-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qv+ypOQcwHpMWz5eYY/DHn1YxHG1ngHKPD9Q9tR4tQbrbxJq5QoetULjtXFyDMcp NseCdXS3BfoDqlSE3NtuAg== 0001275287-05-001143.txt : 20050401 0001275287-05-001143.hdr.sgml : 20050401 20050401102613 ACCESSION NUMBER: 0001275287-05-001143 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050401 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Regulation FD Disclosure ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050401 DATE AS OF CHANGE: 20050401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SERVICE CORPORATION INTERNATIONAL CENTRAL INDEX KEY: 0000089089 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200] IRS NUMBER: 741488375 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06402 FILM NUMBER: 05723276 BUSINESS ADDRESS: STREET 1: 1929 ALLEN PKWY STREET 2: P O BOX 130548 CITY: HOUSTON STATE: TX ZIP: 77019 BUSINESS PHONE: 7135225141 MAIL ADDRESS: STREET 1: P O BOX 130548 CITY: HOUSTON STATE: TX ZIP: 77219-0548 8-K 1 sc2357.txt ================================================================================ 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) April 1, 2005 Service Corporation International ------------------------------------------------------ (Exact name of registrant as specified in its charter) Texas 1-6402-1 74-1488375 ---------------------------- ----------- ------------------- (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) 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)) ================================================================================ ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION On April 1, 2005, Service Corporation International issued a press release reporting its financial results for the fourth quarter and year-end of 2004. 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 7.01 REGULATION FD DISCLOSURE On April 1, 2005, Service Corporation International issued a press release disclosing its financial outlook for 2005. A copy of this press release is attached as Exhibit 99.2 to this report and is incorporated herein by reference. The attached Exhibit 99.2 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 (c) The following exhibits are included with this report EXHIBIT NO. DESCRIPTION ----------- ------------------------------------------------ 99.1 Press Release, dated April 1, 2005 reporting 2004 financial results 99.2 Press Release, dated April 1, 2005 disclosing 2005 outlook 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. April 1, 2005 Service Corporation International By: /s/ Eric D. Tanzberger -------------------------- Eric D. Tanzberger Vice President and Corporate Controller EX-99.1 2 sc2357ex991.txt Exhibit 99.1 SERVICE CORPORATION INTERNATIONAL REPORTS FISCAL YEAR 2004 EARNINGS OF $.35 PER DILUTED SHARE; RESTATES FINANCIAL RESULTS FOR FIRST THREE QUARTERS OF 2004 HOUSTON, April 1 /PRNewswire-FirstCall/ -- Service Corporation International (NYSE: SCI), the world's largest funeral and cemetery company, today reported net income for the fourth quarter 2004 of $25.9 million or $.08 per diluted share compared to net income of $30.4 million or $.10 per diluted share in the same period of 2003. Net income for fiscal 2004 was $113.7 million or $.35 per diluted share compared to net income of $85.1 million or $.28 per diluted share in the same period of 2003. We have restated our results for the first three quarters of 2004 related to non-cash adjustments primarily made as a result of ongoing projects to verify our trust assets and preneed backlog records. Although the restatement had a material impact in the first three quarterly periods of 2004, the net effect of the restatement reduced 2004 pretax income by less than $500,000 and had no impact on cash balances or cash flow. For a discussion of this restatement, see "Restatement of First Three Interim Periods of 2004" later in this press release. SCI's fourth quarter 2004 diluted earnings from continuing operations excluding special items were $23.4 million or $.07 per share. This compares to $38.0 million or $.12 per diluted share in the fourth quarter of 2003. Diluted earnings from continuing operations excluding special items in fiscal 2004 were $104.1 million or $.32 per share compared to $113.7 million or $.38 per share in 2003. Diluted earnings from continuing operations excluding special items is a non-GAAP financial measure. See a reconciliation to GAAP measures included in a separate section later in this press release. Diluted earnings from continuing operations excluding special items in 2004 reflect our ownership of funeral operations in France through March 11, 2004 when we successfully completed a sale of these businesses. These operations in France contributed $8.1 million or $.02 of earnings per share for our partial period of ownership in 2004, compared to $42.9 million or $.14 per share in the full year of 2003. Earnings in 2004 benefited from improvements in North America operations due to reductions in overhead costs and pension expenses, lower interest expense, and reduced general and administrative expenses due to the elimination of accelerated system amortization expenses, all of which are described in more detail later in this press release. Free cash flow was $205.8 million in fiscal 2004 compared to $220.0 million in 2003 and was within management's guidance of $200 to $245 million for the year. Decreases in free cash flow associated with the replacement of bonding with trust funding for new preneed sales in Florida, an extra cash payroll payment, and working capital increases were partially offset by an improved North America performance and reductions in interest and tax payments. Free cash flow is a non-GAAP financial measure. See our definition and calculation of free cash flow included in a separate section later in this press release. At December 31, 2004, total debt was $1.25 billion and cash on hand was $287.8 million. Total debt less cash and cash equivalents decreased by $496.3 million or 34% since December 31, 2003. This reduction is a result of strong operating cash flows and a successful asset divestiture and joint venture program that produced approximately $386 million of net cash proceeds. Our financing activities during the year further reduced our future interest payments, extended our maturities and increased our financial flexibility, continuing the progress we have made in improving our financial condition. We currently expect to report total debt and cash and cash equivalents at March 31, 2005 of approximately $1,245 million and $310 million, respectively. During the first quarter of 2005, we completed the sale of our businesses in Argentina and Uruguay for $21.6 million of net cash proceeds. These businesses were previously held as discontinued operations in 2004. No material gain or loss is expected as a result of this transaction as the asset values were adjusted to fair market value at December 31, 2004. Also, during the first quarter of 2005 we received a cash tax refund of $29.0 million resulting from certain federal tax carry-back losses. Commenting on 2004 results Tom Ryan, Chief Executive Officer and President said, "2004 was a year of considerable achievement for SCI. We demonstrated significant improvement in North American operating results, continued debt reduction and healthy cash flow. We also successfully completed the joint venture of our funeral operations in France and resolved key litigation matters. These favorable results in 2004 were followed by our announcement in February 2005 to initiate a quarterly cash dividend and to increase our existing $200 million share repurchase program by another $100 million. Our quarterly dividend of two and one-half cents per share will be paid on April 29, 2005 to holders of record at the close of business on April 15, 2005. As of today, we have repurchased 31.4 million shares at a total cost of $214 million or $6.82 per share under our share repurchase programs initiated in August 2004. " "Looking ahead, we believe many of the programs we have put in place in recent years have positioned us well for 2005. We remain focused on managing our costs, executing strategies centered on our national brand, developing our employees, and enhancing customer value. We will continue to concentrate on delivering shareholder value through the best use of our substantial free cash flow and our strong liquidity. In addition to paying a quarterly cash dividend and repurchasing our common stock, we intend to use our cash flow in 2005 to invest in our existing businesses and in growth opportunities." Restatement of First Three Interim Periods of 2004 We have restated our results for the first three quarters of 2004 related to adjustments made as a result of certain verifications of our funeral and cemetery trust assets and funeral deferred revenues, deferred preneed cemetery contract revenues, operating leases and other various verification projects. A complete discussion of these adjustments is contained in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K filed yesterday. This document can be obtained on our website at http://www.sci-corp.com. The net effect of the restatement decreases formerly reported pretax income in the first three quarters of 2004 by $0.3 million on a combined basis. Additionally, the restatement did not have an impact on previously reported or current cash balances or cash flows. Management, in consultation with the Audit Committee, concluded on March 30, 2005, that the previously issued financial statements for the quarters ended March 31, 2004, June 30, 2004, and September 30, 2004, should no longer be relied upon. The Company and the Audit Committee have discussed with its independent accountants the matters affecting the restatement. The effect of the restatement on our previously reported consolidated statement of operations by category for the first three interim periods of 2004 and the cumulative adjustment for the years prior to January 1, 2004 is as follows. In thousands
