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Service Corporation International Announces Fourth Quarter 2008 Financial Results and Comments on Outlook for 2009
Date:2/25/2009

- Conference call on Thursday, February 26, 2009, at 9:00 a.m. Central Standard Time.

HOUSTON, Feb. 25 /PRNewswire-FirstCall/ -- Service Corporation International (NYSE: SCI), a leading provider of deathcare products and services, today reported results for the fourth quarter and fiscal year 2008 and provided its comments on its outlook for fiscal year 2009. 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 Twelve Months Ended
                                           December 31,     December 31,
                                       ----------------  ------------------
                                        2008      2007      2008      2007
                                       ------    ------  --------  --------
    Revenues                           $517.0    $572.9  $2,155.6  $2,285.3
    Operating income                    $60.9     $89.9    $292.7    $346.2
    Net income                           $9.5    $166.8     $97.1    $247.7
    Diluted earnings
     per share                           $.04      $.60      $.37      $.85
    Earnings from continuing
     operations excluding
     special items (1)                  $22.1     $38.8    $134.2    $151.5
    Diluted earnings per share
     from continuing operations
     excluding  special items (1)        $.09      $.14      $.52      $.52
    Diluted weighted average
     shares outstanding                 254.3     276.8     260.4     290.4
    Net cash provided by operating
     activities                        $116.9     $27.6    $350.2    $356.2
    Net cash provided by operating
     activities excluding special
     items (1)                          $28.7     $65.7    $355.3    $430.4

    (1)  Earnings from continuing operations excluding special items,
         diluted earnings per share from continuing operations excluding
         special items, and net cash provided by operating activities
         excluding special items are non-GAAP financial measures. A
         reconciliation to net income, diluted earnings per share, and net
         cash provided by operating activities computed in accordance with
         GAAP can be found later in this press release under the heading
         "Non-GAAP Financial Measures" or "Cash Flow and Capital Spending".

Highlights:

  • Diluted earnings per share from continuing operations excluding special items of $0.09 in the fourth quarter 2008 was at the high end of the Company's recent guidance range of $0.07-$0.09, and declined $.05 from the prior year fourth quarter.
  • Funeral operations performed well during the quarter, with comparable gross profit increasing $3.1 million or 4.3% despite lower funeral volumes and lower trust fund income recognized on matured preneed funeral trust contracts.
  • Cemetery operations were more susceptible to economic and financial market conditions, with comparable gross profit decreasing $28.4 million or 59%, driven by lower preneed sales, lower trust fund income recognized and less cemetery property construction revenue.
  • Net cash provided by operating activities excluding special items of $28.7 million during the quarter was at the high end of the Company's recent guidance range of $20 to $30 million, however decreased $37.0 million from the prior year quarter due primarily to the decline in operating income as well as a slowdown in preneed cash receipts.

Tom Ryan, the Company's President and Chief Executive Officer, commented on the fourth quarter of 2008:

"The negative consumer sentiment which impacted preneed cemetery sales coupled with the extraordinary decline in the financial markets had a significant negative effect on our cemetery operating results. On the bright side, our funeral operations delivered solid operating results as we would have expected as they are less sensitive to economic conditions and the financial markets."

2009 OUTLOOK

Commenting on the Company's 2009 outlook is Tom Ryan, the Company's President and Chief Executive Officer:

"It is clear 2009 will be a challenging year for both SCI and the entire global economy. Comparable funeral services performed in January and February of 2009 were significantly lower as compared to the prior year. Additionally, we continue to see a difficult economic environment for the consumer and uncertain financial markets which will reduce anticipated earnings in 2009 compared to 2008. However, due to the stability of our core funeral business and our intention to diligently manage our costs and capital spending in 2009 we believe we can still generate a healthy amount of free cash flow. With approximately $150 million in cash, no significant near term debt maturities, and the predictable nature of our funeral operations, we are confident we have the financial strength, resources and people to address the task of successfully operating in a contracting market and position our Company to benefit from the market's eventual recovery."

