UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	MARCH 31, ~~2021~~2022
		OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to

Commission file number 1-6402-1

SERVICE CORPORATION INTERNATIONAL

(Exact name of registrant as specified in its charter)

Texas

74-1488375

(State or other jurisdiction of incorporation or organization)

(I.R.S. employer identification no.)

1929 Allen Parkway

Houston

Texas

77019

(Address of principal executive offices)

(Zip code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol (s)

Name of Each Exchange on Which Registered

Common Stock ($1 par value)

SCI

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in 12b-2 of the act).

Yes

☐

The number of shares outstanding of the registrant’s common stock as of ~~April 30, 2021~~May 04, 2022 was ~~168,141,372~~158,735,972 (net of treasury shares).


0


SERVICE CORPORATION INTERNATIONAL INDEX

Page
~~GLOSSARY~~		3
PART I. FINANCIAL INFORMATION		5
Item 1.	Financial Statements	5
	Unaudited Condensed Consolidated Statement of Operations - Three Months Ended March 31, 2022 & 2021 & ~~2020~~	5
	Unaudited Condensed Consolidated Statement of Comprehensive Income - Three Months Ended March 31, 2022 & 2021 & ~~2020~~	6
	Unaudited Condensed Consolidated Balance Sheet - March 31, ~~2021~~ 2022 & December 31, ~~2020~~2021	7
	Unaudited Condensed Consolidated Statement of Cash Flows - Three Months Ended March 31,, 2022 & 2021 &~~2020~~	8
	Unaudited Condensed Consolidated Statement of Equity - Three Months Ended March 31, 2022 & 2021 & ~~2020~~	9
	Notes to Consolidated Financial Statements	10
	1. Nature of Operations	10
	2. Summary of Significant Accounting Policies	10
	3. Preneed Activities	13
	4. Income Taxes	18
	5. Debt	18
	6. Credit Risk and Fair Value of Financial Instruments	2019
	7. Equity	20
	8. Segment Reporting	2120
	9. Commitments and Contingencies	2221

	10. Earnings Per Share	2322
	11. Acquisitions and Divestiture-Related Activities	2423
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2524
	The Company	2524
	Financial Condition, Liquidity, and Capital Resources	2624
	Results of Operations - Three Months Ended March 31, 2022 & 2021 & ~~2020~~	3230
	Critical Accounting Policies	3533
	Cautionary Statement on Forward-Looking Statements	3533
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3634
Item 4.	Controls and Procedures	3735
PART II. OTHER INFORMATION		3836
Item 1.	Legal Proceedings	3836
Item 1A.	Risk Factors	3836
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3836
Item 3.	Defaults Upon Senior Securities	3836
Item 4.	Mine Safety Disclosures	3836
Item 5.	Other Information	3836
Item 6.	Exhibits	3937
SIGNATURE		4038

2 Service Corporation International

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.

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

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 Trusts' Corpus — The deposits and net realized capital gains and losses included in the perpetual care trusts 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 Merchandise and Services — Stone and bronze memorials, markers, outer burial containers, floral placement, graveside services, merchandise installations, urns, and interments.

Cemetery Perpetual Care Trust or Endowment Care Fund (ECF) — A trust fund established for the purpose of maintaining cemetery grounds and property into perpetuity. For these trusts, the corpus remains in the trust in perpetuity and the investment earnings or elected distributions are withdrawn 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. Additionally, some states allow a total return distribution that may contain elements of income, capital appreciation, and principal.

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 developed property items.

Cemetery Property Amortization or Amortization of Cemetery Property — 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 Interment Rights — The exclusive right to determine the human remains that will be interred in a specific cemetery property space. See also Cemetery Property Revenue below.

Cemetery Property Revenue — Recognized sales of interment rights in cemetery property when the receivable is deemed collectible and the property is fully constructed and available for interment.

Combination Location (Combos) — Locations where a funeral service location is physically located within or adjoining an SCI-owned cemetery location.

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 items that provide for the disposition of cremated remains within our cemeteries such as benches, boulders, statues, glass front niches, 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, outer burial containers, urns and other cremation receptacles, casket and cremation memorialization products, 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, travel protection, and catering.

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

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

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

Interment — The burial or final placement of human remains in the ground (interment), in mausoleums (entombment), in niches (inurnment), or in cremation memorialization property (inurnment).

Lawn Crypt — Cemetery property in which an underground outer burial receptacle constructed of concrete and reinforced steel has been pre-installed in predetermined designated areas.

FORM 10-Q 3

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 funeral contracts are converted to atneed contracts (note — delivery of certain merchandise and services can occur prior to death).

Mausoleum — An above ground structure that is designed to house caskets and/or 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 upon the cancellation of the contract. Also referred to as a preneed trust.

Outer Burial Container — 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 a burial vault.

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

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

Preneed Cemetery Sales Production — Sales of preneed cemetery contracts. These sales are recorded in Deferred revenue, net until the merchandise is delivered, the service is performed, ~~and~~or the property has been constructed and is available for interment.

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

Preneed Receivables, Net — Amounts due from customers when we have delivered the merchandise, performed the service, or transferred control of the cemetery property interment rights prior to a death occurring orand amounts due from customers on irrevocable preneed contracts.

Travel Protection — A product that provides shipment of remains to the servicing funeral home or cemetery of choice if the purchaser passes away outside of a certain radius of their residence, without any additional expense to the family.

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

As used herein, ~~“SCI”, “Company”, “we”, “our”,~~“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. Management has published a white paper on the corporate website for further understanding of accounting for preneed sales. You can view the white paper at http://investors.sci-corp.com under Featured Documents. Documents and information on our website are not incorporated by reference herein.

4 Service Corporation International


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Service Corporation International

Condensed Consolidated Statement of Operations (Unaudited)


		Three months ended March 31,							Three months ended March 31,
		2021		2020						2022		2021
		(in thousands, except per share amounts)						(In thousands, except per share amounts)
Revenue	Revenue					Revenue
Property and merchandise revenue	Property and merchandise revenue	$	554,591	$	377,883		Property and merchandise revenue			$	561,547	$	554,591
Service revenue	Service revenue	463,859		367,528			Service revenue			480,609		463,859
Other revenue	Other revenue	59,531		57,554			Other revenue			70,247		59,531
Total revenue	Total revenue	1,077,981		802,965			Total revenue			1,112,403		1,077,981

Costs of revenue	Costs of revenue						Costs of revenue
Cost of property and merchandise	Cost of property and merchandise	(251,692)		(196,448)			Cost of property and merchandise			(260,051)		(251,692)
Cost of service	Cost of service	(202,978)		(197,524)			Cost of service			(219,538)		(202,978)
Overhead and other expenses	Overhead and other expenses	(245,804)		(229,949)			Overhead and other expenses			(255,901)		(240,868)
Costs of revenue	Costs of revenue	(700,474)		(623,921)			Costs of revenue			(735,490)		(695,538)
Gross profit	Gross profit	377,507		179,044			Gross profit			376,913		382,443
Corporate general and administrative expenses	Corporate general and administrative expenses	(36,733)		(31,813)			Corporate general and administrative expenses			(41,704)		(41,669)
Gains on divestitures and impairment charges, net	Gains on divestitures and impairment charges, net	1,266		4,545			Gains on divestitures and impairment charges, net			489		1,266

Operating income	Operating income	342,040		151,776			Operating income			335,698		342,040
Interest expense	Interest expense	(35,812)		(44,351)			Interest expense			(39,028)		(35,812)
Losses on early extinguishment of debt, net		0		(139)
Other income (expense), net		341		(1,247)

Other income, net							Other income, net			128		341
Income before income taxes	Income before income taxes	306,569		106,039			Income before income taxes			296,798		306,569
Provision for income taxes	Provision for income taxes	(77,614)		(24,038)			Provision for income taxes			(77,231)		(77,614)

Net income	Net income	228,955		82,001			Net income			219,567		228,955
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	(76)		(60)			Net income attributable to noncontrolling interests			(54)		(76)
Net income attributable to common stockholders	Net income attributable to common stockholders	$	228,879	$	81,941		Net income attributable to common stockholders			$	219,513	$	228,879
Basic earnings per share:	Basic earnings per share:						Basic earnings per share:
Net income attributable to common stockholders	Net income attributable to common stockholders	$	1.35	$	0.45		Net income attributable to common stockholders			$	1.36	$	1.35
Basic weighted average number of shares	Basic weighted average number of shares	169,918		180,854			Basic weighted average number of shares			161,328		169,918
Diluted earnings per share:	Diluted earnings per share:						Diluted earnings per share:
Net income attributable to common stockholders	Net income attributable to common stockholders	$	1.33	$	0.45		Net income attributable to common stockholders			$	1.34	$	1.33
Diluted weighted average number of shares	Diluted weighted average number of shares	172,367		183,585			Diluted weighted average number of shares			163,807		172,367

(See notes to unaudited condensed consolidated financial statements)

FORM 10-Q 5

PART I

Service Corporation International

Condensed Consolidated Statement of Comprehensive Income (Unaudited)


		Three months ended March 31,						Three months ended March 31,
			2021		2020					2022		2021
			(In thousands)						(In thousands)
Net income	Net income		$	228,955	$	82,001	Net income			$	219,567	$	228,955
Other comprehensive income:	Other comprehensive income:						Other comprehensive income:
Foreign currency translation adjustments	Foreign currency translation adjustments		5,005		(31,202)		Foreign currency translation adjustments			7,279		5,005

Total comprehensive income	Total comprehensive income		233,960		50,799		Total comprehensive income			226,846		233,960
Total comprehensive income attributable to noncontrolling interests	Total comprehensive income attributable to noncontrolling interests		(76)		(58)		Total comprehensive income attributable to noncontrolling interests			(54)		(76)
Total comprehensive income attributable to common stockholders	Total comprehensive income attributable to common stockholders		$	233,884	$	50,741	Total comprehensive income attributable to common stockholders			$	226,792	$	233,884

(See notes to unaudited condensed consolidated financial statements)

6 Service Corporation International

PART I

Service Corporation International

Condensed Consolidated Balance Sheet (Unaudited)


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(In thousands, except share amounts)					(In thousands, except share amounts)

ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	243,726	$	230,857	Cash and cash equivalents	$	300,556	$	268,626
Receivables, net of reserves of $6,498 and $6,031, respectively		89,590		92,939
Receivables, net of reserves of $5,849 and $6,338, respectively						Receivables, net of reserves of $5,849 and $6,338, respectively	103,034		106,051
Inventories	Inventories	25,945		23,929		Inventories	28,654		25,935
Other	Other	28,224		28,427		Other	26,488		40,448
Total current assets	Total current assets	387,485		376,152		Total current assets	458,732		441,060
Preneed receivables, net of reserves of $20,037 and $19,204, respectively, and trust investments		5,549,121		5,345,720
Preneed receivables, net of reserves of $21,283 and $20,727, respectively, and trust investments						Preneed receivables, net of reserves of $21,283 and $20,727, respectively, and trust investments	5,870,456		6,015,323
Cemetery property	Cemetery property	1,865,261		1,879,340		Cemetery property	1,890,932		1,900,844
Property and equipment, net	Property and equipment, net	2,136,826		2,133,664		Property and equipment, net	2,254,916		2,252,158
Goodwill	Goodwill	1,882,513		1,880,007		Goodwill	1,916,965		1,915,082
Deferred charges and other assets, net of reserves of $6,297 and $6,902, respectively		1,085,326		1,080,053
Deferred charges and other assets, net of reserves of $3,917 and $4,577, respectively						Deferred charges and other assets, net of reserves of $3,917 and $4,577, respectively	1,171,065		1,169,813
Cemetery perpetual care trust investments	Cemetery perpetual care trust investments	1,881,728		1,820,489		Cemetery perpetual care trust investments	1,894,068		1,996,898
Total assets	Total assets	$	14,788,260	$	14,515,425	Total assets	$	15,457,134	$	15,691,178

LIABILITIES & EQUITY	LIABILITIES & EQUITY					LIABILITIES & EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	$	550,072	$	575,948	Accounts payable and accrued liabilities	$	645,125	$	659,494
Current maturities of long-term debt	Current maturities of long-term debt	217,062		228,352		Current maturities of long-term debt	63,863		65,016
Income taxes payable	Income taxes payable	74,648		11,634		Income taxes payable	66,217		3,751
Total current liabilities	Total current liabilities	841,782		815,934		Total current liabilities	775,205		728,261
Long-term debt	Long-term debt	3,439,102		3,514,182		Long-term debt	3,962,944		3,901,304
Deferred revenue, net	Deferred revenue, net	1,501,574		1,488,909		Deferred revenue, net	1,567,217		1,532,749
Deferred tax liability	Deferred tax liability	438,263		437,308		Deferred tax liability	436,459		437,902
Other liabilities	Other liabilities	423,065		420,039		Other liabilities	427,234		438,903
Deferred receipts held in trust	Deferred receipts held in trust	4,422,331		4,272,382		Deferred receipts held in trust	4,574,762		4,766,492
Care trusts’ corpus	Care trusts’ corpus	1,871,483		1,814,050		Care trusts’ corpus	1,870,667		1,976,118
Commitments and contingencies (Note 9)	Commitments and contingencies (Note 9)	0		0		Commitments and contingencies (Note 9)	0		0
Equity:	Equity:					Equity:
Common stock, $1 per share par value, 500,000,000 shares authorized, 175,051,063 and 174,792,272 shares issued, respectively, and 168,837,094 and 170,717,236 shares outstanding, respectively		168,837		170,717
Common stock, $1 per share par value, 500,000,000 shares authorized, 166,975,651 and 166,821,502 shares issued, respectively, and 159,164,117 and 163,114,202 shares outstanding, respectively						Common stock, $1 per share par value, 500,000,000 shares authorized, 166,975,651 and 166,821,502 shares issued, respectively, and 159,164,117 and 163,114,202 shares outstanding, respectively	159,164		163,114
Capital in excess of par value	Capital in excess of par value	975,232		981,934		Capital in excess of par value	957,161		979,096
Retained earnings	Retained earnings	662,271		560,731		Retained earnings	678,932		727,021
Accumulated other comprehensive income	Accumulated other comprehensive income	44,371		39,366		Accumulated other comprehensive income	47,493		40,214
Total common stockholders’ equity	Total common stockholders’ equity	1,850,711		1,752,748		Total common stockholders’ equity	1,842,750		1,909,445
Noncontrolling interests	Noncontrolling interests	(51)		(127)		Noncontrolling interests	(104)		4
Total equity	Total equity	1,850,660		1,752,621		Total equity	1,842,646		1,909,449
Total liabilities and equity	Total liabilities and equity	$	14,788,260	$	14,515,425	Total liabilities and equity	$	15,457,134	$	15,691,178

(See notes to unaudited condensed consolidated financial statements)

FORM 10-Q 7

PART I

Service Corporation International

Condensed Consolidated Statement of Cash Flows (Unaudited)


		Three months ended March 31,					Three months ended March 31,
		2021		2020			2022		2021
		(In thousands)					(In thousands)
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	228,955	$	82,001	Net income	$	219,567	$	228,955
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:

Losses on early extinguishment of debt, net		0		139

Depreciation and amortization	Depreciation and amortization	39,558		37,912		Depreciation and amortization	42,436		39,558
Amortization of intangibles	Amortization of intangibles	5,335		5,257		Amortization of intangibles	5,074		5,335
Amortization of cemetery property	Amortization of cemetery property	28,929		13,924		Amortization of cemetery property	24,849		28,929
Amortization of loan costs	Amortization of loan costs	1,526		1,276		Amortization of loan costs	1,644		1,526
Provision for expected credit losses	Provision for expected credit losses	3,824		3,197		Provision for expected credit losses	3,078		3,824
Provision for deferred income taxes		553		4,233
(Benefit from) provision for deferred income taxes						(Benefit from) provision for deferred income taxes	(4,580)		553
Gains on divestitures and impairment charges, net	Gains on divestitures and impairment charges, net	(1,266)		(4,545)		Gains on divestitures and impairment charges, net	(489)		(1,266)

