[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
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 its charter)
TEXAS 74-1488375
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
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1929 ALLEN PARKWAY
HOUSTON, TEXAS 77019
(Address of principal executive offices) (Zip code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock ($1 par value) New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: NONE
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the common stock held by non-affiliates of the registrant (assuming that the registrant's only affiliates are its officers and directors) is $1,041,281,874 based upon a closing market price of $3.80 on March 22, 2001 of a share of common stock as reported on the New York Stock Exchange -- Composite Transactions Tape.
The number of shares outstanding of the registrant's common stock as of March 22, 2001 was 278,001,053 (excluding treasury shares).
DOCUMENTS INCORPORATED BY REFERENCE
PART I
ITEM 1. BUSINESS.
(DOLLARS IN THOUSANDS)
Service Corporation International is the largest funeral and cemetery company in the world. The term "Company" or "SCI" includes the registrant and its subsidiaries, unless the context indicates otherwise. As of December 31, 2000, the Company operated 3,611 funeral service locations, 569 cemeteries and 200 crematoria located in 18 countries on five continents. The Company conducts funeral service operations in all 18 countries and cemetery operations in all countries in North America, South America, Australia and certain countries within Europe. As of December 31, 2000, the Company's largest markets were North America and France, which when combined represent approximately 84% of the Company's consolidated revenues, 83% of consolidated operating income before non-recurring items and 78% of the Company's total operating locations. For financial information about the Company's reportable segments, see note fourteen to the consolidated financial statements in Item 8 of this Form 10-K.
Historically, the Company's growth has been largely attributable to acquiring funeral and cemetery businesses which resulted in creating the world's largest network of funeral service locations and cemeteries. The Company is now focused on a series of growth initiatives designed to increase revenues internally without significant outlays of capital. The Company's unparalleled network of funeral service locations and cemeteries form the foundation for these growth initiatives. The Company's network gives the Company the ability to create a national brand name in the industry as well as the ability to enter into affinity relationships to provide the Company's products and services to organizations that require a national network of funeral service locations and cemeteries. Along with these internal growth initiatives, the Company is focused on increasing cash flow and reducing its outstanding debt. The Company is also in the process of divesting certain funeral service locations and cemeteries in North America that are not well aligned with the Company's long-term strategy and is in discussions with various third parties concerning the possibility of joint venturing certain of the Company's international operations. Proceeds from divestitures or joint venturing programs will be used by the Company to further reduce its debt.
The Company was incorporated in Texas in July of 1962. The Company's principal corporate offices are located at 1929 Allen Parkway, Houston, Texas 77019 and its telephone number is (713) 522-5141.
FUNERAL AND CEMETERY OPERATIONS
The funeral and cemetery operations consist of the Company's funeral service locations, cemeteries, crematoria and related businesses. The operations are organized into a North American division covering the United States and Canada and a European division responsible for all operations in Europe, and other international operations managed in the Pacific Rim and South America. Each division is under the direction of divisional executive management with substantial industry experience. Local funeral service location and cemetery managers, under the direction of the divisional management, receive support and resources from the Company's headquarters in Houston, Texas and have substantial autonomy with respect to the manner in which services are conducted.
The majority of the Company's funeral service locations and cemeteries are managed in groups called clusters. Clusters are geographical groups of funeral service locations and cemeteries that lower their individual overhead costs by sharing common resources such as operating personnel, preparation services, clerical and accounting staff, limousines, hearses and preneed sales activities. 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, allows 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 has multiple funeral service locations and cemeteries in a number of metropolitan areas. Within individual metropolitan areas, the funeral service locations and cemeteries operate under various
names because most operations were acquired as existing businesses. Some of the Company's funeral service locations in its international operations operate under certain brand names specific for a general area or country. In 2000, the Company started branding its operations in North America under the name Dignity Memorial(TM). While this process is intended to emphasize the Company's seamless national network of funeral service locations and cemeteries in North America, the original names associated with acquired operations with their inherent goodwill and heritage will remain the same as before acquisition.
Funeral Service Locations. The Company's 3,611 funeral service locations provide all professional services relating to funerals, including the use of funeral facilities and motor vehicles. Funeral service locations sell caskets, coffins, burial vaults, cremation receptacles, flowers and burial garments, and other ancillary products and services. Certain funeral service locations also operate crematoria. At December 31, 2000, the Company owned 193 funeral service/cemetery combination locations and operated 55 flower shops engaged principally in the design and sale of funeral floral arrangements. These flower shops provide floral arrangements to some of the Company's funeral homes and cemeteries. The number of deaths tends to be somewhat higher in the winter months and the Company's funeral service locations generally experience a higher volume of business during those months.
In addition to selling its services and products to client families at the time of need, the Company also sells prearranged funeral services in most of its service markets, including its principal foreign markets. Funeral prearrangement is a means through which a customer contractually agrees to the terms of a funeral to be performed in the future. The funds collected from prearranged funeral contracts are generally placed in trust accounts (pursuant to applicable law) or are used to pay premiums on life insurance policies from third party insurers. In certain situations pursuant to applicable laws, the Company will post a surety bond as financial assurance in the amount of the preneed funeral contract in lieu of placing certain funds in trust accounts or paying premiums on life insurance policies. See the Financial Assurances section included in Financial Condition, Liquidity and Capital Resources in this Form 10-K for further details on the Company's practice of posting such surety bonds. At December 31, 2000, the total value of the Company's unperformed prearranged funeral contracts was $4,537,669, of which approximately $396,000 is estimated to be fulfilled in 2001. For additional information regarding prearranged funeral activities, see notes two, three and five to the consolidated financial statements in Item 8 of this Form 10-K.
Cemeteries. The Company's cemeteries sell interment rights associated with cemetery property (including mausoleum spaces, lots and lawn crypts) and cemetery merchandise including stone and bronze memorials, burial vaults, caskets and cremation memorialization products. The Company's cemeteries also perform interment services and provide management and maintenance of cemetery grounds. Certain cemeteries operate crematoria and certain cemeteries contain gardens specifically for the purpose of memorialization associated with the Company's cremation customers.
Cemetery sales are often made on a preneed basis pursuant to installment contracts providing for monthly payments. A portion of the proceeds from cemetery sales is generally required by law to be paid into perpetual care trust funds. Earnings of perpetual care trust funds are used to defray the maintenance cost of cemeteries. In addition, all or a portion of the proceeds from the sale of preneed cemetery merchandise and services may be required by law to be paid into trust until the merchandise is purchased or the service is provided on behalf of the customer. In certain situations pursuant to applicable laws, the Company will post a surety bond as financial assurance for a certain amount of the preneed cemetery contract in lieu of placing certain funds into trust accounts. See the Financial Assurances section included in Financial Condition, Liquidity and Capital Resources in this Form 10-K for further details on the Company's practice of posting such surety bonds. For additional information regarding cemetery preneed activities, see notes two, three and six to the consolidated financial statements in Item 8 of this Form 10-K.
Combined Funeral Service Locations and Cemeteries. The Company currently owns 193 funeral service/cemetery combination locations in North America in which a funeral service location is physically located within one of the Company's cemeteries. Combination locations allow certain facility, personnel and equipment costs to be shared between the funeral service location and cemetery and typically have a higher gross margin than if the funeral and cemetery operations were operated separately. Combination locations also
create synergies between funeral and cemetery sales forces and give consumers added convenience to purchase both funeral and cemetery products and services at a single location.
Death Care Industry. In North America and most international markets in which the Company operates, the funeral and cemetery industry is characterized by a large number of locally owned, independent operations. Since the Company's inception in the 1960s, the Company has been focused on the acquisition and consolidation of independent funeral homes and cemeteries in the very fragmented death care industry. During the 1990s, the Company also expanded its operations through consolidation in Europe, Australia and South America. During 1999, the Company, as well as other consolidators in the death care industry, significantly reduced the level of acquisition activity. The Company is now focused on a series of growth initiatives designed to increase revenues internally without significant outlay of capital. As part of its current long-term strategy, the Company is in discussions with various third parties concerning the possibility of joint venturing primarily the Company's international operations and is also in the process of divesting certain funeral service locations and cemeteries in North America.
To compete successfully, the Company's funeral service locations and cemeteries must maintain good reputations and high professional standards in the industry, as well as offer attractive products and services at competitive prices. The Company believes it has an unparalleled network of funeral service locations and cemeteries that offer high quality products and services at prices that are competitive with independent funeral homes and cemeteries. Some of the Company's funeral service locations in its international operations operate under certain brand names specific for a general area or country. During 2000, the Company began branding its network of funeral service locations in North America under the Dignity Memorial(TM) brand name. A national brand name would be new and unique to the death care industry in North America and would provide many advantages to the Company discussed in more detail in Revenue Growth Initiatives in Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K.
In the death care industry in recent years, there has been a growing trend in the number of cremations performed in North America as an alternative to traditional funeral service dispositions. Outside of North America, the cremation rate is more stable. The west coast of the United States and the states of Arizona and Florida have the highest concentration of cremation consumers in North America. While cremations performed by the Company in North America typically have higher gross profit margins than traditional funeral services, cremations usually result in lower revenue and gross profit dollars to the Company than traditional funeral services. In North America during 2000, 36.3% of all funeral services performed by the Company were cremation cases, compared to 33.9% performed in 1999. The Company in 2000 continued to expand its cremation memorialization products and cremation services in several North American markets, which has resulted in higher average sales for cremation cases compared to historical levels. The Company also continues to expand its nationally branded cremation service locations called National Cremation Service(R) (NCS). NCS currently operates in ten high cremation states and has plans to expand into seven additional high cremation states. The Company believes that the NCS consumer would not have chosen traditional funeral service locations as an alternative to NCS, and therefore is considered an incremental customer to the Company.
With the aging of the population in North America, the Company continues to believe the death care industry possesses attractive characteristics, and the Company is uniquely positioned with its unparalleled network of funeral service locations and cemeteries to capture future market share with its current initiatives.
DISCONTINUED OPERATIONS
The Company formerly owned insurance operations including ownership of a French life insurance company (Auxia) and a U.S. life insurance company (American Memorial Life Insurance Company or AMLIC). These insurance operations assisted in the funding of contracts written by Company-owned or affiliated funeral service locations. During 2000, the Company completed the sales of these insurance operations. Accordingly, the consolidated financial statements in this Form 10-K have been reclassified to reflect these operations as discontinued. Operating results from Auxia have been included through August 31,
2000 and the operating results from AMLIC have been included through September 30, 2000, the dates of disposition of the respective companies.
EMPLOYEES
At December 31, 2000, the Company employed 29,326 (17,232 in the United States) persons on a full time basis and 10,690 (8,296 in the United States) persons on a part time basis. Of the full time employees, 28,548 were in the funeral and cemetery operations and 778 were in corporate or other overhead activities and services. All of the Company's eligible United States employees who so elect are covered by the Company's group health and life insurance plans. Eligible United States employees are participants in retirement plans of the Company or various subsidiaries, while foreign employees are covered by other Company defined or government mandated benefit plans. Although labor disputes are experienced from time to time, in general relations with employees are considered satisfactory.
REGULATION
The Company's various operations are subject to regulations, supervision and licensing under various U.S. federal, state and foreign statutes, ordinances and regulations. The Company believes that it is in substantial compliance with the significant provisions of such statutes, ordinances and regulations. Since 1984, the Company has operated in the United States under the Federal Trade Commission (FTC) comprehensive trade regulation rule for the funeral industry. The rule contains minimum guidelines for funeral industry practices, requires extensive price and other affirmative disclosures and imposes mandatory itemization of funeral goods and services. From time to time in connection with the Company's former strategy of growth through acquisitions, the Company has entered into consent orders with the FTC that have required the Company to dispose of certain operations to proceed with such acquisitions or have limited the Company's ability to make acquisitions in specified areas. The trade regulation rule and the various consent orders have not had a materially adverse effect on the Company's operations.
The French funeral services industry has undergone significant regulatory change in recent years. Historically, the French funeral services industry has been controlled, as provided by national legislation, either (i) directly by municipalities through municipality-operated funeral establishments (Municipal Monopoly), or (ii) indirectly by the remaining municipalities that have contracted for funeral service activities with third party providers, such as the Company's French funeral operations (Exclusive Municipal Authority). Legislation was passed that will generally end municipal control of the French funeral service business and will allow free competition among funeral service providers. Under such legislation, the Exclusive Municipal Authority was abolished in January 1996, and the Municipal Monopoly was eliminated in January 1998. Cemeteries in France, however, are and will continue to be controlled by municipalities and religious organizations, with third parties, including the Company, providing cemetery merchandise such as markers and monuments to consumers.
ITEM 2. PROPERTIES.
(DOLLARS IN THOUSANDS)
The Company's executive headquarters is located at 1929 Allen Parkway, Houston, Texas 77019, in a 12-story office building. A wholly owned subsidiary of the Company owns an undivided one-half interest in the building and parking garage. The other undivided one-half interest is owned by an unrelated third party. The Company holds an option to acquire such interest for $2,000 in July 2005 and, at the option of the unrelated third party, is obligated to make such acquisition. The property consists of approximately 127,000 square feet of office space in the building and 185,000 square feet of parking space in the parking garage. The Company leases all of the office space in the building pursuant to a lease that expires June 30, 2005 providing for monthly rent of $59. The Company pays all operating expenses. One half of the rent is paid to the wholly owned subsidiary and the other half is paid to the owners of the remaining undivided one-half interest. The Company owns and utilizes for corporate activities two additional buildings located in Houston, Texas containing a total of approximately 167,000 square feet of office space.
At December 31, 2000, the Company owned approximately 63% of the real estate and buildings of its 4,380 funeral service locations, cemeteries and crematoria and leased facilities in connection with approximately 37% of such operations. In addition, the Company leased two aircraft pursuant to cancelable operating leases. At December 31, 2000, the Company operated 13,389 vehicles, of which 3,633 were owned and 9,756 were leased. For additional information regarding leases, see note eleven to the consolidated financial statements in Item 8 of this Form 10-K.
At December 31, 2000, the Company's 569 cemeteries contain a total of approximately 34,221 acres, of which approximately 49% are developed.
The specialized nature of the Company's businesses requires that its facilities be well-maintained and kept in good condition and management of the Company believes that these standards are met.
ITEM 3. LEGAL PROCEEDINGS.
Previously Reported Litigation. The following discussion describes certain litigation as of March 29, 2001, which was previously reported:
Civil Action H-99-0280; In Re Service Corporation International; In the
United States District Court for the Southern District of Texas, Houston
Division (the Consolidated Lawsuit). The Consolidated Lawsuit is pending before
Judge Lynn N. Hughes and includes 21 class action lawsuits that were filed in
the United States District Court for the Southern District of Texas, two class
action lawsuits that were originally brought in the United States District Court
for the Eastern District of Texas, and a lawsuit brought in the United States
District Court for the Southern District of Texas by an individual who sold his
funeral home to SCI. The Consolidated Lawsuit names as defendants the Company
and three of the Company's current or former executive officers or directors:
Robert L. Waltrip, L. William Heiligbrodt and George R. Champagne (the
Individual Defendants). The plaintiffs have filed a Consolidated Class Action
Complaint in the Consolidated Lawsuit alleging that defendants violated federal
securities laws by making materially false and misleading statements and failing
to disclose material information concerning the Company's prearranged funeral
business. The Consolidated Lawsuit seeks to recover an unspecified amount of
monetary damages. Since the litigation is in its preliminary stages and no
discovery has occurred, the Company cannot quantify its ultimate liability, if
any, for the payment of damages or predict the outcome of the litigation.
However, the Company moved to dismiss all of the allegations in the Consolidated
Lawsuit and believes that they do not provide a basis for the recovery of
damages because the Company made all required disclosures on a timely basis. The
Company and the Individual Defendants have also filed an Answer to the
Consolidated Class Action Complaint, and the Company intends to aggressively
defend this lawsuit.
The Consolidated Lawsuit has been brought on behalf of all persons and
entities who (i) acquired shares of Company common stock in the merger of a
wholly owned subsidiary of Company into Equity Corporation International (ECI);
(ii) purchased shares of Company common stock in the open market during the
period from July 17, 1998, through January 26, 1999 (the Class Period); (iii)
purchased Company call options in the open market during the Class Period; (iv)
sold Company put options in the open market during the Class Period; (v) held
employee stock options in ECI that became options to purchase Company common
stock pursuant to the merger; and (vi) held Company employee stock options to
purchase Company common stock under a stock plan during the Class Period.
Excluded from the foregoing categories are the Individual Defendants, the
members of their immediate families and all other persons who were directors or
executive officers of the Company or its affiliated entities at any time during
the Class Period. Judge Hughes has certified the Consolidated Lawsuit as a class
action. On May 10, 2000, Judge Hughes signed an order amending the class
definition to include James P. Hunter, III as a class member. Mr. Hunter was
Chairman, President and Chief Executive Officer of ECI at the time of its merger
with a wholly-owned subsidiary of the Company. Mr. Hunter and a related family
trust filed a separate lawsuit in state court in Angelina County, Texas, which
is discussed below.
The Company and the Individual Defendants have filed a Motion to Dismiss
the Consolidated Lawsuit; the plaintiffs have filed their Opposition to
Defendants' Motion to Dismiss the Consolidated Lawsuit; and the Company and the
Individual Defendants have filed a Reply to Plaintiffs' Opposition to
Defendants' Motion to
Dismiss the Consolidated Lawsuit. The foregoing pleadings will be considered by Judge Hughes in due course. A status conference is set for April 4, 2001.
Copies of the complaint in the Consolidated Lawsuit and the pleadings that have been filed in response thereto and that are referred to herein are filed as exhibits to this Annual Report on Form 10-K.
Cause No. 32548-99-11, James P. Hunter, III et al v. Service Corporation International et al; In the ________ Judicial District Court of Angelina County, Texas. On November 10, 1999, James P. Hunter, III and a related family trust filed a lawsuit against the Company, the Individual Defendants, two other officers, an employee of the Company and PricewaterhouseCoopers LLP, the Company's independent accountants, in state District Court in Angelina County, Texas (Hunter Litigation). The plaintiffs allege, among other things, violations of Texas securities law and statutory and common law fraud, and seek unspecified compensatory and exemplary damages. The Company and the other defendants filed an answer in the Hunter Litigation denying the plaintiffs' allegations. Since the litigation is in its very preliminary stages, the Company cannot quantify its ultimate liability, if any, for the payment of damages or predict the outcome of the litigation. However, the Company believes that the allegations in the Hunter Litigation, like those in the Consolidated Lawsuit, do not provide a basis for the recovery of damages because all required disclosures were made on a timely basis. The Company intends to aggressively defend this litigation.
On May 10, 2000, Judge Hughes entered an order in the Consolidated Lawsuit in the federal district court staying the further prosecution of the Hunter litigation in state court. Hunter and the related family trust appealed this order, and the United States Court of Appeals for the Fifth Circuit lifted the stay in an order of September 13, 2000. Following this appeal, Judge Hughes then signed an order on October 5, 2000, prohibiting Mr. Hunter and the related family trust from pursuing discovery in the Hunter Litigation. Judge Hughes entered the order pursuant to the authority vested to him by the Securities Litigation Uniform Standards Act of 1998. Hunter and the related family trust filed a motion for a trial setting in the state district court.
A copy of the Plaintiff's Original Petition in the Hunter Litigation and the Defendants' original answer in that proceeding are filed as exhibits to this Annual Report on Form 10-K.
Cause No. 31,820-99-2; Charles Fredrick v. Service Corp. International; In the ________ Judicial District Court of Angelina County, Texas (Fredrick Litigation). This additional securities fraud case has been brought against the Company by a former shareholder of ECI alleging causes of action exclusively under Texas statutory and common law. The Company has filed an answer denying plaintiff's allegations. Since the litigation is in its preliminary stages, the Company cannot quantify its ultimate liability, if any, for the payment of damages or predict the outcome of the litigation. However, the Company believes that the allegations in the Fredrick Litigation do not provide a basis for the recovery of damages. The Company intends to vigorously defend this litigation.
New Litigation.
Cause No. 33701-01-01; Jack D. Rottman v. Service Corporation International, et al; In the ________ Judicial District Court of Angelina County, Texas. On December 28, 2000, Jack Rottman filed a lawsuit against the Company, the Individual Defendants, two other officers, an employee of the Company, and PricewaterhouseCoopers, L.L.P., the Company's independent accountants, in state District Court in Angelina County, Texas (Rottman Litigation). The plaintiff, a former officer of ECI, alleges, among other things, violations of Texas securities law and statutory and common law fraud, and seeks unspecified compensatory and exemplary damages. The Company and the other defendants filed an answer in the Rottman Litigation denying the plaintiff's allegations. Since the litigation is in its very preliminary stages, the Company cannot quantify its ultimate liability, if any, for the payment of damages or predict the outcome of the litigation. However, the Company believes that the allegations in the Rottman Litigation, like those in the Consolidated Lawsuit, do not provide a basis for the recovery of damages because all required disclosures were made on a timely basis. The Company intends to aggressively defend this litigation.
A copy of the Plaintiff's Original Petition in the Rottman Litigation and the Defendants' original answer in that proceeding are filed as exhibits to this Annual Report on Form 10-K.
Cause No. 2000-63917; Jack T. Hammer v. Service Corporation International, et al.; In the 165th Judicial District Court of Harris County, Texas. On December 15, 2000, Jack T. Hammer filed a lawsuit against the Company, the Individual Defendants, two other officers, an employee of the Company, and PricewaterhouseCoopers, L.L.P., the Company's independent accountants, in state District Court in Harris County, Texas (Hammer Litigation). The plaintiff, a former director of ECI, alleges, among other things, violations of Texas securities law and statutory and common law fraud, and seeks unspecified compensatory and exemplary damages. The Company and the other defendants filed an answer in the Hammer Litigation denying the plaintiff's allegations. Since the litigation is in its very preliminary stages, the Company cannot quantify its ultimate liability, if any, for the payment of damages or predict the outcome of the litigation. However, the Company believes that the allegations in the Hammer Litigation, like those in the Consolidated Lawsuit, do not provide a basis for the recovery of damages because all required disclosures were made on a timely basis. The Company intends to aggressively defend this litigation.
A copy of the Plaintiff's Original Petition in the Hammer Litigation and the Defendants' original answer in that proceeding are filed as exhibits to this Annual Report on Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE COMPANY
Pursuant to General Instruction G to Form 10-K, the information regarding executive officers of the Company called for by Item 401 of Regulation S-K is hereby included in Part I of this report.
The following table sets forth as of March 28, 2001 the name and age of each executive officer of the Company, the office held, and the date first elected an officer.
YEAR FIRST
BECAME
OFFICER NAME AGE POSITION OFFICER(1)
------------ ---- -------- ----------
R. L. Waltrip........................ (70) Chairman of the Board and Chief 1962
Executive Officer
B. D. Hunter......................... (71) Vice Chairman of the Board 1986
Jerald L. Pullins.................... (59) President and Chief Operating Officer 1992
Jeffrey E. Curtiss................... (52) Senior Vice President Chief Financial 2000
Officer
James M. Shelger..................... (51) Senior Vice President General Counsel 1987
and Secretary
J. Daniel Garrison................... (49) Vice President North American 1998
Cemetery Operations
W. Cardon Gerner..................... (46) Vice President Corporate Controller 1999
W. Mark Hamilton..................... (36) Vice President Prearranged Sales 1996
Frank T. Hundley..................... (41) Vice President Treasurer 2000
Lowell A. Kirkpatrick, Jr. .......... (42) Vice President Operational Management 1994
Systems
Stephen M. Mack...................... (49) Vice President North American Funeral 1998
Operations
Thomas L. Ryan....................... (35) Vice President International 1999
Operations
Eric D. Tanzberger................... (32) Vice President Investor Relations and 2000
Assistant Corporate Controller
Stephen J. Uthoff.................... (49) Vice President Chief Information 2000
Officer
Michael R. Webb...................... (43) Vice President Corporate Development 1998
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(1) Indicates the year a person was first elected as an officer although there were subsequent periods when certain persons ceased being officers of the Company.
Unless otherwise indicated below, the persons listed above have been executive officers or employees for more than five years.
Mr. Hunter was appointed Vice Chairman of the Board in January 2000. Prior thereto for more than five years, Mr. Hunter was the Chairman and Chief Executive Officer of Huntco, Inc., an intermediate steel processor. Mr. Hunter has been a director of the Company since 1986 and also served as Vice Chairman of the Board of the Company from September 1986 to May 1989.
Mr. Curtiss joined the Company as Senior Vice President and Chief Financial Officer in January 2000. From January 1992 until July 1999, Mr. Curtiss served as Senior Vice President and Chief Financial Officer of Browning-Ferris Industries, Inc., a waste services company.
Mr. Gerner joined the Company in January 1999 in connection with the acquisition of ECI and in March 1999 was promoted to Vice President Corporate Controller. Before the acquisition, Mr. Gerner had been Senior Vice President and Chief Financial Officer of ECI since March 1995. Prior thereto, Mr. Gerner was a partner with Ernst & Young LLP.
Mr. Hundley joined the Company as Vice President Treasurer in March 2000. Prior thereto, Mr. Hundley served for more than five years in various capacities at Banc of America Securities, LLC, its predecessors and affiliates, including as Managing Director.
Mr. Ryan joined the Company in June 1996 as Director of Financial Reporting. Since then, Mr. Ryan has served as Director of Investor Relations and Managing Director and Chief Financial Officer of International Operations. Mr. Ryan was promoted to Vice President International Finance in February 1999 and appointed Vice President Operational Accounting and Analysis in February 2000 and became Vice President of International Operations in December 2000. Prior to joining the Company, Mr. Ryan was a certified public accountant with Coopers & Lybrand L.L.P. for more than five years.
Mr. Tanzberger joined the Company in August 1996 as Manager of Budgets & Financial Analysis. Since then, Mr. Tanzberger has served as Vice President of Operations/Western Division, Director of Investor Relations and Assistant Corporate Controller. Mr. Tanzberger was promoted to Vice President Investor Relations and Assistant Corporate Controller in January 2000. Prior to joining the Company, Mr. Tanzberger was Assistant Corporate Controller at Kirby Marine Transportation Corporation, an inland waterway barge and tanker company, from January through August 1996. Prior thereto, he was a certified public accountant with Coopers & Lybrand L.L.P. for more than five years.
Mr. Uthoff joined the Company as Vice President Chief Information Officer in January 2000. From June 1994 through July 1999, Mr. Uthoff served as Vice President-Planning & Analysis of Browning-Ferris Industries, Inc., a waste services company.
Each officer of the Company is elected by the Board of Directors and holds his office until his successor is elected and qualified or until his earlier death, resignation or removal in the manner prescribed in the Bylaws of the Company. Each officer of a subsidiary of the Company is elected by the subsidiary's board of directors and holds his office until his successor is elected and qualified or until his earlier death, resignation or removal in the manner prescribed in the bylaws of the subsidiary.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock has been traded on the New York Stock Exchange since May 14, 1974. On December 31, 2000, there were 7,457 holders of record of the Company's common stock.
In October 1999, the Company suspended payment of regular quarterly cash dividends on its outstanding common stock in order to focus on improving cash flow and reducing existing debt. For the two years ended December 31, 1999 and 1998, dividends per share were $.27 and $.36, respectively.
The table below shows the Company's quarterly high and low common stock prices for the three years ended December 31, 2000:
2000 1999 1998
------------- --------------- ---------------
HIGH LOW HIGH LOW HIGH LOW
----- ----- ------ ------ ------ ------
First quarter....................... $7.00 $3.00 $38.50 $14.25 $43.69 $35.69
Second quarter...................... 5.44 2.81 21.19 13.31 44.63 38.94
Third quarter....................... 3.50 2.13 18.88 10.56 45.88 31.88
Fourth quarter...................... 2.56 1.69 10.31 6.44 39.25 29.81
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SRV is the New York Stock Exchange ticker symbol for the common stock of the Company. Options in the Company's common stock are traded on the Philadelphia Stock Exchange under the symbol SRV.
ITEM 6. SELECTED FINANCIAL DATA.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following selected consolidated financial data for the years December 31, 1996 through 2000 is derived from the Company's audited consolidated financial statements. This data should be read in conjunction with the Company's consolidated financial statements and accompanying notes to the consolidated financial statements included in Item 8 of this and previous year's Form 10-K.
In the fourth quarter of 2000, the Company implemented Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB No. 101). See note three to the consolidated financial statements in Item 8 of this Form 10-K for more details on the implementation of SAB No. 101. As a result of this implementation, the Company has changed certain of its accounting policies regarding the manner in which the Company records preneed sales activities. The Company recorded a one time, non-cash charge of $909,315 as of January 1, 2000 representing the cumulative effect of this accounting change. The selected consolidated financial data presented below for 2000 is reported after the implementation of SAB No. 101 on January 1, 2000. The selected consolidated statement of operations data presented below for 1999 and 1998 are reported on a proforma basis as if the implementation of SAB No. 101 had occurred in those years. The selected consolidated statement of operations data presented below for 1997 and 1996 are reported on a historical basis, as it was impractical for the Company to obtain the amounts on a proforma basis for these two years. Further, results of operations from discontinued operations have been reclassified for all periods presented to reflect these operations as discontinued (see note four to the consolidated financial statements of Item 8 of this Form 10-K.
SELECTED CONSOLIDATED FINANCIAL DATA
PROFORMA HISTORICAL
------------------------- -----------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ---------- ----------
SELECTED CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue from continuing
operations.................... $ 2,564,730 $ 2,745,114 $ 2,354,822 $2,461,690 $2,287,543
Income (loss) from continuing
operations before
extraordinary gains and
cumulative effect of
accounting change............. (425,523) (210,668) 147,854 368,650 261,005
Net income (loss)................ (1,343,251) (191,856) 158,435 333,750 265,298
Earnings per share:
Income (loss) from continuing
operations before
extraordinary gains and
cumulative effect of
accounting change
Basic....................... (1.56) (.77) .58 1.51 1.11
Diluted..................... (1.56) (.77) .57 1.45 1.06
Net income (loss)
Basic....................... (4.93) (.70) .62 1.36 1.13
Diluted..................... (4.93) (.70) .61 1.31 1.08
Cash dividends per share...... -- .27 .36 .30 .24
SELECTED CONSOLIDATED BALANCE SHEET
DATA (HISTORICAL):
Total assets..................... 12,898,469 12,978,230 11,729,816 9,925,643 8,403,431
Long-term debt, less current
maturities.................... 3,114,515 3,636,067 3,764,590 2,634,699 2,048,737
Convertible preferred securities
of SCI Finance LLC............ -- -- -- -- 172,500
Stockholders' equity............. 1,975,821 3,495,273 3,154,102 2,726,004 2,235,317
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE SALES PRICES AND PER SHARE DATA)
INTRODUCTION
The Company is the largest provider of funeral and cemetery services in the world. As of December 31, 2000, the Company operated 3,611 funeral service locations, 569 cemeteries and 200 crematoria located in 18 countries on five continents. The Company conducts funeral service operations in all 18 countries and cemetery operations in North America, South America, Australia and certain countries within Europe. As of December 31, 2000, the Company's largest markets were North America and France, which when combined, represent approximately 84% of the Company's consolidated revenues, 83% of consolidated income from operations before non-recurring items and 78% of the Company's total operating locations.
The funeral and cemetery operations are organized with a North America division covering the United States and Canada, a European division responsible for all operations in Europe and other international operations managed in the Pacific Rim and South America. During 2000, the Company reorganized leadership of its European operations to focus on stabilizing the Company's market share in its European markets.
The majority of the Company's operations throughout the world are managed in groups called clusters. Clusters are geographical groups of funeral service locations and cemeteries that lower their individual overhead costs by sharing common resources such as operating personnel, preparation services, clerical staff, limousines, hearses and preneed sales personnel. Personnel costs, the largest of the operating expenses for the Company, are the cost components 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. In the first quarter of 2000, the Company began the process of implementing Central Processing Centers throughout North America in order to further assist in the efficiencies of accounting and back-office functions. Once implementation is complete, which is expected in 2001, these Central Processing Centers will take further advantage of this clustering concept in order to reduce personnel costs.
The funeral service locations and cemetery operations consist of the Company's funeral homes, cemeteries, crematoria and related businesses. Both funeral service locations and cemeteries can contain crematoria facilities. The Company has approximately 197 combination facilities in which a funeral service location is contained within a cemetery. The other services operations consist of the Company's lending subsidiary, which previously provided capital financing for independent funeral and cemetery operations. In 1999, the Company decided to indefinitely suspend the operations of its lending subsidiary. On August 31, 2000, the Company sold a substantial portion of the loan portfolio of its lending subsidiary. The operations of the lending subsidiary through August 31, 2000 have been included herein as other services. Subsequent to this sale date, all activities on remaining loans will be recorded in other income in the Company's consolidated statement of operations.
During 2000, the Company entered into definitive agreements to sell its wholly owned insurance operations in France and the United States, thereby discontinuing the operations of the Company's insurance segment and reclassifying the financial statements in accordance with accounting principles applicable to discontinued operations for all periods presented. In the third quarter of 2000, the Company completed these transactions and recorded an after tax loss of $43,733 associated with these disposals. The Company has entered into marketing agreements with the purchasers, which became effective at the closing of the transactions and are expected to produce more free cash flow for the Company over the next several years than if the insurance operations were owned by the Company. The marketing agreements with both the United States and French insurance companies are also expected to provide enhanced opportunities to sell prearranged funerals in the Company's worldwide funeral markets.
STRATEGIC INITIATIVES
Historically, the Company's growth has been largely attributable to acquiring funeral and cemetery businesses which resulted in creating the world's largest network of funeral service locations and cemeteries.
The Company believes this network forms the foundation of its growth initiatives going forward. During the mid-1990s, the market to acquire funeral service locations and cemeteries became extremely competitive which resulted in increased acquisition prices and substantially reduced returns on invested capital. In early 1999, the Company announced plans to significantly reduce the level of its acquisition activity and pursue other means to create meaningful growth from its existing operations. As a result, the Company's strategic plan in 2000 was focused on reducing overhead costs, increasing cash flow and reducing debt while at the same time developing key revenue initiatives designed to drive future internal growth in the Company's core funeral and cemetery operations without the outlay of significant capital. Management's current bonus compensation plan is aligned with the execution of these elements of its strategic plan.
Overhead Costs
The Company's overhead costs include corporate general and administrative costs, regional field overhead costs and other home office costs related to functions directly supporting field operations. As a result of the Company's focus on overhead reduction, total overhead costs for the full year of 2000 decreased approximately 6.5% compared to the full year of 1999, excluding overhead costs associated with the Company's trust administration functions. The Company received substantial non-recurring receipts in 2000 from the collection of amounts due to the Company from funeral and cemetery trust funds. To accomplish the receipt of these funds, as well as to continue to provide normal trust administration activities, the Company incurred approximately $11,700 more costs in 2000 related to its trust administration functions compared to 1999. In the first quarter of 2001, the Company outsourced its trust administration functions to KPMG LLP which is expected to reduce future cash overhead costs while at the same time continuing the timely collection of amounts due to the Company from funeral and cemetery trust funds.
Operating Free Cash Flow
The Company's strategic plan in 2000 included the execution of several cash flow initiatives that were designed to increase the Company's operating free cash flow. The Company considers operating free cash flow to be cash funds that can generally be used to reduce the Company's debt and is defined more specifically in the Financial Condition, Liquidity and Capital Resources section in this Management's Discussion and Analysis of Financial Condition and Results of Operations.
The Company's total operating free cash flow for the year ended December 31, 2000 was $219,725, at the upper end of the Company's expected range of $100,000 to $250,000. A summary of the Company's operating free cash flow is shown below.
2001 OPERATING FREE
IMPROVEMENT IN CASH FLOW
1999 2000 2000 OVER 1999 RUN RATE TARGETS
-------- -------- -------------- -------------------
Total operating free cash
flow......................... $ (6,520) $219,725 $226,245 $200,000-$250,000
Recurring operating free cash
flow......................... $(88,720) $ 62,025 $150,745 $100,000-$150,000
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The Company has improved total operating free cash flow by $226,245 primarily through the reduction of capital expenditures to maintenance levels and the suspension of the Company's quarterly cash dividend. The Company also executed several other cash initiatives in 2000 including the efficient retrieval of funds due to the Company from certain funeral and cemetery trusts, the realignment of preneed cemetery and prearranged funeral sales structures to become more cash flow positive and the suspension of the Company's acquisition program. The Company expects its total operating free cash flow (including non-recurring receipts of funds) to be between the run rate targets of $200,000 to $250,000 by the end of 2001. Through March 15, 2001, the Company had already received approximately $131,000 of non-recurring receipts of funds from certain income tax refunds and from the collection of receivables from funeral and cemetery trust funds.
Included in the Company's total operating free cash flow are receipts of funds that are of a non-recurring nature totaling $157,700 for the full year of 2000 and $82,200 for the full year of 1999. These funds relate to the collection of receivables due to the Company from funeral and cemetery trust funds. Excluding these non-
recurring receipts of funds, the Company's recurring operating free cash flow was $62,025 in 2000 and a use of $88,720 in 1999. The Company continues to implement existing and additional initiatives in 2001 to increase its recurring operating free cash flow from 2000 levels. These cash flow initiatives are categorized as revenue growth initiatives, working capital improvements, cost reduction initiatives, asset redeployment and enhanced funeral and cemetery trust administration and management. Revenue initiatives include such programs as the Company's Dignity Memorial(TM) packaged funeral plans and the development of affinity relationships. These initiatives are discussed in further detail in the section Revenue Growth Initiatives included in this Management's Discussion and Analysis of Financial Condition and Results of Operations. Working capital improvements include programs to accelerate customer collections and deliver pre-sold merchandise to customers to satisfy trusting requirements. Cost reduction initiatives include changes to the Company's employee benefit plans and other overhead reductions primarily related to information technology costs. The Company's recurring operating free cash flow is also expected to increase related to assets being redeployed and managed more efficiently such as cash override payments that will be received as a result of marketing agreements entered in connection with the sale of its insurance subsidiaries and interest savings as a result of proceeds received from divestitures completed in 2000 and from proceeds to be received from the sale of certain North America funeral and cemetery operations announced in January 2001. Enhanced cemetery and funeral trust administration and management will allow the Company to increase operating free cash flow by reducing processing times for trust claims and accelerate trust distributions as well as the continuation of the Company's surety bond program for additional financial assurance discussed in the Financial Assurances section in Financial Condition, Liquidity and Capital Resources in this Form 10-K. The Company is currently in various stages of executing the above cash flow initiatives and, along with other cash flow initiatives currently under development, expects these initiatives to increase the Company's operating free cash flow from $62,025 in 2000 to a run rate between $100,000 to $150,000 by the end of 2001 and to a run rate between $200,000 to $250,000 by the end of 2002.
Long-Term Debt
The Company's total debt at December 31, 2000 was $3,291,297, which was slightly below the Company's anticipated range of $3,300,000 to $3,600,000. The Company's total debt balances are detailed below.
Peak debt at September 30, 1999................ $4,200,023 Debt at December 31, 1999...................... $4,060,016 Debt at December 31, 2000...................... $3,291,297 Target debt range at December 31, 2002......... $2,000,000-$2,500,000 |
The Company's debt reduction programs over the past fifteen months have exceeded its expectations with its total debt being reduced by over $908,000 or 22% from the Company's peak debt level at September 30, 1999. The Company has achieved this reduction of debt primarily through funds received from its total operating free cash flow and the sale of certain assets and non-core businesses. In 2000, the Company completed the sale of certain loans of its lending subsidiary, the termination or assignment away of certain financial swap agreements, the sale of its discontinued insurance operations and various other asset sales. These transactions produced after tax cash proceeds of $489,369 in 2000 and, coupled with total operating free cash flow in 2000 were the primary factors that allowed the Company to reduce its debt below its anticipated range of $3,300,000 to $3,600,000 by the end of 2000.
The Company is continuing to sell certain non-strategic funeral and cemetery operations in North America in 2001 that are not well aligned with the Company's long-term strategy. The Company will also continue discussions with various parties concerning the possibility of joint venturing primarily its international operations. Alliances and joint ventures with strategic partners could include groups that offer unique competitive advantages not previously available to the Company, such as access to customer databases, marketing services and prearrangement financing. Proceeds from any investments made by strategic partners would be used by the Company to reduce its debt. With substantial non-recurring receipt of funds expected in 2001, improvements in recurring operating free cash flow described earlier, proceeds expected from sales of
certain non-strategic funeral and cemetery operations in North America and proceeds from joint venture programs primarily with the Company's international operations, the Company anticipates reducing its debt from the current level of $3,291,297 to a range of $2,000,000 to $2,500,000 by the end of 2002.
Revenue Growth Initiatives
The Company has the largest network of funeral homes and cemeteries in the world. The Company has unique opportunities to leverage this network by adding new products and services, attracting new customers to its existing facilities and to aggressively expand its current market share in its funeral and cemetery markets. The Company plans to expand its market share and generate future revenue growth through the execution of several initiatives without the outlay of significant additional capital. Six of the Company's most important revenue growth initiatives primarily being implemented in North America are listed below.
- Creation of a seamless, national brand of funeral service locations under the Dignity Memorial(TM) brand name.
- Implementation of Dignity Memorial(TM) funeral packages.
- Establishment of exclusive, national, branded affinity relationships with employers, social, fraternal and charitable groups or institutions.
- Improvement of standards in customer service.
- Continued commitment to funeral and cemetery prearrangement.
- Expansion of cremation marketing, merchandising and services.
The development of the Dignity Memorial(TM) brand name is a unique opportunity that the Company believes only it can pursue because of it size and geographic diversity and creates the first national brand in the death care industry for funeral service locations that will be recognized and portable on a national basis. A national network with national portability of products and services is important to the Company's current and prospective affinity partners. The Dignity Memorial(TM) provider network will also be developed through an affiliate program by offering non-SCI funeral service locations, primarily in markets where the Company does not currently have coverage, the opportunity to join the Dignity Memorial(TM) provider network and have access to the Dignity Memorial(TM) branded products and services, prearranged funeral funding services, merchandising expertise and Internet capabilities.
The Company is also in the process of implementing Dignity Memorial(TM) branded funeral packages in North America which will be completed in 2001. The Dignity Memorial(TM) funeral packages are designed to simplify customer decision making and include new products and services which have traditionally not been available through funeral service locations. Examples of these new products and services include legal services, estate organizing and planning, grief counseling and virtual family archiving services on the Internet. These new products and services are designed to increase customer satisfaction while also increasing funeral operating revenues and profitability.
The Company is continuing its efforts to execute agreements with affinity partners on national, regional and local levels which provide exclusive, direct access through mail or other agreed upon media to large groups of individuals who meet the Company's ideal customer profile. The Company then tailors funeral plans to suit the affinity partner's membership requirements. As an example, the Company has begun implementation of specialized funeral plans through an affinity relationship with the Veterans of Foreign Wars (VFW) and the VFW Ladies Auxiliary in 2001, which includes VFW and branch of service logos, unique flag and medal cases and specified services requested for VFW members.
Beginning in 1998 and completed in 2000, the Company implemented comprehensive continuous customer surveys to provide valuable feedback from consumers in order to enhance customer service and provide insight into consumer preferences for additional products and services on a global basis. The Company received responses from 48% of all families serviced in 2000 in North America funeral service locations which indicated a high approval rating.
The Company also remains committed to prearrangement programs with consumers for funeral and cemetery products and services, which the Company believes can increase future market share in its funeral service and cemetery markets. At December 31, 2000, the Company had deferred preneed cemetery contract revenues of $1,815,157 which will be recognized as revenues in future periods. See note six to the consolidated financial statements in Item 8 of this Form 10-K for further discussion of preneed cemetery sales activities. During 2000, the Company restructured its prearranged organization and compensation plans to improve the cash flows from the Company's prearrangement activities. In addition to funding approximately 75% of prearranged funeral contracts through insurance sources creating general agency revenue and cash overrides, the Company also introduced direct-to-consumer prearranged marketing in North America in 2000 which opens a new marketing channel with consumers to expand the scope of the Company's prearragement activities. The funds collected from consumers for prearranged funeral contracts are generally placed in trust accounts (pursuant to applicable law) or are used to pay premiums on life insurance policies from third party insurers. At December 31, 2000, the Company had deferred prearranged funeral contracts of $4,537,669. The recognition of deferred prearranged funeral contract revenues is estimated to occur in the following years as follows:
2001..................................................... $ 396,000
2002..................................................... 371,000
2003..................................................... 307,000
2004..................................................... 308,000
2005..................................................... 279,000
2006 through 2010........................................ 1,071,000
2011 and thereafter...................................... 1,805,669
----------
$4,537,669
==========
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The Company also believes that there are significant opportunities available to increase market share in the cremation segment of its markets through more effective marketing of cremation products and services. While the Company will continue to expand cremation memorialization products and services at its traditional funeral service locations and cemeteries, the Company also plans to expand the Company owned largest single provider of cremation services in North America, National Cremation Service(R), from its existing base in ten states into seven additional states by the end of 2002.
ACCOUNTING CHANGE
In the fourth quarter of 2000, the Company implemented Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" (SAB No. 101) which changes the Company's accounting policies regarding the manner in which the Company records preneed sales activities. The implementation of SAB No. 101 had no effect on the consolidated cash flows of the Company. The accounting change, which occurred as a result of the required implementation of SAB No. 101, has been treated as a change in accounting principle effective as of the beginning of 2000. In general, the change requires the Company to recognize preneed cemetery interment right revenue from constructed cemetery property when at least 10% of the sales price is received in cash from the customer, defer all preneed cemetery merchandise and service revenues and associated trust investment earnings until the merchandise is delivered or the services are performed, and to defer only obtaining costs that vary with and are primarily related to the acquisition of new preneed cemetery and funeral business. For a more detailed discussion of these changes, see note three to the consolidated financial statements in Item 8 of this Form 10-K. The cumulative effect of these changes resulted in an after tax charge of $909,315 or $3.34 per diluted share.
Generally, these changes will result in reduced cemetery revenues and operating income and reduced funeral operating income in the near future. These changes are due to the deferral of previously recognized preneed cemetery merchandise, services and associated trust fund income until the merchandise is delivered or the service is performed and recognizing as period costs certain direct selling and marketing costs previously deferred associated with preneed funeral activities.
