1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-6402-1
------------------------
SERVICE CORPORATION INTERNATIONAL
(Exact name of registrant as specified in charter)
TEXAS 74-1488375
(State or other jurisdiction of (I. R. S. employer identification
incorporation or organization) number)
1929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
(Address of principal executive offices) (Zip code)
(713) 522-5141
(Registrant's telephone number, including area code)
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to the filing
requirements for the past 90 days. YES X NO
----- -----
The number of shares outstanding of the registrant's common stock as of May 5,
1995, was 96,032,770 (excluding treasury shares).
2
SERVICE CORPORATION INTERNATIONAL
INDEX
Page
Part I. Financial Information
Consolidated Balance Sheet -
March 31, 1995 (Unaudited) and December 31, 1994 3
Consolidated Statement of Income (Unaudited) -
Three Months Ended March 31, 1995 and 1994 4
Consolidated Statement of Cash Flows (Unaudited) -
Three Months Ended March 31, 1995 and 1994 5
Consolidated Statement of Stockholders' Equity (Unaudited) -
Three Months Ended March 31, 1995 6
Notes to the Consolidated Financial Statements (Unaudited) 7 -9
Management's Discussion and Analysis of Results of Operations
and Financial Condition 10 - 13
Part II. Other Information 14
Signature 14
2
3
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
March 31,
1995 December 31,
(Unaudited) 1994
- ---------------------------------------------------------------------------------------------------------------------
(Thousands)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 33,341 $ 218,341
Receivables, net of allowances . . . . . . . . . . . . . . . . . . . . . 339,049 291,135
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,804 60,897
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,695 21,436
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 448,889 591,809
---------- ----------
Prearranged funeral contracts . . . . . . . . . . . . . . . . . . . . . . 1,495,094 1,418,104
Long-term receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 568,616 529,843
Cemetery property, at cost . . . . . . . . . . . . . . . . . . . . . . . . 781,501 748,639
Property, plant and equipment, at cost (net) . . . . . . . . . . . . . . . 883,842 832,401
Deferred charges and other assets . . . . . . . . . . . . . . . . . . . . . 229,601 230,336
Names and reputations (net) . . . . . . . . . . . . . . . . . . . . . . . . 872,591 810,756
---------- ----------
$5,280,134 $5,161,888
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . $ 178,212 $ 154,770
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,158 39,084
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . 63,604 277,709
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 272,974 471,563
---------- ----------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,461,450 1,330,177
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 264,263 238,088
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271,057 233,356
Deferred prearranged funeral contract revenues . . . . . . . . . . . . . 1,577,970 1,519,582
Convertible preferred shares of subsidiary . . . . . . . . . . . . . . . . 172,500 172,500
Stockholders' equity:
Common stock, $1 per share par value, 200,000,000 shares authorized,
95,927,034 and 94,857,060, respectively, issued and outstanding . . . 95,927 94,857
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . 742,427 718,858
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 418,333 381,509
Foreign translation adjustment . . . . . . . . . . . . . . . . . . . . . 3,233 1,398
---------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . 1,259,920 1,196,622
---------- ----------
$5,280,134 $5,161,888
========== ==========
(See notes to consolidated financial statements)
3
4
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended March 31,
1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
(Thousands, except per share amounts)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 348,113 $ 261,258
Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . (231,438) (171,716)
-------------- --------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,675 89,542
General and administrative expenses . . . . . . . . . . . . . . . . . . . . (12,453) (13,501)
-------------- --------------
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . 104,222 76,041
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,284) (15,624)
Dividends on convertible preferred stock of subsidiary . . . . . . . . . . (2,695) -
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,316 2,515
-------------- --------------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . 77,559 62,932
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . (30,179) (25,487)
-------------- --------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,380 $ 37,445
============== ==============
Earnings per share:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .49 $ .44
