What changed in this filing

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Item 1. Financial Statements

2020-11-03 compared with 2020-08-04 · 580 added, 450 removed, 748 unchanged (58% of the section changed)

3 unchanged sentences

(in thousands, except share data)

December 31, 2019

June 30, 2020

December 31, 2019 September 30, 2020

Current assets:

1 unchanged sentence

Accounts receivable, net 21,478 22,277

Inventories 6,989 7,382

Prepaid and other current assets 10,667 2,253

6 unchanged sentences

Cemetery property, net 87,032 101,333

Goodwill 398,292 394,483

Intangible and other non-current assets, net 32,116 29,634

1 unchanged sentence

Cemetery perpetual care trust investments 64,047 64,824

Total assets $ 1,129,755 $ 1,120,649

LIABILITIES AND STOCKHOLDERS’ EQUITY

22 unchanged sentences

Common stock, $ 0.01 par value;

80,000,000 shares authorized and 25,880,362 and 25,959,257 shares issued at December 31, 2019 and June 30, 2020, respectively

80,000,000 shares authorized and 25,880,362 and 25,995,167 shares issued at December 31, 2019 and September 30, 2020, respectively

Additional paid-in capital 242,147 240,648

1 unchanged sentence

Treasury stock, at cost;

8,025,339 at both December 31, 2019 and June 30, 2020

8,025,339 at both December 31, 2019 and September 30, 2020

( 102,050 ) ( 102,050 )

Total stockholders’ equity 226,569 232,796

4 unchanged sentences

(unaudited and in thousands, except per share data)

Three months ended June 30,

Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2019 2020 2019 2020

Service revenue $ 34,133 $ 41,218 $ 105,444 $ 120,830

1 unchanged sentence

Other revenue 3,990 6,877 12,056 18,319

66,125 84,393 202,958 239,360

Field costs and expenses:

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Other expenses 411 1,253 1,197 3,551

48,069 56,519 144,051 163,155

Gross profit 18,056 27,874 58,907 76,205

Corporate costs and expenses:

1 unchanged sentence

Home office depreciation and amortization 357 329 1,115 1,065

Impairment of goodwill and other intangibles

Net loss on divestitures and impairments charges 4,593 4,917 4,604 19,610

Operating income 7,351 16,494 36,129 36,910

1 unchanged sentence

Accretion of discount on convertible subordinated notes ( 61 ) ( 69 ) ( 178 ) ( 200 )

Net loss on early extinguishment of debt — ( 6 ) — ( 6 )

Other, net 517 ( 28 ) 690 ( 34 )

Income before income taxes 1,524 8,384 17,734 11,883

2 unchanged sentences

Total expense for income taxes ( 947 ) ( 2,859 ) ( 5,770 ) ( 4,158 )

Net income $ 577 $ 5,525 $ 11,964 $ 7,725

Basic earnings per common share:

$ 0.03 $ 0.31 $ 0.66 $ 0.43

Diluted earnings per common share:

$ 0.03 $ 0.31 $ 0.66 $ 0.43

Dividends declared per common share:

$ 0.075 $ 0.0875 $ 0.225 $ 0.2375

Weighted average number of common and common equivalent shares outstanding:

Basic 17,737 17,895 17,917 17,853

Diluted 17,768 17,932 17,951 17,893

The accompanying condensed notes are an integral part of these Consolidated Financial Statements.

2 unchanged sentences

(unaudited and in thousands)

Six months ended June 30,

Nine months ended September 30,

Cash flows from operating activities:

Net income $ 11,964 $ 7,725

Adjustments to reconcile net income to net cash provided by operating activities:

7 unchanged sentences

Accretion of debt discount, net of debt premium on senior notes 366 228

Net loss on sale and disposal of other assets

Goodwill and other intangible asset impairments

Net loss on divestitures and impairments charges 4,604 19,610

Net loss on sale of other assets 193 245

Gain on insurance reimbursements ( 638 ) ( 54 )

Net loss on extinguishment of debt — 6

Changes in operating assets and liabilities that provided (required) cash:

9 unchanged sentences

Cash flows from investing activities:

Net proceeds from the sale of other assets

Acquisitions — ( 28,011 )

Proceeds from insurance reimbursements 1,247 97

Proceeds from divestitures and sale of other assets 967 7,416

Capital expenditures ( 11,479 ) ( 10,034 )

3 unchanged sentences

Payments against the credit facility ( 37,300 ) ( 117,100 )

Redemption of the 2.75% convertible subordinated notes

Payment of debt issuance costs related to long-term debt ( 113 ) —

Repurchase of the 2.75 % convertible subordinated notes

( 27 ) ( 4,563 )

Payment of transaction costs related to the repurchase of the 2.75 % convertible subordinated notes

Payments of debt issuance costs related to the 6.625 % senior notes

5 unchanged sentences

Purchase of treasury stock ( 7,756 ) —

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Net cash used in financing activities ( 21,628 ) ( 37,281 )

Net increase in cash and cash equivalents 5,168 9

Cash and cash equivalents at beginning of period 644 716

4 unchanged sentences

(unaudited and in thousands)

Three months ended June 30, 2019

Balance – March 31, 2019

Three months ended September 30, 2019

Outstanding Common

Stock Additional

Capital Retained

Earnings Treasury

Balance – June 30, 2019 17,812 $ 258 $ 243,285 $ 83,067 $ ( 102,050 ) $ 224,560

Net income — — — 577 — 577

Issuance of common stock 18 1 211 — — 212

2 unchanged sentences

Dividends on common stock — — ( 1,336 ) — — ( 1,336 )

Treasury stock acquired

Balance – September 30, 2019 17,826 $ 259 $ 242,657 $ 83,644 $ ( 102,050 ) $ 224,510

Three months ended September 30, 2020

Outstanding Common

Stock Additional

Capital Retained

Earnings Treasury

Balance – June 30, 2020 17,934 $ 260 $ 241,868 $ 88,413 $ ( 102,050 ) $ 228,491

Three months ended June 30, 2020

Balance – March 31, 2020

Net income — — — 5,525 — 5,525

Issuance of common stock to employees 16 — 297 — — 297

Issuance of common stock to directors 9 — 197 — — 197

Exercise of stock options 12 — ( 31 ) — — ( 31 )

Cancellation and retirement of restricted common stock and stock options ( 1 ) — ( 16 ) — — ( 16 )

Stock-based compensation expense — — 730 — — 730

Dividends on common stock — — ( 1,569 ) — — ( 1,569 )

Balance – June 30, 2020

Convertible notes repurchase — — ( 828 ) — — ( 828 )

Balance – September 30, 2020 17,970 $ 260 $ 240,648 $ 93,938 $ ( 102,050 ) $ 232,796

The accompanying notes are an integral part of these Consolidated Financial Statements.

2 unchanged sentences

(unaudited and in thousands)

Six months ended June 30, 2019

Nine months ended September 30, 2019

Outstanding Common

Stock Additional

Capital Retained

Earnings Treasury

Balance – December 31, 2018 18,078 $ 257 $ 243,849 $ 71,680 $ ( 94,294 ) $ 221,492

Net income — — — 11,964 — 11,964

Issuance of common stock 58 1 683 — — 684

5 unchanged sentences

Treasury stock acquired ( 400 ) — — — ( 7,756 ) ( 7,756 )

Balance – June 30, 2019

Six months ended June 30, 2020

Other 15 — 294 — — 294

Balance – September 30, 2019 17,826 $ 259 $ 242,657 $ 83,644 $ ( 102,050 ) $ 224,510

Nine months ended September 30, 2020

Outstanding Common

Stock Additional

Capital Retained

Earnings Treasury

Balance – December 31, 2019 17,855 $ 259 $ 242,147 $ 86,213 $ ( 102,050 ) $ 226,569

Net income — — — 7,725 — 7,725

Issuance of common stock to employees 60 1 920 — — 921

Issuance of common stock to directors 26 — 491 — — 491

Exercise of stock options 12 — ( 31 ) — — ( 31 )

Issuance of restricted common stock 10 — — — — —

2 unchanged sentences

Dividends on common stock — — ( 4,251 ) — — ( 4,251 )

Balance – June 30, 2020

Convertible notes repurchase — — ( 828 ) — — ( 828 )

Other 18 — 468 — — 468

Balance – September 30, 2020 17,970 $ 260 $ 240,648 $ 93,938 $ ( 102,050 ) $ 232,796

The accompanying notes are an integral part of these Consolidated Financial Statements.

4 unchanged sentences

(“Carriage,” the “Company,” “we,” “us,” or “our”) is a leading provider of funeral and cemetery services and merchandise in the United States.

As of June 30, 2020 , we operated 186 funeral homes in 29 states and 32 cemeteries in 11 states.

As of September 30, 2020, we operated 180 funeral homes in 27 states and 32 cemeteries in 12 states.

Our operations are reported in two business segments:

12 unchanged sentences

In light of the recent developments relating to COVID-19, the Company has evaluated the impact of COVID-19 on our Consolidated Financial Statements and related disclosures.

Cash and Cash Equivalents

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Reclassifications

Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation with no effect on our previously reported results of operations, consolidated financial position, or cash flows.

Use of Estimates

5 unchanged sentences

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.

Inventory consists primarily of caskets, outer burial containers and cemetery monuments and markers and is recorded at the lower of its cost basis (determined by the specific identification method) or net realizable value.

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.

Due to limitations on gatherings imposed to mitigate the spread of COVID-19, some customers have requested that we delay the memorial service until after the limitations have been lifted.

Ancillary funeral service revenue, which is recorded in Other revenue, represents revenue from our flower shop, pet cremation business and online cremation business in Texas .

The earnings from our preneed trust investments, as well as trust management fees charged by our wholly-owned registered investment advisory firm (“CSV RIA”) are recorded in Other revenue .

As of June 30, 2020 , CSV RIA provided investment management and advisory services to approximately 80 % of our trust assets, for a fee based on the market value of trust assets.

Under state trust laws, we are allowed to charge the trust a fee for advising on the investment of the trust assets and these fees are recognized as income in the period in which services are provided.

Balances due on undelivered preneed funeral trust contracts have been reclassified to reduce Deferred preneed funeral revenue on our Consolidated Balance Sheet of $ 8.9 million and $ 8.6 million at December 31, 2019 and June 30, 2020 , respectively.

As these performance obligations are to be completed after the date of death, we cannot quantify the recognition of revenue in future periods.

However, we estimate an average maturity period of ten years for preneed funeral contracts.

Balances due from customers on delivered preneed cemetery contracts are included in Accounts receivable, net and Preneed cemetery receivables, net on our Consolidated Balance Sheet.

Balances due on undelivered preneed cemetery contracts have been reclassified to reduce Deferred preneed cemetery revenue on our Consolidated Balance Sheet.

The transaction price allocated to preneed merchandise and service performance obligations that were unfulfilled were $ 4.8 million and $ 6.7 million at December 31, 2019 and June 30, 2020 , respectively.

As these performance obligations are to be completed after the date of death, we cannot quantify the recognition of revenue in future periods.

However, we estimate an average maturity period of eight years for preneed cemetery contracts.

See Notes 17 to the Consolidated Financial Statements herein for additional information related to revenue.

Arrangements with Multiple Performance Obligations

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.

Preneed Funeral and Cemetery Trust Funds

Our preneed and perpetual care trust funds are reported in accordance with the principles of consolidating Variable Interest Entities (“VIE’s”).

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.

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 investments of such trust funds are classified as available-for-sale and are reported at fair market value;

therefore, the unrealized gains and losses, as well as accumulated and undistributed income and realized gains and losses are recorded to Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus on our Consolidated Balance Sheet.

Our future obligations to deliver merchandise and services are reported at estimated settlement amounts.

Preneed funeral and cemetery trust investments are reduced by the trust investment earnings that we have been allowed to withdraw in certain states prior to maturity.

These earnings, along with preneed contract collections not required to be placed in trust, are recorded in Deferred preneed funeral revenue and Deferred preneed cemetery revenue until the service is performed or the merchandise is delivered.

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 funeral and cemetery trust funds.

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

10 unchanged sentences

Measurement of Credit Losses on Financial Instruments and subsequent amendments collectively known as (“Topic 326”).

Topic 326 applies to all entities holding financial assets measured at amortized cost, including loans, trade and financed receivables and other financial instruments.

The guidance introduces a new credit reserving model known as Current Expected Credit Loss (“CECL”), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk.

The CECL model requires all expected credit losses to be measured based on historical experience, current conditions and reasonable and supportable forecasts about collectability.

Prior to adoption of Topic 326, we provided allowances for bad debt and contract cancellations on our receivables based on an analysis of historical trends of collection activity.

5 unchanged sentences

We will also 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.

In the first six months of 2020, we increased our allowance for credit losses on our receivables by $0.6 million as a result of the economic impact of COVID-19.

Due to the economic impact of COVID-19, we decreased our allowance for credit losses on our receivables by $ 0.1 million during the three months ended September 30, 2020 and increased our allowance for credit losses on our receivables by $ 0.5 million during the nine months ended September 30, 2020.

See Notes 2 and 6 to the Consolidated Financial Statements herein for additional information related the adoption of Topic 326 on January 1, 2020 and the additional disclosures required.

Business Combinations

5 unchanged sentences

See Note 3 to the Consolidated Financial Statements herein for further information related to our acquisitions.

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 a set is not a business if substantially all of the fair value of the gross assets sold resides in a single asset or group of similar assets.

If the screen is not met then we evaluate whether the set has both inputs and a substantive process that together significantly contribute to the ability to create outputs.

When both inputs and a substantive process are present then the set is determined to be a business and we apply the guidance in ASC 350 – Intangibles – Goodwill and Other to determine the accounting treatment of goodwill for that set (see discussion of Goodwill below).

Goodwill is not allocated to the sale if the set is not considered to be a business.

During the three months ended September 30, 2020, we sold six funeral homes for $ 7.3 million.

During 2019, we ceased to operate a funeral home whose lease expired and sold a funeral home for $ 0.9 million.

The operating results of these divested funeral homes are reflected in our Consolidated Statements of Operations.

We continually review our businesses to optimize the sustainable earning power and return on our invested capital.

See Notes 4, 5 and 10 to the Consolidated Financial Statements herein for additional information concerning our divestitures.

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.

3 unchanged sentences

Factors that could trigger an interim impairment review include, but are not limited to, significant negative industry or economic trends and significant adverse changes in the business climate, which may be indicated by a decline in our market capitalization or decline in operating results.

As a result of economic conditions caused by the response to COVID-19, we performed a quantitative assessment of our goodwill at March 31, 2020 and we recorded an impairment for goodwill of $ 13.6 million during the quarter ended March 31, 2020, as the carrying amount of our funeral homes in the Eastern Reporting Unit exceeded the fair value.

As a result of economic conditions caused by COVID-19, we performed a quantitative assessment of our goodwill at March 31, 2020 and we recorded an impairment for goodwill of $ 13.6 million during the quarter ended March 31, 2020, as the carrying amount of our funeral homes in the Eastern Region Reporting Unit exceeded the fair value.

The discounted cash flow valuation uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows.

During the three months ended June 30, 2020 , we did not identify any new factors or events that would trigger us to perform an additional interim assessment of our goodwill.

We will perform our annual goodwill impairment test as of August 31, 2020.

We performed our annual goodwill impairment test as of August 31, 2020.

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.

For our 2020 annual impairment test, we performed a qualitative assessment and determined that there were no factors that would indicate the need to perform an additional quantitative goodwill impairment test.

We concluded that it is more-likely-than not that the fair value of our reporting units is greater than their carrying value and thus there was no additional impairment to goodwill.

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.

When divesting a business, goodwill is allocated based on the relative fair values of the business being divested and the portion of the reporting unit that will be retained.

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.

Subsequent to our divestitures during the three months ended September 30, 2020, we performed a qualitative assessment on the goodwill retained in our Reporting Units and concluded that is more-likely-than not that the fair value of our reporting units is greater than their carrying value and thus there was no additional impairment to goodwill.

See Note 4 to the Consolidated Financial Statements included herein for additional information related to our goodwill.

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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.

As a result of economic conditions caused by the response to COVID-19, we performed a quantitative assessment of our tradenames at March 31, 2020 and we recorded an impairment for certain of our tradenames of $ 1.1 million during the quarter ended March 31, 2020 as the carrying amount of these tradenames exceeded 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.

As a result of economic conditions caused by COVID-19, we performed a quantitative assessment of our tradenames at March 31, 2020 and we recorded an impairment for certain of our tradenames of $ 1.1 million during the quarter ended March 31, 2020 as the carrying amount of these tradenames exceeded the fair value.

In determining the fair value of the tradenames, we used the relief from royalty method whereby we determine the fair value of the assets by discounting the cash flows that represent a savings over having to pay a royalty fee for use of the tradenames.

During the three months ended June 30, 2020 , we did not identify any new factors or events that would trigger us to perform an additional interim assessment of our tradenames.

We will perform our annual intangible assets impairment test as of August 31, 2020.

We performed our annual intangible assets impairment test as of August 31, 2020.

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.

We concluded that it is more-likely-than not that the fair value of our intangible assets is greater than its carrying value and thus there was no additional impairment to our intangible assets.

See Note 10 to the Consolidated Financial Statements included herein for additional information related to our intangible assets.

Preneed and Perpetual Care Trust Funds

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.

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 fixed income investments of such trust funds are classified as available-for-sale and are reported at fair market value;

Topic 326 made changes to the accounting for available-for-sale debt securities.

One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities management does not intend to sell or believes that it is more likely than not will be required to sell.