e11vk
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
FORM 11-K
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ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year ended December 31, 2006
or
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TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 1-6402-1
THE SCI 401(k) RETIREMENT SAVINGS PLAN
(Full title of the plan)
SERVICE CORPORATION INTERNATIONAL
(Name of issuer of the securities held pursuant to the plan)
1929 Allen Parkway
Houston, Texas 77019
(Address of the plan and address of issuer’s principal executive offices)
THE SCI 401(k) RETIREMENT SAVINGS PLAN
INDEX
2
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Administrative Committee
The SCI 401(k) Retirement Savings Plan
Houston, Texas
We have audited the accompanying Statements of Net Assets Available for Benefits of The SCI 401(k)
Retirement Savings Plan as of December 31, 2006 and 2005 and the related Statement of Changes in
Net Assets Available for Benefits for the year ended December 31, 2006. These financial statements
are the responsibility of the Plan’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the net assets available for benefits of The SCI 401(k) Retirement Savings Plan as of
December 31, 2006 and 2005 and the changes in net assets available for benefits
for the year ended December 31, 2006 in conformity with generally accepted accounting principles in
the United States of America.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken
as a whole. The supplemental Schedule of Assets (Held at End of Year) is presented for purposes of
complying with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974 and is not a required part of the basic
financial statements. The supplemental schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a whole.
/s/ HARPER & PEARSON COMPANY, P.C.
Houston, Texas
June 29, 2007
3
THE SCI 401(k) RETIREMENT SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
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December 31, |
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December 31, |
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2006 |
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2005 |
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Assets: |
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Investments: |
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Pooled separate accounts |
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$ |
154,050,854 |
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$ |
121,580,627 |
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SCI common stock |
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62,465,745 |
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58,938,086 |
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Interest bearing cash |
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1,629,047 |
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2,269,416 |
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Self-directed account |
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325,094 |
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153,359 |
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Participant loans |
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9,574,924 |
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8,295,972 |
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Total investments |
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228,045,664 |
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191,237,460 |
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Receivables: |
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Employer contribution receivable |
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499,198 |
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513,844 |
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Employee contribution receivable |
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655,724 |
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667,434 |
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Total receivables |
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1,154,922 |
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1,181,278 |
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Total
assets |
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229,200,586 |
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192,418,738 |
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Liabilities: |
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Excess
contributions payable |
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1,067,106 |
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1,686,921 |
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Net assets
available for benefits |
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$ |
228,133,480 |
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$ |
190,731,817 |
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See notes to financial statements.
4
THE SCI 401(k) RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
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Year Ended |
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December 31, 2006 |
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Additions to net assets attributed to: |
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Contributions: |
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Employer cash |
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$ |
16,855,710 |
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Participants |
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22,434,172 |
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Rollovers from other qualified plans |
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933,298 |
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Total contributions |
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40,223,180 |
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Investment income: |
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Dividend and interest income |
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1,351,801 |
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Net appreciation in the fair value of pooled separate
Accounts |
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13,096,574 |
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Net appreciation in the fair value of SCI common stock |
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12,624,405 |
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Realized loss on sale of SCI common stock |
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(227,279 |
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Total investment income |
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26,845,501 |
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Total additions |
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67,068,681 |
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Deductions from net assets attributed to: |
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Distributions to participants |
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29,375,132 |
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Administrative expenses |
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291,886 |
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Total deductions |
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29,667,018 |
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Net increase |
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37,401,663 |
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Net assets available for benefits: |
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Beginning of
period, as previously reported |
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192,418,738 |
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Prior period
adjustment for 2005 corrective distributions
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(1,686,921 |
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Beginning of
period, as adjusted |
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190,731,817 |
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End of period |
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$ |
228,133,480 |
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See notes to financial statements.
5
THE SCI 401(k) RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
1. Plan Description
General
The following description of The SCI 401(k) Retirement Savings Plan (the Plan) is provided for
general information purposes only. Participants should refer to the Summary Plan Description or
the Plan Document for a more complete description of the Plan’s provisions.
The Plan, established July 1, 2000, is a defined contribution plan for the exclusive benefit of
Service Corporation International’s (SCI or the Company) United States non-union employees. The
Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
The Plan’s assets are held by Massachusetts Mutual Life Insurance Company and participant accounts
are maintained by MassMutual Retirement Services. Investors Bank & Trust Company serves as the
trustee for the SCI Common Stock Fund. Service Corporation
International serves as Plan Administrator.
Contributions
Eligible employees can participate in the Plan after completing three months of service and
attaining age 21. Employees covered by a collective bargaining agreement in which retirement
benefits are provided are not eligible under the Plan. The election to contribute to the Plan is
voluntary. Employees are initially enrolled in the Plan, after meeting eligibility requirements,
to contribute 3% of pretax annual compensation, unless participation is specifically rejected by
such employees. Participants may contribute up to a maximum of 50% of pretax annual compensation.
Each individual’s participant contributions were limited to $15,000 in 2006. An additional
catch-up contribution of $5,000 was allowed for employees aged 50 and over.
The Company contributes a matching amount up to 6% of the participant’s pretax annual compensation.
The percentage of the match is based on years of vesting service with the Company and ranges from
75% to 135% of the employee’s eligible contribution. Additional amounts may be contributed at the
Company’s discretion. There were no discretionary Company contributions for the year ended
December 31, 2006.
Effective January 1, 2005, the Company began to contribute cash to fund the Company’s matching
contribution to the Plan and discontinued funding through the issuance of Company common stock or
treasury stock.
Participant Accounts
Participant account balances are valued based upon the number of units of each investment fund
owned by the participants. Each participant’s account is credited with the participant’s
contribution and allocations of the Company’s contributions and plan earnings or losses. Forfeited
balances of terminated participants’ non-vested accounts are used to reduce administrative expenses
and future Company contributions. Forfeited balances were $1,129,548
for the year ended December
31, 2006.
6
Vesting
Participants are fully vested in their deferred salary and rollover contributions. Participants
are not vested in Company contributions until they complete three years of vesting service with the
Company thus becoming 100% vested.
Participant Loans
Participants may borrow from their accounts up to one half of their vested account balance to a
maximum of $50,000. The minimum amount that may be borrowed is $1,000. Loans are to be repaid
within five years, unless the loan is used to purchase a primary residence. The loans are secured
by the balance in the participant’s account and bear interest fixed at 1% above the prime rate at
the date of inception. A participant may have no more than two loans outstanding at any one time.
Participant Distributions
The Plan provides for several different types of participant withdrawals. Participants who have
reached age 591/2 may make in-service withdrawals. Participants may make withdrawals before age 591/2
if they qualify for certain hardship withdrawals. Upon termination of service with the Company or
death, the participant or beneficiary may receive a lump-sum amount equal to the vested amount in
the participant’s account. A participant whose account balance exceeds $5,000 may elect a deferred
distribution until age 701/2.
Plan Termination
The Company expects the Plan to continue indefinitely, however, it reserves the right to terminate
or amend the Plan to eliminate future benefits. If the Plan is terminated, participants will
become 100% vested and account balances will be distributed by a lump-sum payment.
Prior
Period Adjustment
The prior
period adjustment reflects the excess contributions payable and a
decrease to net assets available for benefits of
$1,686,921 at December 31, 2005. The excess contributions payable were refunded to certain
participants and the Plan Sponsor in March, 2006.
2. Summary of Accounting Policies
Principles of Reporting
The financial statements and schedules have been prepared in accordance with accounting principles
generally accepted in the United States of America and the financial reporting requirements of
ERISA and are maintained on an accrual basis except for participant distributions, which are
reported when paid.
7
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires Plan management to make estimates and assumptions that may
affect the amounts reported in the financial statements. As a result, actual results could differ
from those estimates.
Investments
Investments are stated at fair value, which is determined by quoted market prices. Participant
loans are valued at their outstanding balances, which approximates fair value.
In 2005, a self-directed investment account was established for each participant who directed an
investment outside of the investment options designated by the Plan Administrator. The
self-directed account shall not share in trust fund earnings but will be charged or credited as
appropriate with net earnings, gains, losses, and expenses, as well as any appreciation
(depreciation) in market value attributable to such account during each plan year. State Street
Global Market is asset custodian for the self-directed investment accounts.
Net appreciation (depreciation) in the fair value of the pooled separate accounts consists of net
realized and unrealized appreciation (depreciation). Each investment fund’s appreciation
(depreciation) is allocated to participants based upon their proportionate share of assets in each
investment fund.
Risks and Uncertainties
The Plan provides for several investment options, which are exposed to various risks, such as
interest rate risk, market risk and credit risk. Due to the level of risk associated with certain
investment securities and the level of uncertainty related to changes in the value of investment
securities, it is at least reasonably possible that changes in risks in the near term could
materially affect participants’ account balances and the amounts reported in the Statement of Net
Assets Available for Benefits and the Statement of Changes in Net Assets Available for Benefits.
Administrative Expense
Administrative expenses represent record keeping fees paid to MassMutual. Legal and audit fees are
paid by SCI.
8
3. Investments
Investments that comprised 5% or more of the Plan’s net assets available for benefits are as
follows:
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December 31, |
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December 31, |
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2006 |
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2005 |
MassMutual Small Cap Value Fund |
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$ |
* |
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$ |
14,909,515 |
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MassMutual Sel Small Company Value Fund |
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13,402,512 |
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* |
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MassMutual Sel Large Cap Value Fund |
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19,370,555 |
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* |
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MassMutual Large Cap Value Fund |
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* |
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16,692,861 |
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MassMutual Small Cap Growth Equity Fund |
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15,325,550 |
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* |
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MassMutual Small Company Value Fund |
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* |
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9,852,509 |
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MassMutual Sel Overseas Fund |
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22,129,296 |
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11,824,213 |
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MassMutual Premier Cap Appreciation Fund |
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10,766,923 |
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9,575,532 |
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MassMutual Stable Income Fund |
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47,214,840 |
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34,673,188 |
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MassMutual Total Return Fund |
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* |
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10,927,892 |
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SCI Common Stock |
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62,465,745 |
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58,938,086 |
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Amount is less than 5% of net assets available for Plan benefits. |
4.
Excess Contributions
Benefit
distributions of $29,375,132 for the plan year ended
December 31, 2006 include payments of $1,067,106 made to certain
active participants and SCI to return to them excess deferral and
matching contributions as required to satisfy the relevant
nondiscrimination provisions of the Plan. That amount is also
included in the plan’s statements of net assets available for
benefits as excess contributions payable at December 31, 2006.
The excess contributions were refunded to certain participants and
the Plan Sponsor in March, 2007.
5. Income Taxes
A determination letter was received June 30, 2004 from the Internal Revenue Service which declared
that the Plan qualifies under Section 401(a) of the Internal Revenue Code as being exempt from
income taxes. The Plan has been amended since receiving the determination letter and the Plan
Administrator believes that the Plan is currently being operated in compliance with the applicable
requirements of the Internal Revenue Code. Therefore, the administrator believes that the Plan was
qualified and was tax exempt as of the financial statement date.
6. Party-in-Interest
The Plan invests in various funds offered by Massachusetts Mutual Life Insurance Company. These
investments are considered party-in-interest transactions because Mass Mutual serves as asset
custodian for the Plan. The Plan Administrator has approved of these investment options.
7. Plan Amendments
Effective January 1, 2005, Participants contributing the maximum 50% of compensation as elective
deferrals may elect to make catch-up contributions simultaneously with such elective deferrals,
provided that the combined catch-up and elective deferrals do not exceed 90% of compensation in any
payroll period.
