Exhibit 99.2
SERVICE CORPORATION INTERNATIONAL PROVIDES OUTLOOK FOR FISCAL YEAR 2005
HOUSTON, April 1 /PRNewswire-FirstCall/ -- Service Corporation
International (NYSE: SCI) today provided its fiscal year 2005 outlook for
anticipated results from continuing operations.
Our outlook for 2005 demonstrates continued strength in cash flows and
earnings growth. Cash flows from operating activities excluding special items in
2005 are expected to be $265 to $280 million and free cash flow is expected to
be $200 to $220 million. We expect diluted earnings from continuing operations
excluding special items to be $.32 to $.37 per share. These operating and cash
flow measures are non-GAAP financial measures. For a discussion of our
calculation of cash flows from operating activities excluding special items and
free cash flow, see "Cash Flow Measures" and "Free Cash Flow" below. For a
discussion of our calculation of diluted earnings per share from continuing
operations excluding special items, see "Operating Measures" below. Highlights
of our outlook for 2005 include the following:
Highlights:
In millions, except earnings per share and gross margin percentage
Operating Measures
North America Comparable Operations
Funeral revenues.................................$1,105 to $1,145
Funeral gross margin percentage.....................18% to 22%
Cemetery revenues..................................$545 to $585
Cemetery gross margin percentage....................15% to 20%
International Operations (Chile, Singapore & Germany)
Revenues............................................$40 to $45
Gross margin percentage.............................22% to 25%
General and administrative expenses...................$80 to $85
Other income...........................................$7 to $10
Interest expense......................................$98 to $102
Diluted earnings per share from continuing
operations excluding special items (1)..............$.32 to $.37
Cash Flow Measures
Free cash flow (2)...................................$200 to $220
Cash flows from operating activities
excluding special items (3).........................$265 to $280
Total capital expenditures...........................$105 to $115
Capital improvements at existing facilities...........$60 to $65
Capital expenditures intended to grow
revenues and profits.................................$45 to $50
Depreciation and amortization expense................$140 to $145
(1) Diluted earnings per share from continuing operations excluding special
items is a non-GAAP financial measure. Earnings per share from continuing
operations calculated in accordance with GAAP is not currently accessible
on a forward-looking basis. For a summary of information that is
unavailable and its probable significance, see the discussion under
"Operating Measures" below.
(2) Free cash flow is a non-GAAP financial measure. See our definition of free
cash flow under the heading "Free Cash Flow" below.
(3) Cash flows from operating activities excluding special items is a non-GAAP
financial measure. Cash flows from operating activities calculated in
accordance with GAAP is not currently accessible on a forward-looking
basis. For a summary of information that is unavailable and its probable
significance, see the discussion under "Cash Flow Measures" below.
The outlook for 2005 above provides ranges for certain items on the income
statement that could be used to calculate a broad range of diluted earnings per
share from continuing operations; however, we believe it is more appropriate to
use the range of diluted earnings per share provided.
Guidance for 2005 excludes the following because this information is not
currently available:
-- Effects from potential acquisitions or dispositions, including gains
or losses associated with asset dispositions;
-- Any potential costs associated with settlements of litigation or the
recognition of receivables for insurance recoveries associated with
litigation;
-- Gains or losses associated with the early extinguishment of debt,
changes in the capital structure, or foreign currency transactions;
-- Any potential tax payments, credits or refunds;
-- Any potential cash contributions to our frozen cash balance pension
plan; and
-- Any impact from changes to our accounting for preneed deferred selling
costs as described in "Accounting Matters" below, and other accounting
changes.
For more detail regarding these excluded items and other important factors
that may affect our actual 2005 results, see our "Outlook Assumptions" below.
For a further discussion of risks related to our business that could affect our
outlook for 2005, please refer to the cautionary statement on forward-looking
statements in this press release and in our filings with the Securities and
Exchange Commission ("SEC"). Copies of this press release as well as other SEC
filings can be obtained from our website at http://www.sci-corp.com .
