Service Corporation International (SCI) 2003 Q2 法說會逐字稿

Good day and welcome to the service corporation second quarter international earnings conference call. Today's call is being recorded. For opening remarks an introductions I would like to turn the call over to the chairman and chief executive officer, Mr. Robert L. Waltrip.

Thank you for participating in the call today. After our prepared remarks, as usual, we will answer any questions you might have. I will now turn the call over to Eric Tanzeberger for his remarks.

I want to remind everyone this morning that there will be statements made on this call that are not historical facts, they are forward-looking statements made under the Safe Harbor, protection provided under the private securities litigation reform act of 1995.

Today as we progress through the call statements may be accompanied with words such as believe, estimate, project, expect, those types of words or similar meaning that convey the uncertainty of future events or outcomes. These statements today are based on assumptions that we believe are reasonable. However, many important factors could cause the company's actual results in the future to differ materially from the forward-looking statements made today on this call, or in any other documents, oral presentations made by us, or on behalf of the company. The important factors which could cause actual results of the company to differ materially from these forward-looking statements made today are filed within our 1934 act filings on file with the SEC.

I'd also like to remind everyone today that on our website, SCI-CORP.com, our press release is available on that website. This press release this morning was also filed on an 8-K with the Securities and Exchange Commission. That is also available on the same website. With those remarks I'll go ahead and pass the call over to Tom Ryan, our president and chief operating officer.

Thanks, Eric.

Last night we issued a revised press release reflecting updated results for the second quarter of 2003. Let me just briefly describe to you why this revision occurred. Within an hour after we originally issued our results for the second quarter of 2003, a decision was received by the company in the Hunter arbitration matter. This matter is related to the January 1999 merger of equity corporation international. It has been previously described in the company's filings with the SEC.

As a result of this arbitration decision, SCI determined an accrual of $15 million during the second quarter was necessary. Although we have insurance coverage for items such as this, the accrual is necessary because one of our insurance providers that would have covered a portion of the decision is currently insolvent. Since we just received the arbitration decision late yesterday, we are still assessing all the relevant facts. However, we will be filing our 10-Q within the next day or two and it will contain all the necessary material disclosures as it relates to this matter.

I would now like to turn the focus of the call to the results of the quarter. Similar to the first quarter of this year, overall we are very pleased with the reported results of the second quarter. We continue to see strong results from our North American cemetery business and our french operations. Our company's cash flow remains strong. Our funeral volumes are down with the rest of the industry while our expenses are generally in line with expectations.

As I have communicated to you previously in our 2003 outlook and guidance, we believe that over the course of 2003 and 2004, there are a number of tactical items that with appropriate focus and execution can drive near-term performance, improve the quality of our earnings and the delivery of our cash flow. Most importantly these items will also provide the solid foundational base that combined with the change in our cultural environment will provide the platform for our future growth.

While reduced funeral and cemetery volumes and the cremation changes continue to put pressure on revenues and margins, some of these tactical items are having a favorable and meaningful impact on our results for 2003.

The first item is cost savings associated to changes made with our sales operating structure and related processes during the first quarter of 2002. Secondly, the continuing success of our memorial package funeral sales initiative. The third, the impact of our focus on developed cemetery property sales, which are the most powerful in terms of GAAP revenue recognition and cash flow. This provides a higher quality profit stream as compared to other forms of cemetery revenue and is the genesis for future revenue growth.

Lastly, the development of high end private family estate, semi-private family estate which enhance the value of our cemetery and provides our client families with a variety of choices in selecting cemetery property. As we look out over the coming 12 months, we expect to begin to see reductions in cost associated with the outsourcing of our accounts payable, payroll, and trust administration functions. In addition, the implementation in our financial and point of sales system. These initiatives are either currently in place or in the process of being implemented.

Now, I would like to review with you our operational performance for the second quarter of 2003. Comparable North American funeral revenues were essentially flat for the second quarter as compared to the second quarter of 2002. Lower funeral volumes and lower levels of general agency revenues associated with insurance funded pre-arranged funeral sales were essentially offset by the increase in average revenue for funeral services. We experienced a funeral volume decrease 1.6% for the quarter as compared to the prior year quarter. We believe that this reduction in call volume for the quarter and year to date period is on a national basis, primarily attributable to lower numbers of death in our relevant market.

