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• | The exchange offer expires at 5:00 p.m., New York City time, on November 20, 2006, unless extended. | |
• | The exchange offer is not conditioned upon a minimum aggregate principal amount of Old Notes being tendered. | |
• | All outstanding Old Notes validly tendered and not withdrawn will be exchanged. | |
• | The exchange offer is not subject to any condition other than that the exchange offer not violate applicable law or any applicable interpretation of the staff of the Securities and Exchange Commission. | |
• | We will not receive any cash proceeds from the exchange offer. |
• | The terms of the New Notes to be issued in the exchange offer are substantially identical to the Old Notes, except that we have registered the New Notes with the Securities and Exchange Commission. In addition, the New Notes will not be subject to certain transfer restrictions. | |
• | Interest on the New Notes will be paid at the rate of 7.0% per annum, semi-annually in arrears on each June 15 and December 15, beginning December 15, 2006. | |
• | The New Notes will not be listed on any securities exchange or the Nasdaq Stock Market. |
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• | “SCI” refers to Service Corporation International and its subsidiaries prior to the acquisition; | |
• | “Alderwoods” refers to the Alderwoods Group, Inc. and its subsidiaries; and | |
• | the “Company,” “us,” “we,” “our,” and “ours” refer to SCI, together with its subsidiaries, and includes Alderwoods, immediately after giving pro forma effect to the transactions. |
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• | convenience and location, | |
• | religious and ethnic customs, | |
• | quality and prestige, and | |
• | price. |
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• | “the acquisition” refers to SCI’s acquisition of Alderwoods; | |
• | “the financing” refers, collectively, to the issuance of notes in a private placement, the issuance of additional debt securities in a private placement, the borrowings under a new senior credit facility, the repurchase of certain outstanding notes of Alderwoods and SCI pursuant to tender offers, and the repayment of certain other existing debt of Alderwoods; | |
• | “the divestitures” refers, collectively, to certain divestitures we expect to make pursuant to a consent decree we expect to enter into with the FTC and certain other divestitures of non-strategic operations; and | |
• | “the transactions” refers, collectively, to the acquisition, the financing and the divestitures. |
• | increased geographic scope and scale; |
• | entry into attractive new geographic areas; | |
• | key new facilities, including Rose Hills, a premier U.S. deathcare facility; |
• | identified annual pre-tax cost savings of approximately $60 to $70 million expected to be achieved within eighteen months of closing the acquisition, with approximately $15 million of such savings realized within twelve months of closing, and potential additional cost-saving synergies (there can be no assurance that any such cost savings or synergies will be achieved; see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Expected Cost Savings Resulting from the Alderwoods Acquisition”); | |
• | immediately accretive to operating cash flow, excluding implementation costs; | |
• | strong cash flow generation and planned divestitures reduce financial risk; and | |
• | increased preneed backlog enhances long-term revenue stability. |
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• | borrowings under a new $450 million senior credit facility, consisting of a $150 million3-year term loan, all of which will be borrowed in connection with the transactions, and a $300 million 5-year revolving credit facility, none of which is expected to be drawn in connection with the transactions based on expected cash balances at closing; | |
• | the issuance of $200 million of debt securities in a private placement; and | |
• | the issuance of $500 million of notes in a private placement. |
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The Exchange Offer | We are offering to exchange up to $300,000,000 aggregate principal amount of the New Notes for up to $300,000,000 aggregate principal amount of the Old Notes. Old Notes may be exchanged only in $1,000 increments. New Notes will be issued only in minimum denominations of $1,000 and integral multiples of $1,000. | |
The terms of the New Notes are identical in all material respects to the Old Notes except that the New Notes will not contain terms with respect to transfer restrictions, registration rights and payments of additional interest that relate to the Old Notes. The New Notes and the Old Notes will be governed by the same indenture, dated February 1, 1993. | ||
Registration Rights Agreement | We issued $300,000,000 of the Old Notes on June 15, 2005 to Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities, Inc., Banc of America Securities LLC, Lehman Brothers Inc. and Raymond James & Associates, Inc., the initial purchasers, under a purchase agreement dated June 10, 2005. Pursuant to the purchase agreement, we and the initial purchasers entered into a registration rights agreement relating to the Old Notes pursuant to which we agreed to file, not later than 90 days following the closing of the offering of the Old Notes, this exchange offer registration statement with the Commission with respect to a registered offer to exchange the Old Notes for the New Notes. We also agreed to use our best efforts to have this exchange offer registration statement declared effective by the Commission within 180 days of the closing of the offering of the Old Notes and to consummate the exchange offer not later than 210 days following the closing of the offering of the Old Notes. In the event we failed to fulfill our obligations under the registration rights agreement, additional interest would accrue on the Old Notes at an annual rate of 0.25% for the first 90 days, increasing by an additional 0.25% for each subsequent90-day period up to a maximum additional annual rate of 1.00%. See “Exchange Offer and Registration Rights.” Because we were unable to fulfill our obligations under the registration rights agreement, we are currently paying additional interest of 1.00% on the Old Notes. | |
Expiration Date | The exchange offer will expire at 5:00 p.m., New York City time, on November 20, 2006, unless we extend the exchange offer. See “The Exchange Offer — Expiration Date; Extensions; Termination; Amendments.” | |
Conditions to the Exchange Offer | The exchange offer is not subject to any conditions other than that it does not violate applicable law or any applicable interpretation of the staff of the Commission. | |
Procedures for Tendering Old Notes | If you wish to accept the exchange offer, sign and date the letter of transmittal that was delivered with this prospectus in accordance with the instructions, and deliver the letter of transmittal, along with the Old Notes and any other required documentation, to the exchange agent. Alternatively, you can |
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tender your outstanding Old Notes by following the procedures for book-entry transfer, as described in this prospectus. By executing the letter of transmittal or by transmitting an agent’s message in lieu thereof, you will represent to us that, among other things: | ||
• the New Notes you receive will be acquired in the ordinary course of your business; | ||
• you are not participating, and you have no arrangement with any person or entity to participate, in the distribution of the New Notes; | ||
• you are not our “affiliate,” as defined in Rule 405 under the Securities Act, or a broker-dealer tendering Old Notes acquired directly from us for resale pursuant to Rule 144A or any other available exemption under the Securities Act; and | ||
• if you are not a broker-dealer, that you are not engaged in and do not intend to engage in the distribution of the New Notes. | ||
Special Procedures for Beneficial Owners | If you are a beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and wish to tender such Old Notes in the exchange offer, please contact the registered holder as soon as possible and instruct them to tender on your behalf and comply with our instructions set forth elsewhere in this prospectus. | |
Guaranteed Delivery Procedures | If you wish to tender your Old Notes, you may, in certain instances, do so according to the guaranteed delivery procedures set forth elsewhere in this prospectus under “The Exchange Offer — Procedures for Tendering Old Notes — Guaranteed Delivery.” | |
Effect of Not Tendering | Old Notes that are not tendered or that are tendered but not accepted will, following the completion of the exchange offer, continue to be subject to the existing restrictions upon transfer thereof. | |
Old Notes that are not tendered will bear interest at a rate of 7.0% per annum. However, because we failed to fulfill our obligations under the registration rights agreement, additional interest is currently accruing on the Old Notes as discussed under “Registration Rights Agreement” above. | ||
Withdrawal Rights | You may withdraw Old Notes that you tender pursuant to the exchange offer by furnishing a written or facsimile transmission notice of withdrawal to the exchange agent containing the information set forth in “The Exchange Offer — Withdrawal of Tenders” at any time prior to the expiration date. | |
Acceptance of Old Notes and Delivery of New Notes | We will accept for exchange any and all Old Notes that are properly tendered in the exchange offer prior to the expiration date. See “The Exchange Offer — Procedures for Tendering Old Notes.” The New Notes issued pursuant to the exchange offer will be delivered promptly following the expiration date. |
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Resale | We believe that you will be able to freely transfer the New Notes without registration or any prospectus delivery requirement; however, certain broker-dealers and certain of our affiliates may be required to deliver copies of this prospectus if they resell any New Notes. | |
Taxation | The exchange of Old Notes for New Notes will not be a taxable event for United States federal income tax purposes. See “United States Federal Income Tax Consequences.” | |
Broker-Dealers | Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. See “Plan of Distribution.” | |
Exchange Agent and Information Agent | Global Bondholder Services Corporation is the exchange agent and the information agent for the exchange offer. The address and phone number of Global Bondholder Services Corporation are on the inside of the back cover of this prospectus. |
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Issuer | Service Corporation International | |
New Notes | $300,000,000 aggregate principal amount of 7.0% Senior Notes due 2017 | |
Maturity Date | June 15, 2017 | |
Interest Rate | 7.0% per annum, accruing from June 15, 2005 or from the date most recently paid | |
Interest Payment Dates | June 15 and December 15, commencing on December 15, 2006 | |
Ranking | The New Notes will be our general unsecured obligations and will rank equal in right of payment with all of our other unsubordinated indebtedness and senior in right of payment to any of our future subordinated indebtedness. The New Notes will be effectively subordinated to all of our existing and future secured indebtedness to the extent of the collateral securing such indebtedness and to all indebtedness and other obligations of our subsidiaries, whether or not secured, including subsidiary guarantees of our new credit facility and our privately placed debt securities. | |
As of June 30, 2006, after giving pro forma effect to the transactions: | ||
• our senior indebtedness would have been approximately $2,034.0 million, including $180.1 million of indebtedness under the new senior credit facility (excluding unused availability under our new revolving credit facility and outstanding letters of credit), $1,011.2 million of currently outstanding senior notes, $500.0 million of notes offered in a private placement, $200.0 million of privately placed debt securities, $21.2 million of convertible debentures, and $121.5 million of other indebtedness; and | ||
• our subsidiaries would have had approximately $1,256.0 million of total indebtedness and other liabilities outstanding, including trade payables and excluding guarantees of our new senior credit facility, our privately placed debt securities, intercompany obligations and deferred revenue. | ||
Optional Redemption | The New Notes will be redeemable in whole or in part, at our option at any time, at redemption prices as set forth in this prospectus under “Description of the Notes — Optional Redemption,” plus accrued and unpaid interest to the redemption date. | |
Restrictive Covenants | We will issue the New Notes under the same indenture under which the Old Notes were issued. The indenture contains covenants limiting the creation of liens securing indebtedness and sale-leaseback transactions. These covenants are subject to important exceptions. See “Risk Factors — Risks Related to Tendering Old Notes for New Notes — The New Notes lack subsidiary guarantees and some covenants typically found in |
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other comparably rated debt securities,” and “Description of the Notes — Covenants” for more information. | ||
Use of Proceeds | We will not receive any proceeds from the exchange of the New Notes for the outstanding Old Notes. | |
Governing Law | The New Notes will be, and the indenture is, governed by, and construed in accordance with, the laws of the State of Texas. | |
Trustee, Transfer Agent and Paying Agent | The Bank of New York | |
Book-Entry Depository | The Depository Trust Company |
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You may find it difficult to sell your New Notes because there is no existing trading market for the New Notes. |
Because we are a holding company, your rights under the New Notes will be effectively subordinated to the rights of holders of our subsidiaries’ liabilities. |
The New Notes are unsecured and will be effectively subordinated to all of our existing and future secured obligations to the extent of the collateral securing such obligations. |
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The New Notes lack subsidiary guarantees and some covenants typically found in other comparably rated public debt securities. |
• | incurrence of additional indebtedness; | |
• | payment of dividends and other restricted payments; | |
• | sale of assets and the use of proceeds therefrom; | |
• | transactions with affiliates; and | |
• | dividend and other payment restrictions affecting subsidiaries. |
If an active trading market does not develop for the New Notes, you may be unable to sell the New Notes or to sell them at a price you deem sufficient. |
If we breach any of the material financial covenants under our various indentures, revolving credit facility or guarantees, our debt service obligations could be accelerated. |
The restrictions contained in our various indentures do not limit our ability to issue additional indebtedness. |
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If you fail to exchange your outstanding Old Notes for New Notes, you will continue to hold notes subject to transfer restrictions. |
The trading market for unexchanged Old Notes could be limited. |
We may fail to realize the anticipated benefits of the acquisition of Alderwoods. |
The acquisition of Alderwoods may prove disruptive and could result in the combined business failing to meet our expectations. |
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Our historical and pro forma combined financial information may not be representative of our results as a combined company. |
Our ability to execute our business plan depends on many factors, many of which are beyond our control. |
Our new credit agreement and privately placed debt securities contain covenants that may prevent us from engaging in certain transactions. |
• | incur additional indebtedness (including guarantee obligations); | |
• | create liens on assets; | |
• | enter into sale and leaseback transactions; | |
• | engage in mergers, liquidations and dissolutions; | |
• | sell assets; | |
• | enter into leases; | |
• | pay dividends, distributions and other payments in respect of capital stock, and purchase our capital stock in the open market; | |
• | make investments, loans or advances; | |
• | repay subordinated indebtedness or amend the agreements relating thereto; | |
• | engage in certain transactions with affiliates; | |
• | change our fiscal year; |
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• | create restrictions on our ability to receive distributions from subsidiaries; and | |
• | change our lines of business. |
If we lost the ability to use surety bonding to support our preneed funeral and preneed cemetery activities, we could have to make material cash payments to fund certain trust funds. |
The funeral home and cemetery industry continues to be increasingly competitive. |
Our affiliated funeral and cemetery trust funds own investments in equity securities and mutual funds, which are affected by financial market conditions that are beyond our control. |
2003 | 2004 | 2005 | ||||||||||
Preneed funeral trust funds | 17.9% | 7.1% | 6.6% | |||||||||
Cemetery merchandise services trust funds | 17.1% | 6.7% | 6.9% | |||||||||
Perpetual care trust funds | 12.6% | 8.6% | 3.9% |
2003 | 2004 | 2005 | ||||||||||
Total trust portfolio | 7.7% | 5.0% | 3.1% |
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Increasing death benefits related to preneed funeral contracts funded through life insurance or annuity contracts may not cover future increases in the cost of providing a price guaranteed funeral service. |
If our insurance subsidiary’s actual claims experience differs from its underwriting and reserving assumptions, or if it suffers investment losses, our operating results and financial position could be adversely affected. |
Unfavorable results of litigation could have a material adverse impact on our financial statements. |
If the number of deaths in our regions declines, our cash flows and revenues may decrease. |
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The continuing upward trend in the number of cremations performed in North America could result in lower revenue and gross profit dollars. |
The funeral home and cemetery businesses are high fixed-cost businesses. |
Fluctuations in the value of the Canadian dollar could result in currency exchange losses. |
Regulation and compliance could have a material adverse impact on our financial results. |
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Our foreign operations and investments involve special risks. |
• | loss of revenue, property and equipment as a result of hazards such as expropriation, nationalization, wars, insurrection and other political risks; | |
• | the effects of currency fluctuations and exchange controls, such as devaluation of foreign currencies and other economic problems; and | |
• | changes in laws, regulations, and policies of foreign governments, including those associated with changes in the governing parties. |
A number of years may elapse before particular tax matters, for which we have established accruals, are audited and finally resolved. |
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As of June 30, 2006 | ||||||||||
Actual | Pro forma | |||||||||
(Dollars in millions) | ||||||||||
Cash and cash equivalents(1) | $ | 529.2 | $ | — | ||||||
Debt: | ||||||||||
New senior credit facility | ||||||||||
Revolving credit facility(1)(2) | $ | — | $ | 30.1 | ||||||
Term loan(2) | 150.0 | |||||||||
Privately placed debt securities | — | 200.0 | ||||||||
Privately placed notes | — | 500.0 | ||||||||
Existing senior notes due 2007 | 13.5 | 13.5 | ||||||||
Existing senior notes due 2008 | 195.0 | 195.0 | ||||||||
Existing senior notes due 2009(3) | 341.6 | 197.1 | ||||||||
Existing senior debentures due 2013 | 55.6 | 55.6 | ||||||||
Existing senior notes due 2016 | 250.0 | 250.0 | ||||||||
New Notes | 300.0 | 300.0 | ||||||||
Existing convertible debentures, maturities through 2013 | 21.2 | 21.2 | ||||||||
Other debt(4) | 118.8 | 121.5 | ||||||||
Total debt | 1,295.7 | 2,034.0 | ||||||||
Total stockholders’ equity(5) | 1,608.9 | 1,578.8 | ||||||||
Total capitalization | $ | 2,904.6 | $ | 3,612.8 | ||||||
(1) | At June 30, 2006, SCI and Alderwoods had $537.6 million of combined cash on hand. At September 13, 2006, SCI and Alderwoods had approximately $631 million of combined cash on hand. We intend to keep approximately $50 million in cash on hand after the closing of the acquisition. Therefore, to the extent cash on hand at closing exceeds approximately $590 million, revolver borrowings under the new senior credit facility reflected above will be reduced. |
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(2) | Based on expected cash balances at closing, we do not expect to have drawings under our revolving credit facility. In connection with the closing of the acquisition, SCI will replace its existing $200 million senior credit facility with a new $450 million senior credit facility, consisting of a $150 million 3-year term loan, all of which will be borrowed in connection with the transactions, and a $300 million 5-year revolving credit facility. Based on cash balances at June 30, 2006, we would have borrowed $30.1 million under the new revolving credit facility in connection with the transactions. See footnote (1) above. Availability under the new revolving credit facility will be further reduced by outstanding letters of credit. At June 30, 2006, our pro forma outstanding letters of credit were approximately $70.1 million. |
(3) | SCI commenced a tender offer on September 7, 2006 to purchase $144.5 million aggregate principal amount of the SCI 7.7% Notes. This tender offer was originally scheduled to expire on October 5, 2006, but has been extended to October 26, 2006, to coincide with the anticipated closing of the acquisition. The tender offer may be further extended if the closing date of the acquisition is later than October 26, 2006. |
(4) | Primarily includes capital leases, mortgage notes, and unamortized discounts. Pro forma other debt excludes $13.5 million of capital leases and other debt related to assets held for sale. Pro forma other debt includes the elimination of unamortized discount of $9.7 million relating to the SCI 7.7% Notes with respect to which SCI has commenced a tender offer. See footnote (3) above. |
(5) | Adjustments to equity include $25.0 million of estimated tender premiums, $4.3 million of transaction fees and $18.3 million to write-off unamortized discounts and deferred financing costs related to the extinguished debt, net of a $17.6 million tax benefit. |
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Six Months Ended | ||||||||||||||||||||||||||||
Year Ended December 31, | June 30, | |||||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||||||||
(Restated) | (Restated) | (Restated) | (Restated) | (Restated) | (Restated) | |||||||||||||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||||||||||||||||
Statement of operations data: | ||||||||||||||||||||||||||||
Revenues | $ | 2,463.9 | $ | 2,293.4 | $ | 2,313.2 | $ | 1,831.2 | $ | 1,715.7 | $ | 879.3 | $ | 873.1 | ||||||||||||||
Gross profit | 313.4 | 356.8 | 356.2 | 330.0 | 298.1 | 170.8 | 170.7 | |||||||||||||||||||||
Gains and impairment (losses) on dispositions — net | (480.2 | ) | (163.1 | ) | 50.7 | 25.8 | (26.1 | ) | (1.2 | ) | (7.4 | ) | ||||||||||||||||
Operating (loss) income | (198.2 | ) | 9.0 | 219.8 | 224.9 | 187.2 | 127.4 | 120.4 | ||||||||||||||||||||
(Loss) income from continuing operations before income taxes | (391.5 | ) | (129.4 | ) | 95.7 | 112.0 | 88.7 | 69.3 | 83.9 | |||||||||||||||||||
(Loss) income from continuing operations before cumulative effect of accounting changes | (433.9 | ) | (90.1 | ) | 69.3 | 119.7 | 55.5 | 42.2 | 52.6 | |||||||||||||||||||
Basic (loss) income per share from continuing operations | (1.52 | ) | (0.31 | ) | 0.23 | 0.38 | 0.19 | 0.14 | 0.18 | |||||||||||||||||||
Diluted (loss) income per share from continuing operations | (1.52 | ) | (0.31 | ) | 0.23 | 0.37 | 0.18 | 0.14 | 0.18 | |||||||||||||||||||
Cash dividends paid per share | — | — | — | — | 0.075 | 0.025 | 0.050 |
As of | ||||||||||||||||||||||||
As of December 31, | June 30, | |||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2006 | |||||||||||||||||||
(Restated) | (Restated) | (Restated) | (Restated) | (Restated) | ||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Balance sheet data (at period end): | ||||||||||||||||||||||||
Total assets | $ | 9,029.3 | $ | 7,801.8 | $ | 7,571.2 | $ | 8,227.2 | $ | 7,544.8 | $ | 7,670.7 | ||||||||||||
Total long-term debt less current maturities | 2,312.4 | 1,885.2 | 1,530.1 | 1,200.4 | 1,186.5 | 1,265.3 | ||||||||||||||||||
Stockholders’ equity | 1,451.7 | 1,318.9 | 1,516.3 | 1,843.0 | 1,581.6 | 1,608.9 |
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2002 | 2001 | ||||||||||||||||
As Previously | As Previously | ||||||||||||||||
Reported | As Restated | Reported | As Restated | ||||||||||||||
Loss from continuing operations before cumulative effect of accounting changes | $ | (89.3 | ) | $ | (90.1 | ) | $ | (433.3 | ) | $ | (433.9 | ) | |||||
Net loss | $ | (234.6 | ) | $ | (235.4 | ) | $ | (622.2 | ) | $ | (622.7 | ) | |||||
Loss per share: | |||||||||||||||||
Loss from continuing operations before cumulative effect of accounting changes | |||||||||||||||||
Basic | $ | (0.30 | ) | $ | (0.31 | ) | $ | (1.52 | ) | $ | (1.52 | ) | |||||
Diluted | $ | (0.30 | ) | $ | (0.31 | ) | $ | (1.52 | ) | $ | (1.52 | ) | |||||
Total assets | $ | 7,793.1 | $ | 7,801.8 | $ | 9,020.5 | $ | 9,029.3 | |||||||||
Long-term debt, less current maturities | $ | 1,874.1 | $ | 1,885.2 | $ | 2,301.4 | $ | 2,312.4 | |||||||||
Stockholders’ equity | $ | 1,321.3 | $ | 1,318.9 | $ | 1,453.2 | $ | 1,451.7 |
2003 | ||||||||
As Previously | ||||||||
Reported | As Restated | |||||||
Total assets | $ | 7,562.9 | $ | 7,571.2 | ||||
Long-term debt, less current maturities | $ | 1,519.2 | $ | 1,530.1 | ||||
Stockholders’ equity | $ | 1,521.6 | $ | 1,516.3 |
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Alderwoods Group | ||||||||||||||||||||||||||||
Predecessor(g) | 52 Weeks Ended | 53 Weeks Ended | 52 Weeks Ended | 52 Weeks Ended | 24 Weeks Ended | |||||||||||||||||||||||
December 31, | December 28, | January 3, | January 1, | December 31, | June 18, | June 17, | ||||||||||||||||||||||
2001 | 2002 | 2004 | 2005 | 2005 | 2005 | 2006 | ||||||||||||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||||||||||||||||
Statement of operations data: | ||||||||||||||||||||||||||||
Revenues | $ | 836.4 | $ | 692.4 | $ | 720.8 | $ | 717.1 | $ | 748.9 | $ | 360.7 | $ | 354.3 | ||||||||||||||
Gross profit(a) | 181.2 | 126.2 | 143.9 | 124.9 | 114.5 | 64.5 | 58.9 | |||||||||||||||||||||
Provision for goodwill impairment | — | (228.3 | ) | — | — | — | — | — | ||||||||||||||||||||
(Provision) benefit for asset impairment(b) | (180.7 | ) | (0.6 | ) | (5.2 | ) | (1.8 | ) | 1.4 | 1.6 | — | |||||||||||||||||
Operating (loss) income | (132.2 | ) | (145.8 | ) | 82.4 | 71.9 | 73.1 | 53.8 | 26.3 | |||||||||||||||||||
(Loss) income from continuing operations(c) | (87.2 | ) | (223.6 | ) | 8.4 | (3.6 | ) | 42.9 | 26.9 | 5.9 | ||||||||||||||||||
Net (loss) income | (643.7 | ) | (233.7 | ) | 10.8 | 9.3 | 41.2 | 25.2 | 4.7 | |||||||||||||||||||
Basic (loss) income per share from continuing operations(d) | (1.29 | ) | (5.60 | ) | 0.21 | (0.09 | ) | 1.06 | 0.67 | 0.15 | ||||||||||||||||||
Diluted (loss) income per share from continuing operations | (1.29 | ) | (5.60 | ) | 0.21 | (0.09 | ) | 1.03 | 0.65 | 0.14 | ||||||||||||||||||
Balance sheet data: | ||||||||||||||||||||||||||||
Total assets(e)(f) | $ | 2,874.1 | $ | 2,553.7 | $ | 2,453.0 | $ | 2,372.4 | $ | 2,274.3 | 2,280.8 | |||||||||||||||||
Total long-term debt including current maturities | 831.2 | 756.1 | 630.9 | 463.6 | 373.5 | 358.2 | ||||||||||||||||||||||
Shareholders’ equity | 739.4 | 523.4 | 544.9 | 555.9 | 597.8 | 598.2 | ||||||||||||||||||||||
(a) | For the 52 weeks ended December 31, 2005, the 52 weeks ended January 1, 2005, the 53 weeks ended January 3, 2004, and the 52 weeks ended December 28, 2002, gross profit includes depreciation expense not included in the year ended December 31, 2001. |
(b) | Predecessor provision for asset impairment includes goodwill impairment as determined under the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 121,“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” |
(c) | For the Predecessor, represents loss before extraordinary gain, fresh start valuation adjustments and cumulative effect of accounting change. |
(d) | For the Predecessor, represents basic loss per share before extraordinary gain, fresh start valuation adjustments and cumulative effect of accounting change. Predecessor loss per share amounts are included herein, as required by U.S. GAAP. However, the common stockholders of the Predecessor received no equity in Alderwoods upon reorganization. |
(e) | Alderwoods elected to adopt FIN No. 46R at the beginning of the 2004 fiscal year on January 4, 2004. The adoption of FIN No. 46R resulted in the consolidation in Alderwoods’ balance sheet of the funeral, cemetery merchandise and service, and perpetual care trusts, and several pooled investment funds created for such trusts, but did not change the legal relationships among these trusts, pooled investment funds, Alderwoods, and its holders of preneed contracts. Alderwoods does not consolidate certain funeral trusts for which it does not absorb a majority of their expected losses and therefore, is not considered a primary beneficiary of these funeral trusts under FIN No. 46R. The adoption of FIN No. 46R has not materially impacted Alderwoods’ stockholders’ equity, net income or its consolidated statement of cash flows. Amounts and balances prior to January 4, 2004 have not been restated to reflect the adoption of FIN No. 46R. |
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(f) | Alderwoods changed its accounting policy on accounting for insurance funded preneed funeral contracts as of January 4, 2004, as Alderwoods concluded that its insurance funded preneed funeral contracts are not assets and liabilities as defined by Statement of Financial Accounting Concepts No. 6“Elements in Financial Statements.” Accordingly, Alderwoods retroactively removed from its consolidated balance sheet amounts relating to insurance funded preneed funeral contracts previously included in preneed funeral contracts with an equal and offsetting amount in deferred preneed funeral contract revenue. The removal of insurance funded preneed funeral contracts did not have any impact on Alderwoods’ results of operations, consolidated stockholders’ equity, or cash flows. |
(g) | The financial results of the Loewen Group, the Predecessor, for the year ended December 31, 2001, include $87 million of pretax charges representing reorganization costs. The 2001 results exclude $133 million of contractual interest expense applicable to certain pre-Petition Date debt obligations, which were subject to compromise as a result of the Chapter 11 and Creditors Arrangement Act filings. |
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• | borrowings under a new $450 million senior credit facility, consisting of a $150 million3-year term loan, all of which will be borrowed in connection with the transactions, and a $300 million 5-year revolving credit facility, none of which is expected to be drawn in connection with the acquisition based on expected cash balances at closing; | |
• | the issuance of $200 million of debt securities in a private placement; and | |
• | the issuance of $500 million of notes offered in a private placement. |
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Adjustments | Adjustments | Adjustments | ||||||||||||||||||||||
SCI | Alderwoods | for the | for the | for the | ||||||||||||||||||||
Historical | Historical(a) | Acquisition | Divestitures(l) | Financing | Pro Forma | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 529,171 | $ | 8,400 | $ | (876,650 | )(b) | $ | 9 | $ | 339,070 | (m) | $ | — | ||||||||||
Receivables, net | 62,439 | 51,244 | — | (4,023 | ) | — | 109,660 | |||||||||||||||||
Inventories | 64,938 | 15,282 | — | (25,223 | ) | — | 54,997 | |||||||||||||||||
Current assets held for sale | — | — | — | 29,298 | — | 29,298 | ||||||||||||||||||
Other | 30,847 | 8,325 | — | (61 | ) | — | 39,111 | |||||||||||||||||
Total current assets | 687,395 | 83,251 | (876,650 | ) | — | 339,070 | 233,066 | |||||||||||||||||
Preneed funeral receivables and trust investments | 1,227,144 | 338,052 | — | (62,466 | ) | — | 1,502,730 | |||||||||||||||||
Preneed cemetery receivables and trust investments | 1,285,832 | 301,621 | — | (143,584 | ) | — | 1,443,869 | |||||||||||||||||
Cemetery property, at cost | 1,365,712 | 116,096 | 108,904 | (c) | (94,981 | ) | — | 1,495,731 | ||||||||||||||||
Property and equipment, at cost, net | 1,038,990 | 540,954 | 78,095 | (d) | (73,709 | ) | — | 1,584,330 | ||||||||||||||||
Insurance invested assets | — | 298,392 | — | — | — | 298,392 | ||||||||||||||||||
Assets held for sale | — | — | — | 496,559 | — | 496,559 | ||||||||||||||||||
Deferred charges and other assets | 253,727 | 42,600 | 5,630 | (e) | (16,747 | ) | 7,016 | (n) | 292,226 | |||||||||||||||
Identifiable intangible assets | — | 19,930 | 167,795 | (f) | (9,421 | ) | — | 178,304 | ||||||||||||||||
Goodwill | 1,118,119 | 295,913 | (50,494 | )(g) | (22,691 | ) | 1,340,847 | |||||||||||||||||
Cemetery perpetual care trust investments | 693,781 | 243,980 | — | (72,960 | ) | — | 864,801 | |||||||||||||||||
Total | $ | 7,670,700 | $ | 2,280,789 | $ | (566,720 | ) | $ | — | $ | 346,086 | $ | 9,730,855 | |||||||||||
LIABILITIES & STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||
Accounts payable and accrued liabilities | $ | 196,977 | $ | 113,984 | $ | 19,560 | (g)(1) | $ | (2,177 | ) | $ | — | $ | 328,344 | ||||||||||
Current maturities of long-term debt | 30,414 | 2,271 | — | (8 | ) | — | 32,677 | |||||||||||||||||
Current liabilities held for sale | — | — | — | 2,185 | — | 2,185 | ||||||||||||||||||
Income taxes | 21,014 | — | — | — | — | 21,014 | ||||||||||||||||||
Total current liabilities | 248,405 | 116,255 | 19,560 | — | — | 384,220 | ||||||||||||||||||
Long-term debt | 1,265,263 | 355,958 | — | (13,528 | ) | 393,678 | (o) | 2,001,371 | ||||||||||||||||
Deferred preneed funeral revenues | 539,178 | 44,517 | (28,422 | )(g)(1) | (14,802 | ) | — | 540,471 | ||||||||||||||||
Deferred preneed cemetery revenues | 777,717 | 31,313 | 73,390 | (h) | (58,449 | ) | — | 823,971 | ||||||||||||||||
Insurance policy liabilities | — | 285,701 | — | — | 285,701 | |||||||||||||||||||
Deferred income taxes | 168,925 | 10,744 | (29,348 | )(i) | (17,526 | )(p) | 132,795 | |||||||||||||||||
Liabilities held for sale | — | — | — | 347,481 | — | 347,481 | ||||||||||||||||||
Other liabilities | 315,403 | 28,471 | (3,738 | )(j) | (766 | ) | — | 339,370 | ||||||||||||||||
Non-controlling interest in funeral and cemetery trusts | 2,055,566 | 564,447 | — | (186,807 | ) | — | 2,433,206 | |||||||||||||||||
Non-controlling interest in cemetery perpetual care trust investments | 691,385 | 245,221 | — | (73,129 | ) | — | 863,477 | |||||||||||||||||
Total stockholders’ equity | 1,608,858 | 598,162 | (598,162 | )(k) | — | (30,066 | )(q) | 1,578,792 | ||||||||||||||||
Total | $ | 7,670,700 | $ | 2,280,789 | $ | (566,720 | ) | $ | — | $ | 346,086 | $ | 9,730,855 | |||||||||||
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(a) | Reflects the unaudited consolidated balance sheet of Alderwoods as of June 17, 2006. Certain line items have been reclassified to conform to SCI’s presentation. |
(b) | Represents the cash purchase price plus SCI acquisition costs. |
(c) | Represents an adjustment to report Alderwoods cemetery property at fair value as part of purchase accounting. The estimated fair value of Alderwoods cemetery property was $225,000 at June 17, 2006, calculated using discounted future cash flows. The carrying value of Alderwoods cemetery property was $116,096 at June 17, 2006, resulting in a total increase to cemetery property of $108,904. |
(d) | Represents an adjustment to report Alderwoods property and equipment at fair value as part of purchase accounting. The estimated fair value of Alderwoods property and equipment was $619,049 at June 17, 2006, calculated using discounted future cash flows. The carrying value of Alderwoods property and equipment was $540,954 at June 17, 2006, resulting in a total increase to property and equipment of $78,095. |
(e) | Represents an adjustment to conform Alderwoods accounting for the recognition of sales of undeveloped cemetery property with SCI’s historical accounting policy. Deferred cemetery revenue was increased by $6,951 and deferred charges and other assets was increased by $5,630. See note (g)(2) and (h). |
(f) | Represents the additional intangible assets or adjustments to intangible assets to be recorded as a result of the acquisition, consisting of the following: |
Trademarks and tradenames(1) | $ | 39,500 | ||
Cemetery customer relationships(2) | 16,400 | |||
Funeral trust preneed deferred revenue and insurance funded preneed revenue(3) | 61,213 | |||
Cemetery preneed deferred revenue(4) | 46,033 | |||
Water rights | 5,500 | |||
Adjustment to fair value of insurance subsidiary’s in force insurance policies | (851 | ) | ||
$ | 167,795 | |||
(1) | Represents the estimated value of various local trademarks and tradenames associated with funeral and cemetery locations. | |
(2) | Represents the estimated value of future funeral services and cemetery services derived from existing cemetery customers. | |
(3) | Represents the amount necessary to adjust preneed funeral trust deferred revenue for certain existing preneed funeral contracts, and insurance funded contracts to their estimated fair value. | |
(4) | Represents the amount necessary to adjust preneed cemetery deferred revenue for certain existing preneed cemetery contracts to their estimated fair value. |
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(g) | Represents the elimination of previously recorded goodwill and the addition of goodwill arising from the transaction. Goodwill was determined as follows: |
Equity purchase price | $ | 856,300 | ||
Estimated SCI acquisition costs | 20,350 | |||
Aggregate purchase price | 876,650 | |||
Fair value of liabilities assumed(1) | 1,714,069 | |||
Fair value of assets acquired(2) | (2,345,300 | ) | ||
Goodwill arising from the transaction | 245,419 | |||
Alderwoods historical goodwill | (295,913 | ) | ||
Adjustment to goodwill | $ | (50,494 | ) | |
(1) | Represents the estimated fair value of liabilities assumed as follows: |
Historical total liabilities | $ | 1,682,627 | ||
Adjustment to fair value preneed funeral deferred revenue | (28,422 | ) | ||
Adjustment to fair value preneed cemetery deferred revenue (See note (h)) | 73,390 | |||
Adjustment to deferred income taxes (See note (i)) | (29,348 | ) | ||
Adjustment to record certain severance obligations triggered by change of control provisions | 19,560 | |||
Adjustment to other liabilities (See note (j)) | (3,738 | ) | ||
Fair value of liabilities assumed | $ | 1,714,069 | ||
(2) | Represents the fair value of assets acquired as follows: |
Historical total assets | $ | 2,280,789 | ||
Eliminate historical goodwill | (295,913 | ) | ||
Adjustment to conform recognition of sales of undeveloped cemetery property (See note (e)) | 5,630 | |||
Adjustment to fair value cemetery property (See note (c)) | 108,904 | |||
Adjustment to fair value property and equipment (See note (d)) | 78,095 | |||
Adjustment to fair value identifiable intangible assets (See note (f)) | 167,795 | |||
Fair value of assets assumed | $ | 2,345,300 | ||
(h) | The following represents adjustments to preneed cemetery deferred revenue arising as part of purchase accounting: |
Adjustment to fair value preneed cemetery deferred revenue | $ | 66,439 | ||
Adjustment to conform recognition of sales of undeveloped cemetery property (See note (e)) | 6,951 | |||
Adjustment to preneed cemetery deferred revenue | $ | 73,390 | ||
(i) | Represents an adjustment to deferred income tax liabilities as part of purchase accounting as follows: |
Deferred taxes related to adjustments to the fair market value of assets acquired and liabilities assumed (See notes (c), (d), (e), (f), (g), (h) and (j)) | $ | 122,190 | ||
Elimination of valuation allowances on certain federal and state tax deferred tax assets based on the expected combined operations of Alderwoods and SCI | (125,767 | ) | ||
Elimination of deferred taxes related to previously recorded goodwill (See note (g)) | (25,771 | ) | ||
$ | (29,348 | ) | ||
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(j) | The following represents adjustments to other liabilities arising as part of purchase accounting: |
Adjustment to reclassify certain severance obligations previously accrued | $ | (5,643 | ) | |
Adjustment to fair value pension liability | 1,905 | |||
Adjustment to other liabilities | $ | (3,738 | ) | |
(k) | Represents the elimination of Alderwoods historical equity balances. |
(l) | For purposes of the pro forma information in this prospectus, the assets to be sold pursuant to the divestitures have been reclassified on the pro forma balance sheet as assets held for sale and the results of operations of these assets have been eliminated from the pro forma statement of operations. No pro forma adjustments have been made to reflect any anticipated gain or loss from the divestitures and no adjustment has been made to reflect any earnings benefit from the reinvestment of any proceeds from the divestitures or any reduction of debt from the application of sale proceeds. |
(m) | Represents net cash provided as a result of the financing transactions, offset by the use of cash to extinguish debt and pay financing costs. |
Amounts to be extinguished: | |||||
Repayment of existing Alderwoods indebtedness(1) | $ | 351,683 | |||
Repayment of SCI Senior Notes due 2009 | 144,500 | ||||
Total amounts to be extinguished | 496,183 | ||||
Financing costs and transaction fees | 19,875 | ||||
Estimated tender premiums | 25,000 | ||||
Total amounts to be paid | $ | 541,058 | |||
Debt issuance: | |||||
Notes offered in a private placement | $ | 500,000 | |||
Credit facility | 180,128 | ||||
Privately placed debt securities | 200,000 | ||||
Total sources of cash | 880,128 | ||||
Total cash provided | $ | 339,070 | |||
(1) | Excludes $6,546 of existing Alderwoods debt expected to be assumed by SCI. |
(n) | Represents the adjustment to deferred charges and other assets as set forth in the table below: |
Write-off of Alderwoods deferred financing costs for extinguished debt | $ | (7,125 | ) | |
Write-off of SCI’s deferred financing costs for extinguished debt | (1,459 | ) | ||
Financing costs | 15,600 | |||
Total adjustment to deferred charges and other assets | $ | 7,016 | ||
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(o) | Represents the increase in long-term debt as set forth in the table below: |
Amounts to be extinguished: | |||||
Existing Alderwoods debt | $ | 351,683 | |||
Existing SCI debt | 134,767 | ||||
Total amounts to be extinguished | 486,450 | ||||
Debt issuance: | |||||
Notes offered in a private placement | 500,000 | ||||
Credit facility | 180,128 | ||||
Privately placed notes | 200,000 | ||||
Total debt issuance | 880,128 | ||||
Total adjustment to long-term debt | $ | 393,678 | |||
(p) | Represents the tax benefit related to the adjustments to stockholders’ equity for non-recurring charges directly attributable to the financing transactions (see note (q)). |
(q) | The following are the adjustments to stockholders’ equity related to non-recurring charges directly attributable to the financing transactions that will occur in connection with the closing of the acquisition: |
Estimated tender premiums | $ | 25,000 | ||
Transaction fees | 4,275 | |||
Write-off of SCI’s original issuance discount for extinguished debt | 9,733 | |||
Write-off of Alderwoods’ deferred financing fees for extinguished debt | 7,125 | |||
Write-off of SCI’s deferred financing fees for extinguished debt | 1,459 | |||
Tax benefit | (17,526 | ) | ||
$ | 30,066 | |||
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Adjustments | Adjustments | Adjustments | |||||||||||||||||||||||
Alderwoods | for the | for the | for the | ||||||||||||||||||||||
SCI Historical | Historical(a) | Acquisition | Divestitures(g) | Financing | Pro Forma | ||||||||||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||||||||||||
Revenues | $ | 1,715,737 | $ | 748,914 | $ | (5,025 | )(b) | $ | (94,251 | ) | $ | — | $ | 2,365,375 | |||||||||||
Costs and expenses | (1,417,592 | ) | (634,395 | ) | (7,649 | )(c) | 81,285 | — | (1,978,351 | ) | |||||||||||||||
Gross profit | 298,145 | 114,519 | (12,674 | ) | (12,966 | ) | — | 387,024 | |||||||||||||||||
General and administrative expenses | (84,834 | ) | (42,815 | ) | 7,751 | (d) | — | — | (119,898 | ) | |||||||||||||||
Gains (loss) on dispositions and impairment charges, net | (26,093 | ) | 1,379 | 4,964 | (e) | 401 | — | (19,349 | ) | ||||||||||||||||
Operating income | 187,218 | 73,083 | 41 | (12,565 | ) | — | 247,777 | ||||||||||||||||||
Interest expense | (103,733 | ) | (30,069 | ) | — | 695 | (25,248 | )(i) | (158,355 | ) | |||||||||||||||
Loss on early extinguishment of debt | (14,258 | ) | — | — | — | — | (14,258 | ) | |||||||||||||||||
Interest income | 16,706 | — | — | — | — | 16,706 | |||||||||||||||||||
Other income (expense), net | 2,774 | 4,662 | (4,964 | )(e) | — | — | 2,472 | ||||||||||||||||||
Income from continuing operations before income taxes | 88,707 | 47,676 | (4,923 | ) | (11,870 | ) | (25,248 | ) | 94,342 | ||||||||||||||||
Provision for income taxes | (33,233 | ) | (4,815 | ) | (12,256 | )(f) | 4,638 | (h) | 9,250 | (j) | (36,416 | ) | |||||||||||||
Income from continuing operations | $ | 55,474 | $ | 42,861 | $ | (17,179 | ) | $ | (7,232 | ) | $ | 15,998 | $ | 57,926 | |||||||||||
Income from continuing operations per share: | |||||||||||||||||||||||||
Basic | $ | 0.19 | $ | 0.19 | |||||||||||||||||||||
Diluted | $ | 0.18 | $ | 0.19 | |||||||||||||||||||||
Average common shares outstanding: | |||||||||||||||||||||||||
Basic | 302,213 | 302,213 | |||||||||||||||||||||||
Diluted | 306,745 | 306,745 |
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Adjustments | Adjustments | Adjustments | |||||||||||||||||||||||
SCI | Alderwoods | for the | for the | for the | |||||||||||||||||||||
Historical | Historical(a) | Acquisition | Divestitures(g) | Financing | Pro forma | ||||||||||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||||||||||||
Revenues | $ | 879,284 | $ | 360,663 | $ | (3,776 | )(b) | $ | (45,961 | ) | $ | — | $ | 1,190,210 | |||||||||||
Costs and expenses | (708,440 | ) | (296,171 | ) | (3,484 | )(c) | 39,106 | — | (968,989 | ) | |||||||||||||||
Gross profit | 170,844 | 64,492 | (7,260 | ) | (6,855 | ) | — | 221,221 | |||||||||||||||||
General and administrative expenses | (42,192 | ) | (12,346 | ) | 3,866 | (d) | — | — | (50,672 | ) | |||||||||||||||
Gain (loss) on dispositions and impairment charges, net | (1,213 | ) | 1,627 | 5,447 | (e) | (450 | ) | — | 5,411 | ||||||||||||||||
Operating income | 127,439 | 53,773 | 2,053 | (7,305 | ) | 175,960 | |||||||||||||||||||
Interest expense | (51,229 | ) | (14,528 | ) | — | 363 | (13,391 | )(i) | (78,785 | ) | |||||||||||||||
Loss on early extinguishment of debt | (14,258 | ) | — | — | — | — | (14,258 | ) | |||||||||||||||||
Interest income | 7,950 | — | — | — | — | 7,950 | |||||||||||||||||||
Other (expense) income, net | (637 | ) | 5,843 | (5,447 | )(e) | — | — | (241 | ) | ||||||||||||||||
Income from continuing operations before income taxes | 69,265 | 45,088 | (3,394 | ) | (6,942 | ) | (13,391 | ) | 90,626 | ||||||||||||||||
Provision for income taxes | (27,073 | ) | (18,193 | ) | 1,592 | (f) | 2,716 | (h) | 4,907 | (j) | (36,051 | ) | |||||||||||||
Income from continuing operations | $ | 42,192 | $ | 26,895 | $ | (1,802 | ) | $ | (4,226 | ) | $ | (8,484 | ) | $ | 54,575 | ||||||||||
Income from continuing operations per share: | |||||||||||||||||||||||||
Basic | $ | 0.14 | $ | 0.18 | |||||||||||||||||||||
Diluted | $ | 0.14 | $ | 0.17 | |||||||||||||||||||||
Average common shares outstanding: | |||||||||||||||||||||||||
Basic | 307,896 | 307,896 | |||||||||||||||||||||||
Diluted | 311,986 | 311,986 |
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Adjustments | Adjustments | Adjustments | |||||||||||||||||||||||
Alderwoods | for the | for the | for the | ||||||||||||||||||||||
Historical(a) | Acquisition | Divestitures(g) | Financing | Pro Forma | |||||||||||||||||||||
SCI Historical | |||||||||||||||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||||||||||||
Revenues | $ | 873,143 | $ | 354,261 | $ | (531 | )(b) | $ | (46,028 | ) | $ | — | $ | 1,180,845 | |||||||||||
Costs and expenses | (702,399 | ) | (295,410 | ) | (2,495 | )(c) | 38,961 | — | (961,343 | ) | |||||||||||||||
Gross profit | 170,744 | 58,851 | (3,026 | ) | (7,067 | ) | — | 219,502 | |||||||||||||||||
General and administrative expenses | (42,929 | ) | (32,557 | ) | 5,118 | (d) | — | — | (70,368 | ) | |||||||||||||||
Gain (loss) on dispositions and impairment charges, net | (7,391 | ) | — | (80 | )(e) | (99 | ) | — | (7,570 | ) | |||||||||||||||
Operating income | 120,424 | 26,294 | 2,012 | (7,166 | ) | — | 141,564 | ||||||||||||||||||
Interest expense | (53,337 | ) | (12,949 | ) | — | 378 | (14,337 | )(i) | (80,245 | ) | |||||||||||||||
Interest income | 12,763 | — | — | — | — | 12,763 | |||||||||||||||||||
Other income (expense), net | 4,046 | (129 | ) | 80 | (e) | — | — | 3,997 | |||||||||||||||||
Income from continuing operations before income taxes | 83,896 | 13,216 | 2,092 | (6,788 | ) | (14,337 | ) | 78,079 | |||||||||||||||||
Provision for income taxes | (31,282 | ) | (7,318 | ) | 285 | (f) | 2,685 | (h) | 5,253 | (j) | (30,377 | ) | |||||||||||||
Income from continuing operations | $ | 52,614 | $ | 5,898 | $ | 2,377 | $ | (4,103 | ) | $ | (9,084 | ) | $ | 47,702 | |||||||||||
Income from continuing operations per share: | |||||||||||||||||||||||||
Basic | $ | 0.18 | $ | 0.16 | |||||||||||||||||||||
Diluted | $ | 0.18 | $ | 0.16 | |||||||||||||||||||||
Average Common Shares outstanding: | |||||||||||||||||||||||||
Basic | 293,580 | 293,580 | |||||||||||||||||||||||
Diluted | 297,784 | 297,784 |
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(a) | Alderwoods historical information is derived from: (1) the audited consolidated statement of operations for the fifty-two weeks ended December 31, 2005; (2) the unaudited consolidated statement of operations for the twenty-four weeks ended June 18, 2005; and (3) the unaudited consolidated statement of operations for the twenty-four weeks ended June 17, 2006. Certain of Alderwoods’ line items have been reclassified to conform to SCI’s presentation. |
(b) | The table below sets forth adjustments to revenue arising from the acquisition: |
Six Months | Six Months | |||||||||||
Year Ended | Ended | Ended | ||||||||||
December 31, | June 30, | June 30, | ||||||||||
2005 | 2005 | 2006 | ||||||||||
(Dollars in thousands) | ||||||||||||
Preneed funeral contracts(1) | (5,754 | ) | (2,766 | ) | (3,188 | ) | ||||||
Preneed cemetery contracts(2) | 1,521 | 664 | 752 | |||||||||
Cemetery revenue from the sale of unconstructed property(3) | (792 | ) | (1,674 | ) | 1,905 | |||||||
Adjustment to revenue | $ | (5,025 | ) | $ | (3,776 | ) | $ | (531 | ) | |||
(1) | Represents a net adjustment for the amortization of (i) the associated intangible asset, and (ii) the fair value adjustment to funeral trust funded preneed deferred revenue. | |
(2) | Represents a net adjustment for the amortization of (i) the associated intangible asset, and (ii) the fair value adjustment to cemetery preneed deferred revenue. | |
(3) | Represents an adjustment to conform Alderwoods accounting for the recognition of sales of undeveloped cemetery property with SCI’s historical accounting policy. |
(c) | The table below sets forth adjustments to costs and expenses arising from the acquisition: |
Six Months | Six Months | |||||||||||
Year Ended | Ended | Ended | ||||||||||
December 31, | June 30, | June 30, | ||||||||||
2005 | 2005 | 2006 | ||||||||||
(Dollars in thousands) | ||||||||||||
Depreciation expense(1) | $ | 6,684 | $ | 3,271 | $ | 3,726 | ||||||
