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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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
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SERVICE CORPORATION INTERNATIONAL
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 74-1488375
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1929 ALLEN PARKWAY
HOUSTON, TEXAS 77019
(Address of principal executive offices) (Zip code)
</TABLE>
Registrant's telephone number, including area code: 713/522-5141
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
Common Stock ($1 par value) New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: NONE
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the common stock held by non-affiliates of
the registrant (assuming that the registrant's only affiliates are its officers
and directors) is $3,989,412,852 based upon a closing market price of $14.875 on
March 30, 1999 of a share of common stock as reported on the New York Stock
Exchange -- Composite Transactions Tape.
The number of shares outstanding of the registrant's common stock as of
March 30, 1999 was 271,968,548 (excluding treasury shares).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement in connection with its 1999
Annual Meeting of Shareholders (Part III)
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PART I
ITEM 1. BUSINESS.
Service Corporation International was incorporated in Texas on July 5,
1962. The term "Company" or "SCI" includes the registrant and its subsidiaries,
unless the context indicates otherwise.
The Company is the largest provider of death care services in the world. At
December 31, 1998, the Company operated 3,442 funeral service locations, 433
cemeteries and 191 crematoria located in 20 countries on five continents. The
Company conducts funeral operations in all of the business locales in which it
operates, cemetery operations in all regions except France, and financial
services operations in North America and France. For financial information about
the Company's reportable segments, see Note Fifteen to the consolidated
financial statements in Item 8 of this Form 10-K.
The Company has continued to expand through the acquisition of funeral
service locations, cemeteries and crematoria, both domestically and
internationally. In 1998, the Company acquired 308 funeral service locations, 47
cemeteries, 18 crematoria, and two insurance companies. The Company has acquired
most of its present operations through acquisitions. For information regarding
acquisitions, see Note Three to the consolidated financial statements in Item 8
of this Form 10-K. Although the Company is continuing to make acquisitions, the
Company is curtailing its acquisition activity as discussed in the third
paragraph of Management's Discussion and Analysis of Financial Condition and
Results of Operations in Item 7 of this Form 10-K.
FUNERAL AND CEMETERY OPERATIONS
The funeral and cemetery operations consist of the Company's funeral
service locations, cemeteries and related businesses. The operations are
organized into a North American division covering the United States and Canada
and an international division responsible for all operations in Europe, the
Pacific Rim and South America. Each division is under the direction of
divisional executive management with substantial industry experience. Local
funeral service location and cemetery managers, under the direction of the
divisional management, receive support and resources from the Company's
headquarters in Houston, Texas and have substantial autonomy with respect to the
manner in which services are conducted.
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, including the
sharing of service personnel, vehicles, preparation services, clerical staff and
certain building facility costs.
The Company has multiple funeral service locations and cemeteries in a
number of metropolitan areas. Within individual metropolitan areas, the funeral
service locations and cemeteries operate under various names because most
operations were acquired as existing businesses and generally continue to be
operated under the same name as before acquisition.
Funeral Service Locations. The funeral service locations provide all
professional services relating to funerals, including the use of funeral
facilities and motor vehicles. Funeral service locations sell caskets, coffins,
burial vaults, cremation receptacles, flowers and burial garments, and certain
funeral service locations also operate crematoria. At December 31, 1998, the
Company owned 156 funeral service location/cemetery combinations and operated 49
flower shops engaged principally in the design and sale of funeral floral
arrangements. These flower shops provide floral arrangements to some of the
Company's funeral homes and cemeteries.
In addition to selling its services and products to client families at the
time of need, the Company also sells prearranged funeral services in most of its
service markets, including several foreign markets. Funeral prearrangement is a
means through which a customer contractually agrees to the terms of a funeral to
be performed in the future. The funds collected from prearranged funeral
contracts are placed in trust accounts (pursuant to applicable law) or are used
to pay premiums on life insurance policies from third party insurers or the
Company's wholly owned insurance subsidiaries. At December 31, 1998, the total
value of the Company's
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unperformed prearranged funeral contracts was $3.752 billion, of which
approximately $368 million is estimated to be fulfilled in 1999. For additional
information concerning prearranged funeral activities, see "Prearranged Funeral
Services" in Management's Discussion and Analysis of Financial Condition and
Results of Operations in Item 7 of this Form 10-K and Note Four to the
consolidated financial statements in Item 8 of this Form 10-K.
The death rate tends to be somewhat higher in the winter months and the
Company's funeral service locations generally experience a higher volume of
business during those months.
Since 1984, the Company has operated under the Federal Trade Commission's
("FTC") comprehensive trade regulation rule for the funeral industry. The rule
contains minimum guidelines for funeral industry practices, requires extensive
price and other affirmative disclosures and imposes mandatory itemization of
funeral goods and services. From time to time in connection with acquisitions,
the Company has entered into consent orders with the FTC that have required the
Company to dispose of certain operations to proceed with acquisitions or have
limited the Company's ability to make acquisitions in specified areas. The trade
regulation rule and the various consent orders have not had a materially adverse
effect on the Company's operations.
Cemeteries. The Company's cemeteries sell cemetery interment rights
(including mausoleum spaces and lawn crypts) and certain merchandise including
stone and bronze memorials and burial vaults. The Company's cemeteries also
perform interment services and provide management and maintenance of cemetery
grounds. Certain cemeteries also operate crematoria.
Cemetery sales are often made on a preneed basis pursuant to installment
contracts providing for monthly payments. A portion of the proceeds from
cemetery sales is generally required by law to be paid into perpetual care trust
funds. Earnings of perpetual care trust funds are used to defray the maintenance
cost of cemeteries. In addition, all or a portion of the proceeds from the sale
of preneed cemetery merchandise may be required by law to be paid into trust
until the merchandise is purchased on behalf of the customer. For additional
information regarding cemetery trust funds, see Notes Two and Six to the
consolidated financial statements in Item 8 of this Form 10-K.
Death Care Industry. The funeral industry is characterized by a large
number of locally owned, independent operations. The Company believes that based
on the total number of funeral services performed in 1998, the Company,
including companies acquired by it, performed approximately 11%, 28%, 14% and
25% of the funeral services in North America, France, the United Kingdom and
Australia, respectively.
To compete successfully, the Company's funeral service locations must
maintain competitive prices, attractive, well-maintained and conveniently
located facilities, a good reputation and high professional standards. In
addition, heritage and tradition can provide an established funeral home with
the opportunity for repeat business from client families. Furthermore, an
established firm can generate future volume and revenues by marketing
prearranged funeral services.
The cemetery industry is also characterized by a large number of locally
owned independent operations. The Company's cemetery properties compete with
other cemeteries in the same general area. To compete successfully, the
Company's cemeteries must maintain competitive prices, attractive and
well-maintained properties, a good reputation, an effective sales force and high
professional standards.
FINANCIAL SERVICES OPERATIONS
The financial services division represents a combination of the Company's
prearranged funeral and cemetery trust accounting and administration, investment
management, life insurance operations and the lending activities of Provident
Services, Inc., a wholly-owned subsidiary of the Company ("Provident").
The Company's insurance operations include ownership of a French life
insurance company (Auxia) and a U.S. life insurance company (American Memorial
Life Insurance Company). These wholly-owned subsidiaries assist in funding
contracts written by Company owned funeral service locations. For additional
information concerning the Company's financial services and insurance
operations, see Management's
2
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Discussion and Analysis of Financial Condition and Results of Operations in Item
7 of this Form 10-K and Notes Two, Four and Five to the consolidated financial
statements in Item 8 of this Form 10-K.
Since 1988, Provident has provided secured financing to independent funeral
home and cemetery operators. The majority of Provident's loans are made to
clients seeking to finance funeral home or cemetery acquisitions. Additionally,
Provident provides construction loans for funeral home or cemetery improvement
and expansion. Loan packages take traditional forms of secured financing
comparable to arrangements offered by leading commercial banks. Provident's
loans are generally made at interest rates which float with the prime lending
rate. At December 31, 1998, Provident had $270 million in loans outstanding and
$31 million of unfunded loan commitments. At December 31, 1997, Provident had
$198 million in loans outstanding and $50 million of unfunded loan commitments.
Provident obtains its funds primarily from the Company's variable interest rate
credit facilities.
EMPLOYEES
At December 31, 1998, the Company employed 27,618 (16,627 in the United
States) persons on a full time basis and 12,410 (9,148 in the United States)
persons on a part time basis. Of the full time employees, 26,567 were in the
funeral and cemetery operations, 397 were in financial services operations and
654 were in corporate services. All of the Company's eligible United States
employees who so elect are covered by the Company's group health and life
insurance plans. Eligible United States employees are participants in retirement
plans of the Company or various subsidiaries, while foreign employees are
covered by other Company defined or government mandated benefit plans. Although
labor disputes are experienced from time to time, in general relations with
employees are considered satisfactory.
REGULATION
The Company's various operations are subject to regulations, supervision
and licensing under various U.S. federal, state and foreign statutes, ordinances
and regulations. The Company believes that it is in substantial compliance with
the significant provisions of such statutes, ordinances and regulations. See
discussion of FTC funeral industry trade regulation and consent orders in
"Funeral Service Locations" above.
The French funeral services industry has undergone significant regulatory
change in recent years. Historically, the French funeral services industry has
been controlled, as provided by national legislation, either (i) directly by
municipalities through municipality-operated funeral establishments ("Municipal
Monopoly"), or (ii) indirectly by the remaining municipalities that have
contracted for funeral service activities with third party providers, such as
SCI's French operations ("Exclusive Municipal Authority"). Legislation has been
passed that will generally end municipal control of the French funeral service
business and will allow the public to choose their funeral service provider.
Under such legislation, the Exclusive Municipal Authority was abolished in
January 1996, and the Municipal Monopoly was eliminated in January 1998.
Cemeteries in France, however, are and will continue to be controlled by
municipalities and religious organizations, with third parties, such as SCI,
providing cemetery merchandise such as markers and monuments.
ITEM 2. PROPERTIES.
The Company's executive headquarters are located at 1929 Allen Parkway,
Houston, Texas 77019, in a 12-story office building. A wholly owned subsidiary
of the Company owns an undivided one-half interest in the building and its
parking garage. The property consists of approximately 1.3 acres, 250,000 square
feet of office space in the building and 160,000 square feet of parking space in
the garage. The Company leases all of the office space in the building pursuant
to a lease that expires June 30, 2005 providing for monthly rent of $43,000
through July 2000 and $59,000 thereafter. The Company pays all operating
expenses. One half of the rent is paid to the wholly owned subsidiary and the
other half is paid to the owners of the remaining undivided one-half interest.
The Company owns and utilizes two additional buildings located in Houston, Texas
containing a total of approximately 167,000 square feet of office space.
3
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At December 31, 1998, the Company owned the real estate and buildings of
3,187 of its funeral service and cemetery locations and leased facilities in
connection with 879 of such operations. In addition, the Company leased five
aircraft pursuant to cancelable leases. At December 31, 1998, the Company
operated 13,190 vehicles, of which 11,012 were owned and 2,178 were leased. For
additional information regarding leases, see Note Eleven to the consolidated
financial statements in Item 8 of this Form 10-K.
At December 31, 1998, the Company's 433 cemeteries contain a total of
approximately 31,186 acres, of which approximately 53% are developed.
The specialized nature of the Company's businesses requires that its
facilities be well-maintained and kept in good condition. Management believes
that these standards are met.
ITEM 3. LEGAL PROCEEDINGS.
Since January 26, 1999, several lawsuits have been commenced on behalf of
persons who (i) acquired shares of Company common stock in the merger of a
wholly owned subsidiary of the Company into Equity Corporation International
("ECI"), (ii) purchased shares of Company common stock during certain specified
class periods or (iii) owned employee stock options in ECI. As of March 24,
1999, 20 class action lawsuits that had been originally filed in federal
district court in Houston had been consolidated into one action pending in that
court, and one additional class action lawsuit that had been originally filed in
the federal district court in Lufkin, Texas was still pending in that court.
These lawsuits allege violations of federal securities laws and name as
defendants the Company and certain of its officers and directors. As of the same
date, two former state court lawsuits, one of which was a class action, naming
the Company as defendant and alleging fraud and violations of Texas securities
and common law had been removed to the federal district court in Lufkin. The
lawsuits generally refer to the Company's January 26, 1999 public announcement
that the Company's diluted earnings per share for the fourth quarter of 1998 and
for the year ended December 31, 1998 would be lower than analyst expectations.
The lawsuits seek, among other things, to recover unspecified damages. Since the
litigation is in its very preliminary stages, no discovery has been taken, and
the Company cannot quantify its ultimate liability, if any, for the payment of
damages in these lawsuits. However, the Company believes that the allegations in
the lawsuits do not provide a basis for the recovery of damages because the
Company has made all the required disclosures on a timely basis. The Company is
seeking to transfer the lawsuits pending in Lufkin and consolidate them with the
action pending in federal district court in Houston. The Company intends to
aggressively defend the foregoing lawsuits. A list of (x) the styles of the
pending class action litigation matters, (y) the identities of the officers and
directors of SCI who have not been expressly excluded from the class
designations relating to former ECI stockholders and option holders and (z) the
identities of officers and directors of SCI who have been named as individual
defendants in certain pending litigation are set forth in Exhibit 99.1 to this
report, which Exhibit 99.1 is hereby incorporated by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
4
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EXECUTIVE OFFICERS OF THE COMPANY
Pursuant to General Instruction G to Form 10-K, the information regarding
executive officers of the Company called for by Item 401 of Regulation S-K is
hereby included in Part I of this report.
The following table sets forth as of March 30, 1999 the name and age of
each executive officer of the Company, the office held, and the date first
elected an officer.
<TABLE>
<CAPTION>
YEAR FIRST
BECAME
OFFICER NAME AGE POSITION OFFICER(1)
------------ ---- -------- ----------
<S> <C> <C> <C>
R. L. Waltrip........................ (68) Chairman of the Board, Chief 1962
Executive Officer and President
George R. Champagne.................. (45) Executive Vice President Chief 1989
Financial Officer
John W. Morrow, Jr................... (63) Executive Vice President North 1989
American Operations
Jerald L. Pullins.................... (57) Executive Vice President 1992
International Operations
W. Blair Waltrip..................... (44) Executive Vice President 1980
Gregory L. Cauthen................... (41) Senior Vice President 1995
Glenn G. McMillen.................... (56) Senior Vice President Assistant to 1993
Chairman
Richard T. Sells..................... (59) Senior Vice President Preneed Sales 1987
James M. Shelger..................... (49) Senior Vice President General Counsel 1987
and Secretary
Jack L. Stoner....................... (53) Senior Vice President Administration 1992
T. Craig Benson...................... (37) Vice President International 1990
Operations
J. Daniel Garrison................... (47) Vice President International 1998
Operations
W. Cardon Gerner..................... (44) Vice President Controller 1999
W. Mark Hamilton..................... (34) Vice President 1996
Lowell A. Kirkpatrick, Jr. .......... (40) Vice President Operations, Finance 1994
and Development
Stephen M. Mack...................... (47) Vice President Operations 1998
Todd A. Matherne..................... (44) Vice President Treasurer 1996
Thomas L. Ryan....................... (33) Vice President International Finance 1999
Vincent L. Visosky................... (51) Vice President 1989
Michael R. Webb...................... (41) Vice President International 1998
Corporate Development
Henry M. Nelly, III.................. (54) President -- Provident Services, 1989
Inc., a subsidiary of the Company
</TABLE>
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(1) Indicates the year a person was first elected as an officer although there
were subsequent periods when certain persons ceased being officers of the
Company.
Unless otherwise indicated below, the persons listed above have been
executive officers or employees for more than five years.
Mr. Gerner joined the Company in January 1999 in connection with the
acquisition of ECI and in March 1999 was promoted to Vice President Controller.
Before the acquisition, Mr. Gerner had been Senior Vice President and Chief
Financial Officer of ECI since March 1995. Prior thereto, Mr. Gerner was a
partner with Ernst & Young LLP.
5
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Mr. Matherne joined the Company in April 1995 as Managing Director Investor
Relations and was promoted in May 1996 to Vice President Investor Relations and
in February 1998 to Vice President Operations, Finance and Development. Prior
thereto, Mr. Matherne was Vice President and General Manager of Baker Hughes
Treatment Services, an environmental services business.
Mr. Ryan joined the Company in June 1996 as Director of Financial
Reporting. Since then, Mr. Ryan has served as Director of Investor Relations and
Managing Director and Chief Financial Officer of International Operations. Mr.
Ryan was promoted to Vice President International Finance in February 1999.
Prior to joining the Company, Mr. Ryan was a certified public accountant with
Coopers & Lybrand L.L.P. for more than five years.
Each officer of the Company is elected by the Board of Directors and holds
his office until his successor is elected and qualified or until his earlier
death, resignation or removal in the manner prescribed in the Bylaws of the
Company. Each officer of a subsidiary of the Company is elected by the
subsidiary's board of directors and holds his office until his successor is
elected and qualified or until his earlier death, resignation or removal in the
manner prescribed in the bylaws of the subsidiary. W. Blair Waltrip is a son of
R.L. Waltrip.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock has been traded on the New York Stock Exchange
since May 14, 1974. On December 31, 1998, there were 7,613 holders of record of
the Company's common stock.
The Company has declared 103 consecutive quarterly dividends on its common
stock since it began paying dividends in 1974. The dividend rate is currently
$.09 per share per quarter, or an indicated annual rate of $.36 per share. For
the three years ended December 31, 1998, dividends per share were $.36, $.30 and
$.24, respectively.
The table below shows the Company's quarterly high and low common stock
prices:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996
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HIGH LOW HIGH LOW HIGH LOW
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
First............................. $43.69 $35.69 $33.88 $26.88 $24.75 $19.44
Second............................ 44.63 38.94 36.00 29.63 30.13 24.13
Third............................. 45.88 31.88 35.75 29.81 29.44 27.63
Fourth............................ 39.25 29.81 38.00 27.88 30.75 26.50
</TABLE>
On March 26, 1999, the closing price of the Company's common stock was
$14.75 per share.
SRV is the New York Stock Exchange ticker symbol for the common stock of
the Company. Options in the Company's common stock are traded on the
Philadelphia Stock Exchange under the symbol SRV.
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ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
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1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues......................... $2,875,090 $2,535,865 $2,355,342 $1,652,126 $1,117,175
Income before extraordinary
loss........................... 342,142 374,552 265,298 183,588 131,045
Net income....................... 342,142 333,750 265,298 183,588 131,045
Earnings per share:
Income before extraordinary
loss
Basic....................... 1.34 1.53 1.13 .92 .76
Diluted..................... 1.31 1.47 1.08 .86 .71
Net income
Basic....................... 1.34 1.36 1.13 .92 .76
Diluted..................... 1.31 1.31 1.08 .86 .71
Dividends per share.............. .36 .30 .24 .22 .21
Total assets..................... 13,266,158 10,514,930 9,020,778 7,768,982 5,196,690
Long-term debt................... 3,764,590 2,634,699 2,048,737 1,712,464 1,330,177
Convertible preferred securities
of SCI Finance LLC............. -- -- 172,500 172,500 172,500
Stockholders' equity............. 3,154,102 2,726,004 2,235,317 1,975,345 1,196,622
Shares outstanding............... 259,201 252,924 236,193 234,542 189,714
Ratio of earnings to fixed
charges*....................... 3.42 4.29 3.24 2.84 3.13
</TABLE>
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* For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income from continuing operations before income taxes, less
undistributed income of equity investees which are less than 50% owned, plus
the minority interest of majority-owned subsidiaries with fixed charges and
plus fixed charges (excluding capitalized interest). Fixed charges consist of
interest expense, whether capitalized or expensed, amortization of debt
costs, 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.
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Equity Corporation International
In January 1999, a wholly-owned subsidiary of the Company acquired ECI. The
combination occurred through a stock-for-stock transaction in which ECI
stockholders received approximately 15,500,584 shares of Company common stock.
Set forth below is certain summary financial information for ECI (Dollars
in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Revenues............................................ $190,056 $135,073 $ 91,974
-------- -------- --------
Gross profit........................................ 51,003 37,660 26,137
-------- -------- --------
Net income.......................................... $ 16,247 $ 14,699 $ 10,326
-------- -------- --------
Current assets...................................... $ 61,692 $ 34,766 $ 29,558
Non-current assets.................................. 917,523 682,934 414,333
-------- -------- --------
Total assets........................................ $979,215 $717,700 $443,891
-------- -------- --------
Current liabilities................................. $ 31,019 $ 17,100 $ 10,379
Non-current liabilities............................. 690,722 474,068 256,048
-------- -------- --------
Total liabilities................................... $721,741 $491,168 $266,427
-------- -------- --------
Stockholders' equity................................ $257,474 $226,532 $177,464
-------- -------- --------
</TABLE>
8
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE SALES PRICES AND PER SHARE DATA)
The Company is the largest provider of death care services in the world. At
December 31, 1998, the Company operated 3,442 funeral service locations, 433
cemeteries and 191 crematoria located in 20 countries on five continents. The
Company conducts funeral operations in all of its business locales, cemetery
operations in all regions except France, and financial services operations in
North America and France. As of December 31, 1998, the Company's largest markets
are North America and France, which when combined, represent approximately 87%
of the Company's consolidated revenue, 90% of consolidated income from
operations and 75% of the Company's total operating locations.
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, allows 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.
Historically, the Company's growth has been largely attributable to
acquisitions. In light of prevailing market prices for available acquisition
candidates, the Company is curtailing its acquisition activity. Additionally,
because of the current size of the Company, it is becoming increasingly
difficult to support the historical earnings growth rate through acquisitions.
Therefore, the Company intends to focus its efforts on maximizing the
profitability of existing clusters of facilities rather than the historically
heavy emphasis on acquisitions. The Company, though, will continue to acquire
domestic and foreign facilities where operating strategies and pricing
considerations are properly aligned.
RESULTS OF OPERATIONS -- FOURTH QUARTER 1998 COMPARED TO FOURTH QUARTER 1997:
Funeral and cemetery revenues were $687,996 in the fourth quarter 1998,
compared to $637,654 in the prior year quarter, a 7.9% increase. Funeral and
cemetery gross margins were $131,781 in the fourth quarter 1998 compared to
$180,615 in the prior year quarter, a 27.0% decrease. The large decrease in the
funeral and cemetery gross margins contributed significantly to the consolidated
net income and diluted earnings per share declines, quarter over quarter, of
35.6% and 36.1%, respectively. A 40.5% increase in interest expense, quarter
over quarter, was primarily responsible for the remainder of the declines.
Though total funeral and cemetery revenues increased quarter over quarter, the
rate of growth was less than expected. At the same time, costs and expenses had
been structured for an expected higher level of sales. Major items contributing
to the earnings decline included:
- A 2.7% decline in funeral revenues, quarter over quarter, at locations
owned before October 1, 1997. This represented approximately $11,000 and
was caused by weak death rates and lower average sales prices. The lower
average sales prices were due to a changing profile in the sales mix
reflecting an increased proportion of performed funerals from lower
average prearranged sales and an increased proportion of lower average
cremations.
- Approximately $19,000, or 6.3%, in additional funeral costs incurred at
locations acquired before October 1, 1997 due to higher merchandise,
personnel, facility and public relations costs primarily in North America
and the United Kingdom.
- Weak operating performances by locations acquired after September 30,
1997.
- Approximately $10,000, or 10.4%, in increased cemetery costs for
locations acquired before October 1, 1997 due to higher merchandise,
maintenance and administrative expenses primarily in North America.
Revenues at these locations grew by approximately $1,000, or .9%.
- Increased overhead costs included in the funeral and cemetery gross
margins, partially due to an anticipated higher level of revenues,
increased approximately $13,000, or 60.1%.
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RESULTS OF OPERATIONS:
The operating results for the Company in 1998 compared to 1997 were below
expectations primarily as the result of disappointing fourth quarter funeral and
cemetery revenue and a cost structure that was geared toward a higher expected
level of revenue. These issues were discussed above and are discussed in more
detail below. Current expectations for the Company's 1999 outlook point to
continued pressure on operating margins as costs are expected to grow at a
faster percentage than revenues due primarily to the following issues. Revenue
growth is expected to continue to be negatively affected by potentially weak
death rates in several of the Company's major markets. In addition, cemetery
preneed sales are not expected to grow appreciably over 1998 levels due
primarily to continued sales staffing difficulties. The funeral business has a
high fixed cost structure (approximately 80%-90% of funeral costs) that does not
easily lend itself to reductions during periods of slower revenue growth. The
acquisition in January 1999 of Equity Corporation International (ECI),
previously the fourth largest death care company in North America, will exert
downward pressure on operating margins due to ECI's historically lower volume
operations.
Year ended 1998 compared to 1997
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERCENTAGE
-------------------------------- INCREASE INCREASE
1998 1997 (DECREASE) (DECREASE)
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Funeral........................ $ 1,829,136 $ 1,720,291 $108,845 6.3%
Cemetery....................... 846,601 724,862 121,739 16.8
Financial services............. 199,353 90,712 108,641 119.8
----------- ----------- -------- -----
2,875,090 2,535,865 339,225 13.4
Costs and expenses:
Funeral........................ (1,444,529) (1,318,920) 125,609 9.5
Cemetery....................... (540,440) (452,965) 87,475 19.3
Financial services............. (171,351) (76,368) 94,983 124.4
----------- ----------- -------- -----
(2,156,320) (1,848,253) 308,067 16.7
Gross profit margin and
percentage:
Funeral........................ 384,607 21.0% 401,371 23.3% (16,764) (4.2)
Cemetery....................... 306,161 36.2 271,897 37.5 34,264 12.6
Financial services............. 28,002 14.0 14,344 15.8 13,658 95.2
----------- ---- ----------- ---- -------- -----
$ 718,770 25.0% $ 687,612 27.1% $ 31,158 4.5%
=========== ==== =========== ==== ======== =====
</TABLE>
Funeral
Funeral revenues were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERCENTAGE
-------------------------------- INCREASE INCREASE
1998 1997 (DECREASE) (DECREASE)
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
North America.................... $ 1,006,654 $ 970,749 $ 35,905 3.7%
France........................... 524,418 480,473 43,945 9.1
Other European................... 241,114 203,479 37,635 18.5
Other foreign.................... 56,950 65,590 (8,640) (13.2)
----------- ----------- -------- -----
Total funeral
revenues............. $ 1,829,136 $ 1,720,291 $108,845 6.3%
=========== =========== ======== =====
</TABLE>
The $35,905 increase in revenues from North American operations was
primarily the result of a $34,499 increase in revenues from existing clusters
(existing clusters represent geographic areas entered prior to January 1, 1997).
Included in the existing cluster increase was a $60,724 increase from locations
acquired since January 1, 1997, offset by a $26,225 decrease from locations
acquired prior to 1997. The number of funeral services performed by existing
clusters in North America increased 4.1% (259,071 compared to
10
<PAGE> 12
248,781), while the average sales price decreased slightly by .5% ($3,817
compared to $3,836). The sales price decrease occurred because of continuing
changes in the Company's sales mix resulting from a higher proportion of
funerals from prearranged contracts being serviced and an increase in the number
of cremations performed both of which typically carry lower sales price averages
than traditional at need funeral services. The prearranged sales average has
been historically lower than the current at need sales average primarily due to
the servicing of older, lower average contracts typically sold by funeral homes
that have been acquired by the Company. In addition, the Company has lowered
sales prices in certain markets for competitive reasons. Locations included in
existing clusters, that were acquired since January 1, 1997 performed 25,999
funeral services compared to 10,378 in 1997, while locations acquired before
1997 performed 2.2% fewer funeral services in 1998 (233,072 compared to
238,403).
The increasing proportion of people over age 65 in the Company's primary
North American markets could increase demand for funeral services in the decades
to come. It is believed the Company currently performs approximately 11% of the
funeral services in North America.
Revenues from the Company's operations in France increased $43,945 in 1998
due primarily to acquisitions, since January 1, 1997, added to existing French
clusters. Also contributing to this increase was a 3.0% increase in average
sales prices and higher merchandise sales in 1998 at existing locations. The
total number of funeral services performed by the Company's French operations
during 1998 was 147,994, compared to 148,223 in 1997.
The $37,635 increase in revenues from other European operations is
primarily due to a 14.4% increase in the total number of funeral services
performed (117,776 compared to 102,985). Revenue from locations acquired since
January 1, 1997, increased $43,912 in 1998 ($57,514 compared to $13,602), while
volumes at these locations increased to 30,903 in 1998, compared to 7,140 in
1997. In 1998, the Company entered into new markets, including Norway and
expanded existing markets in Spain, Portugal and the Netherlands.
The decrease in revenues from other foreign operations is primarily due to
a 15.4% decline in the Australian to US currency exchange rates, offset by
increased revenues from a full year of operations in Argentina. The number of
funeral services performed by other foreign operations were 29,946 compared to
29,278 in 1997.
During the year ended December 31, 1998, the Company sold (net of
cancellations) approximately $490,000 of prearranged funeral services compared
to approximately $527,000 for the same period in 1997. The obligations are
funded through both trust funded and insurance backed contracts. These
prearranged funeral services are deferred and will be reflected in funeral
revenues in the periods that the funeral services are performed. The Company
expects to continue the emphasis on selling prearranged funerals.
Funeral gross margins were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------- PERCENTAGE
% OF % OF INCREASE INCREASE
1998 REVENUE 1997 REVENUE (DECREASE) (DECREASE)
-------- ------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
North America.............. $284,332 28.2% $297,586 30.7% $(13,254) (4.5)%
France..................... 60,810 11.6 48,620 10.1 12,190 25.1
Other European............. 27,731 11.5 38,097 18.7 (10,366) (27.2)
Other foreign.............. 11,734 20.6 17,068 26.0 (5,334) (31.3)
-------- ---- -------- ---- -------- -----
Total funeral
gross margin... $384,607 21.0% $401,371 23.3% $(16,764) (4.2)%
======== ==== ======== ==== ======== =====
</TABLE>
The decrease in gross margin percentage in North America is due to an
increase in costs and expenses of 7.3% while revenues increased 3.7%, as
discussed above. The increased costs and expenses are primarily due to higher
costs at locations acquired since January 1, 1997. 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. Costs for
locations acquired prior to 1997 were flat with the prior year.
11
<PAGE> 13
The France gross margin increase is attributable to a revenue increase of
9.1%, while the corresponding increase in costs and expenses were 7.4%. The
Company continues to improve its French sales and merchandising efforts while
implementing additional cost efficiencies.
Despite increased revenues, the other European gross margin percentage
decreased due to a disproportionate increase in costs and expenses of 29.0%
($213,383 compared to $165,381). The increased costs and expenses are primarily
related to additional costs in the United Kingdom and operating costs incurred
by acquisitions made throughout Europe during the year.
The decrease in other foreign gross margin percentage is primarily due to
the Company's Australian operations. Excluding a 15.4% decline in the Australian
to US currency exchange rates, Australian revenue declined approximately 1.6%,
while Australian costs and expenses increased approximately 6.0%.
Cemetery
Cemetery revenues were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------- PERCENTAGE
1998 1997 INCREASE INCREASE
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
North America.............................. $768,228 $671,112 $ 97,116 14.5%
Other European............................. 25,565 21,609 3,956 18.3
Other foreign.............................. 52,808 32,141 20,667 64.3
-------- -------- -------- ----
Total cemetery revenues.......... $846,601 $724,862 $121,739 16.8%
======== ======== ======== ====
</TABLE>
The $97,116 increase in revenues from North American cemetery operations is
primarily due to an increase of $95,153 from existing clusters. Included in the
existing cluster increase was $69,483 from locations acquired since January 1,
1997, while revenues from existing cluster locations acquired before 1997
increased $25,670. Factors contributing to the total increase were increases in
preneed and at need sales of property and merchandise ($66,629), higher
investment earnings on trusted amounts ($18,594) and increased revenue from
sales of excess property ($11,893).
The increase in revenues from other foreign operations is primarily due to
the inclusion of a full year of cemetery operations in Argentina $24,365, offset
by a $3,698 decrease in cemetery revenue in Australia.
Cemetery gross margins were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------- PERCENTAGE
% OF % OF INCREASE INCREASE
1998 REVENUE 1997 REVENUE (DECREASE) (DECREASE)
-------- ------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
North America.............. $282,754 36.8% $251,993 37.5% $30,761 12.2%
Other European............. 7,936 31.0 8,275 38.3 (339) (4.1)
Other foreign.............. 15,471 29.3 11,629 36.2 3,842 33.0
-------- ---- -------- ---- ------- ----
Total cemetery
gross margin... $306,161 36.2% $271,897 37.5% $34,264 12.6%
======== ==== ======== ==== ======= ====
</TABLE>
North American cemetery gross margin increased $30,761 in 1998, primarily
due to corresponding growth in revenue discussed above. The 1998 decrease in
cemetery gross margin percentage (36.8% compared to 37.5%) is due to higher
costs at locations acquired since January 1, 1997 and higher overhead costs.
Recently acquired cemeteries will usually have lower gross margins than the
Company's existing cemeteries until a formal selling program can be developed
and until operating costs can be more efficiently managed through the cluster
management approach. Costs at existing cemeteries were .3% higher in 1998 versus
1997.
The decrease in other foreign gross profit margin percentage is due to the
inclusion of a full year of cemetery operations in Argentina. The gross profit
margin percentage from operations in Argentina was approximately 19.4% in 1998,
compared to 39.2% for the Company's operations in Australia. The Argentina
12
<PAGE> 14
gross margin is consistent with the Company's expectations. These operations
have historically produced lower gross margins than the Company's operations in
North America or Australia. Australia's gross profit margin percentages were
flat with 1997.
Financial Services
Financial services represents a combination of the Company's lending
subsidiary, Provident Services, Inc. (Provident), and the Company's wholly-owned
insurance subsidiaries.
Financial services revenues were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------ PERCENTAGE
1998 1997 INCREASE INCREASE
-------- ------- -------- ----------
<S> <C> <C> <C> <C>
Insurance:
North America............................. $ 81,832 $ -- $ 81,832 --%
France.................................... 96,941 74,175 22,766 30.7
-------- ------- -------- -----
Total insurance........................... 178,773 74,175 104,598 141.0
Provident (North America)................... 20,580 16,537 4,043 24.4
-------- ------- -------- -----
Total financial services
revenues........................ $199,353 $90,712 $108,641 119.8%
======== ======= ======== =====
</TABLE>
The 1998 increase in insurance revenues is due primarily to the North
American acquisition of American Memorial Life Insurance Company (AML) effective
July 1998. Insurance revenues from the Company's French operations increased due
to increased premium revenue and investment earnings due to increases in the
sales of prearranged funerals. Revenue from Provident increased as a result of a
corresponding increase in its average loan portfolio during 1998 ($228,279
compared to $182,375).
Financial services gross margins were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
% OF % OF PERCENTAGE
1998 REVENUE 1997 REVENUE INCREASE INCREASE
------- ------- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Insurance:
North America............... $ 7,872 9.6% $ -- --% $ 7,872 --%
France...................... 10,689 11.0 6,712 9.0 3,977 59.3
------- ---- ------- ---- ------- -----
Total insurance............. 18,561 10.4 6,712 9.0 11,849 176.5
Provident (North America)..... 9,441 45.9 7,632 46.2 1,809 23.7
------- ---- ------- ---- ------- -----
Total financial
services gross
margin............ $28,002 14.0% $14,344 15.8% $13,658 95.2%
======= ==== ======= ==== ======= =====
</TABLE>
The increase in North American insurance gross margin is due to the
acquisition of AML as discussed above, while the increase in French insurance
gross margin is primarily due to increased revenues.
Provident reported a gross profit of $9,441 for the year ended December 31,
1998 compared to $7,632 for the same period in 1997. The increase in gross
profit is due to the increase in Provident's average outstanding loan portfolio,
partially offset by a decrease in the average interest rate spread (3.14% this
year compared to 3.18% last year).
Other Income and Expenses
The Company's general and administrative expenses remained stable in 1998
($66,839 compared to $66,781). Expressed as a percentage of revenues, these
expenses decreased slightly to 2.3% in 1998 compared to 2.6% in 1997.
Interest expense, which excludes the amount incurred by financial service
operations, increased $40,333 or 29.5% during 1998. The average borrowings
during 1998 were $3,340,708 compared to $2,434,808 in 1997,
13
<PAGE> 15
primarily due to additional borrowings for acquisitions. The average interest
rate in 1998 was 6.15% compared to 6.03% in 1997.
Other income was $43,649 in 1998, compared to $100,244 in 1997. This
decrease reflects a gain on the sale of the Company's equity interest in ECI
($68,077) recorded in 1997 (see note nineteen to the consolidated financial
statements).
The provision for income taxes reflects a 34.0% effective tax rate for
1998, compared to a 35.4% effective tax rate in 1997. The decrease in the
effective tax rate is due primarily to lower taxes from international
operations. Both years included tax benefits relating to enacted tax rate
changes in certain foreign tax jurisdictions.
RESULTS OF OPERATIONS:
Year Ended 1997 Compared to 1996
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERCENTAGE
-------------------------------- INCREASE INCREASE
1997 1996 (DECREASE) (DECREASE)
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Funeral........................ $ 1,720,291 $ 1,656,736 $ 63,555 3.8%
Cemetery....................... 724,862 612,421 112,441 18.4
Financial services............. 90,712 86,185 4,527 5.3
----------- ----------- -------- ----
2,535,865 2,355,342 180,523 7.7
Costs and expenses:
Funeral........................ (1,318,920) (1,282,546) 36,374 2.8
Cemetery....................... (452,965) (397,700) 55,265 13.9
Financial services............. (76,368) (70,644) 5,724 8.1
----------- ----------- -------- ----
(1,848,253) (1,750,890) 97,363 5.6
Gross profit margin and
percentage:
Funeral........................ 401,371 23.3% 374,190 22.6% 27,181 7.3
Cemetery....................... 271,897 37.5 214,721 35.1 57,176 26.6
Financial services............. 14,344 15.8 15,541 18.0 (1,197) (7.7)
----------- ---- ----------- ---- -------- ----
$ 687,612 27.1% $ 604,452 25.7% $ 83,160 13.8%
=========== ==== =========== ==== ======== ====
</TABLE>
Funeral
Funeral revenues were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERCENTAGE
----------------------- INCREASE INCREASE
1997 1996 (DECREASE) (DECREASE)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
North America........................... $ 970,749 $ 883,876 $ 86,873 9.8%
France.................................. 480,473 532,543 (52,070) (9.8)
Other European.......................... 203,479 169,660 33,819 19.9
Other foreign........................... 65,590 70,657 (5,067) (7.2)
---------- ---------- -------- ----
Total funeral revenues........ $1,720,291 $1,656,736 $ 63,555 3.8%
========== ========== ======== ====
</TABLE>
The $86,873 increase in revenues from North American operations was
primarily the result of a $75,796 increase in revenues from existing clusters.
The number of funeral services performed by existing clusters in North America
increased 5.2% (245,633 compared to 233,383), while the average sales price
increased 3.3% ($3,833 compared to $3,710). Included in the existing cluster
increase was a $70,894 increase from locations acquired since January 1, 1996
and an increase of $4,902 from locations acquired prior to 1996. Locations
acquired since January 1, 1996 performed 30,418 funeral services during 1997
compared to 12,385 in 1996, while the average sales price increased 6.5% ($3,773
compared to $3,543). The increase from locations
14
<PAGE> 16
acquired prior to 1996 is primarily due to a 3.3% higher average sales price
($3,842 compared to $3,720), offset by a 2.6% decrease in the number of funeral
services performed.
Revenues from French operations decreased $52,070 due to a 12.3% decline in
the French franc to US dollar currency exchange rate and a 1.4% decline in the
total funeral services performed (148,223 compared to 150,269). These declines
were partially offset by increased average sales prices (excluding the impact of
currency exchange rates discussed above).The $33,819 increase in revenues from
other European operations was primarily the result of an 11.3% increase in the
number of funeral services performed (102,985 compared to 92,491) as well as
improved average sales prices during 1997. This volume increase reflects a 5.9%
increase in volume reported by the Company's United Kingdom operations and the
effect of continued growth through acquisitions in Europe.
The decrease in revenues from other foreign operations is due primarily to
a 5.0% decline in the Australian to US currency exchange rate. The number of
funeral services performed by the Company's Australian operations declined 4.9%
in 1997, while average prices increased slightly (excluding the impact from
currency discussed above).
During the year ended December 31, 1997, the Company sold (net of
cancellations) approximately $527,000 of prearranged funeral services compared
to approximately $512,000 for the same period in 1996. These prearranged funeral
services are deferred and will be reflected in funeral revenues in the periods
that the funeral services are performed.
Funeral gross margins were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERCENTAGE
------------------------------------------------- INCREASE INCREASE
1997 % OF REVENUE 1996 % OF REVENUE (DECREASE) (DECREASE)
-------- ------------ -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
North America.......... $297,586 30.7% $275,119 31.1% $22,467 8.2%
France................. 48,620 10.1 47,655 8.9 965 2.0
Other European......... 38,097 18.7 30,657 18.1 7,440 24.3
Other foreign.......... 17,068 26.0 20,759 29.4 (3,691) (17.8)
-------- ---- -------- ---- ------- -----
Total funeral
gross
margin..... $401,371 23.3% $374,190 22.6% $27,181 7.3%
======== ==== ======== ==== ======= =====
</TABLE>
The slight decrease in gross margin percentage in North America is due to
lower margins reported by businesses acquired since January 1, 1996. Typically
acquisitions will temporarily exhibit slightly lower gross profit margins than
those experienced by the Company's existing locations until these locations are
assimilated into the Company's cluster management strategy. Margins at
businesses acquired before 1996 were virtually equal with the prior year.
The increase in other European gross margin percentage is primarily due to
improved results from the Company's United Kingdom operations in 1997, compared
to 1996.
The decrease in other foreign gross margin is primarily due to the decrease
in funeral revenues mentioned above and a 5.0% unfavorable change in the
Australian to US currency exchange rates.
Cemetery
Cemetery revenues were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------- PERCENTAGE
1997 1996 INCREASE INCREASE
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
North America............................ $671,112 $566,671 $104,441 18.4%
Other European........................... 21,609 15,285 6,324 41.4
Other foreign............................ 32,141 30,465 1,676 5.5
-------- -------- -------- ----
Total cemetery revenues........ $724,862 $612,421 $112,441 18.4%
======== ======== ======== ====
</TABLE>
15
<PAGE> 17
The $104,441 increase in North American cemetery revenue is due primarily
to a $93,858 increase in revenues from existing clusters. Included in the
existing cluster increase was $49,781 from locations acquired since January 1,
1996. Locations owned before January 1, 1996 contributed $44,077. Factors
contributing to the total increase included increased sales of preneed and at
need property and merchandise ($87,625), investment earnings on trusted amounts
($27,837), offset partially by fewer sales of excess property ($3,021).
The $6,324 increase in other European cemetery revenues is primarily due to
a $5,740 increase in revenues from locations acquired prior to 1996 in the
United Kingdom.
Cemetery gross margins were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERCENTAGE
------------------------------------------------- INCREASE INCREASE
1997 % OF REVENUE 1996 % OF REVENUE (DECREASE) (DECREASE)
-------- ------------ -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
North America........... $251,993 37.5% $198,210 35.0% $53,783 27.1%
Other European.......... 8,275 38.3 4,315 28.2 3,960 91.8
Other foreign........... 11,629 36.2 12,196 40.0 (567) (4.6)
-------- ---- -------- ---- ------- ----
Total cemetery
gross
margin...... $271,897 37.5% $214,721 35.1% 57,176 26.6%
======== ==== ======== ==== ======= ====
</TABLE>
The increase in gross margin from the Company's North American cemetery
operations is due to the increase in cemetery revenues from preneed and at need
cemetery sales, as well as increased trust investment income.
The increase in other European cemetery gross margin is due to the increase
in cemetery revenues as mentioned above at the Company's United Kingdom cemetery
locations.
Financial Services
Financial services revenues were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, PERCENTAGE
----------------- INCREASE INCREASE
1997 1996 (DECREASE) (DECREASE)
------- ------- ---------- ----------
<S> <C> <C> <C> <C>
French insurance subsidiary..................... $74,175 $67,799 $6,376 9.4%
Provident (North America)....................... 16,537 18,386 (1,849) (10.1)
------- ------- ------ -----
Total financial services revenues..... $90,712 $86,185 $4,527 5.3%
======= ======= ====== =====
</TABLE>
Financial services gross margins were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERCENTAGE
----------------------------------------------- INCREASE INCREASE
1997 % OF REVENUE 1996 % OF REVENUE (DECREASE) (DECREASE)
------- ------------ ------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
French insurance
subsidiary............. $ 6,712 9.0% $ 6,651 9.8% $ 61 0.9%
Provident (North
America)............... 7,632 46.2 8,890 48.3 (1,258) (14.2)
------- ---- ------- ---- ------- -----
Total financial
services
gross
margin....... $14,344 15.8% $15,541 18.0% $(1,197) (7.7)%
======= ==== ======= ==== ======= =====
</TABLE>
Provident's average outstanding loan portfolio during 1997 decreased to
$182,375 compared to $190,936 in 1996, and the average interest rate spread also
decreased to 3.18% compared to 3.64% in 1996.
Other Income and Expenses
General and administrative expenses increased by approximately $3,566 or
5.6% during 1997 primarily due to increases in personnel costs and technology
costs. Expressed as a percentage of revenues, these expenses were 2.6% in 1997
compared to 2.7% in 1996.
16
<PAGE> 18
Interest expense, which excludes the amount incurred by financial service
operations, decreased $1,837 or 1.3% during 1997. The decreased interest expense
is primarily attributable to the Company's 1997 refinancing of certain long-term
debt and hedging programs, which lowered the Company's average interest rate to
6.03% in 1997, compared to 7.10% in 1996. The average borrowings during 1997
were $2,434,808, compared to $2,068,072 in 1996.
Other income was $100,244 in 1997, compared to $21,982 in 1996, an increase
of $78,262. This increase reflects a gain on the sale of the Company's equity
interest in ECI ($68,077) recorded in 1997.
The provision for income taxes reflected a 35.4% effective tax rate for
1997 as compared to a 35.9% effective tax rate in 1996.
FINANCIAL CONDITION AND LIQUIDITY AT DECEMBER 31, 1998:
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 registered
securities. The Company believes cash from operations, additional funds
available under its revolving credit agreements, and proceeds from public and
private offerings of securities will be sufficient to continue its anticipated
acquisition program and policies.
At December 31, 1998, the Company had net working capital of $578,755 and a
current ratio of 1.92:1, compared to working capital of $275,966 and a current
ratio of 1.52:1 at December 31, 1997. The Company had a cash and cash
equivalents balance at December 31, 1998 of $358,210, compared to $46,877 at
December 31, 1997. Approximately, $160,000 of the December 31, 1998 cash balance
was contemplated to be used to repay ECI's revolving credit facility and other
cash needs. The Company purchased ECI in January 1999 (see "Other Matters" for
further information).
Revolving Credit Agreements
The Company has various revolving credit facilities and lines of credit
which currently provide for aggregate borrowings of approximately $1,800,000. At
Dec ember 31, 1998, approximately $1,149,000 was available under these
facilities. These facilities have financial compliance provisions that contain
certain restrictions on levels of net worth, debt, liens and guarantees (see
note eight to the consolidated financial statements for further information).
Sources and Uses of Cash
Cash Flows from Operating Activities: Net cash provided by operating
activities was $329,647 for the year ended December 31, 1998, compared to
$299,436 for the same period in 1997, an increase of $30,211. This increase was
primarily due to increases in net income and non-cash adjustments for
depreciation and amortization and deferred taxes, offset by growth in the
Company's receivables. The primary source of growth in the Company's receivables
is from increased sales of cemetery products and merchandise on a preneed basis.
Cash Flows from Investing Activities: Net cash used in investing activities
was $1,059,875 for the year ended December 31, 1998, compared to $633,444 for
the same period in 1997, an increase of $426,431. This increase was primarily
due to a $310,037 increase in cash used in acquisitions and $22,692 of increased
capital expenditures including new construction of facilities and major
improvements to existing properties. Cash used relating to prearranged funeral
activities includes amounts expended in the current year on prearranged
marketing efforts. The prior year included $147,700 in cash provided by the sale
of the Company's equity interest in ECI.
17
<PAGE> 19
Cash Flows from Financing Activities: Net cash provided by financing
activities was $1,041,561 for the year ended December 31, 1998 compared to
$336,754 for the same period in 1997, an increase of $704,807. This increase is
mainly the result of two 1998 public issuances of long term notes totaling
$1,100,000, compared to a 1997 debt issuance for $650,000 and debt
extinguishment of approximately $450,000. Total cash provided by debt financing
activities was approximately $1,124,000 in 1998, compared to $413,043 in 1997.
