HOUSTON, Feb. 13, 2018 /PRNewswire/ -- Service
Corporation International (NYSE: SCI), the largest provider of
deathcare products and services in North
America, today reported results for the fourth quarter 2017.
Our consolidated financial statements can be found at the end of
this press release. The table below summarizes our key financial
results:
(In millions,
except for per share amounts)
|
|
Three Months
Ended
December 31,
|
|
Twelve Months
Ended
December 31,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenue
|
|
$
|
812.7
|
|
|
$
|
809.1
|
|
|
$
|
3,095.0
|
|
|
$
|
3,031.1
|
|
Operating
income
|
|
$
|
176.9
|
|
|
$
|
179.3
|
|
|
$
|
569.2
|
|
|
$
|
511.9
|
|
Net income
attributable to common stockholders
|
|
$
|
247.3
|
|
|
$
|
66.2
|
|
|
$
|
546.7
|
|
|
$
|
177.0
|
|
Diluted earnings per
share
|
|
$
|
1.29
|
|
|
$
|
0.34
|
|
|
$
|
2.84
|
|
|
$
|
0.90
|
|
Earnings excluding
special items(1)
|
|
$
|
95.0
|
|
|
$
|
90.3
|
|
|
$
|
298.5
|
|
|
$
|
253.1
|
|
Diluted earnings per
share excluding special items(1)
|
|
$
|
0.50
|
|
|
$
|
0.47
|
|
|
$
|
1.55
|
|
|
$
|
1.29
|
|
Diluted weighted
average shares outstanding
|
|
191.7
|
|
|
193.0
|
|
|
192.2
|
|
|
196.0
|
|
Net cash provided by
operating activities
|
|
$
|
112.7
|
|
|
$
|
105.1
|
|
|
$
|
502.3
|
|
|
$
|
463.6
|
|
Net cash provided by
operating activities excluding special
items(1)
|
|
$
|
124.2
|
|
|
$
|
106.9
|
|
|
$
|
554.3
|
|
|
$
|
508.5
|
|
|
|
(1)
|
Earnings excluding
special items, diluted earnings per share excluding special items,
and net cash provided by operating activities excluding special
items are non-GAAP financial measures. These items are also
referred to as "adjusted earnings per share" and "adjusted
operating cash flow". A reconciliation from net income attributable
to common stockholders, diluted earnings per share, and net cash
provided by operating activities computed in accordance with
generally accepted accounting principles in the United States
(GAAP) can be found later in this press release under the headings
"Cash Flow and Capital Spending" and "Non-GAAP Financial
Measures".
|
Quarterly Highlights:
- Diluted earnings per share were $1.29 in the fourth quarter of 2017 compared to
$0.34 in the fourth quarter of 2016.
The fourth quarter of 2017 benefited primarily from the reduction
of our deferred long-term tax liabilities due to lower rates
resulting from the Tax Act (see page 8 footnote (1)).
Diluted earnings per share excluding special items was $0.50 in the fourth quarter of 2017 compared to
$0.47 in the fourth quarter of 2016.
Operationally, improved funeral results were offset by lower
cemetery earnings. A lower effective tax rate contributed about
$0.05 per share during the quarter
and was partially offset by approximately $0.02 of net hurricane related expenses.
- Net cash provided by operating activities was $112.7 million in the fourth quarter of 2017
compared to $105.1 million in the
fourth quarter of 2016. The fourth quarter of 2017 was impacted by
a legal settlement while the fourth quarter of 2016 had minimal
impact from special items. Net cash provided by operating
activities excluding special items increased to $124.2 million in the fourth quarter of 2017
compared to $106.9 million in the
prior year quarter. This increase was partially due to increased
cash earnings and favorable working capital impacts from improved
cash collections. This helped to offset higher cash tax payments
(including approximately $25 million
of tax payments deferred from the third quarter as part of federal
tax hurricane relief).
- During the fourth quarter, we returned $78.9 million to shareholders through share
repurchases and dividends, and deployed $4.4
million of capital to build new funeral homes. Our annual
capital deployment for 2017 returned $308.4
million to shareholders through share repurchases and
dividends, and $94.0 million to
accretive acquisitions and the construction of new funeral
homes.
Tom Ryan, the Company's
Chairman and Chief Executive Officer, commented on the fourth
quarter of 2017:
"We delivered a solid quarter as we close out 2017 and are
pleased to report a 6.4% increase in adjusted earnings per share
and a 16.2% increase in adjusted operating cash flow. Growth in our
funeral segment was somewhat offset by an anticipated tough
comparison in our cemetery segment for the fourth quarter. Tax
planning and tax reform also had a significant impact for the
quarter. For the full year 2017, we reported over 20% growth in
adjusted earnings per share and over 9% growth in adjusted
operating cash flows, while we expanded funeral and cemetery
segment profit margin by 70 and 140 basis points, respectively. The
resulting cash flows allowed us to deploy capital of $402 million through acquisitions, dividends, and
share repurchases.
Looking ahead to 2018, we believe we are well-positioned to
deliver solid results, with expected adjusted earnings per share
growth within our long term targeted growth range of 8%-12% prior
to the expected positive impact from revenue recognition accounting
changes and tax reform in 2018. We are announcing an adjusted
earnings per share range of $1.72 to
$1.90 per share and an adjusted cash
flow operations range of $540 million
to $600 million expected for
2018.
We attribute our success to the hard work and dedication of our
23,000 associates, and I thank them for their continued focus on
delivering extraordinary service to our client families despite the
impact of significant challenges, including multiple hurricanes and
wild fires. Looking forward we are confident that our solid
operating platform and healthy financial position will allow us to
continue to grow revenue, leverage our unparalleled scale, and
deploy our capital wisely to enhance shareholder value."
