Service Corporation International : Announces Fourth Quarter 2011 Financial Results and Affirms Guidance for 2012
02/08/2012| 04:10pm US/Eastern
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HOUSTON, Feb. 8, 2012 /PRNewswire/ -- Service Corporation International (NYSE: SCI), the largest provider of deathcare products and services in North America, today reported results for the fourth quarter 2011. Our unaudited condensed consolidated financial statements can be found at the end of this press release. The table below summarizes our key financial results:
(In millions, except for per Twelve Months
share amounts) Three Months Ended Ended
December 31, December 31,
------------ ------------
2011 2010 2011 2010
---- ---- ---- ----
Revenues $586.6 $571.3 $2,316.0 $2,190.6
Operating income $107.8 $104.0 $363.7 $354.0
Net income attributable to
common stockholders $44.6 $36.5 $144.9 $126.4
Diluted earnings per share $0.20 $0.15 $0.61 $0.50
Earnings from continuing
operations excluding
special items (1) $43.4 $45.0 $152.9 $149.0
Diluted earnings per share
from continuing operations
excluding special items(1) $0.19 $0.18 $0.65 $0.59
Diluted weighted average
shares outstanding 228.3 245.1 236.7 250.6
Net cash provided by
operating activities $96.8 $88.3 $388.1 $354.4
Earnings from continuing operations excluding special items and diluted earnings
per share from continuing operations excluding special items are non-GAAP
financial measures. A reconciliation to net income and diluted earnings per share
computed in accordance with GAAP can be found later in this press release under
(1) the heading "Non-GAAP Financial Measures".
Quarterly Highlights:
-- Diluted earnings per share from continuing operations excluding special
items increased to $0.19 compared to $0.18 led by strong cemetery
segment performance.
-- Funeral gross profit increased by $1.0 million and the gross margin
percentage was relatively flat. Higher revenues primarily as a result of
recent acquisitions were largely offset by higher selling related
expenses associated with preneed funeral production.
-- Cemetery gross profit increased $4.1 million, or 10.5%, and cemetery
gross margin percentage increased to 22.5% from 21.2%. Increased
recognized preneed cemetery revenue primarily related to the completion
of new construction property was partially offset by higher
administrative expenses and property costs.
-- Net cash provided by operating activities increased 9.6% to $96.8
million compared to $88.3 million. Higher cash receipts were somewhat
offset by higher payments for cash interest as a result of our bond
financing in November 2010.
Tom Ryan, the Company's President and Chief Executive Officer, commented on the fourth quarter of 2011:
"We finished the year strong with results for the quarter and full year reaching the top end of our previous guidance. Continued favorable preneed sales production trends, higher average revenue per funeral service, and effective cost containment were keys to the fourth quarter's success. As we enter 2012 we are optimistic about our outlook and affirm our previous guidance of $.66 to $.74 of diluted earnings per share excluding special items and $375 to $425 million of recurring operating cash flow. We expect to maintain our momentum of growing preneed sales while refining our customer experience and developing a more productive operating platform. At the same time we will continue to apply a balanced approach to using our free cash flow to grow our company and to enhance shareholder value."