============== ==============
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .46 $ .41
============== ==============
Dividends per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .11 $ .105
============== ==============
Weighted average number of shares and equivalents . . . . . . . . . . . . . 96,472 85,785
============== ==============
(See notes to consolidated financial statements)
4
5
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
(Thousands)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,380 $ 37,445
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 20,779 14,233
Provision for deferred income taxes . . . . . . . . . . . . . . . . . . 5,176 5,930
(Gain) from dispositions (net) . . . . . . . . . . . . . . . . . . . . . (516) (584)
Change in assets and liabilities net of effects from acquisitions:
(Increase) in receivables . . . . . . . . . . . . . . . . . . . . . . . (57,997) (10,195)
Change in prearranged funeral contracts and associated
deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . (22,202) 33,475
(Increase) in other assets . . . . . . . . . . . . . . . . . . . . . . (4,116) (9,143)
Increase in other liabilities . . . . . . . . . . . . . . . . . . . . . 46,063 21,298
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,921) (3,752)
------------ ----------
Net cash provided by operating activities . . . . . . . . . . . . . . . . 22,646 88,707
------------ ----------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . (21,764) (18,091)
Proceeds from sales of property and equipment . . . . . . . . . . . . . 309 5,618
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (104,695) (56,306)
Loans issued by finance subsidiary . . . . . . . . . . . . . . . . . . . (5,103) (10,856)
Principal payments received on loans by finance subsidiary . . . . . . . 12,274 9,821
Change in investments and other . . . . . . . . . . . . . . . . . . . . . (7,663) (10,528)
------------ ----------
Net cash (used in) investing activities . . . . . . . . . . . . . . . . . . (126,642) (80,342)
------------ ----------
Cash flows from financing activities:
Borrowings under bank revolving credit . . . . . . . . . . . . . . . . . 130,157 32,603
Payments of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . (221,573) (7,583)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,044) (8,913)
Common stock issues . . . . . . . . . . . . . . . . . . . . . . . . . . 19,266 -
Exercise of stock options and other . . . . . . . . . . . . . . . . . . . 1,190 310
------------ ----------
Net cash (used in) provided by financing activities . . . . . . . . . . . (81,004) 16,417
------------ ----------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . (185,000) 24,782
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . 218,341 20,822
------------ ----------
Cash and cash equivalents at March 31, 1995 and 1994 . . . . . . . . . . . $ 33,341 $ 45,604
============ ==========
Cash used for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,669 $ 12,481
============ ==========
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,647 $ 3,505
============ ==========
Non cash transactions:
Common stock issued under restricted stock plans . . . . . . . . . . . . $ 1,138 $ 1,188
============ ==========
(See notes to consolidated financial statements)
5
6
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Capital in Foreign
Common excess of Retained translation
stock par value earnings adjustment
- ---------------------------------------------------------------------------------------------------------------------------------
(Thousands)
Balance at December 31, 1994 . . . . . . . . . . . $ 94,857 $ 718,858 $ 381,509 $ 1,398
Net income. . . . . . . . . . . . . . . . . . . . - - 47,380 -
Common stock issued:
Common stock offering . . . . . . . . . . . . 780 18,486 - -
Stock option exercises and stock grants. . . . 128 2,200 - -
Acquisitions . . . . . . . . . . . . . . . . . 8 121 - -
Debenture conversion . . . . . . . . . . . . . 154 3,029 - -
Dividends on common stock ($.11 per share). . . . - - (10,556) -
Foreign translation adjustment. . . . . . . . . . - - - 1,835
Other . . . . . . . . . . . . . . . . . . . . . . - (267) - -
---------- ----------- ----------- ---------
Balance at March 31, 1995 . . . . . . . . . . . . . $ 95,927 $ 742,427 $ 418,333 $ 3,233
========== =========== =========== =========
(See notes to consolidated financial statements)
6
7
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements for the three months ended March 31, 1995
and 1994 include the accounts of Service Corporation International and all
majority-owned subsidiaries (the "Company") and are unaudited but include all
adjustments, which management considers necessary for a fair presentation of
the results for these periods. These financial statements have been prepared
consistent with the accounting policies described in the annual report on Form
10-K filed with the Securities and Exchange Commission (the "Commission") for
the year ended December 31, 1994 and should be read in conjunction therewith.
