Service Corporation International (SCI) 2002 Q3 法說會逐字稿

Good day. And welcome to the Service Corporation International third quarter 2002 earnings results conference call. Today's call is being recorded. At this time for opening remarks and introductions, I'd like to turn the call over to the Chairman and Chief Executive Officer Mr. Robert Waltrip. Please go ahead, sir.

Thank you for participating in this call. After our prepared remarks we will have a period of questions. And I'm going to turn the meeting over now to Eric Tansberger, our Corporate Controller.

Thanks, Bob. I just want to remind everyone that we will be making statements today that are forward-looking, not historical facts. In our meeting reliance on the safe harbor protections provided under the reform act of 1995. Some of these statements that we will make today may be accompanied by words such as believe, estimate, project, expect, anticipate, or predict or other like words. That conveyed uncertainty of future of events or outcomes. The statements we make today are based on assumptions that we believe are reasonable.

However, I remind you that many important factors could cause the company's actual results in the future to differ materially from these forward-look statements that we will make today or in any other documents or presentations made by the company. Important factors that could cause these actual results of the company to differ materially from these forward-looking statements we make today are listed in our 1934 act filings and our 10-K for 2001. At this time we're going to have a few brief remarks and then open the call up to questions. I'm going to pass the call on at this time to our President and Chief Operating Officer Thomas Ryan.

Thank you, Eric. Typically when we address our quarterly results, we speak in very detailed financial terms about the various aspects of the business for a specific quarter. For this call I would like to talk less about the quarterly specifics and more about the business drivers, certain challenges and opportunities, and the approach to dealing with each of them. After this, I will have some brief comments on the quarter and then pass the call to Jeff for a financial overview.

The first challenge we face is our ability to grow comparable funeral revenues in a market that does not have increasing volume. In other words, the number of deaths in north America remains relative flat.

The second challenge we face is a negative impact on the top line of prearranged funerals previously sold that are converting to revenue as the contract goes out. The average revenue per case recognized today tends to be lower than the current walk-in average. This was due to historical geographic concentrations in lower revenue per case markets such as Florida in the absence of preneed and higher average markets, for instance, in the northeast. As well as historical asset returns either from trust or insurance that did not keep pace with historical at need pricing.

The third challenge we face is that of growing our profitability in the cemetery business within the business structure we currently have. This structure was historically built and focused on chasing the next sale as opposed to growing a healthy, profitable business.

The fourth item is the increasing mix of cremation consumers in both our funeral and cemetery operations. Historically the funeral cremation consumer spent less money on their respective funerals than a noncremation funeral. Cemetery cremation consumers spent very little on memorialisation while burial consumers purchased land, merchandise, and services.

The final challenge we will discuss, unique to SCI, is that we have grown to become the largest consolidator in our industry in our quest for growth we lost focus on both operations and on the processes and systems that support our field operations. The bad news is that we are not the lowest cost provider of services in it our industry. The good news is that we have room for real margin improvement. In addressing our first challenge in our north American funeral operations, even though it appears the number of deaths in the markets we serve are down for the year, we believe we are maintaining our market share to date. We have experienced success in the memorial package plan that is resulted in revenue growth and enhanced cash flow.

In the near term we intend to intensify our efforts to leverage the positive dignity package impact throughout all of our funeral operations. Not only because of profitability but also because our customers tell us through the customer satisfaction surveys that they love these products. For the third quarter of 2002, our percentage of dignity funerals performed increased to 15.1% from 13.7% in the second quarter. Keep in mind as consumered purchase additional products and service that they value the average dignity package plan delivers additional revenues in cash flow as compared to nondignity arrangements. The dignity package plans are geared to provide new products and services to our client families. But what can we do to provide these products and services to more people?

In the near term we must compete more effectively for market share and revenues in the local markets in which we serve. We have launched a nationwide initiative we call our swat analysis or local market action plans. These plans institutionalize the assessment of the market, require interaction from our local team, and identify required action steps. They identify who is accountable and by what date. These plans must become part of our culture to truly succeed and be effective. However, as the old saying goes, what gets measured gets done. This is the best way I know to focus on local market share which is where we really compete for customers today.