Intangible amortization expense(2) | (3,910 | ) | (1,955 | ) | (1,955 | ) | ||||||
Pension expense(3) | (415 | ) | (208 | ) | 47 | |||||||
Cemetery costs from the sale of unconstructed property(4) | (67 | ) | 434 | (600 | ) | |||||||
Cemetery property cost of sales(5) | (9,941 | ) | (5,026 | ) | (3,713 | ) | ||||||
Adjustment to costs and expenses | $ | (7,649 | ) | $ | (3,484 | ) | $ | (2,495 | ) | |||
(1) | Represents a net adjustment to record depreciation expense over a weighted average estimated remaining useful life of 30 years, reflecting the adjusted fair value of Alderwoods’ property and equipment. | |
(2) | Represents an adjustment to record the amortization of intangible assets recorded as a result of the acquisition. The cemetery customer relationships and the funeral insurance funded preneed revenue are being amortized over an estimated useful life of ten years. The trademark, tradename, water rights and insurance in force intangibles are considered to have an indefinite life and are not subject to amortization; rather, such assets would be subject to annual tests for impairment. The intangible assets associated with funeral trust funded preneed deferred revenue and cemetery preneed deferred revenue are amortized relative to the recognition of preneed revenue and included in note (b(1)) and (b(2)). |
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(3) | Represents a net adjustment to conform Alderwoods’ accounting policy for gains and losses on its pension plan assets and obligations to SCI’s historical accounting policy. | |
(4) | Represents an adjustment to conform Alderwoods’ accounting for the recognition of sales of undeveloped cemetery property with SCI’s historical accounting policy. | |
(5) | Represents a net adjustment to record cemetery property cost of sales at the adjusted fair value of Alderwoods cemetery property. |
(d) | Represents an adjustment to eliminate compensation expense for certain officers for whom severance costs have been recorded on the pro forma balance sheet. |
(e) | Represents the reclassification of gains and losses from dispositions to conform to SCI’s historical presentation. |
(f) | The pro forma adjustments to income tax reflect the statutory federal, state and foreign income tax impact of the pro forma adjustments related to the Alderwoods acquisition (see notes (b), (c), (d) and (e)) and the effects of purchase accounting. |
(g) | For purposes of the pro forma information in this prospectus, the assets to be sold pursuant to the divestitures have been reclassified on the pro forma balance sheet as assets held for sale and the results of operations of these assets have been eliminated from the pro forma statement of operations. No pro forma adjustments have been made to reflect any anticipated gain or loss from the divestitures and no adjustment has been made to reflect any earnings benefit from the reinvestment of any proceeds from the divestitures or any reduction of debt from the application of sale proceeds. |
(h) | Represents the statutory federal, and state income tax impact attributable to the operations to be divested. |
(i) | The table below sets forth adjustments to interest expense resulting from the extinguishment of debt and issuance of new debt: |
Six Months | Six Months | |||||||||||||
Year Ended | Ended | Ended | ||||||||||||
December 31, | June 30, | June 30, | ||||||||||||
2005 | 2005 | 2006 | ||||||||||||
Interest expense on new borrowings: | ||||||||||||||
Senior notes due 2014 offered hereby(1) | $ | 18,438 | $ | 9,219 | $ | 9,219 | ||||||||
Senior notes due 2018 offered hereby(2) | 19,063 | 9,531 | 9,531 | |||||||||||
New senior credit facility | ||||||||||||||
Term loan(3) | 11,100 | 5,550 | 5,550 | |||||||||||
Revolving credit facility(4) | 2,227 | 1,114 | 1,114 | |||||||||||
Private placement debt securities(5) | 14,800 | 7,400 | 7,400 | |||||||||||
Amortization of deferred financing costs(6) | $ | 1,843 | $ | 902 | $ | 975 | ||||||||
Total interest expense on new borrowings | $ | 67,471 | $ | 33,716 | $ | 33,789 | ||||||||
Less: historical interest expense and related amortization of deferred financing costs on extinguished borrowings: | ||||||||||||||
Alderwoods | $ | 29,221 | $ | 13,824 | $ | 12,951 | ||||||||
SCI | 13,002 | 6,501 | 6,501 | |||||||||||
Total historical interest expense and related amortization of deferred financing costs on extinguished borrowings | $ | 42,223 | $ | 20,325 | $ | 19,452 | ||||||||
Adjustment to interest expense | $ | 25,248 | $ | 13,391 | $ | 14,337 | ||||||||
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(1) | Represents interest on our new senior notes due 2014, which is calculated as follows: |
Six Months | Six Months | |||||||||||
Year Ended | Ended | Ended | ||||||||||
December 31, | June 30, | June 30, | ||||||||||
2005 | 2005 | 2006 | ||||||||||
Outstanding balance | $ | 250,000 | $ | 250,000 | $ | 250,000 | ||||||
Interest rate | 7.375 | % | 7.375 | % | 7.375 | % | ||||||
Portion of year outstanding | 100 | % | 50 | % | 50 | % | ||||||
Calculated interest | $ | 18,438 | $ | 9,219 | $ | 9,219 | ||||||
(2) | Represents interest on our new senior notes due 2018, which is calculated as follows: |
Six Months | Six Months | |||||||||||
Year Ended | Ended | Ended | ||||||||||
December 31, | June 30, | June 30, | ||||||||||
2005 | 2005 | 2006 | ||||||||||
Outstanding balance | $ | 250,000 | $ | 250,000 | $ | 250,000 | ||||||
Interest rate | 7.625 | % | 7.625 | % | 7.625 | % | ||||||
Portion of year outstanding | 100 | % | 50 | % | 50 | % | ||||||
Calculated interest | $ | 19,063 | $ | 9,531 | $ | 9,531 | ||||||
(3) | Represents interest on our new term loan, which is calculated as follows: |
Six Months | Six Months | |||||||||||
Year Ended | Ended | Ended | ||||||||||
December 31, | June 30, | June 30, | ||||||||||
2005 | 2005 | 2006 | ||||||||||
Estimated outstanding balance | $ | 150,000 | $ | 150,000 | $ | 150,000 | ||||||
Assumed interest rate-3 month LIBOR (5.4% on September 13, 2006) plus 2.00% | 7.40 | % | 7.40 | % | 7.40 | % | ||||||
Portion of year outstanding | 100 | % | 50 | % | 50 | % | ||||||
Calculated interest | $ | 11,100 | $ | 5,550 | $ | 5,550 | ||||||
An increase or decrease of 25 basis points in interest rate would result in an interest expense increase or decrease of | $ | 375 | $ | 188 | $ | 188 |
(4) | Represents interest on our new revolving facility, which is calculated as follows: |
Six Months | Six Months | |||||||||||
Year Ended | Ended | Ended | ||||||||||
December 31, | June 30, | June 30, | ||||||||||
2005 | 2005 | 2006 | ||||||||||
Estimated outstanding balance | $ | 30,100 | $ | 30,100 | $ | 30,100 | ||||||
Assumed interest rate-3 month LIBOR (5.4% on September 13, 2006) plus 2.00% | 7.40 | % | 7.40 | % | 7.40 | % | ||||||
Portion of year outstanding | 100 | % | 50 | % | 50 | % | ||||||
Calculated interest | $ | 2,227 | $ | 1,114 | $ | 1,114 | ||||||
An increase or decrease of 25 basis points in interest rate would result in an interest expense increase or decrease of | $ | 75 | $ | 38 | $ | 38 |
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(5) | Represents interest on our private placement debt securities, which is calculated as follows: |
Six Months | Six Months | |||||||||||
Year Ended | Ended | Ended | ||||||||||
December 31, | June 30, | June 30, | ||||||||||
2005 | 2005 | 2006 | ||||||||||
Estimated outstanding balance | $ | 200,000 | $ | 200,000 | $ | 200,000 | ||||||
Assumed interest rate-3 month LIBOR (5.4% on September 13, 2006) plus 2.00% | 7.40 | % | 7.40 | % | 7.40 | % | ||||||
Portion of year outstanding | 100 | % | 50 | % | 50 | % | ||||||
Calculated interest | $ | 14,800 | $ | 7,400 | $ | 7,400 | ||||||
An increase or decrease of 25 basis points in interest rate would result in an interest expense increase or decrease of | $ | 500 | $ | 250 | $ | 250 |
(6) | Represents amortization of deferred financing costs over the term of the new financing arrangements. |
(j) | Represents the statutory federal, and state income tax impact of the adjustment to interest expense (see note (h)). |
Six Months | ||||||||||||||||||||||||||||
Ended June 30, | Years Ended December 31, | |||||||||||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||||||
Ratio (earnings divided by fixed charges) | 2.47 | 2.16 | 1.73 | 1.81 | 1.60 | A | A | |||||||||||||||||||||
A. | During the years ended December 31, 2002 and 2001, the ratio coverage was less than 1:1. In order to achieve a coverage of 1:1, the Company would have had to generate additional income from continuing operations before income taxes and cumulative effect of accounting changes of $128,922 and $393,356 for the years ended December 31, 2002 and 2001, respectively. |
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• | “SCI” refers to Service Corporation International and its subsidiaries prior to the acquisition; | |
• | “Alderwoods” refers to the Alderwoods Group, Inc. and its subsidiaries; and | |
• | the “Company,” “us,” “we,” “our,” or “ours” refer to SCI, together with its subsidiaries, including Alderwoods, immediately after giving effect to the transactions. |
• | Approach business by customer category — the acquisition provides increased exposure to key demographic and customer segments. | |
• | Utilize scale and drive operating discipline — the acquisition provides additional economies of scale. | |
• | Manage the footprint — the acquisition provides an increased presence across North America. |
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Estimated Annual | ||||
Cost Savings | ||||
(Dollars in millions) | ||||
Duplicate systems and infrastructure(a) | $ | 35 | ||
Management structure duplication(b) | $ | 15 | ||
Public company and redundant corporate costs(c) | $ | 15 |
(a) | Duplicate IT systems and administrative overhead. |
(b) | Overlapping management and other management restructuring initiatives. |
(c) | Redundant director fees and expenses, auditor fees, finance, accounting, human resources, and legal costs. |
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Acquisition of Alderwoods |
Demographic Factors |
Average Revenue per Funeral Service |
Divestitures |
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As of December 31, 2005 | SCI | Alderwoods | Total | ||||||||||
(Dollars in millions) | |||||||||||||
Backlog of trust funded deferred preneed funeral revenues | $ | 1,495.5 | $ | 355.2 | $ | 1,850.7 | |||||||
Backlog of third-party insurance funded preneed funeral revenues | 2,092.1 | 657.0 | 2,749.1 | ||||||||||
Backlog of subsidiary insurance funded preneed funeral revenues | — | 331.6 | 331.6 | ||||||||||
Total backlog of preneed funeral revenues | $ | 3,587.6 | $ | 1,343.8 | $ | 4,931.4 | |||||||
Assets associated with backlog of trust funded deferred preneed funeral revenues, net of estimated allowance for cancellation | $ | 1,158.7 | $ | 341.4 | $ | 1,500.1 | |||||||
Insurance policies associated with insurance funded deferred preneed funeral revenues, net of estimated allowance for cancellation | 2,092.1 | 988.6 | 3,080.7 | ||||||||||
Total assets associated with backlog of preneed funeral revenues | $ | 3,250.8 | $ | 1,330.0 | $ | 4,580.8 | |||||||
Backlog of deferred cemetery revenues | $ | 1,644.5 | $ | 282.8 | $ | 1,927.3 | |||||||
Assets associated with backlog of deferred cemetery revenues, net of estimated allowance for cancellation | $ | 1,157.4 | $ | 314.7 | $ | 1,472.1 |
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Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005 |
Management Summary |
• | SCI’s announcement, on April 3, 2006, of the execution of the acquisition agreement; | |
• | a 3.1% increase in 2006 comparable funeral and cemetery revenue over the same period in 2005; | |
• | an 8.0% increase in comparable average revenue per funeral service compared to the first half of 2005, which helped to offset a 5.5% decline in comparable funeral services performed; | |
• | SCI’s receipt and recognition of $7.9 million, or $4.8 million after tax ($0.02 per diluted share), in cemetery endowment care trust fund income as a result of the resolution of disputes over ownership rights to the funds; | |
• | the April 2006 and August 2006 approval by SCI’s Board of Directors of a regular quarterly dividend; and | |
• | the repurchase of 3.4 million shares of SCI common stock in the second quarter of 2006. |
Results of Operations |
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Actual Versus Comparable Results |
Six Months Ended June 30, 2006 and 2005 |
Less: | |||||||||||||||||
Activity | Less: | ||||||||||||||||
Associated with | Activity | ||||||||||||||||
Acquisition/ | Associated with | ||||||||||||||||
Six Months Ended June 30, 2006 | Actual | New Construction | Dispositions | Comparable | |||||||||||||
(Dollars in millions) | |||||||||||||||||
North America | |||||||||||||||||
Funeral revenue | $ | 576.7 | $ | 0.8 | $ | 4.2 | $ | 571.7 | |||||||||
Cemetery revenue | 290.5 | 0.7 | 0.9 | 288.9 | |||||||||||||
867.2 | 1.5 | 5.1 | 860.6 | ||||||||||||||
Other foreign | |||||||||||||||||
Funeral revenue | 5.9 | — | (0.1 | ) | 6.0 | ||||||||||||
Total revenues | $ | 873.1 | $ | 1.5 | $ | 5.0 | $ | 866.6 | |||||||||
North America | |||||||||||||||||
Funeral gross profits | $ | 116.6 | $ | 0.3 | $ | (1.1 | ) | $ | 117.4 | ||||||||
Cemetery gross profits | 52.9 | — | (0.7 | ) | 53.6 | ||||||||||||
169.5 | 0.3 | (1.8 | ) | 171.0 | |||||||||||||
Other foreign | |||||||||||||||||
Funeral gross profits | 1.2 | — | (0.1 | ) | 1.3 | ||||||||||||
Total gross profit | $ | 170.7 | $ | 0.3 | $ | (1.9 | ) | $ | 172.3 | ||||||||
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Less: Activity | |||||||||||||
Associated with | |||||||||||||
Six Months Ended June 30, 2005 | Actual | Dispositions | Comparable | ||||||||||
(Restated) | (Restated) | ||||||||||||
(Dollars in millions) | |||||||||||||
North America | |||||||||||||
Funeral revenue | $ | 598.1 | $ | 28.8 | $ | 569.3 | |||||||
Cemetery revenue | 275.2 | 10.2 | 265.0 | ||||||||||
873.3 | 39.0 | 834.3 | |||||||||||
Other foreign | |||||||||||||
Funeral revenue | 6.0 | — | 6.0 | ||||||||||
Total revenues | $ | 879.3 | $ | 39.0 | $ | 840.3 | |||||||
North America | |||||||||||||
Funeral gross profits | $ | 130.1 | $ | 3.3 | $ | 126.8 | |||||||
Cemetery gross profits | 40.0 | (0.1 | ) | 40.1 | |||||||||
170.1 | 3.2 | 166.9 | |||||||||||
Other foreign | |||||||||||||
Funeral gross profits | 0.7 | — | 0.7 | ||||||||||
Total gross profit | $ | 170.8 | $ | 3.2 | $ | 167.6 | |||||||
Six Months Ended | |||||||||||
June 30, | |||||||||||
2006 | 2005 | ||||||||||
(Restated) | |||||||||||
(Dollars in millions, | |||||||||||
except average revenue | |||||||||||
per funeral service) | |||||||||||
Comparable North America funeral revenue | $ | 571.7 | $ | 569.3 | |||||||
Less: GA revenues(1) | 16.7 | 13.8 | |||||||||
Kenyon revenues(2) | 1.9 | 13.4 | |||||||||
Adjusted Comparable North America funeral revenue | $ | 553.1 | $ | 542.1 | |||||||
Comparable North America funeral services performed: | |||||||||||
Preneed | 40,073 | 41,341 | |||||||||
Atneed | 78,384 | 84,026 | |||||||||
Total | 118,457 | 125,367 | |||||||||
Comparable North America average revenue per funeral service: | |||||||||||
Preneed | $ | 4,516 | $ | 4,244 | |||||||
Atneed | 4,748 | 4,363 | |||||||||
Total | 4,669 | 4,324 | |||||||||
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(1) | GA revenues are commissions we receive from third-party insurance companies when customers purchase insurance contracts from such third-party insurance companies to fund funeral services and merchandise at a future date. |
(2) | Kenyon is SCI’s disaster response subsidiary that engages in mass fatality and emergency response services. Revenues and gross profits associated with Kenyon are subject to significant variation due to the nature of its operations. |
Consolidated Funeral Revenue |
Comparable Funeral Revenue |
Funeral Case Volume |
Average Revenue per Funeral |
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Consolidated Funeral Gross Profit |
Comparable Funeral Gross Profit |
Consolidated Cemetery Revenue |
Comparable Cemetery Revenue |
Consolidated Cemetery Gross Profits |
Comparable Cemetery Gross Profits |
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General and Administrative Expenses |
Interest Expense |
Interest Income |
Other Income (Expense), Net |
• | Cash overrides received from a third party insurance provider related to the sale of insurance funded preneed funeral contracts were $3.1 million in the first half of 2006 and $3.1 million in the same period of 2005. | |
• | Surety bond premium costs were $2.0 million in the first half of 2006 and 2005. | |
• | Favorable adjustments to SCI’s allowance on notes receivable were $1.9 million in the first half of 2006. | |
• | The remaining income of $1.0 million in the first half of 2006 and expense of $1.7 million in the same period of 2005 are primarily attributable to net gains and losses related to foreign currency transactions. |
(Provision) Benefit for Income Taxes |
Weighted Average Shares |
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• | a $500 million reduction of debt, | |
• | a $450 million cash balance at December 31, 2005, | |
• | investment of more than $335 million in share repurchases which reduced SCI’s outstanding shares by 47.7 million, and | |
• | payment of a quarterly dividend. |
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Years Ended December 31, 2005, 2004 and 2003 |
Less: Activity | |||||||||||||||||
Associated with | Less: Activity | ||||||||||||||||
Acquisition/New | Associated with | ||||||||||||||||
Year Ended December 31, 2005 | Actual | Construction | Dispositions | Comparable | |||||||||||||
(Restated) | (Restated) | ||||||||||||||||
(Dollars in millions) | |||||||||||||||||
North America | |||||||||||||||||
Funeral revenue | $ | 1,143.6 | $ | 2.6 | $ | 36.3 | $ | 1,104.7 | |||||||||
Cemetery revenue | 560.3 | 1.1 | 11.3 | 547.9 | |||||||||||||
1,703.9 | 3.7 | 47.6 | 1,652.6 | ||||||||||||||
Other foreign | |||||||||||||||||
Funeral revenue | 11.7 | — | — | 11.7 | |||||||||||||
Cemetery revenue | 0.1 | — | 0.1 | — | |||||||||||||
11.8 | — | 0.1 | 11.7 | ||||||||||||||
Total revenues | $ | 1,715.7 | $ | 3.7 | $ | 47.7 | $ | 1,664.3 | |||||||||
North America | |||||||||||||||||
Funeral gross profits | $ | 214.7 | $ | (0.1 | ) | $ | 1.7 | $ | 213.1 | ||||||||
Cemetery gross profits | 81.9 | 0.6 | (1.7 | ) | 83.0 | ||||||||||||
296.6 | 0.5 | — | 296.1 | ||||||||||||||
Other foreign | |||||||||||||||||
Funeral gross profits | 1.5 | — | — | 1.5 | |||||||||||||
Cemetery gross profits | — | — | — | — | |||||||||||||
1.5 | — | — | 1.5 | ||||||||||||||
Total gross profit | $ | 298.1 | $ | 0.5 | $ | — | $ | 297.6 | |||||||||
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Less: Activity | |||||||||||||||||
Associated with | Less: Activity | ||||||||||||||||
Acquisition/New | Associated with | ||||||||||||||||
Year Ended December 31, 2004 | Actual | Construction | Dispositions | Comparable | |||||||||||||
(Restated) | (Restated) | ||||||||||||||||
(Dollars in millions) | |||||||||||||||||
North America | |||||||||||||||||
Funeral revenue | $ | 1,120.1 | $ | 0.7 | $ | 71.8 | $ | 1,047.6 | |||||||||
Cemetery revenue | 570.1 | — | 19.8 | 550.3 | |||||||||||||
1,690.2 | 0.7 | 91.6 | 1,597.9 | ||||||||||||||
Other foreign | |||||||||||||||||
Funeral revenue | 139.7 | — | 127.3 | 12.4 | |||||||||||||
Cemetery revenue | 1.3 | — | 1.3 | — | |||||||||||||
141.0 | — | 128.6 | 12.4 | ||||||||||||||
Total revenues | $ | 1,831.2 | $ | 0.7 | $ | 220.2 | $ | 1,610.3 | |||||||||
North America | |||||||||||||||||
Funeral gross profits | $ | 214.7 | $ | (0.2 | ) | $ | 7.0 | $ | 207.9 | ||||||||
Cemetery gross profits | 102.1 | — | (1.1 | ) | 103.2 | ||||||||||||
316.8 | (0.2 | ) | 5.9 | 311.1 | |||||||||||||
Other foreign | |||||||||||||||||
Funeral gross profits | 13.1 | — | 11.6 | 1.5 | |||||||||||||
Cemetery gross profits | 0.1 | — | 0.1 | — | |||||||||||||
13.2 | — | 11.7 | 1.5 | ||||||||||||||
Total gross profit | $ | 330.0 | $ | (0.2 | ) | $ | 17.6 | $ | 312.6 | ||||||||
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Less: Activity | |||||||||||||||||
Associated with | Less: Activity | ||||||||||||||||
Acquisition/New | Associated with | ||||||||||||||||
Year Ended December 31, 2003 | Actual | Construction | Dispositions | Comparable | |||||||||||||
(Restated) | (Restated) | ||||||||||||||||
(Dollars in millions) | |||||||||||||||||
North America | |||||||||||||||||
Funeral revenue | $ | 1,143.9 | $ | 0.4 | $ | 96.5 | $ | 1,047.0 | |||||||||
Cemetery revenue | 572.2 | — | 20.5 | 551.7 | |||||||||||||
1,716.1 | 0.4 | 117.0 | 1,598.7 | ||||||||||||||
Other foreign | |||||||||||||||||
Funeral revenue | 595.9 | — | 584.6 | 11.3 | |||||||||||||
Cemetery revenue | 1.2 | — | 1.2 | — | |||||||||||||
597.1 | — | 585.8 | 11.3 | ||||||||||||||
Total revenues | $ | 2,313.2 | $ | 0.4 | $ | 702.8 | $ | 1,610.0 | |||||||||
North America | |||||||||||||||||
Funeral gross profits | $ | 202.6 | $ | (0.1 | ) | $ | 8.8 | $ | 193.9 | ||||||||
Cemetery gross profits | 82.4 | — | 4.5 | 77.9 | |||||||||||||
285.0 | (0.1 | ) | 13.3 | 271.8 | |||||||||||||
Other foreign | |||||||||||||||||
Funeral gross profits | 71.1 | — | 68.2 | 2.9 | |||||||||||||
Cemetery gross profits | 0.1 | — | 0.1 | — | |||||||||||||
71.2 | — | 68.3 | 2.9 | ||||||||||||||
Total gross profit | $ | 356.2 | $ | (0.1 | ) | $ | 81.6 | $ | 274.7 | ||||||||
Year Ended December 31, | 2003 | 2004 | 2005 | ||||||||||
(Restated) | |||||||||||||
(Dollars in millions, except average | |||||||||||||
revenue per funeral service) | |||||||||||||
Comparable North America funeral revenue | $ | 1,047.0 | $ | 1,047.6 | $ | 1,104.7 | |||||||
Less: GA revenues(1) | 26.2 | 27.8 | 27.7 | ||||||||||
Kenyon revenues(2) | 12.0 | 3.4 | 23.9 | ||||||||||
Adjusted Comparable North America funeral revenue | $ | 1,008.8 | $ | 1,016.4 | $ | 1,053.1 | |||||||
Comparable North America funeral services performed | 239.5 | 235.5 | 238.8 | ||||||||||
Comparable North America average revenue per funeral service | $ | 4,212 | $ | 4,316 | $ | 4,410 |
(1) | GA revenues are commissions we receive from third-party insurance companies when customers purchase insurance contracts from such third-party insurance companies to fund funeral services and merchandise at a future date. |
(2) | Kenyon is SCI’s disaster response subsidiary that engages in mass fatality and emergency response services. Revenues and gross profits associated with Kenyon are subject to significant variation due to the nature of its operations. |
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• | Cash overrides received from a third party insurance provider related to the sale of insurance funded preneed funeral contracts were $6.0 million in 2005, compared to $6.3 million in 2004 and $5.6 million in 2003. |
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• | Surety bond premium costs were $3.6 million in 2005, compared to $4.0 million in 2004 and $4.1 million in 2003. | |
• | The remaining income of $0.4 million in 2005, income of $7.4 million in 2004, and income of $6.8 million in 2003 are primarily attributable to net gains and losses related to foreign currency transactions. |
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Increase (Decrease) | |||||||||||||||||
Twenty-Four Weeks Ended | |||||||||||||||||
Continuing Operations: | June 17, 2006 | June 18, 2005 | Amount | Percentages | |||||||||||||
Funeral — other information | |||||||||||||||||
Number of funeral services performed | 53,247 | 56,735 | (3,488 | ) | (6.1 | )% | |||||||||||
Number of same site funeral services performed | 53,070 | 55,073 | (2,003 | ) | (3.6 | )% | |||||||||||
Average revenue per funeral service | $ | 4,294 | $ | 4,133 | $ | 161 | 3.9 | % | |||||||||
Same site average revenue per funeral service | $ | 4,294 | $ | 4,138 | $ | 156 | 3.8 | % | |||||||||
Preneed funeral contracts written (in millions) | $ | 85.5 | $ | 90.3 | $ | (4.8 | ) | (5.3 | )% | ||||||||
Preneed funeral conversion (percentages) | 27 | % | 27 | % | — | — | |||||||||||
Cemetery — other information | |||||||||||||||||
Number of cemetery interments | 21,057 | 22,501 | (1,444 | ) | (6.4 | )% | |||||||||||
Preneed cemetery contracts written (in millions) | $ | 45.1 | $ | 45.8 | $ | (0.7 | ) | (1.5 | )% |
Hurricane Katrina |
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24 Weeks Ended | ||||||||
June 17, 2006 | June 18, 2005 | |||||||
(Dollars in millions) | ||||||||
Legal expenses related to Funeral Consumers Alliance litigation | $ | 1.5 | $ | — | ||||
Legal and other expenses related to the acquisition | 2.8 | — | ||||||
Equity incentive plan stock based compensation expense related to stock options and restricted stock units | 1.6 | — | ||||||
Increase in long term executive incentive expense | 1.7 | — | ||||||
Foreign exchange impact on Canadian based support centre expenses | 2.1 | — | ||||||
Decrease in retirement allowance accrual | (0.7 | ) | — | |||||
Reduction in accrual on settlement of US trustee bankruptcy fee | — | (0.9 | ) | |||||
Recovery of corporate receivable previously fully reserved against | — | (10.9 | ) |
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24 Weeks Ended | ||||||||
June 17, 2006 | June 18, 2005 | |||||||
(Dollars in millions) | ||||||||
Interest on long-term debt | $ | 12.0 | $ | 12.5 | ||||
Amortization of debt issue costs | 0.9 | 1.7 | ||||||
Tender premium on the repurchase of Alderwoods’ 12.25% Senior Unsecured Notes due in 2009 | — | 0.3 | ||||||
Total interest on long-term debt and refinancing costs | $ | 12.9 | $ | 14.5 | ||||
Discontinued Operations |
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Preneed Funeral and Cemetery Backlog for Continuing Operations |
24 Weeks Ended | |||||||||
June 17, 2006 | June 18, 2005 | ||||||||
(Dollars in thousands) | |||||||||
Funeral backlog: | |||||||||
Beginning balance | $ | 1,336,829 | $ | 1,275,972 | |||||
Sales, net of cancellations | 81,201 | 85,019 | |||||||
Maturities | (75,391 | ) | (68,200 | ) | |||||
Net increase in insurance benefits and earnings realized on funeral trust balances | 7,663 | 8,741 | |||||||
Change in cancellation reserve | 1,691 | 5,395 | |||||||
Other | (948 | ) | 716 | ||||||
Ending balance | $ | 1,351,045 | $ | 1,307,643 | |||||
Trust funded | $ | 344,222 | $ | 345,921 | |||||
Third party insurance companies | 651,486 | 660,966 | |||||||
Subsidiary insurance company | 355,337 | 300,756 | |||||||
$ | 1,351,045 | $ | 1,307,643 | ||||||
24 Weeks Ended | |||||||||
June 17, 2006 | June 18, 2005 | ||||||||
(Dollars in thousands) | |||||||||
Cemetery backlog: | |||||||||
Beginning balance | $ | 276,755 | $ | 262,825 | |||||
Sales, net of cancellations | 49,910 | 44,089 | |||||||
Maturities | (46,086 | ) | (41,688 | ) | |||||
Earnings realized on cemetery trust balances | 3,122 | 3,635 | |||||||
Change in cancellation reserve | 361 | 1,789 | |||||||
Ending balance | $ | 284,062 | $ | 270,650 | |||||
Fifty-two Weeks Ended December 31, 2005, Fifty-two Weeks Ended January 1, 2005, and Fifty-three Weeks Ended January 3, 2004. |
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Increase (Decrease) | |||||||||||||||||
52 Weeks Ended | December 31, | January 1, | |||||||||||||||
Continuing Operations: | 2005 | 2005 | Amount | Percentages | |||||||||||||
Funeral — other information | |||||||||||||||||
Number of funeral services performed | 115,555 | 117,525 | (1,970 | ) | (1.7 | )% | |||||||||||
Number of same site funeral services performed | 113,300 | 114,062 | (762 | ) | (0.7 | )% | |||||||||||
Average revenue per funeral service | $ | 4,152 | $ | 4,024 | $ | 128 | 3.2 | % | |||||||||
Same site average revenue per funeral service | $ | 4,160 | $ | 4,036 | $ | 124 | 3.1 | % | |||||||||
Preneed funeral contracts written (in millions) | $ | 191.0 | $ | 179.5 | $ | 11.5 | 6.4 | % | |||||||||
Preneed funeral conversion (percentages) | 27 | % | 26 | % | 1 | — | |||||||||||
Cemetery — other information | |||||||||||||||||
Number of cemetery interments | 46,794 | 46,461 | 333 | 0.7 | % | ||||||||||||
Preneed cemetery contracts written (in millions) | $ | 94.5 | $ | 86.9 | $ | 7.6 | 8.7 | % |
Hurricane Katrina |
Continuing Operations |
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52 Weeks Ended | ||||
December 31, | ||||
2005 | ||||
(Dollars in millions) | ||||
Wage inflation, increased employee benefits expense, and increased wages, training and advertising costs related to Alderwoods’ expanded field management structure and investment in programs designed to build local brand awareness and generate growth in future services | $ | 4.5 | ||
Incentive bonus expense for funeral operations previously included in general and administrative expenses | 1.9 | |||
Increased insurance costs, including expenses not expected to be reimbursed under Alderwoods’ insurance policy for damages effected by Hurricanes Katrina, Wilma and Rita | 2.4 | |||
Increased utility costs | 1.1 |
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52 Weeks Ended | ||||
December 31, | ||||
2005 | ||||
(Dollars in millions) | ||||
Wage inflation, increased employee benefits and workers compensation expense | $ | 2.6 | ||
Incentive bonus expense for cemetery operations previously included in general and administrative expenses | 0.8 | |||
Increased insurance costs including expenses not expected to be reimbursed under Alderwoods’ insurance policy for damages effected by Hurricanes Katrina, Wilma and Rita | 1.2 | |||
Increased utility costs | 0.4 |
52 Weeks Ended | ||||||||
December 31, | January 1, | |||||||
2005 | 2005 | |||||||
(Dollars in millions) | ||||||||
Recovery of corporate receivable previously fully reserved against | $ | (10.9 | ) | $ | (1.2 | ) | ||
Interest income on refunds from an amended tax return | (2.0 | ) | — | |||||
Reduction in accrual on settlement of U.S. trustee bankruptcy fee | (0.9 | ) | — | |||||
Increased wage expense related to wage inflation and additional positions related to Sarbanes-Oxley compliance | 1.1 | — | ||||||
Decreased capital tax expense | (0.5 | ) | — | |||||
Decrease in incentive bonus expense | (0.8 | ) | — | |||||
Increased retirement allowance expense | 1.2 | — | ||||||
Foreign exchange impact on Canadian dollar based support centers | 2.3 | — | ||||||
Reversal of legal claim accrual due to approvals obtained for insurance coverage of the costs | — | (0.9 | ) |
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52 Weeks Ended | ||||||||
December 31, | January 1, | |||||||
2005 | 2005 | |||||||
(Dollars in millions) | ||||||||
Interest on long-term debt | $ | 26.6 | $ | 38.7 | ||||
Amortization of debt issue costs | 3.2 | 10.1 | ||||||
Tender premiums on the repurchase of the 12.25% Senior Unsecured Notes due in 2009 | 0.3 | 32.5 | ||||||
Refinancing fees and costs on Credit Agreement that was refinanced | — | 3.3 | ||||||
Unamortized deferred finance costs expensed relating to payments made on Credit Agreement during 2004 | — | 2.3 | ||||||
Unamortized deferred finance costs expensed relating to the Credit Agreement that was refinanced | — | 1.2 | ||||||
Unamortized deferred finance costs expensed relating to the subordinated bridge loan due in 2005 that was fully repaid | — | 0.9 | ||||||
Unamortized premium credited to interest expense on 12.25% Convertible Subordinated Notes due in 2012 that were fully retired | — | (7.2 | ) | |||||
Allocation of interest to discontinued operations | — | (3.7 | ) | |||||
Total interest on long-term debt and refinancing costs | $ | 30.1 | $ | 78.1 | ||||
Discontinued Operations |
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January 1, | January 3, | |||||||
Continuing Operations: | 2005 | 2004 | ||||||
Funeral — other information | ||||||||
Number of funeral services performed | 117,525 | 124,798 | ||||||
Estimated impact of the 53rd week on the number of funeral services performed | — | (2,421 | ) | |||||
Number of funeral services performed adjusted for the impact of the 53rd week | 117,525 | 122,377 | ||||||
Average revenue per funeral service | $ | 4,024 | $ | 3,939 | ||||
Preneed funeral contracts written (in millions) | $ | 179.5 | $ | 164.8 | ||||
Estimated impact of the 53rd week on preneed funeral contracts written (in millions) | $ | — | $ | (3.0 | ) | |||
Preneed funeral contracts written adjusted for the impact of the 53rd week (in millions) | $ | 179.5 | $ | 161.8 | ||||
Preneed funeral conversion (percentages) | 26 | 26 | ||||||
Cemetery — other information | ||||||||
Preneed cemetery contracts written (in millions) | $ | 86.9 | $ | 83.3 | ||||
Estimated impact of the 53rd week on preneed cemetery contracts written (in millions) | $ | — | $ | (1.7 | ) | |||
Preneed cemetery contracts written adjusted for the impact of the 53rd week (in millions) | $ | 86.9 | $ | 81.6 | ||||
Number of cemetery interments | 46,461 | 47,924 | ||||||
Estimated impact of the 53rd week on the number of cemetery interments | — | (909 | ) | |||||
Number of cemetery interments adjusted for the impact of the 53rd week | 46,461 | 47,015 |
Continuing Operations |
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• | An estimated increase of $3.5 million due to the additional fifty-third week in 2003 over 2004. After adjusting for the effect of the fifty-third week, cemetery revenue of $164.1 million for the 52 weeks ended January 1, 2005, was $0.5 million, or 0.3%, lower than cemetery revenue for the corresponding period in 2003. | |
• | The increase in cemetery atneed service revenue during the 52 weeks ended January 1, 2005, compared to the corresponding period in 2003, was partially offset by a decrease in other cemetery revenue. Other cemetery revenue for the 52 weeks ended January 1, 2005, decreased compared to 2003, because Alderwoods revised its estimates of accrued perpetual care liabilities and recorded a one-time $3.9 million increase in other cemetery revenue for the 53 weeks ended January 3, 2004. The one-time $3.9 million adjustment to increase other cemetery revenue was necessary, because in 2001, in response to a state regulator inquiry, Alderwoods determined that it had not properly calculated the amount to be trusted for endowment care on the sale of plots. Endowment care is recorded as a reduction in other cemetery revenue, as amounts trusted are never available to Alderwoods in the future. To properly recalculate the appropriate perpetual care liability and its corresponding effect on other cemetery revenue, a significant number of individual contracts across several states needed to be reviewed, and the perpetual care liability was recalculated against the balance already paid in order to determine the amount of Alderwoods’ additional liability. Alderwoods prepared its best estimate of the perpetual care liability based on a sample of contracts from each state in which the issue existed, and in 2001, Alderwoods accrued an estimate for the perpetual care liability of additional required funding of $6.9 million, with the offset adjusting other cemetery revenue. In 2003, Alderwoods completed its review and calculation of the required additional funding and adjusted other cemetery revenue and the perpetual care liability accordingly. | |
• | As preneed cemetery interment rights are recorded in cemetery revenue when sold, an estimate of the related uncollectible amounts is charged to cemetery revenue. During 2002 and 2003, Alderwoods’ focused collection efforts resulted in higher collections than anticipated on the pre-emergence receivables. As a result of Alderwoods’ improvement in actual collections, Alderwoods reversed $3.9 million of the allowance for contract cancellations and refunds on receivables arising from preneed cemetery interment rights with a corresponding increase to cemetery revenue for the 53 weeks ended January 3, 2004. |
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52 Weeks Ended | 53 Weeks Ended | |||||||
January 1, | January 3, | |||||||
2005 | 2004 | |||||||
(Dollars in millions) | ||||||||
Interest on long-term debt | $ | 45.1 | $ | 72.3 | ||||
Tender premium on the repurchase of the 12.25% Senior unsecured notes due in 2009 | 32.5 | — | ||||||
Unamortized deferred finance costs expensed relating to the Credit Agreement that was refinanced | 1.2 | — | ||||||
Unamortized deferred finance costs expensed relating to payments made on the Credit Agreement during 2004 | 2.3 | — | ||||||
Refinancing fees and costs on the Credit Agreement that was refinanced | 3.3 | — | ||||||
Unamortized deferred finance costs expensed relating to the subordinated bridge loan due in 2005 that was fully repaid | 0.9 | — | ||||||
Unamortized premium credited to interest expense on 12.25% Convertible subordinated notes due in 2012 that was fully retired | (7.2 | ) | — | |||||
Tender premium on the repurchase of the 9.5% Senior subordinated notes due in 2004 | — | 1.3 | ||||||
Unamortized discount expensed relating to the 9.5% Senior subordinated notes due in 2004 that was fully repaid | — | 1.4 | ||||||
Fees and costs for early termination of Alderwoods’ previous credit facility entered into on January 2, 2002 | 1.5 | |||||||
Total interest on long-term debt and refinancing costs | $ | 78.1 | $ | 76.5 | ||||
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• | Incentive compensation for management performance was lower by $2.9 million compared to 2003. | |
• | Legal fees were lower by $1.3 million compared to fiscal 2003, primarily due to a smaller number of outstanding legal claims and improved management of legal costs by Alderwoods’s internal legal department. | |
• | Alderwoods collected $1.2 million of corporate receivables that were previously fully reserved against. | |
• | Accounting costs including audit fees increased by $2.1 million compared to 2003, due to additional accounting and audit work required pursuant to the Sarbanes-Oxley Act of 2002 and FIN No. 46R. | |
• | Alderwoods has a significant portion of its corporate and administrative functions in Canada. Expenses for these functions are paid principally in Canadian dollars. Due to the weakening of the US dollar against the Canadian dollar during 2004, Alderwoods estimates that foreign exchange rate movements resulted in an additional $3.5 million in general and administrative expenses for the 52 weeks ended January 1, 2005, compared to 2003, partially offset by $0.8 million in foreign exchange gains that resulted from Alderwoods’ foreign exchange derivatives program to hedge a portion these Canadian corporate and administrative costs. |
• | General and administrative expenses were increased by a $10.0 million reserve for a receivable from a disposition of assets in 2001. | |
• | General and administrative expenses were reduced by a $5.0 million reversal of accrued legal expense, which resulted from a settlement by Alderwoods of an automobile accident suit. In 2000, the suit was filed against Alderwoods claiming both compensation and punitive damages, as a result of the automobile accident. Alderwoods’ assessment indicated its insurance did not cover punitive damages and as such, Alderwoods accrued an estimated liability for probable punitive damages. In 2003, Alderwoods and its insurance company settled with the plaintiffs for amounts within Alderwoods’ insurance coverage, which included no punitive damages. | |
• | At the time of filing for bankruptcy, Loewen Group International, Inc. (the “Predecessor”) had a promissory note and non-compete obligation owing to a group of individuals that was secured by various funeral and cemetery properties. During the bankruptcy, a dispute arose as to whether the obligations owed by the Predecessor were fully secured. In the bankruptcy, secured claims were paid in cash; unsecured claims were paid out of the unsecured claim pool established in the Predecessor’s Plan. The Predecessor argued the maximum collateral value was less than the amount of the claim and that therefore, the claim was not fully secured. The individuals argued that the collateral value exceeded the value of the claim and that therefore, the claim was fully secured. |
• | This dispute could not be resolved before Alderwoods emergence from bankruptcy on January 2, 2002, and Alderwoods recorded the $9.0 million accrual as if the claims would be considered fully secured. | |
• | During 2003, Alderwoods reached a settlement to pay $4.7 million in cash and in addition, to allow a portion of the settlement as an unsecured claim to be paid out of the unsecured claim pool established in the Predecessor’s Plan. As a result of the settlement, Alderwoods reversed its remaining accrual of $4.3 million. |
• | General and administrative expenses were reduced by $3.1 million as a result of net interest income received from a tax refund in connection with the audit of the Predecessor’s 1993 through 1998 federal income tax returns. |
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Discontinued Operations |
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12 Weeks Ended | |||||||||
December 31, | January 1, | ||||||||
2005 | 2005 | ||||||||
(Dollars in thousands) | |||||||||
Funeral backlog: | |||||||||
Beginning balance | $ | 1,333,186 | $ | 1,275,058 | |||||
Sales, net of cancellations | 32,434 | 38,877 | |||||||
Maturities | (29,709 | ) | (34,180 | ) | |||||
Net increase in insurance benefits and earnings realized on funeral trust balances | 4,811 | 12,831 | |||||||
Change in cancellation reserve | (853 | ) | (7,978 | ) | |||||
Other | (3,040 | ) | (4,644 | ) | |||||
Ending balance | $ | 1,336,829 | $ | 1,279,964 | |||||
Trust funded | $ | 348,218 | $ | 351,577 | |||||
Third party insurance companies | 657,028 | 656,981 | |||||||
Subsidiary insurance company | 331,583 | 271,406 | |||||||
$ | 1,336,829 | $ | 1,279,964 | ||||||
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52 Weeks Ended | |||||||||
December 31, | January 1, | ||||||||
2005 | 2005 | ||||||||
(Dollars in thousands) | |||||||||
Funeral backlog: | |||||||||
Beginning balance | $ | 1,279,964 | $ | 1,227,126 | |||||
Sales, net of cancellations | 166,194 | 156,466 | |||||||
Maturities | (132,384 | ) | (130,129 | ) | |||||
Net increase in insurance benefits and earnings realized on funeral trust balances | 20,858 | 25,214 | |||||||
Change in cancellation reserve | 1,713 | (4,025 | ) | ||||||
Other | 484 | 5,312 | |||||||
Ending balance | $ | 1,336,829 | $ | 1,279,964 | |||||
Trust funded | $ | 348,218 | $ | 351,577 | |||||
Third party insurance companies | 657,028 | 656,981 | |||||||
Subsidiary insurance company | 331,583 | 271,406 | |||||||
$ | 1,336,829 | $ | 1,279,964 | ||||||
12 Weeks Ended | |||||||||
December 31, | January 1, | ||||||||
2005 | 2005 | ||||||||
(Dollars in thousands) | |||||||||
Cemetery backlog: | |||||||||
Beginning balance | $ | 274,801 | $ | 262,380 | |||||
Sales, net of cancellations | 17,993 | 19,452 | |||||||
Maturities | (19,754 | ) | (21,776 | ) | |||||
Earnings realized on cemetery trust balances | 1,990 | 2,654 | |||||||
Change in cancellation reserve | 386 | 115 | |||||||
Other | (9 | ) | — | ||||||
Ending balance | $ | 275,407 | $ | 262,825 | |||||
52 Weeks Ended | |||||||||
December 31, | January 1, | ||||||||
2005 | 2005 | ||||||||
(Dollars in thousands) | |||||||||
Cemetery backlog: | |||||||||
Beginning balance | $ | 262,825 | $ | 260,811 | |||||
Sales, net of cancellations | 88,675 | 79,800 | |||||||
Maturities | (87,470 | ) | (83,658 | ) | |||||
Earnings realized on cemetery trust balances | 10,657 | 5,884 | |||||||
Change in cancellation reserve | 2,445 | (12 | ) | ||||||
Other | (1,725 | ) | — | ||||||
Ending balance | $ | 275,407 | $ | 262,825 | |||||
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Combined Company |
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SCI |
Payments Due by Period | |||||||||||||||||||||
Contractual Obligations | 2006 | 2007 — 2008 | 2009 — 2010 | Thereafter | Total | ||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||
Current maturities of long-term debt(1) | $ | 20.7 | $ | — | $ | — | $ | — | $ | 20.7 | |||||||||||
Long-term debt maturities(1) | — | 225.6 | 347.6 | 613.3 | 1,186.5 | ||||||||||||||||
Interest obligation on long-term debt(1) | 90.2 | 158.2 | 96.9 | 250.4 | 595.7 | ||||||||||||||||
Casket purchase agreement(2) | 48.0 | — | — | — | 48.0 | ||||||||||||||||
Operating lease agreements(3) | 34.1 | 54.9 | 35.1 | 57.7 | 181.8 | ||||||||||||||||
Employment, consulting and non-competition agreements(4) | 21.6 | 21.5 | 4.2 | 2.3 | 49.6 | ||||||||||||||||
Total contractual obligations | $ | 214.6 | $ | 460.2 | $ | 483.8 | $ | 923.7 | $ | 2,082.3 | |||||||||||
(1) | SCI’s outstanding indebtedness contains standard provisions, such as payment delinquency default clauses and change of control clauses. In addition, SCI’s new senior credit facility contains a maximum leverage ratio and a minimum interest coverage ratio. |
(2) | SCI has executed a purchase agreement with a major casket manufacturer for its North America operations with an original minimum commitment of $750 million, covering a six-year period that expired in 2004. The agreement contained provisions for annual price adjustments and provided for a one-year extension to December 31, 2005, which SCI elected to extend in order to satisfy its commitment. In January 2005, SCI again amended the original purchase agreement to allow it to continue purchasing caskets through 2006, subject to price increase limitations. At December 31, 2005, SCI’s remaining casket purchase commitment under the agreement was $48.0 million. See note thirteen to SCI’s annual financial statements included in this prospectus for additional details related to this purchase agreement. |
(3) | The majority of SCI’s operating leases contain options to (i) purchase the property at fair value on the exercise date, (ii) purchase the property for a value determined at the inception of the leases, or |
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(iii) renew for the fair rental value at the end of the primary lease term. SCI’s operating leases at December 31, 2005, primarily related to funeral service locations, automobiles, limousines, hearses, cemetery operating and maintenance equipment and two aircraft. At December 31, 2005, SCI has residual value exposure related to certain operating leases of $22.2 million. SCI believes that is it unlikely that it will have to make future cash payments related to these residual value exposures. In order to eliminate the variable interest rate risk in SCI’s operating margins and improve the transparency of its financial statements, SCI amended certain of its transportation lease agreements in the first quarter of 2006. Based on the amended terms, these leases have been converted from operating leases to capital leases for accounting purposes in 2006. | |
(4) | SCI has entered into management employment, consulting and non-competition agreements which contractually require SCI to make cash payments over the contractual period. The agreements have been primarily entered into with certain officers and employees of SCI and former owners of businesses acquired. The contractual obligation amounts pertain to the total commitment outstanding under these agreements and may not be indicative of future expenses to be incurred related to these agreements due to cost rationalization programs completed by SCI. Agreements with contractual periods less than one year are excluded. See note thirteen to SCI’s annual financial statements included in this prospectus for additional details related to these agreements. |
Expiration by Period | |||||||||||||||||||||
Commercial and Contingent Obligations | 2006 | 2007 — 2008 | 2009 — 2010 | Thereafter | Total | ||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||
Surety obligations(1) | $ | 285.7 | $ | — | $ | — | $ | — | $ | 285.7 | |||||||||||
Letters of credit(2) | 54.7 | — | — | — | 54.7 | ||||||||||||||||
Representations and warranties(3) | 9.4 | 24.1 | — | — | 33.5 | ||||||||||||||||
Income distributions from trust(4) | 15.8 | — | — | — | 15.8 | ||||||||||||||||
Total commercial and contingent obligations | $ | 365.6 | $ | 24.1 | $ | — | $ | — | $ | 389.7 | |||||||||||
(1) | To support its operations, SCI has engaged certain surety companies to issue surety bonds on SCI’s behalf for customer financial assurance or as required by state and local regulations. The surety bonds are primarily obtained to provide assurance for SCI’s preneed funeral and preneed cemetery obligations, which are appropriately presented as liabilities in the consolidated balance sheet asDeferred preneed funeral contract revenuesandDeferred cemetery contract revenues. The total outstanding surety bonds at December 31, 2005 were $329.3 million. Of this amount, $313.6 million was related to preneed funeral and preneed cemetery obligations. When SCI uses surety bonds for preneed funeral and cemetery obligations, the bond amount required is based on the calculated trusting requirements as if the contract was paid in full at the time of sale. When SCI deposits funds into state-mandated trust funds, however, the amount deposited is generally based on the amount of cash received and payment application rules in the state trust requirements. Therefore, in the event all of the surety companies canceled or did not renew SCI’s outstanding surety bonds, which are generally renewed for twelve-month periods, SCI would be required to either obtain replacement assurance or fund approximately $285.7 million, as of December 31, 2005, primarily into state-mandated trust accounts. At this time, SCI does not believe it will be required to fund material future amounts related to these surety bonds. |
(2) | SCI is occasionally required to post letters of credit, issued by a financial institution, to secure certain insurance programs or other obligations. Letters of credit generally authorize the financial institution to make a payment to the beneficiary upon the satisfaction of a certain event or the failure to satisfy |
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an obligation. The letters of credit are generally posted for one-year terms and are usually automatically renewed upon maturity until such time as SCI has satisfied the commitment secured by the letter of credit. SCI is obligated to reimburse the issuer only if the beneficiary collects on the letter of credit. SCI believes that it is unlikely it will be required to fund a claim under its outstanding letters of credit. | |
(3) | In addition to the letters of credit described above, SCI currently has contingent obligations of $33.5 million related to its asset sale and joint venture transactions. SCI has agreed to guarantee certain representations and warranties associated with such disposition transactions with letters of credit or interest-bearing cash investments. SCI has interest-bearing cash investments of $6.8 million included inDeferred charges and other assetspledged as collateral for certain of these contingent obligations. SCI does not believe it will ultimately be required to fund to third parties any claims against these representations and warranties. During the year ended December 31, 2004, SCI recognized $35.8 million of contractual obligations related to representations and warranties associated with the disposition of its funeral operations in France. The remaining obligations of $24.1 million at December 31, 2005 is primarily related to taxes and certain litigation matters. At June 30, 2006, the remaining obligations totaled $23.7 million. This amount is recorded inOther liabilitiesin SCI’s consolidated balance sheet. See note nineteen to SCI’s annual financial statements included in this prospectus for addition information related to the disposition of SCI’s French operations. |
(4) | In certain states and provinces, SCI has withdrawn allowable distributable earnings including unrealized gains prior to the maturity or cancellation of the related contract. In the event of market declines, SCI may be required to re-deposit portions or all of these amounts into the respective trusts in some future period. |
Combined Company |
Payments Due by Period | |||||||||||||||||||||
Remainder of | |||||||||||||||||||||
Contractual Obligations | 2006 | 2007 �� 2008 | 2009 — 2010 | Thereafter | Total | ||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||
Current maturities of long-term debt(1) | $ | 24.3 | $ | — | $ | — | $ | — | $ | 24.3 | |||||||||||
Long-term debt maturities(1)(4) | — | 264.9 | 390.3 | 1,354.5 | 2,009.7 | ||||||||||||||||
Interest obligation on long-term debt(2) | 72.7 | 274.4 | 213.4 | 479.6 | 1,040.1 | ||||||||||||||||
Casket purchase agreement(3) | 12.8 | — | — | — | 12.8 | ||||||||||||||||
Operating lease agreements(4) | 9.9 | 24.2 | 18.7 | 67.6 | 120.4 | ||||||||||||||||
Employment, consulting and non-competition agreements(5) | 10.8 | 21.5 | 4.2 | 2.3 | 38.8 | ||||||||||||||||
