Service Corporation International Announces Second Quarter 2002 Earnings Of $.09 Per Diluted Share Before Non-Recurring Items

HOUSTON, Aug. 7 /PRNewswire-FirstCall/ -- Service Corporation International (NYSE: SRV), the world's largest funeral and cemetery company, today announced earnings before non-recurring items of $.09 per diluted share for the second quarter of 2002 compared to pro forma earnings of $.11 per diluted share for the second quarter of 2001, also excluding non-recurring items. The Company announced earnings before non-recurring items of $.25 per diluted share for the six months ended June 30, 2002 compared to pro forma earnings of $.25 per diluted share for the same period of 2001, also excluding non-recurring items. These non-recurring items and a reconciliation to diluted losses per share under GAAP are discussed in detail in a separate section at the end of this press release.

Non-recurring items excluded above consist of charges primarily related to sales of businesses, joint venture transactions and the termination of certain contractual agreements; extraordinary gains and losses on early extinguishment of debt; and cumulative effects of accounting changes. These non-recurring items are discussed in more detail in a separate section at the end of this press release. Including these non-recurring items, the Company reported losses of $.49 and $.04 per diluted share for the second quarter of 2002 and 2001, respectively, and losses of $.79 and $.04 per diluted share for the first six months of 2002 and 2001, respectively.

    Summary Financial Results

    (In millions, except              Three Months Ended    Six Months Ended
     per share amounts)                   June 30,              June 30,
                                      2002      2001       2002        2001
    Total Revenues                   $566.3    $618.7    $1,152.1    $1,296.5
    Comparable Revenues (A)          $561.4    $537.4    $1,121.2    $1,104.7
    Earnings Before Non-Recurring
     Items (A)                        $28.1     $31.0       $77.8       $68.7
    Diluted EPS Before Non-Recurring
     Items (A)                         $.09      $.11        $.25        $.25
    Net Loss                        $(143.0)   $(10.6)    $(231.7)     $(10.3)
    Diluted Loss Per Share            $(.49)    $(.04)      $(.79)      $(.04)
    Recurring Operating Free
     Cash Flow                        $59.2     $57.7      $110.2      $118.5
    Net Debt (B)                                         $2,007.5    $2,505.3

    (A)  See descriptions and reconciliations related to non-recurring items
         and pro forma financial information in a separate section at the end
         of this press release.
    (B)  Net debt is defined as total debt less cash and cash equivalents.
         The 2001 amount is as of December 31, 2001.


    Offer To Exchange Up To $300 Million In New Notes For Existing Notes

The Company also announced today in a separate press release that it intends to offer to exchange, in a private placement, up to $300 million aggregate principal amount of new 7.70% Senior Notes due 2009 for an equivalent aggregate principal amount of its outstanding 6% Senior Notes due 2005.

Commenting on the exchange offer, SCI Chairman and Chief Executive Officer, Robert L. Waltrip, said:

"We are very pleased with our strong liquidity position at the present time, which will enable us to meet future operating needs and debt maturities. This exchange offer allows us to defer a significant amount of debt maturities to 2009, while still retaining the existing and favorable debt structure and terms at a reasonable cost to the Company. Upon the successful completion of this exchange offer, our liquidity position will remain very strong over the next five years."

This press release shall not constitute an offer to sell or the solicitation of an offer to buy any security and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale would be unlawful.

Pro Forma Financial Information

The Company reported in the first quarter of 2002 it had (1) ceased amortization of goodwill pursuant to new accounting standards, (2) changed the amortization period related to deferred prearranged funeral obtaining costs, (3) revised its estimated allocation of overhead costs between the funeral and cemetery segments, (4) begun recognizing, as part of funeral operations instead of cemetery operations, those revenues associated with delivered caskets previously prearranged on cemetery contracts, and (5) ceased depreciation of certain operating assets as a result of the Company's plan to sell or joint venture these operations. The results for the three and six months ended June 30, 2001 are presented in this press release in a pro forma format as if these changes were implemented on January 1, 2001 to provide a more relevant comparison to the 2002 results. These changes are discussed in more detail in a separate section at the end of this press release.

Second Quarter 2002 Financial Results

Commenting on the second quarter 2002 financial results, SCI President and Chief Operating Officer, Thomas L. Ryan, said:

"We are pleased to report another quarter demonstrating execution and progress toward our financial goals. We did experience a reduction in the number of deaths in North America during the quarter, but operationally our performance was generally in line with targets set for our businesses. We continue to believe our Company is uniquely positioned to provide growth and increased shareholder value on a long-term basis in this stable industry. However, we believe that any meaningful increases in shareholder value as a result of operational performance can only be accomplished through improved comparable revenue growth and higher gross margin percentages than are currently being targeted and reported. Therefore, the focus of our management team in the near term will be centered upon improvement in the execution of existing and future revenue growth initiatives, as well as upon our cost rationalization and continuing process improvement initiatives."

    Funeral Segment

    (In millions, except average
     revenue per funeral service)
                                        Three Months Ended   Six Months Ended
                                             June 30,            June 30,
                                                  Pro Forma          Pro Forma
                                          2002      2001      2002      2001
    Total North America Funeral Revenues $278.1    $289.6    $585.5    $609.4
    Total International Funeral Revenues $115.6    $160.6    $244.5    $345.7
        Total Funeral Revenues           $393.7    $450.2    $830.0    $955.1
    Total North America Funeral Gross
     Profits                              $53.5     $56.8    $134.2    $133.3
    Total International Funeral Gross
     Profits                              $12.3     $22.9     $32.4     $49.6
        Total Funeral Gross Profits       $65.8     $79.7    $166.6    $182.9

    Comparable North America Funeral
     Revenues                            $274.2    $274.6    $574.5    $572.9
    Comparable North America Funeral
     Gross Profits                        $54.1     $57.4    $134.7    $133.4
    Comparable North America Funeral
     Gross Margin Percentage               19.7%     20.9%     23.5%     23.3%

    Funeral Services Performed:
    Total North America                  68,398    72,947   145,133   153,326
    Comparable North America             67,503    68,963   142,410   143,638
    Total and Comparable France          32,549    32,984    69,729    68,801

    Average Revenue Per Funeral Service:
    Comparable North America             $4,042    $3,955    $4,017    $3,963
    France, Excluding Currency Effect    $1,924    $1,847    $1,880    $1,796

    Percentage Of Cremation Cases
     Performed In Comparable North
     America Funeral Service Locations     38.2%     37.4%     38.0%     37.2%
    Percentage Of Previously Prearranged
     Funeral Services Performed In
     Comparable North America Locations    31.3%     30.4%     31.3%     30.2%

Comparable North America funeral revenues in the second quarter of 2002 were essentially flat when compared to the second quarter of 2001. A decrease of 2.1% in the comparable number of funeral services performed was offset by an increase of 2.2% in the average revenue per funeral service in North America in the second quarter of 2002. The comparable North America funeral gross profits and the comparable North America gross margin percentage decreased $3.3 million and 120 basis points, respectively, primarily as a result of the effect of the decrease in comparable funeral services performed on the fixed cost nature of the Company's funeral network. The comparable North America gross margin percentage of 19.7% for the second quarter of 2002 was in line with the Company's annual 2002 targeted range of 18% to 23%. The Company remains comfortable with this range.

Excluding the favorable effect of foreign currency, funeral revenues in France increased by $5.9 million or 5.9% to $106.6 million in the second quarter of 2002 compared to the second quarter of 2001. While the comparable funeral services performed decreased 1.3%, the average revenue per funeral service increased by 4.2% in the second quarter of 2002 compared to the same period of 2001, excluding the effect of currency. The average revenue per funeral service in France continues to increase as a result of the expansion of funeral products and services and the increased number of funeral services performed from the prearranged funeral backlog, which carries a higher average revenue per funeral service than France's atneed funeral services. Additionally, an increase in the delivery of burial monuments, year over year, has contributed to increased revenue and gross profits in France. For the six months ended June 30, 2002, funeral revenue and gross profits in France increased $15.0 million or 7.2% and $8.8 million or 46.6%, respectively, excluding the effect of currency.

    Cemetery Segment

    (In Millions)                         Three Months Ended  Six Months Ended
                                                June 30,          June 30,
                                                    Pro Forma        Pro Forma
                                             2002     2001     2002     2001
    Total North America Cemetery Revenues   $165.0   $148.2   $304.6   $300.0
    Total International Cemetery Revenues     $7.6    $20.3    $17.5    $41.4
        Total Cemetery Revenues             $172.6   $168.5   $322.1   $341.4
    Total North America Cemetery Gross
     Profits                                 $23.4    $23.0    $39.8    $47.3
    Total International Cemetery Gross
     Profits                                  $2.1     $6.5     $4.1    $12.8
        Total Cemetery Gross Profits         $25.5    $29.5    $43.9    $60.1

    Comparable North America Cemetery
     Revenues                               $163.9   $143.9   $301.0   $290.8
    Comparable North America Cemetery
     Gross Profits                           $23.2    $21.5    $38.7    $44.8
    Comparable North America Cemetery
     Gross Margin Percentage                  14.2%    14.9%    12.9%    15.4%

The increase in comparable North America cemetery revenues and gross profits primarily resulted from an increase in the completion of cemetery property development projects in the second quarter of 2002 compared to the second quarter of 2001. Preneed cemetery property revenues are recognized upon completion of the development of the property coupled with customer payment of at least ten percent of the total contract amount.

The comparable cemetery gross margin percentage of 14.2% was 70 basis points below the same quarter of 2001 but in line with the Company's annual 2002 targeted range of 11% to 16%. The Company remains comfortable with this range. The decrease in the gross margin percentage primarily related to levels in changes in estimates of deferred preneed cemetery contract revenues. The Company has conducted an ongoing review of its $1.7 billion backlog of deferred preneed cemetery contract revenues related to obligations to deliver cemetery merchandise and services to customers. The changes in estimates of deferred preneed cemetery contract revenues have a high gross margin percentage. As a result of this ongoing review, the changes in estimates recognized in North America cemetery revenues and gross profits in the second quarter of 2002 were $5.2 and $3.9 million, respectively, compared to $15.0 and $10.9 million, respectively, in the second quarter of 2001.

Other Expenses

The Company announced in the second quarter of 2002 its decision to implement new information systems, including a new North America point of sale system and an upgraded general ledger system. As a result of this decision, the Company began accelerating the amortization of existing capitalized system costs, which resulted in $4.5 million of additional non-cash amortization expense reported in general and administrative expenses in the second quarter of 2002. General and administrative expenses were $19.6 million and $18.4 million in the second quarter of 2002 and 2001, respectively. Excluding the $4.5 million, general and administrative expenses decreased 18.0% from $18.4 million to $15.1 million in the second quarter of 2002 compared to the same period of 2001 primarily as a result of decreases in other information technology costs and reductions in international overhead due to the joint venturing of certain international businesses.

Interest expense was $41.4 million and $54.2 million in the second quarter of 2002 and 2001, respectively. The 23.5% decrease is related to the reduction in the Company's average levels of debt quarter over quarter.

    Operating Free Cash Flow

    (In millions)                         Three Months Ended  Six Months Ended
                                                June 30,          June 30,
                                             2002     2001     2002      2001
    Recurring Operating Free Cash Flow      $59.2    $57.7    $110.2    $118.5
    Total Operating Free Cash Flow          $57.1    $63.9    $124.2    $249.2

