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Generally, earnings or gains and losses on our trust investments are recognized and we withdraw cash when the underlying merchandise is delivered, service is performed, or upon contract cancellation. Our cemetery perpetual care trusts recognize earnings, and in certain states, capital gains and losses or fixed percentage distributions. We withdraw allowable cash when we incur qualifying cemetery maintenance costs.
If the investments in our trust funds experience significant declines in 2025 or subsequent years or in a high inflation environment, there could be insufficient funds in the trusts to cover the costs of delivering merchandise and services or maintaining our cemeteries in the future. We may be required to cover any such shortfall with cash flows from operations, which could have a material adverse effect on our financial condition, results of operations, and cash flows. For more information related to our trust investments, see Note 3 in Part II, Item 8. Financial Statements and Supplementary Data. If the fair value of these trusts, plus any other amount due to us upon delivery of the associated contracts, were to decline below the estimated costs to deliver the underlying products and services, we would record a charge to earnings to record a liability for the expected losses on the delivery of the associated contracts. As of December 31, 2024, no such charge was required in any reported period.
14 Service Corporation International
We may be required to replenish our affiliated funeral and cemetery trust funds to meet minimum funding requirements, which would have a negative effect on our earnings and cash flow.
In certain states and provinces, we have withdrawn allowable distributable earnings, including unrealized gains, from our trust funds prior to the maturity or cancellation of the related contract. Additionally, some states have laws that either require replenishment of investment losses under certain circumstances or impose various restrictions on withdrawals of future earnings when trust fund values drop below certain prescribed amounts. In the event of market declines that result in a severe decrease in trust fund value, we may be required to replenish amounts in the respective trusts in some future period. As of December 31, 2024, we had unrealized losses of $2.6 million in the various trusts within these states, but no such replenishment is currently expected to be required.
Our ability to execute our strategic plan depends on many factors, some of which are beyond our control.
Our strategic plan is focused on growing our revenue, leveraging our scale, and investing our capital. Many of the factors that impact our ability to execute our strategic plan, such as the number of deaths and general economic conditions, are beyond our control. Changes in operating conditions, such as supply disruptions and labor disputes, could negatively impact our operations. Our inability to leverage scale to drive cost savings, productivity improvements, preneed production, or earnings growth anticipated by management could affect our financial performance. Our inability to identify acquisition targets and to complete acquisitions, divestitures, or strategic alliances as planned or to successfully integrate acquired businesses and realize expected synergies and strategic benefits could impact our financial performance. Our inability to allocate capital to maximize shareholder value could impact our financial performance. We cannot give assurance that we will be able to execute any or all of our strategic plan. Failure to execute any or all of our strategic plan could have a material adverse effect on our financial condition, results of operations, and cash flows.
We may be adversely affected by the effects of inflation.
Inflation has the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure or by reducing the amount of discretionary income consumers have available to spend on our services. The recent existence of higher inflation in the economy has resulted in, and may continue to result in, higher interest rates and capital costs, supply shortages, increased costs of labor, components, manufacturing and shipping, as well as weakening exchange rates and other similar effects. As a result of inflation, we have experienced modest cost increases from certain vendors and suppliers on merchandise and goods and may continue to experience additional cost increases in the future, which could be of greater magnitude than those experienced to date. Although we may take measures to mitigate the effects of inflation, if these measures are not effective, our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost of inflation is incurred.
Our results may be adversely affected by significant weather events, natural disasters, catastrophic events or public health crises.
Three of our largest states by total revenue are California, Texas, and Florida, areas where natural disasters may be prevalent. Significant weather events in these states or other key areas where our operations are concentrated, natural or other disasters, wildfires, and unforeseen public health crises, such as pandemics and epidemics, could disrupt our business through injury or illness to our associates or client families, physical damage, closure or destruction of one or more of our locations, data centers or office facilities, disrupt access to scarce resources such as water supply or disrupt the delivery of goods or services by one or more of our vendors, any or all of which could adversely impact our operations or increase our costs, which would adversely affect our financial results.
Our credit agreements contain covenants that may prevent us from engaging in certain transactions.
Our Bank Credit Facilities contain, among other things, various affirmative and negative covenants that may prevent us from engaging in certain transactions that might otherwise be considered beneficial to us. The covenants limit, among other things, our and our subsidiaries’ ability to:
•Incur additional indebtedness (including guarantee obligations);
•Create liens on assets;
•Engage in certain transactions with affiliates;
•Enter into sale-leaseback transactions;
•Engage in mergers, liquidations, and dissolutions;
•Sell assets;
•Pay dividends, distributions, and other payments in respect of our capital stock;
•Purchase our capital stock in the open market;
•Make investments, loans, or advances;
•Repay indebtedness or amend the agreements relating thereto;
•Create restrictions on our ability to receive distributions from subsidiaries; and
•Change our lines of business.
Our Bank Credit Facilities require us to maintain a leverage ratio. This covenant may require us to take actions to reduce our indebtedness or act in a manner contrary to our strategic plan and business objectives. In addition, events beyond our control, including changes in general economic and business conditions, may affect our ability to satisfy this covenant. A breach of this covenant could result in a default of our indebtedness. If we breach certain affirmative covenants or the negative covenant contained in our Bank Credit Facilities, then, immediately upon notice from the applicable administrative agent, an event of default will have occurred and the lenders could elect to declare all amounts outstanding thereunder, together with accrued interest, immediately due and payable. If we breach any of the other affirmative covenants contained in our Bank Credit Facilities, and such breach continues unremedied for 30 days after receipt of notice thereof, then an event of default will have occurred and the lenders party thereto could elect to declare all amounts outstanding thereunder, together with accrued interest, immediately due and payable. Any such declaration would also result in an event of default under our Senior Indenture governing our various senior notes. For additional information, see Financial Condition, Liquidity and Capital Resources in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 6 in Part II, Item 8. Financial Statements and Supplementary Data. If we lost the ability to use surety bonding to support our preneed activities, we may be required to make material cash payments to fund certain trust funds.
We have entered into arrangements with certain surety companies whereby such companies agree to issue surety bonds on our behalf as financial assurance or as required by existing state and local regulations. The surety bonds are used for various business purposes; however, the majority of the surety bonds issued and outstanding have been issued to support our preneed funeral and cemetery activities. In the event all of the surety companies canceled or did not renew our surety bonds, which generally have twelve-month renewal periods, we would be required to either obtain replacement coverage or fund approximately $277.4 million into state-mandated trust accounts as of December 31, 2024. There can be no assurance that we would be able to obtain replacement coverage at a similar cost or at all.
The financial condition of third-party insurance companies that fund our preneed contracts may impact our future revenue.
Where permitted by state law, customers may arrange their preneed contract by purchasing a life insurance or annuity policy from third-party insurance companies. The customer/policy holder assigns the policy benefits to us as payment for their preneed contract at the time of need. If the financial condition of the third-party insurance companies were to deteriorate materially because of market conditions, strategic transactions, or otherwise, there could be an adverse effect on our ability to collect all or part of the proceeds of the life insurance policy, if we fulfill the preneed contract at the time of need. Failure to collect such proceeds could have a material adverse effect on our financial condition, results of operations, and cash flows.
Unfavorable publicity could affect our reputation and business.
Since our operations relate to life events involving emotional stress for our client families, our business is dependent on customer trust and confidence. Unfavorable publicity about our business generally or in relation to any specific location could affect our reputation and customers’ trust and confidence in our products and services, thereby having an adverse impact upon our sales and financial results.
Our failure to attract and retain qualified sales personnel and licensed funeral professionals could have an adverse effect on our business and financial condition.
Our ability to attract and retain a qualified sales force, licensed funeral professionals and other personnel is an important factor in achieving future success. Buying cemetery and funeral home products and services, especially at-need products and services, is very emotional for most customers, so our sales force and licensed funeral professionals must be particularly sensitive to our customers’ needs. We cannot give assurance that we will be successful in our efforts to attract and retain a skilled sales force and licensed funeral professionals. Furthermore, the stringent licensing standards required for funeral professionals under various state regulations create a significant barrier to entry and make it especially challenging to find enough qualified talent. If we are unable to maintain a qualified and productive sales force and team of licensed funeral professionals, our revenues may decline and our cash available for distribution may decrease.
We use a combination of insurance, self-insurance, and large deductibles in managing our exposure to certain inherent risks; therefore, we could be exposed to unexpected costs that could negatively affect our financial performance.
Our insurance coverage is subject to deductibles, self-insured retentions, limits of liability, and similar provisions that we believe are prudent based on our operations. Because we self-insure a significant portion of expected losses under our workers' compensation, auto, and general and professional liability insurance programs, unanticipated changes in any applicable actuarial assumptions, trends and interpretations, or management estimates underlying our recorded liabilities for these losses, including potential increases in costs, could result in materially different amounts of expense than expected under these programs. These unanticipated changes could have a material adverse effect on our financial condition, results of operations, and cash flows.
16 Service Corporation International
Declines in overall economic conditions beyond our control could reduce future potential earnings and cash flows and could result in future impairments to goodwill and/or other intangible assets.
