-----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, qqnzH0lVfC6xi9z5ZRhG0X27QHVD51PwN7nIYOPUHqo9JVRPBI7AIViXwQt0jm1Z hmif8vHK7PhsRoZV0K8+IQ== 0000950129-95-000471.txt : 19950517 0000950129-95-000471.hdr.sgml : 19950516 ACCESSION NUMBER: 0000950129-95-000471 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950512 SROS: AMEX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SERVICE CORPORATION INTERNATIONAL CENTRAL INDEX KEY: 0000089089 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [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: 95538154 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 FOR 03/31/95 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 MARCH 31, 1995 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 May 5, 1995, was 96,032,770 (excluding treasury shares). 2 SERVICE CORPORATION INTERNATIONAL INDEX
Page Part I. Financial Information Consolidated Balance Sheet - March 31, 1995 (Unaudited) and December 31, 1994 3 Consolidated Statement of Income (Unaudited) - Three Months Ended March 31, 1995 and 1994 4 Consolidated Statement of Cash Flows (Unaudited) - Three Months Ended March 31, 1995 and 1994 5 Consolidated Statement of Stockholders' Equity (Unaudited) - Three Months Ended March 31, 1995 6 Notes to the Consolidated Financial Statements (Unaudited) 7 -9 Management's Discussion and Analysis of Results of Operations and Financial Condition 10 - 13 Part II. Other Information 14 Signature 14
2 3 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED BALANCE SHEET
March 31, 1995 December 31, (Unaudited) 1994 - --------------------------------------------------------------------------------------------------------------------- (Thousands) ASSETS Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 33,341 $ 218,341 Receivables, net of allowances . . . . . . . . . . . . . . . . . . . . . 339,049 291,135 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,804 60,897 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,695 21,436 ---------- ---------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 448,889 591,809 ---------- ---------- Prearranged funeral contracts . . . . . . . . . . . . . . . . . . . . . . 1,495,094 1,418,104 Long-term receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 568,616 529,843 Cemetery property, at cost . . . . . . . . . . . . . . . . . . . . . . . . 781,501 748,639 Property, plant and equipment, at cost (net) . . . . . . . . . . . . . . . 883,842 832,401 Deferred charges and other assets . . . . . . . . . . . . . . . . . . . . . 229,601 230,336 Names and reputations (net) . . . . . . . . . . . . . . . . . . . . . . . . 872,591 810,756 ---------- ---------- $5,280,134 $5,161,888 ========== ========== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . $ 178,212 $ 154,770 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,158 39,084 Current maturities of long-term debt . . . . . . . . . . . . . . . . . . 63,604 277,709 ---------- ---------- Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 272,974 471,563 ---------- ---------- Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,461,450 1,330,177 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 264,263 238,088 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271,057 233,356 Deferred prearranged funeral contract revenues . . . . . . . . . . . . . 1,577,970 1,519,582 Convertible preferred shares of subsidiary . . . . . . . . . . . . . . . . 172,500 172,500 Stockholders' equity: Common stock, $1 per share par value, 200,000,000 shares authorized, 95,927,034 and 94,857,060, respectively, issued and outstanding . . . 95,927 94,857 Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . 742,427 718,858 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 418,333 381,509 Foreign translation adjustment . . . . . . . . . . . . . . . . . . . . . 3,233 1,398 ---------- ---------- Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . 1,259,920 1,196,622 ---------- ---------- $5,280,134 $5,161,888 ========== ==========
(See notes to consolidated financial statements) 3 4 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended March 31, 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ (Thousands, except per share amounts) Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 348,113 $ 261,258 Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . (231,438) (171,716) -------------- -------------- Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,675 89,542 General and administrative expenses . . . . . . . . . . . . . . . . . . . . (12,453) (13,501) -------------- -------------- Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . 104,222 76,041 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,284) (15,624) Dividends on convertible preferred stock of subsidiary . . . . . . . . . . (2,695) - Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,316 2,515 -------------- -------------- Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . 77,559 62,932 Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . (30,179) (25,487) -------------- -------------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,380 $ 37,445 ============== ============== Earnings per share: Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .49 $ .44 ============== ============== Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .46 $ .41 ============== ============== Dividends per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .11 $ .105 ============== ============== Weighted average number of shares and equivalents . . . . . . . . . . . . . 96,472 85,785 ============== ==============
