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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-6402-1
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SERVICE CORPORATION INTERNATIONAL
(Exact name of registrant as specified in its charter)
TEXAS 74-1488375
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
1929 ALLEN PARKWAY 77019
HOUSTON, TEXAS (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: 713/522-5141
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock ($1 par value) New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
6.5% Convertible Subordinated New York Stock Exchange
Debentures due 2001
10% Subordinated Debentures due 2000 American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the common stock held by non-affiliates of
the registrant is $2,203,565,274 based upon a closing market price of $26 5/8 on
March 21, 1994 of a share of common stock as reported on the New York Stock
Exchange -- Composite Transactions Tape.
The number of shares outstanding of the registrant's common stock as of
March 21, 1994 was 85,837,877 (excluding treasury shares).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement in connection with its 1994
Annual Meeting of Shareholders (Part III)
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PART I
ITEM 1. BUSINESS.
Service Corporation International was incorporated in Texas on July 5,
1962. The term "Company" includes the registrant and its subsidiaries, unless
the context indicates otherwise.
The Company is the largest publicly-held funeral/cemetery company in North
America. At December 31, 1993, the Company operated 792 funeral homes and 192
cemeteries located in 39 states, the District of Columbia, four provinces in
Canada and five Australian states, and other funeral and cemetery related
businesses. In addition, the Company provides capital financing to independent
funeral home and cemetery operators.
In 1993, the Company acquired an Australian funeral/cemetery company. This
was the Company's first acquisition of a firm located outside of North America.
Including this acquisition, the Company in 1993 acquired 124 funeral homes and
21 cemeteries through acquisitions. The Company has acquired most of its present
operations through acquisitions and has from time to time divested itself of
certain properties and/or operations previously acquired. The Company continues
to review the possible acquisition of various related businesses. For
information regarding acquisitions of funeral home and cemetery operations in
1993, see Note 3 to the consolidated financial statements in Item 8 of this Form
10-K.
For financial information about the Company's industry segments, including
the identifiable assets of the Company by industry segments, see Note 14 to the
consolidated financial statements in Item 8 of this Form 10-K.
FUNERAL SERVICES OPERATION
The Funeral Services Operation consists of the Company's funeral homes,
cemeteries and related businesses. The operation is organized into six domestic
and two foreign (Australia and Canada) regional groups, each of which is under
the direction of a regional president. Canadian operations are carried out by a
public company which is approximately 70% owned by the Company. Local funeral
home and cemetery managers, under the direction of the regional presidents,
receive support and resources from Houston headquarters and have substantial
autonomy with respect to the manner in which services are conducted.
To enhance operational efficiency, the majority of the Company's funeral
homes and cemeteries within a region are managed in groups called clusters. The
clusters, primarily designated in metropolitan areas, allow funeral homes and
cemeteries to share operating expenses such as service personnel, vehicles,
preparation services, clerical staff and certain building facility costs.
Funeral Homes. The funeral homes provide all professional services relating
to funerals, including the use of funeral facilities and motor vehicles. Funeral
homes sell caskets, burial vaults, cremation receptacles, flowers and burial
garments and also operate 75 crematories. The Funeral Services Operation owns 84
funeral home/cemetery combinations and operates 50 flower shops engaged
principally in the design and sale of funeral floral arrangements. These flower
shops provide floral arrangements to some of the Company's funeral homes and
cemeteries.
The Company markets prearranged funeral services. Funeral prearrangement is
a means through which a customer contractually agrees to the terms of a funeral
to be performed in the future. Payments on prearranged funerals currently
offered by the Company are deposited into trust funds or are used to purchase
life insurance or annuity contracts issued primarily by third party insurers.
Funds paid on prearranged funerals may not be withdrawn until death or
cancellation by the customer. For additional information concerning prearranged
funeral activities, see Notes 4 and 8 to the consolidated financial statements
in Item 8 of this Form 10-K.
The Funeral Services Operation has multiple funeral homes and cemeteries in
a number of metropolitan areas. Within individual metropolitan areas, the
funeral homes and cemeteries operate under various names because most operations
were acquired as going businesses and continue to be operated under the same
name as before acquisition.
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The death rate tends to be somewhat higher in the winter months and the
funeral homes generally experience a higher volume of business during those
months.
The funeral home industry is characterized by a large number of independent
operations, the vast majority of which are locally owned and operated. The
Company believes that there are in excess of 22,000 funeral homes operating in
the United States. There are many entities operating multiple branches, but none
have as many funeral homes or cover as many geographic areas as the Company. In
order to compete successfully, each of the Company's funeral homes must maintain
competitive prices, attractive, well-maintained and conveniently located
facilities, a good reputation and high professional standards.
In April 1984, the Federal Trade Commission (FTC) comprehensive trade
regulation rule for the funeral industry became fully effective. The rule
contains minimum guidelines for funeral industry practices, requires extensive
price and other affirmative disclosures and imposes mandatory itemization of
funeral goods and services. A pre-existing consent order between the Company and
the FTC applicable to certain funeral practices of the Company was amended in
1984 to make the consent order consistent with the funeral trade regulation
rule. From time to time in connection with acquisitions, the Company has entered
into consent orders with the FTC which limit the Company's ability to make
acquisitions in specified areas and/or which require the Company to dispose of
certain operations. The trade regulation rule and the consent orders have not
had a materially adverse effect on the Company's operations.
Cemeteries. The Company's cemeteries sell cemetery interment rights
(including mausoleum spaces and lawn crypts) and certain merchandise including
stone and bronze memorials and burial vaults. The Company's cemeteries also
perform interment services and provide management and maintenance of cemetery
grounds. Certain cemeteries also include crematory operations.
Cemetery sales are often made on a pre-need basis pursuant to installment
contracts providing for monthly payments. A portion of the proceeds from
cemetery sales is generally required by law to be paid into perpetual care trust
funds. Earnings of perpetual care trust funds are used to defray the maintenance
cost of cemeteries. In addition, a portion of the proceeds from the sale of
pre-need cemetery merchandise and services may be required to be paid into trust
funds. For additional information regarding cemetery trust funds, see Note 1 to
the consolidated financial statements in Item 8 of this Form 10-K.
The cemetery industry is characterized by a large number of independent
operations, the vast majority of which are locally owned and operated. Each of
the Company's cemeteries competes with other firms in the same general area. In
order to compete successfully, each of the Company's cemeteries must maintain
competitive prices, attractive and well kept properties, a good reputation and
an effective sales force.
FINANCIAL SERVICES OPERATION
In 1988, the Company formed Provident Services, Inc. ("Provident") to
provide capital financing to independent funeral home and cemetery operators.
The majority of Provident's loans are made to clients seeking to finance funeral
home or cemetery acquisitions. Additionally, Provident provides construction
loans for funeral home or cemetery improvement and expansion. Loan packages take
traditional forms of secured financing comparable to arrangements offered by
leading commercial banks. Provident's loans are generally made at interest rates
which fluctuate with the prime lending rate.
Provident had $250,000,000 in loans outstanding at December 31, 1993 and
unfunded loan commitments amounting to $19,499,000. Such loans outstanding
increased from $187,000,000 in loans outstanding at December 31, 1992. Provident
obtains its funds primarily from the Company's bank borrowings.
Provident is in competition with banks and other lending institutions, many
of which have substantially greater resources than Provident. However, Provident
believes that its knowledge of the death care industry provides it with the
ability to make more accurate assessments of funeral home and cemetery industry
loans, thereby providing Provident a competitive advantage in the industry.
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EMPLOYEES
At December 31, 1993, the Company employed 8,985 persons on a full time
basis and 3,731 persons on a part time basis. Of the full time employees 427
were in corporate services, 8,550 were in the Funeral Services Operation, and
eight were in Financial Services. All of the Company's eligible employees who so
elect are covered by the Company's group health and life insurance plans, and
all eligible employees are participants in retirement plans of the Company or
various subsidiaries.
At December 31, 1993, 747 employees were covered by collective bargaining
agreements. Although disputes are experienced from time to time, in general,
relations with employees are considered satisfactory.
REGULATION
The Company's various operations are subject to regulations, supervision
and licensing under various federal, state, local and Canadian and Australian
statutes, ordinances and regulations. The Company believes that it is in
substantial compliance with the significant provisions of such statutes,
ordinances and regulations. See discussion of FTC funeral industry trade
regulation and consent orders in "Funeral Homes" above.
ITEM 2. PROPERTIES.
The Company's executive headquarters and the offices of management
personnel of the Funeral and Financial Service Operations are located at 1929
Allen Parkway, Houston, Texas 77019, in a 12-story office building. A
wholly-owned subsidiary of the Company owns an undivided one-half interest in
the underlying fee to the building and its parking garage. The property consists
of approximately 1.3 acres, 250,000 square feet of office space in the building
and 160,000 square feet of parking space in the garage. The Company leases all
of the office space in the building pursuant to a lease that expires June 30,
1995 providing for monthly rent of $87,000. The rent is subject to escalation
for all operating expenses above base year operating expenses. One half of the
rent is paid to the wholly-owned subsidiary and the other half is paid to the
owner of the remaining undivided one-half interest. The Company owns and
utilizes a three-story building at 1919 Allen Parkway, Houston, Texas 77019
containing 43,000 square feet of office space. The Company owns the facilities
of certain closed casket manufacturing operations.
At December 31, 1993, the Company owned the real estate and buildings of
803 of its funeral home and cemetery locations and leased facilities in
connection with 181 of such operations. In addition, the Company leased two
aircraft pursuant to a cancellable lease. At December 31, 1993, the Company
operated 3,831 vehicles, of which 1,805 were owned and 2,026 were leased. For
additional information regarding leases, see Note 9 to the consolidated
financial statements in Item 8 of this Form 10-K.
The Company's 192 cemeteries contain an aggregate of approximately 14,600
acres of which approximately 58% are developed.
The specialized nature of the Company's businesses requires that its
facilities be well maintained and kept in good condition. Management believes
that these standards are met.
ITEM 3. LEGAL PROCEEDINGS.
The staff of the Securities and Exchange Commission (the "Commission") is
conducting an informal private investigation relating to the change in the
Company's principal independent accountants and the Company's Current Report on
Form 8-K dated March 31, 1993, as amended, filed with the Commission reporting
such change, as well as the Company's current accounting and reporting of
pre-need sales. The Commission staff has advised the Company that the
investigation should not be construed as an indication by the Commission or its
staff that any violations of law have occurred, or as a reflection upon any
person, entity or security. The investigation is continuing. Also see Item 9.
Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure in this Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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EXECUTIVE OFFICERS OF THE COMPANY
Pursuant to General Instruction G to Form 10-K, the information regarding
executive officers of the Company called for by Item 401 of Regulation S-K is
hereby included in Part I of this report.
The following table sets forth as of March 25, 1994 the name and age of
each executive officer of the Company, the office held, and the date first
elected an officer.
YEAR FIRST
BECAME
OFFICER NAME AGE POSITION OFFICER(1)
------------ ----- -------- ----------
R. L. Waltrip........................ (63) Chairman of the Board and Chief 1962
Executive Officer
L. William Heiligbrodt............... (52) President and Chief Operating Officer 1988
W. Blair Waltrip..................... (39) Executive Vice President Operations 1980
Samuel W. Rizzo...................... (58) Executive Vice President and Chief 1987
Financial Officer/Treasurer
John W. Morrow, Jr................... (58) Executive Vice President Corporate 1989
Development
Glenn G. McMillen.................... (51) Senior Vice President Australia 1993
Jerald L. Pullins.................... (52) Senior Vice President Corporate 1992
Development
James M. Shelger..................... (44) Senior Vice President General Counsel 1987
and Secretary
Jack L. Stoner....................... (48) Senior Vice President Administration 1992
T. Craig Benson...................... (32) Vice President Operations; 1990
President -- Investment Capital
Corporation, a subsidiary of the
Company
George R. Champagne.................. (40) Vice President and Assistant to Chief 1989
Operating Officer
Richard T. Sells..................... (54) Vice President Prearranged Sales 1987
Vincent L. Visosky................... (46) Vice President Finance 1989
Henry M. Nelly, III.................. (49) President -- Provident Services, 1989
Inc., a subsidiary of the Company
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(1) Indicates the year a person was first elected as an officer although there
were subsequent periods when certain persons ceased being officers of the
Company.
Unless otherwise indicated below, the persons listed above have been
executive officers or employees for more than five years.
Mr. Morrow was elected as an executive Vice President in May 1991. From May
1990 to May 1991, Mr. Morrow was President of SCI Funeral Services, Inc., a
subsidiary of the Company. From February 1990 to May 1990, Mr. Morrow was
President and Chief Operating Officer of the Funeral Service Division of the
Company. From August 1989 to February 1990, Mr. Morrow was an officer of the
Company serving as Executive Vice President. Prior thereto, Mr. Morrow was
President and owner of J. W. Morrow Investment Company, a funeral home business,
and also provided consulting services to the Company.
Mr. Pullins joined the Company in September 1991 and was elected to his
present position in February 1992. Prior thereto from January 1987 through
August 1991, Mr. Pullins was President, Chief Executive Officer and Chief
Operating Officer of Sentinel Group, Inc., a funeral service company.
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Mr. Stoner joined the Company in September 1991 and was elected to his
present position in August 1992. Prior thereto for more than five years, Mr.
Stoner was a general partner and Director of Tax of Ernst & Young (formerly
Arthur Young & Company), certified public accountants.
Each officer of the Company is elected by the Board of Directors and holds
his office until his successor is elected and qualified or until his earlier
death, resignation or removal in the manner prescribed in the Bylaws of the
Company. Each officer of a subsidiary of the Company is elected by the
subsidiary's board of directors and holds his office until his successor is
elected and qualified or until his earlier death, resignation or removal in the
manner prescribed in the bylaws of the subsidiary. There is no family
relationship between any of the persons in the preceding table except that W.
Blair Waltrip is a son of R. L. Waltrip, that T. Craig Benson is a son-in-law to
R. L. Waltrip and that T. Craig Benson is a brother-in-law to W. Blair Waltrip.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's common stock has been traded on the New York Stock Exchange
since May 14, 1974. On March 21, 1994, there were approximately 8,700 holders of
record of the Company's common stock.
The Company has declared 83 consecutive quarterly dividends on its common
stock since it began paying dividends in 1974. The dividend rate is $.105 per
quarter, or an indicated annual rate of $.42. For the three years ended December
31, 1993, dividends were $.40, $.39 and $.37, respectively.
The table below shows the Company's quarterly high and low common stock
prices:
YEAR ENDED DECEMBER 31,
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1993 1992 1991
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HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ---
First............................................. 21 5/8 17 7/8 18 3/8 15 5/8 17 3/8 13 1/2
Second............................................ 22 1/8 18 1/2 18 3/4 16 1/8 18 3/8 14
Third............................................. 25 1/4 20 3/4 18 1/2 16 3/8 18 1/8 14 1/2
Fourth............................................ 26 3/8 23 1/2 18 1/2 16 3/4 18 14 7/8
SRV is the New York Stock Exchange ticker symbol for the common stock of
Service Corporation International.
ITEM 6. SELECTED FINANCIAL DATA.
