Service charge

SERVICE CORP INTERNATIONAL Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

The company


We are North America's largest provider of deathcare products and services, with
a network of funeral service locations and cemeteries unequaled in geographic
scale and reach. At June 30, 2022, we operated 1,459 funeral service locations
and 488 cemeteries (including 300 funeral service/cemetery combination
locations), which are geographically diversified across 44 states, eight
Canadian provinces, the District of Columbia, and Puerto Rico. Our funeral and
cemetery operations consist of funeral service locations, cemeteries, funeral
service/cemetery combination locations, crematoria, and other related
businesses, which enable us to serve a wide array of customer needs. We sell
cemetery property and funeral and cemetery merchandise and services at the time
of need and on a preneed basis. We strive to offer families exceptional service
in planning life celebrations and personalized remembrances. Our Dignity
Memorial® brand serves approximately 600,000 families each year with
professionalism, compassion, and attention to detail.

Our financial position is enhanced by our $13.3 billion backlog of future
revenue from both trust and insurance-funded preneed sales at June 30, 2022.
Preneed selling provides us with a strategic opportunity to gain future market
share. We also believe it adds to the stability and predictability of our
revenue and cash flows. While revenue on the majority of preneed merchandise and
service sales is deferred until the time of need, sales of preneed cemetery
property provide opportunities for full current revenue recognition to the
extent that the property is developed and available for use.

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


Factors affecting our operating results include: demographic trends in terms of
population growth and average age, which impact death rates and number of
deaths; establishing and maintaining leading market share positions supported by
strong local heritage and relationships; effectively responding to increasing
cremation trends by selling complementary services and merchandise; controlling
salary and merchandise costs; and exercising pricing leverage related to our
atneed revenue. The average revenue per funeral contract is influenced by the
mix of traditional and cremation services because our average revenue for
cremations is lower than that for traditional burials. To further enhance
revenue opportunities, we continue to focus on our cremation customers'
preferences and remaining relevant by developing additional memorialization
merchandise and services that specifically appeal to cremation customers. We
believe the presentation of these additional merchandise and services through
our customer-facing technology improves our customers' experience by reducing
administrative burdens and allowing them to visualize the enhanced product and
service offerings, which we believe will help drive increases in the average
revenue for a cremation in future periods.

Recent trends


Like most businesses world-wide, COVID-19 and recent inflationary and economic
pressures are impacting various aspects of our business operations; however, we
cannot, with certainty, predict the scope, severity, or duration with which
COVID-19 and these pressures will continue to impact our business, financial
condition, results of operations, and cash flows. As these trends continue, we
are actively monitoring the potential impact on our business operations from
both a revenue and cost perspective.

In 2022, the families we serve are generally selecting to have funerals and
celebrations of life either with the same service and merchandise levels we
experienced before the COVID-19 pandemic or are choosing to celebrate with even
more robust services. The increase we have seen in the number of families who
desire more comprehensive memorial services has driven growth in our preneed
sales as well as positively affected our average revenue per funeral service. We
view this as evidence that our customers continue to value what our team does
best, which is helping our client families gain closure and healing through the
process of grieving, remembrance, and celebration.

For more information on our key operating metrics, see our “Cash Flow” and “Results of Operations” sections below.

Financial position, liquidity and capital resources

Capital Allocation Considerations


We rely on cash flow from operations as a significant source of liquidity. Our
cash flow from operating activities provided $472.9 million in the first six
months of 2022. As of June 30, 2022, we had $726.3 million in remaining
borrowing capacity under our Bank Credit Facility.

Our Bank Credit Facility requires us to maintain certain leverage and interest
coverage ratios. As of June 30, 2022, we were in compliance with all of our debt
covenants. Our leverage ratio has recently benefited from the strong earnings
associated with

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PART I


the increase in funeral services performed throughout the COVID-19 pandemic;
however, as these impacts subside in future years, we expect leverage to return
to our 3.5 to 4.0x target leverage range.


