Service Corp International 10-Q for FY2020 Q1

Service Corp International (SCI)

10-Q 2020-04-30 For: 2020-03-31

Added on April 10, 2026

About this 10-Q

Service Corp International filed this 10-Q on April 30, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $802.97M; up 0.6% from $798.21M a year earlier
Net income: $81.94M; up 3.3% from net income of $79.32M a year earlier
Diluted EPS: $0.45; up 4.7% from $0.43 a year earlier

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☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	MARCH 31, 2020
		OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to



	Texas	74-1488375
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)
1929 Allen Parkway
Houston
Texas		77019
(Address of principal executive offices)		(Zip code)



Title of Each Class	Trading Symbol (s)	Name of Each Exchange on Which Registered
Common Stock ($1 par value)	SCI	New York Stock Exchange



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.	Yes	þ	No	¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).	Yes	þ	No	¨



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer	þ	Accelerated filer	¨	Non-accelerated filer	¨	Smaller reporting company	☐	Emerging growth company	☐



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.	¨
Indicate by check mark whether the registrant is a shell company (as defined in 12b-2 of the act).	Yes	☐	No	þ



SERVICE CORPORATION INTERNATIONAL INDEX

		Page
GLOSSARY		3
PART I. FINANCIAL INFORMATION		5
Item 1.	Financial Statements	5
	Unaudited Condensed Consolidated Statement of Operations - Three Months Ended March 31, 2020 and 2019	5
	Unaudited Condensed Consolidated Statement of Comprehensive Income - Three Months Ended March 31, 2020 and 2019	6
	Unaudited Condensed Consolidated Balance Sheet - March 31, 2020 and December 31, 2019	7
	Unaudited Condensed Consolidated Statement of Cash Flows - Three Months Ended March 31, 2020 and 2019	8
	Unaudited Condensed Consolidated Statement of Equity - Three Months Ended March 31, 2020 and 2019	9
	Notes to Consolidated Financial Statements	10
	1. Nature of Operations	10
	2. Summary of Significant Accounting Policies	10
	3. Preneed Activities	15
	4. Income Taxes	20
	5. Debt	21
	6. Credit Risk and Fair Value of Financial Instruments	22
	7. Equity	23
	8. Segment Reporting	23
	9. Commitments and Contingencies	24
	10. Earnings Per Share	27
	11. Acquisitions and Divestiture-Related Activities	27
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
	The Company	28
	Financial Condition, Liquidity, and Capital Resources	29
	Result of Operations - Three Months Ended March 31, 2020 and 2019	35
	Critical Accounting Policies	38
	Cautionary Statement on Forward-Looking Statements	38
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4.	Controls and Procedures	40
PART II. OTHER INFORMATION		41
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits and Financial Statement Schedules	42
SIGNATURE		43



	Three Months Ended March 31,
	2020			2019
	(in thousands, except per share amounts)
Revenue
Property and merchandise revenue	$	377,883		$	381,209
Service revenue	367,528			355,371
Other revenue	57,554			61,632
Total revenue	802,965			798,212
Costs of revenue
Cost of property and merchandise	(196,448		)	(197,894		)
Cost of service	(197,524		)	(190,813		)
Overhead and other expenses	(229,949		)	(217,671		)
Costs of revenue	(623,921		)	(606,378		)
Gross profit	179,044			191,834
Corporate general and administrative expenses	(31,813		)	(42,978		)
Gains (losses) on divestitures and impairment charges, net	4,545			(1,878		)
Operating income	151,776			146,978
Interest expense	(44,351		)	(47,390		)
Loss on early extinguishment of debt, net	(139		)	—
Other (expense) income, net	(1,247		)	720
Income before income taxes	106,039			100,308
Provision for income taxes	(24,038		)	(21,095		)
Net income	82,001			79,213
Net (income) loss attributable to noncontrolling interests	(60		)	110
Net income attributable to common stockholders	$	81,941		$	79,323
Basic earnings per share:
Net income attributable to common stockholders	$	0.45		$	0.44
Basic weighted average number of shares	180,854			181,696
Diluted earnings per share:
Net income attributable to common stockholders	$	0.45		$	0.43
Diluted weighted average number of shares	183,585			185,317



	March 31, 2020			December 31, 2019
	(In thousands, except share amounts)