Share-based compensation	Share-based compensation	3,500		3,406		Share-based compensation	3,687		3,500

Change in assets and liabilities, net of effects from acquisitions and dispositions:
Change in assets and liabilities, net of effects from acquisitions and divestitures:						Change in assets and liabilities, net of effects from acquisitions and divestitures:
Decrease in receivables	Decrease in receivables	2,525		2,460		Decrease in receivables	5,435		2,525
(Increase) decrease in other assets		(12,204)		10,549
Increase (decrease) in payables and other liabilities		43,046		(4,832)
Increase in other assets						Increase in other assets	(2,714)		(12,204)
Increase in payables and other liabilities						Increase in payables and other liabilities	52,003		43,046
Effect of preneed sales production and maturities:	Effect of preneed sales production and maturities:					Effect of preneed sales production and maturities:
(Increase) decrease in preneed receivables, net and trust investments		(66,194)		19,134
Increase in preneed receivables, net and trust investments						Increase in preneed receivables, net and trust investments	(91,641)		(66,194)
Increase in deferred revenue, net	Increase in deferred revenue, net	19,660		12,908		Increase in deferred revenue, net	67,625		19,660
Decrease in deferred receipts held in trust		(141)		(7,027)
Increase (decrease) in deferred receipts held in trust						Increase (decrease) in deferred receipts held in trust	6,199		(141)

Net cash provided by operating activities	Net cash provided by operating activities	297,606		179,992		Net cash provided by operating activities	332,173		297,606
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Capital expenditures	Capital expenditures	(42,274)		(52,275)		Capital expenditures	(56,748)		(42,274)
Business acquisitions, net of cash acquired	Business acquisitions, net of cash acquired	(1,160)		(26,349)		Business acquisitions, net of cash acquired	—		(1,160)
Real estate acquisitions	Real estate acquisitions	(5,608)		(2,114)		Real estate acquisitions	(226)		(5,608)
Proceeds from divestitures and sales of property and equipment	Proceeds from divestitures and sales of property and equipment	4,045		11,324		Proceeds from divestitures and sales of property and equipment	2,986		4,045

Payments for Company-owned life insurance policies	Payments for Company-owned life insurance policies	(18)		(3,770)		Payments for Company-owned life insurance policies	(1,666)		(18)
Proceeds from Company-owned life insurance policies and other		0		3,519

Net cash used in investing activities	Net cash used in investing activities	(45,015)		(69,665)		Net cash used in investing activities	(55,654)		(45,015)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from issuance of long-term debt	Proceeds from issuance of long-term debt	20,000		75,000		Proceeds from issuance of long-term debt	75,000		20,000

Scheduled payments of debt	Scheduled payments of debt	(9,023)		(8,222)		Scheduled payments of debt	(9,075)		(9,023)
Early payments of debt		(100,000)		(25,792)
Early payments and extinguishment of debt						Early payments and extinguishment of debt	—		(100,000)
Principal payments on finance leases	Principal payments on finance leases	(6,652)		(10,254)		Principal payments on finance leases	(9,059)		(6,652)
Proceeds from exercise of stock options	Proceeds from exercise of stock options	2,282		15,126		Proceeds from exercise of stock options	272		2,282

Purchase of Company common stock	Purchase of Company common stock	(106,135)		(123,102)		Purchase of Company common stock	(256,355)		(106,135)
Payments of dividends	Payments of dividends	(35,568)		(34,414)		Payments of dividends	(39,964)		(35,568)

Bank overdrafts and other	Bank overdrafts and other	(7,932)		1,575		Bank overdrafts and other	(12,517)		(7,932)

Net cash used in financing activities	Net cash used in financing activities	(243,028)		(110,083)		Net cash used in financing activities	(251,698)		(243,028)

Effect of foreign currency	Effect of foreign currency	1,412		(8,249)		Effect of foreign currency	2,556		1,412
Net increase (decrease) in cash, cash equivalents, and restricted cash		10,975		(8,005)
Net increase in cash, cash equivalents, and restricted cash						Net increase in cash, cash equivalents, and restricted cash	27,377		10,975
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	238,610		242,620		Cash, cash equivalents, and restricted cash at beginning of period	278,555		238,610
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	249,585	$	234,615	Cash, cash equivalents, and restricted cash at end of period	$	305,932	$	249,585

(See notes to unaudited condensed consolidated financial statements)

8 Service Corporation International

PART I

Service Corporation International

Condensed Consolidated Statement of Equity (Unaudited)


	Common Stock		Treasury Stock, Par Value		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Income (Deficit)		Noncontrolling Interest		Total
	(In thousands, except per share amounts)
Balance at December 31, 2020	$	174,792	$	(4,075)	$	981,934	$	560,731	$	39,366	$	(127)	$	1,752,621
Cumulative effect of accounting changes	—		—		—		—		—		—		—
Comprehensive income	—		—		—		228,879		5,005		76		233,960
Dividends declared on common stock ($0.21 per share)	—		—		—		(35,568)		—		—		(35,568)
Employee share-based compensation earned	—		—		3,500		—		—		—		3,500
Stock option exercises	99		—		2,265		—		—		—		2,364
Restricted stock awards, net of forfeitures	163		—		(163)		—		—		—		—
Purchase of Company common stock	—		(2,142)		(12,304)		(91,771)		—		—		(106,217)
Other	—		—		—		—		—		—		—
Balance at March 31, 2021	$	175,054	$	(6,217)	$	975,232	$	662,271	$	44,371	$	(51)	$	1,850,660

Common
Stock Treasury
Stock,
Par Value Capital in
Excess of
Par Value
Retained
Earnings Accumulated Other
Comprehensive
Income (Deficit) Noncontrolling
Interest Total
(In thousands, except per share amounts)
Balance at December 31, 2019 $ 185,101 $ (3,916) $ 1,010,361 $ 601,903 $ 29,864 $ (58) $ 1,823,255
Cumulative effect of accounting changes 0 0 0 17,118 0 0 17,118
Comprehensive income 0 0 0 81,941 (31,200) 58 50,799
Dividends declared on common stock ($0.19 per share) 0 0 0 (34,414) 0 0 (34,414)
Employee share-based compensation earned 0 0 3,406 0 0 0 3,406
Stock option exercises 789 0 14,337 0 0 0 15,126
Restricted stock awards, net of forfeitures 168 0 (168) 0 0 0 0
Purchase of Company common stock 0 (2,901) (16,202) (103,999) 0 0 (123,102)
Other 0 0 (1,095) 0 0 0 (1,095)
Balance at March 31, 2020 $ 186,058 $ (6,817) $ 1,010,639 $ 562,549 $ (1,336) $ 0 $ 1,751,093

Common
Stock Treasury
Stock,
Par Value Capital in
Excess of
Par Value
Retained
Earnings Accumulated Other
Comprehensive
Income (Deficit) Noncontrolling
Interest Total
(In thousands, except per share amounts)
Balance at December 31, 2020 $ 174,792 $ (4,075) $ 981,934 $ 560,731 $ 39,366 $ (127) $ 1,752,621
Comprehensive income 0 0 0 228,879 5,005 76 233,960
Dividends declared on common stock ($0.21 per share) 0 0 0 (35,568) 0 0 (35,568)
Employee share-based compensation earned 0 0 3,500 0 0 0 3,500
Stock option exercises 99 0 2,265 0 0 0 2,364
Restricted stock awards and units, net of forfeitures 163 0 (163) 0 0 0 0
Purchase of Company common stock 0 (2,142) (12,304) (91,771) 0 0 (106,217)
Retirement of treasury shares (3) 3 0 0 0 0 0
Balance at March 31, 2021 $ 175,051 $ (6,214) $ 975,232 $ 662,271 $ 44,371 $ (51) $ 1,850,660


	Common Stock		Treasury Stock, Par Value		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Income (Deficit)		Noncontrolling Interest		Total
	(In thousands, except per share amounts)
Balance at December 31, 2021	$	166,822	$	(3,708)	$	979,096	$	727,021	$	40,214	$	4	$	1,909,449

Comprehensive income	—		—		—		219,513		7,279		54		226,846
Dividends declared on common stock ($0.25 per share)	—		—		—		(39,964)		—		—		(39,964)
Employee share-based compensation earned	—		—		3,687		—		—		—		3,687
Stock option exercises	7		—		265		—		—		—		272
Restricted stock awards and units, net of forfeitures	147		—		(147)		—		—		—		—
Purchase of Company common stock	—		(4,104)		(24,613)		(227,638)		—		—		(256,355)
Noncontrolling interest payments	—		—		—		—		—		(162)		(162)

Other	—		—		(1,127)		—		—		—		(1,127)

Balance at March 31, 2022	$	166,976	$	(7,812)	$	957,161	$	678,932	$	47,493	$	(104)	$	1,842,646

(See notes to unaudited condensed consolidated financial statements)

FORM 10-Q 9

PART I

Service Corporation International

Notes to Unaudited Condensed Consolidated Financial Statements

1. Nature of Operations

Service Corporation International (SCI) is a holding company and all operations are conducted by its subsidiaries. We are North America’s largest provider of deathcare products and services, with a network of funeral service locations and cemeteries operating in the United States and Canada. Our funeral service and cemetery operations consist of funeral service locations, cemeteries, funeral service/cemetery combination locations, crematoria, and other related businesses, which enable us to serve a wide array of customer needs. We sell cemetery property and funeral and cemetery merchandise and services at the time of need and on a preneed basis. We strive to offer families exceptional service in planning life celebrations and personalized remembrances.

Funeral service locations provide all professional services relating to funerals and cremations, including the use of funeral facilities and motor vehicles, arranging and directing services, removal, preparation, embalming, cremations, memorialization, travel protection, and catering. Funeral merchandise, including burial caskets and related accessories, urns and other cremation receptacles, outer burial containers, flowers, online and video tributes, stationery products, casket and cremation memorialization products, and other ancillary merchandise, is sold at funeral service locations.

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

2. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

Our consolidated financial statements include the accounts of Service Corporation International and all subsidiaries in which we hold a controlling financial interest. Intercompany balances and transactions have been eliminated in consolidation.

Our unaudited condensed consolidated 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. We have retained the specialized industry accounting principles when consolidating the trusts. ~~Our trusts are variable interest entities, for which we have determined that we are the primary beneficiary as we absorb a majority of the losses and returns associated with these trusts.~~ Although we consolidate the trusts, it does not change the legal relationships among the trusts, us, or our customers. The customers are the legal beneficiaries of these trusts; therefore, their interests in these trusts represent a liability to us.

Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation with no effect on our consolidated net income or cash flows.

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, ~~2020,~~2021, unless otherwise disclosed herein, and should be read in conjunction therewith. The accompanying year-end Condensed 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.

Use of Estimates in the Preparation of Financial Statements

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

Cash, Cash Equivalents, and Restricted Cash

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

10 Service Corporation International

PART I

The components of cash, cash equivalents, and restricted cash were as follows:


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(In thousands)					(In thousands)
Cash and cash equivalents	Cash and cash equivalents	$	243,726	$	230,857	Cash and cash equivalents	$	300,556	$	268,626
Restricted cash (1)	Restricted cash (1)					Restricted cash (1)
Included in Other current assets	Included in Other current assets	3,678		5,573		Included in Other current assets	3,291		7,847
Included in Deferred charges and other assets, net	Included in Deferred charges and other assets, net	2,181		2,180		Included in Deferred charges and other assets, net	2,085		2,082
Total restricted cash	Total restricted cash	5,859		7,753		Total restricted cash	5,376		9,929
Total cash, cash equivalents, and restricted cash	Total cash, cash equivalents, and restricted cash	$	249,585	$	238,610	Total cash, cash equivalents, and restricted cash	$	305,932	$	278,555

(1) Restricted cash in both periods primarily consists of proceeds from divestitures deposited into escrow accounts under IRS code section 1031 and collateralized obligations under certain insurance policies.

Receivables, net

The components of Receivables, net in our unaudited Condensed Consolidated Balance Sheet were as follows:


		March 31, 2021											March 31, 2022
		Atneed Funeral		Atneed Cemetery		Miscellaneous		Current Portion of Notes		Total			Atneed Funeral		Atneed Cemetery		Miscellaneous		Current Portion of Notes		Total
		(In thousands)											(In thousands)
Receivables	Receivables	$	51,387	$	24,664	$	19,273	$	764	$	96,088	Receivables	$	42,171	$	27,108	$	39,329	$	275	$	108,883
Reserve for credit losses	Reserve for credit losses	(3,974)		(2,203)		132		(453)		(6,498)		Reserve for credit losses	(3,467)		(1,876)		(345)		(161)		(5,849)
Receivables, net	Receivables, net	$	47,413	$	22,461	$	19,405	$	311	$	89,590	Receivables, net	$	38,704	$	25,232	$	38,984	$	114	$	103,034


		December 31, 2020											December 31, 2021
		Atneed Funeral		Atneed Cemetery		Miscellaneous		Current Portion of Notes		Total			Atneed Funeral		Atneed Cemetery		Miscellaneous		Current Portion of Notes		Total
		(In thousands)											(In thousands)
Receivables	Receivables	$	56,745	$	22,559	$	18,545	$	1,121	$	98,970	Receivables	$	49,011	$	27,461	$	35,650	$	267	$	112,389
Reserve for credit losses	Reserve for credit losses	(3,752)		(1,933)		144		(490)		(6,031)		Reserve for credit losses	(3,597)		(2,231)		(344)		(166)		(6,338)
Receivables, net	Receivables, net	$	52,993	$	20,626	$	18,689	$	631	$	92,939	Receivables, net	$	45,414	$	25,230	$	35,306	$	101	$	106,051

Additionally, included in Deferred charges and other assets, net were long-term miscellaneous receivables, net and notes receivable, net as follows:


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(In thousands)					(In thousands)
Notes receivable	Notes receivable	$	11,018	$	12,389	Notes receivable	$	8,846	$	8,684
Reserve for credit losses	Reserve for credit losses	(5,315)		(5,957)		Reserve for credit losses	(2,798)		(3,424)
Notes receivable, net	Notes receivable, net	$	5,703	$	6,432	Notes receivable, net	$	6,048	$	5,260

Long-term miscellaneous receivables	Long-term miscellaneous receivables	$	6,673	$	6,515	Long-term miscellaneous receivables	$	7,880	$	8,146
Reserve for credit losses	Reserve for credit losses	(982)		(945)		Reserve for credit losses	(1,119)		(1,153)
Long-term miscellaneous receivables, net	Long-term miscellaneous receivables, net	$	5,691	$	5,570	Long-term miscellaneous receivables, net	$	6,761	$	6,993

FORM 10-Q 11

PART I

The following table summarizes the activity in our reserve for credit losses by portfolio segment, excluding preneed receivables which are presented in Note 3, for the three months ended March 31, ~~2021:~~2022:


		January 1, 2021		Provision for Expected Credit Losses		Write Offs		Recoveries		Effect of Foreign Currency			March 31, 2021			December 31, 2021		(Provision) benefit for Expected Credit Losses		Acquisitions (Divestitures), net		Write Offs		Recoveries		Effect of Foreign Currency and Other		March 31, 2022
		(In thousands)										(In thousands)
Trade receivables:	Trade receivables:														Trade receivables:
Funeral	Funeral	$	(3,752)	$	(1,526)	$	1,655	$	(366)	$	15		$	(3,974)	Funeral	$	(3,597)	$	(1,708)	$	(99)	$	2,196	$	(365)	$	106	$	(3,467)
Cemetery	Cemetery	(1,933)		(514)		237		0		7			(2,203)		Cemetery	(2,231)		170		(48)		297		(63)		(1)		(1,876)
Total reserve for credit losses on trade receivables	Total reserve for credit losses on trade receivables	$	(5,685)	$	(2,040)	$	1,892	$	(366)	$	22		$	(6,177)	Total reserve for credit losses on trade receivables	$	(5,828)	$	(1,538)	$	(147)	$	2,493	$	(428)	$	105	$	(5,343)