Pre-2004(a) Q1 2004 Q2 2004 Q3 2004 Total ------------ ------------ ------------ ------------ ------------ Increase (decrease) to previously reported pretax income Effect of trust verifications $ (15,256) $ (3,403) $ 409 $ -- $ (18,250) Cemetery deferred revenue adjustments and out of quarter analysis 20,796 2,184 905 3,933 27,818 Effect of operating lease adjustments (3,778) (32) (33) (39) (3,882) Effect of other verification matters (1,346) 5,197 (7,731) (2,069) (5,949) ------------ ------------ ------------ ------------ ------------ Total $ 416 $ 3,946 $ (6,450) $ 1,825 $ (263) ============ ============ ============ ============ ============
(a) This represents the cumulative adjustment related to periods prior to January 1, 2004 which we have recorded in our restated March 31, 2004 consolidated financial statements. The effect of the restatement of our previously reported unaudited consolidated statement of operations for the periods described above is included in the following table. Additionally, we concluded that the impact of these adjustments to the periods prior to January 1, 2004 were not material to our consolidated financial statements. As a result, we have recorded the net impact of the adjustments of approximately $416,000 as a correction of an error in Other operating expenses in the consolidated statements of operations within the first quarter of 2004. (Dollars in millions, except per share amounts)
Quarter ended Quarter ended Quarter ended March 31, June 30, September 30, 2004 2004 2004 --------------------------- --------------------------- --------------------------- As As As As As As Reported Restated Reported Restated Reported Restated ------------ ------------ ------------ ------------ ------------ ------------ Selected consolidated statement of operations data: Revenues $ 586.1 $ 589.4 $ 432.1 $ 432.1 $ 403.4 $ 404.6 Costs and expenses $ 473.0 $ 473.1 $ 358.7 $ 359.1 $ 335.1 $ 334.5 Gross profits $ 113.1 $ 116.3 $ 73.4 $ 73.0 $ 68.3 $ 70.1 Operating income $ 97.7 $ 100.5 $ 57.0 $ 50.5 $ 39.7 $ 41.5 Income from continuing operations before income taxes and cumulative effects of accounting changes $ 71.4 $ 74.3 $ 7.9 $ 1.4 $ 16.4 $ 18.2 Benefit (provision) for income taxes $ 4.4 $ 3.4 $ 4.2 $ 7.0 $ (4.1) $ (4.7) Cumulative effects of accounting changes (net of income taxes) $ (48.1) $ (47.1) $ -- $ -- $ -- $ -- Net income $ 28.5 $ 31.3 $ 46.4 $ 42.8 $ 12.6 $ 13.7 Basic and diluted earnings per share: Income from continuing operations before cumulative effects of accounting changes $ .09 $ .10 $ .15 $ .14 $ .04 $ .04 Net income $ .09 $ .10 $ .15 $ .14 $ .04 $ .04
North America Comparable Operating Results We regard comparable results of operations as analogous to our "same store" results of operations. For purposes of the following presentation, we consider comparable operations as operations that were not acquired or constructed after January 1, 2003 or divested prior to December 31, 2004. Therefore, in the following presentation, we are providing results of operations for the same funeral and cemetery locations in each of the periods presented. In millions, except funeral services performed, average revenue per funeral service, and gross margin percentage
Three Months Ended Twelve Months Ended December 31, December 31, --------------------------- --------------------------- 2004 2003 2004 2003 ------------ ------------ ------------ ------------ FUNERAL Funeral atneed revenue $ 180.5 $ 195.3 $ 721.8 $ 743.6 Funeral recognized preneed revenue 85.5 81.4 352.8 327.9 General agency revenue (1) 5.5 3.4 28.9 27.6 Kenyon revenue (2) 0.4 3.7 3.4 11.9 ------------ ------------ ------------ ------------ Total Funeral Revenues $ 271.9 $ 283.8 $ 1,106.9 $ 1,111.0 Funeral Gross Profits $ 44.2 $ 52.6 $ 215.5 $ 212.3 Gross Margin Percentage 16.3% 18.5% 19.5% 19.1% Total funeral services performed 62,511 66,784 252,232 257,591 Average revenue per funeral service (3) $ 4,255 $ 4,143 $ 4,260 $ 4,159 CEMETERY Cemetery atneed revenue $ 43.4 $ 41.9 $ 175.7 $ 157.4 Cemetery recognized preneed revenue 80.2 72.6 305.8 312.0 Trust income 12.5 9.5 39.7 38.1 Other revenue (4) 11.6 11.7 43.3 43.4 ------------ ------------ ------------ ------------ Total Cemetery Revenues $ 147.7 $ 135.7 $ 564.5 $ 550.9 Gross Profits $ 32.4 $ 12.4 $ 105.7 $ 74.8 Gross Margin Percentage 21.9% 9.1% 18.7% 13.6%
(1) General Agency ("GA") revenues are commissions we receive from third- party insurance companies when customers purchase insurance contracts from such third-party insurance companies to fund funeral services and merchandise at a future date. (2) Kenyon International Emergency Services ("Kenyon") is our disaster response subsidiary that engages in mass fatality and emergency response services. Revenues and gross profits associated with Kenyon are subject to significant variation due to the nature of their operations. (3) Average revenue per funeral service is calculated as total funeral revenues (less GA revenue and Kenyon revenue) divided by total funeral services performed. In the calculation of average revenue per funeral service, GA revenue and Kenyon revenue are excluded from total funeral revenues to avoid distorting our averages of normal funeral case volume. (4) Other cemetery revenue is primarily related to interest and finance charges earned on preneed installments contracts. In 2004, comparable North America operations represented approximately 90% of consolidated revenues and approximately 96% of consolidated gross profits. The following discussion of results of operations pertains to comparable North America operations only. Fourth Quarter 2004 * Funeral gross profits declined $8.4 million to $44.2 million. - Funeral revenues were down $11.9 million predominantly due to a 6.4% decrease in total funeral services performed. Also contributing to the decline was a reduction in Kenyon revenues of $3.3 million, which was somewhat offset by a $2.1 million increase in GA revenues. - The funeral gross profit decline is primarily the result of lower revenues discussed above partially offset by reduced overhead and pension expenses. The funeral gross margin percentage was 16.3% compared to 18.5% in the prior period. - The average revenue per funeral service grew 2.7%. We continue to see a strong positive trend in average revenue, particularly with the funeral contracts we are servicing from our preneed backlog. The fourth quarter of 2004 represents the eighteenth consecutive quarter that we have reported an increase in our average revenue per funeral service. - The cremation rate increased to 39.6% versus 38.9% in the same period of 2003. * Cemetery gross profits more than doubled, increasing $20.0 million to $32.4 million. - Cemetery revenue increased $12.0 million or 8.8% primarily due to increased recognition of property that was sold in 2004 and constructed during the fourth quarter of 2004. This is mainly attributable to the success of our focus on developing and selling high end cemetery property such as private family estates. We also experienced increased atneed sales of property and merchandise delivered and higher income from our preneed merchandise and services trust fund. - Cemetery gross profits increased 161% from the prior period and benefited from an increase in revenues and reductions in overhead and maintenance costs. Cemetery gross margins climbed to 21.9% from 9.1%. Fiscal Year 2004 Highlights * Funeral - Funeral revenues declined $4.1 million or less than 