NEW ORLEANS, Dec. 16, 2011 (GLOBE NEWSWIRE) -- Stewart Enterprises, Inc. (Nasdaq:STEI) reported today its results for the fourth quarter and fiscal year ended October 31, 2011.
For the quarter ended October 31, 2011, the Company reported net earnings from continuing operations of $8.5 million, or $.10 per diluted share, compared to net earnings from continuing operations of $8.7 million, or $.09 per diluted share, for the quarter ended October 31, 2010. The Company reported net earnings from continuing operations for fiscal year 2011 of $38.6 million, or $.42 per diluted share, compared to net earnings from continuing operations of $30.6 million, or $.33 per diluted share, for fiscal year 2010.
After adjusting net earnings for certain items, as discussed in the tables "Reconciliation of Non-GAAP Financial Measures," for the quarter ended October 31, 2011, the Company reported adjusted earnings from continuing operations of $8.1 million, or $.09 per diluted share, compared to adjusted earnings from continuing operations of $8.4 million, or $.09 per diluted share, for the quarter ended October 31, 2010. The Company reported adjusted earnings from continuing operations of $34.9 million, or $.38 per diluted share, for fiscal year 2011, compared to adjusted earnings from continuing operations of $32.1 million, or $.34 per diluted share, for fiscal year 2010.
Thomas M. Kitchen, President and Chief Executive Officer, stated, "We are pleased with the strong finish of fiscal year 2011, which by our measures is the best fiscal year in the past three years. For the quarter and fiscal year 2011, we grew both funeral and cemetery revenue, continued to control our expenses and increased overall gross profit. During fiscal 2011, we invested $2 million in new growth initiatives, which we believe will provide benefits in the future. Even after these investments and excluding the $12.4 million positive impact of the Hurricane Katrina settlement, we achieved an 11 percent increase in earnings from continuing operations before income taxes. Further, for the fourth quarter of 2011, we achieved a 9 percent increase in earnings from continuing operations before income taxes, excluding the $0.9 million loss on extinguishment of debt in fiscal year 2010."
Highlights for fiscal year 2011 include:
- Generating strong operating and free cash flow of $86.8 million and $69.2 million, respectively. As of October 31, 2011, the Company had $66.4 million of cash and marketable securities;
- Achieving the best fiscal year results in the past three years including: the highest net earnings and earnings per share, the highest increase in same-store funeral calls, the highest annual cemetery property sales and the lowest corporate and general administrative costs;
- Producing a 3 percent increase in overall revenue and a 12 percent increase in adjusted earnings per share from continuing operations over the last fiscal year;
- Settling the Company's litigation related to Hurricane Katrina damages for $12.4 million;
- Amending the $95 million revolving credit facility, which was undrawn and scheduled to mature in June 2012, to increase its size to $150 million and extend its maturity date to April 2016. The $150 million credit facility remains undrawn;
- Completing an offering of $200 million 6.50 percent senior notes due in 2019 and repurchasing $200 million of the outstanding 6.25 percent senior notes due in 2013;
- Announcing a 17 percent increase in the Company's dividend to $.14 per share and returning nearly $12 million through the payment of dividends;
- Repurchasing 5 percent of the Company's common stock during the fiscal year and increasing its stock repurchase program by $50 million.
Mr. Kitchen concluded, "Throughout fiscal year 2011, our liquidity position has remained strong. As of the end of the fiscal year, we have more than $66 million in cash and marketable securities. We were able to maintain our strong balance sheet while repurchasing 4.5 million shares of our common stock in the open market for nearly $30 million, paying nearly $12 million in dividends and investing $9 million in acquisitions throughout the fiscal year. We remain committed to maintaining our strong balance sheet, as well as growing our Company organically and through strategic acquisitions."
Fourth Quarter Results from Continuing Operations
FUNERAL
- Funeral revenue increased $1.6 million, or 2.4 percent, to $68.0 million for the fourth quarter of 2011 from $66.4 million for the fourth quarter of 2010. The Company's same-store funeral operations generated a 2.5 percent increase in average revenue per traditional funeral service and a 0.4 percent increase in average revenue per cremation service.
- The Company's same-store funeral services for the fourth quarter of 2011 were essentially flat compared to the fourth quarter of 2010.
- Funeral gross profit decreased $0.9 million, or 6.1 percent, to $13.8 million for the fourth quarter of 2011, compared to $14.7 million for the same period of 2010. The decrease in funeral gross profit is primarily due to an increase in compensation and health benefits, coupled with an increase in general liability insurance.
- The cremation rate for the Company's same-store operations grew to 42.1 percent for the fourth quarter of 2011 compared to 41.8 percent for the fourth quarter of 2010.
- Net preneed funeral sales increased 8.8 percent during the fourth quarter of 2011 compared to the fourth quarter of 2010. Preneed funeral sales are deferred until the underlying contracts are performed and have no impact on current revenue.
CEMETERY
- Cemetery revenue increased $2.5 million, or 4.2 percent, to $61.4 million for the fourth quarter of 2011 from $58.9 million for the fourth quarter of 2010. This increase is due primarily to a $3.6 million, or 14.4 percent, improvement in cemetery property sales, coupled with a $1.1 million improvement in revenue related to trust activities. These increases were partially offset by a $1.7 million decrease related to the timing of construction during the period on various cemetery projects and a $0.6 million reduction in finance charges as a result of reduced interest rates in this low interest rate environment.
- Cemetery gross profit increased $1.6 million, or 17.2 percent, to $10.9 million for the fourth quarter of 2011 primarily due to the $2.5 million increase in cemetery revenue, as noted above.
OTHER
- The effective tax rate for the quarter ended October 31, 2011 was 28.5 percent compared to 12.9 percent for the same period in 2010. The tax rate for the three months ended October 31, 2011 was impacted primarily by a tax benefit associated with a deduction attributable to the prior sale of a business. The tax rate for the three months ended October 31, 2010 was primarily due to a reduction in the valuation allowance on the Company's capital loss carry forward and an increased tax benefit from the recognition of net operating losses in certain states and a U.S. possession.
- During the fourth quarter of 2011, the Company repurchased 2.2 million shares of the Company's outstanding Class A common stock for $13.2 million under its share repurchase program.
- In the fourth quarter of 2010, the Company purchased $14.9 million aggregate principal amount of its senior convertible notes in the open market at $1.8 million less than the face value of the notes. In connection with the purchases, the Company recorded a net loss on early extinguishment of debt of $0.9 million for the three months ended October 31, 2010.
Fiscal Year 2011 Results from Continuing Operations
FUNERAL
- Funeral revenue increased $7.8 million, or 2.8 percent, to $283.7 million for fiscal year 2011 from $275.9 million for the same period of 2010. The Company's same-store funeral operations generated a 1.6 percent increase in average revenue per traditional funeral service and a 3.3 percent increase in average revenue per cremation service, coupled with a 0.6 percent increase in same-store funeral services.
- Funeral gross profit increased $1.0 million, or 1.5 percent, to $66.6 million for fiscal year 2011, primarily due to the $7.8 million increase in funeral revenue, as noted above, partially offset by an increase in funeral expenses. This increase is due in part to an increase in compensation in the current year, primarily resulting from changes made in the Company's compensation package to incentivize improvements in operational performance, as well as an increase in health and general liability insurance, funeral bad debt and energy costs.
- The cremation rate for the Company's same-store operations was 42.5 percent for fiscal year 2011 compared to 41.9 percent for the same period of 2010.
- Net preneed funeral sales increased 1.8 percent during fiscal year 2011 compared to the same period of 2010. Preneed funeral sales are deferred until the underlying contracts are performed and have no impact on current revenue.
CEMETERY
- Cemetery revenue increased $5.0 million, or 2.2 percent, to $229.0 million for fiscal year 2011, compared to $224.0 million for the same period of 2010. This improvement is primarily due to a $7.3 million, or 7.6 percent, increase in cemetery property sales, coupled with a $1.9 million improvement in revenue related to trust activities. These increases were partially offset by a $1.2 million reduction in finance charges as a result of reduced interest rates in this low interest rate environment and a $0.9 million decrease in merchandise delivered.
- Cemetery gross profit increased $2.7 million, or 8.7 percent, to $33.8 million for fiscal year 2011, even after considering a $1.1 million positive impact in fiscal year 2010 of perpetual care withdrawals related to prior cancellations which the Company used to offset its perpetual care expenses. The improvement in cemetery gross profit is primarily due to the $5.0 million increase in revenue, as noted above.
OTHER
- Corporate general and administrative expenses decreased $0.3 million to $28.0 million for fiscal year 2011, compared to $28.3 million for the same period of 2010. During fiscal year 2010, the Company experienced increased litigation costs primarily related to the settlement of litigation. During fiscal year 2011, the Company realized cost savings from its continuous improvement initiatives. The Company used these savings to fund $2.0 million of expenses in various growth initiatives in fiscal year 2011. The Company believes these investments in e-commerce and third-party growth initiatives will provide benefits in the future. For additional information on the Company's e-commerce and third-party growth initiatives, see Item 1. "Business-Operations" in the Company's Form 10-K for the year ended October 31, 2011.
- In August 2011, the Company successfully settled litigation related to Hurricane Katrina damages for $12.4 million, including $1.1 million that was advanced to the Company in fiscal year 2007. The settlement increased pre-tax earnings by $12.4 million, net earnings by $7.5 million and diluted earnings per share by $.08 for the fiscal year.
- Interest expense decreased $1.7 million to $22.7 million during fiscal year 2011 primarily due to the significant repurchases of a portion of the Company's senior convertible notes in the open market that occurred throughout fiscal year 2010.
- In fiscal year 2011, the Company recorded a $1.9 million charge for the early extinguishment of debt as a result of the April 2011 refinancing transactions, which significantly extended the Company's debt maturity profile at favorable terms. During fiscal year 2010, the Company purchased $35.9 million aggregate principal amount of its senior convertible notes in the open market at $4.5 million less than the face value of the notes. In connection with the purchases, the Company recorded a net loss on early extinguishment of debt of $1.0 million for fiscal year 2010.
- The effective tax rate for fiscal year 2011 was 37.7 percent compared to 31.3 percent for the same period in 2010. The decreased rate in fiscal year 2010 was primarily due to a tax benefit from the net reduction in the valuation allowance on the Company's capital loss carry forwards and an increased tax benefit from the recognition and utilization of net operating losses in certain states and a U.S. possession.
- During fiscal year 2011, the Company repurchased 4.5 million shares of the Company's outstanding Class A common stock for $28.7 million under its share repurchase program.
- Subsequent to year-end, the Company repurchased an additional 0.6 million shares of outstanding Class A common stock for $3.7 million under its share repurchase program, for a total of 5.9 million shares for $36.4 million since the reinstatement of the share repurchase program in September 2010. The Company currently has $40.1 million remaining under its $125.0 million program.
Cash Flow Results and Debt for Total Operations
- Cash flow provided by operating activities for the fourth quarter of fiscal year 2011 was $26.4 million compared to $14.2 million for the same period of last year. The Company received $11.3 million during the fourth quarter of 2011 as a result of the Hurricane Katrina settlement.
- Cash flow provided by operating activities for fiscal year 2011 was $86.8 million compared to $63.4 million for the same period of last year. The increase in operating cash flow is primarily due to $11.3 million of the Hurricane Katrina settlement received during the fourth quarter of 2011. In addition, the Company experienced a change in working capital during fiscal year 2011, primarily driven by the timing of trust withdrawals and deposits, partially offset by an increase in inventory and receivables. These increases are due in part to the improved cemetery property sales, which are typically financed.
- Free cash flow was $21.7 million and $69.2 million for the fourth quarter and fiscal year 2011, respectively, compared to $10.1 million and $50.7 million for the fourth quarter and fiscal year 2010, respectively.
- The Company paid $3.1 million or $.035 per share, and $11.8 million, or $.13 per share, in dividends for the fourth quarter and fiscal year 2011, respectively, compared to $2.9 million, or $.03 per share, and $11.2 million, or $.12 per share, in dividends during the fourth quarter and fiscal year 2010, respectively.
- In connection with its workers' compensation and automobile liability program with its carrier, the Company is required to maintain collateral in the amount of $6.3 million. In the past, the Company has posted letters of credit to meet this requirement. In fiscal year 2011, in order to reduce letter of credit fees, the Company posted cash to satisfy the collateral requirement by investing $6.3 million in a money market fund comprised of short-term U.S. treasury securities. Both methods of posting collateral are available to the Company at any time in the future.
- In April 2011, the Company completed refinancing transactions which significantly extended its debt maturity profile at favorable terms. The Company completed an offering of $200.0 million 6.50 percent senior notes due 2019 and repurchased $194.2 million of its $200.0 million outstanding 6.25 percent senior notes due 2013. The Company redeemed the remaining $5.8 million notes outstanding in May 2011 at par. The Company also amended its $95.0 million revolving credit facility, which was undrawn and scheduled to mature in June 2012, to increase its size to $150.0 million and extend its maturity date to April 2016. The $150.0 million revolving credit facility is currently undrawn.
Trust Performance
The following returns include realized and unrealized gains and losses:
- For the quarter ended October 31, 2011, the Company's preneed trusts experienced a total decline of 1.9 percent and its perpetual care trusts generated a positive total return of 0.3 percent.
- For the twelve months ended October 31, 2011, the Company's preneed trusts experienced a total return of 4.4 percent and its perpetual care trusts generated a total return of 4.9 percent.
- For the last five years ended October 31, 2011, the Company's preneed trusts experienced an annual total return of 1.0 percent and its perpetual care trusts generated an annual total return of 2.7 percent.
- As of November 30, 2011, the fair market value of the Company's preneed trusts and its cemetery perpetual care trusts decreased 1.4 percent, or approximately $11.6 million from October 31, 2011.
- As of October 31, 2011, the Company concluded that a number of securities in its trust portfolios are other-than-temporarily impaired. For these securities, the Company no longer believes that it has the ability, or in some cases, the intent to hold the securities until they recover their cost value. The Company has written the cost basis of these securities down to their fair market value as of October 31, 2011. The aggregate amounts of the other-than-temporary impairments recorded in the Company's preneed trusts and its perpetual care trusts were $44.7 million and $11.0 million, respectively. This impairment had no impact on the Company's balance sheet, as the securities in the trust portfolios and corresponding liabilities are already recorded at fair market value on the balance sheet. The impairment also had no impact on the Company's income statement for fiscal year 2011; however, these impairments will be allocated to the underlying contracts in the preneed trusts as of October 31, 2011, and will be recognized as the services and merchandise are performed and delivered in the future. In addition, the Company determined that the impairment did not create a probable funding obligation. Given that the contracts in the trusts have historically had an average term of approximately 10-15 years, the Company projects that this impairment could decrease its revenue and gross profit for the foreseeable future by approximately $2 million to $4 million per year. For additional information, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Notes 4, 5 and 6 to the consolidated financial statements included in Item 8. in the Company's Form 10-K for the year ended October 31, 2011.
Founded in 1910, Stewart Enterprises is the second largest provider of products and services in the death care industry in the United States. The Company currently owns and operates 218 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.
Stewart Enterprises, Inc. will host its quarterly conference call for investors to discuss fourth quarter results on Friday, December 16, 2011 at 10:00 a.m. Central Standard Time. The teleconference dial-in number is 1-877-317-6789. To participate, please call the number at least 15 minutes prior to the call. If you are calling from outside the United States, the dial-in number is 1-412-317-6789. A replay of the call will be available by dialing 1-877-870-5176 (from within the continental United States) or 1-858-384-5517 (from outside the continental United States), and using pass code 10007524 until December 23, 2011, at 10:59 p.m. Central Standard Time. Interested parties will also have the opportunity to listen to the live conference call via the Internet through Stewart Enterprises' website http://www.stewartenterprises.com. To listen to the live call, please go to the website at least 15 minutes early to register, download and install any necessary audio software. A replay will be available at this website shortly following the conference call and will be available at the website until January 16, 2012.
| STEWART ENTERPRISES, INC. AND SUBSIDIARIES | ||
| CONSOLIDATED STATEMENTS OF EARNINGS | ||
| (Dollars in thousands, except per share amounts) | ||
| Three Months Ended October 31, | ||
| 2011 | 2010 | |
| Revenues: | ||
| Funeral | $ 68,056 | $ 66,433 |
| Cemetery | 61,322 | 58,871 |
| 129,378 | 125,304 | |
| Costs and expenses: | ||
| Funeral | 54,225 | 51,739 |
| Cemetery | 50,484 | 49,581 |
| 104,709 | 101,320 | |
| Gross profit | 24,669 | 23,984 |
| Corporate general and administrative expenses | (7,662) | (7,596) |
| Hurricane related charges, net | (13) | (4) |
| Other operating income, net | 432 | 373 |
| Operating earnings | 17,426 | 16,757 |
| Interest expense | (5,779) | (5,861) |
| Loss on early extinguishment of debt | — | (946) |
| Investment and other income, net | 278 | 34 |
| Earnings from continuing operations before income taxes | 11,925 | 9,984 |
| Income taxes | 3,398 | 1,291 |
| Earnings from continuing operations | 8,527 | 8,693 |
| Discontinued operations: | ||
| Earnings from discontinued operations before income taxes | — | 595 |
| Income taxes | — | 227 |
| Earnings from discontinued operations | — | 368 |
| Net earnings | $ 8,527 | $ 9,061 |
| Basic earnings per common share: | ||
| Earnings from continuing operations | $ .10 | $ .09 |
| Earnings from discontinued operations | — | .01 |
| Net earnings | $ .10 | $ .10 |
| Diluted earnings per common share: | ||
| Earnings from continuing operations | $ .10 | $ .09 |
| Earnings from discontinued operations | — | .01 |
| Net earnings | $ .10 | $ .10 |
| Weighted average common shares outstanding (in thousands): | ||
| Basic | 88,528 | 92,104 |
| Diluted | 88,840 | 92,343 |
| Dividends declared per common share | $ .035 | $ .030 |
| STEWART ENTERPRISES, INC. AND SUBSIDIARIES | ||
| CONSOLIDATED STATEMENTS OF EARNINGS | ||
| (Dollars in thousands, except per share amounts) | ||
| Year Ended October 31, | ||
| 2011 | 2010 | |
| Revenues: | ||
| Funeral | $ 283,657 | $ 275,898 |
| Cemetery | 229,007 | 224,009 |
| 512,664 | 499,907 | |
| Costs and expenses: | ||
| Funeral | 217,009 | 210,277 |
| Cemetery | 195,238 | 192,891 |
| 412,247 | 403,168 | |
| Gross profit | 100,417 | 96,739 |
| Corporate general and administrative expenses | (28,020) | (28,319) |
| Hurricane related recoveries (charges), net | 12,232 | (66) |
| Net loss on dispositions | (389) | — |
| Other operating income, net | 1,625 | 1,424 |
| Operating earnings | 85,865 | 69,778 |
| Interest expense | (22,747) | (24,392) |
| Loss on early extinguishment of debt | (1,884) | (1,035) |
| Investment and other income, net | 672 | 156 |
| Earnings from continuing operations before income taxes | 61,906 | 44,507 |
| Income taxes | 23,351 | 13,938 |
| Earnings from continuing operations | 38,555 | 30,569 |
| Discontinued operations: | ||
| Earnings from discontinued operations before income taxes | — | 660 |
| Income taxes | — | 251 |
| Earnings from discontinued operations | — | 409 |
| Net earnings | $ 38,555 | $ 30,978 |
| Basic earnings per common share: | ||
| Earnings from continuing operations | $ .43 | $ .33 |
| Earnings from discontinued operations | — | — |
| Net earnings | $ .43 | $ .33 |
| Diluted earnings per common share: | ||
| Earnings from continuing operations | $ .42 | $ .33 |
| Earnings from discontinued operations | — | — |
| Net earnings | $ .42 | $ .33 |
| Weighted average common shares outstanding (in thousands): | ||
| Basic | 90,001 | 92,119 |
| Diluted | 90,486 | 92,394 |
| Dividends declared per common share | $ .13 | $ .12 |
| STEWART ENTERPRISES, INC. AND SUBSIDIARIES | ||
| CONSOLIDATED BALANCE SHEETS | ||
| (Dollars in thousands, except per share amounts) | ||
| ASSETS | October 31, 2011 | October 31, 2010 |
| Current assets: | ||
| Cash and cash equivalents | $ 65,688 | $ 56,060 |
| Restricted cash and cash equivalents | 6,250 | — |
| Certificates of deposit and marketable securities | 662 | 10,000 |
| Receivables, net of allowances | 49,146 | 51,151 |
| Inventories | 35,859 | 35,708 |
| Prepaid expenses | 5,055 | 5,479 |
| Deferred income taxes, net | 29,768 | 28,312 |
| Assets held for sale | — | 27 |
| Total current assets | 192,428 | 186,737 |
| Receivables due beyond one year, net of allowances | 67,979 | 67,458 |
| Preneed funeral receivables and trust investments | 409,296 | 414,918 |
| Preneed cemetery receivables and trust investments | 216,582 | 209,287 |
| Goodwill | 247,038 | 247,038 |
| Cemetery property, at cost | 396,014 | 386,004 |
| Property and equipment, at cost: | ||
| Land | 46,538 | 43,518 |
| Buildings | 353,688 | 338,237 |
| Equipment and other | 197,766 | 191,428 |
| 597,992 | 573,183 | |
| Less accumulated depreciation | 305,708 | 283,633 |
| Net property and equipment | 292,284 | 289,550 |
| Deferred income taxes, net | 79,793 | 98,025 |
| Cemetery perpetual care trust investments | 240,392 | 230,730 |
| Non-current assets held for sale | — | 1,214 |
| Other assets | 15,292 | 11,905 |
| Total assets | $ 2,157,098 | $ 2,142,866 |
| (continued) | ||
| STEWART ENTERPRISES, INC. AND SUBSIDIARIES | ||
| CONSOLIDATED BALANCE SHEETS | ||
| (Dollars in thousands, except per share amounts) | ||
| LIABILITIES AND SHAREHOLDERS' EQUITY | October 31, 2011 | October 31, 2010 |
| Current liabilities: | ||
| Current maturities of long-term debt | $ 5 | $ 5 |
| Accounts payable and accrued expenses | 24,547 | 24,797 |
| Accrued payroll and other benefits | 18,181 | 14,311 |
| Accrued insurance | 22,398 | 20,912 |
| Accrued interest | 2,129 | 4,197 |
| Estimated obligation to fund cemetery perpetual care trust | 12,017 | 13,253 |
| Other current liabilities | 10,013 | 12,132 |
| Income taxes payable | 1,173 | 2,533 |
| Liabilities associated with assets held for sale | — | 8 |
| Total current liabilities | 90,463 | 92,148 |
| Long-term debt, less current maturities | 317,821 | 314,027 |
| Deferred income taxes, net | 5,104 | 4,950 |
| Deferred preneed funeral revenue | 240,286 | 243,520 |
| Deferred preneed cemetery revenue | 259,237 | 258,044 |
| Deferred preneed funeral and cemetery receipts held in trust | 558,194 | 554,716 |
| Perpetual care trusts' corpus | 238,980 | 229,240 |
| Long-term liabilities associated with assets held for sale | — | 714 |
| Other long-term liabilities | 19,337 | 20,023 |
| Total liabilities | 1,729,422 | 1,717,382 |
| Commitments and contingencies | ||
| Shareholders' equity: | ||
| Preferred stock, $1.00 par value, 5,000,000 shares authorized; no shares issued | — | — |
| Common stock, $1.00 stated value: | ||
| Class A authorized 200,000,000 shares; issued and outstanding 84,421,416 and 88,739,140 shares at October 31, 2011 and October 31, 2010, respectively | 84,421 | 88,739 |
| Class B authorized 5,000,000 shares; issued and outstanding 3,555,020 shares at October 31, 2011 and October 31, 2010; 10 votes per share convertible into an equal number of Class A shares | 3,555 | 3,555 |
| Additional paid-in capital | 515,274 | 547,319 |
| Accumulated deficit | (175,592) | (214,147) |
| Accumulated other comprehensive income: | ||
| Unrealized appreciation of investments | 18 | 18 |
| Total accumulated other comprehensive income | 18 | 18 |
| Total shareholders' equity | 427,676 | 425,484 |
| Total liabilities and shareholders' equity | $ 2,157,098 | $ 2,142,866 |
| STEWART ENTERPRISES, INC. AND SUBSIDIARIES | ||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (Dollars in thousands, except per share amounts) | ||
| Year Ended October 31, | ||
| 2011 | 2010 | |
| Cash flows from operating activities: | ||
| Net earnings | $ 38,555 | $ 30,978 |
| Adjustments to reconcile net earnings to net cash provided by operating activities: | ||
| Net (gains) losses on dispositions, net | 389 | (645) |
| Loss on early extinguishment of debt | 1,884 | 1,035 |
| Premiums paid on early extinguishment of debt | (850) | — |
| Depreciation and amortization | 27,052 | 26,367 |
| Non-cash interest and amortization of discount on senior convertible notes | 5,305 | 5,901 |
| Provision for doubtful accounts | 4,879 | 4,758 |
| Share-based compensation | 2,952 | 2,457 |
| Excess tax benefits from share-based payment arrangements | (351) | (121) |
| Provision for deferred income taxes | 19,790 | 10,922 |
| Estimated obligation to fund cemetery perpetual care trust | 72 | 31 |
| Other | (184) | (649) |
| Changes in assets and liabilities: | ||
| Increase in receivables | (7,503) | (1,980) |
| Decrease in prepaid expenses | 424 | 1,249 |
| (Increase) decrease in inventories and cemetery property | (4,105) | 301 |
| Federal income tax refunds | 1,698 | 1,600 |
| Decrease in accounts payable and accrued expenses | (507) | (4,502) |
| Net effect of preneed funeral production and maturities: | ||
| Decrease in preneed funeral receivables and trust investments | 35,532 | 11,424 |
| Decrease in deferred preneed funeral revenue | (4,356) | (4,143) |
| Decrease in deferred preneed funeral receipts held in trust | (32,787) | (14,043) |
| Net effect of preneed cemetery production and deliveries: | ||
| Decrease in preneed cemetery receivables and trust investments | 3,872 | 905 |
| Decrease in deferred preneed cemetery revenue | (2,354) | (8,919) |
| Increase (decrease) in deferred preneed cemetery receipts held in trust | (1,194) | 178 |
| Increase (decrease) in other | (1,383) | 250 |
| Net cash provided by operating activities | 86,830 | 63,354 |
| Cash flows from investing activities: | ||
| Proceeds from sales of certificates of deposit and marketable securities | 10,000 | 5,901 |
| Purchases of restricted cash equivalents, certificates of deposit and marketable securities | (6,912) | (15,875) |
| Proceeds from sale of assets | 332 | 1,681 |
| Purchase of subsidiaries and other investments, net of cash acquired | (9,110) | — |
| Additions to property and equipment | (26,958) | (16,450) |
| Other | 149 | 176 |
| Net cash used in investing activities | (32,499) | (24,567) |
| Cash flows from financing activities: | ||
| Proceeds of long-term debt | 200,000 | — |
| Repayments of long-term debt | (200,005) | (31,505) |
| Retirement of common stock warrants | — | (3,143) |
| Issuance of common stock | 1,495 | 694 |
| Retirement of call options | — | 3,562 |
| Purchase and retirement of common stock | (28,838) | (4,056) |
| Debt refinancing costs | (5,944) | (38) |
| Dividends | (11,762) | (11,170) |
| Excess tax benefits from share-based payment arrangements | 351 | 121 |
| Net cash used in financing activities | (44,703) | (45,535) |
| Net increase (decrease) in cash | 9,628 | (6,748) |
| Cash and cash equivalents, beginning of year | 56,060 | 62,808 |
| Cash and cash equivalents, end of year | $ 65,688 | $ 56,060 |
| Supplemental cash flow information: | ||
| Cash paid (received) during the year for: | ||
| Income taxes, net | $ 3,298 | $ (309) |
| Interest | $ 20,203 | $ 19,311 |
| Non-cash investing and financing activities: | ||
| Issuance of common stock to executive officers and directors | $ 456 | $ 414 |
| Issuance of restricted stock, net of forfeitures | $ 914 | $ 664 |
| STEWART ENTERPRISES, INC. AND SUBSIDIARIES | ||||||||||||||||
| RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | ||||||||||||||||
| FOR THE PERIODS ENDED OCTOBER 31, 2011 AND 2010 | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| The Company recorded several items during the three and twelve months ended October 31, 2011 and 2010 that impacted earnings from continuing operations: a non-cash interest expense related to the Company's senior convertible notes, a loss on early extinguishment of debt, net impairment losses on dispositions, hurricane related recoveries, net 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 October 31, | Twelve Months Ended October 31, | |||||||||||||||
| Adjusted Balances are Net of Tax (1) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
| millions | per share | millions | per share | millions | per share | millions | per share | |||||||||
| Consolidated net earnings | $ 8.5 | $ .10 | $ 9.1 | $ .10 | $ 38.6 | $ .42 | $ 31.0 | $ .33 | ||||||||
| Subtract: Earnings from discontinued operations | — | — | (0.4) | (.01) | — | — | (0.4) | — | ||||||||
| Earnings from continuing operations | 8.5 | .10 | 8.7 | .09 | 38.6 | .42 | 30.6 | .33 | ||||||||
| Add: Non-cash interest expense on senior convertible notes (2) | 0.6 | — | 0.6 | .01 | 2.3 | .03 | 2.6 | .02 | ||||||||
| Add: Loss on early extinguishment of debt | — | — | 0.6 | .01 | 1.2 | .01 | 0.7 | .01 | ||||||||
| Add: Net impairment losses on dispositions | — | — | — | — | 0.3 | — | — | — | ||||||||
| Subtract: Hurricane related recoveries, net (3) | — | — | — | — | -7.5 | -0.08 | — | — | ||||||||
| Subtract: Unusual tax adjustments (4) | (1.0) | (.01) | (1.5) | (.02) | — | — | (1.8) | (.02) | ||||||||
| Adjusted earnings from continuing operations | $ 8.1 | $ .09 | $ 8.4 | $ .09 | $ 34.9 | $ .38 | $ 32.1 | $ .34 | ||||||||
| (1) The tax rate associated with the loss on early extinguishment of debt and the net impairment losses on dispositions for the twelve months ended October 31, 2011 was 38.3 percent. The tax rate associated with the hurricane related recoveries for the twelve months ended October 31, 2011 was 39.1 percent. The tax rate associated with the loss on early extinguishment of debt for the three and twelve months ended October 31, 2010 was 38.0 percent. | ||||||||||||||||
| (2) 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 of the Company's Form 10-K for the year ended October 31, 2011. The tax rate associated with the interest expense related to the Company's senior convertible notes was 38.4 percent and 38.3 percent for the three and twelve months ended October 31, 2011, respectively. The tax rate associated with the interest expense related to the Company's senior convertible notes was 39.7 percent and 38.0 percent for the three and twelve months ended October 31, 2010. | ||||||||||||||||
| (3) In August 2011, the Company successfully settled litigation related to Hurricane Katrina damages for $12.4 million, including $1.1 million that was advanced to the Company in fiscal year 2007. | ||||||||||||||||
| (4) The Company recorded a reduction in the tax valuation allowance for the three and twelve months ended October 31, 2011, coupled with a tax benefit associated with a deduction attributable to the prior sale of a business. These reductions were partially offset by a one-time, non-cash charge to decrease the deferred tax asset related to Puerto Rican operations recorded in the twelve months ended October 31, 2011. For additional information, see Note 17 of the Company's Form 10-K for the year ended October 31, 2011. | ||||||||||||||||
| STEWART ENTERPRISES, INC. AND SUBSIDIARIES | ||||
| RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | ||||
| FOR THE PERIODS ENDED OCTOBER 31, 2011 AND 2010 | ||||
| (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 twelve months ended October 31, 2011 and 2010: | ||||
| Three Months Ended | Twelve Months Ended | |||
| Free Cash Flow | October 31, | October 31, | ||
| (Dollars in millions) | 2011 | 2010 | 2011 | 2010 |
| Net cash provided by operating activities (1) | $ 26.4 | $ 14.2 | $ 86.8 | $ 63.4 |
| Subtract: Maintenance capital expenditures (2) | (4.7) | (4.1) | (17.6) | (12.7) |
| Free cash flow | $ 21.7 | $ 10.1 | $ 69.2 | $ 50.7 |
| (1) Cash flow provided by operating activities for the fourth quarter of fiscal year 2011 was $26.4 million compared to $14.2 million for the same period of last year. The Company received $11.3 million during the fourth quarter of 2011 as a result of the Hurricane Katrina settlement. | ||||
| Cash flow provided by operating activities for fiscal year 2011 was $86.8 million compared to $63.4 million for the same period of last year. The increase in operating cash flow is primarily due to $11.3 million of the Hurricane Katrina settlement received during the fourth quarter of 2011. In addition, the Company experienced a change in working capital during fiscal year 2011, primarily driven by the timing of trust withdrawals and deposits, partially offset by an increase in inventory and receivables. These increases are due in part to the improved cemetery property sales, which are typically financed. | ||||
| (2) The increase in maintenance capital expenditures is primarily due to several large building improvement projects the Company undertook in fiscal year 2011 that were substantially completed by the end of the third quarter of fiscal year 2011, as well as increased vehicle and equipment purchases as the Company assesses lease versus purchase decisions for its fleet. | ||||
| STEWART ENTERPRISES, INC. AND SUBSIDIARIES | ||||
| RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | ||||
| FOR THE PERIODS ENDED OCTOBER 31, 2011 AND 2010 | ||||
| (Unaudited) | ||||
| Adjusted EBITDA is defined as earnings from continuing operations plus depreciation, amortization, interest expense, income taxes and loss on early extinguishment of debt, less hurricane recoveries, net. 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 tables provide reconciliations 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 twelve months ended October 31, 2011 and 2010: | ||||
| Three Months Ended | Twelve Months Ended | |||
| Adjusted EBITDA | October 31, | October 31, | ||
| (Dollars in millions) | 2011 | 2010 | 2011 | 2010 |
| Consolidated net earnings | $ 8.5 | $ 9.1 | $ 38.6 | $ 31.0 |
| Subtract: Earnings from discontinued operations | — | (0.4) | — | (0.4) |
| Earnings from continuing operations | 8.5 | 8.7 | 38.6 | 30.6 |
| Add: Depreciation and amortization | 6.7 | 6.5 | 27.1 | 26.3 |
| Add: Interest expense | 5.8 | 5.9 | 22.7 | 24.4 |
| Add: Income taxes | 3.4 | 1.3 | 23.3 | 13.9 |
| Add: Loss on early extinguishment of debt | — | 0.9 | 1.9 | 1.0 |
| Subtract: Hurricane recoveries, net | — | — | (12.2) | 0.1 |
| Adjusted EBITDA | $ 24.4 | $ 23.3 | $ 101.4 | $ 96.3 |
| 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 decline in market value of our trust assets since the fourth quarter of fiscal year 2008, 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 cash flow and earnings as a result of increased costs, particularly supply costs related to increases in commodity prices and fuel costs;
- 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 and repurchase our common stock;
- our ability to consummate significant acquisitions of or investments in death care or related businesses successfully;
- the effects on us as a result of our industry's complex accounting model;
and other risks and uncertainties described in our Form 10-K for the year ended October 31, 2011, 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.