-----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, I6P24GA2KWMolzyac3IKOl7tMUixUT5JshfV796I2iO8XqNHdYXJdtKoo5MbouCm qw0X+Sx96YAVdSozT2XrFQ== 0000906280-99-000018.txt : 19990122 0000906280-99-000018.hdr.sgml : 19990122 ACCESSION NUMBER: 0000906280-99-000018 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 24 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19990121 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: 99509109 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, 1998 ( ) 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 incorporation or organization) Identification No.) 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 15, 1999 was approximately $1,330,000,000. ________________ 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 15, 1999 was 94,522,739 and 3,555,020 respectively. DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement in connection with the 1999 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, acquisition 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 funeral and cemetery products and services in the death care industry in North America. Through its subsidiaries, the Company owns and operates 575 funeral homes and 143 cemeteries in 29 states within the United States, and in Puerto Rico, Mexico, Australia, New Zealand, Canada, Spain, Portugal, the Netherlands, France, Belgium and Argentina. The Company is a leader in the industry's trend toward consolidation. The Company's growth in terms of number of properties has been principally 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 generally are organized in "clusters," which are integrated groups of funeral homes and cemeteries that share certain assets, personnel and services. The Company also creates combined operations by building funeral homes on cemetery properties and operating the facilities together. 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 its local funeral home directors and cemetery managers to best serve their locations' particular needs. The Company's ultimate goal is to enhance shareholder value. To achieve this goal, it has three principal objectives: * Provide the highest level of quality, service and value to each family it serves * Attract, retain and reward highly qualified individuals to operate its businesses * Provide an above average and sustainable return to its shareholders 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, business failures are uncommon and the market served by death care providers is expanding. 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 from 2.38 million in 1998 to 2.64 million in 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. According to the Bureau of the Census, the United States population over 50 years of age will increase from 72.7 million in 1998 to 96.4 million in 2010. The Company's principal target market for sales of prearranged cemetery property, merchandise and services is customers who are age 50 and above. Traditionally, death care businesses in the United States have been relatively small, family-owned enterprises that have passed through successive generations within the family. Currently, 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 primarily results 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 consolidators offering attractive prices under the belief that they can improve profit margins through improved marketing and sales initiatives and economies of scale. Management believes it can be difficult for new competitors to successfully enter existing markets by opening new funeral homes and cemeteries. Several factors make it difficult for new facilities to compete successfully, including the importance to families of reputation and goodwill developed over time, regulatory complexities, zoning restrictions and the existence of an adequate number of facilities serving mature markets. OPERATIONS Premier Facilities. The Company believes that it operates one or more of the premier death care facilities in each of its principal markets. In the Company's view, a "premier" facility is one that is among the most highly regarded facilities in its market area in terms of tradition, heritage, reputation, physical size, volume of business, available inventory, name recognition, aesthetics and potential for development or expansion. Clustering. The Company operates most of its funeral homes and cemeteries in "clusters." Clusters are groups of funeral homes and cemeteries located close enough to each other that their operations can be integrated to achieve economies of scale. For example, clustered facilities can share vehicles, embalming services, inventories of caskets and other merchandise and, most significantly, personnel, including the Company's prearrangement sales force; thus, the Company is able to decrease its costs and expand its marketing and sales efforts at each location. By virtue of their proximity to each other, clustered facilities also create opportunities for more integrated and sophisticated management of their operations. Funeral Operations. Funeral operations accounted for approximately 58% of the Company's revenues for the fiscal year ended October 31, 1998. The Company's funeral homes offer a complete range of funeral services and products at the time of need or on a prearranged basis. The Company's services and products include family consultation, 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, which permits family visitation and religious services to take place at the same location. As of October 31, 1998, the Company operated 558 funeral homes, 131 of which were leased. Cemetery Operations. Cemetery operations accounted for approximately 42% of the Company's revenues for the fiscal year ended October 31, 1998. 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. Prearranged sales represented approximately 69% of cemetery revenue during the fiscal year ended October 31, 1998. The Company also maintains cemetery grounds under perpetual care contracts and local laws. Although profit margins of cemetery operations typically are slightly lower than those of funeral home 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 operations strategies help to improve the profitability of its individual cemetery locations. As of October 31, 1998, the Company owned and operated 140 cemeteries. Combined Funeral Home and Cemetery Operations. A combined operation is a funeral home located on a cemetery site where both are operated together. Combined operations help 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 at the time of need or on a prearranged basis. In addition, combined operations enhance the Company's purchasing power, enabling it to employ more sophisticated management systems, and allowing it to share facilities, equipment, personnel and a prearrangement sales force, resulting in lower average operating costs and expanded marketing and sales opportunities. Approximately 45% of the Company's cemeteries have a funeral home on site that is operated in conjunction with that cemetery. Many of these facilities are in the Company's key markets, including New Orleans, Louisiana; Dallas, Fort Worth and Houston, Texas; Miami, Orlando, Tampa and St. Petersburg, Florida; and San Diego, California. In addition to pursuing combined operations as part of its acquisition strategy, the Company has developed several internal growth strategies that employ the use of combined operations. One such strategy is to create combined operations by constructing funeral homes on the grounds of the Company's cemeteries, and the Company plans to construct approximately three funeral homes per fiscal year on its cemetery locations. Another such strategy is to enter into operating partnerships in which the Company constructs funeral homes on the grounds of unaffiliated cemeteries, which allows the Company to enjoy the benefits of a combined operation without the capital investment of purchasing the cemetery. Although it generally takes several years before a newly constructed funeral home becomes profitable, the Company's experience with combined operations has demonstrated that the combination of a funeral home with a cemetery can significantly increase the market share and profitability of both. Cremation. In fiscal year 1998, 35% of the funeral services the Company performed in the United States and Puerto Rico were cremations. Cremation rates at the Company's foreign funeral homes are higher on average than those at its domestic funeral homes, although they vary substantially from country to country. For fiscal year 1998, the cremation rates at the Company's foreign funeral homes varied from 6% in Portugal to 64% in New Zealand. 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 foreign markets in which the Company operates, cremations generally produce revenues and gross profit margins comparable to those of traditional funeral services in those countries. The cremation rate in the United States has been increasing, and by the year 2000 cremations are expected to represent 25% 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 families choosing cremation. Additionally, the Company plans to expand on the model developed by Sentinel Cremation Societies, Inc., which it acquired in fiscal year 1997 and is discussed below under the heading "Internal Growth." Prearrangements. The Company markets death care products and services on a prearranged basis through a staff of approximately 3,500 commission sales counselors. Prearranged plans enable families to establish in advance and prepay for the type of service to be performed and the products to be used. The cost of such products and services is set 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 from its backlog. During the fiscal year ended October 31, 1998, the Company sold approximately 66,500 prearranged funeral services, and as of October 31, 1998, had a backlog of approximately 400,000 prearranged funeral services to be delivered 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, the Company places into a trust fund or escrow account a percentage (which varies by jurisdiction) of the sale price, which is often paid in installments. It retains the remainder of the sale price to defray costs related to the sale. The Company withdraws the amount placed in the trust fund or escrow account when the service is performed to cover the cost of providing the funeral service. When insurance funding is used, the Company applies the customers' payments to pay premiums on insurance policies designed to cover the cost of providing the funeral service in the future. Generally, principal and earnings (including interest, dividends and net realized capital gains) on the trust funds and escrow accounts, and insurance proceeds, are paid to the Company only when the funeral service is performed. In limited circumstances, the Company receives principal amounts from prearranged funeral trust funds or escrow accounts upon cancellation of the contract by the customer. In certain jurisdictions, the Company is permitted to withdraw earnings on a current basis from prearranged funeral trust funds and escrow accounts. As of October 31,1998, the Company's prearranged funeral trust funds and escrow accounts totaled approximately $525.9 million. The Company also establishes trust funds and escrow accounts to fund the cost of delivering prearranged cemetery merchandise. Generally, the Company withdraws the principal and earnings from these funds and accounts only when the merchandise is delivered or contracts are canceled. As of October 31, 1998, the Company's cemetery merchandise trust funds and escrow accounts totaled approximately $188.5 million. The Company funds its obligations to maintain 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, 1998, the Company's perpetual care trust funds and escrow accounts totaled approximately $167.5 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, along with insurance proceeds and installment payments due under contracts, will be sufficient to cover its estimated cost of providing the related prearranged services and products in the future. Investment Management. Generally, the Company's wholly-owned subsidiary, Investors Trust, Inc. ("ITI"), a Texas corporation with trust powers, serves as investment adviser on the Company's investment portfolio, and its prearranged funeral, merchandise and perpetual care trust funds and escrow accounts. ITI also provides investment advisory services exclusively to the company and the Stewart Enterprises Employees' Retirement Trust ("SEERT"). ITI is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. As of October 31, 1998, ITI had approximately $900 million in assets. 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 management team, 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, financial goals are established by management at the corporate level, and the Company maintains centralized supervisory controls. Finally, the Company provides business support services primarily through its Shared Services Center, which provides centralized and standardized accounting, payroll, contract processing, collection and other services for all of its domestic facilities, including those in Puerto Rico. 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, South America and Australasia are not considered separate operating divisions, but are managed by local regional executives who report to certain of the Company's executive officers. In fiscal year 1998, in order to meet the needs of the Company's growing European operations and to enable it to take advantage of other long-term opportunities in Europe, the Company established its European headquarters in Amsterdam, Holland. From time to time, the Company may increase or realign the divisions and regions to accommodate expansion of its 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 uses two types of stock options to align the interests of its managers with the long-term interests of its shareholders. The Company's more traditional options vest over time. The Company's performance-based options vest only if it achieves a stock price objective, which has generally been a 20% compounded annual growth rate in the stock price over a five-year period. In April 1998, the Company achieved the stock price objective applicable to the performance-based options granted in 1995. Accordingly, those options vested and, with the Company's encouragement, were exercised by the optionees. In July and August 1998, the Company granted new options to 190 managers. Two-thirds of those options are performance-based, and one-third vest over time at the rate of 20% per year over five years. The performance- based options become exercisable only if the average of the closing sale prices of a share of Class A Common Stock over 20 consecutive trading days prior to July 17, 2003 equals or exceeds $67.81; otherwise the options will be forfeited. Generally accepted accounting principles require that a charge to earnings 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. All of these options expire on July 31, 2004. Foreign Operations. The Company first entered foreign markets in fiscal year 1994 and, through January 15, 1999, has acquired a total of 277 properties outside the United States and Puerto Rico. For the fiscal year ended October 31, 1998, the Company's properties in foreign countries generated approximately 18% of consolidated total revenues and represented 20% 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. GROWTH STRATEGY General In pursuit of the Company's ultimate goal of enhancing shareholder value, it plans to continue to increase earnings per share at an annual rate of 20% each year through a balanced strategy of internal and external growth. The internal growth strategy involves consistent improvement in both revenues and costs at existing and acquired operations, construction of new funeral homes and cemeteries, and innovative initiatives such as the use of operating partnerships and alternative service firms as described below. The external growth strategy involves an aggressive, but disciplined, domestic and international acquisition program and the rapid and effective assimilation of the businesses the Company acquires. Internal Growth PREARRANGED SERVICES. The Company believes that it can be distinguished from its competitors through its strong emphasis on, and its more than 50-year history of success with, prearranged sales. The Company also believes that it is an industry leader in marketing prearranged funeral and cemetery services and products through highly qualified commission sales counselors. Extensive prearranged marketing produces current revenues and a significant backlog of future funeral business and builds current and future market share. The Company's backlog of prearranged funeral services has grown at a compounded annual rate of 21% over the last four years and represents over $1.3 billion in future revenues at October 31,1998. IMPROVED MERCHANDISING. The Company frequently expands its product and service offerings, adjusts the mix of products and services offered in individual markets, takes advantage of enhanced pricing opportunities, and implements selective marketing programs to increase revenue and improve profit margins. NEW FUNERAL HOME AND CEMETERY CONSTRUCTION. The Company creates combined operations by building funeral homes on its cemetery properties and operating both facilities together. In fiscal year 1998, the Company completed the construction of funeral homes on three of its cemetery properties. Additionally, in limited instances, such as in newly developed and rapidly growing communities, the Company may construct new funeral homes and create new cemeteries as stand-alone facilities. In fiscal year 1998, the Company opened two stand-alone funeral homes and one stand-alone cemetery. OPERATING PARTNERSHIPS. The Company expects to gain market share and improve profitability through operating partnerships with unaffiliated parties. Through an operating partnership with the Catholic Archdiocese of New Orleans, the Company constructed a mausoleum for the Catholic Church on the grounds of its combined operation in New Orleans. The Company owns the mausoleum and manages the sales relating to the mausoleum for the church. Additionally, through an operating partnership with the Firemen's Charitable and Benevolent Association, a non-profit organization, the Company constructed a funeral home and mausoleum on the grounds of their cemetery in New Orleans. The Company owns and operates the funeral home in combination with that cemetery, and manages sales for the mausoleum. The Company recently entered into an agreement with the Archdiocese of Los Angeles under which it 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. Subsequently, during fiscal year 1998, the Company entered into similar agreements with the Archdiocese of Los Angeles for the construction and operation of three additional funeral homes. Over the last 50 years, through its mausoleum construction business, the Company has developed relationships with the Catholic Church in approximately 70 dioceses in 39 states. The Company anticipates building on those relationships as it expands its use of operating partnerships. The Company also plans to develop operating partnerships with non-profit secular entities as it did in fiscal year 1998 when it entered into an agreement with the Wyuka Cemetery Board of Trustees. Under that agreement, the Company will manage the cemetery sales and construct and operate a funeral home on the grounds of that state-owned cemetery in Lincoln, Nebraska. Management believes that these partnerships 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 these benefit the third parties by allowing them to compete with other cemeteries in their market that have funeral homes on their properties. The Company is pursuing similar partnership opportunities with other cemetery operators. Although it generally takes several years before a newly constructed funeral home becomes profitable, the Company's experience with combined operations has demonstrated that the combination of a funeral home with a cemetery can significantly increase the market share and profitability of both. ALTERNATIVE SERVICE FIRMS. During fiscal year 1997, the Company acquired Sentinel Cremation Societies, Inc., of California ("Sentinel") which owned and operated thirteen service centers offering cremations and related products and services. At the time of its acquisition, Sentinel's cremation societies, Neptune and Telophase, had 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 the cost at a traditional funeral home. Since the Sentinel acquisition was completed in March 1997, the Company has opened four additional service center locations. 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 it further develops and tests the concept in new markets. Results from the four locations opened have exceeded the Company's initial expectations. During fiscal year 1998, the Company acquired Desert Memorial Cremation and Burial Society in Las Vegas, Nevada, the state with the highest cremation rate in the United States. This acquisition complements its alternative services strategy and provides an additional vehicle for expansion, particularly in the high cremation markets of the western United States. COST CONTROL. In addition to its strategies for increasing revenues, the Company plans to continue to improve its operating margins by achieving economies of scale, improving efficiencies and controlling costs through a variety of measures including the following: * Obtaining volume discounts from suppliers * Leveraging operating costs through clustering and the development of combined operations * Consolidating its United States back office operations at the Shared Services Center * Improving the utilization of its sales force The Company believes that its internal growth strategies, including its cost control efforts, have been major contributors to its increased operating earnings (before stock option charges) over the last five years. External Growth ACQUISITIONS. From November 1, 1991 through January 15, 1999, the Company has grown from 43 funeral homes and 29 cemeteries in six states to 575 funeral homes and 143 cemeteries in 29 states, Puerto Rico and 10 foreign countries. The Company's growth in terms of number of properties has been principally through 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 domestically, primarily in the Southern, Mid-Atlantic, Midwest and Pacific states and in Puerto Rico. In addition, the Company expanded internationally by entering Mexico in fiscal year 1994, Australia, New Zealand and Canada in fiscal years 1995 and 1996, Spain and Portugal in fiscal year 1997 and the Netherlands, Argentina, France and Belgium in fiscal year 1998. Since 1994, the Company has acquired a total of 277 funeral homes and cemeteries outside the United States and Puerto Rico, 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 $ - Completed 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 Fiscal year 1998 ............................ 162 266.3 November 1, 1998 - January 15, 1999 ......... 21 34.1 Pending acquisitions, as of January 15, 1999 .. 59 162.5 ___________________________
(1) Excludes funeral homes and cemeteries constructed by the Company. ACQUISITION STRATEGY. More than 85% of the approximately 22,000 funeral homes and 9,600 cemeteries in the United States are privately or family owned, and those funeral homes and cemeteries generate approximately 75% of domestic funeral home and cemetery revenues. Management believes that a substantial number of these businesses are suitable acquisition candidates. 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 may be integrated with an existing cluster or serve as a base for the formation of a new cluster. The Company also seeks firms that have strong managers who are 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 strongly in 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, although the Company sometimes pays somewhat higher prices for strategic reasons. Management's objective is for the acquired firm to be additive to the Company's 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. In 1997, the Company expanded this division to include, in addition to its full-time corporate employees, commissioned field representatives to focus on domestic and foreign acquisition candidates. These representatives devote their full time to identifying and developing acquisition candidates and assisting in negotiations. Divisional and regional management also work with the Corporate Development Division in identifying and developing acquisition candidates and assisting in negotiations. ASSIMILATION OF ACQUIRED COMPANIES. The Company frequently enters into management or consulting agreements and non-compete agreements with owners and key managers of acquired companies in order to assure the continuation of the acquired firm's goodwill. In addition, the Company generally continues to operate acquired businesses under their existing names. In general, acquired firms initially 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 * Standardizing and centralizing certain business support functions through the Shared Services Center Management believes that the Company has been improving its ability to rapidly and effectively 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 25% 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 Alternative Service Firms' concept by the Company represents another opportunity for the Company to serve cremation customers. Additional information on the development of the Alternative Service Firms' concept can be found under the heading "Internal Growth" discussed earlier in Item 1. The Company also faces intense competition in its acquisition program, principally from the other publicly-traded death care firms, Service 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. 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 measures require a funeral provider to give consumers accurate, itemized price information and various other disclosures about funeral goods and services, and 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 10,600 persons, and management believes that its relationship with its employees is good. Approximately 334 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-AFL-CIO, the International Brotherhood of Teamsters of Puerto Rico, the Sindicato de Trabajadores y Empleados de Establecimientos Comerciales, Tiendas de Ropa y Almacenes en General del Distrito Federal, the Miscellaneous Workers Union and Association des Travailleurs du Parc Commemoratif de Montreal Inc. and 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, 1998, all but 131 of the Company's 558 funeral home locations were owned by subsidiaries of the Company. The leases with respect to the 131 leased properties have terms ranging from one to 19 years, except for two leases which expire in 2032 and 2040. Generally, the Company has a right of first refusal and an option to purchase the leased premises. An aggregate of $3.0 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, 1998, the Company owned 140 cemeteries covering a total of approximately 9,300 acres. Approximately 4,300 acres, or 46% of the total acreage, are available for future development. The Company's corporate headquarters occupy approximately 40,600 square feet of office space in a building in suburban New Orleans that is leased from an affiliate of the Company. In addition, the Company owns a 92,000 square foot building in suburban New Orleans which it uses for its Shared Services Center, Human Resource Department and Information Systems Department. See "Certain Transactions," which is incorporated by reference herein from the Company's definitive proxy statement relating to its 1999 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 as the former owners have agreed to indemnify the Company. 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 other than Mr. Stewart, to rights under 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. ...... 63 Chairman of the Board(1) Joseph P. Henican, III ..... 50 Vice Chairman of the Board and Chief Executive Officer(2) William E. Rowe ............ 52 President, Chief Operating Officer and Director(3) Kenneth C. Budde ........... 51 Executive Vice President, President-Corporate Division, Chief Financial Officer and Director(4) Richard O. Baldwin, Jr. .... 52 Executive Vice President and President-Corporate Development Division(5) Brian J. Marlowe ........... 52 Executive Vice President and President-Eastern Division(6) Brent F. Heffron ........... 49 Executive Vice President and President-Southern Division(7) Raymond C. Knopke, Jr. ..... 43 Executive Vice President and President-Western Division(8) Ronald H. Patron ........... 54 Executive Vice President and Chief Administrative Officer(9) Gerard C. Alexander ........ 59 Executive Vice President-Special Corporate Projects(10) Charles L. Tilis ........... 43 Senior Vice President and President-Central Division(11) Lawrence B. Hawkins ........ 50 Senior Vice President and President-Investors Trust, Inc. - -----------------------
(1) Mr. Stewart served as interim Chief Executive Officer from November 1, 1994, upon the retirement of Lawrence M. Berner as President and Chief Executive Officer, until February 1, 1995, when Joseph P. Henican, III became 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 became President on November 1, 1994 upon the retirement 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. Budde has served as President-Corporate Division and Chief Financial Officer since May 1998 and Director since June 1998. From August 1989 to May 1998, he served as Senior Vice President of Finance, Secretary and Treasurer. (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 Executive Vice President and President of the Company's Southern Division since November 1, 1998. From January 1, 1997 to October 31, 1998, he served as Senior Vice President and President of the Company's Southern Division. 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 Executive Vice President and President of the Company's Western Division since November 1, 1998. From January 1, 1997 to October 31, 1998, he served as Senior Vice President and President of the Company's Western Division. 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. (9) Mr. Patron has served as Chief Administrative Officer since May 1998. Prior to that time, he served as Chief Financial Officer, President- Corporate Division and Director. (10) Mr. Alexander has served as Executive Vice President-Special Corporate Projects since November 1, 1998. From August 1, 1995 to October 31, 1998, he served as Executive Vice President and President of the Company's Central Division. Prior to that time, he served as Executive Vice President and President of the Company's former South Central Division. (11) Mr. Tilis has served as Senior Vice President and President of the Company's Central Division since November 1, 1998. From November 1, 1997 to October 31, 1998, he served as Chief Operating Officer of the Western Region of the Central Division. Prior to that time, he was a partner in the firm of Coopers & Lybrand L.L.P., the predecessor firm of PricewaterhouseCoopers LLP, the Company's independent accountants. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Market Information The Company's Class A Common Stock trades in the Nasdaq National 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 fiscal year 1997 and the first two quarters of fiscal year 1998 have been adjusted to reflect a two-for-one stock split effected in the form of a 100% stock dividend on April 24, 1998. As of January 8, 1999, there were 1,403 record holders of the Company's Class A Common Stock.
HIGH LOW -------- ------- Fiscal Year 1998 Fourth Quarter ................. 24 5/8 15 7/8 Third Quarter ................. 28 5/8 22 1/4 Second Quarter ................. 29 21 First Quarter ................. 24 1/4 19 1/2 Fiscal Year 1997 Fourth Quarter ................. 22 15/16 18 3/16 Third Quarter ................. 23 16 1/8 Second Quarter ................. 19 16 First Quarter ................. 19 7/8 16 3/8
Dividends The Company declared quarterly dividends of $.01 per share on its Class A and Class B Common Stock during each quarter of fiscal year 1997 and the first two quarters of fiscal year 1998, and $.02 per share during the last two quarters of fiscal year 1998. 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 debt agreements restricts the declaration and payment of dividends within any period of four consecutive quarters to 50% or less of the Company's consolidated net earnings for those four fiscal quarters. The same debt agreement limits the purchases, redemption or retirement of any shares of the Company's capital stock to 5% or less of its consolidated net worth on the payment date. Sales of Unregistered Equity Securities During fiscal year 1998, 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, 1994 through 1998 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) ----------------------------------------------------------------- 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- STATEMENT OF EARNINGS DATA: Revenues: Funeral ............................ $ 379,095 $ 291,649 $ 225,461 $ 188,991 $ 116,266 Cemetery ........................... 269,270 240,937 207,926 179,831 138,092 --------- --------- --------- --------- --------- Total revenues ..................... 648,365 532,586 433,387 368,822 254,358 Gross profit: Funeral ............................ 118,426 89,235 72,239 55,309 31,785 Cemetery ........................... 77,558 67,937 45,879 34,434 25,812 --------- --------- --------- --------- --------- Total gross profit ................. 195,984 157,172 118,118 89,743 57,597 Corporate general and administrative expenses .............................. (16,621) (15,402) (14,096) (11,113) (8,157) --------- --------- --------- --------- --------- Operating earnings before performance- based stock options ................... 179,363 141,770 104,022 78,630 49,440 Performance-based stock options ......... (76,762) - - (17,252) - --------- --------- --------- --------- --------- Operating earnings ...................... 102,601(2) 141,770 104,022 61,378(3) 49,440 Interest expense ........................ (43,821) (38,031) (26,051) (22,815) (8,877) Investment and other income ............. 6,184 2,738 4,104 2,937 1,635 --------- --------- --------- --------- --------- Earnings before income taxes and cumulative effect of change in accounting principles ................. $ 64,964(2) $ 106,477 $ 82,075 $ 41,500(3) $ 42,198 ========= ========= ========= ========= ========= Earnings before cumulative effect of change in accounting principles ....... $ 41,902(2) $ 69,742 $ 51,297 $ 26,145(3) $ 27,253 Cumulative effect of change in accounting principles (net of $2,230 income tax benefit) .............................. - (2,324)(1) - - - --------- --------- --------- --------- --------- Net earnings ........................... $ 41,902(2) $ 67,418 $ 51,297 $ 26,145(3) $ 27,253 ========= ========= ========= ========= ========= Per Share Data:(4) Basic earnings per share: Earnings before cumulative effect of change in accounting principles .... $ .43(2) $ .79 $ .62 $ .36(3) $ .43 Cumulative effect of change in accounting principles .............. - (.03)(1) - - - --------- --------- --------- --------- --------- Net earnings .......................... $ .43(2) $ .76 $ .62 $ .36(3) $ .43 ========= ========= ========= ========= ========= Diluted earnings per share: Earnings before cumulative effect of change in accounting principles .... $ .43(2) $ .78 $ .61 $ .35(3) $ .42 Cumulative effect of change in accounting principles .............. - (.03)(1) - - - --------- --------- -------- --------- --------- Net earnings .......................... $ .43(2) $ .75 $ .61 $ .35(3) $ .42 ========= ========= ======== ========= ========= Weighted average common shares outstanding (in thousands): Basic ................................ 97,691 88,778 82,821 72,772 63,820 ========= ========= ======== ========= ========= Diluted .............................. 98,444 89,675 83,959 73,698 64,463 ========= ========= ======== ========= ========= Dividends declared per common share ... $ .06 $ .04 $ .033 $ .017 $ .014 ========= ========= ======== ========= ========= (continued)
SELECTED CONSOLIDATED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Year Ended October 31, (1) -------------------------------------------------------------------- 1998 1997 1996 1995 1994 ----------- ----------- ----------- ----------- ---------- Pro forma amounts assuming change in accounting principles was applied retroactively: (1) Net earnings .................................... $ 69,742 $ 49,959 $ 30,671(3) $ 28,649 =========== =========== =========== ========== Basic earnings per common share (4) ............. $ .79 $ .60 $ .42(3) $ .45 =========== =========== =========== ========== Diluted earnings per common share (4) ........... $ .78 $ .60 $ .42(3) $ .44 =========== =========== =========== ==========
October 31, --------------------------------------------------------------------- 1998 1997 1996 1995 1994 ----------- ----------- ----------- ----------- ---------- Balance Sheet Data: Assets........................................... $ 2,071,802 $ 1,637,238 $ 1,360,913 $ 1,072,435 $ 759,390 Long-term debt, less current maturities ......... 913,215 524,351 515,901 317,451 260,913 Shareholders' equity ............................ 839,290 819,570 547,447 483,978 325,671
SELECTED CONSOLIDATED OPERATING DATA Year Ended October 31, -------------------------------------------------------- 1998 1997 1996 1995 1994 ------- ------- ------- ------- -------- OPERATING DATA: Funeral homes in operation at end of period .. 558 401 298 161 105 At-need funerals performed ................... 87,653 61,682 38,351 37,263 23,539 Prearranged funerals performed ............... 23,563 18,970 15,422 9,225 7,571 ------- ------- ------- ------- ------- Total funerals performed ................... 111,216 80,652 53,773 46,488 31,110 Prearranged funerals sold .................... 66,368 48,676 37,545 33,787 26,637 Backlog of prearranged funerals at end of period ............................. 397,025 350,031 294,829 222,532 183,886 Cemeteries in operation at end of period ..... 140 129 120 105 90 Interments performed ......................... 50,201 46,782 43,129 39,662 30,415 - ---------------------- (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 years 1997 and 1998 reflects the change in accounting principles; information presented for fiscal years 1994 through 1996 reflects results as originally reported under the accounting methods then in effect. (2) Includes a non-recurring, non-cash charge of $76.8 million ($50.3 million, or $.51 per share, after-tax) recorded during the second quarter of fiscal year 1998 in connection with the vesting of the Company's performance-based stock options. (3) Includes a non-recurring, non-cash charge of $17.3 million ($10.9 million, or $.15 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. (4) Adjusted to reflect a three-for-two common stock split effected June 21, 1996 and a two-for-one common stock split effected April 24, 1998.