RESULTS OF OPERATIONS
The following is a discussion of the Company's results of operations for the years ended December 31, 2000, 1999 and 1998. As previously disclosed, the Company implemented SAB No. 101 in 2000 which primarily changes the Company's accounting policies regarding the manner in which the Company records preneed sales activities. For purpose of the following discussion, 2000 financial information is presented as reported with the implementation of SAB No. 101 at the beginning of 2000, 1999 financial information is presented on a proforma basis as if SAB No. 101 had been implemented during 1999 and an historical basis, and 1998 financial information is presented as originally reported. All comparisons in this results of operations section between 2000 and 1999 will be discussed using proforma 1999 amounts. All comparisons in this results of operations section between 1999 and 1998 will be discussed using historical 1999 amounts and information previously reported by the Company. The Company has excluded the results of operations of its discontinued insurance operations from the following discussions for years 2000, 1999 and 1998. During 2000, the Company completed the sale of its discontinued insurance operations to third parties. Results for the Company's continuing operations by geographic segment are detailed in the following tables:
AS REPORTED
YEAR ENDED DECEMBER 31, 2000
-------------------------------------------------------------------------------------
NORTH % OF % OF OTHER % OF % OF
AMERICA REVENUE EUROPE REVENUE FOREIGN REVENUE TOTAL REVENUE
---------- ------- -------- ------- -------- ------- ---------- -------
Revenues:
Funeral................... $1,185,110 68.2% $659,295 96.1% $ 67,564 47.7% $1,911,969 74.5%
Cemetery.................. 540,410 31.1% 26,904 3.9% 73,953 52.3% 641,267 25.0%
Other Services............ 11,494 0.7% -- -- -- -- 11,494 0.5%
---------- ----- -------- ----- -------- ----- ---------- -----
$1,737,014 100.0% $686,199 100.0% $141,517 100.0% $2,564,730 100.0%
========== ===== ======== ===== ======== ===== ========== =====
Gross profit and margin
percentage:
Funeral................... $ 220,467 18.6% $ 38,509 5.8% $ 7,939 11.8% $ 266,915 14.0%
Cemetery.................. 41,558 7.7% 5,275 19.6% 11,599 15.7% 58,432 9.1%
Other Services............ 2,295 20.0% -- -- -- -- 2,295 20.0%
---------- ----- -------- ----- -------- ----- ---------- -----
$ 264,320 15.2% $ 43,784 6.4% $ 19,538 13.8% $ 327,642 12.8%
========== ===== ======== ===== ======== ===== ========== =====
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PROFORMA
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------------------
NORTH % OF % OF OTHER % OF % OF
AMERICA REVENUE EUROPE REVENUE FOREIGN REVENUE TOTAL REVENUE
---------- ------- -------- ------- -------- ------- ---------- -------
Revenues:
Funeral................... $1,183,829 65.6% $769,014 96.5% $ 57,373 39.7% $2,010,216 73.2%
Cemetery.................. 598,852 33.2% 28,164 3.5% 87,124 60.3% 714,140 26.0%
Other Services............ 20,758 1.2% -- -- -- -- 20,758 0.8%
---------- ------ -------- ----- -------- ----- ---------- ------
$1,803,439 100.00% $797,178 100.0% $144,497 100.0% $2,745,114 100.0%
========== ====== ======== ===== ======== ===== ========== ======
Gross profit and margin
percentage:
Funeral................... $ 229,930 19.4% $ 55,737 7.2% $ 5,186 9.0% $ 290,853 14.5%
Cemetery.................. 40,472 6.8% 3,075 10.9% 23,842 27.4% 67,389 9.4%
Other Services............ (29,467) (141.9)% -- -- -- -- (29,467) (141.9)%
---------- ------ -------- ----- -------- ----- ---------- ------
$ 240,935 13.4% $ 58,812 7.4% $ 29,028 20.1% $ 328,775 12.0%
========== ====== ======== ===== ======== ===== ========== ======
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AS REPORTED
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------------------
NORTH % OF % OF OTHER % OF % OF
AMERICA REVENUE EUROPE REVENUE FOREIGN REVENUE TOTAL REVENUE
---------- ------- -------- ------- -------- ------- ---------- -------
Revenues:
Funeral................... $1,183,829 58.6% $780,206 95.8% $ 75,313 43.8% $2,039,348 67.8%
Cemetery.................. 816,695 40.4% 34,363 4.2% 96,794 56.2% 947,852 31.5%
Other Services............ 20,758 1.0% -- -- -- -- 20,758 0.7%
---------- ------ -------- ----- -------- ----- ---------- ------
$2,021,282 100.0% $814,569 100.0% $172,107 100.0% $3,007,958 100.0%
========== ====== ======== ===== ======== ===== ========== ======
Gross profit and margin
percentage:
Funeral................... $ 274,199 23.2% $ 79,270 10.2% $ 13,025 17.3% $ 366,494 18.0%
Cemetery.................. 205,040 25.1% 10,823 31.5% 31,856 32.9% 247,719 26.1%
Other Services............ (29,467) (141.9)% -- -- -- -- (29,467) (141.9)%
---------- ------ -------- ----- -------- ----- ---------- ------
$ 449,772 22.3% $ 90,093 11.1% $ 44,881 26.1% $ 584,746 19.4%
========== ====== ======== ===== ======== ===== ========== ======
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AS REPORTED
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------------------
NORTH % OF % OF OTHER % OF % OF
AMERICA REVENUE EUROPE REVENUE FOREIGN REVENUE TOTAL REVENUE
---------- ------- -------- ------- -------- ------- ---------- -------
Revenues:
Funeral................... $1,007,462 56.1% $765,532 96.8% $ 56,142 51.5% $1,829,136 67.8%
Cemetery.................. 768,229 42.8% 25,564 3.2% 52,808 48.5% 846,601 31.4%
Other Services............ 20,580 1.1% -- -- -- -- 20,580 0.8%
---------- ----- -------- ----- -------- ----- ---------- -----
$1,796,271 100.0% $791,096 100.0% $108,950 100.0% $2,696,317 100.0%
========== ===== ======== ===== ======== ===== ========== =====
Gross profit and margin
percentage:
Funeral................... $ 287,012 28.5% $ 88,541 11.6% $ 9,054 16.1% $ 384,607 21.0%
Cemetery.................. 282,754 36.8% 7,936 31.0% 15,471 29.3% 306,161 36.2%
Other Services............ 9,441 45.9% -- -- -- -- 9,441 45.9%
---------- ----- -------- ----- -------- ----- ---------- -----
$ 579,207 32.2% $ 96,477 12.2% $ 24,525 22.5% $ 700,209 26.0%
========== ===== ======== ===== ======== ===== ========== =====
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For the year ended December 31, 2000, the Company reported total revenues from continuing operations of $2,564,730, representing a 6.6% decrease compared to proforma total revenues for 1999 of $2,745,114. Gross profit from continuing operations was relatively flat compared to the proforma results of 1999, while the gross margin percentage increased slightly in 2000 to 12.8% compared to 12.0% from proforma 1999 results.
Funeral
Funeral revenues decreased from $2,010,216 in 1999 to $1,911,969 in 2000. This decrease in funeral revenues was primarily attributable to a foreign currency translation effect of approximately $100,000 negatively affecting European funeral revenues in 2000 compared to 1999. The Company performed 6.0% less funeral services in its European funeral service locations in 2000 compared to 1999 as a result of a reduction in the number of deaths in Europe and from losses in market share in the Company's French funeral service locations primarily as a result of increased and new competition from the deregulation of the funeral industry in France. For further information on the deregulation of the funeral industry in France, see the section Regulation in Item 1 of this Form 10-K. The Company reorganized its European management team in late 2000 to try to stabilize its market share in France. The average revenue per funeral service increased 0.8% in 2000 compared to 1999 in European funeral service locations.
Funeral revenues in North America increased $1,281 in 2000 compared to 1999. North America funeral service locations performed 0.8% less funeral services in 2000 compared to 1999 while the average revenue per funeral service increased by 1.0% during 2000 from 1999 levels. In the fourth quarter of 2000, the average revenue per funeral service in North America funeral service locations increased 2.6% compared to the same
period of 1999, an increase attributable to the Company's revenue growth initiatives, such as the introduction of Dignity Memorial(TM) funeral packages discussed earlier taking effect in the latter half of 2000.
Funeral gross profits decreased $23,938 in 2000 compared to 1999. While funeral gross profits in North America decreased slightly in 2000 compared to 1999 as a result of less funeral services performed and inflationary cost increases, most of the decrease in gross profits was attributable to funeral gross profits decreasing $17,228 in European funeral service locations. The primary reason for this decrease in funeral gross profits was a reduction in the number of deaths in 2000 in Europe compared to 1999 as well as losses in market share in French funeral service locations.
Funeral revenues increased by $210,212 in 1999 compared to 1998 primarily as a result of acquisitions. Funeral revenues in North America funeral service locations increased in 1999 compared to 1998 primarily as a result of the Company's acquisition in January 1999 of Equity Corporation International (ECI), formerly the fourth largest company in the death care industry. The Company also acquired funeral service locations in Spain, Norway and the Netherlands in 1999 resulting in increased funeral revenues in European funeral service locations in 1999 compared to 1998. Funeral gross profits decreased by $18,113 in 1999 compared to 1998 primarily due to higher costs at acquired locations, specifically related to the Company's merger with ECI in January 1999. Typically, acquisitions will temporarily exhibit lower gross profit margins until these locations have been fully assimilated into the Company's clusters. Further, the gross margin percentage at ECI locations had been historically lower than the Company's gross margin percentages and this has negatively affected the total gross margin percentage in North America. The decrease in European gross profit and margin percentage in 1999 was primarily the result of less funeral services performed causing reduced profit due to the Company's fixed cost structure, coupled with delays in labor negotiations in France related to cost rationalization programs.
Cemetery
Cemetery revenues decreased from $714,140 in 1999 to $641,267 in 2000. This decrease in cemetery revenues was primarily attributable to decreases in revenues in North America cemetery operations. North America cemetery revenues decreased $58,442 in 2000 compared to 1999 as a result of significant changes to cemetery employee compensation plans which began to be implemented in late 1999. The Company changed the cemetery employee compensation plans to increase cash flow in this business segment which had the impact of adversely affecting cemetery revenues in 2000.
Cemetery gross profits decreased from $67,389 in 1999 to $58,432 in 2000. This decrease in cemetery gross profits was primarily attributable to higher cancellation costs in cemetery operations in South America included in the Company's other foreign cemetery segment. Cemetery gross profits in North America increased by $1,086 in 2000 compared to 1999 as a result of the above mentioned changes to cemetery employee compensation plans and other cost measures in North America cemetery operations.
Cemetery revenues increased by $101,251 in 1999 compared to 1998 primarily as a result of acquisitions. The increase of $48,466 in 1999 North America cemetery revenues compared to 1998 was primarily the result of an increase in revenues as a result of the Company's January 1999 merger with ECI, partially offset by the decrease of net cemetery trust earnings and a reduction of operating earnings related to the sale of excess undeveloped cemetery property. The increases in revenue of $8,799 from European operations in 1999 compared to 1998 were the result of acquisitions in the United Kingdom and Belgium in 1999 and the $43,986 increase in 1999 revenues compared to 1998 from other foreign operations was the result of acquisitions in Chile, Argentina and Uruguay.
Cemetery gross profits decreased by $58,442 in 1999 compared to 1998 primarily as a result of increased costs from North America cemetery operations. These increased costs were primarily the result of increases in property costs and commission expenses, prior to the implementation of the above mentioned changes to cemetery employee compensation plans in late 1999, related to heritage cemetery property sales initiatives coupled with reductions in net cemetery trust earnings and operating earnings related to the sale of excess undeveloped cemetery property. The 1999 increase of $16,385 in other foreign gross profits was the result of
increases in the gross margin percentage from the Company's acquired South American operations. The gross margin percentage in Argentina improved to 24.0% in 1999 from 19.4% in 1998.
Other Services
The Company's other services operations consist of the Company's lending subsidiary, which previously provided capital financing for independent funeral and cemetery operations. In 1999, the Company decided to indefinitely suspend the operations of its lending subsidiary. On August 31, 2000, the Company sold a substantial portion of the loan portfolio of its lending subsidiary. The operations of the lending subsidiary through August 31, 2000 have been included herein as other services. Subsequent to this sale date, all activities on remaining loans have been recorded in other income in the Company's consolidated statement of operations.
The Company acquired by deed in lieu of foreclosure the collateral underlying certain loans in its portfolio. The Company recorded a provision for loan losses of $38,608 in 1999 associated with the lending subsidiary's loans that were not being held for sale. See note seventeen to the consolidated financial statements in Item 8 of this Form 10-K for further discussion of these non-recurring charges related to the Company's lending subsidiary.
Other Income and Expenses
The Company's general and administrative expenses decreased from $82,585 in 1999 to $79,932 in 2000. General and administrative expenses were higher in 1999 than 2000 primarily due to higher information technology costs in 1999 related to year 2000 (Y2K) preparation, implementation of EVA(R) based incentive compensation models and the Company's North America proprietary point of sale systems that were placed into production in 1999. General and administrative expenses were $66,839 in 1998 which were lower than 1999 levels due to the high expenses in 1999 noted above.
Interest expense was $281,548 in 2000 compared to $238,185 in 1999 and $177,053 in 1998. The increase in interest expense in 2000 over 1999 and 1998 levels reflects the high financing costs associated with the use of the Company's credit facilities in 2000 rather than its commercial paper programs in 1999 and 1998, as well as overall interest rate increases. The Company has made substantial progress in 2000 in reducing its debt and expects interest expense to be in the range of $230,000 and $250,000 in 2001.
Other income was $34,636 in 2000 compared to $31,759 for 1999 and $43,649 in 1998. Other income primarily contains income from various notes receivable of the Company's lending subsidiary subsequent to August 31, 2000 (see earlier discussion of other services operations), equity from earnings of investments in certain companies, gains and losses from the sales of businesses that are disposed of for strategic or government mandated purposes and cash overrides from prearranged funeral sales with the Company's formerly owned insurance operations in North America and France (see discontinued operations discussions in Item 1 of this Form 10-K).
Cremations
In the death care industry in recent years, there has been a growing trend
in the number of cremations performed in North America as an alternative to
traditional funeral service dispositions. Outside of North America, the
cremation rate is more stable. The west coast of the United States and the
states of Arizona and Florida have the highest concentration of cremation
consumers in North America. While cremations performed by the Company in North
America typically have higher gross profit margins than traditional funeral
services, cremations usually result in lower revenue and gross profit dollars to
the Company than traditional funeral services. In North America during 2000,
36.3% of all funeral services performed by the Company were cremation cases,
compared to 33.9% performed in 1999. The Company in 2000 continued to expand its
cremation memorialization products and services in several North America markets
which has resulted in higher average sales for cremation cases compared to
historical levels. The Company also continues to expand its nationally branded
cremation service locations called National Cremation Service(R) (NCS). NCS
currently operates in ten high cremation states and has plans to continue to
expand into seven additional
high cremation states. The Company believes that the NCS consumer would not have chosen the Company's traditional funeral service locations as an alternative to NCS, and therefore is considered an incremental customer to the Company.
Restructuring and Non-Recurring Charges
In 2000, the Company recorded several non-recurring items related to extraordinary gains on early extinguishments of debt, net losses associated with the sales of the Company's discontinued insurance operations, estimated losses from the planned divestitures of certain North America funeral homes and cemeteries, the reduction of the carrying value of an equity investment in North America, a loss on the sale of a minority interest in the stock of the Company's United Kingdom operations and certain changes to estimates in the Company's restructuring and non-recurring charges recorded in 1999. The above non-recurring items resulted in the Company incurring charges of $453,067 on a pretax basis or $1.64 per diluted share in 2000. In 1999, the Company recorded non-recurring items related to cost rationalization programs, a provision for loan losses related to the Company's lending subsidiary and extraordinary gains on early extinguishments of debt. These items resulted in the Company recording net non-recurring charges of $398,080 on a pretax basis or $.98 per diluted share in 1999. For further information detailing these non-recurring items recorded in 2000 and 1999, see note seventeen to the consolidated financial statements in Item 8 of this Form 10-K.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
General
Historically, the Company's growth has been largely attributable to acquiring funeral and cemetery businesses which resulted in creating the world's largest network of funeral service locations and cemeteries. Funding required for the Company's acquisition program had historically been generated through public and private offerings of debt and the issuance of equity securities supplemented by the Company's revolving credit facilities and commercial paper. In early 1999, the Company announced plans to significantly reduce the level of its acquisition activity and pursue other means to create meaningful growth from its existing operations. As a result, the Company's strategic plan in 2000 was focused on reducing overhead costs, increasing cash flow and reducing its debt. The Company executed several cash flow initiatives in 2000 related to ongoing operations of the Company that were designed to increase the Company's operating free cash flow. The Company also executed initiatives in 2000 resulting in cash flows from the sale of certain assets and non-core businesses. The Company's initiatives related to ongoing operations of the Company included the reduction of capital expenditures to maintenance levels, the efficient retrieval of funds due to the Company from certain funeral and cemetery trusts, the realignment of preneed cemetery and prearranged funeral sales structures to become more cash flow positive and the suspension of the Company's quarterly cash dividend and acquisition program. During 2000, the Company also completed the sale of certain loans of its lending subsidiary, terminated or assigned away certain financial swap agreements, sold its discontinued insurance operations and sold various other assets.
The reduction of capital expenditures to maintenance levels, suspension of the Company's quarterly cash dividend and the implementation of other cash flow initiatives and sales of assets and non-core businesses significantly improved the Company's operating free cash flow and created substantial cash proceeds in 2000 which were used by the Company to reduce its debt. The Company defines operating free cash flow as adjusted cash flow from operating activities, less capital expenditures and dividends paid. Adjusted cash flow from operating activities includes cash flow provided by operating activities as reflected in the consolidated statement of cash flow adjusted to exclude (i) cash flow provided by operating activities of the Company's discontinued insurance operations, (ii) cash payments associated with the Company's non-recurring and restructuring charges in 1999 and 2000 and (iii) other proceeds or payments (included in cash flow provided by operating activities) which are of a non-recurring operational nature. Generally, operating free cash flow is cash funds that can be used to reduce the Company's debt.
The following details the Company's execution during 2000 towards its goals of increasing its operating free cash flow, as well as certain goals for 2001 and 2002.
TWELVE MONTHS YEAR 2000
ENDED BENCHMARKS 2001 2002
DECEMBER 31, 2000 ACHIEVED RUN RATE TARGETS RUN RATE TARGETS
----------------- ----------------- ----------------- -----------------
Operating free cash flow:
Consolidated cash flow provided by
operating activities.................. $ 368,240(1)
Amount pertaining to discontinued
insurance operations.................. (144,640)
Payments on restructuring charges....... 46,655
Effect of swap agreement terminations... 32,840
---------
Adjusted cash flow from operating
activities............................ 303,095
Capital expenditures.................... (83,370)
---------
TOTAL OPERATING FREE CASH FLOW............ $ 219,725 $100,000-$250,000 $200,000-$250,000 --
Less: Non-recurring receipts of funds... (157,700)
---------
RECURRING OPERATING FREE CASH FLOW........ $ 62,025 -- $100,000-$150,000 $200,000-$250,000
=========
Estimated after tax proceeds from sales of
assets and non-core businesses.......... $ 489,369 $200,000-$500,000 $200,000-$500,000 --
========= ================= ================= =================
TOTAL CASH FLOW AVAILABLE......... $ 709,094 $300,000-$750,000 $400,000-$750,000 --
========= ================= ================= =================
|
(1) The net effect of prearranged funeral production and maturities has been reclassed from cash flows from investing activities to cash flows from operating activities as discussed in note two to the consolidated financial statements in Item 8 of this Form 10-K.
Included in the Company's total operating free cash flow in 2000 of $219,725 are non-recurring receipts of funds totaling $157,700 relating to the collection of receivables due to the Company from funeral and cemetery trust funds. The Company continues to implement existing and additional initiatives in 2001 to increase its recurring operating free cash flow from 2000 levels. These cash flow initiatives are categorized as (i) revenue growth initiatives, (ii) working capital improvement, (iii) cost reduction initiatives, (iv) asset redeployment, and (v) enhanced funeral and cemetery trust administration and management. Revenue initiatives include such programs as the Company's Dignity Memorial(TM) packaged funeral plans and the development of affinity relationships. These initiatives are discussed in further detail in Revenue Growth Initiatives included in this Management's Discussion and Analysis of Financial Condition and Results of Operations. Working capital improvements include programs to accelerate customer collections and deliver pre-sold merchandise to customers to satisfy trusting requirements. Cost reduction initiatives include changes to the Company's employee benefit plans and other overhead reductions primarily related to information technology costs. The Company's recurring operating free cash flow is also expected to increase related to assets being redeployed and managed more efficiently, such as cash override payments that will be received as a result of marketing agreements entered in connection with the sales of its insurance operations and interest savings as a result of proceeds received from divestitures completed in 2000 and from proceeds to be received from the sale of certain North America funeral and cemetery operations announced in January 2001. Enhanced cemetery and funeral trust administration and management will allow the Company to increase operating free cash flow by reducing processing times of trust claims and accelerate trust distributions as well as the continuation of the Company's surety bond program for additional financial assurance discussed in the Financial Assurances section herein. The Company is currently in various stages of executing the above cash flow initiatives and, along with other cash flow initiatives currently under development, expects these initiatives to increase the Company's operating free cash flow from $62,025 in 2000 to a run rate between $200,000 to $250,000 by the end of 2002. The Company also expects recurring operating free cash flow to have a run rate between $100,000 to $150,000 by the end of 2001 as a result of the implementation of its current cash flow initiatives.
The Company's total debt at December 31, 2000 was $3,291,297, which was slightly below the Company's anticipated range of $3,300,000 to $3,600,000. The Company's total debt balances are detailed below.
Peak debt at September 30, 1999............... $4,200,023 Debt at December 31, 1999..................... $4,060,016 Debt at December 31, 2000..................... $3,291,297 Target debt range at December 31, 2002........ $2,000,000 - $2,500,000 |
The Company's debt reduction programs over the past fifteen months have exceeded its expectations with its total debt being reduced by over $908,000 or 22% from the Company's peak debt level at September 30, 1999. The Company has achieved this reduction of debt primarily through funds received from its total operating free cash flow and the sale of certain assets and non-core businesses, both discussed earlier in this section. The Company is continuing to sell certain funeral and cemetery operations in North America in 2001 that are not well aligned with the Company's long-term strategy. The Company will also continue discussions with various parties concerning the possibility of joint venturing primarily its international operations. Alliances and joint ventures with strategic partners could include groups that offer unique competitive advantages not previously available to the Company, such as access to customer databases, marketing services and prearrangement financing. Proceeds from any investments made by strategic partners will be used by the Company to reduce its debt. With substantial non-recurring receipt of funds expected in 2001, improvements in recurring operating free cash flow described earlier, proceeds expected from sales of certain funeral and cemetery operations in North America and proceeds from joint venture programs with the Company's international operations, the Company anticipates reducing its debt from the current level of $3,291,297 to a range of $2,000,000 to $2,500,000 by the end of 2002.
At December 31, 2000, the Company had current maturities of long-term debt of $176,782. The Company anticipates having funds available to eliminate these current maturities in 2001 through recurring operating free cash flow, proceeds from certain asset sales or joint venturing programs and other non-recurring receipts of funds. Through March 15, 2001, the Company had already received approximately $131,000 of non-recurring funds from certain income tax refunds and from the collection of receivables from funeral and cemetery trust funds.
Of the Company's total long-term debt at December 31, 2000 of $3,114,515, the largest component is related to the Company's primary credit agreements maturing in June 2002. These credit agreements provide for borrowing up to $988,287 as of December 31, 2000 and consist of two committed facilities -- a 2-year term loan and a 5-year, multi-currency revolving facility, both due in June 2002. These credit agreements were amended effective November 2000. Significant terms of the amendments include certain agreements made by the Company to reduce commitment amounts on the credit facilities based upon net cash proceeds generated from joint venture and asset sale transactions closed after November 2000; changes to definitions and calculations of financial covenants related to a maximum debt-to-capitalization ratio, a minimum interest coverage ratio and a minimum net worth requirement; limits on the amount of Company assets that could be joint ventured or sold; and certain restrictions on future acquisition activity without lender approval. Under the terms of the amended credit agreements, the covenants will continue to be calculated using information without the implementation of SAB No. 101, until such time as the Company negotiates revised covenant calculations under the credit agreements. For further information on these credit facilities, see note eight to the consolidated financial statements in Item 8 of this Form 10-K. As of March 26, 2001, the Company had $658,455 outstanding under these credit agreements which provided for borrowings of up to $975,279 on this date. With non-recurring receipts of funds expected in 2001 and 2002, improvements in recurring operating free cash flow described earlier, proceeds expected from sales of certain funeral and cemetery operations in North America and proceeds from joint venture programs primarily with the Company's international operations, the Company believes funds will be available to reduce these maturities due in 2002 allowing for the refinancing of remaining balances outstanding, if any.
EBITDA
The Company reported EBITDA before non-recurring items for the years ended December 31, 2000 and 1999 of $532,453 and $586,273, respectively. EBITDA included continuing and discontinued operations for both periods and is calculated by adding depreciation and amortization expense and interest expense to the Company's pretax earnings after excluding non-recurring items defined in the section Restructuring and Non-Recurring Charges in Management's Discussion and Analysis of Financial Condition and Results of Operations.
Financial Assurances
In support of the Company's operations, the Company has entered into arrangements with certain insurance companies whereby such insurance companies agree to issue surety bonds on behalf of the Company, as financial assurance and/or as required by existing state and local regulations. The surety bonds are used for various business purposes; however, the majority of the surety bonds issued and outstanding have been issued to support the Company's prearranged funeral and preneed cemetery activities. The underlying obligations that such surety bonds insure are appropriately recorded on the Company's consolidated balance sheet as Deferred prearranged funeral contract revenues and Deferred preneed cemetery contract revenues (see notes five and six to the consolidated financial statements in Item 8 of this Form 10-K for further details regarding the Company's prearranged funeral and preneed cemetery activities). The total surety bonds outstanding as of December 31, 2000 and 1999 were $215,350 and $182,322, respectively.
Sources and Uses of Cash
Net cash provided by operating activities was $368,240 in 2000 compared to $393,610 in 1999. Included in these totals is $144,640 and $141,650 of net cash provided by discontinued operations for 2000 and 1999, respectively. From continuing operations, net cash provided by operating activities was $223,600 in 2000 compared to $251,960 in 1999. The Company received non-recurring receipts of funds of $157,700 and $82,200 in 2000 and 1999, respectively, relating to the collection of receivables from certain funeral and cemetery trust funds which are included in net cash provided by continuing operations. Excluding these non- recurring receipts of funds, net cash provided by continuing operations decreased by approximately $104,000 in 2000 compared to 1999 primarily as a result of decreases in the gross profits of the Company's core funeral and cemetery operations in 2000 compared to 1999, increases in cash interest paid as well as from increases in other assets in 2000 related to federal income tax refunds to be received in 2001.
Net cash provided by investing activities from continuing and discontinued operations was $193,068 in 2000 compared to net cash used in investing activities of $384,742 in 1999. Included in these totals are $122,966 and $197,587 of net cash used in investing activities by discontinued operations in 2000 and 1999, respectively. The Company limited its capital expenditures to maintenance levels in 2000 resulting in a reduction of cash used for capital expenditures of $123,761 in 2000 compared to 1999. The Company also received in 2000 substantial proceeds from sales of assets and non-core businesses which are included in net cash provided by investing activities in 2000.
Net cash used in financing activities was $564,463 in 2000 compared to $266,756 in 1999. The Company used substantial proceeds from sales of assets and non-core businesses and from operating free cash flow to make substantial reductions to its debt in 2000 which is reflected in the Company's financing activities.
OTHER MATTERS
Subsequent to December 31, 2000, the Company adopted Statement of Financial
Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities: An Amendment of FASB Statement 133," in accordance
with the extension provided for in SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133." In accordance with these Standards, the Company will
recognize a charge to income, net of applicable taxes, of approximately $7,500
in the first quarter of 2001. These statements establish accounting and
reporting standards for derivative instruments and requires recognition of all
derivatives as assets or
liabilities in the statement of financial position and measurement of those instruments at fair value. Changes in the fair value of derivatives will be recorded either in earnings or in other comprehensive income, based on the type of risk for which the instrument is determined to be an effective hedge. Any change in fair value of an instrument that is not designated as a hedge, or any portion of a change in fair value of a hedging instrument that is deemed ineffective, will be immediately recognized in earnings.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
The statements contained in this Form 10-K 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," "project," "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 of the Company 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) that could negatively affect the Company, particularly but not limited to, levels of interest expense and negative currency translation effects.
2) Changes in credit relationships impacting the availability of credit and the general availability of credit in the marketplace.
3) The Company's ability to successfully implement and complete its strategic plan as defined in this Form 10-K, including the interest of third parties to enter into and consummate alliances and joint ventures with the Company.
4) The Company's ability to generate expected proceeds from the sale of certain funeral and cemetery operations and to implement plans to improve recurring operating free cash flow.
5) Changes in consumer demand and/or pricing for the Company's products and services caused by several factors, such as changes in local death rates, cremation rates, competitive pressures and local economic conditions.
6) The Company's ability to successfully implement ongoing cost reduction initiatives, as well as changes in domestic and international economic, political and/or regulatory environments, which could negatively effect the implementation of the Company's cost reduction initiatives.
7) The Company's ability to successfully implement certain strategic revenue and marketing initiatives resulting in increased volume through its existing facilities.
8) Changes in domestic and international political and/or regulatory environments in which the Company operates, including tax and accounting policies.
9) The Company's ability to successfully exploit its substantial purchasing power with certain of the Company's vendors.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information presented below should be read in conjunction with notes nine and ten to the consolidated financial statements in Item 8 of this Form 10-K.
The Company historically used derivatives primarily in the form of interest rate swaps and cross-currency interest rate swaps in combination with local currency borrowings in order to manage its mix of fixed and floating rate debt and to hedge the Company's net investment in foreign assets. The derivative instruments held by the Company were for hedging purposes and were neither leveraged nor speculative in nature.
In 2000, the Company eliminated its participation in derivative transactions by terminating or assigning away all foreign currency and interest rate swaps as mentioned in note nine to the consolidated financial statements in Item 8 of this Form 10-K, thereby removing the Company's hedges of foreign exchange rate and interest rate exposure and the diversification of floating rate exposure mentioned above.
At December 31, 2000, the Company's total debt consisted of approximately 76% of fixed interest rate debt at a weighted average rate of 6.81% and approximately 24% of floating interest rate debt at a weighted average rate of 7.94%. At December 31, 1999, after giving consideration to the interest rate swaps, the Company's total debt consisted of approximately 61% of fixed interest rate debt at a weighted average rate of 6.36% and approximately 39% of floating interest rate debt at a weighted average rate of 6.49%. Approximately 35% of the Company's floating rate exposure, as of December 31, 2000, is based in eight markets other than the United States (28% at December 31, 1999).
The Company does not have a significant investment in foreign operations that are in highly inflationary economies. Approximately 24% of the Company's net investment and 26% of its operating income are denominated in foreign currencies at December 31, 2000.
Marketable Equity and Debt Securities -- Price Risk
In connection with the Company's prearranged funeral operations and preneed cemetery merchandise sales, the affiliated funeral and cemetery trust funds own investments in equity securities and mutual funds which are sensitive to current market prices. Cost and market values as of December 31, 2000 and 1999, are presented in notes five and six to the consolidated financial statements in Item 8 of this Form 10-K.
Market-Rate Sensitive Instruments -- Interest Rate and Currency Risk
At December 31, 2000, the Company's debt instruments were subject to interest rate and currency exchange rate risk. The Company performs sensitivity analyses to assess the impact of these risks on earnings. This analysis reflects the impact of a hypothetical 10% adverse change in market rates. In actuality, market rate volatility is dependent on many factors that are impossible to forecast. Therefore, the adverse changes described below could differ substantially from the hypothetical 10% impact.
A sensitivity analysis of those instruments with variable interest rate components was modeled to assess the impact that changing interest rates could have on pretax earnings. The sensitivity analysis assumes an instantaneous 10% adverse change to the then prevailing interest rates with all other variables held constant. Given this model, the Company's pretax earnings, on an annual basis, would be negatively impacted by approximately $6,301 on December 31, 2000, and $9,402 on December 31, 1999.
A similar model was used to assess the impact of changes in foreign currencies on interest expense. At December 31, 2000, the Company's debt exposure was primarily associated with the British pound, Canadian dollar and Australian dollar. A 10% adverse change in the strength of the U.S. dollar against these currencies would have negatively impacted the Company's interest expense, on an annual basis, by approximately $1,998 on December 31, 2000, and $11,451 on December 31, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS AND RELATED SCHEDULE
PAGE
----
Report of Independent Accountants........................... 27
Consolidated Statement of Operations for the three years
ended December 31, 2000................................... 28
Consolidated Balance Sheet as of December 31, 2000 and
1999...................................................... 29
Consolidated Statement of Cash Flows for the three years
ended December 31, 2000................................... 30
Consolidated Statement of Stockholders' Equity for the three
years ended December 31, 2000............................. 31
Notes to Consolidated Financial Statements.................. 32
Financial Statement Schedule:
II -- Valuation and Qualifying Accounts..................... 64
|
All other schedules have been omitted because the required information is not applicable or is not present in amounts sufficient to require submission or because the information required is included in the consolidated financial statements or the related notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Service Corporation International
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Service Corporation International at December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in note three to the consolidated financial statements, the Company changed its method of accounting for preneed sales activities.
PricewaterhouseCoopers LLP
Houston, Texas
March 29, 2001
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Revenues................................................ $ 2,564,730 $ 3,007,958 $ 2,696,317
Costs and expenses...................................... (2,237,088) (2,423,212) (1,996,108)
----------- ----------- -----------
Gross profit............................................ 327,642 584,746 700,209
General and administrative expenses..................... (79,932) (82,585) (66,839)
Restructuring and non-recurring charges................. (461,072) (362,428) --
----------- ----------- -----------
Operating income (loss)................................. (213,362) 139,733 633,370
Interest expense........................................ (281,548) (238,185) (177,053)
Other income............................................ 34,636 31,759 43,649
Loss on sale of investment.............................. (56,704) -- --
----------- ----------- -----------
Income (loss) from continuing operations before income
taxes, extraordinary gains and cumulative effect of
accounting change..................................... (516,978) (66,693) 499,966
(Provision) benefit for income taxes.................... 91,455 15,469 (168,405)
----------- ----------- -----------
Income (loss) from continuing operations before
extraordinary gains and cumulative effect of
accounting change..................................... (425,523) (51,224) 331,561
Income from discontinued operations (net of income taxes
of $6,543, $12,076 and $7,980 respectively)........... 13,347 16,927 10,581
Loss on disposals of discontinued operations (net of
income taxes of $73,839).............................. (43,733) -- --
Extraordinary gains on early extinguishments of debt
(net of income taxes of $12,630 and $1,071)........... 21,973 1,885 --
Cumulative effect of accounting change (net of income
taxes of $552,491).................................... (909,315) -- --
----------- ----------- -----------
Net income (loss).............................. $(1,343,251) $ (32,412) $ 342,142
=========== =========== ===========
Earnings per share:
Basic:
Income (loss) from continuing operations before
extraordinary gains and cumulative effect of
accounting change................................... $ (1.56) $ (.19) $ 1.30
Income from discontinued operations................... .05 .06 .04
Loss from disposals of discontinued operations........ (.16) -- --
Extraordinary gains on early extinguishments of
debt................................................ .08 .01 --
Cumulative effect of accounting change................ (3.34) -- --
----------- ----------- -----------
Net income (loss).............................. $ (4.93) $ (.12) $ 1.34
=========== =========== ===========
Diluted:
Income (loss) from continuing operations before
extraordinary gains and cumulative effect of
accounting change................................... $ (1.56) $ (.19) $ 1.27
Income from discontinued operations................... .05 .06 .04
Loss from disposals of discontinued operations........ (.16) -- --
Extraordinary gains on early extinguishments of
debt................................................ .08 .01 --
Cumulative effect of accounting change................ (3.34) -- --
----------- ----------- -----------
Net income (loss).............................. $ (4.93) $ (.12) $ 1.31
=========== =========== ===========
Basic weighted average number of shares................. 272,172 272,281 256,271
=========== =========== ===========
Diluted weighted average number of shares............... 272,544 273,792 262,520
=========== =========== ===========
|
(See notes to consolidated financial statements)
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
-----------------------------
2000 1999
------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 47,909 $ 57,814
Receivables, net of allowances............................ 449,989 585,269
Inventories............................................... 170,056 190,343
Net assets of discontinued operations..................... -- 208,851
Other..................................................... 239,345 101,220
----------- -----------
Total current assets.............................. 907,299 1,143,497
----------- -----------
Prearranged funeral contracts............................... 4,080,367 2,898,139
Long-term receivables....................................... 1,329,375 1,532,225
Cemetery property, at cost.................................. 2,026,484 2,182,410
Property, plant and equipment, at cost (net)................ 1,675,263 1,879,979
Deferred charges and other assets........................... 717,170 907,513
Names and reputations (net)................................. 2,162,511 2,434,467
----------- -----------
$12,898,469 $12,978,230
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 501,355 $ 576,751
Current maturities of long-term debt...................... 176,782 423,949
Income taxes.............................................. 6,143 40,080
----------- -----------
Total current liabilities......................... 684,280 1,040,780
----------- -----------
Long-term debt.............................................. 3,114,515 3,636,067
Deferred prearranged funeral contract revenues.............. 4,537,669 3,186,081
Deferred preneed cemetery contract revenues................. 1,815,157 --
Deferred income taxes....................................... 503,292 864,780
Other liabilities........................................... 267,735 755,249
Stockholders' equity:
Common stock, $1 per share par value, 500,000,000 shares
authorized, 272,507,010 and 272,064,618 issued and
outstanding (net of 2,502,190 and 2,792,503 treasury
shares at par)......................................... 272,507 272,064
Capital in excess of par value............................ 2,156,824 2,156,301
Retained earnings (deficit)............................... (216,353) 1,126,898
Accumulated other comprehensive loss...................... (237,157) (59,990)
----------- -----------
Total stockholders' equity........................ 1,975,821 3,495,273
----------- -----------
$12,898,469 $12,978,230
=========== ===========
|
(See notes to consolidated financial statements)
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-------------------------------------
2000 1999 1998
----------- --------- -----------
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(1,343,251) $ (32,412) $ 342,142
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Net income from discontinued operations, net of tax..... (13,347) (16,927) (10,581)
Extraordinary gains on early extinguishments of debt,
net of tax............................................ (21,973) (1,885) --
Loss on disposals of discontinued operations, net of
tax................................................... 43,733 -- --
Cumulative effect of accounting change, net of tax...... 909,315 -- --
Depreciation and amortization........................... 224,031 246,090 197,330
Provision (benefit) for deferred income taxes........... 45,039 (57,263) 50,517
Restructuring and non-recurring charges................. 461,072 362,428 --
Payments on restructuring charges....................... (46,655) (37,553) --
Net effect of interest rate component of swap
terminations.......................................... (32,840) -- --
Loss on sale of investment.............................. 56,704 -- --
Gains from dispositions (net)........................... (17,180) (19,752) (30,627)
Provision for loan impairment........................... -- 38,608 --
Change in assets and liabilities net of effects from
acquisitions:
Decrease (increase) in receivables.................... 191,137 (219,680) (224,525)
(Increase) decrease in other assets................... (265,504) 28,893 (81,896)
Decrease in other liabilities......................... (109,975) (6,621) (17,464)
Other................................................. 30,775 7,273 (7,710)
Net effect of prearranged funeral production and
maturities............................................ 112,519 (39,239) (35,522)
----------- --------- -----------
Net cash provided by continuing operations.................. 223,600 251,960 181,664
Net cash provided by discontinued operations................ 144,640 141,650 111,435
----------- --------- -----------
Net cash provided by operating activities................... 368,240 393,610 293,099
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (83,370) (207,131) (251,825)
Proceeds from sales of discontinued operations............ 278,025 -- --
Proceeds from sales of property and equipment............. 92,593 115,846 42,844
Acquisitions, net of cash acquired........................ (1,907) (102,647) (709,972)
Loans issued by lending subsidiary........................ (5,104) (76,110) (142,017)
Proceeds from sales of loans by lending subsidiary........ 84,803 -- --
Principal payments received on loans by lending
subsidiary.............................................. 21,649 97,569 70,178
Deposits of restricted cash............................... (68,753) -- --
Purchases of equity investments........................... -- (1,400) (6,968)
Other..................................................... (1,902) (13,282) 6,047
----------- --------- -----------
Net cash provided by (used in) continuing operations........ 316,034 (187,155) (991,713)
Net cash used in discontinued operations.................... (122,966) (197,587) (32,641)
----------- --------- -----------
Net cash provided by (used in) investing activities......... 193,068 (384,742) (1,024,354)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in borrowings under revolving
credit agreements....................................... (395,096) 504,279 100,294
Payments of debt.......................................... (126,342) (259,004) (76,329)
Long-term debt issued..................................... -- -- 1,100,000
Early extinguishments of debt............................. (194,097) (365,936) --
Net effect of cross-currency component of swap
terminations............................................ 143,498 -- --
Repurchase of common stock................................ -- (45,750) --
Dividends paid............................................ -- (96,779) (88,360)
Bank overdrafts and other................................. 7,574 (3,566) 5,956
----------- --------- -----------
Net cash (used in) provided by financing activities......... (564,463) (266,756) 1,041,561
Effect of foreign currency.................................. (131) (12,101) 1,027
----------- --------- -----------
Net (decrease) increase in cash and cash equivalents........ (3,286) (269,989) 311,333
Adjust for change in cash and cash equivalents associated
with discontinued operations.............................. (6,619) 58,660 (89,067)
Cash and cash equivalents of continuing operations at
beginning of period....................................... 57,814 269,143 46,877
----------- --------- -----------
Cash and cash equivalents of continuing operations at end of
period.................................................... $ 47,909 $ 57,814 $ 269,143
=========== ========= ===========
|
(See notes to consolidated financial statements)
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
ACCUMULATED
CAPITAL IN RETAINED OTHER
COMMON EXCESS OF EARNINGS COMPREHENSIVE
STOCK PAR VALUE (DEFICIT) INCOME (LOSS) TOTAL
-------- ---------- ----------- ------------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Balance at December 31, 1997........................ $252,924 $1,493,246 $ 983,353 $ (3,519) $ 2,726,004
Comprehensive income:
Net income........................................ 342,142 342,142
Other comprehensive income:
Foreign currency translation...................... 8,748 8,748
Unrealized gain on securities, net................ 10,149 10,149
-----------
Total other comprehensive income............ 18,897
-----------
Comprehensive income................................ 361,039
Common Stock issued:
Stock option exercises and stock grants........... 3,593 56,485 60,078
Acquisitions...................................... 2,499 94,625 97,124
Debenture conversions............................. 185 2,409 2,594
Dividends on common stock ($.36 per share).......... (92,737) (92,737)
-------- ---------- ----------- --------- -----------
Balance at December 31, 1998........................ 259,201 1,646,765 1,232,758 15,378 3,154,102
Comprehensive loss:
Net loss.......................................... (32,412) (32,412)
Other comprehensive loss:
Foreign currency translation...................... (39,036) (39,036)
Unrealized loss on securities, net................ (36,332) (36,332)
-----------
Total other comprehensive loss.............. (75,368)
-----------
Comprehensive loss.................................. (107,780)
Common Stock issued:
Stock option exercises and stock grants........... 170 1,382 1,552
Acquisitions...................................... 15,506 550,325 565,831
Debenture conversions............................. 48 718 766
Repurchase of common stock.......................... (2,861) (42,889) (45,750)
Dividends on common stock ($.27 per share).......... (73,448) (73,448)
-------- ---------- ----------- --------- -----------
Balance at December 31, 1999........................ 272,064 2,156,301 1,126,898 (59,990) 3,495,273
Comprehensive loss:
Net loss.......................................... (1,343,251) (1,343,251)
Other comprehensive loss:
Foreign currency translation...................... (202,709) (202,709)
Unrealized loss on securities, net................ (4,792) (4,792)
Minimum pension liability adjustment, net......... (12,724) (12,724)
Reclassification adjustment for realized loss on
securities...................................... 27,014 27,014
Reclassification adjustment for realized loss on
foreign currency translation.................... 16,044 16,044
-----------
Total other comprehensive loss.............. (177,167)
-----------
Comprehensive loss.................................. (1,520,418)
Common Stock issued:
Stock option exercises and stock grants........... 33 100 133
Acquisitions...................................... 61 186 247
Contribution to employee 401(k)................... 356 456 812
Repurchase of common stock.......................... (7) (219) (226)
-------- ---------- ----------- --------- -----------
Balance at December 31, 2000........................ $272,507 $2,156,824 $ (216,353) $(237,157) $ 1,975,821
======== ========== =========== ========= ===========
|
(See notes to consolidated financial statements)
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE ONE
NATURE OF OPERATIONS
The Company is the largest provider of death care services in the world through its funeral service and cemetery operations. At December 31, 2000, the Company operated 3,611 funeral service locations, 569 cemeteries and 200 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, lots and lawn crypts) and sell cemetery related merchandise. Cemetery items are sold on an atneed or preneed basis. Company personnel at cemeteries perform interment services and provide management and maintenance of cemetery grounds. Certain cemeteries also operate crematoria. There are 193 combination locations that contain a funeral service location within a Company owned cemetery.
NOTE TWO
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the accounts of Service Corporation International and all majority-owned subsidiaries (the Company). Intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior years to conform to current period presentation with no effect on the consolidated financial position, results of operations or 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. Actual results could differ from these estimates.
Cash Equivalents: The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Inventories and Cemetery Property: Funeral merchandise and cemetery burial property and merchandise are stated at the lower of average cost or market.
Property, Plant and Equipment, net: Property, plant and equipment are recorded at cost. Maintenance and repairs are charged to expense whereas renewals and major replacements are capitalized. Costs of property sold or retired and the related accumulated depreciation are removed from the consolidated balance sheet; resulting gains and losses are included in the consolidated statement of operations.
Names and Reputations: The excess of purchase price over the fair value of identifiable net assets acquired in transactions accounted for as purchases are included in Names and reputations and generally amortized on a straight line basis over 40 years which, in the opinion of management, is not necessarily the maximum period benefited. Fair values determined at the date of acquisition are determined by management or independent appraisals. Many of the Company's acquired funeral service locations have been providing high quality service to client families for many years. Such loyalty often forms the basic valuation of the funeral
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
business. Additionally, the death care industry has historically exhibited stable cash flows. The Company monitors the recoverability of names and reputations based on projections of future undiscounted cash flows of the acquired businesses. Accumulated amortization of names and reputations from continuing operations as of December 31, 2000 and 1999 was $311,826 and $246,285, respectively.
Depreciation and Amortization: Depreciation of property, plant and equipment is provided using the straight line method over the estimated useful lives of the various classes of assets. Property and plant are depreciated over a period ranging from seven to fifty years, equipment is depreciated over a period from five to twenty years and leasehold improvements are depreciated over a range of five to fifty years. For the years ended December 31, 2000, depreciation expense from continuing operations was $109,995, $130,121 and $114,431, respectively.
For the years ended December 31, 2000, 1999 and 1998 amortization expense of names and reputations from continuing operations was $65,541, $66,367 and $44,566, respectively.
Prepaid management, consultative and non-competition agreements, primarily with former owners and key employees of businesses acquired, are amortized on a straight-line basis over the lives (generally from five to ten years) of the respective contracts. Amortization expense associated with these agreements for the years ended December 31, 2000, 1999 and 1998 was $21,527, $26,659 and $25,403, respectively.
