Service Corporation International (SCI) 2010 Q4 法說會逐字稿

Good day, Ladies and Gentlemen, and welcome to the Fourth Quarter 2010 Service Corporation International Earnings conference call. My name is Yvette and I will be your operator for today. At this time, all participants are on a listen only mode. We will conduct a question and answer session towards the end of the conference. (Operator Instructions) I would now like to turn the call over to SCI management. Please proceed.

Good morning and welcome. This is Debbie Young, Director of Investor Relations at SCI. We are here today to talk about the fourth quarter and year end results. In our comments we will make statements that are not historical facts and are forward-looking. These are based on assumptions that we believe are reasonable. However, there are many important factors that could cause our actual results to differ materially from the forward-looking statements. For more information related to these statements and other risk factors, please review our periodic filings with the SEC that are available on our web site at SCI-Corp.com. Also today on the call, we may just terms such as normalized EPS or normalized cash flows. These of course are non-GAAP financial terms. Please see our press release and 8K that were issued yesterday, where we have provided a detailed reconciliation for each of these measures to the appropriate GAAP term. With that, I will turn the call over to President and CEO, Tom Ryan.

Thank you, Debbie. And thanks everybody for being on the call today. I want to apologize in advance if my voice sounds a little funny. I have a cold. If I sound a little strange, that's the reason why.

So welcome to the call today and we are going to give an overview of the quarter, funeral operations, cemetery and get into the guidance in 2011. Well we finished the year very strong, as you can see for the fourth quarter, with excellent performance. We exceeded both the external and in our internal expectations. Both earnings and cash flows results exceeded the guidance that we gave you guys back in October. Normalized earnings per share were $0.18 versus $0.14 in the prior year quarter. So, growth of some $0.04 or about 29%.

The quarter-over-quarter improvement was primarily driven by three things. First, the acquisition contributions from Keystone and Palm Mortuaries, which we anticipated and delivered as we would expected. In addition, I think this one was somewhat surprising, higher cemetery premium sales production. We are compared against a very difficult Q4 2009 and I think had concerns about repeat performance. Not only did we do that, but we exceeded that by a healthy margin. Hats off to the sales organization for that.

And lastly, lower corporate overhead expenses. Again we managed some of these expenses down that helped deliver the profits for the quarter. So we exceeded the high end of the guidance again by $0.04 as we experienced better than expected funeral items. This is really against our expectations than versus prior year. We are only down 0.5% in volume which surprised us, and a lot of that occurred in late November and into December. Again, our cemetery sales production was high; we had lower corporate overhead costs and higher cemetery trust fund income in the quarter, than we would have anticipated.

Now I'm going to shift to funeral operations. In the fourth quarter, comparable funeral revenues increased 1.4% for $355 million. Driving that increase, first of all, was our G&A revenue. These are the general agency fees that we get for selling premium insurance.That grew by $1.1 million for 7.6% on increased insurance protection this year's quarter over last year's quarter. In addition, I touched on this earlier, our same store volume was down 0.5% for the quarter. So, not something that we are excited and want to stop at. We would love to see that number be a comparable gain, but again better than expected and better than the trends we have seen. And again, a lot of it occurred with the cold weather snaps in late November through December. While still down, we are very encouraged as this is the best comparison we had in some time.

So for the year, same store volumes were down 1.9% and about where we expected them to be. The call for next year in the 2011 guidance, we are assuming that we will experience similar volume declines in the low to mid single digit range as, again, this is the trends we have experienced the last five to seven years. We believe someday that this will reverse itself. We just, again, aren't going to be in the prediction business of trying to telling you when that's going to occur.

In the fourth quarter, also, shifting to funeral average, we grew our average 1.7%. And this takes into account flat trust fund income and a positive Canadian currency effect. When you exclude that Canadian currency effect in the trust fund income, we grew our at need average 1.3%. This is slightly lower than our expectations, but right at around it. Some of the drivers for why we are not achieving the average revenue per case that we would like is in the cremation mix, but not in the shift itself. Our overall cremation mix for the quarter moved 50 basis points to 41.7%. So again not surprising to us, but the thing that was surprising and this happened last quarter, is the shift that we are seeing from cremation with service to direct cremation.

So we have seen an increase beginning in Q3 that continued in Q4. We are now a little more than 50% of total cremations performed were direct. I think some of that is we are now soliciting in a better way, in a healthy way, the direct cremation consumer. That we are learning how to interact with that person, again, as those sentiments shift and change. So I think it's a positive on one front. At the same time, I think it's a symptom of the economic environment that we are living in today. So, this shift is causing some pressure on the average. When you think about the direct cremation spent versus the cremation with service spent, there is about a $2,400 difference. And that is again putting the pressure on our overall average.

For the year, our cremation mix was 41.6%. Again, about a fifty-fifty split between direct and cremation with service. This is up 70 basis points from 2009, which is less than our normal increase of 100 to 150 basis points. Keep in mind that the mix grew 160 basis points back in 2008 and 2009. One year won't make a trend, but we are seeing less cremation mix shift.

From a profitability standpoint, our comparable funeral profits declined $1.5 million, and we recorded a margin decline of about 80 basis points. There is two reasons again why -- what costs are growing on the funeral side of the coin. And both of them, if you ask me, are fairly positive and things that we anticipated in setting our guidance. The first one really relates to the fact that we are selling premium funeral at a very healthy clip. Remember, that when we sell premium funeral contracts, those costs to expense currently and the revenue deferred to the backlog. So, what we are seeing today is normal selling costs, two things. One, we are investigating in marketing initiatives to primarily drive lead generation and this has been successful, coupled with the fact that we are going to pay our sales force for increased production. Those two things are driving up costs.

Premium funeral sales grew by 3%, up $3.4 million, but more importantly for the year our premium funeral sales grew by 10% or more than $46 million. So we are very pleased with this success, even if it is going to cause a little bit of diminution in our funeral margins. The second component that is causing a little bit of a cost creep, again is something that we anticipated, this has to be with our field overhead. As you recall, earlier this year, we reorganized our field operations. And in doing so, we strategically planted management in markets that were geared to really drive premium funeral and drive operating performance. So, as you recall, the new operating structure, in our major markets, we put embedded sales managers in those markets. And guess what, our premium funeral sales grew by some 10%; in the major markets they grew by 18%. And we know those investments were appropriate and, again, unfortunately, the way GAAP works we are going to bear those expenses in the current margins, but they will lead to higher margins in the future that we are really excited about.

Now I'm going to turn to cemetery operations. Our comparable cemetery revenue, this is GAAP, increased 4% quarter over quarter. This is mainly attributable to increased cemetery sales production. Our comparable pre-need sales productions, so remember this is pre-need, grew by $10.5 million or 10.8% in the quarter. Again, this is truly amazing when you think about the quarter that we are comparing back against. So very, very pleased. A lot of hard work, a lot of great performance by our sales group.

On a year to date basis, our cemetery pre-need sales production was up $22.8 million or some 6%. So, this exceeded our guidance. As you recall, we said it would be up low single digit percentage range. So we beat that. We got it to 6%. And again I would like to thank the operating leadership and sales leadership for delivering the results that they did.

Cemetery trust fund income increased slightly quarter-over-quarter and came in a little ahead of expectation. The reported cemetery profits were up almost $2 million or 5.2% for the quarter, and margins grew some 20 basis points comparing against a very strong 2009 number. The increase in revenues more than offset increased in selling costs and again, costs related to our new field operating structure. A lot of the growth on the cemetery side of the equation was done on cemetery property and we pay more for cemetery property. That's one of the reasons why the costs were up a little bit. Again something that we'd anticipate and something that we are happy to do. When you step back for the year, our comparable cemetery profits grew from $115.3 million to $129.4 million. This is a growth of $14 million or some 12.3%.

