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Item 7. Management’s Discussion and Analysis

2024-02-13 compared with 2023-02-15 · 93 added, 115 removed, 400 unchanged (34% 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, serving more than 600,000 families each year.

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 December 31, 2023, we operated 1,483 funeral service locations and 489 cemeteries (including 305 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 is the name families turn to for professionalism, compassion, and attention to detail that is second to none.

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.

Our financial position is enhanced by our $14.8 billion backlog of future revenue from both trust and insurance-funded preneed sales at December 31, 2023.

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While revenue on the majority of preneed merchandise and service sales is deferred until the time of need, sales of preneed cemetery property provide opportunities for full current revenue recognition to the extent that the property is developed and available for use.

We have adequate liquidity and a favorable debt maturity profile, which allow us to return capital to shareholders.

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

Factors affecting our operating results include:

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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 customer’s 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 enhances our customer’s experience by reducing administrative burdens and allowing them to visualize the product offerings and services, which will help drive increases in the average revenue for a cremation in future periods.

Recent Trends

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 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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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.

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

For a discussion of our results of operations and liquidity and capital resources for the fiscal year ended December 31, 2021, see Management’s Discussion and Analysis of Financial Condition, Liquidity and Capital Resources and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year December 31, 2022, filed with the Securities and Exchange Commission on February 15, 2023.

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Financial Condition, Liquidity, and Capital Resources

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As of December 31, 2023, we had $63.3 million in current maturities of long-term debt, which primarily consist of the current amounts due on our term loan and finance leases.

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:

Our Bank Credit Facility requires us to maintain a certain leverage ratio with which we were in compliance at December 31, 2023.

We target a leverage ratio of 3.5x to 4.0x.

Our financial covenant requirements and actual ratio as of December 31, 2023 are as follows:

Per Credit Agreement Actual

Leverage ratio 5.00 (Max) 3.58

Interest coverage ratio 3.00 (Min) 7.83

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.

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We target businesses with favorable customer dynamics and/or where we can achieve additional economies of scale.

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

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

Managing Debt.

We may seek to make open market debt repurchases when it is opportunistic to do so relative to other capital deployment opportunities and to manage our near-term debt maturity profile.

We have a relatively consistent annual cash flow stream that is generally resistant to down economic cycles.

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

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.

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

We invested $72.5 million in acquiring 17 funeral service locations and 2 cemeteries in 2023.

Return Excess Cash to Shareholders.

Absent strategic acquisition or new opportunities, we intend to return excess cash to shareholders.

Absent strategic acquisitions or new opportunities, we intend to return excess cash to shareholders through dividends and our share repurchase program.

Our quarterly dividend rate has steadily grown from $0.025 per common share in 2005 to $0.29 per common share at the end of 2023.

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.

We target a dividend 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 covenants and final determination by our Board of Directors each quarter upon review of our financial performance.

We also expect to continue to repurchase shares of our common stock in the open market or through privately negotiated transactions, subject to market conditions, debt covenants, and normal trading restrictions.

There can be no assurance that we will buy our common stock under our repurchase program in the future.

In 2023, we repurchased 8,700,767 shares of our common stock at an aggregate cost of $549.6 million, which is an average cost per share of $63.17.

In 2022, we repurchased 10,356,250 shares of our common stock at an aggregate cost of $661.1 million, which is an average cost per share of $63.84.

Subsequent to December 31, 2023, we repurchased 310,581 shares for $20.9 million at an average cost per share of $67.39.

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.

Bolstering our flexible capital strategy, we entered into a new bank credit agreement in January 2023 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, an increase of $500.0 million from our previous facility.

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.

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Net cash provided by operating activities was $869.0 million and $825.7 million for the years ended December 31, 2023, and 2022, respectively.

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,

This $43.3 million increase in operating cash flow is primarily driven by a $95.8 million decrease in cash tax payments partially offset by $66.3 million increase in cash interest payments and lower operating income of $47.5 million (excluding the impact of certain significant items) as the prior year was positively impacted by the pronounced effects of the COVID-19 pandemic.

The 2023 increase in operating cash flows over 2022 is primarily due to the following:

• a $95.8 million decrease in cash tax payments which is primarily related to a change in tax accounting method for our cemetery segment and will defer cash taxes into future years,

• a $41.3 million decrease in vendor and other payments,

• a $28.5 million increase in net trust withdrawals, and

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

• a $19.5 million increase in General Agency (GA) commission and other receipts, partially offset by

• a $66.3 million increase in cash interest payments,

• a $33.0 million increase in employee compensation payments,

• a $29.2 million decrease in cash receipts from customers, and

• a $13.3 million increase in payments for certain legal matters that were expensed in the prior year.

Investing Activities

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The $21.5 million increased outflow from 2023 over 2022 is primarily due to the following:

• a $66.0 million increase in capital expenditures:

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

• a $39.3 million increase in cash spent on real estate acquisitions,

• a $16.2 million decrease in cash receipts from divestitures and asset sales,

• a $7.9 million increase in other investing activities, partially offset by

• a $30.0 million decrease in cash spent on business acquisitions,

• a $7.9 million decrease in total capital expenditures, which comprises:

• $10.5 million decrease in maintenance capital expenditures:

• a $46.1 million decrease in expenditures for capital improvements at existing field locations,

• a $28.4 million increase in expenditures for cemetery property development,

• a $7.2 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 $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.

• a $2.6 million increase in expenditures for growth capital expenditures/construction of new funeral service locations, and

• a $4.0 million increase in proceeds for Company-owned life insurance policies, net of repayments.

Financing Activities

Financing activities used $448.0 million in 2022 compared to using $465.6 million in 2021.

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

• 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,

Financing activities used $381.1 million in 2023 compared to $448.0 million in 2022.

The $66.9 million decreased outflow from 2023 over 2022 is primarily due to the following:

• a $116.0 million decrease in the purchase of Company common stock, partially offset by

• a $33.8 million increase in debt repayments, net of proceeds,

• a $7.9 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.

• a $3.8 million change in bank overdrafts and other, and

• a $3.6 million decrease in proceeds from exercises of stock options.

Material Cash Requirements

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As of December 31, 2023, we had $4.7 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 $63.3 million is payable in the next twelve months.

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

The aggregate principal excludes $35.8 million in unamortized non-cash debt issuance costs and original issuance discounts and premiums.

Future interest payments associated with the debt and finance leases total $1.2

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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.

billion, of which $250.9 million is payable in the next twelve months.

For further information on our debt and finance leases see Note 6 and Note 8 of Part II, Item 8.

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We have operating lease agreements for funeral service real estate and office equipment for funeral service locations, cemetery locations, and administrative offices.

As of December 31, 2022, we had fixed lease payment obligations of $68.8 million, of which $9.0 million is payable in the next twelve months.

As of December 31, 2023, we had fixed lease payment obligations of $70.3 million, of which $10.0 million is due in the next twelve months.

See Note 8 in Part II, Item 8.

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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 December 31, 2022, the difference between the backlog and asset market amounts represents $0.19 billion related to contracts for which we have posted surety bonds as financial assurance in lieu of trusting, $1.27 billion collected from customers that were not required to be deposited into trusts, and $0.14 billion in allowable cash distributions from trust assets partially offset by $1.40 billion in amounts due on delivered property and merchandise.

As of December 31, 2023, the difference between the backlog and total assets at fair value represents $0.19 billion related to contracts for which we have posted surety bonds as financial assurance in lieu of trusting, $1.31 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 $1.51 billion in amounts due on delivered property and merchandise.

As of December 31, 2023, the fair value of the total backlog comprised $4.23 billion related to cemetery contracts and $10.61 billion related to funeral contracts.

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The investments are also governed by state and provincial guidelines.

All of the trusts seek to control risk and volatility through a combination of asset classes, investment styles, and a diverse mix of investment managers.

All of the trusts are intended 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.

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Both types of distributions are used to provide for the current and future maintenance and beautification of the cemetery properties.

As of December 31, 2022, approximately 94% of our trusts were under the control and custody of four large financial institutions.

As of December 31, 2023, approximately 95% of our trusts were under the control and custody of five large financial institutions.

trustees primarily use four managed limited liability companies (LLCs), one for each merchandise and service trust type and two for the cemetery perpetual care trust type, each with an independent trustee as custodian.

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The managed LLCs use the following structures for investments:

Commingled Funds.

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

Mutual Funds.

The trust funds employ institutional share class mutual funds where operationally or economically efficient.

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.

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equities, corporate bonds, government bonds, high yield bonds, and commodities, all of which are governed by guidelines outlined in their individual prospectuses.

Separately Managed Accounts.

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

Asset Classes

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Trust Performance

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.

During the year ended December 31, 2023, the Standard and Poor’s 500 Index increased 26.3% and the Bloomberg’s US Aggregate Bond Index increased 5.5%.

This compares to the SCI trusts that increased 16.3% during the same year-end period, which exceeded our internal custom benchmarks.

The SCI trusts have a diversified allocation of approximately 58% equities, 28% fixed income securities, 10% alternative and other investments with the remaining 4% 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.

Recognized trust fund income (realized and unrealized) related to our preneed trust investments was $158.2 million and $143.8 million for the years ended December 31, 2023 and 2022, respectively.

Recognized trust fund income (realized and unrealized) related to our cemetery perpetual care trust investments was $86.6 million and $85.1 million for the years ended December 31, 2023 and 2022, respectively.

The increase in recognized trust fund income is in part due to earnings retained related to unclaimed property audits and cancellations.

Information regarding the applicable unclaimed property audit is set forth in Part II, Item 8.

Financial Statements, Note 9 of this Form 10-K.

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 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)

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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.

(1) Estimate of certain legal matters in the fourth quarter of 2022 included an estimate of $64.6 million related to a private litigation matter in Florida and 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 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.

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.

Additionally, fewer shares outstanding and a lower tax rate helped to offset the impact of higher interest expense primarily due to rising interest rates.

Funeral Results

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2,266.7 2,321.6

comparable recognized preneed revenue 163.0 159.3

comparable general agency and other revenue 142.0 140.4

non-funeral home preneed sales revenue 133.1 146.4

core general agency and other revenue 179.6 161.4

Adjusted comparable funeral revenue $ 1,954.0 $ 2,013.8

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(1) We define comparable (or same store) operations as those funeral locations owned by us for the entire period beginning January 1, 2022 and ending December 31, 2023.

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

(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 $2,332.0 million for the year ended December 31, 2022, compared to $2,343.2 million for the same period in 2021.

Consolidated revenue from funeral operations was $2,303.0 million for the year ended December 31, 2023, compared to $2,332.0 million in 2022.

This $29.0 million, or 1.2%, decrease in revenue is primarily attributable to a $54.9 million decrease in comparable funeral revenue, partially offset by a $26.6 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 $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.

Comparable revenue from funeral operations was $2,266.7 million for the year ended December 31, 2023 compared to $2,321.6 million in 2022.

This $54.9 million decrease was primarily driven by the decrease in core revenue of $67.1 million as the prior year was impacted by the COVID-19 pandemic.

Our comparable funeral services performed decreased 5.6% which comprised of a 6.9% decrease in funeral services performed by our funeral service locations offset by a 1.9% increase in cremations performed by our non-funeral home channel.

This decrease was partially offset by a $18.2 million increase in comparable core general agency and other revenue as a result of higher comparable preneed insurance sales production.

Average revenue per funeral service increased 2.8% for the year ended December 31, 2023 compared to the same period in 2022.

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

This average revenue growth was primarily attributable to our consumer preferences for enhanced product and service offerings as well as an increase in trust fund income.

Our total comparable cremation rate increased 160 basis points to 62.9% for the year ended December 31, 2023.

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Consolidated funeral gross profit decreased $48.6 million, or 8.9%, in 2023 compared to 2022 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.

This decrease is primarily attributable to the decrease in comparable funeral gross profit of $52.2 million, or 9.5%.

Comparable funeral gross profit decreased $52.2 million to $494.6 million and the comparable gross profit percentage decreased from 23.6% to 21.8%.

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

This decrease in gross profit is due to the expected decline in revenue mentioned above combined with higher selling costs on higher preneed insurance sales production during the current year.

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gross (loss) profit associated with acquisitions/new construction (1.5) (0.1)

gross profit associated with divestitures — 0.2

Comparable (1) cemetery gross profit

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Cemetery Revenue

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.

Consolidated revenue from our cemetery operations increased $20.1 million, or 1.1%, in 2023 compared to 2022 primarily due to a $16.7 million, or 0.9%, increase in comparable cemetery revenue and a $3.7 million increase in revenue contributed by newly constructed and acquired properties.

The increase in comparable cemetery revenue was primarily attributable to a $15.0 million increase in comparable cemetery core revenue, which was driven by a $31.2 million increase in recognized preneed revenue, partially offset by a $16.2 million decline in atneed revenue.

The recognized preneed revenue growth benefited from increases in property, merchandise, and service revenue, as well as higher trust fund income.

The decline in comparable cemetery atneed revenue was due to an expected decrease in contract velocity compared to 2022 that was heavily impacted by the COVID-19 pandemic.

Cemetery Gross Profit

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.

Consolidated cemetery gross profit decreased $14.2 million, or 2.3%, in 2023 compared to 2022 and is primarily attributable to the decrease in comparable cemetery gross profit of $12.8 million, or 2.1%, and a $1.4 million decrease in gross profit due to an increase in gross losses contributed by newly constructed and acquired properties.

Comparable cemetery gross profit decreased $12.8 million to $596.2 million, and the gross profit percentage decreased 100 basis points to 33.3%.

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.

The decrease in gross profit is due to the decline in cemetery atneed revenue mentioned above combined with higher selling, maintenance and employee-related costs.

Other Financial Statement Items

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Corporate general and administrative expenses were $157.4 million in 2023 compared to $237.2 million in 2022.

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.

Excluding an estimated charge for certain legal matters of $64.6 million in the prior year, corporate general and administrative expenses decreased $15.2 million, primarily related to our incentive compensation plan.

Gains on Divestitures and Impairment Charges, Net

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Losses on Early Extinguishment of Debt, Net

During 2022, we made aggregate debt payments of $101.9 million for scheduled and early extinguishment payments.

During 2023, we made aggregate debt payments of $603.2 million for scheduled and early extinguishment payments primarily associated with our new bank credit agreement.

During 2022, we made aggregate debt payments of $101.9 million for scheduled and early extinguishment payments.

Certain of these transactions resulted in the recognition of pre-tax losses of $1.1 million and $1.2 million in 2023 and 2022, respectively, recorded in Losses on early extinguishment of debt, net in our Consolidated Statement of Operations.

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 2023 consolidated effective tax rate was 24.1%, compared to 25.1% in 2022.

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 decrease in the effective tax rate in 2023 was primarily due to the non-taxable gains arising from the cash surrender value of certain life insurance policies.

The effective tax rate for the year ended December 31, 2023 was higher than the federal statutory tax rate of 21% primarily due to state and foreign income taxes.

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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 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.

The income approach, which is a discounted cash flow method, uses

34 Service Corporation International

projections of future cash flows and includes assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows.

We do not record an impairment of goodwill in instances where the fair value of a reporting unit exceeds its carrying amount.

51 unchanged sentences

An increase in the valuation allowance would result in additional income tax expense in such period.

As of December 31, 2022, foreign withholding taxes have not been provided on the estimated $212.6 million of undistributed earnings and profits ("E&P") of our foreign subsidiaries as we intend to permanently reinvest these foreign E&P in those businesses outside the United States.

As of December 31, 2023, foreign withholding taxes have not been provided on the estimated $247.6 million of undistributed earnings and profits ("E&P") of our foreign subsidiaries as we intend to permanently reinvest these foreign E&P in the respective businesses outside the United States.

However, if we were to repatriate such foreign E&P, the foreign withholding tax liability is estimated to be $12.8 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.

federal income tax of approximately $7.7 million related to our hybrid debt structure between Canada and the United States that was eliminated in 2022.

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

19 unchanged sentences

Financial Statements and Supplementary Data.

34 Service Corporation International

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