UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) | February 13, 2018 (February 13, 2018) |
Service Corporation International
(Exact name of registrant as specified in its charter)
Texas | 1-6402-1 | 74-1488375 |
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
1929 Allen Parkway Houston, Texas | 77019 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (713) 522-5141 |
(Former name or former address, if changed since last report.) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13a-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 2.02 Results of Operations and Financial Condition
On February 13, Service Corporation International issued a press release reporting its financial results for the fourth quarter of 2017. A copy of this press release is attached as Exhibit 99.1 to this report and is incorporated herein by reference.
The attached Exhibit 99.1 is not filed, but is furnished to comply with Regulation FD. The information in this Current Report on Form 8-K, including the exhibit, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits
(d) | The following exhibits are included with this report |
Exhibit No. | Description | |
99.1 | Press Release, dated February 13, 2018 reporting fourth quarter 2017 financial results |
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
February 13, 2018 | Service Corporation International | |
By: | /s/ Eric D. Tanzberger | |
Eric D. Tanzberger | ||
Senior Vice President | ||
Chief Financial Officer |
Service Corporation International Announces Fourth Quarter 2017 Financial Results And Outlook For 2018
HOUSTON, Feb. 13, 2018 /PRNewswire/ -- Service Corporation International (NYSE: SCI), the largest provider of deathcare products and services in North America, today reported results for the fourth quarter 2017. 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
|
| Twelve Months Ended
| ||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||||||
Revenue |
| $ | 812.7 |
|
| $ | 809.1 |
|
| $ | 3,095.0 |
|
| $ | 3,031.1 |
|
Operating income |
| $ | 176.9 |
|
| $ | 179.3 |
|
| $ | 569.2 |
|
| $ | 511.9 |
|
Net income attributable to common stockholders |
| $ | 247.3 |
|
| $ | 66.2 |
|
| $ | 546.7 |
|
| $ | 177.0 |
|
Diluted earnings per share |
| $ | 1.29 |
|
| $ | 0.34 |
|
| $ | 2.84 |
|
| $ | 0.90 |
|
Earnings excluding special items(1) |
| $ | 95.0 |
|
| $ | 90.3 |
|
| $ | 298.5 |
|
| $ | 253.1 |
|
Diluted earnings per share excluding special items(1) |
| $ | 0.50 |
|
| $ | 0.47 |
|
| $ | 1.55 |
|
| $ | 1.29 |
|
Diluted weighted average shares outstanding |
| 191.7 |
|
| 193.0 |
|
| 192.2 |
|
| 196.0 |
| ||||
Net cash provided by operating activities |
| $ | 112.7 |
|
| $ | 105.1 |
|
| $ | 502.3 |
|
| $ | 463.6 |
|
Net cash provided by operating activities excluding special items(1) |
| $ | 124.2 |
|
| $ | 106.9 |
|
| $ | 554.3 |
|
| $ | 508.5 |
|
|
|
(1) | Earnings excluding special items, diluted earnings per share excluding special items, and net cash provided by operating activities excluding special items are non-GAAP financial measures. These items are also referred to as "adjusted earnings per share" and "adjusted operating cash flow". 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". |
Quarterly Highlights:
Tom Ryan, the Company's Chairman and Chief Executive Officer, commented on the fourth quarter of 2017:
"We delivered a solid quarter as we close out 2017 and are pleased to report a 6.4% increase in adjusted earnings per share and a 16.2% increase in adjusted operating cash flow. Growth in our funeral segment was somewhat offset by an anticipated tough comparison in our cemetery segment for the fourth quarter. Tax planning and tax reform also had a significant impact for the quarter. For the full year 2017, we reported over 20% growth in adjusted earnings per share and over 9% growth in adjusted operating cash flows, while we expanded funeral and cemetery segment profit margin by 70 and 140 basis points, respectively. The resulting cash flows allowed us to deploy capital of $402 million through acquisitions, dividends, and share repurchases.
Looking ahead to 2018, we believe we are well-positioned to deliver solid results, with expected adjusted earnings per share growth within our long term targeted growth range of 8%-12% prior to the expected positive impact from revenue recognition accounting changes and tax reform in 2018. We are announcing an adjusted earnings per share range of $1.72 to $1.90 per share and an adjusted cash flow operations range of $540 million to $600 million expected for 2018.
We attribute our success to the hard work and dedication of our 23,000 associates, and I thank them for their continued focus on delivering extraordinary service to our client families despite the impact of significant challenges, including multiple hurricanes and wild fires. Looking forward we are confident that our solid operating platform and healthy financial position will allow us to continue to grow revenue, leverage our unparalleled scale, and deploy our capital wisely to enhance shareholder value."
OUTLOOK FOR 2018
Our outlook for diluted earnings per share from continuing operations excluding special items is anticipated to be in line with our expected long-term growth framework of 8%-12% after consideration of special items expected positive impact from revenue recognition accounting changes and tax reform. Our outlook for net cash provided by operating activities excluding special items reflects an anticipated $20 million net decrease in cash taxes compared to 2017 recurring levels as a result of the decreased US statutory tax rate. Our 2018 capital improvements at existing facilities and cemetery development expenditures guidance of $185 million includes only minimal capital expenditures related to hurricane recovery.
(In millions, except per share amounts) |
| 2018 Outlook |
Diluted earnings per share excluding special items(1) |
| $1.72 to $1.90 |
Net cash provided by operating activities excluding special items(1) |
| $540 to $600 |
Capital improvements at existing facilities and cemetery development expenditures |
| Approximately $185 |
|
|
(1) | Diluted earnings per share 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 2018 excludes the following because this information is not currently available for 2018: Expenses net of insurance recoveries related to hurricanes, 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, 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 FINANCIAL RESULTS FOR THE FOURTH QUARTER OF 2017
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
|
| Twelve Months Ended
| ||||||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||||||
Funeral |
|
|
|
|
|
|
| ||||||||
Atneed revenue | $ | 254.1 |
|
| $ | 258.8 |
|
| $ | 1,010.9 |
|
| $ | 1,045.2 |
|
Matured preneed revenue | 148.9 |
|
| 140.0 |
|
| 574.1 |
|
| 537.9 |
| ||||
Core revenue | 403.0 |
|
| 398.8 |
|
| 1,585.0 |
|
| 1,583.1 |
| ||||
Non-funeral home revenue | 11.8 |
|
| 10.7 |
|
| 46.9 |
|
| 43.4 |
| ||||
Recognized preneed revenue | 28.5 |
|
| 25.6 |
|
| 117.4 |
|
| 111.6 |
| ||||
Other revenue | 29.7 |
|
| 29.2 |
|
| 118.9 |
|
| 131.0 |
| ||||
Total revenue | $ | 473.0 |
|
| $ | 464.3 |
|
| $ | 1,868.2 |
|
| $ | 1,869.1 |
|
|
|
|
|
|
|
|
| ||||||||
Operating profit | $ | 97.0 |
|
| $ | 89.8 |
|
| $ | 371.9 |
|
| $ | 361.0 |
|
Operating margin percentage | 20.5 | % |
| 19.3 | % |
| 19.9 | % |
| 19.3 | % | ||||
|
|
|
|
|
|
|
| ||||||||
Funeral services performed | 78,253 |
|
| 77,464 |
|
| 308,786 |
|
| 307,980 |
| ||||
Average revenue per service | $ | 5,301 |
|
| $ | 5,286 |
|
| $ | 5,285 |
|
| $ | 5,281 |
|
|
|
|
|
|
|
|
| ||||||||
Cemetery |
|
|
|
|
|
|
| ||||||||
Atneed revenue | $ | 81.7 |
|
| $ | 77.0 |
|
| $ | 319.9 |
|
| $ | 307.8 |
|
Recognized preneed revenue | 228.3 |
|
| 240.3 |
|
| 813.2 |
|
| 756.2 |
| ||||
Core revenue | 310.0 |
|
| 317.3 |
|
| 1,133.1 |
|
| 1,064.0 |
| ||||
Other cemetery revenue | 29.7 |
|
| 27.4 |
|
| 93.8 |
|
| 98.0 |
| ||||
Total revenue | $ | 339.7 |
|
| $ | 344.7 |
|
| $ | 1,226.9 |
|
| $ | 1,162.0 |
|
|
|
|
|
|
|
|
| ||||||||
Operating profit | $ | 114.8 |
|
| $ | 120.9 |
|
| $ | 350.3 |
|
| $ | 315.4 |
|
Operating margin percentage | 33.8 | % |
| 35.1 | % |
| 28.6 | % |
| 27.1 | % |
Comparable Funeral Results
The table below details comparable funeral results of operations ("same store") for the three months ended December 31, 2017 and 2016. We consider comparable operations to be those businesses owned for the entire period beginning January 1, 2016 and ending December 31, 2017.
(Dollars in millions, except average revenue per service and average revenue per contract sold) | Three Months Ended December 31, | |||||||||||||||
|
| 2017 |
| 2016 |
| Var |
| % | ||||||||
Comparable revenue: |
|
|
|
|
|
|
|
| ||||||||
Atneed revenue(1) |
| $ | 246.5 |
|
| $ | 250.4 |
|
| $ | (3.9) |
|
| (1.6) | % | |
Matured preneed revenue(2) |
| 146.5 |
|
| 136.8 |
|
| 9.7 |
|
| 7.1 | % | ||||
Core revenue(3) |
| 393.0 |
|
| 387.2 |
|
| 5.8 |
|
| 1.5 | % | ||||
Non-funeral home revenue(4) |
| 11.8 |
|
| 10.7 |
|
| 1.1 |
|
| 10.3 | % | ||||
Recognized preneed revenue(5) |
| 28.4 |
|
| 25.6 |
|
| 2.8 |
|
| 10.9 | % | ||||
Other revenue(6) |
| 29.2 |
|
| 29.0 |
|
| 0.2 |
|
| 0.7 | % | ||||
Total comparable revenue |
| $ | 462.4 |
|
| $ | 452.5 |
|
| $ | 9.9 |
|
| 2.2 | % | |
|
|
|
|
|
|
|
|
| ||||||||
Comparable operating profit |
| $ | 97.0 |
|
| $ | 88.6 |
|
| $ | 8.4 |
|
| 9.5 | % | |
Comparable operating margin percentage |
| 21.0 | % |
| 19.6 | % |
| 1.4 | % |
| 7.1 | % | ||||
|
|
|
|
|
|
|
|
| ||||||||
Comparable services performed: |
|
|
|
|
|
|
|
| ||||||||
Atneed |
| 42,434 |
|
| 42,682 |
|
| (248) |
|
| (0.6) | % | ||||
Matured preneed |
| 24,275 |
|
| 23,487 |
|
| 788 |
|
| 3.4 | % | ||||
Total core |
| 66,709 |
|
| 66,169 |
|
| 540 |
|
| 0.8 | % | ||||
Non-funeral home |
| 9,917 |
|
| 9,497 |
|
| 420 |
|
| 4.4 | % | ||||
Total comparable funeral services performed |
| 76,626 |
|
| 75,666 |
|
| 960 |
|
| 1.3 | % | ||||
Core cremation rate |
| 47.2 | % |
| 46.3 | % |
| 0.9 | % |
| 1.9 | % | ||||
Total comparable cremation rate |
| 53.9 | % |
| 52.9 | % |
| 1.0 | % |
| 1.9 | % | ||||
|
|
|
|
|
|
|
|
| ||||||||
Comparable sales average revenue per service: |
|
|
|
|
|
|
|
| ||||||||
Atneed |
| $ | 5,809 |
|
| $ | 5,868 |
|
| $ | (59) |
|
| (1.0) | % | |
Matured preneed |
| 6,035 |
|
| 5,823 |
|
| 212 |
|
| 3.6 | % | ||||
Total core |
| 5,891 |
|
| 5,852 |
|
| 39 |
|
| 0.7 | % | ||||
Non-funeral home |
| 1,185 |
|
| 1,128 |
|
| 57 |
|
| 5.1 | % | ||||
Total comparable average revenue per service |
| $ | 5,283 |
|
| $ | 5,259 |
|
| $ | 24 |
|
| 0.5 | % | |
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
| ||||||||
Comparable preneed sales production: |
|
|
|
|
|
|
|
| ||||||||
Total preneed sales |
| $ | 198.8 |
|
| $ | 196.1 |
|
| $ | 2.7 |
|
| 1.4 | % | |
Core contracts sold |
| 26,520 |
|
| 26,356 |
|
| 164 |
|
| 0.6 | % | ||||
Non-funeral home contracts sold |
| 16,038 |
|
| 15,602 |
|
| 436 |
|
|
| 2.8 | % | |||
Core Average revenue per contract sold |
| $ | 6,065 |
|
| $ | 6,108 |
|
| (43) |
|
| (0.7) | % | ||
Non-funeral home average revenue per contract sold |
| $ | 2,369 |
|
| $ | 2,247 |
|
| $ | 122 |
|
| 5.4 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Atneed revenue represents merchandise and services sold and delivered or performed once death has occurred. |
|
|
(2) | Matured preneed revenue represents merchandise and services sold on a preneed contract through our core funeral homes and that have been delivered or performed and includes the related merchandise and service trust fund income. |
|
|
(3) | Core revenue represents the sum of merchandise and services sold on an atneed contract or preneed contract and delivered or performed once death has occurred through our core funeral homes. |
|
|
(4) | Non-funeral home revenue represents services sold on a preneed or atneed contract through one of our non-funeral home sales channels (e.g. SCI Direct) 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. |
Comparable Cemetery Results
The table below details comparable cemetery results of operations ("same store") for the three months ended December 31, 2017 and 2016. We consider comparable operations to be those businesses owned for the entire period beginning January 1, 2016 and ending December 31, 2017.
(Dollars in millions) |
| Three Months Ended December 31, | |||||||||||||
|
| 2017 |
| 2016 |
| Var |
| % | |||||||
Comparable revenue: |
|
|
|
|
|
|
|
| |||||||
Atneed revenue(1) |
| $ | 81.0 |
|
| $ | 76.7 |
|
| $ | 4.3 |
|
| 5.6 | % |
Recognized preneed revenue(2) |
| 227.1 |
|
| 240.1 |
|
| (13.0) |
|
| (5.4) | % | |||
Core revenue(3) |
| 308.1 |
|
| 316.8 |
|
| (8.7) |
|
| (2.7) | % | |||
Other revenue(4) |
| 29.3 |
|
| 27.5 |
|
| 1.8 |
|
| 6.5 | % | |||
Total comparable revenue |
| $ | 337.4 |
|
| $ | 344.3 |
|
| $ | (6.9) |
|
| (2.0) | % |
|
|
|
|
|
|
|
|
| |||||||
Comparable operating profit |
| $ | 114.3 |
|
| $ | 121.4 |
|
| $ | (7.1) |
|
| (5.8) | % |
Comparable operating margin percentage |
| 33.9 | % |
| 35.3 | % |
| (1.4) | % |
| (4.0) | % | |||
|
|
|
|
|
|
|
|
| |||||||
Comparable preneed and atneed sales production: |
|
|
|
|
|
|
|
| |||||||
Property |
| $ | 155.7 |
|
| $ | 156.9 |
|
| $ | (1.2) |
|
| (0.8) | % |
Merchandise and services |
| 132.6 |
|
| 125.7 |
|
| 6.9 |
|
| 5.5 | % | |||
Discounts |
| (1.1) |
|
| (2.7) |
|
| 1.6 |
|
| (59.3) | % | |||
Preneed and atneed sales production |
| $ | 287.2 |
|
| $ | 279.9 |
|
| $ | 7.3 |
|
| 2.6 | % |
Recognition rate(5) |
| 107.3 | % |
| 113.2 | % |
|
|
|
|
|
|
(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 and includes the related merchandise and service trust fund income. |
|
|
(3) | Core revenue represents the sum of property, merchandise, and services that have been delivered or performed as well as the related merchandise and service trust fund income. |
|
|
(4) | Other revenue is primarily related to 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 stated as a percentage of current period preneed and atneed sales production. |
Other Financial Results
Footnotes
(A) In the first quarter of 2017, as required, the Company adopted ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting," which recognizes the tax effect related to the settlement of share-based awards in income tax benefit or expense in the statements of earnings rather than in additional paid-in-capital. This ASU guidance also eliminates the requirement to reclassify excess tax benefits from operating activities to financing activities within the statement of cash flows. The impact of the restricted stock deliveries and option exercises in the fourth quarter of 2017 was a reduction to our adjusted provision for income taxes of $1.7 million, which had the effect of increasing our diluted earnings per share excluding special items by less than a penny per share. The impact of the restricted stock deliveries and option exercises for the full year of 2017 was a reduction to our adjusted provision for income taxes of $18.6 million, which had the effect of increasing our diluted earnings per share excluding special items by approximately nine and a half cents per share.
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 (or sometimes referred to as adjusted operating cash flow). 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 Ended
|
| Twelve Months Ended
| ||||||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||||||
Net cash provided by operating activities, as reported | $ | 112.7 |
|
| $ | 105.1 |
|
| $ | 502.3 |
|
| $ | 463.6 |
|
Premiums paid on early extinguishment of debt | — |
|
| — |
|
| — |
|
| 20.5 |
| ||||
Acquisition, integration, and system transition costs | — |
|
| 0.6 |
|
| — |
|
| 11.7 |
| ||||
Legal settlements, net of insurance recoveries | 11.5 |
|
| — |
|
| 11.5 |
|
| — |
| ||||
Excess tax benefits from share-based awards | — |
|
| 1.2 |
|
| — |
|
| 12.7 |
| ||||
IRS tax settlement (on prior year audits) | — |
|
| — |
|
| 34.2 |
|
| — |
| ||||
Pension termination settlement | — |
|
| — |
|
| 6.3 |
|
| — |
| ||||
Net cash provided by operating activities excluding special items | $ | 124.2 |
|
| $ | 106.9 |
|
| $ | 554.3 |
|
| $ | 508.5 |
|
Cash taxes included in net cash provided by operating activities excluding special items |
|
|
|
|
|
|
| ||||||||
$ | 45.3 |
|
| $ | 11.7 |
|
| $ | 132.7 |
|
| $ | 112.6 |
|
Net cash provided by operating activities excluding special items was $124.2 million in the fourth quarter of 2017 compared to $106.9 million in the prior year quarter. The increase was partially due to increased cash earnings and favorable working capital impacts from improved preneed cemetery and atneed funeral cash collections. This helped to offset higher cash tax payments of approximately $34 million, which included $25 million of deferred cash tax payments from the third quarter as allowed by hurricane relief federal tax provisions. We also had $16 million of non-earnings trust fund withdrawals as a result of 2017 working capital initiatives that we do not expect to recur in 2018.
A summary of our capital expenditures is set forth below:
Capital Expenditures (In millions) | Three Months Ended
|
| Twelve Months Ended
| ||||||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||||||
Capital improvements at existing field locations and corporate | $ | 44.4 |
|
| $ | 27.9 |
|
| $ | 117.6 |
|
| $ | 90.4 |
|
Development of cemetery property | 24.4 |
|
| 29.3 |
|
| 79.1 |
|
| 85.4 |
| ||||
Capital improvements at existing facilities and cemetery development expenditures | 68.8 |
|
| 57.2 |
|
| 196.7 |
|
| 175.8 |
| ||||
Growth capital expenditures/construction of new funeral home facilities | 4.0 |
|
| 5.1 |
|
| 17.8 |
|
| 17.7 |
| ||||
Total capital expenditures | $ | 72.8 |
|
| $ | 62.3 |
|
| $ | 214.5 |
|
| $ | 193.5 |
|
Total capital expenditures increased in the current quarter by $10.5 million. We incurred $6.0 million of additional spend on locations affected by the hurricanes during the quarter. We also invested more this quarter on infrastructure improvements within our facilities.
For the full year 2017, we spent $196.7 million on capital improvements at existing facilities and cemetery development expenditures, which we expect to be $185 million in 2018 after reduction of hurricane related spending and less expenditures on customer-facing technology projects.
TRUST FUND RETURNS
Total trust fund returns include realized and unrealized gains and losses and dividends and are shown gross without netting of certain fees. A summary of our consolidated trust fund returns for the three and twelve months ended December 31, 2017 is set forth below:
|
| Three Months |
| Twelve Months |
Preneed funeral |
| 3.5% |
| 16.1% |
Preneed cemetery |
| 3.7% |
| 16.8% |
Cemetery perpetual care |
| 2.5% |
| 9.5% |
Combined trust funds |
| 3.2% |
| 14.1% |
NON-GAAP FINANCIAL MEASURES
Earnings excluding special items and diluted earnings per share excluding special items shown above 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 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 excluding special items and our GAAP diluted earnings per share to diluted earnings per share 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, | ||||||||||||||
| 2017 |
| 2016 | ||||||||||||
| Net Income |
| Diluted EPS |
| Net Income |
| Diluted EPS | ||||||||
Net income attributable to common stockholders, as reported | $ | 247.3 |
|
| $ | 1.29 |
|
| $ | 66.2 |
|
| $ | 0.34 |
|
Pre-tax reconciling items: |
|
|
|
|
|
|
| ||||||||
Gain on divestitures and impairment charges, net | (1.5) |
|
| (0.01) |
|
| (3.6) |
|
| (0.01) |
| ||||
Losses on early extinguishment of debt | 0.3 |
|
| — |
|
| — |
|
| — |
| ||||
Pension termination settlement | — |
|
| — |
|
| 5.6 |
|
| 0.03 |
| ||||
Acquisition, integration, and system transition costs | — |
|
| — |
|
| 0.8 |
|
| — |
| ||||
Tax reconciling items: |
|
|
|
|
|
|
| ||||||||
Tax provision from special items | 1.0 |
|
| 0.01 |
|
| 3.9 |
|
| 0.02 |
| ||||
Change in certain tax reserves and other (1) | (152.1) |
|
| (0.79) |
|
| 17.4 |
|
| 0.09 |
| ||||
Earnings excluding special items and diluted earnings per share excluding special items | $ | 95.0 |
|
| $ | 0.50 |
|
| $ | 90.3 |
|
| $ | 0.47 |
|
|
|
|
|
|
|
|
| ||||||||
Diluted weighted average shares outstanding (in thousands) |
|
| 191,729 |
|
|
|
| 192,957 |
|
(In millions, except diluted EPS) | Twelve Months Ended December 31, | ||||||||||||||
| 2017 |
| 2016 | ||||||||||||
| Net Income |
| Diluted EPS |
| Net Income |
| Diluted EPS | ||||||||
Net income attributable to common stockholders, as reported | $ | 546.7 |
|
| $ | 2.84 |
|
| $ | 177.0 |
|
| $ | 0.90 |
|
Pre-tax reconciling items: |
|
|
|
|
|
|
| ||||||||
(Gains) losses on divestitures and impairment charges, net | (7.0) |
|
| (0.04) |
|
| 26.8 |
|
| 0.14 |
| ||||
Losses on early extinguishment of debt | 0.3 |
|
| — |
|
| 22.5 |
|
| 0.11 |
| ||||
Acquisition, integration, and system transition costs | — |
|
| — |
|
| 17.5 |
|
| 0.09 |
| ||||
Legal settlements, net of insurance recoveries | 11.5 |
|
| 0.06 |
|
| — |
|
| — |
| ||||
Pension termination settlement | 12.8 |
|
| 0.07 |
|
| 5.6 |
|
| 0.03 |
| ||||
Tax reconciling items: |
|
|
|
|
|
|
| ||||||||
Tax benefit from special items | (5.7) |
|
| (0.03) |
|
| (17.2) |
|
| (0.09) |
| ||||
Change in certain tax reserves and other (1) | (260.1) |
|
| (1.35) |
|
| 20.9 |
|
| 0.11 |
| ||||
Earnings excluding special items and diluted earnings per share excluding special items | $ | 298.5 |
|
| $ | 1.55 |
|
| $ | 253.1 |
|
| $ | 1.29 |
|
|
|
|
|
|
|
|
| ||||||||
Diluted weighted average shares outstanding (in thousands) |
|
| 192,246 |
|
|
|
| 196,042 |
|
|
|
(1) | On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the "Tax Act". As a result of the Tax Act, we realized a net tax benefit for the remeasurement of deferred tax assets and liabilities, partially offset by a transition tax on certain unrepatriated earnings of our foreign subsidiaries. 2017 is also impacted by the settlement of IRS tax audits related to tax years 1999-2005. 2016 was impacted by a foreign valuation allowance and non-deductible goodwill resulting from gains on divestitures. Please see our 2017 Form 10-K filing for further details, which will be filed later today. |
Conference Call and Webcast
We will host a conference call on Wednesday, February 14, 2018, at 8:00 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) 585-4405 with the passcode of 46371379. 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 February 21, 2018 and can be accessed at (630) 652-3042 with the passcode of 46371379#. Additionally, a replay of the conference call will be available on our website for approximately one week.
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:
For further information on these and other risks and uncertainties, see our Securities and Exchange Commission filings, including our 2017 Annual Report on Form 10-K and as updated in our Form 10-Q filings. 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 and make no undertaking 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, 2017, we owned and operated 1,488 funeral homes and 473 cemeteries (of which 281 are combination locations) in 45 states, eight Canadian provinces, the District of Columbia, and Puerto Rico. 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: |
| Jay Andrew - Managing Director / Corporate Communications |
| (713) 525-5235 |
SERVICE CORPORATION INTERNATIONAL | |||||||||||||||
CONSOLIDATED STATEMENT OF OPERATIONS | |||||||||||||||
| |||||||||||||||
| Three Months Ended December 31, |
| Twelve Months Ended December 31, | ||||||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||||||
| (In thousands, except per share amounts) | ||||||||||||||
Revenue | $ | 812,733 |
|
| $ | 809,053 |
|
| $ | 3,095,031 |
|
| $ | 3,031,137 |
|
Costs and expenses | (600,856) |
|
| (598,276) |
|
| (2,372,842) |
|
| (2,354,703) |
| ||||
Operating profit | 211,877 |
|
| 210,777 |
|
| 722,189 |
|
| 676,434 |
| ||||
General and administrative expenses | (32,116) |
|
| (35,061) |
|
| (154,423) |
|
| (137,730) |
| ||||
Gains (losses) on divestitures and impairment charges, net | 1,470 |
|
| 3,613 |
|
| 7,015 |
|
| (26,819) |
| ||||
Hurricane expenses, net of insurance proceeds | (4,294) |
|
| — |
|
| (5,584) |
|
| — |
| ||||
Operating income | 176,937 |
|
| 179,329 |
|
| 569,197 |
|
| 511,885 |
| ||||
Interest expense | (43,652) |
|
| (40,105) |
|
| (169,125) |
|
| (162,093) |
| ||||
Losses on early extinguishment of debt, net | (274) |
|
| — |
|
| (274) |
|
| (22,503) |
| ||||
Other income (expense), net | 625 |
|
| 65 |
|
| 460 |
|
| (631) |
| ||||
Income before income taxes | 133,636 |
|
| 139,289 |
|
| 400,258 |
|
| 326,658 |
| ||||
Benefit from (provision for) income taxes | 113,759 |
|
| (72,872) |
|
| 146,589 |
|
| (149,353) |
| ||||
Net Income | 247,395 |
|
| 66,417 |
|
| 546,847 |
|
| 177,305 |
| ||||
Net loss attributable to noncontrolling interests | (79) |
|
| (171) |
|
| (184) |
|
| (267) |
| ||||
Net income attributable to common stockholders | 247,316 |
|
| 66,246 |
|
| 546,663 |
|
| 177,038 |
| ||||
Basic earnings per share: |
|
|
|
|
|
|
| ||||||||
Net income attributable to common stockholders | 1.32 |
|
| 0.35 |
|
| 2.91 |
|
| 0.92 |
| ||||
Basic weighted average number of shares | 187,241 |
|
| 190,367 |
|
| 187,630 |
|
| 193,086 |
| ||||
Diluted earnings per share |
|
|
|
|
|
|
| ||||||||
Net income attributable to common stockholders | 1.29 |
|
| 0.34 |
|
| 2.84 |
|
| 0.90 |
| ||||
Diluted weighted average number of shares | 191,729 |
|
| 192,957 |
|
| 192,246 |
|
| 196,042 |
| ||||
Dividends declared per share | 0.15 |
|
| 0.13 |
|
| 0.58 |
|
| 0.51 |
|
SERVICE CORPORATION INTERNATIONAL CONSOLIDATED BALANCE SHEET | |||||||
| |||||||
| December 31, | ||||||
| 2017 |
| 2016 | ||||
| (In thousands, except share amounts) | ||||||
ASSETS | |||||||
Current assets: |
|
|
| ||||
Cash and cash equivalents | $ | 330,039 |
|
| $ | 194,986 |
|
Receivables, net | 90,304 |
|
| 98,455 |
| ||
Inventories | 25,378 |
|
| 26,431 |
| ||
Other | 35,575 |
|
| 34,524 |
| ||
Total current assets | 481,296 |
|
| 354,396 |
| ||
|
|
|
| ||||
Preneed receivables, net and trust investments | 4,778,842 |
|
| 4,305,165 |
| ||
Cemetery property | 1,791,989 |
|
| 1,776,935 |
| ||
Property and equipment, net | 1,873,044 |
|
| 1,827,587 |
| ||
Goodwill | 1,805,981 |
|
| 1,799,081 |
| ||
Deferred charges and other assets | 601,184 |
|
| 567,520 |
| ||
Cemetery perpetual care trust investments | 1,532,167 |
|
| 1,407,465 |
| ||
Total assets | $ | 12,864,503 |
|
| $ | 12,038,149 |
|
|
|
|
| ||||
LIABILITIES & EQUITY | |||||||
Current liabilities: |
|
|
| ||||
Accounts payable and accrued liabilities | $ | 489,172 |
|
| $ | 439,936 |
|
Current maturities of long-term debt | 337,337 |
|
| 89,974 |
| ||
Income taxes payable | 2,470 |
|
| 7,960 |
| ||
Total current liabilities | 828,979 |
|
| 537,870 |
| ||
Long-term debt | 3,135,316 |
|
| 3,196,616 |
| ||
Deferred revenue | 1,789,776 |
|
| 1,731,417 |
| ||
Deferred tax liability | 283,765 |
|
| 454,638 |
| ||
Other liabilities | 410,982 |
|
| 510,322 |
| ||
Deferred receipts held in trust | 3,475,430 |
|
| 3,103,796 |
| ||
Care trusts' corpus | 1,530,818 |
|
