~~GLOSSARY~~

~~The following terms are common to~~Item 8 is being amended herein because the ~~deathcare industry, are used throughout this~~audit report ~~and have the following meanings:~~

~~Atneed~~ ~~— Funeral, including cremation, and cemetery arrangements sold once death has occurred.~~

~~Burial Vault~~ ~~— A reinforced container intended to inhibit the subsidence of the earth and house the casket after it is placed in the ground, also known as outer burial containers.~~

~~Cancellation~~ ~~— Termination of a preneed contract, which relieves us of the obligation to provide the goods and services~~ included in the ~~contract. Cancellations may be requested by the customer or be initiated by us for failure~~original filing lacked an electronic signature of our independent auditor due to ~~comply~~a filing error. The signed audit report and financial statements are included with ~~the contractual terms of payment. State or provincial laws govern the amount of refund, if any, owed to the customer.~~this amendment.

~~Care Trust Corpus~~ — The deposits and net realized capital gains and losses included in a perpetual care trust that cannot be withdrawn. In certain states, some or all of the net realized capital gains can be distributed, so they are not included in the corpus.

~~Cemetery Perpetual Care or Endowment Care Fund (ECF)~~ — A trust fund established for the purpose of maintaining cemetery grounds and property into perpetuity, also referred to as a cemetery perpetual care trust. For these trusts, the corpus remains in the trust in perpetuity and the net ordinary investment earnings are distributed to us regularly and are intended to defray our expenses incurred to maintain the cemetery. In certain states, some or all of the net realized capital gains can also be distributed.

~~Cemetery Property~~ — Developed lots, lawn crypts, mausoleum spaces, niches and cremation memorialization property items(constructed and ready to accept interments) and undeveloped land we intend to develop for the sale of interment rights. Includes the construction-in-progress balance during the pre-construction and construction phases of projects creating new property inventory.

~~Cemetery Property Amortization~~ ~~— The non-cash recognized expenses of cemetery property interment rights, which are recorded by specific identification with the cemetery property revenue for each contract.~~

~~Cemetery Property Revenue~~ ~~— Recognized sales of interment rights in cemetery property when a minimum of 10% of the sales price has been collected and the property has been constructed and is available for interment.~~

~~Cemetery Merchandise and Services~~ ~~— Stone and bronze memorials, markers, burial vaults, floral placement, graveside services, merchandise installations, urns, outer burial containers, and burial openings and closings.~~

~~Cremation~~ ~~— The reduction of human remains to bone fragments by intense heat.~~

~~Cremation Memorialization~~ — Products specifically designed to commemorate and honor the life of an individual that has been cremated. These products include cemetery property inventory types that provide for the disposition of cremated remains within our cemeteries such as benches, boulders, statues, etc. They also include memorial walls and books where the name of the individual is inscribed but the remains have been scattered or kept by the family.

~~Funeral Merchandise and Services~~ — Merchandise such as burial caskets and related accessories, burial vaults, urns and other cremation receptacles, casket and cremation memorialization products, and flowers and professional services relating to funerals including arranging and directing services, use of funeral facilities and motor vehicles, removal, preparation, embalming, cremations, memorialization, visitations, and catering.

~~Funeral Recognized Preneed Revenue~~ ~~— Funeral merchandise and travel protection sold on a preneed contract and delivered before a death has occurred.~~

~~Funeral Services Performed~~ ~~— The number of funeral services, including cremations, provided after the date of death, sometimes referred to as funeral volume.~~

~~General Agency (GA) Revenue~~ — Commissions we receive from third-party life insurance companies for life insurance policies sold to preneed customers for the purpose of funding preneed funeral arrangements. The commission rate paid is determined based on the product type sold, the length of payment terms, and the age of the insured/annuitant.

~~Interment~~ ~~— The burial or final placement of human remains in the ground, in mausoleums, in niches, or in cremation memorialization property.~~

~~Lawn Crypt~~ ~~— An underground outer burial receptacle constructed of concrete and reinforced steel, which is usually pre-installed in predetermined designated areas.~~

~~Marker~~ — A method of identifying a deceased person in a particular burial space, crypt, niche, or cremation memorialization property. Permanent burial and cremation memorialization markers are usually made of bronze or stone.

~~Maturity~~ — When the underlying contracted merchandise is delivered or service is performed, typically at death. This is the point at which preneed contracts are converted to atneed contracts (note — delivery of certain merchandise and services can occur prior to death).

~~Table of Contents~~

~~Mausoleum~~ ~~— An above ground structure that is designed to house caskets and cremation urns.~~

~~Merchandise and Service Trust~~ — A trust account established in accordance with state or provincial law into which we deposit the required percentage of customers’ payments for preneed funeral, cremation, or cemetery merchandise and services to be delivered or performed by us in the future. The amounts deposited can be withdrawn only after we have completed our obligations under the preneed contract or the cancellation of the contract.

~~Preneed~~ ~~— Purchase of cemetery property interment rights and merchandise and services prior to death occurring.~~

~~Preneed Backlog~~ ~~— Future revenue from unfulfilled preneed funeral, cremation, and cemetery contractual arrangements.~~

~~Preneed Cemetery Production~~ ~~— Sales of preneed or atneed cemetery contracts. These sales are recorded in~~ ~~Deferred preneed cemetery revenue~~ ~~until the merchandise is delivered, the service is performed, or when a minimum of 10% of the sales price has been collected and the property has been constructed and is available for interment.~~

~~Preneed Funeral Production~~ ~~— Sales of preneed funeral trust-funded and insurance-funded contracts. Preneed funeral trust-funded contracts are recorded in~~ ~~Deferred preneed funeral revenue~~ until the merchandise is delivered or the service is performed. We do not reflect the unfulfilled insurance-funded preneed funeral contract amounts in our Consolidated Balance Sheet. The proceeds of the life insurance policies will be reflected in revenue as these funerals are performed by us in the future.

~~Sales Average~~ ~~— Average revenue per funeral service performed, excluding the impact of funeral recognized preneed revenue, GA revenue, and certain other revenue.~~

~~Trust Fund Income~~ ~~— Recognized investment earnings from our merchandise and service and perpetual care trust investments.~~

As used herein, “SCI”, “Company”, “we”, “our”, and “us” refer to Service Corporation International and companies owned directly or indirectly by Service Corporation International, unless the context requires otherwise.

~~Table of Contents~~

PART III


Item 1.8.	~~Business.~~Financial Statements and Supplementary Data.

~~General~~

INDEX TO FINANCIAL STATEMENTS AND RELATED SCHEDULE



	Page
Financial Statements:
Report of Independent Registered Public Accounting Firm	4
Consolidated Statement of Operations for the years ended December 31, 2016, 2015, and 2014	5
Consolidated Statement of Comprehensive Income for the years ended December 31, 2016, 2015, and 2014	6
Consolidated Balance Sheet as of December 31, 2016 and 2015	7
Consolidated Statement of Cash Flows for the years ended December 31, 2016, 2015, and 2014	8
Consolidated Statement of Equity for the three years ended December 31, 2016, 2015, and 2014	10
Notes to Consolidated Financial Statements	11
1. Nature of Operations	11
2. Summary of Significant Accounting Policies	11
3. Preneed Funeral Activities	16
4. Preneed Cemetery Activities	22
5. Cemetery Perpetual Care Trusts	28
6. Deferred Preneed Receipts Held in Trust and Care Trusts’ Corpus	33
7. Goodwill and Intangible Assets	35
8. Income Taxes	36
9. Debt	40
10. Credit Risk and Fair Value of Financial Instruments	42
11. Commitments and Contingencies	43
12. Equity	45
13. Share-Based Compensation	46
14. Retirement Plans	48
15. Segment Reporting	51
16. Supplementary Information	53
17. Earnings Per Share	55
18. Acquisitions	56
19. Divestiture-Related Activities	57
20. Quarterly Financial Data (Unaudited)	57
Financial Statement Schedule:
II — Valuation and Qualifying Accounts	58

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.

Report of Independent Registered Public Accounting Firm

Tothe Board of Directors and Stockholders of Service Corporation International

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Service Corporation International and its subsidiaries at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, 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 these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. 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.

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.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

February 15, 2017

SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF OPERATIONS

	Years Ended December 31,
	2016			2015			2014
	(In thousands, except per share amounts)
Revenue	$	3,031,137		$	2,986,041		$	2,994,011
Costs and expenses	(2,354,703		)	(2,311,452		)	(2,318,326		)
Gross profit	676,434			674,589			675,685
General and administrative expenses	(137,730		)	(130,813		)	(184,749		)
(Losses) gains on divestitures and impairment charges, net	(26,819		)	6,522			116,613
Operating income	511,885			550,298			607,549
Interest expense	(162,093		)	(172,897		)	(177,571		)
Losses on early extinguishment of debt, net	(22,503		)	(6,918		)	(29,158		)
Other (expense) income, net	(631		)	(132		)	1,780
Income from continuing operations before income taxes	326,658			370,351			402,600
Provision for income taxes	(149,353		)	(135,027		)	(225,980		)
Income from continuing operations	177,305			235,324			176,620
Net (loss) income from discontinued operations, net of tax	—			(390		)	2,186
Net income	177,305			234,934			178,806
Net income attributable to noncontrolling interests	(267		)	(1,162		)	(6,337		)
Net income attributable to common stockholders	$	177,038		$	233,772		$	172,469
Basic earnings per share:
Net income attributable to common stockholders	$	0.92		$	1.17		$	0.82
Basic weighted average number of shares	193,086			200,356			210,741
Diluted earnings per share:
Net income attributable to common stockholders	$	0.90		$	1.14		$	0.81
Diluted weighted average number of shares	196,042			204,450			214,200
Dividends declared per share	$	0.51		$	0.44		$	0.34

(See notes to consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME




	Years Ended December 31,
	2016			2015			2014
	(In thousands)
Net income	$	177,305		$	234,934		$	178,806
Other comprehensive income:
Foreign currency translation adjustments	10,331			(53,283		)	(32,096		)
Reclassification of foreign currency translation adjustments to discontinued operations	—			—			3,114
Total comprehensive income	187,636			181,651			149,824
Total comprehensive income attributable to noncontrolling interests	(270		)	(1,129		)	(6,382		)
Total comprehensive income attributable to common stockholders	$	187,366		$	180,522		$	143,442

(See notes to consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL CONSOLIDATED BALANCE SHEET

	December 31,
	2016			2015
	(In thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	194,986		$	134,599
Receivables, net	98,455			90,462
Inventories	26,431			27,835
Other	34,524			47,155
Total current assets	354,396			300,051
Preneed funeral receivables, net and trust investments	1,817,445			1,760,297
Preneed cemetery receivables, net and trust investments	2,487,720			2,318,167
Cemetery property	1,776,935			1,753,015
Property and equipment, net	1,827,587			1,846,722
Goodwill	1,799,081			1,796,340
Deferred charges and other assets	567,520			582,378
Cemetery perpetual care trust investments	1,407,465			1,319,427
Total assets	$	12,038,149		$	11,676,397
LIABILITIES & EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	439,936		$	422,816
Current maturities of long-term debt	89,974			86,823
Income taxes payable	7,960			1,373
Total current liabilities	537,870			511,012
Long-term debt	3,196,616			3,037,605
Deferred preneed funeral revenue	581,280			557,897
Deferred preneed cemetery revenue	1,150,137			1,120,001
Deferred tax liability	454,638			470,584
Other liabilities	510,322			496,947
Deferred preneed receipts held in trust	3,103,796			2,973,386
Care trusts’ corpus	1,408,243			1,319,564
Commitments and contingencies (Note 11)
Equity:
Common stock, $1 per share par value, 500,000,000 shares authorized, 195,403,644 and 200,859,676 shares issued, respectively, and 189,405,244 and 195,772,876 shares outstanding, respectively	189,405			195,773
Capital in excess of par value	990,203			1,092,106
Accumulated deficit	(103,387		)	(109,351		)
Accumulated other comprehensive income	16,492			6,164
Total common stockholders’ equity	1,092,713			1,184,692
Noncontrolling interests	2,534			4,709
Total equity	1,095,247			1,189,401
Total liabilities and equity	$	12,038,149		$	11,676,397

(See notes to consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF CASH FLOWS

	Years Ended December 31,
	2016			2015			2014
				(In thousands)
Cash flows from operating activities:
Net income	$	177,305		$	234,934		$	178,806
Adjustments to reconcile net income to net cash provided by operating activities:
Loss (income) from discontinued operations, net of tax	—			390			(2,186		)
Losses on early extinguishment of debt, net	22,503			6,918			29,158
Premiums paid on early extinguishment of debt	(20,524		)	(6,549		)	(24,804		)
Depreciation and amortization	147,233			141,456			140,002
Amortization of intangible assets	30,956			31,459			36,640
Amortization of cemetery property	66,745			62,407			60,439
Amortization of loan costs	5,826			9,434			8,825
Provision for doubtful accounts	10,776			6,083			7,376
Provision for deferred income taxes	7,490			18,048			129,671
Losses (gains) on divestitures and impairment charges, net	26,819			(6,522		)	(116,613		)
Share-based compensation	14,056			13,843			13,127
Excess tax benefits from share-based awards	(12,685		)	(18,123		)	(30,123		)
Change in assets and liabilities, net of effects from acquisitions and dispositions:
(Increase) decrease in receivables	(14,198		)	464			(18,644		)
Decrease (increase) in other assets	17,855			2,457			(11,013		)
Increase (decrease) in payables and other liabilities	47,888			20,567			(12,038		)
Effect of preneed funeral production and maturities:
Decrease in preneed funeral receivables, net and trust investments	17,506			24,918			30,357
Increase (decrease) in deferred preneed funeral revenue	9,329			6,199			(23,069		)
Decrease in deferred preneed receipts held in trust	(41,607		)	(52,946		)	(52,869		)
Effect of preneed cemetery production and maturities:
Increase in preneed cemetery receivables, net and trust investments	(90,900		)	(73,038		)	(43,964		)
Increase in deferred preneed cemetery revenue	25,446			60,960			54,049
Increase (decrease) in deferred preneed receipts held in trust	15,776			(11,173		)	(34,664		)
Other	—			—			(108		)
Net cash provided by operating activities from continuing operations	463,595			472,186			318,355
Net cash used in operating activities from discontinued operations	—			—			(1,000		)
Net cash provided by operating activities	463,595			472,186			317,355
Cash flows from investing activities:
Capital expenditures	(193,446		)	(150,986		)	(144,499		)
Acquisitions, net of cash acquired	(69,146		)	(41,258		)	(15,336		)
Proceeds from divestitures and sales of property and equipment	41,310			16,772			424,383
Net withdrawals (deposits) of restricted funds and other	5,150			8,066			(12,225		)
Net cash (used in) provided by investing activities from continuing operations	(216,132		)	(167,406		)	252,323
Net cash provided by investing activities from discontinued operations	—			987			4,963
Net cash (used in) provided by investing activities	(216,132		)	(166,419		)	257,286
Cash flows from financing activities:
Proceeds from issuance of long-term debt	1,060,000			446,250			755,000
Debt issuance costs	(5,232		)	(6,025		)	(10,500		)
Payments of debt	(36,414		)	(160,220		)	(230,561		)
Early extinguishment of debt	(875,110		)	(197,377		)	(762,764		)
Principal payments on capital leases	(33,119		)	(28,601		)	(29,380		)
Proceeds from exercise of stock options	17,662			31,809			32,376
Excess tax benefits from share-based awards	12,685			18,123			30,123
Purchase of Company common stock	(227,928		)	(345,261		)	(242,874		)
Payments of dividends	(98,418		)	(87,570		)	(71,517		)
Purchase of noncontrolling interest	(1,961		)	(2,075		)	(15,000		)
Bank overdrafts and other	(1,095		)	(7,531		)	7,130
Net cash used in financing activities	(188,930		)	(338,478		)	(537,967		)

SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF CASH FLOWS

	Years Ended December 31,
	2016		2015			2014
			(In thousands)
Net change in cash of discontinued operations	—		—			1,361
Effect of foreign currency	1,854		(10,025		)	(2,284		)
Net increase (decrease) in cash and cash equivalents	60,387		(42,736		)	35,751
Cash and cash equivalents at beginning of period	134,599		177,335			141,584
Cash and cash equivalents at end of period	$	194,986	$	134,599		$	177,335

(See notes to consolidated financial statements)

Table of Contents

SERVICE CORPORATION INTERNATIONAL

CONSOLIDATED STATEMENT OF EQUITY



	Common Stock			Treasury Stock, Par Value			Capital in Excess of Par Value			Accumulated Deficit			Accumulated Other Comprehensive Income			Noncontrolling Interest			Total
	(In thousands, except per share amounts)
Balance at December 31, 2013	$	212,327		$	(10	)	$	1,259,348		$	(90,026	)	$	88,441		$	10,148		$	1,480,228
Comprehensive income	—			—			—			172,469			(29,027		)	6,382			149,824
Dividends declared on common stock ($.34 per share)	—			—			(71,517		)	—			—			—			(71,517		)
Stock option exercises	3,642			—			29,495			—			—			—			33,137
Restricted stock award, net of forfeitures and other	352			—			(352		)	—			—			—			—
Employee share-based compensation earned	—			—			13,127			—			—			—			13,127
Purchase of Company common stock	—			(11,537		)	(67,796		)	(164,302		)	—			—			(243,635		)
Tax benefits of share-based awards	—			—			30,123			—			—			—			30,123
Purchase of noncontrolling interest	—			—			(7,441		)	—			—			(7,559		)	(15,000		)
Noncontrolling interest payments	—			—			—			—			—			(319		)	(319		)
Retirement of treasury shares	(10,956		)	10,956			—			—			—			—			—
Other	93			—			1,317			—			—			—			1,410
Balance at December 31, 2014	$	205,458		$	(591	)	$	1,186,304		$	(81,859	)	$	59,414		$	8,652		$	1,377,378

Comprehensive income	—			—			—			233,772			(53,250		)	1,129			181,651
Dividends declared on common stock ($.44 per share)	—			—			(87,570		)	—			—			��			(87,570		)
Stock option exercises	3,054			—			28,877			—			—			—			31,931
Restricted stock awards, net of forfeitures	254			(9		)	(245		)	—			—			—			—
Employee share-based compensation earned	—			—			13,843			—			—			—			13,843
Purchase of Company common stock	—			(12,455		)	(71,664		)	(261,264		)	—			—			(345,383		)
Tax benefits related to share-based awards	—			—			18,123			—			—			—			18,123
Purchase of noncontrolling interest	—			—			2,775			—			—			(4,850		)	(2,075		)
Noncontrolling interest payments	—			—			—			—			—			(222		)	(222		)
Retirement of treasury shares	(7,969		)	7,969			—			—			—			—			—
Other	62			—			1,663			—			—			—			1,725
Balance at December 31, 2015	$	200,859		$	(5,086	)	$	1,092,106		$	(109,351	)	$	6,164		$	4,709		$	1,189,401

Comprehensive income	—			—			—			177,038			10,328			270			187,636
Dividends declared on common stock ($.51 per share)	—			—			(98,418		)	—			—			—			(98,418		)
Stock option exercises	2,108			—			15,554			—			—			—			17,662
Restricted stock awards, net of forfeitures	241			(1		)	(240		)	—			—			—			—
Employee share-based compensation earned	—			—			14,056			—			—			—			14,056
Purchase of Company common stock	—			(8,812		)	(48,042		)	(171,074		)	—			—			(227,928		)
Tax benefits related to share-based awards	—			—			12,685			—			—			—			12,685
Purchase of noncontrolling interest	—			—			364			—			—			(2,325		)	(1,961		)
Noncontrolling interest payments	—			—			—			—			—			(120		)	(120		)
Retirement of treasury shares	(7,901		)	7,901			—			—			—			—			—
Other	96			—			2,138			—			—			—			2,234
Balance at December 31, 2016	$	195,403		$	(5,998	)	$	990,203		$	(103,387	)	$	16,492		$	2,534		$	1,095,247

(See notes to consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	Nature of Operations

We are North America’s largest provider of deathcare products and services, with a network of funeral service locations and cemeteries ~~unequaled~~operating in ~~geographic scale~~the United States and reach. At December 31, 2015, we operated 1,535 funeral service locations and 469 cemeteries (including 262 funeral service/cemetery combination locations), which are geographically diversified across 45 states, eight Canadian provinces, the District of Columbia, and Puerto Rico. We are best known for our Dignity Memorial® brand, North America's first transcontinental brand of deathcare products and services. Our other brands are Dignity Planning™, National Cremation Society®, Advantage® Funeral and Cremation Services, Funeraria del Angel™, Making Everlasting Memories®, Neptune Society™ and Trident Society™.

Canada. Our funeral service and cemetery operations consist of funeral service locations, cemeteries, funeral service/cemetery combination locations, crematoria, and other related businesses, which ~~enables~~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.

~~History~~

We were incorporated in Texas in July of 1962. Our original business plan was based on efficiencies of scale, specifically reducing overhead costs by sharing resources such as preparation services, accounting, transportation, and personnel among funeral service locations in a business “cluster.” After proving the plan’s effectiveness in Houston in the early 1960s, we set out to apply this operating strategy through the acquisition of deathcare businesses in other markets over the next three decades. Beginning in 1993, we expanded beyond North America, acquiring major deathcare companies in Australia, the United Kingdom, and France, plus smaller holdings in other European countries and South America. By the end of 1999, our global network numbered more than 4,500 funeral service locations, cemeteries, and crematories in more than 20 countries.

During the mid to late 1990s, acquisitions of deathcare facilities became extremely competitive, resulting in increased prices for acquisitions and substantially reduced returns on invested capital. In 1999, we significantly reduced our level of acquisition activity and over the next several years implemented various initiatives to pay down debt, increase cash flow, reduce overhead costs, and increase efficiency. We divested our international businesses and many North American funeral service locations and cemeteries that were either underperforming or did not fit our long-term strategy. At the same time, we began to capitalize on the strength of our network by introducing to North America the first transcontinental brand of deathcare services and products — Dignity Memorial^® ~~(See~~ ~~www.dignitymemorial.com). Information contained on our website is not part of this report.~~

In late 2006, having arrived at a position of significant financial strength and improved operating efficiency, we acquired the then second largest company in the North American deathcare industry, Alderwoods Group. In early 2010, we acquired the then fifth largest company in the North American deathcare industry, Keystone North America. In June of 2011, we acquired 70% of the outstanding shares of The Neptune Society, Inc. (Neptune), which is the nation's largest direct cremation organization. Subsequently, in 2013 and 2014, we acquired the remaining 30% of the outstanding shares of Neptune. In December 2013, we purchased Stewart Enterprises, Inc. (Stewart), the then second largest operator of funeral service locations and cemeteries in North America.

~~Funeral and Cemetery Operations~~

Our funeral service and cemetery operations consist of funeral service locations, cemeteries, funeral/cemetery combination locations, crematoria, and related businesses. See Note 15 in Part II, Item 8. Financial Statements and Supplementary Data, for financial information about our business segments and geographic areas.

Funeral service/cemetery combination locations are those businesses in which a funeral service location is physically located within or adjoining a cemetery that we own. Combination locations allow certain facility, personnel, and equipment costs to be shared between the funeral service location and cemetery. Such combination facilities typically can be more cost competitive and have higher gross margins than if the funeral and cemetery operations were operated separately. Combination locations also create synergies between funeral and cemetery preneed sales force personnel and give families added convenience to purchase both funeral and cemetery merchandise and services at a single location. We have the largest number of combination locations in North America. Fifty-six percent of our cemeteries are part of a combination location. Our combination operations include Rose Hills, the largest combination operation in the United States, performing over 4,800 funeral services and 7,900 cemetery interments per year.

Funeral service locations provide all professional services ~~related~~relating to funerals and cremations, including the use of funeral ~~home~~ facilities and motor vehicles, arranging and directing services, removal, preparation, embalming, cremations, memorialization, and catering. Funeral merchandise, including burial caskets and related accessories, urns and other cremation

~~Table of Contents~~

receptacles, outer burial containers, flowers, ~~on-line~~online and video tributes, stationery products, casket and cremation memorialization products, and other ancillary merchandise, is sold at funeral service locations.

Our cemeteries provide cemetery property interment rights, including developed lots, lawn crypts, mausoleum spaces, niches, and other cremation memorialization and interment options. Cemetery merchandise and services, including memorial markers and bases, outer burial containers, flowers and floral placement, other ancillary merchandise, graveside services, merchandise installation, travel protection, and burial openings and closings, are sold at our cemeteries.


2.	Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

Our consolidated financial statements include the accounts of Service Corporation International (SCI) and all subsidiaries in which we hold a controlling financial interest. Our financial statements also include the accounts of the funeral merchandise and service trusts, cemetery merchandise and service trusts, and cemetery perpetual care trusts in which we have a variable interest and are the primary beneficiary. Intercompany balances and transactions have been eliminated in consolidation.

Reclassifications to Prior Period Financial Statements and Adjustments

Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation with no effect on our previously reported results of operations, consolidated financial position, or cash flows. For the year 2016, we recorded in General and administrative expenses an out-of-period expense of $5.5 million for previously improperly capitalized acquisition costs. Such amounts are immaterial to both current and prior period financial statements.

Use of Estimates in the Preparation of Financial Statements

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. As a result, actual results could differ from these estimates.

Cash and Cash Equivalents

We ~~also sell preneed cemetery property interment rights~~consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. The carrying amounts of our cash and cash equivalents approximate fair value due to the short-term nature of these instruments.

Accounts Receivable and Allowance for Doubtful Accounts

Our trade receivables primarily consist of amounts due for funeral services already performed. We provide various allowances and cancellation reserves for our funeral and cemetery ~~merchandise~~preneed and ~~services whereby a customer contractually agrees to the terms of certain products and services to be delivered and performed in the future. We define these sales~~atneed receivables as ~~preneed sales. As a result of such preneed sales,~~well as for our ~~backlog of unfulfilled~~ preneed funeral and preneed cemetery ~~contracts~~deferred revenue. These allowances are based on an analysis of historical trends of collection and cancellation activity. Atneed funeral and cemetery receivables are considered past due after 30 days. Collections are generally managed by the locations or third party agencies acting on behalf of the locations, until a receivable is 180 days delinquent at which time it is fully reserved and sent to a collection agency. These estimates are impacted by a number of factors, including changes in the economy, relocation, and demographic or competitive changes in our areas of operation.

Inventories and Cemetery Property

Funeral and cemetery merchandise are stated at the lower of average cost or market. Cemetery property is recorded at cost. Inventory costs and cemetery property are relieved using specific identification in performance of a contract. Amortization expense for cemetery property was ~~$9.5 billion~~$66.7 million, $62.4 million, and ~~$9.3 billion at~~$60.4 million for the years ended December 31, 2016, 2015, and 2014, respectively.

~~In 2015 our operations in~~

Property and Equipment, Net

Property and equipment are recorded at cost. Maintenance and repairs are charged to expense whereas renewals and major replacements that extend the ~~United States and Canada were organized into 31 major markets, 38 metro markets, and 53 main street markets. Each market~~assets useful lives are capitalized. Depreciation is ~~led by a market manager or director with responsibility for funeral and/or cemetery operations and preneed sales. Within each market,~~recognized ratably over the ~~funeral service locations and cemeteries share common resources such as personnel, preparation services, and vehicles.~~

~~The following table at December 31, 2015 provides the number of our funeral service locations and cemeteries by country, and by state, territory, or province:~~

Country, State/Territory/Province Number of Funeral Service Locations Number of Cemeteries Total
United States

Alabama 38
14
52
Arizona 34
11
45
Arkansas 12
3
15
California 172
37
209
Colorado 24
11
35
Connecticut 19
—
19
Delaware —
1
1
District of Columbia 1
—
1
Florida 131
60
191
Georgia 35
19
54
Hawaii 2
2
4
Idaho 6
1
7
Illinois 48
24
72
Indiana 42
9
51
Iowa 4
2
6
Kansas 9
5
14
Kentucky 16
5
21
Louisiana 27
9
36
Maine 11
—
11
Maryland 16
13
29
Massachusetts 26
—
26
Michigan 35
—
35
Minnesota 12
2
14
Mississippi 16
4
20
Missouri 26
9
35
Nebraska 4
2
6
Nevada 15
6
21
New Hampshire 6
—
6
New Jersey 20
—
20
New Mexico 1
—
1
New York 82
—
82
North Carolina 60
17
77
Ohio 35
13
48
Oklahoma 14
7
21
Oregon 17
4
21
Pennsylvania 22
16
38

~~Table of Contents~~

Puerto Rico 12
9
21
Rhode Island 4
—
4
South Carolina 10
9
19
Tennessee 39
18
57
Texas 164
64
228
Utah 4
3
7
Vermont 4
—
4
Virginia 39
23
62
Washington 43
13
56
West Virginia 14
10
24
Wisconsin 1
4
5
Canada

Alberta 9
—
9
British Columbia 37
7
44
Manitoba 4
3
7
New Brunswick 5
—
5
Nova Scotia 11
—
11
Ontario 44
—
44
Quebec 40
—
40
Saskatchewan 13
—
13
Total ⁽¹⁾
1,535
469
2,004


~~(1)~~	~~Includes businesses held for sale at December 31, 2015.~~

We believe we have satisfactory title to the properties owned and used in our business, subject to various liens, encumbrances, and easements that are incidental to ownership rights and uses and do not materially detract from the valueestimated useful lives of the ~~property. We also lease~~various classes of assets. Buildings are depreciated over a ~~number of facilities that we use in our business under both capital~~period ranging from seven to forty years, equipment is depreciated over a period from three to eight years, and ~~operating leases.~~

~~At December 31, 2015, we owned approximately 85%~~leasehold improvements are depreciated over the shorter of the ~~real estate~~lease term or ten years. Depreciation and ~~buildings used at our facilities,~~amortization expense related to property and ~~the remainder of the facilities were leased. At December 31, 2015, our 469 cemeteries contained a total of approximately 34,599 acres, of which approximately 65%~~equipment was ~~developed.~~

~~Table of Contents~~

~~A map of our locations in North America is presented below:~~

~~Competition~~

~~Although there are several public companies that own funeral service locations~~$147.2 million, $141.5 million, and cemeteries, the majority of deathcare businesses in North America are locally-owned, independent operations. We estimate that our funeral and cemetery market share in North America is approximately 16% based on estimated total industry revenues. The position of a single funeral service location or cemetery in any community is a function of the name, reputation, and location of that funeral service location or cemetery, although competitive pricing, professional service and attention, and well-maintained locations are also important.

We believe we have an unparalleled network of funeral service locations and cemeteries that offer high-quality products and services at prices that are competitive with local competing funeral service locations, cemeteries, and retail locations. Within this network, the funeral service locations and cemeteries operate under various names as most operations were acquired as existing businesses. We have co-branded our funeral operations under the name Dignity Memorial^®. We believe our transcontinental branding strategy gives us a strategic advantage and identity in the industry. While this branding process is intended to emphasize our seamless national network of funeral service locations and cemeteries, the original names associated with acquired operations, and their inherent goodwill and heritage, generally remain the same. For example, Geo. H. Lewis & Sons Funeral Directors is now Geo. H. Lewis & Sons Funeral Directors, a Dignity Memorial^® ~~provider.~~

~~Strategies for Growth~~

We believe we are well-positioned for long-term profitable growth. We are the largest company in the North American deathcare industry with unparalleled scale on both a national and local basis and are poised to benefit from the aging of America. The demographic landscape is driving our company strategy. According to the United States Census Bureau, the current number of Americans that are 60 and older is approximately 67 million. This number is expected to grow to more than 77$140.0 million ~~by 2020, resulting in a growing number of people that will likely be interested in preneed options.~~

~~Table of Contents~~

~~We have three core strategies designed to grow the company and enhance shareholder value: 1) grow revenue, 2) leverage our unparalleled scale, and 3) deploy capital.~~

~~Grow Revenue~~

~~We have a three-pronged approach to grow revenue that is focused on the customer and consists of: 1) remaining relevant to the customer, 2) growing our preneed sales, and 3) managing our footprint.~~

~~Remaining Relevant to the Customer.~~Remaining relevant to our customer is key to generating revenue growth in a changing customer environment. We work to meet the varying needs of our customers to give them what they want. In our funeral segment, we focus on memorialization services that will be meaningful to the customer and their family members and friends. We continue to offer contemporary product and service offerings. We also focus on the ethnic traditions and customs important to our customers. Additionally, we emphasize the simplicity and convenience of our packaged offerings.

In our cemetery segment, we have created tiers within our cemetery product offerings to provide more choices for our customers. As with our funeral home segment, we also cater to the ethnic traditions and customs important to our customers. We continue to develop innovative products such as recurring floral placements and customized cemetery property offerings. We have also simplified the decision-making process.

~~Growing Our Preneed Sales.~~Our preneed sales program drives revenue growth now and into the future. Within our funeral segment, our preneed sales create brand awareness, grow future market share, and diversify our revenue stream in a low-inflation environment. Due to our scale, our preneed sales program is not capital intensive and gives us a competitive advantage. Within our cemetery segment, we have a focus on increasing sales force productivity combined with tiered cemetery property offerings and pricing to drive current revenue growth.

~~Managing Our Footprint.~~We will continue to manage our footprint with a customer-driven focus. Within our funeral segment, we continue to pursue strategic acquisitions and to build new funeral homes in areas that provide us with the potential for scale and areas with the highest return customer categories and market traits. Within our cemetery segment, we plan to pursue strategic acquisitions to create more opportunities to sell to Baby Boomers through our customer-driven strategy. We believe our unparalleled business footprint and geographic diversity uniquely positions us to benefit from the aging Baby Boomer population.

~~Leverage Our Unparalleled Scale~~

We also leverage our unparalleled scale using a three-pronged approach, which consists of: 1) developing our sales organization, 2) optimizing our network, and 3) using our scale with our preneed trust and insurance backlog. Our size and broad geographic network of businesses gives us a significant advantage in the industry.

~~Developing Our Sales Organization.~~Over the past several years, we have invested in the infrastructure and training of our sales organization. During 2016, we will continue our focus on enhancing the productivity and effectiveness of the sales team and growing the number sales counselors. We believe that our scale allows us to expand our sales organization in a manner that our competitors cannot afford to replicate.

~~Optimizing Our Network.~~We continue to drive operating discipline and leverage our scale through standardizing processes and capitalizing on new technologies. We regularly examine our purchasing spend to look for opportunities to consolidate our supplier base, modify processes and policies for more efficient purchasing, and employ metrics to manage and improve supplier performance. Additionally, many of our accounting and administrative functions are outsourced to third-party providers, allowing for greater efficiency.

~~Using Our Scale with Our Preneed Trust and Insurance Backlog.~~ Due to our $9.5 billion backlog, we benefit from having access to premier financial partners in the industry. For our trust investments, we have access to preeminent money managers and lower fee structures, which we believe is a low risk structure that will provide us with higher returns and lower costs of administration over time. We also enjoy favorable terms with our insurance provider.

~~Deploy Capital~~

Our third core strategy is to maximize capital deployment opportunities. Our priority for capital deployment: is 1) investing in acquisitions and building new funeral service locations, 2) paying dividends, 3) repurchasing shares, and 4) repurchasing debt.

~~Investing in Acquisitions and Building New Funeral Homes.~~As noted above, we plan to use our capital to manage our footprint by focusing on strategic acquisitions and building new funeral homes where the expected returns are attractive and exceed our weighted average cost of capital plus a risk premium. We target businesses with favorable customer segments and/or where we can achieve additional economies of scale.

~~Paying Dividends.~~Our quarterly dividend rate has steadily grown from $0.025 per common share in 2005 to $0.12 per common share in 2015. We target a payout ratio of 30% to 40% of recurring net income. We intend to continue to grow our

~~Table of Contents~~

cash dividend commensurate with the growth of our free cash flow. 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.

~~Repurchasing Shares.~~Absent opportunities for strategic acquisitions, we expect to continue to repurchase shares of our common stock from time to time in the open market or through privately negotiated transactions, subject to market conditions, debt covenants, and normal trading restrictions.

~~Repurchasing Debt.We will seek to make open market debt repurchases when it is opportunistic to do so relative to other capital deployment opportunities in order to manage our near-term debt maturity profile.~~

~~Associates~~

At December 31, 2015, we employed 15,654 individuals on a full-time basis and 8,131 individuals on a part-time basis. Of the full-time associates, 14,716 were employed in the funeral and cemetery operations and 938 were employed in corporate or other overhead activities and services. All eligible associates in the United States who so elect are covered by our group health and life insurance plans. Associates covered by a collective bargaining agreement are typically covered by union health plans and are not eligible to participate in our health insurance plan. At December 31, 2015 and 2014, there were 9,447 and 9,022 associates, respectively, who had elected to participate in our group health insurance plans. Eligible associates in the United States are covered by retirement plans of SCI or various subsidiaries, while international associates are covered by other SCI (or SCI subsidiary) defined or government-mandated benefit plans. Approximately 2.5% of our associates are represented by unions. Although labor disputes occur from time to time, relations with associates are generally considered favorable.

~~Regulation~~

Our funeral operations are regulated by the Federal Trade Commission (the “FTC”) under the FTC’s Trade Regulation Rule on Funeral Industry Practices (the “Funeral Rule”), which went into effect in 1984. The Funeral Rule defines certain acts or practices as unfair or deceptive and contains certain requirements to prevent these acts or practices. The preventive measures require a funeral provider to give consumers accurate, itemized price information and various other disclosures about funeral merchandise and services and prohibit a funeral provider from: 1) misrepresenting legal, crematory, and cemetery requirements; 2) embalming for a fee without permission; 3) requiring the purchase of a casket for direct cremation; and 4) requiring consumers to buy certain funeral merchandise or services as a condition for furnishing other funeral merchandise or services.

Our operations are also subject to regulation, supervision, and licensing under numerous federal, state, and local laws and regulations as well as Canadian and provincial laws and regulations. For example, state laws impose licensing requirements for funeral service locations and funeral directors and regulate preneed sales including our preneed trust activities. Our facilities are subject to environmental, health, and safety regulations. We take various measures in order to comply with the Funeral Rule and laws and regulations. For example, we have established and maintain policies, procedures, and practices; we engage in training of our personnel; and we carry out ongoing reviews of our compliance efforts. We believe that we are in substantial compliance with the Funeral Rule and all laws and regulations.

Federal, state, and local legislative bodies and regulatory agencies (including Canadian legislative bodies and agencies) frequently propose new laws and regulations, some of which could have a material effect on our operations and on the deathcare industry in general. We cannot accurately predict the outcome of any proposed legislation or regulation or the effect that any such legislation or regulation might have on us.

~~Other~~

Our corporate headquarters are located at 1929 Allen Parkway, Houston, Texas 77019. The property consists of approximately 120,000 square feet of office space and 185,000 square feet of parking space. We own and utilize an additional building located in Houston, Texas for corporate activities containing a total of approximately 38,000 square feet of office space. We also lease approximately 29,000 square feet of office space in Houston, Texas, which we utilize for corporate activities. We own a building in Jefferson, Louisiana with approximately 98,200 square feet of office space that we use, in part, for corporate activities.

We make available free of charge, on or through our website, our annual, quarterly, and current reports and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the Securities and Exchange Commission (SEC). Our website is http://www.sci-corp.com and our telephone number is (713) 522-5141. The SEC also maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

Each of our Board of Directors’ standing committee charters, our Corporate Governance Guidelines, our Code of Ethics for Board Members, and our Code of Conduct for Officers and Employees are available, free of charge, through our website or, upon request, in print. We will post on our internet website all waivers to or amendments of our Code of Conduct for Officers

~~Table of Contents~~

~~and Employees, which are required to be disclosed by applicable law and rules of the New York Stock Exchange listing standards. Information contained on our website is not part of this report.~~

~~Item 1A.~~ ~~Risk Factors.~~

~~Cautionary Statement on Forward-Looking Statements~~

The statements in this Form 10-K that are not historical facts are forward-looking statements made in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. These statements may be accompanied by words such as “believe”, “estimate”, “project”, “expect”, “anticipate”, or “predict” that convey the uncertainty of future events or outcomes. These statements are based on assumptions that we believe are reasonable; however, many important factors could cause our actual consolidated results in the future to differ materially from the forward-looking statements made herein and in any other documents or oral presentations made by, or on behalf of, the Company. These factors are discussed below. We assume no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by the Company, whether as a result of new information, future events, or otherwise.

~~Our affiliated funeral and cemetery trust funds own investments in equity securities, fixed income securities, and mutual funds, which are affected by market conditions that are beyond our control.~~

In connection with our preneed merchandise and service sales, most affiliated trust funds own investments in equity securities, fixed income securities, and mutual funds. The fair value of these investments and our earnings and investment gains and losses on these securities and mutual funds are affected by financial market conditions that are beyond our control.

~~The following table summarizes our investment returns (realized and unrealized), excluding certain fees, on our trust funds~~ for the years ended December ~~31:~~

2015 2014 2013
Preneed funeral merchandise and service trust funds (1.5 )% 3.7 % 16.6 %
Preneed cemetery merchandise and service trust funds (1.0 )% 3.4 % 19.3 %
Perpetual care trust funds (0.3 )% 5.2 % 7.6 %

~~Generally, earnings~~31, 2016, 2015, and 2014, respectively. When property is sold or retired, the cost and related accumulated depreciation are removed from the Consolidated Balance Sheet; resulting gains and losses ~~on our trust investments~~ are ~~recognized~~included in the Consolidated Statement of Operations in the period of sale or disposal.

Leases

We have lease arrangements related to funeral service locations and ~~we withdraw cash when~~transportation equipment that were primarily classified as capital leases at December 31, 2016. Lease terms related to funeral service locations generally range from one to 40 years with options to renew at varying terms. Lease terms related to transportation equipment generally range from one to five years with options to renew at varying terms. We calculate operating lease expense ratably over the ~~underlying merchandise is delivered, service is performed, or upon contract cancellation; however, our cemetery perpetual care trusts recognize earnings,~~lease term. We consider reasonably assured renewal options and ~~in certain states capital gains and losses, and we withdraw cash when we incur qualifying cemetery maintenance costs.~~

~~If the investments~~fixed escalation provisions in our trust funds experience significant declines in 2016 or subsequent years, there could be insufficient funds in the trusts to cover the costs of delivering merchandise and services or maintaining 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, or cash flows.calculation. For more information related to ~~our trust investments,~~leases, see ~~Notes 3, 4, and 5 in Part II, Item 8. Financial Statements and Supplementary Data.~~Note 11.

IfGoodwill

The excess of purchase price over the fair value of ~~these trusts,~~identifiable net assets acquired in business combinations is recorded as goodwill. Goodwill is tested annually during the fourth quarter for impairment by assessing the fair value of each of our reporting units.

Our goodwill impairment test involves estimates and management judgment. In the first step of our goodwill impairment test, we compare the fair value of a reporting unit to its carrying amount, including goodwill. We determine fair value of each reporting unit using both a market and income approach. Our methodology considers discounted cash flows and multiples of EBITDA (earnings before interest, taxes, depreciation, and amortization). The discounted cash flow valuation uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows. We do not record an impairment of goodwill in instances where the fair value of a reporting unit exceeds its carrying amount. If the aggregate fair value is less than the related carrying amount for a reporting unit, we compare the implied fair value of goodwill to the carrying amount of goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

For our most recent annual impairment test performed in the fourth quarter, we used a 6.5% discount rate, growth rates ranging from 1.2% to 5.7% over a five-year period, plus ~~any other amount due to us upon delivery~~a terminal value determined using the constant growth method in projecting our future cash flows. Fair value was calculated as the sum of the ~~associated contracts, were to decline below~~projected discounted cash flows of our reporting units over the ~~estimated costs to deliver~~next five years plus terminal value at the ~~underlying products~~end of those five years. Our terminal value was calculated using a long-term growth rate of 2.5% and ~~services, we would record a charge to earnings to record a liability~~2.9% for the expected losses on the delivery of the associated contracts. As of December 31, 2015, no such charge was required. 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.~~

~~We may be required to replenish~~ our ~~affiliated~~ funeral and cemetery ~~trust funds in order 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, 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 decrease in trust fund value, we may be required to deposit portions or all of these amounts into the respective trusts in some future period. As of December 31, 2015, we had unrealized losses of $13.9 million in the various trusts within these states. See Off-Balance Sheet Arrangements, Contractual Obligations, and Commercial and Contingent Commitments in Part II, Item 7.

~~Table of Contents~~

~~Our ability to execute our strategic plan depends on many factors, some of which are beyond our control.~~

Our strategic plan is focused on continued revenue growth, leverage of scale, and capital deployment. 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 candidates and to complete acquisitions, divestitures, or strategic alliances as planned or to realize expected synergies and strategic benefits could impact our financial performance. Our inability to deploy 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.

~~Our credit agreements contain covenants that may prevent us from engaging in certain transactions.~~

Our Bank Credit Facility contains, 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 Facility requires us to maintain certain leverage and interest coverage ratios. These covenants and coverage ratios 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 these covenants. A breach of any of these covenants could result in a default of our indebtedness. If an event of default under our Bank Credit Facility occurs, and such event of default continues unremedied for 30 days after we receive notice thereof, 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 9 in Part II, Item 8. Financial Statements and Supplementary Data.

~~If we lost the ability to use surety bonding to support our preneed funeral and cemetery 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 $179.2 million into state-mandated trust accounts as of December 31, 2015. There can be no assurance that we would be able to obtain replacement coverage at a similar cost or at all.

~~Table of Contents~~

~~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.

~~Increasing death benefits related to preneed contracts funded through life insurance or annuity contracts may not cover future increases in the cost of providing a price-guaranteed service.~~

We sell price-guaranteed preneed contracts through various programs providing for future services at prices prevailing when the agreements are signed. For preneed contracts funded through life insurance or annuity contracts, we receive in cash a general agency commission that typically averages approximately 26% of the total sale from the third-party insurance company. Additionally, we receive an increasing death benefit associated with the contract of approximately 1% per year in cash at the time the service is performed. There is no guarantee that the increasing death benefit will cover future increases in the cost of providing a price-guaranteed service, and any such excess cost could be materially adverse to our financial condition, results of operations, and cash flows.

~~The financial condition of third-party insurance companies that fund our preneed contracts may impact our future revenues.~~

Where permitted, 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 to pay for the 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 or otherwise, there could be an adverse effect on our ability to collect all or part of the proceeds of the life insurance policy, including the annual increase in the death benefit, 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 results of litigation could have a material adverse impact on our financial statements.~~

As discussed in Note 11 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.

~~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 as well as the price of our common stock.

~~If the number of deaths in our markets declines, our cash flows and revenues may decrease.~~

If the number of deaths 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. Variations and seasonality of deaths throughout each year may also cause revenues to fluctuate between quarters or years.

~~If we are not able to respond effectively to changing consumer preferences, our market share, revenues, and profitability could decrease~~.

Future market share, revenues, and profits 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 the number of cremations performed in North America could result in lower revenues and gross profit.~~

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 2015, 51.6% of the comparable services we performed were cremation cases compared to 51.0% and 50.2% performed in 2014 and 2013,reporting units, respectively. ~~Our average revenue for cremations with service is lower than that for traditional burials. If we are unable to continue to expand our cremation memorialization products~~

~~Table of Contents~~

~~and services, and cremations remain a significant percentage of our services, our financial condition, results of operations, and cash flows could be materially adversely affected.~~

~~Our funeral and cemetery businesses are high fixed-cost businesses.~~

The majority of our operations are managed in groups called “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. Personnel costs, the largest component of our operating expenses, are the cost components most beneficially affected by this grouping. We must incur many of these costs regardless of the number of services or interments performed. Because we cannot necessarily 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.

~~Regulation and compliance could have a material adverse impact on our financial results.~~

Our operations are subject to regulation, supervision, and licensing 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. For example, the funeral industry is regulated at the federal level by the Federal Trade Commission, which requires funeral service locations to take actions designed to protect consumers. Our facilities are also subject to stringent health, safety, and environmental 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.

Businesses in general are subject to the impact of regulation and major legislation, including healthcare reform. We may experience significant increases in costs as a result of business regulations and laws, which are beyond our control, including increases in the cost of healthcare. Although we seek to control increases in these costs, continued upward pressure on costs could reduce the profitability of our business.

In addition, from time to time, governments and agencies propose to amend or add regulations or reinterpret existing regulations, which 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, 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. 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. We are continually monitoring and reviewing our operations in an effort to ensure that we are in compliance with these laws, regulations, and standards and, where appropriate, taking appropriate corrective action.

~~Cemetery burial practice claims could have a material adverse impact on our financial results.~~

Our cemetery practices have evolved and improved over time. 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 we acquired most of our cemeteries, 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.

We use a combination of insurance, self-insurance and large deductibles in managing our exposure to certain inherent risks, as such, 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, which could have a material adverse effect on our financial condition, results of operations or cash flows.

~~Table of Contents~~

~~A number of years may elapse before particular tax matters, for which we have established accruals, are audited and finally resolved.~~

The number of tax years with open tax audits varies depending on the tax jurisdiction. In the United States, the Internal Revenue Service is currently examining our tax returns for 1999 through 2007 and various state jurisdictions are auditing years through 2014. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe that our accruals reflect the probable outcome of known tax contingencies. However, unfavorable settlement of any particular issue may reduce a deferred tax asset or require the use of cash, which may have a material adverse impact to our financial statements. Favorable resolution could result in reduced income tax expense reported in the financial statements in the future. See Note 8 of Part II, Item 8. Financial Statements and Supplementary Data for additional information.

~~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 anour annual review, we assess the impairment of goodwill ~~and/or other intangible assets~~ whenever certain 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 these factors occur, we may~~No interim goodwill impairment reviews were required in 2016 or 2015. For more information related to goodwill, see Note 7.

Other Intangible Assets

Our intangible assets include customer relationships, trademarks and tradenames, and other intangible assets primarily resulting from acquisitions. Our trademark and tradenames and certain other intangible assets are considered to have ~~a triggering event, which could result in~~ an indefinite life and are not subject to amortization. We test for impairment of intangible assets annually during the fourth quarter.

Our intangible assets impairment tests involve estimates and management judgment. For trademark and tradenames, our ~~goodwill and/or other intangible assets. If~~test uses the relief from royalty method whereby we determine the fair value of the assets by discounting the cash flows that represent a savings over having to pay a royalty fee for use of the trademark and tradenames. The discounted cash flow valuation uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions ~~worsen causing deterioration~~that may differ from actual future cash flows. For our most recent annual impairment test performed in the fourth quarter, we estimated that the pre-tax savings would range from 1.0% to 4.0% of the revenue associated with the trademark and tradenames, based primarily on our ~~operating revenues, operating margins,~~research of intellectual property valuation and licensing databases. We also assumed a terminal growth rate of 2.5% and 2.9% for our funeral and cemetery segments, respectively, and discounted the cash flows ~~we may have~~at a ~~triggering event that could result in an impairment~~6.7% discount rate based on the relative risk of our goodwill and/or other intangible assets. Our cemetery segment, which has a goodwill balance of $305.8 million as of December 31, 2015, 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 maintain the security of the information relating~~these assets 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.overall business.

In the ordinary course of our business, we receive certain personal information, in both physical and electronic formats, about our customers, their loved ones, our associates, and our vendors. In addition, our online operations at our websites depend upon the secure transmission of confidential information over public networks, including information permitting electronic payments. We maintain substantial security measures and data backup systems to protect, store, and prevent unauthorized access to such information. Nevertheless, it is possible that computer hackers and others (through cyberattacks, which are rapidly evolving and becoming increasingly sophisticated, or by other means) 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. Further, our associates, contractors, or third parties with whom we do business may attempt to circumvent our security measures in order 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 against us or the imposition of penalties. Moreover, a security breach could require that we expend significant additional resources to upgrade further the security measures that we employ to guard such important personal information against cyberattacks and other attempts to access such information and could result in a disruption of our operations.

~~Our Canadian business exposes us to operational, economic, and currency risks.~~

Our Canadian operations represent a significant portion 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 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 will not be available for other purposes,

~~Table of Contents~~

~~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 senior credit facilities, bears interest at floating rates; and

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~~annual review, we assess the impairment of ~~indebtedness, we also have~~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 impairment review include, but are not limited to, significant ~~rental~~under-performance relative to historical or projected future operating results and other obligations under our operating and capital leases for funeral service locations, cemetery operating and maintenance equipment, and transportation equipment. These obligations could further increase the risks described above.significant negative industry or economic trends. No interim intangible impairment reviews were required in 2016 or 2015.

~~Failure to maintain effective internal control over financial reporting could adversely affect our results of operations, investor confidence, and our stock price.~~

~~The accuracy~~Certain of our ~~financial reporting depends on the effectiveness~~intangible assets associated with prior acquisitions are relieved using specific identification in performance of our internal control over financial reporting. Internal control over financial reporting can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements and may not prevent or detect misstatements because of its inherent limitations. If we do not maintain effective internal control over financial reporting or implement controls sufficient to provide reasonable assurance with respect to the preparation and fair presentation of our financial statements, we could be unable to file accurate financial reportsa contract. We amortize all other finite-lived intangible assets on a ~~timely~~straight-line basis ~~and our results of operations, investor confidence, and stock price could be materially adversely affected.~~

~~Item 1B.~~ ~~Unresolved Staff Comments.~~over their estimated useful lives which range from two to forty years. For more information related to intangible assets, see Note 7.

~~None.~~


~~Item 2.~~	~~Properties.~~

~~Information regarding properties is set forth in Part I, Item 1. Business.~~

~~Table of Contents~~


~~Item 3.~~	~~Legal Proceedings.~~

~~Information regarding legal proceedings is set forth in Note 11 of Part II, Item 8. Financial Statements and Supplementary Data.~~Fair Value Measurements

~~EXECUTIVE OFFICERS OF THE COMPANY~~

~~The following table sets forth as of February 16, 2016,~~We measure the ~~name and age of each executive officer of the Company, the office~~available-for-sale securities held ~~and the year first elected an officer.~~

Officer Name Age Position Year First
Became Officer
Thomas L. Ryan 50
Chairman of the Board and Chief Executive Officer 1999
Michael R. Webb 57
President and Chief Operating Officer 1998
Eric D. Tanzberger 47
Senior Vice President, Chief Financial Officer and Treasurer 2000
Gregory T. Sangalis 60
Senior Vice President, General Counsel and Secretary 2007
Sumner J. Waring, III 47
Senior Vice President, Operations 2002
Steven A. Tidwell 54
Senior Vice President, Sales and Merchandising 2010
Tammy R. Moore 48
Vice President and Corporate Controller 2010
R. L. Waltrip 85
Founder and Chairman Emeritus 1962

Mr. Ryan was elected Chairman of the Board of SCI effective in January 2016 and, previously, he had been appointed Chief Executive Officer in February 2005. He joined the Company in 1996 and served in a variety of financial management roles until November 2000, when he was asked to serve as Chief Executive Officer of European Operations based in Paris, France. In July 2002, Mr. Ryan returned to the United States where he was appointed President and Chief Operating Officer of SCI. Before joining SCI, Mr. Ryan was a certified public accountant with Coopers & Lybrand LLP for eight years. He holds a bachelor's degree in business administration from the University of Texas at Austin. Mr. Ryan serves as a member of the Board of Trustees of the United Way of Greater Houston. Mr. Ryan also serves on the Board of Directors of the Greater Houston Partnership, the Greater Houston Community Foundation Governing Council, the Board of Directors of Genesys Works and the University of Texas McCombs Business School Advisory Council. Mr. Ryan is a member of the Board of Trust Managers of Weingarten Realty Investors (NYSE: WRI) and serves as a director of Chesapeake Energy (NYSE: CHK).

Mr. Webb was elected President and Chief Operating Officer of Service Corporation International in February 2016. Prior to that he served was Executive Vice President and Chief Operating Officer since February 2005. Mr. Webb joined the Company in 1991 when SCI acquired Arlington Corp., a regional funeral and cemetery consolidator, where he served as Chief Financial Officer. In 1993, Mr. Webb joined the Company's corporate development group, which he later led on a global basis. Prior to joining Arlington Corp., Mr. Webb held various executive financial and development roles at Days Inns of America and Telemundo Group Inc. He holds a bachelor's degree in business administration from the University of Georgia.

Mr. Tanzberger was appointed Senior Vice President and Chief Financial Officer in June 2006 and was named Treasurer in July 2007. Mr. Tanzberger joined the Company in August 1996 and held various management positions prior to being promoted to Corporate Controller in August 2002. Before joining SCI, Mr. Tanzberger served as Assistant Corporate Controller at Kirby Marine Transportation Corp., an inland waterway barge and tanker company. He also served at Coopers and Lybrand LLP. Mr. Tanzberger holds a bachelor's in business administration from the University of Notre Dame. He serves on the Board of Directors of New Orleans Medical Mission Services.

Mr. Sangalis joined the Company in 2007 as Senior Vice President, General Counsel and Secretary. In 2012, his responsibilities were expanded to include Human Resources. He previously served as Senior Vice President, Law and Administration for Team Inc., a leading provider of specialty industrial maintenance and construction services. Prior to that, Mr. Sangalis served as Managing Director and General Counsel of Main Street Equity Ventures II, a private equity investment firm, and as Senior Vice President, General Counsel and Secretary for Waste Management Inc., the leading provider of waste management services in North America. Mr. Sangalis holds a bachelor's degree in finance from Indiana University and a masters in business administration. from the University of Minnesota. He earned his juris doctorate from the University of Minnesota Law School where he graduated Cum Laude.

Mr. Waring, Senior Vice President, is responsible for North American Operations. He joined SCI in 1996 as Area Vice President of Operations when SCI acquired his family's funeral business. He was appointed President of the Northeast Region in 1999 and President of the Pacific Region in September 2001. In September 2002, Mr. Waring was appointed Vice President, Western Operations, a position he held until May 2004 when he was appointed Vice President, Major Markets Operations. He was promoted to Senior Vice President in 2006. In May 2015, Mr. Waring's responsibilities were expanded to include all operations in North America. Mr. Waring holds a bachelor's degree in business administration from Stetson University, a degree

~~Table of Contents~~

in mortuary science from Mount Ida College, and a master's in business administration from the University of Massachusetts Dartmouth. Mr. Waring serves on the Board of Directors of BankFive and the Board of Trustees of Tabor Academy.

Mr. Tidwell joined SCI as Vice President, Main Street Market Operations, in March 2010 and was promoted to Senior Vice President of Sales and Merchandising in 2012. As a co-founder of Keystone North America, Inc., Mr. Tidwell served as its President and Chief Executive Officer from May 2007 until it was acquired by SCI in March 2010. In his role, Mr. Tidwell worked closely with Keystone's Senior Leadership Team to develop and implement organic growth strategies as well as external growth and acquisition strategies. He began his career as a licensed Funeral Director and Embalmer in Nashville, Tennessee, and has been actively involved in the funeral, and cemetery profession for thirty-five years. He holds an AA degree from John A. Gupton College and has attended Executive Management and Leadership programs at the Harvard Business School, The Owen School of Business at Vanderbilt University and the Center for Creative Leadership.

Mrs. Moore joined the Company in August 2002 as Manager of Financial Reporting. She was promoted to Director of Financial Reporting in 2004 and Managing Director and Assistant Controller in June 2006. In February 2010, she was promoted to Vice President and Corporate Controller and oversees all general accounting, internal and external reporting, customer service and strategic planning and analysis. Prior to joining the Company, Mrs. Moore was a Certified Public Accountant with PricewaterhouseCoopers LLP for more than three years. She holds a bachelor of business administration degree in accounting from the University of Texas at San Antonio.

Mr. Waltrip was appointed the Founder and Chairman Emeritus of SCI effective in January 2016. Prior thereto, he was Chairman of the Board and provided invaluable leadership to the Company for over 50 years. A licensed funeral director, Mr. Waltrip grew up in his family's funeral business and assumed management of the firm in the 1950s. He began buying additional funeral service locations in the 1960s and achieved significant cost efficiencies through the “cluster” strategy of sharing pooled resources among numerous locations. At the end of 2015, the network he began had grown to include more than 2,000 funeral service locations and cemeteries. Mr. Waltrip took SCI public in 1969. Mr. Waltrip holds a bachelor's degree in business administration from the University of Houston.


~~Item 4.~~	~~Mine Safety Disclosures.~~

~~Not applicable.~~

~~Table of Contents~~

~~PART II~~


~~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, 2015, there were 4,768 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, 2015, we had 195,772,876 shares outstanding, net of 5,086,800 treasury shares.

In 2015 and 2014 we paid quarterly cash dividends totaling $87.6 million and $71.5 million, respectively. While we intend to pay regular quarterly cash dividends for the foreseeable future, all subsequent dividends are subject to limitations in our debt covenants and final determination by our ~~Board of Directors each quarter after its review of our financial performance.~~

~~The table below shows our quarterly high~~funeral merchandise and ~~low closing common stock prices for the two years ended December 31:~~

2015 2014
High Low High Low
First quarter $ 27.04
$ 22.29
$ 19.88
$ 16.82
Second quarter $ 30.07
$ 26.25
$ 20.80
$ 18.66
Third quarter $ 31.94
$ 26.64
$ 22.34
$ 19.96
Fourth quarter $ 29.68
$ 25.36
$ 23.22
$ 20.30

~~Options in our common stock are primarily traded on the Philadelphia Stock Exchange~~service, cemetery merchandise and ~~the Chicago Board Options Exchange. Our common stock is traded on the New York Stock Exchange under the symbol SCI.~~

~~Stock Performance Graph.~~ This graph assumes the total return on $100 invested on December 31, 2010, in SCI Common Stock, the S&P 500 Index, and a peer group selected by the Company (the “Peer Group”). The Peer Group comprises Carriage Services, Inc., Hillenbrand Inc., and Matthews International Corp. Rock of Ages Corporation was included in the Peer Group until January 19, 2011 when it was acquired by Swenson Granite, LLC. Stewart Enterprises, Inc. was included in the Peer Group until December 31, 2013 when it was acquired by us. Total return data assumes reinvestment of dividends.

~~TOTAL STOCKHOLDER RETURNS~~

~~INDEXED RETURNS~~

~~Years Ending~~

~~For equity compensation plan information, see Part III of this Form 10-K.~~

~~Table of Contents~~

On December 31, 2015, we issued 1,533 deferred common stock equivalents or units pursuant to provisions regarding the receipt of dividends under the Amended and Restated Director Fee Plan to five non-employee directors. These issuances were unregistered as they did not constitute a “sale” within the meaning of Section 2(a)(3) of the Securities Act of 1933, as amended.

Since August 2004, we have repurchased a total of $2.1 billion of common stock at an average cost per share of $11.62. Under our share repurchase program, during the year ended December 31, 2015, we repurchased 12,455,281 shares at an aggregate cost of $345.3 million, which is an average cost per share of $27.72. During the year ended December 31, 2014, we repurchased 11,488,332 shares at an aggregate cost of $242.9 million, which is an average cost per share of $21.14. On August 12, 2015, our Board of Directors increased our repurchase authorization to $400.0 million. After these repurchases and increase in authorization, the remaining dollar value of shares authorized to be purchased under the share repurchase program was $278.8 million at December 31, 2015. As discussed in Item 1A, our contains covenants that may restrict our ability to repurchase our common stock.

Period Total Number of
Shares Purchased Average
Price Paid per Share Total Number
of Shares
Purchased as
Part of Publicly
Announced Programs Dollar Value of
Shares That
May Yet be
Purchased Under the Program
October 1, 2015 — October 31, 2015 654,305
$ 28.20
654,305
$ 300,121,653
November 1, 2015 — November 30, 2015 679,200
$ 27.03
679,200
$ 281,752,329
December 1, 2015 — December 31, 2015 113,200
$ 25.98
113,200
$ 278,808,832
1,446,705
1,446,705

~~Subsequent to December 31, 2015, we repurchased 977,396 shares for $24.0 million at an average cost per share of $24.51.~~

~~Table of Contents~~


~~Item 6.~~	~~Selected Financial Data.~~

The data set forth below should be read in conjunction with our consolidated financial statements and accompanying notes to these consolidated financial statements. This historical information is not necessarily indicative of future results. The table below contains selected consolidated financial data as of and for the years ended December 31, 2011 through December 31, 2015.

Years Ended December 31,
2015 2014 2013 2012 2011
(Dollars in millions, except per share amounts)
Selected Consolidated Statements of Operations Data:

Revenue $ 2,986.4
$ 2,994.0
$ 2,550.5
$ 2,404.4
$ 2,309.5
Net income 234.9
178.8
152.6
155.4
147.3
Net income attributable to noncontrolling interests (1.2 ) (6.3 ) (5.3 ) (1.6 ) (1.3 )
Net income attributable to common stockholders 233.8
172.5
147.3
153.8
146.0
Earnings per share:

Income from continuing operations attributable to common stockholders

Basic $ 1.17
$ 0.81
$ 0.70
$ 0.71
$ 0.62
Diluted $ 1.14
$ 0.80
$ 0.68
$ 0.70
$ 0.62
Net income attributable to common stockholders
Basic $ 1.17
$ 0.82
$ 0.70
$ 0.71
$ 0.62
Diluted $ 1.14
$ 0.81
$ 0.68
$ 0.70
$ 0.62
Cash dividends declared per share $ 0.44
$ 0.34
$ 0.27
$ 0.23
$ 0.20
Selected Consolidated Balance Sheet Data (at December 31):

Total assets $ 11,718.9
$ 11,923.6
$ 12,833.6
$ 9,588.5
$ 9,233.1
Long-term debt (less current maturities), including capital leases $ 3,071.7
$ 2,963.8
$ 3,125.5
$ 1,916.6
$ 1,861.1
Equity $ 1,189.4
$ 1,377.4
$ 1,480.2
$ 1,415.2
$ 1,463.3
Selected Consolidated Statement of Cash Flows Data:
Net cash provided by operating activities $ 472.2
$ 317.4
$ 384.7
$ 369.2
$ 388.1


~~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 homes and cemeteries unequaled in geographic scale and reach. At December 31, 2015, we operated 1,535 funeral service locations and 469 cemeteries (including 262 combination locations), which are geographically diversified across 45 states, eight Canadian provinces, the District of Columbia, and Puerto Rico. Our funeral service, and cemetery ~~operations consist~~perpetual care trusts at fair value on a recurring basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We utilize a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;

Level 2 — inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and

Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement.

An asset’s or liability’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Certain available-for-sale securities held by our funeral ~~service locations, cemeteries, funeral service/cemetery combination locations, crematoria,~~merchandise and ~~related businesses. We sell cemetery property and funeral and~~service, cemetery merchandise and ~~services at~~service, and cemetery perpetual care trusts have been classified in Level 3 of the ~~time of need and on~~hierarchy due to the significant management judgment required as a ~~preneed basis.~~

~~Our financial position is enhanced by our $9.5 billion backlog of future revenues from both trust and insurance-funded sales at December 31, 2015, which is the~~ result of ~~preneed funeral and cemetery sales. Preneed arrangements provide us with a current opportunity to secure future~~the absence of quoted market ~~share while deterring~~prices, inherent lack of liquidity, or the customer from going to a competitor in the future. We believe it adds to the stability and predictability of our revenue and cash flows. While revenue on the majority of preneed funeral sales is deferred until the time of need, sales of preneed cemetery property interment rights provide opportunities for full current revenue recognition (to the extent we collect 10% from the customer and the property is fully developed).

~~We believe we have the financial strength and flexibility to reward shareholders through dividends while maintaining a prudent capital structure and pursuing new opportunities for profitable growth.~~

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 merchandise and services and cremation memorialization cemetery property; controlling salary, merchandise costs, and other expense categories;

~~Table of Contents~~

and exercising pricing leverage related to our at-need revenues. The average revenue per funeral contract is influenced by the mix of burial and cremation services because our average cremation service revenue is approximately halflong-term nature of the average revenue earned from a burial service. To further enhance revenue opportunities we are developing memorialization products and services that specifically appeal to cremation customers. We believe that thesesecurities. For additional ~~products and services will help drive increases in the average revenue~~disclosures for ~~a cremation in future periods.~~

~~For further discussion of our key operating metrics, see our Results of Operations and Cash Flow sections below.~~

~~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 $472.2 million in 2015. In addition, as of December 31, 2015, we have $199.0 million in excess borrowing capacity under our Bank Credit Facility. As of December 31, 2015, we have $95.2 million in current maturities of long-term debt, which primarily consists of the current amounts due on the Term Loan and capital leases.

~~Our Bank Credit Facility requires us to maintain certain leverage and interest coverage ratios. As of December 31, 2015, we were in compliance with~~ all of our ~~debt covenants. Our financial covenant requirements~~available-for-sale securities, see Notes 3, 4, and ~~actual ratios as of December 31, 2015 are as follows:~~5.



	~~Per Credit Agreement~~	~~Actual~~
~~Leverage ratio~~	~~4.25 (Max)~~	~~3.82~~
~~Interest coverage ratio~~	~~3.00 (Min)~~	~~4.89~~

Treasury Stock

We believe the sources of liquidity can be supplemented by our ability to access the capital markets for additional debt or equity securities. We believe that our approximately $85.0 million of unencumbered cash on hand, future operating cash flows, and the available capacity under our Bank Credit Facility 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 expected minimum operating cash in transit, we believe approximately $85.0 million of our $134.6 million in cash on hand is unencumbered.

In August 2015, we completed the public offering of $300.0 million aggregate principal amount of our 5.375% Senior Notes due 2024 in a reopening of our existing series of such Notes. The net proceeds, which included a premium of $11.3 million, from the offering were used to redeem all of our outstanding 6.750% Senior Notes due 2016 and to repay $100.0 million of outstanding borrowings under our Bank Credit Facility.

~~We intend to evaluate the best uses of our cash flow that will yield the highest value and return on capital. Our capital deployment strategy is prioritized as follows:~~

~~Invest in acquisitions and new builds.~~ ~~We intend to~~ make acquisitions of funeral service locations and cemeteries when pricing and terms are favorable. We expect an acquisition investment to earn an after-tax cash return that is in excess of our weighted average cost of capital with room for execution risk. We will also invest in the construction of funeral service locations. We target businesses with favorable customer segments and/or where we can achieve additional economies of scale.

~~Pay a dividend.~~Our quarterly dividend rate has steadily grown from $0.025 per common share in 2005 to $0.12 per common share at the end of 2015, a 33% increase over 2014. We target a payout ratio of 30% to 40% of recurring net income. We intend to continue to grow our cash dividend commensurate with the growth of our free cash flow. 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.

~~Repurchase shares.Absent a strategic acquisition opportunity, we believe share repurchases are attractive at the appropriate price. During the year ended December 31, 2015, we repurchased 12,455,281 shares of common~~treasury stock at an aggregate cost of $345.3 million, which is an average cost per share of $27.72. After these repurchases, the remaining dollar value of shares authorized to be purchased under our share repurchase program was approximately $278.8 million at December 31, 2015. We intend to make purchases ~~from time to time~~ in the open market or through privately negotiated transactions subject to market conditions ~~debt covenants,~~ and normal trading restrictions. ~~Our Bank Credit Facility contains covenants that limit our ability to~~We account for the repurchase ~~our common stock. There can be no assurance that we will buy~~of our common stock under the par value method. In 2016, we canceled 7.9 million shares of common stock held in our ~~repurchase program~~treasury. We canceled 8.0 million and 11.0 million shares of common stock held in our treasury in 2015 and 2014, respectively. These retired treasury shares were changed to authorized but unissued status.