OUTLOOK FOR 2018
Our outlook for diluted earnings per share from continuing
operations excluding special items is anticipated to be in line
with our expected long-term growth framework of 8%-12% after
consideration of special items expected positive impact from
revenue recognition accounting changes and tax reform. Our outlook
for net cash provided by operating activities excluding special
items reflects an anticipated $20
million net decrease in cash taxes compared to 2017
recurring levels as a result of the decreased US statutory tax
rate. Our 2018 capital improvements at existing facilities and
cemetery development expenditures guidance of $185 million includes only minimal capital
expenditures related to hurricane recovery.
(In millions,
except per share amounts)
|
|
2018
Outlook
|
Diluted earnings per
share excluding special items(1)
|
|
$1.72 to
$1.90
|
Net cash provided by
operating activities excluding special
items(1)
|
|
$540 to
$600
|
Capital improvements
at existing facilities and cemetery development
expenditures
|
|
Approximately
$185
|
|
|
(1)
|
Diluted earnings per
share excluding special items and Net cash provided by operating
activities excluding special items are non-GAAP financial measures.
We normally reconcile these non-GAAP financial measures from
diluted earnings per share and net cash provided by operating
activities; however, diluted earnings per share and net cash
provided by operating activities calculated in accordance with GAAP
are not currently accessible on a forward-looking basis. Our
outlook for 2018 excludes the following because this information is
not currently available for 2018: Expenses net of insurance
recoveries related to hurricanes, gains or losses associated with
asset divestitures, gains or losses associated with the early
extinguishment of debt, potential tax reserve adjustments and IRS
settlement payments, acquisition and integration costs, system
implementation and transition costs, and potential costs associated
with settlements of litigation or the recognition of receivables
for insurance recoveries associated with litigation. The foregoing
items, especially gains or losses associated with asset
divestitures, could materially impact our forward-looking diluted
EPS and/or our net cash provided by operating activities calculated
in accordance with GAAP, consistent with the historical disclosures
found in this press release under the headings "Cash Flow and
Capital Spending" and "Non-GAAP Financial Measures".
|
REVIEW OF FINANCIAL RESULTS FOR THE FOURTH QUARTER OF
2017
Consolidated
Segment Results
|
(See definitions of
revenue line items later in this earnings release.)
|
|
(In millions,
except funeral services performed and average revenue per
service)
|
Three Months
Ended
December 31,
|
|
Twelve Months
Ended
December 31,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Funeral
|
|
|
|
|
|
|
|
Atneed
revenue
|
$
|
254.1
|
|
|
$
|
258.8
|
|
|
$
|
1,010.9
|
|
|
$
|
1,045.2
|
|
Matured preneed
revenue
|
148.9
|
|
|
140.0
|
|
|
574.1
|
|
|
537.9
|
|
Core revenue
|
403.0
|
|
|
398.8
|
|
|
1,585.0
|
|
|
1,583.1
|
|
Non-funeral home
revenue
|
11.8
|
|
|
10.7
|
|
|
46.9
|
|
|
43.4
|
|
Recognized preneed
revenue
|
28.5
|
|
|
25.6
|
|
|
117.4
|
|
|
111.6
|
|
Other
revenue
|
29.7
|
|
|
29.2
|
|
|
118.9
|
|
|
131.0
|
|
Total
revenue
|
$
|
473.0
|
|
|
$
|
464.3
|
|
|
$
|
1,868.2
|
|
|
$
|
1,869.1
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
$
|
97.0
|
|
|
$
|
89.8
|
|
|
$
|
371.9
|
|
|
$
|
361.0
|
|
Operating margin
percentage
|
20.5
|
%
|
|
19.3
|
%
|
|
19.9
|
%
|
|
19.3
|
%
|
|
|
|
|
|
|
|
|
Funeral services
performed
|
78,253
|
|
|
77,464
|
|
|
308,786
|
|
|
307,980
|
|
Average revenue per
service
|
$
|
5,301
|
|
|
$
|
5,286
|
|
|
$
|
5,285
|
|
|
$
|
5,281
|
|
|
|
|
|
|
|
|
|
Cemetery
|
|
|
|
|
|
|
|
Atneed
revenue
|
$
|
81.7
|
|
|
$
|
77.0
|
|
|
$
|
319.9
|
|
|
$
|
307.8
|
|
Recognized preneed
revenue
|
228.3
|
|
|
240.3
|
|
|
813.2
|
|
|
756.2
|
|
Core revenue
|
310.0
|
|
|
317.3
|
|
|
1,133.1
|
|
|
1,064.0
|
|
Other cemetery
revenue
|
29.7
|
|
|
27.4
|
|
|
93.8
|
|
|
98.0
|
|
Total
revenue
|
$
|
339.7
|
|
|
$
|
344.7
|
|
|
$
|
1,226.9
|
|
|
$
|
1,162.0
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
$
|
114.8
|
|
|
$
|
120.9
|
|
|
$
|
350.3
|
|
|
$
|
315.4
|
|
Operating margin
percentage
|
33.8
|
%
|
|
35.1
|
%
|
|
28.6
|
%
|
|
27.1
|
%
|
Comparable Funeral Results
The table below details comparable funeral results of operations
("same store") for the three months ended December 31, 2017
and 2016. We consider comparable operations to be those businesses
owned for the entire period beginning January 1, 2016 and
ending December 31, 2017.
