FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(X)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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)
|
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to the filing
requirements for the past 90 days.
YES X NO
The number of shares outstanding of the registrant's common stock as of August 10, 1998, was 257,260,158 (excluding treasury shares).
SERVICE CORPORATION INTERNATIONAL
INDEX
Page
Part I Financial Information
Consolidated Statement of Income (Unaudited) -
Three and Six Months Ended June 30, 1998 and 1997 3
Consolidated Balance Sheet -
June 30, 1998 (Unaudited) and December 31, 1997 4
Consolidated Statement of Cash Flows (Unaudited) -
Six Months Ended June 30, 1998 and 1997 5
Consolidated Statement of Stockholders' Equity (Unaudited) -
Six Months Ended June 30, 1998 6
Notes to the Consolidated Financial Statements (Unaudited) 7 - 12
Management's Discussion and Analysis of Financial Condition
and Results of Operations 13 - 21
PartII Other Information 22
Signature 22
2
|
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
(Dollars in thousands, June 30, June 30,
except per share amounts) 1998 1997 1998 1997
--------------------------------------------------------------------------------
Revenues..................... $ 671,904 $ 601,141 $1,354,588 $1,239,590
Costs and expenses........... (484,214) (437,958) (950,770) (888,255)
--------- --------- ---------- ----------
Gross profit................. 187,690 163,183 403,818 351,335
General and administrative
expenses.................... (17,251) (15,812) (34,259) (32,440)
--------- --------- ---------- ----------
Income from operations....... 170,439 147,371 369,559 318,895
Interest expense............. (40,464) (33,093) (78,174) (67,631)
Dividends on preferred
securities of SCI
Finance LLC................. - (1,753) - (4,382)
Other income................. 10,528 8,765 17,179 11,855
Gain on sale of investment... - - - 68,077
--------- --------- ---------- ----------
(29,936) (26,081) (60,995) 7,919
--------- --------- ---------- ----------
Income before income taxes and
extraordinary loss.......... 140,503 121,290 308,564 326,814
Provision for income taxes... (49,555) (42,489) (108,830) (116,866)
--------- --------- ---------- ----------
Income before extraordinary
loss........................ 90,948 78,801 199,734 209,948
Extraordinary loss on early
extinguishment of
debt (net of income
taxes of $23,383)........... - - - (40,802)
--------- --------- ---------- ----------
Net income................... $ 90,948 $ 78,801 $ 199,734 $ 169,146
========= ========= ========== ==========
Earnings per share:
Basic:
Income before
extraordinary loss........ $ .36 $ .33 $ .78 $ .88
Extraordinary loss on early
extinguishment of debt.... - - - (.17)
--------- --------- ---------- ----------
Net income................. $ .36 $ .33 $ .78 $ .71
========= ========= ========== ==========
Diluted:
Income before
extraordinary loss........ $ .35 $ .31 $ .77 $ .83
Extraordinary loss on early
extinguishment of debt.... - - - (.16)
--------- --------- ---------- ----------
Net income................. $ .35 $ .31 $ .77 $ .67
========= ========= ========== ==========
Dividends per share.......... $ .09 $ .08 $ .18 $ .15
========= ========= ========== ==========
Basic weighted average
number of shares............ 255,004 240,872 254,820 239,068
========= ========= ========== ==========
Diluted weighted average
number of shares............ 261,740 257,695 261,754 256,616
========= ========= ========== ==========
|
(See notes to consolidated financial statements)
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
June 30,
1998 December 31,
(Dollars in thousands, except per share amounts) (Unaudited) 1997
-------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents.......................... $ 75,526 $ 46,877
Receivables, net of allowances..................... 580,011 557,481
Inventories........................................ 183,920 172,169
Other.............................................. 46,188 34,881
----------- -----------
Total current assets.............................. 885,645 811,408
----------- -----------
Investments - insurance subsidiary.................... 640,962 574,728
Prearranged funeral contracts ........................ 2,754,034 2,610,632
Long-term receivables ................................ 1,107,684 981,121
Cemetery property, at cost............................ 1,761,443 1,636,859
Property, plant and equipment, at cost (net).......... 1,718,685 1,644,137
Deferred charges and other assets..................... 670,281 549,862
Names and reputations (net)........................... 1,705,928 1,498,116
----------- -----------
$11,244,662 $10,306,863
=========== ===========
Liabilities & Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities........... $ 368,256 $ 425,631
Current maturities of long-term debt............... 68,338 64,570
Income taxes ...................................... 88,612 45,241
----------- -----------
Total current liabilities......................... 525,206 535,442
----------- -----------
Long-term debt........................................ 3,077,286 2,634,699
Deferred income taxes................................. 732,650 701,221
Other liabilities .................................... 572,523 546,140
Deferred prearranged funeral contract revenues ....... 3,400,012 3,163,357
Stockholders' equity:
Common stock, $1 per share par value,
500,000,000 shares authorized,
257,186,137 and 252,923,784, respectively,
issued and outstanding............................ 257,186 252,924
Capital in excess of par value..................... 1,534,730 1,493,246
Retained earnings.................................. 1,136,891 983,353
Accumulated other comprehensive income............. 8,178 (3,519)
----------- -----------
Total stockholders' equity........................ 2,936,985 2,726,004
----------- -----------
$11,244,662 $10,306,863
=========== ===========
|
(See notes to consolidated financial statements)
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
(Dollars in thousands) 1998 1997
--------------------------------------------------------------------------------
Cash flows from operating activities:
Net income........................................... $ 199,734 $ 169,146
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization..................... 85,512 75,063
Provision for deferred income taxes............... 19,661 24,789
Extraordinary loss on early extinguishment of
debt, net of income taxes........................ - 40,802
Gains from dispositions (net)..................... (9,748) (76,645)
Change in assets and liabilities, net of effects
from acquisitions:
(Increase) in receivables........................ (116,546) (60,474)
(Increase) decrease in other assets.............. (24,285) 15,426
(Decrease) in payables and other liabilities .... (7,966) (27,036)
Other............................................ 7,541 11,232
----------- ----------
Net cash provided by operating activities ........... 153,903 172,303
----------- ----------
Cash flows from investing activities:
Capital expenditures.............................. (117,705) (118,163)
Change in prearranged funeral balances............ 44,737 (32,503)
Purchases of securities - insurance subsidiary.... (318,800) (589,778)
Sales of securities - insurance subsidiary........ 305,554 582,122
Proceeds from sales of property and equipment..... 16,663 11,585
Acquisitions, net of cash acquired................ (366,823) (190,692)
Loans issued by finance subsidiary................ (66,564) (50,638)
Principal payments received on loans by finance
subsidiary....................................... 48,882 5,418
Proceeds from sale of equity investment........... - 147,739
Purchases of equity investments................... (3,836) (20,360)
Other............................................. (7,205) (10,281)
----------- ----------
Net cash (used in) investing activities.............. (465,097) (265,551)
----------- ----------
Cash flows from financing activities:
(Decrease) in borrowings under revolving
credit agreements................................ (68,952) (37,349)
Long-term debt issued............................. 500,000 650,000
Payments of debt.................................. (32,722) (35,877)
Early extinguishment of debt...................... - (449,998)
Dividends paid.................................... (42,007) (32,136)
Bank overdrafts and other......................... (16,476) (13,966)
----------- ----------
Net cash provided by financing activities............ 339,843 80,674
----------- ----------
Net increase (decrease) in cash and cash equivalents. 28,649 (12,574)
Cash and cash equivalents at beginning of period..... 46,877 44,131
----------- ----------
Cash and cash equivalents at June 30, 1998 and 1997..$ 75,526 $ 31,557
=========== ==========
Cash used for:
Interest..........................................$ 86,047 $ 81,807
========== ==========
Taxes............................................. 74,155 74,769
========== ==========
Non-cash investing and financing transactions:
Common stock issued in acquisitions............... $ 28,896 $ 43,499
========== ==========
Debt issued in acquisitions....................... 19,060 4,771
========== ==========
Debenture conversions to common stock............. 2,238 5,127
========== ==========
Conversion of preferred securities of
SCI Finance LLC.................................. - 167,911
========== ==========
|
(See notes to consolidated financial statements)
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Capital in Accum.
excess other
(Dollars in thousands, Common of par Retained compre.
except per share amounts) stock value earnings income Total
--------------------------------------------------------------------------------
Balance at
December 31, 1997........$ 252,924 $1,493,246 $ 983,353 $(3,519) $2,726,004
Comprehensive income:
Net income.............. 199,734 199,734
Other comprehensive
income:
Foreign currency
translation............ 6,663
Unrealized gain on
securities............. 5,034
----------
Total other comprehensive
income................... 11,697 11,697
----------
Comprehensive income...... 211,431
Common stock issued:
Stock option exercises
and stock grants........ 3,409 11,203 14,612
Acquisitions............ 687 28,209 28,896
Debenture conversions... 166 2,072 2,238
Dividends on common stock
($.18 per share)......... (46,196) (46,196)
-------- ---------- ---------- ------- ----------
Balance at June 30, 1998.. $ 257,186 $1,534,730 $1,136,891 $ 8,178 $2,936,985
========= ========== =========== ======= ==========
|
(See notes to consolidated financial statements)
SERVICE CORPORATION INTERNATIONAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
1. Nature of Operations The Company is the largest provider of death care services in the world. At June 30, 1998, the Company operated 3,292 funeral service locations, 422 cemeteries and 174 crematoria located in 18 countries on five continents. The funeral service locations and cemetery operations consist of the Company's funeral homes, cemeteries, crematoria and related businesses. Company personnel at the funeral service locations provide all professional services relating to funerals, including the use of funeral facilities and motor vehicles. Funeral related merchandise is sold at funeral service locations and certain funeral service locations contain crematoria. The Company sells prearranged funeral services whereby a customer contractually agrees to the terms of a funeral to be performed in the future. The Company's cemeteries provide cemetery interment rights (including mausoleum spaces and lawn crypts) and certain merchandise including stone and bronze memorials and burial vaults. These items are sold on an at need or preneed basis. Company personnel at cemeteries perform interment services and provide management and maintenance of cemetery grounds. Certain cemeteries also contain crematoria. There are 152 combination locations that contain a funeral service location within a company owned cemetery. The Company's financial services operations consist of a finance subsidiary, Provident Services, Inc. ("Provident"). Provident provides capital financing to independent funeral home and cemetery operators. The Company recently announced its intentions to combine management of its prearranged funeral marketing, funeral and cemetery trust administration, investments, life insurance operations (see note ten) and Provident into a reorganized financial services segment.
2. Summary of Significant Accounting Policies Basis of Presentation: The consolidated financial statements for the six months ended June 30, 1998 and 1997 include the accounts of Service Corporation International and all majority-owned subsidiaries (the "Company") and are unaudited but include all adjustments, consisting of normal recurring accruals and any other adjustments which management considers necessary for a fair presentation of the results for these periods. These financial statements have been prepared consistent with the accounting policies described in the annual report on Form 10-K filed with the Securities and Exchange Commission (the "Commission") for the year ended December 31, 1997 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, financial condition and cash flows.
Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. As a result, actual results could differ from these estimates.
3. Acquisitions The Company acquired 167 funeral service locations, 31 cemeteries and 8 crematoria during the six months ended June 30, 1998 (136 funeral service locations, 22 cemeteries and one crematory during the six months ended June 30, 1997). The consideration for these acquisitions consisted of combinations of cash, common stock of the Company and issued or assumed debt. 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 June 30, was as follows:
1998 1997
----------------------------------------------------------------------------
Current assets................................... $ 22,021 $ 8,180
Prearranged funeral contracts.................... 38,093 52,346
Long-term receivables............................ 23,820 11,881
Cemetery property................................ 81,306 179,829
Property, plant and equipment.................... 44,736 59,929
Deferred charges and other assets................ 84,587 14,604
Names and reputations............................ 237,915 70,507
Current liabilities.............................. (23,353) (23,977)
Long-term debt................................... (46,972) (19,612)
Deferred income taxes and other liabilities...... (29,083) (51,698)
Deferred prearranged funeral contract revenues... (35,836) (67,798)
Stockholders' equity............................. (30,411) (43,499)
--------- --------
Cash used for acquisitions................. $ 366,823 $190,692
========= ========
|
4. Prearranged Funeral Activities The Company sells price guaranteed prearranged funeral contracts through various programs providing for future funeral services at prices prevailing when the agreements are signed. Payments under these contracts are generally placed in trust (pursuant to state law) or are used to pay premiums on life insurance policies issued by third party insurers in North America, the United Kingdom and Australia or the Company's French prearranged funeral service life insurance subsidiary, "Auxia". Unperformed price guaranteed prearranged funeral contracts are included in the consolidated balance sheet as "prearranged funeral contracts" or, in the case of contracts funded by Auxia, "investments-insurance subsidiary." A corresponding credit is recorded to "deferred prearranged funeral contract revenues." Allowances for customer cancellations are provided at the date of sale based on historical experience. Amounts paid by the customer pursuant to the prearranged funeral contracts are recognized in funeral revenue at the time the funeral is performed. Trust earnings and increasing insurance benefits are accrued and deferred until the service is performed at which time these funds are also recognized in funeral revenues and are intended to cover future increases in the cost of providing a price guaranteed funeral service. Included in deferred prearranged funeral contract revenues are net obtaining costs, including sales commissions and certain other direct marketing costs, applicable to prearranged funeral contracts which are deferred and will be expensed over a period representing the actuarially determined life of the prearranged contract. The recognition of future funeral revenues is estimated to occur in the following years:
1998 (remaining six months).............. $ 180,969
1999..................................... 279,228
2000..................................... 261,198
2001..................................... 246,066
2002..................................... 231,495
2003 and through 2007.................... 860,905
2008 and thereafter...................... 1,340,151
----------
$3,400,012
==========
|
5. Debt Debt at June 30, 1998 and December 31, 1997, was as follows:
June 30, December 31,
1998 1997
--------------------------------
Bank revolving credit agreements and
commercial paper........................ $ 544,562 $ 588,539
6.375% notes due in 2000................. 150,000 150,000
6.75% notes due in 2001.................. 150,000 150,000
8.72% amortizing notes due in 2002....... 127,970 141,108
8.375% notes due in 2004................. 51,840 51,840
7.375% notes due in 2004................. 250,000 250,000
7.2% notes due in 2006................... 150,000 150,000
6.875% notes due in 2007................. 150,000 150,000
6.5% notes due in 2008................... 200,000 -
7.70% notes due in 2009.................. 200,000 200,000
6.95% amortizing notes due in 2010....... 57,178 58,859
Floating rate notes due in 2011
(putable in 1999)....................... 200,000 200,000
7.875% debentures due in 2013............ 55,627 55,627
7.0% notes due in 2015 (putable in 2002). 300,000 300,000
6.3% notes due in 2020 (putable in 2003). 300,000 -
Medium term notes, maturities through
2019, fixed average
interest rate of 9.32%................. 35,720 35,720
Convertible debentures, interest rates
range from 4.75% - 5.5%,
due through 2008, conversion price
ranges from $11.25 - $45.69............ 47,735 45,673
Mortgage notes and other debt with
maturities through 2015................ 185,892 184,981
Deferred loan costs...................... (10,900) (13,078)
---------- ----------
Total debt............................... 3,145,624 2,699,269
---------- ----------
Less current maturities.................. (68,338) (64,570)
---------- ----------
Total long-term debt................ $3,077,286 $2,634,699
========== ==========
|
The Company's primary revolving credit agreement provides for borrowings up
to $1,000,000 and consists of two committed facilities -- a 364-day facility and
a 5-year, multi-currency facility - which are primarily used to support
commercial paper issuance and for general corporate needs.
The 364-day facility allows for borrowings up to $300,000. This facility
expires June 26, 1999, but has provisions to be extended for additional 364-day
terms. At the end of any term, the outstanding balance may be converted into a
two-year term loan at the Company's option. Interest rates are based on various
indices as determined by the Company. In addition, a facility fee of 0.08% is
paid quarterly on the total commitment amount.
The 5-year facility allows for borrowings up to $700,000, including $500,000
in various foreign currencies. This facility expires June 27, 2002. Interest
rates on this facility are based on various indices as determined by the
Company. In addition, a facility fee is paid quarterly on the total commitment
amount. The facility fee, which ranges from 0.07% to 0.15%, is based on the
Company's senior debt ratings and is currently set at 0.08%. At June 30, 1998,
there was approximately $189,000 of revolving notes outstanding under this
facility at a weighted average interest rate of 6.45%.
As of June 30, 1998, there was approximately $356,000 of commercial paper
outstanding backed by the above two facilities at a weighted average interest
rate of 6.06%.
The credit facilities described above have financial compliance provisions
that contain certain restrictions on levels of net worth, debt, liens, and
guarantees.
The Company's outstanding commercial paper and other borrowings under its
various credit facilities are classified as long-term debt, since it is the
Company's intent to refinance such borrowings through long-term notes and/or
equity offerings.
The timing of any debt or equity offering is dependent on numerous factors
including market conditions, long and short term interest rates, the Company's
capitalization ratios and the outstanding balances under the revolving credit
facilities.
In March of 1998, the Company issued two senior note securities. The first
note issued was a $200,000, 10-year, non-callable security with a 6.5% coupon,
due in March of 2008. The second note was a $300,000, 22-year security due in
March of 2020. This security is subject to mandatory tender to a remarketing
agent in March of 2003 and in March of 2010. The coupon on this issue is 6.30%.
The proceeds of this offering were primarily used to repay existing debt
outstanding under the Company's revolving credit agreeements.
6. Derivatives The Company enters into derivatives primarily in the form of interest rate swaps to manage its mix of fixed and floating rate debt, and cross-currency interest rate swaps in combination with local currency to substantially hedge the Company's net investment in foreign assets. The Company has procedures in place to monitor and control the use of derivatives and only enters into transactions with a limited group of credit-worthy financial institutions. The Company does not engage in derivative transactions for speculative or trading purposes, nor is it a party to leveraged transactions. At June 30, 1998, after giving consideration to the interest rate and cross-currency swaps, the Company's debt (excluding Provident debt) consists of approximately 68% of fixed interest rate debt at a weighted average rate of 6.32% and approximately 32% of floating interest rate debt at a weighted average rate of 5.85%. Approximately $1,692,000 of the Company's debt has been converted from US dollar denominated debt to foreign currency denominated debt as the result of cross-currency swaps. Including these swaps, foreign denominated debt totals $1,949,000. The net fair value of the Company's various swap agreements at June 30, 1998, was an asset of $162,000. Fair values were obtained from counterparties to the agreements and represent their estimate of the net amount the Company would receive to terminate the swap agreements based upon the existing terms and current market conditions.
7. Ratio of Earnings to Fixed Charges
Six Months Ended June 30, 1998 1997 ---------------- 4.27 4.66 |
For purposes of computing the ratio of earnings to fixed charges, earnings consist of income from continuing operations 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). Fixed charges consist of interest expense, whether capitalized or expensed, amortization of debt costs, dividends on preferred securities of SCI Finance LLC and one-third of rental expense which the Company considers representative of the interest factor in the rentals. The decrease in the Company's ratio of earnings to fixed charges is primarily attributable to the 1997 gain on the sale of a Company investment.
8. Geographic Segment Information The Company conducts funeral and cemetery operations in 18 countries and offers financial services in the United States. Geographic segment information was as follows:
United Other Other
States France European Foreign
-------------------------------------------------------------------------------
Revenues:
Three months ended June 30:
1998......................... $ 422,945 $140,679 $ 62,762 $ 45,600
1997......................... 390,830 119,433 50,039 41,192
Six months ended June 30:
1998......................... $ 875,971 $263,607 $126,476 $ 88,996
1997......................... 794,112 253,047 111,352 82,036
Income from operations:
Three months ended June 30:
1998......................... $ 132,265 $ 18,426 $ 9,443 $ 10,305
1997......................... 115,627 12,907 7,957 10,880
Six months ended June 30:
1998......................... $ 294,379 $ 30,882 $ 23,205 $ 21,093
1997......................... 242,082 28,400 24,655 23,758
Funeral services performed:
Three months ended June 30:
1998......................... 57,030 37,321 28,206 12,849
1997......................... 56,271 34,899 22,987 12,238
Six months ended June 30:
1998......................... 123,099 76,097 57,536 26,149
1997......................... 118,235 76,486 52,759 24,478
Number of locations at June 30:
1998......................... 1,638 1,163 780 307
1997......................... 1,514 1,087 658 274
|
9. Earnings Per Share A reconciliation of the numerators and denominators of the basic and diluted earnings per share computations are presented below:
Three Months ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
--------------------------------------------------------------------------------
Income (numerator):
Income before
extraordinary item - basic...$ 90,948 $ 78,801 $199,734 $209,948
After tax interest on
convertible debentures...... 399 1,838 770 3,916
-------- -------- -------- --------
Income before
extraordinary item - diluted.$ 91,347 $ 80,639 $200,504 $213,864
--------------------------------------------------------------------------------
Shares (denominator):
Shares - basic.............. 255,004 240,872 254,820 239,068
Stock options and warrants 4,593 5,022 4,792 4,699
Convertible debentures...... 2,143 9,705 2,142 2,294
Convertible preferred
securities of SCI
Finance LLC................ - 2,096 - 10,555
-------- ------- -------- --------
Shares - diluted............ 261,740 257,695 261,754 256,616
--------------------------------------------------------------------------------
Earnings per share before
extraordinary item:
Basic...................... $ .36 $ .33 $ .78 $ .88
Diluted.................... $ .35 $ .31 $ .77 $ .83
--------------------------------------------------------------------------------
|
10.Subsequent Events
On July 17, 1998, the Company announced its plans to acquire the pre-need
funeral division of American Annuity Group Inc. (AAG) of Cincinnati, Ohio for
$164,000 in cash. AAG offers a variety of pre-need and final expense life
insurance and annuity products to finance prearranged funerals. AAG will become
part of the Company's new financial services segment.