As our nation's population expands and becomes more transient, they will select funeral and cemetery providers from outside traditional local heritage familiarity. We believe they will be influenced by organizations in which they participate, be it fraternal, workplace, or others. These people, whether from these organizations or simply mobil, transient Americans, will turn to a provider for an assurance of quality and value. Our dignity memorial provider network is the only one of its kind that can meaningfully deliver funeral merchandise and services on a national basis. We believe this initiative will have a profound effect on our long-term results as our network and brand will afford us a significant strategic advantage.

In addressing our challenge relating to the price of preneed funerals from the backlog, keep in mind that although the average revenue per case is lower than the current at need average, the purpose is primarily to address market share. Additionally, by selling this product, preneed, we have locked in our market share protecting us from competitors and we have locked in a higher value mix. As people may be more likely to choose cremation at a later date. To address this issue we are going to utilize new lead sources, predominantly from better sales training and from affinity group leads we talked about earlier which should provide a more incremental consumer from a future backlog.

In addition to improving the characteristics of the backlog, we also continue to increase the percentage uptake on prearranged dignity memorial package plans sold through our preneed sales force. From 20% in the second quarter to 23.7% in the third quarter of 2002. These packages carry higher revenues per case. And while the initial sale of the plan has no impact on current revenues or margins, one of three will turn at need sometime in the next three years. As noted in the beginning, we are less than pleased with where our cemetery margins are today.

Our 2001 margins were unusually high due to high levels of merchandise liability relief. And while they're absent in 2002, the 2002 margins are being helped by an unusually high level of revenues recognized upon the completion of cemetery construction projects. Remember, under SAB 101 cemetery property sold and meets the cash requirement of 10% paid in must also be constructed for revenue and profit recognition to occur. Therefore, any presold unconstructed property, such as mausoleums, get recognized only upon completion of construction. As a matter of fact, our current expectations for our cemetery margins in the fourth quarter of 2002 are that they're likely to be lower than the prior year.

As for the first time, we will experience both less merchandise liability relief as well as lower cemetery construction profits. With this on the horizon and knowing our normalized profit margins were unacceptable, our senior management team felt it necessary to create a new cost structure that fits the real revenue stream. And focuses our team on the quality of the sale immediately.

I am proud to say our senior sales management has taken the lead here. In developing a comprehensive strategy and implementation plan to lead us into the future. We have eliminated many ineffective forms of lead procurement such as telemarketing, most direct mail, and have drastically reduced expenses associated with incentive travel. Additionally, we have retooled our compensation structure for our sales management team and based it on cash flow and profitability and not just revenues.

Efficiencies in recruiting, sales processing, and turnover along with the consolidation or elimination of various sales management positions, will result in a leaner, more professional and effective sales organization. The new organization will focus on the quality of the sale and the satisfaction of the consumer which will align better with our national branding strategy.

While we believe these changes could potentially have a near-term negative impact on cemetery revenues, we believe they will have a favorable impact on both margins and most importantly cash flows in the near term. These changes will also enhance our ability to streamline our support services processes and we believe will afford us the opportunity for enhanced quality revenue growth from a much more stabilized sales structure. In the longer term, proactive cemetery property development and unitization will equal faster sales and bigger sales averages.

Our focus will be in managing the larger high-turn cemeteries for the potential for funeral synergies. The challenge associated with the inevitable increase and the mix of cremation in our businesses has and will put pressure on both our revenues and our profit margins. Remember, cremation funeral revenue per case is lower than burial funeral revenue. While gross profit percentages can be higher, the gross profit dollars are reduced which puts pressure on our overall margins. This trend impacts everyone in our industry. And we are being proactive. By having developed products and services specifically for the families choosing cremation. This should further negate some of the financial impact of the cremation makeshift.

In addition to enhanced training, SCI both a funeral provider and a cemetery operator as cemetery cremation memorialization products such as cremation gardens, which are second to cemeteries that are specifically designed for a cremation consumer who traditionally may have never thought of purchasing such a product. These cremation memorialization products are innovative and geared towards addressing all of the needs surrounding the cremation consumer. Given our large network, we are afforded a unique opportunity to assist our client families over the long term.

