HOUSTON, Oct. 25, 2017 /PRNewswire/ -- Service
Corporation International (NYSE: SCI), the largest provider of
deathcare products and services in North
America, reported results for the third quarter of 2017. Our
unaudited 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
September 30,
|
|
Nine Months
Ended
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenue
|
$
|
731.3
|
|
|
$
|
721.5
|
|
|
$
|
2,282.3
|
|
|
$
|
2,222.1
|
|
Operating
income
|
$
|
109.1
|
|
|
$
|
114.4
|
|
|
$
|
392.3
|
|
|
$
|
332.6
|
|
Net income
attributable to common stockholders
|
$
|
56.2
|
|
|
$
|
47.7
|
|
|
$
|
299.3
|
|
|
$
|
110.8
|
|
Diluted earnings per
share
|
$
|
0.29
|
|
|
$
|
0.24
|
|
|
$
|
1.56
|
|
|
$
|
0.56
|
|
Earnings excluding
special items(1)
|
$
|
63.0
|
|
|
$
|
51.6
|
|
|
$
|
203.5
|
|
|
$
|
162.7
|
|
Diluted earnings per
share excluding special items(1)
|
$
|
0.33
|
|
|
$
|
0.26
|
|
|
$
|
1.06
|
|
|
$
|
0.83
|
|
Diluted weighted
average shares outstanding
|
192.2
|
|
|
196.6
|
|
|
192.4
|
|
|
197.2
|
|
Net cash provided by
operating activities
|
$
|
165.4
|
|
|
$
|
133.0
|
|
|
$
|
389.6
|
|
|
$
|
358.5
|
|
Net cash provided by
operating activities excluding special
items(1)
|
$
|
165.4
|
|
|
$
|
143.0
|
|
|
$
|
430.1
|
|
|
$
|
401.6
|
|
|
|
(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:
- Diluted earnings per share were $0.29 in the third quarter of 2017 compared to
$0.24 in the third quarter of 2016.
The third quarter of 2017 was negatively impacted by an
$11.5 million legal settlement. The
third quarter of 2016 was impacted by system transition costs.
Diluted earnings per share excluding special items was $0.33 in the third quarter of 2017 compared to
$0.26 in the third quarter of 2016.
The increase in diluted earnings per share excluding special items
was primarily driven by strong cemetery results and a lower
effective tax rate. We also encountered temporary business
interruptions in certain of our businesses in Texas, Florida and Puerto
Rico related to the three hurricanes during the quarter (the
Hurricanes). We believe these temporary business interruptions
impacted our operating results by about two
cents per share during the quarter.
- Net cash provided by operating activities was $165.4 million in the third quarter of 2017
compared to $133.0 million in the
third quarter of 2016. The third quarter of 2016 was impacted by
system transition costs and excess tax benefits from share-based
awards, which reduced cash provided by operating activities. Net
cash provided by operating activities excluding special items as
noted above was $165.4 million in the
third quarter of 2017 compared to $143.0
million in the prior year quarter. The increase in net cash
provided by operating activities excluding special items is
primarily due to increased cash flow from earnings growth and lower
cash tax payments partially offset by an increase in working
capital uses during the quarter.
- During the third quarter, we returned $56.9 million to shareholders through a
combination of share repurchases and dividends and deployed
$33.3 million of capital to accretive
acquisitions and the construction of new funeral homes.
Tom Ryan, the Company's
Chairman and Chief Executive Officer, commented on the third
quarter of 2017:
"This quarter our Company and many of the communities in which
we operate were personally impacted by hurricanes Harvey, Irma and
Maria. Additionally, we have faced the challenges of the
devastating events in Las Vegas
and Northern California. While
hundreds of our associates' homes,
vehicles and personal items were damaged, and many of our business
locations impacted, the important thing is that everyone in our SCI
family is safe and accounted for. I am so proud of the way our team
reacted helping each other and taking care of our client families,
going to extraordinary lengths. Thank you and I could not be more
proud than I am today.
Now shifting to our quarterly results, we are pleased to report
a 27% increase in adjusted earnings per share and a 16% increase in
adjusted operating cash flow. Growth in cemetery revenue coupled
with benefits from effective tax planning and excess tax benefits
were the drivers of our growth for the quarter. We are increasing
our full year guidance for adjusted earnings per share
to $1.48 to $1.54 per
share, and maintaining our midpoint of $500
million of adjusted operating cash flow, with a revised
range of $485 million to $515
million. The midpoint of our revised guidance for adjusted
earnings per share is about 10% higher than the original guidance
midpoint we issued in February 2017.
Our results are a testament to our hard-working associates who
focus on delivering extraordinary service to our client families.
We are confident that our solid operating platform and healthy
financial position will allow us to continue to grow revenues by
remaining relevant to the customer, drive future markets share by
growing our preneed sales, continuing to leverage scale, and deploy
capital to enhance shareholder value."
REVISED OUTLOOK FOR 2017
Our revised outlook for Diluted earnings per share from
continuing operations excluding special items is anticipated to
exceed our expected long-term growth framework of 8%-12% after
special items in 2016, even after removing a nine cent benefit recognized to date in 2017 from
tax benefits recognized on the anticipated settlement of employee
share-based awards, which under current accounting guidance, no
such benefits were recognized in 2016.
