Service Corporation International · NYSE:SCI
Service Corporation International — Merrill Lynch Health Services Conference 2004
32 slides from Service Corporation International's conference presentation, Nov 29, 2004
Slide 1: Exhibit 99.2
Exhibit 99.2 1 1
Slide 2: Merrill Lynch Health Services Conference - Forward-Looking Statements
Merrill Lynch Health Services Conference November 30, 2004 Forward-Looking Statements The statements in this presentation 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
Slide 3: Tom Ryan, President and Chief Operating Officer
Tom Ryan President and Chief Operating Officer 3
Slide 4: SCI is the Market Leader in North America
SCI is the Market Leader in North America Revenues of $1.7 billion Free cash flow of approximately $200 million * 1,200+ funeral homes (plus 170 franchised affiliates) 400+ cemeteries Market coverage exceeds 70% Interact with approximately 630,000 customers on an annual basis 20,000 employees Please
Slide 5: Public Company Landscape
Public Company Landscape (Dollars in millions) SCI to Peer Alder- Stone- SCI-N.A. Peers Group woods Stewart Carriage More Revenues 1,706 1.1 1,486 733 522 151 80 Gross Profit 298 0.9 314 138 120 39 17 Free Cash Flow 211 4.1 51 7 30 8 6 Backlog of Preneed Revs 5,260 1.6 3,238 1,209 1,575 339 115 Fune
Slide 6: SCI Strengths and Investment Considerations
SCI Strengths and Investment Considerations Competitive advantage due to size, unparalleled network & national branding strategy Stable and predictable revenues and cash flows on an annual basis Backlog of future revenues in North America exceeds $5 billion Favorable demographics over the long term
Slide 7: Business Challenges
Business Challenges No near-term expansion in the number of deaths Baby boomers do not reach age 65 until 2011 Increasing pressure on pricing Growing cremation trend - SCI cremation mix currently 40% and increasing 100 to 150 basis points per year Competitive retail environment for products (caskets
Slide 8: The Path to Growth
The Path to Growth Improving the Infrastructure Building the Brand Growing our Revenues 8
Slide 9: Improving the Infrastructure
Improving the Infrastructure Conforming sales approach to emerging customer preferences Outsourcing programs Payroll, accounts payable, trust administration, cemetery collections, IT support New information systems HMIS replaces 3 separate in-house systems New management structure Single-line manage
Slide 10: SCI Vision Statement
SCI Vision Statement Our Purpose… “Who We Are” A company that is dedicated to compassionately supporting families at difficult times, celebrating the significance of lives that have been lived, and preserving memories that transcend generations, with dignity and honor. Our Values… “What We Stand For
Slide 11: Building the Brand: Changing Consumer Landscape
Building the Brand Changing Consumer Landscape Products Experience/Value Celebration of Life Estate Planning Casket Grief Counseling Services Flowers Legal Services Grave space Travel Discounts Internet Memorialization Private family estates Cremation Gardens 11
Slide 12: Brand Strategy Initiatives
Brand Strategy Initiatives Internal focus: institutional excellence External focus: national advertising and community programs Dignity Memorial® packaged funeral and cremation plans Value-added products and services Dignity® cemetery plans in development Utilizing technology & contemporary merchand
Slide 13: Dignity Memorial Funeral & Cremation Plans
Dignity Memorial® Funeral & Cremation Plans Selection rate for North America funeral homes Incremental Revenue Funeral - $2,800 Cremation - $1,900 Blueprint for Success Enhanced merchandise displays and training in 490 locations Over 2,200 counselors have been certified Targeting 550 locations by ye
Slide 14: Growing Revenues: High Impact in 2005
Growing Revenues: High Impact in 2005 New single-line management structure Dignity® packaged plans & contemporary merchandising strategies Implementation and roll-out of cemetery standard pricing model Development and roll-out of Dignity ® Blueprint to cemeteries Investing in sales management in ord
Slide 15: Growing Revenues: Long-Term Impact
Growing Revenues: Long-Term Impact Developing access to customers through new channels - branding, national marketing and affinity strategies Executing on a cremation strategy focused on product differentiation, personalization and simplicity Becoming the preplanning experts – funded and unfunded De
Slide 16: Developing our People
Developing our People Comprehensive Education Strategy in an On-line Campus Format Focus on building a “best in class” workforce Investing in our number one resource: our employees Emphasis on leadership development and training Job-focused curriculum for each position in the company Certification r
Slide 17: From Customer Satisfaction to Customer Loyalty
From Customer Satisfaction to Customer Loyalty Customer Satisfaction Began to track with independent surveys in 2000 (atneed funeral only) Over 40% response rate of all families surveyed Over 98% of respondents are likely to recommend our services Satisfaction scores on a national basis has grown ne
Slide 18: Significant Financial Flexibility
Significant Financial Flexibility Cash on hand at Sept 30, 2004 exceeded $300 million $200 million credit facility ($127M availability after LOC usage) Anticipated proceeds of $80 to $100 million from remaining international asset sales (may occur over several years) Anticipated return of cash colla
Slide 19: Capital Allocation Considerations
Capital Allocation Considerations Internal growth opportunities Dignity® displays in our funeral homes Development of high-end cemetery property Construction or acquisition opportunities Using a hurdle rate that is a premium to our WACC of approx 9% Share repurchase program Repurchased 9.5 million s
Slide 20: Managing Liquidity & Capital Decisions
Managing Liquidity & Capital Decisions LONG-TERM TARGET RATIOS Free Cash Flow/Interest expense Greater than 1.5x Net Debt/Free Cash Flow 5x to 7x Net Debt/Total Capital 40% to 45% Please refer to the disclosures concerning free cash flow, net debt and total capital at the end of this presentation 20
Slide 21: Eric Tanzberger, Vice President and Corporate Controller
Eric Tanzberger Vice President and Corporate Controller 21
Slide 22: North America Operating Highlights
North America Operating Highlights (Dollars in millions) Comparable North America businesses only YTD YTD 2004 Outlook 9/30/04 9/30/03 Chg FUNERAL Revenues 839.7 833.0 +0.8% $1,120 - $1,170 Gross Profit 171.2 160.0 +7.0% Gross Margin 20.4% 19.2% 20% - 24% Case Volume 191,450 192,715 -0.7% Flat to sl
Slide 23: Continued Strong Free Cash Flow
Continued Strong Free Cash Flow Target (In millions) $200 to $245 at 9/30/04 Net Debt/ 51.9 14.6 8.4 6.7 4.5 Free Cash Flow LTM Please refer to free cash flow /recurring free cash flow disclosures and reconciliations to cash flow from operating activities at the end of this presentation. 23
Slide 24: Free Cash Flow Highlights
Free Cash Flow Highlights (Dollars in millions) YTD YTD 2004 Outlook 9/30/04 9/30/03 Chg Cash flows from operations $183.2 $303.6 Unusual tax refund (94.5) Settlement of significant legal matters, (0.7) 25.1 net of insurance recoveries Pension contribution/repayment of 31.4 policy loan on retirement
Slide 25: Significant Debt Reduction
Significant Debt Reduction (In millions) Net Debt Credit ratings: (Total Debt Less Cash) “BB” with S&P “Ba3” with Moody's and highest liquidity rating of SGL-1 Net Debt/ 49% 34% 53% 62% 64% 57% Total Capital Please refer to the disclosures and reconciliations concerning net debt at the end of this p
Slide 26: Debt Maturity Profile
Debt Maturity Profile As of September 30, 2004 SCI has reduced its near term debt maturity profile to levels comfortably within expected levels of on-going recurring free cash flow. (In millions) 26
Slide 27: Sarbanes-Oxley
Sarbanes-Oxley Dedicating a significant amount of resources and time to compliance efforts Expect total costs in 2004 associated with SOX 404 to be $5-$7 million As a result of testing, we have become aware of deficiencies in our internal controls Actively working to remediate identified deficiencie
Slide 28: Building Shareholder Value
Building Shareholder Value Continued strong free cash flow, liquidity and improved capital structure gives us significant financial flexibility Streamlined infrastructure and new management structure establishes solid platform for growth We have unique opportunities for long-term growth with strateg
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Slide 30: Free Cash Flow
Free Cash Flow Free cash flow is a non-GAAP financial measure. We define free cash flow as cash flows from operating activities (adjusted for certain unusual items described below) less capital improvements deemed reasonably necessary to maintain our existing facilities in a condition consistent wit
Slide 31: Free Cash Flow Reconciliation to GAAP
Free Cash Flow Reconciliation to GAAP (Dollars in millions) Recurring Operating Free Cash Flow 2000 2001 Cash flows from operating activities $223.6 $383.3 Add: Payments on restructuring charges 46.7 22.8 Add: Effect of swap terminations 32.8 ------ Add: Payments to pension plan & other nonrecurring
Slide 32: Net Debt & Total Capital
Net Debt & Total Capital Net debt and total capital are non-GAAP financial measures. We define net debt as total debt less cash and cash equivalents. We define total capital as net debt (as defined previously) plus total stockholders’ equity. 1999 2000 2001 2002 2003 Sept 2004 Total Debt 4,060.0 3,2
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