On August 6, 1998, the Company announced that it has reached a definitive
agreement with Equity Corporation International (ECI) to form a business
combination between the two companies. ECI, the nation's fourth largest publicly
traded death care company, currently owns 326 funeral homes and 81 cemeteries in
35 U.S. states and one Canadian province. The combination would occur through a
stock-for-stock transaction that would result in ECI shareholders receiving
common shares of the Company with a value of approximately $578,000.
Both of the above transactions are subject to regulatory approval and, in the
case of ECI, an affirmative vote of ECI shareholders. Both transactions are
expected to close in the fourth quarter of 1998.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except average sales prices)
Overview:
The majority of the Company's funeral service locations 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 to more efficiently utilize
its operating facilities due to the traditional fluctuation in the number of
funeral services and cemetery interments performed in a given period. The
Company's acquisitions are primarily located within existing cluster areas or
create new cluster area opportunities. The Company has approximately 400
clusters, which range in size from two operations to 65 operations. There may be
more than one cluster in a given metropolitan area, depending upon the level and
degree of shared costs.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Results of Operations:
Segment information for the Company's three lines of business was as follows:
Six Months Ended June 30, Percentage
1998 1997 Increase Increase
----------------------------------------------------
Revenues:
Funeral............. $ 922,621 $ 876,355 $ 46,266 5.3 %
Cemetery............ 422,307 355,529 66,778 18.8
Financial services.. 9,660 7,706 1,954 25.4
--------- ---------- -------
1,354,588 1,239,590 114,998 9.3
Costs and expenses:
Funeral............. 695,283 662,155 33,128 5.0
Cemetery............ 250,327 221,886 28,441 12.8
Financial services.. 5,160 4,214 946 22.4
--------- --------- --------
950,770 888,255 62,515 7.0
Gross profit and
margin percentage:
Funeral............. 227,338 24.6% 214,200 24.4% 13,138 6.1
Cemetery............ 171,980 40.7 133,643 37.6 38,337 28.7
Financial services.. 4,500 46.6 3,492 45.3 1,008 28.9
--------- --------- --------
$ 403,818 29.8% $ 351,335 28.3% $ 52,483 14.9 %
========= ========= ========
|
Funeral
Funeral revenues were as follows:
Percentage
Six Months Ended June 30, Increase Increase
1998 1997 (Decrease) (Decrease)
----------------------------------------------------
Existing clusters:
United States...............$481,859 $457,392 $24,467 5.3 %
France...................... 263,145 252,089 11,056 4.4
Other European.............. 98,623 98,354 269 0.3
Other foreign............... 53,709 57,045 (3,336) (5.8)
-------- -------- -------
897,336 864,880 32,456 3.8
New clusters:*
United States............... 3,916 1,416 2,500
Other European.............. 16,073 1,102 14,971
Other foreign............... 2,225 444 1,781
-------- -------- -------
22,214 2,962 19,252
Non-cluster and disposed
operations.................... 3,071 8,513 (5,442)
-------- -------- -------
Total funeral revenues......$922,621 $876,355 $46,266 5.3 %
======== ======== =======
|
The $32,456 increase in revenues from existing clusters was the result of a
3.2% higher average sales price ($3,320 compared to $3,218), combined with a
0.5% increase in the number of funeral services performed (270,251 compared to
268,776). Acquisitions since January 1, 1997, included in existing clusters,
contributed $48,932 to the existing cluster revenue increase, while locations
acquired before 1997 had a decline of $16,476 due primarily to fewer funeral
services performed. French funeral revenues increased $11,056 caused primarily
by an increase in the number of funeral services performed.
During the six months ended June 30, 1998, the Company sold $274,749 of
prearranged funeral services compared to $274,019 for the same period in 1997.
Funeral costs and expenses were as follows:
Percentage
Six Months Ended June 30, Increase Increase
1998 1997 (Decrease) (Decrease)
----------------------------------------------------
Existing clusters:
United States............. $300,962 $291,589 $ 9,373 3.2 %
France.................... 223,484 215,699 7,785 3.6
Other European............ 78,683 74,770 3,913 5.2
Other foreign............. 39,373 39,458 (85) (0.2)
-------- -------- --------
642,502 621,516 20,986 3.4
New clusters:*
United States............. 2,738 953 1,785
Other European............ 12,863 820 12,043
Other foreign............. 1,692 334 1,358
-------- -------- --------
17,293 2,107 15,186
Non-cluster and disposed
operations.................. 6,210 9,399 (3,189)
Administrative overhead...... 29,278 29,132 146 0.5
-------- -------- --------
Total funeral costs
and expense................ $695,283 $662,154 $ 33,129 5.0 %
======== ======== ========
|
The $20,986 increase in costs and expenses from existing clusters is primarily
the result of a period to period increase in the total number of funeral
services performed. Acquisitions since January 1, 1997, included in existing
clusters, reported $37,689 of increased costs, while existing locations acquired
before 1997 had a $16,703 cost decrease. The gross profit margin for existing
clusters increased to 28.4% in 1998, from 28.1% in 1997. 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.
The overall funeral gross profit margin percentage improved in 1998 to 24.6%,
compared to 24.4% in 1997. Contributing to this period to period improvement
were the Company's North American and French operations, offset by lower gross
profit margins from the Company's other foreign operations.
Administrative overhead costs, expressed as a percentage of total funeral
revenues, decreased slightly to 3.2%, compared to 3.3% in 1997.
Cemetery
Cemetery revenues were as follows:
Percentage
Six Months Ended June 30, Increase Increase
1998 1997 (Decrease) (Decrease)
----------------------------------------------------
Existing clusters:
United States............ $369,331 $313,858 $55,473 17.7 %
Other European........... 10,093 10,888 (795) (7.3)
Other foreign............ 23,981 26,327 (2,346) (8.9)
-------- -------- -------
403,405 351,073 52,332 14.9
New clusters*............... 17,333 1,184 16,149
Non-cluster and disposed
operations................. 1,570 3,272 (1,702)
-------- -------- -------
Total cemetery revenues.. $422,308 $355,529 $66,779 18.8 %
======== ======== =======
|
Revenues from the existing clusters increased $52,332 in 1998. Included in the existing cluster increase were $31,945 in increased revenues from cemeteries acquired since the beginning of 1997. Locations acquired before 1997 increased $20,387 due primarily to increased trust investment income. Cemetery costs and expenses were as follows:
Percentage
Six Months Ended June 30, Increase Increase
1998 1997 (Decrease) (Decrease)
----------------------------------------------------
Existing clusters:
United States........... $193,976 $181,888 $12,088 6.6%
Other European.......... 6,075 5,849 226 3.9
Other foreign........... 13,732 13,527 205 1.5
-------- -------- -------
213,783 201,264 12,519 6.2
New clusters*.............. 12,468 1,126 11,342
Non-cluster and disposed
operations................ 2,401 2,422 (21)
Administrative overhead.... 21,675 17,074 4,601 26.9
-------- -------- -------
Total cemetery costs
and expenses............. $250,327 $221,886 $28,441 12.8%
======== ======== =======
|
Costs and expenses from existing clusters increased $12,519 due primarily to an increase of $19,757 at cemeteries acquired since the beginning of 1997, while locations acquired before 1997 had a decline of $7,238. The overall cemetery gross profit margin percentage improved in 1998 to 40.7% from 37.6% in 1997. This increase reflects a favorable product mix in sales of preneed cemetery property and merchandise, increased trust investment income, as well as continued cost control in all major expense categories primarily in the United States. Administrative overhead costs have increased to 5.1% of revenues compared to 4.8% during the six months ended June 30, 1998.
Financial Services
The Company's wholly-owned finance subsidiary, Provident Services, Inc.
("Provident") reported a gross profit of $4,500 for the six months ended June
30, 1998, compared to $3,492 for the same period in 1997. Provident's average
outstanding loan portfolio during the current period increased to $213,009
compared to $173,547 in 1997, while the average interest rate spread decreased
slightly to 3.1% compared to 3.2% in 1997.
Other Income and Expenses
Expressed as a percentage of revenues, general and administrative expenses
decreased slightly to 2.5% for the six months ended June 30, 1998, compared to
2.6% for the comparable period in 1997.
Interest expense, which excludes the amount incurred through financial
service operations, increased $10,543 or 15.6% period to period. The increased
interest expense reflects the Company's funding of acquisitions with debt.
During the first quarter of 1997, the Company sold its interest in Equity
Corporation International ("ECI") producing a pre-tax gain of $68,077.
The provision for income taxes reflected a 35.3% effective tax rate for the
six months ended June 30, 1998, compared to a 35.8% effective tax rate for the
comparable period in 1997. The decrease in the effective tax rate is due
primarily to lower taxes from international operations and the 1997 tax impact
from the gain on sale of the Company's interest in ECI which was reflected at
the Company's higher domestic tax rate.
Three Months Ended June 30, 1998
Compared to Three Months Ended June 30, 1997
Results of Operations:
Segment information for the Company's three lines of business was as follows:
Three Months Ended June 30, Percentage
1998 1997 Increase Increase
----------------------------------------------------
Revenues:
Funeral............. $450,493 $419,284 $31,209 7.4 %
Cemetery............ 216,366 177,739 38,627 21.7
Financial services.. 5,045 4,118 927 22.5
-------- -------- -------
671,904 601,141 70,763 11.8
Costs and expenses:
Funeral............. 355,847 324,787 31,060 9.6
Cemetery............ 125,639 110,889 14,750 13.3
Financial services.. 2,728 2,282 446 19.5
-------- -------- -------
484,214 437,958 46,256 10.6
Gross profit and
margin percentage:
Funeral............. 94,646 21.0% 94,497 22.5% 149 0.2
Cemetery............ 90,727 41.9 66,850 37.6 23,877 35.7
Financial services.. 2,317 45.9 1,836 44.6 481 26.2
--------- -------- -------
$187,690 27.9% $163,183 27.1% $24,507 15.0 %
======== ======== =======
|
Funeral
Funeral revenues were as follows:
Percentage
Three Months Ended June 30, Increase Increase
1998 1997 (Decrease) (Decrease)
----------------------------------------------------
Existing clusters:
United States........... $223,982 $222,693 $ 1,289 0.6 %
France.................. 140,597 119,078 21,519 18.1
Other European.......... 46,882 43,861 3,021 6.9
Other foreign........... 26,033 28,709 (2,676) (9.3)
-------- -------- -------
437,494 414,341 23,153 5.6
New clusters:*
United States........... 1,281 889 392
Other European.......... 10,041 921 9,120
Other foreign........... 1,040 223 817
-------- -------- -------
12,362 2,033 10,329
Non-cluster and disposed
operations................ 637 2,910 (2,273)
-------- -------- -------
Total funeral revenues.. $450,493 $419,284 $31,209 7.4 %
======== ======== =======
|
The $23,153 increase in revenues from existing clusters was the result of a
2.9% increase in the number of funeral services performed (128,443 compared to
124,840), and a 2.6% higher average sales price ($3,406 compared to $3,319).
