What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-15 compared with 2022-02-15 · 99 added, 77 removed, 416 unchanged (30% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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.

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, serving more than 600,000 families each year.

At December 31, 2022, we operated 1,474 funeral service locations and 490 cemeteries (including 303 funeral service/cemetery combination locations), which are geographically diversified across 44 states, eight Canadian provinces, the District of Columbia, and Puerto Rico.

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We sell cemetery property and funeral and cemetery merchandise and services at the time of need and on a preneed basis.

Our Dignity Memorial® brand serves over 500,000 families each year with professionalism, compassion, and attention to detail.

Our Dignity Memorial® brand is the name families turn to for professionalism, compassion, and attention to detail that is second to none.

Our financial position is enhanced by our $13.7 billion backlog of future revenue from both trust and insurance-funded preneed sales at December 31, 2022.

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Recent Trends

Like most businesses world-wide, COVID-19 is still impacting various aspects of our business operations;

Like most businesses worldwide, COVID-19 is still directly and indirectly 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 2022, we continued to experience the impact of COVID-19 variants.

However, we have seen community restrictions lifted and vaccine distribution more widespread.

As restrictions have lifted, we have seen an increase in the number of families who

desire memorial services which has driven significant growth in our preneed sales as well as positively affected our average revenue per funeral service.

However, we have also seen an increase in the number of families who desire memorial services, which has driven significant growth in our preneed sales as well as positively affected our average revenue per funeral service.

We view this as further evidence that our 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.

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

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Our cash flow from operating activities provided $825.7 million in 2022.

In addition, as of December 31, 2021, we have $811.0 million in borrowing capacity under our Bank Credit Facility.

In addition, as of December 31, 2022, we have $396.5 million in borrowing capacity under our revolving credit facility.

As of December 31, 2022, we had $90.7 million in current maturities of long-term debt, which primarily consist of the current amounts due on our term loan and finance leases.

Our Bank Credit Facility requires us to maintain certain leverage and interest coverage ratios.

As of December 31, 2021, we were in compliance with all of our debt covenants.

At December 31, 2022, our bank credit agreement require us to maintain certain leverage and interest coverage ratios.

As of December 31, 2022, we were in compliance with our debt covenants.

Our leverage ratio has recently benefited from the strong earnings associated with the increase in funeral services performed throughout the COVID-19 pandemic;

however, as these impacts subside in future years, we expect leverage to return to our 3.5 to 4.0x target leverage range.

Our financial covenant requirements and actual ratios as of December 31, 2022 are as follows:

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Interest coverage ratio 3.00 (Min) 7.83

We target a leverage ratio of 3.5- 4.0x, however increased earnings over the last two years have resulted in a ratio much lower than our target.

We expect leverage to naturally increase in future quarters as we expect earnings to be less impacted by the COVID-19 pandemic.

Subsequent to December 31, 2022, we entered into a new bank credit agreement, expanding our borrowing capacity to $1.5 billion and removing the requirement for an interest coverage ratio.

Additionally, the leverage ratio maximum was increased to 5.0x.

For more information see Note 6 in Part II, Item 8.

Financial Statements and Supplementary Data.

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 agreement will give us adequate liquidity to meet our short-term needs as well as our long-term financial obligations.

Our unencumbered cash on hand, future operating cash flows, and the available capacity under our Bank Credit Facilities will give us adequate liquidity to meet our short-term needs as well as our long-term financial obligations.

Due to cash balances residing in Canada and minimum operating cash requirements, a portion of our cash on hand is encumbered.

We consistently evaluate the best uses of our cash flow that will yield the highest value and return on capital.

Our capital deployment strategy is prioritized as follows:

Our capital investment strategy is prioritized as follows:

Investing in Acquisitions and Building New Funeral Service and Cemetery Locations.

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We continue to pursue strategic acquisitions and build new funeral service locations in areas that provide us with the potential for scale.

