CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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. As of March 31, 2021, we operated 173 funeral homes in 26 states and 32 cemeteries in 12 states. Our operations are reported in two business segments: Funeral Home Operations, which currently account for approximately 75% of our revenue and Cemetery Operations, which currently account 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 and Interim Condensed Disclosures
Our unaudited consolidated financial statements include the Company and its subsidiaries. All intercompany balances and transactions have been eliminated. Our interim consolidated financial statements are unaudited but include all adjustments, which consist of normal, recurring accruals, that are necessary for a fair presentation of our financial position and results of operations as of and for the interim periods presented. Our unaudited consolidated financial statements have been prepared in a manner consistent with the accounting principles described in our Annual Report on Form 10-K for the year ended December 31, 2020 unless otherwise disclosed herein, and should be read in conjunction therewith.
Reclassifications
Certain reclassifications have been made to prior period amounts on our Consolidated Statements of Cash Flows related to the amortization of non-compete agreements and on our Statement of Changes in Stockholders Equity related to the issuance of common stock to conform to the current period financial statement presentation with no effect on our previously reported Consolidated Statements of Operations and Consolidated Balance Sheet.
Use of Estimates
The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. On an ongoing basis, we evaluate our 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.
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.
Our allowance for credit losses reflects our best estimate of expected credit losses over the term of both our funeral and cemetery receivables. Our policy is to write off receivables when we have determined they will no longer be collectible. Write-offs are applied as a reduction to the allowance for credit losses and any recoveries of previous write-offs are netted against bad debt expense in the period recovered.
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.
See Note 5 to the Consolidated Financial Statements herein for additional information related to our 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.
During the three months ended March 31, 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.
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 Accounting Standards Codification (“ASC”) Topic 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.
See Notes 3 and 4 to the Consolidated Financial Statements herein for additional information related to our 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.
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 reporting unit that will be retained. Additionally, after each divestiture, we will 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.
See Note 3 to the Consolidated Financial Statements included herein for additional information related to our 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.
See Note 9 to the Consolidated Financial Statements included herein for additional information related to our 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.
The fair value of our trust fund assets are accounted for as Collateralized Financing Entities (“CFEs”) in ASC Topic 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.
In accordance with ASC Topic 326, we present our credit losses for fixed income securities as an allowance rather than as a write-down on the fixed income securities we do not intend to sell and it is likely that we will not be required to sell prior to their anticipated recovery.
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 6 and 7 to the Consolidated Financial Statements herein for additional information related to our preneed and perpetual care trust funds.
Fair Value Measurements
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 ASC Topic 820. 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.
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.
See Notes 6 and 8 to the Consolidated Financial Statements herein for additional required disclosures related to our 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.
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 9 to the Consolidated Financial Statements herein for additional information related to our 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 estimated useful lives of the assets.
Long-lived assets, such as property, plant and equipment subject to depreciation and amortization, 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 Topic 360 – Property, Plant and Equipment.
Property, plant and equipment is comprised of the following (in thousands):
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December 31, 2020
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March 31, 2021
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Land
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$
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82,615
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$
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81,981
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Buildings and improvements
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240,567
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240,988
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Furniture, equipment and automobiles
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91,302
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91,481
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Property, plant and equipment, at cost
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414,484
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414,450
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Less: accumulated depreciation
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(145,433)
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(147,395)
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Property, plant and equipment, net
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$
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269,051
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$
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267,055
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During the three months ended March 31, 2021, we acquired land for $0.4 million. We also divested two funeral homes that had a carrying value of property, plant and equipment of $1.5 million, which was included in the gain on sale of divestitures and recorded in Net loss (gain) on divestitures and impairment charges on our Consolidated Statements of Operations, described in Note 4 to the Consolidated Financial Statements included herein.
Our growth and maintenance capital expenditures totaled $2.7 million and $4.3 million for the three months ended March 31, 2020 and 2021, respectively, for property, plant, equipment and cemetery development. In addition, we recorded depreciation expense of $3.6 million and $3.4 million for the three months ended March 31, 2020 and 2021, respectively.
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 $101.1 million at both December 31, 2020 and March 31, 2021, net of accumulated amortization of $46.6 million and $48.1 million, 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 $0.9 million and $1.5 million for the three months ended March 31, 2020 and 2021, 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. 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.
See Notes 13 to the Consolidated Financial Statements included herein for additional information related to our 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 restricted stock is determined using the stock price on the grant date. The fair value of options or awards containing options is determined using the Black-Scholes valuation model or the Monte-Carlo simulation pricing 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. 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 14 to the Consolidated Financial Statements included herein for additional information related to our 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 in 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 in 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.
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 March 31, 2021, CSV RIA provided investment management and advisory services to approximately 80% of our trust assets, for a fee based on the market value of 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 $8.2 million and $8.1 million at December 31, 2020 and March 31, 2021, 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 were $7.9 million and $8.5 million at December 31, 2020 and March 31, 2021, 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 Note 16 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 in which we operate and combined or unitary income tax returns in 14 states in which we operate. 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 Consolidated Appropriations Act was signed into law on December 27, 2020. This Act included several tax provisions directly benefiting individual and corporate taxpayers. The primary benefit in this legislation is a temporary allowance for full deduction for business meals paid or incurred between December 31, 2020 and January 1, 2023.
We filed carryback refund claims for the 2018 and 2019 tax years as allowed by the legislative changes included in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted March 27, 2020. As a result of requesting a tax refund in excess of $5 million, we must receive Joint Committee approval and undergo an audit for the tax year ending December 31, 2018. This audit is currently in progress. In 2020, the 2018 tax return was amended to take full advantage of the CARES Act legislative benefits resulting in additional losses that increase the amount of our carryback refund claim. The majority of the net operating losses generated in 2018 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 receiving Internal Revenue Service (“IRS”) approval regarding our non-automatic accounting method changes, a reserve has been recorded against the benefit derived from this carrying back that the net operating losses generated. At both December 31, 2020 and March 31, 2021, the reserve for uncertain tax positions was $3.7 million.
Income tax expense during interim periods is based on our forecasted annual effective tax rate plus any discrete items, which are recorded in the period in which they occur. Discrete items include, but are not limited to, such events as changes in estimates due to finalization of income tax returns, tax audit settlements, tax effects of exercised or vested stock-based awards and increases or decreases in valuation allowances on deferred tax assets.
Our income tax benefit was $2.2 million for the three months ended March 31, 2020 compared to an income tax expense of $5.6 million for the three months ended March 31, 2021. Our operating tax rate before discrete items was 33.6% and 31.0% for the three months ended March 31, 2020 and 2021, respectively.
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.
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 restricted stock awards to our employees and directors are considered participating securities, and we have prepared our earnings per share calculations attributable to common stockholders to exclude outstanding unvested restricted stock awards, using the two-class method, in both the basic and diluted weighted average shares outstanding calculation.
See Note 15 to the Consolidated Financial Statements included herein related to the computation of earnings per share.
Subsequent Events
We have evaluated events and transactions during the period subsequent to March 31, 2021 through the date the financial statements were issued for potential recognition or disclosure in the accompanying financial statements covered by this report.
