ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CARRIAGE SERVICES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Page
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CONSOLIDATED FINANCIAL STATEMENTS:
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Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Carriage Services, Inc.:
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Carriage Services Inc., a Delaware corporation and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 2, 2021 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill and Tradename quantitative impairment assessment
As described further in Note 1 to the financial statements, the Company is required to evaluate goodwill and intangible assets for impairment annually or whenever events or changes in circumstances indicate that the carrying value of a reporting unit or the intangible asset may be greater than fair value. The Company first assesses qualitative factors to determine whether it is more-likely-than not that the fair value of a reporting unit or the tradenames is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative impairment test. The Company determined that as a result of the economic conditions caused by the response to COVID-19, a quantitative impairment assessment was necessary for each of the Company’s reporting units as well as the Company’s tradenames. As a result of the analysis, the Company determined that the Company’s Eastern Region Reporting Unit exceeded the fair value, as well as certain of the Company’s tradenames were impaired, and an impairment charge was recorded. We identified the Goodwill and Tradenames quantitative impairment assessment as a critical audit matter.
The principal consideration for our determination that the Goodwill and Tradenames quantitative impairment assessment is a critical audit matter is that the assessment includes a high degree of estimation uncertainty due to significant management judgments in regards to assumptions used within the assessment, including the long-term growth rate, royalty rate, discount rate and forecasted reporting unit cash flow, for which management also utilized an independent valuations specialist (referred to as
“management’s specialists”). In turn, auditing management’s assumptions involved significant auditor judgment and subjectivity.
Our audit procedures related to the Goodwill and Tradenames quantitative impairment assessment included the following, among others.
• We tested the design and operating effectiveness of controls relating to the Company’s quantitative impairment analysis processes, including controls related to the forecasted reporting unit cash flow and management’s review of the key assumptions which were prepared by managements specialists.
• We evaluated the level of knowledge, skill, and ability of management’s specialists and their relationship to the Company.
• We compared the Company’s reporting unit cash flows used in the forecast model to historical actual results.
• With the assistance of internal valuation specialists, we performed audit procedures over the data, methods and assumptions utilized in performing the quantitative impairment assessment, which included reviewing supporting documents and assessing reasonableness by comparing to historical trends and industry expectations. Certain key inputs/assumptions tested by us included the following:
◦Long-term growth rate
◦Discount rates
◦Royalty rates
/s/ GRANT THORNTON LLP
We have served as the Company's auditor since 2014.
Dallas, Texas
March 2, 2021
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Carriage Services, Inc.:
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Carriage Services, Inc., (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2020, and our report dated March 2, 2021 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Dallas, Texas
March 2, 2021
CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
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December 31,
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2019
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2020
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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716
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$
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889
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Accounts receivable, net
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21,478
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25,103
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Inventories
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6,989
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7,259
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Prepaid and other current assets
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10,667
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2,076
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Total current assets
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39,850
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35,327
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Preneed cemetery trust investments
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72,382
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86,604
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Preneed funeral trust investments
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96,335
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101,235
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Preneed cemetery receivables, net
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20,173
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21,081
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Receivables from preneed trusts, net
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18,024
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16,844
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Property, plant and equipment, net
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279,200
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269,051
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Cemetery property, net
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87,032
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101,134
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Goodwill
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398,292
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392,978
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Intangible and other non-current assets, net
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32,116
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29,542
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Operating lease right-of-use assets
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22,304
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21,201
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Cemetery perpetual care trust investments
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64,047
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70,828
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Total assets
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$
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1,129,755
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$
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1,145,825
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Current portion of debt and lease obligations
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$
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3,150
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$
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3,432
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Accounts payable
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8,413
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11,259
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Accrued and other liabilities
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24,026
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31,138
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Convertible subordinated notes due 2021
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—
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2,538
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Total current liabilities
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35,589
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48,367
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Acquisition debt, net of current portion
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5,658
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4,482
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Credit facility
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82,182
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46,064
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Convertible subordinated notes due 2021
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5,971
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—
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Senior notes due 2026
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395,447
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395,968
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Obligations under finance leases, net of current portion
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5,854
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5,531
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Obligations under operating leases, net of current portion
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21,533
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20,302
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Deferred preneed cemetery revenue
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46,569
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47,846
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Deferred preneed funeral revenue
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29,145
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27,992
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Deferred tax liability
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41,368
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46,477
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Other long-term liabilities
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1,737
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4,748
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Deferred preneed cemetery receipts held in trust
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72,382
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86,604
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Deferred preneed funeral receipts held in trust
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96,335
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101,235
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Care trusts’ corpus
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63,416
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69,707
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Total liabilities
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903,186
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905,323
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Commitments and contingencies
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Stockholders’ equity:
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Common stock, $0.01 par value; 80,000,000 shares authorized and 25,880,362 and 26,020,494 shares issued, respectively and 17,855,023 and 17,995,155 shares outstanding, respectively
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259
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260
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Additional paid-in capital
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242,147
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239,989
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Retained earnings
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86,213
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102,303
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Treasury stock, at cost; 8,025,339 shares at both December 31, 2019 and 2020
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(102,050)
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(102,050)
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Total stockholders’ equity
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226,569
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240,502
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Total liabilities and stockholders’ equity
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$
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1,129,755
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$
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1,145,825
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The accompanying notes are an integral part of these Consolidated Financial Statements.
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
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Years Ended December 31,
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2018
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2019
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2020
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Revenue:
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Service revenue
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$
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138,604
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$
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142,554
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$
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164,984
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Property and merchandise revenue
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112,253
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114,514
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|
139,630
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Other revenue
|
17,135
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|
17,039
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|
24,834
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|
|
267,992
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|
274,107
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|
329,448
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Field costs and expenses:
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Cost of service
|
72,123
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|
72,991
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|
79,634
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Cost of merchandise
|
90,008
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|
89,294
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|
103,064
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Cemetery property amortization
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3,602
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|
|
3,985
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|
|
4,956
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Field depreciation expense
|
12,015
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|
|
12,370
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|
|
13,006
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Regional and unallocated funeral and cemetery costs
|
12,749
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|
13,827
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|
|
18,057
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Other expenses
|
1,548
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|
|
2,055
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|
|
4,808
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|
|
192,045
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|
|
194,522
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|
|
223,525
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Gross profit
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75,947
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|
|
79,585
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|
|
105,923
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|
Corporate costs and expenses:
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General, administrative and other
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30,827
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25,880
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25,827
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|
Home office depreciation and amortization
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1,813
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|
1,416
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|
1,427
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Net loss on divestitures and impairment charges
|
1,195
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|
|
4,846
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|
21,442
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Operating income
|
42,112
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|
|
47,443
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|
|
57,227
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Interest expense
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(21,109)
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|
(25,522)
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(32,515)
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Accretion of discount on convertible subordinated notes
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(2,192)
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|
(241)
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|
|
(216)
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Net loss on early extinguishment of debt
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(502)
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—
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(6)
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Other, net
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(43)
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|
736
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|
152
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Income before income taxes
|
18,266
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|
22,416
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|
24,642
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Expense for income taxes
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(5,754)
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|
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(7,395)
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(7,985)
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Tax adjustment related to discrete items
|
(867)
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(488)
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(567)
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Total expense for income taxes
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$
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(6,621)
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$
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(7,883)
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$
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(8,552)
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Net income
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$
|
11,645
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|
$
|
14,533
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$
|
16,090
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Basic earnings per common share
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$
|
0.64
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$
|
0.81
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$
|
0.90
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|
Diluted earnings per common share
|
$
|
0.63
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|
|
$
|
0.80
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|
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$
|
0.89
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|
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|
|
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Dividends declared per share
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$
|
0.3000
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|
$
|
0.3000
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$
|
0.3375
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|
Weighted average number of common and common equivalent shares outstanding:
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Basic
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17,971
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17,877
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|
|
17,872
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Diluted
|
18,374
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|
18,005
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|
|
18,077
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The accompanying notes are an integral part of these Consolidated Financial Statements.
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
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Shares
Outstanding
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Treasury
Stock
|
|
Total
|
Balance – December 31, 2017
|
16,098
|
|
|
$
|
226
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|
|
$
|
216,158
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|
|
$
|
57,904
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|
|
$
|
(76,632)
|
|
|
$
|
197,656
|
|
Effect of adoption of topic 606
|
—
|
|
|
—
|
|
|
—
|
|
|
2,131
|
|
|
—
|
|
|
2,131
|
|
Balance – January 1, 2018
|
16,098
|
|
|
$
|
226
|
|
|
$
|
216,158
|
|
|
$
|
60,035
|
|
|
$
|
(76,632)
|
|
|
$
|
199,787
|
|
Net Income – 2018
|
—
|
|
|
—
|
|
|
—
|
|
|
11,645
|
|
|
—
|
|
|
11,645
|
|
Issuance of common stock
|
62
|
|
|
1
|
|
|
1,199
|
|
|
—
|
|
|
—
|
|
|
1,200
|
|
Exercise of stock options
|
140
|
|
|
1
|
|
|
(34)
|
|
|
—
|
|
|
—
|
|
|
(33)
|
|
Issuance of restricted common stock
|
87
|
|
|
1
|
|
|
24
|
|
|
—
|
|
|
—
|
|
|
25
|
|
Cancellation and surrender of restricted common stock and stock options
|
(30)
|
|
|
—
|
|
|
(398)
|
|
|
—
|
|
|
—
|
|
|
(398)
|
|
Stock-based compensation expense
|
—
|
|
|
—
|
|
|
6,531
|
|
|
—
|
|
|
—
|
|
|
6,531
|
|
Dividends on common stock
|
—
|
|
|
—
|
|
|
(5,514)
|
|
|
—
|
|
|
—
|
|
|
(5,514)
|
|
Convertible notes exchange
|
2,823
|
|
|
28
|
|
|
25,883
|
|
|
—
|
|
|
—
|
|
|
25,911
|
|
Treasury stock acquired
|
(1,102)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,662)
|
|
|
(17,662)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – December 31, 2018
|
18,078
|
|
|
$
|
257
|
|
|
$
|
243,849
|
|
|
$
|
71,680
|
|
|
$
|
(94,294)
|
|
|
$
|
221,492
|
|
Net Income – 2019
|
—
|
|
|
—
|
|
|
—
|
|
|
14,533
|
|
|
—
|
|
|
14,533
|
|
Issuance of common stock
|
81
|
|
|
1
|
|
|
971
|
|
|
—
|
|
|
—
|
|
|
972
|
|
Exercise of stock options
|
76
|
|
|
1
|
|
|
471
|
|
|
—
|
|
|
—
|
|
|
472
|
|
Issuance of restricted common stock
|
26
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cancellation and surrender of restricted common stock and stock options
|
(21)
|
|
|
—
|
|
|
(194)
|
|
|
—
|
|
|
—
|
|
|
(194)
|
|
Stock-based compensation expense
|
—
|
|
|
—
|
|
|
2,153
|
|
|
—
|
|
|
—
|
|
|
2,153
|
|
Dividends on common stock
|
—
|
|
|
—
|
|
|
(5,398)
|
|
|
—
|
|
|
—
|
|
|
(5,398)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock acquired
|
(400)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,756)
|
|
|
(7,756)
|
|
Other
|
15
|
|
|
—
|
|
|
295
|
|
|
—
|
|
|
—
|
|
|
295
|
|
Balance – December 31, 2019
|
17,855
|
|
|
$
|
259
|
|
|
$
|
242,147
|
|
|
$
|
86,213
|
|
|
$
|
(102,050)
|
|
|
$
|
226,569
|
|
Net Income – 2020
|
—
|
|
|
—
|
|
|
—
|
|
|
16,090
|
|
|
—
|
|
|
16,090
|
|
Issuance of common stock from employee stock purchase plan
|
72
|
|
|
1
|
|
|
1,201
|
|
|
—
|
|
|
—
|
|
|
1,202
|
|
Issuance of common stock to directors
|
31
|
|
|
—
|
|
|
653
|
|
|
—
|
|
|
—
|
|
|
653
|
|
Exercise of stock options
|
20
|
|
|
—
|
|
|
(70)
|
|
|
—
|
|
|
—
|
|
|
(70)
|
|
Issuance of restricted common stock
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cancellation and surrender of restricted common stock
|
(11)
|
|
|
—
|
|
|
(250)
|
|
|
—
|
|
|
—
|
|
|
(250)
|
|
Stock-based compensation expense
|
—
|
|
|
—
|
|
|
2,717
|
|
|
—
|
|
|
—
|
|
|
2,717
|
|
Dividends on common stock
|
—
|
|
|
—
|
|
|
(6,048)
|
|
|
—
|
|
|
—
|
|
|
(6,048)
|
|
Convertible notes repurchase
|
—
|
|
|
—
|
|
|
(828)
|
|
|
—
|
|
|
—
|
|
|
(828)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
18
|
|
|
—
|
|
|
467
|
|
|
—
|
|
|
—
|
|
|
467
|
|
Balance – December 31, 2020
|
17,995
|
|
|
$
|
260
|
|
|
$
|
239,989
|
|
|
$
|
102,303
|
|
|
$
|
(102,050)
|
|
|
$
|
240,502
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2019
|
|
2020
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
$
|
11,645
|
|
|
$
|
14,533
|
|
|
$
|
16,090
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
17,430
|
|
|
17,771
|
|
|
19,389
|
|
Provision for bad debt and credit losses
|
1,841
|
|
|
1,618
|
|
|
2,318
|
|
Stock-based compensation expense
|
6,583
|
|
|
2,153
|
|
|
3,370
|
|
Deferred income tax expense
|
3,823
|
|
|
10,117
|
|
|
4,597
|
|
Amortization of deferred financing costs
|
532
|
|
|
392
|
|
|
782
|
|
Amortization of capitalized commissions and non-compete agreements
|
1,219
|
|
|
1,231
|
|
|
1,299
|
|
Accretion of discount on convertible subordinated notes
|
2,192
|
|
|
241
|
|
|
216
|
|
Accretion of debt discount, net of debt premium on senior notes
|
272
|
|
|
492
|
|
|
307
|
|
Net loss on extinguishment of debt
|
502
|
|
|
—
|
|
|
6
|
|
Net loss on divestitures and impairment charges
|
1,195
|
|
|
4,846
|
|
|
21,442
|
|
Net loss on sale of other assets
|
876
|
|
|
213
|
|
|
251
|
|
Gain on insurance reimbursements
|
—
|
|
|
(879)
|
|
|
(97)
|
|
Other
|
—
|
|
|
121
|
|
|
19
|
|
Changes in operating assets and liabilities that provided (required) cash:
|
|
|
|
|
|
Accounts and preneed receivables
|
(5,061)
|
|
|
(5,801)
|
|
|
(4,279)
|
|
Inventories, prepaid and other current assets
|
(159)
|
|
|
(2,762)
|
|
|
3,516
|
|
Intangible and other non-current assets
|
(1,010)
|
|
|
(924)
|
|
|
(1,015)
|
|
Preneed funeral and cemetery trust investments
|
488
|
|
|
(6,500)
|
|
|
(5,043)
|
|
Accounts payable
|
2,044
|
|
|
(580)
|
|
|
2,702
|
|
Accrued and other liabilities
|
3,990
|
|
|
1,271
|
|
|
10,784
|
|
Deferred preneed funeral and cemetery revenue
|
6,546
|
|
|
168
|
|
|
528
|
|
Deferred preneed funeral and cemetery receipts held in trust
|
(5,954)
|
|
|
5,495
|
|
|
5,733
|
|
Net cash provided by operating activities
|
48,994
|
|
|
43,216
|
|
|
82,915
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Acquisitions
|
(37,970)
|
|
|
(140,907)
|
|
|
(28,011)
|
|
Deposit on pending acquisition
|
—
|
|
|
(5,000)
|
|
|
—
|
|
Proceeds from insurance reimbursements
|
—
|
|
|
1,433
|
|
|
248
|
|
|
|
|
|
|
|
Proceeds from divestitures and sale of other assets
|
—
|
|
|
967
|
|
|
8,541
|
|
Capital expenditures
|
(13,526)
|
|
|
(15,379)
|
|
|
(15,198)
|
|
Net cash used in investing activities
|
(51,496)
|
|
|
(158,886)
|
|
|
(34,420)
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Payments against the term loan
|
(127,500)
|
|
|
—
|
|
|
—
|
|
Borrowings from the credit facility
|
124,500
|
|
|
174,961
|
|
|
109,500
|
|
Payments against the credit facility
|
(189,400)
|
|
|
(118,261)
|
|
|
(146,100)
|
|
|
|
|
|
|
|
Payment of debt issuance costs related to the credit facility
|
(1,751)
|
|
|
(891)
|
|
|
—
|
|
Repurchase of the convertible subordinated notes due 2021
|
(98,266)
|
|
|
(27)
|
|
|
(4,563)
|
|
Payment of transaction costs related to the repurchase of the convertible subordinated notes due 2021
|
(885)
|
|
|
—
|
|
|
(12)
|
|
Proceeds from the issuance of the senior notes due 2026
|
320,125
|
|
|
76,688
|
|
|
—
|
|
Payment of debt issuance costs related to the senior notes due 2026
|
(1,367)
|
|
|
(980)
|
|
|
(66)
|
|
Payments on acquisition debt and obligations under finance leases
|
(1,940)
|
|
|
(2,287)
|
|
|
(1,745)
|
|
Payments on contingent consideration recorded at acquisition date
|
(138)
|
|
|
(162)
|
|
|
(169)
|
|
Proceeds from the exercise of stock options and employee stock purchase plan contributions
|
1,246
|
|
|
1,445
|
|
|
1,229
|
|
Taxes paid on restricted stock vestings and exercise of stock options
|
(651)
|
|
|
(194)
|
|
|
(348)
|
|
Dividends paid on common stock
|
(5,513)
|
|
|
(5,398)
|
|
|
(6,048)
|
|
Purchase of treasury stock
|
(16,266)
|
|
|
(9,152)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
2,194
|
|
|
115,742
|
|
|
(48,322)
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
(308)
|
|
|
72
|
|
|
173
|
|
Cash and cash equivalents at beginning of year
|
952
|
|
|
644
|
|
|
716
|
|
Cash and cash equivalents at end of year
|
$
|
644
|
|
|
$
|
716
|
|
|
$
|
889
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Carriage Services, Inc. (“Carriage,” the “Company,” “we,” “us,” or “our”) is a leading provider of funeral and cemetery services and merchandise in the United States. At December 31, 2020, we operated 178 funeral homes in 26 states and 32 cemeteries in 12 states. Our operations are reported in two business segments: Funeral Home Operations, which currently accounts for approximately 75% of our revenue and Cemetery Operations, which currently accounts for approximately 25% of our revenue.
Our funeral home operations are principally service businesses that generate revenue from sales of burial and cremation services and related merchandise, such as caskets and urns. Funeral services include consultation, the removal and preparation of remains, the use of funeral home facilities for visitation and memorial services and transportation services. We provide funeral services and products on both an “atneed” (time of death) and “preneed” (planned prior to death) basis.
Our cemetery operations generate revenue primarily through sales of cemetery interment rights (primarily grave sites, lawn crypts, mausoleum spaces and niches), related cemetery merchandise (such as memorial markers, outer burial containers, and monuments) and services (interments, inurnments and installation of cemetery merchandise). We provide cemetery services and products on both an atneed and preneed basis.
Principles of Consolidation
The accompanying Consolidated Financial Statements include the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.
Reclassifications
Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation. Impairments and net loss on divestitures, which were previously reported in Other, net, have been reclassed to Net loss on divestitures and impairment charges within operating income on our Consolidated Statements of Operations with no effect on our previously reported net income, Consolidated Balance Sheet and Consolidated Statements of Cash Flows.
Use of Estimates
The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses. On an ongoing basis, we evaluate our significant estimates and judgments, which include those related to the realization of our accounts receivable, valuation of goodwill, intangible assets, deferred tax assets and liabilities and depreciation of property and equipment. We base our estimates on historical experience, third-party data and assumptions that we believe to be reasonable under the circumstances. The results of these considerations form the basis for making judgments about the amount and timing of revenue and expenses, the carrying value of assets and the recorded amounts of liabilities. Actual results may differ from these estimates and such estimates may change if the underlying conditions or assumptions change. Historical performance should not be viewed as indicative of future performance, as there can be no assurance that our results of operations will be consistent from year to year.
Cash and Cash Equivalents
We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Funeral and Cemetery Receivables
Our funeral receivables are recorded in Accounts receivable, net and primarily consist of amounts due for funeral services already performed.
Atneed cemetery receivables and preneed cemetery receivables with payments expected to be received within one year from the balance sheet date are recorded in Accounts receivable, net. Preneed cemetery receivables with payments expected to be received beyond one year from the balance sheet date are recorded in Preneed cemetery receivables, net. Our cemetery receivables generally consist of preneed sales of cemetery interment rights and related products and services, which are typically financed through interest-bearing installment sales contracts, generally with terms of up to five years, with such interest income reflected as Other revenue. In substantially all cases, we receive an initial down payment at the time the contract is signed.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For our funeral and atneed cemetery receivables, we have a collections policy where statements are sent to the customer at 30 days past due. Past due notification letters are sent at 45 days and continue until payment is received or the contract is placed with a third-party collections agency. For our preneed cemetery receivables, we have a collections policy where past due notification letters are sent to the customer beginning at 15 days past due and periodically thereafter until payment is received or the contract is cancelled.
