SERVICE CORP INTERNATIONAL 10-K

Item 8. Financial Statements and Supplementary Data Index to Financial Statements and Related Schedule Page Financial Statements: Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 39 Consolidated Statement of Operations for the years ended December 31, 2023, 202 2 , and 2021 41 Consolidated Statement of Comprehensive Income for the years ended December 31, 2023, 2022, and 2021 42 Consolidated Balance Sheet as of December 31, 2023 and 2022 43 Consolidated Statement of Cash Flows for the years ended December 31, 2023, 2022, and 2021 44 Consolidated Statement of Equity for the years ended December 31, 2023, 2022, and 2021 45 Notes to Consolidated Financial Statements 46 1. Nature of Operations 46 2. Summary of Significant Accounting Policies 46 3. Preneed Activities 55 4. Goodwill and Intangible Assets 59 5. Income Taxes 60 6. Debt 64 7. Credit Risk and Fair Value of Financial Instruments 66 8. Leases 67 9. Commitments and Contingencies 69 10. Equity 70 11. Share-Based Compensation 70 12. Retirement Plans 73 13. Segment Reporting 76 14. Supplementary Information 78 15. Earnings Per Share 80 16. Acquisitions and Divestiture-Related Activities 81 Financial Statement Schedule: II — Valuation and Qualifying Accounts for the years ended December 31, 2023, 2022, and 2021 83 All other schedules have been omitted because the required information is not applicable or is not present in amounts sufficient to require submission or because the information required is included in the consolidated financial statements or the related notes thereto. 38 Service Corporation International PART II Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Service Corporation International Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheet of Service Corporation International and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, of comprehensive income, of equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. FORM 10-K 39 PART II Goodwill Impairment Assessment - Funeral Reporting Unit As described in Notes 2 and 4 to the consolidated financial statements, the Company’s consolidated goodwill balance was $2.0 billion as of December 31, 2023, and the goodwill associated with the funeral reporting unit was $1.6 billion. Goodwill is tested annually during the fourth quarter, or whenever certain events or changes in circumstances indicate that the carrying value of goodwill may be greater than fair value. In order to perform the goodwill impairment test, management compares the fair value of a reporting unit to its carrying amount, including goodwill. Management determines fair value of a 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, such as revenue and other growth rates and a discount rate, that may differ from actual future cash flows. The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the funeral reporting unit is a critical audit matter are the significant judgment by management when developing the fair value measurement of the reporting unit under the income approach. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating management’s cash flow projections and significant assumptions related to revenue growth rates (over a seven year period (“discrete years”) and terminal year) and ratio of expenses to revenue. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment of the funeral reporting unit, including controls over the valuation assertion. These procedures also included, among others, testing management’s process for developing the fair value estimate; evaluating the appropriateness of the discounted cash flow model; testing the completeness, accuracy, and relevance of underlying data used in the model; and evaluating the reasonableness of significant assumptions used by management related to the revenue growth rates (discrete years and terminal year) and ratio of expenses to revenue. Evaluating management’s assumptions related to the revenue growth rates (discrete years and terminal year) and the ratio of expenses to revenue involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with forecasts per industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the Company’s discounted cash flow model and the terminal year revenue growth rate assumption. /s/ PricewaterhouseCoopers LLP Houston, Texas February 13, 2024 We have served as the Company’s auditor since 1993. 40 Service Corporation International PART II Service Corporation International Consolidated Statement of Operations Years Ended December 31, 2023 2022 2021 (In thousands, except per share amounts) Revenue Property and merchandise revenue $ 2,124,600 $ 2,136,593 $ 2,139,795 Service revenue 1,683,417 1,707,099 1,730,860 Other revenue 291,761 264,969 272,488 Total revenue 4,099,778 4,108,661 4,143,143 Costs of revenue Cost of property and merchandise ( 1,075,041 ) ( 1,041,287 ) ( 1,007,261 ) Cost of service ( 912,346 ) ( 883,020 ) ( 833,183 ) Overhead and other expenses ( 1,020,584 ) ( 1,029,752 ) ( 979,624 ) Costs of revenue ( 3,007,971 ) ( 2,954,059 ) ( 2,820,068 ) Gross profit 1,091,807 1,154,602 1,323,075 Corporate general and administrative expenses ( 157,368 ) ( 237,248 ) ( 157,568 ) Gains on divestitures and impairment charges, net 9,816 9,962 25,169 Operating income 944,255 927,316 1,190,676 Interest expense ( 239,447 ) ( 172,109 ) ( 150,610 ) Losses on early extinguishment of debt, net ( 1,114 ) ( 1,225 ) ( 5,226 ) Other income, net 4,912 1,646 10,660 Income before income taxes 708,606 755,628 1,045,500 Provision for income taxes ( 170,945 ) ( 189,594 ) ( 242,248 ) Net income 537,661 566,034 803,252 Net income attributable to noncontrolling interests ( 344 ) ( 696 ) ( 313 ) Net income attributable to common stockholders $ 537,317 $ 565,338 $ 802,939 Basic earnings per share: Net income attributable to common stockholders $ 3.57 $ 3.58 $ 4.79 Basic weighted average number of shares 150,565 157,713 167,542 Diluted earnings per share: Net income attributable to common stockholders $ 3.53 $ 3.53 $ 4.72 Diluted weighted average number of shares 152,351 160,131 170,114 (See notes to consolidated financial statements) FORM 10-K 41 PART II Service Corporation International Consolidated Statement of Comprehensive Income Years Ended December 31, 2023 2022 2021 (In thousands) Net income $ 537,661 $ 566,034 $ 803,252 Other comprehensive income: Foreign currency translation adjustments 8,353 ( 23,681 ) 846 Total comprehensive income 546,014 542,353 804,098 Total comprehensive income attributable to noncontrolling interests ( 344 ) ( 691 ) ( 311 ) Total comprehensive income attributable to common stockholders $ 545,670 $ 541,662 $ 803,787 (See notes to consolidated financial statements) 42 Service Corporation International PART II Service Corporation International Consolidated Balance Sheet December 31, 2023 2022 (In thousands, except share amounts) ASSETS Current assets: Cash and cash equivalents $ 221,557 $ 191,938 Receivables, net of reserves of $ 4,382 and $ 6,186 , respectively 97,939 96,681 Inventories 33,597 31,740 Income tax receivable 122,183 7,021 Other 23,010 32,466 Total current assets 498,286 359,846 Preneed receivables, net of reserves of $ 32,475 and $ 27,314 , respectively and trust investments 6,191,912 5,577,499 Cemetery property 2,020,846 1,939,816 Property and equipment, net 2,480,099 2,350,549 Goodwill 1,977,186 1,945,588 Deferred charges and other assets, net of reserves of $ 2,345 and $ 3,602 , respectively 1,247,830 1,190,426 Cemetery perpetual care trust investments 1,939,241 1,702,313 Total assets $ 16,355,400 $ 15,066,037 LIABILITIES & EQUITY Current liabilities: Accounts payable and accrued liabilities $ 685,699 $ 707,488 Current maturities of long-term debt 63,341 90,661 Income taxes payable 60 1,131 Total current liabilities 749,100 799,280 Long-term debt 4,649,155 4,251,083 Deferred revenue, net 1,703,509 1,624,028 Deferred tax liability 638,106 445,040 Other liabilities 464,935 411,376 Deferred receipts held in trust 4,670,884 4,163,520 Care trusts’ corpus 1,938,238 1,698,287 Commitments and contingencies (Note 9) Equity: Common stock,$ 1 per share par value, 500,000,000 shares authorized, 148,297,042 and 156,088,438 shares issued, respectively, and 146,323,340 and 153,940,365 shares outstanding, respectively 146,323 153,940 Capital in excess of par value 937,596 958,329 Retained earnings 432,454 544,384 Accumulated other comprehensive income 24,891 16,538 Total common stockholders’ equity 1,541,264 1,673,191 Noncontrolling interests 209 232 Total equity 1,541,473 1,673,423 Total liabilities and equity $ 16,355,400 $ 15,066,037 (See notes to consolidated financial statements) FORM 10-K 43 PART II Service Corporation International Consolidated Statement of Cash Flows Years Ended December 31, 2023 2022 2021 (In thousands) Cash flows from operating activities: Net income $ 537,661 $ 566,034 $ 803,252 Adjustments to reconcile net income to net cash provided by operating activities: Losses on early extinguishment of debt, net 1,114 1,225 5,226 Depreciation and amortization 191,272 175,330 159,306 Amortization of intangibles 18,736 18,355 20,002 Amortization of cemetery property 101,234 94,123 98,162 Amortization of loan costs 6,871 6,851 6,367 Provision for expected credit losses 11,245 16,700 11,362 Provision for (benefit from) deferred income taxes 191,516 3,471 ( 5,837 ) Gains on divestitures and impairment charges, net ( 9,816 ) ( 9,962 ) ( 25,169 ) Gain on sale of investments — ( 1,169 ) — Share-based compensation 15,423 14,709 14,168 Change in assets and liabilities, net of effects from acquisitions and divestitures: Decrease (increase) in receivables ( 3,810 ) 4,151 ( 20,215 ) Increase in other assets ( 131,581 ) ( 8,206 ) ( 54,883 ) Increase in payables and other liabilities ( 9,676 ) 37,029 53,747 Effect of preneed sales production and maturities: Increase in preneed receivables, net and trust investments ( 178,642 ) ( 309,055 ) ( 308,061 ) Increase in deferred revenue, net 157,656 195,358 119,730 Increase in deferred receipts held in trust ( 30,160 ) 20,781 43,451 Net cash provided by operating activities 869,043 825,725 920,608 Cash flows from investing activities: Capital expenditures ( 361,793 ) ( 369,709 ) ( 303,660 ) Business acquisitions, net of cash acquired ( 72,535 ) ( 102,558 ) ( 121,382 ) Real estate acquisitions ( 56,409 ) ( 17,127 ) ( 26,604 ) Proceeds from divestitures and sales of property and equipment 25,888 42,093 40,696 Payments for Company-owned life insurance policies ( 8,058 ) ( 1,910 ) ( 3,982 ) Proceeds from Company-owned life insurance policies 10,119 — — Other investing activities ( 6,598 ) 1,330 — Net cash used in investing activities ( 469,386 ) ( 447,881 ) ( 414,932 ) Cash flows from financing activities: Proceeds from issuance of long-term debt 957,433 484,000 975,000 Debt issuance costs ( 7,471 ) ( 525 ) ( 13,640 ) Scheduled payments of debt ( 22,230 ) ( 36,288 ) ( 36,158 ) Early payments of debt ( 580,973 ) ( 65,591 ) ( 699,837 ) Principal payments on finance leases ( 34,482 ) ( 35,542 ) ( 34,617 ) Proceeds from exercise of stock options 24,181 27,814 39,354 Purchase of Company common stock ( 544,844 ) ( 660,850 ) ( 554,313 ) Payments of dividends ( 167,983 ) ( 160,035 ) ( 146,919 ) Bank overdrafts and other ( 4,773 ) ( 980 ) 5,510 Net cash used in financing activities ( 381,142 ) ( 447,997 ) ( 465,620 ) Effect of foreign currency 1,722 ( 3,878 ) ( 111 ) Net (decrease) increase in cash, cash equivalents, and restricted cash 20,237 ( 74,031 ) 39,945 Cash, cash equivalents, and restricted cash at beginning of period 204,524 278,555 238,610 Cash, cash equivalents, and restricted cash at end of period $ 224,761 $ 204,524 $ 278,555 (See notes to consolidated financial statements) 44 Service Corporation International PART II Service Corporation International Consolidated Statement of Equity Common Stock Treasury Stock, Par Value Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income Noncontrolling Interest Total (In thousands, except per share amounts) Balance at December 31, 2020 $ 174,792 $ (4,075) $ 981,934 $ 560,731 $ 39,366 $ (127) $ 1,752,621 Comprehensive income — — — 802,939 848 311 804,098 Dividends declared on common stock ($ 0.88 per share) — — — (146,919) — — ( 146,919 ) Employee share-based compensation earned — — 14,168 — — — 14,168 Stock option exercises 1,642 — 38,035 — — — 39,677 Restricted stock awards, net of forfeitures 163 — (163) — — — — Purchase of Company common stock — (9,438) (55,468) (489,730) — — ( 554,636 ) Noncontrolling interest payments — — — — — (180) ( 180 ) Retirement of treasury shares (9,805) 9,805 — — — — — Other 30 — 590 — — — 620 Balance at December 31, 2021 $ 166,822 $ ( 3,708 ) $ 979,096 $ 727,021 $ 40,214 $ 4 $ 1,909,449 Comprehensive income — — — 565,338 (23,676) 691 542,353 Dividends declared on common stock ($ 1.02 per share) — — — (160,035) — — ( 160,035 ) Employee share-based compensation earned — — 14,709 — — — 14,709 Stock option exercises 1,010 — 27,084 — — — 28,094 Restricted stock awards, net of forfeitures 149 (1) (148) — — — — Purchase of Company common stock — (10,356) (62,834) (587,940) — — ( 661,130 ) Noncontrolling interest payments — — — — — (463) ( 463 ) Retirement of treasury shares (11,916) 11,916 — — — — — Other 24 — 422 — — — 446 Balance at December 31, 2022 $ 156,089 $ ( 2,149 ) $ 958,329 $ 544,384 $ 16,538 $ 232 $ 1,673,423 Comprehensive income — — — 537,317 8,353 344 546,014 Dividends declared on common stock ($ 1.12 per share) — — — (167,983) — — ( 167,983 ) Employee share-based compensation earned — — 15,423 — — — 15,423 Stock option exercises 927 — 23,254 — — — 24,181 Restricted stock awards, net of forfeitures 132 1 (133) — — — — Purchase of Company common stock — (8,701) (59,603) (481,264) — — ( 549,568 ) Noncontrolling interest payments — — — — — (367) ( 367 ) Retirement of treasury shares (8,874) 8,874 — — — — — Other 24 — 326 — — — 350 Balance at December 31, 2023 $ 148,298 $ ( 1,975 ) $ 937,596 $ 432,454 $ 24,891 $ 209 $ 1,541,473 (See notes to consolidated financial statements) FORM 10-K 45 PART II Service Corporation International Notes to Consolidated Financial Statements 1. Nature of Operations Service Corporation International (SCI) is a holding company and all operations are conducted by its subsidiaries. We are North America’s largest provider of deathcare products and services, with a network of funeral service locations and cemeteries operating in the United States and Canada. Our funeral service and cemetery operations consist of funeral service locations, cemeteries, funeral service/cemetery combination locations, crematoria, and other related businesses, which enable us to serve a wide array of customer needs. We sell cemetery property and funeral and cemetery merchandise and services at the time of need and on a preneed basis. We strive to offer families exceptional service in planning life celebrations and personalized remembrances. Funeral service locations provide all professional services relating to funerals and cremations, including the use of funeral facilities and motor vehicles, arranging and directing services, removal, preparation, embalming, cremations, memorialization, travel protection, and catering. Funeral merchandise, including burial caskets and related accessories, urns and other cremation receptacles, outer burial containers, flowers, online and video tributes, stationery products, casket and cremation memorialization products, and other ancillary merchandise, is sold at funeral service locations. Our cemeteries provide cemetery property interment rights, including developed lots, lawn crypts, mausoleum spaces, niches, and other cremation memorialization and interment options. Cemetery merchandise and services, including cemetery markers and bases, outer burial containers, flowers and floral placement, other ancillary merchandise, graveside memorial services, merchandise installation, and interments, are sold at our cemeteries. 2. Summary of Significant Accounting Policies Principles of Consolidation and Basis of Presentation Our consolidated financial statements include the accounts of Service Corporation International (SCI) and all subsidiaries in which we hold a controlling financial interest. Intercompany balances and transactions have been eliminated in consolidation. Our consolidated financial statements also include the accounts of the merchandise and service trusts and cemetery perpetual care trusts in which we have a variable interest and are the primary beneficiary. We have retained the specialized industry accounting principles when consolidating the trusts. Our trusts are variable interest entities, for which we have determined that we are the primary beneficiary as we absorb a majority of the losses and returns associated with these trusts. Although we consolidate the trusts, it does not change the legal relationships among the trusts, us, or our customers. The customers are the legal beneficiaries of these trusts; therefore, their interests in these trusts represent a liability to us. Certain reclassifications have been made to prior period amounts to conform to the current period disclosure presentation with no effect on our consolidated net income or cash flows. Use of Estimates in the Preparation of Financial Statements The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. As a result, actual results could differ from these estimates. Cash, Cash Equivalents, and Restricted Cash We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. The carrying amounts of our cash and cash equivalents approximate fair value due to the short-term nature of these instruments. 46 Service Corporation International PART II The components of cash, cash equivalents, and restricted cash were as follows: Years Ended December 31, 2023 2022 (In thousands) Cash and cash equivalents $ 221,557 $ 191,938 Restricted cash (1) : Included in Other current assets 370 10,379 Included in Deferred charges and other assets 2,834 2,207 Total restricted cash 3,204 12,586 Total cash, cash equivalents, and restricted cash $ 224,761 $ 204,524 (1) Restricted cash in both periods primarily consists of proceeds from divestitures deposited into escrow accounts under IRS code section 1031 and collateralized obligations under certain insurance policies. Receivables, Net The components of Receivables, net in our Consolidated Balance Sheet were as follows: December 31, 2023 Atneed Funeral Atneed Cemetery Miscellaneous Current Portion of Notes Total (In thousands) Receivables $ 35,572 $ 19,277 $ 47,297 $ 175 $ 102,321 Reserve for credit losses ( 1,784 ) ( 2,118 ) ( 343 ) ( 137 ) ( 4,382 ) Receivables, net $ 33,788 $ 17,159 $ 46,954 $ 38 $ 97,939 December 31, 2022 Atneed Funeral Atneed Cemetery Miscellaneous Current Portion of Notes Total (In thousands) Receivables $ 44,417 $ 19,781 $ 38,483 $ 186 $ 102,867 Reserve for credit losses ( 3,627 ) ( 2,076 ) ( 344 ) ( 139 ) ( 6,186 ) Receivables, net $ 40,790 $ 17,705 $ 38,139 $ 47 $ 96,681 Additionally, included in Deferred charges and other assets, net were notes receivable, net and long-term miscellaneous receivables, net as follows: December 31, 2023 December 31, 2022 (In thousands) Notes receivable $ 10,294 $ 9,367 Reserve for credit losses ( 1,797 ) ( 2,546 ) Notes receivable, net $ 8,497 $ 6,821 Long-term miscellaneous receivables $ 7,888 $ 7,993 Reserve for credit losses ( 548 ) ( 1,056 ) Long-term miscellaneous receivables, net $ 7,340 $ 6,937 Our atneed trade receivables primarily consist of amounts due for funeral and cemetery services already performed. We provide reserves for credit losses for our receivables. These reserves are based on an analysis of historical trends of collection activity adjusted for current conditions and forecasts. These estimates are impacted by a number of factors, including changes in the economy and demographic or competitive changes in our areas of operation. Cemetery preneed receivables are collateralized by cemetery property to the extent of the fair value of the property. Payment on atneed contracts is generally due at the time the merchandise is delivered or the services are performed. We also have preneed receivables, as disclosed in Note 3, for which payment generally occurs prior to our fulfillment of the performance obligations. Our preneed contracts may also have extended payment terms with associated financing charges. FORM 10-K 47 PART II We do not accrue interest on preneed receivables if they are not paid in accordance with the contractual payment terms given the nature of our merchandise and services, the nature of our contracts with customers, and the timing of the delivery of our services. Generally, receivables are considered past due after thirty days. We do not consider preneed funeral receivables to be past due until the contract converts into an atneed contract at which time the preneed receivable is paid or reclassified as a trade receivable with payment terms of less than thirty days. Collections are generally managed by the locations or our in house collection agencies acting on behalf of the locations, until a receivable is one hundred eighty days delinquent, at which time trade receivables are fully reserved. The following table summarizes the activity in our reserve for credit losses by portfolio segment, excluding preneed receivables which are presented in Note 3 , for the year ended December 31, 2023: December 31, 2022 Provision for Expected Credit Losses (Acquisitions) Divestitures, net Write Offs Recoveries Effect of Foreign Currency December 31, 2023 (In thousands) Trade receivables: Funeral $ ( 3,627 ) $ ( 2,626 ) $ — $ 6,280 $ ( 1,893 ) $ 82 $ ( 1,784 ) Cemetery ( 2,076 ) ( 1,139 ) — 1,467 ( 371 ) 1 ( 2,118 ) Total reserve for credit losses on trade receivables $ ( 5,703 ) $ ( 3,765 ) $ — $ 7,747 $ ( 2,264 ) $ 83 $ ( 3,902 ) Miscellaneous receivables: Current $ ( 344 ) $ 1 $ — $ — $ — $ — $ ( 343 ) Long-term ( 1,056 ) 508 — — — — ( 548 ) Total reserve for credit losses on miscellaneous receivables $ ( 1,400 ) $ 509 $ — $ — $ — $ — $ ( 891 ) Notes receivable $ ( 2,685 ) $ 2 $ — $ 1,281 $ — $ ( 532 ) $ ( 1,934 ) At December 31, 2023, the amortized cost basis of our miscellaneous and notes receivables by year of origination was as follows: 2023 2022 2021 2020 2019 Prior Revolving Line of Credit Total (In thousands) Miscellaneous receivables: Current $ 44,897 $ 1,681 $ 427 $ 207 $ 83 $ 2 $ — $ 47,297 Long-term 3,607 2,255 1,351 313 353 9 — 7,888 Total miscellaneous receivables $ 48,504 $ 3,936 $ 1,778 $ 520 $ 436 $ 11 $ — $ 55,185 Notes receivable $ — $ — $ — $ 11 $ — $ 4,603 $ 5,855 $ 10,469 48 Service Corporation International PART II At December 31, 2023, 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 $ — $ 19 $ 249 $ 1,244 $ 1,512 $ 45,785 $ 47,297 Long-term — — — — — 7,888 7,888 Total miscellaneous receivables $ — $ 19 $ 249 $ 1,244 $ 1,512 $ 53,673 $ 55,185 Notes receivable $ — $ 117 $ — $ 1,116 $ 1,233 $ 9,236 $ 10,469 Inventories and Cemetery Property Funeral and cemetery merchandise are stated at the lower of average cost or net realizable value. Cemetery property is recorded at cost. Inventory costs and cemetery property are relieved using specific identification in fulfillment of performance obligations on our contracts. Cemetery property amortization was $ 101.2 million, $ 94.1 million, and $ 98.2 million for the years ended December 31, 2023, 2022, and 2021, respectively. Property and Equipment, Net Property and equipment are recorded at cost. Maintenance and repairs are charged to expense, whereas renewals and major replacements that extend the useful lives of the assets are capitalized. Depreciation is recognized ratably over the estimated useful lives of the various classes of assets. Buildings and improvements are depreciated over a period ranging from ten years to forty years , equipment is depreciated over a period from three years to twelve years , and leasehold improvements are depreciated over the shorter of the lease term or twelve years . Depreciation and amortization expense related to property and equipment was $ 191.3 million, $ 175.3 million, and $ 159.3 million for the years ended December 31, 2023, 2022, and 2021, respectively. When property or equipment is sold or retired, the cost and related accumulated depreciation are removed from the Consolidated Balance Sheet and the resulting gains and losses are included in the Consolidated Statement of Operations in the period of sale or disposal. Leases We have operating and finance leases. Our operating leases primarily include funeral service real estate and office equipment for funeral service locations, cemetery locations, and administrative offices. Our finance leases primarily include transportation equipment but also include real estate and office equipment. Lease terms related to real estate generally range from one year to forty years with options to renew at varying terms. Lease terms related to office and transportation equipment generally range from one year to nine years with options to renew at varying terms. We determine whether an arrangement is or contains a lease at the inception of the arrangement based on the unique facts and circumstances present. Right-of-use (ROU) assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Leases with a term greater than one year are recognized on the balance sheet as ROU assets and lease liabilities. We have elected not to recognize on the balance sheet leases with terms of one year or less. Lease liabilities and their corresponding ROU assets are recorded at commencement date based on the present value of lease payments over the expected lease term. For transportation equipment, we use the rate implicit in each lease to calculate the present value. For real estate and non-transportation equipment leases, the interest rate implicit in lease contracts is typically not readily determinable. Therefore, we use the appropriate collateralized incremental borrowing rate based on the information available at commencement date in determining the present value of future payments for real estate and non-transportation equipment leases. Certain adjustments to the ROU asset may be required for items such as initial direct costs paid or incentives received. For a lessee, the discount rate for the lease is defined as the rate implicit in the lease unless that rate cannot be readily determined. In that case, the lessee is required to use its incremental borrowing rate, which is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term with an amount equal to the lease payments in a similar economic environment. We use the rate implicit in each lease for vehicles and other transportation equipment, which represen ts 59% of our total lease liability as of December 31, 2023 and which are substantially all finance leases. For leases of real estate and non-transportation equipment, which are primarily operating leases, we use our incremental borrowing rate since the rate implicit in these leases cannot be readily determined. To calculate the incremental borrowing rate, we utilize the yield-to-worst of our publicly traded debt securities, adjusted for the appropriate duration on a secured basis. As an accounting policy election, we include reasonably certain renewal periods when determining the rate to use as the incremental borrowing rate for each lease. FORM 10-K 49 PART II We calculate operating lease expense ratably over the lease term. We consider reasonably assured renewal options and fixed escalation provisions in our calculation. Generally, our leases do not include options to terminate the lease prior to the contractual lease expiration date, but future renewal periods are generally cancelable. The majority of our contractually available renewal periods for leases of buildings and land are considered reasonably certain of being exercised. This determination is made by our real estate team based on facts and circumstances surrounding each property. Leases with a term of 12 months or less are not recorded on the balance sheet. The majority of our lease arrangements contain options to (i) purchase the property at fair value on the exercise date, (ii) purchase the property for a value determined at the inception of the lease, or (iii) renew the lease for the fair rental value at the end of the primary lease term. The depreciable life of assets and leasehold improvements are generally limited by the expected lease term. Certain of our lease agreements include variable rental payments based on a percentage of sales over base contractual levels and others include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We generally do not have sublease arrangements, sale-leaseback arrangements, or leveraged leases. We have lease agreements with lease and non-lease components, which are generally accounted for separately. For leases commencing before January 1, 2019, we have elected the practical expedient to not separate lease and non-lease components on certain equipment leases, such as copiers where the cost-per-copy maintenance charges are included in the lease charge. On these leases, we have elected to account for the lease and non-lease components as a single component. For leases commencing on or after January 1, 2019, we account for the maintenance charges (non-lease components) separately from the lease components. For more information related to leases, see Note 8 . Goodwill The excess of purchase price over the fair value of identifiable net assets acquired in business combinations is recorded as goodwill. Goodwill is tested annually during the fourth quarter for impairment by assessing the fair value of each of our reporting units. Our goodwill impairment test involves estimates and management judgment. In order to perform our goodwill impairment test, we compare 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. 