Foreign Currency Translation

All assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at exchange rates in effect as of the end of the reporting period. Revenue and expense items are translated at the average exchange rates for the reporting period. The resulting translation adjustments are included in Equity as a component of Accumulated other comprehensive income in the ~~future.~~Consolidated Statement of Equity and Consolidated Balance Sheet.

~~Repurchase debt.~~The functional currency of SCI and its subsidiaries is the respective local currency. The transactional currency gains and losses that arise from transactions denominated in currencies other than the functional currencies of our operations are recorded in Other (expense) income , net in the Consolidated Statement of Operations. We ~~will seek~~do not have an investment in foreign operations considered to ~~make open market debt repurchases~~be in highly inflationary economies.

Funeral Operations

Revenue is recognized when itfuneral merchandise is ~~opportunistic~~delivered or funeral services are performed. We sell price-guaranteed preneed funeral contracts through various programs providing for future funeral services at prices prevailing when the agreements are signed. Revenue associated with sales of preneed funeral contracts is deferred until funeral merchandise is delivered or the funeral services are performed, generally at the time of need. Travel protection and certain memorialization merchandise sold on a preneed basis is delivered to ~~do so~~the customer at the time of sale and is recognized at the time delivery has occurred. While these items are sold as part of preneed funeral arrangements they are also offered on a stand-alone basis. The total consideration received for these arrangements is allocated to each item based on relative ~~to other capital deployment opportunities in order to manage our near-term debt maturity profile. We have a relatively consistent annual cash flow stream that~~selling price determined using either vendor specific objective evidence of the selling price or third-party evidence of selling price. Vendor specific objective evidence of the selling price is generally resistant to down economic cycles. This cash flow stream and our significant liquidity is available to substantially reduce our long-term debt maturities should we choose to do so. Furthermore, our capital expenditures are generally discretionary in nature and can be manageddetermined based on the ~~availability~~ price we sell the items for on a stand-alone basis. Third-party evidence

of selling price is based on the price of our largely interchangeable products that are sold in stand-alone sales to similarly situated customers. There is no general right of return for delivered items.

Pursuant to state or provincial law, all or a portion of the proceeds from funeral merchandise or services sold on a preneed basis may be required to be paid into trust funds. We defer investment earnings related to these merchandise and service trusts until the associated merchandise is delivered or services are performed. Costs related to sales of merchandise and services are charged to expense when merchandise is delivered or services are performed. Sales taxes collected are recognized on a net basis in our consolidated financial statements. See Note 3 for more information regarding preneed funeral activities.

Cemetery Operations

Revenue associated with sales of cemetery merchandise and services is recognized when merchandise is delivered or the service is performed. Revenue associated with sales of preneed cemetery property interment rights is deferred until the property is constructed and a minimum of 10% of the sales price is collected. For non-personalized merchandise (such as vaults) and services, we defer the revenue until the merchandise is delivered or the services are performed. For personalized marker merchandise, with the customer’s direction generally obtained at the time of sale, we can choose to order, store, and transfer title to the customer. In situations in which we have no further obligation or involvement related to the merchandise, we recognize revenue and record the cost of sales upon the earlier of vendor storage of these items or delivery in our cemetery. The total consideration received for these arrangements is allocated to each item based on relative selling price determined using vendor specific objective evidence of the selling price. Vendor specific objective evidence of the selling price is determined based on the price we sell the items for on a stand-alone basis. There is no general right of return for delivered items.

Pursuant to state or provincial law, all or a portion of the proceeds from cemetery merchandise or services sold on a preneed basis may be required to be paid into trust funds. We defer investment earnings related to these merchandise and services trusts until the associated merchandise is delivered or services are performed.

A portion of the proceeds from the sale of cemetery property interment rights is required by state or provincial law to be paid into perpetual care trust funds. Investment earnings from these trusts are distributed to us regularly, are recognized in current cemetery revenue, and are intended to defray cemetery maintenance costs, which are expensed as incurred. The principal of such perpetual care trust funds generally cannot be withdrawn.

Costs related to the sale of property interment rights include the property and construction costs specifically identified by project. Property and construction costs are charged to expense when the revenue is recognized by specific identification in the performance of a contract. Costs related to sales of merchandise and services are charged to expense when merchandise is delivered or when services are performed. Sales taxes collected are recognized on a net basis in our consolidated financial statements. See Notes 4 and 5 for more information regarding preneed cemetery and perpetual care activities.

Preneed Funeral and Cemetery Receivables

We sell preneed contracts whereby the customer enters into arrangements for future merchandise and services prior to the time of need. As these contracts are entered into prior to the delivery of the related merchandise and services, the preneed funeral and cemetery receivables are offset by a comparable deferred revenue amount. These receivables have an interest component for which interest income is recorded when the interest amount is considered collectible and realizable, which typically coincides with cash payment. We do not accrue interest on financing receivables that are not paid in accordance with the contractual payment date given the nature of our merchandise and services, the nature of our contracts with customers, and the timing of the delivery of our services. We do not consider receivables to be past due until the merchandise or services are required to be delivered at which time the preneed receivable is paid or reclassified as a trade receivable with payment terms of less than 30 days. As the preneed funeral and cemetery receivables are offset by comparable deferred revenue amounts, we have no risk of loss related to these receivables.

If a preneed contract is canceled prior to delivery, state or provincial law determines the amount of the refund owed to the customer, if any, including the amount of the attributed investment earnings. Upon cancellation, we receive the amount of principal deposited to the trust and previously undistributed net investment earnings and, where required, issue a refund to the customer. We retain excess funds, if any, and recognize the attributed investment earnings (net of any investment earnings payable to the customer) as revenue in the Consolidated Statement of Operations. In certain jurisdictions, we may be obligated to fund any shortfall if the amount deposited by the customer exceeds the funds in trust. Based on our historical experience, we have provided an allowance for cancellation of these receivables, which is recorded as a reduction in receivables with a corresponding offset to deferred revenue.

Income Taxes

and we could be required to further adjust that valuation allowance in the near term if market conditions change materially and future earnings are, or are projected to be, significantly different than our current estimates. An increase in the valuation allowance would result in additional income tax expense in such period. All deferred tax assets and liabilities, along with any related valuation allowances are classified as non-current on our Consolidated Balance Sheet.

Recently Issued Accounting Standards

Revenue Recognition

In May 2014, the FASB issued"Revenue from Contracts with Customers,"which replaces most existing revenue recognition guidance. During 2016, the FASB made several amendments to the new standard that clarified guidance on several matters, including principal vs. agent considerations, identifying performance obligations, sales taxes, and licensing.

The new standard, as amended, requires that we recognize revenue in the amount to which we expect to be entitled for delivery of promised goods and services to our customers. The new standard will also result in enhanced revenue related disclosures, including any significant judgments and changes in judgments. Additionally, the new standard requires the deferral of incremental selling costs to the period in which the underlying revenue is recognized.

The new standard will be effective for us beginning January 1, 2018 and we intend to implement the standard with the modified retrospective approach, which recognizes the cumulative effect of application recognized on that date. We have not fully determined the impact on the new standard on our consolidated results of operations, consolidated financial position, and cash flows. However, we believe the standard primarily impacts the manner in which we recognize certain nonrefundable up-front fees and incremental costs to acquire new preneed funeral trust contracts and preneed and atneed cemetery contracts (i.e., selling costs). The nonrefundable fees will be deferred and recognized as revenue when the underlying goods and services are delivered to the customer. The incremental selling costs will be deferred and amortized by specific identification to the delivery of the underlying goods and services.

We will continue to expense costs to acquire new preneed funeral insurance contracts in the period incurred. The insurance contracts are not and will not be reflected in our Consolidated Balance Sheet because they do not represent assets or liabilities as we have no claim to the insurance proceeds until the contract is fulfilled and no obligation under the contract until the benefits are assigned to us after the time of need.

Inventory

In July 2015, the FASB amended "Inventory" to state that an entity using an inventory method other than last-in, first out ("LIFO") or the retail inventory method should measure inventory at the lower of cost or net realizable value. The new guidance clarifies that net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new guidance was effective for us on January 1, 2017 and adoption did not materially impact our consolidated results of operations, consolidated financial position, and cash flows.

Financial Instruments

In January 2016, the FASB amended "Financial Instruments" to provide additional guidance on the recognition and measurement of financial assets and liabilities. The amendment requires investments in equity instruments to be measured at fair value with changes in fair value reflected in net income. The new guidance is effective for us on January 1, 2018, and we are still evaluating the impact of adoption on our consolidated results of operations, consolidated financial position, and cash flows.

In June 2016, the FASB amended "Financial Instruments" to provide financial statement users with more decision-useful information about the expected credit losses on debt instruments and other commitments to extend credit held by a reporting entity at each reporting date. This amendment replaces the incurred loss impairment methodology in the current standard with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new guidance is effective for us on January 1, 2020, and we are still evaluating the impact of adoption on our consolidated results of operations, consolidated financial position, and cash flows.

Leases

Stock Compensation

In March 2016, the FASB amended "Stock Compensation" to simplify certain aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and

classification on the statement of cash flows. The new guidance is effective for us on January 1, 2017. If we had adopted this amendment for the year ended December 31, 2016, Net cash provided by operating activities and Net cash ~~flow.~~used in financing activities would have both increased by $12.7 million and our Provision for income taxes would have decreased by $12.7 million.

~~Table of Contents~~

~~Cash Flow~~

~~We believe 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 $472.2 million, $317.4 million, and $384.7 million for the years ended December 31, 2015, 2014, and 2013 respectively.~~

~~Included in operating cash flows are the following:~~

Years Ended December 31,
2015 2014 2013
(In millions)
Excess tax benefits from share-based awards $ (18.1 ) $ (30.1 ) $ —
Payments related to tax structure changes $ (10.5 ) $ —
$ —
Legal defense fees $ —
$ (10.3 ) $ (6.8 )
Premium paid on early extinguishment of debt $ (6.5 ) $ (24.8 ) $ —
Acquisition, integration, and system transition costs $ (6.6 ) $ (62.2 ) $ (48.7 )
Taxes paid on divestitures $ —
$ (63.8 ) $ —

~~Excluding the above items, cash flow from operations increased $5.3 million for 2015 versus 2014 and $68.4 million for 2014 versus 2013. The 2015 increase comprises:~~

~~a $41.0 million increase in cash receipts from customers,~~

~~a $12.7 million decrease in vendor and other payments, and~~Revenue Recognition

•In May 2014, the FASB issued~~a $10.6 million decrease in cash interest paid; partially offset by~~

•"Revenue from Contracts with Customers,"~~a $51.1 million increase in tax payments,~~which replaces most existing revenue recognition guidance. During 2016, the FASB made several amendments to the new standard that clarified guidance on several matters, including principal vs. agent considerations, identifying performance obligations, sales taxes, and

•~~a $7.9 million increase in payroll.~~ licensing.

The ~~2014 increase was primarily driven by~~new standard, as amended, requires that we recognize revenue in the ~~increase~~amount to which we expect to be entitled for delivery of promised goods and services to our customers. The new standard will also result in ~~our size due~~enhanced revenue related disclosures, including any significant judgments and changes in judgments. Additionally, the new standard requires the deferral of incremental selling costs to the ~~Stewart acquisition~~period in which the underlying revenue is recognized.

The new standard will be effective for us beginning January 1, 2018 and ~~comprises:~~

~~a $423.2 million increase in cash receipts from customers, primarily due~~we intend to ~~higher cash receipts from higher preneed sales and an increase in consolidated atneed revenue, and~~

~~a $11.7 million increase in General Agency (GA) receipts due to an increase in preneed insurance production; partially offset by~~

~~a $169.0 million increase in payroll,~~

~~a $130.7 million increase in vendor and other payments,~~

~~a $50.3 million increase in interest payments, and~~

~~a $16.5 million increase in tax payments.~~

~~Investing Activities~~

Cash flows from investing activities used $166.4 million in 2015 compared to providing $257.3 million in 2014 and using $1,156.8 million in 2013. The $423.7 million decrease from 2015 over 2014 is primarily due toimplement the ~~2014 sales proceeds of divested locations from the required sale of locations under our consent decree~~standard with the ~~Federal Trade Commission. The change from 2014 over 2013 is primarily related to $1.1 billion (net~~modified retrospective approach, which recognizes the cumulative effect of ~~cash acquired) capital deployed in 2013 for the strategic acquisition of Stewart Enterprises.~~

Capital expenditures grew $6.5 million in 2015 compared to 2014 after having increased $31.6 million in 2014 from 2013. The 2014 increase primarily stems from the increase in the size of the company following the Stewart acquisition.

~~Financing Activities~~

~~Financing activities used $338.5 million in 2015 compared to using $538.0 million in 2014 and providing $825.1 million in 2013.~~

During 2015 we borrowed $54.0 million, net of repayments. In 2014, we repaid $278.2 million of our debt, net of issuances. Outside of payments made when due under the terms of the debt instruments, our major activity in 2014 was to

~~Table of Contents~~

~~refinance portions of our debt. In 2013, we borrowed $902.1 million, net of repayments, primarily to fund the acquisition of Stewart.~~

~~We spent $345.3 million, $242.9 million, and $1.7 million~~application recognized on share repurchases in 2015, 2014, and 2013, respectively. The share repurchase activity in 2013 is significantly lower than the other years as we reduced our activity to save cash for the acquisition of Stewart.

~~Our dividend rate has steadily increased since 2005. We paid $87.6 million, $71.5 million, and $57.2 million of dividends in 2015, 2014, and 2013, respectively.~~

~~Proceeds from stock option exercises decreased $0.6 million in 2015 compared to 2014 after increasing $26.1 million in 2014 compared to 2013.~~

~~During 2014, we acquired the remaining 10% of Neptune for $15.0 million after acquiring 20% in 2013 for $23.3 million.~~

~~Off-Balance Sheet Arrangements, Contractual Obligations, and Commercial and Contingent Commitments~~

that date. We have ~~assumed various financial obligations and commitments in~~not fully determined the ~~ordinary course of conducting our business. We have contractual obligations requiring future cash payments under existing contractual arrangements, such as debt maturities, interest~~impact on long-term debt, operating lease agreements, and employment, consulting, and non-competition agreements. We also have commercial and contingent obligations that result in cash payments only if certain events occur requiring our performance pursuant to a funding commitment.

~~The following table details our known future cash payments (on an undiscounted basis) related to various contractual obligations as of December 31, 2015.~~

Payments Due by Period
Contractual Obligations 2016 2017-2018 2019-2020 Thereafter Total
(In millions)
Debt maturities, net of discounts (including capital leases)⁽¹⁾
$ 95.2
$ 1,164.9
$ 242.0
$ 1,664.8
$ 3,166.9
Interest obligation on long-term debt⁽²⁾
161.9
278.3
210.9
291.1
942.2
Operating lease agreements⁽³⁾
14.5
22.7
15.8
61.0
114.0
Employment and management, consulting, and non-competition agreements⁽⁴⁾
6.8
10.3
7.4
6.0
30.5
Pension obligation⁽⁵⁾
3.7
6.6
5.9
10.6
26.8
Total contractual obligations $ 282.1
$ 1,482.8
$ 482.0
$ 2,033.5
$ 4,280.4

~~(1)~~

~~Our outstanding indebtedness contains~~the new standard provisions, such as payment delinquency default clauses and change of control clauses. In addition, our Bank Credit Facility contains a maximum leverage ratio and a minimum interest coverage ratio. See “Capital Allocation Considerations” and Note 9 in Part II, Item 8. Financial Statements and Supplementary Data, for additional details related to our long-term debt.


~~(2)~~	Approximately 76% of our total debt is fixed rate debt for which the interest obligation was calculated at the stated rate. Future interest obligations on our floating rate debt are based on the current forward rate curve of the underlying index. See Note 9 in Part II, Item 8. Financial Statements and Supplementary Data, for additional information related to our future interest obligations.

~~(3)~~

The majority of our lease arrangements contain options to i) purchase the property at fair value on the exercise date, ii) purchase the property for a value determined at the inception of the leases, or iii) renew for the fair rental value at the end of the primary lease term. Our leases primarily relate to funeral and cemetery operating and maintenance equipment. See Note 11 in Part II, Item 8. Financial Statements and Supplementary Data, for additional details related to our leases.

~~(4)~~

We have entered into employment and management, consulting, and non-competition agreements that require us to make cash payments over the contractual period. The agreements have been primarily entered into with certain officers and employees and former owners of businesses acquired. Agreements with contractual periods less than one year are excluded. See Note 11 in Part II, Item 8. Financial Statements and Supplementary Data, for additional details related to these agreements.


~~(5)~~	~~See Note 14 in Part II, Item 8. Financial Statements and Supplementary Data, for discussion of our pension plans.~~

~~Table of Contents~~

~~The following table details our known potential or possible future cash payments (on an undiscounted basis) related to various commercial and contingent obligations as of December 31, 2015.~~

Expiration by Period
Commercial and Contingent Obligations 2016 2017-2018 2019-2020 Thereafter Total
(In millions)
Surety obligations⁽¹⁾
$ 179.2
$ —
$ —
$ —
$ 179.2
Long-term obligations related to uncertain tax positions⁽²⁾
182.0
0.6
—
51.6
234.2
Letters of credit⁽³⁾
31.5
—
—
—
31.5
Total commercial and contingent obligations $ 392.7
$ 0.6
$ —
$ 51.6
$ 444.9


~~(1)~~	Represents the aggregate funding obligation associated with our surety bond arrangements assuming our surety partners did not renew any of our surety obligations and we could not find replacement surety assurance. See the section titled “Financial Assurances” following this table in this Form 10-K for more information related to our surety bonds.


~~(2)~~	We have recorded a liability for unrecognized tax benefits and related interest and penalties of $234.2 million as of December 31, 2015. See Note 8 in Part II, Item 8. Financial Statements and Supplementary Data, for additional information related to our uncertain tax positions. These amounts are reflected in the periods when the statutes of limitations expire.

~~(3)~~

We are occasionally required to post letters of credit, issued by a financial institution, to secure certain insurance programs or other obligations. Letters of credit generally authorize the financial institution to make a payment to the beneficiary upon the satisfaction of a certain event or the failure to satisfy an obligation. The letters of credit are generally posted for one-year terms and are usually automatically renewed upon maturity until such time as we have satisfied the commitment secured by the letter of credit. We are obligated to reimburse the issuer only if the beneficiary collects on the letter of credit. We believe it is unlikely we will be required to fund a claim under our outstanding letters of credit. As of December 31, 2015, $31.0 million of our letters of credit were supported by our Bank Credit Facility, which expires in July 2018, and $0.5 million of our letters of credit are outside of our credit facility.

Not included in the above table are potential funding obligations related to our merchandise and service trusts. In certain states and provinces, we have withdrawn allowable distributable earnings including unrealized gains 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 when trust fund values drop below certain prescribed amounts. In the event that our trust investments do not recover from market declines, we may be required to deposit portions or all of these amounts into the respective trusts in some future period. As of December 31, 2015, we had unrealized losses of $13.9 million in the various trusts within these states.

~~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~~consolidated results of operations, consolidated financial ~~assurance and/or as required by existing state~~position, and ~~local regulations. The surety bonds are used for various business purposes; however,~~cash flows. However, we believe the ~~majority of~~standard primarily impacts the ~~surety bonds issued~~manner in which we recognize certain nonrefundable up-front fees and ~~outstanding have been used~~incremental costs to ~~support our~~acquire new preneed funeral trust contracts and ~~cemetery sales activities. The obligations underlying these surety bonds are recorded on the Consolidated Balance Sheet as~~ ~~Deferred~~ preneed ~~funeral revenues~~and ~~Deferred preneed cemetery revenues.~~ ~~The breakdown of surety bonds between funeral and cemetery preneed arrangements, as well as surety bonds for other activities, is described below.~~

December 31, 2015 December 31, 2014
(In millions)
Preneed funeral $ 112.7
$ 121.1
Preneed cemetery:

Merchandise and services 136.7
138.1
Pre-construction 5.9
4.6
Bonds supporting preneed funeral and cemetery obligations 255.3
263.8
Bonds supporting preneed business permits 4.5
4.4
Other bonds 17.9
18.0
Total surety bonds outstanding $ 277.7
$ 286.2

~~When selling preneed funeral and~~atneed cemetery contracts ~~we may post surety bonds where allowed by state law. We post~~(i.e., selling costs). The nonrefundable fees will be deferred and recognized as revenue when the ~~surety bonds in lieu of trusting a certain amount of funds received from~~underlying goods and services are delivered to the customer. The ~~$255.3 million in bonds supporting~~

~~Table of Contents~~

~~preneed funeral~~incremental selling costs will be deferred and ~~cemetery obligations differs from~~amortized by specific identification to the $179.2 million potential funding obligation disclosed in our “Commercial and Contingent Obligations” table above because 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, at the time we enter into the contract. We would only be required to fund the trust for the portion of the preneed contract for which we have received payment from the customer, less any applicable retainage, in accordance with state law. For each of the years ended December 31, 2015, and 2014, we had $19.6 million and for the year ended December 31, 2013 we had $18.5 million of cash receipts from sales attributable to bonded contracts. These amounts do not consider reductions associated with taxes, obtaining costs, or other costs.

~~Surety bond premiums are paid annually and are automatically renewable until maturity~~delivery 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.

~~Preneed Funeral and Cemetery Activities and Backlog of Contracts~~

~~In addition to selling our products and services to client families at the time of need, we sell price-guaranteed preneed contracts, which provide for future funeral or cemetery merchandise~~goods and services. ~~Since~~

We will continue to expense costs to acquire new preneed funeral insurance contracts in the period incurred. The insurance contracts are not 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 paid 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 post a surety bond as financial assurance for a certain amount of the preneed contract in lieu of placing funds into trust accounts. Where permitted by state or provincial law, customers may arrange their preneed contract by purchasing a life insurance or annuity policy from third-party insurance companies.

~~Trust-funded Preneed Contracts~~

The funds collected from customers are deposited into trust and primarily invested by independent trustees in accordance with state and provincial laws. 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.

Investment earnings associated with the trust investments are expected to mitigate the inflationary costs of providing the preneed funeral and cemetery merchandise and services in the future for the prices that were guaranteed at the time of sale. Our preneed funeral and cemetery trust assets are consolidated and recorded in our Consolidated Balance Sheet at fair value. Investment earnings on trust assets are generally accumulated in the trust and distributed as the revenue associated with the preneed funeral or cemetery contract is recognized or canceled by the customer. In certain states and provinces, the trusts are allowed to distribute a portion of the investment earnings to us prior to that date.

If a preneed contract is canceled prior to delivery, state or provincial law determines the amount of the refund owed to the customer, if any, including the amount of the attributed investment earnings. Upon cancellation, we receive the amount of principal deposited to trust and previously undistributed net investment earnings and, where required, issue a refund to the customer. We retain excess funds, if any, and recognize the attributed investment earnings (net of any investment earnings payable to the customer) as revenue in our Consolidated Statement of Operations. In certain jurisdictions, we may be obligated to fund any shortfall if the amounts deposited by the customer exceed the funds in trust. Funds in trust assets exceeded customer deposits at December 31, 2015. See Off-Balance Sheet Arrangements, Contractual Obligations, and Commercial and Contingent Commitments for additional information about potential funding obligations related to our merchandise and service trusts. Based on our historical experience, we have included a cancellation reserve for preneed contracts in our Consolidated Balance Sheet of $121.5 million and $125.0 million as of December 31, 2015 and 2014, respectively.

While the contract is outstanding, cash flow is provided by the amount retained from funds collected from the customer and any distributed investment earnings. At the time of death maturity, we receive the principal and undistributed investment earnings from the funeral trust and any remaining receivable due from the customer. At the time of delivery or storage of cemetery merchandise and service items for which we were required to deposit funds to trust, we receive the principal and undistributed investment earnings from the cemetery trust. There is generally no remaining receivable due from the customer, as our policy is to deliver preneed cemetery merchandise and service items only upon payment of the contract balance in full. This cash flow at the time of service, delivery, or storage is generally less than the associated revenue recognized, thus reducing cash flow from operating activities.