We were able to invest $121.4 million in acquiring 30 funeral homes and 2 cemeteries during 2021.

We invested $102.6 million acquiring 18 funeral service locations and 3 cemeteries, which included 3 combination locations, during 2022.

Managing Debt.

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This cash flow stream and our significant liquidity are available to substantially reduce our long-term debt maturities should we choose to do so.

In January 2023, we entered into a new bank credit agreement that consists of a $675.0 million term loan due January 2028 and a revolving credit facility due January 2028 providing for borrowings of up to $1.5 billion.

Proceeds from this new bank credit agreement were used to settle our existing Term Loan due May 2024 and Bank Credit Facility due May 2024.

The new bank credit agreement provides us with flexibility for incremental liquidity, capital investment, working capital, and other general corporate purposes.

Return Excess Cash to Shareholders.

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Net cash provided by operating activities was $825.7 million and $920.6 million for the years ended December 31, 2022, and 2021, respectively.

Excluding an $8.3 million cash receipt from a vendor waiver and release agreement in the current period , cash flow from operations increased $107.9 million for 2021 versus 2020.

The 2021 increase over 2020 comprises:

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Excluding a $8.3 million cash receipt from a vendor waiver and release agreement in the prior year , cash flow from operations decreased $86.6 million for 2022 versus 2021.

This expected decrease in operating cash flow is primarily due to $183.6 million in lower operating income (excluding the impact certain significant items) as the prior year was positively impacted by the more pronounced effects of the COVID-19 pandemic.

The 2022 decrease in operating cash flows over 2021 is primarily due to the following:

• a $140.9 million increase in vendor and other payments,

• a $78.8 million increase in employee compensation payments, and

• a $22.1 million increase in cash interest payments, partially offset by

• a $86.0 million decrease in cash tax payments,

• a $37.2 million increase in cash receipts from customers,

• a $24.2 million increase in General Agency (GA) and other receipts, and

• a $10.4 million decrease in cash interest payments primarily due to reductions in our long-term debt;

partially offset by

• a $235.3 million increase in employee compensation payments,

• a $132.7 million increase in cash tax payments,

• a $120.2 million increase in vendor and other payments, and

• a $39.2 million increase in net trust deposits.

• a $16.1 million increase in net trust withdrawals, and

• a $15.9 million increase in General Agency (GA) commission and other receipts.

Investing Activities

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• a $66.0 million increase in capital expenditures:

• a $57.2 million increase in cash spent on business acquisitions,

• a $2.1 million increase in payments for Company-owned life insurance policies, net of proceeds;

• a $26.2 million increase in expenditures for capital improvements at existing field locations,

• a $29.2 million increase in expenditures for cemetery property development,

• a $19.0 million increase in expenditures for digital investments and corporate,

• a $8.4 million decrease in expenditures for growth capital expenditures/construction of new funeral service locations;

partially offset by

• a $25.5 million decrease in cash spent on real estate acquisitions, and

• a $18.7 million increase in cash received from divestitures and asset sales.

• a $18.8 million decrease in cash spent on business acquisitions,

• a $9.5 million decrease in cash spent on real estate acquisitions,

• a $2.0 million decrease in payments for Company-owned life insurance policies, net of proceeds,

• a $1.4 million increase in cash receipts from divestitures and asset sales, and

• a $1.3 million increase in proceeds from sale of investments and other.

Financing Activities

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The $17.6 million decreased outflow from 2022 over 2021 is primarily due to:

• a $70.2 million decrease in debt payments, net of proceeds, and

• a $12.6 million increase in proceeds from exercises of stock options;

partially offset by

• a $155.3 million decrease in debt payments, net of proceeds, partially offset by

• a $106.5 million increase in the purchase of Company common stock,

• a $9.5 million increase in payments of dividends, and

• a $13.1 million increase in payments of dividends,

• a $11.5 million decrease in proceeds from exercises of stock options, and

• a $6.6 million change in bank overdrafts and other.