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”), Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments and subsequent amendments collectively known as (“Topic 326”). Topic 326 applies to all entities holding financial assets measured at amortized cost, including loans, trade and financed receivables and other financial instruments. The guidance introduces a new credit reserving model known as Current Expected Credit Loss (“CECL”), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. The CECL model requires all expected credit losses to be measured based on historical experience, current conditions and reasonable and supportable forecasts about collectability. Prior to adoption of Topic 326, we provided allowances for bad debt and contract cancellations on our receivables based on an analysis of historical trends of collection activity.
For both funeral and cemetery receivables, we determine our allowance for credit losses by using a loss-rate methodology, in which we assess our historical write-off of receivables against our total receivables over several years. From this historical loss-rate approach, we also consider the current and forecasted economic conditions expected to be in place over the life of our receivables. These estimates are impacted by a number of factors, including changes in the economy, demographics and competition in our local communities. We monitor our ongoing credit exposure through an active review of our customers’ receivables balance against contract terms and due dates. Our activities include timely performance of our accounts receivable reconciliations, assessment of our aging of receivables, dispute resolution and payment confirmation. We monitor any change in our historical write-off of receivables utilized in our loss-rate methodology and assess forecasted changes in market conditions within our credit reserve. During 2020, we increased our allowance for credit losses on our funeral and cemetery receivables as a result of the economic impact of the COVID-19 pandemic (COVID-19).
See Notes 2 and 6 to the Consolidated Financial Statements herein for additional information related to funeral and cemetery receivables.
Inventory
Inventory consists primarily of caskets, outer burial containers and cemetery monuments and markers and is recorded at the lower of its cost basis or net realizable value. Inventory is relieved using specific identification in fulfillment of performance obligations on our contracts.
Business Combinations
Tangible and intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is recognized for any difference between the price of the acquisition and fair value. We recognize the assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at the acquisition date, measured at the fair value as of that date. Acquisition related costs are recognized separately from the acquisition and are expensed as incurred. We customarily estimate related transaction costs known at closing. To the extent that information not available to us at the closing date subsequently becomes available during the allocation period, we may adjust goodwill, intangible assets, assets or liabilities associated with the acquisition.
On January 3, 2020, we acquired one funeral home and cemetery combination business in Lafayette, California.
During 2019, we acquired, in three separate transactions, two funeral home and cemetery combination businesses, seven funeral home businesses and three ancillary businesses. In October 2019, we acquired the following: (i) four funeral home businesses in Buffalo, New York; and (ii) one funeral home and cemetery combination business, three funeral home businesses and three ancillary businesses, which consist of a flower shop, a pet cremation business and an online cremation business in the Rockwall, Texas area. In December 2019, we acquired one funeral home and cemetery combination business in Fairfax, Virginia.
The pro forma impact of the acquisitions on prior periods is not presented as the impact is not material to our reported results. The results of the acquired businesses are included in our results of operations from the date of acquisition.
See Note 3 to the Consolidated Financial Statements herein for further information related to acquisitions.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Divested Operations
Prior to divesting a funeral home or cemetery, we first determine whether the sale of the net assets and activities (together referred to as a “set”) qualifies as a business. First, we perform a screen test to determine if the set is not a business. The principle of the screen is that if substantially all of the fair value of the gross assets sold resides in a single asset or group of similar assets, the set is not a business. If the screen is not met, we perform an assessment to determine if the set is a business by evaluating whether the set has both inputs and a substantive process that together significantly contribute to the ability to create outputs. When both inputs and a substantive process are present then the set is determined to be a business and we apply the guidance in ASC 350 – Intangibles – Goodwill and Other to determine the accounting treatment of goodwill for that set (see discussion of Goodwill below). Goodwill is only allocated to the sale if the set is considered to be a business.
During 2020, we sold eight funeral homes for $8.4 million. During 2019, we divested three funeral homes whose building leases expired and sold a funeral home for $0.9 million. In addition, we merged a funeral home with a business in an existing market. During 2018, our management agreement with a Florida municipality expired and as a result, we divested three of our cemeteries. The operating results of these divested funeral homes and cemeteries are reflected on our Consolidated Statements of Operations through the divested date. We continually review our businesses to optimize the sustainable earning power and return on our invested capital.
See Notes 4, 5 and 11 to the Consolidated Financial Statements herein for additional information related to divestitures.
Goodwill
The excess of the purchase price over the fair value of identifiable net assets of funeral home businesses and cemeteries acquired is recorded as goodwill. Goodwill has an indefinite life and is not subject to amortization. As such, we test goodwill for impairment on an annual basis as of August 31st each year. Under current guidance, we are permitted to first assess qualitative factors to determine whether it is more-likely-than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test.
Our intent is to perform a quantitative impairment test at least once every three years and perform a qualitative assessment during the remaining two years. In addition to our annual test, we assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value of a reporting unit may be greater than fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant negative industry or economic trends and significant adverse changes in the business climate, which may be indicated by a decline in our market capitalization or decline in operating results.
Our quantitative goodwill impairment test involves estimates and management judgment. In the quantitative analysis, we compare the fair value of each reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, the goodwill of that reporting unit is not considered impaired. We determine fair value for each reporting unit using both an income approach, weighted 90%, and a market approach, weighted 10%. Our methodology for determining an income-based fair value is based on discounting projected future cash flows. The projected future cash flows include assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows discounted at our weighted average cost of capital based on market participant assumptions. Our methodology for determining a market approach fair value utilizes the guideline public company method, in which we rely on market multiples of comparable companies operating in the same industry as the individual reporting units. In accordance with the guidance, if the fair value of the reporting unit is less than its carrying amount an impairment charge is recorded in an amount equal to the difference.
As a result of economic conditions caused by COVID-19, we performed a quantitative assessment of our goodwill at March 31, 2020 and we recorded an impairment to goodwill of $13.6 million during the quarter ended March 31, 2020, as the carrying amount of our funeral homes in the Eastern Region Reporting Unit exceeded the fair value.
For our 2020 annual impairment test, we performed a qualitative assessment and determined that there were no factors that would indicate the need to perform an additional quantitative goodwill impairment test. We concluded that it is more-likely-than not that the fair value of our reporting units is greater than their carrying value and thus there was no additional impairment to goodwill.
For our 2019 quantitative assessment, there was no impairment to goodwill as the fair value of our reporting units was greater than the carrying value, however, we recorded a goodwill impairment of $0.7 million during 2019 related to two funeral homes that we divested. We recorded a goodwill impairment of $0.8 million during 2018 related to a funeral home that we divested.
When we divest a portion of a reporting unit that constitutes a business in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), we allocate goodwill associated with that business to be included in the gain or loss on divestiture. The goodwill allocated is based on the relative fair values of the business being divested and the portion of the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
reporting unit that will be retained. Additionally, after each divestiture, we test the goodwill remaining in the portion of the reporting unit to be retained for impairment using a qualitative assessment unless we deem a quantitative assessment to be appropriate to ensure the fair value of our reporting units is greater than their carrying value. For the year ended December 31, 2020, we concluded that it is more-likely-than not that the fair value of our reporting units is greater than their carrying value and thus there was no additional impairment to goodwill.
See Note 4 to the Consolidated Financial Statements included herein for additional information related to goodwill.
Intangible Assets
Our intangible assets include tradenames resulting from acquisitions and are included in Intangible and other non-current assets, net on our Consolidated Balance Sheet. Our tradenames are considered to have an indefinite life and are not subject to amortization. As such, we test our intangible assets for impairment on an annual basis as of August 31st each year. Under current guidance, we are permitted to first assess qualitative factors to determine whether it is more-likely-than not that the fair value of the tradename is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative impairment test.
Our intent is to perform a quantitative impairment test at least once every three years and perform a qualitative assessment during the remaining two years. In addition to our annual test, we assess the impairment of intangible assets whenever certain events or changes in circumstances indicate that the carrying value of the intangible asset may be greater than the fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant under-performance relative to historical or projected future operating results and significant negative industry or economic trends.
Our quantitative intangible asset impairment test involves estimates and management judgment. Our quantitative analysis is performed using the relief from royalty method, which measures the tradenames by determining the value of the royalties that we are relieved from paying due to our ownership of the asset. We determine the fair value of the asset by discounting the cash flows that represent a savings in lieu of paying a royalty fee for use of the tradename. The discounted cash flow valuation uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows and the determination and application of an appropriate royalty rate and discount rate. To estimate the royalty rates for the individual tradename, we mainly rely on the profit split method, but also consider the comparable third-party license agreements and the return on asset method. A scorecard is used to assess the relative strength of the individual tradename to further adjust the royalty rates selected under the profit-split method for qualitative factors. In accordance with the guidance, if the fair value of the tradename is less than its carrying amount, then an impairment charge is recorded in an amount equal to the difference.
As a result of economic conditions caused by COVID-19, we performed a quantitative assessment of our tradenames at March 31, 2020 and we recorded an impairment to tradenames for certain of our funeral homes of $1.1 million during the quarter ended March 31, 2020 as the carrying amount of these tradenames exceeded the fair value.
For our 2020 annual impairment test, we performed a qualitative assessment and determined that there were no factors that would indicate the need to perform an additional quantitative impairment test. We concluded that it is more-likely-than not that the fair value of our intangible assets is greater than its carrying value and thus there was no additional impairment to our intangible assets.
For our 2019 quantitative assessment, we recorded an impairment for tradenames of $0.2 million during the year ended December 31, 2019 as the carrying amount of certain tradenames exceeded the fair value. No impairments were recorded to our intangible assets during the year ended December 31, 2018.
See Note 11 to the Consolidated Financial Statements included herein for additional information related to intangible assets.
Preneed and Perpetual Care Trust Funds
Preneed sales generally require deposits to a trust or purchase of a third-party insurance product. We have established a variety of trusts in connection with funeral home and cemetery operations as required under applicable state laws. Such trusts include (i) preneed funeral trusts; (ii) preneed cemetery merchandise and service trusts; and (iii) cemetery perpetual care trusts.
Our preneed and perpetual care trust funds are reported in accordance with the principles of consolidating Variable Interest Entities (“VIEs”). In the case of preneed trusts, the customers are the legal beneficiaries. In the case of perpetual care trusts, we do not have a right to access the corpus in the perpetual care trusts.
Our trust fund assets are reflected in our financial statements as Preneed cemetery trust investments, Preneed funeral trust investments and Cemetery perpetual care trust investments. We have recognized financial interests of third parties in the trust funds in our financial statements as Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The fair value of our trust fund assets are accounted for as Collateralized Financing Entities (“CFEs”) in ASC 810. The accounting guidance for CFEs allows companies to elect to measure both the financial assets and financial liabilities using the more observable of the fair value of the financial assets or fair value of the financial liabilities. Pursuant to this guidance, we have determined the fair value of the financial assets of the trusts are more observable and we first measure those financial assets at fair value. Our fair value of the financial liabilities mirror the fair value of the financial assets, in accordance with the ASC. Any changes in fair value are recognized in earnings.
Topic 326 made changes to the accounting for fixed income securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on fixed income securities management does not intend to sell or believes that it is more likely than not will be required to sell.
In accordance with respective state laws, we are required to deposit a specified amount into perpetual and memorial care trust funds for each interment right and certain memorials sold. Income from the trust funds is distributed to us and used to provide for the care and maintenance of the cemeteries and mausoleums. Such trust fund income is recognized as revenue when realized by the trust and distributable to us. We are restricted from withdrawing any of the principal balances of these funds.
An enterprise is required to perform an analysis to determine whether the enterprise’s variable interest(s) give it a controlling financial interest in a VIE. This analysis identifies the primary beneficiary of a VIE as the enterprise that has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. Our analysis continues to support our position as the primary beneficiary in the majority of our funeral and cemetery trust funds.
See Notes 7 and 8 to the Consolidated Financial Statements herein for additional information related to preneed and perpetual care trust funds.
Fair Value Measurements
In August 2018, the FASB amended “Fair Value Measurements” to modify the disclosure requirements related to fair value. The amendment removes requirements to disclose (1) the amount of and reasons for transfers between Levels 1 and 2 of the fair value hierarchy, (2) our policy related to the timing of transfers between levels, and (3) the valuation processes used in Level 3 measurements. It clarifies that the narrative disclosure of the effect of changes in Level 3 inputs should be based on changes that could occur at the reporting date. The amendment adds a requirement to disclose the range and weighted average of the significant unobservable inputs used in Level 3 measurements. We adopted the new standard as of January 1, 2020 and it had no impact on our consolidated results of operations, consolidated financial position, and cash flows.
We measure the securities held by our funeral merchandise and service, cemetery merchandise and service, and cemetery perpetual care trusts at fair value on a recurring basis in accordance with the Fair Value Measurements Topic of the ASC. This guidance defines fair value as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The guidance establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
• Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;
• Level 2 — inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and
• Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement.
We disclose the extent to which fair value is used to measure financial assets and liabilities, the inputs utilized in calculating valuation measurements, and the effect of the measurement of significant unobservable inputs on earnings, or changes in net assets, as of the measurement date. We currently do not have any assets that have fair values determined by Level 3 inputs and no liabilities measured at fair value. We have not elected to measure any additional financial instruments and certain other items at fair value that are not currently required to be measured at fair value.
In the ordinary course of business, we are typically exposed to a variety of market risks. Currently, these are primarily related to changes in fair market values related to outstanding debts and changes in the values of securities associated with the preneed and perpetual care trusts. Management is actively involved in monitoring exposure to market risk and developing and utilizing risk management techniques when appropriate and when available for a reasonable price.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
See Notes 7 and 10 to the Consolidated Financial Statements herein for additional required disclosures related to fair value measurement of our financial assets and liabilities.
Capitalized Commissions on Preneed Contracts
We capitalize sales commissions and other direct selling costs related to preneed cemetery merchandise and services and preneed funeral trust contracts as these costs are incremental and recoverable costs of obtaining a contract with a customer. Our capitalized commissions on preneed contracts are amortized on a straight-line basis over the average maturity period of ten years for our preneed funeral trust contracts and eight years for our preneed cemetery merchandise and services contracts. Amortization expense totaled $0.6 million for each of the years ended December 31, 2018, 2019 and 2020.
The selling costs related to the sales of cemetery interment rights, which include real property and other costs related to cemetery development activities, continue to be expensed using the specific identification method in the period in which the sale of the cemetery interment right is recognized as revenue. The selling costs related to preneed funeral insurance contracts continue to be expensed in the period incurred as these contracts are not included on our Consolidated Balance Sheet.
See Note 11 to the Consolidated Financial Statements herein for additional information related to capitalized commissions on preneed contracts.
Property, Plant and Equipment
Property, plant and equipment (including equipment under finance leases) are stated at cost. The costs of ordinary maintenance and repairs are charged to operations as incurred, while renewals and major replacements that extend the useful economic life of the asset are capitalized. Depreciation of property, plant and equipment (including equipment under finance leases) is computed based on the straight-line method over the following estimated useful lives of the assets:
|
|
|
|
|
|
|
Years
|
Buildings and improvements
|
15 to 40
|
Furniture and fixtures
|
5 to 10
|
Machinery and equipment
|
3 to 15
|
Automobiles
|
5 to 70
|
Property, plant and equipment is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2020
|
Land
|
$
|
84,608
|
|
|
$
|
82,615
|
|
Buildings and improvements
|
242,641
|
|
|
240,567
|
|
Furniture, equipment and automobiles
|
88,046
|
|
|
91,302
|
|
Property, plant and equipment, at cost
|
415,295
|
|
|
414,484
|
|
Less: accumulated depreciation
|
(136,095)
|
|
|
(145,433)
|
|
Property, plant and equipment, net
|
$
|
279,200
|
|
|
$
|
269,051
|
|
During 2020, we acquired $1.7 million of property, plant and equipment related to our acquisition that closed on January 3, 2020, described in Note 3 to the Consolidated Financial Statements included herein. In addition, we divested eight funeral homes that had a carrying value of property, plant and equipment of $8.0 million, which was included in the gain or loss on the sale of divestitures and recorded in Net loss on divestitures and impairment charges on our Consolidated Statements of Operations, described in Note 5 to the Consolidated Financial Statements included herein.
During 2019, we acquired $21.7 million of property, plant and equipment in connection with the funeral home and cemetery businesses we acquired during 2019. In addition, we ceased to operate three funeral homes whose building leases expired, sold a funeral home and merged a funeral home in an existing market that had a carrying value of property, plant and equipment of $0.6 million.
Our capital expenditures totaled $15.4 million and $15.2 million for the years ended December 31, 2019 and 2020, for property, plant, equipment and cemetery development. We recorded depreciation expense of $13.8 million, $13.8 million and $14.4 million for the years ended December 31, 2018, 2019 and 2020, respectively.
Long-lived assets, such as property, plant and equipment and right-of-use assets (see leases discussion below) are reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360 – Property, Plant and Equipment. This guidance requires that long-lived assets to be held and used are reported at the lower of their carrying amount or fair value. We evaluate our long-lived assets for impairment when a funeral home or cemetery business has negative earnings before interest, taxes, depreciation and
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
amortization (“EBITDA”) for four consecutive years and if there has been a decline in EBITDA in that same period. Assets to be disposed of and assets not expected to provide any future service potential are recorded at the lower of their carrying amount or fair value less estimated cost to sell. If we determine that the carrying value is not recoverable from the proceeds of the sale, we record an impairment at that time.
In connection with the goodwill impairment recorded for the Eastern Region Reporting Unit during the quarter ended March 31, 2020 we also evaluated the long-lived assets of our funeral homes in the Eastern Region Reporting Unit and concluded that there was no impairment to our long-lived assets. Subsequent to our impairment tests performed at March 31, 2020, we did not identify any new factors or events that would trigger us to perform an additional assessment of our long-lived assets. For our 2020 annual impairment test, no impairment was identified on our long-lived assets at December 31, 2020.
For the year ended December 31, 2019, no impairment was identified on our long-lived assets. For the year ended December 31, 2018, we recorded an impairment of $0.2 million related to the real property of a funeral home that we divested, as the carrying value exceeded fair value.
Cemetery Property
When we acquire a cemetery, we utilize an internal and external approach to determine the fair value of the cemetery property. From an external perspective, we obtain an accredited appraisal to provide reasonable assurance for property existence, property availability (unrestricted) for development, property lines, available spaces to sell, identifiable obstacles or easements and general valuation inclusive of known variables in that market. From an internal perspective, we conduct a detailed analysis of the acquired cemetery property using other cemeteries in our portfolio as a benchmark. This provides the added benefit of relevant data that is not available to third party appraisers. Through this thorough internal process, the Company is able to identify viable costs of property based on historical experience, particular markets and demographics, reasonable margins, practical retail prices and park infrastructure and condition.
Cemetery property was $87.0 million and $101.1 million, net of accumulated amortization of $41.7 million and $46.6 million at December 31, 2019 and December 31, 2020, respectively. When cemetery property is sold, the value of the cemetery property (interment right costs) is expensed as amortization using the specific identification method in the period in which the sale of the interment right is recognized as revenue. We recorded amortization expense for cemetery interment rights of $3.6 million, $4.0 million and $5.0 million for the years ended December 31, 2018, 2019 and 2020, respectively.
Leases
We have operating and finance leases. We lease certain office facilities, certain funeral homes and equipment under operating leases with original terms ranging from one to nineteen years. Many leases include one or more options to renew, some of which include options to extend the leases for up to 26 years. We lease certain funeral homes under finance leases with original terms ranging from ten to forty years years. We do not have lease agreements with residual value guarantees, sale-leaseback terms, material restrictive covenants or related parties. We do not have any material sublease arrangements.
We determine if an arrangement is a lease at inception based on the facts and circumstances of the agreement. A right-of-use (“ROU”) asset represents our right to use the underlying asset for the lease term and the lease liability represents our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized on our Consolidated Balance Sheet at the lease commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The lease terms used to calculate the ROU asset and related lease liability include options to extend the lease when it is reasonably certain that we will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense, while the expense for finance leases is recognized as depreciation expense and interest expense using the accelerated interest method of recognition. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage, are not included in the ROU assets or liabilities. These are expensed as incurred and recorded as variable lease expense. We have real estate lease agreements which require payments for lease and non-lease components and account for these as a single lease component. Leases with an initial term of 12 months or less, that do not include an option to renew the underlying asset, are not recorded on our Consolidated Balance Sheet and expense is recognized on a straight-line basis over the lease term.
Operating lease ROU assets are included in Operating lease right-of-use assets and operating lease liabilities are included in Current portion of operating lease obligations and Obligations under operating leases, net of current portion on our Consolidated Balance Sheet. Finance lease ROU assets are included in Property, plant and equipment, net and finance lease liabilities are included in Current portion of finance lease obligations and Obligations under finance leases, net of current portion on our Consolidated Balance Sheet.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In connection with the goodwill and intangible impairment tests performed at March 31, 2020, we also evaluated the operating and finance leases of our funeral homes in the Eastern Reporting Unit and concluded that there was no impairment to our operating and finance lease assets. Subsequent to our impairment tests performed at March 31, 2020, we did not identify any new factors or events that would trigger us to perform an additional assessment of our operating and finance leases. See discussion of our impairment policy for long-lived assets and right-of-use assets above.
See Note 15 to the Consolidated Financial Statements included herein for additional information related to leases.