~~Table of Contents~~

~~The tables below detail our results of preneed funeral and cemetery production and maturities, excluding insurance contracts, for the years ended December 31, 2015 and 2014.~~

Years Ended
December 31,
2015 2014
(Dollars in millions)
Funeral:

Preneed trust-funded (including bonded):

Sales production $ 258.3
$ 230.5
Sales production (number of contracts) 83,060
78,745
Maturities $ 222.1
$ 221.3
Maturities (number of contracts) 64,560
60,812
Cemetery:

Sales production:

Preneed $ 769.3
$ 687.5
Atneed 304.4
307.2
Total sales production $ 1,073.7
$ 994.7
Sales production deferred to backlog:

Preneed $ 336.1
$ 299.8
Atneed 226.0
232.0
Total sales production deferred to backlog $ 562.1
$ 531.8
Revenue recognized from backlog:

Preneed $ 255.7
$ 234.7
Atneed 222.8
230.5
Total revenue recognized from backlog $ 478.5
$ 465.2

~~Insurance-funded Preneed Contracts~~

Where permitted by state or provincial law, customers may arrange their preneed contract by purchasing 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 revenues) are based on a percentage per contract sold and are recognized as revenues when the insurance purchase transaction between the customer and third-party insurance provider is complete. Direct selling costs incurred pursuant to the sale of insurance-funded preneed contracts are expensed as incurred. The policy amount of the insurance contract between the customer and the third-party insurance company generally equals the amount of the preneed contract. As the insurance contract is between the insurance company and the customer, we do not reflect the unfulfilled insurance-funded preneed contract amounts in our Consolidated Balance Sheet.

The third-party insurance company collects funds related to the insurance contract directly from the customer. The life insurance contracts include a death benefit escalation provision, general agency commissions received at the time of sale, and have lower ongoing administrative costs; all of which are expected to mitigate the inflationary costs of providing the preneed merchandise and services in the future at the prices that were guaranteed at the time of the preneed sale. The customer/policy holder assigns the policy benefits to us to pay for the preneed contract at the time of need.

~~Table of Contents~~

The table below details the results of insurance-funded preneed production and maturities for the years ended December 31, 2015 and 2014, and the number of contracts associated with those transactions.

Years Ended December 31,
2015 2014
(Dollars in millions)
Preneed insurance-funded:

Sales production⁽¹⁾
$ 543.8
$ 591.7
Sales production (number of contracts)⁽¹⁾
90,609
98,487
General agency revenue $ 137.0
$ 123.0
Maturities $ 318.3
$ 350.9
Maturities (number of contracts) 55,615
61,370


~~(1)~~	~~Amounts are not included in our Consolidated Balance Sheet.~~

~~Backlog of Preneed Contracts~~

~~The following table reflects our backlog of trust-funded deferred preneed contract revenue, including amounts related to~~ ~~Deferred preneed receipts held in trust~~ at December 31, 2015 and 2014. Additionally, the table reflects our backlog of unfulfilled insurance-funded contracts (which are not included in our Consolidated Balance Sheet) at December 31, 2015 and 2014. The backlog amounts presented are reduced by an amount that we believe will cancel before maturity based on historical experience. The table does not include the backlog associated with businesses that are held for sale.

The table also reflects our preneed funeral and cemetery receivables and trust investments (fair value and cost bases) associated with the backlog of deferred preneed funeral and cemetery contract revenue, net of the estimated cancellation allowance. We believe that the table below is meaningful because it sets forth the aggregate amount of future revenue we expect to recognize as a result of maturities of preneed sales in the future, as well as the amount of assets associated with those revenue. Because the future revenue exceeds the asset amounts, future revenue will exceed the cash distributions actually received from the associated trusts.

December 31, 2015 December 31, 2014
Fair Value Cost Fair Value Cost
(In billions)
Deferred preneed funeral revenue $ 0.56
$ 0.56
$ 0.54
$ 0.54
Deferred preneed funeral receipts held in trust 1.51
1.56
1.63
1.63
2.07
2.12
2.17
2.17
Allowance for cancellation on trust investments (0.16 ) (0.16 ) (0.17 ) (0.17 )
Backlog of trust-funded preneed funeral revenue 1.91
1.96
2.00
2.00
Backlog of insurance-funded preneed revenue ⁽¹⁾
5.10
5.10
4.82
4.82
Total backlog of preneed funeral revenue $ 7.01
$ 7.06
$ 6.82
$ 6.82

Preneed funeral receivables and trust investments $ 1.76
$ 1.81
$ 1.84
$ 1.85
Allowance for cancellation on trust investments (0.15 ) (0.15 ) (0.16 ) (0.16 )
Assets associated with backlog of trust-funded deferred preneed funeral revenue, net of estimated allowance for cancellation 1.61
1.66
1.68
1.69
Insurance policies associated with insurance-funded deferred preneed revenue, net of estimated allowance for cancellation ⁽¹⁾
5.10
5.10
4.82
4.82
Total assets associated with backlog of preneed funeral revenue, net of estimated allowance for cancellation $ 6.71
$ 6.76
$ 6.50
$ 6.51

~~Table of Contents~~

December 31, 2015 December 31, 2014
Fair Value Cost Fair Value Cost
(In billions)
Deferred preneed cemetery revenue $ 1.12
$ 1.12
$ 1.06
$ 1.06
Deferred preneed cemetery receipts held in trust 1.46
1.51
1.52
1.53
2.58
2.63
2.58
2.59
Allowance for cancellation on trust investments (0.11 ) (0.11 ) (0.11 ) (0.11 )
Total backlog of deferred cemetery revenue $ 2.47
$ 2.52
$ 2.47
$ 2.48

Preneed cemetery receivables and trust investments $ 2.32
$ 2.37
$ 2.31
$ 2.32
Allowance for cancellation on trust investments (0.12 ) (0.12 ) (0.13 ) (0.13 )
Total assets associated with backlog of deferred cemetery revenue, net of estimated allowance for cancellation $ 2.20
$ 2.25
$ 2.18
$ 2.19

~~(1) Amounts are not included in our Consolidated Balance Sheet.~~

The fair value of our trust investments was based on a combination of quoted market prices, observable inputs such as interest rates or yield curves, reported net asset values, and appraisals. As of December 31, 2015, the difference between the backlog and asset market amounts represents $0.25 billion related to contracts for which we have posted surety bonds as financial assurance in lieu of trusting, $0.12 billion collected from customers that were not required to be deposited into trusts, and $0.20 billion in allowable cash distributions from trust assets.

The table also reflects the amounts expected to be received from insurance companies through the assignment of policy proceeds related to insurance-funded contracts. We do not reflect the unfulfilled insurance-funded preneed amountsreflected in our Consolidated Balance Sheet because they ~~are~~do not represent assets or liabilities ~~as defined in Statement of Accounting Concepts No. 6~~ as we have no claim to the insurance proceeds until the contract is fulfilled and no obligation under the contract until the benefits are assigned to us after the time of need.

~~Trust Investments~~Inventory

Financial Instruments

Leases

In February 2016, the FASB amended "Leases" to increase transparency and comparability among organizations. Under the new standard, an entity will be required to recognize lease assets and liabilities on its balance sheet and disclose key information about leasing arrangements. In addition, the new standard offers specific accounting guidance for a lessee, a lessor, and sale and leaseback transactions. Lessees and lessors are required to ~~selling our products~~disclose qualitative and ~~services~~quantitative information about leasing arrangements to client families at the time of need, we enter into price-guaranteed preneed funeral and cemetery contracts, which provide for future funeral or cemetery merchandise and services. Since preneed funeral and cemetery merchandise or services will generally not be provided until sometime in the future, most states and provinces require that all orenable a ~~portion~~user of the ~~funds collected~~financial statements to assess the amount, timing, and uncertainty of cash flows arising from ~~customers~~leases. This new standard will be effective for us on ~~preneed funeral~~January 1, 2019. We are still evaluating the impact of adoption on our consolidated results of operations, consolidated financial position, and ~~cemetery contracts be paid into trusts and/or escrow accounts until~~cash flows.

Stock Compensation

In March 2016, the ~~merchandise is delivered or the service is performed. Investment earnings associated with the trust investments are expected~~FASB amended "Stock Compensation" to ~~mitigate the inflationary costs of providing the preneed funeral and cemetery merchandise and services in the future for the prices that were guaranteed at the time of sale.~~

~~Also, we are required by state and provincial law to pay a portion~~simplify certain aspects of the ~~proceeds from~~accounting for share-based payment transactions, including the ~~preneed~~income tax consequences, classification of awards as either equity or ~~atneed sale of cemetery property interment rights into perpetual care trusts. For these investments, the original corpus remains in the trust in perpetuity~~liabilities, and the net ordinary earnings are distributed and are intended to offset the expense to maintain the cemetery property. While many states require that net capital gains or losses be retained and added to the corpus, certain states allow the net realized capital gains and losses to be included in the net ordinary earnings that are distributed.

Independent trustees manage and invest the majority of the funds deposited into the funeral and cemetery merchandise and services trusts as well as the cemetery perpetual care trusts. The majority of trustees are selected based on their respective geographic footprint and qualifications per state and provincial regulations. Most of the trustees engage the same independent investment managers. These trustees, with input from SCI's wholly owned registered investment advisor, establish an investment policy that serves as an operating document to guide the investment activities of the trusts including asset allocation and manager selection. The investments are also governed by state and provincial guidelines. Asset allocation is based

classification on the ~~liability structure~~statement of ~~each funeral, cemetery, and perpetual care trust.~~cash flows. The ~~investment advisor recommends investment managers to the trustees that are selected~~new guidance is effective for us on the basis of various criteria set forth in the investment policy. The primary investment objectives for the funeral and cemetery merchandise and service trusts include 1) preserving capital within acceptable levels of volatility and risk and 2) achieving growth of principal over time sufficient to preserve and increase the purchasing power of the assets. Preneed funeral and cemetery contracts generally take years to mature; therefore, the funds associated with these contracts are often invested through several market cycles. The cemetery perpetual care trusts' investment objectives emphasize providing a steady stream of current investment income with some capital appreciation. All of the trusts seek to control risk and volatility through a combination of asset classes, investment styles, and a diverse mix of investment managers.

~~Table of Contents~~

~~Investment Structures~~

Each financial institution, acting as trustee, manages its allocation of trust assets in compliance with the investment policy primarily through the purchase of three managed limited liability companies (LLCs), one or each trust type and each with a different, independent trustee acting as custodian. The managed LLCs use the following structures for investments:

~~Commingled Funds.~~ ~~These funds allow the trusts to access, at a reduced cost, the same investment managers and strategies used elsewhere in the portfolios.~~

~~Mutual Funds.~~The trust funds employ institutional share class mutual funds where operationally or economically efficient. These mutual funds are utilized to invest in various asset classes including US equities, non-US equities, corporate bonds, government bonds, Treasury inflation protected securities (TIPS), high yield bonds, and commodities and are governed by guidelines outlined in their individual prospectuses.

~~Separately Managed Accounts.In order to reduce costs to the investment portfolios, the trusts utilize separately managed accounts where appropriate.~~

For those accounts not eligible for participation in the managed LLCs, the trustee utilizes institutional share class mutual funds that comply with our investment policy statement or with applicable state or provincial regulation. The U.S. trusts also include a modest allocation to alternative investments, which comprise primarily private equity investments. These investments are also held in LLCs and are managed by certain trustees.

~~Asset Classes~~

~~Fixed income investments~~ are intended to preserve principal, provide a source of current income, and reduce overall portfolio volatility. The majority of the fixed income allocation for the trusts is in institutional share class mutual funds. Where the trusts have direct investments in individual fixed income securities, these are primarily in government and corporate instruments.

Canadian government fixed income securities are investments in Canadian federal and provincial government instruments. In many cases, regulatory restrictions mandate that the funds from the sales of preneed funeral and cemetery products sold in certain Canadian jurisdictions must be invested in these instruments.

~~Equity investments~~ have historically provided long-term capital appreciation in excess of inflation. The trusts have direct investments in individual equity securities primarily in domestic equity portfolios that include large, mid, and small capitalization companies of different investment styles (i.e., growth and value). The majority of the equity allocation is managed by institutional investment managers that specialize in an objective-specific area of expertise. Our equity securities are exposed to market risk; however,January 1, 2017. If we ~~believe these securities are well-diversified. As of December 31, 2015, the largest single equity position represented less than 1% of the total securities portfolio.~~

~~The objective of~~ ~~Private Equity~~investments is to provide high rates of return with reduced volatility. These investments are typically long-term in duration. These investments are diversified by strategy, sector, manager, and vintage year. The investments consist of numerous limited partnerships, including private equity, real estate, fund of funds, distressed debt, and mezzanine financing. The trustees that have oversight of their respective alternative LLCs work closely with the investment advisor in making all investment decisions.

~~Trust Investment Performance~~

The trust fund returns recognized over a period of years from these investment assets can be volatile. During the year ended December 31, 2015, the Standard and Poor’s 500 Index increased 1.4% and the Barclay’s Aggregate Index increased 0.6%, while the combined SCI trust assets decreased 0.9%.

SCI, its trustees, and the investment advisor continue to monitor the capital markets and the trusts on an ongoing basis. The trustees, with input from the investment advisor, will take prudent action as needed to achieve the investment goals and objectives of the trusts.

~~Results of Operations — Years Ended December 31, 2015, 2014, and 2013~~

~~Management Summary~~

~~Key developments in 2015 were as follows:~~

~~Comparable cemetery gross profit increased $22.2 million, or 8.5%, from 2014 primarily due to an increase in preneed property sales recognition.~~

~~Comparable funeral gross profit decreased $3.1 million, or 0.8%, from 2014 as increases in comparable revenue were more than offset by inflationary increases in our fixed cost structure.~~

~~Table of Contents~~

~~Results of Operations — Years Ended December 31, 2015, 2014, and 2013~~

In 2015, we reported consolidated net income attributable to common stockholders of $233.8 million ($1.14 per diluted share) compared to net income attributable to common stockholders in 2014 of $172.5 million ($0.81 per diluted share) and net income attributable to common stockholders in 2013 of $147.3 million ($0.68 per diluted share). These results were impacted by certain significant items that impacted earnings, including:

2015 2014 2013
(In thousands)
Net after-tax gains (losses) from the sale of assets $ 3,082
$ (3,196 ) $ (4,505 )
Net after-tax (losses) gains from the early extinguishment of debt, net $ (4,287 ) $ (17,997 ) $ 296
Net after-tax expenses related to system transition costs $ (2,326 ) $ (5,671 ) $ (5,331 )
Net after-tax expenses related to the acquisition and integration costs $ (1,865 ) $ (27,205 ) $ (33,229 )
Net after-tax expenses related to legal defense fees and other matters $ —
$ (7,421 ) $ (7,384 )
Change in certain tax reserves and other $ (2,988 ) $ (3,152 ) $ (1,369 )

~~Table of Contents~~

~~Funeral Results~~

2015 2014 2013
(Dollars in millions, except average revenue per service)
Consolidated funeral revenue $ 1,888.8
$ 1,920.5
$ 1,698.5
Less: revenue associated with acquisitions/new construction 12.3
1.7
—
Less: revenue associated with divestitures 6.1
67.5
69.3
Comparable¹ funeral revenue
1,870.4
1,851.3
1,629.2
Less: Comparable recognized preneed revenue 96.2
84.8
74.0
Less: Comparable general agency revenue 136.5
121.4
103.8
Less: Other revenue 13.6
12.3
17.0
Adjusted comparable funeral revenue $ 1,624.1
$ 1,632.8
$ 1,434.4
Comparable services performed 313,068
312,658
273,806
Comparable average revenue per service²
$ 5,188
$ 5,222
$ 5,239

Consolidated funeral gross profit $ 387.5
$ 409.7
$ 349.8
Less: gross loss associated with acquisitions/new construction (1.5 ) (0.4 ) —
Less: gross (loss) profit associated with divestitures (2.7 ) 15.3
13.5
Comparable¹funeral gross profit
$ 391.7
$ 394.8
$ 336.3


~~(1)~~	~~We define comparable (or same store) operations as those funeral locations owned by us for the entire period beginning January 1, 2014 and ending December 31, 2015.~~

~~(2)~~

We calculate comparable average revenue per service by dividing comparable funeral revenue, excluding general agency revenues, recognized preneed revenues, and other revenues to avoid distorting our average of normal funeral services revenue, by the comparable number of services performed during the period. Recognized preneed revenues are preneed sales of merchandise that are delivered at the time of sale, including memorial merchandise and travel protection insurance, and are excluded from our calculation of comparable average revenue per service because the associated service has not yet been performed.

~~Funeral Revenue~~

~~Consolidated revenues from funeral operations were $1,888.8 million~~had adopted this amendment for the year ended December 31, ~~2015 compared to $1,920.5~~2016, Net cash provided by operating activities and Net cash used in financing activities would have both increased by $12.7 million for the same period in 2014. This decrease is primarily attributable to the loss of $61.4 million in revenue contributed by properties that have been subsequently divested partially offset by a $19.1 million increase in comparable revenue as described below and $10.6 million in revenue contributed by acquired properties.

Comparable revenues from funeral operations were $1,870.4 million for the year ended December 31, 2015 compared to $1,851.3 million for the same period in 2014. This $19.1 million increase was primarily due to:

~~an increase in comparable recognized preneed revenues of $11.4 million;~~

~~a $15.1 million increase in comparable general agency revenues; and~~

a 0.1% increase in comparable services performed. This growth comprises an 11.7% increase in preneed services performed sold through our non-funeral home channel offset by a 0.8% decrease in atneed services and preneed services sold through our funeral homes. Our comparable cremation rate increased to 51.6% in 2015 from 51.0% in 2014 as a result of an increase in direct cremations. While the average revenue for direct cremations and cremations with service is lower than that for traditional burials, we continue to expand our cremation memorialization product and service offerings.

These increases were partially offset by a $34, or 0.7%, decrease in comparable average revenue per service in 2015 compared to 2014. Absent the impact of the increase in non-funeral home preneed services, which carry a lower average per service, our comparable average revenue per service increased $9 in 2015 compared to 2014. Inflationary pricing growth was partially offset by an unfavorable Canadian currency impact, an increase in the cremation mix, and lower trust fund income.

Consolidated revenues from funeral operations increased $222.0 million in 2014 compared to 2013. This increase was primarily the result of a 14.2% increase in the comparable number of services performed (primarily from the acquisition of Stewart in December 2013), a $10.8 million increase in comparable recognized preneed revenues, and a $17.6 million increase in general agency revenues partially offset by a 0.3% decrease in the comparable average revenue per service. Our comparable cremation rate increased to 51.0% in 2014 from 50.2% in 2013 as a result of an increase in direct cremations.

~~Funeral Gross Profit~~

~~Table of Contents~~

Consolidated funeral gross profits decreased $22.2 million in 2015 compared to the same period in 2014. This decrease is primarily attributable to the loss of $18.0 million in gross profit contributed by properties that have been subsequently divested and a decrease in comparable funeral gross profits of $3.1 million, or 0.8%. The comparable revenue growth described above was more than offset by inflationary increases in our fixed cost structure.

Consolidated funeral gross profits increased $59.9 million, or 17.1%, in 2014 as compared to 2013 primarily attributable to the increase in comparable gross profits of $58.5 million, or 17.4%, which was primarily from the acquisition of Stewart.

~~Cemetery Results~~

2015 2014 2013
(In millions)
Consolidated cemetery revenue $ 1,097.6
$ 1,073.5
$ 852.0
Less: revenue associated with acquisitions/new construction 8.2
1.3
—
Less: revenue associated with divestitures 0.4
34.7
27.2
Comparable¹ cemetery revenue
$ 1,089.0
$ 1,037.5
$ 824.8

Consolidated cemetery gross profit $ 284.4
$ 266.0
$ 199.2
Less: gross profit associated with acquisitions/new construction 2.1
0.1
—
Less: gross (loss) profit associated with divestitures (0.3 ) 5.5
5.1
Comparable¹ cemetery gross profit
$ 282.6
$ 260.4
$ 194.1


~~(1)~~	~~We define comparable (or same store) operations as those cemetery locations owned by us for the entire period beginning January 1, 2014 and ending December 31, 2015.~~

~~Cemetery Revenue~~

Consolidated revenues from our cemetery operations increased $24.1 million, or 2.2%, in 2015 compared to 2014 primarily attributable to the increase in comparable revenues described below and $6.9 million in revenue contributed by acquired properties partially offset by the loss of $34.3 million in revenue contributed by properties that were divested throughout 2015 and 2014. Comparable cemetery revenues increased $51.5 million, or 5.0%, in 2015 compared to 2014 primarily as a result of a $66.1 million increase in preneed property sales recognition, which was partially offset by an expected decrease in trust fund income. The 2014 recognized trust fund income included $15.0 million of cash distributions received from the perpetual care trust funds as a result of realizing net capital gains created by the 2014 change in trust structure, which were not expected to recur.

Consolidated revenues from our cemetery operations increased $221.5 million, or 26.0%, in 2014 compared to 2013 primarily as a result of the increase in comparable revenues described below and $7.5 million contributed by properties that have been subsequently divested. Comparable cemetery revenues increased $212.7 million, or 25.8%, in 2014 compared to 2013, primarily from the acquisition of Stewart and increased preneed property recognition.

~~Cemetery Gross Profits~~

Consolidated cemetery gross profit increased $18.4 million, or 6.9%, in 2015 compared to 2014. This increase is the result of the increase in comparable gross profits partially offset by the loss of $5.8 million in profits contributed by properties that have been subsequently divested. Comparable cemetery gross profits increased $22.2 million, or 8.5%, in 2015 compared to 2014. This increase is primarily the result of higher revenues described above, partially offset by

~~an $8.6 million increase in comparable selling costs as a result of planned advertising and media spend and commissions paid for increased preneed production;~~

~~a $7.7 million increase in overhead expenses due to the newly combined entity and information technology support infrastructure upgrades;~~

~~a $5.9 million increase in direct property and merchandise costs driven by higher revenues described above;~~

~~a $5.6 million increase in salaries and other employee-related costs; and~~

~~a $1.4 million increase in maintenance expenses.~~

Consolidated cemetery gross profit increased $66.8 million, or 33.5%, in 2014 compared to 2013. This increase is the result of the increase in comparable gross profits of $66.3 million, or 34.2%, in 2014 compared to 2013, primarily from the acquisition of Stewart.

~~Other Financial Statement Items~~

~~Table of Contents~~

~~General and Administrative Expenses~~

General and administrative expenses were $128.2 million in 2015 compared to $184.7 million in 2014 and $155.1 million in 2013. The 2015 amounts include $6.7 million in system transition costs. The 2014 amounts included $45.5 million in acquisition and transition costs primarily related to Stewart, $12.3 million in legal settlements and defense fees related to the settlement of the Eden matter and $9.5 million in system transition costs. The 2013 amounts included $36.1 million in acquisition and transition costs primarily related to Stewart, $8.2 million in system transition costs, and $5.3 million in legal defense fees. Excluding these costs, general and administrative expenses increased $4.1 million in 2015 compared to 2014 primarily due to legal expenses, after increasing $12.1 million in 2014 compared to 2013, which reflects the incremental costs of the combined entity.

~~Gains (losses) on Divestitures and Impairment Charges, Net~~

In 2015, we recognized a $6.5 million net pre-tax gain on asset divestitures and impairments. This gain was primarily due asset divestitures, partially offset by impairment losses, associated with non-strategic funeral and cemetery locations in the United States and Canada.

In 2014, we recognized a $116.6 million net pre-tax gain on asset divestitures and impairments primarily as the result of the required Federal Trade Commission divestitures of funeral and cemetery locations in the United States as a result of the Stewart acquisition.

In 2013, we recognized a $6.3 million net pre-tax loss on asset divestitures and impairments. This loss was primarily due to the impairments and asset divestitures associated with non-strategic funeral and cemetery locations in the United States and Canada.

~~Interest Expense~~

~~Interest expense~~ decreased $4.7 million to $172.9 million in 2015 compared to $177.6 million in 2014. The decrease in interest expense is primarily due to the refinancing of our 6.75% Senior Notes due 2015, our 6.5% Senior Notes due 2019, and our ~~7.0% Senior Notes due 2019 in the first half of 2014. We also refinanced our 6.75% Senior Notes due April 2016 in August 2015.~~

~~Interest expense~~ ~~increased $35.2 million to $177.6 million in 2014 compared to $142.4 million in 2013. The increase in interest expense is primarily due to incremental debt associated with the Stewart acquisition.~~

~~(Losses) Gains on Early Extinguishment of Debt, Net~~

During 2015, we paid an aggregate of $197.4 million on our 6.75% Senior Notes due April 2016, $100.0 million on our Bank Credit Facility, and $60.0 million on our Term Loan due July 2018. Certain of the above transactions resulted in the recognition of a loss of $6.9 million recorded in ~~(Losses) gains on early extinguishment of debt, net~~ ~~in our Consolidated Statement of Operations.~~

During 2014, we recognized a $29.2 million loss on early extinguishment of debt as we took advantage of historically low interest rates to refinance our 6.75% Senior Notes due 2015, our 6.5% Senior Notes due 2019, and our 7.0% Senior Notes due 2019.

During 2013, we paid an aggregate of $31.8 million to retire $26.4 million in capital lease obligations, our remaining $4.8 million 7.875% Debenture due February 2013, and to extinguish $0.6 million in other debt. Certain of the above transactions resulted in the recognition of a gain of $0.5 million recorded in ~~(Losses) gains on early extinguishment of debt, net~~ ~~in our Consolidated Statement of Operations.~~

Provision for ~~Income Taxes~~

The 2015 consolidated effective tax rate was 36.5%, compared to 56.1% and 37.9% in 2014 and 2013, respectively. The higher effective tax rate for the twelve months ended December 31, 2014 was primarily due to the non-deductible goodwill resulting from the gains on required divestitures associated with the Stewart acquisition. The 2015 consolidated effective tax rate is above the 35% federal statutory tax rate primarily due to the state expense partially offsetincome taxes would have decreased by ~~state legislative changes and foreign earnings taxed at lower rates.~~$12.7 million.

~~Weighted Average Shares~~

The diluted weighted average number of shares outstanding was 204.5 million in 2015, compared to 214.2 million in 2014, and 216.0 million in 2013. The decrease in all years primarily reflects the impact of shares repurchased under our share repurchase program.

~~Critical Accounting Policies, Recent Accounting Pronouncements, and Accounting Changes~~

~~Table of Contents~~

Our consolidated financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. See Note 2 in Part II, Item 8. Financial Statements and Supplementary Data, for more information. Estimates and assumptions affect the carrying values of assets and liabilities and disclosures of contingent assets and liabilities at the balance sheet date. Actual results could differ from such estimates due to uncertainties associated with the methods and assumptions underlying our critical accounting measurements. The following is a discussion of our critical accounting policies pertaining to revenue recognition, valuation of goodwill, valuation of intangible assets, fair value measurements, loss contract analysis, and the use of estimates.

~~Revenue Recognition~~

Funeral revenue is recognized when funeral merchandise is delivered or funeral services are performed. Merchandise delivery and service performance generally take place shortly after the time of need. Delivery of some preneed items, primarily certain memorial merchandise and travel protection insurance, are delivered prior to the time of need. We refer to these items as recognized preneed revenue. Our trade receivables primarily consist of amounts due for funeral services already performed.

Revenue associated with cemetery merchandise and services is recognized when merchandise is delivered or the service is performed. For non-personalized merchandise (such as vaults) and services, we defer the revenues until the merchandise is delivered and the services are performed, generally after the time of need. For personalized marker merchandise, with the customer’s direction generally obtained at the time of sale, we can choose to order, store, and transfer title to the customer. In situations in which we have no further obligation or involvement related to the merchandise, we recognize revenues and record the cost of sales upon the earlier of vendor storage of these items or delivery in our cemetery. Preneed sales of cemetery interment rights (cemetery burial property) are recognized when a minimum of 10% of the sales price has been collected and the property has been constructed and is available for interment.

Pursuant to state or provincial law, all or a portion of the proceeds from funeral and cemetery merchandise or services sold on a preneed basis may be required to be paid into trust funds. We defer investment earnings related to these merchandise and service trusts until the associated merchandise is delivered or services are performed.

~~Valuation of Goodwill~~

We record the excess of purchase price over the fair value of identifiable net assets acquired in business combinations as goodwill. Goodwill is tested annually during the fourth quarter for impairment by assessing the fair value of each of our reporting units.

For our most recent annual impairment test performed in the fourth quarter, we used a 6.5% discount rate, growth rates ranging from 1.7% to 7.0% over a five-year period, plus a terminal value determined using the constant growth method in projecting our future cash flows. Fair value was calculated as the sum of the projected discounted cash flows of our reporting units over the next five years plus terminal value at the end of those five years. Our terminal value was calculated using long-term growth rates of 2.5% and 2.9% for our funeral and cemetery reporting units, respectively.

In addition to our annual review, we assess the impairment of goodwill whenever certain 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, significant underperformance relative to historical or projected future operating results and significant negative industry or economic trends. No interim goodwill impairments reviews were performed in 2015 or 2014.

~~Valuation of Intangible Assets~~

Our intangible assets include customer relationships, trademarks and tradenames, and other intangible assets primarily resulting from acquisitions. Our trademark and tradenames and certain other intangible assets are considered to have an indefinite life and are not subject to amortization. We test for impairment of intangible assets annually during the fourth quarter.

~~Table of Contents~~

valuation uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows. For our most recent annual impairment test performed in the fourth quarter, we estimated that the pre-tax savings would range from 1.0% to 4.0% of the revenues associated with the trademark and tradenames, based primarily on our research of intellectual property valuation and licensing databases. We also assumed a terminal growth rate of 2.5% and 2.9% for our funeral and cemetery segments, respectively, and discounted the cash flows at a 6.7% discount rate based on the relative risk of these assets to our overall business.

In addition to our annual review, we 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 impairment review include, but are not limited to, significant underperformance relative to historical or projected future operating results and significant negative industry or economic trends. No interim intangible impairment reviews were performed in 2015 or 2014.

~~Fair Value Measurements~~

We measure the available-for-sale securities held by our funeral merchandise and service, cemetery merchandise and service, and cemetery perpetual care trusts at fair value on a recurring basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We utilize a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

~~Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;~~

~~Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement.~~

An asset’s or liability’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Certain available-for-sale securities held by our funeral merchandise and service, cemetery merchandise and service, and cemetery perpetual care trusts have been classified in Level 3 of the hierarchy due to the significant management judgment required as a result of the absence of quoted market prices, inherent lack of liquidity, or the long-term nature of the securities. For additional disclosures for all of our available-for-sale securities, see Notes 3, 4, and 5 in Part II, Item 8. Financial Statements and Supplementary Data.

~~Loss Contract Analysis~~

We perform an analysis to determine whether our preneed contracts are in a loss position, which would necessitate a charge to earnings. For this analysis, we add the sales prices of the underlying contracts and net realized earnings, then subtract net unrealized losses to derive the net amount of estimated proceeds for contracts as of the balance sheet date. We consider unrealized gains and losses based on current market prices quoted for the investments, and we do not include future expected returns on the investments in our analysis. We compare our estimated proceeds to the estimated direct costs to deliver our contracts, which consist primarily of funeral and cemetery merchandise costs and salaries, supplies, and equipment related to the delivery of a preneed contract. If a deficiency were to exist, we may record a charge to earnings and a corresponding liability for the expected loss on delivery of those contracts from our backlog. As of December 31, 2015, no such charge was required. Due to the positive margins of our preneed contracts and the trust portfolio returns we have experienced in prior years, we believe there is currently capacity for additional market depreciation before a loss contract would result.

~~Use of Estimates~~

The preparation of financial statements in conformity with Generally Accepted Accounting Principles in the United States (GAAP) requires management to make certain estimates and assumptions. These estimates and assumptions affect the carrying values of assets and liabilities and disclosures of contingent assets and liabilities at the balance sheet date. Actual results could differ from such estimates due to uncertainties associated with the methods and assumptions underlying our critical accounting measurements. Key estimates used by management include:

~~Allowances.~~ We provide various allowances and/or cancellation reserves for our funeral and cemetery preneed and atneed receivables, as well as for our preneed funeral and preneed cemetery deferred revenues. These allowances are based on an analysis of historical trends and include, where applicable, collection and cancellation activity. We also record an estimate of general agency revenues that may be canceled in their first year and revenue would be charged back by the insurance company. These estimates are impacted by a number of factors, including changes in economy, relocation, and demographic or competitive changes in our areas of operation.

~~Table of Contents~~

~~Valuation of trust investments.~~ The trust investments include marketable securities that are classified as available-for-sale. When available, we use quoted market prices for specific securities. When quoted market prices are not available for the specific security, fair values are estimated by using either quoted market prices for securities with similar characteristics or a fair value model with observable inputs that include a combination of interest rates, yield curves, credit risks, prepayment terms, rating, and tax exempt status.

The valuation of private equity and other investments requires significant management judgment due to the absence of quoted market prices, inherent lack of liquidity, and the long-term nature of such assets. The fair value of these investments is estimated based on the market value of the underlying real estate and private equity instruments. The underlying real estate value is determined using the most recent appraisals. The private equity instruments are valued based on reported net asset values.

~~Legal liability reserves.~~ Contingent liabilities, principally for legal matters, are recorded when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Liabilities accrued for legal matters require judgments regarding projected outcomes and a range of loss based on historical experience and recommendations of legal counsel. However, litigation is inherently unpredictable and excessive verdicts do occur. As disclosed in Note 11 in Part II, Item 8. Financial Statements and Supplementary Data, our legal exposures and the ultimate outcome of these legal proceedings could be material to operating results or cash flows in any given quarter or year.

~~Depreciation of long-lived assets.~~ We depreciate our long-lived assets ratably over their estimated useful lives. These estimates of useful lives may be affected by such factors as changing market conditions or changes in regulatory requirements.

~~Valuation of assets acquired and liabilities assumed.~~ Tangible and intangible assets acquired and liabilities assumed are recorded at their fair value and goodwill is recognized for any difference between the price of acquisition and our fair value determination. We have customarily estimated our purchase costs and other related transactions known to us at closing of the acquisition. To the extent that information not available to us at the closing date subsequently became available during the measurement period, we have adjusted our goodwill, assets, or liabilities associated with the acquisition.

~~Income taxes.~~ We compute income taxes using the liability method. Our ability to realize the benefit of our deferred tax assets requires us to achieve certain future earnings levels. We have established a valuation allowance against a portion of our deferred tax assets and we could be required to further adjust that valuation allowance in the near term if market conditions change materially and future earnings are, or are projected to be, significantly different than our current estimates. An increase in the valuation allowance would result in additional income tax expense in such period.

We intend to permanently reinvest these undistributed foreign earnings in those businesses outside the United States. It is not practicable to determine the amount of federal income taxes, if any, that might become due if such earnings are repatriated.

We file income tax returns, including tax returns for our subsidiaries, with federal, state, local, and foreign jurisdictions. Our 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. We consider the United States to be our most significant tax jurisdiction; however, the taxing authority in Canada is auditing various tax returns. While we have effectively concluded our 2003 - 2005 tax years with respect to our affiliate SCI Funeral and Cemetery Purchasing Cooperative, SCI and subsidiaries' tax years 1999 through 2005 remain under review at the IRS Appeals level. SCI and subsidiaries are under audit for 2006-2007 as a result of carry back claims. Furthermore, SCI and its affiliates are under audit by various state and foreign jurisdiction for years 2000 through 2014. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe that our accruals reflect the probable outcome of known tax contingencies. Unfavorable settlement of any particular issue would reduce a deferred tax asset or require the payment of cash. Favorable resolution could result in reduced income tax expense reported in the financial statements in the future. Our tax accruals for uncertain tax positions are presented in the Consolidated Balance Sheet within ~~Other liabilities~~.

~~Pension cost.~~ Our pension plans are frozen with no benefits accruing to participants except interest. Pension costs and liabilities are actuarially determined based on certain assumptions, including the discount rate used to compute future benefit obligations. Weighted-average discount rates used to determine net periodic pension cost were 2.47% and 3.69% as of December 31, 2015 and 2014, respectively. We verify the reasonableness of the discount rate by comparing our rate to the rate earned on high-quality fixed income investments, such as the Moody’s Aa index.

~~Insurance loss reserves.~~ We purchase comprehensive general liability, morticians and cemetery professional liability, automobile liability, and workers’ compensation insurance coverages structured with high deductibles. This high-deductible insurance program means we are primarily self-insured for claims and associated costs and losses covered by these policies. Historical insurance industry experience indicates a high degree of inherent variability in assessing the ultimate amount of losses associated with casualty insurance claims. This is especially true with respect to liability and workers’ compensation exposures due to the extended period of time that transpires between when the claim might occur and the full settlement of such claim, which is often many years. We continually evaluate loss estimates associated with claims and losses related to these insurance coverages falling within the deductible of each coverage. Assumptions based on factors such as claim settlement

~~Table of Contents~~

patterns, claim development trends, claim frequency and severity patterns, inflationary trends, and data reasonableness will generally affect the analysis and determination of the “best estimate” of the projected ultimate claim losses. The results of these evaluations are used to both analyze and adjust our insurance loss reserves.

As of December 31, 2015, reported losses within our retention for workers’ compensation, general liability, and auto liability incurred during the period May 1, 1991 through December 31, 2015 were approximately $500.8 million over 24.7 years. The selected fully developed ultimate settlement value estimated was $554.9 million for the same period. Paid losses were $480.3 million indicating a reserve requirement of $76.6 million.

~~Recent Accounting Pronouncements and Accounting Changes~~

~~For discussion of recent accounting pronouncements and accounting changes, see Note 2 in Part II, Item 8. Financial Statements and Supplementary Data.~~


~~Item 7A.~~	~~Quantitative and Qualitative Disclosures About Market Risk.~~

The market risk inherent in our financial instruments and positions includes the price risk associated with the marketable equity and debt securities included in our portfolio of trust investments, the interest rate risk associated with our floating rate debt, and the currency risk associated with our Canadian operations. Our market-sensitive instruments and positions are considered to be “other-than-trading”. Our exposure to market risk as discussed below includes forward-looking statements and represents an estimate of possible changes in fair value or future earnings that might occur, assuming hypothetical changes in equity markets, interest rates, and currencies. Our views on market risk are not necessarily indicative of actual results that may occur, and they do not represent the maximum possible gains or losses that may occur. Actual fair value movements related to changes in equity markets, interest rates and currencies, along with the timing of such movements, may differ from those estimated.

~~Marketable Equity and Debt Securities — Price Risk~~

In connection with our preneed funeral operations and preneed cemetery merchandise and service sales, the related funeral and cemetery trust funds own investments in equity and debt securities and mutual funds, which are sensitive to current market prices.

Cost and market values as of December 31, 2015 are presented in Notes 3, 4, and 5 in Part II, Item 8, Financial Statements and Supplementary Data. Also, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, ~~Financial Conditions, Liquidity, and Capital Resources, for discussion of trust investments.~~

~~Market-Rate Sensitive Instruments — Interest Rate Risk~~

At December 31, 2015 and 2014, approximately 76% and 75%, respectively, of our total debt consisted of fixed rate debt at a weighted average rate of 5.18% and 5.21%, respectively. The fair value of our debt was $139.1 million more than its carrying value at December 31, 2015. A hypothetical 10% increase in interest rates associated with our floating rate debt would increase our interest expense by $1.8 million. See Note 9 and 10 in Part II, Item 8. Financial Statements and Supplementary Data, for additional information.

~~Market-Rate Sensitive Instruments — Currency Risk~~

At December 31, 2015 and 2014, our foreign currency exposure was primarily associated with the Canadian dollar. A hypothetical 10% adverse change in the strength of the U.S. dollar relative to our foreign currency instruments would have negatively affected our income from our continuing operations, on an annual basis, by $4.1 million for the year ended December 31, 2015 and $3.9 million for the year ended December 31, 2014.

At December 31, 2015, approximately 5% of our stockholders’ equity and debt and 9% of our operating income was denominated in the Canadian dollar. Approximately 5% of our stockholders’ equity and debt and 8% of our operating income was denominated in foreign currencies, primarily the Canadian dollar, at December 31, 2014. We do not have an investment in foreign operations considered to be in highly inflationary economies.

~~Table of Contents~~


~~Item 8.~~	~~Financial Statements and Supplementary Data.~~

~~INDEX TO FINANCIAL STATEMENTS AND RELATED SCHEDULE~~



	~~Page~~
~~Financial Statements:~~
~~Report of Independent Registered Public Accounting Firm~~	40
~~Consolidated Statement of Operations for the years ended December 31, 2015, 2014, and 2013~~	41
~~Consolidated Statement of Comprehensive Income for the years ended December 31, 2015, 2014, and 2013~~	42
~~Consolidated Balance Sheet as of December 31, 2015 and 2014~~	43
~~Consolidated Statement of Cash Flows for the years ended December 31, 2015, 2014, and 2013~~	44
~~Consolidated Statement of Equity for the three years ended December 31, 2015~~	46
~~Notes to Consolidated Financial Statements~~	47
~~1. Nature of Operations~~	47
~~2. Summary of Significant Accounting Policies~~	47
~~3. Preneed Funeral Activities~~	52
~~4. Preneed Cemetery Activities~~	59
~~5. Cemetery Perpetual Care Trusts~~	64
~~6. Deferred Preneed Receipts Held in Trust and Care Trusts’ Corpus~~	69
~~7. Goodwill and Intangible Assets~~	71
~~8. Income Taxes~~	72
~~9. Debt~~	76
~~10. Credit Risk and Fair Value of Financial Instruments~~	78
~~11. Commitments and Contingencies~~	80
~~12. Equity~~	81
~~13. Share-Based Compensation~~	83
~~14. Retirement Plans~~	85
~~15. Segment Reporting~~	87
~~16. Supplementary Information~~	89
~~17. Earnings Per Share~~	91
~~18. Acquisitions~~	92
~~19. Divestiture-Related Activities~~	93
~~20. Quarterly Financial Data (Unaudited)~~	94
~~Financial Statement Schedule:~~
~~II — Valuation and Qualifying Accounts~~	95

~~Table of Contents~~

~~Report of Independent Registered Public Accounting Firm~~

To~~the Board of Directors and Stockholders of Service Corporation International~~

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Service Corporation International and its subsidiaries at December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in ~~Internal Control - Integrated Framework~~ (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, 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 these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. 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.

~~/s/ PricewaterhouseCoopers LLP~~

~~Houston, Texas~~

~~February 17, 2016~~

~~Table of Contents~~

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF OPERATIONS
Years Ended December 31,
2015 2014 2013
(In thousands, except per share amounts)
Revenue $ 2,986,380

$ 2,994,011
$ 2,550,466
Costs and expenses (2,314,435 )
(2,318,326 ) (2,001,419 )
Gross profit 671,945

675,685
549,047
General and administrative expenses (128,188 )
(184,749 ) (155,128 )
Gains (losses) on divestitures and impairment charges, net 6,522

116,613
(6,263 )
Operating income 550,279
607,549
387,656
Interest expense (172,897 )
(177,571 ) (142,360 )
(Losses) gains on early extinguishment of debt, net (6,918 )
(29,158 ) 468
Other (expense) income, net (113 )
1,780
(558 )
Income from continuing operations before income taxes 370,351
402,600
245,206
Provision for income taxes (135,027 )
(225,980 ) (93,024 )
Income from continuing operations 235,324

176,620
152,182
Net (loss) income from discontinued operations, net of tax (390 )
2,186
406
Net income 234,934

178,806
152,588
Net income attributable to noncontrolling interests (1,162 )
(6,337 ) (5,256 )
Net income attributable to common stockholders $ 233,772

$ 172,469
$ 147,332
Basic earnings per share:

Net income attributable to common stockholders $ 1.17
$ 0.82
$ 0.70
Basic weighted average number of shares 200,356

210,741
211,811
Diluted earnings per share:

Net income attributable to common stockholders $ 1.14
$ 0.81
$ 0.68
Diluted weighted average number of shares 204,450

214,200
216,014
Dividends declared per share $ 0.44
$ 0.34
$ 0.27

~~(See notes to consolidated financial statements)~~

~~Table of Contents~~

~~SERVICE CORPORATION INTERNATIONAL~~

~~CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME~~

Years Ended December 31,
2015 2014 2013
(In thousands)
Net income $ 234,934
$ 178,806
$ 152,588
Other comprehensive income:
Foreign currency translation adjustments (53,283 ) (32,096 ) (23,292 )
Reclassification of foreign currency translation adjustments to discontinued operations —
3,114
—
Total comprehensive income 181,651
149,824
129,296
Total comprehensive income attributable to noncontrolling interests (1,129 ) (6,382 ) (5,240 )
Total comprehensive income attributable to common stockholders $ 180,522
$ 143,442
$ 124,056

~~(See notes to consolidated financial statements)~~

~~Table of Contents~~

SERVICE CORPORATION INTERNATIONAL

CONSOLIDATED BALANCE SHEET
December 31,
2015 2014
(In thousands, except share amounts)
ASSETS
Current assets:

Cash and cash equivalents $ 134,599
$ 177,335
Receivables, net 90,462
109,050
Inventories 27,835
29,697
Other 55,513
80,774
Total current assets 308,409
396,856
Preneed funeral receivables, net and trust investments 1,760,297
1,843,023
Preneed cemetery receivables, net and trust investments 2,318,167
2,306,669
Cemetery property 1,753,015
1,739,216
Property and equipment, net 1,846,722
1,861,403
Goodwill 1,796,340
1,810,853
Deferred charges and other assets 616,511
624,248
Cemetery perpetual care trust investments 1,319,427
1,341,376
Total assets $ 11,718,888
$ 11,923,644
LIABILITIES & EQUITY
Current liabilities:

Accounts payable and accrued liabilities $ 422,842
$ 453,042
Current maturities of long-term debt 95,181
90,931
Income taxes payable 1,373
8,035
Total current liabilities 519,396
552,008
Long-term debt 3,071,738
2,963,794
Deferred preneed funeral revenue 557,897
540,164
Deferred preneed cemetery revenue 1,120,001
1,062,381
Deferred tax liability 470,584
448,824
Other liabilities 496,921
502,553
Deferred preneed receipts held in trust 2,973,386
3,148,884
Care trusts’ corpus 1,319,564
1,327,658
Commitments and contingencies (Note 11)

Equity:
Common stock, $1 per share par value, 500,000,000 shares authorized, 200,859,676 and 205,458,331 shares issued, respectively, and 195,772,876 and 204,866,770 shares outstanding, respectively 195,773
204,867
Capital in excess of par value 1,092,106
1,186,304
Accumulated deficit (109,351 ) (81,859 )
Accumulated other comprehensive income 6,164
59,414
Total common stockholders’ equity 1,184,692
1,368,726
Noncontrolling interests 4,709
8,652
Total equity 1,189,401
1,377,378
Total liabilities and equity $ 11,718,888
$ 11,923,644

~~(See notes to consolidated financial statements)~~

~~Table of Contents~~

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended December 31,
2015 2014 2013
(In thousands)

Cash flows from operating activities:

Net income $ 234,934

$ 178,806
$ 152,588
Adjustments to reconcile net income to net cash provided by operating activities:

Income (loss) from discontinued operations, net of tax 390

(2,186 ) (406 )
Losses (gains) on early extinguishment of debt, net 6,918

29,158
(468 )
Premiums paid on early extinguishment of debt (6,549 )
(24,804 ) —
Depreciation and amortization 141,456

140,002
122,235
Amortization of intangible assets 31,459

36,640
21,859
Amortization of cemetery property 62,407

60,439
48,344
Amortization of loan costs 9,434

8,825
15,943
Provision for doubtful accounts 6,083

7,376
7,874
Provision for deferred income taxes 18,048

129,671
71,708
(Gains) losses on divestitures and impairment charges, net (6,522 )
(116,613 ) 6,263
Share-based compensation 13,843

