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 March 31, 
2019, we operated 1,479 funeral service locations and 482 cemeteries (including 
287 funeral service/cemetery combination locations), which are geographically 
diversified across 44 states, eight Canadian provinces, the District of 
Columbia, and Puerto Rico. We are well known for our Dignity Memorial® brand, 
North America's first transcontinental brand of deathcare products and 
services. Our other brands are Dignity Planning™, National Cremation Society®, 
Advantage® Funeral and Cremation Services, Funeraria del Angel™, Making 
Everlasting Memories®, Neptune Society™, and Trident Society™. Our funeral and 
cemetery operations consist of funeral service locations, cemeteries, funeral 
service/cemetery combination locations, crematoria, and 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. Our financial position is enhanced by our approximately 
$11.4 billion backlog of future revenue from both trust and insurance-funded 
preneed sales at March 31, 2019. Preneed selling provides us with a current 
opportunity to lock-in future market share while deterring the customer from 
going to a competitor in the future. 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, 
which allows us to return capital to shareholders through share repurchases 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 enhances our customers' experience by reducing 
administrative burdens and allowing them to visualize the product offerings and 
services, which will help drive increases in the average revenue for a 
cremation in future periods.

Financial Condition, 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 $184.9 million in 
the first three months of 2019. We have $692.1 million in borrowing capacity 
under our Bank Credit Facility. Our bank credit agreement requires us to 
maintain certain leverage and interest coverage ratios. As of March 31, 2019, 
we were in compliance with all of our debt covenants. Our financial covenant 
requirements and actual ratios as of March 31, 2019 are as follows:

Per Credit Agreement We believe we have the financial strength and flexibility 
to reward shareholders through share repurchases 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 
agreement will give us adequate liquidity to meet our short-term needs as well 
as our long-term financial obligations. Due to cash balances residing in Canada 
and minimum operating cash requirements, a portion of our cash on hand is 
encumbered. We consistently evaluate the best uses of our cash flow that will 
yield the highest value and return on capital. Our capital deployment strategy 
is prioritized as follows: Investing in Acquisitions and Building New Funeral 
Service Locations. We intend to make acquisitions of funeral service locations 
and cemeteries when pricing and terms are favorable. We expect an acquisition 
investment to earn an after-tax cash return that is in excess of our weighted 
average cost of capital with room for execution risk. We will also invest in 
the construction of additional funeral service locations. We target businesses 
with favorable customer categories and/or where we can achieve additional 
economies of scale.

Paying Dividends. Our quarterly dividend rate has steadily grown from $0.025 
per common share in 2005 to $0.18 per common share in 2019. We target a payout 
ratio of 30% to 40% of 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. Repurchasing Shares. Absent a strategic acquisition 
opportunity, we believe share repurchases are attractive at the appropriate 
price. We intend to make purchases from time to time in the open market or 
through privately negotiated transactions, subject to market conditions, debt 
covenants, and normal trading restrictions. Our Bank Credit Facility contains 
covenants that limit our ability to repurchase our common stock. There can be 
no assurance that we will buy our common stock under our repurchase program in 
the future. During the three months ended March 31, 2019, we repurchased 
354,897 shares of common stock at an aggregate cost of $14.5 million, which is 
an average cost per share of $40.97. After these repurchases, the remaining 
dollar value of shares authorized to be purchased under our share repurchase 
program was approximately $180.7 million at March 31, 2019. Managing Debt. We 
will seek to make open market debt repurchases when it is opportunistic to do 
so relative to other capital deployment opportunities and 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 is available to substantially reduce our long-term 
debt maturities should we choose to do so. Furthermore, our capital 
expenditures are generally discretionary in nature and can be managed based on 
the availability of operating cash flow. During the three months ended March 
31, 2019, we made a conscious effort to focus some capital deployment toward 
managing our debt profile, as we expected additional pressure on our leverage 
ratio from the anticipated weaker flu season in the first quarter of 2019 
compared to the first quarter of 2018. The result was a reduction of total debt 
by $123.0 million during the quarter, which brought our leverage ratio down to 
3.83x and increased our liquidity.

