Stewart Enterprises Reports Results for the Third Quarter of 2013
September 09 2013 - 6:42AM
Stewart Enterprises, Inc. (Nasdaq:STEI) reported today its results
for the third quarter of 2013.
|
Three Months
Ended July 31, |
Nine Months Ended
July 31, |
|
2013 |
2012 |
2013 |
2012 |
|
millions |
per diluted share |
millions |
per diluted share |
millions |
per diluted share |
millions |
per diluted share |
Net earnings |
$ 8.3 |
$ .10 |
$ 9.6 |
$ .11 |
$ 35.6 |
$ .41 |
$ 26.9 |
$ .31 |
Net earnings from continuing operations |
$ 8.3 |
$ .10 |
$ 9.9 |
$ .11 |
$ 35.6 |
$ .41 |
$ 28.3 |
$ .32 |
Adjusted earnings from continuing operations
(1) |
$ 8.0 |
$ .09 |
$ 9.6 |
$ .11 |
$ 33.9 |
$ .39 |
$ 30.1 |
$ .34 |
|
|
|
|
|
|
|
|
|
(1) See table
"Reconciliation of Non-GAAP Financial Measures" for additional
information on adjusted earnings and adjusted earnings per share
from continuing operations. |
Thomas M. Kitchen, President and Chief Executive Officer,
stated, "The third quarter of 2013 proved to be a challenging
period for the Company, with the pending merger with SCI and
continued refinements to our sales initiatives. When we started our
new sales initiatives, we expected it would be a process that while
beneficial in the long-term, would cause short-term disruptions.
In July 2013, we experienced the best month of cemetery
property sales since the implementation of the new sales
initiatives earlier this year, which we believe indicates that the
initiatives are generating positive momentum. We continue to
believe that the new structure will improve customer service and
increase preneed sales over time. Operating
results were also impacted adversely by the timing of revenue
recognition for cemetery construction projects and for cemetery
property sales. As construction occurs and additional
payments are received, these contracts will be recognized as
revenue in the future. Additionally, margins for the
quarter were negatively impacted due to expenses that exceeded the
prior year quarter, particularly increased selling expenses for
sales of preneed funerals, which are recognized currently while the
related revenue is deferred to a future period. We are
continuing to refine the overall sales compensation program."
Mr. Kitchen continued, "Fiscal year 2013 continues to be a very
successful year for the Company and our shareholders. For the
first nine months of 2013, we increased total revenue by $10
million and gross profit by $6 million, which reflects the highest
nine month revenue and gross profit in five years. In
addition, we improved adjusted earnings by 13 percent, operating
cash flow by 16.5 percent and our investment portfolio has
generated a total return of 10 percent over the past nine
months. Some additional highlights of the first nine months of
fiscal year 2013 include:
- Improving overall revenue, gross profit in dollars and margin
and earnings from continuing operations compared to the first nine
months of fiscal year 2012;
- Generating operating cash flow of $68.4 million, or a 16.5
percent improvement, and free cash flow of $54.1 million, or more
than a 14 percent improvement, compared to the same period of last
year. As of July 31, 2013, we had more than $117 million of
cash and marketable securities with no amounts borrowed on our $150
million credit facility;
- Realizing a 7 percent improvement in adjusted EBITDA to $88.6
million or a 22.3 percent adjusted EBITDA margin, as discussed in
the table "Reconciliation of Non-GAAP Financial Measures;" and
- Producing total returns of 11 percent in our preneed trusts and
8 percent in our cemetery perpetual care trusts."
Mr. Kitchen concluded, "We are pleased with the progress of the
activities related to the pending merger with SCI over the past
three months. We continue to expect it will be completed in
late 2013 or early 2014."
Definitive Merger Agreement with Service Corporation
International
On May 29, 2013, the Company announced that it entered into a
definitive merger agreement with SCI. Pursuant to the
agreement, holders of the Company's Class A and Class B common
stock will receive $13.25 in cash for each share of common
stock. The transaction was approved by the Company's
shareholders on August 13, 2013. The transaction is subject to
the satisfaction of customary closing conditions and regulatory
approvals, including expiration or termination of the applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 ("HSR Act") or of any agreement with the Federal Trade
Commission ("FTC") not to consummate the merger. On July 17,
2013, the Company announced that it and SCI had received second
requests from the FTC, which extends the waiting period under the
HSR Act until the 30th day after substantial compliance by SCI and
the Company with the requests, unless that period is extended
voluntarily by the parties or terminated sooner by the
FTC. Subsequently, the Company and SCI have entered into an
agreement with the FTC not to consummate the merger prior to 90
days after both SCI and Stewart certify substantial compliance with
the second request, or December 13, 2013, whichever is
earlier. The parties may close the merger sooner if the FTC
grants early termination, closes its investigation or accepts for
public comment a proposed consent agreement settling the matter.
The Company is preparing responses to the second request and
continues to anticipate that the transaction will close in late
calendar year 2013 or early 2014. For additional information,
see the Company's Form 10-Q for the quarter ended July 31,
2013.
Third Quarter Results
FUNERAL
- Funeral revenue declined $0.2 million, or 0.3 percent, to $68.7
million for the third quarter of 2013. This decline is
primarily due to a 0.4 percent decrease in same-store funeral
services performed, coupled with a 0.7 percent decrease in
same-store average revenue per funeral service. During the
third quarter of 2013, the Company experienced a $0.7 million
increase in revenue related to trust activities.