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 that have been passed down through successive generations within a 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 expected increase in the number of deaths and the average age of the population. 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 from 2.38 million in 1998 to 2.64 million in 2010. In addition, 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. According to the Bureau of the Census, the United States population over 50 years of age will increase from 72.7 million in 1998 to 96.4 million in 2010. The Company's principal target market for sales of prearranged cemetery property, merchandise and services is customers who are age 50 and above. 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, "blue chip" 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. Income from funds, especially those invested partially in 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 8.5% to 9.0%. In the past three years, such funds have generated overall annual rates of return in that range. 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." Fiscal years 1998 and 1997 reflect the current accounting methods as reported; comparisons between 1997 and 1996 reflect the pro forma effects of applying the new accounting principles as if the change had occurred on November 1, 1995. The following table presents the results as reported for the fiscal years ended October 31, 1998 and 1997 and the pro forma results for the year ended October 31, 1996:
Year Ended October 31, -------------------------------------------- 1998 1997 1996 ------------ ----------- ----------- (As Reported) (As Reported) (Pro Forma) (In Millions) Revenues: Funeral ........................ $ 379.1 $ 291.6 $ 219.1 Cemetery ....................... 269.3 240.9 213.1 ------- ------- ------- 648.4 532.5 432.2 ------- ------- ------- Costs and expenses: Funeral ......................... 260.7 202.4 153.2 Cemetery ........................ 191.7 173.0 163.3 ------- ------- ------- 452.4 375.4 316.5 ------- ------- ------- Gross profit ..................... 196.0 157.1 115.7 Corporate general and administrative expenses .......................... 16.6 15.4 14.1 ------- ------- ------- Operating earnings before performance-based stock options . 179.4 141.7 101.6 Performance-based stock options ..... 76.8 - - ------- ------- ------- Operating earnings ................ 102.6(1) 141.7 101.6 ------- ------- ------- Interest expense .................... (43.8) (38.0) (26.0) Investment and other income ......... 6.2 2.7 4.1 ------- ------- ------- Earnings before income taxes and cumulative effect of change in accounting principles ........... 65.0(1) 106.4 79.7 Income taxes ........................ 23.1 36.7 29.7 ------- ------- ------ Earnings before cumulative effect of change in accounting principles .. $ 41.9(1) $ 69.7 $ 50.0 ======= ======= ======= (1) Includes a non-recurring, non-cash charge of $76.8 million ($50.3 million, after tax) recorded during the second quarter of fiscal year 1998 in connection with the vesting of performance-based stock options. Excluding that charge, for fiscal year 1998: (a) earnings before income taxes and cumulative effect of change in accounting principles were $141.7 million; and (b) earnings before cumulative effect of change in accounting principles were $92.2 million.
Year Ended October 31, 1998 Compared to Year Ended October 31, 1997
Funeral Segment Year Ended October 31, Increase --------------------- (Decrease) 1998 1997 ---------- ------- ------- (In Millions) FUNERAL REVENUE Existing Operations ............................. $ 256.1 $ 240.2 $ 15.9 Acquired Operations ............................. 96.5 26.7 69.8 Revenue from prearranged funeral trust funds and escrow accounts .............................. 26.5 24.7 1.8 ------- ------- ------ $ 379.1 $ 291.6 $ 87.5 ======= ======= ====== FUNERAL COSTS Existing Operations .............................. $ 174.6 $ 181.6 $ (7.0) Acquired Operations .............................. 86.1 20.8 65.3 ------- ------- ------ $ 260.7 $ 202.4 $ 58.3 ======= ======= ====== Funeral Segment Profit ........................... $ 118.4 $ 89.2 $ 29.2 ======= ======= ======
Funeral revenue increased $87.5 million, or 30%, in fiscal year 1998, as compared with the prior fiscal year. The Company experienced a $15.9 million increase in revenue from Existing Operations as a result of a 6% increase in the average revenue per domestic funeral service performed by Existing Operations (10% increase in total, excluding the effect of foreign currency translation), due primarily to price increases and improved merchandising. Slightly offsetting this increase in revenue was a 2% decrease in the number of domestic funeral services performed by Existing Operations (4% decrease in total). The $7.0 million, or 4%, 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 improved cost control measures, including the Company's centralization and standardization of certain financial and administrative functions at its 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 during fiscal year 1998 which is not reflected in the 1997 period presented above. The $1.8 million increase in revenue from prearranged funeral trust funds and escrow accounts was attributable to a 21% growth in the average balance in such trust funds and escrow accounts, resulting primarily from current year customer payments deposited into the funds and funds added through acquisitions, offset by a modest decrease in the yield on the funds, which yield remained in line with the Company's goal.
Cemetery Segment Year Ended October 31, ------------------------------------ 1998 1997 Increase ---- ------- -------- (In millions) CEMETERY REVENUE Existing Operations ...................... $ 239.9 $ 225.7 $ 14.2 Acquired Operations ...................... 16.2 3.0 13.2 Revenue from merchandise trust funds and escrow accounts ........................ 13.2 12.2 1.0 ------- ------- ------- $ 269.3 $ 240.9 $ 28.4 ======= ======= ======= CEMETERY COSTS Existing Operations ....................... $ 179.0 $ 171.1 $ 7.9 Acquired Operations ....................... 12.7 1.9 10.8 ------- ------- ------- $ 191.7 $ 173.0 $ 18.7 ======= ======= ======= Cemetery Segment Profit ................... $ 77.6 $ 67.9 $ 9.7 ======= ======= =======
Cemetery revenue increased $28.4 million, or 12%, in fiscal year 1998, as compared to fiscal year 1997. The Company experienced a $14.2 million or 6% increase in revenue from Existing Operations resulting principally from an increase in cemetery sales, including burial site openings and closings. The improved profit margin achieved by Existing Operations was attributable principally to the increase in cemetery sales discussed above, the implementation of certain cost control measures, including the centralization and standardization of certain financial and administrative functions at the Shared Services Center, and the increase in burial site openings and closings. The increase in revenues and costs associated with Acquired Operations resulted from the acquisition or construction of cemeteries during fiscal year 1998 which is not reflected in the 1997 period presented above. The $1.0 million increase in revenue from merchandise trust funds and escrow accounts was attributable principally to a 22% 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 offset by a slight decrease in the yield on the merchandise trust funds and escrow accounts, which yield remained in line with the Company's goal. Other In April 1998, the Company achieved the performance goal for the performance-based stock options granted under the Company's 1995 Incentive Compensation Plan. As a result, the options vested and the Company was required to record a non-recurring, non-cash charge to earnings of approximately $76.8 million (approximately $50.3 million, or $.51 per share, after-tax) in April 1998. There will be no impact on future periods. Additionally, to encourage optionees to exercise their options immediately in order to renew the performance-based option program and to reduce potential dilution from additional shares in the market, the Company offered to repurchase the options for the difference between $27.31, the closing price on the date on which the options vested, and the exercise price of the options. The repurchase of certain of the options by the Company and the exercise of the remaining options resulted in a net cash outlay of approximately $69.4 million. In July and August 1998, the Company granted new options under the 1995 Incentive Compensation Plan to officers and employees for the purchase of 3,592,250 shares of Class A Common Stock at exercise prices equal to the fair market value on the grant dates, which ranged from $21.38 to $27.25 per share. One third of the options become exercisable in 20% annual increments beginning on July 17, 1999. The remaining two-thirds of the options become exercisable in full on the first day between the grant date and July 17, 2003 that the average of the closing sale prices of a share of Class A Common Stock over the 20 preceding consecutive trading days equals or exceeds $67.81, which represents a 20% annual compounded growth in the price of a share of Class A Common Stock over five years. Generally accepted accounting principles require that a charge to earnings 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. All of the options expire on July 31, 2004. Corporate general and administrative expenses declined to 2.6% of revenue in fiscal year 1998, as compared to 2.9% in fiscal year 1997, despite an aggregate increase of $1.2 million for the current year. The increase in these expenses is the result of activities to support the Company's growth. Interest expense increased $5.8 million during fiscal year 1998 when compared to fiscal year 1997. The increase resulted from an increase in average borrowings, which was partially offset by a decrease in average interest rates from 6.6% in 1997 to 6.4% in 1998. Approximately $492.0 million, or 53%, of the $924.4 million borrowings outstanding as of October 31, 1998 was subject to short-term variable interest rates averaging approximately 5.7%. In December 1998, the Company entered into an interest rate swap agreement on a notional amount of $200 million. Under the terms of the agreement, effective March 4, 1999, the Company will pay a fixed rate of 4.915% and receive 3-month LIBOR. The swap expires on March 4, 2002. Investment and other income increased $3.5 million during fiscal year 1998 when compared to the prior year, due principally to an approximately $2.3 million gain on the sale of non-essential assets. The Company experienced an increase in its effective tax rate from 34.5% in fiscal year 1997 to 35.5% in fiscal year 1998. The increase in the effective tax rate was due to an increase in income from jurisdictions with higher effective tax rates. 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 a result of a 5% overall increase in the average revenue per funeral service performed by Existing Operations (4% increase domestically), due to price increases and improved merchandising. 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. 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 approximate 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 increase in burial site openings and closings. 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 elimination of the Puerto Rican interest withholding tax and strategic state tax planning. LIQUIDITY AND CAPITAL RESOURCES Cash and marketable securities of the Company were $36.9 million as of October 31, 1998, an increase of $.6 million from October 31, 1997. The Company provided cash of $18.3 million from its operations for the year ended October 31, 1998, compared to using cash of $15.2 million for fiscal year 1997, due principally to an increase in earnings (excluding the charge for the performance-based stock options) and an increase in accounts payable and accrued expenses offset by an increase in other receivables and other working capital changes. Long-term debt as of October 31, 1998 amounted to $924.4 million, compared to $558.3 million as of October 31, 1997. The Company's long-term debt consisted of $492.0 million under the Company's revolving credit facilities, $408.4 million of long-term notes including the Remarketable or Redeemable Securities (ROARS) discussed below, and $24.0 million of term notes incurred principally in connection with the acquisition of funeral home and cemetery properties. All of the Company's debt is unsecured, except for approximately $3.0 million of term notes incurred principally in connection with acquisitions. In April 1998, the Company issued $200 million of 6.40% ROARS due May 1, 2013 (remarketing date May 1, 2003). The ROARS were priced to the public at 99.677% to yield 6.476%. Net proceeds were approximately $203.6 million, including the remarketing payment made to the Company by the remarketing dealer for the right to remarket the securities after five years. The proceeds were used to reduce balances outstanding under the Company's existing revolving credit facilities. The net effective rate to the Company, assuming the securities are redeemed by the Company after five years, is 5.77%. If the securities are remarketed after five years, the net effective rate is expected to be approximately 6.14% over 15 years. The most restrictive of the Company's credit agreements require it to maintain a debt-to-equity ratio no higher than 1.25 to 1.0. The Company has managed its capitalization within that limit, with a ratio of total debt to equity of 1.1 and .7 to 1.0 as of October 31, 1998 and 1997, respectively. As of October 31, 1998, the Company had $124.7 million of additional borrowing capacity within this parameter, of which $114.1 million was available under its revolving credit facilities. In July and December 1998, the Company filed shelf registration statements with the Securities and Exchange Commission covering an aggregate of up to $750 million of Class A Common Stock, Preferred Stock, and Debt Securities, including up to 2,000,000 shares of the Company's Class A Common stock which Frank B. Stewart, Jr., the Chairman of the Board of Directors of the Company, and his transferees and successors in interest, may offer and sell from time to time. In January 1999, the Company filed a prospectus supplement for the proposed sale of 12,500,000 shares of Class A Common Stock (excluding the underwriters' over-allotment option covering 1,875,000 shares), of which 650,000 shares are being offered by the Stewart Revocable Trust, a trust established by Mr. Stewart and his wife. The offering, scheduled to close near the end of January, is expected to generate net proceeds to the Company of approximately $268 million (excluding the over-allotment option) to be used to fund the Company's continuing acquisition program and for general corporate purposes. Pending such use, the Company will use the net proceeds to reduce the balances outstanding on its revolving credit facilities or to invest in short-term interest-bearing securities. The Company's ratio of earnings to fixed charges was 2.39 (which includes the $76.8 million non-recurring, non-cash performance-based stock option charge), 3.65 (which excludes the cumulative effect of the change in accounting principles), 3.98, 2.72 (which includes the $17.3 million non-recurring, non- cash performance-based stock option charge) and 5.30 for the fiscal years ended October 31, 1998, 1997, 1996, 1995 and 1994, respectively. Excluding the stock option charge, the Company's ratio of earnings to fixed charges would have been 4.02 for fiscal year 1998 and 3.43 for fiscal year 1995. 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 1998, the Company completed the acquisition of 153 funeral homes and nine cemeteries for purchase prices aggregating approximately $266.3 million, including the issuance of approximately 294,000 shares of Class A Common Stock and $16.2 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 18 funeral homes and 3 cemeteries for approximately $34.1 million. As of January 15, 1999, the Company also had agreements in principle or letters of intent to purchase 59 funeral homes and cemeteries for purchase prices aggregating approximately $162.5 million. Although the Company has no material commitments for capital expenditures, the Company contemplates capital expenditures, excluding acquisitions, of approximately $45 million for the fiscal year ending October 31, 1999, 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 the common stock offering referenced to above, 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. In December 1998, the Company entered into an interest rate swap agreement on a notional amount of $200 million. Under the terms of the agreement, effective March 4, 1999, the Company will pay a fixed rate of 4.915% and receive 3-month LIBOR. The swap expires on March 4, 2002. 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, has been 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 or 1998. As of January 1, 1999, the Mexican economy is no longer considered highly inflationary according to the SEC staff. The functional currency which will be used by the Company's Mexican operations is the Mexican peso. This change is not expected to have a material effect on the Company's operations, consolidated financial condition or results of operations. OTHER Year 2000 Issues OVERVIEW. As the Year 2000 approaches, all companies that use computers must address "Year 2000" issues. Year 2000 issues result from the past practice in the computer industry of using two digits rather than four to identify the applicable year. This practice can create breakdowns or erroneous results when computers perform operations involving years later than 1999. THE COMPANY'S STATE OF READINESS. The Company has devised and commenced an extensive compliance plan with the objective of bringing all of the Company's information technology (IT) systems and non-IT systems into Year 2000 compliance by the end of the second quarter of fiscal year 1999. The Company has divided its systems into (i) critical systems, consisting of IT systems, and (ii) non-critical systems, consisting of a mixture of IT and non-IT systems. Each system will be evaluated and brought into compliance in five phases: * Phase I: Awareness - Prepare and present comprehensive report to management * Phase II: Assessment - Identify and evaluate all systems for Year 2000 compliance * Phase III: Compliance - Complete necessary Year 2000 modifications * Phase IV: Testing - Test all modified systems for Year 2000 compliance * Phase V: Implementation - Return Year 2000 compliant systems to daily operation Phase I has been completed. Additionally, all of the Company's critical systems have completed Phase II and 60% were found to be compliant or made to be compliant by completing Phases III through V. The remaining 40% of the Company's critical systems have commenced Phase III through Phase V and the Company anticipates that these systems will be brought into compliance by the end of the second quarter of fiscal 1999. Fifty percent of the Company's non-critical systems have completed Phase II and were either found to be compliant or were brought into compliance by completing Phases III through V. The Company anticipates that the remaining non-critical systems will be evaluated and brought into compliance by the end of the second quarter of fiscal 1999. In addition, the Company has distributed surveys to all of its significant vendors, financial institutions and insurers to determine the extent to which their failure to resolve their Year 2000 issues could affect the Company's operations. The Company has received 68% of the surveys, none of which indicated significant problems. The Company expects to complete its evaluation of third parties' compliance by the end of February 1999. THE COSTS INVOLVED. Because many of the Company's computer systems have been replaced in recent years as part of the Company's on-going goal to maintain state of the art technology, the Company's Year 2000 compliance costs have been relatively low. To date, the Company has incurred expenses of approximately $75,000 for external consultants, software and hardware applications in implementing its compliance plan. The Company does not separately track the internal costs incurred for the year 2000 project. Such costs are principally payroll-related costs for the Company's information technology group. Management estimates that the total external cost to be incurred by the Company to complete its compliance plan will be approximately $175,000. All costs related to the Year 2000 compliance plan are included in the Information Systems budget and are based on management's best estimates. There can be no guarantee that actual results will not differ from those estimated or that such difference will not be material. RISKS. If the Company is not successful in its efforts to bring its systems into Year 2000 compliance: * The Company's ability to procure merchandise in a timely and cost- effective manner may be impaired * Daily business procedures may be delayed due to the use of manual procedures * Some business procedures may be interrupted if no alternative methodology is available Each of these items could have a material adverse effect on the Company's operations. The Company has no guarantee that the systems of third parties will be brought into compliance on a timely basis. The non-compliance of a third party's system could have a material adverse effect on the Company's operations. THE COMPANY'S CONTINGENCY PLAN. Although the Company believes that its Year 2000 compliance plan is adequate to achieve full system operation on a timely basis, the Company is in the process of developing a contingency plan to address the possibility of the Company's and third parties' non-compliance. The Company anticipates completing its contingency plan by the end of June 1999. Recent Accounting Standards Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," is required to be implemented in the first quarter of the Company's fiscal year 1999. SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," is required to be implemented during the Company's fiscal year ending October 31, 1999 and SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," is required to be implemented in the first quarter of the Company's fiscal year 2000. 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 1999 include: (i) revenue growth of at least 20%, and (ii) earnings per share growth of 20%. The Company also plans to complete at least $250 million in acquisitions, which is in line with the $266 million achieved in fiscal year 1998, but above the $185 million and $179 million in acquisitions achieved in fiscal years 1997 and 1996, respectively. For fiscal year 1999, the Company also plans to improve its gross margin by approximately 50 to 100 basis points over its fiscal year 1998 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 goals and expectations expressed 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 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 aggressiveness of the Company's competitors in pricing acquisitions affects the Company's ability to complete acquisitions at prices it finds attractive. (c) Achieving the Company's projected acquisition activity depends on the Company's ability to enter new markets, including foreign markets. Due in part to the Company's lack of experience operating in new areas and to the presence of competitors who have been in certain markets longer than the Company, such entry may be more difficult or expensive than anticipated by the Company. (2) Achieving the Company's revenue goals 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 depends primarily on 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 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 through the Company's expansion in the United States. (6) 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 implementing internal controls and information gathering systems, and retaining or attracting key personnel, among other things. (d) The amount and rate of growth in the Company's 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 their effects on corporate structure. (i) Changes in inflation and other general economic conditions, both domestically and internationally, affecting financial markets (e.g. marketable security values as well as exchange rate fluctuations). (j) Unanticipated legal proceedings and unanticipated outcomes of legal proceedings. (k) Changes in accounting policies and practices adopted voluntarily or required to be adopted by generally accepted accounting principles. (l) The ability of the Company and its significant vendors, financial institutions and insurers to achieve Year 2000 compliance on a timely basis. 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market risk inherent in the Company's market risk sensitive instruments and positions is the potential change arising from increases or decreases in the prices of marketable equity securities, foreign currency exchange rates, and interest rates as discussed below. Generally, the Company's market risk sensitive instruments and positions are characterized as "other than trading." The Company's exposure to market risk as discussed below includes "forward- looking statements" and represents an estimate of possible changes in fair value or future earnings that would occur assuming hypothetical future movements in equity markets, foreign currency exchange rates or interest rates. The Company's views on market risk are not necessarily indicative of actual results that may occur and do not represent the maximum possible gains and losses that may occur, since actual gains and losses will differ from those estimated, based upon actual fluctuations in equity markets, foreign currency exchange rates, interest rates and the timing of transactions. MARKETABLE EQUITY SECURITIES As of October 31, 1998, the Company held marketable equity securities, consisting principally of investments in its prearranged funeral, merchandise and perpetual care trust and escrow accounts, with a fair value of $308.5 million determined using final sale prices quoted on stock exchanges. Each 10% change in the average market prices of the equity securities held in such accounts would result in a change of approximately $30.9 million in the fair value of such accounts. The Company's prearranged funeral, merchandise and perpetual care trust funds and escrow accounts are detailed in Notes 5 and 6 to the Company's consolidated financial statements included in Item 8. Generally, the Company's wholly-owned subsidiary, Investors Trust, Inc. ("ITI") serves as investment adviser on these trust and escrow accounts. ITI manages the mix of equities and fixed-income securities in accordance with an investment policy established by the Investment Committee of the Company's Board of Directors with the assistance of third party professional financial consultants. The policy emphasizes conservation, diversification and preservation of principal while seeking appropriate levels of current income and capital appreciation. ITI is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. FOREIGN CURRENCY The Company's foreign subsidiaries receive revenues and pay expenses in a number of foreign currencies. For the fiscal year ended October 31, 1998, each 10% change in the average exchange rate between such currencies and the U.S. dollar would result in a change of approximately $2.7 million in the Company's pre-tax earnings. The Company does not currently hedge its investments in foreign subsidiaries; however, the Company continually monitors the exchange rates of its foreign currencies and may, if deemed appropriate, enter into hedging transactions. INTEREST The Company has entered into various fixed and variable rate debt obligations, which are detailed in Note 11 to the Company's consolidated financial statements included in Item 8. As of October 31, 1998, the carrying value of the Company's long-term fixed- rate debt, including accrued interest and the unamortized portion of the ROARS option premium, was approximately $445.2 million, compared to fair value of $447.7 million. Fair value was determined using quoted market prices, where applicable, or discounted future cash flows based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Each 0.5% change in average interest rates applicable to such debt would result in a change of approximately $7.5 million in the fair value of these instruments. If these instruments are held to maturity, no change in fair value will be realized. As of October 31, 1998, the Company had $492.0 million in variable-rate debt. Each 0.5% change in average interest rates applicable to such debt would result in a change of approximately $1.2 million in the Company's pre-tax earnings. The Company monitors its mix of fixed and variable rate debt obligations in light of changing market conditions and from time to time may alter that mix by, for example, refinancing balances outstanding under its variable rate revolving credit facilities with fixed-rate debt, or by entering into interest rate swaps or other interest rate hedging transactions. As of October 31, 1998, the Company held fixed-income securities with aggregate quoted market values of $267.6 million, consisting principally of investments in our prearranged funeral, merchandise and perpetual care trust and escrow accounts. Each 10% change in interest rates on these fixed income securities would result in a change of approximately $8.0 million in the fair value of such securities based on discounted expected future cash flows. If these securities are held to maturity, no change in fair value will be realized. As of October 31, 1998, the Company owned money market and other short-term investments with a fair value of $323.9 million. Each 0.5% change in average interest rates applicable to such investments would result in a change of approximately $1.4 million in the Company's pre-tax earnings. The fixed-income securities, money market and other short-term investments owned by the Company are principally invested in its prearranged funeral, merchandise and perpetual care trust and escrow accounts which are managed by ITI. ITI operates pursuant to a formal investment policy as discussed above. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Page ---- Report of Independent Accountants ............................ 33 Consolidated Statements of Earnings for the Years Ended October 31, 1998, 1997 and 1996 ...................... 34 Consolidated Balance Sheets as of October 31, 1998 and 1997 ....................................................... 35 Consolidated Statements of Shareholders' Equity for the Years Ended October 31, 1998, 1997 and 1996 ................. 37 Consolidated Statements of Cash Flows for the Years Ended October 31, 1998, 1997 and 1996 ............................. 38 Notes to Consolidated Financial Statements .................... 40 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Stewart Enterprises, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Stewart Enterprises, Inc. and Subsidiaries at October 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1998, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. 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. PricewaterhouseCoopers LLP December 15, 1998 STEWART ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Year Ended October 31, ----------------------------------- 1998 1997 1996 --------- --------- --------- Revenues: Funeral ............................. $ 379,095 $ 291,649 $ 225,461 Cemetery ............................ 269,270 240,937 207,926 --------- --------- --------- 648,365 532,586 433,387 --------- --------- --------- Costs and expenses: Funeral ............................ 260,669 202,414 153,222 Cemetery ........................... 191,712 173,000 162,047 --------- --------- --------- 452,381 375,414 315,269 --------- --------- --------- Gross profit ...................... 195,984 157,172 118,118 Corporate general and administrative expenses ............................ 16,621 15,402 14,096 --------- --------- --------- Operating earnings before performance-based stock options .... 179,363 141,770 104,022 Performance-based stock options ........ 76,762 - - --------- --------- --------- Operating earnings ................... 102,601 141,770 104,022 Interest expense ....................... (43,821) (38,031) (26,051) Investment and other income ............ 6,184 2,738 4,104 --------- --------- --------- Earnings before income taxes and cumulative effect of change in accounting principles ............. 64,964 106,477 82,075 Income taxes .......................... 23,062 36,735 30,778 --------- --------- --------- Earnings before cumulative effect of change in accounting principles ... 41,902 69,742 51,297 Cumulative effect of change in accounting principles (net of $2,230 income tax benefit) (Note 3) .................... - (2,324) - --------- --------- --------- Net earnings ......................... $ 41,902 $ 67,418 $ 51,297 ========= ========= ========= Basic earnings per common share: Earnings before cumulative effect of change in accounting principles .... $ .43 $ .79 $ .62 Cumulative effect of change in accounting principles ............. - (.03) - --------- --------- --------- Net earnings ......................... $ .43 $ .76 $ .62 ========= ========= ========= Diluted earnings per common share: Earnings before cumulative effect of change in accounting principles ....... $ .43 $ .78 $ .61 Cumulative effect of change in accounting principles ................ - (.03) - --------- --------- --------- Net earnings .......................... $ .43 $ .75 $ .61 ========= ========= ========= Weighted average common shares outstanding (in thousands) Basic ................................. 97,691 88,778 82,821 ========= ========= ========= Diluted ............................... 98,444 89,675 83,959 ========= ========= ========= Pro forma amounts assuming change in accounting principles was applied retroactively: Net earnings .......................... $ 69,742 $ 49,959 ========= ========= Basic earnings per common share ....... $ .79 $ .60 ========= ========= Diluted earnings per common share ..... $ .78 $ .60 ========= ========= 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 1998 1997 ------ ----------- ----------- Current assets: Cash and cash equivalent investments ...... $ 30,733 $ 31,640 Marketable securities ..................... 6,120 4,615 Receivables, net of allowances ............ 171,849 140,291 Inventories ............................... 48,833 43,044 Prepaid expenses .......................... 3,870 7,111 ----------- ----------- Total current assets .................... 261,405 226,701 Receivables due beyond one year, net of allowances ................................ 257,773 200,285 Intangible assets ........................... 573,006 415,723 Deferred charges ............................ 100,432 75,353 Cemetery property, at cost .................. 382,972 310,628 Property and equipment, at cost: Land ...................................... 75,032 67,579 Buildings ................................. 284,590 244,421 Equipment and other ....................... 127,951 102,592 ----------- ----------- 487,573 414,592 Less accumulated depreciation ............. 105,834 85,188 ----------- ----------- Net property and equipment ................ 381,739 329,404 Long-term investments ....................... 68,014 57,345 Merchandise trust, less estimated cost to deliver.................................... 41,160 20,787 Other assets ................................ 5,301 1,012 ----------- ----------- $ 2,071,802 $ 1,637,238 =========== =========== (continued) STEWART ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) LIABILITIES AND SHAREHOLDERS' EQUITY October 31, -------------------------- 1998 1997 ---------- ----------- Current maturities of long-term debt ............ $ 11,219 $ 33,973 Accounts payable ................................ 19,048 16,705 Accrued payroll ................................ 21,074 16,241 Accrued insurance ............................... 12,420 10,428 Accrued interest ............................... 13,440 7,581 Accrued other ................................... 19,369 16,283 Income taxes payable ............................ 8,245 - Deferred income taxes ........................... 13,967 9,720 ---------- ----------- Total current liabilities ..................... 118,782 110,931 Long-term debt, less current maturities ........... 913,215 524,351 Deferred income taxes ............................. 92,231 85,454 Deferred revenue .................................. 98,775 88,088 Other long-term liabilities ....................... 9,509 8,844 ---------- ----------- Total liabilities ............................. 1,232,512 817,668 ---------- ----------- Commitments and contingencies (Note 15) Shareholders' equity: Preferred stock, $1.00 par value, 5,000,000 shares authorized; no shares issued ............................ - - Common stock, $1.00 stated value: Class A authorized 150,000,000 shares; issued and outstanding 94,472,844 and 93,807,568 shares at October 31, 1998 and 1997, respectively ................................ 94,473 93,808 Class B authorized 5,000,000 shares; issued and outstanding 3,555,020 shares at October 31, 1998 and 1997; 10 votes per share; convertible into an equal number of Class A shares ...... 3,555 3,555 Additional paid-in capital ...................... 492,177 477,499 Retained earnings ............................... 315,140 279,104 Cumulative foreign translation adjustment ....... (64,887) (36,609) Unrealized appreciation (depreciation) of investments ................................... (1,168) 2,213 ----------- ----------- Total shareholders' equity ................... 839,290 819,570 ----------- ----------- $ 2,071,802 $ 1,637,238 =========== =========== 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 Cumulative Appreciation ---------------------------- Additional Foreign (Depreciation) Total Shares - Paid-In Retained Translation Of Shareholders' Classes A and B(1) Amount Captial Earnings Adjustment Investments Equity ------------------ -------- --------- -------- ----------- ------------ ------------ (IN THOUSANDS) Balance October 31, 1995 ......... 82,027(2) $ 82,027 $ 250,933 $ 166,785 $ (19,123) $ 3,356 $ 483,978 Net earnings ................... 51,297 51,297 Sales of common stock .......... 76 76 803 879 Subsidiaries acquired with common stock ........... 932 932 11,319 12,251 Stock options exercised ........ 1,052 1,052 9,535 10,587 Purchase and retirement of common stock .............. (488) (488) (7,683) (8,171) Foreign translation adjustment .................. 65 65 Unrealized depreciation of investments ............... (671) (671) Dividends ($.033 per share)(1) .................... (2,768) (2,768) ------ -------- --------- -------- -------- -------- --------- Balance October 31, 1996 ......... 83,599(2) 83,599 264,907 215,314 (19,058) 2,685 547,447 Net earnings ................... 67,418 67,418 Sales of common stock .......... 12,190 12,190 199,513 211,703 Subsidiaries acquired with common stock ................ 688 688 11,738 12,426 Stock options exercised ........ 1,574 1,574 14,064 15,638 Purchase and retirement of common stock ................. (688) (688) (12,723) (13,411) Foreign translation adjustment ................. (17,551) (17,551) Unrealized depreciation of investments ................. (472) (472) Dividends ($.04 per share)(1)..................... (3,628) (3,628) ------ -------- --------- -------- -------- -------- --------- Balance October 31, 1997 ......... 97,363(2) 97,363 477,499 279,104 (36,609) 2,213 819,570 Net earnings ................... 41,902 41,902 Sales of common stock .......... 68 68 1,320 1,388 Subsidiaries acquired with common stock ................ 294 294 7,411 7,705 Stock options exercised ........ 637 637 14,714 15,351 Purchase and retirement of common stock ................. (334) (334) (8,767) (9,101) Foreign translation adjustment .................. (28,278) (28,278) Unrealized depreciation of investments ................. (3,381) (3,381) Dividends ($.06 per share)(1) .. (5,866) (5,866) ------ -------- --------- --------- ---------- --------- --------- Balance October 31, 1998 ......... 98,028(2) $ 98,028 $ 492,177 $ 315,140 $ (64,887) $ (1,168) $ 839,290 ====== ======== ========= ========= ========== ========== ========= - -------------------------
(1) Share and per share information has been adjusted to give effect to a three-for-two common stock split effective June 21, 1996 and a two-for-one stock split effective April 24, 1998. (2) Includes 3,555 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) Year Ended October 31, ------------------------------------- 1998 1997 1996 -------- -------- -------- Cash flows from operating activities: Net earnings ................................... $ 41,902 $ 67,418 $ 51,297 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Performance-based stock options .............. 76,762 - - Depreciation and amortization ................ 35,542 27,849 21,701 Provision for doubtful accounts .............. 28,325 21,351 23,156 Cumulative effect of change in accounting principles ................................. - 2,324 - Net gains on sales of marketable securities .. (2,727) (370) (2,098) Provision (benefit) for deferred income taxes ...................................... 532 11,360 (4,676) Changes in assets and liabilities net of effects from acquisitions: Increase in prearranged funeral trust receivables ............................. (17,015) (17,933) (17,265) Increase in other receivables .............. (90,997) (71,988) (35,918) Increase in deferred charges and intangible assets ....................... (28,233) (14,018) (7,385) Increase in inventories and cemetery property ................................. (15,343) (8,394) (8,812) Increase (decrease) in accounts payable and accrued expenses ........................ 6,517 (9,641) 2,682 Decrease in estimated costs to complete mausoleums and lawn crypts, and to deliver merchandise .............................. (20,641) (24,874) (10,256) Increase in deferred revenue ............... 778 1,778 250 Increase (decrease) in other ............... 2,916 (105) (1,037) Net cash provided by (used in) operating -------- -------- -------- activities ................................. 18,318 (15,243) 11,639 -------- -------- -------- Cash flows from investing activities: Proceeds from sale of marketable securities .... 19,039 11,297 8,648 Purchases of marketable securities and long-term investments ........................ (30,438) (19,771) (16,317) Purchases of subsidiaries, net of cash, seller financing and stock issued ................... (223,414) (154,013) (158,359) Additions to property and equipment ............ (40,719) (44,405) (26,332) Other .......................................... 2 1,037 471 -------- -------- -------- Net cash used in investing activities ........ (275,530) (205,855) (191,889) -------- -------- --------
(continued)
STEWART ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Year Ended October 31, --------------------------------- 1998 1997 1996 --------- --------- --------- Cash flows from financing activities: Proceeds from long-term debt ................... 602,782 367,725 277,259 Repayments of long-term debt ................... (270,682) (348,782) (90,691) Retirement of performance-based stock options .. (69,431) - - Issuance of common stock ....................... 11,738 227,341 11,466 Purchase and retirement of common stock ........ (9,101) (13,411) (8,171) Dividends ...................................... (5,866) (3,628) (2,768) --------- --------- --------- Net cash provided by financing activities .... 259,440 229,245 187,095 --------- --------- --------- Effect of exchange rates on cash and cash equivalents .................................... (3,135) (1,087) (491) --------- --------- --------- Net increase (decrease) in cash .................. (907) 7,060 6,354 Cash and cash equivalents, beginning of year ..... 31,640 24,580 18,226 --------- --------- --------- Cash and cash equivalents, end of year ........... $ 30,733 $ 31,640 $ 24,580 ========= ========= ========= Supplemental cash flow information: Cash paid during the year for: Income taxes ................................. $ 12,000 $ 30,600 $ 25,100 Interest ..................................... $ 38,000 $ 35,100 $ 26,100 Non cash investing and financing activities: Subsidiaries acquired with common stock ....... $ 7,705 $ 12,426 $ 12,251
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, 1998, the funeral and cemetery segments contributed approximately 58% and 42%, respectively, of total revenues, and 60% and 40%, respectively, of consolidated gross profit. As of October 31, 1998, the Company owned and operated 558 funeral homes and 140 cemeteries in 28 states within the United States, and in Puerto Rico, Mexico, Australia, New Zealand, Canada, Spain, Portugal, the Netherlands, Argentina, France and Belgium. 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, Spain and Portugal in fiscal year 1997, and the Netherlands, Argentina, France and Belgium in fiscal year 1998. For fiscal year 1998, foreign operations contributed approximately 18% of total revenue and, as of October 31, 1998, represented approximately 20% 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 STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) 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 using quoted market prices, where applicable, or discounted future cash flows based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. See Note 11. (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 10 years, respectively, primarily using the straight-line method. For the fiscal years ended October 31, 1998, 1997 and 1996, depreciation expense totaled approximately $21,094, $17,972 and $13,938, respectively. Goodwill, or costs in excess of net assets of companies acquired, totaled approximately $567,432 and $411,564 as of October 31, 1998 and 1997, respectively, 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 $43,831 and $29,383 as of October 31, 1998 and 1997, 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 or 1998. As of January 1, 1999, the Mexican economy is no longer considered highly inflationary. The functional currency which will be used by our Mexican operations will be the Mexican peso. This change is not expected to have a material effect on the Company's operations or consolidated financial condition and results of operations. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) (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. 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. 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. Under prearranged funeral services and merchandise funded through insurance purchased by customers from third party insurance companies, the Company earns a commission on the sale of the policies. Commissions, net of related expenses, are recognized at the point at which the commission is no longer subject to refund. Policy proceeds are available to the Company as funeral services and merchandise are delivered. 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. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) 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 canceled. 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. (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 Effective November 1, 1997, the Company adopted Statement of Financial Accounting Standards No. 128 "Earnings Per Share" which requires the presentation of basic and diluted earnings per share. Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding during each period. Diluted earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if the dilutive potential common shares (in this case, exercise of the Company's time-vest stock options) had been issued during each period. See Note 12. The Company's share and per share amounts have been adjusted for a three-for-two common stock split effective June 21, 1996, and a two-for-one common stock split effective April 24, 1998. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) (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 14. Statement of Financial Accounting Standard (SFAS) No. 129, "Disclosure of Information about Capital Structure," was adopted during the first quarter of the Company's fiscal year ending October 31, 1998. SFAS No. 130, "Reporting Comprehensive Income," is required to be implemented in the first quarter of the Company's fiscal year 1999. SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," is required to be implemented during the Company's fiscal year ending October 31, 1999 and SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," is required to be implemented in the first quarter of the Company's fiscal year 2000. 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 1997 consolidated financial statements to conform to the presentation used in the 1998 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. (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. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (3) CHANGE IN ACCOUNTING PRINCIPLES--(CONTINUED) 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 $.03 per share. (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 1998 .... 153 9 $266,300 294,000 Fiscal year 1997 .... 104 10 184,500 688,000 Fiscal year 1996 .... 134 15 179,000 932,000
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. The following table reflects, on an unaudited pro forma basis, the combined operations of the Company and the businesses acquired during fiscal year 1998 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. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(4) ACQUISITION OF SUBSIDIARIES -- (CONTINUED) Year Ended October 31, ---------------------- 1998 1997 --------- --------- (Unaudited) Revenues ................................................... $ 698,403 $ 618,480 Operating earnings before performance-based stock options .. $ 185,720 $ 152,711 Earnings before cumulative effect of change in accounting principles ............................................... $ 39,516 $ 65,539 Net earnings ............................................... $ 39,516 $ 63,214 Basic earnings per share: Earnings before cumulative effect of change in accounting principles ................................. $ .40 $ .74 Net earnings ............................................ $ .40 $ .71 Diluted Earnings per share: Earnings before cumulative effect of change in accounting principles ................................. $ .40 $ .73 Net earnings ............................................ $ .40 $ .70 Weighted average shares outstanding (in thousands) Basic ................................................... 97,889 89,073 Diluted ................................................. 98,642 89,969
The effect of acquisitions at dates of purchase on the consolidated financial statements was as follows:
Year Ended October 31, --------------------------------- 1998 1997 1996 --------- --------- --------- Current assets .......................... $ 35,561 $ 8,537 $ 21,380 Receivables due beyond one year ......... 91 - 1,973 Cemetery property ....................... 47,987 7,572 25,260 Property and equipment, net ............. 42,247 38,653 72,949 Deferred charges and other assets ....... 2,242 549 9,889 Intangible assets, net .................. 177,708 142,484 98,230 Current liabilities ..................... (9,128) (10,683) (10,396) Long-term debt .......................... (33,872) (19,315) (10,388) Deferred income taxes ................... (20,107) (841) (15,640) Deferred revenue and other liabilities .. (11,610) (517) (22,647) --------- --------- --------- 231,119 166,439 170,610 Common stock used for acquisitions ...... 7,705 12,426 12,251 --------- --------- --------- Cash used for acquisitions .............. $ 223,414 $ 154,013 $ 158,359 ========= ========= =========
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 $40,832 and $34,599 as of October 31, 1998 and 1997, 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. Earnings of $26,463 and $24,682 were included in funeral revenue for fiscal year 1998 and 1997, respectively. 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 for 1996.
October 31, ------------------------ 1998 1997 --------- --------- Trust or escrow funded: Prearranged funeral services sold, but not delivered ... $ 555,742 $ 505,970 ========= ========= Investments at market value ............................ $ 525,909 $ 422,336 Receivables to be collected on prearranged funeral service contracts .................................... 97,410 93,747 --------- --------- $ 623,319 $ 516,083 ========= ========= Insurance-funded and other prearranged funeral services .. $ 214,464 $ 184,111 ========= ========= Investments consist of: U.S. Government, agencies and municipalities ........... $ 37,223 $ 56,121 Canadian Government, agencies and municipalities ....... 23,040 27,508 Corporate bonds ........................................ 74,102 81,393 Preferred stocks ....................................... 48,484 31,871 Common stocks .......................................... 133,431 54,938 Money market funds and other short-term investments .... 167,457 118,315 Short-term fixed income foreign investments ............ 42,867 41,766 --------- --------- Total value at cost .................................... 526,604 411,912 Net unrealized appreciation (depreciation) ............. (695) 10,424 --------- --------- Total value at market .................................. $ 525,909 $ 422,336 ========= =========
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 $24,990 and $20,833 classified as long-term investments as of October 31, 1998 and 1997, 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 $13,157, $12,237, and $9,082 is reflected in cemetery revenue for 1998, 1997 and 1996, respectively. Amounts deposited in merchandise trust funds and escrow accounts that are invested in debt securities as of October 31, 1998 totaled $63,621 and are scheduled to mature as follows: $1,624 in less than one year; $31,475 in one through five years; $29,781 in five through ten years; and $741 in more than ten years.
October 31, ---------------------- 1998 1997 --------- --------- Merchandise trust funds and escrow accounts: Merchandise sold, but not delivered, at current cost ... $ 122,388 $ 108,644 ========= ========= Investments at market value ............................ $ 188,538 $ 150,264 Amounts to be collected on merchandise contracts ....... 55,336 50,044 --------- --------- $ 243,874 $ 200,308 ========= ========= Investments consist of: U.S. Government, agencies and municipalities .......... $ 19,626 $ 30,067 Corporate bonds ....................................... 42,225 43,648 Preferred stocks ...................................... 17,541 13,802 Common stocks ......................................... 61,106 24,452 Money market funds and other short-term investments ... 49,787 36,109 -------- -------- Total value at cost ................................... 190,285 148,078 Net unrealized appreciation (depreciation) ............ (1,747) 2,186 ---------- --------- Total value at market ................................. $ 188,538 $ 150,264 ========= =========
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 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 $2,192 and $1,913, classified as long-term investments as of October 31, 1998 and 1997, 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, 1998, 1997 and 1996, such withdrawals, included in cemetery revenue, totaled $12,615, $12,497, and $15,056, respectively.
October 31, ----------------------- 1998 1997 --------- --------- Perpetual care trust funds and escrow accounts: Investments at market value .......................... $ 167,508 $ 152,137 Amounts to be collected under existing agreements .... 10,815 9,447 --------- --------- $ 178,323 $ 161,584 ========= ========= Investments consist of: U.S. Government, agencies and municipalities ......... $ 20,747 $ 28,829 Corporate bonds ...................................... 38,424 45,274 Preferred stocks ..................................... 12,744 7,467 Common stocks ........................................ 43,718 25,266 Money market funds and other short-term investments .. 46,331 37,023 Other long-term investments .......................... 408 520 --------- --------- Total value at cost .................................. 162,372 144,379 Net unrealized appreciation .......................... 5,136 7,758 --------- --------- Total value at market ................................ $ 167,508 $ 152,137 ========= =========
(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, ---------------------- 1998 1997 -------- -------- Cash ............................. $ 20,847 $ 18,118 Cash equivalent investments ...... 9,886 13,522 ------- -------- $ 30,733 $ 31,640 ======== ========
STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (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, 1998 was $6,120 and approximated cost. The market value as of October 31, 1997 was $4,615, which included gross unrealized gains of $1,027. The Company realized net gains on the sales of securities of $2,727, $370 and $2,098 for the years ended October 31, 1998, 1997 and 1996, respectively. The cost of securities sold was determined by using the average cost method. The market value of long-term investments as of October 31, 1998 and 1997 was $68,014 and $57,345 which included gross unrealized gains of $2,573 and $1,877, and gross unrealized losses of $2,654 and $968, respectively. Amounts classified as long-term investments and invested in debt securities as of October 31, 1998 totaled $13,586 and are scheduled to mature as follows: $0 in less than one year; $7,583 in one through five years; $5,504 in five through ten years; and $499 in more than ten years. See Notes 5 and 6 which include details of the Company's long-term investments. (9) RECEIVABLES
October 31, ----------------------- 1998 1997 --------- --------- Current receivables are summarized as follows: Installment contracts due within one year ................ $ 90,716 $ 77,332 Trade accounts, notes and other .......................... 44,860 34,642 Allowance for sales cancellations and doubtful accounts .. (10,813) (6,869) Amount to be collected for perpetual care funds .......... (5,815) (4,017) 118,948 101,088 Funeral receivables ...................................... 40,950 25,332 Prearranged funeral trust receivable ..................... 11,951 13,871 Net current receivables ............................. $ 171,849 $ 140,291 Long-term receivables are summarized as follows: Installment contracts due beyond one year ................ $ 199,836 $ 154,710 Allowance for sales cancellations and doubtful accounts .. (12,063) (9,696) Amount to be collected for perpetual care funds .......... (5,000) (5,430) 182,773 139,584 Prearranged funeral trust receivable ..................... 75,000 60,701 Net long-term receivables ........................... $ 257,773 $ 200,285 The Company's receivables as of October 31, 1998 are expected to mature as follows: Years ending October 31, 1999 ...................................................... $ 171,849 2000 ...................................................... 51,555 2001 ...................................................... 42,962 2002 ...................................................... 38,666 2003 ...................................................... 30,073 Later years ............................................... 94,517 --------- $ 429,622 =========
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, ------------------------ 1998 1997 --------- --------- Developed cemetery property ..................... $ 18,888 $ 22,172 Merchandise and supplies ........................ 29,945 20,872 --------- --------- $ 48,833 $ 43,044 ========= ========= Cemetery property is comprised of the following: October 31, ------------------------ 1998 1997 --------- --------- Developed cemetery property ..................... $ 93,061 $ 68,217 Undeveloped cemetery property.................... 289,911 242,411 --------- --------- $ 382,972 $ 310,628 ========= ========= 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, ---------------------- 1998 1997 --------- --------- Revolving Credit Facilities (see "Revolving Credit Facility" and "Revolving Line of Credit Note" below) ................... $ 492,000 $ 312,000 Senior Notes ...................................................... 102,857 125,000 6.70% Notes ....................................................... 100,000 100,000 6.40% Notes ....................................................... 205,546 - Other, principally seller financing of acquired operations or assumption upon acquisition, weighted average interest rate of 5.1% as of October 31, 1998, partially secured by assets of subsidiaries, with maturities through 2022 ...................................... 24,031 21,324 -------- -------- 924,434 558,324 Less current maturities ............................................ 11,219 33,973 -------- -------- $ 913,215 $ 524,351 ========= =========
STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (11) LONG-TERM DEBT--(CONTINUED) In April 1997, the Company completed the syndication of a $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. Under this agreement $492,000 and $312,000 were outstanding with weighted average interest rates of 5.70% and 6.26% as of October 31, 1998 and 1997, respectively. 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 cost of funds rate or certain optional rates at the Company's election, and mature on March 31, 1999. 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, 1998 and 1997. 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; the first such payment was made on November 30, 1997, and the final payment is 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%. A principal payment of $15,000 was made on May 1, 1998. The remaining notes have a weighted average interest rate of 8.49%, and principal payments are due as follows: $16,667 on each of November 1, 2000, 2001 and 2002, and $10,000 on November 1, 2006. As of October 31, 1998 and 1997, the carrying value of the Company's senior notes, including accrued interest, was $106,468 and $129,381, respectively, whereas the fair value was $110,420 and $132,464, respectively. In December 1996, the Company issued $100,000 of unsecured, unsubordinated 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, 1998 and 1997, the carrying value of these notes, including accrued interest, was $102,792, whereas the fair value was $103,197 and $104,337, respectively. In April 1998, the Company issued $200,000 of 6.40% Remarketable Or Redeemable Securities (ROARS) due May 1, 2013 (remarketing date May 1, 2003). The ROARS were priced to the public at 99.677% to yield 6.476%. Net proceeds were approximately $203,631, including the payment made to the Company by the remarketing dealer for the right to remarket the securities after five years. The proceeds were used to reduce balances outstanding under the Company's revolving credit facilities. The net effective rate to the Company, assuming the securities are redeemed by the Company after five years, is 5.77%. If the securities are remarketed after five years, the net effective rate is expected to be approximately 6.14% over 15 years. If the ROARS are redeemed by the Company on May 1, 2003, a principal payment of $200,000 will be required. As of October 31, 1998, the carrying value of these notes, including accrued interest and the unamortized portion of the option premium, was $211,911, whereas the fair value was $210,010. 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 for the fiscal years ending October 31, 1999 through October 31, 2003, excluding the Revolving Credit Facility and assuming the ROARS are redeemed by the Company on May 1, 2003, are approximately $10,836 in 1999, $12,207 in 2000, $26,380 in 2001, $25,739 in 2002, and $225,758 in 2003. Current maturities of long-term debt of $11,219 as of October 31, 1998, as reported in the Company's consolidated balance sheets, includes $383 relating to the unamortized ROARS option premium. (12) RECONCILIATION OF BASIC AND DILUTED PER-SHARE DATA
Earnings Shares Per-Share (Numerator) (Denominator) Data ----------- ------------ ---------- YEAR ENDED OCTOBER 31, 1998 Net earnings .......................................... $ 41,902 Basic earnings per share: ========= Net earnings available to common shareholders ...... $ 41,902 97,691 $ .43 ====== Effect of dilutive securities: Time-vest stock options assumed exercised .......... - 753 --------- ------ Diluted earnings per share: Net earnings available to common shareholders ...... plus time-vest stock options assumed exercised .. $ 41,902 98,444 $ .43 ========= ======= ====== Earnings Shares Per-Share (Numerator) (Denominator) Data ----------- ------------- --------- YEAR ENDED OCTOBER 31, 1997 Earnings before cumulative effect of change in accounting principles ........................... $ 69,742 Basic earnings per share: ========= Earnings available to common shareholders ......... $ 69,742 88,778 $ .79 ====== Effect of dilutive securities: Time-vest stock options assumed exercised ......... - 897 --------- ------ Diluted earnings per share: Earnings available to common shareholders plus time-vest stock options assumed exercised.. $ 69,742 89,675 $ .78 ========= ====== =======
STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (12) RECONCILIATION OF BASIC AND DILUTED PER-SHARE DATA--(CONTINUED) Options to purchase 319,210 shares of common stock at $25.81 and 895,560 shares of common stock at $27.25 were outstanding during the third and fourth quarters of fiscal year 1998 but were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the common shares. The options, which expire on July 31, 2004, were still outstanding at the end of 1998. (13) INCOME TAXES
Income tax expense (benefit) is comprised of the following components: U.S. And Possessions State Foreign Total ----------- --------- --------- --------- YEAR ENDED OCTOBER 31, 1998: Current tax expense ............... $ 13,871 $ 3,918 $ 4,741 $ 22,530 Deferred tax expense (benefit) .... (2,075) 617 1,990 532 --------- --------- --------- --------- $ 11,796 $ 4,535 $ 6,731 $ 23,062 ========= ========= ========= ========= 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 ========= ========= ========= =========
The reconciliation of the statutory tax rate to the effective tax rate is as follows:
Year Ended October 31, ------------------------------ 1998 1997 1996 ------ ------ ------ Statutory tax rate .................................. 35.00% 35.00% 35.00% Increases (reductions) in tax rate resulting from: State and U.S. possessions ......................... 6.21 2.82 6.21 Goodwill and other ................................. 3.86 .31 2.52 Dividend exclusion ................................. (2.21) ( .78) (1.03) Foreign tax rate differential ...................... (5.57) (2.50) (2.88) Foreign tax credit ................................. (1.79) ( .35) (2.32) ------ ------ ------ Effective tax rate .................................. 35.50% 34.50% 37.50% ====== ====== ======
STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (13) INCOME TAXES--(CONTINUED) Deferred tax assets and liabilities consist of the following: October 31, ---------------------- 1998 1997 --------- -------- Deferred tax assets: Domestic trust earnings ................................... $ 7,375 $ 9,708 Estimated cost to deliver merchandise ..................... 3,292 3,366 Allowance for sales cancellations and doubtful accounts ... 7,940 4,707 Deferred preneed sales and expenses ....................... 23,922 20,564 Unrealized depreciation of investments .................... 629 - Deferred compensation ..................................... 556 328 Foreign tax credit ........................................ 4,374 2,444 Other ..................................................... 2,653 - --------- -------- 50,741 41,117 --------- -------- October 31, ---------------------- 1998 1997 --------- -------- Deferred tax liabilities: Purchase accounting adjustments .......................... 122,065 103,422 Foreign trust earnings .................................... 10,513 7,741 Deferred revenue on cemetery property and merchandise sales ................................................... 11,277 7,866 State income taxes ........................................ 1,726 3,663 Percentage of completion on long-term contracts ........... 2,618 3,845 Equity method investments ................................. 2,240 2,005 Goodwill .................................................. 2,733 1,634 Unrealized appreciation of investments .................... - 1,170 Non-compete amortization ................................. 3,485 3,234 Depreciation .............................................. - 737 Other ..................................................... 282 974 --------- -------- 156,939 136,291 --------- -------- $ 106,198 $ 95,174 ========= ======== Current net deferred liability ............................... $ 13,967 $ 9,720 Long-term net deferred liability ............................. 92,231 85,454 --------- -------- $ 106,198 $ 95,174 ========= ========
For the years ended October 31, 1998, 1997 and 1996, approximately 5%, 6%, and 12%, respectively, of the Company's earnings before performance based stock options and income taxes were generated from properties in foreign jurisdictions. The Company has recorded a benefit for foreign tax credits in the amount of $4,374 which are expected to be utilized prior to their expiration at the end of fiscal year 2003. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (14) 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 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, 1998, 1997 and 1996 was approximately $3,550, $2,900, and $2,550, 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, 1998, 1997 and 1996 was approximately $300, $164, and $116, 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 2,905,876 shares of Class A Common Stock at exercise prices equal to the fair market value at the grant date, which ranged from $4.45 to $8.00 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, 1998, there were no outstanding options under this Plan. 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 3,300,000 shares of Class A Common Stock at exercise prices equal to the fair market value at the grant date, which ranged from $4.78 to $8.00 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 STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (14) BENEFIT PLANS--(CONTINUED) Common Stock over five consecutive trading days equaled or exceeded $9.89, 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 $.15 per share, after-tax) for the difference between the option exercise prices and $10.79, 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, 1998, all performance-based options granted under the 1991 Incentive Compensation Plan had been exercised. 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 11,250 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, 1998, 243,750 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 April 7, 1998, the Company granted options to officers and other employees for the purchase of a total of 7,424,536 shares of Class A Common Stock at exercise prices equal to the fair market value at the grant dates, which ranged from $10.50 to $21.50 per share. In general, two- thirds of the options became 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 equaled or exceeded $26.44, which represented a 20% annual compounded growth in the price of a share of the Company's Class A Common Stock over five years. The remaining options generally become exercisable in 20% annual increments beginning on September 7, 1996, except for grants issued since STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (14) BENEFIT PLANS--(CONTINUED) 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 these options expire on October 31, 2001. As of October 31, 1998, 4,968,506 options had been exercised under this plan, and 130,190 options had been forfeited. During April 1998, the stock price performance target was achieved, and the Company's performance-based stock options granted under the Company's 1995 Incentive Compensation Plan and covering 4,855,886 shares vested. Accordingly, during the second quarter of fiscal year 1998, the Company was required by generally accepted accounting principles to record a non-recurring, non-cash charge to earnings of $76,762 ($50,279, or $.51 per share, after-tax). Additionally, to encourage optionees to exercise their options immediately in order to renew the performance-based option program and to reduce potential dilution from additional shares in the market, the Company offered to repurchase the options for the difference between $27.31, the closing price on the date on which the options vested, and the exercise price of the options. The repurchase of certain of the options by the Company and the exercise of the remaining options resulted in a cash outlay of $69,431. In July and August 1998, the Company granted new options under the 1995 Incentive Compensation Plan to officers and employees for the purchase of 3,592,250 shares of Class A Common Stock at exercise prices equal to the fair market value at the grant dates, which ranged from $21.38 to $27.25 per share. One-third of the options become exercisable in 20% annual increments beginning on July 17, 1999. The remaining two-thirds of the options become exercisable in full on the first day between the grant date and July 17, 2003 that the average of the closing sale prices of a share of Class A Common Stock over the 20 preceding consecutive trading days equals or exceeds $67.81, which represents a 20% annual compounded growth in the price of a share of Class A Common Stock over five years. Generally accepted accounting principles require that a charge to earnings 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. All of the options expire on July 31, 2004. 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 72,000 shares of the Company's Class A Common Stock. From January 2, 1996 through October 31, 1997, the Company granted a total of 360,000 options at exercise prices equal to the fair market value at the grant dates, which ranged from $12.34 to $18.25 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 STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (14) BENEFIT PLANS--(CONTINUED) control of the Company, as defined in the plan. All of the options expire on January 2, 2001. As of October 31, 1998, 91,052 options had been exercised under this plan. Employee Stock Purchase Plan On July 1, 1992, the Company adopted an "Employee Stock Purchase Plan" and reserved 2,250,000 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, 1998, 477,033 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, 1998 and 1997, and the changes that occurred during fiscal years 1998 and 1997.
