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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): April 16, 1996
SERVICE CORPORATION INTERNATIONAL
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(Exact name of registrant as specified in its charter)
TEXAS
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(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
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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"). 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 1,099 funeral service
locations, 28 crematoria and a funeral insurance business which primarily sells
insurance policies in connection with OGF/PGF's prearranged funeral business.
The Company made 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
December 31, 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 $577,000,000 consisting of cash and
debt assumed.
On September 5, 1995, the Company acquired the shares of Service Corporation
International (Canada) Limited ("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. On that date SCIC owned
75 funeral service locations and three cemeteries. The total purchase price was
approximately $62,578,000.
On October 11, 1995, the Company purchased Gibraltar Mausoleum Corporation
("Gibraltar"). Gibraltar, a private funeral and cemetery company based in
Indianapolis, owned 23 funeral service locations and 54 cemeteries. The purchase
price of approximately $267,000,000 was financed through the issuance of Company
common stock, short-term promissory notes and borrowings under the Company's
revolving credit facilities.
In addition to the acquisitions discussed above, during 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
141 funeral service locations, 45 cemeteries and 2 crematoria (the "Other
Acquired Companies") in 83 separate transactions for an aggregate purchase price
of approximately $302,000,000 in the form of combinations of cash primarily
generated from borrowings under the Company's existing revolving credit
agreements, Company common stock, issued and assumed debt, and convertible
debentures.
In addition to the acquisitions disclosed above, during October 1995, the
Company completed underwritten public offerings of securities pursuant to the
Company's September 1995 $1 billion shelf registration. 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.
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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, 1995
took place on January 1, 1995 (1,263 funeral service locations, 99 cemeteries
and 30 crematoria acquired in 85 separate transactions and including the
purchase of the 31% ownership interest of SCIC). This information also assumes
that the net proceeds from the Company's October 1995 public offerings of notes
and Company common stock were issued at the beginning of 1995. In addition, the
unaudited pro forma combined financial information assumes a two stage financing
approach for the OGF/PFG acquisition. First, the acquisition is initially
financed with borrowings under the Company's French Revolving Credit Agreement.
Second, the Company applies 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 statement of OGF/PFG for the approximately eight month
period not owned by the Company in 1995 was adjusted to present the historical
income statement 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 French Franc translation rate for the eight
months ended August 31, 1995 was one French franc equals $.2000). The historical
income statements of Gibraltar and the Other Acquired Companies represent
amounts recorded by those businesses for the periods that they were not owned by
the Company during 1995.
This unaudited pro forma information may not be indicative of results that would
have actually resulted if these transactions had occurred on the date indicated
or which may be obtained in the future.
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SERVICE CORPORATION INTERNATIONAL
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 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 $1,652,126 $ 367,106 $ 71,860 $ 42,295 $ (1,561) (G1) $2,127,459
(4,367) (G2)
Costs and expenses (1,186,905) (347,826) (58,920) (36,432) 482 (G1) (1,612,880)
5,814 (G2)
1,019 (G3)
168 (G4)
(1,103) (G5)
982 (O1)
(681) (C1)
(42) (C2)
1,265 (F1)
(2,840) (F2)
16,650 (F3)
(7,277) (F4)
(69) (F5)
483 (F6)
2,352 (F7)
---------- --------- -------- -------- -------- ----------
Gross profit 465,221 19,280 12,940 5,863 11,275 514,579
General and administrative expenses (53,600) -- -- -- -- (53,600)
---------- --------- -------- -------- -------- ----------
Income from operations 411,621 19,280 12,940 5,863 11,275 460,979
Interest expense (118,148) (1,637) (4,487) (642) 2,387 (G6) (156,886)
(5,884) (G7)
(6,404) (O1)
(2,891) (C3)
7,572 (F8)
(26,752) (F9)
Dividends on preferred securities of SCI
Finance LLC (10,781) -- -- -- -- (10,781)
Other income (expense) 11,519 7,009 -- -- 1,703 (C4) 12,113
(8,118) (F10)
---------- --------- -------- -------- -------- ----------
Income before income taxes 294,211 24,652 8,453 5,221 (27,112) 305,425
Provision for income taxes (110,623) (11,468) (3,461) (1,963) 2,039 (O2) (117,762)
1,291 (C5)
1,253 (G8)
5,170 (F11)
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Net income $ 183,588 $ 13,184 $ 4,992 $ 3,258 $(17,359) $ 187,663
========== ========= ======== ======== ======== ==========
Earnings per share:
Primary $ 1.80
==========
Fully diluted $ 1.70
==========
2,548 (G9)
Primary weighted average shares 102,074 244 (O3)
==========
2,548 (G9)
Fully diluted weighted average shares 115,653 244 (O3)
==========
</TABLE>
<TABLE>
<Caption)
--------------------------------
PRO FORMA
--------------------------------
OFFERINGS COMBINED
ADJUSTMENTS TOTAL
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<S> <C> <C>
Revenues $ -- $ 2,127,459
Costs and expenses (222) (P1) (1,613,102)
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Gross profit (222) 514,357
General and administrative expenses -- (53,600)
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Income from operations (222) 460,757
Interest expense (14,906) (P2) (136,672)
1,987 (P3)
437 (P4)
26,752 (P7)
5,944 (P8)
Dividends on preferred securities of SCI
Finance LLC -- (10,781)
Other income (expense) -- 12,113
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Income before income taxes 19,992 325,417
Provision for income taxes (7,075) (P5) (124,837)
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Net income $ 12,917 $ 200,580
========== ==========
Earnings per share:
Primary $ 1.80
==========
Fully diluted $ 1.72
==========
Primary weighted average shares 6,318 (P6) 111,184
==========
Fully diluted weighted average shares 6,318 (P6) 124,763
==========
</TABLE>
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SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
1995 OTHER ACQUIRED COMPANIES
(O1) To record an estimated reduction to historical 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
$3,344,000 offset in part by additional costs and expenses of $2,362,000
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 6.08% for the year ended December 31,
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 1995 with
respect to the acquisition of the 1995 Other Acquired Companies would
have been outstanding for the year ended December 31, 1995 if all of such
acquisitions had occurred as of January 1, 1995.
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.
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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 (such period
included the date of announcement by the Company to acquire Gibraltar).
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 those used by 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 OGF/PFG 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 a United Kingdom subsidiary 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.
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SERVICE CORPORATION INTERNATIONAL
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME -- (CONTINUED)
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, 1995 (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 31, 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, 1995. 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 substantially 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,
1995 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 the French
revolving credit agreement 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 from January 1, 1995.
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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.
April 16, 1996 SERVICE CORPORATION INTERNATIONAL
/s/ GEORGE R. CHAMPAGNE
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George R. Champagne
Senior Vice President
Chief Financial Officer
(Principal Financial Officer)
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