service corporation international（SCI）是一家控股公司，所有运营均由其子公司进行。我们是北美最大的殡葬产品和服务提供商，拥有在美国和加拿大运营的殡葬服务地点和墓地网络。我们的殡葬服务和墓地运营包括殡葬服务地点、墓地、殡葬服务/墓地综合地点、火葬场和其他相关业务，使我们能够满足各种客户需求。我们在有需要时以及预先需求时出售墓地财产和殡葬及墓地商品和服务。我们努力为家庭提供卓越的服务，帮助他们规划生命庆典和个性化的纪念活动。
At September 30, 2024, the payment status of our miscellaneous and notes receivables was as follows:
Past Due
<30 Days
30-90 Days
90-180 Days
>180 Days
Total
Current
Total
(In thousands)
Miscellaneous receivables:
Current
$
—
$
110
$
28
$
2,681
$
2,819
$
29,389
$
32,208
Long-term
—
—
—
—
—
8,607
8,607
Total miscellaneous receivables
$
—
$
110
$
28
$
2,681
$
2,819
$
37,996
$
40,815
Notes receivable
$
—
$
—
$
—
$
1,114
$
1,114
$
9,479
$
10,593
FORM 10-Q 13
PART I
Recently Issued Accounting Standards
Segments
In November 2023, the FASB amended the reportable segment guidance by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment's profit or loss. This new guidance also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The guidance is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with early adoption permitted. This amendment is effective for our fiscal year ending December 31, 2024. We are currently assessing the impact of this guidance on our disclosures. Upon adoption, we will include the required disclosures in our financial statements and related notes.
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, events such 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 was21.1% and 24.5% for the three months ended September 30, 2024 and 2023, respectively. Our effective tax rate was 23.1% and 24.5% for the nine months ended September 30, 2024 and 2023, respectively. The lower effective tax rate for the three and nine months ended September 30, 2024 was primarily due to more excess tax benefits recognized on the settlement of employee share-based awards. The effective tax rates for the three and nine months ended September 30, 2024 were higher than the federal statutory tax rate of 21.0% primarily due to state tax expense, partially offset by excess tax benefits recognized on the settlement of employee share-based awards.
We actively participate in tax credit equity investments for projects eligible to receive renewable energy tax credits. These investments, accounted for under the equity method, are recorded in Deferred charges and other assets, net of reserves on our unaudited Condensed Consolidated Balance Sheet. Upon realization, tax credits associated with these investments are recognized as a reduction of tax expense. This reduction is offset by amortization of the investment in proportion to the tax benefits received during the period under the proportional amortization method. During 2024, we recognized investment tax credits and other tax benefits totaling $10.7 million and amortized the equity investment by $10.7 million to reflect the realization of these benefits. This amortization is reflected within the Provision for income taxes in our unaudited Condensed Consolidated Statement of Operations.
Unrecognized Tax Benefits
As of September 30, 2024, the total amount of our unrecognized tax benefits was $1.3 million and the total amount of our accrued interest was approximately $1.1 million.
During the nine months ended September 30, 2024, we issued or added $1,336.1 million of debt including:
•$800.0 million unsecured 5.75% Senior Notes due October 2032;
•$530.0 million on our Bank Credit Facility due January 2028; and
•$6.1 million in other debt.
Net proceeds from newly issued debt during the nine months ended September 30, 2024 were used to pay down our Bank Credit Facility due January 2028 and for general corporate purposes. These transactions resulted in additional debt issuance costs of $14.1 million.
During the nine months ended September 30, 2023, we issued or added $737.4 million of debt including:
•$284.1 million from certain members of the syndicate of banks in our Term Loan;
•$380.0 million on our Bank Credit Facility due January 2028;
•$44.3 million from certain members of the syndicate of banks in our Bank Credit Facility;
•$10.0 million on our Bank Credit Facility due May 2024; and
•$19.0 million in other debt.
Net proceeds from newly issued debt during the nine months ended September 30, 2023 were used to pay off our Bank Credit Facility due May 2024, our Term Loan due May 2024, and for general corporate purposes. These transactions resulted in additional debt issuance costs of $7.5 million.
Debt Extinguishments and Reductions
During the nine months ended September 30, 2024, we made aggregate debt payments of $1,228.5 million for scheduled and early debt extinguishment payments including:
•$1,210.0 million in aggregate principal of our Bank Credit Facility due January 2028;
•$12.7 million in aggregate principal of our Term Loan due January 2028;
加州人民诉service corporation international，一家德克萨斯公司，SCI Direct， Inc.一家佛罗里达公司，S.E. Acquisition of California, Inc. 一家加利福尼亚公司，又名加利福尼亚北部的海神协会，海神管理公司一家加利福尼亚公司，Trident Society, Inc. 一家加利福尼亚公司和100名被告，案号RG19045103；在亚利桑那县加利福尼亚州地方法院。2019年7月，我们收到加州司法部（“CAAG”）律师事务所的来信，声称在我们的火葬服务合同和火葬商品合同之间分配价格，以及相关预先信托资金分配违反加利福尼亚州商业和专业法典的第7735节，并且这些合同中的条款构成违反加利福尼亚消费者保护法的虚假广告和欺骗性销售行为。2019年11月21日，我们提起诉讼，S.E.加利福尼亚州综合服务公司，一家加利福尼亚公司，又名加利福尼亚北部的海神协会，海神管理公司一家加利福尼亚公司和Trident Society, Inc.诉加州州长哈维尔·贝塞拉，加利福尼亚州第34-2019-00269617案；在萨克拉门托县高等法院寻求确认救济，总体上认为我们在销售预先需求葬礼商品和服务中使用的做法、方法和文档在各方面均符合加利福尼亚法律。2019年12月2日，CAAG提起了以上提到的诉讼，寻求永久禁令不发表虚假言论和进行不公平竞争，将资金置入预先需求信托基金中，支付民事罚款，客户退款，律师费和成本。各方已达成涉案诉讼的和解协议，包括2300万美元的民事罚款，并为特定预先需求合同消费者提供了收到退款的权利。法庭已批准了和解协议，民事罚款已于2024年6月30日支付，并进行了行政索赔程序。索赔期截至2024年10月7日，尽管客户可以在该日期之后申请退款，但我们保留了一项我们认为足以支付与解决方案相关的所有成本的储备金。该和解代表了对有争议的索赔的妥协，并不包含公司、董事会或执行官在诉讼和解中承认任何错误或过失。
A reconciliation of the numerators and denominators of basic and diluted EPS is presented below:
Three months ended September 30,
Nine months ended September 30,
2024
2023
2024
2023
(In thousands, except per share amounts)
Amounts attributable to common stockholders:
Net income — basic and diluted
$
117,827
$
121,971
$
367,294
$
398,922
Weighted average shares:
Weighted average shares — basic
144,706
150,630
145,421
151,654
Stock options
1,452
1,602
1,499
1,842
Restricted share units
65
57
58
58
Weighted average shares — diluted
146,223
152,289
146,978
153,554
Amounts attributable to common stockholders:
Earnings per share:
Basic
$
0.81
$
0.81
$
2.53
$
2.63
Diluted
$
0.81
$
0.80
$
2.50
$
2.60
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 not currently included in the computation of diluted earnings per share are as follows (in shares):
Three months ended September 30,
Nine months ended September 30,
2024
2023
2024
2023
(In thousands)
Antidilutive options
754
891
693
313
26 Service Corporation International
PART II
11. Acquisitions and Divestiture-Related Activities
Acquisitions
We spent $164.2 million and $72.5 million for several business acquisitions during the nine months ended September 30, 2024 and 2023, respectively. This includes $2.3 million of cash acquired. In addition, we acquired $53.3 million and $41.1 million for several real estate acquisitions during the nine months ended September 30, 2024 and 2023, respectively.
In the third quarter of 2024, we acquired a total of 10 funeral homes and 2 cemeteries, including one combination location, for $123.4 million in total cash. This includes two separate acquisitions in major metropolitan markets for $120.6 million in cash.
The primary reasons for the acquisitions and the principal factors that contributed to the recognition of goodwill in these acquisitions were:
•the acquisitions enhance our network footprint, enabling us to serve a number of complementary areas; and
•the acquisitions of the preneed backlog of deferred revenues enhance our long-term stability.
The following table summarizes the fair values of the assets acquired and liabilities assumed in the two separate acquisitions (in thousands):
Other current assets
$
2,735
Cemetery property
1,972
Property and equipment, net
49,931
Preneed receivables, net and trust investments
50,028
Indefinite-lived intangible assets
24,316
Deferred charges and other assets
340
Cemetery perpetual care trust investments
9,223
Goodwill
72,664
Total assets acquired
211,209
Current liabilities
2,631
Deferred revenue and deferred receipts held in trust
60,060
Long-term debt
15,431
Deferred tax liability
2,688
Care trusts' corpus
9,223
Other liabilities
529
Total liabilities assumed
90,562
Net assets acquired
$
120,647
The purchase accounting is preliminary as we have not finalized our assessment of the fair value because there has been insufficient time between the acquisition date and the issuance of these financial statements to complete our review and final determination of fair value.
Goodwill, land, and certain identifiable intangible assets recorded in the acquisition are not subject to amortization; however, the goodwill and intangible assets will be tested periodically for impairment. Of the $72.7 million in recognized goodwill, $59.1 million is deductible for tax purposes. Of this total, $25.8 million was allocated to our cemetery segment, while $46.9 million was allocated to our funeral segment. Tradenames comprise the identified intangible assets.
We incurred acquisition costs of $0.3 million, which is included in General and administrative expenses in our Consolidated Statement of Operations.
Pro forma summary results for the twelve months ended December 31, 2023 and the nine months ended September 30, 2024 have not been provided as it is impracticable to do so given the extent of integration activities to date.
FORM 10-Q 27
PART II
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 September 30,
Nine months ended September 30,
2024
2023
2024
2023
(In thousands)
Gains on divestitures, net
$
7,445
$
2,542
$
9,764
$
10,187
Impairment losses
(3,930)
—
(5,009)
—
Gains on divestitures and impairment charges, net
$
3,515
$
2,542
$
4,755
$
10,187
28 Service Corporation International
PART I
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 September 30, 2024, we operated 1,495 funeral service locations and 494 cemeteries (including 307 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. Our financial position is enhanced by our $16.0 billion backlog of future revenue from both trust and insurance-funded preneed sales at September 30, 2024. Preneed selling provides us with a strategic opportunity to gain future market share. We also believe it adds to the stability and predictability of our revenue and cash flows. While revenue on the majority of preneed merchandise and service sales is deferred until the time of need, sales of preneed cemetery property provide opportunities for full current revenue recognition to the extent that the property is developed and available for use.
We strive to offer families exceptional service in planning life celebrations and personalized remembrances. Our Dignity Memorial® brand serves approximately 600,000 families each year with professionalism, compassion, and attention to detail.
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.
Financial Condition, Liquidity, and Capital Resources
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.
Capital Allocation Considerations
We rely on cash flow from operations as a significant source of liquidity. Our cash flow from operating activities provided $680.8 million in the first nine months of 2024. As of September 30, 2024, we had $1,351.0 million in remaining borrowing capacity under our Bank Credit Facility.
Our Bank Credit Facility requires us to maintain a certain leverage ratio with which we were in compliance at September 30, 2024. We target a leverage ratio of 3.5x to 4.0x.
Our leverage ratio requirement and actual ratio as of September 30, 2024 were as follows:
Per Credit Agreement
Actual
Leverage ratio
5.00 (Max)
3.78
We have the financial strength and flexibility to reward shareholders with dividends while maintaining a prudent capital structure and pursuing new opportunities for profitable growth.
Our unencumbered cash on hand, future operating cash flows, and the available capacity under our Bank Credit Facilities will give us adequate liquidity to meet our short-term needs as well as our long-term financial obligations. A portion of our cash on hand is encumbered primarily due to cash balances residing in Canada and Puerto Rico, as well as minimum captive insurance balance and operating cash requirements.
FORM 10-Q 29
PART I
We consistently evaluate the best uses of our cash flow that will yield the highest value and return on capital. Our capital 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 and cemetery 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 and cemetery locations in areas that provide us with the potential for scale.
Return Excess Cash to Shareholders. Absent strategic acquisition or other higher return 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 $0.30 per common share in 2024. We target a payout ratio of 30% to 40% of after tax earnings excluding special items and intend to grow our cash dividend commensurate with the growth in our business. While we intend to pay regular quarterly cash dividends for the foreseeable future, all future dividends are subject to limitations in our debt covenant, and final determination by our Board of Directors each quarter upon review of our financial performance.
Managing Debt. We continue to focus on maintaining optimal levels of liquidity and financial flexibility. We generate a relatively consistent annual cash flow stream that is generally resistant to down economic cycles. This cash flow stream and our significant liquidity allow us to opportunistically manage our debt maturity profile as we maintain a target leverage ratio of 3.5x to 4.0x.
Cash Flow
Our ability to generate strong operating cash flow is one of our fundamental financial strengths and provides us with substantial flexibility in meeting operating and investing needs.
Operating Activities
Net cash provided by operating activities was $680.8 million and $591.5 million for the nine months ended September 30, 2024 and 2023, respectively.
The $89.3 million increase in operating cash flows from 2023 comprises:
•a $63.9 million decrease in cash tax payments,
•a $59.7 million increase in cash receipts from customers,
•a $39.6 million increase in General Agency (GA) commission and other receipts, and
•a $0.1 million decrease in employee compensation payments, partially offset by
•a $23.5 million increase in cash interest payments,
•a $16.8 million increase in vendor and other payments,
•a $18.8 million increase in net trust deposits, and
•a $14.9 million increase in payments for certain legal matters.
Investing Activities
Cash flows from investing activities used $484.6 million and $356.6 million for the nine months ended September 30, 2024 and 2023, respectively. The $128.0 million increased outflow in 2024 over 2023 is primarily due to the following:
•a $89.3 million increase in cash spent on business acquisitions,
•a $13.9 million increase in other investing activities primarily for investments in renewable energy tax credits,
•a $12.2 million increase in cash spent on real estate acquisitions,
•a $9.1 million increase in total capital expenditures which comprises:
•a $3.7 million net increase in maintenance capital expenditures, which includes:
•a $15.5 million decrease in expenditures for digital investments and corporate,
•a $10.6 million increase in expenditures for cemetery property development, and
•a $8.6 million increase in expenditures for capital improvements at existing field locations.
•a $5.4 million increase in expenditures for growth capital expenditures/construction of new funeral service locations.
•a $2.4 million decrease in net proceeds for Company-owned life insurance policies, and
30 Service Corporation International
PART I
•a $1.1 million decrease in cash receipts from divestitures and asset sales.
Financing Activities
Financing activities used $230.8 million for the nine months ended September 30, 2024 compared to using $262.2 million for the same period in 2023. The $31.4 million decreased outflow from 2024 over 2023 is primarily due to the following:
•a $142.8 million decrease in purchase of Company common stock,
•a $26.8 million increase in proceeds from exercises of stock options, partially offset by
•a $132.0 million increase in debt repayments, net of proceeds,
•a $5.3 million increase in payments of dividends, and
•a $0.9 million change in bank overdrafts and other.
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 unaudited Condensed 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.
September 30, 2024
December 31, 2023
(In millions)
Preneed funeral
$
226.8
$
67.8
Preneed cemetery:
Merchandise and services
135.6
141.3
Pre-construction
56.5
54.6
Bonds supporting preneed funeral and cemetery obligations
418.9
263.7
Bonds supporting preneed business permits
7.9
7.6
Other bonds
27.0
25.4
Total surety bonds outstanding
$
453.8
$
296.7
When selling preneed contracts, we may post surety bonds where allowed by state law. We post the surety bonds in lieu of trusting a certain amount of funds received from the customer. The amount of the bond posted is generally determined by the total amount of the preneed contract that would otherwise be required to be trusted, in accordance with applicable state law.
Surety bond premiums are paid annually and the bonds are automatically renewable until maturity of the underlying preneed contracts, unless we are given prior notice of cancellation.
Except for cemetery pre-construction bonds (which are irrevocable), the surety companies generally have the right to cancel the surety bonds at any time with appropriate notice. In the event a surety company were to cancel the surety bond, we are required to obtain replacement surety assurance from another surety company or fund a trust for an amount generally less than the posted bond amount. Management does not expect that we will be required to fund material future amounts related to these surety bonds due to a lack of surety capacity or surety company non-performance.
As of September 30, 2024, we had an increase of $161.7 million in surety bonds supporting preneed funeral obligations related to certain legal matters discussed in Part I, Item 1. Financial Statements, Note 9.
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 and 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.
FORM 10-Q 31
PART I
Insurance-Funded Preneed Contracts
Where permitted by state or provincial law, we may sell a life insurance or annuity policy from third-party insurance companies for which we earn a commission as general sales agent for the insurance company. These general agency revenues are based on a percentage per contract sold and are recognized as funeral revenue when the insurance purchase transaction between the preneed purchaser and third-party insurance provider is 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 unaudited Condensed Consolidated Balance Sheet. The proceeds of the life insurance policies or annuity contracts will be reflected in funeral revenue as we perform these funerals. In early July 2024, we finalized our agreement to change our preferred preneed insurance provider in the United States, which will allow us to further utilize our scale and streamline our processes across our network.
The table below details our results of insurance-funded preneed production and maturities.
Three months ended September 30,
Nine months ended September 30,
2024
2023
2024
2023
(Dollars in millions)
Preneed insurance-funded:
Sales production(1)
$
174.4
$
176.1
$
548.9
$
537.4
Sales production (number of contracts)(1)
29,127
28,284
89,050
87,128
General agency revenue
$
59.3
$
49.0
$
163.3
$
139.8
Maturities
$
97.6
$
93.0
$
304.7
$
291.5
Maturities (number of contracts)
15,680
15,005
48,671
47,202
(1) Amounts are not included in our unaudited Condensed Consolidated Balance Sheet.
Trust-Funded Preneed Contracts
The funds collected from customers, and required by state or provincial law, are deposited into trusts. We retain any funds above the amounts required to be deposited into trust accounts and use them for working capital purposes, generally to offset the selling and administrative costs of our preneed programs. Although this represents cash flow to us, the associated revenues are deferred until the merchandise is delivered or services are performed (typically at maturity). The funds in trust are then invested by professional money managers with oversight by independent trustees in accordance with state and provincial laws.
32 Service Corporation International
PART I
The tables below detail our results of preneed production and maturities, excluding insurance contracts:
Three months ended September 30,
Nine months ended September 30,
2024
2023
2024
2023
(Dollars in millions)
Funeral:
Preneed trust-funded (including bonded):
Sales production
$
121.1
$
138.4
$
391.3
$
418.2
Sales production (number of contracts)
29,188
33,782
95,436
102,881
Maturities
$
91.1
$
93.0
$
281.9
$
280.6
Maturities (number of contracts)
20,217
20,072
63,214
63,230
Cemetery:
Sales production:
Preneed
$
312.7
$
322.2
$
994.3
$
981.5
Atneed
105.5
103.1
319.9
317.9
Total sales production
$
418.2
$
425.3
$
1,314.2
$
1,299.4
Sales production deferred to backlog:
Preneed
$
150.9
$
162.0
$
467.8
$
486.8
Atneed
73.6
72.1
228.4
224.6
Total sales production deferred to backlog
$
224.5
$
234.1
$
696.2
$
711.4
Revenue recognized from backlog:
Preneed
$
113.1
$
132.3
$
335.1
$
356.5
Atneed
74.7
78.2
230.1
233.2
Total revenue recognized from backlog
$
187.8
$
210.5
$
565.2
$
589.7
Backlog of Preneed Contracts
The following table reflects our backlog of trust-funded deferred preneed contract revenue, including amounts related to deferred receipts held in trust at September 30, 2024 and December 31, 2023. Additionally, the table reflects our backlog of unfulfilled insurance-funded contracts (which are not included in our unaudited Condensed Consolidated Balance Sheet) at September 30, 2024 and December 31, 2023. 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.
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.
FORM 10-Q 33
PART I
September 30, 2024
December 31, 2023
Fair Value
Cost
Fair Value
Cost
(In billions)
Deferred revenue, net
$
1.75
$
1.75
$
1.70
$
1.70
Amounts due from customers for unfulfilled performance obligations on cancelable preneed contracts
1.02
1.02
0.95
0.95
Deferred receipts held in trust
5.23
4.47
4.67
4.18
Allowance for cancellation on trust investments
(0.30)
(0.25)
(0.26)
(0.24)
Backlog of trust-funded deferred revenue, net of estimated allowance for cancellation
7.70
6.99
7.06
6.59
Backlog of insurance-funded revenue(1)
8.29
8.29
7.78
7.78
Total backlog of deferred revenue
$
15.99
$
15.28
$
14.84
$
14.37
Preneed receivables, net and trust investments
$
6.77
$
6.02
$
6.19
$
5.70
Amounts due from customers for unfulfilled performance obligations on cancelable preneed contracts
1.02
1.02
0.95
0.95
Allowance for cancellation on trust investments
(0.30)
(0.25)
(0.26)
(0.24)
Assets associated with backlog of trust-funded deferred revenue, net of estimated allowance for cancellation
7.49
6.79
6.88
6.41
Insurance policies associated with insurance-funded deferred revenue (1)
8.29
8.29
7.78
7.78
Total assets associated with backlog of preneed revenue
$
15.78
$
15.08
$
14.66
$
14.19
(1) Amounts are not included in our unaudited Condensed 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 September 30, 2024, the difference between the backlog and asset market amounts represents $0.17 billion related to contracts for which we have posted surety bonds as financial assurance in lieu of trusting, $1.39 billion collected from customers that were not required to be deposited into trusts, and $0.19 billion in allowable cash distributions from trust assets partially offset by $1.54 billion in amounts due on delivered property and merchandise. As of September 30, 2024, the fair value of the total backlog comprised $4.58 billion related to cemetery contracts and $11.41 billion related to funeral contracts. As of September 30, 2024, the fair value of the assets associated with the backlog of trust-funded deferred revenue comprised $4.59 billion related to cemetery contracts and $2.90 billion related to funeral contracts. As of September 30, 2024, the backlog of insurance-funded contracts of $8.29 billion was equal to the proceeds we expect to receive from the associated insurance policies when the corresponding contract is serviced.
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 expenses 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 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
34 Service Corporation International
PART I
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. 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 September 30, 2024, approximately 98% of our trusts were under the control and custody of four large financial institutions. The U.S. trustees primarily use four managed limited liability companies (LLCs), two for funeral and cemetery merchandise and service trust types and two for the cemetery perpetual care trust types, 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
The managed LLCs use the following structures for investments:
Commingled funds allow the trusts to access, at a reduced cost, some of the same investment managers and strategies used elsewhere in the portfolios.
Separately managed accounts are trusts that utilize separately managed accounts, where appropriate, to reduce the costs to the investment portfolios.
Mutual 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.
Asset Classes
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 September 30, 2024, the largest single equity position represented approximately 1% of the total securities portfolio.
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.
Alternative investmentsserve to provide high rates of return with reduced volatility and lower correlation to publicly-traded securities. These investments are typically longer term in duration and are diversified by strategy, sector, manager, geography, and vintage year. The investments consist of numerous limited partnerships invested in private equity, private market real estate, 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.
FORM 10-Q 35
PART I
Trust Performance
During the nine months ended September 30, 2024, the Standard and Poor’s 500 Index increased 22.1% and the Bloomberg’s US Aggregate Bond Index decreased 4.5%. This compares to SCI trusts that returned 12.8% during the same period, which exceeded our internal custom benchmark. The SCI trusts have a diversified allocation of approximately 60% equities, 27% fixed income securities, 9% alternative and other investments with the remaining 5% available in money market funds.
Recognized trust fund income (realized and unrealized) related to our preneed trust investments was $134.3 million and $121.3 million for the nine months ended September 30, 2024 and 2023, respectively. Recognized trust fund income (realized and unrealized) related to our cemetery perpetual care trust investments was $73.5 million and $63.5 million for the nine months ended September 30, 2024 and 2023, respectively. The increase in recognized trust fund income is primarily due to the market returns experienced over the trailing twelve month period.
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 and Nine months ended September 30, 2024 and2023
Three Months Ended September 30, 2024 and 2023
Management Summary
In the third quarter of 2024, we reported consolidated net income attributable to common stockholders of $117.8 million ($0.81 per diluted share) compared to net income attributable to common stockholders in the third quarter of 2023 of $122.0 million ($0.80 per diluted share). These results were impacted by certain items including:
Three months ended September 30,
2024
2023
(In millions)
Pre-tax gains on divestitures and impairment charges, net
$
3.5
$
2.5
Tax effect from significant items
$
(1.1)
$
(0.5)
Change in uncertain tax reserves and other
$
0.1
$
0.9
In addition to the above items, operating results are relatively flat over the prior year quarter. Also, higher interest expense and corporate general and administrative expenses were partially offset by a lower tax rate and lower share count.
36 Service Corporation International
PART I
Funeral Results
Three months ended September 30,
2024
2023
(Dollars in millions, except average revenue per service)
Consolidated funeral revenue
$
566.0
$
554.8
Less: revenue associated with acquisitions/new construction
9.0
3.1
Less: revenue associated with divestitures
0.1
1.8
Comparable(1) funeral revenue
556.9
549.9
Less: non-funeral home preneed sales revenue
26.5
32.0
Less: core general agency and other revenue
52.7
45.1
Adjusted comparable funeral revenue
$
477.7
$
472.8
Comparable services performed
83,804
84,470
Comparable average revenue per service(2)
$
5,700
$
5,597
Consolidated funeral gross profit
$
107.9
$
109.7
Less: gross profit (loss) associated with acquisitions/new construction
1.0
(0.1)
Less: gross (loss) profit associated with divestitures
(0.5)
0.9
Comparable(1) funeral gross profit
$
107.4
$
108.9
(1)We define comparable (or same store) operations as those funeral locations owned by us for the entire period beginning January 1, 2023 and ending September 30, 2024.
(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 funeral services performed during the period. Recognized preneed revenue is 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 $566.0 million for the three months ended September 30, 2024 compared to $554.8 million for the same period in 2023. This $11.2 million increase is primarily attributable to the $5.9 million increase in revenue from acquired and newly constructed properties and the $7.0 million increase in comparable revenue.
Comparable revenue from funeral operations was $556.9 million for the three months ended September 30, 2024 compared to $549.9 million for the same period in 2023. This $7.0 million, or 1.3%, increase is primarily due to a $4.4 million increase in core funeral revenue and a $7.6 million increase in core general agency revenue and other revenue offset by a $5.5 million decrease in non-funeral home preneed sales revenue.
The core funeral revenue increased by $4.4 million, or 1.0%, primarily due to a favorable 2.1% increase in core average revenue per service. This core average growth was achieved in light of an increase in the core cremation rate of 30 basis points to 56.8%. Non-funeral home preneed sales revenue decreased by $5.5 million, or 17.2%, primarily due to a decline of non-funeral home preneed sales production of $8.1 million, or 10.4%, impacted by our transition from trust to insurance-funded contracts. Core general agency and other revenue grew $7.6 million, primarily due to growth in general agency revenue from higher commission rates, primarily as a result of our new preneed insurance marketing agreement.
Funeral Gross Profit
Consolidated funeral gross profit decreased $1.8 million, or 1.6%, for the three months ended September 30, 2024 compared to the same period in 2023. This decrease is primarily attributable to the decrease in comparable funeral gross profit of $1.5 million, or 1.4%. Comparable funeral gross profit decreased $1.5 million to $107.4 million and the comparable gross profit percentage decreased from 19.8% to 19.3%. The stability in gross profit, in light of modest revenue growth, reflects our continued focus on managing our fixed cost structure.
FORM 10-Q 37
PART I
Cemetery Results
Three months ended September 30,
2024
2023
(In millions)
Consolidated cemetery revenue
$
448.0
$
447.1
Less: revenue associated with acquisitions/new construction
1.4
0.4
Less: revenue associated with divestitures
—
0.1
Comparable(1) cemetery revenue
$
446.6
$
446.6
Consolidated cemetery gross profit
$
144.8
$
143.9
Less: gross loss associated with acquisitions/new construction
(0.1)
(0.4)
Comparable(1) cemetery gross profit
$
144.9
$
144.3
(1)We define comparable (or same store) operations as those cemetery locations owned by us for the entire period beginning January 1, 2023 and ending September 30, 2024.
Cemetery Revenue
Consolidated revenue from our cemetery operations increased $0.9 million, or 0.2%, for the three months ended September 30, 2024 compared to the same period in 2023 primarily due to a $1.0 million increase in revenue contributed by newly constructed and acquired properties.
The comparable cemetery revenue was flat to prior year primarily due to a $4.8 million decrease in core revenue, which was offset by a $4.8 million increase in other revenue. The decrease in core revenue was driven by a $3.5 million decline in atneed revenue combined with a $1.3 million decrease in total recognized preneed revenue. Growth in recognized preneed merchandise and service revenue of $10.3 million from higher quality sales averages maturing out of the backlog was offset by a decline of $11.6 million in recognized preneed property revenue. Other revenue was higher by $4.8 million, or 16.5%, compared to the prior year quarter primarily from an increase in endowment care trust fund income related to the expansion of our total return investment strategy in certain states.
Cemetery Gross Profit
Consolidated cemetery gross profit slightly increased $0.9 million, or 0.6%, in the three months ended September 30, 2024 compared to the same period in 2023, which is primarily attributable to a $0.3 million increase in gross profit contributed by newly constructed and acquired properties and a $0.6 million increase in comparable cemetery gross profit. Comparable cemetery gross profit slightly increased $0.6 million to $144.9 million, and the gross profit percentage increased to 32.4% from 32.3%. This growth in gross profit on relatively flat revenue reflects our continued focus on managing our fixed cost structure.
Other Financial Statement Items
Corporate General and Administrative Expenses
Corporate general and administrative expenses were $43.7 million in the third quarter of 2024 compared to the third quarter of 2023 of $33.2 million. The current year third quarter was pressured by long-term incentive compensation plan expenses that were impacted by the growth in our stock price. Conversely, during the prior year third quarter we saw a decline in our stock price benefiting our long-term incentive compensation plan expenses.
Gains on Divestitures and Impairment Charges, Net
We recognized a $3.5 million net pre-tax gain on asset divestitures and impairments in the third quarter of 2024 compared to a $2.5 million net pre-tax gain in the third quarter of 2023 on asset divestitures due to non-strategic asset divestitures.
Interest Expense
Interest expense increased $4.3 million to $65.8 million for the third quarter of 2024 primarily due to higher average balances quarter over quarter on our floating rate debt.
Other Income, Net
Other income, net increased $2.7 million to $2.8 million for the three months ended September 30, 2024 primarily due to higher investment income from higher investment balances and new investment products compared to the prior year.
FORM 10-Q 38
PART I
Provision for Income Taxes
Our effective tax rate was 21.1% and 24.5% for the three months ended September 30, 2024 and 2023, respectively. The lower effective tax rate for the three months ended September 30, 2024 was primarily due to more excess tax benefits recognized on the settlement of employee share-based awards. The effective tax rate for the three months ended September 30, 2024 was higher than the federal statutory tax rate of 21.0% primarily due to state tax expense, partially offset by excess tax benefits recognized on the settlement of employee share-based awards.
Weighted Average Shares
The diluted weighted average number of shares outstanding was 146.2 million for the three months ended September 30, 2024 compared to 152.3 million for the same period in 2023. The decrease primarily reflects the impact of shares repurchased under our share repurchase program.
Nine Months Ended September 30, 2024 and 2023
Management Summary
In the first nine months of 2024, we reported consolidated net income attributable to common stockholders of $367.3 million ($2.50 per diluted share) compared to net income attributable to common stockholders for the same period in 2023 of $398.9 million ($2.60 per diluted share). These results were impacted by certain items including:
Nine months ended September 30,
2024
2023
(In millions)
Pre-tax gains on divestitures and impairment charges, net
$
4.8
$
10.2
Pre-tax losses on early extinguishment of debt
$
—
$
(1.1)
Tax effect from significant items
$
(1.6)
$
(2.5)
Change in uncertain tax reserves and other
$
1.0
$
1.4
In addition to the above items, the decrease from the prior year is primarily due to lower funeral gross profit on lower services performed which was partially offset by slightly higher cemetery gross profit. Also, higher interest expense and corporate general and administrative expenses were partially offset by a lower tax rate and lower share count.
FORM 10-Q 39
PART I
Funeral Results
Nine months ended September 30,
2024
2023
(Dollars in millions, except average revenue per service)
Consolidated funeral revenue
$
1,736.5
$
1,729.9
Less: revenue associated with acquisitions/new construction
20.7
4.9
Less: revenue associated with divestitures
1.6
4.4
Comparable(1) funeral revenue
1,714.2
1,720.6
Less: non-funeral home preneed sales revenue
84.3
109.1
Less: core general agency and other revenue
150.1
137.5
Adjusted comparable funeral revenue
$
1,479.8
$
1,474.0
Comparable services performed
261,755
267,261
Comparable average revenue per service(2)
$
5,653
$
5,515
Consolidated funeral gross profit
$
340.2
$
374.8
Less: gross profit associated with acquisitions/new construction
2.0
0.1
Less: gross profit (losses) associated with divestitures
0.1
0.4
Comparable(1) funeral gross profit
$
338.1
$
374.3
(1)We define comparable (or same store) operations as those funeral locations owned by us for the entire period beginning January 1, 2023 and ending September 30, 2024.
(2)We calculate comparable average revenue per service by dividing comparable funeral revenue, excluding general agency revenue, non-funeral home preneed sales revenue, and other revenue to avoid distorting our average of normal funeral services revenue, by the comparable number of funeral services performed during the period.
Funeral Revenue
Consolidated revenue from funeral operations was $1,736.5 million for the nine months ended September 30, 2024, compared to $1,729.9 million for the same period in 2023. This $6.6 million increase is primarily attributable to $15.8 million of growth in revenue contributed by acquired and newly constructed properties offset by a $6.4 million decrease in comparable revenue as described below.
Comparable revenue from funeral operations was $1,714.2 million for the nine months ended September 30, 2024 compared to $1,720.6 million for the same period in 2023. The $6.4 million decrease was due to a $24.8 million decrease in non-funeral home preneed sales revenue, partially offset by an increase of $12.6 million in core general agency and other revenue.
Non-funeral home preneed sales revenue decreased by $24.8 million primarily due to a decline of non-funeral home preneed sales production of $10.5 million, or 4.5%, impacted by our transition from trust to insurance-funded contracts. Core general agency and other revenue grew $12.6 million, primarily due to growth in general agency revenue from higher commission rates, primarily as a result of our new preneed insurance marketing agreement.
Funeral Gross Profit
Consolidated funeral gross profit decreased $34.6 million, or 9.2%, in the first nine months of 2024 compared to the same period in 2023. This decrease is primarily attributable to the $36.2 million, or 9.7%, decrease in comparable funeral gross profit. Comparable funeral gross profit decreased $36.2 million to $338.1 million and the comparable gross profit percentage decreased from 21.8% to 19.7%. This decrease is primarily due to the decline in revenue described above coupled with higher fixed costs, including the timing of incentive compensation costs compared to the prior year.
FORM 10-Q 40
PART I
Cemetery Results
Nine months ended September 30,
2024
2023
(In millions)
Consolidated cemetery revenue
$
1,356.9
$
1,314.1
Less: revenue associated with acquisitions/new construction
11.1
0.4
Less: revenue associated with divestitures
(0.1)
0.9
Comparable(1) cemetery revenue
$
1,345.9
$
1,312.8
Consolidated cemetery gross profit
$
444.6
$
429.5
Less: gross profit (loss) associated with acquisitions/new construction
6.2
(0.8)
Less: gross (loss) profit associated with divestitures
(0.2)
0.1
Comparable(1) cemetery gross profit
$
438.6
$
430.2
(1)We define comparable (or same store) operations as those cemetery locations owned by us for the entire period beginning January 1, 2023 and ending September 30, 2024.
Cemetery Revenue
Consolidated revenue from our cemetery operations increased $42.8 million, or 3.3%, for the nine months ended September 30, 2024 compared to the same period in 2023 primarily due to a $33.1 million, or 2.5%, increase in comparable cemetery revenue and a $10.7 million increase in revenue contributed by newly constructed and acquired properties.
The $33.1 million, or 2.5%, increase in comparable cemetery revenue was primarily attributable to a $21.3 million increase in comparable cemetery core revenue. This increase was primarily a result of a $25.8 million increase in total recognized preneed revenue, which benefited from growth in comparable preneed sales production of $10.4 million, or 0.8%, and trust fund income.
Cemetery Gross Profit
Consolidated cemetery gross profit increased $15.1 million for the nine months ended September 30, 2024 compared to the same period in 2023, which is primarily attributable to a $8.4 million increase in comparable cemetery gross profit and a $7.0 million increase in gross profit contributed by newly constructed and acquired properties. Comparable cemetery gross profit increased from $430.2 million to $438.6 million, while the gross profit percentage decreased slightly from 32.8% to 32.6%. Although we experienced revenue growth, we continue to see increases in our fixed costs, primarily due to higher maintenance and the timing of incentive compensation costs compared to the prior year.
Other Financial Statement Items
Corporate General and Administrative Expenses
Corporate general and administrative expenses were $124.1 million for the nine months ended September 30, 2024 compared to $112.3 million for the same period in 2023. The current year and prior year were inversely impacted by long-term incentive compensation plan expenses that are tied to the changes in our stock price.
Gains on Divestitures and Impairment Charges, Net
We recognized a $4.8 million net pre-tax gain on asset divestitures and impairments in the nine months ended September 30, 2024 compared to a $10.2 million net pre-tax gain in 2023 on asset divestitures due to non-strategic asset divestitures.
Interest Expense
Interest expense increased $19.6 million to $194.5 million for the nine months ended September 30, 2024 primarily due to higher interest rates and higher average balances on our floating rate debt.
Other Income, Net
Other income, net increased $4.4 million to $7.0 million for the nine months ended September 30, 2024 primarily due to higher investment income from higher investment balances and new investment products compared to the prior year.
FORM 10-Q 41
PART I
Provision for Income Taxes
Our effective tax rate was 23.1% and 24.5% for the nine months ended September 30, 2024 and 2023, respectively. The lower effective tax rate for the nine months ended September 30, 2024 was primarily due to more excess tax benefits recognized on the settlement of employee share-based awards. The effective tax rate for the nine months ended September 30, 2024 was higher than the federal statutory tax rate of 21.0% primarily due to state tax expense, partially offset by excess tax benefits recognized on the settlement of employee share-based awards.
Weighted Average Shares
The diluted weighted average number of shares outstanding was 147.0 million for the nine months ended September 30, 2024 compared to 153.6 million for the same period in 2023. The decrease primarily reflects the impact of shares repurchased under our share repurchase program.
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, 2023 and are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
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”, “predict” that convey the uncertainty of future events or outcomes. These statements are based on assumptions that we believe are reasonable; however, many important factors could cause our actual consolidated results in the future to differ materially from the forward-looking statements made herein and in any other documents or oral presentations made by, or on behalf of, the Company. These factors are discussed below. We assume no obligation 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.
•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.
•We may be adversely affected by the effects of inflation.
•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.
•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.
•Our failure to attract and retain qualified sales personnel could have an adverse effect on our business and financial condition.
FORM 10-Q 42
PART I
•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 cash flows, our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, and may prevent us from fulfilling our obligations under our indebtedness.
•A failure of a key information technology system or process could disrupt and adversely affect our business.
•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 life expectancy and 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, or the interpretation of tax laws or regulations, as well as the inherent difficulty in quantifying potential tax effects of business decisions could have a material adverse effect on the results of our operations, financial condition, or cash flows.
For further information on these and other risks and uncertainties, see our Securities and Exchange Commission filings, including our 2023 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.
FORM 10-Q 43
PART I
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 September 30, 2024 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.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of September 30, 2024, 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 September 30, 2024 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 September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
44 Service Corporation International
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, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes our share repurchases during the three months ended September 30, 2024:
Period
Total Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Programs
Approximate Dollar Value of Shares That May Yet be Purchased Under the Program
July 1, 2024 — July 31, 2024
133,896
$
71.99
133,896
$
342,429,864
August 1, 2024 — August 31, 2024
89,573
$
74.88
89,573
$
335,723,066
September 1, 2024 — September 30, 2024
60,105
$
78.99
60,105
$
330,975,140
283,574
283,574
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a) Not applicable.
(b) Not applicable.
(c) During the three months ended September 30, 2024, no director or officer (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) of the Company adopted orterminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
46 Service Corporation International
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.