Net obtaining costs incurred pursuant to the sales of trust funded and third party insurance funded prearranged funeral contracts are deferred and amortized over 20 years, a period representing the estimated life of the prearranged funeral. In connection with the change in accounting associated with Staff Accounting Bulletin No. 101 (SAB No. 101) (see note three to the consolidated financial statements), the Company wrote off certain previously deferred net obtaining costs. Amortization associated with net obtaining costs for the years ended December 31, 2000, 1999 and 1998 were $7,116, $21,904 and $12,930, respectively.
Other miscellaneous amortization from continuing operations for the years ended December 31, 2000, 1999 and 1998 was $19,852, $1,039 and $0, respectively.
Foreign Currency Translation: All assets and liabilities of the Company's foreign subsidiaries are translated into U.S. dollars at exchange rates in effect as of the end of the reporting period. Revenue and expense items are translated at the average exchange rates for the reporting period. The resulting translation adjustments are included in stockholders' equity as a component of accumulated other comprehensive income (loss) in the consolidated statement of stockholders' equity.
With respect to transactions denominated in currencies other than the functional currencies of the Company's operations, both realized and unrealized currency gains and losses associated with these transactions are recorded through the consolidated statement of operations.
Funeral Operations: Funeral revenue is recognized when the funeral service is performed. The Company's trade receivables consist primarily of funeral services already performed. An allowance for doubtful accounts has been provided based on historical experience. The Company sells price guaranteed prearranged funeral contracts through various programs providing for future funeral services at prices prevailing when the agreements are signed. Revenues associated with sales of prearranged funeral contracts (which include accumulated trust earnings and increasing insurance benefits) are deferred until such time that the funeral services are performed (see note four to the consolidated financial statements).
In 2000, the net effect of prearranged funeral production and maturities has been reclassified from cash flows from investing activities to cash flows from operating activities. While cash flows related to these price guaranteed prearranged funeral contracts have characteristics of both cash flows from operating and investing activities, the predominant characteristics are those of cash flows from operating activities. For comparative purposes, the reclassification was made to the 1999 and 1998 consolidated statement of cash flows.
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cemetery Operations: Sales of atneed cemetery interment rights, merchandise and services are recognized when the service is performed or merchandise delivered. Preneed cemetery interment right sales of constructed cemetery burial property are deferred until a minimum percentage of the sales price has been collected. Revenues related to the preneed sale of unconstructed cemetery burial property will be deferred until such property is constructed and a minimum percentage of the sales price has been collected. Further, the Company defers certain direct obtaining costs associated with these sales which are expensed as revenue is recognized (see notes three and six to the consolidated financial statements). Prior to the change in accounting related to SAB No. 101, all cemetery interment right sales, together with associated merchandise and services, were recorded as income at the time contracts are signed.
Costs related to the sales of interment rights include property and other costs related to cemetery development activities, and are charged to operations using the specific identification method. Costs related to merchandise and services are based on actual costs incurred or estimates of future costs necessary, including provisions for inflation when required.
Allowances for customer cancellations are provided at the date of sale based upon historical experience. Pursuant to state law, all or a portion of the proceeds from cemetery merchandise or services sold on a preneed basis may be required to be paid into trust funds. Merchandise and services funds trusted at December 31, 2000 and 1999 were $942,896 and $822,829, respectively. The Company defers realized investment earnings related to these merchandise and services trusts until the associated merchandise is delivered or services are performed. A portion of the proceeds from the sale of cemetery property is required by state law to be paid into perpetual care trust funds. Earnings from these trusts are recognized in current cemetery revenues and are intended to defray cemetery maintenance costs, which are expensed as incurred. Perpetual care funds trusted at December 31, 2000 and 1999 were $516,885 and $519,538, respectively. The principal of such perpetual care trust funds generally cannot be withdrawn by the Company and therefore is not included in the consolidated balance sheet. See note six to the consolidated financial statements regarding preneed cemetery activity.
Derivatives: Amounts to be paid or received under interest rate swaps, including the interest rate provisions of the cross-currency swaps, are recorded on the accrual basis over the life of the swap agreements as an adjustment to interest expense. The related net amounts payable to, or receivable from, the counterparties are included in accrued liabilities or current receivables, respectively. Gains and losses resulting from currency movements on the cross-currency swaps that hedge the Company's net foreign investments are reflected in other comprehensive income (loss) in the consolidated statement of stockholders' equity, with the related net amounts due to, or from, the counterparties included in other liabilities, or other assets, respectively. Net deferred gains and losses on early termination of interest rate swaps are amortized into interest expense over the remaining lives of the original agreements.
Recent Accounting Pronouncements: In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 137 defers the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company will adopt SFAS No. 133, as well as SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities: An Amendment of FASB Statement No. 133," effective January 1, 2001. In accordance with these Standards, the Company will recognize a charge to income, net of applicable taxes, of approximately $7,500. This amount will be classified as a cumulative effect of a change in accounting principle. This initial charge primarily relates to the recognition of net deferred charges from interest rate gains and losses realized in the termination or assignment away of swap agreements. These charges are currently being amortized into interest expense over the terms of the swap agreements, whereas the new standards require recognition as the derivative gains and losses are incurred.
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE THREE
ACCOUNTING CHANGE
In 2000, the Company implemented Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" (SAB No. 101) which changes the Company's accounting policies regarding the manner in which the Company records preneed sales activities. The implementation of SAB No. 101 had no effect on the consolidated cash flows of the Company. As a result of the required change, the Company's preneed sales activities are affected as follows:
- Preneed sales of cemetery interment rights (cemetery burial
property) -- revenue and all costs associated with the sales of preneed
cemetery interment rights are recognized in accordance with the retail
land sales provisions of Statement of Financial Accounting Standards No.
66 "Accounting for the Sales of Real Estate" (FAS No. 66). Under FAS No.
66, recognition of revenue and associated costs from constructed cemetery
property must be deferred until a minimum percentage of the sales price
has been collected. Revenues related to the preneed sale of unconstructed
cemetery property will be deferred until such property is constructed and
meets the criteria of FAS No. 66 described above. Previously, the preneed
interment rights revenue and associated costs were recognized at the time
the contract was signed with the customer.
- Preneed sales of cemetery merchandise (primarily markers and vaults) -- revenue and all costs associated with the sales of preneed cemetery merchandise are deferred until the merchandise is delivered. Previously, the preneed cemetery merchandise revenue and associated costs were recognized at the time the contract was signed with the customer.
- Preneed sales of cemetery services (primarily merchandise delivery and installation fees and burial opening and closing fees) -- revenue and all costs associated with the sales of preneed cemetery services are deferred until the services are performed. Previously, the revenue and associated costs were recognized at the time the contract was signed with the customer.
- Prearranged funeral and preneed cemetery customer obtaining costs -- costs incurred related to obtaining new preneed cemetery and prearranged funeral business are accounted for under the provisions of Statement of Financial Accounting Standards No. 60 "Accounting and Reporting by Insurance Enterprises" (FAS No. 60). Under FAS No. 60, obtaining costs, which include only costs that vary with and are primarily related to the acquisition of new preneed cemetery and prearranged funeral business, are deferred. Previously, with respect to the prearranged funeral business, deferred obtaining costs included variable and fixed direct obtaining costs as well as direct marketing costs. With respect to the preneed cemetery business, obtaining costs were previously expensed as incurred.
- Cemetery merchandise and services trust investment earnings -- investment earnings generated by assets included in merchandise and services trusts are deferred until the associated merchandise is delivered or services performed. Previously, the trust earnings were recognized as earned in the trust.
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The change in the Company's accounting policies resulting from implementation of SAB No. 101 has been treated as a change in accounting principle effective as of January 1, 2000. The cumulative effect of the accounting change through December 31, 1999 resulted in a charge to net income of $909,315 (net of a $552,491 tax benefit), or $3.34 per diluted share recorded on January 1, 2000. The following table shows the unaudited proforma effects of retroactive application using the newly adopted accounting policies compared to historical results for the years ended December 31, 1999 and 1998.
1999 1998
----------------------- -----------------------
PROFORMA HISTORICAL PROFORMA HISTORICAL
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues from continuing
operations......................... $2,745,114 $3,007,958 $2,354,822 $2,696,317
Income (loss) from continuing
operations before extraordinary
gains.............................. $ (210,668) $ (51,224) $ 147,854 $ 331,561
Net income (loss).................... (191,856) (32,412) 158,435 342,142
Basic earnings per share:
Income (loss) from continuing
operations before extraordinary
gains........................... $ (.77) $ (.19) $ .58 $ 1.30
Net income (loss).................. (.70) (.12) .62 1.34
Diluted earnings per share:
Income (loss) from continuing
operations before extraordinary
gains........................... $ (.77) $ (.19) $ .57 $ 1.27
Net income......................... (.70) (.12) .61 1.31
|
NOTE FOUR
DISCONTINUED OPERATIONS
In the third quarter of 2000, the Company completed the sales of its wholly owned insurance operations, Auxia and American Memorial Life Insurance Company (AMLIC). The financial statements have been reclassified to reflect these operations as discontinued. The operating results for Auxia have been included through August 31, 2000 and the operating results for AMLIC have been included through September 30, 2000, the dates of disposition of the respective companies. The net assets of these discontinued operations prior to the dates of disposition were segregated on the balance sheet and the components have been detailed below.
Summary operating results of discontinued operations:
TWELVE MONTHS ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
--------- --------- ---------
Revenues.......................................... $ 295,062 $ 313,855 $ 178,773
Cost and expenses................................. (275,172) (284,852) (160,212)
--------- --------- ---------
Income from discontinued operations before income
taxes........................................... 19,890 29,003 18,561
Provision for income taxes........................ (6,543) (12,076) (7,980)
--------- --------- ---------
Income from discontinued operations............... $ 13,347 $ 16,927 $ 10,581
========= ========= =========
|
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net assets of discontinued operations:
DECEMBER 31,
1999
------------
Assets:
Cash and cash equivalents................................. $ 30,407
Receivables, net of allowances............................ 19,858
Other current assets...................................... 11,240
Investments............................................... 1,318,635
Long-term receivables..................................... 30,193
Property, plant and equipment, at cost (net).............. 1,546
Deferred charges and other assets......................... 379,454
Names and reputations (net)............................... 40,889
----------
Total assets...................................... $1,832,222
==========
Liabilities:
Accounts payable and accrued liabilities.................. $ 13,096
Income taxes payable...................................... 3,989
Reserves and annuity benefits............................. 1,313,328
Deferred income taxes..................................... 8,243
Other liabilities......................................... 284,715
----------
Total liabilities................................. $1,623,371
----------
Net assets of discontinued operations....................... $ 208,851
==========
|
NOTE FIVE
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 accounts (pursuant to applicable law) or are used to pay premiums on life insurance or annuity contracts.
The balance in Prearranged funeral contracts represents amounts due from trust funds, customer receivables or third party insurance companies related to unperformed, price guaranteed prearranged funeral contracts. A corresponding credit is recorded to Deferred prearranged funeral contract revenues. Previously, this amount excluded prearranged funeral contracts funded through the Company's discontinued insurance operations. However, upon disposal of these operations in the third quarter of 2000, the amounts associated with those contracts to be funded by the Company's discontinued insurance operations were recorded consistent with contracts funded by other third party insurance companies.
Funeral revenue is recognized on prearranged funeral contracts at the time the funeral service is performed. Trust earnings and increasing insurance benefits are accrued and deferred until the services are performed, at which times these funds are also recognized in funeral revenues. Such amounts are intended to cover future increases in the cost of providing a price guaranteed funeral service. Net obtaining costs incurred pursuant to the sales of trust funded and third party insurance funded prearrangements are included in Deferred charges and other assets. These obtaining costs, which include sales commissions and certain other direct costs that vary with and are primarily related to the acquisition of new prearranged funeral business, are deferred and amortized over 20 years, a period representing the estimated life of the prearranged funeral contracts. The aggregate net costs deferred as of December 31, 2000 and 1999 were $137,412 and $345,383, respectively (see note three to the consolidated financial statements).
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Prearranged Funeral Contracts
As previously mentioned, the balance in prearranged funeral contracts represents amounts due from trust funds, customer receivables or third party insurance companies related to unperformed, price guaranteed prearranged funeral contracts. The components of prearranged funeral contracts in the consolidated balance sheet, as well as the total value of unperformed prearranged funeral contracts, at December 31 is as follows:
2000 1999
---------- ----------
Trusts:
Trust assets.............................................. $1,355,545 $1,405,273
Receivables from customers................................ 249,763 290,997
Allowance for cancellation................................ (143,408) (148,523)
---------- ----------
Net trust related assets.......................... 1,461,900 1,547,747
Third Party Insurance:
Receivables from third party insurance companies.......... 2,825,991 1,463,029
Allowance for cancellation................................ (207,524) (112,637)
---------- ----------
Net third party insurance related assets.......... 2,618,467 1,350,392
---------- ----------
Prearranged funeral contracts............................... 4,080,367 2,898,139
Discontinued insurance operations:
Receivables from discontinued insurance companies......... -- 1,164,331
Allowance for cancellation................................ -- (62,960)
---------- ----------
Net discontinued insurance related assets......... -- 1,101,371
---------- ----------
Total value of prearranged funeral contracts................ $4,080,367 $3,999,510
========== ==========
|
The allowance for cancellation is based on historical experience and is equivalent to approximately 8.6% of the total balance at December 31, 2000 and 9.0% of prearranged funeral contracts at December 31, 1999. Accumulated earnings from trust funds and increasing insurance benefits of third party insurance companies have been included to the extent that they have been accrued through December 31, 2000 and 1999, respectively. The cumulative trust funded total has been reduced by allowable cash withdrawals for trust earnings and amounts retained by the Company pursuant to various state laws.
The activity in prearranged funeral contracts for the years ended December 31 is as follows:
2000 1999
---------- ----------
Beginning balance........................................... $2,898,139 $2,588,806
Net sales................................................. 238,823 216,754
Acquisitions (dispositions)............................... (87,747) 267,754
Realized earnings and increasing insurance benefits for
third party insurance companies........................ 141,823 113,902
Maturities................................................ (336,495) (199,693)
Change in cancellation reserve............................ 2,294 (46,382)
Reclassification of discontinued insurance operations..... 1,223,157 --
Cumulative effect of accounting change.................... 59,326 --
Distributed earnings, effect of foreign currency and
other.................................................. (58,953) (43,002)
---------- ----------
Ending balance.............................................. $4,080,367 $2,898,139
========== ==========
|
The cost and market value of the assets held in the trust funds underlying the Company's prearranged funeral contracts at December 31 are detailed below. In addition to these assets held in trust funds, the
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company has net receivables due from third party insurance companies of $2,618,467 and $1,350,392 at December 31, 2000 and 1999, respectively.
2000 1999
----------------------- -----------------------
COST MARKET COST MARKET
---------- ---------- ---------- ----------
Cash and cash equivalents............ $ 146,258 $ 147,412 $ 234,614 $ 231,299
Fixed Income Securities:
U.S. Treasury...................... 81,711 81,785 117,827 108,898
Foreign government................. 157,704 165,977 137,983 141,778
Corporate.......................... 29,371 29,158 14,686 15,363
Mortgage-backed.................... 123,478 121,773 125,186 117,308
Asset-backed....................... 83,234 83,424 10,277 10,178
Municipal.......................... 3,606 3,662 9,724 9,498
Other.............................. 6,926 6,928 64 51
Equity securities:
Preferred stock.................... 185 153 -- --
Common stock....................... 453,890 470,576 452,767 564,758
Mutual funds:
Equity............................. 108,204 102,214 138,615 148,789
Fixed income....................... 75,398 76,440 97,862 93,837
Private equity and other............. 85,580 101,623 65,668 68,322
---------- ---------- ---------- ----------
Prearranged funeral trust assets..... $1,355,545 $1,391,125 $1,405,273 $1,510,079
========== ========== ========== ==========
|
Deferred Prearranged Funeral Contract Revenues
Deferred prearranged funeral contract revenues represents the original contract price, trust earnings and increasing insurance benefits on unperformed funeral contracts generally funded by trust or third party insurance companies. The total amounts associated with unperformed prearranged funeral contracts consists of two components: (i) contracts funded by trust or third party insurance companies and (ii) contracts funded by the Company's discontinued insurance operations. Upon disposal of the Company's discontinued insurance operations, the Company recorded the amounts associated with unperformed funeral contracts to be funded by these discontinued operations consistent with contracts funded by other third party insurance companies.
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes for the years ended December 31 the activity in deferred prearranged funeral contract revenues as well as reflecting the total value of unperformed prearranged funeral contracts.
2000 1999
---------- ----------
Beginning balance -- Deferred prearranged funeral contract
revenues.................................................. $3,186,081 $2,819,794
Net sales................................................. 246,164 213,526
Acquisitions/dispositions................................. (83,513) 272,295
Realized earnings and increasing insurance benefits from
third party insurance companies........................ 143,710 113,705
Maturities................................................ (270,097) (227,871)
Change in cancellation reserve............................ 2,293 (46,381)
Reclassification of discontinued insurance operations..... 1,223,157 --
Cumulative effect of accounting change.................... 94,975 --
Effect of foreign currency and other...................... (5,101) 41,013
---------- ----------
Ending balance -- Deferred prearranged funeral contract
revenues.................................................. 4,537,669 3,186,081
Unperformed contracts funded by discontinued insurance
operations................................................ -- 1,101,371
---------- ----------
Total value of unperformed prearranged funeral contracts.... $4,537,669 $4,287,452
========== ==========
|
NOTE SIX
PRENEED CEMETERY ACTIVITIES
Pursuant to the implementation of SAB No. 101 in 2000, the Company changed it accounting policies regarding the manner in which the Company records preneed sales activities. As discussed in detail in note three to the consolidated financial statements, the Company is now deferring revenues associated with certain preneed cemetery sales activities until cemetery burial property is constructed and meets the criteria of FAS No. 66, merchandise is delivered or services are performed. As of January 1, 2000, the Company had deferred preneed contract cemetery revenue of $1,639,606, net of cancellation reserve of $182,207. The following table summarizes the activity during 2000 in deferred preneed cemetery contract revenues.
2000
----------
Balance as of January 1, 2000 from cumulative effect of
accounting change......................................... $1,639,606
Net sales................................................. 406,483
Acquisitions (dispositions) and other..................... 1,317
Realized earnings on merchandise and services trust
funds.................................................. 25,939
Maturities................................................ (240,118)
Change in cancellation reserve............................ (18,070)
----------
Balance as of December 31, 2000............................. $1,815,157
==========
|
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Merchandise and Services Trusts
Amounts paid into cemetery merchandise and services trusts are included in long-term receivables, at cost. The cost and market values associated with the assets held in the cemetery merchandise and services trust funds underlying the Company's long-term receivables at December 31 were as follows:
2000 1999
------------------- -------------------
COST MARKET COST MARKET
-------- -------- -------- --------
Cash and cash equivalents.................. $ 77,376 $ 77,408 $160,246 $160,738
Fixed Income Securities:
U.S. Treasury............................ 131,095 135,304 105,413 98,430
Foreign government....................... 9,308 9,349 9,272 9,275
Corporate................................ 15,946 16,318 13,091 11,197
Mortgage-backed.......................... 147,782 149,658 145,758 140,760
Asset-backed............................. 85,947 89,427 560 545
Municipal................................ 109 114 114 111
Other.................................... 4,717 4,643 356 305
Equity securities:
Preferred stock.......................... 129 101 -- --
Common stock............................. 268,510 261,720 215,695 220,071
Mutual funds:
Equity................................... 105,330 94,827 99,165 100,463
Fixed income............................. 64,207 64,515 57,367 53,648
Private equity and other................... 32,440 31,169 15,792 16,518
-------- -------- -------- --------
Preneed cemetery merchandise and services
trust assets............................. $942,896 $934,553 $822,829 $812,061
======== ======== ======== ========
|
As a result of implementing SAB No. 101 (see note three to the consolidated financial statements), all realized investment earnings for the year ended December 31, 2000 related to these cemetery merchandise and services trust funds are deferred until the associated merchandise is delivered or service is performed. Prior to 2000, the realized investment earnings were recognized as earned in the trusts. For the year ended December 31, 2000, realized investment earnings related to these cemetery merchandise and service trust funds that were deferred amounted to $25,939. The realized investment earnings recognized in the consolidated statement of operations related to these cemetery merchandise and services trust funds were $19,947, $39,930 and $69,466 for the years ended December 31, 2000, 1999 and 1998, respectively.
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Perpetual Care Trusts
The cost and market values associated with the assets held in perpetual care trust funds at December 31 were as follows:
2000 1999
------------------- -------------------
COST MARKET COST MARKET
-------- -------- -------- --------
Cash and cash equivalents.................. $ 42,690 $ 43,074 $ 48,582 $ 50,478
Fixed Income Securities:
U.S. Treasury............................ 60,153 62,818 39,567 39,202
Foreign government....................... 17,387 19,542 19,269 18,493
Corporate................................ 56,992 58,469 39,096 39,520
Mortgage-backed.......................... 84,204 84,767 69,734 70,970
Asset-backed............................. 29,519 31,064 7,667 7,982
Municipal................................ 89 162 244 260
Other.................................... 1,804 3,169 113 47
Equity securities:
Preferred stock.......................... -- -- -- --
Common stock............................. 50,602 59,228 12,994 23,813
Mutual funds:
Equity................................... 50,909 47,675 103,454 83,403
Fixed income............................. 91,690 84,317 148,742 141,859
Private equity and other................... 30,846 31,989 30,076 31,631
-------- -------- -------- --------
Perpetual care trust assets................ $516,885 $526,274 $519,538 $507,658
======== ======== ======== ========
|
Realized investment earnings from these perpetual care trust funds are recognized in current cemetery revenues and are intended to defray cemetery maintenance costs, which are expensed as incurred. The realized investment earnings related to these perpetual care trust funds were $26,660, $25,950 and $27,814 for the years ended December 31, 2000, 1999 and 1998, respectively.
NOTE SEVEN
INCOME TAXES
The provision or benefit for income taxes includes United States federal income taxes, determined on a consolidated return basis, foreign, state and local income taxes.
Income (loss) from continuing operations before income taxes, extraordinary gains and cumulative effect of an accounting change for the years ended December 31 is as follows:
2000 1999 1998
--------- -------- --------
United States....................................... $(474,256) $(77,304) $411,578
Foreign............................................. (42,722) 10,611 88,388
--------- -------- --------
$(516,978) $(66,693) $499,966
========= ======== ========
|
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax provision (benefit) for the years ended December 31 consisted of the following:
2000 1999 1998
--------- -------- --------
Current:
United States..................................... $(149,465) $ 23,155 $ 97,929
Foreign........................................... 12,436 13,141 10,881
State and local................................... 535 5,498 9,078
--------- -------- --------
(136,494) 41,794 117,888
--------- -------- --------
Deferred:
United States..................................... 47,923 (22,460) 48,261
Foreign........................................... (13,717) (30,928) (5,871)
State and local................................... 10,833 (3,875) 8,127
--------- -------- --------
45,039 (57,263) 50,517
--------- -------- --------
Total provision (benefit)................. $ (91,455) $(15,469) $168,405
========= ======== ========
|
The Company made income tax payments on continuing operations of approximately $56,007, $24,500 and $126,000, excluding income tax refunds of $35,032, $8,488 and $9,538, for the years ended December 31, 2000, 1999 and 1998, respectively.
The differences between the U.S. federal statutory income tax rate and the Company's effective tax rate for the years ended December 31 were as follows:
2000 1999 1998
--------- -------- --------
Computed tax provision (benefit) at the applicable
federal statutory income tax rate............... $(180,942) $(23,343) $174,988
State and local taxes, net of federal income tax
benefits........................................ 7,389 1,055 11,183
Dividends received deduction and tax exempt
interest........................................ (2,005) (210) (1,178)
Amortization of names and reputations............. 11,485 11,844 6,423
Enacted tax rate change........................... -- -- (2,218)
Foreign jurisdiction tax rate difference.......... (14,472) (16,899) (19,612)
Write down of assets.............................. 92,155 11,528 (260)
Other............................................. (5,065) 556 (921)
--------- -------- --------
Provision (benefit) for income taxes.... $ (91,455) $(15,469) $168,405
========= ======== ========
Total effective tax rate................ (17.7)% (23.2)% 33.7%
========= ======== ========
|
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred taxes are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted marginal tax rates. The tax effects of temporary differences and carry-forwards that give rise to significant portions of deferred tax assets and liabilities as of December 31 consisted of the following:
2000 1999
--------- ----------
Receivables, principally due to sales of cemetery interment
rights and related products............................... $ -- $ 279,153
Inventories and cemetery property, principally due to
purchase accounting adjustments........................... 549,555 541,063
Property, plant and equipment and investments, principally
due to depreciation and to purchase accounting
adjustments............................................... 118,433 78,650
Other....................................................... 142,320 130,943
--------- ----------
Deferred tax liabilities.................................. 810,308 1,029,809
--------- ----------
Receivables, principally due to sales of cemetery interment
rights and related products............................... (163,952) --
Deferred revenue on prearranged funeral and cemetery
contracts, principally due to earnings from trust funds... (133,620) (21,987)
Accrued liabilities......................................... (93,381) (98,434)
Loss and foreign tax credit carry-forwards.................. (72,424) (73,851)
--------- ----------
Deferred tax assets....................................... (463,377) (194,272)
--------- ----------
Valuation allowance......................................... 69,199 27,278
--------- ----------
Net deferred income taxes................................. $ 416,130 $ 862,815
========= ==========
|
Tax expense resulting from allocating certain tax benefits directly to capital in excess of par value totaled $42,794 at December 31, 1998 and was insignificant at December 31, 1999 and 2000.
Current refundable income taxes and current deferred tax assets are included in Other current assets, long-term deferred tax assets are included in Deferred charges and other assets, with current taxes payable and current deferred tax liabilities being reflected as Income taxes on the consolidated balance sheet.
At December 31, 2000 and 1999, United States income taxes had not been provided on $264,379 and $309,000, respectively, of undistributed earnings of foreign subsidiaries since it is the Company's intention to permanently reinvest such earnings. Although it is not practicable to determine the deferred tax liability on the unremitted earnings, income taxes paid by the Company's foreign subsidiaries will be available to significantly reduce any U.S. tax if these foreign earnings are remitted.
As of December 31, 2000 the Company recorded a charge to reduce the carrying value of a Canadian equity investment. A deferred tax asset and valuation allowance has been established related to this charge. Various subsidiaries have international, federal and state operating loss carry-forwards of $470,295 with expiration dates through 2018. The Company believes that some uncertainty exists with respect to future realization of these loss carry-forwards, therefore a valuation allowance has been established for the carry-forwards not expected to be realized. The increase in the valuation allowance is primarily attributable to the charge to reduce the carrying value of the Canadian equity investment.
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The operating loss carry-forwards will expire as follows:
2001..................................................... $ 3,585
2002..................................................... 4,578
2003..................................................... 15,375
2004..................................................... 20,062
2005..................................................... 83,237
Thereafter............................................... 343,458
--------
Total.......................................... $470,295
========
|
NOTE EIGHT
DEBT
Debt as of December 31 was as follows:
2000 1999
---------- ----------
Bank credit agreements and commercial paper................. $ 789,750 $1,179,704
6.375% notes due in 2000.................................... -- 150,000
6.75% notes due in 2001..................................... 123,000 150,000
8.72% amortizing notes due in 2002.......................... 39,149 71,174
8.375% notes due in 2004.................................... 51,840 51,840
7.375% notes due in 2004.................................... 250,000 250,000
6.0% notes due in 2005...................................... 591,550 600,000
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...................................... 200,000 200,000
7.7% notes due in 2009...................................... 200,000 200,000
6.95% amortizing notes due in 2010.......................... 49,202 52,557
7.875% debentures due in 2013............................... 55,627 55,627
7.0% notes due in 2015 (putable in 2002).................... 186,040 300,000
6.3% notes due in 2020 (putable in 2003).................... 300,000 300,000
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-$50.00............................................. 49,213 49,213
Mortgage and other notes payable with maturities through
2050...................................................... 86,219 136,368
Deferred loan costs......................................... (16,013) (22,187)
---------- ----------
Total debt........................................ 3,291,297 4,060,016
Less current maturities..................................... (176,782) (423,949)
---------- ----------
Total long-term debt.............................. $3,114,515 $3,636,067
========== ==========
|
The Company's primary credit agreements, as amended, provide for borrowings up to $988,287 and consisted of two committed facilities -- a 2-year term loan and a 5-year, multi-currency revolving facility. These credit facilities were amended in November 2000. Significant terms of the amendments include certain agreements made by the Company to reduce commitment amounts on the credit facilities based upon net cash proceeds generated from joint venture and asset sale transactions closed after November 2000; changes to definitions and calculations of financial covenants related to a maximum debt-to-capitalization ratio, a minimum interest coverage ratio and a minimum net worth requirement; limits on the amount of Company assets that could be joint ventured or sold; and certain restrictions on future acquisition activity without lender
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approval. Under the terms of the amended credit agreements, the covenants will continue to be calculated using information without the implementation of SAB No. 101, until such time as the Company negotiates revised covenant calculations under the credit agreements. These facilities are primarily used for general corporate purposes.
The commitment for the 2-year term loan, originally $300,000, had been reduced to $296,486 at December 31, 2000. The commitment for the 5-year, multi-currency revolving facility, originally $700,000, was $691,801 at December 31, 2000. This 5-year facility also includes provisions for borrowings up to $500,000 in various foreign currencies. Both facilities mature in June 2002. Interest rates for these facilities are based on various indices as determined by the Company.
A facility fee is paid quarterly on the total commitment for each facility. The fee ranges from 0.25% to 0.50% depending on the Company's senior debt ratings. The fee was 0.50% and 0.25% at December 31, 2000 and 1999, respectively.
Approximately $789,750 was outstanding under the above facilities at December 31, 2000, with a weighted average rate of 7.95% ($870,545 at December 31, 1999, with a weighted average interest rate of 6.97%). Of these borrowings, approximately $271,263 was denominated in various foreign currencies under the 5-year facility at December 31, 2000 ($295,545 at December 31, 1999).
The Company's commercial paper program is backed by the above facilities; however, the Company's downgraded credit ratings have rendered it unable to access the commercial paper market. At December 31, 2000, all previously issued commercial paper had matured. Commercial paper outstanding at December 31, 1999, was $309,159 with a weighted average interest rate of 6.58%.
The Company's outstanding debt at December 31, 2000 had a weighted average interest rate of 7.08%, compared to 6.83% at December 31, 1999. The Company was not a party to any swap agreements at December 31, 2000; however, at December 31, 1999, after giving consideration to outstanding swap agreements, the weighted average interest rate was 6.41%.
The Company's debt at December 31, 2000, consisted of approximately 24% of floating interest rate debt at 7.94% and approximately 76% of fixed interest rate debt at a weighted average interest rate of 6.81%. At December 31, 1999, the Company's debt and derivative instruments, excluding the lending subsidiary's debt, consisted of approximately 39% of floating interest rate debt at a weighted average rate of 6.49% and approximately 61% of fixed interest rate debt at a weighted average rate of 6.36%.
During the year ended December 31, 2000, the Company repurchased certain
bonds in the open market with an aggregate face value of $228,700 as follows:
$79,290 of the 6.375% notes due 2000; $27,000 of the 6.75% notes due 2001;
$113,960 of the 7.00% notes due 2015, putable in 2002; and $8,450 of the 6.00%
notes due 2005. The repurchase resulted in extraordinary gains on early
extinguishment of debt totaling $21,973 (net of tax of $12,630).
In accordance with the stated maturity, October 2, 2000, the Company retired the 6.375% senior notes, in the amount of $70,710, by refinancing the indebtedness under its existing credit facilities. On October 30, 2000, the Company had a short-term credit facility, in the amount of $600,000, which expired with no borrowings outstanding.
The Company had $68,753 in restricted cash recorded in Deferred charges and other assets on the consolidated balance sheet as security for various credit instruments at December 31, 2000. Approximately $30,208 was related to two embedded options associated with the Company's 6.30% senior notes due 2020 (putable 2003). The remaining $38,545 was used to secure various other obligations. The total balance deposited in restricted accounts at March 26, 2001, was $102,493 of which $29,969 was related to the two options previously mentioned.
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has approximately $22,983 of assets pledged as collateral for the mortgage and other notes payable.
Cash interest payments for the three years ended December 31, 2000, totaled $244,638, $237,682 and $165,788, respectively. Included in net cash interest paid of $244,638 in 2000 is $16,673 of funds received related to the termination and assigning away of certain financial swap agreements, resulting in gross cash interest paid in 2000 of $261,311.
The aggregate maturities on debt for the five years subsequent to December 31, 2000, are as follows: 2001 -- $176,782; 2002 -- $995,814; 2003 -- $325,367; 2004 -- $321,178; 2005 -- $621,456.
NOTE NINE
DERIVATIVES
Historically, the Company entered into various derivative instruments, which were primarily interest rate and cross-currency swap agreements, to hedge potential exposures in the interest rate and foreign exchange rate markets. The Company used these swap agreements to hedge the Company's net investment in foreign assets and to manage its mix of fixed and floating rate debt. The Company has procedures to monitor and control the use of derivatives and only enters into transactions with a limited group of creditworthy financial institutions. The Company does not engage in derivative transactions for speculative or trading purpose, nor is it a party to leveraged derivatives.
During the first quarter of 2000, the Company materially modified its participation in derivative transactions by terminating or assigning away certain interest rate swaps and all cross-currency interest rate swaps, thereby removing the Company's hedges of foreign exchange rate exposure. A total notional value of $2,860,327 was eliminated in this process. The net proceeds from these terminations and assignments totaled $110,658, which was primarily used to extinguish debt. These proceeds have been classified according to the following components: $21,849 was due to the Company as accrued interest receivable, $143,498 resulted from foreign exchange rate gains and $54,689 resulted from interest rate losses.
The amount associated with the foreign exchange rate gains reduced the corresponding amount due from counterparties recorded in Deferred charges and other assets. The amount associated with the interest rate losses has been amortized into interest expense over the remaining term of the swap agreements. Approximately $11,331 has been amortized into interest expense for the year ended December 31, 2000.
The Company was not a party to any swap agreements at December 31, 2000 (representing a net asset of $122,581 at December 31, 1999), after having terminated or assigned away all interest rate and cross-currency swaps during the year then ended. Fair values were obtained from the counterparties to the agreements and represent their estimate of the amount the Company would pay or receive to terminate the swap agreements based upon the existing terms and current market conditions.
Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities: An Amendment of FASB Statement 133," in accordance with the extension provided for in SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133." In accordance with these standards, the Company will recognize a charge to income, net of applicable taxes, of approximately $7,500.
NOTE TEN
CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments has been determined using available market information and appropriate valuation methodologies. The carrying amounts of cash and cash
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
equivalents, trade receivables and accounts payable approximate fair values due to the short-term maturities of these instruments. It is not practicable to estimate the fair value of receivables due on cemetery contracts or prearranged funeral contracts (other than prearranged funeral trust funds and cemetery merchandise trust funds, see notes five and six to the consolidated financial statements) without incurring excessive costs because of the large number of individual contracts with varying terms. In prior years, the carrying value of our lending subsidiary's receivables approximated fair value, as the majority of the loan portfolio carries market rates of interest. In August 2000, the Company sold the majority of the assets of its lending subsidiary. The remaining loan portfolio at December 31, 2000, had a net book value of $34,305 ($191,373 at December 31, 1999). In addition, the Company had $10,494 in outstanding undrawn commitments at December 31, 2000 ($46,885 at December 31, 1999). See note nine to the consolidated financial statements regarding the Company's derivative financial instruments.
The fair market value of the Company's debt at December 31 was as follows:
2000 1999
---------- ----------
Bank credit agreements and commercial paper................. $ 631,800 $1,179,704
6.375% notes due in 2000.................................... -- 140,550
6.75% notes due in 2001..................................... 117,465 133,050
8.72% amortizing notes due in 2002.......................... 28,506 70,944
8.375% notes due in 2004.................................... 32,918 42,872
7.375% notes due in 2004.................................... 157,500 203,500
6.0% notes due in 2005...................................... 343,360 441,600
7.2% notes due in 2006...................................... 86,250 114,300
6.875% notes due in 2007.................................... 85,500 107,400
6.5% notes due in 2008...................................... 112,000 137,200
7.7% notes due in 2009...................................... 110,000 143,400
6.95% amortizing notes due in 2010.......................... 27,061 38,104
7.875% debentures due in 2013............................... 51,230 32,152
7.0% notes due in 2015 (putable in 2002).................... 137,640 254,100
6.3% notes due in 2020 (putable in 2003).................... 204,000 244,800
Medium term notes, maturities through 2019, fixed average
interest rate of 9.32%.................................... 20,299 24,152
Convertible debentures...................................... 28,578 59,672
Mortgage notes and other debt............................... 86,219 136,368
---------- ----------
Total debt........................................ $2,260,326 $3,503,868
========== ==========
|
The fair value of the fixed rate long-term borrowings was estimated by discounting the future cash flows, including interest payments, using rates currently available for debt of similar terms and maturity, based on the Company's credit standing and other market factors. The market value of convertible securities has been estimated based on the respective shares of Company common stock into which such securities may be converted. The Company has historically reported the market value of its bank credit agreements at book value since such agreements have variable interest rates. However, at December 31, 2000, the fair market value of these credit agreements is less than book value based upon existing market pricing and terms for comparable bank credit agreements.
The Company grants credit in the normal course of business, and the credit risk with respect to these funeral, cemetery and prearranged funeral receivables due from customers is generally considered minimal because of the wide dispersion of the customers served. Procedures are in effect to monitor the creditworthiness of customers, and bad debts have not been significant in relation to the volume of revenues.
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Customer payments on prearranged funeral contracts that are placed into state regulated trusts, used to pay premiums on life insurance contracts or bonded generally do not subject the Company to collection risk. Insurance funded contracts are subject to supervision by state insurance departments and are protected in the majority of states by insurance guaranty acts.
NOTE ELEVEN
COMMITMENTS
The annual payments for operating leases (primarily for funeral home facilities and transportation equipment) are as follows:
2001...................................................... $ 60,678
2002...................................................... 51,893
2003...................................................... 40,287
2004...................................................... 34,060
2005...................................................... 25,078
Thereafter................................................ 83,614
--------
Subtotal........................................ 295,610
Less:
Subleases............................................... (851)
--------
Total........................................... $294,759
========
|
The majority of these operating leases contain one of the following
options: (a) purchase the property at the fair value at date of exercise, (b)
purchase the property for a value determined at the inception of the lease or
(c) renew for the fair rental value at the end of the primary term of the lease.
Some of the equipment leases contain residual value exposures. Rental expense
was $94,629, $88,437 and $69,196 for the years ended December 31, 2000, 1999 and
1998, respectively.
The Company has entered into management, consultative and noncompetition agreements (generally for five to ten years) with certain officers and employees of the Company and former owners of businesses acquired. During the years ended December 31, 2000, 1999 and 1998, $75,141, $104,650 and $74,578 was charged to expense, respectively. At December 31, 2000, the maximum estimated future commitment under all agreements with a remaining term in excess of one year is $243,612, including $5,329 with certain officers of the Company. In December 1999, the Company modified several of the above agreements as part of a cost rationalization program (see note seventeen to the consolidated financial statements).
The Company has a minimum purchase agreement with a major casket manufacturer for its North American operations with an original commitment of $750,000 over six years. The agreement contains provisions to increase the minimum annual purchases for normal price increases. In addition, the contract provides for a one-year extension period in which the Company is required to purchase any remaining commitment that exists at the end of the original term. The remaining commitment over the next four years is $555,000 (2001 -- $115,000; 2002 -- $130,000; 2003 -- $145,000; 2004 -- $165,000).
NOTE TWELVE
STOCKHOLDERS' EQUITY
The Company is authorized to issue 1,000,000 shares of preferred stock, $1 per share par value. No shares were issued as of December 31, 2000. At December 31, 2000, 500,000,000 common shares of $1 par value were authorized, 272,507,010 shares were issued and outstanding (272,064,618 at December 31, 1999), net of 2,502,190 shares held, at par, in treasury (2,792,503 at December 31, 1999).
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Board of Directors has adopted a preferred share purchase rights plan and has declared a dividend of one preferred share purchase right for each share of common stock outstanding. The rights become exercisable in the event of certain attempts to acquire 20% or more of the common stock of the Company and entitle the rights holders to purchase certain securities of the Company or the acquiring company. The rights, which are redeemable by the Company for $.01 per right, expire in July 2008 unless extended.
The Company has benefit plans whereby shares of the Company's common stock may be issued pursuant to the exercise of stock options granted to officers and key employees. The Company's Amended 1996 Incentive Plan reserves 24,000,000 shares of common stock for future awards of stock options, restricted stock and other stock based awards to officers and key employees of the Company. The Company's 1996 Non-qualified Incentive Plan reserves 6,700,000 shares of common stock for future awards of nonqualified stock options to employees who are not officers of the Company. Under the Company's 1995 Stock Plan for Non-Employee Directors, non-employee directors automatically receive yearly awards of restricted stock through the year 2000. Each award is for 3,000 shares of common stock and vests after one year of service.
The plans allow for options to be granted as either non-qualified or incentive stock options. The options are granted with an exercise price equal to the then current market price of the Company's common stock. The options are generally exercisable at a rate of 33 1/3% each year unless, at the discretion of the Company's Compensation Committee of the Board of Directors, alternative vesting methods are allowed. At December 31, 2000 and 1999, 15,713,000 options had been granted to officers and key employees of the Company which contain alternative vesting methods. Under the alternative vesting methods, partial or full accelerated vesting will occur when the price of Company common stock reaches pre-determined prices. If the pre-determined stock prices are not met in the required time period, the options will fully vest in periods ranging from eight to ten years from date of grant. At December 31, 2000 and 1999, 11,187,894 and 16,903,290 shares, respectively, were reserved for future option grants under all stock option plans.
The following tables set forth certain stock option information:
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------
Outstanding at December 31, 1997.......................... 19,313,451 $20.81
---------- ------
Granted................................................. 2,953,553 36.66
Exercised............................................... (4,785,496) 13.50
Cancelled............................................... (102,992) 26.62
---------- ------
Outstanding at December 31, 1998.......................... 17,378,516 25.48
---------- ------
Granted................................................. 5,080,339 17.06
Assumed................................................. 1,199,273 23.65
Exercised............................................... (73,181) 14.74
Cancelled............................................... (3,691,837) 24.94
---------- ------
Outstanding at December 31, 1999.......................... 19,893,110 23.36
---------- ------
Granted................................................. 7,288,650 4.89
Exercised............................................... -- --
Cancelled............................................... (1,887,967) 24.92
---------- ------
Outstanding at December 31, 2000.......................... 25,293,793 $17.92
========== ======
Exercisable at December 31, 2000.......................... 12,262,434 $21.45
========== ======
Exercisable at December 31, 1999.......................... 8,575,226 $20.42
========== ======
Exercisable at December 31, 1998.......................... 6,435,679 $17.23
========== ======
|
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ -----------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING AT REMAINING EXERCISE EXERCISABLE AT EXERCISE
EXERCISE PRICE DECEMBER 31, 2000 CONTRACTUAL LIFE PRICE DECEMBER 31, 2000 PRICE
-------------- ----------------- ---------------- --------- ----------------- ---------
$ 0.00 -- 9.41 7,137,200 6.2 $ 4.90 -- $ --
9.41 -- 20.00 9,306,162 5.1 15.84 6,976,216 15.46
20.00 -- 30.00 3,406,824 2.4 25.62 2,994,279 25.34
30.00 -- 40.00 5,412,941 4.1 33.69 2,276,609 34.55
40.00 -- 50.00 30,666 2.8 41.75 15,330 41.96
---------- --- ------ ---------- ------
$ 0.00 -- 50.00 25,293,793 4.8 $17.92 12,262,434 $21.45
========== === ====== ========== ======
|
For the years ended December 31, 2000, 1999 and 1998, respectively, 33,000, 30,000, and 30,000 shares of restricted stock were awarded at average fair values of $4.03, $19.06 and $40.88, respectively.
If the Company had elected to recognize compensation cost for its option plans based on the fair value at the grant dates for awards under those plans, net income (loss) and earnings (loss) per share would have been changed for the years ended December 31 to the pro forma amounts indicated below:
2000 1999 1998
----------- -------- --------
Net income (loss):
As reported...................................... $(1,343,251) $(32,412) $342,142
Pro forma........................................ (1,367,986) (64,015) 318,057
Basic earnings (loss) per share:
As reported...................................... $ (4.93) $ (.12) $ 1.34
Pro forma........................................ (5.03) (.23) 1.24
Diluted earnings (loss) per share:
As reported...................................... $ (4.93) $ (.12) $ 1.31
Pro forma........................................ (5.02) (.23) 1.22
|
The fair value of the Company's stock options used to compute pro forma net
income (loss) and earnings (loss) per share disclosures is the estimated present
value at grant date using the Black-Scholes option-pricing model with the
following weighted average assumptions for 2000, 1999 and 1998, respectively:
dividend yield of 0%, 0%, and 1%, expected volatility of 57.2%, 41.6% and 28.3%,
a risk free interest rate of 6.7%, 5.5% and 5.5%; and an expected holding period
of 7 years for all three years.
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's components of other comprehensive income (loss) at December 31 are as follows:
ACCUMULATED
FOREIGN CURRENCY UNREALIZED GAIN MINIMUM OTHER
TRANSLATION (LOSSES) ON PENSION LIABILITY COMPREHENSIVE
ADJUSTMENT SECURITIES ADJUSTMENT INCOME (LOSS)
---------------- --------------- ----------------- -------------
Balance at December 31,
1997........................ $ (7,480) $ 3,961 $ -- $ (3,519)
Activity in 1998............ 8,748 10,149 -- 18,897
--------- -------- -------- ---------
Balance at December 31,
1998........................ 1,268 14,110 -- 15,378
Activity in 1999............ (39,036) (36,332) -- (75,368)
--------- -------- -------- ---------
Balance at December 31,
1999........................ (37,768) (22,222) -- (59,990)
Activity in 2000............ (202,709) (4,792) (12,724) (220,225)
Reclassification adjustment
for sales of discontinued
operations............... 16,044 27,014 -- 43,058
--------- -------- -------- ---------
Balance at December 31,
2000........................ $(224,433) $ -- $(12,724) $(237,157)
========= ======== ======== =========
|
NOTE THIRTEEN
RETIREMENT PLANS
The Company has a defined benefit pension plan covering substantially all United States employees, a supplemental retirement plan for certain current and former key employees (SERP), a supplemental retirement plan for officers and certain key employees (Senior SERP), and a retirement plan for non-employee directors (Directors' Plan). In 2000, the Company also established a 401(k) employee savings plan.
Effective December 31, 2000, the Company curtailed its United States noncontributory, defined pension plan and its supplemental retirement plans for certain current and former key employees, officers and non-employee directors. This curtailment occurred subsequent to the valuation of the plans; therefore, the impact of the curtailment will not be recognized until the first quarter of 2001 and is not expected to be material.
Retirement benefits for the United States pension plan are generally based on years of service and compensation. This contribution is an actuarially determined amount consistent with the funding requirements of the Employee Retirement Income Security Act of 1974. Assets of the pension plan consist primarily of bank money market funds, fixed income investments and marketable equity securities. The marketable equity securities include shares of Company common stock with a value of $578 and $2,292 at December 31, 2000 and 1999, respectively.
