UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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Service Corporation International
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[SERVICE CORPORATION INTERNATIONAL(R) LOGO]
SERVICE
CORPORATION
INTERNATIONAL
PROXY STATEMENT
AND 2002 ANNUAL MEETING NOTICE
SERVICE CORPORATION INTERNATIONAL
1929 ALLEN PARKWAY, P.O. BOX 130548
HOUSTON, TEXAS 77219-0548
---------------------
PROXY STATEMENT AND
2002 ANNUAL MEETING
NOTICE
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 9, 2002
TO OUR SHAREHOLDERS:
The Annual Meeting of Shareholders of Service Corporation International
will be held in the Newmark Group Auditorium, American Funeral Service Training
Center, 415 Barren Springs Drive, Houston, Texas 77090, on Thursday, May 9,
2002, at 10:00 a.m., Houston time, for the following purposes:
(1) To elect four directors as members of the class of directors to
serve until the third succeeding Annual Meeting of Shareholders and until
their successors have been elected and qualified;
(2) To consider and act on a proposal to approve the selection of
PricewaterhouseCoopers LLP as independent accountants for the 2002 fiscal
year; and
(3) To act on such other business that may properly come before the
Annual Meeting or any adjournment(s) thereof.
The transfer books of the Company will not be closed, but only holders of
Common Stock of record at the close of business on March 21, 2002 will be
entitled to notice of and to vote at the Annual Meeting. A majority of the
outstanding stock entitled to vote is required for a quorum.
Management sincerely desires your presence at the Annual Meeting. However,
so that we may be sure that your vote will be included, please sign and date the
enclosed proxy and return it promptly in the enclosed stamped envelope. If you
attend the Annual Meeting, you may revoke your proxy and vote in person.
By Order of the Board of Directors,
James M. Shelger, Secretary
Houston, Texas
April 12, 2002
PROXY STATEMENT
SERVICE CORPORATION INTERNATIONAL
1929 Allen Parkway, P.O. Box 130548 Houston, Texas 77219-0548
SOLICITATION AND REVOCABILITY OF PROXIES
This proxy statement is furnished in connection with the solicitation by
the Board of Directors of Service Corporation International, a Texas corporation
("SCI" or the "Company"), of proxies to be used at the Annual Meeting of
Shareholders to be held in the Newmark Group Auditorium, American Funeral
Service Training Center, 415 Barren Springs Drive, Houston, Texas 77090, on
Thursday, May 9, 2002, at 10:00 a.m., Houston time, and at any recess or
adjournments thereof. This proxy statement and the accompanying proxy are being
mailed to shareholders on or about April 12, 2002. A copy of the Annual Report
to Shareholders of the Company for the fiscal year ended December 31, 2001,
including the consolidated financial statements, is being mailed with this proxy
statement to all shareholders entitled to vote at the Annual Meeting.
At March 21, 2002, the Company had outstanding and entitled to vote
293,156,506 shares of Common Stock, $1.00 par value ("Common Stock"). The
holders of Common Stock will be entitled to one vote per share on each matter
considered (cumulative voting is not permitted). A majority of the votes
entitled to be cast must be represented at the Annual Meeting, in person or by
proxy, for a quorum to be present for the transaction of business. Only
shareholders of record at the close of business on March 21, 2002 will be
entitled to vote at the Annual Meeting. The affirmative vote of a majority of
the total shares represented in person or by proxy and entitled to vote at the
Annual Meeting is required for (a) the election of directors, (b) the approval
of the selection of independent accountants, and (c) the approval of such other
matters as may properly come before the Annual Meeting or any adjournment
thereof.
The enclosed proxy, even though executed and returned, may be revoked at
any time prior to its voting by a later dated proxy or by written notice of
revocation filed with the Secretary of the Company. Shareholders who attend the
Annual Meeting may revoke their proxies and vote in person.
In the election of directors, a shareholder has the right to vote the
number of his or her shares for as many persons as there are directors to be
elected. Abstentions are counted toward the calculation of a quorum. An
abstention has the same effect as a vote against the proposal or, in the case of
the election of directors, as shares to which voting power has been withheld.
Under Texas law, any unvoted position in a brokerage account with respect to any
matter will be considered as not voted and will not count toward a quorum as to
that matter.
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, each with staggered
terms of three years. Four directors whose terms expire at this Annual Meeting
have been renominated for three-year terms expiring at the 2005 Annual Meeting
of Shareholders. The terms of office of the directors in the other two classes
expire at the Annual Meetings of Shareholders to be held in 2003 and 2004.
The enclosed proxy provides a means for the holders of Common Stock to vote
for all of the nominees listed therein, to withhold authority to vote for one or
more of such nominees or to withhold authority to vote for all of such nominees.
Each properly executed proxy received in time for the Annual Meeting will be
voted as specified therein, or if a shareholder does not specify how the shares
represented by his or her proxy are to be voted, such shares shall be voted for
the nominees listed therein or for other nominees as provided below.
Although the Board of Directors does not contemplate that any nominee will
be unable or unwilling to serve, if such a situation arises, the proxies that do
not withhold authority to vote for directors will be voted for a substitute
nominee(s) chosen by the Board. Proxies cannot be voted on the election of
directors for a greater number of persons than four, which is the number of
nominees named herein.
The following table sets forth, as to each nominee for election and each
director whose term will continue, such person's name and age, the committees on
which such person serves, the person's current principal occupation and the year
in which such person was first elected a director of the Company.
DIRECTOR
DIRECTOR NAME PRINCIPAL OCCUPATION SINCE AGE
------------- -------------------- -------- ---
DIRECTOR NOMINEES FOR TERMS EXPIRING AT THE 2005 ANNUAL MEETING:
Jack Finkelstein(1)(3)(4).............. Personal and family trust investments 1965 74
James H. Greer(2)...................... Chairman of the Board of Shelton W. Greer 1978 75
Co., Inc. (engineering, manufacturing,
fabrication and installation of building
specialty products)
Clifton H. Morris, Jr.(1)(3)........... Chairman of the Board of AmeriCredit Corp. 1990 66
(financing of automotive vehicles)
W. Blair Waltrip(1)(4)................. Independent consultant, family and trust 1986 47
investments
DIRECTORS WHOSE TERMS EXPIRE AT THE 2003 ANNUAL MEETING:
Anthony L. Coelho(1)(2)(4)............. Independent business consultant 1991 59
A. J. Foyt, Jr. ....................... President of A. J. Foyt Enterprises, Inc. 1974 67
(designer, manufacturer and exhibitor of
high-speed engines and racing vehicles and
marketer of automotive vehicles)
E. H. Thornton, Jr.(1)(2)(3)........... Attorney with Thornton & Burnett, Attorneys 1962 92
at Law
R. L. Waltrip(1)(4)(5)................. Chairman of the Board and Chief Executive 1962 71
Officer of the Company
Edward E. Williams(1)(3)(4)(5)......... Henry Gardiner Symonds Professor and 1991 56
Director of the Entrepreneurship Program at
the Jesse H. Jones Graduate School of
Management at Rice University
DIRECTORS WHOSE TERMS EXPIRE AT THE 2004 ANNUAL MEETING:
B. D. Hunter(1)(5)..................... Vice Chairman of the Company 1986 72
John W. Mecom, Jr.(2).................. Chairman of the Board of The John W. Mecom 1983 62
Co. (personal and family investments)
Victor L. Lund(1)(3)................... Vice Chairman of the Board of Albertson's, 2000 54
Inc. (supermarket company)
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(1) Member of Executive Committee
(2) Member of Compensation Committee
(3) Member of Audit Committee
(4) Member of Investment Committee
(5) Member of 1996 Nonqualified Incentive Plan Stock Option Committee
Each director has been engaged in his current principal occupation set
forth in the table during the last five years except as indicated below. Also
set forth below are certain other directorships held by directors.
