Service Corp. International Reports Operating Results (10-Q)
Service Corp. is the largest provider of funeral and cemetery services in the world. The funeral and cemetery operations consist of the Company's funeral service locations cemeteries and related businesses. The financial services operations represent a combination of the Company'sinsurance operations primarily related to the funding of prearranged funeral contracts and a lending subsidiary which previously provided capital financing for independent funeral home and cemetery operations. Service Corp. International has a market cap of $1.37 billion; its shares were traded at around $5.45 with a P/E ratio of 10.8 and P/S ratio of 0.6. The dividend yield of Service Corp. International stocks is 2.9%. Service Corp. International had an annual average earning growth of 18.7% over the past 5 years. Highlight of Business Operations: Our funeral, cemetery merchandise and service, and cemetery perpetual care trusts have been and continue to be impacted by adverse conditions in the U.S. and global financial markets. The fair market value of our trust investments declined sharply in the second half of 2008. In the first quarter of 2009, we realized aggregate net losses of $40.8 million in our preneed funeral and cemetery merchandise and service trusts. In addition, we realized aggregate net losses of $10.7 million in our cemetery perpetual care trusts.
As of March 31, 2009, we have net unrealized losses of $500.8 million in our preneed funeral and cemetery merchandise and service trusts, and net unrealized losses of $189.3 million in our cemetery perpetual care trusts, as discussed in Notes 4, 5, and 6 in Part I, Item 1, Financial Statements. At March 31, 2009, these net unrealized losses represented 26% of our original cost basis of $2.7 billion. As explained in Critical Accounting Policies, Fair Value Measurements in our 2008 annual report on Form 10-K, changes in unrealized gains and/or losses related to these securities are reflected in Other comprehensive income (loss) and offset by the Deferred preneed funeral and cemetery receipts held in trust and Care trusts corpus interests in those unrealized gains and/or losses. Therefore, the majority of these significant net unrealized losses are not reflected in our consolidated statement of operations for the three months ended March 31, 2009. We do, however, rely on our trust investments to provide funding for the various contractual obligations that arise upon maturity of the underlying preneed contracts. Because of the long-term relationship between the establishment of trust investments and the required performance of the underlying contractual obligations, the impact of current market conditions that may exist at any given time is not necessarily indicative of our ability to generate profit on our future performance obligations.
We rely on cash flow from operations as a significant source of liquidity. Our cash flow from operating activities provided $141.4 million in the first quarter of 2009. Our current cash and cash equivalents balance is approximately $125 million as of April 30, 2009. In addition, we have approximately $202.3 million in excess borrowing capacity under our revolving credit facility.
Net cash provided by operating activities, excluding special items, increased approximately $1.8 million in the first quarter of 2009 compared to the first quarter of 2008. We did experience declines in atneed customer cash receipts in both the funeral and cemetery segments related to the decrease in the number of deaths in our markets. However, customer collection rates related to our funeral and cemetery preneed contracts were strong. These preneed cash collections, coupled with a $28.2 million decrease in incentive compensation payments, a decrease in payroll cost of $9.5 million, and $8.0 million of lower variable merchandise costs resulted in operating cash flows that were in line with our expectations.
Investing Activities Net cash used in investing activities decreased $29.6 million in the first three months of 2009 compared to the first three months of 2008, primarily due to a $21.6 million decrease in deposits of restricted funds and a decrease of $5.7 million in capital expenditures.
When selling preneed funeral and cemetery contracts, we may post surety bonds where allowed by state law. We post the surety bonds in lieu of trusting a certain amount of funds received from the customer. The amount of the bond posted is generally determined by the total amount of the preneed contract that would otherwise be required to be trusted, in accordance with applicable state law. For the three months ended March 31, 2009 and 2008, we had $6.3 million and $7.9 million, respectively, of cash receipts attributable to bonded sales. These amounts do not consider reductions associated with taxes, obtaining costs, or other costs.
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