Retirement benefits under the SERP are based on years of service and average monthly compensation, reduced by benefits under the pension plan and Social Security. The Senior SERP provides retirement benefits based on years of service and position. The Directors' Plan provides for an annual benefit to directors following their retirement, based on a vesting schedule. The Company purchased various life insurance policies on the participants in the SERP, Senior SERP and Directors' Plan with the intent to use the proceeds or any cash value buildup from such policies to assist in funding, at least to the extent of such assets, the plans' funding requirements.
The Company's United Kingdom operation has a defined benefit pension plan. The Company and employees contribute to the plan consistent with United Kingdom funding requirements. Most other foreign employees are covered by various foreign government mandated or defined contribution plans which are adequately funded and are not considered significant to the financial condition or results of operations of the Company. The plans' liabilities and their related costs are computed in accordance with the laws of the individual countries and appropriate actuarial practices.
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of net periodic benefit cost for the years ended December 31 were as follows:
2000 1999 1998
-------- -------- --------
Service cost -- benefits earned during the period.... $ 15,941 $ 16,378 $ 14,595
Interest cost on projected benefit obligation........ 14,965 12,962 13,039
Return on plan assets................................ (13,688) (13,576) (14,035)
Settlement charge.................................... -- 1,073 --
Amortization of unrecognized transition asset........ (440) (469) (481)
Amortization of prior service cost................... 1,126 1,115 1,106
Recognized net (gain) loss........................... (449) 390 215
-------- -------- --------
$ 17,455 $ 17,873 $ 14,439
======== ======== ========
|
The Plans' funded status at December 31 were as follows (based on valuations as of September 30):
2000 1999
-------- --------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year..................... $193,415 $193,828
Service cost................................................ 15,941 16,378
Contributions paid by participants.......................... 1,392 1,373
Interest cost............................................... 14,965 12,962
Plan amendments............................................. 132 157
Actuarial (gain) loss....................................... 775 (7,373)
Benefits paid............................................... (24,507) (22,957)
Effect of foreign currency.................................. (3,136) (953)
-------- --------
Benefit obligation at end of year........................... $198,977 $193,415
======== ========
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year.............. $158,892 $151,380
Actual return on plan assets................................ 2,910 9,766
Employer contributions...................................... 17,788 20,309
Contributions paid by participants.......................... 1,392 1,373
Benefits paid............................................... (24,507) (22,957)
Effect of foreign currency.................................. (3,709) (979)
-------- --------
Fair value of plan assets at end of year.................... $152,766 $158,892
======== ========
Funded status of plan....................................... $(46,211) $(34,523)
Fourth quarter contributions................................ 3,870 474
Unrecognized actuarial loss................................. 27,001 15,728
Unrecognized prior service cost............................. 3,932 4,956
Unrecognized net transition asset........................... (1,759) (2,346)
Effect of foreign currency.................................. 21 (3)
-------- --------
Net amount recognized....................................... $(13,146) $(15,714)
======== ========
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET:
Prepaid benefit cost........................................ $ 6,370 $ 10,719
Accrued benefit liability................................... (42,885) (31,884)
Intangible asset............................................ 3,995 5,451
Accumulated other comprehensive income...................... 19,374 --
-------- --------
Net amount recognized....................................... $(13,146) $(15,714)
======== ========
|
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The plans' weighted-average assumptions were as follows:
2000 1999
---- ----
Discount rate used to determine obligations................. 7.64% 7.49%
Assumed rate of compensation increase....................... 4.86 4.91
Assumed rate of return on plan assets....................... 8.93 8.94
|
During 2000, the Company established an employee savings plan that qualifies under section 401(k) of the Internal Revenue Code for the exclusive benefit of their United States employees. Under the plan, participating employees may defer a portion of their pretax and/or after tax income in accordance with specified guidelines up to a maximum of 15%. The Company then matches a percentage of the employee contributions through contributions of the Company's common stock. For 2000, the Company match was 25% up to the first 6% of employee contributions. The total value of Company matched common stock contributions in 2000 was $812. Subsequent to year end, the Company increased its employer match for the 401(k) plan based on years of service to a range of 75% to 135% up to the first 6% of deferred contributions.
NOTE FOURTEEN
SEGMENT REPORTING
The Company's operations are product based and geographically based and primary reportable operating segments presented below include funeral and cemetery operations. The Company's geographic segments include North America, Europe and Other Foreign. The Company conducts funeral and cemetery operations in all geographical regions. In 2000, the Company completed sales of its wholly owned insurance operations. As such, these operations have been reclassified and reported as discontinued operations (see note four to the consolidated financial statements).
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's reportable segment information is as follows:
REPORTABLE
FUNERAL CEMETERY SEGMENTS
---------- ---------- -----------
Revenues from external customers:
2000.......................................... $1,911,969 $ 641,267 $ 2,553,236
1999.......................................... 2,039,348 947,852 2,987,200
1998.......................................... 1,829,136 846,601 2,675,737
Depreciation and amortization:
2000.......................................... $ 157,174 $ 40,162 $ 197,336
1999.......................................... 174,150 56,725 230,875
1998.......................................... 152,396 28,584 180,980
Operating income:
2000.......................................... $ 266,915 $ 58,432 $ 325,347
1999.......................................... 366,494 247,719 614,213
1998.......................................... 384,607 306,161 690,768
Total assets:
2000.......................................... $7,865,099 $4,464,622 $12,329,721
1999.......................................... 7,546,186 4,661,780 12,207,966
1998.......................................... 6,944,480 4,012,685 10,957,165
Capital expenditures:
2000.......................................... $ 40,660 $ 43,943 $ 84,603
1999.......................................... 905,790 432,083 1,337,873
1998.......................................... 590,065 369,212 959,277
Operating locations at year end (unaudited):
2000.......................................... 3,751 629 4,380
1999.......................................... 3,961 585 4,546
1998.......................................... 3,578 488 4,066
|
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table reconciles certain reportable segment amounts to the Company's corresponding consolidated amounts:
REPORTABLE LENDING
SEGMENTS SUBSIDIARY CORPORATE CONSOLIDATED
----------- ---------- --------- ------------
Revenues from external customers:
2000................................ $ 2,553,236 $ 11,494 $ -- $ 2,564,730
1999................................ 2,987,200 20,758 -- 3,007,958
1998................................ 2,675,737 20,580 -- 2,696,317
Depreciation and amortization:
2000................................ $ 197,336 $ -- $ 26,695 $ 224,031
1999................................ 230,875 -- 15,215 246,090
1998................................ 180,980 7 16,343 197,330
Total assets(1):
2000................................ $12,329,721 $ 40,120 $528,628 $12,898,469
1999................................ 12,207,966 193,784 576,480 12,978,230
1998................................ 10,957,165 271,448 501,203 11,729,816
Capital expenditures(2):
2000................................ $ 84,603 $ -- $ 13,192 $ 97,795
1999................................ 1,337,873 -- 29,187 1,367,060
1998................................ 959,277 180 21,253 980,710
|
(1) Total assets includes the net assets of discontinued operations as a component of corporate assets.
(2) Consolidated capital expenditures include $14,425, $1,159,929 and $728,885 for the years ended December 31, 2000, 1999 and 1998, respectively, for purchases of property, plant and equipment, cemetery property, and names and reputations of acquired businesses. The 2000 amount above is related to the Company acquiring by deed in lieu of foreclosure the collateral underlying certain loans from the Company's lending subsidiary. Excluding these capital expenditures related to acquired businesses which are included in Acquisitions, net of cash acquired in the Cash flows from investing activities in the consolidated statement of cash flows, the Company had consolidated capital expenditures of $83,370, $207,131 and $251,825 for the years ended December 31, 2000, 1999 and 1998, respectively.
The following table reconciles operating income from reportable segments to the Company's consolidated income (loss) from continuing operations before income taxes, extraordinary gains and cumulative effect of accounting change:
2000 1999 1998
--------- --------- ---------
Operating Income:
Reportable segments............................. $ 325,347 $ 614,213 $ 690,768
Lending subsidiary operating income (loss)...... 2,295 (29,467) 9,441
General and administrative expenses............. (79,932) (82,585) (66,839)
Restructuring and non-recurring charges......... (461,072) (362,428) --
--------- --------- ---------
Operating income (loss) from continuing
operations...................................... (213,362) 139,733 633,370
Interest expense................................ (281,548) (238,185) (177,053)
Other income.................................... 34,636 31,759 43,649
Loss on sale of investment...................... (56,704) -- --
--------- --------- ---------
Income (loss) from continuing operations before
income taxes, extraordinary gains and cumulative
effect of accounting change..................... $(516,978) $ (66,693) $ 499,966
========= ========= =========
|
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1999, the Company realigned its management of geographic segments to focus on total European operations. Although total amounts reported have not changed, the Company has made certain reclassifications in all years in order to properly reflect the results of these geographic segments.
The Company geographic segment information was as follows:
NORTH OTHER
AMERICA EUROPE FOREIGN TOTAL
---------- ---------- -------- ----------
Revenues from external customers:
2000................................ $1,737,014 $ 686,199 $141,517 $2,564,730
1999................................ 2,021,282 814,569 172,107 3,007,958
1998................................ 1,796,271 791,096 108,950 2,696,317
Operating income (loss)(1):
2000................................ $ (251,705) $ 19,823 $ 18,520 $ (213,362)
1999................................ 96,521 14,195 29,017 139,733
1998................................ 521,286 96,476 15,608 633,370
Long-lived assets:
2000................................ $4,905,990 $1,154,260 $521,178 $6,581,428
1999................................ 5,407,022 1,441,113 556,234 7,404,369
1998................................ 4,495,546 1,541,384 421,485 6,458,415
Operating locations at year end
(unaudited):
2000................................ 2,256 1,942 182 4,380
1999................................ 2,291 2,071 184 4,546
1998................................ 1,843 2,054 169 4,066
|
(1) Operating income (loss) includes $461,072 and $362,428 in restructuring charges in December 31, 2000 and 1999, respectively. In 2000 and 1999, respectively, $439,632 and $279,078 relates to North America, $20,424 and $75,898 relates to Europe and $1,016 and $7,452 relates to Other Foreign.
Included in the North American figures above are the following United States amounts:
2000 1999 1998
---------- ---------- ----------
Revenues from external customers................. $1,657,553 $1,940,640 $1,718,773
Operating income (loss).......................... $ (168,655) $ 81,934 $ 504,591
Long-lived assets................................ $4,648,778 $5,041,006 $4,163,222
Operating locations at year end (unaudited)...... 2,092 2,137 1,686
|
Included in the European figures above are the following French amounts:
2000 1999 1998
-------- -------- --------
Revenues from external customers.................. $415,615 $505,630 $524,418
Operating income (loss)........................... $ 9,391 $ (1,860) $ 60,810
Long-lived assets................................. $344,369 $468,532 $480,979
Operating locations at year end (unaudited)....... 1,169 1,236 1,214
|
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE FIFTEEN
SUPPLEMENTARY INFORMATION
The detail of certain balance sheet accounts was as follows:
DECEMBER 31,
-----------------------
2000 1999
---------- ----------
Cash and cash equivalents:
Cash...................................................... $ 36,309 $ 32,116
Commercial paper and temporary investments................ 11,600 25,698
---------- ----------
$ 47,909 $ 57,814
========== ==========
Receivables and allowances:
Current:
Trade accounts......................................... $ 276,747 $ 329,104
Cemetery contracts..................................... 255,815 294,893
Loans and other notes receivable....................... 23,486 73,510
---------- ----------
556,048 697,507
---------- ----------
Less:
Allowance for contract cancellations and doubtful
accounts............................................. 64,852 77,080
Unearned finance charges............................... 41,207 35,158
---------- ----------
106,059 112,238
---------- ----------
$ 449,989 $ 585,269
========== ==========
Long-term:
Cemetery contracts..................................... $ 653,975 $ 591,489
Trusted cemetery merchandise sales..................... 886,270 800,306
Loans and other notes receivable....................... 149,200 325,324
---------- ----------
1,689,445 1,717,119
---------- ----------
Less:
Allowance for contract cancellations and doubtful
accounts............................................. 272,865 97,285
Unearned finance charges............................... 87,205 87,609
---------- ----------
360,070 184,894
---------- ----------
$1,329,375 $1,532,225
========== ==========
|
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest rates on cemetery contracts and loans and other notes receivable range from 3.5% to 14.5% at December 31, 2000 (7.0% to 14.5% at December 31, 1999). Included in long-term loans and other notes receivable at December 31, 2000, are $445 in notes with officers, employees and former employees of the Company ($10,392 at December 31, 1999), the majority of which are collateralized by real estate, and $4,786 in notes with other related parties ($19,796 at December 31, 1999).
DECEMBER 31,
-----------------------
2000 1999
---------- ----------
Cemetery property:
Undeveloped land.......................................... $1,840,772 $1,913,904
Developed land, lawn crypts and mausoleums................ 185,712 268,506
---------- ----------
$2,026,484 $2,182,410
========== ==========
Property, plant and equipment:
Land...................................................... $ 353,144 $ 446,668
Buildings and improvements................................ 1,401,996 1,408,424
Operating equipment....................................... 484,569 547,594
Leasehold improvements.................................... 59,937 61,237
---------- ----------
2,299,646 2,463,923
Less: accumulated depreciation............................ (624,383) (583,944)
---------- ----------
$1,675,263 $1,879,979
========== ==========
Accounts payable and accrued liabilities:
Trade payables............................................ $ 91,834 $ 102,204
Payroll................................................... 92,416 95,222
Interest.................................................. 54,471 61,881
Insurance................................................. 50,358 46,940
Bank overdraft............................................ 30,924 24,566
Restructuring charge balance.............................. 47,803 89,812
Other..................................................... 133,549 156,126
---------- ----------
$ 501,355 $ 576,751
========== ==========
|
NON-CASH TRANSACTIONS
YEARS ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
-------- -------- -------
Common stock issued under restricted stock plans...... $ 133 $ 410 $ 1,196
Minimum liability under retirement plans.............. (12,724) -- (535)
Debenture conversions to common stock................. -- 766 2,594
Common stock issued in acquisitions................... 247 565,831 97,124
Debt issued in acquisitions........................... -- -- 28,560
|
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE SIXTEEN
EARNINGS PER SHARE
The basic and diluted per share computations for income (loss) from continuing operations before extraordinary gains and cumulative effect of accounting change were for the years ended December 31 as follows:
2000 1999 1998
------------ ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
Income (numerator):
Income (loss) from continuing operations before
extraordinary gains and cumulative effect of
accounting change -- basic..................... $(425,523) $(51,224) $331,561
After tax interest on convertible debentures...... 190 408 1,368
--------- -------- --------
Income (loss) from continuing operations before
extraordinary gains and cumulative effect of
accounting change -- diluted................... $(425,333) $(50,816) $332,929
========= ======== ========
Shares (denominator):
Shares -- basic................................... 272,172 272,281 256,271
Stock options and warrants........................ 23 673 4,290
Convertible debentures............................ 349 838 1,959
--------- -------- --------
Shares -- diluted................................. 272,544 273,792 262,520
========= ======== ========
Earnings (loss) per share from continuing operations
before extraordinary gains and cumulative effect
of accounting change:
Basic............................................. $ (1.56) $ (.19) $ 1.30
Diluted........................................... $ (1.56) $ (.19) $ 1.27
|
The computation of diluted earnings per share excludes outstanding stock options with exercise prices greater than the average market price of the Company's common stock for the year, because the inclusion of such options would be antidilutive. The number of antidilutive options that were excluded from diluted earnings per share and could potentially dilute basic earnings per share in the future were 25,271, 19,220 and 13,089 shares in 2000, 1999 and 1998, respectively. In addition, diluted earnings per share excludes 1,717, 1,232 and 128 shares in 2000, 1999 and 1998, respectively, that are issuable upon conversion of the Company's convertible debentures because the inclusion of such shares would be antidilutive.
NOTE SEVENTEEN
RESTRUCTURING AND NON-RECURRING CHARGES
The Company recorded restructuring and non-recurring charges in the first quarter of 1999 (First Quarter 1999 Charge), the fourth quarter of 1999 (Fourth Quarter 1999 Charge) and the fourth quarter of 2000 (Fourth Quarter 2000 Charge). Additionally, the Company established reserves in 1999 on loans previously made by the Company's lending subsidiary (Impaired Loans), and in 2000 adjusted estimates for certain items originally included in the Fourth Quarter 1999 Charge.
The First Quarter 1999 Charge totaled $89,884 relating to a cost rationalization program initiated in 1999 and consisted of the following: (1) severance costs of $56,757; (2) a charge of $19,123 of which $2,153 related to terminated projects representing costs associated with certain construction projects that have been cancelled and $16,970 related to costs associated with acquisition due diligence which will no longer be
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
pursued; (3) a $7,245 charge for business and facility closures, primarily in the Company's European operations; and (4) a remaining charge of $6,759 consisting of various other cost initiatives.
The $56,757 for severance costs is related to the termination of five executive contractual relationships and the involuntary termination of approximately 100 employees in North America (of which approximately 20 were located in the corporate office), 600 employees in France, 85 employees in other European operations and 10 employees in other foreign operations. The positions terminated were both operational and administrative in nature. The severance costs related to the executive contractual relationships will be paid out according to the terms of the respective agreements and will extend through 2005.
The Fourth Quarter 1999 Charge totaled $272,544 relating to additional cost rationalization programs, as well as initiatives required to enhance cash flow and reduce debt. The Fourth Quarter 1999 Charge consisted of the following: (1) severance costs of $150,675; (2) asset impairment of $73,728 associated with assets held for sale which were written down to estimated fair value; (3) asset impairment of $18,245 associated with loans made by the Company's lending subsidiary held for sale which were written down to estimated fair value; (4) $12,719 of informational technology costs associated with projects that will no longer be pursued by the Company; (5) $6,554 of costs to terminate certain lease obligations related to facility closures; and (6) $10,623 of various other items.
The $150,675 of severance costs is related to the involuntary termination of 1,141 employees of the Company. Included in this total are 715 employees in the Company's international operations, 385 employees in North America, 33 employees in the Company's corporate home office and 8 executive officers of the Company. Of the 715 employees in the Company's international operations, 290 are additional involuntary terminations in France pursuant to the Company's First Quarter Charge. In the North America total, 316 individuals were former owners of independent funeral homes and cemeteries that were purchased by the Company and represent approximately $92,180 of the $150,675 of severance costs. These individuals were under employment, consultant and/or covenant-not-to-compete contractual agreements and have been relieved from their obligations or restrictions under their agreements. Such individuals will continue to be paid by the Company pursuant to such contractual terms, the majority of which will be paid by 2007. The other positions terminated were both operational and administrative in nature and the severance costs are expected to be paid out through 2001. The severance costs associated with the executive officers will be paid in accordance with the terms of the respective agreements and will extend through 2005.
The $73,728 of charges related to assets held for sale consists of approximately $59,655 in the Company's North American operations, approximately $11,645 in the Company's international operations and approximately $2,428 of corporate assets. The $59,655 of charges in North America include approximately 50 funeral homes or cemeteries and approximately 45 individual parcels of undeveloped cemetery property or excess land that are held for sale and being reduced to their estimated fair values. The Company believes it is a prudent strategy to hold these underperforming assets for sale and redeploy the proceeds from such sales to reduce debt.
The asset impairment associated with the lending subsidiary's loans represents the estimated amount necessary to sell 205 loans with a fair value of $176,272. The Company decided, except for existing commitments, to indefinitely suspend the operations of its lending subsidiary and to sell a portion of the loan portfolio in 2000. In connection with selling the portfolio of loans discussed above, the Company was also relieved of all but $10,494 of loan commitments to extend credit (see note ten to the consolidated financial statements).
The Impaired Loans charge in 1999 totaled $38,608 and related to loans not being held for sale by the Company's lending subsidiary. The face value of the 47 loans subject to the reserve was $61,315 at December 31, 1999. In 2000, the Company acquired by deed in lieu of foreclosure the collateral underlying
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
these loans previously on non-accrual status. Subsequent to acquiring those locations, the Company sold the majority of these locations during the year.
In the second quarter of 2000, the Company made a change in estimate for certain items originally included in the Fourth Quarter 1999 Charge. These changes primarily related to increasing the provision for asset impairment by $22,250 to further write down to estimated fair value the loans made by the Company's lending subsidiary which were held for sale, offset by a reduction in the provision of $11,229 for funeral home and cemetery properties previously written down to their fair value, which were no longer being held for sale.
The Fourth Quarter 2000 Charge totaled $447,791 and related to planned divestitures as a result of a North American facility review, the reduction of the carrying value of an equity investment in North America and certain additional changes to estimates in the Company's restructuring and non-recurring charges recorded in 1999. Of the total Fourth Quarter 2000 Charge, $351,159 of charges related to the planned divestitures of 230 funeral service locations anticipated to be sold as funeral businesses, 174 funeral service locations anticipated to be sold as real estate and 105 cemeteries; $83,256 of charges to reduce the carrying value of the Company's equity investment in Arbor Memorial Services Inc.; and $13,376 of net charges as a result of changes in estimates to the Company's 1999 charges. The changes primarily consisted of $5,739 to further write down to estimate fair value certain remaining loans made by the Company's lending subsidiary, $12,000 to write down to fair value assets held in the Company's European operations, offset by a reduction of $4,363 in previously estimated severance costs in the Company's International operations.
The utilization of the restructuring charges was as follows:
UTILIZATION FOR TWELVE
MONTHS ENDED
ADDITIONS OR DECEMBER 31, 2000
ORIGINAL BALANCE AT ADJUSTMENTS ---------------------- BALANCE AT
CHARGE AMOUNT DECEMBER 31, 1999 DURING 2000 CASH NON-CASH DECEMBER 31, 2000
------------- ----------------- ------------ --------- ---------- -----------------
First Quarter 1999 Charge...... $ 89,884 $ 25,245 $ -- $ 8,300 $ 10,735 $ 6,210
Fourth Quarter 1999 Charge..... 272,544 135,944 26,657 38,355 37,287 86,959
Fourth Quarter 2000 Charge..... 434,415 -- 434,415 -- 434,415 --
-------- -------- -------- ------- -------- -------
$796,843 $161,189 $461,072 $46,655 $482,437 $93,169
======== ======== ======== ======= ======== =======
|
Of the remaining total restructuring charge balance, approximately $91,608 relates to severance costs. Further of the $93,169 remaining reserves, $47,803 is included in Accounts Payable and Accrued Liabilities and $45,366 is included in Other Liabilities in the Consolidated Balance Sheet based on the expected timing of payment.
In October 2000, the Company executed the sale of a 21% minority interest in the stock of the Company's United Kingdom operations. As a result, the Company recorded a loss on the sale of investment of $56,704 on a pretax basis in 2000.
SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE EIGHTEEN
QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH YEAR
--------- -------- -------- --------- -----------
Revenues:
2000........................... $ 683,493 $636,545 $615,703 $ 628,989 $ 2,564,730
Proforma 1999.................. 660,454 2,745,114
1999........................... 832,260 745,836 708,191 721,671 3,007,958
Gross profit:
2000........................... 117,065 72,068 71,862 66,647 327,642
Proforma 1999.................. 17,528 328,775
1999........................... 211,570 169,333 123,754 80,089 584,746
Income (loss) from continuing
operations before extraordinary
gains and cumulative effect of
accounting change:
2000........................... 20,937 (16,443) (10,846) (419,171) (425,523)
Proforma 1999.................. (227,178) (210,668)
1999........................... 37,607 69,923 29,351 (188,105) (51,224)
Net income (loss):
2000........................... (876,641) 4,556 (49,626) (421,540) (1,343,251)
Proforma 1999.................. (223,317) (191,856)
1999........................... 43,768 76,013 32,055 (184,248) (32,412)
Basic earnings (loss) per share
from continuing operations
before extraordinary gains and
cumulative effect of accounting
change:
2000........................... .08 (.06) (.04) (1.54) (1.56)
Proforma 1999.................. (.83) (.77)
1999........................... .13 .26 .11 (.69) (.19)
Diluted earnings (loss) per share
from continuing operations
before extraordinary gains and
cumulative effect of accounting
change:
2000........................... .08 (.06) (.04) (1.54) (1.56)
Proforma 1999.................. (.83) (.77)
1999........................... .13 .26 .11 (.69) (.19)
|
Gross profit includes a provision for loan impairment of $38,608 in the fourth quarter of 1999 related to loans held by the Company's lending subsidiary. Income (loss) from continuing operations before extraordinary gains and cumulative effect of accounting change includes restructuring charges of $89,884 in the first quarter of 1999 and $272,544 in the fourth quarter of 1999, $447,791 in the fourth quarter of 2000, and changes in estimates to the fourth quarter 1999 charge of $13,281 in the second quarter of 2000 and $13,376 in the fourth quarter of 2000.
SERVICE CORPORATION INTERNATIONAL
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 2000
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(2) DEDUCTIONS(1) PERIOD
----------- ---------- ---------- ----------- ------------- ----------
(IN THOUSANDS)
Current --
Allowance for contract
cancellations and doubtful
accounts:
Year ended December 31, 2000.... $77,080 $20,005 $(18,558) $(13,675) $ 64,852
Year ended December 31, 1999.... 53,292 22,585 11,498 (10,295) 77,080
Year ended December 31, 1998.... 52,597 27,190 2,327 (28,822) 53,292
Due After One Year --
Allowance for contract
cancellations and doubtful
accounts:
Year ended December 31, 2000.... $97,285 $19,885 $159,705 $ (4,010) $272,865
Year ended December 31, 1999.... 38,707 47,418 11,169 (9) 97,285
Year ended December 31, 1998.... 35,964 3,650 (499) (408) 38,707
Deferred Tax Valuation Allowance:
Year ended December 31, 2000.... $27,278 $41,921 $ -- $ -- $ 69,199
Year ended December 31, 1999.... 13,058 14,220 -- -- 27,278
Year ended December 31, 1998.... 15,327 (2,269) -- -- 13,058
|
(1) Uncollected receivables written off, net of recoveries.
(2) Primarily cumulative effect of accounting change and acquisitions and dispositions of operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information called for by PART III (Items 10, 11, 12 and 13) has been omitted as the Company intends to file with the Commission not later than 120 days after the close of its fiscal year a definitive Proxy Statement pursuant to Regulation 14A. Such information is set forth in such Proxy Statement (i) with respect to Item 10 under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance," (ii) with respect to Items 11 and 13 under the captions "Certain Information with Respect to Officers and Directors," "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions" and (iii) with respect to Item 12 under the caption "Voting Securities and Principal Holders." The information as specified in the preceding sentence is incorporated herein by reference; provided however, notwithstanding anything set forth in this Form 10-K, the information under the captions "Compensation Committee Report on Executive Compensation" and "Performance Graph" in such Proxy Statement, and the information in the first two paragraphs under the caption "Audit Committee Report" in such Proxy Statement, are not incorporated by reference into this Form 10-K.
The information regarding the Company's executive officers called for by Item 401 of Regulation S-K has been included in PART I of this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1)-(2) Financial Statements and Schedule:
The financial statements and schedule are listed in the accompanying Index to Financial Statements and Related Schedule on page 26 of this report.
(3) Exhibits:
The exhibits listed on the accompanying Exhibit Index on pages 68-72 are filed as part of this report.
(b) Reports on Form 8-K
During the quarter ended December 31, 2000, the Company filed a Form 8-K dated December 4, 2000 reporting (i) under "Item 5. Other Events" the Company's announcement of the completion of an amendment to its bank credit facility agreements, and (ii) under "Item 7. Financial Statements and Exhibits" the exhibits comprised of the Company's press release dated December 4, 2000 and two amendments to the Company's bank credit facility agreements.
(c) Included in (a) above.
(d) Included in (a) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant, Service Corporation International, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SERVICE CORPORATION INTERNATIONAL
By: /s/ JAMES M. SHELGER
-----------------------------------
(James M. Shelger,
Senior Vice President, General
Counsel and Secretary)
Dated: March 30, 2001
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ R.L. WALTRIP* Chairman of the Board and March 30, 2001
----------------------------------------------------- Chief Executive Officer
(R.L. Waltrip)
/s/ JEFFREY E. CURTISS* Senior Vice President Chief March 30, 2001
----------------------------------------------------- Financial Officer (Principal
(Jeffrey E. Curtiss) Financial Officer)
/s/ W. CARDON GERNER Vice President Corporate March 30, 2001
----------------------------------------------------- Controller (Principal
(W. Cardon Gerner) Accounting Officer)
/s/ ANTHONY L. COELHO* Director March 30, 2001
-----------------------------------------------------
(Anthony L. Coelho)
/s/ JACK FINKELSTEIN* Director March 30, 2001
-----------------------------------------------------
(Jack Finkelstein)
/s/ A.J. FOYT, JR.* Director March 30, 2001
-----------------------------------------------------
(A.J. Foyt, Jr.)
/s/ JAMES H. GREER* Director March 30, 2001
-----------------------------------------------------
(James H. Greer)
/s/ B.D. HUNTER* Director March 30, 2001
-----------------------------------------------------
(B.D. Hunter)
/s/ VICTOR L. LUND* Director March 30, 2001
-----------------------------------------------------
(Victor L. Lund)
|
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JOHN W. MECOM, JR.* Director March 30, 2001
-----------------------------------------------------
(John W. Mecom, Jr.)
/s/ CLIFTON H. MORRIS, JR.* Director March 30, 2001
-----------------------------------------------------
(Clifton H. Morris, Jr.)
/s/ E.H. THORNTON, JR.* Director March 30, 2001
-----------------------------------------------------
(E.H. Thornton, Jr.)
/s/ W. BLAIR WALTRIP* Director March 30, 2001
-----------------------------------------------------
(W. Blair Waltrip)
/s/ EDWARD E. WILLIAMS* Director March 30, 2001
-----------------------------------------------------
(Edward E. Williams)
*By: /s/ JAMES M. SHELGER
-----------------------------------------------
(James M. Shelger, as Attorney-In-Fact
For each of the Persons indicated)
|
EXHIBIT INDEX
PURSUANT TO ITEM 601 OF REG. S-K
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 -- Restated Articles of Incorporation. (Incorporated by
reference to Exhibit 3.1 to Registration Statement No.
333-10867 on Form S-3).
3.2 -- Articles of Amendment to Restated Articles of
Incorporation. (Incorporated by reference to Exhibit 3.1
to Form 10-Q for the fiscal quarter ended September 30,
1996).
3.3 -- Statement of Resolution Establishing Series of Shares of
Series D Junior Participating Preferred Stock, dated July
27, 1998. (Incorporated by reference to Exhibit 3.2 to
Form 10-Q for the fiscal quarter ended June 30, 1998).
3.4 -- Bylaws, as amended. (Incorporated by reference to Exhibit
3.1 to Form 10-Q for the fiscal quarter ended September
30, 1999).
4.1 -- Rights Agreement dated as of May 14, 1998 between the
Company and Harris Trust and Savings Bank. (Incorporated
by reference to Exhibit 99.1 to Form 8-K dated May 14,
1998).
4.2 -- Agreement Appointing a Successor Rights Agent Under
Rights Agreement, dated June 1, 1999, by the Company,
Harris Trust and Savings Bank and The Bank of New York.
(Incorporated by reference to Exhibit 4.1 to Form 10-Q
for the fiscal quarter ended June 30, 1999).
10.1 -- Retirement Plan For Non-Employee Directors. (Incorporated
by reference to Exhibit 10.1 to Form 10-K for the fiscal
year ended December 31, 1991).
10.2 -- Form of First Amendment to Retirement Plan For
Non-Employee Directors
10.3 -- Agreement dated May 14, 1992 between the Company, R. L.
Waltrip and related parties relating to life insurance.
(Incorporated by reference to Exhibit 10.4 to Form 10-K
for the fiscal year ended December 31, 1992).
10.4 -- Employment Agreement, dated January 1, 1998, between SCI
Executive Services, Inc. and R.L. Waltrip. (Incorporated
by reference to Exhibit 10.3 to Form 10-K for the fiscal
year ended December 31, 1998).
10.5 -- Non-Competition Agreement and Amendment to Employment
Agreement, dated November 11, 1991, among the Company, R.
L. Waltrip and Claire Waltrip. (Incorporated by reference
to Exhibit 10.9 to Form 10-K for the fiscal year ended
December 31, 1992).
10.6 -- Employment Agreement, dated January 1, 1999, between SCI
Executive Services, Inc. and W. Blair Waltrip.
(Incorporated by reference to Exhibit 10.2 to Form 10-Q
for the fiscal quarter ended March 31, 1999).
10.7 -- Separation and Release Agreement, dated January 18, 2000,
among the Company, SCI Executive Services, Inc. and W.
Blair Waltrip. (Incorporated by reference to Exhibit 10.6
to Form 10-K for the fiscal year ended December 31,
1999).
10.8 -- Employment Agreement, dated January 1, 1998, between SCI
Executive Services, Inc. and Jerald L. Pullins.
(Incorporated by reference to Exhibit 10.1 to Form 10-Q
for the fiscal quarter ended June 30, 1998).
10.9 -- Employment Agreement, dated January 1, 1999, between SCI
Executive Services, Inc. and James M. Shelger.
(Incorporated by reference to Exhibit 10.13 to Form 10-K
for the fiscal year ended December 31, 1999).
|
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.10 -- Employment and Non-Competition Agreement, dated February
28, 2001, between SCI Executive Services, Inc. and B. D.
Hunter.
10.11 -- Employment and Non-Competition Agreement, dated February
28, 2001, between SCI Executive Services, Inc. and
Jeffrey E. Curtiss.
10.12 -- Form of Employment Agreement pertaining to officers
(other than the officers identified in the preceding
exhibits).
10.13 -- Form of 1986 Stock Option Plan. (Incorporated by
reference to Exhibit 10.21 to Form 10-K for the fiscal
year ended December 31, 1991).
10.14 -- Amendment to 1986 Stock Option Plan, dated February 12,
1997. (Incorporated by reference to Exhibit 10.11 to Form
10-K for the fiscal year ended December 31, 1996).
10.15 -- Amendment to 1986 Stock Option Plan, dated November 13,
1997. (Incorporated by reference to Exhibit 10.12 to Form
10-K for the fiscal year ended December 31, 1997).
10.16 -- Amended 1987 Stock Plan. (Incorporated by reference to
Appendix A to Proxy Statement dated April 1, 1991).
10.17 -- First Amendment to Amended 1987 Stock Plan. (Incorporated
by reference to Exhibit 10.23 to Form 10-K for the fiscal
year ended December 31, 1993).
10.18 -- 1993 Long-Term Incentive Stock Option Plan. (Incorporated
by reference to Exhibit 4.12 to Registration Statement
No. 333-00179 on Form S-8).
10.19 -- Amendment to 1993 Long-Term Incentive Stock Option Plan,
dated February 12, 1997. (Incorporated by reference to
Exhibit 10.15 to Form 10-K for the fiscal year ended
December 31, 1996).
10.20 -- Amendment to 1993 Long-Term Incentive Stock Option Plan,
dated November 13, 1997. (Incorporated by reference to
Exhibit 10.17 to Form 10-K for the fiscal year ended
December 31, 1997).
10.21 -- 1995 Incentive Equity Plan. (Incorporated by reference to
Annex B to Proxy Statement dated April 17, 1995).
10.22 -- Amendment to 1995 Incentive Equity Plan, dated February
12, 1997. (Incorporated by reference to Exhibit 10.18 to
Form 10-K for the fiscal year ended December 31, 1996).
10.23 -- Amendment to 1995 Incentive Equity Plan, dated November
13, 1997. (Incorporated by reference to Exhibit 10.21 to
Form 10-K for the fiscal year ended December 31, 1997).
10.24 -- 1995 Stock Plan for Non-Employee Directors. (Incorporated
by reference to Annex A to Proxy Statement dated April
17, 1995).
10.25 -- Amended 1996 Incentive Plan. (Incorporated by reference
to Annex A to Proxy Statement dated April 13, 1999).
10.26 -- Split Dollar Life Insurance Plan. (Incorporated by
reference to Exhibit 10.36 to Form 10-K for the fiscal
year ended December 31, 1995).
10.27 -- Supplemental Executive Retirement Plan for Senior
Officers (as Amended and Restated Effective as of January
1, 1998). (Incorporated by reference to Exhibit 10.28 to
Form 10-K for the fiscal year ended December 31, 1998).
10.28 -- Form of First Amendment to Supplemental Executive
Retirement Plan for Senior Officers.
|
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.29 -- Deferred Compensation Plan. (Incorporated by reference to
Exhibit 10.31 to Form 10-K for the fiscal year ended
December 31, 1997).
10.30 -- Amendment No. 5 to Service Corporation International
Employee Stock Purchase Plan. (Incorporated by reference
to Exhibit 10.31 to Form 10-K for the fiscal year ended
December 31, 1999).
10.31 -- Form of First Amendment to SCI 401(k) Retirement Savings
Plan.
12.1 -- Ratio of Earnings to Fixed Charges.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Independent Accountants
(PricewaterhouseCoopers LLP).
24.1 -- Powers of Attorney.
99.1 -- Competitive Advance and Revolving Credit Facility
Agreement (Facility A), dated June 27, 1997, among the
Company, The Chase Manhattan Bank ("Chase") as
administrative agent and the banks and other financial
institutions named therein. (Incorporated by reference to
Exhibit 99.1 to Form 10-K for the fiscal year ended
December 31, 1999).
99.2 -- Agreement and First Amendment to Competitive Advance and
Revolving Credit Facility Agreement (Facility A), dated
June 26, 1998, among the Company, Chase as administrative
agent and the banks and other financial institutions
named therein. (Incorporated by reference to Exhibit 99.2
to Form 10-K for the fiscal year ended December 31,
1999).
99.3 -- Agreement and Second Amendment to Competitive Advance and
Revolving Credit Facility Agreement (Facility A), dated
June 25, 1999, among the Company, Chase as administrative
agent and the banks and other financial institutions
named therein. (Incorporated by reference to Exhibit 99.3
to Form 10-K for the fiscal year ended December 31,
1999).
99.4 -- Agreement and Third Amendment to Competitive Advance and
Revolving Credit Facility Agreement (Facility A), dated
November 2, 1999, among the Company, Chase as
administrative agent and the banks and other financial
institutions named therein. (Incorporated by reference to
Exhibit 99.4 to Form 10-K for the fiscal year ended
December 31, 1999).
99.5 -- Agreement and Fourth Amendment to Competitive Advance and
Revolving Credit Facility Agreement (Facility A), dated
November 14, 2000, among the Company, Chase as
administrative agent and the banks and other financial
institutions named therein. (Incorporated by reference to
Exhibit 99.2 to Form 8-K dated December 4, 2000).
99.6 -- Competitive Advance and Revolving Credit Facility
Agreement (Facility B), dated June 27, 1997, among the
Company, subsidiaries of the Company named therein, Chase
as administrative agent and the banks and other financial
institutions named therein. (Incorporated by reference to
Exhibit 99.5 to Form 10-K for the fiscal year ended
December 31, 1999).
99.7 -- Agreement and First Amendment to Competitive Advance and
Revolving Credit Facility Agreement (Facility B), dated
November 2, 1999, among the Company, subsidiaries of the
Company named therein, Chase as administrative agent and
the banks and other financial institutions named therein.
(Incorporated by reference to Exhibit 99.6 to Form 10-K
for the fiscal year ended December 31, 1999).
|
EXHIBIT
NUMBER DESCRIPTION
------- -----------
99.8 -- Agreement and Second Amendment to Competitive Advance and
Revolving Credit Facility Agreement (Facility B), dated
November 14, 2000, among the Company, subsidiaries of the
Company named therein, Chase as administrative agent and
the banks and other financial institutions named therein.
(Incorporated by reference to Exhibit 99.3 to Form 8-K
dated December 4, 2000).
99.9 -- Consolidated Class Action Complaint filed September 3,
1999 in Civil Action No. H-99-280, In re Service
Corporation International. (Incorporated by reference to
Exhibit 99.1 to Form 10-Q for the fiscal quarter ended
September 30, 1999).
99.10 -- Defendants' Answer to the Consolidated Class Action
Complaint filed September 17, 1999 in Civil Action No.
H-99-280, In re Service Corporation International.
(Incorporated by reference to Exhibit 99.2 to Form 10-Q
for the fiscal quarter ended September 30, 1999).
99.11 -- Defendants' Motion to Dismiss the Consolidated Class
Action Complaint filed October 8, 1999 in Civil Action
No. H-99-280, In re Service Corporation International.
(Incorporated by reference to Exhibit 99.3 to Form 10-Q
for the fiscal quarter ended September 30, 1999).
99.12 -- Plaintiffs' Opposition to Defendants' Motion to Dismiss
the Consolidated Class Action Complaint filed November 5,
1999 in Civil Action No. H-99-280, In Re Service
Corporation International. (Incorporated by reference to
Exhibit 99.4 to Form 10-Q for the fiscal quarter ended
September 30, 1999).
99.13 -- Defendants' Reply to Plaintiffs' Opposition to
Defendants' Motion to Dismiss the Consolidated Class
Action Complaint filed November 24, 1999 in Civil Action
No. H-99-280, In re Service Corporation International.
(Incorporated by reference to Exhibit 99.12 to Form 10-K
for the fiscal year ended December 31, 1999).
99.14 -- Plaintiffs' Original Petition filed November 10, 1999 in
Cause No. 32548-99-11, James P. Hunter, III and James P.
Hunter, III Family Trust v. Service Corporation
International, Robert L. Waltrip, L. William Heiligbrodt,
George R. Champagne, W. Blair Waltrip, James M. Shelger,
Wesley T. McRae and PriceWaterhouseCoopers, L.L.P.; in
the Judicial District Court of Angelina County, Texas.
(Incorporated by reference to Exhibit 99.5 to Form 10-Q
for the fiscal quarter ended September 30, 1999).
99.15 -- Defendants' Original Answer in response to the Original
Petition referred to in Exhibit 99.14. (Incorporated by
reference to Exhibit 99.14 to Form 10-K for the fiscal
year ended December 31, 1999).
99.16 -- Plaintiff's Original Petition filed December 28, 2000 in
Cause No. 33701-01-01, Jack D. Rottman v. Service
Corporation International, Robert L. Waltrip, L. William
Heiligbrodt, George R. Champagne, W. Blair Waltrip, James
M. Shelger, Wesley T. McRae and PricewaterhouseCoopers,
L.L.P.; in the ____ Judicial District Court of Angelina
County, Texas.
99.17 -- Defendants' Motion to Transfer Venue and Original Answer
in response to the Original Petition referred to in
Exhibit 99.16.
99.18 -- Plaintiff's Original Petition filed December 15, 2000, in
Cause No. 2000-63917, Jack T. Hammer v. Service
Corporation International, Robert L. Waltrip, L. William
Heiligbrodt, George R. Champagne, W. Blair Waltrip, James
M. Shelger, Wesley T. McRae and PricewaterhouseCoopers,
L.L.P.; in the 165th Judicial District Court of Harris
County, Texas.
99.19 -- Defendants' Original Answer to the Original Petition
referred to in Exhibit 99.18.
|
In the above list, the management contracts or compensatory plans or arrangements are set forth in Exhibits 10.1 through 10.31.
Pursuant to Item 601(b)(4) of Regulation S-K, there are not filed as exhibits to this report certain instruments with respect to long-term debt under which the total amount of securities authorized thereunder does not exceed 10 percent of the total assets of Registrant and its subsidiaries on a consolidated basis. Registrant agrees to furnish a copy of any such instrument to the Commission upon request.
EXHIBIT 10.2
FIRST AMENDMENT
TO THE
SERVICE CORPORATION INTERNATIONAL
RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS
EFFECTIVE JANUARY 1, 2001
WHEREAS, Service Corporation International (the "Company") adopted the Service Corporation International Retirement Plan for Non-Employee Directors (the "Non-Employee Directors' Plan") for the benefit of the non-employee directors of the Company;
WHEREAS, in Section 6.1 of the Non-Employee Directors' Plan the Company reserved the right to amend the Non-Employee Directors' Plan by action of a majority of its non-eligible and non-participating directors;
WHEREAS, the Board of Directors has determined that the Non-Employee Directors' Plan should be amended to freeze benefit accruals effective as of January 1, 2001;
NOW THEREFORE, the Non-Employee Directors' Plan is hereby amended to add the following sentence at the end of Section 3.1:
"For purposes of determining any Director's Vested Percentage, only full years of service credited prior to January 1, 2001 shall be considered."
IN WITNESS WHEREOF, by authority of the Board of Directors, this amendment is approved and adopted by the undersigned officer, and except as hereby amended the Non-Employee Directors' Plan is hereby ratified and affirmed, this __________________ day of ___, 2000.
SERVICE CORPORATION INTERNATIONAL
EXHIBIT 10.10
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS AGREEMENT is made and effective this 28th day of February, 2001 between SCI Executive Services, Inc., a Delaware corporation (the "Company"), and B. D. Hunter (the "Employee"):
ARTICLE I
EMPLOYMENT
1.1 Employment Term. The Company agrees to employ the Employee and the Employee agrees to accept such employment, in accordance with the terms and conditions of this Agreement, for the period beginning on the date of this Agreement and ending as of the close of business on December 31, 2001 (such period together with all extensions thereof are referred to hereinafter as the "Employment Term"); provided, however, that commencing on January 1, 2002, and on each January 1 thereafter (each such date shall be hereinafter referred to as a "Renewal Date"), the Employment Term shall be extended so as to terminate one year from such Renewal Date if (i) the Company notifies the Employee in writing of such extension at least thirty days prior to such Renewal Date and (ii) the Employee has not previously given the Company written notice that the Employment Term shall not be so extended. In the event that the Company gives the Employee written notice at any time of its intention not to renew the Employment Term, then the Employment Term shall terminate on December 31 of the year in which such notice of non-renewal is given and shall not thereafter be further extended. If the Company fails to notify the Employee at least thirty days prior to a Renewal Date either of its intention to extend the Employment Term as provided above or its intention not to so extend the Employment Term, then the Employment Term shall not be extended and shall terminate as of the day prior to such Renewal Date.
1.2 Duties. The Employee shall serve the Company in an executive or managerial capacity and shall hold such title as may be authorized from time to time by the Board of Directors of Service Corporation International ("SCI"). The Employee shall have the duties, powers and authority consistent therewith and such other powers as are delegated to him in writing from time to time by the Board of Directors of SCI. If the Employee is elected to any office or other position with the Company during the term of this Agreement, the Employee will serve in such capacity or capacities without further compensation unless the Compensation Committee (the "Compensation Committee") of the Board of Directors of SCI authorizes additional compensation. The Employee's title and duties may be changed from time to time at the discretion of the Company. The Employee also agrees to perform, without additional compensation, such other services for the Company and for any subsidiary or affiliated corporations of the Company or for any partnerships in which the Company has an interest, as the Company shall from time to time specify. The term "Company" as used hereinafter shall be deemed to include and refer to subsidiaries and affiliated corporations and partnerships. Employee agrees and acknowledges that he owes, and will comply with, a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of the Company and to
take no action or fail to take action if such action or failure to act would injure the Company's business, its interests or its reputation.
