<PAGE> 1
Filed pursuant to Rule 424(b)(2)
Registration Statement No. 33-60683
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* *
* INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS *
* SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING *
* TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE *
* COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE *
* ACCEPTED PRIOR TO THE TIME THAT A FINAL PROSPECTUS SUPPLEMENT IS *
* DELIVERED. THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE *
* ACCOMPANYING PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE *
* SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE *
* SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE *
* WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE *
* SECURITIES LAWS OF ANY SUCH STATE. *
* *
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Subject to Completion, dated September 28, 1995
PROSPECTUS SUPPLEMENT
(To Prospectus dated September 13, 1995)
[SCI LOGO]
SERVICE CORPORATION INTERNATIONAL
$150,000,000
% Notes due , 2000
Interest payable and
ISSUE PRICE: %
Interest on the Notes of Service Corporation International ("SCI" or the
"Company") offered hereby is payable semiannually on and
of each year, commencing , 1996. The Notes are not
redeemable at the option of the Company prior to maturity and will not be
subject to any sinking fund. The Notes will be represented by one or more global
securities registered in the name of a nominee of The Depository Trust Company,
as Depositary (the "Depositary"). Beneficial interests in the Notes will be
shown on, and transfers thereof will be effected only through, records
maintained by the Depositary and its participants. Except as described herein,
Notes will not be issued in definitive form. See "Description of Notes."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
========================================================================================================
Price to Underwriting Proceeds to
Public(1) Discount(2) Company(3)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note % % %
- --------------------------------------------------------------------------------------------------------
Total $ $ $
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from , 1995.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $150,000.
The Notes are offered subject to prior sale, when, as and if delivered to and
accepted by the Underwriters, and subject to approval of certain legal matters
by Cahill Gordon & Reindel, counsel for the Underwriters, and certain other
conditions. It is expected that delivery of the Notes will be made against
payment therefor on or about , 1995 through the facilities of the
Depositary, against payments therefor in immediately available funds.
J.P. MORGAN SECURITIES INC.
B.A. SECURITIES, INC.
MERRILL LYNCH & CO.
NATIONSBANC CAPITAL MARKETS, INC.
, 1995
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
No person is authorized to give any information or to make any representations
not contained or incorporated by reference in this Prospectus Supplement or the
accompanying Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or any Underwriter. Neither this Prospectus Supplement nor the accompanying
Prospectus constitutes an offer to sell or a solicitation of an offer to buy any
securities in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to any person to whom it is unlawful to make such offer or
solicitation.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
<S> <C>
The Company.................................................................................. S-3
Use of Proceeds.............................................................................. S-8
Ratio of Earnings to Fixed Charges........................................................... S-8
Capitalization............................................................................... S-9
Selected Financial Information............................................................... S-10
Unaudited Pro Forma Combined Financial Information........................................... S-11
Description of Notes......................................................................... S-30
Underwriting................................................................................. S-32
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Available Information........................................................................ 3
Incorporation of Certain Documents by Reference.............................................. 4
The Company.................................................................................. 5
Recent Development........................................................................... 5
Use of Proceeds.............................................................................. 5
Description of Company Debt Securities....................................................... 5
Description of Capital Stock................................................................. 21
Description of Common Stock Warrants......................................................... 24
Plan of Distribution......................................................................... 26
Legal Matters................................................................................ 26
Experts...................................................................................... 27
</TABLE>
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<PAGE> 3
THE COMPANY
References to the "Company" or "SCI" herein should be read as referring to
Service Corporation International and its subsidiaries, except where the context
indicates otherwise. Unless otherwise noted, all monetary amounts in this
Prospectus Supplement refer to United States dollars.
The Company is the largest provider of death care services and products in the
world. As of June 30, 1995, SCI owned and operated 1,561 funeral homes, 246
cemeteries (including 105 funeral home and cemetery combinations) and 110
crematoria located in the United States, the United Kingdom, Australia and
Canada. Included in such facilities are 92 funeral homes, 26 cemeteries and
three crematoria worldwide acquired during the six months ended June 30, 1995.
See "-- International Expansion and Recent Acquisitions."
In August 1995, SCI acquired controlling ownership positions in Omnium de
Gestion et de Financement S.A., ("OGF") and Pompes Funebres Generales S.A.
("PFG") (collectively, "OGF/PFG"), which the Company believes together
constitute the largest funeral service organization in Europe. OGF/PFG operates
over 950 funeral service locations and performed over 154,000 funerals in France
in 1994, approximately 29% of the funerals in France. Additionally,
approximately 14,000 funerals were performed by OGF/PFG in other countries,
including Belgium, the Czech Republic, Italy, Singapore and Switzerland. See
"-- International Expansion and Recent Acquisitions."
In June 1995, the Company entered into an agreement to acquire Gibraltar
Mausoleum Corporation and four related companies (collectively, "Gibraltar").
Gibraltar, a private funeral and cemetery company based in Indianapolis,
Indiana, owns and operates 23 funeral homes and 54 cemeteries. Subject to
certain conditions, including regulatory approval, the Company expects to
complete the Gibraltar acquisition during the fourth quarter of 1995. See
"-- International Expansion and Recent Acquisitions."
SCI provides all professional services relating to funerals, burials and
cremations, including the use of funeral homes and motor vehicles, the
performance of cemetery interment services and the management and maintenance of
cemetery grounds. It sells caskets, coffins, burial vaults and garments,
cemetery interment rights, including mausoleum spaces and lawn crypts, stone and
bronze memorials, cremation receptacles and related merchandise. SCI sells its
services and products to client families both at and prior to the time of need.
In addition, SCI's finance subsidiary, Provident Services, Inc. ("Provident"),
provides financing to independent funeral home and cemetery operators.
SCI's strategy is to:
o Continue to expand through the acquisition and construction, both
domestically and internationally, of funeral homes, cemeteries and
crematoria in areas with demographics that SCI believes to be favorable;
o Increase the operating margins of its existing and acquired facilities by
having those facilities share resources pursuant to SCI's cluster
strategy;
o Increase revenue per location through the merchandising of a broad line
of funeral and cemetery products and services, both on a pre-need and
at-need basis; and
o Increase future volume and revenues through the sale of prearranged
funeral services.
SCI's acquisition strategy focuses on acquiring premier funeral homes and
cemeteries in metropolitan areas with demographics that SCI believes to be
favorable and in which the cluster strategy can be implemented. SCI typically
retains former owners and key managers of acquired businesses in an effort to
assure that service quality is maintained and that the businesses' reputation,
heritage and local relationships remain intact. Acquired funeral homes and
cemeteries retain their original trade names in substantially all cases.
FUNERAL SERVICE OPERATIONS
The funeral service operations consist of SCI's funeral homes, cemeteries and
related businesses. The operation is organized into six domestic regions and
four foreign regions (France, the United Kingdom, Australia and Canada), each of
which is under the direction of regional executive management with substantial
industry experience. Local funeral home and cemetery managers, under the
direction of regional management, receive support and resources from SCI's
headquarters in Houston, Texas and have substantial autonomy with respect to the
manner in which services are conducted.
S-3
<PAGE> 4
Death Care Industry
The funeral industry is characterized by a large number of locally owned,
independent operations. To compete successfully, SCI's funeral homes must
maintain competitive prices, attractive, well-maintained and conveniently
located facilities, a good reputation and high professional standards. Heritage
and tradition can provide an established funeral home or cemetery with the
opportunity for repeat business from client families. Furthermore, an
established firm can generate future volume and revenues by successfully
marketing prearranged, pre-funded funeral services.
The cemetery industry is also characterized by a large number of locally owned
independent operations. SCI's cemetery properties compete with other cemeteries
in the same general area. To compete successfully, SCI's cemeteries must
maintain competitive prices, attractive and well-maintained properties, a good
reputation, an effective sales force and high professional standards.
The Company and the three other largest North American death care companies
control in the aggregate approximately eight percent of the funeral homes and
approximately five percent of the commercial cemeteries in North America. Based
upon industry estimates, these four companies represented less than 16% of 1994
North America death care industry revenues. The Company believes that based on
the total number of funeral services performed in 1994, the Company, including
companies acquired by it, performed 9%, 29%, 14% and 25% of the funeral services
in the United States and Canada, France, the United Kingdom and Australia,
respectively.
Cluster Strategy
The majority of SCI'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 service
personnel, vehicles, preparation services, clerical staff and certain building
facility costs. The cluster strategy recognizes that, as SCI adds operations to
a geographic area in which SCI already operates, it will achieve additional
operating efficiencies through cost-sharing. In addition, SCI believes that it
is able, because of its size, to negotiate favorable supply arrangements with
volume discounts on supplies, including caskets. SCI has successfully
implemented the cluster strategy in its North American and Australian operations
and is implementing the cluster strategy in its United Kingdom operations. The
Company intends to implement the strategy in France and with respect to other
newly acquired operations. As of June 30, 1995, SCI operated approximately 250
clusters which ranged in size from two operations to 54 operations.
Pre-need Services
SCI is actively engaged in the marketing of prearranged funeral services. The
funds collected from prearranged funeral contracts are generally held in trust,
are used to purchase life insurance or annuity contracts or, with respect to
French contracts, are held in the Company's French insurance subsidiary. The
principal amount of a prearranged funeral contract will be received in cash by
an SCI funeral home and recorded as revenue by SCI at the time the funeral is
performed. Earnings on trust funds and increasing benefits under
insurance-funded contracts increase the revenue to be recognized at the time the
service is performed and historically have allowed the Company to more than
cover increases in the costs of providing funeral services. At June 30, 1995,
SCI's unfulfilled prearranged funeral contracts amounted to approximately $1.6
billion, and as of the date hereof, exceed $2.2 billion, including those related
to the Company's French operations. SCI's historical cancellation rate for all
prearranged funeral contracts approximates ten percent, for which a reserve has
been established.
Cemetery sales are often made pursuant to installment contracts providing for
monthly payments. The principal amount of these installment contracts is
recognized as revenue by SCI at the time of sale, net of an approximate eight
percent cancellation reserve that is based on historical results. A portion of
the proceeds from cemetery sales is generally required by law to be paid into
perpetual care trust funds. Earnings on perpetual care trust funds are used to
defray the maintenance cost of cemeteries. In addition, a portion of the
proceeds from the sale of pre-need cemetery merchandise may be required by law
to be paid into trust until the merchandise is purchased on behalf of the
customer.
Financial Services and Other Operations
Provident provides secured financing to independent funeral and cemetery
operators, primarily related to acquisitions. Provident had $204 million in
loans outstanding at June 30, 1995, funded primarily from SCI bank and
commercial paper borrowings. The amount and number of problem loans have been
insignificant. While Provident does compete with
S-4
<PAGE> 5
banks and other lending institutions, many of which have substantially greater
resources than Provident, it believes that its knowledge of the death care
industry provides it with a competitive advantage in making such loans.
As part of SCI's newly acquired French operations, the Company owns a funeral
service insurance subsidiary which sold more than 22,000 pre-need funeral
insurance contracts in 1994, primarily in connection with the Company's French
funeral service operations. Additionally, SCI's French operations include a
subsidiary that manufactures coffins, which are sold primarily to the Company's
European affiliates.
Regulation
In April 1984, the United States Federal Trade Commission (the "FTC")
comprehensive Trade Regulation Rule for the funeral industry became fully
effective. The rule contains minimum guidelines for funeral industry practices,
requires extensive price and other affirmative disclosures and imposes mandatory
itemization of funeral goods and services. A pre-existing consent order between
SCI and the FTC applicable to certain funeral practices of SCI was amended in
1984 to make the substantive provisions of the consent order consistent with the
rule. From time to time in connection with acquisitions, SCI has entered into
consent orders with the FTC that have required SCI to dispose of certain
operations to proceed with acquisitions or have limited SCI's ability to make
acquisitions in specified areas. The rule and the various consent orders have
not had a material adverse effect on SCI's operations.
The United Kingdom and France also maintain limited regulations with respect to
funeral service industry operations. The Company believes that these regulations
are uniformly applied to its operations and others in the funeral service
industry.
In May 1995, the Monopolies and Mergers Commission (the "Commission") of the
United Kingdom issued a report with respect to SCI's 1994 acquisition of
Plantsbrook Group plc that recommended that SCI divest of certain operations in
ten localities to achieve a competitive balance satisfactory to the Commission.
The Company believes that this recommendation will not adversely affect its
results of operations as it pertains to less than two percent of the Company's
revenues derived from the United Kingdom. SCI is contesting the Commission's
report.
The French funeral services industry is currently undergoing significant
regulatory change. Historically, the French funeral services industry has been
controlled, as provided by national legislation, either (i) directly by
municipalities through municipality-operated funeral establishments ("Municipal
Monopoly"), accounting for approximately 30% of the funerals performed in France
in 1994, or (ii) indirectly by the remaining municipalities that have contracted
for funeral service activities with third party providers, such as OGF/PFG
("Exclusive Municipal Authority"), accounting for approximately 70% of the
funerals performed in France in 1994. Legislation has been passed that will
generally end municipal control of the French funeral service business and will
allow the public to choose their funeral service provider. Under such
legislation, the Exclusive Municipal Authority will be abolished by January
1996, and the Municipal Monopolies will be eliminated by January 1998.
Cemeteries in France, however, are and will continue to be controlled by
municipalities and religious organizations, with third parties, such as OGF/PFG,
providing cemetery merchandise such as markers and monuments.
ACQUISITION STRATEGY
Over the past several years, SCI has made a significant number of acquisitions.
SCI anticipates that it will continue to aggressively pursue acquisition
opportunities, as acquisitions form a critical part of SCI's growth strategy.
SCI will continue to seek acquisitions in geographic areas in which it presently
operates to expand established clusters, as well as acquisitions in new
geographic areas, including those outside North America, to develop new clusters
and to increase volume and revenue. To date, SCI has been able to increase the
profitability of its acquired properties by absorbing a significant portion of
their costs, such as transportation and embalming, into SCI's clusters, and by
applying SCI's merchandising programs to the new operations. In addition,
acquisitions increase SCI's ability to benefit from the consolidation of
systems, insurance and other financial services. SCI also believes that because
of its size it has been able to negotiate favorable supply arrangements with
volume discounts on supplies, including caskets, and that the terms of these
supply arrangements have enabled it to increase the profitability of its
acquired properties. There can be no assurance that SCI will continue to
successfully absorb future acquisitions, domestic or international, or realize
cost savings.
S-5
<PAGE> 6
SCI typically retains former owners and key managers of acquired businesses in
an effort to assure that service quality is maintained and that the businesses'
reputation, heritage and local relationships remain intact. Acquired funeral
homes and cemeteries retain their original trade names in substantially all
cases.
In evaluating specific properties for acquisition, SCI considers a number of
factors including demographics, location, reputation, heritage, physical size,
volume of business, profitability, available cemetery property inventory, name
recognition, aesthetics, potential for development or expansion, competitive
position, pricing structure and quality of operating management. SCI follows a
disciplined approach based on specific financial criteria for determining
acquisition prices and intends to continue an active acquisition program in the
future. There can be no assurance that acquisition prospects will continue to be
available in attractive locations at prices acceptable to SCI.
INTERNATIONAL EXPANSION AND RECENT ACQUISITIONS
In July 1995, SCI reached an agreement with Lyonnaise des Eaux ("LDE")
concerning the funeral service activities of LDE, then grouped within OGF and
PFG. Under the terms of this agreement, SCI agreed to acquire LDE's 51%
ownership interest in OGF and make public offers for the remaining OGF shares
and the approximate 35% of PFG not owned by OGF. Based on the exchange rate in
effect on August 25, 1995, the date on which the Company acquired its
controlling interest in OGF/PFG, the total cost for SCI to acquire 100% of
OGF/PFG is approximately $607 million and, after considering the estimated cash
balances of OGF and PFG, the net cost is approximately $424 million.
The Company believes that, on a combined basis, OGF/PFG is the largest funeral
service organization in Europe. OGF/PFG operates over 950 funeral service
locations that in 1994 performed more than 154,000 funerals throughout France.
OGF/PFG owns additional funeral operations that performed approximately 14,000
funerals in 1994 in Switzerland, Italy, Belgium, the Czech Republic and
Singapore. OGF and PFG estimate that their combined percentage of funerals
performed in 1994 is approximately 29% of all funerals performed in France in
1994. Included in the other operations of OGF/PFG is a subsidiary that
manufactures coffins, which are sold primarily to the Company's European
affiliates, and a funeral service insurance subsidiary, which sold over 22,000
pre-need funeral insurance contracts in 1994, primarily in connection with the
Company's French funeral service operations. For the year ended December 31,
1994, OGF/PFG had combined revenues of approximately $509 million.
On August 22, 1995, SCI received the necessary approvals from the French
Treasury to proceed with the OGF/PFG transaction. At September 26, 1995, SCI had
acquired over 97% of the outstanding shares of OGF and over 95% of the
outstanding shares of PFG.
During June 1995, SCI executed a definitive merger agreement with Gibraltar. In
connection with this transaction, SCI will issue 3,286,759 shares of Common
Stock, pay approximately $147 million in cash and assume debts of Gibraltar of
approximately $5 million. Subject to certain conditions, including regulatory
approval, the Company expects to complete the Gibraltar acquisition during the
fourth quarter of 1995. Gibraltar is the fourth largest consolidator in the
North American funeral service industry, with pro forma revenues for the year
ended September 30, 1994 of approximately $88 million, and owns 23 funeral homes
and 54 cemeteries located in 12 states.
In July 1995, the Company entered into an agreement to acquire the shares of
Service Corporation International (Canada) Limited ("SCIC") not already owned by
the Company. SCIC owns 74 funeral homes and three cemeteries in Canada. This
transaction was completed on September 5, 1995 at an approximate cost of $63
million and eliminated the approximate 31% minority ownership interest in SCIC.
SCIC is now a wholly owned subsidiary of the Company.
During the second half of 1994, SCI acquired the then two largest publicly
traded funeral service providers in the United Kingdom, Great Southern Group plc
and Plantsbrook Group plc for approximately $508 million. These firms owned, on
a combined basis, 534 funeral homes, 13 crematoria and two cemeteries, with
combined 1994 revenues of approximately $130 million. The acquired United
Kingdom operations performed approximately 80,000 funerals in 1994, which
represents approximately 14% of all funerals performed in the United Kingdom
during that year.
During the six months ended June 30, 1995, SCI acquired 92 funeral homes, 26
cemeteries and three crematoria worldwide for a total of approximately $209
million in cash, stock and other securities.
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<PAGE> 7
INDUSTRY TRENDS
Stability
Death rates have been fairly predictable, thereby lending stability to the death
care industry. For example, since 1980, the number of deaths in the United
States has increased at a compound rate of approximately one percent per year.
According to a 1993 report prepared by the United States Department of Commerce,
Bureau of the Census, the number of deaths in the United States is expected to
increase by approximately one percent per year between 1993 and 2000 and by 0.9%
per year from 2000 to 2020. Because the industry is relatively stable and
non-cyclical, business failures are uncommon. As a result, ownership of funeral
home and cemetery businesses has traditionally passed from generation to
generation within a family. The death rate tends to be somewhat higher in the
winter months and funeral and cemetery operations generally experience a higher
volume of business during these months.
Consolidation
In recent years, the pace of acquisition activity in the death care industry has
increased. From the standpoint of individual owners, this appears to result
principally from family succession issues, a desire for liquidity and increasing
tax and estate planning complexities. From the standpoint of the large death
care providers, interest in acquisitions is driven by the benefits anticipated
to be derived from potential operating efficiencies, improved managerial control
and more effective strategic and financial planning.
In recent years, several large death care companies have expanded their
operations significantly through acquisitions. The increased interest in
acquisitions of funeral homes and cemeteries provides a source of potential
liquidity that has not been readily available to individual owners in the past.
Clustered Operations
During the last several years, larger death care companies have increasingly
begun to cluster their funeral home and cemetery operations. Clusters refer to
funeral homes or cemeteries that are grouped together in a geographic area.
Clusters provide cost savings to funeral homes and cemeteries through the
sharing of personnel, vehicles and other resources. In addition, the inclusion
of funeral homes and cemeteries in the same cluster provides opportunities for a
company to cross-sell the full range of death care services without
corresponding increases in overhead expenses.
Pre-need Marketing
An increasing number of death care products and services are being sold prior to
the time of death (i.e., on a "pre-need" basis). SCI believes that consumers are
becoming more aware of the benefits of advanced planning, such as the financial
assurance and peace of mind achieved by establishing in advance a fixed price
and type of service, and the elimination of the emotional strain on family
members of making death care plans at the time of need.
Combination Operations
Combination operations, referring to funeral home and cemetery operations
conducted on a single site, have become increasingly popular as they provide
cost savings through shared resources and cross-selling opportunities. The
ability to offer the full range of products and services at one location tends
to increase the sales volume and revenues of both the funeral home and cemetery.
Cremation
In recent years there has been steady, gradual growth in the number of families
in the United States that have chosen cremation as an alternative to traditional
methods of disposal. According to industry studies, cremations accounted for
approximately 20% of all dispositions of human remains in the United States in
1994. SCI's domestic operations perform substantially more cremations than the
national average. In 1994, just over 30% of all families served by SCI's North
American funeral homes selected the cremation alternative. SCI has a significant
number of operating locations in Florida and all along the west coast of North
America where the cremation alternative continues to gain acceptance. Based on
industry studies, the Company believes that cremations account for approximately
60% to 70% of all dispositions of human remains in Australia and in the United
Kingdom. The cremation rate in France approximates 10% and is expected to
increase over the next several years.
Cremations generally result in lower average revenue and gross profit dollars
when compared to traditional funeral services. The Company believes, however,
that its funeral operations that are predominantly cremation businesses
typically have higher gross profit margins than those produced by its
traditional funeral operations.
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<PAGE> 8
USE OF PROCEEDS
The net proceeds from the sale of the Notes offered hereby are estimated to be
$ million. The Company has incurred certain indebtedness for acquisitions
(other than the acquisitions of OGF and PFG) and to provide financing to
Provident under the Company's revolving credit facilities with certain banks
(the "Revolving Credit Facilities") and through the issuance of commercial paper
backed by the Revolving Credit Facilities. Additionally, the Company has
incurred indebtedness under another revolving credit agreement between the
Company and certain banks to finance the acquisitions of OGF and PFG (the
"French Revolving Credit Agreement"). The Company expects to use the net
proceeds from the offering of the Notes made hereby (the " % Notes Due 2000
Offering"), the concurrent offering of $150,000,000 aggregate principal amount
of its % Notes due 2007 (the " % Notes Due 2007 Offering" and together
with the % Notes Due 2000 Offering, the "Senior Notes Offerings") and the
offering of an aggregate of 7,300,000 shares of Common Stock, $1 par value of
the Company (the "Common Stock Offering") (excluding 1,095,000 shares subject to
an underwriters' over-allotment option), which is scheduled to close on October
3, 1995, in each case pursuant to a separate prospectus supplement, (i) to repay
a portion of indebtedness under the Revolving Credit Facilities and/or
commercial paper backed by the Revolving Credit Facilities and/or indebtedness
under the French Revolving Credit Agreement and (ii) possibly to fund all or a
portion of the cost of the Company's acquisition of Gibraltar. Pending such
uses, net proceeds may be invested in short-term investments. As of September
26, 1995, approximately $138.7 million was outstanding under the Revolving
Credit Facilities at a weighted average annual interest rate of 6.76% with
maturities ranging from three to 22 days; approximately $229.1 million of
commercial paper was outstanding backed by the Revolving Credit Facilities at a
weighted average annual interest rate of 5.89% with maturities ranging from one
to 48 days; and approximately $534.2 million was outstanding under the French
Revolving Credit Agreement at a weighted average annual interest rate of 6.07%
with maturities ranging from three to 24 days. See "The Company -- International
Expansion and Recent Acquisitions."
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth SCI's consolidated ratio of earnings to fixed
charges for the periods shown:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
================= =========================================================
1995 1994 1994 1993 1992 1991 1990
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
2.94 3.65 3.13 3.19 3.03 2.82 2.88
</TABLE>
For purposes of computing the ratio of earnings to fixed charges, earnings of
income from continuing operations 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 and one-third of rental
expense which the Company considers representative of the interest factor in the
rentals.
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<PAGE> 9
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of the
Company at June 30, 1995 and on a pro forma basis giving effect to the
acquisitions of OGF/PFG and Gibraltar and the minority interest in SCIC and as
adjusted for the Common Stock Offering (assuming that the underwriters'
over-allotment option is not exercised), the Senior Notes Offerings and the
application of the estimated net proceeds from those offerings.
<TABLE>
<CAPTION>
===========================
At June 30, 1995
Pro Forma
and as
Dollars and shares in thousands Actual Adjusted(1)
---------- -----------
<S> <C> <C>
Current maturities of long-term debt $ 21,217 $ 24,549
========== ==========
Long-term debt:
Indebtedness to banks under revolving credit facilities and
commercial paper $ 223,595 $ 269,476
Notes offered in the Senior Notes Offerings -- 300,000
7% notes 300,000 300,000
8.375% notes 200,000 200,000
8.72% fixed rate notes 199,011 199,011
Medium term notes 186,040 186,040
6.5% convertible subordinated debentures 169,405 169,405
7.875% debentures 150,000 150,000
Convertible debentures issued in connection with various
acquisitions 24,040 24,040
8% convertible debentures 14,866 14,866
Variable interest rate notes 10,512 10,512
Mortgage notes and other 102,449 116,546
---------- ----------
Total long-term debt 1,579,918 1,939,896
---------- ----------
Company obligated, mandatorily redeemable, convertible preferred
securities of SCI Finance LLC, whose principal asset is a 6.25%,
$216,315 note from the Company 172,500 172,500
---------- ----------
Stockholders' equity:
Preferred stock, 1,000 shares authorized, no shares issued and
outstanding -- --
Common stock, 200,000 shares authorized, 96,321 shares issued and
outstanding, 106,908 shares issued and outstanding pro forma and
as adjusted 96,321 106,908
Capital in excess of par value 751,346 1,130,251
Retained earnings 448,377 448,377
Foreign translation adjustment 107 107
---------- ----------
Total stockholders' equity 1,296,151 1,685,643
---------- ----------
Total capitalization $3,048,569 $3,798,039
========== ==========
</TABLE>
- ---------------
(1) The adjustment for the Common Stock Offering is at the initial public
offering price of $38.50 per share less an underwriting discount of $1.20
per share and established aggregate expenses of $300,000.
S-9
<PAGE> 10
SELECTED FINANCIAL INFORMATION
The selected consolidated financial data presented below for each of the five
years in the period ended December 31, 1994 have been derived from the
consolidated financial statements of the Company, which statements, in respect
of the two years ended December 31, 1994, have been audited by Coopers &
Lybrand, L.L.P. and in respect of the three years ended December 31, 1992, have
been audited by Ernst & Young, LLP. The data at and for the six months ended
June 30, 1995 and June 30, 1994 have been derived from the unaudited
consolidated financial statements of the Company for those periods and, in the
opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary to state fairly the information included
therein in accordance with generally accepted accounting principles for interim
financial information. The data should be read in conjunction with the related
notes and other financial information included and incorporated by reference in
the Company's Annual Report on Form 10-K for the year ended December 31, 1994
and the Company's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1995, incorporated by reference herein. Results for the six months
ended June 30, 1995 may not be indicative of results for any other interim
period or for the year as a whole.
<TABLE>
<CAPTION>
=================================================================================================
Dollars in thousands, except AT OR FOR THE SIX
per share amounts MONTHS ENDED JUNE 30, AT OR FOR THE YEARS ENDED DECEMBER 31,
and Other Data 1995 1994 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues $ 701,762 $ 524,120 $1,117,175 $ 899,178 $ 772,477 $ 643,248 $ 563,156
Costs and expenses (479,105) (357,837) (775,980) (635,858) (550,422) (464,740) (413,236)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross Profit 222,657 166,283 341,195 263,320 222,055 178,508 149,920
General and administrative
expense (23,471) (24,871) (51,700) (43,706) (38,693) (35,448) (28,037)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from operations 199,186 141,412 289,495 219,614 183,362 143,060 121,883
Interest expense (52,809) (32,456) (80,123) (59,631) (53,902) (42,429) (36,095)
Dividends on preferred
securities of SCI Finance LLC (5,391) -- (539) -- -- -- --
Other income 3,073 4,686 10,188 13,509 9,876 8,241 13,644
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes and
preferred dividend
requirement 144,059 113,642 219,021 173,492 139,336 108,872 99,432
Provision for income taxes (56,039) (46,002) (87,976) (70,400) (52,800) (35,500) (35,900)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before cumulative effect
of change in accounting
principles and preferred
dividend requirement 88,020 67,640 131,045 103,092 86,536 73,372 63,532
Cumulative effect of change in
accounting principles (net of
income tax) -- -- -- (2,031) -- -- --
Preferred dividend requirement -- -- -- -- -- -- (3,314)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income available to common
stockholders $ 88,020 $ 67,640 $ 131,045 $ 101,061 $ 86,536 $ 73,372 $ 60,218
========== ========== ========== ========== ========== ========== ==========
PER SHARE:
Primary
Income before cumulative
effect of change in
accounting principles $ .91 $ .79 $ 1.51 $ 1.24 $ 1.13 $ 1.03 $ .85
Cumulative effect of change
in accounting principles
(net of income tax) -- -- -- (.03) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income available to
common stockholders $ .91 $ .79 $ 1.51 $ 1.21 $ 1.13 $ 1.03 $ .85
========== ========== ========== ========== ========== ========== ==========
Fully diluted
Income before cumulative
effect of change in
accounting principles $ .85 $ .74 $ 1.43 $ 1.19 $ 1.07 $ 1.00 $ .84
Cumulative effect of change
in accounting principles
(net of income tax) -- -- -- (.02) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income available to
common stockholders $ .85 $ .74 $ 1.43 $ 1.17 $ 1.07 $ 1.00 $ .84
========== ========== ========== ========== ========== ========== ==========
Dividends $ .22 $ .21 $ .42 $ .40 $ .39 $ .37 $ .37
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA:
Working capital $ 202,932 $ 135,103 $ 120,246 $ 171,901 $ 155,319 $ 156,383 $ 113,391
Prearranged funeral contracts 1,537,085 1,298,558 1,418,104 1,244,866 -- -- --
Total assets 5,444,775 4,023,735 5,161,888 3,683,304 2,611,123 2,123,452 1,653,689
Long-term debt, excluding
current portion 1,579,918 1,117,940 1,330,177 1,062,222 980,029 786,685 577,378
Deferred prearranged funeral
contract revenues 1,597,454 1,375,843 1,519,582 1,263,407 -- -- --
Stockholders' equity 1,296,151 939,920 1,196,622 884,513 683,097 615,776 434,323
Total capitalization 3,048,569 2,057,860 2,699,299 1,946,735 1,663,126 1,402,461 1,011,701
OTHER DATA (END OF PERIOD):
Funeral homes 1,561 873 1,471 792 674 655 512
Cemeteries 246 204 220 192 176 163 145
</TABLE>
S-10
<PAGE> 11
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
In July 1995, the Company entered into an agreement with LDE, a French company,
to purchase LDE's funeral service business. LDE's funeral service business was
comprised of an approximate 51% ownership interest in OGF which, in turn, owned
approximately 65% of PFG. On August 25, 1995, the Company acquired the
approximate 51% interest in OGF for $233,358,000. The Company is making public
tender offers for the remaining shares of OGF and PFG with the intent to acquire
100% of the outstanding shares of both companies. On September 26, 1995, the
Company owned shares representing over 97% of OGF and over 95% of PFG. The
Company believes that OGF/PFG is the largest funeral service organization in
Europe. OGF/PFG operates over 950 funeral service locations that performed over
154,000 funerals throughout France in 1994. OGF/PFG also operate funeral
locations in Belgium, the Czech Republic, Italy, Singapore and Switzerland that
performed approximately 14,000 funerals in 1994. Included in OGF/PFG operations
is a coffin manufacturing business that sells the large majority of its products
to OGF/PFG's funeral operations and a funeral insurance business whose primary
activity involves insurance policies sold in connection with OGF/PFG's
prearranged funeral business. The Company intends that OGF/PFG will continue to
operate their funeral service and related businesses. The total purchase price
for OGF and the portion of PFG not owned by OGF is expected to be approximately
$607,206,000, based on a June 30, 1995 translation rate of $.2062 to one French
franc, consisting of $589,570,000 of cash, the assumption of $12,004,000 of
OGF/PFG debt and associated expenses of $5,632,000 (based on an August 25, 1995
translation rate of $.1969 to one French franc, the total purchase price would
be $579,820,000). The net cost to the Company, taking into account the estimated
available excess cash balances of OGF/PFG, is expected to be approximately
$424,046,000. In August 1995, the Company entered into the French Revolving
Credit Agreement, a 364-day revolving credit agreement with Societe Generale,
Southwest Agency, Credit Lyonnais Cayman Island Branch and Banque Nationale de
Paris, Houston Agency. The French Revolving Credit Agreement allows for
borrowings up to $600,000,000 (which, at the option of the Company, can be
borrowed in French francs or U.S. dollars) to provide short-term financing for
the purchase of OGF/PFG. The interest rate currently in effect is based on PIBOR
plus 25 basis points (5.95% at September 8, 1995).
In June 1995, the Company entered into an agreement to acquire Gibraltar.
Gibraltar, a private funeral and cemetery company based in Indianapolis,
Indiana, owns and operates 23 funeral homes and 54 cemeteries. Subject to
regulatory approval, the Company expects to complete the Gibraltar transaction
during the fourth quarter of 1995 for a purchase price of approximately
$271,360,000 consisting of 3,286,759 shares of Company common stock (based on
the closing stock price of $35.75 per share on September 8, 1995), $146,668,000
in cash, the assumption of $5,425,000 of Gibraltar debt and associated expenses
of $1,765,000. Such common stock of the Company is registered with the
Securities and Exchange Commission and will be issued under the Company's
existing shelf registration. The cash portion of the purchase price will be
borrowed under the Company's existing revolving credit facilities (5.89% at
September 8, 1995).
On September 5, 1995, the Company acquired the shares of SCIC not already owned
by the Company. SCIC owns 74 funeral homes and three cemeteries in Canada.
This purchase eliminated the approximate 31% minority ownership interest in
SCIC and made SCIC a wholly owned subsidiary of the Company. The purchase
price was approximately $62,578,000 and was financed through borrowings under
the Company's existing revolving credit facilities in Canadian dollars at an
interest rate based on Canadian banker's acceptance rate plus 25 basis points
(6.31% at September 5, 1995).
In the third quarter of 1994, the Company acquired the two largest publicly
traded funeral service providers in the United Kingdom, Great Southern Group plc
("GSG") and Plantsbrook Group plc ("PG"). PG was an equity investee of OGF
before being purchased by the Company. GSG and PG owned a combined 534 funeral
homes, 13 crematoria and two cemeteries. The purchase price of approximately
$508,000,000 was financed using a portion of the net proceeds from the Company's
December 1994 public offerings, consisting of common stock (7,700,000 shares
issued in December 1994 and 780,000 shares issued in January 1995 at a net price
of $24.70 per share), $172,500,000 of preferred securities of SCI Finance LLC (a
wholly owned subsidiary of the Company) and $200,000,000 of 8.375% fixed rate
notes due 2004, long-term fixed rate borrowings, other revolving credit
borrowings and debt assumed by the Company. Both GSG and PG have been
consolidated with the Company since September 1, 1994.
In addition to the acquisitions discussed above, during 1994 and the six months
ended June 30, 1995, the Company continued to acquire funeral and cemetery
operations in the United States, the United Kingdom, Canada and Australia.
During such period, the Company acquired 232 funeral homes and 52 cemeteries
(the 1994 and 1995 "Other Acquired
S-11
<PAGE> 12
Companies") in 120 separate transactions for an aggregate purchase price of
approximately $515,000,000 in the form of combinations of cash, Company common
stock, issued and assumed debt, convertible debentures and retired loans
receivable held by a Company subsidiary.
The following unaudited pro forma combined balance sheet as of June 30, 1995 has
been prepared assuming the acquisitions by the Company of 100% of the
outstanding shares of OGF/PFG, Gibraltar and the minority interest in SCIC took
place on June 30, 1995. The unaudited pro forma combined statements of income
for the year ended December 31, 1994 and the six months ended June 30, 1995 have
been prepared assuming the acquisitions by the Company of 100% of the
outstanding shares of OGF/PFG, Gibraltar, the minority interest in SCIC, GSG, PG
and the Other Acquired Companies took place on January 1, 1994. Such
acquisitions are being accounted for under the purchase method of accounting.
The historical revenues and expenses of GSG and PG and 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, 1994 and
the six months ended June 30, 1995, respectively. The unaudited pro forma
combined financial information may not be indicative of results that would
actually have been obtained if these transactions had occurred on the dates
indicated or which may be obtained in the future.
For purposes of this unaudited pro forma combined financial information it is
assumed that the net proceeds of the Company's December 1994 public offerings
were first applied toward the purchase price of GSG and PG ($508,000,000 less
$31,258,000 of GSG and PG debt assumed by the Company) with the excess net
proceeds ($95,205,000) used to repay amounts outstanding under the Company's
existing revolving credit facilities. In addition, the unaudited pro forma
combined financial information assumes two financing approaches, first, that the
acquisition of OGF/PFG is financed with borrowings under the French Revolving
Credit Agreement. Second, that the Company will apply the assumed net proceeds
received from the Common Stock Offering ($252,520,000) to repay a portion of the
Company's existing revolving credit facilities and the assumed net proceeds
received from the Senior Notes Offerings ($297,765,000) will be used to repay
amounts borrowed under the French Revolving Credit Agreement. Such offerings are
assumed to have been issued on June 30, 1995 for the unaudited pro forma
combined balance sheet and on January 1, 1994 for the unaudited pro forma
combined statements of income at a stock price of $35.75 (the closing stock
price on September 8, 1995) and an interest rate of 6.77% (the average interest
rate on September 8, 1995), respectively. Notwithstanding the assumed
application of the estimated net proceeds of the Common Stock Offering and the
Senior Notes Offerings, the actual net proceeds from any of those offerings may
be used as described under "Use of Proceeds." The French Revolving Credit
Agreement and the Company's existing revolving credit facilities assume a
weighted average interest rate for the periods presented.
The historical financial statements of GSG and PG for the period not owned by
the Company in 1994 were prepared in UK pound sterling in accordance with United
Kingdom generally accepted accounting principles ("UK GAAP"). The historical
financial statements of OGF/PFG as of June 30, 1995 and for the year ended
December 31, 1994 and the six months ended June 30, 1995 were prepared in French
francs in accordance with French generally accepted accounting practices ("F
GAAP"). This information has been adjusted to present the historical financial
statements in accordance with United States generally accepted accounting
principles ("US GAAP") and translated into U.S. dollars at the June 30, 1995
exchange rate for the balance sheet ($.2062 to one French franc, $.1969 at
August 25, 1995) and at the average exchange rate for the respective statement
of income periods presented ($.1802 and $.1983 for the year ended December 31,
1994 and six months ended June 30, 1995, respectively). The Company has not
completed all appraisals and evaluations necessary to finalize OGF/PFG's or
Gibraltar'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.
S-12
<PAGE> 13
SERVICE CORPORATION INTERNATIONAL
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AT JUNE 30, 1995
<TABLE>
<CAPTION>
================================= ==============================================================
HISTORICAL PRO FORMA
THE ACQUISITION COMBINED OFFERINGS COMBINED
Dollars in thousands COMPANY OGF/PFG GIBRALTAR ADJUSTMENTS SUBTOTAL ADJUSTMENTS TOTAL
--------- --------- --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 20,251 $ 203,800 $ 1,276 $(183,180)(F11) $ 42,147 $ -- $ 42,147
Receivables, net of
allowances 347,790 59,013 67,021 (215)(G2) 435,758 -- 435,758
(37,851)(G3)
Inventories 72,192 46,240 16,207 (13,776)(G4) 120,863 -- 120,863
Other 7,814 33,171 -- -- 40,985 -- 40,985
--------- --------- -------- --------- --------- --------- ---------
Total current assets 448,047 342,224 84,504 (235,022) 639,753 -- 639,753
Investments -- insurance
subsidiary -- 531,726 -- -- 531,726 -- 531,726
Prearranged funeral
contracts 1,537,085 -- 3,878 82,350 (G2) 1,623,313 -- 1,623,313
Long-term receivables 615,355 -- -- 44,137 (G1) 701,372 -- 701,372
37,851 (G3)
4,029 (G5)
Cemetery property, at cost 812,198 -- 17,214 13,776 (G4) 1,146,467 -- 1,146,467
290,779 (G10)
12,500 (C1)
Property, plant and
equipment, at cost (net) 909,857 222,545 31,778 103,932 (F4) 1,268,112 -- 1,268,112
Deferred charges and other
assets 233,258 49,661 9,629 25,521 (F5) 298,660 2,235 (P3) 300,895
(19,409)(F7)
Goodwill -- 16,910 10,579 (10,579)(G13) -- -- --
(16,910)(F6)
Names and reputations (net) 888,975 -- -- 38,562 (C1) 1,044,769 -- 1,044,769
117,232 (F9)
---------- ---------- -------- --------- ---------- --------- ----------
Total assets $5,444,775 $1,163,066 $157,582 $ 488,749 $7,254,172 $ 2,235 $7,256,407
========== ========== ======== ========= ========== ========= ==========
Liabilities and
Stockholders' Equity
Current liabilities:
Accounts payable and
accrued liabilities $ 191,547 $ 132,802 $ 13,816 $ 1,765 (G11) $ 345,562 $ -- $ 345,562
5,632 (F2)
Income taxes 32,351 6,700 -- -- 39,051 -- 39,051
Current maturities of
long-term debt 21,217 3,332 15,700 (15,700)(G9) 24,549 -- 24,549
--------- --------- -------- --------- ---------- --------- ----------
Total current
liabilities 245,115 142,834 29,516 (8,303) 409,162 -- 409,162
Long-term debt 1,579,918 8,672 37,709 146,668 (G8) 2,209,651 300,000 (P1) 1,959,366
(32,284)(G9) (297,765)(P1)
62,578 (C1) (252,520)(P2)
589,570 (F10)
(183,180)(F11)
Deferred income taxes 275,162 15,421 14,329 101,772 (G12) 443,595 -- 443,595
5,500 (C1)
31,411 (F8)
Other liabilities 278,475 137,242 18,846 44,137 (G1) 388,143 -- 388,143
4,029 (G5)
(17,016)(C1)
(79,107)(F3)
1,537 (F4)
Deferred prearranged funeral
contracts 1,597,454 520,220 6,935 92,859 (G2) 2,217,468 -- 2,217,468
Company obligated,
manditorily redeemable,
convertible preferred
securities of SCI Finance
LLC, whose principal asset
is a 6.25%, $216,315 note
from the Company 172,500 -- -- -- 172,500 -- 172,500
Stockholders' equity 1,296,151 338,677 50,247 (50,247)(G6) 1,413,653 252,520 (P2) 1,666,173
117,502 (G7)
(338,677)(F1)
---------- ---------- -------- --------- ---------- --------- ----------
Total liabilities and
stockholders' equity $5,444,775 $1,163,066 $157,582 $ 488,749 $7,254,172 $ 2,235 $7,256,407
========== ========== ======== ========= ========== ========= ==========
</TABLE>
S-13
<PAGE> 14
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AT JUNE 30, 1995
CANADA
(C1) To record the acquisition of the approximate 31% minority interest of
SCIC that the Company purchased on September 5, 1995. This includes
eliminating the minority interest, increasing long-term debt for amounts
assumed to be borrowed under the Company's existing revolving credit
facilities to finance this transaction, increasing cemetery property to
estimated fair value, recording deferred taxes on the allocation of
purchase price (at the Canadian statutory tax rate) and allocating the
excess of the purchase price over the estimated fair value of SCIC net
assets acquired to names and reputations.
GIBRALTAR
(G1) To record Gibraltar's cemetery merchandise and service receivable
balances and related liabilities in accordance with the Company's
accounting policies. These merchandise and service receivable balances
were not afforded balance sheet recognition by Gibraltar.
(G2) To record Gibraltar's prearranged funeral contracts outstanding and the
related deferred prearranged funeral contract revenues in accordance with
the Company's accounting policies. These prearranged funeral contracts
were not afforded balance sheet recognition by Gibraltar.
(G3) To reclassify Gibraltar's receivables not due within one year to
long-term receivables. This entry conforms Gibraltar's unclassified
balance sheet to the Company's classified balance sheet format.
(G4) To reclassify Gibraltar's cemetery inventories not expected to be sold
within one year to cemetery property. This entry conforms Gibraltar's
unclassified balance sheet to the Company's classified balance sheet
format.
(G5) To reclassify amounts held in trust by Gibraltar related to sales of
preconstruction mausoleums. Gibraltar netted the trust deposits against
the related liability; however under the Company's accounting policies
these amounts would be shown separately on the balance sheet.
(G6) To eliminate the historical stockholders' equity of Gibraltar.
(G7) To reflect the net proceeds from the issuance of 3,286,759 shares of
Company common stock issued in the Gibraltar transaction at an assumed
price of $35.75 per share (the closing stock price on September 8, 1995).
(G8) To reflect borrowings under the Company's existing revolving credit
agreements and/or through the issuance of commercial paper to finance a
portion of the purchase price of Gibraltar ($98,684,000) and the assumed
repayment of a portion of Gibraltar debt ($47,984,000).
(G9) To reflect the assumed repayment of Gibraltar debt.
(G10) To increase Gibraltar's cemetery property to estimated fair value.
(G11) To accrue estimated costs anticipated to be incurred in connection with
the acquisition of Gibraltar.
(G12) To provide for additional deferred income taxes (at the Company's
marginal tax rate) for Gibraltar resulting from differences in the
carrying values of net assets for financial statement and tax purposes.
(G13) To eliminate previously recorded Gibraltar goodwill.
OGF/PFG
(F1) To eliminate the historical stockholders' equity of OGF/PFG.
(F2) To accrue estimated costs anticipated to be incurred in connection with
the acquisition of OGF/PFG.
(F3) To eliminate OGF's historical minority interest in PFG. These unaudited
pro forma combined financials assume 100% ownership of both OGF and PFG,
which is the intent of the Company.
S-14
<PAGE> 15
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED BALANCE SHEET -- (CONTINUED)
(F4) To increase OGF/PFG's land and buildings to estimated fair value.
(F5) To record as an intangible asset the present value of future profits of
OGF/PFG's life insurance subsidiary with respect to existing insurance
contracts.
(F6) To eliminate the previously recorded OGF/PFG goodwill.
(F7) To eliminate the previously recorded deferred acquisition costs of
OGF/PFG's life insurance subsidiary.
(F8) To provide for additional deferred income taxes (at the French statutory
tax rate) for OGF/PFG resulting from differences in the carrying values
of net assets for financial statement and tax purposes.
(F9) To allocate the excess of the purchase price over the estimated fair
value of OGF/PFG's net assets acquired to names and reputations.
(F10) To reflect the borrowings under the French Revolving Credit Agreement for
the OGF/PFG purchase.
(F11) To reflect the partial repayment of amounts borrowed under the French
Revolving Credit Agreement from cash that was acquired in the acquisition
of OGF/PFG.
1995 PUBLIC OFFERINGS
(P1) To record the Senior Notes Offerings and the use of the net proceeds
($297,765,000) to repay a portion of the French Revolving Credit
Agreement.
(P2) To record the Common Stock Offering at an assumed price of $35.75 per
share (the closing stock price on September 8, 1995) and the use of the
assumed net proceeds ($252,520,000) to repay a portion of the Company's
existing revolving credit facilities.
(P3) To record the estimated costs and expenses to be incurred in connection
with the Senior Notes Offerings.
S-15
<PAGE> 16
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED BALANCE SHEET -- (CONTINUED)
The following adjustments were made to the historical financials of OGF/PFG to
restate historical financial statements to US GAAP:
<TABLE>
<CAPTION>
==============================================
AS REPORTED
HISTORIC IN UNAUDITED
AMOUNTS PRO FORMA
CONVERTED TO ADJUST- COMBINED
U.S. DOLLARS MENTS BALANCE
IN F GAAP TO US GAAP SHEET
Dollars in thousands -------------- --------- -----------
<S> <C> <C> <C>
Cash and cash equivalents $202,886 $ 416 (1) $ 203,800
498 (3)
Receivables, net of allowance 55,746 3,267 (3) 59,013
Inventories 46,240 -- 46,240
Other 21,895 836 (5) 33,171
577 (6)
9,863 (3)
-------------- --------- -----------
Total current assets 326,767 15,457 342,224
Investments for prearranged funerals -- 531,726 (3) 531,726
Property, plant and equipment at cost (net) 182,778 4,199 (2) 222,545
(4,319)(4)
39,887 (3)
Deferred charges and other assets 47,311 2,350 (3) 49,661
Names and reputations 16,910 -- 16,910
-------------- --------- -----------
Total assets $573,766 $589,300 $1,163,066
============== ========= ===========
Accounts payable and accrued liabilities $114,521 $ 10,594 (4) $ 132,802
879 (6)
6,808 (3)
Income taxes 6,559 141 (3) 6,700
Current maturities of long-term debt 3,043 289 (2) 3,332
-------------- --------- -----------
Total current liabilities 124,123 18,711 142,834
Long-term debt 5,217 3,455 (2) 8,672
Deferred income taxes 2,384 1,028 (5) 15,421
(3,505)(6)
15,514 (3)
Other liabilities 140,730 150 (1) 137,242
61 (2)
(14,913)(4)
120 (5)
9,380 (6)
1,714 (3)
Deferred prearranged funeral contracts -- 520,220 (3) 520,220
Stockholders' equity 301,312 266 (1) 338,677
394 (2)
43,193 (3)
(312)(5)
(6,176)(6)
-------------- --------- -----------
Total liabilities and stockholders' equity $573,766 $589,300 $1,163,066
============== ========= ===========
</TABLE>
S-16
<PAGE> 17
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED BALANCE SHEET -- (CONTINUED)
- ---------------
* One French franc equivalent to $.2062, which represents the rate at
June 30, 1995.
(1) To record the effect of Statement of Financial Accounting Standards ("FAS")
No. 115 "Accounting for Certain Investments in Debt and Equity Securities."
(2) To record capital leases to comply with FAS No. 13 "Accounting for Leases."
(3) To consolidate OGF/PFG's wholly owned life insurance subsidiary, which was
recorded under the equity method of accounting by OGF/PFG, to comply with
FAS No. 94 "Consolidation of All Majority-Owned Subsidiaries," FAS No. 60
"Accounting and Reporting by Insurance Enterprises" and FAS No. 97
"Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from the Sale of
Investments."
(4) To reclassify a portion of other liabilities to current liabilities and
eliminate negative goodwill in accordance with Accounting Principles Board
Opinion No. 16.
(5) To record FAS No. 109 "Accounting for Income Taxes."
(6) To record FAS No. 87 "Employers' Accounting for Pensions" and FAS No. 106
"Employers' Accounting for Post-retirement Benefits Other Than Pensions."
S-17
<PAGE> 18
SERVICE CORPORATION INTERNATIONAL
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
=========================================================================================
1994 TRANSACTIONS 1995 TRANSACTIONS
--------------------------------------- ----------------------------------
1994
HISTORICAL PRO FORMA 1994 HISTORICAL
---------- -------------------------- ----------------------------------
GSG & PG
THE AND OTHER 1994 OTHER
In thousands, COMPANY ACQUIRED COMBINED ACQUIRED
except per share amounts HISTORICAL COMPANIES ADJUSTMENTS SUBTOTAL OGF/PFG GIBRALTAR COMPANIES
---------- ---------- ------------ ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $1,117,175 $ 135,008 $ 1,146 (A) $1,253,329 $ 509,141 $ 96,270 $ 73,505
Costs and expenses (775,980) (113,145) (770)(A) (885,195) (471,390) (81,785) (65,401)
3,918 (B)
3,757 (C)
(217)(D)
(4,685)(E)
2,502 (F)
(291)(G)
(284)(H)
---------- --------- -------- ---------- --------- --------- ---------
Gross profit 341,195 21,863 5,076 368,134 37,751 14,485 8,104
General and
administrative expenses (51,700) -- -- (51,700) -- -- --
---------- --------- -------- ---------- --------- --------- ---------
Income from operations 289,495 21,863 5,076 316,434 37,751 14,485 8,104
Interest expense (80,123) (2,588) (165)(A) (86,057) (5,667) (3,279) (1,175)
(3,860)(B)
936 (I)
1,451 (J)
4,379 (K)
(15,354)(L)
2,414 (M)
6,853 (N)
Dividends on preferred
securities of
SCI Finance LLC (539) -- (10,242)(O) (10,781) -- -- --
Other income (expense) 10,188 201 -- 10,389 (12,408) (83) --
Gain on sale of
subsidiaries -- -- -- -- 57,474 -- --
---------- --------- -------- ---------- --------- --------- ---------
Income before income
taxes 219,021 19,476 (8,512) 229,985 77,150 11,123 6,929
Provision for income
taxes (87,976) (7,240) 3,015 (P) (92,201) (21,176) (4,219) (2,702)
---------- --------- -------- ---------- --------- --------- ---------
Net income $ 131,045 $ 12,236 $ (5,497) $ 137,784 $ 55,974 $ 6,904 $ 4,227
========== ========= ======== ========== ========= ========= =========
Earnings per share:
Primary $ 1.51 $ 1.44
========== ==========
Fully diluted $ 1.43 $ 1.36
========== ==========
Primary weighted average 1,073 (Q)
share 86,926 7,974 (R) 95,973
========== ==========
1,156 (Q)
Fully diluted weighted 7,974 (R)
average shares 97,408 5,450 (S) 111,988
========== ==========
<CAPTION>
===========================================================
1995 TRANSACTIONS
-----------------------------------------------------------
PRO FORMA
-----------------------------------------------------------
1995
In thousands, ACQUISITION COMBINED OFFERINGS COMBINED
except per share amounts ADJUSTMENTS SUBTOTAL ADJUSTMENTS TOTAL
------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Revenues $ (4,993)(G1) $ 1,924,574 $ -- $ 1,924,574
(1,902)(G2)
(5,301)(G3)
4,525 (G4)
Costs and expenses 4,993 (G1) (1,479,397) (263) (P1) (1,479,660)
830 (G2)
7,134 (G3)
(3,260)(G4)
2,038 (G5)
159 (G6)
(1,435)(G7)
1,221 (O1)
(964)(C1)
(63)(C2)
1,594 (F1)
(2,561)(F2)
22,253 (F3)
(10,547)(F4)
(51)(F5)
682 (F6)
2,351 (F7)
-------- ----------- -------- -----------
Gross profit 16,703 445,177 (263) 444,914
General and
administrative expenses -- (51,700) -- (51,700)
-------- ----------- -------- -----------
Income from operations 16,703 393,477 (263) 393,214
Interest expense (620)(G4) (134,090) (20,310) (P2) (124,038)
3,465 (G8) 11,616 (P3)
(6,747)(G9) 18,164 (P4)
(8,742)(O1) 582 (P5)
(3,604)(C3)
(31,429)(F8)
9,765 (F9)
Dividends on preferred
securities of
SCI Finance LLC -- (10,781) -- (10,781)
Other income (expense) 2,227 (C4) 13,843 -- 13,843
(6,681)(F10)
20,399 (F11)
Gain on sale of
subsidiaries (57,474)(F12) -- -- --
-------- ----------- -------- -----------
Income before income
taxes (62,738) 262,449 9,789 272,238
Provision for income
taxes 496 (G10) (104,581) (3,426) (P6) (108,007)
2,933 (O2)
1,613 (C5)
10,675 (F13)
-------- ----------- -------- -----------
Net income $(47,021) $ 157,868 $ 6,363 $ 164,231
======== =========== ======== ===========
Earnings per share:
Primary $ 1.54
===========
Fully diluted $ 1.46
===========
Primary weighted average 180 (O3)
share 3,287 (G11) 7,300 (P7) 106,740
===========
Fully diluted weighted 194 (O3)
average shares 3,287 (G11) 7,300 (P7) 122,769
===========
</TABLE>
S-18
<PAGE> 19
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
1994 TRANSACTIONS
(A) To record the acquisition of five separate businesses acquired at various
dates by PG between January 1, 1994 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 approximated the Company's UK borrowing rate for the year 1994.
(B) To record a reduction to costs and expenses for the 1994 Other Acquired
Companies based on results actually achieved by the Company for the
periods subsequent to acquisition in the amount of $7,019,000 offset in
part by additional costs and expenses of $3,101,000 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 1994 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 the Company's
weighted average borrowing rate of 4.60% for the year ended December 31,
1994 under its existing revolving credit facilities. At September 5,
1995, the borrowing rate was 5.89%.
(C) To eliminate corporate expenses, consisting primarily of duplicate
personnel expenses, related to the acquisitions of GSG and PG.
(D) To record the additional depreciation expense (based on 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 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 additional cost of GSG's cemetery and cremation
memorialization interment rights sold.
(H) To record the estimated additional amortization expense from the expenses
associated with the December 1994 issuances of preferred securities of
SCI Finance LLC and $200,000,000 of fixed rate notes of the Company.
(I) To reverse imputed interest expense recorded in the Company's historical
financial statements, related to the acquisition of GSG and PG, that
would not have occurred if these acquisitions had been completed on
January 1, 1994.
(J) To reverse interest expense recorded in the Company's historical
financial statements related to amounts borrowed under the Company's
revolving credit agreements to partially fund the acquisitions of GSG and
PG. This indebtedness would not have been necessary if the acquisition of
GSG and PG had been funded with proceeds from the December 1994 public
offerings.
(K) To record the estimated reduction in interest expense resulting from the
assumed partial repayment of $95,205,000 of indebtedness under the
Company's existing revolving credit facilities. Such repayment funds were
derived from the net proceeds of the December 1994 public offerings
available after the purchase of GSG and PG. The reduction was calculated
using the Company's weighted average borrowing rate of 4.60% for the year
ended December 31, 1994 under its revolving credit facilities.
(L) To record approximately 11 months of additional interest expense on the
December 1994 $200,000,000 notes at an annual interest rate of 8.375%.
(M) To record the estimated reduction in net interest expense achieved from a
cross currency hedging transaction entered into by the Company in
December 1994 as if such transaction had been entered into on January 1,
1994.
S-19
<PAGE> 20
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME -- (CONTINUED)
This transaction effectively converts $272,500,000 of U.S. fixed rate
indebtedness into floating rate UK pound sterling indebtedness, raising
SCI's total UK pound sterling exposure to $472,500,000, which is
comparable to the size of the acquisitions of GSG and PG.
(N) To reverse interest expense recorded in the Company's historical
financial statements related to amounts borrowed under two bank
facilities secured to temporarily fund the GSG and PG acquisitions. This
indebtedness would not have been necessary if the acquisition of GSG and
PG had been funded with proceeds from the December 1994 public offerings.
(O) To record the additional dividends at 6.25% on the preferred securities
of SCI Finance LLC issued in December 1994 to present a full year of
dividends.
(P) To record the tax effect of the pro forma adjustments.
(Q) 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 December 31, 1994 in respect to the
acquisition of the 1994 Other Acquired Companies would have been
outstanding if all of such acquisitions had occurred as of January 1,
1994.
(R) To record the additional impact from the issuance of 7,700,000 shares in
December 1994 and 780,000 shares in January 1995.
(S) To record the additional impact on the fully diluted weighted average
number of shares of the preferred securities of SCI Finance LLC issued in
December 1994.
1995 TRANSACTIONS
1995 OTHER ACQUIRED COMPANIES
(O1) To record a reduction to costs and expenses for the 1995 Other Acquired
Companies based on results actually achieved by the Company for the
periods subsequent to acquisition in the amount of $3,983,000 offset in
part by additional costs and expenses of $2,762,000 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 1995 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 the Company's
weighted average borrowing rate of 4.60% for the year ended December 31,
1994 under its existing revolving credit facilities. At September 8,
1995, the borrowing rate was 5.89%.
(O2) To record the tax effect for the 1995 Other Acquired Companies pro forma
adjustments.
(O3) 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 December 31, 1994 in respect to the
acquisition of the 1995 Other Acquired Companies would have been
outstanding if all of such acquisitions had occurred as of January 1,
1994.
CANADA
(C1) To record the additional amortization of names and reputations (based on
40 year straight-line amortization) created from the acquisition of the
SCIC minority interest.
(C2) To record the additional cost of SCIC's cemetery interment rights sold.
S-20
<PAGE> 21
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME -- (CONTINUED)
(C3) To record the estimated interest expense for the September 5, 1995
purchase of the SCIC minority interest ($62,578,000) assumed to have been
borrowed by the Company under its existing revolving credit facilities.
The calculation was based on a weighted average annual three month
Canadian banker's acceptance borrowing rate plus 25 basis points for the
year ended December 31, 1994 (5.76%). At September 5, 1995, the borrowing
rate was 6.31%.
(C4) To eliminate the 1994 SCIC minority interest charge.
(C5) To record the tax effect for SCIC's minority interest pro forma
adjustments.
GIBRALTAR
(G1) To eliminate Gibraltar intercompany revenues and costs relating to
cemetery construction activities.
(G2) To conform Gibraltar's prearranged funeral accounting to the Company's.
The revenue adjustment includes $1,306,000 of revenue relating to
earnings on amounts held in trust which Gibraltar recognized currently
which would be deferred under the Company's accounting policies and
$596,000 of revenue recognized by Gibraltar relating to certain
prearranged funeral payments not required to be held in trust which would
also be deferred under the Company's accounting policies. The adjustment
to costs and expenses for $830,000 relates to prearranged funeral selling
expenses that would be capitalized under the Company's accounting
policies but were recognized currently by Gibraltar.
(G3) To conform Gibraltar's cemetery accounting to the Company's. This
includes an adjustment to reclassify $5,301,000 of revenues and costs and
expenses relating to contract cancellations. In addition, this adjustment
includes a reduction of Gibraltar historical costs and expenses for
$1,833,000, representing reduced cost accruals for certain cemetery
sales.
(G4) To record the acquisition of five separate businesses acquired at various
dates by Gibraltar between January 1, 1994 and December 31, 1994 as if
such acquisitions had occurred on January 1, 1994.
(G5) To eliminate Gibraltar corporate expenses consisting primarily of former
owner salaries and duplicate home office personnel expenses.
(G6) To eliminate the historical Gibraltar goodwill amortization expense.
(G7) To record the additional cost of Gibraltar's cemetery interment rights
sold.
(G8) To eliminate the interest expense on Gibraltar debt assumed to be repaid
by the Company.
(G9) To record additional interest expense for the cash portion of the
purchase price assumed to be borrowed by the Company under its existing
revolving credit facilities. The Company's weighted average borrowing
rate under such revolving credit facilities was 4.60% for the year ended
December 31, 1994. At September 8, 1995, the borrowing rate was 5.89%.
(G10) To record the tax effect of Gibraltar's pro forma adjustments.
(G11) To reflect the issuance of 3,286,759 shares in respect to the acquisition
of Gibraltar that would have been outstanding if the acquisition had
occurred on January 1, 1994. The shares were assumed to be issued at
$35.75 per share representing the closing stock price on September 8,
1995.
OGF/PFG
(F1) To eliminate the historical OGF/PFG goodwill amortization expense.
(F2) To record the amortization of names and reputations (based on 40 year
straight-line amortization) created from the acquisition of OGF/PFG by
the Company.
S-21
<PAGE> 22
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME -- (CONTINUED)
(F3) To eliminate OGF/PFG's historical depreciation expense which was
calculated using shorter depreciable asset lives than does the Company
under its accounting policies. Additionally, OGF/PFG, for certain assets,
used accelerated depreciation methods. The Company uses a straight-line
method of depreciation expense recognition.
(F4) To record the depreciation expense on OGF/PFG's property, plant and
equipment using the Company's depreciation policies based on the current
fair value.
(F5) To record the amortization of the present value of future profits related
to OGF/PFG's life insurance subsidiary, net of the amount allocated to
policyholders, under French insurance regulations.
(F6) To eliminate the amortization of deferred acquisition costs related to
the life insurance subsidiary which were recorded in OGF/PFG's historical
income statement.
(F7) To eliminate historical OGF/PFG expenses that will not continue under the
Company's ownership. Such costs are primarily the result of OGF/PFG
personnel whose positions were permanently eliminated in anticipation of
the acquisition of OGF/PFG by the Company.
(F8) To record interest expense on amounts borrowed under the French Revolving
Credit Agreement ($589,570,000) at 6.10% which represents the weighted
average three month PIBOR borrowing rate plus 25 basis points for the
year ended December 31, 1994 applied to a French franc balance as of June
30, 1995 and translated at the weighted average exchange rate for the
year ended December 31, 1994. At September 8, 1995, the borrowing rate
was 5.95%.
(F9) To eliminate interest expense on amounts borrowed under the French
Revolving Credit Agreement that the Company intends to repay with
$183,180,000 of OGF/PFG cash acquired. OGF/PFG received substantially all
of this cash from the sale, in 1994, of its investment in PG to the
Company. The reduction was calculated using a weighted average annual
interest rate of 6.10%, which represents the weighted average three month
PIBOR borrowing rate plus 25 basis points for the year ended December 31,
1994 applied to a French franc balance as of June 30, 1995 and translated
at the weighted average exchange rate for the year ended December 31,
1994. At September 8, 1995, the borrowing rate was 5.95%.
(F10) To eliminate OGF/PFG historical interest income earned on OGF/PFG excess
cash ($183,180,000) that the Company intends to use to partially repay
borrowings under the French Revolving Credit Agreement.
(F11) To eliminate OGF's year ended 1994 charge for the minority interest in
PFG assuming acquisition of 100% of PFG by the Company.
(F12) To eliminate the gain on sale of PG. The Company purchased PG, which was
an equity investee of OGF, in 1994.
(F13) To record the tax effect of the OGF/PFG pro forma adjustments.
1995 PUBLIC OFFERINGS
(P1) To record the amortization expense expected to result from the estimated
costs and expenses associated with the Senior Notes Offerings.
(P2) To record the estimated interest expense on the Senior Notes Offerings at
an assumed annual interest rate of 6.77% as if such notes had been issued
January 1, 1994 (net proceeds of $297,765,000).
(P3) To record the estimated reduction in interest expense resulting from the
assumed partial repayment of $252,520,000 of indebtedness under the
Company's existing revolving credit facilities from the assumed net
proceeds of the Common Stock Offering. The reduction was calculated using
a weighted average annual interest rate of 4.60%, which represents the
weighted average borrowing rate under the Company's existing revolving
credit facilities for the year ended December 31, 1994 (5.89% at
September 8, 1995).
S-22
<PAGE> 23
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME -- (CONTINUED)
(P4) To record the estimated reduction in interest expense from the assumed
partial repayment of $297,765,000 of indebtedness under the French
Revolving Credit Agreement from the assumed net proceeds of the Senior
Notes Offerings. The reduction was calculated using a weighted average
annual interest rate of 6.10%, which represents the weighted average
three month PIBOR borrowing rate plus 25 basis points for the year ended
December 31, 1994 (5.95% at September 8, 1995).
(P5) To record the estimated decrease in net interest expense resulting from a
planned cross currency hedging transaction as if such transaction had
been entered into on January 1, 1994. Assuming September 8, 1995 market
conditions, this transaction would effectively convert $150,000,000 of
fixed rate indebtedness into fixed rate French franc indebtedness (7.22%)
and $150,000,000 of fixed rate indebtedness into floating rate French
franc indebtedness (based on PIBOR plus 45 basis points). Under this
transaction the Company would receive an average U.S. dollar 6.88%
interest rate and pay an average French franc 6.69% interest rate. With
this transaction, the Company's net investment in OGF/PFG will be hedged
against currency risk.
(P6) To record the tax effect of the offerings' pro forma adjustments at the
Company's statutory tax rate.
(P7) To record the anticipated issuance of 7,300,000 shares under the Common
Stock Offering as if such shares had been issued January 1, 1994 at an
assumed stock price of $35.75 per share, (the closing stock price on
September 8, 1995) (net proceeds of $252,520,000).
The following adjustments were made to the historical financials of GSG and PG
to restate historical financial statements to US GAAP (included in the unaudited
pro forma combined statement of income for the year ended December 31, 1994 in
the column captioned "1994 Historical -- GSG & PG and Other Acquired
Companies"):
<TABLE>
<CAPTION>
===================================================================
HISTORIC AMOUNTS AS REPORTED IN
CONVERTED TO US UNAUDITED
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>
Dollars in thousands
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 historical goodwill balances straight-line over 40 years.
S-23
<PAGE> 24
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME -- (CONTINUED)
The following adjustments were made to the historical financials of OGF/PFG to
restate historical financial statements to US GAAP:
<TABLE>
<CAPTION>
===========================================================
HISTORIC AMOUNTS AS REPORTED IN
CONVERTED TO UNAUDITED PRO FORMA
U.S. DOLLARS ADJUSTMENTS COMBINED
IN TO US STATEMENT
F GAAP GAAP OF INCOME
------------- ----------- ----------------
<S> <C> <C> <C>
Dollars in thousands
Revenues $ 500,884 $ 8,257 (3) $ 509,141
Costs and expenses (467,825) 472 (2) (471,390)
18 (5)
(4,055)(3)
Other income (expense) (18,044) (129)(1) (18,075)
(384)(2)
136 (3)
350 (4)
(4)(5)
Gain on sale of subsidiaries 57,474 -- 57,474
Provision for income taxes (18,927) (1,019)(4) (21,176)
(6)(5)
(1,224)(3)
------------ --------- ---------------
Net income $ 53,562 $ 2,412 $ 55,974
============ ========= ===============
</TABLE>
- ---------------
* One French franc equivalent to $.1802, which represents the average exchange
rate for the year ended December 31, 1994.
(1) To record the effect of FAS No. 115 "Accounting for Certain Investments in
Debt and Equity Securities."
(2) To record capital leases to comply with FAS No. 13 "Accounting for Leases."
(3) To consolidate OGF/PFG's wholly owned life insurance subsidiary, which was
recorded under the equity method of accounting by OGF/PFG, to comply with
FAS No. 94 "Consolidation of All Majority-Owned Subsidiaries," FAS No. 60
"Accounting and Reporting by Insurance Enterprises" and FAS No. 97
"Accounting and Reporting by Insurance Enterprises for Certain Long-Duration
Contracts and for Realized Gains and Losses from the Sale of Investments."
(4) To record FAS No. 109 "Accounting for Income Taxes."
(5) To record FAS No. 87 "Employers' Accounting for Pension" and FAS No. 106
"Employers' Accounting for Post-retirement Benefits Other Than Pensions."
S-24
<PAGE> 25
SERVICE CORPORATION INTERNATIONAL
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
===================================================================================================================
HISTORICAL PRO FORMA
In thousands, ------------------------------------------------- --------------------------------------------------------------
except THE OTHER
per share COMPANY ACQUIRED ACQUISITION COMBINED OFFERINGS COMBINED
amounts HISTORICAL OGF/PFG GIBRALTAR COMPANIES ADJUSTMENTS SUBTOTAL ADJUSTMENTS TOTAL
---------- --------- --------- --------- -------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 701,762 $ 272,632 $ 45,556 $ 18,439 $ (843)(G1) $1,034,319 $ -- $1,034,319
(3,227)(G2)
Costs and
expenses (479,105) (257,606) (38,031) (16,370) 362 (G1) (778,192) (132) (P1) (778,324)
4,222 (G2)
1,019 (G3)
112 (G4)
(718)(G5)
479 (O1)
(482)(C1)
(32)(C2)
857 (F1)
(1,409)(F2)
12,670 (F3)
(6,822)(F4)
(52)(F5)
362 (F6)
2,352 (F7)
---------- --------- --------- --------- -------- ---------- ---------- ----------
Gross profit 222,657 15,026 7,525 2,069 8,850 256,127 (132) 255,995
General and
administrative
expenses (23,471) -- -- -- -- (23,471) -- (23,471)
---------- --------- --------- --------- -------- ---------- ---------- ----------
Income from
operations 199,186 15,026 7,525 2,069 8,850 232,656 (132) 232,524
Interest
expense (52,809) (1,901) (2,361) (308) 2,144 (G6) (79,080) (10,155) (P2) (70,443)
(4,503)(G7) 7,752 (P3)
(2,714)(O1) 10,749 (P4)
(2,519)(C3) 291 (P5)
(20,468)(F8)
6,359 (F9)
Dividends on
preferred
securities
of SCI
Finance LLC (5,391) -- -- -- -- (5,391) -- (5,391)
Other income
(expense) 3,073 4,111 (47) -- 1,451 (C4) 5,305 -- 5,305
3,185 (F10)
(6,468)(F11)
---------- --------- --------- --------- -------- ---------- ---------- ----------
Income before
income
taxes 144,059 17,236 5,117 1,761 (14,683) 153,490 8,505 161,995
Provision for
income
taxes (56,039) (8,857) (2,121) (685) 872 (O2) (60,678) (2,977) (P6) (63,655)
1,122 (C5)
602 (G8)
4,428 (F12)
---------- --------- --------- --------- -------- ---------- ---------- ----------
Net income $ 88,020 $ 8,379 $ 2,996 $ 1,076 $ (7,659) $ 92,812 $ 5,528 $ 98,340
========= ========= ========= ========= ======== ========== ========= ==========
Earnings per
share:
Primary $ 0.91 $ 0.92
========== =========
Fully
diluted $ 0.85 $ 0.86
========== =========
Primary
weighted 3,287 (G9)
average
shares 96,729 147 (O3) 7,300 (P7) 107,463
========== =========
Fully
diluted
weighted 3,287 (G9)
average
shares 112,611 147 (O3) 7,300 (P7) 123,345
========== =========
</TABLE>
See note (F13) to this unaudited pro forma combined statement of income for the
six months ended June 30, 1995.
S-25
<PAGE> 26
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1995
1995 OTHER ACQUIRED COMPANIES
(O1) To record a reduction to costs and expenses for the 1995 Other Acquired
Companies based on results actually achieved by the Company for the
periods subsequent to acquisition in the amount of $1,860,000 offset in
part by additional costs and expenses of $1,381,000 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 1995 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 the Company's
weighted average borrowing rate of 6.14% for the six months ended June
30, 1995 under its existing revolving credit facilities. At September 8,
1995, the borrowing rate was 5.89%.
(O2) To record the tax effect for the 1995 Other Acquired Companies pro forma
adjustments.
(O3) 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, 1995 and June 30, 1995 in respect to the acquisition
of the 1995 Other Acquired Companies would have been outstanding for the
six months ended June 30, 1995 if all of such acquisitions had occurred
as of January 1, 1994.
CANADA
(C1) To record the additional amortization of names and reputations (based on
40 year straight-line amortization) created from the acquisition of the
SCIC minority interest.
(C2) To record the additional costs of SCIC's cemetery interment rights sold.
(C3) To record the estimated interest expense for the September 5, 1995
purchase of the SCIC minority interest ($62,578,000) assumed to have been
borrowed by the Company under its existing revolving credit facilities.
The calculation was based on a weighted average annual three month
Canadian banker's acceptance borrowing rate plus 25 basis points for the
six months ended June 30, 1995 (8.05%). At September 5, 1995, the
borrowing rate was 6.31%.
(C4) To eliminate the 1995 SCIC minority interest charge.
(C5) To record the tax effect for SCIC's minority interest pro forma
adjustments.
GIBRALTAR
(G1) To conform Gibraltar's prearranged funeral accounting to the Company's.
The revenue adjustment includes $604,000 of revenue relating to earnings
on amounts held in trust which Gibraltar recognized currently which would
be deferred under the Company's accounting policies and $239,000 of
revenue recognized by Gibraltar relating to certain prearranged funeral
payments not required to be held in trust which would also be deferred
under the Company's accounting policies. The adjustment to costs and
expenses for $362,000 relates to prearranged funeral selling expenses
that would be capitalized under the Company's accounting policies but
were recognized currently by Gibraltar.
(G2) To conform Gibraltar's cemetery accounting to the Company's. This
includes an adjustment to reclassify $3,227,000 of revenues and costs and
expenses relating to contract cancellations. In addition, this adjustment
includes a reduction of Gibraltar's historical costs and expenses for
$995,000, representing reduced cost accruals for certain cemetery sales.
S-26
<PAGE> 27
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME -- (CONTINUED)
(G3) To eliminate Gibraltar corporate expenses consisting primarily of former
owner salaries and duplicate home office personnel expenses.
(G4) To eliminate the historical Gibraltar goodwill amortization expense.
(G5) To record the additional cost of Gibraltar's cemetery interment rights
sold.
(G6) To eliminate the interest expense on Gibraltar debt assumed to be repaid
by the Company.
(G7) To record additional interest expense for the cash portion of the
purchase price assumed to be borrowed by the Company under its existing
revolving credit facilities. The Company's weighted average borrowing
rate for such revolving credit facilities was 6.14% for the six months
ended June 30, 1995. At September 8, 1995, the borrowing rate was 5.89%.
(G8) To record the tax effect of Gibraltar's pro forma adjustments.
(G9) To reflect the issuance of 3,286,759 shares in respect to the acquisition
of Gibraltar that would have been outstanding if the acquisition had
occurred as of January 1, 1995. The shares were assumed to be issued at
$35.75 per share (the closing stock price on September 8, 1995).
OGF/PFG
(F1) To eliminate the historical OGF/PFG goodwill amortization expense.
(F2) To record the amortization of names and reputations (based on 40 year
straight-line amortization) created from the acquisition of OGF/PFG by
the Company.
(F3) To eliminate OGF/PFG's historical depreciation expense which was
calculated using shorter depreciable asset lives than does the Company
under its accounting policies. Additionally, OGF/PFG, for certain assets,
used accelerated depreciation methods. The Company uses a straight-line
method of depreciation expense recognition.
(F4) To record the depreciation expense on OGF/PFG's property, plant and
equipment using the Company's depreciation policies based on the current
fair value.
(F5) To record the amortization of the present value of future profits related
to OGF/PFG's life insurance subsidiary, net of the amount allocated to
policyholders, under French insurance regulations.
(F6) To eliminate the amortization of deferred acquisition costs related to
the life insurance subsidiary which were recorded in OGF/PFG's historical
income statement.
(F7) To eliminate historical OGF/PFG expenses that will not continue under the
Company's ownership. Such costs are primarily the result of OGF/PFG
personnel whose positions were permanently eliminated and professional
expenses incurred in anticipation of the acquisition of OGF/PFG by the
Company.
(F8) To record interest expense on amounts borrowed under the French Revolving
Credit Agreement ($589,570,000) at 7.22% which represents the weighted
average three month PIBOR borrowing rate plus 25 basis points for the six
months ended June 30, 1995 applied to a French franc balance as of June
30, 1995 and translated at the weighted average exchange rate for the six
months ended June 30, 1995. At September 8, 1995, the borrowing rate was
5.95%.
(F9) To eliminate interest expense on amounts borrowed under the French
Revolving Credit Agreement that the Company intends to repay with
$183,180,000 of OGF/PFG cash acquired. OGF/PFG received substantially all
of this cash from the sale, in 1994, of its investment in PG to the
Company. The reduction was calculated using a weighted average annual
interest rate of 7.22%, which represents the weighted average three month
PIBOR borrowing rate plus 25 basis points for the six months ended June
30, 1995 applied to a French franc balance as of June 30, 1995 and
translated at the weighted average exchange rate for the six months ended
June 30, 1995. At September 8, 1995, the borrowing rate was 5.95%.
S-27
<PAGE> 28
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME -- (CONTINUED)
(F10) To eliminate OGF's six month charge for the minority interest in PFG
assuming acquisition of 100% of PFG by the Company.
(F11) To eliminate OGF/PFG historical interest income earned on OGF/PFG excess
cash ($183,180,000) that the Company intends to use to partially repay
borrowings under the French Revolving Credit Agreement.
(F12) To record the tax effect of the OGF/PFG pro forma adjustments.
(F13) The earnings of OGF/PFG's life insurance subsidiary for the six months
ended June 30, 1995 included realized losses on sales of portfolio debt
securities. The net effect of the debt security sales, after profit
participation by policyholders, was a loss before income taxes of
approximately $7,950,000. On August 25, 1995, the Company adopted a
policy with respect to OGF/PFG's life insurance subsidiary to hold all
debt securities to maturity. Had the Company's investment policy been in
effect during the period, such security sales would not have occurred.
1995 PUBLIC OFFERINGS
(P1) To record the amortization expense expected to result from the estimated
costs and expenses associated with the Senior Notes Offerings.
(P2) To record the estimated interest expense on the Senior Notes Offerings at
an assumed annual interest rate of 6.77% as if such notes had been issued
January 1, 1994 (net proceeds of $297,765,000).
(P3) To record the estimated reduction in interest expense resulting from the
assumed partial repayment of $252,520,000 of indebtedness under the
Company's existing revolving credit facilities from the assumed net
proceeds of the Common Stock Offering. The reduction was calculated using
a weighted average annual interest rate of 6.14%, which represents the
weighted average borrowing rate under the Company's existing revolving
credit facilities for the six months ended June 30, 1995 (5.89% at
September 8, 1995).
(P4) To record the estimated reduction in interest expense from the assumed
partial repayment of $297,765,000 of indebtedness under the French
Revolving Credit Agreement from the assumed net proceeds of the Senior
Notes Offerings. The reduction was calculated using a weighted average
annual interest rate of 7.22%, which represents the weighted average
three month PIBOR borrowing rate plus 25 basis points for the six months
ended June 30, 1995 (5.95% at September 8, 1995).
(P5) To record the estimated decrease in net interest expense resulting from a
planned cross currency hedging transaction as if such transaction had
been entered into on January 1, 1994. Assuming September 8, 1995 market
conditions, this transaction would effectively convert $150,000,000 of
fixed rate indebtedness into fixed rate French franc indebtedness (7.22%)
and $150,000,000 of fixed rate indebtedness into floating rate French
franc indebtedness (based on PIBOR plus 45 basis points). Under this
transaction, the Company would receive an average U.S. dollar 6.88%
interest rate and pay an average French franc 6.69% interest rate. With
this transaction, the Company's net investment in OGF/PFG will be hedged
against currency risk.
(P6) To record the tax effect of the offerings' pro forma adjustments at the
Company's statutory tax rate.
(P7) To record the anticipated issuance of 7,300,000 shares under the Common
Stock Offering as if such shares had been issued January 1, 1994 at an
assumed stock price of $35.75 per share (the closing stock price on
September 8, 1995) (net proceeds of $252,520,000).
S-28
<PAGE> 29
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME -- (CONTINUED)
The following adjustments were made to the historical financials of OGF/PFG to
restate historical financial statements to US GAAP:
<TABLE>
<CAPTION>
====================================================
HISTORIC
AMOUNTS AS REPORTED IN
CONVERTED UNAUDITED PRO
TO FORMA
U.S. ADJUSTMENTS COMBINED
DOLLARS TO US STATEMENT
Dollars in thousands IN F GAAP GAAP OF INCOME
---------- --------- ----------------
<S> <C> <C> <C>
Revenues $ 275,318 $ 78 (1) $ 272,632
(2,764)(3)
Costs and expenses (254,536) 260 (2) (257,606)
(755)(5)
(2,575)(3)
Other income (expense) 3,901 (29)(1) 2,210
(200)(2)
(1,500)(3)
(133)(4)
171 (5)
Provision for income taxes (9,020) (104)(4) (8,857)
267 (5)
---------- --------- ----------------
Net income $ 15,663 $ (7,284) $ 8,379
========== ========= ================
</TABLE>
- ---------------
* One French franc equivalent to $.1983, which represents the average exchange
rate for the six months ended June 30, 1995.
(1) To record the effect of FAS No. 115 "Accounting for Certain Investments in
Debt and Equity Securities."
(2) To record capital leases to comply with FAS No. 13 "Accounting for Leases."
(3) To consolidate OGF/PFG's wholly owned life insurance subsidiary, which was
recorded under the equity method of accounting by OGF/PFG, to comply with
FAS No. 94 "Consolidation of All Majority-Owned Subsidiaries," FAS No. 60
"Accounting and Reporting by Insurance Enterprises" and FAS No. 97
"Accounting and Reporting by Insurance Enterprises for Certain Long-Duration
Contracts and for Realized Gains and Losses from the Sale of Investments."
The earnings of OGF/PFG's life insurance subsidiary for the six months ended
June 30, 1995 included realized losses on sales of debt securities. The net
effect of the debt security sales, after profit participation by
policyholders, was a loss before income taxes of approximately $7,950,000.
(4) To record FAS No. 109 "Accounting for Income Taxes."
(5) To record FAS No. 87 "Employers' Accounting for Pension" and FAS No. 106
"Employers' Accounting for Post-retirement Benefits Other Than Pensions."
S-29
<PAGE> 30
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered hereby
(referred to herein as the "Notes") supplements, and to the extent inconsistent
therewith replaces, the description of the general terms and provisions of the
Senior Debt Securities set forth in the accompanying Prospectus, to which
description reference is hereby made. The Notes are Senior Debt Securities as
defined in the accompanying Prospectus. Except as otherwise defined herein,
capitalized terms used herein have the meanings specified in the accompanying
Prospectus or in the Senior Debt Indenture referred to therein.
The maximum aggregate principal amount of Notes that may be issued is limited to
$150,000,000. Interest at the annual rate set forth on the cover page of this
Prospectus Supplement is to accrue from , 1995, and is to be payable
semiannually on and , commencing , 1996, to the
persons in whose names the Notes are registered at the close of business on the
preceding or , respectively. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months.
The Notes will mature on , 2000. The Notes will not be redeemable by
the Company prior to maturity. There is no sinking fund applicable to the Notes.
BOOK-ENTRY, DELIVERY AND FORM
The Notes will be issued in the form of one or more fully registered Global
Notes (the "Global Notes") that will be deposited with, or on behalf of, The
Depository Trust Company, New York, New York, as Depositary (the "Depositary"),
and registered in the name of Cede & Co., the Depositary's nominee. Except as
set forth below, the Global Notes may be transferred, in whole and not in part,
only to another nominee of the Depositary or to a successor of the Depositary or
its nominee.
The Depositary has advised as follows: It is a limited-purpose trust company
which holds securities for its participating organizations (the "Participants")
and facilitates the settlement among Participants of securities transactions in
such securities through electronic book-entry changes in its Participants'
accounts. Participants include securities brokers and dealers (including the
Underwriters), banks and trust companies, clearing corporations and certain
other organizations. Access to the Depositary's system is also available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("indirect participants"). Persons who are not Participants may
beneficially own securities held by the Depositary only through Participants or
indirect participants.
The Depositary advises that its established procedures provide that (i) upon
issuance of the Notes by the Company, the Depositary will credit the accounts of
Participants designated by the Underwriters with the principal amounts of the
Notes purchased by the Underwriters and (ii) ownership of interests in the
Global Notes will be shown on, and the transfer of the ownership will be
effected only through, records maintained by the Depositary, the Participants
and the indirect participants. The laws of some states require that certain
persons take physical delivery in definitive form of securities which they own.
Consequently, the ability to transfer beneficial interests in the Global Notes
is limited to that extent.
So long as a nominee of the Depositary is the registered owner of the Global
Notes, that nominee for all purposes will be considered the sole owner or holder
of such Global Notes under the Senior Debt Indenture. Except as provided below,
owners of beneficial interests in the Global Notes will not be entitled to have
Notes registered in their names, will not receive or be entitled to receive
physical delivery of Notes in definitive form and will not be considered the
owners or holders thereof under the Senior Debt Indenture. Accordingly, each
person owning a beneficial interest in the Global Notes must rely on the
procedures of the Depositary and, if the beneficial owner is not a participant,
on the procedures of the participant through which the beneficial owner owns its
interest, to exercise any rights of a holder under the Senior Debt Indenture.
The Company understands that under existing practice, if the Company requests
any action of the holders, or a beneficial owner desires to take any action a
holder is entitled to take, the Depositary would act upon the instructions of,
or authorize, the participant to take such action.
S-30
<PAGE> 31
None of the Company, the Trustee, any Paying Agent or the Security Registrar
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Notes, or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Principal and interest payments on the Notes registered in the name of the
Depositary's nominee will be made by the Trustee to the Depositary. Under the
terms of the Senior Debt Indenture, the Company and the Trustee will treat the
persons in whose names the Notes are registered as the owners of the Notes for
the purpose of receiving payment of principal of and interest on the Notes and
for all other purposes whatsoever. Therefore, none of the Company, the Trustee
or any Paying Agent has any direct responsibility or liability for the payment
of principal of or interest on the Notes to owners of beneficial interests in
the Global Notes. The Depositary has advised the Company and the Trustee that
its present practice is to credit the accounts of the Participants on the
appropriate payment date in accordance with their respective holdings in
principal amount of beneficial interests in the Global Notes as shown on the
records of the Depositary, unless the Depositary has reason to believe that it
will not receive payment on that payment date. Payments by Participants and
indirect participants to owners of beneficial interests in the Global Notes will
be governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or registered
in "street name," and will be the responsibility of the Participants or indirect
participants.
If the Depositary is at any time unwilling or unable to continue as depositary
and a successor depositary is not appointed by the Company within 90 days, the
Company will issue Notes in definitive form in exchange for the Global Notes. In
addition, the Company may at any time determine not to have the Notes
represented by Global Notes and, in such event, will issue Notes in definitive
form in exchange for the Global Notes. In either instance, an owner of a
beneficial interest in the Global Notes will be entitled to have Notes equal in
principal amount to such beneficial interest registered in its name and will be
entitled to physical delivery of such Notes in definitive form. Notes so issued
in definitive form will be issued in denominations of $1,000 and integral
multiples thereof and will be issued in registered form only, without coupons.
S-31
<PAGE> 32
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the Underwriters
named below have severally agreed to purchase, and the Company has agreed to
sell to them, severally, the respective principal amount of Notes set forth
opposite their names below:
<TABLE>
=============
PRINCIPAL
AMOUNT
OF NOTES
-------------
<S> <C>
UNDERWRITERS
J.P. Morgan Securities Inc. ........................................ $
B.A. Securities, Inc. ..............................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................
NationsBanc Capital Markets, Inc. ..................................
-------------
Total $150,000,000
=============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are committed to take and pay for all of the
Notes offered hereby if any are taken.
The Underwriters initially propose to offer the Notes in part directly to the
public at the public offering price set forth on the cover page of this
Prospectus Supplement and in part to certain dealers at that price less a
concession not in excess of % of the principal amount of the Notes. The
Underwriters may allow, and those dealers may reallow, a concession not in
excess of % of the principal amount of the Notes to certain other dealers.
After the initial public offering of the Notes offered hereby, the public
offering price and such concessions may be changed.
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
federal securities laws, or to contribute to payments that the Underwriters may
be required to make in respect thereof.
J.P. Morgan Securities Inc. ("JPMS"), B.A. Securities, Inc. Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and NationsBanc Capital
Markets, Inc. and/or their affiliates from time to time provide commercial
banking and/or investment banking services to the Company for which they receive
customary fees and expense reimbursement. JPMS and Merrill Lynch are acting as
underwriters in connection with the % Notes Due 2007 Offering and the Common
Stock Offering. As of September 11, 1995, JPMS and certain of its affiliates
beneficially owned (as defined in Rule 13d-3 of the Securities Exchange Act of
1934, as amended) approximately 11.04% of the outstanding Common Stock, such
figure representing beneficial ownership in both a fiduciary capacity on behalf
of third parties and for their own accounts. As of that date, JPMS and such
affiliates owned the economic interest in less than 1% of the outstanding Common
Stock.
Prior to the offering made hereby, there has been no public market for the
Notes. The Company does not intend to list the Notes on any securities exchange.
The Company has been advised by the Underwriters that the Underwriters currently
intend to make a market in the Notes; however, the Underwriters are not
obligated to do so, and any Underwriter may discontinue any such market making
at any time without notice.
S-32
<PAGE> 33
[SCI LOGO]