Our financial covenant requirements and actual ratios as of June 30, 2022 were
as follows:
                           Per Credit Agreement       Actual
Leverage ratio                         4.75 (Max)     2.69
Interest coverage ratio                3.00 (Min)     9.54

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


We believe that our unencumbered cash on hand, future operating cash flows, and
the available capacity under our Bank Credit Facility will give us adequate
liquidity to meet our short-term needs as well as our long-term financial
obligations. Due to cash balances residing in Canada and minimum operating cash
requirements, a portion of our cash on hand is encumbered.

We are constantly evaluating the best uses of our cash flow that will produce the highest value and return on capital. Our capital allocation strategy is prioritized as follows:


Investing in Acquisitions and Building New Funeral Service and Cemetery
Locations. We manage our footprint by focusing on strategic acquisitions and
building new funeral service locations where the expected returns are attractive
and exceed our weighted average cost of capital by a meaningful margin. We
target businesses with favorable customer dynamics and/or where we can achieve
additional economies of scale. We continue to pursue strategic acquisitions and
build new funeral service locations in areas that provide us with the potential
for scale.

Managing Debt. We may seek to make open market debt repurchases when it is
opportunistic to do so relative to other capital allocation opportunities and to
manage our near-term debt maturity profile. We have a relatively consistent
annual cash flow stream that is generally resistant to down economic cycles.
This cash flow stream and our significant liquidity are available to
substantially reduce our long-term debt maturities should we choose to do so.

Return Excess Cash to Shareholders. Absent strategic acquisition or new
opportunities, we intend to return excess cash to shareholders. Our quarterly
dividend rate has steadily grown from $0.025 per common share in 2005 to $0.25
per common share in 2022. We target a payout ratio of 30% to 40% of after tax
earnings excluding special items and intend to grow our cash dividend
commensurate with the growth in our business. While we intend to pay regular
quarterly cash dividends for the foreseeable future, all future dividends are
subject to limitations in our debt covenants and final determination by our
Board of Directors each quarter upon review of our financial performance.

Cash flow

We believe that our ability to generate strong cash flow from operations is one of our fundamental financial strengths and provides us with great flexibility to meet our operating and investing needs.

Operational activities


Net cash provided by operating activities was $472.9 million and $489.8 million
for the six months ended June 30, 2022 and 2021, respectively. Cash flow from
operations decreased $16.9 million for the six months ended June 30, 2022 versus
the same period in 2021. The 2022 decrease over 2021 comprises:

•a $59.0 million increase in payments to suppliers and other payments,

•a $57.0 million increase in allowances paid to employees, and

•a $7.2 million increase in cash interest payments partially offset by

•a $90.2 million increase in customer receipts,

•a $10.2 million increase in General Agency (GA) commissions and other income,

•a $4.4 million decrease in cash tax payments, and

•a $1.5 million increase in net withdrawals from the trust.

Investing activities


Cash flows from investing activities used $151.9 million and $108.6 million for
the six months ended June 30, 2022 and 2021, respectively. The $43.3 million
increased outflow from 2022 over 2021 is primarily due to the following:

•a $49.2 million increase in capital expenditures and

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PART I

•a $5.3 million decrease in receipts related to disposals and disposals of assets, partially offset by

•a $6.6 million decrease in cash allocated to real estate acquisitions,

•a $1.8 million decrease in payments under life insurance policies held by the Company, net of cash inflows,

•a $1.6 million decrease in cash spent on business acquisitions, and

•a $1.2 million increase in proceeds from the sale of investments.

Fundraising activities


Financing activities used $388.0 million for the six months ended June 30, 2022
compared to using $176.5 million for the same period in 2021. The $211.5 million
increased outflow from 2022 over 2021 is primarily due to the following:

•a $172.9 million increase in the purchase of ordinary shares of the Company,

• a $31.0 million decrease in debt income, net of repayments, and

•a $8.7 million increase in dividend payments.