1% from the prior year primarily due to an $8.5 million decrease in revenues from Kenyon and a decline in funeral volume, which was partially offset by an increase in the average revenue per funeral service and a $1.3 million increase in GA revenue. Kenyon revenues were higher in 2003 than in 2004 primarily due to activity associated with the World Trade Center disaster. - An increase of 2.4% in the average revenue per funeral service helped to offset a 2.1% decline in the number of funeral services performed. We achieved an increase in average revenue per funeral service mainly due to an expansion in our product and service offerings which helped to overcome a 100 basis point increase in the rate of cremation. The cremation rate grew to 40.0% in 2004 from 39.0% in 2003. - Despite a decline in revenues, funeral gross profits improved 1.5% mainly as a result of reduced overhead and pension expenses, which were partially offset by declines in Kenyon revenue described above. The funeral gross margin percentage improved to 19.5% compared to 19.1% in the prior year and was just below our guidance range for 2004 of 20% to 24%. * Cemetery - Total cemetery revenues increased $13.5 million or 2.5% from the prior year to $564.5 million. This exceeded our original expectations and was primarily a result of an increase in revenues associated with new development projects (particularly private family estates) that were sold and constructed during 2004. - Cemetery gross profits increased 41.3% or $30.9 million and benefited from an increase in revenues and reductions in overhead costs and maintenance expenses. The cemetery gross margin percentage grew to 18.7% from 13.6% in the prior year and exceeded our guidance range for 2004 of 13% to 17%. Overhead and Pension Expenses The improvement in funeral and cemetery gross profits in 2004 compared to 2003 is largely a result of a reduction in overhead expenses and pension expenses. Overhead expenses from our field management and support offices and our home offices are allocated to funeral and cemetery operations in North America. These overhead expenses were reduced by $12.7 million or 33.4% in the fourth quarter and $40.1 million or 26.3% in fiscal 2004 compared to 2003. Beginning in late 2002 and continuing through 2003, we moved to reduce our fixed costs by reformulating our infrastructure. We redesigned our sales organization, improved business and financial processes, and outsourced certain of our accounting functions. In 2003 and continuing through 2004, we implemented a new information system in our field locations. In late 2003, we eliminated the dual management structures of sales and operations and replaced them with a single-line business management structure. In addition to reducing costs, this new structure now has our strongest business managers focused on producing favorable financial results in each of our markets. Pension income and expense, of which a portion is included in funeral and cemetery expenses and a portion in general and administrative expenses, is related to our frozen cash balance pension plan and our supplemental retirement plans for certain current and former employees. We recognized net pension income of $0.3 million in 2004 compared to net pension expense of $17.6 million in 2003. This difference arises primarily because we used different accounting methods in determining pension expense in each year. Effective January 1, 2004, we changed the accounting for gains and losses on our pension plan assets and obligations to recognize such gains and losses as they are incurred. Prior to January 1, 2004, we amortized the difference between actual and expected investment returns and actuarial gains and losses over seven years. We believe the new method of accounting better reflects the economic nature of our pension plans and recognizes gains and losses on the pension plan assets and liabilities in the year the gains or losses occur. Other Consolidated Results * General and administrative expenses declined $37.1 million in the fourth quarter of 2004 and declined $47.2 million in fiscal 2004 compared to 2003. - The decline of $37.1 million in the fourth quarter of 2004 was due primarily to a $35.4 million decrease in expenses associated with the settlement of certain litigation matters. In the fourth quarter of 2004, we recognized expenses of $12.8 million related to the settlement of the T. Rowe Price lawsuit compared to expenses of $48.2 million in 2003 related to the class-action settlement in Florida. - The decline of $47.2 million in fiscal 2004 is mainly due to a $34.1 million decrease in litigation related expenses and a $13.8 million decrease in amortization expenses. In 2004, we recognized litigation expenses (net of insurance recoveries) of $61.1 million compared to $95.2 million in 2003. Additionally, in 2003 we recognized $13.8 million of accelerated system amortization expense that is not included in 2004. During the year we experienced approximately $6 million of increased costs associated with Sarbanes-Oxley compliance efforts that were offset by reductions in information technology and other expenses. * Gains and impairment (losses) on dispositions, net was a net pretax loss of $7.4 million in the fourth quarter of 2004 primarily associated with certain dispositions in North America. For the full year 2004, we recognized a net pretax gain of $25.6 million consisting of gains from the sale of our equity and debt holdings in our former United Kingdom company and the joint venture of our French funeral operations, partially offset by net losses associated with certain dispositions in North America. We recognized a net pretax gain of $44.0 million in the fourth quarter of 2003 and $49.4 million in the full year 2003 primarily related to the sale of our equity holdings in our former operations in Australia and Spain. * Interest expense was $10.2 million lower in the fourth quarter of 2004 compared to the third quarter of 2003. For the year, interest expense declined $20.4 million or 14.7% to $118.2 million. Interest expense reported in 2004 and 2003 reflects a reclassification of surety bond premium costs from interest expense to other expense to better reflect the nature of the expense. Surety bond premium costs were $4.0 million in 2004 compared to $4.1 million in 2003. During the year we continued to reduce our debt and improve our financial condition. In addition to paying 2004 scheduled maturities in April and December, debt was reduced due to the redemption in June 2004 of our convertible notes originally due 2008, and the successful tender offer in April 2004 of our notes originally due 2005, partially offset by the issuance of new notes due 2016. * Other income was $3.4 million in the fourth quarter of 2004 compared to $10.8 in 2003. In fiscal 2004, other income was $16.1 million compared to $24.3 million in 2003. The components of other income for the years 2004 and 2003 were as follows: - Interest income was $13.5 million in fiscal 2004 compared to $14.4 million in 2003. - Cash overrides received from a third party insurance provider related to the sale of insurance funded preneed funeral contracts were $6.3 million in 2004 compared to $5.6 million in 2003. - In 2004 we recognized a $2.8 million foreign currency transactional loss associated with the payment of a contingent purchase obligation in Chile. - Surety bond premium costs were $4.0 million in 2004 compared to $4.1 million in 2003. - The remaining income of $3.1 million in 2004 and $8.4 million in 2003 is primarily related to net gains from foreign currency transactions. * We recognized other operating income of $0.4 million in fiscal 2004 for various adjustments made related to prior periods as a result of our verification projects and lease accounting issues described earlier. In 2003, we recognized other operating expenses of $9.0 million primarily related to severance costs. * The consolidated effective tax rate in 2004 was a benefit of 5.6% compared to an expense of 25.8% in 2003 and was favorably impacted by tax benefits realized from certain international dispositions, and tax benefits resulting from a change in estimated 2003 federal tax liabilities and state net operating losses. The effective tax rate for diluted earnings from continuing operations excluding special items was approximately 35% in 2004 compared to approximately 30% in 2003. In 2005, we expect the tax rate for continuing operations to be approximately 35%. * The diluted weighted average number of shares increased by approximately 44 million shares in fiscal 2004 compared to 2003. This is mainly due to the conversion in June 2004 of our convertible senior notes which resulted in the issuance of approximately 32 million