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Press release from PR Newswire

Service Corporation International Announces Fourth Quarter 2012 Financial Results And Provides Updated Guidance For 2013

Tuesday, February 12, 2013

Service Corporation International Announces Fourth Quarter 2012 Financial Results And Provides Updated Guidance For 201316:03 EST Tuesday, February 12, 2013- Conference call on Wednesday, February 13, 2013, at 9:00 a.m. Central Time.HOUSTON, Feb. 12, 2013 /PRNewswire/ -- Service Corporation International (NYSE: SCI), the largest provider of deathcare products and services in North America, today reported results for the fourth quarter 2012 and updated guidance for 2013. Our 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 31,2012201120122011Revenues$629.4$586.6$2,410.5$2,316.0Operating income$103.8$107.8$399.8$363.7Net income attributable to common stockholders$26.4$44.6$152.5$144.9Diluted earnings per share$0.12$0.20$0.70$0.61Earnings from continuing operations excluding special items(1)$47.8$43.4$175.0$152.9Diluted earnings per share from continuing operations excluding  special items(1)$0.22$0.19$0.80$0.65Diluted weighted average shares outstanding215.3228.3219.1236.7Net cash provided by operating activities$88.9$96.8$369.2$388.1Net cash provided by operating activities excluding special items(1)$92.1$97.2$380.5$390.7     (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 to net income, diluted earnings per share, and net cash provided by operating activities computed in accordance with GAAP can be found later in this press release under the headings "Cash Flow and Capital Spending" and "Non-GAAP Financial Measures" and also on our website.Quarterly Highlights:Diluted earnings per share from continuing operations excluding special items increased 15.8% to $0.22 in the fourth quarter 2012 compared to $0.19 in the prior year fourth quarter, led by strong preneed cemetery sales production and by an increase in funeral services performed.  Funeral gross profit increased by $4.6 million, or 5.3%, while gross margin percentage was flat. The gross profit improvement was primarily the result of an increase in both funeral services performed and funeral sales average, as well as higher General Agency revenues related to increased preneed funeral sales production. Cemetery gross profit increased $13.6 million, or 31.6%, and cemetery gross margin percentage increased to 26.7% from 22.5%, due primarily to higher preneed property revenues and an increase in trust fund income during the current quarter.  Net cash provided by operating activities excluding special items was $92.1 million compared to $97.2 million in 2011. Higher earnings in the current year quarter were predominantly offset by a higher mix of funeral and cemetery preneed sales production that was sold on an installment basis.Tom Ryan, the Company's President and Chief Executive Officer, commented on the fourth quarter of 2012:"We are very pleased with the solid operating performance of our business during the fourth quarter which capped-off an impressive 23% improvement in full-year EPS from continuing operations excluding special items. Strong cemetery sales production and an increase in funeral services performed drove earnings above the high-end of our expectations. This operating momentum, when combined with an expanding footprint and growing preneed backlog, creates an exciting opportunity to continue to grow the company into the future and to enhance shareholder value. Our successes could not have been achieved without the hard work and dedication of our 21,000 associates, and I thank them for their continued focus on delivering extraordinary service to our client families." REVIEW OF RESULTS FOR FOURTH QUARTER 2012 Consolidated Segment Results  (In millions, except funeral services performed and average revenue per funeral service)Three Months Ended December 31,Twelve Months EndedDecember 31,2012201120122011FuneralFuneral atneed revenue$245.5$239.2$962.5$971.3Funeral recognized preneed revenue131.1120.6504.5478.3Other funeral revenue(1)40.035.4158.8123.9   Total funeral revenues$416.6$395.2$1,625.8$1,573.5Gross profit$91.5$86.9$349.2$330.7Gross margin percentage22.0%22.0%21.5%21.0%Funeral services performed72,50470,110283,516277,983Average revenue per funeral service$5,194$5,132$5,174$5,215CemeteryCemetery atneed revenue$60.9$58.0$236.8$236.8Cemetery recognized preneed revenue122.8109.9448.4411.5Other cemetery revenue (2)29.023.599.594.2   Total cemetery revenues$212.7$191.4$784.7$742.5Gross profit$56.7$43.1$176.1$147.8Gross margin percentage26.7%22.5%22.4%19.9%     (1)Other funeral revenue consists primarily of General Agency revenues, which are cash 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 ResultsThe table below details comparable funeral results of operations ("same store") for the three months ended December 31, 2012 and 2011. We consider comparable operations to be those owned for the entire period beginning January 1, 2011 and ending December 31, 2012.   (Dollars in millions, except average revenue per funeral service, total preneed funeral contracts sold and average revenue per contract sold)Three Months EndedDecember 31,20122011Comparable funeral revenue:Atneed revenue$237.6$234.1Recognized preneed revenue127.7117.9Other funeral revenue(1)26.922.4Total comparable funeral revenues$392.2$374.4Comparable gross profit$89.9$84.8Comparable gross margin percentage22.9%22.6%Comparable funeral services performed:Preneed24,13323,103Atneed41,98142,045Total66,11465,148Comparable average revenue per funeral service$5,525$5,403Comparable preneed funeral production:Sales$137.2$134.5Total preneed funeral contracts sold24,72124,216Average revenue per contract sold$5,550$5,554     (1)Other funeral revenue consists primarily of General Agency revenues, which are cash 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 increased by $17.8 million driven by an increase in both the number of funeral services performed as well the average revenue per funeral service. Higher general agency revenues also contributed to the current period improvements. The comparable average revenue per funeral service grew 2.3% over the prior year quarter. Excluding a favorable Canadian currency impact and higher trust fund income, the average revenue per funeral service grew approximately 1.3% despite the increase in cremation services. The cremation rate increased to 45.2% in the fourth quarter of 2012 compared to 44.7% for the same period of 2011. Comparable funeral services performed increased 1.5%, which we believe is consistent with trends experienced by other funeral service providers and industry vendors. Led by the increased revenues, comparable funeral gross profit increased $5.1 million, or 6.0%, compared to the prior year quarter, while the gross margin percentage increased 30 basis points to 22.9%. The increase in revenues were partially offset by higher incentive compensation expenses, higher health care costs and higher selling costs related to preneed funeral sales production. Comparable preneed funeral sales production grew 2.0% to $137.2 million in the current quarter compared to $134.5 million last year. Comparable funeral contracts sold increased 2.1% while average revenue per contract sold was generally flat. For the year ended 2012, comparable preneed funeral sales production increased 3.6% over the prior period. Preneed funeral sales are deferred and recognized as revenues in future periods when the funeral service is performed.Comparable Cemetery ResultsThe table below details comparable cemetery results of operations ("same store") for the three months ended December 31, 2012 and 2011. We consider comparable operations to be those owned for the entire period beginning January 1, 2011 and ending December 31, 2012.   (Dollars in millions)Three Months EndedDecember 31,20122011Comparable cemetery revenue:Atneed revenue$60.9$57.9Recognized preneed revenue122.8109.8Other cemetery revenue(1)29.023.4Total comparable cemetery revenues$212.7$191.1Comparable gross profit$57.1$43.4Comparable gross margin percentage26.8%22.7%Comparable preneed and atneed cemetery sales production:Property$113.8$98.6Merchandise and services92.288.5Discounts(21.9)(19.9)Preneed and atneed cemetery sales production$184.1$167.2   Recognition rate (2)99.8%100.3%     (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 $21.6 million, or 11.3%, primarily as a result of higher preneed property sales as well as higher trust fund income. Led by the strong increase in revenues, cemetery gross profit increased $13.7 million, or 31.6%, and the gross margin percentage increased to 26.8% compared to 22.7%. Included in the preneed and atneed cemetery sales production numbers above is an increase of $15.3 million or 14.0% in preneed cemetery sales production for the current