SERVICE CORPORATION INTERNATIONAL

INDEX




	Page
Glossary	3
Part I. Financial Information	5
Item 1. Financial Statements	5
Unaudited Condensed Consolidated Statement of Operations — Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	5
Unaudited Condensed Consolidated Statement of Comprehensive Income — Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	6
Unaudited Condensed Consolidated Balance Sheet — ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015	7
Unaudited Condensed Consolidated Statement of Cash Flows — ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	8
Unaudited Condensed Consolidated Statement of Equity — ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	109
Notes to Unaudited Condensed Consolidated Financial Statements	1110
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	4038
The Company	4038
Financial Condition, Liquidity, and Capital Resources	4139
Results of Operations - Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	4745
Critical Accounting Policies	5548
Cautionary Statement on Forward-Looking Statements	5548
Item 3. Quantitative and Qualitative Disclosures About Market Risk	5649
Item 4. Controls and Procedures	5649
Part II. Other Information	5749
Item 1. Legal Proceedings	5749
Item 1A. Risk Factors	5749
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	5851
Item 6. Exhibits	5852
Signature	5953

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GLOSSARY

The following terms are common to the deathcare industry, are used throughout this 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 to comply with the contractual terms of payment. State or provincial laws govern the amount of refund, if any, owed to the customer.

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~~agency (GA) ~~Revenue~~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).

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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.~~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.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SERVICE CORPORATION INTERNATIONAL

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2015			2014			2015			2014			2016			2015
	(In thousands, except per share amounts)												(In thousands, except per share amounts)
Revenue	$	714,525		$	718,314		$	2,216,996		$	2,210,569		$	749,271		$	748,117
Costs and expenses	(572,581		)	(570,016		)	(1,730,373		)	(1,740,167		)	(587,775		)	(570,673		)
Gross profit	141,944			148,298			486,623			470,402			161,496			177,444
General and administrative expenses	(28,158		)	(39,748		)	(96,781		)	(141,885		)	(37,508		)	(34,550		)
Gains on divestitures and impairment charges, net	10,764			26,570			3,403			58,752
Losses on divestitures and impairment charges, net													(347		)	(1,779		)
Operating income	124,550			135,120			393,245			387,269			123,641			141,115
Interest expense	(43,921		)	(43,376		)	(129,842		)	(134,679		)	(43,082		)	(42,939		)
Loss on early extinguishment of debt	(6,918		)	—			(6,918		)	(29,158		)	(581		)	—
Other income (expense), net	334			(9		)	167			1,577
Other expense, net													(211		)	(58		)
Income before income taxes	74,045			91,735			256,652			225,009			79,767			98,118
Provision for income taxes	(26,118		)	(74,934		)	(93,778		)	(134,998		)	(32,313		)	(36,653		)
Net income from continuing operations	47,927			16,801			162,874			90,011
Net income (loss) from discontinued operations, net of tax	—			884			(390		)	846
Net income	47,927			17,685			162,484			90,857			47,454			61,465
Net income attributable to noncontrolling interests	(479		)	(34		)	(1,066		)	(6,182		)	(9		)	(90		)
Net income attributable to common stockholders	$	47,448		$	17,651		$	161,418		$	84,675		$	47,445		$	61,375
Basic earnings per share:
Net income attributable to common stockholders	$	0.24		$	0.08		$	0.80		$	0.40		$	0.24		$	0.30
Basic weighted average number of shares	199,310			210,820			201,729			212,009			194,924			203,510
Diluted earnings per share:
Net income attributable to common stockholders	$	0.23		$	0.08		$	0.78		$	0.39		$	0.24		$	0.30
Diluted weighted average number of shares	203,444			213,010			205,950			215,365			198,030			207,752
Dividends declared per share	$	0.12		$	0.09		$	0.32		$	0.25		$	0.12		$	0.10

(See notes to unaudited condensed consolidated financial statements)

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SERVICE CORPORATION INTERNATIONAL

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three Months Ended						Nine Months Ended							Three Months Ended
	September 30,						September 30,							March 31,
	2015			2014			2015			2014				2016			2015
	(In thousands)												(In thousands)
Net income	$	47,927		$	17,685		$	162,484		$	90,857			$	47,454		$	61,465
Other comprehensive income:
Foreign currency translation adjustments	(28,182		)	(16,060		)	(42,941		)	(13,732		)		22,716			(22,633		)
Reclassification of foreign currency translation adjustments to discontinued operations	—			3,114			—			3,114
Total comprehensive income	19,745			4,739			119,543			80,239				70,170			38,832
Total comprehensive income attributable to noncontrolling interests	(464		)	(24		)	(1,038		)	(6,182		)		(18		)	(74		)
Total comprehensive income attributable to common stockholders	$	19,281		$	4,715		$	118,505		$	74,057			$	70,152		$	38,758

(See notes to unaudited condensed consolidated financial statements)

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SERVICE CORPORATION INTERNATIONAL

CONDENSED CONSOLIDATED BALANCE SHEET

(UNAUDITED)


	September 30, 2015			December 31, 2014			March 31, 2016			December 31, 2015
	(In thousands, except share amounts)						(In thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	141,950		$	177,335		$	213,505		$	134,599
Receivables, net	81,777			109,050			83,241			90,462
Inventories	29,557			29,697			28,612			27,835
Other	67,458			80,774			27,523			47,155
Total current assets	320,742			396,856			352,881			300,051
Preneed funeral receivables, net and trust investments	1,734,444			1,843,023			1,763,274			1,760,297
Preneed cemetery receivables, net and trust investments	2,267,806			2,306,669			2,323,679			2,318,167
Cemetery property	1,745,939			1,739,216			1,754,024			1,753,015
Property and equipment, net	1,851,264			1,861,403			1,841,013			1,846,722
Goodwill	1,799,939			1,810,853			1,800,522			1,796,340
Deferred charges and other assets	628,768			624,248			586,573			582,378
Cemetery perpetual care trust investments	1,304,219			1,341,376			1,334,165			1,319,427
Total assets	$	11,653,121		$	11,923,644		$	11,756,131		$	11,676,397

LIABILITIES & EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	449,725		$	453,042		$	446,824		$	422,842
Current maturities of long-term debt	95,045			90,931			57,413			86,823
Income taxes	1,868			8,035
Income taxes payable							13,574			1,373
Total current liabilities	546,638			552,008			517,811			511,038
Long-term debt	3,046,414			2,963,794			3,076,342			3,037,605
Deferred preneed funeral revenue	548,211			540,164			560,300			557,897
Deferred preneed cemetery revenue	1,131,506			1,062,381			1,144,292			1,120,001
Deferred tax liability	452,610			448,824			470,715			470,584
Other liabilities	502,980			502,553			493,434			496,921
Deferred preneed receipts held in trust	2,932,684			3,148,884			2,968,592			2,973,386
Care trusts’ corpus	1,304,574			1,327,658			1,334,552			1,319,564
Commitments and contingencies (Note 15)
Commitments and contingencies (Note 14)
Equity:
Common stock, $1 per share par value, 500,000,000 shares authorized, 208,729,686 and 205,458,331 shares issued, respectively, and 197,125,709 and 204,866,770 shares outstanding, respectively	197,126			204,867
Common stock, $1 per share par value, 500,000,000 shares authorized, 201,520,963 and 200,859,676 shares issued, respectively, and 194,147,675 and 195,772,876 shares outstanding, respectively							194,148			195,773
Capital in excess of par value	1,115,738			1,186,304			1,063,892			1,092,106
Accumulated deficit	(151,491		)	(81,859		)	(101,545		)	(109,351		)
Accumulated other comprehensive income	16,501			59,414			28,871			6,164
Total common stockholders’ equity	1,177,874			1,368,726			1,185,366			1,184,692
Noncontrolling interests	9,630			8,652			4,727			4,709
Total equity	1,187,504			1,377,378			1,190,093			1,189,401
Total liabilities and equity	$	11,653,121		$	11,923,644		$	11,756,131		$	11,676,397

(See notes to unaudited condensed consolidated financial statements)

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SERVICE CORPORATION INTERNATIONAL

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

Nine Months Ended
September 30,
2015 2014
(In thousands)
Cash flows from operating activities:
Net income $ 162,484

$ 90,857
Adjustments to reconcile net income to net cash provided by operating activities:

Loss (income) from discontinued operations, net of tax 390

(846 )
Loss on early extinguishment of debt 6,918

29,158
Premiums paid on early extinguishment of debt (6,549 )
(24,804 )
Depreciation and amortization 103,816

105,098
Amortization of intangible assets 23,536

27,792
Amortization of cemetery property 40,422

41,477
Amortization of loan costs 7,221

6,436
Provision for doubtful accounts 4,663

6,142
Provision for deferred income taxes 13,761

59,614
Gains on divestitures and impairment charges, net (3,403 )
(58,752 )
Share-based compensation 10,717

9,742
Excess tax benefits from share-based awards (17,266 )
(20,727 )
Change in assets and liabilities, net of effects from acquisitions and divestitures:

Decrease (increase) in receivables 11,724

(7,038 )
Increase in other assets (627 )
(12,845 )
Increase in payables and other liabilities 39,546

38,439
Effect of preneed funeral production and maturities:

Decrease in preneed funeral receivables, net and trust investments 20,846

29,498
Increase (decrease) deferred preneed funeral revenue 9,922

(24,746 )
Decrease in deferred preneed funeral receipts held in trust (47,365 )
(29,879 )
Effect of cemetery production and deliveries:

Increase in preneed cemetery receivables, net and trust investments (55,777 )
(37,559 )
Increase in deferred preneed cemetery revenue 70,995

34,388
Increase (decrease) in deferred preneed cemetery receipts held in trust 644

(5,355 )
Other —

1,131
Net cash provided by operating activities from continuing operations 396,618

257,221
Net cash used in operating activities from discontinued operations —

(1,000 )
Net cash provided by operating activities 396,618

256,221
Cash flows from investing activities:

Capital expenditures (104,732 )
(95,182 )
Acquisitions (41,430 )
(10,815 )
Proceeds from divestitures and sales of property and equipment 11,329

397,297
Net withdrawals (deposits) of restricted funds 8,066

(12,225 )
Net cash (used in) provided by investing activities from continuing operations (126,767 )
279,075
Net cash provided by investing activities from discontinued operations 987

4,981
Net cash (used in) provided by investing activities (125,780 )
284,056
Cash flows from financing activities:

Proceeds from issuance of long-term debt 401,250

755,000
Debt issuance costs (5,830 )
(10,500 )
Payments of debt (145,171 )
(222,958 )
Early extinguishment of debt (197,377 )
(762,764 )
Principal payments on capital leases (20,421 )
(21,979 )
Proceeds from exercise of stock options 30,491

27,609
Excess tax benefits from share-based awards 17,266

20,727
Purchase of Company common stock (305,488 )
(130,162 )
Payments of dividends (64,068 )
(53,026 )
Purchase of noncontrolling interest —

(15,000 )
Bank overdrafts and other (9,095 )
(3,377 )

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	Nine Months Ended						Three Months Ended
	September 30,						March 31,
	2015			2014			2016			2015
	(In thousands)						(In thousands)
Cash flows from operating activities:
Net income							$	47,454		$	61,465
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on early extinguishment of debt							581			—
Depreciation and amortization							35,834			34,041
Amortization of intangible assets							7,667			8,150
Amortization of cemetery property							13,599			11,632
Amortization of loan costs							1,615			2,422
Provision for doubtful accounts							538			2,690
Benefit for deferred income taxes							(1,291		)	(6,624		)
Losses on divestitures and impairment charges, net							347			1,779
Share-based compensation							3,067			4,023
Excess tax benefits from share-based awards							(2,258		)	(5,511		)
Change in assets and liabilities, net of effects from acquisitions and divestitures:
Decrease (increase) in receivables							9,340			(2,894		)
Decrease in other assets							1,598			5,894
Increase in payables and other liabilities							56,062			54,847
Effect of preneed funeral production and maturities:
Decrease in preneed funeral receivables, net and trust investments							3,146			13,760
(Decrease) increase deferred preneed funeral revenue							(599		)	6,729
Decrease in deferred preneed funeral receipts held in trust							(10,273		)	(21,748		)
Effect of cemetery production and deliveries:
Increase in preneed cemetery receivables, net and trust investments							(7,869		)	(7,252		)
Increase in deferred preneed cemetery revenue							22,286			22,375
Increase in deferred preneed cemetery receipts held in trust							3,918			2,994
Net cash provided by operating activities							184,762			188,772
Cash flows from investing activities:
Capital expenditures							(41,708		)	(28,298		)
Acquisitions							(56		)	(30,616		)
Proceeds from divestitures and sales of property and equipment							10,164			3,901
Net withdrawals of restricted funds							5,120			2,841
Net cash used in investing activities							(26,480		)	(52,172		)
Cash flows from financing activities:
Proceeds from issuance of long-term debt							590,000			15,000
Debt issuance costs							(5,035		)	—
Payments of debt							(10,054		)	(15,071		)
Early extinguishment of debt							(580,483		)	—
Principal payments on capital leases							(8,156		)	(7,380		)
Proceeds from exercise of stock options							3,133			9,445
Excess tax benefits from share-based awards							2,258			5,511
Purchase of Company common stock							(54,632		)	(73,180		)
Payments of dividends							(23,324		)	(20,461		)
Bank overdrafts and other							1,369			(6,819		)
Net cash used in financing activities	(298,443		)	(416,430		)	(84,924		)	(92,955		)
Net change in cash of discontinued operations	—			1,361
Effect of foreign currency on cash and cash equivalents	(7,780		)	(548		)	5,548			(3,851		)
Net (decrease) increase in cash and cash equivalents	(35,385		)	124,660
Net increase in cash and cash equivalents							78,906			39,794
Cash and cash equivalents at beginning of period	177,335			141,599			134,599			177,335
Cash and cash equivalents at end of period	$	141,950		$	266,259		$	213,505		$	217,129