Equity Plans and Stock-Based Compensation
We have equity-based employee and director compensation plans under which we have granted stock awards, stock options and performance awards. We also have an employee stock purchase plan (the “ESPP”). We recognize compensation expense in an amount equal to the fair value of the stock-based awards expected to vest or to be purchased over the requisite service period. We recognize the effect of forfeitures in compensation cost when they occur and any previously recognized compensation cost for an award is reversed in the period that the award is forfeited.
Fair value is determined on the date of the grant. The fair value of stock awards is determined using the stock price on the grant date. The fair value of stock options is determined using the Black-Scholes valuation model. The fair value of the performance awards related to market performance conditions is determined using a Monte-Carlo simulation pricing model. The fair value of the ESPP is determined based on the discount element offered to employees and the embedded option element, which is determined using an option calculation model.
We recognize all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) as income tax benefit or expense in the income statement. We treat the tax effects of exercised or vested awards as discrete items in the reporting period in which they occur. For the years ended December 31, 2018, 2019 and 2020, the excess tax deficiency related to share-based payments was approximately $0.8 million, $0.4 million and $0.1 million, respectively, recorded within Tax adjustment related to discrete items on our Consolidated Statements of Operations. Excess tax benefits or deficiencies related to share-based payments are included in operating cash flows on the Consolidated Statements of Cash Flows.
See Note 18 to the Consolidated Financial Statements included herein for additional information related to equity plans and stock-based compensation.
Revenue Recognition
Funeral and Cemetery Operations Revenue is recognized when control of the merchandise or services is transferred to the customer. Our performance obligations include the delivery of funeral and cemetery merchandise and services and cemetery property interment rights. Control transfers when merchandise is delivered or services are performed. For cemetery property interment rights, control transfers to the customer when the property is developed and the interment right has been sold and can no longer be marketed or sold to another customer. Sales taxes collected are recognized on a net basis on our Consolidated Financial Statements. On our atneed contracts, we generally deliver the merchandise and perform the services at the time of need.
Memorial services frequently include performance obligations to direct the service, provide facilities and motor vehicles, catering, flowers, and stationary products. All other performance obligations on these contracts, including arrangement, removal, preparation, embalming, cremation, interment, and delivery of urns and caskets and related memorialization merchandise are fulfilled at the time of need. Personalized marker merchandise and marker installation services sold on atneed contracts are recognized when control is transferred to the customer, generally when the marker is delivered and installed in the cemetery.
Some of our contracts with customers include multiple performance obligations. For these contracts, we allocate the transaction price to each performance obligation based on its relative standalone selling price, which is based on prices charged to customers per our general price list. Packages for service and ancillary items are offered to help the customer make decisions during emotional and stressful times. Package discounts are reflected net in Revenue. We recognize revenue when the merchandise is transferred or the service is performed, in satisfaction of the corresponding performance obligation. Sales taxes collected are recognized on a net basis on our Consolidated Financial Statements.
Ancillary funeral service revenue, which is recorded in Other revenue, represents revenue from our flower shop, pet cremation and online cremation businesses in Texas.
The earnings from our preneed trust investments, as well as trust management fees charged by our wholly-owned registered investment advisory firm (“CSV RIA”) are recorded in Other revenue. As of December 31, 2020, CSV RIA provided investment management and advisory services to approximately 80% of our trust assets, for a fee based on the market value of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
trust assets. Under state trust laws, we are allowed to charge the trust a fee for advising on the investment of the trust assets and these fees are recognized as income in the period in which services are provided.
Balances due on undelivered preneed funeral trust contracts have been reclassified to reduce Deferred preneed funeral revenue on our Consolidated Balance Sheet of $8.9 million and $8.2 million at December 31, 2019 and December 31, 2020, respectively. As these performance obligations are to be completed after the date of death, we cannot quantify the recognition of revenue in future periods. However, we estimate an average maturity period of ten years for preneed funeral contracts.
Balances due from customers on delivered preneed cemetery contracts are included in Accounts receivable, net and Preneed cemetery receivables, net on our Consolidated Balance Sheet. Balances due on undelivered preneed cemetery contracts have been reclassified to reduce Deferred preneed cemetery revenue on our Consolidated Balance Sheet. The transaction price allocated to preneed merchandise and service performance obligations that were unfulfilled was $4.8 million and $7.9 million at December 31, 2019 and December 31, 2020, respectively. As these performance obligations are to be completed after the date of death, we cannot quantify the recognition of revenue in future periods. However, we estimate an average maturity period of eight years for preneed cemetery contracts.
See Notes 21 to the Consolidated Financial Statements herein for additional information related to revenue.
Income Taxes
We and our subsidiaries file a consolidated U. S. federal income tax return, separate income tax returns in 15 states and combined or unitary income tax returns in 14 states. We record deferred taxes for temporary differences between the tax basis and financial reporting basis of assets and liabilities. We classify our deferred tax liabilities and assets as non-current on our Consolidated Balance Sheet.
We record a valuation allowance to reflect the estimated amount of deferred tax assets for which realization is uncertain. Management reviews the valuation allowance at the end of each quarter and makes adjustments if it is determined that it is more likely than not that the tax benefits will be realized.
We analyze tax benefits for uncertain tax positions and how they are to be recognized, measured, and derecognized in the financial statements; provide certain disclosures of uncertain tax matters; and specify how reserves for uncertain tax positions should be classified on our Consolidated Balance Sheet.
The recently passed Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) has certain provisions that are applicable to the Company as follows:
(i) allowing net operating losses (“NOLs”) arising in 2018, 2019 and 2020 to be carried back five years;
(ii) increasing the taxable income threshold on the interest deduction from 30% to 50% for tax years beginning in 2019 and 2020;
(iii) suspending payment requirements for the 6.2% employer portion of Social Security taxes from the date of enactment through the end of 2020, with half the balance due by the end of 2021, and the other half due by the end of 2022; and
(iv) our ability to receive employee retention credits up to $5,000 for paying wages to employees who are unable to work, while business operations are suspended.
In connection with the CARES Act, we filed a claim for a refund on June 30, 2020, to carryback the NOLs generated in the tax year ended December 31, 2018. The refund claim from the 2018 tax year was received on August 7, 2020. An additional carryback claim for a refund was filed on November 3, 2020 for the tax year ended December 31, 2019. The refund from this filing has not yet been received. On December 4, 2020, Carriage filed an amended federal return for the tax year ended December 31, 2018, in order to take full advantage of the CARES Act legislative changes. The changes reported in the amended return resulted in additional $2.3 million of loss. The additional losses generated from the amended filing will be administratively carried back and processed as part of the Joint Committee review of the 2018 carryback claim.
The majority of the NOLs generated in tax years 2018 and 2019 are the result of filing non-automatic accounting method changes relating to the recognition of revenue from our cemetery property and merchandise and services sales. Due to the uncertainty of the timing of receiving Internal Revenue Service (“IRS”) approval of the method change applications, a reserve has been recorded against the net cash tax benefit derived from carrying back the NOLs generated to tax years in which the enacted federal rate was 35%. The Company's unrecognized tax benefit reserve for the years ended December 31, 2019 and 2020 was $0.7 million and $3.7 million, respectively. There was no reserve recorded at December 31, 2018.
Additional benefits stemming from the CARES Act are the deferral of approximately $3.5 million of the 6.2% employer portion of Social Security taxes and approximately $0.4 million employer retention credits for qualifying wages paid to employees unable to work due to governmental restrictions.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
See Note 17 to the Consolidated Financial Statements included herein for additional information related to income taxes.
Computation of Earnings Per Common Share
Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of stock options and our Convertible Notes (as defined in Note 13).
Share-based awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are recognized as participating securities and included in the computation of both basic and diluted earnings per share. Our grants of stock awards to our employees are considered participating securities, and we have prepared our earnings per share calculations attributable to common stockholders to exclude earnings allocated to unvested restricted stock awards, using the two-class method, in both the basic and diluted weighted average shares outstanding calculation.
The fully diluted weighted average shares outstanding for the years ended December 31, 2018, 2019 and 2020, and the corresponding calculation of fully diluted earnings per share, included 337,000, 10,000 and 9,000 shares that would have been issued upon the conversion of our Convertible Notes as a result of the application of the if-converted method prescribed by the FASB ASC 260.
See Note 20 to the Consolidated Financial Statements included herein related to the computation of per share earnings.
Correction of Immaterial Error
During the fourth quarter of 2020, we corrected an immaterial error related to the net unrealized gains and losses associated with our trust investments. We previously recognized the net unrealized gains and losses associated with our trust investments in Accumulated other comprehensive income (“OCI”). In accordance with ASC 810, the fair value of our trust fund assets are accounted for as CFEs. We have determined the fair value of the financial assets of the trust is more observable and we first measure those financial assets at fair value. Our fair value of the financial liabilities mirror the fair value of the financial assets, in accordance with the ASC. Any changes in fair value are recognized in earnings. As such, we have made the adjustment to reflect changes in unrealized gains and losses related to our trust securities in Other, net on our Consolidated Statements of Operations.
The net unrealized gains and losses in our Preneed cemetery trust investments, Preneed funeral trust investments and Cemetery perpetual care trust investments are equally offset by the net unrealized gains and losses in our Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus, which results in a net impact of zero.
Management evaluated the effect of the adjustment on previously issued interim and annual Consolidated Financial Statements and concluded that it was immaterial to the interim and annual periods. This adjustment had no impact on our Consolidated Balance Sheet, Consolidated Statements of Operations and Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2019.
Subsequent Events
We have evaluated events and transactions during the period subsequent to December 31, 2020 through the date the financial statements were issued for potential recognition or disclosure in the accompanying financial statements covered by this report.
See Note 25 to the Consolidated Financial Statements included herein for additional information related to subsequent events.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. RECENTLY ISSUED ACCOUNTING STANDARDS
Fair Value Measurements
In August 2018, the FASB issued ASU, Fair Value Measurements (“Topic 820”) to modify the disclosure requirements related to fair value. The amendment removes requirements to disclose (1) the amount of and reasons for transfers between levels 1 and 2 of the fair value hierarchy, (2) our policy related to the timing of transfers between levels, and (3) the valuation processes used in level 3 measurements. It clarifies that, for investments measured at net asset value, disclosure of liquidation timing is only required if the investee has communicated the timing either to us or publicly. It also clarifies that the narrative disclosure of the effect of changes in level 3 inputs should be based on changes that could occur at the reporting date. The amendment adds a requirement to disclose the range and weighted average of the significant unobservable inputs used in level 3 measurements. On January 1, 2020, we adopted the new standard and the impact was not material our Consolidated Financial Statements.
Financial Instruments - Credit Losses
On January 1, 2020, we adopted Topic 326 using the modified retrospective method and the impact was not material to our Consolidated Financial Statements. See Notes 6 and 7 to the Consolidated Financial Statements herein for additional disclosures required by Topic 326.
Income Taxes
In December 2019, the FASB issued ASU, Income Taxes (“Topic 740”). The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions such as (1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income) and (2) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.
In addition, the ASU allows for the following (1) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, (2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, (3) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date and (4) making minor codification improvements for income taxes related to employee stock ownership plans accounted for using the equity method. On January 1, 2020, we early adopted the provisions of this ASU using the prospective method and the impact was not material to our Consolidated Financial Statements.
Accounting Pronouncements Not Yet Adopted
Reference Rate Reform
In March 2020, the FASB issued ASU, Reference Rate Reform (“Topic 848”) to provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference London InterBank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company did not utilize the optional expedients and exceptions provided by this ASU during the year ended December 31, 2020.
3. ACQUISITIONS
On January 3, 2020, we acquired one funeral home and cemetery combination business in Lafayette, California for $33.0 million in cash, of which $5.0 million was deposited in escrow in 2019 and $28.0 million was paid at closing in 2020. We acquired substantially all of the assets and assumed certain operating liabilities of these businesses.
The pro forma impact of this acquisition on prior periods is not presented, as the impact is not significant to our reported results. The results of the acquired business are reflected on our Consolidated Statements of Operations from the date of acquisition.
Subsequent to our initial purchase price allocation for this acquisition made during the first quarter of 2020, we have adjusted our purchase price allocation based on additional information which became available prior to December 31, 2020.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the breakdown of the purchase price allocation for our 2020 acquisition (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Purchase Price Allocation
|
|
Adjustments
|
|
Adjusted Purchase Price Allocation
|
Current assets
|
$
|
2,662
|
|
|
$
|
108
|
|
|
$
|
2,770
|
|
Trust investments
|
9,089
|
|
|
—
|
|
|
9,089
|
|
Property, plant & equipment
|
1,720
|
|
|
—
|
|
|
1,720
|
|
Cemetery property
|
14,753
|
|
|
82
|
|
|
14,835
|
|
Goodwill
|
12,916
|
|
|
500
|
|
|
13,416
|
|
Intangible and other non-current assets
|
2,506
|
|
|
(628)
|
|
|
1,878
|
|
Assumed liabilities
|
(489)
|
|
|
$
|
—
|
|
|
$
|
(489)
|
|
Deferred tax liability
|
(527)
|
|
|
(5)
|
|
|
(532)
|
|
Trust liabilities
|
(9,089)
|
|
|
—
|
|
|
(9,089)
|
|
Deferred revenue
|
(541)
|
|
|
(57)
|
|
|
(598)
|
|
Purchase price
|
$
|
33,000
|
|
|
$
|
—
|
|
|
$
|
33,000
|
|
The current assets primarily relate to preneed cemetery receivables. The intangible and other non-current assets primarily relate to the fair value of tradenames. The assumed liabilities primarily relate to the obligations associated with delivered preneed merchandise that were not paid for prior to acquisition. The goodwill recorded for our 2020 acquisition is expected to be deductible for tax purposes. As of December 31, 2020, our accounting for our 2020 acquisition is complete.
On October 9, 2019, we acquired four funeral home businesses in Buffalo, New York for $15.3 million in cash. On October 28, 2020, we acquired one funeral home and cemetery combination business, three funeral home businesses and three ancillary service businesses, which consist of a flower shop, a pet cremation business and an online cremation business, in the Rockwall, Texas area for $23.6 million in cash.
On December 31, 2019, pursuant to the Transactions Agreement dated November 25, 2019 with Calvary Memorial Park, Inc. and Fairfax Memorial Funeral Home, LLC, all of the outstanding equity interests of one funeral and cemetery combination business in Fairfax, Virginia were acquired for $102.0 million in cash.
The following table summarizes the fair value of the assets acquired for our 2020 acquisition (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition Date
|
|
Type of Business
|
|
Market
|
|
Assets
Acquired
(Excluding
Goodwill)
|
|
Goodwill
Recorded
|
|
Liabilities
and Debt
Assumed
|
January 3, 2020
|
|
One Funeral Home and Cemetery Combination
|
|
Lafayette, CA
|
|
$
|
30,292
|
|
|
$
|
13,416
|
|
|
$
|
(10,708)
|
|
We recorded adjustments to the purchase price allocation for our 2019 acquisitions during the year ended December 31, 2020. The following table summarizes the breakdown of the purchase price allocation for these businesses and the subsequent adjustments made based on additional information which became available subsequent to the acquisitions (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Purchase Price Allocation
|
|
Adjustments
|
|
Adjusted Purchase Price Allocation
|
Current assets
|
$
|
1,482
|
|
|
$
|
204
|
|
|
$
|
1,686
|
|
Trust investments
|
15,891
|
|
|
—
|
|
|
15,891
|
|
Property, plant & equipment
|
21,680
|
|
|
—
|
|
|
21,680
|
|
Cemetery property
|
11,994
|
|
|
(45)
|
|
|
11,949
|
|
Goodwill
|
99,344
|
|
|
638
|
|
|
99,982
|
|
Intangible and other non-current assets
|
8,269
|
|
|
(1,480)
|
|
|
6,789
|
|
Assumed liabilities
|
(657)
|
|
|
(145)
|
|
|
(802)
|
|
Trust liabilities
|
(15,463)
|
|
|
—
|
|
|
(15,463)
|
|
Deferred revenue
|
(1,633)
|
|
|
992
|
|
|
(641)
|
|
Purchase price
|
$
|
140,907
|
|
|
$
|
164
|
|
|
$
|
141,071
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During the year ended December 31, 2020, we paid an additional $164,000 for our acquisition of the cemetery business in Fairfax, Virginia to reimburse the sellers for certain incremental taxes resulting from the 338(h)(10) election under the Internal Revenue Code. We also received $153,000 in cash related to the closing of all operating bank accounts in place prior to the acquisition. The goodwill recorded for our 2019 acquisitions is expected to be deductible for tax purposes. As of December 31, 2020, our accounting for our 2019 acquisitions is complete.
The following table summarizes the fair value of the assets acquired for our 2019 acquisitions based on our final purchase price allocation (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition Date
|
|
Type of Business
|
|
Market
|
|
Assets
Acquired
(Excluding
Goodwill)
|
|
Goodwill
Recorded
|
|
Liabilities
and Debt
Assumed
|
October 9, 2019
|
|
Four Funeral Homes
|
|
Buffalo, NY
|
|
$
|
7,942
|
|
|
$
|
7,340
|
|
|
$
|
—
|
|
October 28, 2019
|
|
One Funeral Home and Cemetery Combination, Three Funeral Homes and Three Ancillary Businesses
|
|
Rockwall, TX
|
|
$
|
15,878
|
|
|
$
|
14,226
|
|
|
$
|
(6,479)
|
|
December 31, 2019
|
|
One Funeral Home and Cemetery Combination
|
|
Fairfax, VA
|
|
$
|
34,175
|
|
|
$
|
78,416
|
|
|
$
|
(10,427)
|
|
4. GOODWILL
Many of the former owners and staff of our acquired funeral homes and certain cemeteries have provided high quality service to families for generations, which often represents a substantial portion of the value of a business. The excess of the purchase price over the fair value of identifiable net assets of funeral home businesses and cemeteries acquired is recorded as goodwill.
Our goodwill has an indefinite life and is not subject to amortization. As such, we test goodwill for impairment on an annual basis as of August 31st each year. In addition to our annual test, we assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value of a reporting unit may be greater than fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant negative industry or economic trends and significant adverse changes in the business climate, which may be indicated by a decline in our market capitalization or decline in operating results.
As a result of economic conditions caused by COVID-19, we performed a quantitative assessment of our goodwill at March 31, 2020 and we recorded an impairment to goodwill of $13.6 million during the quarter ended March 31, 2020 recorded in Net loss on divestitures and impairment charges, as the carrying amount of our funeral homes in the Eastern Region Reporting Unit exceeded the fair value.
For our 2020 annual impairment test, we performed a qualitative assessment and determined that there was no additional impairment to goodwill as the fair value of our reporting units was greater than the carrying value.
The following table presents changes in goodwill in the accompanying Consolidated Balance Sheet (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2020
|
Goodwill at the beginning of year
|
$
|
303,887
|
|
|
$
|
398,292
|
|
Net increase in goodwill related to acquisitions
|
99,344
|
|
|
14,054
|
|
Decrease in goodwill related to divestitures
|
(4,197)
|
|
|
(5,736)
|
|
Decrease in goodwill related to impairments
|
(742)
|
|
|
(13,632)
|
|
Goodwill at the end of the year
|
$
|
398,292
|
|
|
$
|
392,978
|
|
During the year ended December 31, 2020, we recognized $14.1 million in goodwill related to our acquisitions; $10.4 million was allocated to our cemetery segment and $3.7 million was allocated to our funeral home segment.
In addition, we allocated $5.7 million of goodwill to the sale of five funeral homes for a loss recorded in Net loss on divestitures and impairment charges. Goodwill is only allocated to the sale if the set is considered to be a business. When we divest a portion of a reporting unit that constitutes a business in accordance with U.S. GAAP, we allocate goodwill associated with that business to be included in the gain or loss on divestiture. When divesting a business, goodwill is allocated based on the relative fair values of the business being divested and the portion of the reporting unit that will be retained.
During the year ended December 31, 2019, we recognized $99.3 million in goodwill related to our acquisitions; $36.9 million was allocated to our cemetery segment and $62.4 million was allocated to our funeral home segment.
In addition, we allocated $4.2 million of goodwill to the sale of a funeral home for a loss recorded in Net loss on divestitures and impairment charges. We also recorded a goodwill impairment of $0.7 million during 2019 related to two funeral homes that we divested which was recorded as a loss in Net loss on divestitures and impairment charges.
See Notes 1, 3 and 5 to the Consolidated Financial Statements included herein, for a discussion of the methodology used for our annual goodwill impairment test and a discussion of our acquisitions and divestitures, respectively.
5. DIVESTED OPERATIONS
During 2020, we sold eight funeral homes for $8.4 million. During 2019, we divested three funeral homes whose building leases expired and sold a funeral home for $0.9 million. In addition, we merged a funeral home with a business in an existing market. During 2018, our management agreement with a Florida municipality expired and as a result, we divested three of our cemeteries.
