Service Corporation International Announces Fourth Quarter 2011 Financial Results and Affirms Guidance for 2012 - Conference call on Thursday, February 9, 2012, at 9:00 a.m. Central Time.

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 share amounts)


Three Months Ended
December 31,


Twelve Months Ended
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





(1)

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 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
December 31,


Twelve Months Ended
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

%





(1)

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 and travel protection insurance.



(2)

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 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






(1)

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 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

%





(1)

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 contracts.



(2)

Represents the ratio of current period revenue recognition stated as a 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:



 Capital Expenditures (In millions)

Three Months Ended
December 31,


Twelve Months Ended
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:




Three Months


Twelve 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

Income


Diluted

EPS


Net

Income


Diluted

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

Income


Diluted

EPS


Net

Income


Diluted

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






Media:


Lisa Marshall - Managing Director / Corporate Communications


(713) 525-3066




SERVICE CORPORATION INTERNATIONAL

CONSOLIDATED STATEMENT OF OPERATIONS

(In thousands, except per share amounts)



Three Months Ended
December 31,


Twelve Months Ended
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, 2011


December 31, 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,
224,665,395 and 242,019,650 shares issued, respectively, and 222,955,853
and 241,035,250 shares outstanding, respectively

222,956



241,035


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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