<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-6402-1
________________________
SERVICE CORPORATION INTERNATIONAL
(Exact name of registrant as specified in charter)
TEXAS 74-1488375
(State or other jurisdiction of (I. R.S. employer identification
incorporation or organization) number)
1929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
(Address of principal executive offices) (Zip code)
(713) 522-5141
(Registrant's telephone number, including area code)
_______________________
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 and (2) has been subject to the filing
requirements for the past 90 days.
YES X NO
----- -----
The number of shares outstanding of the registrant's common stock as of May 6,
1994, was 85,853,410 (excluding treasury shares).
<PAGE> 2
SERVICE CORPORATION INTERNATIONAL
INDEX
Part I. Financial Information Page
Consolidated Balance Sheet -
March 31, 1994 (Unaudited) and December 31, 1993 3
Consolidated Statement of Income (Unaudited) -
Three Months Ended March 31, 1994 and 1993 4
Consolidated Statement of Cash Flows (Unaudited) -
Three Months Ended March 31, 1994 and 1993 5
Consolidated Statement of Stockholders' Equity (Unaudited) -
Three Months Ended March 31, 1994 6
Notes to the Consolidated Financial Statements (Unaudited) 7 - 9
Management's Discussion and Analysis of Results of Operations
and Financial Condition 10 - 13
Part II. Other Information 14
Signature 14
2
<PAGE> 3
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31,
1994 DECEMBER 31,
(THOUSANDS) (UNAUDITED) 1993
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................................... $ 45,604 $ 20,822
Receivables, net of allowances ................................. 221,256 236,786
Inventories .................................................... 52,300 45,211
Other .......................................................... 12,666 9,640
---------- ----------
Total current assets ........................................ 331,826 312,459
---------- ----------
Prearranged funeral contracts .................................... 1,241,731 1,244,866
Long-term receivables ............................................ 536,252 500,062
Cemetery property, at cost ....................................... 455,784 417,050
Property, plant and equipment, at cost (net) ..................... 635,557 606,826
Deferred charges and other assets ................................ 191,178 174,345
Names and reputations (net) ...................................... 445,457 427,696
---------- ----------
$3,837,785 $3,683,304
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ....................... $ 95,955 $ 96,881
Income taxes ................................................... 23,000 18,695
Current maturities of long-term debt ........................... 24,373 24,982
---------- ----------
Total current liabilities ................................... 143,328 140,558
---------- ----------
Long-term debt ................................................... 1,099,052 1,062,222
Deferred income taxes ............................................ 180,483 146,968
Other liabilities ................................................ 194,983 185,636
Deferred prearranged funeral contract revenues ................... 1,304,849 1,263,407
Stockholders' equity:
Common stock, $1 par value, 200,000,000 shares authorized,
85,839,377 and 84,859,110 issued and outstanding ............ 85,839 84,859
Capital in excess of par value ................................. 520,689 517,902
Retained earnings .............................................. 313,680 284,879
Foreign translation adjustment ................................. (5,118) (3,127)
---------- ----------
Total stockholders' equity .................................. 915,090 884,513
---------- ----------
$3,837,785 $3,683,304
========== ==========
</TABLE>
(See notes)
3
<PAGE> 4
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
(THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1994 1993
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues ............................................................ $ 261,258 $ 224,371
Costs and expenses .................................................. (171,716) (152,900)
--------- ---------
Gross profit ........................................................ 89,542 71,471
General and administrative expenses ................................. (13,501) (9,890)
--------- ---------
Income from operations .............................................. 76,041 61,581
Interest expense .................................................... (15,624) (14,581)
Other income ........................................................ 2,515 948
--------- ---------
Income before income taxes .......................................... 62,932 47,948
Provision for income taxes .......................................... (25,487) (18,700)
--------- ---------
Income before cumulative effect of change in
accounting principles ........................................... 37,445 29,248
Cumulative effect of change in accounting principles
(net of income tax) ............................................. - (2,031)
--------- ---------
Net income .......................................................... $ 37,445 $ 27,217
========= =========
Earnings per share:
Primary -
Income before cumulative effect of change in
accounting principles ..................................... $ .44 $ .37
Cumulative effect of change in accounting
principles (net of income tax) ............................ - (.03)
--------- ---------
Net income $ .44 $ .34
========= =========
Fully diluted -
Income before cumulative effect of change in
accounting principles ..................................... $ .41 $ .34
Cumulative effect of change in accounting
principles (net of income tax) ............................ - (.02)
--------- ---------
Net income .................................................. $ .41 $ .32
========= =========
Dividends per share ................................................. $ .105 $ .10
========= =========
Weighted average number of shares and equivalents ................... 85,785 79,930
========= =========
</TABLE>
(See notes)
4
<PAGE> 5
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
(THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1994 1993
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................... $ 37,445 $ 27,217
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................................. 14,233 12,024
Provision for deferred income taxes ........................... 5,930 3,500
(Gain) loss from dispositions (net) ........................... (584) 64
Cumulative effect of change in accounting principles .......... - 2,031
Change in assets and liabilities net of effects from
acquisitions:
(Increase) decrease in receivables .......................... (10,195) 2,581
Change in prearranged funeral contracts and associated
deferred revenues .......................................... 33,475 (48)
(Increase) decrease in other assets ........................ (9,143) 3,110
Increase in other liabilities ............................... 21,298 2,055
Other ....................................................... (3,752) (1,003)
---------- ----------
Net cash provided by operating activities ........................... 88,707 51,531
---------- ----------
Cash flows from investing activities:
Capital expenditures ........................................... (18,091) (14,353)
Proceeds from sales of property, plant and equipment ........... 5,618 6,482
Acquisitions ................................................... (56,306) (37,020)
Loans issued ................................................... (10,856) (19,257)
Principal payments received on loans ........................... 9,821 6,347
Change in investments and other ................................ (10,528) 2,993
---------- ----------
Net cash (used in) investing activities ............................. (80,342) (54,808)
---------- ----------
Cash flows from financing activities:
Borrowings (payments) under lines of credit and
commercial paper .............................................. 32,603 (124,000)
Subordinated debentures issued ................................. - 150,000
Payments of debt ............................................... (7,583) (6,600)
Retirement of common stock ..................................... (805) -
Dividends paid ................................................. (8,913) (7,725)
Exercise of stock options and other ............................ 1,115 2,155
---------- ----------
Net cash provided by financing activities ......................... 16,417 13,830
---------- ----------
Net increase in cash and cash equivalents .......................... 24,782 10,553
Cash and cash equivalents at beginning of year ...................... 20,822 31,253
---------- ----------
Cash and cash equivalents at March 31, 1994 and 1993 ................ $ 45,604 $ 41,806
========== ==========
Cash used for:
Interest ....................................................... $ 12,481 $ 12,560
========== ==========
Taxes .......................................................... $ 3,505 $ 7,812
========== ==========
</TABLE>
(See notes)
5
<PAGE> 6
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
CAPITAL IN FOREIGN
COMMON EXCESS OF RETAINED TRANSLATION
(THOUSANDS) STOCK PAR VALUE EARNINGS ADJUSTMENT
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 .................... $ 84,859 $ 517,902 $ 284,879 $ (3,127)
Net income ..................................... 37,445
Common stock issued:
Stock option exercises, restricted
stock grants and other ...................... 85 1,366
Acquisitions ................................. 888 1,295 370
Debenture conversion ............................ 7 126
Dividends on common stock ($.105 per share) ..... (9,014)
Foreign translation adjustment .................. (1,991)
---------- ---------- ----------- ---------
Balance at March 31, 1994 ........................ $ 85,839 $ 520,689 $ 313,680 $ (5,118)
========== ========== =========== =========
</TABLE>
(See notes)
6
<PAGE> 7
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements for the three months ended March 31, 1994
and 1993 include the accounts of Service Corporation International and all
majority-owned subsidiaries (The Company) and are unaudited but include all
adjustments, consisting only of normal recurring accruals and any other
adjustments, which management considers necessary for a fair presentation of
the results for these periods. These financial statements have been prepared
consistent with the accounting policies described in the annual report on Form
10-K filed with the Securities and Exchange Commission for the year ended
December 31, 1993 and should be read in conjunction therewith. Certain
reclassifications have been made to the prior period to conform to the current
period presentation with no effect on previously reported net income.