Effective March 28, 2005, mandatory distributions greater than $1,000 will be paid in a direct
rollover to an individual retirement plan designated by the Plan Administrator if the Participant
does not elect to have such distribution paid directly to an eligible retirement plan specified by
the Participant in a direct rollover or to receive the distribution directly in accordance with
Section 6.4(a) or Section 6.6(f) of the Plan.
Effective April 1, 2005, the Plan was amended to allow employees the choice to allocate the
Company’s matching contributions to a variety of investment options.
9
THE SCI 401(K) RETIREMENT SAVINGS PLAN
Schedule of Assets (Held at End of Year)
December 31, 2006
EIN: 74-1488375 PIN: 002
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(b) |
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(c) |
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(d) |
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(e) |
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Identity of issue, borrower, |
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lessor or similar party |
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Description of investment |
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Cost |
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Current Value |
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Massachusetts Mutual Life Insurance Co |
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MassMutual Sel Small Company Value Fund |
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** |
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13,402,512 |
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* |
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Massachusetts Mutual Life Insurance Co |
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MassMutual Sel Large Cap Value Fund |
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** |
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19,370,555 |
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* |
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Massachusetts Mutual Life Insurance Co |
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MassMutual Small Cap Growth Equity Fund |
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** |
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15,325,550 |
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* |
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Massachusetts Mutual Life Insurance Co |
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MassMutual Sel Overseas Fund |
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** |
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22,129,296 |
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* |
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Massachusetts Mutual Life Insurance Co |
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MassMutual Premier Cap Appreciation Fund |
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** |
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10,766,923 |
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* |
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Massachusetts Mutual Life Insurance Co |
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MassMutual Stable Income Fund |
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** |
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47,214,840 |
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* |
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Massachusetts Mutual Life Insurance Co |
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MassMutual Total Return Fund |
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** |
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9,623,804 |
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* |
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Massachusetts Mutual Life Insurance Co |
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MassMutual Destination Retirement 2010 |
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** |
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3,913,891 |
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* |
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Massachusetts Mutual Life Insurance Co |
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MassMutual Destination Retirement 2020 |
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** |
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4,019,526 |
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* |
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Massachusetts Mutual Life Insurance Co |
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MassMutual Destination Retirement 2030 |
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** |
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1,854,831 |
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* |
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Massachusetts Mutual Life Insurance Co |
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MassMutual Destination Retirement 2040 |
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** |
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883,080 |
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* |
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Massachusetts Mutual Life Insurance Co |
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MassMutual Destination Retirement Income |
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** |
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2,479,628 |
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* |
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Massachusetts Mutual Life Insurance Co |
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MassMutural Indexed Equity Fund |
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** |
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2,723,731 |
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* |
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Massachusetts Mutual Life Insurance Co |
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MassMutual Government Money Market |
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** |
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342,687 |
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* |
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State Street |
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Self-Directed Account |
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** |
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325,094 |
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* |
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Service Corporation International |
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SCI Common Stock |
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** |
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62,465,745 |
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* |
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Investors Bank & Trust Company |
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Interest Bearing Cash |
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** |
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1,629,047 |
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* |
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Participant Loans |
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Loans with interest rates of 5.00% to 9.25% |
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-0- |
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9,574,924 |
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$ |
228,045,664 |
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| * |
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Party-in-interest as defined by ERISA. |
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| ** |
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Cost omitted for participant directed investments. |
See accompanying Report of Independent Registered Public Accounting Firm.
10
SIGNATURE
The Plan pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or
other persons who administer the employee benefit plan) have duly caused this annual report to be
signed on its behalf by the undersigned hereunto duly authorized.
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The SCI 401(k) Retirement Savings Plan |
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Date: June 29, 2007
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By:
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SCI Funeral and Cemetery Purchasing Cooperative, Inc. |
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By:
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/s/ Ellen LeBlanc |
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Ellen LeBlanc |
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President of SCI Funeral and Cemetery Purchasing |
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Cooperative, Inc. |
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11
Exhibit Index
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| Exhibit |
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23.1
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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |