<PAGE> 1
LOGO
(R)
SERVICE
CORPORATION
INTERNATIONAL
PROXY STATEMENT
AND 2000 ANNUAL MEETING NOTICE
<PAGE> 2
SERVICE CORPORATION INTERNATIONAL
1929 ALLEN PARKWAY, P.O. BOX 130548
HOUSTON, TEXAS 77219-0548
----------------------
PROXY STATEMENT AND
2000 ANNUAL MEETING
NOTICE
----------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 11, 2000
TO OUR SHAREHOLDERS:
The Annual Meeting of Shareholders of Service Corporation International
will be held in the Chase Auditorium, First Floor, Chase Center, 601 Travis,
Houston, Texas, on Thursday, May 11, 2000, at 10:00 a.m., Houston time, for the
following purposes:
(1) To elect five directors as members of the class of directors to
serve until the third succeeding Annual Meeting of Shareholders and until
their successors have been elected and qualified; and
(2) To act on such other business that may properly come before the
Annual Meeting or any adjournment(s) thereof.
The transfer books of the Company will not be closed, but only holders of
Common Stock of record at the close of business on March 23, 2000 will be
entitled to notice of and to vote at the Annual Meeting. A majority of the
outstanding stock entitled to vote is required for a quorum.
The management sincerely desires your presence at the meeting. However, so
that we may be sure that your vote will be included, please sign and date the
enclosed proxy and return it promptly in the enclosed stamped envelope. If you
attend the meeting, you may revoke your proxy and vote in person.
By Order of the Board of Directors,
James M. Shelger, Secretary
Houston, Texas
April 7, 2000
<PAGE> 3
PROXY STATEMENT
SERVICE CORPORATION INTERNATIONAL
1929 ALLEN PARKWAY, P.O. BOX 130548 HOUSTON, TEXAS 77219-0548
SOLICITATION AND REVOCABILITY OF PROXIES
This proxy statement is furnished in connection with the solicitation by
the Board of Directors of Service Corporation International, a Texas corporation
("SCI" or the "Company"), of proxies to be used at the Annual Meeting of
Shareholders to be held in the Chase Auditorium, First Floor, Chase Center, 601
Travis, Houston, Texas, on Thursday, May 11, 2000, at 10:00 a.m., Houston time,
and at any recess or adjournments thereof. This proxy statement and the
accompanying proxy are being mailed to shareholders on or about April 7, 2000. A
copy of the Annual Report to Shareholders of the Company for the fiscal year
ended December 31, 1999, including the consolidated financial statements, is
being mailed with this proxy statement to all shareholders entitled to vote at
the Annual Meeting.
At March 23, 2000, the Company had outstanding and entitled to vote
272,064,618 shares of Common Stock, $1.00 par value ("Common Stock"). The
holders of Common Stock will be entitled to one vote per share on each matter
considered (cumulative voting is not permitted). A majority of the votes
entitled to be cast must be represented at the Annual Meeting, in person or by
proxy, for a quorum to be present for the transaction of business. Only
shareholders of record at the close of business on March 23, 2000 will be
entitled to vote at the Annual Meeting. The affirmative vote of a majority of
the total shares represented in person or by proxy and entitled to vote at the
Annual Meeting is required for (a) the election of directors, and (b) the
approval of such other matters as may properly come before the Annual Meeting or
any adjournment thereof.
The enclosed proxy, even though executed and returned, may be revoked at
any time prior to its voting by a later dated proxy or by written notice of
revocation filed with the Secretary of the Company. Shareholders who attend the
Annual Meeting may revoke their proxies and vote in person.
In the election of directors, a shareholder has the right to vote the
number of his or her shares for as many persons as there are directors to be
elected. Abstentions are counted toward the calculation of a quorum. An
abstention has the same effect as a vote against the proposal or, in the case of
the election of directors, as shares to which voting power has been withheld.
Under Texas law, any unvoted position in a brokerage account with respect to any
matter will be considered as not voted and will not count toward a quorum as to
that matter.
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, each with staggered
terms of three years. Five directors whose terms expire at this Annual Meeting
have been renominated for three-year terms expiring at the 2003 Annual Meeting
of Shareholders. The terms of office of the directors in the other two classes
expire at the Annual Meetings of Shareholders to be held in 2001 and 2002.
The enclosed proxy provides a means for the holders of Common Stock to vote
for all of the nominees listed therein, to withhold authority to vote for one or
more of such nominees or to withhold authority to vote for all of such nominees.
Each properly executed proxy received in time for the Annual Meeting will be
voted as specified therein, or if a shareholder does not specify how the shares
represented by his or her proxy are to be voted, such shares shall be voted for
the nominees listed therein or for other nominees as provided below.
Although the Board of Directors does not contemplate that any nominee will
be unable or unwilling to serve, if such a situation arises, the proxies that do
not withhold authority to vote for directors will be voted for a substitute
nominee(s) chosen by the Board.
With respect to the classes of directors whose terms expire at the 2001 and
2002 Annual Meetings, there are presently vacancies occasioned by the
resignation or retirement of directors. These vacancies have not been
<PAGE> 4
filled by the Board of Directors although they may be filled in the future.
Proxies cannot be voted on the election of directors for a greater number of
persons than five, which is the number of nominees named herein.
The following table sets forth, as to each nominee for election and each
director whose term will continue, such person's name and age, the committees on
which such person serves, the person's current principal occupation and the year
in which such person was first elected a director of the Company.
<TABLE>
<CAPTION>
DIRECTOR DIRECTOR
NAME PRINCIPAL OCCUPATION SINCE AGE
-------- -------------------- -------- ---
<S> <C> <C> <C>
DIRECTOR NOMINEES FOR TERMS EXPIRING AT THE 2003 ANNUAL MEETING:
Anthony L. Coelho(1)................... Independent business consultant 1991 57
A. J. Foyt, Jr. ....................... President of A. J. Foyt Enterprises, Inc. 1974 65
(designer, manufacturer and exhibitor of
high-speed engines and racing vehicles and
marketer of automotive vehicles)
E. H. Thornton, Jr.(1)(2)(3)........... Attorney with Thornton & Burnett, Attorneys 1962 90
at Law
R. L. Waltrip(1)(4)(5)(6).............. Chairman of the Board and Chief Executive 1962 69
Officer of the Company
Edward E. Williams(1)(3)(4)(6)......... Henry Gardiner Symonds Professor and 1991 54
Director of the Entrepreneurship Program at
the Jesse H. Jones Graduate School of
Management at Rice University
DIRECTORS WHOSE TERMS EXPIRE AT THE 2001 ANNUAL MEETING:
B. D. Hunter(1)(5)(6).................. Vice Chairman of the Company, Chairman of 1986 70
the Board and Chief Executive Officer of
Huntco, Inc. (intermediate steel processor)
John W. Mecom, Jr.(2).................. Chairman of the Board of The John W. Mecom 1983 60
Co. (personal and family investments)
Victor L. Lund......................... Vice Chairman of the Board of Albertson's, 2000 52
Inc. (supermarket company)
DIRECTORS WHOSE TERMS EXPIRE AT THE 2002 ANNUAL MEETING:
Jack Finkelstein(1)(3)(4).............. Personal and family trust investments 1965 72
James H. Greer(2)...................... Chairman of the Board of Shelton W. Greer 1978 73
Co., Inc. (engineering, manufacturing,
fabrication and installation of building
specialty products)
Clifton H. Morris, Jr.(1)(3)(4)........ Chairman of the Board and Chief Executive 1990 64
Officer of AmeriCredit Corp. (financing of
automotive vehicles)
W. Blair Waltrip(1)(4)................. Independent consultant, family and trust 1986 45
investments
</TABLE>
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(1) Member of Executive Committee
(2) Member of Compensation Committee
(3) Member of Audit Committee
(4) Member of Investment Committee
(5) Member of Directors Stock Committee
(6) Member of 1996 Nonqualified Incentive Plan Stock Option Committee
Each director has been engaged in his current principal occupation set
forth in the table during the last five years except as indicated below. Also
set forth below are certain other directorships held by directors.