See Note 18 to the Consolidated Financial Statements included herein for additional information related to our subsequent events.
2.RECENTLY ISSUED ACCOUNTING STANDARDS
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 three months ended March 31, 2021.
3.GOODWILL
The following table presents changes in goodwill in the accompanying Consolidated Balance Sheet (in thousands):
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December 31, 2020
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March 31, 2021
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Goodwill at the beginning of the period
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$
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398,292
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$
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392,978
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Net increase in goodwill related to acquisitions
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14,054
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—
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Decrease in goodwill related to divestitures
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(5,736)
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(1,006)
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Decrease in goodwill related to impairments
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(13,632)
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—
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Goodwill at the end of the period
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$
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392,978
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$
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391,972
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During the three months ended March 31, 2021, we allocated $1.0 million of goodwill to the sale of one funeral home for a loss recorded in Net loss (gain) on divestitures and impairment charges.
4.DIVESTED OPERATIONS
During the three months ended March 31, 2021, we sold two funeral homes for $2.8 million. During the three months ended March 31, 2020, we did not sell any funeral homes or cemeteries.
The operating results of these divested funeral homes are reflected in our Consolidated Statements of Operations as shown in the table below (in thousands):
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Three months ended March 31,
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2020
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2021
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Revenue
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$
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—
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$
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282
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Operating income
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—
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60
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|
|
Gain on divestitures(1)
|
—
|
|
|
308
|
|
|
|
|
|
Income tax expense
|
—
|
|
|
(114)
|
|
|
|
|
|
Net income from divested operations, after tax
|
$
|
—
|
|
|
$
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Gain on divestitures is recorded in Net loss (gain) on divestitures and impairment charges on our Consolidated Statements of Operations.
|
5.RECEIVABLES
Accounts Receivable
Accounts receivable is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
Funeral
|
|
Cemetery
|
|
Corporate
|
|
Total
|
Trade and financed receivables
|
$
|
9,827
|
|
|
$
|
12,451
|
|
|
$
|
—
|
|
|
$
|
22,278
|
|
Other receivables
|
426
|
|
|
2,769
|
|
|
1,395
|
|
|
4,590
|
|
Allowance for credit losses
|
(284)
|
|
|
(999)
|
|
|
—
|
|
|
(1,283)
|
|
Accounts receivable, net
|
$
|
9,969
|
|
|
$
|
14,221
|
|
|
$
|
1,395
|
|
|
$
|
25,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Other receivables include supplier rebates, commissions due from third party insurance companies, perpetual care income receivables and proceeds due from an insurance claim. 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.
The following table summarizes the activity in our allowance for credit losses by portfolio segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2021
|
|
Provision for Credit Losses
|
|
|
|
Write Offs
|
|
Recoveries
|
|
March 31, 2021
|
Trade and financed receivables:
|
|
|
|
|
|
|
|
|
|
|
|
Funeral
|
$
|
(327)
|
|
|
$
|
(203)
|
|
|
|
|
$
|
553
|
|
|
$
|
(307)
|
|
|
$
|
(284)
|
|
Cemetery
|
(960)
|
|
|
(139)
|
|
|
|
|
100
|
|
|
—
|
|
|
(999)
|
|
Total allowance for credit losses on Trade and financed receivables
|
$
|
(1,287)
|
|
|
$
|
(342)
|
|
|
|
|
$
|
653
|
|
|
$
|
(307)
|
|
|
$
|
(1,283)
|
|
Preneed Cemetery Receivables
Our preneed cemetery receivables are comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
March 31, 2021
|
Cemetery interment rights
|
$
|
36,696
|
|
|
$
|
38,108
|
|
Cemetery merchandise and services
|
10,526
|
|
|
10,789
|
|
Cemetery financed receivables
|
$
|
47,222
|
|
|
$
|
48,897
|
|
The components of our preneed cemetery receivables are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
March 31, 2021
|
Preneed cemetery receivables
|
$
|
47,222
|
|
|
$
|
48,897
|
|
Less: unearned finance charges
|
(4,348)
|
|
|
(4,508)
|
|
Preneed cemetery receivables, at amortized cost
|
$
|
42,874
|
|
|
$
|
44,389
|
|
Less: allowance for credit losses
|
(2,604)
|
|
|
(2,864)
|
|
Less: balances due on undelivered cemetery preneed contracts
|
(7,919)
|
|
|
(8,540)
|
|
Less: amounts in accounts receivable
|
(11,270)
|
|
|
(11,452)
|
|
Preneed cemetery receivables, net
|
$
|
21,081
|
|
|
$
|
21,533
|
|
The following table summarizes the activity in our allowance for credit losses for Preneed cemetery receivables, net (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2021
|
|
Provision for Credit Losses
|
|
Write Offs
|
|
March 31, 2021
|
Total allowance for credit losses on Preneed cemetery receivables, net
|
$
|
(1,644)
|
|
|
$
|
(246)
|
|
|
$
|
25
|
|
|
$
|
(1,865)
|
|
The amortized cost basis of our preneed cemetery receivables by year of origination as of March 31, 2021 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
Prior
|
|
Total
|
Total preneed cemetery receivables, at amortized cost
|
$
|
7,913
|
|
|
$
|
16,490
|
|
|
$
|
9,585
|
|
|
$
|
5,118
|
|
|
$
|
2,814
|
|
|
$
|
2,469
|
|
|
$
|
44,389
|
|
The aging of past due preneed cemetery receivables as of March 31, 2021 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
|
Recognized revenue
|
$
|
623
|
|
|
$
|
404
|
|
|
$
|
194
|
|
|
$
|
1,990
|
|
|
$
|
3,211
|
|
|
$
|
32,953
|
|
|
$
|
36,164
|
|
Deferred revenue
|
184
|
|
|
140
|
|
|
46
|
|
|
600
|
|
|
970
|
|
|
11,763
|
|
|
12,733
|
|
Total contracts
|
$
|
807
|
|
|
$
|
544
|
|
|
$
|
240
|
|
|
$
|
2,590
|
|
|
$
|
4,181
|
|
|
$
|
44,716
|
|
|
$
|
48,897
|
|
6.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 our 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 8 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.
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.