In addition to an annual review, we assess the impairment of goodwill and/or other intangible assets whenever events or changes in circumstances indicate that the carrying value may be greater than fair value. Factors that could trigger an interim impairment review include, but are not limited to, a significant decline in our stock price, significant underperformance relative to historical or projected future operating results, and significant negative industry or economic trends. If any of these factors occur, we may have a triggering event, which could result in an impairment of our goodwill and/or other intangible assets. If economic conditions worsen causing deterioration in our operating revenue, operating margins, and cash flows, we may have a triggering event that could result in an impairment of our goodwill and/or other intangible assets. Our cemetery segment, which has a goodwill balance of $396.0 million as of December 31, 2024, is more sensitive to market conditions and goodwill impairments because it is more reliant on preneed sales, which are impacted by customer discretionary spending. For additional information, see Critical Accounting Policies, Recent Accounting Pronouncements, and Accounting Changes in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Any failure to protect personal information relating to our customers, their loved ones, our associates, and our vendors could damage our reputation, could cause us to incur substantial additional costs and to become subject to litigation, and could adversely affect our operating results, financial condition, or cash flow.
In the ordinary course of our business, we and our vendors receive and retain personal information about our customers, their loved ones, our associates, and our vendors, in both physical and electronic formats, with the expectation that we will adequately protect that information. In addition, our online website operations depend upon the secure transmission of confidential information over public networks, including information permitting electronic payments. New laws and regulations governing data privacy, security, cybersecurity, and information security, including legislation in several U.S. states and Canadian provinces, pose increasingly complex compliance challenges and potentially elevate our costs. Any failure by us to comply with these laws and regulations, including as a result of a security or privacy breach, could result in significant penalties and liabilities. A significant theft, loss, or fraudulent use of the personally identifiable information we maintain or failure of our vendors to use or maintain such data in accordance with contractual provisions could result in significant costs, fines, litigation, and reputational damage. Additionally, if we acquire a company that is not in compliance with applicable data protection laws, we may incur significant liabilities and penalties.
We maintain substantial security measures and data backup systems to protect, store, and prevent unauthorized access to such information. Nevertheless, it is possible that increasingly sophisticated cyberattacks might defeat our security measures in the future and obtain the personal information of customers, their loved ones, our associates, and our vendors that we hold. The rapid advancement and widespread adoption of artificial intelligence technologies, combined with emerging innovations and the increasing frequency and sophistication of cyberattacks, could substantially elevate cybersecurity risks for us and our vendors, associates, contractors or third parties with whom we do business. Further, our associates, contractors, or third parties with whom we do business may attempt to circumvent our security measures to misappropriate such information and may purposefully or inadvertently cause a breach, corruption, or data loss involving such information. A breach of our security measures or failure in our backup systems could adversely affect our reputation with our customers and their loved ones, our associates, and our vendors; as well as our operations, results of operations, financial condition, and cash flows; and could result in litigation or penalties.
Our Canadian business exposes us to operational, economic, and currency risks.
Our Canadian operations represent approximately 5% of our revenue. Our ability to successfully conduct operations in Canada is affected by many of the same risks we face in our U.S. operations, as well as unique costs and difficulties of managing Canadian operations. Our Canadian operations may be adversely affected by local laws, customs, and regulations, as well as political and economic conditions. Significant fluctuations in exchange rates between the U.S. dollar and the Canadian dollar may adversely affect our results of operations and cash flows.
Our level of indebtedness could adversely affect our cash flows, our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, and may prevent us from fulfilling our obligations under our indebtedness.
We have a significant amount of indebtedness, which could have important consequences, including the following:
•It may limit our ability to obtain additional debt or equity financing for working capital, capital expenditures, acquisitions, debt service requirements, and general corporate or other purposes.
•A portion of our cash flows from operations will be dedicated to the payment of principal and interest on our indebtedness, including indebtedness we may incur in the future, and may not be available for other purposes, including to finance our working capital, capital expenditures, acquisitions, and general corporate costs or other purposes.
•It could limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate and place us at a competitive disadvantage compared to our competitors that have less debt.
•It could make us more vulnerable to downturns in general economic or industry conditions or in our business, or prevent us from carrying out activities that are important to our growth.
•It could increase our interest expense if interest rates in general increase because a portion of our indebtedness, including all of our indebtedness under our Bank Credit Facilities, bears interest at floating rates.
•It could make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including any financial and other restrictive covenants, could result in an event of default under the agreements governing our other indebtedness which, if not cured or waived, could result in the acceleration of our indebtedness.
Any of the above listed factors could materially affect our business, financial condition, results of operations, and cash flows.
In addition to our high level of indebtedness, we also have significant rental and other obligations under our operating and finance leases for funeral service locations, cemetery operating and maintenance equipment, and transportation equipment. These obligations could further increase the risks described above.
A failure of a key information technology system or process could disrupt and adversely affect our business.
We rely extensively on information technology systems, some of which are managed or provided by third-party service providers, to analyze, process, store, manage, and protect transactions and data. In managing our business, we also rely heavily on the integrity of, security of, and consistent access to this data for information such as sales, merchandise ordering, inventory replenishment, and order fulfillment. For these information technology systems and processes to operate effectively, we or our service providers must periodically maintain and update them. Our systems and the third-party systems on which we rely are subject to damage or interruption from a number of causes, including power outages; computer and telecommunications failures; computer viruses; security breaches; cyber-attacks, including the use of ransomware; catastrophic events such as fires, floods, earthquakes, tornadoes, or hurricanes; acts of war or terrorism; and design or usage errors by our associates, contractors, or third-party service providers. Although we and our third-party service providers seek to maintain our respective systems effectively and to successfully address the risk of compromise of the integrity, security, and consistent operations of these systems, such efforts may not be successful. As a result, we or our service providers could experience errors, interruptions, delays, or cessations of service in key portions of our information technology infrastructure, which could significantly disrupt our operations and be costly, time consuming, and resource-intensive to remedy.
Risks Related to Our Industry
The funeral and cemetery industry is competitive.
In North America, the funeral and cemetery industry is characterized by a large number of locally-owned, independent operations. To compete successfully, our funeral service locations and cemeteries must maintain good reputations and high professional standards, as well as offer attractive products and services at competitive prices. In addition, we must market ourselves in such a manner as to distinguish us from our competitors. We have historically experienced price competition from independent funeral service location and cemetery operators, monument dealers, casket retailers, low-cost funeral providers, and other nontraditional providers of merchandise and services. If we are unable to successfully compete, our financial condition, results of operations, and cash flows could be materially adversely affected.
If the number of deaths in our markets declines, our cash flows and revenue may decrease. Changes in the number of deaths are not predictable from market to market or over the short term.
If the number of deaths in our markets declines, the number of funeral services and interments performed by us could decrease and our financial condition, results of operations, and cash flows could be materially adversely affected. Changes in the number of deaths may vary from quarter to quarter and across local markets, and those variations are not predictable. Variations in the death rate and seasonality of deaths throughout each year may also cause revenue to fluctuate between quarters or years.
If we are not able to respond effectively to changing consumer preferences, our market share, revenue, and/or profitability could decrease.
Future market share, revenue, and profit will depend in part on our ability to anticipate, identify, and respond to changing consumer preferences. We may not correctly anticipate or identify trends in consumer preferences, or we may identify them later than our competitors do. In addition, any strategies we may implement to address these trends may prove incorrect or ineffective.
The continuing upward trend in life expectancy and the number of cremations performed in North America could result in lower revenue, operating profit, and cash flows.
Generally, life expectancy in North America has increased steadily and is expected to continue to do so in the future, absent events related to pandemics or similar outbreaks. Additionally, there is a continuing upward trend in the number of cremations performed in North America as an alternative to traditional funeral service dispositions. In our operations during 2024, 63.8% of the comparable services we performed were cremation cases compared to 63.1% and 61.3% performed in 2023 and 2022, respectively. Our average revenue for cremations is lower than that for traditional burials. If we are unable to continue to expand our cremation memorialization products and services, and cremations increase as a significant percentage of our services, our financial condition, results of operations, and cash flows could be materially adversely affected.
18 Service Corporation International
Our funeral and cemetery businesses are high fixed-cost businesses.
The majority of our operations are managed in groups we call “markets”. Markets are geographical groups of funeral service locations and cemeteries that share common resources such as operating personnel, preparation services, clerical staff, motor vehicles, and preneed sales personnel. We must incur many of these costs, which may be impacted by many factors, including inflation, regardless of the number of services or interments performed. Because we cannot immediately decrease these costs when we experience lower sales volumes, a sales decline may cause our margin percentages to decline at a greater rate than the decline in revenue.
Risks associated with our supply chain could materially adversely affect our financial performance.
We are dependent on our supply chain to supply merchandise to our funeral home and cemetery locations. If our fulfillment network does not operate properly, if a supplier fails to deliver on its commitments, or if delivery networks have difficulty providing capacity to meet demands for their services, we could experience merchandise delivery delays or increased delivery costs, which could lead to lost sales and decreased customer confidence, and adversely affect our results of operations. Changes in the costs of procuring commodities used in our merchandise or the costs related to our supply chain,due to inflation, natural disasters, pandemics, changes to trade policy or other matters, could adversely affect our results of operations. We cannot predict how changes to trade policy may affect trade agreements or tariffs, nor can we predict the effects that any such changes would have on our supply chain.
Regulatory and Legal Risks
Regulation and compliance could have a material adverse impact on our financial results.
Our operations are subject to regulation, supervision, and licensing requirements under numerous foreign, federal, state, and local laws, ordinances, and regulations, including extensive regulations concerning trust funds, preneed sales of funeral and cemetery merchandise and services, and various other aspects of our business. The funeral industry is regulated at the federal level by the FTC, which has been under review by the FTC since 2020. We are also subject to financial and compliance audits of preneed sales practices and state trust funds. Our facilities are also subject to stringent health, safety, and environmental regulations. In particular, cremation and embalming facilities are subject to stringent health and environmental regulations and there are associated risks of investigations from regulatory authorities or incidental non-compliance with such regulations. Our pay practices, including wage and hour overtime pay, are subject to federal and state regulations. Violations of applicable laws could result in fines or sanctions against us.
In addition, from time to time, amended, added or reinterpreted regulations could increase costs and decrease cash flows. For example, foreign, federal, state, local, and other regulatory agencies have considered and may enact additional legislation or regulations that could affect the deathcare industry. These include regulations that require more liberal refund and cancellation policies for preneed sales of products and services, limit or eliminate our ability to use surety bonding, require the escheatment of trust funds, increase trust requirements, require the deposit of funds or collateral to offset unrealized losses of trusts, and/or prohibit the common ownership of funeral service locations and cemeteries in the same market. Similarly, more stringent permitting or other environmental regulations, if adopted, could increase our costs. If adopted by the regulatory authorities of the jurisdictions in which we operate, these and other possible proposals could have a material adverse effect on our financial condition, results of operations, and cash flows.
Compliance with laws, regulations, industry standards, and customs concerning burial procedures and the handling and care of human remains is critical to the continued success of our business and any operations we may acquire. Litigation and regulatory proceedings regarding these issues could have a material adverse effect on our financial condition, results of operations, and cash flows.
Unfavorable results of litigation could have a material adverse impact on our financial statements.
As discussed in Note 9 of Part II, Item 8. Financial Statements and Supplementary Data, we are subject to a variety of claims and lawsuits in the ordinary course of our business. Adverse outcomes in some or all of the pending cases may result in significant monetary damages or injunctive relief against us, as litigation and other claims are subject to inherent uncertainties. Any such adverse outcomes, in pending cases or other lawsuits that may arise in the future, could have a material adverse impact on our financial position, results of operations, and cash flows.
Cemetery burial practice claims could have a material adverse impact on our financial results.
Most of our cemeteries have been operating for decades and, therefore, may have used practices and procedures that are outdated in comparison to today's standards. When cemetery disputes occur, we may be subjected to litigation and liability for improper burial practices, including (1) burial practices of a different era that are judged today in hindsight as being outdated and (2) alleged violations of our practices and procedures by one or more of our associates. In addition, since most of our cemeteries were acquired through various acquisitions, we may be subject to litigation and liability based upon actions or events that occurred before we acquired or managed the cemeteries. Claims or litigation based upon our cemetery burial practices could have a material adverse impact on our financial condition, results of operations, and cash flows.
The application of unclaimed property laws by certain states to our preneed funeral and cemetery backlog could have a material adverse impact on our liquidity, cash flows, and financial results.
In the ordinary course, our businesses have sold preneed funeral and cemetery contracts for decades. To the extent these contracts will not be funded with the assignment of the proceeds of life insurance policies, depending on applicable state laws, we could be responsible for escheatment of the portion of the funds paid that relate to contracts which we are unlikely to fulfill. For additional information, see Unclaimed Property Audit in Note 9 in Part II, Item 8. Financial Statements and Supplementary Data of this Form 10-K. The application of unclaimed property laws could have a material adverse effect on our liquidity, cash flows, and financial results. Changes in taxation, or the interpretation of tax laws or regulations, as well as the inherent difficulty in quantifying potential tax effects of business decisions could have a material adverse effect on the results of our operations, financial condition, or cash flows.
We make judgments regarding the utilization of existing income tax credits and the potential tax effects of various financial transactions and results of operations to estimate our obligations to taxing authorities. We are also subject to regular reviews, examinations, and audits by taxing authorities with respect to our taxes. Our tax obligations include income, franchise, real estate, sales and use, and employment-related taxes and the judgments we make include reserves for potential adverse outcomes regarding tax positions that have been taken. Changes in federal, state, or local tax laws, adverse tax audit results, or adverse tax rulings on positions taken could have a material adverse effect on the results of our operations, financial condition, or cash flows.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Risk Management and Strategy
We recognize the necessity of a flexible and dynamic cybersecurity risk management strategy to defend against threats in a fast-changing digital world. For this purpose, we have invested in building a cybersecurity infrastructure to protect our information systems and secure our data from cyberattacks. Our information security program features risk management strategies, security awareness training, security operations, incident response, security governance, third-party risk management, IT security risk management, security architecture, and vulnerability management.
Managing Material Risks & Integrated Overall Risk Management
Cybersecurity risk management is integrated into our broader enterprise risk management system, and cybersecurity risk is strategically reviewed, monitored and managed alongside other enterprise risks on a regular basis. Our information security program is designed to evaluate, identify, and manage risks from cybersecurity threats and vulnerabilities, including malware, phishing, hacking, social engineering, data breaches, and emerging risks associated with artificial intelligence. Our program is regularly assessed using the NIST Cybersecurity Framework, and mandatory information security training is provided to our employees. Our information security team is empowered to assess and address cybersecurity risks in close collaboration with the operational teams. This forward-thinking strategy ensures that cybersecurity risk management awareness informs each stage of the business decision-making process.
Engage External Experts on Risk Management
To effectively target emerging cybersecurity threats, our information security program engages with a diverse group of third-party external experts, including cybersecurity assessors, consultants, and auditors for cybersecurity risk management. Our partnerships with these third party professionals feature regular audits, assessments, and simulated testing.
Oversee Third-Party Risk
Risk assessments are conducted when we onboard new services and new vendors, including third-party vendors, applications, and other technology services, when there are significant changes to IT or security architecture, and when systems handle sensitive data. Third-party risks are documented as part of a risk management process that follows an industry standard framework with a goal of remediation or mitigation.
20 Service Corporation International
Cybersecurity Threat Risks
We have not experienced a cybersecurity incident or data breach that has had a material impact on our operations or financial standing.
Governance
The Board of Directors recognizes that an encompassing, effective cybersecurity risk management strategy is essential to sustaining business operations and investor confidence. Our management assumes executive responsibility for assessing, identifying, and managing cybersecurity risks and incidents.
Board of Directors Oversight
Certain members of the Board of Directors have experience conducting oversight of cybersecurity risk management across different industries, including technology and finance. The Audit Committee is the primary committee responsible for overseeing the company’s cybersecurity risks with the Board receiving updates on at least an annual basis.
Management’s Role in Managing Cybersecurity Risk
The Assistant Vice President, Information Technology Security, who also functions as the company's data protection officer, reports to the Vice President of Information Technology and is responsible for briefing the Audit Committee on information security risks. The AVP, IT Security provides comprehensive briefings to the Audit Committee on a quarterly basis. These briefings highlight various cybersecurity topics, including new cybersecurity threats, incidents, risks, risk management solutions, strategy pivots, or proposed governance changes.
Risk Management Expertise
With over 23 years of experience working on information technology and cybersecurity teams, the AVP, IT Security is the lead architect of the company’s security infrastructure. In his role, the AVP, IT Security has built and developed effective and lasting information security solutions, establishing a robust framework of technical, administrative and physical controls while providing stakeholders such as executive management, operations leadership and legal counsel clear and constant visibility into rapidly evolving business threats. The AVP, IT Security is responsible for detecting known and potential cybersecurity incidents, leading cybersecurity incident investigations, and ensuring that cybersecurity incidents are reported timely, promptly escalated and resolved in accordance with the Company cybersecurity incident response plan. The AVP, IT Security is a Certified Information Security Manager and his cybersecurity expertise is a valuable resource for Company executive leadership and the Board.
Monitoring Cybersecurity Incidents
The AVP, IT Security manages the information security program responsible for the regular monitoring of our information systems for cybersecurity risks. The monitoring process is led by an experienced team of information security professionals. Advanced security software preemptively detects threats and regular system scans are conducted to identify potential vulnerabilities. The AVP, IT Security regularly receives updates about potential cybersecurity threats and remains informed about the latest threat detection software technologies and new risk management solutions. In the event of a cybersecurity incident, the AVP, IT Security is supported by the cyber security incident response team and the crisis response team. The cyber security incident response plan guides the AVP, IT Security and includes immediate actions to escalate an incident based on its seriousness, to mitigate the impact, and to enact long-term strategies for remediation and prevention of future incidents.
Reporting Cybersecurity Risk
The AVP, IT Security is responsible for informing executive management of cybersecurity risks and incidents. The AVP, IT Security presents quarterly briefings to the Cyber Security and Data Governance Executive Steering Committee on all issues related to cybersecurity risks and incidents. The Cyber Security and Data Governance Executive Steering Committee includes members from the senior leadership team, such as the Chief Operating Officer, the Senior Vice President of Operations Services and the General Counsel. Our highest levels of management are actively aware and involved in shaping the company’s cybersecurity position and analyzing potential risks. Any cybersecurity incident or data breach that is determined to be material will be reported to the Audit Committee and the Board of Directors.
Item 2. Properties
Information regarding properties is set forth in Part I, Item 1. Business.
Item 3. Legal Proceedings
Information regarding legal proceedings is set forth in Note 9 of Part II, Item 8. Financial Statements and Supplementary Data.
Item 4. Mine Safety Disclosures
Not applicable.
22 Service Corporation International
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Our common stock has been traded on the New York Stock Exchange since May 14, 1974. On December 31, 2024, there were 2,939 holders of record of our common stock. In calculating the number of stockholders, we consider clearing agencies and security position listings as one stockholder for each agency or listing. At December 31, 2024, we had 144,694,887 shares outstanding, net of 1,973,702 treasury shares.
Our common stock is traded on the New York Stock Exchange under the symbol SCI.
The following graph assumes the total return on $100 invested on December 31, 2019, in SCI Common Stock, the S&P 500 Index, the S&P MidCap 400 Index, and a peer group selected by the Company (the “Peer Group”). The Peer Group comprises Carriage Services, Inc. and Matthews International Corp. Total return data assumes reinvestment of dividends.
For equity compensation plan information, see Part III of this Form 10-K.
The following table summarizes our share repurchases during the three months ended December 31, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of
Shares Purchased | | Average Price
Paid per Share | | Total Number
of Shares
Purchased as
Part of Publicly
Announced Programs | | Approximate Dollar Value of
Shares That
May Yet be
Purchased Under the Program |
October 1, 2024 — October 31, 2024 (1) | | 351,558 | | | $ | 75.72 | | | 337,273 | | | $ | 305,436,818 | |
November 1, 2024 — November 30, 2024 (2) | | 54,657 | | | $ | 85.71 | | | 54,341 | | | 300,779,114 | |
| December 1, 2024 — December 31, 2024 | | 244,171 | | | $ | 82.76 | | | 244,171 | | | 280,570,967 | |
| | 650,386 | | | | | 635,785 | | | |
(1) Includes 14,285 shares purchased in October 2024 in connection with the surrender of shares by associates to satisfy certain tax withholding obligations under compensation plans.
(2) Includes 316 shares purchased in November 2024 in connection with the surrender of shares by associates to satisfy certain tax withholding obligations under compensation plans.
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Company
We are North America’s largest provider of deathcare products and services, with a network of funeral service locations and cemeteries unequaled in geographic scale and reach. At December 31, 2024, we operated 1,493 funeral service locations and 496 cemeteries (including 308 funeral service/cemetery combination locations), which are geographically diversified across 44 states, eight Canadian provinces, the District of Columbia, and Puerto Rico. Our funeral 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. Our Dignity Memorial® brand serves approximately 700,000 families each year with professionalism, compassion, and attention to detail.
Our financial position is enhanced by our $16.0 billion backlog of future revenue from both trust and insurance-funded preneed sales at December 31, 2024. Preneed selling provides us with a strategic opportunity to gain future market share. We also believe it adds to the stability and predictability of our revenue and cash flows. While revenue on the majority of preneed merchandise and service sales is deferred until the time of need, sales of preneed cemetery property provide opportunities for full current revenue recognition to the extent that the property is developed and available for use.
We have adequate liquidity and a favorable debt maturity profile, which allow us to reinvest and grow our business as well as return capital to shareholders through share repurchases and dividends.
Factors affecting our operating results include: demographic trends in terms of population growth and average age, which impact death rates and number of deaths; establishing and maintaining leading market share positions supported by strong local heritage and relationships; effectively responding to increasing cremation trends by selling complementary services and merchandise; controlling salary and merchandise costs; and exercising pricing leverage related to our atneed revenue. The average revenue per funeral contract is influenced by the mix of traditional and cremation services as our average revenue for cremations is lower than that for traditional burials. To further enhance revenue opportunities, we continue to focus on our cremation customers' preferences and remaining relevant by developing additional memorialization merchandise and services that specifically appeal to cremation customers. We believe the presentation of these additional merchandise and services through our customer-facing technology improves our customers' experience by reducing administrative burdens and allowing them to visualize the enhanced product and service offerings, which we believe will help drive increases in the average revenue for a cremation in future periods.
For further discussion of our key operating metrics, see our "Cash Flow" and “Results of Operations” sections below. For a discussion of our results of operations and liquidity and capital resources for the fiscal year ended December 31, 2023, see Management’s Discussion and Analysis of Financial Condition, Liquidity and Capital Resources and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year December 31, 2023, filed with the Securities and Exchange Commission on February 13, 2024. 24 Service Corporation International
Financial Condition, Liquidity, and Capital Resources
Capital Allocation Considerations
We rely on cash flow from operations as a significant source of liquidity. Our cash flow from operating activities provided $944.9 million in 2024. In addition, as of December 31, 2024, we have $1,341.0 million in borrowing capacity under our revolving credit facility. As of December 31, 2024, we had $83.9 million in current maturities of long-term debt, which primarily consist of the current amounts due on our term loan, mortgage notes and other debt, and finance leases.
Our Bank Credit Facility requires us to maintain a certain leverage ratio with which we were in compliance at December 31, 2024. We target a leverage ratio of 3.5x to 4.0x.
Our financial covenant requirements and actual ratio as of December 31, 2024 are as follows:
| | | | | | | | | | | |
| | Per Credit Agreement | | Actual |
| Leverage ratio | 5.00 (Max) | | 3.65 | |
We have the financial strength and flexibility to reward shareholders with dividends while maintaining a prudent capital structure and pursuing new opportunities for profitable growth.
Our unencumbered cash on hand, future operating cash flows, and the available capacity under our Bank Credit Facilities will give us adequate liquidity to meet our short-term needs as well as our long-term financial obligations. Due to cash balances residing in Canada and minimum operating cash requirements, a portion of our cash on hand is encumbered.
We consistently evaluate the best uses of our cash flow that will yield the highest value and return on capital. Our capital investment strategy is prioritized as follows:
Investing in Acquisitions and Building New Funeral Service and Cemetery Locations. We manage our footprint by focusing on strategic acquisitions and building new funeral service locations where the expected returns are attractive and exceed our weighted average cost of capital by a meaningful margin. We target businesses with favorable customer dynamics and/or where we can achieve the benefits of economies of scale. We continue to pursue strategic acquisitions and build new funeral service locations in areas that provide us with the potential for additional scale. In 2024, we invested $181.2 million in acquiring 26 funeral service locations and 6 cemeteries, which included 3 combination locations.
Return Excess Cash to Shareholders. In addition to any strategic acquisition or new build opportunities, we continue to return cash to shareholders through dividends and our share repurchase program. Our quarterly dividend rate has steadily grown from $0.025 per common share in 2005 to $0.30 per common share at the end of 2024. We target a dividend payout ratio of 30% to 40% of after tax earnings excluding special items and intend to grow our cash dividend commensurate with the growth in our business. While we intend to pay regular quarterly cash dividends for the foreseeable future, all future dividends are subject to limitations in our debt covenants and final determination by our Board of Directors each quarter upon review of our financial performance. We also expect to continue to repurchase shares of our common stock in the open market or through privately negotiated transactions, subject to market conditions, debt covenants, and normal trading restrictions. There can be no assurance that we will buy our common stock under our repurchase program in the future. In 2024, we repurchased 3,439,551 shares of our common stock at an aggregate cost of $249.8 million, which is an average cost per share of $72.63. 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 $63.17. Subsequent to December 31, 2024, we repurchased 467,208 shares for $36.3 million at an average cost per share of $77.74.
Managing Debt. We continue to focus on maintaining optimal levels of liquidity and financial flexibility. We generate a relatively consistent annual cash flow stream that is generally resistant to down economic cycles. This cash flow stream and our significant liquidity allow us to opportunistically manage our debt maturity profile as we maintain a target leverage ratio of 3.5x to 4.0x.
Cash Flow
Our ability to generate strong operating cash flow is one of our fundamental financial strengths and provides us with substantial flexibility in meeting operating and investing needs.
Operating Activities
Net cash provided by operating activities was $944.9 million and $869.0 million for the years ended December 31, 2024, and 2023, respectively.
The $75.9 million increase in operating cash flow during 2024 comprises:
•a $66.4 million increase in General Agency (GA) commission and other receipts,
•a $62.9 million decrease in cash tax payments, and
•a $54.6 million increase in cash receipts from customers, partially offset by
•a $35.4 million increase in net trust deposits,
•a $30.0 million increase in employee compensation payments,
•a $16.2 million increase in payments for certain legal matters,
•a $13.0 million increase in vendor and other payments,
•a $11.1 million increase in cash interest payments, and
•a $2.3 million increase in restructuring payments.
Investing Activities
Cash flows from investing activities used $620.9 million and $469.4 million, in 2024, and 2023, respectively. The $151.5 million increased outflow from 2024 over 2023 is primarily due to the following:
•a $108.7 million increase in cash spent on business acquisitions,
•a $27.3 million increase in total capital expenditures, which comprises:
•a $23.4 million increase in maintenance capital expenditures, consisting of:
•a $20.2 million increase in expenditures for capital improvements at existing field locations,
•a $11.8 million increase in expenditures for cemetery property development,
•a $8.6 million decrease in expenditures for digital investments and corporate,
•a $3.9 million increase for growth capital expenditures/construction of new funeral service locations
•a $7.3 million increase in other investing activities primarily for investments in renewable energy tax credits,
•a $5.7 million increase in cash spent on real estate acquisitions,
•a $1.4 million decrease in cash receipts from divestitures and asset sales, and
•a $1.1 million decrease in proceeds for Company-owned life insurance policies, net of repayments.
Financing Activities
Financing activities used $319.6 million in 2024 compared to $381.1 million in 2023. The $61.5 million decreased outflow from 2024 over 2023 is primarily due to the following:
•a $291.1 million decrease in the purchase of Company common stock, and
•a $32.5 million increase in proceeds from exercises of stock options, partially offset by
•a $253.3 million increase in debt repayments, net of proceeds,
•a $6.3 million increase in payments of dividends, and
•a $2.5 million change in bank overdrafts and other.
Material Cash Requirements
Our material cash requirements include the following contractual and other obligations.
Debt & Finance Leases
As of December 31, 2024, we had $4.8 billion in aggregate principal outstanding on our notes, term loan, revolving credit facility, finance leases, mortgage notes, and other debt (collectively "debt and finance leases"), of which $83.9 million is payable in the next twelve months. The aggregate principal excludes $44.0 million in unamortized non-cash debt issuance costs and original issuance discounts and premiums. Future interest payments associated with the debt and finance leases
26 Service Corporation International
total $1.2 billion, of which $239.2 million is payable in the next twelve months. For further information on our debt and finance leases see Note 6 and Note 8 of Part II, Item 8. Financial Statements and Supplementary Data. Operating Leases
We have operating lease agreements for funeral service real estate and office equipment for funeral service locations, cemetery locations, and administrative offices. As of December 31, 2024, we had fixed lease payment obligations of $69.0 million, of which $10.1 million is due in the next twelve months. See Note 8 in Part II, Item 8. Financial Statements and Supplementary Data for additional details related to our leases. Financial Assurances
In support of our operations, we have entered into arrangements with certain surety companies whereby such companies agree to issue surety bonds on our behalf as financial assurance and/or as required by existing state and local regulations. The surety bonds are used for various business purposes; however, the majority of the surety bonds issued and outstanding have been used to support our preneed sales activities. The obligations underlying these surety bonds are recorded on our Consolidated Balance Sheet as Deferred revenue, net. The breakdown of surety bonds between funeral and cemetery preneed arrangements, as well as surety bonds for other activities, is described below.
| | | | | | | | | | | |
| Years Ended December 31, |
| 2024 | | 2023 |
| | (In millions) |
| Preneed funeral | $ | 226.8 | | | $ | 67.8 | |
| Preneed cemetery: | | | |
| Merchandise and services | 135.6 | | | 141.3 | |
| Pre-construction | 56.4 | | | 54.6 | |
| Bonds supporting preneed funeral and cemetery obligations | 418.8 | | | 263.7 | |
| Bonds supporting preneed business permits | 8.1 | | | 7.6 | |
| Other bonds | 27.5 | | | 25.4 | |
| Total surety bonds outstanding | $ | 454.4 | | | $ | 296.7 | |
When selling preneed contracts, we may post surety bonds where allowed by state law. We post the surety bonds in lieu of trusting a certain amount of funds received from the customer. The amount of the bond posted is generally determined by the total amount of the preneed contract that would otherwise be required to be trusted, in accordance with applicable state law.
Surety bond premiums are paid annually and the bonds are automatically renewable until maturity of the underlying preneed contracts, unless we are given prior notice of cancellation.
Except for cemetery pre-construction bonds (which are irrevocable), the surety companies generally have the right to cancel the surety bonds at any time with appropriate notice. In the event a surety company were to cancel the surety bond, we are required to obtain replacement surety assurance from another surety company or fund a trust for an amount generally less than the posted bond amount. Management does not expect that we will be required to fund material future amounts related to these surety bonds due to a lack of surety capacity or surety company non-performance.
As of December 31, 2024, we had an increase of $161.7 million in surety bonds supporting preneed funeral obligations related to certain legal matters discussed in Note 9 in Part II, Item 8. Financial Statements and Supplementary Data. Preneed Activities and Backlog of Contracts
In addition to selling our products and services to client families at the time of need, we enter into price-guaranteed preneed contracts, which provide for future funeral or cemetery merchandise and services. Because preneed funeral and cemetery merchandise or services will generally not be provided until sometime in the future, most states and provinces require that all or a portion of the funds collected from customers on preneed contracts be deposited into merchandise and service trusts until the merchandise is delivered or the service is performed. In certain situations, as described above, where permitted by state or provincial laws, we may post a surety bond as financial assurance for a certain amount of the preneed contract in lieu of placing funds into trust accounts. Alternatively, we may sell a life insurance or annuity policy from third-party insurance companies.
Insurance-Funded Preneed Contracts
Where permitted by state or provincial law, we may sell a life insurance or annuity policy from third-party insurance companies, for which we earn a commission as general sales agent for the insurance company. These general agency commissions (GA revenue) are based on a percentage per contract sold and are recognized as funeral revenue when the insurance purchase transaction between the preneed purchaser and third-party insurance provider is completed. All selling costs incurred pursuant to the sale of insurance-funded preneed contracts are expensed as incurred. We do not reflect the
unfulfilled insurance-funded preneed contract amounts in our Consolidated Balance Sheet. The proceeds of the life insurance policies or annuity contracts will be reflected in funeral revenue as we perform these funerals.
The table below details our results of insurance-funded preneed production and maturities.
| | | | | | | | | | | |
| Years Ended December 31, |
| 2024 | | 2023 |
| (Dollars in millions) |
| Preneed insurance-funded: | | | |
Sales production(1) | $ | 725.0 | | | $ | 704.8 | |
Sales production (number of contracts) (1) | 120,434 | | | 113,095 | |
| General agency revenue | $ | | | | $ | | |
| Maturities | $ | 408.0 | | | $ | 394.5 | |
| Maturities (number of contracts) | 65,202 | | | 63,839 | |
(1) Amounts are not included in our Consolidated Balance Sheet.
Trust-Funded Preneed Contracts
The funds collected from customers and required by state or provincial law are deposited into trusts. We retain any funds above the amounts required to be deposited into trust accounts and use them for working capital purposes, generally to offset the selling and administrative costs of our preneed programs. Although this represents cash flow to us, the associated revenues are deferred until the merchandise is delivered or services are performed (typically at maturity). The funds in trust are then invested by professional money managers with oversight by independent trustees in accordance with state and provincial laws.
The tables below detail our results of preneed production and maturities, excluding insurance contracts, for the years ended December 31, 2024 and 2023.
| | | | | | | | | | | |
| Years Ended December 31, |
| | 2024 | | 2023 |
| | (Dollars in millions) |
| Funeral: | | | |
| Preneed trust-funded (including bonded): | | | |
| Sales production | $ | 480.0 | | | $ | 541.5 | |
| Sales production (number of contracts) | 113,686 | | | 132,268 | |
| Maturities | $ | 378.0 | | | $ | 372.7 | |
| Maturities (number of contracts) | 84,373 | | | 84,572 | |
| Cemetery: | | | |
| Sales production: | | | |
| Preneed | $ | 1,356.3 | | | $ | 1,333.9 | |
| Atneed | 425.9 | | | 421.9 | |
| Total sales production | $ | 1,782.2 | | | $ | 1,755.8 | |
| Sales production deferred to backlog: | | | |
| Preneed | $ | 636.7 | | | $ | 651.6 | |
| Atneed | 301.1 | | | 297.2 | |
| Total sales production deferred to backlog | $ | 937.8 | | | $ | 948.8 | |
| Revenue recognized from backlog: | | | |
| Preneed | $ | 485.8 | | | $ | 503.0 | |
| Atneed | 304.5 | | | 307.3 | |
| Total revenue recognized from backlog | $ | 790.3 | | | $ | 810.3 | |
Backlog of Preneed Contracts
The following table reflects our backlog of trust-funded deferred preneed contract revenue, including amounts related to Deferred receipts held in trust at December 31, 2024 and 2023. Additionally, the table reflects our backlog of unfulfilled insurance-funded contracts (which are not included in our Consolidated Balance Sheet) at December 31, 2024 and 2023. The
28 Service Corporation International
backlog amounts presented include amounts due from customers for undelivered performance obligations on cancelable preneed contracts to arrive at our total backlog of deferred revenue. The table does not include the backlog associated with businesses that are held for sale.
The table also reflects our preneed receivables and trust investments associated with the backlog of deferred preneed contract revenue including the amounts due from customers for undelivered performance obligations on cancelable preneed contracts. The table below is meaningful because it sets forth the aggregate amount of future revenue we expect to recognize as a result of preneed sales, as well as the amount of funds associated with this revenue. Because the future revenue exceeds the assets, future revenue will exceed the cash distributions actually received from the associated trusts and future collections from the customer.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2024 | | December 31, 2023 |
| | Fair Value | | Cost | | Fair Value | | Cost |
| | (In billions) |
| Deferred revenue, net | $ | 1.76 | | | $ | 1.76 | | | $ | 1.70 | | | $ | 1.70 | |
| Amounts due from customers for unfulfilled performance obligations on cancelable preneed contracts | 0.99 | | | 0.99 | | | 0.95 | | | 0.95 | |
| Deferred receipts held in trust | 5.16 | | | 4.50 | | | 4.67 | | | 4.18 | |
| Allowance for cancellation on trust investments | (0.27) | | | (0.24) | | | (0.26) | | | (0.24) | |
| Backlog of trust-funded deferred revenue, net of estimated allowance for cancellation | 7.64 | | | 7.01 | | | 7.06 | | | 6.59 | |
Backlog of insurance-funded revenue (1) | 8.37 | | | 8.37 | | | 7.78 | | | 7.78 | |
| Total backlog of deferred revenue | $ | 16.01 | | | $ | 15.38 | | | $ | 14.84 | | | $ | 14.37 | |
| | | | | | | |
| Preneed receivables, net and trust investments | $ | 6.74 | | | $ | 6.08 | | | $ | 6.19 | | | $ | 5.70 | |
| Amounts due from customers for unfulfilled performance obligations on cancelable preneed contracts | 0.99 | | | 0.99 | | | 0.95 | | | 0.95 | |
| Allowance for cancellation on trust investments | (0.27) | | | (0.24) | | | (0.26) | | | (0.24) | |
| Assets associated with backlog of trust-funded deferred revenue, net of estimated allowance for cancellation | 7.46 | | | 6.83 | | | 6.88 | | | 6.41 | |
Insurance policies associated with insurance-funded deferred revenue (1) | 8.37 | | | 8.37 | | | 7.78 | | | 7.78 | |
| Total assets associated with backlog of preneed revenue | $ | 15.83 | | | $ | 15.20 | | | $ | 14.66 | | | $ | 14.19 | |
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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, 2024 and 2023, 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, 2024, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 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, 2024, 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 $2.1 billion as of December 31, 2024, and the goodwill associated with the funeral reporting unit was $1.7 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 an 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 six 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, 2025
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, |
| | 2024 | | 2023 | | 2022 |
| | (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 | () | | | () | | | () | |
| Restructuring charge | () | | | | | | | |
| (Losses) 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, |
| 2024 | | 2023 | | 2022 |
| (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, |
| | 2024 | | 2023 |
| | (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 (loss) 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, |
| | 2024 | | 2023 | | 2022 |
| | | (In thousands) | | |
| Cash flows from operating activities: | | | | | |
| Net income | $ | | | | $ | | | | $ | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
|
| Loss 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 deferred income taxes | | | | | | | | |
| Loss (gain) 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: | | | | | |
| (Increase) decrease in receivables | () | | | () | | | | |
| Decrease (increase) in other assets | | | | () | | | () | |
| Increase (decrease) 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 (decrease) 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, 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 | $ | | | | $ | () | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | |
| Comprehensive income | — | | | — | | | — | | | 518,648 | | | (32,112) | | | 96 | | | | |
Dividends declared on common stock ($ per share) | — | | | — | | | — | | | (174,282) | | | — | | | — | | | () | |
| Employee share-based compensation earned | — | | | — | | | 17,163 | | | — | | | — | | | — | | | | |
| Stock option exercises | 1,646 | | | — | | | 55,037 | | | — | | | — | | | — | | | | |
| Restricted stock awards, net of forfeitures | 141 | | | — | | | (141) | | | — | | | — | | | — | | | | |
| Purchase of Company common stock | — | | | (3,440) | | | (23,206) | | | (223,119) | | | — | | | — | | | () | |
| Noncontrolling interest payments | — | | | — | | | — | | | — | | | — | | | 359 | | | | |
| Retirement of treasury shares | (3,440) | | | 3,440 | | | — | | | — | | | — | | | — | | | | |
| Other | 25 | | | — | | | 381 | | | — | | | — | | | — | | | | |
| Balance at December 31, 2024 | $ | | | | $ | () | | | $ | | | | $ | | | | $ | () | | | $ | | | | $ | | |
(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, cremation 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, 2023 |
| 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, 2024 | | December 31, 2023 |
| | (In thousands) |
| Notes receivable | $ | | | | $ | | |
| Reserve for credit losses | () | | | () | |
| |
| Notes receivable, net | $ | | | | $ | | |
| | | |
| Long-term miscellaneous receivables | $ | | | | $ | | |
| Reserve for credit losses | () | | | () | |
| Long-term miscellaneous receivables, net | $ | | | | $ | | |
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.
Our atneed trade receivables primarily consist of amounts due for funeral and cemetery services already performed. Payment on atneed contracts is generally due at the time the merchandise is delivered or the services are performed.
) | | $ | () | | | $ | | | | $ | | | | $ | () | | | $ | | | | $ | () | | | 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, 2024, the amortized cost basis of our miscellaneous and notes receivables by year of origination was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | 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, 2024, 2023, and 2022, respectively.
million, $ million, and $ million for the years ended December 31, 2024, 2023, and 2022, 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 57% of our total lease liability as of December 31, 2024 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 averaging % over a six-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 averaging % and growth rates for other assumptions in line with revenue growth rate assumptions. Fair value was calculated as the sum of the projected discounted cash flows of our reporting units over the next six years plus terminal value at the end of those six 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, respectively, and discounted the cash flows at a % discount rate based on the relative risk of these assets to our overall business.In addition to our annual review, we may assess the impairment of intangible assets whenever certain events or changes in circumstances indicate that the carrying value may be greater than the fair value. Factors that could trigger an interim
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.
Restructuring Charge
During the fourth quarter of 2024, we recognized a restructuring charge of $11.5 million, which included the retirements and position eliminations of various home office and corporate positions as part of ongoing cost management. We paid $2.3 million of the recognized charge during the fourth quarter. The restructuring charge is presented separately on our Consolidated Statement of Operations.
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. We adopted the standard effective December 31, 2024 and applied the disclosure requirements retrospectively to all prior periods presented in the financial statements.
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, however the guidance will not have a material effect on our financial position or results of operations.
Disaggregation of Income Statement Expenses
3. Preneed Activities
Preneed Receivables, Net and Trust Investments
The components of Preneed receivables, net and trust investments in our Consolidated Balance Sheet were as follows:
| | $ | | | | | | |
| Trust investments, at fair value | | | | | |
| |
|
| | | | $ | | | | $ | () | |
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.
The activity in Preneed receivables, net and trust investments was as follows:
| | $ | | | | $ | | | | 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.
56 Service Corporation International
The cost and fair values associated with trust investments recorded at fair value at December 31, 2024 and 2023 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 | | $ | | | | $ | | | | $ | () | | | $ | | |
As of December 31, 2024, our unfunded commitment for our private equity investments was $ 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, 2024 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, 2024, 2023, and 2022, 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, 2024, 2023, and 2022, respectively.
58 Service Corporation International
Deferred Revenue, Net
Deferred revenue, net represents future revenue, including distributed trust investment earnings associated with unperformed trust-funded preneed contracts that are not held in trust accounts. Future revenue and net trust investment earnings that are held in trust accounts are included in Deferred receipts held in trust.
The components of Deferred revenue, net in our Consolidated Balance Sheet were as follows:
| | | | | | | | | | | |
| Years Ended December 31, |
|
| | (In thousands) |
| Deferred revenue | $ | | | | $ | | |
| 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 2024, we reported $3.7 million of impairment on tradenames. Amortization expense for intangible assets was $ million, $ million, and $ million for the years ended December 31, 2024, 2023, and 2022, respectively.
| | 2026 | | |
| 2027 | | |
| 2028 | | |
| 2029 | | |
| Total estimated amortization expense | $ | | |
5.
million and $3.1 million in other tax benefits primarily from depreciation. As a result, the equity investment was amortized 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 2024, 2023, and 2022, 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 | () | | | | | | | |
| Excess tax benefit from share-based compensation | () | | | () | | | () | |
| Other | | | | () | | | | |
| Provision for income taxes | $ | | | | $ | | | | $ | | |
| Total consolidated effective tax rate | | % | | | % | | | % | The 2024 consolidated effective tax rate was %, compared to % in 2023. The lower effective tax rate in 2024 was primarily due to an increase in excess tax benefit recognized on the settlement of employee share-based awards.
) | | $ | () | |
| Deferred incremental direct selling costs | () | | | () | |
| Property and equipment | () | | | () | |
| Intangibles | () | | | () | |
| Deferred revenue on preneed funeral and cemetery contracts | () | | | (80,178) | |
| Other | () | | | () | |
| Deferred tax liabilities | () | | | () | |
| Loss and tax credit carryforwards | | | | | |
| 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, 2024, 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, 2022 | $ | | |
| Reductions to tax positions related to prior years | | |
| Balance at December 31, 2023 | $ | | |
| Reductions to tax positions due to lapse of statutes of limitations | () | |
| Additions to tax positions related to prior years | $ | | |
| Balance at December 31, 2024 | $ | | |
Our total unrecognized tax benefits that, if recognized, would affect our effective tax rates were $ million, $ million and $ million as of December 31, 2024, 2023 and 2022, respectively.
62 Service Corporation International
million, $ million and $ million for the payment of interest, net of tax benefits, and penalties as of December 31, 2024, 2023 and 2022, respectively. We recorded a decrease of interest and penalties of $ million and an increase of $ million and $ million for years ended December 31, 2024, 2023 and 2022, 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 2021, and we are not currently under audit by the IRS. Various state and foreign jurisdictions are auditing years 2020 through 2022. 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 the resolution of certain state tax matters.
Various subsidiaries have federal, state, and foreign loss carryforwards totaling $ billion with expiration dates ranging through 2042.
| | $ | | | | $ | | | | $ | | | | 2026 | | | | | | | | | | | |
| 2027 | | | | | | | | | | | |
| 2028 | | | | | | | | | | | |
| 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 | | | | | |
| 5.750% Senior Notes due October 2032 | | | | | |
| Term Loan due January 2028 | | | | | |
| Bank Credit Facility due January 2028 | | | | | |
| Obligations under finance leases | 145,061 | | | 132,039 | |
| 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, 2024 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, 2024 and 2023, respectively.
The components of our weighted average interest rate are as follows:
| | | | | | | | | | | |
| Years Ended December 31, |
| 2024 | | 2023 |
| Fixed Debt | | % | | | % |
| Floating Debt | | % | | | % |
| Total Debt | | % | | | % |
| | 2026 | | |
| 2027 | | |
| 2028 | | |
| 2029 | | |
| 2030 and thereafter | | |
| Total debt maturities | $ | | |
Bank Credit Agreement
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, 2024, we are in compliance with all of our debt covenants. At December 31, 2024, we issued $ million of letters of credit and pay a quarterly fee on the unused commitment, which was %. As of December 31, 2024, we have $ million in borrowing capacity under the facility.
As of December 31, 2023, we issued $ million of letters of credit.
64 Service Corporation International
million construction loan agreement due 2037 with a syndicate of banks. The purpose of this loan is to provide financing for a new corporate headquarters building. This transaction resulted in additional debt issuance costs of $ million. As of December 31, 2024, we had no borrowing outstanding. Debt Issuances and Additions
During the year ended December 31, 2024, we issued or added $ million of debt including:
•$ million unsecured 5.75% Senior Notes due October 2032;
•$ million on our Bank Credit Facility due January 2028; and
•$ million in other debt.
Net proceeds from newly issued debt during the year ended December 31, 2024 were used to pay down our Bank Credit Facility due January 2028 and for general corporate purposes. These transactions resulted in additional debt issuance costs of $ million.
During the year ended December 31, 2023, we issued or added $ million of debt including:
•$ million from certain banks in our Term Loan;
•$ million on our Bank Credit Facility due January 2028;
•$ million 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 $ million.
Debt Extinguishments and Reductions
During the year ended December 31, 2024, 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 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; and
•$ million in other debt.
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 to certain banks in our Bank Credit Facility due May 2024;
•$ million in aggregate principal 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.
Additional Debt Disclosures
At both December 31, 2024 and 2023, we had deposits of $ 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.
million and $ million pledged as collateral for the mortgage notes and other debt at December 31, 2024 and 2023, respectively. | Payments in 2023 | $ | | |
Payments in 2022 | $ | | |
Expected c
| Payments in 2026 | | |
Payments in 2027 | | |
Payments in 2028 | | |
Payments in 2029 | | |
Payments in 2030 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 | | | | | |
| 5.750% Senior Notes due October 2032 | | | | | |
| Term Loan due January 2028 | | | | | |
| Bank Credit Facility due January 2028 | | | | | |
| Mortgage notes and other debt, maturities through 2050 | | | | | |
| Total fair value of debt instruments | $ | | | | $ | | |
The fair values of our long-term, fixed rate loans were estimated using market prices for those loans, and therefore they are classified within Level 2 of the fair value measurements hierarchy. The Term Loan, the revolving credit facility agreement, and the mortgage notes and other debt are classified within Level 3 of the fair value measurements hierarchy. The fair values of these instruments have been estimated using discounted cash flow analysis based on our incremental borrowing rate for similar borrowing arrangements. An increase (decrease) in the inputs results in a directionally opposite change in the fair value of the instruments.
66 Service Corporation International
8.
| | $ | | | | $ | | | | 2026 | | | | | | | | |
| 2027 | | | | | | | | |
| 2028 | | | | | | | | |
| 2029 | | | | | | | | |
| 2030 and thereafter | | | | | | | | |
| Total lease payments | $ | | | | $ | | | | $ | | |
| Less: Interest | () | | | () | | | () | |
| Present value of lease liabilities | $ | | | | $ | 145,061 | | | $ | | |
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 | | | | $ | | | $ | | |
|
|
|
| 2023 | 2022 |
|
| 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 $4.0 million in lease income for the years ended December 31, 2024 and 2023, 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
|
| 2026 | | |
| 2027 | | |
| 2028 | | |
| 2029 | | |
| 2030 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 years ended December 31, 2024 and 2023, and $ million for the year ended December 31, 2022. As of December 31, 2024, 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 lawsuit 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. The parties have reached a settlement of the lawsuit that includes civil penalties of $23 million and provides certain preneed contract consumers the right to receive refunds. The court approved the settlement and the civil penalties have been paid. The claims period closed on October 7, 2024, and although some customers may still request refunds beyond that date, we maintain a reserve that we believe is sufficient to cover all costs related to future refunds. The settlement represents a compromise of contested claims and does not contain any admission of wrongdoing or fault on the part of the Company, its board of directors or executive officers in the action settlement. We consider this litigation concluded.
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 and 2024.
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, 2024 and 2023, 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 2024, we repurchased shares of our common stock at an aggregate cost of $ million, which is an average cost per share of $. In 2023, we repurchased shares of our common stock at an aggregate cost of $ million, which is an average cost per share of $. 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, 2024.
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.Our benefit plans allow for options to be granted as either non-qualified or incentive stock options. The options historically have been granted annually, or upon hire, as approved by the Compensation Committee of the Board of Directors. The options are granted with an exercise price equal to the market price of our common stock on the date of the grant, as approved by the Compensation Committee of the Board of Directors. The options are generally exercisable at a rate of 331/3% each year unless alternative vesting methods are approved by the Compensation Committee of the Board of Directors. Outstanding options will expire, if not exercised or forfeited, within eight years from the date of grant. Restricted shares are generally expensed ratably over the period during which the restrictions lapse, which is typically 331/3% each year. At December 31, 2024 and 2023,
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, 2024 | | | | $ | | |
Exercisable at December 31, 2024 | | | | $ | | |
The aggregate intrinsic value for stock options outstanding and exercisable was $ million and $ million, respectively, at December 31, 2024.
| | | | $ | | | | | | | $ | | | | $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, 2024, 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, 2024 | | | | $ | | |
Other information pertaining to restricted share awards was as follows (in thousands, except weighted-average grant date fair value):
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2024 | | 2023 | | 2022 |
Recognized compensation expense related to restricted share awards | $ | | | | $ | | | | $ | | |
Weighted-average grant date fair value for nonvested restricted stock granted | $ | 69.98 | | | $ | | | | $ | | |
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.
Restricted share units activity was as follows (share units reported in whole numbers):
| | $ | | | | Granted | | | | $ | | |
| Vested | () | | | $ | | |
| Forfeited and other | () | | | $ | | |
Nonvested restricted share units at December 31, 2024 | | | | $ | | |
72 Service Corporation International
Other information pertaining to restricted share units was as follows (in thousands, except weighted-average grant date fair value):
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2024 | | 2023 | | 2022 |
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, 2024, the unrecognized compensation expense related to restricted share units of $ million is expected to be recognized over a weighted average period of years.
Performance Units
During 2024, 2023, and 2022, we granted , and performance units, respectively. At December 31, 2024, there were performance units outstanding. Total compensation expense for performance units was $ million, $ million, and $ million for the years ended December 31, 2024, 2023, and 2022, respectively. For the year ended December 31, 2024 and 2023, 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, 2024 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, 2024, 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 (gain) loss | () | | | | | | () | |
| Total net periodic benefit (gain) cost | $ | () | | | $ | | | | $ | () | |
| | $ | | | | Interest cost | | | | | |
| Actuarial gain | () | | | | |
| Benefits paid | () | | | () | |
| 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 | () | | | () | |
| 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 | $ | () | | | $ | () | |
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, 2024 and 2023 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
| | 2026 | | |
| 2027 | | |
| 2028 | | |
| 2029 | | |
| Years 2030 through 2034 | | |
| Total expected benefit payments | $ | | |
%.During 2024, 2023, and 2022, 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 2024, 2023, and 2022 was $ million, $ million, and $ million, respectively.
13. Segment Reporting
Our operations are both product-based and geography-based, and the reportable and 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 Chief Operating Decision Maker, (CODM) is our Chief Executive officer, who is responsible for making key operating, finance, and capital allocation decisions and specifically uses segment gross profit to aid in the decision making and to assess the performance of the operating segments.
