SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Section 240.14a-12
SERVICE CORPORATION INTERNATIONAL
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[SERVICE CORPORATION INTERNATIONAL(R) LOGO]
SERVICE CORPORATION INTERNATIONAL
Proxy Statement and 2003 Annual Meeting Notice
2003 Annual Meeting
DATE: Thursday, May 8, 2003
TIME: 10:00 a.m. Houston time
PLACE: Newmark Group Auditorium
American Funeral Service Training Center
415 Barren Springs Drive
Houston, Texas 77090
[SERVICE CORPORATION INTERNATIONAL(R) LOGO]
Service Corporation International
1929 Allen Parkway, P.O. Box 130548
Houston, Texas 77219-0548 April 11, 2003
Dear Shareholder,
As the owner of shares of Service Corporation International, please accept my
invitation to attend the Company's Annual Meeting. It is scheduled for Thursday,
May 8, 2003, at 10:00 a.m. in the auditorium of the American Funeral Service
Training Center, 415 Barren Springs Drive, Houston, Texas. During the meeting,
we will report on how our Company performed for its shareholders during 2002 and
share with you our plans for the future. You will have an opportunity to ask
questions, express your views, and meet members of SCI's executive team and
Board of Directors.
At this year's meeting, Mr. E. H. Thornton will be retiring from our Board after
serving SCI for over 40 years. His wise direction and insights have helped to
steer the Company's growth from a small private enterprise to a major
corporation that is the largest of its kind. I know I speak for the entire Board
when I say what a privilege it is to know Mr. Thornton as a friend and
colleague. I wish to thank him, both personally and on behalf of the Board and
our shareholders, for his dedication and immense contribution to the success of
SCI.
It is also my privilege to invite your consideration of Mr. Alan R. Buckwalter,
III, as a candidate for election to the Board at this year's Annual Meeting. Mr.
Buckwalter's nomination was recommended by our Nominating and Corporate
Governance Committee and endorsed by the entire Board. Recently retired as
Chairman of J.P. Morgan Chase Bank, South Region, Mr. Buckwalter's distinguished
career in banking spanned more than 30 years. He is an avid community volunteer
who has served on the boards of the Texas Medical Center, St. Luke's Episcopal
Hospital, and the Greater Houston Chapter of the American Red Cross. If elected,
Mr. Buckwalter's experience and proven abilities will add great strength to our
Board and its work.
On behalf of the Board and our employees, I would like to express our
appreciation for your continuing support. I look forward to greeting in person
all shareholders who are able to attend our annual meeting.
Sincerely,
/s/ R. L. WALTRIP
R. L. Waltrip
Chairman of the Board and Chief Executive Officer
[SERVICE CORPORATION INTERNATIONAL(R) LOGO]
Service Corporation International
1929 Allen Parkway, P.O. Box 130548
Houston, Texas 77219-0548
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 8, 2003
To Our Shareholders:
The Annual Meeting of Shareholders of Service Corporation International ("SCI"
or the "Company") will be held in the Newmark Group Auditorium, American Funeral
Service Training Center, 415 Barren Springs Drive, Houston, Texas at 10:00 a.m.
Houston time on May 8, 2003 for the following purposes:
1. To elect five members of the Board of Directors; and
2. To ratify the appointment of PricewaterhouseCoopers LLP as SCI's
independent accountants for the 2003 fiscal year.
The Company will also transact such other business as may properly come before
the meeting. Shareholders may also vote on a proposal submitted by a shareholder
if it is presented at the Annual Meeting. This proposal is described in the
attached Proxy Statement.
Only shareholders of record at the close of business on March 20, 2003 are
entitled to notice of and to vote at the Annual Meeting. A majority of the
outstanding shares entitled to vote is required for a quorum.
It is important that your shares be represented at the Annual Meeting regardless
of the size of your holdings. Whether or not you expect to attend the Annual
Meeting in person, WE URGE YOU TO VOTE YOUR SHARES AT YOUR EARLIEST CONVENIENCE
IN ORDER TO ENSURE A QUORUM AT THE MEETING. You can vote by signing, dating and
returning the proxy card in the enclosed stamped envelope for which no
additional postage is required if mailed in the United States. Submitting your
proxy now will not prevent you from voting your shares at the meeting if you
desire to do so, as your proxy is revocable at your option.
By Order of the Board of Directors,
/s/ JAMES M. SHELGER
James M. Shelger
Senior Vice President, General Counsel and Secretary
Houston, Texas
April 11, 2003
[SERVICE CORPORATION INTERNATIONAL(R) LOGO]
SERVICE CORPORATION INTERNATIONAL
1929 Allen Parkway
P.O. Box 130548
Houston, Texas 77219-0548
PROXY STATEMENT
PROXY VOTING: QUESTIONS & ANSWERS
Q: WHO IS ENTITLED TO VOTE?
A: Shareholders of record who held common stock of SCI at the close of business
on March 20, 2003 are entitled to vote at the 2003 Annual Meeting. As of the
close of business on that date, there were outstanding 298,510,409 shares of SCI
common stock, $1.00 par value ("Common Stock").
Q: WHAT ARE SHAREHOLDERS BEING ASKED TO VOTE ON?
A: Shareholders are being asked to vote on the following items at the 2003
Annual Meeting:
- Election of five nominees to the Board of Directors;
- Ratification of PricewaterhouseCoopers LLP as SCI's independent
accountants for the fiscal year 2003;
The Company will also transact such other business as may properly come before
the meeting. Shareholders may also vote on a proposal submitted by a shareholder
if it is presented at the Annual Meeting. This proposal is described in this
Proxy Statement.
Q: HOW DO I VOTE MY SHARES?
A: If you held Common Stock as a registered shareholder at the close of business
on March 20, 2003, you can either vote by mail or in person at the Annual
Meeting.
Q: WHAT IF I WANT TO VOTE IN PERSON AT THE ANNUAL MEETING?
A: The Notice of Meeting provides details of the date, time and place of the
2003 Annual Meeting, if you wish to vote in person.
Q: WHAT IF I'D RATHER VOTE BY MAIL?
A: If you wish to vote by mail, simply sign and date the enclosed proxy and
return it in the pre-stamped envelope provided. Each valid proxy received by the
close of business on May 7, 2003 will be voted at the Annual Meeting by the
persons named on the proxy card and in accordance with your instructions. If you
complete and submit a proxy card without giving voting instructions, your shares
will be voted as recommended by the Board of Directors.
Q: HOW DOES THE BOARD OF DIRECTORS RECOMMEND VOTING?
A: The Board of Directors recommends voting:
- FOR each of the five nominees to the Board of Directors. Biographical
information for each nominee is outlined in this Proxy Statement under
"Election of Directors";
- FOR ratification of PricewaterhouseCoopers LLP as SCI's independent
accountants for the fiscal year 2003; and
- AGAINST the shareholder proposal, if presented, regarding shareholder
rights plans.
1
Q: IF I GIVE MY PROXY, HOW WILL MY STOCK BE VOTED ON OTHER BUSINESS BROUGHT UP
AT THE ANNUAL MEETING?
A: By submitting your proxy card, you authorize the persons named on the proxy
card to use their discretion in voting on any other matter properly brought
before the Annual Meeting. At the date hereof, SCI does not know of any other
business to be considered at the Annual Meeting.
Q: WHY IS IT IMPORTANT TO SEND IN MY PROXY CARD SO THAT IT IS RECEIVED ON OR
BEFORE MAY 7, 2003?
A: The Company cannot conduct business at the Annual Meeting unless a quorum is
present. A quorum will only be present if a majority of the outstanding shares
of SCI common stock as of March 20, 2003 is present at the meeting in person or
by proxy. It is for this reason that we urge you to send in your completed proxy
card(s) as soon as possible, so that your shares can be voted even if you cannot
attend the meeting.
Q: CAN I REVOKE MY PROXY ONCE I HAVE GIVEN IT?
A: Yes. The enclosed proxy, even though executed and returned, may be revoked
any time prior to the time that it is voted at the Annual Meeting by a
later-dated proxy or by written notice of revocation filed with the Secretary,
James M. Shelger . Alternatively, you can attend the Annual Meeting, revoke your
proxy in person, and vote at the meeting itself.
Q: HOW WILL THE VOTES BE COUNTED?
A: Holders of SCI common stock are entitled to one vote per share on each matter
considered at the Annual Meeting. 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 to be elected as directors. Shareholders do not have the right to
cumulate votes in the election of directors. Abstentions are counted towards the
calculation of a quorum. An abstention has the same effect as a vote against a
proposal, or in the case of the election of directors, as shares to which voting
power has been withheld.
Q: WHAT IF MY SCI SHARES ARE HELD THROUGH A BANK OR BROKER?
A: If your shares are held through a broker or bank, you will receive voting
instructions from your bank or broker describing how to vote your stock. A
"broker non-vote" refers to a proxy that votes on one matter, but indicates that
the holder does not have the authority to vote on other matters. Broker
non-votes will have the following effects at our Annual Meeting: for purposes of
determining whether a quorum is present, a broker non-vote is deemed to be
present at the meeting; for purposes of the election of directors and other
matters to be voted on at the meeting, a broker non-vote will not be counted.
This Proxy Statement, the Notice of Annual Meeting of Shareholders and the
enclosed proxy card are first being mailed to shareholders beginning on or about
April 11, 2003.