Certain reclassifications have been made to the prior period to conform to the
current period presentation with no effect on previously reported net income.
2. ACQUISITIONS
The Company has acquired certain funeral and cemetery operations during each
three month period ended March 31, 1995 and 1994. The consideration for these
acquisitions consisted of cash, common stock of the Company, issued or assumed
debt and the retirement of loans receivable issued by the Company's finance
subsidiary. The excess of purchase price over the fair value of assets
acquired and liabilities assumed is included in "names and reputations" and is
being amortized over a 40 year period. The operating results of all of these
acquisitions have been included since their respective dates of acquisitions.
The effect of acquisitions on the consolidated balance sheet at March
31, was as follows:
1995 1994
- ------------------------------------------------------------------------------------------------------------------------
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,193 $ 784
Prearranged funeral contracts . . . . . . . . . . . . . . . . . . . 14,404 18,356
Long-term receivables . . . . . . . . . . . . . . . . . . . . . . . 21,760 1,920
Cemetery property . . . . . . . . . . . . . . . . . . . . . . . . . 30,210 32,862
Property, plant and equipment . . . . . . . . . . . . . . . . . . . 40,263 26,709
Deferred charges and other assets . . . . . . . . . . . . . . . . . 1,630 6,490
Names and reputations . . . . . . . . . . . . . . . . . . . . . . . 57,405 21,467
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . (9,346) (5,287)
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . (17,511) (10,763)
Deferred income taxes and other liabilities . . . . . . . . . . . . (29,003) (15,045)
Deferred prearranged funeral contract revenues . . . . . . . . . . (16,181) (18,634)
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . (129) (2,553)
--------- ---------
Cash used for acquisitions . . . . . . . . . . . . . . . . . $ 104,695 $ 56,306
========= =========
7
8
The following unaudited pro forma information assumes that the acquisition
by the Company of all operations acquired during the year ended December 31,
1994 and the three months ended March 31, 1995 took place on January 1, 1994
(725 funeral homes and 46 cemeteries). This information also assumes that the
net proceeds from the Company's December 1994 public offerings of Company
common stock, 8.375% notes and convertible preferred shares of a subsidiary
were issued at the beginning of 1994 and such proceeds were used to fund, to the
extent available, the acquisitions mentioned above. This unaudited pro forma
information may not be indicative of results that would have actually resulted
if these transactions had occurred on the dates indicated or which may be
obtained in the future.
Three Months Ended March 31,
1995 1994
- -----------------------------------------------------------------------------------------------------------------
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $354,144 $326,920
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46,892 $ 39,190
Primary earnings per common share . . . . . . . . . . . . . . . . . . $ .49 $ .41
3. DEFERRED PREARRANGED FUNERAL CONTRACT REVENUES
"Deferred prearranged funeral contract revenues" include the contract amount of
all price guaranteed prearranged funeral service contracts as well as the trust
earnings and increasing insurance benefits earned through March 31, 1995. The
Company will continue to defer additional trust earnings and insurance benefits
as they are earned until the performance of the funeral service. Upon
performance of the funeral service, the Company will recognize the fixed
contract price as well as total accumulated trust earnings and increasing
insurance benefits as funeral revenues.
The recognition in future funeral revenues is estimated to occur in the
following years based on actuarial assumptions as follows:
1995 (remaining nine months) . . . . . . . . . . . . . $ 107,031
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 131,684
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 121,244
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 111,414
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . 102,197
2000 and through 2004 . . . . . . . . . . . . . . . . . 393,067
2005 and thereafter . . . . . . . . . . . . . . . . . . 611,333
-----------
$ 1,577,970
===========
4. DEBT
The Company's primary revolving credit agreements provide for borrowings up to
$700,000. A 364 day portion supporting commercial paper issues for $450,000
expires on July 26, 1995 and contains provisions for renewals. At the end of
any term, the outstanding balance may be converted into a two year term loan.
