What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-02-12 compared with 2025-02-13 · 114 added, 86 removed, 397 unchanged (34% of the section changed)

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We believe the presentation of these additional merchandise and services through our customer-facing technology improves our customers' experience by reducing administrative burdens and allowing them to visualize the enhanced product and service offerings, which we believe will help drive increases in the average revenue for a cremation in future periods.

While economic conditions, inflation, and consumer confidence may affect the timing or mix of customer purchases, demand is generally deferred rather than lost.

Accordingly, demand for these products and services has historically been less sensitive to economic cycles than other discretionary consumer purchases.

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

For a discussion of our results of operations and liquidity and capital resources for the fiscal year ended December 31, 2023, see Management’s Discussion and Analysis of Financial Condition, Liquidity and Capital Resources and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year December 31, 2023, filed with the Securities and Exchange Commission on February 13, 2024.

For a discussion of our results of operations and liquidity and capital resources for the fiscal year ended December 31, 2024, see

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Management’s Discussion and Analysis of Financial Condition, Liquidity and Capital Resources and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year December 31, 2024, filed with the Securities and Exchange Commission on February 13, 2025.

Financial Condition, Liquidity, and Capital Resources

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

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

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

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

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

We manage our footprint by focusing on strategic acquisitions and building new funeral service locations where the expected returns are attractive and exceed our weighted average cost of capital by a meaningful margin.

We manage our footprint by focusing on strategic acquisitions and building new funeral service locations where the expected returns are attractive and exceed our weighted average cost of capital.

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

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

In 2024, w e invested $181.2 million in acquiring 26 funeral service locations and 6 cemeteries, which included 3 combination locations.

In 2025, we invested $101.3 million in acquiring 22 funeral service locations and 2 cemeteries, which included 2 combination locations.

Return Excess Cash to Shareholders.

In addition to any strategic acquisition or new build opportunities, we continue to return cash to shareholders through dividends and our share repurchase program.

In addition to any strategic acquisitions or new build opportunities, we continue to return cash to shareholders through dividends and our share repurchase program.

Our quarterly dividend rate has steadily grown from $0.025 per common share in 2005 to $0.34 per common share at the end of 2025.

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We continue to focus on maintaining optimal levels of liquidity and financial flexibility.

Our recent $325.0 million increase in availability under our bank credit facility bolsters our flexible capital strategy and allows us to further manage our debt maturity profile by making open market debt repurchases when it is opportunistic to do so.

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

This cash flow stream and our significant liquidity allow us to opportunistically manage our debt maturity profile as we maintain a target leverage ratio of 3.5x to 4.0x.

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

In November 2025, we entered into a new bank credit agreement due November 2030 consisting of a $750.0 million term loan, which is funded debt, and a revolving credit facility providing for borrowings of up to $1.75 billion.

Proceeds from this new bank credit agreement were used to settle our existing Term Loan and Bank Credit Facility, which were both due January 2028.

In addition to more favorable pricing, the new bank credit agreement provides us flexibility with incremental liquidity for capital investment, working capital, and other general corporate purposes.

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

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Net cash provided by operating activities was $942.8 million and $944.9 million for the years ended December 31, 2025, and 2024, respectively.

The $75.9 million increase in operating cash flow during 2024 comprises:

• a $66.4 million increase in General Agency (GA) commission and other receipts,

• a $62.9 million decrease in cash tax payments, and

• a $54.6 million increase in cash receipts from customers, partially offset by

• a $35.4 million increase in net trust deposits,

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The $2.1 million decrease in operating cash flow during 2025 comprises:

• a $119.2 million increase in cash tax payments,

• a $20.2 million increase in employee compensation payments,

• a $16.2 million increase in payments for certain legal matters,

• a $13.0 million increase in vendor and other payments,

• a $11.1 million increase in cash interest payments, and

• a $19.3 million increase in restructuring payments,

• a $12.2 million increase in net trust deposits,

• a $11.2 million increase in cash interest payments, and

• a $3.9 million increase in vendor and other payments, partially offset by

• a $116.9 million increase in cash receipts from customers,

• a $38.6 million increase in General Agency (GA) commission and other receipts, and

• a $28.4 million decrease in payments for certain legal matters.