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

Operating Activities Net cash provided by operating activities decreased $26.6 
million to $184.9 million in the first three months of 2019, compared to $211.5 
million in the first three months of 2018. Excluding a $5.6 million tax refund 
in prior period, cash flow from operations decreased by $21.0 million from 
prior year. The 2019 decrease comprises:

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a $11.9 million decrease in cash receipts from customers,

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a $1.8 million decrease in General Agency (GA) and other receipts,

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a $8.9 million increase in net trust deposits, and

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a $0.1 million increase in employee compensation, partially offset by

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a $0.4 million decrease in vendor and other payments, and

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a $1.3 million decrease in cash tax payments. Investing Activities Cash flows 
from investing activities used $70.9 million in the first three months of 2019 
compared to using $80.1 million in the same period of 2018. The $9.2 million 
decrease from 2019 over 2018 is primarily due to the following: •a $14.7 
million decrease in cash spent on acquisitions, •a $1.3 million increase in 
cash receipts from divestitures and asset sales, partially offset by

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a $5.3 million increase in capital expenditures primarily due to improvements 
at existing funeral homes, and

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a $1.5 million increase in payments on Company-owned life insurance policies, 
net of proceeds. Financing Activities Financing activities used $162.7 million 
in the first three months of 2019 compared to using $243.5 million in the same 
period of 2018. The $80.8 million decrease from 2019 over 2018 is primarily due 
to: •a $104.3 million decrease in purchase of Company common stock, •a $11.0 
million increase in proceeds from exercises of stock options •a $15.4 million 
change in bank overdrafts and other, partially offset by

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a $48.4 million decrease in proceeds from the issuance of debt, net of 
payments, and

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a $1.5 million increase in payments of dividends.

Financial Assurances 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 funeral and cemetery sales 
activities. The obligations underlying these surety bonds are recorded on the 
unaudited Condensed Consolidated Balance Sheet as Deferred revenue, net.

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. For the three 
months ended March 31, 2019 and 2018, we had $5.7 million and $5.9 million, 
respectively, of cash receipts attributable to bonded sales. These amounts do 
not consider reductions associated with taxes, obtaining costs, or other costs. 
Surety bond premiums are paid annually and are automatically renewable until 
maturity of the underlying preneed contracts, unless we are given prior notice 
of cancellation. 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 because 
of lack of surety capacity or surety company non-performance. Preneed Funeral 
and Cemetery 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. 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. 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.

Amounts are not included in our unaudited Condensed Consolidated Balance Sheet. 
Trust-Funded Preneed Contracts: 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.

Backlog of Preneed Contracts: The following table reflects our backlog of 
trust-funded deferred preneed contract revenue, including amounts related to 
Deferred receipts held in trust at March 31, 2019 and December 31, 2018. 
Additionally, the table reflects our backlog of unfulfilled insurance-funded 
contracts (which are not included in our unaudited Condensed Consolidated 
Balance Sheet) at March 31, 2019 and December 31, 2018. 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.

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/or 
appraisals. As of March 31, 2019, the difference between the backlog and asset 
fair value amounts totaled $0.53 billion, consisting of $0.24 billion related 
to contracts for which we have posted surety bonds as financial assurance in 
lieu of trusting, $0.08 billion collected from customers that were not required 
to be deposited into trust, and $0.21 billion in allowable cash distributions 
from trust assets. As of March 31, 2019, the fair value of the total backlog 
comprised $3.01 billion related to cemetery contracts and $8.38 billion related 
to funeral contracts. As of March 31, 2019, the fair value of the assets 
associated with the backlog of trust-funded deferred revenue comprised $2.76 
billion related to cemetery contracts and $2.06 billion related to funeral 
contracts. Trust 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 remains in the trust in perpetuity and the net ordinary 
earnings or elected distributions are withdrawn with the intention of 
offsetting 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 net ordinary 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 
services trusts as well as the cemetery perpetual care trusts. The majority of 
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 seek to 
control risk and volatility through a combination of asset classes, investment 
styles, and a diverse mix of investment managers. Asset allocation is based on 
the liability structure of each funeral, cemetery, and perpetual care trust. 
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 years to mature; therefore, the funds associated with 
these contracts are often invested through several market cycles.

Historically, the cemetery perpetual care trusts' investment objectives, in 
accordance with state and provincial regulations, have emphasized providing a 
steady stream of current investment income with some capital appreciation in 
order to provide for the maintenance and beautification of cemetery properties. 
However, during 2016, SCI worked with several state legislatures to adjust laws 
and regulations to allow for a fixed distribution rate from cemetery perpetual 
care trusts' assets regardless of the level of ordinary income, similar to 
university endowments. As a result, beginning in 2017, a significant portion of 
our cemetery perpetual care trust assets were liquidated and reinvested in a 
more growth-oriented asset allocation with investment objectives similar to the 
funeral and cemetery merchandise and service trusts. Currently, the asset 
allocation is split approximately evenly between income and growth 
orientations. We expect this asset allocation shift to enhance asset growth and 
provide further protection to our customers. Additionally, we expect more 
states to adopt total return distribution legislation in the coming years. As 
of March 31, 2019, approximately 87% of our trusts were under the control and 
custody of three 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, and 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 LLCs' units. For those accounts 
not eligible for participation in the LLCs, or in the event a particular 
state's regulations contain 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 four managed LLCs, one for each trust type and each with a different, 
independent trustee acting as custodian. The managed LLCs use the following 
structures for investments: Commingled funds. These funds allow the trusts to 
access, at a reduced cost, 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 the costs 
to the investment portfolios, the trusts utilize 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 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 products 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 March 31, 2019, the largest single equity position 
represented less than 1% of the total securities portfolio.

The objective of private equity fund investments is to provide high rates of 
return with reduced volatility and lower correlation. These investments are 
typically long term in duration. These investments are diversified by strategy, 
sector, manager, and vintage year. The investments consist of numerous limited 
partnerships, including private equity, real estate, fund of funds, 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.

Trust Performance During the three months ended March 31, 2019, the Standard 
and Poor’s 500 Index increased 13.7% and the Barclay’s Aggregate Index 
increased 2.9%, and the combined SCI trusts increased by 9.4%. 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 Months Ended March 31, 2019 and 2018

Management Summary In the three months ended March 31, 2019, we reported net 
income attributable to common stockholders of $79.3 million ($0.43 per diluted 
share) compared to net income attributable to common stockholders for the same 
period in 2018 of $82.0 million ($0.43 per diluted share).

These results were affected by the following items:

Three Months Ended March 31, 2019

(In millions) Pre-tax (losses) gains from divestitures and impairment charges, 
net

In addition to the above, increased cemetery preneed sales production and 
effective management of fixed costs offset decreased revenue from funeral 
services performed due to a weaker 2019 flu season.

Funeral Results

We define comparable (or same store) operations as those funeral service 
locations owned by us for the entire period beginning January 1, 2018 and 
ending March 31, 2019.

