SERVICE CORP INTERNATIONAL

5. Income Taxes

The provision or benefit for income taxes includes U.S. federal income taxes (determined on a consolidated return basis), foreign income taxes, and state income taxes.

We actively participate in tax credit equity investments for projects eligible to receive renewable energy credits. These investments, accounted for under the equity method, are recorded in Deferred charges and other assets, net of reserves on our Consolidated Balance Sheet. Upon realization, tax credits associated with these investments are recognized as a reduction of tax expense. This reduction is offset by amortization of the investment in proportion to the tax benefits received during the period under the proportional amortization method. During 2024, we recognized investment tax credits totaling $7.4 million and $3.1 million in other tax benefits primarily from depreciation. As a result, the equity investment was amortized by $10.0 million to reflect the realization of these benefits. This amortization is reflected within the Provision for income taxes in the Consolidated Statement of Operations.

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Income before income taxes was composed of the following components:

Income tax provision consisted of the following:

We made income tax payments of $23.7 million, $85.5 million, and $183.7 million in 2024, 2023, and 2022, respectively, and received refunds of $2.8 million, $1.7 million, and $4.2 million, respectively.

The differences between the U.S. federal statutory income tax rate and our effective tax rate were as follows:

The 2024 consolidated effective tax rate was 23.2%, compared to 24.1% in 2023. The lower effective tax rate in 2024 was primarily due to an increase in excess tax benefit recognized on the settlement of employee share-based awards.

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Deferred taxes are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates. The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consisted of the following:

Deferred tax assets and deferred income tax liabilities are recognized in our Consolidated Balance Sheet as follows:

As of December 31, 2024, foreign withholding taxes have not been provided on the estimated $254.8 million of undistributed earnings and profits (E&P) of our foreign subsidiaries as we intend to permanently reinvest these foreign E&P in the respective businesses outside the U.S. However, if we were to repatriate such foreign E&P, the foreign withholding tax liability is estimated to be $13.2 million. Additionally, if we were to repatriate E&P in excess of our previously taxed income under the Tax Cuts and Jobs Act of 2017, such excess repatriation may cause us to incur an additional U.S. federal income tax of approximately $7.7 million related to our hybrid debt structure between Canada and the United States that was eliminated in 2022.

The following table summarizes the activity related to our gross unrecognized tax benefits from January 1, 2022 to December 31, 2024 (in thousands):

Our total unrecognized tax benefits that, if recognized, would affect our effective tax rates were $0.8 million, $1.3 million and $1.3 million as of December 31, 2024, 2023 and 2022, respectively.

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We include potential accrued interest and penalties related to unrecognized tax benefits within our income tax provision account. We have accrued $0.4 million, $1.0 million and $0.9 million for the payment of interest, net of tax benefits, and penalties as of December 31, 2024, 2023 and 2022, respectively. We recorded a decrease of interest and penalties of $0.6 million and an increase of $0.1 million and $0.1 million for years ended December 31, 2024, 2023 and 2022, respectively. To the extent interest and penalties are not assessed with respect to uncertain tax positions or the uncertainty of deductions in the future, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.

We file income tax returns, including tax returns for our subsidiaries, with federal, state, local, and foreign jurisdictions. We consider the United States to be our most significant jurisdiction; however, all tax returns are subject to routine compliance review by the taxing authorities in the jurisdictions in which we file tax returns in the ordinary course of business.

The federal statutes of limitations have expired for all tax years prior to 2021, and we are not currently under audit by the IRS. Various state and foreign jurisdictions are auditing years 2020 through 2022. 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.

Various subsidiaries have federal, state, and foreign loss carryforwards totaling $2.4 billion with expiration dates ranging through 2042. Such loss carryforwards will expire as follows:

In addition to the above loss carryforwards, we have $2.2 million of foreign alternative minimum tax credits that can be carried forward indefinitely.

In assessing the usefulness of deferred tax assets, we consider whether it is more likely than not that some portion or all of the net deferred tax assets will not be realized. The future realization of net deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. During 2024, we recorded a net $9.5 million decrease in our valuation allowance primarily driven by utilization and expiration of state net operating losses, along with legislative changes in certain states. The valuation allowances can be affected in future periods by changes to tax laws, changes to statutory tax rates, and changes in estimates of future taxable income.

At December 31, 2024, our loss and tax credit carryforward deferred tax assets and related valuation allowances by jurisdiction are as follows (presented net of federal benefit).

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6. Debt

The components of Debt are:

Current maturities of debt at December 31, 2024 include amounts due under our term loan, mortgage notes and other debt, and finance leases within the next year as well as the portion of unamortized debt issuance costs expected to be recognized in the next twelve months.

Approximately 84% and 69% of our total debt had a fixed interest rate at December 31, 2024 and 2023, respectively.

The components of our weighted average interest rate are as follows:

The following table summarizes the aggregate maturities of our debt for the five years subsequent to December 31, 2024 and thereafter, excluding unamortized premiums and debt issuance costs (in thousands):

Bank Credit Agreement

The bank credit agreement provides us with flexibility for working capital, if needed, and is guaranteed by a majority of our domestic subsidiaries. The subsidiary guaranty is a guaranty of payment of the outstanding amount of the total lending commitment, including letters of credit. The bank credit agreement contains a maximum leverage ratio financial covenant and certain dividend and share repurchase restrictions. As of December 31, 2024, we are in compliance with all of our debt covenants. At December 31, 2024, we issued $39.0 million of letters of credit and pay a quarterly fee on the unused commitment, which was 0.20%. As of December 31, 2024, we have $1,341.0 million in borrowing capacity under the facility.

As of December 31, 2023, we issued $39.1 million of letters of credit.

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Building Financing

In August 2024, we entered into a new $129.9 million construction loan agreement due 2037 with a syndicate of banks. The purpose of this loan is to provide financing for a new corporate headquarters building. This transaction resulted in additional debt issuance costs of $1.1 million. As of December 31, 2024, we had no borrowing outstanding.

Debt Issuances and Additions

During the year ended December 31, 2024, we issued or added $1,451.1 million of debt including:

•$800.0 million unsecured 5.75% Senior Notes due October 2032;

•$645.0 million on our Bank Credit Facility due January 2028; and

•$6.1 million in other debt.

Net proceeds from newly issued debt during the year ended December 31, 2024 were used to pay down our Bank Credit Facility due January 2028 and for general corporate purposes. These transactions resulted in additional debt issuance costs of $14.3 million.

During the year ended December 31, 2023, we issued or added $957.4 million of debt including:

•$284.1 million from certain banks in our Term Loan;

•$600.0 million on our Bank Credit Facility due January 2028;

•$44.3 million from certain banks in our Bank Credit Facility;

•$10.0 million on our Bank Credit Facility due May 2024; and

•$19.0 million in other debt.

Net proceeds from newly issued debt during the year ended December 31, 2023 were used to pay down our Bank Credit Facility due May 2024, our Term Loan due May 2024, and for general corporate purposes. These transactions resulted in additional debt issuance costs of $7.5 million.

Debt Extinguishments and Reductions

During the year ended December 31, 2024, we made aggregate debt payments of $1,340.0 million for scheduled and early extinguishment payments including:

•$1,315.0 million in aggregate principal of our Bank Credit Facility due January 2028;

•$16.9 million in aggregate principal of our Term Loan due January 2028;

•$0.5 million in aggregate principal of our 7.5% Senior Notes due April 2027 repurchased in the open market; and

•$7.6 million in other debt.

During the year ended December 31, 2023, we made aggregate debt payments of $603.2 million for scheduled and early extinguishment payments including:

•$235.0 million in aggregate principal of our Bank Credit Facility due January 2028;

•$199.3 million in aggregate principal to certain banks in our Bank Credit Facility due May 2024;

•$145.3 million in aggregate principal to certain banks in our Term Loan due May 2024;

•$16.9 million in aggregate principal of our Term Loan due January 2028;

•$0.9 million in aggregate principal of our 7.5% Senior Notes due April 2027 repurchased in the open market;

•$0.5 million of premiums paid on early extinguishment; and

•$5.3 million in other debt.

Certain of the above transactions resulted in the recognition of a loss of $1.1 million recorded in Losses on early extinguishment of debt, net in our Consolidated Statement of Operations for the year ended December 31, 2023.

Additional Debt Disclosures

At both December 31, 2024 and 2023, we had deposits of $0.7 million, respectively, in restricted, interest-bearing accounts that were pledged as collateral for various credit instruments and commercial commitments. These deposits are included in Other current assets and Deferred charges and other assets, net in our Consolidated Balance Sheet.

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We had assets of approximately $81.7 million and $75.3 million pledged as collateral for the mortgage notes and other debt at December 31, 2024 and 2023, respectively.

Cash interest payments for the three years ended December 31 were as follows (in thousands):

Expected cash interest payments on our existing long-term debt for the five years subsequent to December 31, 2024 and thereafter are as follows (in thousands):