Investing Activities

Cash flows from investing activities used $548.3 million and $620.9 million, in 2025, and 2024, respectively.

The $151.5 million increased outflow from 2024 over 2023 is primarily due to the following:

• a $108.7 million increase in cash spent on business acquisitions,

• a $27.3 million increase in total capital expenditures, which comprises:

• a $23.4 million increase in maintenance capital expenditures, consisting of:

The $72.6 million decreased outflow from 2025 over 2024 is primarily due to the following:

• a $79.9 million decrease in cash spent on business acquisitions,

• a $43.6 million decrease in cash spent on real estate acquisitions,

• a $10.3 million increase in net proceeds for Company-owned life insurance policies,

• a $6.0 million increase in cash receipts from divestitures and asset sales, and

• a $2.2 million decrease in other investing activities primarily for investments in renewable energy tax credits, partially offset by

• a $54.5 million increase in capital expenditures related to construction of our new corporate headquarters which is financed through a separate construction loan facility,

• a $14.9 million increase in total capital expenditures, which includes:

• an $18.8 million increase for growth capital expenditures/construction of new funeral service locations, partially offset by

• a $3.9 million decrease in maintenance capital expenditures, consisting of:

• an $8.6 million decrease in expenditures for digital investments and corporate, partially offset by

• a $3.1 million increase in expenditures for cemetery property development, and

• a $1.6 million increase in expenditures for capital improvements at existing field locations.

• a $11.8 million increase in expenditures for cemetery property development,

• a $8.6 million decrease in expenditures for digital investments and corporate,

• a $3.9 million increase for growth capital expenditures/construction of new funeral service locations

• a $7.3 million increase in other investing activities primarily for investments in renewable energy tax credits,

• a $5.7 million increase in cash spent on real estate acquisitions,

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

• a $1.1 million decrease in proceeds for Company-owned life insurance policies, net of repayments.

Financing Activities

Financing activities used $374.7 million in 2025 compared to $319.6 million in 2024.

The $61.5 million decreased outflow from 2024 over 2023 is primarily due to the following:

• a $291.1 million decrease in the purchase of Company common stock, and

• a $32.5 million increase in proceeds from exercises of stock options, partially offset by

• a $253.3 million increase in debt repayments, net of proceeds,

• a $6.3 million increase in payments of dividends, and

• a $2.5 million change in bank overdrafts and other.

The $55.1 million increased outflow from 2025 over 2024 is primarily due to the following:

• a $207.3 million increase in purchase of Company common stock,

• a $27.3 million decrease in proceeds from exercises of stock options, and

• a $9.3 million increase in payments of dividends, partially offset by

• a $132.4 million increase in debt proceeds, net of repayments,

• a $54.8 million increase in borrowings from our corporate headquarters debt facility, and

• a $1.6 million decrease in bank overdrafts and other.

Material Cash Requirements

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Future interest payments associated with the debt and finance leases

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total $1.2 billion, of which $249.1 million is payable in the next twelve months.

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Management does not expect that we will be required to fund material future amounts related to these surety bonds due to a lack of surety capacity or surety company non-performance.

As of December 31, 2024, we had an increase of $161.7 million in surety bonds supporting preneed funeral obligations related to certain legal matters discussed in Note 9 in Part II, Item 8.

Financial Statements and Supplementary Data.

During the second quarter of 2025, we replaced our then-existing letters of credit under the Bank Credit Facility with a $46.0 million surety bond and a related indemnity obligation with a large insurance company, which is included in Other bonds in the table above.

Preneed Activities and Backlog of Contracts

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In certain situations, as described above, where permitted by state or provincial laws, we may post a surety bond as financial assurance for a certain amount of the preneed contract in lieu of placing funds into trust accounts.

Alternatively, we may sell a life insurance or annuity policy from third-party insurance companies.

Insurance-Funded Preneed Contracts

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.

Alternatively, we may sell a life insurance or annuity policy from third-party insurance companies or use other non-insurance funded third-party providers.

Insurance- and Other 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 a 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.

1 unchanged sentence

We do not reflect the

unfulfilled insurance-funded preneed contract amounts in our Consolidated Balance Sheet.

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unfulfilled insurance- and other funded preneed contract amounts in our Consolidated Balance Sheet.

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

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

In early July 2024, we finalized our agreement to change our preferred preneed insurance provider in the United States, which has allowed us to further utilize our scale and streamline our processes across our network.

In addition, we have shifted our non-funeral home preneed sales production from trust to insurance-funded contracts.

The table below details our results of insurance-funded and other non-insurance funded third-party preneed production and maturities.

Years Ended December 31,

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Maturities (number of contracts) 65,452 62,138

Other non-insurance funded third-party:

Sales production (1)

$ 41.5 $ 43.6

Sales production (number of contracts) (1)

Maturities $ 30.7 $ 27.9

Maturities (number of contracts) 3,079 3,064

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

Trust-Funded Preneed Contracts

The funds collected from customers and required by state or provincial law are deposited into trusts.

The funds collected from customers are deposited into trusts as required by state or provincial law.

We retain any funds above the amounts required to be deposited into trust accounts and use them for working capital purposes, generally to offset the selling and administrative costs of our preneed programs.

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The funds in trust are then invested by professional money managers with oversight by independent trustees in accordance with state and provincial laws.

As discussed above in Insurance- and Other Funded Preneed Contracts, we have shifted our non-funeral home preneed sales production from trust to insurance-funded contracts.

The tables below detail our results of preneed production and maturities, excluding insurance contracts, for the years ended December 31, 2025 and 2024.

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The following table reflects our backlog of trust-funded deferred preneed contract revenue, including amounts related to Deferred receipts held in trust at December 31, 2025 and 2024.

Additionally, the table reflects our backlog of unfulfilled insurance-funded contracts (which are not included in our Consolidated Balance Sheet) at December 31, 2024 and 2023.

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backlog amounts presented include amounts due from customers for undelivered performance obligations on cancelable preneed contracts to arrive at our total backlog of deferred revenue.

Additionally, the table reflects our backlog of unfulfilled insurance-funded contracts and other non-insurance funded third-party contracts (which are not included in our Consolidated Balance Sheet) at December 31, 2025 and 2024.

The backlog amounts presented include amounts due from customers for undelivered performance obligations on cancelable preneed contracts to arrive at our total backlog of deferred revenue.

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

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The table also reflects our preneed receivables and trust investments associated with the backlog of deferred preneed contract revenue including the amounts due from customers for undelivered performance obligations on cancelable preneed contracts.

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Backlog of trust-funded deferred revenue, net of estimated allowance for cancellation 8.28 7.38 7.64 7.01

Backlog of insurance-funded revenue (1)

Backlog of insurance- and other funded deferred revenue (1)

8.73 8.73 8.37 8.37

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Assets associated with backlog of trust-funded deferred revenue, net of estimated allowance for cancellation 8.08 7.18 7.46 6.83

Insurance policies associated with insurance-funded deferred revenue (1)

Policies associated with insurance- and other funded deferred revenue (1)

8.73 8.73 8.37 8.37

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As of December 31, 2025, the fair value of the assets associated with the backlog of trust-funded deferred revenue comprised $5.10 billion related to cemetery contracts and $2.98 billion related to funeral contracts.

As of December 31, 2024, the backlog of insurance-funded contracts of $8.37 billion was equal to the proceeds we expect to receive from the associated insurance policies when the corresponding contract is serviced.

As of December 31, 2025, the backlog of insurance-funded contracts of $8.73 billion was equal to the proceeds we expect to receive from the associated insurance policies when the corresponding contract is serviced by one of our operating locations.

Trust Investments

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The majority of the trustees are selected based on their respective geographic footprint and qualifications per state and provincial regulations.

These trustees, with input from SCI's wholly-owned registered investment advisor, establish an investment policy that serves as an operating document to guide the investment activities of the trusts including asset allocation and manager selection.

These trustees, with input from SCI's

wholly-owned registered investment advisor, establish an investment policy that serves as an operating document to guide the investment activities of the trusts including asset allocation and manager selection.

The investments are also governed by state and provincial guidelines.

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however, we believe these securities are well-diversified.

As of December 31, 2024, the largest single equity position represented less than 1% of the total securities portfolio.

As of December 31, 2025, the largest single equity position represented approximately 1% of the total securities portfolio.

Fixed income investments are intended to preserve principal, provide a source of current income, and reduce overall portfolio volatility.

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(In millions)

Pre-tax (loss) gain on divestitures and impairment charges, net $ (12.5) $ 9.8

Pre-tax gain (loss) on divestitures and impairment charges, net $ 6.2 $ (12.5)

Pre-tax loss on early extinguishment of debt, net $ (0.5) $ —

Pre-tax estimate of reduction in legal reserve (1)

Pre-tax estimate of (growth) reduction in legal reserve (1)

$ (6.4) $ 20.3

Pre-tax estimate of restructuring charge $ (2.0) $ (11.5)

1 unchanged sentence

Change in uncertain tax reserves and other (2)

(1) The fourth quarter of 2024 includes a reduction of our legal reserve of $20.3 million related to previously disclosed legal matters in California that have now been resolved.

$ (3.9) $ 4.0

(1) Corporate general and administrative expenses in the fourth quarter of 2024, includes a reduction of our California legal reserve of $20.3 million as the primary claims period expired

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

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

In addition to the above items, the decrease over the prior year is due to lower gross profit from lower services performed combined with higher expenses, including facility and maintenance expenses from natural disasters.

Additionally, fewer shares outstanding and a lower tax rate helped to offset the impact of higher interest.

In addition to the above items, the increase over the prior year is due to higher funeral gross profit driven by an increase in funeral average revenue per service and higher cemetery gross profit.

Additionally, the higher tax rate was partially offset by lower interest expense and a lower share count.

Funeral Results

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Consolidated revenue from funeral operations was $2,405.5 million for the year ended December 31, 2025, compared to $2,324.2 million in 2024.

This $21.2 million, or 0.9%, increase in revenue is primarily attributable to a $25.8 million increase in revenue contributed by newly constructed and acquired properties, partially offset by a $1.1 million decrease in comparable funeral revenue.

This $81.3 million, or 3.5%, increase in revenue is primarily attributable to a $45.4 million increase in revenue contributed by newly constructed and acquired properties, and a $40.2 million increase in comparable funeral revenue.

Comparable revenue from funeral operations was $2,340.0 million for the year ended December 31, 2025 compared to $2,299.8 million in 2024.

Our comparable funeral services performed decreased 2.5%, which was primarily offset by a 2.5% growth in the comparable average revenue per service.

Our total comparable cremation rate increased 70 basis points to 63.8% for the year ended December 31, 2024.

Non-funeral home preneed sales revenue decreased by $31.1 million primarily due to a decline of non-funeral home preneed sales production impacted by our transition from trust to insurance-funded contracts.

Core general agency and other revenue grew $31.1 million, primarily due to growth in general agency revenue from higher commission rates, primarily as a result of our new preneed insurance marketing agreement.

The $40.2 million, or 1.7%, increase was due to a $40.7 million increase in adjusted comparable funeral revenue and a $11.1 million increase in core general agency and other revenue, partially offset by a $11.6 million decrease in non-funeral home preneed sales revenue.

Adjusted comparable funeral revenue increased $40.7 million, or 2.1%, primarily due to a 2.9% growth in total average revenue per service, partially offset by a 0.8% decrease in total services performed.

Our total comparable cremation rate increased 50 basis points over prior year to 64.4%.

Core general agency and other revenue increased $11.1 million, primarily due to growth in general agency revenue from higher commission rates as a result of the change in our preferred preneed insurance provider in mid-2024.

Non-funeral home preneed sales revenue decreased $11.6 million primarily due to an operational shift to defer the delivery of urns on preneed contracts to the time of need.

This decrease is partially offset by an increase in general agency revenue as we shifted more production from trust to insurance-funded contracts.

Funeral Gross Profit

Consolidated funeral gross profit decreased $31.8 million, or 6.4%, in 2024 compared to 2023.

This decrease is primarily attributable to the decrease in comparable funeral gross profit of $32.6 million, or 6.6%.

Comparable funeral gross profit decreased $32.6 million to $464.1 million and the comparable gross profit percentage decreased 140 basis points from 21.7% to 20.3%.

This decrease in gross profit is due to the decline in revenue mentioned above combined with higher employee-related inflationary costs, higher overhead costs including incentive compensation costs, and higher facility costs on increased maintenance expenses from damages incurred at locations impacted by natural disasters during the year.

Consolidated funeral gross profit increased $30.5 million, or 6.6%, in 2025 compared to 2024.

This increase is primarily attributable to a $22.6 million, or 4.8%, increase in comparable funeral gross profit and a $7.6 million increase in gross profit contributed by acquired and newly constructed properties.

Comparable funeral gross profit increased $22.6 million to $488.8 million and the comparable gross profit percentage increased 60 basis points from 20.3% to 20.9%.

This increase in gross profit is due to the higher revenue mentioned above and effectively managing fixed costs, partially offset by a $13.0 million increase in selling compensation costs.

Higher selling compensation costs resulted primarily from a $121.2 million increase in funeral preneed insurance sales production coupled with an operational shift from variable to fixed compensation for core preneed funeral sales counselors.

Fixed selling compensation is expensed as incurred.

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Cemetery Revenue

Consolidated revenue from our cemetery operations increased $65.5 million, or 3.6%, in 2024 compared to 2023 primarily due to a $53.2 million, or 3.0%, increase in comparable cemetery revenue and a $14.3 million increase in revenue contributed by newly constructed and acquired properties.

Consolidated revenue from our cemetery operations increased $41.5 million, or 2.2%, in 2025 compared to 2024 primarily due to a $29.7 million, or 1.6%, increase in comparable cemetery revenue and a $11.6 million increase in revenue contributed by acquired and newly constructed properties.

The $29.7 million increase in comparable cemetery revenue was primarily attributable to a $14.6 million increase in comparable cemetery core revenue.

This increase was primarily a result of a $45.1 million increase in recognized preneed revenue, which benefited from growth in comparable preneed sales production and trust fund income.

This increase was primarily a result of a $12.7 million increase in recognized preneed revenue, which benefited from growth in comparable preneed sales production and higher trust fund income.

Additionally, comparable other revenue increased $15.0 million, primarily from higher endowment care trust fund income.

Cemetery Gross Profit

Consolidated cemetery gross profit increased $30.7 million, or 5.2%, in 2024 compared to 2023 and is primarily attributable to an increase in comparable cemetery gross profit of $22.5 million, and an increase in gross profit contributed by newly constructed and acquired properties of $9.5 million.

Comparable cemetery gross profit increased $22.5 million to $618.2 million, and the gross profit percentage increased 30 basis points from 33.2% to 33.5% as the growth in comparable cemetery revenue more than offset higher overhead costs, including incentive compensation, and increased maintenance expenses from damages incurred at locations impacted by natural disasters during the year.

Consolidated cemetery gross profit increased $18.9 million, or 3.0%, in 2025 compared to 2024.

This increase is primarily attributable to a $13.1 million increase in comparable cemetery gross profit and a $5.5 million increase in gross profit contributed by acquired and newly constructed properties.

Comparable cemetery gross profit increased $13.1 million to $638.1 million, and the gross profit percentage increased 20 basis points from 33.6% to 33.8% primarily due to the higher revenue mentioned above coupled with effective cost management, partially offset by higher selling compensation on higher sales production.

Other Financial Statement Items

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Corporate general and administrative expenses were $166.2 million in 2025 compared to $139.0 million in 2024.

During the fourth quarter, we recognized a $20.3 million reduction in our California legal reserve as the primary claim period expired.

Adjusting for the $20.3 million, corporate general and administrative expenses grew $1.9 million due to higher employee-related inflationary costs.

Restructuring Charge

During the fourth quarter of 2024, we recognized $11.5 million in restructuring charges, which included the retirements and position eliminations of various home office positions as part of ongoing cost management.

In the prior year, we recognized a $20.3 million reduction in our California legal reserve.

Additionally, we recognized a $6.4 million settlement of certain legal matters in the current year.

Adjusting for the $26.7 million in legal matters, corporate general and administrative expenses increased $0.5 million.