2. CHANGE IN ACCOUNTING PRINCIPLES
On January 1, 1993 the Company changed its method of accounting for
prearranged funeral sales contracts, trust earnings, sales of cemetery
interment rights and other related products and services and cemetery perpetual
care trust funds. These changes are more fully discussed in Note 2 in the
Company's annual report filed on Form 10-K for the year ended December 31,
1993. The cumulative effect of these changes resulted in an after tax charge
of $2,031,000 or $.03 per share in the first quarter of 1993.
3. ACQUISITIONS
The Company has acquired certain funeral and cemetery operations during each
three month period ended March 31, 1994 and 1993. The consideration for these
acquisitions consisted of cash, common stock of the Company and issued or
assumed debt. The excess of purchase price over the fair value of assets
acquired and liabilities assumed is included in names and reputations on the
Consolidated Balance Sheet and will be amortized over a 40 year period. The
operating results of all of these acquisitions have been included since their
respective dates of acquisitions.
The effect of acquisitions on the Consolidated Balance Sheet was as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
(Thousands) 1994 1993
- - --------------------------------------------------------------------------------------
<S> <C> <C>
Current assets ................................... $ 784 $ (3,013)
Prearranged funeral contracts .................... 18,356 14,963
Long-term receivables ............................ 1,920 12,090
Cemetery property ................................ 32,862 31,952
Property, plant and equipment .................... 26,709 5,488
Deferred charges and other assets ................ 6,490 (2,922)
Names and reputations ............................ 21,467 4,048
Current liabilities .............................. (5,287) 9,615
Long-term debt ................................... (10,763) (1,592)
Other liabilities ................................ (15,045) (12,479)
Deferred prearranged funeral contract revenues ... (18,634) (14,891)
Stockholders' equity ............................. (2,553) (6,239)
--------- ---------
Cash used for acquisitions .................. $ 56,306 $ 37,020
========= =========
</TABLE>
7
<PAGE> 8
The following represents the unaudited pro forma results of consolidated
operations as if these acquisitions had occurred on January 1, 1993. This
information does not purport to be indicative of results which may occur in
the future.
<TABLE>
<CAPTION>
Three Months Ended March 31,
(Thousands, except per share amounts) 1994 1993
- - -----------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues .................................................. $ 267,284 $ 256,824
Income before cumulative effect
of change in accounting principles ................... $ 37,628 $ 32,525
Net income ................................................ $ 37,628 $ 30,494
Primary earnings per share before cumulative
effect of change in accounting principles ............ $ .44 $ .40
Primary earnings per share ................................ $ .44 $ .37
</TABLE>
4. DEFERRED PREARRANGED FUNERAL CONTRACT REVENUES
Deferred prearranged funeral contract revenues include the contract amount of
all price guaranteed prearranged funeral service contracts as well as the
accrued trust earnings and increasing insurance benefits earned through the
balance sheet date. The Company will continue to defer additional accruals of
trust earnings and insurance benefits as they are earned until the performance
of the funeral service. Upon performance of the funeral service, the Company
will recognize the fixed contract price as well as total accumulated trust
earnings and increasing insurance benefits as funeral service revenues.
The recognition of the March 31, 1994 balance in future funeral revenue is
expected to occur in the following years based on actuarial assumptions as
follows:
(Thousands)
-----------
1994 (remaining nine months) ................ $ 85,973
1995 ........................................ 107,091
1996 ........................................ 99,713
1997 ........................................ 92,541
1998 ........................................ 85,628
1999 and through 2003 ....................... 328,305
2004 and thereafter ......................... 505,598
-----------
$ 1,304,849
5. DEBT
The Company's revolving credit loan agreement borrowings have been reduced by
$230,000,000 since year end to $155,000,000 at March 31, 1994 with an average
interest rate of 3.73%. The credit loan agreement was also used to support the
selling of short-term commercial paper totaling $255,540,000 at March 31, 1994,
with an average interest rate of 3.8%. The credit loan agreement borrowings
and the commercial paper are classified as long-term since it is the Company's
intent to renew or refinance with long- term borrowings.
In March 1994, the Company issued $5,500,000 of 5% registered convertible
debentures due in 2004. These debentures carry a conversion price of $34 and
were used to partially fund acquisitions.
The Company's Canadian subsidiary borrowed $5,057,000 United States
dollars (USD) under its separate bank line of credit during the current
quarter to fund the acquisition of Canadian funeral service operations.
On August 31, 1993, the Company entered a currency swap agreement with a
bank that hedged the borrowings for the Company's initial investment in its
Australian subsidiary. As part of this agreement, the Company pays the bank a
blended interest rate (6.28% at March 31, 1994) on $110,000,000 Australian
dollars (AUD) and receives a floating interest rate (3.5% at March 31, 1994) on
$73,590,000 USD. This agreement expires December 29, 2000.
On December 31, 1993, effective February 1, 1994, the Company entered into
an interest rate swap agreement with a bank having a notional amount of
$150,000,000 USD. Under this agreement, the Company pays a floating interest
rate (3.375% at March 31, 1994) on $150,000,000 and receives a 5.36% fixed
interest rate on $150,000,000. This agreement terminates February 1, 1999
subject to an option, exercisable by the bank, to terminate on August 1, 1994.
8
<PAGE> 9
On February 17, 1994, effective March 1, 1994, the Company entered a
currency swap agreement with a bank that hedged the borrowings for an
additional Australian acquisition. Under this agreement, the Company pays the
bank a fixed interest rate of 6.61% on $32,715,000 AUD and receives a variable
interest rate (3.62% at March 31, 1994) on $23,414,000 USD. This agreement
expires March 1, 1999.
6. SUPPLEMENTAL INFORMATION - NON-CASH TRANSACTIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
(Thousands) 1994 1993
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock issued under restricted stock plans ........... $ 1,188 $ 2,380
Debenture conversion ....................................... - 97,164
Cumulative effect of change in accounting principles ....... - 2,031
</TABLE>
7. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the three months ended March 31,
1994 was 4.08. For purposes of computing the ratio of
earnings to fixed charges, earnings consist of income before income taxes, less
undistributed income of equity investees which are
less than 50% owned, plus the minority interest of majority-owned subsidiaries
with fixed charges, and plus fixed charges (excluding
capitalized interest and preferred dividends). Fixed charges consist of
interest expense, whether capitalized or expensed,
amortization of debt costs, one-third of rental expense which the Company
considers representative of the interest factor in the
rentals and preferred dividends.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTHS ENDED MARCH 31, 1994
COMPARED TO THREE MONTHS ENDED MARCH 31, 1993
OVERVIEW:
The majority of the Company's funeral homes and cemeteries are managed in
groups called clusters. Clusters are primarily designated in metropolitan
areas to take advantage of operational efficiencies, including the sharing of
operating expenses such as service personnel, vehicles, preparation services,
clerical staff and certain building facility costs. The Company has
approximately 165 clusters which range in size from two operations to 53
operations. There may be more than one cluster in a given metropolitan area,
depending upon the level and degree of shared costs.
The cluster management approach recognizes that, as the Company adds
operations to a geographic area that contains an existing Company presence,
additional economies of scale through cost sharing will be achieved and the
Company will also be in a better position to serve the population that resides
within the area served by the cluster. Funeral service and cemetery operations
primarily depend upon a long-term development of customer relationships and
loyalty. Over time, these client families may relocate within a cluster area
which may justify the relocation or addition of Company locations. The Company
attempts to satisfy this need for convenient locations by either acquiring
existing independent locations within the Company's cluster areas or
constructing satellite funeral homes (sometimes on Company-owned cemeteries)
while still maintaining the sharing of certain expenses within that cluster of
operations.
RESULTS OF OPERATIONS:
Segment information for the Company's three lines of business are as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, Percentage
(Thousands) 1994 1993 Increase Increase
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Funeral............................ $ 177,357 $ 153,812 $ 23,545 15.3%
Cemetery........................... 79,383 67,020 12,363 18.4
Financial services................. 4,518 3,539 979 27.7
--------- --------- --------
261,258 224,371 36,887 16.4
--------- --------- --------
Costs and expenses:
Funeral............................ 116,983 103,446 13,537 13.1
Cemetery........................... 52,497 47,601 4,896 10.3
Financial services................. 2,236 1,853 383 20.7
--------- --------- --------
171,716 152,900 18,816 12.3
--------- --------- --------
Gross profit and margin percentage:
Funeral............................ 60,374 34.0% 50,366 32.7% 10,008 19.9
Cemetery........................... 26,886 33.9 19,419 29.0 7,467 38.5
Financial services................. 2,282 50.5 1,686 47.6 596 35.3
--------- --------- --------
$ 89,542 34.3% 71,471 31.9% $ 18,071 25.3%
========= ========= ========
</TABLE>
10
<PAGE> 11
Funeral
Funeral revenues were generated as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Increase/ Percentage
(Thousands) 1994 1993 (Decrease) Increase
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Existing clusters $ 160,995 $ 144,664 $ 16,331 11.3%
New clusters* 8,814 619 8,195
----------- ----------- ---------
Total clusters 169,809 145,283 24,526 16.9%
Non-cluster and disposed operations 7,548 8,529 (981)
----------- ----------- ---------
Total funeral revenues $ 177,357 $ 153,812 $ 23,545 15.3%
=========== =========== =========
</TABLE>
The $16,331,000 increase in revenues at existing clusters was the result of
2,857 or 6.7% more funeral services performed and a $146 or 4.3 % higher
average sales price. Included in this increase was $9,782,000 in revenues from
locations acquired after December 31, 1992. The winter months typically result
in increased numbers of funeral services performed. Overall, funeral services
performed are expected to grow slowly for the near future indicative of past
mortality rates and it is expected that the Company's revenue growth will
primarily be generated from acquired operations (added to existing clusters and
the creation of new clusters) as well as higher average sales prices.
During the three months ended March 31, 1994, the Company sold $47,751,000
of prearranged funeral services compared to $35,029,000 for the same period in
1993. These prearranged funeral services are deferred and will be reflected in
funeral revenues in the periods that the funeral services are performed. An
increased emphasis on sales of prearranged funerals is expected to continue.
Funeral costs were incurred as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Increase/ Percentage
(Thousands) 1994 1993 (Decrease) Increase
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Existing clusters ..................... $ 97,540 $ 90,520 $ 7,020 7.8%
New clusters* ......................... 6,930 400 6,530
--------- --------- ---------
Total clusters ..................... 104,470 90,920 13,550 14.9%
Non-cluster and disposed operations ... 5,294 6,319 (1,025)
Administrative overhead ............... 7,219 6,207 1,012
--------- --------- ---------
Total funeral costs ................ $ 116,983 $ 103,446 $ 13,537 13.1%
========= ========= =========
</TABLE>
Total funeral gross profit margin increased to 34.0% compared to 32.7%
recorded last year. This gross profit margin improvement was achieved despite
the large number of acquisitions, added to both existing and new clusters,
which have occurred since the beginning of 1993. Typically, acquisitions will
temporarily exhibit slightly lower gross profit margins than the Company's
existing locations. Acquisitions accounted for $7,355,000 of the existing
cluster cost increase. The improved gross profit margin for existing clusters
reflects the increased revenues discussed above, as well as, a slight decline
in costs at other funeral homes included in existing clusters. Administrative
overhead costs related to funeral operations remained at approximately 4.0% of
revenues in both periods.
- - -----------------------------------
*Represents new geographic areas entered into after December 31, 1992 for
the period that those businesses were owned by the Company.
11
<PAGE> 12
Cemetery
Cemetery revenues were generated as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Percentage
(Thousands) 1994 1993 Increase Increase
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Existing clusters........................................ $ 73,045 $ 63,642 $ 9,403 14.8%
New clusters*............................................ 2,955 - 2,955
----------- ---------- ---------
Total clusters........................................ 76,000 63,642 12,358 19.4%
Non-cluster and disposed operations...................... 3,383 3,378 5
----------- ---------- ---------
Total cemetery revenues............................... $ 79,383 $ 67,020 $ 12,363 18.4%
=========== ========== =========
</TABLE>
Revenues for the existing clusters increased primarily due to increased
preneed sales of merchandise and services and additional earnings from cemetery
perpetual care and merchandise and services trust funds. Included in the
existing cluster increase was $4,750,000 in increased revenues from cemeteries
acquired after December 31, 1992.
Cemetery costs were incurred as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Increase/ Percentage
(Thousands) 1994 1993 (Decrease) Increase
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Existing clusters........................................ $ 44,371 $ 41,623 $ 2,748 6.6%
New clusters*............................................ 1,643 - 1,643
----------- ---------- ---------
Total clusters........................................ 46,014 41,623 4,391 10.5%
Non-cluster and disposed operations...................... 1,868 2,507 (639)
Administrative overhead.................................. 4,615 3,471 1,144
----------- ---------- ---------
Total cemetery costs.................................. $ 52,497 $ 47,601 $ 4,896 10.3%
=========== ========== =========
</TABLE>
Costs at existing clusters increased $2,748,000 due to an increase of
$3,027,000 from cemeteries acquired after December 31, 1992, partially offset
by a decrease in costs from other existing cluster cemeteries of $279,000. The
decline in costs at the other existing cluster cemeteries results from an
increased emphasis on reducing selling costs in the preneed sales area.
Administrative overhead costs have increased primarily from accruals of
incentive compensation for cemetery personnel in the current year.
Financial Services
Financial service revenues and costs have increased as a result of increased
loans outstanding. Improved interest rate spreads have increased the gross
margin percentage. The average outstanding loan portfolio during the current
quarter was $252,694,000 with an average interest rate spread of 3.4% compared
to $197,658,000 and 3.2%, respectively, last year.
Other Income and Expenses
General and administrative expenses increased by $3,611,000 or 36.5%. Of the
increase, $2,685,000 is attributable to personnel expenses primarily in the
form of restricted stock costs. Professional fees have increased $1,064,000 in
the current year.
Interest expense, which excludes the amount incurred through financial
service operations, increased $1,043,000 or 7.2% during the current quarter
primarily due to the issuance of $150,000,000 of 7.875% debentures in February
1993 and increased borrowings under the Company's lines of credit and
commercial paper during the current quarter.
The $1,567,000 increase in other income results primarily from the sale of
excess real estate in 1994.
_______________
*Represents new geographic areas entered into after December 31, 1992 for
the period that those businesses were owned by the Company.
12
<PAGE> 13
The provision for income taxes has increased to 40.5% from 39.0% last year
primarily due to the August 1993 increase in the federal corporate tax rate.
FINANCIAL CONDITION AT MARCH 31, 1994:
The Company's acquisition of funeral homes and cemeteries and capital
expenditures, including major improvements to existing properties, continue to
require significant amounts of cash. Funds generated from earnings of existing
funeral and cemetery operations, together with unused lines of credit or other
available borrowings, are expected to be sufficient for the Company to continue
its current acquisition and operating policies. At March 31, 1994, the Company
had available approximately $221,000,000 of borrowing ability under its various
credit lines.
In addition to the sources of cash from operations and credit lines, the
Company has 12,340,000 shares of common stock, $87,165,000 of guarantees of
promissory notes and $81,603,000 of convertible debentures registered with the
Securities and Exchange Commission (the Commission) to be used exclusively for
future acquisitions.
No unusual fluctuations in current assets and liabilities occurred during
the period as the current ratio improved slightly to 2.3:1. In addition, the
Company's debt to capitalization ratio remained at 54.6%.
HEDGING TRANSACTIONS (SEE NOTE 5):
The Company has entered into hedging transactions to reduce its exposure to
adverse fluctuations in interest and foreign exchange rates. While the hedging
transactions are subject to risk of loss from change in interest rates and
exchange rates, these losses would generally be offset by gains on the
exposures being hedged. The Company has realized $3,600,000 USD gains on
contracts entered into as hedge transactions since the beginning of 1993.
These realized gains were deferred and are being recognized into income over
periods ranging from eight months to five years.
At March 31, 1994, the Company has outstanding foreign currency and interest
rate swaps in the notional amounts of $142,715,000 AUD and $150,000,000 USD.
As of March 31, 1994, net unrealized losses before taxes from these hedging
agreements were estimated to be $7,100,000 USD (which is the estimated cost to
terminate these hedging agreements). In the opinion of management, such
losses were offset by the increased value of the exposures being hedged.
OTHER MATTERS:
See Item 1. Legal Proceedings in Part II of this report for information
regarding an informal investigation by the Commission.
13
<PAGE> 14
SERVICE CORPORATION INTERNATIONAL
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The staff of the Securities and Exchange Commission (the
"Commission") is conducting an informal private investigation
relating to the change in the Company's principal independent
accountants and the Company's Current Report on Form 8-K dated
March 31, 1993, as amended, filed with the Commission
reporting such change, as well as the Company's current
accounting and reporting of pre-need sales. The Commission
staff has advised the Company that the investigation should
not be construed as an indication by the Commission or its
staff that any violations of law have occurred, or as a
reflection upon any person, entity or security. The
investigation is continuing.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)
Exhibits
11.1 Computation of earnings per share.
12.1 Ratio of earnings to fixed charges.
(b) Reports on Form 8-K
There were no reports on Form 8-K during the three
months ended March 31, 1994.
SIGNATURE
Pursuant to the requirements 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.
May 16, 1994
SERVICE CORPORATION INTERNATIONAL
By:/s/ Samuel W. Rizzo
-------------------------------------
Samuel W. Rizzo
Executive Vice President
Chief Financial Officer/Treasurer
(Principal Financial Officer)
14
<PAGE> 1
Exhibit 11.1
SERVICE CORPORATION INTERNATIONAL
COMPUTATION OF EARNINGS PER SHARE
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1994 1993
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY:
Income before cumulative effect of
change in accounting principles................................................. $ 37,445 $ 29,248
Cumulative effect of change in
accounting principles (net of tax).............................................. - (2,031)
--------- ---------
$ 37,445 $ 27,217
========= =========
Average number of common shares
outstanding..................................................................... 85,359 79,619
Common stock equivalents applicable to options outstanding
resulting from application of the "treasury stock method"
using average stock price....................................................... 426 311
--------- ---------
Average common and common equivalent shares
used in earnings per share 85,785 79,930
========= =========
Primary Earnings Per Common Share:
Income before cumulative effect of change in
accounting principles........................................................... $ .44 $ .37
Cumulative effect of change in accounting
principles (net of tax)......................................................... - (.03)
--------- ---------
Net income.......................................................................... $ .44 $ .34
========= =========
FULLY DILUTED:
Income before cumulative effect of change in
accounting principles........................................................... $ 37,445 $ 29,248
Add after tax interest expense applicable to
convertible debentures.......................................................... 2,001 2,565
--------- ---------
Income as adjusted.................................................................. 39,446 31,813
========= =========
Cumulative effect of change in accounting
principles (net of tax)......................................................... - (2,031)
--------- ---------
$ 39,446 $ 29,782
========= =========
Average number of common shares
outstanding..................................................................... 85,359 79,619
Common stock equivalents applicable to options outstanding
resulting from application of the "treasury stock method"
using end of period stock price (if greater than average
stock price for period)......................................................... 426 363
Assuming conversion of convertible debentures....................................... 10,030 13,120
--------- ---------
Average shares used in fully diluted earnings per share............................. 95,815 93,102
========= =========
FULLY DILUTED EARNINGS PER COMMON SHARE:
Income before cumulative effect of change in
accounting principles........................................................... $ .41 $ .34
Cumulative effect of change in accounting
principles (net of tax)......................................................... - (.02)
--------- ---------
Net income.......................................................................... $ .41 $ .32
========= =========
</TABLE>
15
<PAGE> 1
SERVICE CORPORATION INTERNATIONAL Exhibit 12.1
RATIO OF EARNINGS TO FIXED CHARGES
(Thousands, except ratio amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1994 1993
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pretax income........................................................................... $ 62,932 $ 47,948
Undistributed income of less than 50% owned equity investees............................ (30) (75)
Minority interest in income of majority owned subsidiaries
with fixed charges.................................................................. 612 564
Add fixed charges as adjusted (from below).............................................. 20,471 18,806
------------ ------------
$ 83,985 $ 67,243
------------ ------------
Fixed charges:
Interest expense:
Corporate...................................................................... $ 15,624 $ 14,581
Financial services............................................................. 2,147 1,760
Capitalized.................................................................... 129 15
Amortization of debt costs.......................................................... 71 73
1/3 of rental expense............................................................... 2,629 2,392
------------ ------------
Fixed charges....................................................................... 20,600 18,821
Less: Capitalized interest........................................................ (129) (15)
------------ ------------
Fixed charges as adjusted............................................................... $ 20,471 $ 18,806
------------ ------------
Ratio (earnings divided by fixed charges)............................................... 4.08 3.57
============ ============
</TABLE>
16