Financial guarantees


In support of our operations, we have entered into arrangements with certain
surety companies whereby such companies agree to issue surety bonds on our
behalf as financial assurance and/or as required by existing state and local
regulations. The surety bonds are used for various business purposes; however,
the majority of the surety bonds issued and outstanding have been used to
support our preneed sales activities. The obligations underlying these surety
bonds are recorded on unaudited Condensed Consolidated Balance Sheet as Deferred
revenue, net. The breakdown of surety bonds between funeral and cemetery preneed
arrangements, as well as surety bonds for other activities, is described below.
                                                                       June 30, 2022           December 31, 2021
                                                                                     (In millions)
Preneed funeral                                                      $         68.6          $             89.2
Preneed cemetery:
Merchandise and services                                                      135.9                       147.0
Pre-construction                                                               26.7                        24.8
Bonds supporting preneed funeral and cemetery obligations                     231.2                       261.0
Bonds supporting preneed business permits                                       8.4                         7.0
Other bonds                                                                    21.1                        20.4
Total surety bonds outstanding                                       $        260.7          $            288.4


When selling preneed contracts, we may post surety bonds where allowed by state
law. We post the surety bonds in lieu of trusting a certain amount of funds
received from the customer. The amount of the bond posted is generally
determined by the total amount of the preneed contract that would otherwise be
required to be trusted, in accordance with applicable state law.

Surety bond premiums are paid annually and the bonds are automatically renewable
until maturity of the underlying preneed contracts, unless we are given prior
notice of cancellation. We discontinued using surety bonds in lieu of trusting
for new sales of preneed funeral and cemetery merchandise and services in 2020.
As a result, we expect to see continued decreases in the outstanding surety bond
amounts for these items. We continue to use surety bonds for pre-construction
sales of cemetery property where permitted.

Except for cemetery pre-construction bonds (which are irrevocable), the surety
companies generally have the right to cancel the surety bonds at any time with
appropriate notice. In the event a surety company were to cancel the surety
bond, we are required to obtain replacement surety assurance from another surety
company or fund a trust for an amount generally less than the posted bond
amount. Management does not expect that we will be required to fund material
future amounts related to these surety bonds due to a lack of surety capacity or
surety company non-performance.


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PART I

Prior Activities and Backlog of Contracts


In addition to selling our products and services to client families at the time
of need, we enter into price-guaranteed preneed contracts, which provide for
future funeral or cemetery merchandise and services. Because preneed funeral and
cemetery merchandise or services will generally not be provided until sometime
in the future, most states and provinces require that all or a portion of the
funds collected from customers on preneed contracts be deposited into
merchandise and service trusts until the merchandise is delivered or the service
is performed. In certain situations, as described above, where permitted by
state or provincial laws, we may post a surety bond as financial assurance for a
certain amount of the preneed contract in lieu of placing funds into trust
accounts. Alternatively, we may sell a life insurance or annuity policy from
third-party insurance companies.

Provident contracts financed by insurance


Where permitted by state or provincial law, we may sell a life insurance or
annuity policy from third-party insurance companies, for which we earn a
commission as general sales agent for the insurance company. These general
agency revenues are based on a percentage per contract sold and are recognized
as funeral revenue when the insurance purchase transaction between the preneed
purchaser and third-party insurance provider is complete. All selling costs
incurred pursuant to the sale of insurance-funded preneed contracts are expensed
as incurred. We do not reflect the unfulfilled insurance-funded preneed contract
amounts in our unaudited Condensed Consolidated Balance Sheet. The proceeds of
the life insurance policies or annuity contracts will be reflected in funeral
revenue as we perform these funerals.

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

                                                   Three months ended June 30,                 Six months ended June 30,
                                                     2022                  2021                 2022                 2021
                                                                           (Dollars in millions)
Preneed insurance-funded:
Sales production(1)                            $        173.6          $   180.3          $       338.3          $   313.6
Sales production (number of contracts) (1)             27,942             30,436                 54,846             54,225
General agency revenue                         $         41.8          $    43.1          $        84.8          $    77.2
Maturities                                     $         92.6          $    87.5          $       203.0          $   198.8
Maturities (number of contracts)                       15,126             14,608                 33,278             33,604


(1) The amounts are not included in our unaudited condensed consolidated balance sheet.

Prior Contracts Funded by the Trust


The funds collected from customers and required by state or provincial law are
deposited into trusts. We retain any funds above the amounts required to be
deposited into trust accounts and use them for working capital purposes,
generally to offset the selling and administrative costs of our preneed
programs. Although this represents cash flow to us, the associated revenues are
deferred until the merchandise is delivered or services are performed (typically
at maturity). The funds in trust are then invested by professional money
managers with oversight by independent trustees in accordance with state and
provincial laws.