| 1,408,243 |
| ||
Commitments and contingencies |
|
|
| ||||
Equity: |
|
|
| ||||
Common stock, $1 per share par value, 500,000,000 shares authorized, 191,935,647 and 195,403,644 shares issued, respectively, and 186,614,747 and 189,405,244 shares outstanding, respectively | 186,615 |
|
| 189,405 |
| ||
Capital in excess of par value | 970,468 |
|
| 990,203 |
| ||
Retained earnings (accumulated deficit) | 210,364 |
|
| (103,387) |
| ||
Accumulated other comprehensive income | 41,943 |
|
| 16,492 |
| ||
Total common stockholders' equity | 1,409,390 |
|
| 1,092,713 |
| ||
Noncontrolling interests | 47 |
|
| 2,534 |
| ||
Total equity | 1,409,437 |
|
| 1,095,247 |
| ||
Total liabilities and equity | $ | 12,864,503 |
|
| $ | 12,038,149 |
|
SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF CASH FLOWS | |||||||
| Years Ended December 31, | ||||||
| 2017 |
| 2016 | ||||
| (In thousands) | ||||||
Cash flows from operating activities: |
|
|
| ||||
Net income | $ | 546,847 |
|
| $ | 177,305 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
| ||||
Losses on early extinguishment of debt, net | 274 |
|
| 22,503 |
| ||
Premiums paid on early extinguishment of debt | — |
|
| (20,524) |
| ||
Depreciation and amortization | 153,141 |
|
| 147,233 |
| ||
Amortization of intangibles | 27,650 |
|
| 30,956 |
| ||
Amortization of cemetery property | 68,102 |
|
| 66,745 |
| ||
Amortization of loan costs | 5,859 |
|
| 5,826 |
| ||
Provision for doubtful accounts | 9,980 |
|
| 10,776 |
| ||
(Benefit) provision for deferred income taxes | (317,838) |
|
| 7,490 |
| ||
(Gains) losses on divestitures and impairment charges, net | (7,015) |
|
| 26,819 |
| ||
Share-based compensation | 14,788 |
|
| 14,056 |
| ||
Excess tax benefits from share-based awards | — |
|
| (12,685) |
| ||
Change in assets and liabilities, net of effects from acquisitions and dispositions: |
|
|
| ||||
Increase in receivables | (9,740) |
|
| (14,198) |
| ||
(Increase) decrease in other assets | (15,385) |
|
| 17,855 |
| ||
Increase in payables and other liabilities | 81,763 |
|
| 47,888 |
| ||
Effect of preneed sales production and maturities: |
|
|
| ||||
Increase in preneed receivables, net and trust investments | (63,994) |
|
| (73,394) |
| ||
Increase in deferred revenue | 31,182 |
|
| 34,775 |
| ||
Decrease in deferred receipts held in trust | (23,274) |
|
| (25,831) |
| ||
Net cash provided by operating activities | 502,340 |
|
| 463,595 |
| ||
Cash flows from investing activities: |
|
|
| ||||
Capital expenditures | (214,501) |
|
| (193,446) |
| ||
Acquisitions, net of cash acquired (excluding $26.2 million and $3.7 million of 1031 exchange funds, respectively) | (49,988) |
|
| (69,146) |
| ||
Proceeds from divestitures and sales of property and equipment | 28,429 |
|
| 41,310 |
| ||
Net withdrawals of restricted funds and other | 175 |
|
| 5,150 |
| ||
Net cash used in investing activities | (235,885) |
|
| (216,132) |
| ||
Cash flows from financing activities: |
|
|
| ||||
Proceeds from issuance of long-term debt | 1,787,500 |
|
| 1,060,000 |
| ||
Debt issuance costs | (12,939) |
|
| (5,232) |
| ||
Scheduled payments of debt | (468,973) |
|
| (36,414) |
| ||
Early payments of debt | (1,117,512) |
|
| (875,110) |
| ||
Principal payments on capital leases | (51,106) |
|
| (33,119) |
| ||
Proceeds from exercise of stock options | 33,611 |
|
| 17,662 |
| ||
Excess tax benefits from share-based awards | — |
|
| 12,685 |
| ||
Purchase of Company common stock | (199,637) |
|
| (227,928) |
| ||
Payments of dividends | (108,750) |
|
| (98,418) |
| ||
Purchase of noncontrolling interest | (4,580) |
|
| (1,961) |
| ||
Bank overdrafts and other | 5,959 |
|
| (1,095) |
| ||
Net cash used in financing activities | (136,427) |
|
| (188,930) |
| ||
Effect of foreign currency | 5,025 |
|
| 1,854 |
| ||
Net increase in cash and cash equivalents | 135,053 |
|
| 60,387 |
| ||
Cash and cash equivalents at beginning of period | 194,986 |
|
| 134,599 |
| ||
Cash and cash equivalents at end of period | $ | 330,039 |
|
| $ | 194,986 |
|