Lastly, as noted earlier, we must become the low cost provider in this industry. Not the lowest priced but the lowest cost. In addition to the cost rationalization measures we spoke of in relation to the sales organization, we are in the midst of what we call the Delta Team Project. This team is full-time dedicated to reviewing all the companies processes that are currently supporting delivering of service to the field operations. In conjunction with this process and people review, we are installing newer, more efficient systems, that will provide more relevant and timely data to the field. This initiative will result in overhead cost reduction that show up as G&A expenses on the income statement as well as overhead cost reduction that get allocated to our funeral and cemetery businesses.

In conclusion, we have many opportunities and challenges. We have a multifaceted plan in place and moving. Currently change is the rule. And not the exception. With all of the recent accounting changes, restructuring charges, and now especially with these operational changes afoot, it is very difficult at this point in time to give you meaningful guidance. Be assured our near-term initiatives should deliver meaningful improvement in our cash flow and therefore we are still very comfortable with the position of our business. As we more fully develop our strategy, we will keep you appraised of the changes that occur and the positive impact they will have on our results.

Now I would like to briefly touch on some of the results for the quarter before I turn it over to Jeff. Operating performance in our North American comparable businesses was generally in line with the external targets published on the street. Comparable North American funeral revenues for the third quarter increased by approximately 2% as compared to the third quarter of 2001. Although our comparable number of funerals performed were slightly down, we believe this is attributable to a lower national death rate compared to the third quarter of 2001. This belief is based on the reported results of our publicly traded competitors, CDC statistics, and local market knowledge.

Our average revenue per funeral increased by more than 2% above the prior year quarter due mainly to the increased take-up rate of our dignity funeral and cremation plans which was partially offset by the negative impact from a cremation mix increase of 80 basis points. For the third quarter our comparable north American funeral margin was 16.7%. This is a 140 basis point improvement over the prior year quarter as we continue to focus on managing our costs. Keep in mind that the third quarter is traditionally the weakest seasonal quarter for funeral operations in our nine-month, year-to-date margin of 21.4% within our annual guidance range of 18-23%.

Comparable North American cemetery revenues for the third quarter increased by 7.1% over the prior year quarter. This was primarily as a result of an increase in completion of cemetery property development projects. Our cemetery margin for the third quarter was 12.5% versus 15.7% in the third quarter of 2001. This was because unusually high completed construction revenues in 2002, which carry a 50% product margin, replaced an unusually high amount of merchandise liability relief revenue in 2001, which carried an 84% product margin. It is anticipated that the company will complete construction on projects which will result in a 60 to 70 million of immediate revenue recognition during 2002. When historical trends would suggest that $25-35 million would be normalized recognition from construction completion.

On the international front, our French funeral operations continue to perform at levels exceeding our expectations. For the nine months ending September 30, 2002, we have achieved revenue growth of almost 6% over the nine months ended September 30, 2001. This is resulted in increased EBITDA of over $9 million or more than 25% over the year to date 2001 results. This increased EBITDA will provide enhanced leverage in which to recapitalize the business and create further value for any potential financial partner. With that I would like to thank you and hand it over to Jeffrey Curtiss, our Chief Financial Officer. Jeff?

Thanks, Tom. You can see from SCI's press release last night that we continue to make progress in debt reduction and in generating free cash flow. SCI's general and administrative costs for the quarter were up slightly when adjusted for the $4.4 million of noncash accelerated systems amortization costs incurred during the quarter.

Process re-engineering costs associated with our new systems effort was the primary reason for the small general and administrative cash cost increase for the quarter. Net debt, which is total SCI debt, less cash and cash equivalence, was reduced to $1.86 billion at the end of the third quarter, down $146 million from the end of the second quarter and within our year-end target range of $1.8-$1.9 billion. Since the beginning of 2000, SCI has reduced net debt by over $2.1 billion and deferred until 2008 and 2009 over $500 million after additional debt successfully accessing the markets in 2001 and 2002.

SCI's liquidity remains strong. Cash and cash equivalence at September 30 was $141 million. Our bank credit line was approximately $100 million of availability. And our only usage on this line has been for letters of credit. During the third quarter and the month of October SCI purchased approximately $153 million of face value of its bonds. Including $15 million of its convertible debt due in 2008. It also completed during the third quarter a new $185 million revolving bank credit facility and the successful swap of $172 million of 05 bonds, 409 bonds.