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The tables below detail our results of production and pension maturities, excluding insurance contracts:

                                                 Three months ended June 30,                 Six months ended June 30,
                                                  2022                  2021                  2022                 2021
                                                                         (Dollars in millions)
Funeral:
Preneed trust-funded (including bonded):
Sales production                            $        130.6          $    112.2          $       261.6          $    229.3
Sales production (number of contracts)              32,630              28,740                 66,237              60,469
Maturities                                  $         84.0          $     82.3          $       180.9          $    172.9
Maturities (number of contracts)                    19,879              19,265                 42,719              42,159
Cemetery:
Sales production:
Preneed                                     $        351.4          $    359.7          $       713.6          $    683.9
Atneed                                               107.3               112.2                  240.3               242.3
Total sales production                      $        458.7          $    471.9          $       953.9          $    926.2
Sales production deferred to backlog:
Preneed                                     $        166.8          $    150.5          $       349.5          $    275.4
Atneed                                                75.4                79.9                  167.2               169.1
Total sales production deferred to backlog  $        242.2          $    230.4          $       516.7          $    444.5
Revenue recognized from backlog:
Preneed                                     $        105.1          $     85.3          $       208.5          $    170.4
Atneed                                                77.3                75.7                  158.3               157.9

Total revenue recognized from backlog $182.4 $161.0 $366.8 $328.3

Backlog of forward contracts


The following table reflects our backlog of trust-funded deferred preneed
contract revenue, including amounts related to Deferred receipts held in trust
at June 30, 2022 and December 31, 2021. Additionally, the table reflects our
backlog of unfulfilled insurance-funded contracts (which are not included in our
unaudited Condensed Consolidated Balance Sheet) at June 30, 2022 and
December 31, 2021. The backlog amounts presented include amounts due from
customers for undelivered performance obligations on cancelable preneed
contracts to arrive at our total backlog of deferred revenue. The table does not
include the backlog associated with businesses that are held for sale.

The table also reflects our preneed receivables and trust investments associated
with the backlog of deferred preneed contract revenue, including the amounts due
from customers for undelivered performance obligations on cancelable preneed
contracts. We believe that the table below is meaningful because it sets forth
the aggregate amount of future revenue we expect to recognize as a result of
preneed sales, as well as the amount of funds associated with this revenue.
Because the future revenue exceeds the assets, future revenue will exceed the
cash distributions actually received from the associated trusts and future
collections from the customer.

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10-Q 31

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PART I
                                                                          June 30, 2022                      December 31, 2021
                                                                   Fair Value            Cost           Fair Value            Cost
                                                                                            (In billions)
Deferred revenue, net                                            $      

1.58 $1.58 $1.53 $1.53
Amounts owed by customers for unfulfilled performance obligations on cancellable anticipatory contracts

                             0.80             0.80                0.72             0.72
Deferred receipts held in trust                                         4.09             4.09                4.77             3.93
Allowance for cancellation on trust investments                        (0.28)           (0.28)              (0.33)           (0.27)

Arrears of deferred revenue financed by trust funds, net of estimated provision for cancellation

                                              6.19             6.19                6.69             5.91
Backlog of insurance-funded revenue (1)                                 7.15             7.15                6.97             6.97
Total backlog of deferred revenue                                $     

13.34 $13.34 $13.66 $12.88


Preneed receivables, net and trust investments                   $      

5.42 $5.42 $6.02 $5.18
Amounts owed by customers for unfulfilled performance obligations on cancellable anticipatory contracts

                             0.80             0.80                0.71             0.71
Allowance for cancellation on trust investments                        (0.28)           (0.28)              (0.33)           (0.27)

Assets associated with backlog of deferred income funded by the trust, net of estimated provision for cancellation

                             5.94             5.94                6.40             5.62

Insurance contracts associated with deferred revenue financed by insurance (1)

                                                             7.15             7.15                6.97             6.97

Total assets associated with pension income arrears $13.09 $13.09 $13.37 $12.59

(1) The amounts are not included in our unaudited condensed consolidated balance sheet.