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. We do not record an impairment of goodwill in instances where the fair value of a reporting unit exceeds its carrying amount. If the carrying amount exceeds the fair value of a reporting unit, an impairment is recognized in an amount equal to the excess, up to the amount of goodwill in the reporting unit. For our most recent annual impairment test performed in the fourth quarter, we used a 6.75 % discount rate, revenue growth rates ranging from 1.0 % to 3.0 % over a seven-year period, plus a terminal value determined using the constant growth method in projecting our future cash flows. Our terminal value was calculated using a long-term revenue growth rate of 1.0 % and 2.8 % for our funeral and cemetery reporting units, respectively. Additionally, we used a ratio of expenses to revenue ranging from 70.0 % to 80.0 % and growth rates for other assumptions in our model ranging from 2.0 % to 3.0 %. Fair value was calculated as the sum of the projected discounted cash flows of our reporting units over the next seven years plus terminal value at the end of those seven years. In addition to our annual review, we assess the impairment of goodwill whenever certain events or changes in circumstances indicate that the carrying value may be greater than fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant underperformance relative to historical or projected future operating results and significant negative industry or economic trends. For more information related to goodwill, see Note 4 . Other Intangible Assets Our intangible assets include covenants-not-to-compete, customer relationships, trademarks and tradenames, and other intangible assets primarily resulting from acquisitions. Certain of our trademark and tradenames and other intangible assets are considered to have an indefinite life and are not subject to amortization. We test for impairment of indefinite-lived intangible assets annually during the fourth quarter. Our intangible asset impairment tests involve estimates and management judgment. For trademarks and tradenames, our test uses the relief from royalty method whereby we determine the fair value of the assets by discounting the cash flows that represent a savings over having to pay a royalty fee for use of the trademarks and tradenames. The discounted cash flow valuation uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows. For our most recent annual impairment test performed in the fourth quarter, we estimated that the pre-tax savings would range from 2.0 % to 5.0 % ( 4.2 % weighted average using carrying value) of the revenue associated with the trademarks and tradenames, based primarily on our research of intellectual property valuation and licensing databases. We also assumed a terminal growth rate of 1.0 % and 2.8 % for our funeral and cemetery segments ( 1.5 % weighted average using carrying value), respectively, and discounted the cash flows at a 6.95 % discount rate based on the relative risk of these assets to our overall business. 50 Service Corporation International PART II In addition to our annual review, we assess the impairment of intangible assets whenever certain events or changes in circumstances indicate that the carrying value may be greater than the fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant under-performance relative to historical or projected future operating results and significant negative industry or economic trends. Certain of our intangible assets associated with prior acquisitions are relieved using specific identification in fulfillment of performance obligations on our contracts with customers. We amortize all other finite-lived intangible assets on a straight-line basis over their estimated useful lives, which range from five years to eighty-nine years . For more information related to intangible assets, see Note 4 . Fair Value Measurements We measure the securities held by our funeral merchandise and service, cemetery merchandise and service, and cemetery perpetual care trusts at fair value on a recurring basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We utilize a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: • Where quoted prices are available in an active market, securities held by the trusts are classified as Level 1 investments. • Where quoted market prices are not available for the specific security, fair values are estimated by using either quoted prices of securities with similar characteristics or an income approach fair value model with observable inputs that include a combination of interest rates, yield curves, credit risks, prepayment speeds, ratings, and tax-exempt status. These securities are classified as Level 2 investments. • The valuation of other investments requires management judgment due to the absence of quoted market prices, inherent lack of liquidity, and the long-term nature of such assets. These securities are classified as Level 3 investments. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Fixed income commingled funds, money market funds, and private equity investments are measured at net asset value. Fixed income commingled funds and money market funds are redeemable for net asset value with two weeks' notice and immediately, respectively. Our private equity investments include several funds that invest in limited partnerships, distressed debt, real estate, and mezzanine financing. These investments can never be redeemed by the funds. Instead, due to the nature of the investments in this category, distributions are received through the liquidation of the underlying assets of the funds. Valuation policies and procedures are determined by our Trust Services department, which reports to our Chief Financial Officer. Additionally, valuations are reviewed quarterly by the Investment Committee of the Board of Directors. Treasury Stock We make treasury stock purchases in the open market or through privately negotiated transactions subject to market conditions and normal trading restrictions. We account for the repurchase of our common stock under the par value method. We canceled 8.9 million, 11.9 million, and 9.8 million shares of our common stock held in our treasury in 2023, 2022, and 2021, respectively. These retired treasury shares were changed to authorized but unissued status. Foreign Currency Translation All assets and liabilities of Canadian subsidiaries are translated into U.S. dollars at exchange rates in effect as of the end of the reporting period. Revenue and expense items are translated at the average exchange rates for the reporting period. The resulting translation adjustments are included as a component of Accumulated other comprehensive income in the Consolidated Statement of Equity and Consolidated Balance Sheet. The functional currency of SCI and its subsidiaries is the respective local currency. The transactional currency gains and losses that arise from transactions denominated in currencies other than the functional currencies of our operations are recorded in Other income, net in the Consolidated Statement of Operations. We do not have any investments in foreign operations considered to be in highly inflationary economies. Funeral and Cemetery Operations Revenue is recognized when control of the merchandise or services is transferred to the customer. Our performance obligations include the delivery of funeral and cemetery merchandise and services and cemetery property interment rights. Control transfers when merchandise is delivered or services are performed. For cemetery property interment rights, control transfers to the customer when the property is developed and the interment right has been sold and can no longer be marketed or sold to another customer. Sales taxes collected are recognized on a net basis in our consolidated financial statements. On our atneed contracts, we generally deliver the merchandise and perform the services at the time of need. Personalized marker merchandise and marker installation services sold on atneed contracts are recognized when control is transferred to the customer, generally when the marker is delivered and installed in the cemetery. FORM 10-K 51 PART II We also sell price-guaranteed preneed contracts through various programs providing for future merchandise and services at prices prevailing when the agreements are signed. Revenue associated with sales of preneed contracts is deferred until control of the merchandise or the services is transferred to the customer, which is upon delivery of the merchandise or as services are performed, generally at the time of need. On certain preneed contracts, we sell memorialization merchandise, which consists of urns and urn-related products, that we deliver to the customer at the time of sale. Revenue is recognized at the time of delivery when control of the memorialization merchandise is transferred. For personalized marker merchandise sold on a preneed contract, we will: • purchase the merchandise from vendors, • personalize such merchandise in accordance with the customer's specific written instructions, • either store the merchandise at a third-party bonded storage facility or install the merchandise, based on the customer's instructions, and • transfer title to the customer. We recognize revenue and record the cost of sales when control is transferred for the merchandise, which occurs upon delivery to the third-party storage facility or installation of the merchandise at the cemetery. There is no general right of return for delivered items. We also sell travel protection as an agent of a third party. Travel protection is a service that provides shipment of remains to the servicing funeral home or cemetery of choice if the purchaser passes away outside of a certain radius of their residence, without any additional expense to the family. We do not provide these travel protection services, and we are not primarily obligated to provide such services under these arrangements. Therefore, we record revenues, net of amounts due to the third-party, at the time of sale. Total consideration received for price-guaranteed preneed and for atneed contracts with customers represents the stated amount of the contract excluding any amounts collected on behalf of third parties, such as sales taxes. Additionally, pursuant to state or provincial law, all or a portion of the proceeds from merchandise or services sold on a preneed basis may be required to be deposited into trust funds. Earnings on these trust funds, which are specifically identifiable for each performance obligation, are also included in total consideration. The total consideration received for contracts with customers is allocated to each performance obligation based on relative selling price. Relative selling prices are determined by either the amount we sell the performance obligation for on a stand-alone basis or our best estimate of the amount we would sell it for based on an adjusted market assessment approach that is consistent with our historical pricing practices. Payment on atneed contracts is generally due at the time the merchandise is delivered or the services are performed. For preneed contracts, payment generally occurs prior to our fulfillment of the performance obligations. Our preneed contracts may also have extended payment terms with associated financing charges. We do not accrue interest on preneed receivables if they are not paid in accordance with the contractual payment terms given the nature of our merchandise and services, the nature of our contracts with customers, and the timing of the delivery of our services. We do not consider preneed receivables to be past due until the merchandise or services are required to be delivered at which time the preneed receivable is paid or reclassified as a trade receivable with payment terms of less than thirty days. For unfulfilled performance obligations on cancelable preneed contracts, our Consolidated Balance Sheet reflects the net contract liability, which represents the amount we have collected from customers, in Deferred revenue, net . Pursuant to state or provincial law, all or a portion of the proceeds from merchandise or services sold on a preneed basis may be required to be deposited into trust funds. When we receive payments from the customer, we deposit the amount required by law into the merchandise and service trusts and reclassify the corresponding amount from Deferred revenue, net into Deferred receipts held in trust . Amounts are withdrawn from the merchandise and service trusts when we fulfill the performance obligations. Fixed income securities held by these trust funds are classified as trading securities. Earnings on these trust funds, which are specifically identifiable for each performance obligation, are also included in total consideration. We defer these investment earnings related to the merchandise and service trusts until the associated merchandise is delivered or services are performed. Fees charged by our wholly-owned registered investment advisor are also included in revenue in the period in which they are earned. If a preneed contract is canceled prior to delivery, state or provincial law determines the amount of the refund owed to the customer, if any, including the amount of the attributed investment earnings. Upon cancellation, we receive the amount of principal deposited to the trust and previously undistributed net investment earnings and, where required, issue a refund to the customer. In addition, we are entitled to retain, in certain jurisdictions, a portion of collected customer payments when a customer cancels a preneed contract. We recognize these retained funds, if any, and the attributed investment earnings (net of any investment earnings payable to the customer) as revenue in the Consolidated Statement of Operations. In certain jurisdictions, we may be obligated to fund any shortfall if the amount refundable to the customer exceeds the funds in trust. A portion of the proceeds from the sale of cemetery property interment rights is required by state or provincial law to be paid into perpetual care trust funds by us to maintain the cemetery. This portion of the proceeds is not recognized as revenue. Fixed income securities held by these trust funds are classified as trading securities. Investment earnings from these trusts 52 Service Corporation International PART II are distributed to us regularly and recognized in current cemetery revenue. These distributions are intended to defray cemetery maintenance costs incurred by us for our cemetery properties, which are expensed as incurred. The principal of such perpetual care trust funds generally cannot be withdrawn; however, in lieu of the distribution of realized income, certain states allow a total return distribution, which may contain elements of income, capital appreciation, and principal. Costs related to delivery or performance of merchandise and services are charged to expense when merchandise is delivered or services are performed. Costs related to property interment rights include the property and construction costs specifically identified by each project. Property and construction costs are charged to expense when the revenue is recognized by specific identification in the fulfillment of the performance obligation. Incremental direct selling costs are deferred until fulfillment of the performance obligations . These deferred costs are classified as long-term on our Consolidated Balance Sheet because we do not control the timing of the delivery of the merchandise or performance of the services as they are generally provided at the time of need. For the years ended December 31, 2023, 2022, and 2021, we recognized $ 247.4 million, $ 263.9 million, and $ 259.9 million, respectively, of incremental selling costs. All other selling costs are expensed as incurred. The components of Cost of revenue in our Consolidated Statement of Operations are: • Cost of property and merchandise , which includes cemetery property amortization, the direct cost of merchandise, labor-related costs for merchandise handling and delivery, cemetery maintenance expenses and depreciation, and selling costs; • Cost of services , which includes the direct cost of providing the services (including labor-related costs), cemetery maintenance expenses and depreciation, vehicle operating costs and depreciation, and selling costs; and • Overhead and other expenses , which includes labor-related costs, facility expenses and depreciation, and other general and administrative expenses incurred in our funeral and cemetery operations. Corporate general and administrative expenses include labor-related costs, corporate asset depreciation and amortization, public company costs, and other general and administrative expenses incurred by our corporate functions. 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 commissions (GA revenue) 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 completed. All selling costs incurred pursuant to the sale of insurance-funded preneed contracts are expensed as incurred. GA revenue recognized in 2023, 2022, and 2021 was $ 185.6 million, $ 164.3 million, and $ 157.4 million, respectively. We do not reflect the unfulfilled insurance-funded preneed contract amounts in our Consolidated Balance Sheet. The policy amount of the insurance contract between the customer and the third-party insurance company generally equals the amount of the preneed contract. The policyholder has made a revocable commitment to assign the proceeds from the policy to us at the time of need. The proceeds of the life insurance policies or annuity contracts will be reflected in funeral revenue as we perform these funerals. Income Taxes We compute income taxes using the liability method. Our ability to realize the benefit of our deferred tax assets requires us to achieve certain future earnings levels. We have established a valuation allowance against a portion of our deferred tax assets. We could be required to further adjust that valuation allowance in the near term if market conditions change materially and future earnings are, or are projected to be, significantly different than our current estimates. An increase in the valuation allowance would result in additional income tax expense in such period. All deferred tax assets and liabilities, along with any related valuation allowances are classified as non-current on our Consolidated Balance Sheet. FORM 10-K 53 PART II Accounting Standards Adopted in 2023 Financial Instruments In March 2022, the Financial Accounting Standards Board (FASB) amended guidance to require public companies to disclose the vintage year of receivable write-offs during the reporting period. We adopted the amended guidance in 2023 with no impact on our consolidated results of operations, consolidated financial position, and cash flows. As receivable write-offs in the twelve months ended December 31, 2023 were immaterial, we have not included the vintage year disclosure in this filing. We will add the vintage year disclosure in future filings for periods in which receivable write-offs are material, if any. Investments In March 2023, the FASB amended guidance for equity investments made primarily for the purpose of receiving income tax credits and other income tax benefits. The amended guidance expands the option to use the proportional amortization method from investments in low-income-housing tax credit structures to all tax credit structures that meet certain requirements. The proportional amortization method results in the cost of the investment being amortized in proportion to the income tax credits and other income tax benefits received. The investment amortization and the income tax credits are presented net in the statement of operations as a component of income tax expense. The new guidance is effective as of January 1, 2024 with early adoption permitted. We early adopted the guidance effective January 1, 2023. Recently Issued Accounting Standards Fair Value Measurements In June 2022, the FASB amended guidance to clarify that the fair value of investments in equity instruments with contractual sale restrictions should not be discounted as a result of the contractual restrictions. Additionally, the new guidance mandated disclosure of the fair value of any such securities, a description of the nature and duration of the restrictions, and circumstances that could cause a lapse in the restrictions. The new guidance is effective for us beginning with valuations that occur after January 1, 2024 and is not expected to have any impact on our consolidated results of operations, consolidated financial position, and cash flows. Leases In March 2023, the FASB amended guidance on determining the useful life of leasehold improvements associated with a lease between related parties under common control. The amended guidance requires that the leasehold improvements be amortized over the useful life of the improvements to the common control group as a whole. The new guidance is effective for us on January 1, 2024 and is not expected to have any impact on our consolidated results of operations, consolidated financial position, and cash flows. 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. Adoption should be applied retrospectively to all prior periods presented in the financial statements. Upon adoption, we will include the additional disclosures in our financial statements and related notes. Income Tax In December 2023, the FASB amended guidance that requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The new guidance is effective on a prospective basis for annual periods beginning after December 15, 2024 and early adoption is also permitted. Upon adoption, we will include the additional disclosures in our financial statements and related notes. 54 Service Corporation International PART II 3. Preneed Activities Preneed Receivables, Net and Trust Investments The components of Preneed receivables, net and trust investments in our Consolidated Balance Sheet were as follows: Years Ended December 31, 2023 2022 (In thousands) Preneed receivables, net $ 1,513,933 $ 1,402,209 Trust investments, at fair value 6,394,796 5,663,163 Insurance-backed fixed income securities and other 222,424 214,440 Trust investments 6,617,220 5,877,603 Less: Cemetery perpetual care trust investments ( 1,939,241 ) ( 1,702,313 ) Preneed trust investments 4,677,979 4,175,290 Preneed receivables, net and trust investments $ 6,191,912 $ 5,577,499 Preneed receivables, net comprised the following: December 31, 2023 Funeral Cemetery Total (In thousands) Preneed receivables $ 190,514 $ 1,371,804 $ 1,562,318 Unearned finance charges ( 10,100 ) ( 5,810 ) ( 15,910 ) Preneed receivables, at amortized cost $ 180,414 $ 1,365,994 $ 1,546,408 Reserve for credit losses ( 17,026 ) ( 15,449 ) ( 32,475 ) Preneed receivables, net $ 163,388 $ 1,350,545 $ 1,513,933 December 31, 2022 Funeral Cemetery Total (In thousands) Preneed receivables $ 180,108 $ 1,267,304 $ 1,447,412 Unearned finance charges ( 11,129 ) ( 6,760 ) ( 17,889 ) Preneed receivables, at amortized cost $ 168,979 $ 1,260,544 $ 1,429,523 Reserve for credit losses ( 14,438 ) ( 12,876 ) ( 27,314 ) Preneed receivables, net $ 154,541 $ 1,247,668 $ 1,402,209 FORM 10-K 55 PART II At December 31, 2023, the amortized cost basis of our preneed receivables by year of origination was as follows: 2023 2022 2021 2020 2019 Prior Total (In thousands) Preneed receivables, at amortized cost: Funeral $ 76,517 $ 47,537 $ 24,827 $ 11,242 $ 6,683 $ 13,608 $ 180,414 Cemetery 546,601 395,895 236,830 120,496 42,613 23,559 1,365,994 Total preneed receivables, at amortized cost $ 623,118 $ 443,432 $ 261,657 $ 131,738 $ 49,296 $ 37,167 $ 1,546,408 At December 31, 2023, the payment status of our preneed receivables was as follows: Past Due <30 Days 30-90 Days 90-180 Days >180 Days Total Current Total (In thousands) Preneed receivables, at amortized cost: Funeral $ 6,086 $ 5,147 $ 2,513 $ 26,685 $ 40,431 $ 139,983 $ 180,414 Cemetery 60,313 49,773 14,557 3,461 128,104 1,237,890 1,365,994 Total preneed receivables, at amortized cost $ 66,399 $ 54,920 $ 17,070 $ 30,146 $ 168,535 $ 1,377,873 $ 1,546,408 The following table summarizes the activity for the reserve for credit losses on preneed receivables for the twelve months ended December 31, 2023. December 31, 2022 Provision for Expected Credit Losses (Acquisitions) Divestitures, Net Write Offs Effect of Foreign Currency December 31, 2023 (In thousands) Funeral $ ( 14,438 ) $ ( 4,761 ) $ — $ 2,175 $ ( 2 ) $ ( 17,026 ) Cemetery ( 12,876 ) ( 3,230 ) 15 648 ( 6 ) ( 15,449 ) Total reserve for credit losses on preneed receivables $ ( 27,314 ) $ ( 7,991 ) $ 15 $ 2,823 $ ( 8 ) $ ( 32,475 ) The table below sets forth certain investment-related activities associated with our trusts: Years Ended December 31, 2023 2022 2021 (In thousands) Deposits $ 590,257 $ 534,586 $ 519,023 Withdrawals $ 591,591 $ 507,872 $ 477,443 Purchases of securities $ 2,070,313 $ 1,647,032 $ 1,823,267 Sales of securities $ 2,038,517 $ 1,518,779 $ 1,744,618 Realized gains from sales of securities (1) $ 281,168 $ 332,738 $ 584,863 Realized losses from sales of securities (1) $ ( 227,075 ) $ ( 201,173 ) $ ( 91,715 ) (1) All realized gains and losses are recognized in Other income, net for our trust investments and are offset by a corresponding reclassification in Other income, net to Deferred receipts held in trust and Care trusts’ corpus. 56 Service Corporation International PART II The activity in Preneed receivables, net and trust investments was as follows: Years Ended December 31, 2023 2022 2021 (In thousands) Beginning balance - Preneed receivables, net and trust investments $ 5,577,499 $ 6,015,323 $ 5,345,720 Net preneed contract sales 1,973,012 1,978,266 1,870,972 Cash receipts from customers, net of refunds ( 1,699,683 ) ( 1,639,291 ) ( 1,550,735 ) Deposits to trust 515,866 468,482 452,554 Acquisitions of businesses, net 3,394 15,860 4,912 Net undistributed investment earnings (losses) (1) 527,264 ( 611,057 ) 448,469 Maturities and distributed earnings ( 591,834 ) ( 500,216 ) ( 464,247 ) Change in cancellation allowance ( 5,160 ) ( 6,609 ) ( 1,523 ) Change in amounts due on unfulfilled performance obligations ( 93,473 ) ( 123,385 ) ( 87,207 ) Effect of foreign currency and other ( 14,973 ) ( 19,874 ) ( 3,592 ) Ending balance - Preneed receivables, net and trust investments $ 6,191,912 $ 5,577,499 $ 6,015,323 (1) Includes both realized and unrealized investment earnings. The cost and fair values associated with trust investments recorded at fair value at December 31, 2023 and 2022 are detailed below. Cost reflects the investment (net of redemptions) of control holders in the trusts. Fair value represents the value of the underlying securities held by the trusts. December 31, 2023 Fair Value Hierarchy Level Cost Unrealized Gains Unrealized Losses Value (In thousands) Fixed income securities: U.S. Treasury 2 $ 45,645 $ 145 $ ( 1,376 ) $ 44,414 Canadian government 2 31,896 — — 31,896 Corporate 2 10,642 138 ( 17 ) 10,763 Residential mortgage-backed 2 5,452 29 ( 104 ) 5,377 Asset-backed 2 291 — ( 51 ) 240 Equity securities: Preferred stock 2 417 — ( 97 ) 320 Common stock: United States 1 1,744,919 478,226 ( 78,630 ) 2,144,515 Canada 1 42,721 20,251 ( 676 ) 62,296 Other international 1 108,106 19,580 ( 11,088 ) 116,598 Mutual funds: Equity 1 876,620 118,476 ( 9,540 ) 985,556 Fixed income 1 998,767 5,727 ( 109,231 ) 895,263 Trust investments, at fair value 3,865,476 642,572 ( 210,810 ) 4,297,238 Commingled funds Fixed income 827,600 2,432 ( 63,021 ) 767,011 Equity 337,500 71,819 ( 642 ) 408,677 Money market funds 346,672 — — 346,672 Alternative investments 412,482 169,825 ( 7,109 ) 575,198 Trust investments, at net asset value 1,924,254 244,076 ( 70,772 ) 2,097,558 Trust investments, at market $ 5,789,730 $ 886,648 $ ( 281,582 ) $ 6,394,796 FORM 10-K 57 PART II As of December 31, 2023, our unfunded commitment for our private equity investments was $ 322.6 million which, if called, would be funded by the assets of the trusts. December 31, 2022 Fair Value Hierarchy Level Cost Unrealized Gains Unrealized Losses Value (In thousands) Fixed income securities: U.S. Treasury 2 $ 45,084 $ 22 $ ( 2,033 ) $ 43,073 Canadian government 2 30,200 — — 30,200 Corporate 2 175 — ( 18 ) 157 Residential mortgage-backed 2 1,420 — ( 101 ) 1,319 Asset-backed 2 294 — ( 52 ) 242 Equity securities: Preferred stock 2 4,144 — ( 2,340 ) 1,804 Common stock: United States 1 1,707,240 283,423 ( 208,523 ) 1,782,140 Canada 1 47,821 11,765 ( 11,117 ) 48,469 Other international 1 123,440 10,561 ( 19,009 ) 114,992 Mutual funds: Equity 1 917,686 64,895 ( 112,374 ) 870,207 Fixed income 1 1,135,815 1,231 ( 166,286 ) 970,760 Trust investments, at fair value 4,013,319 371,897 ( 521,853 ) 3,863,363 Commingled funds Fixed income 730,940 2 ( 89,246 ) 641,696 Equity 309,893 40,820 ( 3,846 ) 346,867 Money market funds 325,562 — — 325,562 Alternative investments 307,275 179,491 ( 1,091 ) 485,675 Trust investments, at net asset value 1,673,670 220,313 ( 94,183 ) 1,799,800 Trust investments, at market $ 5,686,989 $ 592,210 $ ( 616,036 ) $ 5,663,163 Our alternative investments include funds invested in limited partnerships with interests in private equity, private market real estate, energy and natural resources, infrastructure, transportation, and private debt including both distressed debt and mezzanine financing. These investments can never be redeemed by the funds. Instead, due to the nature of the investments in this category, distributions are received through the liquidation of the underlying assets of the funds. The funds' managers have not communicated the timing of any liquidations. Maturity dates of our fixed income securities range from 2024 to 2040 . Maturities of fixed income securities (excluding mutual funds) at December 31, 2023 are estimated as follows: Fair Value (In thousands) Due in one year or less $ 55,207 Due in one to five years 30,265 Due in five to ten years 7,132 Thereafter 86 Total estimated maturities of fixed income securities $ 92,690 Recognized trust fund income (realized and unrealized) related to our preneed trust investments was $ 158.2 million, $ 143.8 million, and $ 179.7 million for the years ended December 31, 2023, 2022, and 2021, respectively. Recognized trust fund income (realized and unrealized) related to our cemetery perpetual care trust investments was $ 86.6 million, $ 85.1 million, and $ 96.1 million for the years ended December 31, 2023, 2022, and 2021, respectively. 58 Service Corporation International PART II Deferred Revenue, Net Deferred revenue, net represents future revenue, including distributed trust investment earnings associated with unperformed trust-funded preneed contracts that are not held in trust accounts. Future revenue and net trust investment earnings that are held in trust accounts are included in Deferred receipts held in trust . The components of Deferred revenue, net in our Consolidated Balance Sheet were as follows: Years Ended December 31, 2023 2022 (In thousands) Deferred revenue $ 2,649,397 $ 2,472,693 Amounts due from customers for unfulfilled performance obligations on cancelable preneed contracts ( 945,888 ) ( 848,665 ) Deferred revenue, net $ 1,703,509 $ 1,624,028 The following table summarizes the activity for our contract liabilities, which are reflected in Deferred revenue, net and Deferred receipts held in trust : Years Ended December 31, 2023 2022 2021 (In thousands) Beginning balance — Deferred revenue, net and Deferred receipts held in trust $ 5,787,548 $ 6,299,241 $ 5,761,291 Net preneed contract sales 1,451,833 1,448,371 1,314,001 Acquisitions (dispositions) of businesses, net 5,961 10,824 4,707 Net investment gains (losses) (1) 527,894 ( 618,760 ) 443,088 Recognized revenue from backlog (2) ( 554,839 ) ( 498,242 ) ( 471,160 ) Recognized revenue from current period sales ( 730,436 ) ( 726,584 ) ( 669,025 ) Change in amounts due on unfulfilled performance obligations ( 93,473 ) ( 123,337 ) ( 87,207 ) Change in cancellation reserve 87 8,351 ( 459 ) Effect of foreign currency and other ( 20,182 ) ( 12,316 ) 4,005 Ending balance — Deferred revenue, net and Deferred receipts held in trust $ 6,374,393 $ 5,787,548 $ 6,299,241 (1) Includes both realized and unrealized investment gains (losses). (2) Includes current year trust fund income through the date of performance. 4. Goodwill and Intangible Assets The changes in the carrying amounts of goodwill for our funeral and cemetery reporting units are as follows: Years Ended December 31, 2023 2022 Funeral Cemetery Total Funeral Cemetery Total (In thousands) Beginning balance — Goodwill $ 1,603,600 $ 341,988 $ 1,945,588 $ 1,584,175 $ 330,907 $ 1,915,082 Increase in goodwill related to acquisitions 13,994 17,053 31,047 26,143 11,081 37,224 Reduction of goodwill related to divestitures (1) ( 1,502 ) ( 225 ) ( 1,727 ) — — — Effect of foreign currency 2,278 — 2,278 ( 6,718 ) — ( 6,718 ) Total activity 14,770 16,828 31,598 19,425 11,081 30,506 Ending balance — Goodwill $ 1,618,370 $ 358,816 $ 1,977,186 $ 1,603,600 $ 341,988 $ 1,945,588 (1) Also includes reductions for businesses held for sale. FORM 10-K 59 PART II The components of intangible assets at December 31 were as follows: Useful Life Minimum Maximum 2023 2022 (Years) (In thousands) Amortizing intangibles: Covenants-not-to-compete 5 - 15 $ 222,930 $ 222,461 Customer relationships 10 - 20 137,130 155,767 Tradenames 5 - 89 7,000 7,000 Other 5 - 89 26,927 26,927 393,987 412,155 Less accumulated amortization: Covenants-not-to-compete 207,301 205,450 Customer relationships 88,929 101,954 Tradenames 437 359 Other 11,025 10,285 307,692 318,048 Amortizing intangibles, net 86,295 94,107 Non-amortizing intangibles: Tradenames Indefinite 388,049 376,138 Other Indefinite 10,765 10,765 Non-amortizing intangibles 398,814 386,903 Intangible assets, net — included in Deferred charges and other assets, net $ 485,109 $ 481,010 As part of our recoverability testing process during 2023, we reported $2.6 million of impairment on tradenames. Amortization expense for intangible assets was $ 18.7 million, $ 18.4 million, and $ 20.0 million for the years ended December 31, 2023, 2022, and 2021, respectively. The following is estimated amortization expense, excluding certain intangibles for which we are unable to provide an estimate because they are amortized based on specific identification in the fulfillment of performance obligations on our preneed contracts, for the five years subsequent to December 31, 2023 (in thousands): 2024 $ 6,478 2025 6,347 2026 4,771 2027 2,738 2028 2,146 Total estimated amortization expense $ 22,480 5. Income Taxes The provision or benefit for income taxes includes U.S. federal income taxes (determined on a consolidated return basis), foreign income taxes, and state income taxes. We actively participate in tax credit equity investments for projects eligible to receive renewable energy credits. These investments, accounted for under the equity method, are recorded in Deferred charges and other assets, net of reserves on our 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 2023, we recognized investment tax credits totaling $ 11.6 million and amortized the equity investment by $ 11.5 million to reflect the realization of these benefits. This amortization is reflected within the Provision for income taxes in the Consolidated Statement of Operations. 60 Service Corporation International PART II Income before income taxes was composed of the following components: Years Ended December 31, 2023 2022 2021 (In thousands) United States $ 664,745 $ 703,131 $ 994,632 Foreign 43,861 52,497 50,868 Total income before income taxes $ 708,606 $ 755,628 $ 1,045,500 Income tax provision consisted of the following: Years Ended December 31, 2023 2022 2021 (In thousands) Current: United States $ ( 30,832 ) $ 139,132 $ 194,545 Foreign 14,989 14,486 14,088 State ( 4,728 ) 32,505 39,452 Total current income taxes ( 20,571 ) 186,123 248,085 Deferred: United States $ 155,677 $ ( 59 ) $ ( 3,543 ) Foreign ( 1,999 ) 780 ( 5,492 ) State 37,838 2,750 3,198 Total deferred income taxes 191,516 3,471 ( 5,837 ) Total income taxes $ 170,945 $ 189,594 $ 242,248 We made income tax payments of $ 85.5 million, $ 183.7 million, and $ 270.2 million in 2023, 2022, and 2021, respectively, and received refunds of $ 1.7 million, $ 4.2 million, and $ 4.7 million, respectively. The differences between the U.S. federal statutory income tax rate and our effective tax rate were as follows: Years Ended December 31, 2023 2022 2021 (In thousands) Computed tax provision at the applicable federal statutory income tax rate $ 148,807 $ 158,682 $ 219,555 State and local taxes, net of federal income tax benefits 27,041 28,817 35,045 Foreign jurisdiction differences 3,756 3,976 3,041 Permanent differences associated with divestitures 47 200 400 Changes in uncertain tax positions and audit settlements 110 53 51 Foreign valuation allowance, net of federal income tax benefits — — ( 4,155 ) Excess tax benefit from share-based compensation ( 8,406 ) ( 8,918 ) ( 12,476 ) Other ( 410 ) 6,784 787 Provision for income taxes $ 170,945 $ 189,594 $ 242,248 Total consolidated effective tax rate 24.1 % 25.1 % 23.2 % The 2023 consolidated effective tax rate was 24.1 %, compared to 25.1 % in 2022. The lower effective tax rate in 2023 was primarily due to non-taxable gains on the cash surrender value of certain life insurance policies. FORM 10-K 61 PART II Deferred taxes are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates. The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consisted of the following: Years Ended December 31, 2023 2022 (In thousands) Inventories and cemetery property $ ( 196,887 ) $ ( 201,795 ) Deferred incremental direct selling costs ( 104,686 ) ( 99,377 ) Property and equipment ( 177,411 ) ( 181,029 ) Intangibles ( 207,727 ) ( 204,010 ) Deferred revenue on preneed funeral and cemetery contracts ( 80,178 ) — Other ( 5,746 ) ( 5,313 ) Deferred tax liabilities ( 772,635 ) ( 691,524 ) Loss and tax credit carryforwards 127,796 137,785 Deferred revenue on preneed funeral and cemetery contracts — 153,479 Accrued liabilities 122,887 80,069 Deferred tax assets 250,683 371,333 Less: valuation allowance ( 108,834 ) ( 118,939 ) Net deferred income tax liability $ ( 630,786 ) $ ( 439,130 ) Deferred tax assets and deferred income tax liabilities are recognized in our Consolidated Balance Sheet as follows: Years Ended December 31, 2023 2022 (In thousands) Non-current deferred tax assets - included in Deferred charges and other assets, net $ 7,320 $ 5,910 Non-current deferred tax liabilities - included in Deferred tax liability ( 638,106 ) ( 445,040 ) Net deferred income tax liability $ ( 630,786 ) $ ( 439,130 ) 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 U.S. 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 our hybrid debt structure between Canada and the United States that was eliminated in 2022. The following table summarizes the activity related to our gross unrecognized tax benefits from January 1, 2021 to December 31, 2023 (in thousands): Federal, State, and Foreign Tax (In thousands) Balance at December 31, 2020 $ 1,348 Reduction to tax positions related to prior years — Balance at December 31, 2021 $ 1,348 Reductions to tax positions related to prior years — Balance at December 31, 2022 $ 1,348 Reductions to tax positions related to prior years — Balance at December 31, 2023 $ 1,348 Our total unrecognized tax benefits that, if recognized, would affect our effective tax rates were $ 1.3 million as of December 31, 2023, 2022 and 2021. W e include potential accrued interest and penalties related to unrecognized tax benefits within our income tax provision account. We have accrued $ 1.0 million, $ 0.9 million, and $ 0.8 million for the payment of interest, net of tax benefits, and 62 Service Corporation International PART II penalties as of December 31, 2023, 2022 and 2021, respectively. We recorded an increase of interest and penalties of $ 0.1 million for each of the years ended December 31, 2023, 2022 and 2021, respectively. To the extent interest and penalties are not assessed with respect to uncertain tax positions or the uncertainty of deductions in the future, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. We file income tax returns, including tax returns for our subsidiaries, with federal, state, local, and foreign jurisdictions. We consider the United States to be our most significant jurisdiction; however, all tax returns are subject to routine compliance review by the taxing authorities in the jurisdictions in which we file tax returns in the ordinary course of business. The federal statutes of limitations have expired for all tax years prior to 2020, and we are not currently under audit by the IRS. However, pursuant to the 2017 Tax Cuts and Jobs Act, the statute of limitations on the transition tax for the 2017 tax year does not expire until 2024. Various state jurisdictions are auditing years 2013 through 2021. There are currently no federal or provincial audits in Canada; however, years subsequent to 2017 remain open and could be subject to examination. We believe that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease by $ 1.3 million within the next twelve months as a result of concluding various state tax matters. Various subsidiaries have federal, state, and foreign loss carryforwards in the aggregate of $ 2.5 billion with expiration dates through 2041. Such loss carryforwards will expire as follows: Federal State Foreign Total (In thousands) 2024 $ — $ 160,355 $ 346 $ 160,701 2025 — 321,190 471 321,661 2026 — 368,207 957 369,164 2027 — 189,465 1,798 191,263 Thereafter — 1,423,484 3,824 1,427,308 Total loss carryforwards $ — $ 2,462,701 $ 7,396 $ 2,470,097 In addition to the above loss carryforwards, we have $2.2 million of foreign alternative minimum tax credits that can be carried forward indefinitely. In assessing the usefulness of deferred tax assets, we consider whether it is more likely than not that some portion or all of the net deferred tax assets will not be realized. The future realization of net deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. During 2023, we recorded a net $ 10.1 million decrease in our valuation allowance primarily driven by utilization and expiration of state net operating losses, along with legislative changes in certain states. The valuation allowances can be affected in future periods by changes to tax laws, changes to statutory tax rates, and changes in estimates of future taxable income . At December 31, 2023, our loss and tax credit carryforward deferred tax assets and related valuation allowances by jurisdiction are as follows (presented net of federal benefit). Federal State Foreign Total (In thousands) Loss and tax credit carryforwards $ — $ 122,796 $ 5,000 $ 127,796 Valuation allowance $ — $ 94,135 $ 14,699 $ 108,834 FORM 10-K 63 PART II 6. Debt The components of Debt are: Years Ended December 31, 2023 2022 (In thousands) 7.500% Senior Notes due April 2027 $ 137,424 $ 138,274 4.625% Senior Notes due December 2027 550,000 550,000 5.125% Senior Notes due June 2029 750,000 750,000 3.375% Senior Notes due August 2030 850,000 850,000 4.000% Senior Notes due May 2031 800,000 800,000 Term Loan due May 2024 — 536,250 Term Loan due January 2028 658,125 — Bank Credit Facility due May 2024 — 570,000 Bank Credit Facility due January 2028 790,000 — Obligations under finance leases 132,039 120,837 Mortgage notes and other debt, maturities through 2050 80,696 66,248 Unamortized debt issuance costs ( 35,788 ) ( 39,865 ) Total debt $ 4,712,496 $ 4,341,744 Less: Current maturities of long-term debt ( 63,341 ) ( 90,661 ) Total long-term debt $ 4,649,155 $ 4,251,083 Current maturities of debt at December 31, 2023 include amounts due under our term loan, mortgage notes and other debt, and finance leases within the next year as well as the portion of unamortized debt issuance costs expected to be recognized in the next twelve months. Approximately 69 % and 72 % of our total debt had a fixed interest rate at December 31, 2023 and 2022, respectively. The components of our weighted average interest rate are as follows: Years Ended December 31, 2023 2022 Fixed Debt 4.35 % 4.32 % Floating Debt 7.44 % 2.95 % Total Debt 5.29 % 4.00 % The following table summarizes the aggregate maturities of our debt for the five years subsequent to December 31, 2023 and thereafter, excluding unamortized premiums and debt issuance costs (in thousands): 2024 $ 63,341 2025 75,158 2026 52,500 2027 748,287 2028 1,349,969 2029 and thereafter 2,423,241 Total debt maturities $ 4,712,496 64 Service Corporation International PART II Bank Credit Agreement In January 2023, we amended our $1.650 billion credit agreement due May 2024 to enter into a new $2.175 billion bank credit agreement due January 2028 with a syndicate of banks. The $2.175 billion bank credit agreement comprises a $ 1.5 billion Bank Credit Facility, including a sublimit of $100.0 million for letters of credit and a $ 675.0 million Term Loan, both due January 2028. As a result of the new agreement, at closing, there was a net $138.8 million increase in our outstanding Term Loan balance and a $155.0 million decrease in our outstanding Bank Credit Facility balance. The bank credit agreement provides us with flexibility for working capital, if needed, and is guaranteed by a majority of our domestic subsidiaries. The subsidiary guaranty is a guaranty of payment of the outstanding amount of the total lending commitment, including letters of credit. The bank credit agreement contains a maximum leverage ratio financial covenant and certain dividend and share repurchase restrictions. As of December 31, 2023, we are in compliance with all of our debt covenants. At December 31, 2023, we issued $ 39.1 million of letters of credit and pay a quarterly fee on the unused commitment, which was 0.20 %. As of December 31, 2023, we have $ 670.9 million in borrowing capacity under the facility. As of December 31, 2022, we issued $ 33.5 million of letters of credit. Subsequent to December 31, 2023, we decreased our outstanding borrowings by $40.0 million to $750.0 million under our Bank Credit Facility due January 2028. Debt Issuances and Additions During the year ended December 31, 2023, we issued or added $ 957.4 million of debt including: • $ 284.1 million in proceeds from certain banks in our Term Loan; • $ 600.0 million on our Bank Credit Facility due January 2028; • $ 44.3 million in proceeds from certain 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 year ended December 31, 2023 were used to pay down 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. During the year ended December 31, 2022, we drew $ 465.0 million on our Bank Credit Facility due May 2024 and issued $ 19.0 million in other debt primarily for general corporate purposes. Debt Extinguishments and Reductions During the year ended December 31, 2023, we made aggregate debt payments of $ 603.2 million for scheduled and early extinguishment payments including: • $ 235.0 million in aggregate principal of our Bank Credit Facility due January 2028; • $ 199.3 million in aggregate principal payments to certain banks in our Bank Credit Facility due May 2024; • $ 145.3 million in aggregate principal payments to certain banks in our Term Loan due May 2024; • $ 16.9 million in aggregate principal of our Term Loan due January 2028; • $ 0.9 million in aggregate principal of our 7.5% Senior Notes due April 2027 repurchased in the open market; • $ 0.5 million of premiums paid on early extinguishment; and • $ 5.3 million in other debt. Certain of the above transactions resulted in the recognition of a loss of $ 1.1 million recorded in Losses on early extinguishment of debt, net in our Consolidated Statement of Operations for the year ended December 31, 2023. During the year ended December 31, 2022, we made aggregate debt payments of $ 101.9 million for scheduled and early extinguishment payments including: • $ 50.0 million in aggregate principal of our Bank Credit Facility due May 2024; • $ 32.5 million in aggregate principal of our Term Loan due May 2024; • $ 14.4 million in aggregate principal of 7.5% Senior Notes due April 2027 repurchased on the open market; • $ 1.2 million of premiums paid on early extinguishment; and • $ 3.8 million in other debt. FORM 10-K 65 PART II Certain of the above transactions resulted in the recognition of a loss of $ 1.2 million recorded in Losses on early extinguishment of debt, net in our Consolidated Statement of Operations for the year ended December 31, 2022. Additional Debt Disclosures At December 31, 2023 and 2022, we had deposits of $ 0.7 million and $ 0.5 million, respectively, in restricted, interest-bearing accounts that were pledged as collateral for various credit instruments and commercial commitments. These deposits are included in Other current assets and Deferred charges and other assets, net in our Consolidated Balance Sheet. We had assets of approximately $ 75.3 million and $ 59.8 million pledged as collateral for the mortgage notes and other debt at December 31, 2023 and 2022, respectively. Cash interest payments for the three years ended December 31 were as follows (in thousands): Payments in 2023 $ 230,551 Payments in 2022 $ 164,222 Payments in 2021 $ 142,145 Expected c ash interest payments on our existing long-term debt for the five years subsequent to December 31, 2023 and thereafter are as follows (in thousands): Payments in 2024 $ 250,870 Payments in 2025 249,148 Payments in 2026 247,603 Payments in 2027 237,673 Payments in 2028 104,679 Payments in 2029 and thereafter 145,087 Total expected cash interest payments $ 1,235,060 7. Credit Risk and Fair Value of Financial Instruments Fair Value Estimates The fair value estimates of the following financial instruments have been determined using available market information and appropriate valuation methodologies. The carrying values of cash and cash equivalents, trade receivables, and trade payables approximate the fair values of those instruments due to the short-term nature of the instruments. The carrying values of receivables on preneed funeral and cemetery contracts approximate fair value due to the diverse number of individual contracts with varying terms. The fair value of our debt instruments was as follows: Years Ended December 31, 2023 2022 (In thousands) 7.500% Notes due April 2027 $ 142,749 $ 141,499 4.625% Senior Notes due December 2027 532,125 513,909 5.125% Senior Notes due June 2029 732,173 709,125 3.375% Senior Notes due August 2030 739,500 702,202 4.000% Senior Notes due May 2031 711,336 685,680 Term Loan due May 2024 — 536,250 Term Loan due January 2028 658,125 — Bank Credit Facility due May 2024 — 570,000 Bank Credit Facility due January 2028 790,000 — Mortgage notes and other debt, maturities through 2050 79,426 63,168 Total fair value of debt instruments $ 4,385,434 $ 3,921,833 66 Service Corporation International PART II The fair values of our long-term, fixed rate loans were estimated using market prices for those loans, and therefore they are classified within Level 2 of the fair value measurements hierarchy. The Term Loan, the revolving credit facility agreement, and the mortgage and other debt are classified within Level 3 of the fair value measurements hierarchy. The fair values of these instruments have been estimated using discounted cash flow analysis based on our incremental borrowing rate for similar borrowing arrangements. An increase (decrease) in the inputs results in a directionally opposite change in the fair value of the instruments. Credit Risk Exposure Our cash deposits, some of which exceed insured limits, are distributed among various market and national banks in the jurisdictions in which we operate. In addition, we regularly invest excess cash in financial instruments that are not insured, such as commercial paper that is offered by corporations with quality credit ratings and money market funds and Eurodollar time deposits that are offered by a variety of reputable financial institutions. We believe that the credit risk associated with such instruments is minimal. We grant credit to customers in the normal course of business. The credit risk associated with our funeral, cemetery, and preneed funeral and preneed cemetery receivables due from customers is generally considered minimal because of the diversification of the customers served. Furthermore, bad debts have not been significant relative to the volume of deferred revenue. Customer payments on preneed funeral or preneed cemetery contracts that are either placed into state-regulated trusts or used to pay premiums on life insurance contracts generally do not subject us to collection risk. Insurance-funded contracts are subject to supervision by state insurance departments and are protected in the majority of states by insurance guaranty acts. 8. Leases Our leases principally relate to office, maintenance, and transportation equipment and funeral service real estate. The majority of our lease arrangements contain options to (i) purchase the property at fair value on the exercise date, (ii) purchase the property for a value determined at the inception of the lease, or (iii) renew the lease for the fair rental value at the end of the primary lease term. Future lease payments for non-cancelable operating and finance leases as of December 31, 2023 were as follows: Operating Finance Total (In thousands) 2024 $ 9,953 $ 49,166 $ 59,119 2025 9,044 29,161 38,205 2026 7,695 22,284 29,979 2027 6,680 14,835 21,515 2028 5,534 8,928 14,462 2029 and thereafter 31,419 28,982 60,401 Total lease payments $ 70,325 $ 153,356 $ 223,681 Less: Interest ( 16,493 ) ( 21,317 ) ( 37,810 ) Present value of lease liabilities $ 53,832 $ 132,039 $ 185,871 The components of lease cost were as follows: Years Ended December 31, 2023 2022 2021 (In thousands) Amortization of leased assets $ 34,212 $ 35,321 $ 37,569 Interest on lease liabilities 4,795 3,990 4,642 Total finance lease cost 39,007 39,311 42,211 Operating lease cost 10,531 11,021 11,586 Variable lease cost 872 437 178 Total lease cost $ 50,410 $ 50,769 $ 53,975 FORM 10-K 67 PART II Supplemental balance sheet information related to leases was as follows: Lease Type Balance Sheet Classification December 31, 2023 December 31, 2022 (In thousands) Operating lease right-of-use assets (1) Deferred charges and other assets $ 50,973 $ 49,741 Finance lease right-of-use assets (1) Property and equipment, net 127,425 115,813 Total right-of-use assets (1) $ 178,398 $ 165,554 Operating Accounts payable and accrued liabilities $ 7,782 $ 7,083 Finance Current maturities of long-term debt 44,109 42,469 Total current lease liabilities 51,891 49,552 Operating Other liabilities 46,050 45,314 Finance Long-term debt 87,930 78,368 Total non-current lease liabilities 133,980 123,682 Total lease liabilities $ 185,871 $ 173,234 (1) Right-of-use assets are presented net of accumulated amortization. The weighted-average life remaining and discount rates of our leases were as follows: December 31, 2023 December 31, 2022 Operating Finance Operating Finance Weighted-average remaining lease term (years) 11.1 5.2 11.8 4.5 Weighted-average discount rate 4.4 % 4.6 % 4.0 % 3.3 % Supplemental cash flow information related to leases was as follows: Years Ended December 31, 2023 2022 2021 (In thousands) Cash paid for amounts in the measurement of lease liabilities: Operating cash flows for operating leases $ 10,473 $ 10,994 $ 11,693 Operating cash flows for finance leases 5,191 3,838 4,207 Financing cash flows for finance leases 34,482 35,542 34,617 Total cash paid for amounts included in the measurement of lease liabilities $ 50,146 $ 50,374 $ 50,517 New finance leases 57,962 21,148 21,097 Finance lease renewals and extensions 829 ( 264 ) 1,095 Right-of-use assets obtained in exchange for finance lease liabilities $ 58,791 $ 20,884 $ 22,192 New operating leases 6,534 2,704 3,268 Operating lease renewals and extensions 2,985 2,324 4,554 Right-of-use assets obtained in exchange for operating lease liabilities $ 9,519 $ 5,028 $ 7,822 We have 80 operating leases where we are the lessor and the non-cancelable term is greater than one year, resulting in $ 4.0 million and $ 4.3 million in lease income for the years ended December 31, 2023 and 2022, respectively. We determine whether an arrangement is or contains a lease at the inception of the arrangement based on the terms of the arrangement. We lease retail space, office space, and land, and we are party to cellular agreements and land easements. The underlying assets of these lease agreements are buildings and land. We generally do not have sales-type leases, direct financing leases, or lease receivables. Certain of our agreements include variable rental income based on a percentage of sales over base contractual levels. Renewal options that can be cancelled by the lessees are not included in our disclosure of future lease income, which includes only the non-cancelable terms and fixed escalation provisions. Certain lease arrangements contain options to purchase the property at fair value at the conclusion of the lease term. Non-lease components are excluded from rental income disclosures. 68 Service Corporation International PART II Future undiscounted lease income from operating leases where we are the lessor were as follows as of December 31, 2023 (in thousands): 2024 $ 3,967 2025 3,297 2026 2,512 2027 2,043 2028 1,682 2029 and thereafter 11,793 Total expected cash receipts $ 25,294 We own certain land, buildings, and improvements for the sole purpose of generating lease income. Property is recorded at cost, and depreciation is recognized ratably over the estimated useful lives of the various classes of assets. Buildings and improvements are depreciated over a period ranging from ten years to forty years. For these properties, we recorded depreciation expense of $ 0.4 million for the year ended December 31, 2023 and $ 0.7 million for each of the years ended December 31, 2022 and 2021. As of December 31, 2023, our Consolidated Balance Sheet includes Land of $ 33.9 million, and Buildings and improvements of $ 12.6 million, net of $ 2.3 million accumulated depreciation, related to these properties. 9. Commitments and Contingencies Insurance Loss Reserves We purchase comprehensive general liability, morticians and cemetery professional liability, automobile liability, and workers’ compensation insurance coverage structured with high deductibles. The high-deductible insurance program means we are primarily self-insured for claims and associated costs and losses covered by these policies. As of December 31, 2023 and 2022, we have self-insurance reserves of $ 103.3 million and $ 99.3 million, respectively. Litigation and Regulatory Matters We are a party to various litigation and regulatory matters, investigations, and proceedings. Some of the more frequent routine litigations incidental to our business are based on burial practices claims and employment-related matters, including discrimination, harassment, and wage and hour laws and regulations. For each of our outstanding legal matters, we evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies, and the likelihood of an unfavorable outcome. We intend to vigorously defend ourselves in the matters described herein; however, if we determine that an unfavorable outcome is probable and can be reasonably estimated, or if we determine an amount for which we would be willing to settle the matter to avoid further costs and risk, we establish the necessary accruals. We hold certain insurance policies that may reduce cash outflows with respect to an adverse outcome of these matters. We accrue such insurance recoveries when they become probable of being paid and can be reasonably estimated. Operational Claims . We are named as a defendant in various lawsuits alleging operational claims, including but not limited to the State of California and Taylor lawsuits described below. The People of the State of California v. Service Corporation International, a Texas corporation, SCI Direct, Inc. a Florida Corporation, S.E. Acquisition of California, Inc., a California corporation dba Neptune Society of Northern California, Neptune Management Corp., a California corporation, Trident Society, Inc. a California corporation, and Does 1 through 100, inclusive, Case No. RG 19045103; in the Superior Court of the State of California in and for the County of Alameda. In July 2019, we received a letter from the Attorney General, State of California, Department of Justice (“CAAG") alleging that the allocation of prices among certain of our cremation service contracts and cremation merchandise contracts, and the related preneed trust funding, violates section 7735 of the California Business and Professions Code and that provisions of these same contracts constitute false advertising and deceptive sales practices in violation of California consumer protection laws. On November 21, 2019, we filed a complaint, S.E. Combined Services of California, Inc., a California Corporation dba Neptune Society of Northern California, Neptune Management Corp. a California Corporation, and Trident Society, Inc. v. Xavier Becerra, Attorney General of the State of California, and Does 1-50, Case No. 34-2019-00269617; in the Sacramento County Superior Court seeking declaratory relief holding, in general, that our practices, methods, and documentation utilized in the sale of preneed funeral goods and services are in all respects compliant with California law. On December 2, 2019, the CAAG filed the complaint, referenced above, seeking permanent injunction from making false statements and engaging in unfair competition, a placement of funds into preneed trusts, civil penalties, customer refunds, attorneys’ fees, and costs. While we believe our contracts comply with applicable laws, the parties have engaged in settlement discussions in an effort to resolve this dispute, which may or may not be successful. We anticipate any settlement in connection with this matter may include preneed contract refunds, governmental investigative costs, and other legal expenses. Nancy Taylor, on behalf of herself and others similarly situated v. Service Corporation International and others, Case No. 20-cv-60709 ; in the United States District Court for the Southern District of Florida, Fort Lauderdale Division. This case was filed in April 2020 as a Florida class action alleging that the allocation of prices among certain of our cremation service contracts and cremation merchandise contracts, and the related preneed trust funding, and the failure to disclose commissions paid and sales practices associated with the sale of third-party travel protection plans, violate the Florida Deceptive and Unfair Trade FORM 10-K 69 PART II Practices Act and constitute unjust enrichment. Plaintiff sought refunds; general, actual, compensatory and exemplary damages; civil penalties, interest, and attorney fees. The parties have reached a settlement of the lawsuit that included an immaterial payment of attorney fees and provided consumers enhanced cancellation rights for a period of sixty days. The impact of these enhanced cancellation rights was not material to our financial condition, results of operations, and cash flows. The court has approved the settlement, the class has been certified, and the administrative claims process is now complete. We consider this matter resolved. Unclaimed Property Audits We have received notices from auditors representing the unclaimed property departments of approximately forty states regarding the escheatment of preneed trust funds held in association with unused preneed funeral and cemetery contracts ("Unused Preneed Trust Funds"). The states claim that these Unused Preneed Trust Funds are subject to the states’ unclaimed property or escheatment laws and generally assert that all or a portion of the Unused Preneed Trust Funds are escheatable if the beneficiary and/or purchaser is deceased or presumed deceased and no services or merchandise have been provided. We received notice that no additional property is due to be reported for the states of Alabama, Connecticut, Iowa, Kentucky, Maryland, Massachusetts, Montana, Nebraska, New Mexico, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Texas, West Virginia, and Wyoming. We consider the unclaimed property audits resolved in those eighteen states. We have entered into an audit resolution agreement with the State of Florida Department of Financial Services and Division of Unclaimed Property ("Florida Agreement"). The Florida Agreement provides for the Company to retain the trust fund earnings and to escheat the principal to the State of Florida, which resulted in an increase in trust fund income in 2023. We have reserved all of our rights, claims, and defenses. Given the nature of these matters, we are unable to reasonably estimate the total possible loss or ranges of loss, if any. We believe we have strong defenses to these claims and we intend to vigorously defend all of the above matters; however, an adverse decision in one or more of such matters could have a material effect on us, our financial condition, results of operations, and cash flows. 10. Equity (All shares reported in whole numbers) Share Authorization We are authorized to issue 1,000,000 shares of preferred stock, $1 per share par value. No preferred shares were issued as of December 31, 2023 or 2022. At December 31, 2023 and 2022, 500,000,000 common shares of $ 1 par value were authorized. We had 148,297,042 and 156,088,438 shares issued and 146,323,340 and 153,940,365 outstanding at par at December 31, 2023 and 2022, respectively. Accumulated Other Comprehensive Income The assets and liabilities of foreign operations are translated into U.S. dollars using the current exchange rate. The U.S. dollar amount that arises from such translation, as well as exchange gains and losses on intercompany balances of a long-term investment nature, are included in the cumulative currency translation adjustments in Accumulated other comprehensive income. Share Repurchase Program Subject to market conditions, normal trading restrictions, and limitations in our debt covenants, we may make purchases in the open market or through privately negotiated transactions under our share repurchase program. 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 . Additionally, in November 2023, our Board of Directors increased our share repurchase authorization to $ 600.0 million. After these repurchases and the increase in authorization, the remaining dollar value of shares authorized to be purchased under the share repurchase program was $ 525.0 million at December 31, 2023. Subsequent to December 31, 2023, we repurchased 310,581 shares for $ 20.9 million at an average cost per share of $ 67.39 . 11. Share-Based Compensation Stock Benefit Plans We maintain benefit plans whereby shares of our common stock may be issued pursuant to the exercise of stock options or restricted stock granted to officers and key associates. Our Amended and Restated Incentive Plan ("the 1996 Plan") reserved 44,000,000 shares of our common stock for outstanding and future awards of stock options, restricted stock, and other share-based awards to officers and key associates. In May 2017, our shareholders approved the amended 2016 Equity Incentive Plan ("the 2016 Plan"), which reserved 13,404,404 shares of common stock for outstanding and future awards of stock options, restricted stock, and other awards to officers and key associates. 70 Service Corporation International PART II Our benefit plans allow for options to be granted as either non-qualified or incentive stock options. The options historically have been granted annually, or upon hire, as approved by the Compensation Committee of the Board of Directors. The options are granted with an exercise price equal to the market price of our common stock on the date of the grant, as approved by the Compensation Committee of the Board of Directors. The options are generally exercisable at a rate of 33 1 / 3 % each year unless alternative vesting methods are approved by the Compensation Committee of the Board of Directors. Outstanding options will expire, if not exercised or forfeited, within eight years from the date of grant. Restricted shares are generally expensed ratably over the period during which the restrictions lapse, which is typically 33 1 / 3 % each year. At December 31, 2023 and 2022, 3,470,575 and 4,090,978 shares, respectively, were reserved for future option and restricted share grants under our stock benefit plans. We utilize the Black-Scholes option valuation model for estimating the fair value of our stock options. This model allows the use of a range of assumptions related to volatility, risk-free interest rate, expected holding period, and dividend yield. The expected volatility utilized in the valuation model is based on the historical volatility of our stock price. The dividend yield and expected holding period are based on historical experience and management’s estimate of future events. The risk-free interest rate is derived from the U.S. Treasury yield curve based on the expected life of the option in effect at the time of grant. The fair values of our stock options are calculated using the following weighted average assumptions, based on the methods described above: Years Ended December 31, Assumptions 2023 2022 2021 Dividend yield 1.6 % 1.5 % 1.8 % Expected volatility 25.4 % 23.9 % 23.5 % Risk-free interest rate 4.0 % 1.8 % 0.4 % Expected holding period (years) 4.5 4.0 4.0 The following table summarizes certain information with respect to stock option and restricted share compensation included in our Consolidated Statement of Operations: Years Ended December 31, 2023 2022 2021 (In thousands) Total pretax employee share-based compensation expense included in net income $ 15,423 $ 14,709 $ 14,168 Income tax benefit related to share-based compensation included in net income $ 3,822 $ 3,877 $ 3,537 Stock Options The following table sets forth stock option activity for the year ended December 31, 2023 (shares reported in whole numbers): Options Weighted-Average Exercise Price Outstanding at December 31, 2022 5,461,105 $ 40.47 Granted 371,700 $ 70.34 Exercised ( 926,610 ) $ 26.10 Outstanding at December 31, 2023 4,906,195 $ 45.44 Exercisable at December 31, 2023 3,989,812 $ 41.68 The aggregate intrinsic value for stock options outstanding and exercisable was $ 113.6 million and $ 106.8 million, respectively, at December 31, 2023. FORM 10-K 71 PART II Set forth below is certain information related to stock options outstanding and exercisable at December 31, 2023 (shares reported in whole numbers): Options Outstanding Options Exercisable Range of Exercise Price Number Outstanding at December 31, 2023 Weighted-Average Remaining Contractual Life (in years) Weighted- Average Exercise Price Number Exercisable at December 31, 2023 Weighted- Average Exercise Price $0.00 — 25.00 55,320 0.1 $ 22.28 55,320 $ 22.28 $25.01 — 35.00 894,450 1.1 $ 29.25 894,450 $ 29.25 $35.01 — 45.00 1,519,695 2.6 $ 39.65 1,519,695 $ 39.65 $45.01 — 55.00 1,506,810 4.6 $ 50.31 1,308,944 $ 50.42 $55.01 — 65.00 558,220 6.1 $ 59.76 211,403 $ 59.76 $65.01 — 75.00 371,700 7.1 $ 70.34 — $ — $0.00 — 75.00 4,906,195 3.6 $ 45.44 3,989,812 $ 41.68 Other information pertaining to stock options was as follows (in thousands, except weighted-average grant date fair value): Years Ended December 31, 2023 2022 2021 Weighted average grant-date fair value of stock options granted $ 16.86 $ 11.02 $ 7.50 Total fair value of stock options vested $ 6,059 $ 5,538 $ 5,708 Total intrinsic value of stock options exercised $ 37,115 $ 42,700 $ 59,180 Cash received from the exercise of stock options $ 24,181 $ 27,814 $ 39,354 Recognized compensation expense $ 5,929 $ 5,738 $ 5,514 As of December 31, 2023, the unrecognized compensation expense related to stock options of $ 6.8 million is expected to be recognized over a weighted average period of 1.8 years. Restricted Shares The fair value of our restricted share awards and units, as determined on the grant date, is being amortized and charged to income (with an offsetting credit to Capital in excess of par value ) generally over the average period during which the restrictions lapse. Restricted share award activity was as follows (share awards reported in whole numbers): Restricted Share Awards Weighted-Average Grant-Date Fair Value Nonvested restricted share awards at December 31, 2022 212,115 $ 54.66 Granted 89,484 $ 70.34 Vested ( 114,826 ) $ 53.38 Nonvested restricted share awards at December 31, 2023 186,773 $ 62.95 Other information pertaining to restricted share awards was as follows (in thousands, except weighted-average grant date fair value): Years Ended December 31, 2023 2022 2021 Recognized compensation expense related to restricted share awards $ 6,128 $ 5,739 $ 5,647 Weighted-average grant date fair value for nonvested restricted stock granted $ 70.34 $ 59.76 $ 49.59 Total fair market value of restricted share awards vested $ 6,130 $ 5,639 $ 5,496 Aggregate intrinsic value of restricted share awards vested $ 1,715 $ 2,552 $ 3,513 At December 31, 2023, unrecognized compensation expense of $ 7.0 million related to restricted share awards is expected to be recognized over a weighted average period of 1.8 years. 72 Service Corporation International PART II Restricted share units activity was as follows (share units reported in whole numbers): Restricted Share Units Weighted-Average Grant-Date Fair Value Nonvested restricted share units at December 31, 2022 118,936 $ 54.31 Granted 52,162 $ 70.34 Vested ( 61,390 ) $ 52.47 Nonvested restricted share units at December 31, 2023 109,708 $ 62.96 Other information pertaining to restricted share units was as follows (in thousands, except weighted-average grant date fair value): Years Ended December 31, 2023 2022 2021 Recognized compensation expense related to restricted share units $ 3,366 $ 3,232 $ 3,007 Weighted-average grant date fair value for nonvested restricted share units granted $ 70.34 $ 59.76 $ 49.59 Total fair market value of restricted share units vested $ 3,221 $ 3,143 $ 2,883 Aggregate intrinsic value of restricted share units vested $ 1,000 $ 1,447 $ 1,911 At December 31, 2023, the unrecognized compensation expense related to restricted share units of $ 4.0 million is expected to be recognized over a weighted average period of 1.7 years. Performance Units During 2023, 2022, and 2021 we granted 88,084 , 99,923 and 111,449 performance units, respectively. At December 31, 2023, there were 308,976 performance units outstanding. Total compensation expense for performance units was $ 11.8 million, $ 14.6 million, and $ 19.5 million for the years ended December 31, 2023, 2022, and 2021, respectively. For the year ended December 31, 2023 and 2022, cash paid to settle performance units was $ 16.8 million and $ 10.9 million, respectively. The fair value of the liability for these awards is calculated using a Monte Carlo simulation. The weighted average key assumptions as of December 31, 2023 were as follows: Share price at beginning of performance period $ 62.30 Risk-free interest rate 4.53 % Expected volatility 26.2 % Fair value of share-based performance units outstanding $ 68.45 At December 31, 2023, the unrecognized compensation expense related to performance units of $ 7.3 million is expected to be recognized over a weighted average period of 1.6 years. 12. Retirement Plans We currently have a supplemental retirement plan for certain current and former key employees (SERP), a supplemental retirement plan for officers and certain key employees (Senior SERP), and a Stewart Supplemental Retirement Plan (collectively, the “Plans”). All of our Plans are unfunded and have a measurement date of December 31. The Plans are frozen; therefore, the participants do not earn incremental benefits from additional years of service, and we do not incur any additional service cost. Retirement benefits under the SERP are based on years of service and average monthly compensation, reduced by benefits under Social Security. The Senior SERP provides retirement benefits based on years of service and position. We recognize pension related gains and losses in Other income, net on our Consolidated Statement of Operations in the year such gains and losses are incurred. The components of the Plans’ net periodic benefit cost were as follows: Years Ended December 31, 2023 2022 2021 (In thousands) Interest cost on projected benefit obligation $ 797 $ 535 $ 482 Recognized net actuarial (gains) losses 654 ( 3,254 ) ( 353 ) Total net periodic benefit cost $ 1,451 $ ( 2,719 ) $ 129 FORM 10-K 73 PART II The Plans’ funded status were as follows: Years Ended December 31, 2023 2022 (In thousands) Change in Benefit Obligation: Benefit obligation at beginning of year $ 15,906 $ 22,381 Interest cost 797 535 Actuarial gain 654 ( 3,254 ) Benefits paid (1) ( 1,994 ) ( 3,756 ) Benefit obligation at end of year $ 15,363 $ 15,906 Change in Plan Assets: Fair value of plan assets at beginning of year $ — $ — Employer contributions 1,994 3,756 Benefits paid, including expenses (1) ( 1,994 ) ( 3,756 ) Fair value of plan assets at end of year $ — $ — Funded status of plan $ ( 15,363 ) $ ( 15,906 ) Funding Summary: Projected benefit obligation $ 15,363 $ 15,906 Accumulated benefit obligation $ 15,363 $ 15,906 Amounts Recognized in the Consolidated Balance Sheet: Included in Accounts payable and accrued liabilities $ ( 1,824 ) $ ( 2,236 ) Included in Other liabilities ( 13,539 ) ( 13,670 ) Total accrued liability $ ( 15,363 ) $ ( 15,906 ) ( 1) In 2022, we terminated our Directors' Plan and amended Senior SERP to terminate the participation of all our active employees and paid out, in a discounted lump sum, all benefits to the participants or their heirs in the amount of $1.5 million. The retirement benefits under the Plans are unfunded obligations of the Company. We have purchased various life insurance policies on the participants in the Plans with the intent to use the proceeds or any cash value buildup from these policies to assist in meeting, at least to the extent of such assets, the Plans' funding requirements. The face value of these insurance policies at December 31, 2023 and 2022 was $ 30.5 million and $ 49.8 million, respectively, and the cash surrender value was $ 22.7 million and $ 40.7 million, respectively. The outstan ding loans against the policies are minimal and there are no restrictions in the policies regarding loans. The Plans’ weighted-average assumptions used to determine the benefit obligation and net periodic benefit cost are as follows: Years Ended December 31, 2023 2022 2021 Weighted-average discount rate used to determine obligations 4.94 % 5.34 % 2.52 % Weighted-average discount rate used to determine net periodic benefit cost 5.34 % 2.52 % 2.42 % We determine our discount rate used to compute future benefit obligations using an analysis of expected future benefit payments. The reasonableness of our discount rate is verified by comparing the rate to the rate earned on high-quality fixed income investments, such as the Moody’s Aa index, plus 50 basis points. The assumed rate of return on plan assets was not applicable as we pay plan benefits as they come due. As all Plans are frozen, the assumed rate of compensation increase is zero . 