Acquisitions since January 1, 1997, included in existing clusters, contributed
$25,481 to the existing cluster revenue increase, while locations acquired
before 1997 had a decline of $2,328 due primarily to fewer funeral services
performed in April and May in the United States. French funeral revenues for the
quarter increased $21,519 due to a 5.6% increase in the number of funeral
services performed (36,840 compared to 34,899).
During the three months ended June 30, 1998, the Company sold $138,919 of
prearranged funeral services compared to $148,704 for the same period in 1997.
Funeral costs and expenses were as follows:
Percentage
Three Months Ended June 30, Increase Increase
1998 1997 (Decrease) (Decrease)
----------------------------------------------------
Existing clusters:
United States.......... $153,079 $147,301 $ 5,778 3.9 %
France................. 117,750 102,047 15,703 15.4
Other European......... 39,546 36,423 3,123 8.6
Other foreign.......... 19,809 20,221 (412) (2.0)
-------- -------- -------
330,184 305,992 24,192 7.9
New clusters:*
United States.......... 986 536 450
Other European......... 8,419 714 7,705
Other foreign.......... 889 160 729
-------- -------- -------
10,294 1,410 8,884
Non-cluster and disposed
operations............... 3,002 4,326 (1,324)
Administrative overhead... 12,367 13,059 (692) (5.3)
-------- -------- -------
Total funeral costs
and expenses.......... $355,847 $324,787 $31,060 9.6 %
======== ======== =======
|
The $24,192 increase in costs and expenses from existing clusters is primarily
the result of a period to period increase in the total number of funeral
services performed. Acquisitions since January 1, 1997, included in existing
clusters, reported $18,664 of increased costs, while costs from existing
locations acquired before 1997 increased $5,528. The gross profit margin for
existing clusters decreased to 24.5% in 1998 from 26.1% in 1997. This decrease
is primarily attributable to the Company's United States funeral operations, a
historically high margin market for the Company. This is due to the
aforementioned weakness in the United States funeral service volumes.
Administrative overhead costs, expressed as a percentage of total funeral
revenues, decreased slightly to 2.7%, compared to 3.1% in 1997 due to
reclassifications of certain of these costs to the cemetery segment to better
reflect the cost of administrative support.
Cemetery
Cemetery revenues were as follows:
Percentage
Three Months Ended June 30, Increase Increase
1998 1997 (Decrease) (Decrease)
----------------------------------------------------
Existing clusters:
United States............ $188,929 $155,922 $33,007 21.2 %
Other European........... 4,976 5,079 (103) (2.0)
Other foreign............ 12,421 14,124 (1,703) (12.1)
-------- -------- -------
206,326 175,125 31,201 17.8
New clusters*............... 9,558 891 8,667
Non-cluster and disposed
operations................. 482 1,723 (1,241)
-------- -------- -------
Total cemetery revenues.. $216,366 $177,739 $38,627 21.7 %
======== ======== =======
|
Revenues from the existing clusters increased $31,201 in 1998. Included in
the existing cluster increase were $17,893 in increased revenues from cemeteries
acquired since the beginning of 1997, while revenues from existing cluster
locations owned before 1997 increased $13,308 due to increased sales of pre-need
and at-need property and merchandise as well as additional trust investment
income.
Cemetery costs and expenses were as follows:
Percentage
Three Months Ended June 30, Increase Increase
1998 1997 (Decrease) (Decrease)
----------------------------------------------------
Existing clusters:
United States............ $ 94,459 $ 91,148 $ 3,311 3.6 %
Other European........... 2,875 2,888 (13) (0.5)
Other foreign............ 7,031 6,955 76 1.1
-------- -------- -------
104,365 100,991 3,374 3.3
New clusters*............... 7,118 799 6,319
Non-cluster and disposed
operations................. 1,030 1,470 (440)
Administrative overhead..... 13,126 7,629 5,497 72.1
-------- -------- -------
Total cemetery costs
and expenses............ $125,639 $110,889 $14,750 13.3 %
======== ======== =======
|
Costs and expenses from existing clusters increased $3,374 due primarily to an increase of $10,407 at cemeteries acquired since the beginning of 1997. The overall cemetery gross profit margin percentage improved in 1998 to 41.9% from 37.6% in 1997. This increase reflects a favorable product mix in sales of preneed cemetery property and merchandise, increased trust investment income, as well as continued cost control in all major expense categories primarily in the United States. Administrative overhead costs have increased to 6.1% of revenues for the three months ended June 30, 1998, compared to 4.3% during the comparable period in 1997 due to the aforementioned reclassifications discussed in the funeral segment.
Financial Services
Provident reported a gross profit of $2,317 for the three months ended June 30,
1998, compared to $1,836 for the same period in 1997. Provident's average
outstanding loan portfolio during the current period increased to $220,062
compared to $181,709 for the comparable period in 1997, while the average
interest rate spread remained stable at 3.2% for the three months ended June 30,
1998 and 1997.
Other Income and Expenses
Expressed as a percentage of revenues, general and administrative expenses
remained stable at 2.6% for the three months ended June 30, 1998 and 1997.
Interest expense, which excludes the amount incurred through financial
service operations, increased $7,371 or 22.3% period to period. This increased
interest expense reflects the Company's funding of acquisitions with debt.
The provision for income taxes reflected a 35.3% effective tax rate for the
three months ended June 30, 1998, compared to a 35.0% effective tax rate for the
comparable period in 1997.
Financial Condition and Liquidity at June 30, 1998:
General
Historically, the Company has funded its working capital needs and capital
expenditures primarily through cash provided by operating activities and
borrowings under bank revolving credit agreements and commercial paper. Funding
required for the Company's acquisition program has been generated through public
and private offerings of debt and the issuance of equity securities supplemented
by the Company's revolving credit agreements and additional securities
registered with the Securities and Exchange Commission (the "Commission"). The
Company believes cash from operations, additional funds available under its
revolving credit agreements, and proceeds from public and private offerings of
securities will be sufficient to continue its current acquisition program and
operating policies. For the three-month period ended June 30, 1998, the Company
acquired 45 funeral service locations and 7 cemeteries (see Note 3). In
addition, the Company has received signed letters of intent to acquire an
additional 138 funeral service locations, 29 cemeteries and 2 crematoria for an
aggregate purchase price of approximately $386,000 and has reached a definitive
agreement to merge with ECI (see note 10) which will add 326 funeral homes and
81 cemeteries in a stock for stock transaction valued at approximately $578,000.
These businesses are expected to produce approximately $449,000 in annualized
revenues, including $324,000 in North American operations and $125,000 from
operations outside North America.
At June 30, 1998, the Company had net working capital of $360,439 and a
current ratio of 1.69:1, compared to working capital of $275,966 and a current
ratio of 1.52:1 at December 31, 1997.
Sources And Uses of Cash
Cash flows from operating activities: Net cash provided by operating activities
was $153,903 for the six months ended June 30, 1998, compared to $172,303 for
the same period in 1997, a decrease of $18,400. This decrease results from a
combination of higher operating profits, offset by increased uses of cash
generated by changes in the Company's working capital accounts. Significant
reductions of operating cash include amounts receivable resulting from increased
sales of funeral services as well as increased sales of cemetery products and
merchandise.
Cash flows from investing activities: Net cash used in investing activities was $465,097 for the six months ended June 30, 1998, compared to $265,551 for the same period in 1997, an increase of $199,546. Cash used for acquisitions increased by $176,131 while the level of capital expenditures remained unchanged during the six months ended June 30, 1998, as the
Company continues to expand through both acquisitions of existing businesses and through increased construction of funeral and cemetery facilities. Additionally, in 1997 approximately $148,000 in cash was provided by the sale of the Company's interest in ECI. Cash used relating to prearranged funeral activities decreased due to the timing of cash payments to and withdrawals from trusts.
Cash flows from financing activities: Net cash provided by financing activities
was $339,843 for the six months ended June 30, 1998, compared to $80,674 for the
same period in 1997, an increase of $259,169. The six months ended June 30, 1997
included a use of cash of $449,998 for the early extinguishment of certain
higher interest rate debt.
As of June 30, 1998, the Company's debt to capitalization ratio was 51.7%
compared to 49.8% at December 31, 1997. The interest rate coverage ratio for the
six months ended June 30, 1998 was 4.72:1, compared to 4.42:1 (excluding the
gain on the sale of the Company's investment in ECI) for the same period in
1997. This interest rate coverage level has been relatively consistent, despite
higher levels of debt outstanding, for several years. The Company believes that
the acquisition of funeral and cemetery operations funded with debt or Company
common stock is a prudent business strategy given the stable cash flow generated
and the low failure rate exhibited by these types of 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 Company expects adequate sources of funds to be available to finance its
future operations and acquisitions through internally generated funds,
borrowings under credit facilities and the issuance of securities. The Company's
various revolving credit facilities and lines of credit currently provide for
aggregate borrowings of approximately $1,000,000 of which approximately $455,000
was available under these facilities at June 30, 1998. The Company also had the
ability to issue $1,000,000 in securities registered with the Commission under a
shelf registration. In addition, 14,682,000 shares of common stock and a total
of $197,000 of guaranteed promissory notes and convertible debentures are
registered with the Commission under a separate shelf registration to be used
exclusively for future acquisitions.
Prearranged Funeral Services
The Company has a marketing program to sell prearranged funeral contracts and
the funds collected are generally held in trust or are used to purchase life
insurance or annuity contracts. The principal amount of each such prearranged
funeral contract will be received in cash by a Company funeral service location
at the time the funeral is performed. Earnings on trust funds and increasing
benefits under insurance funded contracts also increase the amount of cash to be
received upon performance of the funeral and are intended to cover future
increases in the cost of providing a price guaranteed funeral service as well as
any selling costs. During 1997, the Company completed a review of the
prearranged trust investment process which included an asset/liability study.
This has resulted in a new investment program which entails the consolidation of
multiple trustees, the use of institutional managers with differing investment
styles and consolidated performance monitoring and tracking. This new program
targets a real return in excess of the amount necessary to cover future
increases in the cost of providing a price guaranteed funeral service as well as
any selling costs. This is accomplished by allocating the portfolio mix to the
appropriate investments that more accurately match the anticipated maturity of
the policies. The Company anticipates an asset allocation of approximately 65%
equity and 35% fixed income.
Marketing costs incurred with the sale of prearranged funeral contracts are a
current use of cash which is partially offset with cash retained, pursuant to
state laws, from amounts trusted and certain commissions earned by the Company
for sales of insurance products issued by third party insurers. The Company
sells prearranged funerals in most of its service markets including its foreign
markets. Auxia, the Company's French life insurance subsidiary, primarily sells
insurance products used to fund prearranged funerals to be performed by the
Company's French funeral service locations. Prearranged funeral service sales
afford the Company the opportunity to both protect current market share and mix
as well as expand market share in certain markets. The Company believes this
will stimulate future revenue growth. Prearranged funeral services fulfilled as
a percent of the total North American funerals performed annually approximates
25% and is expected to grow, thereby making the total number of funerals
performed more predictable.
Other Matters:
Year 2000 Issue
The "Year 2000" issue refers to the inability of certain computer programs to
correctly differentiate the century from a date in which the year is represented
by only two digits. A computer system which is not year 2000 compliant might not
be able to process certain data, or possibly could cause the entire computer
system to malfunction. The Company is aware of the issues pertaining to computer
software and microprocessor performance as they relate to the year 2000, and is
taking steps to minimize the possibility that operations will be significantly
disrupted by the manner in which Company computers process date codes. The
Company has established Year 2000 program offices in Houston and Europe to
organize and oversee the Company's Year 2000 preparedness efforts.
The Company's Year 2000 preparedness efforts have been divided into four general categories: planning and assessment, correction, validation and testing, and acceptance and deployment. All of the Company's major systems are being assessed to determine Year 2000 compliance and all non-compliant systems will be repaired or replaced. Most major systems have already been assessed and are at various stages of correction, testing, and deployment. Efforts are underway to educate appropriate Company personnel about the importance of the Year 2000 problem and to mitigate potential problems at all levels of the organization. The Company is currently seeking Year 2000 compliance assurances from third party service providers with which it has significant business relationships.
As major systems are assessed, the Company will be able to prepare accurate cost estimates for completing the Company's Year 2000 preparedness efforts. The Company operates in a relatively low technology business environment that is not dependent upon complex customer on-line processing to execute business operations. The Company currently does not believe that any significant disruptions to operations will occur as a result of the Year 2000 problem. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be converted on a timely basis, or that a failure to successfully convert by another company, would not have a material adverse effect on the Company.
Recent Accounting Standards
The Company will adopt Statement of Financial Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" for the year ended December 31,
2000. The Company is currently evaluating the impact of this standard, but does
not anticipate that it will have a material impact on the Company's financial
position, results of operations, or statement of cash flows.
Cautionary Statement on Forward-looking Statements The statements contained in this filing on Form 10-Q that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be accompanied by words such as "believe," "estimate," "expect," "anticipate," or "predict," that convey the uncertainty of future events or outcomes. These statements are based on assumptions that the Company believes are reasonable; however many important factors could cause the Company's actual results in the future to differ materially from the forward-looking statements made herein and in any other documents or oral presentations made by, or on behalf of, the Company. Important factors which could cause actual results to differ materially from those in forward-looking statements include, among others, the following:
1) Changes in general economic conditions both domestically and
internationally impacting financial markets (e.g. marketable security
values as well as currency and interest rate fluctuations).
2) Changes in domestic and international political and/or regulatory
environments in which the Company operates, including tax and accounting
policies. Changes in regulations may impact the Company's ability to enter
or expand new markets.
3) Changes in consumer demand for the Company's services caused by several
factors such as changes in local death rates, cremation rates, competitive
pressures and local economic conditions.
4) The Company's ability to identify and complete additional acquisitions on
terms that are favorable to the Company, to successfully integrate
acquisitions into the Company's business and to realize expected cost
savings in connection with such acquisitions. The Company's future results
may be materially impacted by changes in the level of acquisition
activity.
The Company assumes no obligation to publicly update or revise any forward-looking statements made herein or any other forward- looking statements made by the Company.
SERVICE CORPORATION INTERNATIONAL
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 14, 1998, the Company held its annual meeting of shareholders and
the shareholders elected two directors. The shares voting on the
director nominees were cast as follows:
Abstention or Broker
Nominee Votes For Votes Withheld Non-votes
B. D. Hunter 205,618,107 2,626,776 -0-
John W. Mecom, Jr. 205,699,268 2,545 -0-
|
ITEM 5. OTHER INFORMATION
Discretionary Proxy Voting Authority
With respect to any proposal of a holder of the Company's
common stock to be submitted to the Company's shareholders at its next
annual meeting outside the processes of Rule 14a-8 promulgated under the
Securities Exchange Act of 1934, as amended, (that is, where a
shareholder has not sought inclusion of the proposal in the Company's
proxy statement), the proxies solicited by the Company's Board of
Directors for use at such annual meeting may confer discretionary
authority to the proxies named therein to vote on any such proposal,
unless the Company receives notice of such shareholder proposal by
February 25, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)Exhibits
3.1 Statement of Resolution Eliminating Series of Shares of Series C
Junior Participating Preferred Stock dated July 27, 1998.
3.2 Statement of Resolution Establishing Series of Shares of Series D Junior Participating Preferred Stock dated July 27, 1998.
10.1 Employment Agreement, dated January 1, 1998, between SCI
Executive Services, Inc. and Jerald L. Pullins.
12.1 Ratio of earnings to fixed charges for the six months ended
June 30, 1998 and 1997.
27.1 Financial data schedule.
(b)Reports on Form 8-K During the quarter ended June 30, 1998, the Company filed a Form 8-K dated May 14, 1998, reporting (i) under "Item 5. Other Events" the preferred share purchase rights which the Company distributed as a dividend on common stock of the Company on July 28, 1998, and (ii) under "Item 7. Exhibits" the Rights Agreement dated May 14, 1998 and the Company's press release dated May 14, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
August 13, 1998
SERVICE CORPORATION INTERNATIONAL
By: /s/ George R. Champagne --------------------------------- George R. Champagne Senior Vice President Chief Financial Officer (Principal Financial Officer) |
SERVICE CORPORATION INTERNATIONAL Exhibit 12.1
RATIO OF EARNINGS TO FIXED CHARGES
Six Months Ended June 30,
1998 1997
--------------------------------------------------------------------------------
(Thousands, except ratio amounts)
Pretax income from continuing operations....... $308,564 $326,814
Undistributed income of less than 50%
owned equity investees...................... (3,027) (2,049)
Minority interest in income of majority
owned subsidiaries with fixed charges......... 140 125
Add fixed charges as adjusted (from below)..... 91,402 86,524
-------- --------
$397,079 $411,414
Fixed charges:
Interest expense:
Corporate.............................. $ 78,649 $ 66,762
Financial services..................... 4,772 3,719
Capitalized............................ 1,541 1,704
Amortization of debt costs............... (475) 869
1/3 of rental expense.................... 8,456 10,792
Dividends on convertible preferred
stock of subsidiary..................... - 4,382
-------- --------
Fixed charges.................................. 92,943 88,228
Less: Capitalized interest............... (1,541) (1,704)
-------- --------
Fixed charges as adjusted...................... $ 91,402 $ 86,524
======== ========
Ratio (earnings divided by fixed charges)...... 4.27 4.66
======== ========
|
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF SERVICE CORPORATION INTERNATIONAL AS OF JUNE 30, 1998 AND THE RELATED STATEMENT OF INCOME FOR THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 6 MOS |
| FISCAL YEAR END | DEC 31 1998 |
| PERIOD END | JUN 30 1998 |
| CASH | 75,526 |
| SECURITIES | 609,739 |
| RECEIVABLES | 1,035,549 |
| ALLOWANCES | 91,709 |
| INVENTORY | 183,920 |
| CURRENT ASSETS | 885,645 |
| PP&E | 2,150,880 |
| DEPRECIATION | 432,195 |
| TOTAL ASSETS | 11,244,662 |
| CURRENT LIABILITIES | 525,206 |
| BONDS | 3,077,286 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 257,186 |
| OTHER SE | 2,679,799 |
| TOTAL LIABILITY AND EQUITY | 11,244,662 |
| SALES | 1,265,834 |
| TOTAL REVENUES | 1,354,588 |
| CGS | 945,610 |
| TOTAL COSTS | 950,770 |
| OTHER EXPENSES | 34,647 |
| LOSS PROVISION | 15,863 |
| INTEREST EXPENSE | 82,946 |
| INCOME PRETAX | 308,564 |
| INCOME TAX | 108,830 |
| INCOME CONTINUING | 199,734 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 199,734 |
| EPS PRIMARY | .78 |
| EPS DILUTED | .77 |
EXHIBIT 3.1
STATEMENT OF RESOLUTION ELIMINATING SERIES OF SHARES
of
SERIES C JUNIOR PARTICIPATING PREFERRED STOCK
of
SERVICE CORPORATION INTERNATIONAL
TO THE SECRETARY OF STATE
OF THE STATE OF TEXAS:
Pursuant to the provisions of Article 2.13 of the Texas Business Corporation Act, the undersigned corporation submits the following statement for the purposes of eliminating a series of shares and all references to such series contained in the articles of incorporation of the corporation:
1. The name of the corporation is SERVICE CORPORATION INTERNATIONAL (the "Corporation").
2. The following resolution, eliminating a series of shares and all references to such series contained in the articles of incorporation of the Corporation, was duly adopted by all necessary action on the part of the Corporation on May 14, 1998:
RESOLVED FURTHER, that pursuant to Section 2.13C of the Texas Business Corporation Act, effective as of the close of business on July 28, 1998, the Series C Junior Participating Preferred Stock of the Corporation, of which 950,000 shares are authorized but none are issued, shall be retired, cancelled and eliminated, and effective as of such time all references to such Series C Junior Participating Preferred Stock shall be eliminated from the Corporation's Articles of Incorporation.
IN WITNESS WHEREOF, this Statement of Resolution Eliminating Series of Shares is executed on behalf of the Corporation by a duly authorized officer.
SERVICE CORPORATION INTERNATIONAL
By: /s/ James M. Shelger
------------------------------
James M. Shelger
Senior Vice President
General Counsel and Secretary
|
STATE OF TEXAS )(
)(
COUNTY OF HARRIS )(
|
Before me, a notary public, on this day personally appeared James M. Shelger, known to me to be the person whose name is subscribed to the foregoing document and, being by me first duly sworn, declared that the statements therein contained are true and correct.
Given under my hand and seal of office this 27th day
of July, 1998.
/s/ Susan L. Garrett
------------------------------
(Printed or stamped name)
(Notary Seal) Notary Public, State of Texas
My commission expires:
September 30, 2000
(Notary Seal)
|
EXHIBIT 3.2
STATEMENT OF RESOLUTION ESTABLISHING SERIES OF SHARES
of
SERIES D JUNIOR PARTICIPATING PREFERRED STOCK
of
SERVICE CORPORATION INTERNATIONAL
(Pursuant to Article 2.13 of the
Texas Business Corporation Act)
STATEMENT OF
RESOLUTION ESTABLISHING SERIES OF SHARES
TO THE SECRETARY OF STATE
OF THE STATE OF TEXAS:
Pursuant to the provisions of Article 2.13 of the Texas
Business Corporation Act, the undersigned Corporation submits the
following statement for the purpose of establishing and
designating a series of shares and fixing and determining the
relative rights and preferences thereof:
1. The name of the Corporation is SERVICE CORPORATION
INTERNATIONAL (the "Corporation").
2. The following resolution, establishing and designating a series of shares and fixing and determining the relative rights and preferences thereof, was duly adopted by all necessary action on the part of the Corporation on May 14, 1998:
RESOLVED, that the Board of Directors of the Corporation hereby establishes and designates, effective as of the close of business on July 28, 1998, a series of Preferred Stock, par value $1.00 per share (the "Preferred Stock"), of the Corporation and hereby states the designation and number of shares, and fixes and determines the relative rights and preferences thereof as follows:
SERIES D JUNIOR PARTICIPATING PREFERRED STOCK:
Section 1. Designation and Amount. The shares of such series shall be designated as "Series D Junior Participating Preferred Stock" (the "Series D Preferred Stock") and the number of shares constituting the Series D Preferred Stock shall be 500,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series D Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series D Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series D Preferred Stock with respect to dividends, the holders of shares of Series D Preferred Stock, in preference to the holders of Common Stock, par value $1.00 per share (the "Common Stock"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series D Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 1000 times the aggregate per share amount of all cash dividends, and 1000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series D Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series D Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series D Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the Series D Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series D Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series D Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series D Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series D Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series D Preferred Stock shall have the following voting rights:
(A) Each share of Series D Preferred Stock shall entitle the holder thereof to one vote on all matters submitted to a vote of the stockholders of the Corporation.
(B) Except as otherwise provided herein, in any other Statement of Resolution Establishing Series of Shares creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series D Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law, holders of Series D Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends
or distributions payable on the Series D Preferred Stock as
provided in Section 2 are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series D Preferred Stock
outstanding shall have been paid in full, the Corporation
shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior
(either as to dividends or upon liquidation,
dissolution or winding up) to the Series D Preferred
Stock;
(ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series D Preferred Stock, except dividends paid ratably on the Series D Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series D Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series D Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any shares of Series D Preferred Stock, or any shares of stock ranking on a parity with the Series D Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series D Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Articles of Incorporation, or in any other Statement of Resolution Establishing Series of Shares creating a series of Preferred Stock or any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up.
Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (1) to the
holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series D Preferred Stock unless, prior thereto, the
holders of shares of Series D Preferred Stock shall have
received $1000 per share, plus an amount equal to accrued
and unpaid dividends and distributions thereon, whether or
not declared, to the date of such payment, provided that the
holders of shares of Series D Preferred Stock shall be
entitled to receive an aggregate amount per share, subject
to the provision for adjustment hereinafter set forth, equal
to 1000 times the aggregate amount to be distributed per
share to holders of shares of Common Stock, or (2) to the
holders of shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up)
with the Series D Preferred Stock, except distributions made
ratably on the Series D Preferred Stock and all such parity
stock in proportion to the total amounts to which the
holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the
Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the aggregate amount to which
holders of shares of Series D Preferred Stock were entitled
immediately prior to such event under the proviso in clause
(1) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which
is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding
immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series D Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series D Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series D Preferred Stock shall not be redeemable.
Section 9. Rank. The Series D Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Articles of Incorporation and Bylaws of the Corporation, and this Statement of Resolution Establishing Series of Shares, shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series D Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series D Preferred Stock, voting together as a single class.
IN WITNESS WHEREOF, this Statement of Resolution Establishing Series of Shares is executed on behalf of the Corporation by a duly authorized officer.
SERVICE CORPORATION INTERNATIONAL
By: /s/ James M. Shelger
-----------------------------------
Name: James M. Shelger
Title: Senior Vice President
General Counsel and Secretary
|
STATE OF TEXAS )
:
COUNTY OF )
|
Before me, a notary public, on this day personally appeared
James M. Shelger, known to me to be the person whose name is
subscribed to the foregoing document and, being by me first duly
sworn, declared that the statements therein contained are true
and correct.
Given under my hand and seal of office this _27th day of
July, 1998.
/s/ Susan L. Garrett
(Printed or stamped name)
(Notarial Seal) Notary Public, State of Texas
My commission expires:
September 30, 2000
(Notary Seal)
|
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this 1st day of January, 1998, by and between SCI EXECUTIVE SERVICES, INC., a Delaware corporation (the "Company") wholly owned by SERVICE CORPORATION INTERNATIONAL, a Texas corporation (the "Parent") and successor by assignment to all of the rights, duties and obligations under this Agreement, and JERALD L. PULLINS (the "Employee").
1. Employment and Term. The Company agrees to employ the Employee and the Employee agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement, for the period beginning on the date hereof and ending as of the close of business on December 31, 2000 (such period together with all extensions thereof, is referred to hereinafter as the "Employment Period"); provided, however, that commencing on the date one year after the date hereof, and on each January 1 thereafter (each such date shall be hereinafter referred to as a "Renewal Date") the Employment Period shall be automatically extended so as to terminate three (3) year(s) from such Renewal Date if (i) the Compensation Committee of the Board of Directors of the Parent (hereinafter referred to as the "Compensation Committee") authorizes such extension during the 60-day period preceding such Renewal Date and (ii) the Employee has not previously given the Company written notice that the Employment Period shall not be so extended. In the event that the Company gives the Employee written notice at any time that the Compensation Committee has determined not to authorize such extension, or if the Company fails to notify the Employee of the Compensation Committee's determination prior to the Renewal Date (the "Renewal Deadline"), the Employment Period shall be extended so as to terminate three (3) year(s) after the date such notice is given (or, in case of a failure to notify, three (3) year(s) after the Renewal Deadline) and shall not thereafter be further extended.
2. Duties and Powers of Employee. During the Employment Period, the Employee shall serve as the Executive Vice President, International Operations of the Parent and the Company and shall have the duties, powers and authority heretofore possessed by the holder of such offices and such other powers consistent therewith as are delegated to him in writing from time to time by the Board of Directors of the Parent (the "Board"). The Employee's services shall be performed at the office of the Company located at Houston, Texas. During the Employment Period, the Employee must reside within a 75-mile radius of the location of the Houston, Texas office. During the Change of Control Period, the Employee's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned with or by the Company or the Parent at any time during the 90-day period immediately preceding the Change of Control Date (as defined in Section 15(a) below).
3. Compensation. The Employee shall receive the following compensation for his services:
(a) Salary. During the Employment Period, he shall be paid an annual base salary ("Annual Base Salary") at the rate of not less than $385,000 per year, in substantially equal bi-weekly installments, and subject to any and all required withholdings and deductions for Social Security, income taxes and the like. The Compensation Committee may from time to time direct such upward adjustments to Annual Base Salary as the Compensation Committee deems to be appropriate or desirable; provided, however, that during the Change of Control Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary awarded to Employee prior to the Change of Control Period. Annual Base Salary shall not be reduced after any increase thereof pursuant to this Section 3(a). Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement.
(b) Incentive Cash Compensation. During the Employment Period, he shall be eligible annually for a cash bonus at the discretion of the Compensation Committee (such aggregate awards for each year are hereinafter referred to as the "Annual Bonus") and at the discretion of the Compensation Committee to receive awards from any plan of the Company or any of its affiliated companies (as defined in Section 15(d) below) providing for the payment of bonuses in cash to senior management employees of the Company or its affiliated companies (such plans being referred to herein collectively as the "Cash Bonus Plans") in accordance with the terms thereof; provided, however, that, during the Change of Control Period, the Employee shall be awarded, for each fiscal year ending during the Change of Control Period, an Annual Bonus at least equal to the Highest Recent Bonus (as defined in Section 15(e) below). Each Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Employee shall elect to defer the receipt of such Annual Bonus.
(c) Incentive and Savings and Retirement Plans. During the Employment Period, the Employee shall be entitled to participate in all incentive and savings (in addition to the Cash Bonus Plans) and retirement plans, practices, policies and programs applicable generally to other senior management employees of the Company and its affiliated companies.
(d) Welfare Benefit Plans. During the Employment Period, the Employee and/or the Employee's family, as the case may be, shall be eligible for participation in all welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other senior management employees of the Company and its affiliated companies.
(e) Expenses. During the Employment Period and for so long as the Employee is employed by the Company, he shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in accordance with the policies, practices and procedures of the Company and its affiliated companies from time to time in effect.
(f) Fringe Benefits. During the Employment Period, the Employee shall be entitled to fringe benefits in accordance with the plans, past practices, programs and policies of the Company and its affiliated companies from time to time in effect.
(g) Office and Support Staff. During the Employment Period, the Employee shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, commensurate with his position.
(h) Vacation and Other Absences. During the Employment Period, the Employee shall be entitled to paid vacation and such other paid absences whether for holidays, illness, personal time or any similar purposes, in accordance with the plans, policies, programs and practices of the Company and its affiliated companies.
(i) Change of Control. During the Change of Control Period, the Employee's benefits listed under Sections 3(c), 3(d), 3(e), 3(f), 3(g) and 3(h) above shall be at least commensurate in all material respects with the most valuable and favorable of those received by the Employee at any time during the one-year period immediately preceding the Change of Control Date.
4. Termination of Employment. (a) Death or Disability. The Employment Period shall terminate automatically upon the Employee's death during the Employment Period. If the Company determines in good faith that the Disability of the Employee has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Employee written notice in accordance with Section 16(b) of its intention to terminate the Employment Period. In such event, the Employment Period shall terminate effective on the 30th day after receipt of such notice by the Employee (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" shall mean the inability of the Employee to perform the Employee's duties with the Company on a full-time basis as a result of incapacity due to mental or physical illness which continues for more than one year after the commencement of such incapacity, such incapacity to be determined by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such agreement as to acceptability not to be withheld unreasonably).
(b) Cause. The Company may terminate the Employ-ment Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) the Employee's deliberate and intentional continuing refusal to substantially perform his duties and obligations under this Agreement (other than a breach of the Employee's obligations under this Agreement arising from the failure of the Employee to work as a result of incapacity due to physical or mental illness) if he shall have either failed to remedy such alleged breach within 60 days from his receipt of written notice from the Secretary of the Company demanding that he remedy such alleged breach, or shall have failed to take reasonable steps in good faith to that end during such 60 day period and thereafter, or (ii) the conviction of the Employee of a felony involving malice which conviction has been affirmed on appeal or as to which the period in which an appeal can be taken has lapsed.
(c) Good Reason; Window Period. The Employee's employment may be
terminated (i) by the Employee for Good Reason (as defined below) or (ii) during
the Window Period (as defined below) by the Employee without any reason. For
purposes of this Agreement, the "Window Period" shall mean the 30-day period
immediately following the first anniversary of the Change of Control Date. For
purposes of this Agreement, "Good Reason" shall mean
(i) the assignment to the Employee of any duties
inconsistent in any respect with the Employee's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities prior to the date of such assignment or any other action
by the Company or the Parent which results in a diminution in such
position, authority, duties or responsibilities, excluding for this purpose
an isolated and insubstantial action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by
the Employee;
(ii) any failure by the Company to comply with any of the provisions of Section 3, other than an isolated and insubstantial failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee;
(iii) the Company's requiring the Employee to be based at any office or location other than that described in Section 2(a);
(iv) any purported termination by the Company of the Employee's employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company or the Parent to comply with
and satisfy Section 14(c), provided that the successor referred to in
Section 14(c) has received at least ten days prior written notice from the
Company or the Employee of the requirements of Section 14(c).