The fair value of our trust investments was based on a combination of quoted
market prices, observable inputs such as interest rates or yield curves, and
appraisals. As of June 30, 2022, the difference between the backlog and asset
market amounts represents $0.19 billion related to contracts for which we have
posted surety bonds as financial assurance in lieu of trusting, $1.23 billion
collected from customers that were not required to be deposited into trusts, and
$0.16 billion in allowable cash distributions from trust assets partially offset
by $1.33 billion in amounts due on delivered property and merchandise. As of
June 30, 2022, the fair value of the total backlog comprised $3.69 billion
related to cemetery contracts and $9.65 billion related to funeral contracts. As
of June 30, 2022, the fair value of the assets associated with the backlog of
trust-funded deferred revenue comprised $3.63 billion related to cemetery
contracts and $2.31 billion related to funeral contracts. As of June 30, 2022,
the backlog of insurance-funded contracts of $7.15 billion was equal to the
proceeds we expect to receive from the associated insurance policies when the
corresponding contract is serviced.

Fiduciary investments


In addition to selling our products and services to client families at the time
of need, we enter into price-guaranteed preneed funeral and cemetery contracts,
which provide for future funeral or cemetery merchandise and services. Since
preneed funeral and cemetery merchandise or services will generally not be
provided until sometime in the future, most states and provinces require that
all or a portion of the funds collected from customers on preneed funeral and
cemetery contracts be paid into trusts and/or escrow accounts until the
merchandise is delivered or the service is performed. Investment earnings
associated with the trust investments are expected to mitigate the inflationary
costs of providing the preneed funeral and cemetery merchandise and services in
the future at the prices that were guaranteed at the time of sale. Also, we are
required by state and provincial law to pay a portion of the proceeds from the
preneed or atneed sale of cemetery property interment rights into perpetual care
trusts. For these investments, the original corpus generally remains in the
trust in perpetuity and the earnings or elected distributions are withdrawn as
allowed to defray the expense to maintain the cemetery property. While many
states require that net capital gains or losses be retained and added to the
corpus, certain states allow the net realized capital gains and losses to be
included in the earnings that are distributed. Additionally, some states allow a
total return distribution that may contain elements of income, capital
appreciation, and principal.

Independent trustees manage and invest the majority of the funds deposited into
the funeral and cemetery merchandise and service trusts as well as the cemetery
perpetual care trusts. The majority of the trustees are selected based on their
respective geographic footprint and qualifications per state and provincial
regulations. Most of the trustees engage the same independent investment
managers. These trustees, with input from SCI's wholly-owned registered
investment advisor, establish an investment policy that serves as an operating
document to guide the investment activities of the trusts including asset
allocation and manager selection. The investments are also governed by state and
provincial guidelines. All of the trusts

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PART I

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


Asset allocation is based on the liability structure of each funeral, cemetery,
and perpetual care trust. Based on the various criteria set forth in the
investment policy, the investment advisor recommends investment managers to the
trustees. The primary investment objectives for the funeral and cemetery
merchandise and service trusts include 1) preserving capital within acceptable
levels of volatility and risk and 2) achieving growth of principal over time
sufficient to preserve and increase the purchasing power of the assets. Preneed
funeral and cemetery contracts generally take several years to mature;
therefore, the funds associated with these contracts are often invested through
several market cycles.

Where allowed by state and provincial regulations, the cemetery perpetual care
trusts' primary investment objectives are growth-oriented to provide for a fixed
distribution rate from the trusts' assets. Where such distributions are limited
to ordinary income, the cemetery perpetual care trusts' investment objectives
emphasize providing a steady stream of current investment income with some
capital appreciation. Both types of distributions are used to provide for the
current and future maintenance and beautification of the cemetery properties.

As of June 30, 2022, approximately 94% of our trusts were under the control and
custody of four large financial institutions. The U.S. trustees primarily use
four managed limited liability companies (LLCs), one for each merchandise and
service trust type and two for the cemetery perpetual care trust type, each with
an independent trustee as custodian. Each financial institution acting as
trustee manages its allocation of trust assets in accordance with the investment
policy through the purchase of the appropriate LLCs' units. For those accounts
not eligible for participation in the LLCs or where a particular state's
regulations contain other investment restrictions, the trustee utilizes
institutional mutual funds that comply with our investment policy or with such
state restrictions. The U.S. trusts include a modest allocation to alternative
investments. These alternative investments are held in vehicles structured as
LLCs and are managed by certain trustees. The trusts that are eligible to
allocate a portion of their investments to alternative investments purchase
units of the respective alternative investment LLCs.

Investment Structures


Each financial institution, acting as trustee, manages its allocation of trust
assets in compliance with the investment policy primarily through the purchase
of one of four managed LLCs, matched to their trust type and each with a
different, independent trustee acting as custodian. The managed LLCs use the
following structures for investments:

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


Mutual Funds. The trust funds employ institutional share class mutual funds
where operationally or economically efficient. These mutual funds are utilized
to invest in various asset classes including U.S. equities, non-U.S. equities,
corporate bonds, government bonds, high yield bonds, and commodities, all of
which are governed by guidelines outlined in their individual prospectuses.

Separately Managed Accounts. To reduce costs for investment portfolios, trusts use separately managed accounts where appropriate.

Asset classes


Fixed income investments are intended to preserve principal, provide a source of
current income, and reduce overall portfolio volatility. The majority of the
fixed income allocation for the trusts is invested in institutional share class
mutual funds. Where the trusts have direct investments in individual fixed
income securities, these are primarily in government and corporate instruments.

Canadian government fixed income securities are investments in Canadian federal
and provincial government instruments. In many cases, regulatory restrictions
mandate that the funds from the sales of preneed funeral and cemetery contracts
sold in certain Canadian jurisdictions must be invested in these instruments.

Equity investments have historically provided long-term capital appreciation in
excess of inflation. The trusts have direct investments in individual equity
securities primarily in domestic equity portfolios that include large, mid, and
small capitalization companies of different investment styles (i.e., growth and
value). The majority of the equity allocation is managed by institutional
investment managers that specialize in an objective-specific area of expertise.
Our equity securities are exposed to market risk; however, we believe these
securities are well-diversified. As of June 30, 2022, the largest single equity
position represented less than 1% of the total securities portfolio.

Alternative investments serve to provide high rates of return with reduced
volatility and lower correlation to publicly-traded securities. These
investments are typically longer term in duration and are diversified by
strategy, sector, manager, geography and vintage year. The investments consist
of numerous limited partnerships, invested in private equity, private market
real estate, energy and natural resources, infrastructure, transportation, and
private debt including both distressed debt and mezzanine financing. The
trustees that have oversight of their respective alternative LLCs work closely
with the investment advisor in making all investment decisions.

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10-Q 33

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PART I

Trust Performance

During the six months ended June 30, 2022, the Standard and Poor's 500 Index
decreased 20.0% and the Barclay's Aggregate Index decreased 10.4%. This compares
to SCI trusts that decreased 14.6% during the same period. SCI trusts have a
diversified allocation of approximately 55% equities, 29% fixed income
securities, 11% alternative and other investments with the remaining 5%
available in cash.

Recognized trust fund income (realized and unrealized) related to our preneed
trust investments was $81.5 million and $88.8 million for the six months ended
June 30, 2022 and 2021, respectively. Recognized trust fund income (realized and
unrealized) related to our cemetery perpetual care trust investments was $45.3
million and $47.8 million for the six months ended June 30, 2022 and 2021,
respectively. The decline in recognized trust fund income is primarily due to
negative market returns experienced during the first half of 2022 as well as the
timing of capital gains and other distributions.

SCI, the trustees, and the investment advisor monitor the capital markets and
the trusts on an on-going basis. The trustees, with input from the investment
advisor, take prudent action as needed to achieve the investment goals and
objectives of the trusts.

Results of operations – Three and six months ended June 30, 2022 and 2021

Three months completed June 30, 2022 and 2021

Management summary


In the second quarter of 2022, we reported consolidated net income attributable
to common stockholders of $132.7 million ($0.82 per diluted share) compared to
net income attributable to common stockholders in the second quarter of 2021 of
$157.7 million ($0.92 per diluted share). These results were impacted by certain
items including:

                                                                            

Three months completed June 30th,

                                                                             2022                   2021
                                                                                   (In millions)
Pre-tax gains on divestitures and impairment charges, net             $           0.3          $       6.2
Pre-tax losses on early extinguishment of debt, net                   $     

(1.2) $(5.2)


Pre-tax foreign currency exchange loss                                $          (1.5)         $         -
Tax effect from above items                                           $           0.5          $      (0.6)
Change in uncertain tax reserves and other                            $     

(0.5) $(0.1)



In addition to the above items, the decrease over the prior year is primarily
due to an expected decline in gross profit related to decreases in COVID-19
related activity and lower trust fund income, increased corporate and general
administration expenses, and higher interest and taxes. These results were
slightly offset by the benefit of fewer shares outstanding and an increase in
contributions from recent acquisitions and new builds of funeral homes and
cemeteries.

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                                                                          PART I

Funeral Results

                                                                             Three months ended June 30,
                                                                              2022                   2021
                                                                        

(Dollars in millions, except average

                                                                                 revenue per service)
Consolidated funeral revenue                                            $        548.8          $     531.7
Less: revenue associated with acquisitions/new construction                        8.9                  0.2
Less: revenue associated with divestitures                                         0.2                  1.5
Comparable(1) funeral revenue                                                    539.7                530.0
Less: comparable recognized preneed revenue                                       42.2                 33.1
Less: comparable general agency and other revenue                                 36.3                 39.8
Adjusted comparable funeral revenue                                     $        461.2          $     457.1
Comparable services performed                                                   84,521               85,296
Comparable average revenue per service(2)                               $   

5,457 $5,359


Consolidated funeral gross profit                                       $        116.6          $     111.8
Less: gross profit (loss) associated with acquisitions/new construction            0.7                 (0.2)
Less: gross losses associated with divestitures                                   (0.6)                (1.0)
Comparable(1) funeral gross profit                                      $   

116.5 $113.0



(1)  We define comparable (or same store) operations as those funeral locations
owned by us for the entire period beginning January 1, 2021 and ending June 30,
2022.

(2)  We calculate comparable average revenue per service by dividing comparable
funeral revenue, excluding general agency revenue, recognized preneed revenue,
and other revenue to avoid distorting our average of normal funeral services
revenue, by the comparable number of funeral services performed during the
period. Recognized preneed revenue is preneed sales of merchandise that are
delivered at the time of sale, including memorial merchandise and travel
protection, net, and excluded from our calculation of comparable average revenue
per service because the associated service has not yet been performed.

Funeral receipts


Consolidated revenue from funeral operations was $548.8 million for the three
months ended June 30, 2022 compared to $531.7 million for the same period in
2021. This $17.1 million increase is primarily attributable to the $8.7 million
revenue growth contributed by acquired and newly constructed properties and a
$9.7 million increase in comparable revenue as described below partially offset
by the loss of $1.3 million in revenue contributed by properties that have been
subsequently divested.

Comparable revenue from funeral operations was $539.7 million for the three
months ended June 30, 2022 compared to $530.0 million for the same period in
2021. This $9.7 million, or 1.8%, increase was primarily driven by growth in
core funeral revenue and recognized preneed revenue of $3.4 million and $9.1
million, respectively.

Comparable average revenue per funeral service grew 1.8%, for the three months
ended June 30, 2022, compared to the same period in 2021, that more than offset
the 2.0% decrease in core funeral services performed over the same period. Our
total comparable cremation rate increased 200 basis points to 61.2% for the
three months ended June 30, 2022.

Gross funeral profit


Consolidated funeral gross profit increased $4.8 million, or 4.3%, for the three
months ended June 30, 2022 compared to 2021. This increase is primarily
attributable to the growth in comparable funeral gross profit of $3.5 million,
or 3.1%, as well as a $0.9 million higher gross profit from acquired and newly
constructed properties. Comparable funeral gross profit grew $3.5 million to
$116.5 million and the comparable gross profit percentage grew 30 basis points
to 21.6%, primarily due to the higher revenue mentioned above. Additionally, the
prior year quarter had higher fixed expenses associated with the timing of
incentive compensation costs and pent up repairs and maintenance costs.

                                                                    FORM 

10-Q 35

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