Service Corp. International (NYSE:SCI) filed Quarterly Report for the period ended 2009-06-30.
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 $1.86 billion; its shares were traded at around $7.42 with a P/E ratio of 17.2 and P/S ratio of 0.8. The dividend yield of Service Corp. International stocks is 2.1%. Service Corp. International had an annual average earning growth of 18.7% over the past 5 years.
Highlight of Business Operations:As of June 30, 2009, we have cumulative net unrealized losses of $319.4 million in our preneed funeral and cemetery merchandise and service trusts, and cumulative net unrealized losses of $132.2 million in our cemetery perpetual care trusts, as discussed in Notes 4, 5, and 6 in Part I, Item 1, Financial Statements. In the second quarter of 2009, we experienced some recovery in our trust investments. During the second quarter of 2009, we had investment activity that reduced the net unrealized losses by $181.4 million in our preneed funeral and cemetery merchandise and service trusts, and net unrealized losses by $57.1 million in our cemetery perpetual care trusts. At June 30, 2009, these net unrealized losses represented 17% of our original cost basis of $2.6 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 six months ended June 30, 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 $211.1 million in the first half of 2009. Our current cash and cash equivalents balance is approximately $190 million as of July 31, 2009. In addition, we have approximately $250 million in excess borrowing capacity under our revolving credit facility.
Net cash provided by operating activities increased $94.6 million in the first half of 2009 compared to the first half of 2008, which was primarily due to a $90.0 million United States Federal transaction-related tax payment in 2008. We did experience declines in atneed customer cash receipts in both the funeral and cemetery segments which we believe primarily relates to the decrease in the number of deaths in our markets. However, customer collection rates related to our funeral and cemetery preneed contracts was in line with our expectations. These preneed cash collections, coupled with a $26.5 million decrease in incentive compensation payments, a decrease in payroll cost of $16.5 million primarily related to cost control initiatives, and $14.4 million of lower variable merchandise costs resulted in operating cash flows that were in line with our expectations and comparable to prior year.
Investing Activities Net cash used in investing activities decreased $55.9 million in the first half of 2009 compared to the first half of 2008, primarily due to a decrease of $25.6 million in capital expenditures, a $21.6 million decrease in deposits of restricted funds, and a $7.7 million decrease in acquisition activity.
Financing Activities Net cash used in financing activities increased by $49.6 million in the first half of 2009 compared to the first half of 2008, primarily due to a $47.9 million increase in debt payments in 2009 to early extinguish certain of our debt.
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 June 30, 2009 and 2008, we had $6.3 million and $7.9 million, respectively, of cash receipts attributable to bonded sales. For the six months ended June 30, 2009 and 2008, we had $12.6 million and $15.8 million, respectively, of cash receipts attributable to bonded sales. These amounts do not consider reductions associated with taxes, obtaining costs, or other costs.
Read the The complete ReportSCI is in the portfolios of Mason Hawkins of Southeastern Asset Management.