REVIEW OF RESULTS FOR FOURTH QUARTER 2011
Consolidated Segment Results
(In
millions,
except
funeral
services
performed
and
average
revenue
per
funeral
service) Three Months Ended Twelve Months Ended
December 31, December 31,
------------ ------------
2011 2010 2011 2010
---- ---- ---- ----
Funeral
-------
Funeral
atneed
revenue $239.2 $250.0 $971.3 $950.5
Funeral
recognized
preneed
revenue 120.6 117.3 478.3 462.9
Other
funeral
revenue
(1) 35.4 19.9 123.9 79.5
---- ---- ----- ----
Total
funeral
revenues $395.2 $387.2 $1,573.5 $1,492.9
Gross
profit $86.9 $85.9 $330.7 $317.0
Gross
margin
percentage 22.0% 22.2% 21.0% 21.2%
Funeral
services
performed 70,110 69,679 277,983 270,351
Average
revenue
per
funeral
service $5,132 $5,271 $5,215 $5,228
Cemetery
--------
Cemetery
atneed
revenue $58.0 $58.4 $236.8 $240.4
Cemetery
recognized
preneed
revenue 109.9 103.5 411.5 373.6
Other
cemetery
revenue
(2) 23.5 22.2 94.2 83.7
---- ---- ---- ----
Total
cemetery
revenues $191.4 $184.1 $742.5 $697.7
Gross
profit $43.1 $39.0 $147.8 $132.2
Gross
margin
percentage 22.5% 21.2% 19.9% 18.9%
Other funeral revenue consist primarily of General Agency revenues, which are
commissions we receive from third-party insurance companies for life insurance
policies or annuities sold to preneed customers for the purpose of funding
preneed funeral arrangements. It also includes preneed sales of The Neptune
Society that are delivered at the time of sale, including memorial merchandise
(1) and travel protection insurance.
Other cemetery revenue is primarily related to cemetery merchandise and service
trust fund income, endowment care trust fund income, royalty income, and interest
and finance charges earned from customer receivables on preneed installment
(2) contracts.
Comparable Funeral Results
The table below details comparable funeral results of operations ("same store") for the three months ended December 31, 2011 and 2010. We consider comparable operations to be those owned for the entire period beginning January 1, 2010 and ending December 31, 2011.
(In millions, except average revenue per
funeral service and average revenue per
contract sold) Three Months Ended
December 31,
------------
2011 2010
---- ----
Comparable funeral revenue:
Atneed revenue 216.1 228.4
Recognized preneed revenue 112.9 111.9
Other funeral revenue(1) 21.6 18.6
----
Total comparable funeral revenues $350.6 $358.9
Comparable gross profit $79.3 $80.2
Comparable gross margin percentage 22.6% 22.3%
Comparable funeral services performed:
Preneed 22,236 22,768
Atneed 38,773 41,959
------ ------
Total 61,009 64,727
Comparable average revenue per funeral
service $5,393 $5,257
Comparable preneed funeral production:
Sales $128.2 $111.5
Total preneed funeral contracts sold 23,083 20,497
Average revenue per contract sold $5,554 $5,440
Other funeral revenue consists primarily of General Agency revenues,
which are commissions we receive from third-party insurance companies
for life insurance policies or annuities sold to preneed customers for
(1) the purpose of funding preneed funeral arrangements.
-- Comparable funeral revenues decreased $8.3 million driven by a decrease
in the number of funeral services performed, partially offset by higher
average revenue per funeral service and higher General Agency revenues.
-- Comparable funeral gross profit decreased $0.9 million compared to the
prior year quarter. Although overall revenues declined, we were able to
effectively manage our costs to keep profits and margin relatively flat.
-- Comparable funeral services performed decreased 5.7%, which we believe
is consistent with trends experienced by other funeral service providers
and industry vendors.
-- The comparable average revenue per funeral service grew 2.6% over the
prior year quarter. Excluding an unfavorable Canadian currency impact
and a benefit from higher funeral trust fund income, the average revenue
per funeral service grew approximately 2.1% despite a 210 basis point
increase in the cremation rate.
-- The cremation rate increased to 44.7% in the fourth quarter of 2011
compared to 42.6% for the same period of 2010.
-- Comparable preneed funeral sales production increased $16.7 million, or
15.0%, and comparable total funeral contracts sold increased 12.6% while
average revenue per contract sold increased 2.1%. Preneed funeral sales
are deferred and recognized as revenues in the future when the funeral
service is performed.
Comparable Cemetery Results
The table below details comparable cemetery results of operations ("same store") for the three months ended December 31, 2011 and 2010. We consider comparable operations to be those owned for the entire period beginning January 1, 2010 and ending December 31, 2011.
(Dollars in millions) Three Months Ended
December 31,
------------
2011 2010
---- ----
Comparable cemetery revenue:
Atneed revenue $57.4 $57.6
Recognized preneed revenue 109.1 101.5
Other cemetery revenue (1) 23.4 21.9
---- ----
Total comparable cemetery revenues $189.9 $181.0
Comparable gross profit $43.2 $38.7
Comparable gross margin percentage 22.7% 21.4%
Comparable preneed and atneed cemetery sales
production:
Property $98.0 $95.2
Merchandise and services 87.9 86.3
Discounts (19.7) (16.2)
----- -----
Preneed and atneed cemetery sales production $166.2 $165.3
Recognition rate (2) 100% 96%
Other cemetery revenue is primarily related to cemetery merchandise
and service trust fund income, endowment care trust fund income,
royalty income, and interest and finance charges earned from customer
(1) receivables on preneed installment contracts.
Represents the ratio of current period revenue recognition stated as a
(2) percentage of current period sales production.
-- Comparable cemetery revenues increased $8.9 million, or 4.9%, primarily
as a result of higher recognized preneed revenues associated with new
construction property as well as higher trust fund income.
-- Cemetery gross profit increased $4.5 million, or 11.6%, and the gross
margin percentage increased to 22.7% compared to 21.4%. The improvements
in gross profit and gross margin were attributable to the aforementioned
strong recognized preneed revenues, partially offset by higher property
and administrative expenses, and by higher selling expenses related to
current quarter preneed sales initiatives.
-- Preneed and atneed cemetery sales production increased $0.9 million, or
0.5%. This was generally in line with our expectations given the strong
performance in the prior year quarter as well as in the first nine
months of 2011. For the year ended 2011, preneed cemetery sales
production grew 12.3%, which drove total (preneed and atneed) cemetery
sales production to 7.1%.
Other Financial Results
-- General and administrative expenses increased $2.9 million to $26.5
million in the fourth quarter of 2011, reflecting the impact of higher
incentive compensation costs and professional fees.
Cash Flow and Capital Spending
-- Net cash provided by operating activities increased by $8.5 million to
$96.8 million in the fourth quarter of 2011. Higher cash receipts were
partially offset by higher cash interest payments primarily as a result
of the senior notes issued in November 2010.
-- A summary of our capital expenditures is set forth below:
Three Months Twelve Months
Ended Ended
Capital
Expenditures
(In millions) December 31, December 31,
------------ ------------
2011 2010 2011 2010
---- ---- ---- ----
Capital
improvements at
existing
locations $18.2 $18.8 $66.2 $58.7
Development of
cemetery
property 12.5 10.9 42.9 35.4
Construction of
new funeral
home facilities 1.7 0.8 9.3 3.8
--- --- --- ---
Total capital
expenditures $32.4 $30.5 $118.4 $97.9
===== ===== ====== =====
TRUST FUND RETURNS
Total trust fund returns include realized and unrealized gains and losses and dividends. A summary of our consolidated trust fund returns for the three and twelve months ended December 31, 2011 is set forth below:
Twelve
Three Months Months
------------ ------
Preneed Funeral 6.3% 0.7%
Preneed Cemetery 6.5% 0.7%
Cemetery Perpetual
Care 4.4% 5.2%
Combined Trust
Funds 5.7% 2.2%
NON-GAAP FINANCIAL MEASURES
Earnings from continuing operations excluding special items and diluted earnings per share from continuing operations excluding special items are non-GAAP financial measures. We believe these non-GAAP financial measures provide a consistent basis for comparison between quarters and better reflect the performance of our core operations, as they are not influenced by certain income or expense items not affecting continuing operations. We also believe these measures help facilitate comparisons to our competitors' operating results.
Set forth below is a reconciliation of earnings from continuing operations excluding special items to our reported net income attributable to common stockholders and diluted earnings per share from continuing operations excluding special items to our GAAP diluted earnings per share. We do not intend for this information to be considered in isolation or as a substitute for other measures of performance prepared in accordance with GAAP.
Three Months Ended December 31,
-------------------------------
(In millions, except diluted EPS) 2011 2010
---- ----
Net Diluted Net Diluted
--- ------- --- -------
Income EPS Income EPS
------ --- ------ ---
Net income attributable to common
stockholders, as reported $44.6 $0.20 $36.5 $0.15
After-tax reconciling items:
Gains on divestitures and
impairment charges, net (1.1) (0.01) (0.9) -
Acquisition and transition costs 0.1 - 3.0 0.01
Losses on early extinguishment of
debt, net - - 0.4 -
Change in certain tax reserves (0.2) - 6.0 0.02
----
Earnings from continuing
operations excluding special
items $43.4 $0.19 $45.0 $0.18
===== ===== ===== =====
Diluted weighted average shares
outstanding (in thousands) 228,281 245,066
Twelve Months Ended December 31,
--------------------------------
(In millions, except diluted EPS) 2011 2010
---- ----
Net Diluted Net Diluted
--- ------- --- -------
Income EPS Income EPS
------ --- ------ ---
Net income attributable to common
stockholders, as reported $144.9 $0.61 $126.4 $0.50
After-tax reconciling items:
Losses on divestitures and
impairment charges, net 1.8 0.01 2.2 0.01
Acquisition and transition costs 1.4 0.01 9.4 0.04
Losses on early extinguishment of
debt, net 2.2 0.01 5.9 0.02
Change in certain tax reserves 2.6 0.01 5.1 0.02
Earnings from continuing
operations excluding special
items $152.9 $0.65 $149.0 $0.59
====== ===== ====== =====
Diluted weighted average shares
outstanding (in thousands) 236,669 250,602
Conference Call and Webcast
We will host a conference call on Thursday, February 9, 2012, at 9:00 a.m. Central Time. A question and answer session will follow a brief presentation made by management. The conference call dial-in number is (857) 350-1595 with the passcode of 99535117. The conference call will also be broadcast live via the Internet and can be accessed through our website at www.sci-corp.com. A replay of the conference call will be available through April 23, 2012 and can be accessed at (617) 801-6888 with the passcode of 23614854. Additionally, a replay of the conference call will be available on our website for approximately ninety days.
Cautionary Statement on Forward-Looking Statements
The statements in this press release that are not historical facts are forward-looking statements made in reliance on the "safe harbor" protections provided under the Private Securities Litigation Reform Act of 1995. These statements may be accompanied by words such as "believe," "estimate," "project," "expect," "anticipate" or "predict," that convey the uncertainty of future events or outcomes. These statements are based on assumptions that we believe are reasonable; however, many important factors could cause our actual results in the future to differ materially from the forward-looking statements made herein and in any other documents or oral presentations made by us, or on our behalf. Important factors, which could cause actual results to differ materially from those in forward-looking statements include, among others, the following:
-- Our affiliated funeral and cemetery trust funds own investments in
equity securities, fixed income securities, and mutual funds, which are
affected by market conditions that are beyond our control.
-- We may be required to replenish our affiliated funeral and cemetery
trust funds in order to meet minimum funding requirements, which would
have a negative effect on our earnings and cash flow.
-- Our ability to execute our strategic plan depends on many factors, some
of which are beyond our control.
-- Our credit agreements contain covenants that may prevent us from
engaging in certain transactions.
-- If we lost the ability to use surety bonding to support our preneed
funeral and preneed cemetery activities, we may be required to make
material cash payments to fund certain trust fund.
-- The funeral home and cemetery industry continues to be increasingly
competitive.
-- Increasing death benefits related to preneed funeral contracts funded
through life insurance or annuity contracts may not cover future
increases in the cost of providing a price-guaranteed funeral service.
-- The financial condition of third-party insurance companies that fund our
preneed funeral contracts may impact our future revenues.
-- Unfavorable results of litigation could have a material adverse impact
on our financial statements.
-- Unfavorable publicity could affect our reputation and business.
-- If the number of deaths in our markets declines, our cash flows and
revenues may decrease.
-- The continuing upward trend in the number of cremations performed in
North America could result in lower revenues and gross profit.
-- Our funeral home and cemetery businesses are high fixed-cost businesses.
-- Regulation and compliance could have a material adverse impact on our
financial results.
-- Cemetery burial practice claims could have a material adverse impact on
our financial results.
-- A number of years may elapse before particular tax matters, for which we
have established accruals, are audited and finally resolved.
-- Declines in overall economic conditions beyond our control could reduce
future potential earnings and cash flows and could result in future
goodwill impairments.
For further information on these and other risks and uncertainties, see our Securities and Exchange Commission filings included in our upcoming 2011 Annual Report on Form 10-K. Copies of this document as well as other SEC filings can be obtained from our website at www.sci-corp.com. We assume no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by us, whether as a result of new information, future events or otherwise.
About Service Corporation International
Service Corporation International (NYSE: SCI), headquartered in Houston, Texas, is North America's leading provider of deathcare products and services. At December 31, 2011, we owned and operated 1,423 funeral homes and 374 cemeteries (of which 214 are combination locations) in 43 states, eight Canadian provinces and the District of Columbia. Through our businesses, we market the Dignity Memorial® brand which offers assurance of quality, value, caring service, and exceptional customer satisfaction. For more information about Service Corporation International, please visit our website at www.sci-corp.com. For more information about Dignity Memorial®, please visit www.dignitymemorial.com.
For additional information contact:
Investors: Debbie Young - Director / Investor Relations (713) 525-9088
Lisa Marshall -Managing Director /Corporate
Media: Communications (713) 525-3066
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------ ------------
2011 2010 2011 2010
---- ---- ---- ----
Revenues $586,568 $571,251 $2,316,040 $2,190,552
Costs and
expenses (456,551) (446,331) (1,837,504) (1,741,329)
-------- -------- ---------- ----------
Gross profit 130,017 124,920 478,536 449,223
General and
administrative
expenses (26,479) (23,603) (103,860) (103,689)
Gains (losses)
on divestitures
and impairment
charges, net 4,287 2,681 (10,977) 8,512
-------
Operating income 107,825 103,998 363,699 354,046
Interest expense (33,306) (31,915) (133,782) (128,196)
Losses on early
extinguishment
of debt, net (5) (43 (3,509) (9,400)
Other (expense)
income, net (1,741) (68 (772) 3,009
--- ---- -----
Income from
continuing
operations
before income
taxes 72,773 71,972 225,636 219,459
Provision for
income taxes (28,223) (35,203) (79,404) (92,458)
------- ------- ------- -------
Net income 44,550 36,769 146,232 127,001
Net income
attributable to
noncontrolling
interests - (314) (1,329) (584)
--- ---- ------ ----
Net income
attributable to
common
stockholders $44,550 $36,455 $144,903 $126,417
======= ======= ======== ========
Basic earnings
per share $0.20 $0.15 $0.62 $0.51
Diluted earnings
per share $0.20 $0.15 $0.61 $0.50
Basic weighted
average number
of shares 225,950 243,260 234,242 248,871
======= ======= ======= =======
Diluted weighted
average number
of shares 228,281 245,066 236,669 250,602
======= ======= ======= =======
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
December 31, December 31,
2011 2010
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $128,569 $170,846
Receivables, net 103,892 107,185
Deferred tax asset 44,316 41,371
Inventories, net 25,513 27,372
Other 25,803 27,746
Total current assets 328,093 374,520
------- -------
Preneed funeral receivables, net
and trust investments 1,478,865 1,424,557
Preneed cemetery receivables, net
and trust investments 1,595,940 1,563,893
Cemetery property, at cost 1,497,703 1,508,787
Property and equipment, net 1,618,361 1,627,698
