Service Corporation International Announces Second Quarter 2016 Financial Results

(In millions, except for per share amounts)

Three Months Ended
June 30,

Six Months Ended
June 30,

2016

2015

2016

2015

Revenue

$

751.7

$

754.4

$

1,501.0

$

1,502.5

Operating income

$

94.5

$

127.6

$

218.1

$

268.7

Net income attributable to common stockholders

$

15.6

$

52.6

$

63.1

$

114.0

Diluted earnings per share

$

0.08

$

0.25

$

0.32

$

0.55

Earnings from continuing operations excluding special items⁽¹⁾

$

55.8

$

57.1

$

111.1

$

122.8

Diluted earnings per share from continuing operations excluding special items⁽¹⁾

$

0.28

$

0.28

$

0.56

$

0.59

Diluted weighted average shares outstanding

196.7

206.7

197.5

207.2

Net cash provided by operating activities

$

40.8

$

93.7

$

225.5

$

282.5

Net cash provided by operating activities excluding special items⁽¹⁾

$

68.7

$

101.9

$

258.6

$

299.7

(1)

Earnings from continuing operations excluding special items, diluted earnings per share from continuing operations excluding special items, and net cash provided by operating activities excluding special items are non-GAAP financial measures. A reconciliation from net income attributable to common stockholders, diluted earnings per share, and net cash provided by operating activities computed in accordance with generally accepted accounting principles in the United States (GAAP) can be found later in this press release under the headings "Cash Flow and Capital Spending" and "Non-GAAP Financial Measures".

(In millions except per share amounts)

Previous 2016
Annual Guidance

Updated 2016
Annual Guidance

Diluted earnings per share from continuing operations excluding special items ⁽¹⁾

$1.20 to $1.36

$1.20 to $1.30

Net cash provided by operating activities excluding special items ⁽¹⁾

$450 to $500

$450 to $500

Capital improvements at existing facilities and development of cemetery property

Approx. $150

Approx. $150

(1)

Diluted earnings per share from continuing operations excluding special items and Net cash provided by operating activities excluding special items are non-GAAP financial measures. We normally reconcile these non-GAAP financial measures from diluted earnings per share and net cash provided by operating activities; however, diluted earnings per share and net cash provided by operating activities calculated in accordance with GAAP are not currently accessible on a forward-looking basis. Our outlook for 2016 excludes the following because this information is not currently available for 2016: Gains or losses associated with asset divestitures, gains or losses associated with the early extinguishment of debt, potential tax reserve adjustments and IRS settlement payments, acquisition and integration costs, system implementation and transition costs, and potential costs associated with settlements of litigation or the recognition of receivables for insurance recoveries associated with litigation. The foregoing items, especially gains or losses associated with asset divestitures and potential tax reserve adjustments, could materially impact our forward-looking diluted EPS and/or our net cash provided by operating activities calculated in accordance with GAAP, consistent with the historical disclosures found in this press release under the headings "Cash Flow and Capital Spending" and "Non-GAAP Financial Measures".

REVIEW OF RESULTS FOR SECOND QUARTER 2016

Consolidated Segment Results

 (See definitions of revenue line items later in this earnings release.)

(In millions, except funeral services performed and average revenue per service)

Three Months Ended June 30,

Six Months Ended June 30,

2016

2015

2016

2015

Funeral:

Atneed revenue

$

265.0

$

273.7

$

547.6

$

573.8

Funeral home matured preneed revenue

131.0

130.8

270.4

280.3

Core revenue

396.0

404.5

818.0

854.1

Non-funeral home matured preneed revenue

6.0

5.9

12.1

12.3

Recognized preneed revenue

29.3

25.4

58.3

48.5

Other revenue

35.8

35.7

70.8

64.3

 Total revenue

$

467.1

$

471.5

$

959.2

$

979.2

Gross profit

$

88.0

$

94.3

$

195.0

$

221.2

Gross margin percentage

18.8

%

20.0

%

20.3

%

22.6

%

Funeral services performed

75,638

77,969

157,836

165,279

Average revenue per service

$

5,315

$

5,264

$

5,259

$

5,241

Cemetery:

Atneed revenue

$

79.2

$

75.7

$

156.8

$

151.2

Recognized preneed revenue

169.2

167.2

312.9

299.0

Core revenue

248.4

242.9

469.7

450.2

Other revenue

36.2

39.9

72.1

73.1

 Total revenue

$

284.6

$

282.8

$

541.8

$

523.3

Gross profit

$

73.4

$

72.0

$

127.9

$

122.5

Gross margin percentage

25.8

%

25.5

%

23.6

%

23.4

%

(Dollars in millions, except average revenue per service and average revenue per contract sold)

Three Months Ended June 30,

2016

2015

$

%

Comparable revenue:

Atneed revenue⁽¹⁾

$

262.4

$

270.8

$

(8.4)

(3.1)

%

Funeral home matured preneed revenue⁽²⁾

130.3

130.2

0.1

0.1

%

Core revenue⁽³⁾

392.7

401.0

(8.3)

(2.1)

%

Non-funeral home matured preneed revenue⁽⁴⁾

6.0

5.9

0.1

1.7

%

Recognized preneed revenue⁽⁵⁾

28.9

25.3

3.6

14.2

%

Other revenue⁽⁶⁾

35.8

35.9

(0.1)

(0.3)

%

Total comparable revenue

$

463.4

$

468.1

$

(4.7)

(1.0)

%

Comparable gross profit

$

88.7

$

95.9

$

(7.2)

(7.5)

%

Comparable gross margin percentage

19.1

%

20.5

%

(1.4)

%

(6.8)

%

Comparable funeral services performed:

Atneed

45,907

48,014

(2,107)

(4.4)

%

Funeral home matured preneed

22,308

22,570

(262)

(1.2)

%

Total core

68,215

70,584

(2,369)

(3.4)

%

Non-funeral home matured preneed

6,776

6,527

249

3.8

%

Total comparable funeral services performed

74,991

77,111

(2,120)

(2.7)

%

Core cremation rate

47.7

%

47.0

%

0.7

%

1.5

%

Total comparable cremation rate

52.4

%

51.4

%

1.0

%

1.9

%

Comparable average revenue per service:

Atneed

$

5,716

$

5,640

$

76

1.3

%

Funeral home matured preneed

5,841

5,769

72

1.2

%

Total core

5,757

5,681

76

1.3

%

Non-funeral home matured preneed

885

904

(19)

(2.1)

%

Total comparable average revenue per service

$

5,317

$

5,277

$

40

0.8

%

Comparable preneed sales production:

Total preneed sales

$

222.3

$

211.2

$

11.1

5.3

%

Total preneed contracts sold

47,093

45,272

1,821

4.0

%

Average revenue per contract sold

$

4,720

$

4,665

$

55

1.2

%

Average revenue per contract sold, excluding the impact of foreign currency fluctuations

$

4,813

$

4,739

$

74

1.6

%

(1)

Atneed revenue represents merchandise and services sold and delivered or performed once death has occurred.

(2)

Funeral home matured preneed revenue represents merchandise and services sold on a preneed contract through one of our funeral homes and delivered or performed once death has occurred.

(3)

Core revenue represents the sum of merchandise and services sold on an atneed contract or sold by one of our funeral homes on a preneed contract and delivered or performed once death has occurred.

(4)

Non-funeral home matured preneed revenue represents services sold on a preneed contract through one of our non-funeral home sales channels and performed once death has occurred.

(5)

Recognized preneed revenue represents merchandise and travel protection sold on a preneed contract and delivered before death has occurred.

(6)

Other revenue primarily comprises General Agency revenue, which is commissions we receive from third-party insurance companies for life insurance policies sold to preneed customers for the purpose of funding preneed arrangements.

(Dollars in millions)

Three Months Ended June 30,

2016

2015

$

%

Comparable revenue:

Atneed revenue⁽¹⁾

$

78.3

$

75.0

$

3.3

4.4

%

Recognized preneed revenue⁽²⁾

168.0

166.4

1.6

1.0

%

Core revenue⁽³⁾

246.3

241.4

4.9

2.0

%

Other revenue⁽⁴⁾

35.8

39.7

(3.9)

(9.8)

%

Total comparable revenue

$

282.1

$

281.1

$

1.0

0.4

%

Comparable gross profit

$

72.5

$

71.6

$

0.9

1.3

%

Comparable gross margin percentage

25.7

%

25.5

%

0.2

%

0.8

%

Comparable preneed and atneed sales production:

Property

$

192.0

$

190.6

$

1.4

0.7

%

Merchandise and services

146.1

140.9

5.2

3.7

%

Discounts

(39.6)

(37.7)

(1.9)

(5.0)

%

Preneed and atneed sales production

$

298.5

$

293.8

$

4.7

1.6

%

 Recognition rate⁽⁵⁾

83

%

82

%

(1)

Atneed revenue represents property, merchandise, and services sold and delivered or performed once death has occurred.

(2)

Recognized preneed revenue represents property, merchandise, and services sold on a preneed contract that have been delivered or performed.

(3)

Core revenue represents the sum of property, merchandise, and services that have been delivered or performed.

(4)

Other revenue is primarily related to 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.

(5)

Represents the ratio of current period core revenue recognition stated as a percentage of current period sales production.

(In millions)

Three Months Ended
June 30,

Six Months Ended
June 30,

2016

2015

2016

2015

Net cash provided by operating activities, as reported

$

40.8

$

93.7

$

225.5

$

282.5

Premiums paid on early extinguishment

20.5

—

20.5

—

Excess tax benefits from share-based awards

2.0

7.5

4.3

13.0

System transition costs

5.4

0.7

8.3

4.2

Net cash provided by operating activities excluding special items

$

68.7

$

101.9

$

258.6

$

299.7

 (In millions)

Three Months Ended
June 30,

Six Months Ended
June 30,

2016

2015

2016

2015

Capital improvements at existing locations

$

22.3

$

23.1

$

41.4

$

40.3

Development of cemetery property

15.3

12.5

34.9

21.9

Subtotal

37.6

35.6

76.3

62.2

Growth capital expenditures related to the construction of new funeral home facilities

3.9

0.8

6.9

2.5

Total capital expenditures

$

41.5

$

36.4

$

83.2

$

64.7

Three Months

Six Months

Preneed funeral

1.9%

2.5%

Preneed cemetery

1.9%

2.3%

Cemetery perpetual care

3.1%

5.4%

Combined trust funds

2.3%

3.4%

(In millions, except diluted EPS)

Three Months Ended June 30,

2016

2015

Net Income

Diluted

EPS

Net Income

Diluted

EPS

Net income attributable to common stockholders, as reported

$

15.6

$

0.08

$

52.6

$

0.25

Pre-tax reconciling items:

Losses on divestitures and impairment charges, net

30.6

0.16

6.1

0.04

Losses on early extinguishment

21.9

0.11

—

—

System transition costs

4.9

0.02

0.2

—

Tax benefit from special items

(18.7)

(0.10)

(1.6)

(0.01)

Change in certain tax reserves and other

1.5

0.01

(0.2)

—

Earnings from continuing operations excluding special items and diluted earnings per share from continuing operations excluding special items

$

55.8

$

0.28

$

57.1

$

0.28

Diluted weighted average shares outstanding (in thousands)

196,718

206,746

(In millions, except diluted EPS)

Six Months Ended June 30,

2016

2015

Net Income

Diluted

EPS

Net Income

Diluted

EPS

Net income attributable to common stockholders, as reported

$

63.1

$

0.32

$

114.0

$

0.55

Pre-tax special items:

Losses on divestitures and impairment charges, net

31.0

0.16

7.8

0.04

Losses on early extinguishment

22.5

0.11

—

—

Acquisition and integration costs

5.5

0.03

3.0

0.02

System transition costs

9.0

0.05

1.0

—

Tax benefit from special items

(22.7)

(0.12)

(3.7)

(0.02)

Change in certain tax reserves and other

2.7

0.01

0.7

—

Earnings from continuing operations excluding special items and diluted earnings per share from continuing operations excluding special items

$

111.1

$

0.56

$

122.8

$

0.59

Diluted weighted average shares outstanding (in thousands)

197,463

207,221

For additional information contact:

Investors:

Debbie Young - Director / Investor Relations

(713) 525-9088

Media:

Jay Andrew - Managing Director / Corporate Communications

(713) 525-5235

SERVICE CORPORATION INTERNATIONAL

CONSOLIDATED STATEMENT OF OPERATIONS

Three Months Ended

Six Months Ended

June 30,

June 30,

2016

2015

2016

2015

(In thousands, except per share amounts)

Revenue

$

751,710

$

754,354

$

1,500,981

$

1,502,471

Costs and expenses

(590,339)

(588,097)

(1,178,114)

(1,158,770)

Gross profit

161,371

166,257

322,867

343,701

General and administrative expenses

(36,260)

(33,095)

(73,768)

(67,645)

Losses on divestitures and impairment charges, net

(30,641)

(5,582)

(30,988)

(7,361)

Operating income

94,470

127,580

218,111

268,695

Interest expense

(39,398)

(42,982)

(82,480)

(85,921)

Loss on early extinguishment of debt

(21,898)

—

(22,479)

—

Other expense, net

(535)

(109)

(746)

(167)

Income before income taxes

32,639

84,489

112,406

182,607

Provision for income taxes

(16,746)

(31,007)

(49,059)

(67,660)

    Net income from continuing operations

15,893

53,482

63,347

114,947

Net loss from discontinued operations, net of tax

—

(390)

—

(390)

Net income

15,893

53,092

63,347

114,557

Net income attributable to noncontrolling interests

(273)

(497)

(282)

(587)

Net income attributable to common stockholders

$

15,620

$

52,595

$

63,065

$

113,970

Basic earnings per share:

Net income attributable to common stockholders

$

0.08

$

0.26

$

0.32

$

0.56

Basic weighted average number of shares

193,806

202,466

194,366

202,966

Diluted earnings per share:

Net income attributable to common stockholders

$

0.08

$

0.25

$

0.32

$

0.55

Diluted weighted average number of shares

196,718

206,746

197,463

207,221

Dividends declared per share

$

0.13

$

0.10

$

0.25

$

0.20

SERVICE CORPORATION INTERNATIONAL

CONSOLIDATED BALANCE SHEET

June 30, 2016

December 31, 2015

(In thousands, except share amounts)

ASSETS

Current assets:

Cash and cash equivalents

$

171,788

$

134,599

Receivables, net

78,791

90,462

Inventories

28,568

27,835

Other

53,455

47,155

Total current assets

332,602

300,051

Preneed funeral receivables, net and trust investments

1,788,065

1,760,297

Preneed cemetery receivables, net and trust investments

2,385,539

2,318,167

Cemetery property

1,757,740

1,753,015

Property and equipment, net

1,831,102

1,846,722

Non-current assets held for sale

30,191

214

Goodwill

1,801,645

1,796,340

Deferred charges and other assets

585,180

582,164

Cemetery perpetual care trust investments

1,363,428

1,319,427

Total assets

$

11,875,492

$

11,676,397

LIABILITIES & EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$

410,141

$

422,842

Current maturities of long-term debt

90,104

86,823

Income taxes payable

1,465

1,373

Total current liabilities

501,710

511,038

Long-term debt

3,113,179

3,037,605

Deferred preneed funeral revenue

562,889

557,897

Deferred preneed cemetery revenue

1,174,164

1,120,001

Deferred tax liability

467,364

470,584

Other liabilities

503,915

496,921

Deferred preneed receipts held in trust

3,020,407

2,973,386

Care trusts' corpus

1,364,044

1,319,564

Equity:

Common stock, $1 per share par value, 500,000,000 shares authorized, 202,067,016 and 200,859,676 shares issued, respectively, and 193,669,014 and 195,772,876 shares outstanding, respectively

193,669

195,773

Capital in excess of par value

1,046,061

1,092,106

Accumulated deficit

(106,119)

(109,351)

Accumulated other comprehensive income

29,289

6,164

Total common stockholders' equity

1,162,900

1,184,692

Noncontrolling interests

4,920

4,709

Total equity

1,167,820

1,189,401

Total liabilities and equity

$

11,875,492

$

11,676,397

SERVICE CORPORATION INTERNATIONAL

CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands, except share amounts)

Six Months Ended June 30,

2016

2015

Cash flows from operating activities:

Net income

$

63,347

$

114,557

Adjustments to reconcile net income to net cash provided by operating activities:

Loss from discontinued operations, net of tax

—

390

Loss on early extinguishment of debt

22,479

—

Premiums paid on early extinguishment of debt

(20,500)

—

Depreciation and amortization

72,522

68,899

Amortization of intangible assets

15,392

15,983

Amortization of cemetery property

27,837

26,027

Amortization of loan costs

3,004

4,865

Provision for doubtful accounts

1,854

3,431

Benefit for deferred income taxes

(2,856)

(8,466)

Losses on divestitures and impairment charges, net

30,988

7,361

Share-based compensation

6,574

7,284

Excess tax benefits from share-based awards

(4,269)

(13,003)

Change in assets and liabilities, net of effects from acquisitions and divestitures:

Decrease in receivables

10,201

2,276

Increase in other assets

(1,572)

(761)

(Decrease) increase in payables and other liabilities

(1,169)

33,932

Effect of preneed funeral production and maturities:

Decrease in preneed funeral receivables, net and trust investments

2,756

16,144

(Decrease) increase deferred preneed funeral revenue

(747)

14,247

Decrease in deferred preneed funeral receipts held in trust

(16,244)

(37,366)

Effect of cemetery production and deliveries:

Increase in preneed cemetery receivables, net and trust investments

(48,267)

(28,272)

Increase in deferred preneed cemetery revenue

51,663

62,482

Increase (decrease) in deferred preneed cemetery receipts held in trust

12,535

(7,506)

Other

—

3

Net cash provided by operating activities

225,528

282,507

Cash flows from investing activities:

Capital expenditures

(83,189)

(64,724)

Acquisitions

(52,844)

(36,726)

Proceeds from divestitures and sales of property and equipment

11,422

8,268

Net withdrawals of restricted funds

5,120

8,066

Net cash used in investing activities from continuing operations

(119,491)

(85,116)

Net cash provided by investing activities from discontinued operations

—

987

Net cash used in investing activities

(119,491)

(84,129)

Cash flows from financing activities:

Proceeds from issuance of long-term debt

960,000

30,000

Debt issuance costs

(5,232)

—

Payments of debt

(18,835)

(30,121)

Early extinguishment of debt

(875,001)

—

Principal payments on capital leases

(16,907)

(15,257)

Proceeds from exercise of stock options

8,872

26,799

Excess tax benefits from share-based awards

4,269

13,003

Six Months Ended June 30,

2016

2015

Purchase of Company common stock

(81,477)

(151,795)

Payments of dividends

(48,506)

(40,398)

Purchase of noncontrolling interest

(42)

—

Bank overdrafts and other

(1,424)

(7,533)

Net cash used in financing activities

(74,283)

(175,302)

Effect of foreign currency on cash and cash equivalents

5,435

(1,315)

Net increase in cash and cash equivalents

37,189

21,761

Cash and cash equivalents at beginning of period

134,599

177,335

Cash and cash equivalents at end of period

$

171,788

$

199,096