A committed loan portion for $250,000 expires July 22, 1997. The Company may
in July of each year, commencing in 1995, extend the term of the $250,000
agreement for a year with the consent of all participating banks. The interest
rates are based generally on various indices determined by the Company. In
addition, the Company pays a quarterly facility fee ranging from .08% to .125%
on the commitment amount. The term of these revolving credit agreements
include various covenants which provide, among other things, for the
maintenance of a certain level of consolidated net worth, the maintenance of
certain ratios and restrictions on certain payments. At March 31, 1995
$356,800 was outstanding under these agreements. At March 31, 1995 the average
interest rate incurred for amounts borrowed under these agreements was 6.2%.
The Company's Canadian subsidiary has a US $21,500 line of credit with a
Canadian bank and had borrowed US $17,000 at March 31, 1995. This line
requires the payment of a .125% commitment fee on the unused balance and
expires on July 30, 1995. Interest rates are based on various indices
determined by the Company. At March 31, 1995 the Company's Australian
subsidiary had a US $25,500 line of credit with an Australian bank and had
borrowed US $20,000. This line requires a .15% commitment fee on the unused
balance. Interest rates are calculated at .55% above quoted bank bill buying
rates. In early April 1995 this line was increased to US $58,400 with similar
terms and a September 30, 1995 expiration date.
8
9
5. DERIVATIVES
Derivative financial instruments have been entered into by the Company to hedge
exposure to fluctuations in interest and foreign exchange rates. The Company
does not trade in financial instruments and is not a party to leveraged
derivatives. These financial instruments are with major financial institutions
and the Company does not anticipate any credit risk because of nonperformance.
While the hedging transactions are subject to risk of loss from changes in
interest rates and foreign exchange currency rates, such losses would generally
be offset by gains on the exposures being hedged. The amounts exchanged by the
parties are normally based on the notional amounts and other terms of the
derivatives, which relate to interest rates and foreign exchange rates. The
value of derivatives is derived from those underlying parameters. Income and
expense are accrued in the same category as that arising from the related asset
or liability, therefore amounts to be paid or received under interest rate swap
agreements are recognized as a charge or credit to interest expense in the
periods in which they accrue. As of March 31, 1995, the cost to terminate
these agreements, based on information supplied by the participating banks, was
estimated to be $9,900.
6. RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended March 31, Years Ended December 31,
1995 1994 1994 1993 1992 1991 1990
---------------------------- -----------------------------------------------
3.18 4.08 3.13 3.19 3.03 2.82 2.88
For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes, less undistributed income of equity
investees which are less than 50% owned, plus the minority interest of
majority-owned subsidiaries with fixed charges and plus fixed charges
(excluding capitalized interest and preferred stock dividends of a subsidiary).
Fixed charges consist of interest expense, whether capitalized or expensed,
amortization of debt costs, one-third of rental expense which the Company
considers representative of the interest factor in the rentals and preferred
stock dividends of a subsidiary.
7. SCI INTERNATIONAL LIMITED
SCI International Limited ("International") is a wholly-owned subsidiary of the
Company. International began operations in mid 1993 and owns, through
wholly-owned subsidiaries, the Company's operations in Australia and the United
Kingdom as well as the Company's investment in a Canadian company, Arbor
Memorial Service, Inc.. In late 1994, International borrowed $216,315 from SCI
Finance LLC ("Finance"), another subsidiary of the Company, and used such funds
to repay short-term bank borrowings which funded the Company's United Kingdom
acquisitions. International pays Finance an annual interest rate of 6.25% on
the outstanding balance.
Set forth below is certain March 31, summary financial information for
International.
1995 1994
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,031 $ 9,334
============== ==============
Gross profit . . . . . . . . . . . . . . . . . . . . . . . $ 16,293 $ 2,521
============== ==============
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 2,643 $ 1,421
============== ==============
Current assets . . . . . . . . . . . . . . . . . . . . . . $ 41,611 $ 13,860
Non-current assets . . . . . . . . . . . . . . . . . . . . 915,907 119,311
-------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 957,518 $ 133,171
============== ==============
Current liabilities . . . . . . . . . . . . . . . . . . . . $ 58,498 $ 12,004
Non-current liabilities . . . . . . . . . . . . . . . . . . 816,906 96,908
-------------- --------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . $ 875,404 $ 108,912
============== ==============
Stockholder's equity . . . . . . . . . . . . . . . . . . . $ 82,114 $ 24,259
============== ==============
9
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTHS ENDED MARCH 31, 1995
COMPARED TO THREE MONTHS ENDED MARCH 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE SALES PRICES)
OVERVIEW:
The majority of the Company's funeral homes and cemeteries are managed in
groups called clusters. Clusters are established primarily in metropolitan
areas to take advantage of operational efficiencies, particularly the sharing
of operating expenses such as service personnel, vehicles, preparation
services, clerical staff and certain building facility costs. Personnel costs,
the largest operating expense for the Company, is the cost component most
beneficially affected by clustering. The sharing of employees, as well as the
other costs mentioned, allow the Company's operations to more efficiently
handle the traditional wide fluctuations in the volume of funeral services and
cemetery interments performed in a given time period. The Company's
acquisitions are primarily concentrated within existing cluster areas or create
new cluster area opportunities. The Company has successfully implemented the
cluster strategy in its North American and Australian operations and is
proceeding with implementation in the United Kingdom operations which were
acquired in the latter half of 1994. The Company has approximately 160
clusters in North America and Australia, which range in size from two
operations to 57 operations. There may be more than one cluster in a given
metropolitan area, depending upon the level and degree of shared costs.
RESULTS OF OPERATIONS:
Segment information for the Company's three lines of business are as follows:
Percentage
Three Months Ended March 31, Increase/ Increase
1995 1994 (Decrease) (Decrease)
------------------------------------------------------------------------
Revenues:
Funeral . . . . . . . . . . . $242,756 $ 177,357 $ 65,399 36.9 %
Cemetery . . . . . . . . . . . 100,397 79,383 21,014 26.5
Financial services . . . . . . 4,960 4,518 442 9.8
-------- ---------- ----------
348,113 261,258 86,855 33.2
Costs and expenses:
Funeral . . . . . . . . . . . 164,471 116,983 47,488 40.6
Cemetery . . . . . . . . . . . 63,762 52,497 11,265 21.5
Financial services . . . . . . 3,205 2,236 969 43.3
-------- ---------- ----------
231,438 171,716 59,722 34.8
Gross profit and margin percentage:
Funeral . . . . . . . . . . . 78,285 32.2% 60,374 34.0% 17,911 29.7
Cemetery . . . . . . . . . . . 36,635 36.5 26,886 33.9 9,749 36.3
Financial services . . . . . . 1,755 35.4 2,282 50.5 (527) (23.1)
-------- ---------- ----------
$116,675 33.5% $ 89,542 34.3% $ 27,133 30.3 %
======== ========== ==========
10
11
Funeral
Funeral revenues were generated as follows:
Three Months Ended March 31, Percentage
1995 1994 Increase Increase
-----------------------------------------------------------
Existing clusters . . . . . . . . . . . . $ 200,238 $ 175,661 $ 24,577 14.0%
New clusters* . . . . . . . . . . . . . . 6,094 314 5,780
----------- ---------- ----------
Total clusters . . . . . . . . . . . . 206,332 175,975 30,357 17.3%
United Kingdom . . . . . . . . . . . . . 34,083 - 34,083
Non-cluster and disposed operations . . . 2,341 1,382 959
----------- ---------- ----------
Total funeral revenues . . . . . . . . $ 242,756 $ 177,357 $ 65,399 36.9%
=========== ========== ==========
The $24,577 increase in revenues at existing clusters was the result of 9.2%
more funeral services performed (57,153 compared to 52,330) and a 4.4% higher
average sales price ($3,504 compared to $3,357). Included in this increase
were $18,378 in increased revenues from locations acquired since the beginning
of 1994. The $6,199 revenue increase experienced at those locations acquired
before 1994 was adversely impacted by a 3.6% decline in the number of funerals
performed quarter to quarter. The first quarter is seasonally a heavy funeral
service volume period and this level of decline was somewhat unusual, however,
this decline was most noticeable early in the quarter and reflected a more
normal trend in the latter half of the quarter.
During the three months ended March 31, 1995, the Company sold $80,480 of
prearranged funeral services compared to $49,852 for the same quarter in 1994.
These prearranged funeral services are deferred and will be reflected in
funeral revenues in the periods that the funeral services are performed. The
current emphasis on sales of prearranged funerals is expected to continue.
Funeral costs were as follows:
Three Months Ended March 31, Percentage
1995 1994 Increase Increase
------------------------------------------------------------
Existing clusters . . . . . . . . . . . . $ 125,693 $ 107,584 $ 18,109 16.8%
New clusters* . . . . . . . . . . . . . . 4,330 226 4,104
----------- ---------- ----------
Total clusters . . . . . . . . . . . . 130,023 107,810 22,213 20.6%
United Kingdom . . . . . . . . . . . . . 24,525 - 24,525
Non-cluster and disposed operations . . . 2,232 1,662 570
Administrative overhead . . . . . . . . . 7,691 7,511 180
----------- ---------- ----------
Total funeral costs . . . . . . . . . $ 164,471 $ 116,983 $ 47,488 40.6%
=========== ========== ==========
The gross profit margin for existing clusters declined to 37.2% from 38.8%
last year. Acquisitions since the beginning of 1994, included in existing
clusters, accounted for $13,816 of the existing cluster cost increase and were
the primary reason for the existing cluster gross profit margin decline.
Typically, acquisitions will temporarily exhibit slightly lower gross profit
margins than those experienced by the Company's existing locations at least
until such time as these locations are assimilated into the Company's cluster
management strategy. This was especially noticeable given the large number of
acquired operations incorporated into existing clusters in 1995 and 1994. The
gross profit margin for those funeral operations in existing clusters that were
acquired before 1994 decreased slightly to 38.6% in 1995 from 38.9% last year
due to the funeral service volume decline discussed above.
* Represents new geographic cluster areas entered into since the beginning of
1994 for the period that those businesses were owned by the Company.
11
12
Cemetery
Cemetery revenues were generated as follows:
Three Months Ended March 31, Increase/ Percentage
1995 1994 (Decrease) Increase
-----------------------------------------------------------
Existing clusters . . . . . . . . . . . . $ 95,165 $ 77,810 $ 17,355 22.3%
New clusters* . . . . . . . . . . . . . . 756 - 756
----------- ---------- ---------
Total clusters . . . . . . . . . . . . 95,921 77,810 18,111 23.3%
United Kingdom . . . . . . . . . . . . . 3,073 - 3,073
Non-cluster and disposed operations . . . 1,403 1,573 (170)
----------- ---------- ---------
Total cemetery revenues . . . . . . . $ 100,397 $ 79,383 $ 21,014 26.5%
=========== ========== ==========
Revenues for the existing clusters increased due to increased volume of
sales and higher average sales prices for property and merchandise. Revenues
for cemeteries that were acquired before 1994 increased $11,637 while revenues
for cemeteries acquired since the beginning of 1994 increased $5,718.
Cemetery costs and expenses were as follows:
Three Months Ended March 31, Increase/ Percentage
1995 1994 (Decrease) Increase
------------------------------------------------------------
Existing clusters . . . . . . . . . . . . $ 55,990 $ 46,905 $ 9,085 19.4%
New clusters* . . . . . . . . . . . . . . 512 - 512
----------- ---------- ---------
Total clusters . . . . . . . . . . . . 56,502 46,905 9,597 20.5%
United Kingdom . . . . . . . . . . . . . 1,644 - 1,644
Non-cluster and disposed operations . . . 898 782 116
Administrative overhead . . . . . . . . . 4,718 4,810 (92)
----------- ---------- ---------
Total cemetery costs . . . . . . . . . $ 63,762 $ 52,497 $ 11,265 21.5%
=========== ========== =========
Costs at existing clusters increased $9,085 associated with the increased
revenues discussed above. Costs from cemeteries acquired before 1994, included
in existing clusters, increased $4,809, while costs from cemeteries acquired
since the beginning of 1994, included in existing clusters, increased $4,276.
The overall cemetery gross profit margin increased to 36.5% from 33.9% last
year reflecting the strong revenue growth as well as continued cost control in
all major expense categories and slightly reduced administrative overhead
costs.
Financial Services
The Company's wholly-owned finance subsidiary, Provident Services, Inc.
(Provident) reported a gross profit decline of $527 in the current quarter
compared with the same quarter in 1994. Provident's average outstanding loan
portfolio during the current quarter declined to $205,214 compared to $252,694
last year while the average interest rate spread increased to 3.6% compared to
3.4% last year. Higher loan procurement costs also contributed to the decline
in gross profit.
* Represents new geographic cluster areas entered into since the beginning of
1994 for the period that those businesses were owned by the Company.
12
13
Other Income and Expenses
Expressed as a percentage of revenues, general and administrative expenses were
3.6% in 1995 compared to 5.2% last year. These expenses decreased by $1,048 or
7.8% quarter to quarter. The lower level of expenses this quarter was
primarily associated with reduced legal and professional expenses.
Interest expense, which excludes the amount incurred through financial
service operations, increased $9,660 or 61.8% during the current quarter.
Increased borrowings and higher interest rates incurred under bank loans, lines
of credit and commercial paper along with approximately $400,000 of fixed
interest rate debt issued in December 1994 and January 1995, all of which was
used to fund the Company's world-wide acquisition activities, were the reasons
for the increase.
The term convertible preferred shares of a subsidiary were issued in
December 1994 and the proceeds were used in the acquisition of the United
Kingdom operations.
The provision for income taxes reflects a 38.9% effective tax rate for this
year as compared to a 40.5% effective tax rate last year.
FINANCIAL CONDITION AT MARCH 31, 1995:
In December 1994 the Company sold, through underwritten public offerings,
7,700,000 common shares at a net $24.70 per share, $200,000 of 8.375% ten-year
notes due in 2004 and $172,500 of 6.25% term convertible preferred shares of a
Company subsidiary. In January 1995, an additional 780,000 common shares were
sold at a net $24.70 per share pursuant to an underwriters over-allotment
provision. All of these securities were sold pursuant to a $1,000,000 shelf
registration of securities filed with the Securities and Exchange Commission
("Commission") in November 1994. The net proceeds of these offerings were used
in the Company's acquisition program or were used to repay existing bank debt.
Presently, the Company may issue an additional $411,260 of securities under
this shelf registration; however, there are no current plans for such issuance.
The Company's current ratio improved to 1.64:1 at March 31, 1995 compared to
1.25:1 at December 31, 1994. In the first quarter of 1995 the Company repaid
short-term bank borrowings used to fund the United Kingdom acquisitions with
available cash. The Company's total debt has decreased by $82,832 since year
end to $1,525,054 reflecting the repayment of short term bank borrowings
mentioned above partially offset by increased borrowings under the Company's
primary bank revolving credit agreements which borrowings were used for 1995
acquisitions of funeral and cemetery operations. The Company's total debt,
after giving effect for interest rate swaps, has been converted into
approximately $773,000 of fixed interest rate debt at an average interest rate
of 8.8% and $751,000 of variable interest rate debt at an average interest rate
of 6.7%. The Company believes that debt service is manageable at the current
levels of debt outstanding. The interest rate coverage for the three months
ended March 31, 1995 was 3.68:1. This interest rate coverage level has been
consistent, despite higher levels of debt outstanding, for several years. The
Company believes that the acquisition of funeral and cemetery operations funded
primarily with debt is a prudent business strategy given the stable cash flow
generated and the impressive non-failure rate exhibited by these businesses.
The Company believes these acquired firms are capable of servicing the
additional debt and providing a sufficient return on the Company's investment.
The remaining increases in other long-term assets and liabilities are
primarily the result of acquisition activity in 1995 (see note 2 to the
consolidated financial statements).
Cash flows continue to be impacted by the Company's aggressive acquisition
of funeral homes and cemeteries. In addition, capital expenditures, including
new construction of facilities and major improvements to existing properties,
continue to require significant amounts of cash. Funds generated from the
earnings of existing funeral and cemetery operations, together with
approximately $425,000 of unused lines of credit and $411,260 of issuable
securities available under the $1,000,000 shelf registration mentioned above or
other available borrowings, are expected to be sufficient for the Company to
continue its current acquisition and operating policies.
In addition to the sources of cash, the Company has 12,149,000 shares of
common stock, $50,375 of guarantees of promissory notes and $73,882 of
convertible debentures registered with the Commission to be used exclusively
for future acquisitions.
13
14
SERVICE CORPORATION INTERNATIONAL
PART II. OTHER INFORMATION
1. LEGAL PROCEEDINGS
The Company is currently discussing with the staff of the Division of
Enforcement ("Staff") of the Securities and Exchange Commission settlement
of the matters arising out of the previously disclosed informal
investigation by the Staff with respect to the Company's disclosure about
the change in accountants. Such investigation was initially disclosed by
the Company in May 1993. The Staff has advised that it intends to recommend
to the Commission that it institute a cease and desist administrative
proceeding against the Company for alleged violations of Section 13(a) of
the Securities Exchange Act of 1934 with respect to the Company's disclosure
in the March 31, 1993 Form 8-K, as amended, relating to the change in the
Company's accountants. The Company had previously disclosed, initially in
October 1994, that the Staff was considering such recommendation against the
Company. The Staff has advised that, depending upon the outcome of the
settlement discussions, the Staff will finalize its recommendation to the
Commission as to whether Mr. Robert L. Waltrip, Chairman and Chief Executive
Officer, Mr. L. William Heiligbrodt, President and Chief Operating Officer,
and Mr. Samuel W. Rizzo, Executive Vice President, would be named as
respondents in the proceeding. There is no assurance that the settlement
discussions between the Company and the Staff will be satisfactorily
concluded. In any event, the Commission will subsequently make the final
determinations on any action recommended by the Staff in these matters.
6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Computation of earnings per share.
12.1 Ratio of earnings to fixed charges for the three months
ended March 31, 1995 and 1994.
12.2 Ratio of earnings to fixed charges for the five years
ended December 31, 1994.
27.1 Financial data schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K during the three months ended
March 31, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 12, 1995
SERVICE CORPORATION INTERNATIONAL
By: /s/ George R. Champagne
------------------------------
George R. Champagne
Senior Vice President
Chief Financial Officer
(Principal Financial Officer)
14
15
INDEX TO EXHIBITS
Exhibit
11.1 Computation of earnings per share.
12.1 Ratio of earnings to fixed charges for the three months ended
March 31, 1995 and 1994.
12.2 Ratio of earnings to fixed charges for the five years ended
December 31, 1994.
27.1 Financial data schedule.