Our revised outlook for potential earnings and cash flow in 2017
is as follows:
(In millions,
except per share amounts)
|
Previous 2017
Outlook
|
|
Revised 2017
Outlook
|
Diluted earnings per
share excluding special items (Adjusted
EPS)(1)
|
$1.42 to
$1.52
|
|
$1.48 to
$1.54
|
Net cash provided by
operating activities excluding special items (Adjusted Operating
Cash Flow)(1)
|
$480 to
$520
|
|
$485 to
$515
|
Capital improvements
at existing facilities and cemetery development
expenditures
|
Approximately
$180
|
|
Approximately
$180
|
|
|
(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 2017 excludes the following because this information is
not currently available for 2017: Expenses related to the
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 RESULTS FOR THIRD QUARTER 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
September 30,
|
|
Nine Months
Ended
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Funeral:
|
|
|
|
|
|
|
|
Atneed
revenue
|
$
|
236.0
|
|
|
$
|
248.5
|
|
|
$
|
756.9
|
|
|
$
|
786.4
|
|
Matured preneed
revenue
|
135.1
|
|
|
127.8
|
|
|
425.2
|
|
|
398.0
|
|
Core revenue
|
371.1
|
|
|
376.3
|
|
|
1,182.1
|
|
|
1,184.4
|
|
Non-funeral home
revenue
|
11.1
|
|
|
10.5
|
|
|
35.1
|
|
|
32.7
|
|
Recognized preneed
revenue
|
26.6
|
|
|
27.8
|
|
|
88.9
|
|
|
86.0
|
|
Other
revenue
|
28.7
|
|
|
30.9
|
|
|
89.1
|
|
|
101.7
|
|
Total
revenue
|
$
|
437.5
|
|
|
$
|
445.5
|
|
|
$
|
1,395.2
|
|
|
$
|
1,404.8
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
$
|
70.1
|
|
|
$
|
74.5
|
|
|
$
|
274.8
|
|
|
$
|
271.2
|
|
Operating margin
percentage
|
16.0
|
%
|
|
16.7
|
%
|
|
19.7
|
%
|
|
19.3
|
%
|
|
|
|
|
|
|
|
|
Funeral services
performed
|
72,049
|
|
|
72,680
|
|
|
230,533
|
|
|
230,516
|
|
Average revenue per
service
|
5,305
|
|
|
$
|
5,322
|
|
|
5,280
|
|
|
5,280
|
|
|
|
|
|
|
|
|
|
Cemetery:
|
|
|
|
|
|
|
|
Atneed
revenue
|
$
|
76.1
|
|
|
$
|
74.2
|
|
|
$
|
238.2
|
|
|
$
|
230.9
|
|
Recognized preneed
revenue
|
198.9
|
|
|
182.7
|
|
|
584.9
|
|
|
515.9
|
|
Core revenue
|
275.0
|
|
|
256.9
|
|
|
823.1
|
|
|
746.8
|
|
Other
revenue
|
18.8
|
|
|
19.1
|
|
|
64.0
|
|
|
70.5
|
|
Total
revenue
|
$
|
293.8
|
|
|
$
|
276.0
|
|
|
$
|
887.1
|
|
|
$
|
817.3
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
$
|
79.6
|
|
|
$
|
66.2
|
|
|
$
|
235.5
|
|
|
$
|
194.5
|
|
Operating margin
percentage
|
27.1
|
%
|
|
24.0
|
%
|
|
26.5
|
%
|
|
23.8
|
%
|
Comparable Funeral Results
The table below details comparable funeral results of operations
("same store") for the three months ended September 30, 2017 and 2016. We consider
comparable operations to be those owned for the entire period
beginning January 1, 2016 and ending September 30,
2017.
(Dollars in
millions, except average revenue per service and average revenue
per contract sold)
|
|
|
|
Three Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
|
|
%
|
Comparable
revenue:
|
|
|
|
|
|
|
|
|
Atneed
revenue(1)
|
|
$
|
230.1
|
|
|
$
|
240.3
|
|
|
$
|
(10.2)
|
|
|
(4.2)
|
%
|
Matured preneed
revenue(2)
|
|
133.0
|
|
|
123.7
|
|
|
9.3
|
|
|
7.5
|
%
|
Core
revenue(3)
|
|
363.1
|
|
|
364.0
|
|
|
(0.9)
|
|
|
(0.2)
|
%
|
Non-funeral home
revenue(4)
|
|
11.0
|
|
|
10.5
|
|
|
0.5
|
|
|
4.8
|
%
|
Recognized preneed
revenue(5)
|
|
26.6
|
|
|
27.7
|
|
|
(1.1)
|
|
|
(4.0)
|
%
|
Other
revenue(6)
|
|
28.4
|
|
|
29.6
|
|
|
(1.2)
|
|
|
(4.1)
|
%
|
Total comparable
revenue
|
|
$
|
429.1
|
|
|
$
|
431.8
|
|
|
$
|
(2.7)
|
|
|
(0.6)
|
%
|
|
|
|
|
|
|
|
|
|
Comparable operating
profit
|
|
$
|
69.8
|
|
|
$
|
73.0
|
|
|
$
|
(3.2)
|
|
|
(4.4)
|
%
|
Comparable operating
margin percentage
|
|
16.3
|
%
|
|
16.9
|
%
|
|
(0.6)
|
%
|
|
(3.6)
|
%
|
|
|
|
|
|
|
|
|
|
Comparable funeral
services performed:
|
|
|
|
|
|
|
|
|
Atneed
|
|
39,660
|
|
|
40,770
|
|
|
(1,110)
|
|
|
(2.7)
|
%
|
Matured
preneed
|
|
22,137
|
|
|
21,092
|
|
|
1,045
|
|
|
5.0
|
%
|
Total core
|
|
61,797
|
|
|
61,862
|
|
|
(65)
|
|
|
(0.1)
|
%
|
Non-funeral
home
|
|
9,177
|
|
|
9,067
|
|
|
110
|
|
|
1.2
|
%
|
Total comparable
funeral services performed
|
|
70,974
|
|
|
70,929
|
|
|
45
|
|
|
0.1
|
%
|
Core cremation
rate
|
|
46.7
|
%
|
|
45.9
|
%
|
|
0.8
|
%
|
|
1.7
|
%
|
Total comparable
cremation rate
|
|
53.5
|
%
|
|
52.7
|
%
|
|
0.8
|
%
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
Comparable average
revenue per service:
|
|
|
|
|
|
|
|
|
Atneed
|
|
$
|
5,802
|
|
|
$
|
5,894
|
|
|
$
|
(92)
|
|
|
(1.6)
|
%
|
Matured
preneed
|
|
6,008
|
|
|
5,865
|
|
|
143
|
|
|
2.4
|
%
|
Total core
|
|
5,876
|
|
|
5,884
|
|
|
(8)
|
|
|
(0.1)
|
%
|
Non-funeral
home
|
|
1,199
|
|
|
1,158
|
|
|
41
|
|
|
3.5
|
%
|
Total comparable
average revenue per service
|
|
$
|
5,271
|
|
|
$
|
5,280
|
|
|
$
|
(9)
|
|
|
(0.2)
|
%
|
|
|
|
|
|
|
|
|
|
Comparable preneed
sales production:
|
|
|
|
|
|
|
|
|
Total preneed
sales
|
|
$
|
198.6
|
|
|
$
|
202.2
|
|
|
$
|
(3.6)
|
|
|
(1.8)
|
%
|
Core contracts
sold
|
|
27,012
|
|
|
26,826
|
|
|
186
|
|
|
0.7
|
%
|
Non-funeral home
contracts sold
|
|
16,294
|
|
|
17,028
|
|
|
(734)
|
|
|
(4.3)
|
%
|
Core average revenue
per contract sold
|
|
$
|
5,913
|
|
|
$
|
6,101
|
|
|
$
|
(188)
|
|
|
(3.1)
|
%
|
Non-funeral home
average revenue per contract sold
|
|
$
|
2,385
|
|
|
$
|
2,265
|
|
|
$
|
120
|
|
|
5.3
|
%
|
|
|
(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 delivered or performed
once death has occurred.
|
(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.
|
- Total comparable funeral revenue decreased by $2.7 million, or 0.6%, in the third quarter of
2017 compared to the same period of 2016, primarily due to lower
general agency revenue, which was due to lower insurance sales
discussed below. We also had lower recognized preneed revenue and
core revenue.
- The $0.9 million core revenue
decrease was primarily the result of a 0.1% decrease in core
services performed and a 0.1% decrease in core average revenue per
service. Organic sales average, excluding impacts from foreign
currency and cremation rate, was essentially flat.
- Total non-funeral home revenue increased by $0.5 million, or 4.8%, which was primarily the
result of a 1.2% increase in non-funeral home services performed
and a 3.5% increase in non-funeral home average revenue per
service.
- Recognized preneed revenue decreased $1.1 million, or 4.0%, primarily driven by a
decrease in the number of contracts sold through our non-funeral
home sales channel in certain markets in Florida, due to a temporary interruption of
preneed sales activity caused by the Hurricanes, partially offset
by an increase in the average price per contract.
- Comparable funeral operating profit decreased $3.2 million to $69.8
million and the operating margin percentage decreased 60
basis points to 16.3%, which is primarily due to the decrease in
revenue mentioned above and normal fixed cost growth partially
offset by selling cost efficiencies.
- Comparable preneed funeral sales production decreased
$3.6 million, or 1.8%, in the third
quarter of 2017 compared to 2016. The overall decrease in funeral
production from certain hurricane impacted locations is estimated
to be approximately $5 million, from
both our core and non-funeral home sales channels. Additionally,
the decline in total production reflects the continued impact of
changes to sales counselor productivity metrics, which resulted in
a more acute emphasis on preneed cemetery property sales as well as
terminally imminent preneed funeral trust sales. Core preneed
funeral insurance production declined $7.5
million, which was partially offset by a $4.7 million increase in core preneed funeral
trust production.
Comparable Cemetery Results
The table below details comparable cemetery results of
operations ("same store") for the three months ended September 30, 2017 and 2016. We consider
comparable operations to be those owned for the entire period
beginning January 1, 2016 and ending September 30,
2017.
(Dollars in
millions)
|
|
Three Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
|
|
%
|
Comparable
revenue:
|
|
|
|
|
|
|
|
|
Atneed
revenue(1)
|
|
$
|
75.3
|
|
|
$
|
74.1
|
|
|
$
|
1.2
|
|
|
1.6
|
%
|
Recognized preneed
revenue(2)
|
|
198.2
|
|
|
182.7
|
|
|
15.5
|
|
|
8.5
|
%
|
Core
revenue(3)
|
|
273.5
|
|
|
256.8
|
|
|
16.7
|
|
|
6.5
|
%
|
Other
revenue(4)
|
|
18.7
|
|
|
19.2
|
|
|
(0.5)
|
|
|
(2.6)
|
%
|
Total comparable
revenue
|
|
$
|
292.2
|
|
|
$
|
276.0
|
|
|
$
|
16.2
|
|
|
5.9
|
%
|
|
|
|
|
|
|
|
|
|
Comparable operating
profit
|
|
$
|
79.3
|
|
|
$
|
66.5
|
|
|
$
|
12.8
|
|
|
19.2
|
%
|
Comparable operating
margin percentage
|
|
27.1
|
%
|
|
24.1
|
%
|
|
3.0
|
%
|
|
12.4
|
%
|
|
|
|
|
|
|
|
|
|
Comparable preneed
and atneed sales production:
|
|
|
|
|
|
|
|
|
Property
|
|
$
|
143.9
|
|
|
$
|
139.1
|
|
|
$
|
4.8
|
|
|
3.5
|
%
|
Merchandise and
services
|
|
124.3
|
|
|
124.1
|
|
|
0.2
|
|
|
0.2
|
%
|
Other
|
|
(0.4)
|
|
|
(1.0)
|
|
|
0.6
|
|
|
60.0
|
%
|
Preneed and atneed
sales production
|
|
$
|
267.8
|
|
|
$
|
262.2
|
|
|
$
|
5.6
|
|
|
2.1
|
%
|
Preneed property
production
|
|
$
|
123.0
|
|
|
$
|
119.6
|
|
|
$
|
3.4
|
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
Recognition
rate(5)
|
|
102.1
|
%
|
|
97.9
|
%
|
|
|
|
|
|
|
(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.
|
- Comparable cemetery revenue grew $16.2
million, or 5.9%, in the third quarter of 2017 compared to
2016, led by an increase in recognized preneed revenue of
$15.5 million, or 8.5%. We
experienced growth over the prior year quarter due to increases in
both the sales and recognition of cemetery property, as well as
increases in cemetery merchandise and services delivered during the
quarter. The increase in the recognition of cemetery property
revenue can be attributed to the continuance of sales of developed
inventory projects.
- Comparable preneed cemetery sales production increased
$4.0 million, or 2.1%, quarter over
quarter. The growth over the prior year quarter is due primarily to
our continued momentum in large cemetery property sales offset by a
temporary interruption of preneed sales resulting from the impact
of Hurricanes in certain markets. The estimated production loss
from hurricane impacted locations is approximately $8 million, which we expect to rebound in the
fourth quarter.
- Comparable cemetery operating profit increased $12.8 million to $79.3
million and the operating margin percentage increased 300
basis points to 27.1%. The increase was primarily the result of
high margin core revenue growth when taking into account our fixed
cost structure.
Other Financial Results
- General and administrative expenses increased $12.3 million to $39.2
million in the third quarter of 2017. We finalized a legal
settlement for $11.5 million. The
prior year quarter included $2.3
million of system transition costs. Excluding these costs in
both periods, general and administrative expenses increased
$3.1 million primarily related to
higher incentive compensation costs compared to the prior year
quarter.
- Hurricane expense, net, reflects $5.8
million in damages incurred through September 30, 2017 at various locations caused by
the Hurricanes, offset by $4.5
million of insurance proceeds received through September 30, 2017.
- Interest expense increased $3.2
million to $42.8 million in
the third quarter of 2017 as we were impacted by increased rates on
our floating rate debt as well as higher Bank Credit Facility
balances as we continued to maintain our leverage ratio.
- The effective income tax rate for the third quarter of 2017 was
15.7%, down from the prior year third quarter rate of 36.6% for
2016. The effective tax rate for the three months ended
September 30, 2017 is lower than the
federal statutory tax rate of 35% due to tax benefits recognized on
the settlement of employee share-based awards and certain tax
planning initiatives. The higher effective tax rate for the prior
year quarter was the result of non-deductible goodwill related to
funeral home divestitures. Our adjusted effective income tax rate
was 19.5% in the third quarter of 2017 compared to 32.9% in the
prior year quarter. The reduction in our adjusted effective income
tax rate was primarily the result of tax benefits recognized during
the quarter on the settlement of employee share-based awards in
accordance with a revised accounting standard for share-based
compensation (A).
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 third
quarter of 2017 was a reduction to our adjusted provision for
income taxes of $7.6 million, which
had the effect of increasing our diluted earnings per share
excluding special items by approximately $0.04 per share. The impact of the restricted
stock deliveries and option exercises in the nine months of 2017
was a reduction to our adjusted provision for income taxes of
$16.9 million, which had the effect
of increasing our diluted earnings per share excluding special
items by approximately $0.09 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
September 30,
|
|
Nine Months
Ended
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net cash provided by
operating activities, as reported
|
$
|
165.4
|
|
|
$
|
133.0
|
|
|
$
|
389.6
|
|
|
$
|
358.5
|
|
Add: Pension
Settlement
|
—
|
|
|
—
|
|
|
6.3
|
|
|
—
|
|
Add: Premiums
paid on early extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
20.5
|
|
Add: System and
process transition costs
|
—
|
|
|
2.8
|
|
|
—
|
|
|
11.1
|
|
Add: Excess tax
benefits from share based awards
|
—
|
|
|
7.2
|
|
|
—
|
|
|
11.5
|
|
Add: IRS tax
settlement payments (1)
|
—
|
|
|
—
|
|
|
34.2
|
|
|
—
|
|
Net cash provided by
operating activities excluding special items
|
$
|
165.4
|
|
|
$
|
143.0
|
|
|
$
|
430.1
|
|
|
$
|
401.6
|
|
Cash taxes included
in net cash provided by operating activities excluding
special items
|
$
|
4.0
|
|
|
$
|
39.7
|
|
|
$
|
87.3
|
|
|
$
|
100.9
|
|
|
|
(1)
|
2017 is primarily
impacted by the settlement of IRS tax audits related to tax years
1999-2005. Please see our Form 8-K filed on March 6, 2017 for more
information.
|
Net cash provided by operating activities excluding special
items was $165.4 million in the third
quarter of 2017 compared to $143.0
million in the prior year quarter. Cash taxes decreased by
approximately $35 million in the
quarter. The IRS permitted us to defer $25
million of cash taxes that would have been paid in the third
quarter as a result of the Hurricane relief efforts, which will now
be paid in December 2017.
Additionally, we reduced cash taxes by an additional $10 million, primarily as a result of certain tax
planning initiatives as well as from a positive true up of cash
taxes paid resulting from filing our 2016 federal tax return. Our
cash flows were also impacted in the quarter by lower cash receipts
and higher expenses both of which were primarily attributable to
temporary business interruptions late in the third quarter related
to the Hurricanes.
A summary of our capital expenditures is set forth below:
(In
millions)
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Capital improvements at
existing locations
|
$
|
30.8
|
|
|
$
|
21.1
|
|
|
$
|
73.2
|
|
|
$
|
62.5
|
|
Development of cemetery
property
|
21.7
|
|
|
21.2
|
|
|
54.6
|
|
|
56.1
|
|
Subtotal
|
52.5
|
|
|
42.3
|
|
|
127.8
|
|
|
118.6
|
|
Construction of new
funeral home facilities
|
3.8
|
|
|
5.7
|
|
|
13.8
|
|
|
12.6
|
|
Total capital
expenditures
|
$
|
56.3
|
|
|
$
|
48.0
|
|
|
$
|
141.6
|
|
|
$
|
131.2
|
|
Total capital expenditures increased as expected in the current
quarter by $8.3 million as we
invested more this year on infrastructure improvements within our
facilities as we continue to remain relevant with our
customers.
TRUST FUND RETURNS
Total trust fund returns include realized and unrealized gains
and losses, interest, and dividends. These trust fund returns are
net of portfolio management fees and expenses, but are shown prior
to other trust administration fees, expenses, and taxes. A summary
of our consolidated trust fund returns for the three and nine
months ended September 30, 2017 is
set forth below:
|
|
Three
Months
|
|
Nine
Months
|
Preneed
funeral
|
|
4.1%
|
|
12.4%
|
Preneed
cemetery
|
|
4.1%
|
|
12.9%
|
Cemetery perpetual
care
|
|
2.6%
|
|
7.1%
|
Combined trust
funds
|
|
3.6%
|
|
10.8%
|
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 continuing
operations. We also believe these measures help facilitate
comparisons to our competitors' operating results.
Set forth below is a reconciliation of our reported net income
attributable to common stockholders to earnings 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
September 30,
|
|
2017
|
|
2016
|
|
Net
Income
|
|
Diluted
EPS
|
|
Net
Income
|
|
Diluted
EPS
|
Net income
attributable to common stockholders, as reported
|
$
|
56.2
|
|
|
$
|
0.29
|
|
|
$
|
47.7
|
|
|
$
|
0.24
|
|
Pre-tax reconciling
items:
|
|
|
|
|
|
|
|
Losses (gains) on
divestitures and impairment charges, net
|
0.1
|
|
|
—
|
|
|
(0.6)
|
|
|
—
|
|
Legal
settlement
|
11.5
|
|
|
0.06
|
|
|
—
|
|
|
—
|
|
System transition
costs
|
—
|
|
|
—
|
|
|
2.3
|
|
|
0.01
|
|
Tax reconciling
items:
|
|
|
|
|
|
|
|
Tax (benefit) expense
from special items noted above
|
(4.0)
|
|
|
(0.02)
|
|
|
1.4
|
|
|
0.01
|
|
Change in certain tax
reserves and other
|
(0.8)
|
|
|
—
|
|
|
0.8
|
|
|
—
|
|
Earnings excluding
special items and diluted earnings per share excluding special
items
|
$
|
63.0
|
|
|
$
|
0.33
|
|
|
$
|
51.6
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
Diluted weighted
average shares outstanding (in thousands)
|
|
|
192,243
|
|
|
|
|
196,567
|
|
(In millions,
except diluted EPS)
|
Nine Months Ended
September 30,
|
|
2017
|
|
2016
|
|
Net
Income
|
|
Diluted
EPS
|
|
Net
Income
|
|
Diluted
EPS
|
Net income
attributable to common stockholders, as reported
|
$
|
299.3
|
|
|
$
|
1.56
|
|
|
$
|
110.8
|
|
|
$
|
0.56
|
|
Pre-tax reconciling
items:
|
|
|
|
|
|
|
|
(Gains) losses on
divestitures and impairment charges, net
|
(5.5)
|
|
|
(0.03)
|
|
|
30.4
|
|
|
0.16
|
|
Losses on early
extinguishment of debt
|
—
|
|
|
—
|
|
|
22.5
|
|
|
0.11
|
|
Acquisition and
integration costs
|
—
|
|
|
—
|
|
|
5.5
|
|
|
0.03
|
|
System transition
costs
|
—
|
|
|
—
|
|
|
11.2
|
|
|
0.06
|
|
Pension termination
settlements
|
12.8
|
|
|
0.07
|
|
|
—
|
|
|
—
|
|
Legal
settlement
|
11.5
|
|
|
0.06
|
|
|
—
|
|
|
—
|
|
Tax reconciling
items:
|
|
|
|
|
|
|
|
Tax benefit from
special items noted above
|
(6.6)
|
|
|
(0.03)
|
|
|
(21.1)
|
|
|
(0.11)
|
|
Change in certain tax
reserves and other (1)
|
(108.0)
|
|
|
(0.57)
|
|
|
3.4
|
|
|
0.02
|
|
Earnings excluding
special items and diluted earnings per share excluding special
items
|
$
|
203.5
|
|
|
$
|
1.06
|
|
|
$
|
162.7
|
|
|
$
|
0.83
|
|
|
|
|
|
|
|
|
|
Diluted weighted
average shares outstanding (in thousands)
|
|
|
192,417
|
|
|
|
|
197,175
|
|
|
|
(1)
|
2017 is primarily
impacted by the settlement of IRS tax audits related to tax years