(See notes to consolidated financial statements) 4 5 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------------- (Thousands) Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,380 $ 37,445 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 20,779 14,233 Provision for deferred income taxes . . . . . . . . . . . . . . . . . . 5,176 5,930 (Gain) from dispositions (net) . . . . . . . . . . . . . . . . . . . . . (516) (584) Change in assets and liabilities net of effects from acquisitions: (Increase) in receivables . . . . . . . . . . . . . . . . . . . . . . . (57,997) (10,195) Change in prearranged funeral contracts and associated deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . (22,202) 33,475 (Increase) in other assets . . . . . . . . . . . . . . . . . . . . . . (4,116) (9,143) Increase in other liabilities . . . . . . . . . . . . . . . . . . . . . 46,063 21,298 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,921) (3,752) ------------ ---------- Net cash provided by operating activities . . . . . . . . . . . . . . . . 22,646 88,707 ------------ ---------- Cash flows from investing activities: Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . (21,764) (18,091) Proceeds from sales of property and equipment . . . . . . . . . . . . . 309 5,618 Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (104,695) (56,306) Loans issued by finance subsidiary . . . . . . . . . . . . . . . . . . . (5,103) (10,856) Principal payments received on loans by finance subsidiary . . . . . . . 12,274 9,821 Change in investments and other . . . . . . . . . . . . . . . . . . . . . (7,663) (10,528) ------------ ---------- Net cash (used in) investing activities . . . . . . . . . . . . . . . . . . (126,642) (80,342) ------------ ---------- Cash flows from financing activities: Borrowings under bank revolving credit . . . . . . . . . . . . . . . . . 130,157 32,603 Payments of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . (221,573) (7,583) Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,044) (8,913) Common stock issues . . . . . . . . . . . . . . . . . . . . . . . . . . 19,266 - Exercise of stock options and other . . . . . . . . . . . . . . . . . . . 1,190 310 ------------ ---------- Net cash (used in) provided by financing activities . . . . . . . . . . . (81,004) 16,417 ------------ ---------- Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . (185,000) 24,782 Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . 218,341 20,822 ------------ ---------- Cash and cash equivalents at March 31, 1995 and 1994 . . . . . . . . . . . $ 33,341 $ 45,604 ============ ========== Cash used for: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,669 $ 12,481 ============ ========== Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,647 $ 3,505 ============ ========== Non cash transactions: Common stock issued under restricted stock plans . . . . . . . . . . . . $ 1,138 $ 1,188 ============ ==========
(See notes to consolidated financial statements) 5 6 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
Capital in Foreign Common excess of Retained translation stock par value earnings adjustment - --------------------------------------------------------------------------------------------------------------------------------- (Thousands) Balance at December 31, 1994 . . . . . . . . . . . $ 94,857 $ 718,858 $ 381,509 $ 1,398 Net income. . . . . . . . . . . . . . . . . . . . - - 47,380 - Common stock issued: Common stock offering . . . . . . . . . . . . 780 18,486 - - Stock option exercises and stock grants. . . . 128 2,200 - - Acquisitions . . . . . . . . . . . . . . . . . 8 121 - - Debenture conversion . . . . . . . . . . . . . 154 3,029 - - Dividends on common stock ($.11 per share). . . . - - (10,556) - Foreign translation adjustment. . . . . . . . . . - - - 1,835 Other . . . . . . . . . . . . . . . . . . . . . . - (267) - - ---------- ----------- ----------- --------- Balance at March 31, 1995 . . . . . . . . . . . . . $ 95,927 $ 742,427 $ 418,333 $ 3,233 ========== =========== =========== =========
(See notes to consolidated financial statements) 6 7 SERVICE CORPORATION INTERNATIONAL NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (THOUSANDS) (UNAUDITED) 1. BASIS OF PRESENTATION The consolidated financial statements for the three months ended March 31, 1995 and 1994 include the accounts of Service Corporation International and all majority-owned subsidiaries (the "Company") and are unaudited but include all 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 (the "Commission") for the year ended December 31, 1994 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. ACQUISITIONS The Company has acquired certain funeral and cemetery operations during each three month period ended March 31, 1995 and 1994. 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" and is being amortized over a 40 year period. The operating results of all of these acquisitions have been included since their respective dates of acquisitions. The effect of acquisitions on the consolidated balance sheet at March 31, was as follows:
1995 1994 - ------------------------------------------------------------------------------------------------------------------------ Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,193 $ 784 Prearranged funeral contracts . . . . . . . . . . . . . . . . . . . 14,404 18,356 Long-term receivables . . . . . . . . . . . . . . . . . . . . . . . 21,760 1,920 Cemetery property . . . . . . . . . . . . . . . . . . . . . . . . . 30,210 32,862 Property, plant and equipment . . . . . . . . . . . . . . . . . . . 40,263 26,709 Deferred charges and other assets . . . . . . . . . . . . . . . . . 1,630 6,490 Names and reputations . . . . . . . . . . . . . . . . . . . . . . . 57,405 21,467 Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . (9,346) (5,287) Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . (17,511) (10,763) Deferred income taxes and other liabilities . . . . . . . . . . . . (29,003) (15,045) Deferred prearranged funeral contract revenues . . . . . . . . . . (16,181) (18,634) Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . (129) (2,553) --------- --------- Cash used for acquisitions . . . . . . . . . . . . . . . . . $ 104,695 $ 56,306 ========= =========
