at the discretion of the Company's Board of Directors and will depend on the Company's results of operations, financial condition, cash requirements, future prospects and other factors deemed relevant by the Board. The most restrictive of the Company's credit agreements limits the payment of dividends to 50% of the Company's consolidated net earnings for the previous four fiscal quarters. Sales of Unregistered Equity Securities During fiscal year 1997, the Company did not sell any unregistered equity securities. Item 6. Selected Financial Data The following selected consolidated financial data for the fiscal years ended October 31, 1993 through 1997 are derived from the Company's audited consolidated financial statements. The data set forth below should be read in conjunction with the consolidated financial statements of the Company and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere herein.
Selected Consolidated Financial Data (Dollars in thousands, except per share data) Year Ended October 31, (1) ---------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- --------- --------- -------- Statement of Earnings Data: Revenues: Funeral........................... $ 291,649 $ 225,461 $ 188,991 $ 116,266 $ 75,348 Cemetery.......................... 240,937 207,926 179,831 138,092 107,315 --------- --------- --------- --------- -------- Total revenues.................... 532,586 433,387 368,822 254,358 182,663 Gross profit: Funeral........................... 89,235 72,239 55,309 31,785 22,398 Cemetery.......................... 67,937 45,879 34,434 25,812 19,032 --------- --------- --------- --------- -------- Total gross profit................ 157,172 118,118 89,743 57,597 41,430 Corporate general and administrative expenses........................... (15,402) (14,096) (11,113) (8,157) (7,223) --------- --------- --------- --------- -------- Operating earnings before performance- based stock options................ 141,770 104,022 78,630 49,440 34,207 Performance-based stock options..... - - (17,252) - - --------- --------- --------- --------- -------- Operating earnings.................. 141,770 104,022 61,378 49,440 34,207 Interest expense.................... (38,031) (26,051) (22,815) (8,877) (6,540) Investment and other income......... 2,738 4,104 2,937 1,635 1,902 --------- --------- --------- --------- -------- Earnings from continuing operations before income taxes and cumulative effect of change in accounting principles......................... $ 106,477 $ 82,075 $ 41,500(2) $ 42,198 $ 29,569 ========= ========= ========= ======== ======== Earnings before cumulative effect of change in accounting principles.... $ 69,742 $ 51,297 $ 26,145(2) $ 27,253 $ 18,839 Cumulative effect of change in accounting principles (net of $2,230 income tax benefit)........................... $ (2,324)(1) - - - - --------- --------- ---------- -------- -------- Earnings from continuing operations......................... $ 67,418 $ 51,297 $ 26,145(2) $ 27,253 $ 18,839 ========= ========= ========== ======== ======== Earnings per common share from continuing operations(3): Earnings before cumulative effect of change in accounting principles........................ $ 1.57 $ 1.24 $ .72(2) $ .85 $ .71 Cumulative effect of change in accounting principles............. (.05)(1) --- --- --- --- --------- --------- --------- -------- -------- Net earnings....................... $ 1.52 $ 1.24 $ .72(2) $ .85 $ .71 ========= ========= ========= ======== ======== Weighted average common shares outstanding (in thousands)(3)....... 44,389 41,410 36,386 31,910 26,535 ========= ========= ========= ======== ======== Dividends declared per common share(3)..................... $ .08 $ .066 $ .033 $ .027 $ .018 ========= ========= ========= ======== ======== (continued)
Selected Consolidated Financial Data (Dollars in thousands, except per share data) Year Ended October 31, (1) ----------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- Pro forma amounts assuming change in accounting principles was applied retroactively(1): Earnings from continuing operations....................... $ 69,742 $ 49,959 $ 30,671(2) $ 28,649 $ 17,753 ========== ========= ========== ======== ========= Earnings per common share from continuing operations(3)......... $ 1.57 $ 1.21 $ .84(2) $ .90 $ .67 ========== ========= ========== ======== =========
October 31, -------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ---------- ---------- --------- --------- Balance Sheet Data: Assets.............................. $1,626,851 $1,360,913 $1,072,435 $ 759,390 $ 455,942 Long-term debt, less current maturities......................... 524,351 515,901 317,451 260,913 122,517 Shareholders' equity................ 819,570 547,447 483,978 325,671 232,006
Selected Consolidated Operating Data Year Ended October 31, -------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ---------- ---------- --------- --------- Operating Data: Funeral homes in operation at end of period.......................... 401 298 161 105 76 At-need funerals performed.......... 61,682 38,351 37,263 23,539 14,588 Prearranged funerals performed...... 18,970 15,422 9,225 7,571 6,320 ---------- --------- -------- --------- -------- Total funerals performed........... 80,652 53,773 46,488 31,110 20,908 Prearranged funerals sold........... 48,676 37,545 33,787 26,637 17,859 Backlog of prearranged funerals at end of period................... 350,031 294,829 222,532 183,886 130,610 Cemeteries in operation at end of period.......................... 129 120 105 90 57 Interments performed................ 53,266 46,007 42,480 33,118 26,557 - ----------------------- (1)Effective November 1, 1996, the Company changed accounting principles for prearranged funeral and cemetery sales. For further details, see Note 3 to the Company's consolidated financial statements included in Item 8. Information presented for fiscal year 1997 reflects the change in accounting principles; whereas, information presented for fiscal years 1993 through 1996 reflects results as originally reported under the accounting methods then in effect. (2)Includes a non-recurring, non-cash charge of $17.3 million ($10.9 million, or $.30 per share, after-tax) recorded during the third quarter of fiscal year 1995 in connection with the vesting of the Company's performance-based stock options. (3)Fiscal year 1993 reflects the Company's three-for-two split of its Class A and Class B Common Stock effected December 1, 1993 by means of a 50% stock dividend. Additionally, fiscal years 1993 to 1996 reflect the Company's three-for-two split effected June 21, 1996 by means of a 50% stock dividend.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction Death care businesses in the United States traditionally have been relatively small family-owned enterprises transferred to successive generations within the family. The industry in the United States, and in certain foreign countries, is undergoing a transition in which family-owned firms are consolidating with larger organizations, such as the Company. Although the Company's future participation in this consolidation cannot be guaranteed, the Company believes that it has been successful in identifying and acquiring firms that have enhanced shareholder value, and it will continue to explore expansion opportunities, both domestically and internationally, although it expects most of its expansion to continue to occur within the United States. Two other trends affecting the death care industry are the death rate and average age of the population. Industry studies indicate that while the death rate is declining slightly, the average age of the population is increasing. This is expected to result in a long-term, small, though stable, increase in the number of deaths, despite short-term deviations. More importantly, because of the Company's emphasis on prearranged sales, management anticipates that the aging of the population will create additional opportunities for the Company to expand its customer base and secure a portion of its future market share, since the principal market for these prearranged services is the more mature and fastest growing segment of the population. Certain statements made herein that are not historical facts are intended to be forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward- looking statements are based on assumptions about future events and therefore are inherently uncertain; actual results may differ materially from those projected. See "Cautionary Statements." The discussion herein should be read in conjunction with the Company's consolidated financial statements and the notes thereto. Change in Accounting Principles Effective November 1, 1996, the Company changed accounting principles for prearranged funeral and cemetery sales, as follows: (i) the Company now defers a portion of the earnings realized by irrevocable prearranged funeral trust funds and escrow accounts in order to offset the estimated effects of inflation on the future cost of performing prearranged funeral services; (ii) the Company now records all revenues and costs attributable to prearranged sales of cemetery interment rights and related products at the time the contract is signed; and (iii) the Company now records revenue and related costs attributable to cemetery burial site openings and closings at the time of sale. The accounting changes were made principally to provide a better matching of revenues and expenses in the appropriate periods and to more accurately reflect the Company's operations. See Note 3 to the consolidated financial statements included in Item 8. These changes generally will result in reduced near-term funeral revenue and gross profit, due to the deferral of a portion of the earnings from funeral trust funds and escrow accounts until the funeral is performed. These changes also will result in higher near-term cemetery revenue and gross profit, due to the recognition under the accrual basis of accounting of certain cemetery sales. The net effect is expected to result in increased revenues and gross profit from amounts that would have been reported under the Company's previous accounting methods. Trust and Escrow Investments The Company's funeral and cemetery business includes prearranged sales funded through trust and escrow arrangements, as well as maintenance of cemetery grounds funded through perpetual care funds. The Company's investment strategy for these funds is, among other criteria, partially dependent on the ability to withdraw net realized capital gains from these funds. However, withdrawal of capital gains is not permitted for perpetual care funds in certain jurisdictions in which the Company operates. Accordingly, funds for which net capital gains are permitted to be withdrawn typically are invested in a diversified portfolio consisting principally of U.S. government securities, other interest-bearing securities and preferred stocks rated A or better, publicly-traded common stocks, money market funds and other short-term investments. The Company generally recognizes as revenue on a current basis from trust funds and escrow accounts all dividends, interest and net realized capital gains in excess of the amount to be deferred to offset expected increases in the future costs of performing prearranged funeral services. The composition of trust and escrow income from funds, especially those including common stock, can be materially affected by prevailing interest rates and the performance of the stock market. In managing its North American funds, including those in Puerto Rico and excluding those in Mexico, which include investments in common stock, the Company seeks an overall annual rate of return of approximately 9.0%. In the past three years, such funds have generated overall annual rates of return that approximate that amount. However, no assurance can be given that the Company will be successful in achieving any particular rate of return. Results of Operations For purposes of the following discussion, funeral homes and cemeteries owned and operated for the entirety of both periods being compared are referred to as "Existing Operations." Correspondingly, funeral homes and cemeteries acquired or opened during either period being compared are referred to as "Acquired Operations." Comparisons between fiscal years 1997 and 1996 reflect the pro forma effects of applying the new accounting principles as if the change had occurred on November 1, 1995; whereas, comparisons between fiscal years 1996 and 1995 are presented as originally reported. The following table presents the pro forma results for the year ended October 31, 1996:
Year Ended October 31, ---------------------------------- 1997 1996 -------------- ------------ (As Reported) (Pro Forma) (In millions) Revenues: Funeral .................................... $ 291.6 $ 219.1 Cemetery.................................... 240.9 213.1 -------------- ------------ 532.5 432.2 -------------- ------------ Costs and expenses: Funeral..................................... 202.4 153.2 Cemetery.................................... 173.0 163.3 -------------- ------------ 375.4 316.5 -------------- ------------ Gross profit................................ 157.1 115.7 Corporate general and administrative expenses...................................... 15.4 14.1 -------------- ------------ Operating earnings.......................... 141.7 101.6 Interest expense............................... (38.0) (26.0) Investment and other income.................... 2.7 4.1 -------------- ------------ Earnings before income taxes and cumulative effect of change in accounting principles...................... 106.4 79.7 Income taxes................................... 36.7 29.7 -------------- ------------ Earnings before cumulative effect of change in accounting principles......... $ 69.7 $ 50.0 ============== ============
Year Ended October 31, 1997 Compared to Year Ended October 31, 1996 Funeral Segment
Year Ended October 31, ------------------------ Increase 1997 1996 (Decrease) ---------- ---------- ---------- (In millions) Funeral Revenue - --------------- Existing Operations........................ $ 191.0 $ 184.7 $ 6.3 Acquired Operations........................ 75.9 16.6 59.3 Revenue from prearranged funeral trust funds and escrow accounts........... 24.7 17.8 6.9 ---------- ---------- ---------- $ 291.6 $ 219.1 $ 72.5 ========== ========== ========== Funeral Costs - ------------- Existing Operations........................ $ 139.4 $ 140.8 $ (1.4) Acquired Operations........................ 63.0 12.4 50.6 ---------- ---------- ---------- $ 202.4 $ 153.2 $ 49.2 ========== ========== ========== Funeral Segment Profit..................... $ 89.2 $ 65.9 $ 23.3 ========== ========== ==========
Funeral revenue increased $72.5 million, or 33%, in fiscal year 1997, as compared with the prior fiscal year. The Company experienced a $6.3 million increase in revenue from Existing Operations as result of an increase in sales of certain prearranged funeral merchandise, coupled with a 5% overall increase in the average revenue per funeral service performed by Existing Operations (4% increase domestically), due to price increases and improved merchan- dising. The $1.4 million, or 1%, decrease in funeral costs from Existing Operations resulted principally from the implementation of certain cost control measures, including contract negotiations with certain vendors. Existing Operations achieved improved profit margins resulting primarily from the increased cost control measures, including the Company's centralization and standardization of certain financial and administrative functions in connection with the Company's Shared Services Center, and the increased average revenue per funeral service mentioned above. The increase in revenue and costs from Acquired Operations resulted primarily from the Company's acquisition or construction of funeral homes in fiscal year 1997 which is not reflected in the 1996 period presented above. The $6.9 million increase in revenue from prearranged funeral trust funds and escrow accounts was attributable to a 23% growth in the average balance in such trust funds and escrow accounts, resulting primarily from current year customer payments deposited into the funds and funds added through acquisitions, coupled with a slight increase in the yield on the North American funds (excluding those in Mexico), which yield is in line with the Company's goal of approximately 9%. The return of the peso-denominated investments of the Company's Mexican subsidiaries, which comprise less than 10% of the Company's total funeral trust portfolio, averaged 20% for the fiscal year ended October 31, 1997. The return on the Mexican funds partially offset the approx- imate 18% inflation experienced during the year. Cemetery Segment
Year Ended October 31, --------------------- 1997 1996 Increase --------- ---------- ---------- (In millions) Cemetery Revenue - ---------------- Existing Operations........................... $ 211.3 $ 194.6 $ 16.7 Acquired Operations........................... 17.4 9.4 8.0 Revenue from merchandise trust funds and escrow accounts.......................... 12.2 9.1 3.1 --------- ---------- ---------- $ 240.9 $ 213.1 $ 27.8 ========= ========== ========== Cemetery Costs - -------------- Existing Operations........................... $ 159.9 $ 157.1 $ 2.8 Acquired Operations........................... 13.1 6.2 6.9 --------- ---------- ---------- $ 173.0 $ 163.3 $ 9.7 ========= ========== ========== Cemetery Segment Profit....................... $ 67.9 $ 49.8 $ 18.1 ========= ========== ==========
Cemetery revenue increased $27.8 million, or 13%, in fiscal year 1997, as compared to fiscal year 1996, due principally to a $16.7 million increase in revenue from Existing Operations, resulting principally from an increase in cemetery sales. Costs increased during this same period by $9.7 million, of which $6.9 million was attributable to Acquired Operations. The improved profit margin achieved by Existing Operations was attributable principally to a 9% increase in cemetery sales by Existing Operations, the implementation of certain cost control measures, including the Company's undertaking to centralize and standardize certain financial and administrative functions in connection with the Company's Shared Services Center, and the inclusion of burial site openings and closings in both periods. The increase in revenues and costs associated with Acquired Operations resulted primarily from the acquisition or construction of cemeteries during fiscal year 1997 which is not reflected in the 1996 period presented above. The $3.1 million increase in revenue from merchandise trust funds and escrow accounts was attributable principally to a 24% growth in the average balance in the merchandise trust funds and escrow accounts, resulting primarily from current year payments deposited into the funds, along with funds added through acquisitions, and a slight increase in the yield on the merchandise trust funds and escrow accounts, which return slightly exceeded the Company's goal of approximately 9%. Other Corporate general and administrative expenses increased $1.3 million in fiscal year 1997, to 2.9% of revenue, as compared to 3.3% in fiscal year 1996. The increase in these expenses is the result of activities to support the Company's growth. Interest expense increased $12.0 million during fiscal year 1997 when compared to fiscal year 1996. The increase resulted from an increase in average borrowings, which was partially offset by a slight decrease in average interest rates from 6.7% in 1996 to 6.6% in 1997. Approximately $312.0 million, or 56%, of the $558.3 million borrowings outstanding as of October 31, 1997 was subject to short-term variable interest rates averaging approximately 6.3%. Investment and other income decreased $1.4 million during fiscal year 1997 when compared to the prior year, due principally to a $1.6 million gain in fiscal year 1996 on the sale of land that was condemned. The Company experienced a decrease in its effective tax rate from 37.3% in fiscal year 1996 to 34.5% in fiscal year 1997, principally as a result of the elimination of the Puerto Rican interest withholding tax and strategic state tax planning. Year Ended October 31, 1996 Compared to Year Ended October 31, 1995 Funeral Segment
Year Ended October 31, --------------------- Increase 1996 1995 (Decrease) --------- ---------- ---------- (In millions) Funeral Revenue - --------------- Existing Operations........................... $ 144.6 $ 146.5 $ (1.9) Acquired Operations........................... 52.2 19.5 32.7 Revenue from prearranged funeral trust funds and escrow accounts.................... 28.7 23.0 5.7 --------- ------- --------- $ 225.5 $ 189.0 $ 36.5 ========= ======= ========= Funeral Costs - ------------- Existing Operations........................... $ 112.7 $ 118.7 $ (6.0) Acquired Operations........................... 40.5 15.0 25.5 --------- ------- --------- $ 153.2 $ 133.7 $ 19.5 ========= ======= ========= Funeral Segment Profit........................ $ 72.3 $ 55.3 $ 17.0 ========= ======= =========
Funeral revenue increased $36.5 million, or 19%, in fiscal year 1996, as compared with the prior fiscal year. The Company experienced a $1.9 million decrease in revenue from Existing Operations as a result of a decline in sales of certain prearranged funeral merchandise from fiscal year 1995 to fiscal year 1996, and a $4.9 million decline in funeral revenue from the Company's Mexican operations due to a 26% devaluation of the Mexican peso from fiscal year 1995 to fiscal year 1996. Additionally, there was a 5.5% decrease in the number of domestic funeral services performed by Existing Operations (6.7% total). The decline in revenue was offset partially by a 7% increase in average revenue per funeral service performed due principally to price increases and improved merchandising. The Company believes that the decline in the number of funeral services performed is attributable to a decline in the number of deaths in certain of the Company's markets and increased competition from low-cost funeral service providers in certain markets. The $6.0 million, or 5%, decrease in funeral costs from Existing Operations resulted principally from the implementation of certain cost control measures, including contract negotiations with certain vendors, a $3.6 million decrease in costs attributable to the Company's Mexican operations due to the devaluation of the Mexican peso noted above, and the decline in funeral services noted above. Existing Operations achieved improved profit margins resulting primarily from the increased cost controls and the increased average revenue per funeral service mentioned above. The increase in revenue and costs from Acquired Operations resulted primarily from the Company's acquisition or construction of funeral homes in fiscal year 1996 which is not reflected in the 1995 period presented above. The $5.7 million increase in revenue from prearranged funeral trust fund and escrow accounts was attributable to a 22% growth in the average balance in such trust funds and escrow accounts, resulting primarily from current year customer payments deposited into the funds and funds added through acquisitions, coupled with an increase in the return on the Company's domestic funds, which return is still within the Company's goal of 8.5-9.0%. The return on the peso- denominated investments of the Mexican subsidiaries, which comprise approximately 10% of the Company's total funeral trust portfolio, averaged 23% for the fiscal year ended October 31, 1996. The return on the Mexican funds partially offset the 26% devaluation and associated decline in funeral revenue discussed above and the approximate 29% inflation experienced during the year. Cemetery Segment
Year Ended October 31, --------------------- 1996 1995 Increase --------- ---------- -------- (In millions) Cemetery Revenue - ---------------- Existing Operations.......................... $ 179.1 $ 168.8 $ 10.3 Acquired Operations.......................... 19.7 5.5 14.2 Revenue from merchandise trust funds and escrow accounts................... 9.1 5.5 3.6 -------- -------- ------- $ 207.9 $ 179.8 $ 28.1 ======== ======== ======= Cemetery Costs - -------------- Existing Operations.......................... $ 145.4 $ 140.5 $ 4.9 Acquired Operations.......................... 16.6 4.9 11.7 -------- -------- ------- $ 162.0 $ 145.4 $ 16.6 ======== ======== ======= Cemetery Segment Profit...................... $ 45.9 $ 34.4 $ 11.5 ======== ======== =======
Cemetery revenue increased $28.1 million, or 16%, in fiscal year 1996, as compared to fiscal year 1995, due principally to a $14.2 million increase in revenue from Acquired Operations and a $10.3 million increase in revenue from Existing Operations. Costs increased during this same period by $16.6 million, of which $11.7 million was attributable to Acquired Operations. The $10.3 million, or 6%, increase in revenue from Existing Operations, and the $4.9 million, or 3.5%, increase in costs from Existing Operations were due principally to the significant decrease in fiscal year 1996, as compared to fiscal year 1995, in the revenue and direct cost deferral required by the accounting principles prescribed for sales of real estate. These factors and others, including certain cost control measures implemented by the Company, contributed to an increase in the profit margin of Existing Operations. The increase in revenues and costs associated with Acquired Operations resulted primarily from the acquisition of cemeteries during fiscal year 1996 which is not reflected in the 1995 period presented above. The $3.6 million increase in revenue from merchandise trust funds and escrow accounts was attributable principally to a 30% growth in the average balance in the merchandise trust funds and escrow accounts, resulting primarily from current year payments deposited into the funds, along with funds added through acquisitions, coupled with an increase in the return on the funds, which return is still within the Company's goal of 8.5-9.0%. Other Corporate general and administrative expenses increased $3.0 million in fiscal year 1996, to 3.3% of revenue, as compared to 3.0% in fiscal year 1995. The increase in these expenses is the result of activities to support the Company's growth, including approximately $2.0 million expensed in an undertaking to centralize and standardize certain financial and administrative functions. Management expects to incur additional costs in fiscal year 1997 related to the continuous improvement process, which costs are not expected to be material. During the quarter ended July 31, 1995, the Company determined that achievement of the objectives of its performance-based stock option plan had become probable. In connection with this determination, the Company recorded a non-cash charge of $17.3 million, or $10.9 million after tax, in July 1995. Additionally, the Company accelerated the exercisability of the options, thereby establishing the total charge to earnings. Interest expense increased $3.2 million during fiscal year 1996 when compared to fiscal year 1995. The increase resulted from an increase in average borrowings, which was partially offset by a decrease in average interest rates from 7.2% to 6.7%. Approximately $378.8 million, or 73%, of the $520.1 million borrowings outstanding at October 31, 1996 was subject to short-term variable interest rates averaging approximately 6.2%. Investment and other income increased $1.2 million during fiscal year 1996 when compared to fiscal year 1995, due principally to a $1.6 million gain in fiscal year 1996 on the sale of land that was condemned. The Company experienced an increase in its effective tax rate from 37.0% in fiscal year 1995 to 37.5% in fiscal year 1996. For fiscal year 1997, the Company anticipates that its effective tax rate will decline slightly as a result of reducing the costs of foreign taxes. Liquidity and Capital Resources Cash and marketable securities of the Company were $36.3 million as of October 31, 1997, an increase of approximately $9.2 million from October 31, 1996. The Company used cash of $15.2 million in its operations for the year ended October 31, 1997, compared to providing cash of $11.6 million for fiscal year 1996, due principally to an increase in the growth of receivables, offset by an increase in net earnings and other working capital changes. In October 1996, the Company filed a shelf registration statement with the Securities and Exchange Commission covering $300 million of unsecured, unsubordinated debt securities. In December 1996, the Company issued $100 million of those debt securities in the form of 6.70% Notes due 2003. Net proceeds were approximately $99.4 million, of which $96.8 million was used to reduce balances outstanding under the Company's revolving credit facilities, with the remaining $2.6 million used for acquisitions