1.3 Extent of Service. During the Employment Term, the Employee shall
devote his full time, attention and energy to the business of the Company, and,
except as may be specifically permitted by the Company, shall not be engaged in
any other business activity during the term of this Agreement. The foregoing
shall not be construed as preventing the Employee from making passive
investments in other businesses or enterprises, provided, however, that such
investments will not: (1) require services on the part of the Employee which
would in any way impair the performance of his duties under this Agreement, or
(2) in any manner significantly interfere with Employee's responsibilities as an
Employee of the Company in accordance with this Agreement.
1.4 Compensation
(a) Salary. The Company shall pay to the Employee a salary at the rate in effect for Employee at the date of this Agreement. Such salary is to be payable in installments in accordance with the payroll policies of the Company in effect from time to time during the term of this Agreement. The Company may (but is not required to) make such upward adjustments to the Employee's salary as it deems appropriate from time to time.
(b) Incentive Compensation. In addition to the above salary, the Employee shall be eligible annually for incentive compensation at the discretion of the Compensation Committee.
(c) Other Benefits. The Employee shall be reimbursed in accordance with the Company's normal expense reimbursement policy for all of the actual and reasonable costs and expenses accrued by Employee in the performance of his or her services and duties hereunder, including but not limited to, travel and entertainment expenses. The Employee shall be entitled to participate in all insurance, stock options, retirement plans and other benefit plans or programs as may be from time to time specifically adopted and approved by the Company for its employees, in accordance with the eligibility requirements and any other terms and conditions of such plans. It is understood and agreed between the parties hereto that the Company reserves the right, at its sole discretion, to modify, amend or terminate such plans, programs or benefits at any time.
1.5 Termination
(a) Death. If the Employee dies during the term of this
Agreement and while in the employ of the Company, this Agreement shall
automatically terminate and the Company shall have no further obligation to the
Employee or his estate except that (i) the Company shall continue to pay the
Employee's estate the Employee's salary in installments through the end of the
Employment Term which was in effect immediately prior to Employee's death, and
(ii) the Company shall pay the Employee's estate any applicable Pro Rated Bonus
(defined hereinbelow).
(b) Disability. If during the term of this Agreement, the Employee shall be prevented from performing his duties hereunder by reason of disability, then the Company, on 30 days' prior notice to the Employee, may terminate Employee's employment under this Agreement. For purposes of this Agreement, the Employee shall be deemed to have become disabled when the Company, upon the advice of a qualified physician, shall have determined that the Employee has become physically or mentally incapable (excluding infrequent and temporary absences due to ordinary illness) of performing his duties under this Agreement. In the event of a termination pursuant to this paragraph 1.5(b), the Company shall be relieved of all of its obligations under this Agreement, except that the Company shall pay to the Employee (or his estate, in the event of his subsequent death), (i) the Employee's salary in installments through the end of the Employment Term which was in effect immediately prior to Employee's disability, and (ii) any applicable Pro Rated Bonus. Before making any termination decision pursuant to this Section 1.5(b), the Company shall determine whether there is any reasonable accommodation (within the meaning of the Americans With Disabilities Act) which would enable the Employee to perform the essential functions of the Employee's position under this Agreement despite the existence of any such disability. If such a reasonable accommodation is possible, the Company shall make that accommodation and shall not terminate the Employee's employment hereunder during the Employment Term based on such disability.
(c) Certain Discharges. Prior to the end of the Employment Term, the Company may discharge the Employee for Cause and terminate Employee's employment hereunder without notice and without any further liability hereunder to Employee or his estate. For purposes of this Agreement, "Cause" shall mean a determination by the Company that Employee: (i) has been convicted of a crime involving moral turpitude; (ii) has regularly failed or refused to follow policies or directives established by the Company or the Board of Directors of SCI; (iii) has willfully and persistently failed to attend to his duties; (iv) has committed acts amounting to gross negligence or willful misconduct to the detriment of the Company or its affiliates; (v) has violated any of his obligations under Articles II or III of this Agreement; or (vi) has otherwise breached any of the terms or provisions of this Agreement.
(d) Without Cause. Prior to the end of the Employment Term, the employment of the Employee with the Company may be terminated by the Company other than for Cause, death or disability. If such event occurs prior to a Change of Control (defined hereinbelow), the Company shall have no further obligation to Employee or his estate except that the Company shall pay to the Employee (or his estate, in the event of his subsequent death), (i) the Employee's salary in installments through the end of the Employment Term which was in effect immediately prior to Employee's termination, and (ii) any applicable Pro Rated Bonus.
(e) Voluntary Termination by Employee. If during the term of this Agreement, the Employee voluntarily terminates his employment with the Company prior to any Change of Control, the Company shall be relieved of all of its obligations under this Agreement, except that the Company shall pay the Employee (or his estate, in the event of his subsequent death) (i) the Employee's salary through the date of Employee's termination, and (ii) any incentive compensation
under Section 1.4(b) determined by the Compensation Committee for any fiscal period ended prior to the date of Employee's termination which had not been paid at the time of his termination. All such payments to the Employee or his estate shall be made in the same manner and at the same times as the Employee's salary or incentive compensation would have been paid to the Employee had he not terminated his employment.
(f) Change of Control. If (i) a Change of Control occurs during the Employment Term and (ii) within twelve months after such Change of Control the Employee's employment is (x) terminated by the Company other than for Cause, death or disability, or (y) terminated by Employee for any reason or for no reason, then the Company shall be relieved of all of its obligations under this Agreement, except that the Company shall pay the Employee (or his estate, in the event of his subsequent death) in a lump sum in cash within 30 days after the Employee's date of termination the aggregate of the following amounts:
(1) Two, multiplied by the Employee's annual salary in effect immediately prior to the Change of Control, plus
(2) Any applicable Pro Rated Bonus.
The obligations of the Company under this Section 1.5(f) shall remain in effect for twelve months after any Change of Control that occurs during the Employment Term notwithstanding the fact that such twelve month period may extend beyond the expiration of the Employment Term.
(g) Post Employment Term Matters. In the event the Employment Term terminates because it is not extended or renewed pursuant to Section 1.1, then the Company shall be relieved of all of its obligations under this Agreement and Employee will thereafter be an employee "at will" of the Company.
ARTICLE II
INFORMATION
2.1 Nondisclosure of Information. The Employee acknowledges that in the course of his employment by the Company he will receive certain trade secrets, which may include, but are not limited to, programs, lists of acquisition or disposition prospects and knowledge of acquisition strategy, financial information and reports, lists of customers or potential customers and other confidential information and knowledge concerning the business of the Company (hereinafter collectively referred to as "Information") which the Company desires to protect. The Employee understands that the Information is confidential and agrees not to reveal the Information to anyone outside the Company so long as the confidential or secret nature of the Information shall continue, unless compelled to do so by any federal or state regulatory agency or by a court order. If Employee becomes aware that disclosure of any Information is being sought by such an agency or through a court order, Employee will immediately notify the Company. The Employee further agrees that he will at no time use the Information in competing with the Company. Upon
termination of Employee's employment with the Company, the Employee shall surrender to the Company all papers, documents, writings and other property produced by him or coming into his possession by or through his employment or relating to the Information, and the Employee agrees that all such materials are and will at all times remain the property of the Company and to the extent the Employee has any rights therein, he hereby irrevocably assigns such rights to the Company.
2.2 Disclosure of Information, Ideas, Concepts, Improvements, Discoveries and Inventions. As part of the Employee's fiduciary duties to the Company, Employee agrees that during his employment by the Company, and for a period of six months after the termination of the employment relationship for any reason, Employee shall promptly disclose in writing to the Company all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by Employee, either individually or jointly with others, and which relate to the business, products or services of the Company or any of its subsidiaries or affiliates, irrespective of whether Employee utilized the Company's time or facilities and irrespective of whether such information, idea, concept, improvement, discovery or invention was conceived, developed, discovered or acquired by the Employee on the job, at home, or elsewhere. This obligation extends to all types of information, ideas and concepts, including information, ideas and concepts relating to new types of services, corporate opportunities, acquisition prospects, the identity of key representatives within acquisition prospect organizations, prospective names or service marks for the Company's business activities, and the like.
2.3 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 and which relate to the Company's business, products or services (including but not limited to 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 organization 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 described in Section 2.3 (a) above, 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 and thereafter, Employee shall assist the Company and its nominees 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, 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, drawing, maps, architectural renditions, models, manuals, brochures or the like) relating to the Company's 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 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 instructional text, then the work shall be considered to be work made for hire and the Company shall be considered 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 the work and all rights of copyright therein. Both during the period of Employee's employment by the Company and thereafter, Employee agrees to assist the Company and its nominee, at any time, in 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 nominees and the execution of all lawful oaths and applications for registration of copyright in the United States and foreign countries.
ARTICLE III
NONCOMPETITION
3.1 Noncompetition. During the Employment Term (and for a period of one or two years thereafter if the Company exercises its options under Section 3.2 hereof), Employee shall not, acting alone or in conjunction with others, directly or indirectly, in any market in which the Company or any of its affiliated companies conducts business, work for or engage in any business in competition with the business conducted by the Company or any of its affiliated companies,
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. In the event that a court should determine that any restriction herein is unenforceable, the parties hereto agree that the obligations under this paragraph shall be enforceable for the maximum term and maximum geographical area allowable by law.
3.2 Extension. The Company shall have the option to extend Employee's obligations under Section 3.1 for one additional year (the "First Extension Term") beyond the end of the Employment Term. If the Company exercises such option, it shall be required to pay Employee an amount equal to one year's salary, based on Employee's salary rate as of the date his employment with the Company ceased (the "Noncompetition Payment"). Such Noncompetition Payment shall be made in 12 equal monthly installments (each installment being an amount equal to 1/12th of such annual salary) commencing on the date which is thirty (30) days after the last day of the Employment Term. Subsequent payments shall be made on the same day of each succeeding month until 12 payments have been made. If the Employee breaches his noncompetition obligations, the Company shall be entitled to cease making such monthly payments. The purpose of this paragraph is to make the noncompetition obligation of the Employee more reasonable from the Employee's point of view. 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 the Employee breaches his post-employment noncompetition obligation. If the Employee breaches his post-employment noncompetition obligation, the Company shall be entitled to all of its remedies at law or in equity for damages and injunctive relief. The Company may exercise the option conferred by this paragraph at any time within 30 days after the last day of the Employment Term by mailing written notice of such exercise to Employee.
If the Company exercises its option to extend Employee's obligations as set forth in the preceding paragraph, then the Company shall have the option to extend Employee's obligations under Section 3.1 for one additional year (the "Second Extension Term") beyond the end of the First Extension Term. If the Company exercises its option to extend Employee's obligations for the Second Extension Term, the rights and obligations of the parties set forth in the preceding paragraph shall be applicable during the Second Extension Term. The Company may exercise the option conferred by this paragraph at any time within 30 days after the last day of the First Extension Term by mailing written notice of such exercise to Employee.
3.3 Termination For Cause or Termination By Employee. Notwithstanding anything to the contrary in this Agreement, in the event that Employee's employment hereunder is terminated for Cause pursuant to Section 1.5 (c) hereof, or in the event Employee voluntarily terminates the employment relationship for any reason other than a material breach of this Agreement by the Company, the noncompetition obligations of Employee described in Section 3.1 above shall automatically continue for a period of two years from the date the employment relationship ceases, and the Company shall not be required to (i) make any payments to Employee in consideration for such obligations, or (ii) provide any notice to Employee. Notwithstanding the foregoing, this Section 3.3 shall not be applicable in the event Employee voluntarily terminates the employment
relationship within twelve months after a Change of Control that occurs during the Employment Term.
3.4 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 Term and for five (5) year(s) thereafter, he shall not at any time, directly or indirectly for the benefit or 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.
3.5 Acknowledgement. Employee acknowledges that Employee's compliance with the provisions of this Article III is necessary to protect the existing goodwill and other proprietary rights of the Company, as well as all goodwill and relationships that may be acquired or enhanced during the course of Employee's employment with the Company, and all confidential information which may come into existence or to which Employee may have access during his employment with the Company. Employee further acknowledges that Employee will become familiar with certain of the Company's affairs, operations, customers and confidential information and data by means of his employment with the Company, and that failure to comply with the provisions of this Article III will result in irreparable and continuing damage to the Company for which there will be no adequate remedy at law. The Company shall be entitled to all of its remedies at law or in equity for damages and injunctive relief in the event of any violation of this Article III by Employee.
ARTICLE IV
MISCELLANEOUS
4.1 Notices. All notices, requests, consents and other communications under this Agreement shall be in writing and shall be deemed to have been delivered on the date personally delivered or on the date mailed, postage prepaid, by certified mail, return receipt requested, or telegraphed and confirmed if addressed to the respective parties as follows:
If to the Employee:
If to the Company:
General Counsel
c/o SCI Executive Services, Inc.
1929 Allen Parkway
Houston, Texas 77019
Attention: Legal Department
Either party hereto may designate a different address by providing written notice of such new address to the other party hereto.
4.2 Entire Agreement. This Agreement replaces and merges all previous agreements and discussions relating to the same or similar subject matters between Employee and the Company (or any of its affiliates) and constitutes the entire agreement between the Employee and the Company (and any of its affiliates) with respect to the subject matter of this Agreement. Any existing employment agreement between the Employee and the Company (or any of its affiliates) is hereby terminated, effective immediately. This Agreement may not be modified in any respect by any verbal statement, representation or agreement made by an employee, officer, or representative of the Company or by any written agreement unless signed by an officer of the Company who is expressly authorized by the Company to execute such document.
4.3 Specific Performance. The Employee acknowledges that a remedy at law for any breach of Article II or III of this Agreement will be inadequate, agrees that the Company shall be entitled to specific performance and injunctive and other equitable relief in case of any such breach or attempted breach, and further agrees to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or any other equitable relief.
4.4 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid or unenforceable under applicable law, such provision shall be ineffective to the extent of such prohibition, invalidity or unenforceability without invalidating the remainder of such provision or the remaining provisions of this Agreement.
4.5 Assignment. This Agreement may not be assigned by the Employee. Neither the Employee, his spouse, nor his estate shall have any right to commute, encumber or dispose of any right to receive payments hereunder, it being understood that such payments and the right thereto are nonassignable and nontransferable. This Agreement may be assigned by the Company.
4.6 Binding Effect. Subject to the provisions of Section 4.5 of this Agreement, this Agreement shall be binding upon and inure to the benefit of the parties hereto, the Employee's heirs and personal representatives, and the successors and assigns of the Company.
4.7 Captions. The section and paragraph headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
4.8 Governing Law. This Agreement shall be construed and enforced in accordance with, and governed by, the laws of Texas.
4.9 Counterparts. This Agreement may be executed in multiple original counterparts, each of which shall be deemed an original, but all of which together shall constitute the same instrument.
4.10 Survival of Certain Obligations. Employee's obligations under Articles II and III hereof shall survive any termination of Employee's employment hereunder.
4.11 Waiver. The waiver by either party of any right hereunder or of any breach of this Agreement shall not operate as or be construed to be an amendment of this Agreement or a waiver of any future right or breach.
4.12 Gender. All references to the masculine pronoun herein are used for convenience and ease of reading only and are intended and apply to the feminine gender as well.
4.13 Dispute Resolution.
(a) Employee and the Company agree that, except for the matters identified in Section 4.13(b) below, all disputes relating to any aspects of Employee's employment with the Company shall be resolved by binding arbitration. This includes, but is not limited to, any claims against the Company, its affiliates or their officers, directors, employees, or agents for breach of contract, wrongful discharge, discrimination, harassment, defamation, misrepresentation, and emotional distress, as well as any disputes pertaining to the meaning or effect of this Agreement.
(b) It is expressly agreed that this Section 4.13 shall not govern claims for workers' compensation or unemployment benefits, or any claim by the Company against Employee which is based on fraud, theft or other dishonest conduct of Employee.
(c) Any claim which either party has against the other must be presented in writing by the claiming party to the other within one year of the date the claiming party knew or should have known of the facts giving rise to the claim. Otherwise, the claim shall be deemed waived and forever barred even if there is a federal or state statute of limitations which would have given more time to pursue the claim.
(d) Each party may retain legal counsel and shall pay its own costs and attorneys' fees, regardless of the outcome of the arbitration. Each party shall pay one-half of the
compensation to be paid to the arbitrators, as well as one-half of any other costs relating to the administration of the arbitration proceeding (for example, room rental, court reporter, etc.).
(e) An arbitrator shall be selected by mutual agreement of the parties. If the parties are unable to agree on a single arbitrator, each party shall select one arbitrator, and the two arbitrators so selected shall select a third arbitrator. The three arbitrators so selected will then hear and decide the matter. All arbitrators must be attorneys, judges or retired judges who are licensed to practice law in the state where the Employee is or most recently was employed by the Company. The arbitration proceedings shall be conducted within the county in which Employee is or most recently was employed by the Company or at another mutually agreeable location.
(f) Except as otherwise provided herein, the arbitration proceedings shall be conducted in accordance with the statutes, rules or regulations governing arbitration in the state in which Employee is or most recently was employed by the Company. In the absence of such statutes, rules or regulations, the arbitration proceedings shall be conducted in accordance with the employment arbitration rules of the American Arbitration Association ("AAA"); provided however, that the foregoing reference to the AAA rules shall not be deemed to require any filing with that organization, nor any direct involvement of that organization. In the event of any inconsistency between this Agreement and the statutes, rules or regulations to be applied pursuant to this paragraph, the terms of this Agreement shall apply.
(g) The arbitrator shall issue a written award, which shall contain, at a minimum, the names of the parties, a summary of the issues in controversy, and a description of the award issued. Upon motion to a court of competent jurisdiction, either party may obtain a judgment or decree in conformity with the arbitration award, and said award shall be enforced as any other judgment or decree.
(h) In resolving claims governed by this Section 4.13, the arbitrator shall apply the laws of the state in which Employee is or most recently was employed by the Company, and/or federal law, if applicable.
(i) Employee and the Company agree and acknowledge that any arbitration
proceedings between them, and the outcome of such proceedings, shall be kept
strictly confidential; provided however, that the Company may disclose such
information to the extent required by law and to its employees, agents and
professional advisors who have a legitimate need to know such information, and
the Employee may disclose such information (1) to the extent required by law,
(2) to the extent that the Employee is required to disclose same to professional
persons assisting Employee in preparing tax returns; and (3) to Employee's legal
counsel.
4.14 Change of Control. "Change of Control" means the happening of any of the following events:
(a) 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 SCI (the "Outstanding
SCI Common Stock") or (B) the combined voting power of the then outstanding
voting securities of SCI entitled to vote generally in the election of directors
(the "Outstanding SCI Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control under this subsection (a):
(i) any acquisition directly from SCI (excluding an acquisition by virtue of the
exercise of a conversion privilege), (ii) any acquisition by SCI, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by SCI or any corporation controlled by SCI, or (iv) 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 (c) of this definition of "Change of
Control" are satisfied; or
(b) Individuals who, as of the effective date hereof, constitute the Board of Directors of SCI (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of SCI; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by SCI's shareholders, was approved by (A) a vote of at least a majority of the directors then comprising the Incumbent Board, or (B) a vote of at least a majority of the directors then comprising the Executive Committee of the Board of Directors of SCI at a time when such committee was comprised 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 (b), 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 SCI; or
(c) Approval by the shareholders of SCI 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 SCI Common Stock and Outstanding SCI Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding SCI Common Stock and Outstanding SCI Voting Securities, as the case may be, (B) no Person (excluding SCI, any employee benefit plan (or related trust) of SCI 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 SCI Common Stock or Outstanding SCI 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
(d) Approval by the shareholders of SCI of (A) a complete liquidation or dissolution of SCI or (B) the sale or other disposition of all or substantially all of the assets of SCI other than to a corporation, with respect to which following such sale or other disposition, (i) 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 the beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding SCI Common Stock and Outstanding SCI 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 SCI Common Stock and Outstanding SCI Voting Securities, as the case may be, (ii) no Person (excluding SCI and any employee benefit plan (or related trust) of SCI 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 SCI Common Stock or Outstanding SCI 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 (iii) 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 SCI providing for such sale or other disposition of assets of SCI.
4.15 Pro Rated Bonus. "Pro Rated Bonus" shall mean, a bonus equal to
the product of (i) the bonus Employee did not receive but would have received
under Section 1.4(b) if he had remained an employee through the end of the
Employment Term, it being understood that the amount of such bonus Employee
would have received shall be determined by reference to the average amount of
bonus actually awarded to other officers who were at the same or comparable
level of responsibility as Employee immediately prior to his termination, and
(ii) a fraction, the denominator of which is 365 and the numerator of which is
the number of days in the fiscal year being considered through the date of
death, determination of disability or notice of termination of employment,
whichever is applicable. In the event that a majority of SCI officers do not
receive a bonus for the fiscal year being considered, then the Pro Rated Bonus
shall not be applicable and Employee shall not be entitled to a Pro Rated Bonus.
Any Pro Rated Bonus payable to Employee
shall be paid within 60 days of the date of the event which triggers payment of the Pro Rated Bonus. Notwithstanding anything herein to the contrary, the Company shall never be obligated to pay more than one Pro Rated Bonus.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written.
"COMPANY"
SCI Executive Services, Inc.
By: /s/ Ray A. Gipson
--------------------------------------
Ray A. Gipson
Vice President
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"EMPLOYEE"
/s/ B. D. Hunter
------------------------------------------
|
EXHIBIT 10.11
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS AGREEMENT is made and effective this 28th day of February, 2001 between SCI Executive Services, Inc., a Delaware corporation (the "Company"), and Jeffrey E. Curtiss (the "Employee"):
ARTICLE I
EMPLOYMENT
1.1 Employment Term. The Company agrees to employ the Employee and the Employee agrees to accept such employment, in accordance with the terms and conditions of this Agreement, for the period beginning on the date of this Agreement and ending as of the close of business on December 31, 2001 (such period together with all extensions thereof are referred to hereinafter as the "Employment Term"); provided, however, that commencing on January 1, 2002, and on each January 1 thereafter (each such date shall be hereinafter referred to as a "Renewal Date"), the Employment Term shall be extended so as to terminate one year from such Renewal Date if (i) the Company notifies the Employee in writing of such extension at least thirty days prior to such Renewal Date and (ii) the Employee has not previously given the Company written notice that the Employment Term shall not be so extended. In the event that the Company gives the Employee written notice at any time of its intention not to renew the Employment Term, then the Employment Term shall terminate on December 31 of the year in which such notice of non-renewal is given and shall not thereafter be further extended. If the Company fails to notify the Employee at least thirty days prior to a Renewal Date either of its intention to extend the Employment Term as provided above or its intention not to so extend the Employment Term, then the Employment Term shall not be extended and shall terminate as of the day prior to such Renewal Date.
1.2 Duties. The Employee shall serve the Company in an executive or managerial capacity and shall hold such title as may be authorized from time to time by the Board of Directors of Service Corporation International ("SCI"). The Employee shall have the duties, powers and authority consistent therewith and such other powers as are delegated to him in writing from time to time by the Board of Directors of SCI. If the Employee is elected to any office or other position with the Company during the term of this Agreement, the Employee will serve in such capacity or capacities without further compensation unless the Compensation Committee (the "Compensation Committee") of the Board of Directors of SCI authorizes additional compensation. The Employee's title and duties may be changed from time to time at the discretion of the Company. The Employee also agrees to perform, without additional compensation, such other services for the Company and for any subsidiary or affiliated corporations of the Company or for any partnerships in which the Company has an interest, as the Company shall from time to time specify. The term "Company" as used hereinafter shall be deemed to include and refer to subsidiaries and affiliated corporations and partnerships. Employee agrees and acknowledges that he owes, and will comply with, a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of the Company and to
take no action or fail to take action if such action or failure to act would injure the Company's business, its interests or its reputation.
1.3 Extent of Service. During the Employment Term, the Employee shall
devote his full time, attention and energy to the business of the Company, and,
except as may be specifically permitted by the Company, shall not be engaged in
any other business activity during the term of this Agreement. The foregoing
shall not be construed as preventing the Employee from making passive
investments in other businesses or enterprises, provided, however, that such
investments will not: (1) require services on the part of the Employee which
would in any way impair the performance of his duties under this Agreement, or
(2) in any manner significantly interfere with Employee's responsibilities as an
Employee of the Company in accordance with this Agreement.
1.4 Compensation
(a) Salary. The Company shall pay to the Employee a salary at the rate in effect for Employee at the date of this Agreement. Such salary is to be payable in installments in accordance with the payroll policies of the Company in effect from time to time during the term of this Agreement. The Company may (but is not required to) make such upward adjustments to the Employee's salary as it deems appropriate from time to time.
(b) Incentive Compensation. In addition to the above salary, the Employee shall be eligible annually for incentive compensation at the discretion of the Compensation Committee.
(c) Other Benefits. The Employee shall be reimbursed in accordance with the Company's normal expense reimbursement policy for all of the actual and reasonable costs and expenses accrued by Employee in the performance of his or her services and duties hereunder, including but not limited to, travel and entertainment expenses. The Employee shall be entitled to participate in all insurance, stock options, retirement plans and other benefit plans or programs as may be from time to time specifically adopted and approved by the Company for its employees, in accordance with the eligibility requirements and any other terms and conditions of such plans. It is understood and agreed between the parties hereto that the Company reserves the right, at its sole discretion, to modify, amend or terminate such plans, programs or benefits at any time.
1.5 Termination
(a) Death. If the Employee dies during the term of this Agreement and while in the employ of the Company, this Agreement shall automatically terminate and the Company shall have no further obligation to the Employee or his estate except that (i) the Company shall continue to pay the Employee's estate the Employee's salary in installments through the end of the Employment Term which was in effect immediately prior to Employee's death, and (ii) the Company shall pay the Employee's estate any applicable Pro Rated Bonus (defined hereinbelow).
(b) Disability. If during the term of this Agreement, the Employee shall be prevented from performing his duties hereunder by reason of disability, then the Company, on 30 days' prior notice to the Employee, may terminate Employee's employment under this Agreement. For purposes of this Agreement, the Employee shall be deemed to have become disabled when the Company, upon the advice of a qualified physician, shall have determined that the Employee has become physically or mentally incapable (excluding infrequent and temporary absences due to ordinary illness) of performing his duties under this Agreement. In the event of a termination pursuant to this paragraph 1.5(b), the Company shall be relieved of all of its obligations under this Agreement, except that the Company shall pay to the Employee (or his estate, in the event of his subsequent death), (i) the Employee's salary in installments through the end of the Employment Term which was in effect immediately prior to Employee's disability, and (ii) any applicable Pro Rated Bonus. Before making any termination decision pursuant to this Section 1.5(b), the Company shall determine whether there is any reasonable accommodation (within the meaning of the Americans With Disabilities Act) which would enable the Employee to perform the essential functions of the Employee's position under this Agreement despite the existence of any such disability. If such a reasonable accommodation is possible, the Company shall make that accommodation and shall not terminate the Employee's employment hereunder during the Employment Term based on such disability.
(c) Certain Discharges. Prior to the end of the Employment Term, the Company may discharge the Employee for Cause and terminate Employee's employment hereunder without notice and without any further liability hereunder to Employee or his estate. For purposes of this Agreement, "Cause" shall mean a determination by the Company that Employee: (i) has been convicted of a crime involving moral turpitude; (ii) has regularly failed or refused to follow policies or directives established by the Company or the Board of Directors of SCI; (iii) has willfully and persistently failed to attend to his duties; (iv) has committed acts amounting to gross negligence or willful misconduct to the detriment of the Company or its affiliates; (v) has violated any of his obligations under Articles II or III of this Agreement; or (vi) has otherwise breached any of the terms or provisions of this Agreement.
(d) Without Cause. Prior to the end of the Employment Term, the employment of the Employee with the Company may be terminated by the Company other than for Cause, death or disability. If such event occurs prior to a Change of Control (defined hereinbelow), the Company shall have no further obligation to Employee or his estate except that the Company shall pay to the Employee (or his estate, in the event of his subsequent death), (i) the Employee's salary in installments through the end of the Employment Term which was in effect immediately prior to Employee's termination, and (ii) any applicable Pro Rated Bonus.
(e) Voluntary Termination by Employee. If during the term of this Agreement, the Employee voluntarily terminates his employment with the Company prior to any Change of Control, the Company shall be relieved of all of its obligations under this Agreement, except that the Company shall pay the Employee (or his estate, in the event of his subsequent death) (i) the Employee's salary through the date of Employee's termination, and (ii) any incentive compensation
under Section 1.4(b) determined by the Compensation Committee for any fiscal period ended prior to the date of Employee's termination which had not been paid at the time of his termination. All such payments to the Employee or his estate shall be made in the same manner and at the same times as the Employee's salary or incentive compensation would have been paid to the Employee had he not terminated his employment.
(f) Change of Control. If (i) a Change of Control occurs during the Employment Term and (ii) within twelve months after such Change of Control the Employee's employment is (x) terminated by the Company other than for Cause, death or disability, or (y) terminated by Employee for any reason or for no reason, then the Company shall be relieved of all of its obligations under this Agreement, except that the Company shall pay the Employee (or his estate, in the event of his subsequent death) in a lump sum in cash within 30 days after the Employee's date of termination the aggregate of the following amounts:
(1) Two, multiplied by the Employee's annual salary in effect immediately prior to the Change of Control, plus
(2) Any applicable Pro Rated Bonus.
The obligations of the Company under this Section 1.5(f) shall remain in effect for twelve months after any Change of Control that occurs during the Employment Term notwithstanding the fact that such twelve month period may extend beyond the expiration of the Employment Term.
(g) Post Employment Term Matters. In the event the Employment Term terminates because it is not extended or renewed pursuant to Section 1.1, then the Company shall be relieved of all of its obligations under this Agreement and Employee will thereafter be an employee "at will" of the Company.
ARTICLE II
INFORMATION
2.1 Nondisclosure of Information. The Employee acknowledges that in the course of his employment by the Company he will receive certain trade secrets, which may include, but are not limited to, programs, lists of acquisition or disposition prospects and knowledge of acquisition strategy, financial information and reports, lists of customers or potential customers and other confidential information and knowledge concerning the business of the Company (hereinafter collectively referred to as "Information") which the Company desires to protect. The Employee understands that the Information is confidential and agrees not to reveal the Information to anyone outside the Company so long as the confidential or secret nature of the Information shall continue, unless compelled to do so by any federal or state regulatory agency or by a court order. If Employee becomes aware that disclosure of any Information is being sought by such an agency or through a court order, Employee will immediately notify the Company. The Employee further agrees that he will at no time use the Information in competing with the Company. Upon
termination of Employee's employment with the Company, the Employee shall surrender to the Company all papers, documents, writings and other property produced by him or coming into his possession by or through his employment or relating to the Information, and the Employee agrees that all such materials are and will at all times remain the property of the Company and to the extent the Employee has any rights therein, he hereby irrevocably assigns such rights to the Company.
2.2 Disclosure of Information, Ideas, Concepts, Improvements, Discoveries and Inventions. As part of the Employee's fiduciary duties to the Company, Employee agrees that during his employment by the Company, and for a period of six months after the termination of the employment relationship for any reason, Employee shall promptly disclose in writing to the Company all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by Employee, either individually or jointly with others, and which relate to the business, products or services of the Company or any of its subsidiaries or affiliates, irrespective of whether Employee utilized the Company's time or facilities and irrespective of whether such information, idea, concept, improvement, discovery or invention was conceived, developed, discovered or acquired by the Employee on the job, at home, or elsewhere. This obligation extends to all types of information, ideas and concepts, including information, ideas and concepts relating to new types of services, corporate opportunities, acquisition prospects, the identity of key representatives within acquisition prospect organizations, prospective names or service marks for the Company's business activities, and the like.
2.3 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 and which relate to the Company's business, products or services (including but not limited to 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 organization 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 described in Section 2.3 (a) above, 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 and thereafter, Employee shall assist the Company and its nominees 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, 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, drawing, maps, architectural renditions, models, manuals, brochures or the like) relating to the Company's 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 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 instructional text, then the work shall be considered to be work made for hire and the Company shall be considered 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 the work and all rights of copyright therein. Both during the period of Employee's employment by the Company and thereafter, Employee agrees to assist the Company and its nominee, at any time, in 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 nominees and the execution of all lawful oaths and applications for registration of copyright in the United States and foreign countries.
ARTICLE III
NONCOMPETITION
3.1 Noncompetition. During the Employment Term (and for a period of one or two years thereafter if the Company exercises its options under Section 3.2 hereof), Employee shall not, acting alone or in conjunction with others, directly or indirectly, in any market in which the Company or any of its affiliated companies conducts business, work for or engage in any business in competition with the business conducted by the Company or any of its affiliated companies,
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. In the event that a court should determine that any restriction herein is unenforceable, the parties hereto agree that the obligations under this paragraph shall be enforceable for the maximum term and maximum geographical area allowable by law.
3.2 Extension. The Company shall have the option to extend Employee's obligations under Section 3.1 for one additional year (the "First Extension Term") beyond the end of the Employment Term. If the Company exercises such option, it shall be required to pay Employee an amount equal to one year's salary, based on Employee's salary rate as of the date his employment with the Company ceased (the "Noncompetition Payment"). Such Noncompetition Payment shall be made in 12 equal monthly installments (each installment being an amount equal to 1/12th of such annual salary) commencing on the date which is thirty (30) days after the last day of the Employment Term. Subsequent payments shall be made on the same day of each succeeding month until 12 payments have been made. If the Employee breaches his noncompetition obligations, the Company shall be entitled to cease making such monthly payments. The purpose of this paragraph is to make the noncompetition obligation of the Employee more reasonable from the Employee's point of view. 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 the Employee breaches his post-employment noncompetition obligation. If the Employee breaches his post-employment noncompetition obligation, the Company shall be entitled to all of its remedies at law or in equity for damages and injunctive relief. The Company may exercise the option conferred by this paragraph at any time within 30 days after the last day of the Employment Term by mailing written notice of such exercise to Employee.
If the Company exercises its option to extend Employee's obligations as set forth in the preceding paragraph, then the Company shall have the option to extend Employee's obligations under Section 3.1 for one additional year (the "Second Extension Term") beyond the end of the First Extension Term. If the Company exercises its option to extend Employee's obligations for the Second Extension Term, the rights and obligations of the parties set forth in the preceding paragraph shall be applicable during the Second Extension Term. The Company may exercise the option conferred by this paragraph at any time within 30 days after the last day of the First Extension Term by mailing written notice of such exercise to Employee.
3.3 Termination For Cause or Termination By Employee. Notwithstanding anything to the contrary in this Agreement, in the event that Employee's employment hereunder is terminated for Cause pursuant to Section 1.5 (c) hereof, or in the event Employee voluntarily terminates the employment relationship for any reason other than a material breach of this Agreement by the Company, the noncompetition obligations of Employee described in Section 3.1 above shall automatically continue for a period of two years from the date the employment relationship ceases, and the Company shall not be required to (i) make any payments to Employee in consideration for such obligations, or (ii) provide any notice to Employee. Notwithstanding the foregoing, this Section 3.3 shall not be applicable in the event Employee voluntarily terminates the employment
relationship within twelve months after a Change of Control that occurs during the Employment Term.
3.4 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 Term and for five (5) year(s) thereafter, he shall not at any time, directly or indirectly for the benefit or 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.
3.5 Acknowledgement. Employee acknowledges that Employee's compliance with the provisions of this Article III is necessary to protect the existing goodwill and other proprietary rights of the Company, as well as all goodwill and relationships that may be acquired or enhanced during the course of Employee's employment with the Company, and all confidential information which may come into existence or to which Employee may have access during his employment with the Company. Employee further acknowledges that Employee will become familiar with certain of the Company's affairs, operations, customers and confidential information and data by means of his employment with the Company, and that failure to comply with the provisions of this Article III will result in irreparable and continuing damage to the Company for which there will be no adequate remedy at law. The Company shall be entitled to all of its remedies at law or in equity for damages and injunctive relief in the event of any violation of this Article III by Employee.
ARTICLE IV
MISCELLANEOUS
4.1 Notices. All notices, requests, consents and other communications under this Agreement shall be in writing and shall be deemed to have been delivered on the date personally delivered or on the date mailed, postage prepaid, by certified mail, return receipt requested, or telegraphed and confirmed if addressed to the respective parties as follows:
If to the Employee:
If to the Company:
General Counsel
c/o SCI Executive Services, Inc.
1929 Allen Parkway
Houston, Texas 77019
Attention: Legal Department
Either party hereto may designate a different address by providing written notice of such new address to the other party hereto.
4.2 Entire Agreement. This Agreement replaces and merges all previous agreements and discussions relating to the same or similar subject matters between Employee and the Company (or any of its affiliates) and constitutes the entire agreement between the Employee and the Company (and any of its affiliates) with respect to the subject matter of this Agreement. Any existing employment agreement between the Employee and the Company (or any of its affiliates) is hereby terminated, effective immediately. This Agreement may not be modified in any respect by any verbal statement, representation or agreement made by an employee, officer, or representative of the Company or by any written agreement unless signed by an officer of the Company who is expressly authorized by the Company to execute such document.
4.3 Specific Performance. The Employee acknowledges that a remedy at law for any breach of Article II or III of this Agreement will be inadequate, agrees that the Company shall be entitled to specific performance and injunctive and other equitable relief in case of any such breach or attempted breach, and further agrees to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or any other equitable relief.
4.4 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid or unenforceable under applicable law, such provision shall be ineffective to the extent of such prohibition, invalidity or unenforceability without invalidating the remainder of such provision or the remaining provisions of this Agreement.
4.5 Assignment. This Agreement may not be assigned by the Employee. Neither the Employee, his spouse, nor his estate shall have any right to commute, encumber or dispose of any right to receive payments hereunder, it being understood that such payments and the right thereto are nonassignable and nontransferable. This Agreement may be assigned by the Company.
4.6 Binding Effect. Subject to the provisions of Section 4.5 of this Agreement, this Agreement shall be binding upon and inure to the benefit of the parties hereto, the Employee's heirs and personal representatives, and the successors and assigns of the Company.
4.7 Captions. The section and paragraph headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
4.8 Governing Law. This Agreement shall be construed and enforced in accordance with, and governed by, the laws of Texas.
4.9 Counterparts. This Agreement may be executed in multiple original counterparts, each of which shall be deemed an original, but all of which together shall constitute the same instrument.
4.10 Survival of Certain Obligations. Employee's obligations under Articles II and III hereof shall survive any termination of Employee's employment hereunder.
4.11 Waiver. The waiver by either party of any right hereunder or of any breach of this Agreement shall not operate as or be construed to be an amendment of this Agreement or a waiver of any future right or breach.
4.12 Gender. All references to the masculine pronoun herein are used for convenience and ease of reading only and are intended and apply to the feminine gender as well.
4.13 Dispute Resolution.
(a) Employee and the Company agree that, except for the matters identified in Section 4.13(b) below, all disputes relating to any aspects of Employee's employment with the Company shall be resolved by binding arbitration. This includes, but is not limited to, any claims against the Company, its affiliates or their officers, directors, employees, or agents for breach of contract, wrongful discharge, discrimination, harassment, defamation, misrepresentation, and emotional distress, as well as any disputes pertaining to the meaning or effect of this Agreement.
(b) It is expressly agreed that this Section 4.13 shall not govern claims for workers' compensation or unemployment benefits, or any claim by the Company against Employee which is based on fraud, theft or other dishonest conduct of Employee.
(c) Any claim which either party has against the other must be presented in writing by the claiming party to the other within one year of the date the claiming party knew or should have known of the facts giving rise to the claim. Otherwise, the claim shall be deemed waived and forever barred even if there is a federal or state statute of limitations which would have given more time to pursue the claim.
(d) Each party may retain legal counsel and shall pay its own costs and attorneys' fees, regardless of the outcome of the arbitration. Each party shall pay one-half of the
compensation to be paid to the arbitrators, as well as one-half of any other costs relating to the administration of the arbitration proceeding (for example, room rental, court reporter, etc.).
(e) An arbitrator shall be selected by mutual agreement of the parties. If the parties are unable to agree on a single arbitrator, each party shall select one arbitrator, and the two arbitrators so selected shall select a third arbitrator. The three arbitrators so selected will then hear and decide the matter. All arbitrators must be attorneys, judges or retired judges who are licensed to practice law in the state where the Employee is or most recently was employed by the Company. The arbitration proceedings shall be conducted within the county in which Employee is or most recently was employed by the Company or at another mutually agreeable location.
(f) Except as otherwise provided herein, the arbitration proceedings shall be conducted in accordance with the statutes, rules or regulations governing arbitration in the state in which Employee is or most recently was employed by the Company. In the absence of such statutes, rules or regulations, the arbitration proceedings shall be conducted in accordance with the employment arbitration rules of the American Arbitration Association ("AAA"); provided however, that the foregoing reference to the AAA rules shall not be deemed to require any filing with that organization, nor any direct involvement of that organization. In the event of any inconsistency between this Agreement and the statutes, rules or regulations to be applied pursuant to this paragraph, the terms of this Agreement shall apply.
(g) The arbitrator shall issue a written award, which shall contain, at a minimum, the names of the parties, a summary of the issues in controversy, and a description of the award issued. Upon motion to a court of competent jurisdiction, either party may obtain a judgment or decree in conformity with the arbitration award, and said award shall be enforced as any other judgment or decree.
(h) In resolving claims governed by this Section 4.13, the arbitrator shall apply the laws of the state in which Employee is or most recently was employed by the Company, and/or federal law, if applicable.
(i) Employee and the Company agree and acknowledge that any arbitration
proceedings between them, and the outcome of such proceedings, shall be kept
strictly confidential; provided however, that the Company may disclose such
information to the extent required by law and to its employees, agents and
professional advisors who have a legitimate need to know such information, and
the Employee may disclose such information (1) to the extent required by law,
(2) to the extent that the Employee is required to disclose same to professional
persons assisting Employee in preparing tax returns; and (3) to Employee's legal
counsel.
4.14 Change of Control. "Change of Control" means the happening of any of the following events:
(a) 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 SCI (the "Outstanding
SCI Common Stock") or (B) the combined voting power of the then outstanding
voting securities of SCI entitled to vote generally in the election of directors
(the "Outstanding SCI Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control under this subsection (a):
(i) any acquisition directly from SCI (excluding an acquisition by virtue of the
exercise of a conversion privilege), (ii) any acquisition by SCI, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by SCI or any corporation controlled by SCI, or (iv) 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 (c) of this definition of "Change of
Control" are satisfied; or
(b) Individuals who, as of the effective date hereof, constitute the Board of Directors of SCI (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of SCI; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by SCI's shareholders, was approved by (A) a vote of at least a majority of the directors then comprising the Incumbent Board, or (B) a vote of at least a majority of the directors then comprising the Executive Committee of the Board of Directors of SCI at a time when such committee was comprised 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 (b), 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 SCI; or
(c) Approval by the shareholders of SCI 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 SCI Common Stock and Outstanding SCI Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding SCI Common Stock and Outstanding SCI Voting Securities, as the case may be, (B) no Person (excluding SCI, any employee benefit plan (or related trust) of SCI 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 SCI Common Stock or Outstanding SCI 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
(d) Approval by the shareholders of SCI of (A) a complete liquidation or dissolution of SCI or (B) the sale or other disposition of all or substantially all of the assets of SCI other than to a corporation, with respect to which following such sale or other disposition, (i) 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 the beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding SCI Common Stock and Outstanding SCI 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 SCI Common Stock and Outstanding SCI Voting Securities, as the case may be, (ii) no Person (excluding SCI and any employee benefit plan (or related trust) of SCI 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 SCI Common Stock or Outstanding SCI 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 (iii) 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 SCI providing for such sale or other disposition of assets of SCI.
4.15 Pro Rated Bonus. "Pro Rated Bonus" shall mean, a bonus equal to
the product of (i) the bonus Employee did not receive but would have received
under Section 1.4(b) if he had remained an employee through the end of the
Employment Term, it being understood that the amount of such bonus Employee
would have received shall be determined by reference to the average amount of
bonus actually awarded to other officers who were at the same or comparable
level of responsibility as Employee immediately prior to his termination, and
(ii) a fraction, the denominator of which is 365 and the numerator of which is
the number of days in the fiscal year being considered through the date of
death, determination of disability or notice of termination of employment,
whichever is applicable. In the event that a majority of SCI officers do not
receive a bonus for the fiscal year being considered, then the Pro Rated Bonus
shall not be applicable and Employee shall not be entitled to a Pro Rated Bonus.
Any Pro Rated Bonus payable to Employee
shall be paid within 60 days of the date of the event which triggers payment of the Pro Rated Bonus. Notwithstanding anything herein to the contrary, the Company shall never be obligated to pay more than one Pro Rated Bonus.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written.
"COMPANY"
SCI Executive Services, Inc.
By: /s/ Ray A. Gipson
--------------------------------------
Ray A. Gipson
Vice President
|
"EMPLOYEE"
/s/ Jeffrey E. Curtiss
-----------------------------------------
|
EXHIBIT 10.12
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS AGREEMENT is made and effective this 28th day of February, 2001 between SCI Executive Services, Inc., a Delaware corporation (the "Company"), and ____________ (the "Employee"):
ARTICLE I
EMPLOYMENT
1.1 Employment Term. The Company agrees to employ the Employee and the Employee agrees to accept such employment, in accordance with the terms and conditions of this Agreement, for the period beginning on the date of this Agreement and ending as of the close of business on December 31, 2001 (such period together with all extensions thereof are referred to hereinafter as the "Employment Term"); provided, however, that commencing on January 1, 2002, and on each January 1 thereafter (each such date shall be hereinafter referred to as a "Renewal Date"), the Employment Term shall be extended so as to terminate one year from such Renewal Date if (i) the Company notifies the Employee in writing of such extension at least thirty days prior to such Renewal Date and (ii) the Employee has not previously given the Company written notice that the Employment Term shall not be so extended. In the event that the Company gives the Employee written notice at any time of its intention not to renew the Employment Term, then the Employment Term shall terminate on December 31 of the year in which such notice of non-renewal is given and shall not thereafter be further extended. If the Company fails to notify the Employee at least thirty days prior to a Renewal Date either of its intention to extend the Employment Term as provided above or its intention not to so extend the Employment Term, then the Employment Term shall not be extended and shall terminate as of the day prior to such Renewal Date.
1.2 Duties. The Employee shall serve the Company in an executive or managerial capacity and shall hold such title as may be authorized from time to time by the Board of Directors of Service Corporation International ("SCI"). The Employee shall have the duties, powers and authority consistent therewith and such other powers as are delegated to him in writing from time to time by the Board of Directors of SCI. If the Employee is elected to any office or other position with the Company during the term of this Agreement, the Employee will serve in such capacity or capacities without further compensation unless the Compensation Committee (the "Compensation Committee") of the Board of Directors of SCI authorizes additional compensation. The Employee's title and duties may be changed from time to time at the discretion of the Company. The Employee also agrees to perform, without additional compensation, such other services for the Company and for any subsidiary or affiliated corporations of the Company or for any partnerships in which the Company has an interest, as the Company shall from time to time specify. The term "Company" as used hereinafter shall be deemed to include and refer to subsidiaries and affiliated corporations and partnerships. Employee agrees and acknowledges that he owes, and will comply with, a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of the Company and to
take no action or fail to take action if such action or failure to act would injure the Company's business, its interests or its reputation.
1.3 Extent of Service. During the Employment Term, the Employee shall
devote his full time, attention and energy to the business of the Company, and,
except as may be specifically permitted by the Company, shall not be engaged in
any other business activity during the term of this Agreement. The foregoing
shall not be construed as preventing the Employee from making passive
investments in other businesses or enterprises, provided, however, that such
investments will not: (1) require services on the part of the Employee which
would in any way impair the performance of his duties under this Agreement, or
(2) in any manner significantly interfere with Employee's responsibilities as an
Employee of the Company in accordance with this Agreement.
1.4 Compensation
(a) Salary. The Company shall pay to the Employee a salary at the rate in effect for Employee at the date of this Agreement. Such salary is to be payable in installments in accordance with the payroll policies of the Company in effect from time to time during the term of this Agreement. The Company may (but is not required to) make such upward adjustments to the Employee's salary as it deems appropriate from time to time.
(b) Incentive Compensation. In addition to the above salary, the Employee shall be eligible annually for incentive compensation at the discretion of the Compensation Committee.
(c) Other Benefits. The Employee shall be reimbursed in accordance with the Company's normal expense reimbursement policy for all of the actual and reasonable costs and expenses accrued by Employee in the performance of his or her services and duties hereunder, including but not limited to, travel and entertainment expenses. The Employee shall be entitled to participate in all insurance, stock options, retirement plans and other benefit plans or programs as may be from time to time specifically adopted and approved by the Company for its employees, in accordance with the eligibility requirements and any other terms and conditions of such plans. It is understood and agreed between the parties hereto that the Company reserves the right, at its sole discretion, to modify, amend or terminate such plans, programs or benefits at any time.
1.5 Termination
(a) Death. If the Employee dies during the term of this Agreement and while in the employ of the Company, this Agreement shall automatically terminate and the Company shall have no further obligation to the Employee or his estate except that (i) the Company shall continue to pay the Employee's estate the Employee's salary in installments through the end of the Employment Term which was in effect immediately prior to Employee's death, and (ii) the Company shall pay the Employee's estate any applicable Pro Rated Bonus (defined hereinbelow).
(b) Disability. If during the term of this Agreement, the Employee shall be prevented from performing his duties hereunder by reason of disability, then the Company, on 30 days' prior notice to the Employee, may terminate Employee's employment under this Agreement. For purposes of this Agreement, the Employee shall be deemed to have become disabled when the Company, upon the advice of a qualified physician, shall have determined that the Employee has become physically or mentally incapable (excluding infrequent and temporary absences due to ordinary illness) of performing his duties under this Agreement. In the event of a termination pursuant to this paragraph 1.5(b), the Company shall be relieved of all of its obligations under this Agreement, except that the Company shall pay to the Employee (or his estate, in the event of his subsequent death), (i) the Employee's salary in installments through the end of the Employment Term which was in effect immediately prior to Employee's disability, and (ii) any applicable Pro Rated Bonus. Before making any termination decision pursuant to this Section 1.5(b), the Company shall determine whether there is any reasonable accommodation (within the meaning of the Americans With Disabilities Act) which would enable the Employee to perform the essential functions of the Employee's position under this Agreement despite the existence of any such disability. If such a reasonable accommodation is possible, the Company shall make that accommodation and shall not terminate the Employee's employment hereunder during the Employment Term based on such disability.
(c) Certain Discharges. Prior to the end of the Employment Term, the Company may discharge the Employee for Cause and terminate Employee's employment hereunder without notice and without any further liability hereunder to Employee or his estate. For purposes of this Agreement, "Cause" shall mean a determination by the Company that Employee: (i) has been convicted of a crime involving moral turpitude; (ii) has regularly failed or refused to follow policies or directives established by the Company or the Board of Directors of SCI; (iii) has willfully and persistently failed to attend to his duties; (iv) has committed acts amounting to gross negligence or willful misconduct to the detriment of the Company or its affiliates; (v) has violated any of his obligations under Articles II or III of this Agreement; or (vi) has otherwise breached any of the terms or provisions of this Agreement.
(d) Without Cause. Prior to the end of the Employment Term, the employment of the Employee with the Company may be terminated by the Company other than for Cause, death or disability. If such event occurs prior to a Change of Control (defined hereinbelow), the Company shall have no further obligation to Employee or his estate except that the Company shall pay to the Employee (or his estate, in the event of his subsequent death), (i) the Employee's salary in installments through the end of the Employment Term which was in effect immediately prior to Employee's termination, and (ii) any applicable Pro Rated Bonus.
(e) Voluntary Termination by Employee. If during the term of this Agreement, the Employee voluntarily terminates his employment with the Company prior to any Change of Control, the Company shall be relieved of all of its obligations under this Agreement, except that the Company shall pay the Employee (or his estate, in the event of his subsequent death) (i) the Employee's salary through the date of Employee's termination, and (ii) any incentive compensation
under Section 1.4(b) determined by the Compensation Committee for any fiscal period ended prior to the date of Employee's termination which had not been paid at the time of his termination. All such payments to the Employee or his estate shall be made in the same manner and at the same times as the Employee's salary or incentive compensation would have been paid to the Employee had he not terminated his employment.
(f) Change of Control. If (i) a Change of Control occurs during the Employment Term and (ii) within twelve months after such Change of Control the Employee's employment is (x) terminated by the Company other than for Cause, death or disability, or (y) terminated by Employee for any reason or for no reason, then the Company shall be relieved of all of its obligations under this Agreement, except that the Company shall pay the Employee (or his estate, in the event of his subsequent death) in a lump sum in cash within 30 days after the Employee's date of termination the aggregate of the following amounts:
(1) Two, multiplied by the Employee's annual salary in effect immediately prior to the Change of Control, plus
(2) Any applicable Pro Rated Bonus.
The obligations of the Company under this Section 1.5(f) shall remain in effect for twelve months after any Change of Control that occurs during the Employment Term notwithstanding the fact that such twelve month period may extend beyond the expiration of the Employment Term.
(g) Post Employment Term Matters. In the event the Employment Term terminates because it is not extended or renewed pursuant to Section 1.1, then the Company shall be relieved of all of its obligations under this Agreement and Employee will thereafter be an employee "at will" of the Company.
ARTICLE II
INFORMATION
2.1 Nondisclosure of Information. The Employee acknowledges that in the course of his employment by the Company he will receive certain trade secrets, which may include, but are not limited to, programs, lists of acquisition or disposition prospects and knowledge of acquisition strategy, financial information and reports, lists of customers or potential customers and other confidential information and knowledge concerning the business of the Company (hereinafter collectively referred to as "Information") which the Company desires to protect. The Employee understands that the Information is confidential and agrees not to reveal the Information to anyone outside the Company so long as the confidential or secret nature of the Information shall continue, unless compelled to do so by any federal or state regulatory agency or by a court order. If Employee becomes aware that disclosure of any Information is being sought by such an agency or through a court order, Employee will immediately notify the Company. The Employee further agrees that he will at no time use the Information in competing with the Company. Upon
termination of Employee's employment with the Company, the Employee shall surrender to the Company all papers, documents, writings and other property produced by him or coming into his possession by or through his employment or relating to the Information, and the Employee agrees that all such materials are and will at all times remain the property of the Company and to the extent the Employee has any rights therein, he hereby irrevocably assigns such rights to the Company.
2.2 Disclosure of Information, Ideas, Concepts, Improvements, Discoveries and Inventions. As part of the Employee's fiduciary duties to the Company, Employee agrees that during his employment by the Company, and for a period of six months after the termination of the employment relationship for any reason, Employee shall promptly disclose in writing to the Company all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by Employee, either individually or jointly with others, and which relate to the business, products or services of the Company or any of its subsidiaries or affiliates, irrespective of whether Employee utilized the Company's time or facilities and irrespective of whether such information, idea, concept, improvement, discovery or invention was conceived, developed, discovered or acquired by the Employee on the job, at home, or elsewhere. This obligation extends to all types of information, ideas and concepts, including information, ideas and concepts relating to new types of services, corporate opportunities, acquisition prospects, the identity of key representatives within acquisition prospect organizations, prospective names or service marks for the Company's business activities, and the like.
2.3 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 and which relate to the Company's business, products or services (including but not limited to 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 organization 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 described in Section 2.3 (a) above, 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 and thereafter, Employee shall assist the Company and its nominees 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, 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, drawing, maps, architectural renditions, models, manuals, brochures or the like) relating to the Company's 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 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 instructional text, then the work shall be considered to be work made for hire and the Company shall be considered 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 the work and all rights of copyright therein. Both during the period of Employee's employment by the Company and thereafter, Employee agrees to assist the Company and its nominee, at any time, in 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 nominees and the execution of all lawful oaths and applications for registration of copyright in the United States and foreign countries.
ARTICLE III
NONCOMPETITION
3.1 Noncompetition. During the Employment Term (and for a period of one or two years thereafter if the Company exercises its options under Section 3.2 hereof), Employee shall not, acting alone or in conjunction with others, directly or indirectly, in any market in which the Company or any of its affiliated companies conducts business, work for or engage in any business in competition with the business conducted by the Company or any of its affiliated companies,
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. In the event that a court should determine that any restriction herein is unenforceable, the parties hereto agree that the obligations under this paragraph shall be enforceable for the maximum term and maximum geographical area allowable by law.
3.2 Extension. The Company shall have the option to extend Employee's obligations under Section 3.1 for one additional year (the "First Extension Term") beyond the end of the Employment Term. If the Company exercises such option, it shall be required to pay Employee an amount equal to one year's salary, based on Employee's salary rate as of the date his employment with the Company ceased (the "Noncompetition Payment"). Such Noncompetition Payment shall be made in 12 equal monthly installments (each installment being an amount equal to 1/12th of such annual salary) commencing on the date which is thirty (30) days after the last day of the Employment Term. Subsequent payments shall be made on the same day of each succeeding month until 12 payments have been made. If the Employee breaches his noncompetition obligations, the Company shall be entitled to cease making such monthly payments. The purpose of this paragraph is to make the noncompetition obligation of the Employee more reasonable from the Employee's point of view. 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 the Employee breaches his post-employment noncompetition obligation. If the Employee breaches his post-employment noncompetition obligation, the Company shall be entitled to all of its remedies at law or in equity for damages and injunctive relief. The Company may exercise the option conferred by this paragraph at any time within 30 days after the last day of the Employment Term by mailing written notice of such exercise to Employee.
If the Company exercises its option to extend Employee's obligations as set forth in the preceding paragraph, then the Company shall have the option to extend Employee's obligations under Section 3.1 for one additional year (the "Second Extension Term") beyond the end of the First Extension Term. If the Company exercises its option to extend Employee's obligations for the Second Extension Term, the rights and obligations of the parties set forth in the preceding paragraph shall be applicable during the Second Extension Term. The Company may exercise the option conferred by this paragraph at any time within 30 days after the last day of the First Extension Term by mailing written notice of such exercise to Employee.
3.3 Termination For Cause or Termination By Employee. Notwithstanding anything to the contrary in this Agreement, in the event that Employee's employment hereunder is terminated for Cause pursuant to Section 1.5 (c) hereof, or in the event Employee voluntarily terminates the employment relationship for any reason other than a material breach of this Agreement by the Company, the noncompetition obligations of Employee described in Section 3.1 above shall automatically continue for a period of two years from the date the employment relationship ceases, and the Company shall not be required to (i) make any payments to Employee in consideration for such obligations, or (ii) provide any notice to Employee. Notwithstanding the foregoing, this Section 3.3 shall not be applicable in the event Employee voluntarily terminates the employment
relationship within twelve months after a Change of Control that occurs during the Employment Term.
3.4 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 Term and for five (5) year(s) thereafter, he shall not at any time, directly or indirectly for the benefit or 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.
3.5 Acknowledgement. Employee acknowledges that Employee's compliance with the provisions of this Article III is necessary to protect the existing goodwill and other proprietary rights of the Company, as well as all goodwill and relationships that may be acquired or enhanced during the course of Employee's employment with the Company, and all confidential information which may come into existence or to which Employee may have access during his employment with the Company. Employee further acknowledges that Employee will become familiar with certain of the Company's affairs, operations, customers and confidential information and data by means of his employment with the Company, and that failure to comply with the provisions of this Article III will result in irreparable and continuing damage to the Company for which there will be no adequate remedy at law. The Company shall be entitled to all of its remedies at law or in equity for damages and injunctive relief in the event of any violation of this Article III by Employee.
ARTICLE IV
MISCELLANEOUS
4.1 Notices. All notices, requests, consents and other communications under this Agreement shall be in writing and shall be deemed to have been delivered on the date personally delivered or on the date mailed, postage prepaid, by certified mail, return receipt requested, or telegraphed and confirmed if addressed to the respective parties as follows:
If to the Employee:
If to the Company:
General Counsel
c/o SCI Executive Services, Inc.
1929 Allen Parkway
Houston, Texas 77019
Attention: Legal Department
Either party hereto may designate a different address by providing written notice of such new address to the other party hereto.
4.2 Entire Agreement. This Agreement replaces and merges all previous agreements and discussions relating to the same or similar subject matters between Employee and the Company (or any of its affiliates) and constitutes the entire agreement between the Employee and the Company (and any of its affiliates) with respect to the subject matter of this Agreement. Any existing employment agreement between the Employee and the Company (or any of its affiliates) is hereby terminated, effective immediately. This Agreement may not be modified in any respect by any verbal statement, representation or agreement made by an employee, officer, or representative of the Company or by any written agreement unless signed by an officer of the Company who is expressly authorized by the Company to execute such document.
4.3 Specific Performance. The Employee acknowledges that a remedy at law for any breach of Article II or III of this Agreement will be inadequate, agrees that the Company shall be entitled to specific performance and injunctive and other equitable relief in case of any such breach or attempted breach, and further agrees to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or any other equitable relief.
4.4 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid or unenforceable under applicable law, such provision shall be ineffective to the extent of such prohibition, invalidity or unenforceability without invalidating the remainder of such provision or the remaining provisions of this Agreement.
4.5 Assignment. This Agreement may not be assigned by the Employee. Neither the Employee, his spouse, nor his estate shall have any right to commute, encumber or dispose of any right to receive payments hereunder, it being understood that such payments and the right thereto are nonassignable and nontransferable. This Agreement may be assigned by the Company.
4.6 Binding Effect. Subject to the provisions of Section 4.5 of this Agreement, this Agreement shall be binding upon and inure to the benefit of the parties hereto, the Employee's heirs and personal representatives, and the successors and assigns of the Company.
4.7 Captions. The section and paragraph headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
4.8 Governing Law. This Agreement shall be construed and enforced in accordance with, and governed by, the laws of Texas.
4.9 Counterparts. This Agreement may be executed in multiple original counterparts, each of which shall be deemed an original, but all of which together shall constitute the same instrument.
4.10 Survival of Certain Obligations. Employee's obligations under Articles II and III hereof shall survive any termination of Employee's employment hereunder.
4.11 Waiver. The waiver by either party of any right hereunder or of any breach of this Agreement shall not operate as or be construed to be an amendment of this Agreement or a waiver of any future right or breach.
4.12 Gender. All references to the masculine pronoun herein are used for convenience and ease of reading only and are intended and apply to the feminine gender as well.
4.13 Dispute Resolution.
(a) Employee and the Company agree that, except for the matters identified in Section 4.13(b) below, all disputes relating to any aspects of Employee's employment with the Company shall be resolved by binding arbitration. This includes, but is not limited to, any claims against the Company, its affiliates or their officers, directors, employees, or agents for breach of contract, wrongful discharge, discrimination, harassment, defamation, misrepresentation, and emotional distress, as well as any disputes pertaining to the meaning or effect of this Agreement.
(b) It is expressly agreed that this Section 4.13 shall not govern claims for workers' compensation or unemployment benefits, or any claim by the Company against Employee which is based on fraud, theft or other dishonest conduct of Employee.
(c) Any claim which either party has against the other must be presented in writing by the claiming party to the other within one year of the date the claiming party knew or should have known of the facts giving rise to the claim. Otherwise, the claim shall be deemed waived and forever barred even if there is a federal or state statute of limitations which would have given more time to pursue the claim.
(d) Each party may retain legal counsel and shall pay its own costs and attorneys' fees, regardless of the outcome of the arbitration. Each party shall pay one-half of the
compensation to be paid to the arbitrators, as well as one-half of any other costs relating to the administration of the arbitration proceeding (for example, room rental, court reporter, etc.).
(e) An arbitrator shall be selected by mutual agreement of the parties. If the parties are unable to agree on a single arbitrator, each party shall select one arbitrator, and the two arbitrators so selected shall select a third arbitrator. The three arbitrators so selected will then hear and decide the matter. All arbitrators must be attorneys, judges or retired judges who are licensed to practice law in the state where the Employee is or most recently was employed by the Company. The arbitration proceedings shall be conducted within the county in which Employee is or most recently was employed by the Company or at another mutually agreeable location.
(f) Except as otherwise provided herein, the arbitration proceedings shall be conducted in accordance with the statutes, rules or regulations governing arbitration in the state in which Employee is or most recently was employed by the Company. In the absence of such statutes, rules or regulations, the arbitration proceedings shall be conducted in accordance with the employment arbitration rules of the American Arbitration Association ("AAA"); provided however, that the foregoing reference to the AAA rules shall not be deemed to require any filing with that organization, nor any direct involvement of that organization. In the event of any inconsistency between this Agreement and the statutes, rules or regulations to be applied pursuant to this paragraph, the terms of this Agreement shall apply.
(g) The arbitrator shall issue a written award, which shall contain, at a minimum, the names of the parties, a summary of the issues in controversy, and a description of the award issued. Upon motion to a court of competent jurisdiction, either party may obtain a judgment or decree in conformity with the arbitration award, and said award shall be enforced as any other judgment or decree.
(h) In resolving claims governed by this Section 4.13, the arbitrator shall apply the laws of the state in which Employee is or most recently was employed by the Company, and/or federal law, if applicable.
(i) Employee and the Company agree and acknowledge that any arbitration
proceedings between them, and the outcome of such proceedings, shall be kept
strictly confidential; provided however, that the Company may disclose such
information to the extent required by law and to its employees, agents and
professional advisors who have a legitimate need to know such information, and
the Employee may disclose such information (1) to the extent required by law,
(2) to the extent that the Employee is required to disclose same to professional
persons assisting Employee in preparing tax returns; and (3) to Employee's legal
counsel.
4.14 Change of Control. "Change of Control" means the happening of any of the following events:
(a) 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 SCI (the "Outstanding
SCI Common Stock") or (B) the combined voting power of the then outstanding
voting securities of SCI entitled to vote generally in the election of directors
(the "Outstanding SCI Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control under this subsection (a):
(i) any acquisition directly from SCI (excluding an acquisition by virtue of the
exercise of a conversion privilege), (ii) any acquisition by SCI, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by SCI or any corporation controlled by SCI, or (iv) 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 (c) of this definition of "Change of
Control" are satisfied; or
(b) Individuals who, as of the effective date hereof, constitute the Board of Directors of SCI (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of SCI; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by SCI's shareholders, was approved by (A) a vote of at least a majority of the directors then comprising the Incumbent Board, or (B) a vote of at least a majority of the directors then comprising the Executive Committee of the Board of Directors of SCI at a time when such committee was comprised 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 (b), 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 SCI; or
(c) Approval by the shareholders of SCI 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 SCI Common Stock and Outstanding SCI Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding SCI Common Stock and Outstanding SCI Voting Securities, as the case may be, (B) no Person (excluding SCI, any employee benefit plan (or related trust) of SCI 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 SCI Common Stock or Outstanding SCI 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
(d) Approval by the shareholders of SCI of (A) a complete liquidation or dissolution of SCI or (B) the sale or other disposition of all or substantially all of the assets of SCI other than to a corporation, with respect to which following such sale or other disposition, (i) 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 the beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding SCI Common Stock and Outstanding SCI 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 SCI Common Stock and Outstanding SCI Voting Securities, as the case may be, (ii) no Person (excluding SCI and any employee benefit plan (or related trust) of SCI 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 SCI Common Stock or Outstanding SCI 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 (iii) 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 SCI providing for such sale or other disposition of assets of SCI.
4.15 Pro Rated Bonus. "Pro Rated Bonus" shall mean, a bonus equal to
the product of (i) the bonus Employee did not receive but would have received
under Section 1.4(b) if he had remained an employee through the end of the
Employment Term, it being understood that the amount of such bonus Employee
would have received shall be determined by reference to the average amount of
bonus actually awarded to other officers who were at the same or comparable
level of responsibility as Employee immediately prior to his termination, and
(ii) a fraction, the denominator of which is 365 and the numerator of which is
the number of days in the fiscal year being considered through the date of
death, determination of disability or notice of termination of employment,
whichever is applicable. In the event that a majority of SCI officers do not
receive a bonus for the fiscal year being considered, then the Pro Rated Bonus
shall not be applicable and Employee shall not be entitled to a Pro Rated Bonus.
Any Pro Rated Bonus payable to Employee
shall be paid within 60 days of the date of the event which triggers payment of the Pro Rated Bonus. Notwithstanding anything herein to the contrary, the Company shall never be obligated to pay more than one Pro Rated Bonus.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written.
"COMPANY"
SCI Executive Services, Inc.
"EMPLOYEE"
EXHIBIT 10.28
FIRST AMENDMENT
TO THE
SERVICE CORPORATION INTERNATIONAL
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
FOR SENIOR OFFICERS
(AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 1998)
WHEREAS, Service Corporation International (the "Company") adopted the Service Corporation International Supplemental Executive Retirement Plan for Senior Executives as Amended and Restated Effective January 1, 1998 (the "SENIOR SERP") for the benefit of certain eligible employees;
WHEREAS, in Section 8.1 of the SENIOR SERP the Company reserved the right to amend the SENIOR SERP by action of its Board of Directors;
WHEREAS, the Board of Directors has determined that the SENIOR SERP should be amended to freeze benefit accruals effective as of January 1, 2001;
NOW THEREFORE, the SENIOR SERP is hereby amended as follows:
1. The SENIOR SERP is amended to add a new Section 3.3 to read as follows:
"3.3. FREEZE OF BENEFIT ACCRUALS EFFECTIVE JANUARY 1, 2001. Notwithstanding Section 3.1(a) of the Plan or anything in any individual participation agreement between the Company and a Participant to the contrary, and except as set forth below, no additional benefits shall accrue and no employees shall become eligible to participate in the Plan after December 31, 2000. No years of service shall be credited to any Participant in the Plan after December 31, 2000 for purposes of determining any Participant's benefit. Any Participant who, according to his or her individual participation agreement is not fully vested in a benefit under the Plan as of December 31, 2000 shall continue to accrue service for vesting purposes only until such Participant is fully vested; however, any vesting service credited to a Participant on or after January 1, 2001 will not increase the Accrued Benefit or the accrued portion of any Participant's age 60 benefit. The Accrued Benefit of any Participant will not be less than the accrued portion of such Participant's age 60 benefit as of December 31, 2000."
2. A new Section 8.3 shall be added to the SENIOR SERP effective as of January 1, 2001 to read as follows:
"8.2. NO TERMINATION UPON FREEZE OF BENEFIT. Any amendment to the Plan which reduces or terminates future accruals of any Participant or which has the effect of causing no new employees to become eligible to participate in the Plan shall not be deemed to be a termination of the Plan or cause any Participant to be entitled to an immediate distribution under the terms of his or her individual participation agreement."
IN WITNESS WHEREOF, by authority of the Board of Directors, this amendment is approved and adopted by the undersigned officer, and except as hereby amended the SENIOR SERP is hereby ratified and affirmed, this __________________ day of ____, 2000.
SERVICE CORPORATION INTERNATIONAL
EXHIBIT 10.31
FIRST AMENDMENT
TO THE
SCI 401(K) RETIREMENT SAVINGS PLAN
AMENDMENT by Service Corporation International, a corporation organized and existing under the laws of the State of Texas, (hereinafter referred to as Company).
WITNESSETH:
WHEREAS, the Company previously adopted and maintains the SCI 401(k) Retirement Savings Plan (the Plan); and
WHEREAS, pursuant to Article XVIII of the Plan, the Company may amend the Plan at any time; and
WHEREAS, the Company desires to amend the Plan in certain respects,
NOW, THEREFORE, BE IT RESOLVED, that effective as of July 1, 2000 except where otherwise provided, the Plan is hereby amended as follows:
1. Section C(2) of the Adoption Agreement is amended as follows:
"(2) There will be a short Plan Year for the period beginning July 1, 2000 and ending December 30, 2000. From and after December 31, 2000, Plan Year shall mean the twelve consecutive month period beginning on each December 31 and ending on the next December 30."
2. Section (D)(1) of the Adoption Agreement to the Plan shall be amended to delete the "x" in Section (D)(1)(a) and amend Section (D)(1)(c) to read as follows:
"(c) [x] All employees who are not covered by a collective bargaining agreement or who are covered by a collective bargaining agreement which provides for participation in the Plan. An employee will not be considered to be covered by a collective bargaining agreement for purposes of eligibility to participate unless retirement benefits were the subject of good faith bargaining between the employer and the employees' representatives.
3. Effective as of January 1, 2001, Section (I) of the Adoption Agreement
to the Plan shall be amended to eliminate the election of a
discretionary percentage matching contribution in (2)(b) and electing
instead a discretionary graduated matching contribution and amending
Section (2)(c) of the Adoption Agreement to read as follows:
"COMPANY MATCHING AND COMPANY QUALIFIED MATCHING CONTRIBUTIONS
(c) [x] DISCRETIONARY GRADUATED MATCH - An amount equal to a specified percentage of the Elective Deferrals, the total contribution not to exceed the lesser of $ NA or 6% of Compensation. The specified percentage will vary with the Years of Service credited to the Participant for vesting purposes as follows:
Years of Service Percentage Match
---------------- ----------------
0-5 75%
6-10 110%
11 or more 135%
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The above-stated Matching Contribution will apply effective as of January 1, 2001 and for each calendar year thereafter, unless and until such Company Matching Contribution shall be revoked or modified by action of the Executive Committee of the Company."
4. Part I of the Plan is amended to add a new subsection 1.50 as follows:
"1.50 APPLICABLE TAX YEAR means the Tax Year in which the Plan Year begins."
5. Part I of the Plan is amended to add a new subsection 1.51 as follows:
"1.51 TAX YEAR means the fiscal year of the Company which begins on January 1 and ends on December 31."
6. Part I of the Plan Document is amended to add a new subsection 1.52 as follows:
"1.52 SPECIFIED MINIMUM EMPLOYER CONTRIBUTION. An amount contributed by the Employer to the Trust pursuant to Section 4.16 of the Plan."
7. Section 3.2 of the Plan shall be amended to read as follows:
"3.2 ELIGIBILITY COMPUTATION PERIOD. Years of Service and Breaks in Service for purposes of determining eligibility to participate in the Plan shall be measured on the same eligibility computation period. The eligibility computation period is the 12-consecutive month period beginning on the date the Employee first performs an Hour of Service for the Company (employment commencement date) and each anniversary of such date thereafter."
8. Part IV of the Plan is amended by the addition of a new Section 4.16 as follows:
"4.16 SPECIFIED MINIMUM EMPLOYER CONTRIBUTIONS. Notwithstanding any provision of the Plan to the contrary, the following provisions shall govern the treatment of Specified Minimum Employer Contributions.
(a) Frequency and Eligibility. For each Plan Year beginning on and after December 31, 2000, the Employer shall make a discretionary Specified Minimum Employer Contribution on behalf of the group of Employees who are Employees and Plan Participants from the first day through the last day of the Applicable Tax Year (First Day Participants). For purposes of the Applicable Tax Year beginning January 1, 2000 and ending December 31, 2000, First Day Participants shall be the group of Employees who are Employees from the first day through the last day of the Applicable Tax Year and Plan Participants from July 1, 2000 through
the last day of the Applicable Tax Year. The Specified Minimum Employer Contribution will be based on Compensation earned by the First Day Participants in the Applicable Tax Year. The Specified Minimum Employer Contribution for each Plan Year shall be in an amount determined by the Board of Directors by appropriate resolution on or before the last day of the Applicable Tax Year.
(b) Allocation Method. Each First Day Participant's share of the Specified Minimum Employer Contribution for each Plan Year shall be determined as follows:
(1) The Specified Minimum Employer Contribution shall be
allocated during the Plan Year as Elective Deferral
Contributions described in Section 1.20 of the Plan
and Company Matching Contributions described in
Section 1.10 of the Plan, to the Account of each
First Day Participant pursuant to Part IV of the Plan
and Sections G and I of the Adoption Agreement. Such
Matching Contributions shall be made without regard
to any last-day requirement, or any other Year of
Service or hour-of-service requirement.
(2) Second, if any of the Specified Minimum Employer Contribution remains after the allocation in Section 4.16(b)(1) above, the remainder shall, to the extent allowable under section 415 of the Internal Revenue Code, be allocated as an additional Company Matching Contribution on the last day of the Plan Year to each First Day Participant's Company Matching Contribution Account, as defined in Section 8.1, in the ratio that such First Day Participant's Elective Deferral Contributions during the Plan Year bear to the Elective Deferral Contributions of all First Day Participants during the Plan Year.
The Specified Minimum Employer Contributions allocated as an additional Company Matching Contribution shall be treated in the same manner as Company Matching Contributions for all purposes of the Plan.
(3) Third, any balance of the Specified Minimum Employer Contribution remaining unallocated after the allocation in section 4.16(b)(2) above, shall be allocated as a Company Profit Sharing Contribution to each First Day Participant's Company Profit Sharing Contribution Account, as defined in Section 8.1, in the ratio that the First Day Participant's Compensation during the Plan Year bears to the total Compensation of all First Day Participants during the Plan Year.
(4) Fourth, any balance of the Specified Minimum Employer Contribution remaining unallocated after the allocation in section 4.16(b)(3), above, shall be allocated as a Company Profit Sharing Contribution to the Company Profit Sharing
Contribution Account, as defined in Section 8.1, of each employee who was a Participant in the Plan on the first day of the Plan Year, in the ratio that such Participant's Compensation during the Plan Year bears to the total Compensation of all such Participants during the Plan Year.
(5) The Administrator shall reduce the proportionate allocation under Section 4.16(b)(2), (3), and (4) above, to Participants who are Highly Compensated Employees to the extent necessary to comply with the provisions of section 401(a)(4) of the Internal Revenue Code and the regulations thereunder. Any such amount will be allocated and reallocated to the remaining Participants to the extent allowed under section 415 of the Internal Revenue Code.
Notwithstanding any other provision of the Plan to the contrary, any allocation of Elective Deferral Contributions to a First Day Participant's Elective Deferral Account shall be made under Section G of the Adoption Agreement or this section, as appropriate, but not both sections. Similarly, any allocation of Company Matching Contributions to a First Day Participant's Company Matching Account shall be made under either Section I of the Adoption Agreement or this section, as appropriate, but not both sections.
(c) Timing, Medium and Posting. The Employer shall make the Specified Minimum Employer Contribution in cash or in Company Stock, in one or more installments without interest, at any time during the Plan Year, and for purposes of deducting such Contribution, not later than the Employer's federal tax filing date, including extensions, for its Tax Year that ends within such Plan Year. The Trustee shall post such amount to each First Day Participant's Elective Deferral Account, Company Matching Account, or Company Profit Sharing Contribution Account once the allocations under (1) through (5), above, are determined.
The Specified Minimum Employer Contribution shall be held in a suspense account until posted. Such suspense account shall not participate in the allocation of investment gains, losses, income and deductions of the trust as a whole, but shall be invested separately. All gains, losses, income and deductions attributable to such suspense account shall be applied to reduce Plan fees and expenses. In no event will amounts remain in the suspense account after the end of the Plan Year.
(d) Deduction Limitation. In no event shall the Specified Minimum Employer Contribution, when aggregated with other Employer and Participant contributions for the Employer's Tax Year that ends within such Plan Year, exceed the amount deductible by the Employer for federal income tax purposes for such Tax Year."
9. The first paragraph of Section 9.3 of the Plan shall be amended by substituting the words "calendar year" in each place that the words "Plan Year" appear.
10. The first sentence of Addendum B of the Plan shall be amended to read as follows:
11. "The following additional provisions concerning qualifying Employer securities are included as an addendum to Part VI of the SCI 401(k) Retirement Savings Plan (the "Plan")."
12. Section 6.4 of Addendum B of the Plan shall be redesignated as Section 6.6 and the remaining sections of Addendum B shall be redesignated accordingly.
13. Addendum B of the Plan shall be amended to add a new Section 6.7 to read as follows:
"6.7 COMPANY CONTRIBUTIONS MADE IN COMPANY STOCK.
All Company Matching Contributions and other contributions made by the Company other than Elective Deferrals shall be made in Company Stock unless the Company, by action of its Board of Directors, shall specify that such contributions shall be made in cash. Prior to making any such contribution, the Company shall specify the amount to be contributed in a notice to the Applicable Fiduciary. The Applicable Fiduciary shall determine the price assigned to and the number of shares necessary to satisfy the amount of such contribution (based on the closing price of such shares on a national securities exchange as of the day immediately prior to such determination and such other factors as the Applicable Fiduciary may in its discretion deem appropriate) and shall provide notice to the Company on the date of such determination of the number of shares required to be contributed. The Company shall contribute such shares through original issuance of shares, purchase from the Company's treasury, purchase through national securities exchange, or pursuant to other arrangements mutually agreed upon by the Company and the Applicable Fiduciary. Shares of Company Stock contributed by the Company shall be held in the Company Stock Fund and shall be subject to all relevant provisions of the Plan and this Addendum B."
13. Except as amended herein, the Plan is hereby ratified and affirmed in all respects.
IN WITNESS WHEREOF, this Amendment is adopted this _______ day of __________________, 2000.
SERVICE CORPORATION INTERNATIONAL
Attest:
EXHIBIT 12.1
SERVICE CORPORATION INTERNATIONAL
RATIO OF EARNINGS TO FIXED CHARGES
Twelve Months Ended December 31,
2000 1999
------------ ------------
(Thousands, except ratio amounts)
Pretax income from continuing operations ....................................... $ (516,978) $ (66,693)
Undistributed income of less than 50% owned equity investees ................... (2,510) 267
Minority interest in income of majority owned subsidiaries with fixed
charges ........................................................................ 408 (1,490)
Add fixed charges as adjusted (from below) ..................................... 319,637 276,419
------------ ------------
$ (199,443) $ 208,503
------------ ------------
Fixed charges:
Interest expense:
Corporate ................................................................. $ 275,157 $ 236,241
Financial services ........................................................ 8,833 11,805
Capitalized ............................................................... 1 1,430
Amortization of debt cost ...................................................... 6,392 1,954
1/3 of rental expense .......................................................... 29,255 26,419
------------ ------------
Fixed charges .................................................................. 319,638 277,849
Less: Capitalized interest .................................................... (1) (1,430)
------------ ------------
Fixed charges as adjusted ...................................................... $ 319,637 $ 276,419
============ ============
Ratio (earnings divided by fixed charges)* ..................................... (0.62) 0.75
============ ============
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* For purposes of computing the ratio of earnings to fixed charges, earnings consist of income from continuing operations before income taxes, extraordinary gains, and cumulative effect of accounting change; less undistributed income of equity investees which are less than 50% owned; plus the minority interest of majority owned subsidiaries with fixed charges, and fixed charges (excluding capital interest). Fixed charges consist of interest expense, whether capitalized or expensed, amortization of debt costs 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 in 2000 compared to 1999 is attributable to restructuring and nonrecurring charges recorded (see note seventeen to the consolidated financial statements in Item 8 of this Form 10-K) and increased interest expense related to the Company not being able to access commercial paper markets. Without the above mentioned restructuring and nonrecurring charges, the ratio of earnings to fixed charges would have been 0.82 and 2.16 for the years ended December 31, 2000 and 1999.
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
March 1, 2001
Ownership
ALABAMA
Equity Corporation International (DE Corp.) Alabama subsidiaries
ECI Services, Inc. (DE Corp.) Alabama subsidiaries
ECI Alabama Services, Inc. .......................................... 100%
SCI Funeral Services, Inc. (Iowa Corp) Alabama subsidiaries
SCI Alabama Funeral Services, Inc. ....................................... 100%
EC Land Company, Inc. ............................................... 100%
ALASKA
SCI Funeral Services, Inc. (Iowa Corp.) Alaska subsidiaries
SCI Alaska Funeral Services, Inc. ........................................ 100%
ARIZONA
Equity Corporation International (DE Corp.) Arizona subsidiaries
ECI Services, Inc. (DE Corp.) Arizona subsidiaries
ECI Services of Arizona, Inc. (DE Corp.) Arizona subsidiaries
Parker Funeral Home, Inc. .................................. 100%
SCI Funeral Services, Inc. (Iowa Corp.) Arizona subsidiaries
National Cremation Society, Inc. ......................................... 100%
SCI Arizona Funeral Services, Inc. ....................................... 100%
ARKANSAS
SCI Funeral Services, Inc. (Iowa Corp) Arkansas subsidiaries
SCI Arkansas Funeral Services, Inc. ...................................... 100%
CALIFORNIA
SCI Funeral Services, Inc. (Iowa Corp.) California subsidiaries
SCI California Funeral Services, Inc. .................................... 100%
CWFD, Inc. .......................................................... 100%
Ellis-Olson Mortuary ................................................ 100%
Eric H. Ramsey Enterprises, Inc. .................................... 100%
Lakeside Memorial Lawn .............................................. 100%
Mount Vernon Memorial Park .......................................... 100%
Oak Hill Improvement Company ........................................ 100%
Pierce Brothers ..................................................... 100%
World Funeral Home .................................................. 100%
COLORADO
SCI Funeral Services, Inc. (Iowa Corp.) Colorado subsidiaries
SCI Colorado Funeral Services, Inc. ...................................... 100%
CONNECTICUT
SCI Funeral Services, Inc. (Iowa Corp.) Connecticut subsidiaries
SCI Connecticut Funeral Services, Inc. ................................... 100%
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DELAWARE
BestHalf.com, Inc. .................................................................. 80%
Christian Funeral Services, Inc. .................................................... 100%
Equity Corporation International .................................................... 100%
ECI Capital Corporation ....................................................... 100%
ECI Services, Inc. ............................................................ 100%
ECI Alabama Services, Inc. (AL Corp.) Delaware subsidiaries
ECI-Chapel Hill, Inc. ............................................... 100%
ECI Cemetery Management Services, Inc. ................................... 100%
ECI Cemetery Services of Maryland, Inc. .................................. 100%
ECI Cemetery Services of Oregon, Inc. .................................... 100%
ECI Management Services, Inc. ............................................ 100%
ECI-San Jose, Inc. ....................................................... 100%
San Jose Funeral Home I (DE Partnership) ............................ 50%
ECI Services of Arizona, Inc. ............................................ 100%
ECI Services of Arkansas, Inc. ........................................... 100%
ECI Services of California, Inc. ......................................... 100%
ECI Services of Connecticut, Inc. ........................................ 100%
ECI Services of Florida, Inc. ............................................ 100%
ECI Services of Georgia, Inc. ............................................ 100%
ECI Services of Illinois, Inc. ........................................... 100%
ECI Services of Indiana, Inc. ............................................ 100%
ECI Services of Iowa, Inc. ............................................... 100%
ECI Services of Louisiana, Inc. .......................................... 100%
ECI Services of Maine, Inc. .............................................. 100%
ECI Services of Massachusetts, Inc. ...................................... 100%
ECI-Carr Funeral Home, Inc. ......................................... 49%
ECI-Fay McCabe Funeral Home, Inc. ................................... 49%
ECI-Henderson Funeral Home, Inc. .................................... 49%
ECI-Rapino Memorial Home, Inc. ...................................... 49%
ECI Services of Minnesota, Inc. .......................................... 100%
ECI Services of Mississippi, Inc. ........................................ 100%
ECI Services of Missouri, Inc. ........................................... 100%
ECI Services of New Hampshire, Inc. ...................................... 100%
ECI Services of New Jersey, Inc. ......................................... 100%
ECI Services of New Mexico, Inc. ......................................... 100%
ECI Services of New York, Inc. ........................................... 100%
ECI Services of North Carolina, Inc. ..................................... 100%
ECI Services of North Dakota, Inc. ....................................... 100%
ECI Services of Ohio, Inc. ............................................... 100%
ECI Services of Oklahoma, Inc. ........................................... 100%
ECI Services of Pennsylvania, Inc. ....................................... 100%
ECI Services of South Carolina, Inc. ..................................... 100%
ECI Services of South Dakota, Inc. ....................................... 100%
ECI Services of Texas,Inc ................................................ 100%
ECI Services of Vermont, Inc. ............................................ 100%
ECI Services of Virginia, Inc. ........................................... 100%
ECI Services of West Virginia, Inc. ...................................... 100%
ECI Services of Wisconsin, Inc. .......................................... 100%
Lake View Management Company, Inc. ....................................... 100%
Salvatore Air Transportation Corp. .................................................. 100%
SCI Aviation, Inc. .................................................................. 100%
SCI Executive Services, Inc. ........................................................ 100%
SCI Finance Management Inc. ......................................................... 100%
SCI Financial Services, Inc. ........................................................ 100%
Making Everlasting Memories, L.L.C ............................................ 80%
Purple Cross Insurance Agency ................................................. 100%
SCI Investment Services, Inc. ................................................. 100%
SCI Funeral Services, Inc. (Iowa Corp.) Delaware subsidiaries
First Memorial Funeral Services, Inc. ......................................... 100%
Gibraltar Mausoleum Construction Company, Inc. ................................ 100%
IFC-Boyertown, Inc. ........................................................... 100%
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Memorial Guardian Plans, Inc. ................................................. 100%
SCI Funeral Services, Inc. .................................................... 100%
SCI Georgia Funeral Services, Inc. ............................................ 100%
SCI Missouri Funeral Services, Inc. (MO Corp.)Delaware subsidiaries
IFC-York, Inc. ........................................................... 100%
SCI Ohio Funeral Services, Inc. (OH Corp.)Delaware subsidiaries
Rose Hill Securities Company ............................................. 100%
SCI Iowa Funeral Services, Inc. (IA Corp.) Delaware subsidiaries
SCI Iowa Finance Company ................................................. 100%
SCI Pennsylvania Funeral Services, Inc. (PA Corp.) Delaware subsidiaries
Gabauer Funeral Home, Inc. ............................................... 100%
SCI Texas Funeral Services, Inc. .............................................. 100%
Texas Marker, L.P. ....................................................... 1%
Professional Funeral Traditions, LLC ..................................... 100%
Texas Marker, L.P. .................................................. 99%
SCI Virginia Funeral Services, Inc. (VA Corp.) Delaware subsidiaries
SCI Loan Services, LLC ................................................... 100%
PSI Funding, Inc. ................................................... 100%
SCI International Limited ........................................................... 100%
Galahad Investment Corporation ................................................ 20%
Kenyon International Emergency Services, Inc. ................................. 100%
SCI Capital Holdings, Inc. .................................................... 70%
SCI Financing Corporation ..................................................... 100%
SCI GP1, LLC-(DE limited liability company) ................................... 100%
SCI GP2, LLC-(DE limited liability company) ................................... 100%
TRA Acquisition Corporation ................................................... 100%
Nowell-Flippin Funeral Home (MS Partnership) .................................. 27.5%
Service Corporation International PLC (English Corp.) .................... 49%
SCI Special, Inc. ................................................................... 100%
Remembrance Memorial Traditions, LLC .......................................... 100%
SCI Management L.P. ...................................................... 99%
SCI Administrative Services, LLC .............................................. 100%
SCI Management L.P. ...................................................... 1%
International Funeral Services, Inc. ................................ 100%
SCI European Aviation, Inc. ......................................... 100%
Dignity Provider Network, Inc. ...................................... 100%
SCI Capital Corporation ....................................................... 100%
Investment Capital Corporation (Texas Corp.) Delaware subsidiaries
IFC-YP, Inc. ........................................................ 100%
DISTRICT OF COLUMBIA
SCI Funeral Services, Inc. (Iowa Corp.) DC subsidiaries
Witzke Funeral Homes, Inc. .................................................... 100%
FLORIDA
Equity Corporation International (DE Corp.) Florida subsidiaries
ECI Services, Inc. (DE Corp.) Florida subsidiaries
ECI Services of Florida, Inc. (DE Corp.) Florida subsidiaries
San Jose Funeral Homes, Inc. ........................................ 100%
SCI Funeral Services, Inc. (Iowa Corp) Florida subsidiaries
SCI Funeral Services of Florida, Inc. ......................................... 100%
Dorsey Funeral Home, Inc. ................................................ 100%
Florida Marker, LLC ...................................................... 100%
FM Cemetery, Inc. ........................................................ 100%
Fountainhead Memorial Park, Inc. ......................................... 100%
Lakeview Memorial Gardens, Inc. .......................................... 100%
Memorial Plans, Inc. ..................................................... 100%
SCI Georgia Funeral Services, Inc. (DE Corp.) Florida subsidiaries
Marianna Chapel Funeral Home, Inc. ....................................... 100%
|
GEORGIA
Equity Corporation International (DE Corp.) Georgia subsidiaries
ECI Services, Inc. (DE Corp.) Georgia subsidiaries
ECI Cemetery Services of Georgia, Inc. ................................... 100%
ECI Cemetery Services of North Carolina, Inc. ............................ 100%
ECI Cemetery Services of South Carolina, Inc. ............................ 100%
SCI Funeral Services, Inc. (Iowa corp.) Georgia subsidiaries
SCI Georgia Funeral Services, Inc. (Delaware Corp.) Georgia subsidiaries
SCI Georgia Land, Inc. ................................................... 100%
HAWAII
SCI Funeral Services, Inc. (Iowa Corp.) Hawaii subsidiaries
SCI Hawaii Funeral Services,Inc ............................................... 100%
*Hawaiian Memorial Park Cemetery ......................................... -0-
Garden Life Plan, Ltd. .............................................. 50%
Hawaiian Memorial Life Plan, Ltd. ................................... 100%
IDAHO
NO SUBSIDIARIES
ILLINOIS
Equity Corporation International (DE Corp.) Illinois subsidiaries
ECI Services, Inc. (DE Corp.) Illinois subsidiaries
Lake View Memorial Gardens, Inc. ......................................... 100%
Lake View Funeral Home, Inc. ........................................ 100%
SCI Funeral Services, Inc. (Iowa Corp.) Illinois subsidiaries
SCI Illinois Services, Inc. ................................................... 100%
Kolbus Funeral Home, Inc. ................................................ 100%
INDIANA
SCI Funeral Services, Inc. (Iowa Corp.) Indiana subsidiaries
SCI Indiana Funeral Services, Inc. ............................................ 100%
Gold Crusader Insurance Agency, Inc. ..................................... 100%
Roselawn Memorial Association, Inc. ...................................... 100%
IOWA
Equity Corporation International (DE Corp.) Iowa subsidiaries
ECI Services, Inc. (DE Corp.) Iowa subsidiaries
ECI Services of Iowa, Inc. (DE Corp.) Iowa subsidiaries
Willim Funeral Homes, Ltd. .......................................... 100%
SCI Funeral Services, Inc. .......................................................... 100%
Bunker's Eden Vale, Inc. ...................................................... 100%
SCI Iowa Funeral Services, Inc. ............................................... 100%
KANSAS
SCI Funeral Services, Inc. (Iowa Corp.) Kansas subsidiaries
SCI Kansas Funeral Services, Inc. ............................................. 100%
KENTUCKY
SCI Funeral Services, Inc. (Iowa Corp) Kentucky subsidiaries
SCI Kentucky Funeral Services, Inc. ........................................... 99%
LOUISIANA
SCI Funeral Services, Inc. (Iowa Corp) Louisiana subsidiaries
SCI Louisiana Funeral Services, Inc. .......................................... 100%
|
MAINE
SCI Funeral Services, Inc. (Iowa Corp) Maine subsidiaries
SCI Maine Funeral Services,Inc. .......................................... 100%
MARYLAND
SCI Funeral Services, Inc. (Iowa Corp.) Maryland subsidiaries
HFH, Inc. ................................................................ 100%
Burgee-Henss-Seitz Funeral Home, Inc. ............................... 100%
Bradley-Ashton-Matthews Funeral Home, Inc. .......................... 100%
Charles S. Zeiler & Son, Inc. ....................................... 100%
Danzansky-Goldberg Memorial Chapels, Inc. ........................... 100%
Edward Sagel Funeral Direction, Inc. ................................ 100%
Fleck Funeral Home, Inc. ............................................ 100%
Gary L. Kaufman Funeral Home at
Meadowridge Memorial Park, Inc. ................................ 100%
Gary L. Kaufman Funeral Home Southwest, Inc. ........................ 100%
John C. Miller, Incorporated ........................................ 100%
Lemmon Funeral Home of Dulaney Valley, Inc. ......................... 100%
Loring Byers Funeral Directors, Inc. ................................ 100%
Moran-Ashton Funeral Home, Inc. ..................................... 100%
Sterling-Ashton-Schwab Funeral Home, Inc. ........................... 100%
The Dippel Funeral Homes, Incorporated .............................. 100%
Witzke Funeral Home of Catonsville, Inc. ............................ 100%
Witzke, Inc. ................................................... 55.17%
SCI Maryland Funeral Services, Inc. ...................................... 100%
George Washington Cemetery Company, Inc. ............................ 100%
MASSACHUSETTS
SCI Funeral Services, Inc. (Iowa Corp.) Massachusetts subsidiaries
Affiliated Family Funeral Service, Inc. .................................. 100%
AFFS Boston, Inc. ................................................... 40%
AFFS North, Inc. .................................................... 30%
AFFS Norwood, Inc. .................................................. 40%
AFFS Quincy, Inc. ................................................... 40%
AFFS South Coast East, Inc. ......................................... 40%
AFFS South Coast West, Inc. ......................................... 10%
AFFS West, Inc. ..................................................... 30%
Brunelle Funeral Home, Inc. . ................................... 40%
Langone Funeral Home, Inc. .......................................... 40%
Messier Funeral Home, Inc. .......................................... 40%
Perlman Funeral Home, Inc. .......................................... 40%
Pillsbury Funeral Homes, Inc. ....................................... 40%
Stanetsky Memorial Chapels, Inc. .................................... 40%
Sullivan Funeral Homes, Inc. ........................................ 40%
MICHIGAN
SCI Funeral Services, Inc. (Iowa Corp) Michigan subsidiaries
SCI Michigan Funeral Services, Inc. ...................................... 100%
A. J. Desmond & Sons Funeral Directors, Inc. ........................ 42%
Cemetery/Funeral Warehouse Services, Inc. ........................... 100%
Christian Memorial Funeral Center, Inc. ............................. 100%
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MINNESOTA
Equity Corporation International (DE Corp.) Minnesota subsidiaries
ECI Services, Inc. (DE Corp.) Minnesota subsidiaries
ECI Services of Minnesota, Inc. (DE Corp.) Minnesota subsidiaries
Bonnerup & Son Funeral Chapel, Inc. ................................. 100%
SCI Funeral Services, Inc. (Iowa Corp.) Minnesota subsidiaries
SCI Minnesota Funeral Services, Inc. .......................................... 100%
Crystal Lake Cemetery Association ........................................ 100%
MISSISSIPPI
Equity Corporation International (DE Corp.) Mississippi subsidiaries
ECI Services, Inc. (DE Corp.) Mississippi subsidiaries
ECI Services of Mississippi, Inc. (DE Corp.) Mississippi subsidiaries
Nowell Funeral Homes, Inc. .......................................... 100%
Nowell-Flippin Funeral Home
(MS Partnership) ................................................ 7.83%
Nowell Funeral Services, Inc. of Kosciusko,
Mississippi ......................................................... 100%
Nowell-Flippin Funeral Home
(MS Partnership) ................................................ 15.67%
Waters Funeral Home, Inc. ........................................... 100%
SCI Funeral Services, Inc. (Iowa Corp.) Mississippi subsidiaries
SCI Mississippi Funeral Services, Inc. ........................................ 100%
MISSOURI
SCI Funeral Services, Inc. (Iowa Corp) Missouri subsidiaries
SCI Missouri Funeral Services, Inc. ........................................... 100%
Memorial Guardian Plans, Inc. ............................................ 100%
MONTANA
NO SUBSIDIARIES
NEBRASKA
Equity Corporation International (DE Corp.) Nebraska subsidiaries
ECI Services, Inc. (DE Corp.) Nebraska subsidiaries
ECI Services of Nebraska, Inc. ........................................... 100%
SCI Funeral Services, Inc. (Iowa Corp) Nebraska subsidiaries
SCI Nebraska Funeral Services, Inc. ........................................... 100%
NEVADA
SCI Funeral Services, Inc. (Iowa Corp) Nevada subsidiaries
Ross, Burke & Knobel Mortuary ................................................. 100%
SCI Texas Funeral Services, Inc. (DE Corp) Nevada subsidiaries
SCI Texas Finance Company ................................................ 100%
NEW HAMPSHIRE
Equity Corporation International (DE Corp.) New Hampshire subsidiaries
ECI Services, Inc. (DE Corp.) New Hampshire subsidiaries
ECI Services of New Hampshire, Inc. (DE Corp.) NH subsidiaries
Fleury & Patry Funeral Homes, Inc. .................................. 100%
NEW JERSEY
SCI Funeral Services, Inc. (Iowa Corp) New Jersey subsidiaries
SCI New Jersey Funeral Services, Inc. ......................................... 100%
Garden State Crematory, Inc. ............................................. 100%
Wien & Wien, Inc. ........................................................ 100%
NEW MEXICO
SCI Funeral Services, Inc. (Iowa Corp) New Mexico subsidiaries
Memorial Guardian Plans, Inc. (DE Corp) New Mexico subsidiaries
Ensure Agency of New Mexico, Inc. ........................................ 100%
SCI New Mexico Funeral Services, Inc. ......................................... 100%
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NEW YORK
SCI Funeral Services, Inc. (Iowa Corp) New York subsidiaries
SCI Funeral Services of New York, Inc. ........................................ 100%
Chas. Peter Nagel Inc. ................................................... 100%
I. J. Morris, Inc. ....................................................... 100%
Marsellus Casket Company, Inc. ........................................... 100%
New York Funeral Chapels, Inc. ........................................... 100%
New York Marker, LLC ..................................................... 100%
Thomas M. Quinn & Sons, Inc. ............................................. 100%
Werst Realty Co. Inc. ............................................... 100%
SCI Services of New York, Inc. ................................................ 100%
NORTH CAROLINA
SCI Funeral Services, Inc. (Iowa Corp) North Carolina subsidiaries
SCI North Carolina Funeral Services, Inc. ..................................... 100%
NORTH DAKOTA
NO SUBSIDIARIES
OHIO
Equity Corporation International (DE Corp.) Ohio subsidiaries
ECI Services, Inc. (DE Corp.) Ohio subsidiaries
ECI Cemetery Services of Ohio, Inc. (DE Corp.) Ohio subsidiaries
Green Hills Management, Inc. ........................................ 100%
SCI Funeral Services, Inc. (Iowa Corp.) Ohio subsidiaries
Memorial Guardian Plans, Inc. (Delaware Corp.) Ohio subsidiaries
Ensure Agency of Ohio, Inc. .............................................. 100%
SCI Ohio Funeral Services, Inc. ............................................... 100%
Sunset Trust Estate ...................................................... 100%
The Knollwood Cemetery Company ........................................... 100%
OKLAHOMA
Equity Corporation International (DE Corp.) Oklahoma subsidiaries
ECI Services, Inc. (DE Corp.) Oklahoma subsidiaries
ECI Services of Oklahoma, Inc. (DE Corp.) Oklahoma subsidiaries
Anadarko Enterprises, Inc. .......................................... 100%
SCI Funeral Services, Inc. (Iowa Corp.) Oklahoma subsidiaries
AED, Inc. ..................................................................... 100%
Memorial Gardens Association ............................................. 100%
RMG Trust ................................................................ 100%
Resthaven Memory Gardens of Oklahoma City Trust ..................... 100%
Rose Hill Burial Park, a Trust ........................................... 90%
SCI Oklahoma Funeral Services, Inc. ........................................... 100%
Hillcrest Memorial Park Trust ............................................ 100%
Memorial Park Cemetery of Bartlesville, Oklahoma,
A Business Trust .................................................... 100%
Memory Gardens, Inc. ..................................................... 100%
Rose Hill Memorial Park Trust ............................................ 100%
SSP Limited Liability Company ............................................ 50%
SSP Insurance Agency, Inc. .......................................... 100%
Sunset Memorial Park Cemetery Trust ...................................... 100%
Woodland Memorial Company ................................................ 100%
Sentinel Security Plans, Inc.(VA Corp.) Oklahoma Subsidiaries
SSP Limited Liability Company ............................................ 50%
SCI Special, Inc. (DE Corp.) Oklahoma subsidiaries
SCI Capital Corporation (DE Corp.) Oklahoma subsidiaries
Investment Capital Corporation (Texas Corp.) Oklahoma subsidiaries
IFC-YP, Inc. (Delaware Corp) Oklahoma subsidiaries
IFC-Amedco, Inc. ............................................... 100%
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OREGON
SCI Funeral Services, Inc. (Iowa Corp) Oregon subsidiaries
SCI Oregon Funeral Services, Inc. ............................................. 100%
Uniservice Corporation ................................................... 100%
SCI Virginia Funeral Services, Inc. (VA Corp.) Oregon subsidiary
SCI Loan Services, LLC (DE limited liability co.) Oregon subsidiary
PSI Oregon, Inc. .................................................... 100%
PENNSYLVANIA
SCI Funeral Services, Inc. (Iowa Corp) Pennsylvania subsidiaries
Memorial Guardian Plans, Inc.( Delaware Corp) Pennsylvania
subsidiaries
Ensure Agency of Pennsylvania, Inc. ...................................... 100%
SCI Pennsylvania Funeral Services, Inc. ....................................... 100%
Auman Funeral Home, Inc. ................................................. 100%
Ed Melenyzer Co. ......................................................... 100%
Forest Lawn Gardens, Inc. ................................................ 50%
Funeral Corporation Pennsylvania ......................................... 100%
Laughlin Funeral Home, Ltd. ......................................... 100%
Luther M. Kniffen, Inc. ............................................. 100%
Rohland Funeral Home ................................................ 100%
Grandview Cemetery Association ........................................... 100%
Harold B. Mulligan Co., Inc. ............................................. 100%
Stephen R. Haky Funeral Home, Inc. ....................................... 100%
Theo. C. Auman, Inc. ..................................................... 100%
Auman's, Inc. ....................................................... 100%
Forest Hills Memorial Park, Inc. .................................... 100%
Francis F. Seidel, Inc. ............................................. 100%
Memorial Services Planning Corporation .............................. 100%
RHODE ISLAND
SCI Funeral Services, Inc. (Iowa corp.) Rhode Island subsidiaries
SCI Rhode Island Funeral Services, Inc. ....................................... 100%
Max Sugarman Funeral Home, Inc. .......................................... 100%
SOUTH CAROLINA
SCI Funeral Services, Inc. (Iowa corp.) South Carolina subsidiaries
SCI South Carolina Funeral Services, Inc. ..................................... 100%
Greenville Vault Co., Inc. ............................................... 100%
SOUTH DAKOTA
NO SUBSIDIARIES
TENNESSEE
Equity Corporation International (DE Corp.) Tennessee subsidiaries
ECI Services, Inc. (DE Corp.) Tennessee subsidiaries
ECI Cemetery Services of Tennessee, Inc. ................................. 100%
SCI Funeral Services, Inc. (Iowa Corp) Tennessee subsidiaries
SCI Tennessee Funeral Services, Inc. .......................................... 100%
Lily of the Valley, Inc. ................................................. 100%
Lynnhurst Cemetery, Inc. ................................................. 100%
Memorial Guardian Plans, Inc. ............................................ 100%
Memphis Memory Gardens, Inc. ............................................. 100%
Sherwood Memorial Gardens, Inc. .......................................... 100%
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TEXAS
Equity Corporation International (DE Corp.) Texas subsidiaries
ECI Services, Inc. (DE Corp.) Texas subsidiaries
Equity Corporation International of Texas ....................... 100%
JPH Properties, Inc. ............................................ 100%
Professional Funeral Associates, Inc. ........................... 100%
SCI Funeral Services, Inc. (Iowa Corp) Texas subsidiaries
SCI Texas Funeral Services, Inc. (DE Corp.) Texas subsidiaries
FHC Realty, Inc. ................................................ 100%
Grammier-Oberle Funeral Home, Inc. .............................. 100%
SCI Holdings of Texas, Inc. ..................................... 100%
Texas Marker, L.P. .............................................. 100%
SCI International Limited (Delaware Corp.)
Service Corporation International PLC (UK Corp.)
SCI Capital LLC-(TX limited liability company) .................. 100%
SCI Special, Inc. (Delaware Corp.)
SCI Capital Corporation (Delaware Corp.) Texas subsidiaries
Investment Capital Corporation .................................. 100%
UTAH
SCI Funeral Services, Inc. (Iowa Corp.) Utah subsidiaries
SCI Utah Funeral Services, Inc. ...................................... 100%
Wasatch Land and Improvement Company ............................ 100%
Wasatch Lawn Cemetery Association ............................... 100%
VERMONT
NO SUBSIDIARIES
VIRGINIA
Equity Corporation International (DE Corp.) Virginia subsidiaries
ECI Services, Inc. (DE Corp.) Virginia subsidiaries
ECI Cemetery Services of Virginia, Inc. ......................... 100%
SCI Funeral Services, Inc. (Iowa Corp.) Virginia subsidiaries
Memorial Guardian Plans, Inc. (Delaware Corp)
Sentinel Security Plans, Inc. ................................... 100%
SCI Virginia Funeral Services, Inc. .................................. 100%
WASHINGTON
SCI Funeral Services, Inc. (Iowa Corp.) Washington subsidiaries
SCI Washington Funeral Services, Inc. ................................ 100%
Ball & Dodd Funeral Home, Inc. .................................. 100%
WEST VIRGINIA
SCI Funeral Services, Inc. (Iowa Corp.) West Virginia subsidiaries
SCI West Virginia Funeral Services, Inc. ............................. 100%
Rosedale Cemetery Company ....................................... 100%
Rosedale Funeral Chapel, Inc. ................................... 100%
WISCONSIN
Equity Corporation International (DE Corp.) Wisconsin subsidiaries
ECI Services, Inc. (DE Corp.) Wisconsin subsidiaries
ECI Services of Wisconsin, Inc. (DE Corp.) Wisconsin subsidiaries
Steinhaus Funeral Home, Inc. .............................. 100%
SCI Funeral Services, Inc. (Iowa Corp.) Wisconsin subsidiaries
SCI Wisconsin Funeral Services, Inc. ................................. 100%
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ATK Corporation ................................................. 100%
WYOMING
SCI Funeral Services, Inc. (Iowa Corp.) Wyoming subsidiaries
Memorial Guardian Plans, Inc. ........................................ 100%
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CANADA
Equity Corporation International (DE Corp.) Canadian subsidiaries
ECI Capital Corporation (DE Corp.) Canadian subsidiaries
ECI Capital Corporation Limited-(Alberta) ........................... 100%
ECI Services of Canada Limited-(Saskatchewan) ....................... 100%
SCI International Limited (Delaware Corp.) Canada subsidiaries
Service Corporation International (Canada) Limited ........................ 100%
1252973 Ontario Inc.-(Ontario) ...................................... 100%
Westside Cemeteries Limited-(Ontario) .......................... 100%
Nowell-Flippin Funeral Home
(MS Partnership) ........................................... 49%
Can Ensure Group, Inc.-(Federal) .................................... 100%
Centre Funeraire Cote-des-Neiges Inc.-(Quebec) ...................... 49%
CFCDN Holdings Inc.-(Quebec) ........................................ 100%
Jerrett Funeral Chapels Corporation-(ON) ............................ 100%
Maison Funeraire Daniel Brunet Inc.-(Quebec) ........................ 100%
Service Corporation International Capital Funding Ltd.-(AL) ............... 100%
611102 Saskatchewan Ltd. .................................................. 100%
Arbor Memorial Services, Inc. ............................................. 49%
ARGENTINA
SCI International Limited (Delaware Corp.) Argentina subsidiaries
SCI Latin America Ltd. (Cayman Island Corp.) Argentina subsidiaries
***Jardine de Pilar SA ................................................. 100%
Betti SACI ..................................................... 100%
Casa Cordoba 1800 SA ........................................... 100%
Casa Lazro Costa SA ............................................ 100%
Lazaro Costa SA ................................................ 100%
MI-TO-DO SA .................................................... 100%
O'Higgins SA ................................................... 100%
Principal SA ................................................... 100%
SCI Argentina SA ............................................... 100%
TRA Acquisition Corp.(Delaware Corp.) Argentina subsidiaries
Jardin de Paz SA .................................................... 100%
Interparques SA ................................................ 33.33%
Parque del Campanario SA ............................................ 100%
Interparques SA ................................................ 33.33%
Parque Lujan S.A ............................................... 33.33%
Parque Lujan S.A .................................................... 33.33%
Solaz S.A ........................................................... 100%
Interparques SA ................................................ 33.33%
Parque Lujan S.A ............................................... 33.33%
|
***1 share of stock is owned by SCI Cayman II Ltd and 1 share of stock is owned by Service Corporation International
AUSTRALIA
SCI International Limited (Delaware Corp.) Australia subsidiaries
Service Corporation International Australia Pty., Ltd........... 100%
Australian Cremation Society Pty Limited.................... 100%
Beresfield Funerals Pty Limited............................. 100%
Cremations (Newcastle) Holdings Pty. Ltd.................... 100%
Kitleaf Pty Limited........................................ 100%
Labor Funerals Contribution Fund Pty Limited............... 100%
Mead & Purslowe Pty. Ltd................................... 100%
Mead & Purslowe Trading Trust.............................. 100%
Memorial Guardian Plan Pty Limited......................... 100%
Metro. Burial & Cremation Society Funeral Cont. Fund....... 100%
New South Wales Cremation Company Pty., Ltd................ 100%
Pine Grove Forest Lawn Funeral Benefit Co. Pty Limited..... 100%
Purslowe Custodians Pty. Ltd............................... 100%
|
J. Nesnah Pty. Ltd. ...................................................... 100%
Oakwood Funerals Pty. Ltd. ............................................... 100%
Novocastrian Funerals Unit Trust ......................................... 100%
Novocastrian Funerals Pty. Ltd. .......................................... 100%
Catholic Funerals Newcastle Pty. Ltd. .................................... 100%
Macquarie Funeral Service Pty. Ltd. ...................................... 100%
Macquarie Memorial Park Pty. Ltd. ........................................ 100%
BELGIUM
SCI International Limited (Delaware Corp.) Belgium subsidiaries
SCI Foreign Holdings Ltd. (Cayman Corp.) Belgium subsidiaries
SCI Europe ApS (Danish Corp.) Belgium subsidiaries
Camilla Belgium N.V ................................................ 100%
Diana Belgium N.V .................................................. 100%
Sophia Belgium N.V ................................................. 100%
SCI Continental Europe SA (French Corp.) Belgium subsidiaries
RLC (French Corp.) Belgium subsidiaries
OGF SA (French Corp.)Belgium subsidiaries
Dignity SA ............................................ 100%
B. & C. Nyutten B.V .............................. 100%
Timmerman ........................................ 100%
Uitvaartverzorging Joosen BVBA ................... 100%
Willy Vangrunderbeek N.V ......................... 100%
SCI S.A .......................................... 100%
PFR 1 S.A ........................................ 100%
PFR 2 S.A ........................................ 100%
BRAZIL
SCI International Limited (Delaware Corp.) Brazil subsidiary
Service Corporation International Brazil Limitada .............................. 100%
SCI Latin America Ltd. (Cayman Co.) ...................................... 100%
Service Corporation International Brazil Limitada .................. 100%
CAYMAN ISLANDS
SCI International Limited (Delaware Corp.) Cayman Island subsidiaries
SCI Foreign Holdings Ltd. ...................................................... 100%
SCI Latin America Ltd. ......................................................... 100%
SCI Cayman II Ltd. ....................................................... 100%
CHILE
SCI International Limited (Delaware Corp.) Chile subsidiaries
SCI Latin America Ltd. (Cayman Island Corp.) Chile subsidiaries
Service Corporation International Chile Limitada ......................... 100%
Administradora Los Parques SA ...................................... 57%
Inversiones Austral SA ............................................. 100%
Administradora Los Parques SA .................................. 43%
Los Parques SA ..................................................... 100%
Cinerario Ltda ................................................. 49%
Previsora SA ....................................................... 100%
DENMARK
SCI International Limited (Delaware Corp.) Danish subsidiaries
SCI Foreign Holdings Ltd. (Cayman Corp.) Danish subsidiaries
SCI Europe ApS ........................................................... 100%
FRANCE
Service Corporation International (Texas corp.) French subsidiary
Du Fonds Common de Creances SCI International Obliq ............................ 89.9%
SCI Management L.P. (Delaware limited partnership) French subsidiary
Du Fonds Common de Creances SCI International Obliq ............................ 10.1%
|
SCI International Limited (Delaware Corp.) French subsidiaries
SCI Foreign Holdings Ltd. (Cayman Corp.) French subsidiaries
SCI Europe ApS (Danish Corp.) French subsidiaries
SCI Continental Europe SA .......................................... 100%
RLC ............................................................. 99.99%
OGF SA ...................................................... 100%
Pompes Funebres-Marbrerie Allio Normandie .............. 100%
AS COLOMBE ............................................. 100%
S.A. Augival ........................................... 95.30%
LeCourtage D'Assurance Funeraire ....................... 100%
S.A Constructions Cedroni Freres ....................... 100%
CGPF ................................................... 99.78%
France Funeraire Service ............................... 99.88%
CRELOR ................................................. 100%
European Dev. & Innovation for Local
Communities ....................................... 100%
Menuiserie Ebenisterie De Gargas ....................... 97.60%
Compagnie Pradel .............................. 99.58%
SARL Pompes Funebres .......................... 100%
Groupement Funeraire du Pere
Lachaise .......................................... 62.19%
GIE DIGNITE ............................................ 100%
GIE GNEPF .............................................. 100%
GIE THANATO ............................................ 100%
GIMOSETH ............................................... 100%
Societe D'Exploitation Graugnard ....................... 100%
Pompes Funebres De La Garonne .......................... 99.99%
Ste Economic Mixte Amenagt Fonction
Entretlier Cema ................................... 100%
Societe Europeenne De Prevoyance et
D'Assistance ...................................... 99.20%
Societe Monegasque De Thanatologie ..................... 98.63%
Ste De Transports Thanatologiques
A. Walter ......................................... 57.61%
Sail Du Vieux Moulin ................................... 100%
GERMANY
SCI International Limited (Delaware Corp.) German subsidiaries
SCI D GmbH ..................................................................... 100%
Norddeutsche Bestattungsgesellschaft mbH ................................. 100%
Bestattungsinstitut Barbel Brand GmbH .................................... 100%
Breidenstein Bestattungen GmbH ........................................... 100%
Thomas Amm GmbH .......................................................... 100%
ITALY
SCI International Limited (Delaware Corp.) Italian subsidiaries
SCI Foreign Holdings Ltd. (Cayman Corp.) Italian subsidiaries
SCI Europe ApS (Danish Corp.) Italian subsidiaries
SCI Continental Europe SA (French Corp.) Italian subsidiaries
RLC (French Corp.) Italian subsidiaries
OGF SA (French Corp.) Italian subsidiaries
OFISA ............................................... 100%
Franceschini .................................... 100%
OFT ............................................. 98%
|
LUXEMBOURG
SCI International Limited (Delaware Corp.) Luxembourg subsidiary
SCI Luxembourg SARL ................................................... 93%
Galahad Investment Corporation (Delaware Corp.) Luxembourg subsidiary
SCI Luxembourg SARL ................................................... 7%
MALAYSIA
SCI International Limited (Delaware Corp.) Malaysian subsidiaries
Enlightened Transition Sdn Bhd ........................................ 100%
SCI Foreign Holdings Ltd. (Cayman Corp.) Malaysian subsidiaries
SCI Europe ApS (Danish Corp.) Malaysian subsidiaries
SCI Continental Europe SA (French Co.) Malaysian subsidiaries
RLC (French Corp.) Malaysian subsidiaries
OGF SA (French Corp.) Malaysian subsidiaries
Bahau Funeral Services SDN BHD .............. 33.33%
Bahau Memorial Park SDN BHD ................. 16.67%
Singapore Casket Company PLC (Singapore
Corp.) Malaysian subsidiaries
Bahau Funeral Services SDN BHD .............. 33.33%
Bahau Memorial Park SDN BHD ................. 16.67%
Bahau Funeral Services SDN BHD ......... 33.33%
NETHERLANDS
SCI International Limited (Delaware Corp.) Dutch subsidiaries
SCI Finance C.V ....................................................... 100%
SCI Foreign Holdings Ltd. (Cayman Corp.) Dutch subsidiaries
SCI Europe ApS (Danish Corp.) Dutch subsidiaries
SCI Nederland B.V ........................................... 100%
NORWAY
SCI International Limited (Delaware Corp.) Norway subsidiaries
SCI Foreign Holdings Ltd. (Cayman Corp.) Malaysian subsidiaries
SCI Europe ApS (Danish Corp.) Malaysian subsidiaries
SCI Norway .................................................. 100%
Ostlandski Monument Service AS ......................... 60%
PANAMA
SCI International Limited (Delaware Corp.) Panama subsidiaries
SCI Latin America Ltd. (Cayman Island Corp.) Panama subsidiaries
Los Parques International SA ..................................... 100%
PORTUGAL
SCI International Limited (Delaware Corp.) Portugal subsidiaries
SCI Portugal, S.A ..................................................... 100%
SINGAPORE
SCI International Limited (Delaware Corp.) Singapore subsidiaries
SCI Foreign Holdings Ltd. (Cayman Corp.) Singapore subsidiaries
SCI Europe ApS (Danish Corp.) Singapore subsidiaries
SCI Continental Europe SA (French Corp.) Sing. subsidiaries
RLC (French Corp.) Singapore subsidiaries
OGF SA (French Corp.) Singapore subsidiaries
Singapore Casket Company PLC ................. 67.57%
Casket Palace Company PLC ............... 100%
SPAIN
SCI International Limited (Delaware Corp.) Spain subsidiaries
Service Corporation International Spain ............................... 100%
Pompas Funebres Girona, S.L ...................................... 100%
Funeraria Poch, S.A ......................................... 100%
Servei Comarcal de Pompes Funebres, S.A ..................... 100%
|
Pompas Funebres La Nueva, S.L ................................................ 100%
Funeraria Gaditanas Asociadas SA ............................................. 49%
Funeraria La Fe Guadalajara, S.L ............................................. 100%
Ambulancias Herranz SA .................................................. 100%
Servicios Funerarios de Guadalajara, NSA,SA ........................ 90%
Pompas Funebres Mediterraneas, S.L ........................................... 100%
Servicios Funerarios Barcelona, S.A ..................................... 49%
Servicios Funerarios de Fucasa ............................................... 100%
Pompes Funebres de Zaragoza, S.A ............................................. 100%
Servicios Funerarios de Torrero SA ...................................... 45%
CIS Hispanic ................................................................. 100%
SWITZERLAND
SCI International Limited (Delaware Corp.) Swiss subsidiaries
SCI Foreign Holdings Ltd. (Cayman Corp.) Swiss subsidiaries
SCI Europe ApS (Danish Corp.) Swiss subsidiaries
SCI Continental Europe SA (French Corp.) Swiss subsidiaries
RLC (French Corp.) Swiss subsidiaries
OGF SA (French Corp.) Swiss subsidiaries
Omnium de Services et de Financement SA ....................... 99%
PFG Lausanne SA .......................................... 95%
Alea Prevoyance Funeraire
SA .................................................. 100%
Allegemeine Bestattungs AG .......................... 100%
Bestattungsdienst Hedy Linder-Walther AG ............ 100%
Bestattungsdienst Josef Mulhauser AG ................ 100%
Bestattungsinstitut Willy Gerber AG-Olten ........... 100%
Cerba SA....................100%
Pompes Funebres Amoos SA----100%
Pompes Funebres de St. Laurent SA ................... 100%
Pompes Funebres Gaillard Et Pittet SA ............... 100%
Pompes Funebres Gavillet SA ......................... 100%
Pompes Funebres Lemania SA .......................... 100%
Pompes Funebres Monney SA ........................... 100%
Pompes Funebres Perusset SA ......................... 100%
Pompes Funebres Voeffray SA ......................... 100%
Pompes Funebres Wasserfallen SA ..................... 100%
Utiger & Ryf Bestattungs AG-100%
UNITED KINGDOM
SCI International Limited (Delaware Corp.) United Kingdom subsidiaries
Service Corporation International ...................................................... 100%
Birkbeck Securities Limited ....................................................... 100%
Management Europe Gen Limited ................................................ 100%
SCI Funerals Limited ......................................................... 100%
SCI Pre-arrangements Limited ................................................. 100%
Advanced Planning Limited ............................................... 75%
Dignity Limited .............................................................. 100%
Pitcher and LeQuesne Limited ................................................. 100%
|
URUGUAY
SCI International Limited (Delaware Corp.) Uruguay subsidiaries
SCI Latin America Ltd. (Cayman Island Corp.) Uruguay subsidiaries
Los Parques International SA (Panama Corp.) Uruguay subsidiaries
Berkley SA ...................................................... 88.89%
Coral TreBol .................................................... 88.70%
Pidanol SA ...................................................... 91.17%
Rensolar SA ..................................................... 91.17%
Vigar SA ........................................................ 88.89%
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-65711), Form S-4 (No. 333-01857) and Form S-8 (Nos. 333-38310, 333-50084, 333-19863, 333-33101, 333-00177, 333-00179, 33-9790, 33-17982, 333-68683, 333-82475, 333-70983 and 33-50987) of Service Corporation International of our report dated March 29, 2001, relating to the financial statements and financial statement schedule which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Houston, Texas
March 29, 2001
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint Jeffrey E. Curtiss and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 2000 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 14th day of February, 2001.
/s/ R. L. Waltrip ----------------------------------- R. L. WALTRIP |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint James M. Shelger his true and lawful attorney and agent with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 2000 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 14th day of February, 2001.
/s/ Jeffrey E. Curtiss ----------------------------------- JEFFREY E. CURTISS |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint Jeffrey E. Curtiss and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 2000 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 14th day of February, 2001.
/s/ Anthony L. Coelho ----------------------------------- ANTHONY L. COELHO |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint Jeffrey E. Curtiss and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 2000 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 14th day of February, 2001.
/s/ Jack Finkelstein ----------------------------------- JACK FINKELSTEIN |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint Jeffrey E. Curtiss and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 2000 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 14th day of February, 2001.
/s/ A. J. Foyt, Jr. ----------------------------------- A. J. FOYT, JR. |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint Jeffrey E. Curtiss and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 2000 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 14th day of February, 2001.
/s/ James H. Greer ----------------------------------- JAMES H. GREER |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint Jeffrey E. Curtiss and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 2000 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 14th day of February, 2001.
/s/ B. D. Hunter ----------------------------------- B. D. HUNTER |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint Jeffrey E. Curtiss and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 2000 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 14th day of February, 2001.
/s/ Victor L. Lund ----------------------------------- VICTOR L. LUND |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint Jeffrey E. Curtiss and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 2000 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 14th day of February, 2001.
/s/ John W. Mecom, Jr. ----------------------------------- JOHN W. MECOM, JR. |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint Jeffrey E. Curtiss and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 2000 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 14th day of February, 2001.
/s/ Clifton H. Morris, Jr. ----------------------------------- CLIFTON H. MORRIS, JR. |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint Jeffrey E. Curtiss and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 2000 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 14th day of February, 2001.
/s/ E. H. Thornton, Jr. ----------------------------------- E. H. THORNTON, JR. |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint Jeffrey E. Curtiss and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 2000 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 14th day of February, 2001.
/s/ W. Blair Waltrip ----------------------------------- W. BLAIR WALTRIP |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director, or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint Jeffrey E. Curtiss and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 2000 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 14th day of February, 2001.
/s/ Edward E. Williams ----------------------------------- EDWARD E. WILLIAMS |
EXHIBIT 99.16
NO._____________
JACK D. ROTTMAN ) IN THE DISTRICT COURT OF
)
Plaintiff, )
)
vs. )
)
SERVICE CORPORATION INTERNATIONAL, ) ANGELINA COUNTY, TEXAS
ROBERT L. WALTRIP, )
L. WILLIAM HEILIGBRODT, )
GEORGE R. CHAMPAGNE, )
W. BLAIR WALTRIP, )
JAMES M. SHELGER, )
WESLEY T. MCRAE and )
PRICEWATERHOUSE COOPERS, L.L.P., )
)
Defendants. ) _____ JUDICIAL DISTRICT
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PLAINTIFF'S ORIGINAL PETITION
TO THE HONORABLE JUDGE OF SAID COURT:
Plaintiff Jack D. Rottman complains of defendants Service Corporation International, Robert L. Waltrip, L. William Heiligbrodt, George R. Champagne, W. Blair Waltrip, James M. Shelger, Welsey T. McRae and Pricewaterhouse Coopers, L.L.P. and for cause would show the following:
I.
NATURE OF ACTION
1. Plaintiff (Rottman), sues for fraud and misrepresentation under state statutory and common law. Rottman gave up shares and stock options in Equity Corporation International (Equity) and acquired the shares of Service Corporation International (SCI) in the stock-for-stock merger of Equity into SCI (the Merger) on January 19, 1999. To persuade Rottman to consent to the Merger and to transfer his ECI shares, SCI and the other defendants hid knowledge they had and were under a duty to disclose concerning SCI's poor financial performance in the quarter ending
December 31, 1998. In so doing, defendants misrepresented and concealed material information that, had it been disclosed, would have resulted in termination of the transaction.
II.
JURISDICTION AND VENUE
2. The claims asserted herein arise under the Texas Securities Act, Tex. Rev. Civ. Stat. art. 581-33, Tex. Bus. & Comm. Code Section 27.01, common law fraud, negligent misrepresentation, and conspiracy.
3. This Court has jurisdiction pursuant to Tex. Gov. Code Sections 24.007 and 24.008.
4. Venue is proper in this Court pursuant to Tex. Civ. Prac. & Rem. Code
Section 15.002.
III.
PARTIES
5. Plaintiff Jack Rottman is a resident of Lufkin, Texas. Rottman was the Senior Vice President of Corporate Development of Equity from 1994 until the Merger. Rottman helped build Equity into the fourth largest publicly-traded provider of deathcare services and products in the United States, and increased annual revenues from $18 million in 1990 to an estimated $206 million in 1998.
6. Defendant SCI is a corporation organized under the laws of the State of Texas with its principal executive offices located at 1929 Allen Parkway, Houston, Texas. J. Clifford Gunter III of the law firm of Bracewell & Patterson, L.L.P., 711 Louisiana Street, Suite 2900, Houston, Texas 77002 has been authorized by defendant SCI to accept service of this Plaintiff's Original Petition. A copy of Plaintiff's Original Petition has been delivered to him.
7. Defendant Robert L. Waltrip (Waltrip) is the Chief Executive Officer and Chairman of the Board of SCI. Waltrip resides in Houston, Texas. J. Clifford Gunter III of the law firm of
Bracewell & Patterson, L.L.P., 711 Louisiana Street, Suite 2900, Houston, Texas 77002 has been authorized by defendant Waltrip to accept service of this Plaintiff's Original Petition. A copy of Plaintiff's Original Petition has been delivered to him.
8. L. William Heiligbrodt (Heiligbrodt) was the President and Chief Operating Officer of SCI from before the time he contacted Jim Hunter, the President of ECI, on July 22, 1998, to ask Hunter to consider the Merger, until February 11, 1999. J. Clifford Gunter III of the law firm of Bracewell & Patterson, L.L.P., 711 Louisiana Street, Suite 2900, Houston, Texas 77002 has been authorized by defendant Heiligbrodt to accept service of this Plaintiff's Original Petition. A copy of Plaintiff's Original Petition has been delivered to him.
9. George R. Champagne (Champagne) has been the Executive Vice President and Chief Financial Officer of SCI since before July 22, 1998. J. Clifford Gunter III of the law firm of Bracewell & Patterson, L.L.P., 711 Louisiana Street, Suite 2900, Houston, Texas 77002 has been authorized by defendant Champagne to accept service of this Plaintiff's Original Petition. A copy of Plaintiff's Original Petition has been delivered to him.
10. W. Blair Waltrip (Blair Waltrip) is the son of R. L. Waltrip and had been an Executive Vice President of SCI since before July 22, 1998. J. Clifford Gunter III of the law firm of Bracewell & Patterson, L.L.P., 711 Louisiana Street, Suite 2900, Houston, Texas 77002 has been authorized by defendant Blair Waltrip to accept service of this Plaintiff's Original Petition. A copy of Plaintiff's Original Petition has been delivered to him.
11. James M. Shelger (Shelger) is the Senior Vice President, Secretary and General Counsel of SCI and has held such position since before July 22, 1998. J. Clifford Gunter III of the law firm of Bracewell & Patterson, L.L.P., 711 Louisiana Street, Suite 2900, Houston, Texas 77002
has been authorized by defendant Shelger to accept service of this Plaintiff's Original Petition. A copy of Plaintiff's Original Petition has been delivered to him.
12. Defendant Wesley T. McRae (McRae) was the Controller of SCI during 1998. J. Clifford Gunter III of the law firm of Bracewell & Patterson, L.L.P., 711 Louisiana Street, Suite 2900, Houston, Texas 77002 has been authorized by defendant McRae to accept service of this Plaintiff's Original Petition. A copy of Plaintiff's Original Petition has been delivered to him.
13. Defendants Waltrip, Heiligbrodt, Champagne, Blair Waltrip, Shelger, and McRae (the Individual Defendants), as senior officers or directors of SCI, were controlling persons of the Company. Each exercised his power and influence to cause SCI to engage in the fraudulent acts and practices complained of herein.
14. Defendant Pricewaterhouse Coopers, L.L.P. (Pricewaterhouse) is a national accounting firm with offices throughout the United States, including two in Houston, Texas: one at 1201 Louisiana, Suite 2900, Houston, Texas 77002-5678, and another at 1100 Louisiana, Suite 4100, Houston, Texas 77002-9980. Harry M. Reasoner of the law firm of Vinson & Elkins, L.L.P., 1001 Fannin Street, Suite 2300, Houston, Texas 77002, has been authorized by defendant Pricewaterhouse to accept service of this Plaintiff's Original Petition. A copy of Plaintiff's Original Petition has been delivered to him.
IV.
FACTS
NEGOTIATION AND CLOSING OF THE MERGER AGREEMENT
15. On July 22, 1998, defendants Heiligbrodt and Waltrip contacted Jim Hunter, Equity's CEO, to ask him whether Equity would be interested in being acquired by SCI.
16. On April 23, 1998, SCI had announced record revenues and earnings, increased margins, and "increased investment returns associated with the larger asset base from cemetery merchandise and endowment care trust funds." On July 23, 1998, SCI had reported record revenues and earnings for the second quarter of 1998. The Company had fueled its growth primarily through acquisitions such as Equity and had apparently been quite successful in integrating and managing its acquisitions.
17. On July 27, 1998, Heiligbrodt met with Jim Hunter. On information and belief, Heiligbrodt told Jim Hunter that SCI was a strong company with a bright future and that SCI expected no significant problems despite unfavorable business trends in the industry. On information and belief, Heiligbrodt also told Jim Hunter the Merger was in the best interests of the Equity shareholders because they would gain the liquidity, stability, and growth associated with ownership of SCI's stock. On information and belief, Heiligbrodt delivered a letter at the meeting signed by defendant Waltrip reiterating Heiligbrodt's statements about the benefits of merging with SCI and urging Jim Hunter to enter into formal merger negotiations.
18. Following the July 27, 1998 meeting, Equity formally retained ABN AMRO as its financial advisor. SCI hired J.P. Morgan & Co. (Morgan). Negotiations for the Merger began in earnest.
19. SCI and Equity executed a merger agreement (the Merger Agreement) on August 6, 1998.
20. In the Merger Agreement, SCI represented that at the closing date of the Merger, there had been no development that could reasonably be anticipated to be adverse to SCI's business or financial condition (sections 4.7 and 10.10(g)), and promised that SCI would promptly notify Equity if it learned of any such development (section 7.9). Equity had the right to terminate the Merger
Agreement in the event any such development (sections 8.2(a) and 9.1(a)(i)). Rottman relied on SCI's representations and promises, and understood that SCI had a duty to disclose any such adverse development to Equity, and therefore to Rottman.
21. The Merger Agreement was incorporated by reference in and attached to a November 20, 1998 Prospectus and Proxy Statement (the Prospectus) that was transmitted to Rottman. The Prospectus explicitly stated that shareholders should rely on the information contained in and incorporated by reference in the Prospectus.
22. In December 1998, the Merger Agreement was amended to lower the exchange ratio for the Merger, reflecting the rising price of SCI stock. On December 12, 1998, SCI amended the Prospectus to disclose the lower exchange ratio. In accordance with the renegotiated exchange ratio, Rottman received when the Merger closed 0.71053 shares of SCI stock for each of his shares of Equity stock, and exchanged his Equity stock options for SCI stock options on the same exchange ratio.
23. The Merger closed on January 19, 1999. Through January 19, 1999, SCI did not disclose to Equity or Rottman any development that could reasonably be anticipated to be adverse to SCI's business or financial condition. Rottman reasonably believed that there had been no such adverse development up to and including January 19, 1999, because he knew that SCI was required to disclose any such development to Equity, and SCI had not done so.
SCI DISCLOSES ITS POOR RESULTS
24. Within seven days of the Merger, however, SCI publicly announced on January 26, 1999 that it had substantially missed both its fourth quarter and its annual earnings estimates.
25. SCI's failure to meet its earnings estimates was material information to Rottman. SCI's failure to meet its earnings estimates was a development that could reasonably be anticipated.
to be adverse to SCI's business or financial condition and SCI did in fact anticipate that it would be adverse to SCI's business and financial condition. SCI knew that the earnings information would come as a tremendous shock to the investment community and would cause an immediate and drastic drop in the price of SCI's shares.
26. On information and belief, after SCI publicly announced its failure to meet its earnings estimates on January 26, 1999, SCI's CFO, defendant George Champagne acknowledged to Jim Hunter that SCI had known before the Merger closed that SCI would substantially miss its earnings estimates.
27. On information and belief, after the January 26, 1999 announcement, an employee of Pricewaterhouse told Jim Hunter that Pricewaterhouse knew before the Merger closed that SCI would substantially miss its earnings estimates, and that this information was memorialized in a memorandum that had been sent to SCI.
CAUSES OF ACTION
COUNT I
TEXAS SECURITIES ACT, ART. 581-33
28. Plaintiff repeats and realleges each allegation contained above.
29. Plaintiff brings this Count under the Texas Securities Act, Art. 581-33A, B, and C, against all defendants.
30. SCI offered to buy from Rottman his equity shares, and to sell to Rottman SCI shares, by means of an untrue statement of a material fact, and by an omission to state a state a material fact necessary to make the statements made, in the light of the circumstances under which they were made, not misleading.
31. SCI was the issuer for the SCI shares sold to Rottman via the Merger. SCI disseminated a prospectus for the Merger exchange shares registered under 15 U.S.C. Section 77f. The prospectus contained an untrue statement of material fact, and omissions of material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading.
32. Plaintiff had no knowledge of the misrepresentations or omissions at the time of the Merger when he sold his Equity shares and purchased SCI shares.
33. Each of the defendants had knowledge of the misrepresentations and omissions or in the exercise of reasonable care would have known of the untruths or omissions.
34. Each of the Individual Defendants was a control person of SCI for purposes of art. 581-33 F and so is liable jointly and severally with SCI for SCI's violations of art. 581-33 A, B and C.
35. Pricewaterhouse materially aided SCI, for purposes of art. 581-33 F, in violating art. 581-33 A, B and C. Pricewaterhouse acted directly or indirectly with the intent to deceive Rottman or acted with reckless disregard for the truth or for the law. Accordingly, Pricewaterhouse is liable jointly and severally with SCI for SCI's violations of art. 581-33 A, B and C.
36. Rottman also seeks costs and reasonable attorney's fees.
COUNT II
TEXAS BUSINESS & COMMERCE CODE SECTION 27.01
37. Plaintiff repeats and realleges each allegation contained above.
38. Plaintiff brings this Count for fraud in a transaction involving stock in a corporation under Tex. Bus. & Comm. Code Section 27.01 against all defendants.
39. SCI and the Individual Defendants misrepresented that there had been no development that could reasonably be anticipated to be adverse to SCI's business or financial condition through the date the Merger was consummated.
40. SCI and the Individual Defendants made the material misrepresentations with the intent to induce Equity shareholders to refrain from terminating the Merger Agreement and to cause Equity to consummate the Merger after shareholder approval.
41. Rottman relied on the material misrepresentations.
42. Rottman had no knowledge of the falsity of SCI's material misrepresentations.
43. As persons who made material false representations to Rottman in violation of Section 27.01(a), SCI and the Individual Defendants are liable to Rottman for actual damages under Section 27.01(b). Rottman's actual damages are in the millions of dollars, and include his loss on the value of his Equity stock and options.
44. Because SCI and the Individual Defendants had actual awareness of the falsity of their material representations, they are liable to Rottman for exemplary damages under Section 27.01(c).
45. Pricewaterhouse had actual awareness of the falsity of SCI's and the Individual Defendants' material misrepresentations, but failed to disclose same to Equity and Rottman. Pricewaterhouse benefitted from the fraud in that it retained SCI's audit business. Accordingly, Pricewaterhouse is liable to Rottman for actual and exemplary damages under Section 27.01(d).
46. All the defendants are liable to Rottman under Section 27.01(e) for reasonable and necessary attorneys' fees, expert witness fees, costs for copies of depositions, and costs of court.
COUNT III
COMMON LAW FRAUD
47. Plaintiff repeats and realleges each allegation contained above.
48. Plaintiff alleges this Count against SCI and the Individual Defendants.
49. SCI and the Individual Defendants made the material misrepresentations described above. In addition, SCI and the Individual Defendants had a duty to disclose the information concerning SCI's poor results, but failed to do so. As soon as SCI learned of the possibility that it would miss its earnings target, SCI had a duty to inform Equity, and therefore Rottman, and the failure to do so constituted a material omission and a continuing misrepresentation that it had not suffered any adverse development.
50. SCI and the Individual Defendants knew that the misrepresentations were false when made or made such material misrepresentations recklessly and without any knowledge of their truth, and knew that the omissions failed to correct prior representations that were false.
51. SCI and the Individual Defendants intended that Rottman rely on the material misrepresentations.
52. Rottman did rely on SCI's and the Individual Defendants' material misrepresentations.
53. As result of the defendants' fraud, Rottman suffered injury. Rottman's actual damages are in the millions of dollars, and include his loss on the value of his Equity stock and options. The defendants are liable to Rottman for actual damages.
54. Defendants wilfully and intentionally defrauded Rottman and so are liable to them for exemplary damages.
COUNT IV
NEGLIGENT MISREPRESENTATION
55. Plaintiff repeats and realleges each allegation contained above.
56. Plaintiff brings this Count against SCI and the Individual Defendants.
57. SCI and the Individual Defendants provided false information to Rottman in the course of their business or in a transaction in which they had a pecuniary interest.
58. SCI and the Individual Defendants provided the false information for the guidance of Rottman in Rottman's business.
59. SCI and the Individual Defendants did not exercise reasonable care or competence in obtaining or communicating the information to Rottman.
60. As a result of SCI's and the Individual Defendant's negligent misrepresentations, Rottman suffered damages. Rottman's actual damages are in the millions of dollars, and include his loss on the value of his Equity stock and options.
COUNT V
CONSPIRACY
61. Plaintiff repeats and realleges each allegation contained above.
62. SCI and Pricewaterhouse conspired to hide SCI's true value for the purposes of inducing Jack Rottman and other shareholders to effect the Merger. In furtherance of such purpose, SCI and Pricewaterhouse agreed to commit and did commit the violations of common law and statutory law described above. Rottman suffered damages in the millions of dollars as a result of SCI's and Pricewaterhouse's unlawful acts.
WHEREFORE, plaintiff prays for relief and judgment, as follows:
Compensatory damages against all defendants, jointly and severally;
- Exemplary damages against all defendants;
- Interest on damages in accordance with law;
- Plaintiff's reasonable attorney's fees;
- Costs of court;
- Expert witness fees;
- Costs of copies of depositions; and
- Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
DATED: December 28, 2000 Respectfully submitted,
SUSMAN GODFREY L.L.P.
By: /s/ HARRY SUSMAN
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Mark L.D. Wawro
State Bar No. 20988275
Harry P. Susman
State Bar No. 24008875
1000 Louisiana Street, Suite 5100
Houston, Texas 77002
Telephone: (713) 651-9366
Facsimile: (713) 654-6666
George Chandler
LAW OFFICES OF GEORGE CHANDLER
(P.O. Box 340, Lufkin, Texas 75901)
207 East Frank Street, Suite 105
Lufkin, Texas 75902
Telephone: (936) 632-7778
Facsimile: (936) 632-1304
Attorneys for Plaintiff, Jack D. Rottman
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CERTIFICATE OF SERVICE
This is to certify that on this the 28th day of December, 2000, a true and correct copy of the above and foregoing instrument, Plaintiff's Original Petition, was properly forwarded to the following counsel of record in accordance with the Texas Rules of Civil Procedure as indicated below:
J. Clifford Gunter III VIA MESSENGER
Andrew M. Edison
Thomas F.A. Hetherington
Bracewell & Patterson, L.L.P.
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
Attorneys for Defendants Service Corporation International, Robert L. Waltrip, L. William Heiligbrodt, George R. Champagne, W. Blair Waltrip, James M. Shelger, and Wesley T.
McRae
Harry M. Reasoner VIA MESSENGER
James A. Reeder, Jr.
VINSON & ELKINS L.L.P.
1001 Fannin Street #2300
Houston, Texas 77002-6760
Steve Roper VIA CERTIFIED MAIL RRR
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ZELESKEY, CORNELIUS, HALLMARK, ROPER & HICKS, L.L.P.
P.O. Box 1728
Lufkin, Texas 75902-1728
Attorneys for Defendant PricewaterhouseCoopers LLP
/s/ HARRY P. SUSMAN --------------------------- Harry P. Susman |
EXHIBIT 99.17
[FILED STAMP]
NO. 33701-01-01
JACK D. ROTTMAN, ) IN THE DISTRICT COURT OF
)
Plaintiff, )
)
vs. )
)
SERVICE CORPORATION INTERNATIONAL, )
ROBERT L. WALTRIP, ) ANGELINA COUNTY, TEXAS
L. WILLIAM HEILIGBRODT, )
GEORGE R. CHAMPAGNE, )
W. BLAIR WALTRIP, )
JAMES M. SHELGER, )
WESLEY T. MCRAE and )
PRICEWATERHOUSE COOPERS, L.L.P., )
)
Defendants. ) ______ JUDICIAL DISTRICT
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SERVICE CORPORATION INTERNATIONAL, ROBERT L. WALTRIP,
L. WILLIAM HEILIGBRODT, GEORGE R. CHAMPAGNE, W. BLAIR WALTRIP,
JAMES M. SHELGER, AND WESLEY T. MCRAE'S
MOTION TO TRANSFER VENUE AND ORIGINAL ANSWER
Defendants Service Corporation International, Robert L. Waltrip, L. William Heiligbrodt, George R. Champagne, W. Blair Waltrip, James M. Shelger and Wesley T. McRae (collectively "SCI Defendants") file their Motion to Transfer Venue and Original Answer, as follows.
MOTION TO TRANSFER VENUE
1. Pursuant to Texas Civil Practice and Remedies Code, Section 15.002(b), the SCI Defendants move this Court to transfer this case to Harris County, Texas. This request is made in the interest of justice and for the convenience of the parties and witnesses. The parties and witnesses will be inconvenienced by maintaining suit in Angelina County because the overwhelming majority of them are domiciled or located in Harris County, Texas. Consequently, maintaining suit in
Angelina County will work an economic and personal hardship on the defendants, as they will be required to travel to and stay extended periods in Angelina County during the trial of this matter. If the case is transferred to Harris County, Texas, no such economic and personal hardship will result, as defendants' travel time and expense associated with participating in trial in the county of their residency or principal place of business will be virtually eliminated or at least greatly reduced. Moreover, the balance of interest of all parties predominates in favor of the action being brought in Harris rather than Angelina county. All counsel (save Plaintiff's counsel, Mr. Chandler) are located in Harris County, as are the overwhelming majority of the parties and witnesses. Transfer of this case from Angelina to Harris county will not work a hardship or injustice on any other party. Mr. Rottman may easily travel to Houston to prosecute his case where all the other Defendants and nearly all counsel (save Plaintiff's local Angelina counsel) are located. Harris County is a proper county for venue of this case because it is the county where all or substantial part of the events giving rise to the plaintiff's claims occurred. Harris is also the county of the defendants' residence, or location of their principal office at the time the cause of action accrued. Moreover, the present venue system does not favor the Plaintiff's choice of venue. For the foregoing reasons, the SCI Defendants respectfully request that the case be transferred to Harris County, Texas.
GENERAL DENIAL
2. The SCI Defendants deny each and every, all and singular, material allegations contained in Plaintiff's Original Petition as provided under Rule 92 and demand that this court require the Plaintiff to prove its charges and allegations as required by the Constitution and laws of this state. Without waiving the foregoing general denial, the SCI Defendants assert the following affirmative defenses.
AFFIRMATIVE DEFENSES
3. Plaintiff has failed to take reasonable steps to mitigate damages.
4. Plaintiff's claims are barred by limitations.
5. Plaintiff waived his claims.
6. Plaintiff is estopped from asserting his claims.
7. Plaintiff's claim for exemplary or punitive damages is barred because exemplary or punitive damages are not properly available and/or any award of exemplary or punitive damages is unconstitutional.
8. Plaintiff's own conduct is the proximate cause of any damages sustained.
9. Pursuant to Section 33A(2) of the Texas Securities Act, Plaintiff knew of any alleged untruth or omission.
10. Pursuant to Section 33A(2) of the Texas Securities Act, the SCI Defendants did not know, and in the exercise of reasonable care, could not have known, of any alleged untruth or omission.
WHEREFORE, premises considered, Service Corporation International, Robert L. Waltrip, L. William Heiligbrodt, George R. Champagne, W. Blair Waltrip, James M. Shelger and Wesley T. McRae pray that a take-nothing judgment be entered against the Plaintiff in this case, that the Plaintiff's claims be dismissed with prejudice to refile the same, and that Service Corporation
International, Robert L. Waltrip, L. William Heiligbrodt, George R. Champagne, W. Blair Waltrip, James M. Shelger and Wesley T. McRae receive any and all further relief to which they are entitled. Respectfully submitted,
Bracewell & Patterson, L.L.P.
By: /s/ J. CLIFFORD GUNTER III
--------------------------------------
J. Clifford Gunter III
State Bar No. 08627000
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C. Thomas Kruse State Bar No. 11742535
Michael D. Hopkins State Bar No. 00793977
South Tower Pennzoil Place 711 Louisiana, Suite 2900 Houston, Texas 77002-2781 Telephone: (713) 223-2900 Facsimile: (713) 221-1212
Counsel for Defendants Service Corporation International, Robert L. Waltrip, L. William Heiligbrodt, George R. Champagne, W. Blair Waltrip, James M. Shelger and Wesley T. McRae
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing document has been forwarded via certified mail, return receipt requested, on this 18th day of January, 2001 to:
Mark L.D. Wawro Harry P. Susman Susman Godfrey L.L.P.
1000 Louisiana St., Suite 5100
Houston, Texas 77002
George Chandler
Law Offices of George Chandler
(P. O. Box 340, Lufkin, Texas 75901)
207 East Frank Street, Suite 105
Lufkin, Texas 75902
Attorneys for Plaintiff,
Jack D. Rottman
Harry M. Reasoner
James A. Reeder, Jr.
Vinson & Elkins L.L.P.
1001 Fannin Street #2300
Houston, Texas 77002-6760
Steve Roper
Zeleskey, Cornelius, Hallmark,
Roper & Hicks, L.L.P.
P. O. Box 1728
Lufkin, Texas 75902-1728
Attorneys for Defendant
Pricewaterhouse Coopers LLP
/s/ C. THOMAS KRUSE -------------------------------------- C. Thomas Kruse |
EXHIBIT 99.18
[STAMPS]
NO. 2000-63917
JACK T. HAMMER ) IN THE DISTRICT COURT OF
)
)
Plaintiff, )
)
VS. ) HARRIS COUNTY, TEXAS
)
)
SERVICE CORPORATION )
INTERNATIONAL, ROBERT L. )
WALTRIP, L. WILLIAM )
HEILIGBRODT, GEORGE R. )
CHAMPAGNE, W. BLAIR WALTRIP, )
JAMES M. SHELGER, WESLEY T. )
MCRAE AND PRICEWATERHOUSE )
COOPERS, L.L.P. )
)
Defendant. ) 165 JUDICIAL DISTRICT
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PLAINTIFF'S ORIGINAL PETITION
Comes now plaintiff, Jack T. Hammer, and states his complaint against the defendants and shows this Court as follows:
I. DISCOVERY CONTROL PLAN
1. Plaintiff intends to conduct discovery pursuant to Level 3. Tex. R.
Civ. P. 190.4.
II. NATURE OF ACTION
2. This is a securities action brought by plaintiff who, in July, 1998, was the owner of 1,090,196 shares of common stock of defendant Service Corporation International ("SCI"), and 41,500 shares of common stock and 30,000 options to purchase the common stock of Equity Corporation International ("ECI") and who was a director of ECI.
Plaintiff's Original Petition
III. JURISDICTION AND VENUE
3. The claims asserted herein arise under the Texas Securities Act, Tex. Rev. Civ. Stat. Art. 581-33, Tex. Bus. & Comm. Code Section 27.01, and are for common law fraud, negligent misrepresentation and conspiracy.
4. This Court has jurisdiction pursuant to Tex. Gov. Code Sections 24.007 and 24.008.
5. Venue is proper in this Court pursuant to Tex. Civ. Prac. & Rev. Code
Section 15.002.
IV. PARTIES
6. Plaintiff is an individual residing in the State of Florida.
7. SCI is a Texas corporation which has its principal place of business in Harris County, Texas.
8. Robert L. Waltrip ("Waltrip") is a resident of Harris County, Texas who was the Chief Executive Officer and Chairman of the Board of Directors of SCI since before July 22, 1998.
9. L. William Heiligbrodt ("Heiligbrodt") is a resident of Harris County, Texas, who was the President and Chief Operating Officer of SCI since before August, 1998 until February 11, 1999.
10. George R. Champagne ("Champagne") is a resident of Harris County, Texas, who was the Executive Vice President and Chief Financial Officer of SCI since before July 22, 1998.
11. W. Blair Waltrip ("Blair Waltrip"), a resident of Harris County, Texas, is the son of Robert L. Waltrip and has been an Executive Vice President of SCI since before July 22, 1998.
Plaintiff's Original Petition 2
12. James M. Shelger ("Shelger"), a resident of Harris County, Texas, is the Senior Vice President, Secretary and General Counsel of SCI and has held such position since before July 22, 1998.
13. Defendant Wesley T. McRae ("McRae"), a resident of Harris County, Texas, was the Controller of SCI during 1998.
14. Defendant PricewaterhouseCoopers, L.L.P. ("Pricewaterhouse") is a national accounting firm with offices throughout the United States, including two in Harris County Texas, one at 1201 Louisiana Street, Suite 2900, Houston, Texas 77002-5678 and another at 1100 Louisiana Street, Suite 4100, Houston, Texas 77002-9980. Pricewaterhouse was SCI's independent public accounting firm at all times relevant hereto.
V. FACTUAL ALLEGATIONS
15. In 1997, plaintiff was the owner of 1,090,196 shares of SCI common stock.
16. SCI and ECI had been a combined company until sometime in 1997 when SCI spun-off its interest in ECI in order to free itself to pursue an acquisition of another company in the funeral home business. After the spin-off, plaintiff purchased 41,500 shares of ECI stock, purchased options to acquire additional ECI stock and was elected to ECI's board of directors.
17. On July 22, 1998, ECI was contracted by SCI to arrange a meeting to discuss strategic considerations and the current and future trends in the funeral home industry, including opportunities resulting from SCI's recent acquisition of American Memorial Life Insurance Company which specialized in final care insurance products.
Plaintiff's Original Petition 3
18. The majority of the board of directors and senior management of ECI believed that SCI was an attractive merger prospect for ECI in the summer of 1998. On April 23, 1998, SCI had announced record revenues and earnings, increased margins, and "increased investment returns associated with the larger asset base from cemetery merchandise and endowment care trust funds."
19. On July 23, 1998, SCI announced its second quarter results over the PR NEWSWIRE, reporting record revenues and income, and, importantly, discounting any effect that declining death rates would have on it by touting SCI's international expansion and "fundamentals" in the funeral industry:
"Strong North American cemetery results contributed impressively to our quarterly earnings growth, more than offsetting the effect on the funeral segment of lower than expected North American mortality rates. Funeral volumes improved in June after experiencing unusually weak volumes in April and May," said R.L. Waltrip, SCI's Chairman and Chief Executive Officer. Waltrip added, "We continue to be pleased with our progress overseas. Our international expansion continues at a tremendous pace and new opportunities are appearing almost daily."
20. This statement was false and misleading when made because it tended to portray SCI's international growth as being able to "more than offset" any decline in death rates. As subsequently demonstrated below, however, such international expansion was not able to shield SCI from declining death rates, and other negative factors. This press release continued with more misleading statements:
Commenting on the results, L. William Heiligbrodt, SCI's President and Chief Operating Officer said, "Fluctuations in mortality rates present operational challenges over certain time periods; however, the fundamentals of the funeral service industry remain strong. Our properties include many of the premier funeral businesses in major metropolitan markets around the world, providing
Plaintiff's Original Petition 4
excellent opportunities for growth. Our newly formed financial services group and its acquisition of American Memorial Life Insurance Company will increase our prearranged funeral marketing efforts, providing for future funeral volume to maintain our consistent performance."
21. The statement was also false and misleading because it portrayed SCI as being insulated from problems associated with declining death rates. This, however, was not the case as SCI would be forced to later disclose.
22. On July 27, 1998, representatives of ECI and SCI met and discussed, on a conceptual basis, the merits of a possible combination of these companies. At the meeting, SCI, through its president, Heiligbrodt, expressed strong interest in exploring a strategic combination of SCI and ECI and delivered a letter dated July 27, 1998, to ECI's Chief Executive Officer, James P. Hunter, III ("Hunter"). The letter, signed by defendant Waltrip, indicated that SCI believed that it would be mutually beneficial for ECI and SCI to consider a corporate combination and that the economic and market factors of such a combination would, in defendant Waltrip's belief, allow both companies to best serve their stockholders. The letter further requested that the communication be kept confidential and requested an opportunity for defendant Waltrip and other SCI officers to meet with Hunter and ECI's Board of Directors for the purpose of exploring such a combination.
23. Following the July 27, 1998 meeting, ECI formally retained ABN AMRO as its financial advisor. SCI hired J.P. Morgan & Co. ("J.P. Morgan") as its financial advisor. Negotiations for the Merger began in earnest.
24. J.P. Morgan informed ABN AMRO that SCI had a potential interest in making a proposal to combine ECI and SCI by providing ECI stockholders with SCI Common Stock with
Plaintiff's Original Petition 5
a value in a range beginning at $26.00 per share, assuming certain synergies could be achieved. ABN AMRO informed J.P. Morgan that ECI was not "for sale" and that ECI was exploring its strategic and financial alternatives, but that ECI would be willing to go to its Board of Directors to seek authorization to entertain a potential proposal. Representatives of ABN AMRO and J.P. Morgan had several conversations regarding possible synergies realizable in a combination and the resulting impact on SCI's level of interest in a combination with ECI.
25. On July 30, 1998, J.P. Morgan informed ABN AMRO that SCI might envision a proposal in the range of $27.00 per share in SCI Common Stock for each share of ECI Common Stock, subject to negotiation of specific economic terms and a definitive agreement. Mr. Hunter informed the Board of Directors of ECI, including plaintiff, of the developments with SCI. Pursuant to these continuing discussions, the Board of Directors authorized Mr. Hunter to enter into bilateral confidentiality agreements with SCI to facilitate ECI's review of alternatives. During the period from July 30, 1998 to August 2, 1998, SCI's legal representatives provided a proposed form of Merger Agreement for ECI's consideration. In response, ECI's legal advisors provided general comments on the draft form of Merger Agreement with the objective of further understanding the terms SCI might contemplate in a transaction, and commenced a due diligence investigation of SCI.
26. On August 4 and 5, 1998, ABN AMRO and ECI's legal advisors held several discussions with SCI, its financial and legal advisors to negotiate the financial and legal terms of a possible combination for consideration by their respective Boards of Directors. Among the issues for discussion was the impact of the recent drop in the sale price of SCI Common Stock on
Plaintiff's Original Petition 6
August 4, a date when the Dow Jones Industrial Average dropped over 290 points. These discussions resulted in a proposal that ECI stockholders would receive SCI Common Stock valued at $27.00 per share, based upon an exchange ratio of the average selling price of SCI Common Stock for the ten trading days ending three trading days prior to the effective time of the Merger, provided that such price would be no more than $41.50 per share (resulting in a minimum ratio of 0.65060) and no less than $34.00 per share (resulting in a maximum ratio of 0.79412 per share).
27. ECI's Board of Directors met during the afternoon on August 5, 1998 to consider the status of discussions regarding the proposed transaction. ABN AMRO updated ECI's Board of Directors on the financial aspects of the proposed transaction. The Board of Directors also discussed the terms and conditions of the proposed Merger Agreement, the status of the due diligence review of, and negotiations with, SCI, reviewed the fiduciary duties of the Board of Directors in connection with the proposed business combination and other matters. Following these discussions and based on the information provided by defendants, ECI's Board of Directors authorized its legal and financial advisors to continue to pursue the proposed transaction with SCI.
28. Due to the pending Merger negotiations, plaintiff was instructed by counsel for ECI that he could not buy or sell any of his stock or options in ECI or SCI. This prohibition continued through the executory period of the resultant Merger Agreement which did not end until the closing of the Merger on January 19, 1999. Plaintiff scrupulously complied with these instructions and did not sell any of his stock or options.
Plaintiff's Original Petition 7
29. In the early morning of August 6, 1998, ECI's Board of Directors met to consider the proposed transaction with SCI and the proposed Merger Agreement. At the meeting, ECI's financial and legal advisors discussed the proposed SCI transaction and made presentations to ECI's Board of Directors regarding the proposed transaction. ECI's legal advisors presented the proposed Merger Agreement and summarized its terms and related documents.
30. ABN AMRO reviewed with ECI's Board of Directors various financial and other information relating to the transaction and delivered its opinion that, as of August 6, 1998, the exchange ratio contemplated in connection with the Merger was fair to ECI's stockholders from a financial point of view.
31. Thereafter, ECI's Board of Directors unanimously authorized and approved the Merger Agreement with two abstentions, including the plaintiff. The Merger Agreement was executed on August 6, 1998 and publicly announced by each of ECI and SCI prior to the opening of the stock markets.
32. In the Merger Agreement, SCI represented that at the closing date of the Merger, there had been no development that could reasonably be anticipated to be adverse to SCI's business or financial condition (Sections 4.7 and 10.10(g)), and promised that SCI would promptly notify ECI if it learned of any such development (Section 7.9). ECI had the right to terminate the Merger Agreement in the event of any such development (Section 8.2(a) and 9.1(a)(i)). Plaintiff relied on SCI's representations and promises, and understood that SCI had a duty to disclose any such adverse development to ECI, and its board of directors, including plaintiff.
Plaintiff's Original Petition 8
33. The October 5, 1998 issue of BUSINESS WEEK reported that low mortality rates were having a significant impact on the funeral home industry, and SCI in particular. But defendant Heiligbrodt downplayed these concerns by portraying SCI's insurance division as being an adequate hedge against any such declining death rates:
But now, demographers see growing evidence that medical advances and healthier lifestyles are letting more of us defer the day of reckoning. In a dramatic change from past projections, age-adjusted deaths in the U.S. fell 3% last year on top of smaller declines the prior two years, according to the Centers for Disease Control & Prevention. Experts say the key causes are advances in HIV treatment, post-surgery heart care, and new strides in low birth weight infant survival -- and that the trend should continue. "The decrease in the death rate is based on solid progress that shouldn't reverse," insists Dr. Charles G. Hertz, chief medical director of Metropolitan Life Insurance Co. and editor of the demographic and healthcare journal Statistical Bulletin. That news, while encouraging for most of us, is forcing SCI to alter its growth strategy. After a torrid pace of funeral home acquisitions -- SCI has bought more than 1,800 homes since 1995 -- the chain is downshifting its dealmaking and cranking up sales of "pre-need," or prearranged, funerals to boost revenues. It recently created a finance division as part of a plan to profit from selling life insurance policies tied to funeral costs. Even with the market slowdown, "we can expand future revenues by expanding pre-need [sales]," insists SCI President L. William Heiligbrodt.
34. This statement was false and misleading when made because it tended to portray SCI as not being subject to diminished financial returns from declining death rates because the insurance group (selling "pre-need" funerals) could offset any revenue deficiencies from declining death rates. But defendant Heiligbrodt was aware, as SCI would later be forced to admit once its merger had been consummated, that this was untrue.
35. On October 6, 1998, Raymond James & Associates issued an analyst report rating SCI a "Buy" based upon statements by SCI management that long term growth in Earnings Per Share ("EPS") of 15%-22% was possible, based in large part upon "internal growth of existing
Plaintiff's Original Petition 9
businesses." But these statements to analysts made by SCI were false and misleading because defendants were aware that market forces, including declining death rates, were actually causing financial results to deteriorate, not increase as SCI maintained.
36. On October 12, 1998, ABN AMRO, Inc., issued an analyst opinion describing an October 2, 1998 presentation made by SCI for selected market analysts. Based on this presentation, the ABN AMRO analyst concluded, among other things, that "international opportunities continue to abound."
37. On October 22, 1998, SCI announced financial results over the PR NEWSWIRE for the quarter ended September 30, 1998. SCI reported that both revenues and net income had increased dramatically as follows:
Three Months Ended September 30, 1998 (Compared to same period 1997)
o Revenues $712 million up 18.6% from $601.0 million
o Net Income $83.2 million up 14.4% from $72.7 million
o Diluted EPS $0.32 up 14.3% from $0.28
38. Defendant Waltrip commented favorably on these results, stating:
I am pleased to report another quarter of increased profitability for SCI despite the widely publicized reduced number of deaths reported by our industry.
39. This statement was false and misleading in that it downplayed the effect that declining death rates were having on SCI. The misrepresentations continued with statements from defendant Heiligbrodt:
Plaintiff's Original Petition 10
Since 1990, SCI's North American market share has nearly doubled to approximately 11% today, mainly through acquisitions, new construction and prearranged funerals. SCI's market share is expected to increase as we accelerate the sales of prearranged funerals. We plan to double the annual sales of prearranged funerals within five years.
40. This statement was false and misleading in that it tended to portray the sales of "pre-arranged" funerals as shielding SCI from potential problems associated with the declining death rate.
41. With SCI's announcement of outstanding financial results and outstanding prospects due to its international strategies and "pre-need" sales, the merger continued.
42. In December, 1998, the Merger Agreement was amended to lower the exchange ratio for the Merger, reflecting the rising price of SCI stock. On December 12, 1998, SCI amended the Prospectus to disclose the lower exchange ratio. In accordance with the renegotiated exchange ratio, plaintiff would receive 0.71053 shares of SCI stock for each of his shares of ECI stock, and exchange his ECI stock options for SCI stock options on the same exchange ratio.
43. On December 15, 1998, SCI and ECI jointly announced revisions to the terms of the merger agreement over the PR NEWSWIRE:
Pursuant to and subject to the terms of the Merger Agreement, as amended, each of the issued and outstanding shares of ECI Common Stock will be converted in the merger into the right to receive the number of shares of SCI Common Stock determined by dividing $27.00 by the average SCI Stock Price (as defined below).
44. Thus, according to the terms of the Merger Agreement, SCI had every incentive to keep its share price artificially high to give itself a more favorable exchange ratio.
Plaintiff's Original Petition 11
45. On December 17, 1998, ECI announced over the BUSINESS WIRE that it had rescheduled the date of its special meeting of shareholders to December 31, 1998.
46. On December 31, 1998, SCI and ECI announced over the PR NEWSWIRE that the stockholders of ECI approved the merger.
47. On January 15, 1999, the ASSOCIATED PRESS reported that the Federal Trade Commission had approved of a consent agreement which allowed SCI to complete its merger of ECI.
48. On January 19, 1999, SCI and ECI jointly announced the completion of the merger over the PR NEWSWIRE:
Service Corporation International (NYSE:SRV) ("SCI") and Equity Corporation International (NYSE:EQU) ("ECI") jointly announced today the consummation of the previously announced merger between ECI and a wholly owned subsidiary of SCI (the "Merger"). As determined in accordance with the merger agreement, the stockholders of ECI will receive 0.71053 of a share of SCI common stock for each share of ECI common stock.
49. Thus, the merger was consummated with ECI shareholders, including plaintiff, receiving approximately .71 shares of SCI stock for each share of ECI they had owned. This ratio was patently unfair because, as SCI was well aware, its shares were artificially inflated because SCI had failed to disclose that the declining death rate, among other factors, had made SCI much less valuable than the market perceived it to be. However, wanting to consummate this merger on more favorable terms, the defendants withheld and failed to disclose this information until one week after the Merger was consummated.
50. Through January 19, 1999, SCI did not disclose to ECI or plaintiff any development that could reasonably be anticipated to be adverse to SCI's business or financial
Plaintiff's Original Petition 12
condition. Plaintiff reasonably believed that there had been no such adverse development up to and including January 19, 1999, because he knew that SCI was required to disclose any such development to ECI during the merger negotiations and SCI had not done so.
51. On January 26, 1999, with the merger transaction safely completed just one week prior, SCI announced "revised earnings estimates" over the PR NEWSWIRE:
Service Corporation International (NYSE: SRV), the world's largest funeral and cemetery company, announced today that it expects diluted earnings per share in the fourth quarter of 1998 to be lower than current analyst estimates. For the three months ended December 31, 1998, SCI anticipates diluted earnings per share in the range of $.22-$.24 as compared to $.036 for the three months ended December 31, 1997. The First Call consensus earnings estimate is $.042 per share. For the year ended December 31, 1998, SCI anticipates diluted earnings per share in the range of $1.30-$1.32 as compared to $1.31 for the year ended December 31, 1997. The First Call consensus earnings estimate for the year is $1.51 per share.
52. SCI continued by enumerating several reasons for this shocking shortfall in earnings for the quarter and year:
Several factors have adversely affected results during the fourth quarter and these include:
o Reduced mortality rates in SCI's major markets resulting in fewer funerals performed at SCI's locations.
o Cemetery revenues below anticipated levels.
o Increased operating costs and field overhead expenses associated with necessary investment in newly acquired operations, information technology systems and training programs.
o Fewer acquisitions during the quarter than were previously expected due to higher than anticipated acquisition pricing.
o Disappointing results from selected foreign operations.
Plaintiff's Original Petition 13
53. Thus, SCI was finally forced to disclose that the declining death rate was taking a major toll on SCI, and that, despite earlier claims to the contrary, foreign operations and sales of "pre-need" funerals could not hedge SCI from this business problem.
54. SCI's failure to meet its earnings estimates was material information to plaintiff. If plaintiff had known that SCI anticipated missing or had missed its earnings estimates before the Merger closed on January 19, 1999, plaintiff would have acted to cause ECI to terminate the Merger Agreement. SCI's failure to meet its earnings estimates was a development that could reasonably be anticipated to be adverse to SCI's business or financial condition and SCI did in fact anticipate that it would be adverse to SCI's business and financial condition. SCI knew that the earnings information would come as a tremendous shock to the investment community and would cause an immediate and drastic drop in the price of SCI's shares.
55. One week after the merger was safely approved and consummated, the truth concerning SCI's financial condition became or began to become known when SCI publicly announced for the first time that its current financial results and future business prospects were much worse than SCI had led the market to believe. The revelation of the truth concerning SCI's business and finances caused SCI's stock price to drop from $34-7/16 per share to $19-1/8 per share on January 26, 1999 -- a one-day loss of $15.32 per share -- or approximately 44% of the value of SCI's per share price and a $3.5 billion decrease in its market capitalization. The stock price of SCI has continued to decline since January, 1999 reaching a price as low as $2.125 per share on August 30, 2000.
Plaintiff's Original Petition 14
56. After SCI publicly announced its failure to meet its earnings estimates on January 26, 1999, SCI's CFO, defendant Champagne, acknowledged to James Hunter, ECI's former President and Chief Executive Officer, that SCI had known before the Merger closed that SCI would substantially miss its earnings estimates.
VI. CAUSES OF ACTION
COUNT I
Texas Securities Act, Art. 581-33
57. Plaintiff repeats and realleges each allegation contained above.
58. Plaintiff brings this Count under the Texas Securities Act., Art. 581-33A, B, and C, against all defendants.
59. SCI offered to buy from plaintiff his ECI shares, and to sell plaintiff SCI shares, by means of an untrue statement of a material fact, and by an omission to state a material fact necessary to make the statements made, in the light of the circumstances under which they were made, not misleading.
60. Defendants, directly and indirectly, by use of means and instrumentalities of interstate commerce and/or the mails, engaged in a plan and course of conduct, pursuant to which each of them knowingly or recklessly engaged in acts, transactions, practices, and courses of business that operated as a fraud and deceit upon plaintiff; made various untrue statements of material fact and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and employed devices and artifices to defraud in connection with the purchase and sale of securities, which were
Plaintiff's Original Petition 15
intended to, and did: (1) deceive the investing public, including plaintiff, regarding, among other things, (a) the actual and expected revenues and profits of SCI and (b) artificially inflated and maintained the market price of SCI securities.
61. Pursuant to the aforesaid plan and course of conduct, defendants participated, directly and indirectly, in the preparation and/or issuance of the statements and documents referred to above. Each of the Individual Defendants participated directly in the wrongs complained of herein and had the power and influence, and exercised the same, to cause SCI to engage in the unlawful conduct complained of herein. The Individual Defendants were able to, and did, directly or indirectly, in whole or material part, control the content of SCI's public financial reports, filings with the SEC, and public statements. Each Individual Defendant was provided, for his approval or otherwise, with copies of SCI's reports, filings, releases, and statements herein alleged to have been materially false and misleading prior to or shortly after their issuance by SCI, and had the ability and opportunity to prevent their issuance or to cause them to be corrected.
62. As an officer and/or director of a publicly held company, each Individual Defendant had a duty to disseminate timely, accurate, truthful, and complete information and a duty to disseminate on behalf of SCI timely, accurate, truthful, and complete financial statements so that the market price of SCI common stock would be based on truthful, accurate and complete information. As hereinafter alleged, each Individual Defendant violated these specific duties and obligations.
Plaintiff's Original Petition 16
63. Said statements and documents were materially false and misleading in that, among other things, they misrepresented the actual and expected revenues and profits of SCI, and its financial condition in at least the following respects:
(a) Foreign sales were not expanding at a "tremendous pace" as stated by defendant Waltrip on July 23, 1998; and
(b) Sales of "pre-need" funeral services could not act as an adequate hedge against a declining death rate, despite assurances from defendant Heiligbrodt that such sales would allow SCI to "maintain our consistent performance."
At all relevant times, SCI and the Individual Defendants had actual knowledge that the statements and documents complained of herein were materially false and misleading as set forth herein and intended to deceive plaintiff. In the alternative, those defendants acted in reckless disregard for the truth in that they failed or refused to ascertain and disclose such facts as would have revealed the materially false and misleading nature of the statements and documents complained of herein although such facts were readily available to defendants. Said facts and omissions of defendants were committed willfully or with reckless disregard for the truth. In addition, SCI and the Individual Defendants knew or recklessly disregarded that material facts were being misrepresented or omitted as alleged herein.
64. Information showing that the defendants acted knowingly or with reckless disregard for the truth is peculiarly within defendants' knowledge and control. As senior corporate officers of SCI, the Individual Defendant had knowledge of the details of SCI's financial affairs and results. However, the following facts, among others, indicate a strong
Plaintiff's Original Petition 17
inference that SCI and the Individual Defendants acted with scienter:
(a) SCI and the Individual Defendants had strong incentive to keep SCI's share price as high as possible until the merger with ECI was completed in order to keep the exchange ratio more favorable for SCI;
(b) The factors identified and misrepresented by defendants were so central to SCI's core business operations that the defendants could not have "overlooked" these factors and must have been aware that the representations were untrue.
65. At all relevant times, the misrepresentations and omissions particularized in this Complaint directly or proximately caused or were a substantial contributing cause of the damages sustained by plaintiff. The misstatements and omissions complained of herein had the effect of creating in the market an unrealistically positive assessment of SCI, as well as of its financial condition and ability to continue as a going concern, causing SCI common stock to be over-valued and artificially inflated at all relevant times. Defendants' false portrayal of SCI's operations and prospects, as well as of SCI's financial condition, resulted in SCI common stock having an artificially inflated price measured by the difference between the market prices and the actual value of such common stock, thus causing the damages complained of herein.
66. In addition, at the time SCI common stock was actively traded on the NYSE. As a result, the market for SCI common stock was well developed, and the price at which such common stock was initially offered, as well as the prices at which it traded thereafter, necessarily reflected the material misrepresentations and omissions complained of herein.
Plaintiff's Original Petition 18
SCI was the issuer for the SCI shares sold to plaintiff via the Merger. SCI disseminated a prospectus for the Merger exchange shares. The prospectus contained an untrue statement of material fact, and omissions of material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading.
67. Plaintiff had no knowledge of the misrepresentations or omissions at the time of the Merger when he sold his ECI shares in return for SCI shares.
68. Each of the defendants had knowledge of the misrepresentations and omissions or in the exercise of reasonable care would have known of the untruths or omissions.
69. Each of the Individual Defendants was a control person of SCI for purposes of Art. 581-33F and so is liable jointly and severally with SCI for SCI's violations of Art. 581-33A, B and C.
70. Pricewaterhouse materially aided SCI, for purposes of Art. 581-33F, in violating Art. 581,33A, B and C. Pricewaterhouse acted directly or indirectly with the intent to deceive plaintiff or acted with reckless disregard for the truth or for the law. Accordingly, Pricewaterhouse is liable jointly and severally with SCI for SCI's violations of Art. 581-33A, B and C.
71. Pursuant to Art. 581-33D, plaintiff hereby tenders his SCI shares and options and seeks recovery of the value of the ECI shares and options he surrendered upon the Merger, which were worth several million dollars, with any offsets as provided under the statute.
72. Plaintiff also seeks costs and reasonable attorneys' fees.
Plaintiff's Original Petition 19
COUNT II
TEXAS BUSINESS AND COMMERCE CODE SECTION 27.01
73. Plaintiff repeats and realleges each allegation contained above.
74. Plaintiff brings this Count for fraud in a transaction involving stock in a corporation under Tex. Bus. & Comm. Code Section 27.01 against all defendants.
75. SCI and the Individual Defendants misrepresented that there had been no development that could reasonably be anticipated to be adverse to SCI's business or financial condition through the date the Merger was consummated.
76. SCI and the Individual Defendants made the material misrepresentations with the intent to induce plaintiff to refrain from terminating the Merger Agreement and to cause ECI to consummate the Merger after shareholder approval and also to cause plaintiff to be unable to sell any of his shares or options while the merger was pending.
77. Plaintiff relied on the material misrepresentations.
78. Plaintiff had no knowledge of the falsity of SCI's material misrepresentations.
79. As persons who made material false representations to plaintiff in violation of Section 27.01(a), SCI and the Individual Defendants are liable to plaintiff for actual damages under Section 27.01(b). Plaintiff's actual damages exceed $500,000, and include his loss of the value of his ECI stock and options.
80. Because SCI and the Individual Defendants had knowledge of the falsity of their material misrepresentations, they are liable to plaintiff for exemplary damages under Section 27.01(c).
Plaintiff's Original Petition 20
81. Pricewaterhouse had knowledge of the falsity of SCI's and the Individual Defendant's material misrepresentations, but failed to disclose same to ECI and plaintiff. Pricewaterhouse benefited from the fraud in that it retained SCI's audit business. Accordingly, Pricewaterhouse is liable to plaintiff for actual and exemplary damages under Section 27.01(d).
82. All the defendants are liable to plaintiff under Section 27.01(e) for reasonable and necessary attorney's fees, expert witness fees, costs for copies of depositions and costs of court.
COUNT III
COMMON LAW FRAUD
83. Plaintiff repeats and realleges each allegation contained above.
84. Plaintiff alleges this Count against SCI and the Individual Defendants.
85. SCI and the Individual Defendants made the material misrepresentations described above. In addition, SCI and the Individual Defendant had a duty to disclose the information concerning SCI's poor results, but failed to do so. As soon as SCI learned of the possibility that it would miss its earnings target, SCI had a duty to inform the plaintiff, and the failure to do so constituted a material omission and a continuing misrepresentation that it had not suffered any adverse development.
86. SCI and the Individual Defendants knew that the misrepresentations were false when made or made such material misrepresentations recklessly and without any knowledge of their truth, and knew that the omissions failed to correct prior representations that were false.
87. SCI and the Individual Defendants intended that plaintiff rely on the material misrepresentations.
Plaintiff's Original Petition 21
88. Plaintiff did rely on SCI's and the Individual Defendants' material misrepresentations.
89. As a result of the defendants' fraud, plaintiff suffered injury. Plaintiff's actual damages exceed $500,000, and include his loss on the value of his ECI stock and options. The defendants are liable to plaintiff for actual damages.
90. Defendants willfully and intentionally defrauded plaintiff and so are liable to him for exemplary damages.
COUNT IV
NEGLIGENT MISREPRESENTATION
91. Plaintiff repeats and realleges each allegation contained above.
92. Plaintiff brings this Count against SCI and the Individual Defendants.
93. SCI and the Individual Defendant provided false information to plaintiff in the course of their business or in a transaction in which they had a pecuniary interest.
94. SCI and the Individual Defendants provided the false information for the guidance of plaintiff in plaintiff's business.
95. SCI and the Individual Defendants did not exercise reasonable care or competence in obtaining or communicating the information to plaintiff.
96. As a result of SCI's and the Individual Defendants' negligent misrepresentations, plaintiff suffered damages. Plaintiff's actual damages exceed $500,000 and include his loss on the value of his ECI stock and options.
Plaintiff's Original Petition 22
COUNT V
CONSPIRACY
97. Plaintiff repeats and realleges each allegation contained above.
98. SCI and Pricewaterhouse conspired to hide SCI's true value from the public for the purpose of inducing plaintiff, inter alia, to effect the Merger, and not trade his SCI or ECI stock. In furtherance of such purpose, SCI and Pricewaterhouse agreed to commit and did commit the violations of common law and statutory law described above. Plaintiff suffered damages in excess of $500,000 as a result of SCI's and Pricewaterhouse's unlawful acts.
WHEREFORE, plaintiff prays for relief and judgment as follows:
A. Compensatory damages against all defendants, jointly and severally, of not less than $500,000;
B. Exemplary damages against all defendants, jointly and severally, of not less than $5,000,000;
C. Interest on the damages in accordance with law;
D. Plaintiff's reasonable attorney's fees, expert witness fees and other costs of Court; and
E. Such other and further relief as the Court may deem just and proper.
VII. JURY TRIAL DEMANDED
Plaintiff demands a trial by jury.
Plaintiff's Original Petition 23
Respectfully submitted,
Buck, Keenan & Owens, L.L.P.
By: /s/ RANDALL C. OWENS
------------------------
Randall C. Owens
State Bar No. 15380700
|
700 Louisiana, Suite 5100
Houston, Texas 77002
(713) 225-4500
(713) 225-3719 Fax
ATTORNEYS FOR PLAINTIFF,
JACK T. HAMMER
OF COUNSEL:
SCHREEDER, WHEELER & FLINT, LLP
David H. Flint
Georgia Bar No. 264600
John A. Christy
Georgia Bar No. 125518
1600 Candler Building
127 Peachtree Street, N.E.
Atlanta, Georgia 30303
(404) 681-3450
Plaintiff's Original Petition 24
EXHIBIT 99.19
[FILED STAMP]
NO. 2000-63917
JACK T. HAMMER, ) IN THE DISTRICT COURT OF
)
)
Plaintiff, )
)
vs. )
)
SERVICE CORPORATION INTERNATIONAL, )
ROBERT L. WALTRIP, ) HARRIS COUNTY, TEXAS
L. WILLIAM HEILIGBRODT, )
GEORGE R. CHAMPAGNE, )
W. BLAIR WALTRIP, )
JAMES M. SHELGER, )
WESLEY T. MCRAE and )
PRICEWATERHOUSE COOPERS, L.L.P., )
)
Defendants. ) 165th JUDICIAL DISTRICT
|
SERVICE CORPORATION INTERNATIONAL, ROBERT L. WALTRIP,
L. WILLIAM HEILIGBRODT, GEORGE R. CHAMPAGNE, W. BLAIR WALTRIP,
JAMES M. SHELGER, AND WESLEY T. MCRAE'S ORIGINAL ANSWER
Defendants Service Corporation International, Robert L. Waltrip, L. William Heiligbrodt, George R. Champagne, W. Blair Waltrip, James M. Shelger and Wesley T. McRae (collectively "SCI Defendants") file their Original Answer, as follows.
GENERAL DENIAL
1. The SCI Defendants deny each and every, all and singular, material allegations contained in Plaintiff's Original Petition as provided under Rule 92 and demand that this court require the Plaintiff to prove its charges and allegations as required by the Constitution and laws of this state. Without waiving the foregoing general denial, the SCI Defendants assert the following affirmative defenses.
AFFIRMATIVE DEFENSES
2. Plaintiff has failed to take reasonable steps to mitigate damages.
3. Plaintiff's claim for exemplary or punitive damages is barred because exemplary or punitive damages are not properly available and/or any award of exemplary or punitive damages is unconstitutional.
4. Plaintiff's own conduct is the proximate cause of any damages sustained.
5. Pursuant to Section 33A(2) of the Texas Securities Act, Plaintiff knew of any alleged untruth or omission.
6. Pursuant to Section 33A(2) of the Texas Securities Act, the SCI Defendants did not know, and in the exercise of reasonable care, could not have known, of any alleged untruth or omission.
WHEREFORE, premises considered, Service Corporation International, Robert L. Waltrip, L. William Heiligbrodt, George R. Champagne, W. Blair Waltrip, James M. Shelger and Wesley T. McRae pray that a take-nothing judgment be entered against the Plaintiff in this case, that the Plaintiff's claims be dismissed with prejudice to refile the same, and that Service Corporation International, Robert L. Waltrip, L. William Heiligbrodt, George R. Champagne, W. Blair Waltrip, James M. Shelger and Wesley T. McRae receive any and all further relief to which they are entitled.
Respectfully submitted,
Bracewell & Patterson, L.L.P.
By: /s/ J. CLIFFORD GUNTER III BY MOH ----------------------------------------------- J. Clifford Gunter III State Bar No. 08627000 |
C. Thomas Kruse State Bar No. 11742535
Michael D. Hopkins State Bar No. 00793977
South Tower Pennzoil Place 711 Louisiana, Suite 2900 Houston, Texas 77002-2781 Telephone: (713) 223-2900 Facsimile: (713) 221-1212
Counsel for Defendants Service Corporation International, Robert L. Waltrip, L. William Heiligbrodt, George R. Champagne, W. Blair Waltrip, James M. Shelger and Wesley T. McRae
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing document has been forwarded by U. S. Certified Mail, return receipt requested, on this 22nd day of January, 2001 to:
Randall C. Owens The Owens Law Firm 1221 McKinney, Suite 3600 Houston, Texas 77010
David H. Flint Schreeder, Wheeler & Flint, LLP 1600 Candler Building 127 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attorneys for Plaintiff,
Jack T. Hammer
Harry M. Reasoner
James A. Reeder, Jr.
Vinson & Elkins L.L.P.
1001 Fannin Street #2300
Houston, Texas 77002-6760
Attorneys for Defendant
Pricewaterhouse Coopers LLP
/s/ MICHAEL D. HOPKINS BY [ILLEGIBLE] --------------------------------------- Michael D. Hopkins |