For purposes of this Section 4(c), during the Change of Control Period, any good faith determination of "Good Reason" made by the Employee shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause or by the Employee without any reason during the Window Period or for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 16(b). For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employment Period under the provision so indicated ,(iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice) and (iv) if the termination is by the Company for Cause, indicates that the Board has determined that a basis for termination for Cause exists, that the Employee has failed to take reasonable steps in good faith to remedy the alleged basis for such termination, and contains a certified copy of a resolution of the Board adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board in a meeting called and held for that purpose in which the Employee was given an opportunity to be heard, finding that a basis for termination for Cause exists and that the Employee has failed to take reasonable steps in good faith to remedy such alleged basis for termination. The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company hereunder or preclude the Employee or the Company from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Employee's employment is terminated by the Company for Cause, or by the Employee
during the Window Period or for Good Reason, the date of receipt of the Notice
of Termination or any later date specified therein, as the case may be, (ii) if
the Employee's employment is terminated by the Company other than for Cause or
Disability, or by the Employee other than for Good Reason or during the Window
Period, the Date of Termination shall be the date on which the Company or the
Employee, as the case may be, notifies the other of such termination and (iii)
if the Employee's employment is terminated by reason of death or Disability, the
Date of Termination shall be the date of death of the Employee or the Disability
Effective Date, as the case may be. Notwithstanding the foregoing, if the
Company gives the Employee written notice pursuant to the second sentence of
Section 1 hereof, then "Date of Termination" shall mean the last day of the
three (3) year period for which the Employment Period is extended pursuant to
such sentence.
5. Obligations of the Company Upon Termination. (a) Certain
Terminations Prior to Change of Control Date. If, during the Employment Period
prior to any Change of Control Date, the employment of the Employee with the
Company shall be terminated (i) by the Company other than for Cause, death or
Disability or (ii) by the Employee for Good Reason, then, in lieu of the
obligations of the Company under Section 3, (i) the Company shall pay to the
Employee in a lump sum in cash within 30 days after the Date of Termination all
Unpaid Agreement Amounts (as defined in Section 5(b)(i)(A) below) and (ii)
notwithstanding any other provision hereunder, for the longer of (A) the
remainder of the Employment Period or (B) to the extent compensation and/or
benefits are provided under any plan, program, practice or policy, such longer
period, if any, as such plan, program, practice or policy may provide, the
Company shall continue to provide to the Employee the compensation and benefits
provided in Sections 3(a), 3(b)(based on the Highest Recent Bonus), 3(c) and
3(d) (it being understood that if the Company gives the Employee written notice
that the Compensation Committee has determined not to authorize an extension, or
fails to notify the Employee of the Compensation Committee's determination prior
to the Renewal Deadline, in either case as contemplated by the second sentence
of Section 1 hereof, the giving of such notice or the failure to so notify the
Employee shall not be deemed a termination of the employment of the Employee
with the Company during the Employment Period for purposes of this Section
5(a)).
(b) Certain Terminations After Change of Control Date. If, during the Change of Control Period, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee either for Good Reason or without any reason during the Window Period, then, in lieu of the obligations of the Company under Section 3 and notwithstanding any other provision hereunder:
(i) the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:
(A) the sum of (1) all unpaid amounts due to the Employee under Section 3 through the Date of Termination, including without limitation, the Employee's Annual Base Salary and any accrued vacation pay, (2) the product of (x) the Highest Recent Bonus and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Employee (together with any accrued interest or earnings thereon) to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations" and the sum of the amounts described in clauses (1) and (3) shall be hereinafter referred to as the "Unpaid Agreement Amounts"); and
(B) the amount (such amount shall be hereinafter referred to as the "Severance Amount") equal to the sum of
(1) Three (3) multiplied by the Employee's Annual Base Salary, plus
(2) Three (3) multiplied by the Employee's Highest Recent Bonus;
(ii) for the longer of (A) the remainder of the Employment Period or (B) to the extent benefits are provided under any plan, program, practice or policy, such longer period as such plan, program, practice or policy may provide, the Company shall continue benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(d) if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank and their families during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally at any time thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families; provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be required only to the extent not provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility of the Employee for retiree benefits pursuant to such plans, practices, programs and policies, the Employee shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period; and
(iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Employee and/or the Employee's family for the remainder of the Employment Period any other amounts or benefits required to be paid or provided or which the Employee and/or the Employee's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank with the Company and its affiliated companies and their families during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families.
Such amounts received under this Section 5(b) shall be in lieu of any other amount of severance relating to salary or bonus continuation to be received by the Employee upon termination of employment of the Employee under any severance plan, policy or arrangement of the Company.
(c) Termination as a Result of Death. If the Employee's
employment is terminated by reason of the Employee's death during the Employment
Period, in lieu of the obligations of the Company under Section 3, the Company
shall pay or provide to the Employee's estate (i) all Accrued Obligations (which
shall be paid in a lump sum in cash within 30 days after the Date of
Termination) and the timely payment or provision of the Welfare Benefit
Continuation (as defined below) and the Other Benefits (as defined below) and
(ii) any cash amount to be received by the Employee or the Employee's family as
a death benefit pursuant to the terms of any plan, policy or arrangement of the
Company and its affiliated companies. "Welfare Benefit Continuation" shall mean
the continuation of benefits to the Employee and/or the Employee's family for
the longer of (i) three (3) year(s) from the Date of Termination or (ii) the
period provided by the plans, programs, policies or practices described in
Section 3(d) in which the Employee participates as of the Date of Termination,
such benefits to be at least equal to those which would have been provided to
them in accordance with the plans, programs, practices and policies described in
Section 3(d) if the Employee's employment had not been terminated, in accordance
with the most favorable plans, practices, programs or policies of the Company
and its affiliated companies as in effect and applicable generally to other
employees of comparable rank and their families on the Date of Termination or,
if the Date of Termination occurs after the Change of Control Date, during the
90-day period immediately preceding the Change of Control Date or, if more
favorable to the Employee, as in effect generally at any time thereafter with
respect to other employees of comparable rank with the Company and its
affiliated companies and their families. "Other Benefits" shall mean the timely
payment or provision to the Employee and/or the Employee's family of any other
amounts or benefits required to be paid or provided or which the Employee and/or
the Employee's family is eligible to receive pursuant to this Agreement and
under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies as in effect and applicable generally to
other employees of comparable rank and their families on the Date of Termination
or, if the Date of Termination occurs after the Change of Control Date, during
the 90-day period immediately preceding the Change of Control Date or, if more
favorable to the Employee, as in effect generally thereafter with respect to
other employees of comparable rank with the Company and its affiliated companies
and their families.
(d) Termination as a Result of Disability. If the Employee's employment is terminated by reason of the Employee's Disability during the Employment Period, in lieu of the obligations of the Company under Section 3, the Company shall pay or provide to the Employee (i) all Accrued Obligations which shall be paid in a lump sum in cash within 30 days after the Date of Termination and the timely payment or provision of the Welfare Benefit Continuation and the Other Benefits, provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the Welfare Benefit Continuation shall be required only to the extent not provided under such other plan during such applicable period of eligibility, and (ii) any cash amount to be received by the Employee as a disability benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies.
(e) Cause; Other than for Good Reason. If the Employee's employment shall be terminated during the Employment Period by the Company for Cause or by the Employee other than during the Window Period and other than for Good Reason, in lieu of the obligations of the Company under Section 3, the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination all Unpaid Agreement Amounts.
6. Non-exclusivity of Rights. Except as provided in Sections 5(a),
5(b)(i)(B), 5(b)(ii), 5(c) and 5(d), nothing in this Agreement shall prevent or
limit the Employee's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Employee may qualify, nor shall anything herein limit or
otherwise affect such rights as the Employee may have under any contract or
agreement with the Company or any of its affiliated companies. Amounts which are
vested benefits or which the Employee is otherwise entitled to receive under any
plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement.
7. Full Settlement; Resolution of Disputes. (a) The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement and, except as provided in Sec-tions 5(b)(ii) and 5(d), such amounts shall not be reduced whether or not the Employee obtains other employment. The Company agrees to pay promptly as incurred, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Employee or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Employee about the amount of any payment pursuant to this Agreement), plus in each case interest on any payment required to be made under this Agreement but not timely paid at the rate provided for in Section 280G(d)(4) of the Internal Revenue Code of 1986, as amended (the "Code").
(b) If there shall be any dispute between the Company and the Employee (i) in the event of any termination of the Employee's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Employee, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by the Employee of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to the Employee and/or the Employee's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 5(a) or 5(b) as through such termination were by the Company without Cause or by the Employee with Good Reason. The Employee hereby undertakes to repay to the Company all such amounts to which the Employee is ultimately adjudged by such court not to be entitled.
8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 (or a successor provision of like import) of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 8(c), all determinations
required to be made under this Section 8, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by an accounting
firm of national reputation selected by the Company (the "Accounting Firm"),
which shall provide detailed supporting calculations both to the Company and the
Employee within 15 business days of the receipt of notice from the Employee that
there has been a Payment, or such earlier time as is requested by the Company.
In the event that the Accounting Firm is serving (or has served within the three
years preceding the Change of Control Date) as accountant or auditor for the
individual, entity or group effecting the Change of Control, or is unwilling or
unable to perform its obligations pursuant to this Section 8, the Employee shall
appoint another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 8, shall be paid by the Company to the Employee within five days of
the receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Employee, it shall furnish the
Employee with a written opinion that failure to report the Excise Tax on the
Employee's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and the Employee. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 8(c) and the Employee thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Employee.
(c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Employee is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which the Employee gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Company, subject to the provisions of this Section 8(c), shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner. In this connection, the Employee agrees, subject to the provisions of this Section 8(c), to (i) prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine, (ii) give the Company any information reasonably requested by the Company relating to such claim, (iii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iv) cooperate with the Company in good faith in order to effectively contest such claim and (v) permit the Company to participate in any proceedings relating to such claim. The foregoing is subject, however, to the following: (A) the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed in connection therewith and the payment of costs and expenses in such connection, (B) if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Employee, on an interest-free basis, and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance, (C) any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due shall be limited solely to such contested amount and (D) the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.
9. Confidential Information. The Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Employee during the Employee's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Employee or representatives of the Employee in violation of this Agreement). After termination of the Employee's employment with the Company or any of its affiliated companies, the Employee shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Employee under this Agreement. Subject to the previous sentence, nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Employee.
10. Employee's Obligation to Avoid Conflicts of Interest. (a) The Employee shall comply with the conflict of interest policy of the Parent as in effect from time to time.
11. Ownership of Information, Ideas, Concepts, Improvements, Discoveries and Inventions and all Original Works of Authorship. (a) All information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee or which are disclosed or made known to Employee, individually or in conjunction with others, during Employee's employment by the Company or any of its affiliated companies and which relate to the Company's or any of its affiliated companies' business, products or services (including all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names and marks) are and shall be the sole and exclusive property of the Company. Moreover, all drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, maps and all other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries and inventions are and shall be the sole and exclusive property of the Company.