2005 OUTLOOK ASSUMPTIONS
Operating Measures
-- Comparable financial information as used in our 2005 outlook is
intended to be reflective of "same store" results. For purposes of our
2005 guidance, we consider comparable operations as businesses that
were acquired or constructed prior to December 31, 2005 or divested
after January 1, 2004. While revenues could be impacted in 2005 by
potential divestitures or acquisitions in North America, the impact on
gross profits is expected to be minimal.
-- North America comparable funeral revenues are expected to be $1,105
million to $1,145 million in 2005.
- The average revenue per funeral service in 2005 is expected to
increase 1% to 3% from 2004 levels. We expect this increase in
average revenue per funeral service to overcome an estimated 100
to 150 basis point increase in the percentage of cremation
services performed. Cremation services have historically resulted
in lower revenues than funeral services involving a burial. We
expect that the sale of Dignity Memorial(R) funeral and
cremations plans will continue to positively impact the overall
average revenue per funeral service.
- The number of funeral services performed at comparable locations
in 2005 is expected to decline 1% to 2% from 2004 levels.
- Included in funeral revenues are general agency revenues related
to the sale of insurance funded preneed funeral contracts and
revenues from Kenyon, our mass fatality and disaster assistance
subsidiary.
- We expect general agency revenues to grow in 2005 to an
amount between $27 and $31 million.
- We expect revenues from Kenyon to grow in 2005 to an amount
between $5 and $10 million primarily related to its
involvement in the tsunami disaster recovery efforts in
Asia.
- Preneed funeral sales production is expected to grow 3% to 5% in
2005 compared to 2004. Although the revenues associated with
funeral preneed sales are deferred until the funeral services are
performed; we believe preneed funeral sales are an important
measure and indicator of future performance.
-- North America funeral gross margin percentage is expected to be 18% to
22%. In 2005, we expect increases in salary expense and increases in
costs related to additional redundant and monitoring controls we are
implementing at the corporate level to improve field internal
controls. These increased costs will be partially offset by continued
reductions in overhead costs. We expect inflationary increases in
other funeral costs.
-- North America comparable cemetery revenues are expected to be $545 to
$585 million in 2005.
- Property sales are projected to increase 3% to 5% and merchandise
and service sales are projected to increase 1% to 3%. This growth
in new sales will be partially offset by lower legacy revenues
recognized in 2005. Legacy revenues represent revenues associated
with previously sold property that will be constructed and
recognized in 2005. The expected reduction in legacy revenues is
a result of our recent focus on shortening the time between when
property is sold and when it is constructed. The impact of this
accelerated development is not expected to be significant in
future years.
- Cemetery trust fund income is expected to decline approximately
$5 million from 2004 levels.
-- North America cemetery gross margin percentage is expected to be 15%
to 20%. In 2005, we expect increases in salary expense and increases
in costs related to additional redundant and monitoring controls we
are implementing at the corporate level to improve field internal
controls. These increased costs will be partially offset by continued
reductions in overhead costs. We expect inflationary increases in
other cemetery costs.
-- International operations represent our cemetery business in Chile and
funeral businesses in Singapore and Germany. In 2005, we expect modest
improvement from these businesses, excluding currency fluctuations.
While these operations are included in our forecast for the entire
year, it is possible that these businesses could be held for sale
during 2005 if we believe appropriate values could be obtained.
- During February 2005, we completed the sale of our businesses in
Argentina and Uruguay. No gain or loss is expected as a result of
this transaction as the asset values were adjusted to fair market
value at December 31, 2004. Our outlook for 2005 excludes any
impact from these businesses in 2005.
-- General and administrative expenses are expected to be $80 to $85
million in 2005. In 2005, we expect increased costs associated with
Sarbanes-Oxley related compliance efforts and increases in long-term
compensation costs related to the adoption in July 2005 of SFAS No.
123R, "Share-Based Payment" which requires the expensing of stock
options. These increased costs will be partially offset by reductions
in information technology costs and trust operations expenses. Our
outlook for 2005 excludes the possibility of the recognition of costs
associated with settlements of litigation or related receivables for
insurance recoveries.
-- Other income in 2005 is expected to be $7 to $10 million and consists
of cash overrides received from a third party insurance provider
related to the sale of insurance funded preneed funeral contracts,
interest income from cash investments and notes receivable, partially
offset by surety bond premium costs. Our outlook for 2005 excludes the
possibility of gains or losses associated with the early
extinguishment of debt or with foreign currency transactions.
-- Interest expense in 2005 is expected to be $98 to $102 million, of
which approximately $10 million is related to non-cash amortization of
deferred loan costs. The outlook for interest expense in 2005 assumes
the payment of scheduled debt maturities only and does not take into
consideration the possibility of any prepayment or restructuring of
debt.
-- Diluted earnings from continuing operations excluding special items
are expected to range from $.32 to $.37 per share in 2005.
- Diluted earnings from continuing operations excluding special
items does not include effects from potential acquisitions or
dispositions, including gains or losses associated with asset
dispositions; potential costs associated with settlements of
litigation or the recognition of receivables for insurance
recoveries associated with litigation; any impact from potential
accounting changes; and gains or losses associated with the early
extinguishment of debt, changes in the capital structure, or
foreign currency transactions.
- Our former funeral operations in France (which were sold in March
2004) contributed $.02 per share in 2004 that will not recur in
2005.
- The guidance range for diluted earnings from continuing
operations excluding special items in 2005 assumes the fully
diluted weighted average shares outstanding will be reduced to a
range of approximately 305 to 310 million shares due to
anticipated stock repurchases.
- From August 16, 2004 through today, we have invested $213.8
million to repurchase 31.4 million shares of our common
stock. Our existing share repurchase programs currently
provide us with the authority to invest approximately $86
million more for future repurchases of our common stock. We
intend, subject to market conditions and normal trading
restrictions, to make purchases from time to time in the
open market or through privately negotiated transactions.
There can be no assurance that we will buy our common stock
under our share repurchase programs. Important factors that
could cause us not to repurchase our shares include, among
others, unfavorable market conditions, the market price of
our common stock, the nature of other investment
opportunities presented to us from time to time, and the
availability of funds necessary to continue purchasing
common stock.
- Beginning January 1, 2005, we discontinued funding the
Company's matching contributions to our 401(k) retirement
plan with SCI common stock and began to use cash instead.
- The consolidated effective tax rate for continuing operations in
2005 is expected to be approximately 35%.
Cash Flow Measures
-- Free cash flow in 2005 is expected to be $200 to $220 million. For
more information regarding free cash flow, see "Free Cash Flow" below.
-- Cash flows from operating activities excluding special items in 2005
are expected to be $265 to $280 million. Special items include, among
others, any potential tax payments or refunds, potential contributions
to our frozen cash balance pension plan and any possible payments that
could be made associated with the settlement of litigation matters or
related insurance recoveries.
- Our former funeral operations in France (which were sold in March
2004) contributed $18.3 million of cash flow from operating
activities in 2004 that will not recur in 2005.
- Effective January 1, 2005, we began funding our 401(k) retirement
plan with cash versus our historical funding method of using our
common stock. The cash outflow associated with our matching
contributions to our 401(k) retirement plan in 2005 is expected
to be $17 to $20 million.
- Because our payroll is done bi-weekly, we had an extra cash
payroll payment in 2004 of approximately $19 million that will
not recur in 2005. This extra bi-weekly payroll payment occurs
every eleven years and is not expected to recur until 2015. The
reduction in 2005 compared to 2004 as a result of this payroll
effect is expected to occur in the first quarter of 2005.
- In February 2004, we began trusting monies associated with new
preneed contracts in Florida in lieu of surety bonding. We expect
net trust deposits relating to post February 2004 Florida preneed
sales to increase by $5 to $8 million during 2005.
- In March 2005, we received a tax refund of $29.0 million
resulting from certain federal tax carry-back losses. This amount
is excluded from our expectations for cash flows from operating
activities excluding special items and free cash flow.
- As in 2004, we do not expect to pay U.S. federal income taxes in
2005 due to significant tax loss carry-forwards. Because of these
tax loss carry-forwards, we believe we will not pay federal
income taxes until 2007. In 2005, we expect to pay $5 to $10
million for various state, local and Canadian province taxes.
-- Total capital expenditures in 2005 are expected to be $105 to $115
million.
- Of the total projected capital expenditures in 2005, we expect to
spend approximately $60 to $65 million on capital improvements at
our existing facilities.
- Capital expenditures intended to grow revenues and profits are
expected to be $45 to $50 million and include items such as the
construction of new funeral service facilities (particularly on
company-owned cemeteries), the development of high-end cemetery
property such as private family estates, and the investment in
contemporary merchandising displays in our funeral homes.
- In addition to our anticipated capital spending of $105 to $115
million in 2005, we will continue to look for attractive
acquisition opportunities if such acquisitions are available at
reasonable market prices; however, we anticipate only modest
activity due to elevated price expectations of potential sellers.
-- Depreciation and amortization expense in 2005 is expected to be $140
to $145 million.
ACCOUNTING MATTERS
We are in discussions with the Staff of the Securities and Exchange
Commission related to our accounting policies for preneed deferred selling
costs. Similar to the accounting practices of certain other participants in the
deathcare industry, we currently defer selling costs that vary with and are
primarily related to the production of deferred revenues associated with preneed
funeral trust contracts and preneed cemetery contracts. Other preneed selling
costs are expensed in the period incurred. Deferred selling costs are included
in Deferred charges and other assets in our balance sheet.
We have concluded that these selling costs should be expensed in the period
incurred rather than deferred. We will incur a non-cash pretax charge of
approximately $312 million representing the write-off of deferred selling costs
recorded on our balance sheet as of January 1, 2005. Additionally, if we had
expensed these selling costs in 2004, our pretax income in 2004 would have been
reduced by approximately $14 million. A change in the treatment of deferred
preneed selling costs will have no impact on our cash position or cash flow.
Based on the assumptions in our 2005 outlook, we would estimate a similar
impact on 2005 results as in 2004; however, we have not included this effect in
any amounts contained in this outlook press release.
FREE CASH FLOW
Free cash flow is a non-GAAP financial measure. We define free cash flow as
cash flows from operating activities (excluding certain special items described
above under the heading "Cash Flow Measures") less capital improvements at our
existing facilities. Free cash flow is not reduced by mandatory debt service
requirements or by capital expenditures intended to grow revenues and profits
such as the acquisition of funeral service locations or cemeteries in large or
strategic North America markets, construction of high-end cemetery property
(such as private family estates) or the construction of funeral home facilities
on SCI-owned cemeteries, and the investment in contemporary merchandising
displays in our funeral homes.
We believe that free cash flow provides useful information to investors
regarding our financial condition and liquidity as well as our ability to
generate cash for purposes such as reducing debt, expanding through strategic
investments and repurchasing stock or paying dividends. While we believe free
cash flow, as defined, is helpful in managing our business and provides useful
information to investors, certain events may arise, financial or otherwise,
which could require the use of free cash flow so that it would not be available
for the purposes described above, as more fully described in our public filings
with the Securities and Exchange Commission. Furthermore, free cash flow should
be reviewed in addition to, but not as a substitute for, the data provided in
our consolidated statement of cash flows.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
The statements in this press release that are not historical facts are
forward-looking statements made in reliance on the "safe harbor" protections
provided under the Private Securities Litigation Reform Act of 1995. These
statements may be accompanied by words such as "believe," "estimate," "project,"
"expect," "anticipate" or "predict," that convey the uncertainty of future
events or outcomes. These statements are based on assumptions that we believe
are reasonable; however, many important factors could cause our actual results
in the future to differ materially from the forward-looking statements made
herein and in any other documents or oral presentations made by us, or on our
behalf. Important factors, which could cause actual results to differ materially
from those in forward-looking statements include, among others, the following:
-- Changes in general economic conditions, both domestically and
internationally, impacting financial markets (e.g., marketable
security values, as well as currency and interest rate fluctuations)
that could negatively affect us, particularly, but not limited to,
levels of trust fund income, interest expense, pension expense and
negative currency translation effects.