Gain and Loss on Divestitures and Impairment Charges, Net

We recognized a $12.5 million net pre-tax loss and a $9.8 million net pre-tax gain on asset divestitures and impairments in 2024 and 2023, respectively, which includes the net impact from the sale of non-essential real estate and businesses as well as impairment of long-lived assets and intangibles.

We recognized a $6.2 million net pre-tax gain and a $12.5 million net pre-tax loss on asset divestitures and impairments in 2025 and 2024, respectively, which includes the net impact from the sale of non-essential real estate and businesses as well as impairment of long-lived assets and intangibles.

Interest Expense

Interest expense increased $18.3 million to $257.8 million in 2024 primarily due to higher interest rates on our floating rate debt as well as higher debt balances.

Our floating rate debt carried a weighted average interest rate of 7.34% for the full year 2024, which is 23 basis points higher than the weighted average rate for our floating rate debt for the full year 2023 of 7.11%.

Interest expense decreased $2.4 million to $255.4 million in 2025 primarily due to lower interest rates on our floating rate debt partially offset by higher average debt balances outstanding.

Provision for Income Taxes

The 2025 consolidated effective tax rate was 25.6% , compared to 23.2% in 2024.

The decrease in the effective tax rate in 2024 was primarily due to an increase in excess tax benefits recognized on the settlement of employee share-based awards .

The increase in the effective tax rate in 2025 was primarily due to a de crease in excess tax benefits recognized on the settlement of employee share-based awards .

The effective tax rate for the year ended December 31, 2025 was higher than the federal statutory tax rate of 21% primarily due to state and foreign income taxes.

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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.

On certain preneed contracts, we historically sold memorialization merchandise, which consists of urns and urn-related products, that we delivered to the customer at the time of sale.

In 2024, we began a transition and operational shift to defer the delivery of urns on preneed contracts to the time of need.

Revenue is recognized at the time of delivery as control of the memorialization merchandise is transferred to the customer.

For personalized marker merchandise sold on a preneed contract, we will:

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• 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.

We recognize revenue and record the cost of sales when control of the merchandise is transferred, which occurs upon delivery to the third-party storage facility or installation of the merchandise at the cemetery.

Pursuant to state or provincial law, all or a portion of the proceeds from funeral and cemetery merchandise or services sold on a preneed basis may be required to be paid into trust funds.

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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 certain estimates and management judgment.

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

We determine fair value of each reporting unit using an income approach.

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

36 Service Corporation International

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

Our goodwill impairment test involves estimates and management judgment.

In order to perform our goodwill impairment test, we perform either a qualitative or quantitative assessment.

If we choose to perform a qualitative assessment, we evaluate economic, industry and company-specific factors in assessing the fair value of the related reporting unit.

If we determine that it is more likely than not that the fair value of the reporting unit is less that its carrying value, a quantitative test is the performed.

For those reporting units tested using a quantitative approach, we compare the fair value of a reporting unit to its carrying amount, including goodwill.

We determine fair value of each reporting unit using an 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.

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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 2021, and we are not currently under audit by the IRS.

The federal statutes of limitations have expired for all tax years prior to 2022.

Our 2022 federal income tax return is currently under audit by the IRS.

Various state and foreign jurisdictions are auditing years 2020 through 2023.

We believe that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease by $0.4 million within the next twelve months as a result of the resolution of certain state tax matters.

The outcome of each of these audits cannot be predicted at this time.

Insurance Loss Reserves

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Historical insurance industry experience indicates a high degree of inherent variability in assessing the ultimate amount of losses associated with casualty insurance claims.

This is especially true with respect to liability and workers’ compensation exposures due to the extended period of time that transpires between the time claim occurs and the full settlement of such claim, which is often many years.

We continually evaluate loss estimates associated with claims and losses related to these insurance coverages falling within the deductible of each coverage.

Assumptions based on factors such as claim settlement patterns, claim development trends, claim frequency and severity patterns, inflationary trends, and data reasonableness will generally affect the analysis and determination of the “best estimate” of the projected ultimate claim losses.

Assumptions based on factors such as claim settlement patterns, claim development trends, claim frequency, severity patterns, inflationary trends, and data reasonableness will generally affect the analysis and determination of the “best estimate” of the projected ultimate claim losses.

The results of these evaluations are used to both analyze and adjust our insurance loss reserves.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis