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(3)
Change in Accounting Principles
The Company changed the following
accounting principle effective November 1, 1998 (the fiscal year 1999
accounting change):
The Company now defers all
of the earnings realized by irrevocable prearranged funeral trust funds
and escrow accounts until the underlying funeral service is delivered.
Previously, the Company recognized a portion of those earnings and deferred
the remainder to offset the estimated future effects of inflation. See
the fiscal year 1997 accounting changes below.
The accounting change was made
principally to match revenue recognition more closely with cash receipts
and also to improve the comparability of the Company's earnings with those
of its principal competitors. The new method will allow the Company to
take a longer-term view and increase its flexibility in managing the funeral
trust funds.
The cumulative effect of this
change on prior years resulted in a decrease in net earnings for the year
ended October 31, 1999, of $50,101 (net of a $28,798 income tax benefit),
or $.47 per share. The current year effect of the change in accounting
principle was a decrease in net earnings of $16.2 million, or $.15 per
share, for the year ended October 31, 1999.
The Company changed the following
accounting principles effective November 1, 1996 (the fiscal year 1997
accounting changes):
(a) Under the fiscal year
1997 accounting changes, the Company deferred 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 were recognized on a current basis, except
in those jurisdictions where earnings revert to a customer if a prearranged
funeral service contract is cancelled. 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 percent of the contract amount had been collected.
(c) The Company now records
revenue and related costs attributable to cemetery burial site openings
and closings at the time of sale. Previously, such sales were deferred
until delivery.
The fiscal year 1997 accounting
changes were made principally for the following reasons:
(a) A portion of funeral
trust earnings and increasing benefits under insurance contracts were
intended to cover increases in the future costs of providing price-guaranteed
funeral services. The Company's rationale was that deferring such earnings
to the extent of the increased costs of the services to be provided
would better match revenues and costs because the total funds available
to satisfy the contract (principal and deferred earnings) would 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.
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