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Debt & Finance Leases

As of December 31, 2021, we had $4.0 billion in aggregate principal outstanding on our notes, term loan, Bank Credit Facility, finance leases, mortgages, and other debt (collectively "debt and finance leases"), of which $65.0 million is payable in the next twelve months.

The aggregate principal excludes $45.1 million in unamortized non-cash debt issuance costs and original issuance discounts and premiums.

As of December 31, 2022, we had $4.3 billion in aggregate principal outstanding on our notes, term loan, revolving credit facility, finance leases, mortgages, and other debt (collectively "debt and finance leases"), of which $90.7 million is payable in the next twelve months.

The aggregate principal excludes $39.9 million in unamortized non-cash debt issuance costs and

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original issuance discounts and premiums.

Future interest payments associated with the debt and finance leases total $1,011.6 million, of which $202.9 million is payable in the next twelve months.

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Financial Statements and Supplementary Data for additional details related to our leases.

Benefit Obligations

As of December 31, 2021, we have several frozen benefit plans with an aggregate benefit obligation of $17.8 million, of which we expect to pay $2.4 million in the next twelve months.

See Note 12 in Part II, Item 8.

Financial Statements and Supplementary Data for discussion of our pension plans.

Purchase Commitment

We have entered into a purchase commitment for certain merchandise for resale.

The agreement is through 2025 and includes annual minimum volume purchase commitments.

As of December 31, 2021, the undiscounted purchase commitment was $29.1 million, of which $9.1 million is committed to be purchased in the next twelve months.

Financial Assurances

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The proceeds of the life insurance policies or annuity contracts will be reflected in funeral revenue as we perform these funerals.

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

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The table does not include the backlog associated with businesses that are held for sale.

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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.

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As of December 31, 2022, the fair value of the assets associated with the backlog of trust-funded deferred revenue comprised $3.82 billion related to cemetery contracts and $2.37 billion related to funeral contracts.

As of December 31, 2022, the backlog of insurance-funded contracts of $7.35 billion was equal to the proceeds we expect to receive from the associated insurance policies when the corresponding contract is serviced.

Trust Investments

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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.

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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

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asset allocation and manager selection.

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.

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therefore, the funds associated with these contracts are often invested through several market cycles.

Where total return distributions are 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.

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.

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The trustees that have oversight of their respective alternative LLCs work closely with the investment advisor in making all investment decisions.

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Trust Performance

During the year ended December 31, 2021, the Standard and Poor’s 500 Index increased 28.7% and the Barclay’s Aggregate Index decreased 1.5%.

This compares to the SCI trusts that increased 14.4% during the same year-end period, which have a diversified allocation of approximately 59% equities, 28% fixed income securities, 8% alternative and other investments with the remaining 5% available in cash.

During the year ended December 31, 2022, the Standard and Poor’s 500 Index decreased 18.1% and the Barclay’s Aggregate Index decreased 13.0%.

This compares to the SCI trusts that decreased 11.5% during the same year-end period, which exceeded our internal custom benchmarks.

The SCI trusts have a diversified allocation of approximately 57% equities, 28% fixed income securities, 10% alternative and other investments with the remaining 5% in money market funds.

Recognized trust fund income (realized and unrealized) related to our preneed trust investments was $143.8 million, $179.7 million, and $129.1 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Recognized trust fund income (realized and unrealized) related to our cemetery perpetual care trust investments was $85.1 million, $96.1 million, and $77.8 million for the years ended December 31, 2022, 2021, and 2020, respectively.

The decline in recognized trust fund income is primarily due to negative market returns in preneed trust investments and lower distributions from our cemetery perpetual care trust investments in the current year.

SCI, the trustees, and the investment advisor monitor the capital markets and the trusts on an on-going basis.