The operating results of these divested funeral homes and cemeteries are reflected on our Consolidated Statements of Operations as shown in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2019
|
|
2020
|
Revenue
|
$
|
4,712
|
|
|
$
|
805
|
|
|
$
|
2,643
|
|
|
|
|
|
|
|
Operating income (loss)
|
1,130
|
|
|
(569)
|
|
|
159
|
|
Net loss on divestitures(1)
|
(349)
|
|
|
(3,883)
|
|
|
(6,749)
|
|
Income tax benefit (expense)
|
(246)
|
|
|
1,288
|
|
|
2,135
|
|
Net income (loss) from divested operations, after tax
|
$
|
535
|
|
|
$
|
(3,164)
|
|
|
$
|
(4,455)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net loss on divestitures is recorded in Net loss on divestitures and impairment charges on our Consolidated Statements of Operations.
|
6.RECEIVABLES
Accounts Receivable
Accounts receivable is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Funeral
|
|
Cemetery
|
|
Corporate
|
|
Total
|
Trade and financed receivables
|
$
|
11,448
|
|
|
$
|
12,230
|
|
|
$
|
—
|
|
|
$
|
23,678
|
|
Other receivables
|
367
|
|
|
2,144
|
|
|
201
|
|
|
2,712
|
|
Allowance for credit losses
|
(327)
|
|
|
(960)
|
|
|
—
|
|
|
(1,287)
|
|
Accounts receivable, net
|
$
|
11,488
|
|
|
$
|
13,414
|
|
|
$
|
201
|
|
|
$
|
25,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Funeral
|
|
Cemetery
|
|
Corporate
|
|
Total
|
Trade and financed receivables
|
$
|
10,046
|
|
|
$
|
10,508
|
|
|
$
|
—
|
|
|
$
|
20,554
|
|
Other receivables
|
935
|
|
|
157
|
|
|
681
|
|
|
1,773
|
|
Allowance for bad debt
|
(223)
|
|
|
(626)
|
|
|
—
|
|
|
(849)
|
|
Accounts receivable, net
|
$
|
10,758
|
|
|
$
|
10,039
|
|
|
$
|
681
|
|
|
$
|
21,478
|
|
Other receivables include supplier rebates, commissions due from third party insurance companies and perpetual care income receivables. We do not provide an allowance for credit losses for these receivables as we have historically not had any collectability issues nor do we expect any in the foreseeable future.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the activity in our allowance for credit losses by portfolio segment for the year ended December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2020
|
|
Provision for Credit Losses
|
|
Allowance Recorded at Acquisition
|
|
Write Offs
|
|
Recoveries
|
|
December 31, 2020
|
Trade and financed receivables:
|
|
|
|
|
|
|
|
|
|
|
|
Funeral
|
$
|
(223)
|
|
|
$
|
(1,142)
|
|
|
$
|
—
|
|
|
$
|
2,115
|
|
|
$
|
(1,077)
|
|
|
$
|
(327)
|
|
Cemetery
|
(626)
|
|
|
(475)
|
|
|
(193)
|
|
|
334
|
|
|
—
|
|
|
(960)
|
|
Total allowance for credit losses on Trade and financed receivables
|
$
|
(849)
|
|
|
$
|
(1,617)
|
|
|
$
|
(193)
|
|
|
$
|
2,449
|
|
|
$
|
(1,077)
|
|
|
$
|
(1,287)
|
|
As noted in Note 3, we acquired preneed cemetery receivables in connection with the funeral home and cemetery combination business in Lafayette, California acquired on January 3, 2020. We recorded an allowance for credit losses of $0.4 million on these acquired receivables ($0.2 million current portion shown above in Accounts receivable, net and $0.2 million non-current portion shown below in Preneed cemetery receivables, net as noted in the respective allowance rollforward tables under Allowance Recorded at Acquisition). We accounted for the allowance for credit losses on these purchased financed assets using specific identification as these assets have a unique set of risk characteristics. For these specifically identified receivables, we determined the allowance to be 60% of the face value.
Bad debt expense for accounts receivable totaled $1.1 million for both the years ended December 31, 2018 and 2019.
Preneed Cemetery Receivables
Our preneed cemetery receivables are comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2020
|
Cemetery interment rights
|
$
|
31,366
|
|
|
$
|
36,696
|
|
Cemetery merchandise and services
|
9,950
|
|
|
10,526
|
|
Cemetery financed receivables
|
$
|
41,316
|
|
|
$
|
47,222
|
|
The components of our preneed cemetery receivables are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2020
|
Preneed cemetery receivables
|
$
|
41,316
|
|
|
$
|
47,222
|
|
Less: unearned finance charges
|
(4,522)
|
|
|
(4,348)
|
|
Preneed cemetery receivables, at amortized cost
|
$
|
36,794
|
|
|
$
|
42,874
|
|
Less: allowance for bad debt and credit losses
|
(1,916)
|
|
|
(2,604)
|
|
Less: balances due on undelivered cemetery preneed contracts
|
(4,823)
|
|
|
(7,919)
|
|
Less: amounts in accounts receivable
|
(9,882)
|
|
|
(11,270)
|
|
Preneed cemetery receivables, net
|
$
|
20,173
|
|
|
$
|
21,081
|
|
The following table summarizes the activity in our allowance for credit losses for Preneed cemetery receivables, net for the year ended December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2020
|
|
Provision for Credit Losses
|
|
Allowance Recorded at Acquisition
|
|
Write Offs
|
|
December 31, 2020
|
Total allowance for credit losses on Preneed cemetery receivables, net
|
$
|
(1,290)
|
|
|
$
|
(701)
|
|
|
$
|
(171)
|
|
|
$
|
518
|
|
|
$
|
(1,644)
|
|
Bad debt expense for our preneed receivables totaled $0.7 million and $0.5 million for the years ended December 31, 2018 and 2019, respectively.
The amortized cost basis of our preneed cemetery receivables by year of origination as of December 31, 2020 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Prior
|
|
Total
|
Total preneed cemetery receivables, at amortized cost
|
$
|
20,056
|
|
|
$
|
10,593
|
|
|
$
|
5,820
|
|
|
$
|
3,387
|
|
|
$
|
1,431
|
|
|
$
|
1,587
|
|
|
$
|
42,874
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The aging of past due preneed cemetery receivables as of December 31, 2020 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31-60
Past Due
|
|
61-90
Past Due
|
|
91-120
Past Due
|
|
>120
Past Due
|
|
Total Past
Due
|
|
Current
|
|
Total Financing
Receivables
|
Recognized revenue
|
$
|
759
|
|
|
$
|
348
|
|
|
$
|
174
|
|
|
$
|
1,763
|
|
|
$
|
3,044
|
|
|
$
|
32,219
|
|
|
$
|
35,263
|
|
Deferred revenue
|
220
|
|
|
130
|
|
|
42
|
|
|
557
|
|
|
949
|
|
|
11,010
|
|
|
11,959
|
|
Total contracts
|
$
|
979
|
|
|
$
|
478
|
|
|
$
|
216
|
|
|
$
|
2,320
|
|
|
$
|
3,993
|
|
|
$
|
43,229
|
|
|
$
|
47,222
|
|
The aging of past due preneed cemetery receivables as of December 31, 2019 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31-60
Past Due
|
|
61-90
Past Due
|
|
91-120
Past Due
|
|
>120
Past Due
|
|
Total Past
Due
|
|
Current
|
|
Total Financing
Receivables
|
Recognized revenue
|
$
|
745
|
|
|
$
|
392
|
|
|
$
|
148
|
|
|
$
|
1,209
|
|
|
$
|
2,494
|
|
|
$
|
28,382
|
|
|
$
|
30,876
|
|
Deferred revenue
|
219
|
|
|
121
|
|
|
147
|
|
|
302
|
|
|
789
|
|
|
9,651
|
|
|
10,440
|
|
Total contracts
|
$
|
964
|
|
|
$
|
513
|
|
|
$
|
295
|
|
|
$
|
1,511
|
|
|
$
|
3,283
|
|
|
$
|
38,033
|
|
|
$
|
41,316
|
|
7. TRUST INVESTMENTS
Preneed trust investments represent trust fund assets that we are generally permitted to withdraw as the services and merchandise are provided to customers. Preneed funeral and cemetery contracts are secured by payments from customers, less amounts not required by law to be deposited into trust. These earnings are recognized in Other revenue on the Consolidated Statements of Operations, when a service is performed or merchandise is delivered. Trust management fees charged by CSV RIA are included as revenue in the period in which they are earned. Our investments are diversified across multiple industry segments using a balanced allocation strategy to minimize long-term risk. We do not intend to sell and it is likely that we will not be required to sell the securities prior to their anticipated recovery.
Cemetery perpetual care trust investments represent a portion of the proceeds from the sale of cemetery property interment rights which we are required by various state laws to deposit into perpetual care trust funds. The income earned from these perpetual care trusts offsets maintenance expenses for cemetery property and memorials. This trust fund income is recognized in Other revenue.
Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy. Our Level 1 investments include cash, U.S. treasury debt, common stock and equity mutual funds. Where quoted market prices are not available for the specific security, then fair values are estimated by using quoted prices of similar securities in active markets or inputs other than quoted prices that can corroborate observable market data. These investments are fixed income securities, including foreign debt, corporate debt, preferred stocks, mortgage-backed securities and fixed income mutual funds and other investments, all of which are classified within Level 2 of the valuation hierarchy. We review and update our fair value hierarchy classifications quarterly. See Note 10 to the Consolidated Financial Statements included herein for further information of the fair value measurement.
Changes in the fair value of our trust fund assets (Preneed funeral, cemetery and perpetual care trust investments) are offset by changes in the fair value of our trust fund liabilities (Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus) and reflected in Other, net. There is no impact on earnings until such time the services are performed or the merchandise is delivered, causing the contract to be withdrawn from the trust in accordance with state regulations and the gain or loss is allocated to the contract.
For fixed income securities in an unrealized loss position, we first assess whether we intend to sell or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For fixed income securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If our assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any unrealized loss that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.
We rely on our trust investments to provide funding for the various contractual obligations that arise upon maturity of the underlying preneed contracts. Because of the long-term relationship between the establishment of trust investments and the required performance of the underlying contractual obligations, the impact of current market conditions that may exist at any given time is not necessarily indicative of our ability to generate profit on our future performance obligations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Preneed Cemetery Trust Investments
The components of Preneed cemetery trust investments on our Consolidated Balance Sheet are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2020
|
Preneed cemetery trust investments, at market value
|
$
|
74,572
|
|
|
$
|
89,081
|
|
Less: allowance for contract cancellation
|
(2,190)
|
|
|
(2,477)
|
|
Preneed cemetery trust investments
|
$
|
72,382
|
|
|
$
|
86,604
|
|
The cost and fair market values associated with preneed cemetery trust investments at December 31, 2020 are detailed below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy Level
|
|
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair Market Value
|
Cash and money market accounts
|
1
|
|
$
|
1,859
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,859
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign debt
|
2
|
|
15,953
|
|
|
2,083
|
|
|
(702)
|
|
|
17,334
|
Corporate debt
|
2
|
|
14,856
|
|
|
1,820
|
|
|
(358)
|
|
|
16,318
|
Preferred stock
|
2
|
|
11,886
|
|
|
980
|
|
|
(336)
|
|
|
12,530
|
Mortgage-backed securities
|
2
|
|
272
|
|
|
—
|
|
|
(159)
|
|
|
113
|
Common stock
|
1
|
|
30,253
|
|
|
7,642
|
|
|
(6,601)
|
|
|
31,294
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
Fixed Income
|
2
|
|
7,494
|
|
|
1,331
|
|
|
(185)
|
|
|
8,640
|
Trust securities
|
|
|
$
|
82,573
|
|
|
$
|
13,856
|
|
|
$
|
(8,341)
|
|
|
$
|
88,088
|
Accrued investment income
|
|
|
$
|
993
|
|
|
|
|
|
|
$
|
993
|
Preneed cemetery trust investments
|
|
|
|
|
|
|
|
|
$
|
89,081
|
Market value as a percentage of cost
|
|
|
|
|
|
|
|
|
106.7%
|
The estimated maturities of the fixed income securities (excluding mutual funds) included above are as follows (in thousands):
|
|
|
|
|
|
Due in one year or less
|
$
|
—
|
|
Due in one to five years
|
11,727
|
|
Due in five to ten years
|
9,810
|
|
Thereafter
|
24,758
|
|
Total fixed income securities
|
$
|
46,295
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The cost and market values associated with preneed cemetery trust investments at December 31, 2019 are detailed below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy Level
|
|
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair Market Value
|
Cash and money market accounts
|
1
|
|
$
|
5,729
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,729
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign debt
|
2
|
|
5,609
|
|
|
312
|
|
|
(243)
|
|
|
5,678
|
Corporate debt
|
2
|
|
16,916
|
|
|
1,044
|
|
|
(649)
|
|
|
17,311
|
Preferred stock
|
2
|
|
14,206
|
|
|
904
|
|
|
(164)
|
|
|
14,946
|
Mortgage-backed securities
|
2
|
|
517
|
|
|
—
|
|
|
(114)
|
|
|
403
|
Common stock
|
1
|
|
28,569
|
|
|
2,766
|
|
|
(3,017)
|
|
|
28,318
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
Fixed Income
|
2
|
|
1,463
|
|
|
72
|
|
|
(85)
|
|
|
1,450
|
Trust Securities
|
|
|
$
|
73,009
|
|
|
$
|
5,098
|
|
|
$
|
(4,272)
|
|
|
$
|
73,835
|
Accrued investment income
|
|
|
$
|
737
|
|
|
|
|
|
|
$
|
737
|
Preneed cemetery trust investments
|
|
|
|
|
|
|
|
|
$
|
74,572
|
Market value as a percentage of cost
|
|
|
|
|
|
|
|
|
101.1%
|
The following table summarized our fixed income securities (excluding mutual funds) within our preneed cemetery trust investments in an unrealized loss position at December 31, 2020, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
In Loss Position Less than 12 months
|
|
In Loss Position Greater than 12 months
|
|
Total
|
|
Fair market value
|
|
Unrealized Losses
|
|
Fair market value
|
|
Unrealized Losses
|
|
Fair market value
|
|
Unrealized Losses
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign debt
|
$
|
2,517
|
|
|
$
|
(57)
|
|
|
$
|
371
|
|
|
$
|
(645)
|
|
|
$
|
2,888
|
|
|
$
|
(702)
|
|
Corporate debt
|
784
|
|
|
(99)
|
|
|
542
|
|
|
(259)
|
|
|
1,326
|
|
|
(358)
|
|
Preferred stock
|
709
|
|
|
(118)
|
|
|
4,049
|
|
|
(218)
|
|
|
4,758
|
|
|
(336)
|
|
Mortgage-backed securities
|
—
|
|
|
—
|
|
|
112
|
|
|
(159)
|
|
|
112
|
|
|
(159)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed income securities with an unrealized loss
|
$
|
4,010
|
|
|
$
|
(274)
|
|
|
$
|
5,074
|
|
|
$
|
(1,281)
|
|
|
$
|
9,084
|
|
|
$
|
(1,555)
|
|
The following table summarized our fixed income securities within our preneed cemetery trust investments in an unrealized loss position at December 31, 2019, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
In Loss Position Less than 12 months
|
|
In Loss Position Greater than 12 months
|
|
Total
|
|
Fair market value
|
|
Unrealized Losses
|
|
Fair market value
|
|
Unrealized Losses
|
|
Fair market value
|
|
Unrealized Losses
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign debt
|
$
|
268
|
|
|
$
|
(42)
|
|
|
$
|
758
|
|
|
$
|
(201)
|
|
|
$
|
1,026
|
|
|
$
|
(243)
|
|
Corporate debt
|
1,368
|
|
|
(168)
|
|
|
4,520
|
|
|
(481)
|
|
|
5,888
|
|
|
(649)
|
|
Preferred stock
|
4,135
|
|
|
(164)
|
|
|
—
|
|
|
—
|
|
|
4,135
|
|
|
(164)
|
|
Mortgage-backed securities
|
—
|
|
|
—
|
|
|
402
|
|
|
(114)
|
|
|
402
|
|
|
(114)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed income securities with an unrealized loss
|
$
|
5,771
|
|
|
$
|
(374)
|
|
|
$
|
5,680
|
|
|
$
|
(796)
|
|
|
$
|
11,451
|
|
|
$
|
(1,170)
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Preneed cemetery trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2018
|
|
2019
|
|
2020
|
Investment income
|
$
|
1,596
|
|
|
$
|
1,743
|
|
|
$
|
2,175
|
|
Realized gains
|
4,546
|
|
|
6,353
|
|
|
8,922
|
|
Realized losses
|
(5,817)
|
|
|
(4,677)
|
|
|
(5,090)
|
|
Unrealized gains (losses), net
|
(6,610)
|
|
|
826
|
|
|
5,515
|
|
Expenses and taxes
|
(907)
|
|
|
(1,313)
|
|
|
(1,354)
|
|
Net change in deferred preneed cemetery receipts held in trust
|
7,192
|
|
|
(2,932)
|
|
|
(10,168)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Purchases and sales of investments in the preneed cemetery trusts are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2018
|
|
2019
|
|
2020
|
Purchases
|
$
|
(27,006)
|
|
|
$
|
(40,984)
|
|
|
$
|
(48,824)
|
|
Sales
|
39,180
|
|
|
29,635
|
|
|
41,178
|
|
Preneed Funeral Trust Investments
Preneed funeral trust investments represent trust fund assets that we are permitted to withdraw as services and merchandise are provided to customers. Preneed funeral contracts are secured by payments from customers, less retained amounts not required to be deposited into trust.
The components of Preneed funeral trust investments on our Consolidated Balance Sheet are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2020
|
Preneed funeral trust investments, at market value
|
$
|
99,246
|
|
|
$
|
104,166
|
|
Less: allowance for contract cancellation
|
(2,911)
|
|
|
(2,931)
|
|
Preneed funeral trust investments
|
$
|
96,335
|
|
|
$
|
101,235
|
|
The cost and fair market values associated with preneed funeral trust investments at December 31, 2020 are detailed below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy Level
|
|
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair Market Value
|
Cash and money market accounts
|
1
|
|
$
|
18,478
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18,478
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. treasury debt
|
1
|
|
819
|
|
|
6
|
|
|
—
|
|
|
825
|
Foreign debt
|
2
|
|
15,144
|
|
|
2,018
|
|
|
(634)
|
|
|
16,528
|
Corporate debt
|
2
|
|
13,292
|
|
|
1,638
|
|
|
(310)
|
|
|
14,620
|
Preferred stock
|
2
|
|
10,944
|
|
|
900
|
|
|
(298)
|
|
|
11,546
|
Mortgage-backed securities
|
2
|
|
293
|
|
|
1
|
|
|
(155)
|
|
|
139
|
Common stock
|
1
|
|
28,327
|
|
|
7,364
|
|
|
(6,052)
|
|
|
29,639
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income
|
2
|
|
6,475
|
|
|
1,198
|
|
|
(121)
|
|
|
7,552
|
Other investments
|
2
|
|
3,928
|
|
|
—
|
|
|
—
|
|
|
3,928
|
Trust securities
|
|
|
$
|
97,700
|
|
|
$
|
13,125
|
|
|
$
|
(7,570)
|
|
|
$
|
103,255
|
Accrued investment income
|
|
|
$
|
911
|
|
|
|
|
|
|
$
|
911
|
Preneed funeral trust investments
|
|
|
|
|
|
|
|
|
$
|
104,166
|
Market value as a percentage of cost
|
|
|
|
|
|
|
|
|
105.7%
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The estimated maturities of the fixed income securities (excluding mutual funds) included above are as follows (in thousands):
|
|
|
|
|
|
Due in one year or less
|
$
|
825
|
|
Due in one to five years
|
11,103
|
|
Due in five to ten years
|
8,615
|
|
Thereafter
|
23,115
|
|
Total fixed income securities
|
$
|
43,658
|
|
The cost and market values associated with preneed funeral trust investments at December 31, 2019 are detailed below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy Level
|
|
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair Market Value
|
Cash and money market accounts
|
1
|
|
$
|
24,160
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24,160
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
U.S. treasury debt
|
1
|
|
822
|
|
|
—
|
|
|
—
|
|
|
822
|
|
|
|
|
|
|
|
|
|
|
Foreign debt
|
2
|
|
5,587
|
|
|
309
|
|
|
(232)
|
|
|
5,664
|
Corporate debt
|
2
|
|
16,109
|
|
|
992
|
|
|
(646)
|
|
|
16,455
|
Preferred stock
|
2
|
|
14,094
|
|
|
874
|
|
|
(198)
|
|
|
14,770
|
Mortgage-backed securities
|
2
|
|
585
|
|
|
—
|
|
|
(117)
|
|
|
468
|
Common stock
|
1
|
|
27,652
|
|
|
2,773
|
|
|
(2,869)
|
|
|
27,556
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
Equity
|
1
|
|
772
|
|
|
617
|
|
|
(4)
|
|
|
1,385
|
Fixed income
|
2
|
|
4,364
|
|
|
107
|
|
|
(107)
|
|
|
4,364
|
Other investments
|
2
|
|
2,902
|
|
|
—
|
|
|
—
|
|
|
2,902
|
Trust securities
|
|
|
$
|
97,047
|
|
|
$
|
5,672
|
|
|
$
|
(4,173)
|
|
|
$
|
98,546
|
Accrued investment income
|
|
|
$
|
700
|
|
|
|
|
|
|
$
|
700
|
Preneed funeral trust investments
|
|
|
|
|
|
|
|
|
$
|
99,246
|
Market value as a percentage of cost
|
|
|
|
|
|
|
|
|
101.5%
|
The following table summarized our fixed income securities (excluding mutual funds) within our preneed funeral trust investment in an unrealized loss position at December 31, 2020, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
In Loss Position Less than 12 months
|
|
In Loss Position Greater than 12 months
|
|
Total
|
|
Fair market value
|
|
Unrealized Losses
|
|
Fair market value
|
|
Unrealized Losses
|
|
Fair market value
|
|
Unrealized Losses
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign debt
|
$
|
2,225
|
|
|
$
|
(55)
|
|
|
$
|
337
|
|
|
$
|
(579)
|
|
|
$
|
2,562
|
|
|
$
|
(634)
|
|
Corporate debt
|
763
|
|
|
(96)
|
|
|
528
|
|
|
(214)
|
|
|
1,291
|
|
|
(310)
|
|
Preferred stock
|
506
|
|
|
(87)
|
|
|
3,942
|
|
|
(211)
|
|
|
4,448
|
|
|
(298)
|
|
Mortgage-backed securities
|
—
|
|
|
—
|
|
|
111
|
|
|
(155)
|
|
|
111
|
|
|
(155)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed income securities with an unrealized loss
|
$
|
3,494
|
|
|
$
|
(238)
|
|
|
$
|
4,918
|
|
|
$
|
(1,159)
|
|
|
$
|
8,412
|
|
|
$
|
(1,397)
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarized our fixed income securities within our preneed funeral trust investment in an unrealized loss position at December 31, 2019, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
In Loss Position Less than 12 months
|
|
In Loss Position Greater than 12 months
|
|
Total
|
|
Fair market value
|
|
Unrealized Losses
|
|
Fair market value
|
|
Unrealized Losses
|
|
Fair market value
|
|
Unrealized Losses
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign debt
|
$
|
274
|
|
|
$
|
(43)
|
|
|
$
|
723
|
|
|
$
|
(189)
|
|
|
$
|
997
|
|
|
$
|
(232)
|
|
Corporate debt
|
1,403
|
|
|
(172)
|
|
|
4,433
|
|
|
(474)
|
|
|
5,836
|
|
|
(646)
|
|
Preferred stock
|
4,412
|
|
|
(198)
|
|
|
—
|
|
|
—
|
|
|
4,412
|
|
|
(198)
|
|
Mortgage-backed securities
|
—
|
|
|
—
|
|
|
439
|
|
|
(117)
|
|
|
439
|
|
|
(117)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed income securities with an unrealized loss
|
$
|
6,089
|
|
|
$
|
(413)
|
|
|
$
|
5,595
|
|
|
$
|
(780)
|
|
|
$
|
11,684
|
|
|
$
|
(1,193)
|
|
Preneed funeral trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2018
|
|
2019
|
|
2020
|
Investment income
|
$
|
1,623
|
|
|
$
|
1,753
|
|
|
$
|
1,907
|
|
Realized gains
|
6,662
|
|
|
6,214
|
|
|
9,441
|
|
Realized losses
|
(5,882)
|
|
|
(4,612)
|
|
|
(4,677)
|
|
Unrealized gains (losses), net
|
(6,727)
|
|
|
1,499
|
|
|
5,555
|
|
Expenses and taxes
|
(885)
|
|
|
(1,129)
|
|
|
(878)
|
|
Net change in deferred preneed funeral receipts held in trust
|
5,209
|
|
|
(3,725)
|
|
|
(11,348)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Purchases and sales of investments in the preneed funeral trusts are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2018
|
|
2019
|
|
2020
|
Purchases
|
$
|
(28,264)
|
|
|
$
|
(38,984)
|
|
|
$
|
(47,315)
|
|
Sales
|
39,955
|
|
|
29,983
|
|
|
43,270
|
|
Cemetery Perpetual Care Trust Investments
Care trusts’ corpus on our Consolidated Balance Sheet represent the corpus of those trusts plus undistributed income. The components of Care trusts’ corpus are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2020
|
Cemetery perpetual care trust investments, at market value
|
$
|
64,047
|
|
|
$
|
70,828
|
|
Obligations due from trust
|
(631)
|
|
|
(1,121)
|
|
Care trusts’ corpus
|
$
|
63,416
|
|
|
$
|
69,707
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table reflects the cost and fair market values associated with the trust investments held in perpetual care trust funds at December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy Level
|
|
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair Market Value
|
Cash and money market accounts
|
1
|
|
$
|
686
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
686
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
Foreign debt
|
2
|
|
12,539
|
|
|
1,641
|
|
|
(582)
|
|
|
13,598
|
Corporate debt
|
2
|
|
11,684
|
|
|
1,506
|
|
|
(240)
|
|
|
12,950
|
Preferred stock
|
2
|
|
10,444
|
|
|
819
|
|
|
(355)
|
|
|
10,908
|
Mortgage-backed securities
|
2
|
|
206
|
|
|
—
|
|
|
(121)
|
|
|
85
|
Common stock
|
1
|
|
23,662
|
|
|
6,108
|
|
|
(5,255)
|
|
|
24,515
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income
|
2
|
|
6,444
|
|
|
1,054
|
|
|
(220)
|
|
|
7,278
|
Trust securities
|
|
|
$
|
65,665
|
|
|
$
|
11,128
|
|
|
$
|
(6,773)
|
|
|
$
|
70,020
|
Accrued investment income
|
|
|
$
|
808
|
|
|
|
|
|
|
$
|
808
|
Cemetery perpetual care investments
|
|
|
|
|
|
|
|
|
$
|
70,828
|
Market value as a percentage of cost
|
|
|
|
|
|
|
|
|
106.6%
|
The estimated maturities of the fixed income securities (excluding mutual funds) included above are as follows (in thousands):
|
|
|
|
|
|
Due in one year or less
|
$
|
—
|
|
Due in one to five years
|
8,819
|
|
Due in five to ten years
|
7,789
|
|
Thereafter
|
20,933
|
|
Total fixed income securities
|
$
|
37,541
|
|
The following table reflects the cost and market values associated with the trust investments held in perpetual care trust funds at December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy Level
|
|
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair Market Value
|
Cash and money market accounts
|
1
|
|
$
|
4,624
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,624
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign debt
|
2
|
|
4,200
|
|
|
238
|
|
|
(175)
|
|
|
4,263
|
|
Corporate debt
|
2
|
|
11,658
|
|
|
802
|
|
|
(534)
|
|
|
11,926
|
|
Preferred stock
|
2
|
|
10,782
|
|
|
666
|
|
|
(106)
|
|
|
11,342
|
|
Mortgage-backed securities
|
2
|
|
324
|
|
|
—
|
|
|
(71)
|
|
|
253
|
|
Common stock
|
1
|
|
21,594
|
|
|
3,399
|
|
|
(1,911)
|
|
|
23,082
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
Equity
|
1
|
|
233
|
|
|
146
|
|
|
(1)
|
|
|
378
|
|
Fixed income
|
2
|
|
7,156
|
|
|
618
|
|
|
(107)
|
|
|
7,667
|
|
Trust securities
|
|
|
$
|
60,571
|
|
|
$
|
5,869
|
|
|
$
|
(2,905)
|
|
|
$
|
63,535
|
|
Accrued investment income
|
|
|
$
|
512
|
|
|
|
|
|
|
$
|
512
|
|
Cemetery perpetual care investments
|
|
|
|
|
|
|
|
|
$
|
64,047
|
|
Market value as a percentage of cost
|
|
|
|
|
|
|
|
|
104.9
|
%
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarized our fixed income securities (excluding mutual funds) within our perpetual care trust investment in an unrealized loss position at December 31, 2020, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
In Loss Position Less than 12 months
|
|
In Loss Position Greater than 12 months
|
|
Total
|
|
Fair market value
|
|
Unrealized Losses
|
|
Fair market value
|
|
Unrealized Losses
|
|
Fair market value
|
|
Unrealized Losses
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign debt
|
$
|
1,728
|
|
|
$
|
(43)
|
|
|
$
|
312
|
|
|
$
|
(539)
|
|
|
$
|
2,040
|
|
|
$
|
(582)
|
|
Corporate debt
|
592
|
|
|
(74)
|
|
|
410
|
|
|
(166)
|
|
|
1,002
|
|
|
(240)
|
|
Preferred stock
|
1,142
|
|
|
(191)
|
|
|
3,060
|
|
|
(164)
|
|
|
4,202
|
|
|
(355)
|
|
Mortgage-backed securities
|
—
|
|
|
—
|
|
|
85
|
|
|
(121)
|
|
|
85
|
|
|
(121)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed income securities with an unrealized loss
|
$
|
3,462
|
|
|
$
|
(308)
|
|
|
$
|
3,867
|
|
|
$
|
(990)
|
|
|
$
|
7,329
|
|
|
$
|
(1,298)
|
|
The following table summarized our fixed income securities within our perpetual care trust investment in an unrealized loss position at December 31, 2019, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
In Loss Position Less than 12 months
|
|
In Loss Position Greater than 12 months
|
|
Total
|
|
Fair market value
|
|
Unrealized Losses
|
|
Fair market value
|
|
Unrealized Losses
|
|
Fair market value
|
|
Unrealized Losses
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign debt
|
$
|
168
|
|
|
$
|
(26)
|
|
|
$
|
549
|
|
|
$
|
(149)
|
|
|
$
|
717
|
|
|
$
|
(175)
|
|
Corporate debt
|
1,057
|
|
|
(196)
|
|
|
3,253
|
|
|
(338)
|
|
|
4,310
|
|
|
(534)
|
|
Preferred stock
|
2,989
|
|
|
(106)
|
|
|
—
|
|
|
—
|
|
|
2,989
|
|
|
(106)
|
|
Mortgage-backed securities
|
—
|
|
|
—
|
|
|
252
|
|
|
(71)
|
|
|
252
|
|
|
(71)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed income securities with an unrealized loss
|
$
|
4,214
|
|
|
$
|
(328)
|
|
|
$
|
4,054
|
|
|
$
|
(558)
|
|
|
$
|
8,268
|
|
|
$
|
(886)
|
|
Perpetual care trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2018
|
|
2019
|
|
2020
|
Realized gains
|
$
|
1,364
|
|
|
$
|
1,663
|
|
|
$
|
2,602
|
|
Realized losses
|
(1,896)
|
|
|
(1,258)
|
|
|
(1,695)
|
|
Unrealized gains (losses), net
|
(4,405)
|
|
|
2,964
|
|
|
4,355
|
|
Net change in Care trusts’ corpus
|
4,937
|
|
|
(3,369)
|
|
|
(5,262)
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Perpetual care trust investment security transactions recorded in Other revenue are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2018
|
|
2019
|
|
2020
|
Investment income
|
$
|
5,934
|
|
|
$
|
4,500
|
|
|
$
|
8,461
|
|
Realized losses
|
(1,355)
|
|
|
(377)
|
|
|
(387)
|
|
Total
|
$
|
4,579
|
|
|
$
|
4,123
|
|
|
$
|
8,074
|
|
Purchases and sales of investments in the perpetual care trusts are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2018
|
|
2019
|
|
2020
|
Purchases
|
$
|
(17,313)
|
|
|
$
|
(26,573)
|
|
|
$
|
(38,168)
|
|
Sales
|
25,786
|
|
|
17,588
|
|
|
34,316
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. RECEIVABLES FROM PRENEED TRUSTS
Our receivables from preneed trusts represent assets in trusts which are controlled and operated by third parties in which we do not have a controlling financial interest (less than 50%) in the trust assets. We account for these investments at cost. Receivables from preneed trusts are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2020
|
Preneed trust funds, at cost
|
$
|
18,581
|
|
|
$
|
17,365
|
|
Less: allowance for contract cancellation
|
(557)
|
|
|
(521)
|
|
Receivables from preneed trusts, net
|
$
|
18,024
|
|
|
$
|
16,844
|
|
The following summary reflects the composition of the assets held in trust and controlled by third parties to satisfy our future obligations under preneed arrangements related to the preceding contracts at December 31, 2019 and 2020. The cost basis includes reinvested interest and dividends that have been earned on the trust assets. Fair value includes unrealized gains and losses on trust assets.
The composition of the preneed trust funds at December 31, 2020 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
Cost Basis
|
|
Fair Value
|
As of December 31, 2020
|
|
|
|
Cash and cash equivalents
|
$
|
4,604
|
|
|
$
|
4,604
|
|
Fixed income investments
|
10,355
|
|
|
10,355
|
|
Mutual funds and common stocks
|
2,402
|
|
|
2,569
|
|
Annuities
|
4
|
|
|
4
|
|
Total
|
$
|
17,365
|
|
|
$
|
17,532
|
|
The composition of the preneed trust funds at December 31, 2019 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
Cost Basis
|
|
Fair Value
|
As of December 31, 2019
|
|
|
|
Cash and cash equivalents
|
$
|
4,533
|
|
|
$
|
4,533
|
|
Fixed income investments
|
11,603
|
|
|
11,603
|
|
Mutual funds and common stocks
|
2,440
|
|
|
2,518
|
|
Annuities
|
5
|
|
|
5
|
|
Total
|
$
|
18,581
|
|
|
$
|
18,659
|
|
9. CONTRACTS FUNDED BY INSURANCE
When preneed funeral contracts are funded through third-party insurance policies, we earn a commission on the sale of the policies. Insurance commissions are subject to refund (charge-back) if the preneed policy is cancelled within a year or if there is an imminent death of beneficiary before the first year anniversary of the policy. We record these insurance commissions as Other revenue, as noted in our table of disaggregated revenue in Note 21 to the Consolidated Financial Statements included herein, when the commission is no longer subject to refund, which is typically one year after the policy is issued. All selling costs incurred pursuant to the sale of the insurance funded preneed contracts are expensed as incurred.
Generally, at the time of the sale of either the preneed insurance or preneed trust contract, the intent is that the beneficiary has made a commitment to assign the proceeds to us for the fulfillment of the service and merchandise obligations on the preneed contract at the time of need. However, this commitment is generally revocable and the proceeds from the policy are portable, so the customer can choose to use an alternative provider at the time of need.
Preneed funeral contracts to be funded at maturity by third-party insurance policies totaled $408.8 million and $395.4 million at December 31, 2019 and 2020, respectively, and are not recorded as assets or liabilities on our Consolidated Balance Sheet.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date applicable for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. We disclose the extent to which fair value is used to measure financial assets and liabilities, the inputs utilized in calculating valuation measurements, and the effect of the measurement of significant unobservable inputs on earnings, or changes in net assets, as of the measurement date.
We evaluated our financial assets and liabilities for those that met the criteria of the disclosure requirements and fair value framework. The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate the fair values of those instruments due to the short-term nature of the instruments. The fair values of our receivables on preneed cemetery contracts are impracticable to estimate because of the lack of a trading market and the diverse number of individual contracts with varying terms. Our acquisition debt and Credit Facility (as defined in Note 12), Convertible Notes (as defined in Note 13) and Senior Notes (as defined in Note 14) are classified within Level 2 of the Fair Value Measurements hierarchy.
At December 31, 2020, the carrying value and fair value of our Credit Facility was $47.2 million. We believe that our Credit Facility bears interest at a rate that approximates prevailing market rates for instruments with similar characteristics and therefore, the carrying value of our Credit Facility approximates fair value. We estimate the fair value of our acquisition debt utilizing an income approach, which uses a present value calculation to discount payments based on current market rates as of the reporting date. At December 31, 2020, the carrying value of our acquisition debt was $5.5 million, which approximated its fair value. The fair value of our Convertible Notes was approximately $3.7 million at December 31, 2020 based on the last traded or broker quoted price. The fair value of our Senior Notes was approximately $427.9 million at December 31, 2020 based on the last traded or broker quoted price.
We identified investments in fixed income securities, common stock and mutual funds presented within the preneed and perpetual care trust investments categories on our Consolidated Balance Sheet as having met the criteria for fair value measurement. Our receivables from preneed trusts represent assets in trusts which are controlled and operated by third parties in which we do not have a controlling financial interest (less than 50%) in the trust assets. We account for these investments at cost.
The following three-level valuation hierarchy based upon the transparency of inputs is utilized in the measurement and valuation of financial assets or liabilities as of the measurement date:
•Level 1—Fair value of securities based on unadjusted quoted prices for identical assets or liabilities in active markets. Our investments classified as Level 1 securities include cash, U.S. treasury debt, common stock and equity mutual funds;
•Level 2—Fair value of securities estimated based on quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted market prices that are observable or that can be corroborated by observable market data by correlation. These inputs include interest rates, yield curves, credit risk, prepayment speeds, rating and tax-exempt status. Our investments classified as Level 2 securities include foreign debt, corporate debt, preferred stocks, mortgage-backed securities and fixed income mutual funds and other investments.
•Level 3—Unobservable inputs based upon the reporting entity’s internally developed assumptions, which market participants would use in pricing the asset or liability. As of December 31, 2019 and 2020, we did not have any assets that had fair values determined by Level 3 inputs and no liabilities measured at fair value.
See Notes 7 and 8 to our Consolidated Financial Statements herein for additional information on the fair value hierarchy levels of our trust investments and receivables from preneed trusts, respectively.
11. INTANGIBLE AND OTHER NON-CURRENT ASSETS
Intangible and other non-current assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2020
|
Tradenames
|
$
|
25,233
|
|
|
$
|
23,565
|
|
Prepaid agreements not-to-compete, net of accumulated amortization of $7,195 and $3,193, respectively
|
3,915
|
|
|
2,785
|
|
Capitalized commissions on preneed contracts, net of accumulated amortization
of $1,127 and $1,594, respectively
|
2,818
|
|
|
3,141
|
|
|
|
|
|
Other
|
150
|
|
|
51
|
|
Intangible and other non-current assets, net
|
$
|
32,116
|
|
|
$
|
29,542
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Tradenames
Our tradenames have indefinite lives and therefore are not amortized. During the years ended December 31, 2019 and 2020, we increased tradenames by $7.8 million and $0.4 million, respectively, related to our 2019 and 2020 acquisitions described in Note 3 to the Consolidated Financial Statements included herein.
As a result of economic conditions caused by COVID-19, we performed a quantitative assessment of our tradenames at March 31, 2020 and we recorded an impairment to tradenames for certain of our funeral homes of $1.1 million during the quarter ended March 31, 2020 recorded in Net loss on divestitures and impairment charges, as the carrying amount of these tradenames exceeded the fair value.
During the year ended December 31, 2020, we divested four funeral homes that had a carrying value of tradenames of $1.0 million, which was included in the gain or loss on the sale of divestitures and recorded in Net loss on divestitures and impairment charges on our Consolidated Statements of Operations. During 2019, we recorded an impairment to tradenames of $0.2 million as a result of our 2019 annual impairment test as the carrying amount of certain tradenames exceeded the fair value. See Notes 1, 3 and 5 to the Consolidated Financial Statements included herein, for a discussion of the methodology used for our indefinite-lived intangible asset impairment test and discussion of our acquisitions and divestitures, respectively.
Prepaid Agreements
Prepaid agreements not-to-compete are amortized over the term of the respective agreements, ranging generally from one to ten years. Amortization expense was approximately $0.6 million, $0.7 million and $0.7 million for the years ended December 31, 2018, 2019 and 2020, respectively. During the year ended December 31, 2020, we divested three funeral homes that had a carrying value of prepaid agreements not-to-compete of $0.5 million, which was included in the gain or loss on the sale of divestitures and recorded in Net loss on divestitures and impairment charges on our Consolidated Statements of Operations. See Note 5 to the Consolidated Financial Statements included herein, for a discussion of our divestitures.
During the year ended December 31, 2019, we increased prepaid agreements not-to-compete by $0.4 million related to our 2019 acquisitions described in Note 3 to the Consolidated Financial Statements included herein.
Capitalized Commissions
We capitalize our selling costs related to preneed cemetery merchandise and services and preneed funeral trust contracts. These costs are amortized on a straight-line basis over the average maturity period for our preneed cemetery merchandise and services contracts and preneed funeral trust contracts, of eight and ten years, respectively. Amortization expense totaled $0.6 million for both the years ended December 31, 2019 and 2020.
The aggregate amortization expense for our non-compete agreements and capitalized commissions as of December 31, 2020 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Compete Agreements
|
|
Capitalized Commissions
|
Years ending December 31,
|
|
|
|
2021
|
$
|
618
|
|
|
$
|
589
|
|
2022
|
481
|
|
|
543
|
|
2023
|
434
|
|
|
488
|
|
2024
|
380
|
|
|
425
|
|
2025
|
373
|
|
|
359
|
|
Thereafter
|
499
|
|
|
737
|
|
Total amortization expense
|
$
|
2,785
|
|
|
$
|
3,141
|
|
12. CREDIT FACILITY AND ACQUISITION DEBT
On December 19, 2019, we entered into a third amendment and commitment increase to our $150.0 million senior secured revolving credit facility (“Credit Facility”) with the financial institutions party thereto, as lenders, and Bank of America, N.A., as administrative agent (in such capacity, the “Administrative Agent”) to increase our commitment to $190.0 million and incurred $0.9 million in transactions costs, which were capitalized and will be amortized over the remaining term of the related debt using the straight-line method.
At December 31, 2020, our Credit Facility was comprised of: (i) a $190.0 million revolving credit facility, including a $15.0 million subfacility for letters of credit and a $10.0 million swingline, and (ii) an accordion or incremental option allowing for future increases in the facility size by an additional amount of up to $75.0 million in the form of increased revolving commitments or incremental term loans. The final maturity of the Credit Facility will occur on May 31, 2023.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company’s obligations under the Credit Facility are unconditionally guaranteed on a joint and several basis by the same subsidiaries which guarantee the Senior Notes (as defined in Note 14) and certain of the Company’s Credit Facility Guarantors.
The Credit Facility is secured by a first-priority perfected security interest in and lien on substantially all of the Company’s personal property assets and those of the Credit Facility Guarantors (as defined below). In the event the Company’s actual Total Leverage Ratio is not at least 0.25 less than the required Total Leverage Ratio covenant level, at the discretion of the Administrative Agent, the Administrative Agent may unilaterally compel the Company and the Credit Facility Guarantors to grant and perfect first-priority mortgage liens on fee-owned real property assets which account for no less than 50% of funeral operations EBITDA.
The Credit Facility contains customary affirmative covenants, including, but not limited to, covenants with respect to the use of proceeds, payment of taxes and other obligations, continuation of the Company’s business and the maintenance of existing rights and privileges, the maintenance of property and insurance, amongst others.
In addition, the Credit Facility also contains customary negative covenants, including, but not limited to, covenants that restrict (subject to certain exceptions) the ability of the Company and its subsidiaries and party thereto as guarantors (the “Credit Facility Guarantors”) to incur additional indebtedness, grant liens on assets, make investments, engage in mergers and acquisitions, and pay dividends and other restricted payments, and certain financial covenants. At December 31, 2020, we were subject to the following financial covenants under our Credit Facility: (A) a Total Leverage Ratio not to exceed, (i) 5.75 to 1.00 for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020 and (ii) 5.50 to 1.00 for the quarter ended December 31, 2020 and each quarter ended thereafter, (B) a Senior Secured Leverage Ratio (as defined in the Credit Facility) not to exceed 2.00 to 1.00 as of the end of any period of four consecutive fiscal quarters, and (C) a Fixed Charge Coverage Ratio (as defined in the Credit Facility) of not less than 1.20 to 1.00 as of the end of any period of four consecutive fiscal quarters. These financial maintenance covenants are calculated for the Company and its subsidiaries on a consolidated basis.
On May 18, 2020, we received a limited waiver under our Credit Facility for the failure to comply with the Total Leverage Ratio covenant for the fiscal quarter ended March 31, 2020. In connection with the waiver, we also entered into a fourth amendment to the Credit Facility which increased the interest rate margin applicable to borrowings by up to 0.625% at each pricing level based on the Total Leverage Ratio. We did not incur any transaction costs related to the limited waiver and fourth amendment to the Credit Facility.
On August 7, 2020, we obtained a limited consent from the lenders under our Credit Facility in connection with our privately-negotiated repurchases of our Convertible Notes (as defined in Note 13). See Note 13 to the Consolidated Financial Statements included herein, for a discussion of our privately-negotiated repurchases.
We were in compliance with the total leverage ratio, fixed charge coverage ratio and senior secured leverage ratio covenants contained in our Credit Facility at December 31, 2020.
Our Credit Facility and Acquisition debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2020
|
Credit Facility
|
$
|
83,800
|
|
|
$
|
47,200
|
|
Debt issuance costs, net of accumulated amortization of $337 and $819, respectively
|
(1,618)
|
|
|
(1,136)
|
|
Total Credit Facility
|
$
|
82,182
|
|
|
$
|
46,064
|
|
|
|
|
|
Acquisition debt
|
$
|
6,964
|
|
|
$
|
5,509
|
|
Less: current portion
|
(1,306)
|
|
|
(1,027)
|
|
Total acquisition debt, net of current portion
|
$
|
5,658
|
|
|
$
|
4,482
|
|
At December 31, 2020, we had outstanding borrowings under the Credit Facility of $47.2 million. We had one letter of credit for $2.0 million issued on November 30, 2019 and outstanding under the Credit Facility, which was increased to $2.1 million on September 29, 2020. The letter of credit bears interest at 3.125% and will expire on November 26, 2021. The letter of credit automatically renews annually and secures our obligations under our various self-insured policies. At December 31, 2020, we had $140.7 million of availability under the Credit Facility after giving affect to the $2.1 million of the outstanding letter of credit.
Outstanding borrowings under our Credit Facility bear interest at either a prime rate or a LIBOR rate, plus an applicable margin based upon our leverage ratio. At December 31, 2020, the prime rate margin was equivalent to 1.5% and the LIBOR rate margin was 2.5%. The weighted average interest rate on our Credit Facility for the years ended December 31, 2019 and 2020 was 2.9% and 3.8%, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We have no material assets or operations independent of our subsidiaries. All assets and operations are held and conducted by subsidiaries, each of which have fully and unconditionally guaranteed our obligations under the Credit Facility. Additionally, we do not currently have any significant restrictions on our ability to receive dividends or loans from any Credit Facility Guarantors.
The interest expense and amortization of debt issuance costs related to our Credit Facility are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2018
|
|
2019
|
|
2020
|
Credit Facility interest expense
|
$
|
4,351
|
|
|
$
|
1,601
|
|
|
$
|
3,738
|
|
Credit Facility amortization of debt issuance costs
|
234
|
|
|
229
|
|
|
482
|
|
Acquisition debt consists of deferred purchase price and promissory notes payable to sellers. A majority of the deferred purchase price and notes bear no interest and are discounted at imputed interest rates ranging from 7.3% to 10.0%. Original maturities range from five to twenty years.
The imputed interest expense related to our acquisition debt are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2018
|
|
2019
|
|
2020
|
Acquisition debt imputed interest expense
|
$
|
791
|
|
|
$
|
622
|
|
|
$
|
489
|
|
The aggregate maturities of our Credit Facility and acquisition debt for the next five years subsequent to December 31, 2020 and thereafter, excluding debt issuance costs, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Facility
|
|
Acquisition Debt
|
Years ending December 31,
|
|
|
|
2021
|
$
|
—
|
|
|
$
|
1,386
|
|
2022
|
—
|
|
|
825
|
|
2023
|
47,200
|
|
|
825
|
|
2024
|
—
|
|
|
772
|
|
2025
|
—
|
|
|
772
|
|
Thereafter
|
—
|
|
|
3,332
|
|
Total Credit Facility and acquisition debt
|
$
|
47,200
|
|
|
$
|
7,912
|
|
Less: Interest
|
—
|
|
|
(2,403)
|
|
Present value of Credit Facility and acquisition debt
|
$
|
47,200
|
|
|
$
|
5,509
|
|
13. CONVERTIBLE SUBORDINATED NOTES
On March 19, 2014, we issued $143.75 million aggregate principal amount of our 2.75% convertible subordinated notes due 2021 (the “Convertible Notes”). The Convertible Notes are due on March 15, 2021 and bear interest at 2.75% per year, which is payable semi-annually in arrears on March 15 and September 15 of each year.
On May 7, 2018, we completed our exchange of approximately $115.0 million in aggregate principal amount of Convertible Notes in a privately-negotiated exchange agreement with a limited number of convertible noteholders. On December 24, 2018, we completed privately-negotiated repurchases of an additional $22.4 million in aggregate principal amount of Convertible Notes. On April 4, 2019, we completed a privately-negotiated repurchase of $25,000 in aggregate principal amount of Convertible Notes then outstanding for $27,163.
On September 9, 2020, we completed privately-negotiated repurchases of $3.8 million in aggregate principal amount of our Convertible Notes for $4.6 million in cash (including accrued interest of $0.1 million) and recorded $0.8 million for the reacquisition of the equity component. The September 2020 repurchases represented approximately 60% of the aggregate principal amount of Convertible Notes then outstanding. Following the settlement of the September 2020 repurchases, the aggregate principal amount of the Convertible Notes was reduced to approximately $2.6 million.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The carrying values of the liability and equity components of the Convertible Notes are reflected on our Consolidated Balance Sheet as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2020
|
Long-term liabilities:
|
|
|
|
Principal amount
|
$
|
6,319
|
|
|
$
|
2,559
|
|
Unamortized discount of liability component
|
(319)
|
|
|
(20)
|
|
Convertible Notes issuance costs, net of accumulated amortization of $130 and $63, respectively
|
(29)
|
|
|
(1)
|
|
Carrying value of the liability component
|
$
|
5,971
|
|
|
$
|
2,538
|
|
|
|
|
|
Carrying value of the equity component
|
$
|
789
|
|
|
$
|
319
|
|
The carrying value of the liability component and the carrying value of the equity component are recorded in Convertible subordinated notes due 2021 and Additional paid-in capital, respectively, on our Consolidated Balance Sheet at December 31, 2019 and 2020.
The fair value of the Convertible Notes, which are Level 2 measurements, was $3.7 million at December 31, 2020.
At December 31, 2020, the adjusted conversion rate of the Convertible Notes is 45.9712 shares of our common stock per $1,000 principal amount of Convertible Notes, equivalent to an adjusted conversion price of $21.75 per share of common stock.
The interest expense and accretion of debt discount and debt issuance costs related to our Convertible Notes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2018
|
|
2019
|
|
2020
|
Convertible Notes interest expense
|
$
|
1,878
|
|
|
$
|
174
|
|
|
$
|
149
|
|
Convertible Notes accretion of debt discount
|
$
|
2,192
|
|
|
$
|
241
|
|
|
$
|
216
|
|
Convertible Notes amortization of debt issuance costs
|
$
|
245
|
|
|
$
|
24
|
|
|
$
|
20
|
|
The remaining unamortized debt discount and the remaining unamortized debt issuance costs are being amortized using the effective interest method over the remaining term of approximately two months of the Convertible Notes. The effective interest rate on the unamortized debt discount for both years ended December 31, 2019 and 2020 was 11.4%. The effective interest rate on the debt issuance costs for the years ended December 31, 2019 and 2020 was 3.2% and 3.1%, respectively.
The aggregate maturities of our Convertible Notes for the next five years subsequent to December 31, 2020 and thereafter are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Maturity
|
|
Discount Amortization
|
|
Present
Value
|
Years ending December 31,
|
|
|
|
|
|
|
2021
|
|
$
|
2,559
|
|
|
$
|
(20)
|
|
|
$
|
2,539
|
|
2022
|
|
—
|
|
|
—
|
|
|
—
|
|
2023
|
|
—
|
|
|
—
|
|
|
—
|
|
2024
|
|
—
|
|
|
—
|
|
|
—
|
|
2025
|
|
—
|
|
|
—
|
|
|
—
|
|
Thereafter
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
2,559
|
|
|
$
|
(20)
|
|
|
$
|
2,539
|
|
14. SENIOR NOTES
On May 31, 2018, we issued $325.0 million in aggregate principal amount of our 6.625% senior notes due 2026 (the “Initial Senior Notes”) and related guarantees in a private offering under Rule 144A and Regulations S under the Securities Act. The Initial Senior Notes were issued under an indenture, dated as of May 31, 2018 (the “Indenture”), among us, certain of our existing subsidiaries (collectively, the “Subsidiary Guarantors”), as guarantors, and Wilmington Trust, National Association., as trustee.
On December 19, 2019, we issued an additional $75.0 million in aggregate principal amount of our Initial Senior Notes (the “Additional Senior Notes” and, together with the Initial Senior Notes, the “Senior Notes”) and related guarantees by the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Subsidiary Guarantors in a private offering under Rule 144A and Regulation S of the Securities Act. The Additional Senior Notes were issued as additional securities under the Indenture.
We received proceeds of $76.9 million from the issuance of the Additional Senior Notes, net of a debt premium of $1.7 million (plus accrued interest of $0.2 million). We incurred $1.0 million in debt issuance costs related to the Additional Senior Notes. The Senior Notes are treated as a single class of securities under the Indenture, and the Additional Senior Notes have identical terms to the Initial Senior Notes, except with respect to the date of issuance, the issue price, the initial interest accrual date and the initial interest payment date.
The Senior Notes bear interest at 6.625% per year. Interest on the Senior Notes began to accrue on May 31, 2018 and is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2018 with respect to the Initial Senior Notes and June 1, 2020 with respect to the Additional Senior Notes to holders of record on each May 15 and November 15 preceding an interest payment date. The Senior Notes mature on June 1, 2026, unless earlier redeemed or repurchased. The Senior Notes are unsecured, senior obligations and are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally, by each of the Subsidiary Guarantors.
We may redeem all or part of the Senior Notes at any time prior to June 1, 2021 at a redemption price equal to 100% of the principal amount of Senior Notes redeemed, plus a “make whole” premium, and accrued and unpaid interest, if any, to the date of redemption. We have the right to redeem the Senior Notes at any time on or after June 1, 2021 at the redemption prices described in the Indenture, plus accrued and unpaid interest, if any, to the date of redemption. Additionally, at any time before June 1, 2021, we may redeem up to 40% of the aggregate principal amount of the Senior Notes issued with an amount equal to the net proceeds of certain equity offerings, at a price equal to 106.625% of the principal amount of the Senior Notes, plus accrued and unpaid interest, if any, to the date of redemption; provided that (1) at least 60% of the aggregate principal amount of the Senior Notes (including any additional Senior Notes ) originally issued under the Indenture remain outstanding immediately after the occurrence of such redemption (excluding Senior Notes held by us); and (2) each such redemption must occur within 180 days of the date of the closing of each such equity offering.
If a “change of control” occurs, holders of the Senior Notes will have the option to require us to purchase for cash all or a portion of their Senior Notes at a price equal to 101% of the principal amount of the Senior Notes, plus accrued and unpaid interest. In addition, if we make certain asset sales and do not reinvest the proceeds thereof or use such proceeds to repay certain debt, we will be required to use the proceeds of such asset sales to make an offer to purchase the Senior Notes at a price equal to 100% of the principal amount of the Senior Notes, plus accrued and unpaid interest.
The Indenture contains restrictive covenants limiting our ability and our Restricted Subsidiaries (as defined in the Indenture) to, among other things, incur additional indebtedness or issue certain preferred shares, create liens on certain assets to secure debt, pay dividends or make other equity distributions, purchase or redeem capital stock, make certain investments, sell assets, agree to certain restrictions on the ability of Restricted Subsidiaries to make payments to us, consolidate, merge, sell or otherwise dispose of all or substantially all assets, or engage in transactions with affiliates. The Indenture also contains customary events of default.
The carrying value of our Senior Notes is reflected on our Consolidated Balance Sheet as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2020
|
Long-term liabilities:
|
|
|
|
Principal amount
|
$
|
400,000
|
|
|
$
|
400,000
|
|
Debt premium, net of accumulated amortization of $0 and $221, respectively
|
1,688
|
|
|
1,467
|
|
Debt discount, net of accumulated amortization of $492 and $1,020, respectively
|
(4,110)
|
|
|
(3,582)
|
|
Debt issuance costs, net of accumulated amortization of $216 and $496, respectively
|
(2,131)
|
|
|
(1,917)
|
|
Carrying value of the Senior Notes
|
$
|
395,447
|
|
|
$
|
395,968
|
|
The fair value of the Senior Notes, which are Level 2 measurements, was $427.9 million at December 31, 2020.
The debt discount, the debt premium and the debt issuance costs are being amortized using the effective interest method over the remaining term of approximately 65 months of the Senior Notes. The effective interest rate on the unamortized debt discount and the unamortized debt issuance costs for the Initial Senior Notes, which were issued in May 2018, for the year ended December 31, 2020 was 6.87% and 6.69%, respectively. The effective interest rate on the unamortized debt premium and the unamortized debt issuance costs for the Additional Senior Notes, which were issued in December 2019, for year ended December 31, 2020 was 6.20% and 6.90%, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The interest expense and amortization of debt discount, debt premium and debt issuance costs related to our Senior Notes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2018
|
|
2019
|
|
2020
|
Senior Notes interest expense
|
$
|
12,620
|
|
|
$
|
21,711
|
|
|
$
|
26,500
|
|
Senior Notes amortization of debt discount
|
273
|
|
|
493
|
|
|
528
|
|
Senior Notes amortization of debt premium
|
—
|
|
|
—
|
|
|
221
|
|
Senior Notes amortization of debt issuance costs
|
77
|
|
|
139
|
|
|
280
|
|
The aggregate maturities of our Senior Notes for the next five years subsequent to December 31, 2020 and thereafter are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Maturity
|
|
Discount Amortization
|
|
Premium Amortization
|
|
Present
Value
|
Years ending December 31,
|
|
|
|
|
|
|
|
|
2021
|
|
$
|
—
|
|
|
$
|
(565)
|
|
|
$
|
235
|
|
|
$
|
(330)
|
|
2022
|
|
—
|
|
|
(605)
|
|
|
250
|
|
|
(355)
|
|
2023
|
|
—
|
|
|
(648)
|
|
|
266
|
|
|
(382)
|
|
2024
|
|
—
|
|
|
(694)
|
|
|
283
|
|
|
(411)
|
|
2025
|
|
—
|
|
|
(744)
|
|
|
301
|
|
|
(443)
|
|
Thereafter
|
|
400,000
|
|
|
(326)
|
|
|
132
|
|
|
399,806
|
|
Total
|
|
$
|
400,000
|
|
|
$
|
(3,582)
|
|
|
$
|
1,467
|
|
|
$
|
397,885
|
|
15. LEASES
On January 1, 2019, we adopted Topic 842 using the modified retrospective method for all lease arrangements at the beginning of the period of adoption. Results for reporting periods beginning January 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with Topic 840. On January 1, 2019, we recorded operating lease right-of-use assets of $16.5 million and operating lease liabilities of $17.3 million, related to real estate and equipment leases, based on the present value of the future lease payments on the date of adoption.
Our lease obligations consist of operating and finance leases related to real estate and equipment. The components of lease cost are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Income Statement Classification
|
|
|
|
|
2019
|
|
2020
|
Operating lease cost
|
Facilities and grounds expense(1)
|
|
|
|
|
$
|
3,722
|
|
|
$
|
3,795
|
|
Short-term lease cost
|
Facilities and grounds expense(1)
|
|
|
|
|
277
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
Depreciation of leased assets
|
Depreciation and amortization(2)
|
|
|
|
|
$
|
498
|
|
|
$
|
439
|
|
Interest on lease liabilities
|
Interest expense
|
|
|
|
|
520
|
|
|
496
|
|
Total finance lease cost
|
|
|
|
|
|
1,018
|
|
|
935
|
|
Total lease cost
|
|
|
|
|
|
$
|
5,017
|
|
|
$
|
4,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Facilities and grounds expense is included within Cost of service and General, administrative and other on our Consolidated Statements of Operations.
|
(2)
|
Depreciation and amortization expense is included within Field depreciation expense and Home office depreciation and amortization on our Consolidated Statements of Operations.
|
Variable lease expense was immaterial for the years ended December 31, 2019 and 2020.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Supplemental cash flow information related to our leases is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2019
|
|
2020
|
Cash paid for operating leases included in operating activities
|
$
|
3,910
|
|
|
$
|
3,383
|
|
Cash paid for finance leases included in financing activities
|
872
|
|
|
828
|
|
Right-of-use assets obtained in exchange for new leases are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2019
|
|
2020
|
Right-of-use assets obtained in exchange for new operating lease liabilities(1)
|
$
|
8,175
|
|
|
$
|
782
|
|
Right-of-use assets obtained in exchange for new finance lease liabilities
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
During the year ended December 31, 2019, we modified an existing operating lease to extend the term through 2030. As a result of this modification, we increased our lease liabilities and right-of-use assets by $8.2 million.
|
Supplemental balance sheet information related to leases is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Type
|
|
Balance Sheet Classification
|
|
December 31, 2019
|
|
December 31, 2020
|
Operating lease right-of-use assets
|
|
Operating lease right-of-use assets
|
|
$
|
22,304
|
|
|
$
|
21,201
|
|
|
|
|
|
|
|
|
Finance lease right-of-use assets
|
|
Property, plant and equipment, net
|
|
6,770
|
|
|
6,770
|
|
Accumulated depreciation
|
|
Property, plant and equipment, net
|
|
(1,566)
|
|
|
(2,005)
|
|
Finance lease right-of-use assets, net
|
|
|
|
$
|
5,204
|
|
|
$
|
4,765
|
|
|
|
|
|
|
|
|
Operating lease current liabilities
|
|
Current portion of operating lease obligations
|
|
$
|
1,554
|
|
|
$
|
2,082
|
|
Finance lease current liabilities
|
|
Current portion of finance lease obligations
|
|
290
|
|
|
323
|
|
Total current lease liabilities
|
|
|
|
$
|
1,844
|
|
|
$
|
2,405
|
|
|
|
|
|
|
|
|
Operating lease non-current liabilities
|
|
Obligations under operating leases, net of current portion
|
|
$
|
21,533
|
|
|
$
|
20,302
|
|
Finance lease non-current liabilities
|
|
Obligations under finance leases, net of current portion
|
|
5,854
|
|
|
5,531
|
|
Total non-current lease liabilities
|
|
|
|
$
|
27,387
|
|
|
$
|
25,833
|
|
|
|
|
|
|
|
|
Total lease liabilities
|
|
|
|
$
|
29,231
|
|
|
$
|
28,238
|
|
The average lease terms and discount rates as of December 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term (years)
|
|
Weighted-average discount rate
|
Operating leases
|
10.7
|
|
8.1
|
%
|
Finance leases
|
5.9
|
|
8.2
|
%
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The aggregate future lease payments for operating and finance leases as of December 31, 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Finance
|
Lease payments due:
|
|
|
|
2021
|
$
|
3,794
|
|
|
$
|
836
|
|
2022
|
3,422
|
|
|
860
|
|
2023
|
3,301
|
|
|
860
|
|
2024
|
3,292
|
|
|
791
|
|
2025
|
3,156
|
|
|
736
|
|
Thereafter
|
16,188
|
|
|
5,555
|
|
Total lease payments
|
$
|
33,153
|
|
|
$
|
9,638
|
|
Less: Interest
|
(10,769)
|
|
|
(3,784)
|
|
Present value of lease liabilities
|
$
|
22,384
|
|
|
$
|
5,854
|
|
As of December 31, 2020, we had no additional significant operating or finance leases that had not yet commenced.