Miscellaneous receivables:	Miscellaneous receivables:														Miscellaneous receivables:
Current	Current	$	144	$	(12)	$	0	$	0	$	0		$	132	Current	$	(344)	$	(1)	$	—	$	—	$	—	$	—	$	(345)
Long-term	Long-term	(945)		(37)		0		0		0			(982)		Long-term	(1,153)		34		—		—		—		—		(1,119)
Total reserve for credit losses on miscellaneous receivables	Total reserve for credit losses on miscellaneous receivables	$	(801)	$	(49)	$	0	$	0	$	0		$	(850)	Total reserve for credit losses on miscellaneous receivables	$	(1,497)	$	33	$	—	$	—	$	—	$	—	$	(1,464)

Notes receivable	Notes receivable	$	(6,447)	$	37	$	642	$	0	$	0		$	(5,768)	Notes receivable	$	(3,590)	$	6	$	—	$	625	$	—	$	—	$	(2,959)

At March 31, ~~2021,~~2022, the amortized cost basis of our miscellaneous and notes receivables by year of origination was as follows:


		2021		2020		2019		2018		2017		Prior		Revolving Line of Credit		Total			2022		2021		2020		2019		2018		Prior		Revolving Line of Credit		Total
		(In thousands)																	(In thousands)
Miscellaneous receivables:	Miscellaneous receivables:																	Miscellaneous receivables:
Current	Current	$	17,784	$	588	$	529	$	289	$	73	$	9	$	0	$	19,272	Current	$	37,445	$	905	$	442	$	378	$	152	$	7	$	—	$	39,329
Long-term	Long-term	1,020		2,109		2,192		1,007		306		39		0		6,673		Long-term	1,173		3,175		1,440		1,618		443		31		—		7,880
Total miscellaneous receivables	Total miscellaneous receivables	$	18,804	$	2,697	$	2,721	$	1,296	$	379	$	48	$	0	$	25,945	Total miscellaneous receivables	$	38,618	$	4,080	$	1,882	$	1,996	$	595	$	38	$	—	$	47,209

Notes receivable	Notes receivable	$	0	$	0	$	0	$	177	$	0	$	5,526	$	6,079	$	11,782	Notes receivable	$	—	$	—	$	—	$	93	$	—	$	4,927	$	4,101	$	9,121

At March 31, ~~2021,~~2022, the payment status of our miscellaneous and notes receivables was as follows:


		Past Due															Past Due
		<30 Days		30-90 Days		90-180 Days		>180 Days		Total		Current		Total			<30 Days		30-90 Days		90-180 Days		>180 Days		Total		Current		Total
		(In thousands)															(In thousands)
Miscellaneous receivables:	Miscellaneous receivables:															Miscellaneous receivables:
Current	Current	$	0	$	106	$	71	$	40	$	217	$	19,055	$	19,272	Current	$	—	$	9	$	5	$	205	$	219	$	39,110	$	39,329
Long-term	Long-term	0		0		0		0		0		6,673		6,673		Long-term	—		—		—		—		—		7,880		7,880
Total miscellaneous receivables	Total miscellaneous receivables	$	0	$	106	$	71	$	40	$	217	$	25,728	$	25,945	Total miscellaneous receivables	$	—	$	9	$	5	$	205	$	219	$	46,990	$	47,209

Notes receivable	Notes receivable	$	2	$	4	$	3	$	1,117	$	1,126	$	10,656	$	11,782	Notes receivable	$	2	$	2	$	5	$	1,119	$	1,128	$	7,993	$	9,121

Recently Issued Accounting Standards

Business Combinations

In October 2021, the Financial Accounting Standards Board ("FASB") amended guidance to require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606.

12 Service Corporation International

PART I

~~Recently Issued Accounting Standards~~Generally, this new guidance will result in the Company recognizing contract assets and contract liabilities consistent with those reported by the acquiree immediately before the acquisition date. The standard will be effective for all acquisitions after December 31, 2022, although early adoption is permitted. We are still evaluating the impact of adoption on our consolidated results of operations, consolidated financial position, and cash flows.

~~Reference Rate Reform~~Financial Instruments

In March ~~2020,~~2022, the FASB ~~issued "Reference Rate Reform"~~amended guidance to ~~provide optional guidance~~require public companies to disclose the vintage year of receivable write-offs during the reporting period. This new disclosure is required for ~~a limited time to ease~~us beginning with our Form 10-Q for the ~~potential burden in accounting for reference rate reform. The new guidance provides optional expedients~~three months ended March 31, 2023 and ~~exceptions for applying U.S. GAAP to contracts, hedging relationships,~~we will add the additional disclosures if write-offs during the period are material. This standard has no impact on our consolidated results of operations, consolidated financial position, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We currently have no hedging relationships and are evaluating our contracts and the optional expedients provided by the new standard.

cash flows.

3. Preneed Activities

Preneed receivables, net and trust investments

The components of Preneed receivables, net and trust investments in our unaudited Condensed Consolidated Balance Sheet were as follows:


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(In thousands)					(In thousands)
Preneed receivables, net	Preneed receivables, net	$	1,124,838	$	1,069,965	Preneed receivables, net	$	1,292,600	$	1,243,781

Trust investments, at market	Trust investments, at market	6,062,704		5,851,188		Trust investments, at market	6,243,312		6,536,851

Insurance-backed fixed income securities and other	Insurance-backed fixed income securities and other	243,307		245,056		Insurance-backed fixed income securities and other	228,612		231,589
Trust investments	Trust investments	6,306,011		6,096,244		Trust investments	6,471,924		6,768,440
Less: Cemetery perpetual care trust investments	Less: Cemetery perpetual care trust investments	(1,881,728)		(1,820,489)		Less: Cemetery perpetual care trust investments	(1,894,068)		(1,996,898)
Preneed trust investments	Preneed trust investments	4,424,283		4,275,755		Preneed trust investments	4,577,856		4,771,542

Preneed receivables, net and trust investments	Preneed receivables, net and trust investments	$	5,549,121	$	5,345,720	Preneed receivables, net and trust investments	$	5,870,456	$	6,015,323

Preneed receivables, net comprised the following:


		March 31, 2021							March 31, 2022
		Funeral		Cemetery		Total			Funeral		Cemetery		Total
		(In thousands)							(In thousands)
Preneed receivables	Preneed receivables	$	151,293	$	1,024,209	$	1,175,502	Preneed receivables	$	169,607	$	1,165,693	$	1,335,300
Unearned finance charges	Unearned finance charges	(13,339)		(17,288)		(30,627)		Unearned finance charges	(11,709)		(9,708)		(21,417)
Preneed receivables, at amortized cost	Preneed receivables, at amortized cost	137,954		1,006,921		1,144,875		Preneed receivables, at amortized cost	157,898		1,155,985		1,313,883
Reserve for credit losses	Reserve for credit losses	(11,450)		(8,587)		(20,037)		Reserve for credit losses	(13,177)		(8,106)		(21,283)
Preneed receivables, net	Preneed receivables, net	$	126,504	$	998,334	$	1,124,838	Preneed receivables, net	$	144,721	$	1,147,879	$	1,292,600

		December 31, 2020							December 31, 2021
		Funeral		Cemetery		Total			Funeral		Cemetery		Total
		(In thousands)							(In thousands)
Preneed receivables	Preneed receivables	$	143,896	$	979,259	$	1,123,155	Preneed receivables	$	162,183	$	1,125,539	$	1,287,722
Unearned finance charges	Unearned finance charges	(14,018)		(19,968)		(33,986)		Unearned finance charges	(12,038)		(11,176)		(23,214)
Preneed receivables, at amortized cost	Preneed receivables, at amortized cost	129,878		959,291		1,089,169		Preneed receivables, at amortized cost	150,145		1,114,363		1,264,508
Reserve for credit losses	Reserve for credit losses	(10,940)		(8,264)		(19,204)		Reserve for credit losses	(12,722)		(8,005)		(20,727)
Preneed receivables, net	Preneed receivables, net	$	118,938	$	951,027	$	1,069,965	Preneed receivables, net	$	137,423	$	1,106,358	$	1,243,781

FORM 10-Q 13

PART I

At March 31, ~~2021,~~2022, the amortized cost basis of our preneed receivables by year of origination was as follows:


		2021		2020		2019		2018		2017		Prior		Total			2022		2021		2020		2019		2018		Prior		Total
		(In thousands)															(In thousands)
Preneed receivables, at amortized cost:	Preneed receivables, at amortized cost:															Preneed receivables, at amortized cost:
Funeral	Funeral	$	24,115	$	52,370	$	32,855	$	11,182	$	5,300	$	12,132	$	137,954	Funeral	$	24,522	$	61,712	$	32,845	$	18,626	$	6,279	$	13,914	$	157,898
Cemetery	Cemetery	142,146		399,260		209,141		132,126		75,248		49,000		1,006,921		Cemetery	145,212		478,291		278,100		131,397		71,731		51,254		1,155,985
Total preneed receivables, at amortized cost	Total preneed receivables, at amortized cost	$	166,261	$	451,630	$	241,996	$	143,308	$	80,548	$	61,132	$	1,144,875	Total preneed receivables, at amortized cost	$	169,734	$	540,003	$	310,945	$	150,023	$	78,010	$	65,168	$	1,313,883

At March 31, ~~2021,~~2022, the payment status of our preneed receivables was as follows:


		Past Due															Past Due
		<30 Days		30-90 Days		90-180 Days		>180 Days		Total		Current		Total			<30 Days		30-90 Days		90-180 Days		>180 Days		Total		Current		Total
		(In thousands)															(In thousands)
Preneed receivables, at amortized cost:	Preneed receivables, at amortized cost:															Preneed receivables, at amortized cost:
Funeral	Funeral	$	3,608	$	2,047	$	1,623	$	16,453	$	23,731	$	114,223	$	137,954	Funeral	$	4,007	$	2,668	$	1,827	$	19,264	$	27,766	$	130,132	$	157,898
Cemetery	Cemetery	25,626		17,921		4,322		888		48,757		958,164		1,006,921		Cemetery	32,849		22,251		2,221		9,069		66,390		1,089,595		1,155,985
Total preneed receivables, at amortized cost	Total preneed receivables, at amortized cost	$	29,234	$	19,968	$	5,945	$	17,341	$	72,488	$	1,072,387	$	1,144,875	Total preneed receivables, at amortized cost	$	36,856	$	24,919	$	4,048	$	28,333	$	94,156	$	1,219,727	$	1,313,883

The following table summarizes the activity for the reserve for credit losses on preneed receivables for the three months ended March 31, ~~2021:~~2022:


		January 1, 2021		Provision for Expected Credit Losses		Write Offs			Effect of Foreign Currency		March 31, 2021			December 31, 2021		Provision for Expected Credit Losses		Write Offs		Effect of Foreign Currency		March 31, 2022
		(In thousands)						(In thousands)
Funeral	Funeral	$	(10,940)	$	(1,366)	$	857		$	(1)	$	(11,450)	Funeral	$	(12,722)	$	(1,323)	$	869	$	(1)	$	(13,177)
Cemetery	Cemetery	(8,264)		(408)		89			(4)		(8,587)		Cemetery	(8,005)		(256)		158		(3)		(8,106)
Total reserve for credit losses on preneed receivables	Total reserve for credit losses on preneed receivables	$	(19,204)	$	(1,774)	$	946		$	(5)	$	(20,037)	Total reserve for credit losses on preneed receivables	$	(20,727)	$	(1,579)	$	1,027	$	(4)	$	(21,283)

The table below sets forth certain investment-related activities associated with our trusts:


		Three months ended March 31,					Three months ended March 31,
		2021		2020					2022		2021
		(In thousands)						(In thousands)
Deposits	Deposits	$	120,283	$	105,553	Deposits			$	127,972	$	120,283
Withdrawals	Withdrawals	$	112,580	$	114,592	Withdrawals			$	122,364	$	112,580
Purchases of securities	Purchases of securities	$	431,801	$	434,367	Purchases of securities			$	469,312	$	431,801
Sales of securities	Sales of securities	$	427,503	$	334,140	Sales of securities			$	394,424	$	427,503
Realized gains from sales of securities(1)	Realized gains from sales of securities(1)	$	130,187	$	52,157	Realized gains from sales of securities(1)			$	103,555	$	130,187
Realized losses from sales of securities(1)	Realized losses from sales of securities(1)	$	(16,168)	$	(85,402)	Realized losses from sales of securities(1)			$	(27,932)	$	(16,168)

(1)All realized gains and losses are recognized in Other income, ~~(expense),~~ net for our trust investments and are offset by a corresponding reclassification in Other income, ~~(expense),~~ net to Deferred receipts held in trust and Care trusts’ corpus.

14 Service Corporation International

PART I

The cost and market values associated with trust investments recorded at market value are detailed below. Cost reflects the investment (net of redemptions) of control holders in the trusts. Fair value represents the value of the underlying securities held by the trusts.


			March 31, 2021										March 31, 2022
		Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses		Value			Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses		Value
					(In thousands)										(In thousands)
Fixed income securities:	Fixed income securities:										Fixed income securities:
U.S. Treasury	U.S. Treasury	2	$	46,312	$	1,197	$	(374)	$	47,135	U.S. Treasury	2	$	51,565	$	299	$	(1,043)	$	50,821
Canadian government	Canadian government	2	29,396		45		(4)		29,437		Canadian government	2	30,012		22		(1)		30,033
Corporate	Corporate	2	1,445		10		(15)		1,440		Corporate	2	175		2		(4)		173
Residential mortgage-backed	Residential mortgage-backed	2	1,072		77		(5)		1,144		Residential mortgage-backed	2	1,402		12		(41)		1,373
Asset-backed	Asset-backed	2	283		2		(17)		268		Asset-backed	2	218		1		(23)		196
Equity securities:	Equity securities:										Equity securities:
Preferred stock	Preferred stock	2	1,378		54		(5)		1,427		Preferred stock	2	4,670		7		(656)		4,021
Common stock:	Common stock:										Common stock:
United States	United States	1	1,538,711		590,244		(35,351)		2,093,604		United States	1	1,704,750		466,482		(99,739)		2,071,493
Canada	Canada	1	41,103		14,098		(2,165)		53,036		Canada	1	46,313		21,123		(5,844)		61,592
Other international	Other international	1	102,439		40,452		(2,430)		140,461		Other international	1	141,765		23,727		(16,564)		148,928
Mutual funds:	Mutual funds:										Mutual funds:
Equity	Equity	1	800,930		125,413		(5,679)		920,664		Equity	1	890,185		122,597		(45,197)		967,585
Fixed income	Fixed income	1	1,048,187		18,413		(13,254)		1,053,346		Fixed income	1	1,094,784		17,540		(64,350)		1,047,974
Other	Other	3	187		2		0		189		Other	3	187		1		—		188
Trust investments, at fair value	Trust investments, at fair value		3,611,443		790,007		(59,299)		4,342,151		Trust investments, at fair value		3,966,026		651,813		(233,462)		4,384,377
Commingled funds	Commingled funds										Commingled funds
Fixed income	Fixed income		660,474		26,441		(2,329)		684,586		Fixed income		677,856		84,337		(22,753)		739,440
Equity	Equity		278,866		100,757		(93)		379,530		Equity		231,312		129,968		(1,155)		360,125
Money market funds	Money market funds		326,518		0		0		326,518		Money market funds		322,089		—		—		322,089
Private equity			270,786		67,134		(8,001)		329,919
Alternative investments											Alternative investments		292,485		146,733		(1,937)		437,281
Trust investments, at net asset value	Trust investments, at net asset value		1,536,644		194,332		(10,423)		1,720,553		Trust investments, at net asset value		1,523,742		361,038		(25,845)		1,858,935
Trust investments, at market	Trust investments, at market		$	5,148,087	$	984,339	$	(69,722)	$	6,062,704	Trust investments, at market		$	5,489,768	$	1,012,851	$	(259,307)	$	6,243,312

