-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, HLY6WCg3H0ptVm0Q24b7E0ncORvzgmBh3WvgA6+KyllC3EJUI0UU4umZluwJmPVh 0UDrov8P/YdEzPgBTqa8CA== 0000950129-94-000651.txt : 19940822 0000950129-94-000651.hdr.sgml : 19940822 ACCESSION NUMBER: 0000950129-94-000651 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SERVICE CORPORATION INTERNATIONAL CENTRAL INDEX KEY: 0000089089 STANDARD INDUSTRIAL CLASSIFICATION: 7200 IRS NUMBER: 741488375 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06402 FILM NUMBER: 94543565 BUSINESS ADDRESS: STREET 1: 1929 ALLEN PKWY STREET 2: P O BOX 130548 CITY: HOUSTON STATE: TX ZIP: 77219 BUSINESS PHONE: 7135225141 MAIL ADDRESS: STREET 1: P.O. BOX 130548 CITY: HOUSTON STATE: TX ZIP: 77219-0548 10-Q 1 FORM 10-Q DATED 6/30/94 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1994 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ COMMISSION FILE NUMBER 1-6402-1 SERVICE CORPORATION INTERNATIONAL (Exact name of registrant as specified in charter) TEXAS 74-1488375 (State or other jurisdiction of (I. R. S. employer identification incorporation or organization) number) 1929 ALLEN PARKWAY, HOUSTON, TEXAS 77019 (Address of principal executive offices) (Zip code) (713) 522-5141 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to the filing requirements for the past 90 days. YES X NO _________ _______ The number of shares outstanding of the registrant's common stock as of August 5, 1994, was 86,090,065 (excluding treasury shares). 2 SERVICE CORPORATION INTERNATIONAL INDEX
Page Part I. Financial Information Consolidated Balance Sheet - June 30, 1994 (Unaudited) and December 31, 1993 3 Consolidated Statement of Income (Unaudited) - Three Months Ended June 30, 1994 and 1993 4 Six Months Ended June 30, 1994 and 1993 Consolidated Statement of Cash Flows (Unaudited) - Six Months Ended June 30, 1994 and 1993 5 Consolidated Statement of Stockholders' Equity (Unaudited) - Six Months Ended June 30, 1994 6 Notes to the Consolidated Financial Statements (Unaudited) 7-10 Management's Discussion and Analysis of Results of Operations and Financial Condition 11-17 Part II. Other Information 18 Signature 19
2 3 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED BALANCE SHEET
JUNE 30, 1994 DECEMBER 31, (THOUSANDS) (UNAUDITED) 1993 ________________________________________________________________________________ ASSETS Current assets: Cash and cash equivalents . . . . . . . . . . . . .$ 38,638 $ 20,822 Receivables, net of allowances . . . . . . . . . . . 240,774 236,786 Inventories . . . . . . . . . . . . . . . . . . . . 52,233 45,211 Other . . . . . . . . . . . . . . . . . . . . . . . 13,860 9,640 ---------- ---------- Total current assets . . . . . . . . . . . . . . . 345,505 312,459 ---------- ---------- Prearranged funeral contracts . . . . . . . . . . . . 1,298,558 1,244,866 Long-term receivables . . . . . . . . . . . . . . . . 538,014 500,062 Cemetery property, at cost . . . . . . . . . . . . . . 473,244 417,050 Property, plant and equipment, at cost (net) . . . . . 666,092 606,826 Deferred charges and other assets . . . . . . . . . . . 211,215 174,345 Names and reputations (net) . . . . . . . . . . . . . . 491,107 427,696 ---------- ---------- $4,023,735 $3,683,304 ========== ========== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities . . . . . .$ 121,520 $ 96,881 Income taxes . . . . . . . . . . . . . . . . . . . 20,937 18,695 Current maturities of long-term debt . . . . . . . . 67,945 24,982 ---------- ---------- Total current liabilities . . . . . . . . . . . . 210,402 140,558 ---------- ---------- Long-term debt . . . . . . . . . . . . . . . . . . . . 1,117,940 1,062,222 Deferred income taxes . . . . . . . . . . . . . . . . . 168,209 146,968 Other liabilities . . . . . . . . . . . . . . . . . . 211,421 185,636 Deferred prearranged funeral contract revenues . . . 1,375,843 1,263,407 Stockholders' equity: Common stock, $1 par value, 200,000,000 shares authorized, 86,028,032 and 84,859,110 issued and outstanding. . . . . . . . . . . . . . . . . . 86,028 84,859 Capital in excess of par value . . . . . . . . . . . 524,399 517,902 Retained earnings . . . . . . . . . . . . . . . . . 334,376 284,879 Foreign translation adjustment . . . . . . . . . . . (4,883) (3,127) ---------- ---------- Total stockholders' equity . . . . . . . . . . . . 939,920 884,513 ---------- ---------- $4,023,735 $3,683,304 ========== ==========
(See notes) 3 4 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30, (Thousands, except per share amounts) 1994 1993 1994 1993 ___________________________________________________________________________________________________________________ Revenues . . . . . . . . . . . . . . . $ 262,862 $ 217,049 $ 524,120 $ 441,420 Costs and expenses . . . . . . . . . . (186,121) (155,129) (357,837) (308,029) --------- --------- --------- --------- Gross profit . . . . . . . . . . . . . 76,741 61,920 166,283 133,391 General and administrative expenses . . (11,370) (8,997) (24,871) (18,887) --------- --------- --------- --------- Income from operations . . . . . . . . 65,371 52,923 141,412 114,504 Interest expense . . . . . . . . . . . (16,832) (14,307) (32,456) (28,888) Other income . . . . . . . . . . . . . 2,171 1,717 4,686 2,665 --------- --------- --------- --------- Income before income taxes . . . . . . 50,710 40,333 113,642 88,281 Provision for income taxes . . . . . . (20,515) (16,000) (46,002) (34,700) --------- --------- --------- --------- Income before cumulative effect of change in accounting principles . . . 