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All other schedules have been omitted because the required information is not applicable or is not present in amounts sufficient to require submission or because the information required is included in the consolidated financial statements or the related notes thereto.
38 Service Corporation International
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Service Corporation International
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheet of Service Corporation International and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, of comprehensive income, of equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessment - Funeral Reporting Unit
As described in Notes 2 and 4 to the consolidated financial statements, the Company’s consolidated goodwill balance was $2.0 billion as of December 31, 2023, and the goodwill associated with the funeral reporting unit was $1.6 billion. Goodwill is tested annually during the fourth quarter, or whenever certain events or changes in circumstances indicate that the carrying value of goodwill may be greater than fair value. In order to perform the goodwill impairment test, management compares the fair value of a reporting unit to its carrying amount, including goodwill. Management determines fair value of a reporting unit using both a market and income approach. The income approach, which is a discounted cash flow method, uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions, such as revenue and other growth rates and a discount rate, that may differ from actual future cash flows. The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the funeral reporting unit is a critical audit matter are the significant judgment by management when developing the fair value measurement of the reporting unit under the income approach. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating management’s cash flow projections and significant assumptions related to revenue growth rates (over a seven year period (“discrete years”) and terminal year) and ratio of expenses to revenue. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment of the funeral reporting unit, including controls over the valuation assertion. These procedures also included, among others, testing management’s process for developing the fair value estimate; evaluating the appropriateness of the discounted cash flow model; testing the completeness, accuracy, and relevance of underlying data used in the model; and evaluating the reasonableness of significant assumptions used by management related to the revenue growth rates (discrete years and terminal year) and ratio of expenses to revenue. Evaluating management’s assumptions related to the revenue growth rates (discrete years and terminal year) and the ratio of expenses to revenue involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with forecasts per industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the Company’s discounted cash flow model and the terminal year revenue growth rate assumption.
/s/
February 13, 2024
We have served as the Company’s auditor since 1993.
40 Service Corporation International
Service Corporation International
Consolidated Statement of Operations
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | (In thousands, except per share amounts) |
| Revenue | | | | | |
| Property and merchandise revenue | $ | | | | $ | | | | $ | | |
| Service revenue | | | | | | | | |
| Other revenue | | | | | | | | |
| Total revenue | | | | | | | | |
| Costs of revenue | | | | | |
| Cost of property and merchandise | () | | | () | | | () | |
| Cost of service | () | | | () | | | () | |
| Overhead and other expenses | () | | | () | | | () | |
| Costs of revenue | () | | | () | | | () | |
| Gross profit | | | | | | | | |
| Corporate general and administrative expenses | () | | | () | | | () | |
| Gains on divestitures and impairment charges, net | | | | | | | | |
|
| Operating income | | | | | | | | |
| Interest expense | () | | | () | | | () | |
| Losses on early extinguishment of debt, net | () | | | () | | | () | |
| Other income, net | | | | | | | | |
| Income before income taxes | | | | | | | | |
| Provision for income taxes | () | | | () | | | () | |
|
|
| Net income | | | | | | | | |
| Net income attributable to noncontrolling interests | () | | | () | | | () | |
| Net income attributable to common stockholders | $ | | | | $ | | | | $ | | |
| Basic earnings per share: | | | | | |
| Net income attributable to common stockholders | $ | | | | $ | | | | $ | | |
| Basic weighted average number of shares | | | | | | | | |
| Diluted earnings per share: | | | | | |
| Net income attributable to common stockholders | $ | | | | $ | | | | $ | | |
| Diluted weighted average number of shares | | | | | | | | |
|
(See notes to consolidated financial statements)
Service Corporation International
Consolidated Statement of Comprehensive Income
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| (In thousands) |
| Net income | $ | | | | $ | | | | $ | | |
| Other comprehensive income: | | | | | |
| Foreign currency translation adjustments | | | | () | | | | |
|
| Total comprehensive income | | | | | | | | |
| Total comprehensive income attributable to noncontrolling interests | () | | | () | | | () | |
| Total comprehensive income attributable to common stockholders | $ | | | | $ | | | | $ | | |
(See notes to consolidated financial statements)
42 Service Corporation International
Service Corporation International
Consolidated Balance Sheet
| | | | | | | | | | | |
| | December 31, |
| | 2023 | | 2022 |
| | (In thousands, except share amounts) |
| | | |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | | | | $ | | |
Receivables, net of reserves of $ and $, respectively | | | | | |
| Inventories | | | | | |
| Income tax receivable | | | | | |
| Other | | | | | |
| Total current assets | | | | | |
Preneed receivables, net of reserves of $ and $, respectively and trust investments | | | | | |
| Cemetery property | | | | | |
| Property and equipment, net | | | | | |
| Goodwill | | | | | |
Deferred charges and other assets, net of reserves of $ and $, respectively | | | | | |
| Cemetery perpetual care trust investments | | | | | |
| Total assets | $ | | | | $ | | |
| | | |
| LIABILITIES & EQUITY | | | |
| Current liabilities: | | | |
| Accounts payable and accrued liabilities | $ | | | | $ | | |
| Current maturities of long-term debt | | | | | |
| Income taxes payable | | | | | |
| Total current liabilities | | | | | |
| Long-term debt | | | | | |
| Deferred revenue, net | | | | | |
| Deferred tax liability | | | | | |
| Other liabilities | | | | | |
| Deferred receipts held in trust | | | | | |
| Care trusts’ corpus | | | | | |
| Commitments and contingencies (Note 9) | | | |
| Equity: | | | |
Common stock,$ per share par value, shares authorized, and shares issued, respectively, and and shares outstanding, respectively | | | | | |
| Capital in excess of par value | | | | | |
| Retained earnings | | | | | |
| Accumulated other comprehensive income | | | | | |
| Total common stockholders’ equity | | | | | |
| Noncontrolling interests | | | | | |
| Total equity | | | | | |
| Total liabilities and equity | $ | | | | $ | | |
(See notes to consolidated financial statements)
Service Corporation International
Consolidated Statement of Cash Flows
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | | (In thousands) | | |
| Cash flows from operating activities: | | | | | |
| Net income | $ | | | | $ | | | | $ | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
|
| Losses on early extinguishment of debt, net | | | | | | | | |
|
| Depreciation and amortization | | | | | | | | |
| Amortization of intangibles | | | | | | | | |
| Amortization of cemetery property | | | | | | | | |
| Amortization of loan costs | | | | | | | | |
| Provision for expected credit losses | | | | | | | | |
| Provision for (benefit from) deferred income taxes | | | | | | | () | |
| Gains on divestitures and impairment charges, net | () | | | () | | | () | |
| Gain on sale of investments | | | | () | | | | |
| Share-based compensation | | | | | | | | |
|
| Change in assets and liabilities, net of effects from acquisitions and divestitures: | | | | | |
| Decrease (increase) in receivables | () | | | | | | () | |
| Increase in other assets | () | | | () | | | () | |
| Increase in payables and other liabilities | () | | | | | | | |
| Effect of preneed sales production and maturities: | | | | | |
| Increase in preneed receivables, net and trust investments | () | | | () | | | () | |
| Increase in deferred revenue, net | | | | | | | | |
| Increase in deferred receipts held in trust | () | | | | | | | |
|
|
|
| Net cash provided by operating activities | | | | | | | | |
| Cash flows from investing activities: | | | | | |
| Capital expenditures | () | | | () | | | () | |
| Business acquisitions, net of cash acquired | () | | | () | | | () | |
| Real estate acquisitions | () | | | () | | | () | |
| Proceeds from divestitures and sales of property and equipment | | | | | | | | |
|
| Payments for Company-owned life insurance policies | () | | | () | | | () | |
| Proceeds from Company-owned life insurance policies | | | | | | | | |
| Other investing activities | () | | | | | | | |
|
|
| Net cash used in investing activities | () | | | () | | | () | |
| Cash flows from financing activities: | | | | | |
| Proceeds from issuance of long-term debt | | | | | | | | |
| Debt issuance costs | () | | | () | | | () | |
| Scheduled payments of debt | () | | | () | | | () | |
| Early payments of debt | () | | | () | | | () | |
| Principal payments on finance leases | () | | | () | | | () | |
| Proceeds from exercise of stock options | | | | | | | | |
|
| Purchase of Company common stock | () | | | () | | | () | |
| Payments of dividends | () | | | () | | | () | |
|
| Bank overdrafts and other | () | | | () | | | | |
|
| Net cash used in financing activities | () | | | () | | | () | |
|
|
|
|
|
|
| Effect of foreign currency | | | | () | | | () | |
| Net (decrease) increase in cash, cash equivalents, and restricted cash | | | | () | | | | |
| Cash, cash equivalents, and restricted cash at beginning of period | | | | | | | | |
| Cash, cash equivalents, and restricted cash at end of period | $ | | | | $ | | | | $ | | |
(See notes to consolidated financial statements)
44 Service Corporation International
Service Corporation International
Consolidated Statement of Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common
Stock | | Treasury
Stock,
Par Value | | Capital in
Excess of
Par Value | | Retained
Earnings | | Accumulated Other
Comprehensive
Income | | Noncontrolling
Interest | | Total |
| | (In thousands, except per share amounts) |
| Balance at December 31, 2020 | $ | 174,792 | | | $ | (4,075) | | | $ | 981,934 | | | $ | 560,731 | | | $ | 39,366 | | | $ | (127) | | | $ | | |
| | | | | | | |
| Comprehensive income | — | | | — | | | — | | | 802,939 | | | 848 | | | 311 | | | | |
Dividends declared on common stock ($ per share) | — | | | — | | | — | | | (146,919) | | | — | | | — | | | () | |
| Employee share-based compensation earned | — | | | — | | | 14,168 | | | — | | | — | | | — | | | | |
| Stock option exercises | 1,642 | | | — | | | 38,035 | | | — | | | — | | | — | | | | |
| Restricted stock awards, net of forfeitures | 163 | | | — | | | (163) | | | — | | | — | | | — | | | | |
| Purchase of Company common stock | — | | | (9,438) | | | (55,468) | | | (489,730) | | | — | | | — | | | () | |
| Noncontrolling interest payments | — | | | — | | | — | | | — | | | — | | | (180) | | | () | |
| Retirement of treasury shares | (9,805) | | | 9,805 | | | — | | | — | | | — | | | — | | | | |
| Other | 30 | | | — | | | 590 | | | — | | | — | | | — | | | | |
| Balance at December 31, 2021 | $ | | | | $ | () | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | |
| Comprehensive income | — | | | — | | | — | | | 565,338 | | | (23,676) | | | 691 | | | | |
Dividends declared on common stock ($ per share) | — | | | — | | | — | | | (160,035) | | | — | | | — | | | () | |
| Employee share-based compensation earned | — | | | — | | | 14,709 | | | — | | | — | | | — | | | | |
| Stock option exercises | 1,010 | | | — | | | 27,084 | | | — | | | — | | | — | | | | |
| Restricted stock awards, net of forfeitures | 149 | | | (1) | | | (148) | | | — | | | — | | | — | | | | |
| Purchase of Company common stock | — | | | (10,356) | | | (62,834) | | | (587,940) | | | — | | | — | | | () | |
| Noncontrolling interest payments | — | | | — | | | — | | | — | | | — | | | (463) | | | () | |
| Retirement of treasury shares | (11,916) | | | 11,916 | | | — | | | — | | | — | | | — | | | | |
| Other | 24 | | | — | | | 422 | | | — | | | — | | | — | | | | |
| Balance at December 31, 2022 | $ | | | | $ | () | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | |
| Comprehensive income | — | | | — | | | — | | | 537,317 | | | 8,353 | | | 344 | | | | |
Dividends declared on common stock ($ per share) | — | | | — | | | — | | | (167,983) | | | — | | | — | | | () | |
| Employee share-based compensation earned | — | | | — | | | 15,423 | | | — | | | — | | | — | | | | |
| Stock option exercises | 927 | | | — | | | 23,254 | | | — | | | — | | | — | | | | |
| Restricted stock awards, net of forfeitures | 132 | | | 1 | | | (133) | | | — | | | — | | | — | | | | |
| Purchase of Company common stock | — | | | (8,701) | | | (59,603) | | | (481,264) | | | — | | | — | | | () | |
| Noncontrolling interest payments | — | | | — | | | — | | | — | | | — | | | (367) | | | () | |
| Retirement of treasury shares | (8,874) | | | 8,874 | | | — | | | — | | | — | | | — | | | | |
| Other | 24 | | | — | | | 326 | | | — | | | — | | | — | | | | |
| Balance at December 31, 2023 | $ | | | | $ | () | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
(See notes to consolidated financial statements)
Service Corporation International
Notes to Consolidated Financial Statements
1.
Service Corporation International (SCI) is a holding company and all operations are conducted by its subsidiaries. We are North America’s largest provider of deathcare products and services, with a network of funeral service locations and cemeteries operating in the United States and Canada. Our funeral service and cemetery operations consist of funeral service locations, cemeteries, funeral service/cemetery combination locations, crematoria, and other related businesses, which enable us to serve a wide array of customer needs. We sell cemetery property and funeral and cemetery merchandise and services at the time of need and on a preneed basis. We strive to offer families exceptional service in planning life celebrations and personalized remembrances.
Funeral service locations provide all professional services relating to funerals and cremations, including the use of funeral facilities and motor vehicles, arranging and directing services, removal, preparation, embalming, cremations, memorialization, travel protection, and catering. Funeral merchandise, including burial caskets and related accessories, urns and other cremation receptacles, outer burial containers, flowers, online and video tributes, stationery products, casket and cremation memorialization products, and other ancillary merchandise, is sold at funeral service locations.
Our cemeteries provide cemetery property interment rights, including developed lots, lawn crypts, mausoleum spaces, niches, and other cremation memorialization and interment options. Cemetery merchandise and services, including cemetery markers and bases, outer burial containers, flowers and floral placement, other ancillary merchandise, graveside memorial services, merchandise installation, and interments, are sold at our cemeteries.
2.
46 Service Corporation International
| | $ | | | Restricted cash(1): | | | |
Included in Other current assets | | | | | |
Included in Deferred charges and other assets | | | | | |
| Total restricted cash | | | | | |
| Total cash, cash equivalents, and restricted cash | $ | | | | $ | | |
(1) Restricted cash in both periods primarily consists of proceeds from divestitures deposited into escrow accounts under IRS code section 1031 and collateralized obligations under certain insurance policies.
| | $ | | | | $ | | | | $ | | | | $ | | | | Reserve for credit losses | () | | | () | | | () | | | () | | | () | |
| Receivables, net | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Atneed Funeral | | Atneed Cemetery | | Miscellaneous | | Current Portion of Notes | | Total |
| | (In thousands) |
| Receivables | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Reserve for credit losses | () | | | () | | | () | | | () | | | () | |
| Receivables, net | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
Additionally, included in Deferred charges and other assets, net were notes receivable, net and long-term miscellaneous receivables, net as follows:
| | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| | (In thousands) |
| Notes receivable | $ | | | | $ | | |
| Reserve for credit losses | () | | | () | |
| |
| Notes receivable, net | $ | | | | $ | | |
| | | |
| Long-term miscellaneous receivables | $ | | | | $ | | |
| Reserve for credit losses | () | | | () | |
| Long-term miscellaneous receivables, net | $ | | | | $ | | |
Our atneed trade receivables primarily consist of amounts due for funeral and cemetery services already performed. We provide reserves for credit losses for our receivables. These reserves are based on an analysis of historical trends of collection activity adjusted for current conditions and forecasts. These estimates are impacted by a number of factors, including changes in the economy and demographic or competitive changes in our areas of operation. Cemetery preneed receivables are collateralized by cemetery property to the extent of the fair value of the property.
Payment on atneed contracts is generally due at the time the merchandise is delivered or the services are performed. We also have preneed receivables, as disclosed in Note 3, for which payment generally occurs prior to our fulfillment of the performance obligations. Our preneed contracts may also have extended payment terms with associated financing charges.
) | | $ | () | | | $ | | | | $ | | | | $ | () | | | $ | | | | $ | () | | | Cemetery | () | | | () | | | | | | | | | () | | | | | | () | |
| Total reserve for credit losses on trade receivables | $ | () | | | $ | () | | | $ | | | | $ | | | | $ | () | | | $ | | | | $ | () | |
| | | | | | | | | | | | | |
| Miscellaneous receivables: | | | | | | | | | | | | | |
| Current | $ | () | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | () | |
| Long-term | () | | | | | | | | | | | | | | | | | | () | |
| Total reserve for credit losses on miscellaneous receivables | $ | () | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | () | |
| | | | | | | | | | | | | |
| Notes receivable | $ | () | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | () | | | $ | () | |
At December 31, 2023, the amortized cost basis of our miscellaneous and notes receivables by year of origination was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Line of Credit | | Total |
| | (In thousands) |
| Miscellaneous receivables: | | | | | | | | | | | | | | | |
| Current | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Long-term | | | | | | | | | | | | | | | | | | | | | | | |
| Total miscellaneous receivables | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | | | |
| Notes receivable | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
48 Service Corporation International
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Long-term | | | | | | | | | | | | | | | | | | | | |
| Total miscellaneous receivables | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | |
| Notes receivable | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
million, $ million, and $ million for the years ended December 31, 2023, 2022, and 2021, respectively.
million, $ million, and $ million for the years ended December 31, 2023, 2022, and 2021, respectively. When property or equipment is sold or retired, the cost and related accumulated depreciation are removed from the Consolidated Balance Sheet and the resulting gains and losses are included in the Consolidated Statement of Operations in the period of sale or disposal. to with options to renew at varying terms. Lease terms related to office and transportation equipment generally range from to with options to renew at varying terms. We determine whether an arrangement is or contains a lease at the inception of the arrangement based on the unique facts and circumstances present. Right-of-use (ROU) assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Leases with a term greater than one year are recognized on the balance sheet as ROU assets and lease liabilities. We have elected not to recognize on the balance sheet leases with terms of one year or less.
Lease liabilities and their corresponding ROU assets are recorded at commencement date based on the present value of lease payments over the expected lease term. For transportation equipment, we use the rate implicit in each lease to calculate the present value. For real estate and non-transportation equipment leases, the interest rate implicit in lease contracts is typically not readily determinable. Therefore, we use the appropriate collateralized incremental borrowing rate based on the information available at commencement date in determining the present value of future payments for real estate and non-transportation equipment leases. Certain adjustments to the ROU asset may be required for items such as initial direct costs paid or incentives received.
For a lessee, the discount rate for the lease is defined as the rate implicit in the lease unless that rate cannot be readily determined. In that case, the lessee is required to use its incremental borrowing rate, which is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term with an amount equal to the lease payments in a similar economic environment. We use the rate implicit in each lease for vehicles and other transportation equipment, which represents 59% of our total lease liability as of December 31, 2023 and which are substantially all finance leases. For leases of real estate and non-transportation equipment, which are primarily operating leases, we use our incremental borrowing rate since the rate implicit in these leases cannot be readily determined. To calculate the incremental borrowing rate, we utilize the yield-to-worst of our publicly traded debt securities, adjusted for the appropriate duration on a secured basis. As an accounting policy election, we include reasonably certain renewal periods when determining the rate to use as the incremental borrowing rate for each lease.
% discount rate, revenue growth rates ranging from % to % over a seven-year period, plus a terminal value determined using the constant growth method in projecting our future cash flows. Our terminal value was calculated using a long-term revenue growth rate of % and % for our funeral and cemetery reporting units, respectively. Additionally, we used a ratio of expenses to revenue ranging from % to % and growth rates for other assumptions in our model ranging from % to %. Fair value was calculated as the sum of the projected discounted cash flows of our reporting units over the next seven years plus terminal value at the end of those seven years.
% to % (% weighted average using carrying value) of the revenue associated with the trademarks and tradenames, based primarily on our research of intellectual property valuation and licensing databases. We also assumed a terminal growth rate of % and % for our funeral and cemetery segments (% weighted average using carrying value), respectively, and discounted the cash flows at a % discount rate based on the relative risk of these assets to our overall business.50 Service Corporation International
to . For more information related to intangible assets, see
Note 4
Funeral and Cemetery Operations
52 Service Corporation International
million, $ million, and $ million, respectively, of incremental selling costs. All other selling costs are expensed as incurred.The components of Cost of revenue in our Consolidated Statement of Operations are:
•Cost of property and merchandise, which includes cemetery property amortization, the direct cost of merchandise, labor-related costs for merchandise handling and delivery, cemetery maintenance expenses and depreciation, and selling costs;
•Cost of services, which includes the direct cost of providing the services (including labor-related costs), cemetery maintenance expenses and depreciation, vehicle operating costs and depreciation, and selling costs; and
•Overhead and other expenses, which includes labor-related costs, facility expenses and depreciation, and other general and administrative expenses incurred in our funeral and cemetery operations.
Corporate general and administrative expenses include labor-related costs, corporate asset depreciation and amortization, public company costs, and other general and administrative expenses incurred by our corporate functions.
million, $ million, and $ million, respectively. We do not reflect the unfulfilled insurance-funded preneed contract amounts in our Consolidated Balance Sheet. The policy amount of the insurance contract between the customer and the third-party insurance company generally equals the amount of the preneed contract. The policyholder has made a revocable commitment to assign the proceeds from the policy to us at the time of need. The proceeds of the life insurance policies or annuity contracts will be reflected in funeral revenue as we perform these funerals.
Leases
In March 2023, the FASB amended guidance on determining the useful life of leasehold improvements associated with a lease between related parties under common control. The amended guidance requires that the leasehold improvements be amortized over the useful life of the improvements to the common control group as a whole. The new guidance is effective for us on January 1, 2024 and is not expected to have any impact on our consolidated results of operations, consolidated financial position, and cash flows.
Segments
In November 2023, the FASB amended the reportable segment guidance by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment's profit or loss. This new guidance also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The guidance is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with early adoption permitted. Adoption should be applied retrospectively to all prior periods presented in the financial statements. Upon adoption, we will include the additional disclosures in our financial statements and related notes.
Income Tax
In December 2023, the FASB amended guidance that requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The new guidance is effective on a prospective basis for annual periods beginning after December 15, 2024 and early adoption is also permitted. Upon adoption, we will include the additional disclosures in our financial statements and related notes.
54 Service Corporation International
| | $ | | | | | | |
| Trust investments, at fair value | | | | | |
| |
| Insurance-backed fixed income securities and other | | | | | |
| Trust investments | | | | | |
| Less: Cemetery perpetual care trust investments | () | | | () | |
| Preneed trust investments | | | | | |
| | | |
| Preneed receivables, net and trust investments | $ | | | | $ | | |
Preneed receivables, net comprised the following:
| | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Funeral | | Cemetery | | Total |
| | (In thousands) |
| Preneed receivables | $ | | | | $ | | | | $ | | |
| Unearned finance charges | () | | | () | | | () | |
| Preneed receivables, at amortized cost | $ | | | | $ | | | | $ | | |
| Reserve for credit losses | () | | | () | | | () | |
| Preneed receivables, net | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Funeral | | Cemetery | | Total |
| | (In thousands) |
| Preneed receivables | $ | | | | $ | | | | $ | | |
| Unearned finance charges | () | | | () | | | () | |
| Preneed receivables, at amortized cost | $ | | | | $ | | | | $ | | |
| Reserve for credit losses | () | | | () | | | () | |
| Preneed receivables, net | $ | | | | $ | | | | $ | | |
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Cemetery | | | | | | | | | | | | | | | | | | | | |
| Total preneed receivables, at amortized cost | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
At December 31, 2023, the payment status of our preneed receivables was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Past Due | | | | |
| <30 Days | | 30-90 Days | | 90-180 Days | | >180 Days | | Total | | Current | | Total |
| | (In thousands) |
| Preneed receivables, at amortized cost: | | | | | | | | | | | | |
| Funeral | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Cemetery | | | | | | | | | | | | | | | | | | | | |
| Total preneed receivables, at amortized cost | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
The following table summarizes the activity for the reserve for credit losses on preneed receivables for the twelve months ended December 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | Provision for Expected Credit Losses | | (Acquisitions) Divestitures, Net | | Write Offs | | Effect of Foreign Currency | | December 31, 2023 |
| | (In thousands) |
| Funeral | $ | () | | | $ | () | | | $ | | | | $ | | | | $ | () | | | $ | () | |
| Cemetery | () | | | () | | | | | | | | | () | | | () | |
| Total reserve for credit losses on preneed receivables | $ | () | | | $ | () | | | $ | | | | $ | | | | $ | () | | | $ | () | |
The table below sets forth certain investment-related activities associated with our trusts:
| | $ | | | | $ | | | | Withdrawals | $ | | | | $ | | | | $ | | |
| Purchases of securities | $ | | | | $ | | | | $ | | |
| Sales of securities | $ | | | | $ | | | | $ | | |
Realized gains from sales of securities(1) | $ | | | | $ | | | | $ | | |
Realized losses from sales of securities(1) | $ | () | | | $ | () | | | $ | () | |
(1)All realized gains and losses are recognized in Other income, net for our trust investments and are offset by a corresponding reclassification in Other income, net to Deferred receipts held in trust and Care trusts’ corpus.
56 Service Corporation International
| | $ | | | | $ | | | | Net preneed contract sales | | | | | | | | |
| Cash receipts from customers, net of refunds | () | | | () | | | () | |
| Deposits to trust | | | | | | | | |
| Acquisitions of businesses, net | | | | | | | | |
Net undistributed investment earnings (losses) (1) | | | | () | | | | |
| Maturities and distributed earnings | () | | | () | | | () | |
| Change in cancellation allowance | () | | | () | | | () | |
| Change in amounts due on unfulfilled performance obligations | () | | | () | | | () | |
| Effect of foreign currency and other | () | | | () | | | () | |
Ending balance - Preneed receivables, net and trust investments | $ | | | | $ | | | | $ | | |
(1) Includes both realized and unrealized investment earnings.
The cost and fair values associated with trust investments recorded at fair value at December 31, 2023 and 2022 are detailed below. Cost reflects the investment (net of redemptions) of control holders in the trusts. Fair value represents the value of the underlying securities held by the trusts.
| | $ | | | | $ | () | | | $ | | | | Canadian government | 2 | | | | | | | | | | | |
| Corporate | 2 | | | | | | | () | | | | |
| Residential mortgage-backed | 2 | | | | | | | () | | | | |
| Asset-backed | 2 | | | | | | | () | | | | |
| Equity securities: | | | | | | | | |
| Preferred stock | 2 | | | | | | | () | | | | |
| Common stock: | | | | | | | | |
| United States | 1 | | | | | | | () | | | | |
| Canada | 1 | | | | | | | () | | | | |
| Other international | 1 | | | | | | | () | | | | |
| Mutual funds: | | | | | | | | |
| Equity | 1 | | | | | | | () | | | | |
| Fixed income | 1 | | | | | | | () | | | | |
| | |
| Trust investments, at fair value | | | | | | | | () | | | | |
| Commingled funds | | | | | | | | |
| Fixed income | | | | | | | | () | | | | |
| Equity | | | | | | | | () | | | | |
| Money market funds | | | | | | | | | | | | |
| Alternative investments | | | | | | | | () | | | | |
| Trust investments, at net asset value | | | | | | | | () | | | | |
| Trust investments, at market | | $ | | | | $ | | | | $ | () | | | $ | | |
million which, if called, would be funded by the assets of the trusts. | | $ | | | | $ | () | | | $ | | | | Canadian government | 2 | | | | | | | | | | | |
| Corporate | 2 | | | | | | | () | | | | |
| Residential mortgage-backed | 2 | | | | | | | () | | | | |
| Asset-backed | 2 | | | | | | | () | | | | |
| Equity securities: | | | | | | | | |
| Preferred stock | 2 | | | | | | | () | | | | |
| Common stock: | | | | | | | | |
| United States | 1 | | | | | | | () | | | | |
| Canada | 1 | | | | | | | () | | | | |
| Other international | 1 | | | | | | | () | | | | |
| Mutual funds: | | | | | | | | |
| Equity | 1 | | | | | | | () | | | | |
| Fixed income | 1 | | | | | | | () | | | | |
| | |
| Trust investments, at fair value | | | | | | | | () | | | | |
| Commingled funds | | | | | | | | |
| Fixed income | | | | | | | | () | | | | |
| Equity | | | | | | | | () | | | | |
| Money market funds | | | | | | | | | | | | |
| Alternative investments | | | | | | | | () | | | | |
| Trust investments, at net asset value | | | | | | | | () | | | | |
| Trust investments, at market | | $ | | | | $ | | | | $ | () | | | $ | | |
to . Maturities of fixed income securities (excluding mutual funds) at December 31, 2023 are estimated as follows: | | | | | |
| | Fair Value |
| | (In thousands) |
| Due in one year or less | $ | | |
| Due in one to five years | | |
| Due in five to ten years | | |
| Thereafter | | |
| Total estimated maturities of fixed income securities | $ | | |
Recognized trust fund income (realized and unrealized) related to our preneed trust investments was $ million, $ million, and $ million for the years ended December 31, 2023, 2022, and 2021, respectively. Recognized trust fund income (realized and unrealized) related to our cemetery perpetual care trust investments was $ million, $ million, and $ million for the years ended December 31, 2023, 2022, and 2021, respectively.
58 Service Corporation International
| | $ | | | | Amounts due from customers for unfulfilled performance obligations on cancelable preneed contracts | () | | | () | |
| Deferred revenue, net | $ | | | | $ | | | | | $ | | | | $ | | |
|
| Net preneed contract sales | | | | | | | | |
| Acquisitions (dispositions) of businesses, net | | | | | | | | |
Net investment gains (losses) (1) | | | | () | | | | |
Recognized revenue from backlog(2) | () | | | () | | | () | |
| Recognized revenue from current period sales | () | | | () | | | () | |
| Change in amounts due on unfulfilled performance obligations | () | | | () | | | () | |
| Change in cancellation reserve | | | | | | | () | |
| Effect of foreign currency and other | () | | | () | | | | |
Ending balance — Deferred revenue, net and Deferred receipts held in trust | $ | | | | $ | | | | $ | | |
(1)Includes both realized and unrealized investment gains (losses).
(2)Includes current year trust fund income through the date of performance.
4.
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | Increase in goodwill related to
acquisitions | | | | | | | | | | | | | | | | | |
Reduction of goodwill related to divestitures (1) | () | | | () | | | () | | | | | | | | | | |
| | | | | |
| Effect of foreign currency | | | | | | | | | | () | | | | | | () | |
| Total activity | | | | | | | | | | | | | | | | | |
Ending balance — Goodwill | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
(1) Also includes reductions for businesses held for sale.
- | | | $ | | | | $ | | | | Customer relationships | | - | | | | | | | |
| Tradenames | | - | | | | | | | |
| Other | | - | | | | | | | |
| | | | | | | | | |
| Less accumulated amortization: | | | | | | | |
| Covenants-not-to-compete | | | | | | | | | |
| Customer relationships | | | | | | | | | |
| Tradenames | | | | | | | | | |
| Other | | | | | | | | | |
| | | | | | | | | |
| | | | | | | |
| Amortizing intangibles, net | | | | | | | | | |
| | | | | | | |
| Non-amortizing intangibles: | | | | | | | |
| Tradenames | | | Indefinite | | | | | | |
| Other | | | Indefinite | | | | | | |
| Non-amortizing intangibles | | | | | | | | | |
| | | | | | | |
Intangible assets, net — included in Deferred charges and other assets, net | | $ | | | | $ | | |
As part of our recoverability testing process during 2023, we reported $2.6 million of impairment on tradenames. Amortization expense for intangible assets was $ million, $ million, and $ million for the years ended December 31, 2023, 2022, and 2021, respectively.
| | 2025 | | |
| 2026 | | |
| 2027 | | |
| 2028 | | |
| Total estimated amortization expense | $ | | |
5.
We actively participate in tax credit equity investments for projects eligible to receive renewable energy credits. These investments, accounted for under the equity method, are recorded in Deferred charges and other assets, net of reserves on our Consolidated Balance Sheet. Upon realization, tax credits associated with these investments are recognized as a reduction of tax expense. This reduction is offset by amortization of the investment in proportion to the tax benefits received during the period under the proportional amortization method. During 2023, we recognized investment tax credits totaling $ million and amortized the equity investment by $ million to reflect the realization of these benefits. This amortization is reflected within the Provision for income taxes in the Consolidated Statement of Operations.
60 Service Corporation International
| | $ | | | | $ | | | | Foreign | | | | | | | | |
Total income before income taxes | $ | | | | $ | | | | $ | | |
) | | $ | | | | $ | | | | Foreign | | | | | | | | |
| State | () | | | | | | | |
| Total current income taxes | () | | | | | | | |
| Deferred: | | | | | |
| United States | $ | | | | $ | () | | | $ | () | |
| Foreign | () | | | | | | () | |
| State | | | | | | | | |
| Total deferred income taxes | | | | | | | () | |
| Total income taxes | $ | | | | $ | | | | $ | | |
We made income tax payments of $ million, $ million, and $ million in 2023, 2022, and 2021, respectively, and received refunds of $ million, $ million, and $ million, respectively.
| | $ | | | | $ | | | | State and local taxes, net of federal income tax benefits | | | | | | | | |
| Foreign jurisdiction differences | | | | | | | | |
| Permanent differences associated with divestitures | | | | | | | | |
| Changes in uncertain tax positions and audit settlements | | | | | | | | |
| Foreign valuation allowance, net of federal income tax benefits | | | | | | | () | |
| Excess tax benefit from share-based compensation | () | | | () | | | () | |
| Other | () | | | | | | | |
| Provision for income taxes | $ | | | | $ | | | | $ | | |
| Total consolidated effective tax rate | | % | | | % | | | % | The 2023 consolidated effective tax rate was %, compared to % in 2022. The lower effective tax rate in 2023 was primarily due to non-taxable gains on the cash surrender value of certain life insurance policies.
) | | $ | () | |
| Deferred incremental direct selling costs | () | | | () | |
| Property and equipment | () | | | () | |
| Intangibles | () | | | () | |
| Deferred revenue on preneed funeral and cemetery contracts | () | | | — | |
| Other | () | | | () | |
| Deferred tax liabilities | () | | | () | |
| Loss and tax credit carryforwards | | | | | |
| Deferred revenue on preneed funeral and cemetery contracts | — | | | | |
| Accrued liabilities | | | | | |
| Deferred tax assets | | | | | |
| Less: valuation allowance | () | | | () | |
| Net deferred income tax liability | $ | () | | | $ | () | |
| | $ | | | Non-current deferred tax liabilities - included in Deferred tax liability | () | | | () | |
| Net deferred income tax liability | $ | () | | | $ | () | |
As of December 31, 2023, foreign withholding taxes have not been provided on the estimated $ million of undistributed earnings and profits (E&P) of our foreign subsidiaries as we intend to permanently reinvest these foreign E&P in the respective businesses outside the U.S. However, if we were to repatriate such foreign E&P, the foreign withholding tax liability is estimated to be $ million. Additionally, if we were to repatriate E&P in excess of our previously taxed income under the Tax Cuts and Jobs Act of 2017, such excess repatriation may cause us to incur an additional U.S. federal income tax of approximately $ million related to our hybrid debt structure between Canada and the United States that was eliminated in 2022.
| | Reduction to tax positions related to prior years | | |
| Balance at December 31, 2021 | $ | | |
| Reductions to tax positions related to prior years | | |
| Balance at December 31, 2022 | $ | | |
| Reductions to tax positions related to prior years | | |
| Balance at December 31, 2023 | $ | | |
Our total unrecognized tax benefits that, if recognized, would affect our effective tax rates were $ million as of December 31, 2023, 2022 and 2021.
W We have accrued $ million, $ million, and $ million for the payment of interest, net of tax benefits, and
62 Service Corporation International
million for each of the years ended December 31, 2023, 2022 and 2021, respectively. To the extent interest and penalties are not assessed with respect to uncertain tax positions or the uncertainty of deductions in the future, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. We file income tax returns, including tax returns for our subsidiaries, with federal, state, local, and foreign jurisdictions. We consider the United States to be our most significant jurisdiction; however, all tax returns are subject to routine compliance review by the taxing authorities in the jurisdictions in which we file tax returns in the ordinary course of business.
The federal statutes of limitations have expired for all tax years prior to 2020, and we are not currently under audit by the IRS. However, pursuant to the 2017 Tax Cuts and Jobs Act, the statute of limitations on the transition tax for the 2017 tax year does not expire until 2024. Various state jurisdictions are auditing years 2013 through 2021. There are currently no federal or provincial audits in Canada; however, years subsequent to 2017 remain open and could be subject to examination. We believe that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease by $ million within the next twelve months as a result of concluding various state tax matters.
Various subsidiaries have federal, state, and foreign loss carryforwards in the aggregate of $ billion with expiration dates through 2041.
| | $ | | | | $ | | | | $ | | | | 2025 | | | | | | | | | | | |
| 2026 | | | | | | | | | | | |
| 2027 | | | | | | | | | | | |
| Thereafter | | | | | | | | | | | |
| Total loss carryforwards | $ | | | | $ | | | | $ | | | | $ | | |
In addition to the above loss carryforwards, we have $2.2 million of foreign alternative minimum tax credits that can be carried forward indefinitely.
million decrease in our valuation allowance primarily driven by utilization and expiration of state net operating losses, along with legislative changes in certain states. The valuation allowances can be affected in future periods by changes to tax laws, changes to statutory tax rates, and changes in estimates of future taxable income.
| | $ | | | | $ | | | | $ | | | | Valuation allowance | $ | | | | $ | | | | $ | | | | $ | | |
6.
| | $ | | | | 4.625% Senior Notes due December 2027 | | | | | |
| 5.125% Senior Notes due June 2029 | | | | | |
| 3.375% Senior Notes due August 2030 | | | | | |
| 4.000% Senior Notes due May 2031 | | | | | |
| Term Loan due May 2024 | | | | | |
| Term Loan due January 2028 | | | | | |
| Bank Credit Facility due May 2024 | | | | | |
| Bank Credit Facility due January 2028 | | | | | |
| Obligations under finance leases | 132,039 | | | 120,837 | |
| Mortgage notes and other debt, maturities through 2050 | | | | | |
| Unamortized debt issuance costs | () | | | () | |
| Total debt | $ | | | | $ | | |
| Less: Current maturities of long-term debt | () | | | () | |
| Total long-term debt | $ | | | | $ | | |
Current maturities of debt at December 31, 2023 include amounts due under our term loan, mortgage notes and other debt, and finance leases within the next year as well as the portion of unamortized debt issuance costs expected to be recognized in the next twelve months.
Approximately % and % of our total debt had a fixed interest rate at December 31, 2023 and 2022, respectively.
The components of our weighted average interest rate are as follows:
| | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 |
| Fixed Debt | | % | | | % |
| Floating Debt | | % | | | % |
| Total Debt | | % | | | % |
| | 2025 | | |
| 2026 | | |
| 2027 | | |
| 2028 | | |
| 2029 and thereafter | | |
| Total debt maturities | $ | | |
64 Service Corporation International
billion Bank Credit Facility, including a sublimit of $100.0 million for letters of credit and a $ million Term Loan, both due January 2028. As a result of the new agreement, at closing, there was a net $138.8 million increase in our outstanding Term Loan balance and a $155.0 million decrease in our outstanding Bank Credit Facility balance.
The bank credit agreement provides us with flexibility for working capital, if needed, and is guaranteed by a majority of our domestic subsidiaries. The subsidiary guaranty is a guaranty of payment of the outstanding amount of the total lending commitment, including letters of credit. The bank credit agreement contains a maximum leverage ratio financial covenant and certain dividend and share repurchase restrictions. As of December 31, 2023, we are in compliance with all of our debt covenants. At December 31, 2023, we issued $ million of letters of credit and pay a quarterly fee on the unused commitment, which was %. As of December 31, 2023, we have $ million in borrowing capacity under the facility.
As of December 31, 2022, we issued $ million of letters of credit.
Subsequent to December 31, 2023, we decreased our outstanding borrowings by $40.0 million to $750.0 million under our Bank Credit Facility due January 2028.
Debt Issuances and Additions
During the year ended December 31, 2023, we issued or added $ million of debt including:
•$ million in proceeds from certain banks in our Term Loan;
•$ million on our Bank Credit Facility due January 2028;
•$ million in proceeds from certain banks in our Bank Credit Facility;
•$ million on our Bank Credit Facility due May 2024; and
•$ million in other debt.
Net proceeds from newly issued debt during the year ended December 31, 2023 were used to pay down our Bank Credit Facility due May 2024, our Term Loan due May 2024, and for general corporate purposes. These transactions resulted in additional debt issuance costs of $7.5 million.
During the year ended December 31, 2022, we drew $ million on our Bank Credit Facility due May 2024 and issued $ million in other debt primarily for general corporate purposes.
Debt Extinguishments and Reductions
During the year ended December 31, 2023, we made aggregate debt payments of $ million for scheduled and early extinguishment payments including:
•$ million in aggregate principal of our Bank Credit Facility due January 2028;
•$ million in aggregate principal payments to certain banks in our Bank Credit Facility due May 2024;
•$ million in aggregate principal payments to certain banks in our Term Loan due May 2024;
•$ million in aggregate principal of our Term Loan due January 2028;
•$ million in aggregate principal of our 7.5% Senior Notes due April 2027 repurchased in the open market;
•$ million of premiums paid on early extinguishment; and
•$ million in other debt.
Certain of the above transactions resulted in the recognition of a loss of $ million recorded in Losses on early extinguishment of debt, net in our Consolidated Statement of Operations for the year ended December 31, 2023.
During the year ended December 31, 2022, we made aggregate debt payments of $ million for scheduled and early extinguishment payments including:
•$ million in aggregate principal of our Bank Credit Facility due May 2024;
•$ million in aggregate principal of our Term Loan due May 2024;
•$ million in aggregate principal of 7.5% Senior Notes due April 2027 repurchased on the open market;
•$ million of premiums paid on early extinguishment; and
•$ million in other debt.
million recorded in Losses on early extinguishment of debt, net in our Consolidated Statement of Operations for the year ended December 31, 2022.Additional Debt Disclosures
At December 31, 2023 and 2022, we had deposits of $ million and $ million, respectively, in restricted, interest-bearing accounts that were pledged as collateral for various credit instruments and commercial commitments. These deposits are included in Other current assets and Deferred charges and other assets, net in our Consolidated Balance Sheet.
We had assets of approximately $ million and $ million pledged as collateral for the mortgage notes and other debt at December 31, 2023 and 2022, respectively.
| Payments in 2022 | $ | | |
Payments in 2021 | $ | | |
Expected c
| Payments in 2025 | | |
Payments in 2026 | | |
Payments in 2027 | | |
Payments in 2028 | | |
Payments in 2029 and thereafter | | |
| Total expected cash interest payments | $ | | |
7.
| | $ | | | | 4.625% Senior Notes due December 2027 | | | | | |
| 5.125% Senior Notes due June 2029 | | | | | |
| 3.375% Senior Notes due August 2030 | | | | | |
| 4.000% Senior Notes due May 2031 | | | | | |
| Term Loan due May 2024 | | | | | |
| Term Loan due January 2028 | | | | | |
| Bank Credit Facility due May 2024 | | | | | |
| Bank Credit Facility due January 2028 | | | | | |
| Mortgage notes and other debt, maturities through 2050 | | | | | |
| Total fair value of debt instruments | $ | | | | $ | | |
66 Service Corporation International
An increase (decrease) in the inputs results in a directionally opposite change in the fair value of the instruments.Credit Risk Exposure
Our cash deposits, some of which exceed insured limits, are distributed among various market and national banks in the jurisdictions in which we operate. In addition, we regularly invest excess cash in financial instruments that are not insured, such as commercial paper that is offered by corporations with quality credit ratings and money market funds and Eurodollar time deposits that are offered by a variety of reputable financial institutions. We believe that the credit risk associated with such instruments is minimal.
We grant credit to customers in the normal course of business. The credit risk associated with our funeral, cemetery, and preneed funeral and preneed cemetery receivables due from customers is generally considered minimal because of the diversification of the customers served. Furthermore, bad debts have not been significant relative to the volume of deferred revenue. Customer payments on preneed funeral or preneed cemetery contracts that are either placed into state-regulated trusts or used to pay premiums on life insurance contracts generally do not subject us to collection risk. Insurance-funded contracts are subject to supervision by state insurance departments and are protected in the majority of states by insurance guaranty acts.
8.
| | $ | | | | $ | | | | 2025 | | | | | | | | |
| 2026 | | | | | | | | |
| 2027 | | | | | | | | |
| 2028 | | | | | | | | |
| 2029 and thereafter | | | | | | | | |
| Total lease payments | $ | | | | $ | | | | $ | | |
| Less: Interest | () | | | () | | | () | |
| Present value of lease liabilities | $ | | | | $ | 132,039 | | | $ | | |
The components of lease cost were as follows:
| | $ | | | | $ | | | | Interest on lease liabilities | | | | | | | | |
| Total finance lease cost | | | | | | | | |
| Operating lease cost | | | | | | | | |
| Variable lease cost | | | | | | | | |
| Total lease cost | $ | | | | $ | | | | $ | | |
| $ | | |
Finance lease right-of-use assets (1) | | Property and equipment, net | | | | | |
Total right-of-use assets (1) | | | | $ | | | $ | | |
|
| | | | | |
| Operating | | Accounts payable and accrued liabilities | | $ | | | $ | | |
| Finance | | Current maturities of long-term debt | | | | | |
| Total current lease liabilities | | | | | | | |
|
| Operating | | Other liabilities | | | | | |
| Finance | | Long-term debt | | | | | |
| Total non-current lease liabilities | | | | | | | |
| Total lease liabilities | | | | $ | | | $ | | |
|
|
|
| 2022 | 2021 |
|
| Cash paid for amounts in the measurement of lease liabilities: | | | | | |
| | | $ | | | $ | | |
| | | | |
| | | | |
| | | $ | | | $ | | |
| | | | | |
| | | | |
| () | | | |
| | | $ | | | $ | | |
| | | | | |
| | | | |
| | | | |
| | | $ | | | $ | | | We have operating leases where we are the lessor and the non-cancelable term is greater than one year, resulting in $ million and $4.3 million in lease income for the years ended December 31, 2023 and 2022, respectively. We determine whether an arrangement is or contains a lease at the inception of the arrangement based on the terms of the arrangement. We lease retail space, office space, and land, and we are party to cellular agreements and land easements. The underlying assets of these lease agreements are buildings and land. We generally do not have sales-type leases, direct financing leases, or lease receivables. Certain of our agreements include variable rental income based on a percentage of sales over base contractual levels. Renewal options that can be cancelled by the lessees are not included in our disclosure of future lease income, which includes only the non-cancelable terms and fixed escalation provisions. Certain lease arrangements contain options to purchase the property at fair value at the conclusion of the lease term. Non-lease components are excluded from rental income disclosures.
68 Service Corporation International
|
| 2025 | | |
| 2026 | | |
| 2027 | | |
| 2028 | | |
| 2029 and thereafter | | |
| Total expected cash receipts | $ | | |
We own certain land, buildings, and improvements for the sole purpose of generating lease income. Property is recorded at cost, and depreciation is recognized ratably over the estimated useful lives of the various classes of assets. Buildings and improvements are depreciated over a period ranging from ten years to forty years. For these properties, we recorded depreciation expense of $ million for the year ended December 31, 2023 and $ million for each of the years ended December 31, 2022 and 2021. As of December 31, 2023, our Consolidated Balance Sheet includes Land of $ million, and Buildings and improvements of $ million, net of $ million accumulated depreciation, related to these properties.
9.
million and $ million, respectively.Litigation and Regulatory Matters
We are a party to various litigation and regulatory matters, investigations, and proceedings. Some of the more frequent routine litigations incidental to our business are based on burial practices claims and employment-related matters, including discrimination, harassment, and wage and hour laws and regulations. For each of our outstanding legal matters, we evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies, and the likelihood of an unfavorable outcome. We intend to vigorously defend ourselves in the matters described herein; however, if we determine that an unfavorable outcome is probable and can be reasonably estimated, or if we determine an amount for which we would be willing to settle the matter to avoid further costs and risk, we establish the necessary accruals. We hold certain insurance policies that may reduce cash outflows with respect to an adverse outcome of these matters. We accrue such insurance recoveries when they become probable of being paid and can be reasonably estimated.
Operational Claims. We are named as a defendant in various lawsuits alleging operational claims, including but not limited to the State of California and Taylor lawsuits described below.
The People of the State of California v. Service Corporation International, a Texas corporation, SCI Direct, Inc. a Florida Corporation, S.E. Acquisition of California, Inc., a California corporation dba Neptune Society of Northern California, Neptune Management Corp., a California corporation, Trident Society, Inc. a California corporation, and Does 1 through 100, inclusive, Case No. RG 19045103; in the Superior Court of the State of California in and for the County of Alameda. In July 2019, we received a letter from the Attorney General, State of California, Department of Justice (“CAAG") alleging that the allocation of prices among certain of our cremation service contracts and cremation merchandise contracts, and the related preneed trust funding, violates section 7735 of the California Business and Professions Code and that provisions of these same contracts constitute false advertising and deceptive sales practices in violation of California consumer protection laws. On November 21, 2019, we filed a complaint, S.E. Combined Services of California, Inc., a California Corporation dba Neptune Society of Northern California, Neptune Management Corp. a California Corporation, and Trident Society, Inc. v. Xavier Becerra, Attorney General of the State of California, and Does 1-50, Case No. 34-2019-00269617; in the Sacramento County Superior Court seeking declaratory relief holding, in general, that our practices, methods, and documentation utilized in the sale of preneed funeral goods and services are in all respects compliant with California law. On December 2, 2019, the CAAG filed the complaint, referenced above, seeking permanent injunction from making false statements and engaging in unfair competition, a placement of funds into preneed trusts, civil penalties, customer refunds, attorneys’ fees, and costs. While we believe our contracts comply with applicable laws, the parties have engaged in settlement discussions in an effort to resolve this dispute, which may or may not be successful. We anticipate any settlement in connection with this matter may include preneed contract refunds, governmental investigative costs, and other legal expenses.
Nancy Taylor, on behalf of herself and others similarly situated v. Service Corporation International and others, Case No. 20-cv-60709; in the United States District Court for the Southern District of Florida, Fort Lauderdale Division. This case was filed in April 2020 as a Florida class action alleging that the allocation of prices among certain of our cremation service contracts and cremation merchandise contracts, and the related preneed trust funding, and the failure to disclose commissions paid and sales practices associated with the sale of third-party travel protection plans, violate the Florida Deceptive and Unfair Trade
Practices Act and constitute unjust enrichment. Plaintiff sought refunds; general, actual, compensatory and exemplary damages; civil penalties, interest, and attorney fees. The parties have reached a settlement of the lawsuit that included an immaterial payment of attorney fees and provided consumers enhanced cancellation rights for a period of sixty days. The impact of these enhanced cancellation rights was not material to our financial condition, results of operations, and cash flows. The court has approved the settlement, the class has been certified, and the administrative claims process is now complete. We consider this matter resolved.
Unclaimed Property Audits
We have received notices from auditors representing the unclaimed property departments of approximately forty states regarding the escheatment of preneed trust funds held in association with unused preneed funeral and cemetery contracts ("Unused Preneed Trust Funds"). The states claim that these Unused Preneed Trust Funds are subject to the states’ unclaimed property or escheatment laws and generally assert that all or a portion of the Unused Preneed Trust Funds are escheatable if the beneficiary and/or purchaser is deceased or presumed deceased and no services or merchandise have been provided. We received notice that no additional property is due to be reported for the states of Alabama, Connecticut, Iowa, Kentucky, Maryland, Massachusetts, Montana, Nebraska, New Mexico, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Texas, West Virginia, and Wyoming. We consider the unclaimed property audits resolved in those eighteen states.
We have entered into an audit resolution agreement with the State of Florida Department of Financial Services and Division of Unclaimed Property ("Florida Agreement"). The Florida Agreement provides for the Company to retain the trust fund earnings and to escheat the principal to the State of Florida, which resulted in an increase in trust fund income in 2023.
We have reserved all of our rights, claims, and defenses. Given the nature of these matters, we are unable to reasonably estimate the total possible loss or ranges of loss, if any.
We believe we have strong defenses to these claims and we intend to vigorously defend all of the above matters; however, an adverse decision in one or more of such matters could have a material effect on us, our financial condition, results of operations, and cash flows.
10.
common shares of $ par value were authorized. We had and shares issued and and outstanding at par at December 31, 2023 and 2022, respectively.Accumulated Other Comprehensive Income
The assets and liabilities of foreign operations are translated into U.S. dollars using the current exchange rate. The U.S. dollar amount that arises from such translation, as well as exchange gains and losses on intercompany balances of a long-term investment nature, are included in the cumulative currency translation adjustments in Accumulated other comprehensive income.
Share Repurchase Program
Subject to market conditions, normal trading restrictions, and limitations in our debt covenants, we may make purchases in the open market or through privately negotiated transactions under our share repurchase program. In 2023, we repurchased 8,700,767 shares of our common stock at an aggregate cost of $549.6 million, which is an average cost per share of $. In 2022, we repurchased 10,356,250 shares of our common stock at an aggregate cost of $661.1 million, which is an average cost per share of $. Additionally, in November 2023, our Board of Directors increased our share repurchase authorization to $ million. After these repurchases and the increase in authorization, the remaining dollar value of shares authorized to be purchased under the share repurchase program was $ million at December 31, 2023.
shares for $ million at an average cost per share of $.
11.
shares of our common stock for outstanding and future awards of stock options, restricted stock, and other share-based awards to officers and key associates. In May 2017, our shareholders approved the amended 2016 Equity Incentive Plan ("the 2016 Plan"), which reserved shares of common stock for outstanding and future awards of stock options, restricted stock, and other awards to officers and key associates.70 Service Corporation International
and shares, respectively, were reserved for future option and restricted share grants under our stock benefit plans. This model allows the use of a range of assumptions related to volatility, risk-free interest rate, expected holding period, and dividend yield. The expected volatility utilized in the valuation model is based on the historical volatility of our stock price. The dividend yield and expected holding period are based on historical experience and management’s estimate of future events. The risk-free interest rate is derived from the U.S. Treasury yield curve based on the expected life of the option in effect at the time of grant.
% | % | | % | | Expected volatility | | % | | % | | % |
| Risk-free interest rate | | % | | % | | % |
| Expected holding period (years) | | | | | | |
| | $ | | | | $ | | | | Income tax benefit related to share-based compensation included in net income | $ | | | | $ | | | | $ | | |
Stock Options
| | $ | | | | Granted | | | | $ | | |
| Exercised | () | | | $ | | |
| |
| |
Outstanding at December 31, 2023 | | | | $ | | |
Exercisable at December 31, 2023 | | | | $ | | |
The aggregate intrinsic value for stock options outstanding and exercisable was $ million and $ million, respectively, at December 31, 2023.
| | | | $ | | | | | | | $ | | | | $25.01 — 35.00 | | | | | | | $ | | | | | | | $ | | |
| $35.01 — 45.00 | | | | | | | $ | | | | | | | $ | | |
| $45.01 — 55.00 | | | | | | | $ | | | | | | | $ | | |
| $55.01 — 65.00 | | | | | | | $ | | | | | | | $ | | |
| $65.01 — 75.00 | | | | | | | $ | | | | | | | $ | | |
| $0.00 — 75.00 | | | | | | | $ | | | | | | | $ | | |
| | $ | | | | $ | | | | Total fair value of stock options vested | $ | | | | $ | | | | $ | | |
| Total intrinsic value of stock options exercised | $ | | | | $ | | | | $ | | |
Cash received from the exercise of stock options | $ | | | | $ | | | | $ | | |
Recognized compensation expense | $ | | | | $ | | | | $ | | |
As of December 31, 2023, the unrecognized compensation expense related to stock options of $ million is expected to be recognized over a weighted average period of years.
Restricted Shares
The fair value of our restricted share awards and units, as determined on the grant date, is being amortized and charged to income (with an offsetting credit to Capital in excess of par value) generally over the average period during which the restrictions lapse.
| | $ | | | | Granted | | | | $ | | |
| Vested | () | | | $ | | |
| |
Nonvested restricted share awards at December 31, 2023 | | | | $ | | |
Other information pertaining to restricted share awards was as follows (in thousands, except weighted-average grant date fair value):
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
Recognized compensation expense related to restricted share awards | $ | | | | $ | | | | $ | | |
Weighted-average grant date fair value for nonvested restricted stock granted | $ | 70.34 | | | $ | | | | $ | | |
Total fair market value of restricted share awards vested | $ | | | | $ | | | | $ | | |
Aggregate intrinsic value of restricted share awards vested | $ | | | | $ | | | | $ | | |
million related to restricted share awards is expected to be recognized over a weighted average period of years.
72 Service Corporation International
Restricted share units activity was as follows (share units reported in whole numbers):
| | $ | | | | Granted | | | | $ | | |
| Vested | () | | | $ | | |
| |
Nonvested restricted share units at December 31, 2023 | | | | $ | | |
Other information pertaining to restricted share units was as follows (in thousands, except weighted-average grant date fair value):
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
Recognized compensation expense related to restricted share units | $ | | | | $ | | | | $ | | |
Weighted-average grant date fair value for nonvested restricted share units granted | $ | | | | $ | | | | $ | | |
Total fair market value of restricted share units vested | $ | | | | $ | | | | $ | | |
Aggregate intrinsic value of restricted share units vested | $ | | | | $ | | | | $ | | |
At December 31, 2023, the unrecognized compensation expense related to restricted share units of $ million is expected to be recognized over a weighted average period of 1.7 years.
Performance Units
During 2023, 2022, and 2021 we granted , and performance units, respectively. At December 31, 2023, there were performance units outstanding. Total compensation expense for performance units was $ million, $ million, and $ million for the years ended December 31, 2023, 2022, and 2021, respectively. For the year ended December 31, 2023 and 2022, cash paid to settle performance units was $ million and $ million, respectively. The fair value of the liability for these awards is calculated using a Monte Carlo simulation. The weighted average key assumptions as of December 31, 2023 were as follows:
| | | | | |
|
Share price at beginning of performance period | $ | | |
Risk-free interest rate | | % |
Expected volatility | | % |
Fair value of share-based performance units outstanding | $ | | |
At December 31, 2023, the unrecognized compensation expense related to performance units of $ million is expected to be recognized over a weighted average period of years.
12.
| | $ | | | | $ | | | | Recognized net actuarial (gains) losses | | | | () | | | () | |
| Total net periodic benefit cost | $ | | | | $ | () | | | $ | | |
| | $ | | | | Interest cost | | | | | |
| Actuarial gain | | | | () | |
Benefits paid (1) | () | | | () | |
| Benefit obligation at end of year | $ | | | | $ | | |
| Change in Plan Assets: | | | |
| Fair value of plan assets at beginning of year | $ | | | | $ | | |
| Employer contributions | | | | | |
Benefits paid, including expenses (1) | () | | | () | |
| Fair value of plan assets at end of year | $ | | | | $ | | |
| Funded status of plan | $ | () | | | $ | () | |
| |
| Funding Summary: | | | |
| Projected benefit obligation | $ | | | | $ | | |
| Accumulated benefit obligation | $ | | | | $ | | |
| Amounts Recognized in the Consolidated Balance Sheet: | | | |
Included in Accounts payable and accrued liabilities | $ | () | | | $ | () | |
Included in Other liabilities | () | | | () | |
| Total accrued liability | $ | () | | | $ | () | |
(1) In 2022, we terminated our Directors' Plan and amended Senior SERP to terminate the participation of all our active employees and paid out, in a discounted lump sum, all benefits to the participants or their heirs in the amount of $1.5 million.
The retirement benefits under the Plans are unfunded obligations of the Company. We have purchased various life insurance policies on the participants in the Plans with the intent to use the proceeds or any cash value buildup from these policies to assist in meeting, at least to the extent of such assets, the Plans' funding requirements. The face value of these insurance policies at December 31, 2023 and 2022 was $ million and $ million, respectively, and the cash surrender value was $ million and $ million, respectively. The outstanding loans against the policies are minimal and there are no restrictions in the policies regarding loans.
% | | | % | | | % | | Weighted-average discount rate used to determine net periodic benefit cost | | % | | | % | | | % |
We determine our discount rate used to compute future benefit obligations using an analysis of expected future benefit payments. The reasonableness of our discount rate is verified by comparing the rate to the rate earned on high-quality fixed income investments, such as the Moody’s Aa index, plus basis points. The assumed rate of return on plan assets was not applicable as we pay plan benefits as they come due. As all Plans are frozen, the assumed rate of compensation increase is .