This belief is supported by the consistent negative trends experienced by our public and local competitors, CDC statistics and feedback from our major industry suppliers. During the second quarter, the CDC statistics for the 89 markets in which we operate show a 4.2% decline in the number of deaths reported, while we experienced a 1.6% decline in those same 89 markets. Data available from our public competitors shows a range of 1-4% decline. One of our major industry suppliers experienced a volume decline of approximately 3% for the period.

Our North American volume shortfall of 1.6% compares favorable to these available statistics, we believe market share can only be measured on a long-term basis and really is only relevant on a local basis. Also our customer satisfaction surveys continue to trend positive. Therefore, given our emphasis on location market action plan and development of our local management, we believe our local share on a national basis is solid.

Our average revenue for funeral for the second quarter of 2003 increased 2.2% above the prior year quarter. This is due mainly to the increased success of our dignity memorial funeral information package plan. This favorable impact is partially offset by the negative impact from a cremation mix increase of approximately 140 basis points.

For the second quarter our comparable North American funeral margin was 18.3% versus 19.3% in the prior year. The gross margin decline was a result of flat revenues from funeral operation compared against the fixed cost structure of the company's funeral network. Increased salaries and fringe expenses, primarily from higher pension benefits and insurance cost were somewhat offset reduced expenses associated with the company's pre-arranged funeral sales.

Comparable North American cemetery revenues for the second quarter decreased by 8.2% or $13.5 million as compared to the prior year quarter. The reduction is primarily attributable to fewer cemetery property development projects constructed and recognized in the second quarter of 2003, compared to the second quarter of 2002. And lower levels of cemetery merchandise delivered.

In spite of the reduction in revenues, our North American comparable cemetery gross profit increased by 3.5 million or 16% over the second quarter of 2002. For the six months ended June 30th, 2003, our comparable cemetery gross profits have increased by 12.1 million or 32% over the six months ended June 30th, 2002. The gross margin percentage is increased by 510 basis points, 17.6% in this same six-month period.

Improved margins from cemetery property sales and significant reductions in expense levels associated with the changes in both our cemetery sales organization and process were the primary drivers in margin improvement. These were slightly offset by the reduced profit associated with the constructed projects mentioned earlier. With appropriately lined compensation plan, cemetery management drove collective property sales better than anticipated and managed controllable expenses in accordance with our plan.

Our French operations continue to perform well. The funeral volume essentially flat the second quarter and excluding any currency affect, we were able to improve our revenues by 1.3 million and improve our margin percentage by 90 basis points to 11.3% versus 10.4% in the prior year quarter. Our french cash flows reduced from the second quarter of 2002 where we experienced significant working capital improvements. Additionally, 2003, we have commenced paying French income taxes, which was not the case in prior years. From a U.S. dollar perspective, the 23.7% appreciation of the Euro from the prior year quarterly period had a favorable impact on reported revenues into a less meaningful extent on profits and cash flows.

As we move forward in 2003 and into early 2004, we will continue to execute on our near-term initiatives which should enhance the quality of our earnings and reported cash flows. Favorable impact from reducing the true cash cost of our infrastructure will be partially offset by reductions in nonrecurring reported revenues of cemetery constructions especial in the coming third quarter and from a higher effective tax rate. Based on our experience to date this year, it is our belief that we will now exceed the annual range of guidance for cemetery margins for 2003 of 9 to 13%. However, if we continue to see the funeral volume levels experienced in the first half of the year, our funeral margin should fall in the lower half of range of guidance provided of 18 to 22%.

We surely recognize the long-term success of SDI can only be achieved by delivering top line growth in a challenging revenue environment. Remember, we are working diligently on our long-term growth initiatives which focus on delivering revenues to three primary avenues. Number one, investing capital and revenue growth in our existing business, the more contemporary marketing of the dignity brand, utilization of effective merchandising tools in our funeral location and continued investment in strategic cemetery property in our existing cemetery.

Number two, growing through strategic acquisitions of funeral homes and high in termen cemeteries in large metropolitan market, construction of new funeral facilities and through the continued growth of our franchising network.

Number three, ensuring that we attract, hire, develop, and retain the best and the brightest people we possibly can. This emphasis on leadership, development and training can have the greatest impact on the long-term opportunities for SCI.

With that, I would like to thank you and hand it over to Jeff Curtiss, our Chief Financial Officer. Jeff?

Thanks, Tom.