As of December 31, 1998, the Company's debt to capitalization ratio was
55.0% compared to 49.8% at December 31, 1997. The interest rate coverage ratio
for the year ended December 31, 1998 was 3.72:1, compared to 4.43:1 for the same
period in 1997 (1997 ratio excludes the gain on the sale of the Company's
investment in ECI). Though the level of acquisition activity is expected to slow
from the 1998 level, the Company still 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 December
31, 1998, the Company had approximately $1,149,000 of available borrowings under
various revolving credit facilities and lines of credit. At December 31, 1998,
the Company had the ability to issue $900,000 in securities under a shelf
registration. In addition, 12,870,000 shares of common stock and a total of
$187,000 of guaranteed promissory notes and convertible debentures are
registered under a separate shelf registration to be used exclusively for future
acquisitions.
Prearranged Funeral Services
The Company has a marketing program to sell prearranged funeral contracts
and the funds collected are generally held in trust or are used to purchase life
insurance or annuity contracts. The amounts paid into trust funds or premiums
paid on insurance contracts on such prearranged funeral contracts will be
received in cash by a Company funeral service location at the time the funeral
is performed. Earnings on trust funds and increasing benefits under insurance
and annuity funded contracts also increase the amount of cash to be received
upon performance of the funeral.
The Company has an investment program which entails the ongoing
consolidation of multiple trustees, the use of institutional managers with
differing investment styles and consolidated performance monitoring and
tracking. This program targets a real return in excess of the amount necessary
to cover future increases in the cost of providing a price guaranteed funeral
service as well as any selling costs. This is accomplished by allocating the
portfolio mix to the appropriate investments that more accurately match the
anticipated maturity of the contracts. The Company anticipates an asset
allocation of approximately 65% equity and 35% fixed income. The Company's North
American prearranged trust portfolio earned a return of 18.0% in 1998 and 12.5%
in 1997 (including realized gains).
Marketing costs incurred with the sale of prearranged funeral contracts are
a current use of cash which is partially offset with cash retained, pursuant to
state laws, from amounts trusted and certain commissions earned by the Company
for sales of insurance products. The Company sells prearranged funerals in most
of its service markets including its major foreign markets. AML, which was
acquired by the Company in 1998, has been a provider of insurance and annuity
products used to fund Company prearranged funerals for several years. The
Company's French life insurance subsidiary primarily sells insurance products
used to fund prearranged funerals to be performed by the Company's French
funeral service locations. Prearranged funeral service sales afford the Company
the opportunity to both protect current market share and mix as well as expand
market share in certain markets. The Company believes this will stimulate future
revenue growth. Prearranged funeral services fulfilled as a percent of the total
North American funerals performed annually approximates 26.3% (25.1% in 1997)
and is expected to grow, thereby making the total number of funerals performed
more predictable, which will be recognized as funeral revenues in future
periods.
18
<PAGE> 20
The total value of unperformed prearranged funeral contracts are trust
funded or insurance funded and represent the original contract value plus any
accumulated trust earnings or increasing insurance benefits. As of December 31,
1998 and 1997, unperformed prearranged funeral contracts are composed of the
following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Deferred prearranged funeral contract revenues.............. $2,819,794 $2,805,429
Contracts funded by company owned insurance subsidiaries.... 932,056 565,995
---------- ----------
$3,751,850 $3,371,424
========== ==========
</TABLE>
The following table summarizes the changes in the total value of
unperformed prearranged funeral contracts.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Beginning balance........................................... $3,371,424 $2,876,778
Net sales................................................. 490,289 526,919
Acquisitions/dispositions................................. 138,976 102,346
Realized earnings and increasing insurance benefits....... 129,484 164,853
Maturities................................................ (274,107) (251,054)
Change in cancellation reserve............................ (16,608) (33,481)
Effect of foreign currency and other...................... (87,608) (14,937)
---------- ----------
Ending balance.............................................. $3,751,850 $3,371,424
========== ==========
</TABLE>
The recognition of the total value of unperformed prearranged funeral
revenues is estimated to occur in the following years.
<TABLE>
<S> <C>
1999........................................................ $ 367,783
2000........................................................ 334,239
2001........................................................ 271,540
2002........................................................ 281,612
2003........................................................ 254,819
2004 through 2008........................................... 962,042
2009 and thereafter......................................... 1,279,815
----------
$3,751,850
==========
</TABLE>
Cremations
In recent years there has been steady, gradual growth in the number of
cremations that have been chosen as an alternative to traditional methods of
disposal of human remains. In 1998, 34.5% (33.3% in 1997) of all families served
by the Company's North American funeral service locations selected the cremation
alternative, substantially more than the 20% national average according to
industry studies. The Company has a significant number of operating locations in
Florida and the west coast of North America where the cremation alternative
continues to gain acceptance. Based on industry studies, the Company believes
that cremations account for approximately 60-70% of all dispositions of human
remains in Australia and the United Kingdom. It is estimated that cremations
account for approximately 17% of all dispositions of human remains in France.
Though a cremation typically results in fewer sales dollars than a traditional
funeral service, the Company believes that funeral operations which are
predominantly cremation businesses typically have higher gross profit margin
percentages than those exhibited at traditional funeral operations. Cremation
memorialization has long been a tradition in the Australian and United Kingdom
markets. The Company has expanded its product alternatives in these markets
which has resulted in higher average sales. The Company has also established
markets in select areas within North America and believes that memorialization
of cremated remains represents a source of revenue and margin growth.
19
<PAGE> 21
Other Matters
In January, 1999, a wholly-owned subsidiary of the Company acquired ECI in
a stock for stock transaction valued at approximately $578,000 with assumed debt
of $252,000. ECI owned 326 funeral homes and 81 cemeteries in North America.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," effective for fiscal years beginning after June 15,
1999. This statement establishes accounting and reporting standards for
derivative instruments and requires recognition of all derivatives as assets or
liabilities in the statement of financial position and measurement of those
instruments at fair value. Changes in the fair value of derivatives will be
recorded either in earnings or in other comprehensive income, based on the type
of risk for which the instrument is determined to be an effective hedge. Any
change in fair value of an instrument that is not designated as a hedge, or any
portion of a change in fair value of a hedging instrument that is deemed
ineffective, will be immediately recognized in earnings. The Company expects to
adopt the standard in the first quarter of fiscal year 2000 and is currently
assessing the impact that adoption will have on its consolidated financial
statements.
Several countries in which the Company operates will adopt usage of the
Euro in 1999. The Euro is a common currency being adopted by many of the
countries within the European community. The Company has established plans to
address operational and information system issues related to the Euro
conversion. The Company does not expect that the Euro conversion will have a
material adverse impact on the Company's consolidated financial position,
results of operations or cash flows.
The Company intends to repurchase the floating-rate notes, due 2011 and
putable in 1999, in the amount of $200,000. This debt instrument is expected to
be refinanced under the Company's commercial paper program before April 15,
1999. As of March 12, 1999, the Company estimates this repurchase will result in
an extraordinary charge of approximately $22,100 in 1999 ($14,300, net of tax).
In association with the review and analysis of its operating cost
structure, the Company anticipates recording a special charge to earnings in the
quarter ended March 31, 1999. Items being considered are: severance for employee
terminations; lease costs and asset write-offs for various offices and
operations to be closed; and costs related to construction projects that will
not be completed. The amount of the charge is expected to be between $80,000 and
$90,000 on a pre-tax basis.
Since January 26, 1999, several lawsuits have been commenced on behalf of
persons who (i) acquired shares of Company common stock in the merger of a
wholly owned subsidiary of the Company into ECI, (ii) purchased shares of
Company common stock during certain specified class periods or (iii) owned
employee stock options in ECI. As of March 24, 1999, 20 class action lawsuits
that had been originally filed in federal district court in Houston had been
consolidated into one action pending in that court, and one additional class
action lawsuit that had been originally filed in the federal district court in
Lufkin, Texas was still pending in that court. These lawsuits allege violations
of federal securities laws and name as defendants the Company and certain of its
officers and directors. As of the same date, two former state court lawsuits,
one of which was a class action, naming the Company as defendant and alleging
fraud and violations of Texas securities and common law had been removed to the
federal district court in Lufkin. The lawsuits generally refer to the Company's
January 26, 1999 public announcement that the Company's diluted earnings per
share for the fourth quarter of 1998 and for the year ended December 31, 1998
would be lower than analyst expectations. The lawsuits seek, among other things,
to recover unspecified damages. Since the litigation is in its very preliminary
stages, no discovery has been taken, and the Company cannot quantify its
ultimate liability, if any, for the payment of damages in these lawsuits.
However, the Company believes that the allegations in the lawsuits do not
provide a basis for the recovery of damages because the Company has made all the
required disclosures on a timely basis. The Company is seeking to transfer the
lawsuits pending in Lufkin and consolidate them with the action pending in
federal district court in Houston. The Company intends to aggressively defend
the foregoing litigation.
20
<PAGE> 22
Year 2000 Issue
The Year 2000 issue, also known as "Y2K," refers to the inability of some
computer programs and computer-based microprocessors to correctly interpret the
century from a date in which the year is represented by only two digits (e.g.,
98). As a result, on or before January 1, 2000, computer systems used by
companies throughout the world may experience operating difficulties unless they
are modified or upgraded to properly process date related information. The Y2K
issue can arise at any point in a company's supply, manufacturing, processing,
distribution, or financial chains.
The Company has established Y2K Program Offices at its corporate offices in
Houston, Texas and Birmingham, England. These program offices, under the
direction of senior management, are responsible for advising and monitoring the
numerous facets of the Company's Y2K preparations. The Company has engaged an
external consulting firm to assist in oversight of the Company's Y2K
preparations and various assessment activities associated with discovering the
seriousness of the Y2K issue in the Pacific Rim and South America. Additionally,
the Company is utilizing internal personnel, contract project managers,
programmers and testers, as well as vendors, to identify Y2K issues, test and
implement the chosen solutions.
In order to adequately address the Y2K issue, efforts have been directed to
the following categories: production systems, networks, desktops, user developed
applications, vendor supplied software, facilities and telecommunications, and
the Company's supply chain. The following phases are common to all of these
categories: inventory and determination of criticality, discovery to determine
Y2K problems, analysis to determine corrective action, correction, testing, and
implementation. In addition to these activities, promotion of Y2K awareness and
development of contingency plans are part of the Company's Y2K preparation
effort.
STATE OF READINESS:
The majority of the Company's internal Y2K exposure exists at the corporate
office locations where the accounting and processing of the Company's business
transactions takes place. Individual operating locations (primarily funeral
homes and cemeteries) are substantially technology independent and thus face few
Y2K risks from internal systems.
Production systems: In 1998, in order to improve access to business
information through a common, integrated computing system across the company,
the Company began a worldwide computer systems replacement project utilizing
systems from Oracle Corporation (Oracle). While this project has begun at the
Company's Australian and European headquarters, global implementation will not
be achieved prior to the turn of the century. Therefore, all computer programs
expected to be replaced by Oracle are being made Y2K ready. The only exception
to this is in the United Kingdom where the implementation of Oracle is
proceeding in order to achieve Y2K readiness. In general, the Company's
production systems have progressed through the inventory, discovery, and
analysis phases and are in various stages of correction and testing. Production
systems make up the majority of the Company's "mission critical systems" and are
expected to be Y2K ready by mid-1999, with deployment completed by late-1999.
In many cases, deployment of the Y2K ready production systems to the
Company's many operating locations in North America will require new desktop
computers. At this point, it is the short time available for deployment, and not
the need for corrective action, that poses the largest risk to the Company. See
the section on Risks for more details.
Networks: Inventory, discovery and analysis of critical networks have been
completed at all of the Company's headquarter and regional locations and these
networks are in various stages of correction and testing. Accomplishing Y2K
readiness in this category has been complicated by Microsoft's recent change in
its position on the Y2K readiness of Windows NT 4.0, requiring customers to
install another software update to be considered fully Y2K compliant. Some
non-critical networks exist at individual operating locations and will be
assessed and made Y2K ready as time allows. Expectations are that all critical
networks will be Y2K ready by mid-1999.
Desktops: Testing has been conducted to determine the extent to which the
Y2K problem associated with desktops will affect the Company's ability to
conduct business. As none of the Company's critical
21
<PAGE> 23
computer systems directly access date information from the desktop's real time
clock, it has been determined that very few desktops will pose a Y2K issue.
Coincidentally, as part of ongoing technology refresh programs and new
production systems' deployment, desktops are being upgraded, as needed, to
better meet the Company's business needs. As part of contingency planning,
personnel will be instructed on how to verify each desktop's date, and reset if
necessary, after January 1, 2000.
User developed applications: Inventory and discovery for items in this
category have been achieved. Very few critical applications were found to have
date dependencies. Those that do are being remediated and tested to ensure no
problems arise because of Y2K issues. Readiness should be achieved by mid-1999.
Vendor supplied software: It is the policy of the Company to query each
manufacturer of critical "off-the-shelf" software to ascertain the vendor's
statement regarding the Y2K readiness of their products. Once the vendor's
statement is obtained, upgrades, replacements and testing will be implemented to
minimize the risk of Y2K issues arising from the software. Accomplishing Y2K
readiness in this category is becoming increasingly challenging as vendors are
modifying previously stated positions on existing software, requiring customers
to install patches or upgrades to achieve full Y2K readiness. This has occurred
with at least three critical vendor supplied software packages the Company
currently uses. Given the moving target posed by the vendor's changing
statements, the Company has changed its expectations for critical items in this
category and plans to be using the latest vendor supplied patches and upgrades
by late-1999.
Facilities and telecommunications: The Company recognizes the potential for
Y2K issues to arise from embedded technology systems which may be in use at its
numerous facilities. Inventory, discovery and analysis are complete at the
Company's headquarters and most international operating locations. North
American operating locations are expected to complete these phases by mid-1999.
Telecommunications equipment has proven the most vulnerable, and plans are in
place to upgrade and/or replace equipment as necessary. Planning has begun to
obtain inventories from the remaining operating locations. All critical
facilities and telecommunication systems are expected to be Y2K ready by
late-1999.
Supply chain: Due to the Company's disparate locations and methods of
operation, assessing the Y2K readiness of the Company's supply chain must occur
at both the corporate level (for core supply chain relationships) and the local
level (for those relationships unique to a location). Inventory and discovery
have been completed at a number of operating locations and is ongoing at the
Company's headquarters. In general, responses to the Company's inquiries have
been less than informative, with many companies failing to respond. Planning has
begun to assign criticality to both corporate and local supply relationships and
additional efforts will be expended to ascertain the Y2K readiness of critical
suppliers. Contingency plans for critical suppliers are expected to be in place
by late-1999.
COSTS:
The aggregate costs for the Company to achieve Y2K readiness are not
expected to exceed $20,000 of which $4,800 represents lease payments which will
be incurred from 2000-2002. The $5,000 reduction from the September 30, 1998
estimate is primarily due to lower than anticipated Y2K issues in embedded
technology systems. All costs associated with Y2K readiness will be funded from
operating cash flows. The Company's actual costs incurred associated with Y2K
readiness through December 31, 1998 are estimated at $3,500.
In an effort to report material costs related to the Company's Y2K effort,
the Company has adopted a policy of capturing all costs of one thousand dollars
or more, all contractor expenses, and internal costs for dedicated resources
(those working exclusively on Y2K issues). As such the Company acknowledges that
there are many internal resources working part-time on Y2K-related issues for
which no payroll or overhead costs are being reported.
RISKS:
The majority of the Company's internal Y2K exposure exists at its corporate
offices where the Company's production systems operate. The failure to correct a
material Y2K problem at these locations could result in
22
<PAGE> 24
an interruption of certain normal corporate business activities. Such a failure
would not, however, render the Company's various operating locations unable to
deliver goods and services.
The Company believes that the greatest risks continue to arise from the
uncertainty of the Y2K readiness of critical third party suppliers, both private
businesses and government entities, especially in the Company's international
markets. The possible consequences of critical third party suppliers not being
Y2K ready by January 1, 2000 could include temporary location closings, delays
in the delivery of goods and services, delays in the receipt of goods and
invoice and collection errors. Continued efforts by the Company to ascertain the
Y2K status of critical third party suppliers is expected to significantly reduce
the Company's level of uncertainty as the year 2000 approaches and, through the
use of contingency planning, the possibility of significant interruptions in
normal operations should be reduced.
At this time, the Company has no substantiated reason to believe that one
or more key third party suppliers will not be able to meet their obligations to
the Company after January 1, 2000; therefore, the Company believes that the
"most reasonably likely worst case scenario" would occur if deployment of the
Company's newly remediated proprietary funeral home financial system to all
North American locations was not completed by December 31, 1999. Such an
occurrence would not be materially disruptive to the Company. Contingencies for
this include modifying deployment schedules in late 1999 to ensure at least one
location is installed in each cluster and forwarding all transactions to be
input to the new system.
CONTINGENCY PLANS:
Because of the many uncertainties that exist, it is part of the Company's
Y2K preparation methodology that contingency plans be established for critical
systems in each of the categories outlined above. Contingency planning is
progressing at different stages at the Company's various locations. Contingency
plans for all critical production systems and plans for all individual operating
locations are expected to be in place by late-1999.
Quantitative and Qualitative Disclosures about Market Risk
The information presented below should be read in conjunction with Notes
Nine and Ten to the consolidated financial statements.
The Company uses derivatives primarily in the form of interest rate swaps
and cross-currency interest rate swaps in combination with local currency
borrowings in order to manage its mix of fixed and floating rate debt and to
substantially hedge the Company's net investment in foreign assets. The
derivative instruments held by the Company are for hedging purposes and are
neither leveraged nor speculative in nature. The company expects no material
change in these policies in the coming year.
Movements in currency rates that impact the swaps are generally offset by a
corresponding movement in the value of the underlying assets being hedged.
Movements in interest rates that impact the fair value of the interest rate
swaps are generally offset by a corresponding movement in the value of the
underlying debt 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.
At December 31, 1998, after giving effect to the interest rate swaps, the
Company's total debt consists of approximately 74% of fixed interest rate debt
at a weighted average rate of 6.17% and approximately 26% of floating interest
rate debt at a weighted average rate of 6.15%. At December 31, 1997, the
Company's total debt consisted of approximately 44% of fixed interest rate debt
at a weighted average rate of 7.00% and approximately 56% of floating interest
rate debt at a weighted average rate of 5.50%. The Company's overall sensitivity
to floating interest rates is diversified in that approximately 47% of the
Company's floating rate exposure, as of December 31, 1998, is based in eight
markets other than the United States.
In general, the Company hedges up to 100% of its net investment in foreign
assets when such investment is considered significant and when it is reasonably
cost efficient to do so. Approximately 33.1% of the Company's net investment and
23.2% of its operating income are denominated in foreign currencies. Due to the
cross-currency hedges described above, approximately 13.3% of the Company's net
assets and approximately 3.5% of the Company's operating earnings are subject to
translation risk.
23
<PAGE> 25
Marketable Equity and Debt Securities -- Price Risk
In connection with insurance operations, prearranged funeral operations and
preneed cemetery merchandise sales, the Company owns investments in equity
securities and mutual funds which are sensitive to current market prices. Cost
and market values as of December 31, 1998 and 1997, are presented in notes four,
five and six to the consolidated financial statements.
Market-Rate Sensitive Instruments -- Interest Rate and Currency Risk
The Company's financial instruments that are subject to interest rate and
currency risk consist of debt instruments, U.S. dollar interest rate swaps, and
cross-currency interest rate swaps. The Company performs sensitivity analyses to
assess the impact of these risks on earnings. This analysis reflects the impact
of a hypothetical 10% adverse change in market rates. In actuality, market rate
volatility is dependent on many factors that are impossible to forecast.
Therefore, adverse changes described below could differ substantially from the
hypothetical 10% impact. The analysis conducted below does not include Provident
assets or those of the insurance subsidiary. Instead, these are referenced
separately in tabular format below.
A sensitivity analysis of those instruments with variable interest rate
components is modeled to assess the impact that changing interest rates could
have on pre-tax earnings. The sensitivity analysis assumes an instantaneous 10%
adverse change to the then prevailing interest rates with all other variables
held constant. Given this model, the Company's pre-tax earnings, on an annual
basis, would be negatively impacted by $5,657 on December 31, 1998, and $7,624
on December 31, 1997.
A similar model is used to assess the impact of changes in foreign
currencies on interest expense. The Company's debt and derivative exposure is
primarily associated with the French franc, British pound, Canadian dollar,
Australian dollar, Spanish peseta, and the Norwegian krone. A 10% adverse change
in the U.S. dollar against these currencies would have negatively impacted the
Company's pre-tax earnings, on an annual basis, by $12,229 on December 31, 1998
and $10,838 on December 31, 1997.
For certain assets, the tables below present principal cash flows that
exist by maturity date and the related average interest rates:
AS OF DECEMBER 31, 1998:
<TABLE>
<CAPTION>
FAIR VALUE
1999 2000 2001 2002 2003 THEREAFTER ASSET/(LIABILITY)
------- ------- ------- -------- ------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Provident receivables........... $33,007 $14,369 $44,501 $107,117 $27,238 $ 43,297 $269,529
Average rate.................... 7.70% 9.24% 8.54% 8.12% 8.97% 8.38%
Insurance subsidiaries
investments in debt
securities.................... 85,316 70,369 76,233 108,416 74,231 503,804 918,369
Average rate.................... 5.85% 5.38% 5.84% 5.42% 5.90% 4.93%
</TABLE>
AS OF DECEMBER 31, 1997:
<TABLE>
<CAPTION>
FAIR VALUE
1998 1999 2000 2001 2002 THEREAFTER ASSET/(LIABILITY)
------- ------- ------- ------- ------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Provident receivables............ $15,922 $22,528 $21,264 $52,917 $58,218 $ 27,072 $197,921
Average rate..................... 9.34% 7.58% 9.99% 9.96% 8.48% 8.67%
Insurance subsidiaries
investments in debt
securities..................... 2,809 17,014 59,739 24,300 67,522 142,901 314,285
Average rate..................... 5.97% 5.97% 6.30% 6.82% 6.16% 6.16%
</TABLE>
The unrealized gain on debt securities principally reflects changes in
interest rates. To reduce exposure to interest rate changes, portfolio
investments are selected so the weighted average duration of the investments
approximates the duration of associated policyholder liabilities. The insurance
companies are subject to reinvestment risk upon either sale or maturity of the
debt securities. Management believes that absence of any material amounts of
"high-yield" or "non-investment grade" investments in the portfolios of its
insurance subsidiaries enhances the ability of the insurance companies to
provide security to their policyholders.
24
<PAGE> 26
Cautionary Statement on Forward-Looking Statements
The statements contained in this Annual Report that are not historical
facts are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements may be accompanied by
words such as "believe," "estimate," "expect," "anticipate," or "predict," that
convey the uncertainty of future events or outcomes. These statements are based
on assumptions that the Company believes are reasonable; however many important
factors could cause the Company's actual results in the future to differ
materially from the forward-looking statements made herein and in any other
documents or oral presentations made by, or on behalf of, the Company. Important
factors which could cause actual results to differ materially from those in
forward-looking statements include, among others, the following:
1) Changes in general economic conditions both domestically and
internationally impacting financial markets (e.g. marketable security
values as well as currency and interest rate fluctuations).
2) Changes in domestic and international political and/or regulatory
environments in which the Company operates, including tax and accounting
policies. Changes in regulations may impact the Company's ability to enter
or expand new markets.
3) Changes in consumer demand for the Company's services caused by
several factors, such as changes in local death rates, cremation rates,
competitive pressures and local economic conditions.
4) The Company's ability to identify and complete additional
acquisitions on terms that are favorable to the Company, to successfully
integrate acquisitions into the Company's business and to realize expected
cost savings in connection with such acquisitions. The Company's future
results may be materially impacted by changes in the level of acquisition
activity.
5) The ability of the Company, or its critical third party suppliers,
to adequately complete Y2K preparation efforts.
The Company assumes no obligation to publicly update or revise any
forward-looking statements made herein or any other forward-looking statements
made by the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See "Quantitative and Qualitative Disclosures About Market Risk" set forth
in Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7 of this Form 10-K.
25
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS AND RELATED SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... 27
Consolidated Statement of Income for the three years ended
December 31, 1998......................................... 28
Consolidated Balance Sheet as of December 31, 1998 and
1997...................................................... 29
Consolidated Statement of Cash Flows for the three years
ended December 31, 1998................................... 30
Consolidated Statement of Stockholders' Equity for the three
years ended December 31, 1998............................. 31
Notes to Consolidated Financial Statements.................. 32
Financial Statement Schedule:
II -- Valuation and Qualifying Accounts..................... 61
</TABLE>
All other schedules have been omitted because the required information is
not applicable or is not present in amounts sufficient to require submission or
because the information required is included in the consolidated financial
statements or the related notes thereto.
26
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Service Corporation International
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Service Corporation International at December 31, 1998 and 1997, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Houston, Texas
March 24, 1999
27
<PAGE> 29
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996
------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues........................................... $2,875,090 $2,535,865 $2,355,342
Costs and expenses................................. (2,156,320) (1,848,253) (1,750,890)
---------- ---------- ----------
Gross profit....................................... 718,770 687,612 604,452
General and administrative expenses................ (66,839) (66,781) (63,215)
---------- ---------- ----------
Income from operations............................. 651,931 620,831 541,237
Interest expense................................... (177,053) (136,720) (138,557)
Dividends on preferred securities of SCI Finance
LLC.............................................. -- (4,382) (10,781)
Other income....................................... 43,649 100,244 21,982
---------- ---------- ----------
(133,404) (40,858) (127,356)
---------- ---------- ----------
Income before income taxes and extraordinary
loss............................................. 518,527 579,973 413,881
Provision for income taxes......................... (176,385) (205,421) (148,583)
---------- ---------- ----------
Income before extraordinary loss................... 342,142 374,552 265,298
Extraordinary loss on early extinguishment of debt
(net of income taxes of $23,383)................. -- (40,802) --
---------- ---------- ----------
Net income......................................... $ 342,142 $ 333,750 $ 265,298
========== ========== ==========
Earnings per share:
Basic:
Income before extraordinary loss................. $ 1.34 $ 1.53 $ 1.13
Extraordinary loss on early extinguishment of
debt.......................................... -- (0.17) --
---------- ---------- ----------
Net income............................... $ 1.34 $ 1.36 $ 1.13
========== ========== ==========
Diluted:
Income before extraordinary loss................. $ 1.31 $ 1.47 $ 1.08
Extraordinary loss on early extinguishment of
debt.......................................... -- (0.16) --
---------- ---------- ----------
Net income............................... $ 1.31 $ 1.31 $ 1.08
========== ========== ==========
Basic weighted average number of shares............ 256,271 245,470 235,299
========== ========== ==========
Diluted weighted average number of shares.......... 262,520 257,781 252,870
========== ========== ==========
</TABLE>
(See notes to consolidated financial statements)
28
<PAGE> 30
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 358,210 $ 46,877
Receivables, net of allowances............................ 565,552 557,481
Inventories............................................... 189,070 172,169
Other..................................................... 96,248 34,881
----------- -----------
Total current assets.............................. 1,209,080 811,408
----------- -----------
Investments -- insurance subsidiaries....................... 1,234,678 574,728
Prearranged funeral contracts............................... 2,588,806 2,628,104
Long-term receivables....................................... 1,408,076 981,121
Cemetery property, at cost.................................. 2,035,897 1,636,859
Property, plant and equipment, at cost (net)................ 1,824,979 1,644,137
Deferred charges and other assets........................... 1,151,430 740,457
Names and reputations (net)................................. 1,813,212 1,498,116
----------- -----------
$13,266,158 $10,514,930
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 452,354 $ 425,631
Current maturities of long-term debt...................... 96,067 64,570
Income taxes.............................................. 81,904 45,241
----------- -----------
Total current liabilities......................... 630,325 535,442
----------- -----------
Long-term debt.............................................. 3,764,590 2,634,699
Reserves and annuity benefits -- insurance subsidiaries..... 1,207,169 565,995
Deferred prearranged funeral contract revenues.............. 2,819,794 2,805,429
Deferred income taxes....................................... 797,086 701,221
Other liabilities........................................... 893,092 546,140
Commitments and contingencies............................... -- --
Stockholders' equity:
Common stock, $1 per share par value, 500,000,000 shares
authorized, 259,201,104 and 252,923,784, respectively,
issued and outstanding................................. 259,201 252,924
Capital in excess of par value............................ 1,646,765 1,493,246
Retained earnings......................................... 1,232,758 983,353
Accumulated other comprehensive income (loss)............. 15,378 (3,519)
----------- -----------
Total stockholders' equity........................ 3,154,102 2,726,004
----------- -----------
$13,266,158 $10,514,930
=========== ===========
</TABLE>
(See notes to consolidated financial statements)
29
<PAGE> 31
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 342,142 $ 333,750 $ 265,298
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 202,277 157,550 129,819
Provision for deferred income taxes.............. 56,308 19,212 56,902
Extraordinary loss on early extinguishment of
debt, net of income taxes...................... -- 40,802 --
Gains from dispositions (net).................... (30,627) (89,252) (9,930)
Realized (gains) losses on sale of investments... (23,287) -- --
Change in assets and liabilities net of effects
from acquisitions:
Increase in receivables........................ (228,325) (174,429) (167,338)
Increase in other assets....................... (71,824) (24,904) (36,781)
Increase (decrease) in other liabilities....... 86,501 36,045 (26,365)
Other.......................................... (3,518) 662 (1,748)
----------- ----------- -----------
Net cash provided by operating activities............. 329,647 299,436 209,857
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures................................ (253,224) (230,532) (193,152)
Changes in prearranged funeral contracts and
associated deferred revenues..................... (35,521) (5,537) (51,485)
Purchases of securities -- insurance subsidiaries... (1,225,955) (1,407,588) (1,212,305)
Sales of securities -- insurance subsidiaries....... 1,200,334 1,383,934 1,177,499
Proceeds from sales of property and equipment....... 43,793 46,908 30,121
Acquisitions, net of cash acquired.................. (719,768) (409,731) (279,320)
Loans issued by finance subsidiary.................. (142,017) (98,446) (86,858)
Principal payments received on loans by finance
subsidiary....................................... 70,178 45,915 156,064
Proceeds from sale of equity investment............. -- 147,700 --
Purchases of equity investments..................... (6,968) (87,643) (39,752)
Other............................................... 9,273 (18,424) 19,062
----------- ----------- -----------
Net cash used in investing activities................. (1,059,875) (633,444) (480,126)
----------- ----------- -----------
Cash flows from financing activities:
Increase in borrowings under revolving credit
agreements....................................... 100,294 304,505 96,441
Long-term debt issued............................... 1,100,000 650,000 300,000
Early extinguishment of debt........................ -- (449,998) --
Payments of debt.................................... (76,329) (91,464) (109,458)
Dividends paid...................................... (88,360) (69,888) (55,262)
Bank overdrafts and other........................... 5,956 (6,401) 25,195
----------- ----------- -----------
Net cash provided by financing activities............. 1,041,561 336,754 256,916
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents......................................... 311,333 2,746 (13,353)
Cash and cash equivalents at beginning of period...... 46,877 44,131 57,484
----------- ----------- -----------
Cash and cash equivalents at end of period............ $ 358,210 $ 46,877 $ 44,131
=========== =========== ===========
</TABLE>
(See notes to consolidated financial statements)
30
<PAGE> 32
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL IN OTHER
COMMON EXCESS OF RETAINED COMPREHENSIVE
STOCK PAR VALUE EARNINGS INCOME (LOSS) TOTAL
-------- ---------- ---------- ------------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995.............. $234,542 $1,214,708 $ 518,562 $ 7,533 $1,975,345
Comprehensive income:
Net income.............................. 265,298 265,298
Other comprehensive income:
Foreign currency translation............ 20,568 20,568
Unrealized gain on securities........... 5,132 5,132
----------
Total other comprehensive
income......................... 25,700
----------
Comprehensive income...................... 290,998
Common Stock issued:
Stock option exercises and stock
grants................................ 723 6,940 7,663
Acquisitions............................ 811 15,012 796 16,619
Debenture conversions................... 117 1,123 1,240
Dividends on common stock ($.24 per
share).................................. (56,548) (56,548)
-------- ---------- ---------- -------- ----------
Balance at December 31, 1996.............. 236,193 1,237,783 728,108 33,233 2,235,317
Comprehensive income:
Net income.............................. 333,750 333,750
Other comprehensive income:
Foreign currency translation............ (29,795) (29,795)
Unrealized loss on securities........... (6,957) (6,957)
----------
Total other comprehensive
income......................... (36,752)
----------
Comprehensive income...................... 296,998
Common Stock issued:
Stock option exercises and stock
grants................................ 820 9,296 10,116
Acquisitions............................ 3,958 79,215 (3,832) 79,341
Debenture conversions................... 492 5,925 6,417
Conversion of convertible preferred
securities of SCI Finance LLC......... 11,461 161,027 172,488
Dividends on common stock ($.30 per
share).................................. (74,673) (74,673)
-------- ---------- ---------- -------- ----------
Balance at December 31, 1997.............. 252,924 1,493,246 983,353 (3,519) 2,726,004
Comprehensive income:
Net income.............................. 342,142 342,142
Other comprehensive income:
Foreign currency translation............ 8,748 8,748
Unrealized gain on securities........... 10,149 10,149
----------
Total other comprehensive
income......................... 18,897
----------
Comprehensive income...................... 361,039
Common Stock issued:
Stock option exercises and stock
grants................................ 3,593 56,485 60,078
Acquisitions............................ 2,499 94,625 97,124
Debenture conversions................... 185 2,409 2,594
Dividends on common stock ($.36 per
share).................................. (92,737) (92,737)
-------- ---------- ---------- -------- ----------
Balance at December 31, 1998.............. $259,201 $1,646,765 $1,232,758 $ 15,378 $3,154,102
======== ========== ========== ======== ==========
</TABLE>
(See notes to consolidated financial statements)
31
<PAGE> 33
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE ONE
NATURE OF OPERATIONS
The Company is the largest provider of death care services in the world. At
December 31, 1998, the Company operated 3,442 funeral service locations, 433
cemeteries and 191 crematoria located in 20 countries on five continents.
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 funeral service locations contain crematoria. The Company sells
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 sell cemetery related merchandise. Cemetery items are sold on an at need or
preneed basis. Company personnel at cemeteries perform interment services and
provide management and maintenance of cemetery grounds. Certain cemeteries also
operate crematoria. There are 156 combination locations that contain a funeral
service location within a Company owned cemetery.
The financial services division represents a combination of the Company's
prearranged funeral and cemetery trust accounting and administration, investment
management, life insurance operations, and the lending activities of Provident
Services, Inc. (Provident), which provides capital financing for independent
funeral home and cemetery operations.
NOTE TWO
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
the accounts of Service Corporation International and all majority-owned
subsidiaries (the "Company"). Intercompany balances and transactions have been
eliminated in consolidation. Certain reclassifications have been made to prior
years to conform to current period presentation with no effect on the
consolidated financial position, results of operations or cash flows.
Cash Equivalents: The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
Inventories and Cemetery Property: Funeral merchandise and cemetery
property and merchandise are stated at the lower of average cost or market.
Depreciation and Amortization: Depreciation of property, plant and
equipment is provided using the straight line method over the estimated useful
lives of the various classes of assets. Property and plant are depreciated over
a period ranging from seven to fifty years, equipment is depreciated over a
period from five to twenty years and leasehold improvements are depreciated over
a range of five to fifty years. For the three years ended December 31, 1998,
depreciation expense was $115,195, $87,571, and $74,854, respectively.
Maintenance and repairs are charged to expense whereas renewals and major
replacements are capitalized. Prepaid management, consultative and
non-competition agreements, primarily with former owners and key employees of
businesses acquired, are amortized on a straight-line basis over the lives
(generally from five to ten years) of the respective contracts.
Funeral Operations: Funeral revenue is recognized when the funeral service
is performed. The Company's trade receivables consist primarily of funeral
services already performed. An allowance for doubtful accounts has been provided
based on historical experience. The Company sells price guaranteed prearranged
funeral contracts through various programs providing for future funeral services
at prices
32
<PAGE> 34
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
prevailing when the agreements are signed. Revenues associated with sales of
prearranged funeral contracts (which include accumulated trust earnings and
increasing insurance benefits) are deferred until such time that the funeral
services are performed (see Note Four).
Cemetery Operations: All cemetery interment right sales, together with
associated merchandise sales, are recorded as income at the time contracts are
signed. Costs related to the sales of interment rights include property and
other costs related to cemetery development activities, and are charged to
operations using the specific identification method. Allowances for customer
cancellations are provided at the date of sale based upon historical experience.
Costs related to merchandise are based on actual costs incurred or estimates of
future costs necessary to purchase the merchandise, including provisions for
inflation when required. Pursuant to state law, all or a portion of the proceeds
from the sale of cemetery merchandise may also be required to be paid into trust
funds until such merchandise is purchased by the Company for the customer.
Merchandise funds trusted at December 31, 1998 and 1997 were $662,564 and
$515,051, respectively (see Note Six). The Company recognizes realized trust
income on these merchandise trusts in current cemetery revenues as trust
earnings accrue to defray inflation costs recognized related to the unpurchased
cemetery merchandise. Additionally, a portion of the proceeds from the sale of
cemetery property is required by state law to be paid into perpetual care trust
funds. Earnings from these trusts are recognized in current cemetery revenues
and are intended to defray cemetery maintenance costs, which are expensed as
incurred. Perpetual care funds trusted at December 31, 1998 and 1997 were
$418,109 and $371,984, respectively, which approximates fair value. The
principal of such perpetual care trust funds generally cannot be withdrawn by
the Company and therefore is not included in the consolidated balance sheet. For
the three years ended December 31, 1998, the earnings recognized from all
cemetery trusts were $97,280, $74,971, and $51,601, respectively.
Insurance Operations: Effective in July 1998, the Company acquired American
Memorial Life Insurance Company (AML), an established funding entity for
prearranged funeral contracts. The Company accounts for AML under generally
accepted accounting principles for life insurance companies. The Company has
reclassified amounts included in the consolidated income statement and balance
sheet to conform the presentation of the results of operations and financial
condition of its French insurance subsidiary to the current approach. These
reclassifications had no effect on consolidated stockholders' equity, net income
or cash flows.
For traditional life products, premiums are recognized as revenue when due
from policyholders. Benefits and acquisition expenses are recognized as a
constant percentage of earned premiums. Computations of life insurance reserves
are based on anticipated investment yields (primarily 3% for the French
insurance company and 5.8% for the U.S. insurance companies), mortality,
surrenders, and provisions for unfavorable deviations.
For annuity products, premiums are recorded in a policyholder account which
is recorded to "Reserves and annuity benefits -- insurance subsidiaries".
Amounts assessed against the policyholder account for contract expenses and
mortality coverage are recorded as revenue in proportion to estimated gross
profits of the annuity contracts.
To the extent recoverable, certain costs incurred related to the
acquisition of new business are deferred. Such costs consist primarily of
commissions, underwriting, policy issuance and direct marketing. Such expenses
are referred to as deferred policy acquisition costs (DPAC). DPAC related to
different products is amortized at a constant percentage over the life of the
book of contracts as follows: over the expected premium paying period for
traditional life insurance; based on the present value of the estimated gross
margin amounts, with interest at the percentage used to calculate the assumed
investment yield, for participating life insurance; and based on the present
value of estimated gross profit amounts, with interest at the rate of interest
that accrues to the policyholder balances, for annuities. DPAC is included
within "Deferred charges and other assets" on the consolidated balance sheet.
33
<PAGE> 35
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Also included within "Deferred charges and other assets" is the present
value of future profits (PVP) on business in force of acquired insurance
companies. Such amount represents the portion of costs to acquire such companies
that is allocated to the value of the right to receive future cash flows from
insurance contracts existing at the date of acquisition. PVP is amortized as
follows: over the expected premium paying period for traditional life insurance;
and over the estimated remaining life for annuities and participating life
insurance.
Investment income, net of investment expenses, and realized gains and
losses related to "Investments -- insurance subsidiaries" are included within
"Revenues" (see Note Five). Debt securities and marketable equity securities are
classified as available-for-sale and are carried at quoted market value, if
readily marketable, or at management's estimated fair value, if not readily
marketable. The change in the unrealized gain or loss, net of deferred income
tax, is recorded as a separate component of other comprehensive income in the
consolidated statement of stockholders' equity. Realized gains and losses on
investment transactions are determined on the specific identification basis.
When a decline in the value of a specific investment is considered to be other
than temporary, a provision for impairment is charged to earnings and the
carrying value of the investment is reduced. Premiums and discounts on fixed
debt securities are amortized over their expected average lives using the
interest method. Mortgage loans and real estate are generally carried at
amortized cost. Policy loans are stated at the aggregate unpaid balance.
Names and Reputations: The excess of purchase price over the fair value of
identifiable net assets acquired in transactions accounted for as purchases 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 business. 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. The amortization charged
against income was $45,350, $37,649, and $33,836 for the three years ended
December 31, 1998, respectively. Accumulated amortization of names and
reputations as of December 31, 1998 and 1997 was $179,803 and $136,398,
respectively.
Derivatives: Amounts to be paid or received under interest rate swaps,
including the interest rate provisions of the cross-currency swaps, are recorded
on the accrual basis over the life of the swap agreements as an adjustment to
interest expense. The related net amounts payable to, or receivable from, the
counterparties are included in accrued liabilities or current receivables,
respectively. Gains and losses resulting from currency movements on the
cross-currency swaps that hedge the Company's net foreign investments are
reflected in stockholders' equity, with the related net amounts due to, or from,
the counterparties included in other liabilities, or other assets, respectively.
Net deferred gains and losses on early termination of interest rate swaps are
amortized into interest expense over the remaining lives of the original
agreements.
Use of Estimates in the Preparation of Financial Statements: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
34
<PAGE> 36
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE THREE
ACQUISITIONS
The Company acquired certain funeral, cemetery, crematoria and insurance
operations both domestically and internationally during the years ended December
31, 1998 and 1997 (see Note Nineteen regarding the January 1999 purchase of
Equity Corporation International). The operating results of these acquisitions
have been included since their respective dates of acquisition. The following
table is a summary of the acquisitions made during the two years ended December
31, 1998:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Number acquired:
Funeral service locations................................. 308 294
Cemeteries................................................ 47 51
Crematoria................................................ 18 19
Insurance operations...................................... 2 --
Purchase price.............................................. $784,000 $643,000
</TABLE>
The purchase price in both years consisted primarily of combinations of
cash, Company common stock, issued and assumed debt.
The effect of the above acquisitions on the consolidated balance sheet at
December 31, was as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Current assets.............................................. $ 52,339 $ 38,569
Investments -- insurance subsidiaries....................... 622,379 --
Prearranged funeral contracts............................... 51,990 86,452
Long-term receivables....................................... 91,299 31,522
Cemetery property........................................... 266,591 298,466
Property, plant and equipment............................... 108,152 162,992
Deferred charges and other assets........................... 422,299 13,417
Names and reputations....................................... 354,772 215,204
Current liabilities......................................... (84,562) (67,464)
Long-term debt.............................................. (53,609) (63,307)
Deferred income taxes and other liabilities................. (365,692) (120,340)
Reserves and annuity benefits -- insurance subsidiaries..... (594,848) --
Deferred prearranged funeral contract revenues.............. (54,218) (106,439)
Stockholders' equity........................................ (97,124) (79,341)
--------- ---------
Cash used for acquisitions........................ $ 719,768 $ 409,731
========= =========
</TABLE>
NOTE FOUR
PREARRANGED FUNERAL ACCOUNTING
The Company sells price guaranteed prearranged funeral contracts through
various programs providing for future funeral services at prices prevailing when
the agreements are signed. Payments under these contracts are placed in trust
accounts (pursuant to applicable law) or are used to pay premiums on life
insurance policies.
Unperformed price guaranteed prearranged funeral contracts that are not
funded through Company owned insurance subsidiaries are included in the
consolidated balance sheet as "Prearranged funeral contracts." This balance
represents amounts due from trust funds, customer receivables, or third party
insurance companies. A corresponding credit is recorded to "Deferred prearranged
funeral contract revenues."
35
<PAGE> 37
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amounts paid by a customer under a prearranged funeral contract is recognized in
funeral revenue at the time the funeral service is performed. Trust earnings and
increasing insurance benefits are accrued and deferred until the services are
performed, at which times these funds are also recognized in funeral revenues
and are intended to cover future increases in the cost of providing a price
guaranteed funeral service. Net obtaining costs incurred pursuant to the sales
of trust funded and third party insurance funded prearrangements are included in
"Deferred charges and other assets". These obtaining costs include sales
commissions and certain other direct costs which are deferred and amortized over
a period representing the actuarially determined life of the prearranged
contracts. The aggregate net costs deferred as of December 31, 1998 and 1997
were $263,429 and $190,595, respectively.
Prearranged funeral contracts may also be funded by insurance policies
written by the Company's wholly-owned insurance subsidiaries. These insurance
subsidiaries follow generally accepted accounting principles for life insurance
companies (see Note Two). At December 31, 1998, approximately $397,363 of the
reserves and annuity benefits are associated with policies funding prearranged
funerals at non-Company owned funeral locations. Policy acquisition costs are
deferred as "Deferred charges and other assets" and amortized as prescribed by
generally accepted accounting principles for life insurance companies (see note
two). The aggregate net costs deferred as of December 31, 1998 and 1997 were
$13,832 and $2,495, respectively.
As of December 31, 1998, the total value of unperformed prearranged funeral
revenues expected to be recognized in future periods was $3,751,850 ($3,371,424
at December 31, 1997). The total value of unperformed prearranged funeral
contracts are trust funded or insurance funded and represent the original
contract value plus accumulated trust earnings or increasing insurance benefits.
Prearranged Funeral Contracts
The following table summarizes the components of prearranged funeral
contracts on the Company's consolidated balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Trusts:
Trust assets.............................................. $1,173,905 $ 979,315
Receivables from customers................................ 280,005 326,310
Allowance for cancellation................................ (115,206) (108,749)
---------- ----------
Net trust related assets.......................... 1,338,704 1,196,876
Third Party Insurance:
Receivables from third party insurance companies.......... 1,349,674 1,549,972
Allowance for cancellation................................ (99,572) (118,744)
---------- ----------
Net insurance related assets...................... 1,250,102 1,431,228
---------- ----------
Prearranged funeral contracts............................... $2,588,806 $2,628,104
========== ==========
</TABLE>
The allowance for cancellation is based on historical experience and is
equivalent to approximately 8% of the total balance. Accumulated earnings from
trust funds and increasing insurance benefits of third party insurance companies
have been included to the extent that they have accrued through December 31,
1998. The cumulative trust funded total has been reduced by allowable cash
withdrawals for trust earnings and amounts retained by the Company pursuant to
various state laws.
36
<PAGE> 38
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the activity in prearranged funeral
contracts:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Beginning balance........................................... $2,628,104 $2,149,917
Net sales................................................. 285,931 447,023
Acquisitions/dispositions................................. 142,808 80,800
Realized earnings and increasing insurance benefits for
third party insurance companies........................ 105,866 116,462
Maturities................................................ (196,960) (195,919)
Change in cancellation reserve............................ (6,848) (33,481)
1998 reclassification of wholly-owned insurance
companies.............................................. (232,209) --
Distributed earnings, effect of foreign currency and
other.................................................. (137,886) 63,302
---------- ----------
Ending balance.............................................. $2,588,806 $2,628,104
========== ==========
</TABLE>
The cost and market value associated with the assets held in the trust
funds underlying the Company's prearranged funeral contracts are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------------- ---------------------
COST MARKET COST MARKET
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Debt securities:
Government.......................... $ 323,831 $ 356,853 $320,148 $ 345,046
Corporate........................... 103,835 106,190 113,007 115,372
Equity securities..................... 503,821 554,256 405,108 451,862
Money market/other.................... 242,418 228,085 141,052 131,197
---------- ---------- -------- ----------
$1,173,905 $1,245,384 $979,315 $1,043,477
========== ========== ======== ==========
</TABLE>
Deferred Prearranged Funeral Contract Revenues
"Deferred prearranged funeral contract revenues" on the consolidated
balance sheet includes the contract amount of all price guaranteed prearranged
funeral service contracts for trust funded and third party insurance contracts
as well as the accrued trust earnings and increasing insurance benefits. The
Company defers trust earnings and increasing benefits of insurance contracts 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.
The following table summarizes the activity in deferred prearranged funeral
contract revenues:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Beginning balance........................................... $2,805,429 $2,282,838
Net sales................................................. 292,972 466,001
Acquisitions/dispositions................................. 138,422 99,897
Realized earnings and increasing insurance benefits from
third party insurance companies........................ 106,353 113,716
Maturities................................................ (192,817) (203,178)
Change in cancellation reserve............................ (6,848) (33,481)
1998 reclassification of wholly-owned insurance
companies.............................................. (232,209) --
Effect of foreign currency and other...................... (91,508) 79,636
---------- ----------
Ending balance.............................................. $2,819,794 $2,805,429
========== ==========
</TABLE>
37
<PAGE> 39
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE FIVE
INSURANCE OPERATIONS
The Company acquired AML effective July, 1998. In addition, the Company has
owned a French life insurance company for several years. The primary purpose of
these life insurance subsidiaries is to assist in funding the Company's
prearranged funeral program.
Investments -- Insurance Subsidiaries
As part of the Company's funding of prearranged funeral contracts, the
Company's wholly-owned life insurance subsidiaries invest in securities which
are considered as "available-for-sale." The cost, market value and unrealized
gains or losses related to debt and equity securities for December 31, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------
AMORTIZED UNREALIZED
COST MARKET VALUE GAINS LOSSES
---------- ------------ ------- -------
<S> <C> <C> <C> <C>
Debt securities:
U.S. treasury.......................... $ 8,841 $ 9,137 $ 296 $ --
French government...................... 241,033 251,187 10,545 (391)
Other foreign government (primarily
European)........................... 131,151 132,876 1,725 --
Corporate.............................. 338,181 341,191 5,895 (2,885)
Mortgage-backed........................ 145,790 147,254 1,757 (293)
Asset-backed........................... 32,340 32,925 704 (119)
Redeemable preferred stock............. 3,879 3,799 4 (84)
Equity securities:
Nonredeemable preferred stock.......... 1,246 1,335 89 --
Common stock........................... 85,439 117,493 33,483 (1,429)
Mutual funds:
Equity................................. 74,707 81,998 7,291 --
Debt................................... 59,058 60,783 1,725 --
Mortgage loans........................... 1,301 1,301 -- --
Real estate, net of accumulated
depreciation and amortization.......... 34,636 34,636 -- --
Policy loans............................. 18,763 18,763 -- --
---------- ---------- ------- -------
$1,176,365 $1,234,678 $63,514 $(5,201)
========== ========== ======= =======
</TABLE>
38
<PAGE> 40
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------
AMORTIZED UNREALIZED
COST MARKET VALUE GAINS LOSSES
--------- ------------ ------- -------
<S> <C> <C> <C> <C>
Debt securities:
Foreign government....................... $292,991 $296,320 $ 3,503 $ (174)
Corporate................................ 17,883 17,965 95 (13)
Equity securities.......................... 141,512 162,129 23,640 (3,023)
Mutual funds:
Money market/other....................... 13,945 14,153 208 --
Debt..................................... 53,276 53,276 -- --
Real estate, net of accumulated
depreciation and amortization............ 30,885 30,885 -- --
-------- -------- ------- -------
$550,492 $574,728 $27,446 $(3,210)
======== ======== ======= =======
</TABLE>
The contractual maturities of debt securities as of December 31, 1998 were
as follows:
<TABLE>
<CAPTION>
1998
--------------------
AMORTIZED MARKET
COST VALUE
--------- --------
<S> <C> <C>
Within one year............................................. $ 85,830 $ 85,316
After one year through five years........................... 325,388 329,249
After five years through ten years.......................... 309,189 315,457
After ten years............................................. 180,808 188,347
-------- --------
$901,215 $918,369
======== ========
</TABLE>
Net investment income for the three years ended December 31, 1998 was as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Debt securities......................................... $35,941 $14,247 $17,985
Equity securities....................................... 4,717 3,539 1,595
Other................................................... 2,066 -- --
------- ------- -------
Total investment income....................... 42,724 17,786 19,580
Investment expenses..................................... 4,131 3,053 870
------- ------- -------
Net investment income......................... $38,593 $14,733 $18,710
======= ======= =======
</TABLE>
The gross realized gains and gross realized losses from sales of securities
for the three years ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------------- --------------------------- ------------------------
GAIN LOSS NET GAIN LOSS NET GAIN LOSS NET
------- -------- ------- ------- ------- ------- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities...... $42,493 $(27,391) $15,102 $20,192 $(3,617) $16,575 $ 5,116 $-- $ 5,116
Equity securities.... 22,820 (14,635) 8,185 17,516 (3,755) 13,761 5,210 -- 5,210
------- -------- ------- ------- ------- ------- ------- --- -------
Realized gain
(loss)............. $65,313 $(42,026) $23,287 $37,708 $(7,372) $30,336 $10,326 $-- $10,326
======= ======== ======= ======= ======= ======= ======= === =======
</TABLE>
The amount of net investment income and realized gain (loss) which are
allocable to policyholders but included above is $36,887, $19,015 and $30,740
for the three years ended December 31, 1998, respectively, and is included as
"Costs and expenses".
39
<PAGE> 41
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in unrealized gain on investments for the three years ended
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Fixed income securities................................. $13,930 $ 3,744 $19,497
Equity securities....................................... 20,147 21,172 4,986
------- ------- -------
Change in unrealized gain on investments................ $34,077 $24,916 $24,483
======= ======= =======
</TABLE>
Present Value of Future Profits -- Insurance Subsidiaries
An analysis of PVP is provided as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
Balance at beginning of year................................ $13,070 $13,957
Additions due to acquisitions............................... 36,630 --
Amortization, net of interest accrued....................... (4,518) (887)
------- -------
Balance at end of year...................................... $45,182 $13,070
======= =======
</TABLE>
It is anticipated that PVP will be reduced by the following amounts in
future years:
<TABLE>
<S> <C>
1999........................................................ $ 6,451
2000........................................................ 6,079
2001........................................................ 5,447
2002........................................................ 4,636
2003........................................................ 3,633
Thereafter.................................................. 18,936
-------
$45,182
=======
</TABLE>
Statutory Financial Information -- Insurance Subsidiaries
The Company's insurance companies are required to file financial statements
with state (for U.S. companies) or national (for the French company) insurance
regulatory authorities prepared on an accounting basis prescribed or permitted
by such authorities (statutory basis). Certain statutory amounts were as follows
as of and for the year ended December 31, 1998:
<TABLE>
<CAPTION>
UNITED STATES FRANCE
------------- -------
<S> <C> <C>
Capital and surplus......................................... $45,624 $73,014
Net income.................................................. 888 5,747
</TABLE>
Under statutory regulations, AML must maintain certain minimum amounts of
statutory capital and statutory surplus. AML is also regulated by state
regulatory authorities as to amounts of dividends which can be paid without
prior approval of regulatory authorities.
Participating Life Insurance -- Insurance Subsidiaries
Participating policies represented approximately 33% and 100% of total life
insurance in force at December 31, 1998 and 1997, respectively. Participating
policies represented approximately 51% and 100% of premium income for 1998 and
1997, respectively. Dividends on participating policies amounted to $25,548 in
1998. The amount of dividends is determined through contract provision (within
French legal requirements)
40
<PAGE> 42
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for all life insurance policies issued by Auxia, the Company's French insurance
subsidiary, and by the contract provisions of policies issued by AML.
NOTE SIX
CEMETERY MERCHANDISE TRUST FUNDS
The cost and market value associated with the assets held in the cemetery
merchandise trust funds (included in current and long-term receivables, at cost)
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------- -------------------
COST MARKET COST MARKET
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Debt securities:
Government............................... $204,277 $201,399 $169,823 $172,440
Corporate................................ 83,845 84,503 64,474 65,468
Equity securities.......................... 295,210 291,222 227,424 230,931
Money market/other......................... 79,232 79,284 53,330 53,254
-------- -------- -------- --------
$662,564 $656,408 $515,051 $522,093
======== ======== ======== ========
</TABLE>
NOTE SEVEN
INCOME TAXES
The provision for income taxes includes United States income taxes,
determined on a consolidated return basis, foreign, state and local income
taxes.
Income before income taxes:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
United States........................................ $419,450 $474,478 $309,431
Foreign.............................................. 99,077 105,495 104,450
-------- -------- --------
$518,527 $579,973 $413,881
======== ======== ========
</TABLE>
Income tax expense (benefit) consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
United States...................................... $100,110 $157,450 $ 65,709
Foreign............................................ 10,881 7,022 14,158
State and local.................................... 9,086 21,737 11,814
-------- -------- --------
120,077 186,209 91,681
-------- -------- --------
Deferred:
United States...................................... 48,861 15,045 45,330
Foreign............................................ (697) 1,432 3,238
State and local.................................... 8,144 2,735 8,334
-------- -------- --------
56,308 19,212 56,902
-------- -------- --------
Total provision............................ $176,385 $205,421 $148,583
======== ======== ========
</TABLE>
41
<PAGE> 43
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company made income tax payments of approximately $126,000, $155,400,
and $99,400, for the three years ended December 31, 1998, respectively.
The differences between the U.S. federal statutory tax rate and the
Company's effective rate were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Computed tax provision at the applicable federal
statutory income tax rate.......................... $181,485 $202,991 $144,858
State and local taxes, net of federal income tax
benefits........................................... 11,199 15,906 13,097
Dividends received deduction and tax exempt
interest........................................... (1,178) (1,618) (2,108)
Amortization of names and reputations................ 6,423 5,622 4,765
Enacted tax rate change.............................. (2,218) (5,491) --
Foreign jurisdiction tax rate difference............. (18,576) (12,909) (11,849)
Other................................................ (750) 920 (180)
-------- -------- --------
Provision for income taxes................. $176,385 $205,421 $148,583
======== ======== ========
Total effective tax rate................... 34.0% 35.4% 35.9%
======== ======== ========
</TABLE>
The tax effects of temporary differences and carry-forwards that give rise
to significant portions of deferred tax assets and liabilities consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Receivables, principally due to sales of cemetery interment
rights and related products............................... $224,614 $186,900
Inventories and cemetery property, principally due to
purchase accounting adjustments........................... 501,974 460,592
Property, plant and equipment, principally due to
depreciation and to purchase accounting adjustments....... 91,831 129,796
Other....................................................... 99,744 40,773
-------- --------
Deferred tax liabilities.................................... 918,163 818,061
-------- --------
Deferred revenue on prearranged funeral contracts,
principally due to earnings from trust funds.............. (27,270) (50,862)
Accrued liabilities......................................... (2,927) (24,768)
Carry-forwards and foreign tax credits...................... (36,789) (21,053)
-------- --------
Deferred tax assets......................................... (66,986) (96,683)
-------- --------
Valuation allowance......................................... 13,058 15,327
-------- --------
Net deferred income taxes................................... $864,235 $736,705
======== ========
</TABLE>
During the three years ended December 31, 1998, tax expense resulting from
allocating certain tax benefits directly to capital in excess of par value
totaled $42,794, $3,799, and $2,410, respectively.
Current refundable income taxes and foreign current deferred tax assets are
included in other current assets, with current taxes payable and current
deferred taxes being reflected as "Income taxes" on the consolidated balance
sheet.
At December 31, 1998 and 1997, United States income taxes had not been
provided on $333,890 and $252,369, respectively, of undistributed earnings of
foreign subsidiaries since it is the Company's intention to
42
<PAGE> 44
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
permanently reinvest such earnings. Although it is not practicable to determine
the deferred tax liability on the unremitted earnings, credits for income taxes
paid by the company's foreign subsidiaries will be available to significantly
reduce any U.S. tax if these foreign earnings are remitted.
As of December 31, 1998 the Company has United States foreign tax credit
carry-forwards of $2,811 which will expire in the years 1999 through 2001.
Various subsidiaries have federal and state operating loss carry-forwards of
$50,197 with expiration dates through 2013. The Company believes that some
uncertainty exists with respect to future realization of these tax credit and
loss carry-forwards, therefore a valuation allowance has been established for
the carry-forwards not expected to be realized. The decrease in the valuation
allowance is primarily attributable to foreign tax credits and indexation
benefit.
NOTE EIGHT
DEBT
Debt was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Bank revolving credit agreements and commercial paper....... $ 650,596 $ 616,589
6.375% notes due in 2000.................................... 150,000 150,000
6.75% notes due in 2001..................................... 150,000 150,000
8.72% amortizing notes due in 2002.......................... 114,259 141,108
8.375% notes due in 2004.................................... 51,840 51,840
7.375% notes due in 2004.................................... 250,000 250,000
6.0% notes due in 2005...................................... 600,000 --
7.2% notes due in 2006...................................... 150,000 150,000
6.875% notes due in 2007.................................... 150,000 150,000
6.5% notes due in 2008...................................... 200,000 --
7.7% notes due in 2009...................................... 200,000 200,000
6.95% amortizing notes due in 2010.......................... 55,691 58,859
Floating rate notes due in 2011 (putable in 1999)........... 200,000 200,000
7.875% debentures due in 2013............................... 55,627 55,627
7.0% notes due in 2015 (putable in 2002).................... 300,000 300,000
6.3% notes due in 2020 (putable in 2003).................... 300,000 --
Medium term notes, maturities through 2019, fixed average
interest rate of 9.32%.................................... 35,720 35,720
Convertible debentures, interest rates range from
4.75%-5.5%, due through 2008, conversion price ranges from
$11.25-$50.00............................................. 49,979 45,673
Mortgage and other notes payable with maturities through
2015...................................................... 216,833 156,931
Deferred loan costs......................................... (19,888) (13,078)
---------- ----------
Total debt.................................................. 3,860,657 2,699,269
Less current maturities..................................... (96,067) (64,570)
---------- ----------
Total long-term debt.............................. $3,764,590 $2,634,699
========== ==========
</TABLE>
The Company's primary revolving credit agreement provides for borrowings up
to $1,000,000 and consists of two committed tranches -- a 364-day tranche and a
5-year tranche -- which are utilized to support commercial paper issuance and
for general corporate needs.
The 364-day tranche allows for borrowings up to $300,000. This facility
expires June 25, 1999, but has provisions to be extended for additional 364-day
terms. At the end of any term, the outstanding balance may
43
<PAGE> 45
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
be converted into a 2 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 of 0.08% is paid quarterly on the total commitment amount.
The 5-year tranche allows for borrowings up to $700,000, including $500,000
in various currencies. This facility expires June 27, 2002. Interest rates on
this facility are based on various indices as determined by the Company. In
addition, a facility fee is paid quarterly on the total commitment amount. The
facility fee, which ranges from 0.07% to 0.15%, is based on the Company's senior
debt ratings, and is currently set at 0.08%. At December 31, 1998, approximately
$217,345 of revolving notes were outstanding under this facility at a weighted
average interest rate of 5.65%.
On November 3, 1998, the Company entered into an additional revolving
credit facility in the amount of $800,000. This facility is primarily intended
to support commercial paper issuance, has a 364-day maturity, and expires
November 2, 1999. A facility fee of 0.09% is paid quarterly on the total
commitment amount.
As of December 31, 1998, $433,251 of commercial paper was outstanding at a
weighted average interest rate of 6.68%, which was backed by the above
facilities. For the year ended December 31, 1998, the average outstanding
balance of commercial paper was $349,426 at a weighted average interest rate of
5.73%.
The commercial paper borrowings and revolving notes generally have
maturities ranging from one to ninety days.
The credit facilities described above have financial compliance provisions
that contain certain restrictions on levels of net worth, debt, liens, and
guarantees.
The Company primarily uses the revolving credit facilities, described
above, to finance the Company's ongoing acquisition programs. From time to time,
the Company raises debt or equity in the public markets to refinance balances
drawn on these facilities. The timing of these public debt or equity offerings
is dependent on numerous factors including market conditions, long and short
term interest rates, the Company's capitalization ratios and the outstanding
balances under the revolving credit facilities. Since it is the Company's intent
to refinance borrowings under these facilities with long-term debt or equity,
the Company has classified such borrowings as long-term debt.
In March 1998, the Company issued two senior note securities. The first
note issued was a $200,000, 10-year, non-callable security with a 6.5% coupon
due in March 2008. The second note was a $300,000, 22-year security due in March
2020. This second note is subject to mandatory tender to a remarketing agent in
March 2003 and in March 2010. The coupon on this issue is presently 6.30%, but
may change when tendered and remarketed. The proceeds of this offering were
primarily used to repay existing debt outstanding under the Company's revolving
credit agreements.
The Company issued a senior note security in December 1998 in the amount of
$600,000. The note is a non-callable security with a 6.0% coupon that will
mature in December of 2005. The proceeds of this offering were primarily used to
repay existing debt outstanding under the Company's revolving credit agreements.
Approximately $27,595 of the Company's facilities and cemetery properties
were pledged as collateral for the mortgage notes at December 31, 1998.
At December 31, 1998, the Company had $21,728 in letters of credit
outstanding primarily to guarantee funding of certain insurance claims.
The aggregate principal payments on debt for the five years subsequent to
December 31, 1998, excluding amounts due to banks under revolving credit loan
agreements, are as follows: 1999-$96,067; 2000-$205,096; 2001-$203,694;
2002-$337,685; and 2003-$326,857.
44
<PAGE> 46
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash interest payments for the three years ended December 31, 1998 totaled
$187,641, $162,521, and $150,961, respectively.
Approximately $2,112,526 of the Company's debt is denominated in foreign
currencies at December 31, 1998. Of this amount, $1,711,899 has been converted
from US dollars as a result of cross-currency swaps.
Similarly, the stated coupons described above have been substantially
modified through the use of interest rate and cross-currency interest rate swaps
used in the management of interest rates within defined targets for fixed and
floating interest rate exposure (see Note Nine).
During the three months ended December 31, 1998, pursuant to a shelf
registration filed with the Commission to be used exclusively for future
acquisitions, the Company guaranteed the following promissory notes issued
through subsidiaries in connection with various acquisitions of operations:
<TABLE>
<CAPTION>
SUBSIDIARY AMOUNT
---------- ------
<S> <C>
SCI Iowa Funeral Services, Inc...................... $6,900
</TABLE>
NOTE NINE
DERIVATIVES
The Company enters into derivatives primarily in the form of interest rate
swaps and cross-currency interest rate swaps in combination with local currency
borrowings 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 only
enters into transactions with a limited group of creditworthy 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 convert US dollar debt into the respective
foreign currency of the Company's various foreign operations. 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 expense
due under the cross-currency interest rate swaps are generally offset by a
corresponding movement in the earnings of the foreign operation.
45
<PAGE> 47
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables present information about the Company's derivatives:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------------------------
WEIGHTED
AVERAGE
CARRYING INTEREST RATE
NOTIONAL AMOUNT ASSET --------------
AMOUNT (LIABILITY) MATURITY RECEIVE PAY FAIR VALUE
---------- ------------ --------- ------- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps:
US dollar fixed to US dollar floating............ $ 250,000 $ -- 1999-2001 7.35% 5.32% $ 7,931
US dollar fixed to US dollar floating............ 600,000 -- 2002-2003 6.24% 5.24% 15,093
US dollar fixed to US dollar floating............ 300,000 -- 2004-2006 7.02% 5.33% 25,082
US dollar fixed to US dollar floating............ 300,000 -- 2008-2009 6.61% 5.39% 24,552
US dollar floating to US dollar fixed............ 420,000 -- 2000-2001 5.22% 5.84% (5,751)
US dollar floating to US dollar fixed............ 380,000 -- 2003-2004 5.03% 5.54% (10,425)
Canadian dollar floating to Canadian dollar
fixed.......................................... 196,528 -- 2007-2008 5.23% 5.92% (18,873)
Australian dollar floating to Australian dollar
fixed.......................................... 39,670 -- 2006 4.75% 7.81% (5,981)
British pound floating to British pound fixed.... 289,819 -- 2008 6.04% 6.83% (32,083)
French franc floating to German mark floating.... 175,311 -- 2006 3.56% 3.84% (2,815)
German mark floating to French franc fixed....... 87,833 -- 2003 3.79% 5.66% (7,566)
Cross-Currency Interest Rate Swaps:
US dollar fixed to Canadian dollar floating...... 181,728 20,955 1999-2010 6.82% 5.58% 29,476
US dollar floating to Canadian dollar fixed...... 193,901 9,861 2003 5.22% 5.53% 8,163
US dollar floating to Australian dollar fixed.... 208,255 21,851 1999-2003 5.25% 6.14% 18,057
US dollar floating to Australian dollar
floating....................................... 59,196 7,931 2000-2003 5.22% 4.80% 7,217
US dollar fixed to British pound fixed........... 91,407 (7,238) 2002 8.72% 9.64% (7,636)
US dollar fixed to British pound floating........ 295,352 (19,129) 2002-2004 8.38% 6.59% 15,587
US dollar fixed to French franc fixed............ 300,000 36,678 2000-2007 6.29% 6.21% 22,465
US dollar fixed to French franc floating......... 150,000 15,654 2000-2007 6.90% 3.90% 26,956
US dollar floating to French franc fixed......... 117,833 (12,628) 2000 5.26% 4.23% (15,005)
US dollar fixed to German mark floating.......... 150,000 15,766 2003-2006 5.98% 3.48% 28,414
US dollar floating to Spanish peseta fixed....... 98,214 (5,899) 2003 5.26% 4.84% (11,106)
US dollar floating to Norwegian krone fixed...... 22,815 (64) 2003 5.26% 5.80% 72
Australian dollar fixed to US dollar floating.... 88,141 (15,079) 1999-2000 6.14% 5.30% (13,880)
---------- -------- --------
$4,996,003 $ 68,659 $ 97,944
========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------------------------
WEIGHTED
AVERAGE
CARRYING INTEREST RATE
NOTIONAL AMOUNT ASSET --------------
AMOUNT (LIABILITY) MATURITY RECEIVE PAY FAIR VALUE
---------- ------------ --------- ------- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps:
US dollar fixed to US dollar floating............ $ 450,000 $ -- 2001-2002 6.53% 5.89% $ 4,392
US dollar fixed to US dollar floating............ 300,000 -- 2004-2006 7.02% 5.78% 14,295
US dollar fixed to US dollar floating............ 200,000 -- 2009 7.43% 5.76% 12,264
US dollar floating to US dollar fixed............ 200,000 -- 2004 5.81% 5.72% 783
Canadian dollar floating to Canadian dollar
fixed.......................................... 78,138 -- 1999 2.64% 3.97% (4,024)
Canadian dollar floating to Canadian dollar
fixed.......................................... 38,456 -- 2007 1.41% 1.95% (1,927)
Canadian dollar floating to Canadian dollar fixed
effective 11/98................................ 94,777 -- 2003 -- -- (5,559)
Australian dollar floating to Australian dollar
fixed.......................................... 42,270 -- 2006 5.91% 7.81% (3,672)
French franc floating to German mark floating.... 81,820 -- 2006 3.69% 3.99% (1,479)
French franc fixed to German mark floating....... 82,152 -- 2006 6.80% 5.38% 3,036
German mark floating to French franc fixed....... 82,152 -- 2003 5.38% 6.20% (4,903)
Cross-Currency Interest Rate Swaps:
US dollar fixed to French franc fixed............ 250,000 44,736 2000-2002 6.05% 5.89% 42,540
US dollar fixed to French franc fixed............ 150,000 26,722 2007 7.00% 6.93% 20,516
US dollar fixed to French franc floating......... 100,000 13,183 2006 7.20% 3.93% 18,408
US dollar fixed to German mark floating.......... 100,000 17,861 2003 5.37% 3.25% 19,016
US dollar fixed to British pound fixed........... 385,386 (23,509) 2002-2004 8.46% 8.43% 20,181
US dollar fixed to British pound floating........ 28,222 (1,949) 2002 8.72% 7.94% (28,581)
US dollar floating to Australian dollar fixed.... 132,296 11,526 1999-2000 5.91% 6.51% (36,676)
US dollar floating to Australian dollar
floating....................................... 59,196 4,571 2000-2003 5.91% 5.07% 49,937
US dollar fixed to Canadian dollar floating...... 100,000 5,223 2010 6.95% 4.83% 7,264
US dollar fixed to Canadian dollar floating...... 81,727 3,589 1999 6.66% 3.94% 4,849
US dollar floating to French franc fixed......... 117,834 (4,189) 2000 5.88% 4.23% (3,943)
---------- -------- --------
$3,154,426 $ 97,764 $126,717
========== ======== ========
</TABLE>
46
<PAGE> 48
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998, the Company's consolidated debt totaled $3,860,657 at
a weighted average rate of 6.77%. After giving consideration to the interest
rate and cross-currency interest rate swaps, the weighted average rate of debt
(excluding $212,484 of Provident debt) was 6.16%.
At December 31, 1998, the Company's debt, including the derivative
instruments, consisted of approximately 74% of fixed interest rate debt at a
weighted average rate of 6.17% and approximately 26% of floating interest rate
debt at a weighted average rate of 6.15%. At December 31, 1997, the Company's
total debt consisted of approximately 44% of fixed interest rate debt at a
weighted average rate of 7.00% and approximately 56% of floating interest rate
debt at a weighted average rate of 5.50%. Approximately $2,112,526 and
$1,832,000 of the Company's debt consists of foreign-denominated debt at
December 31, 1998 and 1997, respectively.
Interest rate swap settlements are generally semi-annual and match the
coupons of the underlying debt or related intercompany loan payments on the
foreign operations being hedged. Additionally, as of December 31, 1998 and 1997,
$558,407 and $566,594, respectively, of the interest rate swaps contained
provisions which require termination of the swap or convert the swap to a new
index if certain interest rate conditions are met. In the cross-currency swaps,
the notional amounts are exchangeable in accordance with the terms of the swaps:
either at maturity for nonamortizing swaps or according to defined amortization
tables. Maturities of notional amounts relating to derivative financial
instruments held on December 31, 1998, are as follows: 1999 -- $228,556;
2000 -- $710,879; 2001 -- $330,000; 2002 -- $535,016; 2003 -- $1,067,725; and
thereafter -- $2,123,827.
NOTE TEN
CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments has been determined using available market information and
appropriate valuation methodologies. The carrying amounts of cash and cash
equivalents, trade receivables and accounts payable approximate fair values due
to the short-term maturities of these instruments. The carrying value of
Provident's receivables approximates fair value as the majority of the loan
portfolio carries market rates of interest. It is not practicable to estimate
the fair value of receivables due on cemetery contracts or prearranged funeral
contracts (other than cemetery merchandise trust funds and prearranged funeral
trust funds, see Notes Four and Six) without incurring excessive costs because
of the large number of individual contracts with varying terms. The investments
of the Company's insurance subsidiaries are reported at fair value in the
consolidated balance sheet.
The Company has entered into various derivative financial instruments with
major financial institutions to hedge potential exposures in interest and
foreign exchange rates (swap agreements). Fair values were obtained from
counterparties to the agreements and represent their estimate of the amount the
Company would pay or receive to terminate the swap agreements based upon the
existing terms and current market conditions. The net fair value of the
Company's various swap agreements at December 31, 1998 is an asset of $97,944
(see note nine). At December 31, 1997, the net fair value was an asset of
$126,717. The fair value of the Company's swap agreements may vary substantially
with changes in interest and currency rates. The Company's credit exposure is
limited to the sum of the fair value of positions that have become favorable to
the Company and any accrued interest receivable due from counterparties.
Potential credit exposure is dependent upon the maximum adverse impact of
interest and currency movement. Such potential credit exposure is minimized by
selection of counterparties from a limited group of high quality institutions
and inclusion of certain contract provisions. Management believes that any
credit exposure with respect to its favorable positions at December 31, 1998 is
minimal (see Note Nine).
47
<PAGE> 49
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair value of debt was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Bank revolving credit agreements and commercial paper....... $ 650,596 $ 616,589
6.375% notes due in 2000.................................... 151,598 150,285
6.75% notes due in 2001..................................... 153,196 151,755
8.72% amortizing notes due in 2002.......................... 123,344 150,266
8.375% notes due in 2004.................................... 58,093 57,055
7.375% notes due in 2004.................................... 266,397 260,725
6.0% notes due in 2005...................................... 596,618 --
7.2% notes due in 2006...................................... 159,900 155,730
6.875% notes due in 2007.................................... 157,774 152,265
6.5% notes due in 2008...................................... 204,842 --
7.7% notes due in 2009...................................... 222,220 214,980
6.95% amortizing notes due in 2010.......................... 60,392 60,336
Floating rate notes due in 2011 (putable in 1999)........... 200,000 200,000
7.875% debentures due in 2013............................... 62,885 61,001
7.0% notes due in 2015 (putable in 2002).................... 333,037 336,840
6.3% notes due in 2020 (putable in 2003).................... 302,826 --
Medium term notes, maturities through 2019, fixed average
interest rate of 9.32%.................................... 42,711 43,636
Convertible debentures, interest rates range from
4.75% - 5.5%, due through 2008, conversion price ranges
from $11.25 - $50.00...................................... 65,828 83,258
Mortgage and other notes payable with maturities through
2015...................................................... 218,863 138,379
---------- ----------
Total debt........................................ $4,031,120 $2,833,100
========== ==========
</TABLE>
The fair value of the fixed rate long-term borrowings was estimated by
discounting the future cash flows, including interest payments, using rates
currently available for debt of similar terms and maturity, based on the
Company's credit standing and other market factors. The carrying value of
convertible securities has been estimated based on the respective shares of
Company common stock into which such securities may be converted. The carrying
value of the Company's revolving credit agreements approximate fair value
because the rates on such agreements are variable, based on current market
conditions.
Provident is a party to financial instruments with potential credit risk.
The financial instruments result from loans made in the normal course of
business to meet the financing needs of borrowers who are principally
independent funeral home and cemetery operators. These financial instruments
also include loan commitments of approximately $31,449 at December 31, 1998
($50,000 at December 31, 1997) to extend credit. Provident's total loans
receivable at December 31, 1998, were approximately $269,500 ($198,000 at
December 31, 1997). Provident evaluates each borrower's creditworthiness and the
amount loaned and collateral obtained, if any, is determined by this evaluation.
The Company grants credit in the normal course of business and the credit
risk with respect to these funeral, cemetery and prearranged funeral receivables
due from customers is generally considered minimal because of the wide
dispersion of the customers served. Procedures are in effect to monitor the
creditworthiness of customers and bad debts have not been significant in
relation to the volume of revenues.
Customer payments on prearranged funeral contracts that are placed in state
regulated trusts or used to pay premiums on life insurance contracts issued by
third party insurance companies generally do not subject the Company to
collection risk. Insurance funded contracts are subject to supervision by state
insurance departments and are protected in the majority of states by insurance
guaranty acts.
48
<PAGE> 50
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE ELEVEN
COMMITMENTS
The annual payments for operating leases (primarily for funeral home
facilities and transportation equipment) are as follows:
<TABLE>
<S> <C>
1999........................................................ $35,795
2000........................................................ 31,998
2001........................................................ 28,350
2002........................................................ 24,305
2003........................................................ 19,036
Thereafter.................................................. 86,886
</TABLE>
The majority of these operating leases contain one of the following
options: (a) purchase the property at the fair value at date of exercise, (b)
purchase the property for a value determined at the inception of the lease or
(c) renew for the fair rental value at the end of the primary term of the lease.
Some of the equipment leases contain residual value exposures. For the three
years ended December 31, 1998, rental expense was $69,196, $71,225, and $64,073,
respectively.
The Company has entered into management, consultative and noncompetition
agreements (generally for five to ten years) with certain officers of the
Company and former owners and key employees of businesses acquired. During the
three years ended December 31, 1998, $74,578, $68,667, and $55,688,
respectively, were charged to expense. At December 31, 1998, the maximum
estimated future commitment under all agreements with a remaining term in excess
of one year is $355,323, including $10,559 with certain officers of the Company.
Effective January 1, 1999, the Company has a minimum purchase agreement
with a major casket manufacturer for its North American operations. The
agreement contains provisions to increase the minimum annual purchases for
normal price increases and for the maintenance of product quality. In addition,
the contract provides for a one-year extension period in which the Company is
required to purchase any remaining commitment that exists at the end of the
original term. The agreement contains a total purchase commitment of $750,000
over the next six years (1999 -- $90,000; 2000 -- $105,000; 2001 -- $115,000;
2002 -- $130,000; 2003 -- $145,000; 2004 -- $165,000).
NOTE TWELVE
CONVERTIBLE PREFERRED SECURITIES OF SCI FINANCE LLC
During 1997, the Company redeemed all the outstanding shares of its
convertible preferred shares into 11,178,522 shares of Company common stock and
cash.
NOTE THIRTEEN
STOCKHOLDERS' EQUITY
The Company is authorized to issue 1,000,000 shares of preferred stock, $1
per share par value. No shares were issued as of December 31, 1998. At December
31, 1998, 500,000,000 common shares of $1 par value were authorized, 259,201,104
shares were issued and outstanding (252,923,784 at December 31, 1997), net of
68,373 shares held, at cost, in treasury (66,373 at December 31, 1997).
During the first quarter of 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards (FAS) No. 130, "Reporting
Comprehensive Income." This statement establishes standards for reporting and
display of comprehensive income. All prior periods presented have been restated
to conform to this new standard.
49
<PAGE> 51
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has benefit plans whereby shares of the Company's common stock
may be issued pursuant to the exercise of stock options granted to officers and
key employees. The plans allow for options to be granted as either non-qualified
or incentive stock options. The options are granted with an exercise price equal
to the then current market price of the Company's common stock. The options are
generally exercisable at a rate of 33 1/3% each year unless, at the discretion
of the Company's Compensation Committee of the Board of Directors, alternative
vesting methods are allowed. At December 31, 1998 and 1997, 15,713,000 and
15,668,000, respectively, options had been granted to officers and key employees
of the Company which contain alternative vesting methods. Under the alternative
vesting methods, partial or full accelerated vesting will occur when the price
of Company common stock reaches pre-determined prices. If the pre-determined
stock prices are not met in the required time period, the options will fully
vest in periods ranging from eight to ten years from date of grant. At December
31, 1998 and 1997, 4,783,558 and 7,628,350 shares, respectively, were reserved
for future option grants under all stock option plans.
The following tables set forth certain stock option information:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995.......................... 11,581,832 $13.27
---------- ------
Granted................................................. 2,239,200 22.63
Exercised............................................... (724,425) 8.82
Cancelled............................................... (47,338) 20.45
---------- ------
Outstanding at December 31, 1996.......................... 13,049,269 15.09
---------- ------
Granted................................................. 7,144,150 30.37
Exercised............................................... (775,716) 12.51
Cancelled............................................... (104,252) 22.85
---------- ------
Outstanding at December 31, 1997.......................... 19,313,451 20.81
---------- ------
Granted................................................. 2,953,553 36.66
Exercised............................................... (4,785,496) 13.50
Cancelled............................................... (102,992) 26.62
---------- ------
Outstanding at December 31, 1998.......................... 17,378,516 $25.48
========== ======
Exercisable at December 31, 1998.......................... 6,435,679 $17.23
========== ======
Exercisable at December 31, 1997.......................... 9,488,214 $14.07
========== ======
Exercisable at December 31, 1996.......................... 1,055,435 $11.01
========== ======
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICE AT 12/31/98 CONTRACTUAL LIFE PRICE AT 12/31/98 PRICE
- -------------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 9.41 104,018 1.1 $ 9.41 104,018 $ 9.41
9.41 - 20.00 5,395,174 8.3 14.36 4,137,694 13.60
20.00 - 30.00 4,517,232 5.1 25.70 2,092,580 23.87
30.00 - 40.00 7,299,592 6.4 33.65 101,387 36.12
40.00 - 50.00 62,500 5.6 41.53 -- --
- ------------- ---------- --- ------ ---------- ------
$ 9.41 - 50.00 17,378,516 6.6 $25.48 6,435,679 $17.23
============= ========== === ====== ========== ======
</TABLE>
The Company's 1996 Incentive Plan reserves 12,000,000 shares of common
stock for future awards of stock options, restricted stock and other stock based
awards to officers and key employees of the Company.
50
<PAGE> 52
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's 1996 Non-qualified Incentive Plan reserves 4,000,000 shares of
common stock for future awards of nonqualified stock options to employees who
are not officers of the Company. Under the Company's 1995 Stock Plan for
Non-Employee Directors, non-employee directors automatically receive yearly
awards of restricted stock through the year 2000. Each award is for 3,000 shares
of common stock and vests after one year of service.
For the three years ended December 31, 1998, 30,000, 73,000, and 49,600
shares of restricted stock were awarded at average fair values of $40.88, $33.35
and $25.76, respectively.
The Board of Directors has adopted a preferred share purchase rights plan
and has declared a dividend of one preferred share purchase right for each share
of common stock outstanding. The rights become exercisable in the event of
certain attempts to acquire 20% or more of the common stock of the Company and
entitle the rights holders to purchase certain securities of the Company or the
acquiring company. The rights, which are redeemable by the Company for $.01 per
right, expire in July 2008 unless extended.
If the Company had elected to recognize compensation cost for its option
plans based on the fair value at the grant dates for awards under those plans,
net income and earnings per share would have been changed to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income:
As reported...................................... $342,142 $333,750 $265,298
Pro forma........................................ 318,057 315,733 252,929
Basic earnings per share:
As reported...................................... $ 1.34 $ 1.36 $ 1.13
Pro forma........................................ 1.24 1.30 1.07
Diluted earnings per share:
As reported...................................... $ 1.31 $ 1.31 $ 1.08
Pro forma........................................ 1.22 1.25 1.03
</TABLE>
The fair value of the Company's stock options used to compute pro forma net
income and earnings per share disclosures is the estimated present value at
grant date using the Black-Scholes option-pricing model with the following
weighted average assumptions for 1998, 1997 and 1996, respectively: dividend
yield of 1%, 1%, and 1%, expected volatility of 28.3%, 26.6% and 25.3%, a risk
free interest rate of 5.5%, 6.5% and 6.8%; and an expected holding period of 7,
8, and 9 years.
NOTE FOURTEEN
RETIREMENT PLANS
The Company has a defined benefit pension plan covering substantially all
United States employees, a supplemental retirement plan for certain current and
former key employees (SERP), a supplemental retirement plan for officers and
certain key employees (Senior SERP), and a retirement plan for non-employee
directors (Directors' Plan).
For the United States noncontributory pension plan, retirement benefits are
generally based on years of service and compensation. The Company annually
contributes to the pension plan an actuarially determined amount consistent with
the funding requirements of the Employee Retirement Income Security Act of 1974.
Assets of the pension plan consist primarily of bank money market funds, fixed
income investments, and marketable equity securities. The marketable equity
securities include shares of Company common stock with a value of $12,575 and
$12,141 at December 31, 1998 and 1997, respectively ($4,956 at March 12, 1999).
51
<PAGE> 53
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Retirement benefits under the SERP are based on years of service and
average monthly compensation, reduced by benefits under the pension plan and
Social Security. The Senior SERP provides retirement benefits based on years of
service and position. The Directors' Plan will provide an annual benefit to
directors following their retirement, based on a vesting schedule. The Company
purchased various life insurance policies on the participants in the SERP,
Senior SERP and Directors' Plan with the intent to use the proceeds or any cash
value buildup from such policies to assist in funding, at least to the extent of
such assets, the plans' funding requirements. The funding status of the SERP,
Senior SERP, and Directors' Plan requires the Company to recognize an additional
liability in accordance with FAS No. 87, "Employers' Accounting for Pensions."
At December 31, 1998 and 1997, the additional minimum liability was $14,513 and
$14,101, respectively.
The Company's United Kingdom operation has a defined benefit pension plan.
The Company and employees contribute to the plan consistent with United Kingdom
funding requirements. Most other foreign employees are covered by various
foreign government mandated or defined contribution plans which are adequately
funded and are not considered material to the financial condition or results of
operations of the Company. The plans' liabilities and their related costs are
computed in accordance with the laws of the individual countries and appropriate
actuarial practices.
The Company adopted FAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits," during 1998. FAS No. 132 supersedes the
disclosure requirements in FAS No. 87. All prior periods presented have been
restated to conform to this new standard.
The components of net periodic benefit cost were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
-------- ------- --------
<S> <C> <C> <C>
Service cost -- benefits earned during the period..... $ 12,889 $ 9,806 $ 8,550
Interest cost on projected benefit obligation......... 10,732 10,033 9,400
Return on plan assets................................. (10,866) (7,991) (13,341)
Net amortization and deferral of gain................. 1,280 1,708 9,747
-------- ------- --------
$ 14,035 $13,556 $ 14,356
======== ======= ========
</TABLE>
52
<PAGE> 54
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Plans' funded status were as follows (funded plan based on valuations
as of September 30):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1998 1997
--------------------- ---------------------
FUNDED NON-FUNDED FUNDED NON-FUNDED
PLAN PLANS PLAN PLANS
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of
year................................... $101,293 $ 39,840 $ 96,575 $ 40,281
Service cost............................. 11,984 905 6,593 1,015
Interest cost............................ 7,889 2,843 5,477 2,731
Plan amendments.......................... -- -- -- (930)
Actuarial (gain) loss.................... 3,659 2,055 739 (1,262)
Benefits paid............................ (12,366) (2,135) (8,091) (1,995)
-------- -------- -------- --------
Benefit obligation at end of year........ $112,459 $ 43,508 $101,293 $ 39,840
======== ======== ======== ========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of
year................................... $125,166 $ -- $103,435 $ --
Actual return on plan assets............. (488) -- 22,121 --
Employer contributions................... 80 2,135 7,701 1,995
Benefits paid............................ (12,366) (2,135) (8,091) (1,995)
-------- -------- -------- --------
Fair value of plan assets at end of
year................................... $112,392 $ -- $125,166 $ --
======== ======== ======== ========
Funded status of plan.................... $ (67) $(43,508) $ 23,873 $(39,840)
Fourth quarter contributions............. 8,873 -- -- --
Unrecognized actuarial (gain) loss....... 8,940 7,695 (5,539) 5,823
Unrecognized prior service cost.......... (1,314) 6,907 (1,674) 8,364
-------- -------- -------- --------
Prepaid (accrued) benefit cost........... $ 16,432 $(28,906) $ 16,660 $(25,653)
======== ======== ======== ========
</TABLE>
The plans' weighted-average assumptions were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
FUNDED NON-FUNDED FUNDED NON-FUNDED
PLAN PLANS PLAN PLANS
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Discount rate used to determine obligations... 6.75% 6.75% 7.25% 7.25%
Assumed rate of compensation increase......... 5.5 5.5 5.5 5.5
Assumed rate of return on plan assets......... 9.0 -- 9.0 --
</TABLE>
NOTE FIFTEEN
SEGMENT REPORTING
The Company adopted FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", during the fourth quarter of 1998. FAS No.
131 establishes standards for reporting information about operating segments and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the Company's chief decision making group. This group is comprised
of senior management who are responsible for the allocation of resources and
assessment of operating performance.
Because the Company's operations are product based and geographically
based, the Company's primary reportable operating segments presented below are
based on products or services and include funeral, cemetery, and insurance
operations. The Company's geographic segments include North America, France,
53
<PAGE> 55
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
other Europe and other Foreign. The Company conducts funeral operations in all
geographical regions, cemetery operations in all regions, except France, and
financial services operations in North America and France. See Note Two.
The Company's reportable segment information was as follows:
<TABLE>
<CAPTION>
REPORTABLE
FUNERAL CEMETERY INSURANCE SEGMENTS
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues from external customers:
1998.............................. $1,829,136 $ 846,601 $ 178,773 $ 2,854,510
1997.............................. 1,720,291 724,862 74,175 2,519,328
1996.............................. 1,656,736 612,421 67,799 2,336,956
Depreciation and amortization:
1998.............................. $ 152,396 $ 28,584 $ 4,947 $ 185,927
1997.............................. 123,652 21,611 3,707 148,970
1996.............................. 100,228 18,601 3,468 122,297
Income from operations:
1998.............................. $ 384,607 $ 306,161 $ 18,561 $ 709,329
1997.............................. 401,371 271,897 6,712 679,980
1996.............................. 374,190 214,721 6,651 595,562
Total assets:
1998.............................. $6,944,480 $4,012,685 $1,750,840 $12,708,005
1997.............................. 6,124,463 3,309,431 637,312 10,071,206
1996.............................. 5,379,608 2,638,775 676,646 8,695,029
Capital expenditures:
1998.............................. $ 590,065 $ 369,212 $ 2,029 $ 961,306
1997.............................. 487,802 404,100 592 892,494
1996.............................. 398,806 268,039 281 667,126
Operating locations at year end (unaudited):
1998.............................. 3,578 488 -- 4,066
1997.............................. 3,244 441 -- 3,685
1996.............................. 2,987 390 -- 3,377
</TABLE>
54
<PAGE> 56
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table reconciles certain reportable segment amounts to the
Company's corresponding consolidated amounts:
<TABLE>
<CAPTION>
REPORTABLE
SEGMENTS PROVIDENT CORPORATE CONSOLIDATED
----------- --------- --------- ------------
<S> <C> <C> <C> <C>
Revenues from external customers:
1998................................ $ 2,854,510 $ 20,580 $ -- $ 2,875,090
1997................................ 2,519,328 16,537 -- 2,535,865
1996................................ 2,336,956 18,386 -- 2,355,342
Depreciation and amortization:
1998................................ $ 185,927 $ 7 $ 16,343 $ 202,277
1997................................ 148,970 5 8,575 157,550
1996................................ 122,297 9 7,513 129,819
Total assets:
1998................................ $12,708,005 $271,448 $286,705 $13,266,158
1997................................ 10,071,206 200,562 243,162 10,514,930
1996................................ 8,695,029 148,193 177,556 9,020,778
Capital expenditures (1):
1998................................ $ 961,306 $ 180 $ 21,253 $ 982,739
1997................................ 892,494 2 14,698 907,194
1996................................ 667,126 -- 11,582 678,708
</TABLE>
- ---------------
(1) Consolidated capital expenditures include $729,515, $676,662 and $485,556
for the three years ended December 31, 1998, respectively, for purchases of
property, plant and equipment, cemetery property, and names and reputations
of acquired businesses.
The following table reconciles reportable segment income from operations
shown above to the Company's consolidated income before income taxes and
extraordinary loss:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Income from operations:
Reportable segments............................... $ 709,329 $679,980 $595,562
Provident income from operations.................. 9,441 7,632 8,890
General and administrative expenses............... (66,839) (66,781) (63,215)
--------- -------- --------
Consolidated income from operations................. 651,931 620,831 541,237
Interest expense.................................. (177,053) (136,720) (138,557)
Dividends on preferred securities of SCI Finance
LLC............................................ -- (4,382) (10,781)
Other income...................................... 43,649 100,244 21,982
--------- -------- --------
Income before income taxes and extraordinary loss... $ 518,527 $579,973 $413,881
========= ======== ========
</TABLE>
55
<PAGE> 57
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company geographic segment information was as follows:
<TABLE>
<CAPTION>
NORTH OTHER OTHER
AMERICA FRANCE EUROPE FOREIGN TOTAL
---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers:
1998...................... $1,877,294 $621,359 $ 266,678 $109,759 $2,875,090
1997...................... 1,658,398 554,648 225,087 97,732 2,535,865
1996...................... 1,468,936 600,341 184,943 101,122 2,355,342
Income from operations:
1998...................... $ 517,560 $ 71,499 $ 35,666 $ 27,206 $ 651,931
1997...................... 490,430 55,332 46,371 28,698 620,831
1996...................... 419,004 54,305 34,973 32,955 541,237
Long-lived assets:
1998...................... $4,846,151 $497,477 $1,060,405 $421,485 $6,825,518
1997...................... 3,979,614 440,744 902,554 196,656 5,519,568
1996...................... 3,229,800 450,864 874,868 181,006 4,736,538
Operating locations at year end
(unaudited):
1998...................... 1,843 1,214 840 169 4,066
1997...................... 1,720 1,101 712 152 3,685
1996...................... 1,551 1,056 631 139 3,377
</TABLE>
Included in the North American figures above are the following United
States amounts:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues from external customers................. $1,799,796 $1,586,910 $1,407,296
Income from operations........................... 500,865 468,822 400,924
Long-lived assets................................ 4,513,827 3,664,194 3,045,544
Operating locations at year end (unaudited)...... 1,686 1,574 1,441
</TABLE>
56
<PAGE> 58
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE SIXTEEN
SUPPLEMENTARY INFORMATION
The detail of certain balance sheet accounts was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash and cash equivalents:
Cash...................................................... $ 80,782 $ 41,264
Commercial paper and temporary investments................ 277,428 5,613
---------- ----------
$ 358,210 $ 46,877
========== ==========
Receivables and allowances:
Current:
Trade accounts......................................... $ 336,213 $ 312,931
Cemetery contracts..................................... 225,449 269,503
Loans and other........................................ 101,444 80,109
---------- ----------
663,106 662,543
---------- ----------
Less:
Allowance for contract cancellations and doubtful
accounts............................................. 53,292 52,597
Unearned finance charges............................... 44,262 52,465
---------- ----------
97,554 105,062
---------- ----------
$ 565,552 $ 557,481
========== ==========
Long-term:
Cemetery contracts..................................... $ 534,801 $ 387,566
Trusted cemetery merchandise sales..................... 613,917 486,139
Loans and other........................................ 360,776 207,687
---------- ----------
1,509,494 1,081,392
---------- ----------
Less:
Allowance for contract cancellations and doubtful
accounts............................................. 38,707 35,964
Unearned finance charges............................... 62,711 64,307
---------- ----------
101,418 100,271
---------- ----------
$1,408,076 $ 981,121
========== ==========
</TABLE>
57
<PAGE> 59
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest rates on cemetery contracts and loans and other notes receivable
range from 3.2% to 15.7% at December 31, 1998 (1.5% to 19.0% at December 31,
1997). Included in long-term loans and other notes receivable at December 31,
1998, are $15,054 in notes with officers and employees of the Company ($16,049
at December 31, 1997), the majority of which are collateralized by real estate,
and $28,323 in notes with other related parties ($24,095 at December 31, 1997).
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Cemetery property:
Undeveloped land.......................................... $1,512,198 $1,234,321
Developed land, lawn crypts and mausoleums................ 523,699 402,538
---------- ----------
$2,035,897 $1,636,859
---------- ----------
Property, plant and equipment:
Land...................................................... $ 441,897 $ 422,877
Buildings and improvements................................ 1,304,426 1,152,235
Operating equipment....................................... 514,865 413,108
Leasehold improvements.................................... 52,613 46,853
---------- ----------
2,313,801 2,035,073
---------- ----------
Less: accumulated depreciation............................ (488,822) (390,936)
---------- ----------
$1,824,979 $1,644,137
========== ==========
Accounts payable and accrued liabilities:
Trade payables............................................ $ 111,518 $ 74,874
Dividends................................................. 24,333 18,975
Payroll................................................... 75,085 70,957
Interest.................................................. 44,414 31,665
Insurance................................................. 70,432 41,799
Bank overdraft............................................ 19,759 29,977
Other..................................................... 106,813 157,384
---------- ----------
$ 452,354 $ 425,631
========== ==========
</TABLE>
NON-CASH TRANSACTIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
Common stock issued under restricted stock plans............ $ 1,196 $ 2,405 $ 1,278
Minimum liability under retirement plans.................... (535) (4,097) (2,235)
Debenture conversions to common stock....................... 2,594 6,417 1,240
Common stock issued in acquisitions......................... 97,124 83,173 15,823
Debt issued in acquisitions................................. 28,560 21,325 26,467
Conversion of preferred securities of SCI Finance LLC....... -- 167,911 --
</TABLE>
58
<PAGE> 60
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE SEVENTEEN
EARNINGS PER SHARE
The basic and diluted per share computations for income before
extraordinary item were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Income (numerator):
Income before extraordinary item -- basic.......... $342,142 $374,552 $265,298
After tax interest on convertible debentures....... 1,368 4,611 8,031
-------- -------- --------
Income before extraordinary item -- diluted........ $343,510 $379,163 $273,329
======== ======== ========
Shares (denominator):
Shares -- basic.................................... 256,271 245,470 235,299
Stock options and warrants...................... 4,290 4,827 3,919
Convertible debentures.......................... 1,959 2,212 2,187
Convertible preferred securities of SCI Finance
LLC........................................... -- 5,272 11,465
-------- -------- --------
Shares -- diluted.................................. 262,520 257,781 252,870
======== ======== ========
Earnings per share before extraordinary item:
Basic.............................................. $ 1.34 $ 1.53 $ 1.13
Diluted............................................ $ 1.31 $ 1.47 $ 1.08
</TABLE>
NOTE EIGHTEEN
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST* SECOND THIRD FOURTH YEAR
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
1998................................. $698,844 $690,230 $712,520 $773,496 $2,875,090
1997................................. 652,690 616,329 600,995 665,851 2,535,865
Gross profit:
1998................................. 216,128 187,690 173,706 141,246 718,770
1997................................. 188,152 163,183 151,772 184,505 687,612
Net income:
1998................................. 108,786 90,948 83,213 59,195 342,142
1997................................. 90,345 78,801 72,724 91,880 333,750
Basic earnings per share:
1998................................. .43 .36 .32 .23 1.34
1997................................. .38 .33 .29 .36 1.36
Diluted earnings per share:
1998................................. .42 .35 .32 .23 1.31
1997................................. .36 .31 .28 .36 1.31
</TABLE>
- ---------------
* The quarter ended March 31, 1997 includes (1) a $68,100 gain ($42,000 after
tax) on the sale of the Company's interest in ECI and (2) a $40,802
extraordinary loss (net of tax) on the early extinguishment of debt.
59
<PAGE> 61
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE NINETEEN
SUBSEQUENT EVENTS
In January 1999, a wholly-owned subsidiary of the Company acquired ECI. The
combination occurred through a stock-for-stock transaction in which ECI
stockholders received 15,500,824 shares of Company common stock, and was
accounted for under the purchase method of accounting.
Since January 26, 1999, several lawsuits have been commenced on behalf of
persons who (i) acquired shares of Company common stock in the merger of a
wholly owned subsidiary of the Company into ECI, (ii) purchased shares of
Company common stock during certain specified class periods or (iii) owned
employee stock options in ECI. As of March 24, 1999, 20 class action lawsuits
that had been originally filed in federal district court in Houston, Texas had
been consolidated into one action pending in that court, and one additional
class action lawsuit that had been originally filed in the federal district
court in Lufkin, Texas was still pending in that court. These lawsuits allege
violations of federal securities laws and name as defendants the Company and
certain of its officers and directors. As of the same date, two former state
court lawsuits, one of which was a class action, naming the Company as defendant
and alleging fraud and violations of Texas securities and common law had been
removed to the federal district court in Lufkin. The lawsuits generally refer to
the Company's January 26, 1999 public announcement that the Company's diluted
earnings per share for the fourth quarter of 1998 and for the year ended
December 31, 1998 would be lower than analyst expectations. The lawsuits seek,
among other things, to recover unspecified damages. Since the litigation is in
its very preliminary stages, no discovery has been taken, and the Company cannot
quantify its ultimate liability, if any, for the payment of damages in these
lawsuits. However, the Company believes that the allegations in the lawsuits do
not provide a basis for the recovery of damages.
60
<PAGE> 62
SERVICE CORPORATION INTERNATIONAL
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(2) DEDUCTIONS(1) PERIOD
----------- ---------- ---------- ----------- ------------- ---------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current --
Allowance for contract cancellations
and doubtful accounts:
Year ended December 31, 1998...... $52,597 $27,190 $2,327 $(28,822) $53,292
Year ended December 31, 1997...... 45,155 23,400 5,333 (21,291) 52,597
Year ended December 31, 1996...... 34,147 14,187 6,638 (9,817) 45,155
Due After One Year --
Allowance for contract cancellations
and doubtful accounts:
Year ended December 31, 1998...... $35,964 $ 3,650 $ (499) $ (408) $38,707
Year ended December 31, 1997...... 29,951 6,202 1,123 (1,312) 35,964
Year ended December 31, 1996...... 23,298 3,072 3,581 -- 29,951
Deferred Tax Valuation Allowance:
Year ended December 31, 1998...... $15,327 $(2,269) $ -- $ -- $13,058
Year ended December 31, 1997...... 6,128 9,199 -- -- 15,327
Year ended December 31, 1996...... 8,729 (2,601) -- -- 6,128
</TABLE>
- ---------------
(1) Uncollected receivables written off, net of recoveries.
(2) Primarily acquisitions and dispositions of operations.
61
<PAGE> 63
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information called for by PART III (Items 10, 11, 12 and 13) has been
omitted as the Company intends to file with the Commission not later than 120
days after the close of its fiscal year a definitive Proxy Statement pursuant to
Regulation 14A. Such information is set forth in such Proxy Statement (i) with
respect to Item 10 under the captions "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance", (ii) with respect to Items 11 and 13
under the captions "Certain Information with Respect to Officers and Directors",
"Compensation Committee Interlocks and Insider Participation" and "Certain
Transactions" and (iii) with respect to Item 12 under the caption "Voting
Securities and Principal Holders." The information as specified in the preceding
sentence is incorporated herein by reference. Notwithstanding anything set forth
in this Form 10-K, the information under the captions "Compensation Committee
Report on Executive Compensation" and "Performance Graph" in such Proxy
Statement are not incorporated by reference into this Form 10-K.
The information regarding the Company's executive officers called for by
Item 401 of Regulation S-K has been included in PART I of this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1)-(2) Financial Statements and Schedule:
The financial statements and schedule are listed in the accompanying Index
to Financial Statements and Related Schedule on page 26 of this report.
(3) Exhibits:
The exhibits listed on the accompanying Exhibit Index on pages 65-67 are
filed as part of this report.
(b) Reports on Form 8-K
During the quarter ended December 31, 1998, the Company filed a Form 8-K
dated December 11, 1998 reporting (i) under "Item 5. Other Events" certain
information regarding a registration statement relating to a public offering of
securities and (ii) under "Item 7. Financial Statements and Exhibits" certain
exhibits, including underwriting agreements, relating to the aforementioned
registration statement.
(c) Included in (a) above.
(d) Included in (a) above.
62
<PAGE> 64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, Service Corporation International, has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SERVICE CORPORATION INTERNATIONAL
By: /s/ JAMES M. SHELGER
------------------------------------
(James M. Shelger,
Senior Vice President, General
Counsel and Secretary)
Dated: March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
R. L. WALTRIP* Chairman of the Board, Chief March 30, 1999
- ----------------------------------------------------- Executive Officer and President
(R. L. Waltrip)
GEORGE R. CHAMPAGNE* Executive Vice President Chief March 30, 1999
- ----------------------------------------------------- Financial Officer (Principal
(George R. Champagne) Financial Officer)
/s/ WESLEY T. MCRAE North American Controller of March 30, 1999
- ----------------------------------------------------- SCI Management Corporation, a
(Wesley T. McRae) subsidiary of the Registrant
(Principal Accounting Officer)
ANTHONY L. COELHO* Director March 30, 1999
- -----------------------------------------------------
(Anthony L. Coelho)
JACK FINKELSTEIN* Director March 30, 1999
- -----------------------------------------------------
(Jack Finkelstein)
A. J. FOYT, JR.* Director March 30, 1999
- -----------------------------------------------------
(A. J. Foyt, Jr.)
JAMES H. GREER* Director March 30, 1999
- -----------------------------------------------------
(James H. Greer)
B. D. HUNTER* Director March 30, 1999
- -----------------------------------------------------
(B. D. Hunter)
JOHN W. MECOM, JR.* Director March 30, 1999
- -----------------------------------------------------
(John W. Mecom, Jr.)
CLIFTON H. MORRIS, JR.* Director March 30, 1999
- -----------------------------------------------------
(Clifton H. Morris, Jr.)
</TABLE>
63
<PAGE> 65
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
E. H. THORNTON, JR.* Director March 30, 1999
- -----------------------------------------------------
(E. H. Thornton, Jr.)
W. BLAIR WALTRIP* Director March 30, 1999
- -----------------------------------------------------
(W. Blair Waltrip)
EDWARD E. WILLIAMS* Director March 30, 1999
- -----------------------------------------------------
(Edward E. Williams)
*By /s/ JAMES M. SHELGER
- -----------------------------------------------------
(James M. Shelger, as Attorney-In-Fact
For each of the Persons indicated)
</TABLE>
64
<PAGE> 66
EXHIBIT INDEX
PURSUANT TO ITEM 601 OF REG. S-K
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 -- Restated Articles of Incorporation. (Incorporated by
reference to Exhibit 3.1 to Registration Statement No.
333-10867 on Form S-3).
3.2 -- Articles of Amendment to Restated Articles of
Incorporation. (Incorporated by reference to Exhibit 3.1
to Form 10-Q for the fiscal quarter ended September 30,
1996).
3.3 -- Statement of Resolution Establishing Series of Shares of
Series D Junior Participating Preferred Stock, dated July
27, 1998. (Incorporated by reference to Exhibit 3.2 to
Form 10-Q for the fiscal quarter ended June 30, 1998).
3.4 -- Bylaws, as amended. (Incorporated by reference to Exhibit
3.7 to Form 10-K for the fiscal year ended December 31,
1991).
4.1 -- Rights Agreement dated as of May 14, 1998 between the
Company and Harris Trust and Savings Bank. (Incorporated
by reference to Exhibit 99.1 to Form 8-K dated May 14,
1998).
10.1 -- Retirement Plan For Non-Employee Directors. (Incorporated
by reference to Exhibit 10.1 to Form 10-K for the fiscal
year ended December 31, 1991).
10.2 -- Agreement dated May 14, 1992 between the Company, R. L.
Waltrip and related parties relating to life insurance.
(Incorporated by reference to Exhibit 10.4 to Form 10-K
for the fiscal year ended December 31, 1992).
10.3 -- Employment Agreement, dated January 1, 1998, between SCI
Executive Services, Inc. and R.L. Waltrip.
10.4 -- Non-Competition Agreement and Amendment to Employment
Agreement, dated November 11, 1991, among the Company, R.
L. Waltrip and Claire Waltrip. (Incorporated by reference
to Exhibit 10.9 to Form 10-K for the fiscal year ended
December 31, 1992).
10.5 -- Employment Agreement, dated January 1, 1998, between SCI
Executive Services, Inc. and L. William Heiligbrodt.
(Incorporated by reference to Exhibit 10.5 to Form 10-K
for the fiscal year ended December 31, 1997).
10.6 -- Separation and Release Agreement, dated March 15, 1999,
among the Company, SCI Executive Services, Inc. and L.
William Heiligbrodt.
10.7 -- Independent Contractor/Consultative Agreement, dated
March 15, 1999, between SCI Management Corporation and L.
William Heiligbrodt.
10.8 -- Employment Agreement, dated January 1, 1998, between SCI
Executive Services, Inc. and W. Blair Waltrip.
(Incorporated by reference to Exhibit 10.6 to Form 10-K
for the fiscal year ended December 31, 1997).
10.9 -- Employment Agreement, dated January 1, 1998, between SCI
Executive Services, Inc. and Jerald L. Pullins.
(Incorporated by reference to Exhibit 10.1 to Form 10-Q
for the fiscal quarter ended June 30, 1998).
10.10 -- Employment Agreement, dated January 1, 1998, between SCI
Executive Services, Inc. and George R. Champagne.
10.11 -- Form of Employment Agreement pertaining to officers
(other than the officers identified in the preceding
exhibits). (Incorporated by reference to Exhibit 10.9 to
Form 10-K for the fiscal year ended December 31, 1997).
</TABLE>
65
<PAGE> 67
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.12 -- Form of 1986 Stock Option Plan. (Incorporated by
reference to Exhibit 10.21 to Form 10-K for the fiscal
year ended December 31, 1991).
10.13 -- Amendment to 1986 Stock Option Plan, dated February 12,
1997. (Incorporated by reference to Exhibit 10.11 to Form
10-K for the fiscal year ended December 31, 1996).
10.14 -- Amendment to 1986 Stock Option Plan, dated November 13,
1997. (Incorporated by reference to Exhibit 10.12 to Form
10-K for the fiscal year ended December 31, 1997).
10.15 -- Amended 1987 Stock Plan. (Incorporated by reference to
Appendix A to Proxy Statement dated April 1, 1991).
10.16 -- First Amendment to Amended 1987 Stock Plan. (Incorporated
by reference to Exhibit 10.23 to Form 10-K for the fiscal
year ended December 31, 1993).
10.17 -- 1993 Long-Term Incentive Stock Option Plan. (Incorporated
by reference to Exhibit 4.12 to Registration Statement
No. 333-00179 on Form S-8).
10.18 -- Amendment to 1993 Long-Term Incentive Stock Option Plan,
dated February 12, 1997. (Incorporated by reference to
Exhibit 10.15 to Form 10-K for the fiscal year ended
December 31, 1996).
10.19 -- Amendment to 1993 Long-Term Incentive Stock Option Plan,
dated November 13, 1997. (Incorporated by reference to
Exhibit 10.17 to Form 10-K for the fiscal year ended
December 31, 1997).
10.20 -- 1995 Incentive Equity Plan. (Incorporated by reference to
Annex B to Proxy Statement dated April 17, 1995).
10.21 -- Amendment to 1995 Incentive Equity Plan, dated February
12, 1997. (Incorporated by reference to Exhibit 10.18 to
Form 10-K for the fiscal year ended December 31, 1996).
10.22 -- Amendment to 1995 Incentive Equity Plan, dated November
13, 1997. (Incorporated by reference to Exhibit 10.21 to
Form 10-K for the fiscal year ended December 31, 1997).
10.23 -- 1995 Stock Plan for Non-Employee Directors. (Incorporated
by reference to Annex A to Proxy Statement dated April
17, 1995).
10.24 -- 1996 Incentive Plan. (Incorporated by reference to Annex
A to Proxy Statement dated April 15, 1996).
10.25 -- Amendment to 1996 Incentive Plan, dated February 12,
1997. (Incorporated by reference to Exhibit 10.22 to Form
10-K for the fiscal year ended December 31, 1996).
10.26 -- Amendment to 1996 Incentive Plan, dated November 13,
1997. (Incorporated by reference to Exhibit 10.25 to Form
10-K for the fiscal year ended December 31, 1997).
10.27 -- Split Dollar Life Insurance Plan. (Incorporated by
reference to Exhibit 10.36 to Form 10-K for the fiscal
year ended December 31, 1995).
10.28 -- Supplemental Executive Retirement Plan for Senior
Officers (as Amended and Restated Effective as of January
1, 1998).
10.29 -- Deferred Compensation Plan. (Incorporated by reference to
Exhibit 10.31 to Form 10-K for the fiscal year ended
December 31, 1997).
12.1 -- Ratio of Earnings to Fixed Charges.
21.1 -- Subsidiaries of the Company.
</TABLE>
66
<PAGE> 68
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
23.1 -- Consent of Independent Accountants
(PricewaterhouseCoopers LLP).
24.1 -- Powers of Attorney.
27 -- Financial Data Schedules.
99.1 -- List of Pending Class Action Litigation.
</TABLE>
In the above list, the management contracts or compensatory plans or
arrangements are set forth in Exhibits 10.1 through 10.29.
Pursuant to Item 601(b)(4) of Regulation S-K, there are not filed as
exhibits to this report certain instruments with respect to long-term debt under
which the total amount of securities authorized thereunder does not exceed 10
per cent of the total assets of Registrant and its subsidiaries on a
consolidated basis. Registrant agrees to furnish a copy of any such instrument
to the Commission upon request.
67
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as
of this 1st day of January, 1998, by and between SCI EXECUTIVE SERVICES, INC., a
Delaware corporation (the "Company") wholly owned by SERVICE CORPORATION
INTERNATIONAL, a Texas corporation (the "Parent") and successor by assignment to
all of the rights, duties and obligations under this Agreement, and R. L.
WALTRIP (the "Employee").
1. Employment and Term. The Company agrees to employ the
Employee and the Employee agrees to remain in the employ of the Company, in
accordance with the terms and provisions of this Agreement, for the period
beginning on the date hereof and ending as of the close of business on December
31, 2002 (such period together with all extensions thereof, is referred to
hereinafter as the "Employment Period"); provided, however, that commencing on
the date one year after the date hereof, and on each January 1 thereafter (each
such date shall be hereinafter referred to as a "Renewal Date") the Employment
Period shall be automatically extended so as to terminate five (5) year(s) from
such Renewal Date if (i) the Compensation Committee of the Board of Directors of
the Parent (hereinafter referred to as the "Compensation Committee") authorizes
such extension during the 60-day period preceding such Renewal Date and (ii) the
Employee has not previously given the Company written notice that the Employment
Period shall not be so extended. In the event that the Company gives the
Employee written notice at any time that the Compensation Committee has
determined not to authorize such extension, or if the Company fails to notify
the Employee of the Compensation Committee's determination prior to the Renewal
Date (the "Renewal Deadline"), the Employment Period shall be extended so as to
terminate five (5) year(s) after the date such notice is given (or, in case of a
failure to notify, five (5) year(s) after the Renewal Deadline) and shall not
thereafter be further extended.
2. Duties and Powers of Employee. During the Employment Period,
the Employee shall serve as the Chairman of the Board and Chief Executive
Officer of the Parent and the Company and shall have the duties, powers and
authority heretofore possessed by the holder of such offices and such other
powers consistent therewith as are delegated to him in writing from time to time
by the Board of Directors of the Parent (the "Board"). The Employee's services
shall be performed at the location where the Employee is currently employed or
any office which is the headquarters of the Company and is less than 50 miles
from such location. During the Change of Control Period, the Employee's position
(including status, offices, titles and reporting requirements), authority,
duties and
-1-
<PAGE> 2
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned with or by the
Company or the Parent at any time during the 90-day period immediately preceding
the Change of Control Date (as defined in Section 14(a) below).
3. Compensation. The Employee shall receive the following
compensation for his services:
(a) Salary. During the Employment Period, he shall be
paid an annual base salary ("Annual Base Salary") at the rate of not
less than $870,000 per year, in substantially equal bi-weekly
installments, and subject to any and all required withholdings and
deductions for Social Security, income taxes and the like. The
Compensation Committee may from time to time direct such upward
adjustments to Annual Base Salary as the Compensation Committee deems to
be appropriate or desirable; provided, however, that during the Change
of Control Period, the Annual Base Salary shall be reviewed at least
annually and shall be increased at any time and from time to time as
shall be substantially consistent with increases in base salary awarded
to Employee prior to the Change of Control Period. Annual Base Salary
shall not be reduced after any increase thereof pursuant to this Section
3(a). Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation of the Company under this Agreement.
(b) Incentive Cash Compensation. During the Employment
Period, he shall be eligible annually for a cash bonus at the discretion
of the Compensation Committee (such aggregate awards for each year are
hereinafter referred to as the "Annual Bonus") and at the discretion of
the Compensation Committee to receive awards from any plan of the
Company or any of its affiliated companies (as defined in Section 14(d)
below) providing for the payment of bonuses in cash to senior management
employees of the Company or its affiliated companies (such plans being
referred to herein collectively as the "Cash Bonus Plans") in accordance
with the terms thereof; provided, however, that, during the Change of
Control Period, the Employee shall be awarded, for each fiscal year
ending during the Change of Control Period, an Annual Bonus at least
equal to the Highest Recent Bonus (as defined in Section 14(e) below).
Each Annual Bonus shall be paid no later than the end of the third month
of the fiscal year next following the fiscal year for which the Annual
Bonus is awarded, unless the Employee shall elect to defer the receipt
of such Annual Bonus.
(c) Incentive and Savings and Retirement Plans. During
the Employment Period, the Employee shall be entitled to participate in
all incentive and savings (in addition to the Cash Bonus Plans) and
retirement plans, practices, policies and
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programs applicable generally to other senior management employees of
the Company and its affiliated companies.
(d) Welfare Benefit Plans. During the Employment
Period, the Employee and/or the Employee's family, as the case may be,
shall be eligible for participation in all welfare benefit plans,
practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life,
group life, accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other senior management
employees of the Company and its affiliated companies.
(e) Expenses. During the Employment Period and for so
long as the Employee is employed by the Company, he shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred by the
Employee in accordance with the policies, practices and procedures of
the Company and its affiliated companies from time to time in effect.
(f) Fringe Benefits. During the Employment Period, the
Employee shall be entitled to fringe benefits in accordance with the
plans, past practices, programs and policies of the Company and its
affiliated companies from time to time in effect.
(g) Office and Support Staff. During the Employment
Period, the Employee shall be entitled to an office or offices of a size
and with furnishings and other appointments, and to exclusive personal
secretarial and other assistance, commensurate with his position.
(h) Vacation and Other Absences. During the Employment
Period, the Employee shall be entitled to paid vacation and such other
paid absences whether for holidays, illness, personal time or any
similar purposes, in accordance with the plans, policies, programs and
practices of the Company and its affiliated companies.
(i) Change of Control. During the Change of Control
Period, the Employee's benefits listed under Sections 3(c), 3(d), 3(e),
3(f), 3(g) and 3(h) above shall be at least commensurate in all material
respects with the most valuable and favorable of those received by the
Employee at any time during the one-year period immediately preceding
the Change of Control Date.
4. Termination of Employment. (a) Death or Disability. The
Employment Period shall terminate automatically upon the Employee's death during
the Employment Period. If the Company determines in good faith that the
Disability of the Employee has
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<PAGE> 4
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Employee written notice in accordance with
Section 15(b) of its intention to terminate the Employment Period. In such
event, the Employment Period shall terminate effective on the 30th day after
receipt of such notice by the Employee (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, the Employee shall not
have returned to full-time performance of the Employee's duties. For purposes of
this Agreement, "Disability" shall mean the inability of the Employee to perform
the Employee's duties with the Company on a full-time basis as a result of
incapacity due to mental or physical illness which continues for more than one
year after the commencement of such incapacity, such incapacity to be determined
by a physician selected by the Company or its insurers and acceptable to the
Employee or the Employee's legal representative (such agreement as to
acceptability not to be withheld unreasonably).
(b) Cause. The Company may terminate the Employ-ment
Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) the
Employee's deliberate and intentional continuing refusal to substantially
perform his duties and obligations under this Agreement (other than a breach of
the Employee's obligations under this Agreement arising from the failure of the
Employee to work as a result of incapacity due to physical or mental illness) if
he shall have either failed to remedy such alleged breach within 60 days from
his receipt of written notice from the Secretary of the Company demanding that
he remedy such alleged breach, or shall have failed to take reasonable steps in
good faith to that end during such 60 day period and thereafter, or (ii) the
conviction of the Employee of a felony involving malice which conviction has
been affirmed on appeal or as to which the period in which an appeal can be
taken has lapsed.
(c) Good Reason; Window Period. The Employee's
employment may be terminated (i) by the Employee for Good Reason (as defined
below) or (ii) during the Window Period (as defined below) by the Employee
without any reason. For purposes of this Agreement, the "Window Period" shall
mean the 30-day period immediately following the first anniversary of the Change
of Control Date. For purposes of this Agreement, "Good Reason" shall mean
(i) the assignment to the Employee of any
duties inconsistent in any respect with the Employee's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities prior to the date of such
assignment or any other action by the Company or the Parent which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated and
insubstantial action not taken in bad faith and
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<PAGE> 5
which is remedied by the Company promptly after receipt of notice
thereof given by the Employee;
(ii) any failure by the Company to comply with
any of the provisions of Section 3, other than an isolated and
insubstantial failure not occurring in bad faith and which is remedied
by the Company promptly after receipt of notice thereof given by the
Employee;
(iii) the Company's requiring the Employee to
be based at any office or location other than that described in Section
2(a);
(iv) any purported termination by the Company
of the Employee's employment otherwise than as expressly permitted by
this Agreement; or
(v) any failure by the Company or the Parent
to comply with and satisfy Section 13(c), provided that the successor
referred to in Section 13(c) has received at least ten days prior
written notice from the Company or the Employee of the requirements of
Section 13(c).
For purposes of this Section 4(c), during the Change of Control Period, any good
faith determination of "Good Reason" made by the Employee shall be conclusive.
(d) Notice of Termination. Any termination by the
Company for Cause or by the Employee without any reason during the Window Period
or for Good Reason shall be communicated by Notice of Termination to the other
party hereto given in accordance with Section 15(b). For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Employment Period under the
provision so indicated ,(iii) if the Date of Termination (as defined below) is
other than the date of receipt of such notice, specifies the termination date
(which date shall be not more than 15 days after the giving of such notice) and
(iv) if the termination is by the Company for Cause, indicates that the Board
has determined that a basis for termination for Cause exists, that the Employee
has failed to take reasonable steps in good faith to remedy the alleged basis
for such termination, and contains a certified copy of a resolution of the Board
adopted by the affirmative vote of not less than two-thirds of the entire
membership of the Board in a meeting called and held for that purpose in which
the Employee was given an opportunity to be heard, finding that a basis for
termination for Cause exists and that the Employee has failed to take reasonable
steps in good faith to remedy such alleged basis for termination. The failure by
the Employee or the Company to set forth in the
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<PAGE> 6
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Employee or the Company
hereunder or preclude the Employee or the Company from asserting such fact or
circumstance in enforcing the Employee's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means
(i) if the Employee's employment is terminated by the Company for Cause, or by
the Employee during the Window Period or for Good Reason, the date of receipt of
the Notice of Termination or any later date specified therein, as the case may
be, (ii) if the Employee's employment is terminated by the Company other than
for Cause or Disability, or by the Employee other than for Good Reason or during
the Window Period, the Date of Termination shall be the date on which the
Company or the Employee, as the case may be, notifies the other of such
termination and (iii) if the Employee's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the
Employee or the Disability Effective Date, as the case may be. Notwithstanding
the foregoing, if the Company gives the Employee written notice pursuant to the
second sentence of Section 1 hereof, then "Date of Termination" shall mean the
last day of the five (5) year period for which the Employment Period is extended
pursuant to such sentence.
5. Obligations of the Company Upon Termination. (a) Certain
Terminations Prior to Change of Control Date. If, during the Employment Period
prior to any Change of Control Date, the employment of the Employee with the
Company shall be terminated (i) by the Company other than for Cause, death or
Disability or (ii) by the Employee for Good Reason, then, in lieu of the
obligations of the Company under Section 3, (i) the Company shall pay to the
Employee in a lump sum in cash within 30 days after the Date of Termination all
Unpaid Agreement Amounts (as defined in Section 5(b)(i)(A) below) and (ii)
notwithstanding any other provision hereunder, for the longer of (A) the
remainder of the Employment Period or (B) to the extent compensation and/or
benefits are provided under any plan, program, practice or policy, such longer
period, if any, as such plan, program, practice or policy may provide, the
Company shall continue to provide to the Employee the compensation and benefits
provided in Sections 3(a), 3(b)(based on the Highest Recent Bonus), 3(c) and
3(d) (it being understood that if the Company gives the Employee written notice
that the Compensation Committee has determined not to authorize an extension, or
fails to notify the Employee of the Compensation Committee's determination prior
to the Renewal Deadline, in either case as contemplated by the second sentence
of Section 1 hereof, the giving of such notice or the failure to so notify the
Employee shall not be deemed a termination of the employment of the Employee
with the Company during the Employment Period for purposes of this Section
5(a)).
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<PAGE> 7
(b) Certain Terminations After Change of Control Date.
If, during the Change of Control Period, the employment of the Employee with the
Company shall be terminated (i) by the Company other than for Cause, death or
Disability or (ii) by the Employee either for Good Reason or without any reason
during the Window Period, then, in lieu of the obligations of the Company under
Section 3 and notwithstanding any other provision hereunder:
(i) the Company shall pay to the Employee in a
lump sum in cash within 30 days after the Date of Termination the
aggregate of the following amounts:
(A) the sum of (1) all unpaid amounts
due to the Employee under Section 3 through the Date of
Termination, including without limitation, the Employee's Annual
Base Salary and any accrued vacation pay, (2) the product of (x)
the Highest Recent Bonus and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through
the Date of Termination, and the denominator of which is 365 and
(3) any compensation previously deferred by the Employee
(together with any accrued interest or earnings thereon) to the
extent not theretofore paid (the sum of the amounts described in
clauses (1), (2) and (3) shall be hereinafter referred to as the
"Accrued Obligations" and the sum of the amounts described in
clauses (1) and (3) shall be hereinafter referred to as the
"Unpaid Agreement Amounts"); and
(B) the amount (such amount shall be
hereinafter referred to as the "Severance Amount") equal to the
sum of
(1) Five (5) multiplied by the
Employee's Annual Base Salary, plus
(2) Five (5) multiplied by the
Employee's Highest Recent Bonus;
(ii) for the longer of (A) the remainder of
the Employment Period or (B) to the extent benefits are provided under
any plan, program, practice or policy, such longer period as such plan,
program, practice or policy may provide, the Company shall continue
benefits to the Employee and/or the Employee's family at least equal to
those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 3(d) if the
Employee's employment had not been terminated, in accordance with the
most favorable plans, practices, programs or policies of the Company and
its affiliated companies as in effect and applicable generally to other
employees of comparable rank and their families during the 90-day period
immediately preceding
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<PAGE> 8
the Change of Control Date or, if more favorable to the Employee, as in
effect generally at any time thereafter with respect to other employees
of comparable rank with the Company and its affiliated companies and
their families; provided, however, that if the Employee becomes
reemployed with another employer and is eligible to receive medical or
other welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be required
only to the extent not provided under such other plan during such
applicable period of eligibility. For purposes of determining
eligibility of the Employee for retiree benefits pursuant to such
plans, practices, programs and policies, the Employee shall be
considered to have remained employed until the end of the Employment
Period and to have retired on the last day of such period; and
(iii) to the extent not theretofore paid or
provided, the Company shall timely pay or provide to the Employee and/or
the Employee's family for the remainder of the Employment Period any
other amounts or benefits required to be paid or provided or which the
Employee and/or the Employee's family is eligible to receive pursuant to
this Agreement and under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies as in
effect and applicable generally to other employees of comparable rank
with the Company and its affiliated companies and their families during
the 90-day period immediately preceding the Change of Control Date or,
if more favorable to the Employee, as in effect generally thereafter
with respect to other employees of comparable rank with the Company and
its affiliated companies and their families.
Such amounts received under this Section 5(b) shall be in lieu of any other
amount of severance relating to salary or bonus continuation to be received by
the Employee upon termination of employment of the Employee under any severance
plan, policy or arrangement of the Company.
(c) Termination as a Result of Death. If the Employee's
employment is terminated by reason of the Employee's death during the Employment
Period, in lieu of the obligations of the Company under Section 3, the Company
shall pay or provide to the Employee's estate (i) all Accrued Obligations (which
shall be paid in a lump sum in cash within 30 days after the Date of
Termination) and the timely payment or provision of the Welfare Benefit
Continuation (as defined below) and the Other Benefits (as defined below) and
(ii) any cash amount to be received by the Employee or the Employee's family as
a death benefit pursuant to the terms of any plan, policy or arrangement of the
Company and its affiliated companies. "Welfare Benefit Continuation" shall mean
the continuation of benefits to the Employee and/or the Employee's family for
the longer of (i) five (5) year(s) from the Date of
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<PAGE> 9
Termination or (ii) the period provided by the plans, programs, policies or
practices described in Section 3(d) in which the Employee participates as of the
Date of Termination, such benefits to be at least equal to those which would
have been provided to them in accordance with the plans, programs, practices and
policies described in Section 3(d) if the Employee's employment had not been
terminated, in accordance with the most favorable plans, practices, programs or
policies of the Company and its affiliated companies as in effect and applicable
generally to other employees of comparable rank and their families on the Date
of Termination or, if the Date of Termination occurs after the Change of Control
Date, during the 90-day period immediately preceding the Change of Control Date
or, if more favorable to the Employee, as in effect generally at any time
thereafter with respect to other employees of comparable rank with the Company
and its affiliated companies and their families. "Other Benefits" shall mean the
timely payment or provision to the Employee and/or the Employee's family of any
other amounts or benefits required to be paid or provided or which the Employee
and/or the Employee's family is eligible to receive pursuant to this Agreement
and under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies as in effect and applicable generally to
other employees of comparable rank and their families on the Date of Termination
or, if the Date of Termination occurs after the Change of Control Date, during
the 90-day period immediately preceding the Change of Control Date or, if more
favorable to the Employee, as in effect generally thereafter with respect to
other employees of comparable rank with the Company and its affiliated companies
and their families.
(d) Termination as a Result of Disability. If the
Employee's employment is terminated by reason of the Employee's Disability
during the Employment Period, in lieu of the obligations of the Company under
Section 3, the Company shall pay or provide to the Employee (i) all Accrued
Obligations which shall be paid in a lump sum in cash within 30 days after the
Date of Termination and the timely payment or provision of the Welfare Benefit
Continuation and the Other Benefits, provided, however, that if the Employee
becomes reemployed with another employer and is eligible to receive medical or
other welfare benefits under another employer provided plan, the Welfare Benefit
Continuation shall be required only to the extent not provided under such other
plan during such applicable period of eligibility, and (ii) any cash amount to
be received by the Employee as a disability benefit pursuant to the terms of any
plan, policy or arrangement of the Company and its affiliated companies.
(e) Cause; Other than for Good Reason. If the
Employee's employment shall be terminated during the Employment Period by the
Company for Cause or by the Employee other than during the Window Period and
other than for Good Reason, in lieu of the obligations of the Company under
Section 3, the Company shall
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<PAGE> 10
pay to the Employee in a lump sum in cash within 30 days after the Date of
Termination all Unpaid Agreement Amounts.
6. Non-exclusivity of Rights. Except as provided in Sections
5(a), 5(b)(i)(B), 5(b)(ii), 5(c) and 5(d), nothing in this Agreement shall
prevent or limit the Employee's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Employee may qualify, nor shall anything herein
limit or otherwise affect such rights as the Employee may have under any
contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Employee is otherwise entitled to
receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with such plan,
policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
7. Full Settlement; Resolution of Disputes. (a) The Company's
obligation to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against the Employee or others. In no event shall the Employee
be obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to the Employee under any of the provisions of
this Agreement and, except as provided in Sec-tions 5(b)(ii) and 5(d), such
amounts shall not be reduced whether or not the Employee obtains other
employment. The Company agrees to pay promptly as incurred, to the full extent
permitted by law, all legal fees and expenses which the Employee may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company, the Employee or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Employee about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
payment required to be made under this Agreement but not timely paid at the rate
provided for in Section 280G(d)(4) of the Internal Revenue Code of 1986, as
amended (the "Code").
(b) If there shall be any dispute between the Company
and the Employee (i) in the event of any termination of the Employee's
employment by the Company, whether such termination was for Cause, or (ii) in
the event of any termination of employment by the Employee, whether Good Reason
existed, then, unless and until there is a final, nonappealable judgment by a
court of competent jurisdiction declaring that such termination was for Cause or
that the determination by the Employee of the existence of Good Reason was not
made in good faith, the Company shall pay all amounts, and provide all benefits,
to the Employee and/or the Employee's family
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<PAGE> 11
or other beneficiaries, as the case may be, that the Company would be required
to pay or provide pursuant to Section 5(a) or 5(b) as through such termination
were by the Company without Cause or by the Employee with Good Reason. The
Employee hereby undertakes to repay to the Company all such amounts to which the
Employee is ultimately adjudged by such court not to be entitled.
8. Certain Additional Payments by the Company. (a) Anything in
this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the Company to or for the benefit
of the Employee (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section 8) (a "Payment")
would be subject to the excise tax imposed by Section 4999 (or a successor
provision of like import) of the Code or any interest or penalties are incurred
by the Employee with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Employee shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Employee of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 8(c), all
determinations required to be made under this Section 8, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by an accounting firm of national reputation selected by the Company (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and the Employee within 15 business days of the receipt of notice
from the Employee that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving (or
has served within the three years preceding the Change of Control Date) as
accountant or auditor for the individual, entity or group effecting the Change
of Control, or is unwilling or unable to perform its obligations pursuant to
this Section 8, the Employee shall appoint another nationally recognized
accounting firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the
Company to the Employee within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is payable
by the Employee, it shall furnish the Employee with a written opinion that
failure to report the Excise
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<PAGE> 12
Tax on the Employee's applicable federal income tax return would not result in
the imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and the Employee. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 8(c) and the Employee thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Employee.
(c) The Employee shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Employee is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Employee shall not pay such claim prior to the expiration of the 30-day period
following the date on which the Employee gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Employee in writing prior to the
expiration of such period that it desires to contest such claim, the Company,
subject to the provisions of this Section 8(c), shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at its sole option,
either direct the Employee to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner. In this connection, the Employee
agrees, subject to the provisions of this Section 8(c), to (i) prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine, (ii) give the Company any information reasonably requested by the
Company relating to such claim, (iii) take such action in connection with
contesting such claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the Company, (iv)
cooperate with the Company in good faith in order to effectively contest such
claim and (v) permit the Company to participate in any proceedings relating to
such claim. The foregoing is subject, however, to the following: (A) the Company
shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold the Employee harmless, on an after-tax basis,
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for any Excise Tax or income tax (including interest and penalties with respect
thereto) imposed in connection therewith and the payment of costs and expenses
in such connection, (B) if the Company directs the Employee to pay such claim
and sue for a refund, the Company shall advance the amount of such payment to
the Employee, on an interest-free basis, and shall indemnify and hold the
Employee harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance,
(C) any extension of the statute of limitations relating to payment of taxes for
the taxable year of the Employee with respect to which such contested amount is
claimed to be due shall be limited solely to such contested amount and (D) the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Employee shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 8(c), the Employee becomes entitled
to receive any refund with respect to such claim, the Employee shall (subject to
the Company's complying with the requirements of Section 8(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Employee of an amount advanced by the Company pursuant to Section 8(c), a
determination is made that the Employee shall not be entitled to any refund with
respect to such claim and the Company does not notify the Employee in writing of
its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
9. Confidential Information. The Employee shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Employee during the Employee's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Employee or representatives of the Employee in violation of
this Agreement). After termination of the Employee's employment with the Company
or any of its affiliated companies, the Employee shall not, without the prior
written consent of the Company or as may otherwise be required by law or legal
process, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 9 constitute a basis for
deferring or withholding any
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<PAGE> 14
amounts otherwise payable to the Employee under this Agreement. Subject to the
previous sentence, nothing herein shall be construed as prohibiting the Company
from pursuing any other remedies available to it for such breach or threatened
breach, including the recovery of damages from the Employee.
10. Employee's Obligation to Avoid Conflicts of Interest. (a)
The Employee shall comply with the conflict of interest policy of the Parent as
in effect from time to time.
11. Ownership of Information, Ideas, Concepts, Improvements,
Discoveries and Inventions and all Original Works of Authorship. (a) All
information, ideas, concepts, improvements, discoveries and inventions, whether
patentable or not, which are conceived, made, developed or acquired by Employee
or which are disclosed or made known to Employee, individually or in conjunction
with others, during Employee's employment by the Company or any of its
affiliated companies and which relate to the Company's or any of its affiliated
companies' business, products or services (including all such information
relating to corporate opportunities, research, financial and sales data, pricing
and trading terms, evaluations, opinions, interpretations, acquisition
prospects, the identity of customers or their requirements, the identity of key
contacts within the customer's organizations or within the organization of
acquisition prospects, or marketing and merchandising techniques, prospective
names and marks) are and shall be the sole and exclusive property of the
Company. Moreover, all drawings, memoranda, notes, records, files,
correspondence, manuals, models, specifications, computer programs, maps and all
other writings or materials of any type embodying any of such information,
ideas, concepts, improvements, discoveries and inventions are and shall be the
sole and exclusive property of the Company.
(b) In particular, Employee hereby specifically sells,
assigns and transfers to the Company all of his worldwide right, title and
interest in and to all such information, ideas, concepts, improvements,
discoveries or inventions, and any United States or foreign applications for
patents, inventor's certificates or other industrial rights that may be filed
thereon, including divisions, continuations, continuations-in-part, reissues
and/or extensions thereof, and applications for registration of such names and
marks. Both during the period of Employee's employment by the Company or any of
its affiliated companies and thereafter, Employee shall assist the Company and
its nominee at all times in the protection of such information, ideas, concepts,
improvements, discoveries or inventions, both in the United States and all
foreign countries, including but not limited to, the execution of all lawful
oaths and all assignment documents requested by the Company or its nominee in
connection with the preparation, prosecution, issuance or enforcement of any
applications for United States or foreign letters patent, including divisions,
-14-
<PAGE> 15
continuations, continuations-in-part, reissues, and/or extensions thereof, and
any application for the registration of such names and marks.
(c) Moreover, if during Employee's employment by the
Company or any of its affiliated companies, Employee creates any original work
of authorship fixed in any tangible medium of expression which is the subject
matter of copyright (such as videotapes, written presentations on acquisitions,
computer programs, drawings, maps, architectural renditions, models, manuals,
brochures or the like) relating to the Company's or any of its affiliated
companies' business, products, or services, whether such work is created solely
by Employee or jointly with others, the Company shall be deemed the author of
such work if the work is prepared by Employee in the scope of his or her
employment; or, if the work is not prepared by Employee within the scope of his
or her employment but is specially ordered by the Company as a contribution to a
collective work, as a part of a motion picture or other audiovisual work, as a
translation, as a supplementary work, as a compilation or as an instrumental
text, then the work shall be considered to be work made for hire and the Company
shall be the author of the work. In the event such work is neither prepared by
the Employee within the scope of his or her employment or is not a work
specially ordered and deemed to be a work made for hire, then Employee hereby
agrees to assign, and by these presents does assign, to the Company all of
Employee's worldwide right, title and interest in and to such work and all
rights of copyright therein. Both during the period of Employee's employment by
the Company or any of its affiliated companies and thereafter, Employee agrees
to assist the Company and its nominee, at any time, in the protection of the
Company's worldwide right, title and interest in and to the work and all rights
of copyright therein, including but not limited to, the execution of all formal
assignment documents requested by the Company or its nominee and the execution
of all lawful oaths and applications for registration of copyright in the United
States and foreign countries.
12. Obligations to Refrain From Competing Unfairly. In addition
to the other obligations agreed to by Employee in this Agreement, Employee
agrees that during the Employment Period and for five (5) year(s) following the
Date of Termination, he shall not at any time, directly or indirectly for the
benefit of any other party than the Company or any of its affiliated companies,
(a) induce, entice, or solicit any employee of the Company or any of its
affiliated companies to leave his employment, or (b) contact, communicate or
solicit any customer of the Company or any of its affiliated companies derived
from any customer list, customer lead, mail, printed matter or other information
secured from the Company or any of its affiliated companies or their present or
past employees, or (c) in any other manner use any customer lists or customer
leads, mail, telephone numbers, printed material or material of the Company or
any of its affiliated companies relating thereto.
-15-
<PAGE> 16
13. Successors. (a) This Agreement is personal to the Employee
and without the prior written consent of the Company shall not be assignable by
the Employee otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Employee's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise. The Parent will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Parent or the Parent to
assume expressly and agree to perform the Parent's obligations hereunder in the
same manner and to the same extent that the Parent would be required to perform
them if no such succession had taken place. As used in this Agreement, "Parent"
shall mean the Parent as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform the Parent's
obligations hereunder by operation of law, or otherwise.
14. Certain Definitions. The following defined terms used in
this Agreement shall have the meanings indicated:
(a) The "Change of Control Date" shall mean the first
date on which a Change of Control occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if the Employee's
employment with the Company is terminated or there is a change in the
circumstances of the Employee's employment which constitutes Good Reason, and if
it is reasonably demonstrated by the Employee that such termination or change in
circumstances: (i) was at the request of a third party who has taken steps
reasonably calculated to effect the Change of Control; or (ii) otherwise arose
in connection with or anticipation of the Change of Control, then, for all
purposes of this Agreement, the "Change of Control Date" shall mean the date
immediately prior to the date of such termination or cessation.
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<PAGE> 17
(b) The "Change of Control Period" shall mean the
period commencing on the Change of Control Date and ending on the last day of
the Employment Period.
(c) "Change of Control" shall mean:
(i) The acquisition by any individual, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended the "Exchange Act") (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (A) the
then outstanding shares of Common Stock of the Parent (the "Outstanding
Parent Common Stock") or (B) the combined voting power of the then
outstanding voting secu-rities of the Parent entitled to vote generally
in the election of directors (the "Outstanding Parent Voting
Securities"); provided, however, that the following acquisitions shall
not constitute a Change of Control: (A) any acquisition directly from
the Parent (excluding an acquisition by virtue of the exercise of a
conversion privilege), (B) any acquisition by the Parent, (C) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Parent or any corporation controlled by the Parent or
(D) any acquisition by any corporation pursuant to a reorganization,
merger or consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (A), (B) and (C) of
subsection (iii) of this definition of "Change of Control" are
satisfied; or
(ii) Individuals who, as of the effective date
hereof, constitute the Board of Directors of the Parent (the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board of Directors of the Parent; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Parent's shareholders, was approved by
(A) a vote of at least a majority of the directors then constituting the
Incumbent Board of the Parent, or (B) a vote of at least a majority of
the directors then comprising the Executive Committee of the Board of
Directors of the Parent at a time when such committee consisted of at
least five members and all members of such committee were either members
of the Incumbent Board or considered as being members of the Incumbent
Board pursuant to clause (A) of this subsection (ii), shall be
considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board of Directors of the Parent; or
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<PAGE> 18
(iii) Approval by the shareholders of the
Parent of a reorganization, merger or consolidation, in each case,
unless, following such reorganization, merger or consolidation, (A) more
than 60% of, respectively, the then outstanding shares of common stock
of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Parent
Common Stock and Outstanding Parent Voting Securities immediately prior
to such organization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding Parent
Common Stock and Outstanding Parent Voting Securities, as the case may
be, (B) no Person (excluding the Parent, any employee benefit plan or
related trust of the Parent or such corporation resulting from such
reorganization, merger or consolidation and any Person beneficially
owning, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 20% or more of the Outstanding
Parent Common Stock or Outstanding Parent Voting Securities, as the case
may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or consolidation
or the combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board of
directors of the corporation resulting from such reorganization, merger
or consolidation were members of the Incumbent Board at the time of the
execution of the initial agreement providing for such reorganization,
merger or consolidation; or
(iv) Approval by the shareholders of the
Parent of (A) a complete liquidation or dissolution of the Parent or (B)
the sale or other disposition of all or substantially all of the assets
of the Parent, other than to a corporation, with respect to which
following such sale or other disposition, (A) more than 60% of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Parent
Common Stock and Outstanding Parent Voting Securities immediately prior
to such sale or other disposition in
-18-
<PAGE> 19
substantially the same proportion as their ownership, immediately prior
to such sale or other disposition, of the Outstanding Parent Common
Stock and Outstanding Parent Voting Securities, as the case may be, (B)
no Person (excluding the Parent and any employee benefit plan or related
trust of the Parent or such corporation and any Person beneficially
owning, immediately prior to such sale or other disposition, directly or
indirectly, 20% or more of the Outstanding Parent Common Stock or
Outstanding Parent Voting Securities, as the case may be) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and
(C) at least a majority of the members of the Board of Directors of such
corporation were members of the Incumbent Board at the time of the
execution of the initial agreement or action of the Board of Directors
of the Parent providing for such sale or other disposition of assets of
the Parent.
(d) The term "affiliated company" shall mean any
company controlled by, controlling or under common control with the Company.
(e) The term "Highest Recent Bonus" shall mean the
highest Annual Bonus (annualized for any fiscal year consisting of less than
twelve full months) paid or payable, including by reason of any deferral, to the
Employee by the Company and its affiliated companies in respect of the three
most recent full fiscal years ending on or prior to, (i) if prior to a Change of
Control, the Date of Termination, or (ii) if after a Change of Control, the
Change of Control Date.
15. Miscellaneous. (a) This Agreement supersedes all previous
agreements and discussions relating to the same or similar subject matters
between Employee and the Company and shall be governed by and construed in
accordance with the laws of the State of Texas, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. Notwithstanding the
foregoing, this Agreement shall not supersede, alter or affect the terms of the
Non-Competition Agreement and Amendment to Employment Agreement between the
Parent and Employee dated November 11, 1991, attached hereto as Exhibit "A".
This Agreement may not be amended, modified, repealed, waived, extended or
discharged except by an agreement in writing signed by the party against whom
enforcement of such amendment, modification, repeal, waiver, extension or
discharge is sought. No person, other than pursuant to a resolution of the Board
or a duly authorized committee thereof, shall have authority on behalf of the
Company or the Parent to agree to amend, modify, repeal, waive, extend or
discharge any provision of this Agreement or anything in reference thereto.
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<PAGE> 20
(b) All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Employee:
R. L. Waltrip
1929 Allen Parkway
Houston, TX 77019
If to the Company:
SCI Executive Services, Inc.
1929 Allen Parkway
Houston, Texas 77019
Attention: Corporate Secretary
If to the Parent:
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
Attention: Corporate Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) The Employee's or the Company's failure to insist
upon strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Employee or the Company may
have hereunder, including, without limitation, the right of the Employee to
terminate employment for Good Reason pursuant to Section 4(c) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) No breach, whether actual or alleged, of this
Agreement by the Employee shall constitute grounds for the Company to withhold
or offset any payment or benefit due to the Employee
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<PAGE> 21
under any other agreement, contract, plan, program, policy or practice of the
Company.
IN WITNESS WHEREOF, the Employee and, pursuant to due
authorization from the Board, the Company have caused this Agreement to be
executed this 1st day of January, 1998.
R. L. WALTRIP
/s/ R. L. Waltrip
----------------------------------------
"EMPLOYEE"
SCI EXECUTIVE SERVICES, INC.
By: /s/ Curtis G. Briggs
------------------------------------
Name:Curtis G. Briggs
Title:Vice President
"COMPANY"
Pursuant to due authorization from its Board of Directors, the Parent,
by its execution hereof, absolutely and unconditionally guarantees to Employee
the full and timely payment and performance of each obligation of the Company to
Employee under this Agreement, waives any and all rights that it may otherwise
have to require Employee to proceed against the Company for nonpayment or
nonperformance, waives any and all defenses that would otherwise be a defense to
this guarantee, and agrees to remain liable to Employee for all payment and
performance obligations of the Company under this Agreement, whether arising
before, on or after the date of this Agreement, until this Agreement shall
terminate pursuant to its terms.
SERVICE CORPORATION
INTERNATIONAL
By: /s/ James M. Shelger
-----------------------------------
Name:James M. Shelger
Title:Senior Vice President
General Counsel and
Secretary
"PARENT"
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<PAGE> 1
EXHIBIT 10.6
SEPARATION AND RELEASE AGREEMENT
This Separation and Release Agreement ("Agreement") is entered into as
of the 15th day of March, 1999, among Service Corporation International, a Texas
corporation ("SCI"), SCI Executive Services, Inc., a Delaware corporation
("Executive Services"), and L. William Heiligbrodt ("Heiligbrodt") but is
effective for all purposes (other than Sections 4 and 5 hereof) as of February
11, 1999.
SCI, Executive Services and Heiligbrodt agree as follows:
1. On February 11, 1999, Heiligbrodt resigned as an officer, director,
and employee of SCI, SCI Executive Services, Inc., and all of their subsidiaries
and affiliated companies and enterprises (collectively "SCI Group") in order to
facilitate the consolidation of the executive responsibility of SCI at that time
into one office.
2. On February 11, 1999, SCI paid Heiligbrodt by wire transfer of funds
to a bank designated by Heiligbrodt the amount of $23,211,957.92, representing:
(a) the purchase price for Heiligbrodt's equity in his fully
vested options to purchase 933,452 shares of Common Stock,
$1.00 per value, of SCI ("Common Stock") at a price of $4.125
per option (representing the difference between the $17.00
assumed market value of the Common Stock on February 11, 1999
and the $12.875 exercise price of such options);
(b) the purchase price of the 583,114 shares of Common Stock owned
by Heiligbrodt and his affiliates at a price of $17.00 per
share; and
(c) a cash payment in the amount of $15 million in consideration
of the execution of this Agreement, the cancellation of the
Employment Agreement dated January 1, 1998, between Executive
Services and Heiligbrodt ("Supplanted Agreement') and the
various restraints imposed upon Heiligbrodt's commercial and
personal flexibility by the terms of the Independent
Contractor/Consultative Agreement, dated of even date
herewith, but effective for all purposes as of February 11,
1999, between SCI Management Corporation, a Delaware
corporation, and Heiligbrodt ("Consulting Agreement").
The amounts referred to in clauses (a) and (c) were paid to Heiligbrodt net of
applicable withholding taxes. SCI acknowledges receipt from Heiligbrodt of stock
certificates, in proper form for transfer, representing 578,114 shares of the
shares of Common Stock referred to in clause (b) above.
<PAGE> 2
3. Heiligbrodt confirms that, as of February 11, 1999, he surrendered
for cancellation and relinquished to SCI all options to purchase Common Stock
that had been theretofore granted to him by SCI. Heiligbrodt hereby confirms
that he is willing to receive the benefits payable to him under SCI's
Supplemental Executive Retirement Plan for Senior Officers ("SERP") in the form
of a lump-sum payment in the amount of $6,345,458 payable as soon as reasonably
practicable after the approval of the Compensation Committee of SCI's Board of
Directors.
4. In consideration of the payment to Heiligbrodt referred to in
numbered paragraph 2(c) above, the receipt and sufficiency of which Heiligbrodt
hereby acknowledges, Heiligbrodt discharges and releases SCI, Executive
Services, all other members of SCI Group, their successors, assigns, divisions,
representatives, agents, officers, directors, stockholders, and employees, from
any claims, demands, and/or causes of action whatsoever, presently known or
unknown, that are based upon facts occurring on or prior to the date of
execution of this Agreement, including but not limited to, the following: (a)
any statutory claims under the Age Discrimination in Employment Act of 1967, the
Americans with Disabilities Act of 1990, the Family and Medical Leave Act of
1993, the Civil Rights Acts of 1964 and 1991, the Employee Retirement Income
Security Act, Chapter 451 of the Texas Labor Code and/or the Texas Commission on
Human Rights Act, (b) any tort or contract claims, including claims arising
under or relating to the Supplanted Agreement and/or (c) any claims, matters or
actions related to Heiligbrodt's employment and/or affiliation with, or
separation from SCI Group; provided, however, that the release set forth in this
numbered paragraph 4 shall not affect any claims, demands and/or causes of
action that Heiligbrodt may have for indemnity, contribution or otherwise
against any member of the SCI Group arising from or relating to the lawsuits
listed on Exhibit A to this Agreement and any additional lawsuits that are filed
after the date hereof arising from or relating to essentially the same factual
matters ("Excepted Litigation").
5. Additionally, SCI and Executive Services discharge and release
Heiligbrodt and his heirs, executors and administrators from any claims,
demands, and/or causes of action whatsoever, presently known or unknown, that
are based upon facts occurring on or prior to the date of execution of this
Agreement, including, but not limited to, any claim, matter or action related to
Heiligbrodt's employment and/or affiliation with, or separation from SCI Group;
provided, however, that the release set forth in this numbered paragraph 5 shall
not affect any claims, demands and/or causes of action that any member of the
SCI Group may have against Heiligbrodt arising from or relating to the Excepted
Litigation.
6. Pursuant to Section 7 of Article IV of SCI's Bylaws, the right of
indemnification provided for therein shall "continue as to a person who has
ceased to be a director, officer, or representative and shall inure to the
benefit of the heirs, executors and administrators of such a person." SCI
confirms that, Heiligbrodt's rights to indemnification under Article IV of SCI's
Bylaws in respect of the Excepted Lawsuits and any other event occurring prior
to the time of his resignation as an officer and director of SCI and its
subsidiaries and affiliated companies will not be affected.
-2-
<PAGE> 3
7. This Agreement is not an admission by either Heiligbrodt, SCI,
Executive Services, or any other member of SCI Group of any wrongdoing or
liability.
8. Heiligbrodt agrees that he shall engage in no act which is intended,
or may be reasonably expected, to harm the reputation, business, prospects, or
operations of any members of SCI Group, their officers, directors, stockholders
or employees. Heiligbrodt will not reveal to any third party any difference of
opinion that may exist at any time between Heiligbrodt and any member of
management of SCI, Executive Services, or any other members of SCI Group.
9. The parties agree that they shall not disclose, or cause to be
disclosed, the terms of this Agreement, or the fact that this Agreement exists,
except to their respective attorneys, accountants and/or tax advisors, or to the
extent otherwise required by law. The parties further agree that this numbered
paragraph 9 is not applicable to discussions of this Agreement in the ordinary
course of business among representatives, agents, officers, directors,
stockholders and employees of any members of SCI Group.
10. The execution, validity, interpretation and performance of this
Agreement shall be determined and governed exclusively by the laws of the State
of Texas, without reference to the principles of conflict of laws.
11. With the exception of the Consulting Agreement, this Agreement
represents the complete agreement among Heiligbrodt, SCI and Executive Services
concerning the subject matter in this Agreement and supersedes all prior
agreements or understandings, written or oral, including the Supplanted
Agreement and the Memorandum of Understanding dated February 11, 1999 between
Heiligbrodt and SCI. No attempted modification or waiver of any of the
provisions of this Agreement shall be binding on any party hereto unless in
writing and signed by Heiligbrodt, SCI and Executive Services.
12. Each of the numbered paragraphs contained in this Agreement shall
be enforceable independently of every other numbered paragraph in this
Agreement, and the invalidity or nonenforceability of any numbered paragraph
shall not invalidate or render nonenforceable any other numbered paragraph
contained in this Agreement.
13. It is further understood that for a period of seven (7) days
following the execution of this Agreement in duplicate originals, Heiligbrodt
may revoke this Agreement, and this Agreement shall not become effective or
enforceable until the revocation period has expired.
14. This Agreement has been entered into voluntarily and not as a
result of coercion, duress, or undue influence. Heiligbrodt acknowledges that he
has read and fully understands the terms of this Agreement and has consulted
with an attorney before executing this Agreement. Additionally, Heiligbrodt
acknowledges that he has been afforded the opportunity to take twenty-one (21)
days to consider this Agreement.
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<PAGE> 4
15. The dispute resolution provisions set forth in Section 15 of the
Consulting Agreement are applicable to any dispute arising under this Agreement.
The parties to this Agreement have executed this Agreement as of the
day and year first written above but effective for all purposes (other than
Sections 4 and 5 hereof) as of the effective date above written.
/s/L. William Heiligbrodt Service Corporation International
- ----------------------------
L. William Heiligbrodt
By: s/James M. Shelger
------------------------------------
Authorized Officer
SCI Executive Services, Inc.
By: s/Curtis G. Briggs
------------------------------------
Authorized Officer
-4-
<PAGE> 5
Exhibit A
PENDING EXCEPTED LITIGATION
1. H-99-0283; RUJIRA SRISYTHEP Individually, and an Behalf of All Others
Similarly Situated vs. Service Corp. International, Robert Waltrip and
L. William Heligbrodt In the United States District Court for the
Southern District of Texas, Houston Division (Judge Melinda Harmon)
2. H-99-0297; MARK W. COLLMER; Individually, and on Behalf of All Others
Similarly Situated vs. Service Corp. International, Robert Waltrip and
L. William Heligbrodt; In the United States District Court for the
Southern District of Texas, Houston Division (Judge Lee H. Rosenthal)
3. H-99-0280; DANA ASHTON; Individually, and on Behalf of All Others
Similarly Situated vs. Service Corp. International, Robert Waltrip, L.
William Heligbrodt, AND George R. Champagne; In the United States
District Court for the Southern District of Texas, Houston Division
(Judge Lynn N. Hughes)
4. H-99-03 2 1; A. CARL HELWIG; Individually, and on Behalf of All Others
Similarly Situated vs. Service Corp. International, Robert Waltrip and
L. William Heligbrodt; In the United States District Court for the
Southern District of Texas, Houston Division (Judge Sim Lake)
5. 1-1-99-03 68; ALAN T. HOYT; Individually, and on Behalf of All Others
Similarly Situated vs. Service Corp. International, Robert Waltrip, L.
William Heligbrodt, and George R. Champagne; In the United States
District Court for the Southern District of Texas, Houston Division
(Judge David Hittner)
6. H-99-0389; MICHAEL G. WASSON, Individually, and on Behalf of All Others
Similarly Situated vs. Service Corp. International, Robert Waltrip, L.
William Heligbrodt John W. Morrow, Jr. Glenn McMillen, George R.
Champagne, and Vincent L. Visosky; In the United States District Court
for the Southern District of Texas, Houston Division (Judge Kenneth
M. Hoyt)
7. H-99-0401; Joseph H. Eichenbaum; Individually, and on Behalf of All
Others Similarly Situated vs. Service Corp. International, Robert
Waltrip, L. William Heligbrodt; and George R. Champagne; In the United
States District Court for the Southern District of Texas, Houston
Division (Judge Sim Lake)
8. H-99-0411; ALLAN LISSE; Individually, and on Behalf of All Others
Similarly Situated vs. Service Corp. International, Robert Waltrip and
L. William Heligbrodt; In the United States District Court for the
Southern District of Texas, Houston Division (Judge Nancy F. Atlas)
9. H-99-0417; RAYMOND J. OBUCHOWSKI; Individually, and on Behalf of All
Others Similarly Situated vs. Service Corp. International, Robert
Waltrip, L. William
<PAGE> 6
Heligbrodt, and George R. Champagne; In the United States District
Court for the Southern District of Texas, Houston Division (Judge Nancy
F. Atlas)
10. H-99-0421; ERICA A. WETZEL; Individually, and on Behalf of All Others
Similarly Situated vs. Service Corp. International, Robert Waltrip, L.
William Heligbrodt, John W. Morrow, Jr., Glenn McMillen, George R.
Champagne, and Vincent L. Visosky; In the United States District Court
for the Southern District of Texas, Houston Division (Judge Lynn N.
Hughes)
11. H-99-0469; TAMMY NEWMAN Individually, and on Behalf of All Others
Similarly Situated vs. Service Corp. International, Robert Waltrip and
L. William Heligbrodt; In the United States District Court for the
Southern District of Texas, Houston Division (Judge David Hittner)
12. H-99-0495; ROBERT MARKEWICH; Individually, and on Behalf of All Others
Similarly Situated vs. Service Corp. International, Robert Waltrip, L.
William Heligbrodt, and George R. Champagne; In the United States
District Court for the Southern District of Texas, Houston Division
(Judge Nancy F. Atlas)
13. H-99-0494; PATRICIA L. RATNER Individually, and on Behalf of All Others
Similarly Situated vs, Service Corp. International, Robert Waltrip and
L. William Heligbrodt; In the United States District Court for the
Southern District of Texas, Houston Division (Judge Ewing Werlein, Jr.)
14. H-99-0505; JOSEPH DA FONSECA; Individually, and on Behalf of All
Others Similarly Situated vs. Service Corp. International, Robert
Waltrip and L. William Heligbrodt; In the United States District Court
for the Southern District of Texas, Houston Division (Judge Nancy F.
Atlas)
15. H-99-0520; GISELA FRIEDMAN; Individually, and on Behalf of All Others
Similarly Situated vs. Service Corp. International, Robert Waltrip, W.
Blair Waltrip, L. William Heligbrodt, George R. Champagne, John W.
Morrow, Jr., B.D. Hunter, Jack Finkelstein, Lowell A. Kirkpatrick, Jr.
Vincent L. Visosky, W. Mark Hamilton, and Glenn McMillen; In the
United. States District Court for the Southern District of Texas,
Houston Division (Judge Melinda Harmon)
16. H-99-0539; MICHAEL ZELMAN; Individually, and on Behalf of All Others
Similarly Situated vs. Service Corp. International, Robert Waltrip and
L. William Heligbrodt; In the United States District Court for the
Southern District of Texas, Houston Division (Judge Vanessa D. Gilmore)
17. H-99-0547; MARY LOUISE RUBIN, Individually, and on Behalf of All Others
Similarly Situated vs. Service Corp. International, Robert Waltrip, W.
Blair Waltrip, L. William Heligbrodt, George R. Champagne, John W.
Morrow, Jr., B.D. Hunter, Jack Finkelstein, Lowell A. Kirkpatrick; Jr.
Vincent L. Visosky, W. Mark Hamilton, and Glenn McMillen; In the United
States District Court for the Southern District of Texas, Houston
Division (Judge Ewing Werlein, Jr.)
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<PAGE> 7
18. H-99-0568; JIM ENGELAGE; Individually, and on Behalf of All Others
Similarly Situated vs. Service Corp. International, Robert Waltrip and
L. William Heligbrodt; In the United States District Court for the
Southern District of Texas, Houston Division (Judge John D. Rainey)
19. H-99-0476; ROBERT WINOCOUR; Individually, and on Behalf of All Others
Similarly Situated vs. Service Corp. International, Robert Waltrip and
L. William Heligbrodt; In the United States District Court for the
Southern District of Texas, Houston Division (Judge David Hittner)
20. Cause No. 31,820-99-2; CHARLES FREDRICK, Individually, and as a
Representative Of the Class v. Service Corp. International, In the ____
Judicial District Court of Angelina County, Texas
21. Cause No, 31,832-99-2; SUSANNE PARKER, Individually, and as a
Representative of the Class v. Service Corp. International, In the ____
Judicial District Court of Angelina County, Texas
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<PAGE> 1
EXHIBIT 10.7
INDEPENDENT CONTRACTOR/CONSULTATIVE AGREEMENT
THIS AGREEMENT is made and dated as of the 15th day of March, 1999, by
and between SCI Management Corporation, a Delaware corporation ("Corporation"),
and L. William Heiligbrodt, a resident of Harris County, Texas ("Heiligbrodt"
or "Consultant"), but is effective for all purposes as of February 11, 1999.
W I T N E S S E T H:
In consideration of the premises and the agreements herein contained,
the parties intending to be legally bound hereby, agree as follows:
Section 1. Scope and Term of Agreement.
(a) Contemporaneously with the execution of this Agreement,
Heiligbrodt, Service Corporation International, a Texas corporation ("SCI"),
and SCI Executive Services, Inc., a Delaware corporation ("Executive
Services"), have entered into a Separation and Release Agreement dated of even
date herewith, but effective for most purposes as of February 11, 1999
("Separation Agreement"). The Separation Agreement terminates, and this
Agreement supplants in its entirety, the Employment Agreement, dated January 1,
1998, between Heiligbrodt and Executive Services ("Supplanted Agreement").
(b) The $15 million payment to Heiligbrodt referred to in numbered
paragraph 2(c) of the Separation Agreement provides additional consideration
for Consultant's commitments, agreements and undertakings set forth in this
Agreement, including without limitation those appearing in Sections 7, 8, 9,
10, 11 and 12 hereof.
(c) Corporation and Executive Services are both wholly owned
subsidiaries of SCI. References to the "Group" in this Agreement include SCI,
Corporation, Executive Services and the other subsidiaries and affiliated
companies and enterprises of SCI.
<PAGE> 2
(d) Subject to the provisions of this Agreement, the Primary Term of
this Agreement ("Primary Term" of this Agreement) shall begin on the effective
date hereof and end on the 10th day of February, 2003. At the option of the
Group, this Agreement may be extended for additional two-year periods
("Secondary Term") following the expiration of the Primary Term as is more
fully described in Section 9(b) herein. In the event the Group elects to
exercise the term for the first successive two-year period, it shall not be
obligated, but shall have the option of extending the term for the second
successive two-year period. References herein to the "Term of this Agreement"
shall be deemed to mean the Primary Term unless this Agreement has been
extended at the option of the Group as provided herein, in which case the Term
of the Agreement shall be deemed to mean the remaining period of the Secondary
Term for which the Group has previously exercised its option to extend.
Section 2. Consultant's Services. During the Term of this Agreement,
Consultant agrees to and shall furnish to members of the Group Consultant's
best advice, information, judgment and knowledge with respect to the operations
of the members of the Group, and the acquisition, expansion, operation and
financing of funeral homes, cemeteries, crematories, and related businesses.
Consultant shall not be required to maintain specific working hours. Consultant
shall furnish such advice at the request of members of the Board of Directors
of SCI or at the request of the Chairman of the Board of SCI. Consultant may
furnish his consulting services either in person, by telephone or other means
of electronic communication at any reasonable time during normal business
hours. Requests for personal consulting shall be made in a manner to not unduly
inconvenience Consultant and shall be scheduled at the mutual agreement of SCI
and Consultant. In no event shall Consultant be required to spend more than 40
hours per week performing consulting services. Consultant shall be an
independent contractor and not an employee of Corporation.
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<PAGE> 3
Section 3. Consideration. During the Primary Term of this Agreement,
as consideration for Consultant's duties described herein, Corporation agrees
to pay Consultant a consulting fee ("Consulting Fee") of Seven Hundred and
Thirty Thousand and No/100 Dollars ($730,000.00) per year, payable in equal
monthly installments, the first such installment being due thirty (30) days
from the effective date hereof. In the event the Group exercises its option to
extend the term of this Agreement to the Secondary Term, during such Secondary
Term Consultant will be paid a Consulting Fee of $365,000 per year, such amount
being paid in the same manner as the Consulting Fee was paid during the Primary
Term.
Section 4. Reimbursement of Expenses; Office Allowance; Automobile;
and Personal Security Monitoring.
(a) Corporation shall reimburse Consultant for all reasonable expenses
incurred by Consultant in connection with the performance of Consultant's
duties hereunder, including expenses for travel, lodging and entertainment.
Consultant must present an itemized account and receipts evidencing such
expenditures, and such expenditures shall not be materially in excess of the
expenditures incurred by Consultant when he performed similar services as a
full time employee of the Group. Consultant shall not incur any single expense
or related group of expenses in excess of Five Thousand and No/100 ($5,000.00)
without the prior approval of Corporation.
(b) No later than April 30, 1999, Heiligbrodt and his executive
assistant, Donna Cowart, will vacate their existing office space in SCI's
Houston executive office building and relocate to other premises. All
equipment, furniture and other items located in Heiligbrodt's current executive
offices that are owned by SCI shall remain in place. During the Term of this
Agreement, Corporation will pay Consultant a monthly office space allowance of
$2,500 per month (inclusive of all utility, telephone, security, common area,
maintenance and similar fees and expenses). Corporation will
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<PAGE> 4
furnish Consultant's new office with appropriate furniture and equipment, which
items shall not exceed a cost of $35,000. Upon the termination of this
Agreement, said furniture and equipment purchased with the allowance provided
by Corporation shall be returned to SCI. SCI Office Services, a division of
SCI, will move all of Heiligbrodt's personal effects from his current executive
offices at SCI to his new office location. Donna Cowart will relocate to
Consultant's new office to serve as his office assistant but will remain a
full-time employee of Corporation during the Term of this Agreement. Effective
April 1, 1999, Ms. Cowart's annual salary will be reduced to $30,000.
(c) Promptly following the execution of this Agreement, Corporation
will cause ownership of the 1999 Lexus LS400 sedan currently provided to
Heiligbrodt by SCI to be transferred to him, and Heiligbrodt shall thereupon be
solely responsible for the payment of all maintenance, fuel, insurance and
other expenses associated with that vehicle.
(d) Corporation will continue to pay the costs of monitoring the
security system on Heiligbrodt's principal personal residence during the Term
of this Agreement.
Section 5. Benefits.
(a) Consultant shall be eligible to participate in the employee
benefit plans of the Group and the other benefits that are listed on Schedule A
to this Agreement during the Term of this Agreement. Consultant shall not be
eligible to participate in any of the other employee benefit plans of the Group
or receive any of the other benefits to which he was entitled while employed as
an executive of the Group pursuant to the Supplanted Agreement, including
without limitation those listed on Schedule B to this Agreement.
(b) Provided Heiligbrodt delivers reasonably satisfactory collateral
to Corporation prior to March 15, 1999, Corporation shall continue to reimburse
Heiligbrodt for the interest payments on his Promissory Note dated August 19,
1993 payable to SCI in the original principal amount of One
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<PAGE> 5
Million and No/100 Dollars ($1,000,000.00), bearing interest at 6 1/2% per
annum and maturing on August 10, 2003. Such reimbursements shall be made in
accordance with prior practice and shall include a gross-up for federal income
taxes payable in respect thereof.
Section 6. Termination. Corporation may terminate the consulting
relationship set forth in this Agreement for Cause. For purposes of this
Agreement, "Cause" shall mean (a) a material breach by Consultant of this
Agreement, if the breach is willful on Consultant's part or is committed in bad
faith or without reasonable belief that such breach is in the best interests of
the Group, or (b) the conviction of Consultant of a felony. The parties agree
that the death of Consultant shall not constitute Cause. If the consulting
relationship is terminated for Cause, Corporation's obligations hereunder will
end on the date of termination. If Corporation terminates the consulting
relationship for any reason other than for Cause, Consultant shall be entitled
to receive a lump sum payment equal to the amount which would have been paid to
Consultant during the remainder of the Term of this Agreement, and Consultant
or Consultant's family shall be entitled to continue to participate in the
Corporation's Group Health and Dental Plan and Executive Medical Reimbursement
Plan described on Schedule A hereto, during the remainder of the Term of this
Agreement.
Section 7. Duty to Cooperate. During and after the Term of this
Agreement, Consultant agrees that he will cooperate with members of the Group
in matters relating to internal investigations, external investigations, and/or
litigation proceedings. During the Term of this Agreement, at Corporation's
request, Consultant will provide strategic input, information and, if
necessary, testimony.
Section 8. Confidentiality. Consultant understands that he received in
his capacity as a senior executive of one or more members of the Group, and may
receive in his capacity as a consultant under this Agreement, certain trade
secrets and other confidential information concerning the business
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<PAGE> 6
of members of the Group. Consultant understands that, among other things, the
management methods, operating techniques, financing schemes, plans and
strategies, procedures and methods, customer lists, prospective acquisitions,
employee lists, training manuals and procedures, personnel evaluation
procedures, collection procedures, and financial reports of members of the
Group are confidential, and Consultant agrees that he will not at any time
during or after the Term of this Agreement reveal any such confidential
information or otherwise use same without specific written authorization by
Corporation.
Section 9. Non-Competition.
(a) To protect the goodwill, trade secrets and confidential
information of the members of the Group, Consultant agrees that, during the
Term of this Agreement he will not, directly or indirectly, be engaged in, have
an economic interest in or be employed by any business conducting the funeral,
cemetery, crematory, burial or funeral prearranged sales business
(collectively, the "Funeral Business") if such Funeral Business is directly or
indirectly in competition with the business of any member of the Group.
Specifically, but without limitation, Consultant shall not individually, or as
a partner, member, employee, advisor, officer, director, shareholder or agent
of any corporation, trust, or other business entity, own, manage, join,
participate in, encourage, support, finance, be engaged in the Funeral Business
or any business reasonably related to the Funeral Business which is in direct
or indirect competition with any business owned, managed or operated by any
member of the Group.
(b) Upon at least six (6) months prior written notice to Consultant,
Corporation may extend the Term of this Agreement for an additional two (2)
year period following the Primary Term set forth in Section 1(d) hereof.
Corporation may, at its option, extend the term of this Agreement
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<PAGE> 7
for an additional two (2) year period upon giving at least six months written
notice to Consultant prior to the expiration of the first two (2) year
extension period.
(c) Consultant agrees that the limitations as to time, geographic
area, and scope of activity contained in the covenant not to compete set forth
in Section 9(a) above do not impose a greater restraint than is necessary to
protect the confidential information, goodwill, and other business interests of
the members of the Group. If an arbitrator or a court of competent jurisdiction
should declare the covenant not to compete unenforceable, in whole or in part,
due to any unreasonable restriction of duration and/or geographical area, then
Corporation and Consultant hereby acknowledge and agree that such arbitrator or
court of law or equity shall have the express authority to reform the covenant
not to compete set forth in Section 9(a) above to a reasonable restriction
and/or to grant Corporation any and all relief, at law or in equity, reasonably
necessary to protect the interests of the members of the Group.
Section 10. Conflicts of Interest.
(a) Consultant agrees that he shall not knowingly become involved in
circumstances constituting a conflict of interest, or upon notice by a member
of the Group that a conflict exists, allow such a conflict to continue.
Moreover, Consultant agrees that he shall use his reasonable best efforts to
disclose to Corporation any facts which might involve a conflict of interest
that have not been approved by Corporation.
(b) In this connection, it is agreed that any direct interest in,
connection with, or benefit from any outside activities, particularly
commercial activities, which might in any way adversely affect the Funeral
Business conducted by any member of the Group, involves a possible conflict of
interest. It is understood that nothing contained in this Agreement shall
prohibit Consultant or any affiliate of Consultant, from acquiring or owning,
as a passive investment, less than 5% of the stock or other
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<PAGE> 8
equity interest of any entity the interests of which are traded over any
established exchange. Circumstances in which a conflict of interest on the part
of Consultant would or might arise, and which should be reported immediately to
Corporation, include, but are not limited to, the following:
(i) Ownership of a material interest in any lender, supplier,
contractor, customer or other entity with which any member of the
Group does business;
(ii) Acting in any capacity, including director, officer,
partner, consultant, employee, distributor, agent or the like, for
suppliers, contractors, subcontractors, or other entities with which
any member of the Group does significant amounts of business;
(iii) Ownership of any equity interest in, or acting in any
capacity, including director, officer, partner, consultant, employee,
advisor, agent, or the like for, any corporation, partnership, limited
liability company, trust or other business entity that owns, or
intends to acquire, directly or indirectly, any interest in any equity
security issued by any member of the Group;
(iv) Acceptance, directly or indirectly, of payments, services or
loans from a supplier, contractor, subcontractor, or other entity with
which any member of the Group does a significant amount of business,
including but not limited to, gifts, trips, entertainment, or other
favors of more than a nominal value;
(v) Misuse of information or facilities to which Consultant had
access under the Supplanted Agreement or has access under this
Agreement, in each case in a manner which will be detrimental to the
interest of any member of the Group, such as utilization for
Consultant's own benefit of know-how or information developed through
any member of the Group's business activities;
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<PAGE> 9
(vi) Disclosure or other misuse of information of any kind
obtained through Consultant's connection with any member of the Group;
or
(vii) Acquiring or trading in, directly or indirectly, other
properties or interests connected with the design, marketing or
financing of products or services designed, marketed or financed by
any member of the Group.
(c) Although an activity does not constitute a conflict of interest
under Section 10(b), it may still be proscribed under Section 9. In the event
that Corporation determines, in the exercise of its reasonable judgment, that a
conflict of interest exists between Consultant and any member of the Group,
Corporation shall notify Consultant in writing in accordance with this
Agreement, providing reasonably detailed information identifying the source of
the conflict of interest. Within the 60-day period following receipt of such
notice, Consultant shall take reasonably satisfactory action to eliminate the
conflict of interest. Failure of Consultant to take such action within such
60-day period shall constitute "Cause" under Section 6 hereof.
Section 11. Disclosure of Information. Consultant agrees that during
the Term of this Agreement, upon request by the Corporation, Consultant shall
promptly disclose in writing to Corporation all information, ideas, concepts,
improvements, discoveries and inventions, whether patentable or not, and
whether or not reduced to practice, which are conceived, developed, made or
acquired by Consultant, either individually or jointly with others, and which
relate to the business, products or services of any member of the Group. This
obligation extends to all types of information, ideas and concepts, including
information, ideas and concepts relating to new types of services, corporate
opportunities, financing schemes, acquisition prospects, the identity of key
representatives within acquisition prospect organizations, prospective names or
service marks for any member of the Group's business activities, and the like.
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<PAGE> 10
Section 12. Obligations to Refrain from Competing Unfairly. Consultant
agrees that during the Term of this Agreement, he shall not at any time,
directly or indirectly for the benefit of any person or entity other than a
member of the Group, (a) induce, entice, or solicit any employee of any member
of the Group to leave his or her employment, or (b) contact, communicate or
solicit any customer of any member of the Group derived from any customer list,
customer lead, mail, printed matter or other information secured from any
member of the Group or their present or past employees, or (c) in any other
manner use any customer lists or customer leads, mail, telephone numbers,
printed material or material of any member of the Group, or (d) take any of the
action or perform any of the services referred to in Section 10(b)(iii) above.
Section 13. Severability. In case any term, phrase, clause, paragraph,
restriction, covenant, or agreement herein contained shall be held to be
invalid or unenforceable, same shall be deemed, and it is hereby agreed that
same are meant to be, severable and shall not defeat or impair the remaining
provisions hereof.
Section 14. Parties in Interest. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. This Agreement shall not be assigned by either party
hereto without the prior written consent of the other party.
Section 15. Dispute Resolution.
(a) Consultant and Corporation agree that, except for the matters
identified in subsection (b) of this Section 15, all disputes relating to any
aspects of Heiligbrodt's prior relationship with any member of the Group
arising under the Supplanted Agreement, his rights and obligations arising
under the Separation Agreement or his business relationship with any member of
the Group arising under this Agreement shall be resolved by binding
arbitration. This includes, but is not limited to, any claims against members
of the Group or their officers, directors, employees, or agents for breach of
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<PAGE> 11
contract, discrimination, harassment, defamation, misrepresentation, and
emotional distress, as well as any disputes pertaining to the meaning or effect
of the Supplanted Agreement, the Separation Agreement or this Agreement.
(b) It is expressly agreed that this Section 15 shall not govern (i)
any claim by Corporation against Consultant which is based on fraud, theft or
other dishonest conduct of Consultant, or (ii) any action by Corporation to
enjoin Consultant's alleged violation of Section 10(b)(iii).
(c) Any claim which either party has against the other must be
presented in writing by the claiming party to the other within one year of the
date the claiming party knew or should have known of the facts giving rise to
the claim. Otherwise, the claim shall be deemed waived and forever barred even
if there is a federal or state statute of limitations which would have given
more time to pursue the claim.
(d) Each party may retain legal counsel and shall pay its own costs
and attorneys' fees, regardless of the outcome of the arbitration. Each party
shall pay one-half of the compensation to be paid to the arbitrators, as well
as one-half of any other costs relating to the administration of the
arbitration proceeding (for example, room rental, court reporter, etc.).
(e) An arbitrator shall be selected by mutual agreement of the
parties. If the parties are unable to agree on a single arbitrator, each party
shall select one arbitrator, and the two arbitrators so selected shall select a
third arbitrator. The three arbitrators so selected will then hear and decide
the matter. All arbitrators must be attorneys, judges or retired judges who are
licensed to practice law in the State of Texas. The arbitration proceedings
shall be conducted in Houston, Texas.
(f) The arbitration proceedings shall be conducted in accordance with
the arbitration rules of the American Arbitration Association ("AAA"); provided
however, that the foregoing reference
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<PAGE> 12
to the AAA rules shall not be deemed to require any filing with that
organization, nor any direct involvement of that organization. In the event of
any inconsistency between this Agreement and the statutes, rules or regulations
to be applied pursuant to this paragraph, the terms of this Agreement shall
apply.
(g) The arbitrator shall issue a written award, which shall contain,
at a minimum, the names of the parties, a summary of the issues in controversy,
and a description of the award issued. Upon motion to a court of competent
jurisdiction, either party may obtain a judgment or decree in conformity with
the arbitration award, and said award shall be enforced as any other judgment
or decree.
(h) In resolving claims governed by this Section 15, the arbitrator
shall apply the laws of the State of Texas, and/or federal law, if applicable.
(i) Consultant and Corporation agree and acknowledge that any
arbitration proceedings covered by this Section 15, and the outcome of such
proceedings, shall be kept strictly confidential; provided however, that any
member of the Group may disclose such information to the extent required by law
and to its employees, agents and professional advisors who have a legitimate
need to know such information, and Consultant may disclose such information (i)
to the extent required by law, (ii) to the extent that Consultant is required
to disclose same to professional persons assisting Consultant in preparing tax
returns; and (iii) to Consultant's legal counsel.
Section 16. Headings. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 17. Notices. All notices provided for hereunder shall be in
writing and shall be deemed to be given: (a) when delivered to Consultant or to
the president of the Corporation to which
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<PAGE> 13
the notice is directed; or (b) three days after the same has been deposited in
the United States mail sent Certified or Registered mail with Return Receipt
Requested, postage prepaid and addressed as provided in this Section 17; or (c)
when delivered by an overnight delivery service (including United States
Express Mail) with receipt acknowledged and with all charges prepaid by the
sender addressed as provided in this Section 17. Notices shall be directed as
follows:
(a) if to Consultant, addressed to:
L. William Heiligbrodt
11015 Landon Lane
Houston, Texas 77024
With a copy to:
Edward E. Hartline
Brown McCarroll & Oaks Hartline, L.L.P.
1300 Wortham Tower
2727 Allen Parkway
Houston, Texas 77019
(b) if to Corporation, addressed to:
SCI Management Corporation
Attention: President
1929 Allen Parkway
Houston, TX 77019
with a copy to:
General Counsel
SCI Management Corporation
1929 Allen Parkway
Houston, TX 77019
or at such other place or places or to such other person or persons as shall be
designated by notice by any party hereto.
<PAGE> 14
Section 18. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
Section 19. Entire Agreement. With the exception of the Separation
Agreement, this Agreement supersedes all previous agreements and discussions
relating to the same or similar subject matters between Consultant and
Corporation, or any other member of the Group, including, without limitation,
the Supplanted Agreement, and shall be governed by and construed in accordance
with the laws of the State of Texas, without reference to principles of
conflict of laws. This Agreement may not be amended, modified, repealed,
waived, extended or discharged except by an agreement in writing signed by the
party against whom enforcement of such amendment, modification, repeal, waiver,
extension or discharge is sought.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written but effective for all purposes as of the
effective date above written.
CONSULTANT:
/s/ L. William Heiligbrodt
---------------------------------------
L. WILLIAM HEILIGBRODT
SCI MANAGEMENT CORPORATION:
By /s/ Curtis G. Briggs
-------------------------------------
Vice President
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<PAGE> 15
SCHEDULE A
ELIGIBLE EMPLOYEE BENEFIT PLANS AND OTHER BENEFITS
o Group Health and Dental (subject to payment by Heiligbrodt of the
applicable participant's contribution)
o Executive Medical Reimbursement
o Supplemental Disability
o Carve-Out Life Insurance
o Split-Dollar Life Insurance
Initial: s/LWH
----------------------------------
(LWH)
Initial: s/CGB
----------------------------------
(SCI Management Corporation)
<PAGE> 16
SCHEDULE B
INELIGIBLE EMPLOYEE BENEFIT PLANS AND OTHER BENEFITS
o Club dues
o Financial planning reimbursement (other than those incurred prior to
the date of this Agreement)
o Personal aircraft usage
o Business travel insurance
o Further contributions to the SCI Cash Balance Plan
o Group Disability
o Future benefits made available to SCI officers or employees
o Company credit cards
o Cellular telephones and pagers
o Personal use of other corporate assets (e.g., Great Lakes, Greenbriar,
LSI, and other similar assets)
Initial: s/LWH
----------------------------------
(LWH)
Initial: s/CGB
----------------------------------
(SCI Management Corporation)
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "'Agreement"') made and entered into as of
this lst day of January, 1998, by and between SCI EXECUTIVE SERVICES, INC., a
Delaware corporation (the "Company") wholly owned by SERVICE CORPORATION
INTERNATIONAL, a Texas corporation (the "Parent") and successor by assignment to
all of the rights, duties and obligations under this Agreement, and George R.
Champagne (the "Employee");
WHEREAS, the Company, the Parent and the Employee desire to join in the
execution of this Agreement to set out more fully the rights, duties and
obligations of the parties hereto;
WHEREAS, Employee is employed by the Company in a management capacity,
has extraordinary access to the Company's confidential business information, and
has significant duties and responsibilities in connection with the conduct of
the company's business which places Employee in a special and uncommon
classification of employees; and
WHEREAS, attendant to Employee's employment by the Company, the Company
and Employee wish for there to be a complete understanding and agreement between
the Company and Employee with respect to the fiduciary duties owed by Employee
to the Company; Employee's obligation to avoid conflicts of interest, disclose
pertinent information to the Company, and refrain from using or disclosing the
Company's information; the term of employment and conditions for or upon
termination thereof; the compensation and benefits owed to Employee; and the
post-employment obligations Employee owes to the Company; and
WHEREAS, but for Employee's agreement to the covenants and conditions
of this Agreement, particularly the conflict of interest provisions, the
provisions with respect to confidentiality of information and the ownership of
intellectual property, and the post-employment obligations of Employee, the
Company would not have entered into this Agreement;
NOW, THEREFORE, in consideration of Employee's continued employment by
the Company and the mutual promises and covenants contained herein, the receipt
and sufficiency of such consideration being hereby acknowledged, the Company and
Employee agree as follows:
<PAGE> 2
1. Employment and Term. The Company agrees to employ the Employee and
the Employee agrees to remain in the employ of the Company, in accordance with
the terms and provisions of this Agreement, for the period beginning on the date
hereof and ending as of the close of business on December 31, 1999 (such period
together with all extensions thereof, is referred to hereinafter as the
"Employment Period"); provided, however, that commencing on the date one year
after the date hereof, and on each January 1 thereafter (each such date shall be
hereinafter referred to as a "Renewal Date") the Employment Period shall be
automatically extended so as to terminate two (2) year(s) from such Renewal Date
if (i) the Compensation Committee of the Board of Directors of the Parent
(hereinafter referred to as the "Compensation Committee") authorizes such
extension during the 60-day period preceding such Renewal Date and (ii) the
Employee has not previously given the Company written notice that the Employment
Period shall not be so extended. In the event that the Company gives the
Employee written notice at any time that the Compensation Committee has
determined not to authorize such extension, or if the Company fails to notify
the Employee of the Compensation Committee's determination prior to the Renewal
Date (the "Renewal Deadline"), the Employment Period shall be extended so as to
terminate two (2) year(s) after the date such notice is given (or, in case of a
failure to notify, two (2) year(s) after the Renewal Deadline) and shall not
thereafter be further extended.
2. Duties and Powers of Employee. (a) Position; Location. During the
Employment Period, the Employee shall - perform such duties and have such powers
as designated by the Board of Directors of the Company (the "Board") in
connection with the execution of this Agreement. The Employee's services shall
be performed at the location where the Employee is currently employed or any
office which is the headquarters of the Company and is less than 50 miles from
such location. During the Change of Control Period, the Employee's position
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned with or
by the Company or the Parent at any time during the 90-day period immediately
preceding the Change of Control Date (as defined in Section 16(a) below).
(b) Duties, During the Employment Period, and excluding any
periods of vacation and sick leave to which the Employee is entitled, the
Employee agrees to devote his attention and time during normal business hours to
the business and affairs of the Company and to use the Employee's best efforts
to perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for the Employee
to (i) serve on corporate, civic or charitable boards
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<PAGE> 3
or committees, (ii) deliver lectures, fulfill speaking engagements or teach at
educational institutions and (iii) manage personal investments, so long as such
activities do not significantly interfere with the performance of the Employee's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent that any
such activities have been conducted by the Employee prior to the date of this
Agreement or subsequent thereto consistent with this Section 2(b), the continued
conduct of such activities (or the conduct of activities similar in nature and
scope thereto) shall not thereafter be deemed to interfere with the performance
of the Employee's responsibilities to the Company.
(c) Employee agrees and acknowledges that he owes, and will
comply with, a fiduciary duty of loyalty, fidelity or allegiance to act at all
times in the best interests of the Company and to take no action or fail to take
action if such action or failure to act would injure the Company's business, its
interests or its reputation.
3. Compensation. The Employee shall receive the following compensation
for his services:
(a) Salary. During the Employment Period, he shall be paid an
annual base salary ("Annual Base Salary") at the rate of not less than $360,000
per year, in substantially equal bi-weekly installments, and subject to any and
all required withholdings and deductions for Social Security, income taxes and
the like. The Compensation Committee may from time to time direct such upward
adjustments to Annual Base Salary as the Compensation Committee deems to be
appropriate or desirable; provided, however, that during the Change of Control
Period, the -Annual Base Salary shall be reviewed at least annually and shall be
increased at any time and from time to time as shall be substantially consistent
with increases in base salary generally awarded in the ordinary course of
business to other employees of comparable rank with the Company and its
affiliated companies (as defined in Section 16(d) below). Annual Base Salary
shall not be reduced after any increase thereof pursuant to this Section 3(a).
Any increase in Annual Base Salary shall not serve to limit or reduce any other
obligation of the Company under this Agreement.
(b) Incentive Cash Compensation. During the Employment Period,
he shall be eligible annually for a cash bonus at the discretion of the
Compensation Committee (such aggregate awards for each year are hereinafter
referred to as the "Annual Bonus") and at the discretion of the Compensation
Committee to receive awards from any plan of the Company or any of its
affiliated companies providing for the payment of
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<PAGE> 4
bonuses in cash to employees of the Company or its affiliated companies having
rank comparable to that of the Employee (such plans being referred to herein
collectively as the "Cash Bonus Plans") in accordance with the terms thereof;
provided, however, that, during the Change of Control Period, the Employee shall
be awarded, for each fiscal year ending during the Change of Control Period, an
Annual Bonus at least equal to the Highest Recent Bonus (as defined in section
16(e) below). Each Annual Bonus shall be paid no later than the end of the third
month of the fiscal year next following the fiscal year for which the Annual
Bonus is awarded, unless the Employee shall elect to defer the receipt of such
Annual Bonus.
(c) Incentive and Savings and Retirement Plans. During the
Employment Period, the Employee shall be entitled to participate in all
incentive and savings (in addition to the Cash Bonus Plans) and retirement
plans, practices, policies and programs applicable generally to other employees
of comparable rank with the Company and its affiliated companies.
(d) Welfare Benefit Plans. During the Employment Period, the
Employee and/or the Employee's family, as the case may be, shall be eligible for
participation in all welfare benefit plans, practices, policies and programs
provided by the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident insurance plans
and programs) to the extent applicable generally to other employees of
comparable rank with the Company and its affiliated companies.
(e) Expenses. During the Employment Period and for so long as
the Employee is employed by the Company, he shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in accordance
with the policies, practices and procedures of the Company and its affiliated
companies from time to time in effect.
(f) Fringe Benefits. During the Employment Period, the
Employee shall be entitled to fringe benefits in accordance with the plans,
practices, programs and policies of the Company and its affiliated companies
from time to time in effect, commensurate with his position and on a basis at
least comparable to those received by other employees of comparable rank with
the Company and its affiliated companies.
(g) Office and Support Staff. During the Employment Period,
the Employee shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance,
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<PAGE> 5
commensurate with his position and on a basis at least comparable to those
received by other employees of comparable rank with the Company and its
affiliated companies.
(h) Vacation and Other Absences. During the Employment Period,
the Employee shall be entitled to paid vacation and such other paid absences
whether for holidays, illness, personal time or any similar purposes, in
accordance with the plans, policies, programs and practices of the Company and
its affiliated companies in effect from time to time, commensurate with his
position and on a basis at least comparable to those received by other employees
of comparable rank with the Company and its affiliated companies.
(i) Change of Control. During the Change of Control Period,
the Employee's benefits listed under Sections 3(c), 3(d), 3(e), 3(f), 3(g) and
3(h) above shall be at least commensurate in all material respects with the most
valuable and favorable of those received by the Employee at any time during the
90-day period immediately preceding the Change of Control Date.
4. Termination of Employment. (a) Death or Disability. The Employment
Period shall terminate automatically upon the Employee's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Employee has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Employee written
notice in accordance with Section 17(b) of its intention to terminate the
Employment Period. In such event, the Employment Period shall terminate
effective on the 30th day after receipt of such notice by the Employee (the
"Disability Effective Date"), provided that, within the 30 days after such
receipt, the Employee shall not have returned to full-time performance of the
Employee's duties. For purposes of this Agreement, "Disability" shall mean the
inability of the Employee to perform the Employee's duties with the Company on a
full-time basis as a result of incapacity due to mental or physical illness
which continues for more than one year after the commencement of such
incapacity, such incapacity to be determined by a physician selected by the
Company or its insurers and acceptable to the Employee or the Employee's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).
(b) Cause. The Company may terminate the Employment Period for
Cause. For purposes of this Agreement, "Cause" shall mean (i) a material breach
by the Employee of Section 9 which is willful on the Employee's part or which is
committed in bad faith or without reasonable belief that such breach is in the
best interests of the Company and its affiliated companies, or (ii) a
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<PAGE> 6
material breach by the Employee of the Employee's obligations under Section 2
(other than a breach of the Employee's obligations under Section 2 arising from
the failure of the Employee to work as a result of incapacity due to physical or
mental illness) or any material breach by the Employee of Section 10, 11 or 12
of this Agreement which in either case is willful on the Employee's part, which
is committed in bad faith or without reasonable belief that such breach is in
the best interests of the Company and its affiliated companies and which is not
remedied in a reasonable period of time after receipt of written notice from the
Company specifying such breach, or (iii) the conviction of the Employee of a
felony involving malice which conviction has been affirmed on appeal or as to
which the period in which an appeal can be taken has lapsed.
(c) Good Reason; Window Period. The Employee's employment may
be terminated (i) by the Employee for Good Reason (as defined below) or (ii)
during the Window Period (as defined below) by the Employee without any reason.
For purposes of this Agreement, the "Window Period" shall mean the 30-day period
immediately following the first anniversary of the Change of Control Date. For
purposes of this Agreement, "Good Reason" shall mean
(i) the assignment to the Employee of any duties
inconsistent in any respect with the Employee's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities prior to the date of such assignment or any other
action by the Company or the Parent which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated and insubstantial action not taken in bad
faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Employee;
(ii) any failure by the Company to comply with any of
the provisions of Section 3, other than an isolated and insubstantial
failure not occurring in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Employee;
(iii) the Company's requiring the Employee to be
based at any office or location other than that described in Section
2(a);
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<PAGE> 7
(iv) any purported termination by the Company of the
Employee's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company or the Parent to
comply with and satisfy Section 16(c), provided that the successor
referred to in Section 16(c) has received at least ten days prior
written notice from the Company or the Employee of the requirements of
Section 16(c).
For purposes of this Section 4(c), during the Change of Control Period, any good
faith determination of "Good Reason" made by the Employee shall be conclusive.
(d) Notice of Termination. Any termination by the Company for
Cause or by the Employee without any reason during the Window Period or for Good
Reason shall be communicated by Notice of Termination to the other party hereto
given in accordance with Section 17(b). For purposes of this Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Employment Period under the provision
so indicated and (iii) if the Date of Termination (as defined below) is other
than the date of receipt of such notice, specifies the termination date (which
date shall be not more than 15 days after the giving of such notice). The
failure by the Employee or the Company to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Employee or the Company hereunder or preclude
the Employee or the company from asserting such fact or circumstance in
enforcing the Employee's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Employee's employment is terminated by the Company for Cause, or by the
Employee during the Window Period or for Good Reason, the date of receipt of the
Notice of Termination or any later date specified therein, as the case may be,
(ii) if the Employee's employment is terminated by the Company other than for
Cause or Disability, or by the Employee other than for Good Reason or during the
Window Period, the Date of Termination shall be the date on which the Company or
the Employee, as the case may be, notifies the other of such termination and
(iii) it the Employee's employment is terminated by reason of death or
Disability, the Date of Termination shall be the date of death of the Employee
or the Disability Effective Date, as the case may be. Notwithstanding the
foregoing, if the Company gives the Employee written notice pursuant to the
second sentence of Section I hereof, then "Date of
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<PAGE> 8
Termination" shall mean the last day of the two (2)-year period for which the
Employment Period is extended pursuant to such sentence.
5. Obligations of the Company Upon Termination. (a) Certain
Terminations Prior to Change of Control Date. If, during the Employment Period
prior to any Change of Control Date, the employment of the Employee with the
Company shall be terminated (i) by the Company other than for Cause, death or
Disability or (ii) by the Employee for Good Reason, then, in lieu of the
obligations of the Company under Section 3, (1) the Company shall pay to the
Employee in a lump sum in cash within 30 days after the Date of Termination all
Unpaid Agreement Amounts (as defined in Section 5(b) (i) (A) below) and (ii)
notwithstanding any other provision hereunder, for the longer of (A) the
remainder of the Employment Period or (B) to the extent compensation and/or
benefits are provided under any plan, program, practice or policy, such longer
period, if any, as such plan, program, practice or policy may provide, the
Company shall continue to provide to the Employee the compensation and benefits
provided in Sections 3(a), 3(c) and 3(d) (it being understood that if the
Company gives the Employee written notice that the Compensation Committee has
determined not to authorize an extension,' or fails to notify the Employee of
the Compensation Committee's determination prior to the Renewal Deadline, in
either case as contemplated by the second sentence of Section 1 hereof, the
giving of such notice or the failure to so notify the Employee shall not be
deemed a termination of the employment of the Employee with the Company during
the Employment Period for purposes of this Section 5(a)).
(b) Certain Terminations After Change of Control Date. If,
during the Change of Control Period, the employment of the Employee with the
Company shall be terminated (i) by the Company other than for Cause, death or
Disability or (ii) by the Employee either for Good Reason or without any reason
during the Window Period, then, in lieu of the obligations of the Company under
Section 3 and notwithstanding any other provision hereunder:
(i) the Company shall pay to the Employee in a lump
sum in cash within 30 days after the Date of Termination the aggregate
of the following amounts:
(A) the sum of (1) all unpaid amounts due to
the Employee under Section 3 through the Date of Termination,
including without limitation, the Employee's Annual Base
Salary and any accrued vacation pay, (2) the product of (x)
the Highest Recent Bonus and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through
the Date of Termination, and the denominator of which is 365
and (3) any compensation previously deferred by the Employee
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<PAGE> 9
(together with any accrued interest or earnings thereon) to
the extent not theretofore paid (the sum of the amounts
described in clauses (1), (2) and (3) shall be hereinafter
referred to as the "Accrued obligations" and the sum of the
amounts described in clauses (1) and (3) shall be hereinafter
referred to as the "Unpaid Agreement Amounts"); and
(B) the amount (such amount shall be
hereinafter referred to as the "Severance Amount") equal to
the sum of
(1) Two (2) multiplied by the
Employee's Annual Base Salary, plus
(2) Two (2) multiplied by the
Employee's Highest Recent Bonus;
(ii) for the longer of (A) the remainder of the
Employment Period or (B) to the extent benefits are provided under any
plan, program, practice or policy, such longer period as such plan,
program, practice or policy may provide, the Company shall continue
benefits to the Employee and/or the Employee's family at least equal to
those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 3(d) if
the Employee's employment had not been terminated, in accordance with
the most favorable plans, practices, programs or policies of the
Company and its affiliated companies as in effect and applicable
generally to other employees of comparable rank and their families
during the 90-day period immediately preceding the Change of Control
Date or, if more favorable to the Employee, as in effect generally at
any time thereafter with respect to other employees of comparable rank
with the Company and its affiliated companies and their families;
provided, however, that if the Employee becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare
benefits described herein shall be required only to the extent not
provided under such other plan during such applicable period of
eligibility. For purposes of determining eligibility of the Employee
for retiree benefits pursuant to such plans, practices, programs and
policies, the Employee shall be considered to have remained employed
until the end of the Employment Period and to have retired on the last
day of such period; and
(iii) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Employee and/or the
Employee's family for the remainder of the Employment Period any other
amounts or benefits required to be
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<PAGE> 10
paid or provided or which the Employee and/or the Employee's family
is eligible to receive pursuant to this Agreement and under any plan,
program, policy or practice or contract or agreement of the Company and
its affiliated companies as in effect and applicable generally to other
employees of comparable rank with the Company and its affiliated
companies and their families during the 90-day period immediately
preceding the Change of Control Date or, if more favorable to the
Employee, as in effect generally thereafter with respect to other
employees of comparable rank with the Company and its affiliated
companies and their families.
such amounts received under this Section 5(b) shall be in lieu of any other
amount of severance relating to salary or bonus continuation to be received by
the Employee upon termination of employment of the Employee under any
severance plan, policy or arrangement of the Company.
(c), Termination as a Result of Death. If the Employee's
employment is terminated by reason of the Employee's death during the Employment
Period, in lieu of the obligations of the Company under Section 3, the Company
shall pay or provide to the Employee's estate (i) all Accrued Obligations (which
shall be paid in a lump sum in cash within 30 days after the Date of
Termination) and the timely payment or provision of the Welfare Benefit
Continuation (as defined below) and the Other Benefits (as defined below) and
(ii) any cash amount to be received by the Employee or the Employee's family as
a death benefit pursuant to the terms of any plan, policy or arrangement of the
Company and its affiliated companies. "Welfare Benefit Continuation" shall mean
the continuation of benefits to the Employee and/or the Employee's family for
the longer of (i) two (2) year(s) from the Date of Termination or (ii) the
period provided by the plans, programs, policies or practices described in
Section 3(d) in which the Employee participates as of the Date of Termination,
such benefits to be at least equal to those which would have been provided to
them in accordance with the plans, programs, practices and policies described in
Section 3(d) if the Employee's employment had not been terminated, in accordance
with the most favorable plans, practices, programs or policies of the Company
and its affiliated companies as in effect and applicable generally to other
employees of comparable rank and their families on the Date of Termination or,
if the Date of Termination occurs after the Change of Control Date, during the
90-day period immediately preceding the Change of Control Date or, if more
favorable to the Employee, as in effect generally at any time thereafter with
respect to other employees of comparable rank with the Company and its
affiliated companies and their families. "Other Benefits" shall mean the timely
payment or provision to the Employee and/or the Employee's family of any other
amounts or benefits required, to be paid or provided or which the Employee
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<PAGE> 11
and/or the Employee's family is eligible to receive pursuant to this Agreement
and under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies as in effect and applicable generally to
other employees of comparable rank and their families on the Date of Termination
or, if the Date of Termination occurs after the Change of Control Date, during
the 90-day period immediately preceding the Change of Control Date or, if more
favorable to the Employee, as in effect generally thereafter with respect to
other employees of comparable rank with the Company and its affiliated companies
and their families.
(d) Termination as a Result of Disability. If the Employee's
employment is terminated by reason of the Employee's Disability during the
Employment Period, in lieu of the obligations of the Company under Section 3,
the Company shall pay or provide to the Employee (i) all Accrued Obligations
which shall be paid in a lump sum in cash within 30 days after the Date of
Termination and the timely payment or provision of the Welfare Benefit
Continuation and the Other Benefits, provided, however, that if the Employee
becomes reemployed with another employer and is eligible to receive medical or
other welfare benefits under another employer provided plan, the Welfare Benefit
Continuation shall be required only to the extent not provided under such other
plan during such applicable period of eligibility, and (ii) any cash amount to
be received by the Employee as a disability benefit pursuant to the terms of any
plan, policy or arrangement of the Company and its affiliated companies.
(e) Cause; Other than for Good Reason. If the Employee's
employment shall be terminated during the Employment Period by the Company for
Cause or by the Employee other than during the Window Period and other than for
Good Reason, in lieu of the obligations of the Company under Section 3, the
Company shall pay to the Employee in a lump sum in cash within 30 days after the
Date of Termination all Unpaid Agreement Amounts.
6. Non-exclusivity of Rights. Except as provided in Sections 5(a),
5(b)(i)(B), 5(b)(ii), 5(c) and 5(d), nothing in this Agreement shall prevent or
limit the Employee's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Employee may qualify, nor shall anything herein limit or
otherwise affect such rights as the Employee may have under any contract or
agreement with the Company or any of its affiliated companies. Amounts which are
vested benefits or which the Employee is otherwise entitled to receive under any
plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy,
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<PAGE> 12
practice or program or contract or agreement except as explicitly modified by
this Agreement.
7. Full Settlement; Resolution of Disputes. (a) The Company's
obligation to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against the Employee or others. In no event shall the Employee
be obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to the Employee under any of the provisions of
this Agreement and, except as provided in Sections 5 (b) (ii) and 5 (d), such
amounts shall not be reduced whether or not the Employee obtains other
employment. The Company agrees to pay promptly as incurred, to the full extent
permitted by law, all legal fees and expenses which the Employee may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company, the Employee or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Employee about the amount
of any payment pursuant to this Agreement), plus in! each case interest on any
payment required to be made under this Agreement but not timely paid at the rate
provided for in Section 28OG(d) (4) of the Internal Revenue Code of 1986, as
amended (the "Code") .
(b,) If there shall be any dispute between the Company and the
Employee (i) in the event of any termination of the Employee's employment by the
Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by the Employee, whether Good Reason existed, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause or that the
determination by the Employee of the existence of Good Reason was not made in
good faith, the Company shall pay all amounts, and provide all benefits, to the
Employee and/or the Employee's family or other beneficiaries, as the case may
be, that the company would be required to pay or provide pursuant to Section
5(a) or 5(b) as though such termination were by the Company without Cause or by
the Employee with Good Reason. The Employee hereby undertakes to repay to the
Company all such amounts to which the Employee is ultimately adjudged by such
court not to be entitled.
8. Certain Additional Payments by the Company. (a) Anything in this
Agreement to the contrary notwithstanding, in the event it shall be determined
that any payment or distribution by the Company to or for the benefit of the
Employee (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 8) (a "Payment")
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<PAGE> 13
would be subject to the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred by the Employee with respect to such excise
tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Employee
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Employee of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Employee
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(b) Subject to the provisions of Section 8(c), all
determinations required to be made under this Section 8, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by an accounting firm of national reputation selected by the Company (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and the Employee within 15 business days of the receipt of notice
from the Employee that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving (or
has served within the three years preceding the Change of Control Date) as
accountant or auditor for the individual, entity or group effecting the Change
of Control, or is unwilling or unable to perform its obligations pursuant to
this Section 8, the Employee shall appoint another nationally recognized
accounting firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the
Company to the Employee within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is payable
by the Employee, it shall furnish the Employee with a written opinion that
failure to report the Excise Tax on the Employee's applicable federal income tax
return would not result in the imposition of a negligence or similar penalty.
Any determination by the Accounting Firm shall be binding upon the Company and
the Employee. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 8(c) and the Employee thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the
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<PAGE> 14
Underpayment that has occurred and any such Underpayment shall be promptly paid
by the Company to or for the benefit of the Employee.
(c) The Employee shall notify the Company in writing of any
claim by the Internal Revenue Service that,if successful, would require the
payment by the Company of the Gross Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Employee is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Employee shall not pay such claim prior to the expiration of the 30-day period
following the date on which the Employee gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Employee in writing prior to the
expiration of such period that it desires to contest such claim, the Company,
subject to the provisions of this Section 8(c), shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at its sole option,
either direct the Employee to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner. In this connection, the Employee
agrees, subject to the provisions of this Section 8(c), to (i) prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine, (ii) give the Company any information reasonably requested by the
Company relating to such claim, (iii) take such action in connection with
contesting such claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the Company, (iv)
cooperate with the Company in good faith in order to effectively contest such
claim and (v) permit the Company to participate in any proceedings relating to
such claim. The foregoing is subject, however, to the following: (A) the Company
shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold the Employee harmless, on an after-tax basis, for any Excise
Tax or income tax (including interest and penalties with respect thereto)
imposed in connection therewith and the payment of costs and expenses in such
connection, (B) if the Company directs the Employee to pay such claim and sue
for a refund, the Company shall advance the amount of such payment to the
Employee, on an interest-free basis, and shall indemnify and hold the Employee
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance, (C) any
extension
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<PAGE> 15
of the statute of limitations relating to payment of taxes for the taxable year
of the Employee with respect to which such contested amount is claimed to be due
shall be limited solely to such contested amount and (D) the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Employee shall be entitled to settle
or contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Employee of an amount advanced
by the Company pursuant to Section 8(c), the Employee becomes entitled to
receive any refund with respect to such claim, the Employee shall (subject to
the Company's complying with the requirements of Section 8(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Employee of an amount advanced by the Company pursuant to Section 8(c), a
determination is made that the Employee shall not be entitled to any refund
with respect to such claim and the Company does not notify the Employee in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
9. Confidential Information. The Employee shall hold in a fiduciary
capacity for the benfit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Employee
during the Employee's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Employee or representatives of the Employee in violation of this
Agreement). After termination of the Employee's employment with the Company or
any of its affiliated companies, the Employee shall not, without the prior
written consent of the Company or as may otherwise be required by law or legal
process, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 9 constitute a basis for
deferring or withholding any amounts otherwise payable to the Employee under
this Agreement. Subject to the previous sentence, nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies available
to it for such breach or threatened breach, including the recovery of damages
from the Employee.
10. Employee's obligation to Avoid Conflicts of Interest. (a) In
keeping with Employee's fiduciary duties to the
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<PAGE> 16
company, Employee agrees that he shall not knowingly become involved in
circumstances constituting a conflict of interest with .such duties, or upon
discovery thereof, allow such a conflict to continue. Moreover, Employee agrees
that he shall disclose to the Secretary of the Parent or the Company any facts
which might involve a conflict of interest that have not been approved by the
Company. The Board hereby acknowledges and agrees that the activities of
Employee listed on Schedule A hereto do not, and the continuation of such
activities will not, constitute a conflict of interest for purposes of this
Section 10.
(b) In this connection, it is agreed that any direct interest
in, connection with, or benefit from any outside activities, particularly
commercial activities, which might in any way adversely affect the Company of
any of its affiliated companies, involves a possible conflict of interest.
Circumstances in which a conflict of interest on the part of Employee would or
might arise, and which should be reported immediately to the Company or the
Parent, include, but are not limited to, the following:
(i) Ownership of a material interest in any
lender, supplier, contractor, customer or other
entity with which the Company or any of its
affiliated companies does business;
(ii) Acting in any capacity, including
director,officer, partner, consultant, employee,
distributor,agent or the like, for lenders,
suppliers, contractors, subcontractors, customers or
other entities with which the Company or any of its
affiliated companies does business;
(iii) Acceptance, directly or indirectly, of
payments, services or loans from a lender, supplier,
contractor, subcontractor, customer or other entity
with which the Company or any of its affiliated
companies does business, including but not limited
to, gifts, trips, entertainment, or other favors of
more than a nominal value, but excluding loans from
publicly held insurance companies and commercial or
savings banks at normal rates of interest;
(iv) Misuse of information or facilities to
which Employee has access in a manner which will be
detrimental to the company's or any of its affiliated
companies' interest, such as utilization for
Employee's own benefit of
-16-
<PAGE> 17
know-how or information developed through the
Company's or any of its affiliated companies'
business activities;
(v) Disclosure or other misuse of
information of any kind obtained through Employee's
connection with the Company or any of its affiliated
companies; or
(vi) Acquiring or trading in, directly or
indirectly, other properties or interests connected
with the design or marketing of products or services
designed or marketed by the company or any of its
affiliated companies.
(c) In the event that the Company determines, in the exercise
of its reasonable judgment, that a conflict of interest exists between the
Employee and the Company or any of its affiliated companies, the Company shall
notify the Employee in writing in accordance with Section 17(b) hereof,
providing reasonably detailed information identifying the source of the
conflict of interest. Within the 60-day period following receipt of such notice,
the Employee shall take action satisfactory to the Company to eliminate the
conflict of interest. Failure of the Employee to take such action within such
60-day period shall constitute "Cause" under Section 4(b) hereof.
11. Disclosure of Information, Ideas, Concepts, Improvements,
Discoveries and Inventions. As part of Employee's fiduciary duties to the
Company, Employee agrees that during the Employment Period, and for a period of
six (6) months after the Date of Termination, Employee shall promptly disclose
in writing to the Company all information, ideas, concepts, improvements,
discoveries and inventions, whether patentable or not, and whether or not
reduced to practice, which are conceived, developed, made or acquired by
Employee, either individually or jointly with others, and which relate to the
business, products or services of the company or any of its affiliated
companies, irrespective of whether Employee utilized the Company's or any of its
affiliated companies' time or facilities and irrespective of whether such
information, idea, concept, improvement, discovery or invention was conceived,
developed, discovered or acquired by Employee on the job, at home, or elsewhere.
This obligation extends to all types of information, ideas and concepts,
including information, ideas and concepts relating to new types of services,
corporate opportunities, acquisition prospects, the identity of key
representatives within acquisition prospect organizations, prospective names or
service marks for the Company's or any of its affiliated companies' business
activities, and the like.
-17-
<PAGE> 18
12. Ownership of Information, Ideas, Concepts Improvements, Discoveries
and Inventions and all- Original Works of Authorship. (a) All information,
ideas, concepts, improvements, discoveries and inventions, whether patentable or
not, which are conceived, made, developed or acquired by Employee or which are
disclosed or made known to Employee, individually or in conjunction with others,
during Employee's employment by the Company or any of its affiliated companies
and which relate to the Company's or any of its affiliated companies' business,
products or services (including all such information relating to corporate
opportunities, research, financial and sales data, pricing and trading terms,
evaluations, opinions, interpretations, acquisition prospects, the identity of
customers or their requirements, the identity of key contacts within the
customer's organizations or within the organization of acquisition prospects, or
marketing and merchandising techniques, prospective names and marks) are and
shall be the sole and exclusive property of the Company. Moreover, all drawings,
memoranda, notes, records, files, correspondence, manuals, models,
specifications, computer programs, maps and all other writings or materials of
any type embodying any of such information, ideas, concepts, improvements,
discoveries and inventions are and shall be the sole and exclusive property of
the Company.
(b) In particular, Employee hereby specifically sells, assigns
and transfers to the Company all of his worldwide right, title and interest in
and to all such information, ideas, concepts, improvements, discoveries or
inventions, and any United States or foreign applications for patents,
inventor's certificates or other industrial rights that may be filed thereon,
including divisions, continuations, continuations-in-part, reissues and/or
extensions thereof, and applications for registration of such names and marks.
Both during the period of Employee's employment by the Company or any of its
affiliated companies and thereafter, Employee shall assist the Company and its
nominee at all times in the protection of such information, ideas, concepts,
improvements, discoveries or inventions, both in the United States and all
foreign countries, including but not limited to, the execution of all lawful
oaths and all assignment documents requested by the Company or its nominee in
connection with the preparation, prosecution, issuance or enforcement of any
applications for United states or foreign letters patent, including divisions,
continuations, continuations -in-part, reissues, and/or extensions thereof, and
any application for the registration of such names and marks.
(c) Moreover, if during Employee's employment by the Company
or any of its affiliated companies Employee creates any original work of
authorship fixed in any tangible medium of expression which is the subject
matter of copyright (such as
-18-
<PAGE> 19
videotapes, written presentations on acquisitions, computer programs, drawings,
maps, architectural renditions, models, manuals, brochures or the like) relating
to the Company's or any of its affiliated companies' business, products, or
services, whether such work is created solely by Employee or jointly with
others, the Company shall be deemed the author of such work if the work is
prepared by Employee in the scope of his or her employment; or, if the work is
not prepared by Employee within the scope of his or her employment but is
specially ordered by the Company as a contribution to a collective work, as a
part of a motion picture or other audiovisual work, as a translation, as a
supplementary work, as a compilation or as an instrumental text, then the work
shall be considered to be work made for hire and the Company shall be the author
of the work. In the event such work is neither prepared by the Employee within
the scope of his or her employment or is not a work specially ordered and deemed
to be a work made for hire, then Employee hereby agrees to assign, and by these
presents does assign, to the Company all of Employee's worldwide right, title
and interest in and to such work and all rights of copyright therein. Both
during the period of Employee's employment by the Company or any of its
affiliated companies and thereafter, Employee agrees to assist the Company and
Its nominee, at any time, in the protection of the Company's worldwide right,
title and interest in and to the work and all rights of copyright therein,
including but not limited to, the execution of all formal assignment documents
requested by the Company or its nominee and the execution of all lawful oaths
and applications, for registration of copyright in the United States and foreign
countries.
13. Employee's Post-Employment Non-Competition Obligations. (a)During
the Employment Period and, subject to the conditions of Sections 13(b) and
13(c), for a period of two (2) year(s) thereafter (the "Non-Competition
Period"), Employee shall not, acting alone or in conjunction with others,
directly or indirectly, in any of the business territories in which the Company
or any of its affiliated companies is presently or at the time of termination of
employment conducting business, engage in any business in competition with the
business conducted by the Company or any of its affiliated companies at the time
of the termination of the employment relationship, whether for his own account
or by soliciting, canvassing or accepting any business or transaction for or
from any other company or business in competition with such business of the
Company or any of its affiliated companies.
(b) If Employee's employment is discontinued- (i) by Company
for Cause pursuant to Section 4(b); or (ii) by Employee because of any reason
other than for Good Reason or other than during the Window Period pursuant to
Section 4(c), Employee shall be bound by the obligations of Section 13(a) and
the Company shall have no obligation to make the Non-Competition Payments (as
defined
-19-
<PAGE> 20
in Section 13(c) below). However, if the employment relationship is terminated
by any other circumstance or for any other reason, Employee's post-employment
non-competition obligations required by Section 13(a) shall be subject to the
Company's obligation to make the Non-Competition Payments specified in Section
13(c).
(c) Notwithstanding the provisions of Section 4 of this
Agreement, whenever Employee's employment is terminated due to the expiration of
the Employment Period in accordance with the provisions of Section 1, or due to
Employee's Disability (Section 4(a)), or by the Company without Cause (Section
4(b)), unless the Company exercises its option as hereinafter provided, Employee
shall be entitled to continue to receive payments (the "Non-Competition
Payments") equal to his then current Annual Base Salary (as of the Date of
Termination) during the Non-Competition Period. During the Non-Competition
Period, the Employee shall not, however, be deemed to be an employee of the
Company or be entitled to continue to receive any other employee benefits other
than as set forth in Section 5 or Section 8. Moreover, the Non-Competition
Payments shall be reduced to the extent Employee has already received lump-sum
payments in lieu of salary and bonus pursuant to Section 5. The Company shall
have the option, exercisable at any time on or within one (1) month after: (i)
the date the Company gives the Employee notice that the Employment Period will
not be extended (or in the case of failure to notify, on or within one month
after the Renewal Deadline), in accordance with Section 1; or (ii) in the case
of termination due to Employee's disability or by the Company without Cause, the
Date of Termination, to cancel Employee's post-employment non-competition
obligations under Section 13(a) and the Company's corresponding obligation to
make the Non-Competition Payments. Such option shall be exercised by the Company
mailing a written notice thereof to Employee in accordance with Section 17(b);
if the Company does not send such notice within the prescribed one-month period,
the Company shall remain obligated to make the Non-Competition Payments and
Employee shall remain obligated to comply with the provisions of Section 13(a).
The amounts to be paid by the Company are not intended to be liquidated damages
or an estimate of the actual damages that would be sustained by the Company if
Employee breaches his post-employment non-competition obligations. If Employee
breaches his post-employment non-competition obligations, the Company shall be
entitled to cease making the Non-Competition Payments and shall be entitled to
all of its remedies at law or in equity for damages and injunctive relief.
14. Obligations to Refrain From Competing Unfairly In addition to the
other obligations agreed to by Employee in this Agreement, Employee agrees that
during the Employment Period and for two (2) Year(s) following the Date of
Termination, he shall not at any time, directly or indirectly for the benefit of
any other
-20-
<PAGE> 21
party than the Company or any of its affiliated companies, (a) induce, entice,
or solicit any employee of the Company or any of its affiliated companies to
leave his employment, or (b) contact, communicate or solicit any customer of the
Company or any of its affiliated companies derived from any customer list,
customer lead, mail, printed matter or other information secured from the
Company or any of its affiliated companies or their present or past employees,
or (c) in any other manner use any customer lists or customer leads, mail,
telephone numbers, printed material or material of the Company or any of its
affiliated companies relating thereto.
15. Successors (a) This Agreement is personal to the Employee and
without the prior written consent of the Company shall not be assignable by the
Employee otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Employee's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise. The Parent will require any successor (whether direct or
indirect, by purchase, merger/ consolidation or otherwise) to all or
substantially all of the business and/or assets of the Parent or the Parent to
assume expressly and agree to perform the Parent's obligations hereunder in the
same manner and to the same extent that the Parent would be required to perform
them if no such succession had taken place. As used in this Agreement, "Parent"
shall mean the Parent as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform the Parent's
obligations hereunder by operation of law, or otherwise.
16. Certain Definitions. The following defined terms used in this
Agreement shall have-the meanings indicated:
(a) The "Change of Control Date" shall mean the first date on
which a Change of Control occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Employee's employment
with the Company is
-21-
<PAGE> 22
terminated or there is a change in the circumstances of the Employee's
employment which constitutes Good Reason, and if it is reasonably demonstrated
by the Employee that such termination or change in circumstances: (i) was at the
request of a third party who has taken steps reasonably calculated to effect the
Change of Control; or (ii) otherwise arose in connection with or anticipation of
the Change of Control, then, for all purposes of this Agreement, the "Change of
Control Date" shall mean the date immediately prior to the date of such
termination or cessation.
(b) The "Change of Control Period" shall mean the period
commencing on the Change of Control Date and ending on the last day of the
Employment Period.
(c) "Change of Control" shall mean:
(i) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended the "Exchange Act") (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (A) the
then outstanding shares of Common Stock of the Parent (the "Outstanding
Parent Common Stock") or (B) the combined voting power of the then
outstanding voting securities of the Parent entitled to vote generally
in the election of directors (the "Outstanding Parent Voting
Securities"); provided, however, that the following acquisitions shall
not constitute a Change of Control: (A) any acquisition directly from
the Parent (excluding an acquisition by virtue of the exercise of a
conversion privilege), (B) any acquisition by the Parent, (C) any
acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Parent or any corporation controlled by the Parent
or (D) any acquisition by any corporation pursuant to a reorganization,
merger or consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (A), (B) and (C) of
subsection (iii) of this definition of "Change of Control" are
satisfied; or
(ii) Individuals who, as of the effective date
hereof, constitute the Board of Directors of the Parent (the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board of Directors of the Parent; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Parent's shareholders, was
approved by (A) a vote of at least a majority of the directors then
constituting the Incumbent Board of the Parent, or (B) a vote of at
least a majority of the directors then comprising the Executive
Committee of the Board of Directors of the Parent at a time
-22-
<PAGE> 23
when such committee consisted of at least five members and all members
of such committee were either members of the Incumbent Board or
considered as being members of the Incumbent Board pursuant to clause
(A) of this subsection (ii), shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board of
Directors of the Parent; or
(iii) Approval by the shareholders of the Parent of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (A) more than
60% of, respectively, the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding
voting securities of such corporation, entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Parent
Common Stock and outstanding Parent Voting Securities immediately prior
to such organization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding Parent
Common Stock and outstanding Parent Voting Securities, as the case may
be, (B) no Person (excluding the Parent, any employee benefit plan or
related trust of the Parent or such corporation resulting from such
reorganization, merger or consolidation and any Person beneficially
owning, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 20% or more of the Outstanding
Parent Common Stock or Outstanding Parent Voting Securities, as the
case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or consolidation
or the combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board of
directors of the corporation resulting from such reorganization, merger
or consolidation were members of the Incumbent Board at the time of the
execution of the initial agreement providing for such reorganization,
merger or consolidation; or
-23-
<PAGE> 24
(iv) Approval by the shareholders of the Parent of
(A) a complete liquidation or dissolution of the Parent or (B) the sale
or other disposition of all or substantially all of the assets of the
Parent, other than to a corporation, with respect to which following
such sale or other disposition, (A) more than 60% of, respectively, the
then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Parent Common Stock
and Outstanding Parent Voting Securities immediately prior to such sale
or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
outstanding Parent Common Stock and Outstanding Parent Voting
Securities, as the case may be, (B) no Person (excluding the Parent and
any employee benefit plan or related trust of the Parent or such
corporation and any Person beneficially owning, immediately prior to
such sale or other disposition, directly or indirectly, 20% 'or more of
the outstanding Parent Common Stock or Outstanding Parent Voting
Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (C) at least a majority
of the members of the Board of Directors of such corporation were
members of the Incumbent Board at the time of the execution of the
initial agreement or action of the Board of Directors of the Parent
providing for such sale or other disposition of assets of the Parent.
(d) The term "affiliated company" shall mean any company
controlled by, controlling or under common control with the Company.
(e) The term "Highest Recent Bonus" shall mean the highest
Annual Bonus (annualized for any fiscal year consisting of less than twelve full
months) paid or payable, including by reason of any deferral, to the Employee by
the Company and its affiliated companies in respect of the two most recent full
fiscal years ending on or prior to, (i) if prior to a Change of Control, the
Date of Termination, or (ii) if after a Change of Control, the Change of Control
Date.
17. Miscellaneous. (a) This Agreement supersedes all previous
agreements and discussions relating to the same or similar subject matters
between Employee and the Company and shall be
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<PAGE> 25
governed by and construed in accordance with the laws of the State of Texas,
without reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended, modified, repealed, waived, extended
or discharged except by an agreement in writing signed by the party against whom
enforcement of such amendment, modification, repeal, waiver, extension or
discharge is sought. No person, other than pursuant to a resolution of the Board
or a duly authorized committee thereof, shall have authority on behalf of the
Company to agree to amend, modify, repeal, waive, extend or discharge any
provision of this Agreement or anything in reference thereto.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Employee:
George R.,Champagne
10 Twin Greens Court
Kingwood, TX 77339
if to the Company:
SCI Executive Services, Inc.
1929 Allen Parkway
Houston, Texas 77019
Attention: Corporate Secretary
If to the Parent:
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
Attention: Corporate Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or enforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such federal, state or local taxes as
-25-
<PAGE> 26
shall be required to be withheld pursuant to any applicable law or regulation.
(e) The Employee's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Employee or the Company may
have hereunder, including, without limitation, the right of the Employee to
terminate employment for Good Reason pursuant to Section 4(c) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) No breach, whether actual or alleged, of this Agreement by
the Employee shall constitute grounds for the Company to withhold or offset any
payment or benefit due to the Employee under any other agreement, contract,
plan, program, policy or practice of the Company.
IN WITNESS WHEREOF, the Employee and, pursuant to due authorization
from the Board, the Company have caused this Agreement to be executed this 1st
day of January, 1998.
GEORGE R. CHAMPAGNE
/s/ GEORGE R. CHAMPAGNE
---------------------------------------
"EMPLOYEE"
SCI EXECUTIVE SERVICES, INC.
By: /s/ CURTIS G. BRIGGS
-----------------------------------------
Name: Curtis G. Briggs
Title: Vice President
"COMPANY"
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<PAGE> 27
Pursuant to due authorization from its Board of Directors, the Parent,
by its execution hereof, absolutely and unconditionally guarantees to Employee
the full and timely payment and performance of each obligation of the Company to
Employee under this Agreement, waives any and all rights that it may otherwise
have to require Employee to proceed against the Company for nonpayment or
nonperformance, waives any and all defenses that would otherwise be a defense to
this guarantee, and agrees to remain liable to Employee for all payment and
performance obligations of the Company under this Agreement, whether arising
before, on or after the date of this Agreement, until this Agreement shall
terminate pursuant to its terms.
SERVICE CORPORATION
INTERNATIONAL,,
By: /s/ JAMES M. SHELGER
--------------------------------------
Name: James M. Shelger
Senior Vice President
General Counsel
and Secretary
"PARENT"
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<PAGE> 28
SCHEDULE A
TO EMPLOYMENT AGREEMENT
REVISED AS OF JANUARY 1, 1998
GEORGE R. CHAMPAGNE
DIRECTOR: Provident Services, Inc.
Investment Capital Corporation
OFFICER: Service Corporation International
SCI Aviation, Inc.
International Funeral Services, Inc.
OWNERSHIP INTEREST IN:
LOAN FROM: Provident Credit Corp. - Mortgage Loan
secured by residence.
OTHER:
THE FOREGOING IS CERTIFIED TO BE TRUE AND CORRECT AS OF THE ABOVE NOTED
DATE.
/s/ GEORGE R. CHAMPAGNE
----------------------------
GEORGE R. CHAMPAGNE
<PAGE> 1
EXHIBIT 10.28
SERVICE CORPORATION INTERNATIONAL
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
FOR SENIOR OFFICERS
(AS AMENDED AND RESTATED EFFECTIVE
AS OF JANUARY 1, 1998)
<PAGE> 2
SERVICE CORPORATION INTERNATIONAL
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
FOR SENIOR OFFICERS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. - DEFINITIONS..........................................................................................1
Accrued Benefit................................................................................................1
Actuarial Equivalent or Actuarially Equivalent.................................................................1
Beneficiary....................................................................................................1
Board of Directors.............................................................................................1
Cause .........................................................................................................2
Change of Control..............................................................................................2
Code ..........................................................................................................5
Company .......................................................................................................5
Committee......................................................................................................5
Credited Service...............................................................................................5
Employee.......................................................................................................5
Participant....................................................................................................5
Person ........................................................................................................6
Plan ..........................................................................................................6
Plan Year......................................................................................................6
Prior Plan.....................................................................................................6
Retirement.....................................................................................................6
Retirement Benefit.............................................................................................6
Retirement Date................................................................................................6
SCI Cash Balance Plan..........................................................................................6
Securities Act.................................................................................................7
Spouse ........................................................................................................7
Standard Form..................................................................................................7
Stock .........................................................................................................7
Subsidiary.....................................................................................................7
Voting Securities..............................................................................................7
ARTICLE II. - ELIGIBILITY.........................................................................................8
ARTICLE III. - RETIREMENT BENEFIT.................................................................................9
3.1. Retirement Benefit.....................................................................................9
(a) Amount of Retirement Benefit..................................................................9
(b) Post-1991 Cost-of-Living Increases for Certain Participants...................................9
(c) Post-1993 Cost-of-Living Increases for Certain Participants..................................10
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
3.2. Form and Time of Payment..............................................................................10
(a) Standard Form: 180-Month Certain Annuity....................................................10
(b) Lump Sum Payment.............................................................................11
(c) In-Service Commencement of Standard Form of Benefit..........................................12
(d) Lump Sum Payment After Commencement..........................................................13
ARTICLE IV. - BENEFITS IN THE EVENT OF A CHANGE OF CONTROL.......................................................15
ARTICLE V. - DEATH BENEFIT.......................................................................................16
5.1. Benefits in the Event of Participant's Death..........................................................16
5.2. Beneficiary Designation...............................................................................17
ARTICLE VI. - PROVISIONS RELATING TO ALL BENEFITS................................................................18
6.1. Effect of This Article................................................................................18
6.2. Benefits Upon Re-employment...........................................................................18
6.3. Forfeiture For Cause..................................................................................18
6.4. Claims Procedure......................................................................................21
6.5. Provisions Applicable To a Participant................................................................22
ARTICLE VII. - ADMINISTRATION....................................................................................23
7.1. Committee Appointment.................................................................................23
7.2. Committee Organization and Voting.....................................................................23
7.3. Powers of the Committee...............................................................................23
7.4. Committee Discretion..................................................................................24
7.5. Reimbursement of Expenses and Indemnification.........................................................25
ARTICLE VIII. - AMENDMENT AND/OR TERMINATION.....................................................................26
8.1. Amendment or Termination of the Plan..................................................................26
8.2. No Retroactive Effect on Accrued Benefits.............................................................26
ARTICLE IX. - FUNDING............................................................................................27
9.1. Payments Under This Plan are the Obligation of the Company............................................27
9.2. Plan May Be Funded Through a Rabbi Trust..............................................................27
9.3. Participants Must Rely Only on General Credit of the Company..........................................27
ARTICLE X. - MISCELLANEOUS.......................................................................................29
10.1. Responsibility for Distributions and Withholding of Taxes.............................................29
10.2. Limitation of Rights..................................................................................29
10.3. Distributions to Incompetents or Minors...............................................................29
10.4. Nonalienation of Benefits.............................................................................30
10.5. Reliance Upon Information.............................................................................30
10.6. Severability..........................................................................................31
10.7. Survival of Terms.....................................................................................31
10.8. Notice................................................................................................31
10.9. Gender and Number.....................................................................................31
10.10. Governing Law.........................................................................................31
</TABLE>
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<PAGE> 4
SERVICE CORPORATION INTERNATIONAL
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
FOR SENIOR OFFICERS
WHEREAS, Service Corporation International has established an unfunded
deferred compensation plan for certain management personnel so as to retain
their loyalty and to offer a further incentive to them to maintain and increase
their standard of performance, which plan is entitled the Service Corporation
International Supplemental Executive Retirement Plan for Senior Officers (the
"Prior Plan"); and
WHEREAS, in Section 8.1 of the Prior Plan, Service Corporation
International reserved the right to amend the plan from time to time; and
WHEREAS, it has been determined that the Prior Plan should be
completely amended, restated and continued in the form of this Plan ("Plan")
without a gap or lapse in coverage, time, or effect, in order to reflect certain
amendments to the Plan.
NOW, THEREFORE, Service Corporation International hereby amends,
restates and continues the Prior Plan in the form of this Plan, without a gap or
lapse in coverage, time, or effect, the terms of which Plan are as follows:
<PAGE> 5
ARTICLE I.
DEFINITIONS
"ACCRUED BENEFIT" means, as of any given time, the amount of unpaid
Retirement Benefit (if any) under this Plan that a Participant has accrued as of
such time under applicable provisions of the Plan (whether payable at such time
or only at a future date).
"ACTUARIAL EQUIVALENT" or "ACTUARIALLY EQUIVALENT" means equality in
value of the aggregate amounts expected to be received at different times or in
a different form of payment, [a time, or in a form, other than the Standard
Form] determined by the use of the same interest rate (and mortality
assumptions, if applicable) as are being used, as of January 1 of the calendar
year immediately preceding the calendar year in which such benefits are paid or
commenced, under the definition of "Actuarial Equivalent" under the SCI Cash
Balance Plan; provided, however, that, except as otherwise provided in Article
III with respect to Participants to which a Prior Plan benefit formula is still
applicable, in no event will the Actuarially Equivalent value of any Accrued
Benefit provided by the Plan be actuarially increased by reason of a
Participant's Retirement Date occurring after his attainment of age 60. If there
is no SCI Cash Balance Plan or successor qualified defined benefit plan, then
the actuarial factors to be used will be those actuarial factors as are selected
by the actuarial firm that last serviced the SCI Cash Balance Plan prior to its
termination or merger, as being then appropriate had the SCI Cash Balance Plan
remained in existence at its last level of benefits and with its last
participant census.
"BENEFICIARY" means a person or entity designated by the Participant
under the terms of this Plan to receive any amounts distributable under the Plan
upon the death of the Participant.
"BOARD OF DIRECTORS" means the Board of Directors of the Company.
<PAGE> 6
"CAUSE" means the reason or reasons for which the Company terminates a
Participant's employment as such reasons are described in, and as the quoted
term is defined in, the latest employment agreement entered into by and between
the Company and each Participant, and such definition of "Cause" is incorporated
by reference into this Plan.
"CHANGE OF CONTROL" means an event listed in subparagraph (a), (b), (c)
or (d) below.
(a) The acquisition by a Person of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Securities Act)
of 20 percent or more of either (1) the then outstanding shares of
Stock or (2) the combined voting power of the then outstanding Voting
Securities.
However, the following acquisitions will not constitute a
Change of Control: (1) any acquisition directly from the Company
(excluding an acquisition by virtue of the exercise of a conversion
privilege), (2) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by any corporation controlled by
the Company or (3) any acquisition by a corporation pursuant to a
reorganization, merger or consolidation, if, following the
reorganization, merger or consolidation, the conditions described in
clauses (1), (2) and (3) of subsection (c) of this definition are
satisfied.
(b) Individuals who, as of January 1, 1992, constitute the
Board of Directors (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors.
However, any individual becoming a director subsequent to
January 1, 1992, whose election, or nomination for election by the
shareholders of the Company, was approved by (1) a vote of at least a
majority of the directors then constituting the Incumbent Board, or (2)
a vote of at least a majority of the directors then composing the
2
<PAGE> 7
Executive Committee of the Board of Directors at a time when that
committee was composed of at least five members and all members of the
committee were either members of the Incumbent Board or considered as
being members of the Incumbent Board under clause (1) of this
subsection (b), will be considered as though that individual were a
member of the Incumbent Board, but excluding, for this purpose, any
individual whose initial assumption of office occurs as a result of
either an actual or threatened election contest (as those terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Securities
Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board of Directors.
(c) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
immediately following the reorganization, merger or consolidation: (1)
more than 60 percent of, respectively, the then outstanding shares of
common stock of the corporation resulting from that reorganization,
merger or consolidation and the combined voting power of the then
outstanding voting securities of the corporation entitled to vote
generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the
outstanding Stock and outstanding Voting Securities immediately prior
to the reorganization, merger or consolidation in substantially the
same proportions as their ownership, immediately prior to the
reorganization, merger or consolidation, of the outstanding Stock and
outstanding Voting Securities, as the case may be, (2) no Person
(excluding any employee benefit plan or related trust) of the
corporation resulting from the reorganization, merger or
3
<PAGE> 8
consolidation and any Person beneficially owning, immediately prior to
the reorganization, merger or consolidation, directly or indirectly, 20
percent or more of the outstanding Stock or outstanding Voting
Securities, as the case may be, beneficially owns, directly or
indirectly, 20 percent or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from the
reorganization, merger or consolidation or the combined voting power of
the then outstanding voting securities of the corporation entitled to
vote generally in the election of directors and (3) at least a majority
of the members of the board of directors of the corporation resulting
from the reorganization, merger or consolidation were members of the
Incumbent Board at the time of the execution of the initial agreement
providing for the reorganization, merger or consolidation.
(d) Approval by the shareholders of the Company of: (1) a
complete liquidation or dissolution of the Company or (2) the sale or
other disposition of all or substantially all of the assets of the
Company, other than to a corporation with respect to which, immediately
following the sale or other disposition: (x) more than 60 percent of,
respectively, the then outstanding shares of common stock of the
corporation and the combined voting power of the then outstanding
voting securities of the corporation entitled to vote generally in the
election of directors, is then beneficially owned directly or
indirectly by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the outstanding Stock
and outstanding Voting Securities immediately prior to that sale or
other disposition in substantially the same proportion as their
ownership, immediately prior to the sale or other disposition, of the
outstanding Stock and outstanding Voting Securities, as the case may
be, (y) no Person (excluding any employee benefit plan or related
trust) of the corporation and any Person
4
<PAGE> 9
beneficially owning, immediately prior to the sale or other
disposition, directly or indirectly, 20 percent or more of the
outstanding Stock or outstanding Voting Securities, as the case may be,
beneficially owns, directly or indirectly, 20 percent or more of,
respectively, the then outstanding shares of common stock of the
corporation and the combined voting power of the then outstanding
voting securities of the corporation entitled to vote generally in the
election of directors and (z) at least a majority of the members of the
board of directors of the corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action
of the Board providing for that sale or other disposition of assets of
the Company.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, and applicable regulations or other guidance issued thereunder by the
Internal Revenue Service or other division of the U.S. Department of Treasury.
"COMPANY" means Service Corporation International.
"COMMITTEE" means the persons who are from time to time serving as
members of the committee administering this Plan.
"CREDITED SERVICE" means service with the Company and its Subsidiaries
for which the Participant is awarded credited service under the SCI Cash Balance
Plan for benefit accrual purposes.
"EMPLOYEE" means a full time common law employee of the Company who
receives salary remuneration from the Company.
"PARTICIPANT" means: (a) an Employee or former Employee of the Company
who is participating in the Plan; and (b) an Employee or a former Employee of
the Company whose vested Accrued Benefit has not been completely distributed;
provided, however, that a person
5
<PAGE> 10
described in clause (b) will be considered to be a Participant of the Plan as of
any given date only to the extent of the portion of his vested Accrued Benefit
that has not been distributed as of such date.
"PERSON" means any individual, entity or group within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Act, excluding the Company and
any employee benefit plan or related trust maintained by the Company.
"PLAN" means the Service Corporation International Supplemental
Executive Retirement Plan For Senior Officers set forth in this document, as
amended from time to time.
"PLAN YEAR" means a one year period that coincides with the fiscal year
of the Company.
"PRIOR PLAN" means the Service Corporation International Supplemental
Executive Retirement Plan for Senior Officers as in effect prior to its
amendment, restatement and continuation under the form of this Plan, and/or its
predecessors, the Service Corporation International Supplemental Executive
Retirement Plan established by the Company effective as of June 6, 1988 and any
amended and restated Plan documents adopted after such date and before January
1, 1998.
"RETIREMENT" means the Participant's separation from service with the
Company.
"RETIREMENT BENEFIT" means the Accrued Benefit (if any) payable to a
qualifying Participant at his Retirement Date, as such amount is described in
Section 3.1 and paid under Section 3.2 (subject to any other applicable
provisions of the Plan).
"RETIREMENT DATE" means the later of the date on which the Participant
attains age 55 or the date on which he separates from service with the Company.
"SCI CASH BALANCE PLAN" means the SCI Cash Balance Plan, a defined
benefit plan qualified under Section 401(a) of the Code, as such plan is amended
from time to time.
6
<PAGE> 11
"SECURITIES ACT" means the Securities Exchange Act of 1934, as amended
from time to time.
"SPOUSE" means the person to whom the Participant is married in a
marriage that is valid under applicable state law.
"STANDARD FORM" means a 180-month term certain annuity that provides
for monthly annuity payments to the Participant until the earlier of the date on
which the 180th monthly payment is made to the Participant or the date of the
Participant's death, which Standard Form will be the form in which the vested
Accrued Benefit will be payable to a Participant whose Retirement Benefit is not
payable as a lump sum payment under Section 3.2.
"STOCK" means the common stock of the Company.
"SUBSIDIARY" means any subsidiary of the Company that is in the
Company's controlled group of corporations as defined in Section 1563(a) of the
Code.
"VOTING SECURITIES" means any security of the Company that ordinarily
possesses the power to vote in the election of the Board of Directors without
the happening of any precondition or contingency.
7
<PAGE> 12
ARTICLE II.
ELIGIBILITY
Those Employees who are selected by the Committee will be eligible to
participate in the Plan. The Committee will select those Employees who it
believes are in a select group of officers of the Company in a position to
contribute materially to the continued growth and financial success of the
Company. The Committee will notify, in writing, each Employee selected as a
Participant. In addition, each selected Employee will be given the opportunity
to enter into an individual written agreement with the Company, which agreement
will constitute a part of this Plan and will set forth the amount of Retirement
Benefit that will be provided to such Employee as a Participant hereunder
(subject to other applicable Plan provisions).
8
<PAGE> 13
ARTICLE III.
RETIREMENT BENEFIT
3.1. RETIREMENT BENEFIT. Subject to Section 6.3 and other applicable
provisions of the Plan, Retirement Benefits provided under the Plan will be
determined and paid in accordance with the following provisions.
(a) Amount of Retirement Benefit. The monthly amount of
Retirement Benefit that is provided hereunder to any Participant will
be such amount as is determined by the Committee in its sole
discretion. Such amount will be set forth in an individual
participation agreement entered into, in writing, by and between the
Company and each Participant hereunder. Such written agreement will
include a provision that the Retirement Benefit provided by this
amended and restated Plan are provided in lieu of, and not in addition
to, the benefits provided by any Prior Plan. However, in no event will
the Actuarially Equivalent value of the monthly Retirement Benefit
provided under this Plan be less than the Actuarially Equivalent value
of the greater of: (i) the monthly benefits to which a Participant
was entitled as of December 31, 1993 under the Prior Plan as in effect
on such date, or (ii) with respect to any Participant whose
Retirement Benefit under the Plan is determined under a benefit
schedule prescribed by a Prior Plan, the monthly amount of Retirement
to which such a Participant is entitled under such benefit schedule.
(b) Post-1991 Cost-of-Living Increases for Certain
Participants. In addition to the Retirement Benefit described in
subsection (a) immediately above, certain Participants who are selected
by the Committee in its sole discretion will accrue, as of the last day
of 1992 and as of the last day of 1993, cost-of-living increases in
such
9
<PAGE> 14
Retirement Benefit. For each such calendar year the increase in a
selected Participant's monthly Retirement Benefit will be an amount
equal to: (i) such Participant's monthly Retirement Benefit as of his
Retirement Date, his date of death, or the date of Change of Control,
whichever event triggered the commencement of the Retirement Benefit to
the Participant, times (ii) the percentage of increase in the "Consumer
Price Index" (as defined herein) for the twelve-month period ending on
the last day of such calendar year (but in no event more than seven
percent (7 percent)). For purposes of this Section 3.1(b), the
"Consumer Price Index" will mean the CPI - All Urban Consumers, U.S.
City Average, All Items - Series A (1982 - 1984 = 100). The Committee
will advise selected Participants, in writing, of their selection for
any cost-of-living increase granted under this Section 3.1(b).
(c) Post-1993 Cost-of-Living Increases for Certain
Participants. In addition to the Retirement Benefit described in
subsection (a) above, certain Participants in the Plan who are selected
by the Committee in its sole discretion will accrue, as of the last day
of 1994 and of each succeeding calendar year, cost-of-living increases
in such Retirement Benefit. The amount of such cost-of-living increases
will be determined under the method described in subsection (b)
immediately above. The Committee will advise selected Participants, in
writing, of their selection for any cost-of-living increase granted
under this Section 3.1(c).
3.2. FORM AND TIME OF PAYMENT. Subject to Section 6.3, the Retirement
Benefit payable hereunder will be paid as follows:
(a) Standard Form: 180-Month Certain Annuity. A Participant
who is entitled to a Retirement Benefit hereunder will receive his
entire Retirement Benefit in
10
<PAGE> 15
the Standard Form except to the extent that his Retirement Benefit is
payable in the form of a lump sum payment pursuant to succeeding
provisions of this Section 3.2, Article IV, or any other Plan
provision. Payments of the Standard Form of benefit will commence as of
the first day of the month coincident with or next following the
Participant's Retirement Date unless he had properly elected in-service
commencement of such benefit pursuant to Section 3.2(c) below.
(b) Lump Sum Payment.
(1) Participants May Request. A Participant may
request, in the form and manner prescribed by the Committee,
payment of his entire Retirement Benefit in a single lump sum
payment that is made as of his Retirement Date; provided that:
(i) the Participant provides his written request to the
Committee not less than twelve (12) calendar months before his
Retirement Date; and (ii) the Committee, in its sole
discretion, accepts the Participant's request. The Committee
may, in its sole discretion, accept such request in total,
accept such request in part and reject it in part, or reject
such request in total.
To the extent that a lump sum payment request is
accepted by the Committee, the lump sum payment made under
this Section 3.2(b)(1) will be the Actuarial Equivalent,
determined as of the requesting Participant's Retirement Date,
of such Participant's entire Retirement Benefit or, if
applicable, the part thereof with respect to which the
Committee accepted the Participant's lump sum request.
Within such time as it considers reasonable under the
circumstances, the Committee will notify, in writing, a
Participant who has requested a lump sum
11
<PAGE> 16
payment of the extent to which it has accepted such request.
The opportunity to request a lump sum payment under this
Section 3.2(b)(1) will be available only once to any
Participant and, once such a request is made, it will be
irrevocable by such Participant.
(2) (2)Committee May Initiate. Regardless of whether a Participant
requests a single lump sum payment of his entire Retirement
Benefit pursuant to paragraph (1) of this Section 3.2(b), the
Committee may, in its sole discretion, determine that any
Participant who terminates employment with the Company for any
reason (except a Participant who is discharged by the Company
for Cause) will receive, as soon as administratively feasible
after such termination, a single lump sum payment of the
Actuarially Equivalent value (determined as of such
Participant's termination date) of his unpaid vested
Retirement Benefit.
Within such time as it considers appropriate under
the circumstances, the Committee will notify a Participant
whose Retirement Benefit is to be paid pursuant to this
paragraph (2) of Section 3.2(b).
(c) In-Service Commencement of Standard Form of Benefit. If a
Participant is both at least age 54 and an active Employee of the
Company, he may elect to commence receipt of his Retirement Benefit in
the Standard Form as of the first day of the month following the later
of: (i) the date he attains age 55 or (ii) the subsequent date he
specifies that is prior to his Retirement Date; provided that such
Participant's written election of such form of payment is received by
the Committee not less than 12 calendar months before the applicable
commencement date.
12
<PAGE> 17
If the payment of a Participant's Retirement Benefit annuity
described in this Section 3.2(c) commences before he attains the age of
60, the monthly amount of annuity that would otherwise commence at his
age 60 will be discounted to the Actuarially Equivalent value of such
annuity as of its actual commencement date.
The monthly amount of any in-service annuity commenced
pursuant to this Section 3.2(c) will not be increased after its payment
commencement date by reason of any subsequent increase in the
Participant's years of Credited Service, compensation, by the deemed
accrual of interest, or for any other reason; provided, however, that
the Committee in its sole discretion may provide for cost-of-living
increases in the amount of such annuity.
The opportunity to elect in-service commencement under this
Section 3.2(c) will be available only once to any Participant and, once
such an election is made, it may not be revoked by the Participant
except to the extent that such Participant requests, and the Committee
approves, a lump sum payment under Section 3.2(d) below.
(d) Lump Sum Payment After Commencement. A Participant who has
commenced receipt, while an active Employee of the Company, of an
annuity under Sections 3.2(c) or 3.2(d) of the Prior Plan (as in effect
on December 31, 1994) or Section 3.2(c) of the Plan, may request to
receive, as of his Retirement Date, a lump sum payment of the
Actuarially Equivalent value, determined as of the date that is 12
calendar months prior to his Retirement Date, of all remaining monthly
annuity payments payable to him; provided that such Participant's
written request for such lump sum payment is received by the Committee
not less than 12 calendar months prior to his Retirement Date. The
13
<PAGE> 18
Committee may, in its sole discretion, accept such request in total,
accept such request in part and reject it in part, or reject such
request in total.
Within such time as it considers reasonable under the
circumstances, the Committee will notify, in writing, a Participant who
has requested such a lump sum payment of the extent to which it has
accepted such request. The opportunity to request, under this Section
3.2(d), a lump sum payment after commencement of an annuity under the
Plan will be available only once to any Participant and, once such a
request is made, it may not be revoked by such Participant.
14
<PAGE> 19
ARTICLE IV.
BENEFITS IN THE EVENT OF A CHANGE OF CONTROL
Notwithstanding any other provision of this Plan, within five days
after the date of any Change of Control of the Company, the Company will pay a
lump sum cash payment to each Participant (or to his Beneficiary, if the
Participant has died). Except as provided below, the amount of such lump sum
payment will be the Actuarially Equivalent value, determined as of the Change of
Control date, of any unpaid portion of such Participant's Accrued Benefit;
provided, however, that in the case of a Participant who, on the Change of
Control date, is an active Employee and has not commenced receipt of his
Retirement Benefit, his lump sum payment under this article will be based upon
(instead of his actual Accrued Benefit at such time) the Accrued Benefit to
which he would have become entitled if he had continued to earn Credited Service
from the Change of Control date to his attainment of age 65.
15
<PAGE> 20
ARTICLE V.
DEATH BENEFIT
5.1. BENEFITS IN THE EVENT OF PARTICIPANT'S DEATH. If a Participant
dies after his commencement of annuity benefits from this Plan and before
receiving 180 monthly annuity payments, his Beneficiary will receive, as soon as
administratively practical after such Participant's death, a lump sum cash
payment of the Actuarially Equivalent value, determined as of the date of the
Participant's death and on the basis of such Participant's age at his date of
death, of whichever of the following amounts is applicable to the Participant:
(a) In the case of a Participant who was receiving the
Standard Form of benefit, such Participant's remaining Accrued Benefit
as of his date of death; provided, however, that if the Participant was
an active Employee on the date of his death, instead of such
Participant's actual Accrued Benefit, the Beneficiary's death benefit
will, if greater, be based upon the Accrued Benefit to which the
Participant would have been entitled if he had continued to earn
Credited Service from the date of his death to the date on which he
would have attained the age of 60.
(b) In the case of a Participant who was receiving the
in-service annuity described in Section 3.2(c) of the Prior Plan (as in
effect on December 31, 1994), the Participant's Accrued Benefit as of
December 31, 1994, less any payments received prior to his death; and
(c) In the case of a Participant who had elected the
in-service annuity described in Section 3.2(c) above, the Participant's
Accrued Benefit determined as of December 31 of the year in which he
signed the written election form by which he elected such form of
benefit, less any payments already received prior to his death.
16
<PAGE> 21
5.2. BENEFICIARY DESIGNATION. Each Participant upon entering the Plan
will file with the Committee a designation of one or more Beneficiaries to whom
the death benefit provided by this Article V will be paid in the event of the
Participant's death. The designation will be effective upon receipt by the
Committee of a properly executed form that the Committee has approved for that
purpose. The Participant may from time to time revoke or change any designation
of Beneficiary by filing another approved Beneficiary designation form with the
Committee. If there is no valid designation of Beneficiary on file with the
Committee at the time of the Participant's death or if all of the Beneficiaries
designated in the last Beneficiary designation have predeceased the Participant
(or, in the case of one or more trusts, have ceased to exist), the Beneficiary
will be the Participant's Spouse if the Spouse survives the Participant; or
otherwise the Participant's estate. If any Beneficiary survives the Participant
but dies (or, in the case of a trust, ceases to exist) before receiving the lump
sum death benefit due under this Article V (or such Beneficiary's portion of
such lump sum payment, if more than one Beneficiary was designated by the
Participant), the payment that would have been paid to that Beneficiary will,
unless the Participant's designation provides otherwise, be distributed to the
deceased individual Beneficiary's estate, or to the Participant's estate in the
case of a Beneficiary that is not an individual.
17
<PAGE> 22
ARTICLE VI.
PROVISIONS RELATING TO ALL BENEFITS
6.1. EFFECT OF THIS ARTICLE. The provisions of this Article will
control over all other provisions of this Plan.
6.2. BENEFITS UPON RE-EMPLOYMENT. If a former Employee is a Participant
who is receiving the Standard Form of benefit under this Plan at the time he is
reemployed by the Company, the payment of such benefits hereunder will continue
during his period of reemployment and the monthly amount of such Participant's
benefit will not be changed as a result of his reemployment. Such Employee will
continue to be considered as a Participant with respect to any undistributed
portion of his Accrued Benefit under the Plan that is attributable to his prior
period of employment, but he will not be eligible to recommence active
participation in the Plan unless and until he is again selected as a Participant
and notified by the Committee, pursuant to Article II, in connection with his
reemployment as an Employee of the Company.
6.3. FORFEITURE FOR CAUSE.
(a) General Rule. If the Committee in its sole discretion
finds, after full consideration of the facts presented on behalf of
both the Company and the Participant, that the Participant was
discharged by the Company for Cause, such Participant's entire Accrued
Benefit will be forfeited and neither such Participant nor his
Beneficiary will have any further claim to benefits under this Plan.
The decision of the Committee as to whether a Participant was
discharged for Cause will be final. No decision of the Committee will
affect in any manner the finality of the discharge of the Participant
by the Company.
18
<PAGE> 23
Notwithstanding the immediately preceding paragraph, the
forfeiture created by this Section 6.3(a) will not apply to a
Participant who is or was discharged for Cause during the Plan Year in
which a Change of Control occurs, or during the next three succeeding
Plan Years following the Plan Year in which a Change of Control occurs,
unless an arbitrator selected to review the Committee's findings agrees
with the Committee's determination to apply the forfeiture. The
arbitrator will be selected by permitting the Company and the
Participant each to strike one name from a panel of three names
obtained from the American Arbitration Association. The person whose
name is remaining will be the arbitrator.
(b) Special Rule. Notwithstanding any provision of this Plan
to the contrary except the succeeding provisions of this subsection
(b), in the event that, at any time within the first ten calendar years
after a Participant (including for purposes of this subsection, a
former Employee-Participant) terminates employment with the Company, he
becomes an employee, director, partner, member, advisor, agent or
consultant of any business entity that is in competition with the
Company or any of its Subsidiaries or affiliates, such Participant's
entire Accrued Benefit attributable to his participation in the Plan
after December 31, 1996 will be immediately forfeited, and neither such
Participant nor any Beneficiary will have any claim to benefits that
accrued on or after January 1, 1997 under this Plan (the "Noncompete
Rule"). After full consideration of the facts presented on behalf of
both the Company and the Participant, the decision of the Committee as
to whether a Participant has violated the Noncompete Rule will be
final.
In the event that a Participant violates the Noncompete Rule
after having received all or part of his Accrued Benefit that is
subject to forfeiture under that rule, such
19
<PAGE> 24
Participant will be required, and by agreeing to participate in this
Plan each Participant specifically agrees, to repay to the Company the
full amount of any Accrued Benefit he has received, plus interest from
the date of the violation of the Noncompete Rule as determined by the
Committee; and to make such repayment at the time or times and in the
manner determined by the Committee. The interest rate will be the
weekly quoted one-year Treasury bill rate at the last weekly auction
held immediately before the Committee's determination that such
Participant has violated the Noncompete Rule, plus one percent (1
percent).
By agreeing to participate in this Plan each Participant
further consents to the Company's deduction from any amounts the
Company or any of its Subsidiaries or affiliates owes to such
Participant from time to time (including amounts owed to such
Participant as wages or other compensation, fringe benefits, or other
amounts owed to such Participant by the Company) to the extent of the
amount such Participant owes the Company under this subsection (b).
Whether or not the Company elects to make any such deductions, in whole
or in part, under this subsection (b), if the Company does not recover
the full amount owed to it by such Participant, calculated as set forth
above, such Participant agrees to pay the unpaid balance to the Company
upon demand. Such Participant may be released from this obligation to
repay the Company only if the Committee, in its sole discretion,
determines that his action is not detrimental to the best interests of
the Company or any of its Subsidiaries of affiliates.
The provisions of this subsection (b) will not be held invalid
or unenforceable because of the specified period of time within which
such provisions are operative, but the maximum period of time during
which such provisions are operative is subject to
20
<PAGE> 25
determination by a final judgment of any court that has jurisdiction
over the parties and subject matter.
6.4. CLAIMS PROCEDURE. When a benefit is due, the Member or
Beneficiary, as applicable (the "claimant") should submit his claim to the
person or office designated by the Committee to receive claims. Under normal
circumstances, a final decision will be made as to a claim within 90 days after
receipt of the claim. If the Committee notifies the claimant in writing during
the initial 90 day period, it may extend the claims period up to 180 days after
the initial receipt of the claim. The written notice must describe the
circumstances necessitating the extension and the anticipated date for the final
decision. If a claim is denied during the claims period, the Committee must
notify the claimant in writing. The notification must include the specific
reasons for the denial, the Plan provisions upon which the denial is based, and
the claims review procedure. If no action is taken during the claims period, the
claim is treated as if it were denied on the last day of the claims period.
If a claimant's claim is denied and he wants a review of such denial,
he must apply to the Committee in writing. That application may include any
comment or argument the claimant wants to make. The claimant may either
represent himself or appoint a representative, either of whom has the right to
inspect all documents pertaining to the claim and its denial. The Committee may
schedule any meeting with the claimant or his representative that it finds
necessary or appropriate to complete its review.
The request for review must be filed within 90 days after the claim
denial. If it is not, the denial becomes final. If a timely request for review
is made, the Committee must make its decision, under normal circumstances,
within 60 days after the receipt of the request for review. However, if the
Committee notifies the claimant prior to the expiration of the initial 60 day
21
<PAGE> 26
review period, it may extend the period of review up to 120 days following the
initial receipt of the request for a review. All decisions of the Committee must
be in writing and must include the specific reasons for its action and the Plan
provisions on which its decision is based. If a decision is not given to the
claimant within the review period, the claim is treated as if it were denied on
the last day of the review period.
6.5. PROVISIONS APPLICABLE TO A PARTICIPANT. The provisions of the Plan
applicable to any Participant hereunder will be those provisions that are in
effect on the date of the Participant's termination of employment with the
Company unless a subsequent amendment of the Plan by its express terms (but
subject to Section 3.1(a)) applies to Participants who have previously
terminated employment with the Company.
22
<PAGE> 27
ARTICLE VII.
ADMINISTRATION
7.1. COMMITTEE APPOINTMENT. The Committee will be the compensation
committee of the Company unless the Board of Directors appoints other
individuals. Each Committee member will serve until his or her resignation or
removal. The Board of Directors will have the sole discretion to remove any one
or more Committee members and appoint one or more replacement or additional
Committee members from time to time.
7.2. COMMITTEE ORGANIZATION AND VOTING. The Committee will select from
among its members a chairman who will preside at all of its meetings and will
select a secretary without regard to whether that person is a member of the
Committee. The secretary will keep all records, documents and data pertaining to
the Committee's supervision and administration of this Plan. A majority of the
members of the Committee will constitute a quorum for the transaction of
business and the vote of a majority of the members present at any meeting will
decide any question brought before the meeting. In addition, the Committee may
decide any question by vote, taken without a meeting, of a majority of its
members. A member of the Committee who is also a Participant will not vote or
act on any matter relating solely to himself.
7.3. POWERS OF THE COMMITTEE. The Committee will have the exclusive
responsibility for the general administration of this Plan according to the
terms and provisions of this Plan and will have all powers necessary to
accomplish those purposes, including, but not by way of limitation, the complete
discretionary right, power and authority:
(a) to make rules and regulations for the administration of
this Plan;
23
<PAGE> 28
(b) to select all Participants in this Plan (including the
eligibility of any Participant to receive cost-of-living adjustments
pursuant to Sections 3.1(b) and/or 3.1 (c));
(c) to determine the monthly amount of a Retirement Benefit,
Accrued Benefit, death benefit or any other benefit to which a
Participant (or Beneficiary) is entitled under the Plan;
(d) to construe all terms, provisions, conditions and
limitations of this Plan;
(e) to correct any defect, supply any omission or reconcile
any inconsistency that may appear in this Plan in the manner and to the
extent it deems expedient to carry this Plan into effect for the
greatest benefit of all parties at interest;
(f) to determine all controversies relating to the
administration of this Plan, including but not limited to:
(1) differences of opinion arising between the
Company and a Participant except when the difference of
opinion relates to the entitlement to, the amount of, or the
method or timing of payment of, a benefit as a result of a
Change of Control; and
(2) any question it deems advisable to determine in
order to promote the uniform administration of this Plan for
the benefit of all parties at interest; and
(g) to delegate by written notice those clerical and
recordation duties of the Committee, as it deems necessary or advisable
for the proper and efficient administration of this Plan.
7.4. COMMITTEE DISCRETION. The Committee in exercising any power or
authority granted under this Plan or in making any determination under this Plan
will perform or refrain
24
<PAGE> 29
from performing those acts using its sole discretion and judgment. Any decision
made by the Committee or any refraining to act or any act taken by the Committee
in good faith will be final and binding on all parties. The Committee's decision
will never be subject to de novo review. Notwithstanding the foregoing, the
Committee's decisions in refraining to act or acting will be subject to judicial
review for benefits resulting from a Change of Control.
7.5. REIMBURSEMENT OF EXPENSES AND INDEMNIFICATION. The members of the
Committee will serve without compensation for their services but will be
reimbursed by the Company for all expenses properly and actually incurred in the
performance of their duties under this Plan. The Company will indemnify the
Committee members against, and hold the Committee members harmless from, any and
all loss, damage, penalty, liability, cost and expense (including, without
limitation, attorneys' fees and disbursements) that may be incurred by, imposed
upon, or asserted against the Committee members by reason of any claim,
regulatory proceeding, or litigation arising from any act done or omitted to be
done by any member of the Committee with respect to the Plan, excepting only
losses, claims, damages, liabilities, costs and expenses arising from the
Committee member's bad faith or gross negligence. Each affected member of the
Committee will promptly notify the Company of any claim, action or proceeding
for which he may seek indemnification. The indemnification of Committee members
provided for in this Section will survive the resignation or removal of the
Committee member and the termination of the Plan.
25
<PAGE> 30
ARTICLE VIII.
AMENDMENT AND/OR TERMINATION
8.1. AMENDMENT OR TERMINATION OF THE PLAN. Subject to Section 8.2, the
Board of Directors may amend or terminate this Plan at any time by an instrument
in writing.
8.2. NO RETROACTIVE EFFECT ON ACCRUED BENEFITS. No amendment or
termination of this Plan will affect the rights of any Participant to the
Accrued Benefit provided in Article III previously accrued by the Participant,
or to the death benefit provided to his Beneficiary in Article V, if the
Participant completes the requirements for the benefit, and no amendment hereto
will change, without his written consent, a Participant's rights under any
provision relating to a Change of Control after a Change of Control has
occurred.
26
<PAGE> 31
ARTICLE IX.
FUNDING
9.1. PAYMENTS UNDER THIS PLAN ARE THE OBLIGATION OF THE COMPANY. The
Company will pay the benefits due to the Participants and Beneficiaries under
this Plan.
9.2. PLAN MAY BE FUNDED THROUGH A RABBI TRUST. It is specifically
recognized by both the Company and the Participants that the Company may, but is
not required to, contribute any amount it finds desirable to a trust established
to accumulate assets sufficient to fund the obligations of the Company under
this Plan. However, under all circumstances, the rights of the Participants to
the assets held in the trust will be no greater than the rights expressed in
this agreement. Nothing contained in the trust agreement that creates the
funding trust will constitute a guarantee by the Company that assets of the
Company transferred to the trust will be sufficient to pay any benefits under
this Plan or would place the Participant in a secured position ahead of general
creditors in the event that the Company become insolvent or bankrupt. Any trust
agreement that is executed to fund the Company's obligations under this Plan
must specifically set out these principles so it is clear in that trust
agreement that the Participants in this Plan are only unsecured general
creditors of the Company in relation to their benefits under this Plan.
9.3. PARTICIPANTS MUST RELY ONLY ON GENERAL CREDIT OF THE COMPANY. It
is also specifically recognized by both the Company and the Participants that
this Plan is only a general corporate commitment and that each Participant must
rely upon the general credit of the Company for the fulfillment of its
obligations under this Plan. Under all circumstances the rights of Participants
to any asset held by the Company will be no greater than the rights expressed in
this Plan. Nothing contained in this Plan will constitute a guarantee by the
Company that the assets of the Company will be sufficient to pay any benefits
under this Plan or would place the
27
<PAGE> 32
Participant in a secured position ahead of general unsecured creditors of the
Company. Though the Company may establish or become a signatory to a rabbi
trust, as indicated in Section 9.2, to accumulate assets to fulfill its
obligations, the Plan and that trust will not create any lien, claim,
encumbrance, right, title or other interest of any kind in any Participant in
any asset held by the Company, contributed to the trust or otherwise designated
to be used for payment of any of its obligations created in this Plan. No
specific asset of the Company has been or will be set aside, or will in any way
be transferred to the trust or will be pledged for the performance of the
Company's obligations under this Plan in any way that would remove the asset
from being subject to the creditors of the Company.
28
<PAGE> 33
ARTICLE X.
MISCELLANEOUS
10.1. RESPONSIBILITY FOR DISTRIBUTIONS AND WITHHOLDING OF TAXES. The
Committee will furnish to the Company information concerning the amount and form
of distribution to any Participant entitled to a distribution so that the
Company may make or cause any rabbi trust established to make the distribution
required. The Company[?] will also calculate the deductions from the amount of
the benefit paid under this Plan for any taxes required to be withheld by
federal, state or local government and will cause them to be withheld.
10.2. LIMITATION OF RIGHTS. Nothing in this Plan will be construed:
(a) to give a Participant any right with respect to any
benefit except in accordance with the terms of this Plan;
(b) to limit in any way the right of the Company to terminate
a Participant's employment with the Company at any time;
(c) to evidence any agreement or understanding, expressed or
implied, that the Company will employ a Participant in any particular
position or for any particular remuneration; or
(d) to give a Participant or any other person claiming through
him any interest or right under this Plan other than that of any
unsecured general creditor of the Company.
10.3. DISTRIBUTIONS TO INCOMPETENTS OR MINORS. If a Participant becomes
incompetent or designates a Beneficiary who is a minor or incompetent, the
Committee is authorized to pay the funds due to the parent of the minor or to
the guardian of the minor or incompetent or to apply those funds for the benefit
of the minor or incompetent in any manner the Committee determines in its sole
discretion. The application of those funds under this provision will relieve
29
<PAGE> 34
the Company of any further liability to the Participant or his Beneficiary to
the extent of the application of those funds.
10.4. NONALIENATION OF BENEFITS. No right or benefit provided in this
Plan will be transferable by the Participant except, upon his death, to a named
Beneficiary as provided in this Plan. No right or benefit under this Plan will
be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or
charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber,
or charge the same will be void. No right or benefit under this Plan will in any
manner be liable for or subject to any debts, contracts, liabilities or torts of
the person entitled to the benefit. If any Participant or any Beneficiary
becomes bankrupt or attempts to anticipate, alienate, sell, assign, pledge,
encumber or charge any right or benefit under this Plan, that right or benefit
will, in the sole discretion of the Committee, cease. In that event, the
Committee may have the Company hold or apply the right or benefit or any part of
it to the benefit of the Participant or Beneficiary, his or her spouse, children
or other dependents or any of them in any manner and in any proportion the
Committee believes to be proper in its sole and absolute discretion, but is not
required to do so.
10.5. RELIANCE UPON INFORMATION. The Committee will not be liable for
any decision or action taken in good faith in connection with the administration
of this Plan. Without limiting the generality of the foregoing, any decision or
action taken by the Committee when it relies upon information supplied it by any
officer of the Company, the Company's legal counsel, the Company's actuary, the
Company's independent accountants or other advisors in connection with the
administration of this Plan will be deemed to have been taken in good faith.
30
<PAGE> 35
10.6. SEVERABILITY. If any term, provision, covenant or condition of
this Plan is held to be invalid, void or otherwise unenforceable, the rest of
the Plan will remain in full force and effect and will in no way be affected,
impaired or invalidated.
10.7. SURVIVAL OF TERMS. The provisions of this Plan will bind the
successors of the Company.
10.8. NOTICE. Any notice or filing required or permitted to be given to
the Committee or a Participant will be sufficient if in writing and hand
delivered or sent by U.S. mail to the principal office of the Company or to the
residential mailing address of the Participant. Notice will be deemed to be
given as of the date of hand delivery or if delivery is by mail, as of the date
shown on the postmark.
10.9. GENDER AND NUMBER. If the context requires it, words of one
gender when used in this Plan will include the other genders, and words used in
the singular or plural will include the other.
10.10. GOVERNING LAW. The Plan will be construed, administered and
governed in all respects by the laws of the State of Texas.
IN WITNESS WHEREOF, the Company has executed this amended and restated
Plan document as of this 23rd day of November, 1998, effective as of January 1,
1998.
SERVICE CORPORATION INTERNATIONAL
By: /s/ Jack L. Stoner
-------------------------------------------
Printed Name: Jack L. Stoner
---------------------------------
31
<PAGE> 1
EXHIBIT 12.1
SERVICE CORPORATION INTERNATIONAL
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31
1998 1997
- -------------------------------------------------------------------------------
(THOUSANDS, EXCEPT RATIO AMOUNTS)
<S> <C> <C>
Pretax income from continuing operations ..... $ 518,527 $ 579,973
Undistributed income of less than 50%
owned equity investees ...................... (7,652) (4,267)
Minority interest in income of majority owned
subsidiaries with fixed charges ............. 818 124
Add fixed charges as adjusted (from below) ... 207,475 170,278
---------- ----------
$ 719,168 $ 746,108
---------- ----------
Fixed charges:
Interest expense:
Corporate .................................. $ 177,436 $ 135,560
Financial services ......................... 13,695 8,015
Capitalized ................................ 3,028 3,787
Amortization of debt cost .................... (383) 1,160
1/3 of rental expense ........................ 16,727 21,161
Dividends on convertible preferred stock
of subsidiary ............................... 0 4,382
---------- ----------
Fixed charges ................................ 210,503 174,065
Less: Capitalized interest ................... (3,028) (3,787)
---------- ----------
Fixed charges as adjusted .................... $ 207,475 $ 170,278
========== ==========
Ratio (earnings divided by fixed charges) .... 3.42 4.29
========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Company
<TABLE>
<CAPTION>
March 19, 1999
OWNERSHIP
<S> <C>
ALABAMA
Equity Corporation International (DE Corp.) Alabama subsidiaries
ECI Cemetery Services, Inc. (DE Corp.) Alabama subsidiaries
ECI Alabama Cemetery Services, Inc..................................100%
ECI Services, Inc. (DE Corp.) Alabama subsidiaries
ECI Agency, Inc.....................................................100%
ECI Alabama Services, Inc...........................................100%
SCI Funeral Services, Inc. (Iowa Corp) Alabama subsidiaries
SCI Alabama Funeral Services, Inc............................................100%
EC Land Company, Inc................................................100%
Memory Chapel Funeral Homes, Inc....................................100%
ALASKA
SCI Funeral Services, Inc. (Iowa Corp.) Alaska subsidiaries
SCI Alaska Funeral Services, Inc.............................................100%
ARIZONA
Equity Corporation International (DE Corp.) Arizona subsidiaries
ECI Services, Inc. (DE Corp.) Arizona subsidiaries
ECI Services of Arizona, Inc. (DE Corp.) Arizona subsidiaries
Memory Chapel, Inc.........................................100%
Parker Funeral Home, Inc...................................100%
SCI Funeral Services, Inc. (Iowa Corp.) Arizona subsidiaries
National Cremation Society, Inc..............................................100%
SCI Arizona Funeral Services, Inc............................................100%
Green Acres Mortuaries and Cemeteries, Inc..........................100%
Redwood Memorial Gardens, Inc.......................................100%
ARKANSAS
Equity Corporation International (DE Corp.) Arkansas subsidiaries
ECI Services, Inc. (DE Corp.) Arkansas subsidiaries
ECI Services of Arkansas, Inc. (DE Corp.) Arkansas subsidiaries
Huson Funeral Home, Inc....................................100%
Nelson Acquisition Company.................................100%
Steele Funeral Home, Inc...................................100%
SCI Funeral Services, Inc. (Iowa Corp) Arkansas subsidiaries
SCI Arkansas Funeral Services, Inc...........................................100%
CALIFORNIA
Provident Services, Inc. (DE Corp.)California subsidiary
Provident Credit of California, Inc..........................................100%
SCI Funeral Services, Inc. (Iowa Corp.) California subsidiaries
Hong Kong Funeral Homes......................................................100%
International Funeral Parlours...............................................100%
SCI California Funeral Services, Inc.........................................100%
CWFD, Inc...........................................................100%
Ellis-Olson Mortuary................................................100%
Eric H. Ramsey Enterprises, Inc.....................................100%
Lakeside Memorial Lawn..............................................100%
Mount Vernon Memorial Park..........................................100%
Oak Hill Improvement Company........................................100%
Pierce Brothers.....................................................100%
SCI Southern California Region, Inc.................................100%
World Funeral Home..................................................100%
COLORADO
SCI Funeral Services, Inc. (Iowa Corp.) Colorado subsidiaries
SCI Colorado Funeral Services, Inc...........................................100%
SCI Western Division, Inc...........................................100%
</TABLE>
1
<PAGE> 2
<TABLE>
<S> <C>
CONNECTICUT
SCI Funeral Services, Inc. (Iowa Corp.) Connecticut subsidiaries
SCI Connecticut Funeral Services, Inc........................................100%
Fulton-Theroux Funeral Service, Inc.................................100%
DELAWARE
Christian Funeral Services, Inc.......................................................100%
Equity Corporation International......................................................100%
ECI Capital Corporation......................................................100%
ECI Cemetery Services, Inc...................................................100%
ECI Cemetery Management Services, Inc...............................100%
ECI Cemetery Services of Arkansas, Inc..............................100%
ECI Cemetery Services of California, Inc............................100%
ECI Cemetery Services of Illinois, Inc..............................100%
ECI Cemetery Services of Iowa, Inc..................................100%
ECI Cemetery Services of Maryland, Inc..............................100%
ECI Cemetery Services of Missouri, Inc..............................100%
ECI Cemetery Services of New Mexico, Inc............................100%
ECI Cemetery Services of Ohio, Inc..................................100%
ECI Cemetery Services of Oklahoma, Inc..............................100%
ECI-Sunny Lane, Inc........................................100%
ECI Cemetery Services of Oregon, Inc................................100%
Lake View Management Company, Inc...................................100%
ECI Services, Inc............................................................100%
ECI Alabama Services, Inc. (AL Corp.) Delaware subsidiaries
ECI-Chapel Hill, Inc.......................................100%
ECI-Carr Funeral Home, Inc...........................................49%
ECI-Fay McCabe Funeral Home, Inc.....................................49%
ECI-Henderson Funeral Home, Inc......................................49%
ECI Management Services, Inc........................................100%
ECI-Rapino Memorial Home, Inc........................................49%
ECI-San Jose, Inc...................................................100%
ECI Services of Arizona, Inc........................................100%
ECI Services of Arkansas, Inc.......................................100%
ECI Services of California, Inc.....................................100%
ECI Services of Connecticut, Inc....................................100%
ECI Services of Florida, Inc........................................100%
ECI Services of Georgia, Inc........................................100%
ECI Services of Illinois, Inc.......................................100%
ECI Services of Indiana, Inc........................................100%
ECI Services of Iowa, Inc...........................................100%
ECI Services of Louisiana, Inc......................................100%
ECI Services of Maine, Inc..........................................100%
ECI Services of Massachusetts, Inc..................................100%
ECI Services of Minnesota, Inc......................................100%
ECI Services of Mississippi, Inc....................................100%
ECI Services of Missouri, Inc.......................................100%
ECI Services of New Hampshire, Inc..................................100%
ECI Services of New Jersey, Inc.....................................100%
ECI Services of New Mexico, Inc.....................................100%
ECI Services of New York, Inc.......................................100%
ECI-Conway, Inc............................................100%
ECI Services of North Carolina, Inc.................................100%
ECI Services of North Dakota, Inc...................................100%
ECI Services of Ohio, Inc...........................................100%
ECI Services of Oklahoma, Inc.......................................100%
ECI Services of Pennsylvania, Inc...................................100%
ECI Services of South Carolina, Inc.................................100%
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
ECI Services of South Dakota, Inc...................................100%
ECI Services of Texas, Inc..........................................100%
ECI Services of Vermont, Inc........................................100%
ECI Services of Virginia, Inc.......................................100%
ECI Services of West Virginia, Inc..................................100%
ECI Services of Wisconsin, Inc......................................100%
Salvatore Air Transportation Corp.....................................................100%
SCI Aviation, Inc.....................................................................100%
SCI Executive Services, Inc...........................................................100%
SCI Finance Management Inc............................................................100%
SCI Financial Services, Inc...........................................................100%
American Datasource Inc......................................................100%
OSC, Inc.....................................................................100%
Provident Services, Inc......................................................100%
Provident Credit Corp...............................................100%
Purple Cross Insurance Agency................................................100%
SCI Investment Services, Inc.................................................100%
SCI Funeral Services, Inc. (Iowa Corp.) Delaware subsidiaries
First Memorial Funeral Services, Inc.........................................100%
Gibraltar Mausoleum Construction Company, Inc................................100%
IFC-Boyertown, Inc...........................................................100%
Memorial Guardian Plans, Inc.................................................100%
Rose Hill Securities Company.................................................100%
SCI Funeral Services, Inc....................................................100%
SCI Georgia Funeral Services, Inc............................................100%
SCI International Services, Inc..............................................100%
Kenyon International Emergency Services, Inc........................100%
SCI Missouri Funeral Services, Inc. (MO Corp.)Delaware subsidiaries
IFC-York, Inc.......................................................100%
SCIT Holdings, Inc...........................................................100%
SCI Texas Funeral Services, Inc. (TX Corp.) DE subsidiaries
PSI Funding, Inc...........................................100%
SCI Iowa Funeral Services, Inc. (IA Corp.) Delaware subsidiaries
SCI Iowa Finance Company............................................100%
SCI Pennsylvania Funeral Services, Inc. (PA Corp.) Delaware subsidiaries
Gabauer Funeral Home, Inc...........................................100%
SCI International Limited.............................................................100%
SCI Capital Holdings, Inc.....................................................70%
SCI Financing Corporation....................................................100%
SCI GP1, LLC-(DE limited liability company)..................................100%
SCI GP2, LLC-(DE limited liability company)..................................100%
TRA Acquisition Corporation..................................................100%
SCI Special, Inc......................................................................100%
SCI Capital Corporation......................................................100%
Investment Capital Corporation (Texas Corp.) Delaware subsidiaries
IFC-YP, Inc................................................100%
SCI Management Corporation...................................................100%
International Funeral Services, Inc.................................100%
SCI European Aviation, Inc..........................................100%
SCI Management Finance Company......................................100%
Sharon Acquisition Corp...............................................................100%
DISTRICT OF COLUMBIA
SCI Funeral Services, Inc. (Iowa Corp.) DC subsidiaries
Witzke Funeral Homes, Inc....................................................100%
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C>
FLORIDA
Equity Corporation International (DE Corp.) Florida subsidiaries
ECI Cemetery Services, Inc. (DE Corp.) Florida subsidiaries
ECI Cemetery Services of Florida, Inc. (GA Corp.) FL subsidiaries
Beverly Hills Memorial Gardens, Inc........................100%
ECI Services, Inc. (DE Corp.) Florida subsidiaries
ECI Services of Florida, Inc. (DE Corp.) Florida subsidiaries
San Jose Funeral Homes, Inc................................100%
Preferred Funeral Services, Inc. (GA Corp.) Florida subsidiaries
Marianna Chapel Funeral Home, Inc............................................100%
SCI Funeral Services, Inc. (Iowa Corp) Florida subsidiaries
SCI Funeral Services of Florida, Inc.........................................100%
Dorsey Funeral Home, Inc............................................100%
FM Cemetery, Inc....................................................100%
Fountainhead Memorial Park, Inc.....................................100%
Gibraltar Mausoleum of Florida, Inc.................................100%
Hillsboro Memorial Gardens, Inc.....................................100%
Lakeview Memorial Gardens, Inc......................................100%
Memorial Plans, Inc.................................................100%
GEORGIA
Equity Corporation International (DE Corp.) Georgia subsidiaries
ECI Cemetery Services, Inc. (DE Corp.) Georgia subsidiaries
ECI Cemetery Services of Florida, Inc...............................100%
ECI Cemetery Services of Georgia, Inc...............................100%
ECI Cemetery Services of North Carolina, Inc........................100%
ECI Cemetery Services of South Carolina, Inc........................100%
ECI Services, Inc. (DE Corp.) Georgia subsidiaries
ECI Agency, Inc.....................................................100%
ECI Services of Georgia, Inc. (DE Corp.) Georgia subsidiaries
Ryan Funeral Home, Inc.....................................100%
Vance Memorial Chapel, Inc.................................100%
Preferred Funeral Services, Inc.......................................................100%
All Southern Vault Company...................................................100%
Berkshire Land Company.......................................................100%
Boone/Lipsey Funeral Home, Inc...............................................100%
Brown's Funeral Home, Inc....................................................100%
Crosby Funeral Home, Inc.....................................................100%
Edwards Funeral Home, Inc....................................................100%
GMG Holdings, Inc............................................................100%
Goddard Acquisition, Inc.....................................................100%
Ivie Funeral Home of Commerce, Inc...........................................100%
Maxwell-Miller Funeral Home, Inc.............................................100%
Music Acquisition, Inc.......................................................100%
Pinelawn Memorial Gardens, Inc...............................................100%
Rainer-Carmichael Funeral Home, Inc..........................................100%
R. T. Patterson Funeral Home, Inc............................................100%
Sherrell Acquisition Corp....................................................100%
Simmons Funeral Home, Inc....................................................100%
Sumner Acquisition, Inc......................................................100%
Tift Memorial Gardens, Inc...................................................100%
Tifton Acquisition, Inc......................................................100%
Wainwright & Parlor Funeral Home, Inc........................................100%
Watson-Mathews Funeral Home, Inc.............................................100%
Woodlawn Memorial Gardens, Inc...............................................100%
SCI Funeral Services, Inc. (Iowa corp.) Georgia subsidiaries
SCI Georgia Funeral Services, Inc. (Delaware Corp.) Georgia subsidiaries
Clark Funeral Home, Inc.............................................100%
</TABLE>
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Ingleside Memorial Chapel, Inc......................................100%
Memorial Gardens of Rome, Inc.......................................100%
SCI Georgia Land, Inc...............................................100%
SCI Southern Division, Inc..........................................100%
HAWAII
SCI Funeral Services, Inc. (Iowa Corp.) Hawaii subsidiaries
SCI Hawaii Funeral Services, Inc.............................................100%
*Hawaiian Memorial Park Cemetery..................................... -0-
Garden Life Plan, Ltd...................................... 50%
Hawaiian Memorial Life Plan, Ltd...........................100%
IDAHO
NO SUBSIDIARIES
ILLINOIS
Equity Corporation International (DE Corp.) Illinois subsidiaries
ECI Cemetery Services, Inc. (DE Corp.) Illinois subsidiaries
ECI Cemetery Services of Illinois, Inc. (DE Corp.) IL subsidiaries
Lake View Memorial Gardens, Inc............................100%
Lake View Funeral Home, Inc........................100%
ECI Services, Inc. (DE Corp.) Illinois subsidiaries
ECI Agency, Inc.....................................................100%
ECI Services of Illinois, Inc. (DE Corp.) Illinois subsidiaries
Marengo-Union Funeral Home, Ltd............................100%
Querhammer Funeral Home, Ltd...............................100%
SCI Funeral Services, Inc. (Iowa Corp.) Illinois subsidiaries
SCI Illinois Services, Inc...................................................100%
Bloomington Park Hill Cemetery Company, Inc.........................100%
Chris J. Balodimas, Inc.............................................100%
IFS Illinois, Inc...................................................100%
John V. May Funeral Home, Inc.......................................100%
Kolbus Funeral Home, Inc............................................100%
Memory Gardens Cemetery, Inc........................................100%
Vault Company of Illinois, Inc......................................100%
INDIANA
Equity Corporation International (DE Corp.) Indiana subsidiaries
ECI Services, Inc. (DE Corp.) Indiana subsidiaries
ECI Services of Indiana, Inc. (DE Corp.) Indiana subsidiaries
J & J Enterprises, Inc.....................................100%
Little & Sons, Inc.........................................100%
Myers Funeral Service, Inc.................................100%
Alexander Funeral Homes, Incorporated.................................................100%
SCI Funeral Services, Inc. (Iowa Corp.) Indiana subsidiaries
SCI Indiana Funeral Services, Inc............................................100%
Alpha Services Corporation..........................................100%
George A. Kraft, Incorporated.......................................100%
Graceland Memorial Park Corporation........................100%
Gibraltar Mausoleum of Indiana, Inc.................................100%
Gibraltar Services, Inc.............................................100%
Gold Crusader Insurance Agency, Inc.................................100%
Indiana Cemetery Services, Inc......................................100%
Park Hill Development Co., Inc......................................100%
Roselawn Memorial Association, Inc..................................100%
IOWA
Equity Corporation International (DE Corp.) Iowa subsidiaries
ECI Services, Inc. (DE Corp.) Iowa subsidiaries
ECI Services of Iowa, Inc. (DE Corp.) Iowa subsidiaries
Willim Funeral Homes, Ltd..................................100%
SCI Funeral Services, Inc.............................................................100%
</TABLE>
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Bunker's Eden Vale, Inc......................................................100%
SCI Iowa Funeral Services, Inc...............................................100%
Davenport Memorial Park Inc.........................................100%
KANSAS
SCI Funeral Services, Inc. (Iowa Corp.) Kansas subsidiaries
SCI Kansas Funeral Services, Inc.............................................100%
Services of Kansas, Inc......................................................100%
KENTUCKY
SCI Funeral Services, Inc. (Iowa Corp) Kentucky subsidiaries
SCI Kentucky Funeral Services, Inc............................................99%
Highland Memory Gardens, Inc........................................100%
Kentucky Cemetery Services, Inc.....................................100%
Kentucky Funeral Services, Inc......................................100%
LOUISIANA
Equity Corporation International (DE Corp.) Louisiana subsidiaries
ECI Services, Inc. (DE Corp.) Louisiana subsidiaries
ECI Services of Louisiana, Inc. (DE Corp.) Louisiana subsidiaries
Sibille Funeral Home, Inc..................................100%
SCI Funeral Services, Inc. (Iowa Corp) Louisiana subsidiaries
SCI Louisiana Funeral Services, Inc..........................................100%
MAINE
Equity Corporation International (DE Corp.) Maine subsidiaries
ECI Services, Inc. (DE Corp.) Maine subsidiaries
ECI Services of Maine, Inc. (DE Corp.) Maine subsidiaries
Birmingham Funeral Home....................................100%
J. W. Raymond & Son Funeral Home...........................100%
SCI Funeral Services, Inc. (Iowa Corp) Maine subsidiaries
SCI Maine Funeral Services, Inc..............................................100%
MARYLAND
SCI Funeral Services, Inc. (Iowa Corp.) Maryland subsidiaries
HFH, Inc.....................................................................100%
Hubbard Funeral Home, Inc...........................................100%
Bradley-Ashton-Dabrowski-Matthews Funeral Home, Inc.................100%
Charles S. Zeiler & Son, Inc........................................100%
Danzansky-Goldberg Memorial Chapels, Inc............................100%
Edward Sagel Funeral Direction, Inc.................................100%
Fleck Funeral Home, Inc.............................................100%
Gary L. Kaufman Funeral Home at
Meadowridge Memorial Park, Inc.............................100%
Gary L. Kaufman Funeral Home of Elkridge, Inc.......................100%
Gary L. Kaufman Funeral Home Southwest, Inc.........................100%
John C. Miller, Incorporated........................................100%
Lemmon Funeral Home of Dulaney Valley, Inc..........................100%
Loring Byers Funeral Directors, Inc.................................100%
Moran-Ashton-Dabrowski Funeral Home, Inc............................100%
Sterling-Ashton-Schwab Funeral Home, Inc............................100%
The Dippel Funeral Homes, Incorporated..............................100%
Witzke Funeral Home of Catonsville, Inc.............................100%
Witzke, Inc..............................................55.17%
SCI Maryland Funeral Services, Inc...........................................100%
Cedar Lawn Memorial Park, Inc.......................................100%
George Washington Cemetery Company, Inc.............................100%
Holly Hill Memorial Gardens, Inc....................................100%
MASSACHUSETTS
Equity Corporation International (DE Corp.) Massachusetts subsidiaries
ECI Services, Inc. (DE Corp.) Massachusetts subsidiaries
</TABLE>
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ECI Life Insurance Agency, Inc......................................100%
ECI-Fay McCabe Funeral Home, Inc. (DE Corp) MA subsidiaries
Fay-McCabe Funeral Home, Inc...............................100%
ECI-Henderson Funeral Home, Inc. (DE Corp) MA subsidiaries
J.E. Henderson Co., Inc....................................100%
ECI-Rapino Memorial Home, Inc. (DE Corp) MA subsidiaries
Tauro and Sons, Inc........................................100%
Tauro Family Enterprises, Inc..............................100%
Provident Services, Inc. (Delaware Corp.) Massachusetts subsidiaries
PSI Massachusetts, Inc.......................................................100%
SCI Funeral Services, Inc. (Iowa Corp.) Massachusetts subsidiaries
Affiliated Family Funeral Service, Inc.......................................100%
AFFS Boston, Inc.....................................................40%
AFFS North, Inc......................................................30%
AFFS Norwood, Inc....................................................40%
AFFS Quincy, Inc.....................................................40%
AFFS South Coast East, Inc...........................................40%
AFFS South Coast West, Inc...........................................10%
AFFS West, Inc.......................................................30%
Langone Funeral Home, Inc............................................40%
Messier Funeral Home, Inc............................................40%
Perlman Funeral Home, Inc............................................40%
Pillsbury Funeral Homes, Inc.........................................40%
Stanetsky Memorial Chapels, Inc......................................40%
Sullivan Funeral Homes, Inc..........................................40%
MICHIGAN
SCI Funeral Services, Inc. (Iowa Corp) Michigan subsidiaries
SCI Michigan Funeral Services, Inc...........................................100%
A.J. Desmond & Sons Funeral Directors, Inc.......................... 42%
Cemetery/Funeral Warehouse Services, Inc............................100%
Christian Memorial Funeral Center, Inc..............................100%
Diener Funeral Home, Inc............................................100%
Godhardt-Tomlinson Funeral Home, Inc................................100%
Memorial Land Company, Inc..........................................100%
Pixley Memorial Chapel, Inc.........................................100%
MINNESOTA
Equity Corporation International (DE Corp.) Minnesota subsidiaries
ECI Services, Inc. (DE Corp.) Minnesota subsidiaries
ECI Services of Minnesota, Inc. (DE Corp.) Minnesota subsidiaries
Bonnerup & Son Funeral Chapel, Inc.........................100%
SCI Funeral Services, Inc. (Iowa Corp.) Minnesota subsidiaries
SCI Minnesota Funeral Services, Inc..........................................100%
Crystal Lake Cemetery Association...................................100%
MISSISSIPPI
Equity Corporation International (DE Corp.) Mississippi subsidiaries
ECI Services, Inc. (DE Corp.) Mississippi subsidiaries
ECI Services of Mississippi, Inc.(DE Corp.) Mississippi subsidiaries
Nowell Funeral Homes, Inc..................................100%
Nowell Funeral Services, Inc. of Kosciusko,
Mississippi................................................100%
Nowell-Robinson Funeral Home, Inc..........................100%
Waters Funeral Home, Inc...................................100%
SCI Funeral Services, Inc. (Iowa Corp.) Mississippi subsidiaries
SCI Mississippi Funeral Services, Inc........................................100%
Olive Branch Funeral Home, Inc......................................100%
</TABLE>
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MISSOURI
Equity Corporation International (DE Corp.) Missouri subsidiaries
ECI Cemetery Services, Inc. (DE Corp.) Missouri subsidiaries
ECI Cemetery Services of Missouri, Inc. (DE Corp.) MO subsidiaries
The Oak Hill Realty Company................................100%
SCI Funeral Services, Inc. (Iowa Corp) Missouri subsidiaries
SCI Missouri Funeral Services, Inc...........................................100%
Memorial Guardian Plans, Inc........................................100%
MONTANA
NO SUBSIDIARIES
NEBRASKA
Equity Corporation International (DE Corp.) Nebraska subsidiaries
ECI Services, Inc. (DE Corp.) Nebraska subsidiaries
ECI Services of Nebraska, Inc.......................................100%
A.R.C. Corporation.........................................100%
Wherry Bros., Inc..........................................100%
SCI Funeral Services, Inc. (Iowa Corp) Nebraska subsidiaries
SCI Nebraska Funeral Services, Inc...........................................100%
NEVADA
SCI Funeral Services, Inc. (Iowa Corp) Nevada subsidiaries
Ross, Burke & Knobel Mortuary................................................100%
SCIT Holdings, Inc. (Delaware Corp.) Texas subsidiaries
SCI Texas Funeral Services, Inc. (Texas Corp) Nevada subsidiaries
SCI Texas Finance Company..................................100%
NEW HAMPSHIRE
Equity Corporation International (DE Corp.) New Hampshire subsidiaries
ECI Services, Inc. (DE Corp.) New Hampshire subsidiaries
ECI Services of New Hampshire, Inc. (DE Corp.) NH subsidiaries
Fleury & Patry Funeral Homes, Inc..........................100%
NEW JERSEY
Equity Corporation International (DE Corp.) New Jersey subsidiaries
ECI Services, Inc. (DE Corp.) New Jersey subsidiaries
ECI Services of New Jersey, Inc. (DE Corp.) NJ subsidiaries
H.T. Layton & Son Home for Funerals........................100%
SCI Funeral Services, Inc. (Iowa Corp) New Jersey subsidiaries
SCIT Holdings, Inc. (Delaware Corp.) New Jersey subsidiaries
SCI New Jersey Funeral Services, Inc................................100%
Blake-Doyle Funeral Home, Inc..............................100%
Garden State Crematory, Inc................................100%
Heritage Funeral Service, Inc..............................100%
Heritage Livery Service, Inc...............................100%
Wien & Wien, Inc...........................................100%
NEW MEXICO
Equity Corporation International (DE Corp.) New Mexico subsidiaries
ECI Services, Inc. (DE Corp.) New Mexico subsidiaries
ECI Agency, Inc.....................................................100%
SCI Funeral Services, Inc. (Iowa Corp) New Mexico subsidiaries
Memorial Guardian Plans, Inc. (DE Corp) New Mexico subsidiaries
Ensure Agency of New Mexico, Inc....................................100%
SCI New Mexico Funeral Services, Inc.........................................100%
Alameda Funeral Services, Inc.......................................100%
Lawn Haven Memorial Gardens, Inc....................................100%
NEW YORK
Casey Funeral Home, Inc...............................................................100%
Equity Corporation International (DE Corp.) New York subsidiaries
ECI Services, Inc. (DE Corp.) New York subsidiaries
ECI Services of New York, Inc. (DE Corp.) NY subsidiaries
</TABLE>
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Daniel J. Schaefer, Inc....................................100%
Eldan Holding Corp.........................................100%
James D. Barrett Funeral Home, Inc.........................100%
Light's Funeral Home, Inc..................................100%
North Shore Livery Service, Inc............................100%
The Kenneth Howe Funeral Home, Inc.........................100%
SCI Funeral Services, Inc. (Iowa Corp) New York subsidiaries
SCI Funeral Services of New York, Inc........................................100%
Burr Davis-Sharpe Funeral Homes, Inc................................100%
Chas. Peter Nagel Inc...............................................100%
I. J. Morris, Inc...................................................100%
Marsellus Casket Company, Inc.......................................100%
New York Funeral Chapels, Inc.......................................100%
SCI Eastern Division, Inc...........................................100%
Thomas M. Quinn & Sons, Inc..........................................80%
Werst Realty Co. Inc.......................................100%
Virginia Funeral Chapel, Inc........................................100%
Virginia Funeral Home, Inc..........................................100%
SCI Services of New York, Inc................................................100%
*The Acacia Park Cemetery Association, Inc..........................100%
NORTH CAROLINA
SCI Funeral Services, Inc. (Iowa Corp) North Carolina subsidiaries
SCI North Carolina Funeral Services, Inc.....................................100%
Piedmont Memorial Gardens, Inc......................................100%
West Lawn Memorial Park Incorporated................................100%
NORTH DAKOTA
SCI Funeral Services, Inc. (Iowa Corp) North Dakota subsidiaries
Memorial Guardian Plans, Inc.................................................100%
OHIO
Equity Corporation International (DE Corp.) Ohio subsidiaries
ECI Cemetery Services, Inc. (DE Corp.) Ohio subsidiaries
ECI Cemetery Services of Ohio, Inc. (DE Corp.) Ohio subsidiaries
Green Hills Management, Inc................................100%
ECI Services, Inc. (DE Corp.) Ohio subsidiaries
ECI Agency, Inc.....................................................100%
ECI Services of Ohio, Inc. (DE Corp.) Ohio subsidiaries
Allmon-Dugger and Hively Funeral Home, Inc.................100%
Gattozzi and Sons Funeral Homes, Inc.......................100%
Hahn Funeral Home, Inc.....................................100%
Halteman-Fett & Dyer Funeral Home, Inc.....................100%
SCI Funeral Services, Inc. (Iowa Corp.) Ohio subsidiaries
Memorial Guardian Plans, Inc. (Delaware Corp.) Ohio subsidiaries
Ensure Agency of Ohio, Inc..........................................100%
SCI Ohio Funeral Services, Inc................................................90%
Cemetery Sales & Consulting Company, Inc............................100%
Ciriello Funeral Home - Rose Hill Chapel, Inc.......................100%
Custer Funeral Home, Inc............................................100%
Ohio Cemetery Services, Inc.........................................100%
Pioneer of Ohio Insurance Agency, Inc...............................100%
Selby-Cole Funeral Home, Inc........................................100%
STE Acquisition Corp................................................100%
Sunset Trust Estate........................................100%
The Knollwood Cemetery Company......................................100%
OKLAHOMA
Equity Corporation International (DE Corp.) Oklahoma subsidiaries
ECI Services, Inc. (DE Corp.) Oklahoma subsidiaries
ECI Services of Oklahoma, Inc. (DE Corp.) Oklahoma subsidiaries
</TABLE>
9
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Altebaumer Funeral Homes, Inc..............................100%
Anadarko Enterprises, Inc..................................100%
Gragg & Gragg, Inc.........................................100%
Ray Smith Funeral Home, Inc................................100%
SCI Funeral Services, Inc. (Iowa Corp.) Oklahoma subsidiaries
AED, Inc.....................................................................100%
Memorial Gardens Association........................................100%
RMG Trust...........................................................100%
Resthaven Memory Gardens of Oklahoma City Trust............100%
Rose Hill Burial Park, a Trust.......................................90%
IFC-YP, Inc. (Delaware Corp) Oklahoma subsidiaries
IFC-Amedco, Inc.....................................................100%
SCI Oklahoma Funeral Services, Inc...........................................100%
Hillcrest Memorial Park Trust.......................................100%
Memorial Park Cemetery of Bartlesville, Oklahoma,
A Business Trust...........................................100%
Memory Gardens, Inc.................................................100%
Rose Hill Memorial Park Trust.......................................100%
SSP Limited Liability Company........................................50%
SSP Insurance Agency, Inc..................................100%
Sunset Memorial Park Cemetery Trust.................................100%
Woodland Memorial Company...........................................100%
Sentinel Security Plans, Inc.(VA Corp.) Oklahoma Subsidiaries
SSP Limited Liability Company........................................50%
OREGON
SCI Funeral Services, Inc. (Iowa Corp) Oregon subsidiaries
SCI Oregon Funeral Services, Inc.............................................100%
Uniservice Corporation..............................................100%
PENNSYLVANIA
Equity Corporation International (DE Corp.) Pennsylvania subsidiaries
ECI Services, Inc. (DE Corp.) Pennsylvania subsidiaries
ECI Services of Pennsylvania, Inc. (DE Corp.) PA subsidiaries
Mohney-Yargar Funeral Chapel, Inc.-(Old Corp.).............100%
SCI Funeral Services, Inc. (Iowa Corp) Pennsylvania subsidiaries
Memorial Guardian Plans, Inc.( Delaware Corp) Pennsylvania
subsidiaries
Ensure Agency of Pennsylvania, Inc..................................100%
SCI Pennsylvania Funeral Services, Inc.......................................100%
Auman Funeral Home, Inc.............................................100%
Edgewood Memorial Park Company......................................100%
Forest Lawn Cemeteries, Inc............................ 100%
Forest Lawn Gardens, Inc.............................................50%
Speer-Anthony Kaprive Funeral Home, Inc.....................50%
Funeral Corporation Pennsylvania....................................100%
Laughlin Funeral Home, Ltd.................................100%
Luther M. Kniffen, Inc.....................................100%
Rohland Funeral Home.......................................100%
Grandview Cemetery Association......................................100%
Harold B. Mulligan Co., Inc.........................................100%
Remembrance Services, Inc...........................................100%
Stephen R. Haky Funeral Home, Inc...................................100%
Theo. C. Auman, Inc.................................................100%
Auman's, Inc...............................................100%
Forest Hills Memorial Park, Inc............................100%
Francis F. Seidel, Inc.....................................100%
Memorial Services Planning Corporation.....................100%
</TABLE>
10
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RHODE ISLAND
SCI Funeral Services, Inc. (Iowa corp.) Rhode Island subsidiaries
SCI Rhode Island Funeral Services, Inc.......................................100%
Chai, Ltd...........................................................100%
CMQ Business Properties, Inc........................................100%
Mount Sinai Memorial Chapel, Inc....................................100%
The M-1985 Corp.....................................................100%
SOUTH CAROLINA
SCI Funeral Services, Inc. (Iowa corp.) South Carolina subsidiaries
SCI South Carolina Funeral Services, Inc.....................................100%
Greenville Vault Co., Inc...........................................100%
SOUTH DAKOTA
SCI Financial Services, Inc. (Delaware Corp) South Dakota subsidiaries
American Memorial Life Insurance Company.....................................100%
Rushmore National Life Insurance Company............................100%
TENNESSEE
Equity Corporation International (DE Corp.) Tennessee subsidiaries
ECI Cemetery Services, Inc. (DE Corp.) Tennessee subsidiaries
ECI Cemetery Services of Tennessee, Inc.............................100%
Erwin Cemetery Company.....................................100%
SCI Funeral Services, Inc. (Iowa Corp) Tennessee subsidiaries
SCI Tennessee Funeral Services, Inc..........................................100%
Collierville Funeral Home, Inc......................................100%
Horner Funeral Home, Inc............................................100%
Lily of the Valley, Inc.............................................100%
Lynnhurst Cemetery, Inc.............................................100%
Memorial Guardian Plans, Inc........................................100%
Memphis Memory Gardens, Inc.........................................100%
Sherwood Memorial Gardens, Inc......................................100%
Woodlawn East, Incorporated.........................................100%
Woodlawn Memorial Park, Inc.........................................100%
TEXAS
Equity Corporation International (DE Corp.) Texas subsidiaries
ECI Cemetery Services, Inc. (DE Corp.) Texas subsidiaries
ECI Cemetery Services of Texas, Inc.................................100%
Gardens of Memories Memorial Park of Lufkin, Inc...............100%
ECI Services, Inc. (DE Corp.) Texas subsidiaries
ECI Services of Texas, Inc. (DE Corp.) Texas subsidiaries
Gipson Funeral Home, Inc...................................100%
Equity Corporation International of Texas...........................100%
Huntsville Funeral Home, Inc.........................................95%
JPH Properties, Inc.................................................100%
Professional Funeral Associates, Inc................................100%
Vandiver Funeral Home, Inc...................................................100%
SCI Funeral Services, Inc. (Iowa Corp) Texas subsidiaries
SCIT Holdings, Inc. (Delaware Corp.) Texas subsidiaries
SCI Texas Funeral Services, Inc.....................................100%
EFH, Inc...................................................100%
Greenlawn Memorial Park, Inc...............................100%
SCI Holdings of Texas, Inc.................................100%
The New Rose Hill Memorial Park, Inc.......................100%
West Oaks Funeral Home, Inc................................100%
SCI International Limited (Delaware Corp.)
Service Corporation International PLC (UK Corp.)
SCI Capital LLC-(TX limited liability company)......................100%
SCI Special, Inc. (Delaware Corp.)
SCI Capital Corporation (Delaware Corp.) Texas subsidiaries
</TABLE>
11
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Great Lakes, Inc....................................................100%
Investment Capital Corporation......................................100%
UTAH
SCI Funeral Services, Inc. (Iowa Corp.) Utah subsidiaries
SCI Utah Funeral Services, Inc...............................................100%
Valley View Memorial Park...........................................100%
Wasatch Land and Improvement Company................................100%
Wasatch Lawn Cemetery Association...................................100%
Valley View Acquisition Corp..........................................................100%
VERMONT
Equity Corporation International (DE Corp.) Vermont subsidiaries
ECI Services, Inc. (DE Corp.) Vermont subsidiaries
ECI Life Insurance Agency, Inc......................................100%
VIRGINIA
Equity Corporation International (DE Corp.) Virginia subsidiaries
ECI Cemetery Services, Inc. (DE Corp.) Virginia subsidiaries
ECI Cemetery Services of Virginia, Inc..............................100%
Sunset Cemetery, Inc.......................................100%
SCI Funeral Services, Inc. (Iowa Corp.) Virginia subsidiaries
Memorial Guardian Plans, Inc. (Delaware Corp)
Sentinel Security Plans, Inc........................................100%
SCI Virginia Funeral Services, Inc...........................................100%
The Stonewall Memory Gardens Incorporated...........................100%
Wood Funeral Home, Inc..............................................100%
WASHINGTON
SCI Funeral Services, Inc. (Iowa Corp.) Washington subsidiaries
SCI Washington Funeral Services, Inc.........................................100%
Ball & Dodd Funeral Home, Inc.......................................100%
Meyer Funeral Home, Ltd.............................................100%
Oakwood Hill Cemetery & Columbarium, Inc............................100%
Piper-Morley Funeral Home, Inc......................................100%
WEST VIRGINIA
SCI Funeral Services, Inc. (Iowa Corp.) West Virginia subsidiaries
SCI West Virginia Funeral Services, Inc......................................100%
Gibraltar Mausoleum of West Virginia, Inc...........................100%
Rosedale Cemetery Company...........................................100%
Rosedale Funeral Chapel, Inc........................................100%
Sunset Services, Inc................................................100%
WISCONSIN
Equity Corporation International (DE Corp.) Wisconsin subsidiaries
ECI Services, Inc. (DE Corp.) Wisconsin subsidiaries
ECI Services of Wisconsin, Inc. (DE Corp.) Wisconsin subsidiaries
Fuller-Speckien Funeral Home, Inc..........................100%
Schramka Funeral Homes, Inc................................100%
Steinhaus Funeral Home, Inc................................100%
SCI Funeral Services, Inc. (Iowa Corp.) Wisconsin subsidiaries
Cemetery Services, Inc.......................................................100%
Appleton Highland Memorial Park, Inc................................100%
SCI Wisconsin Funeral Services, Inc..........................................100%
ATK Corporation.....................................................100%
WYOMING
SCI Funeral Services, Inc. (Iowa Corp.) Wyoming subsidiaries
Memorial Guardian Plans, Inc.................................................100%
</TABLE>
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CANADA
Equity Corporation International (DE Corp.) Ohio subsidiaries
ECI Capital Corporation (DE Corp.) Canadian subsidiaries
ECI Capital Corporation Limited..............................................100%
ECI Services of Canada Limited...............................................100%
SCI International Limited (Delaware Corp.) Canada subsidiaries
Service Corporation International (Canada) Limited...........................100%
1252973 Ontario Inc.-(Ontario).......................................100%
Westside Cemeteries Limited-(Ontario).......................100%
Westside Cemetery Holdings Limited-(ON)............100%
Andrews Community Funeral Centre Ltd.-(ON)..........................100%
Barthel Funeral Home Ltd.-(Ontario).................................100%
Brennen Funeral Home Ltd.- (Alberta)................................100%
Can Ensure Group, Inc.-(Federal)....................................100%
Carrothers Funeral Home Ltd.-(Ontario)..............................100%
Centre Funeraire Cote-des-Neiges Inc.-(Quebec).......................49%
CFCDN Holdings Inc.-(Quebec)........................................100%
Christensen Salmon Funeral Homes Ltd.-(Alberta).....................100%
Fairview Funeral & Cremation Services, Inc.-(Ontario)...............100%
H.A. Management Ltd.-(NB)...........................................100%
Maher Investments Ltd.-(NB)................................100%
Maher's Funeral Homes Ltd.-(NB)....................100%
Harmony Funeral Services, Inc.-(AB).................................100%
Hetherington and Deans Limited-(Ontario)............................100%
Hong Kong Funeral Homes B.C. Ltd-(British Columbia).................100%
Hulse & English Funeral Home Inc.-(Ontario).........................100%
Ingram Funeral Home Ltd.............................................100%
International Funeral Parlours B.C. Ltd-(B.C.)......................100%
Jewell Funeral Home Limited-(ON)....................................100%
Kaye Funeral Home Limited-(Ontario).................................100%
Lion Holdings, Limited-(NS).........................................100%
Fillmore & Whitman Funeral Home Limited-(NS)...............100%
Iverness Funeral Home Limited-(NS).........................100%
Patten Funeral Home (1987) Limited-(NS)....................100%
T. W. Curry Limited-(NS)...................................100%
Maison Funeraire Daniel Brunet Inc.-(Quebec)........................100%
McEvoy-Shields Funeral Homes Ltd.-(Ontario).........................100%
Needham Funeral Service Inc.-(Ontario)..............................100%
Placements Darche, Inc.-(Quebec)....................................100%
Rosar-Morrison Funeral Home Limited-(Ontario).......................100%
Rose Garden Chapels Ltd.-(Alberta)..................................100%
Barrhead Community Chapel-(Alberta)........................100%
Salmon Funeral Home Ltd.- (Alberta).................................100%
SCI Holdings Canada, Inc............................................100%
SCI Northwest Region, Inc. - (B.C.).................................100%
Swackhamer, Truscott, Brown and Dwyer Funeral Homes of
Hamilton Limited-(Ontario).................................100%
Dwyer Funeral Home Limited -(Ontario)......................100%
Sydney Crematorium Limited-(NS).....................................100%
The Markey Family Funeral Homes Limited-(Ontario)...................100%
The Thorpe Brothers Funeral Home Co. Limited-(Ontario)..............100%
Thompson (Aurora) Limited-(ON)......................................100%
William-Lee-Ingram Funeral Home, Inc................................100%
World Funeral Home B.C. Ltd.-(British Columbia).....................100%
Service Corporation International Capital Funding Ltd.-(AL)..................100%
611102 Saskatchewan Ltd......................................................100%
</TABLE>
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ARGENTINA
SCI International Limited (Delaware Corp.) Argentina subsidiaries
SCI Latin America Ltd. (Cayman Island Corp.) Argentina subsidiaries
***Jardine de Pilar SA....................................................100%
Casa Cordoba 1800 SA.......................................100%
TRA Acquisition Corp.(Delaware Corp.) Argentina subsidiaries
Jardin de Paz SA....................................................100%
Parque del Campanario SA...................................100%
Parque Lujan S.A.........................................33.33%
Parque Lujan S.A..................................................33.33%
Solaz S.A...........................................................100%
Parque Lujan S.A.........................................33.33%
*** 1 share of stock is owned by SCI Cayman II Ltd and 1 share of stock is owned
by Service Corporation International
AUSTRALIA
SCI International Limited (Delaware Corp.) Australia subsidiaries
Service Corporation International Australia Pty., Ltd........................100%
Australian Cremation Society Pty Limited............................100%
Kitleaf Pty Limited.................................................100%
Labor Funerals Contribution Fund Pty Limited........................100%
Memorial Guardian Plan Pty Limited..................................100%
Metro. Burial & Cremation Society Funeral Cont. Fund................100%
New South Wales Cremation Company Pty., Ltd.........................100%
Pine Grove Forest Lawn Funeral Benefit Co. Pty Limited..............100%
BELGIUM
SCI International Limited (Delaware Corp.) Belgium subsidiaries
SCI Continental Europe SA (French Corp.) Belgium subsidiaries
OGF-PFG SA (French Corp.)Belgium subsidiaries
Pompes Funebres Reunies SA..................................99%
B. & C. Nyutten B.V................................100%
Enterprises Dethier................................100%
Pompes Funebres Laloux.............................100%
Pompes Funebres Michel..............................10%
S.E.S.C.............................................35%
Societe de Cremation de Charleroi..........90%
Van Dooren.........................................100%
CAYMAN ISLANDS
SCI International Limited (Delaware Corp.) Cayman Island subsidiaries
SCI Latin America Ltd........................................................100%
SCI Cayman II Ltd...................................................100%
CHILE
SCI International Limited (Delaware Corp.) Chile subsidiaries
SCI Latin America Ltd. (Cayman Island Corp.) Chile subsidiaries
Service Corporation International Chile Limitada....................100%
Los Parques Administradora SA..............................100%
Los Parques SA.............................................100%
CZECH REPUBLIC
SCI International Limited (Delaware Corp.) Czech Republic subsidiaries
SCI Continental Europe SA (French Corp.) Czech Republic subsidiaries
OGF-PFG SA (French Corp.)Czech Republic subsidiaries
PAX.........................................................54%
FRANCE
SCI International Limited (Delaware Corp.) French subsidiaries
SCI Continental Europe SA....................................................100%
RLC.............................................................. 99.99%
OGF-PFG SA.................................................100%
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C>
Agence St Martin.....................................59%
AUGIVAL...........................................95.30%
AUXIA.............................................99.96%
Agence St Martin............................20%
AUXIA Assistance.........................99.95%
AUXIA Immobilier...........................100%
CEFORTHA............................................100%
CGM...............................................99.07%
Cie Pradel...............................99.58%
CGPF..............................................99.78%
CGSM..............................................99.88%
Agence St Martin............................20%
Alepee SA................................99.88%
Martex..........................54.82%
Martex...................................45.06%
MIFA.....................................99.58%
EDIL................................................100%
Funerarium de Dax....................................96%
GARGAS............................................97.60%
Garnard le Beaupain.................................100%
GFPL..............................................62.19%
Mries Lescarcelle...................................100%
PF Garonne........................................99.99%
Poulain et Fils...................................99.91%
S.E. Graugnard....................................99.84%
S.E. Mbries Surget................................99.99%
Mbries de la Vallee........................100%
Mbries Duchauchoy........................99.84%
Services Ariane.....................................100%
Seuropras.........................................99.20%
SOMOTHA...........................................98.63%
SPPF..............................................99.86%
SPPF Walter.......................................57.61%
Vet Sonia...........................................100%
GERMANY
SCI International Limited (Delaware Corp.) Germany subsidiaries
SCI D GmbH....................................................................100%
Bohmecke GmbH........................................................100%
Franz Puschmann GmbH.................................................100%
Meyer-Hader GmbH.....................................................100%
Schmidt & Co GmbH.............................................................100%
Thomas Amm GmbH......................................................100%
IRELAND
SCI International Limited (Delaware Corp.) Ireland subsidiaries
Estare Wood Limited...........................................................100%
Jennings & Company (Ireland) Limited.................................100%
Jennings & Company Limited...........................................100%
Lemford Limited.............................................100%
T Stafford & Son Limited...................................................... 25%
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C>
ITALY
SCI International Limited (Delaware Corp.) Italy subsidiaries
SCI Continental Europe SA (French Corp.) Italy subsidiaries
OGF-PFG SA (French Corp.) Italy subsidiaries
F.I.S. (Netherlands Corp.) Italy subsidiaries
OFISA.............................................100%
Franceschini..............................100%
OFT...................................... 98%
MALAYSIA
SCI International Limited (Delaware Corp.) Malaysia subsidiaries
OGF-PFG SA (French Corp.) Malaysia subsidiaries
F.I.S. (Netherlands Corp.) Malaysia subsidiaries
Bahau Funeral Services SDN BHD...........................33.33%
Bahau Memorial Park SDN BHD..............................16.67%
Singapore Casket Company PLC(Singapore)Malaysia subsidiaries
Bahau Funeral Services SDN BHD...........................33.33%
Bahau Memorial Park SDN BHD..............................16.67%
Bahau Funeral Services SDN BHD...................33.33%
NETHERLANDS
SCI International Limited (Delaware Corp.) Netherlands subsidiaries
Fontina......................................................................100%
Exploitatiemaatschappij Nijenheim B.V...............................100%
Centrale Uitvaartmij Nederland.............................100%
BV Heerlen.........................................100%
Goes BV............................................100%
Van Kerkvoorde BV..................................100%
Crematorium Temeuzen BV...................100%
Uitvaartcentrum Heemskerk Konig BV........100%
Vink B.V...........................................100%
Noordveld BV...............................................100%
Van Gestek B.V.............................................100%
Via Nova BV................................................100%
Voomeveld BV...............................................100%
Libitina Groep B.V...........................................................100%
OGF-PFG SA (French Corp.) Netherlands subsidiaries
F.I.S................................................................95%
Soek Uitvaartverzorging B.V..................................................100%
NORWAY
SCI International Limited (Delaware Corp.) Norway subsidiaries
SCI Norway...................................................................100%
PORTUGAL
SCI International Limited (Delaware Corp.) Portugal subsidiaries
J Salgado Figueira (Successores), SA.........................................100%
A Funeraria Da Amoreira, Lda........................................100%
Agencia Funeraria da Penha de Franca, Lda...........................100%
Agencia Funeraria Magno, Lda........................................100%
Agencia Funeraria Melo, Lda.........................................100%
Agencia Funeraria Migueis, Lda......................................100%
Alfredo Magno & Jaime Gomes, Lda....................................100%
SINGAPORE
SCI International Limited (Delaware Corp.) Singapore subsidiaries
OGF-PFG SA (French Corp.) Singapore subsidiaries
Singapore Casket Company PLC......................................67.57%
Casket Palace Company PLC..................................100%
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C>
SPAIN
SCI International Limited (Delaware Corp.) Spain subsidiaries
CIA Gral Servicios Funerarios, S.A.(Barna)...................................100%
Pompas Funebres Girona, S.L.........................................100%
Funeraria Poch, S.A........................................100%
Servei Comarcal de Pompes Funebres, S.A....................100%
Pompas Funebres Sevilla, S.L........................................100%
Pompas Funebres La Nueva, S.L..............................100%
SCI Servicios Funerarios, S.A.......................................100%
Virgen del Rosarios, S.L...................................100%
Funeraria Gaditanas Asociadas SA....................49%
Servicios Funerarios Turia, S.A.....................................100%
Funlis, S.L................................................100%
Servipublic, S.L....................................90%
Funeraria La Fe Guadalajara, S.L.............................................100%
Ambulancias Herranz SA..............................................100%
Servicios Funerarios de Guadalajara, NSA, S.A..............100%
OGF-PFG SA (French Corp.) Spain subsidiaries
Pompas Funebres Mediterraneas, S.L..................................100%
Servicios Funerarios Barcelona, S.A........................100%
Servicios Funerarios de Zaragoza S.A.........................................100%
Pompes Funebres de Zaragoza, S.A.....................................90%
Servicios Funerarios de Torrero SA..........................45%
SWITZERLAND
SCI International Limited (Delaware Corp.) Switzerland subsidiaries
SCI Continental Europe SA (French Corp.) Switzerland subsidiaries
OGF-PFG SA (French Corp.)Switzerland subsidiaries
Omnium de Services et de Financement SA.....................99%
PFG Lausanne SA.....................................95%
Alea Prevoyance Funeraire SA..............100%
Allegemeine Bestattungs AG................100%
Bestattungsdienst Hedy Linder-Walther AG .100%
Bestattungsdienst Josef Mulhauser AG......100%
Cerba SA..................................100%
Pompes Funebres Amoos SA..................100%
Pompes Funebres de St. Laurent SA.........100%
Pompes Funebres Gaillard Et Pittet SA.....100%
Pompes Funebres Gavillet SA...............100%
Pompes Funebres Lemania SA................100%
Pompes Funebres Monney SA.................100%
Pompes Funebres Perusset SA...............100%
Pompes Funebres Voeffray SA...............100%
Pompes Funebres Wasserfallen SA...........100%
Utiger & Ryf Bestattungs AG...............100%
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C>
UNITED KINGDOM
SCI International Limited (Delaware Corp.) United Kingdom subsidiaries
Service Corporation International PLC........................................100%
Birkbeck Securities Limited.........................................100%
Demetriou & English Funeral Directors Limited .......................50%
Dignity Limited.....................................................100%
Lanecliff Limited...................................................100%
Pitcher and LeQuesne Limited........................................100%
SCI Funerals Limited................................................100%
SCI Pre-arrangements Limited........................................100%
Swift & Mildred Limited..............................................95%
</TABLE>
18
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Service Corporation International on Form S-3 (File No. 333-65711), Form S-4
(File No. 333-01857) and Form S-8 (File Nos. 333-33101, 333-00177, 333-00179,
33-9790, 33-17982, 333-68683, 333-19863, 333-70983, and 33-50987) of our report
dated March 24, 1999, on our audits of the consolidated financial statements
and financial statement schedule of Service Corporation International as of
December 31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998, which report is included in this Annual Report on Form 10-K.
Houston, Texas
March 31, 1999
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director or both, of Service Corporation International, a Texas corporation
(the "Company"), does hereby constitute and appoint George R. Champagne and
James M. Shelger his true and lawful attorneys and agents (each with authority
to act alone), with power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of the
Company to the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year of the Company ending December 31,
1998 and to any amendments thereto filed with the Securities and Exchange
Commission, and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Report or amendments; and the undersigned does
hereby ratify and confirm as his own act and deed all that said attorney and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
9th day of March, 1999.
/s/ R. L. Waltrip
---------------------------------------
R. L. WALTRIP
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director or both, of Service Corporation International, a Texas corporation
(the "Company"), does hereby constitute and appoint George R. Champagne and
James M. Shelger his true and lawful attorneys and agents (each with authority
to act alone), with power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of the
Company to the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year of the Company ending December 31,
1998 and to any amendments thereto filed with the Securities and Exchange
Commission, and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Report or amendments; and the undersigned does
hereby ratify and confirm as his own act and deed all that said attorney and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
9th day of March, 1999.
/s/ George R. Champagne
---------------------------------------
GEORGE R. CHAMPAGNE
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director or both, of Service Corporation International, a Texas corporation
(the "Company"), does hereby constitute and appoint George R. Champagne and
James M. Shelger his true and lawful attorneys and agents (each with authority
to act alone), with power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of the
Company to the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year of the Company ending December 31,
1998 and to any amendments thereto filed with the Securities and Exchange
Commission, and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Report or amendments; and the undersigned does
hereby ratify and confirm as his own act and deed all that said attorney and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
9th day of March, 1999.
/s/ Anthony L. Coelho
-----------------------------------------
ANTHONY L. COELHO
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director or both, of Service Corporation International, a Texas corporation
(the "Company"), does hereby constitute and appoint George R. Champagne and
James M. Shelger his true and lawful attorneys and agents (each with authority
to act alone), with power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of the
Company to the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year of the Company ending December 31,
1998 and to any amendments thereto filed with the Securities and Exchange
Commission, and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Report or amendments; and the undersigned does
hereby ratify and confirm as his own act and deed all that said attorney and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
9th day of March, 1999.
/s/ Jack Finkelstein
-----------------------------------------
JACK FINKELSTEIN
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an
officer or director or both, of Service Corporation International, a Texas
corporation (the "Company"), does hereby constitute and appoint George R.
Champagne and James M. Shelger his true and lawful attorneys and agents (each
with authority to act alone), with power and authority to sign for and on
behalf of the undersigned the name of the undersigned as officer or director,
or both, of the Company to the Company's Annual Report to the Securities and
Exchange Commission on Form 10-K for the fiscal year of the Company ending
December 31, 1998 and to any amendments thereto filed with the Securities and
Exchange Commission, and to any instrument or document filed as a part of, as
an exhibit to or in connection with said Report or amendments; and the
undersigned does hereby ratify and confirm as his own act and deed all that
said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these
presents this 9th day of March, 1999.
/s/ A.J. Foyt, Jr.
-----------------------------------------
A.J. FOYT, JR.
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director or both, of Service Corporation International, a Texas corporation
(the "Company"), does hereby constitute and appoint George R. Champagne and
James M. Shelger his true and lawful attorneys and agents (each with authority
to act alone), with power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of the
Company to the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year of the Company ending December 31,
1998 and to any amendments thereto filed with the Securities and Exchange
Commission, and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Report or amendments; and the undersigned does
hereby ratify and confirm as his own act and deed all that said attorney and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
9th day of March, 1999.
/s/ James H. Greer
-----------------------------------------
JAMES H. GREER
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director or both, of Service Corporation International, a Texas corporation
(the "Company"), does hereby constitute and appoint George R. Champagne and
James M. Shelger his true and lawful attorneys and agents (each with authority
to act alone), with power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of the
Company to the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year of the Company ending December 31,
1998 and to any amendments thereto filed with the Securities and Exchange
Commission, and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Report or amendments; and the undersigned does
hereby ratify and confirm as his own act and deed all that said attorney and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
9th day of March, 1999.
/s/ B.D. Hunter
--------------------------------------
B.D. HUNTER
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director or both, of Service Corporation International, a Texas corporation
(the "Company"), does hereby constitute and appoint George R. Champagne and
James M. Shelger his true and lawful attorneys and agents (each with authority
to act alone), with power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of the
Company to the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year of the Company ending December 31,
1998 and to any amendments thereto filed with the Securities and Exchange
Commission, and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Report or amendments; and the undersigned does
hereby ratify and confirm as his own act and deed all that said attorney and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
9th day of March, 1999.
/s/ John W. Mecom, Jr.
---------------------------------------
JOHN W. MECOM, JR.
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director or both, of Service Corporation International, a Texas corporation
(the "Company"), does hereby constitute and appoint George R. Champagne and
James M. Shelger his true and lawful attorneys and agents (each with authority
to act alone), with power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of the
Company to the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year of the Company ending December 31,
1998 and to any amendments thereto filed with the Securities and Exchange
Commission, and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Report or amendments; and the undersigned does
hereby ratify and confirm as his own act and deed all that said attorney and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
9th day of March, 1999.
/s/ Clifton H. Morris, Jr.
-------------------------------------------
CLIFTON H. MORRIS, JR.
<PAGE> 10
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director or both, of Service Corporation International, a Texas corporation
(the "Company"), does hereby constitute and appoint George R. Champagne and
James M. Shelger his true and lawful attorneys and agents (each with authority
to act alone), with power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of the
Company to the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year of the Company ending December 31,
1998 and to any amendments thereto filed with the Securities and Exchange
Commission, and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Report or amendments; and the undersigned does
hereby ratify and confirm as his own act and deed all that said attorney and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
9th day of March, 1999.
/s/ E.H. Thornton, Jr.
--------------------------------------
E.H. THORNTON, JR.
<PAGE> 11
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director or both, of Service Corporation International, a Texas corporation
(the "Company"), does hereby constitute and appoint George R. Champagne and
James M. Shelger his true and lawful attorneys and agents (each with authority
to act alone), with power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of the
Company to the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year of the Company ending December 31,
1998 and to any amendments thereto filed with the Securities and Exchange
Commission, and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Report or amendments; and the undersigned does
hereby ratify and confirm as his own act and deed all that said attorney and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
9th day of March, 1999.
/s/ W. Blair Waltrip
------------------------------------------
W. BLAIR WALTRIP
<PAGE> 12
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director or both, of Service Corporation International, a Texas corporation
(the "Company"), does hereby constitute and appoint George R. Champagne and
James M. Shelger his true and lawful attorneys and agents (each with authority
to act alone), with power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of the
Company to the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year of the Company ending December 31,
1998 and to any amendments thereto filed with the Securities and Exchange
Commission, and to any instrument or document filed as a part of, as an exhibit
to or in connection with said Report or amendments; and the undersigned does
hereby ratify and confirm as his own act and deed all that said attorney and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
9th day of March, 1999.
/s/ Edward E. Williams
-----------------------------------------------
EDWARD E. WILLIAMS
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF SERVICE CORPORATION INTERNATIONAL AS OF THE
APPLICABLE PERIOD END DATE AND THE RELATED STATEMENT OF INCOME FOR THE PERIOD
THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 DEC-31-1998 DEC-31-1998
<PERIOD-END> DEC-31-1998 SEP-30-1998 JUN-30-1998 MAR-31-1998
<CASH> 358,210 116,980 75,526 241,587
<SECURITIES> 1,203,644 1,241,460 609,739 575,633
<RECEIVABLES> 1,257,959 1,170,662 1,035,549 997,593
<ALLOWANCES> 91,999 93,594 91,709 90,621
<INVENTORY> 189,070 183,039 183,920 170,410
<CURRENT-ASSETS> 1,209,080 962,845 885,645 1,023,070
<PP&E> 2,313,801 2,225,758 2,150,880 2,499,468
<DEPRECIATION> 488,822 451,515 432,195 412,240
<TOTAL-ASSETS> 13,266,158 12,053,975 11,244,662 10,798,760
<CURRENT-LIABILITIES> 630,325 656,117 525,206 570,288
<BONDS> 3,764,590 3,365,982 3,077,286 2,842,697
0 0 0 0
0 0 0 0
<COMMON> 259,201 257,821 257,186 255,903
<OTHER-SE> 2,894,901 2,745,844 2,679,799 2,574,521
<TOTAL-LIABILITY-AND-EQUITY> 13,266,158 12,053,975 11,244,662 10,798,760
<SALES> 2,657,726 1,957,340 1,300,320 654,278
<TOTAL-REVENUES> 2,875,090 2,101,594 1,389,074 698,844
<CGS> 2,134,202 1,516,242 980,096 480,284
<TOTAL-COSTS> 2,156,320 1,524,070 985,256 482,716
<OTHER-EXPENSES> 67,765 50,137 34,647 17,146
<LOSS-PROVISION> 30,840 20,747 15,863 10,426
<INTEREST-EXPENSE> 190,748 133,362 82,946 40,004
<INCOME-PRETAX> 518,527 437,119 308,564 168,061
<INCOME-TAX> 176,385 154,172 108,830 59,275
<INCOME-CONTINUING> 342,142 282,947 199,734 108,786
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 342,142 282,947 199,734 108,786
<EPS-PRIMARY> 1.34 1.11 .78 .43
<EPS-DILUTED> 1.31 1.08 .77 .42
</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 THE
APPLICABLE PERIOD END DATE AND THE RELATED STATEMENT OF INCOME FOR THE PERIOD
THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> DEC-31-1997 SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 46,877 62,114 31,557 47,411
<SECURITIES> 558,925 537,379 528,256 533,695
<RECEIVABLES> 1,131,195 1,067,705 1,060,733 1,052,246
<ALLOWANCES> 88,561 95,677 90,509 81,216
<INVENTORY> 172,169 151,418 150,803 141,421
<CURRENT-ASSETS> 811,408 755,471 719,268 731,110
<PP&E> 2,035,073 1,936,922 1,876,020 1,808,930
<DEPRECIATION> 390,936 372,213 354,764 341,182
<TOTAL-ASSETS> 10,514,930 9,737,921 9,408,557 9,081,072
<CURRENT-LIABILITIES> 535,422 606,688 539,692 574,351
<BONDS> 2,634,699 2,317,259 2,268,369 2,128,708
0 0 0 0
0 0 0 0
<COMMON> 252,924 251,837 251,469 239,005
<OTHER-SE> 2,473,080 2,365,706 2,316,405 2,065,970
<TOTAL-LIABILITY-AND-EQUITY> 10,514,930 9,737,921 9,408,557 9,081,072
<SALES> 2,397,766 1,770,875 1,210,335 617,391
<TOTAL-REVENUES> 2,535,865 1,870,014 1,269,019 652,690
<CGS> 1,836,973 1,360,452 913,470 464,538
<TOTAL-COSTS> 1,848,253 1,366,907 917,684 464,538
<OTHER-EXPENSES> 67,671 49,813 32,935 16,848
<LOSS-PROVISION> 22,603 10,790 7,364 3,631
<INTEREST-EXPENSE> 144,735 106,222 71,350 36,250
<INCOME-PRETAX> 579,973 438,407 326,814 205,524
<INCOME-TAX> 205,421 155,735 116,866 74,377
<INCOME-CONTINUING> 374,552 282,672 209,948 131,147
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 40,802 40,802 40,802 40,802
<CHANGES> 0 0 0 0
<NET-INCOME> 333,750 241,870 169,146 90,345
<EPS-PRIMARY> 1.36 1.00 0.71 0.38
<EPS-DILUTED> 1.31 0.95 0.67 0.36
</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 THE
APPLICABLE PERIOD END DATE AND THE RELATED STATEMENT OF INCOME FOR THE PERIOD
THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 44,131
<SECURITIES> 633,019
<RECEIVABLES> 997,736
<ALLOWANCES> 75,102
<INVENTORY> 139,019
<CURRENT-ASSETS> 714,040
<PP&E> 1,776,534
<DEPRECIATION> 319,459
<TOTAL-ASSETS> 9,020,778
<CURRENT-LIABILITIES> 607,543
<BONDS> 2,048,737
0
0
<COMMON> 236,193
<OTHER-SE> 1,999,124
<TOTAL-LIABILITY-AND-EQUITY> 9,020,778
<SALES> 2,232,644
<TOTAL-REVENUES> 2,355,342
<CGS> 1,741,394
<TOTAL-COSTS> 1,750,890
<OTHER-EXPENSES> 63,798
<LOSS-PROVISION> 12,147
<INTEREST-EXPENSE> 147,470
<INCOME-PRETAX> 413,881
<INCOME-TAX> 148,583
<INCOME-CONTINUING> 265,298
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 265,298
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.08
</TABLE>
<PAGE> 1
EXHIBIT 99.1
PENDING CLASS ACTION LITIGATION AS OF MARCH 24, 1999
PART I
STYLES OF PENDING CASES
1. Civil Action H-99-0280, In Re Service Corporation International; In the
United States District Court for the Southern District of Texas,
Houston Division(1)
2. 9-99-CV59; Charles Fredrick, Individually and on Behalf of All Others
Similarly Situated vs. Service Corporation International, R. L.
Waltrip, William Heligbrodt and George R. Champagne; In the United
States District Court for the Eastern District of Texas, Lufkin
Division(2)
3. 9-99-CV58; Charles Fredrick v. Service Corp. International; In the
United States District Court for the Eastern District of Texas, Lufkin
Division(3)(4)
4. 9-99-CV60; Susanne Parker, Individually, and as a Representative of the
Class v. Service Corp. International; In the United States District
Court for the Eastern District of Texas, Lufkin Division(4)
- -------------------------------
(1) Twenty separate class action lawsuits filed in the United States
District Court for the Southern District of Texas, Houston Division,
have been consolidated into this proceeding. Since a lead plaintiff and
its counsel have not been designated by Judge Lynn N. Hughes, a
consolidated complaint has not been filed.
(2) A motion to transfer venue to the United States District Court for the
Southern District of Texas, Houston Division, has been filed.
(3) This case was originally filed as a class action. The original petition
was subsequently amended to delete the class action allegations.
(4) These cases were originally filed in state district court in Angelina
County, Texas but have been removed to the United States District Court
for the Eastern District of Texas, Lufkin Division. Motions to transfer
venue of both cases from this court to the United States District Court
for the Southern District of Texas, Houston Division, have been filed.
<PAGE> 2
PART II
PERSONS NOT EXPRESSLY EXCLUDED FROM CERTAIN CLASSES
The following persons were security holders of Equity Corporation
International ("ECI") immediately prior to ECI's merger with a wholly-owned
subsidiary of Service Corporation International ("SCI") in January 1999 and were
also officers or directors of SCI at March 24, 1999:
George R. Champagne(b) Lowell A. Kirkpatrick, Jr.(b)
Anthony L. Coelho(a) Richard T. Sells(b)
W. Cardon Gerner(b) E.H. Thornton, Jr.(a)
James H. Greer(a) Michael R. Webb(b)
The foregoing persons (a) are not expressly excluded as members of the
classes referred to in the class action lawsuits listed in numbered paragraphs 2
and 4 of Part I of this Exhibit 99.1 and (b) may not be expressly excluded as
members of one or more subclasses of plaintiffs once a consolidated complaint is
filed in the legal proceeding referred to in numbered paragraph 1 of Part I of
this Exhibit 99.1.
- -------------------------------
(a) Director of SCI.
(b) Officer of SCI.
PART III
OFFICERS AND DIRECTORS OF SCI NAMED AS DEFENDANTS
The following present or former officers and directors of SCI are named
as individual defendants in one or more of the lawsuits that have been
consolidated into the proceeding referred to in numbered paragraph 1 of Part I
of this Exhibit 99.1:
R.L. Waltrip(a)(b) Glenn G. McMillen(b)
W. Blair Waltrip(a)(b) Vincent L. Visosky(b)
George R. Champagne(b) B.D. Hunter(a)
W. Mark Hamilton(b) Jack Finkelstein(a)
Lowell A. Kirkpatrick, Jr.(b) L. William Heiligbrodt(c)
John W. Morrow, Jr.(b)
- -------------------------------
(a) Director of SCI at March 24, 1999.
(b) Officer of SCI at March 24, 1999.
(c) Former officer and director of SCI.
