Exhibit 99.2
SERVICE CORPORATION INTERNATIONAL PROVIDES FINANCIAL OUTLOOK FOR
FISCAL YEAR 2006
HOUSTON, March 2 /PRNewswire-FirstCall/ -- Service Corporation International
(NYSE: SCI) today provided its fiscal year 2006 outlook for anticipated
financial results from continuing operations.
Highlights of our outlook for 2006 include the following:
In millions, except earnings per share
and gross margin percentage
- ------------------------------------------
Funeral revenues $1,100 to $1,130
Funeral gross margin percentage 18% to 22%
Cemetery revenues $545 to $575
Cemetery gross margin percentage 13% to 18%
General and administrative expenses $79 to $83
Other income $20 to $25
Interest expense $98 to $102
Depreciation and amortization expense $110 to $115
Diluted earnings per share from continuing
operations excluding special items (A) $.30 to $.34
Cash flows from operations $290 to $315
(A) Diluted earnings per share from continuing operations excluding special
items is a non-GAAP financial measure. We normally reconcile this financial
measure to diluted earnings per share from continuing operations; however,
diluted 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, see the discussion under
"Assumptions" below.
SUMMARY
In 2006, we expect to grow revenues in both the funeral and cemetery
segments. Funeral revenue growth will primarily come from expected increases in
the average revenue per funeral as a result of price increases consistent with
inflation implemented in late 2005 and continued implementation of our strategic
pricing realignment initiative from product offerings to service offerings. This
will help offset expectations that funeral volume will be flat to slightly lower
and Kenyon revenues will decline as disaster management services performed in
2005 are not anticipated in 2006. Cemetery revenue growth will be driven by
expected increases in cemetery sales production (both atneed and preneed), which
will be partially offset by lower legacy revenues associated with constructed
cemetery property recognized in 2006.
Funeral and cemetery gross margins are expected to increase in 2006. We are
beginning to develop operating standards that will help us to be more productive
and to better utilize our scale and resources. Due to the expected reductions in
costs associated with this initiative coupled with increases in revenue, we
believe we will be able to overcome significant increases in healthcare costs
and inflationary increases in other fixed costs.
In 2006, we will begin to expense stock options, which will have an
estimated non-cash cost of approximately $4 million. We also expect to spend $3
to $5 million to further develop our marketing and long-term strategies.
However, general and administrative expenses are expected to decline in 2006
mostly due to reduced costs associated with Sarbanes-Oxley compliance as our
internal controls have improved significantly.
ASSUMPTIONS
Revenue, gross margin percentage, average revenue per funeral service and
number of funeral services performed in our 2006 outlook are intended to be
reflective of comparable or "same store" results. For purposes of our 2006
guidance, we consider comparable operations as businesses that were owned during
the entire period beginning January 1, 2005 and ending December 31, 2005.
The outlook for 2006 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 excluding special items. However, we believe it
is more appropriate to use the more likely range of diluted earnings per share
provided by us above.
The guidance range for diluted earnings from continuing operations excluding
special items in 2006 assumes an effective tax rate of 35% and assumes the fully
diluted weighted average shares outstanding will be approximately 300 million.
We have made and intend to make stock repurchases from time to time in the open
market or through privately negotiated transactions, subject to acceptable
market conditions and normal trading restrictions. There can be no assurance
that we will buy our common stock under our share repurchase programs. Important
factors that could cause us not to repurchase our shares include, among others,
unfavorable market conditions, the market price of our common stock, the nature
of other investment opportunities presented to us from time to time, and the
availability of funds necessary to continue purchasing common stock.
Our outlook for 2006 excludes, but is not limited to, 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;
* Unusual income or losses associated with the Company's merchandise,
service or endowment care trust funds;
* Any potential tax adjustments to reserves, payments, credits or refunds
resulting from the Company's pending Internal Revenue Service audit;
* Any potential cash contributions to our frozen cash balance pension
plan; and
* Any impact from potential accounting changes.
CASH FLOW
Cash Flows From Operating Activities
Historically, we have provided guidance on free cash flow as a non-GAAP
financial measure. Beginning in 2006, we will provide detailed information
related to cash flow from operating activities as a financial measure. We
believe that providing guidance and analysis on cash flows from operating,
investing, and financing activities, as defined by GAAP, will increase the
clarity and transparency of the Company's financial condition and liquidity. As
described below, our cash flow guidance includes detailed information related to
cash flows from investing and financing activities. This additional information
will provide investors with the necessary information to calculate free cash
flow if they should choose to do so.
For the year ended December 31, 2005, we generated cash flows from operating
activities of $312.7 million. Included in 2005 was a receipt of a federal income
tax refund of $29.0 million and premiums paid on the early extinguishment of
debt of $12.2 million. Excluding these special items, cash flow from operating
activities was $295.9 million in 2005. In 2006, we expect cash flows from
operating activities to range from $290 to $315 million, which is flat to
slightly above prior year excluding the special items described above.
