Exhibit 99.1
FOR IMMEDIATE RELEASE:
SERVICE CORPORATION INTERNATIONAL
ANNOUNCES FIRST QUARTER 2006 FINANCIAL RESULTS
- - CONFERENCE CALL TO BE WEBCAST ON THURSDAY, MAY 11, 2006, AT 8:30 A.M. CENTRAL
TIME.
HOUSTON, Texas, May 10, 2006 . . . Service Corporation International (NYSE:
SCI), which owns and operates funeral service locations and cemeteries, today
reported net income for the first quarter of 2006 of $24.2 million, or $.08 of
earnings per diluted share, compared to a loss of $(154.9) million, or ($.49)
per diluted share, from the first quarter of 2005.
2006 HIGHLIGHTS
o On April 3, 2006, we announced an agreement to acquire the Alderwoods
Group combining two of the leading providers of funeral and cemetery
services in North America.
o North America comparable revenues increased 2.8% in the first quarter
of 2006 to $436.4 million driven by strong cemetery growth of 11.3%
over the prior year period.
o Average revenue per funeral service increased 6.6% to $4,599 in the
first quarter of 2006 compared to the same period last year, which
helped to offset a 5.1% decline in comparable funeral services
performed.
o Cash flow from operating activities in the first quarter of 2006 was
$80.2 million, in line with management's expectations.
o Cash on hand exceeded $500 million on May 10, 2006.
o On May 10, 2006, the Company's Board of Directors approved a dividend
of $.025 per common share based on our first quarter financial
results.
Earnings from continuing operations excluding special items were $29.6 million,
or $.10 per diluted share, in the first quarter of 2006. This compares to
earnings from continuing operations excluding special items of $35.9 million, or
$.11 per diluted share, in the same period last year. Earnings from continuing
operations excluding special items is a non-GAAP financial measure. See a
reconciliation of this measure to net income computed in accordance with GAAP
included in a separate section later in this press release. The Company began
expensing stock options on January 1, 2006. In the first quarter of 2006, net
income was reduced by $0.9 million after tax due to this change in accounting.
TOM RYAN, THE COMPANY'S PRESIDENT AND CHIEF EXECUTIVE OFFICER, COMMENTED ON THE
FIRST QUARTER OF 2006:
"We are proud of our accomplishments in the first quarter of 2006. The
announcement of our acquisition of Alderwoods has proven our commitment to our
shareholders to expand our scale and scope through disciplined growth
initiatives. Our management team has stressed this is the right transaction at
the right time and we look forward to bringing these two companies together to
create a larger more diversified organization.
Page 1
Aside from the announcement of our expected acquisition, our management team has
maintained its focus on the operations of our core business. North America
comparable cemetery operations led the way during the quarter as increased
production was enhanced by higher recognition rates. In the funeral segment,
lower funeral volumes impacted our first quarter results due to a reduction in
the number of deaths in North America during the first quarter. However, we were
very pleased with the healthy increase in our average revenue per funeral
service during the quarter, which was primarily driven by our new strategic
pricing strategy."
NORTH AMERICA COMPARABLE RESULTS OF OPERATIONS
We regard comparable results of operations as analogous to our "same store"
results of operations. For purposes of the following presentation, we consider
comparable operations as operations that were not acquired or constructed after
January 1, 2005 or divested prior to March 31, 2006. Therefore, in the following
presentation, we are providing results of operations for the same funeral and
cemetery locations in each of the periods presented. We believe this
presentation provides greater clarity for comparison purposes of our results of
operations for each of the periods presented.
THREE MONTHS ENDED
MARCH 31,
(In millions, except funeral services performed, average revenue per ----------------------------
funeral service and total preneed funeral contracts) 2006 2005
- ---------------------------------------------------------------------- ------------ ------------
FUNERAL
- -------
Funeral atneed revenue ............................................... $ 194.0 $ 193.3
Funeral recognized preneed revenue ................................... 95.9 93.4
General agency revenue ............................................... 8.0 6.5
Kenyon revenue ....................................................... 1.2 8.1
------------ ------------
Total funeral revenues ............................................ $ 299.1 $ 301.3
Gross profit ......................................................... $ 64.1 $ 77.4
Gross margin percentage .............................................. 21.4% 25.7%
Comparable North America funeral services performed .................. 63,036 66,420
Comparable North America average revenue per funeral service:
Preneed ........................................................... $ 4,515 $ 4,264
Atneed ............................................................ 4,641 4,342
Total .......................................................... $ 4,599 $ 4,316
Preneed Funeral Production:
Sales ............................................................. $ 82.1 $ 83.6
Total contracts ................................................... 17,893 20,345
Average revenue per contract ...................................... $ 4,586 $ 4,107
CEMETERY
- --------
Cemetery atneed revenue .............................................. $ 54.4 $ 49.3
Cemetery recognized preneed revenue .................................. 63.4 57.1
Other revenue (1) .................................................... 19.5 16.9
------------ ------------
Total cemetery revenues ........................................... $ 137.3 $ 123.3
Gross profit ......................................................... $ 22.1 $ 17.7
Gross margin percentage .............................................. 16.1% 14.4%
Cemetery Production:
Sales ............................................................. $ 133.4 $ 126.7
Recognition rate (2) .............................................. 88.3% 84.0%
(1) Other cemetery revenue is primarily related to endowment care trust fund
income and interest and finance charges earned from customer receivables on
preneed installments contracts.