Preneed Cemetery Trust Investments
The components of Preneed cemetery trust investments on our Consolidated Balance Sheet are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
March 31, 2021
|
Preneed cemetery trust investments, at market value
|
$
|
89,081
|
|
|
$
|
94,882
|
|
Less: allowance for contract cancellation
|
(2,477)
|
|
|
(2,519)
|
|
Preneed cemetery trust investments
|
$
|
86,604
|
|
|
$
|
92,363
|
|
The cost and market values associated with preneed cemetery trust investments at March 31, 2021 are detailed below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy Level
|
|
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair Market
Value
|
Cash and money market accounts
|
1
|
|
$
|
1,464
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,464
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign debt
|
2
|
|
15,996
|
|
|
2,244
|
|
|
(620)
|
|
|
17,620
|
|
Corporate debt
|
2
|
|
14,509
|
|
|
1,849
|
|
|
(91)
|
|
|
16,267
|
|
Preferred stock
|
2
|
|
11,922
|
|
|
689
|
|
|
(360)
|
|
|
12,251
|
|
Mortgage-backed securities
|
2
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Common stock
|
1
|
|
31,925
|
|
|
7,912
|
|
|
(3,508)
|
|
|
36,329
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
Equity
|
1
|
|
27
|
|
|
1
|
|
|
—
|
|
|
28
|
|
Fixed Income
|
2
|
|
8,110
|
|
|
1,729
|
|
|
(137)
|
|
|
9,702
|
|
Trust securities
|
|
|
$
|
83,953
|
|
|
$
|
14,424
|
|
|
$
|
(4,716)
|
|
|
$
|
93,661
|
|
Accrued investment income
|
|
|
$
|
1,221
|
|
|
|
|
|
|
$
|
1,221
|
|
Preneed cemetery trust investments
|
|
|
|
|
|
|
|
|
$
|
94,882
|
|
Market value as a percentage of cost
|
|
|
|
|
|
|
|
|
111.6
|
%
|
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
|
13,602
|
|
Due in five to ten years
|
8,505
|
|
Thereafter
|
24,031
|
|
Total fixed income securities
|
$
|
46,138
|
|
The cost and 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 following table summarized our fixed income securities (excluding mutual funds) within our preneed cemetery trust investments in an unrealized loss position at March 31, 2021, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
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
|
$
|
2,590
|
|
|
$
|
(114)
|
|
|
$
|
509
|
|
|
$
|
(506)
|
|
|
$
|
3,099
|
|
|
$
|
(620)
|
|
Corporate debt
|
735
|
|
|
(9)
|
|
|
682
|
|
|
(82)
|
|
|
1,417
|
|
|
(91)
|
|
Preferred stock
|
3,912
|
|
|
(324)
|
|
|
837
|
|
|
(36)
|
|
|
4,749
|
|
|
(360)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed income securities with an unrealized loss
|
$
|
7,237
|
|
|
$
|
(447)
|
|
|
$
|
2,028
|
|
|
$
|
(624)
|
|
|
$
|
9,265
|
|
|
$
|
(1,071)
|
|
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)
|
|
Preneed cemetery trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2020
|
|
2021
|
|
|
|
|
Investment income
|
$
|
319
|
|
|
$
|
467
|
|
|
|
|
|
Realized gains
|
1,916
|
|
|
4,092
|
|
|
|
|
|
Realized losses
|
(1,372)
|
|
|
(2,518)
|
|
|
|
|
|
Unrealized gains (losses), net
|
(16,305)
|
|
|
9,708
|
|
|
|
|
|
Expenses and taxes
|
(187)
|
|
|
(327)
|
|
|
|
|
|
Net change in deferred preneed cemetery receipts held in trust
|
15,629
|
|
|
(11,422)
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Purchases and sales of investments in the preneed cemetery trusts are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2020
|
|
2021
|
|
|
|
|
Purchases
|
$
|
(18,857)
|
|
|
$
|
(8,411)
|
|
|
|
|
|
Sales
|
13,231
|
|
|
8,049
|
|
|
|
|
|
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, 2020
|
|
March 31, 2021
|
Preneed funeral trust investments, at market value
|
$
|
104,166
|
|
|
$
|
108,131
|
|
Less: allowance for contract cancellation
|
(2,931)
|
|
|
(2,930)
|
|
Preneed funeral trust investments
|
$
|
101,235
|
|
|
$
|
105,201
|
|
The cost and market values associated with preneed funeral trust investments at March 31, 2021 are detailed below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy Level
|
|
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair Market
Value
|
Cash and money market accounts
|
1
|
|
$
|
18,119
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18,119
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
U.S treasury debt
|
1
|
|
816
|
|
|
5
|
|
|
—
|
|
|
821
|
|
|
|
|
|
|
|
|
|
|
|
Foreign debt
|
2
|
|
14,959
|
|
|
2,142
|
|
|
(551)
|
|
|
16,550
|
|
Corporate debt
|
2
|
|
12,826
|
|
|
1,639
|
|
|
(87)
|
|
|
14,378
|
|
Preferred stock
|
2
|
|
10,816
|
|
|
637
|
|
|
(340)
|
|
|
11,113
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
1
|
|
29,618
|
|
|
7,546
|
|
|
(3,120)
|
|
|
34,044
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
Equity
|
1
|
|
26
|
|
1
|
|
—
|
|
|
27
|
|
Fixed income
|
2
|
|
6,600
|
|
|
1,534
|
|
|
(87)
|
|
|
8,047
|
|
Other investments
|
2
|
|
3,901
|
|
|
—
|
|
|
—
|
|
|
3,901
|
|
Trust securities
|
|
|
$
|
97,681
|
|
|
$
|
13,504
|
|
|
$
|
(4,185)
|
|
|
$
|
107,000
|
|
Accrued investment income
|
|
|
$
|
1,131
|
|
|
|
|
|
|
$
|
1,131
|
|
Preneed funeral trust investments
|
|
|
|
|
|
|
|
|
$
|
108,131
|
|
Market value as a percentage of cost
|
|
|
|
|
|
|
|
|
109.5
|
%
|
The estimated maturities of the fixed income securities (excluding mutual funds) included above are as follows (in thousands):
|
|
|
|
|
|
Due in one year or less
|
$
|
821
|
|
Due in one to five years
|
12,143
|
|
Due in five to ten years
|
7,855
|
|
Thereafter
|
22,043
|
|
Total fixed income securities
|
$
|
42,862
|
|
The cost and 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
|
%
|
The following table summarized our fixed income securities (excluding mutual funds) within our preneed funeral trust investment in an unrealized loss position at March 31, 2021, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
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
|
$
|
2,270
|
|
|
$
|
(100)
|
|
|
$
|
456
|
|
|
$
|
(451)
|
|
|
$
|
2,726
|
|
|
$
|
(551)
|
|
Corporate debt
|
705
|
|
|
(9)
|
|
|
654
|
|
|
(78)
|
|
|
1,359
|
|
|
(87)
|
|
Preferred stock
|
3,750
|
|
|
(311)
|
|
|
599
|
|
|
(29)
|
|
|
4,349
|
|
|
(340)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed income securities with an unrealized loss
|
$
|
6,725
|
|
|
$
|
(420)
|
|
|
$
|
1,709
|
|
|
$
|
(558)
|
|
|
$
|
8,434
|
|
|
$
|
(978)
|
|
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)
|
|
Preneed funeral trust investment security transactions recorded in Other, net on the Consolidated Statements of Operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
|
|
2020
|
|
2021
|
|
|
|
|
|
|
|
|
Investment income
|
$
|
258
|
|
|
$
|
369
|
|
|
|
|
|
|
|
|
|
Realized gains
|
2,551
|
|
|
3,871
|
|
|
|
|
|
|
|
|
|
Realized losses
|
(1,129)
|
|
|
(2,368)
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses), net
|
(15,274)
|
|
|
9,319
|
|
|
|
|
|
|
|
|
|
Expenses and taxes
|
(97)
|
|
|
(196)
|
|
|
|
|
|
|
|
|
|
Net change in deferred preneed funeral receipts held in trust
|
13,691
|
|
|
(10,995)
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Purchases and sales of investments in the preneed funeral trusts are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
|
|
2020
|
|
2021
|
|
|
|
|
|
|
|
|
Purchases
|
$
|
(18,538)
|
|
|
$
|
(7,628)
|
|
|
|
|
|
|
|
|
|
Sales
|
15,968
|
|
|
7,524
|
|
|
|
|
|
|
|
|
|
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, 2020
|
|
March 31, 2021
|
Cemetery perpetual care trust investments, at market value
|
$
|
70,828
|
|
|
$
|
75,815
|
|
Obligations due from trust
|
(1,121)
|
|
|
(455)
|
|
Care trusts’ corpus
|
$
|
69,707
|
|
|
$
|
75,360
|
|
The following table reflects the cost and fair market values associated with the trust investments held in perpetual care trust funds at March 31, 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy Level
|
|
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair Market
Value
|
Cash and money market accounts
|
1
|
|
$
|
528
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
528
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign debt
|
2
|
|
12,642
|
|
|
1,775
|
|
|
(508)
|
|
|
13,909
|
|
Corporate debt
|
2
|
|
11,525
|
|
|
1,540
|
|
|
(69)
|
|
|
12,996
|
|
Preferred stock
|
2
|
|
10,518
|
|
|
558
|
|
|
(299)
|
|
|
10,777
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
1
|
|
25,151
|
|
|
6,436
|
|
|
(2,945)
|
|
|
28,642
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
Equity
|
1
|
|
20
|
|
|
1
|
|
|
|
|
21
|
|
Fixed Income
|
2
|
|
6,739
|
|
|
1,374
|
|
|
(164)
|
|
|
7,949
|
|
Trust securities
|
|
|
$
|
67,123
|
|
|
$
|
11,684
|
|
|
$
|
(3,985)
|
|
|
$
|
74,822
|
|
Accrued investment income
|
|
|
$
|
993
|
|
|
|
|
|
|
$
|
993
|
|
Cemetery perpetual care investments
|
|
|
|
|
|
|
|
|
$
|
75,815
|
|
Market value as a percentage of cost
|
|
|
|
|
|
|
|
|
111.5
|
%
|
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
|
10,149
|
|
Due in five to ten years
|
7,216
|
|
Thereafter
|
20,317
|
|
Total fixed income securities
|
$
|
37,682
|
|
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 following table summarized our fixed income securities (excluding mutual funds) within our perpetual care trust investment in an unrealized loss position at March 31, 2021, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
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
|
$
|
1,800
|
|
|
$
|
(79)
|
|
|
$
|
430
|
|
|
$
|
(429)
|
|
|
$
|
2,230
|
|
|
$
|
(508)
|
|
Corporate debt
|
559
|
|
|
(7)
|
|
|
519
|
|
|
(62)
|
|
|
1,078
|
|
|
(69)
|
|
Preferred stock
|
2,973
|
|
|
(246)
|
|
|
1,318
|
|
|
(53)
|
|
|
4,291
|
|
|
(299)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed income securities with an unrealized loss
|
$
|
5,332
|
|
|
$
|
(332)
|
|
|
$
|
2,267
|
|
|
$
|
(544)
|
|
|
$
|
7,599
|
|
|
$
|
(876)
|
|
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)
|
|
Perpetual care trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2020
|
|
2021
|
|
|
|
|
Realized gains
|
$
|
709
|
|
|
$
|
691
|
|
|
|
|
|
Realized losses
|
(679)
|
|
|
(420)
|
|
|
|
|
|
Unrealized gains (losses), net
|
(13,525)
|
|
|
7,699
|
|
|
|
|
|
Net change in Care trusts’ corpus
|
13,495
|
|
|
(7,970)
|
|
|
|
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Perpetual care trust investment security transactions recorded in Other revenue on our Consolidated Statements of Operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2020
|
|
2021
|
|
|
|
|
Investment income
|
$
|
1,405
|
|
|
$
|
2,513
|
|
|
|
|
|
Realized losses, net
|
(36)
|
|
|
(138)
|
|
|
|
|
|
Total
|
$
|
1,369
|
|
|
$
|
2,375
|
|
|
|
|
|
Purchases and sales of investments in the perpetual care trusts are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2020
|
|
2021
|
|
|
|
|
Purchases
|
$
|
(14,612)
|
|
|
$
|
(6,137)
|
|
|
|
|
|
Sales
|
12,694
|
|
|
5,956
|
|
|
|
|
|
7.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, 2020
|
|
March 31, 2021
|
Preneed trust funds, at cost
|
$
|
17,365
|
|
|
$
|
17,502
|
|
Less: allowance for contract cancellation
|
(521)
|
|
|
(526)
|
|
Receivables from preneed trusts, net
|
$
|
16,844
|
|
|
$
|
16,976
|
|
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, 2020 and March 31, 2021. 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 March 31, 2021 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
Cost Basis
|
|
Fair Value
|
Cash and cash equivalents
|
$
|
4,697
|
|
|
$
|
4,697
|
|
Fixed income investments
|
10,473
|
|
|
10,473
|
|
Mutual funds and common stocks
|
2,327
|
|
|
2,406
|
|
Annuities
|
5
|
|
|
5
|
|
Total
|
$
|
17,502
|
|
|
$
|
17,581
|
|
The composition of the preneed trust funds at December 31, 2020 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
Cost Basis
|
|
Fair Value
|
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
|
|
8.FAIR VALUE MEASUREMENTS
We evaluated our financial assets and liabilities for those financial assets and liabilities 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 10) and Senior Notes (as defined in Note 12) are classified within Level 2 of the Fair Value Measurements hierarchy.
At March 31, 2021, the carrying value and fair value of our Credit Facility was $28.3 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 March 31, 2021, the carrying value of our acquisition debt was $5.4 million, which approximated its fair value. The fair value of our Senior Notes was approximately $417.6 million at March 31, 2021 based on the last traded or broker quoted price.
At December 31, 2020 and March 31, 2021, we did not have any assets that had fair values determined by Level 3 inputs and no liabilities measured at fair value.
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.
See Notes 6 and 7 to our Consolidated Financial Statements herein for the fair value hierarchy levels of our trust investments.
9.INTANGIBLE AND OTHER NON-CURRENT ASSETS
Intangible and other non-current assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
March 31, 2021
|
Tradenames
|
$
|
23,565
|
|
|
$
|
23,565
|
|
Prepaid agreements not-to-compete, net of accumulated amortization of $3,193 and $3,361, respectively
|
2,785
|
|
|
2,676
|
|
Capitalized commissions on preneed contracts, net of accumulated amortization of $1,594 and $1,746, respectively
|
3,141
|
|
|
3,240
|
|
|
|
|
|
Other
|
51
|
|
|
21
|
|
Intangible and other non-current assets, net
|
$
|
29,542
|
|
|
$
|
29,502
|
|
Tradenames
Our tradenames have indefinite lives and therefore are not amortized.
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 $187,000 and $168,000 for the three months ended March 31, 2020 and 2021, respectively.
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 related to capitalized commissions totaled $141,000 and $152,000 for the three months ended March 31, 2020 and 2021, respectively.
The aggregate amortization expense for our non-compete agreements and capitalized commissions as of March 31, 2021 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Compete Agreements
|
|
Capitalized Commissions
|
Years ending December 31,
|
|
|
|
Remainder of 2021
|
$
|
459
|
|
|
$
|
437
|
|
2022
|
519
|
|
|
543
|
|
2023
|
446
|
|
|
488
|
|
2024
|
380
|
|
|
425
|
|
2025
|
373
|
|
|
359
|
|
Thereafter
|
499
|
|
|
988
|
|
Total amortization expense
|
$
|
2,676
|
|
|
$
|
3,240
|
|
10.CREDIT FACILITY AND ACQUISITION DEBT
At March 31, 2021, our $190.0 million senior secured revolving credit facility (the “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.
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. 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 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. As of March 31, 2021, we were subject to the following financial covenants under our Credit Facility: (A) a Total Leverage Ratio not to exceed 5.50 to 1.00, (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.
We were in compliance with the total leverage ratio, fixed charge coverage ratio and senior secured leverage ratio covenants contained in our Credit Facility as of March 31, 2021.
Our Credit Facility and Acquisition debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
March 31, 2021
|
Credit Facility
|
$
|
47,200
|
|
|
$
|
28,300
|
|
Debt issuance costs, net of accumulated amortization of $819 and $937, respectively
|
(1,136)
|
|
|
(1,018)
|
|
Total Credit Facility
|
$
|
46,064
|
|
|
$
|
27,282
|
|
|
|
|
|
Acquisition debt
|
$
|
5,509
|
|
|
$
|
5,355
|
|
Less: current portion
|
(1,027)
|
|
|
(913)
|
|
Total acquisition debt, net of current portion
|
$
|
4,482
|
|
|
$
|
4,442
|
|
At March 31, 2021, we had outstanding borrowings under the Credit Facility of $28.3 million. We also had one letter of credit for $2.1 million outstanding under the Credit Facility, which bears interest at 3.125% and will expire on November 25, 2021. The letter of credit will automatically renew annually and secures our obligations under our various self-insured policies. At March 31, 2021, we had $159.6 million of availability under the Credit Facility after giving effect 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 March 31, 2021, 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 was 4.3% and 3.3% for the three months ended March 31, 2020 and 2021, respectively.
The interest expense and amortization of debt issuance costs related to our Credit Facility are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2020
|
|
2021
|
|
|
|
|
Credit Facility interest expense
|
$
|
1,230
|
|
|
$
|
445
|
|
|
|
|
|
Credit Facility amortization of debt issuance costs
|
126
|
|
|
118
|
|
|
|
|
|
See Note 18 to the Consolidated Financial Statements herein for additional information related to our Credit Facility.
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 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2020
|
|
2021
|
|
|
|
|
Acquisition debt imputed interest expense
|
$
|
127
|
|
|
$
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.CONVERTIBLE SUBORDINATED NOTES
During the three months ended March 31, 2021, we converted approximately $2.4 million in aggregate principal amount of our 2.75% convertible subordinated notes due 2021 (the “Convertible Notes”) held by certain holders for approximately $3.8 million in cash and recorded $1.4 million for the reacquisition of the equity component. The Convertible Notes matured on March 15, 2021, at which time all Convertible Notes outstanding, approximately $0.2 million in aggregate principal amount, were paid in full in cash at par value. Therefore, no Convertible Notes remain outstanding at March 31, 2021.
The carrying values of the liability and equity components of our Convertible Notes are reflected on our Consolidated Balance Sheet as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
March 31, 2021
|
Current liabilities:
|
|
|
|
Principal amount
|
$
|
2,559
|
|
|
$
|
—
|
|
Unamortized discount of liability component
|
(20)
|
|
|
—
|
|
Convertible Notes issuance costs, net of accumulated amortization of $63 and $64, respectively
|
(1)
|
|
|
—
|
|
Carrying value of the liability component
|
$
|
2,538
|
|
|
$
|
—
|
|
|
|
|
|
Carrying value of the equity component
|
$
|
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, 2020.
The interest expense and accretion of debt discount and debt issuance costs related to our Convertible Notes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2020
|
|
2021
|
|
|
|
|
Convertible Notes interest expense
|
$
|
43
|
|
|
$
|
18
|
|
|
|
|
|
Convertible Notes accretion of debt discount
|
65
|
|
|
20
|
|
|
|
|
|
Convertible Notes amortization of debt issuance costs
|
6
|
|
|
1
|
|
|
|
|
|
The effective interest rate on the unamortized debt discount for both the three months ended March 31, 2020 and 2021 was 11.4%. The effective interest rate on the debt issuance costs for the three months ended March 31, 2020 and 2021 was 3.2% and 3.1%, respectively.
12.SENIOR NOTES
The carrying value of our 6.625% senior notes due 2026 (the “Senior Notes”) is reflected on our Consolidated Balance Sheet as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
March 31, 2021
|
Long-term liabilities:
|
|
|
|
Principal amount
|
$
|
400,000
|
|
|
$
|
400,000
|
|
Debt premium, net of accumulated amortization of $221 and $279, respectively
|
1,467
|
|
|
1,409
|
|
Debt discount, net of accumulated amortization of $1,293 and $1,431, respectively
|
(3,582)
|
|
|
(3,444)
|
|
Debt issuance costs, net of accumulated amortization of $496 and $570, respectively
|
(1,917)
|
|
|
(1,843)
|
|
Carrying value of the Senior Notes
|
$
|
395,968
|
|
|
$
|
396,122
|
|
At March 31, 2021, the fair value of the Senior Notes, which are Level 2 measurements, was $417.6 million.
The 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. 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. The Senior Notes are due on June 1, 2026 unless earlier redeemed or repurchased and bear interest at 6.625% per year, which is payable semi-annually in arrears on June 1 and December 1 of each year.
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 interest expense and amortization of debt discount, debt premium and debt issuance costs related to our Senior Notes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2020
|
|
2021
|
|
|
|
|
Senior Notes interest expense
|
$
|
6,625
|
|
|
$
|
6,625
|
|
|
|
|
|
Senior Notes amortization of debt discount
|
129
|
|
|
138
|
|
|
|
|
|
Senior Notes amortization of debt premium
|
54
|
|
|
58
|
|
|
|
|
|
Senior Notes amortization of debt issuance costs
|
67
|
|
|
74
|
|
|
|
|
|
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 62 months of the Senior Notes. The effective interest rate on the unamortized debt discount and the unamortized debt issuance costs for the Senior Notes, issued in May 2018, for both three months ended March 31, 2020 and 2021 was 6.87% and 6.69%, respectively. The effective interest rate on the unamortized debt premium and the unamortized debt issuance costs for the Senior Notes, issued in December 2019, for both three months ended March 31, 2020 and 2021 was 6.20% and 6.88%, respectively.