quarter. For the year ended 2012, preneed cemetery sales production increased 10.2% over the prior year.Other Financial Results  General and administrative expenses were $42.0 million in the fourth quarter of 2012 compared to $26.5 million in the prior year. Included in the increase of $15.5 million is $4.0 million of costs related to the transition to new outsource providers for certain accounting and administrative functions and for the implementation of a new purchase order system. Excluding this $4.0 million, general and administrative expenses increased $11.5 million over the prior year which was primarily due to $6.6 million of expenses for disputed legal defense costs and case settlements as well as $4.7 million for incentive compensation costs. In the fourth quarter of 2012, a $22.7 million loss was recognized on the early extinguishment of debt, which represents the write-off of unamortized deferred loan costs of $1.3 million and $21.4 million in a make-whole provision paid in cash upon retiring the debt. This refinancing benefited the company by replacing 7.375% debt due in 2014 with 4.5% debt due in 2020.Cash Flow and Capital Spending  Set forth below is a reconciliation of our reported net cash provided by operating activities prepared in accordance with GAAP to net cash provided by operating activities excluding special items. 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. (In millions)Three Months EndedDecember 31,Twelve Months EndedDecember 31,2012201120122011Net cash provided by operating activities, as reported$88.9$96.8$369.2$388.1IRS Audit Payment??6.6?System and Process Transition Costs3.20.44.72.6Net cash provided by operating activities excluding special items$92.1$97.2$380.5$390.7Net cash provided by operating activities excluding special items was $92.1 million compared to $97.2 million in 2011. Higher earnings in the current year quarter were predominantly offset by working capital timing differences. A higher mix of preneed cemetery property sales made on installment terms resulted in current period revenue recognition in the quarter, but future period cash collections. Additionally, disbursements for trade payables temporarily increased in the fourth quarter as we transitioned to a new purchase order and accounts payable system; however we expect this new system to provide greater visibility into company expenditures and to generate significant savings going forward. A summary of our capital expenditures is set forth below:  Capital Expenditures (In millions)Three Months Ended December 31,Twelve Months Ended December 31,2012201120122011Capital improvements at existing locations$20.5$18.2$66.1$66.2Development of cemetery property13.012.642.942.9Construction of new funeral home facilities1.21.76.79.3Total capital expenditures$34.7$32.5$115.7$118.4TRUST FUND RETURNS  Total trust fund returns include realized and unrealized gains and losses and dividends.  A summary of our consolidated trust fund returns for the three and twelve months ended December 31, 2012 is set forth below:Three MonthsTwelve MonthsPreneed Funeral1.5%12.4%Preneed Cemetery1.6%13.4%Cemetery Perpetual Care1.4%10.5%Combined Trust Funds1.5%12.1%OUTLOOK FOR 2013 Our outlook for earnings and cash flow in fiscal 2013 is as follows:         (In millions, except per share amounts)2013 OutlookDiluted earnings per share from continuing   operations excluding special items(1)$.80 to $.90Net cash provided by operating activities   excluding special items(1)$375 to $425Capital improvements at existing facilities and   cemetery development expenditures$105 to $115    (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 to 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 2013 excludes the following because this information is not currently available for 2013: Gains or losses associated with asset divestitures; gains or losses associated with the early extinguishment of debt; potential tax reserve adjustments and/or associated cash taxes; acquisition, system and process transition costs; and potential legal defense costs or 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, could materially impact our forward-looking diluted EPS and 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".This outlook reflects management's current views and estimates regarding future economic and financial market conditions, company performance and financial results, business prospects, the competitive environment and other events.  This outlook is subject to a number of risks and uncertainties, many of which are beyond the control of SCI, that could cause actual results to differ materially from the potential results highlighted above.  A further list and description of these risks and uncertainties and other matters can be found later in this press release under "Cautionary Statement on Forward-Looking Statements".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 our reported net income attributable to common stockholders to earnings from continuing operations excluding special items and our GAAP diluted earnings per share to diluted earnings per share from continuing operations excluding special items. 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.(In millions, except diluted EPS)Three Months Ended December 31,20122011NetIncomeDilutedEPSNetIncomeDilutedEPSNet income attributable to common stockholders, as reported$26.4$0.12$44.6$0.20After-tax reconciling items:Impact of divestitures and impairment charges, net1.60.01(1.1)(0.01)System and process transition costs2.90.01??Losses on early extinguishment of debt, net14.40.07??Change in certain tax reserves2.50.01(0.1)?Earnings from continuing operations excluding special items$47.8$0.22$43.4$0.19Diluted weighted average shares outstanding (in thousands)215,261228,281     (In millions, except diluted EPS)Twelve Months Ended December 31,20122011NetIncomeDilutedEPSNetIncomeDilutedEPSNet income attributable to common stockholders, as reported$152.5$0.70$144.9$0.61After-tax reconciling items:Impact of divestitures and impairment charges, net1.60.011.80.01System and process transition costs5.90.021.40.01Losses on early extinguishment of debt, net14.40.072.20.01Change in certain tax reserves0.6?2.60.01Earnings from continuing operations excluding special items$175.0$0.80$152.9$0.65Diluted weighted average shares outstanding (in thousands)219,066236,669Conference Call and WebcastWe will host a conference call on Wednesday, February 13, 2013, 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 (847) 413-3237 with the passcode of 34142909. 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 March 15, 2013 and can be accessed at (630) 652-3000 with the passcode of 34142909#. 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 funds. 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, including currently pending class action cases concerning cemetery or burial practices, 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. If we are not able to respond effectively to changing consumer preferences, our market share, revenues and profitability could 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. Increased costs, including potential increased health care costs, may have a negative impact on earnings and cash flows. 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 2012 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 InternationalService Corporation International (NYSE: SCI), headquartered in Houston, Texas, is North America's leading provider of deathcare products and services.  At December 31, 2012, we owned and operated 1,437 funeral homes and 374 cemeteries (of which 213 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) 525-9088Media:Lisa Marshall - Managing Director / Corporate Communications(713) 525-3066 SERVICE CORPORATION INTERNATIONALCONSOLIDATED STATEMENT OF OPERATIONS(In thousands, except per share amounts) Three Months Ended December 31,Twelve Months Ended December 31,2012201120122011Revenues$629,421$586,568$2,410,481$2,316,040Costs and expenses(481,221)(456,551)(1,885,254)(1,837,504)Gross profit148,200130,017525,227478,536General and administrative expenses(41,978)(26,479)(123,905)(103,860)(Losses) gains on divestitures and impairment charges, net(2,416)4,287(1,533)(10,977)Operating income103,806107,825399,789363,699Interest expense(34,018)(33,306)(135,068)(133,782)Losses on early extinguishment of debt, net(22,706)(5)(22,706)(3,509)Other (expense) income, net(333)(1,741)3,668(772)Income from continuing operations before income taxes46,74972,773245,683225,636Provision for income taxes(20,365)(28,223)(91,548)(79,404)Net income26,38444,550154,135146,232Net income attributable to noncontrolling interests(1)?(1,589)(1,329)Net income attributable to common stockholders$26,383$44,550$152,546$144,903Basic earnings per share$0.12$0.20$0.71$0.62Diluted earnings per share$0.12$0.20$0.70$0.61Basic weighted average number of shares211,954225,950215,712234,242Diluted weighted average number of shares215,261228,281219,066236,669      SERVICE CORPORATION INTERNATIONALCONSOLIDATED BALANCE SHEET(In thousands, except share amounts) December 31, 2012December 31, 2011ASSETSCurrent assets:Cash and cash equivalents$92,708$128,569Receivables, net105,521103,892Deferred tax asset42,86444,316Inventories, net24,56025,513Other20,54625,803Total current assets286,199328,093Preneed funeral receivables, net and trust investments1,532,2281,478,865Preneed cemetery receivables, net and trust investments1,826,8351,595,940Cemetery property, at cost1,489,9481,497,703Property and equipment, net1,641,1011,618,361Goodwill1,382,4101,361,493Deferred charges and other assets425,267430,851Cemetery perpetual care trust investments1,099,5801,016,506$9,683,568$9,327,812LIABILITIES & EQUITYCurrent liabilities:Accounts payable and accrued liabilities$373,783$358,904Current maturities of long-term debt31,42923,554Income taxes6,8923,150Total current liabilities412,104385,608Long-term debt1,916,6211,861,116Deferred preneed funeral revenues536,647575,546Deferred preneed cemetery revenues861,148833,303Deferred tax liability471,198405,615Other liabilities399,950414,773Deferred preneed funeral and cemetery receipts held in trust2,624,3212,424,356Care trusts' corpus1,098,7521,015,300Stockholders' Equity:Common stock, $1 per share par value, 500,000,000 shares authorized, 211,056,501 and 224,665,395 shares issued, respectively, and 211,046,501 and 222,955,853 shares outstanding, respectively211,047222,956Capital in excess of par value1,307,0581,430,330Accumulated deficit(286,795)(367,044)Accumulated other comprehensive income111,717105,852Total common stockholders' equity1,343,0271,392,094Noncontrolling interests19,80020,101Total Equity1,362,8271,412,195$9,683,568$9,327,812      SERVICE CORPORATION INTERNATIONALCONSOLIDATED STATEMENT OF CASH FLOWS(In thousands) Twelve Months Ended December 31,20122011Cash flows from operating activities:Net income$154,135$146,232Adjustments to reconcile net income to net cash provided by operating activities:Losses on early extinguishment of debt, net22,7063,509Depreciation and amortization120,227118,047Amortization of intangible assets23,85325,591Amortization of cemetery property44,97640,046Amortization of loan costs4,9054,436Provision for doubtful accounts9,7059,251Provision for deferred income taxes72,98466,512Losses on divestitures and impairment charges, net1,53310,977Share-based compensation10,9839,144Change in assets and liabilities, net of effects from acquisitions and divestitures:Increase in receivables(9,737)(3,322)(Increase) decrease in other assets(6,714)6,815Increase in payables and other liabilities25,24014,610Effect of preneed funeral production and maturities:Decrease in preneed funeral receivables, net and trust investments38,90269,688Decrease in deferred preneed funeral revenue(41,813)(32,158)Decrease in deferred preneed funeral receipts held in trust(22,357)(50,591)Effect of cemetery production and deliveries:Increase in preneed cemetery receivables, net and trust investments(96,837)(65,581)Increase in deferred preneed cemetery revenue20,81723,636Decrease in deferred preneed cemetery receipts held in trust(587)(9,419)Other(3,675)689Net cash provided by operating activities369,246388,112Cash flows from investing activities:Capital expenditures(115,628)(118,375)Acquisitions(65,463)(99,570)Proceeds from divestitures and sales of property and equipment, net9,95324,529Net (deposits) withdrawals of restricted funds and other(3,816)3,159Net cash used in investing activities(174,954)(190,257)Cash flows from financing activities:Proceeds from the issuance of long-term debt227,50785,000Debt issuance costs(4,500)?Payments of debt(1,145)(22,774)Early extinguishment of debt(202,140)(43,194)Principal payments on capital leases(25,760)(23,030)Proceeds from exercise of stock options18,3898,227Purchase of Company common stock(186,766)(197,302)Payments of dividends(60,296)(44,795)Purchase of non-controlling interest(3,000)?Bank overdrafts and other6,199(798)Net cash used in by financing activities(231,512)(238,666)Effect of foreign currency1,359(1,466)Net decrease in cash and cash equivalents(35,861)(42,277)Cash and cash equivalents at beginning of period128,569170,846Cash and cash equivalents at end of period$92,708$128,569 SOURCE Service Corporation International