2
ELECTION OF DIRECTORS
The Board of Directors consists of twelve members and is divided into three
classes, each with a staggered term of three years. At this year's Annual
Meeting, shareholders will be asked to elect five directors to the Board. Four
of these will be elected for three-year terms expiring in 2006, and one will be
elected for a one-year term expiring in 2004, so as to provide a balance such
that one-third of the Board members are elected by shareholders each year. Set
forth below are profiles for each of the five candidates nominated by the
Nominating and Corporate Governance Committee of the Board of Directors for
election by shareholders at this year's Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE FOLLOWING
NOMINEES.
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R. L. WALTRIP
Age: 72 Director Since: 1962 Term
Expires: 2006
[PHOTO]
Mr. Waltrip is the founder, Chairman and Chief Executive
Officer of SCI. A licensed funeral director, Mr. Waltrip
grew up in his family's funeral business and assumed
management of the firm in the 1950s. He began buying
additional funeral homes in the 1960s, achieving cost
efficiencies by pooling their resources. Since that time, he
has grown SCI to a network of more than 3,000 funeral
service locations, cemeteries and cremetoria now operating
in eight countries. Mr. Waltrip took SCI public in 1969. He
has provided leadership to the Company for over 40 years.
SCI Common Shares Beneficially Owned(1): 7,838,050(2)
Other Directorships Currently Held: None
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ALAN R. BUCKWALTER, III
Age: 57 Director Since: New Candidate Term
Expires: 2004
[PHOTO]
Mr. Buckwalter recently retired as Chairman of J.P. Morgan
Chase Bank, South Region after a career of over 30 years in
banking that involved management of corporate, commercial,
capital markets, international, private banking and retail
departments. He served as head of the Banking Division and
Leveraged Finance Unit within the Banking and Corporate
Finance Group of Chemical Bank and Chairman and CEO of Chase
Bank of Texas. Mr. Buckwalter has attended executive
management programs at Harvard Business School and the
Stanford Executive Program at Stanford University. He is
also an avid community volunteer, serving on the Boards of
Texas Medical Center, the American Red Cross (Houston
chapter), and St. Luke's Episcopal Health System. He also
Chairs the Board of Trustees of Texas Southern University
Foundation.
SCI Common Shares Beneficially Owned(1): None
Other Directorships Currently Held: Federal Reserve Bank of
Dallas (Houston Branch)
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(1) Details are provided in the footnotes to the table of director and officer
shareholdings listed under "Voting Securities and Principal Holders".
(2) Includes 6,351,835 shares which may be acquired by Mr. R.L. Waltrip upon
exercise of stock options exercisable within 60 days of March 20, 2003.
3
ANTHONY L. COELHO
Age: 60 Director Since: 1991 Term
Expires: 2006
[PHOTO]
Mr. Coelho was a member of the U.S. House of Representatives
from 1978 to 1989. After leaving Congress, he joined
Wertheim Schroder & Company, an investment banking firm in
New York and became President and CEO of Wertheim Schroder
Financial Services. From October 1995 to September 1997, he
served as Chairman and CEO of ETC w/tci, an education and
training technology company that he established and
subsequently sold. He served as general chairman of the
presidential campaign of former Vice President Al Gore from
April 1999 until June 2000. Since 1997, Mr. Coelho has
worked independently as a business and political consultant.
Mr. Coelho also served as Chairman of the President's
Committee on Employment of People with Disabilities from
1994 to 2001.
SCI Common Shares Beneficially Owned(1): 53,554
Other Directorships Currently Held: Cyberonics, Inc., and
Cadiz, Inc.
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A. J. FOYT, JR.
Age: 68 Director Since: 1974 Term
Expires: 2006
[PHOTO]
Mr. Foyt achieved prominence as a racing driver who was the
first four-time winner of the Indianapolis 500. His racing
career spanned four decades and three continents--North
America, Europe and Australia. Since his retirement from
racing in 1994, Mr. Foyt has engaged in a variety of
commercial and entrepreneurial ventures. He is the President
and owner of A. J. Foyt Enterprises, Inc. (assembly,
exhibition and competition with high-speed engines and
racing vehicles), and has owned and operated car dealerships
that bear his name. He has also been involved in a number of
commercial real estate investment and development projects,
and has served as a director of a Texas bank.
SCI Common Shares Beneficially Owned(1): 85,441
Other Directorships Currently Held: None
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EDWARD E. WILLIAMS
Age: 57 Director Since: 1991 Term
Expires: 2006
[PHOTO]
Dr. Williams holds the Henry Gardiner Symonds Chair (an
endowed professorship) and is Director of the
Entrepreneurship Program at the Jesse H. Jones Graduate
School of Management at Rice University, where he teaches
classes on entrepreneurship, value creation, venture capital
investing, business valuations, leveraged buyouts and the
acquisition of existing concerns. He has been involved in
starting, buying and selling several hundred companies. Dr.
Williams has been named by Business Week as the Number Two
Entrepreneurship Professor in the United States. Dr.
Williams holds a PhD with specialization in Finance,
Accounting and Economics. He has taught finance, accounting,
economics and entrepreneurship at the graduate level, has
written numerous articles in finance, accounting, economics
and entrepreneurship journals, has taught courses in
financial statement analysis and continues to do academic
research in his areas of specialty. He is the author of over
40 articles and eight books on business planning,
entrepreneurship, investment analysis, accounting and
finance.
SCI Common Shares Beneficially Owned(1): 229,473
Other Directorships Currently Held: EQUUS II Incorporated
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(1) Details are provided in the footnotes to the table of director and officer
shareholdings listed under "Voting Securities and Principal Holders".
4
THE FOLLOWING ARE PROFILES OF THE OTHER SEVEN DIRECTORS CURRENTLY SERVING ON THE
BOARD OF SCI:
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JACK FINKELSTEIN
Age: 75 Director Since: 1965 Term
Expires: 2005
[PHOTO]
Mr. Finkelstein was instrumental in providing "seed" money
in the earliest days of SCI, then known as Southern Capital
Company. He is President of JFT Oil Company (a small
independent oil producer) and Jeftee Quarter Horses (a
corporation engaged in the breeding, training and
competition of cutting horses). He is President of the
Finkelstein Foundation and he oversees several of his
family's trusts as trustee or co-trustee. Earlier in his
career, Mr. Finkelstein was an investment counselor with
Shearson Hammill and Company which, through a series of
mergers, was later acquired by other New York Stock Exchange
entities.
SCI Common Shares Beneficially Owned(1): 382,643
Other Directorships Currently Held: None
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JAMES H. GREER
Age: 76 Director Since: 1978 Term
Expires: 2005
[PHOTO]
Mr. Greer is the Chairman of Greer Capital Corporation (an
investment company) as well as the President of two
companies involved in real estate and commercial real estate
development and management. From 1985 to 2001, he served as
Chairman of two entrepreneurial companies, Shelton W. Greer
(roof deck contracting) and Vermiculite Products
(lightweight aggregate processing and sales). Mr. Greer has
also served on the boards of directors of over ten companies
at various points in his career, including five banks and
several entrepreneurial ventures, as well as the Board of
Regents of the University of Houston.
SCI Common Shares Beneficially Owned(1): 83,827
Other Directorships Currently Held: AmeriCredit Corporation
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B. D. HUNTER
Age: 73 Director Since: 1986 Term
Expires: 2004
[PHOTO]
Since February, 2000, Mr. Hunter has served as Vice-Chairman
of SCI. His career in the funeral industry began in 1955,
when Mr. Hunter began work with an advertising and public
relations firm specializing in the funeral industry. He
purchased the firm, expanded its services into a full line
management consulting firm for the funeral industry and
built its client base to over 1,700 of the larger funeral
homes in North America. Mr. Hunter later formed a company
that became the largest funeral supply company and the
second largest casket company in North America. He also
established a preneed funeral program that became one of the
largest at that time in North America. Mr. Hunter purchased,
developed and sold numerous other companies, including a
number of health care manufacturing companies, retirement
centers and nursing homes. For more than five years prior to
February 2002, Mr. Hunter had been the 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 during a severe downturn in the steel industry. Mr.
Hunter served as a member of the Listed Company Advisory
Committee of the New York Stock Exchange from 1997 to 2000.
SCI Common Shares Beneficially Owned(1): 1,883,235(2)
Other Directorships Currently Held: Cash America
International, Inc.
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(1) Details are provided in the footnotes to the table of director and officer
shareholdings listed under "Voting Securities and Principal Holders".
(2) Includes 1,733,333 shares which may be acquired by Mr. Hunter upon exercise
of stock options exercisable within 60 days of March 20, 2003.
5
VICTOR L. LUND
Age: 55 Director Since: 2000 Term
Expires: 2004
[PHOTO]
Since May 2002, Mr. Lund has served as Chairman of the Board
of Mariner Healthcare, Inc. From 1999 to 2002, he served as
Vice Chairman of the Board of Albertsons, Inc. prior to
which he had a 22-year career with American Stores Company
in various positions, including Chairman of the Board and
Chief Executive Officer, Chief Financial Officer and
corporate controller. Prior to that time, Mr. Lund was a
practicing audit CPA for five years, held a CPA license and
received the highest score on the CPA exam in the State of
Utah in the year that he was licensed. He also holds an MBA
and an MA in Accounting.
SCI Common Shares Beneficially Owned(1): 31,356
Other Directorships Currently Held: Mariner Healthcare, Inc.
and Borders Group Inc.
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JOHN W. MECOM, JR.
Age: 63 Director Since: 1983 Term
Expires: 2004
[PHOTO]
Mr. Mecom has been involved in the purchase, management and
sale of business interests in a variety of industries. He
has owned and managed over 500,000 acres of surface and
mineral interests throughout the U.S. He has been involved
in the purchase, renovation, management and sale of luxury
hotels in the U.S., Peru and Mexico. He purchased the New
Orleans Saints NFL team in 1967 and sold his interest in
1985. He is currently Chairman of the John W. Mecom Company,
principal owner of John Gardiner's Tennis Ranch and Chairman
of the Board and principal owner of Rhino Pak (a contract
blender and packer for the petroleum industry).
SCI Common Shares Beneficially Owned(1): 21,012
Other Directorships Currently Held: None
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CLIFTON H. MORRIS, JR.
Age: 67 Director Since: 1990 Term
Expires: 2005
[PHOTO]
Mr. Morris has been Executive Chairman of AmeriCredit Corp.
(financing of automotive vehicles) since July 2000,
previously having served as Chief Executive Officer and
President of that company. Previously, he served as Chief
Financial Officer of Cash America International, prior to
which he owned his own public accounting firm. He is a
certified public accountant with 41 years of certification,
a Lifetime Member of the Texas Society of Certified Public
Accountants and an Honorary Member of the American Institute
of Certified Public Accountants. Mr. Morris was instrumental
in the early formulation and initial public offerings of
SCI, Cash America International and AmeriCredit Corp., all
of which are now listed on the New York Stock Exchange. From
1966 to 1971, he served as a Vice President in treasury or
financial positions at SCI, returning to serve on the
Company's Board of Directors in 1990. Mr. Morris was named
2001 Business Executive of the Year by the Fort Worth
Business Hall of Fame. He is also an avid community
volunteer, having served on the Community Foundation of
North Texas, Fort Worth Chamber of Commerce and Fort Worth
Country Day School.
SCI Common Shares Beneficially Owned(1): 65,040
Other Directorships Currently Held: Cash America
International, Inc.
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(1) Details are provided in the footnotes to the table of director and officer
shareholdings listed under "Voting Securities and Principal Holders".
6
W. BLAIR WALTRIP
Age: 48 Director Since: 1986 Term
Expires: 2005
[PHOTO]
Mr. Waltrip held various positions with SCI from 1977 to
2000, including serving as vice president of corporate
development, senior vice president of funeral operations,
executive vice president of SCI's real estate division,
Chairman and CEO of Service Corporation International
(Canada) Limited (a subsidiary taken public on The Toronto
Stock Exchange) and Executive Vice President of SCI. Mr.
Waltrip's experience has provided him with knowledge of
almost all aspects of the Company and its industry with
specific expertise in North American funeral/cemetery
operations and real estate management. Since leaving SCI in
2000, Mr. Waltrip has been an independent consultant,
primarily engaged in overseeing family and trust
investments. Mr. Waltrip is the son of SCI's founder, R. L.
Waltrip.
SCI Common Shares Beneficially Owned(1): 2,497,015(2)
Other Directorships Currently Held: Sanders Morris Harris
Group Inc.
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(1) Details are provided in the footnotes to the table of director and officer
shareholdings listed under "Voting Securities and Principal Holders".
(2) Includes 410,000 shares which may be acquired by Mr. W. Blair Waltrip upon
exercise of stock options exercisable within 60 days of March 20, 2003.
BOARD COMPOSITION AND MEETINGS
The Board of SCI is comprised of a majority of independent directors, the only
non-independent directors serving on the Board being Mr. R. L. Waltrip, the
Chairman and CEO of the Company, Mr. B. D. Hunter, the Vice Chairman, and Mr. W.
Blair Waltrip, a former employee who is also the son of the Chairman. The Audit,
Compensation and Nominating and Corporate Governance Committees of the Board are
all comprised entirely of independent, outside directors. The Board of Directors
held four meetings in 2002. Each Board member attended at least 75% of the total
number of meetings of the Board and Board committees on which he served.
BOARD COMMITTEES
NAME OF COMMITTEE
AND MEMBERS FUNCTIONS OF THE COMMITTEE
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AUDIT COMMITTEE - Assists the Board of Directors in overseeing the integrity
of SCI's financial reporting and the Company's compliance
Victor L. Lund (Chair) with legal and regulatory requirements, including
Jack Finkelstein oversight of the financial reporting process.
Edward E. Williams
- Reviews the annual audited financial statements with SCI
MEETINGS IN 2002 management and the independent accountants, including items
Five noted under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and any
major issues regarding accounting principles and
practices. This includes a review of analysis by
management and by the independent accountants of any
significant financial reporting issues and judgments made
in the preparation of the financial statements, including
the effect of alternative GAAP methods.
- Reviews SCI's quarterly financial statements with
management and the independent accountants prior to the
release of quarterly earnings and the filing of quarterly
reports with the SEC, including the results of the
independent accountants' reviews of the quarterly
financial statements.
7
BOARD COMMITTEES (CONT'D)
NAME OF COMMITTEE
AND MEMBERS FUNCTIONS OF THE COMMITTEE
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AUDIT COMMITTEE (CONT'D) - Reviews with management and the independent accountants
the effect of any major changes to SCI's accounting
principles and practices suggested by the internal
auditors or management, as well as the impact of any
regulatory and accounting initiatives on SCI's financial
statements.
- Oversees and reviews the performance of SCI's internal
audit function.
- Reviews the qualifications, independence and performance
of the independent accountants annually and recommends the
appointment or re-appointment of the independent
accountants. The Audit Committee is solely responsible for
the engagement, compensation and replacement, if
appropriate, of the independent accountants.
- Meets regularly with the independent accountants without
SCI management present. Reviews with the independent
accountants any audit problems or difficulties and
management's responses to address these issues. Meets with
SCI management to discuss any issues surfacing from this
review as well as any other relevant issues.
- Meets with SCI management and the independent accountants
to review SCI's major financial risk exposures and steps
management has taken to monitor and control such
exposures.
- Reviews and discusses summary reports from SCI's Careline,
a toll-free number available to Company employees and
customers to make anonymous reports of any complaints or
issues regarding infringements of ethical or professional
practice by any SCI employee regarding financial matters;
discusses with SCI management actions taken in response to
any significant issues arising from these summaries.
- In the future, in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002, the Audit Committee will review
reports relative to SCI's systems of internal accounting,
disclosure and financial controls leading up to the
preparation of financial statements, including obtaining
and reviewing at least once a year, a report by the
independent accountants regarding management's assertions
on internal quality control procedures. The Audit
Committee will review any material issues raised by the
most recent internal quality control review or by any
inquiry or investigation within the past five years, and
any steps taken to deal with such issues.
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8
BOARD COMMITTEES (CONT'D)
NAME OF COMMITTEE
AND MEMBERS FUNCTIONS OF THE COMMITTEE
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NOMINATING AND CORPORATE - Oversees the composition of the Board of Directors of SCI
GOVERNANCE COMMITTEE and the Board committees, including developing director
qualification standards and criteria, identifying and
Anthony L. Coelho (Chair) recruiting new candidates for the Board, developing a
Victor L. Lund re-nomination review process for current Board members and
Clifton H. Morris, Jr. considering nominees recommended by shareholders in
Edward E. Williams accordance with the Company's bylaws.
MEETINGS IN 2002 - Makes recommendations to the full Board with respect to
Two the nomination of candidates for Board membership and
committee assignments for Board members, including the
chairmanships of the Board committees.
- Provides leadership to the Board in the development of
corporate governance principles and practices, including the
development of Corporate Governance Guidelines and a Code
of Business Conduct and Ethics.
- Conducts CEO succession planning and reviews succession
plans for other SCI executives, including the development of
both short-term (emergency) and long-term CEO succession
plans, and leadership development planning. Monitors
progress against these plans and reports to the full Board
on this issue at least annually.
- Develops and leads the annual evaluation of the
performance of the Chairman and CEO and presents the results
of this evaluation to the full Board for discussion and
approval. Reviews the annual evaluation of other key SCI
executives in conjunction with leadership development
plans.
- Makes recommendations to the full Board with respect to
compensation for Board members.
- Develops orientation programs for new Board members in
conjunction with SCI's Chairman and CEO.
- Develops continuing education sessions for SCI directors.
This includes monitoring various director education courses
offered by universities and other institutions, making
recommendations to the Board as to which of these might be
most useful to attend, and developing other education
initiatives that may be practical and useful to Board
members, including development of a program for Board
member visits to SCI sites and facilities.
- Develops and implements the annual process for assessment
of the performance of SCI's Board as a whole and of the
Nominating and Corporate Governance Committee, and
coordinates the annual performance assessment of the
Compensation and Audit Committees. The first such
assessment process will be undertaken in 2003.
--------------------------------------------------------------------------------------------------
9
BOARD COMMITTEES (CONT'D)
NAME OF COMMITTEE
AND MEMBERS FUNCTIONS OF THE COMMITTEE
--------------------------------------------------------------------------------------------------
INVESTMENT COMMITTEE - Establishes guidelines and polices for the investment of
trust funds held by independent trusts (the "Trusts"). The
Jack Finkelstein (Chair) Trusts consist of funds collected by SCI relating to
Anthony L. Coelho preneed funeral sales, to preneed cemetery merchandise and
W. Blair Waltrip services sales and to cemetery perpetual care collections,
Edward E. Williams in accordance with applicable state laws. These funds are
then deposited with a financial institution ("Trustee")
MEETINGS IN 2002 qualified to do business within that state's jurisdiction.
Four
- Oversees the Trustees and whether the Trusts' assets are
prudently and effectively managed by the Trustees. The
Investment Committee may replace a Trustee if it
determines that the Trustee is not acting in the best
interest of the Trust.
- Works in conjunction with the Investment Operating
Committee of SCI, a committee comprised of senior SCI
officers, which supports the Investment Committee by
providing day-to-day oversight of the Trust funds. The
Investment Committee's policies are implemented through
the Investment Operating Committee of SCI.
- Appoints an investment consultant (currently LCG
Associates, Inc.) who reports directly to the Investment
Operating Committee of SCI and the Trustees. The
investment consultant screens and monitors performance of
the mutual funds and investment managers; and makes
recommendations to the Investment Operating Committee and
Trustees relative to the engagement of mutual fund and/or
investment managers. The investment consultant reviews the
investment portfolios with the Investment Committee at
least once a quarter. The information is then forwarded to
the Trustees for their review.
- By law, the Trustees are ultimately responsible for all
investment decisions. However, the Investment Committee
recommends investment policies and guidelines, and the
Investment Operating Committee recommends mutual fund and
investment manager changes to the Trustees based on the
advice of the investment consultant.
--------------------------------------------------------------------------------------------------
10
BOARD COMMITTEES (CONT'D)
NAME OF COMMITTEE
AND MEMBERS FUNCTIONS OF THE COMMITTEE
--------------------------------------------------------------------------------------------------
COMPENSATION COMMITTEE - Oversees compensation programs for SCI's executive
officers with a view to ensuring that such programs are
Victor L. Lund (Chair) effective, responsible, competitive and aligned with SCI's
James H. Greer business strategy.
John W. Mecom, Jr.
- Sets compensation for the Chairman and CEO of SCI, and
MEETINGS IN 2002 reviews and approves compensation for all other SCI
Five executive officers, including base salaries, salary
increases, short and long-term incentive compensation
plans and awards and benefits.
- Oversees the design and implementation of incentive
compensation and equity-based plans, including stock option
plans, and makes recommendations to the Board regarding
awards granted to SCI executive officers and senior
management under such plans. Conducts regular reviews of
incentive compensation and equity-based plans,
recommending to the Board modification or replacement of
such plans, where necessary, so as to create appropriate
incentives for the achievement of individual and Company
performance goals.
- Determines appropriate individual and Company performance
measures, including goals and objectives, to be used in
reviewing performance for the purposes of setting
compensation for the Chairman and CEO and other executive
officers as well as appropriate peer group companies to
review for comparative purposes with respect to
compensation decisions.
- Presents recommendations to the Board with respect to any
executive employment contracts for SCI's officers, including
the Chairman and CEO.
- Retains, as appropriate, compensation consultants to
assist the Committee in fulfilling its responsibilities. The
consultants report directly to the Committee, which has
sole authority to approve the terms of their engagement,
including their fees.
--------------------------------------------------------------------------------------------------
EXECUTIVE COMMITTEE - Has authority to exercise many of the powers of the full
Board between Board meetings.
Robert L. Waltrip (Chair)
Anthony L. Coelho - Meets in circumstances where it is impractical to call a
Victor L. Lund meeting of the full Board and there is urgency for Board
Clifton H. Morris, Jr. discussion and decision-making on a specific issue. In the
Edward E. Williams future, it is anticipated that this committee will meet
much less frequently than it did in 2002.
MEETINGS IN 2002
Seven
--------------------------------------------------------------------------------------------------
11
DIRECTOR COMPENSATION
Annual Retainer
All directors receive an annual retainer of $21,000, which is paid either in
Common Stock of SCI or, at each director's option, deferred Common Stock
equivalents. Common Stock is issued once a year on the date of the Annual
Meeting of Shareholders, such that the amount of Common Stock or Common Stock
equivalents issued on that day is equivalent to the cash value of the annual
retainer. Accordingly, each director received 5,012 shares of Common Stock or
deferred Common Stock equivalents in May 2002.
Meeting Fees
In addition to the Annual Retainer, all directors receive $6,000 for each Board
meeting attended and non-employee directors receive a further $1,500 for each
Committee meeting attended.
Restricted Stock
Under the 2001 Stock Plan for Non-Employee Directors, each non-employee director
receives an annual award of restricted Common Stock, which may not exceed 15,000
shares. In May 2002, each non-employee director received 10,000 restricted
shares of SCI Common Stock. These shares are restricted for one year from the
date of grant. If the director's service on the Board terminates within that
one-year period, the restricted shares are forfeited unless termination is due
to death, disability or a change of control of SCI (as defined in the plan).
Within that one-year period, the stock cannot be sold, pledged or transferred.
However, the participant has all other rights of a common stockholder, including
the right to receive dividends on the shares and to vote the shares.
Directors' Retirement Plan
Effective January 1, 2001, the Non-Employee Directors' Retirement Plan was
amended such that only years of service prior to 2001 will be considered for
vesting purposes. Non-employee directors who served on the Board prior to that
time and were participants in the plan are entitled to receive annual retirement
benefits of $42,500 per year for ten years, subject to a vesting schedule, based
on their years of Board service. Retirement benefits vest in 25% increments at
the end of five, eight, eleven and fifteen years of credited service, except
that the benefits vest completely in the event of death while the participant is
still a member of the Board or in the event of a change of control of SCI (as
defined in the plan).
Use of Company Aircraft
Each non-employee director is allowed to make personal use of Company aircraft
for a maximum of 25 flight hours per year. The director must reimburse the
Company for any such usage at an hourly rate pursuant to a time-sharing
agreement governed by Federal Aviation Regulations. The Company also values such
usage on the basis of IRS guidelines. To the extent that the IRS valuation
exceeds the amount reimbursed to the Company by the director, the difference is
treated as income imputed to the director, which for 2002 amounted to: $4,823
for Mr. Coelho, $10,020 for Mr. Foyt, $11,917 for Mr. Greer, $4,502 for Mr.
Lund, $8,329 for Mr. Mecom, $37,558 for Mr. Morris and $7,420 for Mr. W. Blair
Waltrip.
12
PERFORMANCE GRAPH
The following graph presents the Company's cumulative shareholder return over
the period from December 31, 1997 to December 31, 2002. The Common Stock of the
Company is compared to the S&P 500 Index, to a peer group index (the "Old Peer
Group") and to a peer group selected in 2003 by the Company (the "New Peer
Group"). The graph assumes $100 is invested on December 31, 1997 in the Common
Stock of the Company, the S&P 500 Index, the Old Peer Group Index and the New
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 Investment Services.
COMPARISON OF CUMULATIVE SHAREHOLDER RETURN
1997-2002
TOTAL SHAREHOLDER RETURNS
[PERFORMANCE GRAPH]
1997 1998 1999 2000 2001 2002
------ ------ ------ ------ ------ -----
SCI........................................ 100.00 104.51 19.53 4.93 14.05 9.35
S&P 500 Index.............................. 100.00 128.58 155.63 141.46 124.65 97.10
New Peer Group Index....................... 100.00 109.23 49.96 67.71 85.25 71.40
Old Peer Group Index....................... 100.00 109.23 49.96 67.71 85.25 76.51
The Old Peer Group is comprised of Carriage Services Inc., Hillenbrand
Industries, Inc., Matthews International Corp., Rock of Ages Corporation and
Stewart Enterprises, Inc. The New Peer Group is comprised of the companies in
the Old Peer Group plus Alderwoods Group, Inc. as of January 1, 2002, when it
emerged from bankruptcy. The Company selected Alderwoods Group, Inc. to be added
to the index because of the similarities in the nature of its business to the
Company's business.
13
REPORT OF THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
The Nominating and Corporate Governance Committee of the Board was formed in
November 2002 and has taken the following initiatives since its formation:
- CORPORATE GOVERNANCE GUIDELINES: Our Committee is charged with developing
Corporate Governance Guidelines and presenting these to the Board for
approval. We feel strongly that our Guidelines should not merely comply with
NYSE requirements but should be developed so as to reflect the Board's views
on critical governance issues and operating practices. With this in mind,
individual interviews were conducted with each of the outside directors
serving on SCI's executive committee in 2002 to gain their perspective on a
variety of corporate governance practices and priorities. Using this input,
our Committee developed draft Guidelines that were presented to the Board for
further review and comment on February 11, 2003. While we have already taken
initiatives to implement certain aspects of the draft Guidelines, we do not
believe it is appropriate to finalize or publish the Guidelines until the SEC
has ruled on the NYSE's proposals as to Guideline requirements.
- EXECUTIVE SESSIONS: Executive sessions of non-management directors are now
held at the end of every SCI Board meeting. The Chair of the Nominating and
Corporate Governance Committee presides at these sessions.
- ROTATION OF BOARD COMMITTEE CHAIRS AND COMMITTEE MEMBERS: The Committee will
review committee chairmanship and membership on an annual basis and conducted
the first such review in 2003.
- BOARD ASSESSMENT: The Committee has recommended to the Board a comprehensive
assessment process for the annual review of the performance of the Board as a
whole and three of the Board committees (Audit, Compensation and Nominating
and Corporate Governance) for implementation in 2003.
- CEO SUCCESSION PLANNING AND DEVELOPMENT: As executive development and
succession is of critical importance to SCI and its Board, the Committee has
already begun to work with the Chairman and CEO on this key issue. We should
also note that, in the course of developing Corporate Governance Guidelines,
the Board chose to give responsibility for leading SCI's annual CEO and
executive evaluation process to the Nominating and Corporate Governance
Committee. There were two reasons for this:
- To ensure alignment between executive development and CEO and
executive evaluation by housing both under the same Board committee;
and
- To separate the CEO evaluation process from the compensation process
by housing these under separate Board committees, which the Board
felt was a stronger corporate governance practice than delegating
both responsibilities to a single committee.
- DIRECTOR EDUCATION: We have taken two initiatives in this area:
- We are developing a program for Board members to visit SCI sites and
facilities on a regular basis. This program will be presented to the
Board for approval and initial implementation in 2003.
- We have been collecting information on various director education
programs offered by universities and other institutions so as to
make recommendations on an ongoing basis as to which of these appear
the most useful and practical for SCI Board members to attend.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
Anthony L. Coelho, Chair
Victor L. Lund
Clifton H. Morris, Jr.
Edward E. Williams
14
REPORT OF THE COMPENSATION COMMITTEE
COMPENSATION PHILOSOPHY AND OBJECTIVES
SCI's compensation philosophy, and that of the Compensation Committee, is that
all compensation programs should serve to:
- link pay and performance; and
- attract, motivate, reward and retain the broad-based management talent
required to achieve corporate objectives.
Components of compensation programs for SCI executives include base salaries,
annual performance-based incentives and long-term incentives, details of which
are outlined below. In 2002, SCI's executive pay programs focused on cash-based
incentive awards linked to key performance measures and stock-based compensation
awards, both of which were designed to provide alignment between compensation
and enhanced shareholder value.
BASE SALARIES
Base salaries of executive officers listed in the summary compensation table in
this proxy statement (the "Named Executive Officers") were not increased in 2002
other than in situations where an officer received a promotion involving
additional responsibilities, warranting a salary adjustment to reflect this new
role.
In July 2002, both Messrs. Ryan and Webb were promoted and received increases in
base salaries. Mr. Ryan, who had previously served as Vice President of
International Operations, was named President and Chief Operating Officer. Mr.
Webb, who previously served as Vice President, Corporate Development, was
promoted to Executive Vice President and assumed responsibilities for all of
SCI's administrative functions. Both received salary increases to reflect their
new roles.
Comparison Group
Base salaries of SCI's officers were reviewed by means of comparisons with a
published survey group of companies of similar size to SCI (by revenues) across
various industries (the "Comparison Group"). There are approximately 200
companies in this revenue range in the published survey. The Comparison Group
used for compensation review purposes differs from the peer groups used in the
Performance Graph in this proxy statement. This is because the peer group
companies all operate within SCI's industry but are either much smaller than SCI
or are conglomerates with varied business units, making direct comparisons for
compensation purposes impractical. While there is some overlap between these
groups, there has been no attempt to link them.
Findings
Based on this review, it was determined that the current salary levels of
incumbent Named Executive Officers approximate the 75th percentile level of
salaries of the Comparison Group--that is, current salary levels were greater
than the salary levels of peer executives at 75% of the companies in the
Comparison Group. As this level of pay is consistent with the Committee's target
levels for compensation of SCI executives, we felt that there was no need to
adjust current salary levels other than in instances of promotion. Where
promotions occurred, salary adjustments were aimed at bringing the executive to
the 50th percentile of the Comparison Group.
Other Factors in Determining Salary Adjustments for Named Executive Officers
In determining salary increases, the Committee considers market salary rates and
annual salary increases for executives with comparable positions within the
Comparison Group, as well as earnings per share growth, operating income growth,
sales growth and total shareholder return of SCI. In addition, we consider
individual performance reviews of the officers. These criteria are assessed in a
non-formula fashion and are not weighted.
15
All of the Named Executive Officers have employment agreements with SCI (see
"Executive Employment Agreements"). These agreements provide that the base
salaries of the Named Executive Officers cannot be decreased, but give the
Committee the sole discretion to determine any salary increases.
ANNUAL INCENTIVE COMPENSATION
Philosophy
Annual incentive opportunities are linked to the achievement of key financial
and operational objectives for SCI on a consolidated basis. The objective of
this policy is to focus SCI's executive officers on objectives that the
Committee believes are primary determinants of share price over time.
Targets
Target award levels for 2002 were set at approximately the 75th percentile level
of the Comparison Group for the Named Executive Officers as a group. As such, if
SCI achieved performance against the key measures at target levels, executive
officers would receive incentive awards at this level. Actual awards are
proportionately decreased or increased on the basis of SCI's performance
relative to the targets, subject to maximum award amounts.
Performance Measures
For 2002, two performance measures were used: (i) operating free cash flow and
(ii) the ratio of earnings before interest, taxes, depreciation and amortization
("EBITDA") to average total capital. Each of these measures was weighted equally
at target levels and assessed relative to SCI's 2002 business plan. Performance
targets based on these measures were established by the Committee during the
first quarter of 2002 for the performance period of January 1 through December
31, 2002. In August 2002, the Committee defined a second performance period of
July 1 through December 31, 2002 to reflect the expected business results due to
the delay in the sale of the Company's French operations. We also limited the
bonuses to be paid for both performance periods based on total results which
would have been achieved if the Company's French operations had been included
for the full year.
Awards
For 2002, SCI's actual performance on the operating free cash flow measure
slightly exceeded the target. However, performance of the EBITDA to the average
total capital ratio fell below the threshold. As a result, we awarded bonuses to
the Named Executive Officers at 62.5% of target levels, the amounts of which are
disclosed in the summary compensation table.
LONG-TERM INCENTIVE COMPENSATION
Stock Options
Stock options were granted to the Named Executive Officers in 2002. The awards
were targeted at the 75th percentile of long-term incentive awards of the
Comparison Group. The options were granted at exercise prices equal to 100% of
the fair market value of SCI Common Stock on the grant date. They vest at a rate
of one-third per year and have an eight year term.
Performance Units
The Committee plans to change SCI's form of long-term incentive compensation for
2003. Instead of stock-based compensation, long-term compensation for 2003 will
consist of performance units with a cash payout that is based on SCI's total
shareholder return compared to the total shareholder return of the publicly
traded U.S. companies in Value Line's Diversified Industry Classification. A
threshold return to SCI shareholders will also be established and incorporated
into the plan; the threshold level of return must be achieved before any payouts
will be made under the plan.
16
RETENTION OF COMPENSATION CONSULTANTS
From time to time, we work with compensation consultants who assist in the
design, implementation and communication of various compensation plans and in
the review of compensation levels and programs. Any compensation consultants
retained for this purpose report directly to the Committee, which has the sole
authority to approve the consultants' fees and any other terms of engagement.
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.
The Committee has not adopted a specific policy relating to OBRA. We consider
the OBRA restrictions when structuring executive compensation programs. However,
we believe that tax deductibility should not be the sole consideration in
setting appropriate compensation for SCI's senior management and maintaining
management's focus on the goal of increasing shareholder value. As such, we view
OBRA as one of a number of factors that we consider in making compensation
decisions.
2002 CHIEF EXECUTIVE OFFICER COMPENSATION
Base Salary
Mr. R. L. Waltrip received no base salary increase in 2002.
Annual Incentive Compensation
Mr. Waltrip received an annual incentive for 2002 of $593,750, which was 62.5%
of the target established by the Committee. The award was determined using the
same factors used to award annual incentives for other Named Executive Officers,
as described above. Mr. Waltrip's target annual incentive was set slightly above
the 50th percentile of target annual incentives of the Comparison Group.
Long-Term Incentive Compensation
Mr. Waltrip was granted 1,000,000 stock options in February, 2002 which was
slightly below the 75th percentile of the Comparison Group levels. These
options, like all other options granted to Named Executive Officers, were
granted at an exercise price equal to 100% of the fair market value of SCI's
common stock on the date of grant. They vest at a rate of one-third per year and
have an eight-year term.
COMPENSATION COMMITTEE
Victor L. Lund, Chair
James H. Greer
John W. Mecom, Jr.
17
CERTAIN INFORMATION WITH RESPECT TO OFFICERS AND DIRECTORS
CASH COMPENSATION
The following table sets forth information for the three years ended December
31, 2002 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
---------------------------------------------------------------------------------------------------------------------
LONG-TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------------------------------------------------------------------------------------------
RESTRICTED LONG-TERM
NAME AND OTHER ANNUAL STOCK STOCK INCENTIVE
PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION(2) AWARD OPTIONS PAYOUTS
---------------------------------------------------------------------------------------------------------------------
R. L. Waltrip 2002 $ 995,000 $593,750 $240,302 0 1,000,000 0
Chairman and 2001 1,000,250 712,500 241,772 0 1,400,000 0
Chief Executive Officer 2000 1,001,000 712,500 259,320 0 1,200,000 0
B. D. Hunter 2002 645,000 300,000 19,933 0 600,000 0
Vice Chairman 2001 650,250 420,000 40,698 0 1,100,000 0
2000 451,000 280,000 26,912 0 900,000 0
Thomas L. Ryan 2002 305,250 212,500 10,123 0 200,000 0
President and Chief 2001 200,000 142,080 4,630 0 200,000 0
Operating Officer 2000 191,346 93,000 12,911 0 112,500 0
Michael R. Webb 2002 316,500 200,000 12,457 0 200,000 0
Executive Vice President 2001 269,327 159,840 8,593 0 200,000 0
2000 230,776 94,000 10,128 0 112,500 0
Jeffrey E. Curtiss 2002 400,000 175,000 27,200 0 250,000 0
Senior Vice President and 2001 400,000 280,000 19,322 0 400,000 0
Chief Financial Officer 2000 400,000 280,000 15,694 0 300,000 0
---------------------------------------------------------------------------------------------------------------------
----------------------------- ----------------
----------------------------- ----------------
NAME AND ALL OTHER
PRINCIPAL POSITION COMPENSATION(3)
----------------------------- ----------------
R. L. Waltrip $ 60,552
Chairman and 284,229
Chief Executive Officer 284,229
B. D. Hunter 11,220
Vice Chairman 9,518
2,538
Thomas L. Ryan 11,379
President and Chief 7,903
Operating Officer 2,101
Michael R. Webb 15,527
Executive Vice President 12,640
3,115
Jeffrey E. Curtiss 10,235
Senior Vice President and 10,235
Chief Financial Officer 5,135
----------------------------------------------------------------
---------------
(1) Salary includes director fees for Mr. R. L. Waltrip and Mr. Hunter of
$45,000 each for 2002.
(2) Figures include executive perquisites and benefits, including, for 2002,
$110,500 for interest reimbursement for Mr. R. L. Waltrip, relating to the
reimbursement of interest paid by him on the loan from the Company described
in the third paragraph under "Certain Transactions." For each of the other
Named Executive Officers, the aggregate of the executive's perquisites and
benefits in 2002 did not exceed the lesser of $50,000 or 10 percent of the
total of the executive's annual salary and bonus.
(3) Consists of the following for 2002: $44,343 for split dollar life insurance,
$2,439 for term life insurance and $13,770 for Company contributions to the
Company's 401(k) plan for Mr. R. L. Waltrip; $11,220 for Company
contributions to the Company's 401(k) plan for Mr. Hunter; $259 for term
life insurance and $11,120 for Company contributions to the Company's 401(k)
plan for Mr. Ryan; $1,757 for term life insurance and $13,770 for Company
contributions to the Company's 401(k) plan for Mr. Webb; and $2,585 for term
life insurance and $7,650 for Company contributions to the Company's 401(k)
plan for Mr. Curtiss.
18
STOCK OPTIONS
OPTION GRANTS IN 2002
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 2002 SHARE(2) DATE VALUE(3)
---- ---------- ---------- ----------- --------- ---------- ----------
R. L. Waltrip................. 2/13/02 1,000,000 17.55% $5.0650 2/13/10 $3,507,000
B. D. Hunter.................. 2/13/02 600,000 10.53% $5.0650 2/13/10 $2,104,200
Thomas L. Ryan................ 2/13/02 100,000 1.75% $5.0650 2/13/10 $ 350,700
8/14/02 100,000 1.75% $2.9250 8/14/10 $ 218,760
Michael R. Webb............... 2/13/02 100,000 1.75% $5.0650 2/13/10 $ 350,700
8/14/02 100,000 1.75% $2.9250 8/14/10 $ 218,760
Jeffrey E. Curtiss............ 2/13/02 250,000 4.39% $5.0650 2/13/10 $ 876,750
---------------
(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 February 2002 grants are:
volatility rate of 62.3%; annual dividend yield of 0%; turnover rate of 3%;
and risk free interest rate of 5.06%. The assumptions used for valuing the
August 2002 grants are: volatility rate of 62.3%, annual dividend yield of
0%; turnover rate of 3%; and risk free interest rate of 4.1%.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND DECEMBER 31, 2002 OPTION
VALUES
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 2002 DECEMBER 31, 2002
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
R. L. Waltrip............... 0 0 5,285,168 3,533,335 $251,999 $ 126,001
B. D. Hunter................ 0 0 966,666 1,633,334 $189,000 $ 94,500
Thomas L. Ryan.............. 0 0 173,466 385,834 $ 23,625 $ 74,938
Michael R. Webb............. 0 0 201,666 405,834 $ 23,625 $ 74,938
Jeffrey E. Curtiss(1)....... 0 0 333,332 616,668 $ 62,999 $ 31,501
---------------
(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 which was amended effective
January 1, 2001 such that the Company would not make any further contributions
under the plan after 2000. 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. Plan accounts continue to accrue interest and, for 2002,
interest for each account was credited at the annual rate of 3.1%.
19
Estimated Annual Benefits Payable at Age 65
NAME ANNUAL BENEFIT
---- --------------
R. L. Waltrip......................................... $118,852(1)
B. D. Hunter.......................................... 28,884(2)
Thomas L. Ryan........................................ 5,063(3)
Michael R. Webb....................................... 12,949(3)
Jeffrey E. Curtiss.................................... -- 0 --
---------------
(1) This amount is currently being paid. Pursuant to a change in tax
regulations, Mr. R. L. Waltrip became eligible for an additional benefit of
$310,771 which was paid on or about November 1, 2002.
(2) Currently being paid.
(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.
At retirement or termination, the participant may elect to receive his or her
vested benefit as a lump sum distribution, a monthly payout or a rollover to an
IRA or other tax qualified plan. 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
In 2000, the Company amended the Supplemental Executive Retirement Plan for
Senior Officers ("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.
The SERP for Senior Officers is a non-qualified plan which covers executive
officers and certain regional operating presidents, including the Named
Executive Officers. 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 were previously 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.
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.
20
The table below sets forth benefits for the Named Executive Officers.
ANNUAL BENEFITS UNDER SERP FOR SENIOR OFFICERS
ESTIMATED
ANNUAL
BENEFIT AT AGE 60
-----------------
R. L. Waltrip........................................ $1,110,773(1)
B. D. Hunter......................................... -- 0 --
Thomas L. Ryan....................................... 18,968
Michael R. Webb...................................... 42,725
Jeffrey E. Curtiss................................... 22,977
---------------
(1) This is Mr. R. L. Waltrip's actual benefit which, pursuant to his election,
is being paid in the form of monthly installments since January 1, 1995.
EXECUTIVE EMPLOYMENT AGREEMENTS
Employment Agreement with the Chairman and Chief Executive Officer
The Company has an executive employment agreement with Mr. R. L. Waltrip which
expires December 31, 2006. The agreement provides for a base salary, which
cannot be decreased but may be increased by the Compensation Committee in its
sole discretion. As of March 20, 2003, the base salary for Mr. R. L. Waltrip was
$950,000. The terms of the agreement also provide that Mr. R. L. Waltrip shall
have the right to participate in bonus and other compensation and benefit
arrangements.
In the event of termination of employment due to disability or death, Mr. R. L.
Waltrip 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 he received in the
preceding three years and continuation of welfare plan benefits. If he is
terminated without cause or he voluntarily terminates for 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
agreement), Mr. R. L. Waltrip 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 he received in the preceding three years plus
(c) an amount equal to five times his 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. If
any payments under the executive employment agreement or under the benefit plans
of the Company would subject Mr. R. L. Waltrip to any excise tax under the
Internal Revenue Code, he will also be entitled to receive an additional payment
in an amount such that, after the payment of all taxes (income and excise), he
will be in the same after-tax position as if no excise tax had been imposed.
Other Named Executive Officers
The Company also has employment agreements with Messrs. B. D. Hunter, Thomas L.
Ryan, Michael R. Webb and Jeffrey E. Curtiss and the other eight executive
officers. These agreements have current terms expiring December 31, 2003.
Annually, the Company may extend each agreement 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 cannot be decreased but may be
increased by the Compensation Committee, and the right to participate in bonus
and other compensation and benefit
21
arrangements. As of March 20, 2003, the base salaries for Messrs. Hunter, Ryan,
Webb and Curtiss were $600,000, $450,000, $425,000 and $400,000, 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, the Company will make payments to the
executive during the non-competition period 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
Mr. R. L. Waltrip and certain other officers participate in the Split Dollar
Life Insurance Plan, under which they are owners of life insurance policies. Mr.
R. L. Waltrip's policy provides a death benefit of $2,000,000. 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.
COMPENSATION OF DIRECTORS
The compensation of directors is described under "Election of Directors-Director
Compensation" herein above.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Board members who served on the Compensation Committee during 2002 were Messrs.
Anthony L. Coelho, James H. Greer, Victor L. Lund, John W. Mecom, Jr. and E. H.
Thornton, Jr. No member of the Compensation Committee in 2002 or at present was
or is 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 2002, SCI paid $108,337 in compensation and granted stock options for 750
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, Senior Vice President
Eastern Operations of the Company.
For 2002, SCI paid $71,925 in compensation and granted stock options for 3,000
shares of Common Stock to Mr. David Warren in his capacity as an employee of the
Company. Mr. Warren is the stepson of Mr. Edward E. Williams, a director of the
Company.
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
facilitate the payment of the estimated federal income taxes resulting from
their receipt of the restricted stock grants. Each of the loans is due August
10, 2003 and remained outstanding
22
in 2002. The loans bear 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). At maturity, the loans may be paid off in
cash or in Common Stock.
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, SCI 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 $555,852 for 2002. 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. Additionally, Mr. W. Blair Waltrip receives remuneration as 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 SCI. Although the lending subsidiary no longer makes new loans,
during 2002, the subsidiary had outstanding a loan at the prime rate to Mr.
Stephen M. Mack, Senior Vice President Eastern Operations, of which the largest
balance in 2002 was $175,000 and the year end balance was $137,169. Mr. Mack
paid off the loan in full in February 2003.
Prior to being elected Vice President Western Operations in 2003, Mr. Sumner
James Waring, III relocated to California at the Company's request. In that
regard, SCI reimbursed Mr. Waring for $22,416 in relocation expenses and
provided an interest free mortgage loan of $1,540,000 for Mr. Waring's purchase
of a house in California. In December 2002, the Company (i) purchased the house
from Mr. Waring at the price of $1,540,000 and Mr. Waring paid off in full the
$1,540,000 mortgage loan, and (ii) leased the house to Mr. Waring under a
month-to-month lease providing for Mr. Waring to pay rent of $1,000 per month.
In 1996, the family of Mr. Waring sold its business to SCI. In the transaction,
Mr. Waring entered into a noncompetition agreement under which the Company pays
him $50,000 per year for ten years. Mr. Waring's father entered a noncompetition
agreement under which the Company pays him $100,000 per year for ten years. Mr.
Waring's father also has a Consulting Agreement expiring in 2006 under which the
Company paid him fees (and an automobile allowance) of $81,000 for 2002. In
addition, Mr. Waring's father and mother own a company that leases an office
building to SCI under a lease expiring in 2003 and providing for rent of $60,000
in 2002 and $61,800 in 2003. Until August 2002, Mr. Waring owned 50% of such
company. Mr. Waring's father and mother also own a company that leases funeral
homes to SCI under a lease expiring in 2016 and providing for rent of $185,000
per year.
Barrow, Hanley, Mewhinney & Strauss, Inc. ("BHMS") is a holder of more than 5%
of the outstanding shares of Common Stock of the Company. During 2002, BHMS was
one of the investment managers of portfolios of independent trusts which hold
funds collected from consumers in connection with preneed funeral sales and
preneed cemetery sales. The process by which such portfolio managers are chosen
and overseen is outlined above under the section entitled "Board of
Directors-Board Committees-Investment Committee". During 2002, BHMS managed on
average approximately $87,513,000 for such trusts and was managing approximately
$80,725,000 at the end of 2002. Such trusts are prohibited from investing in SCI
stock or other SCI securities. For such services, the trusts paid fees of
$305,987 to BHMS for 2002. It is expected that BHMS will continue to act as an
investment manager for such trusts during 2003.
Marsh & McLennan Companies, Inc. ("MMC") is a holder of more than 5% of the
outstanding shares of Common Stock of the Company. In 2002, Marsh Inc., a
subsidiary of MMC, acted as agent for the Company in its purchase of (i)
aviation insurance at a gross premium of $216,718, from which MMC received a
commission of $32,508, and (ii) surety bonds relating to preneed sales in the
Company's funeral home and cemetery businesses for a gross premium of $406,614,
from which MMC received a commission of $101,654. It is expected that Marsh Inc.
will continue to act as agent for the Company in the purchase of insurance
products in 2003. In addition, Mercer Delta, another subsidiary of MMC, provided
consulting services to SCI and to the Nominating and Corporate Governance
Committee of the Company's Board of Directors on
23
various corporate governance initiatives for which MMC received consulting fees
of $100,000 in 2002. It is expected that Mercer Delta will continue to provide
such consulting services in 2003.
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 20, 2003 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.................... 36,470,900(1) 12.2%
One McKinney Plaza
3232 McKinney Avenue, 15th Floor
Dallas, Texas 75204-2429
Brandes Investment Partners LLC, Brandes Investment
Partners, Inc., Brandes Worldwide Holdings, L.P., Charles
H
Brandes, Glenn R. Carlson and Jeffrey A. Busby............ 26,416,172(2) 8.9%
11988 El Camino Real, Suite 500
San Diego, California 92130
Capital Research and Management Company..................... 22,236,900(3) 7.5%
333 South Hope Street, 55th Floor
Los Angeles, California 90071
Putnam, LLC., Marsh & McLennan Companies, Inc., Putnam
Investment Management, LLC and The Putnam Advisory
Company, LLC.............................................. 28,310,402(4) 9.5%
One Post Office Square
Boston, Massachusetts 02109
Vanguard Windsor Funds -- Vanguard Windsor II
("Windsor")............................................... 28,414,400(5) 9.5%
100 Vanguard Blvd
Malvern, Pennsylvania 19355
---------------
(1) Based on a filing made by Barrow, Hanley, Mewhinney & Strauss, Inc. on
February 12, 2003, which reported sole voting power for 209,800 shares,
shared voting power for 36,261,100 shares, sole investment power for
36,470,900 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,
2003, which reported sole voting power for no shares, shared voting power
for 18,472,695 shares, sole investment power for no shares and shared
investment power for 26,416,172 shares.
(3) Based on a filing made by Capital Research and Management Company on
February 13, 2003, which reported sole voting power for no shares, shared
voting power for no shares, sole investment power for 22,236,900 shares and
shared investment power for no shares.
(4) Based on filings made by the named companies on February 14, 2003, which
reported sole voting power for no shares, shared voting power for 389,049
shares, sole investment power for no shares and shared investment power for
28,310,402 shares.
(5) Based on a filing made by Vanguard Windsor Funds -- Vanguard Windsor II on
February 13, 2003, 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.
24
The table below sets forth, as of March 20, 2003, the amount of the Company's
Common Stock beneficially owned by each Named Executive Officer, 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............................................... 7,838,050(2) 2.5%
B. D. Hunter................................................ 1,883,235(3) *
Thomas L. Ryan.............................................. 334,470(4) *
Michael R. Webb............................................. 391,402(5) *
Jeffrey E. Curtiss.......................................... 736,822(6) *
Alan R. Buckwalter.......................................... --
Anthony L. Coelho........................................... 53,554 *
Jack Finkelstein............................................ 382,643(7) *
A. J. Foyt, Jr.............................................. 85,441(8) *
James H. Greer.............................................. 83,827 *
Victor L. Lund.............................................. 31,356 *
John W. Mecom, Jr........................................... 21,012 *
Clifton H. Morris, Jr....................................... 65,040(9) *
E. H. Thornton, Jr.......................................... 130,584 *
W. Blair Waltrip............................................ 2,497,015(10) *
Edward E. Williams.......................................... 229,473(11) *
Executive Officers and Directors as a Group (24 persons).... 17,719,856(12) 5.7%
---------------
* 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
restricted shares held under the 2001 Stock Plan for Non-Employee
Directors. 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 530,133 shares held by an estate of which
Mr. R. L. Waltrip is the executor having sole voting and investment powers.
Also includes 6,351,835 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 1,733,333 shares
which may be acquired upon exercise of stock options exercisable within 60
days.
(4) Includes 298,466 shares which may be acquired by Mr. Ryan upon exercise of
stock options exercisable within 60 days.
(5) Includes 326,666 shares which may be acquired by Mr. Webb upon exercise of
stock options exercisable within 60 days. Also includes 11,707 shares which
may be acquired upon conversion of convertible notes.
(6) Includes 10,000 shares which are held in a revocable trust of which Mr.
Curtiss is trustee and 79,859 shares held by a family limited partnership.
Also includes 616,665 shares which may be acquired upon exercise of stock
options exercisable within 60 days, including exercisable options for
66,666 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.
(7) Includes 333,105 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 242,571 shares and shared
voting and investment power with respect to
25
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 152,204 shares held in a trust for the benefit of Mr. W. Blair
Waltrip, 1,072,224 shares held in trusts under which Mr. W. Blair Waltrip,
his brother and his sister are trustees and have shared voting and
investment power and for which Mr. W. Blair Waltrip disclaims 2/3
beneficial ownership. Also includes 105,357 shares held by other family
members or trusts, of which shares Mr. W. Blair Waltrip disclaims
beneficial ownership. Of the shares attributable to the trusts, 468,384
shares are also included in the shares owned by Mr. R. L. Waltrip. See
Footnote (2). Also includes 90,000 shares held by a charitable foundation
of which Mr. Waltrip is President and 410,000 shares which may be acquired
upon exercise of stock options exercisable within 60 days.
(11) Includes 38,301 shares which may be acquired upon conversion of SCI
convertible notes purchased by Dr. Williams on the open market.
(12) Includes 12,881,077 shares which may be acquired upon exercise of stock
options exercisable within 60 days and 65,593 shares which may be acquired
upon conversion of convertible notes.
REPORT OF THE AUDIT COMMITTEE
The primary purpose of the Audit Committee is to assist the Board of Directors
in overseeing the integrity of the Company's financial reporting and the
Company's compliance with legal and regulatory requirements, including oversight
of the financial reporting process. The Audit Committee's functions are detailed
in the section entitled "Board of Directors-Board Committees-Audit Committee"
above. 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.
The Audit Committee has reviewed and discussed the audited financial statements
with management of the Company and with the independent accountants.