16. COMMITMENTS AND CONTINGENCIES
Non-Compete, Consulting and Employment Agreements
We have various non-compete agreements with former owners and employees. These agreements are generally for one to ten years and provide for periodic future payments over the term of the agreements.
We have various consulting agreements with former owners of businesses we have acquired. Payments for such agreements are generally not made in advance. These agreements are generally for one to five years and provide for bi-weekly or monthly payments.
We have employment agreements with our executive officers and certain of our senior leadership. These agreements are generally for three to five years and provide for participation in various incentive compensation arrangements. These agreements generally renew automatically on an annual basis after their initial term has expired.
At December 31, 2020, the maximum estimated future cash commitments under these agreements with remaining commitment terms, and with original terms of more than one year, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Compete
|
|
Consulting
|
|
Employment(a)
|
|
Total
|
Years ending December 31,
|
|
|
|
|
|
|
|
2021
|
$
|
2,103
|
|
|
$
|
879
|
|
|
$
|
3,729
|
|
|
$
|
6,711
|
|
2022
|
1,569
|
|
|
537
|
|
|
3,456
|
|
|
5,562
|
|
2023
|
1,063
|
|
|
266
|
|
|
1,181
|
|
|
2,510
|
|
2024
|
691
|
|
|
114
|
|
|
900
|
|
|
1,705
|
|
2025
|
431
|
|
|
51
|
|
|
900
|
|
|
1,382
|
|
Thereafter
|
439
|
|
|
—
|
|
|
1,912
|
|
|
2,351
|
|
Total
|
$
|
6,296
|
|
|
$
|
1,847
|
|
|
$
|
12,078
|
|
|
$
|
20,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Melvin C. Payne, our Chairman of the Board and Chief Executive Officer, has an employment agreement that does not renew after the initial term. See Note 25 to the Consolidated Financial Statements included herein for additional information regarding Mr. Payne's employment agreement.
|
Defined Contribution Plan
We sponsor a defined contribution plan, a 401K plan, for the benefit of our employees. Matching contributions and plan administrative expenses totaled $2.1 million, $2.0 million and $2.3 million during the years ended December 31, 2018, 2019 and 2020, respectively. We do not offer any post-retirement or post-employment benefits.
Litigation
We are a party to various litigation matters and proceedings. For each of our outstanding legal matters, we evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies, and the likelihood of an unfavorable outcome. If we determine that an unfavorable outcome is probable and can be reasonably estimated, we establish the necessary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
accruals. We hold certain insurance policies that may reduce cash outflows with respect to an adverse outcome of certain of these litigation matters.
Faria, et al. v. Carriage Funeral Holdings, Inc., Superior Court of California, Contra Costa County, Case No. MSC18-00606. On March 26, 2018, six Plaintiffs filed a putative class action against Carriage Funeral Holdings, Inc., our subsidiary, their alleged employer, on behalf of themselves and all similarly situated current and former employees. Plaintiffs seek monetary damages and claim that Carriage Funeral Holdings, Inc. failed to pay minimum wages, provide meal and rest breaks, provide accurately itemized wage statements, reimburse employees for required expenses, and provide wages when due. Plaintiffs also claim that Carriage Funeral Holdings, Inc. violated California Business and Professions Code §17200 et seq. On June 5, 2018, Plaintiffs filed a First Amended Complaint to add a claim under the California Private Attorney General Act. On October 23, 2018, the parties mediated this matter and executed a Memorandum of Understanding for class settlement. In February 2019, a Class Action Settlement Agreement was fully executed and was approved by the Court in October 2019. We paid $0.7 million under the settlement agreement in November 2019. This case was formally closed on May 25, 2020.
17. INCOME TAXES
The provision for income taxes consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2019
|
|
2020
|
Current:
|
|
|
|
|
|
U. S. federal provision (benefit)
|
$
|
1,489
|
|
|
$
|
(2,039)
|
|
|
$
|
1,778
|
|
State provision (benefit)
|
1,309
|
|
|
(195)
|
|
|
2,177
|
|
Total current provision (benefit)
|
$
|
2,798
|
|
|
$
|
(2,234)
|
|
|
$
|
3,955
|
|
Deferred:
|
|
|
|
|
|
U. S. federal provision
|
$
|
2,831
|
|
|
$
|
8,056
|
|
|
$
|
3,994
|
|
State provision
|
992
|
|
|
2,061
|
|
|
603
|
|
Total deferred provision
|
$
|
3,823
|
|
|
$
|
10,117
|
|
|
$
|
4,597
|
|
Total income tax provision
|
$
|
6,621
|
|
|
$
|
7,883
|
|
|
$
|
8,552
|
|
A reconciliation of income taxes calculated at the U.S. federal statutory rate to those reflected in the Consolidated Statements of Operations is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Federal statutory rate
|
$
|
3,834
|
|
|
21.0
|
|
%
|
$
|
4,707
|
|
|
21.0
|
|
%
|
$
|
5,175
|
|
|
21.0
|
|
%
|
Effect of state income taxes, net of federal benefit
|
1,776
|
|
|
9.7
|
|
|
1,352
|
|
|
6.0
|
|
|
2,080
|
|
|
8.4
|
|
|
Effect of non-deductible expenses and other, net
|
1,451
|
|
|
7.9
|
|
|
947
|
|
|
4.2
|
|
|
460
|
|
|
1.9
|
|
|
Effect of divestitures and impairment of businesses
|
—
|
|
|
—
|
|
|
911
|
|
|
4.10
|
|
|
846
|
|
|
3.4
|
|
|
Change in valuation allowance
|
26
|
|
|
0.1
|
|
|
(34)
|
|
|
(0.2)
|
|
|
(9)
|
|
|
—
|
|
|
Re-measurement of deferred taxes due to tax reform
|
(466)
|
|
|
(2.5)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
6,621
|
|
|
36.2
|
|
%
|
$
|
7,883
|
|
|
35.1
|
|
%
|
$
|
8,552
|
|
|
34.7
|
|
%
|
Discrete tax expense for the year ended December 31, 2020 includes $0.1 million expense related to stock based compensation and $0.5 million primarily related to return to provision adjustments, state legislative changes and other discrete items.
We are subject to taxation in the United States and various states. As of December 31, 2020, tax years 2013 to 2019 are subject to examination by taxing authorities. On May 10, 2017, we filed amended federal returns for the tax years ended December 31, 2013, 2014 and 2015, which generated refunds of approximately $1.9 million. The amended returns are under audit and as a result, the administrative processing of the carryback claims requires that the statute for tax years 2013 to 2015 remains open.
In connection with the 2019 stock acquisition of Calvary Memorial Park cemetery in Fairfax, Virginia, a 338(h)(10) election was filed April 24, 2020, which allowed the basis in the acquired assets to be stepped up to fair market value.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On June 30, 2020, Carriage filed a carryback claim for a refund for the tax year ended December 31, 2018, for $7.0 million. The requested refund was received on August 7, 2020. On November 3, 2020, Carriage filed a carryback claim for refund for the tax year ended December 31, 2019, for $1.2 million. The requested refund for tax year 2019 has not yet been received. On December 4, 2020, Carriage filed an amended federal return for the tax year ended December 31, 2018, in order to take full advantage of the CARES Act legislative changes. The changes reported in the amended return resulted in additional $2.3 million of loss. The additional losses generated from the amended filing will be administratively carried back and processed as part of the Joint Committee review of the 2018 carryback claim.
The tax effects of temporary differences from total operations that give rise to significant deferred tax assets and liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2019
|
|
2020
|
Deferred income tax assets:
|
|
|
|
Net operating loss carryforwards
|
$
|
3,602
|
|
|
$
|
1,570
|
|
Interest expense limitation
|
4,190
|
|
|
18
|
|
Tax credit carryforwards
|
100
|
|
|
100
|
|
State depreciation
|
1,124
|
|
|
1,264
|
|
Accrued and other liabilities
|
5,124
|
|
|
6,313
|
|
Amortization of non-compete agreements
|
1,104
|
|
|
1,117
|
|
Prepaid and other assets
|
—
|
|
|
741
|
|
|
|
|
|
Total deferred income tax assets
|
15,244
|
|
|
11,123
|
|
Less valuation allowance
|
(234)
|
|
|
(222)
|
|
Total deferred income tax assets
|
$
|
15,010
|
|
|
$
|
10,901
|
|
Deferred income tax liabilities:
|
|
|
|
Depreciation and amortization
|
$
|
(49,568)
|
|
|
$
|
(50,946)
|
|
Preneed liabilities
|
(6,446)
|
|
|
(6,427)
|
|
Convertible subordinated notes due 2021
|
(75)
|
|
|
(5)
|
|
Prepaid and other assets
|
(289)
|
|
|
—
|
|
Total deferred income tax liabilities
|
(56,378)
|
|
|
(57,378)
|
|
Total net deferred tax liabilities
|
$
|
(41,368)
|
|
|
$
|
(46,477)
|
|
Our deferred tax assets and liabilities, along with related valuation allowances, are classified as non-current on our Consolidated Balance Sheet at December 31, 2019 and 2020.
We record a valuation allowance to reflect the estimated amount of deferred tax assets for which realization is uncertain. Management reviews the valuation allowance at the end of each quarter and makes adjustments if it is determined that it is more likely than not that the tax benefits will be realized. We recognized an immaterial net decrease in our valuation allowance during 2020.
For state reporting purposes, we have $32.7 million of net operating loss carryforwards that will expire between 2021 and 2039, if not utilized. Based on management’s assessment of the various state net operating losses, it was determined that it is more likely than not that we will be able to realize tax benefits on some portion of the amount of the state losses. The valuation allowance at December 31, 2020 was attributable to the deferred tax asset related to a portion of the state operating losses.
We analyze tax benefits for uncertain tax positions and how they are to be recognized, measured, and derecognized in financial statements; provide certain disclosures of uncertain tax matters; and specify how reserves for uncertain tax positions should be classified on our Consolidated Balance Sheet. The deferred tax assets recognized for those NOLs are presented net of these unrecognized tax benefits.
At December 31, 2020, the Company’s unrecognized tax benefits reserve for uncertain tax positions primarily relates to losses generated from pending accounting method changes filed for the tax year ended December 31, 2018, being carried back 5 years, under the CARES Act. In 2018, we filed two Form 3115s, Application for Change in Accounting Method, to request consent to change the method of accounting for deferred revenue for our cemetery property and cemetery merchandise and service operations beginning January 1, 2018. These method changes are still under review. Therefore, the unrecognized tax benefit reserve for the years ended December 31, 2019 and 2020 was $0.7 million and $3.7 million, respectively. There was no reserve recorded at December 31, 2018.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2019
|
|
2020
|
Unrecognized tax benefit at beginning of year
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
691
|
|
Gross increases - tax positions in prior period
|
—
|
|
|
691
|
|
|
—
|
|
Gross decreases - tax positions in prior period
|
—
|
|
|
—
|
|
|
(691)
|
|
Gross increases - tax positions in current period
|
—
|
|
|
—
|
|
|
3,656
|
|
|
|
|
|
|
|
Unrecognized tax benefit at end of year
|
$
|
—
|
|
|
$
|
691
|
|
|
$
|
3,656
|
|
Included in balance of unrecognized tax benefit for the years ended December 31, 2019 and 2020 were $0.7 million and $3.7 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate. At December 31, 2020, we expect that the $3.7 million of unrecognized tax benefit will be recognized in the next twelve months. We recognize interest accrued related to unrecognized tax benefit as income tax expense. As of December 31, 2020, we accrued an immaterial amount of interest related to the unrecognized tax benefit.
18. STOCKHOLDERS’ EQUITY
Share Authorization
We are authorized to issue 80,000,000 shares of common stock, $0.01 per share par value. We had 25,880,362 and 26,020,494 shares issued and outstanding, net of 8,025,339 shares held in treasury at par, at December 31, 2019 and 2020, respectively.
Stock Based Compensation Plans
During the year ended December 31, 2020, we had two stock benefits plans in effect under which stock, restricted stock, stock options and performance awards have been granted or remain outstanding: the Second Amended and Restated 2006 Long-Term Incentive Plan (the “Amended and Restated 2006 Plan”) and the 2017 Omnibus Incentive Plan (the “2017 Plan”). The Amended and Restated 2006 Plan was terminated upon the approval of the 2017 Plan at the annual shareholders meeting on May 17, 2017. The 2017 Plan expires on May 17, 2027. All stock-based plans are administered by the Compensation Committee appointed by our Board of Directors (the “Board”).
At December 31, 2020, we had 1,782,824 shares available to issue under our 2017 Plan. The termination of the Amended and Restated 2006 Plan does not affect the awards previously issued and outstanding.
Restricted Stock
During the year ended December 31, 2020, we issued restricted stock to certain employees totaling 10,200 shares that vest over a three year period and had an aggregate grant date market value of $0.3 million at a weighted average stock price of $25.00. In 2019, a total of 25,550 shares of restricted stock were awarded with a grant date market value of $0.5 million. In 2018, a total of 86,260 shares of restricted stock were awarded with a grant date market value of $2.2 million.
A summary of the status of unvested restricted stock as of December 31, 2020, and changes during 2020, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
Unvested at January 1, 2020
|
69,745
|
|
|
$
|
23.56
|
|
Granted
|
10,200
|
|
|
25.00
|
|
Vested
|
(34,815)
|
|
|
24.26
|
|
Cancelled
|
—
|
|
|
—
|
|
Unvested at December 31, 2020
|
45,130
|
|
|
$
|
23.34
|
|
We recorded stock-based compensation expense, which is included in Regional and unallocated funeral and cemetery costs and General, administrative and other expenses, for restricted stock awards of $0.8 million, $0.8 million and $0.7 million the years ended December 31, 2018, 2019 and 2020, respectively.
At December 31, 2020, we had $1.1 million of total unrecognized compensation costs related to unvested restricted stock awards, which are expected to be recognized over a weighted average period of approximately 0.9 years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Stock Options
During the year ended December 31, 2020, we granted 20,000 options to a certain key employee at a weighted average price of $18.02. These options will vest in one-third increments over a three-year period and have a ten-year term. The fair value of these options was $0.1 million. On June 26, 2020, we cancelled 100,000 options in connection with the resignation of our President and Chief Operating Officer.
In 2019, a total of 100,000 stock options were awarded, the fair value of which was $0.6 million. In 2018, a total of 212,940 stock options were awarded, the fair value of which was $1.4 million.
Stock options are granted with an exercise price equal to the closing price of our common stock on the date of grant. All of the options granted and outstanding under this plan have either a seven or ten-year term. We utilize the Black-Scholes option valuation model for estimating the fair value of our stock options. This model allows the use of a range of assumptions related to volatility, risk-free interest rate, expected holding period and dividend yield. The expected volatility utilized in the valuation model is based on the historical volatility of our stock price. The dividend yield and expected holding period are based on historical experience and management's estimate of future events. The risk-free interest rate is derived from the U.S. Treasury yield curve based on the expected life of the option in effect at the time of grant.
The fair values of our stock options were calculated using the following weighted average assumptions, based on the methods described above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2019
|
|
2020
|
Dividend yield
|
1.18
|
%
|
|
1.23
|
%
|
|
1.67
|
%
|
Expected volatility
|
27.08
|
%
|
|
27.45
|
%
|
|
38.54
|
%
|
Risk-free interest rate
|
2.65
|
%
|
|
1.65
|
%
|
|
0.25
|
%
|
Expected holding period (years)
|
5.0
|
|
5.0
|
|
3.7
|
Black-Scholes value
|
$6.38
|
|
$5.70
|
|
$4.61
|
A summary of the stock options at and changes during the three years ended December 31, 2020 is presented in the table and narrative below (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2019
|
|
2020
|
|
Shares
|
|
Wtd. Avg.
Ex. Price
|
|
Shares
|
|
Wtd. Avg.
Ex. Price
|
|
Shares
|
|
Wtd. Avg.
Ex. Price
|
Outstanding at January 1, 2020
|
1,934
|
|
|
$
|
20.85
|
|
|
1,523
|
|
|
$
|
21.95
|
|
|
1,078
|
|
|
$
|
23.22
|
|
Granted
|
213
|
|
|
$
|
25.43
|
|
|
100
|
|
|
$
|
24.35
|
|
|
20
|
|
|
$
|
18.02
|
|
Exercised (1)
|
(459)
|
|
|
$
|
17.73
|
|
|
(247)
|
|
|
$
|
17.37
|
|
|
(40)
|
|
|
$
|
13.72
|
|
Cancelled or expired
|
(165)
|
|
|
$
|
25.34
|
|
|
(298)
|
|
|
$
|
21.96
|
|
|
(146)
|
|
|
$
|
23.97
|
|
Outstanding at December 31, 2020
|
1,523
|
|
|
$
|
21.95
|
|
|
1,078
|
|
|
$
|
23.22
|
|
|
912
|
|
|
$
|
23.40
|
|
Exercisable at December 31, 2020
|
1,001
|
|
|
$
|
20.29
|
|
|
643
|
|
|
$
|
22.02
|
|
|
668
|
|
|
$
|
22.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For the year ended December 31, 2020, 20,000 options were surrendered by employees to pay the option price and taxes related to the option exercises.
|
The aggregate intrinsic value of the outstanding and exercisable stock options was $7.2 million and $5.6 million at December 31, 2020. The total intrinsic value of options exercised during the years ended December 31, 2018, 2019 and 2020 totaled $3.9 million, $1.2 million and $0.5 million, respectively.
The total fair value of stock options vested during 2018, 2019 and 2020 totaled $1.5 million, $0.9 million and $0.7 million, respectively. We recorded stock-based compensation expense, which is included in Regional and unallocated funeral and cemetery costs and General, administrative and other expenses, for stock options of $1.0 million, $0.7 million and $0.7 million for the years ended December 31, 2018, 2019 and 2020, respectively.
At December 31, 2020, there was $0.8 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested stock options expected to be recognized over a weighted average period of approximately 1.53 years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table further describes our outstanding stock options at December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Actual Ranges of Exercise Prices
|
Number Outstanding at 12/31/20
|
|
Weighted-Average
Remaining
Contractual Life
|
|
Weighted-Average
Exercise Price
|
|
Number Exercisable at 12/31/20
|
|
Weighted-Average
Remaining
Contractual Life
|
|
Weighted-Average
Exercise Price
|
$5.94 - $5.94
|
22,674
|
|
|
1.18
|
|
$
|
5.94
|
|
|
22,674
|
|
|
1.18
|
|
$
|
5.94
|
|
$18.02 - $22.58
|
461,472
|
|
|
2.41
|
|
$
|
21.68
|
|
|
415,432
|
|
|
2.14
|
|
$
|
21.96
|
|
$25.43 - $26.54
|
427,590
|
|
|
6.50
|
|
$
|
26.19
|
|
|
229,776
|
|
|
6.43
|
|
$
|
26.28
|
|
$5.94 - $26.54
|
911,736
|
|
|
4.30
|
|
$
|
23.40
|
|
|
667,882
|
|
|
3.58
|
|
$
|
22.90
|
|
Performance Awards
On February 19, 2020, we granted 237,500 performance awards to our leadership team and certain key employees, payable in shares. The fair value of these performance awards was $2.8 million and was determined by using the Monte-Carlo simulation pricing model. On May 19, 2020, we cancelled all performance award agreements previously awarded to all individuals during 2019 and the February 19, 2020 award.
Concurrently with the cancellation, the Compensation Committee of the Board approved a new performance award (“new performance award”) to be issued to certain employees. These awards will vest (if at all) on December 31, 2024 provided that the Company’s common stock reaches one of five predetermined growth targets for a sustained period beginning on the grant date of May 19, 2020 and ending on December 31, 2024. The new performance award was treated as a modification of the cancelled awards and resulted in an additional $1.7 million of incremental compensation costs. At December 31, 2020, there was $5.0 million of unrecognized compensation cost related to performance awards expected to be recognized over a weighted average period of 4.0 years.
A summary of the new performance award and changes during the year ended December 31, 2020 is presented in the table and below:
|
|
|
|
|
|
|
|
|
|
|
|
Performance Awards
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
At January 1, 2020
|
—
|
|
|
—
|
Granted
|
399,664
|
|
|
$10.79
|
Vested
|
—
|
|
|
—
|
Cancelled
|
(33,538)
|
|
|
$9.69
|
At December 31, 2020
|
366,126
|
|
|
$10.89
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table reflects the new performance awards granted during the year ended December 31, 2020, their respective fair values and the assumptions utilized in the Monte-Carlo simulation pricing model:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant date
|
|
May 19, 2020
|
|
June 25, 2020
|
|
July 30, 2020
|
|
August 31, 2020
|
|
October 30, 2020
|
Performance period
|
|
May 19, 2020 - December 31, 2024
|
|
June 25, 2020 - December 31, 2024
|
|
July 30, 2020 - December 31, 2024
|
|
August 31, 2020 - December 31, 2024
|
|
October 30, 2020 - December 31, 2024
|
Awards granted
|
|
368,921
|
|
13,974
|
|
2,795
|
|
6,987
|
|
6,987
|
Fair value (in millions) (1)
|
|
$3.6
|
|
$0.2
|
|
$0.1
|
|
$0.2
|
|
$0.3
|
Simulation period (years)
|
|
4.62
|
|
4.52
|
|
4.42
|
|
4.33
|
|
4.17
|
Share price at grant date
|
|
$15.79
|
|
$18.02
|
|
$23.10
|
|
$22.14
|
|
$25.81
|
Expected volatility
|
|
34.54
|
%
|
|
36.24
|
%
|
|
37.43
|
%
|
|
37.71
|
%
|
|
38.72
|
%
|
Risk-free interest rate
|
|
0.33
|
%
|
|
0.29
|
%
|
|
0.20
|
%
|
|
0.24
|
%
|
|
0.30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The total fair value of the new performance awards granted is $4.3 million.
|
During 2019, we granted 306,623 performance awards to our leadership team and certain key employees, payable in shares. The fair value of these performance awards was $1.6 million and was determined by using the Monte-Carlo simulation pricing model. These performance awards were cancelled on May 19, 2020.