30,195 24,333 67,640 53,581 Cumulative effect of change in accounting principles (net of income tax) . . . . . . . . . . . . . - - - (2,031) --------- --------- --------- --------- Net income . . . . . . . . . . . . . . $ 30,195 $ 24,333 $ 67,640 $ 51,550 ========= ========= ========= ========= Earnings per share: Primary - Income before cumulative effect of change in accounting principles . . . . . . . . . . . . $ .35 $ .29 $ .79 $ .66 Cumulative effect of change in accounting principles (net of income tax) . . . . . . . . . . . . - - - (.03) --------- --------- --------- --------- Net income . . . . . . . . . . . . $ .35 $ .29 $ .79 $ .63 ========= ========= ========= ========= Fully diluted - Income before cumulative effect of change in accounting principles . . . . . . . . . . . . $ .33 $ .28 $ .74 $ .62 Cumulative effect of change in accounting principles (net of income tax) . . . . . . . . . . . . - - - (.02) --------- --------- --------- --------- Net income . . . . . . . . . . . . $ .33 $ .28 $ .74 $ .60 ========= ========= ========= ========= Dividends per share . . . . . . . . . . $ .105 $ .10 $ .21 $ .20 ========= ========= ========= ========= Weighted average number of shares and equivalents . . . . . . . . . . . 86,281 83,616 86,033 81,773 ========= ========= ========= =========
(See notes) 4 5 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, (THOUSANDS) 1994 1993 _______________________________________________________________________________________________________________ Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,640 $ 51,550 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . 30,501 23,811 Provision for deferred income taxes . . . . . . . . . . . . . . . . 10,116 1,800 (Gain) loss from dispositions (net) . . . . . . . . . . . . . . . . (796) (64) Cumulative effect of change in accounting principles . . . . . . . . - 2,031 Change in assets and liabilities net of effects from acquisitions: (Increase) decrease in receivables . . . . . . . . . . . . . . . . . (37,240) (4,622) Change in prearranged funeral contracts and associated deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . 44,439 913 (Increase) decrease in other assets . . . . . . . . . . . . . . . . (29,938) (209) Increase in other liabilities . . . . . . . . . . . . . . . . . . . 33,313 1,922 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,309) (780) --------- --------- Net cash provided by operating activities . . . . . . . . . . . . . . . . 113,726 76,352 Cash flows from investing activities: Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . (39,845) (27,317) Proceeds from sales of property, plant and equipment . . . . . . . . . 7,837 7,184 Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . (112,743) (56,923) Loans issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,012) (33,350) Principal payments received on loans . . . . . . . . . . . . . . . . . 41,504 8,993 Change in investments and other . . . . . . . . . . . . . . . . . . . (23,115) 392 --------- --------- Net cash (used in) investing activities . . . . . . . . . . . . . . . . . . (146,374) (101,021) Cash flows from financing activities: Borrowings (payments) under lines of credit and commercial paper . . . 82,784 (103,500) Subordinated debentures issued . . . . . . . . . . . . . . . . . . . . - 150,000 Payments of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,912) (8,034) Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,926) (16,038) Exercise of stock options and other . . . . . . . . . . . . . . . . . 518 3,015 --------- --------- Net cash provided by financing activities . . . . . . . . . . . . . . . . 50,464 25,443 --------- --------- Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . 17,816 774 Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . 20,822 31,253 --------- --------- Cash and cash equivalents at June 30, 1994 and 1993 . . . . . . . . . . . . $ 38,638 $ 32,027 ========= ========= Cash used for: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,225 $ 28,704 ========= ========= Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39,182 $ 37,986 ========= =========
(See notes) 5 6 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
CAPITAL IN FOREIGN COMMON EXCESS OF RETAINED TRANSLATION (THOUSANDS) STOCK PAR VALUE EARNINGS ADJUSTMENT - - ----------- ---------- ---------- --------- ---------- Balance at December 31, 1993 . . . . . . . . . . . $ 84,859 $517,902 $284,879 $(3,127) Net income . . . . . . . . . . . . . . . . . . . 67,640 Common stock issued: Stock option exercises, restricted stock grants and other . . . . . . . . . . . . . . . 159 2,811 Acquisitions . . . . . . . . . . . . . . . . . . 1,036 4,359 (91) Other . . . . . . . . . . . . . . . . . . . . . . (26) (673) Dividends on common stock ($.105 per share) . . . (18,052) Foreign translation adjustment . . . . . . . . . . (1,756) --------- ---------- --------- --------- Balance at June 30, 1994 . . . . . . . . . . . . . $ 86,028 $524,399 $334,376 $(4,883) ========= ========= ======== =========
(See notes) 6 7 SERVICE CORPORATION INTERNATIONAL NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The consolidated financial statements for the six months ended June 30, 1994 and 1993 include the accounts of Service Corporation International and all majority-owned subsidiaries (The Company) and are unaudited but include all adjustments, consisting only of normal recurring accruals and any other adjustments, which management considers necessary for a fair presentation of the results for these periods. These financial statements have been prepared consistent with the accounting policies described in the annual report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1993 and should be read in conjunction therewith. Certain reclassifications have been made to the prior period to conform to the current period presentation with no effect on previously reported net income. 