ASSETS
Current assets:
Cash and cash equivalents	$	176,261		$	186,276
Receivables, net of reserves of $5,485 and $2,262, respectively	75,064			81,671
Inventories	27,891			25,118
Other	80,252			80,488
Total current assets	359,468			373,553
Preneed receivables, net of reserves of $15,224 and $41,142, respectively, and trust investments	4,122,025			4,789,562
Cemetery property	1,879,960			1,873,602
Property and equipment, net	2,057,893			2,065,433
Goodwill	1,861,454			1,864,223
Deferred charges and other assets, net of reserves of $8,867 and $8,374, respectively	1,016,806			1,029,908
Cemetery perpetual care trust investments	1,417,652			1,681,149
Total assets	$	12,715,258		$	13,677,430

LIABILITIES & EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	474,994		$	478,545
Current maturities of long-term debt	85,885			69,821
Income taxes payable	26,415			8,353
Total current liabilities	587,294			556,719
Long-term debt	3,535,754			3,513,530
Deferred revenue, net	1,478,520			1,467,103
Deferred tax liability	431,010			421,482
Other liabilities	350,614			378,074
Deferred receipts held in trust	3,165,686			3,839,376
Care trusts’ corpus	1,415,287			1,677,891
Commitments and contingencies (Note 9)
Equity:
Common stock, $1 per share par value, 500,000,000 shares authorized, 186,057,728 and 185,100,789 shares issued, respectively, and 179,241,180 and 181,184,963 shares outstanding, respectively	179,241			181,185
Capital in excess of par value	1,010,639			1,010,361
Retained earnings	562,549			601,903
Accumulated other comprehensive (deficit) income	(1,336		)	29,864
Total common stockholders’ equity	1,751,093			1,823,313
Noncontrolling interests	—			(58		)
Total equity	1,751,093			1,823,255
Total liabilities and equity	$	12,715,258		$	13,677,430



	Common Stock		Treasury Stock, Par Value			Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income (Deficit)		Noncontrolling Interest			Total
	(In thousands, except per share amounts)
Balance at December 31, 2018	$	184,721	$	(3,250	)	$	972,710		$	474,327		$	13,395	$	(88	)	$	1,641,815
Comprehensive income	—		—			—			79,323			7,251		40			86,614
Dividends declared on common stock ($.18 per share)	—		—			—			(32,820		)	—		—			(32,820		)
Stock option exercises	950		—			15,012			—			—		—			15,962
Restricted stock awards, net of forfeitures	126		—			(126		)	—			—		—			—
Employee share-based compensation earned	—		—			4,568			—			—		—			4,568
Purchase of Company common stock	—		(355		)	(1,935		)	(12,252		)	—		—			(14,542		)
Other	59		—			(1,251		)	—			—		—			(1,192		)
Balance at March 31, 2019	$	185,856	$	(3,605	)	$	988,978		$	508,578		$	20,646	$	(48	)	$	1,700,405



	March 31, 2020		December 31, 2019
	(In thousands)
Cash and cash equivalents	$	176,261	$	186,276
Restricted cash ⁽¹⁾:
Included in Other current assets	56,308		54,293
Included in Deferred charges and other assets, net	2,046		2,051
Total restricted cash	58,354		56,344
Total cash, cash equivalents, and restricted cash	$	234,615	$	242,620


⁽¹⁾	Restricted cash in both periods primarily consists of proceeds from divestitures deposited into escrow accounts under IRS code section 1031 and collateralized obligations under certain insurance policies.



	March 31, 2020
	Atneed Funeral			Atneed Cemetery			Miscellaneous			Current Portion of Notes			Total
	(In thousands)
Receivables	$	40,644		$	20,601		$	17,478		$	1,826		$	80,549
Reserve for credit losses	(2,877		)	(1,617		)	(367		)	(624		)	(5,485		)
Receivables, net	$	37,767		$	18,984		$	17,111		$	1,202		$	75,064



	January 1, 2020			Provision for Expected Credit Losses			Write Offs		Recoveries			Effect of Foreign Currency		March 31, 2020
	(In thousands)
Trade receivables:
Funeral	$	(2,690	)	$	(679	)	$	993	$	(523	)	$	22	$	(2,877	)
Cemetery	(1,424		)	(478		)	214		—			71		(1,617		)
Total reserve for credit losses on trade receivables	$	(4,114	)	$	(1,157	)	$	1,207	$	(523	)	$	93	$	(4,494	)

Miscellaneous receivables:
Current	$	(203	)	$	(203	)	$	—	$	—		$	39	$	(367	)
Long-term	(715		)	(226		)	—		—			—		(941		)
Total reserve for credit losses on miscellaneous receivables	$	(918	)	$	(429	)	$	—	$	—		$	39	$	(1,308	)

Notes receivable	$	(9,031	)	$	33		$	448	$	—		$	—	$	(8,550	)



	2020		2019		2018		2017		2016		Prior		Revolving Line of Credit		Total
	(In thousands)
Miscellaneous receivables:
Current	$	15,048	$	1,609	$	484	$	229	$	97	$	11	$	—	$	17,478
Long-term	665		3,609		1,854		974		412		46		—		7,560
Total miscellaneous receivables	$	15,713	$	5,218	$	2,338	$	1,203	$	509	$	57	$	—	$	25,038

Notes receivable	$	—	$	—	$	254	$	—	$	98	$	7,030	$	8,647	$	16,029



	Three Months Ended March 31,
	2020			2019
	(In thousands)
Cash flows from operating activities:
Net income	$	82,001		$	79,213
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on early extinguishment of debt, net	139			—
Depreciation and amortization	37,912			37,126
Amortization of intangibles	5,257			7,066
Amortization of cemetery property	13,924			15,723
Amortization of loan costs	1,276			1,620
Provision for expected credit losses	3,197			1,917
Provision for deferred income taxes	4,233			2,492
(Gains) losses on divestitures and impairment charges, net	(4,545		)	1,878
Share-based compensation	3,406			4,568
Change in assets and liabilities, net of effects from acquisitions and dispositions:
Decrease (increase) in receivables	2,460			(8,716		)
Decrease (increase) in other assets	10,549			(13,180		)
(Decrease) increase in payables and other liabilities	(4,832		)	29,545
Effect of preneed sales production and maturities:
Decrease in preneed receivables, net and trust investments	19,134			7,983
Increase in deferred revenue, net	12,908			30,392
Decrease in deferred receipts held in trust	(7,027		)	(12,731		)
Net cash provided by operating activities	179,992			184,896
Cash flows from investing activities:
Capital expenditures	(52,275		)	(51,573		)
Business acquisitions, net of cash acquired	(26,349		)	(13,882		)
Real estate acquisitions	(2,114		)	(5,358		)
Proceeds from divestitures and sales of property and equipment	11,324			7,764
Payments for Company-owned life insurance policies	(3,770		)	(7,891		)
Proceeds from Company-owned life insurance policies	3,519			—
Net cash used in investing activities	(69,665		)	(70,940		)
Cash flows from financing activities:
Proceeds from issuance of long-term debt	75,000			15,000
Scheduled payments of debt	(8,222		)	(8,535		)
Early payments of debt	(25,792		)	(135,000		)
Principal payments on finance leases	(10,254		)	(10,657		)
Proceeds from exercise of stock options	15,126			15,962



	March 31, 2020
	Funeral			Cemetery			Total
	(In thousands)
Preneed receivables	$	134,456		$	882,141		$	1,016,597
Unearned finance charges	(16,643		)	(31,741		)	(48,384		)
Preneed receivables, at amortized cost	117,813			850,400			968,213
Reserve for credit losses	(8,432		)	(6,792		)	(15,224		)
Preneed receivables, net	$	109,381		$	843,608		$	952,989

	December 31, 2019
	Funeral			Cemetery			Total
	(In thousands)
Preneed receivables	$	130,971		$	907,973		$	1,038,944
Unearned finance charges	(16,328		)	(34,242		)	(50,570		)
Preneed receivables, at amortized cost	114,643			873,731			988,374
Allowance for cancellation	(1,452		)	(39,690		)	(41,142		)
Preneed receivables, net	$	113,191		$	834,041		$	947,232



	2020		2019		2018		2017		2016		Prior		Total
	(In thousands)
Preneed receivables, at amortized cost:
Funeral	$	17,961	$	52,966	$	21,401	$	10,957	$	4,200	$	10,328	$	117,813
Cemetery	72,342		314,130		209,268		133,146		72,190		49,324		850,400
Total preneed receivables, at amortized cost	$	90,303	$	367,096	$	230,669	$	144,103	$	76,390	$	59,652	$	968,213



	Past Due
	<30 Days		30-90 Days		90-180 Days		>180 Days		Total		Current		Total
	(In thousands)
Preneed receivables, at amortized cost:
Funeral	$	3,537	$	1,828	$	1,321	$	12,993	$	19,679	$	98,134	$	117,813
Cemetery	34,056		18,312		7,155		4,484		64,007		786,393		850,400
Total preneed receivables, at amortized cost	$	37,593	$	20,140	$	8,476	$	17,477	$	83,686	$	884,527	$	968,213



	January 1, 2020			Provision for Expected Credit Losses			Acquisitions (Divestitures), Net		Write Offs		Effect of Foreign Currency		March 31, 2020
	(In thousands)
Funeral	$	(8,057	)	$	(1,423	)	$	4	$	1,019	$	25	$	(8,432	)
Cemetery	(6,700		)	(221		)	—		109		20		(6,792		)
Total reserve for credit losses on preneed receivables	(14,757		)	$	(1,644	)	$	4	$	1,128	$	45	$	(15,224	)


⁽¹⁾	All realized gains and losses are recognized in Other (expense) income, net for our trust investments and are offset by a corresponding reclassification in Other (expense) income, net to Deferred receipts held in trust and Care trusts’ corpus.



		March 31, 2020
	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Value
				(In thousands)
Fixed income securities:
U.S. Treasury	2	$	48,320	$	1,882	$	(101	)	$	50,101
Canadian government	2	36,771		94		(802		)	36,063
Corporate	2	6,647		60		(104		)	6,603
Residential mortgage-backed	2	3,221		162		—			3,383
Asset-backed	2	128		4		(2		)	130
Equity securities:
Preferred stock	2	685		—		(192		)	493
Common stock:
United States	1	1,355,659		139,724		(259,124		)	1,236,259
Canada	1	35,161		8,039		(5,461		)	37,739
Other international	1	89,939		6,865		(9,211		)	87,593
Mutual funds:
Equity	1	777,284		1,673		(249,187		)	529,770
Fixed income	1	1,273,438		3,732		(159,609		)	1,117,561
Other	3	386		32		—			418
Trust investments, at fair value		3,627,639		162,267		(683,793		)	3,106,113
Commingled funds
Fixed income		443,215		959		(4,927		)	439,247
Equity		255,846		1,012		(8,230		)	248,628
Money market funds		290,028		—		—			290,028
Private equity		178,766		79,960		(9,625		)	249,101
Trust investments, at net asset value		1,167,855		81,931		(22,782		)	1,227,004
Trust investments, at market		$	4,795,494	$	244,198	$	(706,575	)	$	4,333,117


⁽¹⁾	All net unrealized losses recognized in Other (expense) income, net for our trust investments are offset by a corresponding reclassification in Other (expense) income, net to Deferred receipts held in trust and Care trusts' corpus.



	Fair Value
	(In thousands)
Due in one year or less	$	54,159
Due in one to five years	33,570
Due in five to ten years	8,478
Thereafter	73
Total estimated maturities of fixed income securities	$	96,280



	March 31, 2020
	In Loss Position Less Than 12 Months					In Loss Position Greater Than 12 Months					Total
	Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses
						(In thousands)
U.S. Treasury	$	491	$	(1	)	$	1,447	$	(100	)	$	1,938	$	(101	)
Canadian government	—		—			11,466		(802		)	11,466		(802		)
Corporate	—		—			2,750		(104		)	2,750		(104		)
Asset-backed	—		—			14		(2		)	14		(2		)
Total fixed income securities with an unrealized loss	$	491	$	(1	)	$	15,677	$	(1,008	)	$	16,168	$	(1,009	)


⁽¹⁾	Includes both realized and unrealized investment (losses) gains.


⁽²⁾	Includes current year trust fund income through the date of performance.


•	$25.0 million in aggregate principal of our Bank Credit Facility May 2024;


•	$8.1 million in aggregate principal of our Term Loan due May 2024;


•	$0.7 million in aggregate principal of 7.5% Senior Notes due April 2027 repurchased on the open market;


•	$0.1 million of premiums paid on early extinguishment; and


•	$135.0 million in aggregate principal of our Bank Credit Facility December 2022;


•	$8.4 million in aggregate principal of our Term Loan due December 2022; and



	Per Credit Agreement	Actual
Leverage ratio	4.75 (Max)	3.88
Interest coverage ratio	3.00 (Min)	5.04


•	a $8.1 million increase in vendor and other payments. partially offset by


•	a $6.0 million increase in General Agency (GA) and other receipts,


•	a $7.6 million decrease in payments for Company-owned life insurance policies, net of proceeds,


•	a $3.6 million increase in cash receipts from divestitures and asset sales, and


•	a $3.2 million decrease in cash spent on real estate acquisitions for cemetery development, partially offset by