In our first quarter conference call for this year, we set a target cash flow from operating activities of 350 to $400 million for 2003, including the $94 million tax refund received in the first quarter. Through midyear, cash flow from operations achieved approximately $244 million of this target, or approximately 150 million excluding the tax refund. This compares with 136 million of cash flow from operating activities in the first half of 2002, excluding a $22 million tax refund received in 2002. We believe this target range for 2003 remains appropriate.

Our second quarter cash flow from operations was down approximately $15 million from the same period the prior year due to lower funeral volumes, litigation related payments, higher cash taxes and the working capital impact related to pre-arranged funeral production and maturities. SCI total debt less cash and cash equivalents June 30th, 2003 was $1.58 billion, down from the end of the first quarter. In the first half of 2003, SCI has reduced total debt less cash and cash equivalents by over $206 million.

SCI targeted capital spending for 2003 was 110 to $130 million, including both growth and maintenance capital. Through midyear, SCI spent $47.7 million on capital items. We currently believe our prior guidance is still appropriate at this time. SCI's debt maturities have not changed meaningfully since the last quarter, but the $111 million of debt maturing in April of 2004 is now classified as a current liability as it matures within one year. We expect our available cash, expected cash flow, and likely proceeds from divestments and joint ventures will allow SCI to meet its upcoming debt maturity without requiring it to access the capital market.

General and administrative expenses for the second quarter exceeded those of the same period of last year by $16.7 million. This is primarily due to an arbitration decision relating to shareholder litigation and that SCI has a $15 million layer of directors and officers, insurance companies that was issued by an insolvent carrier. In addition, there was an increase of $1.7 million due to professional fees and other costs associated with cash flow and profit improvement initiatives.

Also, the third quarter of 2003 will be the final quarter for the $4.5 million of accelerated systems amortization, of SCI's system costs that have been classified as general and administrative expenses. We expect systems amortization costs to be significantly reduced beginning with the fourth quarter of 2003.

During the quarter, SCI received $31 million of cash proceeds from the disposition of assets and equity interest. This included approximately $26 million associated with the sale of our joint venture interest in Spain and Portugal. Losses on asset sales were approximately $1.5 million, which is primarily attributable to the loss on the sale of undeveloped cemetery property in North America for a different use, partially offset by the gain on our sale of our joint venture interest in Spain and Portugal. SCI's effective tax rate for the quarter is just over 34%. We expect to incur a 33 to 34% effective tax rate for the third and fourth quarter provided the joint venture of our French business is completed near the end of 2003. This is expected effective tax rate does not include the impact of any gain on the joint venture of the French business and the related tax affect.

SCI is currently re-evaluating the economics of its use of surety bonding to provide financial assurance to customers in those jurisdictions where it is legally permitted. In recent months, the cost of surety bonding has significantly increased, and because of the improvement in SCI's credit profile and the high yield market in general, SCI no longer has the opportunity to use it's K to buy its debt securities at a significant discount. If SCI decides to use trusts rather than surety bonds in its Florida funeral business, as its financial insurance mechanism before 2005, we estimate that the first year annual impact of that decision would be to reduce cash flow from operations by about -- by approximately 15 to $20 million based on some updated analysis done by the company.

SCI's $2.2 billion of funeral, cemetery merchandise and endowment care trust performed well during the second quarter of 2003, with the following total return for the second quarter. These returns include the impact of both earned income and changes in portfolio value, but do not include the trust management fees or related cost of roughly 1 to 1.5% per annum.

The funeral trust at a positive quarterly return of 9.3%, the merchandise and service trust had a positive return for the quarter of 8.3%, and the endowment care trust had a positive return of 5.1%. In addition the current market value of our portfolio of trust investments at June 30th, 2003, exceeded our cost of the investments in the trust. As our press release states, we will be adopting a new accounting standards, 1046 in the third quarter of 2003. This is the new accounting standard that requires consolidation of variable interest entities. At this time we believe this new accounting standard will require consolidation of SCI's managed but not owned nonprofit cemetery and our trust funds, including SCI's endowment care trust fund which had assets of approximately $620 million as of June 30th, 2003. It will also require SCI to incur a noncash charge of 20 to $30 million in the third quarter to reflect the results of these cemeteries when adjusted to SAB101 compliance.

Our cash balance pension plan had good total return performance for the quarter also, up 15.4%. The fair market value of the assets in the plan on June 30th were about $72 million, projected plan liabilities using a 6.25% discount rate were estimated in value to be approximately 120 million. As the plan is frozen, SCI is hopeful that better asset performance will help us narrow this gap.

In conclusion, SCI's performance in the second quarter of 2003 was satisfactory given the volume declines experienced by the industry in North America. Despite the volume declines, operating margins were maintained by improvement in our cemetery business. Debt plus cash and cash equivalents also improved modestly. Management continues to work on processes that will improve SCI's margins and cash flow over the long-term.

With those remarks, let's open the call to questions.

Thank you. The question-and-answer session will be conducted electronically. If you would like to ask a question today, please do so by pressing the star key followed by the digit one on your touchtone telephone. If you're using a speakerphone, please make sure you're mute function is turned off to allow your signal to reach our equipment. Once again that is star one to ask a question. We will go first to A. J. Rice with Merrill Lynch.

Hello, everybody. I had a couple of questions. Could you just maybe, first of all, away from operations, Tom, give a little bit of color on exactly what was settled from the arbitration and does this have any bearing on the greater ECI litigation that's outstanding?

A. J., This is Tom. Considering, A. J., We received this ruling late last night, we're still analyzing this and we'll have discussions with our attorneys this morning. I think what's relevant and material is we've a $15 million accrual, that's the relevant material fact at this time. We plan on giving all material and necessary disclosure in the 10-Q that we're going to file in a few days. I'd rather have that disclosed. Again, we need a little more time to analyze what goes in that.

It's one aspect of it. It doesn't get rid of the whole thing, does it? Is that what you're implying?

Yeah, there is other related litigation out there, A. J.

Okay. We're fading in and out a little bit there. On the French operations, obviously, you know, you pointed to some progress you made operation there, you're getting the benefit of the currency swing. Can you maybe update us on your thoughts about what you're going to do with that business and where it goes from here?

Sure, A. J. As I think we've talked about before, we engaged some vendor due diligence to begin, we've engaged some agent to begin marketing the business. We completed the vendor due diligence project and should be launching that marketing initiative probably around September 1st. So we still anticipate a transaction most likely occurring late fourth quarter.

Okay. Okay. And then finally just maybe a big picture comment on the use of cash flow. I know in the prepared comments there was a discussion about buying in the public debt, has become somewhat less attractive, some other discussion about investment into new development. Can you just maybe comment broadly on uses of cash flow going forward and priorities?

Sure. I think probably the most pressing issue we see out there is we see opportunities, A. J., Next year, to invest in our business, as we talk a little bit about merchandising, we talk a little about cemeteries and some of the projects there. Probably the highest returns that we see going forward are investing in our existing business. Selective acquisition may come across now and then that's attractive to us. But the preponderance of our focus is going to be investing in merchandising and projects in our cemetery.

So, any reason to think, this is my final question, on the acquisition front, maybe that gap between asking price and selling price is narrowing. Is there anything you can point to there?

I think in selective areas it is. We said we believe it's going to take time. We are in discussions with a couple of different parties, and we believe selectively those things will come along over the coming months.

Okay. Thanks a lot.

We'll take our next question from Bill Chappell at SunTrust and Humphreys.

Morning. Thanks.

Couple of questions, first, with the French operations seeming to perform a little better than expected and also the positive affect of the Euro, do you see any change in potential joint venture price or timing of that transaction or has anything changed on kind of that overall transaction?

I think overall, you know, like we said before, we still see a late fourth quarter as the most likely time for that transaction to occur. Really nothing has changed, you know, other than the Euro fluctuates from time to time. But for the most part, we still anticipate a late fourth quarter transaction, and nothing material has occurred other than we continue to make progress approaching the market.

Gotcha. On the arbitration case, I think you've known about the $15 million set aside for a while. Would that change your cash and equivalents at quarter end? Would this be a different number now?

No. The cash wasn't paid this quarter, obviously.

But I mean, what would the cash balance be, assuming that $15 million -- that's already been set aside, hasn't it?

The cash is about $158 million right now. Again, this 15 million was accrued and in payables, accrued liabilities , cash flow statement, work capital adjustments and in net income and G&A expense on the income statement.

Gotcha. In looking at the funeral margins I guess you alluded to increases in salaries and increases in costs and expenses. Are we kind of looking at the base bottom, are there no other places to cut costs to improve margins, and its just waiting for the funeral revenue to improve, or kind of what are we looking at from longer term margin.