During 2018, we granted 113,320 performance awards to our leadership team and certain key employees, payable in shares. The fair value of these performance awards was approximately $2.9 million and was determined by using the weighted average stock price on the grant date of $25.43. These performance awards were cancelled on November 29, 2019.
We recorded stock-based compensation expense, which is included in Regional and unallocated funeral and cemetery costs and General, administrative and other expenses, for performance awards of $4.4 million, $0.2 million and $0.9 million during the years ended December 31, 2018, 2019 and 2020, respectively.
Employee Stock Purchase Plan
We provide all employees the opportunity to purchase common stock through payroll deductions in our ESPP. Purchases are made quarterly; the price being 85% of the lower of the price on the first day of the plan entry date (beginning of the fiscal year) or the actual date of purchase (end of quarter). In 2020, employees purchased a total of 71,908 shares at a weighted average price of $16.71 per share. In 2019, employees purchased a total of 73,731 shares at a weighted average price of $13.18 per share. In 2018, employees purchased a total of 49,938 shares at a weighted average price of $18.56 per share.
We recorded stock-based compensation expense, which is included in Regional and unallocated funeral and cemetery costs and General, administrative and other expenses, for our ESPP of approximately $0.2 million, $0.3 million and $0.4 million during the years ended December 31, 2018, 2019 and 2020, respectively.
The fair values of the right to purchase shares under the ESPP are estimated at the date of purchase with the four quarterly purchase dates using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2019
|
|
2020
|
Dividend yield
|
1.4
|
%
|
|
1.4
|
%
|
|
1.5
|
%
|
Expected volatility
|
20.9
|
%
|
|
36.1
|
%
|
|
48.6
|
%
|
Risk-free interest rate
|
1.44%, 1.61%, 1.72%, 1.83%
|
|
2.42%, 2.51%, 2.56%, 2.60%
|
|
1.54%, 1.57%, 1.57%, 1.56%
|
Expected life (years)
|
0.25, 0.50, 0.75, 1.00
|
|
0.25, 0.50, .0.75, 1.00
|
|
0.25, 0.50, 0.75, 1.00
|
Expected volatilities are based on the historical volatility during the previous twelve months of the underlying common stock. The risk-free rate for the quarterly purchase periods is based on the U.S. Treasury yields in effect at the time of purchase. The expected life of the ESPP grants represents the calendar quarters from the beginning of the year to the purchase date (end of each quarter).
Good To Great Incentive Program
On February 19, 2020, we issued 17,991 shares of our common stock to certain employees, which were valued at approximately $0.4 million at a grant date stock price of $25.00.
During 2019, we issued 14,844 shares of our common stock to certain employees, which were valued at approximately $0.3 million at a grant date stock price of $19.92.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During 2018, we issued 5,712 shares of our common stock to certain employees, which were valued at approximately $0.1 million at a grant date stock price of $25.43.
Director (Non-Employee) Compensation Plans
On February 19, 2020, our Board revised the Director Compensation Policy to provide that each independent director is entitled to a quarterly retainer of $35,000 payable in cash and/or unrestricted shares of our common stock at the end of each quarter. The Lead Director and chairman of our Audit Committee are entitled to an additional annual retainer of $10,000, payable in quarterly installments of $2,500 each at the end of each quarter, and the chairman of our Corporate Governance and Compensation Committees are entitled to an additional annual retainer of $5,000, payable in quarterly installments of $1,250 each at the end of each quarter. Any new independent director will receive upon admission to the Board a grant of $25,000 (in addition to the independent director annual retainer prorated at the time the new director is admitted to the Board) which can be taken in cash or unrestricted shares of our common stock. The number of shares of such common stock will be determined by dividing the cash amount by the closing price of our common stock on the date of grant, which will be the date of admission to the Board.
On April 23, 2020, as part of our broad-based effort to respond to COVID-19, the Board approved a temporary reduction of the quarterly retainer for our non-employee directors from $35,000 per quarter to $29,750 per quarter (or 15%) effective April 19, 2020. On June 26, 2020, the Board voted to reinstate the quarterly retainer back to 100% effective as of June 28, 2020.
On July 30, 2020, the Board elected Dr. Achille Messac to serve as a Class II Director until the 2022 annual meeting of shareholders. Mr. Messac was appointed to serve on the Audit, Compensation and Corporate Governance Committees.
Pursuant to the revised Director Compensation Policy described above, for the year ended December 31, 2020, we granted 30,883 shares of our common stock to six Directors, which were valued at $0.7 million at a weighted average stock price of $21.16. For the year ended December 31, 2019, we granted 7,458 shares of our common stock to two Directors, which were valued at $0.2 million at a weighted average stock price of $20.78. For the year ended December 31, 2018, we granted 7,403 shares of our common stock to three Directors, which were valued at $0.2 million at a weighted average stock price of $20.52.
We recorded compensation expense, which is included in General, administrative and other expenses, related to annual retainers, including the value of stock granted to Directors above, of $0.5 million, $0.5 million and $0.9 million during the years ended December 31, 2018, 2019 and 2020, respectively.
Cash Dividends
On May 19, 2020, the Board approved an increase of $0.05 per share to our annual dividend beginning with the dividend declaration in the third quarter. On October 27, 2020, the Board approved an additional increase of $0.0125 per share for a total annual dividend of $0.40 per share beginning with the dividend declaration in the fourth quarter.
Our Board declared the following dividends payable on the dates below (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
Per Share
|
|
Dollar Value
|
March 1st
|
$
|
0.0750
|
|
|
$
|
1,339
|
|
June 1st
|
$
|
0.0750
|
|
|
$
|
1,343
|
|
September 1st
|
$
|
0.0875
|
|
|
$
|
1,569
|
|
December 1st
|
$
|
0.1000
|
|
|
$
|
1,797
|
|
|
|
|
|
2019
|
Per Share
|
|
Dollar Value
|
March 1st
|
$
|
0.0750
|
|
|
$
|
1,360
|
|
June 1st
|
$
|
0.0750
|
|
|
$
|
1,365
|
|
September 1st
|
$
|
0.0750
|
|
|
$
|
1,336
|
|
December 1st
|
$
|
0.0750
|
|
|
$
|
1,337
|
|
19. SHARE REPURCHASE PROGRAM
During the year ended December 31, 2018, we repurchased 1,101,969 shares of common stock for a total cost of $17.7 million at an average cost of $16.03 per share pursuant to our share repurchase program. On July 31, 2019, our Board approved an additional $25.0 million under our share repurchase program in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended. During the year ended December 31, 2019, we repurchased 400,000 shares of common stock for a total cost of $7.8 million at an average cost of $19.39 per share pursuant to our share repurchase program. Our shares were purchased in the open market at times and in amounts as management determined appropriate based on factors such as market conditions, legal requirements and other business considerations. Shares purchased pursuant to the repurchase program are currently held as treasury shares.
During the year ended December 31, 2020, we did not repurchase any common shares. At December 31, 2020, we had approximately $25.6 million available for repurchase under our share repurchase program.
20. EARNINGS PER SHARE
Share-based awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities and included in the computation of both basic and diluted earnings per share. Our grants of stock awards to our employees are considered participating securities and we have prepared our earnings per share calculations to exclude earnings allocated to unvested restricted stock awards, using the two-class method, in the basic and diluted weighted average shares outstanding calculation.
The following table sets forth the computation of the basic and diluted earnings per share (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2019
|
|
2020
|
Numerator for basic and diluted earnings per share:
|
|
|
|
|
|
Net income
|
$
|
11,645
|
|
|
$
|
14,533
|
|
|
$
|
16,090
|
|
Less: Earnings allocated to unvested restricted stock
|
(57)
|
|
|
(62)
|
|
|
(46)
|
|
Income attributable to common stockholders
|
$
|
11,588
|
|
|
$
|
14,471
|
|
|
$
|
16,044
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Denominator for basic earnings per common share - weighted average shares outstanding
|
17,971
|
|
|
17,877
|
|
|
17,872
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Stock options
|
66
|
|
|
118
|
|
|
196
|
|
Convertible Notes
|
337
|
|
|
10
|
|
|
9
|
|
Denominator for diluted earnings per common share - weighted average shares outstanding
|
18,374
|
|
|
18,005
|
|
|
18,077
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
0.64
|
|
|
$
|
0.81
|
|
|
$
|
0.90
|
|
Diluted earnings per common share
|
$
|
0.63
|
|
|
$
|
0.80
|
|
|
$
|
0.89
|
|
The fully diluted weighted average shares outstanding for the years ended December 31, 2018, 2019 and 2020, and the corresponding calculation of fully diluted earnings per share, included approximately 337,000, 10,000 and 9,000 shares that would have been issued upon the conversion of our convertible subordinated notes as a result of the application of the if-converted method prescribed by the FASB ASC 260.
During the year ended December 31, 2020, no stock options were excluded from the computation of diluted earnings per share. For the years ended December 31, 2018 and 2019, there were 1,660,919 and 338,440 stock options excluded from the computation of diluted earnings per share because the inclusion of such stock options would result in an antidilutive effect.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
21. SEGMENT REPORTING
We conduct funeral and cemetery operations only in the United States. Revenue, disaggregated by major source for each of our reportable segments was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended, December 31, 2020
|
|
|
|
|
|
|
|
|
Funeral
|
|
Cemetery
|
|
Total
|
Services
|
|
$
|
150,283
|
|
|
$
|
14,701
|
|
|
$
|
164,984
|
|
Merchandise
|
|
84,787
|
|
|
10,778
|
|
|
95,565
|
|
Cemetery property
|
|
—
|
|
|
44,065
|
|
|
44,065
|
|
Other revenue
|
|
14,068
|
|
|
10,766
|
|
|
24,834
|
|
Total
|
|
$
|
249,138
|
|
|
$
|
80,310
|
|
|
$
|
329,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended, December 31, 2019
|
|
|
|
|
|
|
|
|
Funeral
|
|
Cemetery
|
|
Total
|
Services
|
|
$
|
131,636
|
|
|
$
|
10,918
|
|
|
$
|
142,554
|
|
Merchandise
|
|
75,682
|
|
|
7,665
|
|
|
83,347
|
|
Cemetery property
|
|
—
|
|
|
31,167
|
|
|
31,167
|
|
Other revenue
|
|
9,550
|
|
|
7,489
|
|
|
17,039
|
|
Total
|
|
$
|
216,868
|
|
|
$
|
57,239
|
|
|
$
|
274,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended, December 31, 2018
|
|
|
|
|
|
|
|
|
Funeral
|
|
Cemetery
|
|
Total
|
Services
|
|
$
|
127,262
|
|
|
$
|
11,342
|
|
|
$
|
138,604
|
|
Merchandise
|
|
74,644
|
|
|
8,158
|
|
|
82,802
|
|
Cemetery property
|
|
—
|
|
|
29,451
|
|
|
29,451
|
|
Other revenue
|
|
8,819
|
|
|
8,316
|
|
|
17,135
|
|
Total
|
|
$
|
210,725
|
|
|
$
|
57,267
|
|
|
$
|
267,992
|
|
The following table presents operating income (loss), income (loss) before income taxes, depreciation and amortization, interest expense, income tax expense (benefit), total assets, long-lived assets, capital expenditures and number of operating locations by segment (in thousands, except number of operating locations):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral
|
|
Cemetery
|
|
Corporate
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
2020
|
$
|
57,622
|
|
|
$
|
26,859
|
|
|
$
|
(27,254)
|
|
|
$
|
57,227
|
|
2019
|
58,756
|
|
|
15,983
|
|
|
(27,296)
|
|
|
47,443
|
|
2018
|
60,035
|
|
|
14,717
|
|
|
(32,640)
|
|
|
42,112
|
|
Income (loss) before income taxes:
|
|
|
|
|
|
|
|
2020
|
$
|
56,875
|
|
|
$
|
27,087
|
|
|
$
|
(59,320)
|
|
|
$
|
24,642
|
|
2019
|
58,844
|
|
|
16,025
|
|
|
(52,453)
|
|
|
22,416
|
|
2018
|
58,896
|
|
|
15,108
|
|
|
(55,738)
|
|
|
18,266
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
2020
|
$
|
11,586
|
|
|
$
|
6,376
|
|
|
$
|
1,427
|
|
|
$
|
19,389
|
|
2019
|
11,128
|
|
|
5,227
|
|
|
1,416
|
|
|
17,771
|
|
2018
|
10,726
|
|
|
4,891
|
|
|
1,813
|
|
|
17,430
|
|
Interest expense:
|
|
|
|
|
|
|
|
2020
|
$
|
1,004
|
|
|
$
|
13
|
|
|
$
|
31,498
|
|
|
$
|
32,515
|
|
2019
|
1,142
|
|
|
—
|
|
|
24,380
|
|
|
25,522
|
|
2018
|
1,339
|
|
|
—
|
|
|
19,770
|
|
|
21,109
|
|
Income tax expense (benefit):
|
|
|
|
|
|
|
|
2020
|
$
|
19,738
|
|
|
$
|
9,401
|
|
|
$
|
(20,587)
|
|
|
$
|
8,552
|
|
2019
|
20,694
|
|
|
5,635
|
|
|
(18,446)
|
|
|
7,883
|
|
2018
|
21,349
|
|
|
5,476
|
|
|
(20,204)
|
|
|
6,621
|
|
Total assets:
|
|
|
|
|
|
|
|
2020
|
$
|
764,535
|
|
|
$
|
366,964
|
|
|
$
|
14,326
|
|
|
$
|
1,145,825
|
|
2019
|
790,459
|
|
|
314,413
|
|
|
24,883
|
|
|
1,129,755
|
|
2018
|
686,470
|
|
|
226,475
|
|
|
4,557
|
|
|
917,502
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
2020
|
$
|
619,588
|
|
|
$
|
172,122
|
|
|
$
|
995
|
|
|
$
|
792,705
|
|
2019
|
650,179
|
|
|
145,158
|
|
|
1,303
|
|
|
796,640
|
|
2018
|
572,916
|
|
|
89,654
|
|
|
1,538
|
|
|
664,108
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
2020
|
$
|
6,997
|
|
|
$
|
7,025
|
|
|
$
|
1,176
|
|
|
$
|
15,198
|
|
2019
|
8,403
|
|
|
5,772
|
|
|
1,204
|
|
|
15,379
|
|
2018
|
8,296
|
|
|
3,989
|
|
|
1,241
|
|
|
13,526
|
|
Number of operating locations at year end:
|
|
|
|
|
|
|
|
2020
|
178
|
|
32
|
|
—
|
|
|
210
|
2019
|
186
|
|
31
|
|
—
|
|
|
217
|
2018
|
182
|
|
29
|
|
—
|
|
|
211
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
22. SUPPLEMENTARY DATA
Balance Sheet
The detail of certain balance sheet accounts is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2020
|
Prepaids and other current assets:
|
|
|
|
Prepaid expenses
|
$
|
1,596
|
|
|
$
|
1,919
|
|
Deposit on pending acquisition
|
5,000
|
|
|
—
|
|
Federal income tax receivable
|
2,973
|
|
|
—
|
|
State income tax receivable
|
986
|
|
|
—
|
|
Other current assets
|
112
|
|
|
157
|
|
Total other current assets
|
$
|
10,667
|
|
|
$
|
2,076
|
|
|
|
|
|
Current portion of debt and lease obligations:
|
|
|
|
Current portion of acquisition debt
|
$
|
1,306
|
|
|
$
|
1,027
|
|
Current portion of finance lease obligations
|
290
|
|
|
323
|
|
Current portion of operating lease obligations
|
1,554
|
|
|
2,082
|
|
Total current portion of debt and lease obligations
|
$
|
3,150
|
|
|
$
|
3,432
|
|
|
|
|
|
Accrued and other liabilities:
|
|
|
|
Accrued salaries and wages
|
$
|
4,323
|
|
|
$
|
1,392
|
|
Accrued incentive compensation
|
9,199
|
|
|
11,139
|
|
Accrued vacation
|
2,880
|
|
|
3,271
|
|
Accrued insurance
|
2,329
|
|
|
3,016
|
|
Accrued interest
|
2,299
|
|
|
2,291
|
|
Accrued ad valorem and franchise taxes
|
678
|
|
|
435
|
|
Employer payroll tax deferral
|
—
|
|
|
1,773
|
|
Accrued commissions
|
560
|
|
|
634
|
|
Perpetual care trust taxes payable
|
401
|
|
|
908
|
|
Income tax payable
|
—
|
|
|
798
|
|
|
|
|
|
Other accrued liabilities
|
1,357
|
|
|
1,825
|
|
Unrecognized tax benefit
|
—
|
|
|
3,656
|
|
Total accrued and other liabilities
|
$
|
24,026
|
|
|
$
|
31,138
|
|
|
|
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
Incentive compensation
|
$
|
1,267
|
|
|
$
|
2,975
|
|
Contingent consideration
|
470
|
|
|
—
|
|
Employer payroll tax deferral
|
—
|
|
|
1,773
|
|
Total other long-term liabilities
|
$
|
1,737
|
|
|
$
|
4,748
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
23. QUARTERLY FINANCIAL DATA (UNAUDITED)
The tables below set forth consolidated operating results by fiscal quarter (in thousands, except earnings per share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
2020
|
|
|
|
|
|
|
|
Revenue
|
$
|
77,490
|
|
|
$
|
77,477
|
|
|
$
|
84,393
|
|
|
$
|
90,088
|
|
Gross profit
|
23,171
|
|
|
25,160
|
|
|
27,874
|
|
|
29,718
|
|
Net income (loss)
|
$
|
(4,197)
|
|
|
$
|
6,397
|
|
|
$
|
5,525
|
|
|
$
|
8,365
|
|
Basic earnings (loss) per common share: (a)
|
$
|
(0.23)
|
|
|
$
|
0.36
|
|
|
$
|
0.31
|
|
|
$
|
0.47
|
|
Diluted earnings (loss) per common share: (a)
|
$
|
(0.23)
|
|
|
$
|
0.36
|
|
|
$
|
0.31
|
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
Revenue
|
$
|
69,081
|
|
|
$
|
67,752
|
|
|
$
|
66,125
|
|
|
$
|
71,149
|
|
Gross profit
|
21,600
|
|
|
19,250
|
|
|
18,056
|
|
|
20,679
|
|
Net income
|
$
|
6,525
|
|
|
$
|
4,862
|
|
|
$
|
577
|
|
|
$
|
2,569
|
|
Basic earnings per common share: (a)
|
$
|
0.36
|
|
|
$
|
0.27
|
|
|
$
|
0.03
|
|
|
$
|
0.14
|
|
Diluted earnings per common share: (a)
|
$
|
0.36
|
|
|
$
|
0.27
|
|
|
$
|
0.03
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly per share amounts may not equal the total computed due to rounding.
|
24. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following information is supplemental disclosure for the Consolidated Statements of Cash Flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2019
|
|
2020
|
Cash paid for interest and financing costs
|
$
|
18,858
|
|
|
$
|
23,870
|
|
|
$
|
30,935
|
|
Cash paid for taxes
|
$
|
3,543
|
|
|
$
|
378
|
|
|
$
|
2,555
|
|
Cash refund received for taxes
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25. SUBSEQUENT EVENTS
On January 25, 2021, the Company detected that its information technology (“IT”) system was affected by a ransomware incident. Upon learning of the incident, the Company undertook immediate steps to address the incident, including engaging IT security and forensics experts and working diligently with these experts to assess the impact on the Company’s IT systems, implementing additional security measures to help prevent a similar incident in the future, and to restore any of its IT systems that were impacted by the incident. We have insurance coverage to protect against this type of ransomware attack and therefore the Company expects that recovery of the losses related to the incident is likely after a deductible. As of February 11, 2021, the restoration of any impacted systems was complete.
While we are taking all appropriate measures to safeguard the integrity of our IT infrastructure, data, and employee, customer and vendor information and prevent such an event from reoccurring, we cannot provide reasonable assurance that similar incidents may occur in the future. Refer to Part I, Item 1A. Risk Factors for risks related to our business.
On January 28, 2021, we received a conversion notice from a holder of our Convertible Notes exercising their right to convert. Following receipt of the conversion notice, in accordance with the terms of the Indenture, we provided notice to settle such conversion in cash, which will settle on the third business day immediately following the applicable 25-day period observation period, as more fully described in the Indenture.
On February 17, 2021, the Company entered into an amendment to the employment agreement of Melvin C. Payne, the Company’s Chief Executive Officer and Chairman of the Board (the “Amendment”), to extend the term of his employment to February 17, 2028. The Amendment also increases the minimum amount for Mr. Payne’s base salary to $900,000 and includes consideration paid by the Company to Mr. Payne in the form of Company stock options that only vest if the price of the Company's stock reaches predetermined price targets.