FORM 10-Q 15

PART I


			December 31, 2020										December 31, 2021
		Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses		Value			Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses		Value
					(In thousands)										(In thousands)
Fixed income securities:	Fixed income securities:										Fixed income securities:
U.S. Treasury	U.S. Treasury	2	$	44,907	$	1,566	$	(272)	$	46,201	U.S. Treasury	2	$	51,002	$	795	$	(283)	$	51,514
Canadian government	Canadian government	2	30,210		51		(157)		30,104		Canadian government	2	29,881		28		—		29,909
Corporate	Corporate	2	1,669		14		(8)		1,675		Corporate	2	170		6		(2)		174
Residential mortgage-backed	Residential mortgage-backed	2	2,438		131		0		2,569		Residential mortgage-backed	2	1,407		58		(15)		1,450
Asset-backed	Asset-backed	2	174		3		(5)		172		Asset-backed	2	274		2		(10)		266
Equity securities:	Equity securities:										Equity securities:
Preferred stock	Preferred stock	2	358		0		(24)		334		Preferred stock	2	4,843		4		(1,024)		3,823
Common stock:	Common stock:										Common stock:
United States	United States	1	1,500,125		503,757		(54,748)		1,949,134		United States	1	1,648,785		624,349		(56,092)		2,217,042
Canada	Canada	1	35,016		10,915		(1,823)		44,108		Canada	1	34,787		19,617		(898)		53,506
Other international	Other international	1	110,775		39,837		(1,831)		148,781		Other international	1	129,486		42,171		(9,819)		161,838
Mutual funds:	Mutual funds:										Mutual funds:
Equity	Equity	1	821,406		95,155		(10,437)		906,124		Equity	1	875,828		140,893		(10,116)		1,006,605
Fixed income	Fixed income	1	1,022,409		35,872		(19,298)		1,038,983		Fixed income	1	1,025,327		12,560		(18,675)		1,019,212
Other	Other	3	188		2		0		190		Other	3	187		1		—		188
Trust investments, at fair value	Trust investments, at fair value		3,569,675		687,303		(88,603)		4,168,375		Trust investments, at fair value		3,801,977		840,484		(96,934)		4,545,527
Commingled funds	Commingled funds										Commingled funds
Fixed income	Fixed income		657,219		37,474		(173)		694,520		Fixed income		662,125		115,939		(3,171)		774,893
Equity	Equity		283,329		97,704		0		381,033		Equity		230,926		161,125		(114)		391,937
Money market funds	Money market funds		330,745		0		0		330,745		Money market funds		408,762		—		—		408,762
Private equity			217,953		68,846		(10,284)		276,515
Alternative investments											Alternative investments		292,888		128,197		(5,353)		415,732
Trust investments, at net asset value	Trust investments, at net asset value		1,489,246		204,024		(10,457)		1,682,813		Trust investments, at net asset value		1,594,701		405,261		(8,638)		1,991,324
Trust investments, at market	Trust investments, at market		$	5,058,921	$	891,327	$	(99,060)	$	5,851,188	Trust investments, at market		$	5,396,678	$	1,245,745	$	(105,572)	$	6,536,851

Our ~~private equity~~alternative investments include ~~several~~ funds ~~that invest~~invested in limited partnerships with interests in private equity, private market real estate, energy and natural resources, infrastructure, transportation, and private debt including both 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. The funds' managers have not communicated the timing of any liquidations.

The change in our market-based trust investments with significant unobservable inputs (Level 3) is as follows:

Three months ended March 31,
2021 2020
(in thousands)
Fair value, beginning balance $ 190 $ 8,218
Net realized and unrealized gains (losses) included in Other income (expense), net(1)
(1) (974)
Purchases 0 10
Sales 0 (25)
Transfers 0 (6,811)
Fair value, ending balance $ 189 $ 418


	Three months ended March 31,
			2022		2021
		(In thousands)
Fair value, beginning balance			$	188	$	190
Net realized and unrealized (losses) included in Other income, net(1)			—		(1)






Fair value, ending balance			$	188	$	189

(1)All net realized and unrealized ~~gains~~ (losses) recognized in Other income, ~~(expense),~~ net for our trust investments are offset by a corresponding reclassification in Other income, ~~(expense),~~ net to Deferred receipts held in trust and Care trusts' corpus.

16 Service Corporation International

PART I

Maturity dates of our fixed income securities range from ~~2021~~2022 to 2040. Maturities of fixed income securities (excluding mutual funds) at March 31, ~~2021~~2022 are estimated as follows:


	Fair Value
	(In thousands)
Due in one year or less	$	~~47,498~~52,873
Due in one to five years	~~24,382~~24,526
Due in five to ten years	~~7,313~~4,996
Thereafter	~~231~~201
Total estimated maturities of fixed income securities	$	~~79,424~~82,596

Recognized trust fund income (realized and unrealized) related to our preneed trust investments was ~~$45.0~~$45.9 million and ~~$32.2~~$45.0 million, for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. Recognized trust fund income (realized and unrealized) related to our cemetery perpetual care trust investments was ~~$20.8~~$24.4 million and ~~$19.5~~$20.8 million for the three months ended March 31, 2022 and 2021, ~~and 2020,~~ respectively. ~~Trust fund income is up significantly compared to the prior year due to higher investment returns and from the increase in services performed.~~

Deferred revenue, net

Deferred revenue, net represents future revenue, including distributed trust investment earnings associated with unperformed trust-funded preneed contracts that are not held in trust accounts. Future revenue and net trust investment earnings that are held in trust accounts are included in Deferred receipts held in trust.

The components of Deferred revenue, net in our unaudited Condensed Consolidated Balance Sheet were as follows:

March 31, 2021 December 31, 2020
(In thousands)
Deferred revenue $ 2,151,333 $ 2,127,878
Amounts due from customers for unfulfilled performance obligations on cancelable preneed contracts (649,759) (638,969)
Deferred revenue, net $ 1,501,574 $ 1,488,909


	March 31, 2022		December 31, 2021
	(In thousands)
Deferred revenue	$	2,330,418	$	2,259,364
Amounts due from customers for unfulfilled performance obligations on cancelable preneed contracts	(763,201)		(726,615)
Deferred revenue, net	$	1,567,217	$	1,532,749

The following table summarizes the activity for our contract liabilities, which are reflected in Deferred revenue, net and Deferred receipts held in trust:


		Three months ended March 31,					Three months ended March 31,
		2021		2020			2022		2021
		(In thousands)					(In thousands)
Beginning balance — Deferred revenue, net and Deferred receipts held in trust	Beginning balance — Deferred revenue, net and Deferred receipts held in trust	$	5,761,291	$	5,306,479	Beginning balance — Deferred revenue, net and Deferred receipts held in trust	$	6,299,240	$	5,761,291
Net preneed contract sales	Net preneed contract sales	313,483		238,471		Net preneed contract sales	391,243		313,483
(Dispositions) acquisitions of businesses, net	(Dispositions) acquisitions of businesses, net	(441)		12,743		(Dispositions) acquisitions of businesses, net	269		(441)
Net investment (losses) gains(1)	Net investment (losses) gains(1)	146,160		(665,127)		Net investment (losses) gains(1)	(201,580)		146,160
Recognized revenue from backlog(2)	Recognized revenue from backlog(2)	(156,461)		(121,611)		Recognized revenue from backlog(2)	(176,913)		(156,461)
Recognized revenue from current period sales	Recognized revenue from current period sales	(133,633)		(107,821)		Recognized revenue from current period sales	(138,905)		(133,633)
Change in amounts due on unfulfilled performance obligations	Change in amounts due on unfulfilled performance obligations	(10,387)		(2,555)		Change in amounts due on unfulfilled performance obligations	(36,201)		(10,387)
Change in cancellation reserve	Change in cancellation reserve	113		1,095		Change in cancellation reserve	(146)		113
Effect of foreign currency and other	Effect of foreign currency and other	3,780		(17,468)		Effect of foreign currency and other	4,972		3,780
Ending balance — Deferred revenue, net and Deferred receipts held in trust	Ending balance — Deferred revenue, net and Deferred receipts held in trust	$	5,923,905	$	4,644,206	Ending balance — Deferred revenue, net and Deferred receipts held in trust	$	6,141,979	$	5,923,905

(1)Includes both realized and unrealized investment (losses) gains.

(2)Includes current year trust fund income through the date of performance.

FORM 10-Q 17

PART II

4. 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 statutes of limitation, and increases or

decreases in valuation allowances on deferred tax assets. Our effective tax rate was ~~25.3%~~26.0% and ~~22.7%~~25.3% for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. The higher effective tax rate for the three months ended March 31, ~~2021~~2022 was primarily due to a decrease in the ~~lower excess~~cash value of certain life insurance policies due to negative returns in the financial markets, which lowered a tax ~~benefits recognized on~~benefit for us in the ~~settlement~~quarter. The effective tax rate for the three months ended March 31, 2022 was higher than the federal statutory tax rate of ~~employee share-based awards.~~21% primarily due to state and foreign tax expenses.

Unrecognized Tax Benefits

As of March 31, ~~2021,~~2022, the total amount of our unrecognized tax benefits was ~~$1.4~~$1.3 million and the total amount of our

accrued interest was ~~$0.7~~$0.8 million.

The federal statutes of limitation have expired for all tax years prior to ~~2017,~~2018, and we are not currently under audit by the IRS. However, pursuant to the 2017 Tax Cuts and Jobs Act, the statute of limitations on the transition tax for the 2017 tax year does not expire until 2024. Various state jurisdictions are auditing years 2013 through ~~2018.~~2020. There are currently no federal or provincial audits in Canada; however, years subsequent to ~~2015~~2016 remain open and could be subject to examination. We believe that it is reasonably possible that the ~~the~~ recorded amount of gross unrecognized tax benefits may decrease by ~~$1.4~~$1.3 million within the next twelve months as a result of concluding various state tax matters.

5. Debt

The components of Debt are:

March 31, 2021 December 31, 2020
(In thousands)
8.0% Senior Notes due November 2021 $ 150,000 $ 150,000
7.5% Senior Notes due April 2027 152,710 152,710
4.625% Senior Notes due December 2027 550,000 550,000
5.125% Senior Notes due June 2029 750,000 750,000
3.375% Senior Notes due August 2030 850,000 850,000
Term Loan due May 2024 593,125 601,250
Bank Credit Facility due May 2024 445,000 525,000
Obligations under finance leases 150,277 148,864
Mortgage notes and other debt, maturities through 2050 50,872 51,766
Unamortized premiums and discounts, net (229) (317)
Unamortized debt issuance costs (35,591) (36,739)
Total debt 3,656,164 3,742,534
Less: Current maturities of long-term debt (217,062) (228,352)
Total long-term debt $ 3,439,102 $ 3,514,182


	March 31, 2022		December 31, 2021
	(In thousands)
7.5% Senior Notes due April 2027	$	152,710	$	152,710
4.625% Senior Notes due December 2027	550,000		550,000
5.125% Senior Notes due June 2029	750,000		750,000
3.375% Senior Notes due August 2030	850,000		850,000
4.0% Senior Notes due May 2031	800,000		800,000
Term Loan due May 2024	560,625		568,750
Bank Credit Facility due May 2024	230,000		155,000
Obligations under finance leases	130,039		136,847
Mortgage notes and other debt, maturities through 2050	47,180		48,113

Unamortized debt issuance costs	(43,747)		(45,100)
Total debt	4,026,807		3,966,320
Less: Current maturities of long-term debt	(63,863)		(65,016)
Total long-term debt	$	3,962,944	$	3,901,304

Current maturities of debt at March 31, ~~2021~~2022 include amounts due under our term loan, ~~2021 senior notes,~~ mortgage notes and other debt, and finance lease payments due within the next year as well as the portion of unamortized ~~premiums and discounts and~~ debt issuance costs expected to be recognized in the next twelve months.

Our consolidated debt had a weighted average interest rate of ~~3.66%~~3.73% and ~~3.62%~~3.70% at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Approximately, ~~68%~~78% and ~~66%~~79% of our total debt had a fixed interest rate at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

During the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, we paid ~~$20.1~~$17.7 million and ~~$10.1~~$20.1 million in cash interest, respectively. ~~The increase over the prior year is due to the timing of interest payments due for the 3.375% Senior Notes due August 2030.~~

Bank Credit Facility

The Bank Credit Facility provides us with flexibility for working capital, if needed, and is guaranteed by a majority of our domestic subsidiaries. The subsidiary guaranty is a guaranty of payment of the outstanding amount of the total lending commitment, including letters of credit. The Bank Credit Facility contains certain financial covenants, including a minimum

18 Service Corporation International

PART I

~~commitment, including letters of credit. The bank credit agreement contains certain financial covenants, including a minimum~~ interest coverage ratio, a maximum leverage ratio, and certain dividend and share repurchase restrictions. As of March 31, ~~2021,~~2022, we were in compliance with all of our debt covenants. We issued ~~$34.0~~$33.7 million of letters of credit and pay a quarterly fee on the unused commitment, which was ~~0.15%~~0.10% at March 31, ~~2021.~~2022. As of March 31, ~~2021,~~2022, we had ~~$521.0~~$736.3 million in borrowing capacity under the Bank Credit Facility. The Bank Credit Facility had an interest rate of 1.46% and 1.11% at March 31, 2022 and December 31, 2021, respectively.

Debt Issuances and Additions

During the three months ended March 31, ~~2021~~2022 and ~~March 31, 2020,~~2021, we drew ~~$20.0~~$75.0 million and ~~$75.0~~$20.0 million on our Bank Credit Facility for general corporate purposes, respectively.

Debt Extinguishments and Reductions

During the three months ended March 31, 2022, we made aggregate debt payments of $9.1 million for scheduled and early extinguishment payments including:

•$8.1 million in aggregate principal of our Term Loan due May 2024;

•$1.0 million in other debt.

During the three months ended March 31, 2021, we made aggregate debt payments of $109.0 million for scheduled and early extinguishment payments including:

•$100.0 million in aggregate principal of our Bank Credit Facility due May 2024;

•$8.1 million in aggregate principal of our Term Loan due May 2024;

•$0.9 million in other debt.

~~During the three months ended March 31, 2020, we made aggregate debt payments of $34.0 million for scheduled and early extinguishment payments including:~~

•~~$25.0 million in aggregate principal of our Bank Credit Facility due May 2024;~~

•~~$8.1 million in aggregate principal of our Term Loan due May 2024;~~

•~~$0.7 million in aggregate principal of 7.5% Senior Notes due April 2027 repurchased on the open market;~~

•~~$0.1 million of premiums paid on early extinguishment; and~~

•~~$0.1 million in other debt.~~

~~Certain of the above transactions resulted in the recognition of a loss of $0.1 million recorded in~~ ~~Losses on early extinguishment of debt, net~~ ~~in our Consolidated Statement of Operations for the three months ended March 31, 2020.~~

~~FORM 10-Q~~ 19

~~PART I~~

6. Credit Risk and Fair Value of Financial Instruments

Fair Value Estimates

The fair value estimates of the following financial instruments have been determined using available market information and appropriate valuation methodologies. The carrying values of cash and cash equivalents, trade receivables, and trade payables approximate the fair values of those instruments due to the short-term nature of the instruments. The carrying values of receivables on preneed funeral and cemetery contracts approximate fair value due to the large number of diverse individual contracts with varying terms.

The fair value of our debt instruments at March 31, ~~2021~~2022 and December 31, ~~2020~~2021 was as follows:

March 31, 2021 December 31, 2020
(In thousands)
8.0% Senior Notes due November 2021 $ 156,255 $ 159,000
7.5% Notes due April 2027 184,936 185,639
4.625% Senior Notes due December 2027 581,796 590,700
5.125% Senior Notes due June 2029 806,167 840,368
3.375% Senior Notes due August 2030 830,705 883,099
Term Loan due May 2024 593,125 601,250
Bank Credit Facility due May 2024 445,000 525,000
Mortgage notes and other debt, maturities through 2050 49,841 51,659
Total fair value of debt instruments $ 3,647,825 $ 3,836,715


	March 31, 2022		December 31, 2021
	(In thousands)
7.5% Senior Notes due April 2027	$	166,837	$	181,511
4.625% Senior Notes due December 2027	556,023		575,443
5.125% Senior Notes due June 2029	760,342		809,737
3.375% Senior Notes due August 2030	769,250		836,825
4.0% Senior Notes due May 2031	747,552		813,552
Term Loan due May 2024	560,625		568,750
Bank Credit Facility due May 2024	230,000		155,000
Mortgage notes and other debt, maturities through 2050	44,795		46,878
Total fair value of debt instruments	$	3,835,424	$	3,987,696

The fair values of our long-term, fixed rate loans were estimated using market prices for those loans, and therefore they are classified within Level 2 of the fair value measurements hierarchy. The Term Loan, Bank Credit Facility, and the mortgage and other debt are classified within Level 3 of the fair value measurements hierarchy. The fair values of these instruments have been estimated using discounted cash flow analysis based on our incremental borrowing rate for similar borrowing arrangements. An increase (decrease) in the inputs results in a directionally opposite change in the fair value of the instruments.

FORM 10-Q 19

PART II

7. Equity

(All shares reported in whole numbers)

Share Repurchase Program

Subject to market conditions, normal trading restrictions, and limitations in our debt covenants, we may make purchases in the open market or through privately negotiated transactions under our share repurchase program. During the three months ended March 31, ~~2021,~~2022, we repurchased ~~2,141,798~~4,104,234 shares of common stock at an aggregate cost of ~~$106.2~~$256.4 million, which is an average cost per share of ~~$49.58.~~$62.47. After these repurchases and the increase in our share repurchase authorization, the remaining dollar value of shares authorized to be purchased under the share repurchase program was ~~$126.8~~$240.3 million at March 31, ~~2021.~~2022.

Subsequent to March 31, ~~2021,~~2022, we repurchased ~~695,722~~509,020 shares for ~~$36.2~~$34.2 million at an average cost per share of ~~$52.03.~~$67.19. After these repurchases, the remaining dollar value of shares authorized to be purchased under the share repurchase program is ~~$90.6~~$206.1 million.

20 ~~Service Corporation International~~

~~PART I~~

8. Segment Reporting

Our operations are both product-based and geographically-based, and the reportable operating segments presented below include our funeral and cemetery operations. Our geographic areas include the United States and Canada, where we conduct both funeral and cemetery operations.

Our reportable segment information, including disaggregated revenue, was as follows and includes a reconciliation of gross profit to our consolidated income before income taxes.


	Three months ended March 31,
			2022		2021
		(In thousands)
Revenue from customers:
Funeral revenue:
Atneed revenue			$	353,369	$	338,070
Matured preneed revenue			194,927		190,189
Core funeral revenue			548,296		528,259
Non-funeral home revenue			20,810		19,729
Recognized preneed revenue			43,122		41,749
Other revenue			36,869		29,701
Total funeral revenue			649,097		619,438
Cemetery revenue:
Atneed revenue			123,389		124,621
Recognized preneed property revenue			221,539		218,274



Recognized preneed merchandise and services revenue			85,000		85,818
Core cemetery revenue			429,928		428,713
Other revenue			33,378		29,830
Total cemetery revenue			463,306		458,543
Total revenue from customers			$	1,112,403	$	1,077,981
Gross profit:
Funeral gross profit			$	195,983	$	194,386
Cemetery gross profit			180,930		188,057
Gross profit from reportable segments			376,913		382,443
Corporate general and administrative expenses			(41,704)		(41,669)
Gains on divestitures and impairment charges, net			489		1,266

Operating income			335,698		342,040
Interest expense			(39,028)		(35,812)

Other income, net			128		341
Income before income taxes			$	296,798	$	306,569

Three months ended March 31,
2021 2020
(In thousands)
Revenue from customers:
Funeral revenue:
Atneed revenue $ 338,070 $ 264,788
Matured preneed revenue 190,189 163,583
Core funeral revenue 528,259 428,371
Non-funeral home revenue 19,729 14,451
Recognized preneed revenue 41,749 32,800
Other revenue 29,701 29,274
Total funeral revenue 619,438 504,896
Cemetery revenue:
Atneed revenue 124,621 85,043
Recognized preneed property revenue 218,274 116,082
Recognized preneed merchandise and services revenue 85,818 68,664
Core cemetery revenue 428,713 269,789
Other revenue 29,830 28,280
Total cemetery revenue 458,543 298,069
Total revenue from customers $ 1,077,981 $ 802,965
Gross profit:
Funeral gross profit $ 190,745 $ 103,576
Cemetery gross profit 186,762 75,468
Gross profit from reportable segments 377,507 179,044
Corporate general and administrative expenses (36,733) (31,813)
Gains on divestitures and impairment charges, net 1,266 4,545
Operating income 342,040 151,776
Interest expense (35,812) (44,351)
Losses on early extinguishment of debt, net 0 (139)
Other income (expense), net 341 (1,247)
Income before income taxes $ 306,569 $ 106,039

20 Service Corporation International

PART I

Our geographic area information was as follows:


		United States		Canada		Total			United States		Canada		Total
		(In thousands)							(In thousands)

Three months ended March 31,	Three months ended March 31,							Three months ended March 31,
Revenue from external customers:	Revenue from external customers:							Revenue from external customers:
2022								2022	$	1,050,620	$	61,783	$	1,112,403
2021	2021	$	1,019,970	$	58,011	$	1,077,981	2021	$	1,019,970	$	58,011	$	1,077,981
2020		$	759,272	$	43,693	$	802,965

~~FORM 10-Q~~ 21

~~PART I~~

9. Commitments and Contingencies

Insurance Loss Reserves

We purchase comprehensive general liability, morticians and cemetery professional liability, automobile liability, and workers’ compensation insurance coverage structured with high deductibles. The high-deductible insurance program means we are primarily self-insured for claims and associated costs and losses covered by these policies. As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, we had self-insurance reserves of ~~$97.0~~$95.0 million and ~~$92.8~~$94.3 million, respectively.

Litigation and Regulatory Matters

We are a party to various litigation and regulatory matters, investigations, and proceedings. Some of the more frequent routine litigations incidental to our business are based on burial practices claims and employment-related matters, including discrimination, harassment, and wage and hour laws and regulations. For each of our outstanding legal matters, we evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies, and the likelihood of an unfavorable outcome. We intend to vigorously defend ourselves in the matters described herein; however, if we determine that an unfavorable outcome is probable and can be reasonably estimated, or if we determine an amount for which we would be willing to settle the matter to avoid further costs and risk, we establish the necessary accruals. We hold certain insurance policies that may reduce cash outflows with respect to an adverse outcome of certain of these matters. We accrue such insurance recoveries when they become probable of being paid and can be reasonably estimated.

Wage and Hour Claims. We are named as a defendant in various lawsuits alleging violations of federal and state laws regulating wage and hour pay, including but not limited to the Fredeen lawsuit described below.

Lisa Fredeen, an aggrieved employee and on behalf of other aggrieved employees v. California Cemetery and Funeral Services, LLC, et al; Case No. BC706930; in the Superior Court of the State of California for the County of Los Angeles. This lawsuit was filed against SCI subsidiaries on May 18, 2018 and purports to be brought on behalf of the defendants' current and former non-exempt California employees during the four years preceding the filing of the complaint. This lawsuit asserts numerous claims for alleged wage and hour pay violations under the California Labor Code and the California Private Attorneys General Act. The plaintiff seeks unpaid wages, compensatory and punitive damages, civil penalties, attorneys’ fees and costs, and interest. ~~Given the nature of this lawsuit, we are unable to reasonably estimate the possible loss or ranges of loss, if any.~~

~~Claims Regarding Acquisition of Stewart Enterprises. We are involved in the following lawsuit.~~

~~Karen Moulton, Individually and on behalf of all others similarly situated v. Stewart Enterprises, Inc., Service Corporation International and others; Case No. 2013-5636;~~ in the Civil District Court Parish of New Orleans, Louisiana. This case was filed as a class action in June 2013 against an SCI subsidiary in connection with SCI's acquisition of Stewart Enterprises, Inc. The plaintiffs allege that SCI aided and abetted breaches of fiduciary duties by Stewart Enterprises and its board of directors in negotiating the combination of Stewart Enterprises with a subsidiary of SCI. The plaintiffs seek damages concerning the combination. We filed exceptions to the plaintiffs’ complaint that were granted in June 2014. Thus, subject to appeals, SCI will no longer be party to the suit. The case has continued against our subsidiary Stewart Enterprises and its former individual directors. However, in October 2016, the court entered a judgment dismissing all of plaintiffs’ claims. Plaintiffs have appealed the dismissal. Given the nature of this lawsuit, we are unable to reasonably estimate the possible loss or ranges of loss, if any.

Operational Claims. We are named a defendant in various lawsuits alleging operational claims, including but not limited to the State of California and Taylor lawsuits described below.

The People of the State of California v. Service Corporation International, a Texas corporation, SCI Direct, Inc. a Florida Corporation, S.E. Acquisition of California, Inc., a California corporation dba Neptune Society of Northern California, Neptune Management Corp., a California corporation, Trident Society, Inc. a California corporation, and Does 1 through 100, inclusive, Case No. RG 19045103; in the Superior Court of the State of California in and for the County of Alameda. In July 2019, we received a letter from the Attorney General, State of California, Department of Justice (“CAAG") alleging that the allocation of prices among certain of our cremation service contracts and cremation merchandise contracts, and the related preneed trust funding, violates section 7735 of the California Business and Professions Code and that provisions of these same contracts constitute false advertising and deceptive sales practices in violation of California consumer protection laws. On November 21, 2019, we filed a complaint, S.E. Combined Services of California, Inc., a California Corporation dba Neptune Society of Northern California, Neptune Management Corp. a California Corporation, and Trident Society, Inc. v. Xavier Becerra, Attorney General of the State of California, and Does 1-50, Case No. 34-2019-00269617; in the Sacramento County Superior Court seeking declaratory relief holding, in general, that our practices, methods, and documentation utilized in the sale of preneed funeral goods and services are in all respects compliant with California law. On December 2, 2019, the CAAG filed the complaint, referenced above, seeking permanent injunction from making false statements and engaging in unfair competition, a placement of funds into preneed trusts, civil penalties, customer refunds, attorneys’ fees, and costs. We believe our contracts comply with applicable laws. Given the nature of this lawsuit, we are unable to estimate a reasonably possible loss or range of loss, if any.

22FORM 10-Q ~~Service Corporation International~~21

PART I

Nancy Taylor, on behalf of herself and others similarly situated v. Service Corporation International and others, Case No. 20-cv-60709; in the United States District Court Southern District of Florida Fort Lauderdale Division. This case was filed in April 2020 as a Florida class action alleging that the allocation of prices among certain of our cremation service contracts and cremation merchandise contracts, and the related preneed trust funding, and the failure to disclose commissions paid and sales practices associated with the sale of third-party travel protection plans, violate the Florida Deceptive and Unfair Trade Practices Act and constitute unjust enrichment. Plaintiff seeks refunds, general, actual, compensatory and exemplary damages, civil penalties, interest, and attorney fees. Given the nature of this lawsuit, we are unable to estimate a reasonably possible loss or range of loss, if any.

Unclaimed Property Audit

We have received notices from ~~two third-party~~ auditors representing the unclaimed property departments of ~~certain~~thirty-nine states regarding certain preneed funeral and cemetery contracts. The states claim that such contracts are subject to the states’ unclaimed property or escheatment laws and generally assert that all or a portion of the trusted preneed funds are escheatable if the beneficiary and/or purchaser is deceased or presumed deceased and no services or merchandise have been provided. We received notice that no additional property is due to be reported for the states of Alabama, Kentucky, Nebraska, New Mexico, Oklahoma, Oregon, South Carolina, South Dakota, Texas, and West Virginia. We consider the unclaimed property audits resolved in those ten states. We have reserved all of our rights, claims, and defenses. Given the nature of this matter, we are unable to reasonably estimate the possible loss or ranges of loss, if any.

~~Other Potential Contingencies~~

In October 2018, we received a letter from the Illinois Office of the Comptroller claiming that our subsidiary improperly withdrew a total of $13.6 million from perpetual care trusts covering 24 of our cemeteries in Illinois. We believe these withdrawals were entirely proper for the ongoing care of those cemeteries under Illinois law.

We intend to vigorously defend all of the above matters; however, an adverse decision in one or more of such matters could have a material effect on us, our financial condition, results of operations, and cash flows.

10. Earnings Per Share

Basic earnings per common share (EPS) excludes dilution and is computed by dividing Net income attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted ~~(EPS)~~earnings per share reflects the potential dilution that could occur if securities or other obligations to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in our earnings.

A reconciliation of the numerators and denominators of basic and diluted EPS is presented below:

Three months ended March 31,
2021 2020
(In thousands, except per share amounts)
Amounts attributable to common stockholders:
Net income — basic and diluted $ 228,879 $ 81,941
Weighted average shares:
Weighted average shares — basic 169,918 180,854
Stock options 2,390 2,675
Restricted share units 59 56
Weighted average shares — diluted $ 172,367 $ 183,585
Amounts attributable to common stockholders:
Earnings per share:
Basic $ 1.35 $ 0.45
Diluted $ 1.33 $ 0.45

~~FORM 10-Q~~ 23

~~PART I~~


	Three months ended March 31,
		2022		2021
		(In thousands, except per share amounts)
Amounts attributable to common stockholders:







Net income — basic and diluted		$	219,513	$	228,879
Weighted average shares:
Weighted average shares — basic		161,328		169,918
Stock options		2,402		2,390
Restricted share units		77		59

Weighted average shares — diluted		163,807		172,367
Amounts attributable to common stockholders:






Earnings per share:
Basic		$	1.36	$	1.35
Diluted		$	1.34	$	1.33

The computation of diluted EPS excludes outstanding stock options and restricted share units in certain periods in which the inclusion of such equity awards would be antidilutive to the periods presented. Total antidilutive options and restricted stock units not currently included in the computation of diluted earnings per share are as follows (in shares):

Three months ended March 31,
2021 2020
(In thousands)
Antidilutive options 1,276 1,228
Antidilutive restricted share units 0 31


	Three months ended March 31,
		2022	2021
		(In thousands)

Antidilutive options		274	1,276

22 Service Corporation International

PART II

11. Acquisitions and Divestiture-Related Activities

Acquisitions

We spent ~~$1.2~~$0.2 million ~~and $26.3 million, for several business acquisitions,~~ and $5.6 million, ~~and $2.1 million,~~net of cash acquired, for several real estate acquisitions during the three months ended March 31, 2022 and 2021, respectively, and ~~2020, respectively.~~$1.2 million, net of cash acquired, for several business acquisitions during the three months ended March 31, 2021.

Divestiture-Related Activities

As divestitures occur in the normal course of business, gains or losses on the sale of such locations are recognized in the unaudited Condensed Consolidated Statement of Operations line item Gains on divestitures and impairment charges, net, which comprised the following:

Three months ended March 31,
2021 2020
(In thousands)
Gains on divestitures, net $ 1,326 $ 7,629
Impairment losses (60) (3,084)
Gains on divestitures and impairment charges, net $ 1,266 $ 4,545


	Three months ended March 31,
	2022		2021
	(In thousands)
Gains on divestitures, net	$	701	$	1,326
Impairment losses	(212)		(60)
Gains on divestitures and impairment charges, net	$	489	$	1,266

24FORM 10-Q ~~Service Corporation International~~23

PART III

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Company

We are North America’s largest provider of deathcare products and services, with a network of funeral service locations and cemeteries unequaled in geographic scale and reach. At March 31, ~~2021,~~2022, we operated ~~1,461~~1,467 funeral service locations and ~~484~~488 cemeteries (including ~~296~~300 funeral service/cemetery combination locations), which are geographically diversified across 44 states, eight Canadian provinces, the District of Columbia, and Puerto Rico.Our funeral and cemetery operations consist of funeral service locations, cemeteries, funeral service/cemetery combination locations, crematoria, and other related businesses, which enable us to serve a wide array of customer needs. We sell cemetery property and funeral and cemetery merchandise and services at the time of need and on a preneed basis. We strive to offer families exceptional service in planning life celebrations and personalized remembrances. Our Dignity ~~Memorial ®~~Memorial® brand serves approximately ~~500,000~~600,000 families each year with professionalism, compassion, and attention to detail.

Our financial position is enhanced by our ~~$12.9~~$13.6 billion backlog of future revenue from both trust and insurance-funded preneed sales at March 31, ~~2021.~~2022. Preneed selling provides us with a strategic opportunity to gain future market share. We also believe it adds to the stability and predictability of our revenue and cash flows. While revenue on the majority of preneed merchandise and service sales is deferred until the time of need, sales of preneed cemetery property provide opportunities for full current revenue recognition to the extent that the property is developed and available for use.

We have adequate liquidity and a favorable debt maturity profile, which allow us to reinvest and grow our business as well as return capital to shareholders through share repurchases and dividends.

Factors affecting our operating results include: demographic trends in terms of population growth and average age, which impact death rates and number of deaths; establishing and maintaining leading market share positions supported by strong local heritage and relationships; effectively responding to increasing cremation trends by selling complementary services and merchandise; controlling salary and merchandise costs; and exercising pricing leverage related to our atneed revenue. The average revenue per funeral contract is influenced by the mix of traditional and cremation services because our average revenue for cremations is lower than that for traditional burials. To further enhance revenue opportunities, we continue to focus on our cremation customers' preferences and remaining relevant by developing additional memorialization merchandise and services that specifically appeal to cremation customers. We believe the presentation of these additional merchandise and services through our customer-facing technology improves our customers' experience by reducing administrative burdens and allowing them to visualize the enhanced product and service offerings, which we believe will help drive increases in the average revenue for a cremation in future periods.

Recent Trends

Like most businesses world-wide, COVID-19 is still impacting various aspects of our business operations; however, we cannot, with certainty, predict the scope, severity, or duration with which COVID-19 will continue to impact our business, financial condition, results of operations, and cash flows.

In ~~early 2020 the rigorous restrictions placed on gatherings~~2022, our families are selecting to have funerals and ~~mandated by state, provincial,~~celebrations of life and local governments posed a unique challenge for our locations. We quickly implemented technology solutions, including leveraging streaming on social media, which allow extended family and friends to virtually participate in the ceremony alongside the immediate family. Atneed funeral directors continue to use virtual meeting platforms as a tool to discuss and plan service details with client families. Our preneed sales teams continue to overcome social distancing obstacles in certain areas of the country by leveraging technology with customers who may prefer to purchase cemetery property and merchandise from the safety of their home or setting up outdoor canopies to discuss pre-planning from a safe distance. Although they may face challenges to meet face-to-face, our funeral directors continue to listen, understand, suggest, and plan important details for honoring a loved one’s life.

~~By capitalizing on our physical and digital presence in our response~~have essentially returned to the same levels we experienced before the COVID-19 ~~crisis, we~~pandemic. We have been able to further leverage our scale. The accelerated use of new technologies required to successfully meet customer needs during COVID-19 has provided many advantages and further differentiates us from our competitors. The adoption of new technology is increasing digital sales leads and producing a more effective and efficient sales model through enhanced use of our customer relationship management platform. In addition, we seeseen an improvement in our relationship with our customers due to a dedicated focus on service excellence and honoring the details of every life we are privileged to serve, as well as enabling a seamless interaction with families through a best-in-class website experience. Our continued focus on service excellence during these trying times allowed continuous improvement in our ratings on social media outlets. Our reviews are a reflection of the ultimate service we provide.

~~As community restrictions have lifted, we have experienced unprecedented growth in our preneed cemetery sales as well as a significant~~ increase in the number of families who desire more comprehensive memorial ~~services.~~services which has driven growth in our preneed sales as well as positively affected our average revenue per funeral service. We view this as ~~further~~ evidence that our

~~FORM 10-Q~~ 25

~~PART I~~

customers continue to value what our team does best, which is helping our client families gain closure and healing through the process of grieving, remembrance, and celebration.

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

Financial Condition, Liquidity, and Capital Resources

Capital Allocation Considerations

We rely on cash flow from operations as a significant source of liquidity. Our cash flow from operating activities provided ~~$297.6~~$332.2 million in the first three months of ~~2021.~~2022. As of March 31, ~~2021,~~2022, we had ~~$521.0~~$736.3 million in ~~excess~~remaining borrowing capacity under our Bank Credit Facility.

Our Bank Credit Facility requires us to maintain certain leverage and interest coverage ratios. As of March 31, ~~2021,~~2022, we were in compliance with all of our debt covenants. Our leverage ratio has recently benefited from the strong earnings associated with the increase in services performed throughout the COVID-19 ~~pandemic,~~pandemic; however, as these impacts subside in future years, we expect leverage to return to our 3.5 to 4.0x target leverage range.

24 Service Corporation International

PART I

Our financial covenant requirements and actual ratios as of March 31, ~~2021~~2022 were as follows:


	Per Credit Agreement	Actual
Leverage ratio	4.75 (Max)	~~2.61~~2.60
Interest coverage ratio	3.00 (Min)	~~8.88~~9.84

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

We believe that our unencumbered cash on hand, future operating cash flows, and the available capacity under our ~~bank credit agreement~~Bank Credit Facility will give us adequate liquidity to meet our short-term needs as well as our long-term financial obligations. Due to cash balances residing in Canada and minimum operating cash requirements, a portion of our cash on hand is encumbered.

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

Investing in Acquisitions and Building New Funeral Service and Cemetery Locations. We manage our footprint by focusing on strategic acquisitions and building new funeral service locations where the expected returns are attractive and exceed our weighted average cost of capital by a meaningful margin. We target businesses with favorable customer dynamics and/or where we can achieve additional economies of scale. We continue to pursue strategic acquisitions and build new funeral service locations in areas that provide us with the potential for scale.

~~Paying Dividends.~~Managing Debt. We may seek to make open market debt repurchases when it is opportunistic to do so relative to other capital allocation opportunities and 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 are available to substantially reduce our long-term debt maturities should we choose to do so.

Return Excess Cash to Shareholders. Absent strategic acquisition or new opportunities, we intend to return excess cash to shareholders. Our quarterly dividend rate has steadily grown from $0.025 per common share in 2005 to ~~$0.21~~$0.25 per common share in ~~2021.~~2022. We target a payout ratio of 30% to 40% of ~~after-tax~~after tax earnings excluding special items and intend to grow our cash dividend commensurate with the growth in our business. While we intend to pay regular quarterly cash dividends for the foreseeable future, all future dividends are subject to limitations in our debt covenants and final determination by our Board of Directors each quarter upon review of our financial performance.

~~Repurchasing Shares.~~ Absent opportunities for strategic acquisitions, we expect to continue to repurchase shares of our common stock in the open market or through privately negotiated transactions, subject to market conditions, debt covenants, and normal trading restrictions. There can be no assurance that we will buy our common stock under our repurchase program in the future.

During the three months ended March 31, 2021, we repurchased 2,141,798 shares of common stock at an aggregate cost of $106.2 million, which is an average cost per share of $49.58. After these repurchases, the remaining dollar value of shares authorized to be purchased under the share repurchase program was $126.8 million at March 31, 2021.

Subsequent to March 31, 2021, we repurchased 695,722 shares for $36.2 million at an average cost per share of $52.03. After these repurchases, the remaining dollar value of shares authorized to be purchased under the share repurchase program is $90.6 million.

~~Managing Debt.~~ We will seek to make open market debt repurchases when it is opportunistic to do so relative to other capital deployment opportunities and 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 are available to substantially reduce our long-term debt maturities should we choose to do so.

26 ~~Service Corporation International~~

~~PART I~~

Cash Flow

We believe our ability to generate strong operating cash flow is one of our fundamental financial strengths and provides us with substantial flexibility in meeting operating and investing needs.

Operating Activities

Net cash provided by operating activities was ~~$297.6~~$332.2 million and ~~$180.0~~$297.6 million for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. Cash flow from operations increased ~~$117.6~~$34.6 million for the three months ended March 31, ~~2021~~2022 versus the same period in ~~2020.~~2021. The ~~2021~~2022 increase over ~~2020~~2021 comprises:

•a ~~$231.9~~$62.4 million increase in cash receipts from customers,

•a $9.5 million increase in General Agency (GA) revenue and other receipts,

•a $9.5 million decrease in cash tax payments, and

•a ~~$8.2~~$2.4 million decrease in ~~vendor and other~~cash interest payments,

•a $2.0 million decrease in net trust withdrawals partially offset by

•a ~~$80.9~~$44.3 million increase in employee compensation payments

•~~a $16.7 million increase in net trust deposits,~~

•~~a $11.7 million increase in cash tax payments,~~

•~~a $10.1 million increase in cash interest payments,~~ and

•a ~~$3.1~~$6.9 million ~~decrease~~increase in ~~General Agency (GA)~~vendor and other ~~receipts.~~payments.

Investing Activities

Cash flows from investing activities used ~~$45.0~~$55.6 million and ~~$69.7~~$45.0 million for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~$24.7~~$10.6 million ~~decreased~~increased outflow from ~~2021~~2022 over ~~2020~~2021 is primarily due to the following:

•a ~~$25.2~~$14.5 million ~~decrease~~increase in ~~cash spent on business acquisitions,~~capital expenditures,

•a ~~$10.0~~$1.6 million ~~decrease in capital expenditures, and~~

•~~a $0.2 million decrease~~increase in payments for Company-owned life insurance policies, net of proceeds, ~~partially offset by~~and

•a ~~$7.3~~$1.1 million decrease in cash receipts from divestitures and asset sales, ~~and~~partially offset by

•a ~~$3.4~~$5.4 million ~~increase~~decrease in cash spent on real estate acquisitions and

FORM 10-Q 25

PART I

•a $1.2 million decrease in cash spent on business acquisitions.

Financing Activities

Financing activities used ~~$243.0~~$251.7 million for the three months ended March 31, ~~2021~~2022 compared to using ~~$110.1~~$243.0 million for the same period in ~~2020.~~2021. The ~~$132.9~~$8.7 million ~~higher~~increased outflow from ~~2021~~2022 over ~~2020~~2021 is primarily due ~~to:~~to the following:

•a ~~$126.5~~$150.2 million increase in ~~debt payments, net~~purchase of ~~proceeds,~~Company common stock,

•a ~~$12.8 million decrease in proceeds from exercises of stock options,~~

•~~a $9.5~~$4.6 million change in bank overdrafts and ~~acquisition-related financing,~~other, and

•a ~~$1.1~~$4.4 million increase in payments of dividends, partially offset by

•a ~~$17.0~~$152.5 million increase in debt proceeds, net of repayments and

•a $2.0 million decrease in ~~purchase~~proceeds from exercises of ~~Company common stock.~~stock options.

~~FORM 10-Q~~ 27

~~PART I~~

Financial Assurances

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


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(In millions)					(In millions)
Preneed funeral	Preneed funeral	$	89.0	$	94.4	Preneed funeral	$	87.7	$	89.2
Preneed cemetery:	Preneed cemetery:					Preneed cemetery:
Merchandise and services	Merchandise and services	147.0		149.4		Merchandise and services	146.7		147.0
Pre-construction	Pre-construction	27.8		24.2		Pre-construction	27.3		24.8
Bonds supporting preneed funeral and cemetery obligations	Bonds supporting preneed funeral and cemetery obligations	263.8		268.0		Bonds supporting preneed funeral and cemetery obligations	261.7		261.0
Bonds supporting preneed business permits	Bonds supporting preneed business permits	5.6		5.5		Bonds supporting preneed business permits	8.1		7.0
Other bonds	Other bonds	20.3		20.7		Other bonds	21.2		20.4
Total surety bonds outstanding	Total surety bonds outstanding	$	289.7	$	294.2	Total surety bonds outstanding	$	291.0	$	288.4

When selling preneed contracts, we may post surety bonds where allowed by state law. We post the surety bonds in lieu of trusting a certain amount of funds received from the customer. The amount of the bond posted is generally determined by the total amount of the preneed contract that would otherwise be required to be trusted, in accordance with applicable state law.

Surety bond premiums are paid annually and the bonds are automatically renewable until maturity of the underlying preneed contracts, unless we are given prior notice of cancellation. Except for cemetery pre-construction bonds (which are irrevocable), the surety companies generally have the right to cancel the surety bonds at any time with appropriate notice. In the event a surety company were to cancel the surety bond, we are required to obtain replacement surety assurance from another surety company or fund a trust for an amount generally less than the posted bond amount. Management does not expect that we will be required to fund material future amounts related to these surety bonds due to a lack of surety capacity or surety company non-performance.

Preneed Activities and Backlog of Contracts

In addition to selling our products and services to client families at the time of need, we enter into price-guaranteed preneed contracts, which provide for future funeral or cemetery merchandise and services. Because preneed funeral and cemetery merchandise or services will generally not be provided until sometime in the future, most states and provinces require that all or a portion of the funds collected from customers on preneed contracts be deposited into merchandise and service trusts until the merchandise is delivered or the service is performed. In certain situations, as described above, where permitted by state or provincial laws, we may post a surety bond as financial assurance for a certain amount of the preneed contract in lieu of placing funds into trust accounts. Alternatively, we may sell a life insurance or annuity policy from third-party insurance companies.

Insurance-Funded Preneed ~~Contracts:~~Contracts

Where permitted by state or provincial law, we may sell a life insurance or annuity policy from third-party insurance companies, for which we earn a commission as general sales agent for the insurance company. These general agency commissions (GA revenue) are based on a percentage per contract sold and are recognized as funeral revenue when the

26 Service Corporation International

PART I

insurance purchase transaction between the preneed purchaser and third-party insurance provider is ~~completed.~~complete. All selling costs incurred pursuant to the sale of insurance-funded preneed contracts are expensed as incurred. We do not reflect the unfulfilled insurance-funded preneed contract amounts in our Consolidated Balance Sheet. The proceeds of the life insurance policies or annuity contracts will be reflected in funeral revenue as we perform these funerals.

28 ~~Service Corporation International~~

~~PART I~~

The table below details our results of insurance-funded preneed production and maturities.


		Three months ended March 31,							Three months ended March 31,
				2021		2020					2022		2021
			(Dollars in millions)							(Dollars in millions)
Preneed insurance-funded:	Preneed insurance-funded:							Preneed insurance-funded:
Sales production(1)	Sales production(1)			$	133.3	$	125.0	Sales production(1)			$	164.7	$	133.3
Sales production (number of contracts) (1)	Sales production (number of contracts) (1)			23,789		22,095		Sales production (number of contracts) (1)			26,904		23,789
General agency revenue	General agency revenue			$	34.1	$	32.4	General agency revenue			$	43.0	$	34.1
Maturities	Maturities			$	111.3	$	93.8	Maturities			$	110.4	$	111.3
Maturities (number of contracts)	Maturities (number of contracts)			19,041		15,919		Maturities (number of contracts)			18,152		19,041

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

Trust-Funded Preneed ~~Contracts:~~Contracts

The funds collected from customers and required by state or provincial law are deposited into trusts. We retain any funds above the amounts required to be deposited into trust accounts and use them for working capital purposes, generally to offset the selling and administrative costs of our preneed programs. Although this represents cash flow to us, the associated revenues are deferred until the merchandise is delivered or services are performed (typically at maturity). The funds in trust are then invested by professional money managers with oversight by independent trustees in accordance with state and provincial laws.