Anthony L. Coelho served as the general chairman of the presidential
campaign of former Vice President Al Gore from October 1999 until June 2000.
From September 1997 to July 1999, Mr. Coelho was a consultant to
Telecommunications, Inc. From July 1995 to November 1997, Mr. Coelho served as
Chairman and Chief Executive Officer of Coelho Associates, L.L.C. (investment
consulting and brokerage firm) and served from October 1995 to September 1997 as
Chairman and Chief Executive Officer of ETC w/tci (training and communication
firm). Mr. Coelho is a member of the Board of Directors of Cyberonics, Inc.,
Cadiz, Inc. and MangoSoft, Inc.
2
James H. Greer is a member of the Board of Directors of AmeriCredit Corp.
B.D. Hunter was appointed Vice Chairman of the Company in January 2000. For
more than five years, Mr. Hunter has been Chairman of Huntco, Inc., an
intermediate steel processor, and was also its Chief Executive Officer prior to
May 2000. In February 2002, Huntco, Inc. filed a petition for bankruptcy under
Chapter 11 of the United States Bankruptcy Code. Mr. Hunter is a member of the
Board of Directors of Cash America International, Inc.
Victor L. Lund has served as Vice Chairman of the Board of Albertsons, Inc.
since June 1999. Prior thereto, Mr. Lund served 22 years at American Stores
Company in various positions, including Chairman of the Board and Chief
Executive Officer. Mr. Lund is a member of the Board of Directors of Borders
Group, Inc.
Clifton H. Morris, Jr. is a member of the Board of Directors of Cash
America International, Inc.
W. Blair Waltrip served as an Executive Vice President of the Company for
more than five years until January 2000. He is a member of the Board of
Directors of Pinnacle Global Group Inc. Mr. W. Blair Waltrip is the son of Mr.
R. L. Waltrip.
Edward E. Williams is a member of the Board of Directors of Equus II
Incorporated.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held five meetings during 2001. Standing committees
of the Board include the Executive Committee, Audit Committee, Compensation
Committee, Investment Committee and 1996 Nonqualified Incentive Plan Stock
Option Committee.
The Executive Committee has authority to exercise many of the powers of the
Board between Board meetings, including selection on its own motion of nominees
for election to the Board. The Executive Committee held five meetings during
2001.
The function of the Audit Committee is described hereinafter under "Audit
Committee Report". During 2001, the Audit Committee held four meetings.
The Compensation Committee, which has the general duty to review and
approve compensation for officers, including the granting of bonuses and the
administration of the Company's stock and stock option plans, held two meetings
during 2001.
The Investment Committee's primary functions are to establish overall
guidelines for, and review the transactions in, the investment portfolios of
independent trusts which hold funds collected by the Company that are required
to be held in trust under various state laws. During 2001, the Investment
Committee held four meetings.
The 1996 Nonqualified Incentive Plan Stock Option Committee administers the
1996 Nonqualified Incentive Plan. Since the committee generally takes action
pursuant to unanimous consents, the committee did not hold any meetings in 2001.
During 2001, each incumbent director attended at least 75% of the total
number of meetings of the Board and committees on which he served.
3
PERFORMANCE GRAPH
The following graph presents the Company's cumulative shareholder return
over the period from December 31, 1996 to December 31, 2001. The Common Stock of
the Company is compared to the S&P 500 Index and to an index of an industry peer
group selected by the Company (the "Peer Group"). The graph assumes $100 is
invested on December 31, 1996 in the Common Stock of the Company, the S&P 500
Index, and the Peer Group Index. Investment is weighted on the basis of market
capitalization. Total return data assumes the reinvestment of dividends.
The data source for the following graph is S&P Compustat Services.
COMPARISON OF CUMULATIVE SHAREHOLDER RETURN
1996-2001
[PERFORMANCE GRAPH]
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1996 1997 1998 1999 2000 2001
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SCI................ 100.00 132.43 138.39 25.86 6.52 18.60
S&P 500 Index...... 100.00 133.36 171.48 207.56 188.66 166.24
Peer Group Index... 100.00 139.70 152.59 69.80 94.59 119.09
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The Peer Group is comprised of Carriage Services Inc., Hillenbrand Industries,
Inc., Matthews International Corp., Rock of Ages Corporation and Stewart
Enterprises, Inc. Although it was included in the new peer group in last year's
performance graph, The York Group Inc. is not included in this year's Peer Group
because The York Group Inc. was acquired by Matthews International Corp. in
2001.
4
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is a committee of
outside directors chaired by Mr. Anthony L. Coelho. Other members are Messrs.
James H. Greer, John W. Mecom, Jr. and E. H. Thornton, Jr. This Committee is
responsible for reviewing and approving all elements of the total compensation
program for officers of the Company, including long-term incentive arrangements.
The Committee has ultimate responsibility for aligning the Company's total
compensation programs with its business strategy and for assuring shareholders
that pay delivery programs are effective, responsible and competitive when
compared to similarly situated organizations. This Committee report documents
the basis on which 2001 compensation determinations were made and further
describes the components of officer compensation programs for the Company.
COMPENSATION PHILOSOPHY AND OBJECTIVES OF EXECUTIVE COMPENSATION PROGRAMS
It is the philosophy of the Company and the Committee that all compensation
programs should (1) link pay and performance, and (2) attract, motivate, reward
and retain the broad-based management talent required to achieve corporate
objectives. The Company also focuses strongly on cash and stock-based
compensation, since incentive compensation provides the clearest link to
enhanced shareholder value. From time to time, the Committee works with
compensation consultants to assist with the design, implementation and
communication of various compensation plans. These programs include base
salaries, annual performance-based incentives and long-term incentives, all as
further detailed below.
BASE SALARIES
Base salaries for the Company's officers in 2001 were reviewed through
comparisons with a group of 178 companies of similar size (as measured by
revenues) across various industries (the "Comparison Group"). The competitive
pay data is not drawn from the entire group of companies which comprise the Peer
Group reflected in the performance graph in this proxy statement since the
Committee believes revenue size and earnings level comparisons are more
appropriate criteria for establishing base salary and annual incentive
compensation rates. There has been no attempt to tie together the performance
graph companies and the Comparison Group although there is some overlap between
the groups. The Committee does not consider any financial performance criteria
on a formula basis in determining salary increases. Rather, the Committee, using
its discretion, considers market base salary rates, average annual salary
increases for executives in companies of all sizes across the country, earnings
per share growth, operating income growth, sales growth, and total shareholder
return. The Committee also makes a subjective review of individual performance
in making base salary decisions for officers. These criteria are assessed in a
non-formula fashion and are not weighted. All of the officers shown in the
summary compensation table (the "Named Executives") have employment agreements
(see "Executive Employment Agreements" and "Other Executive Employment
Agreements"). Under these agreements, the Committee has the sole discretion for
determining any increase in base salary; however, under the agreements, base
salaries may not be decreased. In 2001, none of the Named Executives (except Mr.
Hunter) received a base salary increase. A base salary increase was provided to
Mr. Hunter to reflect an increase in the market value of his position and his
strong contributions to the improvement and disposition or joint venture of
certain foreign operations of SCI. The current base salary levels for Named
Executives are, overall, consistent with the Company's philosophy of targeting
the 75th percentile of salaries of the Comparison Group. With respect to an item
of compensation of an executive, the term "75th percentile" means a level of
compensation which is greater than the compensation of peer executives at 75% of
the companies in a survey or selected group of companies.
ANNUAL INCENTIVE COMPENSATION
All of the Company's officers have a significant portion of their total
compensation at risk through annual incentive opportunities that are linked to
key financial and operational objectives for the Company on a consolidated
basis. The objective of this policy is to focus the Named Executives on the
attainment of objectives that the Committee believes are primary determinants of
share price over time. For 2001, the two performance measures were (1) operating
free cash flow and (2) the ratio of earnings before interest, taxes,
5
depreciation, and amortization ("EBITDA") to average total capital ratio. Each
of these measures was weighted 50% of the total and was assessed relative to the
Company's 2001 business plan. Performance targets on these measures were
established by the Committee during the first quarter of 2001. Actual awards are
proportionately decreased or increased on the basis of the Company's performance
compared to target, subject to maximum award amounts. For executive officers as
a group, target award levels for 2001 were generally set at approximately the
75th percentile of the Comparison Group.
The Company's actual performance on the operating free cash flow measure
was substantially above target, while the Company's performance on the EBITDA to
average total capital ratio fell below target. As a result, actual bonuses for
Named Executives were at target.
LONG-TERM INCENTIVE COMPENSATION
In recent years, the Committee has placed significant emphasis on
stock-based compensation for officers. Stock options were granted to the Named
Executives and other officers in 2001. The stock option awards were established
at a level reflecting the Company's philosophy of focusing strongly on
stock-based compensation, and as a result were targeted at the 75th percentile
of long-term incentive awards of the Comparison Group. These stock options were
granted with exercise prices equal to 100% of the fair market value of the
Common Stock on the grant date. The options vest at a rate of one-third per year
and have an eight year term.
2001 CHIEF EXECUTIVE OFFICER COMPENSATION
As described above, the Company manages its pay for all executives,
including the Chief Executive Officer ("CEO"), considering both a
pay-for-performance philosophy and market rates of compensation for each
executive position. Specific actions taken by the Committee regarding the CEO's
compensation are summarized below.
Base Salary
In 2001, Mr. R. L. Waltrip did not receive a base salary increase. The
decision regarding Mr. Waltrip's base salary was determined on the same basis as
salary increases for other officers.
Annual Incentive Compensation
The CEO's annual incentive for 2001 was $712,500, which was the target
established by the Committee and represents the 50th percentile of target annual
incentives of the Comparison Group. This award was determined using the same
factors used to determine annual incentives for other Named Executives, as
described above.
Long-Term Incentive Compensation
The CEO received a grant of 1,400,000 stock options in February 2001
targeted slightly above the 75th percentile of the Comparison Group. These
awards vest at a rate of one-third per year. These stock options have an eight
year term and were granted with an exercise price equal to 100% of fair market
value of the Common Stock on the grant date.
6
LIMITATION OF TAX DEDUCTION FOR EXECUTIVE COMPENSATION
Subject to certain exceptions, the Omnibus Budget Reconciliation Act of
1993 ("OBRA") prohibits publicly traded companies from receiving a tax deduction
on compensation paid to named executive officers in excess of $1,000,000
annually. Although the Committee has not adopted a policy relating to OBRA, the
Committee considers the OBRA restrictions when structuring compensation
programs. However, the Committee believes that compensation is more important
than tax deductibility in focusing management on its goal of increasing
shareholder value.
COMPENSATION COMMITTEE:
Anthony L. Coelho, Chairman
James H. Greer
John W. Mecom, Jr.
E. H. Thornton, Jr.
7
CERTAIN INFORMATION WITH RESPECT TO OFFICERS AND DIRECTORS
CASH COMPENSATION
The following table sets forth information for the three years ended
December 31, 2001 with respect to the Chief Executive Officer and the four other
most highly compensated executive officers of the Company. The determination as
to which executive officers were most highly compensated was made with reference
to the amounts required to be disclosed under the "Salary" and "Bonus" columns
in the table.
SUMMARY COMPENSATION TABLE
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LONG-TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
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RESTRICTED LONG-TERM
NAME AND OTHER ANNUAL STOCK STOCK INCENTIVE
PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION(2) AWARD OPTIONS PAYOUTS
---------------------------------------------------------------------------------------------------------------------
R. L. Waltrip 2001 $1,000,250 $712,500 $241,772 $0 1,400,000 $0
Chairman and 2000 1,001,000 712,500 259,320 0 1,200,000 0
Chief Executive Officer 1999 970,000 0 302,262 0 1,200,000 0
B. D. Hunter(4) 2001 629,250 420,000 40,698 0 1,100,000 0
Vice Chairman 2000 451,000 280,000 26,912 0 900,000 0
Jerald L. Pullins 2001 525,000 367,500 37,138 0 600,000 0
President and 2000 525,000 367,500 37,723 0 750,000 0
Chief Operating Officer 1999 445,000 0 120,365 0 300,000 0
Jeffrey E. Curtiss(4) 2001 400,000 280,000 19,322 0 400,000 0
Senior Vice President and 2000 400,000 280,000 15,694 0 300,000 0
Chief Financial Officer
James M. Shelger 2001 350,000 245,000 19,119 0 400,000 0
Senior Vice President, 2000 350,000 245,000 32,072 0 225,000 0
General Counsel and 1999 340,000 0 75,709 0 100,000 0
Secretary
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----------------------------- ---------------
----------------------------- ---------------
NAME AND ALL OTHER
PRINCIPAL POSITION COMPENSATION(3)
----------------------------- ---------------
R. L. Waltrip $247,554
Chairman and 244,309
Chief Executive Officer 249,267
B. D. Hunter(4) 9,518
Vice Chairman 2,538
Jerald L. Pullins 60,355
President and 50,739
Chief Operating Officer 51,117
Jeffrey E. Curtiss(4) 10,235
Senior Vice President and 5,135
Chief Financial Officer
James M. Shelger 33,297
Senior Vice President, 21,342
General Counsel and 21,559
Secretary
--------------------------------------------------------------
(1) Salary includes director fees of $50,250 for Mr. R. L. Waltrip and $29,250
for Mr. Hunter for 2001.
(2) Figures include executive perquisites and benefits, including, for 2001,
$110,500 for Interest Reimbursement for Mr. R. L. Waltrip. For each of the
other Named Executives, the aggregate of the executive's perquisites and
benefits in 2001 did not exceed the lesser of $50,000 or 10 percent of the
total of the executive's annual salary and bonus. "Interest Reimbursement"
means a payment to the individual as reimbursement of interest paid by him
on the loan from the Company described in the third paragraph under "Certain
Transactions."
(3) Consists of the following for 2001: $233,047 for split dollar life
insurance, $2,439 for term life insurance and $12,068 for Company
contributions to the Company's 401(k) plan for Mr. R. L. Waltrip; $9,518 for
Company contributions to the Company's 401(k) plan for Mr. Hunter; $49,558
for split dollar life insurance, $984 for term life insurance and $9,813 for
Company contributions to the Company's 401(k) plan for Mr. Pullins; $2,585
for term life insurance and $7,650 for Company contributions to the
Company's 401(k) plan for Mr. Curtiss; and $20,768 for split dollar life
insurance, $461 for term life insurance and $12,068 for Company
contributions to the Company's 401(k) plan for Mr. Shelger.
(4) Messrs. Hunter and Curtiss joined the Company as officers in January 2000.
Therefore, no remuneration for these officers is reported for 1999, although
Mr. Hunter did receive compensation as a director in 1999.
8
STOCK OPTIONS
OPTION GRANTS IN 2001
NUMBER OF % OF TOTAL
SCI SHARES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES PRICE PER EXPIRATION PRESENT
NAME GRANT DATE GRANTED(1) IN 2001 SHARE(2) DATE VALUE(3)
---- ---------- ---------- ---------- --------- ---------- ----------
R. L. Waltrip..................... 2/14/01 1,400,000 15.41% $3.745 2/14/09 $3,650,220
B. D. Hunter...................... 2/14/01 1,100,000 12.11% $3.745 2/14/09 $2,868,030
Jerald L. Pullins................. 2/14/01 600,000 6.61% $3.745 2/14/09 $1,564,380
Jeffrey E. Curtiss................ 2/14/01 400,000 4.40% $3.745 2/14/09 $1,042,920
James M. Shelger.................. 2/14/01 400,000 4.40% $3.745 2/14/09 $1,042,920
---------------
(1) The stock options vest one-third on each anniversary of the grant date. Each
option will also fully vest upon a change of control of the Company (as
defined in the Amended 1996 Incentive Plan) or in certain circumstances
involving termination of employment.
(2) The exercise price for all grants is the market price at the date of grant.
(3) The present value of the options is based on a present value model known as
the "Black-Scholes option pricing model." The choice of such valuation
method does not reflect any belief by the Company that such a method, or any
other valuation method, can accurately assign a value to an option at the
grant date. The assumptions used for valuing the 2001 grants are: volatility
rate of 59.2%; annual dividend yield of 0%; turnover rate of 3%; and risk
free interest rate of 5.28%.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND DECEMBER 31, 2001 OPTION
VALUES
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 2001 DECEMBER 31, 2001
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
R. L. Waltrip............... 0 0 4,018,501 3,800,002 $348,666 $2,440,334
B. D. Hunter................ 0 0 300,000 1,700,000 $261,500 $1,892,500
Jerald L. Pullins........... 0 0 954,998 1,706,552 $217,916 $1,182,834
Jeffrey E. Curtiss(1)....... 0 0 99,998 600,002 $ 87,163 $ 672,337
James M. Shelger............ 0 0 346,666 828,334 $ 65,375 $ 628,750
---------------
(1) The options reported above for Mr. Curtiss include an option for 100,000
shares that Mr. Curtiss transferred to trusts for the benefit of certain
family members, of which options Mr. Curtiss disclaims beneficial ownership.
RETIREMENT PLANS
SCI Cash Balance Plan
The SCI Cash Balance Plan is a defined benefit plan. Each participant in
the plan has an account which until December 31, 2000, was credited, each year
that a participant qualified, with a Company contribution (based on annual
compensation and years of benefit service) and interest.
The Company amended the SCI Cash Balance Plan effective January 1, 2001
such that the Company would not make any further contributions under the plan
after 2000. Plan accounts continue to accrue interest and, for 2001, interest
for each account was credited at the annual rate of 5.33%.
9
Estimated Annual Benefits Payable at Age 65
NAME ANNUAL BENEFIT
---- --------------
R. L. Waltrip............................................... $118,852(1)
B. D. Hunter................................................ 28,884(2)
Jerald L. Pullins........................................... 23,820(3)
Jeffrey E. Curtiss.......................................... -0-
James M. Shelger............................................ 28,030(3)
---------------
(1) Currently being paid.
(2) Mr. Hunter previously worked for SCI and is currently being paid a benefit
in accordance with the terms of the plan in existence at the time the
previous period of employment terminated. Due to Mr. Hunter being rehired by
SCI in 2000, a contribution to his account was credited for 2000 in addition
to the benefit currently being paid. In 2001, the credited amount was
distributed to Mr. Hunter in the amount of $9,475 pursuant to the age 70 1/2
distribution rules. Other than the monthly benefit currently being paid, no
further benefit will accrue to or become payable to Mr. Hunter from the
plan.
(3) The estimated annual benefit amount assumes no contributions being made to
the plan after December 31, 2000 and assumes interest being credited only
until age 65.
Normal Retirement Age is defined in the SCI Cash Balance Plan as (1) the
date upon which a member attains age 65 or (2) in the case of an employee who
becomes a member of the SCI Cash Balance Plan after the age of 60, it will be
the fifth anniversary of the date that such member became a participant.
Supplemental Executive Retirement Plan for Senior Officers
The Supplemental Executive Retirement Plan for Senior Officers ("SERP for
Senior Officers") is a non-qualified plan which covers executive officers and
certain regional operating presidents, including the Named Executives. Benefits
under the SERP for Senior Officers do not consist of compensation deferred at
the election of participants. The amounts of benefits under the plan are set by
the Compensation Committee from time to time. The Compensation Committee
previously set guidelines such that the annual benefits would generally equal a
percentage (75% for the CEO and lesser percentages for the other officers) of a
participant's 1997 annual base salary and target bonus, with the benefits being
reduced to the extent of the participant's benefits under Social Security and
the SCI Cash Balance Plan. The participant will be entitled at age 60 to the
annual payment of the full amount of his benefit; if his employment terminates
earlier than age 60, he will be entitled to the annual payment of the amount of
his benefit multiplied by a fraction of which the numerator is the participant's
years of service and the denominator is the number of years from the
participant's hire date until he reaches age 60. These guidelines will not be
applied if the participant would have been entitled to higher benefits under the
Compensation Committee's previous guidelines.
In 2000, the Company amended the SERP for Senior Officers effective January
1, 2001. Under the amendment, no additional benefits will accrue and no
employees shall become eligible to participate in the plan after 2000.
Benefit payments will be made in the form of 180 monthly installments
commencing at the later of severance of employment or the attainment of age 55.
Prior to retirement, if a participant dies or in the event of a change of
control of the Company (as defined in the SERP for Senior Officers), the Company
will promptly pay to each beneficiary or participant a lump sum equal to the
present value of the benefit that the participant would have been entitled to
receive if he had continued to accrue benefit service from the date of death or
the date of the change of control to the date of his 65th birthday. Participants
may elect to begin receiving monthly benefits at age 55, while still employed,
provided the participant gives written notice at least twelve months prior to
the attainment of age 55. Such installments will be reduced for early
commencement to reasonably reflect the time value of money.
10
The table below sets forth benefits for the Named Executives.
ANNUAL BENEFITS UNDER SERP FOR SENIOR OFFICERS
ESTIMATED ANNUAL
BENEFIT AT AGE 60
-----------------
R. L. Waltrip............................................... $1,110,773(1)
B. D. Hunter................................................ -0-
Jerald L. Pullins........................................... 273,908
Jeffrey E. Curtiss.......................................... 22,977
James M. Shelger............................................ 143,235
---------------
(1) This is Mr. R. L. Waltrip's actual benefit which, pursuant to his election,
is being paid in the form of monthly installments beginning January 1, 1995.
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has executive employment agreements with Messrs. R. L. Waltrip
and Pullins. The agreements have an initial term of five years for Mr. R. L.
Waltrip and three years for Mr. Pullins. Upon annual authorization by the
Compensation Committee of the Board of Directors, the terms of the agreements
are extended for an additional year unless notice of nonrenewal is given by
either party. If such notice of nonrenewal is given by the Company or if notice
is not given of the Compensation Committee's decision to authorize renewal, the
employment period is extended so as to terminate the same number of years after
the date of such notice as the original term of the agreement. For 2001, the
agreements were not renewed and will terminate when their respective terms
expire on December 31 of 2004 for Mr. R. L. Waltrip and 2002 for Mr. Pullins.
The agreements provide for base salaries, which may be increased (but not
decreased) by the Compensation Committee, and the right to participate in bonus
and other compensation and benefit arrangements. As of March 21, 2002, the base
salaries for Messrs. R. L. Waltrip and Pullins were $950,000 and $525,000,
respectively.
In the event of termination of employment due to disability or death, the
executive or his estate will be entitled to receive any accrued and unpaid
salary or other compensation, a pro rata portion (based on the portion of the
year elapsed at the date of termination) of the highest bonus the executive
received in the preceding three years and continuation of welfare plan benefits.
If an executive is terminated without cause or he voluntarily terminates for
certain specified reasons generally relating to a failure by the Company to
honor the terms of the employment agreement ("Good Reason"), he will be entitled
to continuation of compensation and certain other benefits for the remaining
term of his employment agreement. In the event of a change of control of the
Company (as defined in the agreements), the executive will be entitled to
terminate his employment for Good Reason, or without any reason during the
30-day period beginning one year after the change of control (the "Window
Period"), and receive a lump-sum payment equal to (a) any accrued and unpaid
salary or other compensation plus (b) a pro rata portion (based on the portion
of the year elapsed at the date of termination) of the highest bonus the
executive received in the preceding three years plus (c) a multiple (equal to
the number of years in the initial term) of both the executive's base salary and
his highest recent bonus.
Upon termination of Mr. R. L. Waltrip's employment, he will be subject to a
10 year non-competition obligation; however, the Company will not be required to
make any further payments to Mr. Waltrip for the non-competition obligation.
Upon termination of his employment, Mr. Pullins will be subject, at the
Company's option, to a non-competition obligation for a period of three years.
If the Company elects to have the non-competition provisions apply, during the
non-competition period the Company will make payments to Mr. Pullins at a rate
equal to his base salary at the time of termination, unless such termination was
for cause or he terminates his employment other than for Good Reason or during
the Window Period, in which case Mr. Pullins will be bound by the
non-competition provisions without the Company making the corresponding
11
payments. Any payments relating to the non-competition provisions will be
reduced to the extent Mr. Pullins has received a lump-sum payment in lieu of
salary and bonus after termination of employment.
If any payments under the executive employment agreements or under the
benefit plans of the Company (including the SERP for Senior Officers and stock
option plans)would subject the executive to any excise tax under the Internal
Revenue Code, the executive will also be entitled to receive an additional
payment in an amount such that, after the payment of all taxes (income and
excise), the executive will be in the same after-tax position as if no excise
tax had been imposed.
OTHER EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has employment agreements with Messrs. B. D. Hunter, Jeffrey E.
Curtiss and James M. Shelger and all executive officers (other than Messrs.
Waltrip and Pullins, whose agreements are described in the preceding section).
These agreements have an initial term expiring December 31, 2002. Annually, the
Company may extend the agreements for an additional year unless notice of
nonrenewal is given by either party. If such notice of nonrenewal is given by
the Company or if notice is not given of the Company's decision to authorize
renewal, the employment agreement will not be extended.
These agreements provide for base salaries, which may be increased by the
Company, and the right to participate in bonus and other compensation and
benefit arrangements. As of March 21, 2002, the base salaries for Messrs.
Hunter, Curtiss and Shelger were $600,000, $400,000 and $350,000, respectively.
In the event of termination of employment due to disability, death, or
termination by the Company without cause, the executive or his estate will be
entitled to receive (i) his salary through the end of his employment term, and
(ii) a pro rata portion (based on the portion of the year elapsed at the date of
termination) of the bonus the executive would have received if he had remained
an employee through his employment term ("Pro Rated Bonus"). In the event of a
change of control of the Company (as defined in the agreements), the executive
will be entitled to receive a lump-sum payment equal to the sum of two years
salary plus a Pro Rated Bonus if, during the twelve months following the change
of control, the executive terminates his employment without any reason or is
terminated by the Company without cause.
Upon termination of his employment, each executive will be subject, at the
Company's option, to a non-competition obligation for a period of one year which
the Company may extend for one additional year. If the Company elects to have
the non-competition provisions apply, during the non-competition period the
Company will make payments to the executive at a rate equal to his base salary
at the time of termination, unless such termination was for cause or the
executive terminates his employment (other than within twelve months after a
change of control), in which case the executive will be bound by the
non-competition provisions without the Company making the corresponding
payments.
OTHER COMPENSATION
Certain Named Executives and other officers participate in the Split Dollar
Life Insurance Plan, under which they are owners of life insurance policies
providing death benefits to three Named Executives as follows: $2,000,000 for
Mr. R. L. Waltrip; $1,000,000 for Mr. Pullins; and $750,000 for Mr. Shelger. SCI
advances the annual premium on each policy, with the executive paying income tax
on the term cost of the death benefit. Each executive participant collaterally
assigned an interest in the policy to SCI in an amount equal to its cumulative
premiums paid. SCI will recover its cumulative premiums paid at the earlier of
15 years or death.
DIRECTOR COMPENSATION
The current rates of directors' and committee fees are $5,250 quarterly
plus $6,000 for each meeting of the Board attended (payable to all directors),
and $1,500 for each committee meeting attended (payable to non-employee
directors only). Pursuant to the Director Fee Plan, the quarterly fees ($5,250
per quarter) are paid in Common Stock or, at each director's option, deferred
Common Stock equivalents. Under the plan, the shares of Common Stock issued in
lieu of cash fees are issued once a year on the day after the annual meeting
12
of shareholders in an amount equal to four quarterly fees. In May 2001, each
director or director emeritus received under the plan 3,344 shares of Common
Stock or deferred Common Stock equivalents.
In addition, directors or directors emeritus who are not employees of the
Company or its subsidiaries receive yearly awards of restricted Common Stock
through 2005 pursuant to the 2001 Stock Plan For Non-Employee Directors. Each
award is made on the second Thursday of May for an amount of shares determined
by the Board, which amount shall not exceed 15,000 shares per director in any
year. Each award has a restriction period which lapses on the second Thursday in
May of the year following the year the award is granted. If the director
terminates service as a director for any reason other than disability or death
prior to the lapse of the restriction period, the restricted shares are
forfeited. The restrictions lapse upon the occurrence of death or total and
permanent disability of the director or upon a change of control of the Company
(as defined in the plan). While the restrictions are in effect, the shares
cannot be sold, pledged or transferred. Except for the restrictions described
above, a participant in the plan who has been awarded shares of restricted
Common Stock has all the rights of a holder of Common Stock, including the right
to receive dividends paid on such shares and the right to vote such shares. In
2001, each of the ten directors who were not employees and the director emeritus
received an award of 10,000 shares under the plan.
The Company maintains a Retirement Plan for Non-Employee Directors. Under
this plan, each of the directors (excluding Messrs. Lund and W. Blair Waltrip)
who is not an employee of the Company, including the director emeritus, is
designated as a plan participant. Mr. Hunter is a participant since he was a
non-employee director prior to becoming an employee in January 2000. Under the
plan, each participant is entitled to receive annual retirement benefits of
$42,500 for ten years, subject to a vesting schedule. The retirement benefits
vest in 25% increments at the end of five years, eight years, eleven years and
fifteen years of credited service, except that the benefits automatically vest
100% in the event of death while a director or in the event of a change in
control of the Company (as defined in the plan). Effective January 1, 2001, the
plan was amended such that only years of service prior to 2001 will be
considered for vesting purposes.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 2001, the members of the Compensation Committee of the Board of
Directors of the Company were Messrs. Anthony L. Coelho, James H. Greer, John W.
Mecom, Jr. and E. H. Thornton, Jr. No member of the Compensation Committee was,
during 2001, an officer or employee of the Company or any of its subsidiaries,
or was formerly an officer of the Company or any of its subsidiaries or had any
relationships requiring disclosure by the Company.
CERTAIN TRANSACTIONS
For 2001, the Company paid $100,524 in compensation and granted stock
options for 4,000 shares of Common Stock to Mr. Kevin Mack in his capacity as an
employee of the Company. Mr. Mack is the brother of Mr. Stephen M. Mack, Vice
President North American Funeral Operations of the Company.
In 2001, the Company paid $32,250 in director fees (of which $21,000 was
paid in the form of 3,344 shares of Common Stock) and awarded 10,000 restricted
shares of Common Stock of the Company to Ms. Wanda A. McGee, mother of Mr. R. L.
Waltrip, in her capacity as director emeritus of the Company. Pursuant to a
resolution adopted by the Board in 1983, Ms. McGee was entitled as director
emeritus to receive such fees and other emoluments as may be paid or awarded to
directors of the Company. In addition, the Company reimbursed Ms. McGee $37,748
to rectify a tax reporting error of the Company in a prior year. Ms. McGee
resigned as director emeritus in November 2001.
In connection with grants of restricted stock under the Amended 1987 Stock
Plan, on August 19, 1993 the Company made loans, among others, of $1,700,000 to
Mr. R. L. Waltrip and $600,000 to Mr. W. Blair Waltrip. The loans were made to
enable such persons to pay the estimated federal income taxes resulting from
their receipt of the restricted stock grants. Each of the loans remained
outstanding in 2001, is due August 10, 2003 and bears interest at 6 1/2% per
annum, which interest is reimbursed by the Company (together with a tax gross-up
payment equal to approximately 70% of the interest).
13
At the date of his resignation as Executive Vice President of the Company
on January 18, 2000, Mr. W. Blair Waltrip had a three year employment agreement
with the Company. In connection with the resignation, the Company modified Mr.
W. Blair Waltrip's employment agreement and agreed to provide or pay Mr. W.
Blair Waltrip, among other things, (i) salary and benefits until December 31,
2002, (ii) interest reimbursement for the loan described in the preceding
paragraph, and (iii) continuation of his Company stock options in accordance
with their terms. Pursuant to the foregoing, the Company paid for or to Mr. W.
Blair Waltrip $653,803 for 2001. Additionally, as a director in 2001, Mr. W.
Blair Waltrip received fees of $63,750 (of which $21,000 was paid in the form of
3,344 shares of Common Stock), 10,000 restricted shares of Common Stock and
$4,279 in value of personal aircraft usage. In connection with the modification
of the employment agreement, the Company elected to enforce Mr. W. Blair
Waltrip's post-employment non-competition obligations for the period from
January 1, 2003 until December 31, 2005, during which the Company will make
non-competition payments of $475,000 per year. Mr. W. Blair Waltrip remains a
director of the Company.
A Company lending subsidiary previously provided various types of financing
in the funeral and cemetery industry, including loans to certain employees and
directors of the Company. Although the lending subsidiary no longer makes new
loans, during 2001, the lending subsidiary had outstanding a loan at the prime
rate to Mr. Stephen M. Mack, Vice President North American Funeral Operations,
of which the largest balance in 2001 was $225,000 and the year end balance was
$175,000.
Barrow, Hanley, Mewhinney & Strauss, Inc. ("BHMS") is a holder of more than
5% of the outstanding shares of Common Stock of the Company. During 2001, BHMS
was also an investment manager of portfolios of independent trusts which hold
funds collected by the Company in connection with preneed funeral sales and
preneed cemetery sales. Such trusts are prohibited from investing in SCI stock
or other SCI securities. During 2001, BHMS managed on average approximately
$103,585,000 for such trusts and was managing approximately $98,302,000 at the
end of 2001. For such services, such trusts paid fees of $346,027 to BHMS for
2001. It is expected that BHMS will continue managing such trusts during 2002.
Marsh & McLennan Companies, Inc. ("MMC") is a holder of more than 5% of the
outstanding shares of Common Stock of the Company. In 2001, MMC acted as agent
for the Company in its purchase of (i) aviation insurance at a gross premium of
$146,126, from which MMC received a commission of $21,919, and (ii) surety bonds
relating to preneed sales in the Company's funeral home and cemetery businesses
for a gross premium of $409,402, from which MMC received a commission of
$122,820. It is expected that MMC will continue to act as agent for the Company
in the purchase of insurance products in 2002.
14
VOTING SECURITIES AND PRINCIPAL HOLDERS
The table below sets forth information with respect to any person who is
known to the Company as of March 21, 2002 to be the beneficial owner of more
than five percent of the Company's Common Stock.
AMOUNT
NAME AND ADDRESS BENEFICIALLY PERCENT
OF BENEFICIAL OWNER OWNED OF CLASS
------------------- ------------ --------
Barrow, Hanley, Mewhinney & Strauss, Inc. .................. 34,281,700(1) 11.3%
One McKinney Plaza
3232 McKinney Avenue, 15th Floor
Dallas, Texas 75204-2429
Brandes Investment Partners, L.P., Brandes Investment
Partners, Inc., Brandes Holdings, L.P., Charles H.
Brandes, Glenn R. Carlson and Jeffrey A. Busby............ 15,410,578(2) 5.1%
11988 El Camino Real, Suite 500
San Diego, California 92130
Capital Research and Management Company..................... 23,973,730(3) 7.9%
333 South Hope Street
Los Angeles, California 90071
FMR Corp., Fidelity Management & Research Company, Edward C.
Johnson, 3d and Abigail P. Johnson........................ 17,409,380(4) 5.7%
82 Devonshire Street
Boston, Massachusetts 02109
Putnam Investments, LLC., Marsh & McLennan Companies, Inc.,
Putnam Investment Management, LLC and The Putnam Advisory
Company, LLC.............................................. 27,121,529(5) 8.9%
One Post Office Square
Boston, Massachusetts 02109
Vanguard Windsor Funds -- Vanguard Windsor II Fund
("Windsor")............................................... 28,414,400(6) 9.3%
100 Vanguard Blvd
Malvern, Pennsylvania 19355
---------------
(1) Based on a filing made by Barrow, Hanley, Mewhinney & Strauss, Inc. on
February 8, 2002, which reported sole voting power for 127,600 shares,
shared voting power for 34,154,100 shares, sole investment power for
34,281,700 shares and shared investment power for no shares. BHMS has
informed the Company that the shares reported in the table as beneficially
owned by BHMS include all 28,414,400 shares reported in the table as
beneficially owned by Windsor, for whom BHMS is an investment manager.
(2) Based on a filing made by the named companies and persons on February 14,
2002, which reported sole voting power for no shares, shared voting power
for 9,546,558 shares, sole investment power for no shares and shared
investment power for 15,410,578 shares.
(3) Based on a filing made by Capital Research and Management Company on
February 11, 2002, which reported sole voting power for no shares, shared
voting power for no shares, sole investment power for 23,973,730 shares and
shared investment power for no shares.
(4) Based on a filing made by the named company and persons on February 14,
2002, which reported sole voting power for 1,808,000 shares, shared voting
power for no shares, sole investment power for 17,409,380 shares and shared
investment power for no shares.
(5) Based on filings made by the named companies on February 15, 2002, which
reported sole voting power for no shares, shared voting power for 824,072
shares, sole investment power for no shares and shared investment power for
27,121,529 shares.
15
(6) Based on a filing made by Vanguard Windsor Funds -- Vanguard Windsor II Fund
on February 11, 2002, which reported sole voting power for 28,414,400
shares, shared voting power for no shares, sole investment power for no
shares and shared investment power for 28,414,400 shares. BHMS has informed
the Company that the shares reported in the table as beneficially owned by
BHMS include all 28,414,400 shares reported in the table as beneficially
owned by Windsor, for whom BHMS is an investment manager.
The table below sets forth, as of March 21, 2002, the amount of the
Company's Common Stock beneficially owned by each Named Executive, each director
and nominee for director, and all directors and executive officers as a group,
based upon information obtained from such persons. Securities reported as
beneficially owned include those for which the persons listed have sole voting
and investment power, unless otherwise noted.
AMOUNT
BENEFICIALLY PERCENT
NAME OF INDIVIDUAL OR GROUP OWNED(1) OF CLASS
--------------------------- ------------ --------
R. L. Waltrip............................................... 6,633,925(2) 2.2%
B. D. Hunter................................................ 1,009,184(3) *
Jerald L. Pullins........................................... 1,755,715(4) *
Jeffrey E. Curtiss.......................................... 382,967(5) *
James M. Shelger............................................ 700,877(6) *
Anthony L. Coelho........................................... 38,542 *
Jack Finkelstein............................................ 375,631(7) *
A. J. Foyt, Jr. ............................................ 70,429(8) *
James H. Greer.............................................. 68,815 *
Victor L. Lund.............................................. 16,344 *
John W. Mecom, Jr. ......................................... 30,344 *
Clifton H. Morris, Jr. ..................................... 50,028(9) *
E. H. Thornton, Jr. ........................................ 120,572 *
W. Blair Waltrip............................................ 2,214,753(10) *
Edward E. Williams.......................................... 155,793(11) *
Executive Officers and Directors as a Group (25 persons).... 15,548,683(12) 5.1%
---------------
* Less than one percent
(1) For each of Messrs. Coelho, Finkelstein, Foyt, Greer, Lund, Mecom, Morris,
Thornton, W. Blair Waltrip and Williams, the amounts include 10,000 shares
held under the 2001 Stock Plan for Non-Employee Directors, and each such
director has sole voting and shared investment power with respect to such
shares.
(2) Includes 468,384 shares held in trusts (under one of which trusts Mr. R. L.
Waltrip's wife is a beneficiary) under which Mr. R. L. Waltrip's three
children, as trustees, share voting and investment powers. These shares are
also included in the shares owned by Mr. W. Blair Waltrip. See Footnote
(10). The information herein regarding ownership of equity securities by
the trusts is for informational purposes only and is not to be construed as
a statement that Mr. R. L. Waltrip is a beneficial owner of any such
securities, as any beneficial ownership thereof is expressly disclaimed by
Mr. R. L. Waltrip. Also includes 537,633 shares held by an estate of which
Mr. R. L. Waltrip is the executor having sole voting and investment powers.
Also includes 5,151,835 shares which may be acquired upon exercise of stock
options exercisable within 60 days.
(3) Includes 38,408 shares indirectly controlled by Mr. Hunter (of which Mr.
Hunter disclaims beneficial ownership). Also includes 866,666 shares which
may be acquired upon exercise of stock options exercisable within 60 days.
(4) Includes 15,160 shares held by a trust of which Mr. Pullins' wife is
trustee for the benefit of Mr. Pullins' children. Mr. Pullins disclaims
beneficial ownership of such shares. Also includes 1,421,666 shares which
may be acquired upon exercise of stock options exercisable within 60 days.
16
(5) Includes 10,000 shares which are held in a revocable trust of which Mr.
Curtiss is trustee. Also includes 299,998 shares which may be acquired upon
exercise of stock options exercisable within 60 days, including exercisable
options for 33,332 shares held in trust for the benefit of certain family
members. Mr. Curtiss disclaims beneficial ownership of the shares and
options held in trust. Also includes 14,453 shares which may be acquired
upon conversion of convertible notes.
(6) Includes 563,333 shares which may be acquired by Mr. Shelger upon exercise
of stock options exercisable within 60 days.
(7) Includes 341,105 shares held in trusts for the benefit of other family
members and/or himself, and 8,500 shares held by a charitable foundation of
which Mr. Finkelstein is President. As trustee, Mr. Finkelstein has sole
voting and investment power with respect to 250,571 shares and shared
voting and investment power with respect to 90,534 shares. Mr. Finkelstein
disclaims beneficial ownership as to 99,034 shares held in such trusts and
by the foundation.
(8) Includes 17,885 shares held by Mr. Foyt as custodian for family members.
Mr. Foyt has sole voting and investment power for such shares and disclaims
beneficial ownership of such shares. Also includes 200 shares owned by Mr.
Foyt's wife.
(9) Includes 4,034 shares owned by Mr. Morris' wife. Mr. Morris disclaims
beneficial ownership of such shares.
(10) Includes 130,204 shares held in a trust for the benefit of Mr. W. Blair
Waltrip, 1,072,224 shares held in trusts under which Mr. W. Blair Waltrip,
his brother and his sister are trustees and have shared voting and
investment power and for which Mr. W. Blair Waltrip disclaims 2/3
beneficial ownership. Also includes 105,357 shares held by other family
members or trusts, of which shares Mr. W. Blair Waltrip disclaims
beneficial ownership. Of the shares attributable to the trusts, 468,384
shares are also included in the shares owned by Mr. R. L. Waltrip. See
Footnote (2). Also includes 410,000 shares which may be acquired upon
exercise of stock options exercisable within 60 days.
(11) Includes 36,133 shares which may be acquired upon conversion of convertible
notes.
(12) Includes 3,250 restricted shares held by three persons under Company stock
plans and 10,895,242 shares which may be acquired upon exercise of stock
options exercisable within 60 days.
AUDIT COMMITTEE REPORT
The primary purpose of the Audit Committee is to assist the Board of
Directors in fulfilling its responsibility to oversee management's conduct of
the Company's financial reporting process, including overviewing the financial
reports and other financial information provided by the Company to any
governmental or regulatory body, the public or other users thereof, the
Company's systems of internal accounting and financial controls, the annual
independent audit of the Company's financial statements and the Company's legal
compliance and ethics program as established by management and the Board. Each
member of the Audit Committee is independent as defined by the New York Stock
Exchange rules. A copy of the Audit Committee Charter adopted by the Board of
Directors was attached to the 2001 Proxy Statement as an exhibit.