SCI's term maturity schedule as of November 1 for its outstanding bonds is $85 million due in March 03, $111 million due in April 04, $51 million due in December 04, and $403 million due in December 05. The $146 million of decrease in net debt in the third quarter resulted from debt reduction with $44.6 million of recurring free cash flow from operations. Supplemented by proceeds from a $35 million tax refund. And $16 million of asset sales primarily in North America. We also used letters of credit to replace certain cash collateral deposits which when netted against further deposits also reduce net debt by 37.2 million during the third quarter.

Finally, the bond swap transaction which occurred on September 25 resulted in net debt reduction of over $20 million in the quarter. This $20 million will accrete back to $272 million from the third quarter of 02 to the maturity of the debt in 2009. With SCI's cash on hand and credit availability under our new credit facility, SCI has liquidity to settle in full all debt maturing prior to April of 2004.

Further, we expect to generate operating free cash flow over the next 16 months as well as complete our north American asset sale program and hopefully joint venture our French business. Recurring operating precash flow for the third quarter was $44.6 million and for the year to date was $154.9 million. This compares with recurring operating free cash flow in the third quarter of 2001, of $45.9 million and the first nine months of 2001 of $164.4 million.

We continue to believe that our target range of $160-180 million of recurring operating free cash flow for 2002 is appropriate. Our current expectations are that 2002 tax payments will be very modest. Probably less than $10 million. SCI recently updated its estimate of the cash tax benefit. It will receive from the IRS approval of its change in tax accounting methods. We now estimate that this benefit will be approximately $180 million in cash flow from this ruling which will be realized over several years. We received during the quarter are a $35 million tax IRS refund attributable to the tax year 2001.

Cash taxes in 2002 should be reduced by approximately $45 million. Cash taxes in 2003 should be reduced by approximately $30-40 million. And the remaining $60-65 million of this cash benefit will be realized when the IRS audit of the tax return for the 2000 tax year is finalized. During the third quarter SCI incurred approximately $19.6 million of nonrecurring expense associated with interest rate options and approximately $10 million of pretax extraordinary losses. Associated with these options.

During October SCI also incurred another $22 million of such expense or extraordinary charges associated with settling these interest rate option contracts. These interest rate options were initially sold by SCI in 1998 as part of a 2003, 2020 synthetic foot bond financing. Some of the options were settled as SCI purchased the related 03 foot bonds. The rest of the options were settled in October. The good news is that this option liability is now extinguished. The bad news is that the cost to SCI was significant. Approximately $57 million in 2002, which impacts EPS in the third quarter by approximately six cents a share and EPS in the fourth quarter by approximately 5 cents a share. The settlement of these options does not impact SCI's bank covenant compliance or our reported operating free cash flow. It also does not impact our liquidity as the option related liability was continually cash collaterallized. To avoid further potential losses, it was best to settle these contractual obligations now. Rather than wait until their maturity in March of 2003.

In summary, the net debt and cash flow targets SCI previously set for this year still appear reasonable. But we are attaining these targets in a manner different than what we initially expected. Lower operational performance and greater working capital requirements have been substantially offset by lower tax payments. The stability of the business is evident from the fact that north American EBITDA for the first nine months of 2002 was $283 million versus $286 million in the same period of 2001. Despite the fact that many SCI North American businesses were divested during this time frame. As Tom mentioned, management's focus is on improving the execution of our revenue, cost containment, asset deployment initiatives. With those remarks, let's turn it over to questions from the callers.

Thank you. Today's question and answer session will be conducted electrically. If you would like to ask a question, you may signal us by firmly pressing the star key followed by the digit one on your telephone. That's star one for questions. If you are on a speaker phone, please be sure your mute function is turned off to allow your signal to reach our equipment. Once again, star one for questions and we'll pause a moment to allow everyone the opportunity to signal. We will take our first question from AJ Rice at Merrill lynch.

Hello, everyone, and thanks for the update. A couple of quick questions. I guess the big picture question. Tom, you made the comment that you don't think you're the low cost operator in your market and understand the need to upgrade the systems. But I guess because of the clustering strategy I thought you were toward the low end, low cost side of the market. Maybe can you expand on what kind of announcements you've done that makes you feel otherwise at this point?

Sure, AJ. Really I think the two areas where we've not been the most efficient is in our sales delivery structure. And we're addressing that today in that our cost of putting a sale on the book on a preneed basis is probably not the lowest in the industry. Secondly that we mentioned, AJ, was the processes behind the funeral homes. We do believe within our cluster strategy we're as good as anybody if not the best, probably the best, at managing that cost. But behind the clustering strategy, there are a lot of processes that again were built in an era that was related to a high growth acquisition era. And in doing so, we didn't do it in the most efficient way so we're going back now and taking a look at those processes and improving them. And like I said, changing the processes, the people, and putting in the systems to fit the new processes.

Maybe a more technical one. I guess on this issue of how the completed construction of cemetery products impacts your results. It obviously jumps around quite a bit from quarter to quarter. I guess you're saying that a normal number would be 25-35 million annually. Can you refresh us about what drives the fact that it's so volatile from quarter to quarter? And what goes into the 25-35 million versus the higher level that you have, you've been running more recently?

Sure. What's occurred, AJ, as you know, under SAB 101 a lot of the revenue recognition changed. Historically when we sell constructed cemetery property, mausoleum as an example we would sell the space preconstructed so you would have a consumer come in pay their money, and buy their space. And effectively based upon various state laws, we're required at some point in time as we reach a certain sales leave to construct those mausoleums on those cemetery properties.

Under sab-101, you recognize the revenue not only once the consumer buys the product but once you collect 10% down and lastly once you've constructed the project in its entirety. So what you've had is over time we've sold preconstructed cemetery property, and now the laws or we decide that we need to build these things and it creates kind of an onslaught of revenue and profits solely related to the final step of constructing the cemetery property.

What occurred in 2002 was based upon the financial conditions of the company, we were putting off constructing a lot of these projects back in 1999 and 2000 and 2001, because we didn't want to front the cash to do it. So you're seeing in 2002 kind of a catch up in construction projects, where as when we look at the historical normal run rate of how we sold cemetery property and how we constructed it, you'd see a trend of $25-35 million. Again, a lot of that is going to be based upon the requirements of when we have to construct driven by law and lastly by, you know, potential construction delays or weather. Obviously it's more difficult to construct things in the north and the northeast and in the middle of December and January. So those are the types of things that will drive some of the volatility as we move forward. I think it will have less of an impact as you'll see with a 25-35 million run rate. You shouldn't have drastic swings in the quarter that you may have seen a little more in 2002.

And you'll be back at that normal run rate as you enter 2003? Is that the guidance at this point?

I believe so, AJ. But I also think we're relooking at the historical ways we build cemetery inventory. That's one of the things I think you heard us talk about our longer term strategies. When are we going build things? How much preconstructed property are we going to sell? And we want to be the most efficient and effective from a cash flow perspective and sales growth perspective that makes sense. We're evaluating that. We don't see any changes in the near term than that 25 to 35 million run rate.

Thanks a lot.

You're welcome.

Our next question from Bill Burns at Johnson Rice.

Good morning. Tom, a question about -- after reading your press release, I picked up on this theme of cost control to help expand the margin. My question is, I'm look at your average revenue per event in North America the last couple of quarters. It's been a little over 2%. But your variable cost, they've got to be increasing also to some degree. I'm wondering specifically what can you do to keep your variable cost from increasing faster than your average revenue per event?

Sure. You know, some of the variable cost items, and again, you'd have to go back to the components of them, Bill. But obviously on the funeral side of the business, the variable cost is in our casket. When we sell caskets today, we are purchasing those obviously from a large supply contract. We do have a contract that limits the ability to pass on increasing costs. So even though we think today the casket manufacturers are experiencing higher level of costs and trying to pass those on, we have some protection in how that variable grows. But obviously with down volume, that is going to additionally impact the variable costs as it impacts our business. On the cemetery side of the equation, the fix cost associated with the cemetery are going to be the management costs, the maintenance costs and the like. And the variable costs again are going to go back to the merchandise and products that we sell. So what we can do to manage the variable costs associated with the cemetery side is trying to sell higher margin products in the cemetery business. But otherwise the preponderance of those are fixed like we talked about before. I don't know, is there a specific item you wanted to talk to, Bill?

Just in general is. That's good. Can I ask, Jeff, a quick question on cash flow?

Sure.

It has to do with this quarter versus last quarter, the $8.2 million increase in the use of cash for working capital purposes. Can you talk about it being a result of timing? I'm just wondering when do we catch back up with that?

We're work very hard in the fourth quarter with the hope that we'll do most of the catch up in the fourth quarter. A lot of it related to our preneed type of activities and our trust funds. This year we were unable to take as much money out of our trust funds as we had in prior years because our investment results were not as good as in prior years. And we also had some situations where we weren't collecting at the pace we hoped to.

Ok. Thank you very much.

We'll take our next question from John Ransum at Raymond James.

Good morning. Jeff, maybe you could update us on the current debt maturity schedule with all the paydowns that have occurred recently. I'm thinking for calendar 0 3, 04 and 05. Thank you.

Ok. In terms as of November 1st if that's ok.

Sure.

We have $3.9 million worth of debt yet due this year. $99 million worth of debt this year. We have an aggregate in 04, $179.5 million worth of debt. And in 05, we have $428.8 million worth of debt. Due. Is that far enough out?

That's great. And just to follow up on this theme of free cash flow. Obviously you had some cyclical and some timing issues working against you this year. But you had a much better tax situation than you anticipated. As you look out into 03 two questions. One do you think the free cash flow is going to grow over 02 levels? And what are going to be the big swing factors in 03 positive and negative compared to 02? We seem to have a complex, ever shifting dynamic of events. I'm just wondering what subtle thing we don't know about that you think will occur in 03 that didn't occur in 02 and vice versa?

We have not yet completed our business planning for 2003. So in some senses it would be premature for me to make any judgments in that regard. I would say this, that I am optimistic that our tax planning initiatives will allow us to keep cash taxes relatively low in 2003, again as we have done in 2002. As you know, at one time we issued guidance that talked about shooting for a target of recurring operating free cash flow of $200 million. At this point in time we have no reason to change that guidance. But I would hope when we get done with our business planning exercise, we can give you more appropriate ranges.

Obviously your interest expense is going to be lower with the debt paydowns. One would presume that perhaps some of the cyclical working capital factors would be reversing in your favor next year. Is there any reason to think that cash flow won't grow at least as fast as EBITDA grows next year on the same store basis? Is there any sort of subtle cash timing thing in the business that would make that not to occur?

You're just assuming EBITDA grows, John. That would be my only suggestion to you. You just heard remarks made on how our cemetery business is being realigned.

Sure.

To make it more normal type of revenues associated with construction and liability. So I just don't feel comfortable at this point in time giving you much more guidance than what we already have on the street for 2003. But I'm hopeful that as we complete our planning exercise and conclude the results for this year, we'll be in a position to do that for you going forward.

Thank you.

And John, this is Tom. If I remember your original question -- do we believe 03 will improve over 02? Obviously, you know, based upon the things that we know, there's nothing that tells us that it won't. I think that's a fair statement. And like I said, we've got guidance today that at this point in time we see no reason to change.

And the last thing. When will we have -- let's just say impairment charges for future asset sales off the table. When do you think we'll see a quarter without -- the option expense on this debt is at least new to me. Maybe not to anybody else. But when do you think we'll see a quarter without new charges kind of coming out of the woodwork or surprises to people? Do you think we might be looking for a second quarter of next year where we might see a relatively clean quarter on a GAAP perspective?

That's our goal. We know the fourth quarter is going to have this option charge that we just mentioned. But our goal is to try and get as much cleaned up this year so that next year can be as clean as possible.

For example, as you do your severance, are you going to take care of sort of severance issues this year for cost reductions to be occurring next year?

John, I think first of all let me say that there's quite a few people that are frustrated. No one is more frustrated than Mr. Waltrip with having all of these quarters with all of these special charges. Some of them are driven by the fact they're outside our control. If there's an accounting change, we can't do anything about it we don't anticipate any major restructuring charges. We don't have any derivatives that will impact in the future. So we'd like to believe 03, looking out, doesn't have anything special that we're aware of. And we'd love to see a clean year without any of those impacts. With regards to specific changes, we've talked about, we don't anticipate any large charges or cash costs associated with the changes we're making. So there's nothing that we see on the horizon that has any major impact on 2003.

Thank you.

We'll take our next question from Jennifer Child at Bear Stearns.

Good morning. Some prices have increased in a number of your homes. I'm wondering, are these in response to local market conditions or was there an across the board price increase?

Jennifer, this is Tom. All our pricing within our homes is driven by the local market conditions. Obviously once a year individual markets take a look at their pricing of products. I'm assuming you're looking at the specific individual prices, Jennifer? Or are you looking at average funeral?

Sort of both.

Obviously with the advent of our dignity memorial package plans, those things tend to drive higher overall averages. But they're driven by additional products and services that we're offering that a lot of our competitors don't have. So in that sense we surely see that. But in addition to that, again on an annual basis within our local markets, we take a look at our pricing, at our cost increases that occur in those homes. Those are made at the individual home level. Like I said in some places may see no price increase in others you may see inflationary price increases that are on the local market basis

On average, do you know what your overall price increases have been year to date?

I think our most recent price increase area would probably have been very recently. I think it would have to be -- I wouldn't have an average for you, Jennifer. I'm sorry. But again, I think they would be pretty much in line with local market inflationary rates. So if I had to guess an overall number, it would probably be somewhere in the 2% to 3% range. I have no idea.

Can you update us on the situation in Florida please.

Sure.

This is Eric. There really is not much of an update that we can give to you other than the last time we visited there was a class action hearing on the horizon. That was in August, I believe. That was not concluded at that point in time. For various reasons. We believe that the class action hearing is scheduled to start up next week. I think it's November 12. To be exact. So we anticipate some type of decision hopefully in the coming weeks after that, November 12 start-up, of the class action hearing in Florida. Other than that, we continue to make progress with our plan with the attorney general in terms of the ground penetrating radar and the analysis and assessment of both the cemetery in Palm Beach as well as the cemetery in Fort Lauderdale. We're pleased with the progress that we've been able to make. In that operation. But other than that there's not much new to report.

Ok. Can you update us with the status of your asset sales program both domestic and international?

Ok. From a domestic standpoint in the quarter in Q3, we sold around 25 properties in our north American disposition program which resulted in about $9 million or so in after-tax cash proceeds. That puts us year to date at about $315 million roughly on a pretax basis. Remember, the biggest piece to that is the $275 million which related to the United Kingdom earlier in the year. And then from a North American standpoint year to date through September we've had about $40 million of pretax cash proceeds. When you look at what I just described as what has been sold, we also have several properties, about 60 properties, as a matter of fact, under letters of intent in North America. When you add the letters of intent with the properties that we've sold, as you know, we really have had two programs in North America selling assets. The properties -- adding these two together, we're about 80% complete in terms of the properties that we are selling and we're about 90% complete in terms of the proceeds that we thought we would originally receive.

Ok. And internationally any further activity there?

I think we had one joint venture in Italy that we got out of during the quarter, I believe. It's very small. But we have very little left. Other than the South American assets. We have an asset Singapore and, of course, our French joint venture asset.

And also, we still have a business in Germany. But Jeff's right. The joint venture that he's talking about the city of Genoa, we had a 33% interest that we closed that transaction I think in September.

Ok. Just a few more questions. Any plans for reentering the acquisition arena?

Jennifer, you know, we're getting to a level now we're getting much more comfortable with our balance sheet and our capital structure. I think you'll see us on a selective basis, obviously, as acquisitions come about, that meet the criteria for acquisition for the company. We'll be participating in looking at those types of deals. But at this point in time we've got no large acquisition program in the works, that's for sure.

And finally, any plans for expensing stock options?

You know, I think in that regard that's something that we'll take up with the board and probably watch a lot of what's occurring today with all the changes that are out there. That's an item that I think we'll discuss as we go on. But at this point in time there's no plans for doing anything like that.

Ok. Thank you.

We'll take our next question from Chris Bowden at Raymond James.

All my questions have been answered. Thank you very much.

We'll go next to Brian Morgan at Morgan Stanley.

Good morning. Can you give us the amount of debt repurchased in October.

Brian, can you speak up?

The amount of debt you repurchased in October.

I believe the amount repurchased in October was approximately $17 million.

And do you have any further debt reduction plans for the fourth quarter or beyond that $17?

As you know, we have no outstanding bank lines so real question for us is whether or not we can buy the debt at a price that's reasonable versus keeping the cash on hand. And as we generate cash flow, we make those tradeoffs every day. It depends in part on what prices people are willing to sell the debt at.

What kind of maintenance level per cash would you like to keep?

I think we would like to keep sufficient liquidity so that we know we can always meet the maturities coming forward in the next six to 12 months.

What about the for France for the quart and year to date 1234.

EBITDA for France was about $16 million. U.S. And that puts us at about $45 million U.S. dollars year to date. I don't have the Euros in front of me at this point in time.

And what about your expected proceeds for potential. [ Inaudible ]

I don't think we have any further update at this point in time. As we talked about before we're going get through 2002. We're going to look at those numbers which we anticipate as Tom said in his remarks to be very much improved. And at that point in time, we'll start look at the French transaction again and address it with you at that time in early 2003.

Thank you very much.

Brian, on that, you talked about the transaction would be a Euro transaction. Last year through nine months we were $37 million Euros and approximately 46 million Euros to date. So we're seeing a pretty good improvement with regards to the currency involved in the transaction.

Our next question from Debbie Downey at Miller Roberts.

What was your Cap Ex? And you said your new revolver was $185 million. Of that, you had available when you exclude limits of credit?

Let me take the first two questions of house cleaning. I'll let Jeff address that. The dna for the quarter was about $35 million. The Cap Ex for the quarter was about $22 million of which $18 million was what we say is maintenance Cap Ex.

The credit facility is $185 million. It has a subsegment of it that can be used for letters of credit. And we currently have outstanding about $85 or 86 million letters of credit.

So basically no borrowings, but -- can you tell us about any new relationships you might have gotten over the quarter?

I'm into aware of any. I'll ask anyone at the table.

None really to speak of. That are large national basis relationships. As we spoke before, we've got VFW and ARA are probably two of our very large national programs in place. And ara is a relatively new one. We're making new ground every day and developing that relationship and turning it into one that's meaningful for us.

Thank you. Nice detail provided. Thank you.

We'll take our next question from Rachael at Goldman Sachs asset management.

Could you remind us what last December quarters recurring operating precash flow was?

It was probably I think through the third quarter of now we're about 164 and I want to say that it was about 171 million dollars for year to date so you're talking about $67 million.

All right. If you use the numbers you've just given and compare them to your full year estimate for recurring operating free cash flow, it sounds like it will be a number in the $5-25 range. I was curious whether it was going to sound like it was up or down. It sounds like it will be either flat to up.

Yes.

Ok. On that basis and with your maintenance Cap Ex levels, do you expect you will be a net borrower in the fourth quarter?

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Yes. Your line is open for your question.

I hope it wasn't my question that caused it all to happen. It was a question of whether you thought you would be net borrowers in the fourth quarter.

No. I think we will be a generator of funds in the fourth quarter.

Ok. And I do have one last question if I could. I'm usually -- you indicate what your surety bond receipts are in the quarter that's included in the operating cash flow number. Could you tell us what the surety bond receipt number was for this most recent quarter?

In the -- quarter it's about $24 million on a pretax basis during the quarter which is roughly equivalent with the prior year's quarter.

That's great. This last one, I forget how to frame it because I forget what the exact process is. But I remember from prior calls that there is a process on a state by state basis where they're requiring a change in trust funding and shift from trust funding to insurance or something like that. And that that was going to result in a reduction in sort of the cash you're able to access from this state. I may have made a complete hash of that. But could you give us an update ton.

We have shift our selling organization so that when it's achievable, they are selling an insurance product rather than a entrusted product because that is friendlier from a cash flow perspective. The most recently I guess what I would say is on our trusted amounts we have not had the earnings that we have been able to withdraw from the trust funds under the appropriate state law that we had in the prior year.

But you're not experience states increasingly requiring surety bonding instead of insurance?

No. Surety bonding is an anomaly and only applies in a couple of states.

Great. Thank you very much.

We'll take our final question from Michael Bowman at State Street Research.

Good morning. Most my questions have been answered. But I wanted to know which bobbed bond did you buy back during the quarter? You said you bought back $153 million of face.

During the quarter?

Yes.

We bought back -- it appears about $84 million of 03's, $39 million of 04's, a little over $1 million of 05's, and $14.2 million of 08's. But that does not include the transactions in October.

Ok. Thank you.

At this time I would like to turn the conference back to our speakers for any additional or closing comments.

Thank you for participating in the call. We'll talk to you next quarter.

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