- Funeral gross profit decreased $1.8 million, or 11.4 percent,
to $14.0 million for the third quarter of 2013, compared to $15.8
million for the same period of 2012. Funeral gross profit
margin declined 250 basis points to 20.4 percent for the third
quarter of 2013 from 22.9 percent for the third quarter of
2012. During the third quarter of 2013, the Company continued
to refine its sales compensation plan, which resulted in an
increase of preneed selling costs of $1.5 million. This
negatively affected the Company's third quarter results, because
preneed selling costs are expensed as incurred, while preneed
funeral sales are deferred until they are performed. The
Company is continuing to refine its sales compensation plan to seek
the appropriate balance between preneed production and current
period expenses.
- The cremation rate for the Company's same-store operations was
44.9 percent for the third quarter of 2013 compared to 43.8 percent
for the third quarter of 2012.
- Net preneed funeral sales decreased 2.0 percent during the
third quarter of 2013 compared to the same period of
2012. Preneed funeral sales are deferred until the underlying
contracts are performed and have no impact on current revenue.
CEMETERY
- Cemetery revenue decreased $2.0 million, or 3.3 percent, to
$58.4 million for the third quarter of 2013, compared to $60.4
million during the third quarter of 2012. During the third
quarter of fiscal year 2013, the Company experienced a $3.0 million
decline in revenue due to the timing of revenue recognition for
both construction of cemetery projects and the payments for
cemetery property sales. Due to the nature of these items,
revenue recognition does not happen evenly throughout the
year. As construction occurs and additional payments are
received, these contracts will be recognized as revenue in the
future. In addition, the Company experienced a strong third
quarter in fiscal year 2012 of revenue recognized from these
items. These results were partially offset by a $1.1 million
increase in revenue related to trust activities and a $0.9 million
improvement in merchandise delivered and services performed.
- Cemetery property sales were essentially flat compared to the
third quarter of 2012. These results are the strongest quarter
of property sales since the implementation of the new sales
initiatives earlier this year, due primarily to strong sales
throughout the month of July.
- Cemetery gross profit decreased $2.0 million, or 17.9 percent,
to $9.2 million for the third quarter of 2013, compared to $11.2
million for the same period of 2012. Cemetery gross profit
margin declined 270 basis points to 15.8 percent for the third
quarter of 2013 from 18.5 percent for the same period of
2012. The decline is primarily due to the decrease in revenue,
as previously noted.
OTHER
- Corporate general and administrative expenses improved $0.9
million to $6.4 million for the third quarter of fiscal year
2013. The Company reduced its accrual for annual incentive
compensation based on third quarter results.
- During the three months ended July 31, 2013, the Company
incurred $3.1 million in merger-related costs which consist
primarily of legal fees.
- The effective tax rate for continuing operations for the
quarter ended July 31, 2013 was 0.6 percent compared to 27.9
percent for the same period in 2012. The reduced rate
during the third quarter of 2013 is primarily due to a change in
Puerto Rican tax legislation that increased the top tax rate for
businesses from 30 percent to 39 percent. This new tax
legislation reverses the tax legislation passed in January
2011. As a result, the Company revalued its Puerto Rican
deferred tax assets, resulting in a one-time non-cash benefit of
$3.0 million, net. During the third quarter of the prior year,
the Company recorded a tax benefit of $1.1 million resulting from a
reduction in the valuation allowance for capital losses, associated
with the improved performance of the Company's trust
portfolio. The Company did not have an adjustment to its
valuation allowance during the third quarter of 2013.
Year to Date Results
FUNERAL
- Funeral revenue increased $8.3 million, or 3.9 percent, to
$222.0 million for the nine months ended July 31,
2013. Same-store funeral services performed increased 4.3
percent, or 1,736 events. In addition, the Company experienced
a $1.1 million improvement in revenue related to trust
activities. These increases were partially offset by a 0.4
percent decrease in same-store average revenue per funeral service.
- Funeral gross profit increased $0.7 million, or 1.3 percent, to
$53.7 million for the nine months ended July 31, 2013. The
increase is primarily due to the $8.3 million improvement in
revenue, as previously noted. Funeral gross profit margin
declined 60 basis points to 24.2 percent for the first nine months
of fiscal year 2013 from 24.8 percent for the same period of 2012,
due in part to an increase in preneed selling costs, as previously
discussed.
- The cremation rate for the Company's same-store operations was
43.8 percent for the first nine months of fiscal year 2013 compared
to 43.2 percent for the corresponding period of 2012.
- Net preneed funeral sales decreased 5.2 percent during the
first nine months of fiscal year 2013 compared to the same period
of 2012. As part of the integration of its operations and
sales teams, the Company revised its organizational structure and
compensation packages. These actions negatively impacted
preneed funeral sales and cemetery property sales for the first
nine months of fiscal year 2013. The Company anticipated these
changes would create challenges, and is taking the necessary steps
to address them. The Company has been recruiting, hiring and
training new counselors. The Company continues to believe that
the new structure will improve customer service and increase
preneed sales over time. Preneed funeral sales are deferred
until the underlying contracts are performed and have no impact on
current revenue.