Now, let's step back and look at 2010 in a summary mode. All in all when you look back, we are very, very pleased with the operating performance. Strategic acquisitions of Keystone in March and Palm Mortuary in December of 2009 provided as we expected, significant (inaudible) to revenues and profit for 2010. We accomplished this with no material increase in leverage. And in fact, we've improved our near term debt risk profile by issuing 2019 notes and buying back some $111 million in near term bonds in the open market. Synergies on both these large acquisitions are on track.

As we communicated to you throughout 2010 and really in setting our guidance, comparable funeral was going to be challenging to grow, but we managed our expenses well.What we told you to do is that pre-need selling costs would put pressure on comparable margins, so again we'd anticipate that. We were able to grow pre-need funeral sales by 10% and we asked you to be patient with us and see that we could deliver. While this doesn't have an immediate P & L impact, this will benefit future periods. Growing our backlog is a part of our core strategy to grow revenues over the long term.

Perhaps most notable to the profit and loss for the quarter, is that we proved that we could grow comparable cemetery revenues, up some 5% for the year. This was accomplished by a 6% increase in pre-need cemetery sales production. In addition, we generated roughly $265 million of free cash flow, which enabled us to return more than $156 million to our shareholders through a combination share repurchase, some 14 million shares were repurchased, and dividends of $40 million. And, in addition, we directed some $15 million to acquisition excluding Keystone and, of course, Palm in late 2009. Lastly, as you may have seen yesterday on the heels of our operation success of 2010 and our financial strength, we raised our quarterly dividend 25% from $0.04 a share per quarter to $0.05 a share per quarter beginning with the payment in April.

Now as -- to address the outlook for 2011. As you saw in our press release, we've raised our guidance range for 2011 from the outlook that we gave you back in October. The primary reason for the increase is based on the trends we saw in the fourth quarter of 2010 and we are seeing in preliminary 2011. Broadly speaking, stronger cemetery premium sales production, better funeral volumes and slightly better trust fund income somewhat offset a lower growth in average revenue per premium. Our new EPS expectations for 2011 are a range of $0.56 per share to $0.64 per share and again that would compare back to $0.59 of earnings per share we posted in 2009. Keep in mind that in Q2 2010, we did have a one-time currency conversion gain of $4.3 million. And so when you think about 2010 on a comparable basis, it's probably most appropriate to think of it as $0.58.

Our key assumptions in this guidance are that funeral revenues will again be tough to grow. We anticipate volume declines in the low single digit range when we modeled our guidance. And although we still believe funeral average will grow in the low single digit percentage range, absent currency impact and trust fund income, we are dialing back a little bit our assumptions here from what we have seen in the back half of 2010 and preliminary 2011, as it relates to the consumer and their willingness to spend. If you think about what is happening, we dialed it back about 1% to 2% as far as growth for 2011.

This is really two things that are driving it. One, a tough economy and consumer sentiment in addition to low interest rates which impacts the ability of retirees and unemployed -- the impact of unemployment on consumer sentiment and consumer spending. In addition continuing trends towards direct cremation within the cremation mix of the business. These two things again give us a little pause.

I don't want you to think that we are sitting idle and believe there aren't things that we can do to enhance the average, because we are doing a lot of things. Number one, we are testing new packages, which are going to allow us some flexibility in the variety of products and services that we will be able to offer our client families. It's our belief then that package sales will grow and the average revenue per case can grow along with it. Now the preponderance of this may not impact 2011 as much, but surely will have an impact on 2012 and we will be testing these new products in a variety of markets throughout the year.

On the cemetery side, so while funeral is tough and we'll still grow the pre-need backlog, on the cemetery side we believe we can grow revenues in 2011 lead by our pre-need production growth in the low mid single digit range. We will continue to aggressively manage our expenses and expect to benefit from strategic initiatives particularly regarding cemetery administration expense. These cost reduction initiatives will help mitigate some increased personnel costs predominantly related to health care and also recall that we refinanced some debt and therefore probably are going to have higher interest expense by putting longer term debt out there versus keeping shorter term debt. So again we're going to mitigate these with healthy management of our expenses and feel pretty good about it. Lastly, corporate G&A will be around $100 million as you think about modeling.