(2) Represents the ratio of current period revenue recognition stated as a
percentage of current period sales production.
Page 2
FUNERAL RESULTS
North America comparable funeral revenue decreased $2.2 million, or less than
1%, in the first quarter of 2006 compared to the first quarter of 2005. Higher
average revenue per funeral service of $283 was essentially offset by a decline
in comparable funeral volume. Therefore, the decrease in revenue in the first
quarter of 2006 was attributable primarily to the decrease in Kenyon revenues.
SCI's North America comparable gross profit decreased $13.3 million in the first
quarter of 2006 versus the same period of 2005. The decrease in revenues against
an inflationary high fixed-cost structure negatively impacted gross profit.
Increases in salaries, healthcare costs, and energy costs contributed to the
decrease in gross profit in the first three months of 2006. Also impacting
funeral results were the following:
o Our focus on strategic pricing, which places less emphasis on
traditional funeral merchandise and more focus on service offerings,
resulted in an increase in average revenue per funeral service of
6.6%, or $283 per service.
o The number of comparable funeral services performed declined 3,384, or
5.1%, which appears consistent with declines reported by other funeral
companies and preliminary mortality data.
o Kenyon's operations reduced comparable gross profit $3.0 million over
the prior year quarter as the Company was not involved in any
catastrophic events in the first quarter of 2006.
o General agency revenue increased $1.5 million, or over 20%, in the
first quarter of 2006 compared to the same period last year as a
result of a mix shift in the types of insurance contracts sold.
o The cremation rate in the first quarter of 2006 was 41.6% compared to
40.3% in the same period of 2005.
CEMETERY RESULTS
SCI's comparable cemetery revenues increased $14.0 million, or 11.3%, in the
first quarter of 2006 compared to the same period of 2005 due to increases in
both atneed and preneed production.
o Sales production increased $6.7 million, or 5.3%, due to 1) our
tiered-product strategy, which focuses on the development of high-end
cemetery property and 2) our related pricing realignment.
o Recognized rates of production increased to 88.3% in the first quarter
of 2006 compared to the prior year period due to 1) an increase in the
recognition of merchandise and 2) the success of our strategy to
shorten the time between when property is sold and when it is
constructed.
o Comparable cemetery gross profit increased $4.4 million, or 24.9%, in
the first quarter of 2006 compared to the first quarter of 2005, as
the increase in revenue was partially offset by a related increase in
variable costs and higher health care and energy costs.
o The comparable cemetery gross margin percentage increased 170 basis
points to 16.1% in the first quarter of 2006 compared to the same
period in 2005.
FINANCIAL RESULTS
Cash flows from operating activities in the first quarter of 2006 were $80.2
million, a decrease of $46.9 million compared to the first quarter of 2005,
consistent with our expectations. The first quarter of 2005 included a federal
income tax refund of $29.0 million. The first quarter of 2006 also included
$16.5 million of unusual long-term incentive cash compensation payments related
to a 2003 award program as previously disclosed in our 2006 annual guidance.
Excluding these items, cash flow from continuing operations was flat compared to
the first quarter of 2005.
For the three months ended March 31, 2006 and 2005, the Company reported total
capital expenditures of $19.0 million and $20.6 million, respectively. These
amounts included the following:
o $10.1 million in the first quarter of 2006 and $10.7 million in the
first quarter of 2005 for capital improvements deemed reasonably
necessary to maintain our existing facilities (excludes $2.7 million
for vehicles acquired under capital leases);
o $7.7 million in the first quarter of 2006 and $7.2 million in the
first quarter of 2005 for the development of cemetery property; and
o $1.2 million in the first quarter of 2006 and $2.7 million in the
first quarter of 2005 for construction of new funeral home facilities
and other growth capital expenditures.
Page 3
In the first quarter of 2006, we paid $14.7 million for acquisitions of new
facilities as we begin to focus on our growth initiatives.
OTHER RESULTS
o General and administrative expenses were $22.0 million in the first
quarter of 2006 compared to $19.7 million in the first quarter of
2005. Increased costs associated with the expensing of stock options,
which totaled $1.4 million (pretax), and higher audit fees contributed
to the increase. We expect stock option expense in the remaining
quarters of 2006 to be approximately $2.5 million in aggregate.
o Interest expense increased to $26.7 million in the first quarter of
2006, compared to $24.7 million in the first quarter of 2005. The
increase of $2.0 million reflects the modification of contractual
terms for certain transportation leases in January 2006, which
resulted in their classification as capital leases in the first
quarter of 2006.
o Interest income increased $1.9 million in the first quarter of 2006 to
$6.0 million primarily as a result of increases in our cash balance
and higher interest rates during the first quarter of 2006.
o Other income (expense), net contributed $2.4 million of income in the
first quarter of 2006, compared to an expense of $1.2 million in the
first quarter of 2005. The increase in other income (expense) was due
primarily to favorable adjustments to the Company's allowance on notes
receivable in the first quarter of 2006 and losses on foreign currency
translation in 2005.
o The consolidated effective tax rate in the first quarter of 2006
resulted in a provision of 36.3%, compared to 35.6% in the same period
of 2005. The 2006 and 2005 tax rates were both negatively impacted by
permanent differences between the book and tax bases of North American
asset dispositions.
NON-GAAP FINANCIAL MEASURES
- ---------------------------
EARNINGS FROM CONTINUING OPERATIONS EXCLUDING SPECIAL ITEMS
Earnings from continuing operations excluding special items is a non-GAAP
financial measure. We believe this non-GAAP financial measure provides a
consistent basis for comparison between quarters and better reflects the
performance of our core operations, as it is not influenced by certain income
and expenses not affecting continuing operations. We also believe this measure
helps facilitate comparisons to competitors' operating results.
Set forth below is a reconciliation of non-GAAP financial measures to the most
directly comparable GAAP financial measures. We do not intend for the
information to be considered in isolation or as a substitute for measures of
performance prepared in accordance with GAAP.
THREE MONTHS ENDED
------------------------------------------
MARCH 31, 2006 MARCH 31, 2005
------------------- --------------------
Net Diluted Net Diluted
(In millions, except diluted EPS) Income EPS Income EPS
- ---------------------------------------------------------------------- -------- -------- -------- --------
Net income reported .................................................. $ 24.2 $ .08 $ (154.9) $ (.49)
After-tax reconciling items:
(Gains) losses on dispositions and impairment charges, net ........ 3.5 .01 3.7 .01
Loss on early extinguishment of debt .............................. - - 0.8 -
Discontinued operations ........................................... 0.1 - (1.2) -
Other operating expense ........................................... 1.8 .01 - -
Cumulative effect of accounting change ............................ - - 187.5 .59
-------- -------- -------- --------
Earnings from continuing operations excluding special items .......... $ 29.6 $ .10 $ 35.9 $ .11
======== ======== ======== ========
Diluted weighted average shares outstanding (in thousands) ........... 298,678 317,751
Page 4
CONFERENCE CALL AND WEBCAST
- ---------------------------
We will host a conference call on Thursday, May 11, 2006, at 8:30 a.m. central
time. A question and answer session will follow a brief presentation made by
management. The conference call dial-in number is (719) 457-2662. The conference
call will also be broadcast live via the Internet and can be accessed through
our website at http://www.sci-corp.com. A replay of the conference call will be
available through May 25, 2006 and can be accessed at (719) 457-0820 with the
confirmation code of 8488149. Additionally, a replay of the conference call will
be available on our website for approximately ninety days on the Investors page
under the subheading "Conference Calls" at
http://www.sci-corp.com/ConfCalls.html. This earnings release will also be
available on our website on the Investor Relations page under the subheading
"News" at http://www.sci-corp.com/InvestorsMenu.html.
