<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 SEPTEMBER 30, 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
November 7, 1994, was 86,194,457 (excluding treasury shares).
<PAGE> 2
SERVICE CORPORATION INTERNATIONAL
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I. Financial Information
Consolidated Balance Sheet -
September 30, 1994 (Unaudited) and December 31, 1993 3
Consolidated Statement of Income (Unaudited) -
Three Months Ended September 30, 1994 and 1993 4
Nine Months Ended September 30, 1994 and 1993
Consolidated Statement of Cash Flows (Unaudited) -
Nine Months Ended September 30, 1994 and 1993 5
Consolidated Statement of Stockholders' Equity (Unaudited) -
Nine Months Ended September 30, 1994 6
Notes to the Consolidated Financial Statements (Unaudited) 7 - 17
Management's Discussion and Analysis of Results of Operations
and Financial Condition 18 - 25
Part II. Other Information 26 - 27
Signature 28
</TABLE>
2
<PAGE> 3
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994 DECEMBER 31,
(THOUSANDS) (UNAUDITED) 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 42,733 $ 20,822
Receivables, net of allowances . . . . . . . . . . . . . . . . . . . . . 257,971 236,786
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,042 45,211
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,082 9,640
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 368,828 312,459
---------- ----------
Prearranged funeral contracts . . . . . . . . . . . . . . . . . . . . . . 1,385,346 1,244,866
Long-term receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 562,915 500,062
Cemetery property, at cost . . . . . . . . . . . . . . . . . . . . . . . . 734,788 417,050
Property, plant and equipment, at cost (net) . . . . . . . . . . . . . . . 798,198 606,826
Deferred charges and other assets . . . . . . . . . . . . . . . . . . . . . 215,953 174,345
Names and reputations (net) . . . . . . . . . . . . . . . . . . . . . . . . 773,525 427,696
---------- ----------
$4,839,553 $3,683,304
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . $ 251,222 $ 96,881
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,139 18,695
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . 68,416 24,982
United Kingdom borrowings to be refinanced . . . . . . . . . . . . . . . 312,462 -
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 667,239 140,558
---------- ----------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,248,545 1,062,222
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 264,953 146,968
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218,589 185,636
Deferred prearranged funeral contract revenues . . . . . . . . . . . . . 1,476,178 1,263,407
Stockholders' equity:
Common stock, $1 par value, 200,000,000 shares authorized,
86,171,965 and 84,859,110 issued and outstanding . . . . . . . . . . . 86,172 84,859
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . 527,321 517,902
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 353,585 284,879
Foreign translation adjustment . . . . . . . . . . . . . . . . . . . . . (3,029) (3,127)
---------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . 964,049 884,513
---------- ----------
$4,839,553 $3,683,304
========== ==========
</TABLE>
(See notes)
3
<PAGE> 4
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(Thousands, except per share amounts) 1994 1993 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $ 277,814 $ 211,432 $ 801,934 $ 652,852
Costs and expenses . . . . . . . . . . . . . (200,900) (154,835) (558,737) (462,864)
------------ ------------ ------------ ------------
Gross profit . . . . . . . . . . . . . . . . 76,914 56,597 243,197 189,988
General and administrative expenses . . . . . (10,659) (9,139) (35,530) (28,026)
------------ ------------ ------------ ------------
Income from operations . . . . . . . . . . . 66,255 47,458 207,667 161,962
Interest expense . . . . . . . . . . . . . . (21,008) (15,297) (53,464) (44,185)
Other income . . . . . . . . . . . . . . . . 3,081 5,446 7,767 8,111
------------ ------------ ------------ ------------
Income before income taxes . . . . . . . . . 48,328 37,607 161,970 125,888
Provision for income taxes . . . . . . . . . (19,725) (17,800) (65,727) (52,500)
------------ ------------ ------------ ------------
Income before cumulative effect of
change in accounting principles . . . . 28,603 19,807 96,243 73,388
Cumulative effect of change in
accounting principles (net of income tax) - - - (2,031)
------------ ------------ ------------ ------------
Net income . . . . . . . . . . . . . . . . . $ 28,603 $ 19,807 $ 96,243 $ 71,357
============ ============ ============ ============
Earnings per share:
Primary -
Income before cumulative effect of
change in accounting principles . . . . $ .33 $ .23 $ 1.12 $ .89
Cumulative effect of change in
accounting principles (net of income tax) - - - (.03)
------------ ------------ ----------- ------------
Net Income . . . . . . . . . . . . . . . $ .33 $ .23 $ 1.12 $ .86
============ ============ ============ ============
Fully diluted -
Income before cumulative effect of
change in accounting principles . . . . $ .32 $ .23 $ 1.06 $ .85
Cumulative effect of change in
accounting principles (net of income tax) - - - (.02)
------------ ------------ ------------ ------------
Net income . . . . . . . . . . . . . . . $ .32 $ .23 $ 1.06 $ .83
============ ============ ============ ============
Dividends per share . . . . . . . . . . . . . $ .105 $ .10 $ .315 $ .30
============ ============ ============ ============
Weighted average number of shares
and equivalents . . . . . . . . . . . . 86,578 84,655 86,215 82,733
============ ============ ============ ============
</TABLE>
(See notes)
4
<PAGE> 5
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
(THOUSANDS) 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 96,243 $ 71,357
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 47,568 36,419
Provision for deferred income taxes . . . . . . . . . . . . . . . . . . . 13,463 9,980
(Gain) from dispositions (net) . . . . . . . . . . . . . . . . . . . . . (1,119) (3,813)
Cumulative effect of change in accounting principles . . . . . . . . . . - 2,031
Change in assets and liabilities net of effects from acquisitions:
(Increase) in receivables . . . . . . . . . . . . . . . . . . . . . . . . (63,172) (16,697)
Change in prearranged funeral contracts and associated
deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,682 662
(Increase) decrease in other assets . . . . . . . . . . . . . . . . . . (24,395) 4,274
Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . 29,325 (9,220)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,969) 16
------------ ----------
Net cash provided by operating activities . . . . . . . . . . . . . . . . 148,626 95,009
------------ ----------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . (60,961) (49,681)
Proceeds from sales of property, plant and equipment . . . . . . . . . . 11,287 25,486
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (204,987) (131,070)
Loans issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (39,511) (53,978)
Principal payments received on loans . . . . . . . . . . . . . . . . . . 45,608 17,874
Change in investments and other . . . . . . . . . . . . . . . . . . . . . (15,827) (6,033)
------------ ----------
Net cash (used in) investing activities . . . . . . . . . . . . . . . . . . (264,391) (197,402)
------------ ----------
Cash flows from financing activities:
Borrowings (payments) under lines of credit and commercial paper . . . . 184,862 (5,500)
Subordinated debentures issued . . . . . . . . . . . . . . . . . . . . . - 150,000
Payments of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,230) (20,608)
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . - (1,637)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,965) (24,429)
Exercise of stock options and other . . . . . . . . . . . . . . . . . . . 1,009 3,733
------------ ----------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . 137,676 101,559
------------ ----------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . 21,911 (834)
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . 20,822 31,253
------------ ----------
Cash and cash equivalents at September 30, 1994 and 1993 . . . . . . . . . $ 42,733 $ 30,419
============ ==========
Cash used for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46,730 $ 44,018
============ ==========
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,281 $ 40,694
============ ==========
</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 . . . . . . . . . . . . . . . . . . . . . . . . . 96,243
Common stock issued:
Stock option exercises, restricted stock grants and other 198 3,418
Acquisitions . . . . . . . . . . . . . . . . . . . . . . 1,079 5,595 (436)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 406
Dividends on common stock ($.105 per share). . . . . . . . . (27,101)
Foreign translation adjustment . . . . . . . . . . . . . . . 98
--------- ---------- ---------- ---------
Balance at September 30, 1994 . . . . . . . . . . . . . . . . $ 86,172 $ 527,321 $ 353,585 $ (3,029)
========= ========== ========== =========
</TABLE>
(See notes)
6
<PAGE> 7
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements for the nine months ended September 30,
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 (the "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
Effective 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 or $.03 per share on January 1, 1993.
3. SUBSEQUENT EVENT - REGISTRATION OF SECURITIES
On November 1, 1994 a shelf registration statement relating to up to $1,000,000
of Company securities filed with the Commission was declared effective. The
Company intends to proceed with an underwritten offering of 7,700 shares of
common stock (excluding 1,155 shares subject to an underwriter's over-allotment
option) (the "Common Stock Offering") and $200,000 of ten year senior notes
(the "Senior Notes Offering"). In addition, SCI Finance LLC, a limited
liability company which is a subsidiary of the Company (SCI Finance), intends
to proceed with an underwritten offering of up to 3,450 shares of preferred
stock ("LLC Preferred Securities"), which shares will be convertible into
Company common stock (the "LLC Preferred Securities Offering").
Substantially all of the proceeds from the sale of the LLC Preferred Securities
and a portion of the proceeds from the sale of Company common stock will be
used to repay debt incurred in connection with acquisition by the Company of
Great Southern Group plc ("GSG") and Plantsbrook Group plc ("PG") (see Note 4
below). The proceeds from the sale of the senior notes and the balance of the
proceeds from the sale of Company common stock will be used to repay amounts
outstanding under existing credit facilities and / or retire commercial paper.
4. ACQUISITIONS
In June 1994, the Company announced an unsolicited offer to acquire 100% of the
outstanding shares of GSG. As of September 30, 1994, the Company owned, or had
commitments to acquire, in excess of 98% of GSG's voting shares. The Company
anticipates that the total purchase price will approximate $192,777, including
the assumption of approximately $14,751 of existing debt. GSG is a funeral
provider in the United Kingdom ("UK") and owns 157 funeral homes, 13 crematoria
and two cemeteries.
In September 1994, the Company announced its offer to acquire 100% of the
outstanding shares of PG. As of September 30, 1994, the Company owned, or had
commitments to acquire, in excess of 95% of PG's voting shares. The Company
anticipates that the total purchase price will approximate $312,690 including
the assumption of approximately $13,873 of existing debt. PG is a funeral
provider in the UK and owns 380 funeral homes.
7
<PAGE> 8
In addition to the acquisitions of GSG and PG, during 1993 and the nine months
ended September 30, 1994, the Company continued to acquire funeral and cemetery
operations in the United States, Australia and Canada. Excluding GSG and PG,
during such period the Company acquired 224 funeral homes and 41 cemeteries
(the "Other Acquired Companies") in 89 separate transactions for an aggregate
purchase price of approximately $436,000 in the form of combinations of cash,
Company common stock, issued and assumed debt, convertible debentures and
retired loans receivable held by the Company's finance subsidiary, Provident
Services, Inc.
The opening effect on the Consolidated Balance Sheet of the above acquisitions
in their respective year of acquisition was as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,406 $ 19,356
Prearranged funeral contracts . . . . . . . . . . . . . . . . . . . 108,271 59,932
Long-term receivables . . . . . . . . . . . . . . . . . . . . . . . 2,826 15,699
Cemetery property . . . . . . . . . . . . . . . . . . . . . . . . . 307,389 137,563
Property, plant and equipment . . . . . . . . . . . . . . . . . . . 167,833 80,547
Deferred charges and other assets . . . . . . . . . . . . . . . . . 5,095 (3,109)
Names and reputations . . . . . . . . . . . . . . . . . . . . . . . 356,314 32,090
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . (184,737) (11,895)
United Kingdom borrowings to be refinanced . . . . . . . . . . . . (312,462) -
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . (51,605) (28,444)
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . (107,645) (49,156)
Deferred prearranged funeral contract revenues . . . . . . . . . . (112,460) (59,402)
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . (6,238) (17,428)
--------- ---------
Cash used for acquisitions . . . . . . . . . . . . . . . . . $ 204,987 $ 175,753
========= =========
</TABLE>
Unaudited Pro Forma Combined Financial Information
The following unaudited pro forma combined statements of income for the year
ended December 31, 1993 and the nine months ended September 30, 1994 have been
prepared assuming the acquisitions by the Company of GSG, PG and the Other
Acquired Companies took place at the beginning of the respective periods. Such
acquisitions are being accounted for under the purchase method of accounting.
The historical revenues and expenses of the Other Acquired Companies represent
amounts recorded by those businesses for the period that they were not owned by
the Company during the year ended December 31, 1993 and the nine months ended
September 30, 1994, respectively. The unaudited pro forma combined financial
information may not be indicative of results that would have actually resulted
if these transactions had occurred on the dates indicated or which may be
obtained in the future.
In connection with the acquisitions of GSG and PG, a subsidiary of the Company
has obtained from separate lenders a UK pound sterling 185,000 loan facility
and a UK pound sterling 100,000 line of credit, both, with interest calculated
at a rate equal to UK pound sterling LIBOR plus 20 basis point (the "UK
Facilities"). The Company has guaranteed the UK Facilities. The acquisitions
of GSG and PG are being financed on an interim basis principally with
borrowings under the UK Facilities, under which the Company may borrow up to
$438,900 (based on the exchange rate of one UK pound sterling equivalent to US
$1.54 on September 2, 1994). The unaudited pro forma combined financial
information presented herein assumes the completion of the Common Stock
Offering, the LLC Preferred Securities Offering and the Senior Notes
Offering (see Note 3 above) at the beginning of the respective periods.
The proceeds from the LLC Preferred Securities Offering and a portion of the
net proceeds from the Common Stock Offering are assumed to be used to repay
$238,900 of indebtedness under the UK Facilities, and
8
<PAGE> 9
it is further assumed that $200,000 remains outstanding under the UK Facilities
at the beginning of the respective periods. The remaining net proceeds from
the Common Stock Offering and all of the net proceeds from the Senior Notes
Offering are assumed to be used to repay amounts outstanding under the
Company's existing revolving credit facilities or to retire the Company's
outstanding commercial paper or both (including $37,680 which was assumed to
have been borrowed to finance a portion of the purchase price of GSG and PG).
The historical financial statements of GSG and PG for the year ended December
31, 1993 and for the period not owned by the Company in 1994 were prepared in
UK pound sterling in accordance with the UK Companies Act of 1985 ("UK GAAP").
This information has been adjusted to present the historical financial
statements in accordance with United States generally accepted accounting
principles ("US GAAP") and translated into US dollars at the average exchange
rate in effect for the respective statement of income periods presented. The
Company has not completed all appraisals and evaluations necessary to finalize
GSG's and PG's purchase price allocation, and accordingly, actual adjustments
that reflect appraisals and other evaluations of the purchased assets and
assumed liabilities may differ from the pro forma adjustments.
9
<PAGE> 10
SERVICE CORPORATION INTERNATIONAL
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
Thousands, except per share amounts
<TABLE>
<CAPTION>
H i s t o r i c a l P r o F o r m a
Other
The Acquired Combined
Company GSG and PG Companies Adjustments Total
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . $ 899,178 $ 126,594 $ 123,380 $ 5,165 (A) $ 1,154,317
Costs and expenses . . . . . . . . (635,858) (101,300) (106,778) (3,590) (A) (829,910)
13,665 (B)
7,781 (C)
(70) (D)
(6,611) (E)
3,598 (F)
(437) (G)
(310) (H)
------------ ------------ ------------ ----------- ----------
Gross profit . . . . . . . . . . . 263,320 25,294 16,602 19,191 324,407
General and administrative expenses (43,706) - - - (43,706)
------------ ------------ ------------ ----------- ----------
Income from operations . . . . . . 219,614 25,294 16,602 19,191 280,701
Interest expense . . . . . . . . . (59,631) (2,560) (4,111) (686) (A) (87,783)
(6,918) (B)
1,372 (I)
(11,750) (J)
9,165 (K)
(16,980) (L)
4,316 (M)
Dividends on convertible preferred
stock of subsidiary . . . . . - - - (8,625) (N) (8,625)
Other income . . . . . . . . . . . 13,509 313 - - 13,822
------------ ------------ ------------ ----------- ----------
Income before income taxes . . . . 173,492 23,047 12,491 (10,915) 198,115
Provision for income taxes . . . . (70,400) (8,681) (4,694) 3,382 (O) (80,393)
------------ ------------ ------------ ----------- ----------
Income before cumulative effect of
change in accounting principles $ 103,092 $ 14,366 $ 7,797 $ (7,533) $ 117,722
============ ============ ============ =========== ==========
Earnings per share:
Primary -
Income before cumulative
effect of change in
accounting principles . . $ 1.24 $ 1.27
============ ==========
Fully diluted -
Income before cumulative
effect of change in
accounting principles . . $ 1.19 $ 1.21
============ ==========
Primary weighted average
number of shares . . . . . . . 83,372 1,915 (P) 92,987
============ ==========
7,700 (Q)
Fully diluted weighted average
number of shares . . . . . . 93,878 2,595 (P) 108,981
============ ==========
7,700 (Q)
4,808 (R)
</TABLE>
10
<PAGE> 11
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
(Thousands)
(A) To record the acquisition of 13 separate businesses acquired at
various dates by PG between January 1, 1993 and August 31, 1994 as if
such acquisitions had occurred on January 1, 1993. Internally
generated funds were used for the purchase of these businesses;
however, for purposes of the unaudited pro forma combined statement of
income, imputed interest expense, calculated on the purchase price,
has been included at a rate of 6%, which approximates the Company's UK
borrowing rate.
(B) To record a reduction to costs and expenses for the Other Acquired
Companies based on results actually achieved by the Company for the
periods subsequent to acquisition in the amount of $16,654, offset in
part by additional costs and expenses of $2,989 resulting from the
effect of applying purchase accounting adjustments, primarily
amortization and depreciation.
Interest expense was added for debt and convertible debentures, issued
in the purchase of the Other Acquired Companies at stated rates. In
addition, interest expense has been added for the cash portion of the
purchase price assumed to be borrowed by the Company at a weighted
average annual interest rate of 3.51%, which represented the weighted
average borrowing rate under the Company's revolving credit facilities
and commercial paper for the year ended December 31, 1993. At
September 30, 1994, the borrowing rate under the revolving credit
facilities and commercial paper was 5.03%.
(C) To eliminate corporate expenses, consisting primarily of duplicate
personnel expenses, related to the acquisitions of GSG and PG.
(D) To record the depreciation expense (based on a 50 year useful life and
straight-line depreciation) on GSG's funeral home buildings resulting
from the estimated change in fair value over historical cost.
(E) To record the amortization of names and reputations (based on a 40
year straight-line amortization) created from the acquisition of PG
by the Company.
(F) To eliminate the historical GSG and PG goodwill amortization expense.
(G) To record the cost of GSG's cemetery and cremation memorialization
interment rights sold.
(H) To record the estimated amortization expense expected to result from
the costs and expenses associated with the LLC Preferred Securities
Offering and the Senior Notes Offering.
(I) To eliminate the interest expense on GSG debt to be repaid by the
Company.
(J) To record the estimated interest expense on the net amount borrowed
under the UK Facilities in connection with the acquisition of GSG and
PG ($200,000) as if such amount had been borrowed on January 1, 1993.
This reflects the assumed repayment of a portion of the UK Facilities
($238,900) from the proceeds from the LLC Preferred Securities
Offering ($150,000) and a portion of the net proceeds from the Common
Stock Offering ($88,900). The estimated interest expense reflects a
rate equal to the average UK pound sterling LIBOR rate (5.86%) plus
20 basis points for the year ended December 31, 1993. At September
30, 1994 the pound sterling LIBOR rate was 5.88%.
(K) To record the estimated reduction in interest expense resulting from
the expected repayment of $261,114 of indebtedness under the Company's
revolving credit facilities and / or the Company's commercial paper.
The $261,114 reflects the repayment of a portion of the purchase price
of GSG and PG ($37,680) and the use of $100,530 of net proceeds of the
Common Stock Offering and all of the $198,264 net proceeds of the
Senior Notes Offering. The reduction was calculated using a weighted
average annual interest rate of 3.51%, which represents the Company's
weighted average borrowing rate
11
<PAGE> 12
under the Company's revolving credit facilities and commercial paper
for the year ended December 31, 1993.
(L) To record the estimated interest expense on the $200,000 notes being
issued in the Senior Notes Offering at an assumed annual interest
rate of 8.49%.
(M) To record the estimated reduction in net interest expense achieved
from a planned cross currency hedging transaction as if such
transaction had been entered into on January 1, 1993. This
transaction will effectively convert $272,500 of U.S. fixed rate
indebtedness into floating rate UK pound sterling indebtedness,
raising SCI's total UK pound sterling exposure to $472,500, which is
comparable to the size of the acquisitions of GSG and PG. Such
transaction is assumed to allow the Company to receive fixed rate
interest on the $272,500 at a weighted average rate of 8.38% and pay
UK pound sterling LIBOR plus 41 basis point on $200,000 and pay UK
pound sterling LIBOR on $72,500.
(N) To record the estimated dividends on the securities being issued in
the LLC Preferred Securities Offering at an assumed annual dividend
rate of 5.75%.
(O) To record the tax effect of the pro forma adjustments, including a
$947 tax benefit from the amortization of deferred taxes resulting
from indexed increases in the tax basis of UK assets.
(P) To give effect to the additional time period during which the Company
common stock (in the case of the primary and fully diluted weighted
average number of shares) and convertible debt (in the case of the
fully diluted weighted average number of shares) issued during the
period between January 1, 1993 and September 30, 1994 in respect to
the acquisition of the Other Acquired Companies would have been
outstanding if all of such acquisitions had occurred as of January 1,
1993.
(Q) To reflect the issuance of 7,700 shares in the Common Stock Offering.
(R) To record the impact on the fully diluted weighted average number of
shares of the LLC Preferred Securities Offering.
The following adjustments were made to the historical financials of GSG and PG
in order to restate historical financial statements to US GAAP:
<TABLE>
<CAPTION>
Historic Amounts As reported in Unaudited
Converted to US Dollars Adjustments to Pro Forma Combined
in UK GAAP* US GAAP Statement of Income
------------------------ --------------------- -----------------------
GSG PG GSG PG GSG PG
--------- --------- ----------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . $ 48,885 $ 77,709 $ - $ - $ 48,885 $ 77,709
Costs and expenses . . . (38,234) (58,893) (272) (1) (303) (1) (39,078) (62,222)
(572) (2) (3,026) (2)
Interest expense and other (1,372) (875) - - (1,372) (875)
Provision for income taxes (3,228) (5,645) 90 (1) 102 (1) (3,138) (5,543)
--------- --------- ------ ------- -------- ----------
Net income . . . . . . . $ 6,051 $ 12,296 $ (754) $(3,227) $ 5,297 $ 9,069
========= ========= ====== ======= ======== ==========
</TABLE>
- ----------
*One UK pound sterling equivalent to $1.493, which represents the average
exchange rate for the period.
(1) To depreciate buildings straight-line over 50 years for GSG and PG.
(2) To amortize PG's historical goodwill balance straight-line over 40
years.
12
<PAGE> 13
SERVICE CORPORATION INTERNATIONAL
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1994
Thousands, except per share amounts
<TABLE>
<CAPTION>
H i s t o r i c a l P r o F o r m a
Other
The Acquired Combined
Company GSG and PG Companies Adjustments Total
------------ ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . $ 801,934 $ 86,198 $ 22,997 $ 1,146 (A) $ 912,275
Costs and expenses . . . . . . . . . (558,737) (69,938) (20,105) (770) (A) (645,390)
2,878 (B)
3,757 (C)
(47) (D)
(4,407) (E)
2,502 (F)
(291) (G)
(232) (H)
------------ ------------ ----------- ------------- ------------
Gross profit . . . . . . . . . . . . 243,197 16,260 2,892 4,536 266,885
General and administrative expenses . (35,530) - - - (35,530)
------------ ------------ ----------- ------------ ------------
Income from operations . . . . . . . 207,667 16,260 2,892 4,536 231,355
Interest expense . . . . . . . . . . (53,464) (1,337) (812) (165) (A) (65,122)
(1,679) (B)
731 (I)
(7,278) (J)
8,382 (K)
(12,735) (L)
3,235 (M)
Dividends on convertible preferred
stock of subsidiary . . . . . . - - - (6,469) (N) (6,469)
Other income . . . . . . . . . . . . 7,767 201 - - 7,968
------------ ------------ ------------ ------------ -----------
Income before income taxes . . . . . 161,970 15,124 2,080 (11,442) 167,732
Provision for income taxes . . . . . (65,727) (5,641) (809) 4,010 (O) (68,167)
------------ ------------ ------------ ------------ -----------
Net income . . . . . . . . . . . . . $ 96,243 $ 9,483 $ 1,271 $ (7,432) $ 99,565
============ ============ ============ ============ ===========
Earnings per share:
Primary . . . . . . . . . . . . . $ 1.12 $ 1.06
============ ===========
Fully Diluted . . . . . . . . . . $ 1.06 $ 1.00
============ ===========
Primary weighted average
number of shares . . . . . . . . 86,215 272 (P) 94,187
============ ===========
7,700 (Q)
Fully diluted weighted average
number of shares . . . . . . . . 96,386 508 (P) 109,402
============ ===========
7,700 (Q)
4,808 (R)
</TABLE>
13
<PAGE> 14
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1994
(Thousands)
(A) To record the acquisition of 5 separate businesses acquired at various
dates by PG between January 1, 1993 and August 31, 1994 as if such
acquisitions had occurred on January 1, 1994. Internally generated
funds were used for the purchase of these businesses; however, for
purposes of the unaudited pro forma combined statement of income,
imputed interest expense, calculated on the purchase price, has been
included at a rate of 6%, which approximates the Company's UK
borrowing rate.
(B) To record a reduction to costs and expenses for the Other Acquired
Companies based on results actually achieved by the Company for the
periods subsequent to acquisition in the amount of $3,606, offset in
part by additional costs and expenses of $728 resulting from the
effect of applying purchase accounting adjustments, primarily
amortization and depreciation.
Interest expense was added for debt and convertible debentures, issued
in the purchase of the Other Acquired Companies at stated rates. In
addition, interest expense has been added for the cash portion of the
purchase price assumed to be borrowed by the Company at a weighted
average annual interest rate of 4.28%, which represented the weighted
average borrowing rate under the Company's revolving credit facilities
and commercial paper for the nine months ended September 30, 1994. At
September 30, 1994, the borrowing rate under the revolving credit
facilities and commercial paper was 5.03%.
(C) To eliminate corporate expenses, consisting primarily of duplicate
personnel expenses, related to the acquisitions of GSG and PG.
(D) To record the depreciation expense (based on a 50 year useful life and
straight-line depreciation) on GSG's funeral home buildings resulting
from the estimated change in fair value over historical cost.
(E) To record the amortization of names and reputations (based on a 40
year straight-line amortization) created from the acquisition of PG
by the Company.
(F) To eliminate the historical GSG and PG goodwill amortization expense.
(G) To record the cost of GSG's cemetery and cremation memorialization
interment rights sold.
(H) To record the estimated amortization expense expected to result from
the costs and expenses associated with the LLC Preferred Securities
Offering and the Senior Notes Offering.
(I) To eliminate the interest expense on GSG debt to be repaid by the
Company.
(J) To record the estimated interest expense on the net amount borrowed
under the UK Facilities in connection with the acquisition of GSG and
PG ($200,000) as if such amount had been borrowed on January 1, 1994.
This reflects the assumed repayment of a portion of the UK Facilities
($238,900) from the proceeds from the LLC Preferred Securities
Offering ($150,000) and a portion of the net proceeds from the Common
Stock Offering ($88,900). The estimated interest expense reflects a
rate equal to the average UK pound sterling LIBOR rate (5.33%) plus
20 basis points for the eight months ended August 31, 1994. At
September 30, 1994 the pound sterling LIBOR rate was 5.88%.
(K) To record the estimated reduction in interest expense resulting from
the expected repayment of $261,114 of indebtedness under the Company's
revolving credit facilities and/or commercial paper. The $261,114
reflects the repayment of a portion of the purchase price of GSG and
PG ($37,680) and the use of $100,530 of net proceeds of the Common
Stock Offering and all of the $198,264 net proceeds of the Senior
Notes Offering. The reduction was calculated using a weighted average
annual
14
<PAGE> 15
interest rate of 4.28%, which represents the Company's weighted
average borrowing rate under the Company's revolving credit facilities
and commercial paper for the nine months ended September 30, 1994.
(L) To record the estimated interest expense on the $200,000 notes being
issued in the Senior Notes Offering at an assumed annual interest rate
of 8.49%.
(M) To record the estimated reduction in net interest expense achieved
from a planned cross currency hedging transaction as if such
transaction had been entered into on January 1, 1994. This
transaction will effectively convert $272,500 of U.S. fixed rate
indebtedness into floating rate UK pound sterling indebtedness,
raising SCI's total UK pound sterling exposure to $472,500, which is
comparable to the size of the acquisitions of GSG and PG. Such
transaction is assumed to allow the Company to receive fixed rate
interest on the $272,500 at a weighted average rate of 8.38% and pay
UK pound sterling LIBOR plus 41 basis point on $200,000 and pay UK
pound sterling LIBOR on $72,500.
(N) To record the estimated dividends on the securities being issued in
the LLC Preferred Securities Offering at an assumed annual dividend
rate of 5.75%.
(O) To record the tax effect of the pro forma adjustments, including a
$710 tax benefit from the amortization of deferred taxes resulting
from indexed increases in the tax basis of UK assets.
(P) To give effect to the additional time period during which the Company
common stock (in the case of the primary and fully diluted weighted
average number of shares) and convertible debt (in the case of the
fully diluted weighted average number of shares) issued during the
period between January 1, 1994 and September 30, 1994 in respect to
the acquisition of the Other Acquired Companies would have been
outstanding if all of such acquisitions had occurred as of January 1,
1994.
(Q) To reflect the issuance of 7,700 shares in the Common Stock Offering.
(R) To record the impact on the fully diluted weighted average number of
shares of the LLC Preferred Securities Offering.
The following adjustments were made to the historical financials of GSG and PG
in order to restate historical financial statements to US GAAP:
<TABLE>
<CAPTION>
Historic Amounts As reported in Unaudited
Converted to US Dollars Adjustments to Pro Forma Combined
in UK GAAP* US GAAP Statement of Income
---------------------- ------------------------ ------------------------
GSG PG GSG PG GSG PG
--------- --------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . $ 33,714 $ 52,484 $ - $ - $ 33,714 $ 52,484
Costs and expenses . . . (26,682) (40,365) (184) (1) (205)(1) (27,254) (42,684)
(388) (2) (2,114)(2)
Interest expense and other (731) (405) - - (731) (405)
Provision for income taxes (2,079) (3,689) 60 (1) 67 (1) (2,019) (3,622)
-------- --------- ------ ------- --------- ----------
Net income . . . . . . . $ 4,222 $ 8,025 $ (512) $(2,252) $ 3,710 $ 5,773
========= ========= ====== ======= ========= ==========
</TABLE>
- ----------
*One UK pound sterling equivalent to $1.52, which represents the average
exchange rate for the eight months ended August 31, 1994.
(1) To depreciate buildings straight-line over 50 years for GSG and PG.
(2) To amortize PG's historical goodwill balance straight-line over 40
years.
15
<PAGE> 16
5. 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 September 30, 1994 balance in future funeral revenue is
expected to occur in the following years based on actuarial assumptions as
follows:
<TABLE>
<S> <C>
1994 (remaining three months) . . . . . . . . . . . . . $ 32,420
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 121,153
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 112,805
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 104,691
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 96,871
1999 and through 2003 . . . . . . . . . . . . . . . . . 371,412
2004 and thereafter . . . . . . . . . . . . . . . . . . 636,826
-----------
$ 1,476,178
===========
</TABLE>
6. DEBT
In July 1994, the Company's revolving credit agreements were amended to provide
for borrowings up to $700,000 (previously $600,000). The 364 day portion
supporting the commercial paper for $450,000 expires on July 26, 1995 and
contains provisions for renewals. At the end of any term, the outstanding
balance may be converted into a two year term loan. The committed portion for
$250,000 expires July 22, 1997. The Company may in July of each year,
commencing in 1995, extend the term of the $250,000 agreement for a year with
the consent of all the banks. The interest rates are based generally on
various indices determined by the Company. In addition, the Company pays a
quarterly facility fee ranging from .08% to .125% on the commitment amount.
The terms of the revolving credit agreements include various convenants which
provide, among other things, for the maintenance of a certain level of
consolidated net worth, the maintenance of certain ratios and restrictions on
certain payments. These credit agreements are to be used for general corporate
purposes, including acquisitions, and support for the Company's selling of
commercial paper.
The Company's committed portion of the revolving credit loan agreement
borrowings are approximately $220,000 at September 30, 1994 with a weighted
average annual interest rate of 5.08%. The credit loan agreement was also used
to support the selling of commercial paper totaling approximately $327,000 at
September 30, 1994, with a weighted average annual interest rate of 4.99%. 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.
Through September 30, 1994, the Company has issued $23,624 of
registered convertible debentures at an approximate interest rate of 5%. These
debentures have varying conversion prices from $26.17 through $33.84 and were
used to fund acquisitions.
At September 30, 1994, the Company's Canadian subsidiary has borrowed
US $13,042 under its separate bank line of credit during 1994 to fund Canadian
acquisitions. In September 1994, the Company's Australian subsidiary increased
a line of credit with an Australian bank to US $18,500 and has borrowed US
$9,620 through September 30, 1994.
At September 30, 1994, the Company has borrowed US $312,462 under the
UK Facilities described in note 4.
On August 31, 1993, the Company entered a currency swap agreement with
a bank that hedged the borrowings for the
16
<PAGE> 17
Company's initial investment in its Australian subsidiary. As part of this
agreement, the Company pays the bank a blended interest rate (6.84% at
September 30, 1994) on Australian dollar $110,000 and receives a floating
interest rate (5.12% at September 30, 1994) on US $73,590. 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 US
$150,000. This interest rate swap was partially unwound by the Company on May
19, 1994 by paying the bank a fee of $4,693. Such fee will be amortized into
income through February 1, 1999. Under this agreement, the Company pays a
floating interest rate (5.31% at September 30, 1994) on US $75,000 and receives
a 5.36% fixed interest rate on US $75,000. This agreement terminates February
1, 1999.
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 Australian dollar $32,715 and receives a
variable interest rate (4.11% at September 30, 1994) on US $23,414. This
agreement expires March 1, 1999.
7. SUPPLEMENTAL INFORMATION - NON-CASH TRANSACTIONS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1994 1993
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock issued under restricted stock plans . . . . . . . $ 1,802 $ 14,393
Debenture conversion . . . . . . . . . . . . . . . . . . . . . 1,293 97,164
Cumulative effect of change in accounting principles . . . . . - 2,031
</TABLE>
8. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the nine months ended September 30,
1994 was 3.32. 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). 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.
17
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
NINE MONTHS ENDED SEPTEMBER 30, 1994
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1993
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE SALES PRICES)
OVERVIEW:
The majority of the Company's funeral homes and cemeteries are managed in
groups called clusters. Clusters are established primarily 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 160 clusters in North America and Australia, 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>
Nine Months Ended September 30, Percentage
1994 1993 Increase Increase
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Funeral . . . . . . . . . . . $ 535,140 $ 436,425 $ 98,715 22.6 %
Cemetery . . . . . . . . . . . 252,413 205,062 47,351 23.1
Financial services . . . . . . 14,381 11,365 3,016 26.5
--------- ----------- -----------
801,934 652,852 149,082 22.8
Costs and expenses:
Funeral . . . . . . . . . . . 377,445 309,615 67,830 21.9
Cemetery . . . . . . . . . . . 173,031 146,554 26,477 18.1
Financial services . . . . . . 8,261 6,695 1,566 23.4
--------- ----------- -----------
558,737 462,864 95,873 20.7
Gross profit and margin percentage:
Funeral . . . . . . . . . . . 157,695 29.5 % 126,810 29.1 % 30,885 24.4
Cemetery . . . . . . . . . . . 79,382 31.4 58,508 28.5 20,874 35.7
Financial services . . . . . . 6,120 42.6 4,670 41.1 1,450 31.0
--------- ----------- -----------
$ 243,197 30.3 % $ 189,988 29.1 % $ 53,209 28.0 %
========= =========== ===========
</TABLE>
18
<PAGE> 19
Funeral
Funeral revenues were generated as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Increase/ Percentage
1994 1993 (Decrease) Increase
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Existing clusters . . . . . . . . . . . . $ 463,276 $ 409,726 $ 53,550 13.1%
New clusters* . . . . . . . . . . . . . . 50,698 7,977 42,721
----------- ---------- ----------
Total clusters . . . . . . . . . . . . 513,974 417,703 96,271 23.0%
Non-cluster and disposed operations . . . 21,166 18,722 2,444
----------- ---------- ----------
Total funeral revenues . . . . . . . . $ 535,140 $ 436,425 $ 98,715 22.6%
=========== ========== ==========
</TABLE>
The $53,550 increase in revenues at existing clusters was the result
of 10,258 or 8.5% more funeral services performed and a $142 or 4.2% higher
average sales price. Included in this increase was $35,661 in revenues from
locations acquired since the beginning of 1993. It is anticipated 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 nine months ended September 30, 1994, the Company sold
$173,004 of prearranged funeral services compared to $114,471 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. The current emphasis on sales of prearranged funerals is expected
to continue.
Funeral costs were incurred as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Increase/ Percentage
1994 1993 (Decrease) Increase
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Existing clusters . . . . . . . . . . . . $ 302,606 $ 268,815 $ 33,791 12.6%
New clusters* . . . . . . . . . . . . . . 36,293 6,042 30,251
----------- ---------- ----------
Total clusters . . . . . . . . . . . . 338,899 274,857 64,042 23.3%
Non-cluster and disposed operations . . . 17,086 15,880 1,206
Administrative overhead . . . . . . . . . 21,460 18,878 2,582
----------- ---------- ----------
Total funeral costs . . . . . . . . . $ 377,445 $ 309,615 $ 67,830 21.9%
=========== ========== ==========
</TABLE>
Total funeral gross profit margin increased to 29.5% compared to 29.1%
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 those experienced
at the Company's existing locations. Acquisitions, since the beginning of
1993, accounted for $27,270 of the existing cluster cost increase. The
improved gross profit margin for existing clusters reflects the increased
revenues discussed above, without a corresponding percentage increase in costs
at other funeral homes included in existing clusters. Administrative overhead
costs related to funeral operations decreased to 4.0% of revenues in 1994
compared to 4.3% of revenues in 1993. The current period includes
approximately $2,400 of gross profit (representing approximately one month of
activity) from the UK acquisitions.
- ----------
*Represents new geographic areas entered into since the beginning of 1993 for
the period that those businesses were owned by the Company.
19
<PAGE> 20
Cemetery
Cemetery revenues were generated as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Percentage
1994 1993 Increase Increase
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Existing clusters . . . . . . . . . . . . $ 231,090 $ 193,839 $ 37,251 19.2%
New clusters* . . . . . . . . . . . . . . 12,703 3,461 9,242
----------- ---------- ----------
Total clusters . . . . . . . . . . . . 243,793 197,300 46,493 23.6%
Non-cluster and disposed operations . . . 8,620 7,762 858
----------- ---------- ----------
Total cemetery revenues . . . . . . . $ 252,413 $ 205,062 $ 47,351 23.1%
=========== ========== ==========
</TABLE>
Revenues for the existing clusters increased primarily due to
increased sales of lots, merchandise and services. Included in the existing
cluster increase were $15,740 in increased revenues from cemeteries acquired
since the beginning of 1993.
Cemetery costs were incurred as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Increase/ Percentage
1994 1993 (Decrease) Increase
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Existing clusters . . . . . . . . . . . . $ 149,302 $ 127,694 $ 21,608 16.9%
New clusters* . . . . . . . . . . . . . . 6,154 1,542 4,612
----------- ---------- ---------
Total clusters . . . . . . . . . . . . 155,456 129,236 26,220 20.3%
Non-cluster and disposed operations . . . 5,890 6,044 (154)
Administrative overhead . . . . . . . . . 11,685 11,274 411
----------- ---------- ---------
Total cemetery costs . . . . . . . . . $ 173,031 $ 146,554 $ 26,477 18.1%
=========== ========== =========
</TABLE>
Costs at existing clusters increased $21,608 due to an increase of
$10,608 from cemeteries acquired since the beginning of 1993. Costs from other
existing cluster cemeteries increased $11,000 due to the costs associated with
the increased revenues discussed above. The cemetery gross margin increase of
31.4% this year compared to 28.5% last year reflects the strong revenue growth
as well as continued cost control, particularly in selling expenses.
Administrative overhead costs have decreased to 4.6% of revenues this year
compared to 5.5% last 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 to 42.6% this year from 41.1% last year. The average
outstanding loan portfolio during the current year was $241,923 with an average
interest rate spread of 3.48% compared to $209,393 and 3.24%, respectively,
last year.
- ----------
*Represents new geographic areas entered into since the beginning of 1993 for
the period that those businesses were owned by the Company.
20
<PAGE> 21
Other Income and Expenses
General and administrative expenses increased by $7,504 or 26.8%. Of the
increase, $4,274 is attributable to personnel expenses primarily in the form of
incentive compensation and restricted stock costs. Professional fees have
increased $2,380 in the current year primarily from legal costs associated with
the ongoing informal investigation of the Company by the Commission (See Item
1. Legal Proceedings in Part II of this report). The remainder of the
increase is derived primarily from corporate transportation and travel costs.
As a percentage of revenues, general and administrative expenses were 4.4% this
year compared to 4.3% last year.
Interest expense, which excludes the amount incurred through financial
service operations, increased $9,279 or 21.0% during the current year primarily
due to increased borrowings and higher interest rates incurred under the
Company's existing lines of credit and commercial paper primarily used to fund
the Company's acquisition program. Also contributing to the increase in the
current year was the issuance of $150,000 of 7.875% debentures issued by the
Company in February 1993 and the recognition of $2,160 of interest expense
associated with the recent acquisitions in the UK.
The provision for income taxes has decreased to 40.6% from 41.7% last
year primarily due to the enactment of the Omnibus Budget Reconciliation Act of
1993 (the "Act") in August 1993 which increased corporate tax rates
retroactively to January 1, 1993. The 1993 period includes a $3,200 charge due
to the Act.
THREE MONTHS ENDED SEPTEMBER 30, 1994
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1993
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE SALES PRICES)
RESULTS OF OPERATIONS:
Segment information for the Company's three lines of business are as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Percentage
1994 1993 Increase Increase
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Funeral . . . . . . . . . . . $ 185,132 $ 138,625 $ 46,507 33.5 %
Cemetery . . . . . . . . . . . 87,637 68,758 18,879 27.5
Financial services . . . . . . 5,045 4,049 996 24.6
---------- ----------- -----------
277,814 211,432 66,382 31.4
Costs and expenses:
Funeral . . . . . . . . . . . 136,833 102,950 33,883 32.9
Cemetery . . . . . . . . . . . 60,958 49,432 11,526 23.3
Financial services . . . . . . 3,109 2,453 656 26.7
---------- ----------- -----------
200,900 154,835 46,065 29.8
Gross profit and margin percentage:
Funeral . . . . . . . . . . . 48,299 26.1 % 35,675 25.7 % 12,624 35.4
Cemetery . . . . . . . . . . . 26,679 30.4 19,326 28.1 7,353 38.0
Financial services . . . . . . 1,936 38.4 1,596 39.4 340 21.3
---------- ----------- -----------
$ 76,914 27.7 % $ 56,597 26.8 % $ 20,317 35.9 %
========== =========== ===========
</TABLE>
21
<PAGE> 22
Funeral
Funeral revenues were generated as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30, Percentage
1994 1993 Increase Increase
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Existing clusters . . . . . . . . . . . . $ 159,308 $ 136,359 $ 22,949 16.8%
New clusters* . . . . . . . . . . . . . . 19,331 71 19,260
----------- ----------- ----------
Total clusters . . . . . . . . . . . . 178,639 136,430 42,209 30.9%
Non-cluster and disposed operations . . . 6,493 2,195 4,298
----------- ----------- ----------
Total funeral revenues . . . . . . . . $ 185,132 $ 138,625 $ 46,507 33.5%
=========== =========== ==========
</TABLE>
The $22,949 increase in revenues at existing clusters was the result
of 4,781 or 11.3% more funeral services performed and a $161 or 5.0% higher
average sales price. Included in this increase was $13,236 in revenues from
locations acquired after June 30, 1993. During the three months ended
September 30, 1994, the Company sold $64,255 of prearranged funeral services
compared to $44,329 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.
Funeral costs were incurred as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30, Percentage
1994 1993 Increase Increase
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Existing clusters . . . . . . . . . . . . $ 108,896 $ 93,306 $ 15,590 16.7%
New clusters* . . . . . . . . . . . . . . 14,927 37 14,890
----------- ---------- ---------
Total clusters . . . . . . . . . . . . 123,823 93,343 30,480 32.7%
Non-cluster and disposed operations . . . 5,697 2,804 2,893
Administrative overhead . . . . . . . . . 7,313 6,803 510
----------- ---------- ---------
Total funeral costs . . . . . . . . . $ 136,833 $ 102,950 $ 33,883 32.9%
=========== ========== =========
</TABLE>
The gross profit margin at existing clusters remained virtually
constant for both periods primarily attributable to lower gross profit margins
for the acquisitions added to the existing clusters after June 30, 1993.
Typically, acquisitions will temporarily exhibit slightly lower gross profit
margins than those experienced at the Company's existing locations. These
acquisitions accounted for $10,361 of the existing cluster cost increase.
Administrative overhead costs related to funeral operations when expressed as a
percentage of revenues showed improvement to 4.0% this year from 4.9% last
year. This helped the total funeral gross profit margin improve to 26.1% from
25.7% last year.
- ----------
*Represents new geographic areas entered into after June 30, 1993 for the
period that those businesses were owned by the Company.
22
<PAGE> 23
Cemetery
Cemetery revenues were generated as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30, Percentage
1994 1993 Increase Increase
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Existing clusters . . . . . . . . . . . . $ 83,006 $ 66,627 $ 16,379 24.6%
New clusters* . . . . . . . . . . . . . . 1,555 - 1,555
----------- ---------- ---------
Total clusters . . . . . . . . . . . . 84,561 66,627 17,934 26.9%
Non-cluster and disposed operations . . . 3,076 2,131 945
----------- ---------- ---------
Total cemetery revenues . . . . . . . $ 87,637 $ 68,758 $ 18,879 27.5%
=========== ========== =========
</TABLE>
Revenues for the existing clusters increased primarily due to
increased sales of lots, merchandise and services. Included in the existing
cluster increase was $5,353 in increased revenues from cemeteries acquired
after June 30, 1993.
Cemetery costs were incurred as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30, Increase/ Percentage
1994 1993 (Decrease) Increase
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Existing clusters . . . . . . . . . . . . $ 54,156 $ 43,675 $ 10,481 24.0%
New clusters* . . . . . . . . . . . . . . 983 - 983
----------- ---------- ---------
Total clusters . . . . . . . . . . . . 55,139 43,675 11,464 26.2%
Non-cluster and disposed operations . . . 2,354 1,953 401
Administrative overhead . . . . . . . . . 3,465 3,804 (339)
----------- ---------- ---------
Total cemetery costs . . . . . . . . . $ 60,958 $ 49,432 $ 11,526 23.3%
=========== ========== =========
</TABLE>
Costs at existing clusters increased $10,481 due to an increase of
$3,914 in costs from cemeteries acquired after June 30, 1993 and a increase of
$6,567 from other existing cluster cemeteries. Lower gross profit margins for
the cemeteries acquired after June 30, 1993 and included in existing clusters
caused the gross profit margin for existing clusters to improve only slightly
over last year. The improvement in existing cluster gross profit margin and
decreased administrative overhead costs helped the total gross profit margin
increase to 30.4% in the current quarter from 28.1% last 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 $232,952 with an average interest rate spread of 3.54% compared to
$219,254 and 3.31%, respectively, last year.
- ----------
*Represents new geographic areas entered into after June 30, 1993 for the
period that those businesses were owned by the Company.
23
<PAGE> 24
Other Income and Expenses
General and administrative expenses increased by $1,520 or 16.6%. Of the
increase, $771 is attributable to personnel expenses primarily from incentive
compensation and retirement plan accruals. The remainder of the increase is
primarily derived from corporate transportation and travel costs. As a
percentage of revenues, general and administrative expenses were 3.8% in the
current quarter and 4.3% last year.
Interest expense, which excludes the amount incurred through financial
service operations, increased $5,711 or 37.3% during the current quarter
primarily due to increased borrowings under the Company's existing lines of
credit and commercial paper during the current quarter. Additionally, interest
expense includes $2,160 related to the Company's recent acquisitions in the UK.
The 1993 quarter includes a $3,200 charge to income tax expense
representing the effect of enactment of the Act in August 1993.
FINANCIAL CONDITION AT SEPTEMBER 30, 1994:
In connection with the Company's acquisitions of GSG and PG, a subsidiary of
the Company has obtained from separate lenders a UK pound sterling 185,000 loan
facility and a UK pound sterling 100,000 line of credit, both, with interest
calculated at a rate equal to UK pound sterling LIBOR plus 20 basis points.
The Company has guaranteed the UK Facilities. The acquisitions of GSG and PG
are being financed on an interim basis principally with borrowings under the UK
Facilities. The Company has borrowed US $312,462 at September 30, 1994
(included in "United Kingdom borrowings to be refinanced" on the Consolidated
Balance Sheet).
On November 1, 1994 a shelf registration statement relating to up to
$1,000,000 of Company securities filed with the Commission was declared
effective. The Company intends to proceed with an underwritten offering of
7,700,000 shares of common stock (excluding 1,155,000 shares subject to an
underwriter's over-allotment option) and $200,000 of ten year senior notes.
In addition, SCI Finance intends to proceed with an underwritten offering of
LLC Preferred Securities, which shares will be convertible into Company common
stock. Substantially all of the proceeds from the sale of the LLC Preferred
Securities and a portion of the proceeds from the sale of Company common stock
will be used to repay debt incurred in connection with acquisitions of GSG and
PG. After application of proceeds from the Common Stock Offering and the LLC
Preferred Securities Offering, an aggregate of approximately $200,000 will be
outstanding under the UK Facilities, which the Company intends to refinance
with the proceeds from a note offering proposed to be made in the United
Kingdom in early 1995. The proceeds from the sale of the Senior Notes Offering
and the balance of the proceeds from the sale of Common Stock Offering will be
used to repay amounts outstanding under existing credit facilities and / or
retire commercial paper ($547,000 outstanding at September 30, 1994).
At October 31, 1994, the Company had available approximately $271,500
of borrowing capacity under its various existing lines of credit (including
amounts available under the UK Facilities). In addition to the sources of cash
from operations and credit lines, the Company has 12,149,000 shares of common
stock, $70,227 of guarantees of promissory notes and $74,382 of convertible
debentures registered with the Commission to be used exclusively for future
acquisitions.
Included in accounts payable and accrued liabilities on the
Consolidated Balance Sheet is approximately $97,000 representing the estimated
future cost of purchasing the remaining outstanding shares of GSG and PG at
September 30, 1994.
HEDGING TRANSACTIONS (SEE NOTE 6):
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 changes in interest rates and
exchange rates, these losses would generally be offset by gains on the
exposures being hedged. The Company has realized US $1,093 losses on
contracts entered into as hedge transactions since the beginning of 1993.
These realized losses were deferred and are being amortized into income over
the remaining lives of the original transactions.
At September 30, 1994, the Company has outstanding foreign currency
and interest rate swaps in the notional amounts of
24
<PAGE> 25
Australian dollar $142,715 and US $75,000. As of September 30, 1994, net
unrealized losses before taxes from these hedging agreements were estimated to
be US $7,000 (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.
The Company anticipates entering into a planned cross currency hedging
transaction effectively converting $272,500 of U.S. fixed rate indebtedness
into floating rate UK pound sterling indebtedness, raising the Company's total
UK pound sterling exposure to US $472,500, which is comparable to the size of
the acquisitions of GSG and PG. If such transaction is consummated the Company
would receive fixed rate interest on US $272,500 and pay UK pound sterling
LIBOR, plus some level of add-on basis points, on US $272,000.
OTHER MATTERS:
See Item 1. Legal Proceedings in Part II of this report for information
regarding an informal investigation by the Commission.
25
<PAGE> 26
SERVICE CORPORATION INTERNATIONAL
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously disclosed by the Company, the staff of the Division of
Enforcement of the Securities and Exchange Commission (the
"Commission") has advised the Company that it is considering
recommending to the Commission that it institute an administrative
proceeding pursuant to Section 21C of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), seeking cease and desist
orders against the Company, R. L. Waltrip, Chairman of the Board and
Chief Executive Officer, L. William Heiligbrodt, President and Chief
Operating Officer, and Samuel W. Rizzo, Executive Vice President and
Chief Financial Officer/Treasurer, for violations of certain
reporting and disclosure requirements of the Exchange Act and the
regulations promulgated thereunder. The recommendation under
consideration by the staff arises out of the informal private
investigation previously disclosed by the Company relating to, among
other things, the change in the Company's accountants and the
Company's Form 8-K dated March 31, 1993, as amended in April 1993,
reporting such change. See Items 3 and 9 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
The staff has offered the Company and the named individuals the
opportunity to make a presentation with respect to the recommendation
under consideration.
26
<PAGE> 27
ITEM 5.
The Company is considering the desirability and feasibility of an
acquisition of Pompes Funebres Generales S.A. ("PFG"), which operates
approximately 150 funeral homes or similar facilities and 750 other retail
outlets in France and is the largest operator of funeral homes in France.
Although the Company has had, and intends to continue, exploratory discussions
with Lyonnaise des Eaux-Dumes S.A. ("Lyonnaise"), which controls approximately
66% of the stock of PFG, in regard to various potential transactions, Lyonnaise
has advised the Company that it has no intention of selling its interest in
PFG. The balance of the stock of PFG is publicly traded, and the current total
market capitalization of PFG is approximately US $185 million. For the year
ended December 31, 1993, PFG reported revenues of approximately US $565 million
and net income of approximately US $20 million. Subsequent to December 31,
1993, PFG sold its 46% interest in PG to the Company. The results of PFG
disclosed above include all of the revenues of PG during such period, and PFG's
46% interest in PG's net income. For the year ended December 31, 1993,
PG reported revenues of approximately US $77.7 million and net income of
approximately US $12.3 million. The operating margins of the funeral business
in France historically have been substantially lower than the operating margins
in the funeral business in North America and in the United Kingdom. The Company
has retained an affiliate of J.P. Morgan Securities Inc. to assist it in its
evaluation of PFG. Particularly in light of the statement by Lyonnaise that it
has no intention of selling its interest in PFG, there can be no assurance that
any transaction involving the Company and PFG will ultimately occur or as to
the terms of any such transaction.
In October 1994, the Company announced that it had acquired approximately
8.5% of the Class A Voting Shares and approximately 19.9% of the Class B
Non-Voting Shares of Arbor Memorial Services Inc. ("Arbor"). Arbor owns 44
cemeteries and 21 crematoria in Canada. The Company, which acquired its
position in Arbor as a strategic investment, is continuing to consider means to
build its relationship with Arbor and may continue to increase its investment
in Arbor. Subsequent to the announcement by the Company of its position in
Arbor, the Company was advised by the Arbor stockholder who owns a majority of
the Class A Voting Shares that he is not interested at this time in a
transaction involving a sale of control of Arbor. For the year ended
October 31, 1993, Arbor reported revenues of approximately US $78.1 million and
net income of approximately US $4.5 million.
The financial data contained herein with respect to PFG, PG and Arbor is
derived from such companies' publicly available information. Such data was not
prepared in conformity with US GAAP, and the Company makes no representation
with respect to the accuracy of such data or the comparability of such data to
financial data of the Company or other US companies in the death care industry.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Service Corporation International ECI Stock Option Plan.
10.2 Form of First Amendment to Salary Continuation Agreement
(amending the Salary Continuation Agreements of L. William
Heiligbrodt, W. Blair Waltrip, Samuel W. Rizzo and John W.
Morrow).
11.1 Computation of earnings per share.
12.1 Ratio of earnings to fixed charges.
27.1 Financial data schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K during the three months ended September 30,
1994.
27
<PAGE> 28
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.
November 14, 1994
SERVICE CORPORATION INTERNATIONAL
By: /s/ Samuel W. Rizzo
-----------------------------------
Samuel W. Rizzo
Executive Vice President Chief
Financial Officer/Treasurer
(Principal Financial Officer)
28
<PAGE> 29
INDEX TO EXHIBITS
10.1 Service Corporation International ECI Stock Option Plan.
10.2 Form of First Amendment to Salary Continuation Agreement (amending the
Salary Continuation Agreements of L. William Heiligbrodt, W. Blair
Waltrip, Samuel W. Rizzo and John W. Morrow).
11.1 Computation of earnings per share.
12.1 Ratio of earnings to fixed charges.
27.1 Financial data schedule.
<PAGE> 1
EXHIBIT 10.1
SERVICE CORPORATION INTERNATIONAL
ECI STOCK OPTION PLAN
I
PURPOSE OF THE PLAN
The Service Corporation International ECI Stock Option Plan (the "Plan"),
is intended to provide a means whereby certain employees of Service Corporation
International, a Texas corporation (the "Company"), and its subsidiaries may
develop a sense of proprietorship and personal involvement in the development
and financial success of the Company's affiliate Equity Corporation
International ("ECI"), and to encourage them to remain with and devote their
best efforts to the business of the Company, thereby advancing the interests of
the Company and its stockholders. Accordingly, the Company will grant to
certain employees of the Company or its subsidiaries the option ("Option") to
purchase shares of the $.01 par value common stock of ECI ("Stock"), as
hereinafter set forth.
II
ADMINISTRATION
The Plan shall be administered by the Compensation Committee of the
Board of Directors (the "Committee"). Members of the Committee shall not be
eligible, and shall not have been eligible, at any time within one year prior
to their appointment to the Committee, to participate in the plan or in any
other stock plan of the Company or any of its affiliates, except the 1990 Stock
Plan for Non-Employee Directors or similar or successor plans. The Committee
has selected the employees of the Company or its subsidiaries listed on Exhibit
A to be granted Options for the number of shares of Stock set opposite their
respective names. The Committee is authorized to interpret the Plan,
accelerate the vesting or exercisability of all or any Options, and may from
time to time adopt such rules and regulations, consistent with the provisions of
the Plan, as it may deem advisable to carry out the Plan. All decisions made
by the Committee in selecting the employees to whom Options shall be granted,
in establishing the number of shares which may be issued under each Option, and
in construing the provisions of the Plan shall be final.
III
OPTION AGREEMENTS
Each Option shall be evidenced by an Option Agreement in the form attached
hereto as Exhibit B. Each Option and all rights granted thereunder shall not be
transferable other than by will or the laws of descent and distribution, and
shall be exercisable during the optionee's lifetime only by the optionee.
<PAGE> 2
IV
ELIGIBILITY OF OPTIONEE
Options may be granted only to the employees listed on Exhibit A.
V
SHARES SUBJECT TO THE PLAN
The aggregate number of shares which may be issued under Options shall not
exceed 509,000 shares of Stock. Such shares shall consist of previously issued
shares owned by the Company. Should any Option hereunder expire prior to its
exercise in full, the remaining number of shares theretofore subject to such
Option may not again be subject to an Option granted under the Plan. The
aggregate number of shares which may be issued under the Plan may be adjusted
to reflect a change in the capitalization of ECI, such as a stock dividend or
stock split.
VI
OPTION PRICE
The purchase price of Stock issued under each Option shall be the initial
public offering price of the Common Stock of ECI pursuant to its Registration
Statement on Form S-1.
VII
TERM OF THE PLAN
The Plan shall be effective upon the date of its adoption by the Board of
Directors. Except with respect to Options then outstanding, if not sooner
terminated under the provisions of Paragraph IX, the Plan shall terminate upon
and no further options shall be granted after the expiration of ten years from
the effective date of the Options. The effective date of the Options shall be
the date the shares of ECI Common Stock are first offered to the public in
ECI's initial public offering.
VIII
RECAPITALIZATION OR REORGANIZATION
(a) The existence of the Plan and the Options granted hereunder shall
not affect or authorize any adjustment, recapitalization, reorganization
or other change in ECI's capital structure or its business, any merger or
consolidation of ECI, any issue of bonds, debentures, preferred or prior
preference stocks ahead of or affecting Stock or the rights thereof, the
dissolution of liquidation of ECI or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding.
(b) The shares with respect to which Options may be granted are
shares of Stock as presently constituted, but if, and whenever, prior to the
expiration of an Option theretofore granted, ECI shall effect a subdivision or
consolidation of shares of
-2-
<PAGE> 3
Stock or the payment of a stock dividend on Stock without receipt of
consideration by ECI, the number of shares of Stock with respect to which such
Option may thereafter be exercised (i) in the event of an increase in the
number of outstanding shares shall be proportionately increased, and the
purchase price per share shall be proportionately reduced, and (ii) in the
event of a reduction in the number of outstanding shares shall be
proportionately reduced, and the purchase price per share shall be
proportionately increased.
(c) (i) If ECI recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise of an Option theretofore granted the
optionee shall be entitled to purchase under such Option, in lieu of the number
of shares of Stock as to which such Option shall then be exercisable, the
number and class of shares of stock and securities to which the optionee would
have been entitled pursuant to the terms of such recapitalization if,
immediately prior to such recapitalization, the optionee had been the holder of
record of the number of shares of Stock as to which such Option is then
exercisable.
(ii) Notwithstanding any other provision of the Plan to
the contrary, immediately upon a Change of Control (as defined in
Section VIII (c) (iii) below) or a Change of ECI Control (as defined in
Section VIII(c)(iv) below) all Options granted hereunder shall become
exercisable to the full extent of the original grant. From and after a Change
of Control, Options shall remain exercisable for the lesser of (x) the balance
of their original term, and (y) six months and one day after termination of an
employee's employment, one year in the case of termination of employment due to
death, total and permanent disability or retirement at age 65 or older.
(iii) For purposes of the Plan, "Change of Control" shall
mean the happening of any of the following events:
1. The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (A) the then outstanding shares of Common Stock of the
Company (the "Outstanding Company Common Stock") or (B) the combined voting
power of the then outstanding voting securities of the Company, entitled to
vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following acquisitions shall not
constitute a Change of Control: (A) any acquisition directly from the Company
(excluding an acquisition by virtue of the exercise of a conversion
privilege), (B) any acquisition by the Company, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (D) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation, if,
following such reorganization, merger or consolidation, the conditions
described in clauses (A), (B) and (C) of subsection (3) of this definition of
"Change of Control" are satisfied; or
-3-
<PAGE> 4
2. Individuals who, as of the effective date hereof,
constitute the Board of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of the Company;
provided, however, that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by the Company's
shareholders, was approved by (A) a vote of at least a majority of the
directors then compromising the Incumbent Board, or (B) a vote of at least a
majority of the directors then comprising the Executive Committee of the Board
at a time when such committee was comprised of at least five members and all
members of such committee were either members of the Incumbent Board or
considered as being members of the Incumbent Board pursuant to clause (A) of
this subsection 2, shall be considered as though such individual were a member
of the Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A as promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
3. Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (A) more than 60% of, respectively,
the then outstanding shares of common stock of the corporation resulting from
such reorganization, merger or consolidation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
organization, merger or consolidation in substantially the same proportions as
their ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (B) no Person (excluding the Company,
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such reorganization, merger or consolidation and any Person
beneficially owning, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 20% or more of the outstanding Company
Common Stock or Outstanding Company Voting Securities, as the case may be),
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation or the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors and (C) at least a majority of the
members of the board of directors of the corporation resulting from such
reorganization, merger or consolidation were members of the Incumbent Board at
the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
4. Approval by the shareholders of the Company of (A) a
complete liquidation or dissolution of the Company or (B) the sale or other
disposition
-4-
<PAGE> 5
of all or substantially all of the assets of the Company, other than to a
corporation, with respect to which following such sale or other disposition,
(I) more than 60% of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(II) no Person (excluding the Company and any employee benefit plan (or
related trust) of the Company or such corporation and any Person beneficially
owning, immediately prior to such sale or other disposition, directly or
indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities, as the case may be, beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the
election of directors and (III) at least a majority of the members of the board
of directors of such corporation were members of the Incumbent Board at the
time of the execution of the initial agreement or action of the Board providing
for such sale or other disposition of assets of the Company.
(iv) For purposes of the Plan, "Change of ECI Control"
shall mean the happening of any of the following events:
1. Any person or parties other than shareholders of
ECI as of the date prior to the date on which shares of ECI Common Stock are
first offered to the public in ECI's initial public offering becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, or securities of ECI representing 25% or more of the combined
voting power of ECI's then outstanding securities; or
2. Any person becomes, after the consummation of the
aforesaid initial public offering of ECI, the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
ECI representing 50% or more of the combined voting power of ECI's then
outstanding securities; or
3. The stockholders of ECI approve a merger,
consolidation, sale or disposition of all or substantially all of ECI's assets
or a plan of liquidation.
(d) Except as hereinbefore expressly provided, the issuance by ECI of
shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of ECI convertible into such shares or other securities,
and in any case whether or not for fair value, shall not
-5-
<PAGE> 6
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Stock subject to Options theretofore granted or the
purchase price per share.
IX
AMENDMENT OR TERMINATION OF THE PLAN
The Board of Directors shall have the right to alter or amend the Plan or
any part hereof from time to time; provided, that no change in any Option
theretofore granted may be made which would impair the rights of the optionee
without the consent of such optionee.
-6-
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO
SALARY CONTINUATION AGREEMENT
This First Amendment to Salary Continuation Agreement (this
"Agreement"), dated as of August 10, 1994, between Service Corporation
International (the "Corporation") and __________________________ (hereinafter
called the "Employee").
W I T N E S S E T H:
WHEREAS, the Corporation and Employee have executed a Salary
Continuation Agreement (the "Agreement") dated as of __________________ 199_;
and
WHEREAS, the parties to the Agreement are desirous of amending
the Agreement;
NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the Corporation and the Employee
agree as follows:
1. Paragraph A of Article III of the Agreement, which
paragraph is entitled "A. Original Service Vesting Schedule", is amended in its
entirety to read as follows:
"A. 100% Vesting Schedule.
(a) One hundred percent (100%) vesting at such
time as Employee shall have both (i) attained an
office with the Corporation equivalent to or higher
than Executive Vice President and (ii) attained five
years of vesting service in the SCI Cash Balance
Plan; provided however, that vesting is subject to a
maximum vested interest of one hundred percent
(100%)."
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed as of the date first above written.
SERVICE CORPORATION INTERNATIONAL
ATTEST:
_________________________ By:______________________________
Jack L. Stoner
Senior Vice President
_______________________________
EMPLOYEE
-2-
<PAGE> 1
Exhibit 11.1
SERVICE CORPORATION INTERNATIONAL
COMPUTATION OF EARNINGS PER SHARE
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY:
Income before cumulative effect of
change in accounting principles . . . . $ 96,243 $ 73,388 $ 28,603 $ 19,807
Cumulative effect of change in
accounting principles (net of tax) . . . - (2,031) - -
---------- --------- ---------- ----------
$ 96,243 $ 71,357 $ 28,603 $ 19,807
Average number of common shares
outstanding . . . . . . . . . . . . . . 85,797 82,376 86,126 84,229
Common stock equivalents applicable to options
outstanding resulting from application
of the "treasury stock method" using
average stock price . . . . . . . . . . 418 357 452 426
---------- --------- ---------- ----------
Average common and common equivalent shares
used in earnings per share . . . . . . . 86,215 82,733 86,578 84,655
========== ========= ========== ==========
Primary Earnings Per Common Share:
Income before cumulative effect of change in
accounting principles . . . . . . . . . $ 1.12 $ .89 $ .33 $ .23
Cumulative effect of change in accounting
principles (net of tax) . . . . . . . . - (.03) - -
---------- --------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . . . $ 1.12 $ .86 $ .33 $ .23
========== ========= ========== ==========
FULLY DILUTED:
Income before cumulative effect of change in
accounting principles . . . . . . . . . $ 96,243 $ 73,388 $ 28,603 $ 19,807
Add after tax interest expense applicable to
convertible debentures . . . . . . . . . 6,112 6,437 2,076 1,897
---------- --------- ---------- ----------
Income as adjusted . . . . . . . . . . . . . . . 102,355 79,825 30,679 21,704
Cumulative effect of change in accounting
principles (net of tax) . . . . . . . . - (2,031) - -
---------- --------- ---------- ----------
$ 102,355 $ 77,794 $ 30,679 $ 21,704
========== ========= ========== ==========
Average number of common shares
outstanding . . . . . . . . . . . . . . 85,797 82,376 86,126 84,229
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) . . . . . . . . . . . . . . 426 383 452 450
Assuming conversion of convertible debentures . . 10,163 10,764 10,249 9,619
---------- --------- ---------- ----------
Average shares used in fully diluted earnings
per share . . . . . . . . . . . . . . . 96,386 93,523 96,827 94,298
========== ========= ========== ==========
FULLY DILUTED EARNINGS PER COMMON SHARE:
Income before cumulative effect of change in
accounting principles . . . . . . . . . $ 1.06 $ .85 $ .32 $ .23
Cumulative effect of change in accounting
principles (net of tax) . . . . . . . . - (.02) - -
---------- --------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . . . $ 1.06 $ .83 $ .32 $ .23
========== ========= ========== ==========
</TABLE>
<PAGE> 1
Exhibit 12.1
SERVICE CORPORATION INTERNATIONAL
RATIO OF EARNINGS TO FIXED CHARGES
(Thousands, except ratio amounts)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pretax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 161,970 125,888
Undistributed income of less than 50% owned equity investees . . . . . . . (458) (300)
Minority interest in income of majority owned subsidiaries
with fixed charges . . . . . . . . . . . . . . . . . . . . . . . . . . 1,620 1,330
Add fixed charges as adjusted (from below) . . . . . . . . . . . . . . . . 69,597 57,862
------------ ------------
$ 232,729 $ 184,780
------------ ------------
Fixed charges:
Interest expense:
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 53,464 $ 44,185
Financial services . . . . . . . . . . . . . . . . . . . . . . . . 7,197 5,714
Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . 587 223
Amortization of debt costs . . . . . . . . . . . . . . . . . . . . . . 205 217
1/3 of rental expense . . . . . . . . . . . . . . . . . . . . . . . . 8,731 7,746
------------ ------------
Fixed charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,184 58,085
Less: Capitalized interest . . . . . . . . . . . . . . . . . . . . . (587) (223)
------------ ------------
Fixed charges as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . $ 69,597 $ 57,862
============ ============
Ratio (earnings divided by fixed charges) . . . . . . . . . . . . . . . . . 3.32 3.18
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> $42,733
<SECURITIES> 0
<RECEIVABLES> 350,483
<ALLOWANCES> 92,512
<INVENTORY> 50,042
<CURRENT-ASSETS> 368,828
<PP&E> 982,049
<DEPRECIATION> 183,851
<TOTAL-ASSETS> 4,839,553
<CURRENT-LIABILITIES> 667,239
<BONDS> 1,248,545
0
0
<COMMON> 86,172
<OTHER-SE> 877,877
<TOTAL-LIABILITY-AND-EQUITY> 4,839,553
<SALES> 751,375
<TOTAL-REVENUES> 801,934
<CGS> 550,476
<TOTAL-COSTS> 550,476
<OTHER-EXPENSES> 36,594
<LOSS-PROVISION> 5,100
<INTEREST-EXPENSE> 60,866
<INCOME-PRETAX> 161,970
<INCOME-TAX> 65,727
<INCOME-CONTINUING> 96,243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96,243
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.06
</TABLE>