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, |
| 2024 | | 2023 | | 2022 |
| | (In thousands) |
| | | | | |
| Funeral revenue: | | | | | |
| Atneed revenue | $ | | | | $ | | | | $ | | |
| Matured preneed revenue | | | | | | | | |
| Core funeral revenue | | | | | | | | |
| Non-funeral home revenue | | | | | | | | |
| Non-funeral home preneed sales revenue | | | | | | | | |
| Core general agency and other revenue | | | | | | | | |
| Total funeral revenue | | | | | | | | |
| Direct cost | () | | | () | | | () | |
| Selling compensation | () | | | () | | | () | |
| Salaries & fringe expense | () | | | () | | | () | |
| Facility expenses | () | | | () | | | () | |
| |
| |
| |
| |
| Other costs and overhead | () | | | () | | | () | |
| Total funeral expense | () | | | () | | | () | |
| Funeral gross profit | $ | | | | $ | | | | $ | | |
| | | | | |
| Cemetery revenue: | | | | | |
| Atneed revenue | | | | | | | | |
| Recognized preneed property revenue | | | | | | | | |
| |
| |
| |
| Recognized preneed merchandise and services revenue | | | | | | | | |
| Core cemetery revenue | | | | | | | | |
| Other revenue | | | | | | | | |
| Total cemetery revenue | | | | | | | | |
| Direct cost | () | | | () | | | () | |
| Selling compensation | () | | | () | | | () | |
| Maintenance expense | () | | | () | | | () | |
| |
| |
| |
| Other costs and overhead | () | | | () | | | () | |
| Total cemetery expense | () | | | () | | | () | |
| Cemetery gross profit | $ | | | | $ | | | | $ | | |
| | | | | |
| Total revenue from customers | | | | | | | | |
| Total segment expenses | () | | | () | | | () | |
| Gross profit from reportable segments | | | | | | | | |
| Corporate general and administrative expenses | () | | | () | | | () | |
| Restructuring charge | () | | | | | | | |
| (Losses) 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 | $ | | | | $ | | | | $ | | |
76 Service Corporation International
Other reportable segment information as of and for the year ended December 31 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Reportable Segments | | Total | | | | |
| Funeral | | Cemetery | | Segments | | Corporate | | Consolidated |
| | (In thousands) |
| 2024 | | | | | | | | | |
| | | |
| Interest expense | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Depreciation and amortization | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Amortization of intangibles | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | |
| Amortization of cemetery property | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Capital expenditures | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Total assets | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| 2023 | | | | | | | | | |
| | | |
| Interest expense | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Depreciation and amortization | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Amortization of intangibles | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | |
| Amortization of cemetery property | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Capital expenditures | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Total assets | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| 2022 | | | | | | | | | |
| | | |
| Interest expense | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Depreciation and amortization | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Amortization of intangibles | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | |
| Amortization of cemetery property | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Capital expenditures | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
Our geographic area information as of and for the year ended December 31 was as follows:
| | | | | | | | | | | | | | | | | |
| United States | | Canada | | Total |
| | (In thousands) |
| 2024 | | | | | |
| Revenue from external customers | $ | | | | $ | | | | $ | | |
| Interest expense | $ | | | | $ | | | | $ | | |
| Depreciation and amortization | $ | | | | $ | | | | $ | | |
| Amortization of intangibles | $ | | | | $ | | | | $ | | |
| Amortization of cemetery property | $ | | | | $ | | | | $ | | |
| Operating income | $ | | | | $ | | | | $ | | |
| (Loss) gain on divestitures and impairment charges, net | $ | () | | | $ | | | | $ | () | |
| Long-lived assets | $ | | | | $ | | | | $ | | |
| 2023 | | | | | |
| Revenue from external customers | $ | | | | $ | | | | $ | | |
| Interest expense | $ | | | | $ | | | | $ | | |
| Depreciation and amortization | $ | | | | $ | | | | $ | | |
| Amortization of intangibles | $ | | | | $ | | | | $ | | |
| Amortization of cemetery property | $ | | | | $ | | | | $ | | |
| Operating income | $ | | | | $ | | | | $ | | |
| Gain on divestitures and impairment charges, net | $ | | | | $ | | | | $ | | |
| Long-lived assets | $ | | | | $ | | | | $ | | |
| 2022 | | | | | |
| Revenue from external customers | $ | | | | $ | | | | $ | | |
| Interest expense | $ | | | | $ | | | | $ | | |
| Depreciation and amortization | $ | | | | $ | | | | $ | | |
| Amortization of intangibles | $ | | | | $ | | | | $ | | |
| Amortization of cemetery property | $ | | | | $ | | | | $ | | |
| Operating income | $ | | | | $ | | | | $ | | |
| Gain on divestitures and impairment charges, net | $ | | | | $ | | | | $ | | |
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 $1,796 and $1,797, 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, |
| | 2024 | | 2023 | | 2022 |
| | (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 and $ million for several business acquisitions during the twelve months ended December 31, 2024 and 2023, respectively. This includes $ million of cash acquired in 2024. In addition, we spent $ million and $ million for several real estate acquisitions during the twelve months ended December 31, 2024 and 2023, respectively. In 2024, we acquired 26 funeral homes and 6 cemeteries. This includes two separate acquisitions in major metropolitan markets for $ million in cash in the third quarter.
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 the two separate acquisitions in the third quarter (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 | | | |
| Long-term debt | | | |
| Deferred tax liability | | | |
| Care trusts' corpus | | | |
| | |
| | |
| Other liabilities | | | |
| Total liabilities assumed | | | |
| | |
| | |
| Net assets acquired | $ | | | |
| | |
The purchase accounting is preliminary as we have not finalized our assessment of the fair value because there has been insufficient time between the acquisition date and the issuance of these financial statements to complete our review and final determination of fair value.
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 recognized goodwill, $ million is deductible for tax purposes. Of this total, $ million was allocated to our cemetery segment, while $ million was allocated to our funeral segment. The identified intangible assets are comprised of tradenames.
We incurred acquisition costs of $ million, which is included in General and administrative expenses in our Consolidated Statement of Operations. These businesses contributed revenue of $ million and net income of $ million from acquisition through December 31, 2024.
The 2022 acquisitions include ten funeral homes and three cemeteries in California as part of two acquisitions (the "2022 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 | | | |
| | |
| 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 $36.2 million in goodwill recognized, all of which is deductible for tax purposes, $17.3 million was allocated to our cemetery segment and $18.9 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 $0.2 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 $1.9 million and net income of $0.5 million from acquisition through December 31, 2022.
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 (Losses) gains on divestitures and impairment charges, net, which consist of the following:
| | $ | | | | $ | | |
| Impairment losses | () | | | () | | | () | |
| (Losses) gains on divestitures and impairment charges, net | $ | () | | | $ | | | | $ | | |
During 2024, we incurred $23.8 million in impairments primarily from the following events: impairments on assets held for sale, impairments on internally developed software due to a change in insurance vendor and re-prioritization of digital projects, and impairment of intangibles as part of our annual test for impairment.
82 Service Corporation International
Service Corporation International
Schedule II - Valuation and Qualifying Accounts
Three Years Ended December 31, 2024
| | $ | | | | $ | () | | | $ | | | | Year Ended December 31, 2023 | | $ | | | | $ | | | | $ | () | | | $ | | |
| Year Ended December 31, 2022 | | $ | | | | $ | | | | $ | () | | | $ | | |
| | |
| | |
| | |
| | |
| Due After One Year: | | | | | | | | |
| Reserve for credit losses: | | | | | | | | |
| Year Ended December 31, 2024 | | $ | | | | $ | | | | $ | | | | $ | | |
| Year Ended December 31, 2023 | | $ | | | | $ | () | | | $ | () | | | $ | | |
| Year Ended December 31, 2022 | | $ | | | | $ | () | | | $ | () | | | $ | | |
| | |
| | |
| | |
| | |
| Preneed Receivables, Net: | | | | | | | | |
| Reserve for credit losses: | | | | | | | | |
| Year Ended December 31, 2024 | | $ | | | $ | | | $ | () | | $ | |
| Year Ended December 31, 2023 | | $ | | | $ | | | $ | () | | $ | |
| Year Ended December 31, 2022 | | $ | | | $ | | | $ | () | | $ | |
| | |
| | |
| | |
| | |
| Deferred Tax Valuation Allowance: | | | | | | | | |
| Year Ended December 31, 2024 | | $ | | | | $ | () | | | $ | | | | $ | | |
| Year Ended December 31, 2023 | | $ | | | | $ | () | | | $ | | | | $ | | |
| Year Ended December 31, 2022 | | $ | | | | $ | () | | | $ | | | | $ | | |
| | |
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, 2024, 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, 2024 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, 2024 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, 2024.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2024, 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, 2024 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 2024, 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 2025 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, 2024:
| | | | | | | | | | | | | | | | | | | | |
| 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 | | 3,643,548 | | | $ | 53.00 | | | 2,821,617 | |
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 |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | |
| | — | Nineteenth Supplemental Indenture dated as of September 17, 2024, among Service Corporation International, The Bank of New York Mellon Trust Company, N.A., as successor to The Bank of New York, as original trustee and BOKF, NA, as series trustee, and Form of 5.750% Senior Notes due 2032 (Incorporated by reference to Exhibit 4.2 to Form 8-K filed September 17, 2024). |
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88 Service Corporation International
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| 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 10.33.
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.
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| | SERVICE CORPORATION INTERNATIONAL |
| | By: | /s/ LORI SPILDE |
| | (Lori Spilde, Senior Vice President, General Counsel, and Secretary) |
Dated: February 13, 2025
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.
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| Signature | | Title | | Date |
| /s/ THOMAS L. RYAN | | Chief Executive Officer and Chairman of the Board (Principal Executive Officer) | | February 13, 2025 |
| (Thomas L. Ryan) | | | |
| /s/ ERIC D. TANZBERGER | | Executive Vice President, Chief Financial Officer (Principal Financial Officer) | | February 13, 2025 |
| (Eric D. Tanzberger) | | | |
| /s/ TAMMY R. MOORE | | Vice President and Chief Accounting Officer (Principal Accounting Officer) | | February 13, 2025 |
| (Tammy R. Moore) | | | |
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| /s/ MARCUS A. WATTS | | Lead Independent Director | | February 13, 2025 |
| (Marcus A. Watts) | | | | |
| /s/ ANTHONY L. COELHO | | Director | | February 13, 2025 |
| (Anthony L. Coelho) | | | | |
| /s/ ALAN R. BUCKWALTER, III | | Director | | February 13, 2025 |
| (Alan R. Buckwalter, III) | | | | |
| /s/ JAKKI L. HAUSSLER | | Director | | February 13, 2025 |
| (Jakki L. Haussler) | | | | |
| /s/ VICTOR L. LUND | | Director | | February 13, 2025 |
| (Victor L. Lund) | | | | |
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| /s/ ELLEN OCHOA | | Director | | February 13, 2025 |
| (Ellen Ochoa) | | | | |
| /s/ C. PARK SHAPER | | Director | | February 13, 2025 |
| (C. Park Shaper) | | | | |
| /s/ SARA MARTINEZ TUCKER | | Director | | February 13, 2025 |
| (Sara Martinez Tucker) | | | | |
| /s/ W. BLAIR WALTRIP | | Director | | February 13, 2025 |
| (W. Blair Waltrip) | | | | |
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90 Service Corporation International
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