YEARS ENDED DECEMBER 31,*
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1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(THOUSANDS, EXCEPT PER SHARE AND RATIO AMOUNTS)
Revenues.......................... $ 899,178 $ 772,477 $ 643,248 $ 563,156 $ 518,809
Income before income taxes and
preferred dividend
requirement..................... $ 173,492 $ 139,336 $ 108,872 $ 99,432 $ 84,618
Income available to common
stockholders.................... $ 101,061 $ 86,536 $ 73,372 $ 60,218 $ 46,721
Income available to common
stockholders per share.......... $ 1.21 $ 1.13 $ 1.03 $ .85 $ .65
Dividends per share............... $ .40 $ .39 $ .37 $ .37 $ .36
Total assets...................... $3,683,304 $2,611,123 $2,123,452 $1,653,689 $1,601,468
Long-term debt.................... $1,062,222 $ 980,029 $ 786,685 $ 577,378 $ 485,669
Stockholders' equity.............. $ 884,513 $ 683,097 $ 615,776 $ 434,323 $ 557,777
Shares outstanding................ 84,859 76,905 75,981 68,801 72,575
Ratio of earnings to fixed
charges**....................... 3.19 3.03 2.82 2.62 2.38
(See notes on following page)
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* The year ended December 31, 1993 reflects the change in accounting principles
adopted January 1, 1993. The four years ended December 31, 1992 reflect
results as historically reported.
** For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes from continuing operations, less
undistributed income of equity investees which are less than 50% owned, plus
the minority interest of majority-owned subsidiaries with fixed charges, and
plus fixed charges (excluding capitalized interest and preferred dividends).
Fixed charges consist of interest expense, whether capitalized or expensed,
amortization of debt costs, one-third of rental expense which the Company
considers representative of the interest factor in the rentals and preferred
dividends.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
ORGANIZATION
The majority of the Company's funeral homes and cemeteries are managed in
groups called clusters. Clusters are primarily designated in metropolitan areas
to take advantage of operational efficiencies, including the sharing of
operating expenses such as service personnel, vehicles, preparation services,
clerical staff and certain building facility costs. The Company has
approximately 165 clusters which range in size from two to 46 operations. There
may be more than one cluster in a given metropolitan area, depending upon the
level and degree of shared costs.
The cluster management approach recognizes that, as the Company adds
operations to a geographic area that contains an existing Company presence,
additional economies of scale through cost sharing will be achieved and the
Company will also be in a better position to serve the population that resides
within the area served by the cluster. Funeral service and cemetery operations
primarily depend upon a long-term development of customer relationships and
loyalty. Over time, these client families may relocate within a cluster area
which may justify the relocation or addition of Company locations. The Company
has attempted to satisfy this need for convenient locations by either acquiring
existing independent locations within the Company's cluster areas or
constructing satellite funeral homes (sometimes on Company-owned cemeteries)
while still maintaining the sharing of certain expenses within that cluster of
operations.
CHANGE IN ACCOUNTING PRINCIPLES
Effective January 1, 1993, the Company changed its method of accounting for
prearranged funeral service contracts and cemetery sales. For a more detailed
discussion of these changes, see Note 2 to the consolidated financial statements
in Item 8 of this Form 10-K. The cumulative effect of these changes resulted in
an after tax charge of $2,031,000 or $.03 per share on January 1, 1993.
Generally these changes will result in reduced funeral revenues and funeral
operating income, at least in the near future, due to the deferral of previously
recognized prearranged funeral service trust fund income until performance of
the specific funeral. Additionally, these changes will generally result in
higher cemetery revenues and cemetery operating income because all cemetery
sales and costs are recorded in current income. See Item 3. Legal Proceedings in
this Form 10-K for information regarding an informal investigation by the
Securities and Exchange Commission.
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For purposes of managements's discussion and analysis of results of
operations and financial condition, all comparisons to 1992 and 1991 reflect the
pro forma effects of applying the new accounting principles as if the changes
had occurred on December 31, 1990. The following table presents the pro forma
results for the years ended 1992 and 1991:
YEARS ENDED DECEMBER 31,
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UNAUDITED
PRO FORMA
AS REPORTED ---------------------------
1993 1992 1991
----------- ----------- -----------
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues:
Funeral............................................... $ 603,099 $ 532,914 $ 430,565
Cemetery.............................................. 280,421 217,100 194,434
Financial services.................................... 15,658 10,741 14,823
----------- ----------- -----------
899,178 760,755 639,822
Costs and expenses:
Funeral............................................... (426,008) (379,223) (307,090)
Cemetery.............................................. (200,682) (164,188) (149,822)
Financial services.................................... (9,168) (6,632) (10,666)
----------- ----------- -----------
(635,858) (550,043) (467,578)
----------- ----------- -----------
Gross profit............................................ 263,320 210,712 172,244
General and administrative expenses..................... (43,706) (38,693) (35,448)
Interest expense........................................ (59,631) (53,902) (42,429)
Other income............................................ 13,509 9,876 8,241
----------- ----------- -----------
Income before income taxes.............................. 173,492 127,993 102,608
Income taxes............................................ (70,400) (48,500) (33,200)
----------- ----------- -----------
Income before cumulative effect of change in accounting
principles............................................ $ 103,092 $ 79,493 $ 69,408
----------- ----------- -----------
----------- ----------- -----------
RESULTS OF OPERATIONS
Year Ended 1993 Compared to 1992
In 1993, total funeral revenues increased $70,185,000 or 13.2% over 1992.
Funeral revenues were as follows:
YEARS ENDED DECEMBER
31,
--------------------- INCREASE PERCENTAGE
1993 1992* (DECREASE) INCREASE
-------- -------- ---------- ----------
(THOUSANDS)
Existing clusters............................... $548,771 $497,092 $ 51,679 10.4%
New clusters**.................................. 28,376 2,259 26,117
-------- -------- ---------- ----------
Total clusters........................ 577,147 499,351 77,796 15.6%
Non-cluster and disposed operations............. 25,952 33,563 (7,611)
-------- -------- ---------- ----------
Total funeral revenues................ $603,099 $532,914 $ 70,185 13.2%
-------- -------- ---------- ----------
-------- -------- ---------- ----------
The $51,679,000 increase in revenues at existing clusters was the result of
10,193 or 6.9% more funeral services performed and a $111 or 3.3% higher average
sales price. Included in this increase were $29,281,000 in revenues from
locations acquired during the two year period. Overall, funeral services
performed are
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* Unaudited pro forma.
** Represents new geographic areas entered into after December 31, 1991 for the
period that those businesses were owned by the Company.
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expected to grow slowly for the near future and it is expected that the
Company's revenue growth will primarily be generated from acquired operations
(added to existing clusters and the creation of new clusters) as well as higher
average sales prices.
During 1993, the Company sold $159,000,000 of prearranged funeral services
compared to $119,000,000 for 1992. These prearranged funeral services are
deferred and will be reflected in funeral revenues in the periods that the
funeral services are performed. An increased emphasis on sales of prearranged
funerals is expected to continue.
Total funeral costs increased $46,785,000 or 12.3% in 1993. Funeral costs
were as follows:
YEAR ENDED DECEMBER
31,
--------------------- INCREASE PERCENTAGE
1993 1992* (DECREASE) INCREASE
-------- -------- ---------- ----------
(THOUSANDS)
Existing clusters............................... $357,118 $324,893 $ 32,225 9.9%
New clusters**.................................. 21,571 1,755 19,816
-------- -------- ---------- ----------
Total clusters........................ 378,689 326,648 52,041 15.9%
Non-cluster and disposed operations............. 18,838 27,654 (8,816)
Administrative overhead......................... 28,481 24,921 3,560
-------- -------- ---------- ----------
Total funeral costs................... $426,008 $379,223 $ 46,785 12.3%
-------- -------- ---------- ----------
-------- -------- ---------- ----------
Existing cluster funeral costs, expressed as a percentage of revenues, were
65.1%, which was slightly lower than the 65.4% recorded in 1992. This operating
margin improvement was achieved despite the large number of acquisitions which
occurred during the two year period. Typically, acquisitions will temporarily
exhibit slightly lower operating margins than the Company's existing locations.
These acquisitions accounted for $19,548,000 of the existing cluster cost
increase. The improved operating margin reflects, increased revenues, reduced
personnel costs (the largest funeral expense item) and facility costs at other
funeral homes included in existing clusters. As a percentage of revenues,
administrative overhead costs related to funeral operations remained at 4.7% in
both years.
Total cemetery revenues increased $63,321,000 or 29.2% over 1992. Cemetery
revenues were as follows:
YEAR ENDED DECEMBER
31,
--------------------- INCREASE PERCENTAGE
1993 1992* (DECREASE) INCREASE
-------- -------- ---------- ----------
(THOUSANDS)
Existing clusters............................... $254,343 $202,709 $ 51,634 25.5%
New clusters**.................................. 14,818 946 13,872
-------- -------- ---------- ----------
Total clusters........................ 269,161 203,655 65,506 32.2%
Non-cluster and disposed operations............. 11,260 13,445 (2,185)
-------- -------- ---------- ----------
Total cemetery revenues............... $280,421 $217,100 $ 63,321 29.2%
-------- -------- ---------- ----------
-------- -------- ---------- ----------
Revenues for the existing clusters increased due to increased at-need and
pre-need sales volume, higher average at-need and pre-need contract prices and
additional earnings from cemetery perpetual care and merchandise and service
trust funds. Included in the existing cluster increase, was $40,059,000 in
increased revenues from cemeteries acquired during the two year period.
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* Unaudited pro forma.
** Represents new geographic areas entered into after December 31, 1991 for the
period that those businesses were owned by the Company.
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Total cemetery costs increased $36,494,000 or 22.2% over the prior year.
Cemetery costs were as follows:
YEARS ENDED DECEMBER
31,
--------------------- INCREASE PERCENTAGE
1993 1992* (DECREASE) INCREASE
-------- -------- ---------- ----------
(THOUSANDS)
Existing clusters......................... $167,635 $141,178 $ 26,457 18.7%
New clusters**............................ 8,414 892 7,522
-------- -------- ---------- ----------
Total clusters.................. 176,049 142,070 33,979 23.9%
Non-cluster and disposed operations....... 8,038 10,437 (2,399)
Administrative overhead................... 16,595 11,681 4,914
-------- -------- ---------- ----------
Total cemetery costs............ $200,682 $164,188 $ 36,494 22.2%
-------- -------- ---------- ----------
-------- -------- ---------- ----------
The entire increase in existing cluster costs resulted from increased costs
at cemeteries acquired during the two year period. There was no increase in
costs at other cemeteries included in existing clusters despite the sales
increase discussed above. Cost containment in the areas of selling and
maintenance expenses contributed to the lack of increase. Cemetery costs,
expressed as a percentage of revenues, at existing clusters decreased to 65.9%
this year from 69.6% in 1992. The Company believes that the operating margins
realized in 1993 are achievable in the future through continued aggressive sales
as well as cost containment programs. Administrative overhead costs have
increased slightly, when expressed as a percentage of revenues, to 5.9%
currently from 5.4% in 1992.
Financial service revenues and costs have increased in 1993 as a result of
increased loans outstanding and improved interest rate spreads. The average
outstanding loan portfolio during 1993 was $215,726,000 with an average interest
rate spread of 3.3% compared to $143,773,000 and 2.6%, respectively, in 1992.
Financial services are provided through Provident which is a major source of
funding to independent funeral home and cemetery operators. Unlike a commercial
bank, Provident does not have access to low-cost deposit funds so its net
interest margin is lower because it borrows money at market rates. Additionally,
Provident does not incur as much administrative costs as does a commercial bank.
Through Provident's relationships with these borrowers, the Company derives the
benefit of developing a continuing relationship with these entities. The credit
risk for this type of lending is considered minimal to the Company.
General and administrative expenses increased by $5,013,000 or 13.0%. The
increase is primarily attributable to compensation expense in connection with
performance-based vesting of restricted stock grants to Company management.
Vesting is based on a formula primarily tied to earnings per share growth.
Interest expense, which excludes the amount incurred through financial
service operations, increased $5,729,000 or 10.6% during 1993. In February 1993,
the Company issued $150,000,000 of 7.875% debentures due in 2013. The proceeds
were primarily used to repay existing credit agreement borrowings. Also in
February 1993, the Company called the $100,000,000 6.5% convertible debentures
originally issued in 1986. Holders of the debentures converted $97,164,000 into
Company common stock at $17.33 per share (5,607,000 shares) with the remaining
$2,836,000 redeemed in cash. Additionally, interest expense was reduced by
decreased average interest rates on amounts borrowed under the Company's credit
agreements during 1993 compared to 1992.
Other income includes the recognition of gains from the sale of excess real
estate and existing businesses during both periods.
The provision for income taxes has increased to 40.6% from 37.9% during
1992 primarily due to the enactment of the Omnibus Budget Reconciliation Act of
1993 in August 1993 which increased corporate tax rates retroactively to January
1, 1993. As a result of the new law, the Company's 1993 tax expense increased
- ---------------
* Unaudited pro forma.
** Represents new geographic areas entered into after December 31, 1991 for the
period that those businesses were owned by the Company.
9
11
$2,431,000 from increased deferred income taxes and $1,700,000 from the higher
corporate tax rate on 1993 earnings ($.05 earnings per share).
RESULTS OF OPERATIONS
Year Ended 1992 Compared to 1991
In 1992, total funeral revenues increased $102,349,000 or 23.8% over 1991.
Funeral revenues were as follows:
YEARS ENDED DECEMBER
31,
--------------------- PERCENTAGE
1992* 1991* INCREASE INCREASE
-------- -------- -------- ----------
(THOUSANDS)
Existing clusters......................... $456,617 $390,807 $ 65,810 16.8%
New clusters**............................ 43,377 11,190 32,187
-------- -------- -------- ----------
Total clusters.................. 499,994 401,997 97,997 24.4%
Non-cluster and disposed operations....... 32,920 28,568 4,352
-------- -------- -------- ----------
Total funeral revenues.......... $532,914 $430,565 $102,349 23.8%
-------- -------- -------- ----------
-------- -------- -------- ----------
The $65,810,000 increase in revenues at existing clusters, which included
an increase of $59,598,000 from acquired operations, was the result of 13,857 or
11.4% more funeral services performed and a $157 or 4.9% higher average sales
price.
Total funeral costs increased $72,133,000 or 23.5% in 1992. Funeral costs
were as follows:
YEARS ENDED DECEMBER
31,
--------------------- PERCENTAGE
1992* 1991* INCREASE INCREASE
-------- -------- -------- ----------
(THOUSANDS)
Existing clusters......................... $292,331 $254,186 $ 38,145 15.0%
New clusters**............................ 34,972 9,063 25,909
-------- -------- -------- ----------
Total clusters.................. 327,303 263,249 64,054 24.3%
Non-cluster and disposed operations....... 26,999 26,032 967
Administrative overhead................... 24,921 17,809 7,112
-------- -------- -------- ----------
Total funeral costs............. $379,223 $307,090 $ 72,133 23.5%
-------- -------- -------- ----------
-------- -------- -------- ----------
All of the increase in costs at existing clusters was the result of funeral
homes acquired during the two year period. For other funeral homes included in
existing clusters, personnel costs increased primarily as the result of higher
benefit costs. This was offset by decreased merchandise costs, reflecting more
effective purchasing arrangements with vendors and an additional year-end
discount from the revision of a merchandise purchasing contract with one vendor.
Discounts should continue through 1998 based on the provisions of the revised
contract as well as with agreements with other vendors. Facility costs also
declined when compared to 1991.
- ---------------
* Unaudited pro forma.
** Represents new geographic areas entered into after December 31, 1990 for the
period that those businesses were owned by the Company.
10
12
Total cemetery revenues increased $22,666,000 or 11.7% over 1991. Cemetery
revenues were as follows:
YEARS ENDED DECEMBER
31,
--------------------- INCREASE PERCENTAGE
1992* 1991* (DECREASE) INCREASE
-------- -------- ---------- ----------
(THOUSANDS)
Existing clusters......................... $186,051 $171,273 $ 14,778 8.6%
New clusters**............................ 13,823 5,308 8,515
-------- -------- ---------- ----------
Total clusters.................. 199,874 176,581 23,293 13.2%
Non-cluster and disposed operations....... 17,226 17,853 (627)
-------- -------- ---------- ----------
Total cemetery revenues......... $217,100 $194,434 $ 22,666 11.7%
-------- -------- ---------- ----------
-------- -------- ---------- ----------
Revenues at existing clusters, which include an increase of $11,937,000
from acquired operations, increased a total of $14,778,000 or 8.6% due to
increased at-need sales, higher average at-need and pre-need contract prices
partially offset by a slight decline in the number of pre-need contracts sold.
Total cemetery costs increased $14,366,000 or 9.6% over 1991. Cemetery
costs were as follows:
YEARS ENDED DECEMBER
31,
--------------------- INCREASE PERCENTAGE
1992* 1991* (DECREASE) INCREASE
-------- -------- ---------- ----------
(THOUSANDS)
Existing clusters......................... $127,626 $116,711 $ 10,915 9.4%
New clusters**............................ 10,502 4,618 5,884
-------- -------- ---------- ----------
Total clusters.................. 138,128 121,329 16,799 13.8%
Non-cluster and disposed operations....... 14,379 13,315 1,064
Administrative overhead................... 11,681 15,178 (3,497)
-------- -------- ---------- ----------
Total cemetery costs............ $164,188 $149,822 $ 14,366 9.6%
-------- -------- ---------- ----------
-------- -------- ---------- ----------
Costs at existing clusters, which include an increase of $9,667,000 from
acquired operations, increased a total of $10,915,000 or 9.4%. Merchandise and
repair and maintenance expenses increased at other cemeteries included in
existing clusters. Cemetery overhead costs declined in 1992 due to the closing
of the San Diego administrative office in late 1991. These costs were either
eliminated or transferred to general and administrative expense at the Houston
corporate offices.
Financial service revenues and costs have decreased during 1992 as a result
of a decrease in the average outstanding loan portfolio and borrowed amounts for
Provident in 1992. Operating income remained level for both years. For the year
1992, Provident's outstanding loan portfolio averaged $143,773,000 with an
average interest rate spread of 2.6% compared to $148,652,000 and 2.4%,
respectively, in 1991.
General and administrative expenses increased in 1992 by $3,245,000 or
9.2%. Personnel costs, including the cost of restricted stock grants and other
employee benefit accruals, increased $2,141,000. The remainder of the increase
resulted primarily from higher facility and administrative costs. A portion of
the additional costs resulted from the relocation of cemetery administrative
offices from San Diego to Houston.
Interest expense, which excludes the amount incurred through financial
service operations, increased $11,473,000 or 27.0% during 1992. In October 1991,
the Company issued $172,500,000 of 6.5% convertible debentures due in 2001. Also
contributing to the increase was the interest on debt assumed and not refinanced
from various 1991 acquisitions. Lower interest rates in 1992 helped to offset
increases in interest expense from increased average amounts borrowed under the
Company's credit agreements.
- ---------------
* Unaudited pro forma.
** Represents new geographic areas entered into after December 31, 1990 for the
period that those businesses were owned by the Company.
11
13
Other income increased during 1992 due primarily to the recognition of two
gains in 1992. One resulted from the collection of a note receivable that had
previously been written off, and the other from the sale of an equity
investment. Partially offsetting the increase was less income on corporate
investments. Both years include pretax gains associated with the disposition of
certain excess funeral and cemetery real property.
During the third quarter of 1991, certain Internal Revenue Service audits
of the Company were settled and resulted in the recognition of $4,800,000 or
$.07 per share of income tax benefits.
FINANCIAL CONDITION AT DECEMBER 31, 1993
Cash flows continue to be impacted by the Company's aggressive acquisition
of funeral homes and cemeteries. In addition, capital expenditures, including
major improvements to existing properties, continue to require a significant
amount of cash. Funds generated from the stable earnings of existing funeral and
cemetery operations, together with unused lines of credit or other available
borrowings, are expected to be sufficient for the Company to continue its
current acquisition and operating policies. At December 31, 1993, the Company
had available approximately $250,000,000 of borrowing ability under its various
credit lines. The change in accounting principles previously mentioned did not
affect the Company's recognition of cash collections and disbursements.
In November 1993, the Company's $250,000,000 revolving credit agreement was
extended for an additional three years. Also in November 1993, the Company
entered into a new $350,000,000 revolving credit/term loan agreement that
matures in November 1994 and contains provisions for renewals. At the end of any
term, the outstanding balance may be converted into a two-year term loan.
Interest rates for each of these agreements are based on a Euro-dollar rate,
alternative base loan rate or a rate which is competitively bid by participating
banks. Each of these credit facilities is to be used for acquisitions, general
corporate purposes and to support the Company's selling of commercial paper.
In addition to the sources of cash, the Company has 13,228,000 shares of
common stock, $93,415,000 of guarantees of promissory notes and $87,103,000 of
convertible debentures registered with the Commission to be used exclusively for
future acquisitions.
The Company's debt to capitalization ratio decreased to 54.6% at December
31, 1993 from 59.0% at December 31, 1992, primarily reflecting the net reduction
in debt from the February 1993 conversion of $97,164,000 of debentures into
equity and increased net income from operations.
PREARRANGED FUNERAL SERVICES
The Company has a marketing program to sell prearranged funeral contracts
and the funds collected are generally held in trust or are used to purchase a
life insurance or annuity contract. The principal amount of these prearranged
funeral contracts will be received in cash by a Company funeral home at the time
the funeral is performed. Earnings on trust funds and increasing benefits under
insurance funded contracts also increase the amount of cash to be received and
allow the Company to adequately cover the inflationary increase in costs.
Marketing costs incurred with the sale of prearranged funeral contracts are a
current use of cash which is partially offset with cash retained, pursuant to
state laws, from amounts trusted and certain commissions earned by the Company
for sales of insurance products. The Company believes prearrangements add
stability to the funeral service industry and will stimulate future revenue
growth. Prearranged funeral services fulfilled as a percent of the total
funerals performed (19% for 1993) is expected to grow, thereby making the total
number of funerals performed more predictable.
Of the total prearranged funeral contracts at December 31, 1993, 45% were
trust funded and 55% were insurance funded. The Company's cancellation rate for
all prearranged funeral contracts approximates 10% for which a reserve has been
established.
The Company believes that several factors will continue to cause an
increase in the sale of these contracts such as a desire on the part of an aging
North American population to preplan their funerals and various industry
advertising campaigns. The Company intends to actively sell these prearranged
funeral contracts into the foreseeable future.
12
14
FOREIGN OPERATIONS
The Company has operated in Canada for many years and in 1993 purchased a
funeral service operation in Australia with 60 funeral homes and eight
cemeteries. Since foreign revenues are less than 10% of consolidated revenues
and identifiable foreign assets are less than 10% of total assets, segment
information has not been presented in the notes to the consolidated financial
statements. Though historically the currencies of these two countries have been
stable, the Company has nevertheless entered into a currency swap agreement for
the Australian acquisition as more fully discussed in Note 12 to the
consolidated financial statements in Item 8 of this Form 10-K to minimize any
possible currency risk exposure.
PROSPECTIVE ACCOUNTING CHANGES
In 1994, Statement of Financial Accounting Standards (FAS) 112 "Employer's
Accounting for Postemployment Benefits" becomes effective. This FAS requires the
Company to accrue for estimated future postemployment benefits during the years
employees are working and earning these benefits. Also in 1994, FAS 115
"Accounting for Certain Investments in Debt and Equity Securities" becomes
effective. This FAS addresses the accounting for investments in equity and debt
securities held by the Company. In 1995, FAS 114 "Accounting by Creditors for
Impairment of a Loan" becomes effective. This FAS requires present value
computations for impaired loans when determining allowances for loan losses.
Adoption of these three standards is not expected to materially affect the
Company's financial position or results of operations.
13
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND RELATED SCHEDULES
PAGE
----
Reports of Independent Accountants.................................................... 15
Consolidated Statement of Income for the three years ended December 31, 1993.......... 17
Consolidated Balance Sheet as of December 31, 1993 and 1992........................... 18
Consolidated Statement of Stockholders' Equity for the three years ended December 31,
1993................................................................................ 19
Consolidated Statement of Cash Flows for the three years ended December 31, 1993...... 20
Notes to Consolidated Financial Statements............................................ 21
Financial Statement Schedules:
II -- Amounts Receivable from Related Parties....................................... 39
VIII -- Valuation and Qualifying Accounts............................................. 43
X -- Supplementary Income Statement Information..................................... 44
All other schedules have been omitted because the required information is
not applicable or is not present in amounts sufficient to require submission or
because the information required is included in the consolidated financial
statements or the related notes thereto.
14
16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Service Corporation International
We have audited the consolidated financial statements and the financial
statement schedules of Service Corporation International listed in the index on
page 14 of this Form 10-K as of December 31, 1993 and for the year then ended.
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Service
Corporation International as of December 31, 1993, and the consolidated results
of their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
As discussed in Notes Two and Six to the consolidated financial statements,
effective January 1, 1993, the Company changed its method of accounting for
prearranged funeral contracts and cemetery sales and income taxes.
COOPERS & LYBRAND
Houston, Texas
February 8, 1994
15
17
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Service Corporation International
We have audited the accompanying consolidated balance sheet of Service
Corporation International as of December 31, 1992 and the related consolidated
statements of income, stockholders' equity and cash flows for each of the two
years in the period ended December 31, 1992. Our audits also included the
financial statement schedules for the years ended December 31, 1992 and 1991
listed in the index at Item 8. These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Service Corporation International at December 31, 1992 and the consolidated
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1992, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules for
the years ended December 31, 1992 and 1991, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
ERNST & YOUNG
Houston, Texas
February 8, 1993
16
18
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31,
-------------------------------------
1993 1992 1991
--------- --------- ---------
(THOUSANDS, EXCEPT PER SHARE
INFORMATION)
Revenues................................................ $ 899,178 $ 772,477 $ 643,248
Costs and expenses...................................... (635,858) (550,422) (464,740)
--------- --------- ---------
Gross profit............................................ 263,320 222,055 178,508
General and administrative expenses..................... (43,706) (38,693) (35,448)
--------- --------- ---------
Income from operations.................................. 219,614 183,362 143,060
Interest expense........................................ (59,631) (53,902) (42,429)
Other income............................................ 13,509 9,876 8,241
--------- --------- ---------
(46,122) (44,026) (34,188)
--------- --------- ---------
Income before income taxes.............................. 173,492 139,336 108,872
Provision for income taxes.............................. (70,400) (52,800) (35,500)
--------- --------- ---------
Income before cumulative effect of change in accounting
principles............................................ 103,092 86,536 73,372
Cumulative effect of change in accounting principles
(net of income tax)................................... (2,031) -- --
--------- --------- ---------
Net income.............................................. $ 101,061 $ 86,536 $ 73,372
--------- --------- ---------
--------- --------- ---------
Earnings per share:
Primary
Income before cumulative effect of change in
accounting principles............................ $ 1.24 $ 1.13 $ 1.03
Cumulative effect of change in accounting
principles (net of income tax)................... (.03) -- --
--------- --------- ---------
Net income............................................ $ 1.21 $ 1.13 $ 1.03
--------- --------- ---------
--------- --------- ---------
Fully diluted
Income before cumulative effect of change in
accounting principles............................ $ 1.19 $ 1.07 $ 1.00
Cumulative effect of change in accounting
principles (net of income tax)................... (.02) -- --
--------- --------- ---------
Net income............................................ $ 1.17 $ 1.07 $ 1.00
--------- --------- ---------
--------- --------- ---------
Weighted average number of shares and equivalents....... 83,372 76,856 71,426
--------- --------- ---------
--------- --------- ---------
(See notes)
17
19
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
ASSETS
DECEMBER 31,
-------------------------
1993 1992
---------- ----------
(THOUSANDS)
Current assets:
Cash and cash equivalents......................................... $ 20,822 $ 31,253
Receivables, net of allowances.................................... 236,786 182,272
Inventories....................................................... 45,211 40,577
Other............................................................. 9,640 4,496
---------- ----------
Total current assets...................................... 312,459 258,598
---------- ----------
Prearranged funeral contracts....................................... 1,244,866 --
Long-term receivables............................................... 500,062 274,793
Investments......................................................... -- 661,788
Cemetery property, at cost.......................................... 417,050 298,247
Property, plant and equipment, at cost (net)........................ 606,826 504,471
Deferred charges and other assets................................... 174,345 202,956
Names and reputations (net)......................................... 427,696 410,270
---------- ----------
$3,683,304 $2,611,123
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.......................... $ 96,881 $ 89,004
Income taxes...................................................... 18,695 3,673
Current maturities of long-term debt.............................. 24,982 10,602
---------- ----------
Total current liabilities................................. 140,558 103,279
---------- ----------
Long-term debt...................................................... 1,062,222 980,029
Prearranged funeral and cemetery perpetual care obligations......... -- 477,951
Deferred income taxes............................................... 146,968 99,207
Other liabilities and deferred cemetery costs....................... 185,636 267,560
Deferred prearranged funeral contract revenues...................... 1,263,407 --
Commitments and contingencies....................................... -- --
Stockholders' equity:
Common stock, $1 par value, 200,000,000 shares authorized,
84,859,110 and 76,904,954, respectively, issued and
outstanding.................................................... 84,859 76,905
Capital in excess of par value.................................... 517,902 389,238
Retained earnings................................................. 284,879 220,497
Unrealized depreciation of investments............................ -- (1,254)
Foreign translation adjustment.................................... (3,127) (2,289)
---------- ----------
Total stockholders' equity................................ 884,513 683,097
---------- ----------
$3,683,304 $2,611,123
---------- ----------
---------- ----------
(See notes)
18
20
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-------------------------------------
1993 1992 1991
--------- --------- ---------
(THOUSANDS)
Cash flows from operating activities:
Net income.............................................. $ 101,061 $ 86,536 $ 73,372
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 58,214 47,369 34,990
Undistributed earnings of trusts...................... -- (17,959) (15,508)
Provision for deferred income taxes................... 29,235 13,324 6,205
Gains from dispositions (net)......................... (7,076) (3,237) (2,184)
Cumulative effect of change in accounting
principles......................................... 2,031 -- --
Change in assets and liabilities net of effects from
acquisitions:
(Increase) in receivables.......................... (35,520) (10,962) (27,435)
(Increase) in prearranged funeral contracts and
associated deferred revenues..................... (14,464) -- --
(Increase) decrease in other assets................ 1,967 528 (15,212)
Increase (decrease) in other liabilities........... (9,826) 28,514 (2,110)
Other.............................................. 5,332 1,411 2,934
--------- --------- ---------
Net cash provided by operating activities............... 130,954 145,524 55,052
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures.................................. (59,585) (66,820) (38,489)
Proceeds from sales of property and equipment......... 24,006 18,812 12,520
Acquisitions.......................................... (175,753) (117,737) (123,486)
Loans issued by Provident............................. (102,328) (136,959) (58,496)
Principal payments received on loans by Provident..... 41,652 44,280 45,132
Change in investments and other....................... (2,367) (23,000) (8,235)
--------- --------- ---------
Net cash used in investing activities................... (274,375) (281,424) (171,054)
--------- --------- ---------
Cash flows from financing activities:
Borrowings under lines of credit...................... 37,500 194,403 22,922
Subordinated debentures issued........................ 150,000 -- 172,500
Payments of debt...................................... (24,283) (32,008) (17,927)
Repurchase of common stock............................ (1,637) (6,569) (17,989)
Dividends paid........................................ (32,887) (29,629) (26,320)
Exercise of stock options and other................... 4,297 2,534 3,450
--------- --------- ---------
Net cash provided by financing activities............... 132,990 128,731 136,636
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents.... (10,431) (7,169) 20,634
Cash and cash equivalents at beginning of year.......... 31,253 38,422 17,788
--------- --------- ---------
Cash and cash equivalents at end of year................ $ 20,822 $ 31,253 $ 38,422
--------- --------- ---------
--------- --------- ---------
(See notes)
19
21
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
CAPITAL IN UNREALIZED FOREIGN
COMMON EXCESS OF RETAINED (DEPRECIATION) TRANSLATION
STOCK PAR VALUE EARNINGS OF INVESTMENTS ADJUSTMENT
------- ---------- -------- -------------- -----------
(THOUSANDS)
Balance at December 31, 1990............ $68,801 $ 241,961 $133,443 $(11,351) $ 1,469
Add (deduct):
Net income............................ 73,372
Repurchase of common stock............ (1,196) (5,388) (11,405)
Common stock issued:
Stock option exercises and stock
grants........................... 296 4,216
Acquisitions....................... 8,080 129,153
Dividends on common stock ($.37 per
share)............................. (27,039)
Unrealized appreciation of
investments........................ 11,351
Foreign translation adjustment........ 13
------- ---------- -------- -------------- -----------
Balance at December 31, 1991............ 75,981 369,942 168,371 -- 1,482
Add (deduct):
Net income............................ 86,536
Repurchase of common stock............ (398) (1,974) (4,197)
Common stock issued:
Stock option exercises and stock
grants........................... 589 9,150
Acquisitions....................... 733 12,120
Dividends on common stock ($.39 per
share)............................. (30,213)
Unrealized depreciation of
investments........................ (1,254)
Foreign translation adjustment........ (3,771)
------- ---------- -------- -------------- -----------
Balance at December 31, 1992............ 76,905 389,238 220,497 (1,254) (2,289)
Add (deduct):
Net income............................ 101,061
Repurchase of common stock............ (66) (388) (1,183)
Common stock issued:
Stock option exercises and stock
grants........................... 995 18,899
Acquisitions....................... 1,418 17,432 (1,422)
Debenture conversion............... 5,607 92,721
Dividends on common stock ($.40 per
share)............................. (34,074)
Unrealized depreciation of
investments........................ 1,254
Foreign translation adjustment........ (838)
------- ---------- -------- -------------- -----------
Balance at December 31, 1993............ $84,859 $ 517,902 $284,879 $ -- $(3,127)
------- ---------- -------- -------------- -----------
------- ---------- -------- -------------- -----------
(See notes)
20
22
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE ONE
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation: The consolidated financial statements include
the accounts of Service Corporation International and all wholly-owned
subsidiaries (the Company). Significant intercompany balances and transactions
have been eliminated in consolidation. Certain reclassifications of prior years
have been made to conform to current period classifications.
Cash equivalents: The Company considers all liquid investments purchased
with a maturity of three months or less to be cash equivalents and the carrying
amount approximates fair value because of the short maturity.
Inventories: Inventories, consisting of funeral merchandise and cemetery
space and merchandise, are stated at cost, which is not in excess of market,
determined using average cost.
Depreciation and amortization: Depreciation and amortization of property,
plant and equipment is provided using the straight line method over the
estimated useful lives of the various classes of assets. Maintenance and repairs
are charged to expense whereas renewals and major replacements are capitalized.
Cemetery trust funds: Generally, a portion of the proceeds from the sale of
cemetery lots is required by state law to be paid into perpetual care trust
funds. Earnings from these trusts are recognized in current cemetery revenues
and are intended to defray cemetery maintenance costs. The amount of perpetual
care funds trusted at December 31, 1993 and 1992 was $197,969,000 and
$183,206,000, respectively, and such principal generally cannot be withdrawn by
the Company (see Note 2). Additionally, pursuant to state law, a portion of the
proceeds from the sale of preneed cemetery merchandise and services may also be
required to be paid into trust funds. Merchandise and service trusts, which were
previously included in investments on the Consolidated Balance Sheet, are now
classified as long-term receivables. The Company recognizes income on these
merchandise and service trusts in current cemetery revenues as trust earnings
accrue to defray inflation costs recognized related to the unpurchased cemetery
merchandise. For the three years ended December 31, 1993, the earnings on trusts
recognized for all cemetery trusts was $23,721,000, $18,910,000 and $17,843,000,
respectively.
Deferred obtaining costs: Included in "Deferred prearranged funeral
contract revenues" on the Consolidated Balance Sheet are obtaining costs,
including sales commissions and certain other direct marketing costs, applicable
to prearranged funeral contracts which are deferred and will be expensed when
the service is performed. The aggregate costs deferred as of December 31, 1993
and 1992 were $32,518,000 and $23,934,000, respectively.
Names and reputations: The excess of purchase price over the fair value of
identifiable net tangible assets acquired in transactions accounted for as a
purchase are included in "Names and reputations" and generally amortized on a
straight line basis over 40 years which, in the opinion of management, is not
necessarily the maximum period benefited. Many of the Company's acquired funeral
homes have been providing high quality service to client families for many
decades and such loyalty often forms the basic valuation of a funeral business.
The amortization charged against income was $10,339,000, $9,601,000 and
$4,785,000 for the three years ended December 31, 1993, respectively. Fair
values are determined by management or independent appraisals.
NOTE TWO
CHANGE IN ACCOUNTING PRINCIPLES
The Company changed the following accounting principles effective January
1, 1993.
21
23
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(A) All price guaranteed prearranged funeral sales contracts are
included in the accompanying balance sheet as a long-term asset with a
corresponding credit to deferred prearranged funeral contract revenues.
Insurance funded contracts were previously disclosed in a note to the
financial statements and certain trust funded contracts were previously
included under investments and prearranged funeral obligations. This change
has no effect on the existing policy of recognizing revenue when the
funeral service is performed.
(B) Prearranged funeral trust earnings previously recognized as
current income are now deferred until the funeral service is performed.
Increasing benefits under insurance funded contracts are now accrued and
deferred until the funeral service is performed.
(C) Preneed sales of cemetery interment rights and other related
products and services are recorded as revenues when customer contracts are
signed with concurrent recognition of related costs. Allowances for
customer cancellations and refunds are provided at the date of sale based
upon historical experience. Previously, such sales were generally deferred
under accounting principles prescribed for sales of real estate. Under the
Company's application of this method of accounting for sales of real
estate, revenues and costs were deferred until 20% of the contract amount
had been collected.
(D) Funds held in perpetual care cemetery trusts were previously
included on the Consolidated Balance Sheet in investments and cemetery
perpetual care obligations, whereas now such amounts are excluded.
The accounting changes were made principally for the following reasons and
are described below in the order referred to above.
(A) The Company believes this accounting is more informative and
provides better disclosure of the future economic events because the
activity is all reported on the Consolidated Balance Sheet.
(B) Funeral trust earnings and increasing benefits under insurance
contracts are intended to cover increases in the future costs of providing
price guaranteed funeral services. Accrued trust earnings were previously
recognized in current income and a provision was made for the estimated
effect of inflation on the costs of merchandise purchased by the Company.
Trust earnings are now deferred until performance of the funeral service
and increasing benefits under insurance funded contracts will be accounted
for similarly. The Company believes this policy will better match revenues
and costs because the total funds (principal and accrued earnings)
available to satisfy the contract will be included in revenues when the
funeral service is performed together with all costs related to performance
of the service.
(C) This method of cemetery accounting has been adopted because all
significant remaining obligations of the Company have been satisfied in the
period the contract is signed. Related costs are provided based on actual
costs incurred, firm commitments or reliable estimates. Historical
experience is the basis for making appropriate allowances for customer
cancellations and will be adjusted when required.
(D) Cemetery perpetual care trusts are excluded from the Consolidated
Balance Sheet because the Company generally does not have the right to
withdraw the principal.
The cumulative effect, through December 31, 1992, of changing these
accounting principles resulted in a charge to first quarter 1993 net income of
$2,031,000 (net of a $1,354,000 tax benefit), or $.03 per share. For the year
ended December 31, 1993, the effect of the change in accounting principles
resulted in a decrease in
22
24
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
net income of $1,608,000, or $.02 per share. The following table shows the
unaudited pro forma effects of retroactive application using the changed
accounting principles for the two years ended December 31, 1992:
1992 1991
------- -------
(THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
Net income................................................... $79,493 $69,408
------- -------
------- -------
Primary earnings per share................................... $ 1.03 $ .97
------- -------
------- -------
Fully diluted earnings per share............................. $ .99 $ .95
------- -------
------- -------
Effective January 1, 1993, the Company adopted FAS 109, "Accounting for
Income Taxes" (see Note 6).
NOTE THREE
ACQUISITIONS
The following table is a summary of acquisitions made during the years
ended December 31, 1993 and 1992 accounted for as purchases:
1993 1992
-------- --------
(DOLLARS IN THOUSANDS)
Number acquired:
Funeral homes............................................ 124 54
Cemeteries............................................... 21 18
Purchase price............................................. $220,532 $203,708
The purchase price in both years consisted primarily of combinations of
cash, Company stock, issued and assumed debt and the retirement of loans
receivable issued by the Company's finance subsidiary. The effect of
acquisitions on the Consolidated Balance Sheet at December 31, was as follows:
1993 1992
-------- --------
(THOUSANDS)
Current assets............................................. $ 19,356 $ 24,046
Prearranged funeral contracts.............................. 59,932 --
Investments................................................ -- 87,789
Long-term receivables...................................... 15,699 1,241
Cemetery property.......................................... 137,563 88,664
Property, plant and equipment.............................. 80,547 31,982
Deferred charges and other assets.......................... (3,109) 8,525
Names and reputations...................................... 32,090 103,474
Current liabilities........................................ (11,895) (25,828)
Prearranged funeral and cemetery perpetual care
obligations.............................................. -- (77,773)
Long-term debt............................................. (28,444) (29,075)
Deferred liabilities....................................... (49,156) (82,455)
Deferred prearranged funeral contract revenues............. (59,402) --
Stockholders' equity....................................... (17,428) (12,853)
-------- --------
Cash used for acquisitions................................. $175,753 $117,737
-------- --------
-------- --------
23
25
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The operating results of each acquisition are included in consolidated net
income from the date of acquisition. The following represents the unaudited pro
forma results of operations as if all of the above noted business combinations
had occurred at the beginning of 1992.
YEARS ENDED DECEMBER 31,
-------------------------
1993 1992*
-------- --------
(THOUSANDS)
Revenues................................................... $955,311 $916,831
-------- --------
-------- --------
Net income................................................. $108,093 $100,165
-------- --------
-------- --------
Primary earnings per common share.......................... $ 1.29 $ 1.27
-------- --------
-------- --------
- ---------------
* After change in accounting principles discussed in Note 2.
The pro forma information given above does not purport to be indicative of
the results that actually would have been obtained if the acquisitions had been
in effect for the entire periods presented, and is not intended to be a
projection of future results or trends.
NOTE FOUR
PREARRANGED FUNERAL CONTRACTS
The Company sells prearranged funeral contracts through various programs
providing for future funeral services at prices prevailing when the agreement is
signed. Payments under these contracts are generally placed in trust (pursuant
to state law) or are used to pay premiums on life insurance policies. Life
insurance policies are issued by third party insurers.
At December 31, 1993, trust and insurance funds of $1,244,866,000 (net of
cancellation reserve) included in the Consolidated Balance Sheet as "Prearranged
funeral contracts" are available to the Company for previously sold guaranteed
price contracts. Of this amount, $554,879,000 will be funded by trusts and
$689,987,000 will be funded by insurance policies. Accumulated earnings from
trust funds and increasing insurance benefits have been included to the extent
that they have accrued through December 31, 1993. 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. In addition, a
reserve, based on historical experience, equivalent to approximately 10% of the
total balance has been provided for contract cancellations.
NOTE FIVE
INVESTMENTS
At December 31, 1992, investments include $363,971,000 and $297,817,000 of
prearranged funeral and cemetery perpetual care and merchandise and service
obligations, respectively, held in trust. These investments are carried at the
lower of cost or market and include unrealized gains of $31,496,000 and
unrealized losses of $18,327,000 (see Notes 1 and 2).
NOTE SIX
INCOME TAXES
The Company adopted FAS 109 "Accounting for Income Taxes" effective January
1, 1993. The adoption had no material impact on the Company's results of
operations or financial position. FAS 109 is an asset and liability approach
requiring recognition of deferred tax assets and liabilities for the expected
future tax consequences of events recognized in the Company's financial
statements or tax returns. Under FAS 109, all expected future events other than
changes in the law or tax rates, are considered in estimating future tax
24
26
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consequences. The Company previously had followed FAS 96, which was superseded
by FAS 109, and gave no recognition to future events other than recovery of
assets and settlement of liabilities at their carrying amounts.
In August 1993, the Omnibus Budget Reconciliation Act of 1993 (the Act) was
enacted and among other changes, the Act increased the top United States
corporate income tax rate to 35% from 34% effective January 1, 1993. The
provision for income taxes for the year ended December 31, 1993 includes an
adjustment to deferred taxes under FAS 109 of $2,431,000 related to this
increase in the corporate tax rate.
The provision for income taxes includes United States income taxes,
determined on a consolidated return basis, foreign and state and local income
taxes.
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(THOUSANDS)
Income before income taxes:
United States.................................... $157,004 $130,971 $ 99,980
Foreign.......................................... 16,488 8,365 8,892
-------- -------- --------
$173,492 $139,336 $108,872
-------- -------- --------
-------- -------- --------
Provision for income taxes:
Current:
United States.................................... $ 29,449 $ 31,432 $ 24,157
Foreign.......................................... 6,083 4,257 4,045
State and local.................................. 5,633 3,787 1,093
-------- -------- --------
41,165 39,476 29,295
-------- -------- --------
Deferred:
United States.................................... 26,245 11,119 3,612
Foreign.......................................... (512) (120) (261)
State and local.................................. 3,502 2,325 2,854
-------- -------- --------
29,235 13,324 6,205
-------- -------- --------
Total provision.................................... $ 70,400 $ 52,800 $ 35,500
-------- -------- --------
-------- -------- --------
During the three years ended December 31, 1993, tax expense resulting from
allocating certain tax benefits directly to capital in excess of par totaled
$1,197,000, $339,000 and $419,000, respectively.
25
27
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The differences between the U.S. federal statutory tax rate and the
Company's effective rate was as follows:
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
------- ------- -------
(THOUSANDS)
Computed tax provision at the applicable federal
statutory income tax rate........................... $60,722 $47,375 $37,016
State and local taxes, net of federal income tax
benefits............................................ 5,930 4,034 2,605
Dividends received deduction and tax exempt
interest............................................ (1,767) (2,129) (2,944)
Amortization of names and reputations................. 3,426 3,226 1,679
Enacted tax rate increase for deferred income taxes... 2,431 -- --
Foreign rate difference............................... (26) 1,308 1,088
Settlement of certain federal tax audits.............. -- -- (4,800)
Other................................................. (316) (1,014) 856
------- ------- -------
Provision for income taxes.......................... $70,400 $52,800 $35,500
------- ------- -------
------- ------- -------
Total effective tax rate.............................. 40.6% 37.9% 32.6%
------- ------- -------
------- ------- -------
Deferred tax assets and liabilities as of December 31 was as follows:
1993 1992
-------- --------
(THOUSANDS)
Receivables, principally due to sales of cemetery interment
rights and related products................................... $ 75,064 $ 20,344
Inventories and cemetery property, principally due to purchase
accounting adjustments........................................ 79,029 46,310
Property, plant and equipment, principally due to depreciation
and to purchase accounting adjustments........................ 65,454 50,566
Other........................................................... 1,547 6,791
-------- --------
Deferred tax liabilities...................................... 221,094 124,011
-------- --------
Deferred revenue prearranged funeral service contracts,
principally due to earnings from trust funds.................. (45,833) --
Accrued liabilities............................................. (11,644) (13,238)
Carry-forwards and other, principally related to acquired
subsidiaries.................................................. (5,239) (11,566)
-------- --------
Deferred tax assets........................................... (62,716) (24,804)
-------- --------
Net deferred income taxes..................................... $158,378 $ 99,207
-------- --------
-------- --------
Current refundable income taxes and foreign current deferred tax assets are
included in other current assets, with current taxes payable and current
deferred taxes being reflected as "Income taxes" on the Consolidated Balance
Sheet.
United States income taxes have not been provided on $51,765,000 of
undistributed earnings of foreign subsidiaries since it is the Company's
intention to reinvest such earnings indefinitely.
As of December 31, 1993, the Company has United States federal net
operating loss carry-forwards of $12,375,000 principally related to acquired
subsidiaries which will expire in the years 1998 through 2008.
26
28
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Various subsidiaries have state operating loss carry-forwards of
$72,375,000 with expiration dates through 2008. Included in "Carry-forwards and
other" is a valuation allowance of $1,748,000 which has been provided primarily
for loss carry-forwards not expected to be realized.
Actual cash disbursements for income taxes and other tax assessments during
the three years ended December 31, 1993, totaled $46,557,000, $33,973,000 and
$25,845,000, respectively.
During the third quarter of 1991, the Company settled certain United States
federal tax audits resulting in a $4,800,000 credit to the provision for income
taxes. All of the Company's United States federal tax audits for years ended
through April 30, 1988 have now been completed.
NOTE SEVEN
DEBT
Debt at December 31, was as follows:
1993 1992
---------- --------
(THOUSANDS)
Bank revolving credit agreements, $215,000 available at
December 31, 1993.......................................... $ 385,000 $347,500
Medium term notes, maturity through 2019, fixed average
interest rate of 9.7%...................................... 248,000 250,000
6.5% convertible subordinated debentures, due in 2001,
conversion price of $20.74 per common share, redeemable
after August, 1995......................................... 172,500 172,500
7.875% debentures, due in 2013............................... 150,000 --
8% convertible debentures, due in 2006, conversion price is
$18 per common share....................................... 16,082 16,082
6.5% debentures, converted into common shares at $17.33 per
share in February, 1993.................................... -- 100,000
5.0% convertible debentures, due in 2003, conversion price
ranges from $22.50-$32.16.................................. 12,897 3,000
Mortgage notes payable with maturities through 2013, average
interest rate is 8.5%...................................... 63,769 67,923
Variable-interest rate note payable to a bank, current
interest rate of 3.22% maturity date April, 1996........... 10,676 10,776
Other........................................................ 28,280 22,850
---------- --------
Total debt................................................... 1,087,204 990,631
Less current maturities...................................... (24,982) (10,602)
---------- --------
Total long-term debt............................... $1,062,222 $980,029
---------- --------
---------- --------
Under terms of the bank revolving credit agreements, the Company may borrow
up to $600,000,000. One agreement for $350,000,000 expires on November 8, 1994
and contains provisions for renewals. At the end of any term, the outstanding
balance may be converted into a two year term loan. Another agreement for
$250,000,000 expires November 3, 1996. The Company may in November of each year,
commencing in 1994, extend the term of the $250,000,000 agreement for a year
with the consent of all the banks. The interest rates are based generally on
various indices determined by the Company. In addition, the Company pays a
quarterly facility fee ranging from .125% to .1875% on the commitment amount.
The terms of the revolving credit agreements include various covenants which
provide, among other things, for the maintenance of a certain level of
consolidated net worth, the maintenance of certain ratios and restrictions on
certain payments. These
27
29
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
credit agreements are to be used for general corporate purposes, including
acquisitions, and support for the Company's selling of commercial paper.
The Company has outstanding $248,000,000 in medium term notes with
maturities from 6 months to 26 years which are not callable prior to maturity.
The average remaining maturity for the notes is approximately 13 years.
In October 1991, the Company issued $172,500,000 of convertible
subordinated debentures with a conversion price of $20.74 and subordinated to
certain present and future indebtedness of the Company.
The $150,000,000 of debt was issued in February 1993 and is considered
senior debt and is not redeemable prior to maturity.
In 1988, the Company assumed $16,082,000 of convertible subordinated
debentures from an acquired company, with a conversion price of $18.
In 1986, the Company issued $100,000,000 of convertible debentures. In
February 1993, $97,164,000 of these debentures were converted into 5,607,000
common shares at $17.33 per share pursuant to a redemption call. The remaining
$2,836,000 of debentures were redeemed for cash plus a 2.6% call premium and
interest through the redemption date.
The Company also has two bank lines of credit, one for $75,000,000 and one
for $15,000,000 (both of these lines were available at December 31, 1993) at
rates similar to the revolving credit agreement. The $75,000,000 line may be
withdrawn at any time at the option of the bank. The $15,000,000 line requires
the payment of a .25% commitment fee on the unused balance and expires in July,
1995.
Some of the Company's facilities and cemetery properties are pledged as
collateral for the mortgage notes. Additionally, at December 31, 1993, the
Company had $34,595,000 letters of credit outstanding primarily to guarantee
funding of certain insurance claims.
The aggregate principal payments on debt for the five years subsequent to
December 31, 1993, excluding amounts due to banks under revolving credit loan
agreements are: 1994 -- $24,982,000; 1995 -- $57,731,000; 1996 -- $18,845,000;
1997 -- $47,945,000; and 1998 -- $13,961,000. Cash interest payments for the
three years ended December 31, 1993 totaled $61,062,000, $60,590,000 and
$47,692,000, respectively.
28
30
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE EIGHT
DEFERRED PREARRANGED FUNERAL CONTRACT REVENUES
"Deferred prearranged funeral contract revenues" on the Consolidated
Balance Sheet includes the contract amount of all price guaranteed prearranged
funeral service contracts as well as the accrued trust earnings and increasing
insurance benefits earned through December 31, 1993. The Company will continue
to defer additional accruals of trust earnings and insurance benefits as they
are earned until the performance of the funeral service. Upon performance of the
funeral service, the Company will recognize the fixed contract price as well as
total accumulated trust earnings and increasing insurance benefits as funeral
service revenues.
The recognition in future funeral revenues is estimated to occur in the
following years based on actuarial assumptions as follows:
(THOUSANDS)
-----------
1994............................................................. $ 110,990
1995............................................................. 103,690
1996............................................................. 96,546
1997............................................................. 89,602
1998............................................................. 82,908
1999 and through 2003............................................ 317,878
2004 and thereafter.............................................. 461,793
-----------
$1,263,407
-----------
-----------
NOTE NINE
COMMITMENTS AND CONTINGENCIES
The annual payments for operating leases (primarily for funeral home
facilities and transportation equipment) are as follows:
(THOUSANDS)
-----------
1994............................................................. $23,858
1995............................................................. 19,960
1996............................................................. 16,566
1997............................................................. 13,705
1998............................................................. 9,607
Thereafter....................................................... 30,795
The majority of these leases contain one of the following options: (a)
purchase the property at the fair value at date of exercise, (b) purchase the
property for a value determined at the inception of the lease or (c) renew for
the fair rental value at end of the primary term of the lease. Some of the
equipment leases contain residual value exposures. For the three years ended
December 31, 1993, rental expense was $33,590,000, $25,583,000 and $22,531,000,
respectively.
The Company has entered into management, consultative and noncompetition
agreements (generally for five to 10 years) with certain officers of the Company
and former owners and key employees of businesses acquired. During the three
years ended December 31, 1993, $31,957,000, $27,594,000 and $21,662,000,
respectively, were charged to expense. At December 31, 1993, the maximum
estimated future expense under all remaining agreements is $139,887,000
including $4,693,000 with certain officers of the Company.
In 1990, the Company entered into a five year minimum purchase agreement
with a major casket manufacturer. The agreement contains provisions to increase
the minimum annual purchases for normal price
29
31
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
increases and the maintenance of product quality. The agreement was amended in
1992 to provide for an extension to 1998 with a cumulative minimum purchase
commitment of $228,000,000 required. During the three years ended December 31,
1993, the Company purchased $41,200,000, $36,656,000 and $35,149,000,
respectively, under this agreement.
NOTE TEN
STOCKHOLDERS' EQUITY
The Company is authorized to issue 1,000,000 shares of preferred stock, $1
par value. No shares were issued as of December 31, 1993. At December 31, 1993,
200,000,000 common shares of $1 par value were authorized, 84,859,110 shares
were issued and outstanding (76,904,954 at December 31, 1992), net of 18,830
shares held, at cost, in treasury (521,455 at December 31, 1992).
During the two years ended December 31, 1993, the Company purchased 66,319
and 398,400 shares of its common stock for $1,637,000 and $6,569,000,
respectively.
The fully diluted earnings per share calculation assumes full conversion
into common stock of the Company's various convertible debenture issues.
The Company has a stockholder approved plan whereby shares of the Company's
common stock may be issued pursuant to the exercise of stock options granted to
officers and key employees. The plan allows for options to be granted as either
non-qualified or incentive stock options. The options are granted with an
exercise price equal to the then current market price of the Company's common
stock and are generally exercisable at a rate of 33 1/3% each year (generally
starting one year from grant date). At December 31, 1993 and 1992, 729,267 and
971,515 shares, respectively, were reserved for future option grants under this
existing plan.
On November 10, 1993, the Board of Directors approved the 1993 Long-Term
Incentive Stock Option Plan (maximum of 4,650,000 shares) and granted options
for 4,000,000 shares of common stock at an exercise price of $25.75 per share
(fair market value at date of grant). This plan is subject to stockholder
approval at the annual meeting of stockholders on May 12, 1994. Such shares are
excluded in the table below.
30
32
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tabulation sets forth certain stock option information:
OPTION PRICE
OPTIONS PER SHARE
-------- ------------
Outstanding at December 31, 1990................................... 1,813,707 $ 3.75-23.95
Granted.......................................................... 273,936 13.75-17.17
Exercised........................................................ (293,679) 3.75-23.95
Cancelled........................................................ (267,919) 9.14-23.95
-------- ------------
Outstanding at December 31, 1991................................... 1,526,045 8.00-18.17
-------- ------------
Granted.......................................................... 58,410 8.75-17.06
Exercised........................................................ (214,637) 9.25-16.67
Cancelled........................................................ (104,224) 10.08-18.17
-------- ------------
Outstanding at December 31, 1992................................... 1,265,594 8.00-17.17
-------- ------------
Granted.......................................................... 267,250 14.17-26.00
Exercised........................................................ (401,387) 9.25-18.81
Cancelled........................................................ (25,002) 14.17-18.81
-------- ------------
Outstanding at December 31, 1993................................... 1,106,455 $ 8.00-26.00
-------- ------------
-------- ------------
Exercisable at December 31, 1993................................... 697,452 $ 8.00-18.81
-------- ------------
-------- ------------
At December 31, 1993, the Company has reserved 1,480,731 shares of its
common stock under stockholder approved plans for restricted stock grants to be
awarded to key employees and non-employee directors. These plans contain a
restriction period of not less than six months and not more than five years,
during which time the recipient will be prohibited from disposition of the
awarded common stock and also a requirement that the employee recipient remain
employed by the Company and the non-employee director continue to serve as a
director prior to lapse of the restricted period. For the three years ended
December 31, 1993, 652,481, 405,925 and 16,500 shares were awarded under these
plans, respectively.
In July 1988, the Board of Directors adopted a preferred share purchase
rights plan and also declared a dividend of one preferred share purchase right
for each share of common stock. The rights become exercisable in the event of
certain attempts to acquire 20% or more of the common stock of the Company and
entitle the rights holders to purchase certain securities of the Company or the
acquiring company. The rights, which are redeemable by the Company for $.01 per
right, expire in July, 1998 unless extended. Holders of the medium term notes
and 6.5% subordinated debentures may accelerate repayment or redemption in
certain circumstances involving a change in control.
NOTE ELEVEN
EMPLOYEE RETIREMENT PLANS
The Company has a noncontributory defined benefit pension plan covering
substantially all employees, a supplemental retirement plan for certain
executives (SERP), a supplemental retirement plan for officers and certain
executives (Senior SERP), and a retirement plan for non-employee directors
(Directors' Plan).
For the pension plan, retirement benefits are generally based on years of
service and compensation for the current year. The Company annually contributes
to the pension plan an actuarially determined amount consistent with the funding
requirements of the Employee Retirement Income Security Act of 1974. Assets of
the pension plan consist primarily of bank money market funds, fixed income
investments, marketable equity securities and mortgage notes. The marketable
equity securities include shares of Company common stock with a value of
$3,534,000 at December 31, 1993.
31
33
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Retirement benefits under the SERP are based on years of service and
average monthly compensation, reduced by benefits under the pension plan and
Social Security. The Senior SERP provides retirement benefits for officers and
certain executives based on their years of service and position. The Directors'
Plan will provide an annual benefit to directors following their retirement,
based on a vesting schedule. The Company purchased various life insurance
policies on the participants in the SERP, Senior SERP and Directors' Plan with
the intent to use the proceeds and any cash value buildup from such policies to
fund, at least to the extent of such assets, these plans' funding requirements.