In order to eliminate the variable interest rate risk in our operating
margins and improve transparency in our financial statements, we amended certain
of our transportation lease agreements in January 2006. Accordingly, these
leases have been converted from operating leases to capital leases for
accounting purposes beginning January 1, 2006. As a result, our balance sheet
will reflect an increase of assets and related debt of over $80 million. We do
not expect the change in lease accounting to have a material impact on our
consolidated statement of operations. In 2006, depreciation expense will
increase over $20 million; interest expense will increase by approximately $5
million; both of which will be offset by a reduction in operating lease expense
of over $25 million compared to 2005. Cash flows from operating activities will
increase in 2006 over $20 million compared to 2005 as a result of our change in
lease accounting, and will be offset by an increase of the same amount in cash
flows from financing activities. This increase to cash flow from operating
activities will be partially offset by an increase of approximately $16 million
of unusually large long-term incentive compensation payments related to a 2003
award program. Additionally, we do not anticipate paying significant federal or
state income taxes in 2006 due to U.S. Federal and state tax loss carry
forwards.
Operationally, in 2006 we expect to see improvements in cash flows from
operating activities of over $20 million generated by our North America
comparable funeral and cemetery operations. In 2005, we experienced improvements
in working capital which helped to increase our cash flows from operating
activities over prior years. These positive trends primarily resulted from
improved collections of receivables due from customers and due from our preneed
trust funds. In 2006, we expect to see a deceleration of these working capital
improvements, which will decrease cash flows from operating activities by an
estimated $20 million in 2006.
As a result of the items described above and their related impact on
operating cash flows, we expect cash flows from operating activities to be flat
year over year.
Cash Flows From Investing Activities
We believe that the Company's total capital expenditures in 2006 will range
from $105 - $120 million, compared to just under $100 million in 2005. To
provide greater transparency about our capital investments, we will begin in
2006 to separately identify cemetery development capital expenditures (as shown
in the Proforma table below). Previously, a portion of cemetery development
capital expenditures was categorized as growth-oriented capital expenditures in
our previous calculation of free cash flow. In 2006, we intend to increase our
investments in cemetery development, particularly private family estates, which
we believe will help us to grow cemetery revenues and profits. In 2006, we also
expect to increase our investment for the construction of new funeral home
facilities. Our capital spending outlook for 2006 does not include any amounts
for possible acquisitions. We intend to pursue acquisition opportunities, but
only if they can be made on favorable terms.
The following table provides a detail of the Company's 2005 capital spending
and outlook for 2006:
As Reported Proforma Outlook
(In millions) 2005 2005 2006
- ----------------------------------- ----------- ----------- ------------
Capital improvements at existing
facilities $ 68.5 $ 53.0 $50 to $55
Capital expenditures to develop
cemetery property 16.4 31.9 $40 to $45
Construction of new funeral home
facilities 11.5 11.5 $15 to $20
Other 3.0 3.0
----------- ----------- ------------
Total capital expenditures $ 99.4 $ 99.4 $105 to $120
----------- ----------- ------------
Cash Flows From Financing Activities
During 2006, we expect to pay scheduled debt maturities of approximately $20
million, and capital lease payments of over $20 million as described above.
Additionally, we believe that we will pay at least $30 million in cash dividends
to shareholders. While we intend to pay regular quarterly dividends for the
foreseeable future, all dividends are subject to final determination by the
Board of Directors of SCI each quarter after its review of our operating and
financial performance.
Capital Allocations
We believe the most efficient use of our excess cash is to re-invest in our
existing businesses. These capital investments may include the development of
high-end cemetery property or the construction of new funeral home facilities.
We also believe that the acquisition of additional deathcare operations can
leverage our scale and capabilities if the expected returns exceed our cost of
capital. To the extent these investment opportunities are not available on
favorable terms, we intend to return cash to shareholders through stock
repurchases and dividends.
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.
* The outcomes of pending lawsuits and proceedings against us and the
possibility that insurance coverage is deemed not to apply to these
matters or that an insurance carrier is unable to pay any covered amounts
to us.
* Amounts payable by us with respect to our outstanding legal matters
exceeding our established reserves.
* Maintenance of 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
these amounts will be primarily reversed through the tax provision at the
time of resolution. The resolution of these matters is pending the
outcome of an Internal Revenue Service audit and other various audits.
* Our ability to successfully implement our strategic plan related to
producing operating improvements and strong cash flows.
* 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 demographic or 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 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 2005 Annual Report on
Form 10-K, which will be filed in the coming days. 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, headquartered in Houston, Texas, is the
leading provider of funeral and cemetery services in the world. We have an
extensive network of businesses including 1,058 funeral service locations and
358 cemeteries in North America as of December 31, 2005. 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: Greg Bolton - Director / Corporate Communications
(713) 525-5235
SOURCE Service Corporation International
-0- 03/02/2006
/CONTACT: investors, Debbie Young, Director of Investor Relations,
+1-713-525-9088, or media, Greg Bolton, Director of Corporate Communications,
+1-713-525-5235, both of Service Corporation International/
/Web site: http://www.sci-corp.com /