2
<PAGE> 5
Anthony L. Coelho served as a consultant to Telecommunications, Inc. from
September 1997 to July 1999. From July 1995 to November 1997 Mr. Coelho served
as Chairman and Chief Executive Officer of Coelho Associates, L.L.C. (investment
consulting and brokerage firm) and served from October 1995 to September 1997 as
Chairman and Chief Executive Officer of ETC w/tci (training and communication
firm). Prior thereto, from January 1990 to June 1995, he was President and Chief
Executive Officer of Wertheim Schroder Investment Services, Inc. (asset
management firm) and from October 1989 to June 1995, Managing Director, Wertheim
Schroder & Co., Inc. (investment banking firm). Mr. Coelho is a member of the
Board of Directors of Cyberonics, Inc., Cadiz, Inc. and Pinnacle Global Group
Inc.
James H. Greer is a member of the Board of Directors of AmeriCredit Corp.
and Pinnacle Global Group Inc.
B. D. Hunter is a member of the Board of Directors of Cash America
International, Inc. and Celebrity, Inc.
Victor L. Lund has served as Chairman of the Board of Albertsons, Inc.
since June 1999. Prior thereto, Mr. Lund served 22 years at American Stores
Company in various positions, including Chairman of the Board and Chief
Executive Officer. Mr. Lund is a member of the Board of Directors of Borders
Group.
Clifton H. Morris, Jr. is a member of the Board of Directors of Cash
America International, Inc.
W. Blair Waltrip served as an Executive Vice President of the Company for
more than five years until January 2000. He is a member of the Board of
Directors of Pinnacle Global Group Inc. Mr. W. Blair Waltrip is the son of Mr.
R. L. Waltrip.
Edward E. Williams is a member of the Board of Directors of Equus II
Incorporated.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held five meetings during 1999. Standing committees
of the Board include the Executive Committee, Audit Committee, Compensation
Committee, Investment Committee, Directors Stock Committee and 1996 Nonqualified
Incentive Plan Stock Option Committee.
The Executive Committee has authority to exercise many of the powers of the
Board between Board meetings, including selection on its own motion of nominees
for election to the Board. The Executive Committee held fifteen meetings during
1999.
The primary function of the Audit Committee is to review the scope and
results of audits by the Company's independent accountants and internal
auditors, internal accounting controls, non-audit services performed by the
independent accountants and the cost of all accounting and financial services.
During 1999, the Audit Committee held five meetings.
The Compensation Committee, which has the general duty to review and
approve compensation for officers, including the granting of bonuses and the
administration of the Company's stock and stock option plans, held four meetings
during 1999.
The Investment Committee's primary functions are to establish overall
guidelines and review the transactions in the investment portfolios of
independent trusts which hold funds collected by the Company and required to be
held in trust under various state laws. During 1999, the Investment Committee
held five meetings.
The Directors Stock Committee administers the 1995 Stock Plan For
Non-Employee Directors. The 1996 Nonqualified Incentive Plan Stock Option
Committee administers the 1996 Nonqualified Incentive Plan. These committees did
not hold any meetings in 1999.
During 1999, each incumbent director attended at least 75% of the total
number of meetings of the Board and committees on which he served.
3
<PAGE> 6
PERFORMANCE GRAPH
The following graph presents the Company's cumulative shareholder return
over the period from December 31, 1994 to December 31, 1999. The Common Stock of
the Company is compared to the S&P 500 Index and to a Peer Group Index (formerly
the S&P Miscellaneous Index). The graph assumes $100 is invested on December 31,
1994 in the Common Stock of the Company, the S&P 500 Index and a Peer Group
Index. Investment is weighted on the basis of market capitalization. Total
return data assumes the reinvestment of dividends.
The data source for the following graph is S&P Compustat Services.
COMPARISON OF CUMULATIVE SHAREHOLDER RETURN
1994-1999
[GRAPH]
<TABLE>
<CAPTION>
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1994 1995 1996 1997 1998 1999
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<S> <C> <C> <C> <C> <C> <C>
SCI 100.00 160.71 206.41 273.34 285.65 53.39
S&P 500 Index 100.00 137.58 169.17 225.60 290.08 351.12
Peer Group Index 100.00 119.85 145.33 173.01 202.09 288.68
---------------------------------------------------------------------------------------------------------------
</TABLE>
Peer Group companies are: Airtouch Communications Inc., American Greetings
Corp., Corning Inc., The Dial Corporation, Harcourt General, Inc., Harris
Corporation, Jostens Inc., Minnesota Mining & Manufacturing Co., Pioneer Hi-Bred
International, TRW Inc., Viad Corp., and Whitman Corporation. These companies
are the same companies that previously made up the S&P Miscellaneous Index, with
the addition of Viad Corp. The Dial Corporation split into two companies (The
Dial Corporation and Viad Corp.) in 1996, so Viad Corp. has been added to the
group. Standard & Poor's discontinued its S&P Miscellaneous Index after 1995.
4
<PAGE> 7
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is a committee of
outside directors chaired by Mr. E. H. Thornton, Jr. Other members are Mr. James
H. Greer and Mr. John W. Mecom, Jr. This Committee is responsible for reviewing
and approving all elements of the total compensation program for officers of the
Company, including long-term incentive arrangements. The Committee has ultimate
responsibility for aligning the Company's total compensation programs with its
business strategy and for assuring shareholders that pay delivery programs are
effective, responsible and competitive when compared to similarly situated
organizations. This Committee report documents the basis on which 1999
compensation determinations were made and further describes the components of
officer compensation programs for the Company.
COMPENSATION PHILOSOPHY AND OBJECTIVES OF EXECUTIVE COMPENSATION PROGRAMS
It is the philosophy of the Company and the Committee that all compensation
programs should (1) link pay and performance, and (2) attract, motivate, reward
and retain the broad-based management talent required to achieve corporate
objectives. The Company also focuses strongly on stock-based compensation, since
this form of compensation provides the clearest link to enhanced shareholder
value. From time to time, the Committee works with compensation consultants to
assist with the design, implementation and communication of various compensation
plans. These programs include base salaries, annual performance-based incentives
and long-term incentives, all as further detailed below.
BASE SALARIES
Base salaries for the Company's officers in 1999 were reviewed through
comparisons with a group of 63 companies of similar size (as measured by
revenues and level of earnings) across various industries (the "Comparison
Group"). The competitive pay data is not drawn from the entire group of
companies which comprise the Peer Group Index (formerly the S&P Miscellaneous
Index) reflected in the performance graph in this proxy statement since the
Committee believes revenue size and earnings level comparisons are more
appropriate criteria for establishing base salary and annual incentive
compensation rates. There has been no attempt to tie together the performance
graph companies and the Comparison Group although there is some overlap between
the groups. The Committee does not consider any financial performance criteria
on a formula basis in determining salary increases. Rather, the Committee, using
its discretion, considers market base salary rates at the 75th percentile of
salaries of the Comparison Group, and considers average annual salary increases
for executives in companies of all sizes across the country, earnings per share
growth, operating income growth, sales growth, and total shareholder return. The
Committee also makes a subjective review of individual performance in making
base salary decisions for officers. These criteria are assessed in a non-formula
fashion and are not weighted. All of the officers shown in the summary
compensation table (the "Named Executives") have or had employment agreements
(see "Executive Employment Agreements"). Under these agreements, the Committee
has the sole discretion for determining any increase in base salary; however,
under the agreements, base salaries may not be decreased. In 1999, the Named
Executives received salary increases averaging approximately 8% over the prior
year. However, the size of increases ranged from a low of 0% to a high of 17%.
The current base salary levels for Named Executives are, overall, consistent
with the Company's philosophy of targeting the 75th percentile of salaries of
the Comparison Group. With respect to an item of compensation of an executive,
the term "75th percentile" means a level of compensation which is greater than
the compensation of peer executives at 75% of the companies in a survey or
selected group of companies.
ANNUAL INCENTIVE COMPENSATION
All of the Company's officers have a significant portion of their total
compensation at risk through annual incentive opportunities that are linked to
key financial and operational objectives for the Company on a consolidated
basis. The objective of this policy is to focus the Named Executives on the
attainment of objectives that the Committee believes are primary determinants of
share price over time. While the Committee has discretion to consider other
factors (including operating income growth, sales growth and total shareholder
return), the primary basis for determining incentive awards in 1999 was earnings
per share targets.
5
<PAGE> 8
Actual incentive awards are proportionately decreased or increased on the basis
of the Company's earnings per share compared to target, subject to maximum award
amounts. Target award levels for 1999 were set at approximately the 50th
percentile of annual incentive compensation of the Comparison Group. Payments
are generally made in cash and are subject to the discretion of the Committee to
make downward adjustments.
In the first quarter of 1999, the Committee established performance goals
for 1999. No executive annual incentive awards were paid for 1999 performance
since the Company failed to meet its earnings per share performance targets. As
a result, actual cash compensation levels for the Named Executives fell below
market median levels.
LONG-TERM INCENTIVE COMPENSATION
In recent years, the Committee has placed significant emphasis on
stock-based compensation for officers. Stock options were granted to the Named
Executives and other officers in March and May 1999. The total of the stock
option awards were established at approximately the 75th percentile of long-term
incentive awards of the Comparison Group. These grants were intended to
represent a normal single-year option award reflecting the Company's philosophy
of focusing strongly on stock-based compensation. These stock options were
granted with exercise prices equal to 100% of the fair market value of the
Common Stock on the grant date. The options vest at a rate of one-third per year
and have an eight year term.
Prior to 1999, the Company's stock option grants to Named Executives were
determined with reference to the 75th percentile of long-term incentive awards
made by a survey group of approximately 25 companies (the "Survey Group") which
had experienced high earnings per share growth rates similar to the Company's
pre-1999 rates. Since the Company did not experience a high earnings per share
growth rate in 1999, the Company's 1999 option grants to Named Executives were
determined with reference to the Comparison Group instead of the Survey Group.
The 1999 grants to Named Executives were less than one-half of award levels at
the 75th percentile of the Survey Group.
1999 CHIEF EXECUTIVE OFFICER PAY
As described above, the Company manages its pay for all executives,
including the Chief Executive Officer ("CEO"), considering both a
pay-for-performance philosophy and market rates of compensation for each
executive position. Commencing in February 1999, the CEO was also President of
the Company and discharged the responsibilities of such office during 1999.
Specific actions taken by the Committee regarding the CEO's compensation are
summarized below.
Base Salary
In 1999, Mr. R. L. Waltrip's base salary was increased from $900,000 to
$950,000, a 5.6% increase. This base salary is consistent with the Company's
philosophy of targeting the 75th percentile of the salaries of the Comparison
Group. Mr. Waltrip's base salary increase was determined on the same basis as
salary increases for other officers.
Annual Incentive Compensation
No annual incentive was earned by the CEO for 1999 performance since the
Company failed to meet its earnings per share targets.
Long-Term Incentive Compensation
The CEO received a grant of 400,000 stock options in March 1999 and 800,000
stock options in May 1999. These grants in total equal an annual grant slightly
above the 75th percentile of the Comparison Group. These awards vest at a rate
of one-third per year. These stock options have an eight year term and were
granted with an exercise price equal to 100% of fair market value of the Common
Stock on the grant date.
6
<PAGE> 9
LIMITATION OF TAX DEDUCTION FOR EXECUTIVE COMPENSATION
Subject to certain exceptions, the Omnibus Budget Reconciliation Act of
1993 ("OBRA") prohibits publicly traded companies from receiving a tax deduction
on compensation paid to named executive officers in excess of $1,000,000
annually. Although the Committee has not adopted a policy relating to OBRA, the
Committee considers the OBRA restrictions when structuring compensation
programs. However, the Committee believes that compensation is more important
than tax deductibility in focusing management on its goal of increasing
shareholder value.
COMPENSATION COMMITTEE:
E.H. Thornton, Jr., Chairman
James H. Greer
John W. Mecom, Jr.
7
<PAGE> 10
CERTAIN INFORMATION WITH RESPECT TO OFFICERS AND DIRECTORS
CASH COMPENSATION
The following table sets forth information for the three years ended
December 31, 1999 with respect to the Chief Executive Officer, the four other
most highly compensated executive officers of the Company and one executive
officer who was not serving as such at the end of 1999. The determination as to
which executive officers were most highly compensated was made with reference to
the amounts required to be disclosed under the "Salary" and "Bonus" columns in
the table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
LONG-TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- ---------------------------------------------------------------------------------------------------------------------
RESTRICTED LONG-TERM
NAME AND OTHER ANNUAL STOCK STOCK INCENTIVE
PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION(2) AWARD OPTIONS PAYOUTS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
R. L. Waltrip 1999 $970,000 $ 0 $ 302,262 $ 0 1,200,000 $ 0
Chairman and 1998 930,000 0 315,000 0 400,000 0
Chief Executive Officer 1997 879,000 2,333,400 342,588 0 1,565,500 0
Jerald L. Pullins 1999 445,000 0 120,365 0 300,000 0
President and 1998 400,000 0 117,400 0 105,000 0
Chief Operating Officer 1997 362,500 631,000 254,476 0 506,500 0
James M. Shelger 1999 340,000 0 75,709 0 100,000 0
Senior Vice President, 1998 322,500 0 41,892 0 55,000 0
General Counsel and 1997 300,000 469,400 30,481 0 245,000 0
Secretary
W. Blair Waltrip(4) 1999 507,500 0 199,855 0 300,000 0
Former Executive Vice 1998 482,500 0 169,100 0 110,000 0
President Operations 1997 450,000 823,200 141,431 0 623,500 0
John W. Morrow, Jr.(4) 1999 375,000 0 89,836 0 300,000 0
Former Executive Vice 1998 350,000 150,000 92,070 0 0 0
President North American 1997 340,000 573,700 97,723 0 356,500 0
Operations
George R. Champagne(4) 1999 370,577 0 98,113 0 300,000 0
Former Executive Vice 1998 377,500 0 33,800 0 95,000 0
President and Chief 1997 338,500 585,100 152,890 0 356,500 0
Financial Officer
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------- ---------------
- --------------------------- ---------------
NAME AND ALL OTHER
PRINCIPAL POSITION COMPENSATION(3)
- --------------------------- ---------------
<S> <C>
R. L. Waltrip $ 249,267
Chairman and 253,069
Chief Executive Officer 284,126
Jerald L. Pullins 51,117
President and 51,251
Chief Operating Officer 53,608
James M. Shelger 21,559
Senior Vice President, 21,630
General Counsel and 21,670
Secretary
W. Blair Waltrip(4) 41,393
Former Executive Vice 42,454
President Operations 42,252
John W. Morrow, Jr.(4) 59,106
Former Executive Vice 61,985
President North American 62,773
Operations
George R. Champagne(4) 1,660,336
Former Executive Vice 18,458
President and Chief 18,471
Financial Officer
- --------------------------------------------
</TABLE>
(1) Salary includes director fees of $45,000 each for Messrs. R. L. Waltrip and
W. Blair Waltrip for 1999.
(2) Figures include executive perquisites and benefits, including, for 1999,
$56,797 for use of aircraft and $110,500 for Interest Reimbursement for Mr.
R. L. Waltrip; $37,226 for transfer of an automobile to Mr. Pullins; $27,700
for transfer of an automobile to Mr. Shelger; $46,508 for use of aircraft
and $39,000 for Interest Reimbursement for Mr. W. Blair Waltrip; $34,125 for
Interest Reimbursement for Mr. Morrow; and $36,926 for transfer of an
automobile to Mr. Champagne. "Interest Reimbursement" means a payment to the
individual as reimbursement of interest paid by him on the loan from the
Company described in the eighth paragraph under "Certain Transactions."
(3) Consists of the following for 1999: $246,828 for split dollar life insurance
and $2,439 for term life insurance for Mr. R. L. Waltrip; $50,133 for split
dollar life insurance and $984 for term life insurance for Mr. Pullins;
$21,098 for split dollar life insurance and $461 for term life insurance for
Mr. Shelger; $40,628 for split dollar life insurance and $765 for term life
insurance for Mr. W. Blair Waltrip; $57,234 for split dollar life insurance
and $1,872 for term life insurance for Mr. Morrow; and $18,135 for split
dollar life insurance and $278 for term life insurance for Mr. Champagne. In
addition, Mr. Champagne received $51,923 in salary and $1,590,000 in lieu of
bonuses, which amounts were paid in 1999 to Mr. Champagne after his
resignation on November 18, 1999.