So in conclusion, we are very pleased with our performance in the quarter and in the year. I have a special heartfelt thanks to all our over 20,000 associates, particularly to the sales team for their leadership in 2010. As we look ahead, we are very, very optimistic about 2011. Expect from us the ability to generate steady growth in our cash flow. Expect us to grow the pre-need backlog and, again, this will not be a capital intensive adventure for us. And therefore, with this excess cash, we are going to deploy it in the best way possible to capitalize on value enhancing opportunities for our shareholders. First and foremost through strategic acquisitions at the appropriate returns. To the extent we can't use all our cash doing that, expect us to return cash to shareholders with share repurchases and continue to focus on potentially growing the dividends, and lastly in reducing liquidity risk and our managing debt maturity profile.

And remember, while we are so excited about acquisitions and the like in growth, is that we know that baby boomers are coming. And when they do, our portfolio business will be enhanced in value tremendously. It's our belief by the later half of this decade, we should begin to see, again, a substantial impact as it relates to the numbers of deaths that occur in our market. This concludes my prepared comments. I would like to turn it over to Eric.

Thanks, Tom. I'm going to pick up the call with talking about our cash flow and trust fund performance for the quarter and I'll give a little insight into the outlook for 2011 on those two topics. And I'm also going to briefly discuss about our current financial position and our strong liquidity that we have, and then end our comments with a discussion of capital deployment, particularly what we did over the quarter.

So, starting with cash flow, Tom's already mentioned this, we finished 2010 with very positive fourth quarter results. The cash flow performance in the quarter as well as the year finished ahead of our guidance we actually discussed in the October conference call. So, for the quarter, we reported $90 million in cash (inaudible)from ops and that is normalized for about $1.2 million of one-time transition cost related to the Keystone acquisition. But the $90 million is $23 million growth over the prior year quarter and about a $15 million increase over the high end of our guidance, again, that we discussed in October. The increases were primarily due to higher than anticipated earnings, and we have been through that this morning already, as well as lower cash taxes paid during the quarter.

So, cash taxes were about $7 million lower than the prior year quarter resulting from the approval from the IRS in December of certain tax accounting method changes that we applied for. And I will discuss that in a little bit more detail in a second. While we are discussing taxes though from the income statement perspective, our current effective tax rate in the quarter was lower than expected and prior year. That number was up 35.4% on a normalized basis. The lower rate was primarily due to state tax refunds that we received, as well as adjustments to the state tax accruals as a result of filing our state tax returns in the fourth quarter.

So for the full year of 2010, we reported approximately $360 million in cash flow from operation. And for the full year that is normalized by about $5 million of transition and acquisition costs related to the Keystone acquisition. This was a decrease of about $12 million from 2009 levels. So let me give you more color on that and remind you. Recall that in 2009, it was a record year for cash flow for us as we aggressively managed all of our cash flows through the challenged macroeconomic environment that existed at that time. So, we had very little incentive, compensation payment. That was about a $25 million decrease in payments versus what we had characterized as normalized levels. We also received proceeds from the sale of certain life insurance assets which we disclosed to you mid-year last year was about $15 million.

And we benefited from temporary cost reductions that we believe were around $9 million to $12 million. Let's call it around $10 million to make it easy. So, when you take into account those three items which roughly total about $50 million and deduct it from the $372 million of reported cash flows in 2009, we actually believe on a normalized basis that our cash flow from the Funeral and Cemetary operations showed positive growth over the prior year to the tune of about 10% to 12%.

Maintenance CapEx and cemetery development CapEx, and remember those are the two components that we consider our recurring CapEx in our free cash flow calculation, but for the quarter increased about $13 million to $30 million. For the full year, the recurrent CapEx was right around $94 million. And that was an increase again of about $26 million over 2009 levels.

The first -- the CapEx spend in the fourth quarter did come in slightly ahead of what we expected. Most of this was as a result of timing though, as we return to more normalized levels of CapEx in 2010 again following a very difficult economy in 2009, where we aggressively managed all of our cash flows and spending. For the year the increase reflects new systems costs as well as the addition of the Keystone properties. Looking forward, though, in 2011, we expect the recurring CapEx to continue to be in the range of $85 million to $95 million. And that again is returning to a little bit lower level than what we incurred in 2010.

Deducting these recurring capital spending items from the cash amounts, we calculate our normalized pre-cash flow for the quarter to be about $60 million. And that compares to the guidance that we talked about in the October conference call of about $40 million to $55 million. So, very good performance again from pre cash flow perspective. For the full year, the pre-cash ended at $265 million. That was down over $30 million from the last year but, again, before normalizing for three items totaling $50 million that I just mentioned before.

From an outlook perspective, again looking at the entire year for 2011, we expect to continue to generate attractive operating cash flow, and we have increased the guidance this morning modestly by about $10 million from the range we discussed in October. Generally the new guidance takes into account three factors. First, the operating improvement that Tom described that lead to our EPS guidance increase have been incorporated into these cash flow assumptions. It also includes an assumption of lower cash taxes than originally anticipated back in October.

So, originally, in October we talked about $30 million to $40 million of cash taxes. Now it will be about $20 million to $30 million of cash taxes that we expect the full year of 2011. And again as I mentioned, in mid-December of 2010, the IRS approved the tax accounting method changes which will defer a substantial amount of our USFederal cash taxes for 2011 and also a couple of years there after. Therefore, the $20 million to $30 million included in our guidance would primarily represent various state as well as Canadian taxes that we expect to pay in 2011. Both of these positive factors, the higher earnings and lower cash taxes are anticipated to be somewhat offset by lower working capital assumptions within our cash flow statement compared to the last few years. But we did manage our working capital in the fourth quarter of 2010 very well and we exceeded our internal expectations.

So, to summarize cash flow, the 2010 cash flow from ops was $360 million and we're guiding to $330 million to $380 million in 2011. And again, this is up from the previous guidance of $320 million to $370 million. The assumptions regarding our recurring capital spending are unchanged at $85 million to $95 million. So therefore we anticipate our free cash flow in 2011 to range from $235 million to $295 million. This represents a 10% to 13% free cash flow yield assuming a share price of about $9. This robust cash flow is distinguishing strength. And again we believe it positions us most importantly to continue to deploy our capital in a way that will enhance shareholder value.

Now, let's shift to the trust fund performance. So, we continue to see good trends in the trust fund performance as you saw in our press release. The combined trust funds increased by about 5.6% in the quarter, for the entire year the trust funds were up a healthy 13%. Total trust fund income recognized in the fourth quarter was about $22 million which compares to about $21 million in the fourth quarter of 2009, but for the full fiscal year, trust fund income recognized in the income statement of 2010 was $83 million versus $70 million last year which is an increase of about 19%, which was in line with our expectations.

Looking forward in terms of guidance for 2011, the trust fund returns remain unchanged versus what we discussed previously. So recall what that was is that we are assuming our consolidated trust fund assets will realize an annual positive return in the low single digit percentage range. But of course, this will be effected positively and negatively by financial market movements in 2011.

Now, let's turn to the financial position and liquidity. Our cash balance at the end of the quarter and the year was about $171 million. Today, we have about $130 million of cash on hand. So subsequent to the year, we spent about $16 million in share repurchases and I will recap all of that in a second. We've also paid a $10 million dividend at the end of January and we also had $10 million of acquisition payments subsequent to year end as well.

We currently have about $358 million of borrowing capacity on our $400 million bank credit facility and again, this matures in November of 2013. There are no borrowings under that facility, but it is used to support right now $42 million in letters of credit. Our total debt was about $1.85 billion at the end of the year. But again, we continue to enjoy a favorable debt maturity profile with no meaningful debt maturities until October of 2014. Our current leverage per our bank credit facility definition, which is a net debt calculation, was 3.2 times at the end of the year. We believe this ratio will manage the Company between 3 and 3.5 times is appropriate on a net debt basis and as we said before, we continue to say we generally intend to continue to run the Company at the lower to midpoint of this range.

Now in terms of capital deployment for the quarter. During the quarter we continued our share repurchase program and we repurchased about 3.6 million shares for a total investment of about $30 million. For the entire year we directed about $116 million of capital to our share repurchase program and we bought about 14 million shares. And as I just mentioned subsequent to the end of the year, we bought another 1.8 million shares for about $16 million.

So as of today, we currently have about $163 million remaining on our existing share repurchase authorization. Our current shares that are outstanding are about $240 million now. We -- and that's the number that are in our forecast projections that we based it on. And this compares very favorable to the 254 million of shares that we had outstanding at the end of 2009, which is about a 6% reduction in the number of shares outstanding for us.

As Tom said, we didn't have any meaningful debt repurchases during the quarter. However for the year we bought back about $111 million face amount of our shorted dated bonds in the open market, and that was done at what we believe are favorable market prices.

So in conclusion, we finished 2010 with very healthy cash flows. We enter 2011 with a lot of momentum, with a strong balance sheet, great liquidity, a favorable debt maturity profile, and very attractive cash flow which we believe positions us well to take advantage of opportunities that will increase shareholder value. So, with that, that concludes our prepared remarks. At this point, Yvette, operator, I think we are going to go ahead and open it up to questions.

Sure. (Operator Instructions). The first question comes from the line of Clint Fendley with Davenport. Proceed .

Clint, are you there? That's the easiest question we have ever had.

His line is open.

Hello, can you hear me?

Now we can hear you.

Can you hear me now?

Yes, we can.

Okay, sorry about that. Congratulations on a nice quarter. First question on the pre-need sales production, the cemetery side, was wondering if there were a couple of sizable product sales that drove the results here or was it across the board strength?

It was truly, Clint, across the board strength. If you look at the quarter we are comparing back against, there was quite a bit of large sales. That's one of the reasons we were a little nervous going into the fourth quarter was our concerns about being able to repeat those because, as you well know, they come when they come. What ended up happening was we surprisingly had quite a bit of that. It wasn't quite to the level of 2009 but what really made up the difference was just the overall production, not necessarily in the large sale side. So, we are very pleased both at the level of large sales and more particularly at the transaction level, the number of contracts and the number of people we are interacting with.

And as we think about Q1 for your business on the cemetery side, obviously never a seasonally strong period for that segment, but should it possibly be weaker than usual given the weather that we had in Texas and throughout the south?

I think it can. It really depends. What happens with the weather, Clint, when it's really bad, it will be hard to be able to close that deal. But, let's say you are out a week, the next week you ought to begin to make up some of that. I don't think it's something that we are forecasting as a big impact but it could have a little bit of impact on the quarter. At the same time, when you have weather like this, you expect volumes to be up on the funeral side. So, I think that's probably a fair expectation and, again, we are so early in the quarter it's difficult to tell.

I wondered if you could update us on the Main Street initiative? Obviously you mentioned you are very pleased with Keystone. The results look good there. Are you feeling better about the longer term opportunity here in the smaller business segment side?

We definitely are. We are excited about the team. Steve Tidwell put his team together and they are working diligently. They are testing a lot of the new product initiatives for us. We expect them to do well and expect to grow the group in acquisitions as we look forward because, again, these are markets that make a lot of sense for us. So, yes, we are very, very excited about the momentum and expect great things from that division.

Okay. Just a couple of modeling questions here. Tom, I heard you correctly, corporate G&A around $100 million for next year.

Around $100 million, yes.

Very nice. And, then, as we model the effective tax rate, Eric, should we be around the 35.5% range or what should we be thinking there?

It really is around 37ish, 38ish. Frankly what happens is like when we did our -- filed our state tax returns we have to adjust, we have a state tax refund this quarter. It will kind of ebb and flow but kind of a one time event as you go. From a normalized basis, you should model somewhere around the 37% to 38% and then if it moves quarter to quarter, I will explain why it moved like I did today.

Okay. Excellent. Thank you, guys, nice quarter.

Thanks, Clint.

Next question is from the line of John Ransom with Raymond James. Please proceed.

I remember the days when you used to burn cash like 10 years ago. Seems like a long time ago. Do you have any needle moving M&A discussions going on? Are there any sizable deals to look at that might move the needle?

I think that, again, we are excited about some of the opportunities that are out there. We are seeing some opportunities but, again, not needle moving opportunities because of the size that we are most of our growth comes from organic growth. We are focused very hard on interacting with our consumers both utilizing technology and our sales force and the acquisitions will be nice add ons as we move on. We are strategically looking at markets that fit our profile, our strategic profile. So expect us to continue to roll up in those markets and at least over this year and the coming year. But nothing game changing.

Okay. And, Eric, could you remind me, your current expectation for 2011, the contribution from the three deals you did from an EPS standpoint compared to what you yielded off those acquisitions in 2010?

Well, the real material piece to the puzzle, John, is you have one quarter of Keystone that wasn't in in 2010. As we said, it's a mid $30 million-ish type range EBITDA. There is a piece of that, that was not in 2010. Other than that, Palm was in there full year. It would be part of the same store operations frankly and in 2011 and the other ones that we are doing are not really material enough to move the needle.

If we were to kind of net the debt refinance and the acquisitions, it's a push, isn't it? Refile is costing you a couple of cents this year versus last year so maybe it's a push.

Maybe a little bit accretive to be honest with you. I think what people are getting confused on in interest expense, we bought back bonds during the year, $111 million. Granted, some was on a facility at a lower rate and now been refinanced but the truth is we came out of our bank accounts $50 million to $60 million of that. So, that was -- what you are seeing at the end of the year wasn't the full run rate. Secondly, I think you will continue to see us chip away as the shorter term bonds which some of our free cash flow during 2011 so I think that the cash interest itself will be a little bit lower than what you have been seeing and not have that head wind, so to speak. With that and everything else, I think it's safe to say that, that will be accretive during 2011.

The third thing, is there anything we should be thinking about with respect to your share count assumption for this year? You get a higher stock price. I don't know if that affects how you calculate your options and ending share count with your share [repost] and what your plans are for the year?

As I said, $240 million are outstanding right now. That is pretty much what we modeled. There is always, when you do the fully diluted calculation, it adds 4 million to 5 million shares. We continue to stay with that model. We have $130 million of cash and over $250 million of free cash flow, we believe in 2011 and you have seen that we did a balanced approach last year between acquisitions and share repurchases and debt repurchases. So, I think it's hard for me to predict where to go other than we are going to deploy the capital to the highest return opportunities but I do foresee some share repurchases in there probably at modest levels.

Great. And lastly, this is maybe more of a reflective question, but as you guys move through the Great Recession and hopefully we are coming out of it a little bit, what do you think -- what surprised you positively and negatively with respect to receivables collection, pre-need activity. I guess it's our view that pre-need activity and receivables collection held in there a lot better than we might have guessed two years ago. Was that your --Were you surprised at that and do you have any observations that you can share?

I think what I would say as a surprise, we always looked at ourselves as a consumer discretionary spend type category. We got concerned early on when you saw the consumer pull really back that it would dramatically impact the business. I would say what surprised me, John, is that I realized we are on the outer end of that consumer discretionary in the sense that people jumped right back in once they figured the world wasn't going to end. This is a planning tool. It's a necessity for people to take care of. It provides them peace of mind. It's very different from other retailers that go through what we went through. That is the surprise to the good side for us. We are something that people feel like they need to take care of, they want to deal with and you saw in our pre-need sales and you saw it in the fact that our receivables didn't slip.

Great, thanks. Nice job.

Thanks, John.

(Operator Instructions)With no further questions in the queue, I would like to turn the call back over to SCI management for closing remarks. You may proceed.

I want to thank everybody for participating on the call. We look forward to talking to you again in late April, I believe. So, have a great week. Thanks.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.