Our outlook for potential earnings and cash flow in 2009 is as follows:

    (In millions, except for per share amounts)
    Diluted earnings per share excluding special items(1) (2)  $.26 to $.36
    Net cash provided by operating activities                  $220 to $300
    Capital improvements at existing facilities and
     cemetery development expenditures                          $80 to $90



    (1)  Diluted earnings per share excluding special items is a non-GAAP
         financial measure.  We normally reconcile this non-GAAP financial
         measure to diluted earnings per share; however, diluted earnings
         per share calculated in accordance with GAAP is not currently
         accessible on a forward-looking basis.  Our outlook for 2009
         excludes the following because this information is not currently
         available:  Gains or losses associated with asset dispositions;
         gains or losses associated with the early extinguishment of debt;
         potential tax adjustments to reserves, payments, credits or
         refunds; 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 dispositions,
         could materially impact our forward-looking diluted EPS calculated
         in accordance with GAAP, consistent with the historical disclosures
         found later in this press release under the heading "Non-GAAP
         financial measures".

    (2)  The guidance range for diluted earnings per share from continuing
         operations excluding special items in 2009 assumes an effective tax
         rate of 34%. This estimate assumes the Company achieves certain
         benefits from tax planning strategies expected to be completed in
         2009.  The estimate also assumes certain income levels earned within
         specific taxable jurisdictions.  If these expected benefits are not
         achieved, the expected effective tax rate may be negatively
         impacted.

This outlook reflects management's current views and estimates regarding future economic and financial market conditions, company performance and financial results, business prospects, the competitive environment and other events. This outlook is subject to a number of risks and uncertainties, many of which are beyond the control of SCI, that could cause actual results to differ materially from the potential results highlighted above. A further list and description of these risks, uncertainties and other matters can be found later in this press release under "Cautionary Statement on Forward-Looking Statements".

REVIEW OF RESULTS FOR FOURTH QUARTER AND FISCAL YEAR ENDED 2008

    Consolidated Segment Results

    (In millions, except funeral
     services performed and average
     revenue per funeral service)
                                     Three Months Ended  Twelve Months Ended
                                         December 31,        December 31,
                                      ----------------    ----------------
                                       2008      2007      2008     2007
                                      ------    ------    ------  --------
    Funeral
    Funeral atneed revenue            $235.0    $244.0    $967.5  $1,012.8
    Funeral recognized preneed
     revenue                           108.2     115.1     446.7     455.3
    Other revenues(1)                   13.2      11.8      61.5      57.2
                                      ------    ------  --------  --------
        Total funeral revenues        $356.4    $370.9  $1,475.7  $1,525.3


    Gross profit                       $72.6     $71.2    $312.8    $307.6
    Gross margin percentage            20.4%     19.2%     21.2%     20.2%

    Funeral services performed        67,683    70,773   278,165   299,801
    Average revenue per funeral
     Service                          $5,071   $5,074    $5,084    $4,897

    Cemetery
    Cemetery atneed revenue            $62.6     $62.7    $259.1    $274.6
    Cemetery recognized preneed
     revenue                            84.6     113.7     339.7     380.9
    Other revenue (2)                   13.3      25.6      81.1     104.5
                                      ------    ------    ------    ------
        Total cemetery revenues       $160.5    $202.0    $679.9    $760.0

    Gross profit                       $19.1     $48.9    $105.9    $159.3
    Gross margin percentage            11.9%     24.2%     15.6%     21.0%


    (1)  Included in Other revenues for funeral operations are General
         Agency (GA) revenues.  These are commissions we receive from
         third-party insurance companies for life insurance policies or
         annuities sold to preneed customers for the purpose of funding
         preneed funeral arrangements.

    (2)  Other cemetery revenue is primarily related to cemetery merchandise
         and service trust fund income, endowment care trust fund income,
         and interest and finance charges earned from customer receivables on
         preneed installments contracts.

Comparable Funeral Results

The table below details comparable funeral results of operations ("same store") for the three months ended December 31, 2008 and 2007. We consider comparable operations as those owned for the entire period beginning January 1, 2007 and ending December 31, 2008.