shares which were anti-dilutive in 2003. The remaining share increase is related to dilutive outstanding stock options and the contribution of common stock to our 401(k) retirement plan, which was partially offset by share repurchases. In 2005, we intend to reduce the number of shares outstanding through our previously announced share repurchase programs as discussed in more detail below. Effective January 1, 2005, we also began contributing the employer match to our 401(k) plan solely in cash rather than newly issued shares of SCI common stock. Share Repurchase Program In February 2005, we announced the authorization of $100 million to repurchase our common stock, which was in addition to the $200 million existing share repurchase programs previously announced in August and November of 2004. As of March 30, 2005, we had repurchased 31.4 million shares at a total cost of $213.8 million under these programs. As of March 31, 2005, the remaining dollar value of shares that may be purchased under our share repurchase programs is approximately $86 million. We have made and intend to make purchases from time to time in the open market or through privately negotiated transactions, subject to acceptable market conditions and normal trading restrictions. There can be no assurance that we will buy our common stock under our share repurchase programs. Important factors that could cause us not to repurchase our shares include, among others, unfavorable market conditions, the market price of our common stock, the nature of other investment opportunities presented to us from time to time, and the availability of funds necessary to continue purchasing common stock. Accounting Matters We are in discussions with the Staff of the Securities and Exchange Commission related to our accounting policies for preneed deferred selling costs. Similar to the accounting practices of certain other participants in the deathcare industry, we currently defer selling costs that vary with and are primarily related to the production of deferred revenues associated with preneed funeral trust contracts and preneed cemetery contracts. Other preneed selling costs are expensed in the period incurred. Deferred selling costs are included in Deferred charges and other assets in our balance sheet. We have concluded that these selling costs should be expensed in the period incurred rather than deferred. We will incur a non-cash pretax charge of approximately $312 million representing the write-off of deferred selling costs recorded on our balance sheet as of January 1, 2005. Additionally, if we had expensed these selling costs in 2004, our pretax income in 2004 would have been reduced by approximately $14 million. A change in the treatment of deferred preneed selling costs would have no impact on our cash position or cash flow. Non-GAAP Financial Measures Free Cash Flow Free cash flow is a non-GAAP financial measure. We define free cash flow as cash flows from operating activities (excluding certain special items such as any possible payments that could be made associated with the settlement of litigation matters or related insurance recoveries, any potential tax refunds, or potential contributions to our frozen cash balance pension plan) less capital improvements at our existing facilities. Free cash flow is not reduced by mandatory debt service requirements or by capital expenditures intended to grow revenues and profits such as the acquisition of funeral service locations or cemeteries in large or strategic North America markets, construction of high-end cemetery property (such as private family estates) or the construction of funeral home facilities on SCI-owned cemeteries, and the investment in contemporary merchandising displays in our funeral homes. Growth-oriented capital spending was $31.5 million in 2004 compared to $28.8 million in 2003. We believe that free cash flow provides useful information to investors regarding our financial condition and liquidity as well as our ability to generate cash for purposes such as reducing debt, expanding through strategic investments and repurchasing stock or paying dividends. While we believe free cash flow, as defined, is helpful in managing our business and provides useful information to investors, certain events may arise, financial or otherwise, which could require the use of free cash flow so that it would not be available for the purposes described above, as more fully described in our public filings with the Securities and Exchange Commission. Furthermore, free cash flow should be reviewed in addition to, but not as a substitute for, the data provided in our consolidated statement of cash flows. The following table provides a reconciliation between cash flows from operations and free cash flow, as defined. (In millions)
Three Months Ended Twelve Months Ended December 31, December 31, --------------------------- --------------------------- 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Cash flows from operations $ (75.4) $ 70.5 $ 107.8 $ 374.1 Less: Unusual tax refund -- -- -- (94.5) Add: Settlement of significant legal matters, net of insurance recoveries 131.8 2.0 131.1 27.1 Add: Repayment of insurance policy loan from retirement program -- -- 11.4 -- Add: Frozen cash balance pension plan contribution -- -- 20.0 -- ------------ ------------ ------------ ------------ Adjusted cash flows from operations $ 56.4 $ 72.5 $ 270.3 $ 306.7 Less: Capital improvements at existing facilities (17.4) (24.3) (64.5) (86.7) ------------ ------------ ------------ ------------ Free cash flow $ 39.0 $ 48.2 $ 205.8 $ 220.0 ============ ============ ============ ============
* Free cash flow in the fourth quarter of 2004 declined $9.2 million. - In February 2004, we began trusting monies associated with new preneed contracts in Florida in lieu of surety bonding which resulted in a reduction to free cash flow of $3.5 million. Net deposits to preneed funeral and cemetery trusts for new sales in Florida were $3.5 million in the fourth quarter of 2004. No trust deposits were made for new Florida sales in 2003, as we used surety bonding for those sales. - In 2004, we incurred an extra bi-weekly cash payroll payment of $19.2 million during the fourth quarter of 2004 that did not occur in 2003. We also experienced an increase in working capital primarily associated with a decrease in accounts receivable collections. - Free cash flow in 2003 benefited from $2.2 million of free cash flow associated with our former French company (which was sold in March 2004), consisting of $6.8 million of cash flow from operating activities less $4.6 million of capital improvement spending. - Partially offsetting the declines in free cash flow described above were reductions in interest payments of $16.0 million and decreased tax payments of $2.2 million. * Free cash flow in fiscal 2004 declined $14.2 million. - Free cash flow was reduced by $15.4 million as a result of our change to trust funding from surety bonding in Florida. Net deposits to preneed funeral and cemetery trusts for new sales in Florida were $15.4 million in 2004 compared to no trust deposits in 2003. - We experienced an increase in cash flows from working capital in 2004 primarily associated with a decrease in accounts receivable collections. We also incurred an extra cash payroll payment of $19.2 million during 2004. This extra bi-weekly payroll payment occurs every eleven years and is not expected to occur again until the year 2015. - Free cash flow from our former French operations was $15.5 million for the partial period of our ownership in 2004 compared to $8.6 million for the full year of 2003. Cash flow from operating activities associated with these French operations was $18.3 million compared to $33.0 million for the full year 2003. Capital improvements related to our French business were $2.8 million in the partial period of 2004 compared to $24.4 million in 2003. - Partially offsetting the declines in free cash flow described above were reductions in interest payments of $26.0 million, and decreased tax payments of $5.8 million. Diluted Earnings from Continuing Operations Excluding Special Items Diluted earnings from continuing operations excluding special items is a non-GAAP financial measure. We believe this non-GAAP measure provides a consistent basis for comparison between periods and better reflects the performance of our core operations, as it is not influenced by certain non-recurring income and expenses. We also believe this measure helps facilitate comparisons to competitors' operating results. Set forth below is a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures. We do not intend for the information to be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.
Three Months Ended --------------------------------------------------------------------------------------- December 31, 2004 December 31, 2003 ------------------------------------------ ------------------------------------------ (In millions, except diluted EPS and diluted Operating Net Diluted Operating Net Diluted weighted average shares) Income Income EPS Income Income EPS - ----------------------- ------------ ------------ ------------ ------------ ------------ ------------ As Reported $ 37.1 $ 25.9 $ .08 $ 52.5 $ 30.4 $ .10 Settlement of significant legal matters 12.8 7.8 .02 48.2 31.9 .09 Gains and impairment losses on dispositions 7.4 5.9 .02 (44.0) (29.1) (.08) Other operating income/expense -- -- -- 7.3 4.8 .01 Loss/gain on early extinguishment of debt -- -- -- -- 0.5 .00 Income tax benefit from state net operating losses -- (7.9) (.02) -- -- -- Discontinued operations -- (8.3) (.03) -- (0.5) (.00) ------------ ------------ ------------ ------------ ------------ ------------ Diluted earnings from continuing operations excluding special items $ 57.3 $ 23.4 $ .07 $ 64.0 $ 38.0 $ .12 Diluted weighted average shares 332,366 348,804 Interest add back $ -- $ 4.0
Twelve Months Ended --------------------------------------------------------------------------------------- December 31, 2004 December 31, 2003 ------------------------------------------ ------------------------------------------ (In millions, except diluted EPS and diluted Operating Net Diluted Operating Net Diluted weighted average shares) Income Income EPS Income Income EPS - ----------------------- ------------ ------------ ------------ ------------ ------------ ------------ As Reported $ 229.6 $ 113.7 $ .35 $ 224.3 $ 85.1 $ .28 Settlement of significant legal matters 61.1 38.7 .11 95.2 61.0 .21 Gains and impairment losses on dispositions (25.6) (53.6) (.16) (49.4) (32.5) (.11) Other operating income/expense (0.4) (0.2) (.00) 9.0 5.9 .02 Loss/gain on early extinguishment of debt -- 10.5 .03 -- (0.7) (.00) Other income/expense Interest income- United Kingdom note receivable -- (2.7) (.01) -- -- -- Net gain on corporate investments -- -- -- -- (2.6) (.01) Foreign currency transaction loss -- 2.3 .01 -- -- -- Income tax benefit from state net operating losses -- (7.9) (.02) -- -- -- Discontinued operations -- (43.8) (.13) -- (2.5) (.01) Cumulative effect of accounting changes -- 47.1 .14 -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Diluted earnings from continuing operations excluding special items $ 264.7 $ 104.1 $ .32 $ 279.1 $ 113.7 $ .38 Diluted weighted average shares 344,675 300,790 Interest add back $ 6.4 $ --
Conference Call and Webcast Management will host a conference call on Friday, April 1, 2005, at 10:00 a.m. Central time. A question and answer session will follow a brief presentation made by management. The conference call dial-in number is (913) 981-4910. The conference call will also be broadcast live via the Internet and can be accessed through our website at http://www.sci-corp.com. A replay of the conference call will be available through April 14, 2005 and can be accessed at (719) 457-0820 with the confirmation code of 9631604. Additionally, a replay of the conference call will be available on our website for approximately ninety days on the Investors page under the subheading "Conference Calls" at http://www.sci-corp.com/ConfCalls.html. This earnings release will also be available on our website on the Investor Relations page under the subheading "News" at http://www.sci-corp.com/InvestorsMenu.html. Annual Shareholders' Meeting SCI will hold its annual meeting of shareholders on May 12, 2005, at 10:00 a.m. Central time. The meeting will take place in the auditorium of the American Funeral Service Training Center located at 415 Barren Springs Drive in Houston, Texas. 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: * Changes in general economic conditions, both domestically and internationally, impacting financial markets (e.g., marketable security values, as well as currency and interest rate fluctuations) that could negatively affect us, particularly, but not limited to, levels of trust fund income, interest expense, pension expense and negative currency translation effects. * Our inability to certify the effectiveness of our internal controls over financial reporting and an adverse attestation report from our auditors, and our ability to successfully remediate in 2005 any identified deficiencies in our internal controls. * The outcomes of pending lawsuits and proceedings against us described more fully in our Securities and Exchange Commission filings. * We maintain accruals for tax liabilities which relate to uncertain tax matters. If these tax matters are unfavorably resolved, we will make any required payments to tax authorities. If these tax matters are favorably resolved, the accruals maintained by us will no longer be required and the removal of such accruals will be recognized through our consolidated tax provision at the time of resolution. * The outcome of a pending Internal Revenue Service audit and future tax deductions resulting from potential asset sales. * Our ability to successfully implement our strategic plan related to producing operating improvements and strong cash flows. * Our ability to successfully implement our plan to reduce costs and increase cash flows associated with significant changes being made to our organization structure, process and quality of our sales efforts. * Changes to net income as a result of our ongoing reconciliation processes regarding our trust assets and preneed backlogs. * Consequences of the restatement of our financial results for the first three quarters of 2004. * Outcome of discussions with the SEC related to our accounting policies for preneed deferred selling costs. * Changes in consumer demand and/or pricing for our products and services due to several factors, such as changes in numbers of deaths, cremation rates, competitive pressures and local economic conditions. * Changes in domestic and international political and/or regulatory environments in which we operate, including potential changes in tax, accounting and trusting policies. * Changes in credit relationships impacting the availability of credit and the general availability of credit in the marketplace. * Our ability to successfully complete our ongoing process improvement and system implementation projects, including the replacement of our North America point-of-sale information technology systems. * Our ability to successfully access surety and insurance markets at a reasonable cost. * Our ability to successfully exploit our substantial purchasing power with certain of our vendors. For further information on these and other risks and uncertainties, see our Securities and Exchange Commission filings, including our 2004 Annual Report on Form 10-K. Copies of this document as well as other SEC filings can be obtained from our website at http://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. Service Corporation International (NYSE: SCI), headquartered in Houston, Texas, is the leading provider of funeral and cemetery services in the world. We have an extensive network of businesses including 1,190 funeral service locations and 390 cemeteries in North America as of December 31, 2004. For more information about Service Corporation International, please visit our website at http://www.sci-corp.com. For additional information contact: Investors: Debbie Young - Director / Investor Relations (713) 525-9088 Media: Terry Hemeyer - Managing Director / Corporate Communications (713) 525-5497 SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share amounts)
Three months ended Twelve months ended December 31, December 31, --------------------------- --------------------------- 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Revenues $ 433,226 $ 599,088 $ 1,859,308 $ 2,328,425 Costs and expenses (358,180) (515,659) (1,524,810) (1,966,460) ------------ ------------ ------------ ------------ Gross profit 75,046 83,429 334,498 361,965 ------------ ------------ ------------ ------------ General and administrative expenses (30,549) (67,651) (130,896) (178,105) Gains and impairment (losses) on dispositions, net (7,390) 43,953 25,628 49,366 Other operating (expense) income -- (7,280) 416 (9,004) ------------ ------------ ------------ ------------ Operating income 37,107 52,451 229,646 224,222 Interest expense (23,520) (33,739) (118,188) (138,625) (Loss) gain on early extinguishment of debt -- (763) (16,770) 1,315 Other income, net 3,352 10,798 16,110 24,307 ------------ ------------ ------------ ------------ Income from continuing operations before income taxes and cumulative effects of accounting changes 16,939 28,747 110,798 111,219 (Benefit) provision for income taxes (560) (1,149) (6,213) 28,666 ------------ ------------ ------------ ------------ Income from continuing operations before cumulative effects of accounting changes $ 17,499 $ 29,896 $ 117,011 $ 82,553 Income from discontinued operations (net of income tax) 8,387 524 43,762 2,529 Cumulative effects of accounting changes -- -- (47,074) -- ------------ ------------ ------------ ------------ Net income $ 25,886 $ 30,420 $ 113,699 $ 85,082 ============ ============ ============ ============ Basic earnings per share: Income from continuing operations before cumulative effects of accounting changes $ .05 $ .10 $ 37 $ .28 Income from discontinued operations, net of tax .03 .00 .14 .00 Cumulative effects of accounting changes, net of tax -- -- (.15) -- ------------ ------------ ------------ ------------ Net income $ .08 $ .10 $ .36 $ .28 ============ ============ ============ ============ Diluted earnings per share: Income from continuing operations before cumulative effects of accounting changes $ .05 $ .10 $ .36 $ .28 Income from discontinued operations, net of tax .03 .00 .13 .00 Cumulative effects of accounting changes, net of tax -- -- (.14) -- ------------ ------------ ------------ ------------ Net income $ .08 $ .10 $ .35 $ .28 ============ ============ ============ ============ Basic weighted average number of shares 328,342 301,523 318,737 299,801 ============ ============ ============ ============ Diluted weighted average number of shares 332,366 348,804 344,675 300,790 ============ ============ ============ ============
SERVICE CORPORATION INTERNATIONAL CONSOLIDATED BALANCE SHEET (In thousands, except share amounts)
December 31, --------------------------- 2004 2003 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 287,785 $ 239,431 Receivables, net 102,156 229,839 Inventories 81,526 136,807 Current assets of discontinued operations 11,085 6,101 Other 50,945 61,146 ------------ ------------ Total current assets 533,497 673,324 ------------ ------------ Preneed funeral receivables and trust investments 1,264,600 1,229,765 Preneed cemetery receivables and trust investments 1,402,750 1,083,035 Cemetery property, at cost 1,506,782 1,524,847 Property, plant and equipment, at cost, net 970,547 1,277,583 Non-current assets of discontinued operations 4,367 3,217 Deferred charges and other assets 618,565 738,011 Goodwill 1,169,040 1,195,422 Cemetery perpetual care trust investments 729,048 -- ------------ ------------ $ 8,199,196 $ 7,725,204 ============ ============ LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 221,877 $ 449,497 Current maturities of long-term debt 75,075 182,682 Current liabilities of discontinued operations 7,111 7,600 Income taxes 7,850 29,576 ------------ ------------ Total current liabilities 311,913 669,355 ------------ ------------ Long-term debt 1,178,885 1,519,189 Deferred preneed funeral revenues 486,191 1,612,347 Deferred preneed cemetery revenues 801,065 1,575,352 Deferred income taxes 279,474 418,375 Non-current liabilities of discontinued operations 58,225 53,930 Other liabilities 429,103 349,698 Non-controlling interest in funeral and cemetery trusts 2,095,852 -- Non-controlling interest in perpetual care trusts 704,912 -- Stockholders' equity: Common stock, $1 per share par value, 500,000,000 shares authorized, 323,225,352 and 302,039,871 issued and outstanding (net of 18,502,478 and 2,469,445 treasury shares at par) 323,225 302,040 Capital in excess of par value 2,395,057 2,274,664 Unearned compensation (2,022) -- Accumulated deficit (824,364) (938,063) Accumulated other comprehensive loss (38,320) (111,683) ------------ ------------ Total stockholders' equity 1,853,576 1,526,958 ------------ ------------ $ 8,199,196 $ 7,725,204 ============ ============
SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands)
Years ended December 31, ------------------------------------------ 2004 2003 2002 ------------ ------------ ------------ (Restated) Cash flows from operating activities: Net income (loss) $ 113,699 $ 85,082 $ (232,486) Adjustments to reconcile net income (loss) to net cash provided by operating activities: (Income) loss from discontinued operations, net of tax (43,762) (2,529) 14,768 (Gains) loss on early extinguishments of debt 16,770 (1,315) (6,660) Cumulative effects of accounting changes, net of tax 47,074 -- 135,560 Depreciation and amortization 145,293 161,058 179,731 Provision for deferred income taxes 19,232 4,067 106,393 (Gains) and impairment losses on dispositions, net (25,628) (49,366) 161,510 Other operating (income) expense (416) 9,004 94,910 Payments on restructuring charges (14,000) (14,155) (12,806) Litigation payments, net of recoveries (164,566) (30,782) (13,014) Change in assets and liabilities, net of effects from acquisitions and dispositions: Decrease (increase) in receivables 46,014 (53,630) 3,022 Decrease (increase) in other assets 10,119 67,726 (31,920) Increase in litigation accrual 60,800 99,420 7,512 (Decrease) increase in payables and other liabilities (58,700) 94,683 (77,168) Net effect of preneed funeral production and maturities (20,989) 4,061 26,743 Net effect of preneed cemetery production and deliveries (26,217) 986 (7,827) Other 1,378 (3,163) 2,619 ------------ ------------ ------------ Net cash provided by operating activities from continuing operations 106,101 371,147 350,887 Net cash provided by operating activities from discontinued operations 1,704 2,961 1,285 ------------ ------------ ------------ Net cash provided by operating activities 107,805 374,108 352,172 Cash flows from investing activities: Capital expenditures (96,007) (115,563) (99,875) Proceeds from divestitures and sales of property and equipment 57,749 76,577 76,292 Proceeds and distributions from joint ventures and equity investments, net of cash retained 328,428 73,940 291,794 Acquisitions, net of cash acquired (1,807) -- -- Payment of contingent obligations to former owners of acquired business (51,749) -- -- Net withdrawals (deposits) of restricted funds and other 53,185 (71,939) 58,883 ------------ ------------ ------------ Net cash provided by (used in) investing activities from continuing operations 289,799 (36,985) 327,094 Net cash used in investing activities from discontinued operations (275) (437) (169) ------------ ------------ ------------ Net cash provided by (used in) investing activities 289,524 (37,422) 326,925 Cash flows from financing activities: Net decrease in borrowings under credit agreements -- -- (29,061) Payments of debt (177,648) (90,980) (74,234) Proceeds from long-term debt issued 241,444 -- -- Early extinguishments of debt (313,778) (200,349) (307,232) Settlement of debt-related options -- -- (57,000) Proceeds from exercise of stock options 10,605 -- -- Purchase of Company common stock (110,258) -- -- Bank overdrafts and other -- (8,820) (36,332) ------------ ------------ ------------ Net cash used in financing activities from continuing operations (349,635) (300,149) (503,859) ------------ ------------ ------------ Net cash used in financing activities from discontinued operations -- -- (1,623) Net cash used in financing activities (349,635) (300,149) (505,482) ------------ ------------ ------------ Effect of foreign currency 660 2,269 (2,282) ------------ ------------ ------------ Net increase in cash and cash equivalents 48,354 38,806 171,333 Cash and cash equivalents at beginning of period 239,431 200,625 29,292 ------------ ------------ ------------ Cash and cash equivalents at end of period $ 287,785 $ 239,431 $ 200,625 ============ ============ ============
SOURCE Service Corporation International -0- 04/01/2005 /CONTACT: Investors: Debbie Young, Director/Investor Relations, +1-713-525-9088; or Media: Terry Hemeyer, Managing Director/Corporate Communications, +1-713-525-5497, both of Service Corporation International/ /FCMN Contact: Sandy.Bobo@sci-us.com / /Web site: http://www.sci-corp.com EX-99.2 3 sc2357ex992.txt Exhibit 99.2 SERVICE CORPORATION INTERNATIONAL PROVIDES OUTLOOK FOR FISCAL YEAR 2005 HOUSTON, April 1 /PRNewswire-FirstCall/ -- Service Corporation International (NYSE: SCI) today provided its fiscal year 2005 outlook for anticipated results from continuing operations. Our outlook for 2005 demonstrates continued strength in cash flows and earnings growth. Cash flows from operating activities excluding special items in 2005 are expected to be $265 to $280 million and free cash flow is expected to be $200 to $220 million. We expect diluted earnings from continuing operations excluding special items to be $.32 to $.37 per share. These operating and cash flow measures are non-GAAP financial measures. For a discussion of our calculation of cash flows from operating activities excluding special items and free cash flow, see "Cash Flow Measures" and "Free Cash Flow" below. For a discussion of our calculation of diluted earnings per share from continuing operations excluding special items, see "Operating Measures" below. Highlights of our outlook for 2005 include the following: Highlights: In millions, except earnings per share and gross margin percentage Operating Measures North America Comparable Operations Funeral revenues.................................$1,105 to $1,145 Funeral gross margin percentage.....................18% to 22% Cemetery revenues..................................$545 to $585 Cemetery gross margin percentage....................15% to 20% International Operations (Chile, Singapore & Germany) Revenues............................................$40 to $45 Gross margin percentage.............................22% to 25% General and administrative expenses...................$80 to $85 Other income...........................................$7 to $10 Interest expense......................................$98 to $102 Diluted earnings per share from continuing operations excluding special items (1)..............$.32 to $.37 Cash Flow Measures Free cash flow (2)...................................$200 to $220 Cash flows from operating activities excluding special items (3).........................$265 to $280 Total capital expenditures...........................$105 to $115 Capital improvements at existing facilities...........$60 to $65 Capital expenditures intended to grow revenues and profits.................................$45 to $50 Depreciation and amortization expense................