On April 30, 2021, we delivered a notice of conditional redemption to the trustee for the Senior Notes to call for redemption on June 1, 2021, all of the outstanding aggregate principal amount of the Senior Notes at a redemption price of 104.969% of the principal amount thereof, plus accrued and unpaid interest up to, but excluding, the scheduled redemption date. See Note 18 to the Consolidated Financial Statements herein for additional information regarding the notice of conditional redemption for our Senior Notes.
13.LEASES
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
Income Statement Classification
|
|
2020
|
|
2021
|
|
|
|
|
Operating lease cost
|
Facilities and grounds expense(1)
|
|
$
|
957
|
|
|
$
|
960
|
|
|
|
|
|
Short-term lease cost
|
Facilities and grounds expense(1)
|
|
32
|
|
|
49
|
|
|
|
|
|
Variable lease cost
|
Facilities and grounds expense(1)
|
|
25
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
|
Depreciation of leased assets
|
Depreciation and amortization(2)
|
|
$
|
109
|
|
|
$
|
108
|
|
|
|
|
|
Interest on lease liabilities
|
Interest expense
|
|
126
|
|
|
120
|
|
|
|
|
|
Total finance lease cost
|
|
|
235
|
|
|
228
|
|
|
|
|
|
Total lease cost
|
|
|
$
|
1,249
|
|
|
$
|
1,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 and Home office depreciation and amortization on our Consolidated Statements of Operations.
|
Supplemental cash flow information related to our leases is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
2020
|
|
2021
|
Cash paid for operating leases included in operating activities
|
$
|
696
|
|
|
$
|
965
|
|
Cash paid for finance leases included in financing activities
|
200
|
|
|
209
|
|
Right-of-use assets obtained in exchange for new leases is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
2020
|
|
2021
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
$
|
77
|
|
|
$
|
56
|
|
Right-of-use assets obtained in exchange for new finance lease liabilities
|
—
|
|
|
—
|
|
Supplemental balance sheet information related to leases is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Type
|
Balance Sheet Classification
|
December 31, 2020
|
|
March 31, 2021
|
Operating lease right-of-use assets
|
Operating lease right-of-use assets
|
$
|
21,201
|
|
|
$
|
20,747
|
|
|
|
|
|
|
Finance lease right-of-use assets
|
Property, plant and equipment, net
|
$
|
6,770
|
|
|
$
|
6,770
|
|
Accumulated depreciation
|
Property, plant and equipment, net
|
(2,005)
|
|
|
(2,113)
|
|
Finance lease right-of-use assets, net
|
|
$
|
4,765
|
|
|
$
|
4,657
|
|
|
|
|
|
|
Operating lease current liabilities
|
Current portion of operating lease obligations
|
$
|
2,082
|
|
|
$
|
2,057
|
|
Finance lease current liabilities
|
Current portion of finance lease obligations
|
323
|
|
|
331
|
|
Total current lease liabilities
|
|
$
|
2,405
|
|
|
$
|
2,388
|
|
|
|
|
|
|
Operating lease non-current liabilities
|
Obligations under operating leases, net of current portion
|
$
|
20,302
|
|
|
$
|
19,876
|
|
Finance lease non-current liabilities
|
Obligations under finance leases, net of current portion
|
5,531
|
|
|
5,445
|
|
Total non-current lease liabilities
|
|
$
|
25,833
|
|
|
$
|
25,321
|
|
|
|
|
|
|
Total lease liabilities
|
|
$
|
28,238
|
|
|
$
|
27,709
|
|
The average lease terms and discount rates at March 31, 2021 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term (years)
|
|
Weighted-average discount rate
|
Operating leases
|
10.7
|
|
8.1
|
%
|
Finance leases
|
5.6
|
|
8.2
|
%
|
The aggregate future lease payments for operating and finance leases as of March 31, 2021 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Finance
|
Lease payments due:
|
|
|
|
Remainder of 2021
|
$
|
2,854
|
|
|
$
|
627
|
|
2022
|
3,439
|
|
|
860
|
|
2023
|
3,318
|
|
|
860
|
|
2024
|
3,301
|
|
|
791
|
|
2025
|
3,161
|
|
|
736
|
|
Thereafter
|
16,188
|
|
|
5,555
|
|
Total lease payments
|
32,261
|
|
|
9,429
|
|
Less: Interest
|
(10,328)
|
|
|
(3,653)
|
|
Present value of lease liabilities
|
$
|
21,933
|
|
|
$
|
5,776
|
|
At March 31, 2021, we had no additional significant operating or finance leases that had not yet commenced.
14.STOCKHOLDERS’ EQUITY
Restricted Stock
During the three months ended March 31, 2021, we issued restricted stock to certain employees totaling 9,300 shares that vest over a three-year period and had an aggregate grant date market value of $324,000 at a weighted average stock price of $34.79. During the three months ended March 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 $255,000 at a weighted average stock price of $25.00.
We recorded stock-based compensation expense, which is included in General, administrative and other expenses, for restricted stock awards of $184,000 and $121,000, for the three months ended March 31, 2020 and 2021, respectively.
Stock Options
During the three months ended March 31, 2021, we granted 701,400 options to certain key employee at a weighted average price of $34.79. These options will vest in one-fifth increments over a five-year period and have a ten-year term. The fair value of these options was $7.1 million. During the three months ended March 31, 2020, we did not issue any stock options.
The fair value of the options granted were estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
Grant date
|
|
February 17, 2021
|
Dividend yield
|
|
1.15
|
%
|
Expected volatility
|
|
36.72
|
%
|
Risk-free interest rate
|
|
0.57
|
%
|
Expected holding period (years)
|
|
5.0
|
Black-Scholes value
|
|
$10.14
|
During the three months ended March 31, 2021, employees exercised 101,000 stock options at a weighted average exercise price of $24.18 with an aggregate intrinsic value of $1.3 million. We received $147,000 in cash for payment of the option price and we withheld $295,000 for payment of payroll taxes. In addition, we accelerated 12,980 options in connection with the resignation of an employee which resulted in an additional $129,000 of stock-based compensation expense.
During the three months ended March 31, 2021, we also granted an additional 150,000 options to a certain key employee at a weighted average price of $34.79. These options will vest when the price of our common stock closes at or above the specified prices below for three consecutive days within the ten-year term and the employee has remained continuously employed by us through such date. The fair value of these options was $1.7 million.
The fair value of the options granted were estimated on the date of grant using the Monte-Carlo simulation pricing model using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant date
|
|
February 17, 2021
|
|
February 17, 2021
|
Awards granted
|
|
50,000
|
|
100,000
|
Fair value (in millions)
|
|
$0.5
|
|
$1.2
|
|
|
|
|
|
Vesting share price
|
|
$53.39
|
|
$77.34
|
Dividend yield
|
|
1.15
|
%
|
|
1.15
|
%
|
Expected volatility
|
|
34.08
|
%
|
|
34.08
|
%
|
Risk-free interest rate
|
|
1.29
|
%
|
|
1.29
|
%
|
We recorded stock-based compensation expense, which is included in General, administrative and other expenses, for stock options, including the accelerated stock options discussed above of $215,000 and $560,000, for the three months ended March 31, 2020 and 2021, respectively.
Performance Awards
During the three months ended March 31, 2021, we did not issue any performance awards and we cancelled 27,948 performance awards in connection with the resignation of two employees.
During the three months ended March 31, 2020, we issued 237,500 performance awards to certain employees, payable in shares, with a fair value of $2.8 million. 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 of Directors (the “Board”) approved 368,921 new performance awards to be issued to certain employees. These new performance awards were treated as a modification of the cancelled awards and resulted in an additional $1.7 million of incremental compensation costs.
We recorded stock-based compensation expense, which is included in General, administrative and other expenses, for performance awards of $121,000 and $237,000 for the three months ended March 31, 2020 and 2021, respectively.
Employee Stock Purchase Plan
During the three months ended March 31, 2021, employees purchased a total of 18,182 shares at a weighted average price of $26.32 per share. During the three months ended March 31, 2020, employees purchased a total of 26,294 shares at a weighted average price of $13.73 per share.
The fair value of the right (option) to purchase shares under the ESPP is estimated at the date of purchase with the four quarterly purchase dates using the following assumptions:
|
|
|
|
|
|
|
2021
|
Dividend yield
|
0.01%
|
Expected volatility
|
48.14%
|
Risk-free interest rate
|
0.09%, 0.09%, 0.10%, 0.10%
|
Expected life (years)
|
0.25, 0.50, 0.75, 1.00
|
We recorded stock-based compensation expense, which is included in General, administrative and other expenses and Regional and unallocated funeral and cemetery costs, for the ESPP totaling $163,000 and $206,000 for the three months ended March 31, 2020 and 2021, respectively.
Non-Employee Director Compensation
During the three months ended March 31, 2021, we granted 5,040 shares of our common stock to six Directors, which were valued at $177,000 at a weighted average stock price of $35.19. During the three months ended March 31, 2020, we granted 8,821 shares of our common stock to five Directors, which were valued at $147,000 at a weighted average stock price of $16.15.
We recorded stock-based 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 $201,000 and $231,000 for the three months ended March 31, 2020 and 2021, respectively.
Share Repurchase
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 three months ended March 31, 2021, we did not repurchase any shares of our common stock. At March 31, 2021, we had approximately $25.6 million available for repurchases under our share repurchase program.
Cash Dividends
Our Board declared the following dividends payable on the dates below (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
Per Share
|
|
Dollar Value
|
March 1st
|
$
|
0.100
|
|
|
$
|
1,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
Per Share
|
|
Dollar Value
|
March 1st
|
$
|
0.075
|
|
|
$
|
1,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.EARNINGS PER SHARE
The following table sets forth the computation of the basic and diluted earnings per share (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2020
|
|
2021
|
|
|
|
|
Numerator for basic and diluted earnings per share:
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(4,197)
|
|
|
$
|
12,933
|
|
|
|
|
|
Less: Loss (earnings) allocated to unvested restricted stock
|
13
|
|
|
(27)
|
|
|
|
|
|
Income (loss) attributable to common stockholders
|
$
|
(4,184)
|
|
|
$
|
12,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Denominator for basic earnings per common share - weighted average shares outstanding
|
17,805
|
|
|
17,965
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Stock options
|
—
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per common share - weighted average shares outstanding
|
17,805
|
|
|
18,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share:
|
$
|
(0.23)
|
|
|
$
|
0.72
|
|
|
|
|
|
Diluted earnings (loss) per common share:
|
$
|
(0.23)
|
|
|
$
|
0.71
|
|
|
|
|
|
For the three months ended March 31, 2020 there were 1,034,084 stock options excluded from the computation of diluted earnings per share because the inclusion of such stock options would result in an antidilutive effect and 27,085 shares were excluded from the computation of diluted earnings per share amounts because the loss attributable to common stockholders was a loss, not income. For the three months ended March 31, 2021, no stock options were excluded from the computation of diluted earnings per share.
16.SEGMENT REPORTING
Revenue, disaggregated by major source for each of our reportable segments was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2021
|
|
|
|
|
|
|
|
|
Funeral
|
|
Cemetery
|
|
Total
|
Services
|
|
$
|
43,522
|
|
|
$
|
4,235
|
|
|
$
|
47,757
|
|
Merchandise
|
|
24,461
|
|
|
3,424
|
|
|
27,885
|
|
Cemetery property
|
|
—
|
|
|
14,011
|
|
|
14,011
|
|
Other revenue
|
|
3,791
|
|
|
3,193
|
|
|
6,984
|
|
Total
|
|
$
|
71,774
|
|
|
$
|
24,863
|
|
|
$
|
96,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
|
|
|
|
|
|
|
|
Funeral
|
|
Cemetery
|
|
Total
|
Services
|
|
$
|
37,559
|
|
|
$
|
3,173
|
|
|
$
|
40,732
|
|
Merchandise
|
|
20,700
|
|
|
2,286
|
|
|
22,986
|
|
Cemetery property
|
|
—
|
|
|
8,285
|
|
|
8,285
|
|
Other revenue
|
|
3,483
|
|
|
2,004
|
|
|
5,487
|
|
Total
|
|
$
|
61,742
|
|
|
$
|
15,748
|
|
|
$
|
77,490
|
|
The following table presents operating income (loss), income (loss) before income taxes and total assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral
|
|
Cemetery
|
|
Corporate
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
Three months ended March 31, 2021
|
$
|
25,876
|
|
|
$
|
9,493
|
|
|
$
|
(9,123)
|
|
|
$
|
26,246
|
|
Three months ended March 31, 2020
|
4,311
|
|
|
4,167
|
|
|
(6,328)
|
|
|
2,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes:
|
|
|
|
|
|
|
|
Three months ended March 31, 2021
|
$
|
25,718
|
|
|
$
|
9,476
|
|
|
$
|
(16,620)
|
|
|
$
|
18,574
|
|
Three months ended March 31, 2020
|
4,119
|
|
|
4,105
|
|
|
(14,571)
|
|
|
(6,347)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets:
|
|
|
|
|
|
|
|
March 31, 2021
|
$
|
763,761
|
|
|
$
|
378,945
|
|
|
$
|
15,020
|
|
|
$
|
1,157,726
|
|
December 31, 2020
|
764,535
|
|
|
366,964
|
|
|
14,326
|
|
|
1,145,825
|
|
17.SUPPLEMENTARY DATA
Balance Sheet
The following table presents the detail of certain balance sheet accounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
March 31, 2021
|
Prepaid and other current assets:
|
|
|
|
Prepaid expenses
|
$
|
1,919
|
|
|
$
|
1,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
157
|
|
|
163
|
|
Total prepaid and other current assets
|
$
|
2,076
|
|
|
$
|
2,076
|
|
|
|
|
|
Current portion of debt and lease obligations:
|
|
|
|
Current portion of acquisition debt
|
$
|
1,027
|
|
|
$
|
913
|
|
Current portion of finance lease obligations
|
323
|
|
|
331
|
|
Current portion of operating lease obligations
|
2,082
|
|
|
2,057
|
|
Total current portion of debt and lease obligations
|
$
|
3,432
|
|
|
$
|
3,301
|
|
|
|
|
|
Accrued and other liabilities:
|
|
|
|
Accrued salaries and wages
|
$
|
1,392
|
|
|
$
|
3,307
|
|
Accrued incentive compensation
|
11,139
|
|
|
5,964
|
|
Accrued vacation
|
3,271
|
|
|
3,440
|
|
Accrued insurance
|
3,016
|
|
|
3,507
|
|
Accrued interest
|
2,291
|
|
|
8,888
|
|
Accrued ad valorem and franchise taxes
|
435
|
|
|
1,059
|
|
Employer payroll tax deferral
|
1,773
|
|
|
1,773
|
|
Accrued commissions
|
634
|
|
|
912
|
|
Perpetual care trust payable
|
908
|
|
|
1,097
|
|
Income tax payable
|
798
|
|
|
4,392
|
|
Other accrued liabilities
|
1,825
|
|
|
1,604
|
|
Unrecognized tax benefit
|
3,656
|
|
|
3,656
|
|
Total accrued and other liabilities
|
$
|
31,138
|
|
|
$
|
39,599
|
|
|
|
|
|
Other long-term liabilities:
|
|
|
|
Incentive compensation
|
$
|
2,975
|
|
|
$
|
351
|
|
|
|
|
|
Employer payroll tax deferral
|
1,773
|
|
|
1,773
|
|
Accrued severance
|
—
|
|
|
553
|
|
Total other long-term liabilities
|
$
|
4,748
|
|
|
$
|
2,677
|
|
Cash Flow
The following information is supplemental disclosure for the Consolidated Statements of Cash Flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
2020
|
|
2021
|
Cash paid for interest and financing costs
|
$
|
1,337
|
|
|
$
|
616
|
|
Cash paid for taxes
|
96
|
|
|
532
|
|
Fair value of donated real property
|
—
|
|
|
635
|
|
18.SUBSEQUENT EVENTS
New Notes Purchase Agreement
On April 29, 2021, we and certain of our existing subsidiaries (the “Subsidiary Guarantors”) entered into a Purchase Agreement with BofA Securities, Inc., as representative of the several initial purchasers named therein (collectively, the “Purchasers”), under which we agreed to sell $400 million in aggregate principal amount of 4.25% Senior Notes due 2029 (the “New Notes”) in a private placement to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A and to certain non-U.S. persons outside of the United States pursuant to Regulation S, each under the Securities Act of 1933, as amended. The New Notes will be issued pursuant to an indenture to be entered into among the Company, the Subsidiary Guarantors and Wilmington Trust, National Association, as trustee.
The sale of the New Notes to the Purchasers is expected to settle on May 13, 2021, subject to customary closing conditions, and is expected to result in approximately $394 million in net proceeds to us after deducting the Purchasers’ discount and estimated offering expenses payable by us.
We intend to use the net proceeds of the sale of the New Notes, together with borrowings under the amended and restated credit facility, which we expect to enter into concurrently with the settlement of the sale of the New Notes, to redeem all of our existing Senior Notes.
The New Notes will be our unsecured senior obligations and will bear interest at a rate of 4.25% per year. Interest will be payable semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2021. The New Notes will mature on May 15, 2029, unless earlier repurchased or redeemed.
The New Notes will be guaranteed on a senior unsecured basis by the Subsidiary Guarantors.
Notice of Conditional Redemption
On April 30, 2021, we delivered a notice of conditional redemption to the trustee for the Senior Notes to call for redemption on June 1, 2021, all of the outstanding aggregate principal amount of the Senior Notes at a redemption price of 104.969% of the principal amount thereof, plus accrued and unpaid interest up to, but excluding, the scheduled redemption date. Our redemption obligation is conditioned on and subject to the completion of the offering of New Notes and the entry into an amended and restated credit facility in connection with the closing of the offering.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form 10-Q contains certain statements and information that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical information, should be deemed to be forward-looking statements. The words “may”, “will”, “estimate”, “intend”, “believe”, “expect”, “seek”, “project”, “forecast”, “foresee”, “should”, “would”, “could”, “plan”, “anticipate” and other similar words or expressions are intended to identify forward-looking statements, which are generally not historical in nature. These forward-looking statements include, but are not limited to, statements regarding any projections of earnings, revenue, asset sales, cash flow, debt levels or other financial items; any statements of the plans, strategies and objectives of management for future operations or future acquisitions; any statements of the plans, timing and objectives of management for acquisition and divestiture activities; any statements of the plans, timing, expectations and objectives of management for future financing activities; any statements regarding future economic and market conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing and are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenue and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:
•our ability to find and retain skilled personnel;
•the effects of our incentive and compensation plans and programs, including such effects on our Standards Operating Model and our operational and financial performance;
•our ability to execute our growth strategy;
•the execution of our Standards Operating, 4E Leadership and Strategic Acquisition Models;
•the effects of competition;
•changes in the number of deaths in our markets;
•changes in consumer preferences and our ability to adapt to or meet those changes;
•our ability to generate preneed sales, including implementing our cemetery portfolio sales strategy;
•the investment performance of our funeral and cemetery trust funds;
•fluctuations in interest rates;
•our ability to obtain debt or equity financing on satisfactory terms to fund additional acquisitions, expansion projects, working capital requirements and the repayment or refinancing of indebtedness;
•our ability to meet the timing, objectives and cost saving expectations related to anticipated financing activities, including our deleveraging program, forecasts and planned uses of free cash flow, expected plans and projections for refinancing our senior notes and future capital allocation, including potential acquisitions, share repurchases, dividend increases, or debt repayment plans;
•our ability to meet the projected financial performance metrics included in our updated Milestone Two-Year Scenario, if at all;
•the timely and full payment of death benefits related to preneed funeral contracts funded through life insurance contracts;
•the financial condition of third-party insurance companies that fund our preneed funeral contracts;
•increased or unanticipated costs, such as insurance or taxes;
•our level of indebtedness and the cash required to service our indebtedness;
•changes in federal income tax laws and regulations and the implementation and interpretation of these laws and regulations by the Internal Revenue Service;
•effects of the application of other applicable laws and regulations, including changes in such regulations or the interpretation thereof;
•the potential impact of epidemics and pandemics, including the COVID-19 coronavirus (“COVID-19”), on customer preferences and on our business;
•effects of litigation;
•consolidation of the funeral and cemetery industry;
•our ability to consummate the divestiture of low performing businesses as currently expected, if at all, including expected use of proceeds related thereto;
•our ability to integrate acquired businesses with our existing businesses, including expected performance and financial improvements related thereto;
•economic, financial and stock market fluctuations;
•interruptions or security lapses of our information technology, including any cybersecurity or ransomware incidents;
•our failure to maintain effective control over financial reporting; and
•other factors and uncertainties inherent in the funeral and cemetery industry.
For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see (i) Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q and (ii) Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.
Investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.