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Pre-tax losses on early extinguishment of debt, net $ (1.2) $ (5.2)

Pre-tax foreign currency exchange loss $ (1.5) $ —

Pre-tax income from vendor waiver and release agreement cash receipts $ — $ 8.3

Pre-tax estimate of certain legal matters (1)

Tax effect from significant items $ 14.0 $ (7.3)

Change in uncertain tax reserves and other (2)

(1) Estimate of certain legal matters relates to an estimate charge of $64.6 million for certain legal matters.

During the fourth quarter, we reached an immaterial preliminary settlement in a private litigation matter in Florida and subsequently we engaged in settlement discussions with the California Attorney General.

Both matters relate to previously disclosed litigation.

Approximately two-thirds of the $64.6 million pretax charge relates to estimated preneed contract refunds in California and Florida.

The remainder of the charge includes anticipated reimbursement of California governmental investigative costs and other legal expenses.

(2) See Note 5 in Part II, Item 8.

Financial Statements and Supplementary Data, for additional information related to change in uncertain tax reserves and other.

In addition to the above items, the increase over the prior year can be attributed to higher funeral and cemetery gross profit and lower interest expense, which was partially offset by higher income taxes on higher earnings.

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In addition to the above items, the decrease over the prior year is due to an expected decline in gross profit primarily due to decreases in COVID-19 related activity combined with higher inflationary costs and lower trust fund income.

Additionally, fewer shares outstanding more than offset the impact of higher interest expense.

Funeral Results

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Consolidated revenue from funeral operations was $2,332.0 million for the year ended December 31, 2022, compared to $2,343.2 million for the same period in 2021.

This $290.9 million, or 14.2%, increase in revenue is primarily attributable to a $21.0 million increase in revenue contributed from acquired and newly constructed properties and a $274.5 million, or 13.5%, increase in comparable funeral revenue as described below.

These increases were partially offset by the loss of $4.6 million in revenue contributed by properties that have been subsequently divested.

This $11.2 million, or 0.5%, decrease in revenue is primarily attributable to a $49.7 million decrease in comparable funeral revenue, partially offset by a $43.5 million increase in revenue contributed from newly constructed and acquired properties.

Comparable revenue from funeral operations was $2,282.4 million for the year ended December 31, 2022 compared to $2,332.1 million for the same period in 2021.

This $274.5 million increase was primarily attributable to a 4.4% increase in funeral services performed compared to 2020 primarily due to COVID-19 pandemic-related deaths.

The increase in funeral services performed comprised a 3.8% increase in funeral services performed by our funeral service locations and an 8.4% increase in cremations performed by our non-funeral home channel.

This $49.7 million decrease was primarily attributable to a 4.6% decrease in our comparable funeral services performed as the prior year was impacted by the COVID-19 pandemic.

The decrease in funeral services performed was comprised of a 5.6% decrease in funeral services performed by our funeral service locations offset by a 1.8% increase in cremations performed by our non-funeral home channel.

Additionally, we experienced a $1.6 million increase in comparable general agency and other revenue and a $3.7 million increase in comparable recognized preneed revenue, as a result of higher comparable preneed funeral sales production.

Average revenue per funeral service increased 2.0% for the year ended December 31, 2022 compared to the same period in 2021.

In 2020, the social distancing effects from the pandemic resulted in fewer and smaller memorial funeral services, which negatively impacted our average revenue per funeral service in the prior year.

Our total comparable cremation rate increased 70 basis points to 59.3% primarily as a result of an increase in cremations with service.

This average revenue growth was primarily attributable to our customers desire for more comprehensive services including items such as catering and flowers.

Our total comparable cremation rate increased 190 basis points to 61.1% for the year ended December 31, 2022.

Funeral Gross Profit

Consolidated funeral gross profit increased $131.0 million, or 26.5%, in 2021 compared to 2020.

This increase is primarily attributable to a $3.1 million increase in gross profit contributed from acquired and newly constructed properties and an increase in comparable funeral gross profit of $127.8 million, or 26.0%.

The comparable funeral gross profit percentage increased 270 basis points to 26.9% as the growth in comparable funeral revenue more than offset higher fixed costs in the current year relative to the prior year as staffing and service levels normalized, driven by our customers desire for more robust remembrances and celebrations as social distancing measures alleviated.

Additionally, maintenance expenses were temporarily higher associated with various storms and hurricanes as well as catch up on deferred maintenance needs from 2020.

Consolidated funeral gross profit decreased $94.1 million, or 14.7%, in 2022 compared to 2021 as the prior year was positively impacted by COVID-19.

This decrease is primarily attributable to the decrease in comparable funeral gross profit of $101.2 million, or 15.7%, partially offset by the $5.8 million increase in gross profit contributed by newly constructed and acquired properties.

Comparable funeral gross profit decreased $101.2 million to $541.9 million and the comparable gross profit percentage decreased from 27.6% to 23.7%.

This decrease in gross profit is due to the expected decline in revenue mentioned above combined with higher energy and employee-related inflationary costs.

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Cemetery Results

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Cemetery Revenue

Consolidated revenue from our cemetery operations increased $340.8 million, or 23.4%, in 2021 compared to 2020 primarily due to an increase in comparable cemetery revenue of $340.6 million, or 23.3%.

The increase in comparable cemetery revenue was primarily attributable to a $231.5 million, or 24.2%, increase in recognized preneed revenue as a result of strong comparable preneed cemetery property sales production for the period as well as a $91.1 million, or 23.5%, increase in comparable cemetery atneed revenue driven by both higher sales averages and contract velocity across service, merchandise, and property sales.

Additionally, comparable other revenue grew $18.1 million, or 15.9%, primarily from higher endowment care trust fund income due to higher capital gains and other distributions.

Consolidated revenue from our cemetery operations decreased $23.4 million, or 1.3%, in 2022 compared to 2021 primarily due to a $39.1 million, or 2.2%, decrease in comparable cemetery revenue, partially offset by a $15.9 million increase in revenue contributed by newly constructed and acquired properties.

The decrease in comparable cemetery revenue was primarily attributable to a $28.6 million decrease in comparable cemetery core revenue, which was driven by a $32.1 million decline in comparable cemetery atneed revenue, and a $20.5 million decline in merchandise and service trust fund income, partially offset by $24.0 million increase in recognized preneed revenue.

The decline in comparable cemetery atneed revenue was due to an expected decrease in contract velocity compared to the same period in 2021 that was heavily impacted by the COVID-19 pandemic.

Additionally, comparable other revenue declined $10.5 million, or 8.0%, primarily from lower endowment care trust fund income due to the impact of the financial markets.

Cemetery Gross Profit

Consolidated cemetery gross profit increased $195.8 million, or 40.6%, in 2021 compared to 2020 primarily attributable to the increase in comparable cemetery gross profit of $195.5 million, or 40.5%.

Comparable cemetery gross profit increased 460 basis points to 37.7% as the growth in comparable cemetery revenue more than offset higher fixed costs in the current year relative to the prior year as staffing and service levels continued to normalize driven by customer interaction and increased maintenance expenses.

Consolidated cemetery gross profit decreased $74.4 million, or 10.9%, in 2022 compared to 2021, which is primarily attributable to the decrease in comparable cemetery gross profit of $83.2 million, or 12.2%, partially offset by a $9.0 million increase in gross profit contributed from newly constructed and acquired properties.

Comparable cemetery gross profit decreased $83.2 million to $600.3 million, and the gross profit percentage decreased 390 basis points to 34.1%.

The decrease in gross profit is due to the decline in comparable cemetery atneed revenue and merchandise and service trust fund income mentioned above combined with higher inflationary employee-related and maintenance costs.

Other Financial Statement Items

Corporate General and Administrative Expenses

Corporate general and administrative expenses decreased $3.0 million to $138.1 million in 2021 compared to $141.1 million in 2020.