The tables below detail our results of preneed production and maturities, excluding insurance contracts:


	Three months ended March 31,
		2022		2021
	(Dollars in millions)
Funeral:
Preneed trust-funded (including bonded):
Sales production		$	131.0	$	117.1
Sales production (number of contracts)		33,787		31,729
Maturities		$	96.9	$	90.6
Maturities (number of contracts)		22,840		22,959
Cemetery:
Sales production:
Preneed		$	362.2	$	324.2
Atneed		133.0		130.1
Total sales production		$	495.2	$	454.3
Sales production deferred to backlog:
Preneed		$	182.7	$	124.4
Atneed		91.8		89.2
Total sales production deferred to backlog		$	274.5	$	213.6
Revenue recognized from backlog:
Preneed		$	103.0	$	85.1
Atneed		81.0		82.2
Total revenue recognized from backlog		$	184.0	$	167.3

Three months ended March 31,
2021 2020
(Dollars in millions)
Funeral:
Preneed trust-funded (including bonded):
Sales production $ 117.1 $ 89.2
Sales production (number of contracts) 31,729 23,179
Maturities $ 90.6 $ 78.4
Maturities (number of contracts) 22,959 19,591
Cemetery:
Sales production:
Preneed $ 324.2 $ 194.1
Atneed 130.1 84.6
Total sales production $ 454.3 $ 278.7
Sales production deferred to backlog:
Preneed $ 124.4 $ 94.6
Atneed 89.2 62.3
Total sales production deferred to backlog $ 213.6 $ 156.9
Revenue recognized from backlog:
Preneed $ 85.1 $ 65.9
Atneed 82.2 61.8
Total revenue recognized from backlog $ 167.3 $ 127.7

FORM 10-Q 27

PART I

Backlog of Preneed ~~Contracts:~~Contracts

The following table reflects our backlog of trust-funded deferred preneed contract revenue, including amounts related to Deferred receipts held in trust at March 31, ~~2021~~2022 and December 31, ~~2020.~~2021. Additionally, the table reflects our backlog of unfulfilled insurance-funded contracts (which are not included in our Consolidated Balance Sheet) at March 31, ~~2021~~2022 and December 31, ~~2020.~~2021. The backlog amounts presented include amounts due from customers for undelivered performance obligations on cancelable preneed contracts to arrive at our total backlog of deferred revenue. The table does not include the backlog associated with businesses that are held for sale.

~~FORM 10-Q~~ 29

~~PART I~~

The table also reflects our preneed receivables and trust investments associated with the backlog of deferred preneed contract revenue, including the amounts due from customers for undelivered performance obligations on cancelable preneed contracts. We believe that the table below is meaningful because it sets forth the aggregate amount of future revenue we expect to recognize as a result of preneed sales, as well as the amount of funds associated with this revenue. Because the future revenue exceeds the assets, future revenue will exceed the cash distributions actually received from the associated trusts and future collections from the customer.


		March 31, 2021				December 31, 2020					March 31, 2022				December 31, 2021
		Fair Value		Cost		Fair Value		Cost			Fair Value		Cost		Fair Value		Cost
		(In billions)									(In billions)
Deferred revenue, net	Deferred revenue, net	$	1.50	$	1.50	$	1.49	$	1.49	Deferred revenue, net	$	1.57	$	1.57	$	1.53	$	1.53
Amounts due from customers for unfulfilled performance obligations on cancelable preneed contracts	Amounts due from customers for unfulfilled performance obligations on cancelable preneed contracts	0.65		0.65		0.64		0.64		Amounts due from customers for unfulfilled performance obligations on cancelable preneed contracts	0.76		0.76		0.72		0.72
Deferred receipts held in trust	Deferred receipts held in trust	4.42		3.72		4.27		3.66		Deferred receipts held in trust	4.57		4.01		4.77		3.93
Allowance for cancellation on trust investments	Allowance for cancellation on trust investments	(0.30)		(0.25)		(0.29)		(0.25)		Allowance for cancellation on trust investments	(0.32)		(0.28)		(0.33)		(0.27)
Backlog of trust-funded deferred revenue, net of estimated allowance for cancellation	Backlog of trust-funded deferred revenue, net of estimated allowance for cancellation	6.27		5.62		6.11		5.54		Backlog of trust-funded deferred revenue, net of estimated allowance for cancellation	6.58		6.06		6.69		5.91
Backlog of insurance-funded revenue (1)	Backlog of insurance-funded revenue (1)	6.62		6.62		6.58		6.58		Backlog of insurance-funded revenue (1)	7.06		7.06		6.97		6.97
Total backlog of deferred revenue	Total backlog of deferred revenue	$	12.89	$	12.24	$	12.69	$	12.12	Total backlog of deferred revenue	$	13.64	$	13.12	$	13.66	$	12.88

Preneed receivables, net and trust investments	Preneed receivables, net and trust investments	$	5.55	$	4.85	$	5.35	$	4.73	Preneed receivables, net and trust investments	$	5.87	$	5.31	$	6.02	$	5.18
Amounts due from customers for unfulfilled performance obligations on cancelable preneed contracts	Amounts due from customers for unfulfilled performance obligations on cancelable preneed contracts	0.65		0.65		0.64		0.64		Amounts due from customers for unfulfilled performance obligations on cancelable preneed contracts	0.76		0.76		0.71		0.71
Allowance for cancellation on trust investments	Allowance for cancellation on trust investments	(0.30)		(0.25)		(0.29)		(0.25)		Allowance for cancellation on trust investments	(0.32)		(0.28)		(0.33)		(0.27)
Assets associated with backlog of trust-funded deferred revenue, net of estimated allowance for cancellation	Assets associated with backlog of trust-funded deferred revenue, net of estimated allowance for cancellation	5.90		5.25		5.70		5.12		Assets associated with backlog of trust-funded deferred revenue, net of estimated allowance for cancellation	6.31		5.79		6.40		5.62
Insurance policies associated with insurance-funded deferred revenue (1)	Insurance policies associated with insurance-funded deferred revenue (1)	6.62		6.62		6.58		6.58		Insurance policies associated with insurance-funded deferred revenue (1)	7.06		7.06		6.97		6.97
Total assets associated with backlog of preneed revenue	Total assets associated with backlog of preneed revenue	$	12.52	$	11.87	$	12.28	$	11.70	Total assets associated with backlog of preneed revenue	$	13.37	$	12.85	$	13.37	$	12.59

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

The fair value of our trust investments was based on a combination of quoted market prices, observable inputs such as interest rates or yield curves, and appraisals. As of March 31, ~~2021,~~2022, the difference between the backlog and asset market amounts represents $0.20 billion related to contracts for which we have posted surety bonds as financial assurance in lieu of trusting, ~~$0.01~~$1.20 billion collected from customers that were not required to be deposited into trusts, and ~~$0.16~~$0.17 billion in allowable cash distributions from trust ~~assets.~~assets partially offset by $1.30 billion in amounts due on delivered property and merchandise. As of March 31, ~~2021,~~2022, the fair value of the total backlog comprised ~~$3.62~~$3.91 billion related to cemetery contracts and ~~$9.27~~$9.73 billion related to funeral contracts. As of March 31, ~~2021,~~2022, the fair value of the assets associated with the backlog of trust-funded deferred revenue comprised ~~$3.48~~$3.83 billion related to cemetery contracts and ~~$2.42~~$2.48 billion related to funeral contracts. As of March 31, ~~2021,~~2022, the backlog of insurance-funded contracts of ~~$6.62~~$7.06 billion was equal to the proceeds we expect to receive from the associated insurance ~~policies.~~policies when the corresponding contract is serviced.

28 Service Corporation International

PART I

Trust Investments

In addition to selling our products and services to client families at the time of need, we enter into price-guaranteed preneed funeral and cemetery contracts, which provide for future funeral or cemetery merchandise and services. Since preneed funeral and cemetery merchandise or services will generally not be provided until sometime in the future, most states and provinces require that all or a portion of the funds collected from customers on preneed funeral and cemetery contracts be paid into trusts and/or 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 and services in the future at 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 generally remains in the trust in perpetuity and the earnings or elected distributions are withdrawn as allowed to defray the expense to maintain the cemetery property. While many states require that net capital gains or losses be retained and added to the corpus, certain states allow the net realized capital gains and losses to be included in the earnings that are distributed. Additionally, some states allow a total return distribution that may contain elements of income, capital appreciation, and principal.

Independent trustees manage and invest the majority of the funds deposited into the funeral and cemetery merchandise and service trusts as well as the cemetery perpetual care trusts. The majority of the trustees are selected based on their respective geographic footprint and qualifications per state and provincial regulations. Most of the trustees engage the same

30 ~~Service Corporation International~~

~~PART I~~

independent investment managers. These trustees, with input from SCI's wholly-owned registered investment advisor, establish an investment policy that serves as an operating document to guide the investment activities of the trusts including asset allocation and manager selection. The investments are also governed by state and provincial guidelines. All of the trusts seek to control risk and volatility through a combination of asset classes, investment styles, and a diverse mix of investment managers.

Asset allocation is based on the liability structure of each funeral, cemetery, and perpetual care trust. Based on the various criteria set forth in the investment policy, the investment advisor recommends investment managers to the trustees. The primary investment objectives for the funeral and cemetery merchandise and service trusts include 1) preserving capital within acceptable levels of volatility and risk and 2) achieving growth of principal over time sufficient to preserve and increase the purchasing power of the assets. Preneed funeral and cemetery contracts generally take several years to mature; therefore, the funds associated with these contracts are often invested through several market cycles.

Where allowed by state and provincial regulations, the cemetery perpetual care trusts’ primary investment objectives are growth-oriented to provide for a fixed distribution rate from the trusts’ ~~assets, similar to university endowments.~~assets. Where such distributions are limited to ordinary income, the cemetery perpetual care trusts’ investment objectives emphasize providing a steady stream of current investment income with some capital appreciation. Both types of distributions are used to provide for the current and future maintenance and beautification of the cemetery properties.

As of March 31, ~~2021,~~2022, approximately ~~89%~~94% of our trusts were under the control and custody of ~~three~~four large financial institutions. The U.S. trustees primarily use four managed limited liability companies (LLCs), one for each merchandise and service trust type and two for the cemetery perpetual care trust type, each with an independent trustee as custodian. Each financial institution acting as trustee manages its allocation of trust assets in accordance with the investment policy through the purchase of the appropriate LLCs' units. For those accounts not eligible for participation in the LLCs or where a particular state's regulations contain other 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. These alternative investments are held in vehicles 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 alternative investment LLCs.

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 one of four managed LLCs, matched to their 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, some of 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 U.S. equities, non-U.S. equities, corporate bonds, government bonds, high yield bonds, and commodities, all of which are governed by guidelines outlined in their individual prospectuses.

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

FORM 10-Q 29

PART I

Asset Classes

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

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

Equity investments have historically provided long-term capital appreciation in excess of inflation. The trusts have direct investments in individual equity securities primarily in domestic equity portfolios that include large, mid, and small capitalization companies of different investment styles (i.e., growth and value). The majority of the equity allocation is managed by institutional investment managers that specialize in an objective-specific area of expertise. Our equity securities are exposed to market risk; however, we believe these securities are well-diversified. As of March 31, ~~2021,~~2022, the largest single equity position represented less than 1% of the total securities portfolio.

~~Private equity fund~~Alternative investments serve to provide high rates of return with reduced volatility and lower ~~correlation.~~correlation to publicly-traded securities. These investments are typically ~~long~~longer term in ~~duration. These investments~~duration and are diversified by strategy, sector, manager, geography and vintage year. The investments consist of numerous limited partnerships, ~~including but not limited to~~invested in private equity, private market real estate,

~~FORM 10-Q~~ 31

~~PART I~~

energy and natural resources, infrastructure, transportation, and private debt including both distressed debt and mezzanine financing. The trustees that have oversight of their respective alternative LLCs work closely with the investment advisor in making all investment decisions.

Trust Performance

During the three months ended March 31, ~~2021,~~2022, the Standard and Poor’s 500 Index ~~increased 6.2%~~decreased 4.6% and the Barclay’s Aggregate Index decreased ~~3.4%~~5.9%. This compares to ~~the~~ SCI trusts that ~~increased 4.8%~~decreased 4.1% during the same period. SCI trusts have a diversified allocation of approximately ~~61%~~59% equities, 28% fixed income securities, 7%9% alternative and other investments with the remaining 4% available in cash.

Recognized trust fund income (realized and unrealized) related to our preneed trust investments was $45.9 million and $45.0 million for the three months ended March 31, 2022 and 2021, respectively. Recognized trust fund income (realized and unrealized) related to our cemetery perpetual care trust investments was $24.4 million and $20.8 million for the three months ended March 31, 2022 and 2021, respectively.

SCI, the trustees, and the investment advisor monitor the capital markets and the trusts on an on-going 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 March 31, ~~2021~~2022 and ~~2020~~2021

~~Three Months Ended March 31, 2021 and 2020~~

Management Summary

In the first three months of ~~2021,~~2022, we reported consolidated net income attributable to common stockholders of ~~$228.9~~$219.5 million ($~~1.33~~1.34 per diluted share) compared to net income attributable to common stockholders for the same period in ~~2020~~2021 of ~~$81.9~~$228.9 million ($~~0.45~~1.33 per diluted share). These results were impacted by certain ~~significant~~ items including:

Three months ended March 31,
2021 2020
(In millions)
Pre-tax gains on divestitures and impairment charges, net $ 1.3 $ 4.5
Pre-tax losses on early extinguishment of debt, net $ — $ (0.1)
Tax effect from significant items $ (0.3) $ (1.2)
Change in uncertain tax reserves and other $ — $ 0.2


	Three months ended March 31,
	2022		2021
	(In millions)
Pre-tax gains on divestitures and impairment charges, net	$	0.5	$	1.3






Tax effect from above items	$	(0.6)	$	(0.3)

In addition to the above items, the increase over the prior year ~~can be attributed to higher funeral and cemetery gross profit,~~benefited from fewer shares outstanding and ~~lower interest expense, which was partially offset by higher income taxes.~~an increase in gross profit from recent acquisitions and new builds. Both the funeral and cemetery segments continued to generate impressive performance against a strong prior year quarter.

3230 Service Corporation International

PART I

Funeral Results


		Three months ended March 31,				Three months ended March 31,
		2021		2020				2022		2021
		(Dollars in millions, except average revenue per service)				(Dollars in millions, except average revenue per service)
Consolidated funeral revenue	Consolidated funeral revenue	$	619.4	$	504.9		Consolidated funeral revenue	$	649.1	$	619.4
Less: revenue associated with acquisitions/new construction	Less: revenue associated with acquisitions/new construction	7.3		0.9			Less: revenue associated with acquisitions/new construction	12.9		—
Less: revenue associated with divestitures	Less: revenue associated with divestitures	0.3		1.2			Less: revenue associated with divestitures	0.3		1.2
Comparable(1) funeral revenue	Comparable(1) funeral revenue	611.8		502.8			Comparable(1) funeral revenue	635.9		618.2
Less: comparable recognized preneed revenue	Less: comparable recognized preneed revenue	41.4		32.8			Less: comparable recognized preneed revenue	42.9		41.7
Less: comparable general agency and other revenue	Less: comparable general agency and other revenue	29.6		29.3			Less: comparable general agency and other revenue	36.3		29.8
Adjusted comparable funeral revenue	Adjusted comparable funeral revenue	$	540.8	$	440.7		Adjusted comparable funeral revenue	$	556.7	$	546.7
Comparable services performed	Comparable services performed	105,181		86,063			Comparable services performed	102,530		106,088
Comparable average revenue per service(2)	Comparable average revenue per service(2)	$	5,142	$	5,121		Comparable average revenue per service(2)	$	5,430	$	5,153

Consolidated funeral gross profit	Consolidated funeral gross profit	$	190.7	$	103.6		Consolidated funeral gross profit	$	196.0	$	194.4
Less: gross profit associated with acquisitions/new construction	Less: gross profit associated with acquisitions/new construction	1.9		0.1			Less: gross profit associated with acquisitions/new construction	2.6		—
Less: gross losses associated with divestitures	Less: gross losses associated with divestitures	(0.7)		(0.8)			Less: gross losses associated with divestitures	—		(1.1)
Comparable(1) funeral gross profit	Comparable(1) funeral gross profit	$	189.5	$	104.3		Comparable(1) funeral gross profit	$	193.4	$	195.5

(1) We define comparable (or same store) operations as those funeral locations owned by us for the entire period beginning January 1, ~~2020~~2021 and ending March 31, ~~2021.~~2022.

(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 revenue is preneed sales of merchandise that are delivered at the time of sale, including memorial merchandise and travel protection, net, and excluded from our calculation of comparable average revenue per service because the associated service has not yet been performed.

Funeral Revenue

Consolidated revenue from funeral operations was ~~$619.4~~$649.1 million for the three months ended March 31, ~~2021,~~2022, compared to ~~$504.9~~$619.4 million for the same period in ~~2020.~~2021. This ~~$114.5~~$29.7 million increase is primarily attributable to the ~~$6.4~~$12.9 million ~~increase~~growth in revenue contributed by acquired and newly constructed properties and a ~~$109.0~~$17.7 million increase in comparable revenue as described ~~below.~~below partially offset by the loss of $0.9 million in revenue contributed by properties that have been subsequently divested.

Comparable revenue from funeral operations was ~~$611.8~~$635.9 million for the three months ended March 31, ~~2021~~2022 compared to ~~$502.8~~$618.2 million for the same period in ~~2020.~~2021. This ~~$109.0~~$17.7 million, or ~~21.7%~~2.9%, increase was primarily attributable to an increase in our comparable average revenue per service. Additionally, we experienced a ~~22.2%~~$6.5 million increase in comparable services performed compared to 2020 primarily due to COVID-19 pandemic related deaths. The increase in comparable services performed comprised a 21.7% increase in services performed by our funeral service locationsgeneral agency and other revenue and a ~~25.7% increase in cremations performed by our non-funeral home channel. Additionally, we experienced an $8.6~~$1.2 million increase in comparable recognized preneed revenue ~~driven by a 43.4% increase in~~as the growth from both resulted from higher comparable preneed ~~production through our non-funeral home channel.~~funeral sales production. Comparable services performed declined 3.4% during the three months ended March 31, 2022 compared to the same period in 2021, which was heavily impacted by COVID-19 mortality.

Comparable average revenue per funeral service ~~increased 0.4%~~grew $277, or 5.4%, for the three months ended March 31, ~~2021~~2022 compared to the same period in ~~2020.~~2021. This average revenue growth was primarily attributable to our customers desire for more comprehensive services including items such catering or flowers. Our total comparable cremation rate increased 30130 basis points to ~~58.5% in~~59.8% for the ~~first~~ three months ~~of 2021.~~ended March 31, 2022.

Funeral Gross Profit

Consolidated funeral gross profit increased ~~$87.1~~$1.6 million, or ~~84.1%~~0.8%, in the first three months of ~~2021~~2022 compared to ~~2020.~~2021. This ~~increase~~growth is primarily attributable to ~~increases in comparable funeral gross profit of $85.2 million, or 81.7%, as well as~~ a ~~$1.8~~$2.6 million increase in gross profit contributed by acquired and newly constructed properties. Comparable funeral gross profit ~~increased $85.2~~decreased $2.1 million to ~~$189.5~~$193.4 million and the comparable gross profit percentage ~~increased 1,030~~decreased 120 basis points to ~~31.0%~~30.4%. ~~This increase~~Funeral margins were impacted by higher cost in ~~comparable funeral gross profit was primarily due~~the current quarter relative to the ~~comparable revenue increases described above~~prior year as staffing and aservice levels normalized driven by more ~~efficient cost structure.~~comprehensive services compared to the prior year first quarter. Increases in incentive compensation also put downward pressure on funeral margins.

FORM 10-Q 3331

PART I

Cemetery Results


		Three months ended March 31,				Three months ended March 31,
		2021		2020				2022		2021
		(In millions)				(In millions)
Consolidated cemetery revenue	Consolidated cemetery revenue	$	458.5	$	298.1		Consolidated cemetery revenue	$	463.3	$	458.5
Less: revenue associated with acquisitions/new construction							Less: revenue associated with acquisitions/new construction	3.9		—

Less: revenue associated with divestitures		—		0.1
Comparable(1) cemetery revenue	Comparable(1) cemetery revenue	$	458.5	$	298.0		Comparable(1) cemetery revenue	$	459.4	$	458.5

Consolidated cemetery gross profit	Consolidated cemetery gross profit	$	186.8	$	75.5		Consolidated cemetery gross profit	$	180.9	$	188.1
Less: gross losses associated with acquisitions/new construction							Less: gross losses associated with acquisitions/new construction	2.4		—

Less: gross profit associated with divestitures		0.1		—
Comparable(1) cemetery gross profit	Comparable(1) cemetery gross profit	$	186.7	$	75.5		Comparable(1) cemetery gross profit	$	178.5	$	188.1

(1) We define comparable (or same store) operations as those cemetery locations owned by us for the entire period beginning January 1, ~~2020~~2021 and ending March 31, ~~2021.~~2022.

Cemetery Revenue

Consolidated revenue from our cemetery operations ~~increased $160.4~~grew $4.8 million, or ~~53.8%~~1.0%, for the three months ended March 31, ~~2021~~2022 compared to the same period in ~~2020~~2021 primarily due to ~~an increase in comparable cemetery revenue. The $160.5 million, or 53.9%, increase in comparable cemetery revenue was primarily attributable to~~ a ~~$119.4~~$3.9 million increase in revenue contributed by newly constructed and acquired properties. Additionally, comparable ~~recognized preneed~~other revenue ~~as a result of strong comparable preneed cemetery property sales production for the period as well as a $39.5~~grew $3.5 million, or ~~46.4%~~11.7%, ~~increase in comparable atneed revenue driven by an increase in services performed.~~primarily from higher endowment care trust fund income due to higher capital gains and other distributions.

Cemetery Gross Profit

Consolidated cemetery gross profit ~~increased $111.3~~decreased $7.2 million, or ~~147.4%~~3.8%, in the three months ended March 31, ~~2021~~2022 compared to the same period in ~~2020,~~2021, which is primarily attributable to the ~~increase~~decrease in comparable cemetery gross profit of ~~$111.2~~$9.6 million, or ~~147.3%~~5.1%. Comparable cemetery gross profit ~~increased $111.2~~decreased $9.6 million to ~~$186.7~~$178.5 million, and the gross profit percentage ~~increased 1,540~~decreased 210 basis points to ~~40.7%,~~38.9%. Selling compensation recognized during the quarter increased as a result of the 10.9% of growth in preneed cemetery sales production, in which ~~was primarily driven by~~a significant amount will be recognized as revenue in future 2022 quarters. We also experienced modest inflationary cost increases and higher incentive compensation costs when compared to the ~~increase in the comparable revenue described above combined with a more efficient cost structure.~~prior year quarter.

Other Financial Statement Items

Corporate General and Administrative Expenses

Corporate general and administrative expenses~~increased $4.9~~remained flat at $41.7 million ~~to $36.7 million for~~in the first quarter of ~~2021. This was primarily due~~2022 compared to ~~higher incentive compensation.~~the first quarter of 2021.

Gains on Divestitures and Impairment Charges, Net

We recognized a ~~$1.3~~$0.5 million net pre-tax gain on asset divestitures and impairments ~~net~~ in the ~~first quarter of 2021~~three months ended March 31, 2022 compared to a ~~$4.5~~$1.3 million pre-tax gain on asset divestitures in the ~~first quarter of 2020~~three months ended March 31, 2021 associated with the disposition of non-strategic funeral and cemetery locations in the United States and Canada. ~~The first quarter of 2020 also included $3.1 million in impairment charges primarily related to certain tradenames.~~

Interest Expense

Interest expense ~~decreased $8.5~~increased $3.2 million to ~~$35.8~~$39.0 million for three months ended March 31, ~~2021~~2022 primarily due to the issuance of fixed rate bonds in 2021 partially offset by lower ~~interest rates~~balances on our floating rate ~~debt and other debt refinancing activities.~~debt.

Provision for Income Taxes

Our effective tax rate was ~~25.3%~~26.0% and ~~22.7%~~25.3% for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. The higher effective tax rate for the three months ended March 31, ~~2021~~2022 was primarily due to a decrease in the ~~lower excess~~cash value of certain life insurance policies due to negative returns in the financial markets, which lowered a tax ~~benefits recognized on~~benefit for us in the ~~settlement of employee share-based awards.~~quarter.

Weighted Average Shares

The diluted weighted average number of shares outstanding was ~~172.4~~163.8 million for the three months ended March 31, ~~2021~~2022 compared to ~~183.6~~172.4 million for the same period in ~~2020.~~2021. The decrease primarily reflects the impact of shares repurchased under our share repurchase program.

3432 Service Corporation International

PART I

Critical Accounting Policies, Recent Accounting Pronouncements, and Accounting Changes

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. Although we base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, actual results may differ from the estimates on which our financial statements are prepared at any given point of time. Changes in these estimates could materially affect our consolidated financial position, consolidated results of operations, or cash flows. Significant items that are subject to such estimates and assumptions include revenue and expense accruals, fair value of merchandise and perpetual care trust assets, and the allocation of purchase price to the fair value of assets acquired. Our critical accounting policies have not significantly changed since December 31, 2021 and are disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Recent Accounting Pronouncements and Accounting Changes

For discussion of recent accounting pronouncements and accounting changes, see Part I, Item 1. Financial Statements, Note 2 of this Form 10-Q.

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”,~~“believe,” “estimate,” “project,” “expect,” “anticipate,” “predict,” or ~~“predict”~~other similar words that convey the uncertainty of future events or outcomes. The absence of these words, however, does not mean that the statements are not forward-looking. These statements are based on assumptions that we believe are reasonable; however, many important factors could cause our actual consolidated results in the future to differ materially from the forward-looking statements made herein and in any other documents or oral presentations made by, or on behalf of, the Company. These factors are discussed below. We assume no obligation and make no undertaking to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by the Company, whether as a result of new information, future events, or otherwise.

•~~Continued effects from the COVID-19 pandemic could have material adverse consequences for our business and results of operations.~~

•Our affiliated trust funds own investments in securities, which are affected by market conditions that are beyond our control.

•We may be required to replenish our affiliated funeral and cemetery trust funds to meet minimum funding requirements, which would have a negative effect on our earnings and cash flow.

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

•Our results may be adversely affected by significant weather events, natural disasters, catastrophic events or public health crises.

•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 activities, we may be required to make material cash payments to fund certain trust funds.

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

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

•Unfavorable publicity could affect our reputation and business.

•We use a combination of insurance, self-insurance, and large deductibles in managing our exposure to certain inherent risks; therefore, we could be exposed to unexpected costs that could negatively affect our financial performance.

•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, financial condition, or cash flow.

•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.

FORM 10-Q 33

PART I

•A failure of a key information technology system or process could disrupt and adversely affect our business.

~~FORM 10-Q~~ 35

~~PART I~~

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

•The funeral and cemetery industry is competitive.

•If the number of deaths in our markets declines, our cash flows and revenue may decrease. Changes in the number of deaths are not predictable from market to market or over the short term.

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

•The continuing upward trend in the number of cremations performed in North America could result in lower revenue, operating profit, and cash flows.

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

•Risks associated with our supply chain could materially adversely affect our financial performance.

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

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

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

•The application of unclaimed property laws by certain states to our preneed funeral and cemetery backlog could have a material adverse impact on our liquidity, cash flows, and financial results.

•Changes in taxation as well as the inherent difficulty in quantifying potential tax effects of business decisions could have a material adverse effect on the results of our operations, financial condition, or cash flows.

For further information on these and other risks and uncertainties, see our Securities and Exchange Commission filings, including our ~~2020~~2021 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 and make no undertaking 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

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. The term “market” risk refers to the risk of gains or losses arising from changes in interest rates and prices of marketable securities. The disclosures are not meant to be precise indicators of expected future gains or losses, but rather indicators of reasonably possible gains or losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures. All of our market risk-sensitive instruments were entered into for purposes other than trading.

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 March 31, ~~2021~~2022 are presented in Part I, Item 1. Financial Statements, Note 3 of this Form 10-Q. Also, see Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations "Financial Condition, Liquidity and Capital Resources" section for discussion of trust investments.

3634 Service Corporation International

PART I

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of March 31, ~~2021,~~2022, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)). Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the Securities and Exchange Commission (SEC) reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time period specified by the SEC’s rules and forms and that such information is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Based on our evaluation, our CEO and CFO have concluded that our disclosure controls and procedures are effective as of March 31, ~~2021~~2022 and that the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our consolidated financial condition, consolidated results of operations, and cash flows for the periods presented in conformity with US GAAP.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

FORM 10-Q 3735


PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Information regarding legal proceedings is set forth in Part I, Item 1. Financial Statements, Note 9 of this Form 10-Q, which information is hereby incorporated by reference herein.

Item 1A. Risk Factors

There have been no material changes in our Risk Factors as set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table summarizes our share repurchases during the three months ended March 31, ~~2021:~~2022:

Period Total Number of
Shares Purchased Average Price
Paid per Share Total Number
of Shares
Purchased as
Part of Publicly
Announced Programs Approximate Dollar Value of
Shares That
May Yet be
Purchased Under the Program
January 1, 2021 — January 31, 2021 (1)
559,219 $ 50.40 539,599 $ 203,847,231
February 1, 2021 — February 28, 2021 549,712 $ 50.73 549,712 $ 175,961,945
March 1, 2021 — March 31, 2021 (2)
1,032,867 $ 48.59 1,012,698 $ 126,758,522
2,141,798 2,102,009


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Approximate Dollar Value of Shares That May Yet be Purchased Under the Program
January 1, 2022 — January 31, 2022 (1)	999,479	$	65.15	993,266	$	430,255,869
February 1, 2022 — February 28, 2022	1,443,593	$	60.93	1,443,593	$	342,291,059
March 1, 2022 — March 31, 2022 (2)	1,661,162	$	62.18	1,640,035	$	240,310,045
	4,104,234			4,076,894

(1) ~~19,620~~6,213 shares were purchased in January ~~2021~~2022 in connection with the surrender of shares by associates to satisfy certain tax withholding obligations under compensation plans. These repurchases were not part of our publicly announced program and do not affect our share repurchase program.

(2) ~~20,169~~21,127 shares were purchased in March ~~2021~~2022 in connection with the surrender of shares by associates to satisfy certain tax withholding obligations under compensation plans. These repurchases were not part of our publicly announced program and do not affect our share repurchase program.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

No other information.

3836 Service Corporation International

PART II

Item 6. Exhibits


Exhibit Number		Description
3.1	—	Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to Registration Statement No. 333-10867 on Form S-3).
3.2	—	Articles of Amendment to Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to Form 10-Q for the fiscal quarter ended September 30, 1996).
3.3	—	Certificate of Amendment to Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to Form 8-K filed May 25, 2018).
3.4	—	Statement of Resolution Establishing Series of Shares of Series D Junior Participating Preferred Stock, dated July 27, 1998 (Incorporated by reference to Exhibit 3.2 to Form 10-Q for the fiscal quarter ended June 30, 1998).
3.5	—	Bylaws of the Company. (Incorporated by reference to Exhibit 3.4 to Form 8-K filed May 25, 2018).
4.1	—	Senior Indenture dated as of February 1, 1993 by and between the Company and The Bank of New York, as trustee (Incorporated by reference as Exhibit 4.1 to Form S-4 filed September 2, 2004 (File No. 333-118763)).
4.2	—	Agreement of Resignation, Appointment of Acceptance, dated December 12, 2005, among the Company, The Bank of New York and The Bank of New York Trust Company, N.A., appointing a successor trustee for the Senior Indenture dated as of February 1, 1993 (Incorporated by reference to Exhibit 4.1 to Form 10-Q for the fiscal quarter ended June 30, 2005).

10.1	—	Form of Performance Unit Grant Award Agreement.
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 formatted Inline XBRL.
104	—	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

FORM 10-Q 3937

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


May 4, ~~2021~~2022	SERVICE CORPORATION INTERNATIONAL
	By:	/s/ TAMMY MOORE
		Tammy Moore Vice President and Corporate Controller (Principal Accounting Officer)

4038 Service Corporation International