7 8 The following unaudited pro forma information assumes that the acquisition by the Company of all operations acquired during the year ended December 31, 1994 and the three months ended March 31, 1995 took place on January 1, 1994 (725 funeral homes and 46 cemeteries). This information also assumes that the net proceeds from the Company's December 1994 public offerings of Company common stock, 8.375% notes and convertible preferred shares of a subsidiary were issued at the beginning of 1994 and such proceeds were used to fund, to the extent available, the acquisitions mentioned above. This unaudited pro forma information may not be indicative of results that would have actually resulted if these transactions had occurred on the dates indicated or which may be obtained in the future.
Three Months Ended March 31, 1995 1994 - ----------------------------------------------------------------------------------------------------------------- Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $354,144 $326,920 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46,892 $ 39,190 Primary earnings per common share . . . . . . . . . . . . . . . . . . $ .49 $ .41
3. 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 trust earnings and increasing insurance benefits earned through March 31, 1995. The Company will continue to defer additional 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 revenues. The recognition in future funeral revenues is estimated to occur in the following years based on actuarial assumptions as follows: 1995 (remaining nine months) . . . . . . . . . . . . . $ 107,031 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 131,684 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 121,244 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 111,414 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . 102,197 2000 and through 2004 . . . . . . . . . . . . . . . . . 393,067 2005 and thereafter . . . . . . . . . . . . . . . . . . 611,333 ----------- $ 1,577,970 ===========
4. DEBT The Company's primary revolving credit agreements provide for borrowings up to $700,000. A 364 day portion supporting commercial paper issues for $450,000 expires on July 26, 1995 and contains provisions for renewals. At the end of any term, the outstanding balance may be converted into a two year term loan. A committed loan portion for $250,000 expires July 22, 1997. The Company may in July of each year, commencing in 1995, extend the term of the $250,000 agreement for a year with the consent of all participating 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 term of these 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. At March 31, 1995 $356,800 was outstanding under these agreements. At March 31, 1995 the average interest rate incurred for amounts borrowed under these agreements was 6.2%. The Company's Canadian subsidiary has a US $21,500 line of credit with a Canadian bank and had borrowed US $17,000 at March 31, 1995. This line requires the payment of a .125% commitment fee on the unused balance and expires on July 30, 1995. Interest rates are based on various indices determined by the Company. At March 31, 1995 the Company's Australian subsidiary had a US $25,500 line of credit with an Australian bank and had borrowed US $20,000. This line requires a .15% commitment fee on the unused balance. Interest rates are calculated at .55% above quoted bank bill buying rates. In early April 1995 this line was increased to US $58,400 with similar terms and a September 30, 1995 expiration date. 8 9 5. DERIVATIVES Derivative financial instruments have been entered into by the Company to hedge exposure to fluctuations in interest and foreign exchange rates. The Company does not trade in financial instruments and is not a party to leveraged derivatives. These financial instruments are with major financial institutions and the Company does not anticipate any credit risk because of nonperformance. While the hedging transactions are subject to risk of loss from changes in interest rates and foreign exchange currency rates, such losses would generally be offset by gains on the exposures being hedged. The amounts exchanged by the parties are normally based on the notional amounts and other terms of the derivatives, which relate to interest rates and foreign exchange rates. The value of derivatives is derived from those underlying parameters. Income and expense are accrued in the same category as that arising from the related asset or liability, therefore amounts to be paid or received under interest rate swap agreements are recognized as a charge or credit to interest expense in the periods in which they accrue. As of March 31, 1995, the cost to terminate these agreements, based on information supplied by the participating banks, was estimated to be $9,900. 6. RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended March 31, Years Ended December 31, 1995 1994 1994 1993 1992 1991 1990 ---------------------------- ----------------------------------------------- 3.18 4.08 3.13 3.19 3.03 2.82 2.88
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 stock dividends of a subsidiary). 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 stock dividends of a subsidiary. 7. SCI INTERNATIONAL LIMITED SCI International Limited ("International") is a wholly-owned subsidiary of the Company. International began operations in mid 1993 and owns, through wholly-owned subsidiaries, the Company's operations in Australia and the United Kingdom as well as the Company's investment in a Canadian company, Arbor Memorial Service, Inc.. In late 1994, International borrowed $216,315 from SCI Finance LLC ("Finance"), another subsidiary of the Company, and used such funds to repay short-term bank borrowings which funded the Company's United Kingdom acquisitions. International pays Finance an annual interest rate of 6.25% on the outstanding balance. Set forth below is certain March 31, summary financial information for International.
1995 1994 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,031 $ 9,334 ============== ============== Gross profit . . . . . . . . . . . . . . . . . . . . . . . $ 16,293 $ 2,521 ============== ============== Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 2,643 $ 1,421 ============== ============== Current assets . . . . . . . . . . . . . . . . . . . . . . $ 41,611 $ 13,860 Non-current assets . . . . . . . . . . . . . . . . . . . . 915,907 119,311 -------------- -------------- Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 957,518 $ 133,171 ============== ============== Current liabilities . . . . . . . . . . . . . . . . . . . . $ 58,498 $ 12,004 Non-current liabilities . . . . . . . . . . . . . . . . . . 816,906 96,908 -------------- -------------- Total liabilities . . . . . . . . . . . . . . . . . . . . . $ 875,404 $ 108,912 ============== ============== Stockholder's equity . . . . . . . . . . . . . . . . . . . $ 82,114 $ 24,259 ============== ==============
9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THREE MONTHS ENDED MARCH 31, 1995 COMPARED TO THREE MONTHS ENDED MARCH 31, 1994 (DOLLARS IN THOUSANDS, EXCEPT AVERAGE SALES PRICES) OVERVIEW: The majority of the Company's funeral homes and cemeteries are managed in groups called clusters. Clusters are established primarily in metropolitan areas to take advantage of operational efficiencies, particularly the sharing of operating expenses such as service personnel, vehicles, preparation services, clerical staff and certain building facility costs. Personnel costs, the largest operating expense for the Company, is the cost component most beneficially affected by clustering. The sharing of employees, as well as the other costs mentioned, allow the Company's operations to more efficiently handle the traditional wide fluctuations in the volume of funeral services and cemetery interments performed in a given time period. The Company's acquisitions are primarily concentrated within existing cluster areas or create new cluster area opportunities. The Company has successfully implemented the cluster strategy in its North American and Australian operations and is proceeding with implementation in the United Kingdom operations which were acquired in the latter half of 1994. The Company has approximately 160 clusters in North America and Australia, which range in size from two operations to 57 operations. There may be more than one cluster in a given metropolitan area, depending upon the level and degree of shared costs. RESULTS OF OPERATIONS: Segment information for the Company's three lines of business are as follows:
Percentage Three Months Ended March 31, Increase/ Increase 1995 1994 (Decrease) (Decrease) ------------------------------------------------------------------------ Revenues: Funeral . . . . . . . . . . . $242,756 $ 177,357 $ 65,399 36.9 % Cemetery . . . . . . . . . . . 100,397 79,383 21,014 26.5 Financial services . . . . . . 4,960 4,518 442 9.8 -------- ---------- ---------- 348,113 261,258 86,855 33.2 Costs and expenses: Funeral . . . . . . . . . . . 164,471 116,983 47,488 40.6 Cemetery . . . . . . . . . . . 63,762 52,497 11,265 21.5 Financial services . . . . . . 3,205 2,236 969 43.3 -------- ---------- ---------- 231,438 171,716 59,722 34.8 Gross profit and margin percentage: Funeral . . . . . . . . . . . 78,285 32.2% 60,374 34.0% 17,911 29.7 Cemetery . . . . . . . . . . . 36,635 36.5 26,886 33.9 9,749 36.3 Financial services . . . . . . 1,755 35.4 2,282 50.5 (527) (23.1) -------- ---------- ---------- $116,675 33.5% $ 89,542 34.3% $ 27,133 30.3 % ======== ========== ==========
10 11 Funeral Funeral revenues were generated as follows:
Three Months Ended March 31, Percentage 1995 1994 Increase Increase ----------------------------------------------------------- Existing clusters . . . . . . . . . . . . $ 200,238 $ 175,661 $ 24,577 14.0% New clusters* . . . . . . . . . . . . . . 6,094 314 5,780 ----------- ---------- ---------- Total clusters . . . . . . . . . . . . 206,332 175,975 30,357 17.3% United Kingdom . . . . . . . . . . . . . 34,083 - 34,083 Non-cluster and disposed operations . . . 2,341 1,382 959 ----------- ---------- ---------- Total funeral revenues . . . . . . . . $ 242,756 $ 177,357 $ 65,399 36.9% =========== ========== ==========