We calculate comparable average revenue per service by dividing comparable 
funeral revenue, excluding recognized preneed revenue, general agency revenue, 
and other revenue to avoid distorting our average of normal funeral services 
revenue, by the comparable number of services performed during the period. 
Recognized preneed revenue are preneed sales of merchandise that are delivered 
at the time of sale, including memorial merchandise and travel protection, net 
and are excluded from our calculation of comparable average revenue per service 
because the associated service has not yet been performed. Funeral Revenue 
Consolidated revenue from funeral operations was $492.8 million for the three 
months ended March 31, 2019 compared to $514.4 million for the same period in 
2018. This decrease is primarily attributable to a $28.4 million decrease in 
comparable revenue as described below partially offset by a $8.2 million 
increase in revenue contributed by acquired and newly constructed properties. 
Comparable revenue from funeral operations was $483.9 million for the three 
months ended March 31, 2019 compared to $512.3 million for the same period in 
2018. The $28.4 million decrease was primarily due to a 5.7% decrease in 
comparable services performed, resulting from a weaker 2019 flu season, and a 
1.4% decrease in the average revenue per service. The decrease in services 
performed comprises a 5.5% decrease in services performed by our funeral 
service locations and a 7.0% decrease in cremation services performed by our 
non-funeral home channel. The decrease in cremation services performed by our 
non-funeral home channel is partly attributable to a temporary disruption 
caused by the conversion and on-boarding of sales associates from independent 
contractors to employee status. Average revenue per service declined $72, or 
1.4%, as a 0.8% increase in the organic sales average was offset by a 160 basis 
point increase in the total cremation rate. Our total comparable cremation rate 
increased to 56.3% in the first three months of 2019 from 54.7% in 2018 as a 
result of an increase in both direct cremations and cremations with service. 
Funeral Operating Profit Consolidated funeral operating profit decreased $15.1 
million, or 12.5%, in the first three months of 2019 compared to the same 
period in 2018. This decrease is primarily attributable to a decrease in 
comparable funeral operating profit of $17.0 million, or 14.0%. Comparable 
funeral operating profit decreased $17.0 million to $104.8 million and the 
operating margin percentage decreased 210 basis points to 21.7%, which is 
primarily due to the decreased revenue from funeral services performed 
resulting from a weaker 2019 flu season that was favorably offset by an 
intended decline in fixed costs from both field operations and corporate 
overhead.


Cemetery Results

Three Months Ended March 31, 2019

We define comparable (or same store) operations as those cemetery locations 
owned by us for the entire period beginning January 1, 2018 and ending March 
31, 2019.

Cemetery Revenue Consolidated revenue from our cemetery operations increased 
$25.3 million, or 9.0%, in the three months ended March 31, 2019 compared to 
the same period in 2018, primarily attributable to a $20.9 million increase in 
comparable revenue and $4.5 million in revenue contributed by acquired 
properties. The revenue growth over the prior year quarter is due to increased 
recognized preneed revenue from sales into existing developed cemetery property 
projects, increased revenue from the completion of cemetery property 
construction projects, and higher endowment care trust fund income. These 
increases were partially offset by lower atneed cemetery revenue as activities 
were reduced from a milder flu season compared to the prior year.

Cemetery Operating Profit Consolidated cemetery operating profit increased 
$11.1 million, or 14.7%, in the three months ended March 31, 2019 compared to 
the same period in 2018 primarily as a result of a $11.2 million increase in 
comparable operating profit. Comparable cemetery operating profit increased 
$11.2 million to $86.5 million primarily due to the revenue increases described 
above and the operating margin percentage increased 190 basis points to 28.8%.

Other Financial Statement Items

General and Administrative Expenses General and administrative expenses 
increased $7.7 million to $42.5 million in the three months ended March 31, 
2019 compared to $34.8 million in the same period of 2018. The current year 
period includes $8.0 million related to a legal reserve established for a 
future settlements. Excluding these costs, general and administrative expenses 
decreased $0.3 million due to effective cost management. (Losses) Gains on 
Divestitures and Impairment Charges, Net (Losses) gains on divestitures and 
impairment charges, net, declined $2.4 million in the three months ended March 
31, 2019 compared to the same period of 2018 associated with the divestitures 
of non-strategic funeral and cemetery locations in the United States and Canada 
and the disposal of certain transportation assets.

Hurricane (Expenses) Recoveries, Net Hurricane (expenses) recoveries, net, 
reflects $0.4 million in damages identified through March 31, 2019. Hurricane 
recoveries of $2.2 million in the three months ended March 31, 2018 reflects 
$2.3 million in damages caused by the 2017 hurricanes, offset by $4.5 million 
of insurance proceeds.

Loss on Early Extinguishment of Debt, Net During the three months ended March 
31, 2018, we incurred a $10.1 million loss on early extinguishment of debt to 
manage our near-term debt maturity profile and lower our effective interest 
rate by refinancing our 2018 notes.

Interest Expense Interest expense increased $3.8 million to $47.4 million in 
the three months ended March 31, 2019 due to higher balances and increased 
interest rates on our floating rate debt as we continued to maintain our 
leverage ratio.

