<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-6402-1
-------------------------------
SERVICE CORPORATION INTERNATIONAL
(Exact name of registrant as specified in charter)
TEXAS 74-1488375
(State or other jurisdiction of (I. R. S. employer identification
incorporation or organization) number)
1929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
(Address of principal executive offices) (Zip code)
(713) 522-5141
(Registrant's telephone number, including area code)
-------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to the filing
requirements for the past 90 days.
YES X NO
------- -------
The number of shares outstanding of the registrant's common stock as of August
5, 1996, was 117,859,267 (excluding treasury shares).
<PAGE> 2
SERVICE CORPORATION INTERNATIONAL
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Part I. Financial Information Page
Consolidated Statement of Income (Unaudited) -
Three Months and Six Months Ended June 30, 1996 and 1995 3
Consolidated Balance Sheet -
June 30, 1996 (Unaudited) and December 31, 1995 4
Consolidated Statement of Cash Flows (Unaudited) -
Six Months Ended June 30, 1996 and 1995 5
Consolidated Statement of Stockholders' Equity (Unaudited) -
Six Months Ended June 30, 1996 6
Notes to the Consolidated Financial Statements (Unaudited) 7 - 11
Management's Discussion and Analysis of Results of Operations
and Financial Condition 12 - 20
Part II. Other Information 21
Signature 21
</TABLE>
2
<PAGE> 3
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands, except per share amounts) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $ 564,749 $ 353,649 $ 1,140,202 $ 701,762
Costs and expenses . . . . . . . . . . . . . (420,686) (247,667) (835,971) (479,105)
---------- ---------- ------------ ------------
Gross profit . . . . . . . . . . . . . . . . 144,063 105,982 304,231 222,657
General and administrative expenses . . . . . (14,786) (11,018) (28,541) (23,471)
---------- --------- ------------ ------------
Income from operations . . . . . . . . . . . 129,277 94,964 275,690 199,186
Interest expense . . . . . . . . . . . . . . (34,245) (27,525) (66,931) (52,809)
Dividends on preferred securities of SCI Finance LLC (2,696) (2,696) (5,391) (5,391)
Other income . . . . . . . . . . . . . . . . 5,232 1,757 7,423 3,073
---------- --------- ------------ ------------
(31,709) (28,464) (64,899) (55,127)
----------- --------- ----------- -----------
Income before income taxes . . . . . . . . . 97,568 66,500 210,791 144,059
Provision for income taxes . . . . . . . . . (35,318) (25,860) (76,644) (56,039)
---------- --------- ------------ ------------
Net income . . . . . . . . . . . . . . . . . $ 62,250 $ 40,640 $ 134,147 $ 88,020
========== ========= ============ ============
Earnings per share:
Primary . . . . . . . . . . . . . . . . . $ .52 $ .42 $ 1.12 $ .91
========== ========= ============ ============
Fully diluted . . . . . . . . . . . . . . $ .50 $ .39 $ 1.08 $ .85
========== ========= ============ ============
Dividends per share . . . . . . . . . . . . . $ .12 $ .11 $ .24 $ .22
========== ========= ============ ============
Weighted average number of shares and equivalents 120,556 96,987 120,147 96,729
========== ========= ============ ============
</TABLE>
(See notes to consolidated financial statements)
3
<PAGE> 4
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
1996 December 31,
(Dollars in thousands, except per share amounts) (Unaudited) 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 98,823 $ 29,735
Receivables, net of allowances . . . . . . . . . . . . . . . . . . . . 461,578 446,618
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,247 120,805
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,283 32,371
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 731,931 629,529
---------- ----------
Investments - insurance subsidiary . . . . . . . . . . . . . . . . . . . . 557,591 557,335
Prearranged funeral contracts . . . . . . . . . . . . . . . . . . . . . . 1,996,192 1,816,466
Long-term receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 841,412 759,935
Cemetery property, at cost . . . . . . . . . . . . . . . . . . . . . . . . 1,251,490 1,162,556
Property, plant and equipment, at cost (net) . . . . . . . . . . . . . . . 1,342,610 1,273,722
Deferred charges and other assets . . . . . . . . . . . . . . . . . . . . . 355,943 312,053
Names and reputations (net) . . . . . . . . . . . . . . . . . . . . . . . . 1,230,964 1,152,215
---------- ----------
$8,308,133 $7,663,811
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . $ 343,618 $ 393,191
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,748 68,574
Current maturities of long-term debt . . . . . . . . . . . . . . . . . 42,658 122,237
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 456,024 584,002
---------- ----------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,122,614 1,732,047
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 447,957 437,840
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461,756 400,434
Deferred prearranged funeral contract revenues . . . . . . . . . . . . . 2,553,317 2,361,643
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:
Common stock, $1 per share par value, 200,000,000 shares authorized,
117,659,423 and 117,271,086 , respectively, issued and outstanding . 117,659 117,271
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . 1,340,337 1,331,979
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 624,490 518,562
Foreign translation adjustment and other . . . . . . . . . . . . . . 11,479 7,533
---------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . 2,093,965 1,975,345
---------- ----------
$8,308,133 $7,663,811
========== ==========
</TABLE>
(See notes to consolidated financial statements)
4
<PAGE> 5
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months ended June 30,
(Dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------------- -------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 134,147 $ 88,020
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,491 44,661
Provision for deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 25,165 14,292
(Gain) from dispositions (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,991) (365)
Change in assets and liabilities net of effects from acquisitions:
(Increase) in receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . (51,407) (88,498)
Change in prearranged funeral contracts and associated deferred revenues (47,903) (53,085)
(Increase) in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,385) (1,837)
Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . . . . . (31,406) 43,645
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,445) (9,865)
------------ ----------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . 62,266 36,968
------------ ----------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (66,486) (44,831)
Proceeds from sales of property, plant and equipment . . . . . . . . . . . . . . . . 9,681 2,959
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . (175,466) (169,980)
Loans issued by finance subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . (31,743) (12,740)
Principal payments received on loans by finance subsidiary . . . . . . . . . . . . . 12,736 10,077
Change in investments and other . . . . . . . . . . . . . . . . . . . . . . . . . . (32,637) (2,134)
------------ ----------
Net cash (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . (283,915) (216,649)
------------ ----------
Cash flows from financing activities:
Increase (decrease) in borrowings under revolving credit agreements . . . . . . . . 112,878 (51,129)
Long-term debt issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 300,000
Payments of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (98,961) (268,590)
Common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 19,266
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27,003) (20,600)
Exercise of stock options and other . . . . . . . . . . . . . . . . . . . . . . . . 3,823 2,644
------------ ----------
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . 290,737 (18,409)
------------ ----------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . 69,088 (198,090)
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . 29,735 218,341
------------ ----------
Cash and cash equivalents at June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . $ 98,823 $ 20,251
============ ==========
Cash used for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,310 $ 55,580
============ ==========
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,811 $ 32,723
============ ==========
Non cash transactions:
Common stock issued under restricted stock plans . . . . . . . . . . . . . . . . . . $ 1,105 $ 1,647
============ ==========
Common stock issued in acquisitions . . . . . . . . . . . . . . . . . . . . . . . . $ 3,237 $ 5,405
============ ==========
Debt issued in acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,000 $ 24,739
============ ==========
Debenture conversions to common stock . . . . . . . . . . . . . . . . . . . . . . . $ 590 $ 5,346
============ ==========
</TABLE>
(See notes to consolidated financial statements)
5
<PAGE> 6
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Foreign
Capital in translation
Common excess of Retained adjustment
(Dollars in thousands, except per share amounts) stock par value earnings and other
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 . . . . . . . . . . . $ 117,271 $ 1,331,979 $ 518,562 $ 7,533
Net income . . . . . . . . . . . . . . . . . . . - - 134,147 -
Common stock issued:
Stock option exercises and stock grants . . . 293 4,626 - -
Acquisitions . . . . . . . . . . . . . . . . 71 3,166 - -
Debenture conversion . . . . . . . . . . . . 24 566 - -
Dividends on common stock ($.24 per share) . . . - - (28,219) -
Foreign translation adjustment and other . . . . - - - 3,946
---------- ----------- ----------- ---------
Balance at June 30, 1996 . . . . . . . . . . . . . $ 117,659 $ 1,340,337 $ 624,490 $ 11,479
========== =========== =========== =========
</TABLE>
(See notes to consolidated financial statements)
6
<PAGE> 7
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. GENERAL
Nature of operations
The Company is the largest provider of death care services in the world. At
June 30, 1996, the Company operated 2,832 funeral service locations, 331
cemeteries and 146 crematoria located in North America, Europe and Australia.
The funeral service locations and cemetery operations consist of the
Company's funeral homes, cemeteries, crematoria and related businesses.
Company personnel at the funeral service locations provide all professional
services relating to funerals, including the use of funeral facilities and
motor vehicles. Funeral related merchandise is sold at funeral service
locations and certain locations contain crematoria. The Company markets
prearranged funeral services whereby a customer contractually agrees to the
terms of a funeral to be performed in the future. The Company's cemeteries
provide cemetery interment rights (including mausoleum spaces and lawn crypts)
and certain merchandise including stone and bronze memorials and burial vaults.
Company personnel at cemeteries perform interment services and provide
management and maintenance of cemetery grounds. Certain cemeteries also
contain crematoria.
The Company's financial services operations consist of a finance
subsidiary, Provident Services, Inc. ("Provident"). Provident provides
capital financing to independent funeral home and cemetery operators.
Basis of Presentation
The consolidated financial statements for the three and six months ended June
30, 1996 and 1995 include the accounts of Service Corporation International and
all majority-owned subsidiaries (the "Company") and are unaudited but include
all adjustments, consisting of normal recurring accruals and any other
adjustments which management considers necessary for a fair presentation of the
results for these periods. These financial statements have been prepared
consistent with the accounting policies described in the annual report on Form
10-K filed with the Securities and Exchange Commission (the "Commission") for
the year ended December 31, 1995 and should be read in conjunction therewith.
Certain reclassifications have been made to the prior period to conform to the
current period presentation with no effect on previously reported net income.
2. NAMES AND REPUTATIONS
The excess of purchase price over the fair value of identifiable net assets
acquired in transactions accounted for as a purchase are included in "Names and
reputations" and generally amortized on a straight line basis over 40 years
which, in the opinion of management, is not necessarily the maximum period
benefited. Fair values determined at the date of acquisition are determined by
management or independent appraisals. Many of the Company's acquired funeral
service locations have been providing high quality service to client families
for many years. Such loyalty often forms the basic valuation of the funeral
businesses. Additionally, the death care industry has historically exhibited
stable cash flows as well as a low failure rate. The Company monitors the
recoverability of names and reputations based on projections of future
undiscounted cash flows of the acquired businesses.
3. ACQUISITIONS
The Company acquired 120 funeral service locations, 20 cemeteries and one
crematory during the six month period ended June 30, 1996 (92 funeral service
locations, 26 cemeteries and 2 crematoria during the six months ended June 30,
1995). The consideration for these acquisitions consisted of combinations of
cash, common stock of the Company, issued or assumed debt and the retirement of
loans receivable issued by Provident. The operating results of all of these
acquisitions have been included since their respective dates of acquisitions.
7
<PAGE> 8
The effect of acquisitions on the consolidated balance sheet at June
30, was as follows:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,713 $ 19,939
Prearranged funeral contracts . . . . . . . . . . . . . . . . . . . 19,876 16,955
Long-term receivables . . . . . . . . . . . . . . . . . . . . . . . 18,770 42,230
Cemetery property . . . . . . . . . . . . . . . . . . . . . . . . . 84,763 64,827
Property, plant and equipment . . . . . . . . . . . . . . . . . . . 55,048 59,274
Deferred charges and other assets . . . . . . . . . . . . . . . . . (183) 621
Names and reputations . . . . . . . . . . . . . . . . . . . . . . . 68,677 84,525
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . (12,934) (13,738)
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . (10,785) (19,168)
Deferred income taxes and other liabilities . . . . . . . . . . . . (45,145) (55,019)
Deferred prearranged funeral contract revenues . . . . . . . . . . (20,097) (25,061)
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . (3,237) (5,405)
--------- ---------
Cash used for acquisitions . . . . . . . . . . . . . . . . . $ 175,466 $ 169,980
========= =========
</TABLE>
During the year ended December 31, 1995 and the six months ended June 30,
1996 the Company acquired 1,383 funeral service locations, 119 cemeteries and
31 crematoria. Included in the above acquisitions, in August 1995, the Company
acquired two French companies, Omnium de Gestion et de Financement S.A. and
Pompes Funebres Generales S.A. ("OGF/PFG"), which when combined operated 1,099
funeral service locations, 28 crematoria and Auxia which primarily sells
insurance policies in connection with OGF/PFG's prearranged funeral business.
In October 1995, the Company purchased Gibraltar Mausoleum Corporation which
operated 23 funeral service locations and 54 cemeteries. Additionally, in
September 1995, the Company acquired the shares of Service Corporation
International (Canada) Limited ("SCIC") not already owned by the Company, which
made SCIC (formerly an approximate 70% owned subsidiary) a wholly owned
subsidiary of the Company. The following unaudited condensed pro forma
information assumes that the acquisition by the Company of all of the above
operations took place on January 1, 1995. 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 and such proceeds
were first applied toward the purchase price of the French acquisition, with
the excess net proceeds used to repay amounts outstanding under the Company's
existing revolving credit facilities. 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.
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,161,066 $ 1,091,987
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134,609 99,697
Primary earnings per common share . . . . . . . . . . . . . . . . . 1.12 .92
</TABLE>
4. PREARRANGED FUNERAL ACTIVITIES
The company sells price guaranteed prearranged funeral contracts through
various programs providing for future funeral services at prices prevailing
when the agreement is signed. Payments under these contracts are generally
placed in trust (pursuant to state law) or are used to pay premiums on life
insurance policies issued by third party insurers in North America, the United
Kingdom and Australia or, in France, by the Company's insurance subsidiary,
Auxia. Unperformed price guaranteed prearranged funeral contracts are included
in the consolidated balance sheet as "prearranged funeral contracts" or, in the
case of contracts funded by Auxia, "investments-insurance subsidiary". A
corresponding credit is recorded to "deferred prearranged funeral contract
revenues". Allowances for customer cancellations are provided at the date of
sale. The Company defers accruals of trust earnings and insurance benefits as
they are earned until the performance of the funeral service. Upon performance
of the funeral service, the Company recognizes the fixed contract price as well
as total accumulated trust earnings and increasing insurance benefits as funeral
revenues.
8
<PAGE> 9
The recognition in future funeral revenues is estimated to occur in the
following years based on actuarial assumptions as follows:
<TABLE>
<S> <C>
1996 (remaining six months) . . . . . . . . . . . . . $ 118,519
1997 . . . . . . . . . . . . . . . . . . . . . . . . 238,605
1998 . . . . . . . . . . . . . . . . . . . . . . . . 220,948
1999 . . . . . . . . . . . . . . . . . . . . . . . . 204,747
2000 . . . . . . . . . . . . . . . . . . . . . . . . 189,176
2001 and through 2005 . . . . . . . . . . . . . . . . 668,288
2006 and thereafter . . . . . . . . . . . . . . . . . 913,034
------------
$ 2,553,317
============
5. DEBT
Debt at June 30, 1996, was as follows:
Bank revolving credit agreements and commercial paper . . $ 332,893
6.375% notes due in 2000 . . . . . . . . . . . . . . . . 150,000
6.75% notes due in 2001 . . . . . . . . . . . . . . . . . 150,000
8.72% amortizing notes due in 2002 . . . . . . . . . . . 177,320
8.375% notes due in 2004 . . . . . . . . . . . . . . . . 200,000
7.20% notes due in 2006 . . . . . . . . . . . . . . . . . 150,000
6.875% notes due in 2007 . . . . . . . . . . . . . . . . 150,000
6.95% amortizing notes due in 2010 . . . . . . . . . . . 62,866
7.875% debentures due in 2013 . . . . . . . . . . . . . . 150,000
7.0% notes due in 2015 . . . . . . . . . . . . . . . . . 300,000
Medium term notes . . . . . . . . . . . . . . . . . . . . 186,040
Convertible debentures issued in connection with various
acquisitions . . . . . . . . . . . . . . . . . . . . 31,200
Mortgage notes and other debt . . . . . . . . . . . . . . 147,434
Deferred loan costs . . . . . . . . . . . . . . . . . . . (22,481)
------------
Total debt . . . . . . . . . . . . . . . . . . . . . . . 2,165,272
Less current maturities . . . . . . . . . . . . . . . . . (42,658)
------------
Total long-term debt . . . . . . . . . . . . . . . . . . $ 2,122,614
============
</TABLE>
The Company's primary revolving credit agreements provide for borrowings
up to $800,000. The 364-day portion allows for borrowings up to $450,000, and
is used primarily to support commercial paper. The agreement expires June 27,
1997, but has provisions to be extended for 364-day terms. At the end of any
term, the outstanding balance may be converted into a two year term loan at the
Company's option. Interest rates are based on various indices as determined by
the Company. In addition, a facility fee ranging from .06% to .15% is paid
quarterly on the total commitment amount. At June 30, 1996, there was $200,000
of commercial paper outstanding backed by this agreement at a weighted average
interest rate of 5.52%. In addition, the Company has a multi-currency
revolving credit agreement which allows for borrowings of up to $350,000,
including up to $75,000 each in Pound Sterling, Canadian Dollar and Australian
Dollar. This agreement expires June 30, 2000, but has provisions to extend the
termination date each year for 364-day periods. Interest rates are based on
various indices as determined by the Company. In addition, a facility fee
ranging from .085% to .15% is paid quarterly on the total commitment amount.
At June 30, 1996, there was $123,260 outstanding under this agreement at a
weighted average interest rate of 6.25%. These credit agreements disclosed
above contain financial compliance provisions that contain certain restrictions
on levels of net worth, debt, equity, liens, letters of credit and guarantees.
The Company's outstanding commercial paper and other borrowings under its
various credit facilities at June 30, 1996 are classified as long-term debt.
It is the Company's intent to refinance such borrowings through the use of its
credit agreements or other long-term notes issued under the Company's shelf
registration.
9
<PAGE> 10
In August 1995, the Company entered into a French revolving credit
agreement with a 364-day term which allows for borrowings, in French francs, up
to $150,000. Borrowings under the facility were used to provide short term
financing for the purchase of OGF/PFG. In July 1996, the facility was extended
to February 1997 and the borrowing limit was reduced to $50,000. Interest
rates are based on various indices as determined by the Company. In addition,
a facility fee of .075% is paid quarterly on the total commitment amount. At
June 30, 1996, there were no borrowings outstanding under this agreement.
In May 1996, the Company issued $300,000 of notes which were sold through
an underwritten public offering pursuant to the Company's $1,000,000 shelf
registration that became effective in September 1995. These notes were issued
in two tranches of $150,000 each with maturities in June 2001 and 2006 and
interest rates of 6.75% and 7.20%, respectively. The proceeds of this offering
were primarily used to repay existing debt outstanding under the Company's
French revolving credit agreement as well as a portion of the indebtedness
under commercial paper backed by the Company's primary revolving agreement.
During the three months ended June 30, 1996, pursuant to the Company's
shelf registration as filed with the Commission, the Company guaranteed the
following promissory notes issued through subsidiaries in connection with
various acquisitions of operations:
<TABLE>
<CAPTION>
SUBSIDIARY AMOUNT
---------- ------
<S> <C>
SCI California Funeral Services, Inc. . . . . . . . . . . $ 662
SCI Funeral Services of New York, Inc. . . . . . . . . . 1,500
SCI North Carolina Funeral Services, Inc. . . . . . . . . 604
</TABLE>
6. DERIVATIVES
The Company enters into derivatives in the form of interest rate swaps and
cross-currency interest rate swaps in order to manage its mix of fixed and
floating rate debt and to substantially hedge the Company's net investments in
foreign assets. The Company has procedures in place to monitor and control the
use of derivatives and enters into transactions only with a limited group of
credit worthy financial institutions. The Company does not engage in
derivative transactions for speculative or trading purposes, nor is it a party
to leveraged derivatives. In general, cross-currency swaps are entered into
concurrently with significant foreign acquisitions and convert U.S. dollar debt
into the respective foreign currency of the acquisitions. Such cross-currency
swaps are used in combination with local currency borrowings to substantially
hedge the Company's net investment in foreign operations. The cross-currency
swaps generally include interest rate provisions to enable the Company to
additionally hedge a portion of the earnings of its foreign operations.
Accordingly, movements in currency rates that impact the swap are generally
offset by a corresponding movement in the value of the underlying assets being
hedged. Similarly, currency movements that impact foreign interest expense due
under the cross-currency interest rate swaps are generally offset by a
corresponding movement in the earnings of the foreign operation.
In January 1996, the Company entered into cross-currency and interest rate
swaps that convert approximately $200 million of US denominated fixed rate debt
into French Franc denominated fixed rate debt in order to more fully hedge the
Company's net investment in France on an after-tax basis. Additionally, in
March 1996, as part of the Company's ongoing interest rate management, the
Company entered into interest rate swaps that convert the interest rate indices
on approximately $200 million of debt previously swapped into French Francs
from French interest rates to German interest rates, payable in French Francs.
In May 1996, the Company used approximately $100,000 to repay amounts
outstanding under the French revolving credit agreement. Therefore, the Company
entered into a cross-currency interest rate swap that converted $100,000 of the
7.20% notes proceeds (see footnote five above) into French Franc denominated
floating rate debt in order to maintain the Company's hedge of its net
investment in France. Additionally, in May 1996, as part of the Company's
ongoing interest rate management, the Company entered into interest rate swaps
that convert the interest paid on $100,000 of the 6.75% notes proceeds (see
footnote five above) into U.S. dollar floating rates.
The net fair value of the Company's various swap agreements at June 30,
1996, was obtained from counterparties to the agreements. The counterparties
estimate the Company would pay $12,998 to terminate the swap agreements based
upon the existing terms and current market conditions.
10
<PAGE> 11
7. RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
------------------------------
<S> <C>
3.26 2.94
</TABLE>
For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes, less undistributed income of equity
investees which are less than 50% owned, plus the minority interest of
majority-owned subsidiaries with fixed charges and plus fixed charges
(excluding capitalized interest and dividends on preferred securities of SCI
Finance LLC). Fixed charges consist of interest expense, whether capitalized
or expensed, amortization of debt costs, dividends on preferred securities of
SCI Finance LLC and one-third of rental expense which the Company considers
representative of the interest factor in the rentals.
8. SCI INTERNATIONAL LIMITED
SCI International Limited ("International") is a wholly owned subsidiary of the
Company. International, through wholly owned subsidiaries, owns the Company's
foreign operations.
Set forth below is certain June 30, summary financial information for
International:
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Revenues . . . . . . . . . . $ 444,652 $ 109,377
========== ==========
Gross profit . . . . . . . . $ 73,386 $ 32,666
========== ==========
Net income . . . . . . . . . $ 25,421 $ 5,009
========== ==========
Current assets . . . . . . . $ 215,634 $ 40,783
Non-current assets . . . . . 2,279,800 921,550
---------- ----------
Total assets . . . . . . . . $2,495,434 $ 962,333
========== ==========
Current liabilities . . . . . $ 274,661 $ 70,610
Non-current liabilities . . . 1,622,975 816,900
----------- ----------
Total liabilities . . . . . . $1,897,636 $ 887,510
========== ==========
Stockholder's equity . . . . $ 597,798 $ 74,823
========== ==========
</TABLE>
9. SUBSEQUENT EVENTS
On June 13, 1996, the Company's Board of Directors approved a two-for-one split
of its common stock to be effected as a stock dividend. On August 8, 1996, the
Company's shareholders approved an amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of common stock from
200,000,000 to 500,000,000 shares. The stock dividend is payable on August
30, 1996, to shareholders of record as of August 16, 1996. The stock related
data in the consolidated financial statements has not been restated for this
subsequent event.
On August 8, 1996, the Company's Board of Directors authorized the purchase of
up to 2,500,000 shares of Company common stock (or 5,000,000 shares after the
two-for-one stock split discussed above).
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE SALES PRICES)
OVERVIEW:
The majority of the Company's funeral service locations and cemeteries are
managed in groups called clusters. Clusters are established primarily in
metropolitan areas to take advantage of operational efficiencies, particularly
the sharing of operating expenses such as service personnel, vehicles,
preparation services, clerical staff and certain building facility costs.
Personnel costs, the largest operating expense for the Company, is the cost
component most beneficially affected by clustering. The sharing of employees,
as well as the other costs mentioned, allow the Company to more efficiently
utilize its operating facilities due to the traditional fluctuation in the
number of funeral services and cemetery interments performed in a given period.
The Company's acquisitions are primarily located within existing cluster areas
or create new cluster area opportunities. The Company has successfully
implemented the cluster strategy in its North American, United Kingdom and
Australian operations and is proceeding with implementation in its French
operations which were acquired in August 1995. The Company has approximately
276 clusters throughout North America, the United Kingdom and Australia, which
range in size from two operations to 66 operations. There may be more than one
cluster in a given metropolitan area, depending upon the level and degree of
shared costs.
SIX MONTHS ENDED JUNE 30, 1996
COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
RESULTS OF OPERATIONS:
Segment information for the Company's three lines of business was as follows:
<TABLE>
<CAPTION>
Percentage
Six Months Ended June 30, Increase Increase
1996 1995 (Decrease) (Decrease)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Funeral . . . . . . . . . . . $ 830,000 $ 479,969 $ 350,031 72.9%
Cemetery . . . . . . . . . . . 299,616 211,797 87,819 41.5
Financial services . . . . . . 10,586 9,996 590 5.9
---------- ---------- ----------
1,140,202 701,762 438,440 62.5
Costs and expenses:
Funeral . . . . . . . . . . . 636,887 335,878 301,009 89.6
Cemetery . . . . . . . . . . . 193,285 136,851 56,434 41.2
Financial services . . . . . . 5,799 6,376 (577) (9.0)
---------- ---------- ----------
835,971 479,105 356,866 74.5
Gross profit and margin percentage:
Funeral . . . . . . . . . . . 193,113 23.3% 144,091 30.0% 49,022 34.0
Cemetery . . . . . . . . . . . 106,331 35.5 74,946 35.4 31,385 41.9
Financial services . . . . . . 4,787 45.2 3,620 36.2 1,167 32.2
---------- ---------- ----------
$ 304,231 26.7% $ 222,657 31.7% $ 81,574 36.6%
========== ========== ==========
</TABLE>
12
<PAGE> 13
Funeral
Funeral revenues were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, Percentage
1996 1995 Increase Increase
------------------------------------------------------------
<S> <C> <C> <C> <C>
Existing clusters:
United States . . . . . . . . . . . . . $ 397,533 $ 361,132 $ 36,401 10.1%
Other European* . . . . . . . . . . . . 73,299 66,290 7,009 10.6
Other Foreign** . . . . . . . . . . . . 48,113 41,632 6,481 15.6
----------- ---------- ---------- ----
518,945 469,054 49,891 10.6
----------- ---------- ---------- ----
New clusters:***
United States . . . . . . . . . . . . . 10,513 3,272 7,241
Other European . . . . . . . . . . . . . 13,209 400 12,809
Other Foreign . . . . . . . . . . . . . 7,025 408 6,617
France . . . . . . . . . . . . . . . . . 272,433 - 272,433
----------- ---------- ----------
303,180 4,080 299,100
----------- ---------- ----------
Non-cluster and disposed operations . . . . . 7,875 6,835 1,040
----------- ---------- ----------
Total funeral revenues . . . . . . . . . $ 830,000 $ 479,969 $ 350,031 72.9%
=========== ========== ==========
</TABLE>
The $49,891 increase in revenues from existing clusters was the result of a
5.5% increase in the number of funeral services performed (168,467 compared to
159,682) and a 4.9% higher average sales price ($3,080 compared to $2,937).
Acquisitions since the beginning of 1995, included in existing clusters,
accounted for $39,154 of the existing cluster revenue increase. The remaining
increase of $10,737 was contributed by existing cluster locations acquired
before 1995. The increase in Other European new cluster revenue is primarily
due to new European operations added by the OGF/PFG acquisition (see note three
to the consolidated financial statements). Future growth through acquisitions
is considered likely.
During the six months ended June 30, 1996, the Company sold $269,013 of
prearranged funeral services compared to $171,474 for the same period in 1995.
These prearranged funeral services are deferred and will be reflected in
funeral revenues in the periods that the funeral services are performed. The
Company's emphasis on sales of prearranged funerals is expected to continue.
Funeral costs and expenses were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, Percentage
1996 1995 Increase Increase
------------------------------------------------------------
<S> <C> <C> <C> <C>
Existing clusters:
United States . . . . . . . . . . . . . $ 253,117 $ 234,928 $ 18,189 7.7%
Other European* . . . . . . . . . . . . 52,632 49,087 3,545 7.2
Other Foreign** . . . . . . . . . . . . 31,620 27,734 3,886 14.0
----------- ---------- ---------- ----
337,369 311,749 25,620 8.2
----------- ---------- ---------- ----
New clusters:***
United States . . . . . . . . . . . . . 7,679 2,428 5,251
Other European . . . . . . . . . . . . . 11,530 200 11,330
Other Foreign . . . . . . . . . . . . . 4,750 296 4,454
France . . . . . . . . . . . . . . . . . 237,130 - 237,130
----------- ---------- ----------
261,089 2,924 258,165
----------- ---------- ----------
Non-cluster and disposed operations . . . . . 8,140 6,380 1,760
Administrative overhead . . . . . . . . . . . 30,289 14,825 15,464 104.3
----------- ---------- ----------
Total funeral costs and expenses . . . . $ 636,887 $ 335,878 $ 301,009 89.6%
=========== ========== ==========
</TABLE>
- -----------------------------------------------
* Other European primarily includes United Kingdom operations.
** Other Foreign primarily includes Australian and Canadian operations.
*** Represents new geographic cluster areas entered into since the beginning of
1995 for the period that those businesses were owned by the Company.
13
<PAGE> 14
The gross profit margin for existing clusters increased to 35.0% from 33.5%
last year. This gross profit margin increase reflects a period to period
increase in the gross profit margin contributed by existing cluster locations
acquired before 1995. Locations acquired since the beginning of 1995, included
in existing clusters, accounted for $27,220 of the existing cluster cost
increase, while costs from existing cluster locations acquired before 1995
decreased $1,600 in 1996. Typically, acquisitions will temporarily exhibit
slightly lower gross profit margins than those experienced by the Company's
existing locations at least until such time as these locations are assimilated
into the Company's cluster management strategy.
The overall funeral gross profit margin declined during the first six
months of 1996 (23.3% compared to 30.0% for the comparable period last year).
Contributing to this decline were the Company's French operations which were
acquired in August 1995. The French gross profit margin of 13.0% (before
administrative overhead) is consistent with the Company's expectations for
these operations which have historically produced lower gross profit margins
than the Company's other operations.
Administrative overhead costs increased due primarily to the French
operations. When administrative overhead costs are expressed as a percentage
of total funeral revenues, they increased to 3.6% compared to 3.1% last year.
Cemetery
Cemetery revenues were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, Percentage
1996 1995 Increase Increase
------------------------------------------------------------
<S> <C> <C> <C> <C>
Existing clusters:
United States . . . . . . . . . . . . . $ 251,135 $ 183,612 $ 67,523 36.8%
Other European* . . . . . . . . . . . . 7,090 5,903 1,187 20.1
Other Foreign** . . . . . . . . . . . . 22,185 18,612 3,573 19.2
----------- ---------- ---------- -----
280,410 208,127 72,283 34.7
----------- ---------- ---------- -----
New clusters:***
United States . . . . . . . . . . . . . 17,130 2,138 14,992
Other European . . . . . . . . . . . . . 353 67 286
Other Foreign . . . . . . . . . . . . . - - -
----------- ---------- ----------
17,483 2,205 15,278
----------- ---------- ----------
Non-cluster and disposed operations . . . . . 1,723 1,465 258
----------- ---------- ----------
Total cemetery revenues . . . . . . . . $ 299,616 $ 211,797 $ 87,819 41.5%
=========== ========== ==========
</TABLE>
Revenues from the existing clusters increased $67,523 due primarily to
increased preneed sales for property and merchandise as well as higher average
sales prices for these items. Additionally, increased amounts of earnings and
realization of portfolio gains from cemetery trust funds contributed to the
increase. Included in the existing cluster increase were $51,588 in increased
revenues from cemeteries acquired since the beginning of 1995. The Company
plans to continue to emphasize the selling of preneed cemetery property and
merchandise by maintaining an active and well-trained sales force. Future
growth through acquisitions is considered likely.
- -----------------------------------------------
* Other European primarily includes United Kingdom operations.
** Other Foreign primarily includes Australian and Canadian operations.
*** Represents new geographic cluster areas entered into since the beginning of
1995 for the period that those businesses were owned by the Company.
14
<PAGE> 15
Cemetery costs and expenses were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, Percentage
1996 1995 Increase Increase
------------------------------------------------------------
<S> <C> <C> <C> <C>
Existing clusters:
United States . . . . . . . . . . . . . $ 150,418 $ 112,262 $ 38,156 34.0%
Other European* . . . . . . . . . . . . 4,170 3,093 1,077 34.8
Other Foreign** . . . . . . . . . . . . 11,970 9,932 2,038 20.5
----------- ----------- ---------- ----
166,558 125,287 41,271 32.9
----------- ----------- ---------- ----
New clusters:***
United States . . . . . . . . . . . . . 10,527 1,601 8,926
Other European . . . . . . . . . . . . . 287 54 233
Other Foreign . . . . . . . . . . . . . - - -
----------- ----------- ----------
10,814 1,655 9,159
----------- ----------- ----------
Non-cluster and disposed operations . . . . . 2,746 1,253 1,493
Administrative overhead . . . . . . . . . . . 13,167 8,656 4,511 52.1
----------- ----------- ----------
Total cemetery costs and expenses . . . $ 193,285 $ 136,851 $ 56,434 41.2%
=========== =========== ==========
</TABLE>
Costs and expenses from existing clusters increased $41,271 due primarily
to an increase of $30,388 at cemeteries acquired since the beginning of 1995,
while costs from existing cluster cemeteries acquired before 1995 increased
$10,883. The gross profit margin for existing clusters increased to 40.6% from
39.8% during the first six months of 1995. The overall cemetery gross profit
margin increased slightly from 35.4% during the first six months of 1995 to
35.5% in the comparable period in 1996.
Financial Services
The Company's wholly owned finance subsidiary, Provident Services, Inc.
(Provident) reported a gross profit increase of $1,167 during the six months
ended June 30, 1996, compared with the same period in 1995. Provident's average
outstanding loan portfolio during the current six month period increased to
$225,443 compared to $203,589 in the same period in 1995 while the average
interest rate spread increased slightly to 3.75% compared to 3.69%,
respectively.
Other Income and Expenses
Expressed as a percentage of revenues, general and administrative expenses
declined to 2.5% in the first six months of 1996 compared to 3.3% in the first
six months of 1995. These expenses increased $5,070 or 21.6% period to period
primarily from corporate personnel and travel costs.
Interest expense, which excludes the amount incurred through financial
service operations, increased $14,122 or 26.7% period to period. The 1996
increase in interest expense is the result of an increase of approximately
$400,000 in the Company's average debt (excluding debt related to financial
service operations) outstanding during the six months ended June 30, 1996
compared to the same period in 1995. The 1996 increase in the Company's average
debt is due primarily to additional debt associated with acquisitions. The
increased interest associated with the higher debt level was slightly offset by
a lower average interest rate in 1996.
The provision for income taxes reflected a 36.4% effective tax rate for the
year to date period ended June 30, 1996, as compared to a 38.9% effective tax
rate for the comparable period last year. The decrease in the effective tax
rate is due primarily to lower taxes from international operations.
- ------------------------------------------
* Other European primarily includes United Kingdom operations.
** Other Foreign primarily includes Australian and Canadian operations.
*** Represents new geographic cluster areas entered into since the beginning of
1995 for the period that those businesses were owned by the Company.
15
<PAGE> 16
THREE MONTHS ENDED JUNE 30, 1996
COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
RESULTS OF OPERATIONS:
Segment information for the Company's three lines of business was as follows:
<TABLE>
<CAPTION>
Percentage
Three Months Ended June 30, Increase Increase
1996 1995 (Decrease) (Decrease)
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Funeral . . . . . . . . . . . $ 405,300 $ 237,213 $ 168,087 70.9%
Cemetery . . . . . . . . . . . 154,054 111,400 42,654 38.3
Financial services . . . . . . 5,395 5,036 359 7.1
--------- ---------- ----------
564,749 353,649 211,100 59.7
Costs and expenses:
Funeral . . . . . . . . . . . 318,346 171,407 146,939 85.7
Cemetery . . . . . . . . . . . 99,472 73,089 26,383 36.1
Financial services . . . . . . 2,868 3,171 (303) (9.6)
--------- ---------- ----------
420,686 247,667 173,019 69.9
Gross profit and margin percentage:
Funeral . . . . . . . . . . . 86,954 21.5% 65,806 27.7% 21,148 32.1
Cemetery . . . . . . . . . . . 54,582 35.4 38,311 34.4 16,271 42.5
Financial services . . . . . . 2,527 46.8 1,865 37.0 662 35.5
--------- ---------- ----------
$ 144,063 25.5% $ 105,982 30.0% $ 38,081 35.9%
========= ========== ==========
</TABLE>
Funeral
Funeral revenues were as follows:
<TABLE>
<CAPTION>
Percentage
Three Months Ended June 30, Increase Increase
1996 1995 (Decrease) (Decrease)
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Existing clusters:
United States . . . . . . . . . . . . . $ 194,331 $ 179,420 $ 14,911 8.3%
Other European* . . . . . . . . . . . . 32,508 32,607 (99) (0.3)
Other Foreign** . . . . . . . . . . . . 25,089 21,852 3,237 14.8
----------- ---------- ---------- ----
251,928 233,879 18,049 7.7
----------- ---------- ---------- ----
New clusters:***
United States . . . . . . . . . . . . . 3,992 - 3,992
Other European . . . . . . . . . . . . . 6,436 - 6,436
Other Foreign . . . . . . . . . . . . . 3,766 198 3,568
France . . . . . . . . . . . . . . . . . 135,708 - 135,708
----------- ---------- ----------
149,902 198 149,704
----------- ---------- ----------
Non-cluster and disposed operations . . . . . 3,470 3,136 334
----------- ---------- ----------
Total funeral revenues . . . . . . . . . $ 405,300 $ 237,213 $ 168,087 70.9%
=========== ========== ==========
</TABLE>
- ------------------------------------------------------------
* Other European primarily includes United Kingdom operations.
** Other Foreign primarily includes Australian and Canadian operations.
*** Represents new geographic cluster areas entered into since April 1, 1995
for the period that those businesses were owned by the Company.
16
<PAGE> 17
The $18,049 increase in revenues from existing clusters was the result of a
2.9% increase in the number of funeral services performed (80,534 compared to
78,260) and a 4.7% higher average sales price ($3,128 compared to $2,988).
Acquisitions since April 1, 1995, included in existing clusters, accounted for
$18,031 of the existing cluster revenue increase. The remaining increase of
$18 was derived from locations acquired before April 1, 1995.
During the three months ended June 30, 1996, the Company sold $142,373 of
prearranged funeral services compared to $90,994 for the same quarter in 1995.
Funeral costs and expenses were as follows:
<TABLE>
<CAPTION>
Percentage
Three Months Ended June 30, Increase Increase
1996 1995 (Decrease) (Decrease)
----------------------------------------------------------
<S> <C> <C> <C> <C>
Existing clusters:
United States . . . . . . . . . . . . . $ 132,396 $ 121,682 $ 10,714 8.8%
Other European* . . . . . . . . . . . . 23,803 24,762 (959) (3.9)
Other Foreign** . . . . . . . . . . . . 16,537 14,710 1,827 12.4
---------- --------- --------- -----
172,736 161,154 11,582 7.2
---------- --------- --------- -----
New clusters:***
United States . . . . . . . . . . . . . 3,067 - 3,067
Other European . . . . . . . . . . . . . 5,835 - 5,835
Other Foreign . . . . . . . . . . . . . 2,302 140 2,162
France . . . . . . . . . . . . . . . . . 117,947 - 117,947
---------- --------- ---------
129,151 140 129,011
---------- --------- ---------
Non-cluster and disposed operations . . . . . (528) 2,979 (3,507)
Administrative overhead . . . . . . . . . . . 16,987 7,134 9,853 138.1
---------- --------- ---------
Total funeral costs and expenses . . . . $ 318,346 $ 171,407 $ 146,939 85.7%
========== ========= =========
</TABLE>
The gross profit margin for existing clusters increased to 31.4% from 31.1%
during the second quarter of 1995. Acquisitions since April 1, 1995, included
in existing clusters, accounted for $12,757 of the existing cluster cost
increase, while existing cluster locations acquired before April 1, 1995, had a
cost decrease of $1,175.
The overall funeral gross profit margin declined during the second quarter
of 1996 (21.5% compared to 27.7% for the comparable period last year).
Contributing to this quarter to quarter decline were the Company's French
operations which were acquired in August 1995. The French gross profit margin
of 13.1% (before administrative overhead) is consistent with the Company's
expectations for these operations which have historically produced lower gross
profit margins than the Company's other operations.
Administrative overhead costs increased due primarily to the French
operations. When administrative overhead costs are expressed as a percentage of
total funeral revenues, they increased to 4.2% compared to 3.0% during the three
months ended June 30, 1995.
- -------------------------------------------------
* Other European primarily includes United Kingdom operations.
** Other Foreign primarily includes Australian and Canadian operations.
*** Represents new geographic cluster areas entered into since April 1, 1995
for the period that those businesses were owned by the Company.
17
<PAGE> 18
Cemetery
Cemetery revenues were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Increase Percentage
1996 1995 (Decrease) Increase
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Existing clusters:
United States . . . . . . . . . . . . . $ 131,973 $ 97,916 $ 34,057 34.8%
Other European* . . . . . . . . . . . . 3,445 2,830 615 21.7
Other Foreign** . . . . . . . . . . . . 11,378 9,998 1,380 13.8
----------- ---------- --------- ----
146,796 110,744 36,052 32.6
----------- ---------- --------- ----
New clusters:***
United States . . . . . . . . . . . . . 6,678 - 6,678
Other European . . . . . . . . . . . . . 159 67 92
Other Foreign . . . . . . . . . . . . . - - -
----------- ---------- ---------
6,837 67 6,770
----------- ---------- ---------
Non-cluster and disposed operations . . . . . 421 589 (168)
----------- ---------- ---------
Total cemetery revenues . . . . . . . . $ 154,054 $ 111,400 $ 42,654 38.3%
=========== ========== =========
</TABLE>
Revenues from the existing clusters increased $36,052 due primarily to
increased preneed sales for property and merchandise as well as higher average
sales prices for these items. Additionally, increased amounts of earnings and
realization of portfolio gains from cemetery trust funds contributed to the
increase. Included in the existing cluster increase were $26,124 in increased
revenues from cemeteries acquired since April 1, 1995.
Cemetery costs and expenses were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Percentage
1996 1995 Increase Increase
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Existing clusters:
United States . . . . . . . . . . . . . $ 79,212 $ 61,681 $ 17,531 28.4%
Other European* . . . . . . . . . . . . 2,244 1,452 792 54.5
Other Foreign** . . . . . . . . . . . . 6,189 5,288 901 17.0
----------- ---------- ---------- ----
87,645 68,421 19,224 28.1
----------- ---------- ---------- ----
New clusters:***
United States . . . . . . . . . . . . . 3,881 - 3,881
Other European . . . . . . . . . . . . . 145 51 94
Other Foreign . . . . . . . . . . . . . - - -
----------- ---------- ----------
4,026 51 3,975
----------- ---------- ----------
Non-cluster and disposed operations . . . . . 1,084 680 404
Administrative overhead . . . . . . . . . . . 6,717 3,937 2,780 70.6
----------- ---------- ----------
Total cemetery costs and expenses . . . $ 99,472 $ 73,089 $ 26,383 36.1%
=========== ========== ==========
</TABLE>
Costs and expenses from existing clusters increased $19,224 due primarily
to an increase of $15,405 at cemeteries acquired since April 1, 1995. The
overall cemetery gross profit margin increased to 35.4% from 34.4% quarter to
quarter.
- -------------------------------------------------
* Other European primarily includes United Kingdom operations.
** Other Foreign primarily includes Australian and Canadian operations.
*** Represents new geographic cluster areas entered into since April 1, 1995
for the period that those businesses were owned by the Company.
18
<PAGE> 19
Financial Services
Provident reported a gross profit increase of $662 in the current quarter
compared with the same quarter in 1995. Provident's average outstanding loan
portfolio during the current quarter increased to $230,637 compared to $201,964
last year, while the average interest rate spread increased slightly to 3.81%
compared to 3.75% during the second quarter of 1995.
Other Income and Expenses
Expressed as a percentage of revenues, general and administrative expenses
declined to 2.6% in the second quarter of 1996 compared to 3.1% in the
comparable period in 1995. These expenses increased $3,768 or 34.2% quarter to
quarter primarily from increased personnel costs.
Interest expense, which excludes the amount incurred through financial
service operations, increased $6,720 or 24.4% quarter to quarter. The 1996
increase in interest expense is the result of an increase of approximately
$469,000 in the Company's average debt (excluding debt related to financial
service operations) outstanding during the quarter ended June 30, 1996 compared
to the same quarter in 1995. The increased interest associated with the higher
debt level was offset by a lower average interest rate quarter to quarter.
The provision for income taxes reflected a 36.2% effective tax rate for the
quarter ended June 30, 1996 as compared to a 38.9% effective tax rate for the
comparable period last year. The decrease in the effective tax rate is due
primarily to lower taxes from international operations.
FINANCIAL CONDITION AND LIQUIDITY AT JUNE 30, 1996:
General
Historically, the Company has funded its working capital needs and capital
expenditures primarily through cash provided by operating activities and
borrowings under bank revolving credit agreements and commercial paper.
Funding required for the Company's acquisition program has been generated
through public and private offerings of debt and the issuance of equity
securities supplemented by the Company's revolving credit agreements and
additional securities registered with the Commission. The Company believes
cash from operations, additional funds available under its revolving credit
agreements, proceeds from offerings of securities and the other registered
securities will be sufficient to continue its current acquisition program and
operating policies.
At June 30, 1996, the Company had net working capital of $275,907 and a
current ratio of 1.61:1, compared to working capital of $45,527 and a current
ratio of 1.08:1 at December 31, 1995.
Debt
The Company's primary revolving credit agreements allow for borrowings of up to
$800,000. At June 30, 1996, there was approximately $323,000 of borrowings
outstanding under these agreements. In July 1996, the Company repaid $88,700 of
borrowings outstanding under these agreements. Also in July 1996, the Company's
French revolving credit facility was extended to February 1997 with a borrowing
capacity of $50,000. At June 30, 1996, there were no borrowings outstanding
under this agreement. After giving effect to the interest rate and
cross-currency interest rate swaps discussed more fully in note six to the
consolidated financial statements, the Company's total debt has been converted
into approximately $1,360,000 of fixed interest rate debt at a weighted average
rate of 7.78% and approximately $822,000 of floating interest rate debt at a
weighted average rate of 5.70%. In general, interest rates are managed such that
30% to 50% of the total debt (excluding debt which offsets the Provident loan
receivable portfolio) is floating rate and thus is sensitive to interest rate
fluctuations.
SOURCES AND USES OF CASH
Cash flows from operating activities: Net cash provided by operating activities
was $62,266 for the six months ended June 30, 1996, compared to $36,968 for the
same period in 1995, an increase of $25,298. Primary sources of this increase
include $46,127 of increased net income as well as $21,830 and $10,873,
respectively, of increased non-cash adjustments for depreciation and
amortization and provision for deferred income taxes. The cash flow impact from
changes in other liabilities resulted primarily from the timing of payments
related to interest and operating payables.
Cash flows from investing activities: Net cash used in investing activities was
$283,915 for the six months ended June 30, 1996, compared to $216,649 for the
same period in 1995. This use of cash primarily reflects the Company's
acquisition of funeral service locations and cemeteries, detailed in note three
to the consolidated financial statements. In May 1996, the Company used
$36,702 of cash to increase its investment in an existing equity investee. In
addition to acquisitions, capital expenditures including new construction of
19
<PAGE> 20
facilities and major improvements to existing properties, continue to require
significant amounts of cash.
Cash flows from financing activities: Net cash provided by financing activities
was $290,737 for the six months ended June 30, 1996, compared to a net use of
cash of $18,409 for the same period in 1995. During 1996, cash inflows from
financing activities included $112,878 of increased net borrowings under
revolving credit agreements and proceeds from the May 1996 issuance of
$300,000 of notes issued in two tranches of $150,000 each (6.75% and 7.20% due
in 2001 and 2006, respectively). The increase in revolving credit relates
primarily to an increase of $180,000 in commercial paper outstanding backed by
the Company's primary revolving credit agreement, partially offset by the
$99,000 payoff of French revolving credit. Other cash outflows during 1996
include $27,003 of dividends paid and $98,961 of debt payments, of which
$53,500 were payments of short-term promissory notes issued in the 1995
Gibraltar acquisition.
The Company believes that debt service is manageable at the current levels
of debt outstanding. As of June 30, 1996, the Company's debt to capitalization
ratio was 48.9% compared to 46.3% at December 31, 1995. The interest rate
coverage ratio for the six months ended June 30, 1996 was 3.71:1, compared to
3.27:1 for the same period in 1995. This interest rate coverage level has been
relatively consistent, despite higher levels of debt outstanding, for several
years. The Company believes that the acquisition of funeral and cemetery
operations funded with debt or Company common stock is a prudent business
strategy given the stable cash flow generated and the low failure rate
exhibited by these types of businesses. The Company believes these acquired
firms are capable of servicing the additional debt and providing a sufficient
return on the Company's investment.
The Company expects adequate sources of funds to be available to finance
its future operations and acquisitions through internally generated funds,
borrowings under credit facilities and the issuance of securities. At June 30,
1996, the Company had approximately $477,000 of available borrowings under its
primary and multi-currency credit facilities. As of June 30, 1996, the Company
had the ability to issue $77,000 in securities registered with the Commission.
The Company anticipates filing a registration statement with the Commission in
the near future which will increase the amount of securities available for
issuance from $77,000 to $1,000,000. Additionally, the Company has 10,000,000
shares of common stock and $246,000 of guaranteed promissory notes and
convertible debentures registered with the Commission to be used exclusively
for future acquisitions.
20
<PAGE> 21
SERVICE CORPORATION INTERNATIONAL
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 9, 1996, the Company held its annual meeting of shareholders
and the shareholders elected five directors. The shares voting on
the director nominees were cast as follows:
<TABLE>
<CAPTION>
Abstentions or Broker
Nominee Votes For Votes Withheld Non-votes
------- ------------- ---------------- ---------
<S> <C> <C> <C>
Jack Finkelstein . . . . . . . . . . . 97,028,344 1,473,941 -0-
James H. Greer . . . . . . . . . . . 97,038,098 1,464,187 -0-
L. William Heiligbrodt . . . . . . . . 97,059,501 1,442,784 -0-
Clifton H. Morris, Jr. . . . . . . . 97,062,438 1,439,847 -0-
W. Blair Waltrip . . . . . . . . . . 97,050,267 1,452,018 -0-
</TABLE>
In addition, the shareholders approved the Company's 1996 Incentive
Plan which is described in the Company's proxy statement dated
April 15, 1996. The shares voting were cast as follows:
<TABLE>
<CAPTION>
Abstentions
Or Votes Broker
Proposal Votes For Votes Against Withheld Non-votes
-------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
1996 Incentive Plan . . . . . . 76,781,336 10,177,639 1,858,237 9,685,073
</TABLE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Computation of earnings per share.
12.1 Ratio of earnings to fixed charges for the six months
ended June 30, 1996 and 1995.
27 Financial data schedule.
(b) Reports on Form 8-K
During the quarter ended June 30, 1996, the Company filed a Form
8-K dated April 16, 1996, reporting under "Item 5. Other
Events" certain information regarding acquisitions in 1995,
including unaudited proforma combined financial information
concerning all operations acquired during 1995 as well as
certain financings.
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.
August 12, 1996
SERVICE CORPORATION INTERNATIONAL
By: /s/ George R. Champagne
-------------------------------------------
George R. Champagne
Senior Vice President
Chief Financial Officer
(Principal Financial Officer)
21
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
11.1 Computation of earnings per share.
12.1 Ratio of earnings to fixed charges for the six months ended June 30, 1996 and 1995.
27 Financial data schedule.
</TABLE>
<PAGE> 1
Exhibit 11.1
SERVICE CORPORATION INTERNATIONAL
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
(Thousands, except per share amounts)
<S> <C> <C> <C> <C>
PRIMARY:
Net income . . . . . . . . . . . . . . . . . . . . . . $ 62,250 $ 40,640 $ 134,147 $ 88,020
========== =========== ============ ===========
Average number of common shares outstanding . . . . . 117,652 96,131 117,549 95,941
Common stock equivalents applicable to options
outstanding resulting from application of the
"treasury stock method" using average stock
price . . . . . . . . . . . . . . . . . . . . . . 2,904 856 2,598 788
---------- ---------- ----------- -----------
Average common and common equivalent shares
used in earnings per share . . . . . . . . . . . . . 120,556 96,987 120,147 96,729
========== ========== =========== ===========
Primary Earnings Per Common Share:
Net income . . . . . . . . . . . . . . . . . . . . . $ .52 $ .42 $ 1.12 $ .91
========== ========== =========== ===========
FULLY DILUTED:
Net income . . . . . . . . . . . . . . . . . . . . . . $ 62,250 $ 40,640 $ 134,147 $ 88,020
Add after tax interest expense applicable to
convertible debentures . . . . . . . . . . . . . . . 1,953 3,711 3,894 7,451
---------- ----------- ------------ -----------
$ 64,203 $ 44,351 $ 138,041 $ 95,471
========== =========== ============ ===========
Average number of common shares
outstanding . . . . . . . . . . . . . . . . . . . . 117,652 96,131 117,549 95,941
Common stock equivalents applicable to options
outstanding resulting from application of the
"treasury stock method" using end of period
stock price (if greater than average stock
price for period) 3,162 1,117 2,867 919
Assuming conversion of convertible debentures . . . . . 6,841 15,708 6,838 15,751
---------- ----------- ------------ -----------
Average shares used in fully diluted earnings per
share . . . . . . . . . . . . . . . . . . . . . . 127,655 112,956 127,254 112,611
========== =========== ============ ===========
Fully Diluted Earnings Per Common Share:
Net income . . . . . . . . . . . . . . . . . . $ .50 $ .39 $ 1.08 $ .85
========== =========== ============ ===========
</TABLE>
<PAGE> 1
Exhibit 12.1
SERVICE CORPORATION INTERNATIONAL
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
(Thousands, except ratio amounts)
<S> <C> <C>
Pretax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 210,791 $ 144,059
Undistributed income of less than 50% owned equity investees . . . . . . . (3,222) (1,739)
Minority interest in income of majority owned subsidiaries
with fixed charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 395 1,466
Add fixed charges as adjusted (from below) . . . . . . . . . . . . . . . . 82,672 65,723
------------ ------------
$ 290,636 $ 209,509
------------ ------------
Fixed charges:
Interest expense:
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,134 $ 52,809
Financial services . . . . . . . . . . . . . . . . . . . . . . . . 5,450 5,365
Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . 994 146
Amortization of debt costs . . . . . . . . . . . . . . . . . . . . . . . 797 436
1/3 of rental expense . . . . . . . . . . . . . . . . . . . . . . . . . 10,291 7,113
Dividends on convertible preferred securities of SCI Finance LLC . . . . 5,391 5,391
------------ ------------
Fixed charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,057 71,260
Less: Capitalized interest . . . . . . . . . . . . . . . . . . . . . (994) (146)
Dividends on convertible preferred stock of subsidiary . . . . (5,391) (5,391)
------------ ------------
Fixed charges as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . $ 82,672 $ 65,723
============ ============
Ratio (earnings divided by fixed charges) . . . . . . . . . . . . . . . . . 3.26 2.94
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF SERVICE CORPORATION INTERNATIONAL AS OF JUNE 30,
1996 AND THE RELATED STATEMENT OF INCOME FOR THE SIX MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 98,823
<SECURITIES> 519,794
<RECEIVABLES> 999,600
<ALLOWANCES> 67,102
<INVENTORY> 133,247
<CURRENT-ASSETS> 731,931
<PP&E> 1,629,635
<DEPRECIATION> 287,025
<TOTAL-ASSETS> 8,308,133
<CURRENT-LIABILITIES> 456,024
<BONDS> 2,122,614
<COMMON> 0
0
117,659
<OTHER-SE> 1,976,306
<TOTAL-LIABILITY-AND-EQUITY> 8,308,133
<SALES> 1,083,337
<TOTAL-REVENUES> 1,140,202
<CGS> 830,172
<TOTAL-COSTS> 835,971
<OTHER-EXPENSES> 28,890
<LOSS-PROVISION> 5,249
<INTEREST-EXPENSE> 73,375
<INCOME-PRETAX> 210,791
<INCOME-TAX> 76,644
<INCOME-CONTINUING> 134,147
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134,147
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.08
</TABLE>