74 Service Corporation International PART II The following benefit payments are expected to be paid over the next ten years related to our Plans (in thousands): 2024 $ 1,695 2025 1,603 2026 1,562 2027 1,492 2028 1,417 Years 2029 through 2033 5,968 Total expected benefit payments $ 13,737 We also have an employee savings plan that qualifies under Section 401(k) of the Internal Revenue Code for the exclusive benefit of our United States employees. Under the plan, participating employees may contribute a portion of their pretax and/or after-tax income in accordance with specified guidelines up to a maximum of 50 %. During 2023, 2022, and 2021, we matched a percentage of the employee contributions through contributions of cash. For these years, our matching contribution was based upon the following: Years of Vesting Service Percentage of Deferred Compensation 0 — 5 years 75% of the first 6% of deferred compensation 6 — 10 years 100% of the first 6% of deferred compensation 11 or more years 125% of the first 6% of deferred compensation The amount of our matched contributions in 2023, 2022, and 2021 was $ 52.8 million, $ 49.6 million, and $ 46.0 million, respectively. FORM 10-K 75 PART II 13. Segment Reporting Our operations are both product-based and geography-based, and the reportable operating segments presented below include our funeral and cemetery operations. Our geographic areas include the United States and Canada, where we conduct both funeral and cemetery operations. Our reportable segment information, including disaggregated revenue, was as follows and includes a reconciliation of gross profit to our consolidated income before income taxes. Years Ended December 31, 2023 2022 2021 (In thousands) Revenue from customers: Funeral revenue: Atneed revenue $ 1,185,413 $ 1,242,269 $ 1,268,111 Matured preneed revenue 715,298 705,273 700,473 Core funeral revenue 1,900,711 1,947,542 1,968,584 Non-funeral home revenue 85,904 76,311 74,099 Non-funeral home preneed sales revenue 134,770 146,496 139,260 Core general agency and other revenue 181,646 161,696 161,233 Total funeral revenue 2,303,031 2,332,045 2,343,176 Cemetery revenue: Atneed revenue 433,925 448,143 477,950 Recognized preneed property revenue 874,724 868,740 846,528 Recognized preneed merchandise and services revenue 365,018 338,463 343,899 Core cemetery revenue 1,673,667 1,655,346 1,668,377 Other revenue 123,080 121,270 131,590 Total cemetery revenue 1,796,747 1,776,616 1,799,967 Total revenue from customers $ 4,099,778 $ 4,108,661 $ 4,143,143 Gross profit: Funeral gross profit $ 497,106 $ 545,693 $ 639,775 Cemetery gross profit 594,701 608,909 683,300 Gross profit from reportable segments 1,091,807 1,154,602 1,323,075 Corporate general and administrative expenses ( 157,368 ) ( 237,248 ) ( 157,568 ) Gains on divestitures and impairment charges, net 9,816 9,962 25,169 Operating income 944,255 927,316 1,190,676 Interest expense ( 239,447 ) ( 172,109 ) ( 150,610 ) Losses on early extinguishment of debt, net ( 1,114 ) ( 1,225 ) ( 5,226 ) Other income, net 4,912 1,646 10,660 Income before income taxes $ 708,606 $ 755,628 $ 1,045,500 76 Service Corporation International PART II Other reportable segment information as of and for the year ended December 31 was as follows: Reportable Segments Funeral Cemetery Corporate Consolidated (In thousands) 2023 Interest expense $ 2,092 $ 764 $ 236,591 $ 239,447 Depreciation and amortization $ 133,544 $ 46,713 $ 11,015 $ 191,272 Amortization of intangibles $ 12,025 $ 6,706 $ 5 $ 18,736 Amortization of cemetery property $ — $ 101,234 $ — $ 101,234 Capital expenditures $ 125,922 $ 212,406 $ 23,465 $ 361,793 Total assets $ 6,573,950 $ 9,168,173 $ 613,277 $ 16,355,400 2022 Interest expense $ 1,734 $ 493 $ 169,882 $ 172,109 Depreciation and amortization $ 123,165 $ 41,502 $ 10,663 $ 175,330 Amortization of intangibles $ 11,735 $ 6,620 $ — $ 18,355 Amortization of cemetery property $ — $ 94,123 $ — $ 94,123 Capital expenditures $ 153,224 $ 196,371 $ 20,114 $ 369,709 Total assets $ 6,236,270 $ 8,404,900 $ 424,867 $ 15,066,037 2021 Interest expense $ 2,864 $ 681 $ 147,065 $ 150,610 Depreciation and amortization $ 111,687 $ 37,373 $ 10,246 $ 159,306 Amortization of intangibles $ 12,980 $ 7,016 $ 6 $ 20,002 Amortization of cemetery property $ — $ 98,162 $ — $ 98,162 Capital expenditures $ 139,420 $ 148,737 $ 15,503 $ 303,660 Our geographic area information as of and for the year ended December 31 was as follows: United States Canada Total (In thousands) 2023 Revenue from external customers $ 3,881,333 $ 218,445 $ 4,099,778 Interest expense $ 239,103 $ 344 $ 239,447 Depreciation and amortization $ 180,093 $ 11,179 $ 191,272 Amortization of intangibles $ 18,495 $ 241 $ 18,736 Amortization of cemetery property $ 97,471 $ 3,763 $ 101,234 Operating income $ 887,110 $ 57,145 $ 944,255 Gains on divestitures and impairment charges, net $ 8,512 $ 1,304 $ 9,816 Long-lived assets $ 7,386,819 $ 339,142 $ 7,725,961 2022 Revenue from external customers $ 3,876,689 $ 231,972 $ 4,108,661 Interest expense $ 171,912 $ 197 $ 172,109 Depreciation and amortization $ 165,004 $ 10,326 $ 175,330 Amortization of intangibles $ 18,080 $ 275 $ 18,355 Amortization of cemetery property $ 89,545 $ 4,578 $ 94,123 Operating income $ 856,277 $ 71,039 $ 927,316 Gains on divestitures and impairment charges, net $ 7,220 $ 2,742 $ 9,962 Long-lived assets $ 7,094,859 $ 331,520 $ 7,426,379 2021 Revenue from external customers $ 3,918,777 $ 224,366 $ 4,143,143 Interest expense $ 150,385 $ 225 $ 150,610 Depreciation and amortization $ 149,351 $ 9,955 $ 159,306 Amortization of intangibles $ 19,721 $ 281 $ 20,002 Amortization of cemetery property $ 92,128 $ 6,034 $ 98,162 Operating income $ 1,120,154 $ 70,522 $ 1,190,676 Gains on divestitures and impairment charges, net $ 19,837 $ 5,332 $ 25,169 FORM 10-K 77 PART II 14. Supplementary Information The detail of certain balance sheet accounts is as follows: Years Ended December 31, 2023 2022 (In thousands) Cash and cash equivalents: Cash $ 151,608 $ 147,408 Commercial paper and temporary investments 69,949 44,530 $ 221,557 $ 191,938 Other current assets: Prepaid insurance 5,182 5,035 Prepaid expenses 13,355 13,001 Restricted cash 370 10,379 Other 4,103 4,051 $ 23,010 $ 32,466 Cemetery property: Undeveloped land $ 1,328,358 $ 1,304,514 Developed lots, lawn crypts, mausoleum spaces, cremation niches, and cremation memorialization property 692,488 635,302 $ 2,020,846 $ 1,939,816 Property and equipment, net: Land $ 761,092 $ 711,672 Buildings and improvements 2,685,867 2,581,695 Operating equipment 816,602 702,028 Leasehold improvements 46,254 44,044 Finance leases 339,395 332,301 4,649,210 4,371,740 Less: Accumulated depreciation ( 1,957,141 ) ( 1,804,703 ) Less: Accumulated amortization of finance leases ( 211,970 ) ( 216,488 ) $ 2,480,099 $ 2,350,549 Deferred charges and other assets: Intangible assets, net $ 485,109 $ 481,010 Restricted cash 2,834 2,207 Deferred tax assets 7,320 5,910 Notes receivable, net of reserves of $1,797 and $2,546, respectively 8,497 6,821 Cash surrender value of insurance policies 220,587 199,516 Deferred incremental direct selling costs 406,181 384,108 Operating leases 50,973 49,741 Other 66,329 61,113 $ 1,247,830 $ 1,190,426 78 Service Corporation International PART II Years Ended December 31, 2023 2022 (In thousands) Accounts payable and accrued liabilities: Accounts payable $ 203,352 $ 177,970 Accrued benefits 169,164 198,260 Accrued interest 25,632 23,602 Accrued property taxes 13,891 15,151 Self-insurance reserves 103,297 99,252 Legal reserves 63,595 76,866 Bank overdrafts 36,562 39,695 Operating leases 7,782 7,083 Other accrued liabilities 62,424 69,609 $ 685,699 $ 707,488 Other liabilities: Accrued benefit costs $ 13,539 $ 13,670 Deferred compensation 201,287 174,035 Customer refund obligation reserve 37,729 37,805 Tax liability 2,318 2,208 Payable to perpetual care trust 148,198 127,662 Operating leases 46,050 45,314 Other 15,814 10,682 $ 464,935 $ 411,376 Certain Non-Cash Investing and Financing Transactions Years Ended December 31, 2023 2022 2021 (In thousands) Net change in capital expenditure accrual $ 9,171 $ 3,817 $ 3,201 Options exercised by attestation $ — $ 280 $ 323 Shares repurchased $ — $ ( 280 ) $ ( 323 ) Excise tax accrual on shares repurchased $ 4,724 $ — $ — FORM 10-K 79 PART II 15. Earnings Per Share Basic earnings per common share (EPS) excludes dilution and is computed by dividing Net income attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other obligations to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in our earnings. A reconciliation of the numerators and denominators of basic and diluted EPS is presented below: Years Ended December 31, 2023 2022 2021 (In thousands, except per share amounts) Amounts attributable to common stockholders: Net income — basic and diluted $ 537,317 $ 565,338 $ 802,939 Weighted average shares: Weighted average shares — basic 150,565 157,713 167,542 Stock options 1,726 2,343 2,501 Restricted share units 60 75 71 Weighted average shares — diluted 152,351 160,131 170,114 Amounts attributable to common stockholders: Net income per share: Basic $ 3.57 $ 3.58 $ 4.79 Diluted $ 3.53 $ 3.53 $ 4.72 The computation of diluted earnings per share excludes outstanding stock options in certain periods in which the inclusion of such options would be antidilutive to the periods presented. Total antidilutive options not currently included in the computation of dilutive EPS are as follows (in shares): Years Ended December 31, 2023 2022 2021 (In thousands) Antidilutive options 845 490 — 80 Service Corporation International PART II 16. Acquisitions and Divestiture-Related Activities Acquisitions In 2023, we acquired 17 funeral homes and 2 cemeteries for $72.5 million in cash and $56.4 million for real estate transactions. This amount includes the use of $24.0 million in IRS Section 1031 exchange funds. This compares to $102.6 million and $121.4 million, net of cash acquired, for several business acquisitions, and $17.1 million and $26.6 million, net of cash acquired, for several real estate acquisitions for years ended December 31, 2022 and 2021, respectively. The 2022 acquisitions include ten funeral homes and three cemeteries in California as part of two acquisitions (the "2022 California Businesses") for $ 71.2 million in cash. This amount includes the use of $ 13.2 million in IRS Section 1031 exchange funds. 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 new, 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 thousands): Other current assets $ 241 Cemetery property 9,815 Property and equipment, net 19,109 Preneed receivables, net and trust investments 6,539 Indefinite-lived intangible assets 14,257 Deferred charges and other assets 158 Cemetery perpetual care trust investments 6,461 Goodwill 36,234 Total assets acquired 92,814 Current liabilities 439 Deferred revenue and deferred receipts held in trust 12,599 Care trusts' corpus 6,461 Other liabilities 2,095 Total liabilities assumed 21,594 Net assets acquired $ 71,220 Goodwill, land, and certain identifiable intangible assets recorded in the acquisitions are not subject to amortization; however, the goodwill and intangible assets will be tested periodically for impairment. Of the $ 36.2 million in goodwill recognized, all of which is deductible for tax purposes, $ 17.3 million was allocated to our cemetery segment and $ 18.9 million was allocated to our funeral segment. The identified intangible assets are indefinite lived tradenames with a fair value of $14.3 million. We incurred acquisition costs of $ 0.2 million, which is included in G eneral and administrative expenses in our Consolidated Statement of Operations for the year ended December 31, 2022. The 2022 California Businesses contributed revenue of $ 1.9 million and net income of $ 0.5 million from acquisition through December 31, 2022. The 2021 acquisitions include twenty-one funeral homes and one cemetery in two states as part of two acquisitions (the "Ohio and California Businesses") for $ 94.8 million in cash. This amount includes the use of $ 6.1 million in IRS Section 1031 exchange funds. 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 new, complementary areas; and • the acquisitions of the preneed backlog of deferred revenues enhance our long-term stability. FORM 10-K 81 PART II The following table summarizes the fair values of the assets acquired and liabilities assumed in the acquisitions (in thousands): Other current assets $ 140 Cemetery property 2,918 Property and equipment, net 36,768 Preneed receivables, net and trust investments 7,732 Finite-lived intangible assets 3,900 Indefinite-lived intangible assets 24,734 Deferred charges and other assets 128 Cemetery perpetual care trust investments 1,484 Goodwill 29,683 Total assets acquired 107,487 Current liabilities 660 Deferred revenue and deferred receipts held in trust 7,204 Care trusts' corpus 1,484 Other liabilities 3,336 Total liabilities assumed 12,684 Net assets acquired $ 94,803 Goodwill, land, and certain identifiable intangible assets recorded in the acquisitions are not subject to amortization; however, the goodwill and intangible assets will be tested periodically for impairment. Of the $ 29.7 million in goodwill recognized, all of which is deductible for tax purposes, $ 1.5 million was allocated to our cemetery segment and $ 28.2 million was allocated to our funeral segment. The identified intangible assets comprise the following: Useful Life Fair Value (Years) (In thousands) Preneed customer relationships to insurance claims 10 $ 3,900 Tradenames Indefinite 24,734 Total intangible assets $ 28,634 We incurred acquisition costs of $ 0.3 million, which is included in Corporate general and administrative expenses in our Consolidated Statement of Operations for the year ended December 31, 2021. The Ohio and California Businesses contributed revenue of $ 1.1 million and net income of $ 0.3 million from acquisition through December 31, 2021. Divestiture-Related Activities As divestitures occur in the normal course of business, gains or losses on the sale of such locations are recognized in the Consolidated Statement of Operations line item Gains on divestitures and impairment charges, net , which consist of the following: Years Ended December 31, 2023 2022 2021 (In thousands) Gains on divestitures, net $ 12,543 $ 10,923 $ 28,573 Impairment losses ( 2,727 ) ( 961 ) ( 3,404 ) Gains on divestitures and impairment charges, net $ 9,816 $ 9,962 $ 25,169 82 Service Corporation International PART II Service Corporation International Schedule II - Valuation and Qualifying Accounts Three Years Ended December 31, 2023 Description Balance at Beginning of Period Charged (Credited) to Costs and Expenses Charged (Credited) to Write-offs & Other Accounts Balance at End of Period (In thousands) Current Provision: Reserve for credit losses: Year Ended December 31, 2023 $ 6,186 $ 3,764 $ ( 5,568 ) $ 4,382 Year Ended December 31, 2022 $ 6,338 $ 6,579 $ ( 6,731 ) $ 6,186 Year Ended December 31, 2021 $ 6,031 $ 6,393 $ ( 6,086 ) $ 6,338 Due After One Year: Reserve for credit losses: Year Ended December 31, 2023 $ 3,602 $ ( 510 ) $ ( 747 ) $ 2,345 Year Ended December 31, 2022 $ 4,577 $ ( 125 ) $ ( 850 ) $ 3,602 Year Ended December 31, 2021 $ 6,902 $ ( 117 ) $ ( 2,208 ) $ 4,577 Preneed Receivables, Net: Reserve for credit losses: Year Ended December 31, 2023 $ 27,314 $ 7,991 $ ( 2,830 ) $ 32,475 Year Ended December 31, 2022 $ 20,727 $ 10,246 $ ( 3,659 ) $ 27,314 Year Ended December 31, 2021 $ 19,204 $ 5,086 $ ( 3,563 ) $ 20,727 Deferred Tax Valuation Allowance: Year Ended December 31, 2023 $ 118,939 $ ( 10,105 ) $ — $ 108,834 Year Ended December 31, 2022 $ 120,739 $ ( 1,800 ) $ — $ 118,939 Year Ended December 31, 2021 $ 108,090 $ 12,649 $ — $ 120,739 FORM 10-K 83 PART II Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None.