The $24,577 increase in revenues at existing clusters was the result of 9.2% more funeral services performed (57,153 compared to 52,330) and a 4.4% higher average sales price ($3,504 compared to $3,357). Included in this increase were $18,378 in increased revenues from locations acquired since the beginning of 1994. The $6,199 revenue increase experienced at those locations acquired before 1994 was adversely impacted by a 3.6% decline in the number of funerals performed quarter to quarter. The first quarter is seasonally a heavy funeral service volume period and this level of decline was somewhat unusual, however, this decline was most noticeable early in the quarter and reflected a more normal trend in the latter half of the quarter. During the three months ended March 31, 1995, the Company sold $80,480 of prearranged funeral services compared to $49,852 for the same quarter in 1994. 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 as follows:
Three Months Ended March 31, Percentage 1995 1994 Increase Increase ------------------------------------------------------------ Existing clusters . . . . . . . . . . . . $ 125,693 $ 107,584 $ 18,109 16.8% New clusters* . . . . . . . . . . . . . . 4,330 226 4,104 ----------- ---------- ---------- Total clusters . . . . . . . . . . . . 130,023 107,810 22,213 20.6% United Kingdom . . . . . . . . . . . . . 24,525 - 24,525 Non-cluster and disposed operations . . . 2,232 1,662 570 Administrative overhead . . . . . . . . . 7,691 7,511 180 ----------- ---------- ---------- Total funeral costs . . . . . . . . . $ 164,471 $ 116,983 $ 47,488 40.6% =========== ========== ==========
The gross profit margin for existing clusters declined to 37.2% from 38.8% last year. Acquisitions since the beginning of 1994, included in existing clusters, accounted for $13,816 of the existing cluster cost increase and were the primary reason for the existing cluster gross profit margin decline. Typically, acquisitions will temporarily exhibit slightly lower gross profit margins than those experienced by the Company's existing locations at least until such time as these locations are assimilated into the Company's cluster management strategy. This was especially noticeable given the large number of acquired operations incorporated into existing clusters in 1995 and 1994. The gross profit margin for those funeral operations in existing clusters that were acquired before 1994 decreased slightly to 38.6% in 1995 from 38.9% last year due to the funeral service volume decline discussed above. * Represents new geographic cluster areas entered into since the beginning of 1994 for the period that those businesses were owned by the Company. 11 12 Cemetery Cemetery revenues were generated as follows:
Three Months Ended March 31, Increase/ Percentage 1995 1994 (Decrease) Increase ----------------------------------------------------------- Existing clusters . . . . . . . . . . . . $ 95,165 $ 77,810 $ 17,355 22.3% New clusters* . . . . . . . . . . . . . . 756 - 756 ----------- ---------- --------- Total clusters . . . . . . . . . . . . 95,921 77,810 18,111 23.3% United Kingdom . . . . . . . . . . . . . 3,073 - 3,073 Non-cluster and disposed operations . . . 1,403 1,573 (170) ----------- ---------- --------- Total cemetery revenues . . . . . . . $ 100,397 $ 79,383 $ 21,014 26.5% =========== ========== ==========
Revenues for the existing clusters increased due to increased volume of sales and higher average sales prices for property and merchandise. Revenues for cemeteries that were acquired before 1994 increased $11,637 while revenues for cemeteries acquired since the beginning of 1994 increased $5,718. Cemetery costs and expenses were as follows:
Three Months Ended March 31, Increase/ Percentage 1995 1994 (Decrease) Increase ------------------------------------------------------------ Existing clusters . . . . . . . . . . . . $ 55,990 $ 46,905 $ 9,085 19.4% New clusters* . . . . . . . . . . . . . . 512 - 512 ----------- ---------- --------- Total clusters . . . . . . . . . . . . 56,502 46,905 9,597 20.5% United Kingdom . . . . . . . . . . . . . 1,644 - 1,644 Non-cluster and disposed operations . . . 898 782 116 Administrative overhead . . . . . . . . . 4,718 4,810 (92) ----------- ---------- --------- Total cemetery costs . . . . . . . . . $ 63,762 $ 52,497 $ 11,265 21.5% =========== ========== =========