2. CHANGE IN ACCOUNTING PRINCIPLES On January 1, 1993 the Company changed its method of accounting for prearranged funeral sales contracts, trust earnings, sales of cemetery interment rights and other related products and services and cemetery perpetual care trust funds. These changes are more fully discussed in Note 2 in the Company's annual report filed on Form 10-K for the year ended December 31, 1993. The cumulative effect of these changes resulted in an after tax charge of $2,031,000 or $.03 per share in the first quarter of 1993. 3. ACQUISITIONS The Company has acquired certain funeral and cemetery operations during each six month period ended June 30, 1994 and 1993. The consideration for these acquisitions consisted of cash, common stock of the Company, issued or assumed debt and the retirement of loans receivable issued by the Company's finance subsidiary. The excess of purchase price over the fair value of assets acquired and liabilities assumed is included in names and reputations on the Consolidated Balance Sheet and will be amortized over a 40 year period. The operating results of all of these acquisitions have been included since their respective dates of acquisitions. 7 8 The effect of acquisitions on the Consolidated Balance Sheet was as follows:
Six Months Ended June 30, (Thousands) 1994 1993 ________________________________________________________________________________________________________________ Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,347 $ 6,385 Prearranged funeral contracts . . . . . . . . . . . . . . . . . . . 44,524 30,973 Long-term receivables . . . . . . . . . . . . . . . . . . . . . . . 3,732 12,077 Cemetery property . . . . . . . . . . . . . . . . . . . . . . . . . 47,773 50,396 Property, plant and equipment . . . . . . . . . . . . . . . . . . . 45,456 18,582 Deferred charges and other assets . . . . . . . . . . . . . . . . . 3,560 (5,937) Names and reputations . . . . . . . . . . . . . . . . . . . . . . . 70,189 3,781 Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . (20,580) 9,904 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . (25,271) (7,246) Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . (17,464) (26,713) Deferred prearranged funeral contract revenues . . . . . . . . . . (46,219) (31,015) Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . (5,304) (4,264) --------- --------- Cash used for acquisitions . . . . . . . . . . . . . . . . . $ 112,743 $ 56,923 ========= =========
The following represents the unaudited pro forma results of consolidated operations as if these acquisitions had occurred on January 1, 1993. This information does not purport to be indicative of results which may occur in the future.
Six Months Ended June 30, (Thousands, except per share amounts) 1994 1993 _______________________________________________________________________________________________________________ Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 544,392 $ 518,076 Income before cumulative effect of change in accounting principles . . . . . . . . . . . . . $ 70,298 $ 61,909 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70,298 $ 59,878 Primary earnings per share before cumulative effect of change in accounting principles . . . . . . . . . . $ .81 $ .74 Primary earnings per share . . . . . . . . . . . . . . . . . . . . $ .81 $ .71
Subsequent event The Company has made an offer to acquire 100% of Great Southern Group PLC, (GSG) the second largest publicly traded funeral provider in Great Britain for a total cost of approximately $173,800,000 United States dollars (USD). The board of directors of GSG has recommended that its shareholders accept the Company's offer. As of August 10, 1994 the Company owns, or has commitments to acquire, 77.7% of GSG's common shares and 71.8% of its convertible shares. GSG owns 157 funeral homes, 13 crematories and two cemeteries and reported revenues of approximately $50,000,000 (USD) for the year ended December 31, 1993. 8 9 4. DEFERRED PREARRANGED FUNERAL CONTRACT REVENUES Deferred prearranged funeral contract revenues include the contract amount of all price guaranteed prearranged funeral service contracts as well as the accrued trust earnings and increasing insurance benefits earned through the balance sheet date. 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 of the June 30, 1994 balance in future funeral revenue is expected to occur in the following years based on actuarial assumptions as follows:
(Thousands) ----------- 1994 (remaining six months) . . . . . . . . . . . . . . $ 60,434 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 112,918 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 105,138 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 97,576 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 90,286 1999 and through 2003 . . . . . . . . . . . . . . . . . 346,167 2004 and thereafter . . . . . . . . . . . . . . . . . . 563,324 ---------- $1,375,843 ==========
5. DEBT In July 1994, the Company's revolving credit agreements were amended to provide for borrowings up to $700,000,000 (previously $600,000,000). The 364 day portion supporting the commercial paper for $450,000,000 expires on July 26, 1995 and contains provisions for renewals. At the end of any term, the oustanding balance may be converted into a two year term loan. The committed portion for $250,000,000 expires July 22, 1997. The Company may in July of each year, commencing in 1995, 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 .08% to .125% on the commitment amount. The terms of the revolving credit agreements include various convenants 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 credit agreements are to be used for general corporate purposes, including acquisitions, and support for the Company's selling of commercial paper. The Company's committed portion of the revolving credit loan agreement borrowings have been reduced by $169,000,000 since year end to $216,000,000 at June 30, 1994 with an average interest rate of 4.5%. The credit loan agreement was also used to support