17
The Audit Committee has reviewed and discussed the audited financial
statements with management of the Company; discussed with the independent
accountants the matters required to be discussed by SAS 61 (Codification of
Statements on Auditing Standards), as modified or supplemented; received a
written disclosure letter from the Company's independent accountants as required
by Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees), as modified and supplemented, and has discussed with the
independent accountants the independent accountant's independence; considered
the compatibility of non-audit services with maintaining the principal
accountant's independence from the Company; and based on the preceding review
and discussions contained in this paragraph, recommended to the Board of
Directors that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the 2001 fiscal year for filing with the
Securities and Exchange Commission.
AUDIT COMMITTEE:
Clifton H. Morris, Jr., Chairman
Jack Finkelstein
Victor L. Lund
E. H. Thornton, Jr.
Edward E. Williams
PROPOSAL TO APPROVE THE SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected PricewaterhouseCoopers
LLP ("PricewaterhouseCoopers") to serve as the independent accountants for the
Company for the fiscal year ending December 31, 2002. PricewaterhouseCoopers and
its predecessors have audited the Company's accounts since 1993. A
representative of PricewaterhouseCoopers is expected to be present at the Annual
Meeting of Shareholders, will have the opportunity to make a statement if he or
she desires to do so and will be available to respond to appropriate questions
at such meeting. Although it is not required to do so, the Board of Directors
wishes to submit the selection of PricewaterhouseCoopers for shareholders'
approval at the Annual Meeting. If the shareholders do not give approval, the
Board will reconsider its selection.
Audit Fees: Aggregate fees for professional services rendered by
PricewaterhouseCoopers in connection with its audit of the Company's
consolidated financial statements as of and for the fiscal year ended December
31, 2001 and its limited reviews of the Company's unaudited consolidated interim
financial statements were $1,995,263.
Financial Information Systems Design and Implementation Fees: Aggregate
fees for financial information systems design and implementation services of
PricewaterhouseCoopers were $44,865 during the year ended December 31, 2001.
All Other Fees: In addition to the fees described above, aggregate fees of
$3,100,453 were billed by PricewaterhouseCoopers during the year ended December
31, 2001 for other services. The aggregate fees were comprised of (i) fees of
$1,501,355 for audit-related services, including fees for subsidiary statutory
reports, internal audit services, issuance of consents and comfort letters
related to the Company's registration statements, due diligence services,
procedures applied to management's financial assertions, and audits of the
Company's employee benefit plans, (ii) fees of $1,354,492 for income tax
compliance and related tax services, and (iii) fees of $244,606 for other
services, primarily actuarial valuation services performed on certain of the
Company's related trusts.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF
THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT ACCOUNTANTS OF
THE COMPANY.
18
OTHER MATTERS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year, and written representations from reporting persons that no Form 5
was required, the Company believes that all required Form 3, 4 and 5 reports for
transactions occurring in 2001 were timely filed.
PROXY SOLICITATION
In addition to solicitation by mail, further solicitation of proxies may be
made by mail, facsimile, telephone, telegraph or oral communication following
the original solicitation by directors, officers and regular employees of the
Company who will not be additionally compensated therefor, or by its transfer
agent. The expense of such solicitation will be borne by the Company and will
include reimbursement paid to brokerage firms and other custodians, nominees and
fiduciaries for their expenses in forwarding solicitation material regarding the
Annual Meeting to beneficial owners. In addition, the Company has retained
Georgeson Shareholder Communications Inc. to aid in the solicitation of proxies
from shareholders generally in connection with the Annual Meeting of
Shareholders. Such solicitations may be by mail, facsimile, telephone, telegraph
or personal interview. The fee of such firm is not expected to exceed $12,000
plus reimbursement for reasonable expenses.
OTHER BUSINESS
The Board of Directors of the Company is not aware of other matters to be
presented for action at the Annual Meeting of Shareholders; however, if any such
matters are properly presented for action, it is the intention of the persons
named in the enclosed form of proxy to vote in accordance with their judgment.
SUBMISSION OF SHAREHOLDER PROPOSALS
Any proposal to be presented by a shareholder at the Company's 2003 Annual
Meeting of Shareholders scheduled to be held on May 8, 2003 must be received by
the Company by December 13, 2002, so that it may be considered by the Company
for inclusion in its proxy statement relating to that meeting.
Pursuant to the Company's Bylaws, any holder of Common Stock of the Company
desiring to bring business before the Company's 2003 Annual Meeting of
Shareholders scheduled to be held on May 8, 2003 in a form other than a
shareholder proposal in accordance with the preceding paragraph must give
written notice in accordance with the Bylaws that is received by the Company,
addressed to the Secretary, no earlier than January 8, 2003 and no later than
January 28, 2003. Any notice pursuant to this or the preceding paragraph should
be addressed to the Secretary of the Company, 1929 Allen Parkway, P.O. Box
130548, Houston, Texas 77219-0548.
It is important that proxies be returned to avoid unnecessary expense.
Therefore, shareholders are urged, regardless of the number of shares of stock
owned, to date, sign and return the enclosed proxy in the enclosed business
reply envelope.
Service Corporation International
1929 Allen Parkway
P.O. Box 130548
Houston, Texas 77219-0548
April 12, 2002
19
[SERVICE CORPORATION INTERNATIONAL(R) LOGO]
Service Corporation International
1929 Allen Parkway
P.O. Box 130548
Houston, Texas 77219-0548
DETACH PROXY CARD HERE
PLEASE MARK, SIGN, DATE AND [X]
RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE. VOTES MUST BE INDICATED
IN BLACK OR BLUE INK.
1. ELECTION OF DIRECTORS.
FOR WITHHOLD
ALL [ ] FOR ALL [ ] *EXCEPTIONS [ ]
Nominees: Jack Finkelstein, James H. Greer, Clifton H. Morris, Jr. and
W. Blair Waltrip
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
*Exceptions:
-------------------------------------------------------------------
2. Approval of the selection of FOR AGAINST ABSTAIN
PricewaterhouseCoopers LLP as the
Company's independent accountants [ ] [ ] [ ]
for fiscal 2002.
To change your address,
please mark this box. [ ]
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Shareholders and of the Proxy Statement
Please sign exactly as the name appears hereon. Joint owners should each sign
personally. Where applicable, indicate your official position or representation
capacity.
Date Share Owner sign here Co-Owner sign here
---------- --------------------------- -----------------------------
SERVICE CORPORATION INTERNATIONAL
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS MAY 9, 2002
The undersigned hereby appoints Robert L. Waltrip, Jeffrey E. Curtiss and James
M. Shelger, and each or any of them as attorneys, agents and proxies of the
undersigned with full power of substitution, for and in the name, place and
stead of the undersigned, to attend the annual meeting of shareholders of
Service Corporation International (the "Company ") to be held in the Newmark
Group Auditorium, American Funeral Service Training Center, 415 Barren Springs
Drive, Houston, Texas 77090 on Thursday, May 9, 2002, at 10:00 a.m., Houston
time, and any adjournment(s) thereof, and to vote thereat the number of shares
of Common Stock of the Company which the undersigned would be entitled to vote
if personally present as indicated below and on the reverse side hereof and, in
their discretion, upon any other business which may properly come before said
meeting. This Proxy when properly executed will be voted in accordance with your
indicated directions. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF DIRECTORS AND FOR APPROVAL OF THE SELECTION OF
PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
SERVICE CORPORATION INTERNATIONAL
P.O. BOX 11416
NEW YORK, N.Y. 10203-0416
(Continued and to be dated and signed on the reverse side.)