    (In millions, except funeral
     services performed, average
     revenue per funeral service
     and preneed funeral contracts
     sold)                           Three months ended
                                         December 31,
                                     -----------------
                                       2008      2007    Change  Change %
                                     -------    ------   ------  --------
    Comparable funeral revenue:
      Atneed revenue                  $229.6    $237.4    $ (7.8)   (3.3%)
      Recognized preneed revenue       107.0     112.3      (5.3)   (4.7%)
      Other revenue (1)                 13.0      11.7       1.3    11.1%
                                      ------    ------   -------    -----
    Total comparable funeral
     revenues                         $349.6    $361.4    $(11.8)   (3.3%)

    Comparable gross profit            $75.5     $72.4     $ 3.1     4.3%
    Comparable gross margin
     percentage                        21.6%     20.0%

    Comparable funeral services
     performed:
      Preneed                         22,920    22,606       314     1.4%
      Atneed                          43,180    46,117    (2,937)   (6.4%)
                                      ------    ------     -----     ----
      Total                           66,100    68,723    (2,623)   (3.8%)

    Comparable average revenue per
     funeral service                  $5,092    $5,088    $    4     0.1%

    Comparable preneed funeral
     production:
      Sales                            $93.8     $98.5    $ (4.7)   (4.8%)
      Total preneed funeral
       contracts sold                 16,292    18,297    (2,005)  (11.0%)
      Average revenue per
       contract sold                  $5,757    $5,383      $374     6.9%

    (1)  Other revenue consists primarily of General Agency (GA) revenues,
         which are commissions we receive from third-party insurance
         companies for life insurance policies or annuities sold to preneed
         customers for the purpose of funding preneed funeral arrangements.

  • Comparable funeral services performed decreased 3.8% from the fourth quarter of 2007. We believe this is primarily due to a lower number of deaths in our relevant markets as we experienced a less pronounced impact from influenza.
  • The average revenue per funeral service grew 0.1% over the prior year quarter, which was below the Company's expectations. An unfavorable currency impact from businesses in Canada reduced average revenue per funeral service by 250 basis points. This was substantially offset by reductions in Canadian expenses due to currency and had a negligible effect on gross margins. Additionally, declines in trust fund income recognized on matured preneed contracts decreased $4.8 million resulting in a 130 basis point decline in average revenue per funeral service. Excluding these items, our average revenue per funeral service increased 4.0% for the quarter.
  • Despite the decline in revenues, funeral gross profit increased $3.1 million, or 4.3%, due to declines in variable costs, employee-related costs, and general liability insurance expenses. The gross margin percentage increased to 21.6% compared to 20.0% in 2007.
  • Preneed funeral sales production decreased $4.7 million, or 4.8%. Total funeral contracts sold were reduced by 11% as discretionary purchases were impacted by the uncertain economic conditions; however, the average revenue per contract sold increased 6.9%. Preneed funeral sales are deferred and recognized in the future when the funeral service is performed.
  • The cremation rate increased 70 basis points to 42.1% in the fourth quarter of 2008 compared to 41.4% for the same period of 2007.

Comparable Cemetery Results

The table below details comparable cemetery results of operations ("same store") for the three months ended December 31, 2008 and 2007. We consider comparable operations as those owned for the entire period beginning January 1, 2007 and ending December 31, 2008.

    (In millions)                    Three months ended
                                        December 31,
                                      ----------------
                                        2008     2007     Change   Change %
                                      ------    ------    ------   --------
    Comparable cemetery revenue:
      Atneed revenue                   $62.1     $59.4     $2.7      4.5%
      Recognized preneed revenue        83.4     111.0    (27.6)   (24.9%)
      Other revenue (1)                 13.2      24.6    (11.4)   (46.3%)
                                      ------    ------   ------    ------
    Total comparable cemetery
     revenues                         $158.7    $195.0   $(36.3)   (18.6%)

    Comparable gross profit            $19.7     $48.1    (28.4)   (59.0%)
    Comparable gross margin
     percentage                        12.4%     24.7%

    Comparable preneed and atneed
     cemetery production:
      Preneed and Atneed Sales        $130.1    $159.0   $(28.9)   (18.2%)
      Recognition rate (2)            111.8%    107.2%

    (1)  Other cemetery revenue is primarily related to cemetery merchandise
         and service trust fund income, endowment care trust fund income and
         interest and finance charges earned from customer receivables on
         preneed installment contracts.

    (2)  Represents the ratio of current period revenue recognition stated
         as a percentage of current period sales production.

  • Comparable atneed cemetery revenues grew $2.7 million or 4.5% during the fourth quarter of 2008 primarily driven by higher merchandise and service revenues, even as we experienced a 230 basis point decline in interments.
  • Comparable preneed cemetery revenues decreased $27.6 million, or 24.9%, primarily due to a $24 million, or 32.3%, decline in preneed property sales. Approximately $10 million of the decline was related to two large sales in the fourth quarter of 2007. Excluding these large sales, total property sales production decreased 21.7% for the quarter. Additionally, we experienced a $5.2 million decline in new cemetery property construction revenue.
  • Other revenue decreased by $11.4 million as trust income was dramatically reduced from the prior year due to negative market returns in the fourth quarter of 2008.
  • Cemetery gross profit decreased $28.4 million, or 59.0%, and the gross margin percentage decreased to 12.4% compared to 24.7% due to the revenue declines described above which were partially offset by lower variable costs.
  • Cemetery preneed and atneed sales production decreased $28.9 million, or 18.2% due to the challenging consumer environment created by the current economic uncertainty. A portion of total cemetery sales production is recognized in current period revenues and is therefore reflected in the revenue decrease described above, while the remaining portion is deferred and reduces revenues to be recognized in the future.

Other Financial Results

  • General and administrative expenses decreased $13.7 million compared to the fourth quarter of 2007. This decrease was primarily due to $9.5 million of one-time transition and other expenses incurred in 2007 in relation to our Alderwoods acquisition as well as $6.1 million of costs incurred in 2007 to terminate our pension plan.

Cash Flow and Capital Spending

Set forth below is a reconciliation of net cash provided by operating activities excluding special items to our reported net cash provided by operating activities prepared in accordance with GAAP. 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   Twelve Months Ended
                                        December 31,          December 31,
                                     -----------------    ----------------
                                       2008      2007      2008      2007
                                     -------    ------    ------   -------
    Net cash provided by
     operating activities,
     as reported                      $116.9     $27.6    $350.2   $356.2
    Redemption of French
     securities                            -     (17.0)        -    (17.0)
    Premiums paid on early
     extinguishment of debt                -       0.3         -     11.7
    Net tax refund                     (91.2)        -      (1.2)       -
    Pension termination
     contribution                        3.0      40.9       3.0     40.9
    One-time Alderwoods transition
     and other costs                       -      13.9       3.3     38.6
                                       -----     -----    ------   ------
    Net cash provided by operating
     activities, excluding special
     items                             $28.7     $65.7    $355.3   $430.4
                                       =====     =====    ======   ======

Net cash provided by operating activities, excluding special items, was $28.7 million for the fourth quarter of 2008. The decrease of $37.0 million from the prior year quarter was due primarily to the decline in operating income as well as a slowdown in preneed cash receipts.

Net cash provided by operating activities, excluding special items, decreased approximately $75 million in 2008 compared to 2007. This decrease reflects the sale of Mayflower Insurance Co., which contributed $17.3 million of operating cash flows from discontinued operations in 2007 and $8.6 million in insurance proceeds related to Hurricane Katrina in 2007 that did not recur in 2008. The remaining decrease was driven by a decline in our operating income primarily related to lower preneed cemetery sales and lower trust fund income.

A summary of our capital expenditures is set forth below:

    (In millions)                    Three Months Ended  Twelve Months Ended
                                         December 31,        December 31,
                                       ---------------     ---------------
                                        2008      2007      2008      2007
                                       -----     -----     -----     -----
    Capital improvements
     at existing locations              19.5      20.4      78.5      79.7
    Development of cemetery property    18.0      13.5      55.2      55.0
    Construction of new funeral
     home facilities and other
     growth capital                      8.3       9.5      20.4      22.3
                                        ----      ----     -----     -----
    Total capital expenditures         $45.8     $43.4    $154.1    $157.0
                                       =====     =====    ======    ======

TRUST FUND PERFORMANCE

A summary of our U.S. trust fund performance for the three and twelve months ended December 31, 2008 is set forth below:

                                                 Three            Twelve
                                                Months            Months
                                                ------            ------
    Preneed Funeral                             (13.2)%           (23.5)%
    Preneed Cemetery                            (15.7)%           (26.9)%
    Cemetery Perpetual Care                      (8.0)%           (15.4)%
        Combined Trust Funds                    (12.6)%           (22.4)%

NON-GAAP FINANCIAL MEASURES

Earnings from continuing operations excluding special items, diluted earnings per share from continuing operations excluding special items, and net cash from operating activities excluding special items shown above are all 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, expense, and cash items not affecting continuing operations. We also believe this measure helps facilitate comparisons to our competitors' operating results.

Set forth below is a reconciliation of earnings from continuing operations excluding special items to our reported net income. 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                        Three Months Ended
     diluted EPS)                      December 31, 2008  December 31, 2007
                                       -----------------  -----------------
                                         Net     Diluted   Net     Diluted
                                        Income     EPS    Income     EPS
                                       -----------------  -----------------

    Net income reported                 $9.5      $.04    $166.8      $.60

    After-tax reconciling items:
      Losses (gains) on
       dispositions and impairment
       charges, net                     12.6       .05     (19.4)     (.07)
      Loss on early extinguishment
       of debt                             -         -       0.3         -
      Alderwoods transition and
       other costs                         -         -       4.9       .02
      Pension termination costs            -         -       3.5       .01
      Income from French equity
       investment                          -         -    (117.3)     (.42)
      Discontinued operations              -         -         -         -
                                       -----      ----    ------     -----
    Earnings from continuing
     operations excluding
     special items                     $22.1      $.09     $38.8      $.14
                                       =====      ====     =====     =====
    Diluted weighted average
     shares outstanding
     (in thousands)                            254,266             276,798



    (In millions, except                       Twelve Months Ended
    diluted EPS)                       December 31, 2008  December 31, 2007
                                       -----------------  -----------------
                                         Net    Diluted    Net    Diluted
                                        Income     EPS    Income     EPS
                                       -----------------  -----------------
    Net income reported                $97.1      $.37    $247.7     $.85

    After-tax reconciling items:
      Losses (gains) on
       dispositions and impairment
       charges, net                     36.0       .15      (6.0)    (.02)
      Loss on early extinguishment
       of debt                             -         -       8.7      .03
      Alderwoods transition
       and other costs                   0.7         -      16.4      .06
      Pension termination costs            -         -       6.5      .02
      Income from French equity
       investment                          -         -    (117.4)    (.40)
      Discontinued operations            0.4         -      (4.4)    (.02)
                                       -----       ---    ------    -----
    Earnings from continuing
     operations excluding
     special items                    $134.2      $.52    $151.5     $.52
                                      ======      ====    ======     ====
    Diluted weighted average
     shares outstanding
     (in thousands)                            260,446            290,444

Conference Call and Webcast

We will host a conference call on Thursday, February 26, 2009, at 9:00 a.m. Central Standard Time. A question and answer session will follow a brief presentation made by management. The conference call dial-in number is (617) 597-4027 with the passcode of 51975612. 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 March 5, 2009 and can be accessed at (617) 801-6888 with the confirmation code of 35651582. Additionally, a replay of the conference call will be available on our website for approximately ninety days.

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, access to capital markets, 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, and negative currency translation effects.
  • Changes in operating conditions such as supply disruptions and labor disputes.
  • Our inability to achieve the level of cost savings, productivity improvements or earnings growth anticipated by management, whether due to significant increases in energy costs (e.g., electricity, natural gas and fuel oil), costs of other materials, employee-related costs or other factors.
  • Inability to complete acquisitions, divestitures or strategic alliances as planned or to realize expected synergies and strategic benefits.
  • The outcomes of pending lawsuits, proceedings, and claims 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.
  • Allegations regarding compliance with laws, regulations, industry standards, and customs regarding burial procedures and practices.
  • The amounts payable by us with respect to our outstanding legal matters exceed our established reserves.
  • Amounts that we may be required to replenish into our affiliated funeral and cemetery trust funds in order to meet minimal funding requirements.
  • The outcome of pending Internal Revenue Service audits. 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 these amounts will be reversed through the tax provision at the time of resolution.
  • 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.
  • 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 leverage our substantial purchasing power with certain of our vendors.
  • The effectiveness of our internal control over financial reporting, and our ability to certify the effectiveness of the internal controls and to obtain an unqualified attestation report of our auditors regarding the effectiveness of our internal control over financial reporting.
  • The possibility that our credit agreement and privately placed debt securities may prevent us from engaging in certain transactions.
  • Our ability to buy our common stock under our share repurchase programs which could be impacted by, among others, restrictive covenants in our bank agreements, 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.
  • The financial conditions of third-party insurance companies that fund our preneed funeral contracts may impact our future revenues.
  • Continued economic crisis and financial and stock market declines could reduce future potential earnings and cash flows and could result in future goodwill impairments.

For further information on these and other risks and uncertainties, see our Securities and Exchange Commission filings, including our 2008 Annual Report on Form 10-K, which we anticipate filing by February 27, 2008. 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.

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, 2008, we owned and operated more than 1,300 funeral homes and 350 cemeteries (of which over 200 are combination locations) in 43 states, eight Canadian provinces, the District of Columbia and Puerto Rico. Through our businesses, we market the Dignity Memorial(R) 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(R), please visit www.dignitymemorial.com .

    For additional information contact:

    Investors:   Debbie Young - Director / Investor Relations
                 (713) 525-9088

    Media:       Lisa Marshall - Managing Director /
                 Corporate Communications
                 (713) 525-3066

                          SERVICE CORPORATION INTERNATIONAL
                        CONSOLIDATED STATEMENT OF OPERATIONS
                      (In thousands, except per share amounts)

                                  Three Months Ended   Twelve Months Ended
                                       December 31,         December 31,
                                  ------------------  ----------------------
                                     2008      2007       2008      2007
                                  --------  --------  ----------  ----------
    Revenues                      $516,950  $572,922  $2,155,622  $2,285,303
    Costs and expenses            (425,205) (452,812) (1,736,851) (1,818,456)
                                   -------   -------   ---------  ----------
    Gross profit                    91,745   120,110     418,771     466,847
                                   -------   -------   ---------  ----------
    General and administrative
     expenses                      (24,607)  (38,297)    (87,447)   (135,753)
    Losses (gains) on
     dispositions and
     impairment charges, net        (7,401)    9,971     (36,124)     16,920
    Other operating income
     (expense)                       1,200    (1,848)     (2,528)     (1,848)
                                    ------    ------     -------     -------
    Operating income                60,937    89,936     292,672     346,166

    Interest expense               (33,672)  (35,002)   (134,274)   (146,854)
    Interest income                  1,024     3,401       5,393      11,725
    Loss on early
     extinguishment
     of debt                             -      (507)          -     (14,986)
    Equity in earnings of
     unconsolidated subsidiaries         -    27,877           -      36,607
    Income from French equity
     investment                          -   158,133           -     158,133
    Other income (expense), net        432       178        (629)     (3,804)
                                    ------   -------     -------     -------
                                   (32,216)  154,080    (129,510)     40,821
                                    ------   -------     -------     -------
    Income from continuing
     operations before
     income taxes                   28,721   244,016     163,162     386,987
    Provision for income taxes     (19,193)  (77,170)    (65,717)   (143,670)
                                    ------   -------     -------     -------
    Income from continuing
     operations                      9,528   166,846      97,445     243,317
    (Loss) income from
     discontinued operations
     (net of income Tax
     benefit (provision) of
     $0, $635, $195,
     and $(4,818), respectively)         -       (47)       (362)      4,412
                                    ------  --------     -------    --------
              Net income            $9,528  $166,799     $97,083    $247,729
                                    ======  ========     =======    ========
    Basic earnings per share:
      Income from continuing
       operations                     $.04      $.61        $.38        $.85
      Income from discontinued
       operations, net of tax            -         -           -         .02
                                      ----      ----        ----        ----
              Net income              $.04      $.61        $.38        $.87
                                      ====      ====        ====        ====
    Diluted earnings per share:
       Income from continuing
        operations                    $.04      $.60        $.37        $.83
       Income from discontinued
        operations, net of tax           -         -           -         .02
                                      ----      ----        ----        ----
                Net income            $.04      $.60        $.37        $.85
                                      ====      ====        ====        ====
    Basic weighted average
     number of shares              253,332   271,698     257,477     284,966
                                   =======   =======     =======     =======
    Diluted weighted average
     number of shares              254,266   276,798     260,446     290,444
                                   =======   =======     =======     =======
    Dividends declared per
     share                            $.04      $.04        $.16        $.13
                                   =======   =======     =======     =======

                             SERVICE CORPORATION INTERNATIONAL
                                 CONSOLIDATED BALANCE SHEET
                         (In thousands, except share amounts)

                                                        December    December
                                                           31,         31,
                                                          2008        2007
                                                        --------    --------
    Assets
    Current assets:
      Cash and cash equivalents                         $128,397    $168,594
      Receivables, net                                    96,145     113,793
      Deferred tax asset                                  79,571      73,182
      Inventories                                         31,603      36,203
      Current assets held for sale                         1,279       2,294
      Other                                               18,515      27,261
                                                          ------      ------
        Total current assets                             355,510     421,327
                                                         -------     -------
    Preneed funeral receivables and
     trust investments                                 1,191,692   1,434,403
    Preneed cemetery receivables and
     trust investments                                 1,062,952   1,428,057
    Cemetery property, at cost                         1,458,981   1,451,666
    Property and equipment, at cost, net               1,567,875   1,569,534
    Non-current assets held for sale                      97,512     122,626
    Goodwill                                           1,178,969   1,198,153
    Deferred charges and other assets                    452,634     400,734
    Cemetery perpetual care trust investments            744,758     905,744
                                                         -------     -------
                                                      $8,110,883  $8,932,244
                                                      ==========  ==========
    Liabilities & Stockholders' Equity
    Current liabilities:
      Accounts payable and accrued liabilities          $294,859    $343,392
      Current maturities of long-term debt                27,104      36,594
      Current liabilities held for sale                      465         149
      Income taxes                                         4,354      46,305
                                                           -----      ------
        Total current liabilities                        326,782     426,440
                                                         -------     -------
    Long-term debt                                     1,821,404   1,820,106
    Deferred preneed funeral revenues                    588,198     526,668
    Deferred preneed cemetery revenues                   771,117     753,876
    Deferred income taxes                                288,677     140,623
    Non-current liabilities held for sale                 75,537      91,928
    Other liabilities                                    356,090     383,642
    Deferred preneed funeral and cemetery
     receipts held in trusts                           1,817,665   2,390,288
    Care trusts' corpus                                  772,234     906,590

    Stockholders' equity:
      Common stock, $1 per share par
       value, 500,000,000 shares authorized,
       249,472,075 and 262,858,169, issued
       and outstanding (net of 481,000 and
       1,961,300 treasury shares, at par,
       respectively)                                     249,472     262,858
      Capital in excess of par value                   1,733,814   1,874,600
      Accumulated deficit                               (726,756)   (797,965)
      Accumulated other comprehensive income              36,649     152,590
                                                          ------     -------
        Total stockholders' equity                     1,293,179   1,492,083
                                                       ---------   ---------
                                                      $8,110,883  $8,932,244
                                                      ==========  ==========


                          SERVICE CORPORATION INTERNATIONAL
                        CONSOLIDATED STATEMENT OF CASH FLOWS
                                    (In thousands)