Costs at existing clusters increased $9,085 associated with the increased revenues discussed above. Costs from cemeteries acquired before 1994, included in existing clusters, increased $4,809, while costs from cemeteries acquired since the beginning of 1994, included in existing clusters, increased $4,276. The overall cemetery gross profit margin increased to 36.5% from 33.9% last year reflecting the strong revenue growth as well as continued cost control in all major expense categories and slightly reduced administrative overhead costs. Financial Services The Company's wholly-owned finance subsidiary, Provident Services, Inc. (Provident) reported a gross profit decline of $527 in the current quarter compared with the same quarter in 1994. Provident's average outstanding loan portfolio during the current quarter declined to $205,214 compared to $252,694 last year while the average interest rate spread increased to 3.6% compared to 3.4% last year. Higher loan procurement costs also contributed to the decline in gross profit. * Represents new geographic cluster areas entered into since the beginning of 1994 for the period that those businesses were owned by the Company. 12 13 Other Income and Expenses Expressed as a percentage of revenues, general and administrative expenses were 3.6% in 1995 compared to 5.2% last year. These expenses decreased by $1,048 or 7.8% quarter to quarter. The lower level of expenses this quarter was primarily associated with reduced legal and professional expenses. Interest expense, which excludes the amount incurred through financial service operations, increased $9,660 or 61.8% during the current quarter. Increased borrowings and higher interest rates incurred under bank loans, lines of credit and commercial paper along with approximately $400,000 of fixed interest rate debt issued in December 1994 and January 1995, all of which was used to fund the Company's world-wide acquisition activities, were the reasons for the increase. The term convertible preferred shares of a subsidiary were issued in December 1994 and the proceeds were used in the acquisition of the United Kingdom operations. The provision for income taxes reflects a 38.9% effective tax rate for this year as compared to a 40.5% effective tax rate last year. FINANCIAL CONDITION AT MARCH 31, 1995: In December 1994 the Company sold, through underwritten public offerings, 7,700,000 common shares at a net $24.70 per share, $200,000 of 8.375% ten-year notes due in 2004 and $172,500 of 6.25% term convertible preferred shares of a Company subsidiary. In January 1995, an additional 780,000 common shares were sold at a net $24.70 per share pursuant to an underwriters over-allotment provision. All of these securities were sold pursuant to a $1,000,000 shelf registration of securities filed with the Securities and Exchange Commission ("Commission") in November 1994. The net proceeds of these offerings were used in the Company's acquisition program or were used to repay existing bank debt. Presently, the Company may issue an additional $411,260 of securities under this shelf registration; however, there are no current plans for such issuance. The Company's current ratio improved to 1.64:1 at March 31, 1995 compared to 1.25:1 at December 31, 1994. In the first quarter of 1995 the Company repaid short-term bank borrowings used to fund the United Kingdom acquisitions with available cash. The Company's total debt has decreased by $82,832 since year end to $1,525,054 reflecting the repayment of short term bank borrowings mentioned above partially offset by increased borrowings under the Company's primary bank revolving credit agreements which borrowings were used for 1995 acquisitions of funeral and cemetery operations. The Company's total debt, after giving effect for interest rate swaps, has been converted into approximately $773,000 of fixed interest rate debt at an average interest rate of 8.8% and $751,000 of variable interest rate debt at an average interest rate of 6.7%. The Company believes that debt service is manageable at the current levels of debt outstanding. The interest rate coverage for the three months ended March 31, 1995 was 3.68:1. This interest rate coverage level has been consistent, despite higher levels of debt outstanding, for several years. The Company believes that the acquisition of funeral and cemetery operations funded primarily with debt is a prudent business strategy given the stable cash flow generated and the impressive non-failure rate exhibited by these businesses. The Company believes these acquired firms are capable of servicing the additional debt and providing a sufficient return on the Company's investment. The remaining increases in other long-term assets and liabilities are primarily the result of acquisition activity in 1995 (see note 2 to the consolidated financial statements). Cash flows continue to be impacted by the Company's aggressive acquisition of funeral homes and cemeteries. In addition, capital expenditures, including new construction of facilities and major improvements to existing properties, continue to require significant amounts of cash. Funds generated from the earnings of existing funeral and cemetery operations, together with approximately $425,000 of unused lines of credit and $411,260 of issuable securities available under the $1,000,000 shelf registration mentioned above or other available borrowings, are expected to be sufficient for the Company to continue its current acquisition and operating policies. In addition to the sources of cash, the Company has 12,149,000 shares of common stock, $50,375 of guarantees of promissory notes and $73,882 of convertible debentures registered with the Commission to be used exclusively for future acquisitions. 13 14 SERVICE CORPORATION INTERNATIONAL PART II. OTHER INFORMATION 1. LEGAL PROCEEDINGS The Company is currently discussing with the staff of the Division of Enforcement ("Staff") of the Securities and Exchange Commission settlement of the matters arising out of the previously disclosed informal investigation by the Staff with respect to the Company's disclosure about the change in accountants. Such investigation was initially disclosed by the Company in May 1993. The Staff has advised that it intends to recommend to the Commission that it institute a cease and desist administrative proceeding against the Company for alleged violations of Section 13(a) of the Securities Exchange Act of 1934 with respect to the Company's disclosure in the March 31, 1993 Form 8-K, as amended, relating to the change in the Company's accountants. The Company had previously disclosed, initially in October 1994, that the Staff was considering such recommendation against the Company. The Staff has advised that, depending upon the outcome of the settlement discussions, the Staff will finalize its recommendation to the Commission as to whether Mr. Robert L. Waltrip, Chairman and Chief Executive Officer, Mr. L. William Heiligbrodt, President and Chief Operating Officer, and Mr. Samuel W. Rizzo, Executive Vice President, would be named as respondents in the proceeding. There is no assurance that the settlement discussions between the Company and the Staff will be satisfactorily concluded. In any event, the Commission will subsequently make the final determinations on any action recommended by the Staff in these matters. 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 11.1 Computation of earnings per share. 12.1 Ratio of earnings to fixed charges for the three months ended March 31, 1995 and 1994. 12.2 Ratio of earnings to fixed charges for the five years ended December 31, 1994. 27.1 Financial data schedule. (b) Reports on Form 8-K There were no reports on Form 8-K during the three months ended March 31, 1995. 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. May 12, 1995 SERVICE CORPORATION INTERNATIONAL By: /s/ George R. Champagne ------------------------------ George R. Champagne Senior Vice President Chief Financial Officer (Principal Financial Officer) 14 15 INDEX TO EXHIBITS Exhibit 11.1 Computation of earnings per share. 12.1 Ratio of earnings to fixed charges for the three months ended March 31, 1995 and 1994. 12.2 Ratio of earnings to fixed charges for the five years ended December 31, 1994. 27.1 Financial data schedule. EX-11.1 2 COMPUTATION OF EARNINGS PER SHARE 1 Exhibit 11.1 SERVICE CORPORATION INTERNATIONAL COMPUTATION OF EARNINGS PER SHARE
Three Months Ended March 31, 1995 1994 - -------------------------------------------------------------------------------------------------------------------- (Thousands, except per share amounts) PRIMARY: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,380 $ 37,445 Average number of common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,750 85,359 Common stock equivalents applicable to options outstanding resulting from application of the "treasury stock method" using average stock price . . . . . . . . . . 722 426 --------- ---------- Average common and common equivalent shares used in earnings per share . . . . . . . . . . . . . . . . . . . . . . 96,472 85,785 ========= ========== Primary Earnings Per Common Share: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .49 $ .44 ========= ========== FULLY DILUTED: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,380 $ 37,445 Add after tax interest expense applicable to convertible debentures . . . . . . . . . . . . . . . . . . . . . . . . 3,741 2,001 --------- ---------- $ 51,121 $ 39,446 Average number of common shares ========= ========== outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,750 85,359 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) . . . . . . . . . . . . . . . . . . . . . . . . . . 722 426 Assuming conversion of convertible debentures . . . . . . . . . . . . . . . 15,795 10,030 --------- ---------- Average shares used in fully diluted earnings per share . . . . . . . . . . 112,267 95,815 ========= ========== Fully Diluted Earnings Per Common Share: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .46 $ .41 ========= ==========
EX-12.1 3 RATION OF EARNINGS FOR 3 MONTHS ENDED 1 Exhibit 12.1 SERVICE CORPORATION INTERNATIONAL RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended March 31, 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------- (Thousands, except ratio amounts) Pretax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 77,559 $ 62,932 Undistributed income of less than 50% owned equity investees . . . . . . . (690) (30) Minority interest in income of majority owned subsidiaries with fixed charges . . . . . . . . . . . . . . . . . . . . . . . . . . 767 612 Add fixed charges as adjusted (from below) . . . . . . . . . . . . . . . . 31,520 20,471 ------------ ------------ $ 109,156 $ 83,985 ------------ ------------ Fixed charges: Interest expense: Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,284 $ 15,624 Financial services . . . . . . . . . . . . . . . . . . . . . . . . 2,668 2,147 Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 129 Amortization of debt costs . . . . . . . . . . . . . . . . . . . . . . 134 71 1/3 of rental expense . . . . . . . . . . . . . . . . . . . . . . . . 3,434 2,629 Dividends on convertible preferred stock of subsidiary . . . . . . . . 2,695 - ------------ ------------ Fixed charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,340 20,600 Less: Capitalized interest . . . . . . . . . . . . . . . . . . . . . (125) (129) Dividends on convertible preferred stock of subsidiary . . . . (2,695) - ------------ ------------ Fixed charges as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,520 $ 20,471 ============ ============ Ratio (earnings divided by fixed charges) . . . . . . . . . . . . . . . . . 3.18 4.08 ============ ============
EX-12.2 4 RATIO OF EARNINGS FOR 5 YEARS ENDED 1 Exhibit 12.2 SERVICE CORPORATION INTERNATIONAL RATIO OF EARNINGS TO FIXED CHARGES (Thousands, except ratio amounts)
YEARS ENDED DECEMBER 31, 1994 1993 1992 1991 1990 - --------------------------------------------------------------------------------------------------------------------------------- Pretax income . . . . . . . . . . . . . . . . . . . . . . $ 219,021 $ 173,492 $ 139,336 $ 108,872 $ 99,432 Undistributed income of less than 50% owned equity investees . . . . . . . . . . . . . . . . . . . . . . . (1,019) (325) (718) (252) (146) Minority interest in income of majority owned subsidiaries with fixed charges. . . . . . . . . . . . . . . . . . . 2,234 1,938 1,798 1,752 1,334 Add fixed charges as adjusted (from below) . . . . . . . 101,831 78,841 68,584 59,508 52,845 ---------- ---------- ---------- ---------- ---------- $ 322,067 $ 253,946 $ 209,000 $ 169,880 $ 153,465 ---------- ---------- ---------- ---------- ---------- Fixed charges: Interest expense: Corporate . . . . . . . . . . . . . . . . . . . . . $ 80,123 $ 59,631 $ 53,902 $ 42,429 $ 36,095 Financial services 9,912 7,725 5,826 9,453 10,171 Capitalized. . . . . . . . . . . . . . . . . . . . . 584 705 481 701 467 Amortization of debt costs . . . . . . . . . . . . . . 311 288 328 116 126 1/3 of rental expense . . . . . . . . . . . . . . . . 11,485 11,197 8,528 7,510 6,453 Dividends on convertible preferred stock of subsidiary . . . . . . . . . . . . . . . . . . . 539 - - - - ---------- ---------- ---------- ---------- ---------- Fixed charges . . . . . . . . . . . . . . . . . . . . . . 102,954 79,546 69,065 60,209 53,312 Fixed charges as adjusted: Less: Capitalized interest (584) (705) (481) (701) (467) Dividends on convertible preferred stock of subsidiary . . . . . . . . . . . . . . (539) - - - - ---------- ---------- ---------- ---------- ---------- Fixed charges as adjusted . . . . . . . . . . . . . . . . $ 101,831 $ 78,841 $ 68,584 $ 59,508 $ 52,845 ---------- ---------- ---------- ---------- ---------- Ratio (earnings divided by fixed charges) . . . . . . . . 3.13 3.19 3.03 2.82 2.88 ========== ========== ========== ========== ==========
EX-27.1 5 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1995 MAR-31-1995 33,341 0 729,581 38,233 68,804 448,889 1,098,080 214,238 5,280,134 272,974 1,461,450 95,927 0 0 1,163,993 5,280,134 330,257 348,113 228,233 228,233 12,990 1,919 28,086 77,559 30,179 47,380 0 0 0 47,380 .49 .46
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