1998 1997 ----------------------- ---------------------- Number of Weighted Number of Weighted Shares Average Shares Average Underlying Exercise Underlying Exercise Options Prices Options Prices ---------- ---------- ---------- --------- Outstanding at beginning of year .... 6,993,710 $ 11.38 7,911,020 $ 9.69 Granted ............................. 4,268,250 $ 25.98 763,124 $ 17.37 Exercised ........................... (4,991,580) $ 12.24 (1,573,586) $ 5.92 Forfeited ........................... (83,342) $ 10.70 (106,848) $ 9.11 --------- --------- Outstanding at end of year .......... 6,187,038 $ 20.77 6,993,710 $ 11.38 ========= ========= Exercisable at end of year .......... 1,349,651 $ 11.76 836,034 $ 11.12 ========= ========= Weighted-average fair value of options granted .................... $ 7.11 $ 3.99
The following table further describes the Company's stock options outstanding as of October 31, 1998: Options Outstanding Options Exercisable -------------------------------------------------- --------------------------------- Number Weighted Average Number Range of Outstanding Remaining Weighted Average Exercisable Weighted Average Exercise Prices at 10/31/98 Contractual Life Exercise Price at 10/31/98 Exercise Price - ------------------ ----------- ----------------- ------------------ ------------ ------------------ $ 10.50 to $ 15.00 2,095,348 2.91 years $ 10.69 1,163,548 $ 10.62 $ 15.01 to $ 20.00 272,504 2.85 years $ 17.41 110,186 $ 17.22 $ 20.01 to $ 25.00 228,436 3.02 years $ 21.29 75,917 $ 21.29 $ 25.01 to $ 27.25 3,590,750 5.75 years $ 26.87 - - --------- --------- $ 10.50 to $ 27.25 6,187,038 4.56 years $ 20.77 1,349,651 $ 11.76 ========= =========
STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (14) 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 7.8 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, ----------------------- 1998 1997 -------- -------- (UNAUDITED) Net earnings - as reported .... $ 41,902 $ 67,418 - pro forma ...... 40,027 66,412 Basic earnings per common share - as reported .... $ .43 $ .76 - pro forma ...... .41 .75 Diluted earnings per common share - as reported .... $ .43 $ .75 - pro forma ...... .41 .74
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 1998 and 1997, respectively: expected dividend yield of .3% and .2%; expected volatility of 20.9% and 19.6%; risk-free interest rate of 5.5% and 6.1%; and an expected term of 4.7 and 3.3 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 1998 and 1997, respectively: expected dividend yield of .2% for both years; expected volatility of 20.5% and 19.6%; risk-free interest rate of 5.3% and 5.2%; and an expected term of .5 years, for both years. (15) 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 former owners of these corporations have agreed to indemnify the Company 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. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (15) COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS--(CONTINUED) As of October 31, 1998, the Company had advanced approximately $1,014, 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 earliest 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. The Company has noncancellable operating leases, primarily for land and buildings, that expire over the next one to 19 years, except for two leases which expire in 2032 and 2040. Rent expense under these leases was $8,616, $6,025 and $3,997 for the years ended October 31, 1998, 1997 and 1996, respectively. The Company's future minimum lease payments as of October 31, 1998 are $8,002, $6,379, $4,761, $4,075, $3,058 and $30,513 for the years ending October 31, 1999, 2000, 2001, 2002, 2003 and later years, respectively. Additionally, the Company has entered into non-compete agreements with prior owners of acquired subsidiaries that expire through 2012. The Company's future non-compete payments as of October 31, 1998 for the same periods are $7,030, $6,233, $5,847, $5,223, $4,562 and $8,874, respectively. The Company leases office space from an affiliated company. Rental payments were approximately $636, $602, and $559 for the years ended October 31, 1998, 1997, and 1996, respectively. 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, Australia and Argentina. The Company conducts funeral operations in Mexico, New Zealand, Spain, Portugal, the Netherlands, Belgium and France. Corporate, Performance-Based Stock Options And Funeral Cemetery Eliminations Consolidated ----------- -------- -------------- ------------ Revenues October 31, 1998 ............. $ 379,095 269,270 - $ 648,365 October 31, 1997 ............. $ 291,649 240,937 - $ 532,586 October 31, 1996 ............. $ 225,461 207,926 - $ 433,387 Operating earnings or loss October 31, 1998 ............. $ 118,426 77,558 (93,383)(1) $ 102,601(1) October 31, 1997 ............. $ 89,235 67,937 (15,402) $ 141,770 October 31, 1996 ............. $ 72,239 45,879 (14,096) $ 104,022 Identifiable assets October 31, 1998 ............. $ 1,282,670 752,916 36,216 $ 2,071,802 October 31, 1997 ............. $ 940,340 667,932 28,966 $ 1,637,238 October 31, 1996 ............. $ 764,539 585,884 10,490 $ 1,360,913 Depreciation and amortization October 31, 1998 ............. $ 25,099 8,546 1,897 $ 35,542 October 31, 1997 ............. $ 19,016 7,966 867 $ 27,849 October 31, 1996 ............. $ 12,960 7,830 911 $ 21,701 Capital expenditures October 31, 1998 ............. $ 64,344 8,118 10,504 $ 82,966 October 31, 1997 ............. $ 58,644 13,051 11,363 $ 83,058 October 31, 1996 ............. $ 81,450 16,442 1,389 $ 99,281 - ---------------------------- (1)Includes a non-recurring non-cash charge of $76,762 recorded in fiscal year 1998 in connection with the vesting of the Company's performance-based stock options.
STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (16) SEGMENT DATA--(CONTINUED) U.S. And Performance-Based Possessions(1) Foreign(2) Stock Options Consolidated -------------- ---------- ------------------ ------------ Revenues October 31, 1998 ............... $ 534,427 113,938 - $ 648,365 October 31, 1997 ............... $ 455,076 77,510 - $ 532,586 October 31, 1996 ............... $ 391,437 41,950 - $ 433,387 Operating earnings or loss October 31, 1998 ............... $ 153,794 25,569 (76,762)(3) $ 102,601(3) October 31, 1997 ............... $ 120,803 20,967 - $ 141,770 October 31, 1996 ............... $ 88,812 15,210 - $ 104,022 Identifiable assets October 31, 1998 ............... $ 1,658,152 413,650 - $ 2,071,802 October 31, 1997 ............... $ 1,320,041 317,197 - $ 1,637,238 October 31, 1996 ............... $ 1,109,424 251,489 - $ 1,360,913 - ----------------------
(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; Portugal - September 1997; the Netherlands - December 1997; Argentina - April 1998; France and Belgium - May 1998. (3) Includes a non-recurring non-cash charge of $76,762 recorded in fiscal year 1998 in connection with the vesting of the Company's performance-based stock options. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (17) QUARTERLY FINANCIAL DATA (UNAUDITED)
First(1) Second Third Fourth --------- --------- ---------- --------- YEAR ENDED OCTOBER 31, 1998 Revenues ............................. $ 149,309 $ 154,578 $ 169,088 $ 175,390 Gross profit .......................... 46,117 49,546 51,331 48,990 Net earnings (loss) ................... 21,946 (26,046) 24,324 21,678 Earnings per common share: Basic .............................. .23 (.27) .25 .22 Diluted ............................. .22 (.27) .25 .22 First Second Third Fourth --------- --------- --------- --------- YEAR ENDED OCTOBER 31, 1997 (1) (2) 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 - basic ........ .18 .20 .21 .19 - diluted ...... .18 .20 .21 .19 Net earnings ........................... 12,683 17,268 19,051 18,416 Earnings per common share: Basic ................................ .15 .20 .21 .19 Diluted .............................. .15 .20 .21 .19 - -----------------------
(1) Restated to reflect the Company's two-for-one stock split effective April 24, 1998. (2) 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 less than $.01 per share (basic and diluted), 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 $.03 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 $.01 per share, as a result of the accounting changes. See Note 3. STEWART ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (18) SUBSEQUENT EVENTS (UNAUDITED) Subsequent to year-end, the Company has acquired or committed to acquire 54 funeral homes and 26 cemeteries for approximately $196,638. In January 1999, the Company filed a prospectus supplement for the proposed sale of 12,500,000 shares of Class A Common Stock (excluding the underwriters' over-allotment option covering 1,875,000 shares), of which 650,000 shares are being offered by the Stewart Revocable Trust, a trust established by Mr. Stewart and his wife. The offering, scheduled to close near the end of January, is expected to generate net proceeds to the Company of approximately $268 million (excluding the over-allotment option) to be used to fund the Company's continuing acquisition program and for general corporate purposes. Pending such use, the Company will use the net proceeds to reduce the balances outstanding on its revolving credit facilities or to invest in short-term interest-bearing securities. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS IN 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 1999 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 1999 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 1999 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 1999 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 .................................. 33 Consolidated Statements of Earnings for the Years Ended October 31, 1998, 1997 and 1996 .................................. 34 Consolidated Balance Sheets as of October 31, 1998 and 1997 ........ 35 Consolidated Statements of Shareholders' Equity for the Years Ended October 31, 1998, 1997 and 1996 ............................ 37 Consolidated Statements of Cash Flows for the Years Ended October 31, 1998, 1997 and 1996 .................................. 38 Notes to Consolidated Financial Statements ......................... 40 (2) Financial Statement Schedule for the years ended October 31, 1998, 1997 and 1996 Report of Independent Accountants on Financial Statement Schedule .. 68 Schedule II-Valuation and Qualifying Accounts ...................... 69 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. PricewaterhouseCoopers LLP December 15, 1998
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, 1998 .......................... $ 6,869 16,191 1,950 14,197 $ 10,813 1997 .......................... $ 2,996 8,586 2,386 7,099 $ 6,869 1996 .......................... $ 2,847 13,580 445 13,876 $ 2,996 Due after one year-Allowance for contract cancellations and doubtful accounts: Year ended October 31, 1998 .......................... $ 9,696 12,134 728 10,495 $ 12,063 1997 .......................... $ 3,236 12,765 7,215 13,520 $ 9,696 1996 .......................... $ 3,307 9,576 797 10,444 $ 3,236 Accumulated amortization of intangible assets: Year ended October 31, 1998 .......................... $ 29,383 14,448 - - $ 43,831 1997 .......................... $ 19,506 9,877 - - $ 29,383 1996 .......................... $ 11,743 7,763 - - $ 19,506 - ---------------------------
(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 (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1997) 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) and Supplemental Indenture dated April 24, 1998 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated April 21, 1998) 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 Form of 6.40% Remarketable Or Redeemable Securities (ROARS) due May 1, 2013 (Remarketing date May 1, 2003) (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated April 21, 1998) 4.6 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 Employment Agreement dated August 1, 1995, between the Company and Joseph P. Henican, III (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1995 (the "1995 10-K")) and Amendment No. 1 to Employment Agreement dated October 31, 1998 10.9 Change of Control Agreement dated December 5, 1995, between the Company and Joseph P. Henican, III (incorporated by reference to Exhibit 10.20 to the 1995 10-K) 10.10 Stock Option Agreements dated February 1, 1995, between the Company and Joseph P. Henican, III (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the Quarter ended July 31, 1995) 10.11 Stock Option Agreement dated September 7, 1995 (time-vest), between the Company and Joseph P. Henican, III (incorporated by reference to Exhibit 10.17 to the 1995 10-K) 10.12 Employment Agreement dated August 1, 1995, between the Company and William E. Rowe (incorporated by reference to Exhibit 10.25 to the 1995 10-K) and Amendment No. 1 to Employment Agreement dated October 31, 1998 10.13 Change of Control Agreement dated December 5, 1995, between the Company and William E. Rowe (incorporated by reference to Exhibit 10.29 to the 1995 10-K) 10.14 Stock Option Agreement dated September 7, 1995 (time-vest), between the Company and William E. Rowe (incorporated by reference to Exhibit 10.26 to the 1995 10-K) 10.15 Employment Agreement dated August 1, 1995, between the Company and Ronald H. Patron (incorporated by reference to Exhibit 10.32 to the 1995 10-K); Amendment No. 1 to Employment Agreement dated May 1, 1998; and Amendment No. 2 to Employment Agreement dated October 31, 1998 10.16 Change of Control Agreement dated December 5, 1995, between the Company and Ronald H. Patron (incorporated by reference to Exhibit 10.36 to the 1995 10-K) and Amendment No. 1 to Change of Control Agreement dated May 1, 1998 10.17 Stock Option Agreement dated September 7, 1995 (time-vest), between the Company and Ronald H. Patron (incorporated by reference to Exhibit 10.33 to the 1995 10-K) 10.18 Employment Agreement dated August 1, 1995, between the Company and Gerard C. Alexander (incorporated by reference to Exhibit 10.39 to the 1995 10- K) and Amendment No. 1 to Employment Agreement dated October 31, 1998 10.19 Change of Control Agreement dated December 5, 1995, between the Company and Gerard C. Alexander (incorporated by reference to Exhibit 10.43 to the 1995 10-K) 10.20 Stock Option Agreement dated September 7, 1995 (time-vest), between the Company and Gerard C. Alexander (incorporated by reference to Exhibit 10.40 to the 1995 10-K) 10.21 Employment Agreement dated August 1, 1995, between the Company and Richard O. Baldwin, Jr. (incorporated by reference to Exhibit 10.23 to the 1996 10-K); Amendment No. 1 to Employment Agreement dated August 1, 1997 (incorporated by reference to Exhibit 10.27 to the 1997 10-K); and Amendment No. 2 to Employment Agreement dated October 31, 1998 10.22 Change of Control Agreement dated December 5, 1995, between the Company and Richard O. Baldwin, Jr. (incorporated by reference to Exhibit 10.27 to the 1996 10-K) and Amendment No. 1 to Change of Control Agreement dated August 1, 1997 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the Quarter ended April 30, 1998) 10.23 Stock Option Agreement dated September 7, 1995 (time-vest), between the Company and Richard O. Baldwin, Jr. (incorporated by reference to Exhibit 10.24 to the 1996 10-K) 10.24 Employment Agreement dated August 1, 1995, between the Company and Brian J. Marlowe (incorporated by reference to Exhibit 10.47 to the 1995 10-K) and Amendment No. 1 to Employment Agreement dated October 31, 1998 10.25 Change of Control Agreement dated December 5, 1995, between the Company and Brian J. Marlowe (incorporated by reference to Exhibit 10.51 to the 1995 10-K) 10.26 Stock Option Agreement dated September 7, 1995 (time-vest), between the Company and Brian J. Marlowe (incorporated by reference to Exhibit 10.48 to the 1995 10-K) 10.27 Employment Agreement dated August 1, 1995, between the Company and Kenneth C. Budde (incorporated by reference to Exhibit 10.35 to the 1996 10-K); Amendment No. 1 to Employment Agreement dated January 1, 1997 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the Quarter ended April 30, 1997); Amendment No. 2 to Employment Agreement dated May 1, 1998; and Amendment No. 3 to Employment Agreement dated October 31, 1998 10.28 Change of Control Agreement dated December 5, 1995, between the Company and Kenneth C. Budde (incorporated by reference to Exhibit 10.39 to the 1996 10-K) and Amendment No. 1 to Change of Control Agreement dated May 1, 1998 10.29 Stock Option Agreement dated September 7, 1995 (time-vest), between the Company and Kenneth C. Budde (incorporated by reference to Exhibit 10.36 to the 1996 10-K) 10.30 Employment Agreement dated August 1, 1995, between the Company and Lawrence B. Hawkins (incorporated by reference to Exhibit 10.41 to the 1996 10-K); Amendment No. 1 to Employment Agreement dated January 1, 1997 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the Quarter ended April 30, 1997); and Amendment No. 2 to Employment Agreement dated October 31, 1998 10.31 Change of Control Agreement dated December 5, 1995, between the Company and Lawrence B. Hawkins (incorporated by reference to Exhibit 10.45 to the 1996 10-K) and Amendment No. 1 to Change of Control Agreement dated January 1, 1997 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the Quarter ended April 30, 1998) 10.32 Stock Option Agreement dated September 7, 1995 (time-vest), between the Company and Lawrence B. Hawkins (incorporated by reference to Exhibit 10.42 to the 1996 10-K) 10.33 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); Amendment No. 1 to Employment Agreement dated January 1, 1997 (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the Quarter ended April 30, 1997); Amendment No. 2 to Employment Agreement dated November 1, 1997 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the Quarter ended January 31, 1998) and Amendment No. 3 to Employment Agreement dated October 31, 1998. 10.34 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) and Amendment No. 1 to Change of Control Agreement dated November 1, 1997 (incorporated by reference to Exhibit 10.3 to Company's Quarterly Report on Form 10-Q for the Quarter ended April 30, 1998) 10.35 Stock Option Agreement dated September 7, 1995 (time-vest) between the Company and Brent F. Heffron (incorporated by reference to Exhibit 10.47 to the 1996 10-K) 10.36 Stock Option Agreement dated January 1, 1997 (time-vest), between the Company and Brent F. Heffron (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the Quarter ended January 31, 1997) 10.37 Stock Option Agreement dated December 23, 1997 (time-vest), 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, 1998) 10.38 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); Amendment No. 1 to Employment Agreement dated January 1, 1997 (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the Quarter ended April 30, 1997); Amendment No. 2 to Employment Agreement dated November 1, 1997 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the Quarter ended January 31, 1998); and Amendment No. 3 to Employment Agreement dated October 31, 1998 10.39 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) and Amendment No. 1 to Change of Control Agreement dated November 1, 1997 (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the Quarter ended April 30, 1998) 10.40 Stock Option Agreement dated September 7, 1995 (time-vest), between the Company and Raymond C. Knopke, Jr. (incorporated by reference to Exhibit 10.51 to the 1996 10-K) 10.41 Stock Option Agreement dated January 1, 1997 (time-vest), between the Company and Raymond C. Knopke, Jr. (incorporated by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the Quarter ended January 31, 1997) 10.42 Stock Option Agreement dated December 23, 1997 (time-vest), 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 January 31, 1998) 10.43 Employment Agreement dated November 1, 1997, between the Company and Charles L. Tilis and Amendment No. 1 to Employment Agreement dated October 31, 1998 10.44 Change of Control Agreement dated November 1, 1997, between the Company and Charles L. Tilis 10.45 Form of Stock Option Agreement (time-vest), between the Company and its Executive Officers 10.46 Form of Stock Option Agreement (performance-based), between the Company and its Executive Officers 10.47 The Stewart Enterprises Employees' Retirement Trust (incorporated by reference to Exhibit 10.20 the 1991 Registration Statement) and amendment thereto dated January 1, 1994 (incorporated by reference to Exhibit 10.28 to the 1994 10-K) 10.48 The Stewart Enterprises Supplemental Retirement and Deferred Compensation Plan (incorporated by reference to Exhibit 10.29 to the 1994 10-K) 10.49 Amended and Restated Stewart Enterprises, Inc. 1995 Incentive Compensation Plan (incorporated by reference to Exhibit 10.57 to the 1996 10-K) 10.50 Amended and Restated Directors' Stock Option Plan (incorporated by reference to Exhibit 10.58 to the 1996 10-K) 10.51 Amended and Restated Stewart Enterprises, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.61 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1997) ------------------------------------------ 12 Calculation of Ratio of Earnings to Fixed Charges 18 Letter from PricewaterhouseCoopers LLP 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 PricewaterhouseCoopers LLP 27 Financial Data Schedule (B) REPORTS ON FORM 8-K The Company filed a Form 8-K on September 11, 1998 reporting under "Item 5. Other Events," the earnings release for the Quarter ended July 31, 1998. 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 _____, 1999 . 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 20, 1999 Frank B. Stewart, Jr. /s/ JOSEPH P. HENICAN, III - ---------------------------- Vice Chairman of the Board January 20, 1999 Joseph P. Henican, III and Chief Executive Officer (Principal Executive Officer) /s/ WILLIAM E. ROWE - ---------------------------- President, Chief Operating Officer January 20, 1999 William E. Rowe and a Director /s/ KENNETH C. BUDDE - ---------------------------- Executive Vice President, January 20, 1999 Kenneth C. Budde Chief Financial Officer (Principal Financial Officer) and a Director /s/ MICHAEL G. HYMEL - ----------------------------- Vice President- January 20, 1999 Michael G. Hymel Corporate Controller and (Principal Accounting Officer) Chief Accounting Officer /s/ DARWIN C. FENNER - ------------------------------ Director January 20, 1999 Darwin C. Fenner /s/ DWIGHT A. HOLDER - ------------------------------ Director January 20, 1999 Dwight A. Holder /s/ JOHN P. LABORDE - ------------------------------ Director January 20, 1999 John P. Laborde /s/ JAMES W. McFARLAND - ------------------------------ Director January 20, 1999 James W. McFarland /s/ MICHAEL O. READ - ------------------------------- Director January 20, 1999 Michael O. Read
EXHIBIT INDEX 10.8 Amendment No. 1 to Employment Agreement dated October 31, 1998, between the Company and Joseph P. Henican, III 10.12 Amendment No. 1 to Employment Agreement dated October 31, 1998, between the Company and William E. Rowe 10.15.1 Amendment No. 1 to Employment Agreement dated May 1, 1998, between the Company and Ronald H. Patron 10.15.2 Amendment No. 2 to Employment Agreement dated October 31, 1998, between the Company and Ronald H. Patron 10.16 Amendment No. 1 to Change of Control Agreement dated May 1, 1998, between the Company and Ronald H. Patron 10.18 Amendment No. 1 to Employment Agreement dated October 31, 1998, between the Company and Gerard C. Alexander 10.21 Amendment No. 2 to Employment Agreement dated October 31, 1998, between the Company and Richard O. Baldwin, Jr. 10.24 Amendment No. 1 to Employment Agreement dated October 31, 1998, between the Company and Brian J. Marlowe 10.27.1 Amendment No. 2 to Employment Agreement dated May 1, 1998, between the Company and Kenneth C. Budde 10.27.2 Amendment No. 3 to Employment Agreement dated October 31, 1998, between the Company and Kenneth C. Budde 10.28 Amendment No. 1 to Change of Control Agreement dated May 1, 1998, between the Company and Kenneth C. Budde 10.30 Amendment No. 2 to Employment Agreement dated October 31, 1998, between the Company and Lawrence B. Hawkins 10.33 Amendment No. 3 to Employment Agreement dated October 31, 1998, between the Company and Brent F. Heffron 10.38 Amendment No. 3 to Employment Agreement dated October 31, 1998, between the Company and Raymond C. Knopke, Jr. 10.43.1 Employment Agreement dated November 1, 1997, between the Company and Charles L. Tilis 10.43.2 Amendment No. 1 to Employment Agreement dated October 31, 1998, between the Company and Charles L. Tilis 10.44 Change of Control Agreement dated November 1, 1997, between the Company and Charles L. Tilis 10.45 Form of Stock Option Agreement (time-vest), between the Company and its Executive Officers 10.46 Form of Stock Option Agreement (performance-based), between the Company and its Executive Officers 12 Calculation of Ratio of Earnings to Fixed Charges 21 Subsidiaries of the Company 23 Consent of PricewaterhouseCoopers LLP 27 Financial Data Schedule EX-10.8 2 Exhibit 10.8 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 to Employment Agreement is made as of the 31st day of October, 1998, by and between Stewart Enterprises, Inc., a Louisiana corporation (the "Company"), and Joseph P. Henican, III (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 and the Employee have agreed to a change in the bonus for which the Employee is eligible, effective November 1, 1997, as set forth herein. NOW THEREFORE, the Company and the Employee agree as follows: SECTION 1. Except as expressly amended herein, all of the terms and provisions of the Employment Agreement shall remain in full force and effect. SECTION 2. Article II, Section 2 of the Employment Agreement is hereby amended to read in its entirety as follows: 2. BONUS. (a) Beginning November 1, 1997, the Employee shall be eligible to receive an annual incentive bonus ("Bonus") determined as provided below. The maximum bonus for which the Employee shall be eligible ("Maximum Bonus") shall be determined in accordance with the Company's Executive Maximum Bonus Calculation Statement attached as Exhibit A hereto. For purposes of such calculation, the Employee's Maximum Bonus shall be: * $0 at the Below Threshold level * $100,000 at the Threshold level * $350,000 at the Target level * $500,000 at the Outstanding level (b) The percentage of the Maximum Bonus that the Employee shall be eligible to receive shall be based on two factors: (i) 75% of the Maximum Bonus will be awarded based on earnings per share growth; and (ii) 25% of the Maximum Bonus will be awarded based on the attainment of other objectives that will be established by the Chair of the Compensation Committee. (c) 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. (d) With respect to Fiscal Years prior to the Fiscal Year ending October 31, 1998, the Employee's Bonus shall be as set forth in the employment agreement in effect for the relevant period. 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/ JOSEPH P. HENICAN, III ---------------------------- Joseph P. Henican, III EX-10.12 3 Exhibit 10.12 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 to Employment Agreement is made as of the 31st day of October, 1998, by and between Stewart Enterprises, Inc., a Louisiana corporation (the "Company"), and William E. Rowe (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 and the Employee have agreed to a change in the bonus for which the Employee is eligible, effective November 1, 1997, as set forth herein. NOW THEREFORE, the Company and the Employee agree as follows: SECTION 1. Except as expressly amended herein, all of the terms and provisions of the Employment Agreement shall remain in full force and effect. SECTION 2. Article II, Section 2 of the Employment Agreement is hereby amended to read in its entirety as follows: 2. BONUS. (a) Beginning November 1, 1997, the Employee shall be eligible to receive an annual incentive bonus ("Bonus") determined as provided below. The maximum bonus for which the Employee shall be eligible ("Maximum Bonus") shall be determined in accordance with the Company's Executive Maximum Bonus Calculation Statement attached as Exhibit A hereto. For purposes of such calculation, the Employee's Maximum Bonus shall be: * $0 at the Below Threshold level * $100,000 at the Threshold level * $350,000 at the Target level * $500,000 at the Outstanding level (b) The percentage of the Maximum Bonus that the Employee shall be eligible to receive shall be based upon two factors: (i) 75% of the Maximum Bonus will be awarded based on earnings per share growth; and (ii) 25% of the Maximum Bonus will be awarded based on the attainment of other objectives that will be established by the Chief Executive Officer. (c) 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. (d) With respect to Fiscal Years prior to the Fiscal Year ending October 31, 1998, the Employee's Bonus shall be as set forth in the employment agreement in effect for the relevant period. 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/ WILLIAM E. ROWE --------------------- William E. Rowe EX-10.15.1 4 Exhibit 10.15.1 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 to Employment Agreement is made as of the 1st day of May, 1998, by and between Stewart Enterprises, Inc., a Louisiana corporation (the "Company"), and Ronald H. Patron (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"). WHEREAS, the Employee has agreed to serve as the Company's Executive Vice President and Chief Administrative Officer. WHEREAS, the Company has approved, effective May 1, 1998, certain related changes in the terms of the Employee's employment as provided below. NOW THEREFORE, the Company and the Employee agree as follows effective May 1, 1998: SECTION 1. EMPLOYMENT AGREEMENT. Except as expressly amended herein, all of the terms and provisions of the Employment Agreement shall remain in full force and effect. SECTION 2. AMENDMENT TO ARTICLE I, SECTION 1. The second paragraph of Article I, Section 1 of the Employment Agreement is hereby amended to read in its entirety as follows: CAPACITY AND DUTIES OF EMPLOYEE. The Employee is employed by the Company to render services on behalf of the Company as Executive Vice President and Chief Administrative Officer. As the Executive Vice President and Chief Administrative Officer, the Employee shall perform such duties as are assigned to the individual holding such title by the Company's Bylaws and such other duties, consistent with the Employee's job title, as may be prescribed from time to time by the Board of Directors of the Company (the "Board") and/or the Company's Chief Executive Officer. SECTION 3. AMENDMENT TO ARTICLE II, SECTION 1. Article II, Section 1 of the Employment Agreement is hereby amended to read in its entirety as follows: 1. SALARY. For the period ending May 14, 1998, a salary ("Base Salary") at the rate of $300,000 per fiscal year of the Company ("Fiscal Year"), payable to the Employee at such intervals as other salaried employees of the Company are paid. Commencing May 15, 1998, the Base Salary shall be $200,000 per Fiscal Year. SECTION 4. AMENDMENT TO ARTICLE II, SECTION 2. 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 Years ending October 31, 1996 and 1997, the Employee shall be eligible to receive a bonus (the "Bonus") of up to $150,000. For the Fiscal Year ending October 31, 1998, the Employee shall be eligible to receive a bonus of up to $125,000. For the period beginning November 1, 1998, the Employee shall be eligible to receive a Bonus of up to $100,000 per Fiscal Year. The Bonus shall be comprised of two elements, the quantitative element and the qualitative element: (a) The quantitative element shall be equal to 75% of the maximum Bonus and shall be based on the attainment of certain goals to be established by the Company's Compensation Committee and Employee. (b) The qualitative element shall be 25% of the maximum Bonus and shall be awarded at the discretion of the Chief Executive Officer. The Chief Executive Officer and Employee shall establish incentive goals and other criteria for the award of the qualitative element. The Bonus shall be paid in cash no later than 30 days following the filing of the Company's annual report on Form 10-K for the Fiscal Year in which the Bonus has been earned. SECTION 5. AMENDMENT TO ARTICLE III, SECTION 4. Article III, Section 4, paragraph (a), subparagraphs (i) and (ii) of the Employment Agreement are hereby amended to read in their entirety as follows: (i) the assignment to the Employee of any duties or responsibilities that are inconsistent with the Employee's status, title and position as Executive Vice President and Chief Administrative Officer; (ii) any removal of the Employee from, or any failure to reappoint or reelect the Employee to, the position of Executive Vice President and Chief Administrative Officer, except in connection with a termination of Employee's status as an employee as permitted by this Agreement; IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and signed as of the date indicated above. STEWART ENTERPRISES, INC. By: /s/ JAMES W. MCFARLAND ------------------------ James W. McFarland Compensation Committee Chairman EMPLOYEE: /s/ RONALD H. PATRON --------------------- Ronald H. Patron EX-10.15.2 5 Exhibit 10.15.2 AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT This Amendment No. 2 to Employment Agreement is made as of the 31st day of October, 1998, by and between Stewart Enterprises, Inc., a Louisiana corporation (the "Company"), and Ronald H. Patron (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 as amended by Amendment No. 1 to Employment Agreement dated as of May 1, 1998 (as amended, the "Employment Agreement"); and WHEREAS, the Company and the Employee have agreed to a change in the bonus for which the Employee is eligible, effective November 1, 1997, as set forth herein. NOW THEREFORE, the Company and the Employee agree as follows: SECTION 1. Except as expressly amended herein, all of the terms and provisions of the Employment Agreement shall remain in full force and effect. SECTION 2. Article II, Section 2 of the Employment Agreement is hereby amended to read in its entirety as follows: 2. BONUS. (a) Beginning November 1, 1997, the Employee shall be eligible to receive an annual incentive bonus ("Bonus") determined as provided below. The maximum bonus for which the Employee shall be eligible ("Maximum Bonus") shall be determined in accordance with the Company's Executive Maximum Bonus Calculation Statement attached as Exhibit A hereto. For purposes of such calculation, the Employee's Maximum Bonus shall be: * $0 at the Below Threshold level * $20,000 at the Threshold level * $100,000 at the Target level * $150,000 at the Outstanding level (b) The percentage of the Maximum Bonus that the Employee shall be eligible to receive shall be based upon two factors: (i) 75% of the Maximum Bonus will be awarded based on earnings per share growth; and (ii) 25% of the Maximum Bonus will be awarded based on the attainment of other objectives that will be established by the Chief Executive Officer and the President. (c) 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. (d) For the Fiscal Year ended October 31, 1998, fifty percent of the Maximum Bonus for which the Employee shall be eligible shall be based on the Employee's Bonus as provided in the Employment Agreement prior to this Amendment and fifty percent shall be determined in accordance with Exhibit A. (e) With respect to Fiscal Years prior to the Fiscal Year ending October 31, 1998, the Employee's Bonus shall be as set forth in the employment agreement in effect for the relevant period. 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/ RONALD H. PATRON ---------------------- Ronald H. Patron EX-10.16 6 Exhibit 10.16 AMENDMENT NO. 1 TO CHANGE OF CONTROL AGREEMENT This Amendment No. 1 to Change of Control Agreement is made as of the 1st day of May, 1998, by and between Stewart Enterprises, Inc., a Louisiana corporation (the "Company"), and Ronald H. Patron (the "Employee"). W I T N E S S E T H: WHEREAS, the Company has entered into a Change of Control Agreement with the Employee dated as of December 5, 1995 (the "Change of Control Agreement"). WHEREAS, the Employee has agreed to serve as the Company's Executive Vice President and Chief Administrative Officer. WHEREAS, the Company has approved, effective May 1, 1998, certain related changes in the terms of the Employee's employment. NOW THEREFORE, the Company and the Employee agree as follows: SECTION 1. CHANGE OF CONTROL AGREEMENT. Except as expressly amended herein, all of the terms and provisions of the Change of Control Agreement shall remain in full force and effect. SECTION 2. AMENDMENT TO ARTICLE I, SECTION 1.1. Article I, Section 1.1 of the Change of Agreement is hereby amended to read in its entirety as follows: 1.1 EMPLOYMENT AGREEMENT. After a Change of Control (defined below), this Agreement supersedes the Employment Agreement dated as of August 1, 1995 as amended by Amendment No. 1 dated as of May 1, 1998, between Employee and the Company (the "Employment Agreement") except to the extent that certain provisions of the Employment Agreement are expressly incorporated by reference herein. After a Change of Control (defined below), the definitions in this Agreement supersede definitions in the Employment Agreement, but capitalized terms not defined in this Agreement have the meanings given to them in the Employment Agreement. SECTION 3. AMENDMENT TO ARTICLE II, SECTION 2.2. Article II, Section 2.2, paragraphs (a) and (b) of the Change of Control Agreement are hereby amended to read in their entirety as follows: (a) SALARY. A salary ("Base Salary") at the rate of $200,000 per year, payable to the Employee at such intervals no less frequent than the most frequent intervals in effect at any time during the 120-day period immediately preceding the Change of Control or, if more favorable to the Employee, the intervals in effect at any time after the Change of Control for other peer employees of the Company and its affiliated companies. (b) BONUS. For the fiscal year ending October 31, 1998, the Employee shall be eligible to receive a bonus (the "Bonus") of up to $125,000. For the period beginning November 1, 1998, the Employee shall be eligible to receive a Bonus of up to $100,000 for each 12-month period thereafter. Such Bonus shall be comprised of two elements, the quantitative element and the qualitative element: (i) 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, or any similar body, and Employee. (ii) The qualitative element shall be 25% of the maximum Bonus and shall be awarded at the discretion of the Company's Chairman of the Board. The Chairman of the Board 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 date on which the information needed to calculate the Bonus becomes available. 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/ RONALD H. PATRON ---------------------- Ronald H. Patron EX-10.18 7 Exhibit 10.18 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 to Employment Agreement is made as of the 31st day of October, 1998, by and between Stewart Enterprises, Inc., a Louisiana corporation (the "Company"), and Gerard C. Alexander (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"); WHEREAS, the Employee has agreed to serve as the Company's Executive Vice President - Special Corporate Projects; and WHEREAS, the Company and the Employee have agreed to a change in the Employee's salary, effective November 1, 1998, and a change in the bonus for which the Employee is eligible, effective November 1, 1997, as set forth herein. NOW THEREFORE, the Company and the Employee agree as follows: SECTION 1. Except as expressly amended herein, all of the terms and provisions of the Employment Agreement shall remain in full force and effect. SECTION 2. The second paragraph of Article I, Section 1 of the Employment Agreement is hereby amended in its entirety as follows: 1. CAPACITY AND DUTIES OF EMPLOYEE. The Employee is employed by the Company to render services on behalf of the Company as Executive Vice President - Special Corporate Projects. As the Executive Vice President - Special Corporate Projects, the Employee shall perform such duties as are assigned to the individual holding such title by the Company's Bylaws and such other duties, consistent with the Employee's job title, as may be prescribed from time to time by the Board of Directors of the Company and/or the Company's Chief Executive Officer. SECTION 3. Article II, Section 1 of the Employment Agreement is hereby amended to read in its entirety as follows: 1. SALARY. Effective November 1, 1998, a salary ("Base Salary") at the rate of $200,000 per fiscal year of the Company ("Fiscal Year"), payable to the Employee at such intervals as other salaried employees of the Company are paid. For Fiscal Years ending prior to November 1, 1998, the Employee's Base Salary shall be as set forth in the employment agreement in effect for the relevant period. SECTION 4. Article II, Section 2 of the Employment Agreement is hereby amended to read in its entirety as follows: 2. BONUS. (a) For the period beginning November 1, 1997, the Employee shall be eligible to receive an incentive bonus ("Bonus") determined as provided below. The maximum bonus per Fiscal Year for which the Employee shall be eligible ("Maximum Bonus") shall be determined in accordance with the Company's Executive Maximum Bonus Calculation Statement attached as Exhibit A hereto. For the Fiscal Year ending October 31, 1998, for purposes of such calculation, the Employee's Maximum Bonus shall be: * $0 at the Below Threshold level * $45,000 at the Threshold level * $200,000 at the Target level * $270,000 at the Outstanding level (b) For the Fiscal Year ending October 31, 1998, the percentage of the Maximum Bonus that the Employee shall be eligible to receive shall be based upon three factors: (i) 25% of the Maximum Bonus will be awarded based on earnings per share growth; (ii) 50% of the Maximum Bonus will be awarded based on business unit earnings; and (iii) 25% of the Maximum Bonus will be awarded based on the attainment of other objectives that will be established by the Chief Executive Officer and the President. (c) Beginning November 1, 1998, for purposes of such calculation, the Employee's Maximum Bonus shall be: * $0 at the Below Threshold level * $20,000 at the Threshold level * $100,000 at the Target level * $150,000 at the Outstanding level (d) Beginning November 1, 1998, the percentage of the Maximum Bonus that the Employee shall be eligible to receive shall be based upon two factors: (i) 75% of the Maximum Bonus will be awarded based on earnings per share growth; and (ii) 25% of the Maximum Bonus will be awarded based on the attainment of other objectives that will be established by the Chief Executive Officer and the President. (e) 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. (f) With respect to Fiscal Years prior to the Fiscal Year ending October 31, 1998, the Employee's Bonus shall be as set forth in the employment agreement in effect for the relevant period. SECTION 5. AMENDMENT TO ARTICLE III, SECTION 4. Article III, Section 4, paragraph (a), subparagraphs (i) and (ii) of the Employment Agreement are hereby amended to read in their entirety as follows: (i) the assignment to the Employee of any duties or responsibilities that are inconsistent with the Employee's status, title and position as Executive Vice President - Special Corporate Projects; (ii) any removal of the Employee from, or any failure to reappoint or reelect the Employee to, the position of Executive Vice President - Special Corporate Projects, except in connection with a termination of Employee's status as an employee as permitted by this Agreement; IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and signed as of the date indicated above. STEWART ENTERPRISES, INC. By: /s/ JAMES W. MCFARLAND ----------------------- James W. McFarland Compensation Committee Chairman EMPLOYEE: /s/ GERALD C. ALEXANDER ------------------------ Gerard C. Alexander EX-10.21 8 Exhibit 10.21 AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT This Amendment No. 2 to Employment Agreement is made as of the 31st day of October, 1998, 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 as amended by Amendment No. 1 to Employment Agreement dated as of August 1, 1997 (as amended, the "Employment Agreement"); and WHEREAS, the Company and the Employee have agreed to a change in the bonus for which the Employee is eligible, effective November 1, 1997, as set forth herein. NOW THEREFORE, the Company and the Employee agree as follows: SECTION 1. Except as expressly amended herein, all of the terms and provisions of the Employment Agreement shall remain in full force and effect. SECTION 2. Article II, Section 2 of the Employment Agreement is hereby amended to read in its entirety as follows: 2. BONUS. (a) Beginning November 1, 1997, the Employee shall be eligible to receive an annual incentive bonus ("Bonus") determined as provided below. The maximum bonus for which the Employee shall be eligible ("Maximum Bonus") shall be determined in accordance with the Company's Executive Maximum Bonus Calculation Statement attached as Exhibit A hereto. For purposes of such calculation, the Employee's Maximum Bonus shall be: * $0 at the Below Threshold level * $45,000 at the Threshold level * $200,000 at the Target level * $270,000 at the Outstanding level (b) For the Fiscal Year ending October 31, 1998, the percentage of the Maximum Bonus that the Employee shall be eligible to receive shall be based upon two factors: (i) 75% of the Maximum Bonus will be awarded based on earnings per share growth; and (ii) 25% of the Maximum Bonus will be awarded based on the attainment of other objectives that will be established by the Chief Executive Officer and the President. (c) Beginning November 1, 1998, the percentage of the Maximum Bonus that the Employee shall be eligible to receive shall be based upon three factors: (i) 25% of the Maximum Bonus will be awarded based on earnings per share growth; (ii) 50% of the Maximum Bonus will be awarded based on business unit earnings; and (iii) 25% of the Maximum Bonus will be awarded based on the attainment of other objectives that will be established by the Chief Executive Officer and the President. (d) 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. (e) With respect to Fiscal Years prior to the Fiscal Year ending October 31, 1998, the Employee's Bonus shall be as set forth in the employment agreement in effect for the relevant period. 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. EX-10.25 9 Exhibit 10.25 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 to Employment Agreement is made as of the 31st day of October, 1998, by and between Stewart Enterprises, Inc., a Louisiana corporation (the "Company"), and Brian J. Marlowe (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 and the Employee have agreed to a change in the bonus for which the Employee is eligible, effective November 1, 1997, as set forth herein. NOW THEREFORE, the Company and the Employee agree as follows: SECTION 1. Except as expressly amended herein, all of the terms and provisions of the Employment Agreement shall remain in full force and effect. SECTION 2. Article II, Section 2 of the Employment Agreement is hereby amended to read in its entirety as follows: 2. BONUS. (a) Beginning November 1, 1997, the Employee shall be eligible to receive an annual incentive bonus ("Bonus") determined as provided below. The maximum bonus for which the Employee shall be eligible ("Maximum Bonus") shall be determined in accordance with the Company's Executive Maximum Bonus Calculation Statement attached as Exhibit A hereto. For purposes of such calculation, the Employee's Maximum Bonus shall be: * $0 at the Below Threshold level * $45,000 at the Threshold level * $200,000 at the Target level * $270,000 at the Outstanding level (b) The percentage of the Maximum Bonus that the Employee shall be eligible to receive shall be based upon three factors: (i) 25% of the Maximum Bonus will be awarded based on earnings per share growth; (ii) 50% of the Maximum Bonus will be awarded based on business unit earnings; and (iii) 25% of the Maximum Bonus will be awarded based on the attainment of other objectives that will be established by the Chief Executive Officer and the President. (c) 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. (d) With respect to Fiscal Years prior to the Fiscal Year ending October 31, 1998, the Employee's Bonus shall be as set forth in the employment agreement in effect for the relevant period. 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/ BRIAN J. MARLOWE ----------------------- Brian J. Marlowe EX-10.27.1 10 Exhibit 10.27.1 AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT This Amendment No. 2 to Employment Agreement is made as of the 1st day of May, 1998, by and between Stewart Enterprises, Inc., a Louisiana corporation (the "Company"), and Kenneth C. Budde (the "Employee"). W I T N E S S E T H: WHEREAS, the Company has entered into an Employment Agreement with the Employee dated as of August 1, 1995 as amended by Amendment No. 1 as of January 1, 1997 (the "Employment Agreement"). WHEREAS, the Employee has agreed to serve as the Company's Executive Vice President - Finance and Chief Financial Officer. WHEREAS, the Company has approved, effective May 1, 1998, certain related changes in the terms of the Employee's employment as provided below. NOW THEREFORE, the Company and the Employee agree as follows effective May 1, 1998: SECTION 1. EMPLOYMENT AGREEMENT. Except as expressly amended herein, all of the terms and provisions of the Employment Agreement shall remain in full force and effect. SECTION 2. AMENDMENT TO ARTICLE I, SECTION 1. The second paragraph of Article I, Section 1 of the Employment Agreement is hereby amended to read in its entirety as follows: CAPACITY AND DUTIES OF EMPLOYEE. The Employee is employed by the Company to render services on behalf of the Company as Executive Vice President - Finance and Chief Financial Officer. As the Executive Vice President - Finance and Chief Financial Officer, the Employee shall perform such duties as are assigned to the individual holding such title by the Company's Bylaws and such other duties, consistent with the Employee's job title, as may be prescribed from time to time by the Board of Directors of the Company (the "Board") and/or the Company's Chief Executive Officer. SECTION 3. AMENDMENT TO ARTICLE II, SECTION 1. Article II, Section 1 of the Employment Agreement is hereby amended to read in its entirety as follows: 1. SALARY. For the period ending December 31, 1996, a salary ("Base Salary") at the rate of $155,000 per fiscal year of the Company ("Fiscal Year"), payable to the Employee at such intervals as other salaried employees of the Company are paid. During the period from January 1, 1997 through May 14, 1998, the Base Salary shall be $175,000 per Fiscal Year. Commencing May 15, 1998, the Base Salary shall be $285,000 per Fiscal Year. SECTION 4. AMENDMENT TO ARTICLE II, SECTION 2. Article II, Section 2 of the Employment Agreement is hereby amended to read in its entirety as follows: 2. BONUS. For the period ending October 31, 1995, the Employee shall be eligible to receive an incentive bonus, the amount of which shall be determined pursuant to Paragraph 4 of the Prior Agreement. This incentive bonus shall be paid in cash no later than 30 days following the filing of the Company's annual report on Form 10-K for the Fiscal Year ending October 31, 1995. For the Fiscal Year ending October 31, 1996, the Employee shall be eligible to receive a bonus (the "Bonus") of up to $75,000. For the period from November 1, 1996 through October 31, 1997, the Employee shall be eligible to receive a Bonus of up to $100,000 per Fiscal Year. For the period beginning November 1, 1997, the Employee shall be eligible to receive a Bonus of up to $150,000 per Fiscal Year. The Bonus shall be comprised of two elements, the quantitative element and the qualitative element: (a) The quantitative element shall be equal to 75% of the maximum Bonus and shall be based on the attainment of certain goals to be established by the Company's Compensation Committee and Employee. (b) The qualitative element shall be 25% of the maximum Bonus and shall be awarded at the discretion of the Chief Executive Officer. The Chief Executive Officer and Employee shall establish incentive goals and other criteria for the award of the qualitative element. The Bonus shall be paid in cash no later than 30 days following the filing of the Company's annual report on Form 10-K for the Fiscal Year in which the Bonus has been earned. SECTION 5. AMENDMENT TO ARTICLE II, SECTION 3. Article II, Section 3 of the Employment Agreement is hereby amended to read in its entirety as follows: 1. BENEFITS. The Company shall provide the Employee with the following fringe benefits and perquisites: (a) At Employee's election, either a Company furnished automobile or an automobile allowance of $720 per month (in which case the Company will reimburse the Employee for all gasoline, maintenance, repairs and insurance for Employee's personal car as if it were a Company-owned vehicle); (b) Reimbursement for membership dues, including assessments and similar charges, in one or more clubs deemed useful for business purposes in an amount not to exceed $8,000 per Fiscal Year or such additional amounts as may be approved by the Chief Executive Officer; (c) First class air travel; (d) Fully-paid insurance benefit package available to all employees; and (e) All other benefit programs similar to those provided other employees of the Company. SECTION 6. AMENDMENT TO ARTICLE III, SECTION 4. Article III, Section 4, paragraph (a), subparagraphs (i) and (ii) of the Employment Agreement are hereby amended to read in their entirety as follows: (i) the assignment to the Employee of any duties or responsibilities that are inconsistent with the Employee's status, title and position as Executive Vice President - Finance and Chief Financial Officer; (ii) any removal of the Employee from, or any failure to reappoint or reelect the Employee to, the position of Executive Vice President - Finance and Chief Financial Officer, except in connection with a termination of Employee's status as an employee as permitted by this Agreement; SECTION 7. AMENDMENT TO ARTICLE IV, SECTION 3. Article IV, Section 3, paragraph (a) of the Employment Agreement is hereby amended to read in its entirety as follows: (a) the Company shall pay to the Employee an amount equal to two times the amount of Base Salary in effect at the Date of Termination, payable in equal installments over a two- year period at such intervals as other salaried employees of the Company are paid; and SECTION 8. AMENDMENT TO ARTICLE IV, SECTION 5. Article IV, Section 5 of the Employment Agreement is hereby amended to read in its entirety as follows: 5. TERMINATION BY EMPLOYEE FOR REASONS OTHER THAN GOOD REASON. If the Employee's status as an employee is terminated by the Employee for reasons other than Good Reason, then the Company shall pay to the Employee an amount equal to a single year's Base Salary in effect at the Date of Termination, payable in equal installments over a two-year period at such intervals as other salaried employees of the Company are paid. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and signed as of the date indicated above. STEWART ENTERPRISES, INC. By: /s/ JAMES W. MCFARLAND ___________________________________ James W. McFarland Compensation Committee Chairman EMPLOYEE: /s/ KENNETH C. BUDDE ______________________________________ Kenneth C. Budde -1- EX-10.27.2 11 Exhibit 10.27.2 AMENDMENT NO. 3 TO EMPLOYMENT AGREEMENT This Amendment No. 3 to Employment Agreement is made as of the 31st day of October, 1998, by and between Stewart Enterprises, Inc., a Louisiana corporation (the "Company"), and Kenneth C. Budde (the "Employee"). W I T N E S S E T H: WHEREAS, the Company has entered into an Employment Agreement with the Employee dated as of August 1, 1995 as amended by Amendment No. 1 to Employment Agreement dated as of January 1, 1997 and Amendment No. 2 dated as of May 1, 1998 (as amended, the "Employment Agreement"); and WHEREAS, the Company and the Employee have agreed to a change in the bonus for which the Employee is eligible, effective November 1, 1997, effective November 1, 1998, as set forth herein. NOW THEREFORE, the Company and the Employee agree as follows: SECTION 1. Except as expressly amended herein, all of the terms and provisions of the Employment Agreement shall remain in full force and effect. SECTION 2. Article II, Section 2 of the Employment Agreement is hereby amended to read in its entirety as follows: 2. BONUS. (a) Beginning November 1, 1997, the Employee shall be eligible to receive an annual incentive bonus ("Bonus") determined as provided below. The maximum bonus for which the Employee shall be eligible ("Maximum Bonus") shall be determined in accordance with the Company's Executive Maximum Bonus Calculation Statement attached as Exhibit A hereto. For purposes of such calculation, the Employee's Maximum Bonus shall be: * $0 at the Below Threshold level * $45,000 at the Threshold level * $200,000 at the Target level * $270,000 at the Outstanding level (b) The percentage of the Maximum Bonus that the Employee shall be eligible to receive shall be based upon two factors: (i) 75% of the Maximum Bonus will be awarded based on earnings per share growth; and (ii) 25% of the Maximum Bonus will be awarded based on the attainment of other objectives that will be established by the Chief Executive Officer and the President. (c) 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. (d) With respect to Fiscal Years prior to the Fiscal Year ending October 31, 1998, the Employee's Bonus shall be as set forth in the employment agreement in effect for the relevant period. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and signed as of the date indicated above. STEWART ENTERPRISES, INC. By: /s/ JAMES W. MCFARLAND ----------------------- James W. McFarland Compensation Committee Chairman EMPLOYEE: /s/ KENNETH C. BUDDE ----------------------- Kenneth C. Budde EX-10.28 12 Exhibit 10.28 AMENDMENT NO. 1 TO CHANGE OF CONTROL AGREEMENT This Amendment No. 1 to Change of Control Agreement is made as of the 1st day of May, 1998, by and between Stewart Enterprises, Inc., a Louisiana corporation (the "Company"), and Kenneth C. Budde (the "Employee"). W I T N E S S E T H: WHEREAS, the Company has entered into a Change of Control Agreement with the Employee dated as of December 5, 1995 (the "Change of Control Agreement"). WHEREAS, the Employee has agreed to serve as the Company's Executive Vice President - Finance and Chief Financial Officer. WHEREAS, the Company has approved, effective May 1, 1998, certain related changes in the terms of the Employee's employment. NOW THEREFORE, the Company and the Employee agree as follows: SECTION 1. CHANGE OF CONTROL AGREEMENT. Except as expressly amended herein, all of the terms and provisions of the Change of Control Agreement shall remain in full force and effect. SECTION 2. AMENDMENT TO ARTICLE I, SECTION 1.1. Article I, Section 1.1 of the Change of Agreement is hereby amended to read in its entirety as follows: 1.1 EMPLOYMENT AGREEMENT. After a Change of Control (defined below), this Agreement supersedes the Employment Agreement dated as of August 1, 1995 as amended by Amendment No. 1 dated as of January 1, 1997 and Amendment No. 2 dated as of May 1, 1998, between Employee and the Company (the "Employment Agreement") except to the extent that certain provisions of the Employment Agreement are expressly incorporated by reference herein. After a Change of Control (defined below), the definitions in this Agreement supersede definitions in the Employment Agreement, but capitalized terms not defined in this Agreement have the meanings given to them in the Employment Agreement. SECTION 3. AMENDMENT TO ARTICLE II, SECTION 2.2. Article II, Section 2.2, paragraphs (a) and (b) of the Change of Control Agreement are hereby amended to read in their entirety as follows: (a) SALARY. A salary ("Base Salary") at the rate of $285,000 per year, payable to the Employee at such intervals no less frequent than the most frequent intervals in effect at any time during the 120-day period immediately preceding the Change of Control or, if more favorable to the Employee, the intervals in effect at any time after the Change of Control for other peer employees of the Company and its affiliated companies. (b) BONUS. For the period beginning November 1, 1997, the Employee shall be eligible to receive a bonus (the "Bonus") of up to $150,000 for each 12-month period thereafter. Such Bonus shall be comprised of two elements, the quantitative element and the qualitative element: (i) The quantitative element shall be equal to 75% of the maximum Bonus of $150,000 and shall be based on the attainment of certain goals to be established by the Company's compensation committee, or any similar body, and Employee. (ii) The qualitative element shall be 25% of the maximum Bonus of $150,000 and shall be awarded at the discretion of the Company's Chairman of the Board. The Chairman of the Board 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 date on which the information needed to calculate the Bonus becomes available. SECTION 4. AMENDMENT TO ARTICLE II, SECTION 2.4. Article II, Section 2.4, paragraphs (a) and (e) of the Change of Control Agreement are hereby amended to read in their entirety as follows: (a) TERMINATION BY COMPANY FOR REASONS OTHER THAN DEATH, DISABILITY OR CAUSE; BY EMPLOYEE FOR GOOD REASON. If, after a Change of Control and during the Employment Term, the Company (or, if applicable the ultimate parent company), terminates the Employee's employment other than for Cause, death or Disability, or the Employee terminates employment for Good Reason, the Company shall pay to the Employee in a lump sum in cash within 30 days of the Date of Termination an amount equal to three times the sum of (I) the amount of Base Salary in effect at the Date of Termination, plus (ii) the maximum Bonus for which the Employee is eligible for the 12-month period in which the Date of Termination occurs. (e) TERMINATION BY EMPLOYEE FOR REASONS OTHER THAN GOOD REASON. If, after a Change of Control and during the Employment Term, the Employee's status as an employee is terminated by the Employee for reasons other than Good Reason, then the Company shall pay to the Employee an amount equal to a single year's Base Salary in effect at the Date of Termination, payable in equal installments over a two-year period at such intervals as other salaried employees of the Company are paid. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and signed as of the date indicated above. STEWART ENTERPRISES, INC. By: /s/ JAMES W. MCFARLAND ___________________________________ James W. McFarland Compensation Committee Chairman EMPLOYEE: /s/ KENNETH C. BUDDE ______________________________________ Kenneth C. Budde -1- EX-10.30 13 Exhibit 10.30 AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT This Amendment No. 2 to Employment Agreement is made as of the 31st day of October, 1998, by and between Stewart Enterprises, Inc., a Louisiana corporation (the "Company"), and Lawrence B. Hawkins (the "Employee"). W I T N E S S E T H: WHEREAS, the Company has entered into an Employment Agreement with the Employee dated as of August 1, 1995 as amended by Amendment No. 1 to Employment Agreement dated as of January 1, 1997 (as amended, the "Employment Agreement"); and WHEREAS, the Company and the Employee have agreed to a change in the bonus for which the Employee is eligible, effective November 1, 1997, as set forth herein. NOW THEREFORE, the Company and the Employee agree as follows: SECTION 1. Except as expressly amended herein, all of the terms and provisions of the Employment Agreement shall remain in full force and effect. SECTION 2. Article II, Section 2 of the Employment Agreement is hereby amended to read in its entirety as follows: 2. BONUS. (a) Beginning November 1, 1997, the Employee shall be eligible to receive an annual incentive bonus ("Bonus") determined as provided below. The maximum bonus for which the Employee shall be eligible ("Maximum Bonus") shall be determined in accordance with the Company's Executive Maximum Bonus Calculation Statement attached as Exhibit A hereto. For purposes of such calculation, the Employee's Maximum Bonus shall be: * $0 at the Below Threshold level * $22,500 at the Threshold level * $112,500 at the Target level * $168,750 at the Outstanding level (b) The percentage of the Maximum Bonus that the Employee shall be eligible to receive shall be based upon two factors: (i) 75% of the Maximum Bonus will be awarded based on earnings per share growth; and (ii) 25% of the Maximum Bonus will be awarded based on the attainment of other objectives that will be established by the Chief Executive Officer and the President. (c) 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. (d) With respect to Fiscal Years prior to the Fiscal Year ending October 31, 1998, the Employee's Bonus shall be as set forth in the employment agreement in effect for the relevant period. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and signed as of the date indicated above. STEWART ENTERPRISES, INC. By: /s/ JAMES W. MCFARLAND ----------------------- James W. McFarland Compensation Committee Chairman EMPLOYEE: /s/ LAWRENCE B. HAWKINGS ------------------------- Lawrence B. Hawkins EX-10.33 14 Exhibit 10.33 AMENDMENT NO. 3 TO EMPLOYMENT AGREEMENT This Amendment No. 3 to Employment Agreement is made as of the 31st day of October, 1998, by and between Stewart Enterprises, Inc., a Louisiana corporation (the "Company"), and Brent F. Heffron (the "Employee"). W I T N E S S E T H: WHEREAS, the Company has entered into an Employment Agreement with the Employee dated as of January 1, 1997 as amended by Amendment No. 1 to Employment Agreement dated as of January 1, 1997 and Amendment No. 2 dated as of November 1, 1997, (as amended, the "Employment Agreement"); WHEREAS, the Employee has agreed to serve as the Company's Executive Vice President; and WHEREAS, the Company and the Employee have agreed to a change in the Employee's salary, effective November 1, 1998, and a change in the bonus for which the Employee is eligible, effective November 1, 1997, as set forth herein. NOW THEREFORE, the Company and the Employee agree as follows: SECTION 1. Except as expressly amended herein, all of the terms and provisions of the Employment Agreement shall remain in full force and effect. SECTION 2. Article I, Section 1 of the Employment Agreement is hereby amended in its entirety as follows: 1. CAPACITY AND DUTIES OF EMPLOYEE. The Employee is employed by the Company to render services on behalf of the Company as Executive Vice President. As the Executive Vice President, the Employee shall perform such duties as are assigned to the individual holding such title by the Company's Bylaws and such other duties, consistent with the Employee's job title, as may be prescribed from time to time by the Board of Directors of the Company and/or the Company's Chief Executive Officer. SECTION 3. Article II, Section 1 of the Employment Agreement is hereby amended to read in its entirety as follows: 1. SALARY. Effective November 1, 1998, a salary ("Base Salary") at the rate of $300,000 per fiscal year of the Company ("Fiscal Year"), payable to the Employee at such intervals as other salaried employees of the Company are paid. For Fiscal Years ending prior to November 1, 1998, the Employee's Base Salary shall be as set forth in the employment agreement in effect for the relevant period. SECTION 4. Article II, Section 2 of the Employment Agreement is hereby amended to read in its entirety as follows: 2. BONUS. (a) Beginning November 1, 1997, the Employee shall be eligible to receive an annual incentive bonus ("Bonus") determined as provided below. The maximum bonus for which the Employee shall be eligible ("Maximum Bonus") shall be determined in accordance with the Company's Executive Maximum Bonus Calculation Statement attached as Exhibit A hereto. For purposes of such calculation, the Employee's Maximum Bonus shall be: * $0 at the Below Threshold level * $45,000 at the Threshold level * $200,000 at the Target level * $270,000 at the Outstanding level (b) The percentage of the Maximum Bonus that the Employee shall be eligible to receive shall be based upon three factors: (i) 25% of the Maximum Bonus will be awarded based on earnings per share growth; (ii) 50% of the Maximum Bonus will be awarded based on business unit earnings; and (iii) 25% of the Maximum Bonus will be awarded based on the attainment of other objectives that will be established by the Chief Executive Officer and the President. (c) 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. (d) With respect to Fiscal Years prior to the Fiscal Year ending October 31, 1998, the Employee's Bonus shall be as set forth in the employment agreement in effect for the relevant period. SECTION 5. AMENDMENT TO ARTICLE III, SECTION 4. Article III, Section 4, paragraph (a), subparagraphs (i) and (ii) of the Employment Agreement are hereby amended to read in their entirety as follows: (i) the assignment to the Employee of any duties or responsibilities that are inconsistent with the Employee's status, title and position as Executive Vice President; (ii) any removal of the Employee from, or any failure to reappoint or reelect the Employee to, the position of Executive Vice President, except in connection with a termination of Employee's status as an employee as permitted by this Agreement; IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and signed as of the date indicated above. STEWART ENTERPRISES, INC. By: /s/ JAMES W. MCFARLAND ---------------------- James W. McFarland Compensation Committee Chairman EMPLOYEE: /s/ BRENT F. HEFFRON --------------------- Brent F. Heffron EX-10.38 15 Exhibit 10.38 AMENDMENT NO. 3 TO EMPLOYMENT AGREEMENT This Amendment No. 3 to Employment Agreement is made as of the 31st day of October, 1998, by and between Stewart Enterprises, Inc., a Louisiana corporation (the "Company"), and Raymond C. Knopke, Jr. (the "Employee"). W I T N E S S E T H: WHEREAS, the Company has entered into an Employment Agreement with the Employee dated as of January 1, 1997 as amended by Amendment No. 1 to Employment Agreement dated as of January 1, 1997 and Amendment No. 2 dated as of November 1, 1997, (as amended, the "Employment Agreement"); WHEREAS, the Employee has agreed to serve as the Company's Executive Vice President; and WHEREAS, the Company and the Employee have agreed to a change in the Employee's salary, effective November 1, 1998, and a change in the bonus for which the Employee is eligible, effective November 1, 1997, as set forth herein. NOW THEREFORE, the Company and the Employee agree as follows: SECTION 1. Except as expressly amended herein, all of the terms and provisions of the Employment Agreement shall remain in full force and effect. SECTION 2. Article I, Section 1 of the Employment Agreement is hereby amended in its entirety as follows: 1. CAPACITY AND DUTIES OF EMPLOYEE. The Employee is employed by the Company to render services on behalf of the Company as Executive Vice President. As the Executive Vice President, the Employee shall perform such duties as are assigned to the individual holding such title by the Company's Bylaws and such other duties, consistent with the Employee's job title, as may be prescribed from time to time by the Board of Directors of the Company and/or the Company's Chief Executive Officer. SECTION 3. Article II, Section 1 of the Employment Agreement is hereby amended to read in its entirety as follows: 1. SALARY. Effective November 1, 1998, a salary ("Base Salary") at the rate of $300,000 per fiscal year of the Company ("Fiscal Year"), payable to the Employee at such intervals as other salaried employees of the Company are paid. For Fiscal Years ending prior to November 1, 1998, the Employee's Base Salary shall be as set forth in the employment agreement in effect for the relevant period. SECTION 4. Article II, Section 2 of the Employment Agreement is hereby amended to read in its entirety as follows: 2. BONUS. (a) Beginning November 1, 1997, the Employee shall be eligible to receive an annual incentive bonus ("Bonus") determined as provided below. The maximum bonus for which the Employee shall be eligible ("Maximum Bonus") shall be determined in accordance with the Company's Executive Maximum Bonus Calculation Statement attached as Exhibit A hereto. For purposes of such calculation, the Employee's Maximum Bonus shall be: * $0 at the Below Threshold level * $45,000 at the Threshold level * $200,000 at the Target level * $270,000 at the Outstanding level (b) The percentage of the Maximum Bonus that the Employee shall be eligible to receive shall be based upon three factors: (i) 25% of the Maximum Bonus will be awarded based on earnings per share growth; (ii) 50% of the Maximum Bonus will be awarded based on business unit earnings; and (iii) 25% of the Maximum Bonus will be awarded based on the attainment of other objectives that will be established by the Chief Executive Officer and the President. (c) 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. (d) With respect to Fiscal Years prior to the Fiscal Year ending October 31, 1998, the Employee's Bonus shall be as set forth in the employment agreement in effect for the relevant period. SECTION 5. AMENDMENT TO ARTICLE III, SECTION 4. Article III, Section 4, paragraph (a), subparagraphs (i) and (ii) of the Employment Agreement are hereby amended to read in their entirety as follows: (i) the assignment to the Employee of any duties or responsibilities that are inconsistent with the Employee's status, title and position as Executive Vice President; (ii) any removal of the Employee from, or any failure to reappoint or reelect the Employee to, the position of Executive Vice President, except in connection with a termination of Employee's status as an employee as permitted by this Agreement; IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and signed as of the date indicated above. STEWART ENTERPRISES, INC. By: /s/ JAMES W. MCFARLAND ----------------------- James W. McFarland Compensation Committee Chairman EMPLOYEE: /s/ RAYMOND C. KNOPKE, JR. -------------------------- Raymond C. Knopke, Jr. EX-10.43.1 16 Exhibit 10.43.1 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") between Stewart Enterprises, Inc., a Louisiana corporation (the "Company"), and Charles L. Tilis (the Employee") is dated as of November 1, 1997 (the "Agreement Date"). W I T N E S S E T H: WHEREAS, the Company desires to retain the services of Employee pursuant to the terms of this Agreement, subject to Employee's acceptance of the conditions stated herein; WHEREAS, during the course of his employment with the Company, Employee will have received extensive and unique knowledge, training and education in, and access to resources involving, the Death Care Business (as defined below) at a substantial cost to the Company, which Employee acknowledges substantially will enhance Employee's skills and knowledge in such business; WHEREAS, during the course of his employment with the Company, Employee will have access to certain valuable oral and written information, knowledge and data relating to the business and operations of the Company and its subsidiaries that is non-public, confidential or proprietary in nature and is particularly useful in the Death Care Business; and WHEREAS, in view of the training provided by the Company to Employee, its cost to the Company, the need for the Company to be protected against disclosures by Employee of the Company's and its subsidiaries' trade secrets and other non-public, confidential or proprietary information, the Company and Employee desire, among other things, to prohibit Employee from disclosing or utilizing, outside the scope and term of his employment, any non-public, confidential or proprietary information, knowledge and data relating to the business and operations of the Company or its subsidiaries received by Employee during the course of his employment, and to restrict the ability of Employee to compete with the Company or its subsidiaries for a limited period of time. NOW, THEREFORE, for and in consideration of the continued employment of Employee by the Company and the payment of wages, salary and other compensation to Employee by the Company, the parties hereto agree as follows: ARTICLE I EMPLOYMENT CAPACITY AND TERM 1. CAPACITY AND DUTIES OF EMPLOYEE. The Employee is employed by the Company to render services on behalf of the Company as Chief Operating Officer of the Western Region, Central Division of the Company. As the Regional Chief Operating Officer, the Employee shall perform such duties as are assigned to the individual holding such title as may be prescribed from time to time by the President of the Company and the President of the Central Division. 2. EMPLOYMENT TERM. The term of this Agreement (the "Employment Term") shall commence on the Agreement Date and shall continue through October 31, 2000, subject to any earlier termination of Employee's status as an employee pursuant to this Agreement. 3. DEVOTION TO RESPONSIBILITIES. During the Employment Term, the Employee shall devote all of his business time to the business of the Company, shall use his reasonable best efforts to perform faithfully and efficiently his duties under this Agreement, and shall not engage in or be employed by any other business; provided, however, that nothing contained herein shall prohibit the Employee from (a) serving as a member of the board of directors, board of trustees or the like of any for-profit or non- profit entity that does not compete with the Company, or performing services of any type for any civic or community entity, whether or not the Employee receives compensation therefor, (b) investing his assets in such form or manner as shall require no more than nominal services on the part of the Employee in the operation of the business of the entity in which such investment is made, or (c) serving in various capacities with, and attending meetings of, industry or trade groups and associations, as long as the Employee's engaging in any activities permitted by virtue of clauses (a), (b) and (c) above does not materially and unreasonably interfere with the ability of the Employee to perform the services and discharge the responsibilities required of him under this Agreement. Notwithstanding clause (b) above, during the Employment Term, the Employee may not beneficially own more than 2% of the equity interests of a business organization required to file periodic reports with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (the "Exchange Act") and may not beneficially own more than 2% of the equity interests of a business organization that competes with the Company. For purposes of this paragraph, "beneficially own" shall have the same meaning ascribed to that term in Rule 13d-3 under the Exchange Act. ARTICLE II COMPENSATION AND BENEFITS During the Employment Term, the Company shall provide the Employee with the compensation and benefits described below: 1. SALARY. A salary ("Base Salary") at the rate of $200,000 per fiscal year of the Company ("Fiscal Year"), payable to the Employee at such intervals as other salaried employees of the Company are paid. 2. BONUS. During the Employment Term, the Employee shall be eligible to receive a bonus (the "Bonus") of up to $125,000 per Fiscal Year. 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 of $125,000 and shall be based on the attainment of certain goals to be established by the President of the Central Division of the Company (or his designee) and the Employee. (b) The qualitative element shall be 25% of the maximum Bonus of $125,000 and shall be awarded at the discretion of the President of the Central Division of the Company. The President of the Central Division of the Company (or designee) and the Employee shall establish incentive goals and other criteria for the award of the qualitative element. The foregoing notwithstanding, the Company shall pay to the Employee not less than $100,000 of the Bonus for the Fiscal Year ending October 31, 1998 and not less than $100,000 of the Bonus for the Fiscal Year ending October 31, 1999 each payable ratably on a quarterly basis (i.e. January 31, April 30, July 31 and October 31). 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. 3. BENEFITS. The Company shall provide the Employee with the following fringe benefits and perquisites: (a) An automobile allowance of $600 per month plus all costs of operations including gasoline, maintenance and insurance; (b) Reimbursement for membership dues, including assessments and similar charges, in one or more clubs deemed useful for business purposes in such amounts as may be approved by the President of the Central Division; (c) Fully-paid insurance benefit package available to all employees; the Company shall waive the 90 day waiting period set forth in the insurance benefits package; (d) All other benefit programs similar to those provided other Regional Chief Operating Officers of the Company; and (e) All costs of maintaining professional certification as a licensed Certified Public Account. 4. 1995 INCENTIVE COMPENSATION PLAN. The Employee shall be eligible to receive awards under the Company's 1995 Incentive Compensation Plan (the "1995 Plan"). 5. EXPENSES. The Employee shall be reimbursed for reasonable out- of-pocket expenses incurred from time to time on behalf of the Company or any subsidiary in the performance of his duties under this Agreement, upon the presentation of such supporting invoices, documents and forms as the Company reasonably requests. ARTICLE III TERMINATION OF EMPLOYMENT 1. DEATH. The Employee's status as an employee shall terminate immediately and automatically upon the Employee's death during the Employment Term. 2. DISABILITY. The Employee's status as an employee may be terminated for "Disability" as follows: (a) The Employee's status as an employee shall terminate if the Employee has a disability that would entitle him to receive benefits under the Company's long-term disability insurance policy in effect at the time either because he is Totally Disabled or Partially Disabled, as such terms are defined in the Company's policy in effect as of the Agreement Date or as similar terms are defined in any successor policy. Any such termination shall become effective on the first day of which the Employee is eligible to receive payments under such policy (or on the first day that he would be so eligible, if he had applied timely for such payments). (b) If the Company has no long-term disability plan in effect, if (i) the Employee is rendered incapable because of physical or mental illness of satisfactorily discharging his duties and responsibilities under this Agreement for a period of 90 consecutive days and (ii) a duly qualified physician chosen by the Company and acceptable to the Employee or his legal representatives so certifies in writing, the Board makes such a determination, the Company shall have the continuing right and option, during the period that such disability continues, and by notice given in the manner provided in this Agreement, to terminate the status of Employee as an employee. Any such termination shall become effective 30 days after such notice of termination is given, unless within such 30-day period, the Employee becomes capable of rendering services of the character contemplated hereby (and a physician chosen by the Company and acceptable to the Employee or his legal representatives so certifies in writing) and the Employee in fact resumes such services. (c) The "Disability Effective Date" shall mean the date on which termination of employment becomes effective due to Disability. 3. CAUSE. The Company may terminate Employee's status as an employee for Cause. As used herein, termination by the Company of the Employee's status as an employee for "Cause" shall mean termination as a result of (a) the Employee's breach of this Agreement, or (b) the willful engaging by the Employee in gross misconduct injurious to the Company, which in either case is not remedied within 10 days after the Company provides written notice to the Employee of such breach or willful misconduct. 4. GOOD REASON. The Employee may terminate his status as an employee for Good Reason. As used herein, the term "Good Reason" shall mean: (a) The occurrence of any of the following during the Employment Term: (i) the assignment by the Company's President or the President of the Central Division to the Employee of any duties or responsibilities that are inconsistent with the Employee's status, title and position as Chief Operating Officer, Western Region, Central Division. (ii) any removal of the Employee from, or any failure to reappoint or reelect the Employee to, the position of Chief Operating Officer, Western Region, Central Division, except in connection with a termination of Employee's status as an employee as permitted by this Agreement; (iii) the Company's requiring the Employee to be based anywhere other than in the Dallas, Texas metropolitan area, except for required travel in the ordinary course of the Company's business; (b) any breach of this Agreement by the Company that continues for a period of 10 days after written notice thereof is given by the Employee to the Company; (c) the failure by the Company to obtain the assumption of its obligations under this Agreement by any successor or assign as contemplated in this Agreement; or (d) any purported termination by the Company of the Employee's status as an employee for Cause that is not effected pursuant to a Notice of Termination satisfying the requirements of this Agreement. 5. VOLUNTARY TERMINATION BY THE COMPANY. The Company may terminate the Employee's status as employee for other than death, Disability or Cause. 6. VOLUNTARY TERMINATION BY THE EMPLOYEE. The Employee may terminate the Employee's status as employee for other than Good Reason. 7. NOTICE OF TERMINATION. Any termination by the Company for Disability or Cause, or by the Employee for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Article VI Section 2 of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice that (a) indicates the specific termination provision in this Agreement relied upon (b) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provisions so indicated and (c) if the Date of termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason, Disability or Cause shall not negate the effect of the notice nor waive any right of the Employee or the Company, respectively, hereunder or precluded the Employee or the Company, respectively, from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder. 8. DATE OF TERMINATION. "Date of Termination" means (a) if Employee's employment is terminated by reason of his death or Disability, the Date of Termination shall be the date of death of Employee or the Disability Effective Date, as the case may be, (b) if Employee's employment is terminated by the Company for Cause, or by Employee for Good Reason, the date of delivery of the Notice of Termination or any later date specified therein, (which date shall not be more than 30 days after the giving of such notice) as the case may be, (c) if the Employee's employment is terminated by the Company for reasons other than death, Disability or Cause, the Date of Termination shall be the date on which the Company notifies the Employee of such termination, and (d) if the Employee's employment is terminated by the Employee for reasons other than Good Reason, the Date of Termination shall be the date on which the Employee notifies the Company of such termination. ARTICLE IV OBLIGATIONS UPON TERMINATION 1. DEATH. If the Employee's status as an employee is terminated by reason of the Employee's death, this Agreement shall terminate without further obligations to the Employee's legal representatives under this Agreement, other than the obligation to make any payments due pursuant to employee benefit plans maintained by the Company or its subsidiaries. 2. DISABILITY. If Employee's status as an employee is terminated by reason of Employee's Disability, this Agreement shall terminate without further obligation to the Employee, other than the obligation to make any payments due pursuant to employee benefit plans maintained by the Company or its subsidiaries. 3. TERMINATION BY COMPANY FOR REASONS OTHER THAN DEATH, DISABILITY OR CAUSE; TERMINATION BY EMPLOYEE FOR GOOD REASON. If the Company terminates the Employee's status as an employee for reasons other than death, Disability or Cause, or the Employee terminates his employment for Good Reason, then (a) the Company shall pay to the Employee an amount equal to two times the amount of Base Salary in effect at the Date of Termination, payable in equal installments over a two-year period at such intervals as other salaried employees of the Company are paid; and (b) with respect to all performance-based options granted to the Employee pursuant to the 1995 Plan, (i) if the performance goals have been met as of the Date of Termination, then such options shall become exercisable as of the Date of Termination (if not already exercisable) and shall expire on the date that is the later of: (A) 30 days after the Date of Termination or (B) 30 days after the first date on which the exercise of the options and sale of the underlying securities will not (1) be matched with purchases or sales of the Company's common stock prior to such Date of Termination such as to cause the Employee to insure a liability to the Company under Section 16 of the Exchange Act and (2) destroy the Section 16 exemption for the grant of the options. (ii) if the performance goals have not been met as of the Date of Termination, then (A) if the performance goals are not met by the close of business on the day that is 180 days after the Date of Termination, then the options shall expire on such day; and (B) if the performance goals are met by the close of business on the day that is 180 days after the Date of Termination, then the options shall become exercisable as of the date of such performance goals are met (the "Vesting Date") and shall expire on the date that is the later of: (1) 30 days after the Vesting Date or (2) 30 days after the first date on which the exercise of the options and sale of the underlying securities will not (I) be matched with purchases or sales of the Company's common stock prior to such Date of Termination such as to cause the Employee to incur a liability to the Company under Section 16 of the Exchange Act and (II) destroy the Section 16 exemption for the grant of the options. 4. CAUSE. If the Employee's status as an employee is terminated by the Company for Cause, this Agreement shall terminate without further obligation to the Employee other than for obligations imposed by law and obligations imposed pursuant to any employee benefit plan maintained by the Company or its subsidiaries. 5. TERMINATION BY EMPLOYEE FOR REASONS OTHER THAN GOOD REASON. If the Employee's status as an employee is terminated by the Employee for reasons other than Good Reason, then the Company shall pay to the Employee an amount equal to a single year's Base Salary in effect at the Date of Termination, payable in equal installments over a two-year period at such intervals as other salaried employees of the Company are paid. 6. RESIGNATION. If Employee is a director of the Company or any of its subsidiaries and his employment is terminated for any reason other than death, the Employee shall, if requested by the Company, immediately resign as a director of the Company or any of its subsidiaries. If such resignation is not received when so requested, the Employee shall forfeit any right to receive any payments pursuant to this Agreement. ARTICLE V NONDISCLOSURE, NONCOMPETITION AND PROPRIETARY RIGHTS 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: (a) "Confidential Information" means any information, knowledge or data of any nature and in any form (including information that is electronically transmitted or stored on any form of magnetic or electronic storage media) relating to the past, current or prospective business or operations of the Company and its subsidiaries, that at the time or times concerned is not generally known to persons engaged in businesses similar to those conducted or contemplated by the Company and its subsidiaries (other than information known by such persons through a violation of an obligation of confidentiality to the Company), whether produced by the Company and its subsidiaries or any of their consultants, agents or independent contractors or by Employee, and whether or not marked confidential, including without limitation information relating to the Company's or its subsidiaries' products and services, business plans, business acquisitions, processes, product or service research and development methods or techniques, training methods and other operational methods or techniques, quality assurance procedures or standards, operating procedures, files, plans, specifications, proposals, drawings, charts, graphs, support data, trade secrets, supplier lists, supplier information, purchasing methods or practices, distribution and selling activities, consultants' reports, marketing and engineering or other technical studies, maintenance records, employment or personnel data, marketing data, strategies or techniques, financial reports, budgets, projections, cost analyses, price lists, formulae and analyses, employee lists, customer records, customer lists, customer source lists, proprietary computer software, and internal notes and memoranda relating to any of the foregoing. (b) "Death Care Business" means (i) the owning and operating of funeral homes and cemeteries, including combined funeral home and cemetery facilities, (ii) the offering of a complete range of services and products to meet families' funeral needs, including prearrangement, family consultation, the sale of caskets and related funeral and cemetery products and merchandise, the removal, preparation and transportation of remains, cremation, the use of funeral home facilities for visitation and worship, and related transportation services, (iii) the marketing and sale of funeral services and cemetery property on an at-need or prearranged basis, (iv) providing, managing and administering financing arrangements (including trust funds, escrow accounts, insurance and installment sales contracts) for prearranged funeral plans and cemetery property and merchandise, (v) providing interment services, the sale (on an at-need or prearranged basis) of cemetery property including lots, lawn crypts, family and community mausoleums and related cemetery merchandise such as monuments, memorials and burial vaults, (vi) the maintenances of cemetery grounds pursuant to perpetual care contracts and laws or on a voluntary basis, and (vii) offering mausoleum design, construction and sales services. 2. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. During the Employment Term, Employee shall hold in a fiduciary capacity for the benefit of the Company all Confidential Information which shall have been obtained by Employee during Employee's employment (whether prior to or after the Agreement Date) and shall use such Confidential Information solely within the scope of his employment with and for the exclusive benefit of the Company. For a period of five years after the Employment Term, commencing with the Date of Termination, Employee agrees (a) not to communicate, divulge or make available to any person or entity (other than the Company) any such Confidential Information, except upon the prior written authorization of the Company or as may be required by law or legal process, and (b) to deliver promptly to the Company any Confidential Information in his possession, including any duplicates thereof and any notes or other records Employee has prepared with respect thereto. In the event that the provisions of any applicable law or the order of any court would require Employee to disclose or otherwise make available any Confidential Information, Employee shall give the Company prompt prior written notice of such required disclosure and an opportunity to contest the requirement of such disclosure or apply for a protective order with respect to such Confidential Information by appropriate proceedings. 3. LIMITED COVENANT NOT TO COMPETE. During the Employment Term and for a period of two years thereafter, commencing with the Date of Termination, Employee agrees that, with respect to each State of the United States or other jurisdiction, or specified portions thereof, in which the Employee regularly (a) makes contact with customers of the Company or any of its subsidiaries, (b) conducts the business of the Company or any of its subsidiaries or (c) supervises the activities of other employees of the Company or any of its subsidiaries, as identified in Appendix "A" attached hereto and forming a part of this Agreement, and in which the Company or any of its subsidiaries engages in the Death Care Business on the Date of Termination (collectively, the "Subject Areas"), Employee will restrict his activities within the Subject Areas as follows: (a) Employee will not, directly or indirectly, for himself or others, own, manage, operate, control, be employed in an executive, managerial or supervisory capacity by, or otherwise engage or participate in or allow his skill, knowledge, experience or reputation to be used in connection with, the ownership, management, operation or control of, any company or other business enterprise engaged in the Death Care Business within any of the Subject Areas; provided, however, that nothing contained herein shall prohibit Employee from making passive investments as long as Employee does not beneficially own more than 2% of the equity interests of a business enterprise engaged in the Death Care Business within any of the Subject Areas. For purposes of this paragraph, "beneficially own" shall have the same meaning ascribed to that term in Rule 13d-3 under the Exchange Act. (b) Employee will not call upon any customer of the Company or its subsidiaries for the purpose of soliciting, diverting or enticing away the business of such person or entity, or otherwise disrupting any previously established relationship existing between such person or entity and the Company or its subsidiaries; (c) Employee will not solicit, induce, influence or attempt to influence any supplier, lessor, licensor, potential acquiree or any other person who has a business relationship with the Company or its subsidiaries, or who on the Date of Termination is engaged in discussions, or negotiations to enter into a business relationship with the Company or its subsidiaries, to discontinue or reduce the extent of such relationship with the Company or its subsidiaries; and (d) Employee will not make contact with any of the employees of the Company or its subsidiaries with whom he had contact during the course of his employment with the Company for the purpose of soliciting such employee for hire, whether as an employee or independent contractor, or otherwise disrupting such employee's relationship with the Company or its subsidiaries. (e) Employee further agrees that, for a period of one year from and after the Date of Termination, Employee will not hire, on behalf of himself or any company engaged in the Death Care Business with which Employee is associated, any employee of the Company or its subsidiaries as an employee or independent contractor, whether or not such engagement is solicited by Employee; provided, however, that the restriction contained in this subsection (e) shall not apply to Company employees who reside in, or are hired by Employee to perform work in, any of the Subject Areas located within the State of Arkansas. Employee agrees that he will from time to time upon the Company's request promptly execute any supplement, amendment, restatement or other modification of Appendix "A" as may be necessary or appropriate to correctly reflect the jurisdictions which, at the time of such modification, should be covered by Appendix "A" and this Article V Section 3. Furthermore, Employee agrees that all references to Appendix "A" in this Agreement shall be deemed to refer to Appendix "A" as so supplemented, amended, restated or otherwise modified from time to time. 4. INJUNCTIVE RELIEF; OTHER REMEDIES. Employee acknowledges that a breach by Employee of Section 2 or 3 of this Article V would cause immediate and irreparable harm to the Company for which an adequate monetary remedy does not exist; hence, Employee agrees that, in the event of a breach or threatened breach by Employee of the provisions of Section 2 or 3 of this Article V during or after the Employment Term, the Company shall be entitled to injunctive relief restraining Employee from such violation without the necessity of proof of actual damage or the posting of any bond, except as required by non-waivable, applicable law. Nothing herein, however, shall be construed as prohibiting the Company from pursuing any other remedy at law or in equity to which the Company may be entitled under applicable law in the event of a breach or threatened breach of this Agreement by Employee, including without limitation the recovery of damages and/or costs and expenses, such as reasonable attorneys' fees, incurred by the Company as a result of any such breach. In addition to the exercise of the foregoing remedies, the Company shall have the right upon the occurrence of any such breach to cancel any unpaid salary, bonus, commissions or reimbursements otherwise outstanding at the Date of Termination. In particular, Employee acknowledges that the payments provided under Article IV Sections 3 and 5 are conditioned upon Employee fulfilling any noncompetition and nondisclosure agreements contained in this Article V. In the event Employee shall at any time materially breach any noncompetition or nondisclosure agreements contained in this Article V, the Company may suspend or eliminate payments under Article IV during the period of such breach. Employee acknowledges that any such suspension or elimination of payments would be an exercise of the Company's right to suspend or terminate its performance hereunder upon Employee's breach of this Agreement; such suspension or elimination of payments would not constitute, and should not be characterized as, the imposition of liquidated damages. 5. REQUESTS FOR WAIVER IN CASES OF UNDUE HARDSHIP. In the event that Employee should find any of the limitations of Article V Section 3 (including without limitation the geographic restrictions of Appendix "A") to impose a severe hardship on Employee's ability to secure other employment, Employee may make a request to the Company for a waiver of the designated limitations before accepting employment that otherwise would be a breach of Employee's promises and obligations under this Agreement. Such request must be in writing and clearly set forth the name and address of the organization with that employment is sought and the location, position and duties that Employee will be performing. The Company will consider the request and, in its sole discretion, decide whether and on what conditions to grant such waiver. 6. GOVERNING LAW OF THIS ARTICLE V; CONSENT TO JURISDICTION. Any dispute regarding the reasonableness of the covenants and agreements set forth in this Article V, or the territorial scope or duration thereof, or the remedies available to the Company upon any breach of such covenants and agreements, shall be governed by and interpreted in accordance with the laws of the State of the United States or other jurisdiction in which the alleged prohibited competing activity or disclosure occurs, and, with respect to each such dispute, the Company and Employee each hereby irrevocably consent to the exclusive jurisdiction of the state and federal courts sitting in the relevant State (or, in the case of any jurisdiction outside the United States, the relevant courts of such jurisdiction) for resolution of such dispute, and agree to be irrevocably bound by any judgment rendered thereby in connection with such dispute, and further agree that service of process may be made upon him or it in any legal proceeding relating to this Article V and/or Appendix "A" by any means allowed under the laws of such jurisdiction. Each party irrevocably waives any objection he or it may have as to the venue of any such suit, action or proceeding brought in such a court or that such a court is an inconvenient forum. 7. EMPLOYEE'S UNDERSTANDING OF THIS ARTICLE. Employee hereby represents to the Company that he has read and understands, and agrees to be bound by, the terms of this Article. Employee acknowledges that the geographic scope and duration of the covenants contained in Article V Section 3 are the result of arm's-length bargaining and are fair and reasonable in light of (i) the importance of the functions performed by Employee and the length of time it would take the Company to find and train a suitable replacement, (ii) the nature and wide geographic scope of the operations of the Company and its subsidiaries, (iii) Employee's level of control over and contact with the business and operations of the Company and its subsidiaries in a significant number of jurisdictions where same are conducted and (iv) the fact that all facets of the Death Care Business are conducted by the Company and its subsidiaries throughout the geographic area where competition is restricted by this Agreement. It is the desire and intent of the parties that the provisions of this Agreement be enforced to the fullest extent permitted under applicable law, whether now or hereafter in effect and, therefore, to the extent permitted by applicable law, the parties hereto waive any provision of applicable law that would render any provision of this Article V invalid or unenforceable. ARTICLE VI MISCELLANEOUS 1. BINDING EFFECT. (a) This Agreement shall be binding upon and inure to the benefit of the Company and any of its successors or assigns. (b) This Agreement is personal to the Employee and shall not be assignable by the Employee without the consent of the Company (there being no obligation to give such consent) other than such rights or benefits as are transferred by will or the laws of descent and distribution. (c) The Company shall require any successor to or assignee of (whether direct or indirect, by purchase, merger, consolidation or otherwise) all or substantially all of the assets or businesses of the Company (i) to assume unconditionally and expressly this Agreement and (ii) to agree to perform all of the obligations under this Agreement in the same manner and to the same extent as would have been required of the Company had no assignment or succession occurred, such assumption to be set forth in a writing reasonably satisfactory to the Employee. In the event of any such assignment or succession, the term "Company" as used in this Agreement shall refer also to such successor or assign. 2. NOTICES. All notices hereunder must be in writing and shall be deemed to have given upon receipt of delivery by: (a) hand (against a receipt therefor), (b) certified or registered mail, postage prepaid, return receipt requested, (c) a nationally recognized overnight courier service (against a receipt therefor) or (d) telecopy transmission with confirmation of receipt. All such notices must be addressed as follows: If to the Company, to: Stewart Enterprises, Inc. 110 Veterans Memorial Boulevard Metairie, Louisiana 70005 Attn: Joseph P. Henican, III If to the Employee, to: Charles L. Tilis 5108 Oak Tree Circle Dallas, Texas 75287 or such other address as to which any party hereto may have notified the other in writing. 3. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with and governed by the internal laws of the State of Louisiana without regard to principles of conflict of laws, except as expressly provided in Article V Section 6 above with respect to the resolution of disputes arising under, or the Company's enforcement of, Article V of this Agreement. 4. WITHHOLDING. The Employee agrees that the Company has the right to withhold, from the amounts payable pursuant to this Agreement, all amounts required to be withheld under applicable income and/or employment tax laws, or as otherwise stated in documents granting rights that are affected by this Agreement. 5. SEVERABILITY. If any term or provision of this Agreement (including without limitation those contained in Appendix "A"), or the application thereof to any person or circumstance, shall at any time or to any extent be invalid, illegal or unenforceable in any respect as written, Employee and the Company intend for any court construing this Agreement to modify or limit such provision temporally, spatially or otherwise so as to render it valid and enforceable to the fullest extent allowed by law. Any such provision that is not susceptible of such reformation shall be ignored so as to not affect any other term or provision hereof, and the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid, illegal or unenforceable, shall not be affected thereby and each term and provision of this Agreement shall be valid and enforced to the fullest extent permitted by law. 6. WAIVER OF BREACH. The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach thereof. 7. REMEDIES NOT EXCLUSIVE. No remedy specified herein shall be deemed to be such party's exclusive remedy, and accordingly, in addition to all of the rights and remedies provided for in this Agreement, the parties shall have all other rights and remedies provided to them by applicable law, rule or regulation. 8. COMPANY'S RESERVATION OF RIGHTS. Employee acknowledges and understands that the Employee serves at the pleasure of the President of the Central Division of the Company, and that the Company has the right at any time to terminate Employee's status as an employee of the Company, or to change or diminish his status during the Employment Term, subject to the rights of the Employee to claim the benefits conferred by this Agreement. 9. JURY TRIAL WAIVER. THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT. 10. SURVIVAL. The rights and obligations of the Company and Employee contained in Article V of this Agreement shall survive the termination of the Agreement. Following the Date of Termination, each party shall have the right to enforce all rights, and shall be bound by all obligations, of such party that are continuing rights and obligations under this Agreement. 11. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company and the Employee have caused this Agreement to be executed as of the Agreement Date. STEWART ENTERPRISES, INC. BY: /s/ William E. Rowe -------------------- WILLIAM E. ROWE PRESIDENT EMPLOYEE: /s/ Charles L. Tilis -------------------- CHARLES L. TILIS EX-10.43.2 17 Exhibit 10.43.2 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 to Employment Agreement is made as of the 31st day of October, 1998, by and between Stewart Enterprises, Inc., a Louisiana corporation (the "Company"), and Charles L. Tilis (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 November 1, 1997 (the "Employment Agreement"); WHEREAS, the Employee has agreed to serve as the Company's Senior Vice President and President - Central Division; and WHEREAS, the Company and the Employee have agreed to certain changes in the terms of Employee's employment, effective November 1, 1998, as set forth herein. NOW THEREFORE, the Company and the Employee agree as follows: SECTION 1. Except as expressly amended herein, all of the terms and provisions of the Employment Agreement shall remain in full force and effect. SECTION 2. Article I, Section 1 of the Employment Agreement is hereby amended in its entirety as follows: 1. CAPACITY AND DUTIES OF EMPLOYEE. The Employee is employed by the Company to render services on behalf of the Company as Senior Vice President and President - Central Division of the Company. As the Senior Vice President and President - Central Division, the Employee shall perform such duties as are assigned to the individual holding such title by the Company's Bylaws and such other duties, consistent with the Employee's job title, as may be prescribed from time to time by the Board of Directors of the Company and/or the Company's Chief Executive Officer. SECTION 3. Article II, Section 1 of the Employment Agreement is hereby amended to read in its entirety as follows: 1. SALARY. Effective November 1, 1998, a salary ("Base Salary") at the rate of $225,000 per fiscal year of the Company ("Fiscal Year"), payable to the Employee at such intervals as other salaried employees of the Company are paid. For Fiscal Years ending prior to November 1, 1998, the Employee's Base Salary shall be as set forth in the employment agreement in effect for the relevant period. SECTION 4. Article II, Section 2 of the Employment Agreement is hereby amended to read in its entirety as follows: 2. BONUS. (a) Beginning November 1, 1998, the Employee shall be eligible to receive an annual incentive bonus ("Bonus") per Fiscal Year determined as provided below. The maximum bonus for which the Employee shall be eligible ("Maximum Bonus") shall be determined in accordance with the Company's Executive Maximum Bonus Calculation Statement attached as Exhibit A hereto. For purposes of such calculation, the Employee's Maximum Bonus shall be: * $0 at the Below Threshold level * $45,000 at the Threshold level * $200,000 at the Target level * $270,000 at the Outstanding level (b) The percentage of the Maximum Bonus that the Employee shall be eligible to receive shall be based upon three factors: (i) 25% of the Maximum Bonus will be awarded based on earnings per share growth; (ii) 50% of the Maximum Bonus will be awarded based on business unit earnings; and (iii) 25% of the Maximum Bonus will be awarded based on the attainment of other objectives that will be established by the Chief Executive Officer and the President. (c) The foregoing notwithstanding, the Company shall pay to the Employee not less than $100,000 of the Bonus for the Fiscal Year ending October 31, 1999 payable ratably on a quarterly basis (i.e. January 31, April 30, July 31 and October 31). (d) 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. (e) With respect to Fiscal Years prior to the Fiscal Year ending October 31, 1999, the Employee's Bonus shall be as set forth in the employment agreement in effect for the relevant period. SECTION 5. AMENDMENT TO ARTICLE II, SECTION 3. Article II, Section 3 of the Employment Agreement is hereby amended to read in its entirety as follows: 3. BENEFITS. The Company shall provide the Employee with the following fringe benefits and perquisites: (a) At Employee's election, either a Company furnished automobile or an automobile allowance of $720 per month (in which case the Company will reimburse the Employee for all gasoline, maintenance, repairs and insurance for Employee's personal car as if it were a Company-owned vehicle); (b) Reimbursement for membership dues, including assessments and similar charges, in one or more clubs deemed useful for business purposes in an amount not to exceed $8,000 or such additional amounts as may be approved by the President; (c) First class air travel; (d) Fully-paid insurance benefit package available to all employees; and (e) All other benefit programs similar to those provided other employees of the Company. (f) All costs of maintaining professional certification as a licensed Certified Public Accountant. SECTION 6. AMENDMENT TO ARTICLE III, SECTION 4. Article III, Section 4, paragraph (a), subparagraphs (i) and (ii) of the Employment Agreement are hereby amended to read in their entirety as follows: (i) the assignment to the Employee of any duties or responsibilities that are inconsistent with the Employee's status, title and position as Senior Vice President and President - Central Division; (ii) any removal of the Employee from, or any failure to reappoint or reelect the Employee to, the position of Senior Vice President and President - Central Division, except in connection with a termination of Employee's status as an employee as permitted by this Agreement; IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and signed as of the date indicated above. STEWART ENTERPRISES, INC. By: /s/ JAMES W. MCFARLAND ----------------------- James W. McFarland Compensation Committee Chairman EMPLOYEE: /s/ CHARLES L. TILIS ----------------------- Charles L. Tilis EX-10.44 18 Exhibit 10.44 CHANGE OF CONTROL AGREEMENT This Change of Control Agreement ("Agreement") between Stewart Enterprises, Inc., a Louisiana corporation (the "Company"), and Charles L. Tilis (the "Employee") is dated as of November 1, 1997 (the "Change of Control Agreement Date"). ARTICLE I DEFINITIONS 1.1 EMPLOYMENT AGREEMENT. After a Change of Control (defined below), this Agreement supersedes the Employment Agreement dated as November 1, 1997 between Employee and the Company (the "Employment Agreement") except to the extent that certain provisions of the Employment Agreement are expressly incorporated by reference herein. After a Change of Control (defined below), the definitions in this Agreement supersede definitions in the Employment Agreement, but capitalized terms not defined in this Agreement have the meanings given to them in the Employment Agreement. 1.2 DEFINITION OF "COMPANY". As used in this Agreement, "Company" shall mean the Company as defined above and any successor to or assignee of (whether direct or indirect, by purchase, merger, consolidation or otherwise) all or substantially all of the assets or business of the Company. 1.3 CHANGE OF CONTROL DEFINED. "Change of Control" shall mean: (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 30% of the outstanding shares of the Company's Class A Common Stock, no par value per share (the "Common Stock"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition of Common Stock directly from the Company, (ii) any acquisition of Common Stock by the Company, (iii) any acquisition of Common Stock by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition of Common Stock by any corporation pursuant to a transaction that complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 1.3; or (b) individuals who, as of the Change of Control Agreement Date, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Change of Control Agreement Date whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered a member of the Incumbent Board, unless such individual's initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Incumbent Board; or (c) consummation of a reorganization, merger or consolidation, or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners of the Company's outstanding common stock and the Company's voting securities entitled to vote generally in the election of directors immediately prior to such Business Combination have direct or indirect beneficial ownership, respectively, of more than 50% of the then outstanding shares of common stock, and more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such Business Combination (which, for purposes of this paragraph (i) and paragraphs (ii) and (iii), shall include a corporation which as a result of such transaction controls the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries), and (ii) except to the extent that such ownership existed prior to the Business Combination, no person (excluding any corporation resulting from such Business Combination or any employee benefit plan or related trust of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of the corporation resulting from such Business Combination or 20% or more of the combined voting power of the then outstanding voting securities of such corporation, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. 1.4 AFFILIATE. "Affiliate" or "affiliated companies" shall mean any company controlled by, controlling, or under common control with, the Company. 1.5 CAUSE. "Cause" shall mean: (a) the willful and continued failure of the Employee to perform substantially the Employee's duties with the Company or its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Employee by the Board of the Company which specifically identifies the manner in which the Board believes that the Employee has not substantially performed the Employee's duties, or (b) the willful engaging by the Employee in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company or its affiliates. For purposes of this provision, no act or failure to act, on the part of the Employee, shall be considered "willful" unless it is done, or omitted to be done, by the Employee in bad faith or without reasonable belief that the Employee's action or omission was in the best interests of the Company or its affiliates. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of a senior officer of the Company or based upon the advice of counsel for the Company or its affiliates shall be conclusively presumed to be done, or omitted to be done, by the Employee in good faith and in the best interests of the Company or its affiliates. The cessation of employment of the Employee shall not be deemed to be for Cause unless and until there shall have been delivered to the Employee a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Employee and the Employee is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Employee is guilty of the conduct described in subparagraph (a) or (b) above, and specifying the particulars thereof in detail. 1.6 GOOD REASON. "Good Reason" shall mean: (a) Any failure of the Company or its affiliates to provide the Employee with the position, authority, duties and responsibilities at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately proceeding the Change of Control. Employee's position, authority, duties and responsibilities after a Change of Control shall not be considered commensurate in all material respects with Employee's position, authority, duties and responsibilities prior to a Change of Control unless after the Change of Control Employee holds (i) an equivalent position in the Company or, (ii) if the Company is controlled or will after the transaction be controlled by another company (directly or indirectly), an equivalent position in the ultimate parent company. (b) The assignment to the Employee of any duties inconsistent in any material respect with Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2.1(b) of this Agreement, or any other action that results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith that is remedied within 10 days after receipt of written notice thereof from the Employee to the Company; (c) Any failure by the Company or its affiliates to comply with any of the provisions of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith that is remedied within 10 days after receipt of written notice thereof from the Employee to the Company; (d) The Company or its affiliates requiring the Employee to be based at any office or location other than as provided in Section 2.1(b)(ii) hereof or requiring the Employee to travel on business to a substantially greater extent that required immediately prior to the Change of Control; (e) Any purported termination of the Employee's employment otherwise than as expressly permitted by this Agreement; or (f) Any failure by the Company to comply with and satisfy Sections 3.1(c) and (d) of this Agreement. For purposes of this Section 1.6, any good faith determination of "Good Reason" made by the Employee shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Employee for any reason during the 30-day period immediately following the first anniversary of the Change of Control shall be deemed to be a termination for Good Reason. ARTICLE II CHANGE OF CONTROL BENEFIT 2.1 EMPLOYMENT TERM AND CAPACITY AFTER CHANGE OF CONTROL. (a) If a Change of Control occurs on or before October 31, 2000, then the Employee's employment term (the "Employment Term") shall continue through the later of (a) the second anniversary of the Change of Control or (b) October 31, 2000, subject to any earlier termination of Employee's status as an employee pursuant to this Agreement. (b) After a Change of Control and during the Employment Term, (i) the Employee's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Change of Control and (ii) the Employee's service shall be performed at the location where the Employee was employed immediately preceding the Change of Control or any office or location less than 35 miles from such location. Employee's position, authority, duties and responsibilities after a Change of Control shall not be considered commensurate in all material respects with Employee's position, authority, duties and responsibilities prior to a Change of Control unless after the Change of Control Employee holds (x) an equivalent position in the Company or, (y) if the Company is controlled or will after the transaction be controlled by another company (directly or indirectly), an equivalent position in the ultimate parent company. Employee shall devote himself to his employment responsibilities with the Company (or, if applicable, the ultimate parent entity) as provided in Article I Section 3 of the Employment Agreement. 2.2 COMPENSATION AND BENEFITS. During the Employment Term, Employee shall be entitled to the following compensation and benefits: (a) SALARY. A salary ("Base Salary") at the rate of $200,000 per year, payable to the Employee at such intervals no less frequent than the most request intervals in effect at any time during the 120-day period immediately preceding the Change of Control or, if more favorable to the Employee, the intervals in effect at any time after the Change of Control for other peer employees of the Company and its affiliated companies. (b) BONUS. For the period beginning November 1, 1997, the Employee shall be eligible to receive a bonus (the "Bonus") of up to $125,000 for each 12-month period thereafter. Such Bonus shall be comprised of two elements, the quantitative element and the qualitative element: (i) The quantitative element shall be equal to 75% of the maximum Bonus of $125,000 and shall be based on the attainment of certain goals to be established by the Company's Chief Operating Officer. (ii) The qualitative element shall be 25% of the maximum Bonus of $125,000 and shall be awarded at the discretion of the Company's Chief Operating Officer. The Company's Chief Operating Officer and Employee shall establish incentive goals and other criteria for the award of the qualitative element. The foregoing notwithstanding, the Company shall pay to the Employee not less than $100,000 of the Bonus for the period November 1, 1997 to October 31, 1998 and not less than $100,000 of the Bonus for the period November 1, 1998 to October 31, 1999, each payable on a ratable basis each fiscal quarter (i.e. January 31, April 30, July 31, and October 31). The Bonus shall be paid in cash no later than 30 days following the date on which the information needed to calculate the Bonus becomes available. (c) FRINGE BENEFITS. The Employee shall be entitled to fringe benefits (including, but not limited to, automobile allowance and reimbursement for membership dues) in accordance with the most favorable agreements, plans, practices, programs and policies of the Company and its affiliated companies in effect for the Employee at any time during the 120-day period immediately preceding the Change of Control or, if more favorable to the Employee, as in effect generally at any time thereafter with respect to other peer employees of the Company and its affiliated companies. (d) EXPENSES. The Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in accordance with the most favorable agreements, policies, practices and procedures of the Company and its affiliated companies in effect for the Employee at any time during the 120-day period immediately preceding the Change of Control or, if more favorable to the Employee, as in effect generally at any time thereafter with respect to other peer employees of the Company and its affiliated companies. (e) INCENTIVE, SAVINGS AND RETIREMENT PLANS. The Employee shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer employees of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Employee with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable than the most favorable of those provided by the Company and its affiliated companies for the Employee under any agreements, plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Change of Control or, if more favorable to the Employee, those provided generally at any time after the Change of Control to other peer employees of the Company and its affiliated companies. (f) WELFARE BENEFIT PLANS. The Employee and/or the Employee's family, as the case may be, shall be eligible for participate in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer employees of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Employee with benefits, in each case, less favorable than the most favorable of any agreements, plans, practices, policies and programs in effect for the Employee at any time during the 120-day period preceding the Change of Control or, if more favorable to the Employee, those provided generally at any time after the Change of Control to other peer employees of the Company and its affiliated companies. (g) OFFICE AND SUPPORT STAFF. The Employee shall be entitled to an office or offices of a size and furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Employee by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Change of Control or, if more favorable to the Employee, as provided generally at any time thereafter with respect to other peer employees of the Company and its affiliated companies. (h) VACATION. The Employee shall be entitled to paid vacation in accordance with the most favorable agreements, plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Employee at any time during the 120-day period immediately preceding the Change of Control or, if more favorable to the Employee, as in effect generally at any time thereafter with respect to other peer employees of the Company and its affiliated companies. 2.3 TERMINATION OF EMPLOYMENT AFTER A CHANGE OF CONTROL. After a Change of Control and during the Employment Term, the Employee's status as an employee shall terminate or may be terminated by the Employee, the Company (or, if applicable, the ultimate parent company), as provided in Article III of the Employment Agreement (provided, however, that the definitions of "Cause" and "Good Reason" in this Agreement shall supersede those definitions in the Employment Agreement). 2.4 OBLIGATIONS UPON TERMINATION AFTER A CHANGE OF CONTROL. (a) TERMINATION BY COMPANY FOR REASONS OTHER THAN DEATH, DISABILITY OR CAUSE; BY EMPLOYEE FOR GOOD REASON. If, after a Change of Control and during the Employment Term, the Company (or, if applicable the ultimate parent company), terminates the Employee's employment other than for Cause, Death or Disability, or the Employee terminates employment for Good Reason, the Company shall pay to the Employee in a lump sum in cash within 30 days of the Date of Termination an amount equal to three times the sum of (i) the amount of Base Salary in effect at the Date of Termination, plus (ii) the maximum Bonus for which the Employee is eligible for the 12-month period in which the Date of Termination occurs. (b) DEATH. If, after a Change of Control and during the Employment Term, the Employee's status as an employee is terminated by reason of the Employee's death, this Agreement shall terminate without further obligation to the Employee's legal representatives other than those already accrued to the Employee), other than the obligation to make any payments due pursuant to employee benefit plans maintained by the Company or its affiliated companies. (c) DISABILITY. If, after a Change of Control and during the Employment Term, Employee's status as an employee is terminated by reason of the Employee's Disability (as defined in the Employment Agreement), this Agreement shall terminate without further obligation to the Employee (other than those already accrued to the Employee), other than the obligation to make any payments due pursuant to employee benefit plans maintained by the Company or its affiliated companies. (d) CAUSE. If, after a Change of Control and during the Employment Term, the Employee's status as an employee is terminated by the Company (or, if applicable the ultimate parent entity) for Cause, this Agreement shall terminate without further obligation to the Employee other than for obligations imposed by law and obligations imposed pursuant to any employee benefit plan maintained by the Company as its affiliated companies. (e) TERMINATION BY EMPLOYEE FOR REASONS OTHER THAN GOOD REASON. If, after a Change of Control and during the Employment Term, the Employee's status as an employee is terminated by the Employee for reasons other than Good Reasons, then the Company shall pay to the Employee an amount equal to a single year's Base Salary in effect at the Date of Termination, payable in equal installments over a two-year period at such intervals as other salaried employees of the Company are paid. (f) NONDISCLOSURE, NONCOMPETITION AND PROPRIETARY RIGHTS. The rights and obligations of the Company and Employee contained in Article V ("Nondisclosure, Noncompetition and Proprietary Rights") of the Employment Agreement shall continue to apply after a Change of Control, except as provided in Section 2.10 of this Agreement. 2.5 ACCRUED OBLIGATIONS AND OTHER BENEFITS. It is the intent of the Employment Agreement and this Agreement that upon termination of employment for any reason the Employee be entitled to receive promptly, and in addition to any other benefits specifically provided, (a) the Employee's Base Salary through the Date of Termination to the extent not theretofore paid, (b) any accrued vacation pay, to the extent not theretofore paid, and (c) any other amounts or benefits required to be paid or provided or which the Employee is entitled to receive under any plan, program, policy practice or agreement of the Company. 2.6 STOCK OPTIONS. The foregoing benefits are intended to be in addition to the value of any options to acquire Common Stock of the Company the exercisability of which is accelerated pursuant to the terms of any stock option, incentive or other similar plan heretofore or hereafter adopted by the Company. 2.7 PROTECTION OF BENEFITS. To the extent permitted by applicable law, the Company shall take all reasonable steps to ensure that the Employee is not, by reason of a Change of Control, deprived of the economic value (including any value attributable to the Change of Control transaction) of (a) any options to acquire Common Stock of the Company or (b) any Common Stock of the Company beneficially owned by the Employee. 2.8 CERTAIN ADDITIONAL PAYMENTS. If after a Change of Control Employee is subjected to an excise tax as a result of the "excess parachute payment" provisions of section 4999 of the Internal Revenue Code of 1986, as amended, whether by virtue of the benefits of this Agreement or by virtue of any other benefits provided to Employee in connection with a Change of Control pursuant to Company plans, policies or agreements (including the value of any options to acquire Common Stock of the Company the exercisability of which is accelerated pursuant to the terms of any stock option, incentive or similar plan heretofore or hereafter adopted by the Company), the Company shall pay to Employee (whether or not his employment has terminated) such amounts as are necessary to place Employee in the same position after payment of federal income and excise taxes as he would have been if such provisions had not been applicable to him. 2.9 LEGAL FEES. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Employee or others of the validity or enforceability of, or liability under, any provision of this Agreement (including as a result of any contest by the Employee about the amount or timing of any payment pursuant to this Agreement.) 2.10 SET-OFF; MITIGATION. After a Change of Control, the Company's and its affiliates' obligations to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company or its affiliates may have against the Employee or others. After a Change of Control, an asserted violation of the provisions of Article V ("Nondisclosure, Noncompetition and Proprietary Rights") of the Employment Agreement shall not constitute a basis for deferring or withholding any amounts otherwise payable to the Employee; specifically, the third through sixth sentences of Article V Section 4 shall not apply after a Change of Control. It is the intent of the Employment Agreement and this Agreement that in no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement or the Employment Agreement. ARTICLE III MISCELLANEOUS 3.1 BINDING EFFECT; SUCCESSORS. (a) This Agreement shall be binding upon and inure to the benefit of the Company and any of its successors or assigns. (b) This Agreement is personal to the Employee and shall not be assignable by the Employee without the consent of the Company (there being no obligation to give such consent) other than such rights or benefits as are transferred by will or the laws of descent and distribution. (c) The Company shall require any successor to or assignee of (whether direct or indirect, by purchase, merger, consolidation or otherwise) all or substantially all of the assets or businesses of the Company (i) to assume unconditionally and expressly this Agreement and (ii) to agree to perform or to cause to be performed all of the obligations under this Agreement in the same manner and to the same extent as would have been required of the Company had no assignment or succession occurred, such assumption to be set forth in a writing reasonably satisfactory to the Employee. (d) The Company shall also require all entities that control or that after the transaction will control (directly or indirectly) the Company or any such successor or assignee to agree to cause to be performed all of the obligations under this Agreement, such agreement to be set forth in a writing reasonably satisfactory to the Employee. 3.2 NOTICES. All notices hereunder must be in writing and shall be deemed to have given upon receipt of delivery by: (a) hand (against a receipt therefor), (b) certified or registered mail, postage prepaid, return receipt requested, (c) a nationally recognized overnight courier service (against a receipt therefor) or (d) telecopy transmission with confirmation of receipt. All such notices must be addressed as follows: If to the Company, to: Stewart Enterprises, Inc. 110 Veterans Memorial Boulevard Metairie, Louisiana 70005 Attn: Joseph P. Henican, III If to the Employee, to: Charles L. Tilis 5108 Oak Tree Circle Dallas, Texas 75287 or such other address as to which any party hereto may have notified the other in writing. 3.3 GOVERNING LAW. This Agreement shall be construed and enforced in accordance with and governed by the internal laws of the State of Louisiana without regard to principles of conflict of laws, except as expressly provided in Article V Section 6 of the Employment Agreement with respect to the resolution of disputes arising under, or the Company's enforcement of, such Article V. 3.4 WITHHOLDING. The Employee agrees that the Company has the right to withhold, from the amounts payable pursuant to this Agreement, all amounts required to be withheld under applicable income and/or employment tax laws, or as otherwise stated in documents granting rights that are affected by this Agreement. 3.5 AMENDMENT, WAIVER. No provision of this Agreement may be modified, amended or waived except by an instrument in writing signed by both parties. 3.6 SEVERABILITY. If any term or provision of this Agreement, or the application thereof to any person or circumstance, shall at any time or to any extent be invalid, illegal or unenforceable in any respect as written, Employee and the Company intend for any court construing this Agreement to modify or limit such provision so as to render it valid and enforceable to the fullest extent allowed by law. Any such provision that is not susceptible of such reformation shall be ignored so as to not affect any other term or provision hereof, and the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid, illegal or unenforceable, shall not be affected thereby and each term and provision of this Agreement shall be valid and enforced to the fullest extent permitted by law. 3.7 WAIVER OF BREACH. The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach thereof. 3.8 REMEDIES NOT EXCLUSIVE. No remedy specified herein shall be deemed to be such party's exclusive remedy, and accordingly, in addition to all of the rights and remedies provided for in this Agreement, the parties shall have all other rights and remedies provided to them by applicable law, rule or regulation. 3.9 COMPANY'S RESERVATION OF RIGHTS. Employee acknowledges and understands that the Employee serves at the pleasure of the Board and that the Company has the right at any time to terminate Employee's status as an employee of the Company, or to change or diminish his status during the Employment Term, subject to the rights of the Employee to claim the benefits conferred by this Agreement. 3.10 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company and the Employee have caused this Agreement to be executed as of the Change of Control Agreement Date. STEWART ENTERPRISES, INC. BY: /s/ WILLIAM E. ROWE --------------------- William E. Rowe EMPLOYEE: /s/ CHARLES L. TILIS --------------------- Charles L. Tilis EX-10.45 19 Exhibit 10.45 The following table lists each executive officer of the Company who entered into a Stock Option Agreement in the form that follows, the date of such agreement, the exercise prices, and the number of time-vest options granted.
NUMBER OF NAME DATE EXERCISE PRICE OPTIONS GRANTED Joseph P. Henican, III 7/17/98 $ 27.25 170,000 William E. Rowe 7/17/98 27.25 170,000 Kenneth C. Budde 7/17/98 27.25 85,000 Ronald H. Patron 7/17/98 27.25 56,780 Gerard C. Alexander 7/17/98 27.25 56,780 Richard O. Baldwin, Jr. 7/17/98 27.25 85,000 Brian J. Marlowe 7/17/98 27.25 85,000 Brent F. Heffron 7/17/98 27.25 85,000 Raymond C. Knopke, Jr. 7/17/98 27.25 85,000 Lawrence B. Hawkins 7/17/98 27.25 17,000 Charles L. Tilis 7/23/98 25.8l25 30,000 11/1/98 23.0625 28,330
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES ISSUED PURSUANT TO THE STEWART ENTERPRISES, INC. AMENDED AND RESTATED 1995 INCENTIVE COMPENSATION PLAN THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. STOCK OPTION AGREEMENT FOR THE GRANT OF NON-QUALIFIED STOCK OPTIONS UNDER THE STEWART ENTERPRISES, INC. AMENDED AND RESTATED 1995 INCENTIVE COMPENSATION PLAN THIS AGREEMENT (the "Agreement") is effective as of July 23, 1998 by and between Stewart Enterprises, Inc., a Louisiana corporation ("SEI"), and __________ __________ ("Optionee"). WHEREAS Optionee is a key employee of SEI, and SEI considers it desirable and in its best interest that Optionee be given an inducement to acquire a proprietary interest in SEI and an added incentive to advance the interests of SEI by possessing an option to purchase shares of the Class A common stock of SEI, no par value per share (the "Common Stock") in accordance with the Stewart Enterprises, Inc. Amended and Restated 1995 Incentive Compensation Plan (the "Plan"). NOW, THEREFORE, in consideration of the premises, it is agreed by and between the parties as follows: I. Grant of Option SEI hereby grants to Optionee, effective July 23, 1998 (the "Date of Grant") the right, privilege and option to purchase ______ shares of Common Stock (the "Option") at an exercise price of $_______ per share (the "Exercise Price"). The Option shall be exercisable at the time specified in Section II below. The Option is a non-qualified stock option and shall not be treated as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). II. Time of Exercise 2.1 Subject to the provisions of the Plan and the other provisions of this Agreement, the Optionee shall be entitled to exercise his Option as follows: 20% of the total number of shares covered by the Option beginning on July 17, 1999; 40% of the total number of shares covered by the Option beginning on July 17, 2000, less any shares previously issued; 60% of the total number of shares covered by the Option beginning on July 17, 2001, less any shares previously issued; 80% of the total number of shares covered by the Option beginning on July 17, 2002, less any shares previously issued; 100% of the total number of shares covered by the Option beginning on July 17, 2003, less any shares previously issued. The Option shall expire and may not be exercised later than July 31, 2004. 2.2 If Optionee's employment is terminated, other than as a result of death, disability or retirement on or after reaching age 65 or early retirement with the approval of the Board of Directors, the Option must be exercised, to the extent exercisable at the time of termination of employment, within 30 days of the date on which Optionee ceases to be an employee, except that the Committee may upon request extend the period after termination of employment during which the Option may be exercised, but in no event later than July 31, 2004. 2.3 If an Optionee ceases to be an employee because of disability within the meaning of Section 22(e)(3) of the Code or retirement, as described in Section 2.2, the Option must be exercised, to the extent exercisable at the time of termination of employment, within one year from the date on which Optionee ceases to be an employee, but in no event later than July 31, 2004. 2.4 In the event of Optionee's death, the Option must be exercised by his estate, or by the person to whom such right evolves from him by reason of his death, to the extent exercisable at the time of death, within one year from the date of death, but in no event later than July 31, 2004. III. Method of Exercise of Option Optionee may exercise all or a portion of the Option by delivering to SEI a signed written notice of his intention to exercise the Option, specifying therein the number of shares to be purchased. Upon receiving such notice, and after SEI has received payment of the Exercise Price as provided in the Plan, the appropriate officer of SEI shall cause the transfer of title of the shares purchased to Optionee on SEI's stock records and cause to be issued to Optionee a stock certificate for the number of shares being acquired. Optionee shall not have any rights as a shareholder until the stock certificate is issued to him. IV. Change of Control 4.1 No later than 30 days after the approval by the Board of a Change of Control of the types described in Sections 12.11(a)(iii) and (iv) of the Plan, and no later than 30 days after a Change of Control of the types described in Sections 12.11(a)(i) and (ii) of the Plan, the Committee (as the Committee was composed immediately prior to such Change of Control and notwithstanding any removal or attempted removal of some or all of the members thereof as directors or Committee members), acting in its sole discretion without the consent or approval of Optionee, may act to effect one or more of the alternatives listed below, and such act by the Committee may not be revoked or rescinded by persons not members of the Committee immediately prior to the Change of Control: (a) require that the Option be exercised on or before a specified date (before or after such Change of Control) fixed by the Committee, after which specified date any unexercised portion of the Option shall terminate, (b) provide for mandatory conversion, before or after such Change of Control, of all or part of the Option as specified by the Committee, in which event such Option or portion thereof shall be deemed automatically cancelled and SEI shall pay, or cause to be paid, to Optionee an amount in cash equal to the excess, if any, of the Change of Control Value of the shares subject to such Option or portion thereof, as defined and calculated below, over the exercise price of such Option or portion thereof, or, in lieu of such cash payment, the issuance of Common Stock or securities of an acquiring entity having a Fair Market Value equal to such excess, (c) make such equitable adjustments to the Option as the Committee deems appropriate to reflect such Change of Control (provided, however, that the Committee may determine in its sole discretion that no adjustment is necessary), or (d) provide that thereafter, upon any exercise of all or part of the Option, the Optionee shall be entitled to purchase under the Option, in lieu of the number of shares of Common Stock then covered by the Option, the number and class of shares of stock or other securities or property (including, without limitation, cash) that the Optionee would have been entitled to receive pursuant to the terms of the agreement providing for the merger, consolidation, asset sale, dissolution or other Change of Control of the type described in Sections 12.11(a)(iii) and (iv) of the Plan, if, immediately prior to such Change of Control, Optionee had been the holder of record of the number of shares of Common Stock then covered by the Option. 4.2 For the purposes of paragraph (b) of Section 4.1 "Change of Control Value" shall be the amount determined by whichever of the following items is applicable: (a) the per share price to be paid to shareholders of SEI in any such merger, consolidation or other reorganization, (b) the price per share offered to shareholders of SEI in any tender offer or exchange offer whereby a Change of Control takes place, or (c) in all other events, the Fair Market Value per share of Common Stock otherwise issuable upon exercise of the Option being converted, as determined by the Committee and as of the date determined by the Committee to be the date of conversion of the Option. (d) In the event that the consideration offered to shareholders of SEI in any transaction described in this Section 4.2 consists of anything other than cash, the Committee shall determine the fair cash equivalent of the portion of the consideration offered that is other than cash. V. Deferral Optionee may elect to defer receipt of all or any portion of the shares of Common Stock, or any payment of cash or other consideration in lieu thereof, that Optionee otherwise would receive upon exercise of the Option, pursuant to a deferral arrangement that may be established by the Committee and is in effect at the time of such election; provided, however, that the Committee shall have no obligation to establish or maintain any such arrangement. VI. No Contract of Employment Intended Subject to the terms of any employment agreement that may be in effect from time to time, nothing in this Agreement shall confer upon Optionee any right to continue in the employment of SEI or any of its subsidiaries, or to interfere in any way with the right of SEI or any of its subsidiaries to terminate Optionee's employment relationship with SEI or any of its subsidiaries at any time, nor shall any references herein to any employment agreement imply that any such agreement is in effect or that the Optionee is entitled to enter into any such agreement with SEI. VII. Binding Effect This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators and successors. VIII. Non-Transferability The Option granted hereby may not be transferred, assigned, pledged or hypothecated in any manner, by operation of law or otherwise, other than by will or by the laws of descent and distribution and shall not be subject to execution, attachment or similar process. IX. Inconsistent Provisions The Option granted hereby is subject to the provisions of the Plan as in effect on the date hereof and as it may be amended. In the event any provision of this Agreement conflicts with such a provision of the Plan, the Plan provision shall control. If any provision of this Agreement relating to the Option conflicts with any provision of any employment agreement between SEI and the Optionee, the provision in the employment agreement shall control. IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed as of the day and year first above written. STEWART ENTERPRISES, INC. By: ___________________________ ___________________________ Joseph P. Henican, III Vice Chairman of the Board of Directors and Chief Executive Officer _________________________________ __________________ Optionee EX-10.46 20 Exhibit 10.46 The following table lists each executive officer of the Company who entered into a Stock Option Agreement in the form that follows, the date of such agreement, the exercise prices, and the number of performance- based options granted.
NUMBER OF NAME DATE EXERCISE PRICE OPTIONS GRANTED Joseph P. Henican, III 7/17/98 $ 27.25 330,000 William E. Rowe 7/17/98 27.25 330,000 Kenneth C. Budde 7/17/98 27.25 165,000 Ronald H. Patron 7/17/98 27.25 110,220 Gerard C. Alexander 7/17/98 27.25 110,220 Richard O. Baldwin, Jr. 7/17/98 27.25 165,000 Brian J. Marlowe 7/17/98 27.25 165,000 Brent F. Heffron 7/17/98 27.25 165,000 Raymond C. Knopke, Jr. 7/17/98 27.25 165,000 Lawrence B. Hawkins 7/17/98 27.25 33,000 Charles L. Tilis 7/23/98 25.8l25 60,000 11/1/98 23.0625 56,670
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES ISSUED PURSUANT TO THE STEWART ENTERPRISES, INC. AMENDED AND RESTATED 1995 INCENTIVE COMPENSATION PLAN THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. STOCK OPTION AGREEMENT FOR THE GRANT OF NON-QUALIFIED STOCK OPTIONS UNDER THE STEWART ENTERPRISES, INC. AMENDED AND RESTATED 1995 INCENTIVE COMPENSATION PLAN THIS AGREEMENT (the "Agreement") is effective as of July 23, 1998, by and between Stewart Enterprises, Inc., a Louisiana corporation ("SEI"), and ________ ________ ("Optionee"). WHEREAS Optionee is a key employee of SEI, and SEI considers it desirable and in its best interest that Optionee be given an inducement to acquire a proprietary interest in SEI and an added incentive to advance the interests of SEI by possessing an option to purchase shares of the Class A common stock of SEI, no par value per share (the "Common Stock") in accordance with the Stewart Enterprises, Inc. Amended and Restated 1995 Incentive Compensation Plan (the "Plan"). NOW, THEREFORE, in consideration of the premises, it is agreed by and between the parties as follows: I. Grant of Option SEI hereby grants to Optionee effective July 23, 1998 (the "Date of Grant") the right, privilege and option to purchase ______ shares of Common Stock (the "Option") at an exercise price of $_______ per share (the "Exercise Price"). The Option shall be exercisable at the time specified in Section II. below. The Option is a non-qualified stock option and shall not be treated as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). II. Time of Exercise 2.1 Subject to the provisions of the Plan, the other provisions of this Agreement and the provisions of any employment agreement between SEI and Optionee (the "Employment Agreement") with respect to performance-based options granted under the Plan, the Option shall become exercisable in full on the first day between July 23, 1998 and July 17, 2003 that the average of the "Closing Sale Prices" of a share of Common Stock for the 20 preceding consecutive trading days equals or exceeds $67.81. The average price of $67.81 per share reflects a 20% compounded annual increase in the price of a share of Common Stock over five years, beginning with the Closing Sale Price on the Nasdaq Stock Market on July 16, 1998. In determining whether the Option has become exercisable, the average of the "Closing Sale Prices" shall be rounded to the nearest $0.01, with $.005 and greater rounded up. If the conditions described in this Section 2.1 are not met by July 17, 2003, the Option may not be exercised and shall terminate immediately. 2.2 "Closing Sale Price" is the closing sale price on the applicable date for shares of the Common Stock on an established stock exchange or any automated quotation system that provides sale quotations. 2.3 The Option shall expire and may not be exercised later than July 31, 2004. 2.4 Except as otherwise provided in the Employment Agreement, if Optionee's employment is terminated, other than as a result of death, disability or retirement on or after reaching age 65 or early retirement with the approval of the Board of Directors, the Option must be exercised, to the extent exercisable at the time of termination of employment, within the later of (i) 30 days after the date on which Optionee ceases to be an employee, or (ii) 30 days after the date on which the exercise of the Option and sale of the underlying securities will not cause the Optionee to incur a liability to SEI under Section 16 of the Securities Exchange Act of 1934, except that the Committee may upon request extend the period after termination of employment during which the Option may be exercised, but in no event later than July 31, 2004. 2.5 If an Optionee ceases to be an employee because of retirement, as described in Section 2.4, or disability within the meaning of Section 22(e)(3) of the Code, the Option must be exercised, to the extent exercisable at the time of termination of employment, within one year from the date on which Optionee ceases to be an employee, but in no event later than July 31, 2004. 2.6 In the event of Optionee's death, the Option must be exercised by his estate, or by the person to whom such right evolves from him by reason of his death, to the extent exercisable at the time of death, within one year from the date of death, but in no event later than July 31, 2004. III. Method of Exercise of Option Optionee may exercise all or a portion of the Option by delivering to SEI a signed written notice of his intention to exercise the Option, specifying therein the number of shares to be purchased. Upon receiving such notice, and after SEI has received payment of the Exercise Price as provided in the Plan, the appropriate officer of SEI shall cause the transfer of title of the shares purchased to Optionee on SEI's stock records and cause to be issued to Optionee a stock certificate for the number of shares being acquired. Optionee shall not have any rights as a shareholder until the stock certificate is issued to him. IV. Change of Control 4.1 No later than 30 days after the approval by the Board of a Change of Control of the types described in Sections 12.11(a)(iii) and (iv) of the Plan, and no later than 30 days after a Change of Control of the types described in Sections 12.11(a)(i) and (ii) of the Plan, the Committee (as the Committee was composed immediately prior to such Change of Control and notwithstanding any removal or attempted removal of some or all of the members thereof as directors or Committee members), acting in its sole discretion without the consent or approval of Optionee, may act to effect one or more of the alternatives listed below, and such act by the Committee may not be revoked or rescinded by persons not members of the Committee immediately prior to the Change of Control: (a) require that the Option be exercised on or before a specified date (before or after such Change of Control) fixed by the Committee, after which specified date any unexercised portion of the Option shall terminate, (b) provide for mandatory conversion, before or after such Change of Control, of all or part of the Option as specified by the Committee, in which event such Option or portion thereof shall be deemed automatically cancelled and SEI shall pay, or cause to be paid, to Optionee an amount in cash equal to the excess, if any, of the Change of Control Value of the shares subject to such Option or portion thereof, as defined and calculated below, over the exercise price of such Option or portion thereof, or, in lieu of such cash payment, the issuance of Common Stock or securities of an acquiring entity having a Fair Market Value equal to such excess, (c) make such equitable adjustments to the Option as the Committee deems appropriate to reflect such Change of Control (provided, however, that the Committee may determine in its sole discretion that no adjustment is necessary), or (d) provide that thereafter, upon any exercise of all or part of the Option, the Optionee shall be entitled to purchase under the Option, in lieu of the number of shares of Common Stock then covered by the Option, the number and class of shares of stock or other securities or property (including, without limitation, cash) that the Optionee would have been entitled to receive pursuant to the terms of the agreement providing for the merger, consolidation, asset sale, dissolution or other Change of Control of the type described in Sections 12.11(a)(iii) and (iv) of the Plan, if, immediately prior to such Change of Control, Optionee had been the holder of record of the number of shares of Common Stock then covered by the Option. 4.2 For the purposes of paragraph (b) of Section 4.1 "Change of Control Value" shall be the amount determined by whichever of the following items is applicable: (a) the per share price to be paid to shareholders of SEI in any such merger, consolidation or other reorganization, (b) the price per share offered to shareholders of SEI in any tender offer or exchange offer whereby a Change of Control takes place, or (c) in all other events, the Fair Market Value per share of Common Stock otherwise issuable upon exercise of the Option being converted, as determined by the Committee and as of the date determined by the Committee to be the date of conversion of the Option. (d) In the event that the consideration offered to shareholders of SEI in any transaction described in this Section 4.2 consists of anything other than cash, the Committee shall determine the fair cash equivalent of the portion of the consideration offered that is other than cash. V. Deferral Optionee may elect to defer receipt of all or any portion of the shares of Common Stock, or any payment of cash or other consideration in lieu thereof, that Optionee otherwise would receive upon exercise of the Option, pursuant to a deferral arrangement that may be established by the Committee and is in effect at the time of such election; provided, however, that the Committee shall have no obligation to establish or maintain any such arrangement. VI. No Contract of Employment Intended Subject to the terms of any Employment Agreement that may be in effect from time to time, nothing in this Agreement shall confer upon Optionee any right to continue in the employment of SEI or any of its subsidiaries, or to interfere in any way with the right of SEI or any of its subsidiaries to terminate Optionee's employment relationship with SEI or any of its subsidiaries at any time, nor shall any references herein to any employment agreement imply that any such agreement is in effect or that the Optionee is entitled to enter into any such agreement with SEI. VII. Binding Effect This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators and successors. VIII. Non-Transferability The Option granted hereby may not be transferred, assigned, pledged or hypothecated in any manner, by operation of law or otherwise, other than by will or by the laws of descent and distribution and shall not be subject to execution, attachment or similar process. IX. Inconsistent Provisions The Option granted hereby is subject to the provisions of the Plan as in effect on the date hereof and as it may be amended. In the event any provision of this Agreement conflicts with such a provision of the Plan, the Plan provision shall control. If any provision of this Agreement relating to the Option conflicts with any provision of the Employment Agreement, the provision in the Employment Agreement shall control. IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed as of the day and year first above written. STEWART ENTERPRISES, INC. By: ______________________ ______________________ Joseph P. Henican, III Vice Chairman of the Board of Directors and Chief Executive Officer ___________________________ ____________________ Optionee EX-12 21 Exhibit 12 STEWART ENTERPRISES, INC. AND SUBSIDIARIES CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN THOUSANDS) (UNAUDITED)
Years Ended October 31, ------------------------------------------------------------- 1998 1997 1996 1995 1994 --------- --------- -------- -------- -------- Earnings from operation before income taxes .................. $64,964(1) $ 106,477(2) $ 82,075 $ 41,500(3) $ 42,198 Fixed charges: Interest expense ....................... 43,821 38,031 26,051 22,815 8,877 Interest portion of lease expense ...... 3,084 2,181 1,522 1,343 935 --------- --------- -------- -------- -------- Total fixed charges ...................... 46,905 40,212 27,573 24,158 9,812 Earnings from continuing operations before income taxes and fixed charges .. $ 111,869(1) $ 146,689(2) $ 109,648 $ 65,658(3) $ 52,010 ========= ========= ========= ======== ======== Ratio of earnings to fixed charges ....... 2.39(1) 3.65(2) 3.98 2.72(3) 5.30 ========= ========= ========= ======== ========
__________________________ (1) Includes a non-recurring, non-cash charge of $76,762 recorded in connection with the vesting of the Company's performance-based stock options. (2) Excludes cumulative effect of change in accounting principles of $2,324 (net of $2,230 income tax benefit). (3) Includes a non-recurring, non-cash charge of $17,252 recorded in connection with the vesting of the Company's performance-based stock options. __________________________ During the periods presented, the Company had no preferred stock outstanding. Therefore, the ratio of earnings to combined fixed charges and preference dividends was the same as the ratio of earnings to fixed charges for each of the periods presented. EX-21 22 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, 1998. 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 Good Shepherd Memorial Gardens, Inc. FL Hubbell Funeral Home and Crematory, Inc. FL Kent R. Palmer, Inc. FL Kicliter Funeral Home, Inc. FL Madcem of Florida, Inc. FL Memorial Park Cemetery, Inc. FL Oaklawn Park Cemetery and Funeral Home, Inc. FL Ocoee Park Cemetery, Inc. FL Roberts Funeral Home, Inc. FL Royal Palm Memorial Gardens, 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 Co. 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 Griffin Leggett Insurance Agency, Inc. AR Gross Funeral Home, Inc. AR Rest Hills Memorial Park, Inc. AR Griffin Leggett-Conway, Inc. AR Grupo Stewart de Mexico, S.R.L. MX Agencia Eusebio Gayosso, S.R.L MX Agencia Funeraria Gayosso, S.R.L MX Agencia Funeraria Los Angeles, S.R.L MX Prevision Gayosso, S.R.L MX Tiempo y Vida, S.R.L 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 Corp. 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 Le Groupe Stewart Inc. - Stewart Group Inc. Quebec Feron Funeral Homes, 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 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 Garden Cemetery Company, Inc. WV Grandview Memory Gardens, Inc. VA Greenhills Memory Gardens, Inc. VA Highland Memory Gardens, Inc. VA Holly Memorial Gardens, Inc. OH 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 Newark Memorial Gardens, Inc. OH Pleasant View Memory Gardens, Inc. WV Sunset Mausoleum, Inc. WV Sunset Memory Gardens, Inc. VA Williams-Blue Ridge Funeral Home, Inc. WV 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, Incorporated TX Dalton & Son Funeral Home, Inc. TX Emerald Hills Funeral Corporation TX Hilltop Memorial Park TX J.E. Foust & Son Funeral Directors, Inc. TX Guardian Cremation Society, Inc. TX Guardian Funeral Home, 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 Ashes to Ashes, Inc. CA Assumption 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 Lombard & Company CA N.D. Davis & Associates, Inc. CA Queen of Heaven Mortuary, Inc. CA Resurrection Mortuary, Inc. CA Richard Pierce Funeral Service, Inc. CA San Fernando Mission Mortuary, Inc. CA Santa Clara Mortuary, Inc. CA Scovern Mortuary, A California Corporation CA SDCA Holdings, Inc. CA San Diego Cemetery Association CA S.E. Acquisition of Delano, 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, California, Inc. CA S.E. Acquisition of San Diego, California, Inc. CA Sentinel Cremation Societies, Inc. DE Simplicity Plan of California, Inc. CA Stewart Pre-Need Services, Inc. CA Stricklin/Snively Mortuary CA Catalina Channel Cremation Society CA Wallace E. White & Howard J. Callanan, Inc. CA Woodside Chapel of Crippen & Flynn CA S.E. Acquisition of Murietta, California, Inc. CA S.E. Acquisition of Nevada, Inc. NV Desert Memorial, Inc. NV Neptune Society of Nevada, Inc. NV Reno Memorial, Inc. NV S.E. Acquisition of Reno, Nevada, Inc, NV 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 Santa Maria, California, Inc. CA S.E. Acquisition of Washington, Inc. WA Cremation Society Northwest, Inc. WA E.R. Butterworth & Sons WA S.E. Australia, Inc. LA Administrators & Managers Limited New Zealand Cemetery & Crematorium Finance Trust Queensland 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 Stewart Enterprises New Zealand Holdings Limited New Zealand 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 Bounds Funeral Home, Inc. MD Brown Memorials, Inc. NC C. J. Applegate & Sons, Inc. NY Calfee Funeral Service of Pineville, Inc. WV 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 Evans Funeral Home, Inc. WV Evergreen Memorial Gardens, Inc. NC Everly Community Funeral Care, Inc. VA Everly Funeral Homes, Incorporated VA Everly PFP, Inc. VA Fairfax Funeral Home, Inc. VA Fine Finishes, Inc. NC Fort Lincoln Cemetery, Inc. MD Gardinier Colletti Memorial Home, Inc. NY Garner Family Funeral Home, Inc. GA Fort Lincoln Funeral Home, Inc. MD Garrett-Hillcrest, Inc. NC George Washington Memorial Park, Inc. PA Graceland Mausoleum, Inc. WV Haisten Funeral Homes, Inc. GA Haisten Funeral Home of Henry Co. GA 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 Murphy Funeral Service, Inc. NY Nalley's Funeral Home, Inc. MD Oconee Memorial Funeral Home, Inc. SC Parklawn, 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 Clifton, New Jersey, Inc. NJ S.E. Acquisition of Fredonia, New York, Inc. NY S.E. Acquisition of Malden, West Virginia, Inc. WV 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 Andrew J. McGann & Son Funeral Home, Inc. IL Ellison Funeral Home, Inc. AL Lathan Funeral Home, Inc. AL Mt. Juliet Funeral Home, Inc. TN Mt. Juliet Memorial Gardens, Inc. TN Nave Funeral Home of Lebanon, Inc. TN Pauley Funeral Home, Inc. IA 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 Blue Island, Illinois, Inc. IL 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. Cemetery Management of Wisconsin, Inc. WI West Lawn Cemetery, Inc. NE Wyuka Funeral Home, Inc. NE Wyuka Simplicity Plan, Inc. NE S.E. of Tucson, Arizona, Inc. AZ Stewart Enterprises (Europe), Inc. LA Cocheria Parana, S.A. Argentina Euro Stewart Belgium, B.V.B.A. Belgium Begrafenisonderneming D. Bleyaert B.V.B.A. Belgium Stewart Argentina S.R.L. Argentina Casa Bassi S.R.L. Argentina Casa Canepa S.R.L. Argentina Casa LaSalle S.R.L. Argentina Cementerio Parque Las Praderas S.A. Argentina Cocheria La Italo Argentina S.R.L. Argentina Del Lugar S.A. Argentina Hector Garcia y Cia., S.R.L. Argentina Los Abrojos S.C.A. Argentina Parque Ceremonial Cementerio Privado S.A. Argentina Perisse Laffue S.R.L. Argentina Sepelios Las Heras S.A. Argentina Stewart Holandesa, S.A. de C.V. MX Stewart Resource Center, Inc. LA Stewart Services, Inc. LA Stewart Worldwide N.V. Netherlands Antilles Stewart International (Netherlands) B.V. Netherlands Euro Stewart Espana, S.L. Spain Funeraria Fontal, S.A. Spain Funeraria Gasco, S.L. Spain Funeraria La Piedad, S.L. Spain Euro Stewart France, SARL France Chasseignaux et Fils SA France Parthenos, S.A. France Sa Di Bernardo France Sa Pompes Funebres PLM France Sa SFMOP France SARL Cunault France SARL Marbrerie Coulon France SARL Etablisehment Dardenne France SARL Marbrerie Dardenne France SARL Mistre et Cie France SARL Saint Hilaire France SARL Sept France Euro Stewart Portugal - SGPS, LDA. Portugal Agencia Funeraria Baptista "Filho", LDA. Portugal Agencia Funeraria Barata De Gastao Mendes Barata, S.A. Portugal Agencia Funeraria Borges, LDA Portugal Agencia Funeraria Ideal Do Alto de Sao Joao, LDA Portugal Alberto Fernandes Da Luz, LDA. Portugal A Funeraria Luz De Oeiras, LDA. Portugal Funeraria Moderna Do Restelo, LDA. Portugal Stewart Enterprises New Zealand Unit Trust New Zealand C H Barker New Zealand Lambert R. Fountain New Zealand Gee & Hickton New Zealand Montagues Funeral Services New Zealand New Zealand Pre-Arranged Funeral Plan New Zealand John Rhind New Zealand Watney Sibun's New Zealand Stewart Enterprises New Zealand New Zealand Wairarapa Funeral Services New Zealand Yearbury Funeral Services New Zealand Uitvaart Beheer B.V. Netherlands De Associatie Zijlweg Beheer B.V. Netherlands De Associatie Kennemerland B.V. Netherlands Uitvaartcentrum Aula West B.V Netherlands Uitvaartverzorging Heemstede B.V Netherlands Strong & Burns Funeral Home, Inc. NY Victor V. Desrosier, Inc. CA EX-23 23 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, 333-14467, 333-59339 and 333-68563), 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 15, 1998, on our audits of the consolidated financial statements and financial statement schedule of Stewart Enterprises, Inc. and Subsidiaries as of October 31, 1998 and 1997 and for the three years in the period ended October 31, 1998, which reports are included in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP January 19, 1999 EX-27 24
5 1,000 12-MOS OCT-31-1998 OCT-31-1998 30,733 6,120 171,849 0 48,833 261,404 487,573 (105,834) 2,071,802 118,781 913,215 0 0 98,028 741,262 2,071,802 648,365 648,365 452,381 452,381 76,762 0 43,821 64,964 23,062 41,902 0 0 0 41,902 .43 .43
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