(b) In particular, Employee hereby specifically sells, assigns and transfers to the Company all of his worldwide right, title and interest in and to all such information, ideas, concepts, improvements, discoveries or inventions, and any United States or foreign applications for patents, inventor's certificates or other industrial rights that may be filed thereon, including divisions, continuations, continuations-in-part, reissues and/or extensions thereof, and applications for registration of such names and marks. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee shall assist the Company and its nominee at all times in the protection of such information, ideas, concepts, improvements, discoveries or inventions, both in the United States and all foreign countries, including but not limited to, the execution of all lawful oaths and all assignment documents requested by the Company or its nominee in connection with the preparation, prosecution, issuance or enforcement of any applications for United States or foreign letters patent, including divisions, continuations, continuations-in-part, reissues, and/or extensions thereof, and any application for the registration of such names and marks.
(c) Moreover, if during Employee's employment by the Company or any of its affiliated companies, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures or the like) relating to the Company's or any of its affiliated companies' business, products, or services, whether such work is created solely by Employee or jointly with others, the Company shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by the Company as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation or as an instrumental text, then the work shall be considered to be work made for hire and the Company shall be the author of the work. In the event such work is neither prepared by the Employee within the scope of his or her employment or is not a work specially ordered and deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to the Company all of Employee's worldwide right, title and interest in and to such work and all rights of copyright therein. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee agrees to assist the Company and its nominee, at any time, in the protection of the Company's worldwide right, title and interest in and to the work and all rights of copyright therein, including but not limited to, the execution of all formal assignment documents requested by the Company or its nominee and the execution of all lawful oaths and applications for registration of copyright in the United States and foreign countries.
12. Employee's Post-Employment Non-Competition Obligations. (a) During
the Employment Period and, subject to the conditions of Sections 12(b) and
12(c), for a period of three (3) year(s) thereafter (the "Non-Competition
Period"), Employee shall not, acting alone or in conjunction with others,
directly or indirectly, in any of the business territories in which the Company
or any of its affiliated companies is presently or at the time of termination of
employment conducting business, engage in any business in competition with the
business conducted by the Company or any of its affiliated companies at the time
of the termination of the employment relationship, whether for his own account
or by soliciting, canvassing or accepting any business or transaction for or
from any other company or business in competition with such business of the
Company or any of its affiliated companies.
(b) If Employee's employment is discontinued: (i) by Company for
Cause pursuant to Section 4(b); or (ii) by Employee because of any reason other
than for Good Reason or other than during the Window Period pursuant to Section
4(c), Employee shall be bound by the obligations of Section 12(a) and the
Company shall have no obligation to make the Non-Competition Payments (as
defined in Section 12(c) below). However, if the employment relationship is
terminated by any other circumstance or for any other reason, Employee's
post-employment non-competition obligations required by Section 12(a) shall be
subject to the Company's obligation to make the Non-Competition Payments
specified in Section 12(c).
(c) Notwithstanding the provisions of Section 4 of this
Agreement, whenever Employee's employment is terminated due to the expiration of
the Employment Period in accordance with the provisions of Section 1, or due to
Employee's Disability (Section 4(a)), or by the Company without Cause (Section
4(b)), or by Employee for Good Reason or during the Window Period pursuant to
Section 4(c) unless the Company exercises its option as hereinafter provided,
Employee shall be entitled to continue to receive payments (the "Non-Competition
Payments") equal to his then current Annual Base Salary (as of the Date of
Termination) during the Non-Competition Period. During the Non-Competition
Period, the Employee shall not, however, be deemed to be an employee of the
Company or be entitled to continue to receive any other employee benefits other
than as set forth in Section 5 or Section 8. Moreover, the Non-Competition
Payments shall be reduced to the extent Employee has already received lump-sum
payments in lieu of salary pursuant to Section 5. The Company shall have the
option, exercisable at any time on or within one (1) month after: (i) the date
the Company gives the Employee notice that the Employment Period will not be
extended (or in the case of failure to notify, on or within one month after the
Renewal Deadline), in accordance with Section 1; or (ii) in the case of
termination due to Employee's disability or by the Company without Cause, the
Date of Termination, to cancel Employee's post-employment non-competition
obligations under Section 12(a) and the Company's corresponding obligation to
make the Non-Competition Payments. Such option shall be exercised by the Company
mailing a written notice thereof to Employee in accordance with Section 16(b);
if the Company does not send such notice within the prescribed one-month period,
the Company shall remain obligated to make the Non-Competition Payments and
Employee shall remain obligated to comply with the provisions of Section 12(a).
The amounts to be paid by the Company are not intended to be liquidated damages
or an estimate of the actual damages that would be sustained by the Company if
Employee breaches his post-employment non-competition obligations. If Employee
breaches his post-employment non-competition obligations, the Company shall be
entitled to cease making the Non-Competition Payments and shall be entitled to
all of its remedies at law or in equity for damages and injunctive relief.
13. Obligations to Refrain From Competing Unfairly. In addition to the other obligations agreed to by Employee in this Agreement, Employee agrees that during the Employment Period and for three (3) year(s) following the Date of Termination, he shall not at any time, directly or indirectly for the benefit of any other party than the Company or any of its affiliated companies, (a) induce, entice, or solicit any employee of the Company or any of its affiliated companies to leave his employment, or (b) contact, communicate or solicit any customer of the Company or any of its affiliated companies derived from any customer list, customer lead, mail, printed matter or other information secured from the Company or any of its affiliated companies or their present or past employees, or (c) in any other manner use any customer lists or customer leads, mail, telephone numbers, printed material or material of the Company or any of its affiliated companies relating thereto.
14. Successors. (a) This Agreement is personal to the Employee and without the prior written consent of the Company shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. The Parent will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Parent or the Parent to assume expressly and agree to perform the Parent's obligations hereunder in the same manner and to the same extent that the Parent would be required to perform them if no such succession had taken place. As used in this Agreement, "Parent" shall mean the Parent as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform the Parent's obligations hereunder by operation of law, or otherwise.
15. Certain Definitions. The following defined terms used in this Agreement shall have the meanings indicated:
(a) The "Change of Control Date" shall mean the first date on
which a Change of Control occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Employee's employment
with the Company is terminated or there is a change in the circumstances of the
Employee's employment which constitutes Good Reason, and if it is reasonably
demonstrated by the Employee that such termination or change in circumstances:
(i) was at the request of a third party who has taken steps reasonably
calculated to effect the Change of Control; or (ii) otherwise arose in
connection with or anticipation of the Change of Control, then, for all purposes
of this Agreement, the "Change of Control Date" shall mean the date immediately
prior to the date of such termination or cessation.
(b) The "Change of Control Period" shall mean the period commencing on the Change of Control Date and ending on the last day of the Employment Period.
(c) "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended the "Exchange Act") (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (A) the then outstanding shares
of Common Stock of the Parent (the "Outstanding Parent Common Stock") or
(B) the combined voting power of the then outstanding voting secu-rities of
the Parent entitled to vote generally in the election of directors (the
"Outstanding Parent Voting Securities"); provided, however, that the
following acquisitions shall not constitute a Change of Control: (A) any
acquisition directly from the Parent (excluding an acquisition by virtue of
the exercise of a conversion privilege), (B) any acquisition by the Parent,
(C) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Parent or any corporation controlled by the
Parent or (D) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (A), (B) and
(C) of subsection (iii) of this definition of "Change of Control" are
satisfied; or
(ii) Individuals who, as of the effective date hereof, constitute the Board of Directors of the Parent (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Parent; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Parent's shareholders, was approved by (A) a vote of at least a majority of the directors then constituting the Incumbent Board of the Parent, or (B) a vote of at least a majority of the directors then comprising the Executive Committee of the Board of Directors of the Parent at a time when such committee consisted of at least five members and all members of such committee were either members of the Incumbent Board or considered as being members of the Incumbent Board pursuant to clause (A) of this subsection (ii), shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Parent; or
(iii) Approval by the shareholders of the Parent of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (A) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities immediately prior to such organization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent, any employee benefit plan or related trust of the Parent or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or
(iv) Approval by the shareholders of the Parent of (A) a complete liquidation or dissolution of the Parent or (B) the sale or other disposition of all or substantially all of the assets of the Parent, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent and any employee benefit plan or related trust of the Parent or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the Board of Directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board of Directors of the Parent providing for such sale or other disposition of assets of the Parent.
(d) The term "affiliated company" shall mean any company controlled by, controlling or under common control with the Company.
(e) The term "Highest Recent Bonus" shall mean the highest Annual Bonus (annualized for any fiscal year consisting of less than twelve full months) paid or payable, including by reason of any deferral, to the Employee by the Company and its affiliated companies in respect of the three most recent full fiscal years ending on or prior to, (i) if prior to a Change of Control, the Date of Termination, or (ii) if after a Change of Control, the Change of Control Date.
16. Miscellaneous. (a) This Agreement supersedes all previous agreements and discussions relating to the same or similar subject matters between Employee and the Company and shall be governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a duly authorized committee thereof, shall have authority on behalf of the Company or the Parent to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto.
(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Employee:
Jerald L. Pullins
2301 Kingston
Houston, Texas 77019
If to the Company:
SCI Executive Services, Inc.
1929 Allen Parkway
Houston, Texas 77019
Attention: Corporate Secretary
If to the Parent:
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
Attention: Corporate Secretary
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.
(e) The Employee's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Employee or the Company may have hereunder, including, without limitation, the right of the Employee to terminate employment for Good Reason pursuant to Section 4(c) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
(f) No breach, whether actual or alleged, of this Agreement by the Employee shall constitute grounds for the Company to withhold or offset any payment or benefit due to the Employee under any other agreement, contract, plan, program, policy or practice of the Company.
IN WITNESS WHEREOF, the Employee and, pursuant to due authorization from the Board, the Company have caused this Agreement to be executed this 1st day of January, 1998.
JERALD L. PULLINS
/s/ Jerald L. Pullins
------------------------------
"EMPLOYEE"
|
SCI EXECUTIVE SERVICES, INC.
By:/s/ Curtis G. Briggs
---------------------------
Name: Curtis G. Briggs
Title: Vice President
"COMPANY"
|
Pursuant to due authorization from its Board of Directors, the Parent, by its execution hereof, absolutely and unconditionally guarantees to Employee the full and timely payment and performance of each obligation of the Company to Employee under this Agreement, waives any and all rights that it may otherwise have to require Employee to proceed against the Company for nonpayment or nonperformance, waives any and all defenses that would otherwise be a defense to this guarantee, and agrees to remain liable to Employee for all payment and performance obligations of the Company under this Agreement, whether arising before, on or after the date of this Agreement, until this Agreement shall terminate pursuant to its terms.
SERVICE CORPORATION
INTERNATIONAL
By:/s/ James M. Shelger
---------------------------------
Name: James M. Shelger
Title: Senior Vice President,
General Counsel and
Secretary
|
"PARENT"