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:
o 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.
o The outcome of the acquisition of Alderwoods and the possibility that
certain closing conditions may not be satisfied that will result in
the acquisition not being completed.
o Our ability to successfully integrate Alderwoods or that the
anticipated benefits of the acquisition are not fully realized.
o 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.
o The amounts payable by us with respect to our outstanding legal
matters exceeding our established reserves.
o The outcome of a pending Internal Revenue Service audit. We maintain
accruals for tax liabilities which relate to uncertain tax matters. If
these tax matters are unfavorably resolved, we will be required to
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 primarily be reversed through the
tax provision at the time of resolution.
o Our ability to continue to successfully implement our plan to realign
pricing according to our strategy and to increase standardization of
our processes.
o Our ability to manage 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.
o Changes in domestic and international political and/or regulatory
environments in which we operate, including potential changes in tax,
accounting and trusting policies.
o Changes in credit relationships impacting the availability of credit
and the general availability of credit in the marketplace.
o Our ability to successfully access surety and insurance markets at a
reasonable cost.
o Our ability to successfully exploit our substantial purchasing power
with certain of our vendors.
o The effectiveness of our internal controls over financial reporting,
and our ability to certify the effectiveness of the internal controls
and to obtain a favorable attestation report of our auditors regarding
our assessment of our internal controls.
Page 5
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. Copies of this document as well as other SEC filings can be obtained
from our website at www.sci-corp.com. We assume no obligation to publicly update
or revise any forward-looking statements made herein or any other
forward-looking statements made by us, whether as a result of new information,
future events or otherwise.
Service Corporation International (NYSE: SCI), headquartered in Houston, Texas,
owns and operates funeral service locations and cemeteries. We have an extensive
network of businesses including 1,053 funeral service locations and 354
cemeteries in North America as of March 31, 2006. For more information about
Service Corporation International, please visit our website at 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
Page 6
SERVICE CORPORATION INTERNATIONAL
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
THREE MONTHS ENDED
MARCH 31,
----------------------
2006 2005
--------- ---------
Revenues:
Funeral .................................................. $ 302,984 $ 319,451
Cemetery ................................................. 138,814 127,991
--------- ---------
441,798 447,442
Gross profit:
Funeral .................................................. 64,147 79,622
Cemetery ................................................. 21,656 17,605
--------- ---------
85,803 97,227
General and administrative expenses ...................... (22,007) (19,716)
Gains (losses) on dispositions and impairment charges, net (4,510) (5,741)
Other operating expense .................................. (2,884) -
--------- ---------
Operating income ......................................... 56,402 71,770
Interest expense ......................................... (26,724) (24,656)
Loss on early extinguishment of debt ..................... - (1,207)
Interest income .......................................... 5,981 4,056
Other income (expense), net .............................. 2,414 (1,208)
--------- ---------
(18,329) (23,015)
--------- ---------
Income from continuing operations before
income taxes and cumulative effect of accounting
change ................................................ 38,073 48,755
Provision for income taxes ............................... (13,824) (17,338)
--------- ---------
Income from continuing operations before
cumulative effect of accounting change ................ 24,249 31,417
(Loss) income from discontinued operations (net of
income tax benefit (provision) of $35 and $(1,155),
respectively) ......................................... (55) 1,175
Cumulative effect of accounting change (net of income tax
benefit of $117,428) .................................... - (187,538)
--------- ---------
Net income (loss) .............................. $ 24,194 $(154,946)
========= =========
Basic earnings (loss) per share:
Income from continuing operations before
cumulative effect of accounting change ............. $ .08 $ .10
Cumulative effect of accounting change, net of tax .... - (.59)
--------- ---------
Net income (loss) ................................. $ .08 $ (.49)
========= =========
Diluted earnings (loss) per share:
Income from continuing operations before
cumulative effect of accounting change ............. $ .08 $ .10
Cumulative effect of accounting change, net of tax .... - (.59)
--------- ---------
Net income (loss) ................................. $ .08 $ (.49)
========= =========
Basic weighted average number of shares .................. 294,308 313,490
========= =========
Diluted weighted average number of shares ................ 298,678 317,751
========= =========
Dividends declared per share ............................. $ .025 $ .025
========= =========
Page 7
SERVICE CORPORATION INTERNATIONAL
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In thousands, except share amounts)
MARCH 31, DECEMBER 31,
2006 2005
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 490,408 $ 446,782
Receivables, net ................................................... 76,400 97,747
Inventories ........................................................ 67,256 68,327
Other .............................................................. 31,017 37,527
------------ ------------
Total current assets ............................................. 665,081 650,383
------------ ------------
Preneed funeral receivables and trust investments ....................... 1,227,556 1,226,192
Preneed cemetery receivables and trust investments ...................... 1,307,832 1,288,515
Cemetery property, at cost .............................................. 1,366,323 1,355,654
Property and equipment, at cost, net .................................... 1,043,544 942,229
Deferred charges and other assets ....................................... 264,234 249,449
Goodwill ................................................................ 1,122,205 1,123,888
Cemetery perpetual care trust investments ............................... 697,871 700,382
------------ ------------
$ 7,694,646 $ 7,536,692
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ........................... $ 215,196 $ 231,129
Current maturities of long-term debt ............................... 36,055 20,468
Income taxes ....................................................... 18,203 20,359
------------ ------------
Total current liabilities ........................................ 269,454 271,956
------------ ------------
Long-term debt .......................................................... 1,271,828 1,175,463
Deferred preneed funeral revenues ....................................... 535,489 535,384
Deferred preneed cemetery revenues ...................................... 783,520 792,485
Deferred income taxes ................................................... 158,527 141,676
Other liabilities ....................................................... 311,607 320,812
Non-controlling interest in funeral and cemetery trusts ................. 2,060,380 2,015,811
Non-controlling interest in cemetery perpetual care trust investments ... 695,456 694,619
Stockholders' equity:
Common stock, $1 per share par value, 500,000,000 shares authorized,
295,454,597 and 294,808,872, issued and outstanding
(net of 48,606,563 and 48,962,063 treasury shares, at par) .. 295,455 294,809
Capital in excess of par value ..................................... 2,174,541 2,182,745
Unearned compensation .............................................. - (3,593)
Accumulated deficit ................................................ (931,780) (955,974)
Accumulated other comprehensive income ............................. 70,169 70,499
------------ ------------
Total stockholders' equity ....................................... 1,608,385 1,588,486
------------ ------------
$ 7,694,646 $ 7,536,692
============ ============
Page 8
SERVICE CORPORATION INTERNATIONAL
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
THREE MONTHS ENDED
MARCH 31,
------------------------
2006 2005
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................................... $ 24,194 $ (154,946)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Net loss (income) from discontinued operations, net of tax ......... 55 (1,175)
Loss on early extinguishment of debt ............................... - 1,207
Premiums paid on early extinguishment of debt ...................... - (542)
Cumulative effect of accounting change, net of tax ................. - 187,538
Depreciation and amortization ...................................... 25,087 20,536
Provision for doubtful accounts .................................... 2,356 2,347
Provision for deferred income taxes ................................ 11,603 15,882
(Gains) losses on dispositions and impairment charges, net ......... 4,510 5,741
Share-based compensation ........................................... 2,145 447
Other non-cash adjustments ......................................... 2,884 (1,950)
Change in assets and liabilities, net of effects from acquisitions and
dispositions:
Decrease (increase) in receivables ................................. 7,407 (8,835)
Decrease in other assets ........................................... 3,591 28,740
Decrease in payables and other liabilities ......................... (25,762) (5,238)
Net effect of preneed funeral production and maturities ............ 3,833 12,470
Net effect of cemetery production and deliveries ................... 18,365 23,289
Other .............................................................. (54) 102
---------- ----------
Net cash provided by operating activities from continuing operations ......... 80,214 125,613
Net cash provided by operating activities from discontinued operations ....... - 1,453
---------- ----------
Net cash provided by operating activities .................................... 80,214 127,066
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................................................... (19,049) (20,559)
Proceeds from divestitures and sales of property and equipment ............. 7,463 8,236
Proceeds from dispositions of foreign operations, net of cash retained ..... - 21,597
Proceeds from sale of investments .......................................... 5,900 -
Acquisitions, net of cash acquired ......................................... (14,662) (5)
Net (deposits) withdrawals of restricted funds and other ................... (3,353) 6,194
---------- ----------
Net cash (used in) provided by investing activities from continuing operations (23,701) 15,463
Net cash used in investing activities from discontinued operations ........... - (54)
---------- ----------
Net cash (used in) provided by investing activities .......................... (23,701) 15,409
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt ........................................................... (1,182) (1,951)
Principal payments on capital leases ....................................... (5,437) (23)
Early extinguishment of debt ............................................... - (7,131)
Proceeds from exercise of stock options .................................... 1,219 3,904
Purchase of Company common stock ........................................... - (103,570)
Payments of dividends ...................................................... (7,371) -
Purchase of subsidiary stock ............................................... - (844)
---------- ----------
Net cash used in financing activities ........................................ (12,771) (109,615)
Effect of foreign currency ................................................... (116) (152)
---------- ----------
Net increase in cash and cash equivalents .................................... 43,626 32,708
Cash and cash equivalents at beginning of period ............................. 446,782 287,785
---------- ----------
Cash and cash equivalents at end of period ................................... $ 490,408 $ 320,493
========== ==========
Page 9