Exhibit 99.1
SERVICE CORPORATION INTERNATIONAL DELAYS FILING 2004 10-K; PROVIDES UPDATE ON
SARBANES-OXLEY INTERNAL CONTROL TESTING
HOUSTON, March 11 /PRNewswire-FirstCall/ -- Service Corporation
International (NYSE: SCI) announced today that it will not file its Annual
Report on Form 10-K for the fiscal year ended December 31, 2004 by March 16,
2005. The Company will file a notification of late filing of its Form 10-K with
the Securities and Exchange Commission, which will give the Company until March
31, 2005 to file its Form 10-K and still be timely filed. The three reasons for
the delay are related to the Company's ongoing projects to verify its cemetery
preneed backlog records, its review of operating lease accounting issues, and
the completion of its assessment of internal controls required by Section 404 of
the Sarbanes-Oxley Act.
The Company commenced a project in 2004 to physically examine approximately
3.6 million individual cemetery contract items to determine whether merchandise
and services previously sold had been delivered. The Company also completed a
similar project in its funeral segment during 2004 reviewing more than 430,000
contracts. Approximately one-half of the cemetery contract items have been
reviewed and the project is expected to be completed in May 2005. As a result of
the progress to date on this project, management believes there will be non-cash
adjustments that will reduce its cemetery deferred revenues. Management believes
that it can determine the adjustments to the remaining individual cemetery
contract items in a timely manner; however, it is possible that the Company will
not be able to meet the extended filing deadline of March 31, 2005.
On February 7, 2005, the Office of the Chief Accountant of the SEC issued a
letter to the American Institute of Certified Public Accountants expressing its
views regarding the application of SFAS No. 13, "Accounting for Leases" to
certain lease accounting issues. Based on the Company's preliminary review,
management believes that its accounting for leases may not be consistent with
generally accepted accounting principles.
The Company is currently reviewing the matters described above, and it is
possible that these matters will require a restatement of prior period financial
statements. Management believes, however, that the results of this review or
potential restatement will not have an impact on previously reported cash flows
or current liquidity.
UPDATE ON SECTION 404 OF THE SARBANES-OXLEY ACT (SOX 404)
Management has substantially completed its assessment of the effectiveness
of the Company's internal control over financial reporting as of December 31,
2004. Based on preliminary results to date, the Company has identified internal
control deficiencies that constituted material weaknesses in internal controls
over financial reporting at December 31, 2004. These
preliminary findings were presented to the Company's Audit Committee who
concurred with management's conclusions. These internal control weaknesses will
be referenced in the report from management in the Company's annual report on
Form 10-K, which will indicate that the Company's internal controls are not
effective, as well as from its independent registered public accounting firm,
which management expects will result in an adverse report related to the
Company's internal control structure (which is different from the independent
auditor's report on the Company's financial statements).
In addition to material weaknesses related to preneed cemetery deferred
revenue transactions and operating lease accounting procedures, other material
weaknesses identified primarily relate to controls surrounding
* review and approval of funeral and cemetery contracts, including
manual contracts and the accuracy of information pertaining to manual
contracts
* review and approval of accounts receivable, including related
adjustments
* cash receipts and cash disbursements
* physical inventory counts
* reconciliations of preneed funeral and cemetery records to trust fund
assets and corresponding liabilities and non-controlling interest, and
deferred selling costs.
As the Company is still in the process of completing all of the necessary
assessment processes required by Section 404 of the Sarbanes-Oxley Act,
management may subsequently determine that additional deficiencies in internal
controls exist that constitute significant deficiencies or material weaknesses.
Management, with the oversight of the Audit Committee, has been
aggressively addressing all of these issues and is committed to effectively
remedying during 2005 known weaknesses in our internal controls and disclosure
controls and procedures. The Company is devoting significant time and resources
to rectify the deficiencies identified. Formal training has been implemented at
both the funeral and cemetery locations on the responsibilities and importance
of following the controls and procedures. The Company's three market support
centers help facilitate the execution of this remediation effort, and serve as
liaisons between field and corporate offices for reinforcement and
implementation of policies and procedures. The Company also implemented in the
latter part of 2004 a new point-of-sale information system that includes
enhancements and improvements for controls related to both preneed and atneed
activities in its funeral home and cemetery locations.
In early 2005 a shared responsibility team was formed, with personnel from
funeral and cemetery locations, the market support centers, and corporate
headquarters. The goal of this team is to review the existing internal control
structure and financial reporting processes at the funeral and cemetery
locations and make recommendations to improve the design and operating
effectiveness of those controls and processes in 2005. The Company
currently relies on processes that are heavily dependent on manual and detective
controls and on human intervention. Many of the funeral and cemetery location
controls are widely dispersed across the Company's network of approximately
1,600 locations making it difficult to achieve a consistently high level of
precision. In the short term, the Company has designed and is implementing
additional redundant, compensating, and monitoring controls at a consolidated
level. These additional controls and procedures will provide the Company with
greater visibility over the performance of the controls in the funeral and
cemetery locations. The Company will continue with formal training at the
funeral and cemetery locations and continually assess the effectiveness of
controls. Additionally, the Company is planning longer-term improvements in key
business processes with an emphasis on preventative controls (versus detective
controls) and system-based controls (versus manual controls) wherever possible.
Cautionary Statement on Forward-Looking Statements
The statements in this press release that are not historical facts are
forward-looking statements. These forward-looking statements have been 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, or on behalf of us. Important factors that could cause
actual results to differ materially from those in forward-looking statements
include, among others, the Company's ability to complete its review of operating
lease issues in a timely manner, the Company's ability to determine the
adjustments to the remaining cemetery individual contract items in a timely
fashion through an estimation process or through physical examination of the
individual cemetery contract items, the continued successful implementation of
information systems, monitoring controls and training programs at the Company's
locations and the Company's ability to timely file its Form 10-K for the year
ended December 31, 2004.
For further information on these and other risks and uncertainties, see our
Securities and Exchange Commission filings, including the Company's 2003 Annual
Report on Form 10-K. Copies of this document as well as other SEC filings can be
obtained from the Company's website at http://www.sci-corp.com . The Company
assumes no obligation to publicly update or revise any forward-looking
statements made herein or any other forward- looking statements made by the
Company, whether as a result of new information, future events or otherwise.
Service Corporation International, 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- 03/11/2005
/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/
/Web site: http://www.sci-corp.com /