CEMETERY
- Cemetery revenue increased $1.6 million, or 0.9 percent, to
$174.6 million for the nine months ended July 31, 2013. The
Company produced a $4.9 million increase in revenue related to
trust activities and a $3.2 million improvement in merchandise
delivered and services performed. In addition, the Company
generated a $3.1 million increase in revenue recognized for
cemetery property sales for which the down payment required for
revenue recognition was received and a $1.6 million increase in
revenue recognized from the construction of various cemetery
projects. These increases were partially offset by a $1.3
million decline in finance charges.
- Cemetery property sales declined $9.3 million, or 11.9 percent,
compared to the first nine months of fiscal year 2012, primarily
due to the revised sales initiatives, as previously discussed.
- Cemetery gross profit increased $5.3 million, or 18.6 percent,
to $33.8 million for the nine months ended July 31,
2013. Cemetery gross profit margin improved 290 basis points
to 19.4 percent for the first nine months of fiscal year 2013 from
16.5 percent for the corresponding period of fiscal year
2012. The increase in gross profit is primarily due to a
reduction in property and related selling costs, coupled with the
improvement in revenue, as previously noted.
OTHER
- During the nine months ended July 31, 2013, the Company
incurred $3.7 million in merger-related costs which consist
primarily of financial advisory and legal fees.
- During the first nine months of the prior fiscal year, the
Company recorded $2.9 million in restructuring and other
charges. These charges were primarily related to separation
pay, termination benefits and a non-cash asset impairment due to
the restructuring of the sales and operations of the organization,
as well as a separate reduction in workforce associated with the
Company's ongoing continuous improvement initiative.
- Other operating income, net increased $0.9 million compared to
the first nine months of fiscal year 2012 primarily due to the sale
of excess cemetery land during fiscal year 2013.
- The effective tax rate for continuing operations for the nine
months ended July 31, 2013 was 25.9 percent compared to 32.7
percent for the corresponding period in fiscal year 2012. The
reduced rate for the first nine months of fiscal year 2013 is
primarily due to a change in Puerto Rican tax legislation that
increased the top tax rate for businesses from 30 percent to 39
percent, as previously discussed. As a result, the Company
revalued its Puerto Rican deferred tax assets, resulting in a
one-time non-cash benefit of $3.0 million, net. In addition,
the Company benefitted from a $2.7 million and a $2.1 million
reduction in the valuation allowance for capital losses, associated
with the positive performance of its trust portfolio for the nine
months ended July 31, 2013 and 2012, respectively.
- During the nine months ended July 31, 2012, the Company decided
to hold one of its e-commerce businesses for sale. The results
of operations and the related impairment resulted in a net loss of
$1.4 million in discontinued operations.
Cash Flow Results and Debt for Total
Operations
- Cash flow provided by operating activities for the third
quarter of fiscal year 2013 was $23.3 million compared to $30.3
million for the same period of last year. The decrease in
operating cash flow is due in part to the decline in net earnings,
coupled with additional net tax payments in the third quarter of
2013, compared to the same period of last year.
- Cash flow provided by operating activities for the first nine
months of fiscal year 2013 was $68.4 million compared to $58.7
million for the same period in fiscal year 2012. For the first
nine months of fiscal year 2013, the Company generated an $8.7
million improvement in net earnings. In addition, the Company
experienced a change in working capital, partly driven by a $4.5
million decline in spending on cemetery development projects and a
$2.1 million improvement in cash flow from receivables due in part
to the decline in preneed funeral and cemetery property sales,
which are typically financed. These changes were partially
offset by the timing of trust withdrawals and deposits, coupled
with additional net tax payments in the first nine months of fiscal
year 2013.
- Free cash flow was $17.5 million and $54.1 million for the
third quarter and first nine months of fiscal year 2013,
respectively, compared to $26.7 million and $47.3 million for the
third quarter and first nine months of fiscal year 2012,
respectively, primarily due to the changes in operating cash flow,
as described above. See table "Reconciliation of Non-GAAP
Financial Measures" for additional information on free cash flow.
- The Company paid $.045 per share in dividends in the third
quarter of fiscal year 2013, compared to $.040 per share in the
prior year period. The Company paid $11.0 million, or $.13 per
share, in dividends in the first nine months of fiscal year 2013,
compared to $10.0 million, or $.115 per share, in the corresponding
period of last year.
Trust Performance
The following total returns include realized and unrealized
gains and losses:
- For the quarter ended July 31, 2013, the Company's preneed
funeral and cemetery merchandise and services trusts experienced a
total return of 0.4 percent, and its perpetual care trusts
experienced a total decline of 0.9 percent.
- For the twelve months ended July 31, 2013, the Company's
preneed funeral and cemetery merchandise and services trusts
experienced a total return of 13.3 percent, and its perpetual care
trusts experienced a total return of 10.8 percent.
- For the three years ended July 31, 2013, the Company's preneed
funeral and cemetery merchandise and services trusts experienced an
average annual total return of 10.8 percent, and its perpetual care
trusts experienced an average annual total return of 10.4 percent.
- For the five years ended July 31, 2013, the Company's preneed
funeral and cemetery merchandise and services trusts experienced an
average annual total return of 6.7 percent, and its perpetual care
trusts experienced an average annual total return of 8.2 percent.
- For fiscal year 2013, the fair market value of the Company's
portfolio improved $45.1 million to $901.3 million as of July 31,
2013.
Founded in 1910, Stewart Enterprises, Inc. is the second largest
provider of products and services in the death care industry in the
United States. The Company currently owns and operates 217 funeral
homes and 141 cemeteries in the United States and Puerto Rico.
Through its subsidiaries, the Company provides a complete range of
funeral and cremation merchandise and services, along with cemetery
property, merchandise and services, both at the time of need and on
a preneed basis. For additional information on Stewart
Enterprises, Inc. please visit www.stewartenterprises.com.
STEWART ENTERPRISES,
INC. |
AND
SUBSIDIARIES |
|
CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS |
(Unaudited) |
(Dollars in thousands,
except per share amounts) |
|
|
Three Months
Ended July 31, |
|
2013 |
2012 |
Revenues: |
|
|
Funeral |
$ 68,696 |
$ 68,883 |
Cemetery |
58,366 |
60,356 |
|
127,062 |
129,239 |
Costs and expenses: |
|
|
Funeral |
54,714 |
53,128 |
Cemetery |
49,153 |
49,125 |
|
103,867 |
102,253 |
Gross profit |
23,195 |
26,986 |
Corporate general and administrative
expenses |
(6,386) |
(7,326) |
Merger-related costs |
(3,126) |
— |
Restructuring and other charges |
— |
(305) |
Other operating income, net |
568 |
191 |
Operating earnings |
14,251 |
19,546 |
Interest expense |
(5,922) |
(5,873) |
Investment and other income (expense),
net |
(2) |
57 |
Earnings from continuing operations
before income taxes |
8,327 |
13,730 |
Income taxes |
50 |
3,834 |
Earnings from continuing operations |
8,277 |
9,896 |
Discontinued operations: |
|
|
Loss from discontinued operations before
income taxes |
— |
(380) |
Income tax benefit |
— |
(122) |
Loss from discontinued operations |
— |
(258) |
Net earnings |
$ 8,277 |
$ 9,638 |
|
|
|
Basic earnings per common share: |
|
|
Earnings from continuing operations |
$ .10 |
$ .11 |
Loss from discontinued operations |
— |
— |
Net earnings |
$ .10 |
$ .11 |
|
|
|
Diluted earnings per common share: |
|
|
Earnings from continuing operations |
$ .10 |
$ .11 |
Loss from discontinued operations |
— |
— |
Net earnings |
$ .10 |
$ .11 |
|
|
|
Weighted average common shares outstanding
(in thousands): |
|
|
Basic |
84,692 |
85,798 |
Diluted |
85,952 |
86,178 |
|
|
|
Dividends declared per common share |
$ .045 |
$ .040 |
|
|
STEWART ENTERPRISES,
INC. |
AND
SUBSIDIARIES |
|
CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS |
(Unaudited) |
(Dollars in thousands,
except per share amounts) |
|
|
Nine Months Ended
July 31, |
|
2013 |
2012 |
Revenues: |
|
|
Funeral |
$ 222,004 |
$ 213,646 |
Cemetery |
174,592 |
173,015 |
|
396,596 |
386,661 |
Costs and expenses: |
|
|
Funeral |
168,299 |
160,685 |
Cemetery |
140,819 |
144,456 |
|
309,118 |
305,141 |
Gross profit |
87,478 |
81,520 |
Corporate general and administrative
expenses |
(20,294) |
(20,264) |
Merger-related costs |
(3,715) |
— |
Restructuring and other charges |
(81) |
(2,852) |
Net gain on dispositions |
742 |
332 |
Other operating income, net |
1,688 |
773 |
Operating earnings |
65,818 |
59,509 |
Interest expense |
(17,794) |
(17,544) |
Investment and other income, net |
160 |
148 |
Earnings from continuing operations
before income taxes |
48,184 |
42,113 |
Income taxes |
12,498 |
13,773 |
Earnings from continuing operations |
35,686 |
28,340 |
Discontinued operations: |
|
|
Loss from discontinued operations before
income taxes |
(88) |
(2,065) |
Income tax benefit |
(31) |
(644) |
Loss from discontinued operations |
(57) |
(1,421) |
Net earnings |
$ 35,629 |
$ 26,919 |
|
|
|
Basic earnings per common share: |
|
|
Earnings from continuing operations |
$ .42 |
$ .32 |
Loss from discontinued operations |
— |
(.01) |
Net earnings |
$ .42 |
$ .31 |
|
|
|
Diluted earnings per common share: |
|
|
Earnings from continuing operations |
$ .41 |
$ .32 |
Loss from discontinued operations |
— |
(.01) |
Net earnings |
$ .41 |
$ .31 |
|
|
|
Weighted average common shares outstanding
(in thousands): |
|
|
Basic |
84,533 |
86,295 |
Diluted |
85,382 |
86,619 |
|
|
|
Dividends declared per common share (1) |
$ .09 |
$ .115 |
|
|
|
(1) The first quarter
dividend historically declared in December and paid in January
(both the Company's first quarter) was declared in October 2012
(the Company's fourth quarter) and paid in December 2012. The
acceleration of the declaration and payment of the first quarter
2013 dividend resulted in no dividends being declared in the first
quarter of 2013, although the dividend was paid in the first
quarter of 2013. The Company paid $11.0 million, or $.13 per
share, in dividends for the nine months ended July 31, 2013,
compared to $10.0 million, or $.115 per share, in dividends during
the nine months ended July 31, 2012. |
|
STEWART ENTERPRISES,
INC. |
AND
SUBSIDIARIES |
|
|
|
CONDENSED CONSOLIDATED
BALANCE SHEETS |
(Unaudited) |
(Dollars in thousands,
except per share amounts) |
|
|
|
ASSETS |
July 31, 2013 |
October 31,
2012 |
|
|
|
Current assets: |
|
|
Cash and cash equivalents |
$ 99,087 |
$ 68,187 |
Restricted cash and cash equivalents |
6,250 |
6,250 |
Marketable securities |
18,673 |
10,514 |
Receivables, net of allowances |
54,756 |
52,441 |
Inventories |
36,108 |
36,495 |
Prepaid expenses |
6,188 |
4,923 |
Deferred income taxes, net |
17,734 |
30,671 |
Total current assets |
238,796 |
209,481 |
Receivables due beyond one year, net of
allowances |
71,364 |
72,620 |
Preneed funeral receivables and trust
investments |
457,520 |
432,422 |
Preneed cemetery receivables and trust
investments |
233,565 |
225,048 |
Goodwill |
249,584 |
249,584 |
Cemetery property, at cost |
402,730 |
401,670 |
Property and equipment, at cost: |
|
|
Land |
50,227 |
49,085 |
Buildings |
370,942 |
360,852 |
Equipment and other |
196,984 |
204,971 |
|
618,153 |
614,908 |
Less accumulated depreciation |
326,016 |
323,648 |
Net property and equipment |
292,137 |
291,260 |
Deferred income taxes, net |
69,324 |
62,125 |
Cemetery perpetual care trust
investments |
275,891 |
263,663 |
Other assets |
12,029 |
13,812 |
Total assets |
$ 2,302,940 |
$ 2,221,685 |
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY |
|
|
|
|
|
Current liabilities: |
|
|
Current maturities of long-term debt |
$ 83,940 |
$ 6 |
Accounts payable and accrued
expenses |
24,923 |
25,214 |
Accrued payroll and other benefits |
16,371 |
19,964 |
Accrued insurance |
23,694 |
22,152 |
Accrued interest |
4,323 |
2,161 |
Estimated obligation to fund cemetery
perpetual care trust |
11,950 |
11,965 |
Other current liabilities |
10,080 |
14,723 |
Income taxes payable |
1,038 |
1,004 |
Total current liabilities |
176,319 |
97,189 |
Long-term debt, less current maturities |
241,192 |
321,887 |
Deferred income taxes, net |
4,768 |
4,931 |
Deferred preneed funeral revenue |
238,921 |
240,415 |
Deferred preneed cemetery revenue |
268,775 |
265,347 |
Deferred preneed funeral and cemetery
receipts held in trust |
620,839 |
585,164 |
Perpetual care trusts' corpus |
273,218 |
261,883 |
Other long-term liabilities |
21,335 |
20,548 |
Total liabilities |
1,845,367 |
1,797,364 |
Commitments and contingencies |
|
|
|
|
|
Shareholders' equity: |
|
|
Preferred stock, $1.00 par value,
5,000,000 shares authorized; no shares issued |
— |
— |
Common stock, $1.00 stated value: |
|
|
Class A authorized 200,000,000 shares;
issued and outstanding 82,157,854 and 81,359,536 shares at July 31,
2013 and October 31, 2012, respectively |
82,158 |
81,360 |
Class B authorized 5,000,000 shares;
issued and outstanding 3,555,020 shares at July 31, 2013 and
October 31, 2012; 10 votes per share convertible into an equal
number of Class A shares |
3,555 |
3,555 |
Additional paid-in capital |
475,955 |
479,060 |
Accumulated deficit |
(104,067) |
(139,696) |
Accumulated other comprehensive income
(loss): |
|
|
Unrealized appreciation (depreciation) of
investments |
(28) |
42 |
Total accumulated other comprehensive
income (loss) |
(28) |
42 |
Total
shareholders' equity |
457,573 |
424,321 |
Total liabilities and shareholders'
equity |
$ 2,302,940 |
$ 2,221,685 |
|
|
STEWART ENTERPRISES,
INC. |
AND
SUBSIDIARIES |
|
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS |
(Unaudited) |
(Dollars in thousands,
except per share amounts) |
|
|
Nine Months Ended
July 31, |
|
2013 |
2012 |
Cash flows from operating activities: |
|
|
Net earnings |
$ 35,629 |
$ 26,919 |
Adjustments to reconcile net earnings to
net cash provided by operating activities: |
|
|
Net (gain) loss on dispositions |
(654) |
539 |
Non-cash restructuring charge |
— |
1,236 |
Depreciation and amortization |
19,645 |
19,859 |
Non-cash interest and amortization of
discount on senior convertible notes |
4,340 |
4,127 |
Provision for doubtful accounts |
3,377 |
3,041 |
Share-based compensation |
3,021 |
2,630 |
Excess tax benefits from share-based
payment arrangements |
(433) |
(23) |
Provision for deferred income taxes |
6,276 |
6,935 |
Estimated obligation to fund cemetery
perpetual care trust |
7 |
567 |
Other |
100 |
90 |
Changes in assets and liabilities: |
|
|
Increase in receivables |
(5,263) |
(7,380) |
Increase in prepaid expenses |
(1,266) |
(1,165) |
Increase in inventories and cemetery
property |
(1,141) |
(5,636) |
Increase (decrease) in accounts payable
and accrued expenses |
(1) |
1,307 |
Federal income tax refund received |
740 |
— |
Net effect of preneed funeral production
and maturities: |
|
|
(Increase) decrease in preneed funeral
receivables and trust investments |
(8,652) |
1,703 |
Increase (decrease) in deferred preneed
funeral revenue |
(1,466) |
503 |
Increase (decrease) in deferred preneed
funeral receipts held in trust |
7,312 |
(2,959) |
Net effect of preneed cemetery production
and deliveries: |
|
|
Decrease in preneed cemetery receivables
and trust investments |
677 |
409 |
Increase in deferred preneed cemetery
revenue |
3,428 |
6,398 |
Increase (decrease) in deferred preneed
cemetery receipts held in trust |
1,803 |
(695) |
Increase in other |
904 |
334 |
Net cash provided by operating
activities |
68,383 |
58,739 |
|
|
|
