- ------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
-------------------------
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-24728
-------------------------
EQUITY CORPORATION INTERNATIONAL
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
75-2521142
(I.R.S. employer identification number)
415 SOUTH FIRST STREET, SUITE 210
LUFKIN, TEXAS
(Address of principal executive offices)
75901
(Zip Code)
(409) 631-8700
(Registrant's telephone number, including area code)
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes /X/ No
The number of shares of the registrant's Common Stock outstanding as of
November 6, 1998 was 21,783,197.
- ------------------------------------------------------------------------------
<PAGE>
EQUITY CORPORATION INTERNATIONAL
INDEX
Page
Part I. Financial Information ----
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet
September 30, 1998 and December 31, 1997.................3
Consolidated Statement of Operations
Three and Nine Months Ended September 30, 1998 and 1997..4
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1998 and 1997............5
Consolidated Statement of Stockholders' Equity
Nine Months Ended September 30, 1998.....................6
Notes to the Consolidated Financial Statements..............7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.........................12
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K....................................22
Signature...................................................................23
FORWARD-LOOKING-STATEMENTS
This Form 10-Q includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. All statements contained herein other
than statements of historical fact are forward-looking statements. When
used in this Form 10-Q, the words "anticipate", "believe", "estimate"
and "expect" and similar expressions are intended to identify forward-
looking statements. Such statements reflect the Company's current views
with respect to future events and are subject to certain risks,
uncertainties and assumptions, including competition for and
availability of funeral home and cemetery acquisitions, the ability of
the Company to successfully implement its revenue enhancement and cost
containment programs at acquired funeral homes and cemeteries, the
Company's ability to retain key management personnel and to continue to
attract and retain skilled funeral home and cemetery management
personnel, state and federal regulations, changes in the death rate or
acceleration of the trend towards cremation, availability and cost of
capital and general industry and economic conditions. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from
those anticipated, believed, estimated or expected. The Company does
not intend to update these forward-looking statements.
2
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
EQUITY CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
(In thousands, except share data) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 12,274 $ 8,039
Receivables, net of allowances..................... 23,699 15,412
Inventories........................................ 11,028 9,134
Other.............................................. 2,539 2,181
--------- --------
Total current assets............................ 49,540 34,766
Preneed funeral contracts............................. 290,547 235,891
Cemetery properties, at cost.......................... 120,608 117,087
Long-term receivables, net of allowances.............. 66,083 55,393
Property, plant and equipment, at cost (net).......... 130,798 94,684
Deferred charges and other assets..................... 38,690 24,284
Names and reputations (net)........................... 233,581 155,595
--------- --------
Total assets.................................... $ 929,847 $717,700
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities........... $ 21,745 $ 14,077
Income taxes payable............................... 88 51
Current maturities of long-term debt............... 689 858
Deferred income taxes.............................. 2,663 2,114
--------- --------
Total current liabilities....................... 25,185 17,100
Deferred preneed funeral contract revenues............ 297,444 242,185
Convertible subordinated debentures................... 143,750 --
Long-term debt........................................ 139,812 171,303
Deferred cemetery costs............................... 27,197 27,224
Deferred income taxes................................. 39,293 31,106
Other liabilities..................................... 2,304 2,250
Commitments and contingencies.........................
Stockholders' equity:
Preferred stock.................................... -- --
Common stock, $.01 par value; 50,000,000 shares
authorized; 21,783,197 and 21,119,362 shares issued
and outstanding in 1998 and 1997, respectively... 218 211
Capital in excess of par value..................... 206,719 191,902
Retained earnings.................................. 48,195 34,502
Accumulated other comprehensive income............. (270) (83)
--------- --------
Total stockholders' equity...................... 254,862 226,532
--------- --------
Total liabilities and stockholders' equity...... $ 929,847 $717,700
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
EQUITY CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data)
- --------------------------------------------------------------------------
Three months ended Nine months ended
Sept. 30, Sept. 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net revenues:
Funeral................. $ 33,221 $ 20,791 $ 98,876 $ 60,452
Cemetery................ 14,345 12,360 42,541 34,191
Other................... -- -- 752 1,674
-------- -------- -------- --------
47,566 33,151 142,169 96,317
-------- -------- -------- --------
Costs and expenses:
Funeral................. 25,352 16,387 72,621 45,185
Cemetery................ 9,723 8,322 29,149 23,431
Other................... -- -- 387 924
-------- -------- -------- --------
35,075 24,709 102,157 69,540
-------- -------- -------- --------
Total gross profit......... 12,491 8,442 40,012 26,777
General and administrative
expenses................ 2,236 1,836 6,867 5,670
-------- -------- -------- --------
Operating income........... 10,255 6,606 33,145 21,107
Interest expense, net...... 4,109 1,834 10,698 3,758
-------- -------- -------- --------
Income before
income taxes............ 6,146 4,772 22,447 17,349
Provision for
income taxes............ 2,397 1,598 8,754 6,629
-------- -------- -------- --------
Net income................. $ 3,749 $ 3,174 $ 13,693 $ 10,720
======== ======== ======== ========
Earnings per share:
Basic................ $ 0.17 $ 0.15 $ 0.64 $ 0.52
======== ======== ======== ========
Diluted.............. $ 0.17 $ 0.15 $ 0.63 $ 0.51
======== ======== ======== ========
Weighted average number
of common and equivalent
shares outstanding:
Basic................ 21,631 20,701 21,402 20,485
======== ======== ======== ========
Diluted.............. 22,029 21,078 21,790 20,842
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
EQUITY CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended Sept. 30,
(In thousands) 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 13,693 $ 10,720
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization................... 10,157 5,798
Provision for bad debts and contract
cancellations.................................. 6,044 3,764
Gain on asset dispositions, net................. (363) (755)
Deferred income taxes........................... 2,165 782
Changes in assets and liabilities, net of effects
from acquisitions:
Receivables...................................... (21,108) (13,277)
Inventories...................................... (535) (162)
Other current assets............................. (293) (475)
Other long-term assets........................... (954) (2,603)
Accounts payable and accrued liabilities......... 3,470 862
Income taxes payable............................. 37 (294)
Preneed funeral contracts and associated
deferred revenues............................... (512) 341
-------- --------
Net cash provided by operating activities..... 11,801 4,701
-------- --------
Cash flows from investing activities:
Capital expenditures............................... (15,510) (9,296)
Proceeds from asset dispositions................... 975 96
Acquisitions, net of cash acquired................. (445) (16,888)
Other.............................................. -- 66
-------- --------
Net cash used in investing activities......... (14,980) (26,022)
-------- --------
Cash flows from financing activities:
Issuance of convertible debentures, net............ 139,134 --
Net proceeds from issuance of Common Stock......... 710 22,230
Borrowings on long-term debt....................... 13,644 16,359
Payments on long-term debt......................... (146,074) (22,515)
-------- --------
Net cash provided by financing activities..... 7,414 16,074
-------- --------
Increase (decrease) in cash and cash equivalents...... 4,235 (5,247)
Cash and cash equivalents at beginning of period...... 8,039 12,654
-------- --------
Cash and cash equivalents at end of period............ $ 12,274 $ 7,407
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
EQUITY CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK CAPITAL IN OTHER
----------------- EXCESS OF RETAINED COMPREHENSIVE STOCKHOLDERS'
(In thousands,except share data) SHARES AMOUNT PAR VALUE EARNINGS INCOME EQUITY
---------- ------ --------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997..... 21,119,362 $ 211 $ 191,902 $ 34,502 $ (83) $ 226,532
Comprehensive income:
Net income................ -- -- -- 13,693 -- 13,693
Foreign currency
translation adjustment,
net of taxes............. -- -- -- -- (187) (187)
-------- --------- ----------
Total.................. -- -- -- 13,693 (187) 13,506
-------- --------- ----------
Common stock issued:
Acquisitions.............. 627,691 7 14,107 -- -- 14,114
Option exercises.......... 22,129 -- 312 -- -- 312
Other..................... 14,015 -- 398 398
---------- ------ --------- -------- --------- ----------
Balance, September 30, 1998... 21,783,197 $ 218 $ 206,719 $ 48,195 $ (270) $ 254,862
========== ====== ========= ======== ========= ==========
The Company's comprehensive income for the nine months ended September 30, 1997 of $10,745
consisted of net income of $10,720 and a foreign currency translation adjustment of $25.
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
EQUITY CORPORATION INTERNATIONAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Equity Corporation International and all majority owned
subsidiaries ("the Company") and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information in
the notes to the consolidated financial statements normally included in
financial statements prepared in accordance with generally accepted accounting
principles has been condensed or omitted pursuant to these rules and
regulations. In the opinion of management, all adjustments, consisting of
normal recurring accruals, considered necessary for a fair presentation of the
Company's financial position, results of operations and cash flows for the
periods presented have been included. All dollar amounts are reported in
thousands unless otherwise indicated. Operating results for interim periods
are not necessarily indicative of the results that may be expected for the
year. Capitalized terms not defined herein have the meanings as defined in the
notes to the consolidated financial statements included in the Company's
annual report on Form 10-K for the year ended December 31, 1997. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1997.
2. ACQUISITIONS
The following table is a summary of acquisitions made during the nine months
ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------
<S> <C> <C>
Number acquired:
Funeral homes........ 69 69
Cemeteries........... 5 8
Purchase price.......... $120,106 $116,180
</TABLE>
The purchase price for these acquisitions consisted of cash, Common Stock and
debt issued or assumed. Also included in the 1997 purchase price is $924 which
represents the net book value of funeral home assets exchanged for one of the
acquired cemeteries (Note 5). The excess of purchase price over the fair value
of assets acquired and liabilities assumed is included in Names and
reputations (net) on the Consolidated Balance Sheet and will be amortized over
a 40-year period. In connection with acquisitions, the Company enters into
customary employment, consulting and noncompetition agreements with certain
employees and former owners of the businesses acquired. In certain situations,
the Company will prepay a portion of the noncompetition agreements and
amortize such prepayments on a straight-line basis over the terms of the
agreements. The purchase prices indicated above do not include $651 and $852
for noncompetition agreements that were prepaid to individuals related to
businesses acquired in 1998 and 1997, respectively. The acquisitions have been
accounted for as purchases and their operating results have been included in
the Consolidated Statement of Operations since their respective dates of
acquisition.
7
<PAGE>
The net effect of acquisitions (including the exchange discussed above) on the
Consolidated Balance Sheet was as follows:
<TABLE>
<CAPTION>
Nine months ended Sept. 30,
(In thousands) 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Current assets........................................ $ 5,232 $ 5,158
Preneed funeral contracts............................. 38,552 50,927
Long-term receivables, net of allowances.............. 2,127 13,600
Cemetery properties................................... 3,958 7,961
Property, plant and equipment......................... 26,731 25,801
Deferred charges and other assets..................... 9,258 7,842
Names and reputations................................. 82,268 64,025
Current liabilities................................... (2,480) (1,039)
Deferred preneed funeral contract revenues............ (39,667) (51,374)
Long-term debt........................................ (100,765) (93,699)
Deferred cemetery costs............................... (2,081) (5,812)
Deferred income taxes................................. (6,532) --
Other liabilities..................................... -- (38)
Common stock issued................................... (14,114) (4,810)
--------- ---------
Total.............................................. 2,487 18,542
Less cash acquired................................. 2,042 1,654
--------- ---------
Cash used for acquisitions......................... $ 445 $ 16,888
========= =========
</TABLE>
The following represents the unaudited pro forma results of operations for the
nine months ended September 30, 1998 and 1997, assuming the above noted
acquisitions and exchange had occurred as of January 1, 1997:
<TABLE>
<CAPTION>
(In thousands, except per share data) 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Net revenues.......................................... $ 160,094 $ 138,801
Net income............................................ 14,215 11,055
Earnings per common and equivalent share:
Basic............................................... $ 0.65 $ 0.53
========= =========
Diluted............................................. $ 0.64 $ 0.52
========= =========
</TABLE>
8
<PAGE>
3. PRENEED FUNERAL CONTRACTS AND DEFERRED PRENEED FUNERAL CONTRACT REVENUES
The Company sells preneed funeral contracts through various programs providing
for future funeral services at prices prevailing when the agreement is signed.
These contracts are included in the Consolidated Balance Sheet as Preneed
funeral contracts. Payments on these contracts are generally placed in trust
(pursuant to state law) or are used to pay premiums on life insurance policies
issued by third party insurers. When the services are performed, approximately
$132,072 and $104,523 will be funded by trusts and approximately $158,475 and
$131,368 will be funded by insurance policies as of September 30, 1998 and
December 31, 1997, respectively. Accumulated earnings from trust funds and
increasing insurance benefits have been included to the extent that they have
accrued through September 30, 1998 and December 31, 1997, respectively. The
cumulative total has been reduced by allowable cash withdrawals for trust
earning distributions and amounts retained by the Company pursuant to various
state laws. At September 30, 1998 and December 31, 1997, the amounts collected
and held in trusts, at cost, which approximates market, were approximately
$116,189 and $93,900, respectively. The amounts in trusts and all life
insurance policies are generally transferred to the customer upon contract
cancellation.
"Deferred preneed funeral contract revenues" includes the contract amount of
all price guaranteed funeral services and accumulated trust earnings and
increasing insurance benefits earned. The Company defers recognition of trust
earnings and insurance benefits until performance of the funeral service.
Upon performance of the funeral service, the Company will recognize the fixed
contract price and related accumulated trust earnings or increasing insurance
benefits as funeral service revenues.
4. DEBT
The Company maintains a revolving credit agreement (the "Credit Facility")
with a group of banks that provides for a $225,000 line of credit to be used
for acquisition financing and general corporate purposes. The Tranche A
commitments under the Credit Facility provide for $150,000 of borrowings
outstanding at any one time expiring September 2, 2002. The Tranche B
commitments under the Credit Facility provide for $75,000 of borrowings
outstanding at any one time expiring September 1, 1999, subject to annual
renewal options. Borrowings under the Credit Facility bear interest, at the
Company's option, at either (i) the prime rate or (ii) the London Interbank
Offered Rate plus an applicable margin, depending on the Company's Leverage
Ratio, as defined. In addition, the Company pays a commitment fee on unused
funds. The weighted average interest rates on amounts borrowed under the
Credit Facility were 6.86% and 6.83% at September 30, 1998 and December 31,
1997, respectively. The Credit Facility contains customary restrictive
covenants requiring the Company to maintain certain financial ratios, is
guaranteed by substantially all of the Company's subsidiaries and is
collateralized by a pledge of stock of certain of the Company's subsidiaries.
The Credit Facility will permit the payment of dividends on the Company's
Common Stock only to the extent the Company maintains a specified net worth.
Balances outstanding under the Credit Facility totaled $128,000 and $156,700
at September 30, 1998 and December 31, 1997, respectively.
In February 1998, the Company completed the private placement of $143,750
aggregate principal amount of 4.5% convertible subordinated debentures due
2004 (the "Debentures"). The Debentures mature on December 31, 2004, are
convertible into shares of the Company's Common Stock at a conversion price of
$27.09 per share and may not be redeemed by the Company prior to February 26,
2001. The net proceeds to the Company from this private placement were used to
pay down the Credit Facility. The selling commissions and related expenses
have been deferred and are being amortized ratably over the term of the
Debentures.
9
<PAGE>
5. DISPOSITIONS
In April 1998, one of the Company's funeral home facilities located in Alabama
was destroyed by a tornado. The Company received approximately $752 in
insurance proceeds from this loss and recorded a gain due to the involuntary
conversion of $365 during the second quarter of 1998, which represents the
difference between the proceeds received and the net book value of the
destroyed funeral home facility.
During January 1997, the Company acquired one cemetery from Service
Corporation International ("SCI"), a former significant stockholder of the
Company, in exchange for one of the Company's funeral home facilities. This
was a strategic business decision as the acquired cemetery is in close
proximity to one of the Company's existing funeral home facilities. In
connection with the transaction, the Company received consideration of $1,674,
including $250 in cash, and recognized a gain of approximately $750.
6. EARNINGS PER SHARE
The Company reports earnings per share in accordance with the provisions of
SFAS No. 128, "Earnings per Share". The prior year period has been restated to
conform to the new requirements. A reconciliation of the numerators and
denominators of the basic and diluted per-share computations for net income
follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
Sept. 30, Sept. 30,
(In thousands, except per share data) 1998 1997 1998 1997
------------------ ----------------
<S> <C> <C> <C> <C>
Income (numerator)
Net income (Basic)....................... $ 3,749 $ 3,174 $13,693 $10,720
Effect of assumed conversion of
convertible debt....................... -- -- -- --
------- ------- ------- ------
Net income assuming conversion (Diluted). $ 3,749 $ 3,174 $13,693 $10,720
======= ======= ======= =======
Shares (denominator)
Shares (Basic) .......................... 21,631 20,701 21,402 20,485
Options.................................. 379 354 367 336
Convertible debt......................... -- -- -- --
Other.................................... 19 23 21 21
------- ------- ------- -------
Shares (Diluted) ........................ 22,029 21,078 21,790 20,842
======= ======= ======= =======
Earnings per share:
Basic.................................... $ 0.17 $ 0.15 $ 0.64 $ 0.52
======= ======= ======= =======
Diluted.................................. $ 0.17 $ 0.15 $ 0.63 $ 0.51
======= ======= ======= =======
</TABLE>
The Debentures issued in February 1998, convertible into 5,306,386 shares of
Common Stock (Note 4),and a $2,200 principal amount 5.25% convertible
subordinated note due January 29, 2008, convertible into 74,074 shares of
Common Stock beginning January 29, 2000, were excluded from the calculation of
diluted earnings per share for the three and nine months ended September 30,
1998, because their effect on earnings per share would have been antidilutive
for both periods.
10
<PAGE>
7. RECENT FASB PRONOUNCEMENTS
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130 "Reporting Comprehensive Income", effective January
1, 1998. Currently, the Company's components of comprehensive income consist
of net income and the foreign currency translation adjustment related to the
operations of the Company's Canadian subsidiaries. The Company has elected to
report comprehensive income within the statement of stockholders' equity as
permitted by SFAS No. 130.
8. BUSINESS COMBINATION
On August 6, 1998, the Company announced that it entered into an Agreement and
Plan of Merger (the "Merger Agreement") with SCI to combine the two companies.
Pursuant to and subject to the terms of the Merger Agreement, each of the
issued and outstanding shares of the Company's Common Stock will be converted
in the merger into the right to receive the number of shares of SCI common
stock, par value $1.00 per share, ("SCI Common Stock") determined by dividing
$27.00 by the Average SCI Stock Price (as defined below); provided, however,
that (i) in the event the Average SCI Stock Price is greater than $41.50, the
Company's Common Stock shall be converted into the right to receive the number
of shares of SCI Common Stock determined by dividing $27.00 by $41.50 and (ii)
in the event the Average SCI Stock Price is less than $34.00, the Company's
Common Stock shall be converted into the right to receive the number of shares
of SCI Common Stock determined by dividing $27.00 by $34.00.
The "Average SCI Stock Price" means the average of the Daily Per Share Prices
(as defined below) for the ten consecutive trading days ending on the third
trading day prior to the closing of the merger. The "Daily Per Share Price"
for any trading day means the weighted average of the per share selling prices
on the New York Stock Exchange, Inc. (the "NYSE") of SCI Common Stock (as
reported in the NYSE Composite Transactions) for that day.
The consummation of the merger, anticipated in the fourth quarter of 1998, is
subject to the approval of holders of a majority of the shares of the
Company's Common Stock outstanding and regulatory approvals pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Company
has deferred approximately $570 of expenses related to the anticipated merger
as of September 30, 1998. These expenses and all future expenses incurred by
the Company related to the merger will be recognized upon the consummation of
the merger.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company provides services and products in both the funeral home and
cemetery segments of the death care industry. The Company has a growth
strategy that emphasizes an aggressive acquisition program and the
implementation of revenue enhancement and cost-containment programs. As part
of this growth strategy, the Company maintains a separate corporate
development department headed by a senior management executive with
substantial death care experience. The department is responsible for
identifying, evaluating, negotiating and closing acquisitions of funeral homes
and cemeteries. With the Company's knowledge of non-metropolitan markets and
experienced management team, the Company believes that it is well positioned
to take advantage of the continuing consolidation trend in the death care
industry. The Company's future results of operations will depend in large part
on the Company's ability to continue to make acquisitions on attractive terms
and to successfully integrate and manage the acquired properties.
RESULTS OF OPERATIONS
The following is a discussion of the Company's results of operations for the
three and nine month periods ended September 30, 1998 and 1997. For purposes
of this discussion, funeral homes and cemeteries owned and operated for the
entirety of each period being compared are referred to as existing operations.
Correspondingly, operations acquired or opened during either period being
compared are referred to as acquired operations. All dollar amounts are
reported in thousands unless otherwise indicated.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997:
Total net revenues for the three months ended September 30, 1998 increased
43.4% to $47,566 from $33,151 for the three months ended September 30, 1997.
The increase in net revenues reflects a $13,711 increase in net revenues
attributable to acquired operations and a $704, or 2.2% increase in net
revenues from existing operations. The increase in net revenues from existing
operations is due to increases in average funeral revenues and improvements in
merchandising mix, offset in part by lower trust investment income at the
Company's cemetery operations and lower funeral and cemetery at need volumes.
Gross profit for the three months ended September 30, 1998 increased 48.0% to
$12,491 from $8,442 for the three months ended September 30, 1997. The
increase in gross profit is due primarily to a $3,101 increase attributable to
acquired operations and a $948, or 11.5% increase from existing operations.
The increase in gross profit from existing operations was due primarily to
improvements in product/services mix at both funeral home and cemetery
operations along with lower maintenance expense at the Company's cemetery
operations.
12
<PAGE>
FUNERAL HOME SEGMENT. The following table sets forth certain information
regarding the net revenues and gross profit of the Company from its funeral
home operations during the three months ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three months
ended Sept. 30, Change
(Dollars in thousands) 1998 1997 Amount Percent
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues:
Existing operations.................. $ 21,308 $ 20,470 $ 838 4.1%
Acquired operations.................. 11,913 321 11,592 *
------ ------ ------
Total funeral net revenues........ $ 33,221 $ 20,791 $ 12,430 59.8%
====== ====== ======
Gross profit:
Existing operations.................. $ 5,131 $ 4,310 $ 821 19.0%
Acquired operations.................. 2,738 94 2,644 *
------ ------ ------
Total funeral gross profit........ $ 7,869 $ 4,404 $ 3,465 78.7%
====== ====== ======
- ------
*Not meaningful
Total funeral net revenues for the three months ended September 30, 1998
increased 59.8% to $33,221 from $20,791 for the prior year quarter, due
primarily to an $11,592 increase attributable to acquired operations. The
increase in revenues from existing operations is primarily attributable to an
increase in the average revenue per regular funeral service performed and
higher sales of ancillary funeral products, offset in part by a slight
decrease in the number of funeral services performed.
Total funeral gross profit for the three months ended September 30, 1998
increased 78.7% to $7,869 from $4,404 for the three months ended September 30,
1997. Funeral gross margin improved to 23.7% from 21.2% due primarily to
margin improvements achieved from the Company's existing operations. Funeral
gross margin at existing operations improved to 24.1% from 21.1% for the prior
year quarter due primarily to merchandising and cost containment programs
initiated by the Company in late 1997. Funeral gross margin for acquired
operations was 23.0% for the three months ended September 30, 1998. Depending
on numerous factors including the size of an acquired operation, the proximity
to other Company operations and market sensitivity, it may take 12 to 36
months before significant margin improvement is realized at an acquired
operation as a result of new policies and procedures implemented by the
Company.
13
<PAGE>
CEMETERY SEGMENT. The following table sets forth certain information regarding
the net revenues and gross profit of the Company from its cemetery operations
during the three months ended September 30, 1998 and 1997.
</TABLE>
<TABLE>
<CAPTION>
Three months
ended Sept. 30, Change
(Dollars in thousands) 1998 1997 Amount Percent
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues:
Existing operations.................. $ 12,024 $ 12,158 $ (134) (1.1)%
Acquired operations.................. 2,321 202 2,119 *
------ ------ ------
Total cemetery net revenues....... $ 14,345 $ 12,360 $ 1,985 16.1%
====== ====== ======
Gross profit:
Existing operations.................. $ 4,062 $ 3,935 $ 127 3.2%
Acquired operations.................. 560 103 457 *
------ ------ ------
Total cemetery gross profit....... $ 4,622 $ 4,038 $ 584 14.5%
====== ====== ======
- ------
*Not meaningful
Total cemetery net revenues for the three months ended September 30, 1998
increased 16.1% to $14,345 from $12,360 for the prior year quarter, due
primarily to a $2,119 increase from acquired operations. Cemetery net revenues
attributable to existing operations for the three months ended September 30,
1998 decreased 1.1% to $12,024 from $12,158 for the prior year quarter, due
primarily to lower at need sales along with lower trust investment income.
Total cemetery gross profit for the three months ended September 30, 1998
increased 14.5% to $4,622 from $4,038 for the three months ended Seprember 30,
1997. Cemetery gross margin at existing operations improved to 33.8% for the
three months ended September 30, 1998 compared to 32.4% for the third quarter
of 1997 due primarily to a better product/services mix and lower maintenance
costs. Cemetery gross margin for acquired operations was 24.1% for the three
months ended September 30, 1998. Gross margin for acquired operations have
historically been lower than gross margin for the Company's existing
operations until they have been operated by the Company long enough to fully
implement the preneed marketing programs to leverage off of the maintenance
and fixed operating costs which start being incurred immediately after
acquisition.
14
<PAGE>
General and administrative expenses for the three months ended September 30,
1998 increased $400, or 21.8% over the three months ended September 30, 1997.
This increase resulted primarily from increased personnel costs associated
with the Company's continued growth, offset in part by decreases in travel and
insurance expenses and lower professional fees. General and administrative
expenses as a percentage of net revenues decreased to 4.7% in the three months
ended September 30, 1998 from 5.5% in the comparable prior year quarter,
reflecting increased economies of scale as expenses are spread over a larger
revenue base.
Interest expense for the three months ended September 30, 1998 increased to
$4,109 from $1,834 for the three months ended September 30, 1997, due
primarily to significantly higher average debt levels. Average indebtedness
outstanding for the quarter ended September 30, 1998 increased to $268.1
million from $118.2 million for the 1997 third quarter primarily as a result
of acquisition activity.
The Company's effective tax rate was 39.0% for the three months ended
September 30, 1998 compared to 33.5% for the prior year quarter. The effective
tax rate of 33.5% for the 1997 third quarter was the result of a reduction of
$200 in the Company's 1997 tax provision representing the difference between
the Company's estimated and actual tax liability for 1996, along with a
cumulative adjustment to reduce the Company's effective tax rate for 1997 to
39.0% from 40.0%. The Company expects the effective tax rate for income
generated in the remainder of 1998 will be approximately 39.0%.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997:
Total net revenues for the nine months ended September 30, 1998 increased
47.6% to $142,169 from $96,317 for the nine months ended September 30, 1997.
The increase in net revenues reflects a $45,295 increase in net revenues
attributable to acquired operations and a $1,479, or 1.8% increase in net
revenues from existing operations. The substantial increase in net revenues
from acquired operations is due primarily to the full period results of the
Company's 1997 acquisitions and the partial period results of the 69 funeral
homes and five cemeteries acquired during the nine months ended September 30,
1998. The increase in net revenues from existing operations is due to
increases in average revenue per regular funeral service performed, offset in
part by lower trust investment income at the Company's cemetery operations and
lower funeral volumes. Included in net revenues for the nine months ended
September 30, 1998 are insurance proceeds of $752 received in connection with
the loss of a funeral home facility destroyed by a tornado in the second
quarter of 1998. Included in net revenues for the nine months ended September
30, 1997 are proceeds of $1,674 received in connection with the first quarter
1997 acquisition of a cemetery in exchange for one of the Company's funeral
homes.
Gross profit for the nine months ended September 30, 1998 increased 49.4% to
$40,012 from $26,777 for the nine months ended September 30, 1997. The
increase in gross profit is due primarily to an $11,601 increase attributable
to acquired operations and a $2,019, or 8.5% increase from existing
operations. The increase in gross profit from existing operations was
attributable to the increase in funeral revenues noted above, along with a
better product/services mix, offset in part by lower trust investment income
at the Company's cemetery operations as noted above. Included in gross profit
for the nine months ended September 30, 1998 is a $365 gain recorded in
connection with the loss of the funeral home facility noted above. Included in
gross profit for the nine months ended September 30, 1997 is a $750 gain
recorded in connection with the exchange noted above.
15
<PAGE>
FUNERAL HOME SEGMENT. The following table sets forth certain information
regarding the net revenues and gross profit of the Company from its funeral
home operations during the nine months ended September 30, 1998 and 1997.
</TABLE>
<TABLE>
<CAPTION>
Nine months
ended Sept. 30, Change
(Dollars in thousands) 1998 1997 Amount Percent
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues:
Existing operations.................. $ 53,880 $ 51,456 $ 2,424 4.7%
Acquired operations.................. 44,996 8,996 36,000 *
------ ------ ------
Total funeral net revenues........ $ 98,876 $ 60,452 $ 38,424 63.6%
====== ====== ======
Gross profit:
Existing operations.................. $ 15,839 $ 13,391 $ 2,448 18.3%
Acquired operations.................. 10,416 1,876 8,540 *
------ ------ ------
Total funeral gross profit........ $ 26,255 $ 15,267 $ 10,988 72.0%
====== ====== ======
- ------
*Not meaningful
Total funeral net revenues for the nine months ended September 30, 1998
increased 63.6% to $98,876 from $60,452 for the comparable prior year period,
due primarily to a $36,000 increase from acquired operations. The increase in
revenues from existing operations is primarily attributable to an increase in
the average revenue per regular funeral service performed along with
improvements in merchandising mix, offset in part by a decrease in the number
of funeral services performed.
Total funeral gross profit for the nine months ended September 30, 1998
increased 72.0% to $26,255 from $15,267 for the nine months ended September
30, 1997. Funeral gross margin improved to 26.6% from 25.3% due to margin
improvements achieved from both the Company's existing and acquired
operations. Funeral gross margin at existing operations improved to 29.4% from
26.0% for the comparable prior year period due primarily to merchandising and
cost containment programs initiated by the Company in late 1997. The
improvement in funeral gross margin at acquired operations to 23.1% from 20.9%
in the comparable prior year period was largely the result of the
implementation of new merchandising programs by the Company shortly after
acquisition.
16
<PAGE>
CEMETERY SEGMENT. The following table sets forth certain information regarding
the net revenues and gross profit of the Company from its cemetery operations
during the nine months ended September 30, 1998 and 1997.
</TABLE>
<TABLE>
<CAPTION>
Nine months
ended Sept. 30, Change
(Dollars in thousands) 1998 1997 Amount Percent
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues:
Existing operations.................. $ 30,787 $ 31,732 $ (945) (3.0)%
Acquired operations.................. 11,754 2,459 9,295 *
------ ------ ------
Total cemetery net revenues....... $ 42,541 $ 34,191 $ 8,350 24.4%
====== ====== ======
Gross profit:
Existing operations.................. $ 9,822 $ 10,251 $ (429) (4.2)%
Acquired operations.................. 3,570 509 3,061 *
------ ------ ------
Total cemetery gross profit....... $ 13,392 $ 10,760 $ 2,632 24.5%
====== ====== ======
- ------
*Not meaningful
Total cemetery net revenues for the nine months ended September 30, 1998
increased 24.4% to $42,541 from $34,191 for the comparable prior year period,
due primarily to a $9,295 increase attributable to acquired operations.
Cemetery net revenues attributable to existing operations for the nine months
ended September 30, 1998 decreased 3.0% to $30,787 from $31,732 for the same
period in 1997, due primarily to lower investment income, along with slight
decreases in preneed and at need sales.
Total cemetery gross profit for the nine months ended September 30, 1998
increased 24.5% to $13,392 from $10,760 for the nine months ended September
30, 1997. Cemetery gross margin was 31.5% for both comparable periods as
margin improvements at acquired operations were largely offset by a decrease
in gross margin at existing operations. Cemetery gross margin at existing
operations decreased to 31.9% from 32.3% in 1997 due primarily to lower
investment income as discussed above. Cemetery gross margin for acquired
operations improved to 30.4% from 20.7% for the nine months ended September
30, 1997, reflecting the success of programs initiated by management to
significantly reduce the maturation cycle of new acquisitions as discussed
above.
17
<PAGE>
General and administrative expenses for the nine months ended September 30,
1998 increased $1,197, or 21.1% over the nine months ended September 30, 1997.
This increase resulted primarily from increased personnel costs associated
with the Company's continued growth, offset in part by lower travel costs.
General and administrative expenses as a percentage of net revenues, excluding
the effects of the nonrecurring net revenue items noted above, decreased to
4.9% in the nine months ended September 30, 1998 from 6.0% for the comparable
prior year period, reflecting increased economies of scale as expenses are
spread over a larger revenue base.
Interest expense for the nine months ended September 30, 1998 increased to
$10,698 from $3,758 for the nine months ended September 30, 1997, due
primarily to significantly higher average debt levels. Average indebtedness
outstanding for the nine months ended September 30, 1998 increased to $228.2
million from $93.5 million for the same period in 1997 primarily as a result
of acquisition activity coupled with the paydown of approximately $13.0
million of the Credit Facility from proceeds received in connection with an
equity offering in the first quarter of 1997.
The Company's effective tax rate for the nine months ended September 30, 1998
was 39.0% compared to 38.2% for the comparable period in 1997. The 38.2%
effective tax rate for th nine months ended September 30, 1997 was the result
of the adjustments to the third quarter 1997 tax provision discussed above.
The Company expects the effective tax rate for income generated in the
remainder of 1998 will be approximately 39.0%.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied on cash flow from operations and third
party borrowings to finance its operations and on third party borrowings, the
issuance of notes payable and, in certain situations, the issuance of shares
of Common Stock to sellers of funeral homes and cemeteries to finance its
acquisition program. Recently acquired funeral homes typically generate
positive cash flow immediately following acquisition. In contrast, recently
acquired cemeteries typically generate negative cash flow during an
approximately three to nine month start-up period following the introduction
of an aggressive preneed cemetery sales effort, although in some cases this
period has exceeded nine months. This negative cash flow is typically offset
by positive cash flow from mature cemetery operations.
Cash and cash equivalents totaled $12.3 million at September 30, 1998,
representing an increase of $4.2 million from December 31, 1997. For the nine
months ended September 30, 1998, cash provided from operating activities was
approximately $11.8 million, cash used in investing activities totaled
approximately $15.0 million and cash provided from financing activities
amounted to approximately $7.4 million. Significant components of cash flow
generated from operating activities include net income adjusted for non-cash
items partially offset by an increase in receivables of $21.1 million
primarily attributable to preneed cemetery sales which are usually financed on
an installment basis over 36 months. Significant components of cash used in
investing activities included capital expenditures of $15.5 million related
to, among other things, additions and improvements at several funeral home
facilities, the acquisition of professional vehicles and maintenance equipment
and upgrades to computer systems and peripheral equipment. Significant
components of cash provided by financing activities included (i) $139.1
million of net proceeds received in February 1998 in connection with the
issuance of the Company's convertible subordinated debentures described below,
offset by the use of these proceeds to pay down the Company's Credit Facility;
and (ii) borrowings of approximately $13.6 million which were used to
extinguish certain seller financed notes and for general corporate purposes.
18
<PAGE>
Long-term debt, including current maturities, at September 30, 1998 totaled
$284.3 million as compared to $172.2 million at December 31, 1997. This
increase was principally attributable to acquisition activity. Long-term debt
at September 30, 1998 consisted of $143.8 million of convertible subordinated
debentures, $128.0 million drawn under the Credit Facility and $12.5 million
owed under various notes payable to sellers of funeral homes and cemeteries.
In February 1998, the Company completed an underwritten private placement of
$143.8 million aggregate principal amount of 4.5% convertible subordinated
debentures (the "Debentures"). The Debentures mature on December 31, 2004, are
convertible into shares of the Company's Common Stock at a conversion price of
$27.09 per share, and may not be redeemed by the Company prior to February 26,
2001. The net proceeds from the private placement were used to pay down the
Credit Facility. The selling commissions and related expenses have been
deferred and are being amortized ratably over the term of the Debentures.
Borrowings under the Credit Facility bear interest, at the Company's option,
at either (i) the prime rate or (ii) the London Interbank Offered Rate plus an
applicable margin, depending on the Company's Leverage Ratio, as defined. The
weighted average interest rates on amounts borrowed under the Credit Facility
were 6.86% and 6.83% at September 30, 1998 and December 31, 1997,
respectively. In addition, the Company pays commitment fees on unused funds
depending on the Company's Leverage Ratio. The Tranche A commitments under the
Credit Facility provide for $150 million of borrowings outstanding at any one
time expiring September 2, 2002. The Tranche B commitments under the Credit
Facility provide for $75 million of borrowings outstanding at any one time
expiring September 1, 1999, subject to annual renewal options. The Credit
Facility contains customary restrictive covenants, permits the payment of
dividends only to the extent the Company maintains a specified net worth and
requires the Company to maintain certain financial ratios. The Credit Facility
is guaranteed by substantially all of the Company's subsidiaries and is
collateralized by a pledge of the stock of certain of the Company's
subsidiaries. At September 30, 1998, $97.0 million was available for
borrowings under the Credit Facility. Any amounts repaid under the Credit
Facility are available for future borrowings under the terms of the Credit
Facility.
The Company currently expects to acquire funeral homes and cemeteries for
purchase prices aggregating approximately $140 million in 1998. The Company
anticipates that the consideration for future acquisitions will consist of a
combination of cash, long-term notes, the assumption of existing indebtedness
of the acquired businesses, and, in some cases, the issuance of additional
shares of the Company's Common Stock. In April 1998, the Company filed, and
had declared effective, a "shelf" registration statement for the issuance of
up to 2,500,000 shares of Common Stock, including shares then available under
the Company's former acquisition shelf registration statement, to be used in
connection with future acquisitions. As of September 30, 1998, 2,138,520
shares remained available under this shelf registration statement for future
acquisitions. The Company anticipates making routine capital expenditures of
approximately $11 million in 1998. In addition, the Company currently
anticipates spending approximately $20 million over the next 12 to 18 months
for major construction and development projects, including the construction of
six new funeral homes, three of which will be built on existing Company-owned
cemetery property.
19
<PAGE>
Management believes that cash flow from operations and the borrowing capacity
available under the Credit Facility as a result of the repayment of such
indebtedness with the net proceeds of the Debentures should be sufficient to
meet its anticipated capital expenditures and other operating requirements and
to substantially fund acquisitions through 1998. The Company continually
evaluates alternatives, including additional debt or equity financing, to
ensure adequate funding for its operations, including planned capital
expenditures and projected acquisitions. However, because future cash flows
and the availability of financing at terms favorable to the Company are
subject to a number of variables, such as the number, size and rate of
acquisitions made by the Company, there can be no assurance that the Company's
capital resources will be sufficient to fund planned future levels of capital
expenditures and acquisitions. Additional debt and equity financings may be
required in connection with future acquisitions. The availability of these
capital sources will depend on prevailing market conditions and interest rates
and the then-existing financial condition of the Company.
YEAR 2000
The year 2000 issue is the result of computer programs using two digits to
define the applicable year instead of four. Any programs that have time
sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. A computer system that is not year 2000 compliant would
not be able to correctly process certain data, or in extreme situations,
system failure could result.
As part of the Company's continuing program to upgrade its information systems
in anticipation of future growth, the Company is currently involved in the
installation of software for its funeral corporate and field operations and
cemetery corporate operations which is year 2000 compliant. This installation
is currently expected to be complete by the third quarter of 1999. The
Company is also currently evaluating software solutions for its cemetery field
operations and cemetery merchandise trusting systems and expects to have year
2000 compliant systems in place by the third quarter of 1999. As part of this
process, the Company has assembled a task force of key employees and outside
professional consultants to identify, evaluate and repair or replace, if
necessary, any remaining areas of its operating systems that could pose a
potential year 2000 problem.
Planned upgrades to the cemetery field operating and merchandise trusting
systems have been accelerated to ensure timely year 2000 compliance. The
Company expects to incur approximately $0.7 to $1.0 million on these
accelerated planned upgrades.
The Company has also made inquiries of certain of its vendors to determine
what impact, if any, their year 2000 compliance exposure might have on the
Company's operations and has received assurances that those vendors' systems
are or will be year 2000 compliant in a timely manner.
The Company has begun, but not yet completed, a comprehensive analysis of the
operational problems and costs (including any possible loss of revenue) that
would be reasonably likely to result from the failure by the Company and
certain third parties to complete efforts necessary to achieve year 2000
compliance in a timely manner. A contingency plan has not been developed for
dealing with the most reasonably likely worst case scenario, and such scenario
has not clearly been identified. The Company plans to complete such analysis
and have contingency planning in place by the third quarter of 1999.
The failure to correct a material year 2000 problem could possibly result in
an interruption in, or failure of, certain normal business activities or
operations. Such failure could materially and adversely affect the Company's
financial position, results of operations and cash flows. Due to the general
uncertainty inherent in the year 2000 problem, including uncertainty regarding
the year 2000 readiness of third party suppliers and potential future
acquisitions, the Company is unable to determine at this time whether the
consequences of any possible year 2000 failures will have a material impact on
the Company's financial position, results of operations and cash flows. The
Company believes that, with the scheduled completion of its funeral and
cemetery computer system upgrades, the possibility of any material
interruptions to normal operations should be significantly reduced.
20
<PAGE>
The Company's plans to comply with year 2000 requirements and completion dates
are based on management's best estimates, which were derived utilizing
numerous assumptions of future events including the continued availability of
certain resources and other factors. There can be no assurance, however, that
these estimates will be achieved and actual results could differ materially
from those estimates. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to identify and correct potential
problems, and similar uncertainties.
BUSINESS COMBINATION
On August 6, 1998, the Company announced that it entered into an Agreement and
Plan of Merger (the "Merger Agreement") with SCI to combine the two companies.
Pursuant to and subject to the terms of the Merger Agreement, each of the
issued and outstanding shares of the Company's Common Stock will be converted
in the merger into the right to receive the number of shares of SCI common
stock, par value $1.00 per share, ("SCI Common Stock") determined by dividing
$27.00 by the Average SCI Stock Price (as defined below); provided, however,
that (i) in the event the Average SCI Stock Price is greater than $41.50, the
Company's Common Stock shall be converted into the right to receive the number
of shares of SCI Common Stock determined by dividing $27.00 by $41.50 and (ii)
in the event the Average SCI Stock Price is less than $34.00, the Company's
Common Stock shall be converted into the right to receive the number of shares
of SCI Common Stock determined by dividing $27.00 by $34.00.
The "Average SCI Stock Price" means the average of the Daily Per Share Prices
(as defined below) for the ten consecutive trading days ending on the third
trading day prior to the closing of the merger. The "Daily Per Share Price"
for any trading day means the weighted average of the per share selling prices
on the New York Stock Exchange, Inc. (the "NYSE") of SCI Common Stock (as
reported in the NYSE Composite Transactions) for that day.
The consummation of the merger, anticipated in the fourth quarter of 1998, is
subject to the approval of holders of a majority of the shares of the
Company's Common Stock outstanding and regulatory approvals pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Company
has deferred approximately $0.6 million of expenses related to the anticipated
merger as of September 30, 1998. These expenses and all future expenses
incurred by the Company related to the merger will be recognized upon
consummation of the merger.
SEASONALITY
Although the deathcare business is relatively stable and fairly predictable,
the Company's results of operations may periodically fluctuate due to limited
seasonality. Revenues from the Company's funeral home operations tend to be
somewhat greater in the first and fourth quarters of each calendar year while
revenues from its cemetery operations tend to be somewhat greater in the
second and fourth quarters of each calendar year.
INFLATION
Inflation has not had a significant impact on the results of operations of the
Company during the last three years.
RECENT FASB PRONOUNCEMENTS
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130 "Reporting Comprehensive Income", effective January
1, 1998. Currently, the Company's components of comprehensive income consist
of net income and the foreign currency translation adjustment related to the
operations of the Company's Canadian subsidiaries. The Company has elected to
report comprehensive income within the statement of stockholders' equity as
permitted by SFAS No. 130.
21
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1(1)- Agreement and Plan of Merger by and among Service Corporation
International, SCI Delaware Funeral Services, Inc., and the
Company, dated August 6, 1998 (filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K, filed September 2, 1998).
27 - Financial Data Schedule
(1) Incorporated herein by reference to the indicated filing.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on August 10, 1998 in
which the Company reported under Item 5 that it had entered into an
agreement with SCI to combine the two companies. No financial statements
were filed.
The Company filed a Current Report on Form 8-K on September 2, 1998 in
which the Company reported under Item 5 that it had entered into an
agreement with SCI to combine the two companies and provided terms of the
merger agreement.
22
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 1998
EQUITY CORPORATION INTERNATIONAL
By: /s/ W. Cardon Gerner
------------------------
Senior Vice President
Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)
23
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AND INCOME STATEMENT AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 12,274
<SECURITIES> 0
<RECEIVABLES> 20,563
<ALLOWANCES> 3,836
<INVENTORY> 11,028
<CURRENT-ASSETS> 49,540
<PP&E> 150,452
<DEPRECIATION> 19,654
<TOTAL-ASSETS> 929,847
<CURRENT-LIABILITIES> 25,185
<BONDS> 283,562
0
0
<COMMON> 218
<OTHER-SE> 254,644
<TOTAL-LIABILITY-AND-EQUITY> 929,847
<SALES> 64,075
<TOTAL-REVENUES> 142,169
<CGS> 20,978
<TOTAL-COSTS> 102,157
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,336
<INTEREST-EXPENSE> 10,698
<INCOME-PRETAX> 22,447
<INCOME-TAX> 8,754
<INCOME-CONTINUING> 13,693
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,693
<EPS-PRIMARY> .64
<EPS-DILUTED> .63
</TABLE>