From a longer term perspective we're looking at everything, support mechanisms that support our field operations and always looking for ways to be more efficient. We'll continually analyze that and look to hammer at those costs. I think this year in particular because of the way pension accounting works we're experiencing a higher level of pension expense that's associated with assumed long rate of return and discount rates. We don't expect those things to continue to be such a burden in future years. We'll always be managing our costs to be looking for better ways, and I believe there's opportunities out there.

Thanks. And one final question, you might have given this, but the percentage of funerals as your traditional funeral and also dignity rate?

I'm sorry, I didn't quite hear that question? Was it dignity rate?

Yeah, just a percentage of dignity funerals, percentage of total, also a percentage of pre-need.

Sure. On the total cases that we've performed for the second quarter, our uptake was 16.6% of all contracts performed versus the prior year percentage of 13.6%. On the pre-need side, we saw a 20.3% of the number of contracts versus 19% experience in the previous quarter last year.

That's great. Thanks a lot.

And as a reminder to our audience, please press star one now if you do have a question. We move next to Bill Burns with Johnson Rice.

Thank you. Maybe a question for Jeff or Eric. I'm looking at your statement of cash flows, and there is a 43 million decrease in other assets over the past six months. I was wondering if you could just elaborate what that might include.

That line item for the six months, $43.149m I think is what you're talking about, Bill?

Yes.

It started in the first quarter where there was a $95 million tax refund in that amount. That's the primary source of that cash.

Okay.

It has flipped, though, in the second quarter where there's been some uses. There's about 10 to 15 million just working capital use that's over in France that has to do with some timing of some payments.

There is also in that line item we have inventories and pre-paids and cemetery properties and those types of things as well. Obviously we've had some inventory movements like Tom was talking about investing in businesses and that type of thing, which has affected the line item. Another line item that's new this year, Bill, that you and I talked about before, is that the deferred acquisition cost from the cemetery side, when they are deferred get recorded in other assets. The other side of the equation though is up in amortization this year, which is up in depreciation and amortization cash flow statements. You're seeing a little bit of the affect of it being graphically in two places with no bottom line difference on cash flow from operations.

Thank you, Eric. If I could, Tom, you talked about your margins in the funeral and cemetery, the guidance you have. If I could get you to restate that, I missed that.

Sure. What we said, Bill, we gave guidance at the beginning of the year that our cemetery margins would be somewhere between 9 and 13% for 2003. Based on the successes of the first half of the year, what I said was we expect to exceed those margins for the entire year. And then what I came back and said, because we've experienced a number of funerals performed this year are down relative to prior year, and if those trends were to continue into the second half, we were saying we believe our funeral margins will be within our guidance but at the lower level of it. Remember our guidance was 18 to 22%.

Got it. Thank you very much.

And next we'll go to Patrick with Buchard Capital.

Hi, how are you? Good quarter. Couple of questions. One is related to cash flow. Can you talk about pre-arranged funeral reductions and maturities, why that was a use of cash of about 11 million in the second quarter.

Well, there are a number of items that impact that particular item. For example, our production, our pre-need production is down, and we got some influence on that particular item because we get to keep a portion of the amount that we sell in many states. So you have basically a source of cash that's down because of that. You also have instances where because we've taken moneys out of trusts in the past, appropriately under state law, or that we have used bonding as the mechanism for financial assurance, when those cases go at need, there is either less money or no money to collect by reason of that, and that impact on working capital is reflected in that single line item, too. Those are the primary drivers as to why it's being reflected as use.

What about going forward? I guess, you know, it seems like in the past it's always been a generator of cash. And going forward are we -- what kind of trends are we going to see? Is that -- you know, is it going to stay negative? Anything you can talk about there?

We really haven't predicted particular trends for that single line item, but I expect our business practices I just described will continue. We're obviously working hard on trying to increase our pre-need but do it in a cost effective matter. We may get better at that going along. With respect to bonding activities, I had some remarks that said we were re-evaluating whether that was the appropriate way for us to provide financial insurance. So at this point in time I really can't give you a lot of guidance on that particular line item that's new.

Okay. Right. Now, regarding Cap Ex, it seems like you've only used about 47 million so far, so I'm just trying to understand for the full year do you think you're likely to come in at the lower end of your guidance.

I would expect it would be at the lower end of the 110 to 130 million range. As you can see it would only take 60 million in the last half of the year to hit that lower end. We do know of some of our operations that are expecting to spend more in the SEC half of the year than they had spent in the first half. So I don't know exactly where it will come in but our view at this point in time is the guidance range of 110 to 130 is still appropriate.

Okay. Just one last question, just regarding funeral comps, can you talk about any of the trends that you saw, were there differences in terms of the monthly patterns for last quarter, and what kind of trends are you seeing so far in the current quarter?

Well, in the last quarter, I think it's explained in the press release, April and May we saw continued down volumes, whereas June we saw a slight turnaround. I don't like to think about partial quarters, but I will say, this based on preliminary information I've seen through July, we've seen slightly down volumes in July. Nothing dramatic but, again, we're still analyzing that and really don't have anything other than volume counts this morning.

Okay. Great. Just one last question. In terms of the competitive landscape out there, is there any comments that you can give, you know, in terms of, you know, how you view that and what your competitors are doing?

Well, I think, you know, our competitors predominantly are the local competitors. We really don't see head to head a lot with the public consolidators. 20% of the industry is consolidated and 80 is still independent. Most of the things we're doing we feel like the things we're doing lead the industry. We're going to continue doing what we do and compete on a local basis with that competitor.

Okay, great. Thank you.

Once again, please press star one if you do have a question today. We'll move next to Jennifer Childe with Bear, Stearns.

Thank you, good morning. I have a number of questions.

Maybe we could start with the bonding. I've never been able to fully understand how you go from I believe you generated 70 million from bonding in Florida last year. Originally I think your guidance was that that would drop down to 20 to -- the impact would be 20 to 25 million, now you're saying 15 to 20. Could you help us understand that?

Well, the way it will work is if we decide to go to trusting instead of keeping the money and posting a bond, we will instead in Florida deposit in the trust about 70% of the money and only keep the other 30%. The affect of that in the initial year of changing that business practice of keeping all the money versus only keeping 30% of it, assuming relatively flat sales, will yield us less cash from operating activities than what we previously had when you take into account the tax impact also, because under bonding we have to pay taxes on the money up front. When we go to trusting, we don't have to do that. That's the best conceptual explanation I can give to you of it. Jennifer, if you would like to work with us and look at our model, we'd be happy to share those with you.

Okay. Secondly, what are the initiatives that you alluded to to improve the quality of your earnings?

We didn't really allude to improve the quality. I guess what that means is effectively saying that the real cash earnings, getting the cash more associated with earnings, Jennifer. So prior years, for instance, let's say we had a lot of profits associated with constructed cemetery property. We construct something, recognize the revenue, it doesn't necessarily have cash associated with it. As we have gone through that abnormal period of building, looked for our earnings to continue to improve on a basic -- I should say our cash earnings to improve while earnings such as that will trend downward.

I see. Okay. Thanks. A couple of housekeeping things. What is the new line item "other operating expense?"

That was some lease termination costs we made.

In the prior year, Jennifer, it had to do with contractual covenants noncomplete in the second quarter last year that we disclosed that we terminated. Essentially what happened is we were instructed under GAAP to move our gains line up above operating income. So we combined the gains and impairment losses line in one line, which is simply the gain or loss on the sale of the disposition of an asset or an impairment loss taken when you're holding an asset out for sale. And in any other type of unusual item that needs to be recorded in operating income we just classify as other operating expenses. We didn't expect to have a lot there now or going forward in the foreseeable future but last year we had that charge related to the CNC.

Okay. The re-classification to the funeral and cemetery, I assume the funeral side is the general agency fees but what was the re-class to cemetery revenue?

It relates to cemetery processing fees, Jennifer, where when we had customers come in, we would charge a nominal fee for essentially processing their contract, in essence, with the state trusting agencies and those types of measures.

I'm a little confused about why an accounting change where you would consolidate cemeteries and trusts would trigger a charge?

We have a situation you in one of the states where we managed cemeteries, we didn't own them. Under this variable interest accounting, we are now required to essentially consolidate those cemeteries into our books and records regardless of the legal structure of this situation. So essentially when you consolidate them in, essentially what you're doing has a cumulative affect because you're bringing their retained earnings into your balance sheet. In this situation, they have an accumulated deficit on their books. That's why essentially it's a charge. That accumulated deficit is resulted from the effective 101 -- SAB 101, like it did for us, if you recall back in March of 2001.

Okay. Got it. Thank you.

That does conclude our question-and-answer session. Mr. Waltrip, I'll turn the conference back over to you for any closing remarks.

Again, thank you very much for being on this call we look forward to talking to you on the next call. Thank you.

That does conclude today's conference. Again, we thank you for your