Specifically, we have discussed with the independent accountants the matters
required to be discussed by SAS 61 (Codification of Statements on Auditing
Standards), as modified or supplemented. The Committee 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. We have also reviewed the
independence of the independent accountants considering the compatibility of
non-audit services with maintaining their independence from the Company. Based
on the preceding review and discussions contained in this paragraph, the
Committee 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 2002
fiscal year for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE:
Victor L. Lund, Chair
Jack Finkelstein
Edward E. Williams
PROPOSAL TO APPROVE THE SELECTION OF INDEPENDENT ACCOUNTANTS
The Audit Committee of 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,
2003. 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. The Audit Committee wishes to submit
the
26
selection of PricewaterhouseCoopers for shareholders' approval at the Annual
Meeting. If the shareholders do not give approval, the Audit Committee will
reconsider its selection.
AUDIT FEES AND ALL OTHER FEES
Audit Fees
Fees for audit services totaled $2,274,433 in 2002 and $2,485,758 in 2001,
including fees associated with the annual audit, the reviews of the Company's
quarterly reports on Form 10-Q, and statutory audits required internationally.
Audit Related Fees
Fees for audit related services totaled $121,472 in 2002 and $429,889 in 2001.
Audit related services principally include the audit of certain preneed funeral
and cemetery trust funds in 2002. For 2001, the services included the audit of
certain preneed funeral and cemetery trust funds, due diligence services and
audits of employee benefit plans.
Tax
Fees for tax services, including tax compliance, tax advice and tax planning,
totaled $378,131 in 2002 and $1,354,492 in 2001. Fees for tax services in both
years are primarily related to compliance work in the Company's international
operations. The decrease in 2002 is related to international divestitures during
2002 and 2001.
All Other Fees
Fees for all other services not described above totaled approximately $15,725 in
2002 and $870,442 in 2001. Fees for 2002 included human resources advisory
services. Fees for 2001 principally included internal audit outsourcing services
and actuarial services for certain preneed funeral and cemetery trust funds.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE
SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT ACCOUNTANTS OF THE
COMPANY.
SHAREHOLDER PROPOSAL
The Company has been advised that Mr. Nick Rossi, P.O. Box 249, Boonville, CA
95415, owner of 2,000 shares of Common Stock, intends to have Mr. John Chevedden
submit the proposal set forth below at the meeting. THE SCI BOARD OF DIRECTORS
OPPOSES THE PROPOSAL SET FORTH BELOW FOR THE FOLLOWING REASONS.
The Board of Directors recommends that you vote against this proposal because it
would significantly limit the Board of Directors' ability to maximize
shareholder value. The Board of Directors believes that the Company's
shareholder rights plan is in the best interest of the Company and its
shareholders.
Contrary to the proponent's suggestion, a shareholder rights plan can be an
important element of promoting shareholder value. The Board of Directors adopted
the Company's rights plan to ensure that each shareholder is treated equally and
fairly in the event of any proposed acquisition of the Company and to protect
against abusive takeover tactics, such as partial or two-tiered tender offers
and creeping acquisitions of the Company's stock. In these circumstances, a
board is often required to act under time constraints that would not permit a
shareholder vote, and would need more flexibility than the proponent's
suggestion would allow. The Board of Directors believes that the adoption and
maintenance of a rights plan is within the scope of responsibilities of the
Board of Directors, acting on behalf of all shareholders.
In the Board of Directors' opinion, the current price of the Company common
stock considerably underestimates the Company's long-term value. As a result, a
rights plan is even more essential to deter a potential
27
acquiror from exploiting this situation and paying less than fair value for
control of the Company. The Company's rights plan strengthens the Board of
Directors' ability to maximize shareholder value in the event of an attempted
takeover by giving the Board of Directors the time to properly consider a
proposed acquisition, the leverage to negotiate for a higher price and the
flexibility to pursue potentially superior alternatives. The rights plan is not
intended to, and does not, prevent unsolicited, non-abusive offers to acquire
the Company at a fair price. Rather, the Board of Directors may redeem the
rights to permit an acquisition that it determines, in the exercise of its
fiduciary duties, adequately reflects the value of the Company and is in the
best interest of its shareholders.
Furthermore, the Board of Directors is in an excellent position to minimize any
self-interest involved in administering the rights plan. Only two of the members
of the Board of Directors are current employees of the Company, and nine of the
twelve members of the Board of Directors are considered independent under the
New York Stock Exchange rules. These facts reduce the risk that the Company's
rights plan will be used for entrenchment purposes.
The Board of Directors' belief that the Company's rights plan enhances
shareholder value is also supported by other companies and research. Plans
similar to the Company's plan have been adopted by the majority of the
corporations included in the Standard & Poor's 500 Index. Moreover, studies have
indicated that shareholders of corporations with rights plans do better in the
event of a takeover than do shareholders whose companies do not have rights
plans. For example, a study by Georgeson & Company Inc. analyzing takeover data
between 1992 and 1996 found that premiums paid to acquire target companies with
rights plans were on average eight percentage points higher than premiums paid
for target companies that did not have rights plans. The study estimated that
rights plans contributed an additional $13 billion in shareholder value during
the examined time period, and that shareholders of acquired companies without
rights plans gave up $14.5 billion in potential premiums. The study also
concluded that a rights plan did not reduce the likelihood of a corporation
becoming a takeover target, increase the likelihood of the withdrawal of a
friendly takeover bid nor increase the likelihood of defeat of a hostile bid.
Although the proposal if adopted would not be binding on the Board of Directors,
the Board of Directors urges shareholders to vote AGAINST the proposal. The
overriding objective of the Board of Directors in adopting the rights plan was,
and continues to be, the preservation and maximization of the Company's
long-term value for all shareholders.
PROPOSAL
3 -- SHAREHOLDER VOTE ON POISON PILLS
THIS TOPIC WON AN AVERAGE 60%-YES VOTE AT 50 COMPANIES IN 2002
This is to recommend that the Board of Directors redeem any poison pill
previously issued (if applicable) and not adopt or extend any poison pill unless
such adoption or extension has been submitted to a shareholder vote.
HARVARD REPORT
A 2001 Harvard Business School study found that good corporate governance (which
took into account whether a company has a poison pill) was positively and
significantly related to company value. This study, conducted with the
University of Pennsylvania's Wharton School, reviewed the relationship between
the corporate governance index for 1,500 companies and company performance from
1990 to 1999.
Some believe that a company with good governance will perform better over time,
leading to a higher stock price. Others see good governance as a means of
reducing risk, as they believe it decreases the likelihood of bad things
happening to a company.
Since the 1980s Fidelity, a mutual fund giant with $800 billion invested, has
withheld votes for directors at companies that have approved poison pills, Wall
Street Journal, June 12, 2002.
28
COUNCIL OF INSTITUTIONAL INVESTORS RECOMMENDATION
The Council of Institutional Investors www.cii.org, an organization of 120
pension funds which invests $1.5 trillion, called for shareholder approval of
poison pills. In recent years, various companies have been willing to redeem
existing poison pills or seek shareholder approval for their poison pill. This
includes Columbia/HCA, McDermott International and Bausch & Lomb. I believe that
our company should follow suit and allow shareholder participation.
SHAREHOLDER VOTE ON POISON PILLS
YES ON 3
------------------------------------
THE SCI BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
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 2002 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 2004 Annual
Meeting of Shareholders scheduled to be held on May 13, 2004 must be received by
the Company by December 13, 2003, 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 2004 Annual Meeting of
Shareholders scheduled to be held on May 13, 2004 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 10, 2004 and no later than
January 30, 2004. Any notice pursuant to this or the preceding paragraph
29
should be addressed to the Secretary of the Company, 1929 Allen Parkway, P.O.
Box 130548, Houston, Texas 77219-0548.
To avoid unnecessary expense, please return your proxy regardless of the number
of shares that you own. Simply date, sign and return the enclosed proxy in the
enclosed business reply envelope. Thank you.
Service Corporation International
1929 Allen Parkway
P.O. Box 130548
Houston, Texas 77219-0548
April 11, 2003
30
[SERVICE CORPORATION INTERNATIONAL(R) LOGO]
Service Corporation International
1929 Allen Parkway
P.O. Box 130548
Houston, Texas 77219-0548
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SERVICE CORPORATION INTERNATIONAL
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS MAY 8, 2003
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 8, 2003, 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, FOR APPROVAL OF THE SELECTION OF PRICEWATERHOUSECOOPERS
LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS AND AGAINST APPROVAL OF THE
SHAREHOLDER PROPOSAL REGARDING SHAREHOLDER RIGHTS PLANS.
PLEASE VOTE, SIGN, DATE AND RETURN
THIS PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE. SERVICE CORPORATION INTERNATIONAL
P.O. BOX 11270
NEW YORK, N.Y. 10203-0270
(Continued and to be dated and signed on the reverse side.)
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DETACH PROXY CARD HERE
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[ ] PLEASE MARK, SIGN, DATE AND
RETURN THIS PROXY PROMPTLY [X]
USING THE ENCLOSED ENVELOPE. VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK.
1. ELECTION OF DIRECTORS. (THE BOARD RECOMMENDS A VOTE FOR ALL OF THE NOMINEES).
FOR WITHHOLD
ALL [ ] FOR ALL [ ] *EXCEPTIONS [ ]
Nominees: R.L. Waltrip, Alan R. Buckwalter, III, Anthony L. Coelho,
A.J. Foyt, Jr. and Edward E. Williams
(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 PricewaterhouseCoopers LLP as the Company's
independent accountants for fiscal 2003. (THE BOARD RECOMMENDS A VOTE FOR
THIS PROPOSAL).
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of shareholder proposal regarding shareholder rights plans. (THE
BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL).
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
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
-------------- -------------------------------- ------------------------------
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