and general corporate purposes. In April 1997, the Company completed the syndication of a new $600 million revolving credit facility, which replaced its existing $262 million, $88 million and $75 million revolving credit facilities. As of October 31, 1997, $312.0 million was outstanding under this facility, with an average interest rate of 6.3%. Long-term debt as of October 31, 1997 amounted to $558.3 million, compared to $520.1 million as of October 31, 1996. The Company's long-term debt consisted of $312.0 million under the Company's revolving credit facilities, $225.0 mill- ion of long-term notes and $21.3 million of term notes incurred principally in connection with the acquisition of funeral home and cemetery properties. All of the Company's debt is uncollateralized, except for approximately $1.7 million of term notes incurred principally in connection with acquisitions. During the third quarter of fiscal year 1997, the Company completed the sale of 6,055,000 shares of Class A Common Stock, resulting in approximately $211 million in net proceeds, which was used for acquisitions and general corporate purposes. The most restrictive of the Company's credit agreements requires it to maintain a debt-to-equity ratio no higher than 1.25 to 1.0. The Company has managed its capitalization within that limit, with a ratio of total debt to equity of .7, 1.0, and .7 to 1.0 as of October 31, 1997, 1996 and 1995, respectively. As of October 31, 1997, the Company had $463.5 million of additional borrowing capacity within this parameter, of which $295.4 million was available under its revolving credit facilities. The Company's ratio of earnings to fixed charges was 3.65 (which excludes the cumulative effect of change in accounting principles), 3.98, 2.72 (which includes the $17.3 million non-recurring, non-cash performance-based stock option charge), 5.30 and 5.15 for the fiscal years ended October 31, 1997, 1996, 1995, 1994 and 1993, respectively. Excluding the stock option charge, the Company's ratio of earnings to fixed charges for fiscal year 1995 would have been 3.43. For purposes of computing the ratio of earnings to fixed charges, earnings consist of pretax earnings plus fixed charges (excluding interest capitalized during the period). Fixed charges consist of interest expense, capitalized interest, amortization of debt expense and discount or premium relating to any indebtedness, and the portion of rental expense that management believes to be representative of the interest component of rental expense. Fiscal year 1996 and prior amounts reflect the Company's previous accounting methods which were in effect at the time. During fiscal year 1997, the Company completed the acquisition of 104 funeral homes and ten cemeteries for purchase prices aggregating approximately $184.5 million, including the issuance of approximately 344,000 shares of Class A Common Stock and $6.1 million of seller-financed acquisition indebtedness. The cash portion of the purchase price of these acquisitions was funded primarily with advances under the Company's revolving credit facilities. Subsequent to fiscal year-end, the Company completed the acquisition of 17 funeral homes and two cemeteries for approximately $39.5 million. As of January 20, 1998, the Company also had agreements in principle or letters of intent to purchase 44 funeral homes for purchase prices aggregating approximately $39.2 million. If these purchases are consummated, the amounts to be paid will be satisfied principally by borrowings under the Company's revolving credit facilities. Although the Company has no material commitments for capital expenditures, the Company contemplates capital expenditures, excluding acquisitions, of approximately $40 million for the fiscal year ending October 31, 1998, which includes the construction of new funeral homes and refurbishing of funeral homes recently acquired. Management expects that future capital requirements will be satisfied through a combination of internally generated cash flow and amounts available under its revolving credit facilities. Additional debt and equity financing may be required in connection with future acquisitions. In addition, the Company monitors its mix of fixed and floating rate debt obligations in light of changing market conditions and may from time to time decide to alter that mix by, for example, refinancing balances outstanding under its floating rate revolving credit facility with public or private fixed rate debt, or by entering into interest rate swaps or similar interest rate hedging transactions. Inflation Inflation has not had a significant impact on the Company's United States operations over the past three years, nor is it expected to have a significant impact in the foreseeable future. The Mexican economy, however, currently is experiencing inflation rates substantially in excess of those in the United States. During the first quarter of fiscal year 1997, the Company changed its method of reporting foreign currency translation adjustments for its Mexican operations to the method prescribed for highly inflationary economies. Under that method, foreign currency translation adjustments are reflected in results of operations, instead of in shareholders' equity. This change did not have a material effect on the Company's results of operations for fiscal year 1997. Other In 1997, the Company began to modify its computer software programs to enable them to correctly process dates for the year 2000. Project completion is planned for early spring 1999 at an estimated cost of $100,000, using both internal and external resources. The Company presently believes that, with modifications to existing software, the Year 2000 issue will not pose significant operational issues for the Company's computer systems. Statements of Financial Accounting Standards No. 128, "Earnings Per Share," and No. 129, "Disclosure of Information about Capital Structure," are required to be implemented during the first quarter of the Company's fiscal year ending October 31, 1998. Statements of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," and No. 131, "Disclosure about Segments of an Enterprise and Related Information," are required to be implemented during the Company's fiscal year ending October 31, 1999. The effect of these pronouncements on the Company's consolidated financial condition and results of operations is not expected to be material. Forward-Looking Statements Certain statements made herein or elsewhere by, or on behalf of, the Company that are not historical facts are intended to be forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company's goals for fiscal year 1998 include: (i) revenue growth of at least 20%; and (ii) earnings per share growth of 20%. The Company also projects approximately $200-$225 million in acquisitions, which represents a slight increase over the $185 million, $179 million, and $154 million achieved in fiscal years 1997, 1996, and 1995, respectively. For fiscal year 1998, the Company projects gross margin improvement of approximately 50 to 60 basis points over its fiscal year 1997 gross margin. The Company's strategic plan for the future includes the following goals: (i) achievement of $1 billion in revenue by fiscal year 2001, and (ii) earnings per share growth of 20% annually. Forward-looking statements are based on assumptions about future events and are therefore inherently uncertain; actual results may differ materially from those projected. See "Cautionary Statements," below. Cautionary Statements The Company cautions readers that the following important factors, among others, in some cases have affected, and in the future could affect, the Company's actual consolidated results and could cause the Company's actual consolidated results in the future to differ materially from the projections made in the forward-looking statements above and in any other forward-looking statements made by, or on behalf of, the Company. (1) Achieving projected revenue growth depends in part upon sustaining the level of acquisition activity experienced by the Company in the last three fiscal years. Higher levels of acquisition activity will increase anticipated revenues, and lower levels of acquisition activity will decrease anticipated revenues. The level of acquisition activity depends not only on the number of properties acquired, but also on the size of the acquisitions; for example, one large acquisition could increase substantially the level of acquisition activity and, consequently, revenues. Several important factors, among others, affect the Company's ability to consummate acquisitions: (a) The Company may be unable to find a sufficient number of businesses for sale at prices the Company is willing to pay. (b) In most of its existing markets and in many new markets, including foreign markets, that the Company desires to enter, the Company competes for acquisitions with the other publicly-traded death care firms. These competitors, and others, may be willing to pay higher prices for businesses than the Company or may cause the Company to pay more to acquire a business than the Company would otherwise have to pay in the absence of such competition. Thus, the aggress- iveness of the Company's competitors in pricing acquisitions affects the Company's ability to complete acquisitions at prices it finds attractive. (c) Achieving the Company's projected acquisition activity depends on the Company's ability to enter new markets, including foreign markets. Due in part to the Company's lack of experience operating in new areas and to the presence of competitors who have been in certain markets longer than the Company, such entry may be more difficult or expensive than anticipated by the Company. (2) The level of revenues also is affected by the volume and prices of the properties, products and services sold. The annual sales targets set by the Company are very aggressive, and the inability of the Company to achieve planned increases in volume or prices could cause the Company not to meet anticipated levels of revenue. The ability of the Company to achieve volume or price increases at any location depends on numerous factors, including the local economy, the local death rate and competition. (3) Another important component of revenue is earnings from the Company's trust funds and escrow accounts, which are determined by the size of, and returns (which include dividends, interest and realized capital gains) on, the funds. The performance of the funds is related primarily to market conditions that are not within the Company's control. The size of the funds depends on the level of sales, funds added through acquisitions and the amount of returns that may be reinvested. (4) Future revenue also is affected by the level of prearranged sales in prior periods. The level of prearranged sales may be adversely affected by numerous factors, including deterioration in the economy, which causes individuals to have less discretionary income. (5) The Company cannot predict whether or when a non-cash charge to earnings of approximately $68 million may be required in connection with its performance-based stock options. See "1995 Incentive Compensation Plan" in Note 13 to the Company's consolidated financial statements included in Item 8. (6) The Company first entered foreign markets in the fourth quarter of fiscal year 1994, and no assurance can be given that the Company will continue to be successful in expanding in foreign markets, or that any expansion in foreign markets will yield results comparable to those realized as a result of the Company's expansion in the United States. (7) In addition to the factors discussed above, earnings per share may be affected by other important factors, including the following: (a) The ability of the Company to achieve projected economies of scale in markets where it has "clusters" or combined facilities. (b) Whether acquired businesses perform at pro forma levels used by management in the valuation process and whether, and the rate at which, management is able to increase the profitability of acquired businesses. (c) The ability of the Company to manage its growth in terms of imple- menting internal controls and information gathering systems, and retaining or attracting key personnel, among other things. (d) The amount and rate of growth in the Company's corporate general and administrative expenses. (e) Changes in interest rates, which can increase or decrease the amount the Company pays on borrowings with variable rates of interest. (f) The Company's debt-to-equity ratio, the number of shares of common stock outstanding and the portion of the Company's debt that has fixed or variable interest rates. (g) The impact on the Company's financial statements of nonrecurring accounting charges that may result from the Company's ongoing evaluation of its business strategies, asset valuations and organizational structures. (h) Changes in government regulation, including tax rates and structures. (i) Unanticipated outcomes of legal proceedings. (j) Changes in accounting policies and practices adopted voluntarily or required to be adopted by generally accepted accounting principles. The Company also cautions readers that it assumes no obligation to update or publicly release any revisions to forward-looking statements made herein or any other forward-looking statements made by, or on behalf of, the Company. Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Page Report of Independent Accountants........................................... 27 Consolidated Statements of Earnings for the Years Ended October 31, 1997,1996 and 1995............................................. 28 Consolidated Balance Sheets as of October 31, 1997 and 1996................. 29 Consolidated Statements of Shareholders' Equity for the Years Ended October 31, 1997, 1996 and 1995............................................ 31 Consolidated Statements of Cash Flows for the Years Ended October 31, 1997, 1996 and 1995............................................ 32 Notes to Consolidated Financial Statements.................................. 34 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors Stewart Enterprises, Inc.: We have audited the accompanying consolidated balance sheets of Stewart Enterprises, Inc. and Subsidiaries as of October 31, 1997 and 1996 and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended October 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Stewart Enterprises, Inc. and Subsidiaries as of October 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1997 in conformity with generally accepted accounting principles. As described in Note 3 to the consolidated financial statements, the Company changed its method of accounting for cemetery sales and its method of accounting for funeral services investment trust fund earnings in 1997. COOPERS & LYBRAND L.L.P. New Orleans, Louisiana December 16, 1997 STEWART ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in thousands, except per share amounts)
Year Ended October 31, ------------------------------------------- 1997 1996 1995 ---- ---- ---- Revenues: Funeral ............................................ $291,649 $225,461 $188,991 Cemetery ........................................... 240,937 207,926 179,831 ------- -------- ------- 532,586 433,387 368,822 ------- -------- ------- Costs and expenses: Funeral ............................................ 202,414 153,222 133,682 Cemetery ........................................... 173,000 162,047 145,397 ------- -------- ------- 375,414 315,269 279,079 ------- -------- ------- Gross profit........................................ 157,172 118,118 89,743 Corporate general and administrative expenses ......... 15,402 14,096 11,113 ------- -------- ------- Operating earnings before performance-based stock options ................................... 141,770 104,022 78,630 Performance-based stock options ....................... - - 17,252 ------- -------- ------- Operating earnings ................................. 141,770 104,022 61,378 Interest expense ...................................... (38,031) (26,051) (22,815) Investment and other income ........................... 2,738 4,104 2,937 ------- -------- ------- Earnings before income taxes and cumulative effect of change in accounting principles ....... 106,477 82,075 41,500 Income taxes .......................................... 36,735 30,778 15,355 ------- -------- ------- Earnings before cumulative effect of change in accounting principles ................. 69,742 51,297 26,145 Cumulative effect of change in accounting principles (net of $2,230 income tax benefit)(Note 3) ......... (2,324) - - -------- -------- ------- Net earnings .................................... $ 67,418 $ 51,297 $ 26,145 ======== ======== ======== Earnings per common share: Earnings before cumulative effect of change in accounting principles ........................... $ 1.57 $ 1.24 $ .72 Cumulative effect of change in accounting principles ........................... (.05) - - -------- -------- -------- Net earnings ....................................... $ 1.52 $ 1.24 $ .72 ======== ======== ======== Weighted average common shares outstanding (in thousands) ..................................... 44,389 41,410 36,386 ======== ======== ======== Pro forma amounts assuming change in accounting principles was applied retroactively: Net earnings ................................... $ 69,742 $ 49,959 $ 30,671 ======== ======== ======== Earnings per common share ...................... $ 1.57 $ 1.21 $ .84 ======== ======== ========
See accompanying notes to consolidated financial statements. STEWART ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) October 31, ------------------------ ASSETS 1997 1996 ------ --------- ---------- Current assets: Cash and cash equivalent investments............... $ 31,640 $ 24,580 Marketable securities.............................. 4,615 2,514 Receivables, net of allowances..................... 129,760 109,129 Inventories........................................ 43,044 31,044 Prepaid expenses................................... 4,692 4,275 --------- --------- Total current assets............................ 213,751 171,542 Receivables due beyond one year, net of allowances ... 200,285 147,961 Intangible assets..................................... 415,723 301,309 Deferred charges...................................... 77,371 101,073 Cemetery property, at cost............................ 307,494 314,377 Property and equipment, at cost: Land............................................... 67,579 63,653 Buildings.......................................... 244,421 197,553 Equipment and other................................ 102,592 80,626 --------- --------- 414,592 341,832 Less accumulated depreciation...................... 85,188 69,088 --------- --------- Net property and equipment......................... 329,404 272,744 Long-term investments................................. 57,345 48,407 Other assets.......................................... 25,478 3,500 --------- --------- $1,626,851 $1,360,913 ========= ========= (continued) STEWART ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts)
October 31, ------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996 ------------------------------------ ---------- ---------- Current liabilities: Current maturities of long-term debt ..................................... $ 33,973 $ 4,240 Accounts payable ......................................................... 16,705 11,889 Accrued payroll .......................................................... 16,241 12,612 Accrued insurance ........................................................ 8,009 8,341 Accrued interest ......................................................... 7,581 4,621 Accrued other ............................................................ 14,284 14,479 Estimated costs to complete mausoleums and lawn crypts, and to deliver merchandise ............................................ 624 3,552 Income taxes payable ..................................................... - 10,154 Deferred income taxes .................................................... 9,720 3,594 ---------- ---------- Total current liabilities ............................................. 107,137 73,482 Long-term debt, less current maturities ..................................... 524,351 515,901 Deferred income taxes ....................................................... 85,454 70,388 Deferred revenue ............................................................ 79,494 137,874 Other long-term liabilities ................................................. 10,845 15,821 ---------- ---------- Total liabilities ..................................................... 807,281 813,466 ---------- ---------- Commitments and contingencies (Note 14) Preferred stock, $1.00 par value, 5,000,000 shares authorized; no shares issued ......................................................... - - Shareholders' equity: Common stock, $1.00 stated value: Class A authorized 150,000,000 shares; issued and outstanding 46,903,784 and 40,022,483 shares at October 31, 1997 and 1996, respectively ................................................. 46,904 40,022 Class B authorized 5,000,000 shares; issued and outstanding 1,777,510 shares at October 31, 1997 and 1996; 10 votes per share; convertible into an equal number of Class A shares ...... 1,778 1,778 Additional paid-in capital ............................................ 526,180 306,706 Retained earnings ..................................................... 279,104 215,314 Cumulative foreign translation adjustment ............................. (36,609) (19,058) Unrealized appreciation of investments ................................ 2,213 2,685 ---------- ---------- Total shareholders' equity 819,570 547,447 ---------- ---------- $1,626,851 $1,360,913 ========== ==========
See accompanying notes to consolidated financial statements. STEWART ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in thousands, except per share amounts)
Unrealized Common Stock Appreciation -------------------------- Additional Foreign (Depreciation) Total Shares - Paid-In Retained Translation of Unearned Shareholders' Classes A and B(1) Amount Capital Earnings Adjustment Investments Compensation Equity ------------------ ------- ---------- -------- ----------- ------------- ------------ ------------- (in thousands) Balance October 31, 1994 .......... 32,839 (2) $ 32,839 $151,690 $141,885 $ (490) $ - $ (253) $325,671 Net earnings ............. 26,145 26,145 Unearned compensation .... 253 253 Sales of common stock .... 6,081 6,081 97,854 103,935 Subsidiaries acquired with common stock ..... 1,460 1,460 30,203 31,663 Stock options exercised .. 1,866 1,866 37,244 39,110 Purchase and retirement of common stock ....... (1,232) (1,232) (25,045) (26,277) Foreign translation adjustment ............ (18,633) (18,633) Unrealized appreciation of investments ........ 3,356 3,356 Dividends ($.033 per share)(1) ............. (1,245) (1,245) ------------------ -------- ---------- -------- ----------- ------------- ------------ ------------- Balance October 31, 1995 .......... 41,014 (2) 41,014 291,946 166,785 (19,123) 3,356 - 483,978 Net earnings ............. 51,297 51,297 Sales of common stock .... 38 38 841 879 Subsidiaries acquired with common stock .......... 466 466 11,785 12,251 Stock options exercised... 526 526 10,061 10,587 Purchase and retirement of common stock .......... (244) (244) (7,927) (8,171) Foreign translation adjustment ............ 65 65 Unrealized depreciation of investments ........... (671) (671) Dividends ($.066 per share)(1) ............. (2,768) (2,768) ------------------ -------- ---------- -------- ----------- ------------- ------------ ------------- Balance October 31, 1996 .......... 41,800 (2) 41,800 306,706 215,314 (19,058) 2,685 - 547,447 Net earnings ............. 67,418 67,418 Sales of common stock .... 6,095 6,095 205,608 211,703 Subsidiaries acquired with common stock ............ 344 344 12,082 12,426 Stock options exercised .... 787 787 14,851 15,638 Purchase and retirement of common stock ............ (344) (344) (13,067) (13,411) Foreign translation adjustment .............. (17,551) (17,551) Unrealized depreciation of investments ............. (472) (472) Dividends ($.08 per share) .................. (3,628) (3,628) ------------------ -------- ---------- -------- ----------- ------------- ------------ ------------- Balance October 31, 1997 ............ 48,682 (2) $ 48,682 $526,180 $279,104 $(36,609) $ 2,213 $ - $819,570 ================== ======== ========== ======== =========== ============= ============ =============
(1) Share and per share information has been adjusted to give effect to a three-for-two common stock split effective June 21, 1996. (2) Includes 1,778 shares (in thousands) of Class B Common Stock. See accompanying notes to consolidated financial statements. STEWART ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands, except per share amounts)
Cash flows from operating activities: Net earnings............................................. $ 67,418 $ 51,297 $ 26,145 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization......................... 27,849 21,701 16,792 Provision for doubtful accounts....................... 21,351 23,156 15,698 Cumulative effect of change in accounting principles.. 2,324 - - Performance-based stock options....................... - - 17,252 Net gains on sales of marketable securities........... (370) (2,098) (269) Provision (benefit) for deferred income taxes......... 11,360 (4,676) 1,761 Changes in assets and liabilities net of effects from acquisitions: Increase in prearranged funeral trust receivables........................................ (17,933) (17,265) (15,207) Increase in other receivables........................ (71,988) (35,918) (60,684) Increase in deferred charges and intangible assets... (14,018) (7,385) (19,290) Increase in inventories and cemetery property........ (8,394) (8,812) (4,603) Increase (decrease) in accounts payable and accrued expenses........................................... ( 9,641) 2,682 7,675 Decrease in estimated costs to complete mausoleums and lawn crypts, and to deliver merchandise........................................ (24,874) (10,256) (7,306) Increase in deferred revenue......................... 1,778 250 19,877 Increase (decrease) in other......................... (105) (1,037) 349 --------- --------- ---------- Net cash provided by (used in) operating activities... (15,243) 11,639 (1,810) --------- --------- ---------- Cash flows from investing activities: Proceeds from sale of marketable securities .............. 11,297 8,648 7,010 Purchases of marketable securities and long-term investments.................................... (19,771) (16,317) (10,276) Purchases of subsidiaries, net of cash, seller financing and stock issued............................... (154,013) (158,359) (99,691) Additions to property and equipment....................... (44,405) (26,332) (20,676) Other .................................................... 1,037 471 2,770 --------- --------- ---------- Net cash used in investing activites .................... (205,855) (191,889) (120,863) --------- --------- ---------- (continued)
STEWART ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands, except per share amounts)
Year Ended October 31, ---------------------------------- 1997 1996 1995 --------- --------- --------- Cash flows from financing activities: Proceeds from long-term debt............................... 367,725 277,259 202,700 Repayments of long-term debt............................... (348,782) (90,691) (165,310) Issuance of common stock................................... 227,341 11,466 123,122 Purchase and retirement of common stock.................... (13,411) (8,171) (26,277) Dividends.................................................. (3,628) (2,768) (1,245) --------- --------- --------- Net cash provided by financing activities................ 229,245 187,095 132,990 --------- --------- --------- Effect of exchange rates on cash and cash equivalents....... (1,087) (491) (1,305) --------- --------- --------- Net increase in cash........................................ 7,060 6,354 9,012 Cash and cash equivalents, beginning of year................ 24,580 18,226 9,214 --------- --------- --------- Cash and cash equivalents, end of year...................... $ 31,640 $ 24,580 $ 18,226 ========= ========= ========= Supplemental cash flow information: Cash paid during the year for: Income taxes.............................................. $ 30,600 $ 25,100 $ 16,900 Interest.................................................. $ 35,100 $ 26,100 $ 22,800 Non cash investing and financing activities: Subsidiaries acquired with common stock.................. $ 12,426 $ 12,251 $ 31,663 See accompanying notes to consolidated financial statements.
STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (1) The Company Stewart Enterprises, Inc. (the "Company") is the third largest provider of products and services in the death care industry in North America. Through its subsidiaries, the Company offers a complete line of funeral merchandise and services, along with cemetery property, merchandise and services. For the year ended October 31, 1997, the funeral and cemetery segments contributed approximately 55% and 45%, respectively, of total revenues, and 57% and 43%, respectively, of consolidated gross profit. As of October 31, 1997, the Company owned and operated 401 funeral homes and 129 cemeteries in 24 states within the United States, and in Puerto Rico, Mexico, Australia, New Zealand, Canada, Spain and Portugal. The Company commenced its international operations in Mexico in fiscal year 1994, and entered Australia in fiscal year 1995, New Zealand and Canada in fiscal year 1996, and Spain and Portugal in fiscal year 1997. For fiscal year 1997, foreign operations contributed approximately 15% of total revenue and, as of October 31, 1997, represented approximately 19% of total assets. (2) Summary of Significant Accounting Policies (a) Principles of Consolidation The accompanying consolidated financial statements include the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated. (b) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (c) Fair Value of Financial Instruments Estimated fair value amounts have been determined using available market information and the valuation methodologies described below. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein may not be indicative of the amounts the Company could realize in a current market. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. The carrying amounts of cash and cash equivalents, marketable securities and current receivables approximate fair value due to the short-term nature of these instruments. The carrying amount of receivables due beyond one year approximates fair value because they bear interest at rates currently offered by the Company for receivables with similar terms and maturities. The carrying amount of long-term investments is stated at fair value as they are classified as available for sale under the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The carrying value of the Company's long-term floating rate debt approximates fair value as it bears interest at rates currently available to the Company for debt with similar terms and maturities. The fair value of the Company's long-term fixed rate debt is estimated based upon a discounted present value analysis of future cash flows using current rates obtainable by the Company for debt with similar maturities. See Note 11. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (2) Summary of Significant Accounting Policies--(Continued) (d) Inventories Inventories are stated at the lower of cost (specific identification and first-in, first-out methods) or net realizable value. (e) Depreciation and Amortization Buildings and equipment are depreciated over their estimated useful lives, ranging from 19 to 45 years and from three to ten years, respectively, primarily using the straight-line method. For the fiscal years ended October 31, 1997, 1996 and 1995, depreciation expense totalled approximately $17,972, $13,938 and $11,131, respectively. Goodwill, or costs in excess of net assets of companies acquired, totalled approximately $411,564 and $296,473 as of October 31, 1997 and 1996, re- spectively, and is amortized principally over 40 years by the straight-line method. The Company continually evaluates the recoverability of this intangible asset by assessing whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted expected future cash flows. Other intangible assets are amortized over five years by the straight-line method. Accumulated amortization was approximately $29,383 and $19,506 as of October 31, 1997 and 1996, respectively. (f) Foreign Currency Translation In accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation," all assets and liabilities of the Company's foreign subsidiaries are translated into U.S. dollars at the exchange rate in effect at the end of the period, and revenues and expenses are translated at average exchange rates prevailing during the period. The resulting translation adjustments are reflected in a separate component of shareholders' equity, except for translation adjustments arising from operations in highly inflationary economies. During the first quarter of fiscal year 1997, the Company changed its method of reporting foreign currency translation adjustments for its Mexican operations to the method prescribed for highly inflationary economies. Under that method, foreign currency translation adjustments are reflected in results of operations, instead of in shareholders' equity. This change did not have a material effect on the Company's results of operations for fiscal year 1997. (g) Funeral Revenue The Company sells prearranged funeral services and funeral merchandise under contracts that provide for delivery of the services and merchandise at the time of death. Prearranged funeral services are recorded as funeral revenue in the period the funeral is performed. Prearranged funeral merchandise is recognized as revenue upon delivery in jurisdictions where such sales are included in funeral and insurance contracts and where such sales are refundable to the customer; otherwise, revenue is recognized currently. Commissions and direct marketing costs relating to prearranged funeral services and prearranged funeral merchandise sales are accounted for in the same manner as the revenue to which they relate. Where revenue is deferred, the related commissions and direct marketing costs are deferred and amortized as the funeral contracts are fulfilled. Conversely, where revenues are recognized currently, the related costs are expensed as incurred. Indirect costs of marketing prearranged funeral services are expensed in the period in which incurred. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (2) Summary of Significant Accounting Policies--(Continued) Prearranged funeral services and merchandise generally are funded either through trust funds or escrow accounts established by the Company, or through insurance. Principal amounts deposited in the trust funds or escrow accounts are available to the Company as funeral services and merchandise are delivered and are refundable to the customer in those situations where state law provides for the return of those amounts under the purchaser's option to cancel the contract. Certain jurisdictions provide for non-refundable trust funds or escrow accounts where the Company receives such amounts upon cancellation by the customer. Effective November 1, 1996, the Company changed its method of accounting for prearranged funeral trust earnings. See Note 3. Earnings are withdrawn only as funeral services and merchandise are delivered or contracts are canceled, except in jurisdictions that permit earnings to be withdrawn currently and in unregulated jurisdictions where escrow accounts are used. Funeral services sold at the time of need are recorded as funeral revenue in the period the funeral is performed. (h) Cemetery Revenue Effective November 1, 1996, the Company changed its method of accounting for prearranged sales of cemetery interment rights, related products and burial site openings and closings. See Note 3. The Company recognizes income currently from unconstructed mausoleum crypts sold to the extent it has available inventory. Costs of mausoleum and lawn crypts sold but not yet constructed are based upon management's estimated cost to construct those items. In certain jurisdictions in which the Company operates, local law or contracts with customers generally require that a portion of the sale price of prearranged cemetery merchandise be placed in trust funds or escrow accounts. In those jurisdictions where trust or escrow arrangements are neither statutorily nor contractually required, the Company typically deposits on a voluntary basis approximately 110% of the cost of the cemetery merchandise into escrow accounts. The Company recognizes as revenue on a current basis all dividends and interest earned, and net capital gains realized, by prearranged merchandise trust funds or escrow accounts. At the same time, the liability for the estimated cost to deliver merchandise is adjusted through a charge to earnings to reflect inflationary merchandise cost increases. Principal and earnings are withdrawn only as the merchandise is delivered or contracts are cancelled. Pursuant to perpetual care contracts and laws, a portion, generally 10%, of the proceeds from cemetery property sales is deposited into perpetual care trust funds or escrow accounts. In addition, in those jurisdictions where trust or escrow arrangements are neither statutorily nor contractually required, the Company typically deposits on a voluntary basis a portion, generally 10%, of the sale price into escrow accounts. The income from these funds, which have been established in most jurisdictions in which the Company operates cemeteries, is used for maintenance of those cemeteries, but principal, including in some jurisdictions net realized capital gains, must generally be held in perpetuity. Accordingly, the trust fund corpus is not reflected in the consolidated financial statements, except for voluntary escrow funds established by the Company, which are classified as long-term investments. The Company recognizes and withdraws currently all dividend and interest income earned and, where permitted, capital gains realized by perpetual care funds. A portion of the sales of cemetery property and merchandise is made under installment contracts bearing interest at prevailing rates. Finance charges are recognized as cemetery revenue under the effective interest method over the terms of the related installment receivables. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (2) Summary of Significant Accounting Policies--(Continued) (i) Income Taxes The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between tax bases and financial reporting bases of assets and liabilities. The Company has not provided for possible United States federal income taxes on the undistributed earnings of foreign subsidiaries that are considered to be reinvested indefinitely. (j) Earnings Per Common Share Earnings per common share is computed by dividing net earnings by the weighted average number of common shares outstanding during each period. The weighted average number of common shares outstanding for fiscal years 1995 and 1996 has been adjusted for the Company's three-for-two common stock split effective June 21, 1996. (k) Recent Accounting Standards The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," and continues to apply Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock-based compensation plans. See Note 13. Statements of Financial Accounting Standards No. 128, "Earnings Per Share," and No. 129, "Disclosure of Information about Capital Structure," are required to be implemented during the first quarter of the Company's fiscal year ending October 31, 1998. Statements of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," and No. 131, "Disclosure about Segments of an Enterprise and Related Information," are required to be implemented during the Company's fiscal year ending October 31, 1999. The effect of these pronouncements on the Company's consolidated financial condition and results of operations is not expected to be material. (l) Reclassifications Certain reclassifications have been made to the 1996 and 1995 consolidated financial statements to conform to the presentation used in the 1997 consolidated financial statements. These reclassifications had no effect on net earnings or shareholders' equity. (3) Change in Accounting Principles The Company changed the following accounting principles effective November 1, 1996: (a) The Company now defers a portion of the earnings realized by irrevocable prearranged funeral trust funds and escrow accounts in order to offset the estimated effects of inflation on the future cost of performing prearranged funeral services. Earnings realized in excess of those deferred are recognized on a current basis, except in those jurisdictions where earnings revert to a customer if a prearranged funeral service contract is canceled. Previously, all such earnings were recognized as realized. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (3) Change in Accounting Principles--(Continued) (b) The Company now records all revenues and costs attributable to prearranged sales of cemetery interment rights and related products when customer contracts are signed. Allowances for customer cancellations and refunds are provided at the date of sale based upon historical experience. Previously, such sales generally were deferred under the accounting principles prescribed for sales of real estate. Under the Company's application of this method of accounting for sales of real estate, revenues and costs were deferred until 20% of the contract amount had been collected. (c) The Company now records revenue and related costs attributable to cemetery burial site openings and closings at the time of sale. Previously, such sales were deferred until delivery. The accounting changes were made principally for the following reasons: (a) A portion of funeral trust earnings and increasing benefits under insurance contracts is intended to cover increases in the future costs of providing price guaranteed funeral services. The Company believes that deferring such earnings to the extent of the increased costs of the services to be provided will better match revenues and costs because the total funds available to satisfy the contract (principal and deferred earnings) will be included in revenues with concurrent recognition of all costs related to performance of the service when the funeral service is performed. (b) The cemetery accounting methods have been adopted because all significant obligations of the Company, including delivery of products and opening and closing the burial site, have been satisfied in the period the contract is signed. Related costs are provided based on actual costs incurred, firm commitments or reliable estimates. Historical experience is the basis for making appropriate allowances for customer cancellations and will be adjusted when required. The cumulative effect of these changes on prior years resulted in a decrease in net earnings for the year ended October 31, 1997 of $2,324 (net of a $2,230 income tax benefit), or $.05 per share. The current year effect of the change in accounting principles was an increase in net earnings of $3,337, or $.07 per share, for the year ended October 31, 1997. (4) Acquisition of Subsidiaries The following table reflects the Company's acquisition activity during the past three fiscal years. Businesses Acquired Aggregate Class A --------------------------- Purchase Common Shares Funeral Homes Cemeteries Price Issued ------------- ---------- -------- ------------- Fiscal year 1997 104 10 $184,500 344,000 Fiscal year 1996 134 15 179,000 466,000 Fiscal year 1995 55 15 154,400 1,460,000 These acquisitions have been accounted for by the purchase method, and their results of operations are included in the accompanying consolidated financial statements from the dates of acquisition. The purchase price allocations for certain of these acquisitions are based on preliminary information. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (4) Acquisition of Subsidiaries--(Continued) The following table reflects, on an unaudited pro forma basis, the combined operations of the Company and the businesses acquired during fiscal year 1997 as if such acquisitions had taken place at the beginning of the respective periods presented. Appropriate adjustments have been made to reflect the accounting basis used in recording the acquisitions. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations that would have resulted had the combinations been in effect on the dates indicated, that have resulted since the dates of acquisition or that may result in the future. Year Ended October 31, -------------------------------- 1997 1996 ----------- ------------ (Unaudited) Revenues............................ $ 570,325 $ 501,090 =========== ============ Earnings before cumulative effect of change in accounting principles.... $ 67,272 $ 46,462 =========== ============ Net earnings........................ $ 64,947 $ 46,462 =========== ============ Earnings per common share before cumulative effect of change in accounting principles.............. $ 1.51 $ 1.11 =========== ============ Earnings per common share........... $ 1.46 $ 1.11 =========== ============ Weighted average common shares outstanding (in thousands) 44,543 41,755 =========== ============ The effect of acquisitions at dates of purchase on the consolidated financial statements was as follows: Year Ended October 31, -------------------------------------- 1997 1996 1995 ---------- --------- ---------- Current assets........................ $ 8,537 $ 21,380 $ 8,991 Receivables due beyond one year....... - 1,973 3,832 Cemetery property..................... 7,572 25,260 46,482 Property and equipment, net........... 38,653 72,949 52,552 Deferred charges and other assets..... 549 9,889 3,787 Intangible assets, net................ 142,484 98,230 92,291 Current liabilities................... (10,683) (10,396) (22,990) Long-term debt........................ (19,315) (10,388) (10,767) Deferred income taxes................. (841) (15,640) (11,460) Deferred revenue and other liabilities.......................... (517) (22,647) (31,364) ---------- --------- ---------- 166,439 170,610 131,354 Common stock used for acquisitions.... 12,426 12,251 31,663 ---------- --------- ---------- Cash used for acquisitions............ $ 154,013 $158,359 $ 99,691 ========== ========= ========== STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (5) Prearranged Funeral Services The following summary reflects prearranged funeral services sold, but not yet delivered, which are funded with trusts, escrow accounts and insurance, and related prearranged funeral trust fund and escrow account balances. The trust- and insurance-funded balances are not reflected in the accompanying consolidated financial statements. Amounts which represent the Company's voluntary deposits into escrow accounts in those jurisdictions where trust or escrow arrangements are neither statutorily nor contractually required aggregated $34,599 and $29,953 as of October 31, 1997 and 1996, respectively, and are classified as long-term investments. Amounts deposited in the trust funds and escrow accounts and funded through insurance are available to the Company when the services are performed. Funds held in trust or escrow are invested, and earnings (including net realized capital gains) realized on irrevocable trust funds and escrow accounts in excess of the amount deferred to offset the estimated effects of inflation on the future cost of performing prearranged funeral services are recognized on a current basis, in accordance with the Company's change in accounting methods effective November 1, 1996. For fiscal year 1997, earnings of $24,682 were included in funeral revenue. Had the Company's new accounting methods been in effect in prior years, the amount of funeral trust and escrow earnings included in funeral revenue would have been $17,829 and $14,715 for 1996 and 1995, respectively. October 31, ----------------------------- 1997 1996 ------------- ----------- Trust or escrow funded: Prearranged funeral services sold, but not delivered.......................... $ 505,970 $ 445,301 ============= =========== Investments at market value................. $ 422,336 $ 353,366 Receivables to be collected on prearranged funeral service contracts...... 102,154 97,053 ------------- ----------- $ 524,490 $ 450,419 ============= =========== Insurance-funded and other prearranged funeral services............................ $ 184,111 $ 141,725 ============= =========== Investments consist of: U.S. Government, U.S. agencies and municipalities...................... $ 54,568 $ 67,852 Corporate bonds.......................... 76,944 63,720 Preferred stocks......................... 31,871 29,906 Common stocks............................ 54,938 38,511 Money market funds and other short-term investments.................. 151,825 110,540 Short-term fixed income foreign investments............................. 41,766 37,536 ------------- ----------- Total value at cost...................... 411,912 348,065 Net unrealized appreciation.............. 10,424 5,301 ------------- ----------- Total value at market....................... $ 422,336 $ 353,366 ============= =========== STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (6) Cemetery Trust Funds and Escrow Accounts The following summary reflects the Company's merchandise trust fund and escrow account balances, as well as merchandise sold, but undelivered, at current cost. Merchandise sold, but undelivered, is reflected at current cost in the accompanying consolidated balance sheets net of the related merchandise trust fund and escrow account balances and accumulated earnings, except for $20,833 and $17,339 classified as long-term investments as of October 31, 1997 and 1996, respectively. These amounts represent the Company's voluntary deposits into escrow accounts in those jurisdictions where trust or escrow arrangements are neither statutorily nor contractually required. Amounts deposited in the trust funds and escrow accounts are invested, and the revenue on the funds (including net realized capital gains) of $12,237, $9,082 and $5,471 is reflected in cemetery revenue for 1997, 1996 and 1995, respectively. Amounts deposited in merchandise trust funds and escrow accounts that are invested in debt securities as of October 31, 1997 totalled $74,637 and are scheduled to mature as follows: $3,941 in less than one year; $25,787 in one through five years; $42,524 in five through ten years; and $2,385 in more than ten years.
October 31, ---------------------------- 1997 1996 ------------ ----------- Merchandise trust funds and escrow accounts: Merchandise sold, but not delivered, at current cost................................ $ 108,643 $ 101,834 ============ =========== Investments at market value..................... $ 150,264 $ 113,530 Amounts to be collected on merchandise contracts....................... 50,044 37,290 ------------ ----------- $ 200,308 $ 150,820 ============ =========== Investments consist of: U.S. Government, U.S. agencies and municipalities............................. $ 29,141 $ 25,194 Corporate bonds................................. 43,506 27,140 Preferred stocks................................ 13,802 7,126 Common stocks................................... 24,452 16,107 Money market funds and other short-term investments......................... 37,177 34,934 ------------ ----------- Total value at cost............................. 148,078 110,501 Net unrealized appreciation..................... 2,186 3,029 ------------ ----------- Total value at market........................... $ 150,264 $ 113,530 ============ ===========
STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (6) Cemetery Trust Funds and Escrow Accounts--(Continued) The following summary reflects the Company's perpetual care trust fund and escrow account balances. Since principal cannot be withdrawn, these balances are not reflected in the accompanying financial statements, except for $1,913 and $1,115, classified as long-term investments as of October 31, 1997 and 1996, respectively, which represent the Company's voluntary deposits into escrow accounts in those jurisdictions where trust or escrow arrangements are neither statutorily nor contractually required. Funds held in trust or escrow are invested, and the earnings withdrawn from the trust funds and escrow accounts are used for the maintenance of cemetery grounds. For the years ended October 31, 1997, 1996 and 1995, such withdrawals, included in cemetery revenue, totalled $12,497, $15,056 and $13,265, respectively.
October 31, ------------------------------ 1997 1996 ----------- ------------ Perpetual care trust funds and escrow accounts: Investments at market value...................... $ 152,137 $ 144,916 Amounts to be collected under existing agreements............................. 9,447 7,341 ----------- ------------ $ 161,584 $ 152,257 =========== ============ Investments consist of: U.S. Government, U.S. agencies and municipalities............................. $ 28,829 $ 29,400 Corporate bonds................................. 45,274 44,215 Preferred stocks................................ 7,467 2,352 Common stocks................................... 25,266 24,573 Money market funds and other short-term investments......................... 37,023 34,859 Other long-term investments..................... 520 129 ----------- ------------ Total value at cost............................. 144,379 135,528 Net unrealized appreciation..................... 7,758 9,388 ----------- ------------ Total value at market........................... $ 152,137 $ 144,916 =========== ============
(7) Cash and Cash Equivalent Investments The Company considers all highly liquid investments with an original maturity of three months or less to be a cash equivalent. The Company deposits its cash and cash equivalent investments with high quality credit institutions. Such balances typically exceed applicable FDIC insurance limits. October 31, ------------------------------ 1997 1996 ----------- ------------ Cash...................................... $ 18,118 $ 19,790 Cash equivalent investments............... 13,522 4,790 ----------- ------------ $ 31,640 $ 24,580 =========== ============ (8) Marketable Securities and Long-term Investments Marketable securities consist of investments in fixed maturities and equity securities. The market value as of October 31, 1997 and 1996 was $4,615 and $2,514, which included gross unrealized gains of $1,027 and $345, respectively. The Company realized net gains on the sales of securities of $370, $2,098 and $269 for the years ended October 31, 1997, 1996 and 1995, respectively. The cost of securities sold was determined by using the average cost method. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (8) Marketable Securities and Long-term Investments--(Continued) The market value of long-term investments as of October 31, 1997 and 1996 was $57,345 and $48,407, which included gross unrealized gains of $1,877 and $1,409, and gross unrealized losses of $968 and $437, respectively. Amounts classified as long-term investments and invested in debt securities as of October 31, 1997 totalled $15,137 and are scheduled to mature as follows: $0 in less than one year; $5,145 in one through five years; $9,494 in five through ten years; and $498 in more than ten years. See Notes 5 and 6 which include details of the Company's long-term investments. (9) Receivables October 31, ------------------------ 1997 1996 --------- --------- Current receivables are summarized as follows: Installment contracts due within one year....................................... $ 77,332 $ 64,937 Trade accounts, notes and other................. 29,642 10,610 Allowance for sales cancellations and doubtful accounts.......................... (6,869) (2,996) Amount to be collected for perpetual care funds..................................... (4,017) (2,401) --------- --------- 96,088 70,150 Funeral receivables............................. 25,332 36,032 Prearranged funeral trust receivable............ 8,340 2,947 --------- --------- Net current receivables...................... $129,760 $109,129 ========= ========= Long-term receivables are summarized as follows: Installment contracts due beyond one year....... $154,710 $107,682 Allowance for sales cancellations and doubtful accounts............................. (9,696) (3,236) Amount to be collected for perpetual care funds........................... (5,430) (4,940) --------- --------- 139,584 99,506 Prearranged funeral trust receivable............ 60,701 48,408 Other........................................... ---- 47 --------- --------- Net long-term receivables.................. $200,285 $147,961 ========= ========= The Company's receivables as of October 31, 1997 are expected to mature as follows: Years ending October 31, 1998........................................................... $ 129,760 1999........................................................... 43,807 2000........................................................... 34,162 2001........................................................... 26,897 2002........................................................... 20,117 Later years.................................................... 75,302 ---------- $ 330,045 ========== STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (10) Inventories and Cemetery Property Inventories are comprised of the following: October 31, ------------------------- 1997 1996 ---------- ---------- Developed cemetery property.................. $ 22,172 $ 15,837 Merchandise and supplies..................... 20,872 15,207 ---------- ----------- $ 43,044 $ 31,044 ========== =========== Cemetery property is comprised of the following: October 31, ------------------------- 1997 1996 ---------- ---------- Developed cemetery property................... $ 65,083 $ 67,541 Undeveloped cemetery property................. 242,411 246,836 ---------- ---------- $307,494 $314,377 ========== ========== The Company evaluates the recoverability of the cost of undeveloped cemetery property through comparison with undiscounted expected future cash flows. (11) Long-term Debt The following is a summary of long-term debt: October 31, ------------------------- 1997 1996 ---------- ---------- Revolving Credit Facilities (see "Credit Facility," "Revolving Credit Facility" and "Revolving Line of Credit Note" below)..................... $312,000 $303,811 Senior Notes.................................... 125,000 125,000 6.70% Notes..................................... 100,000 - Bridge Loan .................................... - 75,000 Other, principally seller financing of acquired operations or assumption upon acquisition, weighted average interest rate of 5.9% as of October 31, 1997, partially collateralized by assets of subsidiaries, with maturities through 2022................... 21,324 16,330 ---------- ---------- 558,324 520,141 Less current maturities......................... 33,973 4,240 ---------- ---------- $524,351 $515,901 ========== =========== In December 1995, the Company entered into an Amended and Restated Loan Agreement with a group of banks that increased the aggregate amount available under its uncollateralized revolving credit facility ("Credit Facility") from $250,000 to $350,000. The number of participating banks increased from six to eight, and the maturity date was extended to October 31, 2000. Interest was payable at a lending bank's prime rate, LIBOR plus a specified spread or a certificate of deposit rate plus a specified spread, at the Company's election. The Credit Facility provided for a commitment fee of .20% on the average daily amount of the unadvanced portion. In February 1996, the commitment fee was reduced to .18% as a result of the Company's debt rating. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (11) Long-term Debt--(Continued) On October 31, 1996, the Company and the lenders under the $350,000 Credit Facility entered into an agreement whereby the $350,000 facility was replaced with a $262,000 facility between the lenders and the Company, and an $88,000 facility between the lenders and two of the Company's subsidiaries which is guaranteed by the Company. The terms and conditions of the new facilities were identical to those contained in the Credit Facility. As of October 31, 1996, $215,811 was outstanding under the $262,000 facility, with a weighted average interest rate of 6.04%, and $88,000 was outstanding under the $88,000 facility, with a weighted average rate of 6.48%. In April 1997, the Credit Facility was replaced with a new revolving credit facility as discussed below. In September 1996, the Company entered into a Bridge Loan Agreement ("Bridge Loan") with the lead bank in the Company's Credit Facility in the amount of $75,000 to facilitate the Company's acquisition of a foreign subsidiary. Borrowings under this facility bear interest at the lending bank's prime rate, LIBOR plus a specified spread or a certificate of deposit rate plus a specified spread, at the Company's election, mature on January 17, 1997 and have other terms and conditions that are identical to those contained in the Credit Facility. As of October 31, 1996, $75,000 was outstanding under this agreement and the weighted average interest rate was 6.01%. The loan was repaid during fiscal year 1997. In April 1997, the Company completed the syndication of a new $600,000 revolving credit facility ("Revolving Credit Facility"), which replaced its existing $262,000, $88,000, and $75,000 revolving credit facilities. The Revolving Credit Facility matures on April 30, 2002, contains a facility fee of 12.5 basis points, and borrowings bear interest at the lead lending bank's prime rate, or certain optional rates at the Company's election. As of October 31, 1997, $312,000 was outstanding under this agreement with a weighted average interest rate of 6.26%. Additionally, the Company has available with a separate financial institution an uncollateralized revolving line of credit ("Revolving Line of Credit Note") used to support the interim cash funding for advances to be made under the Revolving Credit Facility in amounts less than $5,000. Borrowings under the Revolving Line of Credit Note are limited to $10,000, bear interest at the lending bank's prime rate or certain optional rates at the Company's election, and mature on March 31, 1998. Periodically, the Company will pay down the Revolving Line of Credit Note using funds drawn on the Revolving Credit Facility. There were no amounts outstanding under the Revolving Line of Credit Note as of October 31, 1997 and 1996. On December 21, 1993, the Company issued $50,000 of uncollateralized senior notes, bearing interest at a rate of 6.04% and maturing on November 30, 2003. Principal payments of $7,143 are due each year commencing November 30, 1997, with the final payment due on November 30, 2003. On November 7, 1994, the Company issued $75,000 of uncollateralized senior notes with an average maturity of seven years and a weighted average interest rate of 8.44%. Principal payments are due as follows: $15,000 on May 1, 1998, $16,667 on each of November 1, 2000, 2001 and 2002, and $10,000 on November 1, 2006. As of October 31, 1997 and 1996, the carrying value of the Company's senior notes, including accrued interest, was $129,381, whereas the fair value was $132,464 and $131,034, respectively. In October 1996, the Company filed a shelf registration statement with the Securities and Exchange Commission covering $300 million of unsecured, unsubordinated debt securities. In December 1996, the Company issued $100,000 of those debt securities in the form of 6.70% Notes due 2003. Net proceeds were approximately $99,400, of which $96,800 was used to reduce balances outstanding under the Company's bank facilities, with the remaining $2,600 used for acquisitions and general corporate purposes. As of October 31, 1997, the carrying value of these notes, including accrued interest, was $102,792, whereas the fair value was $104,337. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (11) Long-term Debt--(Continued) The bank loan agreements and senior note agreements contain various restrictive covenants that limit consolidated funded indebtedness, indebtedness of subsidiaries, the sale of assets to entities outside the consolidated group and the payment of dividends on, and repurchases of, the capital stock of the Company, and the bank loan agreements contain change of control provisions. The Company also is required to maintain specified financial ratios related to cash flow, net worth and fixed charges. Principal payments due on the long-term debt, excluding the Revolving Credit Facility, for the fiscal years ending October 31, 1998 through October 31, 2002 are approximately $33,973 in 1998, $8,585 in 1999, $8,480 in 2000, $25,070 in 2001 and $24,998 in 2002. (12) Income Taxes Income tax expense (benefit) is comprised of the following components: U.S. and Possessions State Foreign Total ----------- ------- ------- -------- Year Ended October 31, 1997: Current tax expense........... $ 21,174 $ 1,238 $ 2,963 $ 25,375 Deferred tax expense.......... 5,760 3,000 2,600 11,360 ----------- ------- ------- -------- $ 26,934 $ 4,238 $ 5,563 $ 36,735 =========== ======= ======= ======== 1996: Current tax expense........... $ 31,128 $ 3,249 $ 1,077 $ 35,454 Deferred tax expense (benefit).................... (6,720) (307) 2,351 (4,676) ----------- ------- ------- -------- $ 24,408 $ 2,942 $ 3,428 $ 30,778 =========== ======= ======= ======== 1995: Current tax expense........... $ 10,610 $ 2,106 $ 878 $ 13,594 Deferred tax expense (benefit).................... (521) (509) 2,791 1,761 ----------- ------- ------- -------- $ 10,089 $ 1,597 $ 3,669 $ 15,355 =========== ======= ======= ======== The reconciliation of the statutory tax rate to the effective tax rate is as follows: Year Ended October 31, ---------------------------------------- 1997 1996 1995 ----------- ---------- ---------- Statutory tax rate.................. 35.00% 35.00% 35.00% Increases (reductions) in tax rate resulting from: State and U.S. possessions....... 2.82 6.21 7.45 Goodwill and other............... .31 2.52 1.35 Dividend exclusion............... (.78) (1.03) (2.26) Foreign tax rate differential....... (2.50) (2.88) (2.77) Foreign tax credit.................. (.35) (2.32) (1.77) ----------- ---------- ---------- Effective tax rate.................. 34.50% 37.50% 37.00% =========== ========== ========== STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (12) Income Taxes--(Continued) Deferred tax assets and liabilities consist of the following:
October 31, ------------------------ 1997 1996 ---------- ---------- Deferred tax assets: Domestic trust earnings............................. $ 13,975 $ --- Estimated cost to deliver merchandise............... 3,360 3,293 Allowance for sales cancellations and doubtful accounts.............................. 1,911 1,131 Deferred preneed sales and expenses................. 1,479 5,252 Deferred revenue on cemetery property and merchandise sales.............................. --- 18,466 State income taxes.................................. --- 991 Stock compensation.................................. --- 947 Other............................................... 328 --- ---------- ---------- 21,053 30,080 ---------- ---------- Deferred tax liabilities: Purchase accounting adjustments..................... 88,295 85,504 Foreign trust earnings.............................. 7,741 5,142 Deferred revenue on cemetery property and merchandise sales.............................. 5,438 --- State income taxes.................................. 3,839 --- Percentage of completion on long-term contracts..... 3,733 4,480 Equity method investments........................... 2,005 2,005 Goodwill............................................ 1,634 2,288 Unrealized appreciation of investments.............. 1,170 1,597 Non-compete amortization............................ 805 308 Depreciation........................................ 737 737 Other............................................... 830 2,001 ---------- --------- 116,227 104,062 ---------- --------- $ 95,174 $ 73,982 ========== ========= Current net deferred liability....................... $ 9,720 $ 3,594 Long-term net deferred liability..................... 85,454 70,388 ---------- --------- $ 95,174 $ 73,982 ========== =========
For the years ended October 31, 1997, 1996 and 1995, approximately 6%, 12% and 14%, respectively, of the Company's earnings before income taxes (excluding the performance-based stock option charge in fiscal year 1995), were generated from properties in foreign jurisdictions. (13) Benefit Plans Stewart Enterprises Employees' Retirement Trust The Company has a defined contribution retirement plan, the "Stewart Enterprises Employees' Retirement Trust (A Profit-Sharing Plan) ("SEERT")." This plan covers substantially all employees with more than one year of service who have attained the age of 21. Contributions are made to the plan at the discretion of the Company's Board of Directors. Additionally, employees who participate may contribute up to 15% of their earnings. Effective January 1, 1997, the first 5% of such employee contributions are eligible for Company matching contributions at the rate of $.50 for each $1.00 STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (13) Benefit Plans--(Continued) contributed. Prior to January 1, 1997, Company matching contributions were $.25 for each $1.00 contributed. The Company's expense, including the Company's matching contributions, for the fiscal years ended October 31, 1997, 1996 and 1995 was approximately $2,900, $2,550 and $2,250, respectively. Non-qualified Supplemental Retirement and Deferred Compensation Plan In January 1994, the Company developed a non-qualified key employee defined contribution supplemental retirement plan, which provides certain highly compensated employees the opportunity to accumulate deferred compensation which cannot be accumulated under SEERT due to certain limitations. Contributions are made to the plan at the discretion of the Company's Board of Directors. Additionally, employees who participate may contribute up to 15% of their earnings. Effective January 1, 1997, the first 5% of such employee contributions are eligible for Company matching contributions at the rate of $.50 for each $1.00 contributed. Prior to January 1, 1997, Company matching contributions were $.25 for each $1.00 contributed. The Company's expense, including the Company's matching contributions, for the fiscal years ended October 31, 1997, 1996 and 1995 was approximately $164, $116 and $53, respectively. 1991 Incentive Compensation Plan In May 1991, the Company adopted the 1991 Incentive Compensation Plan, pursuant to which officers and other employees of the Company could be granted stock options, stock awards, restricted stock, performance share awards or cash awards by the Compensation Committee of the Board of Directors. From September 25, 1992 through October 31, 1995, the Company granted options that become exercisable based upon the passage of time to officers and other employees for the purchase of a total of 1,452,938 shares of Class A Common Stock at exercise prices equal to the fair market value at the grant date, which ranged from $8.89 to $16.00 per share. The options generally were exercisable in 25% annual increments over the four years following their grant, except that options granted during fiscal year 1995 were exercisable 50% per year over the next two years. On July 25, 1995, the Compensation Committee accelerated by two months the exercisability of options scheduled to become exercisable September 25, 1995. As of October 31, 1997, all except 15,000 options scheduled to become exercisable based upon the passage of time had been exercised. From November 1, 1992 through October 31, 1995, the Company granted performance-based options to certain officers and other employees for the purchase of a total of 1,650,000 shares of Class A Common Stock at exercise prices equal to the fair market value at the grant date, which ranged from $9.55 to $16.00 per share. The agreements under which the options were granted provided that the options were to become exercisable on December 1, 1996 only if, at any time prior to November 1, 1996, the average of the closing sale prices of a share of the Company's Class A Common Stock over five consecutive trading days equaled or exceeded $19.78, and the average annual compounded increase in the Company's earnings per share for the four fiscal years ending October 31, 1996 was at least 15%. Generally accepted accounting principles require that a charge to earnings be recorded for these performance-based options for the difference between the exercise price and the then-current stock price when achievement of the performance objectives becomes probable. During May 1995, the stock price objective was achieved, and in July 1995, management determined that the achievement of the earnings objective was probable. Accordingly, during the third quarter of fiscal year 1995, the Company recorded a non-cash charge of $17,252 ($10,869, or $.30 per share, after-tax) for the difference between the option exercise prices and $21.58, the then-market price of the Company's Class A Common Stock. Additionally, in July 1995 the Compensation Committee accelerated the exercisability of the performance-based options, thereby establishing the total charge to earnings. As of October 31, 1997, all performance-based options granted under the 1991 Incentive Compensation Plan had been exercised. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (13) Benefit Plans--(Continued) Pursuant to the Company's 1991 Incentive Compensation Plan, each director and certain former directors of the Company who are not employees of the Company were granted options to purchase 5,625 shares of the Company's Class A Common Stock on each of February 16, 1993, and November 1, 1993, 1994 and 1995. Persons who are not employees of the Company who joined the Board between option grant dates and certain former directors received a reduced number of options based on the number of months of service on the Board prior to the next grant date. The options became exercisable on October 31 following the date of grant, but may be exercised earlier if the director dies, retires from the Board on or after reaching age 65 or becomes disabled. The options expired on October 31, 1997. The exercise price of the options was 80% of the fair market value of the Class A Common Stock on the date of grant. As of October 31, 1997, 121,875 options had been granted pursuant to these provisions of the Plan, and all had been exercised. 1995 Incentive Compensation Plan In August 1995, the Board of Directors adopted, and in December 1995 and December 1996 amended, the 1995 Incentive Compensation Plan, pursuant to which officers and other employees of the Company may be granted stock options, stock awards, restricted stock, stock appreciation rights, performance share awards or cash awards by the Compensation Committee of the Board of Directors. From September 7, 1995 through October 31, 1997, the Company granted options to officers and other employees for the purchase of a total of 3,374,268 shares of Class A Common Stock at exercise prices equal to the fair market value at the grant dates, which ranged from $21.00 to $43.00 per share. In general, two-thirds of the options become exercisable in full on the first day between the date of grant and August 31, 2000 that the average of the closing sale prices of a share of the Company's Class A Common Stock for the 20 preceding consecutive trading days equals or exceeds $52.87, which represents a 20% annual compounded growth in the price of a share of the Company's Class A Common Stock over five years. Generally accepted accounting principles require that a charge to earnings of approximately $68 million be recorded for the performance-based options for the difference between the exercise price and the then-current stock price when achievement of the performance objective becomes probable. The remaining options generally become exercisable in 20% annual increments beginning on September 7, 1996, except for grants issued since the initial grant date, which options vest over the remainder of the original five-year period. The Compensation Committee may accelerate the exercisability of any option at any time at its discretion and the options become immediately exercisable in the event of a change of control of the Company, as defined in the plan. All of the options expire on October 31, 2001. As of October 31, 1997, 48,989 options had been exercised under this plan, and 23,424 options had been forfeited. Directors' Stock Option Plan Effective January 2, 1996, the Board of Directors adopted, and in December 1996 amended, the Directors' Stock Option Plan, pursuant to which each director of the Company who is not an employee of the Company was granted an option to purchase 36,000 shares of the Company's Class A Common Stock. From January 2, 1996 through October 31, 1997, the Company granted a total of 180,000 options at exercise prices equal to the fair market value at the grant dates, which ranged from $24.67 to $36.50 per share. The options generally become exercisable in 25% annual increments beginning January 2, 1997, except for grants issued since the initial grant date, which options vest over the remainder of the original four-year period. The Compensation Committee may accelerate the exercisability of any option at any time at its discretion and the options become immediately exercisable in the event of a change of control of the Company, as defined in the plan. All of the options expire on January 2, 2001. As of October 31, 1997, no options had been exercised under this plan. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (13) Benefit Plans--(Continued) Employee Stock Purchase Plan On July 1, 1992, the Company adopted an "Employee Stock Purchase Plan" and reserved 1,125,000 shares of Class A Common Stock for purchase by eligible employees, as defined. The plan provides to eligible employees the opportunity to purchase Company Class A Common Stock semi-annually on June 30 and December 31. The purchase price is established at a 15% discount from fair market value, as defined. As of October 31, 1997, 204,766 shares had been acquired under this plan. Statement of Financial Accounting Standards No. 123 The company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") and continues to apply Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock-based compensation plans. The following table is a summary of the Company's stock options outstanding as of October 31, 1996 and 1997, and the changes that occurred during fiscal years 1996 and 1997.
1997 1996 -------------------- ------------------- Number of Weighted Number of Weighted Shares Average Shares Average Underlying Exercise Underlying Exercise Options Prices Options Prices ---------- --------- ---------- -------- Outstanding at beginning of the year...................................... 3,955,510 $19.37 3,895,517 $18.16 Granted........................................ 381,562 $34.73 586,596 $22.55 Exercised...................................... (786,793) $11.83 (526,603) $13.95 Forfeited...................................... (53,424) $18.22 ---- ---- ---------- ---------- Outstanding at end of year..................... 3,496,855 $22.76 3,955,510 $19.37 Exercisable at end of year..................... 418,017 $22.23 924,758 $13.27 Weighted-average fair value of options granted............................... $ 7.97 $ 5.35
The following table further describes the Company's stock options outstanding as of October 31, 1997:
Options Outstanding Options Exercisable ------------------------------------------------ ----------------------------- Number Weighted Average Number Range of Outstanding Remaining Weighted Average Exercisable Weighted Average Exercise Prices at 10/31/97 Contractual Life Exercise Price at 10/31/97 Exercise Price - ---------------- ------------ ---------------- ---------------- ----------- ---------------- $15.92 to $25.00 3,115,715 3.97 years $21.30 389,853 $21.34 $25.01 to $35.00 232,562 4.00 years $34.01 19,383 $34.01 $35.01 to $43.00 148,578 3.80 years $35.85 8,781 $35.66 ------------ ----------- $15.92 to $43.00 3,496,855 3.96 years $22.76 418,017 $22.23 ============ ===========
STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (13) Benefit Plans--(Continued) SFAS 123 applies only to options granted, and shares acquired under the Company's Employee Stock Purchase Plan, since the beginning of the Company's 1996 fiscal year. Consequently, the pro forma amounts disclosed below do not reflect any compensation cost for the 3.9 million stock options outstanding as of the beginning of fiscal year 1996. If the Company had elected to recognize compensation cost for its stock option and employee stock purchase plans based on the fair value at the grant dates for awards under those plans, in accordance with SFAS 123, net earnings and earnings per share would have been as follows:
Year Ended October 31, ----------------------------- 1997 1996 ----------- ----------- (Unaudited) Net earnings - as reported.............. $ 67,418 $ 51,297 - pro forma................ 66,412 50,726 Earnings per common share - as reported.............. $ 1.52 $ 1.24 - pro forma................ 1.50 1.22
The fair value of the Company's stock options used to compute pro forma net earnings and earnings per share disclosures is the estimated present value at grant date using the Black-Scholes option pricing model with the following weighted average assumptions for fiscal years 1997 and 1996, respectively: expected dividend yield of .2% and .4%; expected volatility of 19.6% for both years; risk-free interest rate of 6.1% and 5.4%; and an expected term of 3.3 and 3.8 years, respectively. Likewise, the fair value of shares acquired through the Employee Stock Purchase Plan is estimated on each semi-annual grant date using the Black- Scholes option pricing model with the following weighted average assumptions for fiscal years 1997 and 1996, respectively: expected dividend yield of .2% for both years; expected volatility of 19.6% for both years; risk-free interest rate of 5.2% for both years; and an expected term of .5 years for both years. 14) Commitments, Contingencies and Related Party Transactions The Company was notified in September 1994 that a suit was brought by a competitor regarding the Company's acquisition of certain corporations in Mexico. The suit alleges that this acquisition violated the competitor's previous option to acquire the same corporations. The suit seeks unspecified damages. The Company believes that the suit is without merit and intends to defend it vigorously. The Company believes it is entitled to indemnification from the previous owners of these corporations should an unfavorable outcome result. The Company is a party to certain other legal proceedings in the ordinary course of its business but does not regard any such proceedings as material. As of October 31, 1997, the Company had advanced approximately $835, including accrued interest, to fund premiums on a split-dollar, "second-to- die" life insurance policy on behalf of the Company's Chairman, Mr. Frank B. Stewart, Jr., and Mrs. Stewart. The advances are collateralized by the assignment of other insurance policies and the pledge of Class A Common Stock of the Company. In 1992, the Company agreed to continue to advance such premiums for a twelve-year period and will be repaid at the earlier of (a) the surrender of the policy, (b) the deaths of Mr. and Mrs. Stewart, or (c) 60 days following payment in full of all premiums on the policy. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (14) Commitments, Contingencies and Related Party Transactions--(Continued) The Company has noncancellable operating leases, primarily for land and buildings, that expire over the next one to 20 years, except for two leases which expire in 2032 and 2040. Rent expense under these leases was $6,542, $4,565 and $4,029 for the years ended October 31, 1997, 1996 and 1995, respectively. The Company's future minimum lease payments as of October 31, 1997 are $6,521, $5,447, $4,514, $3,592, $2,806 and $21,869 for the years ending October 31, 1998, 1999, 2000, 2001, 2002 and later years, respectively. Additionally, the Company has entered into non-compete agreements with prior owners of acquired subsidiaries that expire through 2007. The Company's future non-compete payments as of October 31, 1997 for the same periods are $6,070, $5,388, $4,786, $4,454, $4,013 and $7,551, respectively. (15) Equity Offering During the third quarter of fiscal year 1997, the Company completed the sale of 6,055,000 shares of Class A Common Stock, resulting in approximately $211,000 in net proceeds, which was used for acquisitions and general corporate purposes. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (16) Segment Data The Company conducts both funeral and cemetery operations in the United States, including Puerto Rico, and in Canada and Australia. The Company conducts funeral operations in Mexico, New Zealand, Spain and Portugal.
Revenues October 31, 1997.............. $ 291,649 240,937 - $ 532,586 October 31, 1996.............. $ 225,461 207,926 - $ 433,387 October 31, 1995.............. $ 188,991 179,831 - $ 368,822 Operating earnings or loss before performance-based stock options October 31, 1997.............. $ 89,235 67,937 (15,402) $ 141,770 October 31, 1996.............. $ 72,239 45,879 (14,096) $ 104,022 October 31, 1995.............. $ 55,309 34,434 (11,113) $ 78,630 Identifiable assets October 31, 1997.............. $ 930,955 666,930 28,966 $1,626,851 October 31, 1996.............. $ 764,539 585,884 10,490 $1,360,913 October 31, 1995.............. $ 506,994 548,668 16,773 $1,072,435 Depreciation and amortization October 31, 1997.............. $ 19,016 7,966 867 $ 27,849 October 31, 1996.............. $ 12,960 7,830 911 $ 21,701 October 31, 1995.............. $ 10,257 5,765 770 $ 16,792 Capital expenditures October 31, 1997.............. $ 58,644 13,051 11,363 $ 83,058 October 31, 1996.............. $ 81,450 16,442 1,389 $ 99,281 October 31, 1995.............. $ 58,758 13,548 922 $ 73,228 - -------------------------
(1)Includes the Company's construction and sales operations, which previously were classified as a separate industry segment. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (16) Segment Data--(Continued) U.S. and Possessions(1) Foreign(2) Consolidated Revenues -------------- ---------- ------------ October 31, 1997.................. $ 455,076 77,510 $ 532,586 October 31, 1996.................. $ 391,437 41,950 $ 433,387 October 31, 1995.................. $ 333,558 35,264 $ 368,822 Operating earnings before performance- based stock options October 31, 1997.................. $ 120,803 20,967 $ 141,770 October 31, 1996.................. $ 88,812 15,210 $ 104,022 October 31, 1995.................. $ 66,213 12,417 $ 78,630 Identifiable assets October 31, 1997.................. $1,309,654 317,197 $1,626,851 October 31, 1996.................. $1,109,424 251,489 $1,360,913 October 31, 1995................... $ 980,510 91,925 $1,072,435 - ------------------------ (1) Includes the Company's operations in the United States and the Commonwealth of Puerto Rico. (2) The Company commenced its foreign operations as follows: Mexico - August 1994; Australia - December 1994; New Zealand - April 1996; Canada - October 1996; Spain - April 1997; and Portugal - September 1997. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (17) Quarterly Financial Data (Unaudited) First Second Third Fourth --------- --------- --------- --------- Year Ended October 31, 1997(1) - ------------------------------- Revenues....................... $ 122,712 $ 128,122 $ 139,546 $ 142,206 Gross profit................... 35,297 38,860 41,506 41,509 Earnings before cumulative effect of change in accounting principles.................... 15,007 17,268 19,051 18,416 Earnings per common share before cumulative effect of change in accounting principles.................... .36 .41 .42 .38 Net earnings................... 12,683 17,268 19,051 18,416 Earnings per common share...... .30 .41 .42 .38 Year Ended October 31, 1996 - --------------------------- Revenues....................... $ 102,757 $ 108,423 $ 108,934 $ 113,273 Gross profit................... 28,599 29,723 29,723 30,073 Net earnings................... 12,498 13,403 12,924 12,472 Earnings per common share...... .30(2) .32(2) .31 .30 - ------------------------ (1) The first and second quarters of fiscal year 1997 have been restated from the Company's respective Quarterly Reports on Form 10-Q to reflect the Company's change in accounting principles effective November 1, 1996. As a result, first quarter reflects a $369 decrease in earnings, or $.01 per share, before the cumulative effect of the change in accounting principles. In addition, the first quarter as presented above includes a $2,324 decrease in net earnings (net of a $2,230 income tax benefit), or $.06 per share, for the cumulative effect of the change in accounting principles. Second quarter as presented above reflects an increase in net earnings of $766, or $.02 per share, as a result of the accounting changes. See Note 3. (2) Restated to reflect the Company's three-for-two stock split effective June 21, 1996. (18) Subsequent Events (Unaudited) Subsequent to year-end, the Company has acquired or committed to acquire 61 funeral homes and two cemeteries for approximately $78,680. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant The information regarding executive officers required by Item 10 may be found under Item 4(a) of this report. The information regarding directors and compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, required by Item 10 is incorporated by reference to the Registrant's definitive proxy statement relating to its 1998 annual meeting of shareholders, which proxy statement will be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year. Item 11. Executive Compensation The information required by Item 11 is incorporated by reference to the Registrant's definitive proxy statement relating to its 1998 annual meeting of shareholders, which proxy statement will be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by Item 12 is incorporated by reference to the Registrant's definitive proxy statement relating to its 1998 annual meeting of shareholders, which proxy statement will be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year. Item 13. Certain Relationships and Related Transactions The information required by Item 13 is incorporated by reference to the Registrant's definitive proxy statement relating to its 1998 annual meeting of shareholders, which proxy statement will be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Documents filed as part of this report: (1) Financial Statements The Company's consolidated financial statements listed below have been filed as part of this report: Page ------ Report of Independent Accountants............................. 27 Consolidated Statements of Earnings for the Years Ended October 31, 1997, 1996 and 1995.......... 28 Consolidated Balance Sheets as of October 31, 1997 and 1996.................................... 29 Consolidated Statements of Shareholders' Equity for the Years Ended October 31, 1997, 1996 and 1995.......... 31 Consolidated Statements of Cash Flows for the Years Ended October 31, 1997, 1996 and 1995.............. 32 Notes to Consolidated Financial Statements.................... 34 (2) Financial Statement Schedule for the years ended October 31, 1997, 1996 and 1995 Report of Independent Accountants on Financial Statement Schedule............................................. 58 Schedule II-Valuation and Qualifying Accounts................... 59 All other schedules are omitted because they are not applicable or not required, or the information appears in the financial statements or notes thereto. REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE The Board of Directors Stewart Enterprises, Inc.: Our report on the consolidated financial statements of Stewart Enterprises, Inc. and Subsidiaries, which includes an emphasis paragraph related to changes in the Company's method of accounting for cemetery sales and its method of accounting for funeral services investment trust fund earnings is included in Item 8 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in Item 14(a) of this Form 10-K. This financial statement schedule is the responsibility of the Company's management. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. New Orleans, Louisiana December 16 , 1997 STEWART ENTERPRISES, INC. AND SUBSIDIARIES SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS (Dollars in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- ---------- ------------------------ ----------- -------------- Additions ------------------------ Balance at Charged to Charged to beginning costs and other Deductions Balance at end Description of period expenses accounts(1) -write-offs of period ----------- ---------- ---------- ----------- ----------- -------------- Current-Allowance for contract cancellations and doubtful accounts: Year ended October 31, 1997.................... $ 2,996 8,586 2,386 7,099 $ 6,869 1996.................... $ 2,847 13,580 445 13,876 $ 2,996 1995.................... $ 2,800 8,923 1,174 10,050 $ 2,847 Due after one year-Allowance for contract cancellations and doubtful accounts: Year ended October 31, 1997................... $ 3,236 12,765 7,215 13,520 $ 9,696 1996................... $ 3,307 9,576 797 10,444 $ 3,236 1995................... $ 3,803 6,775 1,504 8,775 $ 3,307 Accumulated amortization of intangible assets: Year ended October 31, 1997.................... $ 19,506 9,877 - - $29,383 1996.................... $ 11,743 7,763 - - $19,506 1995.................... $ 6,335 5,408 - - $11,743 - ---------------------
(1) Amounts charged to other accounts represent principally the opening balance in the allowance for contract cancellations and doubtful accounts for acquired companies and, for fiscal year 1997, the effect of the Company's change in accounting principles effective November 1, 1996. Item 14(a)(3) Exhibits 3.1 Amended and Restated Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended January 31, 1996) 3.2 By-laws of the Company, as amended 4.1 See Exhibits 3.1 and 3.2 for provisions of the Company's Amended and Restated Articles of Incorporation, as amended and By-laws, as amended, defining the rights of holders of Class A and Class B Common Stock 4.2 Specimen of Class A Common Stock certificate (incorporated by reference to Exhibit 4.2 to Amendment No. 3 to the Company's Registration Statement on Form S-1 (Registration No. 33-42336) filed with the Commission on October 7, 1991) 4.3 Indenture dated as of December 1, 1996 by and between the Company and Citibank, N.A. as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated December 5, 1996) 4.4 Form of 6.70% Note due 2003 (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated December 5, 1996) 4.5 Credit Agreement by and among the Company, its subsidiaries and Citicorp USA, Inc., Bank of America Illinois, and NationsBank of Texas, N.A. dated April 14, 1997 (incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-3 (Registration No. 333- 27771) filed with the Commission on May 23, 1997) The Company hereby agrees to furnish to the Commission, upon request, a copy of the instruments which define the rights of holders of the Company's long- term debt. None of such instruments (other than those included as exhibits herein) represents long-term debt in excess of 10% of the Company's consolidated total assets. 10.1 Lease Agreement dated September 1, 1983 between Stewart Building Enterprise and Stewart Enterprises, Inc. and amendments thereto dated June 18, 1990 and May 23, 1991 (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 (Registration No. 33-42336) filed with the Commission on August 21, 1991 (the "1991 Registration Statement"); dated June 1, 1992 (incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1992 (the "1992 10-K")); dated June 1, 1993 (incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1993, (the "1993 10-K")); dated October 28, 1994 and dated November 30, 1994 (incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1994 (the "1994 10-K")); dated May 27, 1996 (incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1996 (the "1996 10-K")); and dated April 30, 1997 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1997) 10.2 Split-Dollar Agreement dated January 10, 1992 between the Company, Roy A. Perrin, Jr., Trustee, on behalf of all Trustees of the Elisabeth Felder Stewart 1988 Trust and of the Frank B. Stewart, III 1988 Trust, and Frank B. Stewart, Jr. (incorporated by reference to Exhibit 10.39 to the 1992 10-K) 10.3 Promissory Note by the Company to Frank B. Stewart, Jr. in the amount of $2,590,997 dated November 1, 1992, and amendment thereto dated January 1, 1994 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended January 31, 1995) 10.4 Lease dated June 29, 1990 between Richard O. Baldwin, Jr. and Baldwin- Fairchild Funeral Homes, Inc. (incorporated by reference to Exhibit 10.7 to the 1991 Registration Statement) 10.5 Promissory Note by S.E. Mid-Atlantic, Inc. to Brian J. Marlowe in the amount of $3,797,331 dated January 1, 1994 (incorporated by reference to Exhibit 10.37 to the 1994 10-K) 10.6 Line of Credit Note by Brent F. Heffron to the Company dated February 27, 1997, in the amount of $250,000 (incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1997) ________________________ Management Contracts and Compensatory Plans or Arrangements 10.7 Form of Indemnity Agreement between the Company and its directors and executive officers (incorporated by reference to Exhibit 10.25 to the 1991 Registration Statement), and amendment dated September 18, 1996 (incorporated by reference to Exhibit 10.6 to the 1996 10-K) 10.8 Stock Option Agreement between the Company and Frank B. Stewart, Jr. dated September 25, 1992 (incorporated by reference to Exhibit 10.22 to the 1992 10-K) 10.9 Stock Option Agreements between the Company and Joseph P. Henican, III dated February 1, 1995 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 31, 1995) 10.10 Employment Agreement dated August 1, 1995, and Change of Control Agreement dated December 5, 1995, between the Company and Joseph P. Henican, III (incorporated by reference to Exhibits 10.16 and 10.20, respectively, to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1995 (the "1995 10-K")) 10.11 Stock Option Agreement dated September 7, 1995 (time-vest), dated September 7, 1995 (performance-based), and dated December 5, 1995 (performance-based), between the Company and Joseph P. Henican, III (incorporated by reference to Exhibits 10.17, 10.18 and 10.19, respectively, to the 1995 10-K) 10.12 Stock Option Agreement between the Company and William E. Rowe dated September 25, 1992 (incorporated by reference to Exhibit 10.28 to the 1992 10-K) and addenda thereto dated April 15, 1994 (incorporated by reference to Exhibit 10.24 to the 1994 10-K) 10.13 Stock Option Agreements between the Company and William E. Rowe dated April 15, 1994 (incorporated by reference to Exhibit 10.25 to the 1994 10-K) 10.14 Stock Option Agreements between the Company and William E. Rowe dated November 1, 1994 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 31, 1995) 10.15 Employment Agreement dated August 1, 1995, and Change of Control Agreement dated December 5, 1995, between the Company and William E. Rowe (incorporated by reference to Exhibits 10.25 and 10.29, respectively, to the 1995 10-K) 10.16 Stock Option Agreement dated September 7, 1995 (time-vest), dated September 7, 1995 (performance-based), and dated December 5, 1995 (performance-based) between the Company and William E. Rowe (incorporated by reference to Exhibits 10.26, 10.27 and 10.28, respectively, to the 1995 10-K) 10.17 Stock Option Agreement between the Company and Ronald H. Patron dated September 25, 1992 (incorporated by reference to Exhibit 10.24 to the 1992 10-K) 10.18 Employment Agreement dated August 1, 1995, and Change of Control Agreement dated December 5, 1995, between the Company and Ronald H. Patron (incorporated by reference to Exhibits 10.32 and 10.36, respectively, to the 1995 10-K) 10.19 Stock Option Agreement dated September 7, 1995 (time-vest), dated September 7, 1995 (performance-based) and dated December 5, 1995 (performance-based), between the Company and Ronald H. Patron (incorporated by reference to Exhibits 10.33, 10.34 and 10.35, respectively, to the 1995 10-K) 10.20 Stock Option Agreement between the Company and Gerard C. Alexander dated September 25, 1992 (incorporated by reference to Exhibit 10.25 to the 1992 10-K) 10.21 Employment Agreement dated August 1, 1995, and Change of Control Agreement dated December 5, 1995, between the Company and Gerard C. Alexander (incorporated by reference to Exhibits 10.39 and 10.43, respectively, to the 1995 10-K) 10.22 Stock Option Agreement dated September 7, 1995 (time-vest), dated September 7, 1995 (performance-based), and dated December 5, 1995 (performance-based), between the Company and Gerard C. Alexander (incorporated by reference to Exhibits 10.40, 10.41 and 10.42, respectively, to the 1995 10-K) 10.23 Stock Option Agreement between the Company and Richard O. Baldwin, Jr. dated September 25, 1992 (incorporated by reference to Exhibit 10.22 to the 1996 10-K) 10.24 Employment Agreement between the Company and Richard O. Baldwin, Jr. dated August 1, 1995 (incorporated by reference to Exhibit 10.23 to the 1996 10-K) 10.25 Stock Option Agreement dated September 7, 1995 (time-vest), dated September 7, 1995 (performance-based) and dated December 5, 1995 (performance-based), between the Company and Richard O. Baldwin, Jr. (incorporated by reference to Exhibits 10.24, 10.25 and 10.26, respectively, to the 1996 10-K) 10.26 Change of Control Agreement between the Company and Richard O. Baldwin, Jr. dated December 5, 1995 (incorporated by reference to Exhibit 10.27 to the 1996 10-K) 10.27 Amendment No. 1 dated August 1, 1997 to Employment Agreement dated August 1, 1995 between the Company and Richard O. Baldwin, Jr. 10.28 Stock Option Agreement between the Company and Brian J. Marlowe dated April 15, 1994 (incorporated by reference to Exhibit 10.26 to the 1994 10-K) 10.29 Stock Option Agreements between the Company and Brian J. Marlowe dated November 1, 1994 (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 31, 1995) 10.30 Employment Agreement dated August 1, 1995, and Change of Control Agreement dated December 5, 1995, between the Company and Brian J. Marlowe (incorporated by reference to Exhibits 10.47 and 10.51, respectively, to the 1995 10-K) 10.31 Stock Option Agreement dated September 7, 1995 (time-vest), dated September 7, 1995 (performance-based) and dated December 5, 1995 (performance-based), between the Company and Brian J. Marlowe (incorporated by reference to Exhibits 10.48, 10.49 and 10.50, respectively, to the 1995 10-K) 10.32 Employment Agreement between the Company and Andrew H. McEachern dated December 9, 1994 (incorporated by reference to Exhibit 10.17 to the 1994 10-K) 10.33 Stock Option Agreement between the Company and Andrew H. McEachern dated December 9, 1994 (incorporated by reference to Exhibit 10.27 to the 1994 10-K) 10.34 Stock Option Agreement between the Company and Kenneth C. Budde dated September 25, 1992 (incorporated by reference to Exhibit 10.34 to the 1996 10-K) 10.35 Employment Agreement between the Company and Kenneth C. Budde dated August 1, 1995 (incorporated by reference to Exhibit 10.35 to the 1996 10-K) 10.36 Stock Option Agreement dated September 7, 1995 (time-vest), dated September 7, 1995 (performance-based) and dated December 5, 1995 (performance-based), between the Company and Kenneth C. Budde (incorporated by reference to Exhibits 10.36, 10.37 and 10.38, respectively, to the 1996 10-K) 10.37 Change of Control Agreement between the Company and Kenneth C. Budde dated December 5, 1995 (incorporated by reference to Exhibit 10.39 to the 1996 10-K) 10.38 Amendment No. 1 dated January 1, 1997 to Employment Agreement dated August 1, 1995 between the Company and Kenneth C. Budde (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1997) 10.39 Stock Option Agreement between the Company and Lawrence B. Hawkins dated September 25, 1992 (incorporated by reference to Exhibit 10.40 to the 1996 10-K) 10.40 Employment Agreement between the Company and Lawrence B. Hawkins dated August 1, 1995 (incorporated by reference to Exhibit 10.41 to the 1996 10-K) 10.41 Stock Option Agreement dated September 7, 1995 (time-vest), dated September 7, 1995 (performance-based) and dated December 5, 1995 (performance-based), between the Company and Lawrence B. Hawkins (incorporated by reference to Exhibits 10.42, 10.43 and 10.44, respectively, to the 1996 10-K) 10.42 Change of Control Agreement between the Company and Lawrence B. Hawkins dated December 5, 1995 (incorporated by reference to Exhibit 10.45 to the 1996 10-K) 10.43 Amendment No. 1 dated January 1, 1997 to Employment Agreement dated August 1, 1995 between the Company and Lawrence B. Hawkins (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1997) 10.44 Stock Option Agreement between the Company and Brent F. Heffron dated September 25, 1992 (incorporated by reference to Exhibit 10.46 to the 1996 10-K) 10.45 Stock Option Agreement dated September 7, 1995 (time-vest), dated September 7, 1995 (performance-based) and dated December 5, 1995 (performance-based), between the Company and Brent F. Heffron (incorporated by reference to Exhibits 10.47, 10.48 and 10.49, respectively, to the 1996 10-K) 10.46 Employment Agreement dated January 1, 1997 between the Company and Brent F. Heffron (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended January 31, 1997) 10.47 Change of Control Agreement dated January 1, 1997 between the Company and Brent F. Heffron (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended January 31, 1997) 10.48 Stock Option Agreement dated January 1, 1997 (time-vest) and dated January 1, 1997 (performance-based), between the Company and Brent F. Heffron (incorporated by reference to Exhibits 10.3 and 10.4, respectively, to the Company's Quarterly Report on Form 10-Q for the quarter ended January 31, 1997) 10.49 Amendment No. 1 dated January 1, 1997 to Employment Agreement dated January 1, 1997 between the Company and Brent F. Heffron (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1997) 10.50 Stock Option Agreement between the Company and Raymond C. Knopke, Jr. dated September 25, 1992 (incorporated by reference to Exhibit 10.50 to the 1996 10-K) 10.51 Stock Option Agreement dated September 7, 1995 (time-vest), dated September 7, 1995 (performance-based) and dated December 5, 1995 (performance-based), between the Company and Raymond C. Knopke, Jr. (incorporated by reference to Exhibits 10.51, 10.52 and 10.53, respectively, to the 1996 10-K) 10.52 Employment Agreement dated January 1, 1997 between the Company and Raymond C. Knopke, Jr. (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended January 31, 1997) 10.53 Change of Control Agreement dated January 1, 1997 between the Company and Raymond C. Knopke, Jr. (incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended January 31, 1997) 10.54 Stock Option Agreement dated January 1, 1997 (time-vest) and dated January 1, 1997 (performance-based), between the Company and Raymond C. Knopke, Jr. (incorporated by reference to Exhibits 10.7 and 10.8, respectively, to the Company's Quarterly Report on Form 10-Q for the quarter ended January 31, 1997) 10.55 Amendment No. 1 dated January 1, 1997 to Employment Agreement dated January 1, 1997 between the Company and Raymond C. Knopke, Jr. (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1997) 10.56 The Stewart Enterprises Employees' Retirement Trust (incorporated by reference to Exhibit 10.20 to the 1991 Registration Statement) and amendment thereto dated January 1, 1994 (incorporated by reference to Exhibit 10.28 to the 1994 10-K) 10.57 The Stewart Enterprises Supplemental Retirement and Deferred Compensation Plan (incorporated by reference to Exhibit 10.29 to the 1994 10-K) 10.58 Amended and Restated Stewart Enterprises, Inc. 1991 Incentive Compensation Plan (incorporated by reference to Exhibit 10.56 to the 1996 10-K) 10.59 Amended and Restated Stewart Enterprises, Inc. 1995 Incentive Compensation Plan (incorporated by reference to Exhibit 10.57 to the 1996 10-K) 10.60 Amended and Restated Directors' Stock Option Plan (incorporated by reference to Exhibit 10.58 to the 1996 10-K) 10.61 Amended and Restated Stewart Enterprises, Inc. Employee Stock Purchase Plan ________________________ 12 Calculation of Ratio of Earnings to Fixed Charges 18 Letter from Coopers & Lybrand L.L.P. regarding change in accounting principles (incorporated by reference to Exhibit 18 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 31, 1997) 21 Subsidiaries of the Company 23 Consent of Coopers & Lybrand L.L.P. 27 Financial data schedule ________________________ (b) Reports on Form 8-K The Company filed a Form 8-K on September 11, 1997 reporting, under "Item 5. Other Events," the earnings release for the quarter ended July 31, 1997. The Company filed a Form 8-K on September 27, 1997 reporting, under "Item 5. Other Events," pro forma consolidated statements of earnings for fiscal year 1996, for the three months ended January 31, 1997 and April 30, 1997, and for the six months ended April 30, 1997 to reflect the changes in the Company's accounting methods, as if such methods had been in effect during all prior periods. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 on January 27, 1998. STEWART ENTERPRISES, INC. By: /s/ JOSEPH P. HENICAN, III ---------------------------------- Joseph P. Henican, III Vice Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and on the dates indicated. Signature Title Date --------- ----- ---- /s/ FRANK B. STEWART, JR. Chairman of the Board January 27, 1998 - ------------------------------ Frank B. Stewart, Jr. /s/ JOSEPH P. HENICAN, III Vice Chairman of the Board January 27, 1998 - ------------------------------ and Chief Executive Officer Joseph P. Henican, III (Principal Executive Officer) /s/ WILLIAM E. ROWE President, January 27, 1998 - ------------------------------- Chief Operating Officer William E. Rowe and a Director /s/ RONALD H. PATRON Chief Financial Officer, January 27, 1998 - ----------------------------- President-Corporate Division Ronald H. Patron and a Director (Principal Financial Officer) /s/ KENNETH C. BUDDE Senior Vice President- January 27, 1998 - ----------------------------- Corporate Division, Kenneth C. Budde Treasurer and Secretary (Principal Accounting Officer) /s/ DARWIN C. FENNER Director January 27, 1998 - ----------------------------- Darwin C. Fenner /s/ MICHAEL O. READ Director January 27, 1998 - ----------------------------- Michael O. Read /s/ JOHN P. LABORDE Director January 27, 1998 - ----------------------------- John P. Laborde /s/ JAMES W. McFARLAND Director January 27, 1998 - ----------------------------- James W. McFarland Director January 27, 1998 - ----------------------------- Dwight A. Holder EX-3.2 2 BY-LAWS OF STEWART ENTERPRISES, INC. (as amended as of September 23, 1997) SECTION 1 OFFICES 1.1 Principal Office. The principal office of the Corporation shall be located at 110 Veterans Memorial Boulevard, Metairie, Louisiana 70005. 1.2 Additional offices. The Corporation may have such offices at such other places as the Board of Directors may from time to time determine or the business of the Corporation may require. SECTION 2 SHAREHOLDERS MEETINGS 2.1 Place of Meetings. Unless otherwise required by law or these By-laws, all meetings of the shareholders shall be held at the principal office of the Corporation or at such other place, within or without the State of Louisiana, as may be designated by the Board of Directors. 2.2 Annual Meetings; Notice Thereof. An annual meeting of the shareholders shall be held each year on the date and at the time as the Board of Directors shall designate, for the purpose of electing directors and for the transaction of such other business as may be properly brought before the meeting. If no annual shareholders' meeting is held for a period of eighteen months, any shareholder may call such meeting to be held at the registered office of the Corporation as shown on the records of the Secretary of State of the State of Louisiana. 2.3 Special Meetings. Special meetings of the share- holders, for any purpose or purposes, may be called by the Board of Directors, the Chairman of the Board, or the President. At any time, upon the written request of any shareholder or group of shareholders holding in the aggregate at least 25% of the Total Voting Power (as defined in Article III(D) of the Articles of Incorporation), the Secretary shall call a special meeting of shareholders to be held at the registered office of the Corporation at such time as the Secretary may fix, not less than 15 nor more than 60 days after the receipt of such request, and if the Secretary shall neglect or refuse to fix such time or to give notice of the meeting, the shareholder or shareholders making the request may do so. Such request must state the specific purpose or purposes of the proposed special meeting and the business to be conducted thereat shall be limited to such purpose or purposes. 2.4 Notice of Meetings. Except as otherwise provided by law, the authorized person or persons calling a shareholders' meeting shall cause written notice of the time, place and purpose of the meeting to be given to all shareholders entitled to vote at such meeting, at least 10 days and not more than 60 days prior to the day fixed for the meeting. Notice of the annual meeting need not state the purpose or purposes thereof, unless action is to be taken at the meeting as to which notice is required by law or the By-laws. Notice of a special meeting shall state the purpose or purposes thereof, and the business conducted at any special meeting shall be limited to the purpose or purposes stated in the notice. 2.5 List of Shareholders. At every meeting of shareholders, a list of shareholders entitled to vote, arranged alphabetically and certified by the Secretary or by the agent of the Corporation having charge of transfers of shares, showing the number and class of shares held by each such shareholder on the record date for the meeting and confirming the number of votes per share as to which each such shareholder is entitled, shall be produced on the request of any shareholder. 2.6 Quorum. At all meetings of shareholders, the holders of a majority of the Total Voting Power (as defined in Article III(D) of the Articles of Incorporation) shall constitute a quorum, provided, however, that this subsection shall not have the effect of reducing the vote required to approve any matter that may be established by law, the Articles of Incorporation or these By-laws. 2.7 Voting. When a quorum is present at any shareholders' meeting, the vote of the holders of a majority of that portion of the Total Voting Power (as defined in Article III(D) of the Articles of Incorporation) that is present in person or represented by proxy, voting together as a single class, shall decide each question brought before such meeting, unless the resolution of the question requires, by express provision of law, the Articles of Incorporation or these By-laws, a different vote or one or more separate votes by the holders of a class or series of capital stock, in which case such express provision shall apply and control the decision of such question. Directors shall be elected by plurality vote. 2.8 Proxies. At any meeting of the shareholders, every shareholder having the right to vote shall be entitled to vote in person or by proxy appointed by an instrument in writing executed by such shareholder and bearing a date not more than eleven months prior to the meeting, unless the instrument provides for a longer period, but in no case will an outstanding proxy be valid for longer than three years from the date of its execution, provided, however, that in no event may a proxy be voted at a meeting called pursuant to La. R.S. 12:138 unless it is executed and dated by the shareholder within 30 days of the date of such meeting. The person appointed as proxy need not be a shareholder of the Corporation. 2.9 Adjournments. Adjournments of any annual or special meeting of shareholders may be taken without new notice being given unless a new record date is fixed for the adjourned meeting, but any meeting at which directors are to be elected shall be adjourned only from day to day until such directors shall have been elected. 2.10 Withdrawal. If a quorum is present or represented at a duly organized shareholders' meeting, such meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum as fixed in Section 2.6 of these By-laws, or the refusal of any shareholders to vote. 2.11 Lack of Quorum. If a meeting cannot be organized because a quorum has not attended, those present may adjourn the meeting to such time and place as they may determine, subject, however, to the provisions of Section 2.9 hereof. In the case of any meeting called for the election of directors, those who attend the second of such adjourned meetings, although less than a quorum as fixed in Section 2.6 hereof, shall nevertheless be deemed to constitute a quorum for the purpose of electing directors. 2.12 Presiding Officer. The Chairman of the Board or the Chief Executive Officer, or in their absence a chairman designated by the Board of Directors, shall preside at all shareholders' meetings. 2.13 Definition of Shareholder. As used in these By-laws, and unless the context otherwise requires, the term shareholder shall mean a person who is (i) the record holder of shares of the Corporation's capital stock or (ii) a registered holder of any bonds, debentures or similar obligations granted voting rights by the Corporation pursuant to La. R.S. 12:75H. 2.14 Business to be Conducted at Annual and Special Meetings of Shareholders. (a) At any annual meeting of shareholders, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors, or (ii) by any shareholder of record entitled to vote at such meeting who complies with the procedures set forth in this Section 2.14. (b) At any special meeting of shareholders called at the request of a shareholder, or group of shareholders, of record in accordance with the Corporation's Articles of Incorporation and these By-laws, only such business shall be conducted as shall have been (i) submitted by the shareholder, or group of shareholders of record requesting the meeting, (ii) described in the request for the meeting, and (iii) described in the notice of the meeting. (c) At any special meeting of shareholders called at the request of the Board of Directors, the Chairman of the Board or the President of the Corporation, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors, the Chairman of the Board or the President or (ii) by any shareholder of record entitled to vote at such meeting who complies with the procedures set forth in this Section 2.14. (d) No proposal by a shareholder, or group of shareholders, of record of the Corporation shall be considered at an annual shareholders' meeting unless Sufficient Notice (as described in subparagraph (f) hereof) of the proposal is received by the Secretary of the Corporation not less than 120 calendar days in advance of the date in the current year that corresponds to the date on which proxy materials were first mailed by the Corporation in connection with the previous year's annual meeting. If the date of the annual meeting is changed to a date that is 30 calendar days earlier or later than the date in the current year that corresponds to the date on which the annual meeting was held in the previous year, or if no annual meeting was held in the previous year, Sufficient Notice of the proposal must be received by the Secretary of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event less than 70 days notice or prior public disclosure of the date of the meeting is given or made to shareholders, Sufficient Notice of the proposal must be received by the Secretary of the Corporation no later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. (e) No proposal by a shareholder, or group of shareholders, of record of the Corporation shall be considered at a special meeting of shareholders called by the Board of Directors, the Chairman of the Board or the President unless Sufficient Notice (as described in subparagraph (f) hereof) of the proposal is received by the Secretary of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event less than 70 days notice or prior public disclosure of the date of the meeting is given or made to shareholders, Sufficient Notice of the proposal must be received by the Secretary of the Corporation no later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. (f) Notice of a proposal shall constitute Sufficient Notice only if it contains (i) a complete and accurate description of the proposal; (ii) a statement that the shareholder (or the shareholder's legal representative) intends to attend the meeting and present the proposal and that the shareholder intends to hold of record securities of the Corporation entitled to vote at the meeting through the meeting date; (iii) the shareholder's name and address and the number of shares of the Corporation's voting securities that the shareholder holds of record and beneficially as of the notice date; and (iv) a complete and accurate description of any material interest of such shareholder in such proposal. (g) Notwithstanding compliance with this Section 2.14, no shareholder proposal shall be deemed to be properly brought before a shareholders' meeting if it is not a proper subject for action by shareholders under Louisiana law or the Articles of Incorporation. (h) Any shareholder proposal failing to comply with this Section 2.14 shall not be considered at the meeting and, if introduced at the meeting, shall be ruled out of order. (i) Nothing in this Section 2.14 is intended to confer any rights to have any proposal included in the notice of any meeting or in proxy materials related to such meeting. (j) Notwithstanding the requirement in this Section 2.14 that a shareholder be a shareholder of record in order to present a shareholder proposal at a shareholders' meeting, a beneficial owner of shares entitled to vote at the meeting shall be entitled to present a proposal at a meeting if such beneficial owner complies with Rule 14a-8 promulgated under the Securities Exchange Act of 1934 and the proposal has been included in the Corporation's proxy statement for the meeting pursuant to Rule 14a-8. SECTION 3 DIRECTORS 3.1 Number. All of the corporate powers shall be vested in, and the business and affairs of the Corporation shall be managed by, a Board of Directors. Except as otherwise fixed by or pursuant to Article III of the Articles of Incorporation (as it may be duly amended from time to time) relating to the rights of the holders of any class or series of stock having a preference over the Class A and Class B Common Stock as to dividends or upon liquidation to elect additional directors by class vote, the Board of Directors shall consist of up to 12 natural persons, the exact number of which shall be fixed each year by resolution of the Board of Directors, provided that, if after proxy materials for any meeting of shareholders at which directors are to be elected are mailed to shareholders any person or persons named therein to be nominated at the direction of the Board of Directors become unable or unwilling to serve, the number of directors fixed by the Board or Directors for such year shall be automatically reduced by a number equal to the number of such persons unless the Board of Directors selects an additional nominee or nominees to replace such persons. No director need be a shareholder. The Secretary shall have the power to certify at any time as to the number of directors authorized and as to the class to which each director has been elected or assigned. 3.2 Powers. The Board may exercise all such powers of the Corporation and do all such lawful acts and things which are not by law, the Articles of Incorporation or these By-laws directed or required to be done by the shareholders. 3.3 Classes. The Board of Directors, other than those directors who may be elected by the holders of any class or series of stock having preference over the Class A and Class B Common Stock as to dividends or upon liquidation, shall be divided, with respect to the time during which they shall hold office, into three classes as nearly equal in number as possible, with the initial term of office of Class I directors expiring at the annual meeting of shareholders to be held in 1993, of Class II directors expiring at the next succeeding annual meeting of shareholders and of Class III directors expiring at the second succeeding annual meeting of shareholders, with all such directors to hold office until their successors are elected and qualified. Any increase or decrease in the number of directors shall be apportioned by the Board of Directors so that all classes of directors shall be as nearly equal in number as possible. At each annual meeting of shareholders, directors chosen to succeed those whose terms then expire shall be elected to hold office for a term expiring at the annual meeting of shareholders held in the third year following the year of their election and until their successors are duly elected and qualified. 3.4 General Election. At each annual meeting of shareholders, directors shall be elected to succeed those directors whose terms then expire. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. 3.5 Vacancies. Except as otherwise provided in the Articles of Incorporation or these By-laws, (a) the office of a director shall become vacant if he dies, resigns or is duly removed from office and (b) the Board of Directors may declare vacant the office of a director if he (i) is interdicted or adjudicated an incompetent, (ii) is adjudicated a bankrupt, (iii) in the sole opinion of the Board of Directors becomes incapacitated by illness or other infirmity so that he is unable to perform his duties for a period of six months or longer, or (iv) ceases at any time to have the qualifications required by law, the Articles of Incorporation or these By-laws. 3.6 Filling Vacancies. Except as otherwise provided in Section 3.8 of these By-laws, any vacancy on the Board (including any vacancy resulting from an increase in the authorized number of directors or from failure of the shareholders to elect the full number of authorized directors) may, notwithstanding any resulting absence of a quorum of directors, be filled by a two-thirds vote of the Board of Directors remaining in office, provided that the shareholders shall have the right, at any special meeting called for such purpose prior to any such action by the Board, to fill the vacancy. A director elected pursuant to this section shall serve until the next shareholders' meeting held for the election of directors of the class to which he shall have been appointed and until his successor is elected and qualified. 3.7 Notice of Shareholder Nominees. Except as otherwise provided in Section 3.8 of these By-laws, only persons who are nominated in accordance with the procedures set forth in this section shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of shareholders by or at the direction of the Board of Directors or by any shareholder of record of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this section. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a shareholder's notice must be delivered or mailed and received at the principal office of the Corporation not less than 45 days nor more than 90 days prior to the meeting, provided, however, that in the event that less than 55 days notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be received no later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder's notice shall set forth or include the following: a. as to each person whom the shareholder proposes to nominate for election or re-election as a director (i) the name, age, business address and residential address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of capital stock of the Corporation of which such person is the beneficial owner (as defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934), (iv) such person's written consent to being named in the proxy statement as a nominee and to serve as a director if elected and (v) any other information relating to such person that would be required to be disclosed in solicitations of proxies for election of directors, or would be otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934; and b. as to the shareholder of record giving the notice, (i) the name and address of such shareholder and (b) the class and number of shares of capital stock of the Corporation of which such shareholder is the beneficial owner (as defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934). If requested in writing by the Secretary the Corporation at least 15 days in advance of the meeting, such shareholder shall disclose to the Secretary, within ten days of such request, whether such person is the sole beneficial owner of the shares held of record by him, and, if not, the name and address of each other person known by the shareholder of record to claim or have a beneficial interest in such shares. At the request of the Board of Directors, any person nominated by or at the direction of the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a shareholder's notice of nomination which pertains to the nominee. If a shareholder seeks to nominate one or more persons as directors, the Secretary shall appoint two inspectors, who shall not be affiliated with the Corporation, to determine whether the shareholder has complied with this section. If the inspectors shall determine that the shareholder has not complied with this section, the defective nomination shall be disregarded and the inspectors shall direct the Chairman of the meeting to declare at the meeting that such nomination was not made in accordance with the procedures prescribed by the Articles of Incorporation and these By-laws. 3.8 Directors Elected by Preferred Shareholders. Notwithstanding anything in these By-laws to the contrary, whenever the holders of any one or more classes or series of stock having a preference over the Class A and Class B Common Stock as to dividends or upon liquidation shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the provisions of the Articles of Incorporation (as they may be duly amended from time to time) fixing the rights and preferences of such preferred stock shall govern with respect to the nomination, election, term, removal, vacancies or other related matters with respect to such directors. 3.9 Compensation of Directors. Directors shall receive such compensation for their services, in their capacity as directors, as may be fixed by resolution of the Board of Directors, provided, however, that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. 3.10 Vice Chairman of the Board. The Board of Directors may appoint a Vice Chairman of the Board, who shall perform such duties as the Chairman of the Board or the Board of Directors shall prescribe. SECTION 4 MEETINGS OF THE BOARD 4.1 Place of Meetings. The meetings of the Board of Directors may be held at such place within or without the State of Louisiana as a majority of the directors may from time to time appoint. 4.2 Initial Meetings. The first meeting of each newly-elected Board shall be held immediately following the shareholders' meeting at which the Board, or any class thereof, is elected and at the same place as such meeting, and no notice of such first meeting shall be necessary for the newly-elected directors in order legally to constitute the meeting. 4.3 Regular Meetings; Notice. Regular meetings of the Board may be held at such times as the Board may from time to time determine. Notice of regular meetings of the Board of Directors shall be required, but no special form of notice or time of notice shall be necessary. 4.4 Special Meetings; Notice. Special meetings of the Board may be called by the Chairman of the Board or the President on reasonable notice given to each director, either personally or by telephone, mail, telex, telecopy or any other comparable form of facsimile communication. Special meetings shall be called by the Secretary in like manner and on like notice on the written request of a majority of the directors and if such officer fails or refuses, or is unable within 24 hours to call a meeting when requested, then the directors making the request may call the meeting on two days' written notice given to each director. The notice of a special meeting of directors need not state its purpose or purposes, but if the notice states a purpose or purposes and does not state a further purpose to consider such other business as may properly come before the meeting, the business to be conducted at the special meeting shall be limited to the purpose or purposes stated in the notice. 4.5 Waiver of Notice. Directors present at any regular or special meeting shall be deemed to have received due, or to have waived, notice thereof, provided that a director who participates in a meeting by telephone (as permitted by Section 4.9 hereof) shall not be deemed to have received or waived due notice if, at the beginning of the meeting, he objects to the transaction of any business because the meeting is not lawfully called. 4.6 Quorum. A majority of the Board shall be necessary to constitute a quorum for the transaction of business, and except as otherwise provided by law, the Articles of Incorporation or these By-laws, the acts of a majority of the directors present at a duly-called meeting at which a quorum is present shall be the acts of the Board. If a quorum is not present at any meeting of the Board of Directors, the directors present may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum is present. 4.7 Withdrawal. If a quorum is present when the meeting convened, the directors present may continue to do business, taking action by vote of a majority of a quorum as fixed in Section 4.6 hereof, until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum as fixed in Section 4.6 hereof or the refusal of any director present to vote. 4.8 Action by Consent. Any action that may be taken at a meeting of the Board, or any committee thereof, may be taken by a consent in writing signed by all of the directors or by all members of the committee, as the case may be, and filed with the records of proceedings of the Board or committee. 4.9 Meetings by Telephone or Similar Communication. Members of the Board may participate at and be present at any meeting of the Board or any committee thereof by means of conference telephone or similar communications equipment if all persons participating in such meeting can hear and communicate with each other. SECTION 5 COMMITTEES OF THE BOARD 5.1 General. The Board may designate one or more committees, each committee to consist of two or more of the directors of the Corporation (and one or more directors may be named as alternate members to replace any absent or disqualified regular members), which, to the extent provided by resolution of the Board or these By-laws, shall have and may exercise the powers of the Board in the management of the business and affairs of the Corporation, and may have power to authorize the seal of the Corporation to be affixed to documents, but no such committee shall have power or authority to amend the Articles of Incorporation, adopt an agreement of merger, consolidation or share exchange, recommend to the shareholders the sale, lease or exchange of all or substantially all of the Corporation's assets, recommend to the shareholders a dissolution of the Corporation or a revocation of dissolution, remove or indemnify directors, or amend these By-laws; and unless the resolution expressly so provides, no such committee shall have the power or authority to declare a dividend or authorize the issuance of stock. Such committee or committees shall have such name or names as may be stated in these By-laws, or as may be determined, from time to time, by the Board. Any vacancy occurring in any such committee shall be filled by the Board, but the President may designate another director to serve on the committee pending action by the Board. Each such member of a committee shall hold office during the term designated by the Board. 5.2 Compensation Committee. The Board shall establish and maintain a Compensation Committee consisting of two or more directors, each of whom shall (i) meet the requirements specified in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, to qualify as a member of a committee of the board of directors able to approve the transactions described therein, (ii) meet the requirements specified in Internal Revenue Code Section 162(m) and the regulations promulgated thereunder relating to members of compensation committees, and (iii) meet any further requirements designated by the Board. The Compensation Committee shall perform such services as may be designated by the Board. 5.3 Audit Committee. The Board shall establish an Audit Committee consisting of at least three directors, a majority of whom are not officers or employees of the Corporation or any of its affiliates. The Audit Committee shall (i) serve as a focal point for communication between the Corporation's directors, management, independent accountants and internal auditing personnel, as their duties relate to financial accounting, reporting and controls, (ii) assist the Board of Directors in fulfilling its fiduciary responsibilities as to accounting policies and reporting practices of the Corporation and all subsidiaries and the sufficiency of auditing practices with respect thereto, in part, by reviewing the scope of audit coverage, including consideration of the Corporation's accounting practices and procedures and system of internal accounting controls and reporting to the Board with respect thereto, (iii) operate as the Board's principal agent in ensuring the independence of the Corporation's independent accountants, the integrity of management and the adequacy of disclosure to shareholders, and (iv) recommend to the Board the appointment of the Corporation's independent auditors, and (v) perform such other services as may be designated by the Board. SECTION 6 REMOVAL OF BOARD MEMBERS Except as may be otherwise provided in Section 3.8 of these By-laws, (i) any director may be removed, with or without cause, by a two-thirds vote of the Board of Directors and (ii) any director or the entire Board of Directors may be removed at any time, with or without cause, by the affirmative vote of the holders of not less than two- thirds of that portion of the Total Voting Power (as defined in Article III(D) of the Articles of Incorporation) that is present or represented at a special shareholders' meeting called for that purpose, voting together as a single class. At the same meeting in which the Board of Directors or the shareholders remove one or more directors, a successor or successors may be elected for the unexpired term of the director or directors removed. Except as provided in the Articles of Incorporation and in this Section 6, directors shall not be subject to removal. SECTION 7 NOTICES 7.1 Form of Delivery. Whenever under the provisions of law, the Articles of Incorporation or these By-laws notice is required to be given to any shareholder or director, it shall not be construed to mean personal notice unless otherwise specifically provided in the Articles of Incorporation or these By-laws, but such notice may be given by mail, addressed to such shareholder or director at his address as it appears on the records of the Corporation, with postage thereon prepaid, or in such other manner as may be specified in these By-laws. Notices given by mail shall be deemed to have been given at the time they are deposited in the United States mail, and all other notices shall be deemed to have been given upon receipt. 7.2 Waiver. Whenever any notice is required to be given by law, the Articles of Incorporation or these By-laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent thereto. In addition, notice shall be deemed to have been given to, or waived by, any shareholder or director who attends a meeting of shareholders or directors in person, or is represented at such meeting by proxy, without protesting at the commencement of the meeting the transaction of any business because the meeting is not lawfully called or convened. SECTION 8 OFFICERS 8.1 Designations. The officers of the corporation shall be elected by the directors and shall be the Chairman of the Board, President, Secretary and Treasurer. The Board of Directors may appoint a Chief Executive Officer, one or more Vice Presidents and such other officers as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. More than one office may be held by one person, provided that no person holding more than one office may sign, in more than one capacity, any certificate or other instrument required by law to be signed by two officers. 8.2 Term of Office. The officers of the Corporation shall hold office at the pleasure of the Board of Directors. Except as otherwise provided in the resolution of the Board of Directors electing any officer, each officer shall hold office until the first meeting of the Board of Directors after the annual meeting of shareholders next succeeding his or her election, and until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any officer may resign at any time upon written notice to the Board, Chairman of the Board, President or Secretary of the Corporation. Such resignation shall take effect at the time specified therein and acceptance of such resignation shall not be necessary to make it effective. The Board may remove any officer with or without cause at any time. Any such removal shall be without prejudice to the contractual rights of such officers, if any, with the Corporation, but the election of an officer shall not in and of itself create contractual rights. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board at any regular or special meeting. 8.3 The Chairman of the Board. The Chairman of the Board shall preside at meetings of the Board of Directors and the shareholders and perform such other duties as may be designated by the Board of Directors or these By-laws. He shall be an ex-officio member of all committees of the Board of Directors, except that he shall be a full member entitled to all the rights and privileges appertaining thereto with respect to committees on which he is named a full member. 8.4 The President. The President shall, subject to the powers of the Chairman of the Board, have general and active responsibility for the management of the business of the Corporation, shall, unless otherwise provided by the Board, be the chief executive and chief operating officer of the Corporation, shall supervise the daily operations of the business of the Corporation and shall ensure that all orders, policies and resolutions of the Board are carried out. 8.5 The Vice Presidents. The Vice Presidents (if any) shall perform such duties as the President or the Board of Directors shall prescribe. 8.6 The Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the shareholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose. He shall give, or cause to be given, notice of all meetings of the shareholders and regular and special meetings of the Board, and shall perform such other duties as may be prescribed by the Board or President. He shall keep in safe custody the seal of the Corporation, if any, and affix such seal to any instrument requiring it. 8.7 The Treasurer. The Treasurer shall have the custody of the corporate funds and shall keep or cause to be kept full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall keep a proper accounting of all receipts and disbursements and shall disburse the funds of the Corporation only for proper corporate purposes or as may be ordered by the Board and shall render to the President and the Board at the regular meetings of the Board, or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition and results of operations of the Corporation. SECTION 9 STOCK 9.1 Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed by the President or a Vice President and the Secretary or an Assistant Secretary evidencing the number and class (and series, if any) of shares owned by him, containing such information as required by law and bearing the seal of the Corporation. If any stock certificate is manually signed by a transfer agent or registrar other than the Corporation itself or an employee of the Corporation, the signature of any such officer may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be an officer, transfer agent or registrar of the Corporation before such certificate is issued, it may be issued by the Corporation with the same effect as if such person or entity were an officer, transfer agent or registrar of the Corporation on the date of issue. 9.2 Missing Certificates. The President or any Vice President may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the Corporation's receipt of an affidavit of that fact from the person claiming the certificate of stock to be lost, stolen or destroyed. As a condition precedent to the issuance of a new certificate or certificates, the officers of the Corporation shall, unless dispensed with by the President, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to (i) give the Corporation a bond or (ii) enter into a written indemnity agreement, in each case in an amount appropriate to indemnify the Corporation against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. 9.3 Transfers. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. SECTION 10 DETERMINATION OF SHAREHOLDERS 10.1 Record Date. For the purpose of determining shareholders entitled to notice of and to vote at a meeting, or to receive a dividend, or to receive or exercise subscription or other rights, or to participate in a reclassification of stock, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors may fix in advance a record date for determination of shareholders for such purpose, such date to be not more than 60 days and, if fixed for the purpose of determining shareholders entitled to notice of and to vote at a meeting, not less than 10 days, prior to the date on which the action requiring the determination of shareholder is to be taken. 10.2 Registered Shareholders. Except as otherwise provided by law, the Corporation and its directors, officers and agents may recognize and treat a person registered on its records as the owner of shares as the owner in fact thereof for all purposes, and as the person exclusively entitled to have and to exercise all rights and privileges incident to the ownership of such shares, and the Corporation's rights under this section shall not be affected by any actual or constructive notice that the Corporation, or any of its directors, officers or agents, may have to the contrary. SECTION 11 INDEMNIFICATION 11.1 Definitions. As used in this section the following terms shall have the meanings set forth below: (a) "Board" - the Board of Directors of the Corporation. (b) "Claim" - any threatened, pending or completed claim, action, suit, or proceeding, whether civil, criminal, administrative or investigative and whether made judicially or extra-judicially, or any separate issue or matter therein, as the context requires. (c) "Determining Body" - (i) those members of the Board who are not named as parties to the Claim for which indemnification is being sought ("Impartial Directors"), if there are at least three Impartial Directors, (ii) a committee of at least three Impartial Directors appointed by the Board (regardless whether the members of the Board of Directors voting on such appointment are Impartial Directors) or (iii) if there are fewer than three Impartial Directors or if the Board of Directors or the committee appointed pursuant to clause (ii) of this paragraph so directs (regardless whether the members thereof are Impartial Directors), independent legal counsel, which may be the regular outside counsel of the Corporation. (d) "Disbursing Officer" - the President of the Corporation or, if the President is a party to the Claim for which indemnification is being sought, any officer not a party to such Claim who is designated by the President to be the Disbursing Officer with respect to indemnification requests related to the Claim, which designation shall be made promptly after receipt of the initial request for indemnification with respect to such Claim. (e) "Expenses" - any expenses or costs (including, without limitation, attorney's fees, judgments, punitive or exemplary damages, fines and amounts paid in settlement). (f) "Indemnitee" - each person who is or was a director or officer of the Corporation. 11.2 Indemnity. (a) To the extent such Expenses exceed the amounts reimbursed or paid pursuant to policies of liability insurance maintained by the Corporation, the Corporation shall indemnify each Indemnitee against any Expenses actually and reasonably incurred by him (as they are incurred) in connection with any Claim either against him or as to which he is involved solely as a witness or person required to give evidence, by reason of his position (i) as a director or officer of the Corporation, (ii) as a director or officer of any subsidiary of the Corporation or as a fiduciary with respect to any employee benefit plan of the Corporation, or (iii) as a director, officer, partner, employee or agent of another Corporation, partnership, joint venture, trust or other for-profit or not-for-profit entity or enterprise, if such position is or was held at the request of the Corporation, whether relating to service in such position before or after the effective date of this Section, if he (i) is successful in his defense of the Claim on the merits or otherwise or (ii) has been found by the Determining Body (acting in good faith) to have met the Standard of Conduct (defined below); provided that (A) the amount otherwise payable by the Corporation may be reduced by the Determining Body to such amount as it deems proper if it determines that the Claim involved the receipt of a per- sonal benefit by Indemnitee, and (B) no indemnification shall be made in respect of any Claim as to which Indemnitee shall have been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable for willful or intentional misconduct in the per- formance of his duty to the Corporation or to have obtained an improper personal benefit, unless, and only to the extent that, a court shall determine upon application that, despite the adjudication of liability but in view of all the cir- cumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such Expenses as the court deems proper. (b) The Standard of Conduct is met when the con- duct by an Indemnitee with respect to which a Claim is as- serted was conduct that was in good faith and that he reasonably believed to be in, or not opposed to, the best interest of the Corporation, and, in the case of a criminal action or proceeding, that he had no reasonable cause to believe was unlawful. The termination of any Claim by judg- ment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not meet the Standard of Conduct. (c) Promptly upon becoming aware of the existence of any Claim as to which he may be indemnified hereunder, Indemnitee shall notify the President of the Corporation of the Claim and whether he intends to seek indemnification hereunder. If such notice indicates that Indemnitee does so intend, the President shall promptly advise the Board thereof and notify the Board that the establishment of the Determining Body with respect to the Claim will be a matter presented at the next regularly scheduled meeting of the Board. After the Determining Body has been established the President shall inform the Indemnitee thereof and Indemnitee shall immediately provide the Determining Body with all facts relevant to the Claim known to him. Within 60 days of the receipt of such information, together with such addi- tional information as the Determining Body may request of Indemnitee, the Determining Body shall determine, and shall advise Indemnitee of its determination, whether Indemnitee has met the Standard of Conduct. (d) During such 60-day period, Indemnitee shall promptly inform the Determining Body upon his becoming aware of any relevant facts not therefore provided by him to the Determining Body, unless the Determining Body has obtained such facts by other means. (e) In the case of any Claim not involving a proposed, threatened or pending criminal proceeding, (i) if Indemnitee has, in the good faith judgment of the Determining Body, met the Standard of Conduct, the Corporation may, in its sole discretion after notice to Indemnitee, assume all responsibility for the defense of the Claim, and, in any event, the Corporation and the Indemnitee each shall keep the other informed as to the progress of the defense, including prompt disclosure of any proposals for settlement; provided that if the Corporation is a party to the Claim and Indemnitee reasonably determines that there is a conflict between the positions of the Corporation and Indemnitee with respect to the Claim, then Indemnitee shall be entitled to conduct his defense, with counsel of his choice; and provided further that Indemnitee shall in any event be entitled at his expense to employ counsel chosen by him to participate in the defense of the Claim; and (ii) the Corporation shall fairly consider any proposals by Indemnitee for settlement of the Claim. If the Corporation (A) proposes a settlement acceptable to the person asserting the Claim, or (B) believes a settlement proposed by the person asserting the Claim should be ac- cepted, it shall inform Indemnitee of the terms thereof and shall fix a reasonable date by which Indemnitee shall respond. If Indemnitee agrees to such terms, he shall ex- ecute such documents as shall be necessary to effect the settlement. If he does not agree he may proceed with the defense of the Claim in any manner he chooses, but if he is not successful on the merits or otherwise, the Corporation's obligation to indemnify him for any Expenses incurred following his disagreement shall be limited to the lesser of (A) the total Expenses incurred by him following his decision not to agree to such proposed settlement or (B) the amount the Corporation would have paid pursuant to the terms of the proposed settlement. If, however, the proposed settlement would impose upon Indemnitee any requirement to act or refrain from acting that would materially interfere with the conduct of his affairs, Indemnitee may refuse such settlement and proceed with the defense of the Claim, if he so desires, at the Corporation's expense without regard to the limitations imposed by the preceding sentence. In no event, however, shall the Corporation be obligated to indemnify Indemnitee for any amount paid in a settlement that the Corporation has not approved. (f) In the case of a Claim involving a proposed, threatened or pending criminal proceeding, Indemnitee shall be entitled to conduct the defense of the Claim, and to make all decisions with respect thereto, with counsel of his choice, provided, however, that the Corporation shall not be obligated to indemnify Indemnitee for an amount paid in settlement that the Corporation has not approved. (g) After notifying the Corporation of the ex- istence of a Claim, Indemnitee may from time to time request the Corporation to pay the Expenses (other than judgments, fines, penalties or amounts paid in settlement) that he incurs in pursuing a defense of the Claim prior to the time that the Determining Body determines whether the Standard of Conduct has been met. If the Disbursing Officer believes the amount requested to be reasonable, he shall pay to Indemnitee the amount requested (regardless of Indemnitee's apparent ability to repay such amount) upon receipt of an undertaking by or on behalf of Indemnitee to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation under the cir- cumstances. If the Disbursing Officer does not believe such amount to be reasonable, the Corporation shall pay the amount deemed by him to be reasonable and Indemnitee may apply directly to the Determining Body for the remainder of the amount requested. (h) After the Determining Body has determined that the Standard of Conduct was met, for so long as and to the extent that the Corporation is required to indemnify Indemnitee under this Agreement, the provisions of Paragraph (g) shall continue to apply with respect to Expenses incurred after such time except that (i) no undertaking shall be required of Indemnitee and (ii) the Disbursing Officer shall pay to Indemnitee such amount of any fines, penalties or judgments against him which have become final as the Corporation is obligated to indemnify him. (i) Any determination by the Corporation with respect to settlements of a Claim shall be made by the Determining Body. (j) The Corporation and Indemnitee shall keep confidential, to the extent permitted by law and their fiduciary obligations, all facts and determinations provided or made pursuant to or arising out of the operation of this Section, and the Corporation and Indemnitee shall instruct its or his agents and employees to do likewise. 11.3 Enforcement. (a) The rights provided by this Section shall be enforceable by Indemnitee in any court of competent jurisdiction. (b) If Indemnitee seeks a judicial adjudication of his rights under this Section Indemnitee shall be en- titled to recover from the Corporation, and shall be indemnified by the Corporation against, any and all Expenses actually and reasonably incurred by him in connection with such proceeding but only if he prevails therein. If it shall be determined that Indemnitee is entitled to receive part but not all of the relief sought, then the Indemnitee shall be entitled to be reimbursed for all Expenses incurred by him in connection with such judicial adjudication if the amount to which he is determined to be entitled exceeds 50% of the amount of his claim. Otherwise, the Expenses incurred by Indemnitee in connection with such judicial adjudication shall be appropriately prorated. (c) In any judicial proceeding described in this subsection, the Corporation shall bear the burden of proving that Indemnitee is not entitled to any Expenses sought with respect to any Claim. 11.4 Saving Clause. If any provision of this Section is determined by a court having jurisdiction over the matter to require the Corporation to do or refrain from doing any act that is in violation of applicable law, the court shall be empowered to modify or reform such provision so that, as modified or reformed, such provision provides the maximum indemnification permitted by law, and such provision, as so modified or reformed, and the balance of this Section, shall be applied in accordance with their terms. Without limiting the generality of the foregoing, if any portion of this Section shall be invalidated on any ground, the Corporation shall nevertheless indemnify an Indemnitee to the full extent permitted by any applicable portion of this Section that shall not have been invalidated and to the full extent permitted by law with respect to that portion that has been invalidated. 11.5 Non-Exclusivity. (a) The indemnification and advancement of Expenses provided by or granted pursuant to this Section shall not be deemed exclusive of any other rights to which Indemnitee is or may become entitled under any statute, article of incorporation, by-law, authorization of shareholders or directors, agreement, or otherwise. (b) It is the intent of the Corporation by this Section to indemnify and hold harmless Indemnitee to the fullest extent permitted by law, so that if applicable law would permit the Corporation to provide broader indemnification rights than are currently permitted, the Corporation shall indemnify and hold harmless Indemnitee to the fullest extent permitted by applicable law notwithstanding that the other terms of this Section would provide for lesser indemnification. 11.6 Successors and Assigns. This Section shall be binding upon the Corporation, its successors and assigns, and shall inure to the benefit of the Indemnitee's heirs, personal representatives, and assigns and to the benefit of the Corporation, its successors and assigns. 11.7 Indemnification of Other Persons. The Corporation may indemnify any person not covered by Sections 11.1 through 11.6 to the extent provided in a resolution of the Board or a separate section of these By-laws. SECTION 12 AMENDMENTS 12.1 Adoption of By-laws; Amendments Thereof. By-laws of the Corporation may be adopted only by a majority vote of the Board of Directors. By-laws may be amended or repealed only by (i) a majority vote of the Board of Directors, except that any amendment to or repeal of Section 6 of these By-laws shall require an affirmative vote of at least three- quarters of the Board, or (ii) the affirmative vote of the holders of at least two-thirds of that portion of the Total Voting Power (as defined in Article III(D) of the Articles of Incorporation), voting together as a single class, that is present in person or by proxy at any regular or special meeting of shareholders, the notice of which expressly states that the proposed amendment or repeal is to be considered at the meeting. 12.2 New By-laws; Amendments. Any purported amendment to these By-laws which would add hereto a matter not covered herein prior to such purported amendment shall be deemed to constitute the adoption of a By-law provision and not an amendment to the By-laws. SECTION 13 MISCELLANEOUS 13.1 Dividends. Except as otherwise provided by law or the Articles of Incorporation, dividends upon the stock of the Corporation may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, property, or shares of stock, subject to the limitations specified in the Articles of Incorporation. 13.2 Voting of Shares Owned by Corporation. Unless otherwise directed by the Board, any shares of capital stock issued by a wholly-owned subsidiary of the Corporation may be voted by the President of the Corporation at any shareholders' meeting of the subsidiary (or in connection with any written consent in lieu thereof). 13.3 Checks. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Signatures of the authorized signatories may be by facsimile. 13.4 Fiscal Year. The Board of Directors may adopt for and on behalf of the Corporation a fiscal or a calendar year. 13.5 Seal. The Board of Directors may adopt a corporate seal, which shall have inscribed thereon the name of the Corporation. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Failure to affix the seal shall not, however, affect the validity of any instrument. 13.6 Gender. All pronouns and variations thereof used in these By-laws shall be deemed to refer to the masculine, feminine or neuter gender, singular or plural, as the identity of the person, persons, entity or entities referred to may require. EX-10.1 3 Exhibit 10.1 LEASE AMENDMENT Consisting of one (1) typewritten page, this Lease Amendment is attached to and forms a part of and amends that certain Lease between Stewart Building Enterprise, Landlord, and Stewart Enterprises, Inc., Tenant, dated September 1, 1983, as previously amended, in the following particulars, to wit: 1) The Demised Premises are broken down as follows: a) Ground Floor - 7,802 RSF b) Fourth Floor - 19,874 RSF c) Fifth Floor - 21,485 RSF Total Area - 49,161 RSF 2) The new Base Monthly Rental effective June 1, 1997 is $53,257.75. 3) The term is hereby extended through May 31, 1998. All other terms and conditions of the Lease, not in conflict herewith, shall remain in full force and effect. THUS DONE AND EXECUTED this 30th day of April, 1997, in the presence of the undersigned competent witnesses. WITNESSES: STEWART ENTERPRISES, INC. BY: /s/ Chari L. Perl /s/ Ronald H. Patron --------------------- -------------------------- /s/ Evelyn P. Maher EXECUTIVE VICE PRESIDENT --------------------- TENANT STEWART BUILDING ENTERPRISE A LOUISIANA PARTNERSHIP /s/ Elizabeth Arias BY: /s/ John C. Hernandez, Jr. --------------------- ----------------------------- MANAGING PARTNER /s/ Elaine A. Mayeur LANDLORD --------------------- EX-10.27 4 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 to Employment Agreement is made as of the 1st day of August, 1997, by and between Stewart Enterprises, Inc., a Louisiana corporation (the "Company"), and Richard O. Baldwin, Jr. (the "Employee"). W I T N E S S E T H: WHEREAS, the Company has entered into an Employment Agreement with the Employee dated as of August 1, 1995 (the "Employment Agreement"); and WHEREAS, the Company has approved, effective August 1, 1997, an increase in the Employee's maximum incentive bonus to up to $200,000 per fiscal year during the time the Employee is assigned outside of the United States. NOW THEREFORE, the Company and the Employee agree as follows: Article II Section 2 of the Employment Agreement is hereby amended to read in its entirety as follows: 2. Bonus. For the period ending October 31, 1995, the Employee shall be eligible to receive an incentive bonus, the amount of which shall be determined pursuant to Paragraph 5 of the Prior Agreement. This incentive bonus shall be paid in cash no later than 30 days following the filing of the Company's annual report on Form 10-K for the Fiscal Year ending October 31, 1995. For the Fiscal Year beginning November 1, 1995 and ending October 31, 1996, the Employee shall be eligible to receive a bonus (the "Bonus") of up to $150,000. For the period beginning November 1, 1996, the Employee shall be eligible to receive a Bonus of up to $200,000 per Fiscal Year; provided, however, that in the event the Employee ceases to be assigned outside of the United States, the Employee's maximum Bonus will be the sum of (i) the product of $200,000 times the quotient of the number of days during the Fiscal Year that the Employee was assigned outside of the United States divided by 365 and (ii) the product of $150,000 times the quotient of the number of days during the Fiscal Year that the Employee was assigned in the United States divided by 365 (the "Maximum Bonus"). Such Bonus shall be comprised of two elements, the quantitative element and the qualitative element: (a) The quantitative element shall be equal to 75% of the Maximum Bonus and shall be based on the attainment of certain goals to be established by the Company's Compensation Committee and Employee. (b) The qualitative element shall be 25% of the Maximum Bonus and shall be awarded at the discretion of the President. The President and Employee shall establish incentive goals and other criteria for the award of the qualitative element. The Bonus shall be paid in cash no later than 30 days following the filing of the Company's annual report on Form 10-K for the Fiscal Year in which the Bonus has been earned. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and signed as of the date indicated above. STEWART ENTERPRISES, INC. By: /s/ James W. McFarland ----------------------------- James W. McFarland Compensation Committee Chairman EMPLOYEE: /s/ Richard O. Baldwin, Jr. ----------------------------- Richard O. Baldwin, Jr. -1- EX-10.61 5 AMENDED AND RESTATED STEWART ENTERPRISES, INC. EMPLOYEE STOCK PURCHASE PLAN WHEREAS, Stewart Enterprises, Inc. (the "Company") desires to establish the Amended and Restated Employee Stock Purchase Plan (the "Plan") providing for the grant of options to purchase common stock of the Company to employees who are employed by the Company or its subsidiaries on a regular basis; NOW, THEREFORE, the Company hereby establishes the Plan, the terms of which shall be as follows: 1. Purpose. The purpose of this Employee Stock Purchase Plan is to give eligible employees of Stewart Enterprises, Inc., a Louisiana corporation, and its Subsidiaries, an opportunity to acquire shares of its Common Stock, and to continue to promote its best interests and enhance its long-term performance. 2. Definitions. Wherever used herein, the following words and phrases shall have the meanings stated below unless a different meaning is plainly required by the context: (a) "Board" means the Board of Directors of the Company. (b) "Broker" means the brokerage firm designated by the Company to hold shares of Common Stock purchased by Participants through the Plan and to handle sales of shares of Common Stock for Participants. (c) "Broker Account" means the account established with the Broker for each Participant. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Common Stock" means shares of the Class A common stock of the Company. (f) "Company" means Stewart Enterprises, Inc., a Louisiana corporation. (g) "Deposit Account" means the account maintained by the Company for each Participant to which payroll deductions are credited, as provided herein. (h) "Eligible Employee" means, except as otherwise provided below, each person who, on the applicable Semiannual Grant Date, is employed by the Company or a Subsidiary on a regular full-time basis and who has been employed by the Company or a Subsidiary for at least one year on a regular full-time basis. A person shall be considered employed on a regular full-time basis if he or she is customarily employed more than twenty (20) hours per week. The term "Eligible Employee" does not include employees who normally work less than five (5) months a year for the Company or a Subsidiary, or highly compensated (within the meaning of Section 414(g) of the Code) officers of the Company or a Subsidiary who are subject to Section 16 of the Securities Exchange Act of 1934. (i) "Exercise Date" means the day before the next Semiannual Grant Date. (j) "Fair Market Value of Common Stock as of the applicable Exercise Date" shall mean: (i) If the Common Stock is listed on a national securities exchange or traded in the over-the-counter market and sales prices are regularly reported for the Common Stock, the average of the closing or last prices of the Common Stock on the Composite Tape or other comparable reporting system for the 10 consecutive trading days immediately preceding such applicable date; (ii) If the Common Stock is not traded on a national securities exchange but is traded on the over-the-counter market, if sales prices are not regularly reported for the Common Stock for the 10 days referred to in clause (i), and if bid and asked prices for the Common Stock are regularly reported, the average of the mean between the bid and asked price for the Common Stock at the close of trading in the over-the-counter market for the 10 days on which Common Stock was traded immediately preceding such applicable date; and (iii) If the Common Stock is neither listed on a national securities exchange nor traded on the over-the-counter market, such value as the Plan Administrator, in good faith, shall determine. Notwithstanding any provision of the Plan to the contrary, no determination made with respect to the Fair Market Value of Common Stock subject to an Option shall be inconsistent with Section 423 of the Code or regulations thereunder. (k) "Option" means an option granted hereunder which will entitle an Eligible Employee to purchase shares of Common Stock. (l) "Option Price" means 85% of the Fair Market Value per share of Common Stock as of the applicable Exercise Date. (m) "Participant" means an Eligible Employee who files the required participation forms with the Company. (n) "Plan" means the Amended and Restated Stewart Enterprises, Inc. Employee Stock Purchase Plan as set forth herein. (o) "Plan Administrator" means an individual or committee to which the Board delegates its powers with respect to administration of the Plan pursuant to Section 3 hereof. (p) "Semiannual Grant Date" means each January 1 and July 1. (q) "Subsidiary" or "Subsidiaries" means a corporation or corporations of which stock possessing at least 80% of the total combined voting power of all classes of stock entitled to vote is owned by the Company or by any other Subsidiary or Subsidiaries. "Subsidiary" or "Subsidiaries" also includes corporations acquired by the Company after adoption of the Plan. 3. Administration. The Plan shall be administered by a Plan Administrator as designated by the Board with respect to the administration of the Plan (except its powers under Section 18(c) of the Plan). Subject to the express provisions of the Plan, the Plan Administrator may interpret the Plan hereunder and make all other determinations necessary or advisable for the administration of the Plan. The determinations of the Plan Administrator on all matters regarding the Plan shall be conclusive. 4. Maximum Limitations. The aggregate number of shares of Common Stock available for grant as Options pursuant to Section 5 shall not exceed 500,000 subject to adjustment pursuant to Section 13 hereof. Shares of Common Stock granted pursuant to the Plan may be either authorized but unissued shares or shares now or hereafter held in the treasury of the Company. In the event that any Option granted pursuant to Section 5 expires or is terminated, surrendered or cancelled without being exercised, in whole or in part, for any reason, the number of shares of Common Stock theretofore subject to such Option shall again be available for grant as an Option pursuant to Section 5 and shall not reduce the aggregate number of shares of Common Stock available for grant as such Options as set forth in the first sentence of this Section. 5. Basis of Participation and Granting of Options. (a) Each Eligible Employee on a Semiannual Grant Date and, subject to earlier termination of the Plan pursuant to Section 18(c) hereof, ending with the last Semiannual Grant Date on which shares of Common Stock are available for grant within the limitation set forth in Section 4, is granted an Option hereunder which will entitle him or her to purchase, at the Option Price per share applicable to such Semiannual Grant Date, the whole number of shares of Common Stock equal to 1, 2, 3, 4, 5, 6, 7, 8, 9, or 10% of the Eligible Employee's compensation (as defined in Section 5(c) of the Plan) divided by such applicable Option Price per share of Common Stock. The Semiannual Grant Date applicable to an Option granted pursuant to this paragraph (a) shall be the date of grant of such Option. (b) If the number of shares of Common Stock for which Options are granted pursuant to this Section 5 exceeds the applicable number set forth in Section 4, then the Options granted under the applicable paragraph to all Eligible Employees shall, in a nondiscriminatory manner which shall be consistent with Section 15(d) of the Plan reduced in proportion to their respective compensation. (c) An Eligible Employee's compensation means, for purposes of Section 5(a) the Eligible Employee's total compensation per pay period, including bonuses, commissions, overtime pay and other extra compensation, unless the Eligible Employee notifies the Human Resources Department at least five business days in advance that a particular bonus shall not be included as compensation for purposes of Section 5(a). Compensation upon which Plan benefits are computed shall include any compensation excluded currently from the Employee's gross income by reason of the application of IRC Section 125 and 402(a)(8). The term "compensation" shall also include Earned Income. 6. Commencement of Participation. (a) An Eligible Employee may become a Participant by completing and filing with the Human Resources Department of the Company on or before the date set therefor by the Plan Administrator (i) an enrollment form, and (ii) such forms as are requested by the Broker for the opening of the Eligible Employee's account with the Broker. (b) At the time an Eligible Employee completes an enrollment form, the Eligible Employee shall elect to purchase an amount equal to 1, 2, 3, 4, 5, 6, 7, 8, 9, or 10% of the employee's compensation (as defined in Section 5(c)) for the applicable period for which the Option is in effect. An enrollment form will remain in effect until cancelled by the Participant. 7. Participant's Deposit Account. All payroll deductions made for a Participant shall be credited to the Participant's Deposit Account. No interest will be paid to any Participant or credited to his or her Deposit Account under the Plan with respect to such funds. All amounts credited to a Participant's Deposit Account shall be used to purchase Common Stock under Section 10 and, except as provided in Section 16, no portion of an Eligible Employee's Deposit Account shall be refunded to him or her. 8. Changes in Payroll Deductions. A Participant may discontinue participation in the Plan for a particular Semiannual Grant Date, as provided in Section 16, but a Participant may not alter the amount of his or her election for that particular Grant Date. 9. Terms of Options. (a) Each Option shall, unless sooner expired pursuant to Section 9(b), become exercisable on the applicable Exercise Date. Each Option not exercised on such Exercise Date shall expire at the end of such Exercise Date. (b) An Option shall expire on the first to occur of the end of the applicable Exercise Date or the date that the employment of the Eligible Employee with the Company and its Subsidiaries terminates (as determined by the Plan Administrator) for any reason other than death. (c) If the employment of a Participant with the Company and its Subsidiaries terminates by reason of death, his Option shall expire at the end of the applicable Exercise Date. 10. Manner of Exercise of Options and Payment for Common Stock. Unless a Participant gives written notice to the Company as hereinafter provided in Section 18(i) no later than five business days prior to the Exercise Date, his or her Option for a specific Semiannual Grant Date will be deemed to have been exercised automatically on the first subsequent Exercise Date, for the purchase of the number of full shares and fractional share interests that the accumulated payroll deductions in his or her Deposit Account at that time will purchase at the Option Price (but not in excess of the number of shares for which Options have been granted to the employee pursuant to Section 5(a). 11. Participant's Account with Broker. (a) The Broker shall open and maintain a separate account for each Participant. Except where otherwise prohibited, a Participant may also use the account for other purchases of Common Stock or other personal transactions. A termination by a Participant of participation in the Plan will not also terminate the individual's account with the Broker. (b) Shares of Common Stock purchased by the Broker shall be allocated to the individual accounts established for Participants in proportion to the respective amounts received for Participants' accounts. Allocations are made in whole shares and in fractional share interests. (c) At the time of purchase, each Participant immediately acquires full ownership of all whole shares and fractional share interests purchased by the Broker for his or her account. All shares are registered in the name of the Broker, and remain so registered until delivery or sale is requested by the Participant. A Participant may not require delivery of a certificate for a fractional interest in a share. However, the Participant may instruct the Broker to sell the fractional interest, and remit the proceeds to him or her. The shares once allocated to the Participants' accounts become the sole property of the respective Participants. The Plan does not restrict the ability of a Participant to sell, assign, hypothecate or otherwise deal with shares of the Common Stock acquired under the Plan. However, the Participant may not sell, assign, hypothecate or otherwise deal with his or her interest in the Plan as such. No person has or may create a lien in the Plan or under the Plan on any of such shares of Common Stock. (d) The Participant may instruct the Broker at any time to deliver to him or her a certificate for any or all of his or her whole shares of Common Stock, without affecting his or her continuing participation in the Plan. The Participant shall pay any charge therefor. (e) A Participant may instruct the Broker at any time to sell any or all of his or her whole shares of Common Stock and fractional share interest allocable to his or her account, without affecting his or her continuing participation in the Plan. The Participant shall pay all charges therefor, including but not limited to brokerage commissions. (f) Cash dividends and other cash distributions on shares of Common Stock held in the custody of the Broker are credited to the account of the Participant, and the Participant may, at his own expense, take a distribution of such dividend or distribution or request the Broker to purchase additional shares of Common Stock on the open market. Any dividends paid in Common Stock or any splits of the Common Stock on shares held in custody will be allocated to each Participant (to the nearest ten-thousandth of a share) in accordance with his or her interest in the shares on which the dividends are paid, or with respect to which the stock split occurs. Any other securities or subscription rights distributed on shares of Common Stock may be retained or sold by the Participant, and, in the event of such sale the Participant shall pay all charges therefor, including but not limited to brokerage commissions. (g) Each Participant shall receive from the Broker quarterly statements of account that itemize the transactions from his or her account, and shall also receive confirmations of current transactions as required by regulatory authorities. (h) The Broker shall deliver to each participant as promptly as practicable, by mail or otherwise, all notices of meetings, proxy statements and other material distributed by the Company to its shareholders. The whole shares of Common Stock in each Participant's account will be voted in accordance with the Participant's signed proxy instructions duly delivered to the Broker, or otherwise in accordance with applicable stock exchange rules. 12. Transferability. No Option may be transferred, assigned, pledged, or hypothecated (whether by operation of law or otherwise), except as provided by will or the applicable laws of descent or distribution, and no Option shall be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of an Option, or levy of attachment or similar process upon the Option not specifically permitted herein shall be null and void and without effect. An Option may be exercised only by the Eligible Employee during his or her lifetime, or pursuant to Section 9(c), by his or her estate or the person who acquires the right to exercise such Option upon his or her death by bequest or inheritance. 13. Adjustment Provisions. The aggregate number of shares of Common Stock with respect to which Options may be granted, the aggregate number of shares of Common Stock subject to each outstanding Option, and the Option Price per share of each Option may all be appropriately adjusted as the Plan Administrator may determine for any increase or decrease in the number of shares of issued Common Stock resulting from a subdivision or consolidation of shares, whether through reorganization, recapitalization, stock split-up, stock distribution or combination of shares, or the payment of a share dividend or other increase or decrease in the number of such shares outstanding effected without receipt of consideration by the Company. Adjustments under this Section 13 shall be made according to the sole discretion of the Plan Administrator, and its decision shall be binding and conclusive. 14. Dissolution, Merger and Consolidation. Upon the dissolution or liquidation of the Company, or upon a merger or consolidation of the Company in which the Company is not the surviving corporation, each Option granted hereunder shall expire as of the effective date of such transaction and all amounts contributed to a Participant's Deposit Account since the last Exercise Date shall be returned. 15. Limitations on Options. Notwithstanding any other provisions of the Plan: (a) The Company intends that Options granted and Common Stock issued under the Plan shall be treated for all purposes as granted and issued under an employee stock purchase plan within the meaning of Section 423 of the Code and regulations issued thereunder. Any provisions required to be included in the Plan under said Section and regulations issued thereunder are hereby included as fully as though set forth in the Plan at length. (b) No Eligible Employee shall be granted an Option under the Plan if, immediately after the Option was granted, the Eligible Employee would own stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or of any parent or Subsidiary of the Company. For purposes of this Section 15(b), stock ownership of an individual shall be determined under the rules of Section 424(d) of the Code and stock which the Eligible Employee may purchase under outstanding options shall be treated as stock owned by the Eligible Employee. (c) No Eligible Employee shall be granted an Option under the Plan which permits his or her rights to purchase stock under all employee stock purchase plans (as defined in Section 423 of the Code) of the Company and any parent or Subsidiary of the Company to accrue at a rate which exceeds $25,000 of fair market value of such stock (determined at the time of the grant of such Option) for each calendar year in which such Option is outstanding at any time. Any Option granted under the Plan shall be deemed to be modified to the extent necessary to satisfy this paragraph (c). (d) All Eligible Employees shall have the same rights and privileges under the Plan, except that the amount of Common Stock which may be purchased under Options granted on any Semiannual Grant Date, shall bear a uniform relationship to the compensation of Eligible Employees. All rules and determinations of the Plan Administrator in the administration of the Plan shall be uniformly and consistently applied to all persons in similar circumstances. 16. Withdrawal of Account. (a) By written notice to the Human Resources Department of the Company, at any time prior to and up to five (5) business days before the applicable Exercise Date with regards to a particular Semiannual Grant Date, an employee may elect to withdraw all the accumulated payroll deductions in his Deposit Account without interest at such time, and no further payroll deductions will be made from the employee's pay for that Grant Date. (b) An employee's withdrawal election for any Semiannual Grant Date will not have any effect upon the employee's eligibility to participate in any succeeding Semiannual Grant Date or in any similar plan which may hereafter be adopted by the Company. 17. Insider Trading. The operation of the Plan shall at all times comply with the Company's Trading of Company Securities and Non- Public Information (Insider Trading) Policy. 18. Miscellaneous. (a) Legal and Other Requirements. The obligations of the Company to sell and deliver Common Stock under the Plan shall be subject to all applicable laws, regulations, rules and approvals, including, but not by way of limitation, the effectiveness of a registration statement under the Securities Act of 1933 if deemed necessary or appropriate by the Company. Certificates for shares of Common Stock issued hereunder may be legended as the Board shall deem appropriate. (b) No Obligation To Exercise Option. The granting of an Option shall impose no obligation upon an optionee to participate in the Plan or to exercise such Option. (c) Termination and Amendment of Plan. The Board, without further action on the part of the shareholders of the Company, may from time to time alter, amend or suspend the Plan or any Option granted hereunder or may at any time terminate the Plan, except that it may not (except to the extent provided in Section 13 hereof): (i) change the total number of shares of Common Stock available for grant under the Plan; (ii) change the class of Eligible Employees; or (iii) effect a change inconsistent with Section 423 of the Code or regulations issued thereunder. No action taken by the Board under this Section may materially and adversely affect any outstanding Option without the consent of the holder thereof. (d) Application of Funds. The proceeds received by the Company from the sale of Common Stock pursuant to Options will be used for general corporate purposes. (e) Withholding Taxes. Upon the exercise of any Option under the Plan, the Company shall have the right to require the optionee to remit to the Company an amount sufficient to satisfy all federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for shares of Common Stock. If a Participant makes a disqualifying disposition of shares acquired through exercise of the employee's options under this Plan within two years after the date of grant of such option, or within one year after the date of exercise of such option, the Participant shall promptly notify the Company and the Company shall have the right to require the Participant to pay to the Company any amounts sufficient to satisfy any federal, state and local tax withholding requirements. (f) Right to Terminate Employment. Nothing in the Plan or any agreement entered into pursuant to the Plan shall confer upon any Eligible Employee or other optionee the right to continue in the employment of the Company or any Subsidiary or affect any right which the Company or any Subsidiary may have to terminate the employment of such Eligible Employee or other optionee. (g) Rights as a Shareholder. No optionee shall have any right as a shareholder with respect to shares of Common Stock unless and until an Option with respect to such shares has been exercised and certificates for such shares of Common Stock purchased by the Optionee are issued to the Broker. (h) Leaves of Absence and Disability. The Plan Administrator shall be entitled to make such rules, regulations and determinations as it deems appropriate under the Plan in respect to any leave of absence taken by or disability of any Eligible Employee. Without limiting the generality of the foregoing, the Plan Administrator shall be entitled to determine (i) whether or not any such leave of absence shall constitute a termination of employment within the meaning of the Plan, and (ii) the impact, if any, of any such leave of absence on Options under the Plan theretofore granted to any Eligible Employee who takes such leave of absence. (i) Notices. Every direction, revocation or notice authorized or required by the Plan shall be deemed delivered to the Company (i) on the date it is personally delivered to the Secretary of the Company at its principal executive offices or (ii) three business days after it is sent by registered or certified mail, postage prepaid, addressed to the Secretary at such offices; and shall be deemed delivered to an optionee (A) on the date it is personally delivered to him or her or (B) three business days after it is sent by registered or certified mail, postage prepaid, addressed to him or her at the last address shown for him or her on the records of the Company or of any Subsidiary. (j) Applicable Law. All questions pertaining to the validity, construction and administration of the Plan and Options granted hereunder shall be determined in conformity with the laws of the State of Louisiana, to the extent not inconsistent with Section 423 of the Code and regulations thereunder and by the laws of the United States. July 1, 1997 RESOLUTION BY UNANIMOUS CONSENT OF THE BOARD OF DIRECTORS OF STEWART ENTERPRISES, INC. We the undersigned, being all of the directors of Stewart Enterprises, Inc. (the "Company"), do authorize and consent to the following: WHEREAS, it is desired that the Stewart Enterprises, Inc. Employee Stock Purchase Plan (the "Plan") be amended to provede that (a.) all contributions to the Plan will be made by means of payroll deduction and cash contributions will no longer be permitted, (b.) a brokerage account will be set up for each participant with a brokerage firm designated by the Company and shares of Class A Common Stock purchased through the Plan will be held in such brokerage account, (c.) certificates will no longer be issued on a semi-annual basis but will be issued upon request of participants, and (d.) participants' accounts will reflect the ownership of fractional shares and the cash value of such shares will no longer be paid to participants. NOW, THEREFORE, be it RESOLVED,that the Amended and Restated Stewart Enterprises, Inc. Employee Stock Purchase Plan in the form attached to this unanimous consent is hereby appoved to take effect July 1, 1997 and Legg, Mason, Wood, Walker, Inc. is hereby appointed as the broker to hold shares purchased through the Plan and to handle sales of such shares at the request of participants; and RESOLVED, that the appropriate oficers of the Company are hereby authorized and directed to take any and all actions necessary to effectuate the plan, as amended. This unanimous written consent is dated and effective as of July 1, 1997. /s/ Frank B. Stewart, Jr. /s/ Joseph P. Henican, III - --------------------------- -------------------------- Frank B. Stewart, Jr. Joseph P. Henican, III /s/ William E. Rowe /s/ Michael O. Read - --------------------------- -------------------------- William E. Rowe Michael O. Read /s/ Ronald H. Patron /s/ Darwin C. Fenner - --------------------------- -------------------------- Ronald H. Patron Darwin C. Fenner /s/ John P. Laborde /s/ James W. McFarland - --------------------------- -------------------------- John P. Laborde James W. McFarland CERTIFICATE I, the undersigned, duly elected and acting Secretary of Stewart Enterprises, Inc., do hereby certify that the foregoing is a true and correct copy of resolutions adopted by the Board of Directors of Stewart Enterprises, Inc., acting in accordance with its articles of incorporation and by-laws by unanimous written consent. The foregoing Resolution of the Board of Directors of Stewart Enterprises, Inc. is in full force and effect as of this 20th day of August, 1997. /s/ Kenneth C. Budde ----------------------- SECRETARY EX-12 6 EXHIBIT 12 STEWART ENTERPRISES, INC. AND SUBSIDIARIES Calculation of Ratio of Earnings to Fixed Charges (dollars in thousands) (Unaudited)
Years Ended October 31, ---------------------------------------------------------- 1997 1996 1995 1994 1993 ----------- ---------- ---------- ---------- ---------- Earnings from continuing operations before income taxes............................. $ 106,477(1) $ 82,075 $ 41,500 $ 42,198 $ 29,569 Fixed charges: Interest expense.................. 38,031 26,051 22,815 8,877 6,540 Interest portion of lease expense.................... 2,181 1,522 1,343 935 585 ----------- ---------- ---------- ---------- ---------- Total fixed charges................. 40,212 27,573 24,158 9,812 7,125 Earnings from continuing operations before income taxes and fixed charges........... $ 146,689(1) $ 109,648 $ 65,658 $ 52,010 $ 36,694 =========== ========= ========= ========= ========= Ratio of earnings to fixed charges............................ 3.65(1) 3.98 2.72 5.30 5.15 =========== ========= ========= ========= =========
(1) Excludes cumulative effect of change in accounting principles of $2,324 (net of $2,230 income tax benefit). EX-21 7 EXHIBIT 21 SUBSIDIARIES The following is a list of all direct and indirect subsidiaries of the Company and their jurisdictions of incorporation as of October 31, 1997. The name of each indirect subsidiary is indented under the name of its parent company.
Jurisdiction of Stewart Enterprises, Inc. Incorporation --------------- Acme Mausoleum Corporation LA Carolina Financial Corporation of Pickens SC Hill-Crest Memorial Park SC Oconee Memorial Gardens, Inc. SC Cemetery Management, Inc. FL Arlington Memorial Park Cemetery and Funeral Home, Inc. FL Baldwin-Fairchild Funeral Homes, Inc. FL All Faiths Memorial Park, Inc. FL Orlando Funeral Home, Inc. FL The Simplicity Plan, Inc. FL Bay Area Crematory, Inc. FL Beth David Funeral Chapel Tampa, Inc. FL Beth David Memorial Chapel, Inc. FL Bruce Ocala Funeral Home, Inc. FL Chapel Hill Cemetery, Inc. FL Glen Haven Memorial Park, Inc. FL Highland Memory Gardens, Inc. FL Semoran Funeral Home, Inc. FL Cheatham Hill Memorial Park, Inc. GA David C. Gross Funeral Home, Inc. FL Empresas Stewart-Cementerios, Inc. LA Empresas Stewart-Funerarias, Inc. LA Florida Hills Memorial Gardens, Inc. FL Garden of Memories, Inc. FL A.P. Boza Funeral Home, Inc. FL Curry and Son Funeral Home, Inc. FL Woodlawn Memory Gardens, Inc. FL Hubbell Funeral Home and Crematory, Inc. FL Kent R. Palmer, Inc. FL Kicliter Funeral Home, Inc. FL Memorial Park Cemetery, Inc. FL Oaklawn Park Cemetery and Funeral Home, Inc. FL Royal Palm Memorial Gardens, Inc. FL S.E. Acquisition of Ocala, Florida, Inc. FL SEI -Delfl, Inc. DE The Simplicity Plan of Puerto Rico, Inc. LA Sylvan Abbey Memorial Park, Inc. FL Turner Crematory, Inc. FL Turner Funeral Homes, Inc. FL Walsh & Wood Funeral Home, Inc. FL Woodlawn Park Cemetery Company FL Memorial Sunset Park, Inc. FL National Monument Company, Inc. FL South Dade-Palms Memorial Park, Inc. FL Cole & Garrett Funeral Homes, Inc. TN Cunningham Memorial Park, Inc. WV Dilday Brothers Huntington Valley Mortuary CA Dillard Memorial, Inc. SC Eastlawn Corporation GA Griffin Leggett, Inc. AR Forest Hills Cemetery, Inc. AR Griffin Leggett Healey & Roth, Inc. AR Gross Funeral Home, Inc. AR Rest Hills Memorial Park, Inc. AR Griffin Leggett-Conway, Inc. AR Grupo Stewart de Mexico, S.A. de C.V. MX Agencia Eusebio Gayosso, S.A. de C.V. MX Agencia Funeraria Gayosso, S.A. de C.V. MX Arga, S.A. de C.V. MX Funeraria Los Angeles, S.A. de C.V. MX Inmobiliaria Mictlan, S.A. de C.V. MX Inmobiliaria Rio Valparaiso, S.A. de C.V. MX Inmobiliaria Versatil, S.A. de C.V. MX Prevision Gayosso, S.A. de C.V. MX Publicidad Promocional, S.A. de C.V. MX Tiempo y Vida, S.A. de C.V. MX Highland Memorial Cemetery, Inc. TN Holly Hill Memorial Park, Inc. GA Holly Hills, Inc. TN Hopson Mortuary, Inc. CA International Stone & Erectors, Inc. LA Investors Trust, Inc. TX Kingsport Cemetery Corporation TN Lake Lawn Metairie Funeral Home, Inc. LA Lake Lawn Metairie Funeral Home (Joint Venture) LA Lake Lawn Park, Inc. LA Lakewood Memorial Park, Inc. MS Lassila Funeral Chapels, Inc. CA Legacy One, Inc. WV Blue Ridge Funeral Home, Inc. WV Blue Ridge Memorial Gardens, Inc. WV C.G.R., Inc. WV Eastern Cemetery Associates, Inc. WV Eastlawn Memorial Gardens, Inc. VA Eternal Light Funerals, Inc. WV Findlay Cemetery, Inc. OH Grandview Memory Gardens, Inc. VA Greenhills Memory Gardens, Inc. VA Highland Memory Gardens, Inc. VA Holly Memorial Gardens, Inc. VA Kanawha Plaza Partnership WV Legacy One Service Corporation WV Legacy One Tennessee, Inc. TN LOI Charleston, Inc. WV Monticello Memory Gardens, Inc. VA Mountain View Memory Gardens, Inc. WV National Exchange Trust, LTD. WV National Funeral Services, Inc. WV Pleasant View Memory Gardens, Inc. WV Sunset Memory Gardens, Inc. VA Williams-Blue Ridge Funeral Home, Inc. WV Les Enterprises Stewart (Canada) Inc. - Stewart Enterprises (Canada) Inc. Quebec Le Groupe Stewart Inc. - Stewart Group Inc. Quebec Gestion La Souvenance Inc. Quebec La Societe Cooperative de Frais Funeraires Inc. Quebec Lepine-Cloutier Ltee Quebec Les Jardins Commemoratifs Laurentide Inc./ Laurentide Memorial Gardens Inc. Quebec Les Jardins Quebec Quebec Parc Commemoratif La Souvenance Inc. Quebec Parc du Souvenir (1976) Inc./ Remembrance Park (1976) Inc. Quebec Parc Commemoratif de Montreal Inc./ Montreal Memorial Park Inc. Quebec 2756-5746 Quebec Inc. Quebec Residences Funeraires Associees du Quebec Inc. Quebec Stewart Immobilier (Canada) Inc. - Stewart Real Estate (Canada) Inc. Quebec Les Investissements Stewart (Canada) Inc. - Stewart Investments (Canada) Inc. Quebec McDermott - Crockett Mortuary, Inc. CA Memorial Services of Columbia, Inc MO Lincoln Memorial Mortuary, Inc. NE The Lincoln Memorial Park Cemetery Association, Inc. NE Memorial Funeral Home, Inc. MO Metairie Cemetery Association LA All Faiths Funeral Home, Inc. LA Pine Crest Cemetery, Inc. AL Montlawn Memorial Park, Inc. NC Mount Olivet Cemetery, Inc. LA The Nashville Historic Cemetery Association, Inc. TN Pasadena Funeral Home, Inc. TX Restland Funeral Home, Inc. TX Anderson-Clayton Bros. Funeral Homes, Inc. TX Little Bethel Memorial Park, Inc. TX Roselawn Memorial Gardens, Inc. TX Belew Funeral Home, Inc. TX Bexar County Mortuary Services, Inc. TX Bluebonnet Hills Memorial Park, Inc. TX Bluebonnet Hills Funeral Home, Inc. TX Bright-Holland Funeral Home, Inc. TX Crespo & Sons, Inc. TX Dalton & Son Funeral Home TX Emerald Hills Funeral Corporation TX Hilltop Memorial Park TX J.E. Foust & Son Funeral Directors, Inc. TX Laurel Land Memorial Park, Inc. TX Laurel Land Funeral Home, Inc. TX Singing Hills Funeral Home, Inc. TX Laurel Land of Fort Worth, Inc. TX Laurel Land Funeral Home of Fort Worth, Inc. TX Lyons Funeral Home, Inc. TX Metrocrest Funeral Home, Inc. TX Restland of Dallas, Inc. TX Abbey Plan of Texas, Inc. TX Highland Memorial Gardens, Inc. TX SEI - Deltx, Inc. DE Simplicity Plan of Texas, Inc. TX Southpark Funeral Home, Inc. TX South Memorial Park, Inc. TX Rocky Mount Memorial Park, Inc. NC Rose Haven Funeral Home & Cemetery, Inc. GA Royal Arms Apartments, Inc. LA St. Bernard Memorial Gardens, Inc. LA St. Bernard Memorial Funeral Home, Inc. LA St. Vincent de Paul Cemetery Association LA S.E. Acquisition of California, Inc. CA All Souls Mortuary, Inc. CA Barstow Funeral Homes, Inc. CA Buchheim Family, Inc. CA Calvary Mortuary of Los Angeles, California, Inc. CA DeYoung Memorial Chapel, Inc. CA Holy Cross Mortuary of Culver City, California, Inc. CA Holy Cross Mortuary of Pomona, California, Inc. CA N.D. Davis & Associates, Inc. CA Queen of Heaven Mortuary, Inc. CA Ressurrection Mortuary, Inc. CA Richard Pierce Funeral Service CA San Fernando Mission Mortuary, Inc. CA Scovern Mortuary, A California Corporation CA SCS Holdings Corporation DE S.E. Acquisition of Carmichael, California, Inc. CA S.E. Acquisition of Glendale, California, Inc. CA S.E. Acquisition of Lancaster, California, Inc. CA S.E. Acquisition of Los Osos Mortuary and Memorial Park, Inc. CA S.E. Acquisition of Oakhurst, California, Inc. CA S.E. Acquisition of Oroville, Inc. CA S.E. Acquisition of San Diego, California, Inc. CA Sentinel Cremation Societies, Inc. DE Stewart Pre-Need Services, Inc. CA Stricklin/Snively Mortuary CA Catalina Channel Cremation Society CA S.E. Acquisition of Oregon, Inc. OR Amling/Schroeder Funeral Service, Inc. OR Chapel of the Roses, Inc. OR Chapel of the Valley Funeral Home, Inc. OR Dutton, Inc. OR Greenwood Cemetery, Inc. OR J. P. Finley & Son, Inc. OR Sunset Hills Memorial Park OR Niswonger & Reynolds, Inc. OR S.E. Acquisition of Myrtle Creek, Oregon, Inc. OR S.E. Acquisition of Reedsport, Oregon, Inc. OR S.E. Acquisition of Washington, Inc. WA Cremation Society Northwest, Inc. WA E.R. Butterworth & Sons WA S.E. Australia, Inc. LA Cemetery & Crematorium Finance Trust Queensland FSUT Limited New Zealand Funeral Services of New Zealand Limited New Zealand Nationwide Care Services PTY LTD Queensland South-East Asia and Australasian Services PTY LTD Queensland Stewart Enterprises Australia PTY LTD Queensland Cemetery and Crematorium Management Services PTY LTD Queensland Funeral Services of Australasia PTY LTD Queensland Australian Funerals PTY LTD Queensland Metropolitan Funeral Services PTY LTD Queensland Dylhost PTY LTD New South Wales Gregory & Carr Holdings PTY LTD New South Wales Australian Pre-Arranged Funeral Plan PTY LTD New South Wales Crematorium Chapel Funerals of Australasia PTY LTD New South Wales F. Tighe & Co. PTY LTD New South Wales Gregory & Carr PTY LTD New South Wales Gregory & Carr of Sydney PTY LTD New South Wales William Lee & Sons PTY LTD New South Wales Sydney Cremation Services PTY LTD New South Wales SEI - Della, Inc. DE S.E. Mid-Atlantic, Inc. MD Bartlett-Burdette-Cox Funeral Home, Inc. WV Benjamin Franklin P.M., Inc. PA Blue Ridge Memorial Gardens, Inc. VA Brown Memorials, Inc. NC Casdorph & Curry Funeral Home, Inc. WV Catawba Memorial Park, Inc. NC Cedar Hill Cemetery Company, Inc. MD Central Stone Works, Incorporated NC Clinch Valley Memorial Cemetery, Inc. VA Crest Lawn Memorial Gardens, Inc. MD Dodd-Payne-Hess Funeral Home, Inc. WV Dunbar Funeral Home, Inc. SC Evans Funeral Home, Inc. NC Evergreen Memorial Gardens, Inc. NC Everly Funeral Homes, Incorporated VA Everly PFP, Inc. VA Fairfax Funeral Home, Inc. VA Fine Finishes, Inc. NC Fort Lincoln Cemetery, Inc. MD Fort Lincoln Funeral Home, Inc. MD Garrett-Hillcrest, Inc. NC George Washington Memorial Park, Inc. PA Graceland Mausoleum, Inc. WV Harold C. Davis, Inc. NC Highland Memory Gardens of Franklin County, Inc. NC Hillcrest Memorial Cemetery, Inc. MD Hines-Rinaldi Funeral Home, Inc. MD John M. Taylor Funeral Home, Inc. MD Johnson Funeral Home, Inc. NC Joseph W. Teague Funeral Home, Inc. VA Kimes Funeral Home, Inc. WV Kirk & Nice, Inc. PA Kirk & Nice Suburban Chapel, Inc. PA Klingel-Carpenter Mortuary, Inc. WV Lancaster Funeral Homes, Inc. NC Loudon Park Cemetery Company MD Druid Ridge Cemetery Company MD Loudon Park Funeral Home, Inc. MD The Mackey Mortuary, Inc. SC Cannon Funeral Home, Inc. SC McLaurin's Funeral Home, Inc. NC Miller-Lee, Inc. NC Nalley's Funeral Home, Inc. MD Oconee Memorial Funeral Home, Inc. SC Parklawn, Inc. MD Parklawn Memorial Chapel, Inc. MD Parklawn Memorial Gardens, Inc. NC The Parkwood Cemetery Company MD Parkwood Management Co. MD Pollock Wells Funeral Service, Inc. NC Richmond Memorial Parks, Inc. VA S.E. Acquisition of Charleston, Inc. SC S.E. Acquisition of Pennsylvania, Inc. PA S.E. Acquisition of Pikeville, Kentucky, Inc. KY S.E. Acquisition of South Carolina, Inc. SC Stephen D. Posey Funeral Home, Inc. SC Stephens Services, Inc. NC Sunset Memorial Park Company PA Pet Haven, Inc. PA Thomas-Yelverton Co. NC Washington Memorial Cemetery, Inc. VA William W. Chambers, Inc. MD Wilson Funeral Home, Inc. WV Wise Corporation VA 1730 Investment Co., Inc. NC Memorial Parks, Incorporated NC Taylor M. Simpson Co. NC S.E. South-Central, Inc. LA Ellison Funeral Home, Inc. AL Pine Crest Funeral Home, Inc. AL Faith Memorial Park & Mausoleum Company, Inc. AL Valhalla Memory Gardens and Funeral Home, Inc. AL Runyan Mangold, Inc. KS S.E. Acquisition of Albuquerque, New Mexico, Inc. NM S.E. Acquisition of Lithonia, Georgia, Inc. GA S.E. Acquisition of Muskogee, Oklahoma, Inc. OK S.E. Acquisition of Santa Fe, New Mexico, Inc. NM S.E. of Tucson, Arizona, Inc. AZ Stewart Enterprises (Europe), Inc. LA Euro Stewart Espana, S.L. Spain Funeraria Asterio Elvira, S.L. Spain Funeraria Fontal, S.A. Spain Funeraria Fontanet, S.L. Spain Funereria Pena Santa Barbara, S.L. Spain Manez Ferrer Y Cia, S.L. Spain Pompas Funebres La Estrella, S.L. Spain Pompas Funebres Pastrana, S.A. Spain Servicios Funerarios Pastrana, S.A. Spain Tanatorio Orensano, S.L. Spain Euro Stewart Portugal - SGPS, LDA. Portugal Agencia Funeraria Baptista Filho, LDA. Portugal Agencia Funeraria Barata, De Gastao Mendes Barata, S.A. Portugal Alberto Fernandes Da Luz, LDA. Portugal A Funeraria Luz De Oeiras, LDA. Portugal Funeraria Moderna Do Restelo, LDA. Portugal Stewart Resource Center, Inc. LA Stewart Services, Inc. LA Stewart Worldwide N.V. Netherlands Antilles S.E. New Zealand Unit Trust New Zealand C H Barker New Zealand Gee & Hickton New Zealand John Rhind New Zealand Lambert R. Fountain New Zealand Montagues Funeral Services New Zealand National Care Services New Zealand New Zealand Pre-Arranged Funeral Plan New Zealand Wairarapa Funeral Services New Zealand Watney Sibun's New Zealand Yearbury Funeral Services New Zealand Stewart International (Netherlands) B.V. Netherlands Victor V. Desrosier, Inc. CA
EX-23 8 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Stewart Enterprises, Inc. on Forms S-3 (File Nos. 333-13963, 333-13965 and 333- 14467), S-4 (File No. 333-360) and S-8 (File Nos. 33-49726, 33-64106 and 33- 02374) of our reports, which include an emphasis paragraph related to changes in the Company's method of accounting for cemetery sales and its method of accounting for funeral services investment trust fund earnings, dated December 16, 1997 on our audits of the consolidated financial statements and financial statement schedule of Stewart Enterprises, Inc. and Subsidiaries as of October 31, 1997 and 1996 and for each of the three years in the period ended October 31, 1997, which reports are included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. New Orleans, Louisiana January 27, 1998 EX-27 9
5 1,000 12-MOS OCT-31-1997 OCT-31-1997 31,640 4,615 129,760 0 43,044 213,751 414,592 (85,188) 1,626,851 107,137 524,351 0 0 48,682 770,888 1,626,851 532,586 532,586 375,414 375,414 0 0 38,031 106,477 36,735 69,742 0 0 (2,324) 67,418 1.52 0
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