-- Our inability to certify the effectiveness of our internal controls
over financial reporting and an adverse attestation report from our
auditors, and our ability to successfully remediate in 2005 any
identified deficiencies in our internal controls.
-- The outcomes of pending lawsuits and proceedings against us described
more fully in our Securities and Exchange Commission filings.
-- We maintain accruals for tax liabilities which relate to uncertain tax
matters. If these tax matters are unfavorably resolved, we will make
any required payments to tax authorities. If these tax matters are
favorably resolved, the accruals maintained by us will no longer be
required and the removal of such accruals will be recognized through
our consolidated tax provision at the time of resolution.
-- The outcome of a pending Internal Revenue Service audit and future tax
deductions resulting from potential asset sales.
-- Our ability to successfully implement our strategic plan related to
producing operating improvements and strong cash flows.
-- Our ability to successfully implement our plan to reduce costs and
increase cash flows associated with significant changes being made to
our organization structure, process and quality of our sales efforts.
-- Changes to net income as a result of our ongoing reconciliation
processes regarding our trust assets and preneed backlogs.
-- Consequences of the restatement of our financial results for the first
three quarters of 2004.
-- Outcome of discussions with the SEC related to our accounting policies
for preneed deferred selling costs.
-- Changes in consumer demand and/or pricing for our products and
services due to several factors, such as changes in numbers of deaths,
cremation rates, competitive pressures and local economic conditions.
-- Changes in domestic and international political and/or regulatory
environments in which we operate, including potential changes in tax,
accounting and trusting policies.
-- Changes in credit relationships impacting the availability of credit
and the general availability of credit in the marketplace.
-- Our ability to successfully complete our ongoing process improvement
and system implementation projects.
-- Our ability to successfully access surety and insurance markets at a
reasonable cost.
-- Our ability to successfully exploit our substantial purchasing power
with certain of our vendors.
For further information on these and other risks and uncertainties, see our
Securities and Exchange Commission filings, including our 2004 Annual Report on
Form 10-K. Copies of this document as well as other SEC filings can be obtained
from our website at http://www.sci-corp.com . We assume no obligation to
publicly update or revise any forward-looking statements made herein or any
other forward-looking statements made by us, whether as a result of new
information, future events or otherwise.
Service Corporation International (NYSE: SCI), headquartered in Houston,
Texas, is the leading provider of funeral and cemetery services in the world. We
have an extensive network of businesses including 1,190 funeral service
locations and 390 cemeteries in North America as of December 31, 2004. For more
information about Service Corporation International, please visit our website at
http://www.sci-corp.com .
For additional information contact:
Investors: Debbie Young -- Director / Investor Relations
(713) 525-9088
Media: Terry Hemeyer -- Managing Director / Corporate Communications
(713) 525-5497
SOURCE Service Corporation International
-0- 04/01/2005
/CONTACT: Investors, Debbie Young, Director, Investor Relations,
+1-713-525-9088, Media, Terry Hemeyer, Managing Director, Corporate
Communications, +1-713-525-5497, both for Service CorporationInternational/
/FCMN Contact: Sandy.Bobo@sci-us.com /
/Web site: http://www.sci-corp.com