the selling of commercial paper totaling $247,011,000 at June 30, 1994, with an average interest rate of 4.6%. The credit loan agreement borrowings and the commercial paper are classified as long-term since it is the Company's intent to renew or refinance with long-term borrowings. Through June 30, 1994, the Company has issued $23,624,000 of registered convertible debentures at an approximate interest rate of 5%. These debentures have varying conversion prices from $26.17 through $33.84 and were used to fund acquisitions. At June 30, 1994, the Company's Canadian subsidiary has borrowed $4,773,000 (USD) under its separate bank line of credit during 1994 to fund Canadian acquisitions. During July 1994, the Company's Australian subsidiary entered into a $7,200,000 (USD) line of credit with an Australian bank. 9 10 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 June 30, 1994) on $110,000,000 Australian dollars (AUD) and receives a floating interest rate (3.5% at June 30, 1994) on $73,590,000 USD. This agreement expires December 29, 2000. On December 31, 1993, effective February 1, 1994, the Company entered into an interest rate swap agreement with a bank having a notional amount of $150,000,000 (USD). This interest rate swap was partially unwound by the Company on May 19, 1994 by paying the bank a fee of $4,693,000. Such fee will be amortized into income through February 1, 1999. Under this agreement, the Company pays a floating interest rate (3.375% at June 30, 1994) on $75,000,000 and receives a 5.36% fixed interest rate on $75,000,000. This agreement terminates February 1, 1999. On February 17, 1994, effective March 1, 1994, the Company entered a currency swap agreement with a bank that hedged the borrowings for an additional Australian acquisition. Under this agreement, the Company pays the bank a fixed interest rate of 6.61% on $32,715,000 (AUD) and receives a variable interest rate (4.11% at June 30, 1994) on $23,414,000 (USD). This agreement expires March 1, 1999. 6. SUPPLEMENTAL INFORMATION - NON-CASH TRANSACTIONS
Six Months Ended June 30, (Thousands) 1994 1993 - - --------------------------------------------------------------------------------------------------------- Common stock issued under restricted stock plans . . . . . . . $1,646 $ 2,708 Debenture conversion . . . . . . . . . . . . . . . . . . . . . - 97,164 Cumulative effect of change in accounting principles . . . . . - 2,031
7. RATIO OF EARNINGS TO FIXED CHARGES The ratio of earnings to fixed charges for the six months ended June 30, 1994 was 3.65. For purposes of computing the ratio of earnings to fixed charges, earnings consist of income before income taxes, less undistributed income of equity investees which are less than 50% owned, plus the minority interest of majority-owned subsidiaries with fixed charges, and plus fixed charges (excluding capitalized interest 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. 10 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SIX MONTHS ENDED JUNE 30, 1994 COMPARED TO SIX MONTHS ENDED JUNE 30, 1993 OVERVIEW: 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 166 clusters which range in size from two operations to 53 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 attempts 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. RESULTS OF OPERATIONS: Segment information for the Company's three lines of business are as follows:
Six Months Ended June 30, Percentage (Thousands) 1994 1993 Increase Increase ______________________________________________________________________________________________________________________ Revenues: Funeral . . . . . . . . . . . $ 350,008 $ 297,800 $ 52,208 17.5% Cemetery . . . . . . . . . . . 164,776 136,304 28,472 20.9 Financial services . . . . . . 9,336 7,316 2,020 27.6 --------- --------- -------- 524,120 441,420 82,700 18.7 --------- --------- -------- Costs and expenses: Funeral . . . . . . . . . . . 240,612 206,665 33,947 16.4 Cemetery . . . . . . . . . . . 112,073 97,122 14,951 15.4 Financial services . . . . . . 5,152 4,242 910 21.5 --------- --------- -------- 357,837 308,029 49,808 16.2 --------- --------- -------- Gross profit and margin percentage: Funeral . . . . . . . . . . . 109,396 31.3% 91,135 30.6% 18,261 20.0 Cemetery . . . . . . . . . . . 52,703 32.0 39,182 28.7 13,521 34.5 Financial services . . . . . . 4,184 44.8 3,074 42.0 1,110 36.1 --------- --------- -------- $ 166,283 31.7% 133,391 30.2% $ 32,892 24.7% ========= ========= ========
11 12 Funeral Funeral revenues were generated as follows:
Six Months Ended June 30, Increase/ Percentage (Thousands) 1994 1993 (Decrease) Increase _______________________________________________________________________________________________________________________ Existing clusters . . . . . . . . . . $ 311,770 $ 279,927 $ 31,843 11.4% New clusters* . . . . . . . . . . . . 23,565 1,347 22,218 ----------- ----------- --------- Total clusters . . . . . . . . . . . 335,335 281,274 54,061 19.2% Non-cluster and disposed operations . 14,673 16,526 (1,853) ----------- ----------- --------- Total funeral revenues . . . . . . . $ 350,008 $ 297,800 $ 52,208 17.5% =========== =========== =========
The $31,843,000 increase in revenues at existing clusters was the result of 5,052 or 6.1% more funeral services performed and a $168 or 4.9 % higher average sales price. Included in this increase was $21,372,000 in revenues from locations acquired since the beginning of 1993. It is anticipated 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 the six months ended June 30, 1994, the Company sold $108,749,000 of prearranged funeral services compared to $70,142,000 for the same period in 1993. These prearranged funeral services are deferred and will be reflected in funeral revenues in the periods that the funeral services are performed. The current emphasis on sales of prearranged funerals is expected to continue. Funeral costs were incurred as follows:
Six Months Ended June 30, Increase/ Percentage (Thousands) 1994 1993 (Decrease) Increase ______________________________________________________________________________________________________________________ Existing clusters . . . . . . . . . . $ 198,393 $ 180,646 $ 17,747 9.8% New clusters* . . . . . . . . . . . . 16,683 868 15,815 ------------ ----------- --------- Total clusters . . . . . . . . . . . 215,076 181,514 33,562 18.5% Non-cluster and disposed operations . 11,390 12,334 (944) Administrative overhead . . . . . . . 14,146 12,817 1,329 ----------- ---------- --------- Total funeral costs . . . . . . . . $ 240,612 $ 206,665 $ 33,947 16.4% =========== ========== =========
Total funeral gross profit margin increased to 31.3% compared to 30.6% recorded last year. This gross profit margin improvement was achieved despite the large number of acquisitions, added to both existing and new clusters, which have occurred since the beginning of 1993. Typically, acquisitions will temporarily exhibit slightly lower gross profit margins than the Company's existing locations. Acquisitions, since the beginning of 1993, accounted for $15,750,000 of the existing cluster cost increase. The improved gross profit margin for existing clusters reflects the increased revenues discussed above, without a corresponding percentage increase in costs at other funeral homes included in existing clusters. Administrative overhead costs related to funeral operations decreased to 4.0% of revenues in 1994 compared to 4.3% of revenues in 1993. _______________________________ *Represents new geographic areas entered into since the beginning of 1993 for the period that those businesses were owned by the Company. 12 13 Cemetery Cemetery revenues were generated as follows:
Six Months Ended June 30, Increase Percentage (Thousands) 1994 1993 (Decrease) Increase ______________________________________________________________________________________________________________________________ Existing clusters . . . . . . . . . . $ 152,634 $ 130,671 $ 21,963 16.8% New clusters* . . . . . . . . . . . . 6,599 - 6,599 ----------- ----------- --------- Total clusters . . . . . . . . . . . 159,233 130,671 28,562 21.9% Non-cluster and disposed operations . 5,543 5,633 (90) ----------- ----------- --------- Total cemetery revenues . . . . . . $ 164,776 $ 136,304 $ 28,472 20.9% =========== =========== =========
Revenues for the existing clusters increased primarily due to increased preneed and at need sales of merchandise and services. Included in the existing cluster increase was $9,367,000 in increased revenues from cemeteries acquired since the beginning of 1993. Cemetery costs were incurred as follows:
Six Months Ended June 30, Increase/ Percentage (Thousands) 1994 1993 (Decrease) Increase ______________________________________________________________________________________________________________________________ Existing clusters . . . . . . . . . . $ 97,135 $ 85,560 $ 11,575 13.5% New clusters* . . . . . . . . . . . . 3,182 - 3,182 ----------- ---------- --------- Total clusters . . . . . . . . . . . 100,317 85,560 14,757 17.2% Non-cluster and disposed operations . 3,535 4,092 (557) Administrative overhead . . . . . . . 8,221 7,470 751 ----------- ---------- --------- Total cemetery costs . . . . . . . . $ 112,073 $ 97,122 $ 14,951 15.4% =========== ========== =========
Costs at existing clusters increased $11,575,000 due primarily to an increase of $6,626,000 from cemeteries acquired since the beginning of 1993. Costs from other existing cluster cemeteries increased $4,949,000 due to the costs associated with the increased revenues discussed above. The cemetery gross margin increase of 32.0% this year compared to 28.7% last year reflects the strong revenue growth as well as continued cost control, particularly in selling expenses. Administrative overhead costs have decreased to 5.0% of revenues this year compared to 5.5% last year. Financial Services Financial service revenues and costs have increased as a result of increased loans outstanding. Improved interest rate spreads have increased the gross margin percentage to 44.8% this year from 42.0% last year. The average outstanding loan portfolio during the current year was $246,408,000 with an average interest rate spread of 3.45% compared to $204,462,000 and 3.21%, respectively, last year. _____________ *Represents new geographic areas entered into since the beginning of 1993 for the period that those businesses were owned by the Company. 13 14 Other Income and Expenses General and administrative expenses increased by $5,984,000 or 31.7%. Of the increase, $3,503,000 is attributable to personnel expenses primarily in the form of restricted stock costs. Professional fees have increased $2,455,000 in the current year primarily from legal costs associated with the ongoing informal Securities and Exchange Commission (Commission) investigation of the Company (See Item 1. Legal Proceedings in Part II of this report). As a percentage of revenues, general and administrative expenses were 4.7% this year compared to 4.3% last year. Interest expense, which excludes the amount incurred through financial service operations, increased $3,568,000 or 12.4% during the current year primarily due to the issuance of $150,000,000 of 7.875% debentures in February 1993 and increased borrowings under the Company's lines of credit and commercial paper primarily used to fund the Company's acquisition program.. The $2,021,,000 increase in other income results primarily from the sale of excess real estate and additional equity income on corporate investments in 1994. The provision for income taxes has increased to 40.5% from 39.3% last year primarily due to the August 1993 increase in the federal corporate tax rate. THREE MONTHS ENDED JUNE 30, 1994 COMPARED TO THREE MONTHS ENDED JUNE 30, 1993 RESULTS OF OPERATIONS: Segment information for the Company's three lines of business are as follows:
Three Months Ended June 30, Percentage (Thousands) 1994 1993 Increase Increase _______________________________________________________________________________________________________________ Revenues: Funeral . . . . . . . . . . . $172,651 $143,988 $ 28,663 19.9% Cemetery . . . . . . . . . . . 85,393 69,284 16,109 23.3 Financial services . . . . . . 4,818 3,777 1,041 27.6 -------- -------- -------- 262,862 217,049 45,813 21.1 -------- -------- -------- Costs and expenses: Funeral . . . . . . . . . . . 123,629 103,219 20,410 19.8 Cemetery . . . . . . . . . . . 59,576 49,521 10,055 20.3 Financial services . . . . . . 2,916 2,389 527 22.1 -------- ------- ------- ---- 186,121 155,129 30,992 20.0 -------- ------- ------- Gross profit and margin percentage: Funeral . . . . . . . . . . . 49,022 28.4% 40,769 28.3% 8,253 20.2 Cemetery . . . . . . . . . . . 25,817 30.2 19,763 28.5 6,054 30.6 Financial services . . . . . . 1,902 39.5 1,388 36.7 514 37.0 -------- ------- ------- $ 76,741 29.2% 61,920 28.5% 14,821 23.9% ======== ======= =======
14 15 Funeral Funeral revenues were generated as follows:
Three Months Ended June 30, Increase/ Percentage (Thousands) 1994 1993 (Decrease) Increase _______________________________________________________________________________ Existing clusters . . . . . . . . . . $151,407 $135,874 $15,533 11.4% New clusters* . . . . . . . . . . . . 14,119 117 14,002 -------- -------- ------- Total clusters . . . . . . . . . . 165,526 135,991 29,535 21.7% Non-cluster and disposed operations . 7,125 7,997 (872) -------- -------- ------- Total funeral revenues . . . . . . $172,651 $143,988 $28,663 19.9% ======== ======== =======
The $15,533,000 increase in revenues at existing clusters was the result of 2,092 or 5.3% more funeral services performed and a $200 or 5.9% higher average sales price. Included in this increase was $11,163,000 in revenues from locations acquired after March 31, 1993. During the three months ended June 30, 1994, the Company sold $60,998,000 of prearranged funeral services compared to $35,113,000 for the same period in 1993. These prearranged funeral services are deferred and will be reflected in funeral revenues in the periods that the funeral services are performed. Funeral costs were incurred as follows:
Three Months Ended June 30, Percentage (Thousands) 1994 1993 Increase Increase _______________________________________________________________________________ Existing clusters . . . . . . . . . . $101,311 $ 90,559 $10,752 11.9% New clusters* . . . . . . . . . . . . 9,588 21 9,567 -------- -------- ------- Total clusters. . . . . . . . . . . 110,899 90,580 20,319 22.4% Non-cluster and disposed operations . 6,096 6,015 81 Administrative overhead . . . . . . . 6,634 6,624 10 -------- -------- ------- Total funeral costs . . . . . . . . $123,629 $103,219 $20,410 19.8% ======== ======== =======
The gross profit margin at existing clusters declined slightly this year due to slightly higher (as a percentage of revenues) merchandise and personnel costs primarily attributable to acquisitions added to the existing clusters after March 31, 1993. Typically, acquisitions will temporarily exhibit slightly lower gross profit margins than the Company's existing locations. These acquisitions accounted for $8,291,000 of the existing cluster cost increase. Administrative overhead costs related to funeral operations when expressed as a percentage of revenues showed marked improvement to 3.8% this year from 4.6% last year. This helped the total funeral gross profit margin improve to 28.4% from 28.3% last year. _______________________________ *Represents new geographic areas entered into after March 31, 1993 for the period that those businesses were owned by the Company. 15 16 Cemetery Cemetery revenues were generated as follows:
Three Months Ended June 30, Increase Percentage (Thousands) 1994 1993 (Decrease) Increase _______________________________________________________________________________ Existing clusters . . . . . . . . . . $79,585 $67,030 $12,555 18.7% New clusters* . . . . . . . . . . . . 3,648 - 3,648 ------- ------- ------- Total clusters . . . . . . . . . . . 83,233 67,030 16,203 24.2% Non-cluster and disposed operations . 2,160 2,254 (94) ------- ------- ------- Total cemetery revenues . . . . . . $85,393 $69,284 $16,109 23.3% ======= ======= =======
Revenues for the existing clusters increased primarily due to increased preneed and at need sales of merchandise and services. Included in the existing cluster increase was $4,069,000 in increased revenues from cemeteries acquired after March 31, 1993. Cemetery costs were incurred as follows:
Three Months Ended June 30, Increase/ Percentage (Thousands) 1994 1993 (Decrease) Increase _______________________________________________________________________________ Existing clusters. . . . . . . . . . . $52,762 $44,443 $ 8,319 18.7% New clusters* . . . . . . . . . . . . 1,736 - 1,736 ------- ------- ------- Total clusters . . . . . . . . . . . 54,498 44,443 10,055 22.6% Non-cluster and disposed operations. . 1,667 1,585 82 Administrative overhead. . . . . . . . 3,411 3,493 (82) ------- ------- ------- Total cemetery costs . . . . . . . . $59,576 $49,521 $10,055 20.3% ======= ======= =======
Costs at existing clusters increased $8,319,000 due to an increase of $3,104,000 in costs from cemeteries acquired after March 31, 1993 and a increase of $5,215,000 from other existing cluster cemeteries. Lower gross profit margins for the cemeteries acquired after March 31, 1993 and included in existing clusters caused the gross profit margin for existing clusters to remain constant for both quarters. Strong operating results from the Company's Australian cemeteries (acquired in the third quarters of 1993 and included in new clusters) and decreased administrative overhead costs helped the total gross profit margin increase to 30.2% in the current quarter from 28.5% last year. Financial Services Financial service revenues and costs have increased as a result of increased loans outstanding. Improved interest rate spreads have increased the gross margin percentage. The average outstanding loan portfolio during the current quarter was $240,122,000 with an average interest rate spread of 3.48% compared to $211,266,000 and 3.25%, respectively, last year. _______________________________ *Represents new geographic areas entered into after March 31, 1993 for the period that those businesses were owned by the Company. 16 17 Other Income and Expenses General and administrative expenses increased by $2,373,000 or 26.4%. Of the increase, $818,000 is attributable to personnel expenses primarily from incentive compensation and retirement plan accruals. Professional fees have increased $1,391,000 in the current year due primarily to legal costs associated with the ongoing informal investigation of the Company by the Commission (See Item 1. Legal Proceedings in Part II of this report). As a percentage of revenues, general and administrative expenses were 4.3% in the current quarter and 4.1% last year. Interest expense, which excludes the amount incurred through financial service operations, increased $2,525,000 or 17.6% during the current quarter primarily due to increased borrowings under the Company's lines of credit and commercial paper during the current quarter primarily used to fund the Company's acquisition program. FINANCIAL CONDITION AT JUNE 30, 1994: The Company's acquisition of funeral homes and cemeteries and capital expenditures, including major improvements to existing properties, continue to require significant amounts of cash. Funds generated from 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 (including the acquisition of GSG discussed in Note 3) and operating policies. At August 5, 1994, the Company had available approximately $298,000,000 of borrowing ability under its various credit lines. In addition to the sources of cash from operations and credit lines, the Company has 12,149,000 shares of common stock, $70,227,000 of guarantees of promissory notes and $74,382,000 of convertible debentures registered with the Commission to be used exclusively for future acquisitions. Current maturities of long-term debt include $48,660,000 of medium-term notes that mature in the first half of 1995. The Company's total debt to capitalization ratio increased slightly to 55.8% from 55.1% at December 31, 1993. HEDGING TRANSACTIONS (SEE NOTE 5): The Company has entered into hedging transactions to reduce its exposure to adverse fluctuations in interest and foreign exchange rates. While the hedging transactions are subject to risk of loss from change in interest rates and exchange rates, these losses would generally be offset by gains on the exposures being hedged. The Company has realized $1,093,000 (USD) losses on contracts entered into as hedge transactions since the beginning of 1993. These realized losses were deferred and are being amortized into income over periods ranging from eight months to five years. At June 30, 1994, the Company has outstanding foreign currency and interest rate swaps in the notional amounts of $142,715,000 (AUD) and $75,000,000 (USD). As of June 30, 1994, net unrealized losses before taxes from these hedging agreements were estimated to be $3,800,000 (USD) (which is the estimated cost to terminate these hedging agreements). In the opinion of management, such losses were offset by the increased value of the exposures being hedged. OTHER MATTERS: See Item 1. Legal Proceedings in Part II of this report for information regarding an informal investigation by the Commission. 17 18 SERVICE CORPORATION INTERNATIONAL PART II. OTHER INFORMATION ITEM 1. 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 12, 1994 the Company held its annual meeting of shareholders and the shareholders elected five directors. The shares voting on the director nominees were cast as follows:
Abstentions or Broker Nominee Votes For Votes Withheld Non-votes ------- --------- -------------- --------- Anthony L. Coelho 74,465,896 466,725 -0- A. J. Foyt, Jr. 74,441,782 490,839 -0- E. H. Thornton, Jr. 74,461,341 471,280 -0- R. L. Waltrip 74,475,592 457,029 -0- Edward E. Williams 74,476,644 455,977 -0-
In addition, the shareholders approved the Company's 1993 Long-Term Incentive Stock Option Plan and the awards made thereunder in 1993, which plan and awards are described in the Company's proxy statement dated April 12, 1994. Such plan and awards were approved with 56,354,316 votes cast for, 9,864,667 votes cast against, 914,966 votes abstaining and 7,798,672 broker non-votes. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 1993 Long-Term Incentive Stock Option Plan (Incorporated by reference to Annex A to Proxy Statement dated April 12, 1994). 11.1 Computation of earnings per share. 12.1 Ratio of earnings to fixed charges. (b) Reports on Form 8-K There were no reports on Form 8-K during the three months ended June 30, 1994. 18 19 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. August 12, 1994 SERVICE CORPORATION INTERNATIONAL By: /s/ Samuel W. Rizzo --------------------------- Samuel W. Rizzo Executive Vice President Chief Financial Officer/Treasurer (Principal Financial Officer) 19 20 INDEX TO EXHIBITS
Exhibit Number ------- 10.1 1993 Long-Term Incentive Stock Option Plan (Incorporated by reference to Annex A to Proxy Statement dated April 12, 1994). 11.1 Computation of earnings per share. 12.1 Ratio of earnings to fixed charges.