(Dollars in
millions, except average revenue per service and average revenue
per contract sold)
|
Three Months Ended
December 31,
|
|
|
2017
|
|
2016
|
|
Var
|
|
%
|
Comparable
revenue:
|
|
|
|
|
|
|
|
|
Atneed
revenue(1)
|
|
$
|
246.5
|
|
|
$
|
250.4
|
|
|
$
|
(3.9)
|
|
|
(1.6)
|
%
|
Matured preneed
revenue(2)
|
|
146.5
|
|
|
136.8
|
|
|
9.7
|
|
|
7.1
|
%
|
Core
revenue(3)
|
|
393.0
|
|
|
387.2
|
|
|
5.8
|
|
|
1.5
|
%
|
Non-funeral home
revenue(4)
|
|
11.8
|
|
|
10.7
|
|
|
1.1
|
|
|
10.3
|
%
|
Recognized preneed
revenue(5)
|
|
28.4
|
|
|
25.6
|
|
|
2.8
|
|
|
10.9
|
%
|
Other
revenue(6)
|
|
29.2
|
|
|
29.0
|
|
|
0.2
|
|
|
0.7
|
%
|
Total comparable
revenue
|
|
$
|
462.4
|
|
|
$
|
452.5
|
|
|
$
|
9.9
|
|
|
2.2
|
%
|
|
|
|
|
|
|
|
|
|
Comparable operating
profit
|
|
$
|
97.0
|
|
|
$
|
88.6
|
|
|
$
|
8.4
|
|
|
9.5
|
%
|
Comparable operating
margin percentage
|
|
21.0
|
%
|
|
19.6
|
%
|
|
1.4
|
%
|
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
Comparable
services performed:
|
|
|
|
|
|
|
|
|
Atneed
|
|
42,434
|
|
|
42,682
|
|
|
(248)
|
|
|
(0.6)
|
%
|
Matured
preneed
|
|
24,275
|
|
|
23,487
|
|
|
788
|
|
|
3.4
|
%
|
Total core
|
|
66,709
|
|
|
66,169
|
|
|
540
|
|
|
0.8
|
%
|
Non-funeral
home
|
|
9,917
|
|
|
9,497
|
|
|
420
|
|
|
4.4
|
%
|
Total comparable
funeral services performed
|
|
76,626
|
|
|
75,666
|
|
|
960
|
|
|
1.3
|
%
|
Core cremation
rate
|
|
47.2
|
%
|
|
46.3
|
%
|
|
0.9
|
%
|
|
1.9
|
%
|
Total comparable
cremation rate
|
|
53.9
|
%
|
|
52.9
|
%
|
|
1.0
|
%
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
Comparable sales
average revenue per service:
|
|
|
|
|
|
|
|
|
Atneed
|
|
$
|
5,809
|
|
|
$
|
5,868
|
|
|
$
|
(59)
|
|
|
(1.0)
|
%
|
Matured
preneed
|
|
6,035
|
|
|
5,823
|
|
|
212
|
|
|
3.6
|
%
|
Total core
|
|
5,891
|
|
|
5,852
|
|
|
39
|
|
|
0.7
|
%
|
Non-funeral
home
|
|
1,185
|
|
|
1,128
|
|
|
57
|
|
|
5.1
|
%
|
Total comparable
average revenue per service
|
|
$
|
5,283
|
|
|
$
|
5,259
|
|
|
$
|
24
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable preneed
sales production:
|
|
|
|
|
|
|
|
|
Total preneed
sales
|
|
$
|
198.8
|
|
|
$
|
196.1
|
|
|
$
|
2.7
|
|
|
1.4
|
%
|
Core contracts
sold
|
|
26,520
|
|
|
26,356
|
|
|
164
|
|
|
0.6
|
%
|
Non-funeral home
contracts sold
|
|
16,038
|
|
|
15,602
|
|
|
436
|
|
|
|
2.8
|
%
|
Core Average revenue
per contract sold
|
|
$
|
6,065
|
|
|
$
|
6,108
|
|
|
(43)
|
|
|
(0.7)
|
%
|
Non-funeral home
average revenue per contract sold
|
|
$
|
2,369
|
|
|
$
|
2,247
|
|
|
$
|
122
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Atneed revenue
represents merchandise and services sold and delivered or performed
once death has occurred.
|
|
|
(2)
|
Matured preneed
revenue represents merchandise and services sold on a preneed
contract through our core funeral homes and that have been
delivered or performed and includes the related merchandise and
service trust fund income.
|
|
|
(3)
|
Core revenue
represents the sum of merchandise and services sold on an atneed
contract or preneed contract and delivered or performed once death
has occurred through our core funeral homes.
|
|
|
(4)
|
Non-funeral home
revenue represents services sold on a preneed or atneed contract
through one of our non-funeral home sales channels (e.g. SCI
Direct) and performed once death has occurred.
|
|
|
(5)
|
Recognized preneed
revenue represents merchandise and travel protection sold on a
preneed contract and delivered before death has
occurred.
|
|
|
(6)
|
Other revenue
primarily comprises general agency revenue, which is commissions we
receive from third-party insurance companies for life insurance
policies sold to preneed customers for the purpose of funding
preneed arrangements.
|
- Total comparable funeral revenue increased by $9.9 million in the fourth quarter of 2017
compared to the same period of 2016. This increase was driven by an
increase in core revenue of $5.8
million, recognized preneed revenue of $2.8 million, and non-funeral home revenue of
$1.1 million.
- The $5.8 million, or 1.5% core
revenue increase was primarily the result of a 0.8% increase in
core services performed and a 0.7% increase in core average revenue
per service. Organic sales average, excluding impacts from foreign
currency and cremation rate, was essentially flat. The core
cremation rate increased 90 basis points.
- The $1.1 million, or 10.3%
non-funeral home revenue increase was the result of a 4.4% increase
in services performed and a 5.1% increase in the average revenue
per service.
- The $2.8 million, or 10.9%
increase in recognized preneed revenue was primarily the result of
an increase in the number of contracts sold.
- Comparable funeral operating profit increased $8.4 million to $97.0
million and the operating margin percentage increased 140
basis points to 21.0%, which is primarily due to the increase in
revenue mentioned above and effective cost management.
- Comparable preneed funeral sales production increased
$2.7 million, or 1.4%, in the fourth
quarter of 2017 compared to 2016, resulting from an increase in the
number of preneed contracts sold.
Comparable Cemetery Results
The table below details comparable cemetery results of
operations ("same store") for the three months ended
December 31, 2017 and 2016. We consider comparable operations
to be those businesses owned for the entire period beginning
January 1, 2016 and ending December 31, 2017.
(Dollars in
millions)
|
|
Three Months Ended
December 31,
|
|
|
2017
|
|
2016
|
|
Var
|
|
%
|
Comparable
revenue:
|
|
|
|
|
|
|
|
|
Atneed
revenue(1)
|
|
$
|
81.0
|
|
|
$
|
76.7
|
|
|
$
|
4.3
|
|
|
5.6
|
%
|
Recognized preneed
revenue(2)
|
|
227.1
|
|
|
240.1
|
|
|
(13.0)
|
|
|
(5.4)
|
%
|
Core
revenue(3)
|
|
308.1
|
|
|
316.8
|
|
|
(8.7)
|
|
|
(2.7)
|
%
|
Other
revenue(4)
|
|
29.3
|
|
|
27.5
|
|
|
1.8
|
|
|
6.5
|
%
|
Total comparable
revenue
|
|
$
|
337.4
|
|
|
$
|
344.3
|
|
|
$
|
(6.9)
|
|
|
(2.0)
|
%
|
|
|
|
|
|
|
|
|
|
Comparable operating
profit
|
|
$
|
114.3
|
|
|
$
|
121.4
|
|
|
$
|
(7.1)
|
|
|
(5.8)
|
%
|
Comparable operating
margin percentage
|
|
33.9
|
%
|
|
35.3
|
%
|
|
(1.4)
|
%
|
|
(4.0)
|
%
|
|
|
|
|
|
|
|
|
|
Comparable preneed
and atneed sales production:
|
|
|
|
|
|
|
|
|
Property
|
|
$
|
155.7
|
|
|
$
|
156.9
|
|
|
$
|
(1.2)
|
|
|
(0.8)
|
%
|
Merchandise and
services
|
|
132.6
|
|
|
125.7
|
|
|
6.9
|
|
|
5.5
|
%
|
Discounts
|
|
(1.1)
|
|
|
(2.7)
|
|
|
1.6
|
|
|
(59.3)
|
%
|
Preneed and atneed
sales production
|
|
$
|
287.2
|
|
|
$
|
279.9
|
|
|
$
|
7.3
|
|
|
2.6
|
%
|
Recognition
rate(5)
|
|
107.3
|
%
|
|
113.2
|
%
|
|
|
|
|
|
|
(1)
|
Atneed revenue
represents property, merchandise, and services sold and delivered
or performed once death has occurred.
|
|
|
(2)
|
Recognized preneed
revenue represents property, merchandise, and services sold on a
preneed contract that have been delivered or performed and includes
the related merchandise and service trust fund income.
|
|
|
(3)
|
Core revenue
represents the sum of property, merchandise, and services that have
been delivered or performed as well as the related merchandise and
service trust fund income.
|
|
|
(4)
|
Other revenue is
primarily related to endowment care trust fund income, royalty
income, and interest and finance charges earned from customer
receivables on preneed installment contracts.
|
|
|
(5)
|
Represents the ratio
of current period core revenue stated as a percentage of current
period preneed and atneed sales production.
|
- Comparable cemetery revenue decreased $6.9 million, or 2.0% in the fourth quarter of
2017 compared to 2016, led by a $13.0
million decrease in recognized preneed revenue, partially
offset by higher atneed revenue and higher other revenue. The
decrease in recognized preneed revenue is due to a lower
recognition rate for the quarter, which is associated with premier
inventory projects sold over multiple quarters that were recognized
cumulatively upon completion in the fourth quarter of 2016. During
2017, revenue from these projects was recognized upon sale more
evenly as we continued to sell into these developed inventory
projects throughout 2017. Completed projects during the fourth
quarter of 2017 did not have as material of an impact for revenue
as the prior year quarter.
- Comparable preneed cemetery sales production increased
$2.1 million, or 1.0%, quarter over
quarter. Certain markets continued to feel the impact of the
hurricanes from the prior quarter. However, the slight growth over
the prior year quarter is primarily due to an increase in large
sales activity and an increase in the average revenue per contract
sold somewhat offset by a decline in contracts sold.
- Comparable cemetery operating profit decreased $7.1 million to $114.3
million and the operating margin percentage decreased 140
basis points to 33.9%, which is primarily due to the decrease in
recognized preneed revenue mentioned above and normal fixed cost
growth.
Other Financial Results
- General and administrative expenses decreased $2.9 million to $32.1
million in the fourth quarter of 2017. The prior year
quarter includes a $5.6 million
charge related to a pension termination settlement and $0.8 million of system integration costs related
to the 2016 implementation of a new general ledger system.
Excluding these costs, general and administrative expenses
increased $3.5 million compared to
the prior year quarter due to expenses related to improving our
business location websites and increased charitable donations
related to hurricane relief efforts.
- Interest expense increased $3.5
million to $43.7 million in
the fourth quarter of 2017, as we increased the balance of our
lower rate variable debt to maintain our leverage ratio.
Additionally, we incurred higher rates as LIBOR increased in the
fourth quarter of 2017.
- The GAAP effective income tax rate for the fourth quarter of
2017 was a benefit of 85.1%, which compared to the prior year
fourth quarter provision of 52.3%. The GAAP effective tax rate for
the three months ended December 31,
2017 is lower than the federal statutory tax rate of 35%
primarily due to the favorable effects of the corporate income tax
rate reduction from 35% to 21% under the Tax Act signed in
December 2017 requiring the
remeasurement of deferred tax assets and liabilities. The higher
GAAP effective tax rate for the prior year quarter was primarily a
result of a valuation allowance recorded against foreign net
deferred tax assets for which a future net benefit may not be
realized. Our adjusted effective income tax rate was 28.2% in the
fourth quarter of 2017 compared to 36.3% in the prior year quarter.
The reduction in our adjusted effective income tax rate was from
certain tax planning initiatives, hurricane related federal tax
credits and 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
fourth quarter of 2017 was a reduction to our adjusted provision
for income taxes of $1.7 million,
which had the effect of increasing our diluted earnings per share
excluding special items by less than a penny per share. The impact
of the restricted stock deliveries and option exercises for the
full year of 2017 was a reduction to our adjusted provision for
income taxes of $18.6 million, which
had the effect of increasing our diluted earnings per share
excluding special items by approximately nine and a half cents per
share.
Cash Flow and Capital Spending
Set forth below is a reconciliation of our reported net cash
provided by operating activities prepared in accordance with GAAP
to net cash provided by operating activities excluding special
items (or sometimes referred to as adjusted operating cash flow).
We do not intend for this information to be considered in isolation
or as a substitute for other measures of performance prepared in
accordance with GAAP.
(In
millions)
|
Three Months
Ended
December 31,
|
|
Twelve Months
Ended
December 31,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net cash provided by
operating activities, as reported
|
$
|
112.7
|
|
|
$
|
105.1
|
|
|
$
|
502.3
|
|
|
$
|
463.6
|
|
Premiums paid on
early extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
20.5
|
|
Acquisition,
integration, and system transition costs
|
—
|
|
|
0.6
|
|
|
—
|
|
|
11.7
|
|
Legal settlements,
net of insurance recoveries
|
11.5
|
|
|
—
|
|
|
11.5
|
|
|
—
|
|
Excess tax benefits
from share-based awards
|
—
|
|
|
1.2
|
|
|
—
|
|
|
12.7
|
|
IRS tax settlement
(on prior year audits)
|
—
|
|
|
—
|
|
|
34.2
|
|
|
—
|
|
Pension termination
settlement
|
—
|
|
|
—
|
|
|
6.3
|
|
|
—
|
|
Net cash provided by
operating activities excluding special items
|
$
|
124.2
|
|
|
$
|
106.9
|
|
|
$
|
554.3
|
|
|
$
|
508.5
|
|
Cash taxes included
in net cash provided by operating activities excluding special items
|
|
|
|
|
|
|
|
$
|
45.3
|
|
|
$
|
11.7
|
|
|
$
|
132.7
|
|
|
$
|
112.6
|
|
Net cash provided by operating activities excluding special
items was $124.2 million in the
fourth quarter of 2017 compared to $106.9
million in the prior year quarter. The increase was
partially due to increased cash earnings and favorable working
capital impacts from improved preneed cemetery and atneed funeral
cash collections. This helped to offset higher cash tax payments of
approximately $34 million, which
included $25 million of deferred cash
tax payments from the third quarter as allowed by hurricane relief
federal tax provisions. We also had $16
million of non-earnings trust fund withdrawals as a result
of 2017 working capital initiatives that we do not expect to recur
in 2018.
A summary of our capital expenditures is set forth below:
Capital Expenditures
(In millions)
|
Three Months
Ended
December 31,
|
|
Twelve Months
Ended
December 31,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Capital improvements
at existing field locations and corporate
|
$
|
44.4
|
|
|
$
|
27.9
|
|
|
$
|
117.6
|
|
|
$
|
90.4
|
|
Development of
cemetery property
|
24.4
|
|
|
29.3
|
|
|
79.1
|
|
|
85.4
|
|
Capital
improvements at existing facilities and cemetery development
expenditures
|
68.8
|
|
|
57.2
|
|
|
196.7
|
|
|
175.8
|
|
Growth capital
expenditures/construction of new funeral home facilities
|
4.0
|
|
|
5.1
|
|
|
17.8
|
|
|
17.7
|
|
Total capital
expenditures
|
$
|
72.8
|
|
|
$
|
62.3
|
|
|
$
|
214.5
|
|
|
$
|
193.5
|
|
Total capital expenditures increased in the current quarter by
$10.5 million. We incurred
$6.0 million of additional spend on
locations affected by the hurricanes during the quarter. We also
invested more this quarter on infrastructure improvements within
our facilities.
For the full year 2017, we spent $196.7
million on capital improvements at existing facilities and
cemetery development expenditures, which we expect to be
$185 million in 2018 after reduction
of hurricane related spending and less expenditures on
customer-facing technology projects.
TRUST FUND RETURNS
Total trust fund returns include realized and unrealized gains
and losses and dividends and are shown gross without netting of
certain fees. A summary of our consolidated trust fund returns for
the three and twelve months ended December 31, 2017 is set
forth below:
|
|
Three
Months
|
|
Twelve
Months
|
Preneed
funeral
|
|
3.5%
|
|
16.1%
|
Preneed
cemetery
|
|
3.7%
|
|
16.8%
|
Cemetery perpetual
care
|
|
2.5%
|
|
9.5%
|
Combined trust
funds
|
|
3.2%
|
|
14.1%
|
NON-GAAP FINANCIAL MEASURES
Earnings excluding special items and diluted earnings per share
excluding special items shown above are non-GAAP financial
measures. We believe these non-GAAP financial measures provide a
consistent basis for comparison between quarters and better reflect
the performance of our core operations, as they are not influenced
by certain income or expense items not affecting operations. We
also believe these measures help facilitate comparisons to our
competitors' operating results.
Set forth below is a reconciliation of our reported net income
attributable to common stockholders to earnings excluding special
items and our GAAP diluted earnings per share to diluted earnings
per share excluding special items. We do not intend for this
information to be considered in isolation or as a substitute for
other measures of performance prepared in accordance with GAAP.
(In millions,
except diluted EPS)
|
Three Months Ended
December 31,
|
|
2017
|
|
2016
|
|
Net
Income
|
|
Diluted
EPS
|
|
Net
Income
|
|
Diluted
EPS
|
Net income
attributable to common stockholders, as reported
|
$
|
247.3
|
|
|
$
|
1.29
|
|
|
$
|
66.2
|
|
|
$
|
0.34
|
|
Pre-tax reconciling
items:
|
|
|
|
|
|
|
|
Gain on divestitures
and impairment charges, net
|
(1.5)
|
|
|
(0.01)
|
|
|
(3.6)
|
|
|
(0.01)
|
|
Losses on early
extinguishment of debt
|
0.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Pension termination
settlement
|
—
|
|
|
—
|
|
|
5.6
|
|
|
0.03
|
|
Acquisition,
integration, and system transition costs
|
—
|
|
|
—
|
|
|
0.8
|
|
|
—
|
|
Tax reconciling
items:
|
|
|
|
|
|
|
|
Tax provision from
special items
|
1.0
|
|
|
0.01
|
|
|
3.9
|
|
|
0.02
|
|
Change in certain tax
reserves and other (1)
|
(152.1)
|
|
|
(0.79)
|
|
|
17.4
|
|
|
0.09
|
|
Earnings excluding
special items and diluted earnings per share excluding special
items
|
$
|
95.0
|
|
|
$
|
0.50
|
|
|
$
|
90.3
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
Diluted weighted
average shares outstanding (in thousands)
|
|
|
191,729
|
|
|
|
|
192,957
|
|
(In millions,
except diluted EPS)
|
Twelve Months
Ended December 31,
|
|
2017
|
|
2016
|
|
Net
Income
|
|
Diluted
EPS
|
|
Net
Income
|
|
Diluted
EPS
|
Net income
attributable to common stockholders, as reported
|
$
|
546.7
|
|
|
$
|
2.84
|
|
|
$
|
177.0
|
|
|
$
|
0.90
|
|
Pre-tax reconciling
items:
|
|
|
|
|
|
|
|
(Gains) losses on
divestitures and impairment charges, net
|
(7.0)
|
|
|
(0.04)
|
|
|
26.8
|
|
|
0.14
|
|
Losses on early
extinguishment of debt
|
0.3
|
|
|
—
|
|
|
22.5
|
|
|
0.11
|
|
Acquisition,
integration, and system transition costs
|
—
|
|
|
—
|
|
|
17.5
|
|
|
0.09
|
|
Legal
settlements, net of insurance recoveries
|
11.5
|
|
|
0.06
|
|
|
—
|
|
|
—
|
|
Pension
termination settlement
|
12.8
|
|
|
0.07
|
|
|
5.6
|
|
|
0.03
|
|
Tax reconciling
items:
|
|
|
|
|
|
|
|
Tax benefit from
special items
|
(5.7)
|
|
|
(0.03)
|
|
|
(17.2)
|
|
|
(0.09)
|
|
Change in certain tax
reserves and other (1)
|
(260.1)
|
|
|
(1.35)
|
|
|
20.9
|
|
|
0.11
|
|
Earnings excluding
special items and diluted earnings per share excluding special
items
|
$
|
298.5
|
|
|
$
|
1.55
|
|
|
$
|
253.1
|
|
|
$
|
1.29
|
|
|
|
|
|
|
|
|
|
Diluted weighted
average shares outstanding (in thousands)
|
|
|
192,246
|
|
|
|
|
196,042
|
|
|
|
(1)
|
On December 22, 2017,
the U.S. government enacted comprehensive tax legislation commonly
referred to as the "Tax Act". As a result of the Tax Act, we
realized a net tax benefit for the remeasurement of deferred tax
assets and liabilities, partially offset by a transition tax on
certain unrepatriated earnings of our foreign subsidiaries. 2017 is
also impacted by the settlement of IRS tax audits related to tax
years 1999-2005. 2016 was impacted by a foreign valuation allowance
and non-deductible goodwill resulting from gains on divestitures.
Please see our 2017 Form 10-K filing for further details, which
will be filed later today.
|
Conference Call and Webcast
We will host a conference call on Wednesday, February 14, 2018, at 8:00 a.m. Central Time. A question and answer
session will follow a brief presentation made by
management. The conference call dial-in number is (847)
585-4405 with the passcode of 46371379. The conference call will
also be broadcast live via the Internet and can be accessed through
our website at www.sci-corp.com. A replay of the conference
call will be available through February 21,
2018 and can be accessed at (630) 652-3042 with the passcode
of 46371379#. Additionally, a replay of the conference call
will be available on our website for approximately one week.
Cautionary Statement on Forward-Looking Statements
The statements in this press release that are not historical
facts are forward-looking statements made in reliance on the "safe
harbor" protections provided under the Private Securities
Litigation Reform Act of 1995. These statements may be accompanied
by words such as "believe," "estimate," "project," "expect,"
"anticipate," or "predict," that convey the uncertainty of future
events or outcomes. These statements are based on assumptions that
we believe are reasonable; however, many important factors could
cause our actual results in the future to differ materially from
the forward-looking statements made herein and in any other
documents or oral presentations made by us, or on our behalf.
Important factors, which could cause actual results to differ
materially from those in forward-looking statements include, among
others, the following:
- 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 or annuity 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 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 decline, our cash flows
and revenue may decrease.
- If we are not able to respond effectively to changing consumer
preferences, our market share, revenue, and/or profitability could
decrease.
- The continuing upward trend in the number of cremations
performed in North America could
result in lower revenue, operating 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 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,
therefore, we could be exposed to unexpected costs that could
negatively affect our financial performance.
- A number of years may elapse before particular tax matters, for
which we have established accruals, are audited and finally
resolved.
- Changes in taxation as well as the inherent difficulty in
quantifying potential tax effects of business decisions could have
a material adverse effect on the results of our operations,
financial condition, or cash flows.
- 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, financial
condition, or cash flow.
- 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 2017 Annual Report on Form 10-K and as updated in our
Form 10-Q filings. Copies of this document as well as other SEC
filings can be obtained from our website at www.sci-corp.com. We
assume no obligation and make no undertaking to publicly update or
revise any forward-looking statements made herein or any other
forward-looking statements made by us whether as a result of new
information, future events, or otherwise.
About Service Corporation International
Service Corporation International (NYSE: SCI), headquartered in
Houston, Texas, is North America's leading provider of deathcare
products and services. At December 31, 2017, we owned and
operated 1,488 funeral homes and 473 cemeteries (of which 281 are
combination locations) in 45 states, eight Canadian provinces, the
District of Columbia, and
Puerto Rico. Through our
businesses, we market the Dignity Memorial® brand which offers
assurance of quality, value, caring service, and exceptional
customer satisfaction. For more information about Service
Corporation International, please visit our website at
www.sci-corp.com. For more information about Dignity Memorial®,
please visit www.dignitymemorial.com.
For additional
information contact:
|
|
|
Investors:
|
|
Debbie Young -
Director / Investor Relations
|
|
(713)
525-9088
|
Media:
|
|
Jay Andrew - Managing
Director / Corporate Communications
|
|
(713)
525-5235
|
SERVICE
CORPORATION INTERNATIONAL
|
CONSOLIDATED
STATEMENT OF OPERATIONS
|
|
|
Three Months
Ended
December
31,
|
|
Twelve Months
Ended
December
31,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(In thousands,
except per share amounts)
|
Revenue
|
$
|
812,733
|
|
|
$
|
809,053
|
|
|
$
|
3,095,031
|
|
|
$
|
3,031,137
|
|
Costs and
expenses
|
(600,856)
|
|
|
(598,276)
|
|
|
(2,372,842)
|
|
|
(2,354,703)
|
|
Operating
profit
|
211,877
|
|
|
210,777
|
|
|
722,189
|
|
|
676,434
|
|
General and
administrative expenses
|
(32,116)
|
|
|
(35,061)
|
|
|
(154,423)
|
|
|
(137,730)
|
|
Gains (losses) on
divestitures and impairment charges, net
|
1,470
|
|
|
3,613
|
|
|
7,015
|
|
|
(26,819)
|
|
Hurricane expenses,
net of insurance proceeds
|
(4,294)
|
|
|
—
|
|
|
(5,584)
|
|
|
—
|
|
Operating
income
|
176,937
|
|
|
179,329
|
|
|
569,197
|
|
|
511,885
|
|
Interest
expense
|
(43,652)
|
|
|
(40,105)
|
|
|
(169,125)
|
|
|
(162,093)
|
|
Losses on early
extinguishment of debt, net
|
(274)
|
|
|
—
|
|
|
(274)
|
|
|
(22,503)
|
|
Other income
(expense), net
|
625
|
|
|
65
|
|
|
460
|
|
|
(631)
|
|
Income before income
taxes
|
133,636
|
|
|
139,289
|
|
|
400,258
|
|
|
326,658
|
|
Benefit from
(provision for) income taxes
|
113,759
|
|
|
(72,872)
|
|
|
146,589
|
|
|
(149,353)
|
|
Net Income
|
247,395
|
|
|
66,417
|
|
|
546,847
|
|
|
177,305
|
|
Net loss attributable
to noncontrolling interests
|
(79)
|
|
|
(171)
|
|
|
(184)
|
|
|
(267)
|
|
Net income
attributable to common stockholders
|
247,316
|
|
|
66,246
|
|
|
546,663
|
|
|
177,038
|
|
Basic earnings per
share:
|
|
|
|
|
|
|
|
Net income
attributable to common stockholders
|
1.32
|
|
|
0.35
|
|
|
2.91
|
|
|
0.92
|
|
Basic weighted
average number of shares
|
187,241
|
|
|
190,367
|
|
|
187,630
|
|
|
193,086
|
|
Diluted earnings per
share
|
|
|
|
|
|
|
|
Net income
attributable to common stockholders
|
1.29
|
|
|
0.34
|
|
|
2.84
|
|
|
0.90
|
|
Diluted weighted
average number of shares
|
191,729
|
|
|
192,957
|
|
|
192,246
|
|
|
196,042
|
|
Dividends declared
per share
|
0.15
|
|
|
0.13
|
|
|
0.58
|
|
|
0.51
|
|
SERVICE
CORPORATION INTERNATIONAL
CONSOLIDATED
BALANCE SHEET
|
|
|
December
31,
|
|
2017
|
|
2016
|
|
(In thousands,
except share amounts)
|
ASSETS
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
330,039
|
|
|
$
|
194,986
|
|
Receivables,
net
|
90,304
|
|
|
98,455
|
|
Inventories
|
25,378
|
|
|
26,431
|
|
Other
|
35,575
|
|
|
34,524
|
|
Total current
assets
|
481,296
|
|
|
354,396
|
|
|
|
|
|
Preneed receivables,
net and trust investments
|
4,778,842
|
|
|
4,305,165
|
|
Cemetery
property
|
1,791,989
|
|
|
1,776,935
|
|
Property and
equipment, net
|
1,873,044
|
|
|
1,827,587
|
|
Goodwill
|
1,805,981
|
|
|
1,799,081
|
|
Deferred charges and
other assets
|
601,184
|
|
|
567,520
|
|
Cemetery perpetual
care trust investments
|
1,532,167
|
|
|
1,407,465
|
|
Total
assets
|
$
|
12,864,503
|
|
|
$
|
12,038,149
|
|
|
|
|
|
LIABILITIES & EQUITY
|
Current
liabilities:
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
489,172
|
|
|
$
|
439,936
|
|
Current maturities of
long-term debt
|
337,337
|
|
|
89,974
|
|
Income taxes
payable
|
2,470
|
|
|
7,960
|
|
Total current
liabilities
|
828,979
|
|
|
537,870
|
|
Long-term
debt
|
3,135,316
|
|
|
3,196,616
|
|
Deferred
revenue
|
1,789,776
|
|
|
1,731,417
|
|
Deferred tax
liability
|
283,765
|
|
|
454,638
|
|
Other
liabilities
|
410,982
|
|
|
510,322
|
|
Deferred receipts
held in trust
|
3,475,430
|
|
|
3,103,796
|
|
Care trusts'
corpus
|
1,530,818
|
|
|
1,408,243
|
|
Commitments and
contingencies
|
|
|
|
Equity:
|
|
|
|
Common stock, $1 per
share par value, 500,000,000 shares authorized, 191,935,647 and
195,403,644 shares issued, respectively, and 186,614,747 and
189,405,244 shares outstanding, respectively
|
186,615
|
|
|
189,405
|
|
Capital in excess of
par value
|
970,468
|
|
|
990,203
|
|
Retained earnings
(accumulated deficit)
|
210,364
|
|
|
(103,387)
|
|
Accumulated other
comprehensive income
|
41,943
|
|
|
16,492
|
|
Total common
stockholders' equity
|
1,409,390
|
|
|
1,092,713
|
|
Noncontrolling
interests
|
47
|
|
|
2,534
|
|
Total
equity
|
1,409,437
|
|
|
1,095,247
|
|
Total liabilities and
equity
|
$
|
12,864,503
|
|
|
$
|
12,038,149
|
|
SERVICE
CORPORATION INTERNATIONAL
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
|
Years Ended
December 31,
|
|
2017
|
|
2016
|
|
(In
thousands)
|
Cash flows from
operating activities:
|
|
|
|
Net income
|
$
|
546,847
|
|
|
$
|
177,305
|
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
Losses on early
extinguishment of debt, net
|
274
|
|
|
22,503
|
|
Premiums paid on
early extinguishment of debt
|
—
|
|
|
(20,524)
|
|
Depreciation and
amortization
|
153,141
|
|
|
147,233
|
|
Amortization of
intangibles
|
27,650
|
|
|
30,956
|
|
Amortization of
cemetery property
|
68,102
|
|
|
66,745
|
|
Amortization of loan
costs
|
5,859
|
|
|
5,826
|
|
Provision for
doubtful accounts
|
9,980
|
|
|
10,776
|
|
(Benefit) provision
for deferred income taxes
|
(317,838)
|
|
|
7,490
|
|
(Gains) losses on
divestitures and impairment charges, net
|
(7,015)
|
|
|
26,819
|
|
Share-based
compensation
|
14,788
|
|
|
14,056
|
|
Excess tax benefits
from share-based awards
|
—
|
|
|
(12,685)
|
|
Change in assets and
liabilities, net of effects from acquisitions and
dispositions:
|
|
|
|
Increase in
receivables
|
(9,740)
|
|
|
(14,198)
|
|
(Increase) decrease
in other assets
|
(15,385)
|
|
|
17,855
|
|
Increase in payables
and other liabilities
|
81,763
|
|
|
47,888
|
|
Effect of preneed
sales production and maturities:
|
|
|
|
Increase in preneed
receivables, net and trust investments
|
(63,994)
|
|
|
(73,394)
|
|
Increase in deferred
revenue
|
31,182
|
|
|
34,775
|
|
Decrease in deferred
receipts held in trust
|
(23,274)
|
|
|
(25,831)
|
|
Net cash provided by
operating activities
|
502,340
|
|
|
463,595
|
|
Cash flows from
investing activities:
|
|
|
|
Capital
expenditures
|
(214,501)
|
|
|
(193,446)
|
|
Acquisitions, net of
cash acquired (excluding $26.2 million and $3.7 million of 1031
exchange funds, respectively)
|
(49,988)
|
|
|
(69,146)
|
|
Proceeds from
divestitures and sales of property and equipment
|
28,429
|
|
|
41,310
|
|
Net withdrawals of
restricted funds and other
|
175
|
|
|
5,150
|
|
Net cash used in
investing activities
|
(235,885)
|
|
|
(216,132)
|
|
Cash flows from
financing activities:
|
|
|
|
Proceeds from
issuance of long-term debt
|
1,787,500
|
|
|
1,060,000
|
|
Debt issuance
costs
|
(12,939)
|
|
|
(5,232)
|
|
Scheduled payments of
debt
|
(468,973)
|
|
|
(36,414)
|
|
Early payments of
debt
|
(1,117,512)
|
|
|
(875,110)
|
|
Principal payments on
capital leases
|
(51,106)
|
|
|
(33,119)
|
|
Proceeds from
exercise of stock options
|
33,611
|
|
|
17,662
|
|
Excess tax benefits
from share-based awards
|
—
|
|
|
12,685
|
|
Purchase of Company
common stock
|
(199,637)
|
|
|
(227,928)
|
|
Payments of
dividends
|
(108,750)
|
|
|
(98,418)
|
|
Purchase of
noncontrolling interest
|
(4,580)
|
|
|
(1,961)
|
|
Bank overdrafts and
other
|
5,959
|
|
|
(1,095)
|
|
Net cash used in
financing activities
|
(136,427)
|
|
|
(188,930)
|
|
Effect of foreign
currency
|
5,025
|
|
|
1,854
|
|
Net increase in cash
and cash equivalents
|
135,053
|
|
|
60,387
|
|
Cash and cash
equivalents at beginning of period
|
194,986
|
|
|
134,599
|
|
Cash and cash
equivalents at end of period
|
$
|
330,039
|
|
|
$
|
194,986
|
|
View original
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SOURCE Service Corporation International