(4) Messrs. W. Blair Waltrip, Morrow and Champagne have resigned as officers of
the Company. See the last three paragraphs under the subcaption "Executive
Employment Agreements" below.
8
<PAGE> 11
STOCK OPTIONS
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SCI SHARES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES PRICE PER EXPIRATION PRESENT
NAME GRANT DATE GRANTED(1) IN 1999 SHARE(2) DATE VALUE(3)
---- ---------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
R. L. Waltrip............... 03/10/1999 400,000 8.07% $14.8125 03/10/2007 $3,235,160
05/12/1999 800,000 16.14% $19.4688 05/12/2007 $8,404,880
Jerald L. Pullins........... 03/10/1999 100,000 2.02% $14.8125 03/10/2007 $ 808,790
05/12/1999 200,000 4.03% $19.4688 05/12/2007 $2,101,220
James M. Shelger............ 03/10/1999 50,000 1.01% $14.8125 03/10/2007 $ 404,395
05/12/1999 50,000 1.01% $19.4688 05/12/2007 $ 525,305
W. Blair Waltrip............ 03/10/1999 100,000 2.02% $14.8125 03/10/2007 $ 808,790
05/12/1999 200,000 4.03% $19.4688 05/12/2007 $2,101,220
John W. Morrow, Jr. ........ 03/10/1999 100,000 2.02% $14.8125 03/10/2007 $ 808,790
05/12/1999 200,000 4.03% $19.4688 05/12/2007 $2,101,220
George R. Champagne......... 03/10/1999 100,000 2.02% $14.8125 03/10/2007 $ 808,790
05/12/1999 200,000 4.03% $19.4688 05/12/2007 $2,101,220
</TABLE>
- ---------------
(1) The stock options vest one-third on each anniversary of the grant date. Each
option will also fully vest upon a change of control of the Company (as
defined in the Amended 1996 Incentive Plan).
(2) The exercise price for all grants is the market price at the date of grant.
(3) The present value of the options is based on a present value model known as
the "Black-Scholes option pricing model". The choice of such valuation
method does not reflect any belief by the Company that such a method, or any
other valuation method, can accurately assign a value to an option at the
grant date. The assumptions used for valuing the 1999 grants are: volatility
rate of 39.3%; annual dividend yield of 0%; turnover rate of 3%; and risk
free interest rate of 5.4% (3-10-99 grant) and 5.7 % (5-12-99 grant).
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND DECEMBER 31, 1999 OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1999 DECEMBER 31, 1999
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. L. Waltrip............... 0 0 2,551,836 2,666,667 0 0
Jerald L. Pullins........... 0 0 435,000 876,500 0 0
James M. Shelger............ 0 0 168,333 381,667 0 0
W. Blair Waltrip............ 0 0 667,518 996,834 0 0
John W. Morrow, Jr. ........ 0 0 130,000 656,500 0 0
George R. Champagne......... 0 0 275,166 719,834 0 0
</TABLE>
9
<PAGE> 12
RETIREMENT PLANS
Cash Balance Plan
The SCI Cash Balance Plan is a defined benefit plan. Each participant in
the plan has an account which will be credited, each year that a participant
qualifies, with a Company contribution (based on annual compensation and years
of benefit service) and interest. The chart below is the percentage applied to
total compensation for determining the Company contribution for each
participant.
<TABLE>
<CAPTION>
PERCENTAGE OF
YEARS OF BENEFIT SERVICE COMPENSATION
- ------------------------ -------------
<S> <C>
Less than six years......................................... 5.5%
Six to ten years............................................ 6.5%
Eleven or more years........................................ 8.0%
</TABLE>
The maximum compensation used in computing benefits under the SCI Cash
Balance Plan for 1999 was $160,000.
For 1999, interest for each account was credited at the annual rate of
4.31%.
Estimated Annual Benefits Payable at Age 65
<TABLE>
<CAPTION>
NAME ANNUAL BENEFIT
---- --------------
<S> <C>
R. L. Waltrip............................................... $118,852(1)
Jerald L. Pullins........................................... 37,688
James M. Shelger............................................ 63,927
W. Blair Waltrip............................................ 96,433
John W. Morrow, Jr. ........................................ 17,598
George R. Champagne......................................... 28,123(2)
</TABLE>
- ---------------
(1) Currently being paid.
(2) This estimated annual benefit is based on no further service after November
18, 1999. The account balance as of November 18, 1999 is credited with
interest only until age 65.
Normal Retirement Age is defined in the SCI Cash Balance Plan as (1) the
date upon which a member attains age 65 or (2) in the case of an employee who
becomes a member of the SCI Cash Balance Plan after the age of 60, it will be
the fifth anniversary of the date that such member became a participant.
The predecessor plan, the SCI Pension Plan, was restated and renamed the
SCI Cash Balance Plan effective October 1, 1993. The SCI Pension Plan, a defined
benefit plan, assumed employment continued to a normal retirement date of age
65. The annuity provided by the SCI Pension Plan, payable for life with 120
monthly payments certain, would provide a monthly benefit computed as follows:
40% of final average monthly compensation for the highest five consecutive years
multiplied by a fraction of which the numerator is the years of benefit service
(not to exceed 30) and the denominator is 30.
Employees at least age 60 years old with 10 years of benefit service on
September 30, 1993 will receive the greater of the benefit they would have
earned under the SCI Pension Plan or the benefit earned under the SCI Cash
Balance Plan.
The credited years of service under the SCI Cash Balance Plan as of
December 31, 1999 for the following named individuals are as follows: R.L.
Waltrip (43), Jerald L. Pullins (17), James M. Shelger (18), W. Blair Waltrip
(22), John W. Morrow, Jr. (10) and George R. Champagne (12).
Supplemental Executive Retirement Plan for Senior Officers
The Supplemental Executive Retirement Plan for Senior Officers ("SERP for
Senior Officers") is a non-qualified plan which covers officers and subsidiary
operating presidents, including the Named Executives.
10
<PAGE> 13
Benefits under the SERP for Senior Officers do not consist of compensation
deferred at the election of participants. The amounts of benefits under the plan
are set by the Compensation Committee from time to time. The Compensation
Committee has set current guidelines such that the annual benefits will
generally equal a percentage (75% for the Chairman and lesser percentages for
the other officers) of a participant's 1997 annual base salary and target bonus,
with the benefits being reduced to the extent of the participant's benefits
under Social Security and the SCI Cash Balance Plan. The participant will be
entitled at age 60 to the annual payment of the full amount of his benefit; if
his employment terminates earlier than age 60, he will be entitled to the annual
payment of the amount of his benefit multiplied by a fraction of which the
numerator is the participant's years of service and the denominator is the
number of years from the participant's hire date until he reaches age 60. These
guidelines will not be applied if the participant would have been entitled to
higher benefits under the Compensation Committee's previous guidelines.
Benefit payments will be made in the form of 180 monthly installments
commencing at the later of severance of employment or the attainment of age 55.
Prior to retirement, if a participant dies or in the event of a change of
control of the Company (as defined in the SERP for Senior Officers), the Company
will promptly pay to each beneficiary or participant a lump sum equal to the
present value of the benefit that the participant would have been entitled to
receive if he had continued to accrue benefit service from the date of death or
the date of the change of control to the date of his 65th birthday. Participants
may elect to begin receiving monthly benefits at age 55, while still employed,
provided the participant gives written notice at least twelve months prior to
the attainment of age 55. Such installments will be reduced for early
commencement to reasonably reflect the time value of money.
The table below sets forth benefits for the Named Executives.
ANNUAL BENEFITS UNDER SERP FOR SENIOR OFFICERS
<TABLE>
<CAPTION>
ESTIMATED ANNUAL
BENEFIT AT AGE 60
-----------------
<S> <C>
R. L. Waltrip............................................... $1,093,281(1)
Jerald L. Pullins........................................... 279,618
James M. Shelger............................................ 204,143
W. Blair Waltrip............................................ 574,580(2)
John W. Morrow, Jr. ........................................ 271,394(3)
George R. Champagne......................................... 126,341(4)
</TABLE>
- ---------------
(1) This is Mr. R. L. Waltrip's actual benefit which, pursuant to his election,
is being paid in the form of monthly installments beginning January 1, 1995.
(2) Current participants have the greater of the benefit they would have earned
under the previous guidelines or the amount provided by the current
guidelines. For Mr. W. Blair Waltrip, the annual benefit is the amount
earned under the previous guidelines.
(3) This is Mr. Morrow's actual benefit which, pursuant to his election, is
being paid in the form of monthly installments beginning February 1, 2000.
(4) This is Mr. Champagne's estimated benefit based on participation through
December 31, 2001. Mr. Champagne will be eligible to receive this benefit
upon attaining the age of 55.
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has executive employment agreements with its executive
officers, including Messrs. R. L. Waltrip, Pullins and Shelger. The agreements
have an initial term of five years for Mr. R. L. Waltrip, three years for Mr.
Pullins and two years for Mr. Shelger. Upon annual authorization by the
Compensation Committee of the Board of Directors, the terms of the agreements
are extended for an additional year unless notice of nonrenewal is given by
either party. If such notice of nonrenewal is given by the Company or if notice
is not given of the Compensation Committee's decision to authorize renewal, the
employment period is extended so as to terminate the same number of years after
the date of such notice as
11
<PAGE> 14
the original term of the agreement. For 2000, the agreements were not renewed
and will terminate when their respective terms expire on December 31 of 2004 for
Mr. R. L. Waltrip, 2002 for Mr. Pullins and 2001 for Mr. Shelger.
The agreements provide for base salaries, which may be increased (but not
decreased) by the Compensation Committee, and the right to participate in bonus
and other compensation and benefit arrangements. As of March 23, 2000, the base
salaries for Messrs. R. L. Waltrip, Pullins and Shelger were $950,000, $525,000
and $350,000, respectively.
In the event of termination of employment due to disability or death, the
executive or his estate will be entitled to receive any accrued and unpaid
salary or other compensation, a pro rata portion (based on the portion of the
year elapsed at the date of termination) of the highest bonus the executive
received in the preceding three years and continuation of welfare plan benefits.
If an executive is terminated without cause or he voluntarily terminates for
certain specified reasons generally relating to a failure by the Company to
honor the terms of the employment agreement ("Good Reason"), he will be entitled
to continuation of compensation and certain other benefits for the remaining
term of his employment agreement. In the event of a change of control of the
Company (as defined in the agreements), the executive will be entitled to
terminate his employment for Good Reason, or without any reason during the
30-day period beginning one year after the change of control (the "Window
Period"), and receive a lump-sum payment equal to (a) any accrued and unpaid
salary or other compensation plus (b) a pro rata portion (based on the portion
of the year elapsed at the date of termination) of the highest bonus the
executive received in the preceding three years plus (c) a multiple (equal to
the number of years in the initial term) of both the executive's base salary and
his highest recent bonus.
Upon termination of his employment, each executive will be subject, at the
Company's option, to a non-competition obligation for a period equal to the
number of years in the executive's initial term (except for Mr. R. L. Waltrip,
who has a 10-year non-competition obligation). If the Company elects to have the
non-competition provisions apply, during the non-competition period the Company
will make payments to the executive (other than Mr. R. L. Waltrip) at a rate
equal to his base salary at the time of termination, unless such termination was
for cause or the executive terminates his employment other than for Good Reason
or during the Window Period, in which case the executive will be bound by the
non-competition provisions without the Company making the corresponding
payments. Any payments relating to the non-competition provisions will be
reduced to the extent the executive has received a lump-sum payment in lieu of
salary and bonus after termination of employment.
If any payments under the executive employment agreements or under the
benefit plans of the Company (including the SERP for Senior Officers, the 1993
Long-Term Incentive Stock Option Plan, the 1995 Incentive Equity Plan and the
Amended 1996 Incentive Plan) would subject the executive to any excise tax under
the Internal Revenue Code, the executive will also be entitled to receive an
additional payment in an amount such that, after the payment of all taxes
(income and excise), the executive will be in the same after-tax position as if
no excise tax had been imposed.
At the date of his resignation on November 18, 1999, Mr. Champagne had an
employment agreement with the Company with a term expiring on December 31, 2001.
In connection with the resignation, the Company modified Mr. Champagne's
agreement and agreed to provide or pay Mr. Champagne (i) salary of $450,000 per
year until December 31, 2001, (ii) the sum of $1,590,000 in lieu of bonuses,
(iii) the value in cash of the contributions to the Cash Balance Plan which Mr.
Champagne would otherwise have received as an employee during the period from
resignation until December 31, 2001, (iv) continuation of Mr. Champagne's
mortgage loan described hereinafter under the caption "Certain Transactions,"
(v) continuation of his Company stock options in accordance with their terms,
and (vi) continuation of Company welfare benefit plan benefits until December
31, 2001. The Company elected to cancel Mr. Champagne's post-employment
non-competition obligations under the agreement and the Company's corresponding
obligation to make non-competition payments. Mr. Champagne's benefits under the
Cash Balance Plan and the SERP for Senior Officers are described under the
subcaption "Retirement Plans" hereinabove. In addition, the Company entered into
a consulting agreement with Mr. Champagne under
12
<PAGE> 15
which he is obligated to provide consulting services for two years at the rate
of $20,000 per month for the first twelve months and $10,000 per month for the
remaining twelve months.
At the date of his resignation as an officer on January 18, 2000, Mr. W.
Blair Waltrip had a three year employment agreement with the Company. In
connection with the resignation, the Company modified Mr. W. Blair Waltrip's
employment agreement and agreed to provide or pay Mr. Waltrip (i) salary of
$475,000 per year until December 31, 2002, (ii) the sum of $2,102,471 in lieu of
bonuses, (iii) the value in cash Mr. Waltrip would have accrued under the Cash
Balance Plan and the SERP for Senior Officers had he remained an employee
through December 31, 2002, (iv) interest reimbursement for Mr. Waltrip's loan
described hereinafter in the eighth paragraph under the caption "Certain
Transactions," (v) continuation of his Company stock options in accordance with
their terms, and (vi) continuation of medical and life insurance benefits
through December 31, 2002. The Company elected to enforce Mr. W. Blair Waltrip's
post-employment non-competition obligations for the period from January 1, 2003
until December 31, 2005, during which the Company will make non-competition
payments of $475,000 per year. Mr. W. Blair Waltrip's benefits under the Cash
Balance Plan and the SERP for Senior Officers are described under the subcaption
"Retirement Plans" hereinabove. Mr. W. Blair Waltrip remains a director of the
Company.
At the date of his resignation on January 21, 2000, Mr. Morrow had a three
year employment agreement with the Company. In connection with the resignation,
the Company modified Mr. Morrow's agreement and agreed to provide or pay Mr.
Morrow (i) salary of $400,000 per year until December 31, 2001, (ii) the value
in cash Mr. Morrow would have accrued under the Cash Balance Plan and the SERP
for Senior Officers had he remained an employee through December 31, 2001, (iii)
interest reimbursement for Mr. Morrow's loan described hereinafter in the eighth
paragraph under the caption "Certain Transactions," (iv) continuation of his
Company stock options in accordance with their terms, and (v) continuation of
medical and life insurance benefits through December 31, 2001. The Company
elected to cancel Mr. Morrow's post-employment non-competition obligations under
the agreement and the Company's corresponding obligation to make non-
competition payments. Mr. Morrow's benefits under the Cash Balance Plan and the
SERP for Senior Officers are described under the subcaption "Retirement Plans"
hereinabove.
OTHER COMPENSATION
The Named Executives and certain other officers participate in the Split
Dollar Life Insurance Plan, under which they are owners of life insurance
policies providing death benefits to the Named Executives as follows: $2,000,000
for Mr. R. L. Waltrip; $1,000,000 each for Messrs. Pullins, W. Blair Waltrip and
Morrow; and $750,000 each for Messrs. Shelger and Champagne. SCI advances the
annual premium on each policy, with the executive paying income tax on the term
cost of the death benefit. Each executive collaterally assigned an interest in
the policy to SCI in an amount equal to its cumulative premiums paid. SCI will
recover its cumulative premiums paid at the earlier of 15 years or death.
DIRECTOR COMPENSATION
The current rates of directors' and committee fees are $5,250 quarterly
plus $6,000 for each meeting of the Board attended (payable to all directors),
and $1,500 for each committee meeting attended (payable to non-employee
directors only).
In addition, directors or directors emeritus who are not employees of the
Company or its subsidiaries automatically receive yearly awards of restricted
Common Stock through 2000 pursuant to the 1995 Stock Plan For Non-Employee
Directors. Each award will be made on the second Thursday of May for an amount
of 3,000 shares. Each award will have a restriction period which will lapse on
the second Thursday in May of the year following the year the award is granted.
If the director terminates service as a director for any reason other than
disability or death prior to the lapse of the restriction period, the restricted
shares shall be forfeited. The restrictions shall lapse upon the occurrence of
death or total and permanent disability of the director or upon a change of
control of the Company (as defined in the plan). While the restrictions are in
effect, the shares cannot be sold, pledged or transferred. Except for the
restrictions described above, a participant in the
13
<PAGE> 16
plan who has been awarded shares of restricted Common Stock has all the rights
of a holder of Common Stock, including the right to receive dividends paid on
such shares and the right to vote such shares. In 1999, each of the nine
directors who were not employees and the director emeritus received an award of
3,000 shares under the plan. Mr. Lund did not receive an award in 1999 since he
was not elected a director until February 2000.
The Company maintains a Retirement Plan for Non-Employee Directors. Under
this plan, each of the directors (excluding Messrs. Lund and W. Blair Waltrip)
who is not an employee of the Company, including the director emeritus, was
designated as a plan participant and will be entitled to receive annual
retirement benefits of $42,500 for ten years, subject to a vesting schedule. The
retirement benefits will vest in 25% increments at the end of five years, eight
years, eleven years and fifteen years of credited service, except that the
benefits will automatically vest 100% in the event of death while a director or
in the event of a change in control of the Company (as defined in the plan).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1999, the members of the Compensation Committee of the Board of
Directors of the Company were Messrs. James H. Greer, John W. Mecom, Jr. and E.
H. Thornton, Jr. No member of the Compensation Committee was, during 1999, an
officer or employee of the Company or any of its subsidiaries, or was formerly
an officer of the Company or any of its subsidiaries or had any relationships
requiring disclosure by the Company.
CERTAIN TRANSACTIONS
In August 1989, the Company acquired funeral homes in which John W. Morrow,
Jr., former Executive Vice President North American Operations, had an ownership
interest. In connection with the transaction, each of Mr. Morrow's adult
children entered a ten-year Agreement-Not-to-Compete under which the Company is
obligated to make monthly payments for the term of such agreements. The Company
paid $24,000 in 1999 under the children's agreements.
In January 1999, the Company acquired Equity Corporation International
("ECI") which leased funeral home property from Mr. Morrow. The lease was
extended in 1999, has a term ending August 2004 and may be extended by the
Company for three additional terms of five years each. The lease provides for
annual rentals equal to the higher of $90,000 or 8% of the funeral home's net
sales. For 1999, the Company and ECI paid rentals of $90,000 to Mr. Morrow.
For 1999, the Company paid $211,527 cash compensation, including expatriate
allowances and other benefits, and granted stock options for 7,000 shares of
Common Stock to Robert E. Morrow, brother of John W. Morrow, Jr., in his
capacity as an employee of the Company.
For 1999, the Company paid $80,651 cash compensation and granted stock
options for 1,000 shares of Common Stock to Kevin Mack in his capacity as an
employee of the Company. Mr. Mack is the brother of Stephen M. Mack, Vice
President Domestic Operations of the Company.
For 1999, the Company paid $163,762 cash compensation and granted stock
options for 3,000 shares of Common Stock, to Scott Sells in his capacity as an
employee of the Company. Mr. Sells is the son of Richard T. Sells, former Senior
Vice President Preneed Sales of the Company.
In 1999, the Company paid $45,000 cash remuneration and awarded 3,000
restricted shares of Common Stock of the Company to Wanda A. McGee, mother of R.
L. Waltrip, in her capacity as director emeritus of the Company. Pursuant to a
resolution adopted by the Board in 1983, Ms. McGee is entitled as director
emeritus to receive such fees and other emoluments as may be paid or awarded to
directors of the Company.
In 1999, the Company leased vehicles to companies owned by Mr. R. L.
Waltrip and received rentals aggregating $29,112. The leases were fully paid off
and terminated in 1999. All of the leases were entered at
14
<PAGE> 17
market rates and contained terms which, in the opinion of management, were as
favorable to the Company as could have been negotiated with any third party.
In connection with grants of restricted stock under the Amended 1987 Stock
Plan, on August 19, 1993 the Company made loans of $1,700,000 to Mr. R. L.
Waltrip, $1,000,000 to Mr. L. William Heiligbrodt, former President and Chief
Operating Officer of the Company, $600,000 to Mr. W. Blair Waltrip and $525,000
to Mr. Morrow. The loans were made to enable such officers to pay the estimated
federal income taxes resulting from their receipt of the restricted stock
grants. Each of the loans remained outstanding in 1999, is due August 10, 2003
and bears interest at 6 1/2% per annum, which interest is reimbursed by the
Company (together with a tax gross-up payment equal to approximately 70% of the
interest).
Provident Services, Inc. and its subsidiaries ("Provident") provide various
types of financing in the funeral and cemetery industry, including loans to
certain employees and directors of the Company. Provident Services, Inc. is a
subsidiary of the Company. During 1999, Provident had outstanding loans of
$60,000 or more to officers and directors as set forth below. All such loans are
secured and contain terms which, in the opinion of management, are as favorable
to Provident as could have been negotiated with any third party.
T. Craig Benson, Vice President Corporate Alliances and Marketing of the
Company, paid off in 1999 a loan to exercise stock options at the prime rate, of
which the largest balance in 1999 was $73,751.
Gregory L. Cauthen, former Senior Vice President Financial Services of the
Company, has a mortgage loan at 7.10% interest, of which the largest balance in
1999 was $149,461 and the year end balance was $135,585.
George R. Champagne, former Executive Vice President and Chief Financial
Officer of the Company, has a mortgage loan at 6.90% interest, of which the
largest balance in 1999 was $455,582 and the year end balance was $442,620.
Anthony L. Coelho, a member of the Board of Directors of the Company, has a
mortgage loan at 7.20% interest, of which the largest balance in 1999 was
$356,133 and the year end balance was $293,657.
J. Daniel Garrison, Vice President International Operations of the Company,
has a mortgage loan at 7.05% interest, of which the largest balance in 1999 was
$220,727 and the year end balance was $215,089.
L. William Heiligbrodt, former President and Chief Operating Officer of the
Company, has a mortgage loan at 7.70% interest, of which the largest balance in
1999 was $351,935 and the year end balance was $346,576. Mr. Heiligbrodt has a
mortgage loan at 7.60% interest, of which the largest balance in 1999 was
$93,125 and the year end balance was $91,676. Mr. Heiligbrodt has a mortgage
loan at 7.45% interest, of which the largest balance in 1999 was $124,755 and
the year end balance was $122,830.
Lowell A. Kirkpatrick, Jr., Vice President Operational Management Systems
of the Company, has a mortgage loan at 6.50% interest, of which the largest
balance in 1999 was $696,324 and the year end balance was $688,228.
Stephen M. Mack, Vice President Domestic Operations, has a loan for
personal use at the prime rate, of which the largest balance in 1999 and the
year end was $325,000.
Todd A. Matherne, former Vice President Treasurer of the Company, paid off
in 1999 a mortgage loan at 7.05% interest, of which the largest balance in 1999
was $130,828.
Glenn G. McMillen, former Senior Vice President and Assistant to the
Chairman of the Company, has a mortgage loan at 6.45% interest, of which the
largest balance in 1999 was $209,106 and the year end balance was $196,940.
Jerald L. Pullins, President and Chief Operating Officer of the Company,
has a mortgage loan at 7.00% interest, of which the largest balance in 1999 was
$494,750 and the year end balance was $489,511. Mr. Pullins paid off in 1999 a
mortgage loan at 6.90% interest, of which the largest balance in 1999 was
$1,831,463. In addition, Mr. Pullins paid off in 1999 a stock loan at the prime
rate, of which the largest balance in 1999 was $1,815,000.
15
<PAGE> 18
Michael R. Webb, Vice President Corporate Development of the Company, has a
mortgage loan at 7.10% interest, of which the largest balance in 1999 was
$293,548 and the year end balance was $290,014. In addition, he paid off in 1999
a loan for personal use at the prime rate, of which the largest balance in 1999
was $30,000.
The Company has entered into transactions with J.P. Morgan & Co.
Incorporated or its subsidiaries (collectively, "Morgan"), which in 1999 held
more than 5% of the outstanding shares of Common Stock of the Company. During
1999, the Company and Morgan were engaged in 17 derivatives transactions,
including interest rate swaps and cross-currency interest rate swaps. The swaps
have been entered at various times from 1993 to 1998 and mature at various times
from 1999 to 2010. For 1999, the Company paid or accrued an aggregate interest
expense of $151,068,045 to Morgan under the swaps and the Company received or
accrued from Morgan an aggregate interest income of $158,743,504. At December
31, 1999, the aggregate notional amount under the swaps was $1,429,877,254, and
SCI's aggregate net fair value position of the swaps was a positive $20,782,671.
During 1999, four swaps matured in accordance with their terms.
During the first quarter of 2000, the Company and Morgan engaged in 14
transactions regarding swaps which resulted in a net payment to SCI of the
swaps' aggregate net fair value position of $15,228,265. As of January 31, 2000,
the Company has terminated all swaps with Morgan.
Morgan currently has an option related to the issuance of certain SCI debt
securities that has a value to Morgan of $8,500,000 as of January 31, 2000. The
Company has provided to Morgan collateral in the amount of this option.
During 1998, Morgan provided advisory services to the Company in connection
with the Company's acquisition of ECI. After completion of the acquisition of
ECI in 1999, the Company paid Morgan fees of $4,076,000 for advisory services
regarding such acquisition. The Company also paid $250,000 for other advisory
services in 1999.
In 1999, the Company paid fees aggregating $929,205 for investment
management services provided by Morgan. In 1999, the Company paid Morgan fees of
$143,575 for services provided in its capacity as dealer of commercial paper. In
1999, the Company paid Morgan fees of $88,000 for executing its share repurchase
program.
Various institutions, including Morgan, are lenders under the Company's
$600,000,000 revolving credit agreement executed in November 1999 which
superceded the prior $800,000,000 revolving credit agreement executed in
November 1998. As a lender, Morgan accrued $91,617 in fees in 1999 under the
agreements.
Barrow, Hanley, Mewhinney & Strauss, Inc. ("BHMS") is a holder of more than
5% of the outstanding shares of Common Stock of the Company. During 1999, BHMS
was also an investment manager of portfolios of independent trusts which hold
funds collected by the Company in connection with preneed funeral sales and
preneed cemetery sales. Such trusts are prohibited from investing in SCI stock
or other SCI securities. During 1999, BHMS managed as much as approximately
$50,800,000 for such trusts and was managing approximately $40,400,000 at the
end of 1999. For such services, such trusts paid fees of $200,296 to BHMS for
1999. It is expected that BHMS will continue managing such trusts during 2000,
and the Company recently transferred management of approximately $45,000,000
more funds to BHMS.
16
<PAGE> 19
VOTING SECURITIES AND PRINCIPAL HOLDERS
The table below sets forth information with respect to any person who is
known to the Company as of March 23, 2000 to be the beneficial owner of more
than five percent of the Company's Common Stock.
<TABLE>
<CAPTION>
AMOUNT
NAME AND ADDRESS BENEFICIALLY PERCENT
OF BENEFICIAL OWNER OWNED OF CLASS
------------------- ------------ ---------
<S> <C> <C>
Barrow, Hanley, Mewhinney & Strauss, Inc. .................. 23,288,700(1) 8.6%
One McKinney Plaza
3232 McKinney Avenue, 15th Floor
Dallas, Texas 75204-2429
Capital Group International, Inc. .......................... 18,970,640(2) 7.0%
11100 Santa Monica Blvd.
Los Angeles, California 90025
Capital Research and Management Company..................... 15,730,800(3) 5.8%
333 South Hope Street
Los Angeles, California 90071
Putnam Investments, Inc., Marsh & McLennan Companies, Inc.,
Putnam Investment Management, Inc. and The Putnam Advisory
Company, Inc. .............................................. 15,313,241(4) 5.6%
One Post Office Square
Boston, Massachusetts 02109
Vanguard Windsor Funds -- Vanguard Windsor II Fund.......... 23,045,900(5) 8.5%
P. O. Box 3600
Valley Forge, Pennsylvania 19482
</TABLE>
- ---------------
(1) Based on a filing made by Barrow, Hanley, Mewhinney & Strauss, Inc. on
February 9, 2000, which reported sole voting power for 200,000 shares,
shared voting power for 23,088,700 shares, sole investment power for
23,288,700 shares and shared investment power for no shares.
(2) Based on a filing made by Capital Group International, Inc. on February 14,
2000, which reported sole voting power for 16,208,140 shares, shared voting
power for no shares, sole investment power for 18,970,640 shares and shared
investment power for no shares.
(3) Based on a filing made by Capital Research and Management Company on
February 11, 2000, which reported sole voting power for no shares, shared
voting power for no shares, sole investment power for 15,730,800 shares and
shared investment power for no shares.
(4) Based on filings made by the named companies on February 18, 2000, which
reported sole voting power for no shares, shared voting power for 992,270
shares, sole investment power for no shares and shared investment power for
15,313,241 shares.
(5) Based on a filing made by Vanguard Windsor Funds-Vanguard Windsor II Fund on
February 8, 2000, which reported sole voting power for 23,045,900 shares,
shared voting power for no shares, sole investment power for no shares and
shared investment power for 23,045,900 shares.
The table below sets forth, as of March 23, 2000, the amount of the
Company's Common Stock beneficially owned by each Named Executive (except for
Mr. Champagne who resigned in November 1999 and Mr. Morrow who resigned in
January 2000), each director and nominee for director, and all directors and
executive officers as a group, based upon information obtained from such
persons. Securities reported as
17
<PAGE> 20
beneficially owned include those for which the persons listed have sole voting
and investment power, unless otherwise noted.
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY PERCENT
NAME OF INDIVIDUAL OR GROUP OWNED(1) OF CLASS
--------------------------- ------------ --------
<S> <C> <C>
R. L. Waltrip............................................... 3,770,575(2) 1.4%
Jerald L. Pullins........................................... 788,644(3) *
James M. Shelger............................................ 296,355(4) *
Anthony L. Coelho........................................... 43,198 *
Jack Finkelstein............................................ 396,790(5) *
A. J. Foyt, Jr. ............................................ 54,085(6) *
James H. Greer.............................................. 52,471 *
B. D. Hunter................................................ 92,892(7) *
Victor L. Lund.............................................. -- *
John W. Mecom, Jr. ......................................... 40,000 *
Clifton H. Morris, Jr. ..................................... 33,684(8) *
E. H. Thornton, Jr. ........................................ 116,728 *
W. Blair Waltrip............................................ 2,571,398(9) *
Edward E. Williams.......................................... 100,316 *
Executive Officers and Directors as a Group (27 persons).... 8,910,604(10) 3.2%
</TABLE>
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* Less than one percent
(1) For each of Messrs. Coelho, Finkelstein, Foyt, Greer, Hunter, Mecom,
Morris, Thornton and Williams, the amounts include 3,000 shares held under
the 1995 Stock Plan for Non-Employee Directors, and each such director has
sole voting and shared investment power with respect to such shares.
(2) Includes 468,384 shares held in trusts (under one of which trusts Mr. R. L.
Waltrip's wife is a beneficiary) under which Mr. R. L. Waltrip's three
children, as trustees, share voting and investment powers. These shares are
also included in the shares owned by Mr. W. Blair Waltrip. See Footnote
(9). The information herein regarding ownership of equity securities by the
trusts is for informational purposes only and is not to be construed as a
statement that Mr. R. L. Waltrip is a beneficial owner of any such
securities, as any beneficial ownership thereof is expressly disclaimed by
Mr. R. L. Waltrip. Also includes 2,951,835 shares which may be acquired
upon exercise of stock options exercisable within 60 days.
(3) Includes 15,160 shares held by a trust of which Mr. Pullins' wife is
trustee for the benefit of Mr. Pullins' children. Mr. Pullins disclaims
beneficial ownership of such shares. Also includes 534,999 shares which may
be acquired upon exercise of stock options exercisable within 60 days.
(4) Includes 201,665 shares which may be acquired by Mr. Shelger upon exercise
of stock options exercisable within 60 days.
(5) Includes 373,108 shares held in trusts for the benefit of other family
members and/or himself, and 8,500 shares held by a charitable foundation of
which Mr. Finkelstein is President. As trustee, Mr. Finkelstein has sole
voting and investment power with respect to 276,574 shares and shared
voting and investment power with respect to 105,034 shares. Mr. Finkelstein
disclaims beneficial ownership as to 99,034 shares held in such trusts and
by the foundation.
(6) Includes 17,885 shares held by Mr. Foyt as custodian for family members.
Mr. Foyt has sole voting and investment power for such shares and disclaims
beneficial ownership of such shares. Also includes 200 shares owned by Mr.
Foyt's wife.
(7) Includes 34,484 shares held directly by Mr. Hunter, 38,408 shares
indirectly controlled by Mr. Hunter (of which Mr. Hunter disclaims
beneficial ownership) and 20,000 shares held by Mr. Hunter's Individual
Retirement Account.
(8) Includes 4,034 shares owned by Mr. Morris' wife. Mr. Morris disclaims
beneficial ownership of such shares.
18
<PAGE> 21
(9) Includes 129,204 shares held in a trust for the benefit of Mr. W. Blair
Waltrip, 1,072,224 shares held in trusts under which Mr. W. Blair Waltrip,
his brother and his sister are trustees and have shared voting and
investment power and for which Mr. W. Blair Waltrip disclaims 2/3
beneficial ownership. Also includes 88,483 shares held by other family
members or trusts, of which shares Mr. W. Blair Waltrip disclaims
beneficial ownership. Of the shares attributable to the trusts, 468,384
shares are also included in the shares owned by Mr. R. L. Waltrip. See
Footnote (2). Also includes 767,517 shares which may be acquired upon
exercise of stock options exercisable within 60 days.
(10) Includes 13,000 restricted shares held by three persons under Company stock
plans, as well as 5,259,372 shares which may be acquired upon exercise of
stock options exercisable within 60 days.
INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected PricewaterhouseCoopers
LLP ("PwC") to serve as the independent accountants for the Company for the
fiscal year ending December 31, 2000. PwC and its predecessors have audited the
Company's accounts since 1993. A representative of PwC is expected to be present
at the Annual Meeting of Shareholders, will have the opportunity to make a
statement if he or she desires to do so and will be available to respond to
appropriate questions at such meeting.
OTHER MATTERS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year, and written representations from reporting persons that no Form 5
was required, the Company believes that A. J. Foyt, Jr., a director, filed late
one Form 5 in 2000 reporting two transactions, E. H. Thornton, Jr., a director,
filed late one Form 4 in 2000 reporting one transaction and W. Blair Waltrip, a
director, filed late one Form 5 in 1999 reporting two transactions.
PROXY SOLICITATION
In addition to solicitation by mail, further solicitation of proxies may be
made by mail, facsimile, telephone, telegraph or oral communication following
the original solicitation by directors, officers and regular employees of the
Company who will not be additionally compensated therefor, or by its transfer
agent. The expense of such solicitation will be borne by the Company and will
include reimbursement paid to brokerage firms and other custodians, nominees and
fiduciaries for their expenses in forwarding solicitation material regarding the
Annual Meeting to beneficial owners. In addition, the Company has retained
Georgeson Shareholder Communications Inc. to aid in the solicitation of proxies
from shareholders generally in connection with the Annual Meeting of
Shareholders. Such solicitations may be by mail, facsimile, telephone, telegraph
or personal interview. The fee of such firm is not expected to exceed $12,000
plus reimbursement for reasonable expenses.
OTHER BUSINESS
The Board of Directors of the Company is not aware of other matters to be
presented for action at the Annual Meeting of Shareholders; however, if any such
matters are properly presented for action, it is the intention of the persons
named in the enclosed form of proxy to vote in accordance with their judgment.
19
<PAGE> 22
SUBMISSION OF SHAREHOLDER PROPOSALS
Any proposal to be presented by a shareholder at the Company's 2001 Annual
Meeting of Shareholders scheduled to be held on May 10, 2001 must be received by
the Company by December 8, 2000, so that it may be considered by the Company for
inclusion in its proxy statement relating to that meeting.
Pursuant to the Company's Bylaws, any holder of Common Stock of the Company
desiring to bring business before the Company's 2001 Annual Meeting of
Shareholders scheduled to be held on May 10, 2001 in a form other than a
shareholder proposal in accordance with the preceding paragraph must give
written notice in accordance with the Bylaws that is received by the Company,
addressed to the Secretary, no earlier than January 11, 2001 and no later than
January 31, 2001. Any notice pursuant to this or the preceding paragraph should
be addressed to the Secretary of the Company, 1929 Allen Parkway, P.O. Box
130548, Houston, Texas 77219-0548.
It is important that proxies be returned to avoid unnecessary expense.
Therefore, shareholders are urged, regardless of the number of shares of stock
owned, to date, sign and return the enclosed proxy in the enclosed business
reply envelope.
Service Corporation International
1929 Allen Parkway
P.O. Box 130548
Houston, Texas 77219-0548
April 7, 2000
20
<PAGE> 23
SERVICE CORPORATION INTERNATIONAL
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS MAY 11, 2000
The undersigned hereby appoints Robert L. Waltrip, Jeffrey E. Curtiss and
James M. Shelger, and each or any of them as attorneys, agents and proxies of
the undersigned with full power of substitution, for and in the name, place and
stead of the undersigned, to attend the annual meeting of shareholders of
Service Corporation International (the "Company") to be held in the Chase
Auditorium, First Floor, Chase Center, 601 Travis, Houston, Texas, on Thursday,
May 11, 2000, at 10:00 a.m., Houston time, and any adjournment(s) thereof, and
to vote thereat the number of shares of Common Stock of the Company which the
undersigned would be entitled to vote if personally present as indicated below
and on the reverse side hereof and, in their discretion, upon any other
business which may properly come before said meeting. This Proxy when properly
executed will be voted in accordance with your indicated directions. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE.
SERVICE CORPORATION INTERNATIONAL
(Continued and to be dated and signed P.O. BOX 11416
on the reverse side.) NEW YORK, N.Y. 10203-0416
<PAGE> 24
DETACH PROXY CARD HERE
* *
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----
----
1. ELECTION OF DIRECTORS. FOR all nominees [ ] WITHHOLD AUTHORITY to vote [ ]
listed below for all nominees listed
below.
*EXCEPTIONS [ ]
Nominees: Anthony L. Coelho, A.J. Foyt, Jr., E.H. Thornton, Jr., R.L. Waltrip
and Edward E. Williams
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
*Exceptions:
--------------------------------------------------------------------
Change of Address and [ ]
or Comments Mark Here
The undersigned acknowledges receipt of
the Notice of Annual Meeting of
Shareholders and of the Proxy
Statement.
Dated: , 2000
---------------------------
---------------------------------(SEAL)
Signature
---------------------------------(SEAL)
Signature if held jointly
Please sign exactly as the name appears
hereon. Joint owners should each sign
personally. Where applicable, indicate
your official position or
representation capacity.
Votes MUST be indicated [X]
PLEASE MARK,SIGN, DATE AND RETURN THIS (x) in Black or Blue ink.
PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
PLEASE DETACH HERE
YOU MUST DETACH THIS PORTION OF THE PROXY CARD
* BEFORE RETURNING IT IN THE ENCLOSED ENVELOPE *
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