The net cost for all plans was as follows:
YEARS ENDED DECEMBER 31,
-----------------------------
1993 1992 1991
------- ------- -------
(THOUSANDS)
Service cost-benefits earned during the period.......... $ 6,719 $ 5,737 $ 4,886
Interest cost on projected benefit obligation........... 6,886 5,753 4,674
Return on plan assets................................... (4,311) (3,945) (7,885)
Net amortization and deferral of gain................... 1,201 1,315 5,260
------- ------- -------
$10,495 $ 8,860 $ 6,935
------- ------- -------
------- ------- -------
The plans' funded status at December 31, was as follows:
1993 1992
--------------------- ---------------------
FUNDED NON-FUNDED FUNDED NON-FUNDED
PLAN PLANS PLAN PLANS
------- ---------- ------- ----------
(THOUSANDS)
Vested benefit obligation.................. $58,229 $ 25,902 $43,141 $ 14,611
------- ---------- ------- ----------
------- ---------- ------- ----------
Accumulated benefit obligation............. $63,556 $ 26,099 $47,997 $ 17,267
------- ---------- ------- ----------
------- ---------- ------- ----------
Projected benefit obligation............... $71,223 $ 26,310 $59,617 $ 18,949
Plans' assets at fair value................ 67,993 -- 53,225 --
------- ---------- ------- ----------
Plans' assets in deficit of projected
benefit obligation....................... (3,230) (26,310) (6,392) (18,949)
Unrecognized net loss from past experience
and effects of changes in assumptions.... 10,271 4,128 6,804 4,903
Prior service cost not yet recognized in
net periodic pension cost................ (2,966) 12,685 2,673 7,448
Unrecognized net asset..................... -- -- (487) --
------- ---------- ------- ----------
Accrued pension cost....................... 4,075 (9,497) 2,598 (6,598)
Adjustment for additional minimum
liability................................ -- (16,602) -- (10,669)
------- ---------- ------- ----------
Retirement plan asset (liability).......... $ 4,075 $(26,099) $ 2,598 $(17,267)
------- ---------- ------- ----------
------- ---------- ------- ----------
The following assumed rates were used in the determination of the plans'
funded status:
1993 1992
------------------- -------------------
FUNDED NON-FUNDED FUNDED NON-FUNDED
PLAN PLANS PLAN PLANS
------ ---------- ------ ----------
Discount rate used to determine obligations...... 7.5% 7.5% 8.5% 8.5%
Assumed rate of compensation increase............ 4.5 4.5 6.0 6.0
Assumed rate of return on plan assets............ 4.5 -- 8.0 --
32
34
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE TWELVE
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FAIR VALUE OF FINANCIAL
INSTRUMENTS
Swap agreements:
The Company periodically enters into swap agreements to hedge exposure to
fluctuations in interest and foreign exchange rates. Such agreements are with
major financial institutions and the Company does not anticipate any credit risk
from these transactions because of nonperformance. The amounts to be paid or
received are accrued in accordance with terms of the agreement and market
interest rates.
On August 31, 1993, the Company entered a currency swap agreement with a
bank that hedged the borrowings for the Company's initial investment in its
Australian subsidiary. As part of this agreement, the Company pays the bank a
blended interest rate (6.28% at December 31, 1993) on $110,000,000 Australian
dollars and receives a floating interest rate (3.5% at December 31, 1993) on
$73,590,000 United States dollars. This agreement expires December 29, 2000.
The Company has entered into an interest rate swap agreement with a bank
having a notional amount of $150,000,000 effective February 1, 1994. Under this
agreement, the Company will pay a floating interest rate on $150,000,000 and
will receive a 5.36% fixed interest rate on $150,000,000. This agreement
terminates February 1, 1999 subject to an option, exercisable by the bank, to
terminate on August 1, 1994.
Credit risk:
Provident is a party to financial instruments with off-balance sheet risk.
The financial instruments result from loans made in the normal course of
business to meet the financing needs of borrowers who are principally
independent funeral home and cemetery operators. These financial instruments
also include loan commitments of $19,499,000 at December 31, 1993 ($33,656,000
at December 31, 1992) to extend credit. Provident evaluates each borrower's
credit worthiness and the amount loaned and collateral obtained, if any, is
determined by this evaluation.
The Company grants customers credit in the normal course of business and
the credit risk with respect to these trade receivables are generally considered
minimal because of the wide geographic area served. Procedures are in effect to
monitor the credit worthiness of customers and bad debts have not been
significant in relation to the volume of revenues.
Prearranged funeral contracts generally do not subject the Company to
collection risk because customer payments are either placed in state supervised
trusts or used to pay premiums on life insurance contracts. Insurance funded
contracts are subject to supervision by state insurance departments and are
protected in the majority of states by insurance guaranty acts.
Fair Value of Financial Instruments:
The following disclosure of the estimated fair value of financial
instruments was made in accordance with the requirements of FAS 107. The
estimated fair value amounts have been determined by the Company using available
market information and appropriate valuation methodologies.
33
35
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amounts of cash and cash equivalents, receivables and accounts
payable approximate fair values due to the short term maturities of these
instruments. The carrying amounts and fair values of the Company's fixed rate
long-term borrowings are as follows:
DECEMBER 31, 1993
-------------------
CARRYING FAIR
AMOUNT VALUE
-------- --------
(THOUSANDS)
Medium term notes................................................ $248,000 $305,215
-------- --------
-------- --------
Debentures....................................................... $351,479 $451,146
-------- --------
-------- --------
Mortgage notes payable........................................... $ 63,769 $ 63,769
-------- --------
-------- --------
The fair value of the above long-term borrowings was estimated by
discounting the future cash flows, including interest payments, using rates
currently available for debt of similar terms and maturity, based on the
Company's credit standing and other market factors. The carrying value of the
revolving credit agreements approximate fair value because the rates on such
agreements are variable, based on current market. Substantially all of the
Company's remaining long-term debt and receivables carry variable interest rates
and their carrying amount approximates fair value. It is not practicable to
estimate the fair value of the installment contracts receivable.
34
36
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE THIRTEEN
SUPPLEMENTARY INFORMATION
The detail of certain balance sheet accounts at December 31, was as
follows:
1993 1992
-------- --------
(THOUSANDS)
Cash and cash equivalents:
Cash......................................................... $ 6,393 $ 13,465
Commercial paper and temporary investments................... 13,481 17,237
Certificates of deposit...................................... 948 551
-------- --------
$ 20,822 $ 31,253
-------- --------
-------- --------
Receivables and allowances:
Current:
Trade accounts............................................ $ 85,924 $ 69,612
Installment contracts..................................... 101,954 53,259
Notes..................................................... 81,216 74,272
-------- --------
269,094 197,143
-------- --------
-------- --------
Less:
Allowance for contract cancellations and doubtful
accounts................................................ 14,786 7,778
Unearned finance charges and valuation discounts.......... 17,522 7,093
-------- --------
32,308 14,871
-------- --------
$236,786 $182,272
-------- --------
-------- --------
Long-term:
Installment contracts..................................... $126,389 $ 80,401
Loans and other notes..................................... 277,149 210,507
Trusted cemetery merchandise and service sales............ 133,583 --
-------- --------
537,121 290,908
-------- --------
-------- --------
Less:
Allowance for contract cancellations and doubtful
accounts................................................ 14,054 5,001
Unearned finance charges and valuation discounts.......... 23,005 11,114
-------- --------
37,059 16,115
-------- --------
$500,062 $274,793
-------- --------
-------- --------
Interest rates on installment contracts and notes receivable range from
3.0% to 12.5% at December 31, 1993. Included in loans and other notes receivable
are $12,479,000 in notes with officers and employees of the Company, the
majority of which are collateralized by real estate, and $25,548,000 in notes
with other related parties.
35
37
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31,
-----------------------
1993 1992
--------- ---------
(THOUSANDS)
Cemetery property:
Undeveloped land (including capitalized interest and
development expenditures)............................... $ 299,520 $ 202,147
Developed land and lawn crypts............................. 88,722 61,489
Mausoleums................................................. 28,808 34,611
--------- ---------
$ 417,050 $ 298,247
--------- ---------
Property, plant and equipment:
Land....................................................... $ 186,521 $ 169,189
Buildings and improvements................................. 461,539 356,989
Operating equipment........................................ 104,921 105,022
Leasehold improvements..................................... 17,715 15,615
--------- ---------
770,696 646,815
--------- ---------
Less: accumulated depreciation............................. (163,870) (142,344)
--------- ---------
$ 606,826 $ 504,471
--------- ---------
--------- ---------
Accounts payable and accrued liabilities:
Trade payables............................................. $ 22,220 $ 13,574
Dividends.................................................. 8,913 7,724
Payroll.................................................... 9,319 14,224
Interest................................................... 14,903 11,592
Insurance.................................................. 13,115 5,761
Accrued purchase price for December, 1992 acquisition...... -- 12,357
Other...................................................... 28,411 23,772
--------- ---------
$ 96,881 $ 89,004
--------- ---------
--------- ---------
NON-CASH TRANSACTIONS
YEARS ENDED DECEMBER 31,
---------------------------
1993 1992 1991
------- ------ ------
(THOUSANDS)
Common stock issued under restricted stock plans.......... $14,393 $6,938 $ 287
Notes receivable exchanged for preferred stock
investment.............................................. $ 2,520 $3,830 $8,868
Common stock issued in lieu of cash contribution to
retirement plans........................................ $ -- $ -- $2,281
Minimum liability under retirement plans.................. $12,642 $ 187 $ --
Debenture conversion...................................... $97,164 $ -- $ --
Cumulative effect of change in accounting principles...... $ 2,031 $ -- $ --
36
38
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE FOURTEEN
MAJOR SEGMENTS OF BUSINESS
SCI conducts funeral and cemetery operations in the United States, Canada
and Australia and offers financial services in the United States.
FINANCIAL
FUNERAL CEMETERY SERVICES CORPORATE CONSOLIDATED
--------- -------- --------- --------- ------------
(THOUSANDS, EXCEPT FOR NUMBER OF OPERATING LOCATIONS)
Revenues:
1993............................... $ 603,099 $280,421 $ 15,658 $ -- $899,178
1992............................... 551,940 209,796 10,741 -- 772,477
1991............................... 445,367 183,058 14,823 -- 643,248
Operating expenses:
1993............................... 426,008 200,682 9,168 43,706 679,564
1992............................... 379,823 163,967 6,632 38,693 589,115
1991............................... 307,690 146,384 10,666 35,448 500,188
Income from operations:
1993............................... 177,091 79,739 6,490 (43,706) 219,614
1992............................... 172,117 45,829 4,109 (38,693) 183,362
1991............................... 137,677 36,674 4,157 (35,448) 143,060
Identifiable assets:
1993............................... 2,299,177 952,844 253,314 177,969 3,683,304
1992............................... 1,351,066 908,012 191,695 160,350 2,611,123
1991............................... 1,148,103 692,438 109,420 173,491 2,123,452
Depreciation and amortization:
1993............................... 37,130 8,506 197 12,381 58,214
1992............................... 33,214 7,701 429 6,025 47,369
1991............................... 25,559 7,414 243 1,774 34,990
Capital expenditures:(1)
1993............................... 107,046 165,408 -- 5,241 277,695
1992............................... 78,519 101,887 -- 7,060 187,466
1991............................... 145,765 31,186 -- 4,106 181,057
Number of operating locations at year
end:
1993............................... 792 192 -- -- 984
1992............................... 674 176 -- -- 850
1991............................... 655 163 -- -- 818
- ---------------
(1) Includes $218,110,000, $120,646,000 and $142,568,000 for the three years
ended December 31, 1993, respectively, for purchases of property, plant and
equipment and cemetery property of acquired businesses.
37
39
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE FIFTEEN
PROSPECTIVE ACCOUNTING CHANGES
In 1994, FAS 112 "Employer's Accounting for Postemployment Benefits"
becomes effective. This FAS requires the Company to accrue for estimated future
postemployment benefits during the years employees are working and earning these
benefits. Also in 1994, FAS 115 "Accounting for Certain Investments in Debt and
Equity Securities" becomes effective. This FAS addresses the accounting for
investments in equity and debt securities held by the Company. In 1995, FAS 114
"Accounting by Creditors for Impairment of a Loan" becomes effective. This FAS
requires present value computations for impaired loans when determining
allowances for loan losses. Adoption of these three standards is not expected to
materially affect the Company's financial position or results of operations.
NOTE SIXTEEN
QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH YEAR
-------- -------- -------- -------- --------
(THOUSANDS, EXCEPT PER SHARE INFORMATION)
Revenues:
1993.............................. $224,371 $217,049 $211,432 $246,326 $899,178
1992.............................. 200,746 187,099 183,940 200,692 772,477
1991.............................. 153,479 156,077 152,513 181,179 643,248
Gross profit:
1993.............................. $ 71,471 $ 61,920 $ 56,597 $ 73,332 $263,320
1992.............................. 63,700 50,972 46,426 60,957 222,055
1991.............................. 45,790 43,655 37,970 51,093 178,508
Net income
1993(1)........................... $ 27,217 $ 24,333 $ 19,807 $ 29,704 $101,061
1992.............................. 25,170 19,872 17,096 24,398 86,536
1991.............................. 18,739 16,287 18,117 20,229 73,372
Primary earnings per share:
1993(1)........................... $ .34 $ .29 $ .23 $ .35 $ 1.21
1992.............................. .33 .26 .22 .32 1.13
1991.............................. .28 .23 .25 .27 1.03
- ---------------
(1) The first quarter of 1993 includes a charge to net income of $2,031,000 or
$.03 per share for the cumulative effect of the change in accounting
principles.
38
40
SERVICE CORPORATION INTERNATIONAL
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES
THREE YEARS ENDED DECEMBER 31, 1993
LONG-TERM
BALANCE CURRENT LONG-TERM CURRENT
AT BALANCE AT BALANCE BALANCE
BEGINNING BEGINNING COLLECTED AT END AT END
OF PERIOD OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD OF PERIOD
--------- ---------- --------- ---------- --------- ---------
(THOUSANDS)
Year ended December 31, 1993:
R. L. Waltrip(1)............... $ -- $ -- $ 1,700 $ -- $ 1,700 $ --
W. B. Waltrip(1)............... -- -- 600 -- 600 --
D. J. Anderson(6).............. 596 3 -- 251 344 4
L. C. Bolton(6)................ -- -- 117 1 111 5
J. A. Brandenburg(6)........... 133 1 -- 1 132 1
A. J. Brown(6)................. 151 1 -- 1 150 1
G. L. Cauthen(6)............... 210 5 -- 9 196 10
G. R. Champagne(6)(7).......... 270 3 -- 168 -- 105
R. A. Chesler(6)............... 141 1 -- 6 130 6
A. L. Coelho(6)................ 652 -- 220 6 858 8
D. M. Dettling(6).............. 118 3 -- 5 110 6
L. J. Dyer(6).................. 127 1 -- 1 126 1
V. M. Evans(6)................. 224 2 -- 226 -- --
J. D. Garrison(6).............. 154 1 10 2 161 2
J. A. Gordon(6)................ 160 -- 147 1 302 4
R. S. Gregory(6)............... 191 1 -- 5 182 5
K. R. Griffith(6).............. 240 3 -- 243 -- --
G. K. Guinn(4)................. 382 235 -- 235 378 4
W. M. Hamilton(6).............. -- -- 182 -- -- 182
L. W. Heiligbrodt(6)(1)........ 475 2 1,119 4 1,587 5
S. K. Kennedy(6)............... 196 2 -- 198 -- --
L. A. Kirkpatrick(6)........... 138 3 325 143 319 4
W. T. McRae(6)................. 120 2 -- 3 116 3
J. W. Morrow(6)(1)............. 394 20 525 414 525 --
R. E. Morrow(6)................ 172 1 -- 2 157 14
H. M. Nelly(6)(7).............. 228 5 -- 6 117 110
E. K. Payne(3)................. -- 99 -- -- -- 99
E. E. Poynter(6)............... -- -- 173 1 170 2
G. A. Pullins(8)............... -- 250 -- -- -- 250
S. W. Rizzo(6)(1).............. 637 6 625 644 620 4
J. D. Rottman(6)............... 253 2 -- 2 251 2
R. T. Sells(6)................. 268 5 -- 11 251 11
M. J. Shipley(6)............... 146 -- -- 1 144 1
J. E. Stieneker(6)............. 437 3 45 140 341 4
J. L. Stoner(6)................ 248 1 -- 10 229 10
W. H. Truscott(6).............. 175 1 -- 2 172 2
M. R. Webb(6).................. 220 2 -- 2 218 2
M. K. Wick(6).................. 149 1 -- 150 -- --
A. W. Yerty(6)................. 248 1 -- 10 228 11
39
41
SERVICE CORPORATION INTERNATIONAL
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES -- (CONTINUED)
LONG-TERM
BALANCE CURRENT LONG-TERM CURRENT
AT BALANCE AT BALANCE BALANCE
BEGINNING BEGINNING COLLECTED AT END AT END
OF PERIOD OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD OF PERIOD
--------- ---------- --------- ---------- --------- ---------
(THOUSANDS)
Year ended December 31, 1992:
R. L. Waltrip(2)............... $ -- $1,500 $ -- $1,500 $ -- $ --
E. K. Payne(3)................. -- 157 -- 58 -- 99
G. K. Guinn(4)................. 386 235 -- 4 382 235
D. J. Anderson(6).............. 248 1 353 3 596 3
J. A. Brandenburg(6)........... 134 1 -- 1 133 1
A. J. Brown(6)................. 152 1 -- 1 151 1
G. L. Cauthen(6)............... -- -- 220 5 210 5
G. R. Champagne(6)(7).......... 169 3 105 4 270 3
R. A. Chesler(6)............... -- -- 143 1 141 1
A. L. Coelho(6)................ -- -- 652 -- 652 --
D. M. Dettling(6).............. 97 1 26 3 118 3
L. J. Dyer(6).................. 128 1 -- 1 127 1
V. M. Evans(6)................. 227 1 -- 2 224 2
J. D. Garrison(6).............. 139 1 155 140 154 1
J. A. Gordon(6)................ -- -- 160 -- 160 --
R. S. Gregory(6)............... -- -- 193 1 191 1
K. R. Griffith(6).............. 244 2 -- 3 240 3
L. W. Heiligbrodt(6)........... 97 1 479 100 475 2
S. K. Kennedy(6)............... 199 1 -- 2 196 2
L. A. Kirkpatrick(6)........... 143 1 -- 3 138 3
B. G. Leo(6)................... 154 1 -- 155 -- --
W. T. McRae(6)................. -- -- 124 2 120 2
J. W. Morrow(6)................ 419 15 -- 20 394 20
R. E. Morrow(6)................ -- -- 174 1 172 1
H. M. Nelly(6)(7).............. 129 5 105 6 228 5
S. W. Rizzo(6)................. 644 5 -- 6 637 6
J. D. Rottman(6)............... 256 1 -- 2 253 2
R. T. Sells(6)................. 277 1 -- 5 268 5
M. J. Shipley(6)............... -- -- 146 -- 146 --
J. E. Stieneker(6)............. 441 2 -- 3 437 3
J. L. Stoner(6)................ -- -- 250 1 248 1
W. H. Truscott(6).............. 176 1 -- 1 175 1
M. R. Webb(6).................. 223 1 -- 2 220 2
M. K. Wick(6).................. 150 1 -- 1 149 1
A. W. Yerty(6)................. -- -- 250 1 248 1
G. A. Pullins(8)............... -- -- 250 -- -- 250
40
42
SERVICE CORPORATION INTERNATIONAL
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES -- (CONTINUED)
LONG-TERM
BALANCE CURRENT LONG-TERM CURRENT
AT BALANCE AT BALANCE BALANCE
BEGINNING BEGINNING COLLECTED AT END AT END
OF PERIOD OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD OF PERIOD
--------- ---------- --------- ---------- --------- ---------
(THOUSANDS)
Year ended December 31, 1991:
B. D. Hunter(9)................ $ 5,000 $3,700 $ -- $8,700 $ -- $ --
R. L. Waltrip(2)............... -- 545 1,955 1,000 -- 1,500
E. K. Payne(3)................. -- 237 20 100 -- 157
G. K. Guinn(4)................. -- 231 390 -- 386 235
W. E. Mercer(5)................ 800 200 -- 1,000 -- --
D. J. Anderson(6).............. -- -- 250 1 248 1
J. A. Brandenburg(6)........... 135 1 -- 1 134 1
A. J. Brown(6)................. 133 1 153 134 152 1
G. R. Champagne(6)............. 173 3 -- 4 169 3
D. M. Dettling(6).............. 98 1 -- 1 97 1
L. J. Dyer(6).................. 129 1 -- 1 128 1
V. M. Evans(6)................. -- -- 229 1 227 1
J. D. Garrison(6).............. -- -- 140 -- 139 1
K. R. Griffith(6).............. 246 2 -- 2 244 2
L. W. Heiligbrodt(6)........... 98 1 -- 1 97 1
S. K. Kennedy(6)............... -- -- 200 -- 199 1
L. A. Kirkpatrick(6)........... 145 1 -- 2 143 1
B. G. Leo(6)................... 156 1 -- 2 154 1
W. C. McNamara(6).............. 148 2 -- 150 -- --
J. W. Morrow(6)................ 434 15 -- 15 419 15
H. M. Nelly(6)................. 134 5 -- 5 129 5
S. W. Rizzo(6)................. -- -- 650 1 644 5
J. D. Rottman(6)............... 258 1 -- 2 256 1
R. T. Sells(6)................. -- -- 279 1 277 1
J. E. Stieneker(6)............. -- -- 445 2 441 2
W. H. Truscott(6).............. -- -- 178 1 176 1
M. R. Webb(6).................. -- -- 224 -- 223 1
M. K. Wick(6).................. 151 1 -- 1 150 1
- ---------------
(1) On August 10, 1993, the Company loaned: R. L. Waltrip, Chairman of the
Board and Chief Executive Officer of the Company, $1,700,000; L. W.
Heiligbrodt, President and Chief Operating Officer of the Company,
$1,000,000; W. B. Waltrip, Executive Vice President/Operations of the
Company, $600,000; S. W. Rizzo, Executive Vice President, Chief Financial
Officer/Treasurer of the Company, $525,000; and J. W. Morrow, Jr.,
Executive Vice President/Corporate Development, $525,000. Such loans were
made to enable such officers to pay the estimated federal income taxes
resulting from their receipt of Company stock on August 10, 1993 pursuant
to a grant of restricted stock under the Company's Amended 1987 Stock Plan.
Each of the loans is due August 10, 2003, bears interest at 6.5% per annum
and is supported by the restricted stock. In the event that the fair market
value of all restricted stock held by an officer is less than his
outstanding loan balance as of any loan anniversary date, the officer will
be obligated to provide acceptable collateral for the difference between
such loan balance and such fair market value.
(2) Provident had provided a line of credit of $2,500,000 to R. L. Waltrip for
personal use. The line of credit matured, and the outstanding balance was
repaid by Waltrip in 1992.
41
43
SERVICE CORPORATION INTERNATIONAL
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES -- (CONTINUED)
(3) Provident has provided secured loans to E. K. Payne, former Senior Vice
President of the Company, in connection with the exercise of Company stock
options, the purchase of a home and personal use. The loans provide for
interest at the prime rate (6% at December 31, 1993) and are collateralized
by shares of Company common stock. The stock option loan matures in
November 1994. The home and personal use loan was repaid in 1992.
(4) Provident has provided secured loans to G. K. Guinn, former Senior Vice
President and Treasurer of the Company, to finance the exercise of Company
stock options and for the purchase of a home. The loans are collateralized
by the stock purchased and a deed of trust on the home, and bear interest
at the prime rate and 7.55%, respectively. The stock option loan matured
and was repaid in 1993 and the home loan matures in 2021.
(5) In December 1989, the Company sold its trust subsidiary, Southwest Guaranty
Trust Company and its investment services department to W. E. Mercer for
$1,000,000. Mercer is a former director and Executive Vice President
Finance and Administration of the Company. Mercer executed a promissory
note in payment of the purchase price of $1,000,000 with interest at 10%
payable quarterly. During 1991, Mercer repaid the balance of the note.
(6) Provident offers employees and directors of the Company mortgage loans.
These loans have been issued at fixed rates ranging from 6.5% to 9.6%,
which are comparable to current market rates. These loans mature 15 to 30
years from date of issuance and are collateralized by a deed of trust on
the real estate and for one individual, Company stock and other publicly
traded securities.
(7) In addition to mortgage loans discussed in note 6 above, Provident has
provided secured loans to finance the exercise of Company stock options to
the individuals noted. These loans are collateralized by the stock
purchased, bear interest at the prime rate and mature in 1994.
(8) Provident has provided financing to G. A. Pullins, Senior Vice President /
Corporate Development of the Company, to finance the purchase of a home.
The loan is collateralized by Company stock, bears interest at the prime
rate and matures in 1994.
(9) B. D. Hunter is a director of the Company and former Chairman of AMEDCO
Inc. (AMEDCO) which was acquired by the Company on September 26, 1986. In
connection with the Company's purchase of AMEDCO certain operations of
AMEDCO were purchased by a company controlled by Hunter immediately before
the acquisition of AMEDCO by the Company. Part of the consideration paid by
the Hunter controlled company to AMEDCO were promissory notes of $8,000,000
and $5,000,000. During 1990, Hunter repaid $4,300,000 of the $8,000,000
promissory note. During 1991, Hunter repaid the remaining balances of the
two notes.
(10) In its normal course of business, primarily through Provident, the Company
has made loans to certain entities in which the Company has equity
investments. These loans had a balance of $25,548,000 at December 31, 1993.
All of these loans carry interest rates ranging from a defined savings rate
plus 2% (5.22% at December 31, 1993) up to 12% and mature in 1994 through
2000. These loans are collateralized by combinations of common stock of the
debtor entities, deeds of trust on the debtors' real estate and certain
other collateral.
42
44
SERVICE CORPORATION INTERNATIONAL
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1993
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(2) DEDUCTIONS(1) OF PERIOD
----------- ---------- ---------- ----------- ------------- ---------
(THOUSANDS)
Current --
Allowance for contract
cancellations and doubtful
accounts:
Year ended December 31, 1993.... $7,778 $9,983(3) $1,725 $(4,700) $14,786
Year ended December 31, 1992.... 5,143 4,456 2,815 (4,636) 7,778
Year ended December 31, 1991.... 3,345 3,203 2,344 (3,749) 5,143
Due After One Year --
Allowance for contract
cancellations and doubtful
accounts:
Year ended December 31, 1993.... $5,001 $6,858(3) $3,935 $(1,740) $14,054
Year ended December 31, 1992.... 8,764 191 660 (4,614) 5,001
Year ended December 31, 1991.... 2,877 79 6,172 (364) 8,764
- ---------------
(1) Uncollected receivables written off, net of recoveries
(2) Primarily acquisitions and dispositions of operations
(3) Includes the cumulative effect of changing accounting principles effective
January 1, 1993.
43
45
SERVICE CORPORATION INTERNATIONAL
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
THREE YEARS ENDED DECEMBER 31, 1993
1993 1992 1991
------- ------- -------
(THOUSANDS)
Maintenance and repairs....................................... $19,750 $17,561 $14,731
------- ------- -------
------- ------- -------
Depreciation and amortization:
Property, plant and equipment............................... $26,757 $24,497 $21,139
Deferred charges............................................ 21,118 13,271 9,066
Names and reputations....................................... 10,339 9,601 4,785
------- ------- -------
$58,214 $47,369 $34,990
------- ------- -------
------- ------- -------
Taxes:
Property.................................................... $12,833 $12,711 $10,483
Payroll..................................................... 21,041 17,766 14,808
Other....................................................... 1,703 1,850 2,730
------- ------- -------
$35,577 $32,327 $28,021
------- ------- -------
------- ------- -------
Advertising................................................... $13,044 $ 9,260 $ 7,519
------- ------- -------
------- ------- -------
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Ernst & Young, Certified Public Accountants ("E&Y"), served as the
independent accountants for the Company for the fiscal year ended December 31,
1992. E&Y was dismissed as the independent accounting firm for the Company
effective March 25, 1993, with Coopers & Lybrand, Certified Public Accountants
("Coopers"), having been so engaged as of that date. The decision to change the
independent accounting firm for the Company was recommended by management and by
the Audit Committee of the Board of Directors of the Company and was approved by
the Board of Directors.
The report of E&Y dated February 8, 1993 on the consolidated financial
statements of the Company as of December 31, 1992 and 1991 and for the three
years in the period ended December 31, 1992 contained no adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principle. Similarly, the report of Coopers dated
February 8, 1994 on the consolidated financial statements of the Company as of
December 31, 1993 and for the year then ended contained no adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principle.
From time to time during the several years preceding January 1, 1993,
meetings were held between members of senior management of the Company and local
and national office partners of E&Y regarding potential accounting policies for
reporting pre-need funeral and cemetery sales. As previously reported by the
Company in, among other places, its Form 8-K dated March 31, 1993, the Company
and E&Y did not reach agreement on any new method of accounting for such sales.
In the Company's opinion, such meetings did not result in a "disagreement"
between it and E&Y within the meaning of the rules promulgated by the Securities
and Exchange Commission (the "SEC"). Thus, as previously reported by the Company
in, among other places, such Form 8-K, while there was a failure to reach
agreement, in the Company's opinion, during the two years ended December 31,
1992, there was no reportable "disagreement" between the Company and E&Y
regarding any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which disagreement, if not resolved
to the satisfaction of E&Y, would have caused E&Y to make reference to the
subject of the disagreement in connection with its report.
As also previously reported by the Company in, among other places, an
amendment, dated April 6, 1993, to the Company's Form 8-K, dated March 31, 1993,
E&Y, however, has stated that it believes that a reportable "disagreement"
occurred between it and the Company. Accordingly, at the request of E&Y, the
Company included the following (references to E&Y and the Company have been
conformed to the usage in this Form 10-K) in its proxy statement dated April 12,
1993 for the last annual meeting of stockholders.
"On several occasions over the years, the Company has proposed that
its accounting policy for pre-need funeral services be changed to a method
whereby revenue would be recognized at the date a pre-need funeral contract
is signed, accompanied by appropriate provision for the estimated cost of
providing such services. E&Y's consistent position has been that the
Company's proposed accounting policy would not be acceptable under
generally accepted accounting principles.
"At a meeting on April 1, 1992 held to discuss this issue, a
reportable disagreement occurred in that Company management stated that if
E&Y would not support the Company's proposed accounting they would find
another firm that would. This disagreement was communicated to the
Company's Audit Committee at its August 13, 1992 meeting.
"Moreover, on February 19, 1993 (after completion of the 1992 audit),
Company management presented the accounting proposal set forth in a
December 28, 1992 'Invitation to Comment' prepared by Patrick B. Collins,
CPA, and asked E&Y to support this proposed accounting method. That
'Invitation to Comment' advocates recognition of revenue for pre-need
funeral services at the time of sale rather than when the services are
performed, and solicits comments from interested parties concerning this
and other matters. On February 26, 1993 and again on March 2, 1993, E&Y
informed Company management that it would be unable to support the proposal
presented in the 'Invitation to Comment.'
"On March 16, 1993, management informed E&Y that the Company was no
longer pursuing the accounting method advocated in the 'Invitation to
Comment' but rather was considering a modified
45
47
approach. E&Y informed management that at least one element of the modified
approach -- amortization of a portion of deferred revenue that would be
associated with the fixed cost of maintaining funeral homes -- was, in
E&Y's view, not acceptable under generally accepted accounting principles."
The modified approach referred to above by E&Y is also referred to in the next
to last paragraph of this Item 9, except that at the time of its discussion with
Coopers the element E&Y noted as being objectionable was no longer being
considered.
As indicated above, E&Y's position was also disclosed in an amendment dated
April 6, 1993 to a Form 8-K dated March 31, 1993 filed by the Company. Following
such disclosure, the Company filed a second amendment to such Form 8-K, in which
the Company set forth its belief that the references to "disagreements" by E&Y,
as well as other matters, were factually inaccurate. Further, the Company
disputes that a reportable "disagreement" was communicated by E&Y to the Audit
Committee on August 13, 1992. In response to the second amendment to such Form
8-K, E&Y responded (which response was included in a third amendment) that there
was nothing in the second amendment of which E&Y was unaware at the time it
stated its position disclosed in the April 6, 1993 amendment.
The staff of the SEC is conducting an informal private investigation
relating to the change in the Company's independent accountants, and the
Company's Form 8-K dated March 31, 1993, as amended in April 1993, reporting
such change, as well as the Company's current accounting and reporting of
pre-need sales. The staff has advised the Company that the investigation should
not be construed as an indication by the Commission or its staff that any
violations of law have occurred, or as a reflection upon any person, entity or
security. The investigation is continuing.
On March 25, 1993, the Company's Board of Directors approved the
recommendation of management and the Audit Committee that Coopers be engaged as
the Company's new independent accountants. During the two fiscal years ended
December 31, 1992 and the interim period of 1993, Coopers was not consulted by
the Company on the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the financial statements of the Company. During the interim
period of 1993, as part of the proposal process, Coopers indicated its general
agreement with the Company's desire to modify its accounting policies for
pre-need funeral and cemetery sales so that such policies more accurately
reflect the economics of these sales. In this connection, the Company expressed
to Coopers its desire to improve the financial reporting for pre-need funeral
sales by including in the balance sheet, as a long term asset and corresponding
deferred revenue, all pre-need funeral contracts whether funded by insurance or
trust funds. Revenue from funeral services would be recognized when the services
are performed, which is consistent with the Company's then and current policy.
The Company also discussed with Coopers deferring funeral trust earnings until
the service is performed. Under the Company's prior policy, these trust earnings
were recognized in current income. Additionally, the Company expressed its views
that accounting for pre-need cemetery sales using the accounting principles
prescribed for sales of real estate may not be the most appropriate method of
accounting. Coopers orally expressed their general agreement with these concepts
but were not asked to and did not express an opinion on any specific transaction
or accounting change, either orally or in writing.
The accounting principles adopted by the Company in 1993 for reporting
pre-need funeral and cemetery sales are set forth, among other places, in the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993
filed with the SEC. Coopers has issued a preferability letter with respect to
such principles. A copy of such letter is filed as an Exhibit to the Company's
Form 10-Q for the quarter ended March 31, 1993. As indicated above, Coopers has
issued an unqualified opinion with respect to the Company's consolidated
financial statements as at and for the period ended December 31, 1993.
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48
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information called for by PART III (Items 10, 11, 12 and 13) has been
omitted as the Company intends to file with the Securities and Exchange
Commission not later than 120 days after the close of its fiscal year a
definitive Proxy Statement pursuant to Regulation 14A. Such information is set
forth in such Proxy Statement (i) with respect to Item 10 under the captions
"Election of Directors" and "Compliance with Section 16(a) of the Exchange Act",
(ii) with respect to Items 11 and 13 under the captions "Cash Compensation",
"Stock Options", "Retirement Plans", "Executive Employment Agreements", "Other
Compensation", "Director Compensation", "Compensation Committee Interlocks and
Insider Participation" and "Certain Transactions" and (iii) with respect to Item
12 under the caption "Voting Securities and Principal Holders." The information
as specified in the preceding sentence is incorporated herein by reference.
Notwithstanding anything set forth in this Form 10-K, the information under the
caption "Compensation Committee Report on Executive Compensation" and under the
captions "Overview of Executive Compensation" and "Performance Graphs" in such
Proxy Statement are not incorporated by reference into this Form 10-K.
The Information regarding the Company's executive officers called for by
Item 401 of Regulation S-K has been included in PART I of this report.
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49
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1)-(2) Financial Statements and Schedules:
The financial statements and schedules are listed in the accompanying
Index to Financial Statements and Related Schedules at page 14 of this
report.
(3) Exhibits:
The exhibits listed on the accompanying Exhibit Index at pages 50-52
are filed as part of this report.
(b) Reports on Form 8-K:
During the quarter ended December 31, 1993, the Company filed a Form
8-K dated December 21, 1993 reporting under "Item 7. Financial Statements
and Exhibits" certain exhibits being filed concerning an amendment to the
Company's Employee Stock Purchase Plan.
(c) Included in (a) above.
(d) Included in (a) above.
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50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, Service Corporation International, has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SERVICE CORPORATION INTERNATIONAL
Dated: March 30, 1994 By: JAMES M. SHELGER
(James M. Shelger,
Senior Vice President, General
Counsel and Secretary)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
- ------------------------------------------------- --------------------------------- ---------------
R. L. WALTRIP* Chairman of the Board and Chief
(R. L. Waltrip) Executive Officer
SAMUEL W. RIZZO Executive Vice President and
(Samuel W. Rizzo) Chief Financial
Officer/Treasurer (Principal
Financial Officer) and Director
VINCENT L. VISOSKY Vice President Finance (Principal
(Vincent L. Visosky) Accounting Officer)
ANTHONY L. COELHO*
(Anthony L. Coelho)
DOUGLAS M. CONWAY*
(Douglas M. Conway)
JACK FINKELSTEIN*
(Jack Finkelstein)
A. J. FOYT, JR.*
(A. J. Foyt, Jr.)
JAMES J. GAVIN, JR.*
March 30, 1994
(James J. Gavin, Jr.)
JAMES H. GREER*
(James H. Greer)
L. WILLIAM HEILIGBRODT*
Directors
(L. William Heiligbrodt)
B. D. HUNTER*
(B. D. Hunter)
JOHN W. MECOM, JR.*
(John W. Mecom, Jr.)
CLIFTON H. MORRIS, JR.*
(Clifton H. Morris, Jr.)
E. H. THORNTON, JR.*
(E. H. Thornton, Jr.)
W. BLAIR WALTRIP*
(W. Blair Waltrip)
EDWARD E. WILLIAMS*
(Edward E. Williams)
*By JAMES M. SHELGER
(James M. Shelger, as Attorney-In-Fact
for each of the Persons indicated)
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51
EXHIBIT INDEX
PURSUANT TO ITEM 601 OF REG. S-K
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 -- Restated Articles of Incorporation, as amended. (Incorporated by
reference to Exhibit 3.1 to Registration Statement No. 2-50721 on
Form S-1).
3.2 -- Articles of Amendment to Restated Articles of Incorporation.
(Incorporated by reference to Exhibit (4)(i)l to Form 10-Q for the
fiscal quarter ended July 31, 1982).
3.3 -- Articles of Amendment to Restated Articles of Incorporation.
(Incorporated by reference to Exhibit 3.1 to Form 10-Q for the fiscal
quarter ended July 31, 1983).
3.4 -- Articles of Amendment to Restated Articles of Incorporation.
(Incorporated by reference to Exhibit 4.7 to Registration Statement
No. 33-8727 on Form S-3).
3.5 -- Articles of Amendment to Restated Articles of Incorporation, dated
September 11, 1987. (Incorporated by reference to Exhibit 4.1 to
Amendment No. 3 to Registration Statement No. 33-16678 on Form S-4).
3.6 -- Statement of Resolution Establishing Series of Shares of Series C
Junior Participating Preferred Stock, dated August 5, 1988.
(Incorporated by reference to Exhibit 3.1 to Form 10-Q for the fiscal
quarter ended July 31, 1988).
3.7 -- Articles of Amendment to Restated Articles of Incorporation.
(Incorporated by reference to Exhibit 3.8 to Registration Statement
No. 33-47097 on Form S-4).
3.8 -- Bylaws, as amended. (Incorporated by reference to Exhibit 3.7 to Form
10-K for the fiscal year ended December 31, 1991).
4.1 -- Rights Agreement dated as of July 18, 1988 between the Company and
Texas Commerce Bank National Association. (Incorporated by reference
to Exhibit 1 to Form 8-K dated July 18, 1988).
4.2 -- Amendment, dated as of May 10, 1990, to the Rights Agreement, dated
as of July 18, 1988, between the Company and Texas Commerce Bank
National Association. (Incorporated by reference to Exhibit 1 to Form
8-K dated May 10, 1990).
4.3 -- Agreement Appointing a Successor Rights Agent under Rights Agreement,
dated as of June 1, 1990, by the Company and Ameritrust Company
National Association. (Incorporated by reference to Exhibit 4.1 to
Form 10-Q for the fiscal quarter ended June 30, 1990).
4.4 -- Undertaking to furnish instruments related to long-term debt.
10.1 -- Retirement Plan For Non-Employee Directors. (Incorporated by
reference to Exhibit 10.1 to Form 10-K for the fiscal year ended
December 31, 1991).
10.2 -- Supplemental Executive Retirement Plan, and form of Supplemental
Executive Retirement Plan Trust. (Incorporated by reference to
Exhibit 19.1 to Form 10-Q for the fiscal quarter ended March 31,
1989).
10.3 -- First Amendment to the Supplemental Executive Retirement Plan; Second
Amendment to the Supplemental Executive Retirement Plan; and Third
Amendment to the Supplemental Executive Retirement Plan.
(Incorporated by reference to Exhibit 10.3 to Form 10-K for the
fiscal year ended December 31, 1991).
10.4 -- Agreement dated May 14, 1992 between the Company, R. L. Waltrip and
related parties relating to life insurance. (Incorporated by
reference to Exhibit 10.4 to Form 10-K for the fiscal year ended
December 31, 1992).
50
52
EXHIBIT NO. DESCRIPTION
----------- -----------
10.5 -- Employment Agreement, dated November 11, 1991, as amended and
restated as of August 12, 1992, and further amended as of May 12,
1993, between the Company and R. L. Waltrip. (Incorporated by
reference to Exhibit 10.1 to Form 10-Q for the fiscal quarter ended
September 30, 1993).
10.6 -- Non-Competition Agreement and Amendment to Employment Agreement,
dated November 11, 1991, among the Company, R. L. Waltrip and Claire
Waltrip. (Incorporated by reference to Exhibit 10.8 to Form 10-K for
the fiscal year ended December 31, 1992).
10.7 -- Employment Agreement, dated November 11, 1991, as amended and
restated as of August 12, 1992, and further amended as of May 12,
1993, between the Company and L. William Heiligbrodt. (Incorporated
by reference to Exhibit 10.2 to Form 10-Q for the fiscal quarter
ended September 30, 1993).
10.8 -- Employment Agreement, dated November 11, 1991, as amended and
restated as of August 12, 1992, and further amended as of May 12,
1993, between the Company and Samuel W. Rizzo. (Incorporated by
reference to Exhibit 10.3 to Form 10-Q for the fiscal quarter ended
September 30, 1993).
10.9 -- Employment Agreement, dated November 11, 1991, as amended and
restated as of August 12, 1992, and further amended as of May 12,
1993, between the Company and W. Blair Waltrip. (Incorporated by
reference to Exhibit 10.4 to Form 10-Q for the fiscal quarter ended
September 30, 1993).
10.10 -- Employment Agreement, dated November 11, 1991, as amended and
restated as of August 12, 1992, and further amended as of May 12,
1993, between the Company and John W. Morrow, Jr. (Incorporated by
reference to Exhibit 10.5 to Form 10-Q for the fiscal quarter ended
September 30, 1993).
10.11 -- Form of Employment Agreement pertaining to officers (other than the
officers referenced in the five preceding exhibits). (Incorporated by
reference to Exhibit 10.6 to Form 10-Q for the fiscal quarter ended
September 30, 1993).
10.12 -- Salary Continuation Agreement dated April 1, 1991 between the Company
and Robert L. Waltrip. (Incorporated by reference to Exhibit 10.17 to
Form 10-K for the fiscal year ended December 31, 1991).
10.13 -- Forms of two Salary Continuation Agreements applicable to officers of
the Company (other than the officer referenced in the preceding
exhibit). (Incorporated by reference to Exhibit 10.19 to Form 10-K
for the fiscal year ended December 31, 1991).
10.14 -- Executive Liability and Indemnification Policy of insurance.
(Incorporated by reference to Exhibit 10.17 to Form 10-K for the
fiscal year ended December 31, 1992).
10.15 -- Form of 1986 Stock Option Plan. (Incorporated by reference to Exhibit
10.21 to Form 10-K for the fiscal year ended December 31, 1991).
10.16 -- Amended 1987 Stock Plan. (Incorporated by reference to Appendix A to
Proxy Statement dated April 1, 1991).
10.17 -- Service Corporation International (Canada) Limited Stock Option Plan.
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53
EXHIBIT NO. DESCRIPTION
----------- -----------
10.18 -- Agreement for Reorganization, dated August 15, 1989 among Morrow
Partners, Inc., J. W. Morrow Investment Company, John W. Morrow, Jr.,
Billy Dee Davis and the Company; Agreement-Not-To-Compete, dated
August 15, 1989, between John W. Morrow, Jr., Morrow Partners, Inc.
and the Company, and; Lease dated August 15, 1989, by John W. Morrow,
Jr. and Crawford-A. Crim Funeral Home, Inc. (Incorporated by
reference to Exhibit 10.27 to Form 10-K for the fiscal year ended
December 31, 1989).
10.19 -- Stock Sale Agreement, dated November 13, 1992, among IFC-YP, Inc.,
Huntco Acquisitions Holding, Inc., Huntco Steel, Inc. and B. D.
Hunter, and; Promissory Note dated November 30, 1992 from Huntco
Acquisitions Holding, Inc. to
IFC-YP, Inc. (Incorporated by reference to Exhibit 10.26 to Form 10-K
for the fiscal year ended December 31, 1992).
10.20 -- Casket Supply and Requirements Agreement, dated October 31, 1990,
between York Acquisition Corp. and SCI Funeral Services, Inc., and;
First Amendment to Casket Supply and Requirements Agreement, dated
December 30, 1992. (Incorporated by reference to Exhibit 10.27 to
Form 10-K for the fiscal year ended December 31, 1992).
10.21 -- Supplemental Executive Retirement Plan for Senior Officers (as
Amended and Restated Effective as of December 31, 1993).
10.22 -- ISDA Master Agreement dated February 4, 1993; Amendment to the Master
Agreement dated August 12, 1993; Confirmation dated August 13, 1993;
Confirmation dated November 1, 1993 and Notice of Exercise; all of
which are between Morgan Guaranty Trust Company of New York and the
Company.
10.23 -- First Amendment to Amended 1987 Stock Plan
11.1 -- Computation of Earnings Per Share.
12.1 -- Ratio of Earnings to Fixed Charges.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Independent Accountants (Coopers & Lybrand).
23.2 -- Consent of Independent Auditors (Ernst & Young).
24.1 -- Directors' Powers of Attorney.
In the above list, the management contracts or compensatory plans or
arrangements are set forth in Exhibits 10.1 through 10.13, 10.15 through 10.17,
10.21 and 10.23.
52