Recurring operating free cash flow increased 2.6% or $1.5 million in the second quarter of 2002 compared to the same period of 2001. Comparing the second quarter of 2002 to the same period of 2001, recurring operating free cash flow included reductions in cash interest and cash taxes paid and improvements in sources of cash for working capital. These reductions were offset by increases in maintenance capital expenditures, uses of cash for prearranged funeral activities and a reduction in EBITDA primarily related to the sale and joint venture of businesses. For the six months ended June 30, 2002, recurring operating free cash flow was $8.3 million or 7.0% below the same period of 2001. Comparing the first six months of 2002 to 2001, recurring operating free cash flow included reductions in cash interest and cash taxes paid and maintenance capital expenditures. These reductions were offset by increases in uses of cash for working capital and prearranged funeral activities and a reduction in EBITDA primarily related to the sale and joint venture of businesses. The decrease in total operating free cash flow for the first six months of 2002 is primarily a result of approximately $94 million less of non-recurring cash tax refunds and approximately $15 million less non-recurring trust receipts received compared to the first six months of 2001.

The Company's annual 2002 recurring operating free cash flow targeted range is $160 to $180 million. The Company has the following adjustments to the components of this targeted range. First, the Company recently received approval from the Internal Revenue Service to change its tax accounting methods. The Company requested this change after the Company adopted Staff Accounting Bulletin No. 101 in 2000 related to the Company's financial reporting revenue policies. This approval is expected to defer cash taxes by approximately $115 million over several years. The Company originally expected to pay cash taxes of approximately $65 to $75 million in 2002, but now expects to pay only $25 to $35 million in cash taxes for the full year of 2002. Second, the Company now expects to have a recurring operating free cash flow benefit for the year of approximately $15 million from the inclusion of recurring operating free cash flow from the Company's French operations over and above the cash interest savings previously anticipated due to the Company's decision announced in July 2002 to defer the joint venture of its funeral operations in France until after 2002. Third, the Company originally expected to incur approximately $60 million in maintenance capital expenditures in 2002. With the decision to defer the French joint venture transaction, the Company now expects to incur maintenance capital expenditures of approximately $70 to $75 million in 2002. This additional $10 to $15 million in maintenance capital expenditures has been considered when calculating the overall cash flow benefit of keeping the French operations described above. Offsetting these net positive changes are potential lower levels when compared to the Company's expectations from the EBITDA and working capital components of recurring operating free cash flow primarily in North America. As a consequence, the Company remains comfortable with its annual 2002 recurring operating free cash flow targeted range of $160 to $180 million.

Recurring operating free cash flow is calculated by adjusting cash flows provided by operating activities to exclude (i) cash payments associated with the Company's restructuring and non-recurring charges and (ii) other cash receipts or payments (included in cash flows provided by operating activities) which are of a non-recurring operational nature, and then subtracting maintenance capital expenditures. Total operating free cash flow is calculated in the same manner as above except the amount includes all non- recurring cash payments and receipts and non-recurring or growth capital expenditures. The Company's total operating free cash flow does not include proceeds from business sales or joint ventures. Maintenance capital expenditures are considered expenditures reasonably necessary to maintain the Company's funeral service locations, cemeteries, crematoria and other facilities in a condition consistent with the Company's standards. Growth capital expenditures are considered expenditures made for the purpose of generating additional or incremental revenues.

    Debt Reduction and New Credit Facility

    (In millions)                        June 30, 2002    December 31, 2001
    Total Debt                             $2,169.9            $2,534.6
    Cash And Cash Equivalents                 162.4                29.3
    Net Debt (Total Debt Less Cash)        $2,007.5            $2,505.3

The Company's debt balance at December 31, 2001 included approximately $110 million of debt associated with the financial restructuring of the Company's French subsidiary, which was satisfied with non-cash French assets in the second quarter of 2002. The Company completed a joint venture transaction relating to its operations in the United Kingdom during the first quarter of 2002, which generated approximately $273 million in net pretax cash proceeds and resulted in a substantial cash balance that has been primarily used to reduce debt. In July 2002, the Company announced the completion of a new $185 million credit facility that, when coupled with current cash balances, gives the Company substantial liquidity. The Company's financial goals remain to continue using current cash balances, asset sales proceeds and operating free cash flow to reduce the Company's net debt to a range between $1.8 and $1.9 billion by December 31, 2002. The Company is also committed to continue exploring joint venture transactions with third parties related to its remaining international operations, although no such joint venture transactions are expected to be consummated during the remainder of 2002.