EX-11.1 2 EXHIBIT 11.1 1 Exhibit 11.1 SERVICE CORPORATION INTERNATIONAL COMPUTATION OF EARNINGS PER SHARE (Thousands, except per share amounts)
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30, 1994 1993 1994 1993 ___________________________________________________________________________________________________________________________ PRIMARY: Income before cumulative effect of change in accounting principles . . . . . . . $ 67,640 $ 53,581 $ 30,195 $ 24,333 Cumulative effect of change in accounting principles (net of tax) . . . . . . - (2,031) - - --------- --------- --------- --------- $ 67,640 $ 51,550 $ 30,195 $ 24,333 ========= ========= ========= ========= Average number of common shares outstanding . . . . . . . . . . . . . . . . . . 85,633 81,450 85,907 83,281 Common stock equivalents applicable to options outstanding resulting from application of the "treasury stock method" using average stock price . . . . . . . . . . . . . . 400 323 374 335 --------- --------- --------- --------- Average common and common equivalent shares used in earnings per share . . . . . . . . . . 86,033 81,773 86,281 83,616 ========= ========= ========= ========= Primary Earnings Per Common Share: Income before cumulative effect of change in accounting principles . . . . . . . . . . . . $ .79 $ .66 $ .35 $ .29 Cumulative effect of change in accounting principles (net of tax) . . . . . . . . . . . - (.03) - - --------- --------- --------- --------- Net income . . . . . . . . . . . . . . . . . . . . $ .79 $ .63 $ .35 $ .29 ========= ========= ========= ========= FULLY DILUTED: Income before cumulative effect of change in accounting principles . . . . . . . . . . . . $ 67,640 $ 53,581 $ 30,195 $ 24,333 Add after tax interest expense applicable to convertible debentures . . . . . . . . . . . . 4,037 4,540 2,036 1,975 --------- --------- --------- --------- Income as adjusted . . . . . . . . . . . . . . . . 71,677 58,121 32,231 26,308 Cumulative effect of change in accounting principles (net of tax) . . . . . . . . . . . - (2,031) - - --------- --------- --------- --------- $ 71,677 $ 56,090 $ 32,231 $ 26,308 ========= ========= ========= ========= Average number of common shares outstanding . . . . . . . . . . . . . . . . . 85,633 81,450 85,907 83,281 Common stock equivalents applicable to options outstanding resulting from application of the "treasury stock method" using end of period stock price (if greater than average stock price for period) . . . . . . . . . . . . . . . 413 349 401 335 Assuming conversion of convertible debentures . . . 10,120 11,336 10,209 9,552 --------- --------- --------- --------- Average shares used in fully diluted earnings per share . . . . . . . . . . . . . . . . . . 96,166 93,135 96,517 93,168 ========= ========= ========= ========= FULLY DILUTED EARNINGS PER COMMON SHARE: Income before cumulative effect of change in accounting principles . . . . . . . . . . . . $ .74 $ .62 $ .33 $ .28 Cumulative effect of change in accounting principles (net of tax) . . . . . . . . . . . . - (.02) - - --------- --------- --------- --------- Net income . . . . . . . . . . . . . . . . . . . . $ .74 $ .60 $ .33 $ .28 ========= ========= ========= =========
EX-12.1 3 EXHIBIT 12.1 1 Exhibit 12.1 SERVICE CORPORATION INTERNATIONAL RATIO OF EARNINGS TO FIXED CHARGES (Thousands, except ratio amounts)
SIX MONTHS ENDED JUNE 30, 1994 1993 _____________________________________________________________________________________________________________ Pretax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 113,642 $ 88,281 Undistributed income of less than 50% owned equity investees . . . . . . . (456) (259) Minority interest in income of majority owned subsidiaries with fixed charges . . . . . . . . . . . . . . . . . . . . . . . . . . 1,041 1,002 Add fixed charges as adjusted (from below) . . . . . . . . . . . . . . . . 42,577 37,662 --------- --------- $ 156,804 $ 126,686 --------- --------- Fixed charges: Interest expense: Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,456 $ 28,888 Financial services . . . . . . . . . . . . . . . . . . . . . . . . 4,577 3,598 Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . 355 73 Amortization of debt costs . . . . . . . . . . . . . . . . . . . . . . 140 141 1/3 of rental expense . . . . . . . . . . . . . . . . . . . . . . . . 5,404 5,035 --------- --------- Fixed charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,932 37,735 Less: Capitalized interest . . . . . . . . . . . . . . . . . . . . . (355) (73) --------- --------- Fixed charges as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,577 $ 37,662 --------- --------- Ratio (earnings divided by fixed charges) . . . . . . . . . . . . . . . . . 3.65 3.36 ========= =========
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