13,127
11,925
Excess tax benefits from share-based awards (18,123 )
(30,123 ) —
Change in assets and liabilities, net of effects from acquisitions and dispositions:

Decrease (increase) in receivables 464

(18,644 ) 11,017
Decrease (increase) in other assets 2,457

(11,013 ) (14,815 )
Increase (decrease) in payables and other liabilities 20,567

(12,038 ) (1,995 )
Effect of preneed funeral production and maturities:

Decrease in preneed funeral receivables, net and trust investments 24,918

30,357
47,648
Increase (decrease) in deferred preneed funeral revenue 6,199

(23,069 ) (9,260 )
Decrease in deferred preneed receipts held in trust (52,946 )
(52,869 ) (50,990 )
Effect of preneed cemetery production and maturities:

Increase in preneed cemetery receivables, net and trust investments (73,038 )
(43,964 ) (73,626 )
Increase in deferred preneed cemetery revenue 60,960

54,049
30,785
Decrease in deferred preneed receipts held in trust (11,173 )
(34,664 ) (12,761 )
Other —

(108 ) (27 )
Net cash provided by operating activities from continuing operations 472,186

318,355
383,841
Net cash (used in) provided by operating activities from discontinued operations —

(1,000 ) 868
Net cash provided by operating activities 472,186

317,355
384,709
Cash flows from investing activities:

Capital expenditures (150,986 )
(144,499 ) (112,939 )
Acquisitions, net of cash acquired (41,258 )
(15,336 ) (1,057,122 )
Proceeds from divestitures and sales of property and equipment 16,772

424,383
13,219
Net withdrawals (deposits) of restricted funds and other 8,066

(12,225 ) 341
Net cash (used in) provided by investing activities from continuing operations
(167,406 )
252,323
(1,156,501 )
Net cash provided by (used in) investing activities from discontinued operations 987

4,963
(292 )
Net cash (used in) provided by investing activities

(166,419 )
257,286
(1,156,793 )
Cash flows from financing activities:

Proceeds from issuance of long-term debt 446,250

755,000
1,055,000
Debt issuance costs (6,025 )
(10,500 ) (36,064 )
Payments of debt (160,220 )
(230,561 ) (90,466 )
Early extinguishment of debt (197,377 )
(762,764 ) (80 )
Principal payments on capital leases (28,601 )
(29,380 ) (26,280 )
Proceeds from exercise of stock options 31,809

32,376
6,309
Excess tax benefits from share-based awards 18,123

30,123
—
Purchase of Company common stock (345,261 )
(242,874 ) (1,708 )
Payments of dividends (87,570 )
(71,517 ) (57,229 )
Purchase of noncontrolling interest (2,075 )
(15,000 ) (23,333 )
Bank overdrafts and other (7,531 )
7,130
336
Net cash (used in) provided by financing activities from continued operations
(338,478 )
(537,967 ) 826,485

~~Table of Contents~~

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended December 31,
2015 2014 2013
(In thousands)

Net cash used in financing activities from discontinued operations —

—
(1,370 )
Net cash (used in) provided by financing activities (338,478 )
(537,967 ) 825,115
Net change in cash of discontinued operations —

1,361
785
Effect of foreign currency (10,025 )
(2,284 ) (1,001 )
Net (decrease) increase in cash and cash equivalents (42,736 )
35,751
52,815
Cash and cash equivalents at beginning of period 177,335

141,584
88,769
Cash and cash equivalents at end of period $ 134,599

$ 177,335
$ 141,584

~~(See notes to consolidated financial statements)~~

~~Table of Contents~~

~~SERVICE CORPORATION INTERNATIONAL~~

~~CONSOLIDATED STATEMENT OF EQUITY~~

Common
Stock

Treasury
Stock,
Par Value

Capital in
Excess of
Par Value

Accumulated
Deficit

Accumulated
Other
Comprehensive
Income

Noncontrolling
Interest
Total
(In thousands, except per share amounts)
Balance at December 31, 2012 $ 211,057
$ (10 ) $ 1,307,058
$ (234,429 ) $ 111,717
$ 19,800
$ 1,415,193
Comprehensive income —
—
—
147,332
(23,276 ) 5,240
129,296
Dividends declared on common stock ($.27 per share) —
—
(57,229 ) —
—
—
(57,229 )
Stock option exercises 1,087
—
8,226
—
—
—
9,313
Restricted stock award, net of forfeitures and other 378
(3 ) (375 ) —
—
—
—
Employee share-based compensation earned —
—
11,925
—
—
—
11,925
Purchase of Company common stock —
(275 ) (1,508 ) (2,929 ) —
—
(4,712 )
Purchase of noncontrolling interest —
—
(10,023 ) —
—
(13,310 ) (23,333 )
Acquisition —
—
—
—
—
118
118
Noncontrolling interest payments —
—
—
—
—
(1,700 ) (1,700 )
Retirement of treasury shares (278 ) 278
—
—
—
—
—
Other 83
—
1,274
—
—
—
1,357
Balance at December 31, 2013 $ 212,327
$ (10 ) $ 1,259,348
$ (90,026 ) $ 88,441
$ 10,148
$ 1,480,228

Comprehensive income —
—
—
172,469
(29,027 ) 6,382
149,824
Dividends declared on common stock ($.34 per share) —
—
(71,517 ) —
—
—
(71,517 )
Stock option exercises 3,642
—
29,495
—
—
—
33,137
Restricted stock awards, net of forfeitures 352
—
(352 ) —
—
—
—
Employee share-based compensation earned —
—
13,127
—
—
—
13,127
Purchase of Company common stock —
(11,537 ) (67,796 ) (164,302 ) —
—
(243,635 )
Tax benefits related to share-based awards —
—
30,123
—
—
—
30,123
Purchase of noncontrolling interest —
—
(7,441 ) —
—
(7,559 ) (15,000 )
Noncontrolling interest payments —
—
—
—
—
(319 ) (319 )
Retirement of treasury shares (10,956 ) 10,956
—
—
—
—
—
Other 93
—
1,317
—
—
—
1,410
Balance at December 31, 2014 $ 205,458
$ (591 ) $ 1,186,304
$ (81,859 ) $ 59,414
$ 8,652
$ 1,377,378

Comprehensive income —
—
—
233,772
(53,250 ) 1,129
181,651
Dividends declared on common stock ($.44 per share) —
—
(87,570 ) —
—
—
(87,570 )
Stock option exercises 3,054
—
28,877
—
—
—
31,931
Restricted stock awards, net of forfeitures 254
(9 ) (245 ) —
—
—
—
Employee share-based compensation earned —
—
13,843
—
—
—
13,843
Purchase of Company common stock —
(12,455 ) (71,664 ) (261,264 ) —
—
(345,383 )
Tax benefits related to share-based awards —
—
18,123
—
—
—
18,123
Purchase of noncontrolling interest —
—
2,775
—
—
(4,850 ) (2,075 )
Noncontrolling interest payments —
—
—
—
—
(222 ) (222 )
Retirement of treasury shares (7,969 ) 7,969
—
—
—

—
Other 62
—
1,663
—
—
—
1,725
Balance at December 31, 2015 $ 200,859
$ (5,086 ) $ 1,092,106
$ (109,351 ) $ 6,164
$ 4,709
$ 1,189,401

~~(See notes to consolidated financial statements)~~

~~Table of Contents~~

~~SERVICE CORPORATION INTERNATIONAL~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~


1.	~~Nature of Operations~~

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 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.

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, and catering. Funeral merchandise, including burial caskets and related accessories, urns and other cremation receptacles, outer burial containers, flowers, online and video tributes, stationery products, casket and cremation memorialization products, and other ancillary merchandise, is sold at funeral service locations.

Our cemeteries provide cemetery property interment rights, including developed lots, lawn crypts, mausoleum spaces, niches, and other cremation memorialization and interment options. Cemetery merchandise and services, including memorial markers and bases, outer burial containers, flowers and floral placement, other ancillary merchandise, graveside services, merchandise installation, and burial openings and closings, are sold at our cemeteries.


2.	~~Summary of Significant Accounting Policies~~

~~Principles of Consolidation and Basis of Presentation~~

~~Reclassifications Prior Period Financial Statements~~

~~Use of Estimates in the Preparation of Financial Statements~~

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. As a result, actual results could differ from these estimates.

~~Cash and Cash Equivalents~~

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. The carrying amounts of our cash and cash equivalents approximate fair value due to the short-term nature of these instruments.

~~Accounts Receivable and Allowance for Doubtful Accounts~~

Our trade receivables primarily consist of amounts due for funeral services already performed. We provide various allowances and cancellation reserves for our funeral and cemetery preneed and atneed receivables as well as for our preneed funeral and preneed cemetery deferred revenues. These allowances are based on an analysis of historical trends of collection and cancellation activity. Atneed funeral and cemetery receivables are considered past due after 30 days. Collections are generally managed by the locations or third party agencies acting on behalf of the locations, until a receivable is 180 days delinquent at which time it is fully reserved and sent to a collection agency. These estimates are impacted by a number of factors, including changes in the economy, relocation, and demographic or competitive changes in our areas of operation.

~~Inventories and Cemetery Property~~

Funeral and cemetery merchandise are stated at the lower of average cost or market. Cemetery property is recorded at cost. Inventory costs and cemetery property are relieved using specific identification in performance of a contract. Amortization expense for cemetery property was $62.4 million, $60.4 million, and $48.3 million for the years ended December 31, 2015, 2014, and 2013, respectively.

~~Property and Equipment, Net~~

Property and equipment are recorded at cost. Maintenance and repairs are charged to expense whereas renewals and major replacements that extend the assets useful lives are capitalized. Depreciation is recognized ratably over the estimated useful lives of the various classes of assets. Buildings are depreciated over a period ranging from seven to forty years, equipment is depreciated over a period from three to eight years, and leasehold improvements are depreciated over the shorter of the lease term or ten years. Depreciation and amortization expense related to property and equipment was $141.5 million, $140.0 million, and $122.2 million for the years ended December 31, 2015, 2014, and 2013, respectively. When property is sold or retired, the cost and related accumulated depreciation are removed from the Consolidated Balance Sheet; resulting gains and losses are included in the Consolidated Statement of Operations in the period of sale or disposal.

~~Leases~~

We have lease arrangements related to funeral service locations and transportation equipment that were primarily classified as capital leases at December 31, 2015. Lease terms related to funeral service locations generally range from one to 40 years with options to renew at varying terms. Lease terms related to transportation equipment generally range from one to five years with options to renew at varying terms. We calculate operating lease expense ratably over the lease term. We consider reasonably assured renewal options and fixed escalation provisions in our calculation. For more information related to leases, see Note 11.

~~Goodwill~~

The excess of purchase price over the fair value of identifiable net assets acquired in business combinations is recorded as goodwill. Goodwill is tested annually during the fourth quarter for impairment by assessing the fair value of each of our reporting units.

For our most recent annual impairment test performed in the fourth quarter, we used a 6.5% discount rate, growth rates ranging from 1.7% to 7.0% over a five-year period, plus a terminal value determined using the constant growth method in projecting our future cash flows. Fair value was calculated as the sum of the projected discounted cash flows of our reporting units over the next five years plus terminal value at the end of those five years. Our terminal value was calculated using a long-term growth rate of 2.5% and 2.9% for our funeral and cemetery reporting units, respectively.

~~Other Intangible Assets~~

Our intangible assets include customer relationships, trademarks and tradenames, and other intangible assets primarily resulting from acquisitions. Our trademark and tradenames and certain other intangible assets are considered to have an indefinite life and are not subject to amortization. We test for impairment of intangible assets annually during the fourth quarter.

Our intangible assets impairment tests involve estimates and management judgment. For trademark and tradenames, our test uses the relief from royalty method whereby we determine the fair value of the assets by discounting the cash flows that represent a savings over having to pay a royalty fee for use of the trademark and tradenames. The discounted cash flow valuation uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows. For our most recent annual impairment test performed in the fourth quarter, we estimated that the pre-tax savings would range from 1.0% to 4.0% of the revenues associated with the trademark and tradenames, based primarily on our research of intellectual property valuation and licensing databases. We also assumed a terminal growth rate of 2.5% and 2.9% for our funeral and cemetery segments, respectively, and discounted the cash flows at a 6.7% discount rate based on the relative risk of these assets to our overall business.

In addition to our annual review, we 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 impairment review include, but are not limited to, significant under-performance relative to historical or projected future operating results and significant negative industry or economic trends. No interim intangible impairment reviews were required in 2015 or 2014.

Certain of our intangible assets associated with prior acquisitions are relieved using specific identification in performance of a contract. We amortize all other finite-lived intangible assets on a straight-line basis over their estimated useful lives which range from two to forty years. For more information related to intangible assets, see Note 7.

~~Fair Value Measurements~~

~~Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;~~

~~Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement.~~

An asset’s or liability’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Certain available-for-sale securities held by our funeral merchandise and service, cemetery merchandise and service, and cemetery perpetual care trusts have been classified in Level 3 of the hierarchy due to the significant management judgment required as a result of the absence of quoted market prices, inherent lack of liquidity, or the long-term nature of the securities. For additional disclosures for all of our available-for-sale securities, see Notes 3, 4, and 5.

~~Treasury Stock~~

We make treasury stock purchases in the open market or through privately negotiated transactions subject to market conditions and normal trading restrictions. We account for the repurchase of our common stock under the par value method. In 2015, we canceled 8.0 million shares of common stock held in our treasury. We canceled 11.0 million and 0.3 million shares of common stock held in our treasury in 2014 and 2013, respectively. These retired treasury shares were changed to authorized but unissued status.

~~Foreign Currency Translation~~

All assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at exchange rates in effect as of the end of the reporting period. Revenue and expense items are translated at the average exchange rates for the reporting period. The resulting translation adjustments are included in ~~Equity~~ ~~as a component of~~ ~~Accumulated other comprehensive income~~ ~~in the Consolidated Statement of Equity and Consolidated Balance Sheet.~~

The functional currency of SCI and its subsidiaries is the respective local currency. The transactional currency gains and losses that arise from transactions denominated in currencies other than the functional currencies of our operations are recorded in ~~Other (expense) income , net~~ ~~in the Consolidated Statement of Operations. We do not have an investment in foreign operations considered to be in highly inflationary economies.~~

~~Funeral Operations~~

Revenue is recognized when funeral merchandise is delivered or funeral services are performed. We sell price-guaranteed preneed funeral contracts through various programs providing for future funeral services at prices prevailing when the agreements are signed. Revenue associated with sales of preneed funeral contracts is deferred until funeral merchandise is delivered or the funeral services are performed, generally at the time of need. Travel protection insurance and certain memorialization merchandise sold on a preneed basis is delivered to the customer at the time of sale and is recognized at the time delivery has occurred. While these items are sold as part of preneed funeral arrangements they are also offered on a stand-alone basis. The total consideration received for these arrangements is allocated to each item based on relative selling price determined using either vendor specific objective evidence of the selling price or third-party evidence of selling price. Vendor specific objective evidence of the selling price is determined based on the price we sell the items for on a stand-alone basis.

Third-party evidence of selling price is based on the price of our largely interchangeable products that are sold in stand-alone sales to similarly situated customers. There is no general right of return for delivered items.

~~Cemetery Operations~~

Revenue associated with sales of cemetery merchandise and services is recognized when merchandise is delivered or the service is performed. Revenue associated with sales of preneed cemetery property interment rights is deferred until the property is constructed and a minimum of 10% of the sales price is collected. For non-personalized merchandise (such as vaults) and services, we defer the revenues until the merchandise is delivered or the services are performed. For personalized marker merchandise, with the customer’s direction generally obtained at the time of sale, we can choose to order, store, and transfer title to the customer. In situations in which we have no further obligation or involvement related to the merchandise, we recognize revenues and record the cost of sales upon the earlier of vendor storage of these items or delivery in our cemetery. The total consideration received for these arrangements is allocated to each item based on relative selling price determined using vendor specific objective evidence of the selling price. Vendor specific objective evidence of the selling price is determined based on the price we sell the items for on a stand-alone basis. There is no general right of return for delivered items.

A portion of the proceeds from the sale of cemetery property interment rights is required by state or provincial law to be paid into perpetual care trust funds. Investment earnings from these trusts are distributed to us regularly, are recognized in current cemetery revenues, and are intended to defray cemetery maintenance costs, which are expensed as incurred. The principal of such perpetual care trust funds generally cannot be withdrawn.

~~Preneed Funeral and Cemetery Receivables~~

~~Income Taxes~~

We compute income taxes using the liability method. Our ability to realize the benefit of our deferred tax assets requires us to achieve certain future earnings levels. We have established a valuation allowance against a portion of our deferred tax assets and we could be required to further adjust that valuation allowance in the near term if market conditions change materially and future earnings are, or are projected to be, significantly different than our current estimates. An increase in the valuation allowance would result in additional income tax expense in such period.

~~In July 2013, the Financial Accounting Standards Board (FASB) amended the~~ ~~Income Taxes~~ accounting standard to to eliminate a diversity in practice for the presentation of unrecognized tax benefits when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendment requires that the unrecognized tax benefit be presented as a reduction of the deferred tax assets associated with the carryforwards except in certain circumstances when it would be reflected as a liability. We adopted this amendment effective January 1, 2014 with no impact on our consolidated results of operations, consolidated financial position, or cash flows.

~~In November 2015, the FASB amended the~~ ~~Income Taxes~~ accounting standard to simplify the presentation of deferred income taxes, by requiring all deferred tax assets and liabilities, along with any related valuation allowance, to be classified as non-current on the balance sheet. Our prospective adoption of this guidance in the fourth quarter of 2015 did not have a material impact on our consolidated financial statements.

~~Recent Accounting Pronouncements~~

Revenue Recognition

In May 2014, the FASB issued ~~the~~ "Revenue from Contracts with Customers," ~~accounting standard,~~ which ~~supersedes the~~replaces most existing revenue recognition ~~requirements~~guidance. During 2016, the FASB made several amendments to the new standard that clarified guidance on several matters, including principal vs. agent considerations, identifying performance obligations, sales taxes, and licensing.

The new standard, as amended, requires that we recognize revenue in the ~~Revenue Recognition~~ ~~accounting standard and most industry-specific guidance. This new standard is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an~~ amount ~~that reflects the consideration~~ to which ~~the entity expects~~we expect to be entitled for delivery of promised goods and services to our customers. The new standard will also result in ~~exchange for those goods or services. It also requires additional disclosure about the nature, amount, and timing of~~enhanced revenue ~~and cash flows arising from customer contracts,~~related disclosures, including any significant judgments and changes in ~~judgments and assets recognized from costs incurred to obtain or fulfill a contract.~~judgments. Additionally, the new standard requires the deferral of ~~direct~~ incremental selling costs to the period in which the underlying revenue is recognized. ~~In August 2015, the FASB issued an amendment that defers implementation of the~~ ~~Revenue from Contracts with Customers~~ ~~accounting standard for all entities by one year.~~

~~Consolidation~~

~~In February 2015,~~ However, we believe the ~~FASB amended the~~ ~~Consolidation~~ ~~accounting~~ standard to revise the consolidation model for limited partnerships, variable interest entities, and certain investment funds. Further, the amendment provides guidance on how fee arrangements and related parties should be considered when determining whether to consolidate variable interest entities. As a result of this amendment, all legal entities are required to be reevaluated to determine if they should be consolidated. The new guidance is effective for us on January 1, 2016 and adoption will have no impact on our consolidated results of operations, consolidated financial position, and cash flows.

~~Debt Issuance Costs~~

~~In April 2015, the FASB amended the~~ ~~Interest—Imputation of Interest~~ ~~accounting standard to simplify the presentation of debt issuance costs on the balance sheet. Currently, debt issuance costs are included in~~ ~~Other current assets~~ ~~and~~ ~~Deferred charges and other assets~~ ~~on our Consolidated Balance Sheet. The amendment requires that these costs instead be presented as a direct deduction from the carrying amount of~~ ~~Current maturities of long-term debt~~ ~~and~~ ~~Long-term debt, consistent with the presentation of debt discounts.~~

~~In August 2015, the FASB issued an additional amendment that provides additional guidance to the~~ ~~Interest—Imputation of Interest~~ accounting standard since it did not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. The amendment noted that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.

~~This change does not impact~~primarily impacts the manner in which we recognize certain nonrefundable up-front fees and incremental costs to acquire new preneed funeral trust contracts and preneed and atneed cemetery contracts (i.e., selling costs). The nonrefundable fees will be deferred and recognized as revenue when the ~~debt issuance~~underlying goods and services are delivered to the customer. The incremental selling costs ~~are expensed over~~will be deferred and amortized by specific identification to the ~~term~~delivery of the ~~debt.~~underlying goods and services.

We will continue to expense costs to acquire new preneed funeral insurance contracts in the period incurred. The ~~change~~insurance contracts are not and will not be reflected in ~~presentation is effective for us on January 1, 2016. As of December 31, 2015, the effect of these amendments would have been to reduce~~ ~~Other current~~our Consolidated Balance Sheet because they do not represent assets ~~and~~ ~~Current maturities of long-term debt~~ ~~by $9.5 million and to reduce~~ ~~Deferred charges and other assets~~ ~~and~~ ~~Long-term debt~~ ~~by $35.9 million. As of December 31, 2014 the effect of these amendments would~~

~~have been to reduce~~ ~~Other current assets~~ ~~and~~ ~~Current maturities of long-term debt~~ ~~by $9.2 million and to reduce~~ ~~Deferred charges and other assets~~ ~~and~~ ~~Long-term debt~~ ~~by $39.7 million.~~

~~Cloud Computing Arrangements~~

~~In April 2015, the FASB amended the~~ ~~Intangibles—Goodwill and Other—Internal-Use Software~~ ~~accounting standard to provide guidance on whether a cloud computing arrangement contains a software license. If a cloud computing arrangement includes a software license, then~~or liabilities as we should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, we should account for the arrangement as a service contract. The new guidance is effective for us on January 1, 2016 and adoption will have no ~~impact on our consolidated results~~claim to the insurance proceeds until the contract is fulfilled and no obligation under the contract until the benefits are assigned to us after the time of ~~operations, consolidated financial position, and cash flows.~~

~~Fair Value Measurements~~

~~In May 2015, the FASB amended the~~ ~~Fair Value Measurements~~ accounting standard to remove the requirement to disclose the fair value measurement hierarchy level associated with investments measured at net asset value as a practical expedient. Other disclosures required by the standard for these assets remain the same. This amendment does not change the underlying accounting for these investments. The new guidance is effective for us with our first quarter 2016 filing on Form 10-Q.need.

Inventory

In July 2015, the FASB amended ~~the~~ ~~Inventory~~"Inventory" ~~accounting standard~~ to state that an entity using an inventory method other than last-in, first out ("LIFO") or the retail inventory method should measure inventory at the lower of cost ~~and~~or net realizable value. The new guidance clarifies that net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new guidance iswas effective for us on January 1, 2017 and ~~we are still evaluating the~~adoption did not materially impact ~~of adoption on~~ our consolidated results of operations, consolidated financial position, and cash flows.

~~Business Combinations~~

~~In September 2015, the FASB amended the~~ ~~Business Combinations~~ accounting standard to eliminate the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Under the new guidance, acquirers must recognize measurement-period adjustments in the period in which they determine the amount of the adjustment. The new guidance is effective for us on January 1, 2016 and will be applied prospectively to measurement-period adjustments occurring after the effective date, if any.

Financial Instruments

In January 2016, the FASB amended ~~the~~"Financial ~~Instruments~~Instruments" ~~accounting standard~~ to provide additional guidance on the recognition and measurement of financial assets and liabilities. The amendment requires investments in equity instruments to be measured at fair value with changes in fair value reflected in net income. The ~~amendment also changes the guidance for debt securities held at amortized cost and liabilities under the fair value option. The~~ new guidance is effective for us on January 1, 2018, and we are still evaluating the impact of adoption on our consolidated results of operations, consolidated financial position, and cash flows.

Leases

Stock Compensation

classification on the statement of cash flows. The new guidance is effective for us on January 1, 2017. If we had adopted this amendment for the year ended December 31, 2016, Net cash provided by operating activities and Net cash used in financing activities would have both increased by $12.7 million and our Provision for income taxes would have decreased by $12.7 million.

Cash Flow

In August and November 2016, the FASB amended "Statement of Cash Flows" to clarify guidance on the classification of certain cash receipts and cash payments. Additionally, the guidance requires that the statement of cash flows reflect changes in restricted cash in addition to cash and cash equivalents. Amended guidance includes clarification on debt prepayment and extinguishment costs, contingent consideration in business combinations, proceeds from insurance claims, and premium payments on company-owned life insurance. The new guidance is effective for us on January 1, 2018, and we are still evaluating the impact of adoption on our consolidated statement of cash flows.

Goodwill

In January 2017, the FASB amended "Goodwill" to simplify the subsequent measurement of goodwill. Amended guidance eliminates Step 2 from the goodwill impairment test. Instead, impairment is defined as the amount by which the carrying value of the reporting unit exceeds its fair value, up to the total amount of goodwill. The new guidance is effective for us on January 1, 2020, and we are evaluating the impact on our consolidated results of operations, consolidated financial position, and cash flows.


3.	Preneed Funeral Activities

Preneed funeral receivables, net and trust investments

Preneed funeral receivables, net and trust investments represent trust investments, including investment earnings, and customer receivables, net of unearned finance charges, related to unperformed, price-guaranteed preneed funeral contracts. Our funeral merchandise and service trusts are variable interest entities. We have determined that we are the primary beneficiary of these trusts, as we absorb a majority of the losses and returns associated with these trusts. ~~Our cemetery trust investments detailed in Notes 4 and 5 are also accounted for as variable interest entities.~~ When we receive payments from the customer, we deposit the amount required by law into the trust and reclassify the corresponding amount from Deferred preneed funeral ~~revenues~~revenue into Deferred preneed receipts held in trust. Amounts are withdrawn from the trusts after the contract obligations are performed. Cash flows from preneed funeral contracts are presented as operating cash flows in our Consolidated Statement of Cash Flows.

Preneed funeral receivables, net and trust investments are reduced by the trust investment earnings (realized and unrealized) that we have been allowed to withdraw in certain states prior to maturity. These earnings are recorded in Deferred preneed funeral ~~revenues~~revenue until the merchandise is delivered or the service is performed.

The table below sets forth certain investment-related activities associated with our preneed funeral merchandise and service trusts for the years ended December 31:


	2015			2014			2013			2016		2015		2014
				(In thousands)								(In thousands)
Deposits	$	121,109		$	102,553		$	82,168		$	121,668	$	121,109	$	102,553
Withdrawals	$	160,135		$	131,352		$	125,914		$	157,549	$	160,135	$	131,352
Purchases of available-for-sale securities⁽¹⁾	$	453,092		$	1,238,257		$	393,169		$	377,813	$	453,092	$	1,238,257
Sales of available-for-sale securities⁽¹⁾	$	458,236		$	1,318,512		$	435,267		$	387,959	$	458,236	$	1,318,512
Realized gains from sales of available-for-sale securities⁽¹⁾	$	42,034		$	168,567		$	65,011
Realized losses from sales of available-for-sale securities⁽¹⁾	$	(31,403	)	$	(113,748	)	$	(9,732	)



þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, ~~2015~~2016
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to



Texas		74-1488375
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)
1929 Allen Parkway Houston, Texas (Address of principal executive offices)		77019 (Zip code)



Title of Each Class		Name of Each Exchange on Which Registered
Common Stock ($1 par value)		New York Stock Exchange



Large accelerated filer þ		Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller Reporting company o



			Page
PART I
	~~Item 1.~~	~~Business~~	5
	~~Item 1A.~~	~~Risk Factors~~	11
	~~Item 1B.~~	~~Unresolved Staff Comments~~	16
	~~Item 2.~~	~~Properties~~	16
	~~Item 3.~~	~~Legal Proceedings~~	17
	~~Item 4.~~	~~Mine Safety Disclosures~~	18
~~PART~~ II
	~~Item 5.~~	~~Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities~~	19
	~~Item 6.~~	~~Selected Financial Data~~	21
	~~Item 7.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	21
	~~Item 7A.~~	~~Quantitative and Qualitative Disclosures about Market Risk~~	38
	Item 8.	Financial Statements and Supplementary Data	39
	~~Item 9.~~	~~Changes In and Disagreements with Accountants on Accounting and Financial Disclosure~~	96
	~~Item 9A.~~	~~Controls and Procedures~~	97
	~~Item 9B.~~	~~Other Information~~	97
~~PART III~~
	~~Item 10.~~	~~Directors, Executive Officers, and Corporate Governance~~	98
	~~Item 11.~~	~~Executive Compensation~~	98
	~~Item 12.~~	~~Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters~~	98
	~~Item 13.~~	~~Certain Relationships and Related Transactions and Director Independence~~	98
	~~Item 14.~~	~~Principal Accountant Fees and Services~~	983
PART IV
	Item 15.	Exhibits and Financial Statement Schedules	9859
Signatures			9960
Exhibit Index			~~100~~61



Country, State/Territory/Province	Number of Funeral Service Locations	Number of Cemeteries	Total
United States
Alabama	38	14	52
Arizona	34	11	45
Arkansas	12	3	15
California	172	37	209
Colorado	24	11	35
Connecticut	19	—	19
Delaware	—	1	1
District of Columbia	1	—	1
Florida	131	60	191
Georgia	35	19	54
Hawaii	2	2	4
Idaho	6	1	7
Illinois	48	24	72
Indiana	42	9	51
Iowa	4	2	6
Kansas	9	5	14
Kentucky	16	5	21
Louisiana	27	9	36
Maine	11	—	11
Maryland	16	13	29
Massachusetts	26	—	26
Michigan	35	—	35
Minnesota	12	2	14
Mississippi	16	4	20
Missouri	26	9	35
Nebraska	4	2	6
Nevada	15	6	21
New Hampshire	6	—	6
New Jersey	20	—	20
New Mexico	1	—	1
New York	82	—	82
North Carolina	60	17	77
Ohio	35	13	48
Oklahoma	14	7	21
Oregon	17	4	21
Pennsylvania	22	16	38



Puerto Rico	12	9	21
Rhode Island	4	—	4
South Carolina	10	9	19
Tennessee	39	18	57
Texas	164	64	228
Utah	4	3	7
Vermont	4	—	4
Virginia	39	23	62
Washington	43	13	56
West Virginia	14	10	24
Wisconsin	1	4	5
Canada
Alberta	9	—	9
British Columbia	37	7	44
Manitoba	4	3	7
New Brunswick	5	—	5
Nova Scotia	11	—	11
Ontario	44	—	44
Quebec	40	—	40
Saskatchewan	13	—	13
Total ⁽¹⁾	1,535	469	2,004



Officer Name	Age	Position	Year First Became Officer
Thomas L. Ryan	50	Chairman of the Board and Chief Executive Officer	1999
Michael R. Webb	57	President and Chief Operating Officer	1998
Eric D. Tanzberger	47	Senior Vice President, Chief Financial Officer and Treasurer	2000
Gregory T. Sangalis	60	Senior Vice President, General Counsel and Secretary	2007
Sumner J. Waring, III	47	Senior Vice President, Operations	2002
Steven A. Tidwell	54	Senior Vice President, Sales and Merchandising	2010
Tammy R. Moore	48	Vice President and Corporate Controller	2010
R. L. Waltrip	85	Founder and Chairman Emeritus	1962



	2015				2014
	High		Low		High		Low
First quarter	$	27.04	$	22.29	$	19.88	$	16.82
Second quarter	$	30.07	$	26.25	$	20.80	$	18.66
Third quarter	$	31.94	$	26.64	$	22.34	$	19.96
Fourth quarter	$	29.68	$	25.36	$	23.22	$	20.30



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Dollar Value of Shares That May Yet be Purchased Under the Program
October 1, 2015 — October 31, 2015	654,305	$	28.20	654,305	$	300,121,653
November 1, 2015 — November 30, 2015	679,200	$	27.03	679,200	$	281,752,329
December 1, 2015 — December 31, 2015	113,200	$	25.98	113,200	$	278,808,832
	1,446,705			1,446,705



	Payments Due by Period
Contractual Obligations	2016		2017-2018		2019-2020		Thereafter		Total
			(In millions)
Debt maturities, net of discounts (including capital leases)⁽¹⁾	$	95.2	$	1,164.9	$	242.0	$	1,664.8	$	3,166.9
Interest obligation on long-term debt⁽²⁾	161.9		278.3		210.9		291.1		942.2
Operating lease agreements⁽³⁾	14.5		22.7		15.8		61.0		114.0
Employment and management, consulting, and non-competition agreements⁽⁴⁾	6.8		10.3		7.4		6.0		30.5
Pension obligation⁽⁵⁾	3.7		6.6		5.9		10.6		26.8
Total contractual obligations	$	282.1	$	1,482.8	$	482.0	$	2,033.5	$	4,280.4



	Expiration by Period
Commercial and Contingent Obligations	2016		2017-2018		2019-2020		Thereafter		Total
			(In millions)
Surety obligations⁽¹⁾	$	179.2	$	—	$	—	$	—	$	179.2
Long-term obligations related to uncertain tax positions⁽²⁾	182.0		0.6		—		51.6		234.2
Letters of credit⁽³⁾	31.5		—		—		—		31.5
Total commercial and contingent obligations	$	392.7	$	0.6	$	—	$	51.6	$	444.9



	December 31, 2015		December 31, 2014
	(In millions)
Preneed funeral	$	112.7	$	121.1
Preneed cemetery:
Merchandise and services	136.7		138.1
Pre-construction	5.9		4.6
Bonds supporting preneed funeral and cemetery obligations	255.3		263.8
Bonds supporting preneed business permits	4.5		4.4
Other bonds	17.9		18.0
Total surety bonds outstanding	$	277.7	$	286.2



	Years Ended December 31,
	2015		2014
	(Dollars in millions)
Funeral:
Preneed trust-funded (including bonded):
Sales production	$	258.3	$	230.5
Sales production (number of contracts)	83,060		78,745
Maturities	$	222.1	$	221.3
Maturities (number of contracts)	64,560		60,812
Cemetery:
Sales production:
Preneed	$	769.3	$	687.5
Atneed	304.4		307.2
Total sales production	$	1,073.7	$	994.7
Sales production deferred to backlog:
Preneed	$	336.1	$	299.8
Atneed	226.0		232.0
Total sales production deferred to backlog	$	562.1	$	531.8
Revenue recognized from backlog:
Preneed	$	255.7	$	234.7
Atneed	222.8		230.5
Total revenue recognized from backlog	$	478.5	$	465.2



	December 31, 2015						December 31, 2014
	Fair Value			Cost			Fair Value			Cost
	(In billions)
Deferred preneed funeral revenue	$	0.56		$	0.56		$	0.54		$	0.54
Deferred preneed funeral receipts held in trust	1.51			1.56			1.63			1.63
	2.07			2.12			2.17			2.17
Allowance for cancellation on trust investments	(0.16		)	(0.16		)	(0.17		)	(0.17		)
Backlog of trust-funded preneed funeral revenue	1.91			1.96			2.00			2.00
Backlog of insurance-funded preneed revenue ⁽¹⁾	5.10			5.10			4.82			4.82
Total backlog of preneed funeral revenue	$	7.01		$	7.06		$	6.82		$	6.82

Preneed funeral receivables and trust investments	$	1.76		$	1.81		$	1.84		$	1.85
Allowance for cancellation on trust investments	(0.15		)	(0.15		)	(0.16		)	(0.16		)
Assets associated with backlog of trust-funded deferred preneed funeral revenue, net of estimated allowance for cancellation	1.61			1.66			1.68			1.69
Insurance policies associated with insurance-funded deferred preneed revenue, net of estimated allowance for cancellation ⁽¹⁾	5.10			5.10			4.82			4.82
Total assets associated with backlog of preneed funeral revenue, net of estimated allowance for cancellation	$	6.71		$	6.76		$	6.50		$	6.51


(1)	The ~~increase in~~higher level of activity in 2014 iswas the result of changing the legal structure of the trust investments.


(1)	Includes both realized and unrealized investment earnings.


		December 31, 2015										December 31, 2016
	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Value		Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Value
				(In thousands)										(In thousands)
Fixed income securities:
U.S. Treasury	2	$	82,417	$	107	$	(1,331	)	$	81,193	2	$	75,245	$	317	$	(557	)	$	75,005
Canadian government	2	72,488		532		(655		)	72,365		2	55,752		272		(42		)	55,982
Corporate	2	19,036		235		(284		)	18,987		2	12,702		177		(92		)	12,787
Residential mortgage-backed	2	1,297		29		(22		)	1,304		2	29		1		—			30
Asset-backed	2	5		—		—			5		2	58		—		(3		)	55
Equity securities:
Preferred stock	2	1,949		41		(158		)	1,832		2	1,428		81		(39		)	1,470
Common stock:
United States	1	344,116		30,885		(19,149		)	355,852		1	334,854		49,785		(11,525		)	373,114
Canada	1	11,930		2,652		(1,077		)	13,505		1	11,853		2,592		(263		)	14,182
Other international	1	32,156		2,636		(3,907		)	30,885		1	25,761		1,824		(3,167		)	24,418
Mutual funds:
Equity	1	323,884		1,263		(43,975		)	281,172		1	313,132		7,780		(26,842		)	294,070
Fixed income	1	155,717		154		(13,092		)	142,779		1	92,760		1,344		(7,368		)	86,736
Commingled funds:
Fixed income	2	69,148		—		(442		)	68,706
Other											3	4,079		1,214		(17		)	5,276
Trust investments, at fair value												927,653		65,387		(49,915		)	943,125
Fixed income commingled funds												168,959		3,177		(1,167		)	170,969
Private equity	3	38,201		3,703		(6,467		)	35,437			40,892		2,956		(5,190		)	38,658
Other	3	4,226		1,146		—			5,372
Trust investments		$	1,156,570	$	43,383	$	(90,559	)	$	1,109,394
Trust investments, at net asset value												209,851		6,133		(6,357		)	209,627
Trust investments, at market												$	1,137,504	$	71,520	$	(56,272	)	$	1,152,752


~~(2)~~	~~All losses recognized in~~ ~~Other income (expense), net~~ ~~for our funeral merchandise and service trust investments are attributable to our preneed customers and are offset by a corresponding reclassification in~~ ~~Other income (expense), net~~ to ~~Deferred preneed receipts held in trust. See Note 6 for further information related to our~~ ~~Deferred preneed receipts held in trust~~.



	December 31, 2015
	In Loss Position Less Than 12 Months					In Loss Position Greater Than 12 Months					Total
	Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses
						(In thousands)
Fixed income securities:
U.S. Treasury	$	37,008	$	(1,273	)	$	4,687	$	(58	)	$	41,695	$	(1,331	)
Canadian government	2,336		(17		)	11,535		(638		)	13,871		(655		)
Corporate	4,644		(156		)	4,025		(128		)	8,669		(284		)
Residential mortgage-backed	377		(6		)	133		(16		)	510		(22		)
Equity securities:
Preferred stock	448		(60		)	42		(98		)	490		(158		)
Common stock:
United States	128,725		(16,448		)	14,531		(2,701		)	143,256		(19,149		)
Canada	1,956		(355		)	1,097		(722		)	3,053		(1,077		)
Other international	9,458		(1,638		)	6,151		(2,269		)	15,609		(3,907		)
Mutual funds:
Equity	185,726		(23,385		)	79,855		(20,590		)	265,581		(43,975		)
Fixed income	108,984		(5,052		)	27,048		(8,040		)	136,032		(13,092		)
Commingled funds:
Fixed income	68,578		(442		)	—		—			68,578		(442		)
Private equity	—		—			18,713		(6,467		)	18,713		(6,467		)
Total temporarily impaired securities	$	548,240	$	(48,832	)	$	167,817	$	(41,727	)	$	716,057	$	(90,559	)



	Fair Value
	(In thousands)
Due in one year or less	$	26,698
Due in one to five years	25,843
Due in five to ten years	27,094
Thereafter	18,695
	$	98,330


~~(1)~~	~~Includes both realized and unrealized investment (losses) earnings.~~


~~(1)~~	~~The increase in activity in 2014 is the result of changing the legal structure of the trust investments.~~


(2)	All losses recognized in Other (expense) income, net for our cemetery merchandise and service trust investments are attributable to our preneed customers and are offset by a corresponding reclassification in Other (expense) income, net to Deferred preneed receipts held in trust. See Note 6 for further information related to our Deferred preneed receipts held in trust.


(1)	The higher level of activity in 2014 was the result of changing the legal structure of the trust investments.


(1)	All unrealized (losses) gains ~~(losses)~~ recognized in Accumulated other comprehensive income for our cemetery perpetual care trust investments are offset by a corresponding reclassification in Accumulated other comprehensive income to Care trusts’ corpus. See Note 6 for further information related to our Care trusts’ corpus.


6.	Deferred Preneed Receipts Held in Trust and Care Trusts’ Corpus


	Year Ended December 31, 2015															Year Ended December 31, 2016
	Funeral Trusts			Cemetery Trusts			Cemetery Perpetual Care Trusts			Other, Net			Total			Funeral Trusts			Cemetery Trusts			Cemetery Perpetual Care Trusts			Other, Net			Total
							(In thousands)															(In thousands)
Realized gains	$	42,034		$	51,510		$	6,933		$	—		$	100,477		$	38,704		$	53,253		$	8,327		$	—		$	100,284
Realized losses	(31,403		)	(40,092		)	(7,708		)	—			(79,203		)	(46,432		)	(60,795		)	(6,579		)	—			(113,806		)
Impairment charges	(3,519		)	(4,345		)	(1,812		)	—			(9,676		)	(4,625		)	(5,872		)	(1,360		)	—			(11,857		)
Interest, dividend, and other ordinary income	25,952			27,089			56,253			—			109,294			20,299			17,428			56,594			—			94,321
Trust expenses and income taxes	(21,852		)	(31,472		)	(32,643		)	—			(85,967		)	(20,190		)	(22,137		)	(22,801		)	—			(65,128		)
Net trust investment income	11,212			2,690			21,023			—			34,925
Net trust investment (losses) income																(12,244		)	(18,123		)	34,181			—			3,814
Reclassification to deferred preneed receipts held in trust and care trusts’ corpus	(11,212		)	(2,690		)	(21,023		)	—			(34,925		)	12,244			18,123			(34,181		)	—			(3,814		)
Other expense, net	—			—			—			(113		)	(113		)	—			—			—			(631		)	(631		)
Total other expense, net	$	—		$	—		$	—		$	(113	)	$	(113	)	$	—		$	—		$	—		$	(631	)	$	(631	)



	Year Ended December 31, 2014
	Funeral Trusts			Cemetery Trusts			Cemetery Perpetual Care Trusts			Other, Net		Total
							(In thousands)
Realized gains	$	168,567		$	271,507		$	134,259		$	—	$	574,333
Realized losses	(113,748		)	(138,473		)	(51,093		)	—		(303,314		)
Impairment charges	(41,846		)	(60,040		)	(8,072		)	—		(109,958		)
Interest, dividend, and other ordinary income	22,668			17,597			52,126			—		92,391
Trust expenses and income taxes	(19,590		)	(20,833		)	(34,243		)	—		(74,666		)
Net trust investment income	16,051			69,758			92,977			—		178,786
Reclassification to deferred preneed receipts held in trust and care trusts’ corpus	(16,051		)	(69,758		)	(92,977		)	—		(178,786		)
Other income, net	—			—			—			1,780		1,780
Total other income, net	$	—		$	—		$	—		$	1,780	$	1,780



	December 31, 2013
	Funeral Trusts			Cemetery Trusts			Cemetery Perpetual Care Trusts			Other, Net			Total
							(In thousands)
Realized gains	$	65,011		$	101,337		$	17,916		$	—		$	184,264
Realized losses	(9,732		)	(14,593		)	(2,738		)	—			(27,063		)
Impairment charges	(829		)	(1,575		)	(192		)	—			(2,596		)
Interest, dividend, and other ordinary income	24,912			20,527			41,269			—			86,708
Trust expenses and income taxes	(11,371		)	(14,633		)	(16,445		)	—			(42,449		)
Net trust investment income	67,991			91,063			39,810			—			198,864
Reclassification to deferred preneed receipts held in trust and care trusts’ corpus	(67,991		)	(91,063		)	(39,810		)	—			(198,864		)
Other expense, net	—			—			—			(558		)	(558		)
Total other expense, net	$	—		$	—		$	—		$	(558	)	$	(558	)


	Useful life							Useful Life
	Minimum		Maximum	2015		2014		Minimum		Maximum	2016		2015
	(Years)			(In thousands)				(Years)			(In thousands)
Amortizing intangibles:
Covenants-not-to-compete	2	-	20	$	206,822	$	209,920	2	-	20	$	211,549	$	206,822
Customer relationships	10	-	20	154,364		148,351		10	-	20	146,876		154,364
Tradenames	5	-	5	12,750		12,750		5	-	5	9,150		12,750
Other	5	-	40	11,927		11,927		5	-	40	11,927		11,927
				385,863		382,948					379,502		385,863
Less: Accumulated amortization				257,157		220,682					268,061		257,157
Amortizing intangibles, net				128,706		162,266					111,441		128,706

Non-amortizing intangibles:
Tradenames			Indefinite	230,659		220,875				Indefinite	245,984		230,659
Other			Indefinite	10,640		10,640				Indefinite	10,640		10,640
Non-amortizing intangibles				241,299		231,515					256,624		241,299

Intangible assets, net				$	370,005	$	393,781				$	368,065	$	370,005


2016	$	14,490
2017	$	11,876	$	11,718
2018	$	11,119	$	10,961
2019	$	7,869	$	7,711
2020	$	6,772	$	6,613
2021			$	6,504


	Federal, State and Foreign Tax			Federal, State and Foreign Tax
	(In thousands)			(In thousands)
Balance at December 31, 2012	$	184,899
Reductions to tax positions related to the current year	3,019
Additions to tax positions related to the acquisition of Stewart, offset to goodwill	1,556
Reductions to tax positions related to prior years	(8,800		)
Statute expirations	(2,844		)
Balance at December 31, 2013	$	177,830		$	177,830
Additions to tax positions related to the current year	8,721			8,721
Additions to tax positions related to prior years	10,085			10,085
Reductions to tax positions related to the current year	(1,075		)	(1,075		)
Reductions to tax positions related to prior years	(2,325		)	(2,325		)
Reductions to tax positions related to the acquisition of Stewart, offset to goodwill	(1,556		)	(1,556		)
Balance at December 31, 2014	$	191,680		$	191,680
Additions to tax positions related to the current year	3,235			3,235
Reduction to tax positions related to prior years				(12,370		)
Balance at December 31, 2015				$	182,545
Reductions to tax positions related to prior years	(12,370		)	(4,219		)
Balance at December 31, 2015	$	182,545
Balance at December 31, 2016				$	178,326


	State		Foreign		Total		Federal		State		Foreign		Total
	(In thousands)						(In thousands)
2016	$	156,434	$	—	$	156,434
2017	247,348		—		247,348		$	—	$	241,619	$	—	$	241,619
2018	102,661		—		102,661		—		111,084		—		111,084
2019	137,636		—		137,636		—		143,491		—		143,491
2020							200		183,071		—		183,271
Thereafter	2,587,522		3,824		2,591,346		1,900		3,111,526		6,632		3,120,058
Total	$	3,231,601	$	3,824	$	3,235,425	$	2,100	$	3,790,791	$	6,632	$	3,799,523


2016	$	95,181
2017	437,575		$	94,725
2018	727,315		350,609
2019	16,695		74,169
2020	225,364		295,231
2021 and thereafter	1,664,789
2021			647,792
2022 and thereafter			1,848,735
	$	3,166,919	$	3,311,261