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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 9, 1999
Service Corporation International (Exact name of Registrant as specified
in Charter)
Texas 1-6402-1 74-1488375
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation
1929 Allen Parkway
Houston, Texas 77019
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (713) 522-5141
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Item 5. Other Events.
On February 9, 1999, Service Corporation International, a Texas
corporation (the "Company"), announced results for the fourth quarter of 1998
and for the year ended December 31, 1998, as well as the commencement of class
action lawsuits against the Company and certain of its officers and directors,
as more fully described in the press release filed as Exhibit 99.1 to this
Current Report on Form 8-K
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
99.1 Press release dated February 9, 1999 issued by the Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
SERVICE CORPORATION INTERNATIONAL
Date: February 9, 1999 By: /s/ James M. Shelger
--------------------------
James M. Shelger
Senior Vice President,
General Counsel
and Secretary
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EXHIBIT INDEX
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<CAPTION>
EXHIBIT NO. DESCRIPTION
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<S> <C>
99.1 Press release dated February 9, 1999 issued by the Company.
</TABLE>
FOR IMMEDIATE RELEASE:
George Champagne - Chief Financial Officer (713) 525-5546
Todd Matherne - Vice President, Treasurer (713) 525-5243
Kate Inverarity - Media Relations (212) 333-3810
SERVICE CORPORATION INTERNATIONAL ANNOUNCES
1998 FOURTH QUARTER AND YEAR END RESULTS
Houston, Texas, February 9, 1999 . . . Service Corporation International
(NYSE: SRV), the world's largest funeral and cemetery company, today reported
results for the twelve month and three month periods ended December 31, 1998.
Twelve Months Ended December 31, 1998 (Compared to same period 1997) Revenues
$2.875 billion up 13.4% from $2.536 billion Net Income $342.1 million up 2.5%
from $333.8 million Diluted earnings per share $1.31 unchanged from $1.31
Three Months Ended December 31, 1998 (Compared to same period 1997) Revenues
$773.5 million up 16.2% from $665.9 million Net Income $59.2 million down 35.6%
from $91.9 million Diluted earnings per share $0.23 down 36.1% from $0.36
Commenting on the results, Robert L. Waltrip, Chairman and Chief Executive
Officer, said:"Since our preliminary announcement on January 26, 1999, our
senior management team has worked extensively to identify, analyze and address
the issues which caused our fourth quarter earnings to come in below
expectations. We are committed to increasing revenues and improving efficiency
throughout our operations. Our expanding prearranged funeral activity will
continue to benefit our shareholders because it adds economic value today, even
though associated revenues, profits and earnings per share are deferred until
the services are actually performed."
SCI's President and Chief Operating Officer, L. William Heiligbrodt, added:
"For many years, SCI has produced solid earnings and value for our shareholders,
and we are disappointed that this did not prove to be the case during the fourth
quarter of 1998. We experienced an unexpectedly low level of funeral and
cemetery revenues while operating and overhead costs had been geared to the
expected revenue levels. The outlook for our Company, however, is a positive
one. SCI is a strong business and we are implementing a number of strategic
initiatives to return the Company to where we all want it to be."
EXPLANATION OF EARNINGS SHORTFALL
There were a number of factors of unanticipated magnitude that combined during
the fourth quarter to contribute to earnings falling short of expectations:
* Comparable funeral revenue decreased 2.7% from the same period in 1997,
generating $21 million less in revenue than expected. This was caused in part by
weak death rates. In addition, the average price of funerals booked in the
fourth quarter was lower than anticipated due to a changing profile in the sales
mix with an increase in the proportion of funerals from preneed contracts going
at need and an increase in the number of cremations.
* Lower than anticipated revenues, coupled with planned increases in our cost
base, disproportionately affected earnings. The costs and expenses were
associated with necessary investments in acquired properties and our underlying
businesses.
* Fewer preneed cemetery contracts were sold in 1998, resulting in a $19.5
million shortfall in preneed cemetery revenue in North America. This resulted
primarily from a shortage of cemetery sales staff combined with disappointing
performance.
* Under-performance by some acquired and constructed businesses, primarily in
North America, contributed to $7.5 million in lower than expected revenues.
MANAGEMENT INITIATIVES
The Company has undertaken a number of initiatives to enhance regional
management's ability to grow revenues in existing locations. These include
continued investment in training, marketing and technology. During 1999, 350
cluster managers and 300 sales managers are scheduled to undergo training
designed to assist them in managing operations more efficiently and increasing
revenues through marketing initiatives. In addition, a senior marketing
professional is being appointed to spearhead Company-wide marketing programs of
at need and preneed funeral and cemetery sales. Where appropriate, the marketing
programs will incorporate value package funerals that will enable many SCI
affiliated homes to capture sales in the lower priced funeral market. Further,
the roll out of EVA at the operational level will help improve working capital
management and efficiency improvements in the field.
These marketing initiatives will assist us in our aim to more than double annual
prearranged funeral sales to approximately $1.3 billion by the end of 2003,
further locking in future market share.
1998 FOURTH QUARTER REVIEW
Funeral
Compared to the fourth quarter of 1997, funeral segment revenues increased 5.9
percent to $477.5 million. Funeral segment profits fell $33.9 million to $76.0
million, a decrease of 30.8 percent. Funeral segment margins for the fourth
quarter of 1998 fell to 15.9 percent, compared to 24.4 percent in the same
period of 1997. For the year ended December 31, 1998, funeral segment revenues
were $1.829 billion compared to $1.720 billion. Funeral segment profits were
$384.6 million versus $401.4 million in 1997, while margins fell 230 basis
points to 21.0 percent, compared to 23.3 percent for the year ended 1997.
During the fourth quarter of 1998, sales of prearranged funeral contracts
increased by 26.2 percent to approximately $172.4 million, which expanded the
backlog of prearranged funeral contracts to be serviced in future periods to
approximately $3.5 billion. For the full year, sales of prearranged funeral
contracts totaled $592.8 million, up 5.5% compared to $561.7 million in 1997.
Revenues and associated investment earnings from such contracts are deferred and
will be recognized during the periods in which the funeral services are actually
performed. In 1998, deferred investment earnings and merchandise sales were
approximately $200 million and $264 million, respectively.
Cemetery
Compared to the fourth quarter of 1997, cemetery segment revenues increased
12.7 percent to $210.5 million. Cemetery segment profits fell $15.0 million to
$55.8 million, a decrease of 21.2 percent, reflecting increased cemetery costs,
primarily overhead and maintenance at existing cemeteries, as well as
investment returns unchanged from prior year levels from the cemetery
merchandise and endowment care trust funds. Cemetery segment margins fell to
26.5 percent, compared to 37.9 percent for fourth quarter of 1997. For the year
ended December 31, 1998, cemetery segment revenues were $846.6 million compared
to $724.9 million in 1997. Cemetery segment profits were $306.2 million versus
$271.9 million in 1997, while margins tightened 130 basis points to
36.2 percent, compared to 37.5 percent for the year ended 1997.
Financial Services
SCI Financial Services performed in line with Company expectations during the
fourth quarter of 1998. Revenues of $85.5 million were reported and profits for
the segment were $9.5 million. For the year, segment revenues were $199.4
million, an increase of $108.6 million from 1997, of which $81.2 million was
related to the acquisition of American Memorial Life Insurance Company from July
1, 1998. Segment profits were $28.0 million in 1998 compared to $14.3 million in
1997.
Costs and Expenses
General and administrative costs decreased 2.3 percent for the fourth quarter of
1998 to $17.2 million as compared to the same period in 1997. For the year ended
December 31, 1998, general and administrative costs were unchanged from 1997 at
$66.8 million, or 2.3 percent of revenues, compared to 2.6 percent of revenues,
for the prior year.
Interest expense for the fourth quarter of 1998 increased $14.7 million to $51.1
million, as a result of increased indebtedness related to acquisitions. For the
year ended December 31, 1998, interest expense was $177.1 million, or 6.2
percent of revenues, compared to $136.7 million, or 5.4 percent of revenues, for
the prior year.
Acquisition Activity
During the fourth quarter, the Company acquired 53 funeral service locations, 17
cemeteries and 4 crematoria at a cost of $178 million. These businesses are
expected to produce approximately $63 million in annualized revenues, including
$13 million from North American operations and $50 million from operations
outside North America.
During 1998, SCI acquired 308 funeral service locations, 47 cemeteries and 18
crematoria at a cost of $784 million. These businesses are expected to produce
approximately $296 million in annualized revenues, including $121 million from
North American operations and $175 million from operations outside North
America.
Litigation
The Company also announced today that several class action 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 with and into Equity
Corporation International or (ii) purchased shares of Company common stock
during certain specified class periods. The lawsuits allege violations of the
federal securities laws and name as defendants the Company and certain of its
officers and directors. The lawsuits 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. 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 required disclosures on a timely basis. The Company has initiated aggressive
action to defend these lawsuits.
As of December 31, 1998, SCI operated 3,442 funeral service locations, 433
cemeteries and 191 crematoria. SCI provides funeral and cemetery services in 20
countries on five continents.
Cautionary Statement on Forward-looking Statements
The statements contained in this release 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," "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.
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.
For additional information contact:
SCI: Todd A. Matherne - Vice President & Treasurer Tel: (713) 525-5243
George R. Champagne - Senior Vice President and CFO Tel: (713) 525-5546
Media: Kate Inverarity, Brunswick Group Tel: (212) 333-3810
Other Service Corporation International and press releases are available through
Company News On-Call by fax, (800) 758-5804, extension 104532, or at
http://www.prnewswire.com or SCI's homepage: http://www.sci-corp.com.
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SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF INCOME
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
December 31, December 31,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Revenues:
Funeral....................... $477,533 $450,945 $1,829,136 $1,720,291
Cemetery...................... 210,463 186,709 846,601 724,862
Financial services............ 85,500 28,197 199,353 90,712
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773,496 665,851 2,875,090 2,535,865
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Cost and expenses:
Funeral....................... 401,548 341,095 1,444,529 1,318,920
Cemetery...................... 154,667 115,944 540,440 452,965
Financial services............ 76,035 24,307 171,351 76,368
-------- -------- ---------- ----------
632,250 481,346 2,156,320 1,848,253
-------- -------- ---------- ----------
141,246 184,505 718,770 687,612
General and administrative
expense....................... (17,158) (17,566) (66,839) (66,781)
-------- -------- ---------- ----------
Income from operations......... 124,088 166,939 651,931 620,831
Interest expense............... (51,063) (36,355) (177,053) (136,720)
Dividends on preferred
securities of SCI Finance LLC. - - - (4,382)
Other income................... 8,383 10,982 43,649 32,167
Gain on sale of investment..... - - - 68,077
-------- -------- ---------- ----------
(42,680) (25,373) (133,404) (40,858)
-------- -------- ---------- ----------
Income before income taxes and
extraordinary loss............ 81,408 141,566 518,527 579,973
Provision for income taxes..... 22,213 49,686 176,385 205,421
-------- -------- ---------- ----------
Net income before extraordinary
loss.......................... 59,195 91,880 342,142 374,552
Extraordinary loss on early
extinguishment of debt
(net of $23,383 income taxes). - - - (40,802)
-------- -------- ---------- ----------
Net income..................... $59,195 $91,880 $ 342,142 $ 333,750
======== ======== ========== ==========
Earnings per share:
Basic:
Income before
extraordinary loss........... $ 0.23 $ 0.36 $ 1.34 $ 1.53
Extraordinary loss on early
extinguishment of debt....... - - - (0.17)
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Net income.................... $ 0.23 $ 0.36 $ 1.34 $ 1.36
======= ======== ========= =========
Diluted:
Income before
extraordinary loss........... $ 0.23 $ 0.36 $ 1.31 $ 1.47
Extraordinary loss on early
extinguishment of debt....... - - - (0.16)
------- ------- --------- ---------
Net income.................... $ 0.23 $ 0.36 $ 1.31 $ 1.31
======= ======= ========= =========
Basic weighted average number
of shares..................... 258,063 252,112 256,271 245,470
======= ======= ========= =========
Diluted weighted average
number of shares.............. 263,155 259,278 262,520 257,781
======= ======= ========= =========
</TABLE>
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Geographic segment information was as follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
North Other Other
America France European Foreign
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<S> <C> <C> <C> <C>
Revenues:
Three months
ended December 31:
1998................. $ 490,034 $ 175,296 $ 77,921 $ 30,245
1997................. 429,186 151,454 62,156 23,055
---------- ---------- --------- ---------
Change from prior year $ 60,848 $ 23,842 $ 15,765 $ 7,190
Percentage change from
prior year........... 14.2% 15.7% 25.4% 31.2%
Twelve months ended
December 31:
1998................. $1,877,294 $ 621,359 $ 266,678 $ 109,759
1997................. 1,658,398 554,648 225,087 97,732
---------- ---------- --------- ---------
Change from prior year $ 218,896 $ 66,711 $ 41,591 $ 12,027
Percentage change from
prior year........... 13.2% 12.0% 18.5% 12.3%
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Income from operations:
Three months
ended December 31:
1998................. $ 91,573 $ 19,293 $ 7,335 $ 5,887
1997................. 129,633 18,248 14,160 4,898
---------- ---------- --------- --------
Change from prior year $ (38,060) $ 1,045 $ (6,825) $ 989
Percentage change
from prior year...... -29.4% 5.7% -48.2% 20.2%
Twelve months
ended December 31:
1998................. $ 517,560 $ 71,499 $ 35,666 $ 27,206
1997................. 490,430 55,332 46,371 28,698
---------- --------- --------- --------
Change from prior year $ 27,130 $ 16,167 $ (10,705) $(1,492)
Percentage change
from prior year...... 5.5% 29.2% -23.1% -5.2%
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Operating income margin:
Three months
ended December 31:
1998.................. 18.7% 11.0% 9.4% 19.5%
1997.................. 30.2% 12.0% 22.8% 21.2%
Twelve months
ended December 31:
1998.................. 27.6% 11.5% 13.4% 24.8%
1997.................. 29.6% 10.0% 20.6% 29.4%
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Funeral services performed:
Three months
ended December 31:
1998................. 66,731 36,812 31,957 7,256
1997................. 64,744 36,675 26,534 7,145
Percentage change
from prior year....... 3.1% 0.4% 20.4% 1.6%
Twelve months
ended December 31:
1998................. 263,094 147,994 117,776 29,946
1997................. 252,643 148,223 102,985 29,278
Percentage change
from prior year....... 4.1% -0.2% 14.4% 2.3%
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Number of locations
at December 31:
1998................. 1,843 1,214 840 169
1997................. 1,720 1,101 704 160
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