1999-2005. Please see our Form 8-K filed on March 6, 2017 for more
information.
|
Conference Call and Webcast
We will host a conference call on Thursday, October 26, 2017, 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)
413-3238 with the passcode of 45765404. 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 November 3,
2017 and can be accessed at (630) 652-3042 with the passcode
of 45765404#. Additionally, a replay of the conference call
will be available on our website for approximately two weeks.
Cautionary Statement on Forward-Looking Statements
The statements in this press release that may be deemed
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, are made in reliance
on the "safe harbor" protections provided under the Private
Securities Litigation Reform Act of 1995. These statements may be
accompanied by words such as "believe," "estimate," "project,"
"expect," "anticipate," or "predict" that convey the uncertainty of
future events or outcomes. These statements are based on
assumptions that we believe are reasonable; however, many important
factors could cause our actual results in the future to differ
materially from the forward-looking statements made herein and in
any other documents or oral presentations made by us, or on our
behalf. Important factors, which could cause actual results to
differ materially from those in forward-looking statements include,
among others, the following:
- Our affiliated funeral and cemetery trust funds own investments
in equity securities, fixed income securities, and mutual funds,
which are affected by market conditions that are beyond our
control.
- We may be required to replenish our affiliated funeral and
cemetery trust funds to meet minimum funding requirements, which
would have a negative effect on our earnings and cash flow.
- Our ability to execute our strategic plan depends on many
factors, some of which are beyond our control.
- Our credit agreements contain covenants that may prevent us
from engaging in certain transactions.
- If we lost the ability to use surety bonding to support our
preneed funeral and preneed cemetery activities, we may be required
to make material cash payments to fund certain trust funds.
- The funeral and cemetery industry is competitive.
- Increasing death benefits related to preneed contracts funded
through life insurance contracts may not cover future increases in
the cost of providing a price-guaranteed service.
- The financial condition of third-party insurance companies that
fund our preneed funeral contracts may impact our future
revenue.
- Unfavorable results of litigation could have a material adverse
impact on our financial statements.
- Unfavorable publicity could affect our reputation and
business.
- If the number of deaths in our markets declines, our cash flows
and revenue may decrease.
- If we are not able to respond effectively to changing consumer
preferences, our market share, revenue, and profitability could
decrease.
- The continuing upward trend in the number of cremations
performed in North America could
result in lower revenue, gross profit, and cash flows.
- Our funeral home and cemetery businesses are high fixed-cost
businesses.
- Regulation and compliance could have a material adverse impact
on our financial results.
- Cemetery burial practice legal claims could have a material
adverse impact on our financial results.
- We use a combination of insurance, self-insurance, and large
deductibles in managing our exposure to certain inherent risks; as
such, we could be exposed to unexpected costs that could negatively
affect our financial performance.
- A number of years elapse before particular tax matters, for
which we have established accruals, are audited and finally
resolved.
- Declines in overall economic conditions beyond our control
could reduce future potential earnings and cash flows and could
result in future impairments to goodwill and/or other intangible
assets.
- Any failure to maintain the security of the information
relating to our customers, their loved ones, our associates, and
our vendors could damage our reputation, could cause us to incur
substantial additional costs and to become subject to litigation,
and could adversely affect our operating results.
- Our Canadian business exposes us to operational, economic, and
currency risks.
- Our level of indebtedness could adversely affect our ability to
raise additional capital to fund our operations, limit our ability
to react to changes in the economy or our industry, and may prevent
us from fulfilling our obligations under our indebtedness.
- A failure of a key information technology system or process
could disrupt and adversely affect our business.
- Failure to maintain effective internal control over financial
reporting could adversely affect our results of operations,
investor confidence, and our stock price.
- The application of unclaimed property laws by certain states to
our preneed funeral and cemetery backlog could have a material
adverse impact on our liquidity, cash flows, and our financial
results.
For further information on these and other risks and
uncertainties, see our Securities and Exchange Commission filings,
including our 2016 Annual Report on Form 10-K/A 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 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 September 30, 2017, we owned and
operated 1,509 funeral homes and 476 cemeteries (of which 287 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
|
|
Nine Months
Ended
|
|
September
30,
|
|
September
30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(In thousands,
except per share amounts)
|
Revenue
|
$
|
731,346
|
|
|
$
|
721,467
|
|
|
$
|
2,282,298
|
|
|
$
|
2,222,083
|
|
Costs and
expenses
|
(581,644)
|
|
|
(580,722)
|
|
|
(1,771,986)
|
|
|
(1,756,425)
|
|
Operating
profit
|
149,702
|
|
|
140,745
|
|
|
510,312
|
|
|
465,658
|
|
General and
administrative expenses
|
(39,213)
|
|
|
(26,916)
|
|
|
(122,307)
|
|
|
(102,668)
|
|
(Losses) gains on
divestitures and impairment charges, net
|
(143)
|
|
|
557
|
|
|
5,545
|
|
|
(30,432)
|
|
Hurricane expenses,
net of insurance proceeds
|
(1,290)
|
|
|
—
|
|
|
(1,290)
|
|
|
—
|
|
Operating
income
|
109,056
|
|
|
114,386
|
|
|
392,260
|
|
|
332,558
|
|
Interest
expense
|
(42,754)
|
|
|
(39,508)
|
|
|
(125,473)
|
|
|
(121,988)
|
|
Loss on early
extinguishment of debt
|
—
|
|
|
(25)
|
|
|
—
|
|
|
(22,503)
|
|
Other income
(expense), net
|
276
|
|
|
110
|
|
|
(165)
|
|
|
(697)
|
|
Income before income
taxes
|
66,578
|
|
|
74,963
|
|
|
266,622
|
|
|
187,370
|
|
(Provision for)
benefit from income taxes
|
(10,437)
|
|
|
(27,422)
|
|
|
32,830
|
|
|
(76,482)
|
|
Net income
|
56,141
|
|
|
47,541
|
|
|
299,452
|
|
|
110,888
|
|
Net income (loss)
attributable to noncontrolling interests
|
23
|
|
|
186
|
|
|
(105)
|
|
|
(96)
|
|
Net income
attributable to common stockholders
|
$
|
56,164
|
|
|
$
|
47,727
|
|
|
$
|
299,347
|
|
|
$
|
110,792
|
|
Basic earnings per
share:
|
|
|
|
|
|
|
|
Net income
attributable to common stockholders
|
$
|
0.30
|
|
|
$
|
0.25
|
|
|
$
|
1.59
|
|
|
$
|
0.57
|
|
Basic weighted
average number of shares
|
187,435
|
|
|
193,274
|
|
|
187,761
|
|
|
193,999
|
|
Diluted earnings per
share:
|
|
|
|
|
|
|
|
Net income
attributable to common stockholders
|
$
|
0.29
|
|
|
$
|
0.24
|
|
|
$
|
1.56
|
|
|
$
|
0.56
|
|
Diluted weighted
average number of shares
|
192,243
|
|
|
196,567
|
|
|
192,417
|
|
|
197,175
|
|
Dividends declared
per share
|
$
|
0.15
|
|
|
$
|
0.13
|
|
|
$
|
0.43
|
|
|
$
|
0.38
|
|
SERVICE
CORPORATION INTERNATIONAL
|
CONSOLIDATED
BALANCE SHEET
|
|
|
September 30,
2017
|
|
December 31,
2016
|
|
(In thousands,
except share amounts)
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
267,956
|
|
|
$
|
194,986
|
|
Receivables,
net
|
77,426
|
|
|
98,455
|
|
Inventories
|
27,161
|
|
|
26,431
|
|
Other
|
32,340
|
|
|
34,524
|
|
Total current
assets
|
404,883
|
|
|
354,396
|
|
|
|
|
|
Preneed receivables,
net and trust investments
|
4,677,585
|
|
|
4,305,165
|
|
Cemetery
property
|
1,792,843
|
|
|
1,776,935
|
|
Property and
equipment, net
|
1,859,408
|
|
|
1,827,587
|
|
Goodwill
|
1,807,816
|
|
|
1,799,081
|
|
Deferred charges and
other assets
|
592,462
|
|
|
567,520
|
|
Cemetery perpetual
care trust investments
|
1,490,201
|
|
|
1,407,465
|
|
Total
assets
|
$
|
12,625,198
|
|
|
$
|
12,038,149
|
|
|
|
|
|
LIABILITIES &
EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
494,020
|
|
|
$
|
439,936
|
|
Current maturities of
long-term debt
|
76,314
|
|
|
89,974
|
|
Income taxes
payable
|
9,395
|
|
|
7,960
|
|
Total current
liabilities
|
579,729
|
|
|
537,870
|
|
Long-term
debt
|
3,292,816
|
|
|
3,196,616
|
|
Deferred
revenue
|
1,796,756
|
|
|
1,731,417
|
|
Deferred tax
liability
|
451,273
|
|
|
454,638
|
|
Other
liabilities
|
375,504
|
|
|
510,322
|
|
Deferred receipts
held in trust
|
3,399,644
|
|
|
3,103,796
|
|
Care trusts'
corpus
|
1,490,525
|
|
|
1,408,243
|
|
Commitments and
contingencies
|
|
|
|
Equity:
|
|
|
|
Common stock, $1 per
share par value, 500,000,000 shares authorized, 198,538,478 and
195,403,644 shares issued, respectively, and 187,746,443 and
189,405,244 shares outstanding, respectively
|
187,746
|
|
|
189,405
|
|
Capital in excess of
par value
|
971,131
|
|
|
990,203
|
|
Retained earnings
(accumulated deficit)
|
33,140
|
|
|
(103,387)
|
|
Accumulated other
comprehensive income
|
46,661
|
|
|
16,492
|
|
Total common
stockholders' equity
|
1,238,678
|
|
|
1,092,713
|
|
Noncontrolling
interests
|
273
|
|
|
2,534
|
|
Total
equity
|
1,238,951
|
|
|
1,095,247
|
|
Total liabilities and
equity
|
$
|
12,625,198
|
|
|
$
|
12,038,149
|
|
SERVICE
CORPORATION INTERNATIONAL
|
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
(In thousands,
except share amounts)
|
|
|
Nine Months Ended
September 30,
|
|
2017
|
|
2016
|
Cash flows from
operating activities:
|
|
|
|
Net income
|
$
|
299,452
|
|
|
$
|
110,888
|
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
Loss on early
extinguishment of debt
|
—
|
|
|
22,503
|
|
Premiums paid on early
extinguishment of debt
|
—
|
|
|
(20,524)
|
|
Depreciation and
amortization
|
113,641
|
|
|
109,531
|
|
Amortization of
intangibles
|
20,923
|
|
|
22,210
|
|
Amortization of
cemetery property
|
46,533
|
|
|
42,573
|
|
Amortization of loan
costs
|
4,344
|
|
|
4,406
|
|
Provision for doubtful
accounts
|
6,846
|
|
|
4,048
|
|
Benefit from deferred
income taxes
|
(148,465)
|
|
|
(11,421)
|
|
(Gains) losses on
divestitures and impairment charges, net
|
(5,545)
|
|
|
30,432
|
|
Share-based
compensation
|
10,719
|
|
|
10,199
|
|
Excess tax benefits
from share-based awards
|
—
|
|
|
(11,512)
|
|
Change in assets and
liabilities, net of effects from acquisitions and
divestitures:
|
|
|
|
Decrease in
receivables
|
12,568
|
|
|
11,447
|
|
Increase in other
assets
|
(15,683)
|
|
|
(7,660)
|
|
Increase in payables
and other liabilities
|
66,455
|
|
|
37,565
|
|
Effect of preneed
sales production and maturities:
|
|
|
|
Increase in preneed
receivables, net and trust investments
|
(58,631)
|
|
|
(48,837)
|
|
Increase in deferred
revenue
|
37,438
|
|
|
67,977
|
|
Decrease in deferred
receipts held in trust
|
(981)
|
|
|
(15,315)
|
|
Net cash provided by
operating activities
|
389,614
|
|
|
358,510
|
|
Cash flows from
investing activities:
|
|
|
|
Capital
expenditures
|
(141,652)
|
|
|
(131,195)
|
|
Acquisitions
|
(49,635)
|
|
|
(66,109)
|
|
Proceeds from
divestitures and sales of property and equipment
|
12,547
|
|
|
13,044
|
|
Net withdrawals of
restricted funds and other
|
175
|
|
|
5,120
|
|
Net cash used in
investing activities
|
(178,565)
|
|
|
(179,140)
|
|
Cash flows from
financing activities:
|
|
|
|
Proceeds from issuance
of long-term debt
|
120,000
|
|
|
1,035,000
|
|
Debt issuance
costs
|
—
|
|
|
(5,232)
|
|
Payments of
debt
|
(26,376)
|
|
|
(27,632)
|
|
Early extinguishment of
debt
|
—
|
|
|
(875,110)
|
|
Principal payments on
capital leases
|
(40,509)
|
|
|
(25,220)
|
|
Proceeds from exercise
of stock options
|
30,672
|
|
|
16,029
|
|
Excess tax benefits
from share-based awards
|
—
|
|
|
11,512
|
|
Purchase of Company
common stock
|
(148,818)
|
|
|
(192,991)
|
|
Payments of
dividends
|
(80,711)
|
|
|
(73,665)
|
|
Purchase of
noncontrolling interest
|
(4,580)
|
|
|
(1,961)
|
|
Bank overdrafts and
other
|
2,790
|
|
|
(1,066)
|
|
Net cash used in
financing activities
|
(147,532)
|
|
|
(140,336)
|
|
Effect of foreign
currency on cash and cash equivalents
|
9,453
|
|
|
3,938
|
|
Net increase in cash
and cash equivalents
|
72,970
|
|
|
42,972
|
|
Cash and cash
equivalents at beginning of period
|
194,986
|
|
|
134,599
|
|
Cash and cash
equivalents at end of period
|
$
|
267,956
|
|
|
$
|
177,571
|
|
View original
content:http://www.prnewswire.com/news-releases/service-corporation-international-announces-third-quarter-2017-financial-results-and-raises-guidance-for-2017-300543449.html
SOURCE Service Corporation International