Cash flows from investing activities: |
|
|
Proceeds from sales/maturities of
marketable securities and release of restricted funds |
2,264 |
2,006 |
Deposits of restricted funds and
purchases of marketable securities |
(10,366) |
(2,036) |
Proceeds from sale of assets |
799 |
533 |
Purchase of subsidiaries and other
investments, net of cash acquired |
— |
(3,113) |
Additions to property and equipment |
(20,913) |
(16,215) |
Other |
104 |
87 |
Net cash used in investing
activities |
(28,112) |
(18,738) |
|
|
|
Cash flows from financing activities: |
|
|
Repayments of long-term debt |
(4) |
(4) |
Debt refinancing costs |
— |
(34) |
Issuance of common stock |
3,028 |
1,433 |
Purchase and retirement of common
stock |
(1,833) |
(19,075) |
Dividends |
(10,995) |
(9,955) |
Excess tax benefits from share-based
payment arrangements |
433 |
23 |
Net cash used in financing
activities |
(9,371) |
(27,612) |
|
|
|
Net increase in cash |
30,900 |
12,389 |
Cash and cash equivalents, beginning of
period |
68,187 |
65,688 |
Cash and cash equivalents, end of period |
$ 99,087 |
$ 78,077 |
|
|
|
Supplemental cash flow information: |
|
|
Cash paid during the period for: |
|
|
Income taxes, net |
$ 5,608 |
$ 2,542 |
Interest |
$ 11,466 |
$ 11,452 |
|
|
|
Non-cash investing and financing
activities: |
|
|
Issuance of common stock to
directors |
$ 133 |
$ 437 |
Issuance of restricted stock, net of
forfeitures |
$ 1,491 |
$ 1,084 |
|
|
RECONCILIATION OF
NON-GAAP FINANCIAL MEASURES |
FOR THE PERIODS ENDED
JULY 31, 2013 AND 2012 |
(Unaudited) |
|
|
|
|
|
|
|
|
|
The Company recorded several
items during the three and nine months ended July 31, 2013 and 2012
that impacted earnings from continuing operations: a non-cash
interest expense related to the Company's senior convertible notes,
merger-related costs, restructuring and other charges, a perpetual
care funding obligation, net gain on dispositions and unusual tax
adjustments. The Company is presenting adjusted earnings in
the table below to eliminate the effects of the specified
items. |
|
|
|
|
|
|
|
|
|
|
Three Months
Ended July 31, |
Nine Months Ended
July 31, |
Adjusted Balances are Net of
Tax |
2013 |
2012 |
2013 |
2012 |
|
millions |
per diluted share |
millions |
per diluted share |
millions |
per diluted share |
millions |
per diluted share |
|
|
|
|
|
|
|
|
|
Consolidated net earnings |
$ 8.3 |
$ .10 |
$ 9.6 |
$ .11 |
$ 35.6 |
$ .41 |
$ 26.9 |
$ .31 |
Add: Loss from discontinued
operations |
— |
— |
0.3 |
— |
— |
— |
1.4 |
.01 |
Earnings from continuing operations |
8.3 |
.10 |
9.9 |
.11 |
35.6 |
.41 |
28.3 |
.32 |
Add: Non-cash interest expense on
senior convertible notes (1) |
0.7 |
.01 |
0.6 |
.01 |
2.0 |
.03 |
1.9 |
.02 |
Add: Merger-related costs (2) |
2.0 |
.02 |
— |
— |
2.4 |
.03 |
— |
— |
Add: Restructuring and other charges
(3) |
— |
— |
0.2 |
— |
— |
— |
1.8 |
.02 |
Add: Perpetual care funding obligation
(4) |
— |
— |
— |
— |
— |
— |
0.4 |
— |
Subtract: Net gain on dispositions
(5) |
— |
— |
— |
— |
(0.4) |
(.01) |
(0.2) |
— |
Subtract: Unusual tax adjustments
(6) |
(3.0) |
(.04) |
(1.1) |
(.01) |
(5.7) |
(.07) |
(2.1) |
(.02) |
Adjusted earnings from continuing
operations |
$ 8.0 |
$ .09 |
$ 9.6 |
$ .11 |
$ 33.9 |
$ .39 |
$30.1 |
$ .34 |
(1) Effective November
1, 2009, the Company adopted Financial Accounting Standards Board
guidance that relates to the Company's senior convertible notes,
which has been applied retrospectively in the Company's financial
statements. For additional information, see Note 3 to the
financial statements included in the Company's Form 10-K for the
year ended October 31, 2012. The tax rate associated with the
interest expense related to the Company's senior convertible notes
was 37.1 percent and 37.7 percent for the three and nine months
ended July 31, 2013, respectively. The tax rate associated
with the interest expense related to the Company's senior
convertible notes was 35.8 percent and 37.3 percent for the three
and nine months ended July 31, 2012, respectively. |
(2) On May 29, 2013,
the Company announced that it had entered into a definitive merger
agreement with SCI. Pursuant to the agreement, holders of the
Company's Class A and Class B common stock will receive $13.25 in
cash for each share of common stock they hold. The transaction
was approved by the Company's shareholders on August 13,
2013. The transaction is subject to the satisfaction of
customary closing conditions and regulatory approvals, including
expiration or termination of the applicable waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The
proposed transaction is expected to close in late calendar year
2013 or early 2014. During the nine months ended July 31,
2013, the Company incurred $3.7 million in merger-related costs,
including $3.1 million in the third quarter of fiscal year
2013. The tax rate associated with the Company's
merger-related costs for the three and nine months ended July 31,
2013 was 37.6 percent and 37.7 percent, respectively. |
(3) The Company
recorded $0.3 million and $2.9 million in restructuring and other
charges during the three and nine months ended July 31, 2012,
respectively. These charges were primarily related to
separation pay, termination benefits and a non-cash asset
impairment due in part to the restructuring of the sales and
operations of the organization, along with a reduction in workforce
associated with the Company's continuous improvement
initiative. The tax rate associated with this charge for the
three and nine months ended July 31, 2012 was 31.0 percent and 37.3
percent, respectively. |
(4) As a result of
Eastman Kodak's bankruptcy, the Company recorded a charge to record
a probable funding obligation related to the Company's perpetual
care trusts during the first quarter of 2012. The tax rate
associated with the Company's adjustment for the perpetual care
funding obligation for the nine months ended July 31, 2012 was 37.3
percent. |
(5) The tax rate
associated with the Company's adjustment for the net gain on
dispositions for the nine months ended July 31, 2013 and July 31,
2012 was 37.7 percent and 38.3 percent, respectively. |
(6) For the nine months
ended July 31, 2013 and the three and nine months ended July 31,
2012, the Company recorded a reduction in the tax valuation
allowance, primarily resulting from the improved performance of the
Company's trust portfolio. In the third quarter of 2013,
Puerto Rico passed new tax legislation that increased the top tax
rate for businesses from 30 percent to 39 percent. This new
tax legislation reverses the tax legislation previously passed in
January 2011. As a result, the Company revalued its Puerto
Rican deferred tax assets. The tax rate change resulted in a
one-time $3.0 million, net, non-cash charge to increase the
deferred tax assets related to the Puerto Rican
operations. For additional information, see Note 17 of the
Company's Form 10-Q for the quarter ended July 31, 2013. |
|
|
RECONCILIATION OF
NON-GAAP FINANCIAL MEASURES |
FOR THE PERIODS ENDED
JULY 31, 2013 AND 2012 |
(Unaudited) |
|
|
|
|
|
Free cash flow is defined as net
cash provided by operating activities less maintenance capital
expenditures. Management believes that free cash flow is a useful
measure of the Company's ability to make strategic investments,
repurchase stock, repay debt or pay dividends (subject to the
restrictions in its debt agreements). The following table
provides a reconciliation between net cash provided by operating
activities (the GAAP financial measure that the Company believes is
most directly comparable to free cash flow) and free cash flow for
the three and nine months ended July 31, 2013 and 2012: |
|
|
|
|
|
Free Cash Flow |
Three Months
Ended July 31, |
Nine Months Ended
July 31, |
(Dollars in millions) |
2013 |
2012 |
2013 |
2012 |
Net cash provided by operating activities
(1) |
$ 23.3 |
$ 30.3 |
$ 68.4 |
$ 58.7 |
Less: Maintenance capital
expenditures |
(5.8) |
(3.6) |
(14.3) |
(11.4) |
Free cash flow |
$ 17.5 |
$ 26.7 |
$ 54.1 |
$ 47.3 |
|
|
|
|
|
(1) Cash flow provided
by operating activities for the third quarter of fiscal year 2013
was $23.3 million compared to $30.3 million for the same period of
last year. The decrease in operating cash flow is due in part
to the decline in net earnings, coupled with additional net tax
payments in the third quarter of 2013, compared to the same period
of last year. |
Cash flow provided by
operating activities for the first nine months of fiscal year 2013
was $68.4 million compared to $58.7 million for the same period in
fiscal year 2012. For the first nine months of fiscal year
2013, the Company generated an $8.7 million improvement in net
earnings. In addition, the Company experienced a change in
working capital, partly driven by a $4.5 million decline in
spending on cemetery development projects and a $2.1 million
improvement in cash flow from receivables due in part to the
decline in preneed funeral and cemetery property sales, which are
typically financed. These changes were partially offset by the
timing of trust withdrawals and deposits, coupled with additional
net tax payments in the first nine months of fiscal year 2013. |
|
|
RECONCILIATION OF
NON-GAAP FINANCIAL MEASURES |
FOR THE PERIODS ENDED
JULY 31, 2013 AND 2012 |
(Unaudited) |
|
|
|
|
|
Adjusted EBITDA is defined as
earnings from continuing operations plus depreciation and
amortization, interest expense, perpetual care funding obligations,
restructuring and other charges, merger-related costs, income taxes
and less net gain on dispositions. Adjusted EBITDA margins are
calculated by dividing adjusted EBITDA by revenue. |
|
|
|
|
|
Management believes that adjusted
EBITDA is a useful measure for providing additional insight into
the Company's operating performance. Due to the Company's
significant cash investment in preneed activity, management does
not view adjusted EBITDA as a measure of the Company's cash
flow. Investors should be aware that adjusted EBITDA may not
be comparable to similarly titled measures presented by other
companies. The following table provides a reconciliation between
net earnings (the GAAP financial measure that the Company believes
is most directly comparable to adjusted EBITDA) and adjusted EBITDA
for the three and nine months ended July 31, 2013 and 2012: |
|
|
|
|
|
Adjusted EBITDA |
Three Months
Ended July 31, |
Nine Months Ended
July 31, |
(Dollars in millions) |
2013 |
2012 |
2013 |
2012 |
Consolidated net earnings |
$ 8.3 |
$ 9.6 |
$ 35.6 |
$ 26.9 |
Add: Loss from discontinued
operations |
— |
0.3 |
— |
1.4 |
Earnings from continuing
operations |
8.3 |
9.9 |
35.6 |
28.3 |
Add: Depreciation and
amortization |
6.6 |
6.6 |
19.6 |
19.8 |
Add: Interest expense |
6.0 |
5.9 |
17.8 |
17.5 |
Add: Perpetual care funding
obligation (1) |
— |
— |
— |
0.6 |
Add: Restructuring and other
charges |
— |
0.3 |
0.1 |
2.9 |
Add: Merger-related costs |
3.1 |
— |
3.7 |
— |
Add: Income taxes |
— |
3.8 |
12.5 |
13.8 |
Subtract: Net gain on
dispositions |
— |
— |
(0.7) |
(0.3) |
Adjusted EBITDA |
$ 24.0 |
$ 26.5 |
$ 88.6 |
$ 82.6 |
Adjusted EBITDA margin |
18.9% |
20.5% |
22.3% |
21.4% |
|
|
|
|
|
(1) As a result of
Eastman Kodak's bankruptcy, the Company recorded a charge to record
a probable funding obligation related to the Company's perpetual
care trusts during the first quarter of 2012. |
STEWART ENTERPRISES, INC.
AND SUBSIDIARIES
CAUTIONARY STATEMENTS
This press release includes forward-looking statements that are
generally identifiable through the use of words such as "believe,"
"expect," "intend," "plan," "estimate," "anticipate," "project,"
"will" and similar expressions. These forward-looking
statements rely on assumptions, estimates and predictions that
could be inaccurate and that are subject to risks and uncertainties
that could cause actual results to differ materially from our goals
or forecasts. These risks and uncertainties include, but are
not limited to:
- effects on our trusts and escrow accounts of changes in stock
and bond prices and interest and dividend rates;
- effects of the substantial unrealized losses in the investments
in our trusts, including:
- decreased future cash flow and earnings as a result of reduced
earnings from our trusts and trust fund management;
- the potential to realize additional losses and additional
cemetery perpetual care funding obligations and tax valuation
allowances;
- effects on at-need and preneed sales of a weak economy;
- effects on revenue due to the changes in the number of deaths
in our markets and recent annual declines in funeral call volume;
- effects on our revenue and earnings of the continuing national
trend toward increased cremation and the increases in the
percentage of cremations performed by us that are inexpensive
direct cremations;
- effects on our future revenue and costs of our organizational
restructuring designed to better integrate operations and sales,
implemented primarily during the latter part of fiscal year 2012
and the beginning of fiscal year 2013;
- effects on cash flow and earnings as a result of increased
costs, particularly supply costs related to increases in commodity
prices;
- effects on our market share, prices, revenues and margins of
intensified price competition or improved advertising and marketing
by competitors, including low-cost casket providers and increased
offerings of products or services over the Internet;
- risk of loss due to hurricanes and other natural disasters;
- effects of the call options the Company purchased and the
warrants the Company sold on our Class A common stock and the
effects of the outstanding warrants on the ownership interest of
our current stockholders;
- our ability to pay future dividends on our common stock;
- the effects on us as a result of our industry's complex
accounting model;
- the occurrence of any circumstances that could give rise to the
termination of the merger agreement; the outcome of any legal
proceedings that may be instituted against the Company related to
the merger agreement; the inability to complete the transaction due
to the failure to satisfy conditions to completion of the
transaction, including the receipt of all regulatory approvals
related to the transaction; the disruption of management's
attention from the Company's ongoing business operations due to the
transaction; the effect of the announcement of the transaction on
the Company's relationships with its customers, operating results
and business generally;
and other risks and uncertainties described in our Form 10-K for
the year ended October 31, 2012 and our Form 10-Q for the quarter
ended July 31, 2013, filed with the SEC. We disclaim any
obligation or intent to update or revise any forward-looking
statements in order to reflect events or circumstances after the
date of this release.
CONTACT: Lewis J. Derbes, Jr.
Stewart Enterprises, Inc.
1333 S. Clearview Parkway
Jefferson, LA 70121
504-729-1400
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