EBITDA Before Non-Recurring Items

The Company calculates EBITDA before non-recurring items for each period presented by adding interest, tax, depreciation and amortization expenses back to net income before non-recurring items and then deducting gains from dispositions. Reductions in EBITDA before non-recurring items in 2002 compared to 2001 are primarily related to reduced earnings following the Company's asset divestiture and joint venture transactions that have occurred. EBITDA before non-recurring items was $103.6 million and $122.3 million for the second quarter of 2002 and 2001, respectively, and $243.0 million and $268.9 million for the first six months of 2002 and 2001, respectively. EBITDA before non-recurring items for the Company's North America operations was $86.7 million and $95.8 million for the second quarter of 2002 and 2001, respectively, and $202.8 million and $209.3 million for the first six months of 2002 and 2001, respectively. Descriptions of non-recurring items for both periods are discussed in a separate section at the end of this press release.

Restructuring and Non-Recurring Charges

The Company reported restructuring and non-recurring charges of $231.7 million on a pretax basis in the second quarter of 2002. Included in this amount is an impairment charge of $158.5 million for certain funeral and cemetery operations being held for sale and a charge of $39.3 million as a result of the Company relieving certain individuals from their consulting and/or covenant-not-to-compete contractual obligations. The remaining restructuring and non-recurring charges primarily related to a charge of $16.2 million related to additional estimated reductions in value of the Company's businesses in Argentina due to the continued economic decline and to a reduction in the value of equity investments of $16.9 million.

The funeral and cemetery operations being held for sale in North America represent 80 funeral service locations, 38 cemeteries and 22 businesses being held for sale for their real estate values, which collectively have annual EBITDA before non-recurring items of approximately $8 million. The Company expects to receive net pretax cash proceeds of approximately $50 to $60 million from the sale of these funeral and cemetery operations over the next 12 months.

Conference Call

The Company will host a conference call tomorrow morning (Thursday, August 8, 2002) at 9:00 a.m. Central time. A question and answer session will follow a brief presentation made by the Company. The conference call dial-in number is (719) 457-0820. The conference call will also be broadcast live via the Internet at http://www.firstcallevents.com/service/ajwz362789314gf12.html . After the completion of the live conference call, a replay can be accessed at (713) 457-0820 with the confirmation code of 788055 through August 22, 2002.

Securities and Exchange Commission Order

The Securities and Exchange Commission now requires the Chief Executive Officer and the Chief Financial Officer of the Company to file statements under oath to the effect they know of no material misstatements or omissions in the financial statements. The Company anticipates filing such statements with the SEC in conjunction with the filing of its second quarter Form 10-Q on August 14, 2002.

Cautionary Statement on Forward-Looking Statements

The statements in this press release that are not historical facts are forward-looking statements made in reliance on the "safe harbor" protections provided under the Private Securities Litigation Reform Act of 1995. These statements may be accompanied by words such as "believe," "estimate," "project," "expect," "anticipate" or "predict," that convey the uncertainty of future events or outcomes. These statements are based on assumptions that the Company believes 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 herein and in any other documents or oral presentations made by, or on behalf of, the Company. Important factors which could cause actual results of the Company to differ materially from those in forward-looking statements include, among others, the following:

    1)  Changes in general economic conditions, both domestically and
        internationally, impacting financial markets (e.g., marketable
        security values, as well as currency and interest rate fluctuations)
        that could negatively affect the Company, particularly, but not
        limited to, levels of interest expense and negative currency
        translation effects.
    2)  Changes in credit relationships impacting the availability of credit
        and the general availability of credit in the marketplace.
    3)  The Company's ability to successfully implement its strategic plan as
        defined in the Company's Form 10-K for the year ended
        December 31, 2001, including:
        --  the interest of third parties to enter into and consummate
            alliances and joint ventures with the Company, including with
            respect to its operations in France,
        --  the continuation of cost reduction initiatives,
        --  the continuation of actions to improve operating free cash flow,
        --  the continuation of debt reduction initiatives, including the sale
            of certain funeral and cemetery operations,
        --  the implementation of strategic revenue and marketing initiatives
            resulting in increased volume through its existing facilities, and
        --  the continuation of operating improvements in France.
    4)  Changes in consumer demand and/or pricing for the Company's products
        and services caused by several factors, such as changes in local death
        rates, cremation rates, competitive pressures and local economic
        conditions.
    5)  Changes in domestic and international political and/or regulatory
        environments in which the Company operates, including potential
        changes in tax and accounting policies.
    6)  The Company's ability to successfully access the surety market to
        procure bonds for prearranged funeral and preneed cemetery activities.
    7)  The Company's ability to successfully exploit its substantial
        purchasing power with certain of the Company's vendors.
    8)  The outcomes of pending lawsuits against the Company involving alleged
        violations of securities laws.
    9)  The outcomes of pending lawsuits in Florida involving certain cemetery
        locations, including the possibility of criminal charges or other
        civil claims being filed against the Company, its subsidiaries or its
        employees.

For further information on these and other risks and uncertainties, see the Company's Securities and Exchange Commission filings, including the Company's 2001 Annual Report on Form 10-K. The Company assumes no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by the Company, whether as a result of new information, future events or otherwise.

As of June 30, 2002, the Company and its affiliates operated 2,466 funeral service locations, 459 cemeteries and 154 crematoria and provides funeral and cemetery services in 8 countries.

     For additional information contact:

     Investor Relations:  Eric D. Tanzberger -
                          Vice President / Investor Relations
                          Assistant Corporate Controller
                          Tel:  (713) 525-7768

                          Debbie E. Fisher - Director / Investor Relations
                          Tel:  (713) 525-9088

     Media Relations:     Greg Bolton - Director / Corporate Communications
                          Tel:  (713) 525-5235

Other Service Corporation International information and news releases are available through SCI's corporate website at: http://www.sci-corp.com .

                        SERVICE CORPORATION INTERNATIONAL
                       CONSOLIDATED STATEMENT OF OPERATIONS

    (In thousands, except per
     share amounts)
                                     Three Months Ended    Six Months Ended
                                          June 30,              June 30,
                                      2002       2001*      2002       2001*
    Revenues:
         Funeral                    $393,697   $450,230   $830,030   $955,070
         Cemetery                    172,631    168,481    322,056    341,417
                                     566,328    618,711  1,152,086  1,296,487

    Gross Profit:
         Funeral                      65,762     64,923    166,547    151,025
         Cemetery                     25,511     21,647     43,890     46,433
                                      91,273     86,570    210,437    197,458

    General and administrative
     expenses                        (19,592)   (18,423)   (35,323)   (36,402)
    Restructuring and non-recurring
     charges                        (231,674)   (26,223)  (236,568)   (51,246)
    Operating (loss) income         (159,993)    41,924    (61,454)   109,810

    Interest expense                 (41,406)   (54,152)   (84,792)  (114,958)
    Other income                       2,385      4,218      9,623      7,681
    Gains from dispositions            3,158      6,509      5,140      6,000

    (Loss) income before income taxes,
     extraordinary items and
     cumulative effect of
     accounting changes             (195,856)    (1,501)  (131,483)     8,533
    Income tax benefit (expense)      55,696     (9,155)    37,491    (15,870)
    Loss before extraordinary items
     and cumulative effect of
     accounting changes             (140,160)   (10,656)   (93,992)    (7,337)
    Extraordinary (losses) gains on
     early extinguishments of debt
     (net of income tax benefit
     (expense) of $984, ($45),
     $1,249 and ($2,952),
     respectively)                    (2,855)        71     (2,174)     4,618
    Cumulative effect of accounting
     changes (net of income tax
     benefit of $11,234 and
     $5,318, respectively)               ---        ---   (135,560)    (7,601)
    Net loss                       $(143,015)  $(10,585) $(231,726)  $(10,320)
    Basic and diluted loss per share:
      Loss before extraordinary
       items and cumulative effect
       of accounting changes           $(.48)     $(.04)     $(.32)     $(.03)
      Extraordinary (losses) gains
       on early extinguishments of
       debt                             (.01)       .00       (.01)       .02
      Cumulative effect of accounting
       changes                           ---        ---       (.46)      (.03)
      Net loss                         $(.49)     $(.04)     $(.79)     $(.04)

    Basic and diluted weighted
     average number of shares        293,872    284,852    293,263    279,245

    *  Operating results for 2001 have been reclassified to recognize, as part
       of funeral operations instead of cemetery operations, those revenues
       associated with delivered caskets previously prearranged on cemetery
       contracts.


           Non-Recurring Items And Pro Forma Financial Information

Non-recurring items are excluded from certain financial information in this press release to enhance the comparability of financial information from period to period. Non-recurring items are a component of the reconciling differences between generally accepted accounting principles and pro forma financial information that the Company considers to be outside the scope of its recurring operating activities. In 2002 and 2001, such non-recurring items are charges primarily related to sales of businesses, joint venture transactions and the termination of certain contractual agreements; extraordinary gains and losses on early extinguishments of debt; and cumulative effect of accounting changes. The cumulative effect of accounting changes primarily relate to the adoption in 2002 of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142). This standard requires goodwill to no longer be amortized but instead tested for impairment annually. As a result of the adoption of SFAS No. 142, the Company has recognized a charge in the first quarter of 2002 reflected as a cumulative effect of accounting change of $146.8 million on a pretax basis and $135.6 million on an after tax basis.

The Company reported in the first quarter of 2002 it had (1) ceased amortization of goodwill pursuant to new accounting standards, (2) changed the amortization period related to deferred prearranged funeral obtaining costs, (3) revised its estimated allocation of overhead costs between the funeral and cemetery segments, (4) begun recognizing, as part of funeral operations instead of cemetery operations, those revenues associated with delivered caskets previously prearranged on cemetery contracts, and (5) ceased depreciation of certain operating assets as a result of the Company's plan to sell or joint venture these operations. The results for the three and six months ended June 30, 2001 are presented in this press release in a pro forma format as if these changes were implemented on January 1, 2001 to provide a more relevant comparison to the 2002 results.

Pro Forma Reconciliations

The following two tables reconcile net loss and diluted loss per share under generally accepted accounting principles to pro forma earnings before non-recurring items and pro forma diluted EPS before non-recurring items.

    (In millions)                    Three Months Ended      Six Months Ended
                                          June 30,               June 30,
                                      2002       2001        2002       2001
    Net loss                        $(143.0)    $(10.6)    $(231.7)    $(10.3)
    Adjust for non-recurring
     items (after tax):
       Restructuring and non-
        recurring charges             168.2       26.0       171.7       44.1
       Extraordinary losses (gains)
        on early extinguishments
        of debt                         2.9        (.0)        2.2       (4.6)
       Cumulative effects of
        accounting changes              ---        ---       135.6        7.6

    Adjust for pro forma items
     (after tax):
       Goodwill amortization            ---       11.0         ---       23.0
       Amortization of deferred
        prearranged funeral
        obtaining costs                 ---        (.6)        ---       (1.6)
       Depreciation expense related
        to operations outside of
        North America                   ---        5.2         ---       10.5
          Pro forma earnings before
           non-recurring items        $28.1      $31.0       $77.8      $68.7


                                      Three Months Ended     Six Months Ended
                                           June 30,               June 30,
                                       2002       2001        2002       2001
    Diluted loss per share            $(.49)     $(.04)      $(.79)     $(.04)
    Adjust for non-recurring items:
      Restructuring and non-recurring
       charges                          .57        .09         .59        .16
      Extraordinary losses (gains)
       on early extinguishments
       of debt                          .01       (.00)        .01       (.02)
      Cumulative effects of
       accounting changes               ---        ---         .46        .03
      Effect of dilution on pro forma
       income from continuing
       operations                       ---        ---        (.02)       ---

    Adjust for pro forma items:
      Goodwill amortization             ---        .04         ---        .08
      Amortization of deferred
       prearranged funeral
       obtaining costs                  ---       (.00)        ---       (.00)
      Depreciation expense related
       to operations outside of
       North America                    ---        .02         ---        .04
         Pro forma diluted EPS
          before non-recurring items   $.09       $.11        $.25       $.25

    Comparable Revenues

Comparable revenues for 2002 and 2001 represent revenues excluding operations that have been acquired or constructed after January 1, 2001 or operations that have been divested by the Company prior to June 30, 2002.

    (In millions)                   Three Months Ended      Six Months Ended
                                         June 30,              June 30,
                                      2002      2001       2002        2001
    Total revenues                   $566.3    $618.7    $1,152.1    $1,296.5
    Less:  Revenues from operations
     acquired/constructed after
     01/01/01 or divested prior to
     06/30/02                          (4.9)    (81.3)      (30.9)     (191.8)
        Comparable revenues          $561.4    $537.4    $1,121.2    $1,104.7


    2001 Pro Forma Revenues and Gross Profits

The following tables reconcile funeral and cemetery revenues and gross profits previously reported in 2001 to pro forma amounts used in this release for 2001 for comparison purposes, including the accounting changes and changes in estimates discussed on the previous page.

    Revenues

    (In millions)                  Three Months Ended        Six Months Ended
                                     June 30, 2001            June 30, 2001
                                  Funeral     Cemetery    Funeral     Cemetery
                                  Revenues    Revenues    Revenues    Revenues
    2001 revenues as previously
     reported                      $446.6      $172.1      $947.2      $349.2
    Reclass of casket revenues        3.6        (3.6)        7.8        (7.8)
    Total 2001 revenues as
     reclassified                   450.2       168.5       955.0       341.4
    Less:  Revenues from operations
     acquired/constructed after
     01/01/01 or divested prior
     to 06/30/02                    (70.6)      (10.7)     (164.7)      (27.1)
    Less:  Comparable revenues
     outside of North America      (105.0)      (13.9)     (217.4)      (23.5)
       Pro forma comparable
        North America revenues     $274.6      $143.9      $572.9      $290.8


    Gross Profits

    (In millions)                     Three Months Ended     Six Months Ended
                                        June 30, 2001         June 30, 2001
                                    Funeral     Cemetery   Funeral    Cemetery
                                     Gross       Gross      Gross       Gross
                                    Profits     Profits    Profits     Profits
    2001 gross profits as
     previously reported            $62.8       $23.7      $146.7       $50.7
    Reclass of casket gross profits   2.1        (2.1)        4.3        (4.3)
    Total 2001 gross profits
     as reclassified                 64.9        21.6       151.0        46.4
    Less:  Gross profits from
     operations acquired/constructed
     after 01/01/01 or divested
     prior to 06/30/02               (5.6)       (2.2)      (15.4)       (7.3)
    Less:  Comparable gross profits
     outside of North America        (5.8)       (2.5)      (10.7)       (2.4)
       Comparable North America
        gross profits                53.5        16.9       124.9        36.7
    Goodwill amortization             8.6         1.0        17.2         2.1
    Amortization of deferred
     prearranged funeral obtaining
     costs                           (1.1)        ---        (2.7)        ---
    Allocation of overhead costs     (3.6)        3.6        (6.0)        6.0
       Pro forma comparable North
        America gross profits       $57.4       $21.5      $133.4       $44.8

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SOURCE Service Corporation International
Web site: http: //www.sci-corp.com
Company News On-Call: http: //www.prnewswire.com/comp/104532.html
CONTACT: investor relations, Eric D. Tanzberger, Vice President-Investor Relations, Assistant Corporate Controller, +1-713-525-7768, or Debbie E. Fisher, Director-Investor Relations, +1-713-525-9088, or media relations, Greg Bolton, Director-Corporate Communications, +1-713-525-5235, all of Service Corporation International
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