(See notes to unaudited condensed consolidated financial statements)

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SERVICE CORPORATION INTERNATIONAL

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(UNAUDITED)

(In thousands)


	Common Stock			Treasury Stock			Capital in Excess of Par Value			Accumulated Deficit			Accumulated Other Comprehensive Income			Noncontrolling Interests			Total			Common Stock		Treasury Stock			Capital in Excess of Par Value			Accumulated Deficit			Accumulated Other Comprehensive Income			Noncontrolling Interests		Total
Balance at December 31, 2013	$	212,327		$	(10	)	$	1,259,348		$	(145,876	)	$	88,441		$	10,148		$	1,424,378
Comprehensive income	—			—			—			84,675			(10,618		)	6,182			80,239
Dividends declared on common stock ($0.25 per share)	—			—			(53,026		)	—			—						(53,026		)
Employee share-based compensation earned	—			—			9,742			—			—			—			9,742
Stock option exercises	2,855			—			25,515			—			—			—			28,370
Restricted stock awards, net of forfeitures	352			—			(352		)	—			—			—			—
Purchase of Company common stock	—			(6,386		)	(37,653		)	(86,884		)	—			—			(130,923		)
Cancellation of Company stock	(42		)	42			—			—			—			—			—
Tax benefits related to share-based awards	—			—			20,727			—			—			—			20,727
Purchase of noncontrolling interest	—			—			(7,440		)	—			—			(7,560		)	(15,000		)
Noncontrolling interest payment	—			—			—			—			—			(135		)	(135		)
Other	93			—			1,471			—			—			—			1,564
Balance at September 30, 2014	$	215,585		$	(6,354	)	$	1,218,332		$	(148,085	)	$	77,823		$	8,635		$	1,365,936

Balance at December 31, 2014	$	205,458		$	(591	)	$	1,186,304		$	(81,859	)	$	59,414		$	8,652		$	1,377,378		$	205,458	$	(591	)	$	1,186,304		$	(81,859	)	$	59,414		$	8,652	$	1,377,378
Comprehensive income	—			—			—			161,418			(42,913		)	1,038			119,543			—		—			—			61,375			(22,617		)	74		38,832
Dividends declared on common stock ($0.32 per share)	—			—			(64,068		)	—			—			—			(64,068		)
Dividends declared on common stock ($0.10 per share)																						—		—			(20,461		)	—			—			—		(20,461		)
Employee share-based compensation earned	—			—			10,717			—			—			—			10,717			—		—			4,023			—			—			—		4,023
Stock option exercises	2,951			—			27,540			—			—			—			30,491			873		—			8,572			—			—			—		9,445
Restricted stock awards, net of forfeitures	259			(3		)	(256		)	—			—			—			—			254		—			(254		)	—			—			—		—
Purchase of Company common stock	—			(11,010		)	(63,428		)	(231,050		)	—			—			(305,488		)	—		(3,085		)	(17,808		)	(52,287		)	—			—		(73,180		)
Tax benefits related to share-based awards				—			17,266			—			—			—			17,266			—		—			5,511			—			—			—		5,511
Noncontrolling interest payment	—			—			—			—			—			(60		)	(60		)
Other	62			—			1,663			—			—			—			1,725			1		—			7			—			—			—		8
Balance at September 30, 2015	$	208,730		$	(11,604	)	$	1,115,738		$	(151,491	)	$	16,501		$	9,630		$	1,187,504
Balance at March 31, 2015																						$	206,586	$	(3,676	)	$	1,165,894		$	(72,771	)	$	36,797		$	8,726	$	1,341,556

Balance at December 31, 2015																						$	200,859	$	(5,086	)	$	1,092,106		$	(109,351	)	$	6,164		$	4,709	$	1,189,401
Comprehensive income																						—		—			—			47,445			22,707			18		70,170
Dividends declared on common stock ($0.12 per share)																						—		—			(23,324		)	—			—			—		(23,324		)
Employee share-based compensation earned																						—		—			3,067			—			—			—		3,067
Stock option exercises																						417		—			2,716			—			—			—		3,133
Restricted stock awards, net of forfeitures																						242		(1		)	(241		)	—			—			—		—
Purchase of Company common stock																						—		(2,285		)	(12,708		)	(39,639		)	—			—		(54,632		)
Tax benefits related to share-based awards																						—		—			2,258			—			—			—		2,258
Other																						2		—			18			—			—			—		20
Balance at March 31, 2016																						$	201,520	$	(7,372	)	$	1,063,892		$	(101,545	)	$	28,871		$	4,727	$	1,190,093

(See notes to unaudited condensed consolidated financial statements)

~~Table of Contents~~

SERVICE CORPORATION INTERNATIONAL

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

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. 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™. Our funeral 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, ~~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, and burial openings and closings, are sold at our cemeteries.

2. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

Our unaudited condensed 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 merchandise and service trusts and cemetery perpetual care trusts in which we have a variable interest and are the primary beneficiary. Our interim condensed consolidated financial statements are unaudited but include all adjustments, consisting of normal recurring accruals and any other adjustments, which management considers necessary for a fair statement of our results for these periods. Our unaudited condensed consolidated financial statements have been prepared in a manner consistent with the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, ~~2014,~~2015, unless otherwise disclosed herein, and should be read in conjunction therewith. The accompanying year-end condensed ~~consolidated balance sheet~~Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year period.

Reclassifications Prior Period Financial Statements

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 first quarter of 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 unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions as described in our Annual Report on Form 10-K for the year ended December 31, ~~2014.~~2015. These estimates and assumptions may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. As a result, actual results could differ from these estimates.

~~Discontinued Operations~~Accounting Standards Adopted in 2016

Consolidation

In ~~April 2014,~~February 2015, the Financial Accounting Standards Board (FASB) amended "Consolidation" to revise the ~~Presentation~~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 ~~Financial Statements~~ ~~and~~ ~~Property, Plant, and Equipment~~ ~~accounting standards~~this amendment, all legal entities were reevaluated to ~~change the requirement for reporting discontinued operations. Under the new guidance, a disposal of a component of an entity is required to~~determine if they should be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results. Fewer disposals are expected to qualify as discontinued operations under the new guidance. It also requires the disclosure of pretax income of disposals that do not qualify as discontinued operations. consolidated.

We adopted the amendment effective January 1, 2016, with no impact our consolidated results of operations, consolidated financial position, and cash flows.

Debt Issuance Costs

In April 2015, the FASB amended "Interest—Imputation of Interest" to simplify the presentation of debt issuance costs on the balance sheet. Prior to adoption of this amendment, debt issuance costs were included in Other current assets and Deferred charges and other assets on our unaudited condensed 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 "Interest—Imputation of Interest" 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 the manner in which the debt issuance costs are expensed over the term of the debt. We have retrospectively adopted the change in presentation effective January 1, 2016. As a result, we recast our Consolidated Balance Sheet as of December 31, 2015 to reduce Other current assets and Current maturities of long-term debt by $8.4 million and to reduce Deferred charges and other assets and Long-term debt by $34.1 million.

Cloud Computing Arrangements

In April 2015, the FASB amended "Intangibles—Goodwill and Other—Internal-Use Software" to provide guidance on whether a cloud computing arrangement contains a software license. If a cloud computing arrangement includes a software license, then 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. We adopted the amendment effective January 1, 2016, with no impact on our consolidated results of operations, consolidated financial position, orand cash flows.

Fair Value Measurements

11In May 2015, the FASB amended "Fair Value Measurements" 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. We retrospectively adopted the amendment effective January 1, 2016, and have made the appropriate disclosures in Notes 3, 4, and 5.

Business Combinations

~~Table~~In September 2015, the FASB amended "Business Combinations" 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 ~~Contents~~the adjustment. We adopted the amendment on January 1, 2016 and it will be applied prospectively to measurement-period adjustments occurring after that date, if any.

3. Recently Issued Accounting Standards

Revenue Recognition

In May 2014, the FASB issued ~~the~~ "Revenue from Contracts with ~~Customers~~Customers" ~~accounting standard,~~ which supersedes the revenue recognition requirements in ~~the~~ "Revenue ~~Recognition~~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 to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, and timing of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. 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~~Customers" ~~accounting standard~~ for all entities by one year. 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 are evaluating the impact of adoption on our consolidated results of operations, consolidated financial position, and cash flows.

~~Consolidation~~

~~In February 2015, 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. We are evaluating the impact of adoption 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 condensed 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 the manner in which the debt issuance costs are expensed over the term of the debt. The change in presentation is effective for us on January 1, 2016. As of September 30, 2015, the effect of these amendments would have been to reduce ~~Other current assets~~ ~~and~~ ~~Current maturities of long-term debt~~ ~~by $8.3 million and to reduce~~ ~~Deferred charges and other assets~~ ~~and~~ ~~Long-term debt~~ ~~by $36.1 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 $8.0 million and to reduce~~ ~~Deferred charges and other assets~~ ~~and~~ ~~Long-term debt~~ ~~by $36.8 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 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 we are still evaluating the impact of adoption on our consolidated results 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.

~~Table of Contents~~

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 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 is effective for us on January 1, 2017, and we are still evaluating the impact of adoption on our consolidated results of operations, consolidated financial position, and cash flows.

~~Business Combinations~~Financial Instruments

In ~~September 2015,~~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 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

In February 2016, the FASB amended "~~Business Combinations~~Leases" ~~accounting standard~~ to ~~eliminate the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively.~~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 ~~acquirers must recognize measurement-period adjustments in~~for a lessee, a lessor, and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the ~~period in which they determine~~financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. This new standard will be effective for us on January 1, 2019. We are evaluating the impact of adoption on our consolidated results of operations, consolidated financial position, and cash flows.

Stock Compensation

In March 2016, the FASB amended "Stock Compensation" to simplify certain aspects of the ~~adjustment.~~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, and ~~will be applied prospectively to measurement-period adjustments occurring after~~we are still evaluating the ~~effective date, if any.~~impact of adoption on our consolidated results of operations, consolidated financial position, and cash flows.

4.3. Preneed Funeral Activities

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 merchandise and service trusts are variable interest ~~entities as defined in the~~ ~~Consolidation~~ ~~accounting standard. In accordance with this standard, we~~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 trust investments detailed in Notes 54 and 65 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 revenue into Deferred preneed receipts held in trust. Amounts are withdrawn from the trusts after the contract obligations are performed. Cash flows from preneed contracts are presented as operating cash flows in our unaudited condensed ~~consolidated statement~~Consolidated Statement of ~~cash flows.~~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 revenue until the merchandise is delivered or the service is performed.

The table below sets forth certain investment-related activities associated with these preneed merchandise and service trusts:


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2015			2014			2015			2014			2016			2015
	(In thousands)												(In thousands)
Deposits	$	30,143		$	23,618		$	92,623		$	76,490		$	27,708		$	29,995
Withdrawals	$	36,310		$	27,718		$	123,499		$	103,410		$	35,170		$	45,444
Purchases of available-for-sale securities	$	100,663		$	238,860		$	281,298		$	379,650		$	109,522		$	104,231
Sales of available-for-sale securities	$	110,642		$	274,630		$	282,960		$	445,880		$	99,493		$	82,320
Realized gains from sales of available-for-sale securities	$	9,341		$	18,935		$	23,546		$	50,947		$	6,824		$	4,349
Realized losses from sales of available-for-sale securities	$	(8,982	)	$	(2,094	)	$	(17,554	)	$	(6,233	)	$	(19,651	)	$	(4,735	)

~~Table of Contents~~

The components of Preneed funeral receivables, net and trust investments in our unaudited condensed ~~consolidated balance sheet~~Consolidated Balance Sheet at ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015 are as follows:


	September 30, 2015			December 31, 2014			March 31, 2016			December 31, 2015
	(In thousands)						(In thousands)
Trust investments, at fair value	$	1,098,236		$	1,205,747
Trust investments, at market							$	1,112,379		$	1,109,394
Cash and cash equivalents	130,161			162,229			128,315			134,603
Insurance-backed fixed income securities	269,744			260,899			270,473			271,116
Trust investments	1,498,141			1,628,875			1,511,167			1,515,113
Receivables from customers	286,463			262,700			298,852			290,689
Unearned finance charge	(10,996		)	(11,054		)	(11,906		)	(11,235		)
	1,773,608			1,880,521			1,798,113			1,794,567
Allowance for cancellation	(39,164		)	(37,498		)	(34,839		)	(34,270		)
Preneed funeral receivables, net and trust investments	$	1,734,444		$	1,843,023		$	1,763,274		$	1,760,297

The costs and ~~fair~~ values associated with trust investments measured at ~~fair value~~market at ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015 are detailed below. Cost reflects the investment (net of redemptions) of control holders in the trusts. ~~Fair value~~Value represents the value of the underlying securities held by the trusts.

September 30, 2015
Fair Value Hierarchy Level Cost
Unrealized
Gains

Unrealized
Losses

Fair
Value
(In thousands)
Fixed income securities:
U.S. Treasury 2 $ 82,969
$ 121
$ (1,248 ) $ 81,842
Canadian government 2 75,703
556
(558 ) 75,701
Corporate 2 21,521
364
(253 ) 21,632
Residential mortgage-backed 2 1,449
37
(21 ) 1,465
Asset-backed 2 5
—
—
5
Equity securities:
Preferred stock 2 1,939
22
(112 ) 1,849
Common stock:
United States 1 351,048
18,956
(29,166 ) 340,838
Canada 1 12,032
2,700
(1,069 ) 13,663
Other international 1 36,612
1,403
(6,224 ) 31,791
Mutual funds:
Equity 1 318,576
1,166
(41,814 ) 277,928
Fixed income 1 221,425
434
(9,628 ) 212,231
Private equity 3 34,994
4,450
(5,554 ) 33,890
Other 3 4,427
989
(15 ) 5,401
Trust investments $ 1,162,700
$ 31,198
$ (95,662 ) $ 1,098,236

~~Table of Contents~~


	December 31, 2014										March 31, 2016
	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Value		Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Value
				(In thousands)										(In thousands)
Fixed income securities:
U.S. Treasury	2	$	85,775	$	468	$	(455	)	$	85,788	2	$	78,022	$	834	$	(254	)	$	78,602
Canadian government	2	90,430		449		(874		)	90,005		2	77,781		410		(881		)	77,310
Corporate	2	24,765		423		(126		)	25,062		2	14,974		173		(262		)	14,885
Residential mortgage-backed	2	1,325		29		(12		)	1,342		2	80		2		—			82
Asset-backed	2	6		—		—			6		2	58		—		(1		)	57
Equity securities:
Preferred stock	2	2,503		113		(113		)	2,503		2	1,950		64		(116		)	1,898
Common stock:
United States	1	377,441		18,533		(7,405		)	388,569		1	351,310		30,275		(23,247		)	358,338
Canada	1	14,708		4,292		(895		)	18,105		1	13,014		2,338		(1,146		)	14,206
Other international	1	38,035		1,175		(1,560		)	37,650		1	29,746		2,171		(3,909		)	28,008
Mutual funds:
Equity	1	308,548		3,332		(15,901		)	295,979		1	328,286		2,780		(40,449		)	290,617
Fixed income	1	229,414		869		(3,576		)	226,707		1	150,974		594		(9,179		)	142,389
Other											3	3,997		910		(96		)	4,811
Trust investments, at fair value												1,050,192		40,551		(79,540		)	1,011,203
Fixed income commingled funds												64,988		1,328		—			66,316
Private equity	3	35,094		2,649		(9,418		)	28,325			37,761		3,701		(6,602		)	34,860
Other	3	5,084		726		(104		)	5,706
Trust investments		$	1,213,128	$	33,058	$	(40,439	)	$	1,205,747
Trust investments, at net asset value												102,749		5,029		(6,602		)	101,176
Trust investments, at market												$	1,152,941	$	45,580	$	(86,142	)	$	1,112,379



	December 31, 2015
	Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Value
				(In thousands)
Fixed income securities:
U.S. Treasury	2	$	82,417	$	107	$	(1,331	)	$	81,193
Canadian government	2	72,488		532		(655		)	72,365
Corporate	2	19,036		235		(284		)	18,987
Residential mortgage-backed	2	1,297		29		(22		)	1,304
Asset-backed	2	5		—		—			5
Equity securities:
Preferred stock	2	1,949		41		(158		)	1,832
Common stock:
United States	1	344,116		30,885		(19,149		)	355,852
Canada	1	11,930		2,652		(1,077		)	13,505
Other international	1	32,156		2,636		(3,907		)	30,885
Mutual funds:
Equity	1	323,884		1,263		(43,975		)	281,172
Fixed income	1	155,717		154		(13,092		)	142,779
Other	3	3,703		1,069		—			4,772
Trust investments, at fair value		1,048,698		39,603		(83,650		)	1,004,651
Fixed income commingled funds		69,148		—		(442		)	68,706
Private equity		38,724		3,780		(6,467		)	36,037
Trust investments, at net asset value		107,872		3,780		(6,909		)	104,743
Trust investments, at market		$	1,156,570	$	43,383	$	(90,559	)	$	1,109,394

Valuation policies and procedures are determined by our Trust Services department, which reports to our Chief Financial Officer. Additionally, valuations are reviewed by the Investment Committee of the Board of Directors quarterly.

Where quoted prices are available in an active market, securities are classified as Level 1 investments pursuant to the fair value measurements hierarchy.

Where quoted market prices are not available for the specific security, fair values are estimated by using either quoted prices of securities with similar characteristics or an income approach fair value model with observable inputs that include a combination of interest rates, yield curves, credit risks, prepayment speeds, ratings, and tax-exempt status. These funds are classified as Level 2 investments pursuant to the fair value measurements hierarchy.

The valuation of ~~private equity and~~ other ~~alternative~~ investments requires 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 investments. The underlying real estate value is determined using the most recent available appraisals. Private equity investments are valued based on reported net asset values. Valuation policies and procedures are determined by our Trust Services department, which reports to our Chief Financial Officer. Additionally, valuations are reviewed by the Investment Committee of the Board of Directors quarterly. These funds are classified as Level 3 investments pursuant to the fair value measurements hierarchy.

~~As of September 30, 2015, our unfunded commitment for our~~Fixed income commingled funds and private equity ~~and other~~ investments ~~was $45.2 million which, if called, would be funded by the assets of the trusts.~~are measured at net asset value. Fixed income commingled funds are redeemable for net asset value with two weeks notice. Our private equity ~~and other~~ investments include several funds that invest in limited partnerships, distressed debt, real estate, and mezzanine financing. These investments can never be redeemed by the funds. Instead, due to the nature of the investments in this category, distributions are received through the liquidation of the underlying assets of the funds. We estimate that the underlying assets will be liquidated over the next 2 to 10 years.

~~Table~~ As of ~~Contents~~March 31, 2016, our unfunded commitment for our private equity investments was $41.1 million which, if called, would be funded by the assets of the trusts.

The change in our trust investments measured at fair value with significant unobservable inputs (Level 3) is as follows:

Three Months Ended

September 30, 2015
September 30, 2014
Private Equity
Other
Private Equity
Other

(In thousands)
Fair value, beginning balance $ 34,366

$ 7,111

$ 27,339

$ 4,476
Net unrealized gains (losses) included in Accumulated other comprehensive income⁽¹⁾
1,859

(551 )
265

1,071
Net realized losses included in Other income (expense), net⁽²⁾
(7 )
(4 )
(7 )
(4 )
Purchases —
—
289
—
Contributions —

—

4,998

121
Distributions (2,328 )
(1,155 )
(2,949 )
—
Fair value, ending balance $ 33,890

$ 5,401

$ 29,935

$ 5,664

Nine Months Ended
September 30, 2015 September 30, 2014
Private Equity Other Private Equity Other
(In thousands)
Fair value, beginning balance $ 28,325
$ 5,706
$ 26,885
$ 1,810
Net unrealized gains (losses) included in Accumulated other comprehensive income⁽¹⁾
6,048
533
(1,370 ) 3,927
Net realized losses included in Other income (expense), net ⁽²⁾
(45 ) (17 ) (21 ) (5 )
Purchases —
23
3,244
—
Sales (36 ) —
—
—
Contributions 4,632
1,226
5,955
121
Distributions (5,034 ) (2,070 ) (4,758 ) (189 )
Fair value, ending balance $ 33,890
$ 5,401
$ 29,935
$ 5,664



	Three Months Ended
	March 31,
	2016		2015
	Other		Other
	(In thousands)
Fair value, beginning balance	$	4,772	$	4,891
Net unrealized gains (losses) included in Accumulated other comprehensive income⁽¹⁾	39		(74		)
Fair value, ending balance	$	4,811	$	4,817

⁽¹⁾

All unrealized gains (losses) recognized in Accumulated other comprehensive income for our merchandise and service trust investments are attributable to our preneed customers and are offset by a corresponding reclassification in Accumulated other comprehensive income to Deferred preneed receipts held in trust. See Note ~~7 for further information related to our~~ ~~Deferred preneed receipts held in trust~~.


~~(2)~~	~~All net realized losses recognized in~~ ~~Other income (expense), net~~ ~~for our 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 7~~6 for further information related to our Deferred preneed receipts held in trust.

Maturity dates of our fixed income securities range from ~~2015~~2016 to ~~2045.~~2041. Maturities of fixed income securities, excluding mutual funds, at ~~September 30, 2015~~March 31, 2016 are estimated as follows:


	Fair Value		Fair Value
	(In thousands)		(In thousands)
Due in one year or less	$	111,193	$	106,941
Due in one to five years	25,996		26,528
Due in five to ten years	29,213		31,082
Thereafter	14,243		6,385
	$	180,645	$	170,936

~~Table of Contents~~

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 ~~$396.6~~$184.8 million in the ~~nine~~three months ended ~~September 30, 2015.~~March 31, 2016. We have ~~$241.7~~$639.2 million in excess borrowing capacity under our bank credit ~~facility.~~agreement.

Our bank credit ~~facility~~agreement requires us to maintain certain leverage and interest coverage ratios. As of ~~September 30, 2015,~~March 31, 2016, we were in compliance with all of our debt covenants. Our financial covenant requirements and actual ratios as of ~~September 30, 2015~~March 31, 2016 are as follows:



	Per Credit Agreement	Actual
Leverage ratio	~~4.50~~4.25 (Max)	~~3.74~~3.75
Interest coverage ratio	3.00 (Min)	~~4.96~~4.80

We believe ~~our~~the sources of liquidity can be supplemented by our ability to access the capital markets for additional debt or equity securities. In March 2016, we entered into a new $1.4 billion bank credit agreement due March 2021 with a syndicate of banks. The credit agreement consists of a $700.0 million Bank Credit Facility and a $700.0 million Term Loan. We used $550.0 million of the Term Loan due March 2021 and $30.0 million of the Bank Credit Facility due March 2021 to repay $270.0 million outstanding borrowings on the Bank Credit Facility due July 2018 and $310.0 million outstanding borrowings on the Term Loan due July 2018. In April 2016, we drew $170.0 million on our Bank Credit Facility due March 2021, and $150.0 million on our Term Loan due March 2021, to repay our $295.0 million 7.0% Senior Notes due June 2017 and associated transaction costs, which resulted in the recognition of $21.7 million loss on early extinguishment of debt.

We believe that our ~~$142.0~~approximately $160.0 million of unencumbered cash on hand, future operating cash flows, and the available capacity under our ~~Bank Credit Facility~~bank credit agreement will give us adequate liquidity to meet our short-term ~~needs. In August 2015,~~needs as well as our long-term financial obligations. Due to cash balances residing in Canada and expected minimum operating cash in transit, we ~~completed the public offering of $300.0~~believe approximately $160.0 million ~~aggregate principal amount~~ of our ~~5.375% Senior Notes due 2024~~$213.5 million 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.cash on hand is unencumbered.

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 ~~homes~~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 ~~home facilities when deemed appropriate.~~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 in ~~2015.~~2016. We target a payout ratio of 30% to 40% of recurring net income. We intend to grow our cash dividend commensurate with the growth in 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 ~~nine~~three months ended ~~September 30, 2015,~~March 31, 2016, we repurchased ~~11,008,576~~2,285,230 shares of common stock at an aggregate cost of ~~$305.5~~$54.6 million, which is an average cost per share of ~~$27.75.~~$23.91. After these repurchases, the remaining dollar value of shares authorized to be purchased under our share repurchase program was approximately ~~$321.6~~$226.3 million at ~~September 30, 2015.~~March 31, 2016. 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 agreement contains covenants that limit our ability to repurchase our common stock. There can be no assurance that we will buy our common stock under our share repurchase program in the future.

Repurchase debt. We will seek to make open market debt repurchases when it is opportunistic to do so relative to other capital development opportunities to manage our near-term debt maturity profile. We have a relatively consistent annual cash flow stream that 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 managed based on the availability of operating cash flow.

~~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 our operating and investing needs.

Operating Activities

Net cash provided by operating activities ~~increased $140.4 million to $396.6~~was $184.8 million in the first ~~nine~~three months of ~~2015 from $256.2~~2016, compared to $188.8 million in the first ~~nine~~three months of ~~2014.~~ 2015.

Included in ~~2015~~operating cash flows are a decrease of acquisition and transition related costs of $51.0 million, a decrease of $18.3 million in premiums paid on early extinguishment of debt, a decrease of $18.1 million in taxes paid associated with gains on divestitures, a decrease of $10.3 million paid for legal defense fees, and a $3.4 million decrease in excess tax benefits from share-based awards and other.the following:



	Three Months Ended
	March 31
	2016		2015
	(In millions)
Excess tax benefits from share-based awards	$	2.3	$	5.5
Acquisition, integration, and system transition costs	$	2.9	$	3.5

Excluding the above items, cash flow from operations ~~increased $39.3~~decreased $7.8 million for the first quarter of 2016 versus the same period in 2015. The 2016 decrease is primarily due to lower earnings, as discussed in Results of Operations, and higher cash tax payments, partially offset by higher preneed cemetery installment collections. The first quarter of 2016 had a ~~result of the following:~~

$23.7 million decrease in cash receipts from atneed customers, a ~~$36.6~~$5.4 million decrease in net trust fund withdrawals, and a $4.1 million increase in cash tax payments partially offset by a $20.4 million increase in cash receipts from ~~customers;~~

~~a $21.4 million increase in net trust fund withdrawals;~~

~~an $11.3 million decrease in cash interest paid;~~preneed customers and

~~a $4.1 million decrease in employee compensation; partially offset by~~

~~a $29.1 million increase in cash tax payments; and~~

a $5.0 million increase in ~~vendor~~general agency revenue and other ~~payments.~~receipts compared to the first quarter of 2015.

Investing Activities

Cash flows from investing activities used ~~$125.8~~$26.5 million in the first ~~nine~~three months of ~~2015~~2016 compared to ~~providing $284.1~~using $52.2 million in the same period of ~~2014.~~2015. This was primarily attributable to a ~~$386.0~~decrease of $30.6 million ~~decrease~~in cash spent on acquisitions, a $6.3 million increase in cash receipts from divestitures and asset sales, ~~an increase of $30.6 million in cash spent on acquisitions,~~ and a ~~$9.6 million increase in capital expenditures, partially offset by a $20.3~~$2.3 million increase in net withdrawals of restricted ~~funds.~~funds, partially offset by a $13.4 million increase in capital expenditures. The increase in capital expenditures primarily relates to the development of contemporary cemetery property, which enables our sales force to drive sustainable growth in our preneed cemetery property sales. Additionally, we invested in the construction of 2 new funeral homes during the first quarter of 2016.

Financing Activities

Financing activities used ~~$298.4~~$84.9 million in the first ~~nine~~three months of 2015 compared to using ~~$416.4~~$93.0 million in the same period of ~~2014.~~2015. This decrease was primarily driven by a decrease in purchases of Company common stock of $18.5 million, partially offset by, decreased proceeds from exercise of stock options of $6.3 million, a decrease of $3.3 million in excess tax benefits from share based awards, an increase in debt payments net of issuance proceeds of ~~$295.7 million, increased proceeds from exercise of stock options of $2.9~~$6.3 million, and a ~~$15.0 million decrease in purchases of noncontrolling interests, partially offset by a $175.3 million increase in repurchases of Company common stock and an $11.0~~$2.9 million increase in payments of dividends.

We repurchased ~~11.0~~2.3 million shares in the first ~~nine~~three months of ~~2015~~2016 for ~~$305.5~~$54.6 million and ~~6.3~~3.1 million shares in the same period of ~~2014~~2015 for ~~$130.2~~$73.2 million. We paid cash dividends of ~~$64.1~~$23.3 million in the first ~~nine~~three months of ~~2015~~2016 and ~~$53.0~~$20.5 million in the same period of ~~2014.~~2015.

~~Table of Contents~~

Financial Assurances

In support of our operations, we have entered into arrangements with certain surety companies whereby such companies agree to issue surety bonds on our behalf as financial assurance and/or as required by existing state and local regulations. The surety bonds are used for various business purposes; however, the majority of the surety bonds issued and outstanding have been used to support our preneed funeral and cemetery sales activities. The obligations underlying these surety bonds are recorded on the unaudited condensed ~~consolidated balance sheet~~Consolidated Balance Sheet as Deferred preneed funeral revenue and Deferred preneed cemetery revenue. The breakdown of surety bonds between funeral and cemetery preneed arrangements, as well as surety bonds for other activities, is described below.


	September 30, 2015		December 31, 2014		March 31, 2016		December 31, 2015
	(In millions)				(In millions)
Preneed funeral	$	112.6	$	121.1	$	117.3	$	112.9
Preneed cemetery:
Merchandise and services	136.0		138.1		138.3		136.0
Pre-construction	4.9		4.6		6.1		4.8
Bonds supporting preneed obligations	253.5		263.8		261.7		253.7
Bonds supporting preneed business permits	4.5		4.4		4.5		4.4
Other bonds	18.0		18.0		19.0		17.8
Total surety bonds outstanding	$	276.0	$	286.2	$	285.2	$	275.9

~~Table of Contents~~

Trust Investments

In addition to selling our ~~merchandise~~products and services to client families at the time of need, we ~~sell~~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 or a portion of the funds collected from customers on preneed funeral and cemetery contracts be paid into trusts and/or ~~preneed~~ escrow accounts until the merchandise is delivered or the service is performed. Investment earnings associated with the trust investments are expected to mitigate the inflationary costs of providing the preneed funeral and cemetery merchandise orand 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 of the proceeds from the preneed or atneed sale of cemetery property interment rights into perpetual care trusts. For these investments, the original corpus remains in the trust in perpetuity and the net ordinary earnings are distributed and are intended to ~~defray~~offset the expense to maintain the cemetery property. While ~~some of the~~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 ~~income~~net ordinary earnings that isare distributed.

Independent trustees manage and invest ~~all~~the majority of the funds deposited into the funeral and cemetery merchandise and ~~service~~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. ~~All~~Most of the trustees engage the same independent investment managers. ~~The~~These trustees, with input from SCI's ~~wholly-owned~~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 on the liability structure of each funeral, cemetery, and perpetual care trust. The investment advisor recommends investment managers to the trustees that are selected 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)~~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,~~assets. Preneed funeral and ~~(2) preserving capital within acceptable levels of volatility. Preneed~~cemetery contracts generally take years to mature; therefore, the funds associated with these contracts are often invested ~~for~~through several market cycles. The cemetery perpetual care ~~trusts~~trusts' investment objectives emphasize providing a steady stream of current investment income with some capital appreciation. ~~The trustees~~All of the trusts seek to control risk and volatility through a combination of asset classes, investment styles, ~~asset classes,~~ and a diverse mix of investment managers.

As of ~~September 30, 2015, 87%~~March 31, 2016, 86% of our trusts were under the control and custody of three large financial institutions. The U.S. trustees primarily use three managed limited liability (LLCs), one for each trust type, and each with a different independent trustee as custodian. Each financial institution acting as trustee manages its allocation of trust in accordance with the investment policy through the purchase of the LLCs' units. For those accounts not eligible for participation in the LLCs or in the event a particular state's regulations contain investment restrictions, the trustee utilizes institutional mutual funds that comply with our investment policy or with such state restrictions. The U.S. trusts include a modest allocation to alternative investments, which comprise private equity and real estate investments. These investments are structured as LLCs and are managed by certain trustees. The trusts that are eligible to allocate a portion of their investments to alternative investments purchase units of the respective LLCs.

~~Fixed Income Securities~~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 ~~SCI~~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 ~~fixed income securities. Insurance-backed fixed income investments preserve the principal, guarantee annual appreciation,~~ and ~~reduce overall portfolio volatility.~~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.

~~Table of Contents~~

~~Equity Securities~~

Equity investments have historically provided long-term capital appreciation in excess of inflation. The ~~SCI~~ trusts have direct investments in individual equity securities primarily in domestic equity portfolios that include large, mid, and small capitalization companies of different investment ~~objectives~~styles (i.e., growth and value). The majority of the equity ~~portfolio~~allocation is managed by ~~multiple~~ institutional investment managers that specialize in an objective-specific area of expertise. Our equity securities are exposed to market risk; however, we believe these securities are ~~well diversified.~~well-diversified. As of ~~September 30, 2015,~~March 31, 2016, the largest single equity position represented less than 1% of the total securities portfolio.

~~Mutual Funds~~

The SCI trust funds employ institutional mutual funds where operationally or economically efficient. Institutional mutual funds are utilized to invest in various asset classes including U.S. equities, non-U.S. equities, convertible bonds, corporate bonds, government bonds, Treasury inflation protected securities (TIPS), high yield bonds, real estate investment trusts (REITs), and commodities. The mutual funds are governed by guidelines outlined in their individual prospectuses.

~~Private Equity~~

The objective of ~~these~~ Private Equityinvestments is to provide high rates of return with ~~controlled~~reduced volatility. These investments are typically long-term in duration. These investments are diversified by strategy, sector, manager, and vintage year. ~~Private equity exposure is accessed through LLCs established by certain preferred trustees. These LLCs invest in~~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 ~~current investments.~~investment decisions.

Trust Performance

The trust fund income recognized from these investment assets is volatile. During the ~~nine~~three months ended ~~September 30, 2015,~~March 31, 2016, the Standard and Poor’s 500 Index decreased ~~5.3%~~1.4% and the Barclay’s Aggregate Index increased ~~1.1%~~3.0%, while the combined SCI trusts ~~decreased 3.1%~~increased 1.0%.

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

Results of Operations — Three Months Ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~

Management Summary

Key highlights in the ~~third~~first quarter of ~~2015~~2016 were as follows:

~~Comparable~~Diluted earnings per share was $0.24 in the first quarter of 2016 compared to $0.30 in the prior year quarter. The impact of lower funeral ~~gross profit decreased $11.5 million, or 12.9%, primarily~~services performed due to a ~~decrease~~milder flu season in ~~comparable revenue, inflationary increases in our fixed cost structure.~~

~~Comparable cemetery gross profit increased $6.1 million, or 10.5%, primarily driven~~the current year quarter was partially offset by ~~increases~~an increase in preneed cemetery property ~~sales that were partially offset by an unfavorable impact of Canadian currency.~~revenue.

Results of Operations

In the ~~third~~first quarter of ~~2015,~~2016, we reported net income attributable to common stockholders of $47.4 million ($~~0.23~~0.24 per diluted share) compared to net income attributable to common stockholders in the ~~third~~first quarter of ~~2014~~2015 of ~~$17.7~~$61.4 million ($~~0.08~~0.30 per diluted share). These results were affected by the following items:

2015
2014
(In thousands)
Net after-tax gains (losses) from the sale of assets $ 6,848
$ (25,878 )
After-tax (losses) gains from the early extinguishment of debt $ (4,199 ) $ 1,029
After-tax expenses related to acquisition and transition costs $ —
$ (5,349 )
Change in certain tax reserves and other $ (1,118 ) $ (1,750 )

~~Table of Contents~~

~~Consolidated Versus Comparable Results~~



	2016			2015
	(In thousands)
Net after-tax gains (losses) from the sale of assets	$	101		$	(1,043	)
After-tax losses from the early extinguishment of debt	$	(352	)	$	—
Net after-tax expenses related to system transition costs	$	(2,465	)	$	(454	)
After-tax expenses related to acquisition and integration costs	$	(3,969	)	$	(1,773	)
Change in certain tax reserves	$	(1,159	)	$	(990	)

The table below reconciles our consolidated GAAP results to our comparable, or “same store,” results for the three months ended September 30, 2015 and 2014. We define comparable operations (or same store operations) as those funeral and cemetery locations that were owned for the entire period beginning January 1, 2014 and ending September 30, 2015. The following tables present operating results for funeral and cemetery locations that were owned by us during this period.

Funeral Results

Three Months Ended September 30, 2015 Consolidated
Less:
Results Associated with Acquisition/New Construction

Less:
Results Associated with Divestitures
Comparable
(In millions)
Revenue
Funeral revenue $ 449.2
$ 3.8
$ 0.5
$ 444.9
Cemetery revenue 265.3
2.7
—
262.6
Total revenue $ 714.5
$ 6.5
$ 0.5
$ 707.5
Gross profit
Funeral gross profit $ 77.0
$ (0.6 ) $ (0.2 ) $ 77.8
Cemetery gross profit 64.9
1.0
(0.1 ) 64.0
Total gross profit $ 141.9
$ 0.4
$ (0.3 ) $ 141.8



	Three Months Ended March 31,
	2016			2015
	(Dollars in millions, except average revenue per service)
Consolidated funeral revenue	$	492.1		$	507.7
Less: revenue associated with acquisitions/new construction	2.5			0.2
Less: revenue associated with divestitures	0.1			3.3
Comparable¹ funeral revenue	489.5			504.2
Less: Comparable recognized preneed revenue	28.8			23.1
Less: Comparable general agency and other revenue	34.9			29.0
Adjusted comparable funeral revenue	$	425.8		$	452.1
Comparable services performed	81,580			86,605
Comparable average revenue per service²	$	5,219		$	5,220

Consolidated funeral gross profit	$	107.0		$	126.9
Less: gross loss associated with acquisitions/new construction	(0.1		)	—
Less: gross loss associated with divestitures	(0.4		)	(1.0		)
Comparablefuneral gross profit	$	107.5		$	127.9

Three Months Ended September 30, 2014 Consolidated
Less:
Results Associated with Acquisition/New Construction

Less:
Results Associated with Divestitures
Comparable
(In millions)
Revenue
Funeral revenue $ 458.9
$ 0.4
$ 10.0
$ 448.5
Cemetery revenue 259.4
0.1
6.2
253.1
Total revenue $ 718.3
$ 0.5
$ 16.2
$ 701.6
Gross profit
Funeral gross profit $ 89.7
$ (0.2 ) $ 0.6
$ 89.3
Cemetery gross profit 58.6
—
0.7
57.9
Total gross profit $ 148.3
$ (0.2 ) $ 1.3
$ 147.2

The following table provides the data necessary to calculate our consolidated average revenue per service for the three months ended September 30, 2015 and 2014. We calculate average revenue per service by dividing consolidated funeral revenue, excluding GA revenue, recognized preneed revenue, and certain other revenue, to avoid distorting our averages of normal funeral services revenue, by the number of consolidated funeral services performed during the period. Recognized preneed revenue are preneed sales of items that are delivered at the time of sale, including memorial merchandise and travel protection and are excluded from our calculation of consolidated average revenue per service because the associated service has not yet been performed.

Three Months Ended
September 30,
2015
2014

(In millions,
except funeral services performed and average
revenue per funeral service)
Consolidated funeral revenue $ 449.2
$ 458.9
Less: Consolidated recognized preneed revenue 25.7
22.6
Less: Consolidated GA revenue 34.9
32.3
Less: Other revenue 4.1
3.3
Adjusted consolidated funeral revenue $ 384.5
$ 400.7
Consolidated funeral services performed 73,874
76,306
Consolidated average revenue per service $ 5,205
$ 5,251

~~Table of Contents~~

The following table provides the data necessary to calculate our comparable average revenue per service for the three months ended September 30, 2015 and 2014. We calculate average revenue per service by dividing comparable funeral revenue, excluding comparable GA revenue, recognized preneed revenue, and certain other revenue, to avoid distorting our averages of normal funeral services revenue, by the number of comparable funeral services performed during the period. Recognized preneed revenue are preneed sales of items that are delivered at the time of sale, including memorial merchandise and travel protection, and are excluded from our calculation of comparable average revenue per service because the associated service has not yet been performed.

Three Months Ended
September 30,
2015 2014

(In millions,
except funeral services performed and average
revenue per funeral service)
Comparable funeral revenue $ 444.9
$ 448.5
Less: Comparable recognized preneed revenue 25.2
22.4
Less: Comparable GA revenue 34.6
32.1
Less: Other revenue 4.1
3.1
Adjusted comparable funeral revenue $ 381.0
$ 390.9
Comparable funeral services performed 73,048
73,996
Comparable average revenue per service $ 5,216
$ 5,282

~~Funeral Results~~


(1)	We define comparable (or same store) operations as those funeral locations owned by us for the entire period beginning January 1, 2015 and ending March 31, 2016.

(2)

We calculate comparable average revenue per service by dividing comparable funeral revenue, excluding general agency revenue, recognized preneed revenue, and other revenue 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, and are excluded from our calculation of comparable average revenue per service because the associated service has not yet been performed.

Funeral Revenue

Consolidated ~~revenue~~revenues from funeral operations were ~~$449.2~~$492.1 million infor the ~~third~~first quarter of ~~2015~~2016 compared to ~~$458.9~~$507.7 million for the same period in ~~2014.~~2015. This decrease is primarily attributable to a $14.7 million decrease in comparable revenue as described below and the loss of ~~$10.0~~$3.2 million in revenue contributed ~~in 2014~~ by properties that have been subsequently divested ~~as the decrease in comparable revenue described below was largely~~partially offset by $2.3 million in revenue contributed by acquired ~~and newly opened~~ properties.

Comparable revenue from funeral operations were ~~$444.9~~$489.5 million infor the ~~third~~first quarter of ~~2015~~2016 compared to ~~$448.5~~$504.2 million for the same period in ~~2014. Declines~~2015. This $14.7 million decrease was primarily due to a 5.8% decrease in ~~total~~ comparable ~~funeral~~ services performed and comparable average revenue per service were partially offset by a $2.9 million increase in recognized preneed revenue for items that are delivered at the time of sale and a $2.5 million increase in GA revenue.

~~Funeral Services Performed~~

~~Our consolidated funeral services performed decreased 3.2% during the third~~performed. The first quarter of 2015 ~~compared to~~had a strong flu season while the ~~same period~~first quarter of 2016 had a mild flu season. This decrease comprises a 6.5% decrease in ~~2014, primarily because of the loss of~~atneed services performed by properties that have been subsequently divested. Our comparable funeral services performed declined 1.3%. Growth of 10.4% in prearranged services performed sold through our non-funeral home channel was more than offset by atneed and ~~prearranged~~preneed services sold through our funeral homes ~~declining 2.2%.~~

offset by a 2.7% increase in preneed services sold through our non-funeral home channel. Our total comparable cremation rate ~~of 51.7%~~increased to 52.1% in the ~~third~~first quarter of 2016 from 51.1% in 2015 ~~increased from 50.9%~~as a result of an increase in ~~the same period of 2014. This growth in comparable~~both direct cremations ~~was generated primarily by direct cremations.~~and cremations with service. 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, which resulted~~offerings.

Average revenue per funeral services was essentially unchanged in ~~higher~~the first quarter of 2016 compared to the first quarter of 2015. Organic growth at the customer level of 2.4% in average revenue for ~~cremation services.~~

~~Average Revenue Per Service~~

Our consolidated average revenue per service decreased $46, or 0.9%, in the third quarter of 2015 compared to 2014, primarily due to a 1.2% decrease in comparable average revenue per service. Our comparable average revenue per service decreased $66 in the third quarter of 2015 compared to the same period in 2014. Absent the negative impact of the increase in non-funeral home prearrangedatneed services ~~which carry a lower average per service,~~and preneed services sold through our ~~comparable average revenue per service decreased $24, or 0.4%. Inflationary pricing growth~~funeral homes was largely offset by an unfavorable Canadian currency impact, anthe increase in our cremation mix, ~~and~~ lower trust fund income, ~~related~~and a decrease in the average revenue for preneed services sold through our non-funeral home channel.

The decrease in funeral services performed was partially offset by a $5.9 million increase in general agency revenue from higher preneed insurance sales production and a $5.7 million increase in recognized preneed revenue due to ~~the negative financial market conditions during the third quarter.~~

~~Table of Contents~~

increased sales production by our non-funeral home channel.

Funeral Gross Profit

Consolidated funeral gross profit decreased ~~$12.7~~$19.9 million ~~or 14.2%,~~ in the ~~third~~first quarter of ~~2015~~2016 compared to the same period in ~~2014.~~2015. This decrease is primarily attributable to ~~the~~a decrease in comparable ~~gross profit described below and the loss of $0.8 million in gross profit contributed by properties that have been subsequently divested.~~

~~Comparable~~ funeral gross profit ~~decreased $11.5~~of $20.4 million, or ~~12.9%~~15.9%. The decline in higher margin revenue from funeral services performed was partially offset by increased gross profit from recognized

preneed revenue. While general agency revenue grew $5.9 million during the quarter, it was offset by similar increases in selling costs associated with our preneed selling efforts.

Cemetery Results



	Three Months Ended March 31,
	2016		2015
	(In millions)
Consolidated cemetery revenue	$	257.2	$	240.4
Less: revenue associated with acquisitions/new construction	1.7		—
Less: revenue associated with divestitures	0.2		0.2
Comparable¹ cemetery revenue	$	255.3	$	240.2

Consolidated cemetery gross profit	$	54.5	$	50.5
Less: gross profit associated with acquisitions/new construction	0.3		—
Less: gross loss associated with divestitures	—		(0.2		)
Comparable cemetery gross profit	$	54.2	$	50.7


(1)	We define comparable (or same store) operations as those cemetery locations owned by us for the entire period beginning January 1, 2015 and ending March 31, 2016.

Cemetery Revenue

Consolidated revenue from our cemetery operations increased $16.8 million, or 7.0%, in the ~~third~~first quarter of ~~2015~~2016 compared to the same period in ~~2014. The~~2015 primarily attributable to the increase in comparable gr~~oss margin percentage decreased from 19.9% to 17.5%~~revenue described below and $1.7 million in revenue contributed by acquired properties. Comparable cemetery revenue increased $15.1 million, or 6.3%, in the ~~third~~first quarter of ~~2015 when~~2016 compared to the same period in ~~2014. The decrease in gross profit is~~2015 primarily ~~the~~as a result of ~~the decrease~~a $10.7 million increase in ~~comparable~~preneed property revenue ~~described above~~ and ~~inflationary increases~~ an increase in ~~our fixed cost structure.~~

~~Cemetery Results~~

~~Cemetery Revenue~~

~~Consolidated cemetery revenue increased $5.9 million, or 2.3%,~~cash distributions of capital gains received from perpetual care trusts in the ~~third~~first quarter of ~~2015~~2016 compared to the same period in ~~2014. This increase is attributable to~~ the ~~$9.5 million increase in comparable revenue described below partially offset by the loss of $6.2 million in revenue contributed in 2014 by properties that have been subsequently divested.~~

Comparable revenue increased $9.5 million, or 3.8%, primarily as a result of an increase in preneed cemetery property sales production that was somewhat offset by lower recognized trust fund income related to financial market conditions during the quarter and an unfavorable Canadian currency impact.prior year.

Cemetery Gross Profit

Consolidated cemetery gross profit increased ~~$6.3~~$4.0 million, or ~~10.8%~~7.9%, in the ~~third~~first quarter of ~~2015~~2016 compared to the same period in ~~2014.~~2015. This increase is ~~attributable to~~primarily the ~~$6.1~~result of a $3.5 million, or 6.9% increase in comparable gross ~~profit described below.~~

~~Comparable~~profit. The increase in comparable cemetery gross profit ~~increased $6.1 million, or 10.5%, and gross margin percentage increased from 22.9% to 24.4% in~~is primarily the ~~third quarter of 2015 compared to the same period in 2014 primarily as a~~ result of the ~~increase in comparable~~higher revenue described ~~above~~above. The gross profit increase was partially offset by ~~an unfavorable Canadian currency impact.~~higher selling cost rates and higher property and merchandise unit costs.

Other Financial Statement Items

General and Administrative Expenses

General and administrative expenses ~~decreased $11.6~~increased $3.0 million to ~~$28.2~~$37.5 million ~~during~~in the ~~third~~first quarter of 2016 compared to the same period in 2015. The current quarter includes $4.1 million in system transition costs primarily related to our 2016 implementation of a new general ledger system and $5.5 million related to the write off of debt costs associated with previous acquisitions. The prior year ~~included $10.7 million in acquisition and transition costs related to the integration of Stewart and~~quarter includes $2.9 million of acquisition and integration costs and $0.8 million of system ~~integration and other~~transition costs. Excluding these costs, general and administrative expenses ~~increased $2.0~~decreased $2.9 million ~~over the prior year quarter, which is primarily due to collections on insurance claims~~ in the ~~third~~first quarter of ~~2014 that did not recur in 2015.~~

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

~~We recognized a $10.8 million net pre-tax gain on divestitures and impairment charges in the third quarter of 2015 from the sale of non-strategic funeral and cemetery locations~~2016 compared to ~~a $26.6 million net pre-tax gain in~~ the same period ~~of 2014~~in 2015 primarily from ~~the required Federal Trade Commission divestitures of funeral and cemetery locations~~decreases in ~~the United States stemming from the Stewart acquisition.~~

~~Losses on Early Extinguishment of Debt~~

During the three months ended September 30, 2015, we recognized a $6.9 million loss on early extinguishment of debt as we took advantage of historically low interest rates to refinance our 6.75% Senior Notes due 2016.liabilities associated with long-term incentive compensation plans.

Provision for Income Taxes

Income tax expense during interim periods is based on our estimated annual effective income tax rate plus any discrete items, which are recorded in the period in which they occur. Discrete items include, among others, such events as changes in estimates due to the finalization of tax returns, tax audit settlements, expiration of statute of limitations, and increases or decreases in valuation allowances. Our effective tax rate was ~~35.3%~~40.5% and ~~81.7%~~37.4% for the three months ended ~~September 30,~~March 31, 2016 and 2015, ~~and 2014,~~ respectively. The higher effective tax rate for the three months ended ~~September 30, 2014 was primarily due to the gain on required divestitures associated with the Stewart acquisition. The effective tax rate for the third quarter of 2015~~March 31, 2016 is ~~above the 35% federal statutory tax rate~~ primarily due to state tax expense partially offset by ~~state legislative changes and~~lower rates on foreign ~~earnings taxed at lower rates.~~earnings.

~~Table of Contents~~

Weighted Average Shares

The diluted weighted average number of shares outstanding was ~~203.4~~198.0 million ~~during~~in the ~~third~~first quarter of ~~2015~~2016, compared to ~~213.0~~207.8 million in the same period ~~2014.~~in 2015. The decrease in the number of shares reflects the impact of shares repurchased under our share repurchase ~~program, partially offset by stock options exercised.~~program.

~~Results of Operations — Nine Months Ended September 30, 2015 and 2014~~

~~Management Summary~~

~~Key highlights in the first nine months of 2015 were as follows:~~

Comparable funeral gross profit increased $6.7 million, or 2.3%, primarily due to an increase in comparable funeral revenue, partially offset by inflationary increases in our fixed cost structure and an unfavorable impact of Canadian currency.

Comparable cemetery gross profit increased $31.7 million, or 20.5%, primarily driven by an increase in preneed property sales production and higher trust fund income, partially offset by an unfavorable impact of Canadian currency.

~~Results of Operations~~

In the first nine months of 2015, we reported net income attributable to common stockholders of $161.4 million ($0.78 per diluted share) compared to net income attributable to common stockholders in the first nine months of 2014 of $84.7 million ($0.39 per diluted share). These results were affected by the following items:

2015 2014
(In thousands)
Net after-tax gains (losses) from the sale of assets $ 1,175
$ (20,125 )
After-tax losses from the early extinguishment of debt $ (4,199 ) $ (17,420 )
After-tax expenses related to acquisition and transition costs $ (1,824 ) $ (24,576 )
After-tax expenses related to legal defense fees and labor matters $ —
$ (7,398 )
Change in certain tax reserves and other $ (2,411 ) $ (5,723 )

~~Consolidated Versus Comparable Results~~

The table below reconciles our consolidated GAAP results to our comparable, or “same store,” results for the nine months ended September 30, 2015 and 2014. We define comparable operations (or same store operations) as those funeral and cemetery locations that were owned for the entire period beginning January 1, 2014 and ending September 30, 2015. The following tables present operating results for funeral and cemetery locations that were owned by us during this period.

Nine Months Ended September 30, 2015 Consolidated
Less:
Results Associated with Acquisition/New Construction

Less:
Results Associated with Divestitures
Comparable
(In millions)
Revenue
Funeral revenue $ 1,428.4
$ 8.7
$ 2.3
$ 1,417.4
Cemetery revenue 788.6
5.4
0.2
783.0
Total revenue $ 2,217.0
$ 14.1
$ 2.5
$ 2,200.4
Gross profit
Funeral gross profit $ 298.9
$ (0.8 ) $ (2.0 ) $ 301.7
Cemetery gross profit 187.7
1.5
(0.5 ) 186.7
Total gross profit $ 486.6
$ 0.7
$ (2.5 ) $ 488.4

~~Table of Contents~~

Nine Months Ended September 30, 2014 Consolidated
Less:
Results Associated with Acquisition/New Construction

Less:
Results Associated with Divestitures
Comparable
(In millions)
Revenue
Funeral revenue $ 1,447.5
$ 0.8
$ 57.2
$ 1,389.5
Cemetery revenue 763.1
0.2
33.4
729.5
Total revenue $ 2,210.6
$ 1.0
$ 90.6
$ 2,119.0
Gross profit
Funeral gross profit $ 310.1
$ (0.3 ) $ 15.4
$ 295.0
Cemetery gross profit 160.3
(0.2 ) 5.5
155.0
Total gross profit $ 470.4
$ (0.5 ) $ 20.9
$ 450.0

The following table provides the data necessary to calculate our consolidated average revenue per service for the nine months ended September 30, 2015 and 2014. We calculate average revenue per service by dividing consolidated funeral revenue, excluding GA revenue, recognized preneed revenue, and certain other revenue, to avoid distorting our averages of normal funeral services revenue, by the number of consolidated funeral services performed during the period. Recognized preneed revenue are preneed sales of items that are delivered at the time of sale, including memorial merchandise and travel protection insurance and are excluded from our calculation of consolidated average revenue per service because the associated service has not yet been performed.

Nine Months Ended
September 30,
2015 2014

(In millions,
except funeral services performed and average
revenue per funeral service)
Consolidated funeral revenue $ 1,428.4
$ 1,447.5
Less: Consolidated recognized preneed revenue 74.2
65.1
Less: Consolidated GA revenue 101.3
92.2
Less: Other revenue 10.4
9.9
Adjusted consolidated funeral revenue $ 1,242.5
$ 1,280.3
Consolidated funeral services performed 239,153
245,216
Consolidated average revenue per service $ 5,195
$ 5,221

~~Table of Contents~~

The following table provides the data necessary to calculate our comparable average revenue per service for the nine months ended September 30, 2015 and 2014. We calculate average revenue per service by dividing comparable funeral revenue, excluding comparable GA revenue, recognized preneed revenue, and certain other revenue to avoid distorting our averages of normal funeral services revenue, by the number of comparable funeral services performed during the period. Recognized preneed revenue are preneed sales of items 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.

Nine Months Ended
September 30,
2015 2014

(In millions,
except funeral services performed and average
revenue per funeral service)
Comparable funeral revenue $ 1,417.4
$ 1,389.5
Less: Comparable recognized preneed revenue 72.9
64.6
Less: Comparable GA revenue 101.0
90.6
Less: Other revenue 10.3
9.2
Adjusted comparable funeral revenue $ 1,233.2
$ 1,225.1
Comparable funeral services performed 236,824
234,267
Comparable average revenue per service $ 5,207
$ 5,230

~~Funeral Results~~

~~Funeral Revenue~~

Consolidated revenue from funeral operations were $1,428.4 million in the nine months ended September 30, 2015 compared to $1,447.5 million for the same period in 2014. This decrease is primarily attributable to the loss of $54.9 million in revenue contributed by properties that have been subsequently divested partially offset by a $27.9 million increase in comparable revenue as described below and $7.9 million in revenue contributed by acquired properties.

Comparable revenue from funeral operations were $1,417.4 million in the first nine months of 2015 compared to $1,389.5 million for the same period in 2014. This $27.9 million increase was primarily due to a 1.1% increase in comparable funeral services performed as described below, an $8.3 million increase in recognized preneed revenue for items that are delivered at the time of sale, and a $10.4 million increase in GA revenue.

~~Funeral Services Performed~~

Our consolidated funeral services performed decreased 2.5% during the nine months ended September 30, 2015 compared to the same period in 2014, primarily because of the loss of services performed by properties that have been subsequently divested offset by a 1.1% increase in comparable funeral services performed. This growth comprises a 13.5% increase in prearranged services performed sold through our non-funeral home channel coupled with a 0.1% increase in atneed and prearranged services sold through our funeral homes.

Our comparable cremation rate of 51.3% in the nine months ended September 30, 2015 increased from 50.8% in 2014. This growth in comparable cremations was generated primarily by 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, which have resulted in higher average revenue for cremation services.

~~Average Revenue Per Service~~

Our consolidated average revenue per service decreased $26, or 0.5%, for the nine months ended September 30, 2015 compared to the same period in 2014, primarily due to a 0.4% decrease in comparable average revenue per service. Our comparable average revenue per service decreased $23 for the nine months ended September 30, 2015 compared to the same period in 2014. Absent the negative impact of the increase in non-funeral home prearranged services, which carry a lower average per service, our comparable average revenue per service increased $23, or 0.4%. Inflationary pricing growth was partially offset by an unfavorable Canadian currency impact, an increase in cremation mix, and lower trust fund income.

~~Table of Contents~~

~~Funeral Gross Profit~~

Consolidated funeral gross profit decreased $11.2 million, or 3.6%, in the nine months ended September 30, 2015 compared to the same period in 2014. This decrease is primarily attributable to the loss of $17.4 million in gross profit contributed by properties that have been subsequently divested offset by a $6.7 million increase in comparable gross profit as described below.

Comparable funeral gross profit increased $6.7 million, or 2.3%, and the comparable gross margin percentage increased from 21.2% to 21.3% in the nine months ended September 30, 2015 when compared to the same period in 2014 primarily as a result of the increase in comparable revenue as described above ~~partially offset by~~ ~~inflationary increases in our fixed cost structure and an unfavorable impact of Canadian currency.~~

~~Cemetery Results~~

~~Cemetery Revenue~~

Consolidated revenue from our cemetery operations increased $25.5 million, or 3.3%, in the nine months ended September 30, 2015 compared to the same period in 2014. This increase is primarily attributable to the $53.5 million increase in comparable revenue and $5.2 million in revenue contributed by acquired properties partially offset by the loss of $33.2 million in revenue contributed by properties that have been subsequently divested.

Comparable cemetery revenue increased $53.5 million, or 7.3%, primarily as a result of an increase in preneed property sales production and higher trust fund income, partially offset by an unfavorable impact of Canadian currency.

~~Cemetery Gross Profit~~

Consolidated cemetery gross profit increased $27.4 million, or 17.1%, in the nine months ended September 30, 2015 compared to the same period in 2014. This increase is primarily the result of the $31.7 million increase in comparable gross profit described below partially offset by the loss of $6.0 million in gross profit contributed by properties that have been subsequently divested.

Comparable cemetery gross profit increased $31.7 million, or 20.5%, and gross margin percentage increased from 21.2% to 23.8% in the nine months ended September 30, 2015 compared to the same period in 2014. This increase is primarily the result of higher revenue discussed above, partially offset by an unfavorable impact of Canadian currency.

~~Other Financial Statement Items~~

~~General and Administrative Expenses~~

General and administrative expenses decreased $45.1 million to $96.8 million during the nine months ended September 30, 2015 compared to $141.9 million for the same period in 2014. The current period included $4.1 million in system transition costs. The prior year included $41.2 million in acquisition and transition costs mostly related to Stewart, $12.2 million in legal settlements and defense fees primarily related to the settlement of the Eden matter, and $8.2 million in system integration and other costs. Excluding these costs in both periods, general and administrative expenses increased $12.4 million over the prior year, which is primarily due to the permanent costs associated with the increased scale of the combined SCI and Stewart entity and collections on insurance claims in 2014 that did not recur.

~~Gains on Divestitures and Impairment Charges, net~~

We recognized a $3.4 million net pre-tax gain on divestitures and impairment charges in the nine months ended September 30, 2015 from the sale of non-strategic funeral and cemetery locations compared to $58.8 million net pre-tax gain on divestitures and impairment charges in the nine months ended September 30, 2014, which was associated with the required Federal Trade Commission divestitures of funeral and cemetery locations in the United States stemming from the Stewart acquisition.

~~Interest Expense~~

Interest expense decreased $4.8 million to $129.8 million during the first nine months of 2015. This 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.

~~Losses on Early Extinguishment of Debt~~

During the nine months ended September 30, 2015, we recognized a $6.9 million loss on early extinguishment of debt as we took advantage of historically low interest rates to refinance our 6.75% Senior Notes due 2016.

~~Table of Contents~~

During the nine months ended September 30, 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.

~~Provision for Income Taxes~~

Income tax expense during interim periods is based on our estimated annual effective income tax rate plus any discrete items, which are recorded in the period in which they occur. Discrete items include, among others, such events as changes in estimates due to the finalization of tax returns, tax audit settlements, expiration of statute of limitations, and increases or decreases in valuation allowances. Our effective tax rate was 36.5% and 60.0% for the nine months ended September 30, 2015 and 2014, respectively. The higher effective tax rate for the nine months ended September 30, 2014 was primarily due to the gain on required divestitures associated with the Stewart acquisition. The effective tax rate for the nine months ended September 30, 2015 is above the 35% federal statutory tax rate primarily due to state tax expense partially offset by state legislative changes and foreign earnings taxed at lower rates.

~~Weighted Average Shares~~

The diluted weighted average number of shares outstanding was 206.0 million for the nine months ended September 30, 2015 compared to 215.4 million in the same period 2014. The decrease in the number of shares reflects the impact of shares repurchased under our share repurchase program, partially offset by stock option exercises.

Critical Accounting Policies

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2014.~~2015.

~~No other~~There were no significant changes to our accounting policies that have occurred subsequent to December 31, ~~2014,~~2015, except as described below within Recent Accounting Pronouncements and Accounting Changes.

Recent Accounting Pronouncements and Accounting Changes

For discussion of recent accounting pronouncements and accounting changes, see Part I, Item 1. Financial Statements, Note 3.2.

Cautionary Statement on Forward-Looking Statements

The statements in this Form 10-Q 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 results in the future to differ materially from the forward-looking statements made herein and in any other documents or oral presentations made by us, or on our behalf. Important factors, which could cause actual results to differ materially from those in forward-looking statements include, among others, the following:

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.

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.

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

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

If we lost the ability to use surety bonding to support our preneed funeral and preneed cemetery activities, we may be required to make material cash payments to fund certain trust funds.

The funeral ~~home~~ and cemetery industry is competitive.

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

~~Table of Contents~~

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

Unfavorable results of litigation could have a material adverse impact on our financial statements.

Unfavorable publicity could affect our reputation and business.

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

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

The continuing upward trend in the number of cremations performed in North America could result in lower revenue and gross profit.

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

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

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

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.

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

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.

Any failure to maintain the security of the information relating to our customers, their loved ones, our associates, and our vendors could damage our reputation, could cause us to incur substantial additional costs and to become subject to litigation, and could adversely affect our operating results.

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

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.

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

For further information on these and other risks and uncertainties, see our Securities and Exchange Commission filings, including our ~~2014~~2015 Annual Report on Form 10-K. Copies of this document as well as other SEC filings can be obtained from our website at www.sci-corp.com. We assume no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by us, whether as a result of new information, future events or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Marketable Equity and Debt Securities — Price Risk

In connection with our preneed operations and sales, the related 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 ~~September 30, 2015~~March 31, 2016 are presented in Part I, Item 1. Financial Statements and Notes 3, 4, 5, and 65 of this Form 10-Q. Also, see Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Financial Conditions, Liquidity and Capital Resources, for discussion of trust investments.



Texas		74-1488375
(State or other jurisdiction of incorporation or organization)		(I. R. S. employer identification number)

1929 Allen Parkway, Houston, Texas		77019
(Address of principal executive offices)		(Zip code)

	713-522-5141
(Registrant’s telephone number, including area code)

	None
(Former name, former address, or former fiscal year, if changed since last report)



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


	December 31, 2014															March 31, 2016
	In Loss Position Less Than 12 Months					In Loss Position Greater Than 12 Months					Total					In Loss Position Less Than 12 Months					In Loss Position Greater Than 12 Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Value		Unrealized Losses			Value		Unrealized Losses			Value		Unrealized Losses
						(In thousands)															(In thousands)
Fixed income securities:
U.S. Treasury	$	32,243	$	(412	)	$	4,978	$	(43	)	$	37,221	$	(455	)	$	4,421	$	(169	)	$	4,550	$	(85	)	$	8,971	$	(254	)
Canadian government	2,894		(52		)	14,904		(822		)	17,798		(874		)	5,233		(77		)	12,167		(804		)	17,400		(881		)
Corporate	4,988		(56		)	2,420		(70		)	7,408		(126		)	2,714		(108		)	3,369		(154		)	6,083		(262		)
Residential mortgage-backed	217		(10		)	106		(2		)	323		(12		)
Asset-backed																57		(1		)	—		—			57		(1		)
Equity securities:
Preferred stock	26		(113		)	—		—			26		(113		)	94		(25		)	48		(91		)	142		(116		)
Common stock:
United States	126,527		(7,403		)	438		(2		)	126,965		(7,405		)	124,502		(19,418		)	14,346		(3,829		)	138,848		(23,247		)
Canada	1,752		(379		)	1,085		(516		)	2,837		(895		)	4,918		(866		)	670		(280		)	5,588		(1,146		)
Other international	19,593		(1,557		)	2		(3		)	19,595		(1,560		)	11,101		(2,189		)	4,841		(1,720		)	15,942		(3,909		)
Mutual funds:
Equity	233,827		(13,219		)	23,717		(2,682		)	257,544		(15,901		)	182,603		(23,695		)	71,967		(16,754		)	254,570		(40,449		)
Fixed income	112,160		(3,128		)	11,452		(448		)	123,612		(3,576		)	77,990		(2,994		)	21,240		(6,185		)	99,230		(9,179		)
Other																1,084		(96		)	—		—			1,084		(96		)
Trust investments, at fair value																414,717		(49,638		)	133,198		(29,902		)	547,915		(79,540		)
Private equity	203		(461		)	13,870		(8,957		)	14,073		(9,418		)	788		(612		)	17,165		(5,990		)	17,953		(6,602		)
Other	5		(11		)	464		(93		)	469		(104		)
Trust investments, at net asset value																788		(612		)	17,165		(5,990		)	17,953		(6,602		)
Total temporarily impaired securities	$	534,435	$	(26,801	)	$	73,436	$	(13,638	)	$	607,871	$	(40,439	)	$	415,505	$	(50,250	)	$	150,363	$	(35,892	)	$	565,868	$	(86,142	)


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2015			2014			2015			2014			2016			2015
	(In thousands)												(In thousands)
Deposits	$	40,327		$	34,018		$	116,581		$	95,421		$	36,998		$	35,161
Withdrawals	$	33,260		$	33,669		$	115,930		$	96,238		$	32,411		$	31,226
Purchases of available-for-sale securities	$	165,025		$	247,853		$	389,219		$	458,176		$	131,851		$	106,937
Sales of available-for-sale securities	$	150,804		$	285,411		$	389,747		$	481,258		$	118,581		$	99,262
Realized gains from sales of available-for-sale securities	$	10,318		$	40,635		$	33,859		$	86,822		$	6,246		$	7,135
Realized losses from sales of available-for-sale securities	$	(11,948	)	$	(4,439	)	$	(25,375	)	$	(10,564	)	$	(22,853	)	$	(7,028	)


	September 30, 2015			December 31, 2014			March 31, 2016			December 31, 2015
	(In thousands)						(In thousands)
Trust investments, at fair value	$	1,317,018		$	1,404,298
Trust investments, at market							$	1,333,276		$	1,343,916
Cash and cash equivalents	120,805			122,355			128,497			118,583
Trust investments	1,437,823			1,526,653			1,461,773			1,462,499
Receivables from customers	935,844			881,082			965,495			958,503
Unearned finance charges	(33,477		)	(31,524		)	(32,144		)	(31,332		)
	2,340,190			2,376,211			2,395,124			2,389,670
Allowance for cancellation	(72,384		)	(69,542		)	(71,445		)	(71,503		)
Preneed cemetery receivables, net and trust investments	$	2,267,806		$	2,306,669		$	2,323,679		$	2,318,167



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended ~~September 30, 2015~~March 31, 2016



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from __________ to __________



	Three Months Ended
	September 30, 2015						September 30, 2014
	Private Equity			Other			Private Equity			Other
	(In thousands)
Fair value, beginning balance	$	34,366		$	7,111		$	27,339		$	4,476
Net unrealized gains (losses) included in Accumulated other comprehensive income⁽¹⁾	1,859			(551		)	265			1,071
Net realized losses included in Other income (expense), net⁽²⁾	(7		)	(4		)	(7		)	(4		)
Purchases	—			—			289			—
Contributions	—			—			4,998			121
Distributions	(2,328		)	(1,155		)	(2,949		)	—
Fair value, ending balance	$	33,890		$	5,401		$	29,935		$	5,664


~~(2)~~	~~All net losses recognized in~~ ~~Other income (expense), net~~ ~~for our cemetery perpetual care trust investments are offset by a corresponding reclassification in~~ ~~Other income (expense), net~~ to ~~Care trusts’ corpus. See Note 7 for further information related to our~~ ~~Care trusts’ corpus~~.


	Three Months Ended September 30, 2015														Three Months Ended March 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	$	9,341		$	10,318		$	524		$	—	$	20,183		$	6,824		$	6,246		$	1,494		$	—		$	14,564
Realized losses	(8,982		)	(11,948		)	(156		)	—		(21,086		)	(19,651		)	(22,853		)	(1,616		)	—			(44,120		)
Impairment charges	(1,385		)	(1,761		)	(106		)	—		(3,252		)	(1,118		)	(2,049		)	(115		)	—			(3,282		)
Interest, dividend, and other ordinary income	4,244			4,360			14,035			—		22,639			2,773			2,360			12,990			—			18,123
Trust expenses and income taxes	(5,804		)	(7,902		)	(4,524		)	—		(18,230		)	(4,442		)	(4,853		)	(5,757		)	—			(15,052		)
Net trust investment income (loss)	(2,586		)	(6,933		)	9,773			—		254
Net trust investment (loss) income															(15,614		)	(21,149		)	6,996			—			(29,767		)
Reclassification to deferred preneed receipts held in trust and care trusts’ corpus	2,586			6,933			(9,773		)	—		(254		)	15,614			21,149			(6,996		)	—			29,767
Other income, net	—			—			—			334		334
Total other income, net	$	—		$	—		$	—		$	334	$	334
Other expense, net															—			—			—			(211		)	(211		)
Total other expense, net															$	—		$	—		$	—		$	(211	)	$	(211	)



	Nine Months Ended September 30, 2015
	Funeral Trusts			Cemetery Trusts			Cemetery Perpetual Care Trusts			Other, Net		Total
				(In thousands)
Realized gains	$	23,546		$	33,859		$	2,675		$	—	$	60,080
Realized losses	(17,554		)	(25,375		)	(4,478		)	—		(47,407		)
Impairment charges	(2,880		)	(3,811		)	(1,613		)	—		(8,304		)
Interest, dividend, and other ordinary income	17,126			16,138			40,369			—		73,633
Trust expenses and income taxes	(15,641		)	(23,009		)	(27,367		)	—		(66,017		)
Net trust investment income (loss)	4,597			(2,198		)	9,586			—		11,985
Reclassification to deferred preneed funeral and cemetery receipts held in trust and care trusts’ corpus	(4,597		)	2,198			(9,586		)	—		(11,985		)
Other income, net	—			—			—			167		167
Total other income, net	$	—		$	—		$	—		$	167	$	167


	Three Months Ended September 30, 2014															Three Months Ended March 31, 2015
	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	$	18,935		$	40,635		$	7,034		$	—		$	66,604		$	4,349		$	7,135		$	398		$	—		$	11,882
Realized losses	(2,094		)	(4,439		)	(935		)	—			(7,468		)	(4,735		)	(7,028		)	(129		)	—			(11,892		)
Impairment charges	(41,244		)	(59,311		)	(8,025		)	—			(108,580		)	(471		)	(520		)	(512		)	—			(1,503		)
Interest, dividend, and other ordinary income	1,849			2,681			9,158			—			13,688			4,062			3,516			10,545			—			18,123
Trust expenses and income taxes	(6,748		)	(6,541		)	(4,295		)	—			(17,584		)	(5,827		)	(8,515		)	(6,273		)	—			(20,615		)
Net trust investment income (loss)	(29,302		)	(26,975		)	2,937			—			(53,340		)
Net trust investment (loss) income																(2,622		)	(5,412		)	4,029			—			(4,005		)
Reclassification to deferred preneed receipts held in trust and care trusts’ corpus	29,302			26,975			(2,937		)	—			53,340			2,622			5,412			(4,029		)	—			4,005
Other expense, net	—			—			—			(9		)	(9		)	—			—			—			(58		)	(58		)
Total other expense, net	$	—		$	—		$	—		$	(9	)	$	(9	)	$	—		$	—		$	—		$	(58	)	$	(58	)



	Nine Months Ended September 30, 2014
	Funeral Trusts			Cemetery Trusts			Cemetery Perpetual Care Trusts			Other, Net		Total
				(In thousands)
Realized gains	$	50,947		$	86,822		$	21,903		$	—	$	159,672
Realized losses	(6,233		)	(10,564		)	(1,599		)	—		(18,396		)
Impairment charges	(41,614		)	(59,829		)	(8,072		)	—		(109,515		)
Interest, dividend, and other ordinary income	15,323			10,157			40,065			—		65,545
Trust expenses and income taxes	(16,193		)	(15,733		)	(16,905		)	—		(48,831		)
Net trust investment income	2,230			10,853			35,392			—		48,475
Reclassification to deferred preneed receipts held in trust and care trusts’ corpus	(2,230		)	(10,853		)	(35,392		)	—		(48,475		)
Other income, net	—			—			—			1,577		1,577
Total other income, net	$	—		$	—		$	—		$	1,577	$	1,577



	~~Nine Months Ended~~
~~Assumptions~~	~~September 30, 2015~~
Dividend yield	~~1.8~~1.9	%
Expected volatility	~~23.3~~19.5	%
Risk-free interest rate	~~1.3~~1.0	%
Expected holding period (in years)	4.0


	Options		Weighted-Average Exercise Price		Options		Weighted-Average Exercise Price
Outstanding at December 31, 2014	12,107,106		$	11.63
Outstanding at December 31, 2015					11,047,920		$	13.98
Granted	2,036,010		$	23.00	1,036,522		$	22.28
Exercised	(2,945,438	)	$	10.44	(417,383	)	$	7.51
Canceled	(21,400	)	$	20.59	(7,064	)	$	20.97
Outstanding at September 30, 2015	11,176,278		$	13.98
Exercisable at September 30, 2015	7,008,300		$	10.58
Outstanding at March 31, 2016					11,659,995		$	14.94
Exercisable at March 31, 2016					8,559,885		$	12.62