Provision for Income Taxes Income tax expense during interim periods is based 
on our estimated annual effective income tax rate plus any discrete items, 
which are recorded in the period in which they occur. Discrete items include, 
among others, events such as changes in estimates due to the finalization of 
tax returns, tax audit settlements, expiration of statutes of limitations, and 
increases or decreases in valuation allowances on deferred tax assets. Our 
effective tax rate was 21.0% and 25.7% for the three months ended March 31, 
2019 and 2018, respectively. The lower effective tax rate for the March 31, 
2019 was primarily due to higher excess tax benefits on increased exercises of 
stock options.

Weighted Average Shares The diluted weighted average number of shares 
outstanding was 185.3 million in the three months ended March 31, 2019, 
compared to 189.9 million in the same period in 2018. The decrease in the 
number of shares reflects the impact of shares repurchased under our share 
repurchase program.

Critical Accounting Policies The preparation of financial statements in 
accordance with accounting principles generally accepted in the United States 
requires management to make estimates and assumptions that affect the amounts 
reported in the unaudited condensed consolidated financial statements and 
accompanying notes. Although we base our estimates on historical experience and 
various other assumptions that we believe to be reasonable under the 
circumstances, actual results may differ from the estimates on which our 
financial statements are prepared at any given point of time. Changes in these 
estimates could materially affect our consolidated financial position, 
consolidated results of operations, or cash flows. Significant items that are 
subject to such estimates and assumptions include revenue and expense accruals, 
fair value of merchandise and perpetual care trust assets, and the allocation 
of purchase price to the fair value of assets acquired. Our critical accounting 
policies are disclosed in our Annual Report on Form 10-K for the year ended 
December 31, 2018. There were no significant changes to our accounting policies 
that have occurred subsequent to December 31, 2018, except as described below 
within Recent Accounting Pronouncements and Accounting Changes.

Cautionary Statement on Forward-Looking Statements

Important factors, which could cause actual results to differ materially from 
those in forward-looking statements include, among others, the following:

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Our affiliated funeral and cemetery trust funds own investments in securities, 
which are affected by market conditions that are beyond our control.

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We may be required to replenish our affiliated funeral and cemetery trust funds 
to meet minimum funding requirements, which would have a negative effect on our 
earnings and cash flow.

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Our ability to execute our strategic plan depends on many factors, some of 
which are beyond our control.

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Our credit agreements contain covenants that may prevent us from engaging in 
certain transactions.

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If we lost the ability to use surety bonding to support our preneed funeral and 
preneed cemetery activities, we may be required to make material cash payments 
to fund certain trust funds.

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The funeral and cemetery industry is competitive.

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Increasing death benefits related to preneed contracts funded through life 
insurance or annuity contracts may not cover future increases in the cost of 
providing a price-guaranteed service.

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The financial condition of third-party insurance companies that fund our 
preneed contracts may impact our future revenue.

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Unfavorable results of litigation could have a material adverse impact on our 
financial statements.

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Unfavorable publicity could affect our reputation and business.

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If the number of deaths in our markets decline, our cash flows and revenue may 
decrease.

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If we are not able to respond effectively to changing consumer preferences, our 
market share, revenue, cash flows, and/or profitability could decrease.

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The continuing upward trend in the number of cremations performed in North 
America could result in lower revenue, operating profit, and cash flows.

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Our funeral home and cemetery businesses are high fixed-cost businesses.

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Regulation and compliance could have a material adverse impact on our financial 
results.

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Cemetery burial practice claims could have a material adverse impact on our 
financial results.

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We use a combination of insurance, self-insurance, and large deductibles in 
managing our exposure to certain inherent risks, therefore, we could be exposed 
to unexpected costs that could negatively affect our financial performance.

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A number of years may elapse before particular tax matters, for which we have 
established accruals, are audited and finally resolved.

•

Changes in taxation as well as the inherent difficulty in quantifying potential 
tax effects of business decisions could have a material adverse effect on the 
results of our operations, financial condition, or cash flows.

•

Declines in overall economic conditions beyond our control could reduce future 
potential earnings and cash flows and could result in future impairments to 
goodwill and/or other intangible assets.

•

Any failure to maintain the security of the information relating to our 
customers, their loved ones, our associates, and our vendors could damage our 
reputation, could cause us to incur substantial additional costs and to become 
subject to litigation, and could adversely affect our operating results, 
financial condition, or cash flow.

•

Our Canadian business exposes us to operational, economic, and currency risks.

•

Our level of indebtedness could adversely affect our ability to raise 
additional capital to fund our operations, limit our ability to react to 
changes in the economy or our industry, and may prevent us from fulfilling our 
obligations under our indebtedness.

•

A failure of key information technology systems or processes could disrupt and 
adversely affect our business.

•

Failure to maintain effective internal control over financial reporting could 
adversely affect our results of operations, investor confidence, and our stock 
price.

•

The application of unclaimed property laws by certain states to our preneed 
funeral and cemetery backlog could have a material adverse impact on our 
liquidity, cash flows, and our financial results. For further information on 
these and other risks and uncertainties, see our Securities and Exchange 
Commission filings, including our 2018 Annual Report on Form 10-K. Copies of 
this document as well as other SEC filings can be obtained from our website at 
www.sci-corp.com. We assume no obligation to publicly update or revise any 
forward-looking statements made herein or any other forward-looking statements 
made by us, whether as a result of new information, future events, or 
otherwise. Item 3. Quantitative and Qualitative Disclosures About Market Risk 
The primary objective of the following information is to provide 
forward-looking quantitative and qualitative information about our potential 
exposure to market risks. The term “market” risk refers to the risk of gains or 
losses arising from changes in interest rates and prices of marketable 
securities. The disclosures are not meant to be precise indicators of expected 
future gains or losses, but rather indicators of reasonably possible gains or 
losses. This forward-looking information provides indicators of how we view and 
manage our ongoing market risk exposures. All of our market risk-sensitive 
instruments were entered into for purposes other than trading. Marketable 
Equity and Debt Securities — Price Risk In connection with our preneed 
operations and sales, the related trust funds own investments in equity and 
debt securities and mutual funds, which are sensitive to current market prices. 
Cost and market values as of March 31, 2019 are presented in Part I, Item 1. 
Financial Statements and Note 3 of this Form 10-Q. Also, see Item 2, 
Management’s Discussion and Analysis of Financial Condition and Results of 
Operations, Financial Conditions, Liquidity and Capital Resources, for 
discussion of trust investments.

Controls and Procedures Disclosure Controls and Procedures As of March 31, 
2019, we carried out an evaluation, under the supervision and with the 
participation of our Chief Executive Officer (CEO) and Chief Financial Officer 
(CFO), of the effectiveness of our disclosure controls and procedures (as 
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 
1934, as amended (the Exchange Act)). Our disclosure controls and procedures 
are designed to ensure that information required to be disclosed in the 
Securities and Exchange Commission (SEC) reports we file or submit under the 
Exchange Act is recorded, processed, summarized, and reported within the time 
period specified by the SEC’s rules and forms and that such information is 
accumulated and communicated to management, including our CEO and CFO, as 
appropriate, to allow timely decisions regarding required disclosure. Based on 
our evaluation, our CEO and CFO have concluded that our disclosure controls and 
procedures are effective as of March 31, 2019 and that the unaudited condensed 
consolidated financial statements included in this Quarterly Report on Form 
10-Q fairly present, in all material respects, our consolidated financial 
condition, consolidated results of operations, and cash flows for the periods 
presented in conformity with US GAAP.

Changes in Internal Control Over Financial Reporting During the quarter ended 
March 31, 2019, the company implemented new controls as part of the efforts to 
adopt the new lease accounting standard (ASC 842). In particular, new controls 
related to monitoring the adoption process, gathering information and 
evaluating the analysis used in the development of disclosures required, and 
accumulating and maintaining the information necessary to comply with ongoing 
requirements. We evaluated the design of these new controls before adoption 
during the quarter ended March 31, 2019. We will continue to evaluate the need 
for additional internal controls over financial reporting. However, there were 
no additional changes in our internal control over financial reporting during 
the quarter ended March 31, 2019 that have materially affected, or are 
reasonably likely to materially affect, our internal control over financial 
reporting.