<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 8 - K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 4, 1995
SERVICE CORPORATION INTERNATIONAL
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(Exact name of registrant as specified in its charter)
TEXAS
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
1-6402-1 74-1488375
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(Commission File Number) (IRS Employer Identification No.)
1929 Allen Parkway, Houston, Texas 77019
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(Address of principal executive offices) (Zip Code)
(713) 522-5141
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Registrant's telephone number, including area code
<PAGE> 2
ITEM 5. OTHER EVENTS
On August 25, 1995, the Company acquired an approximate 51% interest in Omnium
de Gestion et de Financement S.A. ("OGF") for US$233,358,000. OGF, in turn,
owned approximately 65% of Pompes Funebres Generales S.A. ("PFG"). OGF and PFG,
when combined, is the largest funeral service organization in Europe, operating
1,040 funeral service locations and a funeral insurance business which primarily
sells insurance policies in connection with OGF/PGF's prearranged funeral
business. 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 November 15, 1995, the Company owned shares representing over 98%
of OGF and over 96% of PFG. The total purchase price for OGF and the portion of
PFG not owned by OGF is expected to be approximately US$590,000,000 (based on
the August 25, 1995 translation rate of .1969). The net cost to the Company,
taking into account the cash balances of OGF and PFG, is expected to be
approximately US$424,000,000. In August 1995, the Company entered into a 364
day revolving credit agreement with several banks to temporarily fund the
OGF/PFG acquisition (the "French Revolving Credit Agreement"). The French
Revolving Credit Agreement allows for borrowings up to $600,000,000 at an
interest rate based on PIBOR plus 25 basis points.
On September 5, 1995, the Company acquired the shares of SCI Canada ("SCIC") not
already owned by the Company. This transaction eliminated the approximate 31%
minority interest ownership of SCIC and made SCIC a wholly owned subsidiary of
the Company. SCIC owns 75 funeral service locations and three cemeteries. The
total purchase price was approximately US$62,578,000.
On October 11, 1995, the Company purchased Gibraltar Mausoleum Corporation
("Gibraltar"). Gibraltar, a private funeral and cemetery company based in
Indianapolis, owns and operates 23 funeral service locations and 54 cemeteries.
The purchase price consists of 3,286,759 shares of Company common stock,
$77,000,000 in cash, $54,000,000 in short-term promissory notes and the
assumption of $25,000,000 of Gibraltar debt. Gibraltar does not meet the
definition contained in Rule 1-02 of Regulation S-X for a significant
subsidiary.
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 was approximately
$508,000,000.
In addition to the acquisitions discussed above, during 1994 and the nine months
ended September 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 260 funeral homes and 56 cemeteries
(the "Other Acquired Companies", of which the companies acquired in 1994 are
called "1994 Other Acquired Companies" and the companies acquired in 1995 are
called "1995 Other Acquired Companies") in 140 separate transactions for an
aggregate purchase price of approximately $566,155,000 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.
In addition to the acquisitions disclosed above, during October 1995, the
Company completed underwritten public offerings of securities pursuant to the
Company's $1 billion shelf registration that became effective in September 1995.
In one offering, the Company issued 8,395,000 shares of common stock at a net
offering price of $37.30 per share. In another offering, the Company issued
$300,000,000 of notes which were issued in two tranches of $150,000,000 each
with maturities in October 2000 and 2007 and interest rates of 6.375% and
6.875%, respectively. The net proceeds from these offerings were used primarily
to finance the Company's worldwide acquisition program including the OGF/PFG and
Gibraltar transactions.
2
<PAGE> 3
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma information assumes that the acquisition by
the Company of all operations acquired during the year ended December 31, 1994
and the nine months ended September 30, 1995 took place on January 1, 1994
(1,834 funeral service locations and 58 cemeteries acquired in 142 separate
transactions). In addition, this pro forma information includes the effects of
the Gibraltar acquisition discussed above as if such acquisition had occurred on
January 1, 1994. This information also assumes that the net proceeds from the
Company's December 1994 public offerings of Company common stock, 8.375% notes
and convertible preferred securities of SCI Finance LLC and October 1995 public
offerings of notes and Company common stock were issued at the beginning of
1994. The net proceeds of the December 1994 public offerings were first applied
toward the purchase price of the Company's September 1994 acquisitions in the
United Kingdom, with the excess net proceeds 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 for the OGF/PFG acquisition, first, that the acquisition is
initially financed with borrowings under the Company's French Revolving Credit
Agreement. Second, that the Company will apply the net proceeds received from
the October 1995 common stock offering ($312,834,000) and October 1995 notes
offerings ($297,488,000) to repay amounts borrowed under the Company's French
Revolving Credit Agreement. The excess net proceeds from the October 1995
offerings are assumed to be used to repay a portion of the Company's existing
revolving credit facilities.
The historical income statements of GSG and PG and OGF/PFG for the period not
owned by the Company in 1994 and 1995 were adjusted to present the historical
income statements in accordance with United States generally accepted
accounting principles ("US GAAP") and translated into US dollars at the average
exchange rate for the period presented (the United Kingdom pound sterling
translation rate for the eight months ended August 31, 1994, was $1.52 and the
French franc translation rates for the year ended December 31, 1994, and eight
months ended August 31, 1995 were $.1802 and $.2000, respectively). The
historical income statements of the Other Acquired Companies represent amounts
recorded by those businesses for the periods that they were not owned by the
Company during the year ended December 31, 1994 and the nine months ended
September 30, 1995.
This unaudited pro forma information may not be indicative of results that would
have actually resulted if these transactions had occurred on the dates indicated
or which may be obtained in the future.
3
<PAGE> 4
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 $ 92,294
Costs and expenses (775,980) (113,145) (770) (A) (885,195) (471,390) (81,785) (81,627)
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 10,667
General and administrative
expenses (51,700) -- -- (51,700) -- -- --
---------- --------- -------- ---------- --------- --------- --------
Income from operations 289,495 21,863 5,076 316,434 37,751 14,485 10,667
Interest expense (80,123) (2,588) (165) (A) (86,057) (5,667) (3,279) (1,432)
(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 9,235
Provision for taxes (87,976) (7,240) 3,015 (P) (92,201) (21,176) (4,219) (3,602)
---------- --------- -------- ---------- --------- --------- --------
Net income $ 131,045 $ 12,236 $ (5,497) $ 137,784 $ 55,974 $ 6,904 $ 5,633
========== ========= ======== ========== ========= ========= ========
Earnings per share:
Primary $ 1.51 $ 1.44
========== ==========
Fully diluted $ 1.43 $ 1.36
========== ==========
Primary weighted average 1,073 (Q)
shares 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) $ 1,943,363 $ -- $ 1,943,363
(1,902) (G2)
(5,301) (G3)
4,525 (G4)
Costs and expenses 4,993 (G1) (1,492,505) (296) (P1) (1,492,801)
830 (G2)
7,134 (G3)
(3,260) (G4)
2,038 (G5)
159 (G6)
(1,471) (G7)
4,640 (O1)
(1,021) (C1)
(63) (C2)
1,594 (F1)
(2,769) (F2)
22,253 (F3)
(10,547) (F4)
(51) (F5)
682 (F6)
2,351 (F7)
-------- ----------- ----- ---------
Gross profit 19,821 450,858 (296) 450,562
General and administrative
expenses -- (51,700) -- (51,700)
-------- ----------- ----- ---------
Income from operations 19,821 399,158 (296) 398,862
Interest expense (620) (G4) (139,140) (19,875) (P2) (124,788)
3,465 (G8) 2,002 (P3)
(6,706) (G9) 582 (P4)
(11,225) (O1) 31,643 (P7)
(3,604) (C3)
7,628 (F8)
(31,643) (F13)
Dividends on preferred
securities of SCI
Finance LLC -- (10,781) -- (10,781)
Other income (expense) 2,227 (C4) 13,843 -- 13,843
(6,681) (F9)
20,399 (F10)
Gain on sale of
subsidiaries (57,474) (F11) -- -- --
-------- ----------- -------- --------
Income before income taxes (64,413) 263,080 14,056 277,136
Provision for taxes 495 (G10) (104,526) (4,920) (P5) (109,446)
2,568 (02)
1,613 (C5)
11,996 (F12)
-------- ----------- -------- --------
Net income $(47,741) $ 158,554 $ 9,136 $167,690
======== =========== ======== ========
Earnings per share:
Primary $ 1.55
========
Fully diluted $ 1.47
========
Primary weighted average 191 (O3)
shares 3,287 (G11) 8,395 (P6) 107,846
========
Fully diluted weighted 262 (O3)
average shares 3,287 (G11) 8,395 (P6) 123,932
========
</TABLE>
4
<PAGE> 5
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.
(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. This transaction effectively converts $272,500,000 of U.S. fixed
rate indebtedness into floating rate UK pound
5
<PAGE> 6
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME -- (CONTINUED)
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 $9,580,000 offset in
part by additional costs and expenses of $4,940,000 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.
(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.
(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
6
<PAGE> 7
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME -- (CONTINUED)
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%).
(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 and additional interest on the 5.95%
short-term promissary notes issued for Gibraltar. The Company's weighted
average borrowing rate under such revolving credit facilities was 4.60%
for the year ended December 31, 1994.
(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
approximately $30.00 per share which is the average closing stock price
during the period from June 2, 1995 through June 12, 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.
7
<PAGE> 8
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME -- (CONTINUED)
(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 eliminate interest expense on amounts borrowed under the Company's
revolving credit facilities that the Company intends to repay with
approximately $166,000,000 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 4.60%, which represents the weighted
average borrowing rate under the Company's existing revolving credit
facilities for the year ended December 31, 1994.
(F9) To eliminate OGF/PFG historical interest income earned on OGF/PFG excess
cash ($166,000,000) that the Company intends to use to partially repay
borrowings under the Company's existing revolving credit facilities.
(F10) To eliminate OGF's year ended 1994 charge for the minority interest in
PFG assuming acquisition of 100% of PFG by the Company.
(F11) To eliminate the gain on sale of PG. The Company purchased PG, which was
an equity investee of OGF, in 1994.
(F12) To record the tax effect of the OGF/PFG pro forma adjustments.
(F13) To record interest expense on amounts borrowed under the Company's
French Revolving Credit Agreement ($566,805,000) 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 August 25, 1995 and translated at the weighted
average exchange rate for the year ended December 31, 1994.
1995 PUBLIC OFFERINGS
(P1) To record the amortization expense expected to result from the estimated
costs and expenses associated with the October 1995 notes offerings.
(P2) To record the estimated interest expense on the October 1995 notes
offerings at an assumed annual interest rate of 6.625% as if such notes
had been issued January 1, 1994 (net proceeds of $297,488,000).
(P3) To record the estimated reduction in interest expense resulting from the
assumed partial repayment of $43,517,000 of indebtedness under the
Company's existing revolving credit facilities from the remaining net
proceeds of the October 1995 common stock offering after first applying
such net proceeds to the repayment of indebtedness under the French
Revolving Credit Agreement. 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.
(P4) To record the estimated decrease in net interest expense resulting from a
cross currency hedging transaction as if such transaction had been
entered into on January 1, 1994. This transaction effectively converts
$300,000,000 of fixed rate indebtedness into fixed rate French franc
indebtedness. With this transaction, the Company's net investment in
OGF/PFG will be hedged against currency risk.
(P5) To record the tax effect of the offerings' pro forma adjustments at the
Company's statutory tax rate.
(P6) To record the October 1995 issuance of 8,395,000 shares under the October
1995 common stock offering as if such shares had been issued January 1,
1994 at a stock price of $37.30 per share, (net proceeds of
$312,834,000).
(P7) To record the estimated reduction in interest resulting from the assumed
repayment of $566,805,000 of indebtedness under the Company's French
Revolving Credit Agreement from the net proceeds of the October 1995
common stock and 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.
8
<PAGE> 9
SERVICE CORPORATION INTERNATIONAL
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
HISTORICAL PRO FORMA
----------------------------------- -----------------------------
THE OTHER
COMPANY ACQUIRED ACQUISITION COMBINED
In thousands, except per share amounts HISTORICAL OGF/PFG GIBRALTAR COMPANIES ADJUSTMENTS SUBTOTAL
---------- --------- --------- --------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $1,105,253 $ 367,106 $ 71,860 $ 30,589 $ (1,561) (G1) $1,568,880
(4,367) (G2)
Costs and expenses (776,872) (347,826) (58,920) (26,822) 482 (G1) (1,194,972)
5,814 (G2)
1,019 (G3)
168 (G4)
(1,103) (G5)
266 (O1)
(681) (C1)
(42) (C2)
1,265 (F1)
(2,040) (F2)
16,650 (F3)
(9,096) (F4)
(69) (F5)
483 (F6)
2,352 (F7)
---------- --------- -------- -------- -------- ----------
Gross profit 328,381 19,280 12,940 3,767 9,540 373,908
General and administrative expenses (35,677) -- -- -- -- (35,677)
---------- --------- -------- -------- -------- ----------
Income from operations 292,704 19,280 12,940 3,767 9,540 338,231
Interest expense (85,063) (1,637) (4,487) (477) 2,387 (G6) (121,850)
(5,884) (G7)
(4,618) (O1)
(2,891) (C3)
7,572 (F8)
(26,752) (F9)
Dividends on preferred securities of SCI
Finance LLC (8,086) -- -- -- -- (8,086)
Other income (expense) 6,526 7,009 -- -- 1,703 (C4) 7,120
(8,118) (F10)
---------- --------- -------- -------- -------- ----------
Income before income taxes 206,081 24,652 8,453 3,290 (27,061) 215,415
Provision for income taxes (78,925) (11,468) (3,461) (1,283) 1,697 (O2) (85,120)
1,291 (C5)
1,253 (G8)
5,776 (F11)
---------- --------- -------- -------- -------- ----------
Net income $ 127,156 $ 13,184 $ 4,992 $ 2,007 $(17,044) $ 130,295
========== ========= ======== ======== ======== ==========
Earnings per share:
Primary $ 1.31
==========
Fully diluted $ 1.22
==========
3,287 (G9)
Primary weighted average shares 97,335 105 (O3)
==========
3,287 (G9)
Fully diluted weighted average shares 112,630 105 (O3)
==========
</TABLE>
<TABLE>
<Caption)
--------------------------------
--------------------------------
OFFERINGS COMBINED
In thousands, except per share amounts ADJUSTMENTS TOTAL
----------- -----------
<S> <C> <C>
Revenues $ -- $ 1,568,880
Costs and expenses (222) (P1) (1,195,194)
---------- -----------
Gross profit (222) 373,686
General and administrative expenses -- (35,677)
---------- -----------
Income from operations (222) 338,009
Interest expense (14,906) (P2) (104,086)
1,987 (P3)
437 (P4)
26,752 (P7)
3,494 (P8)
Dividends on preferred securities of SCI
Finance LLC -- (8,086)
Other income (expense) -- 7,120
---------- ----------
Income before income taxes 17,542 232,957
Provision for income taxes (6,199) (P5) (91,319)
---------- ----------
Net income $ 11,343 $ 141,638
========== ==========
Earnings per share:
Primary $ 1.30
==========
Fully diluted $ 1.22
==========
Primary weighted average shares 8,395 (P6) 109,122
==========
Fully diluted weighted average shares 8,395 (P6) 124,417
==========
</TABLE>
See note (F12) to this unaudited pro forma combined statement of income for
the nine months ended September 30, 1995.
9
<PAGE> 10
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 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 $3,971,000 offset in
part by additional costs and expenses of $3,705,000 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 6.09% for the nine months ended
September 30, 1995 under its existing revolving credit facilities.
(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 September 30, 1995 in respect to the
acquisition of the 1995 Other Acquired Companies would have been
outstanding for the nine months ended September 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
nine months ended September 30, 1995 (6.93%).