	September 30, 2015										March 31, 2016
	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Value		Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Value
				(In thousands)										(In thousands)
Fixed income securities:
U.S. Treasury	2	$	67,552	$	41	$	(1,258	)	$	66,335	2	$	62,763	$	1,584	$	—		$	64,347
Canadian government	2	25,546		306		(86		)	25,766		2	29,144		229		(49		)	29,324
Corporate	2	5,293		31		(112		)	5,212		2	5,036		21		(168		)	4,889
Residential mortgage-backed	2	135		3		(2		)	136
Asset-backed	2	170		18		—			188		2	169		21		—			190
Equity securities:
Common stock:
United States	1	546,840		27,293		(47,051		)	527,082		1	544,212		45,619		(37,705		)	552,126
Canada	1	9,077		3,737		(1,191		)	11,623		1	8,487		3,958		(295		)	12,150
Other international	1	56,256		2,102		(9,341		)	49,017		1	45,771		3,516		(5,834		)	43,453
Mutual funds:
Equity	1	352,117		1,525		(48,602		)	305,040		1	353,128		3,010		(44,406		)	311,732
Fixed income	1	302,920		322		(13,353		)	289,889		1	188,990		407		(14,775		)	174,622
Other											3	1,476		—		(179		)	1,297
Trust investments, at fair value												1,239,176		58,365		(103,411		)	1,194,130
Fixed income commingled funds												101,182		2,274		—			103,456
Private equity	3	30,896		6,462		(2,976		)	34,382			34,460		5,829		(4,599		)	35,690
Other	3	2,089		259		—			2,348
Trust investments		$	1,398,891	$	42,099	$	(123,972	)	$	1,317,018
Trust investments, at net asset value												135,642		8,103		(4,599		)	139,146
Trust investments, at market												$	1,374,818	$	66,468	$	(108,010	)	$	1,333,276


	December 31, 2014										December 31, 2015
	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Value		Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Value
				(In thousands)										(In thousands)
Fixed income securities:
U.S. Treasury	2	$	63,447	$	257	$	(605	)	$	63,099	2	$	69,746	$	25	$	(1,437	)	$	68,334
Canadian government	2	21,687		261		(134		)	21,814		2	24,648		183		(169		)	24,662
Corporate	2	8,725		122		(116		)	8,731		2	5,112		26		(118		)	5,020
Residential mortgage-backed	2	111		3		(1		)	113		2	129		3		(3		)	129
Asset-backed	2	170		16		—			186		2	170		15		—			185
Equity securities:
Preferred stock	2	10		1		—			11
Common stock:
United States	1	557,955		22,746		(11,706		)	568,995		1	532,026		44,181		(32,037		)	544,170
Canada	1	10,962		5,011		(841		)	15,132		1	8,984		3,858		(891		)	11,951
Other international	1	55,632		1,605		(2,395		)	54,842		1	50,053		4,207		(5,799		)	48,461
Mutual funds:
Equity	1	344,443		4,244		(18,430		)	330,257		1	356,798		1,620		(49,642		)	308,776
Fixed income	1	314,600		679		(4,702		)	310,577		1	203,983		92		(18,526		)	185,549
Other											3	1,381		122		—			1,503
Trust investments, at fair value												1,253,030		54,332		(108,622		)	1,198,740
Fixed income commingled funds												108,883		—		(570		)	108,313
Private equity	3	32,342		3,185		(6,183		)	29,344			35,411		5,954		(4,502		)	36,863
Other	3	1,082		186		(71		)	1,197
Trust investments		$	1,411,166	$	38,316	$	(45,184	)	$	1,404,298
Trust investments, at net asset value												144,294		5,954		(5,072		)	145,176
Trust investments, at market												$	1,397,324	$	60,286	$	(113,694	)	$	1,343,916


	December 31, 2014															December 31, 2015
	In Loss Position Less Than 12 Months					In Loss Position Greater Than 12 Months					Total					In Loss Position Less Than 12 Months					In Loss Position Greater Than 12 Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Value		Unrealized Losses			Value		Unrealized Losses			Value		Unrealized Losses
						(In thousands)															(In thousands)
Fixed income securities:
U.S. Treasury	$	45,072	$	(605	)	$	—	$	—		$	45,072	$	(605	)	$	52,533	$	(1,435	)	$	21	$	(2	)	$	52,554	$	(1,437	)
Canadian government	—		—			4,858		(134		)	4,858		(134		)	16,039		(105		)	841		(64		)	16,880		(169		)
Corporate	2,017		(61		)	1,936		(55		)	3,953		(116		)	1,754		(22		)	2,347		(96		)	4,101		(118		)
Residential mortgage-backed	33		(1		)	—		—			33		(1		)	42		(1		)	18		(2		)	60		(3		)
Equity securities:
Common stock:
United States	192,015		(11,706		)	585		—			192,600		(11,706		)	198,843		(26,038		)	21,355		(5,999		)	220,198		(32,037		)
Canada	2,069		(319		)	778		(522		)	2,847		(841		)	470		(6		)	1,430		(885		)	1,900		(891		)
Other international	28,308		(2,395		)	—		—			28,308		(2,395		)	15,567		(2,507		)	9,412		(3,292		)	24,979		(5,799		)
Mutual funds:
Equity	303,211		(18,329		)	1,577		(101		)	304,788		(18,430		)	207,349		(25,991		)	86,720		(23,651		)	294,069		(49,642		)
Fixed income	159,572		(4,106		)	15,113		(596		)	174,685		(4,702		)	139,749		(6,322		)	44,550		(12,204		)	184,299		(18,526		)
Trust investments, at fair value																632,346		(62,427		)	166,694		(46,195		)	799,040		(108,622		)
Fixed income commingled funds																108,347		(570		)	—		—			108,347		(570		)
Private equity	88		(100		)	7,518		(6,083		)	7,606		(6,183		)	—		—			9,526		(4,502		)	9,526		(4,502		)
Other	2		(3		)	259		(68		)	261		(71		)
Trust investments, at net asset value																108,347		(570		)	9,526		(4,502		)	117,873		(5,072		)
Total temporarily impaired securities	$	732,387	$	(37,625	)	$	32,624	$	(7,559	)	$	765,011	$	(45,184	)	$	740,693	$	(62,997	)	$	176,220	$	(50,697	)	$	916,913	$	(113,694	)


	Restricted Shares		Weighted-Average Grant-Date Fair Value		Restricted Shares		Weighted-Average Grant-Date Fair Value
Nonvested restricted shares at December 31, 2014	1,319,260		$	13.39
Nonvested restricted shares at December 31, 2015					573,739		$	19.32
Granted	253,791		$	23.00	241,510		$	22.28
Vested					(306,000	)	$	18.06
Forfeited	(3,840	)	$	20.47	(1,258	)	$	20.85
Vested	(990,558	)	$	12.37
Nonvested restricted shares at September 30, 2015	578,653		$	19.32
Nonvested restricted shares at March 31, 2016					507,991		$	21.48


	Foreign Currency Translation Adjustment			Unrealized Gains and Losses			Accumulated Other Comprehensive Income			Foreign Currency Translation Adjustment			Unrealized Gains and Losses			Accumulated Other Comprehensive Income
				(In thousands)									(In thousands)
Balance at December 31, 2015										$	6,164		$	—		$	6,164
Activity in 2016										22,707			—			22,707
Increase in net unrealized gains associated with available-for-sale securities of the trusts, net of taxes										—			17,985			17,985
Reclassification of net unrealized gains activity attributable to the Deferred preneed receipts held in trust and Care trusts’ corpus, net of taxes										—			(17,985		)	(17,985		)
Balance at March 31, 2016										$	28,871		$	—		$	28,871

Balance at December 31, 2014	$	59,414		$	—		$	59,414		$	59,414		$	—		$	59,414
Activity in 2015	(42,913		)	—			(42,913		)	(22,617		)	—			(22,617		)
Increase in net unrealized gains associated with available-for-sale securities of the trusts, net of taxes	—			(110,016		)	(110,016		)	—			50,667			50,667
Reclassification of net unrealized gains activity attributable to the Deferred preneed receipts held in trust and Care trusts’ corpus, net of taxes	—			110,016			110,016
Balance at September 30, 2015	$	16,501		$	—		$	16,501

Balance at December 31, 2013	$	88,441		$	—		$	88,441
Activity in 2014	(13,732		)	—			(13,732		)
Reclassification of foreign currency translation adjustments to Net Income from discontinued operations	3,114			—			3,114
Increase in net unrealized gains associated with available-for-sale securities of the trusts, net of taxes	—			11,672			11,672
Reclassification of net unrealized gains activity attributable to the Deferred preneed receipts held in trust and Care trusts’ corpus, net of taxes	—			(11,672		)	(11,672		)	—			(50,667		)	(50,667		)
Balance at September 30, 2014	$	77,823		$	—		$	77,823
Balance at March 31, 2015										$	36,797		$	—		$	36,797


	Funeral		Cemetery		Reportable Segments		Funeral		Cemetery		Reportable Segments
	(In thousands)						(In thousands)
Three months ended September 30,
Three months ended March 31,
Revenue from external customers:
2016							$	492,109	$	257,162	$	749,271
2015	$	449,240	$	265,285	$	714,525	$	507,687	$	240,430	$	748,117
2014	$	458,941	$	259,373	$	718,314
Gross profit:
2016							$	106,981	$	54,515	$	161,496
2015	$	77,032	$	64,912	$	141,944	$	126,937	$	50,507	$	177,444
2014	$	89,660	$	58,638	$	148,298
Nine months ended September 30,
Revenue from external customers:
2015	$	1,428,385	$	788,611	$	2,216,996
2014	$	1,447,526	$	763,043	$	2,210,569
Gross profit:
2015	$	298,899	$	187,724	$	486,623
2014	$	310,059	$	160,343	$	470,402


	United States		Canada		Total		United States		Canada		Total
			(In thousands)						(In thousands)
Three months ended September 30,
Three months ended March 31,
Revenue from external customers:
2016							$	708,938	$	40,333	$	749,271
2015	$	671,857	$	42,668	$	714,525	$	700,452	$	47,665	$	748,117
2014	$	671,949	$	46,365	$	718,314
Nine months ended September 30,
Revenue from external customers:
2015	$	2,077,383	$	139,613	$	2,216,996
2014	$	2,062,231	$	148,338	$	2,210,569


	Three Months Ended						Nine Months Ended
	September 30						September 30
	2015			2014			2015			2014			2016			2015
	(In thousands)												(In thousands)
Gains on divestitures, net	$	12,400		$	26,889		$	9,373		$	64,753		$	1,426		$	1,913
Impairment losses	(1,636		)	(319		)	(5,970		)	(6,001		)	(1,773		)	(3,692		)
	$	10,764		$	26,570		$	3,403		$	58,752		$	(347	)	$	(1,779	)


(1)	Amounts are not included in our unaudited condensed ~~consolidated balance sheet.~~Consolidated Balance Sheet.


⁽¹⁾	^{Amounts are not included in our unaudited condensed consolidated balance sheet.Consolidated Balance Sheet.}



Three Months Ended September 30, 2015	Consolidated		Less: Results Associated with Acquisition/New Construction			Less: Results Associated with Divestitures			Comparable
			(In millions)
Revenue
Funeral revenue	$	449.2	$	3.8		$	0.5		$	444.9
Cemetery revenue	265.3		2.7			—			262.6
Total revenue	$	714.5	$	6.5		$	0.5		$	707.5
Gross profit
Funeral gross profit	$	77.0	$	(0.6	)	$	(0.2	)	$	77.8
Cemetery gross profit	64.9		1.0			(0.1		)	64.0
Total gross profit	$	141.9	$	0.4		$	(0.3	)	$	141.8



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 programs
July 1, 2015 - July 31, 2015	1,508,150	$	29.38	1,508,150	$	44,115,735
August 1, 2015 - August 31, 2015 ⁽¹⁾	2,599,600	$	30.32	2,599,600	$	352,033,206
September 1, 2015 - September 30, 2015⁽²⁾	1,037,431	$	29.45	1,034,015	$	321,572,063
	5,145,181			5,141,765



10.1	SCI 401(k) Retirement Savings Plan, including Adopting Employer Agreement and Directed Employee Benefit Agreement.
10.2	SCI Union 401(k) Retirement Savings Plan, including Adopting Employer Agreement and Directed Employee Benefit Trust Agreement.
12.1	Ratio of earnings to fixed charges for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 and ~~2014.~~2015.
31.1	Certification of Thomas L. Ryan as Principal Executive Officer in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Eric D. Tanzberger as Principal Financial Officer in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Periodic Financial Reports by Thomas L. Ryan as Principal Executive Officer in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Periodic Financial Reports by Eric D. Tanzberger as Principal Financial Officer in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive data file.



~~November 2, 2015~~April 28, 2016		SERVICE CORPORATION INTERNATIONAL
	By:	/s/ Tammy Moore
		Tammy Moore
		Vice President and Corporate Controller (Principal Accounting Officer)