                                                Year Ended December 31,
                                               -------------------------
                                                 2008             2007
                                               --------          -------
    Cash flows from operating activities:
      Net income                                $97,083         $247,729
      Adjustments to reconcile net
       income to net cash provided
       by operating activities:
        Loss (income) from discontinued
         operations, net of tax                     362           (4,412)
        Equity in earnings of unconsolidated
         subsidiaries, net of cash received           -          (19,566)
        Loss on early extinguishment of debt          -           14,986
        Premiums paid on early
         extinguishment of debt                       -          (11,650)
        Depreciation and amortization           114,157          115,682
        Amortization of intangible assets        23,636           27,550
        Amortization of cemetery property        32,690           35,824
        Amortization of loan costs                3,573            6,261
        Provision for doubtful accounts           9,243           10,754
        Provision for deferred income
         taxes                                  109,118           34,652
        Losses (gains) on divestitures
         and impairment charges, net             36,124          (16,920)
        Gains on redemption of securities             -         (158,133)
        Share-based compensation                  9,970            8,787
        Excess tax benefits from
         share based awards                           -          (10,469)
      Change in assets and liabilities,
       net of effects from acquisitions
       and dispositions:
        Increase in receivables                    (409)         (24,650)
        Decrease (increase) in other assets      26,100           (4,374)
        (Decrease) increase in payables
         and other liabilities                 (143,956)          51,407
    Net effect of preneed funeral
     production and maturities:
        Decrease in preneed funeral
         receivables and trust investments        7,271          102,080
        Increase in deferred preneed
         funeral revenue                         23,785           17,746
        Decrease in deferred preneed
         funeral receipts held in trust         (23,334)         (95,581)
    Net effect of cemetery production
     and deliveries:
        Decrease in preneed cemetery
         receivables and trust investments       36,333           83,689
        Increase in deferred preneed
         cemetery revenue                        11,408            5,142
        Decrease in deferred preneed
         cemetery receipts held in trust        (22,388)         (77,640)
      Other                                        (585)               9
                                                -------          -------
    Net cash provided by operating
     activities from continuing operations      350,181          338,903
    Net cash provided by operating
     activities from discontinued operations          -           17,279
                                                -------          -------
    Net cash provided by operating
     activities                                 350,181          356,182
    Cash flows from investing activities:
       Capital expenditures                    (154,101)        (157,011)
       Acquisitions, net of cash acquired        (8,828)          (8,355)
       Proceeds from divestitures
        and sales of property and
        equipment                                27,226          410,689
       Proceeds from redemption of
        securities                                5,317          158,691
       Net deposits of restricted
        funds and other                         (21,741)         (17,347)
                                                -------          -------
    Net cash (used in) provided by
     investing activities from
     continuing operations                    (152,127)          386,667
    Net cash provided by (used in)
     investing activities from
     discontinued operations                        858           (8,546)
                                               --------          -------
    Net cash (used in) provided by
     investing activities                      (151,269)         378,121
    Cash flows from financing activities:
      Payments of debt                         (112,302)         (29,234)
      Principal payments on capital
       leases                                   (25,851)         (27,057)
      Proceeds from issuance of
       long-term debt                            82,133          398,996
      Debt issuance costs                             -           (6,443)
      Early extinguishment of debt                    -         (472,545)
      Proceeds from exercise of stock
       options                                   14,812           52,938
      Excess tax benefits from
       share-based awards                             -           10,469
      Purchase of Company common stock         (142,155)        (505,121)
      Payments of dividends                     (41,501)         (34,629)
      Bank overdrafts and other                  (5,646)           7,209
                                                -------          -------
    Net cash used in financing activities
     from continuing operations                (230,510)        (605,417)
    Net cash used in financing activities
     from discontinued operations                     -           (2,113)
                                               --------          -------
    Net cash used in financing activities
     from continuing operations                (230,510)        (607,530)
    Effect of foreign currency                   (8,599)           1,941
                                                -------          -------
    Net (decrease) increase in cash and
     cash equivalents                           (40,197)         128,714
    Cash and cash equivalents at
     beginning of period                        168,594           39,880
                                               --------         --------
    Cash and cash equivalents at
     end of period                             $128,397         $168,594
                                               ========         ========


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SOURCE Service Corporation International
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