Goodwill 1,361,493 1,307,484
Deferred charges and other assets 430,851 396,582
Cemetery perpetual care trust
investments 1,016,506 987,019
$9,327,812 $9,190,540
========== ==========
LIABILITIES & EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $358,904 $342,651
Current maturities of long-term
debt 23,554 22,502
Income taxes 3,150 1,474
Total current liabilities 385,608 366,627
------- -------
Long-term debt 1,861,116 1,832,380
Deferred preneed funeral revenues 575,546 580,223
Deferred preneed cemetery revenues 833,303 813,493
Deferred tax liability 405,615 323,303
Other liabilities 414,773 399,620
Deferred preneed funeral and
cemetery receipts held in trust 2,424,356 2,408,074
Care trusts' corpus 1,015,300 986,872
Stockholders' Equity:
Common stock, $1 per share par
value, 500,000,000 shares
authorized, 222,956 241,035
224,665,395 and 242,019,650 shares
issued, respectively, and
222,955,853
and 241,035,250 shares outstanding,
respectively
Capital in excess of par value 1,430,330 1,603,112
Accumulated deficit (367,044) (477,459)
Accumulated other comprehensive
income 105,852 112,768
Total common stockholders' equity 1,392,094 1,479,456
Noncontrolling interests 20,101 492
Total Equity 1,412,195 1,479,948
--------- ---------
$9,327,812 $9,190,540
========== ==========
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Twelve Months Ended
December 31,
------------
2011 2010
Cash flows from operating
activities:
Net income $146,232 $127,001
Adjustments to reconcile net
income to net cash provided by
operating activities:
Losses on early extinguishment of
debt, net 3,509 9,400
Depreciation and amortization 118,047 116,391
Amortization of intangible assets 25,591 25,197
Amortization of cemetery property 40,046 32,418
Amortization of loan costs 4,436 4,266
Provision for doubtful accounts 9,251 8,155
Provision for deferred income
taxes 66,512 76,934
Losses (gains) on divestitures
and impairment charges, net 10,977 (8,512)
Share-based compensation 9,144 8,878
Change in assets and liabilities,
net of effects from acquisitions
and divestitures:
Increase in receivables (3,322) (14,561)
Decrease in other assets 6,815 2,603
Increase in payables and other
liabilities 14,610 16,374
Effect of preneed funeral
production and maturities:
Decrease in preneed funeral
receivables, net and trust
investments 69,688 45,988
Decrease in deferred preneed
funeral revenue (32,158) (14,778)
Decrease in deferred preneed
funeral receipts held in trust (50,591) (36,322)
Effect of cemetery production and
deliveries:
Increase in preneed cemetery
receivables, net and trust
investments (65,581) (53,224)
Increase in deferred preneed
cemetery revenue 23,636 10,558
Decrease in deferred preneed
cemetery receipts held in trust (9,419) (648)
Other 689 (1,739)
--- ------
Net cash provided by operating
activities 388,112 354,379
Cash flows from investing
activities:
Capital expenditures (118,375) (97,899)
Acquisitions (99,570) (299,083)
Proceeds from divestitures and
sales of property and equipment,
net 24,529 90,835
Net withdrawals of restricted
funds and other 3,159 26,437
----- ------
Net cash used in investing
activities (190,257) (279,710)
Cash flows from financing activities:
Proceeds from the issuance of long-term debt 85,000 510,000
Debt issuance costs - (11,828)
Payments of debt (22,774) (263,063)
Early extinguishment of debt (43,194) (119,105)
Principal payments on capital leases (23,030) (46,214)
Proceeds from exercise of stock options 8,227 1,759
Purchase of Company common stock (197,302) (116,878)
Payments of dividends (44,795) (40,001)
Bank overdrafts and other (798) (2,856)
---- ------
Net cash used in by financing activities (238,666) (88,186)
Effect of foreign currency (1,466) 4,618
------ -----
Net decrease in cash and cash equivalents (42,277) (8,899)
Cash and cash equivalents at beginning of period 170,846 179,745
------- -------
Cash and cash equivalents at end of period $128,569 $170,846
======== ========
SOURCE Service Corporation International
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