(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 $1,267,000 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
$294,000 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 $482,000 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 $4,367,000 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
$1,447,000, representing reduced cost accruals for certain cemetery
sales.
(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.
10
<PAGE> 11
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME -- (CONTINUED)
(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 and additional interest on the 5.95%
short-term promissary notes issued for Gibraltar. The Company's weighted
average borrowing rate for such revolving credit facilities was 6.09% for
the nine months ended September 30, 1995.
(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
approximately $30.00 per share which is the average closing stock price
during the period from June 2, 1995 through June 12, 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 eliminate interest expense on amounts borrowed under the Company's
revolving credit facilities that the Company intends to repay with
approximately $166,000,000 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 6.09%, which represents the weighted
average borrowing rate under the Company's existing revolving credit
facilities for the nine months ended September 30, 1995.
(F9) To record interest expense on amounts borrowed under the Company's
French Revolving Credit Agreement ($566,805,000) for the period
January 1, 1995 through August 24, 1995 at 6.97% which represents
the weighted average three month PIBOR borrowing rate plus 25 basis
points for the nine months ended September 30, 1995 applied to
a French franc balance as of August 25, 1995 and translated at the
weighted average exchange rate for the nine months ended
September 30, 1995.
(F10) To eliminate OGF/PFG historical interest income earned on OGF/PFG excess
cash ($166,000,000) that the Company intends to use to partially repay
borrowings under the Company's existing revolving credit facilities.
(F11) To record the tax effect of the OGF/PFG pro forma adjustments.
(F12) The earnings of OGF/PFG's life insurance subsidiary for the nine months
ended September 30, 1995 included realized losses on sales of portfolio
debt securities. The net effect of the debt security sales, after profit
11
<PAGE> 12
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME -- (CONTINUED)
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 October 1995 notes offerings.
(P2) To record the estimated interest expense on the October 1995 notes
offerings at an assumed annual interest rate of 6.625% as if such notes
had been issued January 1, 1994 (net proceeds of $297,488,000).
(P3) To record the estimated reduction in interest expense resulting from the
assumed partial repayment of $43,517,000 of indebtedness under the
Company's existing revolving credit facilities from the assumed net
proceeds of the October 1995 common stock offering after first applying
such net proceeds to the repayment of indebtedness under the French
Revolving Credit Agreement. The reduction was calculated using
a weighted average annual interest rate of 6.09%, which represents
the weighted average borrowing rate under the Company's existing
revolving credit facilities for the nine months ended September 30, 1995.
(P4) To record the estimated decrease in net interest expense resulting from a
cross currency hedging transaction as if such transaction had been
entered into on January 1, 1994. This transaction would effectively
convert $300,000,000 of fixed rate indebtedness into fixed rate French
franc indebtedness. With this transaction, the Company's net investment
in OGF/PFG will be hedged against currency risk.
(P5) To record the tax effect of the offerings' pro forma adjustments at the
Company's statutory tax rate.
(P6) To record the October 1995 issuance of 8,395,000 shares under the October
1995 common stock offering as if such shares had been issued January 1,
1994 at a stock price of $37.30 per share (net proceeds of $312,834,000).
(P7) To record the estimated reduction in interest resulting from the assumed
repayment of $566,805,000 for the period January 1, 1995 through
August 24, 1995 of indebtedness under the Company's French
Revolving Credit Agreement from the net proceeds of the October 1995
common stock and rates offerings. The reduction was calculated using a
weighted average annual interest rate of 6.97% which represents the
weighted average three month PIBOR borrowing rate plus 25 basis points
for the nine months ended September 30, 1995.
(P8) To eliminate interest expense related to the OGF/PFG transaction included
in the Company's historical interest expense related to interim
financing that would not have been recorded by the Company if the net
proceeds from the 1995 public offerings had been available to finance the
OGF/PFG transaction.
12
<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
December 4, 1995 SERVICE CORPORATION INTERNATIONAL
/s/ GEORGE R. CHAMPAGNE
------------------------------------------
George R. Champagne
Senior Vice President
Chief Financial Officer
(Principal Financial Officer)
13