$140 to $145 (1) Diluted earnings per share from continuing operations excluding special items is a non-GAAP financial measure. Earnings per share from continuing operations calculated in accordance with GAAP is not currently accessible on a forward-looking basis. For a summary of information that is unavailable and its probable significance, see the discussion under "Operating Measures" below. (2) Free cash flow is a non-GAAP financial measure. See our definition of free cash flow under the heading "Free Cash Flow" below. (3) Cash flows from operating activities excluding special items is a non-GAAP financial measure. Cash flows from operating activities calculated in accordance with GAAP is not currently accessible on a forward-looking basis. For a summary of information that is unavailable and its probable significance, see the discussion under "Cash Flow Measures" below. The outlook for 2005 above provides ranges for certain items on the income statement that could be used to calculate a broad range of diluted earnings per share from continuing operations; however, we believe it is more appropriate to use the range of diluted earnings per share provided. Guidance for 2005 excludes the following because this information is not currently available: -- Effects from potential acquisitions or dispositions, including gains or losses associated with asset dispositions; -- Any potential costs associated with settlements of litigation or the recognition of receivables for insurance recoveries associated with litigation; -- Gains or losses associated with the early extinguishment of debt, changes in the capital structure, or foreign currency transactions; -- Any potential tax payments, credits or refunds; -- Any potential cash contributions to our frozen cash balance pension plan; and -- Any impact from changes to our accounting for preneed deferred selling costs as described in "Accounting Matters" below, and other accounting changes. For more detail regarding these excluded items and other important factors that may affect our actual 2005 results, see our "Outlook Assumptions" below. For a further discussion of risks related to our business that could affect our outlook for 2005, please refer to the cautionary statement on forward-looking statements in this press release and in our filings with the Securities and Exchange Commission ("SEC"). Copies of this press release as well as other SEC filings can be obtained from our website at http://www.sci-corp.com . 2005 OUTLOOK ASSUMPTIONS Operating Measures -- Comparable financial information as used in our 2005 outlook is intended to be reflective of "same store" results. For purposes of our 2005 guidance, we consider comparable operations as businesses that were acquired or constructed prior to December 31, 2005 or divested after January 1, 2004. While revenues could be impacted in 2005 by potential divestitures or acquisitions in North America, the impact on gross profits is expected to be minimal. -- North America comparable funeral revenues are expected to be $1,105 million to $1,145 million in 2005. - The average revenue per funeral service in 2005 is expected to increase 1% to 3% from 2004 levels. We expect this increase in average revenue per funeral service to overcome an estimated 100 to 150 basis point increase in the percentage of cremation services performed. Cremation services have historically resulted in lower revenues than funeral services involving a burial. We expect that the sale of Dignity Memorial(R) funeral and cremations plans will continue to positively impact the overall average revenue per funeral service. - The number of funeral services performed at comparable locations in 2005 is expected to decline 1% to 2% from 2004 levels. - Included in funeral revenues are general agency revenues related to the sale of insurance funded preneed funeral contracts and revenues from Kenyon, our mass fatality and disaster assistance subsidiary. - We expect general agency revenues to grow in 2005 to an amount between $27 and $31 million. - We expect revenues from Kenyon to grow in 2005 to an amount between $5 and $10 million primarily related to its involvement in the tsunami disaster recovery efforts in Asia. - Preneed funeral sales production is expected to grow 3% to 5% in 2005 compared to 2004. Although the revenues associated with funeral preneed sales are deferred until the funeral services are performed; we believe preneed funeral sales are an important measure and indicator of future performance. -- North America funeral gross margin percentage is expected to be 18% to 22%. In 2005, we expect increases in salary expense and increases in costs related to additional redundant and monitoring controls we are implementing at the corporate level to improve field internal controls. These increased costs will be partially offset by continued reductions in overhead costs. We expect inflationary increases in other funeral costs. -- North America comparable cemetery revenues are expected to be $545 to $585 million in 2005. - Property sales are projected to increase 3% to 5% and merchandise and service sales are projected to increase 1% to 3%. This growth in new sales will be partially offset by lower legacy revenues recognized in 2005. Legacy revenues represent revenues associated with previously sold property that will be constructed and recognized in 2005. The expected reduction in legacy revenues is a result of our recent focus on shortening the time between when property is sold and when it is constructed. The impact of this accelerated development is not expected to be significant in future years. - Cemetery trust fund income is expected to decline approximately $5 million from 2004 levels. -- North America cemetery gross margin percentage is expected to be 15% to 20%. In 2005, we expect increases in salary expense and increases in costs related to additional redundant and monitoring controls we are implementing at the corporate level to improve field internal controls. These increased costs will be partially offset by continued reductions in overhead costs. We expect inflationary increases in other cemetery costs. -- International operations represent our cemetery business in Chile and funeral businesses in Singapore and Germany. In 2005, we expect modest improvement from these businesses, excluding currency fluctuations. While these operations are included in our forecast for the entire year, it is possible that these businesses could be held for sale during 2005 if we believe appropriate values could be obtained. - During February 2005, we completed the sale of our businesses in Argentina and Uruguay. No gain or loss is expected as a result of this transaction as the asset values were adjusted to fair market value at December 31, 2004. Our outlook for 2005 excludes any impact from these businesses in 2005. -- General and administrative expenses are expected to be $80 to $85 million in 2005. In 2005, we expect increased costs associated with Sarbanes-Oxley related compliance efforts and increases in long-term compensation costs related to the adoption in July 2005 of SFAS No. 123R, "Share-Based Payment" which requires the expensing of stock options. These increased costs will be partially offset by reductions in information technology costs and trust operations expenses. Our outlook for 2005 excludes the possibility of the recognition of costs associated with settlements of litigation or related receivables for insurance recoveries. -- Other income in 2005 is expected to be $7 to $10 million and consists of cash overrides received from a third party insurance provider related to the sale of insurance funded preneed funeral contracts, interest income from cash investments and notes receivable, partially offset by surety bond premium costs. Our outlook for 2005 excludes the possibility of gains or losses associated with the early extinguishment of debt or with foreign currency transactions. -- Interest expense in 2005 is expected to be $98 to $102 million, of which approximately $10 million is related to non-cash amortization of deferred loan costs. The outlook for interest expense in 2005 assumes the payment of scheduled debt maturities only and does not take into consideration the possibility of any prepayment or restructuring of debt. -- Diluted earnings from continuing operations excluding special items are expected to range from $.32 to $.37 per share in 2005. - Diluted earnings from continuing operations excluding special items does not include effects from potential acquisitions or dispositions, including gains or losses associated with asset dispositions; potential costs associated with settlements of litigation or the recognition of receivables for insurance recoveries associated with litigation; any impact from potential accounting changes; and gains or losses associated with the early extinguishment of debt, changes in the capital structure, or foreign currency transactions. - Our former funeral operations in France (which were sold in March 2004) contributed $.02 per share in 2004 that will not recur in 2005. - The guidance range for diluted earnings from continuing operations excluding special items in 2005 assumes the fully diluted weighted average shares outstanding will be reduced to a range of approximately 305 to 310 million shares due to anticipated stock repurchases. - From August 16, 2004 through today, we have invested $213.8 million to repurchase 31.4 million shares of our common stock. Our existing share repurchase programs currently provide us with the authority to invest approximately $86 million more for future repurchases of our common stock. We intend, subject to market conditions and normal trading restrictions, to make purchases from time to time in the open market or through privately negotiated transactions. There can be no assurance that we will buy our common stock under our share repurchase programs. Important factors that could cause us not to repurchase our shares include, among others, unfavorable market conditions, the market price of our common stock, the nature of other investment opportunities presented to us from time to time, and the availability of funds necessary to continue purchasing common stock. - Beginning January 1, 2005, we discontinued funding the Company's matching contributions to our 401(k) retirement plan with SCI common stock and began to use cash instead. - The consolidated effective tax rate for continuing operations in 2005 is expected to be approximately 35%. Cash Flow Measures -- Free cash flow in 2005 is expected to be $200 to $220 million. For more information regarding free cash flow, see "Free Cash Flow" below. -- Cash flows from operating activities excluding special items in 2005 are expected to be $265 to $280 million. Special items include, among others, any potential tax payments or refunds, potential contributions to our frozen cash balance pension plan and any possible payments that could be made associated with the settlement of litigation matters or related insurance recoveries. - Our former funeral operations in France (which were sold in March 2004) contributed $18.3 million of cash flow from operating activities in 2004 that will not recur in 2005. - Effective January 1, 2005, we began funding our 401(k) retirement plan with cash versus our historical funding method of using our common stock. The cash outflow associated with our matching contributions to our 401(k) retirement plan in 2005 is expected to be $17 to $20 million. - Because our payroll is done bi-weekly, we had an extra cash payroll payment in 2004 of approximately $19 million that will not recur in 2005. This extra bi-weekly payroll payment occurs every eleven years and is not expected to recur until 2015. The reduction in 2005 compared to 2004 as a result of this payroll effect is expected to occur in the first quarter of 2005. - In February 2004, we began trusting monies associated with new preneed contracts in Florida in lieu of surety bonding. We expect net trust deposits relating to post February 2004 Florida preneed sales to increase by $5 to $8 million during 2005. - In March 2005, we received a tax refund of $29.0 million resulting from certain federal tax carry-back losses. This amount is excluded from our expectations for cash flows from operating activities excluding special items and free cash flow. - As in 2004, we do not expect to pay U.S. federal income taxes in 2005 due to significant tax loss carry-forwards. Because of these tax loss carry-forwards, we believe we will not pay federal income taxes until 2007. In 2005, we expect to pay $5 to $10 million for various state, local and Canadian province taxes. -- Total capital expenditures in 2005 are expected to be $105 to $115 million. - Of the total projected capital expenditures in 2005, we expect to spend approximately $60 to $65 million on capital improvements at our existing facilities. - Capital expenditures intended to grow revenues and profits are expected to be $45 to $50 million and include items such as the construction of new funeral service facilities (particularly on company-owned cemeteries), the development of high-end cemetery property such as private family estates, and the investment in contemporary merchandising displays in our funeral homes. - In addition to our anticipated capital spending of $105 to $115 million in 2005, we will continue to look for attractive acquisition opportunities if such acquisitions are available at reasonable market prices; however, we anticipate only modest activity due to elevated price expectations of potential sellers. -- Depreciation and amortization expense in 2005 is expected to be $140 to $145 million. ACCOUNTING MATTERS We are in discussions with the Staff of the Securities and Exchange Commission related to our accounting policies for preneed deferred selling costs. Similar to the accounting practices of certain other participants in the deathcare industry, we currently defer selling costs that vary with and are primarily related to the production of deferred revenues associated with preneed funeral trust contracts and preneed cemetery contracts. Other preneed selling costs are expensed in the period incurred. Deferred selling costs are included in Deferred charges and other assets in our balance sheet. We have concluded that these selling costs should be expensed in the period incurred rather than deferred. We will incur a non-cash pretax charge of approximately $312 million representing the write-off of deferred selling costs recorded on our balance sheet as of January 1, 2005. Additionally, if we had expensed these selling costs in 2004, our pretax income in 2004 would have been reduced by approximately $14 million. A change in the treatment of deferred preneed selling costs will have no impact on our cash position or cash flow. Based on the assumptions in our 2005 outlook, we would estimate a similar impact on 2005 results as in 2004; however, we have not included this effect in any amounts contained in this outlook press release. FREE CASH FLOW Free cash flow is a non-GAAP financial measure. We define free cash flow as cash flows from operating activities (excluding certain special items described above under the heading "Cash Flow Measures") less capital improvements at our existing facilities. Free cash flow is not reduced by mandatory debt service requirements or by capital expenditures intended to grow revenues and profits such as the acquisition of funeral service locations or cemeteries in large or strategic North America markets, construction of high-end cemetery property (such as private family estates) or the construction of funeral home facilities on SCI-owned cemeteries, and the investment in contemporary merchandising displays in our funeral homes. We believe that free cash flow provides useful information to investors regarding our financial condition and liquidity as well as our ability to generate cash for purposes such as reducing debt, expanding through strategic investments and repurchasing stock or paying dividends. While we believe free cash flow, as defined, is helpful in managing our business and provides useful information to investors, certain events may arise, financial or otherwise, which could require the use of free cash flow so that it would not be available for the purposes described above, as more fully described in our public filings with the Securities and Exchange Commission. Furthermore, free cash flow should be reviewed in addition to, but not as a substitute for, the data provided in our consolidated statement of cash flows. 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: -- Changes in general economic conditions, both domestically and internationally, impacting financial markets (e.g., marketable security values, as well as currency and interest rate fluctuations) that could negatively affect us, particularly, but not limited to, levels of trust fund income, interest expense, pension expense and negative currency translation effects. -- Our inability to certify the effectiveness of our internal controls over financial reporting and an adverse attestation report from our auditors, and our ability to successfully remediate in 2005 any identified deficiencies in our internal controls. -- The outcomes of pending lawsuits and proceedings against us described more fully in our Securities and Exchange Commission filings. -- We maintain accruals for tax liabilities which relate to uncertain tax matters. If these tax matters are unfavorably resolved, we will make any required payments to tax authorities. If these tax matters are favorably resolved, the accruals maintained by us will no longer be required and the removal of such accruals will be recognized through our consolidated tax provision at the time of resolution. -- The outcome of a pending Internal Revenue Service audit and future tax deductions resulting from potential asset sales. -- Our ability to successfully implement our strategic plan related to producing operating improvements and strong cash flows. -- Our ability to successfully implement our plan to reduce costs and increase cash flows associated with significant changes being made to our organization structure, process and quality of our sales efforts. -- Changes to net income as a result of our ongoing reconciliation processes regarding our trust assets and preneed backlogs. -- Consequences of the restatement of our financial results for the first three quarters of 2004. -- Outcome of discussions with the SEC related to our accounting policies for preneed deferred selling costs. -- Changes in consumer demand and/or pricing for our products and services due to several factors, such as changes in numbers of deaths, cremation rates, competitive pressures and local economic conditions. -- Changes in domestic and international political and/or regulatory environments in which we operate, including potential changes in tax, accounting and trusting policies. -- Changes in credit relationships impacting the availability of credit and the general availability of credit in the marketplace. -- Our ability to successfully complete our ongoing process improvement and system implementation projects. -- Our ability to successfully access surety and insurance markets at a reasonable cost. -- Our ability to successfully exploit our substantial purchasing power with certain of our vendors. For further information on these and other risks and uncertainties, see our Securities and Exchange Commission filings, including our 2004 Annual Report on Form 10-K. Copies of this document as well as other SEC filings can be obtained from our website at http://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. Service Corporation International (NYSE: SCI), headquartered in Houston, Texas, is the leading provider of funeral and cemetery services in the world. We have an extensive network of businesses including 1,190 funeral service locations and 390 cemeteries in North America as of December 31, 2004. For more information about Service Corporation International, please visit our website at http://www.sci-corp.com . For additional information contact: Investors: Debbie Young -- Director / Investor Relations (713) 525-9088 Media: Terry Hemeyer -- Managing Director / Corporate Communications (713) 525-5497 SOURCE Service Corporation International -0- 04/01/2005 /CONTACT: Investors, Debbie Young, Director, Investor Relations, +1-713-525-9088, Media, Terry Hemeyer, Managing Director, Corporate Communications, +1-713-525-5497, both for Service CorporationInternational/ /FCMN Contact: Sandy.Bobo@sci-us.com / /Web site: http://www.sci-corp.com -----END PRIVACY-ENHANCED MESSAGE-----