74 Service Corporation International
| | 2025 | | |
| 2026 | | |
| 2027 | | |
| 2028 | | |
| Years 2029 through 2033 | | |
| Total expected benefit payments | $ | | |
%.During 2023, 2022, and 2021, we matched a percentage of the employee contributions through contributions of cash. For these years, our matching contribution was based upon the following:
| | | | | | | | |
| Years of Vesting Service | | Percentage of Deferred Compensation |
| 0 — 5 years | | 75% of the first 6% of deferred compensation |
| 6 — 10 years | | 100% of the first 6% of deferred compensation |
| 11 or more years | | 125% of the first 6% of deferred compensation |
The amount of our matched contributions in 2023, 2022, and 2021 was $ million, $ million, and $ million, respectively.
13. Segment Reporting
Our operations are both product-based and geography-based, and the reportable operating segments presented below include our funeral and cemetery operations. Our geographic areas include the United States and Canada, where we conduct both funeral and cemetery operations.
Our reportable segment information, including disaggregated revenue, was as follows and includes a reconciliation of gross profit to our consolidated income before income taxes.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| | (In thousands) |
| Revenue from customers: | | | | | |
| Funeral revenue: | | | | | |
| Atneed revenue | $ | | | | $ | | | | $ | | |
| Matured preneed revenue | | | | | | | | |
| Core funeral revenue | 1,900,711 | | | 1,947,542 | | | 1,968,584 | |
| Non-funeral home revenue | | | | | | | | |
| Non-funeral home preneed sales revenue | | | | | | | | |
| Core general agency and other revenue | | | | | | | | |
| Total funeral revenue | 2,303,031 | | | 2,332,045 | | | 2,343,176 | |
| Cemetery revenue: | | | | | |
| Atneed revenue | | | | | | | | |
| Recognized preneed property revenue | | | | | | | | |
| |
| |
| |
| Recognized preneed merchandise and services revenue | | | | | | | | |
| Core cemetery revenue | 1,673,667 | | | 1,655,346 | | | 1,668,377 | |
| Other revenue | | | | | | | | |
| Total cemetery revenue | 1,796,747 | | | 1,776,616 | | | 1,799,967 | |
| Total revenue from customers | $ | 4,099,778 | | | $ | 4,108,661 | | | $ | 4,143,143 | |
| Gross profit: | | | | | |
| Funeral gross profit | $ | | | | $ | | | | $ | | |
| Cemetery gross profit | | | | | | | | |
| Gross profit from reportable segments | 1,091,807 | | | 1,154,602 | | | 1,323,075 | |
| Corporate general and administrative expenses | () | | | () | | | () | |
| Gains on divestitures and impairment charges, net | | | | | | | | |
| |
| Operating income | 944,255 | | | 927,316 | | | 1,190,676 | |
| Interest expense | () | | | () | | | () | |
| Losses on early extinguishment of debt, net | () | | | () | | | () | |
| Other income, net | | | | | | | | |
| Income before income taxes | $ | 708,606 | | | $ | 755,628 | | | $ | 1,045,500 | |
76 Service Corporation International
Other reportable segment information as of and for the year ended December 31 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Reportable Segments | | | | |
| Funeral | | Cemetery | | Corporate | | Consolidated |
| | (In thousands) |
| 2023 | | | | | | | |
| |
| Interest expense | $ | | | | $ | | | | $ | | | | $ | 239,447 | |
| Depreciation and amortization | $ | | | | $ | | | | $ | | | | $ | 191,272 | |
| Amortization of intangibles | $ | | | | $ | | | | $ | | | | $ | 18,736 | |
| |
| Amortization of cemetery property | $ | | | | $ | | | | $ | | | | $ | 101,234 | |
| Capital expenditures | $ | | | | $ | | | | $ | | | | $ | 361,793 | |
| Total assets | $ | | | | $ | | | | $ | | | | $ | 16,355,400 | |
| 2022 | | | | | | | |
| |
| Interest expense | $ | | | | $ | | | | $ | | | | $ | 172,109 | |
| Depreciation and amortization | $ | | | | $ | | | | $ | | | | $ | 175,330 | |
| Amortization of intangibles | $ | | | | $ | | | | $ | | | | $ | 18,355 | |
| |
| Amortization of cemetery property | $ | | | | $ | | | | $ | | | | $ | 94,123 | |
| Capital expenditures | $ | | | | $ | | | | $ | | | | $ | 369,709 | |
| Total assets | $ | | | | $ | | | | $ | | | | $ | 15,066,037 | |
| 2021 | | | | | | | |
| |
| Interest expense | $ | | | | $ | | | | $ | | | | $ | 150,610 | |
| Depreciation and amortization | $ | | | | $ | | | | $ | | | | $ | 159,306 | |
| Amortization of intangibles | $ | | | | $ | | | | $ | | | | $ | 20,002 | |
| |
| Amortization of cemetery property | $ | | | | $ | | | | $ | | | | $ | 98,162 | |
| Capital expenditures | $ | | | | $ | | | | $ | | | | $ | 303,660 | |
Our geographic area information as of and for the year ended December 31 was as follows:
| | | | | | | | | | | | | | | | | |
| United States | | Canada | | Total |
| | (In thousands) |
| 2023 | | | | | |
| Revenue from external customers | $ | | | | $ | | | | $ | 4,099,778 | |
| Interest expense | $ | | | | $ | | | | $ | 239,447 | |
| Depreciation and amortization | $ | | | | $ | | | | $ | 191,272 | |
| Amortization of intangibles | $ | | | | $ | | | | $ | 18,736 | |
| Amortization of cemetery property | $ | | | | $ | | | | $ | 101,234 | |
| Operating income | $ | | | | $ | | | | $ | 944,255 | |
| Gains on divestitures and impairment charges, net | $ | | | | $ | | | | $ | 9,816 | |
| Long-lived assets | $ | | | | $ | | | | $ | 7,725,961 | |
| 2022 | | | | | |
| Revenue from external customers | $ | | | | $ | | | | $ | 4,108,661 | |
| Interest expense | $ | | | | $ | | | | $ | 172,109 | |
| Depreciation and amortization | $ | | | | $ | | | | $ | 175,330 | |
| Amortization of intangibles | $ | | | | $ | | | | $ | 18,355 | |
| Amortization of cemetery property | $ | | | | $ | | | | $ | 94,123 | |
| Operating income | $ | | | | $ | | | | $ | 927,316 | |
| Gains on divestitures and impairment charges, net | $ | | | | $ | | | | $ | 9,962 | |
| Long-lived assets | $ | | | | $ | | | | $ | 7,426,379 | |
| 2021 | | | | | |
| Revenue from external customers | $ | | | | $ | | | | $ | 4,143,143 | |
| Interest expense | $ | | | | $ | | | | $ | 150,610 | |
| Depreciation and amortization | $ | | | | $ | | | | $ | 159,306 | |
| Amortization of intangibles | $ | | | | $ | | | | $ | 20,002 | |
| Amortization of cemetery property | $ | | | | $ | | | | $ | 98,162 | |
| Operating income | $ | | | | $ | | | | $ | 1,190,676 | |
| Gains on divestitures and impairment charges, net | $ | | | | $ | | | | $ | 25,169 | |
14.
| | $ | | | | Commercial paper and temporary investments | | | | | |
| | $ | | | | $ | | |
| Other current assets: | | | |
| |
| Prepaid insurance | | | | | |
| Prepaid expenses | | | | | |
| Restricted cash | | | | | |
| Other | | | | | |
| | $ | | | | $ | | |
| Cemetery property: | | | |
| Undeveloped land | $ | | | | $ | | |
| Developed lots, lawn crypts, mausoleum spaces, cremation niches, and cremation memorialization property | | | | | |
| | $ | | | | $ | | |
| Property and equipment, net: | | | |
| Land | $ | | | | $ | | |
| Buildings and improvements | | | | | |
| Operating equipment | | | | | |
| Leasehold improvements | | | | | |
| Finance leases | | | | | |
| | | | | | |
| Less: Accumulated depreciation | () | | | () | |
| Less: Accumulated amortization of finance leases | () | | | () | |
| | $ | | | | $ | | |
| Deferred charges and other assets: | | | |
| Intangible assets, net | $ | | | | $ | | |
| Restricted cash | | | | | |
| Deferred tax assets | | | | | |
Notes receivable, net of reserves of $1,797 and $2,546, respectively | | | | | |
| Cash surrender value of insurance policies | | | | | |
| Deferred incremental direct selling costs | | | | | |
| Operating leases | | | | | |
| Other | | | | | |
| | $ | | | | $ | | |
78 Service Corporation International
| | $ | | | | Accrued benefits | | | | | |
| Accrued interest | | | | | |
| Accrued property taxes | | | | | |
| Self-insurance reserves | | | | | |
| Legal reserves | | | | | |
| Bank overdrafts | | | | | |
| Operating leases | | | | | |
| Other accrued liabilities | | | | | |
| | $ | | | | $ | | |
| Other liabilities: | | | |
| Accrued benefit costs | $ | | | | $ | | |
| Deferred compensation | | | | | |
| Customer refund obligation reserve | | | | | |
| Tax liability | | | | | |
| Payable to perpetual care trust | | | | | |
| Operating leases | | | | | |
| Other | | | | | |
| | $ | | | | $ | | |
Certain Non-Cash Investing and Financing Transactions
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | (In thousands) |
| Net change in capital expenditure accrual | $ | | | | $ | | | | $ | | |
| Options exercised by attestation | $ | | | | $ | | | | $ | | |
| Shares repurchased | $ | — | | | $ | () | | | $ | () | |
| Excise tax accrual on shares repurchased | $ | | | | $ | — | | | $ | — | |
|
15.
| | $ | | | | $ | | | |
|
| Weighted average shares: | | | | | |
| Weighted average shares — basic | | | | | | | | |
| Stock options | | | | | | | | |
| Restricted share units | | | | | | | | |
|
| Weighted average shares — diluted | | | | | | | | |
| Amounts attributable to common stockholders: | | | | | |
|
|
|
|
|
|
| Net income per share: | | | | | |
| Basic | $ | | | | $ | | | | $ | | |
| Diluted | $ | | | | $ | | | | $ | | |
are as follows (in shares):
| | | | | | | |
|
80 Service Corporation International
16. Acquisitions and Divestiture-Related Activities
million in cash. This amount includes the use of $ million in IRS Section 1031 exchange funds. The primary reasons for the acquisitions and the principal factors that contributed to the recognition of goodwill in these acquisitions were:
•the acquisitions enhance our network footprint, enabling us to serve a number of new, complementary areas; and
•the acquisitions of the preneed backlog of deferred revenues enhance our long-term stability.
The following table summarizes the fair values of the assets acquired and liabilities assumed (in thousands):
| | | | | | |
| | |
|
| Other current assets | $ | | | |
| Cemetery property | | | |
| Property and equipment, net | | | |
| Preneed receivables, net and trust investments | | | |
| | |
| Indefinite-lived intangible assets | | | |
| Deferred charges and other assets | | | |
| Cemetery perpetual care trust investments | | | |
| Goodwill | | | |
| Total assets acquired | | | |
| | |
| Current liabilities | | | |
| Deferred revenue and deferred receipts held in trust | | | |
| Care trusts' corpus | | | |
| Other liabilities | | | |
| Total liabilities assumed | | | |
| | |
| Net assets acquired | $ | | | |
| | |
Goodwill, land, and certain identifiable intangible assets recorded in the acquisitions are not subject to amortization; however, the goodwill and intangible assets will be tested periodically for impairment. Of the $ million in goodwill recognized, all of which is deductible for tax purposes, $ million was allocated to our cemetery segment and $ million was allocated to our funeral segment. The identified intangible assets are indefinite lived tradenames with a fair value of $14.3 million.
We incurred acquisition costs of $ million, which is included in General and administrative expenses in our Consolidated Statement of Operations for the year ended December 31, 2022. The 2022 California Businesses contributed revenue of $ million and net income of $ million from acquisition through December 31, 2022.
The 2021 acquisitions include twenty-one funeral homes and one cemetery in two states as part of two acquisitions (the "Ohio and California Businesses") for $ million in cash. This amount includes the use of $ million in IRS Section 1031 exchange funds.
The primary reasons for the acquisitions and the principal factors that contributed to the recognition of goodwill in these acquisitions were:
•the acquisitions enhance our network footprint, enabling us to serve a number of new, complementary areas; and
•the acquisitions of the preneed backlog of deferred revenues enhance our long-term stability.
| |
| Cemetery property | | | |
| Property and equipment, net | | | |
| Preneed receivables, net and trust investments | | | |
| Finite-lived intangible assets | | | |
| Indefinite-lived intangible assets | | | |
| Deferred charges and other assets | | | |
| Cemetery perpetual care trust investments | | | |
| Goodwill | | | |
| Total assets acquired | | | |
| | |
| Current liabilities | | | |
| Deferred revenue and deferred receipts held in trust | | | |
| Care trusts' corpus | | | |
| Other liabilities | | | |
| Total liabilities assumed | | | |
| | |
| Net assets acquired | $ | | | |
| | | Goodwill, land, and certain identifiable intangible assets recorded in the acquisitions are not subject to amortization; however, the goodwill and intangible assets will be tested periodically for impairment. Of the $ million in goodwill recognized, all of which is deductible for tax purposes, $ million was allocated to our cemetery segment and $ million was allocated to our funeral segment. The identified intangible assets comprise the following:
| | | | | | | | |
| Useful Life | Fair Value |
| (Years) | (In thousands) |
| Preneed customer relationships to insurance claims | | $ | | |
| Tradenames | Indefinite | | |
| Total intangible assets | | $ | | |
We incurred acquisition costs of $ million, which is included in Corporate general and administrative expenses in our Consolidated Statement of Operations for the year ended December 31, 2021. The Ohio and California Businesses contributed revenue of $ million and net income of $ million from acquisition through December 31, 2021.
Divestiture-Related Activities
As divestitures occur in the normal course of business, gains or losses on the sale of such locations are recognized in the Consolidated Statement of Operations line item Gains on divestitures and impairment charges, net, which consist of the following:
| | $ | | | | $ | | |
| Impairment losses | () | | | () | | | () | |
| Gains on divestitures and impairment charges, net | $ | | | | $ | | | | $ | | |
82 Service Corporation International
Service Corporation International
Schedule II - Valuation and Qualifying Accounts
Three Years Ended December 31, 2023
| | $ | | | | $ | () | | | $ | | | | Year Ended December 31, 2022 | | $ | | | | $ | | | | $ | () | | | $ | | |
| Year Ended December 31, 2021 | | $ | | | | $ | | | | $ | () | | | $ | | |
| | |
| | |
| | |
| | |
| Due After One Year: | | | | | | | | |
| Reserve for credit losses: | | | | | | | | |
| Year Ended December 31, 2023 | | $ | | | | $ | () | | | $ | () | | | $ | | |
| Year Ended December 31, 2022 | | $ | | | | $ | () | | | $ | () | | | $ | | |
| Year Ended December 31, 2021 | | $ | | | | $ | () | | | $ | () | | | $ | | |
| | |
| | |
| | |
| | |
| Preneed Receivables, Net: | | | | | | | | |
| Reserve for credit losses: | | | | | | | | |
| Year Ended December 31, 2023 | | $ | | | $ | | | $ | () | | $ | |
| Year Ended December 31, 2022 | | $ | | | $ | | | $ | () | | $ | |
| Year Ended December 31, 2021 | | $ | | | $ | | | $ | () | | $ | |
| | |
| | |
| | |
| | |
| Deferred Tax Valuation Allowance: | | | | | | | | |
| Year Ended December 31, 2023 | | $ | | | | $ | () | | | $ | | | | $ | | |
| Year Ended December 31, 2022 | | $ | | | | $ | () | | | $ | | | | $ | | |
| Year Ended December 31, 2021 | | $ | | | | $ | | | | $ | | | | $ | | |
| | |
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures that are designed to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer (who are our Chief Executive Officer and Chief Financial Officer, respectively) as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.
In connection with the preparation of this Annual Report on Form 10-K for the year ended December 31, 2023, an evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures as defined in Rules 13a-15(c) and 15d-15(e) were effective as of December 31, 2023 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2023 using the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment and those criteria, management concluded that our internal control over financial reporting was effective as of December 31, 2023.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2023, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included in Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
No changes in our internal control over financial reporting occurred during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
84 Service Corporation International
Item 9B. Other Information
During the three months ended December 31 2023, no director or officer (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Item 10. Directors, Executive Officers, and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accountant Fees and Services
The information required by each of Items 10, 11, 12, 13, and 14, except as included below, is incorporated herein by reference to the Service Corporation International Proxy Statement for our 2024 Annual Meeting of shareholders.
The information regarding our executive officers called for by Item 401 of Regulation S-K and the information regarding our code of ethics called for by Item 406 of Regulation S-K has been included in PART I of this report. The information regarding our equity compensation plan information called for by Item 201(d) of Regulation S-K is set forth below.
Equity Compensation Plan Information at December 31, 2023:
| | | | | | | | | | | | | | | | | | | | |
| Plan Category | | Number of Securities to be Issued upon Exercise of Outstanding Options,
Warrants, and Rights | | Weighted-Average
Exercise Price of
Outstanding Options,
Warrants, and Rights | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) |
| (a) | | (b) | | (c) |
| Equity compensation plans approved by security holders | | 4,906,195 | | | $ | 45.44 | | | 3,470,575 | |
86 Service Corporation International
Item 15. Exhibits and Financial Statement Schedule
(a)(1)-(2) Financial Statements and Schedule:
The financial statements and schedule are listed in the accompanying Index to Financial Statements and Related Schedule on page 38 of this report. (3) Exhibits:
Exhibit Index
Pursuant to Item 601 of Reg. S-K
| | | | | | | | | | | |
| Exhibit Number | | | Description |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | | | | | | | | | | |
| Exhibit Number | | | Description |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
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| | — | |
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| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
88 Service Corporation International
| | | | | | | | | | | |
| Exhibit Number | | | Description |
| | — |
|
| |
| | — | |
| | — | |
| |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| 101 | | — | Interactive data file formatted Inline XBRL. |
| 104 | | — | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
In the above list, the management contracts or compensatory plans or arrangements are set forth in Exhibits 10.1 through 10.34.
Pursuant to Item 601(b)(4) of Regulation S-K, certain instruments on a consolidated basis are not filed as exhibits to this report with respect to long-term debt under which the total amount of securities authorized thereunder does not exceed 10 percent of the total assets of Registrant and its subsidiaries. Registrant agrees to furnish a copy of any such instrument to the Commission upon request.
(b) Included in (a) above.
(c) Included in (a) above.
Item 16. Form 10-K Summary
None.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant, Service Corporation International, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | SERVICE CORPORATION INTERNATIONAL |
| | By: | /s/ LORI SPILDE |
| | (Lori Spilde, Senior Vice President, General Counsel, and Secretary) |
Dated: February 13, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
| | | | | | | | | | | | | | | | | | | | |
| Signature | | Title | | Date |
| /s/ THOMAS L. RYAN | | President, Chief Executive Officer, and Chairman of the Board (Principal Executive Officer) | | February 13, 2024 |
| (Thomas L. Ryan) | | | |
| /s/ ERIC D. TANZBERGER | | Senior Vice President, Chief Financial Officer (Principal Financial Officer) | | February 13, 2024 |
| (Eric D. Tanzberger) | | | |
| /s/ TAMMY R. MOORE | | Vice President and Corporate Controller (Principal Accounting Officer) | | February 13, 2024 |
| (Tammy R. Moore) | | | |
| | |
| | |
| |
| /s/ MARCUS A. WATTS | | Lead Independent Director | | February 13, 2024 |
| (Marcus A. Watts) | | | | |
| /s/ ANTHONY L. COELHO | | Director | | February 13, 2024 |
| (Anthony L. Coelho) | | | | |
| /s/ ALAN R. BUCKWALTER, III | | Director | | February 13, 2024 |
| (Alan R. Buckwalter, III) | | | | |
| /s/ JAKKI L. HAUSSLER | | Director | | February 13, 2024 |
| (Jakki L. Haussler) | | | | |
| /s/ VICTOR L. LUND | | Director | | February 13, 2024 |
| (Victor L. Lund) | | | | |
| | |
| | |
| /s/ ELLEN OCHOA | | Director | | February 13, 2024 |
| (Ellen Ochoa) | | | | |
| /s/ C. PARK SHAPER | | Director | | February 13, 2024 |
| (C. Park Shaper) | | | | |
| /s/ SARA MARTINEZ TUCKER | | Director | | February 13, 2024 |
| (Sara Martinez Tucker) | | | | |
| /s/ W. BLAIR WALTRIP | | Director | | February 13, 2024 |
| (W. Blair Waltrip) | | | | |
| | |
|
| | |
|
|
90 Service Corporation International
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