Total contractual obligations | $ | 130.5 | $ | 585.0 | $ | 626.6 | $ | 1,904.0 | $ | 3,246.1 | |||||||||||
(1) | Our outstanding indebtedness contains standard provisions, such as payment delinquency default clauses and, in some cases, change of control clauses. In addition, SCI’s bank credit agreement contains a maximum leverage ratio and a minimum interest coverage ratio. Current and long-term debt maturities include capital leases. |
(2) | Interest on revolving credit facility, term loan and privately placed debt securities assume LIBOR remaining at 5.40% throughout all periods. |
(3) | SCI has executed a purchase agreement with a major casket manufacturer for its North America operations with an original minimum commitment of $750 million, covering a six-year period that expired in 2004. The agreement contained provisions for annual price adjustments and provided for a one-year extension to December 31, 2005, which SCI elected to extend in order to satisfy its commitment. In January 2005, SCI again amended the original purchase agreement to allow it to |
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continue purchasing caskets through 2006, subject to price increase limitations. At June 30, 2006, SCI’s remaining casket purchase commitment under the agreement was $12.8 million. | |
(4) | Our operating leases at December 31, 2005, primarily related to funeral service locations, automobiles, limousines, hearses, cemetery operating and maintenance equipment and two aircraft. In order to eliminate the variable interest rate risk in SCI’s operating margins and improve the transparency of its financial statements, SCI amended certain of its transportation lease agreements in the first quarter of 2006. Based on the amended terms, these leases have been converted from operating leases to capital leases for accounting purposes in 2006. As a result the Company acquired $108,703 of transportation equipment utilizing capital leases, of which $102,322 were classified as operating leases in prior periods. All capital leases are included in current and long-term debt maturities. |
(5) | SCI has entered into management employment, consulting and non-competition agreements which contractually require SCI to make cash payments over the contractual period. The agreements have been primarily entered into with certain officers and employees of SCI and former owners of businesses acquired. The contractual obligation amounts pertain to the total commitment outstanding under these agreements and may not be indicative of future expenses to be incurred related to these agreements due to cost rationalization programs completed by SCI. Agreements with contractual periods less than one year are excluded. |
Expiration by Period | |||||||||||||||||||||
Commercial and Contingent Obligations | 2006 | 2007 — 2008 | 2009 — 2010 | Thereafter | Total | ||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||
Surety obligations(1) | $ | 285.7 | $ | — | $ | — | $ | — | $ | 285.7 | |||||||||||
Letters of credit(2) | 72.3 | — | — | — | 72.3 | ||||||||||||||||
Representations and warranties(3) | 9.4 | 24.1 | — | — | 33.5 | ||||||||||||||||
Income distributions from trust(4) | 15.8 | — | — | — | 15.8 | ||||||||||||||||
Total commercial and contingent obligations | $ | 383.2 | $ | 24.1 | $ | — | $ | — | $ | 407.3 | |||||||||||
(1) | To support its operations, SCI has engaged certain surety companies to issue surety bonds on SCI’s behalf for customer financial assurance or as required by state and local regulations. The surety bonds are primarily obtained to provide assurance for SCI’s preneed funeral and preneed cemetery obligations, which are appropriately presented as liabilities in the consolidated balance sheet asDeferred preneed funeral contract revenuesandDeferred cemetery contract revenues. The total outstanding surety bonds at December 31, 2005 were $329.3 million. Of this amount, $313.6 million was related to preneed funeral and preneed cemetery obligations. When SCI uses surety bonds for preneed funeral and cemetery obligations, the bond amount required is based on the calculated trusting requirements as if the contract was paid in full at the time of sale. When SCI deposits funds into state-mandated trust funds, however, the amount deposited is generally based on the amount of cash received and payment application rules in the state trust requirements. Therefore, in the event all of the surety companies canceled or did not renew SCI’s outstanding surety bonds, which are generally renewed for twelve-month periods, SCI would be required to either obtain replacement assurance or fund approximately $285.7 million, as of December 31, 2005, primarily into state-mandated trust accounts. At this time, SCI does not believe it will be required to fund material future amounts related to these surety bonds. |
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(2) | We are occasionally required to post letters of credit, issued by a financial institution, to secure certain insurance programs or other obligations. Letters of credit generally authorize the financial institution to make a payment to the beneficiary upon the satisfaction of a certain event or the failure to satisfy an obligation. The letters of credit are generally posted for one-year terms and are usually automatically renewed upon maturity until such time as we have satisfied the commitment secured by the letter of credit. We are obligated to reimburse the issuer only if the beneficiary collects on the letter of credit. We believe that it is unlikely we will be required to fund a claim under its outstanding letters of credit. |
(3) | In addition to the letters of credit described above, SCI currently has contingent obligations of $33.5 million related to its asset sale and joint venture transactions. SCI has agreed to guarantee certain representations and warranties associated with such disposition transactions with letters of credit or interest-bearing cash investments. SCI has interest-bearing cash investments of $6.8 million included inDeferred charges and other assetspledged as collateral for certain of these contingent obligations. SCI does not believe it will ultimately be required to fund to third parties any claims against these representations and warranties. During the year ended December 31, 2004, SCI recognized $35.8 million of contractual obligations related to representations and warranties associated with the disposition of its funeral operations in France. The remaining obligations of $24.1 million at December 31, 2005 is primarily related to taxes and certain litigation matters. At June 30, 2006, the remaining obligations totaled $23.7 million. This amount is recorded inOther liabilitiesin SCI’s consolidated balance sheet. See note nineteen to SCI’s annual financial statements included in this prospectus for addition information related to the disposition of SCI’s French operations. |
(4) | In certain states and provinces, SCI has withdrawn allowable distributable earnings including unrealized gains prior to the maturity or cancellation of the related contract. In the event of market declines, SCI may be required to re-deposit portions or all of these amounts into the respective trusts in some future period. |
SCI |
December 31, | December 31, | June 30, | ||||||||||||
2005 | 2004 | 2006 | ||||||||||||
(Dollars in millions) | ||||||||||||||
Preneed funeral | $ | 139.3 | $ | 146.7 | $ | 132.1 | ||||||||
Preneed cemetery: | ||||||||||||||
Merchandise and services | 161.8 | 186.7 | 159.6 | |||||||||||
Pre-construction | 12.5 | 8.3 | 11.1 | |||||||||||
Bonds supporting preneed funeral and cemetery obligations | 313.6 | 341.7 | 302.8 | |||||||||||
Bonds supporting preneed business permits | 4.7 | 5.3 | 4.5 | |||||||||||
Other bonds | 11.0 | 5.5 | 11.0 | |||||||||||
Total surety bonds outstanding | $ | 329.3 | $ | 352.5 | $ | 318.3 | ||||||||
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Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005 |
Operating activities — Cash flows from operating activities in the first six months of 2006 were $151.6 million, a decrease of $38.8 million compared to the first six months of 2005. The first six months of 2005 included a federal income tax refund of $29.0 million. Additionally, in the first six months of 2006, there were $16.5 million of long-term incentive compensation payments related to a 2003 award program. Excluding these items, cash flows from operating activities for the first six months of 2006 increased $6.7 million compared to the same period in 2005 primarily as a result of the second quarter 2006 receipt of $7.9 million of previously disputed trust fund proceeds described in Results of Operations above and improvements in SCI’s DSO for the first half of 2006. | |
Investing activities — Cash flows from investing activities decreased by $40.3 million in the first six months of 2006 compared to the same period of 2005 due to a decline in proceeds from divestitures and sales of property and equipment, reduced distributions from SCI’s French equity investment, and an increase in acquisitions, partially offset by a favorable change in restricted cash. | |
In the first six months of 2006, SCI received $27.0 million from divestitures and sales of property and equipment compared to $56.1 million in the first six months of 2005. In 2006, SCI also received $11.0 million of proceeds held as an income tax receivable related to the 2005 sale of its operations in Chile. SCI also paid $14.7 million in 2006 in cash for selected strategic acquisitions. | |
In the first six months of 2005, SCI received $21.6 million in proceeds and distributions from the disposition of its businesses in Argentina and Uruguay, $32.1 million from its equity investment in |
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France and $2.4 million from other sales of property and equipment. The $20.0 million net source from restricted cash for the first six months of 2006 compared to the first six months of 2005 included an $18.1 million deposit of payroll funds into a restricted account in 2005, partially offset by a return of $9.2 million in cash collateral previously pledged in connection with various commercial commitments. In addition, $11.0 million related to pending deposits that are no longer reported as restricted cash based on discussions with the SEC regarding their comment letter. | |
Financing activities — Cash used in financing activities decreased $127.1 million in the first six months of 2006 compared to the first six months of 2005 primarily due to a $161.9 million reduction in share repurchases and a $275.5 million decrease in debt repayments, partially offset by $291.5 million of proceeds from the issuance of debt in 2005. SCI also had a $10.5 million increase in capital lease payments reflecting new capital leases for certain transportation assets and a $7.0 million increase in dividend payments in 2006 compared to 2005. |
Year Ended December 31, 2005 Compared to Years Ended December 31, 2004 and 2003 |
Operating activities — Cash flows from operating activities increased by $218.7 million to $312.9 million in 2005 compared to 2004. The 2004 cash flows from operating activities of $94.2 million declined by $280.1 million as compared to the operating cash flows in 2003. Included in 2005 was a federal income tax refund of $29.0 million. Included in 2004 was the payment of $131.1 million related to the resolution of certain litigation matters, a $20.0 million voluntary cash contribution to SCI’s pension plan, and the payment of $11.4 million to retire life insurance policy loans related to SCI’s SERP and Senior SERP retirement programs. Included in 2003 was a tax refund of $94.5 million and disbursements of $27.1 million (net of insurance recoveries) related to the resolution of certain litigation matters. | |
In addition to the items mentioned above, the increase in operating cash flows in 2005 as compared to 2004 is the result of an extra bi-weekly cash payroll payment of approximately $19.0 million in 2004, an approximate $13.0 million decrease in bonus payments, an increase in net trust withdrawals, and a $16.7 million decrease in cash interest paid. These net sources of cash were partially offset by cash outflows of $16.0 million associated with SCI’s cash funding of its 401(k) matches in 2005 (compared with funding through the use of stock in 2004) and a $10.2 million increase in cash outflows to improve internal controls in order to comply with Section 404 of the Sarbanes-Oxley Act. Cash receipts from Kenyon increased $15.0 million (offset by an $18.8 million increase in Kenyon expenses) in 2005 compared to the same period in 2004 due to Kenyon’s involvement with the incidents in Asia, Greece and the U.S. gulf coast. Additionally, cash flows from operating activities provided by SCI’s former operations in France decreased $18.3 million in 2005 as a result of the sale of its French operations in March 2004. | |
The decrease in operating cash flows in 2004 as compared to 2003 was also driven by the extrabi-weekly cash payroll payment in 2004 and the divestiture of SCI’s operations in France. Cash flow from operating activities in France declined $14.7 million from $33.0 million in 2003 to $18.3 million for the short period in 2004 prior to the disposition. The remaining decline was attributable to the |
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replacement of bonding with trust funding for new preneed sales in Florida and working capital increases primarily associated with decreases in accounts receivable collections. These net cash outflows were partially offset by a $25.6 million decrease in cash interest payments due to significant debt reductions during 2004. | |
SCI did not pay federal income taxes in 2005, 2004 or 2003. Because of its significant net operating loss carryforwards SCI does not expect to pay federal income taxes until 2007. Foreign, state and local income tax payments declined $4.2 million to $6.6 million in 2005 as compared to $10.8 million in 2004 and $14.5 million in 2003 primarily as a result of less foreign taxes paid due to the disposition of SCI’s French operations in 2004. | |
Investing activities — Cash flows from investing activities declined by $118.5 million in 2005 compared to 2004 primarily due to a decline in proceeds from sales of international businesses and equity investments and a decrease in net withdrawals from restricted funds primarily related to various commercial commitments. Partially offsetting these decreases was the payment in 2004 of $51.7 million to satisfy a contingent purchase obligation associated with the 1998 acquisition of SCI’s operations in Chile. The $326.9 million improvement in investing cash flows in 2004 as compared to 2003 was driven by proceeds from dispositions and an increase in net withdrawals from restricted funds, partially offset by the 2004 payment of the contingent purchase obligation previously mentioned. | |
In 2005, SCI received $90.4 million from the disposition of its cemetery operation in Chile, $42.7 million related to the collection of a€10,000 note receivable and the redemption of preferred equity certificates related to SCI’s equity investment in its former French operations (of which $39.7 million is reported as an investing activity), and $21.6 million from the disposition of its Argentina and Uruguay businesses. | |
In March 2004, SCI sold its funeral operations in France and received net cash proceeds of $281.7 million. Following a successful public offering transaction of SCI’s former United Kingdom affiliate during the second quarter of 2004, SCI liquidated its debt and equity holdings in its former United Kingdom affiliate and collected $53.8 million in aggregate, of which $49.2 million is reported as an investing activity. | |
Financing activities — Cash used in financing activities decreased $9.6 million in 2005 compared to 2004 primarily due to an increase in proceeds from the issuance of debt and a decrease in debt extinguishments, partially offset by an increase in share repurchases and dividend payments. The $35.7 million increase in cash used for financing in 2004 as compared to 2003 was driven by debt extinguishments and stock repurchases. | |
Payments of debt were $85.8 million in 2005 primarily related to the $63.5 million final payment of 6.00% notes due December 2005 and $14.5 million in note payments. Payments of debt were $177.8 million in 2004 primarily related to the repayment of $111.2 million of the 7.375% notes due 2004 and $50.8 million of 8.375% notes due in 2004. | |
Proceeds from the issuance of debt were $291.5 million in 2005 due to the issuance of senior unsecured 7.00% notes due June 15, 2017 for $300.0 million, net of $1.0 million of debt issue costs. In 2004, proceeds of $241.4 million were due to the issuance of 6.75% notes due April 1, 2016 in the amount of $250.0 million, net of $0.4 million of debt issue costs. | |
SCI repurchased 31.0 million shares of its common stock for $225.1 million in 2005 and 16.7 million shares of common stock for $110.3 million in 2004. | |
SCI paid $22.6 million of cash dividends during 2005 related to the quarterly cash dividend recently reinstated by the Board of Directors. There were no dividend payments in 2004 or 2003. |
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Twenty-Four Weeks Ended June 17, 2006 Compared to Twenty-Four Weeks Ended June 18, 2005 |
Fifty-Two Weeks Ended December 31, 2005 Compared to Fifty-Two Weeks Ended January 1, 2005 |
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North America | ||||||||||||||
Year Ended | ||||||||||||||
December 31, | ||||||||||||||
Six Months Ended | ||||||||||||||
2005 | 2004 | June 30, 2006 | ||||||||||||
(Dollars in millions) | ||||||||||||||
Funeral | ||||||||||||||
Preneed trust funded (including bonded): | ||||||||||||||
Sales production | $ | 131.9 | $ | 113.9 | $ | 64.6 | ||||||||
Sales production (number of contracts) | 35,490 | 33,286 | 15,241 | |||||||||||
Sales maturities | $ | 160.9 | $ | 161.7 | $ | 86.9 | ||||||||
Sales maturities (number of contracts) | 40,368 | 39,418 | 20,294 | |||||||||||
Cemetery | ||||||||||||||
Sales production: | ||||||||||||||
Preneed | $ | 307.4 | $ | 303.4 | $ | 160.9 | ||||||||
Atneed | 210.5 | 197.7 | 111.0 | |||||||||||
Total sales production | $ | 517.9 | $ | 501.1 | $ | 271.9 | ||||||||
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North America | ||||||||||||
Years Ended | Six Months | |||||||||||
December 31, | Ended June 30, | |||||||||||
2005 | 2004 | 2006 | ||||||||||
(Dollars in millions) | ||||||||||||
Funeral | ||||||||||||
Preneed trust funded (including bonded): | ||||||||||||
Sales production(1) | $ | 193.4 | $ | 238.6 | $ | 96.1 | ||||||
Sales production (number of contracts) | 42,221 | 51,533 | 18,729 | |||||||||
General agency revenue | $ | 27.6 | $ | 28.3 | $ | 16.6 | ||||||
Sales maturities | $ | 194.0 | $ | 197.2 | $ | 96.0 | ||||||
Sales maturities (number of contracts) | 41,640 | 43,508 | 20,189 |
(1) | Amounts are not included in the consolidated balance sheet |
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• | Cost reflects the investment (net of redemptions) of control holders in common trust funds, mutual funds and private equity investments. | |
• | Market reflects the fair market value of securities or cash held by the common trust funds, mutual funds at published values and the estimated market value of private equity investments (including debt as well as the estimated fair value related to the contract holders’ equity in majority owned real estate investments). |
North America Funeral | ||||||||||||||||||||||||
December 31, 2005 | December 31, 2004 | June 30, 2006 | ||||||||||||||||||||||
Market | Cost | Market | Cost | Market | Cost | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Backlog of trust funded deferred preneed funeral revenues(1) | $ | 1,495.5 | $ | 1,482.6 | $ | 1,475.9 | $ | 1,440.8 | $ | 1,508.6 | $ | 1,507.7 | ||||||||||||
Backlog of insurance funded preneed funeral revenues(2) | $ | 2,092.1 | $ | 2,092.1 | $ | 2,129.5 | $ | 2,129.5 | $ | 2,132.8 | $ | 2,132.8 | ||||||||||||
Total backlog of preneed funeral revenues | $ | 3,587.6 | $ | 3,574.7 | $ | 3,605.4 | $ | 3,570.3 | $ | 3,641.4 | $ | 3,640.5 | ||||||||||||
Assets associated with backlog of trust funded deferred preneed funeral revenues, net of estimated allowance for cancellation | $ | 1,158.7 | $ | 1,145.9 | $ | 1,165.8 | $ | 1,130.6 | $ | 1,164.4 | $ | 1,163.4 | ||||||||||||
Insurance policies associated with insurance funded deferred preneed funeral revenues, net of estimated allowance for cancellation(2) | $ | 2,092.1 | $ | 2,092.1 | $ | 2,129.5 | $ | 2,129.5 | $ | 2,132.8 | $ | 2,132.8 | ||||||||||||
Total assets associated with backlog of preneed funeral revenues | $ | 3,250.8 | $ | 3,238.0 | $ | 3,295.3 | $ | 3,260.1 | $ | 3,297.2 | $ | 3,296.2 | ||||||||||||
North America Cemetery | ||||||||||||||||||||||||
December 31, 2005 | December 31, 2004 | June 30, 2006 | ||||||||||||||||||||||
Market | Cost | Market | Cost | Market | Cost | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Backlog of deferred cemetery revenues(1) | $ | 1,644.5 | $ | 1,600.5 | $ | 1,682.3 | $ | 1,605.4 | $ | 1,672.3 | $ | 1,637.3 | ||||||||||||
Assets associated with backlog of deferred cemetery revenues, net of estimated allowance for cancellation | $ | 1,157.4 | $ | 1,119.3 | $ | 1,237.4 | $ | 1,170.8 | $ | 1,151.1 | $ | 1,120.7 |
(1) | Includes amounts reflected asNon-controlling interest in funeral and cemetery trustsin the consolidated balance sheet, net of estimated allowance for cancellation. |
(2) | Insurance funded preneed funeral contracts, net of estimated allowance for cancellation are not included in the consolidated balance sheet. |
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Allowances — SCI provides various allowances and/or cancellation reserves for our funeral and cemetery preneed and at need receivables, as well as for its preneed funeral and preneed cemetery deferred revenues. These allowances are based on an analysis of historical trends and include, where applicable, collection and cancellation activity. After 30 days, atneed funeral receivables are considered past due. Collections are managed by the locations until a receivable is 180 days delinquent, at which time it is written off and sent to a collection agency. These estimates are impacted by a number of factors, including changes in economy, relocation, and demographic or competitive changes in our areas of operation. |
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Valuation of trust investments — With the implementation of revised FASB Interpretation No. 46,“Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51” (FIN 46R), as of March 31, 2004, SCI replaced receivables due from trust assets recorded at cost with the actual trust investments recorded at market value. The trust investments include marketable securities that are classified as available-for-sale in accordance with Statement of Financial Accounting Standards No. 115,“Accounting for Certain Investments in Debt and Equity Securities.”Where quoted market prices are not available, SCI obtains estimates of fair value from the managers of the private equity funds, which are based on the market value of the underlying real estate and private equity investments. These market values are based on contract offers for the real estate or the managers’ appraisals of the venture capital funds. | |
Legal liability reserves — Contingent liabilities, principally for legal liability matters, are recorded when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Liabilities accrued for legal matters require judgments regarding projected outcomes and range of loss based on historical experience and recommendations of legal counsel. However, litigation is inherently unpredictable, and excessive verdicts do occur. SCI’s legal exposures and the ultimate outcome of these legal proceedings could be material to operating results or cash flows in any given quarter or year. | |
Depreciation of long-lived assets — SCI depreciates its long-lived assets over their estimated useful lives. These estimates of useful lives may be affected by such factors as changing market conditions or changes in regulatory requirements. | |
Income taxes — SCI ability to realize the benefit of certain of its deferred tax assets requires it to achieve certain future earnings levels. SCI has established a valuation allowance against a portion of its deferred tax assets and could be required to further adjust that valuation allowance if market conditions change materially and future earnings are, or are projected to be, significantly different from our current estimates. SCI intends to permanently reinvest the unremitted earnings of certain of its foreign subsidiaries in those businesses outside the United States and, therefore, have not provided for deferred federal income taxes on such unremitted foreign earnings. | |
A number of years may elapse before particular tax matters, for which SCI has established accruals, are audited and finally resolved. The number of tax years with open tax audits varies depending on the tax jurisdiction. In the United States, the Internal Revenue Service is currently examining SCI’s tax returns for 1999 through 2002 and various state jurisdictions are auditing years through 2004. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, SCI believes that its accruals reflect the probable outcome of known tax contingencies. Unfavorable settlement of any particular issue would reduce a deferred tax asset or require the use of cash. Favorable resolution could result in reduced income tax expense reported in the financial statements in the future. Our tax accruals are presented in the balance sheet withinDeferred income taxesandOther liabilities. | |
Pension cost — SCI’s pension plans are frozen with no benefits accruing to participants except interest. SCI’s pension costs and liabilities are actuarially determined based on certain assumptions, including the discount rate used to compute future benefit obligations. On January 1, 2004, SCI changed its method of accounting for gains and losses on pension assets and obligations to recognize such gains and losses in our consolidated statement of operations during the year in which they occur. Therefore, in 2005 and 2004, the concept of an expected rate of return on plan assets is not applicable. In 2003 and prior years, it was SCI’s policy to use an expected rate for return on assets comparable to rates of return on high-quality fixed income investments available and expected to be available during the period to maturity of SCI’s pension benefits. SCI used a 9.0% assumed rate of return on plan assets in 2003 as a result of a high allocation of equity securities within the plan assets. | |
Discount rates used to determine pension obligations for SCI’s pension plans were 5.75%, 6.00% and 6.25% for the years ended 2005, 2004, and 2003, respectively. SCI bases the discount rate used to compute future benefit obligations using an analysis of expected future benefit payments. SCI verifies |
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the reasonableness of the discount rate by comparing its rate to the rate earned on high-quality fixed income investments, such as the Moody’s Aa index, high-quality fixed income investments. At December 31, 2005, 55% of SCI’s plan assets were invested in core diversified and market neutral hedge funds, 33% of the plan assets were invested in equity securities and the remaining 12% of plan assets were fixed income securities. As of December 31, 2005, the equity securities were invested approximately 58% in U.S. “Large Cap” investments, 21% in international equities and 21% in U.S. “Small Cap” investments. In connection with a $20 million infusion of funds into SCI’s plan in early 2004, SCI rebalanced the plan assets to have a lower percentage invested in traditional equity securities and fixed income securities and instead incorporate investments into hedge funds. SCI believes that over time this reallocation will reduce the volatility and limit the negative impact of its investment returns. | |
A sensitivity analysis of the net periodic benefit cost was modeled to assess the impact that changing discount rates could have on pre-tax earnings. The sensitivity analysis assumes a 0.25% adverse change to the discount rate with all other variables held constant. Using this model, SCI’s pre-tax earnings would have decreased by less than $1.0 million, or less than $.01 per diluted share, for the year ended December 31, 2005. | |
Insurance loss reserves — SCI purchases comprehensive general liability, morticians and cemetery professional liability, automobile liability and workers compensation insurance coverages structured with high deductibles. This high deductible insurance program results in SCI being primarily self-insured for claims and associated costs and losses covered by these policies. Historical insurance industry experience indicates a high degree of inherent variability in assessing the ultimate amount of losses associated with casualty insurance claims. This is especially true with respect to liability and workers compensation exposures due to the extended period of time that transpires between when the claim might occur and the full settlement of such claim, often many years. SCI continually evaluates loss estimates associated with claims and losses related to these insurance coverages and falling within the deductible of each coverage through the use of qualified and independent actuaries. Assumptions based on factors such as claim settlement patterns, claim development trends, claim frequency and severity patterns, inflationary trends and data reasonableness will generally effect the analysis and determination of the “best estimate” of the projected ultimate claim losses. The results of these actuarial evaluations are used to both analyze and adjust our insurance loss reserves. | |
SCI’s independent actuaries used five actuarial methods generally accepted by the Casualty Actuarial Society to arrive at an estimate of a range that we refer to as “reasonably possible”. The Actuarial Standard of Practice No. 36 (ASOP 36 published by the American Academy of Actuaries) states: “A range of reasonable estimates is a range of estimates that could be produced by appropriate actuarial methods or alternative sets of assumptions that the actuary judges to be reasonable.” Methods used to determine SCI’s reasonably possible range are: paid and incurred loss development methods; frequency-severity methods; and paid and incurred Bornhuetter-Ferguson methods. All of these methods were used to determine SCI’s reasonably possible range of insurance loss reserves for the years ended December 31, 2005, 2004 and 2003. | |
SCI has not changed its methodologies for determining the reasonably possible range; however, there are changes made to the assumptions as the loss development factors are updated. These loss development factors are determined based on SCI’s historical loss development data(1) and are updated annually as new data becomes available. As a result, the loss development factors used in the December 31, 2004 analysis could be different from the loss development factors used in the December 31, 2005 analysis. SCI considers these changes in loss development factors synonymous to “changes in assumptions”. The final loss estimate is not determined by weighting the methodologies, but instead is subjectively arrived at by SCI’s independent actuary considering the relative merits of the various methods and the truncated average of the various methods. | |
For each loss type (workers compensation, general liability, and auto liability) “loss triangles” are generated, which show the cumulative valuation of each loss period over time. The loss components |
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evaluated include incurred losses, paid losses, reported claim counts, and average incurred loss. The actuarial analysis of losses uses this data to estimate future loss development or settlement value of the losses. Since these loss development factors are an estimate about future loss development, the calculation of ultimate losses is also an estimate. The actual ultimate loss value may not be known for many years, and may differ significantly from the estimated value of the ultimate losses. | |
As of December 31, 2005, reported losses within SCI’s retention for workers compensation, general liability and auto liability incurred during the period May 1, 1987 through December 31, 2005 were approximately $203.0 million. The selected fully developed ultimate settlement value estimated by SCI’s independent actuary was $238.6 million. Paid losses were $189.6 million indicating a reserve requirement of $49.0 million. After considering matters discussed with SCI’s independent actuary related to this calculation, SCI estimated the reserve to be $49.0 million as of December 31, 2005. |
(Dollars in millions) | ||||
Balance at December 31, 2003 | $ | (46.8 | ) | |
Additions | (38.3 | ) | ||
Payments | 37.8 | |||
Balance at December 31, 2004 | $ | (47.3 | ) | |
Additions | (20.1 | ) | ||
Payments | 18.4 | |||
Balance at December 31, 2005 | $ | (49.0 | ) | |
Sensitivity Analysis | |||||
(Dollars in millions) | |||||
Workers Compensation | $ | 2.7 | |||
General Liability | $ | 1.6 | |||
Auto Liability | $ | 0.3 | |||
Total Sensitivity | $ | 4.6 | |||
(1) | The loss development factors used in the December 31, 2005 calculation are based on SCI’s actual claim history by policy year for the period beginning May 1, 1991 — May 1, 2005. |
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Year Ended | Year Ended | ||||||||||||||||||||||||
December 31, 2004 | December 31, 2003 | ||||||||||||||||||||||||
Deferred | Deferred | ||||||||||||||||||||||||
Selling | Selling | ||||||||||||||||||||||||
Costs | Costs | ||||||||||||||||||||||||
Historical | Net(1) | Pro Forma | Historical | Net(1) | Pro Forma | ||||||||||||||||||||
(Restated) | (Restated) | (Restated) | (Restated) | ||||||||||||||||||||||
(Dollars in millions, except per share data) | |||||||||||||||||||||||||
Gross profits: | |||||||||||||||||||||||||
Funeral | $ | 227.8 | $ | (4.7 | ) | $ | 223.1 | $ | 273.7 | $ | (4.3 | ) | $ | 269.4 | |||||||||||
Cemetery | 102.2 | (9.6 | ) | 92.6 | 82.5 | (6.4 | ) | 76.1 | |||||||||||||||||
$ | 330.0 | $ | (14.3 | ) | $ | 315.7 | $ | 356.2 | $ | (10.7 | ) | $ | 345.5 | ||||||||||||
Income (loss) from continuing operations before income taxes and cumulative effects of accounting changes | $ | 112.0 | $ | (14.3 | ) | $ | 97.7 | $ | 95.7 | $ | (10.7 | ) | $ | 85.0 | |||||||||||
Net income (loss) | $ | 110.7 | $ | (9.4 | ) | $ | 101.3 | $ | 85.1 | $ | (6.5 | ) | $ | 78.6 | |||||||||||
Amounts per common share: | |||||||||||||||||||||||||
Net income (loss) — basic | $ | .35 | $ | (.03 | ) | $ | .32 | $ | .28 | $ | (.02 | ) | $ | .26 | |||||||||||
Net income (loss) — diluted | $ | .34 | $ | (.03 | ) | $ | .31 | $ | .28 | $ | (.02 | ) | $ | .26 | |||||||||||
(1) | Represents net deferred selling costs that would have been expensed under the new method of accounting adopted on January 1, 2005. |
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Accounting for Uncertainty in Income Taxes |
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Valuation of Goodwill |
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Exchange United States | |||||||||||||
Dollars for Foreign | Notional Weighted Average | Asset Fair | |||||||||||
Forward Foreign Exchange Contracts | Currency | Exchange Rate | Value | ||||||||||
(Foreign currency | (Dollars in | ||||||||||||
notional amount in | thousands) | ||||||||||||
thousands) | |||||||||||||
Functional currency: | |||||||||||||
Canadian dollar | $ | 16,000 | US$ | 0.8254 | US$ | 576 |
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Exchange United States | Notional Weighted | Notional Weighted | |||||||||||||||
Dollars for Foreign | Average Exchange | Average Exchange | Asset Fair | ||||||||||||||
Foreign Exchange Option Contracts | Currency | Rate on Cdn. Calls | Rate on Cdn. Puts | Value | |||||||||||||
(Foreign currency | (Dollars in | ||||||||||||||||
notional amount in | thousands) | ||||||||||||||||
thousands) | |||||||||||||||||
Functional currency: | |||||||||||||||||
Canadian dollar | $ | 13,000 | US$ | 0.8446 | US$ | 0.8105 | US$ | 365 |
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• | convenience and location, | |
• | religious and ethnic customs, | |
• | quality and prestige, and | |
• | price. |
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Number of | ||||||||||||||||
Number of | Number of | Combination | ||||||||||||||
Country, State/Province | Funeral Homes | Cemeteries | Locations | Total | ||||||||||||
United States | ||||||||||||||||
Alabama | 25 | 9 | 6 | 40 | ||||||||||||
Alaska | 4 | — | 2 | 6 | ||||||||||||
Arizona | 17 | 1 | 9 | 27 | ||||||||||||
Arkansas | 8 | 3 | — | 11 | ||||||||||||
California | 80 | 8 | 26 | 114 | ||||||||||||
Colorado | 16 | 3 | 9 | 28 | ||||||||||||
Connecticut | 17 | — | — | 17 | ||||||||||||
District of Columbia | 1 | — | — | 1 | ||||||||||||
Florida | 67 | 12 | 30 | 109 | ||||||||||||
Georgia | 21 | 8 | 2 | 31 | ||||||||||||
Hawaii | 2 | 2 | 0 | 4 | ||||||||||||
Illinois | 32 | 5 | 8 | 45 | ||||||||||||
Indiana | 20 | 6 | 2 | 28 | ||||||||||||
Iowa | 6 | 3 | 1 | 10 | ||||||||||||
Kansas | 5 | 1 | 3 | 9 | ||||||||||||
Kentucky | 11 | 3 | 2 | 16 |
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Number of | |||||||||||||||||
Number of | Number of | Combination | |||||||||||||||
Country, State/Province | Funeral Homes | Cemeteries | Locations | Total | |||||||||||||
Louisiana | 12 | 1 | 4 | 17 | |||||||||||||
Maine | 12 | — | — | 12 | |||||||||||||
Maryland | 10 | 7 | 1 | 18 | |||||||||||||
Massachusetts | 23 | — | — | 23 | |||||||||||||
Michigan | 17 | 12 | — | 29 | |||||||||||||
Mississippi | 9 | 1 | 1 | 11 | |||||||||||||
Missouri | 20 | 4 | 5 | 29 | |||||||||||||
Nebraska | 4 | — | — | 4 | |||||||||||||
New Hampshire | 3 | — | — | 3 | |||||||||||||
New Jersey | 20 | — | — | 20 | |||||||||||||
New York | 56 | — | — | 56 | |||||||||||||
North Carolina | 27 | 4 | 1 | 32 | |||||||||||||
Ohio | 14 | 9 | 3 | 26 | |||||||||||||
Oklahoma | 4 | 2 | 4 | 10 | |||||||||||||
Oregon | 8 | 1 | 6 | 15 | |||||||||||||
Pennsylvania | 9 | 17 | 2 | 28 | |||||||||||||
Rhode Island | 1 | — | — | 1 | |||||||||||||
South Carolina | 1 | 3 | 2 | 6 | |||||||||||||
South Dakota | 2 | — | — | 2 | |||||||||||||
Tennessee | 13 | 5 | 7 | 25 | |||||||||||||
Texas | 89 | 15 | 29 | 133 | |||||||||||||
Utah | 1 | 1 | 2 | 4 | |||||||||||||
Virginia | 12 | 8 | 4 | 24 | |||||||||||||
Washington | 13 | 2 | 7 | 22 | |||||||||||||
West Virginia | 2 | 4 | 2 | 8 | |||||||||||||
Wisconsin | 10 | — | — | 10 | |||||||||||||
Canada | |||||||||||||||||
Alberta | 15 | — | — | 15 | |||||||||||||
British Columbia | 16 | 3 | 2 | 21 | |||||||||||||
New Brunswick | 5 | — | — | 5 | |||||||||||||
Nova Scotia | 5 | — | — | 5 | |||||||||||||
Ontario | 27 | — | — | 27 | |||||||||||||
Quebec | 48 | — | — | 48 | |||||||||||||
Saskatchewan | 4 | — | — | 4 | |||||||||||||
Germany | 14 | — | — | 14 | |||||||||||||
Singapore | 1 | — | — | 1 | |||||||||||||
Total | 859 | 163 | 182 | (1) | 1,204 | ||||||||||||
(1) | Certain combination locations consist of multiple cemeteries combined with one funeral home. |
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Number of Operating Locations | Total Number of | ||||||||||||||||
Operating | |||||||||||||||||
Country, State/ Province | Funeral | Cemetery | Combination | Locations | |||||||||||||
Canada | |||||||||||||||||
British Columbia | 17 | — | 1 | 18 | |||||||||||||
Alberta | 11 | — | — | 11 | |||||||||||||
Saskatchewan | 22 | — | — | 22 | |||||||||||||
Manitoba | 3 | 1 | 2 | 6 | |||||||||||||
Ontario | 22 | — | — | 22 | |||||||||||||
Quebec | 14 | — | — | 14 | |||||||||||||
Nova Scotia | 6 | — | — | 6 | |||||||||||||
Total Canada | 95 | 1 | 3 | 99 | |||||||||||||
United States | |||||||||||||||||
Alabama | 7 | — | 1 | 8 | |||||||||||||
Alaska | 3 | — | — | 3 | |||||||||||||
Arizona | 5 | — | 1 | 6 | |||||||||||||
Arkansas | 3 | — | — | 3 | |||||||||||||
California | 44 | 1 | 6 | 51 | |||||||||||||
Colorado | 3 | 1 | 1 | 5 | |||||||||||||
Connecticut | 1 | — | — | 1 | |||||||||||||
Florida | 32 | 7 | 8 | 47 | |||||||||||||
Georgia | 23 | 5 | 6 | 34 | |||||||||||||
Idaho | 3 | 1 | — | 4 | |||||||||||||
Illinois | 6 | 16 | 3 | 25 | |||||||||||||
Indiana | 10 | 4 | 1 | 15 | |||||||||||||
Kansas | 7 | — | — | 7 | |||||||||||||
Louisiana | 18 | 2 | — | 20 | |||||||||||||
Maryland | 2 | — | — | 2 | |||||||||||||
Massachusetts | 13 | — | — | 13 | |||||||||||||
Michigan | 12 | — | — | 12 |
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Number of Operating Locations | Total Number of | ||||||||||||||||
Operating | |||||||||||||||||
Country, State/ Province | Funeral | Cemetery | Combination | Locations | |||||||||||||
Minnesota | 9 | 1 | 1 | 11 | |||||||||||||
Mississippi | 17 | 1 | 3 | 21 | |||||||||||||
Montana | 4 | — | — | 4 | |||||||||||||
Nevada | 2 | — | 1 | 3 | |||||||||||||
New Hampshire | 4 | — | — | 4 | |||||||||||||
New Mexico | 5 | — | — | 5 | |||||||||||||
New York | 36 | 1 | — | 37 | |||||||||||||
North Carolina | 26 | 8 | 3 | 37 | |||||||||||||
Ohio | 13 | 4 | 1 | 18 | |||||||||||||
Oklahoma | 18 | 1 | 1 | 20 | |||||||||||||
Oregon | 18 | 1 | 3 | 22 | |||||||||||||
Pennsylvania | 5 | — | — | 5 | |||||||||||||
Rhode Island | 3 | — | — | 3 | |||||||||||||
South Carolina | 6 | 3 | 4 | 13 | |||||||||||||
Tennessee | 31 | 2 | 5 | 38 | |||||||||||||
Texas | 52 | 4 | 4 | 60 | |||||||||||||
Virginia | 18 | — | — | 18 | |||||||||||||
Washington | 19 | 3 | 3 | 25 | |||||||||||||
West Virginia | 3 | — | — | 3 | |||||||||||||
Puerto Rico | 3 | 5 | 2 | 10 | |||||||||||||
Total United States | 484 | 71 | 58 | 613 | |||||||||||||
Overall total as of June 17, 2006 | 579 | 72 | 61 | 712 | |||||||||||||
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Name | Age | Position | ||||
R. L. Waltrip | 75 | Chairman of the Board | ||||
Thomas L. Ryan | 41 | President, Chief Executive Officer and Director | ||||
Michael R. Webb | 48 | Executive Vice President and Chief Operating Officer | ||||
J. Daniel Garrison | 55 | Senior Vice President Operations Support | ||||
Stephen M. Mack | 54 | Senior Vice President Middle Market Operations | ||||
James M. Shelger | 57 | Senior Vice President General Counsel and Secretary | ||||
Eric D. Tanzberger | 37 | Senior Vice President and Chief Financial Officer | ||||
Sumner J. Waring, III | 38 | Senior Vice President Major Market Operations | ||||
Christopher H. Cruger | 32 | Vice President Business Development | ||||
Jane D. Jones | 50 | Vice President Human Resources | ||||
Albert R. Lohse | 45 | Vice President Corporate Governance | ||||
Harris E. Loring, III | 56 | Vice President and Treasurer | ||||
Elisabeth G. Nash | 45 | Vice President Continuous Process Improvement | ||||
Donald R. Robinson | 48 | Vice President Supply Chain Management | ||||
Jeffrey I. Beason | 58 | Vice President and Corporate Controller | ||||
Anthony L. Coelho | 64 | Director | ||||
A.J. Foyt, Jr. | 71 | Director | ||||
Edward E. Williams | 61 | Director | ||||
Alan R. Buckwalter, III | 59 | Director | ||||
Malcolm Gillis | 65 | Director | ||||
Victor L. Lund | 59 | Director | ||||
John W. Mecom, Jr. | 67 | Director | ||||
Clifton H. Morris | 71 | Director | ||||
W. Blair Waltrip | 52 | Director |
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Annual Compensation | Long-Term Compensation | ||||||||||||||||||||||||||||||||
Awards | Payouts | ||||||||||||||||||||||||||||||||
Securities | |||||||||||||||||||||||||||||||||
Restricted | Underlying | Long-Term | |||||||||||||||||||||||||||||||
Other Annual | Stock | Stock | Incentive | All Other | |||||||||||||||||||||||||||||
Name and Principal Position | Year | Salary | Bonus | Compensation(1) | Award(2)(3) | Options(2) | Payouts(4) | Compensation(5) | |||||||||||||||||||||||||
R. L. Waltrip | 2005 | $ | 950,000 | $ | 979,498 | $ | 420,963 | $ | 578,488 | 189,400 | $ | 3,000,000 | $ | 223,564 | |||||||||||||||||||
Chairman of the Board | 2004 | 986,538 | 492,860 | 345,628 | 498,960 | 150,200 | 0 | 428,759 | |||||||||||||||||||||||||
2003 | 980,269 | 1,581,750 | 535,806 | 597,520 | 102,000 | 0 | 43,779 | ||||||||||||||||||||||||||
Thomas L. Ryan | 2005 | 800,000 | 824,840 | 85,974 | 795,160 | 260,400 | 2,200,000 | 341,971 | |||||||||||||||||||||||||
President and Chief | 2004 | 541,440 | 272,370 | 135,359 | 587,664 | 177,000 | 0 | 14,058 | |||||||||||||||||||||||||
Executive Officer | 2003 | 440,673 | 599,400 | 78,024 | 336,105 | 57,500 | 0 | 14,058 | |||||||||||||||||||||||||
Michael R. Webb | 2005 | 575,000 | 592,854 | 24,141 | 361,736 | 118,400 | 1,800,000 | 265,016 | |||||||||||||||||||||||||
Executive Vice President | 2004 | 466,058 | 233,460 | 27,371 | 338,184 | 101,900 | 0 | 18,000 | |||||||||||||||||||||||||
and Chief Operating Officer | 2003 | 416,153 | 566,100 | 23,496 | 271,600 | 46,000 | 0 | 17,957 | |||||||||||||||||||||||||
Sumner J. Waring, III | 2005 | 350,000 | 348,226 | 30,093 | 162,328 | 53,200 | 1,000,000 | 166,471 | |||||||||||||||||||||||||
Senior Vice President, | 2004 | 320,422 | 150,000 | 5,819 | 319,470 | 0 | 0 | 13,568 | |||||||||||||||||||||||||
Major Market Operations | 2003 | 273,808 | 241,080 | 6,626 | 149,710 | 25,500 | 0 | 13,346 | |||||||||||||||||||||||||
Stephen M. Mack | 2005 | 350,000 | 316,579 | 15,780 | 162,328 | 53,200 | 1,000,000 | 185,977 | |||||||||||||||||||||||||
Senior Vice President, | 2004 | 363,462 | 90,000 | 7,259 | 283,590 | 0 | 0 | 54,851 | |||||||||||||||||||||||||
Middle Market Operations | 2003 | 356,731 | 153,300 | 6,857 | 139,503 | 24,000 | 0 | 17,404 |
(1) | Includes the incremental cost of personal use of SCI aircraft to the extent not reimbursed to SCI: Mr. R. L. Waltrip, $205,617 in 2005, $146,706 in 2004 and $180,950 in 2003; Mr. Ryan, $13,491 in 2005 and $15,074 in 2004; Mr. Webb, $17,841 in 2005, $20,592 in 2004 and $13,265 in 2003; Mr. Waring, $22,758 in 2005; Mr. Mack, $4,692 in 2005. Also includes $142,460 in 2005, $144,835 in 2004 and $130,413 in 2003 for security and transportation services provided for Mr. R. L. Waltrip. For 2005, the amounts also include $43,881 for foreign tax reimbursement and preparation and $25,168 for related gross up for Mr. Ryan. For each of Messrs. Webb, Waring and Mack, the aggregate of the executive’s perquisites and benefits in 2005 did not exceed the lesser of $50,000 or 10 percent of the total of the executive’s annual salary and bonus. In prior years, certain of the figures reported were calculated using a different cost method and differ from those reported here. |
(2) | Awards of restricted stock and stock options set forth in the table for 2005, 2004 and 2003 reflect awards granted, respectively, in February 2006, February 2005 and February 2004. |
(3) | At December 31, 2005, the number and value of unvested restricted stock holdings (including restricted stock awards made in February 2006) of the listed executives were as follows: Mr. R. L. Waltrip: 200,867 shares ($1,643,092); Mr. Ryan: 214,300 shares ($1,752,974); Mr. Webb: 119,367 shares ($976,422); Mr. Waring: 80,667 shares ($659,856) and Mr. Mack: 74,467 shares ($609,140). Dividends paid on SCI common stock will also be paid on restricted shares. The restricted shares vest 1/3 on each anniversary of the grant date and will vest 100% in the event of certain terminations or a change of control (as defined in the Amended 1996 Incentive Plan). |
(4) | Consists of the payout in February 2006 of cash performance units previously awarded in February 2003 regarding the three year performance period ended December 31, 2005. For information concerning cash performance units awarded in February 2006, see the caption “SCI Long-Term Incentive Plan: Performance Units” herein below. |
(5) | Consists of the following for 2005: $204,115 for reimbursement of life insurance premium and related taxes (as described in “Other Compensation” below), $2,439 for term life insurance and $17,010 for SCI contributions to the SCI’s 401(k) plan for Mr. R. L. Waltrip; $858 for term life insurance, |
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$13,860 for SCI contributions to the SCI’s 401(k) plan and $327,253 for SCI contributions to the Executive Deferred Compensation Plan for Mr. Ryan; $1,757 for term life insurance, $17,010 for SCI contributions to the SCI’s 401(k) plan, and $246,248 for SCI contributions to the Executive Deferred Compensation Plan for Mr. Webb; $248 for term life insurance, $13,860 for SCI contributions to SCI’s 401(k) plan and $152,363 for SCI contributions to the Executive Deferred Compensation Plan for Mr. Waring; $23,109 for reimbursement of life insurance premium and related taxes, $316 for term life insurance, $17,010 for SCI contributions to SCI’s 401(k) plan and $145,542 for SCI contributions to the Executive Deferred Compensation Plan for Mr. Mack. |
% of Total | ||||||||||||||||||||||||
Number of | Options | |||||||||||||||||||||||
SCI Shares | Granted to | |||||||||||||||||||||||
Underlying | Employees | Grant Date | ||||||||||||||||||||||
Options | in Year | Price per | Expiration | Present | ||||||||||||||||||||
Name | Grant Date(1) | Granted(1) | of Grant | Share(2) | Date | Value(3) | ||||||||||||||||||
R. L. Waltrip | 02/07/06 | 189,400 | 11.82% | $ | 8.240 | 02/07/14 | $ | 598,031 | ||||||||||||||||
Thomas L. Ryan | 02/07/06 | 260,400 | 16.25% | $ | 8.240 | 02/07/14 | 822,213 | |||||||||||||||||
Michael R. Webb | 02/07/06 | 118,400 | 7.39% | $ | 8.240 | 02/07/14 | 373,848 | |||||||||||||||||
Sumner J. Waring, III | 02/07/06 | 53,200 | 3.32% | $ | 8.240 | 02/07/14 | 167,979 | |||||||||||||||||
Stephen M. Mack | 02/07/06 | 53,200 | 3.32% | $ | 8.240 | 02/07/14 | 167,979 |
(1) | The stock options vest one-third on each anniversary of the grant date. Each option will also fully vest upon a change of control of SCI (as defined in the Amended 1996 Incentive Plan). |
(2) | The exercise price for all grants is the market price at the date of grant. |
(3) | The present value of the options is based on a present value model known as the “Black-Scholes option pricing model”. The choice of such valuation method does not reflect any belief by SCI that such a method, or any other valuation method, can accurately assign a value to an option at the grant date. The assumptions used for valuing the 2006 grants are: volatility rate of 38.80%; annual dividend yield of 1.5%; turnover rate of 3%; and risk free interest rate of 4.30%. |
Number of Shares | ||||||||||||||||||||||||
Underlying Unexercised | Value of Unexercised | |||||||||||||||||||||||
Shares | Options at | In-the-Money Options at | ||||||||||||||||||||||
Acquired | December 31, 2005 | December 31, 2005 | ||||||||||||||||||||||
on | Value | |||||||||||||||||||||||
Name | Exercise | Realized | Exercisable | Unexercisable(1) | Exercisable | Unexercisable(1) | ||||||||||||||||||
R. L. Waltrip | — | NA | 7,287,003 | 407,600 | $ | 12,802,690 | $ | 279,210 | ||||||||||||||||
Thomas L. Ryan | — | NA | 561,666 | 475,734 | 2,066,369 | 272,809 | ||||||||||||||||||
Michael R. Webb | — | NA | 587,833 | 250,967 | 2,061,214 | 168,622 | ||||||||||||||||||
Sumner J. Waring, III | 33,000 | $ | 111,393 | 78,500 | 70,200 | 384,883 | 22,865 | |||||||||||||||||
Stephen M. Mack | 50,000 | $ | 295,830 | 712,680 | 69,200 | 1,658,130 | 21,520 |
(1) | Includes stock options granted in February 2006. |
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Estimated future payouts | ||||||||||||||||||||
under non-stock price based plan(2) | ||||||||||||||||||||
Number of | Threshold | Target | Maximum | |||||||||||||||||
Name | units(1) | Performance period | ($) | ($) | ($) | |||||||||||||||
R. L. Waltrip | 665,800 | 1/1/06-12/31/08 | $ | 166,450 | $ | 665,800 | $ | 1,331,600 | ||||||||||||
Thomas L. Ryan | 915,500 | 1/1/06-12/31/08 | 228,875 | 915,500 | 1,831,000 | |||||||||||||||
Michael R. Webb | 416,200 | 1/1/06-12/31/08 | 104,050 | 416,200 | 832,400 | |||||||||||||||
Sumner J. Waring, II | 187,300 | 1/1/06-12/31/08 | 46,825 | 187,300 | 374,600 | |||||||||||||||
Stephen M. Mack | 187,300 | 1/1/06-12/31/08 | 46,825 | 187,300 | 374,600 |
(1) | Each unit is valued at $1.00. |
(2) | Actual payouts are a function of relative Total Shareholder Return (“TSR”) of SCI compared to TSR of a comparison group at the end of the three year period. The absolute TSR of SCI must be greater than zero and at or above the threshold target to trigger a payout. In 2006, the plan was simplified to pay out at threshold for achievement of minimum established targets, at target for expected level of performance and a maximum award of 200% for achieving 75th percentile or better performance, provided that no individual payout may exceed $3 million. |
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Name | Annual Benefit | |||
R. L. Waltrip | $ | 118,852 | (1) | |
Thomas L. Ryan | 13,866 | (2) | ||
Michael R. Webb | 28,712 | (2) | ||
Sumner J. Waring, III | 11,739 | (2) | ||
Stephen M. Mack | 47,323 | (2) |
(1) | Currently being paid. |
(2) | The estimated annual benefit amount assumes no contributions being made to the plan after December 31, 2000 and assumes interest being credited only until age 65. |
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Estimated | ||||
Annual Benefit | ||||
at Age 60 | ||||
R. L. Waltrip | $ | 1,110,773 | (1) | |
Thomas L. Ryan | 18,968 | |||
Michael R. Webb | 42,725 | |||
Sumner J. Waring III | — | |||
Stephen M. Mack | 72,583 |
(1) | This is Mr. R. L. Waltrip’s actual benefit which, pursuant to his election, is being paid in the form of monthly installments since January 1, 1995. During 2003, SCI prepaid to Mr. Waltrip the last 36 payments due to him under the plan. |
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Amount | |||||||||
Beneficially | Percent | ||||||||
Name and Address of Beneficial Owner | Owned | of Class | |||||||
Barrow, Hanley, Mewhinney & Strauss, Inc. | 31,473,480 | (1) | 10.8% | ||||||
2200 Ross Avenue, 31st Floor Dallas, Texas 75201-2761 | |||||||||
FMR Corp., Fidelity Management & Research Company, Fidelity Leveraged Co. Stock Fund and Edward C. Johnson, 3d | 46,305,925 | (2) | 15.8% | ||||||
82 Devonshire Street Boston, Massachusetts 02109 | |||||||||
Southeastern Asset Management, Inc., Longleaf Partners Small-Cap Fund and O. Mason Hawkins | 15,543,300 | (3) | 5.3% | ||||||
6410 Poplar Ave., Suite 900 Memphis, TN 38119 | |||||||||
Vanguard Windsor Funds — Vanguard Windsor II Fund 23-2439135 | 26,080,100 | (4) | 8.9% | ||||||
(“Windsor II”) 100 Vanguard Blvd Malvern, Pennsylvania 19355 |
(1) | Based on a filing made by Barrow, Hanley, Mewhinney & Strauss, Inc. on February 7, 2006, which reported sole voting power for 806,080 shares, shared voting power for 30,667,400 shares, sole investment power for 31,473,480 shares and shared investment power for no shares. BHMS has informed SCI that the shares reported in the table as beneficially owned by BHMS include all 26,080,100 shares reported in the table as beneficially owned by Windsor II, for whom BHMS is an investment manager. |
(2) | Based on a filing made by the named companies and person on February 14, 2006, which reported sole voting power for 3,253,425 shares, shared voting power for no shares, sole investment power for 46,305,925 shares and shared investment power for no shares. |
(3) | Based on a filing made by the named companies and person on February 10, 2006, which reported sole voting power for no shares, shared voting power for 15,286,300 shares, sole investment power for 257,000 shares and shared investment power for 15,286,300 shares. |
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(4) | Based on a filing made by the named fund on February 13, 2006, which reported sole voting power for 26,080,100 shares, shared voting power for no shares, sole investment power for no shares and shared investment power for no shares. BHMS has informed SCI that the shares reported in the table as beneficially owned by BHMS include all 26,080,100 shares reported in the table as beneficially owned by Windsor II, for whom BHMS is an investment manager. |
Right to | ||||||||||||
Acquire Ownership | ||||||||||||
Under Options | ||||||||||||
Exercisable Within | Percent of | |||||||||||
Name of Individual or Group | Shares Owned | 60 Days | Class | |||||||||
R. L. Waltrip | 1,724,311 | (1) | 6,931,069 | 2.9 | % | |||||||
Thomas L. Ryan | 306,731 | 639,833 | * | |||||||||
Michael R. Webb | 227,109 | 637,132 | * | |||||||||
Sumner J. Waring, III | 201,740 | 87,000 | * | |||||||||
Stephen M. Mack | 109,775 | 720,680 | * | |||||||||
Alan R. Buckwalter | 56,987 | (2) | — | * | ||||||||
Anthony L. Coelho | 91,648 | — | * | |||||||||
A. J. Foyt, Jr | 139,628 | (3) | — | * | ||||||||
Malcolm Gillis | 29,990 | — | * | |||||||||
Victor L. Lund | 81,262 | — | * | |||||||||
John W. Mecom, Jr | 70,199 | — | * | |||||||||
Clifton H. Morris, Jr | 114,227 | (4) | — | * | ||||||||
W. Blair Waltrip | 2,136,202 | (5) | 410,000 | * | ||||||||
Edward E. Williams | 239,515 | — | * | |||||||||
Executive Officers and Directors as a Group (24 persons) | 5,672,540 | 12,130,444 | 5.9 | % |
* | Less than one percent |
(1) | Includes 468,384 shares held in trusts under which Mr. R. L. Waltrip’s three children, as trustees, share voting and investment powers; Mr. R. L. Waltrip disclaims beneficial ownership of such shares. These shares are also included in the shares owned by Mr. W. Blair Waltrip. See Footnote (5). Also includes 530,133 shares held by trusts of which Mr. R. L. Waltrip is the trustee having sole voting and investment powers. |
(2) | Includes 2,800 shares held by Mr. Buckwalter as custodian for family members. Mr. Buckwalter has sole voting and investment power for such shares and disclaims beneficial ownership of such shares. |
(3) | Includes 17,885 shares held by Mr. Foyt as custodian for family members. Mr. Foyt has sole voting and investment power for such shares and disclaims beneficial ownership of such shares. Also includes 200 shares owned by Mr. Foyt’s wife. |
(4) | Includes 4,034 shares owned by Mr. Morris’s wife. Mr. Morris disclaims beneficial ownership of such shares. |
(5) | Includes 152,204 shares held in a trust for the benefit of Mr. W. Blair Waltrip, 1,072,224 shares held in trusts under which Mr. W. Blair Waltrip, his brother and his sister are trustees and have shared voting and investment power and for which Mr. W. Blair Waltrip disclaims 2/3 beneficial ownership. Also includes 105,357 shares held by other family members or trusts, of which shares Mr. W. Blair Waltrip disclaims beneficial ownership. Of the shares attributable to the trusts, 468,384 shares are also included in the shares owned by Mr. R. L. Waltrip. See Footnote (1). Also includes 90,000 shares held by a charitable foundation of which Mr. Waltrip is President. |
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• | the New Notes that you receive will be acquired in the ordinary course of your business; | |
• | you are not participating, and have no arrangement or understanding with any person or entity to participate, in the distribution of the New Notes; and | |
• | you are not our “affiliate,” as defined in Rule 405 of the Securities Act, or a broker-dealer tendering Old Notes acquired directly from us for resale pursuant to Rule 144A or any other available exemption under the Securities Act; and | |
• | if you are not a broker-dealer, that you are not engaged in and do not intend to engage in the distribution of the New Notes. |
• | to delay our acceptance of Old Notes for exchange; | |
• | to terminate the exchange offer if any of the conditions set forth under “— Conditions of the Exchange Offer” exist; | |
• | to waive any condition to the exchange offer; |
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• | to amend any of the terms of the exchange offer; and | |
• | to extend the expiration date and retain all Old Notes tendered in the exchange offer, subject to your right to withdraw your tendered Old Notes as described under “— Withdrawal of Tenders.” |
• | you are acquiring New Notes in the ordinary course of your business; | |
• | you are not participating, and have no arrangement or understanding with any person or entity to participate, in the distribution of the New Notes; and | |
• | you are not our “affiliate” within the meaning of Rule 405 under the Securities Act; and | |
• | you are not a broker-dealer who purchased Old Notes directly from us for resale pursuant to Rule 144A or any other available exemption under the Securities Act. |
• | you cannot rely on those interpretations by the Commission staff, and | |
• | you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction and such a secondary resale transaction must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K. |
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• | delay acceptance for exchange of Old Notes tendered under the exchange offer, subject to Rule 14e-1 under the Exchange Act, which requires that an offeror pay the consideration offered or return the securities deposited by or on behalf of the holders promptly after the termination or withdrawal of a tender offer, or | |
• | terminate the exchange offer and not accept for exchange any Old Notes not theretofore accepted for exchange, if any of the conditions set forth below under “— Conditions of the Exchange Offer” have not been satisfied or waived by us or in order to comply in whole or in part with any applicable law. In all cases, New Notes will be issued only after timely receipt by the exchange agent of certificates representing Old Notes, or confirmation of book-entry transfer, a properly completed and duly executed letter of transmittal, or a manually signed facsimile thereof, and any other required documents. For purposes of the exchange offer, we will be deemed to have accepted for exchange validly tendered Old Notes, or defectively tendered Old Notes with respect to which we have waived such defect, if, as and when we give oral, confirmed in writing, or written notice to the exchange agent. Promptly after the expiration date, we will deposit the New Notes with the exchange agent, who will act as agent for the tendering holders for the purpose of receiving the New Notes and transmitting them to the holders. The exchange agent will deliver the New Notes to holders of Old Notes accepted for exchange after the exchange agent receives the New Notes. |
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Tender of Old Notes Held Through Depository Trust Company |
Tender of Old Notes Held in Certificated Form |
• | the exchange agent must receive at its address set forth in this prospectus a properly completed and validly executed letter of transmittal, or a manually signed facsimile thereof, together with any signature guarantees and any other documents required by the instructions to the letter of transmittal, and | |
• | the exchange agent must receive certificates for tendered Old Notes at such address, or such Old Notes must be transferred pursuant to the procedures for book-entry transfer described below. A confirmation of such book-entry transfer must be received by the exchange agent prior to the expiration date of the exchange offer. A holder who desires to tender Old Notes and who cannot comply with the procedures set forth herein for tender on a timely basis or whose Old Notes are not immediately available must comply with the procedures for guaranteed delivery set forth below. |
Signature Guarantee |
• | the letter of transmittal is signed by the registered holder of the Old Notes tendered therewith, or by a participant in one of the book-entry transfer facilities whose name appears on a security position listing it as the owner of those Old Notes, or if any Old Notes for principal amounts not tendered are to be issued directly to the holder, or, if tendered by a participant in one of the book-entry transfer facilities, any Old Notes for principal amounts not tendered or not accepted for exchange are to be credited to the participant’s account at the book-entry transfer facility, and neither the “Special Issuance Instructions” nor the “Special Delivery Instructions” box on the letter of transmittal has been completed, or | |
• | the Old Notes are tendered for the account of an eligible institution. |
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Book-Entry Transfer |
Guaranteed Delivery |
(1) certificates representing your Old Notes are not lost but are not immediately available, | |
(2) time will not permit your letter of transmittal, certificates representing your Old Notes and all other required documents to reach the exchange agent on or prior to the expiration date of the exchange offer, or | |
(3) the procedures for book-entry transfer cannot be completed on or prior to the expiration date of the exchange offer, you may nevertheless tender if all of the following conditions are complied with: |
• | your tender is made by or through an eligible institution; and | |
• | on or prior to the expiration date of the exchange offer, the exchange agent has received from the eligible institution a properly completed and validly executed notice of guaranteed delivery, by manually signed facsimile transmission, mail or hand delivery, in substantially the form provided with this prospectus. The notice of guaranteed delivery must: |
(a) set forth your name and address, the registered number(s) of your Old Notes and the principal amount of Old Notes tendered; | |
(b) state that the tender is being made thereby; | |
(c) guarantee that, within three New York Stock Exchange trading days after the expiration date, the letter of transmittal or facsimile thereof properly completed and validly executed, together with certificates representing the Old Notes, or a book-entry confirmation, and any other documents required by the letter of transmittal and the instructions thereto, will be deposited by the eligible institution with the exchange agent; and | |
(d) the exchange agent receives the properly completed and validly executed letter of transmittal or facsimile thereof with any required signature guarantees, together with certificates for all Old Notes in proper form for transfer, or a book-entry confirmation, and any other required documents, within three New York Stock Exchange trading days after the expiration date. |
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Other Matters |
• | certificates for (or a timely book-entry confirmation with respect to) your Old Notes, | |
• | a properly completed and duly executed letter of transmittal or facsimile thereof with any required signature guarantees, or, in the case of a book-entry transfer, an agent’s message, and | |
• | any other documents required by the letter of transmittal. |
• | the exchange agent must receive a written notice of withdrawal at the address set forth on the inside of the back cover of this prospectus, or | |
• | you must comply with the appropriate procedures of DTC’s automated tender offer program system. |
• | specify the name of the person who tendered the Old Notes to be withdrawn, and | |
• | identify the Old Notes to be withdrawn, including the principal amount of the Old Notes. |
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• | delivery of the New Notes and/or certificates for Old Notes for principal amounts not exchanged, are to be made to any person other than the record holder of the Old Notes tendered; | |
• | tendered certificates for Old Notes are recorded in the name of any person other than the person signing any letter of transmittal; or | |
• | a transfer tax is imposed for any reason other than the transfer and exchange of Old Notes to us or our order, |
• | as set forth in the legend printed on the Old Notes as a consequence of the issuance of the Old Notes pursuant to the exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws; and | |
• | otherwise set forth in the offering circular distributed in connection with the private offering of the Old Notes. |
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• | are our general unsecured obligations; | |
• | rank equally in right of payment with all of our other unsecured and unsubordinated indebtedness; and | |
• | are senior in right or payment to all of our subordinated indebtedness. |
• | accrue at a rate of 7.0% per year; | |
• | be payable semi-annually on June 15 and December 15 of each year, commencing December 15, 2005; | |
• | be payable to the persons in whose names the notes are registered at the close of business on the June 1 or December 1 preceding the applicable interest payment date; |
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• | accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid | |
• | be computed on the basis of a 360-day year consisting of twelve 30-day months. |
(1) 100% of the principal amount of such notes; and | |
(2) as determined by the Quotation Agent, the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued as of the date of redemption) discounted to the date of redemption on a semi-annual basis (assuming a360-day year consisting of twelve30-day months) at the Adjusted Treasury Rate plus 50 basis points |
Limitation on Liens |
• | from acquiring and retaining property subject to mortgages, pledges, encumbrances, liens or security interests existing thereon at the date of acquisition thereof, or from creating within one year of such acquisition mortgages, pledges, encumbrances or liens upon property acquired by us or any |
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subsidiary after March 31, 2005, as security for purchase money obligations incurred by us or any subsidiary in connection with the acquisition of such property, whether payable to the person from whom such property is acquired or otherwise; | ||
• | from mortgaging, pledging, encumbering or subjecting to any lien or security interest current assets to secure current liabilities; | |
• | from mortgaging, pledging, encumbering or subjecting to any lien or security interest property to secure indebtedness under one or more Credit Facilities in an aggregate principal amount not to exceed $500 million; | |
• | from extending, renewing or refunding any indebtedness secured by a mortgage, pledge, encumbrance, lien or security interest on the same property theretofore subject thereto, provided that the principal amount of such indebtedness so extended, renewed or refunded shall not be increased; or | |
• | from securing the payment of workmen’s compensation or insurance premiums or from making good faith pledges or deposits in connection with bids, tenders, contracts (other than contracts for the payment of money) or leases, deposits to secure public or statutory obligations, deposits to secure surety or appeal bonds, pledges or deposits in connection with contracts made with or at the request of the United States government or any agency thereof, or pledges or deposits for similar purposes in the ordinary course of business. |
Limitation on Sale and Leaseback Transactions |
• | such transaction is the substantial equivalent of a mortgage, pledge, encumbrance, lien or security interest which we or any subsidiary would have been permitted to create under the covenant described in “— Limitation on Liens” without equally and ratably securing all senior debt securities (including the notes) then outstanding under the indenture; or | |
• | within 120 days after such transaction we applied (and in any such case we covenant that we will so apply) an amount equal to the greater of |
• | the net proceeds of the sale of the real property leased pursuant to such transaction or | |
• | the fair value of the real property so leased at the time of entering into such transaction (as determined by our board of directors) |
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(1) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if we were required to file such Forms, including a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and, with respect to the annual information only, a report on the annual financial statements by our independent accountants; and | |
(2) all current reports that would be required to be filed with the Commission on Form 8-K if we were required to file such reports. |
• | immediately after such transaction we or such other corporation formed by or surviving any such consolidation or merger, or to which such sale, lease, exchange or other disposition shall have been made, will not be in default in the performance or observance of any of the terms, covenants and conditions in the indenture to be kept or performed by us; | |
• | the corporation (if other than SCI) formed by or surviving any such consolidation or merger, or to which such sale, lease, exchange or other disposition shall have been made, shall be a corporation organized under the laws of the United States, any state thereof or the District of Columbia; and | |
• | the corporation (if other than SCI) formed by such consolidation, or into which we shall have been merged, or the corporation which shall have acquired or leased such property and assets, shall assume, by a supplemental indenture, our obligations under the indenture. |
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• | we irrevocably deposit with the trustee cash or U.S. government obligations, or a combination thereof, as trust funds in an amount certified to be sufficient to pay the principal of, premium, if any, and interest, if any, on all outstanding notes when due, and such funds have been so deposited for 91 days; | |
• | such deposit will not result in a breach or violation of, or cause a default under, any agreement or instrument to which we are a party or by which we are bound; and | |
• | we deliver to the trustee an opinion of counsel to the effect that the holders of the notes will not recognize income, gain or loss for United States federal income tax purposes as a result of such defeasance, and that such defeasance will not otherwise alter the United States federal income tax treatment of principal, premium, if any, and interest payments on the notes. Such opinion of counsel must be based on a ruling of the Internal Revenue Service or a change in United States federal income tax law, since such a result would not occur under current tax law. |
(1) rights of registration of transfer and exchange of notes; | |
(2) rights of substitution of mutilated, defaced, destroyed, lost or stolen notes; | |
(3) rights of holders of notes to receive payments of principal thereof, premium, if any, and interest thereon when due from the trust funds held by the trustee; | |
(4) the rights, obligations, duties and immunities of the trustee; | |
(5) the rights of holders of notes as beneficiaries with respect to property deposited with the trustee payable to all or any of them; and | |
(6) our obligation to maintain an office or agency for notice, payments and transfers in respect of notes. |
• | evidence the assumption by a successor corporation of our obligations under the indenture; | |
• | add covenants or make the occurrence and continuance of a default in such additional covenants a new Event of Default for the protection of the holders of debt securities; | |
• | cure any ambiguity or correct any inconsistency in the indenture or amend the indenture in any other manner which we may deem necessary or desirable and which will not adversely affect the interests of the holders of senior debt securities issued thereunder; | |
• | establish the form and terms of any series of senior debt securities to be issued pursuant to the indenture; | |
• | evidence the acceptance of appointment by a successor trustee; or | |
• | secure the senior debt securities with any property or assets. |
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• | extend the stated maturity of the principal of the notes, reduce the principal amount thereof, reduce the rate or extend the time of payment of any interest thereon, reduce or alter the method of computation of any amount payable on redemption thereof, change the coin or currency in which principal, premium, if any, and interest are payable, or impair or affect the right of any holder to institute suit for the enforcement of any payment thereof; or | |
• | reduce the percentage in aggregate principal amount of notes, the consent of the holders of which is required for any such modification. |
(1) failure to pay any installment of interest on the notes for 30 days; | |
(2) failure to pay the principal of or premium, if any, on any of the notes when the due; | |
(3) failure to perform any other of the covenants or agreements in the notes or in the indenture that continues for a period of 60 days after being given written notice; | |
(4) if a court having jurisdiction enters a bankruptcy order or a judgment, order or decree adjudging SCI a bankrupt or insolvent, or an order for relief for reorganization, arrangement, adjustment or composition of or in respect of SCI and the judgment, order or decree remains unstayed and in effect for a period of 60 consecutive days; | |
(5) if we institute a voluntary case in bankruptcy, or consent to the institution of bankruptcy or insolvency proceedings against us, or file a petition seeking, or seek or consent to, reorganization, arrangement, composition or relief, or consent to the filing of such petition or to the appointment of a receiver, custodian, liquidator, assignee, trustee, sequestrator or similar official of SCI or of substantially all of our property, or we shall make a general assignment for the benefit of creditors; or | |
(6) default under any bond, debenture, note or other evidence of indebtedness for money borrowed by us or any subsidiary or under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by us or any subsidiary (other than non-recourse indebtedness), whether such indebtedness exists on the date of the indenture or shall thereafter be created, which default shall have resulted in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, or any default in payment of such indebtedness (after the expiration of any applicable grace periods and the presentation of any debt instruments, if required), if the aggregate amount of all such indebtedness which has been so accelerated and with respect to which there has been such a default in payment shall exceed $10,000,000, without each such default and acceleration having been rescinded or annulled within a period of 30 days after there shall have been given to us by the trustee by registered mail, or to us and the trustee by the holders of at least 25 percent in aggregate principal amount of the notes then outstanding, a written notice specifying each such default and requiring us to cause each such default and acceleration to be rescinded or annulled and stating that such notice is a “Notice of Default” under the indenture. |
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• | goodwill; | |
• | deferred charges and other assets; | |
• | preneed funeral receivables and trust investments; | |
• | preneed cemetery receivables and trust investments; | |
• | cemetery perpetual care trust investments; | |
• | current assets of discontinued operations; | |
• | non-current assets of discontinued operations; |
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• | other like intangibles; and | |
• | current liabilities (excluding, however, current maturities of long-term debt). |
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• | you will not recognize taxable gain or loss when you receive New Notes in exchange for Old Notes; | |
• | your holding period in the New Notes will include your holding period in the Old Notes; and | |
• | your basis in the New Notes will equal your adjusted basis in the Old Notes at the time of the exchange. |
(1) is permitted under the plan document and other instruments governing the plan; and | |
(2) is appropriate for the plan in view of its overall investment policy and the composition and diversification of its portfolio, taking into account the limited liquidity of the notes. |
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(1) Prohibited transaction class exemption or “PTCE” exemption75-1 (relating to specified transactions involving employee benefit plans and broker-dealers, reporting dealers and banks). | |
(2) PTCE 84-14 (relating to specified transactions directed by independent qualified professional asset managers); | |
(3) PTCE 90-1 (relating to specified transactions involving insurance company pooled separate accounts); | |
(4) PTCE 91-38 (relating to specified transactions by bank collective investment funds); | |
(5) PTCE 95-60 (relating to specified transactions involving insurance company general accounts); and | |
(6) PTCE 96-23 (relating to specified transactions directed by in-house asset managers). |
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(1) you have not, directly or indirectly, used plan assets to acquire such note; | |
(2) your acquisition and holding of a note (A) is exempt from the prohibited transaction restrictions of ERISA and the Code under one or more prohibited transaction class exemptions or does not constitute a prohibited transaction under ERISA and the Code, and (B) meets the fiduciary requirements of ERISA; or | |
(3) if you use plan assets to acquire such note and you are not otherwise subject to ERISA, such acquisition is in compliance with the applicable laws governing such plan. |
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• | a limited-purpose trust company organized under the laws of the State of New York; | |
• | a “banking organization” within the meaning of the New York Banking Law; | |
• | a member of the Federal Reserve System; | |
• | a “clearing corporation” within the meaning of the New York Uniform Commercial Code, as amended; and | |
• | a “clearing agency” registered pursuant to Section 17A of the Securities Exchange Act of 1934. |
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• | because of any changes in law, Commission rules or regulations or applicable interpretations by the staff of the Commission, we are not permitted to effect the exchange offer; |
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• | for any other reason the exchange offer registration statement, of which this prospectus is a part, is not declared effective within 180 days following the original issuance of the Old Notes, or the exchange offer is not consummated within 210 days after the original issuance of the Old Notes; | |
• | upon the request of any of the Initial Purchasers; or | |
• | a holder of the Old Notes is not permitted to participate in the exchange offer or does not receive fully tradeable New Notes pursuant to the exchange offer; |
• | as promptly as practicable, file with the Commission, and use our best efforts to cause to be declared effective as promptly as practicable but not later than 210 days after the original issuance of the Old Notes, a shelf registration statement relating to the offer and sale of the New Notes; and | |
• | use our best efforts to keep the shelf registration statement continuously effective for a period of two years from the date the shelf registration statement is declared effective, or for such shorter period that will terminate when all of the New Notes covered by the shelf registration statement have been sold or cease to be outstanding or otherwise registrable securities within the meaning of the registration rights agreement. |
• | required to deliver information to be used in connection with the shelf registration statement; | |
• | required to be named as a selling securityholder in the related prospectus; | |
• | required to deliver a prospectus to purchasers; | |
• | subject to certain of the civil liability provisions under the Securities Act in connection with the sales; and | |
• | bound by some of the provisions of the registration rights agreement, including those regarding indemnification rights and obligations. |
• | file this exchange offer registration statement with the Commission not later than 90 days following the closing of the offering of the Old Notes; | |
• | use our best efforts to have this exchange offer registration statement declared effective under the Securities Act within 180 days of the closing of the offering of the Old Notes; | |
• | use our best efforts to keep this exchange offer registration statement effective until the closing of the exchange offer; and | |
• | use our best efforts to cause the exchange to be consummated not later than 210 days following the closing of the offering of the Old Notes. |
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• | we do not file with the Commission the exchange offer registration statement on or prior to the 90th day following the original issuance of the Old Notes; | |
• | the Commission does not declare the exchange offer registration statement effective on or prior to the 180th day following the original issuance of the Old Notes; | |
• | we do not consummate the exchange offer on or prior to the 210th day following the original issuance of the Old Notes; or | |
• | we have filed, but the Commission has not declared effective, the shelf registration statement on or prior to the 210th day following the original issuance of the Old Notes; |
• | our “affiliate” within the meaning of Rule 405 under the Securities Act; | |
• | a broker-dealer that acquired Old Notes directly from us; or | |
• | a broker-dealer that acquired Old Notes as a result of market-making or other trading activities without compliance with the registration and prospectus delivery provisions of the Securities Act; |
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Page | ||||
SCI’s Interim Financial Statements: | ||||
Unaudited Condensed Consolidated Statement of Operations for the Three and Six Months Ended June 30, 2006 and 2005 | F-2 | |||
Unaudited Condensed Consolidated Balance Sheet as of June 30, 2006 and 2005 | F-3 | |||
Unaudited Condensed Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2006 and 2005 | F-4 | |||
Unaudited Condensed Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2006 | F-5 | |||
Notes to Unaudited Condensed Consolidated Financial Statements | F-6 | |||
SCI’s Annual Financial Statements: | ||||
Management’s Report on Internal Control over Financial Reporting | F-28 | |||
Report of Independent Registered Public Accounting Firm | F-30 | |||
Consolidated Statement of Operations for the years ended December 31, 2005, 2004 and 2003 | F-32 | |||
Consolidated Balance Sheet as of December 31, 2005 and 2004 | F-33 | |||
Consolidated Statement of Cash Flows for the years ended December 31, 2005, 2004 and 2003 | F-34 | |||
Consolidated Statement of Stockholders’ Equity for the three years ended December 31, 2005 | F-35 | |||
Notes to Consolidated Financial Statements | F-36 | |||
Financial Statement Schedule: | ||||
II — Valuation and Qualifying Accounts | F-101 |
Alderwoods’ Interim Financial Statements: | ||||
Consolidated Balance Sheets as of June 17, 2006 and December 31, 2005 | F-102 | |||
Consolidated Statements of Operations for the 12 and 24 Weeks Ended June 17, 2006 and June 18, 2005 | F-103 | |||
Consolidated Statements of Stockholders’ Equity for the 24 Weeks June 17, 2006 | F-104 | |||
Consolidated Statements of Cash Flows for the 12 and 24 Weeks Ended June 17, 2006 and June 18, 2005 | F-105 | |||
Notes to the Interim Consolidated Financial Statements | F-106 | |||
Alderwoods’ Annual Financial Statements: | ||||
Management’s Report on Internal Control over Financial Reporting | F-130 | |||
Report of Independent Registered Public Accounting Firm | F-131 | |||
Report of Independent Registered Public Accounting Firm | F-132 | |||
Consolidated Balance Sheets as of December 31, 2005 and January 1, 2005 | F-133 | |||
Consolidated Statements of Operations for the 52 Weeks Ended December 31, 2005, 52 Weeks Ended January 1, 2005, and 53 Weeks Ended January 3, 2004 | F-134 | |||
Consolidated Statements of Stockholders’ Equity for the 52 Weeks Ended December 31, 2005, 52 Weeks Ended January 1, 2005, and 53 Weeks Ended January 3, 2004 | F-135 | |||
Consolidated Statements of Cash Flows for the 52 Weeks Ended December 31, 2005, 52 Weeks Ended January 1, 2005, and 53 Weeks Ended January 3, 2004 | F-137 | |||
Notes to the Consolidated Financial Statements | F-138 |
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Three Months Ended | Six Months Ended | ||||||||||||||||||
June 30, | June 30, | ||||||||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||||||||
(Restated) | (Restated) | ||||||||||||||||||
note 2 | note 2 | ||||||||||||||||||
Revenues | $ | 431,345 | $ | 431,842 | $ | 873,143 | $ | 879,284 | |||||||||||
Costs and expenses | (348,208 | ) | (358,798 | ) | (702,399 | ) | (708,440 | ) | |||||||||||
Gross profit | 83,137 | 73,044 | 170,744 | 170,844 | |||||||||||||||
General and administrative expenses | (20,922 | ) | (22,485 | ) | (42,929 | ) | (42,192 | ) | |||||||||||
Gains (losses) on dispositions and impairment charges, net | (2,881 | ) | 4,528 | (7,391 | ) | (1,213 | ) | ||||||||||||
Operating income | 59,334 | 55,087 | 120,424 | 127,439 | |||||||||||||||
Interest expense | (26,609 | ) | (26,224 | ) | (53,337 | ) | (51,229 | ) | |||||||||||
Loss on early extinguishment of debt | — | (13,051 | ) | — | (14,258 | ) | |||||||||||||
Interest income | 6,782 | 3,894 | 12,763 | 7,950 | |||||||||||||||
Other income (expense), net | 1,632 | 571 | 4,046 | (637 | ) | ||||||||||||||
(18,195 | ) | (34,810 | ) | (36,528 | ) | (58,174 | ) | ||||||||||||
Income from continuing operations before income taxes and cumulative effect of accounting change | 41,139 | 20,277 | 83,896 | 69,265 | |||||||||||||||
Provision for income taxes | (15,506 | ) | (9,553 | ) | (31,282 | ) | (27,073 | ) | |||||||||||
Income from continuing operations before cumulative effect of accounting change | 25,633 | 10,724 | 52,614 | 42,192 | |||||||||||||||
(Loss) income from discontinued operations (net of income tax benefit (provision) of $115, $(826), $150, and $(1,981), respectively) | (183 | ) | 3,113 | (238 | ) | 4,288 | |||||||||||||
Cumulative effect of accounting change (net of income tax benefit of $117,428) | — | — | — | (187,538 | ) | ||||||||||||||
Net income (loss) | $ | 25,450 | $ | 13,837 | $ | 52,376 | $ | (141,058 | ) | ||||||||||
Basic earnings (loss) per share: | |||||||||||||||||||
Income from continuing operations before cumulative effect of accounting change | $ | .09 | $ | .04 | $ | .18 | $ | .14 | |||||||||||
Income from discontinued operations, net of tax | — | .01 | — | .01 | |||||||||||||||
Cumulative effect of accounting change, net of tax | — | — | — | (.61 | ) | ||||||||||||||
Net income (loss) | $ | .09 | $ | .05 | $ | .18 | $ | (.46 | ) | ||||||||||
Diluted earnings (loss) per share: | |||||||||||||||||||
Income from continuing operations before cumulative effect of accounting change | $ | .09 | $ | .04 | $ | .18 | $ | .14 | |||||||||||
Income from discontinued operations, net of tax | — | .01 | — | .01 | |||||||||||||||
Cumulative effect of accounting change, net of tax | — | — | — | (.60 | ) | ||||||||||||||
Net income (loss) | $ | .09 | $ | .05 | $ | .18 | $ | (.45 | ) | ||||||||||
Basic weighted average number of shares | 293,409 | 302,363 | 293,580 | 307,896 | |||||||||||||||
Diluted weighted average number of shares | 297,501 | 306,404 | 297,784 | 311,986 | |||||||||||||||
Dividends declared per share | $ | .025 | $ | .025 | $ | .050 | $ | .050 | |||||||||||
F-2
Table of Contents
June 30, | December 31, | |||||||||
2006 | 2005 | |||||||||
(Restated) | ||||||||||
(Unaudited) | note 2 | |||||||||
Assets | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 529,171 | $ | 446,782 | ||||||
Receivables, net | 62,439 | 97,747 | ||||||||
Inventories | 64,938 | 68,327 | ||||||||
Other | 30,847 | 37,527 | ||||||||
Total current assets | 687,395 | 650,383 | ||||||||
Preneed funeral receivables and trust investments | 1,227,144 | 1,226,192 | ||||||||
Preneed cemetery receivables and trust investments | 1,285,832 | 1,288,515 | ||||||||
Cemetery property, at cost | 1,365,712 | 1,355,654 | ||||||||
Property and equipment, at cost, net | 1,038,990 | 950,174 | ||||||||
Goodwill | 1,118,119 | 1,123,888 | ||||||||
Deferred charges and other assets | 253,727 | 249,581 | ||||||||
Cemetery perpetual care trust investments | 693,781 | 700,382 | ||||||||
$ | 7,670,700 | $ | 7,544,769 | |||||||
Liabilities & Stockholders’ Equity | ||||||||||
Current liabilities: | ||||||||||
Accounts payable and accrued liabilities | $ | 196,977 | $ | 231,693 | ||||||
Current maturities of long-term debt | 30,414 | 20,716 | ||||||||
Income taxes | 21,014 | 20,359 | ||||||||
Total current liabilities | 248,405 | 272,768 | ||||||||
Long-term debt | 1,265,263 | 1,186,485 | ||||||||
Deferred preneed funeral revenues | 539,178 | 535,384 | ||||||||
Deferred preneed cemetery revenues | 777,717 | 792,485 | ||||||||
Deferred income taxes | 168,925 | 138,677 | ||||||||
Other liabilities | 315,403 | 326,985 | ||||||||
Non-controlling interest in funeral and cemetery trusts | 2,055,566 | 2,015,811 | ||||||||
Non-controlling interest in cemetery perpetual care trusts | 691,385 | 694,619 | ||||||||
Commitments and contingencies (note 10) | ||||||||||
Stockholders’ equity: | ||||||||||
Common stock, $1 per share par value, 500,000,000 shares authorized, 292,411,418 and 294,808,872, issued and outstanding (net of 51,956,842 and 48,962,063 treasury shares, at par) | 292,411 | 294,809 | ||||||||
Capital in excess of par value | 2,145,516 | 2,182,745 | ||||||||
Unearned compensation | — | (3,593 | ) | |||||||
Accumulated deficit | (910,529 | ) | (962,905 | ) | ||||||
Accumulated other comprehensive income | 81,460 | 70,499 | ||||||||
Total stockholders’ equity | 1,608,858 | 1,581,555 | ||||||||
$ | 7,670,700 | $ | 7,544,769 | |||||||
F-3
Table of Contents
Six Months Ended | ||||||||||
June 30, | ||||||||||
2006 | 2005 | |||||||||
(Restated) | ||||||||||
note 2 | ||||||||||
Cash flows from operating activities: | ||||||||||
Net income (loss) | $ | 52,376 | $ | (141,058 | ) | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||
Net loss (income) from discontinued operations, net of tax | 238 | (4,288 | ) | |||||||
Loss on early extinguishment of debt | — | 14,258 | ||||||||
Premiums paid on early extinguishment of debt | — | (12,186 | ) | |||||||
Cumulative effect of accounting change, net of tax | — | 187,538 | ||||||||
Depreciation and amortization | 45,670 | 36,525 | ||||||||
Provision for doubtful accounts | 4,718 | 4,494 | ||||||||
Provision for deferred income taxes | 25,063 | 25,573 | ||||||||
Losses on dispositions and impairment charges, net | 7,391 | 1,213 | ||||||||
Share-based compensation | 3,856 | 996 | ||||||||
Loan cost amortization | 5,070 | 5,052 | ||||||||
Change in assets and liabilities, net of effects from acquisitions and dispositions: | ||||||||||
Decrease in receivables | 17,976 | 11,135 | ||||||||
(Increase) decrease in other assets | (3,639 | ) | 27,956 | |||||||
Decrease in payables and other liabilities | (39,139 | ) | (12,091 | ) | ||||||
Net effect of preneed funeral production and maturities | 4,421 | (3,054 | ) | |||||||
Net effect of cemetery production and deliveries | 27,866 | 45,967 | ||||||||
Other | (264 | ) | 4,086 | |||||||
Net cash provided by operating activities from continuing operations | 151,603 | 192,116 | ||||||||
Net cash used in operating activities from discontinued operations | — | (1,688 | ) | |||||||
Net cash provided by operating activities | 151,603 | 190,428 | ||||||||
Cash flows from investing activities: | ||||||||||
Capital expenditures | (40,547 | ) | (43,752 | ) | ||||||
Proceeds from divestitures, net of cash retained and sales of property and equipment | 26,955 | 56,060 | ||||||||
Proceeds from equity investments | — | 32,070 | ||||||||
Indemnity payments related to the sale of former funeral operations in France | (412 | ) | (1,602 | ) | ||||||
Acquisitions, net of cash acquired | (14,677 | ) | — | |||||||
Net withdrawals (deposits) of restricted funds and other | 11,025 | (9,026 | ) | |||||||
Net cash (used in) provided by investing activities from continuing operations | (17,656 | ) | 33,750 | |||||||
Net cash provided by (used in) investing activities from discontinued operations | 10,958 | (155 | ) | |||||||
Net cash (used in) provided by investing activities | (6,698 | ) | 33,595 | |||||||
Cash flows from financing activities: | ||||||||||
Proceeds from issuance of long-term debt | — | 291,472 | ||||||||
Payments of debt | (13,713 | ) | (2,988 | ) | ||||||
Principal payments on capital leases | (10,701 | ) | (156 | ) | ||||||
Early extinguishment of debt | — | (286,215 | ) | |||||||
Proceeds from exercise of stock options | 2,402 | 4,556 | ||||||||
Purchase of Company common stock | (27,870 | ) | (189,809 | ) | ||||||
Payments of dividends | (14,719 | ) | (7,729 | ) | ||||||
Purchase of subsidiary stock | — | (844 | ) | |||||||
Net cash used in financing activities | (64,601 | ) | (191,713 | ) | ||||||
Effect of foreign currency | 2,085 | (140 | ) | |||||||
Net increase in cash and cash equivalents | 82,389 | 32,170 | ||||||||
Cash and cash equivalents at beginning of period | 446,782 | 287,785 | ||||||||
Cash and cash equivalents at end of period | $ | 529,171 | $ | 319,955 | ||||||
F-4
Table of Contents
Accumulated | ||||||||||||||||||||||||||||
Treasury | Capital in | other | ||||||||||||||||||||||||||
Outstanding | Common | stock, par | excess of | Unearned | Accumulated | comprehensive | ||||||||||||||||||||||
Shares | Stock | value | par value | Compensation | Deficit | income | ||||||||||||||||||||||
Balance at December 31, 2005 (Restated-note 2) | 294,809 | $ | 343,771 | $ | (48,962 | ) | $ | 2,182,745 | $ | (3,593 | ) | $ | (962,905 | ) | $ | 70,499 | ||||||||||||
Net income | 52,376 | |||||||||||||||||||||||||||
Dividends declared on common stock ($.05 per share) | (14,741 | ) | ||||||||||||||||||||||||||
Total other comprehensive income | 10,961 | |||||||||||||||||||||||||||
Employee share based compensation earned | 3,856 | |||||||||||||||||||||||||||
Reclassification of unearned compensation for restricted stock | (3,593 | ) | 3,593 | |||||||||||||||||||||||||
Stock option exercises and other | 666 | 597 | 69 | 2,055 | ||||||||||||||||||||||||
Restricted stock awards, net of forfeitures | 356 | 356 | (356 | ) | ||||||||||||||||||||||||
Purchase of Company stock | (3,420 | ) | (3,420 | ) | (24,450 | ) | ||||||||||||||||||||||
Balance at June 30, 2006 | 292,411 | $ | 344,368 | $ | (51,957 | ) | $ | 2,145,516 | $ | — | $ | (910,529 | ) | $ | 81,460 | |||||||||||||
F-5
Table of Contents
1. | Nature of Operations |
2. | Restatement of Financial Statements |
Pension Benefit Obligation |
F-6
Table of Contents
Lease Accounting |
OtherOut-of-Period Adjustments |
Materiality Assessment |
F-7
Table of Contents
For the | For the | ||||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||
June 30, 2005 | June 30, 2005 | ||||||||||||||||
As | As | ||||||||||||||||
Previously | As | Previously | As | ||||||||||||||
Reported | Restated | Reported | Restated | ||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||
Revenues | $ | 431,710 | $ | 431,842 | $ | 879,152 | $ | 879,284 | |||||||||
Costs and expenses | (359,367 | ) | (358,798 | ) | (709,582 | ) | (708,440 | ) | |||||||||
Gross profits | 72,343 | 73,044 | 169,570 | 170,844 | |||||||||||||
Operating income | 54,377 | 55,087 | 126,147 | 127,439 | |||||||||||||
Interest expense | (25,875 | ) | (26,224 | ) | (50,531 | ) | (51,229 | ) | |||||||||
Income from continuing operations before income taxes and cumulative effects of accounting changes | 19,916 | 20,277 | 68,671 | 69,265 | |||||||||||||
Provision for income taxes | (9,324 | ) | (9,553 | ) | (26,662 | ) | (27,073 | ) | |||||||||
Income from continuing operations before cumulative effects of accounting changes | 10,592 | 10,724 | 42,009 | 42,192 | |||||||||||||
Net income (loss) | $ | 13,705 | $ | 13,837 | $ | (141,241 | ) | $ | (141,058 | ) | |||||||
Earnings per share: | |||||||||||||||||
Basic | $ | .05 | $ | .05 | $ | (.46 | ) | $ | (.46 | ) | |||||||
Diluted | $ | .04 | $ | .05 | $ | (.45 | ) | $ | (.45 | ) |
December 31, 2005 | |||||||||
As Previously | As | ||||||||
Reported | Restated | ||||||||
Selected condensed consolidated balance sheet data: | |||||||||
Property and equipment, at cost, net | $ | 942,229 | $ | 950,174 | |||||
Deferred charges and other assets | 249,449 | 249,581 | |||||||
Total assets | 7,536,692 | 7,544,769 | |||||||
Accounts payable and accrued liabilities | 231,129 | 231,693 | |||||||
Current maturities of long-term debt | 20,468 | 20,716 | |||||||
Long-term debt | 1,175,463 | 1,186,485 | |||||||
Deferred income taxes | 141,676 | 138,677 | |||||||
Other liabilities | 320,812 | 326,985 | |||||||
Stockholders’ equity | 1,588,486 | 1,581,555 | |||||||
Total liabilities and stockholders’ equity | $ | 7,536,692 | $ | 7,544,769 |
Six Months Ended | ||||||||
June 30, 2005 | ||||||||
As Previously | As | |||||||
Reported | Restated | |||||||
Net cash provided by operating activities | 190,331 | 190,428 | ||||||
Net cash used in financing activities | (191,616 | ) | (191,713 | ) |
F-8
Table of Contents
3. | Summary of Significant Accounting Policies |
Principles of Consolidation and Basis of Presentation |
Use of Estimates |
4. | Recently Issued Accounting Standards |
5. | Share-Based Compensation and Stockholders’ Equity |
Share-Based Payment |
F-9
Table of Contents
Stock Benefit Plans |
F-10
Table of Contents
Six Months Ended | ||||||||
June 30, | ||||||||
Assumptions | 2006 | 2005 | ||||||
Dividend yield | 1.3 | % | 1.5 | % | ||||
Expected volatility | 37.9 | % | 43.3 | % | ||||
Risk-free interest rate | 4.5 | % | 3.7 | % | ||||
Expected holding period | 5.6 years | 5.5 years |
Three Months Ended | Six Months Ended | |||||||
June 30, 2005 | June 30, 2005 | |||||||
(Restated) | (Restated) | |||||||
note 2 | note 2 | |||||||
Net income (loss), as reported | $ | 13,837 | $ | (141,058 | ) | |||
Deduct: Total pro forma stock-based employee compensation expense determined under fair value based method, net of related tax expense | (392 | ) | (783 | ) | ||||
Pro forma net income (loss) | $ | 13,445 | $ | (141,841 | ) | |||
Basic income (loss) per share: | ||||||||
Net income (loss), as reported | $ | .05 | $ | (.46 | ) | |||
Deduct: Total pro forma stock-based employee compensation expense determined under fair value based method, net of related tax expense | — | — | ||||||
Pro forma basic loss per share | $ | .05 | $ | (.46 | ) | |||
Diluted income (loss) per share: | ||||||||
Net income (loss), as reported | $ | .05 | $ | (.45 | ) | |||
Deduct: Total pro forma stock-based employee compensation expense determined under fair value based method, net of related tax expense | — | — | ||||||
Pro forma diluted income (loss) per share | $ | .05 | $ | (.45 | ) | |||
F-11
Table of Contents
Three Months | Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Total pretax share-based compensation expense included in net income (loss) | $ | 1,711 | $ | 549 | $ | 3,856 | $ | 996 | ||||||||
Income tax benefit related to share-based compensation included in net income (loss) | $ | 710 | $ | 192 | $ | 1,488 | $ | 348 |
Stock Options |
Weighted Average | ||||||||
Options | Exercise Price | |||||||
Outstanding at December 31, 2005 | 24,250,429 | $ | 9.21 | |||||
Granted | 1,602,800 | 8.24 | ||||||
Exercised | (607,830 | ) | 4.10 | |||||
Forfeited | (22,300 | ) | 6.88 | |||||
Expired | (686,154 | ) | 18.42 | |||||
Outstanding at June 30, 2006 | 24,536,945 | $ | 9.02 | |||||
Exercisable at June 30, 2006 | 22,002,410 | $ | 9.16 | |||||
Options Outstanding | ||||||||||||||||||||
Options Exercisable | ||||||||||||||||||||
Weighted- | ||||||||||||||||||||
Number | Average | Weighted- | Number | Weighted- | ||||||||||||||||
Range of | Outstanding at | Remaining | Average | Exercisable at | Average | |||||||||||||||
Exercise Price | June 30, 2006 | Contractual Life | Exercise Price | June 30, 2006 | Exercise Price | |||||||||||||||
$0.00 — 3.0 | 0 1,987,110 | 2.1 | $ | 2.60 | 1,987,110 | $ | 2.60 | |||||||||||||
3.01 — 4.00 | 5,520,734 | 2.6 | 3.74 | 5,520,734 | 3.74 | |||||||||||||||
4.01 — 6.00 | 4,160,000 | 3.5 | 4.99 | 4,160,000 | 4.99 | |||||||||||||||
6.01 — 9.00 | 6,383,667 | 4.3 | 7.11 | 3,849,132 | 6.70 | |||||||||||||||
9.01 — 15.00 | 2,898,003 | 1.1 | 13.73 | 2,898,003 | 13.73 | |||||||||||||||
15.01 — 21.00 | 2,285,160 | 1.1 | 19.18 | 2,285,160 | 19.18 | |||||||||||||||
21.01 — 38.00 | 1,302,271 | 0.2 | 35.06 | 1,302,271 | 35.06 | |||||||||||||||
$0.00 — 38.00 | 24,536,945 | 2.7 | $ | 9.02 | 22,002,410 | $ | 9.16 | |||||||||||||
F-12
Table of Contents
Three Months | Six Months Ended | |||||||||||||||
Ended June 30, | June 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Weighted average grant-date fair value of stock options granted | n/a | n/a | $ | 3.11 | $ | 2.71 | ||||||||||
Total fair value of stock options vested | n/a | n/a | $ | 1,987 | $ | 6,003 | ||||||||||
Total intrinsic value of stock options exercised | $ | 1,344 | $ | 630 | $ | 2,456 | $ | 3,728 |
Restricted Shares |
Weighted Average | ||||||||
Restricted | Grant-Date | |||||||
Shares | Fair Value | |||||||
Nonvested restricted shares at December 31, 2005 | 779,850 | $ | 6.87 | |||||
Granted | 355,500 | 8.24 | ||||||
Vested | (308,867 | ) | 6.86 | |||||
Nonvested restricted shares at June 30, 2006 | 826,483 | $ | 7.46 | |||||
Share Authorization |
F-13
Table of Contents
Share Purchase Rights Plan |
Accumulated Other Comprehensive Income |
Foreign | Accumulated | ||||||||||||
Currency | Unrealized | Other | |||||||||||
Translation | Gains and | Comprehensive | |||||||||||
Adjustment | Losses | Income | |||||||||||
Balance at December 31, 2005 | $ | 70,499 | $ | — | $ | 70,499 | |||||||
Activity in 2006 | 10,961 | — | 10,961 | ||||||||||
Increase in net unrealized gains associated with available-for-sale securities of the trusts | — | 27,551 | 27,551 | ||||||||||
Reclassification of net unrealized gains activity attributable to the non-controlling interest holders | — | (27,551 | ) | (27,551 | ) | ||||||||
Balance at June 30, 2006 | $ | 81,460 | $ | — | $ | 81,460 | |||||||
Three Months Ended | Six Months Ended | |||||||||||||||||
June 30, | June 30, | |||||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||||
(Restated) | (Restated) | |||||||||||||||||
Note 2 | Note 2 | |||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||
Net income (loss) | $ | 25,450 | $ | 13,837 | $ | 52,376 | $ | (141,058 | ) | |||||||||
Total other comprehensive income (loss) | 11,291 | (1,428 | ) | 10,961 | 63,873 | |||||||||||||
Comprehensive income (loss) | $ | 36,741 | $ | 12,409 | $ | 63,337 | $ | (77,185 | ) | |||||||||
Share Repurchase Program |
F-14
Table of Contents
Cash Dividends |
6. | Debt |
June 30, | December 31, | |||||||||
2006 | 2005 | |||||||||
(Restated) | ||||||||||
Note 2 | ||||||||||
7.2% notes due June 2006 | $ | — | $ | 10,698 | ||||||
6.875% notes due October 2007 | 13,497 | 13,497 | ||||||||
6.5% notes due March 2008 | 195,000 | 195,000 | ||||||||
7.7% notes due April 2009 | 341,635 | 341,635 | ||||||||
7.875% debentures due February 2013 | 55,627 | 55,627 | ||||||||
6.75% notes due April 2016 | 250,000 | 250,000 | ||||||||
7.0% notes due June 2017 | 300,000 | 300,000 | ||||||||
Convertible debentures, maturities through 2013, fixed interest rates from 4.75% to 5.25%, conversion prices from $13.02 to $50.00 per share | 21,213 | 22,213 | ||||||||
Obligations under capital leases | 109,427 | 11,425 | ||||||||
Mortgage notes and other debt, maturities through 2050 | 27,510 | 29,588 | ||||||||
Unamortized pricing discounts and other | (18,232 | ) | (22,482 | ) | ||||||
Total debt | 1,295,677 | 1,207,201 | ||||||||
Less current maturities | (30,414 | ) | (20,716 | ) | ||||||
Total long-term debt | $ | 1,265,263 | $ | 1,186,485 | ||||||
Capital Leases |
Bank Credit Agreements |
F-15
Table of Contents
Debt Retirement |
Debt Additions |
F-16
Table of Contents
7. | Retirement Plans |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
(Restated) | (Restated) | |||||||||||||||
Note 2 | Note 2 | |||||||||||||||
Interest cost on projected benefit obligation | $ | 1,973 | $ | 2,028 | $ | 3,946 | $ | 4,055 | ||||||||
Actual return on plan assets | (1,589 | ) | (1,807 | ) | (2,627 | ) | (3,613 | ) | ||||||||
Actuarial loss | — | 2,210 | — | 2,515 | ||||||||||||
Amortization of prior service cost | 46 | 46 | 92 | 92 | ||||||||||||
$ | 430 | $ | 2,477 | $ | 1,411 | $ | 3,049 | |||||||||
8. | Segment Reporting |
Reportable | ||||||||||||||
Funeral | Cemetery | Segments | ||||||||||||
Revenues from external customers: | ||||||||||||||
Three months ended June 30, | ||||||||||||||
2006 | $ | 279,634 | $ | 151,711 | $ | 431,345 | ||||||||
2005 (Restated — note 2) | $ | 284,589 | $ | 147,253 | $ | 431,842 | ||||||||
Six months ended June 30, | ||||||||||||||
2006 | $ | 582,618 | $ | 290,525 | $ | 873,143 | ||||||||
2005 (Restated — note 2) | $ | 604,040 | $ | 275,244 | $ | 879,284 | ||||||||
Gross profit: | ||||||||||||||
Three months ended June 30, | ||||||||||||||
2006 | $ | 52,430 | $ | 30,707 | $ | 83,137 | ||||||||
2005 (Restated — note 2) | $ | 50,709 | $ | 22,335 | $ | 73,044 | ||||||||
Six months ended June 30, | ||||||||||||||
2006 | $ | 117,826 | $ | 52,918 | $ | 170,744 | ||||||||
2005 (Restated — note 2) | $ | 130,835 | $ | 40,009 | $ | 170,844 |
F-17
Table of Contents
Three Months Ended | Six Months Ended | ||||||||||||||||
June 30, | June 30, | ||||||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||||||
(Restated) | (Restated) | ||||||||||||||||
Note 2 | Note 2 | ||||||||||||||||
Gross profit from reportable segments | $ | 83,137 | $ | 73,044 | $ | 170,744 | $ | 170,844 | |||||||||
General and administrative expenses | (20,922 | ) | (22,485 | ) | (42,929 | ) | (42,192 | ) | |||||||||
Gains (losses) on dispositions and impairment charges, net | (2,881 | ) | 4,528 | (7,391 | ) | (1,213 | ) | ||||||||||
Operating income | 59,334 | 55,087 | 120,424 | 127,439 | |||||||||||||
Interest expense | (26,609 | ) | (26,224 | ) | (53,337 | ) | (51,229 | ) | |||||||||
Loss on early extinguishment of debt, net | — | (13,051 | ) | — | (14,258 | ) | |||||||||||
Interest income | 6,782 | 3,894 | 12,763 | 7,950 | |||||||||||||
Other (expense) income, net | 1,632 | 571 | 4,046 | (637 | ) | ||||||||||||
Income from continuing operations before income taxes and cumulative effect of accounting change | $ | 41,139 | $ | 20,277 | $ | 83,896 | $ | 69,265 | |||||||||
North | ||||||||||||||
America | Other Foreign | Total | ||||||||||||
Revenues from external customers: | ||||||||||||||
Three months ended June 30, | ||||||||||||||
2006 | $ | 428,291 | $ | 3,054 | $ | 431,345 | ||||||||
2005 (Restated — note 2) | $ | 429,076 | $ | 2,766 | $ | 431,842 | ||||||||
Six months ended June 30, | ||||||||||||||
2006 | $ | 867,181 | $ | 5,962 | $ | 873,143 | ||||||||
2005 (Restated — note 2) | $ | 873,253 | $ | 6,031 | $ | 879,284 | ||||||||
Gains (losses) on dispositions and impairment charges, net: | ||||||||||||||
Three months ended June 30, | ||||||||||||||
2006 | $ | (2,881 | ) | $ | — | $ | (2,881 | ) | ||||||
2005 | $ | 4,528 | $ | — | $ | 4,528 | ||||||||
Six months ended June 30, | ||||||||||||||
2006 | $ | (7,391 | ) | $ | — | $ | (7,391 | ) | ||||||
2005 | $ | (1,213 | ) | $ | — | $ | (1,213 | ) | ||||||
F-18
Table of Contents
North | ||||||||||||||
America | Other Foreign | Total | ||||||||||||
Operating income: | ||||||||||||||
Three months ended June 30, | ||||||||||||||
2006 | $ | 58,662 | $ | 672 | $ | 59,334 | ||||||||
2005 (Restated — note 2) | $ | 54,880 | $ | 207 | $ | 55,087 | ||||||||
Six months ended June 30, | ||||||||||||||
2006 | $ | 119,147 | $ | 1,277 | $ | 120,424 | ||||||||
2005 (Restated — note 2) | $ | 126,715 | $ | 724 | $ | 127,439 | ||||||||
Depreciation and amortization: | ||||||||||||||
Three months ended June 30, | ||||||||||||||
2006 | $ | 20,552 | $ | 25 | $ | 20,577 | ||||||||
2005 (Restated — note 2) | $ | 15,761 | $ | 118 | $ | 15,879 | ||||||||
Six months ended June 30, | ||||||||||||||
2006 | $ | 45,631 | $ | 39 | $ | 45,670 | ||||||||
2005 (Restated — note 2) | $ | 36,339 | $ | 186 | $ | 36,525 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30 | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
(Restated) | (Restated) | |||||||||||||||
Note 2 | Note 2 | |||||||||||||||
Revenues from external customers | $ | 399,996 | $ | 403,145 | $ | 810,478 | $ | 819,844 | ||||||||
Operating income | $ | 53,474 | $ | 48,551 | $ | 109,469 | $ | 113,727 | ||||||||
Depreciation and amortization | $ | 18,907 | $ | 14,594 | $ | 42,381 | $ | 33,985 |
9. | Supplementary Information |
F-19
Table of Contents
Three Months Ended | Six Months Ended | |||||||||||||||||
June 30, | June 30, | |||||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||||
(Restated) | (Restated) | |||||||||||||||||
Note 2 | Note 2 | |||||||||||||||||
North America products and services revenues | ||||||||||||||||||
Products | ||||||||||||||||||
Funeral | $ | 103,186 | $ | 125,851 | $ | 223,359 | $ | 266,185 | ||||||||||
Cemetery | 97,324 | 103,397 | 186,776 | 186,165 | ||||||||||||||
Total products | 200,510 | 229,248 | 410,135 | 452,350 | ||||||||||||||
Services | ||||||||||||||||||
Funeral | 164,631 | 148,271 | 336,551 | 317,469 | ||||||||||||||
Cemetery | 46,531 | 34,689 | 87,746 | 70,976 | ||||||||||||||
Total services | 211,162 | 182,960 | 424,297 | 388,445 | ||||||||||||||
North America products and services revenues | 411,672 | 412,208 | 834,432 | 840,795 | ||||||||||||||
International revenues | 3,054 | 2,766 | 5,962 | 6,031 | ||||||||||||||
Other revenues | 16,619 | 16,868 | 32,749 | 32,458 | ||||||||||||||
Total revenues | $ | 431,345 | $ | 431,842 | $ | 873,143 | $ | 879,284 | ||||||||||
North America products and services costs | ||||||||||||||||||
Products | ||||||||||||||||||
Funeral | $ | 47,583 | $ | 48,426 | $ | 103,683 | $ | 101,928 | ||||||||||
Cemetery | 41,614 | 44,679 | 78,957 | 79,284 | ||||||||||||||
Total cost of products | 89,197 | 93,105 | 182,640 | 181,212 | ||||||||||||||
Services | ||||||||||||||||||
Funeral | 88,173 | 95,316 | 177,029 | 187,807 | ||||||||||||||
Cemetery | 24,136 | 26,162 | 47,613 | 50,039 | ||||||||||||||
Total cost of services | 112,309 | 121,478 | 224,642 | 237,846 | ||||||||||||||
North America products and services costs | 201,506 | 214,583 | 407,282 | 419,058 | ||||||||||||||
International costs and expenses | 2,382 | 2,559 | 4,685 | 5,307 | ||||||||||||||
Overhead and other expenses | 144,320 | 141,656 | 290,432 | 284,075 | ||||||||||||||
Total costs and expenses | $ | 348,208 | $ | 358,798 | $ | 702,399 | $ | 708,440 | ||||||||||
10. | Commitments and Contingencies |
Leases |
F-20
Table of Contents
Operating | Capital | ||||||||
Remainder of 2006 | $ | 5,972 | $ | 14,151 | |||||
2007 | 7,326 | 25,356 | |||||||
2008 | 6,867 | 20,926 | |||||||
2009 | 6,588 | 16,357 | |||||||
2010 | 5,434 | 38,047 | |||||||
2011 and thereafter | 52,611 | 28,672 | |||||||
Subtotal | 84,798 | 143,509 | |||||||
Less: Subleases | (1,461 | ) | — | ||||||
Total | $ | 83,337 | $ | 143,509 | |||||
Less: Interest on capital leases | (34,082 | ) | |||||||
Total principal payable on capital leases | $ | 109,427 | |||||||
Representations and Warranties |
F-21
Table of Contents
Maximum | ||||||||||||||
Original | Potential Amount | Carrying | ||||||||||||
Contractual | of Future | Value as of | ||||||||||||
Obligation | Time Limit | Payments | June 30, 2006 | |||||||||||
Tax reserve liability | $ | 18,610 | December 31, 2007 | 2006 €30 million | $ | 10,000 | ||||||||
Litigation provision | 7,765 | Until entire resolution of (i) the relevant claims or (ii) settlement of the claim by the purchaser at the request of the vendor | (1) | 4,332 | ||||||||||
Employee litigation provision | 6,512 | December 31, 2006 (for all claims other than those relating to tax and social security matters) one month after expiration of the statutory period of limitations for tax and social security matters. | (2) | 6,512 | ||||||||||
VAT taxes | 3,882 | One month after the expiration of statutory period of limitations | (1) | 3,882 | ||||||||||
Other | 3,381 | Until entire resolution of (i) the relevant claims or (ii) settlement of the claim by the purchaser at the request of the vendor | (2) | 3,381 | ||||||||||
Total | $ | 40,150 | $ | 28,107 | ||||||||||
Less: Deductible of majority equity owner | (4,382 | ) | (4,382 | ) | ||||||||||
$ | 35,768 | $ | 23,725 | |||||||||||
(1) | The potential maximum exposure for these two items combined is €20 million or $25,102 at June 30, 2006. |
(2) | The potential maximum exposure for these two items combined is €40 million or $50,204 at June 30, 2006. |
Litigation |
F-22
Table of Contents
F-23
Table of Contents
11. | Earnings Per Share |
F-24
Table of Contents
Three Months Ended | Six Months Ended | |||||||||||||||||
June 30, | June 30, | |||||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||||
(Restated) | (Restated) | |||||||||||||||||
Note 2 | Note 2 | |||||||||||||||||
Numerator: | ||||||||||||||||||
Income from continuing operations before cumulative effect of accounting change — basic and diluted | $ | 25,633 | $ | 10,724 | $ | 52,614 | $ | 42,192 | ||||||||||
Net income (loss) — basic and diluted | $ | 25,450 | $ | 13,837 | $ | 52,376 | $ | (141,058 | ) | |||||||||
Denominator: | ||||||||||||||||||
Weighted average shares — basic | 293,409 | 302,363 | 293,580 | 307,896 | ||||||||||||||
Stock options | 3,981 | 3,970 | 4,063 | 4,028 | ||||||||||||||
Restricted stock | 111 | 71 | 141 | 62 | ||||||||||||||
Weighted average shares — diluted | 297,501 | 306,404 | 297,784 | 311,986 | ||||||||||||||
Income from continuing operations before cumulative effect of accounting change per share: | ||||||||||||||||||
Basic | $ | .09 | $ | .04 | $ | .18 | $ | .14 | ||||||||||
Diluted | $ | .09 | $ | .04 | $ | .18 | $ | .14 | ||||||||||
Income from discontinued operations per share, net of tax: | ||||||||||||||||||
Basic | $ | — | $ | .01 | $ | — | $ | .01 | ||||||||||
Diluted | $ | — | $ | .01 | $ | — | $ | .01 | ||||||||||
Cumulative effect of accounting change per share, net of tax: | ||||||||||||||||||
Basic | $ | — | $ | — | $ | — | $ | (.61 | ) | |||||||||
Diluted | $ | — | $ | — | $ | — | $ | (.60 | ) | |||||||||
Net income (loss) per share: | ||||||||||||||||||
Basic | $ | .09 | $ | .05 | $ | .18 | $ | (.46 | ) | |||||||||
Diluted | $ | .09 | $ | .05 | $ | .18 | $ | (.45 | ) | |||||||||
Three Months | Six Months | ||||||||||||||||
Ended June 30, | Ended June 30, | ||||||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||||||
Antidilutive options | 8,237 | 8,909 | 7,911 | 8,909 | |||||||||||||
Antidilutive convertible debentures | 633 | 979 | 646 | 979 | |||||||||||||
Total common stock equivalents excluded from Computation | 8,870 | 9,888 | 8,557 | 9,888 | |||||||||||||
F-25
Table of Contents
12. | Gains (Losses) on Dispositions and Impairment Charges, Net |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Gains on dispositions | $ | 1,708 | $ | 23,919 | $ | 3,140 | $ | 24,808 | ||||||||
Impairment losses for assets held for sale | (4,589 | ) | (21,055 | ) | (10,531 | ) | (28,173 | ) | ||||||||
Changes to previously estimated impairment losses | — | 1,664 | — | 2,152 | ||||||||||||
$ | (2,881 | ) | $ | 4,528 | $ | (7,391 | ) | $ | (1,213 | ) | ||||||
13. | Discontinued Operations |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Revenues | $ | — | $ | 8,527 | $ | — | $ | 17,704 | ||||||||
Costs and other expenses | (298 | ) | (4,588 | ) | (388 | ) | (11,435 | ) | ||||||||
(Loss) income from discontinued operations before income taxes | (298 | ) | 3,939 | (388 | ) | 6,269 | ||||||||||
Benefit (provision) for income taxes | 115 | (826 | ) | 150 | (1,981 | ) | ||||||||||
(Loss) income from discontinued operations | $ | (183 | ) | $ | 3,113 | $ | (238 | ) | $ | 4,288 | ||||||
14. | Acquisitions |
F-26
Table of Contents
F-27
Table of Contents
Management’s Consideration of the Restatement |
Remediation Efforts in 2005 |
F-28
Table of Contents
F-29
Table of Contents
Consolidated financial statements and financial statement schedule |
Internal control over financial reporting |
F-30
Table of Contents
F-31
Table of Contents
Years Ended December 31, | ||||||||||||||
2005 | 2004 | 2003 | ||||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||||
note 2 | note 2 | note 2 | ||||||||||||
(In thousands, except per share amounts) | ||||||||||||||
Revenues | $ | 1,715,737 | $ | 1,831,225 | $ | 2,313,177 | ||||||||
Costs and expenses | (1,417,592 | ) | (1,501,211 | ) | (1,956,967 | ) | ||||||||
Gross profits | 298,145 | 330,014 | 356,210 | |||||||||||
General and administrative expenses | (84,834 | ) | (130,884 | ) | (178,127 | ) | ||||||||
Gains and impairment (losses) on dispositions, net | (26,093 | ) | 25,797 | 50,677 | ||||||||||
Other operating expense | — | — | (9,004 | ) | ||||||||||
Operating income | 187,218 | 224,927 | 219,756 | |||||||||||
Interest expense | (103,733 | ) | (119,293 | ) | (139,964 | ) | ||||||||
Interest income | 16,706 | 13,453 | 6,215 | |||||||||||
(Loss) gain on early extinguishment of debt, net | (14,258 | ) | (16,770 | ) | 1,315 | |||||||||
Other income, net | 2,774 | 9,703 | 8,345 | |||||||||||
Income from continuing operations before income taxes and cumulative effects of accounting changes | 88,707 | 112,020 | 95,667 | |||||||||||
(Provision) benefit for income taxes | (33,233 | ) | 7,650 | (26,402 | ) | |||||||||
Income from continuing operations before cumulative effects of accounting changes | 55,474 | 119,670 | 69,265 | |||||||||||
Income from discontinued operations (net of income tax (provision) benefit of $(4,764), $49,175 and $(1,876), respectively) | 4,123 | 41,584 | 15,809 | |||||||||||
Cumulative effects of accounting changes (net of income tax benefit of $117,428 and $22,907, respectively) | (187,538 | ) | (50,593 | ) | — | |||||||||
Net (loss) income | $ | (127,941 | ) | $ | 110,661 | $ | 85,074 | |||||||
Basic earnings (loss) per share: | ||||||||||||||
Income from continuing operations before cumulative effects of accounting changes | $ | .19 | $ | .38 | $ | .23 | ||||||||
Income from discontinued operations, net of tax | .01 | .13 | .05 | |||||||||||
Cumulative effects of accounting changes, net of tax | (.62 | ) | (.16 | ) | — | |||||||||
Net (loss) income | $ | (.42 | ) | $ | .35 | $ | .28 | |||||||
Basic weighted average number of shares | 302,213 | 318,737 | 299,801 | |||||||||||
Diluted earnings (loss) per share: | ||||||||||||||
Income from continuing operations before cumulative effects of accounting changes | $ | .18 | $ | .37 | $ | .23 | ||||||||
Income from discontinued operations, net of tax | .01 | .12 | .05 | |||||||||||
Cumulative effects of accounting changes, net of tax | (.61 | ) | (.15 | ) | — | |||||||||
Net (loss) income | $ | (.42 | ) | $ | .34 | $ | .28 | |||||||
Diluted weighted average number of shares | 306,745 | 344,675 | 300,790 | |||||||||||
Dividends declared per share | $ | .10 | $ | — | $ | — | ||||||||
F-32
Table of Contents
December 31, | ||||||||||
2005 | 2004 | |||||||||
(Restated) | (Restated) | |||||||||
note 2 | note 2 | |||||||||
(In thousands, except | ||||||||||
share amounts) | ||||||||||
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 446,782 | $ | 287,785 | ||||||
Receivables, net | 97,747 | 102,622 | ||||||||
Inventories | 68,327 | 81,526 | ||||||||
Current assets of discontinued operations | — | 11,085 | ||||||||
Other | 37,527 | 53,820 | ||||||||
Total current assets | 650,383 | 536,838 | ||||||||
Preneed funeral receivables and trust investments | 1,226,192 | 1,267,784 | ||||||||
Preneed cemetery receivables and trust investments | 1,288,515 | 1,399,778 | ||||||||
Cemetery property, at cost | 1,355,654 | 1,509,599 | ||||||||
Property and equipment, at cost, net | 950,174 | 978,861 | ||||||||
Non-current assets of discontinued operations | — | 4,367 | ||||||||
Deferred charges and other assets | 249,581 | 631,839 | ||||||||
Goodwill | 1,123,888 | 1,169,040 | ||||||||
Cemetery perpetual care trust investments | 700,382 | 729,048 | ||||||||
$ | 7,544,769 | $ | 8,227,154 | |||||||
LIABILITIES & STOCKHOLDERS’ EQUITY | ||||||||||
Current liabilities: | ||||||||||
Accounts payable and accrued liabilities | $ | 231,693 | $ | 221,235 | ||||||
Current maturities of long-term debt | 20,716 | 78,164 | ||||||||
Current liabilities of discontinued operations | — | 7,111 | ||||||||
Income taxes payable | 20,359 | 7,850 | ||||||||
Total current liabilities | 272,768 | 314,360 | ||||||||
Long-term debt | 1,186,485 | 1,200,353 | ||||||||
Deferred preneed funeral revenues | 535,384 | 540,794 | ||||||||
Deferred preneed cemetery revenues | 792,485 | 803,144 | ||||||||
Deferred income taxes | 138,677 | 274,463 | ||||||||
Non-current liabilities of discontinued operations | — | 58,225 | ||||||||
Other liabilities | 326,985 | 437,298 | ||||||||
Non-controlling interest in funeral and cemetery trusts | 2,015,811 | 2,050,658 | ||||||||
Non-controlling interest in perpetual care trusts | 694,619 | 704,912 | ||||||||
Commitments and contingencies (note 13) | ||||||||||
Stockholders’ equity: | ||||||||||
Common stock, $1 per share par value, 500,000,000 shares authorized, 294,808,872 and 323,225,352 issued and outstanding (net of 48,962,063 and 18,502,478 treasury shares at par) | 294,809 | 323,225 | ||||||||
Capital in excess of par value | 2,182,745 | 2,395,057 | ||||||||
Unearned compensation | (3,593 | ) | (2,022 | ) | ||||||
Accumulated deficit | (962,905 | ) | (834,964 | ) | ||||||
Accumulated other comprehensive income (loss) | 70,499 | (38,349 | ) | |||||||
Total stockholders’ equity | 1,581,555 | 1,842,947 | ||||||||
$ | 7,544,769 | $ | 8,227,154 | |||||||
F-33
Table of Contents
Years Ended December 31, | |||||||||||||||
2005 | 2004 | 2003 | |||||||||||||
(Restated) | (Restated) | (Restated) | |||||||||||||
note 2 | note 2 | note 2 | |||||||||||||
(In thousands) | |||||||||||||||
Cash flows from operating activities: | |||||||||||||||
Net (loss) income | $ | (127,941 | ) | $ | 110,661 | $ | 85,074 | ||||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||||||||||
Income from discontinued operations, net of tax | (4,123 | ) | (41,584 | ) | (15,809 | ) | |||||||||
Loss (gain) on early extinguishments of debt | 14,258 | 16,770 | (1,315 | ) | |||||||||||
Premiums paid on early extinguishments of debt | (12,186 | ) | (13,817 | ) | — | ||||||||||
Cumulative effects of accounting changes, net of tax | 187,538 | 50,593 | — | ||||||||||||
Depreciation and amortization | 87,885 | 145,189 | 161,443 | ||||||||||||
Provision for deferred income taxes | 25,191 | 18,283 | 2,142 | ||||||||||||
Gains and impairment (losses) on dispositions, net | 26,093 | (25,797 | ) | (50,677 | ) | ||||||||||
Other operating expense | — | — | 9,004 | ||||||||||||
Payments on restructuring charges | (10,723 | ) | (14,000 | ) | (14,155 | ) | |||||||||
Litigation payments | (3,126 | ) | (164,566 | ) | (30,782 | ) | |||||||||
Change in assets and liabilities, net of effects from acquisitions and dispositions: | |||||||||||||||
Decrease (increase) in receivables | 18,915 | 45,983 | (59,156 | ) | |||||||||||
Decrease in other assets | 43,859 | 5,946 | 68,357 | ||||||||||||
Increase in litigation accrual | 370 | 60,800 | 99,420 | ||||||||||||
Increase (decrease) in payables and other liabilities | 13,943 | (54,310 | ) | 92,407 | |||||||||||
Net effect of preneed funeral production and maturities | 5,176 | (20,989 | ) | 4,061 | |||||||||||
Net effect of preneed cemetery production and deliveries | 52,981 | (28,691 | ) | 2,382 | |||||||||||
Other | 86 | (1,971 | ) | 17,890 | |||||||||||
Net cash provided by operating activities from continuing operations | 318,196 | 88,500 | 370,286 | ||||||||||||
Net cash (used in) provided by operating activities from discontinued operations | (5,344 | ) | 5,656 | 3,973 | |||||||||||
Net cash provided by operating activities | 312,852 | 94,156 | 374,259 | ||||||||||||
Cash flows from investing activities: | |||||||||||||||
Capital expenditures | (99,416 | ) | (95,619 | ) | (115,471 | ) | |||||||||
Proceeds from divestitures and sales of property and equipment | 111,722 | 57,749 | 76,577 | ||||||||||||
Proceeds from dispositions of foreign operations, net of cash retained | 151,692 | 330,829 | 73,940 | ||||||||||||
Indemnity payments related to the sale of former funeral operations in France | (2,105 | ) | (2,401 | ) | — | ||||||||||
Payment of contingent obligations to former owners of acquired business | — | (48,749 | ) | — | |||||||||||
Net withdrawals (deposits) of restricted funds and other | 9,334 | 51,378 | (71,939 | ) | |||||||||||
Net cash provided by (used in) investing activities from continuing operations | 171,227 | 293,187 | (36,893 | ) | |||||||||||
Net cash used in investing activities from discontinued operations | (212 | ) | (3,663 | ) | (529 | ) | |||||||||
Net cash provided by (used in) investing activities | 171,015 | 289,524 | (37,422 | ) | |||||||||||
Cash flows from financing activities: | |||||||||||||||
Payments of debt | (85,812 | ) | (177,816 | ) | (91,131 | ) | |||||||||
Proceeds from long-term debt issued | 292,541 | 241,802 | — | ||||||||||||
Debt issue costs | (1,038 | ) | (358 | ) | — | ||||||||||
Early extinguishments of debt | (291,277 | ) | (299,961 | ) | (200,349 | ) | |||||||||
Proceeds from exercise of stock options | 7,834 | 10,605 | 1,097 | ||||||||||||
Purchase of Company common stock | (225,152 | ) | (110,258 | ) | — | ||||||||||
Payments of dividends | (22,637 | ) | — | — | |||||||||||
Other | (844 | ) | — | (9,917 | ) | ||||||||||
Net cash used in financing activities from continuing operations | (326,385 | ) | (335,986 | ) | (300,300 | ) | |||||||||
Effect of foreign currency | 1,515 | 660 | 2,269 | ||||||||||||
Net increase in cash and cash equivalents | 158,997 | 48,354 | 38,806 | ||||||||||||
Cash and cash equivalents at beginning of period | 287,785 | 239,431 | 200,625 | ||||||||||||
Cash and cash equivalents at end of period | $ | 446,782 | $ | 287,785 | $ | 239,431 | |||||||||
F-34
Table of Contents
Accumulated | |||||||||||||||||||||||||||||||||||||
Other | |||||||||||||||||||||||||||||||||||||
Treasury | Capital in | Comprehensive | |||||||||||||||||||||||||||||||||||
Outstanding | Common | Stock, Par | Excess of | Unearned | Accumulated | (Loss) | |||||||||||||||||||||||||||||||
Shares | Stock | Value | Par Value | Compensation | Deficit | Income | Total | ||||||||||||||||||||||||||||||
(Restated) | (Restated) | (Restated) | |||||||||||||||||||||||||||||||||||
note 2 | note 2 | note 2 | |||||||||||||||||||||||||||||||||||
Balance at December 31, 2002 | 297,010 | $ | 299,526 | $ | (2,516 | ) | $ | 2,259,936 | $ | — | $ | (1,030,699 | ) | $ | (207,385 | ) | $ | 1,318,862 | |||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||||||||
Net income | 85,074 | 85,074 | |||||||||||||||||||||||||||||||||||
Other comprehensive income: | |||||||||||||||||||||||||||||||||||||
Foreign currency translation | 92,504 | 92,504 | |||||||||||||||||||||||||||||||||||
Minimum pension liability adjustment, net | 132 | 132 | |||||||||||||||||||||||||||||||||||
Total other comprehensive income | 92,636 | ||||||||||||||||||||||||||||||||||||
Total comprehensive income | 177,710 | ||||||||||||||||||||||||||||||||||||
Common Stock: | |||||||||||||||||||||||||||||||||||||
Stock option exercises and other | 471 | 424 | 47 | 1,909 | 2,380 | ||||||||||||||||||||||||||||||||
Contributions to employee 401(k) | 4,559 | 4,559 | 12,819 | 17,378 | |||||||||||||||||||||||||||||||||
Balance at December 31, 2003 | 302,040 | 304,509 | (2,469 | ) | 2,274,664 | — | (945,625 | ) | (114,749 | ) | 1,516,330 | ||||||||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||||||||
Net income | 110,661 | 110,661 | |||||||||||||||||||||||||||||||||||
Other comprehensive income: | |||||||||||||||||||||||||||||||||||||
Foreign currency translation | (9,242 | ) | (9,242 | ) | |||||||||||||||||||||||||||||||||
Minimum pension liability adjustment, net | 36,636 | 36,636 | |||||||||||||||||||||||||||||||||||
Reclassification for translation adjustments realized in net income, net | 49,006 | 49,006 | |||||||||||||||||||||||||||||||||||
Total other comprehensive income | 76,400 | ||||||||||||||||||||||||||||||||||||
Total comprehensive income | 187,061 | ||||||||||||||||||||||||||||||||||||
Common Stock: | |||||||||||||||||||||||||||||||||||||
Stock option exercises and other | 2,756 | 2,756 | 8,406 | 11,162 | |||||||||||||||||||||||||||||||||
Tax benefit from stock options exercised | 2,482 | 2,482 | |||||||||||||||||||||||||||||||||||
Contributions to employee 401(k) | 2,692 | 2,000 | 692 | 15,435 | 18,127 | ||||||||||||||||||||||||||||||||
Debenture conversions | 32,034 | 32,034 | 185,120 | 217,154 | |||||||||||||||||||||||||||||||||
Restricted stock award, net of forfeitures | 428 | 428 | 2,483 | (2,911 | ) | — | |||||||||||||||||||||||||||||||
Restricted stock amortization | 889 | 889 | |||||||||||||||||||||||||||||||||||
Purchase of Company common stock | (16,725 | ) | (16,725 | ) | (93,533 | ) | (110,258 | ) | |||||||||||||||||||||||||||||
Balance at December 31, 2004 | 323,225 | 341,727 | (18,502 | ) | 2,395,057 | (2,022 | ) | (834,964 | ) | (38,349 | ) | 1,842,947 | |||||||||||||||||||||||||
Comprehensive loss: | |||||||||||||||||||||||||||||||||||||
Net loss | (127,941 | ) | (127,941 | ) | |||||||||||||||||||||||||||||||||
Other comprehensive income: | |||||||||||||||||||||||||||||||||||||
Foreign currency translation | 7,260 | 7,260 | |||||||||||||||||||||||||||||||||||
Reclassification for translation adjustments realized in net loss, net | 101,588 | 101,588 | |||||||||||||||||||||||||||||||||||
Total other comprehensive income | 108,848 | ||||||||||||||||||||||||||||||||||||
Total comprehensive loss | (19,093 | ) | |||||||||||||||||||||||||||||||||||
Dividends on common stock ($.10 per share) | (30,052 | ) | (30,052 | ) | |||||||||||||||||||||||||||||||||
Common Stock: | |||||||||||||||||||||||||||||||||||||
Stock option exercises and other | 2,044 | 2,044 | 6,183 | 8,227 | |||||||||||||||||||||||||||||||||
Tax benefit from stock options exercised | 2,592 | 2,592 | |||||||||||||||||||||||||||||||||||
Restricted stock award, net of forfeitures | 496 | 496 | 3,161 | (3,657 | ) | — | |||||||||||||||||||||||||||||||
Restricted stock amortization | 2,086 | 2,086 | |||||||||||||||||||||||||||||||||||
Purchase of Company common stock | (30,956 | ) | (30,956 | ) | (194,196 | ) | (225,152 | ) | |||||||||||||||||||||||||||||
Balance at December 31, 2005 | 294,809 | $ | 343,771 | $ | (48,962 | ) | $ | 2,182,745 | $ | (3,593 | ) | $ | (962,905 | ) | $ | 70,499 | $ | 1,581,555 | |||||||||||||||||||
F-35
Table of Contents
Restatement of Financial Statements |
Pension Benefit Obligation |
F-36
Table of Contents
Lease Accounting |
Other Out-of-Period Adjustments |
Materiality Assessment |
F-37
Table of Contents
For the Year Ended | |||||||||
December 31, 2005 | |||||||||
As Reported | As Restated | ||||||||
Revenues | $ | 1,715,605 | $ | 1,715,737 | |||||
Cost and expenses | (1,416,778 | ) | (1,417,592 | ) | |||||
Gross profits | 298,827 | 298,145 | |||||||
Operating income | 187,922 | 187,218 | |||||||
Interest expense | (102,337 | ) | (103,733 | ) | |||||
Income from continuing operations before income taxes and cumulative effects of accounting changes | 90,807 | 88,707 | |||||||
Provision for income taxes | (34,122 | ) | (33,233 | ) | |||||
Net loss | $ | (126,730 | ) | $ | (127,941 | ) | |||
Earnings per share: | |||||||||
Basic | $ | (.42 | ) | $ | (.42 | ) | |||
Diluted | $ | (.41 | ) | $ | (.42 | ) |
For the Year Ended | For the Year Ended | ||||||||||||||||
December 31, 2004 | December 31, 2003 | ||||||||||||||||
As | As | As | As | ||||||||||||||
Reported | Restated | Reported | Restated | ||||||||||||||
Revenues | $ | 1,831,225 | $ | 1,831,225 | $ | 2,313,177 | $ | 2,313,177 | |||||||||
Costs and expenses | $ | (1,502,696 | ) | $ | (1,501,211 | ) | $ | (1,957,392 | ) | $ | (1,956,967 | ) | |||||
Gross profits | 328,529 | 330,014 | 355,785 | 356,210 | |||||||||||||
Operating income | 223,430 | 224,927 | 219,353 | 219,756 | |||||||||||||
Interest expense | (117,910 | ) | (119,293 | ) | (138,625 | ) | (139,964 | ) | |||||||||
Income from continuing operations before income taxes and cumulative effects of accounting changes | 111,906 | 112,020 | 96,603 | 95,667 | |||||||||||||
Benefit (provision) for income taxes | 8,194 | 7,650 | (27,347 | ) | (26,402 | ) | |||||||||||
Income from continuing operations before cumulative effects of accounting changes | 120,100 | 119,670 | 69,256 | 69,265 | |||||||||||||
Cumulative effects of accounting changes | (47,556 | ) | (50,593 | ) | — | — | |||||||||||
Net income | $ | 114,128 | $ | 110,661 | $ | 85,065 | $ | 85,074 | |||||||||
Earnings per share: | |||||||||||||||||
Basic | $ | .36 | $ | .35 | $ | .28 | $ | .28 | |||||||||
Diluted | $ | .35 | $ | .34 | $ | .28 | $ | .28 |
F-38
Table of Contents
December 31, 2005 | December 31, 2004 | ||||||||||||||||
As | As | As | As | ||||||||||||||
Reported | Restated | Reported | Restated | ||||||||||||||
Selected consolidated balance sheet data: | |||||||||||||||||
Property and equipment, at cost, net | $ | 942,229 | $ | 950,174 | $ | 970,547 | $ | 978,861 | |||||||||
Deferred charges and other assets | 249,449 | 249,581 | 631,839 | 631,839 | |||||||||||||
Total assets | 7,536,692 | 7,544,769 | 8,218,840 | 8,227,154 | |||||||||||||
Accounts payable and accrued liabilities | 231,129 | 231,693 | 221,877 | 221,235 | |||||||||||||
Current maturities of long-term debt | 20,468 | 20,716 | 77,950 | 78,164 | |||||||||||||
Long-term debt | 1,175,463 | 1,186,485 | 1,189,163 | 1,200,353 | |||||||||||||
Deferred income taxes | 141,676 | 138,677 | 276,572 | 274,463 | |||||||||||||
Other liabilities | 320,812 | 326,985 | 431,917 | 437,298 | |||||||||||||
Stockholders’ equity | 1,588,486 | 1,581,555 | 1,848,667 | 1,842,947 | |||||||||||||
Total liabilities and stockholders’ equity | $ | 7,536,692 | $ | 7,544,769 | $ | 8,218,840 | $ | 8,227,154 |
Year Ended | ||||||||
December 31, 2005 | ||||||||
As | As | |||||||
Reported | Restated | |||||||
Net cash provided by operating activities | $ | 312,658 | $ | 312,852 | ||||
Net cash used in financing activities | (326,191 | ) | (326,385 | ) |
Year Ended | Year Ended | |||||||||||||||
December 31, 2004 | December 31, 2003 | |||||||||||||||
As | As | As | As | |||||||||||||
Reported | Restated | Reported | Restated | |||||||||||||
Net cash provided by operating activities | $ | 93,988 | $ | 94,156 | $ | 374,108 | $ | 374,259 | ||||||||
Net cash used in financing activities | (335,818 | ) | (335,986 | ) | (300,149 | ) | (300,300 | ) |
Summary of Significant Accounting Policies |
Principles of Consolidation and Basis of Presentation |
Reclassifications |
F-39
Table of Contents
Use of Estimates in the Preparation of Financial Statements |
Cash and Cash Equivalents |
Accounts Receivables and Allowance for Doubtful Accounts |
Inventories and Cemetery Property |
Property and Equipment, Net |
Leases |
F-40
Table of Contents
Goodwill |
Impairment or Disposal of Long-Lived Assets |
Stock Options |
F-41
Table of Contents
2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||
note 2 | note 2 | note 2 | ||||||||||
Net (loss) income, as reported | $ | (127,941 | ) | $ | 110,661 | $ | 85,074 | |||||
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax expense | (1,767 | ) | (3,220 | ) | (6,720 | ) | ||||||
Pro forma net (loss) income | $ | (129,708 | ) | $ | 107,441 | $ | 78,354 | |||||
Basic (loss) earnings per share, as reported | $ | (.42 | ) | $ | .35 | $ | .28 | |||||
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax expense | (.01 | ) | (.01 | ) | (.02 | ) | ||||||
Pro forma basic (loss) earnings per share | $ | (.43 | ) | $ | .34 | $ | .26 | |||||
Diluted (loss) earnings per share, as reported | $ | (.42 | ) | $ | .34 | $ | .28 | |||||
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax expense | (.01 | ) | (.01 | ) | (.02 | ) | ||||||
Pro forma diluted (loss) earnings per share | $ | (.43 | ) | $ | .33 | $ | .26 | |||||
Assumptions | 2005 | 2004 | 2003 (1) | |||||||||
Dividend yield | 1.5 | % | 0.0 | % | n/a | |||||||
Expected volatility | 43.3 | % | 63.8 | % | n/a | |||||||
Risk-free interest rate | 3.7 | % | 4.0 | % | n/a | |||||||
Expected holding period | 5.5 years | 8.0 years | n/a | |||||||||
Weighted average fair value | $ | 2.71 | $ | 4.68 | n/a |
(1) | The Company did not issue stock options during 2003. |
F-42
Table of Contents
Treasury Stock |
Foreign Currency Translation |
Funeral Operations |
Cemetery Operations |
F-43
Table of Contents
Income Taxes |
Equity Investments |
F-44
Table of Contents
Investment | ||||||||||||||||
Ownership | Method | |||||||||||||||
Investee Name | Percentage | Accounting | Date Sold | |||||||||||||
Investments held at 12/31/2005 | ||||||||||||||||
France | AKH Luxco S.C.A. | 25 | % | Equity | — | |||||||||||
Investments held at 12/31/2004 | ||||||||||||||||
France | AKH Luxco S.C.A. | 25 | % | Equity | — | |||||||||||
Investments held at 12/31/2003 | ||||||||||||||||
United Kingdom | Dignity Limited | 20 | % | Equity | June 2004 |
New Accounting Pronouncements and Accounting Changes |
Accounting for Certain Hybrid Financial Instruments |
Accounting Changes and Error Corrections |
Other-Than-Temporary Impairments |
F-45
Table of Contents
Deferred Selling Costs |
F-46
Table of Contents
Year Ended | Year Ended | ||||||||||||||||||||||||
December 31, 2004 | December 31, 2003 | ||||||||||||||||||||||||
Deferred | Deferred | ||||||||||||||||||||||||
Selling | Selling | ||||||||||||||||||||||||
Costs, Net | Costs, Net | ||||||||||||||||||||||||
Historical | (1) | Pro forma | Historical | (1) | Pro Forma | ||||||||||||||||||||
(Restated) | (Restated) | (Restated) | (Restated) | ||||||||||||||||||||||
note 2 | note 2 | note 2 | note 2 | ||||||||||||||||||||||
Gross profits: | |||||||||||||||||||||||||
Funeral | $ | 227,812 | $ | (4,735 | ) | $ | 223,077 | $ | 273,764 | $ | (4,245 | ) | $ | 269,519 | |||||||||||
Cemetery | 102,202 | (9,533 | ) | 92,669 | 82,446 | (6,416 | ) | 76,030 | |||||||||||||||||
330,014 | (14,268 | ) | 315,746 | 356,210 | (10,661 | ) | 345,549 | ||||||||||||||||||
Income (loss) from continuing operations before income taxes and cumulative effects of accounting changes | $ | 112,020 | $ | (14,268 | ) | $ | 97,752 | $ | 95,667 | $ | (10,661 | ) | $ | 85,006 | |||||||||||
Net income (loss) | $ | 110,661 | $ | (9,403 | ) | $ | 101,258 | $ | 85,074 | $ | (6,535 | ) | $ | 78,539 | |||||||||||
Amounts per common share: | |||||||||||||||||||||||||
Net income (loss) — basic | $ | .35 | $ | (.03 | ) | $ | .32 | $ | .28 | $ | (.02 | ) | $ | .26 | |||||||||||
Net income (loss) — diluted | $ | .34 | $ | (.03 | ) | $ | .31 | $ | .28 | $ | (.02 | ) | $ | .26 |
(1) | Represents net deferred selling costs that would have been expensed under the new method of accounting adopted on January 1, 2005. |
Inventory Costs |
Share-Based Payment |
F-47
Table of Contents
Variable Interest Entities |
F-48
Table of Contents
Pension Plans |
Preneed Funeral Activities |
Preneed Funeral Receivables and Trust Investments |
2005 | 2004 | ||||||||
Trust investments, at market | $ | 1,046,958 | $ | 1,085,777 | |||||
Receivables from customers | 204,180 | 196,239 | |||||||
1,251,138 | 1,282,016 | ||||||||
Allowance for cancellation | (24,946 | ) | (14,232 | ) | |||||
Preneed funeral receivables and trust investments | $ | 1,226,192 | $ | 1,267,784 | |||||
F-49
Table of Contents
2005 | 2004 | ||||||||
Beginning balance — Preneed funeral receivables and trust investments | $ | 1,267,784 | $ | 1,080,108 | |||||
Net sales | 132,157 | 104,259 | |||||||
Cash receipts from customers | (109,879 | ) | (94,522 | ) | |||||
Deposits to trust | 71,961 | 67,527 | |||||||
Dispositions of businesses | (17,257 | ) | (9,323 | ) | |||||
Net undistributed investment earnings | 27,140 | 39,479 | |||||||
Maturities and distributed earnings | (131,651 | ) | (122,212 | ) | |||||
Change in cancellation allowance | (10,714 | ) | 2,593 | ||||||
Sale of debt associated with certain trust investments | (31,800 | ) | — | ||||||
Adoption of FIN 46R | — | 225,964 | |||||||
Trust reconciliation adjustments | — | (2,280 | ) | ||||||
Effect of foreign currency and other | 28,451 | (23,809 | ) | ||||||
Ending balance — Preneed funeral receivables and trust investments | $ | 1,226,192 | $ | 1,267,784 | |||||
F-50
Table of Contents
December 31, 2005 | |||||||||||||||||
Unrealized | Unrealized | Fair Market | |||||||||||||||
Cost | Gains | Losses | Value | ||||||||||||||
Cash and cash equivalents | $ | 61,369 | $ | — | $ | — | $ | 61,369 | |||||||||
Fixed income securities: | |||||||||||||||||
U.S. Treasury | 93,152 | 2,675 | (988 | ) | 94,839 | ||||||||||||
Foreign government | 81,842 | 466 | (616 | ) | 81,692 | ||||||||||||
Corporate | 7,749 | 263 | (67 | ) | 7,945 | ||||||||||||
Mortgage-backed | 89,971 | 3,312 | (1,238 | ) | 92,045 | ||||||||||||
Insurance-backed | 207,887 | — | — | 207,887 | |||||||||||||
Asset-backed and other | 869 | 32 | (12 | ) | 889 | ||||||||||||
Equity securities: | |||||||||||||||||
Common stock | 299,118 | 13,818 | (4,157 | ) | 308,779 | ||||||||||||
Mutual funds: | |||||||||||||||||
Equity | 69,070 | 10,322 | (772 | ) | 78,620 | ||||||||||||
Fixed income | 83,030 | 1,474 | (1,259 | ) | 83,245 | ||||||||||||
Private equity and other | 39,006 | 641 | (9,999 | ) | 29,648 | ||||||||||||
Trust investments | $ | 1,033,063 | $ | 33,003 | $ | (19,108 | ) | $ | 1,046,958 | ||||||||
Market value as of a percentage of cost | 101 | % | |||||||||||||||
December 31, 2004 | |||||||||||||||||
Unrealized | Unrealized | Fair Market | |||||||||||||||
Cost | Gains | Losses | Value | ||||||||||||||
Cash and cash equivalents | $ | 57,730 | $ | — | $ | — | $ | 57,730 | |||||||||
Fixed income securities: | |||||||||||||||||
U.S. Treasury | 86,694 | 2,883 | (191 | ) | 89,386 | ||||||||||||
Foreign government | 73,073 | 1,238 | (37 | ) | 74,274 | ||||||||||||
Corporate | 9,585 | 490 | (21 | ) | 10,054 | ||||||||||||
Mortgage-backed | 125,144 | 5,740 | (414 | ) | 130,470 | ||||||||||||
Insurance-backed | 195,981 | — | — | 195,981 | |||||||||||||
Asset-backed and other | 3,179 | 150 | (9 | ) | 3,320 | ||||||||||||
Equity securities: | |||||||||||||||||
Common stock | 275,569 | 13,510 | (1,003 | ) | 288,076 | ||||||||||||
Mutual funds: | |||||||||||||||||
Equity | 112,332 | 12,195 | (287 | ) | 124,240 | ||||||||||||
Fixed income | 50,237 | 432 | (156 | ) | 50,513 | ||||||||||||
Private equity and other | 57,633 | 4,100 | — | 61,733 | |||||||||||||
Trust investments | $ | 1,047,157 | $ | 40,738 | $ | (2,118 | ) | $ | 1,085,777 | ||||||||
Market value as of a percentage of cost | 104 | % | |||||||||||||||
F-51
Table of Contents
Less than 12 Months | Greater than 12 Months | Total | |||||||||||||||||||||||
Fair | Fair | Fair | |||||||||||||||||||||||
Market | Unrealized | Market | Unrealized | Market | Unrealized | ||||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||||
Fixed income securities: | |||||||||||||||||||||||||
U.S. Treasury | $ | 1,837 | $ | (32 | ) | $ | 25,990 | $ | (956 | ) | $ | 27,827 | $ | (988 | ) | ||||||||||
Foreign government | 8,351 | (242 | ) | 20,496 | (374 | ) | 28,847 | (616 | ) | ||||||||||||||||
Corporate | 262 | (3 | ) | 2,169 | (64 | ) | 2,431 | (67 | ) | ||||||||||||||||
Mortgage-backed | 2,084 | (38 | ) | 32,960 | (1,200 | ) | 35,044 | (1,238 | ) | ||||||||||||||||
Asset-backed and other | 21 | — | 315 | (12 | ) | 336 | (12 | ) | |||||||||||||||||
Equity securities: | |||||||||||||||||||||||||
Common stock | 6,750 | (125 | ) | 105,764 | (4,032 | ) | 112,514 | (4,157 | ) | ||||||||||||||||
Mutual funds: | |||||||||||||||||||||||||
Equity | 1,920 | (73 | ) | 16,295 | (699 | ) | 18,215 | (772 | ) | ||||||||||||||||
Fixed income | 3,839 | (82 | ) | 51,819 | (1,177 | ) | 55,658 | (1,259 | ) | ||||||||||||||||
Private equity and other | — | — | 26,608 | (9,999 | ) | 26,608 | (9,999 | ) | |||||||||||||||||
Total temporarily impaired securities | $ | 25,064 | $ | (595 | ) | $ | 282,416 | $ | (18,513 | ) | $ | 307,480 | $ | (19,108 | ) | ||||||||||
Market | ||||
Due in one year or less | $ | 63,154 | ||
Due in one to five years | 104,963 | |||
Due in five to ten years | 81,159 | |||
Thereafter | 236,021 | |||
$ | 485,297 | |||
F-52
Table of Contents
Deferred Preneed Funeral Revenues |
2005 | 2004 | ||||||||
Beginning balance — Deferred preneed funeral revenues, net | $ | 540,794 | $ | 1,464,218 | |||||
Net sales | 129,459 | 97,611 | |||||||
Dispositions of businesses | (18,253 | ) | (19,014 | ) | |||||
Net investment earnings | 22,783 | 37,219 | |||||||
Recognized deferred preneed revenues | (157,861 | ) | (138,820 | ) | |||||
Change in cancellation allowance | (5,539 | ) | (6,179 | ) | |||||
Change in non-controlling interest | 8,167 | 179,459 | |||||||
Effect of foreign currency and other | 15,834 | (28,547 | ) | ||||||
Adoption of FIN 46R | — | (1,045,153 | ) | ||||||
Ending balance — Deferred preneed funeral revenues, net | $ | 535,384 | $ | 540,794 | |||||
Insurance Funded Preneed Funeral Contracts |
Preneed Cemetery Activities |
Preneed Cemetery Receivables and Trust Investments |
F-53
Table of Contents
December 31, 2005 | December 31, 2004 | |||||||
Trust investments, at market | $ | 982,755 | $ | 1,030,429 | ||||
Receivables from customers | 406,087 | 483,945 | ||||||
Unearned finance charges | (64,915 | ) | (75,488 | ) | ||||
1,323,927 | 1,438,886 | |||||||
Allowance for cancellation | (35,412 | ) | (39,108 | ) | ||||
Preneed cemetery receivables and trust investments | $ | 1,288,515 | $ | 1,399,778 | ||||
2005 | 2004 | |||||||
Beginning balance — Preneed cemetery receivables and trust investments | $ | 1,399,778 | $ | 1,068,216 | ||||
Net sales including deferred and recognized revenue | 334,615 | 337,710 | ||||||
Dispositions of businesses | (65,112 | ) | (21,531 | ) | ||||
Net investment earnings | 27,229 | 32,869 | ||||||
Cash receipts from customers, net of refunds | (368,234 | ) | (385,350 | ) | ||||
Deposits to trust | 114,303 | 128,536 | ||||||
Maturities, deliveries and associated earnings | (128,196 | ) | (120,216 | ) | ||||
Change in cancellation allowance | 3,696 | 17,772 | ||||||
Sale of debt associated with certain trust investments | (27,367 | ) | — | |||||
Adoption of FIN 46R | — | 323,803 | ||||||
Effect of foreign currency and other | (2,197 | ) | 17,969 | |||||
Ending balance — Preneed cemetery receivables and trust investments | $ | 1,288,515 | $ | 1,399,778 | ||||
F-54
Table of Contents
December 31, 2005 | |||||||||||||||||
Unrealized | Unrealized | Fair Market | |||||||||||||||
Cost | Gains | Losses | Value | ||||||||||||||
Cash and cash equivalents | $ | 89,493 | $ | — | $ | — | $ | 89,493 | |||||||||
Fixed income securities: | |||||||||||||||||
U.S. Treasury | 121,291 | 6,928 | (1,030 | ) | 127,189 | ||||||||||||
Foreign government | 21,456 | 899 | (30 | ) | 22,325 | ||||||||||||
Corporate | 13,171 | 766 | (114 | ) | 13,823 | ||||||||||||
Mortgage-backed | 173,214 | 10,023 | (1,534 | ) | 181,703 | ||||||||||||
Asset-backed and other | 2,329 | 136 | (20 | ) | 2,445 | ||||||||||||
Equity securities: | |||||||||||||||||
Common stock | 286,325 | 19,623 | (2,530 | ) | 303,418 | ||||||||||||
Mutual funds: | |||||||||||||||||
Equity | 133,817 | 22,124 | (822 | ) | 155,119 | ||||||||||||
Fixed income | 65,921 | 2,002 | (1,021 | ) | 66,902 | ||||||||||||
Private equity and other | 27,581 | 4 | (7,247 | ) | 20,338 | ||||||||||||
Trust investments | $ | 934,598 | $ | 62,505 | $ | (14,348 | ) | $ | 982,755 | ||||||||
Market value as a percentage of cost | 105 | % | |||||||||||||||
December 31, 2004 | |||||||||||||||||
Unrealized | Unrealized | Fair Market | |||||||||||||||
Cost | Gains | Losses | Value | ||||||||||||||
Cash and cash equivalents | $ | 123,311 | $ | — | $ | — | $ | 123,311 | |||||||||
Fixed income securities: | |||||||||||||||||
U.S. Treasury | 91,189 | 7,944 | (93 | ) | 99,040 | ||||||||||||
Foreign government | 14,970 | 893 | — | 15,863 | |||||||||||||
Corporate | 13,072 | 1,076 | (13 | ) | 14,135 | ||||||||||||
Mortgage-backed | 191,283 | 16,732 | (215 | ) | 207,800 | ||||||||||||
Asset-backed and other | 20,320 | 1,806 | (21 | ) | 22,105 | ||||||||||||
Equity securities: | |||||||||||||||||
Common stock | 253,340 | 24,048 | (322 | ) | 277,066 | ||||||||||||
Mutual funds: | |||||||||||||||||
Equity | 153,364 | 20,886 | (107 | ) | 174,143 | ||||||||||||
Fixed income | 46,525 | 1,278 | (316 | ) | 47,487 | ||||||||||||
Private equity and other | 46,125 | 3,354 | — | 49,479 | |||||||||||||
Trust investments | $ | 953,499 | $ | 78,017 | $ | (1,087 | ) | $ | 1,030,429 | ||||||||
Market value as a percentage of cost | 108 | % | |||||||||||||||
F-55
Table of Contents
Less than 12 Months | Greater than 12 Months | Total | |||||||||||||||||||||||
Fair Market | Unrealized | Fair Market | Unrealized | Fair Market | Unrealized | ||||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||||
Fixed income securities: | |||||||||||||||||||||||||
U.S. Treasury | $ | 4,441 | $ | (94 | ) | $ | 36,039 | $ | (936 | ) | $ | 40,480 | $ | (1,030 | ) | ||||||||||
Foreign government | — | — | 2,881 | (30 | ) | 2,881 | (30 | ) | |||||||||||||||||
Corporate | 546 | (11 | ) | 3,986 | (103 | ) | 4,532 | (114 | ) | ||||||||||||||||
Mortgage-backed | 6,619 | (138 | ) | 53,605 | (1,396 | ) | 60,224 | (1,534 | ) | ||||||||||||||||
Asset-backed and other | 87 | (2 | ) | 708 | (18 | ) | 795 | (20 | ) | ||||||||||||||||
Equity securities: | |||||||||||||||||||||||||
Common stock | 10,502 | (222 | ) | 85,628 | (2,308 | ) | 96,130 | (2,530 | ) | ||||||||||||||||
Mutual funds: | |||||||||||||||||||||||||
Equity | 3,349 | (57 | ) | 22,420 | (765 | ) | 25,769 | (822 | ) | ||||||||||||||||
Fixed income | 5,602 | (107 | ) | 36,189 | (914 | ) | 41,791 | (1,021 | ) | ||||||||||||||||
Private equity and other | — | — | 19,816 | (7,247 | ) | 19,816 | (7,247 | ) | |||||||||||||||||
Total temporarily impaired securities | $ | 31,146 | $ | (631 | ) | $ | 261,272 | $ | (13,717 | ) | $ | 292,418 | $ | (14,348 | ) | ||||||||||
Market | ||||
Due in one year or less. | $ | 4,351 | ||
Due in one to five years | 95,314 | |||
Due in five to ten years | 71,269 | |||
Thereafter | 176,551 | |||
$ | 347,485 | |||
F-56
Table of Contents
Deferred Preneed Cemetery Revenues |
2005 | 2004 | ||||||||
Beginning balance — Deferred preneed cemetery revenues | $ | 803,144 | $ | 1,551,187 | |||||
Net preneed and atneed deferred sales | 308,202 | 256,635 | |||||||
Dispositions of businesses | (68,378 | ) | (17,636 | ) | |||||
Net investment earnings | 27,260 | 35,748 | |||||||
Recognized deferred preneed revenues | (315,663 | ) | (269,771 | ) | |||||
Change in cancellation allowance | 6,140 | (12,946 | ) | ||||||
Change in non-controlling interest | 27,889 | (74,902 | ) | ||||||
Effect of foreign currency and other | 3,891 | (29 | ) | ||||||
Adoption of FIN 46R | — | (665,142 | ) | ||||||
Ending balance — Deferred preneed cemetery revenues | $ | 792,485 | $ | 803,144 | |||||
Cemetery Perpetual Care Trusts |
F-57
Table of Contents
December 31, 2005 | |||||||||||||||||
Unrealized | Unrealized | Fair Market | |||||||||||||||
Cost | Gains | Losses | Value | ||||||||||||||
Cash and cash equivalents | $ | 45,647 | $ | — | $ | — | $ | 45,647 | |||||||||
Fixed income securities: | |||||||||||||||||
U.S. Treasury | 63,102 | 1,953 | (78 | ) | 64,977 | ||||||||||||
Foreign government | 32,456 | 1,373 | (41 | ) | 33,788 | ||||||||||||
Corporate | 71,642 | 1,716 | (78 | ) | 73,280 | ||||||||||||
Mortgage-backed | 117,626 | 2,817 | (131 | ) | 120,312 | ||||||||||||
Asset-backed and other | 26,992 | 648 | (30 | ) | 27,610 | ||||||||||||
Equity securities: | |||||||||||||||||
Preferred stock | 12,833 | 1,253 | (65 | ) | 14,021 | ||||||||||||
Common stock | 90,160 | 3,984 | (211 | ) | 93,933 | ||||||||||||
Mutual funds: | |||||||||||||||||
Equity | 43,204 | 2,353 | (206 | ) | 45,351 | ||||||||||||
Fixed income | 144,294 | 2,815 | (1,023 | ) | 146,086 | ||||||||||||
Private equity and other | 31,041 | 5,428 | (1,092 | ) | 35,377 | ||||||||||||
Perpetual care trust investments | $ | 678,997 | $ | 24,340 | $ | (2,955 | ) | $ | 700,382 | ||||||||
Market value as a percentage of cost | 103 | % | |||||||||||||||
December 31, 2004 | |||||||||||||||||
Unrealized | Unrealized | Fair Market | |||||||||||||||
Cost | Gains | Losses | Value | ||||||||||||||
Cash and cash equivalents | $ | 33,444 | $ | — | $ | — | $ | 33,444 | |||||||||
Fixed income securities: | |||||||||||||||||
U.S. Treasury | 25,688 | 1,764 | (1 | ) | 27,451 | ||||||||||||
Foreign government | 30,265 | 1,666 | (5 | ) | 31,926 | ||||||||||||
Corporate | 87,425 | 4,592 | (2 | ) | 92,015 | ||||||||||||
Mortgage-backed | 131,541 | 6,988 | (2 | ) | 138,527 | ||||||||||||
Asset-backed and other | 40,757 | 2,166 | (1 | ) | 42,922 | ||||||||||||
Equity securities: | |||||||||||||||||
Preferred stock | 13,208 | 1,210 | (43 | ) | 14,375 | ||||||||||||
Common stock | 93,748 | 6,544 | (171 | ) | 100,121 | ||||||||||||
Mutual funds: | |||||||||||||||||
Equity | 43,843 | 3,088 | (159 | ) | 46,772 | ||||||||||||
Fixed income | 145,428 | 6,266 | (448 | ) | 151,246 | ||||||||||||
Private equity and other | 48,542 | 2,116 | (409 | ) | 50,249 | ||||||||||||
Perpetual care trust investments | $ | 693,889 | $ | 36,400 | $ | (1,241 | ) | $ | 729,048 | ||||||||
Market value as a percentage of cost | 105 | % | |||||||||||||||
F-58
Table of Contents
Less Than 12 Months | Greater Than 12 Months | Total | |||||||||||||||||||||||
Fair | Fair | Fair | |||||||||||||||||||||||
Market | Unrealized | Market | Unrealized | Market | Unrealized | ||||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||||
Fixed income securities: | |||||||||||||||||||||||||
U.S. Treasury | $ | 1,202 | $ | (9 | ) | $ | 12,581 | $ | (69 | ) | $ | 13,783 | $ | (78 | ) | ||||||||||
Foreign government | — | — | 5,518 | (41 | ) | 5,518 | (41 | ) | |||||||||||||||||
Corporate | 1,367 | (9 | ) | 13,452 | (69 | ) | 14,819 | (78 | ) | ||||||||||||||||
Mortgage-backed | 2,225 | (15 | ) | 22,121 | (116 | ) | 24,346 | (131 | ) | ||||||||||||||||
Asset-backed and other | 506 | (3 | ) | 5,044 | (27 | ) | 5,550 | (30 | ) | ||||||||||||||||
Equity securities: | |||||||||||||||||||||||||
Preferred stock | 105 | (2 | ) | 1,099 | (63 | ) | 1,204 | (65 | ) | ||||||||||||||||
Common stock | 1,769 | (11 | ) | 18,016 | (200 | ) | 19,785 | (211 | ) | ||||||||||||||||
Mutual funds: | |||||||||||||||||||||||||
Equity | 886 | (9 | ) | 7,699 | (197 | ) | 8,585 | (206 | ) | ||||||||||||||||
Fixed income | 6,066 | (81 | ) | 48,790 | (942 | ) | 54,856 | (1,023 | ) | ||||||||||||||||
Private equity and other | — | — | 4,666 | (1,092 | ) | 4,666 | (1,092 | ) | |||||||||||||||||
Total temporarily impaired securities | $ | 14,126 | $ | (139 | ) | $ | 138,986 | $ | (2,816 | ) | $ | 153,112 | $ | (2,955 | ) | ||||||||||
Market | ||||
Due in one year or less. | 9,687 | |||
Due in one to five years | 92,146 | |||
Due in five to ten years | 38,594 | |||
Thereafter | 179,540 | |||
$ | 319,967 | |||
F-59
Table of Contents
Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care Trusts |
Non-Controlling Interest in Funeral and Cemetery Trusts |
Non-Controlling Interest in Perpetual Care Trusts |
December 31, 2005 | December 31, 2005 | ||||||||||||||||
Preneed | Preneed | Cemetery | |||||||||||||||
Funeral | Cemetery | Total | Perpetual Care | ||||||||||||||
Trust investments, at market value | $ | 1,046,958 | $ | 982,755 | $ | 2,029,713 | $ | 700,382 | |||||||||
Less: | |||||||||||||||||
Accrued trust operating payables, deferred taxes and other | 5,054 | 8,848 | 13,902 | 5,763 | |||||||||||||
Non-controlling interest | $ | 1,041,904 | $ | 973,907 | $ | 2,015,811 | $ | 694,619 | |||||||||
December 31, 2004 | December 31, 2004 | ||||||||||||||||
Preneed | Preneed | Cemetery | |||||||||||||||
Funeral | Cemetery | Total | Perpetual Care | ||||||||||||||
Trust investments, at market value | $ | 1,085,777 | $ | 1,030,429 | $ | 2,116,206 | $ | 729,048 | |||||||||
Less: | |||||||||||||||||
Debt associated with certain trust investments | 31,800 | 27,367 | 59,167 | 17,759 | |||||||||||||
Accrued trust operating payables, deferred taxes and other | 3,906 | 2,475 | 6,381 | 6,377 | |||||||||||||
35,706 | 29,842 | 65,548 | 24,136 | ||||||||||||||
Non-controlling interest | $ | 1,050,071 | $ | 1,000,587 | $ | 2,050,658 | $ | 704,912 | |||||||||
F-60
Table of Contents
Debt Associated with Certain Trusts Consolidated by the Company |
Other Income, Net |
Year Ended December 31, 2005 | |||||||||||||||||||||
Funeral | Cemetery | Cemetery Perpetual | |||||||||||||||||||
Trusts | Trusts | Care Trusts | Other, Net(1) | Total | |||||||||||||||||
Realized gains | $ | 56,560 | $ | 67,732 | $ | 19,088 | $ | — | $ | 143,380 | |||||||||||
Realized losses | (19,503 | ) | (21,506 | ) | (9,718 | ) | — | (50,727 | ) | ||||||||||||
Interest, dividend and other ordinary income | 19,894 | 23,458 | 29,999 | — | 73,351 | ||||||||||||||||
Trust expenses and income taxes | (11,924 | ) | (13,419 | ) | (8,650 | ) | — | (33,993 | ) | ||||||||||||
Net trust investment income | 45,027 | 56,265 | 30,719 | — | 132,011 | ||||||||||||||||
Interest expense related to non-controlling interest in funeral and cemetery trust investments | (45,027 | ) | (56,265 | ) | — | — | (101,292 | ) | |||||||||||||
Interest expense related to non-controlling interest in perpetual care trust investments | — | — | (30,719 | ) | — | (30,719 | ) | ||||||||||||||
Total non-controlling interest | — | — | — | — | — | ||||||||||||||||
Other income | — | — | — | 2,774 | 2,774 | ||||||||||||||||
Total other income, net | $ | — | $ | — | $ | — | $ | 2,774 | $ | 2,774 | |||||||||||
F-61
Table of Contents
Year Ended December 31, 2004 | |||||||||||||||||||||
Funeral | Cemetery | Cemetery Perpetual | |||||||||||||||||||
Trusts | Trusts | Care Trusts | Other, Net (1) | Total | |||||||||||||||||
Realized gains | $ | 89,500 | $ | 80,987 | $ | 34,430 | $ | — | $ | 204,917 | |||||||||||
Realized losses | (56,852 | ) | (62,368 | ) | (9,092 | ) | — | (128,312 | ) | ||||||||||||
Interest, dividend and other ordinary income | 13,709 | 18,622 | 26,456 | — | 58,787 | ||||||||||||||||
Trust expenses and income taxes | (5,775 | ) | (7,422 | ) | (7,282 | ) | — | (20,479 | ) | ||||||||||||
Net trust investment income | 40,582 | 29,819 | 44,512 | — | 114,913 | ||||||||||||||||
Interest expense related to non-controlling interest in funeral and cemetery trust investments | (40,582 | ) | (29,819 | ) | — | — | (70,401 | ) | |||||||||||||
Interest expense related to non-controlling interest in perpetual care trust investments | — | — | (44,512 | ) | — | (44,512 | ) | ||||||||||||||
Total non-controlling interest | — | — | — | — | — | ||||||||||||||||
Other income | — | — | — | 9,703 | 9,703 | ||||||||||||||||
Total other income, net | $ | — | $ | — | $ | — | $ | 9,703 | $ | 9,703 | |||||||||||
(1) | Amounts included in other income withinOther income, netprimarily relate to foreign currency gains and losses, and override commissions from a third party insurance company. |
Goodwill |
Funeral | Cemetery | ||||||||||||
Segment | Segment | Total | |||||||||||
Balance as of December 31, 2003 | $ | 1,193,138 | $ | 2,284 | $ | 1,195,422 | |||||||
Addition of Goodwill related to acquisitions | 1,842 | — | 1,842 | ||||||||||
Reduction of Goodwill related to dispositions | (34,887 | ) | (127 | ) | (35,014 | ) | |||||||
Effect of foreign currency and other | 6,564 | 226 | 6,790 | ||||||||||
Balance as of December 31, 2004 | $ | 1,166,657 | $ | 2,383 | $ | 1,169,040 | |||||||
Reduction of Goodwill related to dispositions | (46,785 | ) | (2,507 | ) | (49,292 | ) | |||||||
Effect of foreign currency and other | 4,016 | 124 | 4,140 | ||||||||||
Balance as of December 31, 2005 | $ | 1,123,888 | $ | — | $ | 1,123,888 | |||||||
Income Taxes |
F-62
Table of Contents
2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||
note 2 | note 2 | note 2 | ||||||||||
United States | $ | 71,311 | $ | 66,155 | $ | 4,829 | ||||||
Foreign | 17,396 | 45,865 | 90,838 | |||||||||
$ | 88,707 | $ | 112,020 | $ | 95,667 | |||||||
2005 | 2004 | 2003 | |||||||||||
(Restated) | (Restated) | (Restated) | |||||||||||
note 2 | note 2 | note 2 | |||||||||||
Current: | |||||||||||||
United States | $ | 2,328 | $ | (27,916 | ) | $ | 2,050 | ||||||
Foreign | 2,244 | 2,769 | 17,904 | ||||||||||
State and local | 3,470 | (786 | ) | 4,306 | |||||||||
$ | 8,042 | $ | (25,933 | ) | $ | 24,260 | |||||||
Deferred: | |||||||||||||
United States | $ | 38,128 | $ | 10,662 | $ | 332 | |||||||
Foreign | 6,041 | 10,311 | 6,913 | ||||||||||
State and local | (18,978 | ) | (2,690 | ) | (5,103 | ) | |||||||
$ | 25,191 | $ | 18,283 | $ | 2,142 | ||||||||
$ | 33,233 | $ | (7,650 | ) | $ | 26,402 | |||||||
F-63
Table of Contents
2005 | 2004 | 2003 | |||||||||||
(Restated) | (Restated) | (Restated) | |||||||||||
note 2 | note 2 | note 2 | |||||||||||
Computed tax provision at the applicable federal statutory income tax rate | $ | 31,048 | $ | 39,207 | $ | 33,483 | |||||||
State and local taxes, net of federal income tax benefits | (10,081 | ) | (2,259 | ) | (518 | ) | |||||||
Dividends received deduction and tax exempt interest | (133 | ) | (588 | ) | (471 | ) | |||||||
Foreign jurisdiction differences | 523 | (1,346 | ) | (2,679 | ) | ||||||||
Write down of assets and other losses with no tax benefit | 558 | (6,915 | ) | 119 | |||||||||
Tax provision (benefit) associated with dispositions | 11,799 | (34,297 | ) | (3,350 | ) | ||||||||
Other | (481 | ) | (1,452 | ) | (182 | ) | |||||||
Provision (benefit) for income taxes | $ | 33,233 | $ | (7,650 | ) | $ | 26,402 | ||||||
Total effective tax rate | 37.5 | % | (6.8 | )% | 27.6 | % | |||||||
2005 | 2004 | |||||||
(Restated) | (Restated) | |||||||
note 2 | note 2 | |||||||
Inventories and cemetery property, principally due to purchase accounting adjustments | $ | 382,391 | $ | 402,811 | ||||
Property and equipment, principally related to book-tax differences in depreciation methods and purchase accounting adjustments | 33,724 | 27,040 | ||||||
Goodwill, principally related to book-tax differences in amortization methods | 40,541 | 38,566 | ||||||
Receivables, principally due to sales of cemetery interment rights and related products | — | 64,626 | ||||||
Other | — | 14,440 | ||||||
Deferred tax liabilities | 456,656 | 547,483 | ||||||
Deferred revenue on preneed funeral and cemetery contracts, principally due to earnings from trust funds | (147,764 | ) | (111,764 | ) | ||||
Accrued liabilities | (14,771 | ) | (70,713 | ) | ||||
Receivables, principally due to sales of cemetery interment rights and related products | (27,123 | ) | — | |||||
Other | (27,642 | ) | — | |||||
Loss and tax credit carry-forwards | (126,364 | ) | (141,431 | ) | ||||
Deferred tax assets | (343,664 | ) | (323,908 | ) | ||||
Valuation allowance | 34,829 | 43,908 | ||||||
Net deferred income tax liabilities | $ | 147,821 | $ | 267,483 | ||||
F-64
Table of Contents
Federal | State | Foreign | Total | |||||||||||||
Loss and tax credit carryforwards | $ | (51,325 | ) | $ | (67,588 | ) | $ | (7,451 | ) | $ | (126,364 | ) | ||||
Valuation allowance | $ | 2,621 | $ | 27,125 | $ | 5,083 | $ | 34,829 |
F-65
Table of Contents
Federal | State | Foreign | Total | |||||||||||||
2006 | $ | — | $ | 18,857 | $ | 1,348 | $ | 20,205 | ||||||||
2007 | — | 4,150 | 856 | 5,006 | ||||||||||||
2008 | 1,529 | 10,193 | — | 11,722 | ||||||||||||
2009 | 2,197 | 6,211 | 1 | 8,409 | ||||||||||||
2010 | — | 4,435 | 229 | 4,664 | ||||||||||||
Thereafter | 222,315 | 841,360 | 19,147 | 1,082,822 | ||||||||||||
Total | $ | 226,041 | $ | 885,206 | $ | 21,581 | $ | 1,132,828 | ||||||||
Debt |
December 31, | December 31, | |||||||
2005 | 2004 | |||||||
(Restated) | (Restated) | |||||||
note 2 | note 2 | |||||||
(Dollars in thousands, except | ||||||||
per share data) | ||||||||
6.0% notes due December 2005 | $ | — | $ | 63,801 | ||||
7.2% notes due June 2006 | 10,698 | 150,000 | ||||||
6.875% notes due October 2007 | 13,497 | 143,475 | ||||||
6.5% notes due March 2008 | 195,000 | 195,000 | ||||||
7.7% notes due April 2009 | 341,635 | 358,266 | ||||||
7.875% debentures due February 2013 | 55,627 | 55,627 | ||||||
6.75% notes due April 2016 | 250,000 | 250,000 | ||||||
7.0% notes due June 2017 | 300,000 | — | ||||||
Convertible debentures, maturities through 2013, fixed interest rates from 4.75% to 5.25%, conversion prices from $13.02 to $50.00 per share | 22,213 | 30,375 | ||||||
Mortgage notes and other debt, maturities through 2050 | 41,013 | 60,076 | ||||||
Unamortized pricing discounts and other | (22,482 | ) | (28,103 | ) | ||||
�� | ||||||||
Total debt | 1,207,201 | 1,278,517 | ||||||
Less current maturities | (20,716 | ) | (78,164 | ) | ||||
Total long-term debt | $ | 1,186,485 | $ | 1,200,353 | ||||
F-66
Table of Contents
(Restated) | ||||
note 2 | ||||
2006 | $ | 20,716 | ||
2007 | 22,076 | |||
2008 | 203,559 | |||
2009 | 344,943 | |||
2010 | 2,680 | |||
2011 and thereafter | 613,227 | |||
$ | 1,207,201 | |||
Bank Credit Facility |
Debt Issuances and Additions |
F-67
Table of Contents
Debt Extinguishments and Reductions |
Additional Debt Disclosures |
F-68
Table of Contents
(Restated) | ||||
note 2 | ||||
2005 | $ | 95,678 | ||
2004 | $ | 112,399 | ||
2003 | $ | 138,090 |
(Restated) | ||||
note 2 | ||||
2006 | $ | 90,189 | ||
2007 | $ | 85,402 | ||
2008 | $ | 72,846 | ||
2009 | $ | 52,370 | ||
2010 | $ | 44,528 | ||
2011 and thereafter | $ | 250,381 |
Derivatives |
F-69
Table of Contents
Credit Risk and Fair Value of Financial Instruments |
Fair Value Estimates |
2005 | 2004 | |||||||
(Restated) | (Restated) | |||||||
note 2 | note 2 | |||||||
(Dollars in thousands, except | ||||||||
per share data) | ||||||||
6.0% notes due 2005 | $ | — | $ | 64,997 | ||||
7.2% notes due 2006 | 10,698 | 156,188 | ||||||
6.875% notes due 2007 | 13,632 | 149,752 | ||||||
6.5% notes due 2008 | 198,412 | 200,850 | ||||||
7.7% notes due 2009 | 360,852 | 385,136 | ||||||
7.875% debentures due 2013 | 58,965 | 60,494 | ||||||
6.75% notes due 2016 | 246,250 | 255,000 | ||||||
7.0% notes due 2017 | 301,500 | — | ||||||
Convertible debentures, maturities through 2013, fixed interest rates from 4.75% to 5.25%, conversion prices from $13.02 to $50.00 per share | 22,102 | 30,223 | ||||||
Mortgage notes and other debt, maturities through 2050 | 41,013 | 60,076 | ||||||
Total fair value of debt | $ | 1,253,424 | $ | 1,362,716 | ||||
Credit Risk Exposure |
F-70
Table of Contents
Commitments and Contingencies |
Leases |
Operating | Capital | ||||||||
(Restated) | (Restated) | ||||||||
note 2 | note 2 | ||||||||
2006 | $ | 34,075 | $ | 1,781 | |||||
2007 | 29,766 | 1,746 | |||||||
2008 | 25,157 | 1,706 | |||||||
2009 | 20,305 | 1,676 | |||||||
2010 | 14,762 | 1,593 | |||||||
2011 and thereafter | 57,744 | 24,076 | |||||||
Subtotal | 181,809 | 32,578 | |||||||
Less: Subleases | (1,826 | ) | — | ||||||
Total | $ | 179,983 | $ | 32,578 | |||||
Less: Interest on capital leases | (21,153 | ) | |||||||
Total principal payable on capital leases | $ | 11,425 | |||||||
2006 | 25,650 | |||
2007 | 22,290 | |||
2008 | 18,092 | |||
2009 | 13,679 | |||
2010 | 9,311 | |||
2011 and thereafter | 4,236 |
F-71
Table of Contents
Purchase Commitments |
Management, Consulting and Non-Competition Agreements |
Employment | Consulting | Non-Competition | Total | |||||||||||||
2006 | $ | 2,136 | $ | 2,238 | $ | 17,207 | $ | 21,581 | ||||||||
2007 | 1,256 | 2,021 | 11,637 | 14,914 | ||||||||||||
2008 | 827 | 838 | 4,953 | 6,618 | ||||||||||||
2009 | 346 | 765 | 1,652 | 2,763 | ||||||||||||
2010 | 56 | 117 | 1,248 | 1,421 | ||||||||||||
2011 and thereafter | 112 | 364 | 1,867 | 2,343 | ||||||||||||
Total | $ | 4,733 | $ | 6,343 | $ | 38,564 | $ | 49,640 | ||||||||
Representations and Warranties |
F-72
Table of Contents
Maximum Potential | Carrying | |||||||||||||
Contractual | Amount of Future | Value as of | ||||||||||||
Obligation | Time Limit | Payments | December 31, 2005 | |||||||||||
Tax reserve liability | $ | 18,610 | December 31, 2007 | 2005€100 million 2006€30 million | $ | 10,000 | ||||||||
Litigation provision | 7,765 | Until entire resolution of (i) the relevant claims or (ii) settlement of the claim by the purchaser at the request of the vendor | (1) | 4,745 | ||||||||||
Employee litigation provision | 6,512 | December 31, 2006 (for all claims other than those relating to tax and social security matters) one month after expiration of the statutory period of limitations for tax and social security matters. | (2) | 6,512 | ||||||||||
VAT taxes | 3,882 | One month after the expiration of statutory period of limitations | (1) | 3,882 | ||||||||||
Other | 3,381 | Until entire resolution of (i) the relevant claims or (ii) settlement of the claim by the purchaser at the request of the vendor | (2) | 3,381 | ||||||||||
Total | $ | 40,150 | $ | 28,520 | ||||||||||
Less: Deductible of majority equity owner | (4,382 | ) | (4,382 | ) | ||||||||||
$ | 35,768 | $ | 24,138 | |||||||||||
(1) | The potential maximum exposure for these two items combined is€20 million. |
(2) | The potential maximum exposure for these two items combined is€40 million. |
Litigation |
F-73
Table of Contents
F-74
Table of Contents
F-75
Table of Contents
Stockholders’ Equity (All shares reported in whole numbers) |
Share Authorization |
Share Purchase Rights Plan |
Stock Benefit Plans |
F-76
Table of Contents
Weighted Average | |||||||||
Options | Exercise Price | ||||||||
Outstanding at December 31, 2002 | 32,785,147 | $ | 11.63 | ||||||
Granted | — | — | |||||||
Exercised | (382,295 | ) | 3.70 | ||||||
Canceled | (1,303,735 | ) | 25.67 | ||||||
Outstanding at December 31, 2003 | 31,099,117 | $ | 10.77 | ||||||
Granted | 655,650 | 6.81 | |||||||
Exercised | (2,556,573 | ) | 4.06 | ||||||
Canceled | (1,526,678 | ) | 15.75 | ||||||
Outstanding at December 31, 2004 | 27,671,516 | $ | 10.77 | ||||||
Granted | 1,167,400 | 6.90 | |||||||
Exercised | (1,994,447 | ) | 3.97 | ||||||
Canceled | (2,594,040 | ) | 28.83 | ||||||
Outstanding at December 31, 2005 | 24,250,429 | $ | 9.21 | ||||||
Exercisable at December 31, 2003 | 23,629,825 | $ | 10.76 | ||||||
Exercisable at December 31, 2004 | 25,423,111 | $ | 11.14 | ||||||
Exercisable at December 31, 2005 | 22,718,881 | $ | 9.37 | ||||||
Options Outstanding | Options Exercisable | ||||||||||||||||||||
Number | Weighted-Average | Number | |||||||||||||||||||
Range of | Outstanding at | Remaining | Weighted-Average | Exercisable at | Weighted-Average | ||||||||||||||||
Exercise Price | December 31, 2005 | Contractual Life | Exercise Price | December 31, 2005 | Exercise Price | ||||||||||||||||
$ 0.00 - 4.00 | 7,764,932 | 2.9 | $ | 3.43 | 7,764,932 | $ | 3.43 | ||||||||||||||
4.01 - 6.00 | 4,603,296 | 3.7 | 4.93 | 4,603,296 | 4.93 | ||||||||||||||||
6.01 - 9.00 | 4,842,917 | 3.8 | 6.73 | 3,311,369 | 6.67 | ||||||||||||||||
9.01 - 15.00 | 2,898,444 | 1.6 | 13.73 | 2,898,444 | 13.73 | ||||||||||||||||
15.01 - 21.00 | 2,376,280 | 1.6 | 19.09 | 2,376,280 | 19.09 | ||||||||||||||||
21.01 - 38.00 | 1,764,560 | 0.6 | 31.84 | 1,764,560 | 31.84 | ||||||||||||||||
$ 0.00 - 38.00 | 24,250,429 | 2.8 | $ | 9.21 | 22,718,881 | $ | 9.37 | ||||||||||||||
F-77
Table of Contents
Accumulated Other Comprehensive (Loss) Income |
Foreign | Minimum | Accumulated | |||||||||||||||
Currency | Pension | Unrealized | Other | ||||||||||||||
Translation | Liability | Gains and | Comprehensive | ||||||||||||||
Adjustment | Adjustment | Losses | (Loss) Income | ||||||||||||||
(Restated) | (Restated) | ||||||||||||||||
note 2 | note 2 | ||||||||||||||||
Balance at December 31, 2002 | $ | (170,617 | ) | $ | (36,768 | ) | $ | — | $ | (207,385 | ) | ||||||
Activity in 2003 | 92,504 | 132 | — | 92,636 | |||||||||||||
Balance at December 31, 2003 | (78,113 | ) | (36,636 | ) | — | (114,749 | ) | ||||||||||
Activity in 2004 | (9,242 | ) | 36,636 | — | 27,394 | ||||||||||||
Reduction in net unrealized gains associated with available-for-sale securities of the trusts | — | — | (9,370 | ) | (9,370 | ) | |||||||||||
Reclassification of net unrealized gains activity attributable to the non-controlling interest holders | — | — | 9,370 | 9,370 | |||||||||||||
Reclassification for translation adjustment realized in net income | 49,006 | — | — | 49,006 | |||||||||||||
Balance at December 31, 2004 | (38,349 | ) | — | — | (38,349 | ) | |||||||||||
Activity in 2005 | 7,260 | — | — | 7,260 | |||||||||||||
Reduction in net unrealized gains associated with available-for-sale securities of the trusts | — | — | (69,226 | ) | (69,226 | ) | |||||||||||
Reclassification of net unrealized gains activity attributable to the non-controlling interest holders | — | — | 69,226 | 69,226 | |||||||||||||
Reclassification for translation adjustment realized in net loss | 101,588 | — | — | 101,588 | |||||||||||||
Balance at December 31, 2005 | $ | 70,499 | $ | — | $ | — | $ | 70,499 | |||||||||
F-78
Table of Contents
Share Repurchase Program |
Cash Dividends |
Retirement Plans |
F-79
Table of Contents
2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||
note 2 | note 2 | note 2 | ||||||||||
Interest cost on projected benefit obligation | $ | 8,111 | $ | 9,160 | $ | 10,117 | ||||||
Actual return on plan assets | (7,226 | ) | (10,690 | ) | — | |||||||
Expected return on plan assets | — | — | (6,808 | ) | ||||||||
Settlement/curtailment charge | — | — | 455 | |||||||||
Amortization of prior service cost | 183 | 183 | 183 | |||||||||
Recognized net actuarial loss | 8,124 | 693 | 7,990 | |||||||||
$ | 9,192 | $ | (654 | ) | $ | 11,937 | ||||||
Cumulative effect of accounting change | — | 59,834 | — | |||||||||
$ | 9,192 | $ | 59,180 | $ | 11,937 | |||||||
2005 | 2004 | |||||||
(Restated) | (Restated) | |||||||
note 2 | note 2 | |||||||
Change in Benefit Obligation: | ||||||||
Benefit obligation at beginning of year | $ | 139,742 | $ | 147,553 | ||||
Interest cost | 8,111 | 9,160 | ||||||
Actuarial loss | 7,701 | 2,644 | ||||||
Benefits paid | (18,302 | ) | (19,615 | ) | ||||
Benefit obligation at end of year | $ | 137,252 | $ | 139,742 | ||||
Change in Plan Assets: | ||||||||
Fair value of plan assets at beginning of year | $ | 88,550 | $ | 74,309 | ||||
Actual return on plan assets | 7,226 | 10,690 | ||||||
Employer contributions | 3,753 | 23,787 | ||||||
Benefits paid, including expenses | (18,726 | ) | (20,236 | ) | ||||
Fair value of plan assets at end of year | $ | 80,803 | $ | 88,550 | ||||
Funded status of plan | $ | (56,449 | ) | $ | (51,192 | ) | ||
Unrecognized prior service cost | 807 | 990 | ||||||
Net amount recognized in the Consolidated Balance Sheet | $ | (55,642 | ) | $ | (50,202 | ) | ||
Funding Summary: | ||||||||
Projected benefit obligations | $ | 137,252 | $ | 139,742 | ||||
Accumulated benefit obligation | $ | 137,252 | $ | 139,742 | ||||
Fair value of plan assets | $ | 80,803 | $ | 88,550 | ||||
Amounts recognized in the Consolidated Balance Sheet: | ||||||||
Accrued benefit liability | $ | (56,449 | ) | $ | (51,192 | ) | ||
Intangible asset | 807 | 990 | ||||||
Net amount recognized in the Consolidated Balance Sheet | $ | (55,642 | ) | $ | (50,202 | ) | ||
F-80
Table of Contents
2005 | 2004 | 2003 | ||||||||||
Discount rate used to determine obligations | 5.75 | % | 6.00 | % | 6.25 | % | ||||||
Assumed rate of return on plan assets | n/a | n/a | 9.00 | % | ||||||||
Discount rate used to determine net periodic pension cost | 6.00 | % | 6.25 | % | 7.00 | % |
2005 | 2004 | ||||||||
Core diversified and market-neutral hedge funds | 55 | % | 55 | % | |||||
Fixed income investments | 12 | % | 12 | % | |||||
Equity securities(1) | 33 | % | 33 | % | |||||
Total | 100 | % | 100 | % | |||||
(1) | Equity securities do not include shares of Company common stock at December 31, 2005 or 2004. |
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Ranges | |||||
Large cap equity (value and growth) | 10% - 25% | ||||
Small gap growth | 5% - 10% | ||||
International equity | 5% - 10% | ||||
Fixed income core bond | 0% - 25% | ||||
Hedge funds: | |||||
Core diversified | 15% - 35% | ||||
Market neutral | 15% - 35% | ||||
Money market | 0% - 1% |
2006(1) | $ | 7,447 | ||
2007 | 6,590 | |||
2008 | 6,972 | |||
2009 | 7,405 | |||
2010 | 8,169 | |||
Years 2011 through 2015 | $ | 41,001 |
(1) | Included in the $7,447 expected benefit payments for 2006 is $3,936 the Company expects to contribute for the SERP, Senior SERP, and Directors’ Plan expected benefit payments. |
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Table of Contents
Years of Vesting Service | Percentage of Deferred Compensation | |
0 - 5 years | 75% of the first 6% of deferred compensation | |
6 - 10 years | 110% of the first 6% of deferred compensation | |
11 or more years | 135% of the first 6% of deferred compensation |
Segment Reporting |
F-83
Table of Contents
Reportable | ||||||||||||
Funeral | Cemetery | Segments | ||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||
note 2 | note 2 | note 2 | ||||||||||
2005 | ||||||||||||
Revenues from external customers | $ | 1,155,357 | $ | 560,380 | $ | 1,715,737 | ||||||
Interest expense | 4,124 | 1,539 | 5,663 | |||||||||
Depreciation and amortization | 49,674 | 17,828 | 67,502 | |||||||||
Gross profit | 216,224 | 81,921 | 298,145 | |||||||||
Total assets | 3,360,546 | 3,600,473 | 6,961,019 | |||||||||
Capital expenditures | $ | 48,964 | $ | 46,756 | $ | 95,720 | ||||||
2004 | ||||||||||||
Revenues from external customers | $ | 1,259,821 | $ | 571,404 | $ | 1,831,225 | ||||||
Interest expense | 4,326 | 1,480 | 5,806 | |||||||||
Depreciation and amortization | 59,654 | 66,498 | 126,152 | |||||||||
Gross profit | 227,812 | 102,202 | 330,014 | |||||||||
Total assets | 3,521,512 | 4,219,900 | 7,741,412 | |||||||||
Capital expenditures | $ | 36,155 | $ | 40,180 | $ | 76,335 | ||||||
2003 | ||||||||||||
Revenues from external customers | $ | 1,739,768 | $ | 573,409 | $ | 2,313,177 | ||||||
Interest expense | 5,334 | 3,119 | 8,453 | |||||||||
Depreciation and amortization | 84,599 | 64,957 | 149,556 | |||||||||
Gross profit | 273,764 | 82,446 | 356,210 | |||||||||
Total assets | 3,715,538 | 3,382,975 | 7,098,513 | |||||||||
Capital expenditures | $ | 69,622 | $ | 43,872 | $ | 113,494 |
F-84
Table of Contents
Reportable | Discontinued | |||||||||||||||
Segments | Corporate | Operations | Consolidated | |||||||||||||
(Restated) | (Restated) | |||||||||||||||
note 2 | note 2 | |||||||||||||||
2005 | ||||||||||||||||
Revenue from external customers | $ | 1,715,737 | $ | — | $ | — | $ | 1,715,737 | ||||||||
Interest expense | 5,663 | 98,070 | — | 103,733 | ||||||||||||
Depreciation and amortization | 67,502 | 20,383 | — | 87,885 | ||||||||||||
Total assets | 6,961,018 | 583,751 | — | 7,544,769 | ||||||||||||
Capital expenditures | $ | 95,720 | $ | 3,696 | $ | — | $ | 99,416 | ||||||||
2004 | ||||||||||||||||
Revenue from external customers | $ | 1,831,225 | $ | — | $ | — | $ | 1,831,225 | ||||||||
Interest expense | 5,806 | 113,487 | — | 119,293 | ||||||||||||
Depreciation and amortization | 126,152 | 19,037 | — | 145,189 | ||||||||||||
Total assets | 7,741,412 | 470,290 | 15,452 | 8,227,154 | ||||||||||||
Capital expenditures | $ | 76,335 | $ | 19,284 | $ | — | $ | 95,619 | ||||||||
2003 | ||||||||||||||||
Revenue from external customers | $ | 2,313,177 | $ | — | $ | — | $ | 2,313,177 | ||||||||
Interest expense | 8,453 | 131,511 | — | 139,964 | ||||||||||||
Depreciation and amortization | 149,556 | 11,887 | — | 161,443 | ||||||||||||
Total assets | 7,098,513 | 463,361 | 9,318 | 7,571,192 | ||||||||||||
Capital expenditures | $ | 113,494 | $ | 1,977 | $ | — | $ | 115,471 |
2005 | 2004 | 2003 | |||||||||||
(Restated) | (Restated) | (Restated) | |||||||||||
note 2 | note 2 | note 2 | |||||||||||
Gross profit from reportable segments | $ | 298,145 | $ | 330,014 | $ | 356,210 | |||||||
General and administrative expenses | (84,834 | ) | (130,884 | ) | (178,127 | ) | |||||||
Gains and impairment (losses) on dispositions, net | (26,093 | ) | 25,797 | 50,677 | |||||||||
Other operating expense | — | — | (9,004 | ) | |||||||||
Operating income | 187,218 | 224,927 | 219,756 | ||||||||||
Interest expense | (103,733 | ) | (119,293 | ) | (139,964 | ) | |||||||
Interest income | 16,706 | 13,453 | 6,215 | ||||||||||
(Loss) gain on early extinguishment of debt | (14,258 | ) | (16,770 | ) | 1,315 | ||||||||
Other income | 2,774 | 9,703 | 8,345 | ||||||||||
Income from continuing operations before income taxes and cumulative effects of accounting changes | $ | 88,707 | $ | 112,020 | $ | 95,667 | |||||||
F-85
Table of Contents
North | Other | |||||||||||
America | Foreign | Total | ||||||||||
(Restated) | (Restated) | |||||||||||
note 2 | note 2 | |||||||||||
2005 | ||||||||||||
Revenues from external customers | $ | 1,703,944 | $ | 11,793 | $ | 1,715,737 | ||||||
Interest expense | 103,733 | — | 103,733 | |||||||||
Depreciation and amortization | 87,469 | 416 | 87,885 | |||||||||
Operating income | 185,759 | 1,459 | 187,218 | |||||||||
Gains and impairment (losses) on dispositions, net | (26,093 | ) | — | (26,093 | ) | |||||||
Long-lived assets | $ | 3,673,137 | $ | 6,160 | $ | 3,679,297 | ||||||
2004 | ||||||||||||
Revenues from external customers | $ | 1,690,263 | $ | 140,962 | $ | 1,831,225 | ||||||
Interest expense | 119,174 | 119 | 119,293 | |||||||||
Depreciation and amortization | 144,326 | 863 | 145,189 | |||||||||
Operating income | 211,593 | 13,334 | 224,927 | |||||||||
Gains and impairment (losses) on dispositions, net | 25,705 | 92 | 25,797 | |||||||||
Long-lived assets | $ | 4,197,939 | $ | 91,400 | $ | 4,289,339 | ||||||
2003 | ||||||||||||
Revenues from external customers | $ | 1,716,050 | $ | 597,127 | $ | 2,313,177 | ||||||
Interest expense | 137,749 | 2,215 | 139,964 | |||||||||
Depreciation and amortization | 161,013 | 430 | 161,443 | |||||||||
Operating income | 147,927 | 71,829 | 219,756 | |||||||||
Gains and impairment (losses) on dispositions, net | 51,411 | (734 | ) | 50,677 | ||||||||
Other operating expenses | (9,004 | ) | — | (9,004 | ) | |||||||
Long-lived assets | $ | 4,289,492 | $ | 456,882 | $ | 4,746,374 |
2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||
note 2 | note 2 | note 2 | ||||||||||
Revenues from external customers | $ | 1,596,389 | $ | 1,583,979 | $ | 1,633,221 | ||||||
Operating income(1) | 161,753 | 184,177 | 130,781 | |||||||||
Long-lived assets | $ | 3,433,506 | $ | 3,951,856 | $ | 4,130,177 |
2005 | 2004 | 2003 | ||||||||||
Revenues from external customers | $ | — | $ | 127,282 | $ | 584,636 | ||||||
Operating income(1) | — | 11,664 | 68,884 | |||||||||
Long-lived assets | $ | — | $ | — | $ | 364,570 |
(1) | Operating income includes $(27,597), $24,625 and $41,397 inGains and impairment (losses) on dispositions, netandOther operating expensesin the United States and $0, $92 and ($734) in Gains and impairment (losses) on dispositions, net in France for the years ended December 31, 2005, 2004, and 2003, respectively. |
F-86
Table of Contents
North America | Other Foreign | ||||||||||||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | ||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||
Funeral | $ | 36,287 | $ | 71,870 | $ | 96,538 | $ | — | $ | 127,282 | $ | 584,636 | |||||||||||||
Cemetery | 11,292 | 19,811 | 20,484 | 82 | 1,269 | 1,190 | |||||||||||||||||||
$ | 47,579 | $ | 91,681 | $ | 117,022 | $ | 82 | $ | 128,551 | $ | 585,826 | ||||||||||||||
Gross profit (loss): | |||||||||||||||||||||||||
Funeral | $ | 1,714 | $ | 7,018 | $ | 8,788 | $ | — | $ | 11,572 | $ | 68,275 | |||||||||||||
Cemetery | (1,671 | ) | (1,060 | ) | 4,510 | (40 | ) | 125 | 55 | ||||||||||||||||
$ | 43 | $ | 5,958 | $ | 13,298 | $ | (40 | ) | $ | 11,697 | $ | 68,330 | |||||||||||||
Total | |||||||||||||
2005 | 2004 | 2003 | |||||||||||
Revenues: | |||||||||||||
Funeral | $ | 36,287 | $ | 199,152 | $ | 681,174 | |||||||
Cemetery | 11,374 | 21,080 | 21,674 | ||||||||||
$ | 47,661 | $ | 220,232 | $ | 702,848 | ||||||||
Gross profit (loss): | |||||||||||||
Funeral | $ | 1,714 | $ | 18,590 | $ | 77,063 | |||||||
Cemetery | (1,711 | ) | (935 | ) | 4,565 | ||||||||
$ | 3 | $ | 17,655 | $ | 81,628 | ||||||||
F-87
Table of Contents
Supplementary Information |
December 31, | |||||||||
2005 | 2004 | ||||||||
Cash and cash equivalents: | |||||||||
Cash | $ | 5,594 | $ | 4,692 | |||||
Commercial paper and temporary investments | 441,188 | 283,093 | |||||||
$ | 446,782 | $ | 287,785 | ||||||
Receivables, net: | |||||||||
Notes receivable | $ | 16,099 | $ | 3,339 | |||||
Atneed funeral receivables, net | 66,884 | 77,195 | |||||||
Atneed cemetery receivables, net | 2,949 | 16,532 | |||||||
Other | 11,815 | 5,556 | |||||||
$ | 97,747 | $ | 102,622 | ||||||
Other current assets: | |||||||||
Deferred tax asset and income tax receivable | $ | 18,499 | $ | 40,438 | |||||
Prepaid insurance | 3,407 | 3,720 | |||||||
Other | 15,621 | 9,662 | |||||||
$ | 37,527 | $ | 53,820 | ||||||
Inventories: | |||||||||
Caskets, vaults, urns, markers and bases | $ | 31,254 | $ | 31,898 | |||||
Developed land, lawn crypts and mausoleums | 37,073 | 49,628 | |||||||
$ | 68,327 | $ | 81,526 | ||||||
Cemetery property: | |||||||||
Undeveloped land | $ | 1,107,259 | $ | 1,260,859 | |||||
Developed land, lawn crypts and mausoleums | 248,395 | 248,740 | |||||||
$ | 1,355,654 | $ | 1,509,599 | ||||||
Restated | |||||||||
(note 2) | |||||||||
Property and equipment: | |||||||||
Land | $ | 289,800 | $ | 293,961 | |||||
Buildings and improvements | 1,009,453 | 1,014,034 | |||||||
Operating equipment | 262,348 | 249,023 | |||||||
Leasehold improvements | 24,627 | 28,354 | |||||||
1,586,228 | 1,585,372 | ||||||||
Less: accumulated depreciation | (636,054 | ) | (606,511 | ) | |||||
$ | 950,174 | $ | 978,861 | ||||||
F-88
Table of Contents
Restated | |||||||||
(note 2) | |||||||||
Deferred charges and other assets: | |||||||||
Covenants-not-to-compete, net | $ | 73,240 | $ | 77,549 | |||||
Cemetery deferred selling expense, net | — | 212,397 | |||||||
Funeral deferred selling expense, net | — | 99,371 | |||||||
Investments, net | 9,218 | 35,752 | |||||||
Restricted cash | 12,056 | 26,707 | |||||||
Notes receivable, net | 21,567 | 41,302 | |||||||
Other | 133,500 | 138,761 | |||||||
$ | 249,581 | $ | 631,839 | ||||||
December 31, | |||||||||
2005 | 2004 | ||||||||
(Restated) | (Restated) | ||||||||
note 2 | note 2 | ||||||||
Accounts payable and accrued liabilities: | |||||||||
Accounts payable | $ | 41,160 | $ | 46,271 | |||||
Accrued compensation | 57,528 | 31,296 | |||||||
Litigation matters | 6,850 | 4,280 | |||||||
Restructuring liability | 7,375 | 10,663 | |||||||
Accrued dividend | 7,415 | — | |||||||
Accrued interest | 17,149 | 19,883 | |||||||
Self insurance | 49,084 | 47,480 | |||||||
Accrued trust expenses | 13,101 | 4,704 | |||||||
Other accrued liabilities | 32,031 | 56,658 | |||||||
$ | 231,693 | $ | 221,235 | ||||||
F-89
Table of Contents
December 31, | |||||||||
2005 | 2004 | ||||||||
(Restated) | (Restated) | ||||||||
note 2 | note 2 | ||||||||
Other liabilities: | |||||||||
Accrued pension | $ | 55,642 | $ | 50,556 | |||||
Deferred compensation | 11,352 | 17,729 | |||||||
Customer refund obligation reserve | 66,118 | 74,410 | |||||||
Trust related debt | — | 76,926 | |||||||
Tax liability | 104,981 | 104,981 | |||||||
Indemnification liability | 26,750 | 44,480 | |||||||
Other | 62,142 | 68,216 | |||||||
$ | 326,985 | $ | 437,298 | ||||||
Goods and Services |
F-90
Table of Contents
2005 | 2004 | 2003 | ||||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||||
note 2 | note 2 | note 2 | ||||||||||||
North America good and services revenues | ||||||||||||||
Goods | ||||||||||||||
Funeral | $ | 501,794 | $ | 505,170 | $ | 488,987 | ||||||||
Cemetery | 380,990 | 388,683 | 381,381 | |||||||||||
Total goods | 882,784 | 893,853 | 870,368 | |||||||||||
Services | ||||||||||||||
Funeral | 613,430 | 585,854 | 626,487 | |||||||||||
Cemetery | 146,035 | 141,934 | 146,574 | |||||||||||
Total services | 759,465 | 727,788 | 773,061 | |||||||||||
North America goods and services revenues | 1,642,249 | 1,621,641 | 1,643,429 | |||||||||||
International revenues | 11,793 | 140,962 | 597,127 | |||||||||||
Other revenues | 61,695 | 68,622 | 72,621 | |||||||||||
Total revenues | $ | 1,715,737 | $ | 1,831,225 | $ | 2,313,177 | ||||||||
North America goods and services costs | ||||||||||||||
Goods | ||||||||||||||
Funeral | $ | 193,650 | $ | 190,971 | $ | 186,643 | ||||||||
Cemetery | 158,708 | 162,797 | 169,207 | |||||||||||
Total cost of goods | 352,358 | 353,768 | 355,850 | |||||||||||
Services | ||||||||||||||
Funeral | 371,618 | 351,302 | 360,023 | |||||||||||
Cemetery | 96,872 | 99,646 | 105,448 | |||||||||||
Total cost of services | 468,490 | 450,948 | 465,471 | |||||||||||
North America goods and services costs | 820,848 | 804,716 | 821,321 | |||||||||||
International costs and expenses | 10,334 | 127,720 | 525,907 | |||||||||||
Overhead and other expenses | 586,410 | 568,775 | 609,739 | |||||||||||
Total cost and expenses | $ | 1,417,592 | $ | 1,501,211 | $ | 1,956,967 | ||||||||
F-91
Table of Contents
Certain Non-Cash Transactions |
Years Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | |||||||||||
note 2 | note 2 | |||||||||||
Changes to minimum liability under retirement plans | $ | — | $ | (36,636 | ) | $ | 81 | |||||
Debenture conversions to common stock | $ | — | $ | 217,154 | $ | — | ||||||
Common stock contributions to employee 401(k) | $ | — | $ | 18,127 | $ | 17,378 | ||||||
StoneMor partnership units received in disposition | $ | 5,900 | $ | — | $ | — | ||||||
Dividends accrued | $ | 7,415 | $ | — | $ | — |
Earnings Per Share |
F-92
Table of Contents
2005 | 2004 | 2003 | |||||||||||||
(Restated) | (Restated) | (Restated) | |||||||||||||
note 2 | note 2 | note 2 | |||||||||||||
(In thousands, except per share | |||||||||||||||
amounts) | |||||||||||||||
Income from continuing operations before cumulative effect of accounting changes (numerator): | |||||||||||||||
Income from continuing operations before cumulative effect of accounting changes — basic | $ | 55,474 | $ | 119,670 | $ | 69,265 | |||||||||
After tax interest on convertible debt | — | 6,400 | — | ||||||||||||
Income from continuing operations before cumulative effect of accounting changes — diluted | $ | 55,474 | $ | 126,070 | $ | 69,265 | |||||||||
Net (loss) income (numerator): | |||||||||||||||
Net (loss) income — basic | $ | (127,941 | ) | $ | 110,661 | $ | 85,074 | ||||||||
After tax interest on convertible debt | — | 6,400 | — | ||||||||||||
Net (loss) income — diluted | $ | (127,941 | ) | $ | 117,061 | $ | 85,074 | ||||||||
Weighted average shares (denominator): | |||||||||||||||
Weighted average shares — basic | 302,213 | 318,737 | 299,801 | ||||||||||||
Stock options | 4,399 | 4,091 | 989 | ||||||||||||
Convertible debt | — | 21,776 | — | ||||||||||||
Restricted stock | 133 | 71 | — | ||||||||||||
Weighted average shares — diluted | 306,745 | 344,675 | 300,790 | ||||||||||||
Income per share from continuing operations before cumulative effect of accounting changes: | |||||||||||||||
Basic | $ | .19 | $ | .38 | $ | .23 | |||||||||
Diluted | $ | .18 | $ | .37 | $ | .23 | |||||||||
Income per share from discontinued operations per share, net of tax: | |||||||||||||||
Basic | $ | .01 | $ | .13 | $ | .05 | |||||||||
Diluted | $ | .01 | $ | .12 | $ | .05 | |||||||||
Cumulative effect of accounting changes per share, net of tax: | |||||||||||||||
Basic | $ | (.62 | ) | $ | (.16 | ) | $ | — | |||||||
Diluted | $ | (.61 | ) | $ | (.15 | ) | $ | — | |||||||
Net (loss) income per share: | |||||||||||||||
Basic | $ | (.42 | ) | $ | .35 | $ | .28 | ||||||||
Diluted | $ | (.42 | ) | $ | .34 | $ | .28 |
F-93
Table of Contents
2005 | 2004 | 2003 | |||||||||||
Antidilutive options | 7,039 | 9,559 | 22,097 | ||||||||||
Antidilutive convertible debentures | 644 | 859 | 47,096 | ||||||||||
Total common stock equivalents excluded from computations | 7,683 | 10,418 | 69,193 | ||||||||||
Gains and Impairment (Losses) on Dispositions, Net and Other Operating Expense |
2005 | 2004 | 2003 | ||||||||||
Gains on dispositions | $ | 68,167 | $ | 66,966 | $ | 75,188 | ||||||
Impairment losses on assets held for sale | (105,867 | ) | (49,970 | ) | (38,247 | ) | ||||||
Changes to previously estimated impairment losses | 11,607 | 8,801 | 13,736 | |||||||||
$ | (26,093 | ) | $ | 25,797 | $ | 50,677 | ||||||
2005 Activity |
Utilization for | ||||||||||||||||||||
Year Ended | ||||||||||||||||||||
Balance at | December 31, 2005 | Balance at | ||||||||||||||||||
Original | December 31, | December 31, | ||||||||||||||||||
Charge Amount | 2004 | Cash | Non-cash | 2005 | ||||||||||||||||
Fourth quarter 1999 charges | $ | 272,544 | $ | 10,801 | $ | 5,685 | $ | (199 | ) | $ | 5,315 | |||||||||
2001 charges | 663,548 | 1,782 | 505 | (127 | ) | 1,404 | ||||||||||||||
2002 charges | 292,979 | 16,454 | 4,533 | 96 | 11,825 | |||||||||||||||
$ | 1,229,071 | $ | 29,037 | $ | 10,723 | $ | (230 | ) | $ | 18,544 | ||||||||||
F-94
Table of Contents
2004 Activity |
Utilization for | ||||||||||||||||||||
Year Ended | ||||||||||||||||||||
Balance at | December 31, 2004 | Balance at | ||||||||||||||||||
Original | December 31, | December 31, | ||||||||||||||||||
Charge Amount | 2003 | Cash | Non-cash | 2004 | ||||||||||||||||
Fourth quarter 1999 charges | $ | 272,544 | $ | 18,282 | $ | 7,286 | $ | 195 | $ | 10,801 | ||||||||||
2001 charges | 663,548 | 3,102 | 509 | 811 | 1,782 | |||||||||||||||
2002 charges | 292,979 | 24,395 | 6,205 | 1,736 | 16,454 | |||||||||||||||
$ | 1,229,071 | $ | 45,779 | $ | 14,000 | $ | 2,742 | $ | 29,037 | |||||||||||
Sale of Operations in Chile |
Sales of Assets to StoneMor Partners LP |
Sale of Argentina and Uruguay Operations |
F-95
Table of Contents
Sale of French Operations |
Original | ||||||||||||
Calculation | Adjustment in | |||||||||||
Q1 2004 | Q2 2004 | Total | ||||||||||
Pretax gain (loss) | $ | 12,639 | $ | (6,219 | ) | $ | 6,420 | |||||
Tax benefit | (24,929 | ) | (2,275 | ) | (27,204 | ) | ||||||
After tax gain (loss) | $ | 37,568 | $ | (3,944 | ) | $ | 33,624 | |||||
F-96
Table of Contents
Proceeds from Investment in United Kingdom Company and Others |
Other Operating Expense |
Discontinued Operations |
F-97
Table of Contents
Years Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Revenues | $ | 22,891 | $ | 44,519 | $ | 38,111 | ||||||
Gains and impairment (losses) on dispositions, net | 249 | (13,148 | ) | 34 | ||||||||
Costs and other expenses | (14,253 | ) | (38,962 | ) | (20,460 | ) | ||||||
Income (loss) from discontinued operations before income taxes | 8,887 | (7,591 | ) | 17,685 | ||||||||
(Provision) benefit for income taxes | (4,764 | ) | 49,175 | (1,876 | ) | |||||||
Income from discontinued operations | $ | 4,123 | $ | 41,584 | $ | 15,809 | ||||||
Assets: | ||||||
Receivables, net of allowances | $ | 3,084 | ||||
Other current assets | 8,001 | |||||
Preneed cemetery receivables and trust investments | 1,412 | |||||
Property, plant and equipment, at cost, net | 571 | |||||
Deferred charges and other assets | 2,384 | |||||
Total assets | 15,452 | |||||
Liabilities: | ||||||
Accounts payable | (901 | ) | ||||
Accrued liabilities and other current liabilities | (6,210 | ) | ||||
Deferred income taxes | (13,190 | ) | ||||
Other liabilities and deferred credits | (45,035 | ) | ||||
Total liabilities | (65,336 | ) | ||||
Net liabilities of discontinued operations | (49,884 | ) | ||||
Foreign currency translation | 67,213 | |||||
Net assets of discontinued operations, net of foreign currency translation | $ | 17,329 | ||||
F-98
Table of Contents
Quarterly Financial Data (Unaudited) |
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||||||||||||||||||||
As | As | As | As | As | As | As | As | ||||||||||||||||||||||||||
Reported | Restated | Reported | Restated | Reported | Restated | Reported | Restated | ||||||||||||||||||||||||||
Note 2 | Note 2 | Note 2 | Note 2 | ||||||||||||||||||||||||||||||
2005 | |||||||||||||||||||||||||||||||||
Revenues | $ | 447,442 | 447,442 | $ | 431,710 | 431,842 | $ | 406,369 | $ | 406,369 | $ | 430,084 | $ | 430,084 | |||||||||||||||||||
Costs and expenses | (350,215 | ) | (349,642 | ) | (359,367 | ) | (358,798 | ) | (348,094 | ) | (347,526 | ) | (359,102 | ) | (361,626 | ) | |||||||||||||||||
Gross profits | 97,227 | 97,800 | 72,343 | 73,044 | 58,275 | 58,843 | 70,982 | 68,458 | |||||||||||||||||||||||||
Operating income | 71,770 | 72,352 | 54,377 | 55,087 | 11,076 | 11,653 | 50,699 | 48,126 | |||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes and cumulative effect of accounting change | 48,755 | 48,988 | 19,916 | 20,277 | (10,302 | ) | (10,074 | ) | 32,438 | 29,516 | |||||||||||||||||||||||
(Provision) benefit for income taxes | (17,338 | ) | (17,520 | ) | (9,324 | ) | (9,553 | ) | 1,131 | 885 | (8,591 | ) | (7,045 | ) | |||||||||||||||||||
Income (loss) from continuing operations before cumulative effect of accounting change | 31,417 | 31,468 | 10,592 | 10,724 | (9,171 | ) | (9,189 | ) | 23,847 | 22,471 | |||||||||||||||||||||||
Cumulative effect of accounting change | (187,538 | ) | (187,538 | ) | — | — | — | — | — | ||||||||||||||||||||||||
Net (loss) income | (154,946 | ) | (154,895 | ) | 13,705 | 13,837 | (9,634 | ) | (9,652 | ) | 24,145 | 22,769 | |||||||||||||||||||||
(Loss) earnings per share: | |||||||||||||||||||||||||||||||||
Basic — EPS | (.49 | ) | (.49 | ) | .05 | .05 | (.03 | ) | (.03 | ) | .08 | .08 | |||||||||||||||||||||
Diluted — EPS | (.49 | ) | (.49 | ) | .04 | .05 | (.03 | ) | (.03 | ) | .08 | .07 |
F-99
Table of Contents
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||||||||||||||||||||
As | As | As | As | As | As | As | As | ||||||||||||||||||||||||||
Reported | Restated | Reported | Restated | Reported | Restated | Reported | Restated | ||||||||||||||||||||||||||
Note 2 | Note 2 | Note 2 | Note 2 | ||||||||||||||||||||||||||||||
2004 | |||||||||||||||||||||||||||||||||
Revenues | $ | 581,671 | $ | 581,671 | $ | 425,740 | $ | 425,740 | $ | 397,186 | $ | 397,186 | $ | 426,628 | $ | 426,628 | |||||||||||||||||
Costs and expenses | (467,707 | ) | (467,336 | ) | (353,686 | ) | (353,315 | ) | (328,891 | ) | (328,519 | ) | (352,412 | ) | (352,041 | ) | |||||||||||||||||
Gross profits | 113,964 | 114,335 | 72,054 | 72,425 | 68,295 | 68,667 | 74,216 | 74,587 | |||||||||||||||||||||||||
Operating income | 97,728 | 98,102 | 49,543 | 49,917 | 39,716 | 40,091 | 36,443 | 36,817 | |||||||||||||||||||||||||
Income from continuing operations before income taxes and cumulative effects of accounting changes | 72,226 | 72,255 | 2,784 | 2,812 | 17,362 | 17,391 | 19,534 | 19,562 | |||||||||||||||||||||||||
Benefit (provision) for income taxes | 4,184 | 4,092 | 7,329 | 7,264 | (4,336 | ) | (4,526 | ) | 1,017 | 820 | |||||||||||||||||||||||
Income from continuing operations before cumulative effects of accounting changes | 76,410 | 76,347 | 10,113 | 10,076 | 13,026 | 12,865 | 20,551 | 20,382 | |||||||||||||||||||||||||
Cumulative effects of accounting changes | (47,556 | ) | (50,593 | ) | — | — | — | — | — | — | |||||||||||||||||||||||
Net income | 30,136 | 27,036 | 42,952 | 42,915 | 13,876 | 13,715 | 27,164 | 26,995 | |||||||||||||||||||||||||
Earnings per share: | |||||||||||||||||||||||||||||||||
Basic — EPS | .10 | .09 | .14 | .14 | .04 | .04 | .08 | .08 | |||||||||||||||||||||||||
Diluted — EPS | .10 | .09 | .14 | .14 | .04 | .04 | .08 | .08 |
F-100
Table of Contents
Charged | Charged | |||||||||||||||||||||
Balance at | (Credited) to | (Credited) to | Balance At | |||||||||||||||||||
Beginning | Costs and | Other | End Of | |||||||||||||||||||
Description | of Period | Expenses | Accounts(2) | Write-Offs(1) | Period | |||||||||||||||||
Current provision: | ||||||||||||||||||||||
Allowance for doubtful accounts: | ||||||||||||||||||||||
Year ended December 31, 2005 | $ | 12,572 | $ | 9,470 | $ | (39 | ) | $ | (10,168 | ) | $ | 11,835 | ||||||||||
Year ended December 31, 2004 | 15,348 | (3,376 | ) | 8,757 | (8,157 | ) | 12,572 | |||||||||||||||
Year ended December 31, 2003 | 22,697 | 7,627 | (720 | ) | (14,256 | ) | 15,348 | |||||||||||||||
Due After One Year: | ||||||||||||||||||||||
Allowance for doubtful accounts: | ||||||||||||||||||||||
Year ended December 31, 2005 | $ | 33,362 | $ | (111 | ) | $ | (25,939 | ) | $ | — | $ | 7,312 | ||||||||||
Year ended December 31, 2004 | 55,029 | (21,502 | ) | (165 | ) | — | 33,362 | |||||||||||||||
Year ended December 31, 2003 | 29,030 | 1,813 | 24,675 | (489 | ) | 55,029 | ||||||||||||||||
Preneed Funeral and Preneed Cemetery Asset: | ||||||||||||||||||||||
Year ended December 31, 2005 | $ | 53,340 | $ | (749 | ) | $ | 7,767 | $ | — | $ | 60,358 | |||||||||||
Year ended December 31, 2004 | 387,150 | (17,772 | ) | (316,038 | ) | — | 53,340 | |||||||||||||||
Year ended December 31, 2003 | 357,761 | 17,466 | 11,923 | — | 387,150 | |||||||||||||||||
Deferred Preneed Funeral and Cemetery Revenue: | ||||||||||||||||||||||
Year ended December 31, 2005 | $ | (112,290 | ) | $ | — | $ | 288 | $ | — | $ | (112,002 | ) | ||||||||||
Year ended December 31, 2004 | (369,980 | ) | — | 257,690 | — | (112,290 | ) | |||||||||||||||
Year ended December 31, 2003 | (339,339 | ) | — | (30,641 | ) | — | (369,980 | ) | ||||||||||||||
Deferred Tax Valuation Allowance: | ||||||||||||||||||||||
Year ended December 31, 2005 | $ | 43,908 | $ | (9,079 | ) | $ | — | $ | — | $ | 34,829 | |||||||||||
Year ended December 31, 2004 | 35,859 | 8,049 | — | — | 43,908 | |||||||||||||||||
Year ended December 31, 2003 | 156,372 | 2,966 | (123,479 | ) | — | 35,859 |
(1) | Uncollected receivables written off, net of recoveries. |
(2) | Primarily relates to cumulative effect of accounting change and acquisitions and dispositions of operations. Deferred tax valuation allowance in 2003 was reclassified to other deferred tax liabilities with no change to net deferred income taxes. |
F-101
Table of Contents
June 17, | December 31, | ||||||||
2006 | 2005 | ||||||||
(Unaudited) | |||||||||
ASSETS | |||||||||
Current assets | |||||||||
Cash and cash equivalents | $ | 8,400 | $ | 7,455 | |||||
Receivables, net of allowances | 51,244 | 52,862 | |||||||
Inventories | 15,282 | 15,784 | |||||||
Other | 8,325 | 6,885 | |||||||
83,251 | 82,986 | ||||||||
Pre-need funeral receivables and trust investments | 338,052 | 334,427 | |||||||
Pre-need cemetery receivables and trust investments | 301,621 | 307,322 | |||||||
Cemetery property | 116,096 | 116,467 | |||||||
Property and equipment | 540,954 | 542,901 | |||||||
Insurance invested assets | 298,392 | 294,598 | |||||||
Deferred income tax assets | 19,477 | 13,057 | |||||||
Goodwill | 295,913 | 295,890 | |||||||
Cemetery perpetual care trust investments | 243,980 | 243,805 | |||||||
Other assets | 43,053 | 42,850 | |||||||
$ | 2,280,789 | $ | 2,274,303 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||
Current liabilities | |||||||||
Accounts payable and accrued liabilities | $ | 113,984 | $ | 119,734 | |||||
Current maturities of long-term debt | 2,271 | 2,435 | |||||||
116,255 | 122,169 | ||||||||
Long-term debt | 355,958 | 371,040 | |||||||
Deferred pre-need funeral and cemetery contract revenue | 75,830 | 91,618 | |||||||
Non-controlling interest in funeral and cemetery trusts | 564,447 | 548,497 | |||||||
Insurance policy liabilities | 285,701 | 266,729 | |||||||
Deferred income tax liabilities | 10,744 | 10,552 | |||||||
Other liabilities | 28,471 | 21,983 | |||||||
1,437,406 | 1,432,588 | ||||||||
Non-controlling interest in perpetual care trusts | 245,221 | 243,962 | |||||||
Stockholders’ equity | |||||||||
Common stock, $0.01 par value, 100,000,000 shares authorized, 40,674,363 issued and outstanding (December 31, 2005 — 40,458,864) | 407 | 405 | |||||||
Capital in excess of par value | 745,670 | 743,126 | |||||||
Accumulated deficit | (167,749 | ) | (172,405 | ) | |||||
Accumulated other comprehensive income | 19,834 | 26,627 | |||||||
598,162 | 597,753 | ||||||||
$ | 2,280,789 | $ | 2,274,303 | ||||||
F-102
Table of Contents
12 Weeks Ended | 24 Weeks Ended | ||||||||||||||||
June 17, | June 18, | June 17, | June 18, | ||||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||||||
Revenue | |||||||||||||||||
Funeral | $ | 107,522 | $ | 110,501 | $ | 228,653 | $ | 234,514 | |||||||||
Cemetery | 41,505 | 43,914 | 79,336 | 82,218 | |||||||||||||
Insurance | 23,417 | 22,363 | 46,272 | 43,931 | |||||||||||||
172,444 | 176,778 | 354,261 | 360,663 | ||||||||||||||
Costs and expenses | |||||||||||||||||
Funeral | 87,421 | 90,416 | 182,783 | 184,529 | |||||||||||||
Cemetery | 35,281 | 36,640 | 68,438 | 69,824 | |||||||||||||
Insurance | 22,282 | 21,532 | 44,189 | 41,818 | |||||||||||||
144,984 | 148,588 | 295,410 | 296,171 | ||||||||||||||
27,460 | 28,190 | 58,851 | 64,492 | ||||||||||||||
General and administrative expenses | 18,042 | 1,702 | 32,557 | 12,346 | |||||||||||||
Provision for asset impairment | — | (408 | ) | — | (1,627 | ) | |||||||||||
18,042 | 1,294 | 32,557 | 10,719 | ||||||||||||||
Income from operations | 9,418 | 26,896 | 26,294 | 53,773 | |||||||||||||
Interest on long-term debt (Note 3) | 6,471 | 7,013 | 12,949 | 14,528 | |||||||||||||
Other expense (income), net | 285 | (44 | ) | 129 | (5,843 | ) | |||||||||||
Income before income taxes | 2,662 | 19,927 | 13,216 | 45,088 | |||||||||||||
Income taxes | 2,509 | 7,001 | 7,318 | 18,193 | |||||||||||||
Income from continuing operations | 153 | 12,926 | 5,898 | 26,895 | |||||||||||||
Loss from discontinued operations (Note 10) | — | (845 | ) | — | (1,678 | ) | |||||||||||
Income before cumulative effect of change in accounting principle | 153 | 12,081 | 5,898 | 25,217 | |||||||||||||
Cumulative effect of change in accounting principle | — | — | (1,242 | ) | — | ||||||||||||
Net income | $ | 153 | $ | 12,081 | $ | 4,656 | $ | 25,217 | |||||||||
Basic earnings per Common share: | |||||||||||||||||
Income from continuing operations | $ | — | $ | 0.32 | $ | 0.15 | $ | 0.67 | |||||||||
Loss from discontinued operations | — | (0.02 | ) | — | (0.04 | ) | |||||||||||
Cumulative effect of change in accounting principle | — | — | (0.03 | ) | — | ||||||||||||
Net income | $ | — | $ | 0.30 | $ | 0.12 | $ | 0.63 | |||||||||
Diluted earnings per Common share: | |||||||||||||||||
Income from continuing operations | $ | — | $ | 0.31 | $ | 0.14 | $ | 0.65 | |||||||||
Loss from discontinued operations | — | (0.02 | ) | — | (0.04 | ) | |||||||||||
Cumulative effect of change in accounting principle | — | — | (0.03 | ) | — | ||||||||||||
Net income | $ | — | $ | 0.29 | $ | 0.11 | $ | 0.61 | |||||||||
Basic weighted average number of shares outstanding (thousands) | 40,652 | 40,108 | 40,559 | 40,078 | |||||||||||||
Diluted weighted average number of shares outstanding (thousands) | 42,677 | 41,390 | 42,422 | 41,375 | |||||||||||||
F-103
Table of Contents
Accumulated | |||||||||||||||||||||||||||
Common | Capital in | Other | |||||||||||||||||||||||||
Stock Par | Excess of | Accumulated | Comprehensive | ||||||||||||||||||||||||
Shares | Value | Par Value | Deficit | Income | Total | ||||||||||||||||||||||
Balance at December 31, 2005 | 40,458,864 | $ | 405 | $ | 743,126 | $ | (172,405 | ) | $ | 26,627 | $ | 597,753 | |||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||
Net income | 4,656 | 4,656 | |||||||||||||||||||||||||
Other comprehensive income (loss): | |||||||||||||||||||||||||||
Foreign currency translation adjustment, net of income taxes of $nil | 3,110 | 3,110 | |||||||||||||||||||||||||
Unrealized loss on insurance invested assets, net of tax recovery of $5,419 | (10,064 | ) | (10,064 | ) | |||||||||||||||||||||||
Unrealized loss on derivatives, net of income taxes of $nil | 805 | 805 | |||||||||||||||||||||||||
Less: reclassification adjustments for realized gains on derivatives included in net income, net of income taxes of $nil | (644 | ) | (644 | ) | |||||||||||||||||||||||
Comprehensive loss | (2,137 | ) | |||||||||||||||||||||||||
Stock-based compensation | 1,596 | 1,596 | |||||||||||||||||||||||||
Common stock issued: | |||||||||||||||||||||||||||
Stock issued as compensation in lieu of cash | 7,999 | 152 | 152 | ||||||||||||||||||||||||
Stock issued under equity incentive plan | 207,500 | 2 | 796 | 798 | |||||||||||||||||||||||
Balance at June 17, 2006 | 40,674,363 | $ | 407 | $ | 745,670 | $ | (167,749 | ) | $ | 19,834 | $ | 598,162 | |||||||||||||||
F-104
Table of Contents
12 Weeks Ended | 24 Weeks Ended | |||||||||||||||||
June 17, | June 18, | June 17, | June 18, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||||
CASH PROVIDED BY (APPLIED TO) | ||||||||||||||||||
Operations | ||||||||||||||||||
Net income | $ | 153 | $ | 12,081 | $ | 4,656 | $ | 25,217 | ||||||||||
Loss from discontinued operations, net of tax | — | 845 | — | 1,678 | ||||||||||||||
Cumulative effect of change in accounting principle | — | — | 1,242 | — | ||||||||||||||
Items not affecting cash | ||||||||||||||||||
Depreciation and amortization | 9,756 | 10,958 | 19,266 | 21,095 | ||||||||||||||
Amortization of debt issue costs | 453 | 745 | 908 | 1,650 | ||||||||||||||
Stock-based compensation | 708 | — | 1,596 | — | ||||||||||||||
Insurance policy benefit reserves | 11,047 | 12,088 | 20,000 | 22,652 | ||||||||||||||
Provision for asset impairment | — | (408 | ) | — | (1,627 | ) | ||||||||||||
Gain on disposal of business assets | (774 | ) | (72 | ) | (958 | ) | (5,903 | ) | ||||||||||
Deferred income taxes | 469 | 6,303 | (256 | ) | 12,749 | |||||||||||||
Premium on long-term debt repurchase | — | — | — | 282 | ||||||||||||||
Other, including net changes in other non-cash balances | (1,942 | ) | (13,824 | ) | (6,130 | ) | (6,852 | ) | ||||||||||
Net cash provided by continuing operations | 19,870 | 28,716 | 40,324 | 70,941 | ||||||||||||||
Net cash used in discontinued operations | — | (811 | ) | — | (601 | ) | ||||||||||||
19,870 | 27,905 | 40,324 | 70,340 | |||||||||||||||
Investing | ||||||||||||||||||
Proceeds on disposition of business assets | 872 | 670 | 2,907 | 11,158 | ||||||||||||||
Purchase of property and equipment | (4,718 | ) | (11,709 | ) | (9,473 | ) | (16,314 | ) | ||||||||||
Purchase of insurance invested assets | (20,270 | ) | (17,170 | ) | (43,635 | ) | (65,231 | ) | ||||||||||
Proceeds on disposition and maturities of insurance invested assets | 9,301 | 9,712 | 25,276 | 47,491 | ||||||||||||||
Net cash used in continuing operations | (14,815 | ) | (18,497 | ) | (24,925 | ) | (22,896 | ) | ||||||||||
Net cash provided by discontinued operations | — | 6,744 | — | 7,906 | ||||||||||||||
(14,815 | ) | (11,753 | ) | (24,925 | ) | (14,990 | ) | |||||||||||
Financing | ||||||||||||||||||
Increase in long-term debt | — | — | — | 5,151 | ||||||||||||||
Repayment of long-term debt | (5,521 | ) | (22,136 | ) | (15,247 | ) | (59,208 | ) | ||||||||||
Issuance of Common stock | 726 | 1,107 | 793 | 1,375 | ||||||||||||||
Net cash used in continuing operations | (4,795 | ) | (21,029 | ) | (14,454 | ) | (52,682 | ) | ||||||||||
Net cash used in discontinued operations | — | (11 | ) | — | (57 | ) | ||||||||||||
(4,795 | ) | (21,040 | ) | (14,454 | ) | (52,739 | ) | |||||||||||
Increase (decrease) in cash and cash equivalents | 260 | (4,888 | ) | 945 | 2,611 | |||||||||||||
Cash and cash equivalents, beginning of period | 8,140 | 16,878 | 7,455 | 9,379 | ||||||||||||||
Cash and cash equivalents, end of period | $ | 8,400 | $ | 11,990 | $ | 8,400 | $ | 11,990 | ||||||||||
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NOTE 1. | NATURE OF OPERATIONS |
NOTE 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Principles of consolidation |
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Use of estimates |
Stock-based compensation plans |
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Equity incentive plans and change in accounting policy |
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Executive strategic incentive plan |
Pro-forma disclosure |
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12 Weeks Ended | 24 Weeks Ended | ||||||||
June 18, 2005 | June 18, 2005 | ||||||||
Net income, as reported | $ | 12,081 | $ | 25,217 | |||||
Total stock-based employee compensation expense determined under fair value-based method, net of tax | (382 | ) | (948 | ) | |||||
Pro forma net income | $ | 11,699 | $ | 24,269 | |||||
Net income per Common share: | |||||||||
Basic, as reported | $ | 0.30 | $ | 0.63 | |||||
Basic, pro forma | 0.29 | 0.61 | |||||||
Diluted, as reported | 0.29 | 0.61 | |||||||
Diluted, pro forma | 0.28 | 0.59 |
Outstanding Non vested | ||||||||||||||||
Outstanding | Weighted Average | Restricted Common | Weighted Average | |||||||||||||
Options | Exercise Price | Stock Units | Exercise Price | |||||||||||||
(dollars per | (dollars per | |||||||||||||||
(thousands) | Common share) | (thousands) | Common share) | |||||||||||||
Balance at December 31, 2005 | 5,031 | $ | 10.75 | 237 | $ | 15.99 | ||||||||||
Granted | — | — | — | — | ||||||||||||
Exercised | (207 | ) | 3.81 | — | — | |||||||||||
Cancelled | (19 | ) | 13.36 | (5 | ) | 15.99 | ||||||||||
Balance at June 17, 2006 | 4,805 | $ | 11.03 | 232 | $ | 15.99 | ||||||||||
Weighted-Average | Weighted- | Weighted-Average | ||||||||||||||||||||
Number | Remaining | Average | Number | Exercise | ||||||||||||||||||
Range of Exercise Prices | Outstanding | Contractual Life | Exercise Price | Exercisable | Price | |||||||||||||||||
(dollars per Common share) | (thousands) | (in years) | (dollars per | (thousands) | (dollars per | |||||||||||||||||
Common share) | Common share) | |||||||||||||||||||||
$3.65 – $5.96 | 719 | 6.78 | $ | 3.65 | 719 | $ | 3.65 | |||||||||||||||
$5.97 – $7.59 | 1,030 | 6.02 | 7.47 | 1,030 | 7.47 | |||||||||||||||||
$7.60 – $13.23 | 2,035 | 6.11 | 12.95 | 1,767 | 13.15 | |||||||||||||||||
$13.24 – $15.99 | 1,021 | 9.11 | 15.99 | — | — | |||||||||||||||||
4,805 | 6.83 | 11.03 | 3,516 | 9.55 | ||||||||||||||||||
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12 Weeks Ended | 24 Weeks Ended | |||||||||||||||
June 17, | June 18, | June 17, | June 18, | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Total fair value of stock options vested | $ | 821 | $ | 398 | $ | 1,776 | $ | 1,209 | ||||||||
Total intrinsic value of stock options exercised | 3,140 | 498 | 3,202 | 686 |
12 Weeks Ended | 24 Weeks Ended | |||||||||||||||
June 17, | June 18, | June 17, | June 18, | |||||||||||||
Weighted-average assumptions | 2006 | 2005 | 2006 | 2005 | ||||||||||||
Dividend yield | n/a | 0.0 | % | n/a | 0.0 | % | ||||||||||
Expected volatility | n/a | 45.0 | % | n/a | 45.0 | % | ||||||||||
Risk-free interest rate | n/a | 3.64 | % | n/a | 3.64 | % | ||||||||||
Expected option life in years | n/a | 5.0 | n/a | 5.0 | ||||||||||||
Weighted average grant date fair value | n/a | $ | 6.70 | n/a | $ | 6.70 |
Comparability |
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NOTE 3. | LONG-TERM DEBT |
June 17, 2006 | December 31, 2005 | |||||||
Revolving credit facility(a) | $ | — | $ | 4,000 | ||||
Senior secured term loan B due in 2009(a)(b) | 151,683 | 161,683 | ||||||
7.75% Senior unsecured notes due in 2012(c) | 200,000 | 200,000 | ||||||
Promissory notes and capitalized obligations, certain of which are secured by assets of certain subsidiaries | 6,546 | 7,792 | ||||||
358,229 | 373,475 | |||||||
Less, current maturities of long-term debt | 2,271 | 2,435 | ||||||
$ | 355,958 | $ | 371,040 | |||||
(a) | In 2003, the Company entered into a senior secured facility (the “Credit Agreement”), which after subsequent amendments, includes a $368,000,000 Senior Secured Term Loan B due September 29, 2009 (the “Term Loan B”) and a $75,000,000 revolving credit facility (the “Revolving Credit Facility”), of which $35,000,000 is available in the form of letters of credit. |
The Revolving Credit Facility is intended to be used primarily to fund the Company’s working capital requirements. The Revolving Credit Facility bears interest at a rate per annum in accordance with graduated pricing based upon the Company’s consolidated leverage ratio, and the Company has the option to elect an interest rate equal to either (i) a base rate (8.00% at June 17, 2006), plus 1.75% (based upon the Company’s consolidated leverage ratio at June 17, 2006), or (ii) LIBOR (5.42% for the three-month LIBOR at June 17, 2006), plus 2.75% (based upon the Company’s consolidated leverage ratio at June 17, 2006). An annual fee of 0.50% is charged on the unused portion of the Revolving Credit Facility. The Revolving Credit Facility matures on September 29, 2008. | |
Material covenants in the Credit Agreement include a requirement to maintain a minimum interest coverage ratio and fixed charge coverage ratio, a requirement not to exceed a maximum leverage ratio, an annual maximum on capital expenditures and cemetery development, and specified maximum amounts for capital lease obligations, indebtedness, acquisitions, certain investments, and sales of accounts receivable. Outstanding principal amounts and interest accrued and unpaid may, at the election of the requisite lenders, become immediately due and payable and further commitments by the lenders to make loans may, at the election of the requisite lenders, be terminated upon the occurrence of events of default specified in the Credit Agreement. As of June 17, 2006, the Company was in compliance with all covenants and was not in breach of any provision of the Credit Agreement that would cause an event of default to occur. The Credit Agreement is secured by specified real property, and substantially all personal property of Alderwoods Group and specified subsidiaries. | |
As of June 17, 2006, the amount available under the Revolving Credit Facility was $75,000,000, reduced by $18,930,000 in outstanding letters of credit. |
(b) | The Term Loan B provides the Company with an option to elect an interest rate equal to either (i) a base rate (8.00% at June 17, 2006), plus 1.00%, or (ii) LIBOR (5.42% for the three-month LIBOR at June 17, 2006), plus 2.00%. The weighted average rate of interest was 6.95% at June 17, 2006. The Term Loan B is repayable in quarterly principal installments from June 17, 2006, to June 13, 2009 (subject to reduction for prepayments) of 0.25% of the aggregate principal amount of the Term Loan B outstanding as of December 3, 2004, with a lump sum payment of the then-outstanding |
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amount on the maturity date. The Company has prepaid the required quarterly principal installments up to and including the third quarter of its 2007 fiscal year. | ||
(c) | On August 19, 2004, the Company issued the 7.75% Senior Unsecured Notes, due in 2012 (the “Eight-Year Senior Unsecured Notes”). Interest accrues at an annual rate of 7.75% and is payable semi-annually on March 15 and September 15 or, if such day is not a business day, the next succeeding business day. At any time prior to September 15, 2007, the Company may, at its option, redeem up to 35% of the aggregate principal amount of the Eight-Year Senior Unsecured Notes at a redemption price of 107.75% of the stated principal amount, plus accrued and unpaid interest and Liquidated Damages (as defined in the indenture governing the Eight-Year Senior Unsecured Notes), if any, with net cash proceeds from specified equity offerings, provided at least 65% of the aggregate principal amount of the Eight-Year Senior Unsecured Notes remains outstanding and the redemption occurs within 90 days of the date of the closing of the specified equity offering. On or after September 15, 2008, the Company may, at its option, redeem all or part of the Eight-Year Senior Unsecured Notes at the redemption prices (expressed as percentages of the stated principal amount) set forth below, plus accrued and unpaid interest and Liquidated Damages, if any, if redeemed during the twelve-month period beginning on September 15 of the years indicated below: |
Year | Percentage | |||
2008 | 103.875 | |||
2009 | 101.938 | |||
2010 and thereafter | 100.000 |
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NOTE 4. | LEGAL CONTINGENCIES |
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NOTE 5. | SUPPLEMENTARY STATEMENTS OF CASH FLOWS DISCLOSURE |
12 Weeks Ended | 24 Weeks Ended | |||||||||||||||||
June 17, | June 18, | June 17, | June 18, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||||
Decrease (increase) in assets: | ||||||||||||||||||
Receivables, net of allowances | ||||||||||||||||||
Trade | $ | 863 | $ | 4,352 | $ | 4,575 | $ | 11,483 | ||||||||||
Other | (5,620 | ) | (14,991 | ) | (2,495 | ) | (14,385 | ) | ||||||||||
Inventories | 28 | (199 | ) | 357 | (254 | ) | ||||||||||||
Prepaid expenses | (102 | ) | 1,043 | (1,287 | ) | 17,149 | ||||||||||||
Cemetery property | (2,010 | ) | (3,139 | ) | (3,434 | ) | (4,076 | ) | ||||||||||
Other assets | (1,532 | ) | (1,460 | ) | (2,293 | ) | (3,547 | ) | ||||||||||
Increase (decrease) in liabilities: | ||||||||||||||||||
Accounts payable and accrued liabilities | 6,295 | 906 | (3,856 | ) | (10,501 | ) | ||||||||||||
Net effect of pre-need receivables and deferred revenue | 317 | (1,590 | ) | 3,288 | 2,933 | |||||||||||||
Other liabilities | 2,294 | 3,634 | 5,253 | (2,892 | ) | |||||||||||||
Insurance policy liabilities | (819 | ) | (244 | ) | (1,028 | ) | 767 |
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12 Weeks Ended | 24 Weeks Ended | |||||||||||||||||
June 17, | June 18, | June 17, | June 18, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||||
Other changes in non-cash balances | (1,656 | ) | (2,136 | ) | (5,210 | ) | (3,529 | ) | ||||||||||
$ | (1,942 | ) | $ | (13,824 | ) | $ | (6,130 | ) | $ | (6,852 | ) | |||||||
Supplemental information: | ||||||||||||||||||
Interest paid | $ | 2,464 | $ | 3,008 | $ | 12,500 | $ | 14,864 | ||||||||||
Income taxes paid, net of refunds | 546 | 1,741 | (650 | ) | 2,132 | |||||||||||||
Bad debt expense | 375 | 633 | 1,469 | 1,166 | ||||||||||||||
Stock issued as compensation in lieu of cash | 67 | 48 | 152 | 63 | ||||||||||||||
Non-cash investing and financing activities: | ||||||||||||||||||
Restricted cash investing and financing activities: | ||||||||||||||||||
Purchases of funeral, cemetery, and perpetual care trust investments | $ | 85,629 | $ | 249,159 | $ | 162,601 | $ | 356,433 | ||||||||||
Proceeds on disposition and maturities of funeral, cemetery, and perpetual care trust investments | 77,872 | 265,648 | 142,336 | 413,116 | ||||||||||||||
Increase in non-controlling interests in funeral, cemetery and perpetual care trusts | 16,008 | 11,758 | 48,779 | 23,346 | ||||||||||||||
Decrease in non-controlling interests in funeral, cemetery and perpetual care trusts upon fulfillment of pre-need contracts | 13,258 | 22,397 | 28,583 | 36,411 |
NOTE 6. | SUPPLEMENTARY FINANCIAL INFORMATION |
June 17, | December 31, | ||||||||
2006 | 2005 | ||||||||
Receivables, net of allowances: | |||||||||
Customer receivables | $ | 47,313 | $ | 50,459 | |||||
Allowance for doubtful accounts | (11,743 | ) | (10,320 | ) | |||||
Other | 15,674 | 12,723 | |||||||
$ | 51,244 | $ | 52,862 | ||||||
Pre-need funeral receivables and trust investments: | |||||||||
Customer receivables | $ | 38,973 | $ | 38,438 | |||||
Allowance for contract cancellations and refunds | (14,209 | ) | (15,988 | ) | |||||
Funeral trust investments | 303,741 | 282,084 | |||||||
Amounts receivable from funeral trusts | 9,547 | 29,893 | |||||||
$ | 338,052 | $ | 334,427 | ||||||
Pre-need cemetery receivables and trust investments: | |||||||||
Customer receivables | $ | 61,819 | $ | 61,749 | |||||
Unearned finance income | (6,259 | ) | (6,232 | ) | |||||
Allowance for contract cancellations and refunds | (15,492 | ) | (15,648 | ) | |||||
Cemetery merchandise and service trust investments | 261,553 | 267,453 | |||||||
$ | 301,621 | $ | 307,322 | ||||||
Cemetery property: | |||||||||
Developed land and lawn crypts | $ | 39,240 | $ | 38,368 | |||||
Undeveloped land | 30,225 | 31,243 | |||||||
Mausoleums | 46,631 | 46,856 | |||||||
$ | 116,096 | $ | 116,467 | ||||||
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June 17, | December 31, | ||||||||
2006 | 2005 | ||||||||
Property and equipment: | |||||||||
Land | $ | 163,133 | $ | 162,287 | |||||
Buildings and improvements | 392,125 | 386,068 | |||||||
Automobiles | 10,119 | 10,652 | |||||||
Furniture, fixtures and equipment | 72,397 | 69,570 | |||||||
Computer hardware and software | 31,350 | 29,061 | |||||||
Accumulated depreciation and amortization | (128,170 | ) | (114,737 | ) | |||||
$ | 540,954 | $ | 542,901 | ||||||
Other assets: | |||||||||
Intangible assets | $ | 19,930 | $ | 18,741 | |||||
Deferred finance costs | 23,291 | 23,359 | |||||||
Accumulated amortization | (16,166 | ) | (15,258 | ) | |||||
Notes receivable | 2,829 | 3,016 | |||||||
Other | 13,169 | 12,992 | |||||||
$ | 43,053 | $ | 42,850 | ||||||
Accounts payable and accrued liabilities: | |||||||||
Bank overdraft. | $ | 5,561 | $ | 7,191 | |||||
Trade payables | 15,454 | 13,634 | |||||||
Interest | 5,148 | 5,169 | |||||||
Accrued liabilities | 13,881 | 21,629 | |||||||
Accrued insurance | 19,965 | 21,261 | |||||||
Accrued taxes | 39,974 | 32,199 | |||||||
Other | 14,001 | 18,651 | |||||||
$ | 113,984 | $ | 119,734 | ||||||
Deferred pre-need contract revenue: | |||||||||
Funeral | $ | 44,517 | $ | 72,087 | |||||
Cemetery | 31,313 | 19,531 | |||||||
$ | 75,830 | $ | 91,618 | ||||||
Other liabilities: | |||||||||
Perpetual care liability | $ | 7,958 | $ | 7,860 | |||||
Deferred compensation | 15,209 | 9,929 | |||||||
Other | 5,304 | 4,194 | |||||||
$ | 28,471 | $ | 21,983 | ||||||
NOTE 7. | SEGMENT REPORTING |
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Funeral | Cemetery | Insurance | Other | Consolidated | |||||||||||||||||
For the 12 Weeks Ended: | |||||||||||||||||||||
Revenue earned from external sales: | |||||||||||||||||||||
June 17, 2006 | $ | 107,522 | $ | 41,505 | $ | 23,417 | $ | — | $ | 172,444 | |||||||||||
June 18, 2005 | $ | 110,501 | $ | 43,914 | $ | 22,363 | $ | — | $ | 176,778 | |||||||||||
Income from operations: | |||||||||||||||||||||
June 17, 2006 | $ | 20,101 | $ | 6,224 | $ | 1,135 | $ | (18,042 | ) | $ | 9,418 | ||||||||||
June 18, 2005 | $ | 20,493 | $ | 7,275 | $ | 830 | $ | (1,702 | ) | $ | 26,896 | ||||||||||
Depreciation and amortization: | |||||||||||||||||||||
June 17, 2006 | $ | 5,971 | $ | 3,038 | $ | 24 | $ | 723 | $ | 9,756 | |||||||||||
June 18, 2005 | $ | 5,724 | $ | 3,970 | $ | 26 | $ | 1,238 | $ | 10,958 | |||||||||||
Purchase of property and equipment: | |||||||||||||||||||||
June 17, 2006 | $ | 2,016 | $ | 1,940 | $ | 37 | $ | 725 | $ | 4,718 | |||||||||||
June 18, 2005 | $ | 5,411 | $ | 916 | $ | 11 | $ | 5,371 | $ | 11,709 | |||||||||||
Development of cemetery property: | |||||||||||||||||||||
June 17, 2006 | $ | — | $ | 1,714 | $ | — | $ | — | $ | 1,714 | |||||||||||
June 18, 2005 | $ | — | $ | 1,040 | $ | — | $ | — | $ | 1,040 | |||||||||||
For the 24 Weeks Ended: | |||||||||||||||||||||
Revenue earned from external sales: | |||||||||||||||||||||
June 17, 2006 | $ | 228,653 | $ | 79,336 | $ | 46,272 | $ | — | $ | 354,261 | |||||||||||
June 18, 2005 | $ | 234,514 | $ | 82,218 | $ | 43,931 | $ | — | $ | 360,663 | |||||||||||
Income from operations: | |||||||||||||||||||||
June 17, 2006 | $ | 45,870 | $ | 10,898 | $ | 2,083 | $ | (32,557 | ) | $ | 26,294 | ||||||||||
June 18, 2005 | $ | 50,254 | $ | 13,752 | $ | 2,113 | $ | (12,346 | ) | $ | 53,773 | ||||||||||
Depreciation and amortization: | |||||||||||||||||||||
June 17, 2006 | $ | 11,701 | $ | 5,953 | $ | 51 | $ | 1,561 | $ | 19,266 | |||||||||||
June 18, 2005 | $ | 11,436 | $ | 7,255 | $ | 66 | $ | 2,338 | $ | 21,095 | |||||||||||
Purchase of property and equipment: | |||||||||||||||||||||
June 17, 2006 | $ | 3,549 | $ | 4,035 | $ | 40 | $ | 1,849 | $ | 9,473 | |||||||||||
June 18, 2005 | $ | 7,320 | $ | 1,941 | $ | 75 | $ | 6,978 | $ | 16,314 | |||||||||||
Development of cemetery property: | |||||||||||||||||||||
June 17, 2006 | $ | — | $ | 3,035 | $ | — | $ | — | $ | 3,035 | |||||||||||
June 18, 2005 | $ | — | $ | 1,672 | $ | — | $ | — | $ | 1,672 |
Total assets at: | |||||||||||||||||||||
June 17, 2006 | $ | 1,095,436 | $ | 813,313 | $ | 336,655 | $ | 35,385 | $ | 2,280,789 | |||||||||||
December 31, 2005 | $ | 1,107,916 | $ | 807,673 | $ | 326,160 | $ | 32,554 | $ | 2,274,303 | |||||||||||
Goodwill at: | |||||||||||||||||||||
June 17, 2006 | $ | 295,913 | $ | — | $ | — | $ | — | $ | 295,913 | |||||||||||
December 31, 2005 | $ | 295,890 | $ | — | $ | — | $ | — | $ | 295,890 |
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12 Weeks Ended | 24 Weeks Ended | ||||||||||||||||
June 17, | June 18, | June 17, | June 18, | ||||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||||||
Earnings from operations of funeral, cemetery and insurance segments | $ | 27,460 | $ | 28,598 | $ | 58,851 | $ | 66,119 | |||||||||
Other expenses of operations: | |||||||||||||||||
General and administrative expenses | (18,042 | ) | (1,702 | ) | (32,557 | ) | (12,346 | ) | |||||||||
Income from operations | $ | 9,418 | $ | 26,896 | $ | 26,294 | $ | 53,773 | |||||||||
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NOTE 8. | CONDENSED CONSOLIDATING GUARANTOR FINANCIAL INFORMATION |
June 17, 2006 | |||||||||||||||||||||||
Parent | Consolidating | Consolidated | |||||||||||||||||||||
Company | Guarantors | Non-Guarantors | Adjustments | Totals | |||||||||||||||||||
ASSETS | |||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 4,892 | $ | 3,508 | $ | — | $ | 8,400 | |||||||||||||
Other current assets | — | 62,413 | 12,438 | — | 74,851 | ||||||||||||||||||
Pre-need funeral receivables and trust investments | — | 266,435 | 306,753 | (235,136 | ) | 338,052 | |||||||||||||||||
Pre-need cemetery receivables and trust investments | — | 282,898 | 267,613 | (248,890 | ) | 301,621 | |||||||||||||||||
Cemetery property and property and equipment | — | 544,851 | 112,199 | — | 657,050 | ||||||||||||||||||
Insurance invested assets | — | — | 298,392 | — | 298,392 | ||||||||||||||||||
Goodwill | — | 240,380 | 55,533 | — | 295,913 | ||||||||||||||||||
Investment in subsidiaries | 1,097,120 | (92,380 | ) | — | (1,004,740 | ) | — | ||||||||||||||||
Cemetery perpetual care trust investment | — | (1,247 | ) | 245,227 | — | 243,980 | |||||||||||||||||
Other assets | 7,125 | 17,222 | 38,183 | — | 62,530 | ||||||||||||||||||
Total assets | $ | 1,104,245 | $ | 1,325,464 | $ | 1,339,846 | $ | (1,488,766 | ) | $ | 2,280,789 | ||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||||||||
Liabilities | |||||||||||||||||||||||
Current liabilities | $ | 42,563 | $ | 71,618 | $ | (197 | ) | $ | — | $ | 113,984 | ||||||||||||
Current maturities of long-term debt | — | 2,248 | 23 | — | 2,271 | ||||||||||||||||||
Intercompany, net of investments in and advances to affiliates | 111,797 | (298,720 | ) | 186,923 | — | — | |||||||||||||||||
Long-term debt | 351,683 | 4,275 | — | — | 355,958 | ||||||||||||||||||
Deferred pre-need funeral and cemetery contract revenue and non-controlling interest in funeral and cemetery trusts | — | 536,221 | 588,083 | (484,027 | ) | 640,277 | |||||||||||||||||
Insurance policy liabilities | — | — | 285,701 | — | 285,701 | ||||||||||||||||||
Other liabilities | 19 | 22,111 | 17,085 | — | 39,215 | ||||||||||||||||||
Non-controlling interest in perpetual care trusts | — | (1,247 | ) | 246,468 | — | 245,221 | |||||||||||||||||
Stockholders’ equity | 598,183 | 988,958 | 15,760 | (1,004,739 | ) | 598,162 | |||||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,104,245 | $ | 1,325,464 | $ | 1,339,846 | $ | (1,488,766 | ) | $ | 2,280,789 | ||||||||||||
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December 31, 2005 | |||||||||||||||||||||||
Parent | Consolidating | ||||||||||||||||||||||
Company | Guarantors | Non-Guarantors | Adjustments | Consolidated Totals | |||||||||||||||||||
ASSETS | |||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 4,034 | $ | 3,421 | $ | — | $ | 7,455 | |||||||||||||
Other current assets | 1,964 | 60,070 | 13,497 | — | 75,531 | ||||||||||||||||||
Pre-need funeral receivables and trust investments | — | 260,915 | 285,617 | (212,105 | ) | 334,427 | |||||||||||||||||
Pre-need cemetery receivables and trust investments | — | 287,522 | 273,732 | (253,932 | ) | 307,322 | |||||||||||||||||
Cemetery property and property and equipment | — | 549,860 | 109,508 | — | 659,368 | ||||||||||||||||||
Insurance invested assets | — | — | 294,598 | — | 294,598 | ||||||||||||||||||
Goodwill | — | 247,160 | 48,730 | — | 295,890 | ||||||||||||||||||
Investment in subsidiaries | 1,075,366 | (91,898 | ) | — | (983,468 | ) | — | ||||||||||||||||
Cemetery perpetual care trust investment | — | 464 | 243,341 | — | 243,805 | ||||||||||||||||||
Other assets | 8,101 | 17,367 | 30,439 | — | 55,907 | ||||||||||||||||||
Total assets | $ | 1,085,431 | $ | 1,335,494 | $ | 1,302,883 | $ | (1,449,505 | ) | $ | 2,274,303 | ||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||||||||
Liabilities | |||||||||||||||||||||||
Current liabilities | $ | 39,333 | $ | 73,597 | $ | 6,804 | $ | — | $ | 119,734 | |||||||||||||
Current maturities of long-term debt | — | 2,412 | 23 | — | 2,435 | ||||||||||||||||||
Intercompany, net of investments in and advances to affiliates | 82,643 | (260,549 | ) | 177,906 | — | — | |||||||||||||||||
Long-term debt | 365,683 | 5,357 | — | — | 371,040 | ||||||||||||||||||
Deferred pre-need funeral and cemetery contract revenue and non-controlling interest in funeral and cemetery trusts | — | 533,061 | 573,091 | (466,037 | ) | 640,115 | |||||||||||||||||
Insurance policy liabilities | — | — | 266,729 | — | 266,729 | ||||||||||||||||||
Other liabilities | 19 | 20,040 | 12,476 | — | 32,535 | ||||||||||||||||||
Non-controlling interest in perpetual care trusts | — | — | 243,962 | — | 243,962 | ||||||||||||||||||
Stockholders’ equity | 597,753 | 961,576 | 21,892 | (983,468 | ) | 597,753 | |||||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,085,431 | $ | 1,335,494 | $ | 1,302,883 | $ | (1,449,505 | ) | $ | 2,274,303 | ||||||||||||
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12 Weeks Ended June 17, 2006 | ||||||||||||||||||||
Parent | Consolidating | Consolidated | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Adjustments | Totals | ||||||||||||||||
Revenues | $ | — | $ | 127,285 | $ | 45,159 | $ | — | $ | 172,444 | ||||||||||
Costs and expenses | — | 104,192 | 40,792 | — | 144,984 | |||||||||||||||
General and administrative expenses | 2,055 | 1,234 | 14,753 | — | 18,042 | |||||||||||||||
Income (loss) from operations | (2,055 | ) | 21,859 | (10,386 | ) | — | 9,418 | |||||||||||||
Interest on long-term debt | 6,533 | 13 | (75 | ) | — | 6,471 | ||||||||||||||
Intercompany charges | 3,633 | 4,200 | (7,833 | ) | — | — | ||||||||||||||
Other expense (income), net | — | 175 | 110 | — | 285 | |||||||||||||||
Income (loss) before income taxes | (12,221 | ) | 17,471 | (2,588 | ) | — | 2,662 | |||||||||||||
Income taxes | (323 | ) | 2,804 | 28 | — | 2,509 | ||||||||||||||
Income (loss) from continuing operations | (11,898 | ) | 14,667 | (2,616 | ) | — | 153 | |||||||||||||
Equity in subsidiaries | 10,809 | (740 | ) | — | (10,069 | ) | — | |||||||||||||
Loss from discontinued operations | — | — | — | — | — | |||||||||||||||
Income (loss) before cumulative effect of change in accounting principle | (1,089 | ) | 13,927 | (2,616 | ) | (10,069 | ) | 153 | ||||||||||||
Cumulative effect of change in accounting principle | — | — | — | — | — | |||||||||||||||
Net income (loss) | $ | (1,089 | ) | $ | 13,927 | $ | (2,616 | ) | $ | (10,069 | ) | $ | 153 | |||||||
12 Weeks Ended June 18, 2005 | ||||||||||||||||||||
Parent | Consolidating | Consolidated | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Adjustments | Totals | ||||||||||||||||
Revenues | $ | — | $ | 134,168 | $ | 42,610 | $ | — | $ | 176,778 | ||||||||||
Costs and expenses | — | 109,596 | 38,992 | — | 148,588 | |||||||||||||||
General and administrative expenses | (181 | ) | (12,990 | ) | 14,873 | — | 1,702 | |||||||||||||
Provision for asset impairment | — | (408 | ) | — | — | (408 | ) | |||||||||||||
Income (loss) from operations | 181 | 37,970 | (11,255 | ) | — | 26,896 | ||||||||||||||
Interest on long-term debt | 6,798 | 216 | (22 | ) | 21 | 7,013 | ||||||||||||||
Intercompany charges | 2,938 | 4,273 | (7,211 | ) | — | — | ||||||||||||||
Other expense (income), net | — | (197 | ) | 153 | — | (44 | ) | |||||||||||||
Income (loss) before income taxes | (9,555 | ) | 33,678 | (4,175 | ) | (21 | ) | 19,927 | ||||||||||||
Income taxes | (839 | ) | 7,644 | 196 | — | 7,001 | ||||||||||||||
Income (loss) from continuing operations | (8,716 | ) | 26,034 | (4,371 | ) | (21 | ) | 12,926 | ||||||||||||
Equity in subsidiaries | 20,799 | (890 | ) | — | (19,909 | ) | — | |||||||||||||
Loss from discontinued operations | — | (703 | ) | (163 | ) | 21 | (845 | ) | ||||||||||||
Income (loss) before cumulative effect of change in accounting principle | 12,083 | 24,441 | (4,534 | ) | (19,909 | ) | 12,081 | |||||||||||||
Cumulative effect of change in accounting principle | — | — | — | — | — | |||||||||||||||
Net income (loss) | $ | 12,083 | $ | 24,441 | $ | (4,534 | ) | $ | (19,909 | ) | $ | 12,081 | ||||||||
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24 Weeks Ended June 17, 2006 | ||||||||||||||||||||
Parent | Consolidating | Consolidated | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Adjustments | Totals | ||||||||||||||||
Revenues | $ | — | $ | 263,998 | $ | 90,263 | $ | — | $ | 354,261 | ||||||||||
Costs and expenses | — | 214,911 | 80,499 | — | 295,410 | |||||||||||||||
General and administrative expenses | 2,637 | 2,273 | 27,647 | — | 32,557 | |||||||||||||||
Income (loss) from operations | (2,637 | ) | 46,814 | (17,883 | ) | — | 26,294 | |||||||||||||
Interest on long-term debt | 12,957 | 115 | (123 | ) | — | 12,949 | ||||||||||||||
Intercompany charges | 8,279 | 12,953 | (21,232 | ) | — | — | ||||||||||||||
Other expense (income), net | — | (87 | ) | 216 | — | 129 | ||||||||||||||
Income (loss) before income taxes | (23,873 | ) | 33,833 | 3,256 | — | 13,216 | ||||||||||||||
Income taxes | (7 | ) | 5,264 | 2,061 | — | 7,318 | ||||||||||||||
Income (loss) from continuing operations | (23,866 | ) | 28,569 | 1,195 | — | 5,898 | ||||||||||||||
Equity in subsidiaries | 28,506 | (718 | ) | — | (27,788 | ) | — | |||||||||||||
Loss from discontinued operations | — | — | — | — | — | |||||||||||||||
Income before cumulative effect of change in accounting principle | 4,640 | 27,851 | 1,195 | (27,788 | ) | 5,898 | ||||||||||||||
Cumulative effect of change in accounting principle | — | — | (1,242 | ) | — | (1,242 | ) | |||||||||||||
Net income (loss) | $ | 4,640 | $ | 27,851 | $ | (47 | ) | $ | (27,788 | ) | $ | 4,656 | ||||||||
24 Weeks Ended June 18, 2005 | ||||||||||||||||||||
Parent | Consolidating | Consolidated | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Adjustments | Totals | ||||||||||||||||
Revenues | $ | — | $ | 274,526 | $ | 86,137 | $ | — | $ | 360,663 | ||||||||||
Costs and expenses | — | 219,541 | 76,630 | — | 296,171 | |||||||||||||||
General and administrative expenses | (262 | ) | (14,124 | ) | 26,732 | — | 12,346 | |||||||||||||
Provision for asset impairment | — | (1,606 | ) | (21 | ) | — | (1,627 | ) | ||||||||||||
Income (loss) from operations | 262 | 70,715 | (17,204 | ) | — | 53,773 | ||||||||||||||
Interest on long-term debt | 14,108 | 402 | 18 | — | 14,528 | |||||||||||||||
Intercompany charges | 5,147 | 10,756 | (15,903 | ) | — | — | ||||||||||||||
Other expense (income), net | — | (6,124 | ) | 281 | — | (5,843 | ) | |||||||||||||
Income (loss) before income taxes | (18,993 | ) | 65,681 | (1,600 | ) | — | 45,088 | |||||||||||||
Income taxes | (663 | ) | 17,519 | 1,337 | — | 18,193 | ||||||||||||||
Income (loss) from continuing operations | (18,330 | ) | 48,162 | (2,937 | ) | — | 26,895 | |||||||||||||
Equity in subsidiaries | 43,548 | (812 | ) | — | (42,736 | ) | — | |||||||||||||
Loss from discontinued operations | — | (1,248 | ) | (430 | ) | — | (1,678 | ) | ||||||||||||
Income (loss) before cumulative effect of change in accounting principle | 25,218 | 46,102 | (3,367 | ) | (42,736 | ) | 25,217 | |||||||||||||
Cumulative effect of change in accounting principle | — | — | — | — | — | |||||||||||||||
Net income (loss) | $ | 25,218 | $ | 46,102 | $ | (3,367 | ) | $ | (42,736 | ) | $ | 25,217 | ||||||||
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12 Weeks Ended June 17, 2006 | ||||||||||||||||||||
Parent | Consolidating | Consolidated | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Adjustments | Totals | ||||||||||||||||
CASH PROVIDED BY (APPLIED TO) | ||||||||||||||||||||
Cash flows from operating activities of continuing operations | $ | 4,306 | $ | 2,725 | $ | 12,839 | $ | — | $ | 19,870 | ||||||||||
Cash flows from investing activities of continuing operations | — | (2,359 | ) | (12,456 | ) | — | (14,815 | ) | ||||||||||||
Cash flows from financing activities of continuing operations | (4,274 | ) | (521 | ) | — | — | (4,795 | ) | ||||||||||||
Increase (decrease) in cash and cash equivalents | 32 | (155 | ) | 383 | — | 260 | ||||||||||||||
Cash and cash equivalents, beginning of period | (32 | ) | 5,047 | 3,125 | — | 8,140 | ||||||||||||||
Cash and cash equivalents, end of period | $ | — | $ | 4,892 | $ | 3,508 | $ | — | $ | 8,400 | ||||||||||
12 Weeks Ended June 18, 2005 | ||||||||||||||||||||
Parent | Consolidating | Consolidated | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Adjustments | Totals | ||||||||||||||||
CASH PROVIDED BY (APPLIED TO) | ||||||||||||||||||||
Cash flows from operating activities of continuing operations | $ | 18,893 | $ | (11,246 | ) | $ | 21,090 | $ | (21 | ) | $ | 28,716 | ||||||||
Cash flows from operating activities of discontinued operations | — | 394 | (1,226 | ) | 21 | (811 | ) | |||||||||||||
Cash flows from investing activities of continuing operations | — | (4,657 | ) | (13,840 | ) | — | (18,497 | ) | ||||||||||||
Cash flows from investing activities of discontinued operations | — | 6,033 | 711 | — | 6,744 | |||||||||||||||
Cash flows from financing activities of continuing operations | (18,893 | ) | (633 | ) | (1,503 | ) | — | (21,029 | ) | |||||||||||
Cash flows from financing activities of discontinued operations | — | (11 | ) | — | — | (11 | ) | |||||||||||||
Increase (decrease) in cash and cash equivalents | — | (10,120 | ) | 5,232 | — | (4,888 | ) | |||||||||||||
Cash and cash equivalents, beginning of period | — | 18,848 | (1,970 | ) | — | 16,878 | ||||||||||||||
Cash and cash equivalents, end of period | $ | — | $ | 8,728 | $ | 3,262 | $ | — | $ | 11,990 | ||||||||||
24 Weeks Ended June 17, 2006 | ||||||||||||||||||||
Parent | Consolidating | Consolidated | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Adjustments | Totals | ||||||||||||||||
CASH PROVIDED BY (APPLIED TO) | ||||||||||||||||||||
Cash flows from operating activities of continuing operations | $ | 13,234 | $ | 5,751 | $ | 21,339 | $ | — | $ | 40,324 | ||||||||||
Cash flows from investing activities of continuing operations | — | (3,679 | ) | (21,246 | ) | — | (24,925 | ) | ||||||||||||
Cash flows from financing activities of continuing operations | (13,202 | ) | (1,248 | ) | (4 | ) | — | (14,454 | ) | |||||||||||
Increase in cash and cash equivalents | 32 | 824 | 89 | — | 945 | |||||||||||||||
Cash and cash equivalents, beginning of period | (32 | ) | 4,068 | 3,419 | — | 7,455 | ||||||||||||||
Cash and cash equivalents, end of period | $ | — | $ | 4,892 | $ | 3,508 | $ | — | $ | 8,400 | ||||||||||
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24 Weeks Ended June 18, 2005 | ||||||||||||||||||||
Parent | Consolidating | Consolidated | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Adjustments | Totals | ||||||||||||||||
CASH PROVIDED BY (APPLIED TO) | ||||||||||||||||||||
Cash flows from operating activities of continuing operations | $ | 49,534 | $ | (5,790 | ) | $ | 27,197 | $ | — | $ | 70,941 | |||||||||
Cash flows from operating activities of discontinued operations | — | 661 | 1,262 | — | (601 | ) | ||||||||||||||
Cash flows from investing activities of continuing operations | — | 2,870 | (25,766 | ) | — | (22,896 | ) | |||||||||||||
Cash flows from investing activities of discontinued operations | — | 6,127 | 1,779 | — | 7,906 | |||||||||||||||
Cash flows from financing activities of continuing operations | (49,534 | ) | (1,516 | ) | (1,632 | ) | — | (52,682 | ) | |||||||||||
Cash flows from financing activities of discontinued operations | — | (9 | ) | �� | (48 | ) | — | (57 | ) | |||||||||||
Increase in cash and cash equivalents | — | 2,343 | 268 | — | 2,611 | |||||||||||||||
Cash and cash equivalents, beginning of period | — | 6,385 | 2,994 | — | 9,379 | |||||||||||||||
Cash and cash equivalents, end of period | $ | — | $ | 8,728 | $ | 3,262 | $ | — | $ | 11,990 | ||||||||||
NOTE 9. | PROVISION FOR ASSET IMPAIRMENT |
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NOTE 10. | DISCONTINUED OPERATIONS OF ASSETS HELD FOR SALE |
12 Weeks | 24 Weeks | ||||||||
Ended | Ended | ||||||||
June 18, | June 18, | ||||||||
2005 | 2005 | ||||||||
Revenue | |||||||||
Funeral | $ | 394 | $ | 1,853 | |||||
Cemetery | 144 | 598 | |||||||
$ | 538 | $ | 2,451 | ||||||
Gross margin | |||||||||
Funeral | $ | (170 | ) | $ | (152 | ) | |||
Cemetery | (60 | ) | (237 | ) | |||||
(230 | ) | (389 | ) | ||||||
Provision for asset impairment | — | 568 | |||||||
Loss from discontinued operations | (230 | ) | (957 | ) | |||||
Interest on long-term debt | (22 | ) | — | ||||||
Other expense (income), net | 371 | 455 | |||||||
Loss from discontinued operations, before tax | (579 | ) | (1,412 | ) | |||||
Income tax provision for discontinued operations | 266 | 266 | |||||||
Loss from discontinued operations | $ | (845 | ) | $ | (1,678 | ) | |||
Depreciation included in gross margin of discontinued operations | $ | 7 | $ | 20 | |||||
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NOTE 11. | INCOME PER SHARE |
12 Weeks Ended | 24 Weeks Ended | ||||||||||||||||
June 17, | June 18, | June 17, | June 18, | ||||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||||||
Income (numerator): | |||||||||||||||||
Net income attributable to | �� | ||||||||||||||||
Common stockholders | $ | 153 | $ | 12,081 | $ | 4,656 | $ | 25,217 | |||||||||
Shares (denominator): | |||||||||||||||||
Basic weighted average number of shares of Common stock outstanding (thousands) | 40,652 | 40,108 | 40,559 | 40,078 | |||||||||||||
Effect of stock options assumed exercised (thousands) | 2,025 | 1,282 | 1,863 | 1,297 | |||||||||||||
Diluted weighted average number of shares of Common stock outstanding (thousands) | 42,677 | 41,390 | 42,422 | 41,375 | |||||||||||||
NOTE 12. | EFFECT OF HURRICANE KATRINA |
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Financial results |
12 Weeks Ended | 24 Weeks Ended | |||||||||||||||||
June 17, | June 18, | June 17, | June 18, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||||
Funeral Homes | ||||||||||||||||||
Revenue | $ | 5,604 | $ | 6,659 | $ | 12,461 | $ | 14,355 | ||||||||||
Number of funeral services performed | 1,227 | 1,409 | 2,690 | 3,079 | ||||||||||||||
Number of same-site funeral services performed | 1,225 | 1,173 | 2,688 | 2,574 | ||||||||||||||
Costs and expenses | $ | 3,403 | $ | 5,157 | $ | 8,912 | $ | 11,402 | ||||||||||
Gross margin | $ | 2,201 | $ | 1,502 | $ | 3,549 | $ | 2,953 | ||||||||||
Pre-need funeral contracts written | $ | 1,546 | $ | 2,954 | $ | 2,837 | $ | 5,782 | ||||||||||
Cemeteries | ||||||||||||||||||
Revenue | $ | 788 | $ | 681 | $ | 1,472 | $ | 1,424 | ||||||||||
Number of cemetery interments | 205 | 217 | 423 | 527 | ||||||||||||||
Costs and expenses | $ | 704 | $ | 666 | $ | 1,262 | $ | 1,328 | ||||||||||
Gross margin | $ | 84 | $ | 15 | $ | 210 | $ | 96 | ||||||||||
Pre-need cemetery contracts written | $ | 347 | $ | 346 | $ | 574 | $ | 690 |
Insurance coverage and long-term asset gain or loss |
NOTE 13. | PROPOSED MERGER AGREEMENT |
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/s/ KPMG LLP | |
Chartered Accountants | |
Vancouver, Canada |
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December 31, | January 1, | ||||||||
2005 | 2005 | ||||||||
ASSETS | |||||||||
Current assets | |||||||||
Cash and cash equivalents | $ | 7,455 | $ | 9,379 | |||||
Receivables, net of allowances | 52,862 | 66,445 | |||||||
Inventories | 15,784 | 16,730 | |||||||
Other | 6,885 | 27,622 | |||||||
Assets held for sale | — | 82,056 | |||||||
82,986 | 202,232 | ||||||||
Pre-need funeral receivables and trust investments | 334,427 | 336,030 | |||||||
Pre-need cemetery receivables and trust investments | 307,322 | 311,654 | |||||||
Cemetery property | 116,467 | 119,042 | |||||||
Property and equipment | 542,901 | 540,255 | |||||||
Insurance invested assets | 294,598 | 250,785 | |||||||
Deferred income tax assets | 13,057 | 8,161 | |||||||
Goodwill | 295,890 | 321,134 | |||||||
Cemetery perpetual care trust investments | 243,805 | 246,052 | |||||||
Other assets | 42,850 | 37,082 | |||||||
$ | 2,274,303 | $ | 2,372,427 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||
Current liabilities | |||||||||
Accounts payable and accrued liabilities | $ | 119,734 | $ | 140,662 | |||||
Current maturities of long-term debt | 2,435 | 9,083 | |||||||
Liabilities associated with assets held for sale | — | 61,428 | |||||||
122,169 | 211,173 | ||||||||
Long-term debt | 371,040 | 454,557 | |||||||
Deferred pre-need funeral and cemetery contract revenue | 91,618 | 82,971 | |||||||
Non-controlling interest in funeral and cemetery trusts | 548,497 | 553,617 | |||||||
Insurance policy liabilities | 266,729 | 214,745 | |||||||
Deferred income tax liabilities | 10,552 | 20,357 | |||||||
Other liabilities | 21,983 | 21,954 | |||||||
1,432,588 | 1,559,374 | ||||||||
Non-controlling interest in perpetual care trusts | 243,962 | 257,141 | |||||||
Stockholders’ equity | |||||||||
Common stock, $0.01 par value, 100,000,000 shares authorized, 40,458,864 issued and outstanding (2004 — 40,017,454) | 405 | 400 | |||||||
Capital in excess of par value | 743,126 | 740,210 | |||||||
Accumulated deficit | (172,405 | ) | (213,588 | ) | |||||
Accumulated other comprehensive income | 26,627 | 28,890 | |||||||
597,753 | 555,912 | ||||||||
$ | 2,274,303 | $ | 2,372,427 | ||||||
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52 Weeks | 52 Weeks | 53 Weeks | |||||||||||
Ended | Ended | Ended | |||||||||||
December 31, | January 1, | January 3, | |||||||||||
2005 | 2005 | 2004 | |||||||||||
Revenue | |||||||||||||
Funeral | $ | 479,799 | $ | 472,935 | $ | 491,611 | |||||||
Cemetery | 174,110 | 164,052 | 168,024 | ||||||||||
Insurance | 95,005 | 80,124 | 61,127 | ||||||||||
748,914 | 717,111 | 720,762 | |||||||||||
Costs and expenses | |||||||||||||
Funeral | 392,544 | 376,646 | 378,195 | ||||||||||
Cemetery | 151,914 | 140,145 | 139,299 | ||||||||||
Insurance | 89,937 | 75,415 | 59,375 | ||||||||||
634,395 | 592,206 | 576,869 | |||||||||||
114,519 | 124,905 | 143,893 | |||||||||||
General and administrative expenses | 42,815 | 51,218 | 56,281 | ||||||||||
Provision for asset impairment | (1,379 | ) | 1,787 | 5,229 | |||||||||
Income from operations | 73,083 | 71,900 | 82,383 | ||||||||||
Interest on long-term debt and refinancing costs (Note 6) | 30,069 | 78,079 | 76,453 | ||||||||||
Other expense (income), net | (4,662 | ) | (1,162 | ) | 4,056 | ||||||||
Income (loss) before income taxes | 47,676 | (5,017 | ) | 1,874 | |||||||||
Income taxes | 4,815 | (1,453 | ) | (6,485 | ) | ||||||||
Net income (loss) from continuing operations | 42,861 | (3,564 | ) | 8,359 | |||||||||
Discontinued operations (Note 19) | |||||||||||||
Income (loss) from discontinued operations | (1,412 | ) | 19,400 | 6,870 | |||||||||
Income taxes | 266 | 6,487 | 4,422 | ||||||||||
Net income (loss) from discontinued operations | (1,678 | ) | 12,913 | 2,448 | |||||||||
Net income | $ | 41,183 | $ | 9,349 | $ | 10,807 | |||||||
Basic earnings per Common share: | |||||||||||||
Net income (loss) from continuing operations | $ | 1.06 | $ | (0.09 | ) | $ | 0.21 | ||||||
Net income (loss) from discontinued operations | (0.04 | ) | 0.32 | 0.06 | |||||||||
Net income | $ | 1.02 | $ | 0.23 | $ | 0.27 | |||||||
Diluted earnings per Common share: | |||||||||||||
Net income (loss) from continuing operations | $ | 1.03 | $ | (0.09 | ) | $ | 0.21 | ||||||
Net income (loss) from discontinued operations | (0.04 | ) | 0.32 | 0.06 | |||||||||
Net income | $ | 0.99 | $ | 0.23 | $ | 0.27 | |||||||
Basic weighted average number of shares outstanding (thousands) | 40,245 | 40,001 | 39,971 | ||||||||||
Diluted weighted average number of shares outstanding (thousands) | 41,602 | 41,132 | 40,465 | ||||||||||
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Accumulated | |||||||||||||||||||||||||||
Common | Capital in | Other | |||||||||||||||||||||||||
Stock Par | Excess of | Accumulated | Comprehensive | ||||||||||||||||||||||||
Shares | Value | Par Value | Deficit | Income | Total | ||||||||||||||||||||||
Balance at December 28, 2002 | 39,941,271 | $ | 399 | $ | 739,711 | $ | (233,744 | ) | $ | 17,036 | $ | 523,402 | |||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||
Net income | 10,807 | 10,807 | |||||||||||||||||||||||||
Other comprehensive income (loss): | |||||||||||||||||||||||||||
Foreign currency translation adjustment, net of income taxes of $nil | 15,187 | 15,187 | |||||||||||||||||||||||||
Unrealized loss on insurance invested assets, net of income tax recovery of $2,925 | (4,790 | ) | (4,790 | ) | |||||||||||||||||||||||
Less: reclassification adjustments for realized gain on insurance invested assets included in net income, net of income taxes of $345 | (642 | ) | (642 | ) | |||||||||||||||||||||||
Unrealized gain on derivatives, net of income taxes of $nil | 689 | 689 | |||||||||||||||||||||||||
Comprehensive income | 21,251 | ||||||||||||||||||||||||||
Common stock issued: | |||||||||||||||||||||||||||
Stock issued in connection with the settlement of certain unsecured claims | 21,140 | 1 | 106 | 107 | |||||||||||||||||||||||
Stock issued as compensation in lieu of cash | 18,818 | 105 | 105 | ||||||||||||||||||||||||
Stock issued under equity incentive plan | 3,750 | 28 | 28 | ||||||||||||||||||||||||
Balance at January 3, 2004 | 39,984,979 | 400 | 739,950 | (222,937 | ) | 27,480 | 544,893 | ||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||
Net income | 9,349 | 9,349 | |||||||||||||||||||||||||
Other comprehensive income (loss): | |||||||||||||||||||||||||||
Foreign currency translation adjustment, net of income taxes of $nil | 5,324 | 5,324 | |||||||||||||||||||||||||
Unrealized loss on insurance invested assets, net of income tax recovery of $2,770 | (2,890 | ) | (2,890 | ) | |||||||||||||||||||||||
Less: reclassification adjustments for realized gain on insurance invested assets included in net income, net of income taxes of $1,214 | (2,254 | ) | (2,254 | ) | |||||||||||||||||||||||
Unrealized gain on derivatives, net of income taxes of $nil | 1,571 | 1,571 | |||||||||||||||||||||||||
Less: reclassification adjustments for realized gain on derivatives included in net income, net of income taxes of $nil | (341 | ) | (341 | ) | |||||||||||||||||||||||
Comprehensive income | 10,759 |
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Accumulated | |||||||||||||||||||||||||||
Common | Capital in | Other | |||||||||||||||||||||||||
Stock Par | Excess of | Accumulated | Comprehensive | ||||||||||||||||||||||||
Shares | Value | Par Value | Deficit | Income | Total | ||||||||||||||||||||||
Common stock issued: | |||||||||||||||||||||||||||
Stock issued in connection with the settlement of certain unsecured claims | 5,977 | 31 | 31 | ||||||||||||||||||||||||
Stock issued as compensation in lieu of cash | 16,498 | 173 | 173 | ||||||||||||||||||||||||
Stock issued under equity incentive plan | 10,000 | 56 | 56 | ||||||||||||||||||||||||
Balance at January 1, 2005 | 40,017,454 | $ | 400 | $ | 740,210 | $ | (213,588 | ) | $ | 28,890 | $ | 555,912 | |||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||
Net income | 41,183 | 41,183 | |||||||||||||||||||||||||
Other comprehensive income (loss): | |||||||||||||||||||||||||||
Foreign currency translation adjustment, net of income taxes of $nil | 3,138 | 3,138 | |||||||||||||||||||||||||
Unrealized loss on insurance invested assets, net of income tax recovery of $2,331 | (4,328 | ) | (4,328 | ) | |||||||||||||||||||||||
Less: reclassification adjustments for realized gain on insurance invested assets included in net income, net of income taxes of $9 | (17 | ) | (17 | ) | |||||||||||||||||||||||
Unrealized loss on derivatives, net of income taxes of $nil | (480 | ) | (480 | ) | |||||||||||||||||||||||
Less: reclassification adjustments for realized gain on derivatives included in net income, net of income taxes of $nil | (576 | ) | (576 | ) | |||||||||||||||||||||||
Comprehensive income | 38,920 | ||||||||||||||||||||||||||
Common stock issued: | |||||||||||||||||||||||||||
Stock issued as compensation in lieu of cash | 10,160 | 144 | 144 | ||||||||||||||||||||||||
Stock issued under equity incentive plan | 431,250 | 5 | 2,772 | 2,777 | |||||||||||||||||||||||
Balance at December 31, 2005 | 40,458,864 | $ | 405 | $ | 743,126 | $ | (172,405 | ) | $ | 26,627 | $ | 597,753 | |||||||||||||||
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52 Weeks | 52 Weeks | 53 Weeks | ||||||||||||
Ended | Ended | Ended | ||||||||||||
December 31, | January 1, | January 3, | ||||||||||||
2005 | 2005 | 2004 | ||||||||||||
CASH PROVIDED BY (APPLIED TO) | ||||||||||||||
Operations | ||||||||||||||
Net income | $ | 41,183 | $ | 9,349 | $ | 10,807 | ||||||||
(Income) loss from discontinued operations, net of tax | 1,678 | (12,913 | ) | (2,448 | ) | |||||||||
Items not affecting cash | ||||||||||||||
Depreciation and amortization | 44,598 | 42,093 | 40,222 | |||||||||||
Amortization of debt issue costs | 3,186 | 10,118 | 3,220 | |||||||||||
Insurance policy benefit reserves | 49,532 | 40,705 | 28,772 | |||||||||||
Provision for asset impairment | (1,379 | ) | 1,787 | 5,229 | ||||||||||
Loss (gain) on disposal of assets | (4,966 | ) | (3,530 | ) | 1,056 | |||||||||
Deferred income taxes | 13,860 | (5,126 | ) | (1,950 | ) | |||||||||
Premium on long-term debt repurchase | 282 | 32,450 | 1,266 | |||||||||||
Other, including net changes in other non-cash balances | (540 | ) | (10,653 | ) | 51,022 | |||||||||
Net cash provided by continuing operations | 147,434 | 104,280 | 137,196 | |||||||||||
Net cash provided by (used in) discontinued operations | (601 | ) | 15,309 | 18,579 | ||||||||||
146,833 | 119,589 | 155,775 | ||||||||||||
Investing | ||||||||||||||
Proceeds on disposition of business assets | 20,721 | 20,917 | 11,409 | |||||||||||
Purchase of property and equipment | (42,510 | ) | (37,183 | ) | (25,202 | ) | ||||||||
Purchase of insurance invested assets | (126,811 | ) | (138,346 | ) | (117,689 | ) | ||||||||
Proceeds on disposition and maturities of insurance invested assets | 79,647 | 86,763 | 78,059 | |||||||||||
Net cash used in continuing operations | (68,953 | ) | (67,849 | ) | (53,423 | ) | ||||||||
Net cash provided by discontinued operations | 7,908 | 108,975 | 23,710 | |||||||||||
(61,045 | ) | 41,126 | (29,713 | ) | ||||||||||
Financing | ||||||||||||||
Increase in long-term debt | 11,198 | 390,044 | 330,455 | |||||||||||
Repayment of long-term debt | (101,630 | ) | (582,608 | ) | (458,868 | ) | ||||||||
Issuance of Common Stock | 2,777 | 56 | 28 | |||||||||||
Net cash used in continuing operations | (87,655 | ) | (192,508 | ) | (128,385 | ) | ||||||||
Net cash used in discontinued operations | (57 | ) | (440 | ) | (2,177 | ) | ||||||||
(87,712 | ) | (192,948 | ) | (130,562 | ) | |||||||||
Decrease in cash and cash equivalents | (1,924 | ) | (32,233 | ) | (4,500 | ) | ||||||||
Cash and cash equivalents, beginning of year | 9,379 | 41,612 | 46,112 | |||||||||||
Cash and cash equivalents, end of year | $ | 7,455 | $ | 9,379 | $ | 41,612 | ||||||||
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NOTE 1. | NATURE OF OPERATIONS |
NOTE 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Fiscal year |
Basis of Presentation |
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Use of estimates |
Funeral operations |
Cemetery operations |
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Perpetual care trusts |
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Insurance operations |
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Cash and cash equivalents |
Inventories |
Consolidation of trusts |
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Cemetery property |
Property and equipment |
Buildings and improvements | 10 to 20 years for buildings and the shorter of 10 years or the lease term for leasehold improvements | |
Automobiles | 2 to 5 years | |
Furniture, fixtures and equipment | 5 to 10 years | |
Computer hardware and software | 3 to 6 years |
Goodwill and intangible assets |
Financial instruments |
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December 31, 2005 | January 1, 2005 | |||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
Amounts receivable from funeral trusts (see Note 3) | $ | 29,893 | $ | 29,893 | $ | 27,243 | $ | 27,243 | ||||||||
Long-term debt (see Note 6) | 373,475 | 380,475 | 463,640 | 480,682 | ||||||||||||
Derivative instruments (see Note 21) | 941 | 941 | 2,087 | 2,087 | ||||||||||||
$ | 404,309 | $ | 411,309 | $ | 492,970 | $ | 510,012 | |||||||||
Derivative Financial Instruments |
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Stock based compensation plans |
52 Weeks | 52 Weeks | 53 Weeks | |||||||||||
Ended | Ended | Ended | |||||||||||
December 31, | January 1, | January 3, | |||||||||||
2005 | 2005 | 2004 | |||||||||||
Net income, as reported | $ | 41,183 | $ | 9,349 | $ | 10,807 | |||||||
Total stock-based employee compensation expense determined under fair value-based method, net of tax | (2,805 | ) | (2,584 | ) | (2,479 | ) | |||||||
Pro forma net income | $ | 38,378 | $ | 6,765 | $ | 8,328 | |||||||
Net income per common share: | |||||||||||||
Basic, as reported | $ | 1.02 | $ | 0.23 | $ | 0.27 | |||||||
Basic, pro forma | 0.95 | 0.17 | 0.21 | ||||||||||
Diluted, as reported | 0.99 | 0.23 | 0.27 | ||||||||||
Diluted, pro forma | 0.92 | 0.16 | 0.21 |
Income taxes |
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Foreign currency translation |
Comparability |
Accounting changes and recent accounting standards |
Recent accounting standards |
NOTE 3. | PRE-NEED FUNERAL RECEIVABLES AND TRUST INVESTMENTS |
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December 31, | January 1, | |||||||
2005 | 2005 | |||||||
Customer receivables | $ | 38,438 | $ | 37,146 | ||||
Allowance for contract cancellations and refunds | (15,988 | ) | (17,287 | ) | ||||
Funeral trust investments | 282,084 | 288,928 | ||||||
Amounts receivable from funeral trusts | 29,893 | 27,243 | ||||||
Pre-need funeral receivables and trust investments | $ | 334,427 | $ | 336,030 | ||||
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December 31, | January 1, | |||||||||
2005 | 2005 | |||||||||
Available-for-sale | ||||||||||
Fixed income securities: | ||||||||||
U.S. Treasury and other Government obligations | $ | 22,724 | $ | 18,425 | ||||||
U.S. Government agencies | 13,145 | 11,683 | ||||||||
Corporate | 12,318 | 10,325 | ||||||||
Total bonds | 48,187 | 40,433 | ||||||||
Mortgaged-backed | 20,357 | 17,288 | ||||||||
Asset-backed | 2,920 | 1,500 | ||||||||
Total fixed income securities | 71,464 | 59,221 | ||||||||
Equity securities | 79,645 | 63,177 | ||||||||
Total available-for-sale | 151,109 | 122,398 | ||||||||
Restricted cash and cash equivalents | 101,598 | 131,105 | ||||||||
Other | 29,377 | 35,425 | ||||||||
Funeral trust investments | $ | 282,084 | $ | 288,928 | ||||||
Unrealized gains | $ | 11,709 | $ | 9,124 | ||||||
Unrealized losses | (4,758 | ) | (2,007 | ) |
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December 31, | ||||
2005 | ||||
Due in one year or less | $ | 769 | ||
Due in one to five years | 26,858 | |||
Due in five to ten years | 13,936 | |||
Thereafter | 29,901 | |||
$ | 71,464 | |||
NOTE 4. | PRE-NEED CEMETERY RECEIVABLES AND TRUST INVESTMENTS |
December 31, | January 1, | |||||||
2005 | 2005 | |||||||
Customer receivables | $ | 61,749 | $ | 64,130 | ||||
Unearned finance income | (6,232 | ) | (5,759 | ) | ||||
Allowance for contract cancellations and refunds | (15,648 | ) | (17,538 | ) | ||||
Cemetery merchandise and service trust investments | 267,453 | 270,821 | ||||||
$ | 307,322 | $ | 311,654 | |||||
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December 31, | January 1, | |||||||||
2005 | 2005 | |||||||||
Available-for-sale | ||||||||||
Fixed income securities: | ||||||||||
U.S. Treasury and other Government obligations | $ | 44,647 | $ | 49,773 | ||||||
U.S. Government agencies | 20,130 | 24,729 | ||||||||
Corporate | 21,081 | 19,990 | ||||||||
Total bonds | 85,858 | 94,492 | ||||||||
Mortgaged-backed | 36,826 | 34,792 | ||||||||
Asset-backed | 5,883 | 3,146 | ||||||||
Total fixed income securities | 128,567 | 132,430 | ||||||||
Equity securities | 100,069 | 99,845 | ||||||||
Total available-for-sale | 228,636 | 232,275 | ||||||||
Restricted cash and cash equivalents | 30,257 | 37,120 | ||||||||
Other | 8,560 | 1,426 | ||||||||
Cemetery trust investments | $ | 267,453 | $ | 270,821 | ||||||
Unrealized gains | $ | 13,709 | $ | 16,194 | ||||||
Unrealized losses | (6,341 | ) | (3,083 | ) |
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December 31, | ||||
2005 | ||||
Due in one year or less | $ | 1,099 | ||
Due in one to five years | 48,327 | |||
Due in five to ten years | 24,512 | |||
Thereafter | 54,629 | |||
$ | 128,567 | |||
End of | ||||
Fiscal Year | ||||
2006 | $ | 32,416 | ||
2007 | 15,070 | |||
2008 | 7,382 | |||
2009 | 3,778 | |||
2010 | 1,521 | |||
Thereafter | 1,582 | |||
$ | 61,749 | |||
NOTE 5. | CEMETERY PERPETUAL CARE TRUST INVESTMENTS |
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December 31, | January 1, | |||||||||
2005 | 2005 | |||||||||
Available-for-sale | ||||||||||
Fixed income securities: | ||||||||||
U.S. Treasury and other Government obligations | $ | 52,918 | $ | 36,871 | ||||||
U.S. Government agencies | 28,043 | 34,664 | ||||||||
Corporate | 35,346 | 38,433 | ||||||||
Total bonds | 116,307 | 109,968 | ||||||||
Mortgaged-backed | 63,548 | 74,707 | ||||||||
Asset-backed | 12,089 | 11,319 | ||||||||
Total fixed income securities | 191,944 | 195,994 | ||||||||
Equity securities | 28,158 | 27,673 | ||||||||
Total available-for-sale | 220,102 | 223,667 | ||||||||
Restricted cash and cash equivalents | 23,263 | 21,611 | ||||||||
Other | 440 | 774 | ||||||||
Cemetery perpetual care trust investments | $ | 243,805 | $ | 246,052 | ||||||
Unrealized gains | $ | 4,084 | $ | 5,271 | ||||||
Unrealized losses | (5,535 | ) | (2,344 | ) |
December 31, | ||||
2005 | ||||
Due in one year or less | $ | 1,196 | ||
Due in one to five years | 65,463 | |||
Due in five to ten years | 35,456 | |||
Thereafter | 89,829 | |||
$ | 191,944 | |||
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NOTE 6. | LONG-TERM DEBT |
December 31, 2005 | January 1, 2005 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Value | Value | Value | Value | |||||||||||||
Revolving credit facility(a) | $ | 4,000 | $ | 4,000 | $ | — | $ | — | ||||||||
Senior secured term loan B due in 2009(a)(b) | 161,683 | 161,683 | 246,826 | 246,826 | ||||||||||||
7.75% Senior unsecured notes due in 2012(c) | 200,000 | 207,000 | 200,000 | 216,760 | ||||||||||||
12.25% Senior unsecured notes due in 2009(d) | — | — | 4,509 | 4,791 | ||||||||||||
Promissory notes and capitalized obligations, certain of which are secured by assets of certain subsidiaries | 7,792 | 7,792 | 12,305 | 12,305 | ||||||||||||
373,475 | 380,475 | 463,640 | 480,682 | |||||||||||||
Less, current maturities of long-term debt | 2,435 | 2,435 | 9,083 | 9,365 | ||||||||||||
$ | 371,040 | $ | 378,040 | $ | 454,557 | $ | 471,317 | |||||||||
(a) | In 2003, the Company entered into a senior secured facility (the “Credit Agreement”), which after subsequent amendments, includes a $368,000,000 Senior Secured Term Loan B due September 29, 2009 (the “Term Loan B”) and a $75,000,000 revolving credit facility (the “Revolving Credit Facility”), of which $35,000,000 is available in the form of letters of credit. | |
The Revolving Credit Facility is intended to be used primarily to fund the Company’s working capital requirements. The Revolving Credit Facility bears interest at a rate per annum in accordance with graduated pricing based upon the Company’s consolidated leverage ratio, and the Company has the option to elect an interest rate equal to either (i) a base rate (7.25% at December 31, 2005), plus 1.75% (based upon the Company’s consolidated leverage ratio at December 31, 2005), or (ii) LIBOR (4.54% for the three-month LIBOR at December 31, 2005), plus 2.75% (based upon the Company’s consolidated leverage ratio at December 31, 2005). An annual fee of 0.50% is charged on the unused portion of the Revolving Credit Facility. The Revolving Credit Facility matures on September 29, 2008. | ||
Material covenants in the Credit Agreement include a requirement to maintain a minimum interest coverage ratio and fixed charge coverage ratio, a requirement not to exceed a maximum leverage ratio, an annual maximum on capital expenditures and cemetery development, and specified maximum amounts for capital lease obligations, indebtedness, acquisitions, certain investments, and sales of accounts receivable. Outstanding principal amounts and interest accrued and unpaid may, at the election of the requisite lenders, become immediately due and payable and further commitments by the lenders to make loans may, at the election of the requisite lenders, be terminated upon the occurrence of events of default specified in the Credit Agreement. As of December 31, 2005, the Company was in compliance with all covenants and was not in breach of any provision of the Credit Agreement that would cause an event of default to occur. The Credit Agreement is secured by specified real property, and substantially all personal property of Alderwoods Group and specified subsidiaries. | ||
On March 18, 2005, Alderwoods Group, Inc. entered into an amendment to the Credit Agreement. The amendment modifies the Credit Agreement to provide Alderwoods Group, Inc. additional flexibility to introduce an employee stock purchase plan and other long-term incentive plans, increase |
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the letter of credit sub-limit under the Revolving Credit Facility to $35,000,000 from $25,000,000, and make certain other agreed upon changes. | ||
As of December 31, 2005, the amount available under the Revolving Credit Facility was $75,000,000, less $17,644,000 in outstanding letters of credit and a revolving credit facility balance of $4,000,000. | ||
(b) | The Term Loan B provides the Company with an option to elect an interest rate equal to either (i) a base rate (7.25% at December 31, 2005), plus 1.00%, or (ii) LIBOR (4.54% for the three-month LIBOR at December 31, 2005), plus 2.00%. The weighted average rate of interest was 6.31% at December 31, 2005. The Term Loan B is repayable in quarterly principal installments from December 31, 2005, to June 13, 2009 (subject to reduction for prepayments) of 0.25% of the aggregate principal amount of the Term Loan B outstanding as of December 3, 2004, with a lump sum payment of the then-outstanding amount on the maturity date. The Company has prepaid the required quarterly principal installments up to and including the first quarter of its 2007 fiscal year. | |
As a result of the amendment to the Credit Agreement on August 19, 2004, the Company expensed $1,164,000 of unamortized deferred finance costs, which is included in interest expense for the 52 weeks ended January 1, 2005. In addition, $3,280,000 of refinancing fees and costs incurred in connection with the Credit Agreement amendments on August 19, 2004, and December 3, 2004, is also included in interest expense for the 52 weeks ended January 1, 2005. | ||
(c) | On August 19, 2004, the Company issued the 7.75% Senior Unsecured Notes, due in 2012 (the “Eight-Year Senior Unsecured Notes”). Interest accrues at an annual rate of 7.75% and is payable semi-annually on March 15 and September 15 or, if such day is not a business day, the next succeeding business day. At any time prior to September 15, 2007, the Company may, at its option, redeem up to 35% of the aggregate principal amount of the Eight-Year Senior Unsecured Notes at a redemption price of 107.75% of the stated principal amount, plus accrued and unpaid interest and Liquidated Damages (as defined in the indenture governing the Eight-Year Senior Unsecured Notes), if any, with net cash proceeds from specified equity offerings, provided at least 65% of the aggregate principal amount of the Eight-Year Senior Unsecured Notes remains outstanding and the redemption occurs within 90 days of the date of the closing of the specified equity offering. On or after September 15, 2008, the Company may, at its option, redeem all or part of the Eight-Year Senior Unsecured Notes at the redemption prices (expressed as percentages of the stated principal amount) set forth below, plus accrued and unpaid interest and Liquidated Damages, if any, if redeemed during the twelve-month period beginning on September 15 of the years indicated below: |
Year | Percentage | |||
2008 | 103.875 | |||
2009 | 101.938 | |||
2010 and thereafter | 100.000 |
(d) | On January 2, 2002, the Company issued the 12.25% Senior Unsecured Notes, due 2009. On April 21, 2004, the Company repurchased the principal amount of $9,248,000 at a premium of $1,110,000, plus accrued interest. The premium is included in interest expense for the 52 weeks ended January 1, 2005. | |
On August 19, 2004, the Company repurchased the principal amount of $316,243,000 at a premium of $31,340,000, plus accrued interest pursuant to an offer to purchase and consent solicitation. The premium is included in interest expense for the 52 weeks ended January 1, 2005. | ||
On January 3, 2005, the Company repurchased the remaining principal amount of $4,509,000 at a premium of $282,000, plus accrued interest. The premium is included in interest expense for the 52 weeks ended December 31, 2005. |
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End of | ||||
Fiscal Year | ||||
2006 | $ | 2,435 | ||
2007 | 4,055 | |||
2008 | 7,618 | |||
2009 | 157,570 | |||
2010 | 184 | |||
Thereafter | 201,613 | |||
$ | 373,475 | |||
NOTE 7. | INSURANCE ACTIVITIES |
52 Weeks Ended | 52 Weeks Ended | 53 Weeks Ended | ||||||||||
December 31, | January 1, | January 3, | ||||||||||
2005 | 2005 | 2004 | ||||||||||
Premiums | $ | 81,943 | $ | 67,833 | $ | 52,251 | ||||||
Interest, dividend and other investment income | 13,036 | 10,560 | 8,753 | |||||||||
Realized investment gains | 26 | 1,731 | 123 | |||||||||
$ | 95,005 | $ | 80,124 | $ | 61,127 | |||||||
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December 31, | January 1, | |||||||||
2005 | 2005 | |||||||||
Available-for-sale | ||||||||||
Fixed income securities: | ||||||||||
U.S. Treasury and other Government obligations | $ | 37,378 | $ | 36,405 | ||||||
U.S. state and political subdivisions | 1,235 | 1,201 | ||||||||
Corporate | 114,715 | 107,981 | ||||||||
Total bonds | 153,328 | 145,587 | ||||||||
Collateralized mortgages | 66,455 | 47,490 | ||||||||
Mortgaged-backed | 56,028 | 45,385 | ||||||||
Asset-backed | 15,773 | 10,227 | ||||||||
Total available-for-sale | 291,584 | 248,689 | ||||||||
Cash and short-term investments | 2,917 | 2,004 | ||||||||
Other | 97 | 92 | ||||||||
Insurance invested assets | $ | 294,598 | $ | 250,785 | ||||||
Unrealized gains | $ | 6,435 | $ | 7,666 | ||||||
Unrealized losses | (3,239 | ) | 714 |
December 31, | January 1, | |||||||
2005 | 2005 | |||||||
Due in one year or less | $ | 10,502 | $ | 1,904 | ||||
Due in one to five years | 35,212 | 43,760 | ||||||
Due in five to ten years | 29,951 | 21,125 | ||||||
Thereafter | 77,663 | 78,798 | ||||||
$ | 153,328 | $ | 145,587 | |||||
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NOTE 8. | STOCKHOLDERS’ EQUITY |
Capital stock |
Stock Based Compensation Plans |
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Outstanding | Weighted Average | Outstanding Restricted | Weighted Average | |||||||||||||
Options | Exercise Price | Common Stock Units | Exercise Price | |||||||||||||
(thousands) | (dollars per | (thousands) | (dollars per | |||||||||||||
Common share) | Common share) | |||||||||||||||
Balance at December 28, 2002 | 3,470 | $ | 11.07 | — | $ | — | ||||||||||
Granted | 1,220 | 3.65 | — | — | ||||||||||||
Exercised | (4 | ) | 7.59 | — | — | |||||||||||
Cancelled | (501 | ) | 11.39 | — | — | |||||||||||
Balance at January 3, 2004 | 4,185 | 8.87 | — | — | ||||||||||||
Granted | 70 | 9.43 | — | — | ||||||||||||
Exercised | (10 | ) | 5.62 | — | — | |||||||||||
Cancelled | — | — | — | — | ||||||||||||
Balance at January 1, 2005 | 4,245 | 8.89 | — | — | ||||||||||||
Granted | 1,308 | 15.09 | 248 | 15.99 | ||||||||||||
Exercised | (431 | ) | 6.44 | — | — | |||||||||||
Cancelled | (91 | ) | 8.25 | (11 | ) | 15.99 | ||||||||||
Balance at December 31, 2005 | 5,031 | $ | 10.75 | 237 | $ | 15.99 | ||||||||||
Number | ||||||||||||||||||||
Weighted-Average | Exercisable | |||||||||||||||||||
Range of | Number | Remaining | Weighted-Average | Common | Weighted-Average | |||||||||||||||
Exercise Prices | Outstanding | Contractual Life | Exercise Price | share | Exercise Price | |||||||||||||||
(dollars per Common share) | (thousands) | (in years) | (dollars per | (thousands) | (dollars per | |||||||||||||||
Common share) | Common share) | |||||||||||||||||||
$ 3.65 – $ 5.96 | 919 | 7.24 | $ | 3.65 | 459 | $ | 3.65 | |||||||||||||
$ 5.97 – $ 7.59 | 1,035 | 6.48 | 7.47 | 1,035 | 7.47 | |||||||||||||||
$ 7.60 – $13.23 | 2,049 | 6.59 | 12.95 | 1,750 | 13.19 | |||||||||||||||
$13.24 – $15.99 | 1,028 | 9.57 | 15.99 | — | — | |||||||||||||||
5,031 | 3,244 | |||||||||||||||||||
December 31, | January 1, | January 3, | ||||||||||
Weighted-average assumptions | 2005 | 2005 | 2004 | |||||||||
Dividend yield | 0.0 | % | 0.0 | % | 0.0 | % | ||||||
Expected volatility | 45.0 | % | 41.5 | % | 32.9 | % | ||||||
Risk-free interest rate | 3.64 | % | 1.93 | % | 3.1 | % | ||||||
Expected option life in years | 5 | 3 | 3 |
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NOTE 9. | LEGAL CONTINGENCIES |
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NOTE 10. | COMMITMENTS AND CONTINGENCIES |
Leases |
Premises | Automobiles | Other | Total | |||||||||||||
2006 | $ | 6,608 | $ | 789 | $ | 432 | $ | 7,829 | ||||||||
2007 | 5,054 | 385 | 264 | 5,703 | ||||||||||||
2008 | 4,131 | 99 | 108 | 4,338 | ||||||||||||
2009 | 3,611 | 24 | 2 | 3,637 | ||||||||||||
2010 | 3,036 | 13 | — | 3,049 | ||||||||||||
Thereafter | 15,026 | — | — | 15,026 |
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Environmental contingencies and liabilities |
NOTE 11. | INCOME TAXES |
52 Weeks Ended | 52 Weeks Ended | 53 Weeks Ended | |||||||||||
December 31, | January 1, | January 3, | |||||||||||
2005 | 2005 | 2004 | |||||||||||
Current: | |||||||||||||
United States | $ | (11,011 | ) | $ | (3,243 | ) | $ | (5,575 | ) | ||||
Foreign | (117 | ) | 319 | 386 | |||||||||
State and local | 2,083 | 6,597 | 654 | ||||||||||
(9,045 | ) | 3,673 | (4,535 | ) | |||||||||
Deferred: | |||||||||||||
United States | 7,535 | (1,380 | ) | (1,950 | ) | ||||||||
Foreign | 2,393 | (31 | ) | — | |||||||||
State and local | 3,932 | (3,715 | ) | — | |||||||||
13,860 | (5,126 | ) | (1,950 | ) | |||||||||
Total provision | $ | 4,815 | $ | (1,453 | ) | $ | (6,485 | ) | |||||
52 Weeks Ended | 52 Weeks Ended | 53 Weeks Ended | ||||||||||
December 31, | January 1, | January 3, | ||||||||||
2005 | 2005 | 2004 | ||||||||||
United States | $ | 38,839 | $ | 7,372 | $ | 632 | ||||||
Foreign | 7,425 | 7,011 | 8,112 | |||||||||
$ | 46,264 | $ | 14,383 | $ | 8,744 | |||||||
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52 Weeks | 52 Weeks | 53 Weeks | ||||||||||
Ended | Ended | Ended | ||||||||||
December 31, 2005 | January 1, 2005 | January 3, 2004 | ||||||||||
U.S. Federal statutory tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
State and local taxes | 4.9 | (54.9 | ) | 23.7 | ||||||||
Non-deductible or non-taxable amounts, change in valuation allowance and other | 2.9 | (73.2 | ) | (0.5 | ) | |||||||
Favourable resolution of tax uncertainties | (31.8 | ) | 120.8 | (293.2 | ) | |||||||
Effective income tax rate | 11.0 | % | 27.7 | % | (235.0 | )% | ||||||
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December 31, | January 1, | |||||||||
2005 | 2005 | |||||||||
Deferred tax assets | ||||||||||
Receivables | $ | 6,817 | $ | 11,297 | ||||||
Cemetery property | 55,163 | 57,195 | ||||||||
Accounts payable and accrued liabilities | 13,577 | 14,239 | ||||||||
Pre-need funeral and cemetery obligations | 180,801 | 195,749 | ||||||||
Insurance policy liabilities | 15,172 | 11,828 | ||||||||
Covenants not to compete | 8,057 | 9,814 | ||||||||
Deferred agency costs | 11,665 | 15,349 | ||||||||
Operating loss carryforwards | 90,686 | 91,855 | ||||||||
Capital loss carryforwards | 235,911 | 234,281 | ||||||||
Other | 621 | 4,896 | ||||||||
Total deferred tax assets before valuation allowance | 618,470 | 646,503 | ||||||||
Valuation allowance | (401,350 | ) | (427,364 | ) | ||||||
Total deferred tax assets after valuation allowance | 217,120 | 219,139 | ||||||||
Deferred tax liabilities | ||||||||||
Property and equipment | 28,115 | 33,374 | ||||||||
Pre-need funeral receivables and trust investments | 103,548 | 113,534 | ||||||||
Pre-need cemetery receivables and trust investments | 51,250 | 55,104 | ||||||||
Insurance invested assets | 1,304 | 2,433 | ||||||||
Goodwill | 25,771 | 20,203 | ||||||||
Other | 4,627 | 6,687 | ||||||||
Total deferred tax liabilities | 214,615 | 231,335 | ||||||||
Net deferred tax assets (liabilities) of continuing operations | $ | 2,505 | $ | (12,196 | ) | |||||
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End of | ||||
Fiscal Year | ||||
2006 | $ | 5,359 | ||
2007 | 4,198 | |||
2008 | 4,907 | |||
2009 | 20,194 | |||
2010 | 4,348 | |||
Thereafter | 628,316 | |||
$ | 667,322 | |||
NOTE 12. | RETIREMENT PLANS |
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NOTE 13. | SUPPLEMENTARY STATEMENTS OF CASH FLOWS DISCLOSURE |
52 Weeks | 53 Weeks | |||||||||||||
52 Weeks Ended | Ended | Ended | ||||||||||||
December 31, 2005 | January 1, 2005 | January 3, 2004 | ||||||||||||
Decrease (increase) in assets: | ||||||||||||||
Receivables, net of allowances | ||||||||||||||
Trade | $ | 19,783 | $ | (2,387 | ) | $ | (6,775 | ) | ||||||
Other | (4,766 | ) | (5,823 | ) | 18,325 | |||||||||
Inventories | 937 | 837 | 1,515 | |||||||||||
Prepaid expenses | 19,630 | (657 | ) | (2,283 | ) | |||||||||
Cemetery property | (9,614 | ) | (10,241 | ) | (3,276 | ) | ||||||||
Other assets | (5,650 | ) | (18,932 | ) | (12,535 | ) | ||||||||
Increase (decrease) in liabilities: | ||||||||||||||
Accounts payable and accrued liabilities | (25,845 | ) | (14,146 | ) | (7,296 | ) | ||||||||
Net effect of pre-need receivables and deferred revenue | 8,820 | 35,528 | 52,425 | |||||||||||
Other liabilities | (2,131 | ) | 6,494 | (2,760 | ) | |||||||||
Insurance policy liabilities | 2,452 | 1,831 | 5,811 | |||||||||||
Other changes in non-cash balances | (4,156 | ) | (3,157 | ) | 7,871 | |||||||||
$ | (540 | ) | $ | (10,653 | ) | $ | 51,022 | |||||||
Supplemental information: | ||||||||||||||
Interest paid | $ | 29,443 | $ | 53,918 | $ | 77,290 | ||||||||
Income taxes paid, net of refunds | 3,915 | 6,837 | (7,109 | ) | ||||||||||
Long-term debt issue costs paid | 965 | 12,094 | 10,908 | |||||||||||
Bad debt expense | 3,211 | 3,722 | 3,661 | |||||||||||
Non-cash investing and financing activities: | ||||||||||||||
Stock issued in connection with the settlement of certain unsecured claims | — | 31 | 107 | |||||||||||
Stock issued as compensation in lieu of cash | 144 | 173 | 105 | |||||||||||
Capital leases entered into | — | — | 160 | |||||||||||
Restricted cash investing and financing activities: | ||||||||||||||
Purchases of funeral, cemetery, and perpetual care trust investments | $ | 539,161 | $ | 356,254 | $ | — | ||||||||
Proceeds on disposition and maturities of funeral, and cemetery, and perpetual care trust investments | 490,658 | 375,191 | — | |||||||||||
Increase in non-controlling interests in funeral, cemetery and perpetual care trusts | 59,763 | 50,602 | — | |||||||||||
Decrease in non-controlling interests in funeral, cemetery and perpetual care trusts | 110,782 | 81,575 | — |
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NOTE 14. | SUPPLEMENTARY FINANCIAL INFORMATION |
December 31, | January 1, | ||||||||
2005 | 2005 | ||||||||
Receivables, net of allowances: | |||||||||
Customer receivables | $ | 50,459 | $ | 68,721 | |||||
Allowance for doubtful accounts | (10,320 | ) | (12,029 | ) | |||||
Other | 12,723 | 9,753 | |||||||
$ | 52,862 | $ | 66,445 | ||||||
Cemetery property: | |||||||||
Developed land and lawn crypts | $ | 38,368 | $ | 37,623 | |||||
Undeveloped land | 31,243 | 30,685 | |||||||
Mausoleums | 46,856 | 50,734 | |||||||
$ | 116,467 | $ | 119,042 | ||||||
Property and equipment: | |||||||||
Land | $ | 162,287 | $ | 166,252 | |||||
Buildings and improvements | 386,068 | 368,501 | |||||||
Automobiles | 10,652 | 13,013 | |||||||
Furniture, fixtures and equipment | 69,570 | 54,432 | |||||||
Computer hardware and software | 29,061 | 23,311 | |||||||
Accumulated depreciation | (114,737 | ) | (85,254 | ) | |||||
$ | 542,901 | $ | 540,255 | ||||||
Other assets: | |||||||||
Intangible assets | $ | 18,741 | $ | 15,060 | |||||
Deferred finance costs | 23,359 | 22,411 | |||||||
Accumulated amortization | (15,258 | ) | (12,222 | ) | |||||
Notes receivable | 3,016 | 2,696 | |||||||
Other | 12,992 | 9,137 | |||||||
$ | 42,850 | $ | 37,082 | ||||||
Accounts payable and accrued liabilities: | |||||||||
Bank overdraft. | $ | 7,191 | $ | 7,209 | |||||
Trade payables | 13,634 | 19,847 | |||||||
Interest | 5,169 | 7,210 | |||||||
Accrued liabilities | 21,629 | 32,423 | |||||||
Accrued insurance | 21,261 | 18,058 | |||||||
Accrued taxes | 32,199 | 44,785 | |||||||
Other | 18,651 | 11,130 | |||||||
$ | 119,734 | $ | 140,662 | ||||||
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December 31, | January 1, | ||||||||
2005 | 2005 | ||||||||
Deferred pre-need contract revenue: | |||||||||
Funeral | $ | 72,087 | $ | 69,098 | |||||
Cemetery | 19,531 | 13,873 | |||||||
$ | 91,618 | $ | 82,971 | ||||||
Other liabilities: | |||||||||
Perpetual care liability | $ | 7,860 | $ | 7,490 | |||||
Notes payable | 12,104 | 12,667 | |||||||
Other | 2,019 | 1,797 | |||||||
$ | 21,983 | $ | 21,954 | ||||||
52 Weeks Ended | 52 Weeks Ended | 53 Weeks Ended | ||||||||||||
December 31, 2005 | January 1, 2005 | January 3, 2004 | ||||||||||||
Other expense (income), net: | ||||||||||||||
For funeral, cemetery and perpetual care trust investments: | ||||||||||||||
Realized gains | $ | (14,715 | ) | $ | (15,748 | ) | $ | — | ||||||
Realized losses | 9,660 | 10,009 | — | |||||||||||
Interest and dividend income | (26,707 | ) | (24,915 | ) | — | |||||||||
Trust investment expenses and income taxes | 5,036 | 5,169 | — | |||||||||||
Interest expense related to non-controlling interest in funeral and cemetery trusts | 15,803 | 18,335 | — | |||||||||||
Non-controlling interest in perpetual care trusts | 10,923 | 7,150 | — | |||||||||||
(Gain) loss on disposal of business and other assets | (4,964 | ) | (3,529 | ) | 1,056 | |||||||||
Other | 302 | 2,367 | 3,000 | |||||||||||
$ | (4,662 | ) | $ | (1,162 | ) | $ | 4,056 | |||||||
NOTE 15. | GOODWILL |
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52 Weeks Ended | 52 Weeks Ended | |||||||
December 31, 2005 | January 1, 2005 | |||||||
Balance, beginning of year | $ | 321,134 | $ | 320,640 | ||||
Reduction in valuation allowance against deferred tax assets established at time of emergence from reorganization proceedings | (19,535 | ) | — | |||||
Reduction in deferred tax liability established at time of emergence from reorganization proceedings | (5,683 | ) | — | |||||
Effect of foreign currency and other | (26 | ) | 494 | |||||
Balance, end of year | $ | 295,890 | $ | 321,134 | ||||
NOTE 16. | SEGMENT REPORTING |
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Funeral | Cemetery | Insurance | Other | Consolidated | |||||||||||||||||
Revenue earned from external sales: | |||||||||||||||||||||
52 weeks ended December 31, 2005 | $ | 479,799 | $ | 174,110 | $ | 95,005 | $ | — | $ | 748,914 | |||||||||||
52 weeks ended January 1, 2005 | $ | 472,935 | $ | 164,052 | $ | 80,124 | $ | — | $ | 717,111 | |||||||||||
53 weeks ended January 3, 2004 | $ | 491,611 | $ | 168,024 | $ | 61,127 | $ | — | $ | 720,762 | |||||||||||
Income from operations: | |||||||||||||||||||||
52 weeks ended December 31, 2005 | $ | 87,280 | $ | 23,550 | $ | 5,068 | $ | (42,815 | ) | $ | 73,083 | ||||||||||
52 weeks ended January 1, 2005 | $ | 94,640 | $ | 23,768 | $ | 4,710 | $ | (51,218 | ) | $ | 71,900 | ||||||||||
53 weeks ended January 3, 2004 | $ | 110,529 | $ | 26,383 | $ | 1,752 | $ | (56,281 | ) | $ | 82,383 | ||||||||||
Depreciation: | |||||||||||||||||||||
52 weeks ended December 31, 2005 | $ | 24,864 | $ | 14,827 | $ | 148 | $ | 4,759 | $ | 44,598 | |||||||||||
52 weeks ended January 1, 2005 | $ | 24,283 | $ | 14,062 | $ | 166 | $ | 3,582 | $ | 42,093 | |||||||||||
53 weeks ended January 3, 2004 | $ | 24,194 | $ | 13,364 | $ | 139 | $ | 2,525 | $ | 40,222 | |||||||||||
Total assets: | |||||||||||||||||||||
December 31, 2005 | $ | 1,107,916 | $ | 807,673 | $ | 326,160 | $ | 32,554 | $ | 2,274,303 | |||||||||||
January 1, 2005 | $ | 1,154,019 | $ | 878,350 | $ | 272,823 | $ | 67,235 | $ | 2,372,427 | |||||||||||
January 3, 2004 | $ | 1,218,974 | $ | 668,357 | $ | 481,622 | $ | 84,050 | $ | 2,453,003 | |||||||||||
Goodwill: | |||||||||||||||||||||
December 31, 2005 | $ | 295,890 | $ | — | $ | — | $ | — | $ | 295,890 | |||||||||||
January 1, 2005 | $ | 321,134 | $ | — | $ | — | $ | — | $ | 321,134 | |||||||||||
Purchase of property and equipment: | |||||||||||||||||||||
52 weeks ended December 31, 2005 | $ | 25,715 | $ | 5,477 | $ | 105 | $ | 11,213 | $ | 42,510 | |||||||||||
52 weeks ended January 1, 2005 | $ | 23,273 | $ | 3,362 | $ | 74 | $ | 10,474 | $ | 37,183 | |||||||||||
53 weeks ended January 3, 2004 | $ | 18,640 | $ | 2,292 | $ | 183 | $ | 4,087 | $ | 25,202 | |||||||||||
Development of cemetery property: | |||||||||||||||||||||
52 weeks ended December 31, 2005 | $ | — | $ | 3,178 | $ | — | $ | — | $ | 3,178 | |||||||||||
52 weeks ended January 1, 2005 | $ | — | $ | 3,100 | $ | — | $ | — | $ | 3,100 | |||||||||||
53 weeks ended January 3, 2004 | $ | — | $ | 2,122 | $ | — | $ | — | $ | 2,122 |
52 Weeks Ended | 52 Weeks Ended | 53 Weeks Ended | |||||||||||
December 31, 2005 | January 1, 2005 | January 3, 2004 | |||||||||||
Earnings from operations of funeral, cemetery and insurance segments | $ | 115,898 | $ | 123,118 | $ | 138,664 | |||||||
Other expenses of operations: | |||||||||||||
General and administrative expenses | (42,815 | ) | (51,218 | ) | (56,281 | ) | |||||||
Income from operations | $ | 73,083 | $ | 71,900 | $ | 82,383 | |||||||
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December 31, 2005 | January 1, 2005 | January 3, 2004 | |||||||||||
Total assets of funeral, cemetery and insurance segments | $ | 2,241,749 | $ | 2,305,191 | $ | 2,368,953 | |||||||
“Other” assets includes: | |||||||||||||
Cash | 757 | 2,039 | 30,911 | ||||||||||
Receivables | 7,188 | 5,294 | 5,116 | ||||||||||
Prepaid expenses | 5,604 | 24,572 | 23,736 | ||||||||||
Property and equipment | 23,345 | 16,494 | 9,186 | ||||||||||
Other | (4,340 | ) | 18,837 | 15,101 | |||||||||
$ | 2,274,303 | $ | 2,372,427 | $ | 2,453,003 | ||||||||
52 Weeks Ended | 52 Weeks Ended | 53 Weeks Ended | |||||||||||
December 31, 2005 | January 1, 2005 | January 3, 2004 | |||||||||||
Revenue: | |||||||||||||
United States | $ | 685,429 | $ | 660,470 | $ | 665,488 | |||||||
Canada | 63,485 | 56,641 | 55,274 | ||||||||||
$ | 748,914 | $ | 717,111 | $ | 720,762 | ||||||||
December 31, | January 1, | January 3, | |||||||||||
2005 | 2005 | 2004 | |||||||||||
Property and equipment and cemetery property: | |||||||||||||
United States | $ | 564,303 | $ | 573,280 | $ | 592,057 | |||||||
Canada | 95,065 | 86,017 | 74,625 | ||||||||||
$ | 659,368 | $ | 659,297 | $ | 666,682 | ||||||||
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NOTE 17. | CONDENSED CONSOLIDATING GUARANTOR FINANCIAL INFORMATION |
December 31, 2005 | ||||||||||||||||||||||
Parent | Non- | Consolidating | Consolidated | |||||||||||||||||||
Company | Guarantors | Guarantors | Adjustments | Totals | ||||||||||||||||||
ASSETS | ||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 4,034 | $ | 3,421 | $ | — | $ | 7,455 | ||||||||||||
Other current assets | 1,964 | 60,070 | 13,497 | — | 75,531 | |||||||||||||||||
Pre-need funeral receivables and trust investments | — | 260,915 | 285,617 | (212,105 | ) | 334,427 | ||||||||||||||||
Pre-need cemetery receivables and trust investments | — | 287,522 | 273,732 | (253,932 | ) | 307,322 | ||||||||||||||||
Cemetery property and property and equipment | — | 549,860 | 109,508 | — | 659,368 | |||||||||||||||||
Insurance invested assets | — | — | 294,598 | — | 294,598 | |||||||||||||||||
Goodwill | — | 247,160 | 48,730 | — | 295,890 | |||||||||||||||||
Investment in subsidiaries | 1,075,366 | (91,898 | ) | — | (983,468 | ) | — | |||||||||||||||
Cemetery perpetual care trust investment | — | 464 | 243,341 | — | 243,805 | |||||||||||||||||
Other assets | 8,101 | 17,367 | 30,439 | — | 55,907 | |||||||||||||||||
Total assets | $ | 1,085,431 | $ | 1,335,494 | $ | 1,302,883 | $ | (1,449,505 | ) | $ | 2,274,303 | |||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||
Current liabilities | $ | 39,333 | $ | 73,597 | $ | 6,804 | $ | — | $ | 119,734 | ||||||||||||
Current maturities of long-term debt | — | 2,412 | 23 | — | 2,435 | |||||||||||||||||
Intercompany, net of investments in and advances to affiliates | 82,643 | (260,549 | ) | 177,906 | — | — | ||||||||||||||||
Long-term debt | 365,683 | 5,357 | — | — | 371,040 | |||||||||||||||||
Deferred pre-need funeral and cemetery contract revenue and non-controlling interest in funeral and cemetery trusts | — | 533,061 | 573,091 | (466,037 | ) | 640,115 | ||||||||||||||||
Insurance policy liabilities | — | — | 266,729 | — | 266,729 | |||||||||||||||||
Other liabilities | 19 | 20,040 | 12,476 | — | 32,535 | |||||||||||||||||
Non-controlling interest in perpetual care trusts | — | — | 243,962 | — | 243,962 | |||||||||||||||||
Stockholders’ equity | 597,753 | 961,576 | 21,892 | (983,468 | ) | 597,753 | ||||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,085,431 | $ | 1,335,494 | $ | 1,302,883 | $ | (1,449,505 | ) | $ | 2,274,303 | |||||||||||
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January 1, 2005 | ||||||||||||||||||||||
Parent | Non- | Consolidating | Consolidated | |||||||||||||||||||
Company | Guarantors | Guarantors | Adjustments | Totals | ||||||||||||||||||
ASSETS | ||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 6,385 | $ | 2,994 | $ | — | $ | 9,379 | ||||||||||||
Other current assets | — | 98,759 | 12,038 | — | 110,797 | |||||||||||||||||
Assets held for sale | — | 31,695 | 72,649 | (22,288 | ) | 82,056 | ||||||||||||||||
Pre-need funeral receivables and trust investments | — | 261,568 | 292,069 | (217,607 | ) | 336,030 | ||||||||||||||||
Pre-need cemetery receivables and trust investments | — | 283,435 | 271,003 | (242,784 | ) | 311,654 | ||||||||||||||||
Cemetery property and property and equipment | — | 557,671 | 101,626 | — | 659,297 | |||||||||||||||||
Insurance invested assets | — | — | 250,785 | — | 250,785 | |||||||||||||||||
Goodwill | — | 274,691 | 46,443 | — | 321,134 | |||||||||||||||||
Investment in subsidiaries | 995,959 | (93,014 | ) | — | (902,945 | ) | — | |||||||||||||||
Cemetery perpetual care trust investment | — | 827 | 245,225 | — | 246,052 | |||||||||||||||||
Other assets | 10,339 | 15,926 | 18,978 | — | 45,243 | |||||||||||||||||
Total assets | $ | 1,006,298 | $ | 1,437,943 | $ | 1,313,810 | $ | (1,385,624 | ) | $ | 2,372,427 | |||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||
Current liabilities | $ | 42,827 | $ | 84,062 | $ | 13,773 | $ | — | $ | 140,662 | ||||||||||||
Current maturities of long-term debt | 4,509 | 2,838 | 1,736 | — | 9,083 | |||||||||||||||||
Intercompany, net of investments in and advances to affiliates | (43,792 | ) | (131,602 | ) | 175,394 | — | — | |||||||||||||||
Liabilities associated with assets held for sale | — | 24,515 | 59,201 | (22,288 | ) | 61,428 | ||||||||||||||||
Long-term debt | 446,826 | 7,708 | 23 | — | 454,557 | |||||||||||||||||
Deferred pre-need funeral and cemetery contract revenue and non-controlling interest in funeral and cemetery trusts | — | 521,111 | 575,868 | (460,391 | ) | 636,588 | ||||||||||||||||
Insurance policy liabilities | — | — | 214,745 | — | 214,745 | |||||||||||||||||
Other liabilities | 16 | 29,410 | 12,885 | — | 42,311 | |||||||||||||||||
Non-controlling interest in perpetual care trusts | — | — | 257,141 | — | 257,141 | |||||||||||||||||
Stockholders’ equity | 555,912 | 899,901 | 3,044 | (902,945 | ) | 555,912 | ||||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,006,298 | $ | 1,437,943 | $ | 1,313,810 | $ | (1,385,624 | ) | $ | 2,372,427 | |||||||||||
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52 Weeks Ended December 31, 2005 | |||||||||||||||||||||
Parent | Non- | Consolidating | Consolidated | ||||||||||||||||||
Company | Guarantors | Guarantors | Adjustments | Totals | |||||||||||||||||
Revenues | $ | — | $ | 565,211 | $ | 183,703 | $ | — | $ | 748,914 | |||||||||||
Costs and expenses | — | 470,250 | 164,145 | — | 634,395 | ||||||||||||||||
General and administrative expenses | (1,996 | ) | (13,985 | ) | 58,796 | — | 42,815 | ||||||||||||||
Provision for asset impairment | — | (1,008 | ) | (371 | ) | — | (1,379 | ) | |||||||||||||
Income (loss) from operations | 1,996 | 109,954 | (38,867 | ) | — | 73,083 | |||||||||||||||
Interest on long-term debt | 29,510 | 688 | (129 | ) | — | 30,069 | |||||||||||||||
Intercompany charges | 16,286 | 32,039 | (48,325 | ) | — | — | |||||||||||||||
Other expense (income), net | — | (5,480 | ) | 818 | — | (4,662 | ) | ||||||||||||||
Income (loss) before income taxes | (43,800 | ) | 82,707 | 8,769 | — | 47,676 | |||||||||||||||
Income taxes | (3,246 | ) | 16,088 | (8,027 | ) | — | 4,815 | ||||||||||||||
Net income (loss) from continuing operations | (40,554 | ) | 66,619 | 16,796 | — | 42,861 | |||||||||||||||
Equity in subsidiaries | 81,737 | (2,210 | ) | — | (79,527 | ) | — | ||||||||||||||
Discontinued operations | |||||||||||||||||||||
Loss from discontinued operations | — | (1,247 | ) | (165 | ) | — | (1,412 | ) | |||||||||||||
Income taxes | — | (2 | ) | 268 | — | 266 | |||||||||||||||
Net loss from discontinued operations | — | (1,245 | ) | (433 | ) | — | (1,678 | ) | |||||||||||||
Net income | $ | 41,183 | $ | 63,164 | $ | 16,363 | $ | (79,527 | ) | $ | 41,183 | ||||||||||
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52 Weeks Ended January 1, 2005 | |||||||||||||||||||||
Parent | Non- | Consolidating | Consolidated | ||||||||||||||||||
Company | Guarantors | Guarantors | Adjustments | Totals | |||||||||||||||||
Revenues | $ | — | $ | 554,520 | $ | 162,591 | $ | — | $ | 717,111 | |||||||||||
Costs and expenses | — | 449,833 | 142,373 | — | 592,206 | ||||||||||||||||
General and administrative expenses | (362 | ) | 2,592 | 48,988 | — | 51,218 | |||||||||||||||
Provision for asset impairment | — | 1,283 | 504 | — | 1,787 | ||||||||||||||||
Income (loss) from operations | 362 | 100,812 | (29,274 | ) | — | 71,900 | |||||||||||||||
Interest on long-term debt | 80,264 | 1,222 | 223 | (3,630 | ) | 78,079 | |||||||||||||||
Intercompany charges | 11,321 | 22,909 | (34,230 | ) | — | — | |||||||||||||||
Other expense (income), net | — | (1,565 | ) | 403 | — | (1,162 | ) | ||||||||||||||
Income (loss) before income taxes | (91,223 | ) | 78,246 | 4,330 | 3,630 | (5,017 | ) | ||||||||||||||
Income taxes | (5,848 | ) | 2,345 | 2,050 | — | (1,453 | ) | ||||||||||||||
Net income (loss) from continuing operations | (85,375 | ) | 75,901 | 2,280 | 3,630 | (3,564 | ) | ||||||||||||||
Equity in subsidiaries | 94,724 | (4,116 | ) | — | (90,608 | ) | — | ||||||||||||||
Discontinued operations | |||||||||||||||||||||
Income from discontinued operations | — | 341 | 22,689 | (3,630 | ) | 19,400 | |||||||||||||||
Income taxes | — | — | 6,487 | — | 6,487 | ||||||||||||||||
Net income from discontinued operations | — | 341 | 16,202 | (3,630 | ) | 12,913 | |||||||||||||||
Net income | $ | 9,349 | $ | 72,126 | $ | 18,482 | $ | (90,608 | ) | $ | 9,349 | ||||||||||
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53 Weeks Ended January 3, 2004 | |||||||||||||||||||||
Parent | Non- | Consolidating | Consolidated | ||||||||||||||||||
Company | Guarantors | Guarantors | Adjustments | Totals | |||||||||||||||||
Revenues | �� | $ | — | $ | 575,817 | $ | 144,945 | $ | — | 720,762 | |||||||||||
Costs and expenses | — | 450,859 | 126,010 | — | 576,869 | ||||||||||||||||
General and administrative expenses | (2,789 | ) | 12,180 | 46,890 | — | 56,281 | |||||||||||||||
Provision for asset impairment | — | 5,383 | (154 | ) | — | 5,229 | |||||||||||||||
Income (loss) from operations | 2,789 | 107,395 | (27,801 | ) | 82,383 | ||||||||||||||||
Interest on long-term debt | 65,051 | 11,499 | 1,281 | (1,378 | ) | 76,453 | |||||||||||||||
Intercompany charges | 20,308 | (71,062 | ) | 50,754 | — | — | |||||||||||||||
Other expense (income), net | — | 1,995 | 2,061 | — | 4,056 | ||||||||||||||||
Income (loss) before income taxes | (82,570 | ) | 164,963 | (81,897 | ) | 1,378 | 1,874 | ||||||||||||||
Income taxes | (8,162 | ) | 179 | 1,498 | — | (6,485 | ) | ||||||||||||||
Net income (loss) from continuing operations | (74,408 | ) | 164,784 | (83,395 | ) | 1,378 | 8,359 | ||||||||||||||
Equity in subsidiaries | 85,215 | 905 | — | (86,120 | ) | — | |||||||||||||||
Discontinued operations | |||||||||||||||||||||
Income (loss) from discontinued operations | — | (11,300 | ) | 19,548 | (1,378 | ) | 6,870 | ||||||||||||||
Income taxes | — | — | 4,422 | — | 4,422 | ||||||||||||||||
Net income (loss) from discontinued operations | — | (11,300 | ) | 15,126 | (1,378 | ) | 2,448 | ||||||||||||||
Net income (loss) | $ | 10,807 | $ | 154,389 | $ | (68,269 | ) | $ | (86,120 | ) | $ | 10,807 | |||||||||
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52 Weeks Ended December 31, 2005 | ||||||||||||||||||||
Parent | Non- | Consolidating | Consolidated | |||||||||||||||||
Company | Guarantors | Guarantors | Adjustments | Totals | ||||||||||||||||
CASH PROVIDED BY (APPLIED TO) | ||||||||||||||||||||
Cash flows from operating activities of continuing operations | $ | 83,157 | $ | 148 | $ | 64,129 | $ | — | $ | 147,434 | ||||||||||
Cash flows from operating activities of discontinued operations | — | 795 | (1,396 | ) | — | (601 | ) | |||||||||||||
Cash flows from investing activities of continuing operations | — | (6,587 | ) | (62,366 | ) | — | (68,953 | ) | ||||||||||||
Cash flows from investing activities of discontinued operations | — | 6,128 | 1,780 | — | 7,908 | |||||||||||||||
Cash flows from financing activities of continuing operations | (83,157 | ) | (2,826 | ) | (1,672 | ) | — | (87,655 | ) | |||||||||||
Cash flows from financing activities of discontinued operations | — | (9 | ) | (48 | ) | — | (57 | ) | ||||||||||||
Increase (decrease) in cash and cash equivalents | — | (2,351 | ) | 427 | — | (1,924 | ) | |||||||||||||
Cash and cash equivalents, beginning of period | — | 6,385 | 2,994 | — | 9,379 | |||||||||||||||
Cash and cash equivalents, end of period | $ | — | $ | 4,034 | $ | 3,421 | $ | — | $ | 7,455 | ||||||||||
52 Weeks Ended January 1, 2005 | ||||||||||||||||||||
Parent | Non- | Consolidating | Consolidated | |||||||||||||||||
Company | Guarantors | Guarantors | Adjustments | Totals | ||||||||||||||||
CASH PROVIDED BY (APPLIED TO) | ||||||||||||||||||||
Cash flows from operating activities of continuing operations | $ | 116,629 | $ | (57,133 | ) | $ | 41,154 | $ | 3,630 | $ | 104,280 | |||||||||
Cash flows from operating activities of discontinued operations | — | 16,975 | 5,943 | (7,609 | ) | 15,309 | ||||||||||||||
Cash flows from investing activities of continuing operations | 65,000 | (4,088 | ) | (63,761 | ) | (65,000 | ) | (67,849 | ) | |||||||||||
Cash flows from investing activities of discontinued operations | — | 29,070 | 79,905 | — | 108,975 | |||||||||||||||
Cash flows from financing activities of continuing operations | (181,629 | ) | (14,355 | ) | (65,503 | ) | 68,979 | (192,508 | ) | |||||||||||
Cash flows from financing activities of discontinued operations | — | (351 | ) | (89 | ) | — | (440 | ) | ||||||||||||
Decrease in cash and cash equivalents | — | (29,882 | ) | (2,351 | ) | — | (32,233 | ) | ||||||||||||
Cash and cash equivalents, beginning of period | — | 36,267 | 5,345 | — | 41,612 | |||||||||||||||
Cash and cash equivalents, end of period | $ | — | $ | 6,385 | $ | 2,994 | $ | — | $ | 9,379 | ||||||||||
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53 Weeks Ended January 3, 2004 | ||||||||||||||||||||
Parent | Non- | Consolidating | Consolidated | |||||||||||||||||
Company | Guarantors | Guarantors | Adjustments | Totals | ||||||||||||||||
CASH PROVIDED BY (APPLIED TO) | ||||||||||||||||||||
Cash flows from operating activities of continuing operations | $ | (19,653 | ) | $ | 142,116 | $ | 13,355 | $ | 1,378 | $ | 137,196 | |||||||||
Cash flows from operating activities of discontinued operations | — | 9,354 | 10,910 | (1,685 | ) | 18,579 | ||||||||||||||
Cash flows from investing activities of continuing operations | 10,000 | (11,428 | ) | (41,995 | ) | (10,000 | ) | (53,423 | ) | |||||||||||
Cash flows from investing activities of discontinued operations | — | 8,255 | 15,455 | — | 23,710 | |||||||||||||||
Cash flows from financing activities of continuing operations | 9,653 | (147,911 | ) | (434 | ) | 10,307 | (128,385 | ) | ||||||||||||
Cash flows from financing activities of discontinued operations | — | (205 | ) | (1,972 | ) | — | (2,177 | ) | ||||||||||||
Increase (decrease) in cash and cash equivalents | — | 181 | (4,681 | ) | — | (4,500 | ) | |||||||||||||
Cash and cash equivalents, beginning of period | — | 36,089 | 10,023 | — | 46,112 | |||||||||||||||
Cash and cash equivalents, end of period | $ | — | $ | 36,270 | $ | 5,342 | $ | — | $ | 41,612 | ||||||||||
NOTE 18. | PROVISION FOR ASSET IMPAIRMENT |
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NOTE 19. | DISCONTINUED OPERATIONS OF ASSETS HELD FOR SALE |
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52 Weeks | 52 Weeks | 53 Weeks | |||||||||||
Ended | Ended | Ended | |||||||||||
December 31, | January 1, | January 3, | |||||||||||
2005 | 2005 | 2004 | |||||||||||
Revenue | |||||||||||||
Funeral | $ | 1,853 | $ | 19,829 | $ | 43,917 | |||||||
Cemetery | 598 | 14,303 | 26,579 | ||||||||||
Insurance | — | 41,720 | 54,956 | ||||||||||
$ | 2,451 | $ | 75,852 | 125,452 | |||||||||
Gross margin | |||||||||||||
Funeral | $ | (152 | ) | $ | 874 | $ | 4,512 | ||||||
Cemetery | (237 | ) | 672 | 1,815 | |||||||||
Insurance | — | 9,382 | 12,207 | ||||||||||
(389 | ) | 10,928 | 18,534 | ||||||||||
Long-lived asset impairment on assets identified as held for sale | 568 | 15,361 | 20,179 | ||||||||||
Other expense (income), net | 455 | (27,505 | ) | (10,050 | ) | ||||||||
Income (loss) from discontinued operations | (1,412 | ) | 23,072 | 8,405 | |||||||||
Interest on long-term debt | — | 3,672 | 1,535 | ||||||||||
Income (loss) from discontinued operations, before tax | (1,412 | ) | 19,400 | 6,870 | |||||||||
Income tax provision for discontinued operations: | |||||||||||||
Current | 266 | 4,730 | 1,322 | ||||||||||
Deferred | — | 1,757 | 3,100 | ||||||||||
266 | 6,487 | 4,422 | |||||||||||
Net income (loss) from discontinued operations | $ | (1,678 | ) | $ | 12,913 | $ | 2,448 | ||||||
Depreciation included in gross margin of discontinued operations | $ | 20 | $ | 626 | $ | 2,609 | |||||||
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Funeral | Cemetery | Total | |||||||||||
Assets held for sale | |||||||||||||
Current assets | $ | 2,141 | $ | 215 | $ | 2,356 | |||||||
Pre-need receivables and investments | 21,818 | 33,790 | 55,608 | ||||||||||
Property and equipment | 11,110 | — | 11,110 | ||||||||||
Other assets | 209 | 12,773 | 12,982 | ||||||||||
$ | 35,278 | $ | 46,778 | $ | 82,056 | ||||||||
Liabilities associated with assets held for sale | |||||||||||||
Current liabilities | $ | 67 | $ | 260 | $ | 327 | |||||||
Deferred pre-need contract revenue | 1,971 | 3,691 | 5,662 | ||||||||||
Non-controlling interest in funeral and cemetery trusts | 20,034 | 34,306 | 54,340 | ||||||||||
Other liabilities | 412 | 687 | 1,099 | ||||||||||
$ | 22,484 | $ | 38,944 | $ | 61,428 | ||||||||
Non-controlling interest in perpetual care trusts | $ | — | $ | 11,819 | $ | 11,819 | |||||||
NOTE 20. | INCOME PER SHARE |
52 Weeks | 52 Weeks | 53 Weeks | |||||||||||
Ended | Ended | Ended | |||||||||||
December 31, | January 1, | January 3, | |||||||||||
2005 | 2005 | 2004 | |||||||||||
Income (numerator): | |||||||||||||
Net income attributable to Common stockholders | $ | 41,183 | $ | 9,349 | $ | 10,807 | |||||||
Shares (denominator): | |||||||||||||
Basic weighted average number of shares of Common stock outstanding (thousands) | 40,245 | 40,001 | 39,971 | ||||||||||
Effect of stock options assumed exercised | 1,357 | 1,131 | 494 | ||||||||||
Diluted weighted average number of shares of Common stock outstanding (thousands) | 41,602 | 41,132 | 40,465 | ||||||||||
NOTE 21. | DERIVATIVE FINANCIAL INSTRUMENTS |
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NOTE 22. | EFFECT OF HURRICANE KATRINA |
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Financial results |
52 Weeks | 52 Weeks | 53 Weeks | ||||||||||||
Ended | Ended | Ended | ||||||||||||
December 31, | January 1, | January 3, | ||||||||||||
2005 | 2005 | 2004 | ||||||||||||
Funeral Homes | ||||||||||||||
Revenue | $ | 29,460 | $ | 29,728 | $ | 29,813 | ||||||||
Costs and expenses | 24,175 | 24,530 | 24,962 | |||||||||||
Gross Margin | $ | 5,285 | $ | 5,198 | $ | 4,851 | ||||||||
Number of funeral services performed | 6,389 | 6,371 | 6,687 | |||||||||||
Number of same-site funeral services performed | 5,665 | 5,110 | 5,405 | |||||||||||
Pre-need funeral contracts written | $ | 9,871 | $ | 11,982 | $ | 12,081 | ||||||||
Cemeteries | ||||||||||||||
Revenue | $ | 2,953 | $ | 3,275 | $ | 4,134 | ||||||||
Costs and expenses | 2,835 | 2,869 | 2,625 | |||||||||||
Gross Margin | $ | 118 | $ | 406 | $ | 1,509 | ||||||||
Number of cemetery interments | 1,041 | 892 | 931 | |||||||||||
Pre-need cemetery contracts written | $ | 1,262 | $ | 1,300 | $ | 1,455 |
Insurance coverage and long-term asset gain or loss |
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NOTE 23. | QUARTERLY FINANCIAL DATA (UNAUDITED) |
Fourth | Third | Second | First | ||||||||||||||
Quarter | Quarter | Quarter | Quarter | ||||||||||||||
52 Weeks Ended December 31, 2005: | |||||||||||||||||
Revenue, previously stated | $ | 173,468 | $ | 214,782 | $ | 176,778 | $ | 183,796 | |||||||||
Adjustment to reclassify for discontinued operations | — | — | — | 90 | |||||||||||||
Revenue, adjusted | $ | 173,468 | $ | 214,782 | $ | 176,778 | $ | 183,886 | |||||||||
Gross profit, previously stated | $ | 27,126 | $ | 22,901 | $ | 28,190 | $ | 36,301 | |||||||||
Adjustment to reclassify for discontinued operations | — | — | �� | — | 1 | ||||||||||||
Gross profit, adjusted | $ | 27,126 | $ | 22,901 | $ | 28,190 | $ | 36,302 | |||||||||
Net income | $ | 9,061 | $ | 6,905 | $ | 12,081 | $ | 13,136 | |||||||||
Basic income per Common share | $ | 0.22 | $ | 0.17 | $ | 0.30 | $ | 0.33 | |||||||||
Diluted income per Common share | $ | 0.21 | $ | 0.16 | $ | 0.29 | $ | 0.32 | |||||||||
52 Weeks Ended January 1, 2005: | |||||||||||||||||
Revenue, previously stated | $ | 167,103 | $ | 210,665 | $ | 162,188 | $ | 176,834 | |||||||||
Adjustment to reclassify for discontinued operations | 54 | 105 | 93 | 69 | |||||||||||||
Revenue, adjusted | $ | 167,157 | $ | 210,770 | $ | 162,281 | $ | 176,903 | |||||||||
Gross profit, previously stated | $ | 28,498 | $ | 32,735 | $ | 28,770 | $ | 34,808 | |||||||||
Adjustment to reclassify for discontinued operations | 93 | 1 | 15 | (15 | ) | ||||||||||||
Gross profit, adjusted | $ | 28,591 | $ | 32,736 | $ | 28,785 | $ | 34,793 | |||||||||
Net income (loss) | $ | 24,365 | $ | (13,379 | ) | $ | (6,476 | ) | $ | 4,839 | |||||||
Basic income (loss) per Common share | $ | 0.61 | $ | (0.33 | ) | $ | (0.16 | ) | $ | 0.12 | |||||||
Diluted income (loss) per Common share | $ | 0.60 | $ | (0.33 | ) | $ | (0.16 | ) | $ | 0.12 |
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