This decrease was primarily due to fewer workers compensation, general liability, and auto liability insurance claims in the current year and higher charitable contributions in the prior year.

Corporate general and administrative expenses were $237.2 million in 2022 compared to $157.6 million in 2021.

Excluding an estimated charge for certain legal matters of $64.6 million in 2022, corporate general and administrative expenses increased $15.0 million primarily related to workers compensation and general liability insurance claims as well as expenses related to the timing of incentive compensation.

During the fourth quarter of 2022, we reached an immaterial preliminary settlement in a private litigation matter in Florida and subsequently we engaged in settlement discussions with the California Attorney General.

Both matters relate to previously disclosed litigation.

Approximately two-thirds of the $64.6 million pretax charge relates to estimated preneed contract refunds in California and Florida.

The remainder of the charge includes anticipated reimbursement of California governmental investigative costs and other legal expenses.

Gains on Divestitures and Impairment Charges, Net

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Interest Expense

Interest expense decreased $12.5 million to $150.6 million in 2021 compared to $163.1 million in 2020 primarily due to lower balances and interest rates on our floating rate debt along with debt refinancing activities over the last twelve months.

Other Income, Net

Other income, net increased $9.9 million to $10.7 million in 2021 primarily due to a $8.3 million cash receipt from a vendor waiver and release agreement.

Interest expense increased $21.5 million to $172.1 million in 2022 primarily due to higher interest on our floating rate debt as well as higher balances.

Our floating rate debt carried a weighted average interest rate of 2.95% for the full year 2022, which is 166 basis points higher than the weighted average rate for our floating rate debt for the full year 2021 of 1.29%.

Losses on Early Extinguishment of Debt, Net

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Certain of these transactions resulted in the recognition of pre-tax losses of $1.2 million and $5.2 million in 2022 and 2021, respectively, recorded in Losses on early extinguishment of debt, net in our Consolidated Statement of Operations.

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Other Income, Net

Other income, net decreased $9.0 million to $1.6 million in 2022 primarily due to $8.3 million in income from a vendor waiver and release agreement cash receipt recorded in the prior year.

Provision for Income Taxes

The 2022 consolidated effective tax rate was 25.1%, compared to 23.2% in 2021.

The effective tax rate for the year ended December 31, 2021 was higher than the federal statutory tax rate of 21% primarily due to state income taxes partially offset by tax benefits from share-based compensation.

The lower effective tax rate in 2021 was primarily due to non-taxable gains on the cash surrender value of certain life insurance policies and the release of a Puerto Rican valuation allowance.

The effective tax rate for the year ended December 31, 2022 was higher than the federal statutory tax rate of 21% primarily due to state and foreign income taxes.

Critical Accounting Policies, Recent Accounting Pronouncements, and Accounting Changes

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Investment earnings from these trusts are distributed to us regularly and recognized in current cemetery revenue.

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For more information related to revenue, see Notes 2 , 3 , and 13 in Part II, Item 8.

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We perform our goodwill impairment test by comparing the fair value of a reporting unit to its carrying amount, including goodwill.

We determine fair value of each

reporting unit using both a market and income approach.

We determine fair value of each reporting unit using both a market and income approach.

The income approach, which is a discounted cash flow method, uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows.

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These estimates are impacted by a number of factors, including changes in the economy and demographic or competitive changes in our areas of operation.

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Valuation of Trust Investments

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However, if we were to repatriate such foreign E&P, the foreign withholding tax liability is estimated to be $11.0 million.

Additionally, if we were to repatriate E&P in excess of our previously taxed income under the Tax Cuts and Jobs Act of 2017, such excess repatriation may cause us to incur an additional U.S.

federal income tax of approximately $7.7 million related to the Company’s hybrid debt accounting between Canada and the United States.

We file income tax returns, including tax returns for our subsidiaries, with federal, state, local, and foreign jurisdictions.

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Financial Statements and Supplementary Data.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis