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Item 8. Financial Statements and Supplementary Data

2021-03-02 compared with 2020-02-28 · 1140 added, 1027 removed, 764 unchanged (74% of the section changed)

13 unchanged sentences

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of Carriage Services, Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2018 and 2019, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”).

We have audited the accompanying consolidated balance sheets of Carriage Services Inc., a Delaware corporation and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 28, 2020 expressed an unqualified opinion.

Change in accounting principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Codification 842, “Leases”.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 2, 2021 expressed an unqualified opinion.

Basis for opinion

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Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill and Tradename quantitative impairment assessment

As described further in Note 1 to the financial statements, the Company is required to evaluate goodwill and intangible assets for impairment annually or whenever events or changes in circumstances indicate that the carrying value of a reporting unit or the intangible asset may be greater than fair value.

The Company first assesses qualitative factors to determine whether it is more-likely-than not that the fair value of a reporting unit or the tradenames is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative impairment test.

The Company determined that as a result of the economic conditions caused by the response to COVID-19, a quantitative impairment assessment was necessary for each of the Company’s reporting units as well as the Company’s tradenames.

As a result of the analysis, the Company determined that the Company’s Eastern Region Reporting Unit exceeded the fair value, as well as certain of the Company’s tradenames were impaired, and an impairment charge was recorded.

We identified the Goodwill and Tradenames quantitative impairment assessment as a critical audit matter.

The principal consideration for our determination that the Goodwill and Tradenames quantitative impairment assessment is a critical audit matter is that the assessment includes a high degree of estimation uncertainty due to significant management judgments in regards to assumptions used within the assessment, including the long-term growth rate, royalty rate, discount rate and forecasted reporting unit cash flow, for which management also utilized an independent valuations specialist (referred to as

“management’s specialists”).

In turn, auditing management’s assumptions involved significant auditor judgment and subjectivity.

Our audit procedures related to the Goodwill and Tradenames quantitative impairment assessment included the following, among others.

• We tested the design and operating effectiveness of controls relating to the Company’s quantitative impairment analysis processes, including controls related to the forecasted reporting unit cash flow and management’s review of the key assumptions which were prepared by managements specialists.

• We evaluated the level of knowledge, skill, and ability of management’s specialists and their relationship to the Company.

• We compared the Company’s reporting unit cash flows used in the forecast model to historical actual results.

• With the assistance of internal valuation specialists, we performed audit procedures over the data, methods and assumptions utilized in performing the quantitative impairment assessment, which included reviewing supporting documents and assessing reasonableness by comparing to historical trends and industry expectations.

Certain key inputs/assumptions tested by us included the following:

◦ Long-term growth rate

◦ Discount rates

◦ Royalty rates

/s/ GRANT THORNTON LLP

We have served as the Company's auditor since 2014.

Houston, Texas

February 28, 2020

Dallas, Texas

March 2, 2021

Report of Independent Registered Public Accounting Firm

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Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of Carriage Services, Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2019, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

We have audited the internal control over financial reporting of Carriage Services, Inc., (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2019, and our report dated February 28, 2020 expressed an unqualified opinion on those financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2020, and our report dated March 2, 2021 expressed an unqualified opinion on those financial statements.

Basis for opinion

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/s/ GRANT THORNTON LLP

Houston, Texas

February 28, 2020

Dallas, Texas

March 2, 2021

CARRIAGE SERVICES, INC.

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Accounts receivable, net 21,478 25,103

Inventories 6,989 7,259

Prepaid and other current assets 10,667 2,076

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Preneed cemetery receivables, net 20,173 21,081

Receivables from preneed trusts

Receivables from preneed trusts, net 18,024 16,844

Property, plant and equipment, net 279,200 269,051

Cemetery property, net 87,032 101,134

Goodwill 398,292 392,978

Intangible and other non-current assets, net 32,116 29,542

1 unchanged sentence

Cemetery perpetual care trust investments 64,047 70,828

Total assets $ 1,129,755 $ 1,145,825

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current portion of long-term debt

Current portion of finance lease obligations

Current portion of operating lease obligations

Current portion of debt and lease obligations $ 3,150 $ 3,432

Accounts payable 8,413 11,259

Accrued and other liabilities 24,026 31,138

Convertible subordinated notes due 2021 — 2,538

Total current liabilities 35,589 48,367

Long-term debt, net of current portion

Acquisition debt, net of current portion 5,658 4,482

Credit facility 82,182 46,064

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Common stock, $ 0.01 par value;

80,000,000 shares authorized;

25,703,490 and 25,880,362 issued as of December 31, 2018 and 2019, respectively

80,000,000 shares authorized and 25,880,362 and 26,020,494 shares issued, respectively and 17,855,023 and 17,995,155 shares outstanding, respectively

Additional paid-in capital 242,147 239,989

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Treasury stock, at cost;

7,625,339 and 8,025,339 shares at December 31, 2018 and 2019, respectively

8,025,339 shares at both December 31, 2019 and 2020

( 102,050 ) ( 102,050 )

Total stockholders’ equity 226,569 240,502

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Years Ended December 31,

2018 2019 2020

Service revenue $ 138,604 $ 142,554 $ 164,984

1 unchanged sentence

Other revenue 17,135 17,039 24,834

267,992 274,107 329,448

Field costs and expenses:

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Other expenses 1,548 2,055 4,808

192,045 194,522 223,525

Gross profit 75,947 79,585 105,923

Corporate costs and expenses:

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Home office depreciation and amortization 1,813 1,416 1,427

Net loss on divestitures and impairment charges 1,195 4,846 21,442

Operating income 42,112 47,443 57,227

1 unchanged sentence

Accretion of discount on convertible subordinated notes ( 2,192 ) ( 241 ) ( 216 )

Loss on early extinguishment of debt, net

Net loss on early extinguishment of debt ( 502 ) — ( 6 )

Other, net ( 43 ) 736 152

Income before income taxes 18,266 22,416 24,642

Provision for income taxes

Tax adjustment related to certain discrete items

Total benefit (provision) for income taxes

Expense for income taxes ( 5,754 ) ( 7,395 ) ( 7,985 )

Tax adjustment related to discrete items ( 867 ) ( 488 ) ( 567 )

Total expense for income taxes $ ( 6,621 ) $ ( 7,883 ) $ ( 8,552 )

Net income $ 11,645 $ 14,533 $ 16,090

Basic earnings per common share $ 0.64 $ 0.81 $ 0.90

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Weighted average number of common and common equivalent shares outstanding:

Basic 17,971 17,877 17,872

Diluted 18,374 18,005 18,077

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

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(in thousands)

Outstanding Common

Stock Additional

Capital Retained

Earnings Treasury

Balance – December 31, 2017 16,098 $ 226 $ 216,158 $ 57,904 $ ( 76,632 ) $ 197,656

Effect of adoption of topic 606 — — — 2,131 — 2,131

Balance – January 1, 2018 16,098 $ 226 $ 216,158 $ 60,035 $ ( 76,632 ) $ 199,787

Net Income – 2018 — — — 11,645 — 11,645

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Issuance of restricted common stock 87 1 24 — — 25

Cancellation and retirement of restricted common stock and stock options

Cancellation and surrender of restricted common stock and stock options ( 30 ) — ( 398 ) — — ( 398 )

Stock-based compensation expense — — 6,531 — — 6,531

Dividends on common stock — — ( 5,514 ) — — ( 5,514 )

Convertible notes exchange 2,823 28 25,883 — — 25,911

Treasury stock acquired ( 1,102 ) — — — ( 17,662 ) ( 17,662 )

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

Effect of adoption of topic 606

Balance – January 1, 2018

Net Income – 2019 — — — 14,533 — 14,533

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Issuance of restricted common stock 26 — — — — —

Cancellation and retirement of restricted common stock and stock options

Cancellation and surrender of restricted common stock and stock options ( 21 ) — ( 194 ) — — ( 194 )

Stock-based compensation expense — — 2,153 — — 2,153

Dividends on common stock — — ( 5,398 ) — — ( 5,398 )

Convertible notes exchange

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

Other 15 — 295 — — 295

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

Net Income – 2020 — — — 16,090 — 16,090

Issuance of common stock

Issuance of common stock from employee stock purchase plan 72 1 1,201 — — 1,202

Issuance of common stock to directors 31 — 653 — — 653

Exercise of stock options 20 — ( 70 ) — — ( 70 )

Issuance of restricted common stock 10 — — — — —

Cancellation and retirement of restricted common stock and stock options

Cancellation and surrender of restricted common stock ( 11 ) — ( 250 ) — — ( 250 )

Stock-based compensation expense — — 2,717 — — 2,717

Dividends on common stock — — ( 6,048 ) — — ( 6,048 )

Treasury stock acquired

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

Other 18 — 467 — — 467

Balance – December 31, 2020 17,995 $ 260 $ 239,989 $ 102,303 $ ( 102,050 ) $ 240,502

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(in thousands)

For the Years Ended December 31,

Years Ended December 31,

2018 2019 2020

Cash flows from operating activities:

Net income $ 11,645 $ 14,533 $ 16,090

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

Depreciation and amortization 17,430 17,771 19,389

Provision for losses on accounts receivable

Provision for bad debt and credit losses 1,841 1,618 2,318

Stock-based compensation expense 6,583 2,153 3,370

Deferred income tax expense (benefit)

Deferred income tax expense 3,823 10,117 4,597

Amortization of deferred financing costs 532 392 782

Amortization of capitalized commissions on preneed contracts

Amortization of capitalized commissions and non-compete agreements 1,219 1,231 1,299

Accretion of discount on convertible subordinated notes 2,192 241 216

Accretion of discount on senior notes

Net loss on early extinguishment of debt

Net loss (gain) on sale of businesses and disposal of other assets

Goodwill and other impairments

Accretion of debt discount, net of debt premium on senior notes 272 492 307

Net loss on extinguishment of debt 502 — 6

Net loss on divestitures and impairment charges 1,195 4,846 21,442

Net loss on sale of other assets 876 213 251

Gain on insurance reimbursements — ( 879 ) ( 97 )

Other — 121 19

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

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Cash flows from investing activities:

Acquisitions and land for new construction

Acquisitions ( 37,970 ) ( 140,907 ) ( 28,011 )

Deposit on pending acquisition — ( 5,000 ) —

Proceeds from insurance reimbursements — 1,433 248

Net proceeds from sale of businesses and other assets

Proceeds from divestitures and sale of other assets — 967 8,541

Capital expenditures ( 13,526 ) ( 15,379 ) ( 15,198 )

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Payment of debt issuance costs related to the credit facility ( 1,751 ) ( 891 ) —

Redemption of the 2.75% convertible subordinated notes

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

Proceeds from the issuance of the 6.625% senior notes

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

Payments on long-term debt and obligations under finance leases

Repurchase of the convertible subordinated notes due 2021 ( 98,266 ) ( 27 ) ( 4,563 )

Payment of transaction costs related to the repurchase of the convertible subordinated notes due 2021 ( 885 ) — ( 12 )

Proceeds from the issuance of the senior notes due 2026 320,125 76,688 —

Payment of debt issuance costs related to the senior notes due 2026 ( 1,367 ) ( 980 ) ( 66 )

Payments on acquisition debt and obligations under finance leases ( 1,940 ) ( 2,287 ) ( 1,745 )

Payments on contingent consideration recorded at acquisition date ( 138 ) ( 162 ) ( 169 )

Proceeds from the exercise of stock options and employee stock purchase plan contributions 1,246 1,445 1,229

Taxes paid on restricted stock vestings and exercise of non-qualified options

Taxes paid on restricted stock vestings and exercise of stock options ( 651 ) ( 194 ) ( 348 )

Dividends paid on common stock ( 5,513 ) ( 5,398 ) ( 6,048 )

12 unchanged sentences

Funeral Home Operations, which currently accounts for approximately 75 % of our revenue and Cemetery Operations, which currently accounts for approximately 25 % of our revenue.

Our funeral homes offer a complete range of high value personal services to meet a family's funeral needs, including consultation, the removal and preparation of remains, the sale of caskets and related funeral merchandise, the use of funeral home facilities for visitation and remembrance services and transportation services.

Our cemeteries provide interment rights (grave sites and mausoleum spaces) and related merchandise, such as markers and outer burial containers.

We provide funeral and cemetery services and products on both an “atneed” (time of death) and “preneed” (planned prior to death) basis.

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

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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.

Cash and Cash Equivalents

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

Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation.

Impairments and net loss on divestitures, which were previously reported in Other, net, have been reclassed to Net loss on divestitures and impairment charges within operating income on our Consolidated Statements of Operations with no effect on our previously reported net income, Consolidated Balance Sheet and Consolidated Statements of Cash Flows.

Use of Estimates

The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses.

On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, realization of accounts receivable, goodwill, intangible assets, property and equipment and deferred tax assets and liabilities.

The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses.

On an ongoing basis, we evaluate our significant estimates and judgments, which include those related to the realization of our accounts receivable, valuation of goodwill, intangible assets, deferred tax assets and liabilities and depreciation of property and equipment.

We base our estimates on historical experience, third-party data and assumptions that we believe to be reasonable under the circumstances.

2 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 Home Operations

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 remembrance services and transportation services.

We provide funeral services and products on both an atneed and preneed basis.

Funeral arrangements sold at the time of death are referred to as atneed funeral contracts.

The performance obligation on these atneed contracts for both merchandise and services are bundled as a single performance obligation, as the performance of these obligations occur within a short time frame (usually within a few days) from the time of death to the funeral service.

Although our performance activities are transferred in sequence such as, embalming the body, delivering the casket, obtaining service related items like flowers and performing the service, these are all essential to satisfy our contractual obligation to the customer, thus, bundled into a single performance obligation.

Revenue is recognized on the date of funeral service, as all performance obligations have been satisfied.

Payment is due at or before time of transfer.

Outstanding balances due from customers, if any, on atneed funeral contracts are included in Accounts receivable on our Consolidated Balance Sheet.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The performance obligation is satisfied at the date of the service or the delivery of the merchandise as control has transferred to the customer and the benefit has concluded in the following manner:

we have the right to payment;

the customer has title to merchandise;

the deceased has used the merchandise or has been a part of the service;

the customer directed the use of the merchandise or the plan of the service.

Funeral arrangements sold prior to death occurring are referred to as preneed funeral contracts.

In many instances, the customer pays for the preneed contract over a period of time.

For preneed funeral merchandise and service contracts, the performance obligation occurs at the time of need (when death occurs) and revenue is recognized on the date of delivery of merchandise or performance of service.

We do not deliver merchandise on preneed contracts or provide service prior to the time of death.

The performance obligation for preneed funeral contracts is similar to the elements of the performance obligation of atneed funeral contracts.

For preneed funeral services, all preneed funeral contracts are re-written upon the date of death as an atneed contract.

The performance obligation is satisfied at the date of the service.

The performance of a preneed funeral contract is secured by placing the funds collected, less amounts that we may retain under state regulations, in trust for the benefit of the customer or by the customer's purchase of a life insurance policy, the proceeds of which will pay for such services at the time of need.

These methods are intended to fund preneed funeral contracts, cover the original contract price and generally include an element of growth (earnings) designed to offset future inflationary cost increases.

Revenue from preneed funeral contracts, along with accumulated earnings, is deferred until the time the merchandise is delivered or the service is performed.

The principal and accumulated earnings of the trusts are withdrawn at maturity (death) or cancellation.

The cumulative trust income earned and the increases in insurance benefits on the insurance products are recognized when the service is performed.

The amounts deposited in trusts that we control are included in the non-current asset section of our Consolidated Balance Sheet.

Balances due on undelivered preneed funeral trust contracts have been reclassified to reduce Deferred preneed funeral revenue on our Consolidated Balance Sheet of $8.3 million and $8.9 million at December 31, 2018 and December 31, 2019 , 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.

The earnings from our preneed funeral trust investments, as well as trust management fees charged by our wholly-owned registered investment advisory firm (“CSV RIA”) are recorded as Other revenue , as noted in our table of disaggregated revenue in Note 6 to the Consolidated Financial Statements included herein.

As of December 31, 2019 , CSV RIA provided investment management and advisory services to approximately 71% 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.

When preneed funeral contracts are funded through third-party insurance policies, we earn a commission on the sale of the policies.

Insurance commissions are subject to refund (charge-back) if the preneed policy is cancelled within a year or if there is an imminent death of beneficiary before the first year anniversary of the policy.

We record these insurance commissions as Other revenue , as noted in our table of disaggregated revenue in Note 6 to the Consolidated Financial Statements included herein, when the commission is no longer subject to refund, which is typically one year after the policy is issued.

All selling costs incurred pursuant to the sale of the insurance funded preneed contracts are expensed as incurred.

Preneed funeral contracts to be funded at maturity by third-party insurance policies are not recorded as assets or liabilities on our Consolidated Balance Sheet.

See Note 10 to the Consolidated Financial Statements included herein for additional information regarding estimated revenue associated with preneed funeral contracts funded by third-party insurance policies.

Generally, at the time of the sale of either the preneed insurance or preneed trust contract, the intent is that the beneficiary has made a commitment to assign the proceeds to us for the fulfillment of the service and merchandise obligations on the preneed contract at the time of need.

However, this commitment is revocable and the proceeds from the policy are portable, so the customer can choose to use an alternative provider at the time of need.

The earnings from our ancillary service businesses, which consist of a flower shop, a pet cremation business and an online cremation business are recorded as Other revenue , as noted in our table of disaggregated revenue in Note 6 to the Consolidated Financial Statements included herein.

The comparative information for years prior to 2018 has not been adjusted to reflect the adoption of the revised revenue recognition standard and is reported in accordance with Accounting Standards Codification 605 (“ASC 605”).

See Note 2 “Recently Issued Accounting Standards” of our Annual Report on Form 10-K for the year ended December 31, 2018 for additional information related to our adoption of the revised revenue recognition standard (“ASC 606”).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Revenue Recognition - Cemetery Operations

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 outer burial containers, memorial markers and floral placements) and services (interments, inurnments and installation of cemetery merchandise).

We provide cemetery services and products on both an atneed and preneed basis.

Cemetery arrangements sold at the time of death are referred to as atneed cemetery contracts.

The performance obligation on these atneed contracts for cemetery property, merchandise and services are distinct.

The performance obligations from the time of death to the disposition of the remains, include delivering cemetery property, unearthing the ground, interring remains and installing merchandise on the cemetery grounds.

Each item on the contract is recognized as a distinct good or service.

The performance obligation is satisfied and revenue is recognized on the purchase date of the interment right, on the date of the cemetery service, and on the date of delivery of the merchandise (set on cemetery grounds).

Payment is due at or before time of transfer.

Outstanding balances due from customers, if any, on completed atneed contracts are included in Accounts receivable on our Consolidated Balance Sheet.

The performance obligation is satisfied at the date of the service, the purchase of the interment right or the delivery of the merchandise as control has transferred to the customer and the benefit has concluded in the following manner:

we have the right to payment;

the customer has title to merchandise;

the deceased has used the merchandise or has been a part of the service;

the customer directed the use of the merchandise or the plan of the service.

Cemetery arrangements sold prior to death occurring are referred to as preneed cemetery contracts.

For preneed cemetery interment rights, the performance obligation is the sale of the interment right and revenue is recognized at the time the contract is signed.

Control of cemetery interment rights is transferred to the customer upon execution of the contract as customers select a specific location and space for their interment right, thus, restricting us from other use or transfer of the contracted cemetery property.

The interment right is deeded to the customer when the contract is paid in full.

For preneed cemetery merchandise and service, the performance obligation occurs at the time of need (when death occurs) and revenue is recognized on the date of delivery of merchandise or performance of service.

We do not deliver merchandise on preneed contracts or provide service prior to the time of death.

The performance obligation for preneed cemetery merchandise and service is similar to the elements of the performance obligation of atneed cemetery merchandise and service.

Preneed cemetery contracts are usually financed through interest-bearing installment sales contracts, generally with terms of up to five years.

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.

Earnings on these installment contracts are not recognized until the time the merchandise is transferred or the service is performed and are recorded as Other revenue , as noted in our table of disaggregated revenue in Note 6 to the Consolidated Financial Statements included herein.

The performance of the preneed cemetery contracts is secured by placing the funds collected, less amounts that we may retain under state regulations, in trust for the benefit of the customer, the proceeds of which will pay for such services at the time of need.

This method is intended to fund preneed contracts, cover the original contract price and generally include an element of growth (earnings) designed to offset future inflationary cost increases.

The amounts deposited in trusts that we control are included in the non-current asset section of our Consolidated Balance Sheet.

The earnings from preneed cemetery contracts placed in trust, as well as the trust management fees charged by our CSV RIA are recorded as Other revenue , as noted in our table of disaggregated revenue in Note 6 to the Consolidated Financial Statements included herein.

Our merchandise and service performance obligations related to our preneed contracts are considered fulfilled at the point in time the merchandise is delivered or the burial, cremation or interment service is performed.

Balances due from customers on delivered preneed cemetery contracts are included in Accounts receivable and Preneed receivables 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 $4.4 million and $4.8 million at December 31, 2018 and December 31, 2019 , 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.

We sell memorialization merchandise and personalized marker merchandise, such as urns and markers that are supplied by a small number of national providers.

We order the memorialized merchandise through a third-party on behalf of our customer.

The merchandise and its memorialization is provided by the third-party.

We deliver the merchandise after the time of death to the customer upon completion of the memorialization or we set the merchandise on our cemetery grounds.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Cemetery property was $75.0 million and $87.0 million , net of accumulated amortization of $37.7 million and $41.7 million at December 31, 2018 and December 31, 2019 , respectively.

Interment right costs, which include real property and other costs related to cemetery development, are expensed using the specific identification method in the period in which the sale of the interment right is recognized as revenue.

We recorded amortization expense for cemetery interment rights of $3.3 million , $3.6 million and $4.0 million for the years ended December 31, 2017 , 2018 and 2019 , respectively.

See Note 6 to the Consolidated Financial Statements included herein for additional information related to our revenue.

Arrangements with Multiple Performance Obligations

Some of our contracts with customers include multiple performance obligations.

For these contracts, we allocate 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/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.

We determine whether or not the assets in the preneed trusts have an other-than-temporary impairment on a security-by-security basis.

This assessment is made based upon a number of criteria including the length of time a security has been in a loss position, changes in market conditions and concerns related to the specific issuer.

If a loss is considered to be other-than-temporary, the cost basis of the security is adjusted downward to its fair market value.

Any reduction in the cost basis of the investment due to an other-than-temporary impairment is likewise recorded as a reduction to Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus on our Consolidated Balance Sheet.

There will be no impact on earnings unless and until such time that the investment is withdrawn from the trust in accordance with state regulations at an amount that is less than its original basis.

See Notes 7, 9 and 11 to the Consolidated Financial Statements herein for additional information related to our trust funds.

Allowance for bad debts and customer cancellations

Our funeral receivables recorded in Accounts Receivable, net primarily consist of amounts due for funeral services already performed which were $8.5 million and $9.9 million for December 31, 2018 and December 31, 2019 , respectively.

We estimate an allowance for doubtful accounts on these receivables based on our historical experience, which amounted to 2.2% of funeral receivables at both December 31, 2018 and December 31, 2019 .

In addition, our funeral receivables not related to funeral services performed were $0.7 million and $1.1 million at December 31, 2018 and December 31, 2019 , respectively.

Other receivables not related to our funeral home and cemetery operations were $0.2 million and $0.7 million at December 31, 2018 and December 31, 2019 , respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Our cemetery financed receivables totaled $37.2 million and $41.3 million at December 31, 2018 and December 31, 2019 , respectively.

The unearned finance charges associated with these receivables were $4.6 million and $4.5 million at December 31, 2018 and December 31, 2019 , respectively.

If a preneed contract is canceled prior to delivery, state law determines the amount of the refund owed to the customer.

Allowances for bad debts and customer cancellations on cemetery financed receivables are recorded at the date that the sale is recognized as revenue and are based on our historical experience.

We also monitor changes in delinquency rates and provide additional bad debt and cancellation reserves when warranted.

We have a collections policy where past due notifications are sent to the customer beginning at 15 days past due and periodically thereafter until the contract is cancelled or payment is received.

We reserve 100% of the receivables on contracts in which the revenue has been recognized and payments are 90 days past due or more, which was approximately 4.6% and 4.4% of the total receivables at December 31, 2018 and December 31, 2019 , respectively.

See Note 8 to the Consolidated Financial Statements included herein for additional information on cemetery financed receivables.

Our cemetery receivables recorded in Accounts Receivable, net also include $1.8 million and $0.1 million related to perpetual care income receivables at December 31, 2018 and December 31, 2019 , respectively.

See Note 11 to the Consolidated Financial Statements included herein for additional information on our perpetual care trust investments.

Accounts receivable is comprised of the following at December 31, 2018 and December 31, 2019 (in thousands):

December 31, 2018

December 31, 2019

Funeral receivables, net of allowance for bad debt of $189 and $223, respectively

Cemetery receivables, net of allowance for bad debt of $580 and $626, respectively

Other receivables

Accounts receivable, net

Preneed cemetery receivables represent payments expected to be received beyond one year from the balance sheet date.

Preneed cemetery receivables, net are comprised of the following at December 31, 2018 and December 31, 2019 (in thousands):

December 31, 2018

December 31, 2019

Preneed cemetery receivables

unearned finance charges

allowance for bad debt and contract cancellation

balances due on undelivered cemetery preneed contracts

Preneed cemetery receivables, net

Bad debt expense totaled $2.2 million , $1.8 million and $1.6 million for the years ended December 31, 2017 , 2018 and 2019 , respectively.

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 for our preneed cemetery merchandise and services contracts and preneed funeral trust contracts, of eight and ten years, respectively.

Amortization expense totaled $0.6 million for both the years ended December 31, 2018 and 2019 .

Prior to our adoption of ASC 606 on January 1, 2018, these costs were expensed in the period incurred.

On September 30, 2018, our management agreement with a Florida municipality expired and as a result, we ceased to operate three of our cemetery businesses.

We recorded a loss of approximately $125,000 in Other, net , for the write-off of capitalized commissions related to these three cemetery businesses.

See Note 5 to the Consolidated Financial Statements included herein for additional information regarding the expired management agreement for these three cemetery businesses.

There were no impairment losses recognized for the year ended December 31, 2019 .

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 13 to the Consolidated Financial Statements herein for additional information related to our capitalized commissions on preneed contracts.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 (formerly capital 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 2 and 17 to the Consolidated Financial Statements included herein for additional information related to our leases.

Property, Plant and Equipment

Property, plant and equipment (including equipment under finance leases) are stated at cost.

The costs of ordinary maintenance and repairs are charged to operations as incurred, while renewals and major replacements that extend the useful economic life of the asset are capitalized.

Depreciation of property, plant and equipment (including equipment under finance leases) is computed based on the straight-line method over the following estimated useful lives of the assets:

Buildings and improvements

Furniture and fixtures

Machinery and equipment

Property, plant and equipment is comprised of the following at December 31, 2018 and 2019 (in thousands):

December 31, 2018

December 31, 2019

Buildings and improvements

Furniture, equipment and automobiles

Property, plant and equipment, at cost

accumulated depreciation

Property, plant and equipment, net

During 2019 , we acquired $21.7 million of property, plant and equipment in connection with the funeral home and cemetery businesses we acquired during 2019, as further discussed in Note 3 to the Consolidated Financial Statements included herein.

During 2018 , we acquired $17.5 million of property, plant and equipment in connection with the funeral home businesses we acquired during 2018.

We recorded depreciation expense of $12.6 million, $13.8 million and $13.8 million for the years ended December 31, 2017 , 2018 and 2019 , respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 the Property, Plant and Equipment topic of the Accounting Standards Codification (“ASC”) 360.

This guidance requires that long-lived assets to be held and used are reported at the lower of their carrying amount or fair value.

We assess long-lived assets for impairment whenever events or circumstances indicate that the carrying value may be greater than the fair value.

We evaluate our long-lived assets for impairment when a funeral home or cemetery business has negative earnings before interest, taxes, depreciation and amortization (“EBITDA”) for four consecutive years and if there has been a decline in EBITDA in that same period.

We review our long-lived assets deemed held-for-sale to the point of recoverability.

Assets to be disposed of and assets not expected to provide any future service potential are recorded at the lower of their carrying amount or fair value less estimated cost to sell.

If we determine that the carrying value is not recoverable from the proceeds of the sale, we record an impairment at that time.

For the year ended December 31, 2018 , we recorded an impairment of $0.2 million related to the real property of a funeral home business held for sale, as the carrying value exceeded fair value.

For the years ended December 31, 2017 and 2019 , no impairment was identified on our long-lived assets.

For our funeral and atneed cemetery receivables, we have a collections policy where statements are sent to the customer at 30 days past due.

Past due notification letters are sent at 45 days and continue until payment is received or the contract is placed with a third-party collections agency.

For our preneed cemetery receivables, we have a collections policy where past due notification letters are sent to the customer beginning at 15 days past due and periodically thereafter until payment is received or the contract is cancelled.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”), Financial Instruments – Credit Losses:

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

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

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

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

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

For both funeral and cemetery receivables, we determine our allowance for credit losses by using a loss-rate methodology, in which we assess our historical write-off of receivables against our total receivables over several years.

From this historical loss-rate approach, we also consider the current and forecasted economic conditions expected to be in place over the life of our receivables.

These estimates are impacted by a number of factors, including changes in the economy, demographics and competition in our local communities.

We monitor our ongoing credit exposure through an active review of our customers’ receivables balance against contract terms and due dates.

Our activities include timely performance of our accounts receivable reconciliations, assessment of our aging of receivables, dispute resolution and payment confirmation.

We monitor any change in our historical write-off of receivables utilized in our loss-rate methodology and assess forecasted changes in market conditions within our credit reserve.

During 2020, we increased our allowance for credit losses on our funeral and cemetery receivables as a result of the economic impact of the COVID-19 pandemic (COVID-19).

See Notes 2 and 6 to the Consolidated Financial Statements herein for additional information related to funeral and cemetery receivables.

Inventory 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

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To the extent that information not available to us at the closing date subsequently becomes available during the allocation period, we may adjust goodwill, intangible assets, assets or liabilities associated with the acquisition.

On January 3, 2020, we acquired one funeral home and cemetery combination business in Lafayette, California.

During 2019, we acquired, in three separate transactions, two funeral home and cemetery combination businesses, seven funeral home businesses and three ancillary businesses.

In October 2019, we acquired the following:

(i) four funeral home business in Buffalo, New York;

and (ii) one funeral home and cemetery combination business, three funeral home businesses and three ancillary businesses, which consist of a flower shop, a pet cremation business and an online cremation business.in the Dallas, Texas area.

(i) four funeral home businesses in Buffalo, New York;

In December 2019, we acquired one funeral home and cemetery combination business in Fairfax, Virginia.

During 2018 , we acquired four funeral home businesses.

In July 2018, we acquired one funeral home business in Fredericksburg, Virginia and one funeral home business in Stafford, Virginia.

In August 2018, we acquired one funeral home business in Cookeville, Tennessee and one funeral home business in Knightdale, North Carolina.

The pro forma impact of the acquisitions on prior periods is not presented as the impact is not material to our reported results.

The results of the acquired businesses are included in our results of operations from the date of acquisition.

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Divested Operations

Prior to divesting a funeral home or cemetery, we first determine whether the sale of the net assets and activities (together referred to as a “set”) qualifies as a business.

First, we perform a screen test to determine if the set is not a business.

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

If the screen is not met, we perform an assessment to determine if the set is a business by evaluating whether the set has both inputs and a substantive process that together significantly contribute to the ability to create outputs.

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

Goodwill is only allocated to the sale if the set is considered to be a business.

During 2020, we sold eight funeral homes for $ 8.4 million.

During 2019, we divested three funeral homes whose building leases expired and sold a funeral home for $ 0.9 million.

In addition, we merged a funeral home with a business in an existing market.

During 2018, our management agreement with a Florida municipality expired and as a result, we divested three of our cemeteries.

The operating results of these divested funeral homes and cemeteries are reflected on our Consolidated Statements of Operations through the divested date.

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

See Notes 4, 5 and 11 to the Consolidated Financial Statements herein for additional information related to divestitures.

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.

Our intent is to perform a quantitative impairment test at least once every three years unless certain indicators or events suggest otherwise and perform a qualitative assessment during the remaining two years.

We perform our annual goodwill impairment test as of August 31 st each year.

As such, we test goodwill for impairment on an annual basis as of August 31 st 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.

We conducted qualitative assessments in 2017 and 2018 ;

however, we performed a quantitative assessment in 2019 .

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 adverse changes in the business climate, which may be indicated by a decline in our market capitalization or decline in operating results.

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

Our quantitative goodwill impairment test involves estimates and management judgment.

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The projected future cash flows include assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows discounted at our weighted average cost of capital based on market participant assumptions.

Our methodology for determining a market approach

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

fair value utilizes the guideline public company method, in which we rely on market multiples of comparable companies operating in the same industry as the individual reporting units.

Our methodology for determining a market approach fair value utilizes the guideline public company method, in which we rely on market multiples of comparable companies operating in the same industry as the individual reporting units.

In accordance with the guidance, if the fair value of the reporting unit is less than its carrying amount an impairment charge is recorded in an amount equal to the difference.

For our 2019 quantitative assessment, there was no impairment to goodwill as the fair value of our reporting units was greater than the carrying value.

However, we recorded a goodwill impairment of $0.5 million during 2019 related to a funeral home business that we divested in the fourth quarter of 2019 .

We also recorded a $0.2 million goodwill impairment during the year ended December 31, 2019 related to a funeral home business that is under a letter of intent to sell during 2020, as the carrying value exceeded fair value at December 31, 2019 .

For our 2018 annual impairment test, we performed a qualitative assessment and concluded that the fair value of our reporting units was greater than their carrying value and thus there was no impairment to goodwill.

However, we recorded a goodwill impairment of $0.8 million during 2018 related to a funeral home business that we divested during the third quarter of 2019.

No impairments were recorded to our goodwill during the year ended December 31, 2017 .

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

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

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

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

For our 2019 quantitative assessment, there was no impairment to goodwill as the fair value of our reporting units was greater than the carrying value, however, we recorded a goodwill impairment of $ 0.7 million during 2019 related to two funeral homes that we divested.

We recorded a goodwill impairment of $ 0.8 million during 2018 related to a funeral home that we divested.

When we divest a portion of a reporting unit that constitutes a business in accordance with U.S.

Generally Accepted Accounting Principles (“GAAP”), we allocate goodwill associated with that business to be included in the gain or loss on divestiture.

The goodwill allocated is based on the relative fair values of the business being divested and the portion of the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

reporting unit that will be retained.

Additionally, after each divestiture, we test the goodwill remaining in the portion of the reporting unit to be retained for impairment using a qualitative assessment unless we deem a quantitative assessment to be appropriate to ensure the fair value of our reporting units is greater than their carrying value.

For the year ended December 31, 2020, we concluded that it is more-likely-than not that the fair value of our reporting units is greater than their carrying value and thus there was no additional impairment to goodwill.

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

Intangible Assets

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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.

We perform our annual intangible assets impairment test as of August 31 st each year.

As such, we test our intangible assets for impairment on an annual basis as of August 31 st 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.

We conducted qualitative assessments in 2017 and 2018 ;

however, we performed a quantitative assessment in 2019 .

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.

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In accordance with the guidance, if the fair value of the tradename is less than its carrying amount, then an impairment charge is recorded in an amount equal to the difference.

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

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

For our 2019 quantitative assessment, we recorded an impairment for tradenames of $ 0.2 million during the year ended December 31, 2019 as the carrying amount of certain tradenames exceeded the fair value.

No impairments were recorded to our intangible assets during the years ended December 31, 2017 and 2018 .

See Note 13 to the Consolidated Financial Statements included herein for additional information related to our intangible assets.

Divested Operations

During 2019 , we divested three funeral home businesses whose building leases expired and sold a funeral home business for $0.9 million .

In addition, we merged a funeral home business with a business in an existing market.

During 2018 , our management agreement with a Florida municipality expired and as a result, we divested three of our cemetery businesses.

During 2017 , we sold a funeral home business in Kentucky for $0.6 million .

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

See Note 5 to the Consolidated Financial Statements herein for additional information related to our divested businesses.

No impairments were recorded to our intangible assets during the year ended December 31, 2018.

See Note 11 to the Consolidated Financial Statements included herein for additional information related to intangible assets.

Preneed and Perpetual Care Trust Funds

Preneed sales generally require deposits to a trust or purchase of a third-party insurance product.

We have established a variety of trusts in connection with funeral home and cemetery operations as required under applicable state laws.

Such trusts include (i) preneed funeral trusts;

(ii) preneed cemetery merchandise and service trusts;

and (iii) cemetery perpetual care trusts.

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

In the case of preneed trusts, the customers are the legal beneficiaries.

In the case of perpetual care trusts, we do not have a right to access the corpus in the perpetual care trusts.

Our trust fund assets are reflected in our financial statements as Preneed cemetery trust investments, Preneed funeral trust investments and Cemetery perpetual care trust investments.

We have recognized financial interests of third parties in the trust funds in our financial statements as Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The fair value of our trust fund assets are accounted for as Collateralized Financing Entities (“CFEs”) in ASC 810.

The accounting guidance for CFEs allows companies to elect to measure both the financial assets and financial liabilities using the more observable of the fair value of the financial assets or fair value of the financial liabilities.

Pursuant to this guidance, we have determined the fair value of the financial assets of the trusts are more observable and we first measure those financial assets at fair value.

Our fair value of the financial liabilities mirror the fair value of the financial assets, in accordance with the ASC.

Any changes in fair value are recognized in earnings.

Topic 326 made changes to the accounting for fixed income securities.

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

In accordance with respective state laws, we are required to deposit a specified amount into perpetual and memorial care trust funds for each interment right and certain memorials sold.

Income from the trust funds is distributed to us and used to provide for the care and maintenance of the cemeteries and mausoleums.

Such trust fund income is recognized as revenue when realized by the trust and distributable to us.

We are restricted from withdrawing any of the principal balances of these funds.

An enterprise is required to perform an analysis to determine whether the enterprise’s variable interest(s) give it a controlling financial interest in a VIE.

Our analysis continues to support our position as the primary beneficiary in the majority of our funeral and cemetery trust funds.

See Notes 7 and 8 to the Consolidated Financial Statements herein for additional information related to preneed and perpetual care trust funds.

Fair Value Measurements

We measure the available-for-sale securities held by our funeral merchandise and service, cemetery merchandise and service, and cemetery perpetual care trusts at fair value on a recurring basis in accordance with the Fair Value Measurements Topic of the ASC.

In August 2018, the FASB amended “Fair Value Measurements” to modify the disclosure requirements related to fair value.

The amendment removes requirements to disclose (1) the amount of and reasons for transfers between Levels 1 and 2 of the fair value hierarchy, (2) our policy related to the timing of transfers between levels, and (3) the valuation processes used in Level 3 measurements.

It clarifies that the narrative disclosure of the effect of changes in Level 3 inputs should be based on changes that could occur at the reporting date.

The amendment adds a requirement to disclose the range and weighted average of the significant unobservable inputs used in Level 3 measurements.

We adopted the new standard as of January 1, 2020 and it had no impact on our consolidated results of operations, consolidated financial position, and cash flows .

We measure the securities held by our funeral merchandise and service, cemetery merchandise and service, and cemetery perpetual care trusts at fair value on a recurring basis in accordance with the Fair Value Measurements Topic of the ASC.

This guidance defines fair value as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).

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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.

The fair value disclosures of transfers in and out of Levels 1 and 2 and the gross presentation of purchases, sales, issuances and settlements in the Level 3 reconciliation of the three-tier fair value hierarchy are also presented in Notes 7 and 11 to the Consolidated Financial Statements included herein.

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.

To determine the fair value of assets and liabilities in an environment where the volume and level of activity for the asset or liability have significantly decreased, the exit price is used as the fair value measurement.

For the year ended December 31, 2019 , we did not incur significant decreases in the volume or level of activity of any asset or liability.

We consider an impairment of debt and equity securities other-than-temporary unless (a) we have the ability and intent to hold an investment and (b) evidence indicating the cost of the investment is recoverable before we are more likely than not required to sell the investment.

If an impairment is indicated, then an adjustment is made to reduce the carrying amount to fair value which is recorded as a reduction to either Deferred preneed cemetery receipts held in trust, Deferred preneed funeral receipts held in trust or Care trusts’ corpus on our Consolidated Balance Sheet.

We did not record any impairments during the years ended December 31, 2018 and 2019 .

In the ordinary course of business, we are typically exposed to a variety of market risks.

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Management is actively involved in monitoring exposure to market risk and developing and utilizing risk management techniques when appropriate and when available for a reasonable price.

See Notes 7, 11 and 12 to the Consolidated Financial Statements herein for additional required disclosures related to our fair value measurement of our financial assets and liabilities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

See Notes 7 and 10 to the Consolidated Financial Statements herein for additional required disclosures related to fair value measurement of our financial assets and liabilities.

Capitalized Commissions on Preneed Contracts

Our capitalized commissions on preneed contracts are amortized on a straight-line basis over the average maturity period of ten years for our preneed funeral trust contracts and eight years for our preneed cemetery merchandise and services contracts.

Amortization expense totaled $ 0.6 million for each of the years ended December 31, 2018, 2019 and 2020.

The selling costs related to preneed funeral insurance contracts continue to be expensed in the period incurred as these contracts are not included on our Consolidated Balance Sheet.

See Note 11 to the Consolidated Financial Statements herein for additional information related to capitalized commissions on preneed contracts.

Property, Plant and Equipment

Property, plant and equipment (including equipment under finance leases) are stated at cost.

The costs of ordinary maintenance and repairs are charged to operations as incurred, while renewals and major replacements that extend the useful economic life of the asset are capitalized.

Depreciation of property, plant and equipment (including equipment under finance leases) is computed based on the straight-line method over the following estimated useful lives of the assets:

Buildings and improvements 15 to 40

Furniture and fixtures 5 to 10

Machinery and equipment 3 to 15

Automobiles 5 to 7 0

Property, plant and equipment is comprised of the following (in thousands):

December 31, 2019 December 31, 2020

Land $ 84,608 $ 82,615

Buildings and improvements 242,641 240,567

Furniture, equipment and automobiles 88,046 91,302

Property, plant and equipment, at cost 415,295 414,484

accumulated depreciation ( 136,095 ) ( 145,433 )

Property, plant and equipment, net $ 279,200 $ 269,051

During 2020, we acquired $ 1.7 million of property, plant and equipment related to our acquisition that closed on January 3, 2020, described in Note 3 to the Consolidated Financial Statements included herein.

In addition, we divested eight funeral homes that had a carrying value of property, plant and equipment of $ 8.0 million, which was included in the gain or loss on the sale of divestitures and recorded in Net loss on divestitures and impairment charges on our Consolidated Statements of Operations, described in Note 5 to the Consolidated Financial Statements included herein.

During 2019, we acquired $ 21.7 million of property, plant and equipment in connection with the funeral home and cemetery businesses we acquired during 2019.

In addition, we ceased to operate three funeral homes whose building leases expired, sold a funeral home and merged a funeral home in an existing market that had a carrying value of property, plant and equipment of $ 0.6 million .

Our capital expenditures totaled $ 15.4 million and $ 15.2 million for the years ended December 31, 2019 and 2020, for property, plant, equipment and cemetery development.

We recorded depreciation expense of $ 13.8 million, $ 13.8 million and $ 14.4 million for the years ended December 31, 2018, 2019 and 2020, respectively.

Long-lived assets, such as property, plant and equipment and right-of-use assets (see leases discussion below) are reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360 – Property, Plant and Equipment.

This guidance requires that long-lived assets to be held and used are reported at the lower of their carrying amount or fair value.

We evaluate our long-lived assets for impairment when a funeral home or cemetery business has negative earnings before interest, taxes, depreciation and

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

amortization (“EBITDA”) for four consecutive years and if there has been a decline in EBITDA in that same period.

Assets to be disposed of and assets not expected to provide any future service potential are recorded at the lower of their carrying amount or fair value less estimated cost to sell.

If we determine that the carrying value is not recoverable from the proceeds of the sale, we record an impairment at that time.

In connection with the goodwill impairment recorded for the Eastern Region Reporting Unit during the quarter ended March 31, 2020 we also evaluated the long-lived assets of our funeral homes in the Eastern Region Reporting Unit and concluded that there was no impairment to our long-lived assets.

Subsequent to our impairment tests performed at March 31, 2020, we did not identify any new factors or events that would trigger us to perform an additional assessment of our long-lived assets.

For our 2020 annual impairment test, no impairment was identified on our long-lived assets at December 31, 2020.

For the year ended December 31, 2019, no impairment was identified on our long-lived assets.

For the year ended December 31, 2018, we recorded an impairment of $ 0.2 million related to the real property of a funeral home that we divested, as the carrying value exceeded fair value.

Cemetery Property

When we acquire a cemetery, we utilize an internal and external approach to determine the fair value of the cemetery property.

From an external perspective, we obtain an accredited appraisal to provide reasonable assurance for property existence, property availability (unrestricted) for development, property lines, available spaces to sell, identifiable obstacles or easements and general valuation inclusive of known variables in that market.

From an internal perspective, we conduct a detailed analysis of the acquired cemetery property using other cemeteries in our portfolio as a benchmark.

This provides the added benefit of relevant data that is not available to third party appraisers.

Through this thorough internal process, the Company is able to identify viable costs of property based on historical experience, particular markets and demographics, reasonable margins, practical retail prices and park infrastructure and condition.

Cemetery property was $ 87.0 million and $ 101.1 million, net of accumulated amortization of $ 41.7 million and $ 46.6 million at December 31, 2019 and December 31, 2020, respectively.

When cemetery property is sold, the value of the cemetery property (interment right costs) is expensed as amortization using the specific identification method in the period in which the sale of the interment right is recognized as revenue.

We recorded amortization expense for cemetery interment rights of $ 3.6 million, $ 4.0 million and $ 5.0 million for the years ended December 31, 2018, 2019 and 2020, respectively.

We have operating and finance leases.

We lease certain office facilities, certain funeral homes and equipment under operating leases with original terms ranging from one to nineteen years .

Many leases include one or more options to renew, some of which include options to extend the leases for up to 26 years.

We lease certain funeral homes under finance leases with original terms ranging from ten to forty years years.

We do not have lease agreements with residual value guarantees, sale-leaseback terms, material restrictive covenants or related parties.

We do not have any material sublease arrangements.

We determine if an arrangement is a lease at inception based on the facts and circumstances of the agreement.

A right-of-use (“ROU”) asset represents our right to use the underlying asset for the lease term and the lease liability represents our obligation to make lease payments arising from the lease.

ROU assets and lease liabilities are recognized on our Consolidated Balance Sheet at the lease commencement date based on the present value of lease payments over the lease term.

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.

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.

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 obligation s 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 O bligations under finance leases, net of current portion on our Consolidated Balance Sheet.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

In connection with the goodwill and intangible impairment tests performed at March 31, 2020, we also evaluated the operating and finance leases of our funeral homes in the Eastern Reporting Unit and concluded that there was no impairment to our operating and finance lease assets.

Subsequent to our impairment tests performed at March 31, 2020, we did not identify any new factors or events that would trigger us to perform an additional assessment of our operating and finance leases.

See discussion of our impairment policy for long-lived assets and right-of-use assets above.

See Note 15 to the Consolidated Financial Statements included herein for additional information related to leases.

Equity Plans and Stock-Based Compensation

We have equity-based employee and director compensation plans under which we have granted stock awards, stock options and performance awards.

We also have an employee stock purchase plan (the “ESPP”).

We recognize compensation expense in an amount equal to the fair value of the stock-based awards expected to vest or to be purchased over the requisite service period.

We recognize the effect of forfeitures in compensation cost when they occur and any previously recognized compensation cost for an award is reversed in the period that the award is forfeited.

Fair value is determined on the date of the grant.

The fair value of stock awards is determined using the stock price on the grant date.

The fair value of stock options is determined using the Black-Scholes valuation model.

The fair value of the performance awards related to market performance conditions is determined using a Monte-Carlo simulation pricing model.

The fair value of the ESPP is determined based on the discount element offered to employees and the embedded option element, which is determined using an option calculation model.

We recognize all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) as income tax benefit or expense in the income statement.

We treat the tax effects of exercised or vested awards as discrete items in the reporting period in which they occur.

For the years ended December 31, 2018, 2019 and 2020, the excess tax deficiency related to share-based payments was approximately $ 0.8 million, $ 0.4 million and $ 0.1 million, respectively, recorded within Tax adjustment related to discrete items on our Consolidated Statements of Operations.

Excess tax benefits or deficiencies related to share-based payments are included in operating cash flows on the Consolidated Statements of Cash Flows.

See Note 18 to the Consolidated Financial Statements included herein for additional information related to equity plans and stock-based compensation.

Revenue Recognition

Funeral and Cemetery Operations Revenue is recognized when control of the merchandise or services is transferred to the customer.

Our performance obligations include the delivery of funeral and cemetery merchandise and services and cemetery property interment rights.

Control transfers when merchandise is delivered or services are performed.

For cemetery property interment rights, control transfers to the customer when the property is developed and the interment right has been sold and can no longer be marketed or sold to another customer.

Sales taxes collected are recognized on a net basis on our Consolidated Financial Statements.

On our atneed contracts, we generally deliver the merchandise and perform the services at the time of need.

Memorial services frequently include performance obligations to direct the service, provide facilities and motor vehicles, catering, flowers, and stationary products.

All other performance obligations on these contracts, including arrangement, removal, preparation, embalming, cremation, interment, and delivery of urns and caskets and related memorialization merchandise are fulfilled at the time of need.

Personalized marker merchandise and marker installation services sold on atneed contracts are recognized when control is transferred to the customer, generally when the marker is delivered and installed in the cemetery.

Some of our contracts with customers include multiple performance obligations.

For these contracts, we allocate the transaction price to each performance obligation based on its relative standalone selling price, which is based on prices charged to customers per our general price list.

Packages for service and ancillary items are offered to help the customer make decisions during emotional and stressful times.

Package discounts are reflected net in Revenue .

We recognize revenue when the merchandise is transferred or the service is performed, in satisfaction of the corresponding performance obligation.

Sales taxes collected are recognized on a net basis on our Consolidated Financial Statements.

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

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

As of December 31, 2020, CSV RIA provided investment management and advisory services to approximately 80 % of our trust assets, for a fee based on the market value of

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

trust assets.

Balances due on undelivered preneed funeral trust contracts have been reclassified to reduce Deferred preneed funeral revenue on our Consolidated Balance Sheet of $ 8.9 million and $ 8.2 million at December 31, 2019 and December 31, 2020, respectively.

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

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

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

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

The transaction price allocated to preneed merchandise and service performance obligations that were unfulfilled was $ 4.8 million and $ 7.9 million at December 31, 2019 and December 31, 2020, respectively.

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

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

See Notes 21 to the Consolidated Financial Statements herein for additional information related to revenue.

We and our subsidiaries file a consolidated U.

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.

federal income tax return, separate income tax returns in 15 states and combined or unitary income tax returns in 14 states.

We record deferred taxes for temporary differences between the tax basis and financial reporting basis of assets and liabilities.

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and specify how reserves for uncertain tax positions should be classified on our Consolidated Balance Sheet.

The Company’s unrecognized tax benefits reserve for uncertain tax positions primarily relates to pending accounting method changes filed for the tax year ended December 31, 2018 .

The amount of the reserve recorded as of December 31, 2019 was $3.2 million .

No reserve is recorded at December 31, 2018 .

See Note 19 to the Consolidated Financial Statements included herein for additional information related to our income taxes.

The recently passed Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) has certain provisions that are applicable to the Company as follows:

(i) allowing net operating losses (“NOLs”) arising in 2018, 2019 and 2020 to be carried back five years;

(ii) increasing the taxable income threshold on the interest deduction from 30% to 50% for tax years beginning in 2019 and 2020;

(iii) suspending payment requirements for the 6.2% employer portion of Social Security taxes from the date of enactment through the end of 2020, with half the balance due by the end of 2021, and the other half due by the end of 2022;

(iv) our ability to receive employee retention credits up to $5,000 for paying wages to employees who are unable to work, while business operations are suspended.

In connection with the CARES Act, we filed a claim for a refund on June 30, 2020, to carryback the NOLs generated in the tax year ended December 31, 2018.

The refund claim from the 2018 tax year was received on August 7, 2020.

An additional carryback claim for a refund was filed on November 3, 2020 for the tax year ended December 31, 2019.

The refund from this filing has not yet been received.

On December 4, 2020, Carriage filed an amended federal return for the tax year ended December 31, 2018, in order to take full advantage of the CARES Act legislative changes.

The changes reported in the amended return resulted in additional $ 2.3 million of loss.

The additional losses generated from the amended filing will be administratively carried back and processed as part of the Joint Committee review of the 2018 carryback claim.

The majority of the NOLs generated in tax years 2018 and 2019 are the result of filing non-automatic accounting method changes relating to the recognition of revenue from our cemetery property and merchandise and services sales.

Due to the uncertainty of the timing of receiving Internal Revenue Service (“IRS”) approval of the method change applications, a reserve has been recorded against the net cash tax benefit derived from carrying back the NOLs generated to tax years in which the enacted federal rate was 35%.

The Company's unrecognized tax benefit reserve for the years ended December 31, 2019 and 2020 was $ 0.7 million and $ 3.7 million, respectively.

There was no reserve recorded at December 31, 2018.

Additional benefits stemming from the CARES Act are the deferral of approximately $ 3.5 million of the 6.2% employer portion of Social Security taxes and approximately $ 0.4 million employer retention credits for qualifying wages paid to employees unable to work due to governmental restrictions.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Stock Plans and Stock-Based Compensation

We have stock-based employee and director compensation plans under which we grant stock, restricted stock, stock options and performance awards.

We also have an employee stock purchase plan (“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.

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.

The fair value of the performance awards related to market performance is determined using a Monte-Carlo simulation pricing model.

The fair value of the performance awards related to internal performance metrics is determined using the stock price on the grant date.

The fair value of the ESPP is determined based on the discount element offered to employees and the embedded option element, which is determined using an option calculation model.

We recognize all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) as income tax benefit or expense in the income statement.

We treat the tax effects of exercised or vested awards as discrete items in the reporting period in which they occur.

For the years ended December 31, 2018 and 2019 , the excess tax deficiency related to share-based payments was approximately $0.8 million and $0.4 million , respectively, recorded within Tax adjustment related to certain discrete items on our Consolidated Statements of Operations.

Excess tax benefits or deficiencies related to share-based payments are included in operating cash flows on the Consolidated Statements of Cash Flows.

See Note 20 to the Consolidated Financial Statements included herein for additional information related to our stock-based compensation plans.

See Note 17 to the Consolidated Financial Statements included herein for additional information related to income taxes.

Computation of Earnings Per Common Share

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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.

Our grants of stock awards to our employees are considered participating securities, and we have prepared our earnings per share calculations attributable to common stockholders to exclude earnings allocated to unvested restricted stock awards, using the two-class method, in both the basic and diluted weighted average shares outstanding calculation.

The fully diluted weighted average shares outstanding for the years ended December 31, 2018, 2019 and 2020, and the corresponding calculation of fully diluted earnings per share, included 337,000 , 10,000 and 9,000 shares that would have been issued upon the conversion of our Convertible Notes as a result of the application of the if-converted method prescribed by the FASB ASC 260.

See Note 22 to the Consolidated Financial Statements included herein for the computation of per share earnings for the years ended December 31, 2017 , 2018 and 2019 .

See Note 20 to the Consolidated Financial Statements included herein related to the computation of per share earnings.

Correction of Immaterial Error

During the fourth quarter of 2020, we corrected an immaterial error related to the net unrealized gains and losses associated with our trust investments.

We previously recognized the net unrealized gains and losses associated with our trust investments in Accumulated other comprehensive income (“OCI”).

In accordance with ASC 810, the fair value of our trust fund assets are accounted for as CFEs.

We have determined the fair value of the financial assets of the trust is more observable and we first measure those financial assets at fair value.

Our fair value of the financial liabilities mirror the fair value of the financial assets, in accordance with the ASC.

Any changes in fair value are recognized in earnings.

As such, we have made the adjustment to reflect changes in unrealized gains and losses related to our trust securities in Other, net on our Consolidated Statements of Operations.

The net unrealized gains and losses in our Preneed cemetery trust investments , Preneed funeral trust investments and Cemetery perpetual care trust investments are equally offset by the net unrealized gains and losses in our Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus , which results in a net impact of zero.

Management evaluated the effect of the adjustment on previously issued interim and annual Consolidated Financial Statements and concluded that it was immaterial to the interim and annual periods.

This adjustment had no impact on our Consolidated Balance Sheet, Consolidated Statements of Operations and Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2019.

Subsequent Events

We have evaluated events and transactions during the period subsequent to December 31, 2020 through the date the financial statements were issued for potential recognition or disclosure in the accompanying financial statements covered by this report.

RECENTLY ISSUED ACCOUNTING STANDARDS

In February 2016, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) related to Leases (Topic 842) and subsequent amendments, collectively referred to as (“Topic 842”) to increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease liabilities on the balance sheet for all leases, including operating leases.

The ROU asset represents the right to use the underlying asset for the lease term and the lease liability represents the obligation to make lease payments arising from the lease.

Finance leases were not impacted by Topic 842, as finance lease liabilities and the corresponding ROU assets were already recorded on the balance sheet under the previous guidance Topic 840, Leases .

On January 1, 2019 , we adopted Topic 842 using the modified retrospective method for all lease arrangements at the beginning of the period of adoption.

Results for reporting periods beginning January 1, 2019 , are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with Topic 840.

While Topic 842 had a material

See Note 25 to the Consolidated Financial Statements included herein for additional information related to subsequent events.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

impact on our Consolidated Balance Sheet, it did not have a material impact on our Consolidated Statements of Operations or Cash Flows, or liquidity measures, such as debt covenant ratios.

It also did not have a material impact on our effective tax rate for the reporting period.

The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.

For leases that commenced before the effective date of Topic 842, we elected the permitted practical expedients to not reassess the following:

(i) whether any expired or existing contracts contain leases;

(ii) the lease classification for any expired or existing leases;

and (iii) initial direct costs for any existing leases.

We also elected to exclude leases with a term of 12 months or less in the recognized ROU assets and lease liabilities.

We have real estate lease agreements which require payments for lease and non-lease components and have elected to account for these as a single lease component.

We have elected the short-term lease recognition exemption for all applicable classes of underlying assets.

On January 1, 2019 , we recorded operating lease ROU assets of $16.5 million and operating lease liabilities of $17.3 million , related to our real estate and equipment leases, based on the present value of the future lease payments on the date of adoption.

Our opening operating lease ROU asset balance included prepaid lease expense and lease incentives on our Consolidated Balance Sheet at December 31, 2018.

The cumulative effect of changes made to our opening Consolidated Balance Sheet on January 1, 2019 , for the adoption of Topic 842 is as follows (in thousands):

December 31, 2018

Effect of Adoption of

January 1, 2019

Prepaid expenses

Operating lease right-of-use assets

Accrued and other liabilities

Other long-term liabilities

Current portion of operating lease obligations

Obligations under operating leases, net of current portion

See Note 17 to the Consolidated Financial Statements included herein for the additional disclosures required by Topic 842.

We have no material leases in which we are the lessor.

Accounting Pronouncements Not Yet Adopted

RECENTLY ISSUED ACCOUNTING STANDARDS

Fair Value Measurements

In August 2018, the FASB issued ASU, Fair Value Measurements (“Topic 820”) to modify the disclosure requirements related to fair value.

The amendment removes requirements to disclose (1) the amount of and reasons for transfers between levels 1 and 2 of the fair value hierarchy, (2) our policy related to the timing of transfers between levels, and (3) the valuation processes used in level 3 measurements.

It clarifies that, for investments measured at net asset value, disclosure of liquidation timing is only required if the investee has communicated the timing either to us or publicly.

It also clarifies that the narrative disclosure of the effect of changes in level 3 inputs should be based on changes that could occur at the reporting date.

The amendment adds a requirement to disclose the range and weighted average of the significant unobservable inputs used in level 3 measurements.

On January 1, 2020, we adopted the new standard and the impact was not material our Consolidated Financial Statements.

Financial Instruments - Credit Losses

In June 2016, the FASB issued ASU, Financial Instruments – Credit Losses:

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

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

The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired.

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

This ASU is effective for fiscal years beginning after December 15, 2019 , and interim periods within those fiscal years, with earlier application permitted for all entities.

We plan to adopt the provisions of this ASU for our fiscal year beginning January 1, 2020 using the modified retrospective approach.

We believe that our current process of analyzing and calculating our allowance for doubtful accounts on trade receivables and the allowance for contract cancellations on financed receivables considers the credit risk of our customers and accounts for the recognition of credit losses at inception.

Our customer base is generally a homogeneous pool of consumers based in the United States that, as a group, have a similar level of credit risk that are less subject to material economic and demographic changes.

Additionally, our trade receivables are short term in nature (outstanding less than 90 days).

Therefore, due to the similar level of credit risk of our customer base and the short-term nature of our receivables, we use our historical loss experience to forecast future collectability of our trade receivables and record an allowance at each reporting period.

Our current contract cancellation policy on cemetery financed receivables requires that we record an allowance at the date that the sale is recognized as revenue.

Additionally, we reserve 100% of the receivable on contracts in which the revenue has been recognized and payments are 90 days past due or more.

Because we believe our current processes already consider credit risk and recognize credit losses at inception, we do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

On January 1, 2020, we adopted Topic 326 using the modified retrospective method and the impact was not material to our Consolidated Financial Statements.

See Notes 6 and 7 to the Consolidated Financial Statements herein for additional disclosures required by Topic 326.

In December 2019, the FASB issued ASU, Income Taxes (“Topic 740”).

The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions such as (1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income) and (2) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

In addition, the ASU allows for the following (1) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, (2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, (3) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date and (4) making minor codification improvements for income taxes related to employee stock ownership plans accounted for using the equity method.

On January 1, 2020, we early adopted the provisions of this ASU using the prospective method and the impact was not material to our Consolidated Financial Statements.

Accounting Pronouncements Not Yet Adopted

Reference Rate Reform

In March 2020, the FASB issued ASU, Reference Rate Reform (“Topic 848”) to provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform.

The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments apply only to contracts and hedging relationships that reference London InterBank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform.

These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022.

The Company did not utilize the optional expedients and exceptions provided by this ASU during the year ended December 31, 2020.

On January 3, 2020, we acquired one funeral home and cemetery combination business in Lafayette, California for $ 33.0 million in cash, of which $ 5.0 million was deposited in escrow in 2019 and $ 28.0 million was paid at closing in 2020.

We acquired substantially all of the assets and assumed certain operating liabilities of these businesses.

The pro forma impact of this acquisition on prior periods is not presented, as the impact is not significant to our reported results.

The results of the acquired business are reflected on our Consolidated Statements of Operations from the date of acquisition.

Subsequent to our initial purchase price allocation for this acquisition made during the first quarter of 2020, we have adjusted our purchase price allocation based on additional information which became available prior to December 31, 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

In addition, the new guidance prospectively replaces the other-than-temporary impairment model for available-for-sale debt securities and requires the recognition of an allowance for reductions in a security's fair value attributable to declines in credit quality, instead of a direct write-down of the security, when a valuation decline is determined to be other-than-temporary.

We are currently establishing a policy where we review our available-for-sale securities at each reporting period and perform an analysis on securities whose fair value is less than amortized cost to determine if impairment is appropriate.

If the analysis of the security reflects impairment, we will perform a present value calculation of the future cash flows on the respective security using the effective interest rate implicit in the security at the date of acquisition.

The impairment recognized will be the greater of the current fair market value or the present value of the future cash flows of the security.

We do not expect the impact of the new guidance on available-for-sale securities to be material to our consolidated financial statements upon adoption.

In December 2019 , the FASB issued ASU, Income Taxes (Topic 740), to simplify the accounting for income taxes.

The amendments in this update are effective for fiscal years beginning after December 15, 2020, with early adoption permitted.

We plan to adopt the provisions of this ASU for our fiscal year beginning January 1, 2021 and are currently evaluating the impact of adoption on our consolidated financial statements.

On October 9, 2019 , we acquired four funeral home businesses in Buffalo, New York for $15.3 million in cash.

On October 28, 2019 , we acquired one funeral home and cemetery combination business, three funeral home businesses and three ancillary service businesses, which consist of a flower shop, a pet cremation business and an online cremation business, in the Dallas, Texas area for $23.6 million in cash.

We acquired substantially all the assets and assumed certain operating liabilities of these businesses.

On December 31, 2019 , pursuant to the Transactions Agreement dated November 25, 2019 with Calvary Memorial Park, Inc.

and Fairfax Memorial Funeral Home, LLC (“the Agreement“), all of the outstanding equity interests of the Fairfax, Virginia funeral and cemetery combination businesses were acquired for $102.0 million in cash.

The funeral home business was operated by a limited liability company that was treated as a partnership for federal tax purposes prior to the acquisition date, and therefore, the acquisition of all of the outstanding membership units of the partnership were treated as an asset acquisition.

The cemetery business was operated by an S corporation prior to the acquisition date, and therefore, consent was obtained from the selling S corporation shareholders to make a 338(h)(10) election under the Internal Revenue Code (“the Election”), which allowed us to treat the acquisition of the stock of the cemetery business as an asset acquisition and allowed us to record the assets and liabilities at fair value.

Pursuant to the Agreement, a portion of the purchase price is being held in escrow to reimburse the sellers for certain incremental taxes resulting from the Election.

These funds must be distributed by December 31, 2020, and if they are not fully utilized, the remaining portion of such funds will be returned to us and the purchase price and goodwill will be reduced by that amount.

A portion of the purchase price is also being held in escrow as an indemnity obligation holdback to cover potential indemnification obligations of the sellers, which will be released pursuant to the terms of the Agreement.

The pro forma impact of these acquisitions on prior periods is not presented, as the impact is not significant to our reported results.

The results of the acquired businesses are reflected in our Consolidated Statements of Operations from the date of acquisition.

As of December 31, 2019 , our accounting for our 2019 acquisitions was not complete.

The following table summarizes the breakdown of the purchase price allocation for the businesses described above (in thousands):

Purchase Price Allocation

The following table summarizes the breakdown of the purchase price allocation for our 2020 acquisition (in thousands):

Initial Purchase Price Allocation Adjustments Adjusted Purchase Price Allocation

Current assets $ 2,662 $ 108 $ 2,770

Preneed trust assets

Trust investments 9,089 — 9,089

Property, plant & equipment 1,720 — 1,720

Cemetery property 14,753 82 14,835

Goodwill 12,916 500 13,416

Intangible and other non-current assets 2,506 ( 628 ) 1,878

Assumed liabilities ( 489 ) $ — $ ( 489 )

Preneed trust liabilities

Deferred tax liability ( 527 ) ( 5 ) ( 532 )

Trust liabilities ( 9,089 ) — ( 9,089 )

Deferred revenue ( 541 ) ( 57 ) ( 598 )

Purchase price $ 33,000 $ — $ 33,000

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The intangible and other non-current assets relate to the fair value of tradenames and agreements not-to-compete.

The assumed liabilities primarily relate to the obligations associated with accounts payable and payroll related liabilities of the Fairfax, Virginia acquisition.

The following table summarizes the fair value of the assets acquired for these businesses (in thousands):

Acquisition Date

Type of Business

October 9, 2019

Four Funeral Homes

October 28, 2019

One Funeral Home and Cemetery Combination, Three Funeral Homes and Three Ancillary Businesses

December 31, 2019

One Funeral Home and Cemetery Combination

During 2018 , we acquired two funeral home businesses in Fredericksburg, Virginia and one in Stafford, Virginia for $29.2 million in cash.

We acquired a funeral home business in Cookeville, Tennessee for $2.8 million in cash.

We also acquired one funeral home business on Knightdale, North Carolina for $6.0 million in cash.

The following table summarizes the breakdown of the purchase price allocation for the businesses acquired during 2018 (in thousands):

Purchase Price Allocation

The current assets primarily relate to preneed cemetery receivables.

The intangible and other non-current assets primarily relate to the fair value of tradenames.

The assumed liabilities primarily relate to the obligations associated with delivered preneed merchandise that were not paid for prior to acquisition.

The goodwill recorded for our 2020 acquisition is expected to be deductible for tax purposes.

As of December 31, 2020, our accounting for our 2020 acquisition is complete.

On October 9, 2019, we acquired four funeral home businesses in Buffalo, New York for $ 15.3 million in cash.

On October 28, 2020, we acquired one funeral home and cemetery combination business, three funeral home businesses and three ancillary service businesses, which consist of a flower shop, a pet cremation business and an online cremation business, in the Rockwall, Texas area for $ 23.6 million in cash.

On December 31, 2019, pursuant to the Transactions Agreement dated November 25, 2019 with Calvary Memorial Park, Inc.

and Fairfax Memorial Funeral Home, LLC, all of the outstanding equity interests of one funeral and cemetery combination business in Fairfax, Virginia were acquired for $ 102.0 million in cash.

The following table summarizes the fair value of the assets acquired for our 2020 acquisition (in thousands):

Acquisition Date Type of Business Market Assets

Goodwill) Goodwill

Recorded Liabilities

January 3, 2020 One Funeral Home and Cemetery Combination Lafayette, CA $ 30,292 $ 13,416 $ ( 10,708 )

We recorded adjustments to the purchase price allocation for our 2019 acquisitions during the year ended December 31, 2020.

The following table summarizes the breakdown of the purchase price allocation for these businesses and the subsequent adjustments made based on additional information which became available subsequent to the acquisitions (in thousands):

Initial Purchase Price Allocation Adjustments Adjusted Purchase Price Allocation

Current assets $ 1,482 $ 204 $ 1,686

Trust investments 15,891 — 15,891

Property, plant & equipment 21,680 — 21,680

Cemetery property 11,994 ( 45 ) 11,949

Goodwill 99,344 638 99,982

Intangible and other non-current assets 8,269 ( 1,480 ) 6,789

Assumed liabilities ( 657 ) ( 145 ) ( 802 )

Trust liabilities ( 15,463 ) — ( 15,463 )

Deferred revenue ( 1,633 ) 992 ( 641 )

Purchase price $ 140,907 $ 164 $ 141,071

The intangible and other non-current assets relate to the fair value of tradenames and agreements not-to-compete and the assumed liabilities relate to the obligations associated with certain financed automobiles we acquired.

The following table summarizes the fair value of the assets acquired for the businesses acquired during 2018 (in thousands):

Acquisition Date

Type of Business

July 10, 2018

Two Funeral Homes

Fredericksburg/Stafford, VA

August 21, 2018

One Funeral Home

Cookeville, TN

August 28, 2018

One Funeral Home

Knightdale, NC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

During the year ended December 31, 2020, we paid an additional $ 164,000 for our acquisition of the cemetery business in Fairfax, Virginia to reimburse the sellers for certain incremental taxes resulting from the 338(h)(10) election under the Internal Revenue Code.

We also received $ 153,000 in cash related to the closing of all operating bank accounts in place prior to the acquisition.

The goodwill recorded for our 2019 acquisitions is expected to be deductible for tax purposes.

As of December 31, 2020, our accounting for our 2019 acquisitions is complete.

The following table summarizes the fair value of the assets acquired for our 2019 acquisitions based on our final purchase price allocation (in thousands):

Acquisition Date Type of Business Market Assets

Goodwill) Goodwill

Recorded Liabilities

October 9, 2019 Four Funeral Homes Buffalo, NY $ 7,942 $ 7,340 $ —

October 28, 2019 One Funeral Home and Cemetery Combination, Three Funeral Homes and Three Ancillary Businesses Rockwall, TX $ 15,878 $ 14,226 $ ( 6,479 )

December 31, 2019 One Funeral Home and Cemetery Combination Fairfax, VA $ 34,175 $ 78,416 $ ( 10,427 )

Many of the former owners and staff of our acquired funeral homes and certain cemeteries have provided high quality service to families for generations, which often represents a substantial portion of the value of a business.

1 unchanged sentence

Our goodwill has an indefinite life and is not subject to amortization.

As such, we test goodwill for impairment on an annual basis.

For our 2019 annual impairment test, we performed a quantitative assessment and determined that there was no impairment to goodwill as the fair value of our reporting units was greater than the carrying value.

See Note 1 to the Consolidated Financial Statements included herein, for a discussion of the methodology used for our annual goodwill impairment test.

The following table presents changes in goodwill in the accompanying Consolidated Balance Sheet for the years ended December 31, 2018 and 2019 (in thousands):

December 31, 2018

December 31, 2019

As such, we test goodwill for impairment on an annual basis as of August 31st each year.

In addition to our annual test, we assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value of a reporting unit may be greater than fair value.

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

For our 2020 annual impairment test, we performed a qualitative assessment and determined that there was no additional impairment to goodwill as the fair value of our reporting units was greater than the carrying value.

The following table presents changes in goodwill in the accompanying Consolidated Balance Sheet (in thousands):

December 31, 2019 December 31, 2020

Goodwill at the beginning of year $ 303,887 $ 398,292

Increase in goodwill related to acquisitions

Net increase in goodwill related to acquisitions 99,344 14,054

Decrease in goodwill related to divestitures ( 4,197 ) ( 5,736 )

1 unchanged sentence

Goodwill at the end of the year $ 398,292 $ 392,978

During year ended December 31, 2019 , we recognized $99.3 million in goodwill related to our acquisitions;

During the year ended December 31, 2020, we recognized $ 14.1 million in goodwill related to our acquisitions;

$ 10.4 million was allocated to our cemetery segment and $ 3.7 million was allocated to our funeral home segment.

During year ended December 31, 2019 , we sold a funeral home business with a $4.2 million carrying value of goodwill for a loss recorded in Other, net .

See Note 5 to the Consolidated Financial Statements included herein, for a discussion of our divested businesses.

During year ended December 31, 2019 , we also recorded a goodwill impairment of $0.5 million in Other, net , related to a funeral home business that we divested in the fourth quarter of 2019 and a $0.2 million goodwill impairment related to a funeral home business that is under a letter of intent to sell during 2020, as the carrying value exceeded fair value at December 31, 2019 .

During the year ended December 31, 2018 , we recorded an impairment of $0.8 million related to a funeral home business that we divested during the third quarter of 2019 .

In addition, we allocated $ 5.7 million of goodwill to the sale of five funeral homes for a loss recorded in Net loss on divestitures and impairment charges .

Goodwill is only allocated to the sale if the set is considered to be a business.

When we divest a portion of a reporting unit that constitutes a business in accordance with U.S.

GAAP, we allocate goodwill associated with that business to be included in the gain or loss on divestiture.

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

During the year ended December 31, 2019, we recognized $ 99.3 million in goodwill related to our acquisitions;

$ 36.9 million was allocated to our cemetery segment and $ 62.4 million was allocated to our funeral home segment.

In addition, we allocated $ 4.2 million of goodwill to the sale of a funeral home for a loss recorded in Net loss on divestitures and impairment charges.

We also recorded a goodwill impairment of $ 0.7 million during 2019 related to two funeral homes that we divested which was recorded as a loss in Net loss on divestitures and impairment charges .

See Notes 1, 3 and 5 to the Consolidated Financial Statements included herein, for a discussion of the methodology used for our annual goodwill impairment test and a discussion of our acquisitions and divestitures, respectively.

DIVESTED OPERATIONS

During 2019 , we divested three funeral home businesses whose building leases expired and sold a funeral home business for $0.9 million .

In addition, we merged a funeral home business with a business in an existing market.

During 2018 , our management agreement with a Florida municipality expired and as a result, we divested three of our cemetery businesses.

During 2017 , we sold a funeral home business in Kentucky for $0.6 million .

The operating results of these divested businesses are reflected in our Consolidated Statements of Operations as shown in the table below (in thousands):

Year Ended December 31,

During 2020, we sold eight funeral homes for $ 8.4 million.

During 2019, we divested three funeral homes whose building leases expired and sold a funeral home for $ 0.9 million.

In addition, we merged a funeral home with a business in an existing market.

During 2018, our management agreement with a Florida municipality expired and as a result, we divested three of our cemeteries.

The operating results of these divested funeral homes and cemeteries are reflected on our Consolidated Statements of Operations as shown in the table below (in thousands):

Years Ended December 31,

2018 2019 2020

Revenue $ 4,712 $ 805 $ 2,643

Operating income (loss) 1,130 ( 569 ) 159

Other, net (1)

Income tax benefit (provision)

Net income (loss) from divested operations

Reflects the net gain (loss) on disposal.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

REVENUE FROM CONTRACTS WITH CUSTOMERS

Our operations are reported in two business segments:

Funeral Home Operations and Cemetery Operations.

Revenue, disaggregated by major source for each of our reportable segments was as follows (in thousands):

For The Year Ended, December 31, 2019

Cemetery property

Other revenue

For The Year Ended, December 31, 2018

Cemetery property

Other revenue

For The Year Ended, December 31, 2017 (a)

Cemetery property

Other revenue

The comparative information for year ended December 31, 2017 has not been adjusted to reflect the adoption of the revised revenue recognition standard and is reported in accordance with Accounting Standards Codification 605 (“ASC 605”).

PRENEED TRUST INVESTMENTS

Preneed Cemetery Trust Investments

Preneed cemetery trust investments represent trust fund assets that we are generally permitted to withdraw as the services and merchandise are provided to customers.

Preneed cemetery contracts are secured by payments from customers, less amounts not required by law to be deposited into trust.

Preneed cemetery trust investments are reduced by the trust earnings we have been allowed to withdraw in certain states prior to our performance.

The components of Preneed cemetery trust investments on our Consolidated Balance Sheet at December 31, 2018 and 2019 are as follows (in thousands):

Net loss on divestitures (1)

( 349 ) ( 3,883 ) ( 6,749 )

Income tax benefit (expense) ( 246 ) 1,288 2,135

Net income (loss) from divested operations, after tax $ 535 $ ( 3,164 ) $ ( 4,455 )

(1) Net loss on divestitures is recorded in Net loss on divestitures and impairment charges on our Consolidated Statements of Operations.

Accounts Receivable

Accounts receivable is comprised of the following (in thousands):

December 31, 2020

Funeral Cemetery Corporate Total

Trade and financed receivables $ 11,448 $ 12,230 $ — $ 23,678

Other receivables 367 2,144 201 2,712

Allowance for credit losses ( 327 ) ( 960 ) — ( 1,287 )

Accounts receivable, net $ 11,488 $ 13,414 $ 201 $ 25,103

December 31, 2019

Preneed cemetery trust investments, at market value

allowance for contract cancellation

Preneed cemetery trust investments, net

Upon cancellation of a preneed cemetery contract, a customer is generally entitled to receive a refund of the corpus, and in some instances, a portion of all of the earnings held in trust.

In certain jurisdictions, we may be obligated to fund any shortfall if the amounts deposited by the customer exceed the funds in trust, including investment income.

As a result, when realized or unrealized losses of a trust result in the trust being underfunded, we assess whether we are responsible for replenishing the corpus

Funeral Cemetery Corporate Total

Trade and financed receivables $ 10,046 $ 10,508 $ — $ 20,554

Other receivables 935 157 681 1,773

Allowance for bad debt ( 223 ) ( 626 ) — ( 849 )

Accounts receivable, net $ 10,758 $ 10,039 $ 681 $ 21,478

Other receivables include supplier rebates, commissions due from third party insurance companies and perpetual care income receivables.

We do not provide an allowance for credit losses for these receivables as we have historically not had any collectability issues nor do we expect any in the foreseeable future.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

of the trust, in which case a loss provision is recorded.

At December 31, 2019 , none of our preneed cemetery trust investments were underfunded.

Earnings from our preneed cemetery trust investments are recognized in revenue when a service is performed or merchandise is delivered.

The following table summarizes the activity in our allowance for credit losses by portfolio segment for the year ended December 31, 2020 (in thousands):

January 1, 2020 Provision for Credit Losses Allowance Recorded at Acquisition Write Offs Recoveries December 31, 2020

Trade and financed receivables:

Funeral $ ( 223 ) $ ( 1,142 ) $ — $ 2,115 $ ( 1,077 ) $ ( 327 )

Cemetery ( 626 ) ( 475 ) ( 193 ) 334 — ( 960 )

Total allowance for credit losses on Trade and financed receivables $ ( 849 ) $ ( 1,617 ) $ ( 193 ) $ 2,449 $ ( 1,077 ) $ ( 1,287 )

As noted in Note 3, we acquired preneed cemetery receivables in connection with the funeral home and cemetery combination business in Lafayette, California acquired on January 3, 2020.

We recorded an allowance for credit losses of $ 0.4 million on these acquired receivables ($ 0.2 million current portion shown above in Accounts receivable, net and $ 0.2 million non-current portion shown below in Preneed cemetery receivables, net as noted in the respective allowance rollforward tables under Allowance Recorded at Acquisition).

We accounted for the allowance for credit losses on these purchased financed assets using specific identification as these assets have a unique set of risk characteristics.

For these specifically identified receivables, we determined the allowance to be 60 % of the face value.

Bad debt expense for accounts receivable totaled $ 1.1 million for both the years ended December 31, 2018 and 2019.

Preneed Cemetery Receivables

Our preneed cemetery receivables are comprised of the following (in thousands):

December 31, 2019 December 31, 2020

Cemetery interment rights $ 31,366 $ 36,696

Cemetery merchandise and services 9,950 10,526

Cemetery financed receivables

$ 41,316 $ 47,222

The components of our preneed cemetery receivables are as follows (in thousands):

December 31, 2019 December 31, 2020

Preneed cemetery receivables $ 41,316 $ 47,222

unearned finance charges ( 4,522 ) ( 4,348 )

Preneed cemetery receivables, at amortized cost $ 36,794 $ 42,874

allowance for bad debt and credit losses ( 1,916 ) ( 2,604 )

balances due on undelivered cemetery preneed contracts ( 4,823 ) ( 7,919 )

amounts in accounts receivable ( 9,882 ) ( 11,270 )

Preneed cemetery receivables, net $ 20,173 $ 21,081

The following table summarizes the activity in our allowance for credit losses for Preneed cemetery receivables, net for the year ended December 31, 2020 (in thousands):

January 1, 2020 Provision for Credit Losses Allowance Recorded at Acquisition Write Offs December 31, 2020

Total allowance for credit losses on Preneed cemetery receivables, net

$ ( 1,290 ) $ ( 701 ) $ ( 171 ) $ 518 $ ( 1,644 )

Bad debt expense for our preneed receivables totaled $ 0.7 million and $ 0.5 million for the years ended December 31, 2018 and 2019, respectively.

The amortized cost basis of our preneed cemetery receivables by year of origination as of December 31, 2020 is as follows (in thousands):

2020 2019 2018 2017 2016 Prior Total

Total preneed cemetery receivables, at amortized cost $ 20,056 $ 10,593 $ 5,820 $ 3,387 $ 1,431 $ 1,587 $ 42,874

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The aging of past due preneed cemetery receivables as of December 31, 2020 is as follows (in thousands):

Past Due 61-90

Past Due 91-120

Past Due >120

Past Due Total Past

Due Current Total Financing

Recognized revenue $ 759 $ 348 $ 174 $ 1,763 $ 3,044 $ 32,219 $ 35,263

Deferred revenue 220 130 42 557 949 11,010 11,959

Total contracts $ 979 $ 478 $ 216 $ 2,320 $ 3,993 $ 43,229 $ 47,222

The aging of past due preneed cemetery receivables as of December 31, 2019 is as follows (in thousands):

Past Due 61-90

Past Due 91-120

Past Due >120

Past Due Total Past

Due Current Total Financing

Recognized revenue $ 745 $ 392 $ 148 $ 1,209 $ 2,494 $ 28,382 $ 30,876

Deferred revenue 219 121 147 302 789 9,651 10,440

Total contracts $ 964 $ 513 $ 295 $ 1,511 $ 3,283 $ 38,033 $ 41,316

TRUST INVESTMENTS

Preneed trust investments represent trust fund assets that we are generally permitted to withdraw as the services and merchandise are provided to customers.

Preneed funeral and cemetery contracts are secured by payments from customers, less amounts not required by law to be deposited into trust.

These earnings are recognized in Other revenue on the Consolidated Statements of Operations , when a service is performed or merchandise is delivered.

Trust management fees charged by CSV RIA are included as revenue in the period in which they are earned.

Our investments are diversified across multiple industry segments using a balanced allocation strategy to minimize long-term risk.

We do not intend to sell and it is likely that we will not be required to sell the securities prior to their anticipated recovery.

Cemetery perpetual care trust investments represent a portion of the proceeds from the sale of cemetery property interment rights which we are required by various state laws to deposit into perpetual care trust funds.

The income earned from these perpetual care trusts offsets maintenance expenses for cemetery property and memorials.

This trust fund income is recognized in Other revenue.

Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy.

Our Level 1 investments include cash and common stock.

Where quoted market prices are not available for the specific security, fair values are estimated by using quoted prices of similar securities in active markets or other inputs other than quoted prices that can corroborate observable market data.

These investments are fixed income securities, including foreign debt, corporate debt, preferred stock, mortgage-backed securities and fixed income mutual funds, all of which are classified within Level 2 of the 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.

There were no transfers between Levels 1 and 2 in the year ended December 31, 2019 .

There are no Level 3 investments in the preneed cemetery trust investment portfolio.

See Note 12 to the Consolidated Financial Statements included herein for further information of the fair value measurement and the three-level valuation hierarchy.

See Note 10 to the Consolidated Financial Statements included herein for further information of the fair value measurement.

Changes in the fair value of our trust fund assets ( Preneed funeral, cemetery and perpetual care trust investments ) are offset by changes in the fair value of our trust fund liabilities ( Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus ) and reflected in Other, net .

There is no impact on earnings until such time the services are performed or the merchandise is delivered, causing the contract to be withdrawn from the trust in accordance with state regulations and the gain or loss is allocated to the contract.

For fixed income securities in an unrealized loss position, we first assess whether we intend to sell or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income.

For fixed income securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.

If our assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Any unrealized loss that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

We rely on our trust investments to provide funding for the various contractual obligations that arise upon maturity of the underlying preneed contracts.

Because of the long-term relationship between the establishment of trust investments and the required performance of the underlying contractual obligations, the impact of current market conditions that may exist at any given time is not necessarily indicative of our ability to generate profit on our future performance obligations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Preneed Cemetery Trust Investments

The components of Preneed cemetery trust investments on our Consolidated Balance Sheet are as follows (in thousands):

December 31, 2019 December 31, 2020

Preneed cemetery trust investments, at market value $ 74,572 $ 89,081

allowance for contract cancellation ( 2,190 ) ( 2,477 )

Preneed cemetery trust investments $ 72,382 $ 86,604

The cost and fair market values associated with preneed cemetery trust investments at December 31, 2020 are detailed below (in thousands):

Fair Value Hierarchy Level

Fair Market Value

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

1 unchanged sentence

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

2 unchanged sentences

Market value as a percentage of cost 106.7 %

The estimated maturities of the fixed income securities included above are as follows (in thousands):

The estimated maturities of the fixed income securities (excluding mutual funds) included above are as follows (in thousands):

Due in one year or less $ —

1 unchanged sentence

Due in five to ten years 9,810

Thereafter 24,758

Total fixed income securities $ 46,295

1 unchanged sentence

The cost and market values associated with preneed cemetery trust investments at December 31, 2019 are detailed below (in thousands):

Fair Value Hierarchy Level

Fair Market Value

Fair Value Hierarchy Level Cost Unrealized

Gains Unrealized

Losses Fair Market Value

Cash and money market accounts 1 $ 5,729 $ — $ — $ 5,729

Fixed income securities:

Foreign debt 2 5,609 312 ( 243 ) 5,678

Corporate debt 2 16,916 1,044 ( 649 ) 17,311

1 unchanged sentence

Mortgage-backed securities 2 517 — ( 114 ) 403

Common stock 1 28,569 2,766 ( 3,017 ) 28,318

Mutual funds:

Fixed Income 2 1,463 72 ( 85 ) 1,450

Trust Securities $ 73,009 $ 5,098 $ ( 4,272 ) $ 73,835

2 unchanged sentences

Market value as a percentage of cost 101.1 %

We determine whether or not the assets in the preneed cemetery trust investments have an other-than-temporary impairment on a security-by-security basis.

This assessment is made based upon a number of criteria, including the length of time a security has been in a loss position, changes in market conditions and concerns related to the specific issuer.

If a loss is considered to be other-than-temporary, the cost basis of the security is adjusted downward to its fair market value.

Any reduction in the cost basis of the investment due to an other-than-temporary impairment is likewise recorded as a reduction in Deferred preneed cemetery receipts held in trust on our Consolidated Balance Sheet.

We did no t record any impairments in the year ended December 31, 2018 and 2019 .

There is no impact on earnings until such time that the loss is realized in the trusts, allocated to the preneed contracts and the services are performed or the merchandise is delivered causing the contract to be withdrawn from the trust in accordance with state regulations.

At December 31, 2019 , we had certain investments within our preneed cemetery trust investments that had tax lots in loss positions for more than one year.

Based on our analyses of these securities, the companies’ businesses and current market conditions, we determined that these investment losses were temporary in nature.

Our preneed cemetery trust investment unrealized losses, their associated fair market values, and the duration of unrealized losses as of December 31, 2019 are shown in the following tables (in thousands):

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

Fair market value

Unrealized Losses

Fair market value

Unrealized Losses

Fair market value

Unrealized Losses

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 )

1 unchanged sentence

Mortgage-backed securities — — 112 ( 159 ) 112 ( 159 )

Mutual funds:

Total temporary impaired securities

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Our preneed cemetery trust investment unrealized losses, their associated fair market values, and the duration of unrealized losses as of December 31, 2018 are shown in the following tables (in thousands):

Total fixed income securities with an unrealized loss $ 4,010 $ ( 274 ) $ 5,074 $ ( 1,281 ) $ 9,084 $ ( 1,555 )

The following table summarized our fixed income securities within our preneed cemetery trust investments in an unrealized loss position at December 31, 2019, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):

December 31, 2019

In Loss Position Less than 12 months

In Loss Position Greater than 12 months

Fair market value

Unrealized Losses

Fair market value

Unrealized Losses

Fair market value

Unrealized Losses

In Loss Position Less than 12 months In Loss Position Greater than 12 months Total

Fair market value Unrealized Losses Fair market value Unrealized Losses Fair market value Unrealized Losses

Fixed income securities:

Foreign debt $ 268 $ ( 42 ) $ 758 $ ( 201 ) $ 1,026 $ ( 243 )

Corporate debt 1,368 ( 168 ) 4,520 ( 481 ) 5,888 ( 649 )

1 unchanged sentence

Mortgage-backed securities — — 402 ( 114 ) 402 ( 114 )

Total temporary impaired securities

Preneed cemetery trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations for the years ended December 31, 2017 , 2018 and 2019 are as follows (in thousands):

Total fixed income securities with an unrealized loss $ 5,771 $ ( 374 ) $ 5,680 $ ( 796 ) $ 11,451 $ ( 1,170 )

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Preneed cemetery trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations are as follows (in thousands):

Years ended December 31,

2018 2019 2020

Investment income $ 1,596 $ 1,743 $ 2,175

1 unchanged sentence

Realized losses ( 5,817 ) ( 4,677 ) ( 5,090 )

Unrealized gains (losses), net ( 6,610 ) 826 5,515

Expenses and taxes ( 907 ) ( 1,313 ) ( 1,354 )

Net change in deferred preneed cemetery receipts held in trust 7,192 ( 2,932 ) ( 10,168 )

Purchases and sales of investments in the preneed cemetery trusts for the years ended December 31, 2017 , 2018 and 2019 are as follows (in thousands):

Purchases and sales of investments in the preneed cemetery trusts are as follows (in thousands):

Years ended December 31,

2018 2019 2020

Purchases $ ( 27,006 ) $ ( 40,984 ) $ ( 48,824 )

Sales 39,180 29,635 41,178

Preneed Funeral Trust Investments

1 unchanged sentence

Preneed funeral contracts are secured by payments from customers, less retained amounts not required to be deposited into trust.

Preneed funeral trust investments are reduced by the trust earnings we have been allowed to withdraw in certain states prior to our performance.

The components of Preneed funeral trust investments on our Consolidated Balance Sheet at December 31, 2018 and 2019 are as follows (in thousands):

December 31, 2018

December 31, 2019

The components of Preneed funeral trust investments on our Consolidated Balance Sheet are as follows (in thousands):

December 31, 2019 December 31, 2020

Preneed funeral trust investments, at market value $ 99,246 $ 104,166

1 unchanged sentence

Preneed funeral trust investments $ 96,335 $ 101,235

Upon cancellation of a preneed funeral contract, a customer is generally entitled to receive a refund of the corpus and in some instances, a portion of all earnings held in trust.

In certain jurisdictions, we may be obligated to fund any shortfall if the amounts deposited by the customer exceed the funds in trust, including investment income.

As a result, when realized or unrealized losses of a trust result in the trust being underfunded, we assess whether we are responsible for replenishing the corpus of the trust, in which case a loss provision is recorded.

At December 31, 2019 , none of our preneed funeral trust investments were underfunded.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Earnings from our preneed funeral trust investments are recognized in revenue when a service is performed or merchandise is delivered.

Trust management fees charged by CSV RIA are included in revenue in the period in which they are earned.

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 other inputs other than quoted prices that can corroborate observable market data.

We review and update our fair value hierarchy classifications quarterly.

There were no transfers between Levels 1 and 2 for the year ended December 31, 2019 .

There are no Level 3 investments in the preneed funeral trust investment portfolio.

See Note 12 to the Consolidated Financial Statements included herein for further information of the fair value measurement and the three-level valuation hierarchy.

The cost and fair market values associated with preneed funeral trust investments at December 31, 2020 are detailed below (in thousands):

Fair Value Hierarchy Level

Fair Market Value

Fair Value Hierarchy Level Cost Unrealized

Gains Unrealized

Losses Fair Market Value

Cash and money market accounts 1 $ 18,478 $ — $ — $ 18,478

1 unchanged sentence

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

1 unchanged sentence

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

3 unchanged sentences

Market value as a percentage of cost 105.7 %

The estimated maturities of the fixed income securities included above are as follows (in thousands):

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The estimated maturities of the fixed income securities (excluding mutual funds) included above are as follows (in thousands):

Due in one year or less $ 825

1 unchanged sentence

Due in five to ten years 8,615

Thereafter 23,115

Total fixed income securities $ 43,658

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The cost and market values associated with preneed funeral trust investments at December 31, 2019 are detailed below (in thousands):

Fair Value Hierarchy Level

Fair Market Value

Fair Value Hierarchy Level Cost Unrealized

Gains Unrealized

Losses Fair Market Value

Cash and money market accounts 1 $ 24,160 $ — $ — $ 24,160

1 unchanged sentence

treasury debt 1 822 — — 822

Foreign debt 2 5,587 309 ( 232 ) 5,664

Corporate debt 2 16,109 992 ( 646 ) 16,455

1 unchanged sentence

Mortgage-backed securities 2 585 — ( 117 ) 468

Common stock 1 27,652 2,773 ( 2,869 ) 27,556

Mutual funds:

Equity 1 772 617 ( 4 ) 1,385

Fixed income 2 4,364 107 ( 107 ) 4,364

Other investments 2 2,902 — — 2,902

3 unchanged sentences

Market value as a percentage of cost 101.5 %

We determine whether or not the assets in the preneed funeral trust investments have other-than-temporary impairments on a security-by-security basis.

This assessment is made based upon a number of criteria including the length of time a security has been in a loss position, changes in market conditions and concerns related to the specific issuer.

If a loss is considered to be other-than-temporary, the cost basis of the security is adjusted downward to its fair market value.

Any reduction in the cost basis of the investment due to an other-than-temporary impairment is likewise recorded as a reduction to Deferred preneed funeral receipts held in trust on our Consolidated Balance Sheet.

We did no t record any impairments in the year ended December 31, 2018 and 2019 .

There is no impact on earnings until such time that the loss is realized in the trusts, allocated to preneed contracts and the services are performed or the merchandise is delivered causing the contract to be withdrawn from the trust in accordance with state regulations.

At December 31, 2019 , we had certain investments within our preneed funeral trust investments that had tax lots in loss positions for more than one year.

Based on our analyses of these securities, the companies’ businesses and current market conditions, we determined that these investment losses were temporary in nature.

Our preneed funeral trust investment unrealized losses, their associated fair market values, and the duration of unrealized losses as of December 31, 2019 are shown the the following tables (in thousands):

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

Fair market value

Unrealized Losses

Fair market value

Unrealized Losses

Fair market value

Unrealized Losses

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 )

1 unchanged sentence

Mortgage-backed securities — — 111 ( 155 ) 111 ( 155 )

Mutual funds:

Equity and Other

Total temporary impaired securities

Total fixed income securities with an unrealized loss $ 3,494 $ ( 238 ) $ 4,918 $ ( 1,159 ) $ 8,412 $ ( 1,397 )

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Our preneed funeral trust investment unrealized losses, their associated fair market values, and the duration of unrealized losses as of December 31, 2018 are shown the the following tables (in thousands):

The following table summarized our fixed income securities within our preneed funeral trust investment in an unrealized loss position at December 31, 2019, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):

December 31, 2019

In Loss Position Less than 12 months

In Loss Position Greater than 12 months

Fair market value

Unrealized Losses

Fair market value

Unrealized Losses

Fair market value

Unrealized Losses

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:

treasury debt

Foreign debt $ 274 $ ( 43 ) $ 723 $ ( 189 ) $ 997 $ ( 232 )

Corporate debt 1,403 ( 172 ) 4,433 ( 474 ) 5,836 ( 646 )

1 unchanged sentence

Mortgage-backed securities — — 439 ( 117 ) 439 ( 117 )

Mutual funds:

Total temporary impaired securities

Preneed funeral trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations for the years ended December 31, 2017 , 2018 and 2019 are as follows (in thousands):

Total fixed income securities with an unrealized loss $ 6,089 $ ( 413 ) $ 5,595 $ ( 780 ) $ 11,684 $ ( 1,193 )

Preneed funeral trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations are as follows (in thousands):

Years ended December 31,

2018 2019 2020

Investment income $ 1,623 $ 1,753 $ 1,907

1 unchanged sentence

Realized losses ( 5,882 ) ( 4,612 ) ( 4,677 )

Unrealized gains (losses), net ( 6,727 ) 1,499 5,555

Expenses and taxes ( 885 ) ( 1,129 ) ( 878 )

Net change in deferred preneed funeral receipts held in trust 5,209 ( 3,725 ) ( 11,348 )

Purchases and sales of investments in the preneed funeral trusts for the years ended December 31, 2017 , 2018 and 2019 are as follows (in thousands):

Purchases and sales of investments in the preneed funeral trusts are as follows (in thousands):

Years ended December 31,

PRENEED CEMETERY RECEIVABLES

Preneed sales of cemetery interment rights and related products and services are usually 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.

Our cemetery financed receivables are comprised of the following at December 31, 2018 and December 31, 2019 (in thousands):

December 31, 2018

December 31, 2019

Cemetery interment rights

Cemetery merchandise and services

Cemetery financed receivables

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Our cemetery financed receivables presented on our Consolidated Balance Sheet at December 31, 2018 and December 31, 2019 are as follows (in thousands):

December 31, 2018

December 31, 2019

Accounts receivable, including unearned finance charges and allowance for contract cancellations of $2,405 and $2,458, respectively

Preneed receivables , including unearned finance charges and allowance for contract cancellations of $4,049 and $3,980, respectively

Cemetery financed receivables

The unearned finance charges associated with these receivables were $4.6 million and $4.5 million at December 31, 2018 and 2019 , respectively.

We determine an allowance for customer cancellations and refunds on contracts in which revenue has been recognized on sales of cemetery interment rights.

We have a collections policy where past due notifications are sent to the customer beginning at 15 days past due and periodically thereafter until the contract is cancelled or payment is received.

We reserve 100% of the receivables on contracts in which the revenue has been recognized and payments are 90 days past due or more, which was approximately 4.4% of the total receivables on recognized sales at December 31, 2019 .

An allowance is recorded at the date that the contract is executed and periodically adjusted thereafter based upon actual collection experience at the business level.

For the years ending December 31, 2018 and 2019 , the change in the allowance for contract cancellations is as follows (in thousands):

As of December 31,

Beginning balance

Write-offs and cancellations

Ending balance

The aging of past due financing receivables as of December 31, 2019 is as follows (in thousands):

Total Financing

Recognized revenue

Deferred revenue

Total contracts

The aging of past due financing receivables as of December 31, 2018 is as follows (in thousands):

Total Financing

Recognized revenue

Deferred revenue

Total contracts

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.

As of December 31, 2018 and 2019 , receivables from preneed trusts are as follows (in thousands):

December 31, 2018

December 31, 2019

Preneed trust funds, at cost

allowance for contract cancellation

Receivables from preneed trusts, net

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, 2018 and 2019 .

The cost basis includes

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

reinvested interest and dividends that have been earned on the trust assets.

Fair value includes unrealized gains and losses on trust assets.

The composition of the preneed trust funds at December 31, 2019 is as follows (in thousands):

As of December 31, 2019

Cash and cash equivalents

Fixed income investments

Mutual funds and common stocks

The composition of the preneed trust funds at December 31, 2018 is as follows (in thousands):

As of December 31, 2018

Cash and cash equivalents

Fixed income investments

Mutual funds and common stocks

CONTRACTS FUNDED BY INSURANCE

When preneed funeral contracts are funded through third-party insurance policies, we earn a commission on the sale of the policies.

All selling costs incurred pursuant to the sale of the insurance funded preneed contracts are expensed as incurred.

Preneed funeral contracts to be funded at maturity by third-party insurance policies totaled $388.2 million and $408.8 million at December 31, 2018 and 2019 , respectively, and are not recorded as assets or liabilities on our Consolidated Balance Sheet.

However, this commitment is revocable and the proceeds from the policy are portable, so the customer can choose to use an alternative provider at the time of need.

2018 2019 2020

Purchases $ ( 28,264 ) $ ( 38,984 ) $ ( 47,315 )

Sales 39,955 29,983 43,270

Cemetery Perpetual Care Trust Investments

Care trusts’ corpus on our Consolidated Balance Sheet represent the corpus of those trusts plus undistributed income.

The components of Care trusts’ corpus as of December 31, 2018 and 2019 are as follows (in thousands):

December 31, 2018

December 31, 2019

The components of Care trusts’ corpus are as follows (in thousands):

December 31, 2019 December 31, 2020

Cemetery perpetual care trust investments, at market value $ 64,047 $ 70,828

1 unchanged sentence

Care trusts’ corpus $ 63,416 $ 69,707

We are required by various state laws to pay a portion of the proceeds from the sale of cemetery property interment rights 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, as earned, in Other revenue .

Trust management fees charged by CSV RIA are included in revenue in the period in which they are earned.

At December 31, 2019 , none of our cemetery perpetual care trust investments were underfunded.

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, 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

similar securities in active markets or other inputs other than quoted prices that can corroborate observable market data.

There were no transfers between Levels 1 and 2 for the year ended December 31, 2019 .

There are no Level 3 investments in the cemetery perpetual care trust investment portfolio.

See Note 12 to the Consolidated Financial Statements included herein for further information of the fair value measurement and the three-level valuation hierarchy.

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

Fair Market Value

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

1 unchanged sentence

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

2 unchanged sentences

Market value as a percentage of cost 106.6 %

The estimated maturities of the fixed income securities included above are as follows (in thousands):

The estimated maturities of the fixed income securities (excluding mutual funds) included above are as follows (in thousands):

Due in one year or less $ —

1 unchanged sentence

Due in five to ten years 7,789

Thereafter 20,933

Total fixed income securities $ 37,541

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table reflects the cost and market values associated with the trust investments held in perpetual care trust funds at December 31, 2019 (in thousands):

Fair Value Hierarchy Level

Fair Market Value

Fair Value Hierarchy Level Cost Unrealized

Gains Unrealized

Losses Fair Market Value

Cash and money market accounts 1 $ 4,624 $ — $ — $ 4,624

Fixed income securities:

Foreign debt 2 4,200 238 ( 175 ) 4,263

Corporate debt 2 11,658 802 ( 534 ) 11,926

1 unchanged sentence

Mortgage-backed securities 2 324 — ( 71 ) 253

Common stock 1 21,594 3,399 ( 1,911 ) 23,082

Mutual funds:

Equity 1 233 146 ( 1 ) 378

Fixed income 2 7,156 618 ( 107 ) 7,667

Trust securities $ 60,571 $ 5,869 $ ( 2,905 ) $ 63,535

2 unchanged sentences

Market value as a percentage of cost 104.9 %

We determine whether or not the assets in the cemetery perpetual care trusts have an other-than-temporary impairment on a security-by-security basis.

This assessment is made based upon a number of criteria including the length of time a security has been in a loss position, changes in market conditions and concerns related to the specific issuer.

If a loss is considered to be other-than-temporary, the cost basis of the security is adjusted downward to its fair market value.

Any reduction in the cost basis due to an other-than-temporary impairment is also recorded as a reduction to Care trusts’ corpus .

We did not record any impairments in the years ended December 31, 2018 and 2019 .

At December 31, 2019 , we had certain investments within our perpetual care trust investments that had tax lots in loss positions for more than one year.

Based on our analyses of these securities, the companies’ businesses and current market conditions, we determined that these investments losses were temporary in nature.

Our perpetual care trust investment unrealized losses, their associated fair market values, and the duration of unrealized losses for the year ended December 31, 2019 are shown in the following tables (in thousands):

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarized our fixed income securities (excluding mutual funds) within our perpetual care trust investment in an unrealized loss position at December 31, 2020, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):

December 31, 2020

In Loss Position Less than 12 months

In Loss Position Greater than 12 months

Fair market value

Unrealized Losses

Fair market value

Unrealized Losses

Fair market value

Unrealized Losses

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 )

1 unchanged sentence

Mortgage-backed securities — — 85 ( 121 ) 85 ( 121 )

Mutual funds:

Equity and Other

Total temporary impaired securities

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Our perpetual care trust investment unrealized losses, their associated fair market values, and the duration of unrealized losses for the year ended December 31, 2018 are shown in the following tables (in thousands):

Total fixed income securities with an unrealized loss $ 3,462 $ ( 308 ) $ 3,867 $ ( 990 ) $ 7,329 $ ( 1,298 )

The following table summarized our fixed income securities within our perpetual care trust investment in an unrealized loss position at December 31, 2019, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):

December 31, 2019

In Loss Position Less than 12 months

In Loss Position Greater than 12 months

Fair market value

Unrealized Losses

Fair market value

Unrealized Losses

Fair market value

Unrealized Losses

In Loss Position Less than 12 months In Loss Position Greater than 12 months Total

Fair market value Unrealized Losses Fair market value Unrealized Losses Fair market value Unrealized Losses

Fixed income securities:

Foreign debt $ 168 $ ( 26 ) $ 549 $ ( 149 ) $ 717 $ ( 175 )

Corporate debt 1,057 ( 196 ) 3,253 ( 338 ) 4,310 ( 534 )

1 unchanged sentence

Mortgage-backed securities — — 252 ( 71 ) 252 ( 71 )

Total temporary impaired securities

Perpetual care trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations for the years ended December 31, 2017 , 2018 and 2019 are as follows (in thousands):

Total fixed income securities with an unrealized loss $ 4,214 $ ( 328 ) $ 4,054 $ ( 558 ) $ 8,268 $ ( 886 )

Perpetual care trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations are as follows (in thousands):

Years ended December 31,

2018 2019 2020

Realized gains $ 1,364 $ 1,663 $ 2,602

Realized losses ( 1,896 ) ( 1,258 ) ( 1,695 )

Unrealized gains (losses), net ( 4,405 ) 2,964 4,355

Net change in Care trusts’ corpus 4,937 ( 3,369 ) ( 5,262 )

Perpetual care trust investment security transactions recorded in Other revenue for the years ended December 31, 2017 , 2018 and 2019 are as follows (in thousands):

Total $ — $ — $ —

Perpetual care trust investment security transactions recorded in Other revenue are as follows (in thousands):

Years ended December 31,

2018 2019 2020

Investment income $ 5,934 $ 4,500 $ 8,461

Realized losses, net

Purchases and sales of investments in the perpetual care trusts for the years ended December 31, 2017 , 2018 and 2019 are as follows (in thousands):

Realized losses ( 1,355 ) ( 377 ) ( 387 )

Total $ 4,579 $ 4,123 $ 8,074

Purchases and sales of investments in the perpetual care trusts are as follows (in thousands):

Years ended December 31,

2018 2019 2020

Purchases $ ( 17,313 ) $ ( 26,573 ) $ ( 38,168 )

Sales 25,786 17,588 34,316

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

R eceivables from preneed trusts are as follows (in thousands):

December 31, 2019 December 31, 2020

Preneed trust funds, at cost $ 18,581 $ 17,365

allowance for contract cancellation ( 557 ) ( 521 )

Receivables from preneed trusts, net $ 18,024 $ 16,844

The cost basis includes reinvested interest and dividends that have been earned on the trust assets.

Fair value includes unrealized gains and losses on trust assets.

The composition of the preneed trust funds at December 31, 2020 is as follows (in thousands):

Cost Basis Fair Value

As of December 31, 2020

Cash and cash equivalents $ 4,604 $ 4,604

Fixed income investments 10,355 10,355

Mutual funds and common stocks 2,402 2,569

Annuities 4 4

Total $ 17,365 $ 17,532

The composition of the preneed trust funds at December 31, 2019 is as follows (in thousands):

Cost Basis Fair Value

As of December 31, 2019

Cash and cash equivalents $ 4,533 $ 4,533

Fixed income investments 11,603 11,603

Mutual funds and common stocks 2,440 2,518

Annuities 5 5

Total $ 18,581 $ 18,659

CONTRACTS FUNDED BY INSURANCE

When preneed funeral contracts are funded through third-party insurance policies, we earn a commission on the sale of the policies.

We record these insurance commissions as Other revenue , as noted in our table of disaggregated revenue in Note 21 to the Consolidated Financial Statements included herein, when the commission is no longer subject to refund, which is typically one year after the policy is issued.

All selling costs incurred pursuant to the sale of the insurance funded preneed contracts are expensed as incurred.

However, this commitment is generally revocable and the proceeds from the policy are portable, so the customer can choose to use an alternative provider at the time of need.

Preneed funeral contracts to be funded at maturity by third-party insurance policies totaled $ 408.8 million and $ 395.4 million at December 31, 2019 and 2020, respectively, and are not recorded as assets or liabilities on our Consolidated Balance Sheet.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

FAIR VALUE MEASUREMENTS

1 unchanged sentence

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, trade receivables, and trade payables approximate the fair values of those instruments due to the short-term nature of the instruments.

The fair values of receivables on preneed funeral and 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 long-term debt and Credit Facility (as defined in Note 14) are classified within Level 2 of the Fair Value Measurements hierarchy.

The fair values of the long-term debt and Credit Facility approximate the carrying values of these instruments based on the index yields of similar securities compared to U.S.

Treasury yield curves.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

fair value of the Convertible Notes (as defined in Note 15) was approximately $7.8 million at December 31, 2019 based on the last traded or broker quoted price.

The fair value of the Senior Notes (as defined in Note 16) was approximately $426.4 million at December 31, 2019 based on the last traded or broker quoted price.

We evaluated our financial assets and liabilities for those that met the criteria of the disclosure requirements and fair value framework.

The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate the fair values of those instruments due to the short-term nature of the instruments.

The fair values of our receivables on preneed cemetery contracts are impracticable to estimate because of the lack of a trading market and the diverse number of individual contracts with varying terms.

Our acquisition debt and Credit Facility (as defined in Note 12), Convertible Notes (as defined in Note 13) and Senior Notes (as defined in Note 14) are classified within Level 2 of the Fair Value Measurements hierarchy.

At December 31, 2020, the carrying value and fair value of our Credit Facility was $ 47.2 million.

We believe that our Credit Facility bears interest at a rate that approximates prevailing market rates for instruments with similar characteristics and therefore, the carrying value of our Credit Facility approximates fair value.

We estimate the fair value of our acquisition debt utilizing an income approach, which uses a present value calculation to discount payments based on current market rates as of the reporting date.

At December 31, 2020, the carrying value of our acquisition debt was $ 5.5 million, which approximated its fair value.

The fair value of our Convertible Notes was approximately $ 3.7 million at December 31, 2020 based on the last traded or broker quoted price.

The fair value of our Senior Notes was approximately $ 427.9 million at December 31, 2020 based on the last traded or broker quoted price.

We identified investments in fixed income securities, common stock and mutual funds presented within the preneed and perpetual care trust investments categories on our Consolidated Balance Sheet as having met the criteria for fair value measurement.

We account for these investments at cost.

The following three-level valuation hierarchy based upon the transparency of inputs is utilized in the measurement and valuation of financial assets or liabilities as of the measurement date:

• Level 1—Fair value of securities based on unadjusted quoted prices for identical assets or liabilities in active markets.

Our investments classified as Level 1 securities include cash, common stock and U.S.

treasury debt;

Our investments classified as Level 1 securities include cash, U.S.

treasury debt, common stock and equity mutual funds;

• Level 2—Fair value of securities estimated based on quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted market prices that are observable or that can be corroborated by observable market data by correlation.

These inputs include interest rates, yield curves, credit risk, prepayment speeds, rating and tax-exempt status.

Our investments classified as Level 2 securities include municipal bonds, corporate debt, preferred stocks, foreign debt, mortgage-backed securities, fixed income mutual funds and other investments.

Our investments classified as Level 2 securities include foreign debt, corporate debt, preferred stocks, mortgage-backed securities and fixed income mutual funds and other investments.

• Level 3—Unobservable inputs based upon the reporting entity’s internally developed assumptions, which market participants would use in pricing the asset or liability.

As of December 31, 2019 and 2020, we did not have any assets that had fair values determined by Level 3 inputs and no liabilities measured at fair value.

We account for our investments as available-for-sale and measure them at fair value under standards of financial accounting and reporting for investments in equity instruments that have readily determinable fair values and for all investments in debt securities.

See Notes 7 and 11 to our Consolidated Financial Statements herein for the fair value hierarchy levels of our trust investments.

See Notes 7 and 8 to our Consolidated Financial Statements herein for additional information on the fair value hierarchy levels of our trust investments and receivables from preneed trusts, respectively.

INTANGIBLE AND OTHER NON-CURRENT ASSETS

Intangible and other non-current assets at December 31, 2018 and 2019 are as follows (in thousands):

December 31, 2018

December 31, 2019

Intangible and other non-current assets are as follows (in thousands):

December 31, 2019 December 31, 2020

Tradenames $ 25,233 $ 23,565

Prepaid agreements not-to-compete, net of accumulated amortization of $ 7,195 and $ 3,193 , respectively

1 unchanged sentence

of $ 1,127 and $ 1,594 , respectively

Intangible and other non-current assets

Prepaid agreements not-to-compete are amortized over the term of the respective agreements, ranging generally from one to ten years.

Amortization expense was approximately $0.6 million , $0.6 million and $0.7 million for the years ended December 31, 2017 , 2018 and 2019 , respectively.

During the years ended December 31, 2018 and 2019 , we increased prepaid agreements not-to-compete by $0.8 million and $0.4 million related to our 2018 and 2019 acquisitions described in Note 3 to the Consolidated Financial Statements included herein.

Intangible and other non-current assets, net $ 32,116 $ 29,542

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Our tradenames have indefinite lives and therefore are not amortized.

During the years ended December 31, 2018 and 2019 , we increased tradenames by $3.3 million and $7.8 million related to our 2018 and 2019 acquisitions described in Note 3 to the Consolidated Financial Statements included herein.

During the years ended December 31, 2019 and 2020, we increased tradenames by $ 7.8 million and $ 0.4 million, respectively, related to our 2019 and 2020 acquisitions described in Note 3 to the Consolidated Financial Statements included herein.

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

During the year ended December 31, 2020, we divested four funeral homes that had a carrying value of tradenames of $ 1.0 million, which was included in the gain or loss on the sale of divestitures and recorded in Net loss on divestitures and impairment charges on our Consolidated Statements of Operations.

During 2019, we recorded an impairment to tradenames of $ 0.2 million as a result of our 2019 annual impairment test as the carrying amount of certain tradenames exceeded the fair value.

We did no t record an impairment to tradenames in the year ended December 31, 2018 .

See Note 1 to the Consolidated Financial Statements included herein, for a discussion of the methodology used for our annual indefinite-lived intangible asset impairment test.

See Notes 1, 3 and 5 to the Consolidated Financial Statements included herein, for a discussion of the methodology used for our indefinite-lived intangible asset impairment test and discussion of our acquisitions and divestitures, respectively.

Prepaid Agreements

Prepaid agreements not-to-compete are amortized over the term of the respective agreements, ranging generally from one to ten years.

Amortization expense was approximately $ 0.6 million, $ 0.7 million and $ 0.7 million for the years ended December 31, 2018, 2019 and 2020, respectively.

During the year ended December 31, 2020, we divested three funeral homes that had a carrying value of prepaid agreements not-to-compete of $ 0.5 million, which was included in the gain or loss on the sale of divestitures and recorded in Net loss on divestitures and impairment charges on our Consolidated Statements of Operations.

See Note 5 to the Consolidated Financial Statements included herein, for a discussion of our divestitures.

During the year ended December 31, 2019, we increased prepaid agreements not-to-compete by $ 0.4 million related to our 2019 acquisitions described in Note 3 to the Consolidated Financial Statements included herein.

Capitalized Commissions

We capitalize our selling costs related to preneed cemetery merchandise and services and preneed funeral trust contracts.

These costs are amortized on a straight-line basis over the average maturity period for our preneed cemetery merchandise and services contracts and preneed funeral trust contracts, of eight and ten years, respectively.

Prior to our adoption of ASC 606 on January 1, 2018, these costs were expensed in the period incurred.

Amortization expense totaled $ 0.6 million for both the years ended December 31, 2019 and 2020.

On September 30, 2018, our management agreement with a Florida municipality expired and as a result, we ceased to operate three of our cemetery businesses.

We recorded a loss of approximately $125,000 in Other, net , for the write-off of capitalized commissions related to these three cemetery businesses.

There were no impairment losses recognized for the year ended

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2019 .

See Note 5 to the Consolidated Financial Statements included herein for additional information regarding the expired management agreement for these three cemetery businesses.

LONG-TERM DEBT

On May 31, 2018, we completed the issuance of $325.0 million in aggregate principal amount of our 6.625% senior notes due (the “Initial Senior Notes”).

See Note 16 to the Consolidated Financial Statements included herein for further discussion of the sale of the Initial Senior Notes.

We used $291.4 million of the net proceeds from the sale of the Initial Senior Notes to repay all amounts outstanding under our former credit agreement.

In connection with the repayment in full of all amounts due thereunder, the former credit agreement was retired and $2.0 million of letters of credit previously issued under the former credit agreement were deemed issued under (and remain outstanding under) the senior secured revolving credit facility (as defined below).

On May 31, 2018, we entered into a $150.0 million senior secured revolving credit facility with the financial institutions party thereto, as lenders, and Bank of America, N.A., as administrative agent, which we subsequently amend in November 2018 and July 2019.

For the year ended December 31, 2018 , we recognized a loss of $1.6 million , recorded in Net loss on early extinguishment of debt, related to the termination of our former credit agreement, which consisted of a write-off of $0.7 million of transaction costs and a write-off of $0.9 million of unamortized debt issuance costs.

Additionally, we incurred $1.1 million in transaction costs related to our senior secured revolving credit facility, which were capitalized and will be amortized over the remaining term of the related debt using the straight-line method.

On December 19, 2019, we entered into a third amendment and commitment increase (“Credit Facility”) to our $150.0 million senior secured revolving credit facility with the financial institutions party thereto, as lenders, and Bank of America, N.A., as administrative agent (in such capacity, the “Administrative Agent”) to increase our commitment to $190.0 million .

The Credit Facility is comprised of :

(i) a $190.0 million revolving credit facility, which includes 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 aggregate amortization expense for our non-compete agreements and capitalized commissions as of December 31, 2020 is as follows (in thousands):

Non-Compete Agreements Capitalized Commissions

Years ending December 31,

2021 $ 618 $ 589

Thereafter 499 737

Total amortization expense $ 2,785 $ 3,141

CREDIT FACILITY AND ACQUISITION DEBT

On December 19, 2019, we entered into a third amendment and commitment increase to our $ 150.0 million senior secured revolving credit facility (“Credit Facility”) with the financial institutions party thereto, as lenders, and Bank of America, N.A., as administrative agent (in such capacity, the “Administrative Agent”) to increase our commitment to $ 190.0 million and incurred $ 0.9 million in transactions costs, which were capitalized and will be amortized over the remaining term of the related debt using the straight-line method.

At December 31, 2020, our Credit Facility was comprised of:

(i) a $ 190.0 million revolving credit facility, including a $ 15.0 million subfacility for letters of credit and a $ 10.0 million swingline, and (ii) an accordion or incremental option allowing for future increases in the facility size by an additional amount of up to $ 75.0 million in the form of increased revolving commitments or incremental term loans.

The final maturity of the Credit Facility will occur on May 31, 2023.

For the year ended December 31, 2019 , we incurred $0.9 million in transactions costs related to our Credit Facility, which were capitalized and will be amortized over the remaining term of the related debt using the straight-line method.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company’s obligations under the Credit Facility are unconditionally guaranteed on a joint and several basis by the same subsidiaries which guarantee the Senior Notes (as defined in Note 14) and certain of the Company’s Credit Facility Guarantors.

The Credit Facility is secured by a first-priority perfected security interest in and lien on substantially all of the Company’s personal property assets and those of the Credit Facility Guarantors.

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 the Credit Facility Guarantors to incur indebtedness, grant liens, make investments, engage in acquisitions, mergers or consolidations, and pay dividends and other restricted payments, and the following financial maintenance covenants:

(A) a Total Leverage Ratio not to exceed (i) 6.00 to 1.00 for the quarter ended December 31, 2019 , (ii) 5.75 to 1.00 for the quarters ended March 31, 2020 , June 30, 2020 and September 30, 2020 and (iii) 5.50 to 1.00 for the quarter ended December 31, 2020 and each quarter ended thereafter, (B) a Senior Secured Leverage Ratio (as defined in the Credit Facility) not to exceed 2.00 to 1.00 as of the end of any period of four consecutive fiscal quarters, and (C) a Fixed Charge Coverage Ratio (as defined in the Credit Facility) of not less than 1.20 to 1.00 as of the end of any period of four consecutive fiscal quarters.

Effective with the Credit Facility, an applicable rate premium shall be set forth in reference to the Total Leverage Ratio and increases by 0.500% whenever the most recent compliance certificate delivered indicates that the Total Leverage Ratio is greater than 5.00 to 1.00 .

The financial maintenance covenants will be calculated for the Company and its subsidiaries on a consolidated basis.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Our long-term debt consisted of the following at December 31, 2018 and 2019 (in thousands):

December 31, 2018

December 31, 2019

In addition, the Credit Facility also contains customary negative covenants, including, but not limited to, covenants that restrict (subject to certain exceptions) the ability of the Company and its subsidiaries and party thereto as guarantors (the “Credit Facility Guarantors”) to incur additional indebtedness, grant liens on assets, make investments, engage in mergers and acquisitions, and pay dividends and other restricted payments, and certain financial covenants.

At December 31, 2020, we were subject to the following financial covenants under our Credit Facility:

(A) a Total Leverage Ratio not to exceed, (i) 5.75 to 1.00 for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020 and (ii) 5.50 to 1.00 for the quarter ended December 31, 2020 and each quarter ended thereafter, (B) a Senior Secured Leverage Ratio (as defined in the Credit Facility) not to exceed 2.00 to 1.00 as of the end of any period of four consecutive fiscal quarters, and (C) a Fixed Charge Coverage Ratio (as defined in the Credit Facility) of not less than 1.20 to 1.00 as of the end of any period of four consecutive fiscal quarters.

These financial maintenance covenants are calculated for the Company and its subsidiaries on a consolidated basis.

On May 18, 2020, we received a limited waiver under our Credit Facility for the failure to comply with the Total Leverage Ratio covenant for the fiscal quarter ended March 31, 2020.

In connection with the waiver, we also entered into a fourth amendment to the Credit Facility which increased the interest rate margin applicable to borrowings by up to 0.625% at each pricing level based on the Total Leverage Ratio.

We did not incur any transaction costs related to the limited waiver and fourth amendment to the Credit Facility.

On August 7, 2020, we obtained a limited consent from the lenders under our Credit Facility in connection with our privately-negotiated repurchases of our Convertible Notes (as defined in Note 13).

See Note 13 to the Consolidated Financial Statements included herein, for a discussion of our privately-negotiated repurchases.

We were in compliance with the total leverage ratio, fixed charge coverage ratio and senior secured leverage ratio covenants contained in our Credit Facility at December 31, 2020.

Our Credit Facility and Acquisition debt consisted of the following (in thousands):

December 31, 2019 December 31, 2020

Credit Facility $ 83,800 $ 47,200

Debt issuance costs, net of accumulated amortization of $ 337 and $ 819 , respectively

( 1,618 ) ( 1,136 )

Total Credit Facility $ 82,182 $ 46,064

Acquisition debt $ 6,964 $ 5,509

Debt issuance costs, net of accumulated amortization of $108 and $337

current portion ( 1,306 ) ( 1,027 )

Total long-term debt

As of December 31, 2019 , we had outstanding borrowings under the Credit Facility of $83.8 million .

We had one letter of credit issued on November 30, 2018 and outstanding under the Credit Facility for approximately $2.0 million , which bears interest at 2.125% and will expire on November 25, 2020 .

Total acquisition debt, net of current portion $ 5,658 $ 4,482

At December 31, 2020, we had outstanding borrowings under the Credit Facility of $ 47.2 million.

We had one letter of credit for $ 2.0 million issued on November 30, 2019 and outstanding under the Credit Facility, which was increased to $ 2.1 million on September 29, 2020.

The letter of credit bears interest at 3.125 % and will expire on November 26, 2021.

The letter of credit automatically renews annually and secures our obligations under our various self-insured policies.

At December 31, 2020, we had $ 140.7 million of availability under the Credit Facility after giving affect to the $ 2.1 million of the outstanding letter of credit.

Outstanding borrowings under our Credit Facility bear interest at either a prime rate or a LIBOR rate, plus an applicable margin based upon our leverage ratio.

As of December 31, 2019 , the prime rate margin was equivalent to 1.5% and the LIBOR rate margin was 2.5% .

At December 31, 2020, the prime rate margin was equivalent to 1.5 % and the LIBOR rate margin was 2.5 %.

The weighted average interest rate on our Credit Facility for the years ended December 31, 2019 and 2020 was 2.9 % and 3.8 %, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

We have no material assets or operations independent of our subsidiaries.

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Additionally, we do not currently have any significant restrictions on our ability to receive dividends or loans from any Credit Facility Guarantors.

We are in compliance with the covenants contained in our Credit Facility as of December 31, 2019 , with a leverage ratio of 5.66 to 1.00 , a fixed charge coverage ratio of 2.70 to 1.00 and a senior secured leverage ratio of 0.94 to 1.00 .

Interest expense related to our Credit Facility was $6.9 million , $4.3 million and $1.6 million for the years ended December 31, 2017 , 2018 and 2019 , respectively.

Amortization of debt issuance costs related to our Credit Facility was $0.3 million , $0.2 million and $0.2 million for the years ended December 31, 2017 , 2018 and 2019 , respectively.

The interest expense and amortization of debt issuance costs related to our Credit Facility are as follows (in thousands):

Years ended December 31,

2018 2019 2020

Credit Facility interest expense $ 4,351 $ 1,601 $ 3,738

Credit Facility amortization of debt issuance costs 234 229 482

Acquisition debt consists of deferred purchase price and promissory notes payable to sellers.

1 unchanged sentence

Original maturities range from five to twenty years.

Imputed interest expense related to our acquisition debt was $0.9 million , $0.8 million and $0.6 million for the years ended December 31, 2017 , 2018 and 2019 , respectively.

The aggregate maturities of our long-term debt for the next five years subsequent to December 31, 2019 and thereafter are as follows (in thousands):

The imputed interest expense related to our acquisition debt are as follows (in thousands):

Years ended December 31,

2018 2019 2020

Acquisition debt imputed interest expense $ 791 $ 622 $ 489

The aggregate maturities of our Credit Facility and acquisition debt for the next five years subsequent to December 31, 2020 and thereafter, excluding debt issuance costs, are as follows (in thousands):

Credit Facility Acquisition Debt

Years ending December 31,

2021 $ — $ 1,386

2023 47,200 825

Thereafter — 3,332

Total Credit Facility and acquisition debt $ 47,200 $ 7,912

Interest — ( 2,403 )

Present value of Credit Facility and acquisition debt $ 47,200 $ 5,509

CONVERTIBLE SUBORDINATED NOTES

On March 19, 2014 , we issued $143.75 million aggregate principal amount of our 2.75% convertible subordinated notes due 2021 (“Convertible Notes”).

The Convertible Notes bear interest at 2.75% per year.

Interest on the Convertible Notes began to accrue on March 19, 2014 and is payable semi-annually in arrears on March 15 and September 15 of each year.

On May 7, 2018 , we completed our exchange (the “Exchange”) of approximately $115.0 million in aggregate principal amount of Convertible Notes in privately-negotiated exchange agreements with a limited number of convertible noteholders, for $74.8 million in cash (plus accrued interest of $0.4 million totaling $75.2 million ) and 2,822,859 newly issued shares of our common stock, par value $.01 per share, pursuant to a private placement in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”).

On December 24, 2018, we completed privately-negotiated repurchases of an additional $22.4 million in aggregate principal amount of Convertible Notes for $22.9 million in cash (plus accrued interest of approximately $0.2 million totaling $23.0 million ).

On March 19, 2014, we issued $ 143.75 million aggregate principal amount of our 2.75 % convertible subordinated notes due 2021 (the “Convertible Notes”).

The Convertible Notes are due on March 15, 2021 and bear interest at 2.75 % per year, which is payable semi-annually in arrears on March 15 and September 15 of each year.

On May 7, 2018, we completed our exchange of approximately $ 115.0 million in aggregate principal amount of Convertible Notes in a privately-negotiated exchange agreement with a limited number of convertible noteholders.

On December 24, 2018, we completed privately-negotiated repurchases of an additional $ 22.4 million in aggregate principal amount of Convertible Notes.

On April 4, 2019, we completed a privately-negotiated repurchase of $ 25,000 in aggregate principal amount of Convertible Notes then outstanding for $ 27,163 .

On September 9, 2020, we completed privately-negotiated repurchases of $ 3.8 million in aggregate principal amount of our Convertible Notes for $ 4.6 million in cash (including accrued interest of $ 0.1 million) and recorded $ 0.8 million for the reacquisition of the equity component.

The September 2020 repurchases represented approximately 60 % of the aggregate principal amount of Convertible Notes then outstanding.

Following the settlement of the September 2020 repurchases, the aggregate principal amount of the Convertible Notes was reduced to approximately $ 2.6 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Following the Exchange and the December 2018 repurchases, the aggregate principal amount of our Convertible Notes outstanding was reduced to $6.3 million .

For the year ended December 31, 2018 , we recognized a net gain of $1.7 million , recorded in Net loss on early extinguishment of debt, related to the Exchange and December 2018 repurchases of our Convertible Notes, which consisted of a gain of $3.1 million on the difference between the fair value and the carrying amount of the liability component of our Convertible Notes immediately preceding each exchange and repurchase, and a loss of $1.4 million related to the write-off of unamortized debt issuance costs due to the exchange and repurchase of our Convertible Notes.

We incurred $0.9 million in transactions costs related to the Exchange and December 2018 repurchases of our Convertible Notes, of which $0.6 million was expensed and recorded in Net loss on early extinguishment of debt and $0.3 million was allocated to the equity component and recorded in Additional paid-in capital.

On April 4, 2019, we completed a privately-negotiated repurchase of an additional $25,000 in aggregate principal amount of Convertible Notes then outstanding for $27,163 .

The Convertible Notes are general unsecured obligations and are subordinated in the right of payment to all of our existing and future senior indebtedness and equal in right of payment with our other existing and future subordinated indebtedness.

The initial conversion rate of the Convertible Notes as of March 19, 2014, was 44.3169 shares of our common stock per $1,000 principal amount of Convertible Notes, equivalent to an initial conversion price of $22.56 per share of common stock.

The conversion rate is subject to adjustment upon the occurrence of certain events, as described in the indenture governing the Convertible Notes.

During 2018 , an adjustment to the conversion rate of the Convertible Notes was triggered when our Board increased the dividends declared per common share from $0.05 per share to $0.075 per share.

At December 31, 2019, the adjusted conversion rate of the Convertible Notes is 45.4615 shares of our common stock per $1,000 principal amount of Convertible Notes, equivalent to an adjusted conversion price of $22.00 per share of common stock.

Equity issuance costs are included in Additional paid-in capital on our Consolidated Balance Sheet and are not amortized.

Additionally, the recognition of the Convertible Notes as two separate components results in a basis difference associated with the liability component which represents a temporary tax difference.

As a result, we recognized a deferred tax liability of $12.7 million related to this temporary difference which was recorded as a reduction to Additional paid-in capital and an increase to our deferred tax liability.

The deferred tax liability is being amortized over the seven year term of the Convertible Notes.

At December 31, 2019 , the balance of our deferred tax liability related to our Convertible Notes was $0.1 million .

The carrying values of the liability and equity components of the Convertible Notes at December 31, 2018 and 2019 are reflected on our Consolidated Balance Sheet as follows (in thousands):

December 31, 2018

December 31, 2019

The carrying values of the liability and equity components of the Convertible Notes are reflected on our Consolidated Balance Sheet as follows (in thousands):

December 31, 2019 December 31, 2020

Long-term liabilities:

6 unchanged sentences

The fair value of the Convertible Notes, which are Level 2 measurements, was $ 3.7 million at December 31, 2020.

Interest expense on the Convertible Notes included contractual coupon interest expense of $4.0 million , $1.9 million and $0.2 million for the years ended December 31, 2017 , 2018 and 2019 , respectively.

Accretion of the discount on the Convertible Notes was $4.3 million , $2.2 million and $0.2 million for the years ended December 31, 2017 , 2018 and 2019 , respectively.

Amortization of debt issuance costs related to our Convertible Notes was $517,000 , $245,000 and $24,000 for the years ended December 31, 2017 , 2018 and 2019 , respectively.

The remaining unamortized debt discount and the remaining unamortized debt issuance costs are being amortized using the effective interest method over the remaining term of approximately 14 month of the Convertible Notes.

The effective interest rate on the unamortized debt discount for the years ended December 31, 2018 and 2019 was 11.3% and 11.4% , respectively.

The effective interest rate on the debt issuance costs for both years ended December 31, 2018 and 2019 was 3.2% .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The aggregate maturities of our Convertible Notes for the five years subsequent to December 31, 2019 are as follows (in thousands):

Principal Maturity

Discount Amortization

At December 31, 2020, the adjusted conversion rate of the Convertible Notes is 45.9712 shares of our common stock per $1,000 principal amount of Convertible Notes, equivalent to an adjusted conversion price of $ 21.75 per share of common stock.

The interest expense and accretion of debt discount and debt issuance costs related to our Convertible Notes are as follows (in thousands):

Years ended December 31,

2018 2019 2020

Convertible Notes interest expense $ 1,878 $ 174 $ 149

Convertible Notes accretion of debt discount $ 2,192 $ 241 $ 216

Convertible Notes amortization of debt issuance costs $ 245 $ 24 $ 20

The effective interest rate on the unamortized debt discount for both years ended December 31, 2019 and 2020 was 11.4 %.

The effective interest rate on the debt issuance costs for the years ended December 31, 2019 and 2020 was 3.2 % and 3.1 %, respectively.

The aggregate maturities of our Convertible Notes for the next five years subsequent to December 31, 2020 and thereafter are as follows (in thousands):

Principal Maturity Discount Amortization Present

Years ending December 31,

On May 31, 2018, we issued $325.0 million in aggregate principal amount of our Initial Senior Notes and related guarantees in a private offering under Rule 144A and Regulation S under the Securities Act.

We received proceeds of $320.1 million , net of a 1.5% debt discount of $4.9 million , of which we used $291.4 million to repay our existing indebtedness under our former credit agreement.

We incurred $1.4 million in debt issuance costs related to the Initial Senior Notes.

2021 $ 2,559 $ ( 20 ) $ 2,539

Thereafter — — —

Total $ 2,559 $ ( 20 ) $ 2,539

On May 31, 2018, we issued $ 325.0 million in aggregate principal amount of our 6.625 % senior notes due 2026 (the “Initial Senior Notes”) and related guarantees in a private offering under Rule 144A and Regulations S under the Securities Act.

The Initial Senior Notes were issued under an indenture, dated as of May 31, 2018 (the “Indenture”), among us, certain of our existing subsidiaries (collectively, the “Subsidiary Guarantors”), as guarantors, and Wilmington Trust, National Association., as trustee.

On December 19, 2019, we issued an additional $75.0 million in aggregate principal amount of our Initial Senior Notes (the “Additional Senior Notes” and, together with the Initial Senior Notes, the “Senior Notes”) and related guarantees by the Subsidiary Guarantors in a private offering under Rule 144A and Regulation S of the Securities Act.

On December 19, 2019, we issued an additional $ 75.0 million in aggregate principal amount of our Initial Senior Notes (the “Additional Senior Notes” and, together with the Initial Senior Notes, the “Senior Notes”) and related guarantees by the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Subsidiary Guarantors in a private offering under Rule 144A and Regulation S of the Securities Act.

The Additional Senior Notes were issued as additional securities under the Indenture.

We received proceeds of $76.9 million , net of a debt premium of $1.7 million (plus accrued interest of $0.2 million ).

We received proceeds of $ 76.9 million from the issuance of the Additional Senior Notes, net of a debt premium of $ 1.7 million (plus accrued interest of $ 0.2 million).

We incurred $ 1.0 million in debt issuance costs related to the Additional Senior Notes.

The additional issuance brings the total principal amount of the Senior Notes outstanding to $400.0 million .

The Senior Notes are treated as a single class of securities under the Indenture, and the Additional Senior Notes have identical terms to the Initial Senior Notes, except with respect to the date of issuance, the issue price, the initial interest accrual date and the initial interest payment date.

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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.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Indenture contains restrictive covenants limiting our ability and our Restricted Subsidiaries (as defined in the Indenture) to, among other things, incur additional indebtedness or issue certain preferred shares, create liens on certain assets to secure debt, pay dividends or make other equity distributions, purchase or redeem capital stock, make certain investments, sell assets, agree to certain restrictions on the ability of Restricted Subsidiaries to make payments to us, consolidate, merge, sell or otherwise dispose of all or substantially all assets, or engage in transactions with affiliates.

The Indenture also contains customary events of default.

The carrying value of the Senior Notes at December 31, 2018 and December 31, 2019 are reflected in our Consolidated Balance Sheet as follows (in thousands):

December 31, 2018

December 31, 2019

The carrying value of our Senior Notes is reflected on our Consolidated Balance Sheet as follows (in thousands):

December 31, 2019 December 31, 2020

Long-term liabilities:

Principal amount $ 400,000 $ 400,000

Debt premium, net of accumulated amortization of $ 0 and $ 221 , respectively

Debt discount, net of accumulated amortization of $ 492 and $ 1,020 , respectively

( 4,110 ) ( 3,582 )

Debt issuance costs, net of accumulated amortization of $ 216 and $ 496 , respectively

( 2,131 ) ( 1,917 )

Carrying value of the Senior Notes $ 395,447 $ 395,968

1 unchanged sentence

The debt discount, the debt premium and the debt issuance costs are being amortized using the effective interest method over the remaining term of approximately 65 months of the Senior Notes.

The effective interest rate on the unamortized debt discount and the unamortized debt issuance costs for the Initial Senior Notes for the year ended December 31, 2019 was 6.87% and 6.69% , respectively.

The effective interest rate on the unamortized debt premium and the unamortized debt issuance costs for the Additional Senior Notes for the year ended December 31, 2019 was 6.20% and 6.88% , respectively.

Interest expense on the Senior Notes included contractual coupon interest expense of $12.6 million and $21.7 million for the years ended December 31, 2018 and 2019 , respectively.

Amortization of the debt discount on the Senior Notes was $0.3 million and $0.5 million for the years ended December 31, 2018 and 2019 , respectively and amortization of debt issuance costs on the Senior Notes was $0.1 million for the both the years ended December 31, 2018 and 2019 .

The aggregate maturities of our Senior Notes for the five years subsequent to December 31, 2019 are as follows (in thousands):

Principal Maturity

Discount Amortization

Premium Amortization

The effective interest rate on the unamortized debt discount and the unamortized debt issuance costs for the Initial Senior Notes, which were issued in May 2018, for the year ended December 31, 2020 was 6.87 % and 6.69 %, respectively.

The effective interest rate on the unamortized debt premium and the unamortized debt issuance costs for the Additional Senior Notes, which were issued in December 2019, for year ended December 31, 2020 was 6.20 % and 6.90 %, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The interest expense and amortization of debt discount, debt premium and debt issuance costs related to our Senior Notes are as follows (in thousands):

Years ended December 31,

2018 2019 2020

Senior Notes interest expense $ 12,620 $ 21,711 $ 26,500

Senior Notes amortization of debt discount 273 493 528

Senior Notes amortization of debt premium — — 221

Senior Notes amortization of debt issuance costs 77 139 280

The aggregate maturities of our Senior Notes for the next five years subsequent to December 31, 2020 and thereafter are as follows (in thousands):

Principal Maturity Discount Amortization Premium Amortization Present

Years ending December 31,

2021 $ — $ ( 565 ) $ 235 $ ( 330 )

2022 — ( 605 ) 250 ( 355 )

2023 — ( 648 ) 266 ( 382 )

2024 — ( 694 ) 283 ( 411 )

2025 — ( 744 ) 301 ( 443 )

Thereafter 400,000 ( 326 ) 132 399,806

Total $ 400,000 $ ( 3,582 ) $ 1,467 $ 397,885

On January 1, 2019, we adopted Topic 842 using the modified retrospective method for all lease arrangements at the beginning of the period of adoption.

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On January 1, 2019, we recorded operating lease right-of-use assets of $ 16.5 million and operating lease liabilities of $ 17.3 million, related to real estate and equipment leases, based on the present value of the future lease payments on the date of adoption.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The components of lease cost for the year ended December 31, 2019 are as follows (in thousands):

Our lease obligations consist of operating and finance leases related to real estate and equipment.

The components of lease cost are as follows (in thousands):

Years Ended December 31,

Income Statement Classification 2019 2020

For The Year Ended, December 31, 2019

Operating lease cost

Facilities and grounds expense (1)

Short-term lease cost

Facilities and grounds expense (1)

Operating lease cost Facilities and grounds expense (1)

$ 3,722 $ 3,795

Short-term lease cost Facilities and grounds expense (1)

Finance lease cost:

Depreciation of leased assets

Depreciation and amortization (2)

Interest on lease liabilities

Interest expense

Depreciation of leased assets Depreciation and amortization (2)

Interest on lease liabilities Interest expense 520 496

Total finance lease cost 1,018 935

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(2) Depreciation and amortization expense is included within Field depreciation expense and Home office depreciation and amortization on our Consolidated Statements of Operations.

Variable lease expense was immaterial for the year ended December 31, 2019 .

Supplemental cash flow information related to our leases for the year ended December 31, 2019 is as follows (in thousands):

For The Year Ended, December 31, 2019

Variable lease expense was immaterial for the years ended December 31, 2019 and 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Supplemental cash flow information related to our leases is as follows (in thousands):

Years Ended December 31,

Cash paid for operating leases included in operating activities $ 3,910 $ 3,383

Cash paid for finance leases included in financing activities 872 828

Right-of-use assets obtained in exchange for new leases for the year ended December 31, 2019 are as follows (in thousands):

For The Year Ended, December 31, 2019

Right-of-use assets obtained in exchange for new leases are as follows (in thousands):

Years Ended December 31,

Right-of-use assets obtained in exchange for new operating lease liabilities (1)

$ 8,175 $ 782

Right-of-use assets obtained in exchange for new finance lease liabilities — —

During the three months ended June 30, 2019, we modified an existing operating lease to extend the term through 2030.

(1) During the year ended December 31, 2019, we modified an existing operating lease to extend the term through 2030.

As a result of this modification, we increased our lease liabilities and right-of-use assets by $ 8.2 million.

Supplemental balance sheet information related to leases as of December 31, 2019 is as follows (in thousands):

Balance Sheet Classification

December 31, 2019

Operating lease right-of-use assets

Finance lease right-of-use assets (1)

Property, plant and equipment, net

Total right-of-use assets

Operating lease current liabilities

Current portion of operating lease obligations

Finance lease current liabilities

Current portion of finance lease obligations

Supplemental balance sheet information related to leases is as follows (in thousands):

Lease Type Balance Sheet Classification December 31, 2019 December 31, 2020

Operating lease right-of-use assets Operating lease right-of-use assets $ 22,304 $ 21,201

Finance lease right-of-use assets Property, plant and equipment, net 6,770 6,770

Accumulated depreciation Property, plant and equipment, net ( 1,566 ) ( 2,005 )

Finance lease right-of-use assets, net $ 5,204 $ 4,765

Operating lease current liabilities Current portion of operating lease obligations $ 1,554 $ 2,082

Finance lease current liabilities Current portion of finance lease obligations 290 323

Total current lease liabilities $ 1,844 $ 2,405

Operating lease non-current liabilities

Obligations under operating leases, net of current portion

Finance lease non-current liabilities

Obligations under finance leases, net of current portion

Operating lease non-current liabilities Obligations under operating leases, net of current portion $ 21,533 $ 20,302

Finance lease non-current liabilities Obligations under finance leases, net of current portion 5,854 5,531

Total non-current lease liabilities $ 27,387 $ 25,833

Total lease liabilities $ 29,231 $ 28,238

Finance lease right-of-use assets are presented net of accumulated depreciation of $1.6 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The average lease terms and discount rates as of December 31, 2020 are as follows:

Weighted-average remaining lease term (years)

Weighted-average discount rate

Weighted-average remaining lease term (years) Weighted-average discount rate

Operating leases 10.7 8.1 %

Finance leases 5.9 8.2 %

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The aggregate future lease payments for operating and finance leases as of December 31, 2020 are as follows (in thousands):

Operating Finance

Lease payments due:

2021 $ 3,794 $ 836

2022 3,422 860

2023 3,301 860

2024 3,292 791

2025 3,156 736

Thereafter 16,188 5,555

Total lease payments $ 33,153 $ 9,638

Interest ( 10,769 ) ( 3,784 )

Present value of lease liabilities $ 22,384 $ 5,854

As of December 31, 2020, we had no additional significant operating or finance leases that had not yet commenced .

At December 31, 2018 , future minimum lease payments under non-cancelable lease agreements were as follows (in thousands):

Future Minimum Lease

Years ending December 31,

Total future minimum lease payments

amount representing interest (rates ranging from 7.0% to 11.5%)

current portion of obligations under finance leases

Long-term obligations under finance leases

COMMITMENTS AND CONTINGENCIES

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These agreements are generally for one to five years and provide for bi-weekly or monthly payments.

We have employment agreements with certain of our executive officers and senior leadership.

We have employment agreements with our executive officers and certain of our senior leadership.

These agreements are generally for three to five years and provide for participation in various incentive compensation arrangements.

These agreements generally renew automatically on an annual basis after their initial term has expired.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

At December 31, 2020, the maximum estimated future cash commitments under these agreements with remaining commitment terms, and with original terms of more than one year, are as follows (in thousands):

Employment (a)

Non-Compete Consulting Employment (a)

Years ending December 31,

Payne, our Chairman of the Board and Chief Executive Officer, has an employment agreement that does not renew after the initial term of five years.

We sponsor a defined contribution plan (401K) for the benefit of our employees.

2021 $ 2,103 $ 879 $ 3,729 $ 6,711

2022 1,569 537 3,456 5,562

2023 1,063 266 1,181 2,510

2024 691 114 900 1,705

2025 431 51 900 1,382

Thereafter 439 — 1,912 2,351

Total $ 6,296 $ 1,847 $ 12,078 $ 20,221

(a) Melvin C.

Payne, our Chairman of the Board and Chief Executive Officer, has an employment agreement that does not renew after the initial term.

See Note 25 to the Consolidated Financial Statements included herein for additional information regarding Mr.

Payne's employment agreement.

Defined Contribution Plan

We sponsor a defined contribution plan, a 401K plan, for the benefit of our employees.

Matching contributions and plan administrative expenses totaled $ 2.1 million, $ 2.0 million and $ 2.3 million during the years ended December 31, 2018, 2019 and 2020, respectively.

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For each of our outstanding legal matters, we evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies, and the likelihood of an unfavorable outcome.

If we determine that an unfavorable outcome is probable and can be reasonably estimated, we establish the necessary accruals.

If we determine that an unfavorable outcome is probable and can be reasonably estimated, we establish the necessary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

We hold certain insurance policies that may reduce cash outflows with respect to an adverse outcome of certain of these litigation matters.

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We paid $ 0.7 million under the settlement agreement in November 2019.

The provision (benefit) for income taxes for the years ended December 31, 2017 , 2018 and 2019 consisted of the following (in thousands):

This case was formally closed on May 25, 2020.

The provision for income taxes consisted of the following (in thousands):

Years Ended December 31,

2018 2019 2020

federal provision (benefit) $ 1,489 $ ( 2,039 ) $ 1,778

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Total current provision (benefit) $ 2,798 $ ( 2,234 ) $ 3,955

federal provision (benefit)

federal provision $ 2,831 $ 8,056 $ 3,994

State provision 992 2,061 603

Total deferred provision (benefit)

Total income tax provision (benefit)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

A reconciliation of taxes calculated at the U.S.

federal statutory rate to those reflected in the Consolidated Statements of Operations for the years ended December 31, 2017 , 2018 and 2019 is as follows (dollars in thousands):

Total deferred provision $ 3,823 $ 10,117 $ 4,597

Total income tax provision $ 6,621 $ 7,883 $ 8,552

A reconciliation of income taxes calculated at the U.S.

federal statutory rate to those reflected in the Consolidated Statements of Operations is as follows (dollars in thousands):

Years Ended December 31,

2018 2019 2020

Amount Percent Amount Percent Amount Percent

Federal statutory rate $ 3,834 21.0 % $ 4,707 21.0 % $ 5,175 21.0 %

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Effect of non-deductible expenses and other, net 1,451 7.9 947 4.2 460 1.9

Effect of divestiture and impairment of business

Effect of divestitures and impairment of businesses — — 911 4.10 846 3.4

Change in valuation allowance 26 0.1 ( 34 ) ( 0.2 ) ( 9 ) —

Re-measurement of deferred taxes due to tax reform ( 466 ) ( 2.5 ) — — — —

On May 10, 2017, we filed amended federal returns for the tax years ending December 31, 2013, 2014 and 2015, which generated significant refunds.

As a result, on July 18, 2017, we received notification that the IRS selected our tax years ended December 31, 2013, 2014 and 2015 for a limited scope examination to verify the refunds due.

The examination was still ongoing as of December 31, 2019.

The federal statute of limitations remains open for our tax years from 2015 through 2018.

The tax effects of temporary differences from total operations that give rise to significant deferred tax assets and liabilities at December 31, 2018 and 2019 are as follows (in thousands):

Total $ 6,621 36.2 % $ 7,883 35.1 % $ 8,552 34.7 %

Discrete tax expense for the year ended December 31, 2020 includes $ 0.1 million expense related to stock based compensation and $0.5 million primarily related to return to provision adjustments, state legislative changes and other discrete items.

We are subject to taxation in the United States and various states.

As of December 31, 2020, tax years 2013 to 2019 are subject to examination by taxing authorities.

On May 10, 2017, we filed amended federal returns for the tax years ended December 31, 2013, 2014 and 2015, which generated refunds of approximately $ 1.9 million.

The amended returns are under audit and as a result, the administrative processing of the carryback claims requires that the statute for tax years 2013 to 2015 remains open.

In connection with the 2019 stock acquisition of Calvary Memorial Park cemetery in Fairfax, Virginia, a 338(h)(10) election was filed April 24, 2020, which allowed the basis in the acquired assets to be stepped up to fair market value.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

On June 30, 2020, Carriage filed a carryback claim for a refund for the tax year ended December 31, 2018, for $ 7.0 million.

The requested refund was received on August 7, 2020.

On November 3, 2020, Carriage filed a carryback claim for refund for the tax year ended December 31, 2019, for $1.2 million.

The requested refund for tax year 2019 has not yet been received.

On December 4, 2020, Carriage filed an amended federal return for the tax year ended December 31, 2018, in order to take full advantage of the CARES Act legislative changes.

The changes reported in the amended return resulted in additional $ 2.3 million of loss.

The additional losses generated from the amended filing will be administratively carried back and processed as part of the Joint Committee review of the 2018 carryback claim.

The tax effects of temporary differences from total operations that give rise to significant deferred tax assets and liabilities are as follows (in thousands):

Years Ended December 31,

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Tax credit carryforwards 100 100

State bonus depreciation

Accrued liabilities and other

State depreciation 1,124 1,264

Accrued and other liabilities 5,124 6,313

Amortization of non-compete agreements 1,104 1,117

Preneed liabilities

Prepaid and other assets — 741

Total deferred income tax assets 15,244 11,123

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Preneed liabilities

( 6,446 ) ( 6,427 )

Convertible subordinated notes due 2021 ( 75 ) ( 5 )

Prepaids and other

Prepaid and other assets ( 289 ) —

Total deferred income tax liabilities ( 56,378 ) ( 57,378 )

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We recognized an immaterial net decrease in our valuation allowance during 2020.

For federal income tax reporting purposes, we have net operating loss carryforwards of $7.2 million with an indefinite life that will not expire.

For state reporting purposes, we have $ 32.7 million of net operating loss carryforwards that will expire between 2021 and 2039, if not utilized.

Based on management’s assessment of the various state net operating losses, it was determined that

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

it is more likely than not that we will be able to realize tax benefits on some portion of the amount of the state losses.

Based on management’s assessment of the various state net operating losses, it was determined that it is more likely than not that we will be able to realize tax benefits on some portion of the amount of the state losses.

The valuation allowance at December 31, 2020 was attributable to the deferred tax asset related to a portion of the state operating losses.

The federal and state net operating loss (NOL) carryforwards in the income tax returns filed included unrecognized tax benefits.

We analyze tax benefits for uncertain tax positions and how they are to be recognized, measured, and derecognized in financial statements;

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The deferred tax assets recognized for those NOLs are presented net of these unrecognized tax benefits.

At December 31, 2019, the Company’s unrecognized tax benefits reserve for uncertain tax positions primarily relates to pending accounting method changes filed for the tax year ending December 31, 2018.

In 2018, we filed two Form 3115s, Application for Change in Accounting Method, and associated statements to request consent to change the method of accounting for deferred revenue for our cemetery property and cemetery merchandise and service operations for the tax year beginning January 1, 2018.

At December 31, 2020, the Company’s unrecognized tax benefits reserve for uncertain tax positions primarily relates to losses generated from pending accounting method changes filed for the tax year ended December 31, 2018, being carried back 5 years, under the CARES Act.

In 2018, we filed two Form 3115s, Application for Change in Accounting Method, to request consent to change the method of accounting for deferred revenue for our cemetery property and cemetery merchandise and service operations beginning January 1, 2018.

These method changes are still under review.

The amount of the reserve recorded as of December 31, 2019 was $0.7 million .

No reserve was recorded at December 31, 2018.

Therefore, the unrecognized tax benefit reserve for the years ended December 31, 2019 and 2020 was $ 0.7 million and $ 3.7 million, respectively.

There was no reserve recorded at December 31, 2018.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Years Ended December 31,

2018 2019 2020

Unrecognized tax benefit at beginning of year $ — $ — $ 691

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Unrecognized tax benefit at end of year $ — $ 691 $ 3,656

There are no balances included in unrecognized tax benefits that, if recognized, would affect the effective tax rate.

We believe that it is reasonably possible that a decrease of the entire unrecognized tax benefit may be recognized within the next 12 months.

On December 31, 2019 , pursuant to the Transactions Agreement dated November 25, 2019 with Calvary Memorial Park, Inc.

The cemetery business was operated by an S corporation prior to the acquisition date, and therefore, consent was obtained from the selling S corporation shareholders to make a 338(h)(10) election under the Internal Revenue Code, which allowed us to treat the acquisition of the stock of the cemetery business as an asset acquisition and allowed us to record the assets and liabilities at fair value.

Therefore, no deferred taxes have been recorded.

See Note 3 to the Consolidated Financial Statements included herein, for a additional information regarding the Fairfax, Virginia acquisition.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Included in balance of unrecognized tax benefit for the years ended December 31, 2019 and 2020 were $ 0.7 million and $ 3.7 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate.

At December 31, 2020, we expect that the $ 3.7 million of unrecognized tax benefit will be recognized in the next twelve months.

We recognize interest accrued related to unrecognized tax benefit as income tax expense.

As of December 31, 2020, we accrued an immaterial amount of interest related to the unrecognized tax benefit.

STOCKHOLDERS’ EQUITY

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We are authorized to issue 80,000,000 shares of common stock, $ 0.01 per share par value.

We had 25,703,490 and 25,880,362 shares issued and outstanding, net of 7,625,339 and 8,025,339 shares held in treasury at par, at December 31, 2018 and 2019 , respectively.

We had 25,880,362 and 26,020,494 shares issued and outstanding, net of 8,025,339 shares held in treasury at par, at December 31, 2019 and 2020, respectively.

Stock Based Compensation Plans

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The Amended and Restated 2006 Plan was terminated upon the approval of the 2017 Plan at the annual shareholders meeting on May 17, 2017.

The termination of the Amended and Restated 2006 Plan does not affect the awards previously issued and outstanding.

All stock-based plans are administered by the Compensation Committee appointed by our Board of Directors (the “Board”).

The 2017 Plan provides for grants of options as non-qualified options or incentive stock options, restricted stock and performance awards.

The 2017 Plan expires on May 17, 2027.

The status of each of the plans at December 31, 2019 is as follows (shares in thousands):

Performance Awards Outstanding (2)

Amended and Restated 2006 Plan

Amount includes approximately 1,246,000 shares granted from the Amended and Restated 2006 Plan that were returned to the Company due to cancellations, to pay taxes on restricted stock vestings and to pay option price and taxes on option exercises.

Performance Awards are reserved at 200% of shares granted which is equal to the maximum payout in shares.

All stock-based plans are administered by the Compensation Committee appointed by our Board of Directors (the “Board”).

At December 31, 2020, we had 1,782,824 shares available to issue under our 2017 Plan.

The termination of the Amended and Restated 2006 Plan does not affect the awards previously issued and outstanding.

Restricted Stock

During 2019 , we issued restricted stock to certain employees totaling 25,550 shares that vest over a three year period and had an aggregate grant date market value of $0.5 million .

During the year ended December 31, 2020, we issued restricted stock to certain employees totaling 10,200 shares that vest over a three year period and had an aggregate grant date market value of $ 0.3 million at a weighted average stock price of $25.00.

In 2019, a total of 25,550 shares of restricted stock were awarded with a grant date market value of $ 0.5 million.

In 2018, a total of 86,260 shares of restricted stock were awarded with a grant date market value of $ 2.2 million.

A summary of the status of unvested restricted stock as of December 31, 2019 , and changes during 2019 , is presented below (shares in thousands):

Unvested stock awards

Weighted Average

A summary of the status of unvested restricted stock as of December 31, 2020, and changes during 2020, is presented below:

Restricted stock awards Shares Weighted Average

Unvested at January 1, 2020 69,745 $ 23.56

Cancellations

Granted 10,200 25.00

Vested ( 34,815 ) 24.26

Cancelled — —

Unvested at December 31, 2020 45,130 $ 23.34

We recorded stock-based compensation expense, which is included in General, administrative and other expenses, for restricted stock awards of $0.7 million , $0.8 million and $0.8 million the years ended December 31, 2017 , 2018 and 2019 , respectively.

As of December 31, 2019 , we had $1.6 million of total unrecognized compensation costs related to unvested restricted stock awards, which are expected to be recognized over a weighted average period of approximately 1.4 years.

We recorded stock-based compensation expense, which is included in Regional and unallocated funeral and cemetery costs and General, administrative and other expenses, for restricted stock awards of $ 0.8 million, $ 0.8 million and $ 0.7 million the years ended December 31, 2018, 2019 and 2020, respectively.

At December 31, 2020, we had $ 1.1 million of total unrecognized compensation costs related to unvested restricted stock awards, which are expected to be recognized over a weighted average period of approximately 0.9 years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Stock Options

During 2019 , we granted 100,000 options to a certain key employee at a weighted average exercise price of $24.35 .

These options will vest in one-fifth increments over a five -year period and have a ten -year term.

During the year ended December 31, 2020, we granted 20,000 options to a certain key employee at a weighted average price of $ 18.02 .

These options will vest in one-third increments over a three-year period and have a ten -year term.

The fair value of these options was $ 0.1 million.

On June 26, 2020, we cancelled 100,000 options in connection with the resignation of our President and Chief Operating Officer.

In 2019, a total of 100,000 stock options were awarded, the fair value of which was $ 0.6 million.

In 2018, a total of 212,940 stock options were awarded, the fair value of which was $ 1.4 million.

Options are granted with an exercise price equal to the closing price of our common stock on the date of grant.

Stock options are granted with an exercise price equal to the closing price of our common stock on the date of grant.

All of the options granted and outstanding under this plan have either a seven or ten -year term.

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Treasury yield curve based on the expected life of the option in effect at the time of grant.

The fair values of our stock options were calculated using the following weighted average assumptions, based on the methods described above for the years ended December 31, 2017 , 2018 and 2019 :

The fair values of our stock options were calculated using the following weighted average assumptions, based on the methods described above:

Years Ended December 31,

2018 2019 2020

Dividend yield 1.18 % 1.23 % 1.67 %

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Expected holding period (years) 5.0 5.0 3.7

A summary of the stock options at December 31, 2017 , 2018 and 2019 and changes during the three years ended December 31, 2019 is presented in the table and narrative below (shares in thousands):

Black-Scholes value $ 6.38 $ 5.70 $ 4.61

A summary of the stock options at and changes during the three years ended December 31, 2020 is presented in the table and narrative below (shares in thousands):

Years Ended December 31,

Outstanding at beginning of period

Canceled or expired

Outstanding at end of year

Exercisable at end of year

2018 2019 2020

Price Shares Wtd.

Outstanding at January 1, 2020 1,934 $ 20.85 1,523 $ 21.95 1,078 $ 23.22

Granted 213 $ 25.43 100 $ 24.35 20 $ 18.02

Exercised (1)

( 459 ) $ 17.73 ( 247 ) $ 17.37 ( 40 ) $ 13.72

Cancelled or expired ( 165 ) $ 25.34 ( 298 ) $ 21.96 ( 146 ) $ 23.97

Outstanding at December 31, 2020 1,523 $ 21.95 1,078 $ 23.22 912 $ 23.40

Exercisable at December 31, 2020 1,001 $ 20.29 643 $ 22.02 668 $ 22.90

(1) For the year ended December 31, 2020, 20,000 options were surrendered by employees to pay the option price and taxes related to the option exercises.

The aggregate intrinsic value of the outstanding and exercisable stock options was $ 7.2 million and $ 5.6 million at December 31, 2020.

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The total fair value of stock options vested during 2018, 2019 and 2020 totaled $ 1.5 million, $ 0.9 million and $ 0.7 million, respectively.

We recorded stock-based compensation expense, which is included in General, administrative and other expenses, for stock options of $1.5 million , $1.0 million and $0.7 million for the years ended December 31, 2017 , 2018 and 2019 , respectively.

As of December 31, 2019 , there was $1.9 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested stock options expected to be recognized over a weighted average period of approximately 3.02 years.

We recorded stock-based compensation expense, which is included in Regional and unallocated funeral and cemetery costs and General, administrative and other expenses, for stock options of $ 1.0 million, $ 0.7 million and $ 0.7 million for the years ended December 31, 2018, 2019 and 2020, respectively.

At December 31, 2020, there was $ 0.8 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested stock options expected to be recognized over a weighted average period of approximately 1.53 years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table further describes our outstanding stock options at December 31, 2020:

Options Outstanding

Options Exercisable

Actual Ranges of Exercise Prices

Number Outstanding at 12/31/19

Weighted-Average

Contractual Life

Weighted-Average

Exercise Price

Number Exercisable at 12/31/19

Weighted-Average

Options Outstanding Options Exercisable

Actual Ranges of Exercise Prices Number Outstanding at 12/31/20 Weighted-Average

Contractual Life Weighted-Average

Exercise Price Number Exercisable at 12/31/20 Weighted-Average

Contractual Life Weighted-Average

Exercise Price

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$5.94 - $26.54 911,736 4.30 $ 23.40 667,882 3.58 $ 22.90

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Performance Awards

During 2019 , we granted 306,623 performance awards to our leadership team and certain key employees, payable in shares.

These awards will vest (if at all) in December 2023, provided that certain criteria surrounding our common stock price is achieved.

The fair value of these performance awards was $1.6 million and was determined by using the Monte-Carlo simulation pricing model with the following assumptions:

February 20, 2019

August 1, 2019

November 4, 2019

December 2, 2019

Performance period

February 20, 2019 - December 31, 2023

August 1, 2019 - December 31, 2023

November 4, 2019 - December 31, 2023

December 2, 2019 - December 31, 2023

Shares granted

On February 19, 2020, we granted 237,500 performance awards to our leadership team and certain key employees, payable in shares.

The fair value of these performance awards was $ 2.8 million and was determined by using the Monte-Carlo simulation pricing model.

On May 19, 2020, we cancelled all performance award agreements previously awarded to all individuals during 2019 and the February 19, 2020 award.

Concurrently with the cancellation, the Compensation Committee of the Board approved a new performance award (“new performance award”) to be issued to certain employees.

These awards will vest (if at all) on December 31, 2024 provided that the Company’s common stock reaches one of five predetermined growth targets for a sustained period beginning on the grant date of May 19, 2020 and ending on December 31, 2024.

The new performance award was treated as a modification of the cancelled awards and resulted in an additional $ 1.7 million of incremental compensation costs.

At December 31, 2020, there was $ 5.0 million of unrecognized compensation cost related to performance awards expected to be recognized over a weighted average period of 4.0 years.

A summary of the new performance award and changes during the year ended December 31, 2020 is presented in the table and below:

Performance Awards Shares Weighted Average

At January 1, 2020 — —

Granted 399,664 $ 10.79

Cancelled ( 33,538 ) $ 9.69

At December 31, 2020 366,126 $ 10.89

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table reflects the new performance awards granted during the year ended December 31, 2020, their respective fair values and the assumptions utilized in the Monte-Carlo simulation pricing model:

Grant date May 19, 2020 June 25, 2020 July 30, 2020 August 31, 2020 October 30, 2020

Performance period May 19, 2020 - December 31, 2024 June 25, 2020 - December 31, 2024 July 30, 2020 - December 31, 2024 August 31, 2020 - December 31, 2024 October 30, 2020 - December 31, 2024

Awards granted 368,921 13,974 2,795 6,987 6,987

Fair value (in millions) (1)

$ 3.6 $ 0.2 $ 0.1 $ 0.2 $ 0.3

Simulation period (years) 4.62 4.52 4.42 4.33 4.17

Share price at grant date $ 15.79 $ 18.02 $ 23.10 $ 22.14 $ 25.81

Expected volatility 34.54 % 36.24 % 37.43 % 37.71 % 38.72 %

Risk-free interest rate 0.33 % 0.29 % 0.20 % 0.24 % 0.30 %

Forfeiture rate

(1) The total fair value of the new performance awards granted is $4.3 million.

During 2019, we granted 306,623 performance awards to our leadership team and certain key employees, payable in shares.

The fair value of these performance awards was $2.9 million and was determined by using the weighted average stock price on the grant date of $25.43 .

The fair value of these performance awards was $ 1.6 million and was determined by using the Monte-Carlo simulation pricing model.

These performance awards were cancelled on May 19, 2020.

During 2018, we granted 113,320 performance awards to our leadership team and certain key employees, payable in shares.

The fair value of these performance awards was approximately $ 2.9 million and was determined by using the weighted average stock price on the grant date of $ 25.43 .

On November 29, 2018 , we cancelled all the Performance Award Agreements previously awarded to all individuals in 2016 , 2017 and 2018 , which resulted in a write-off of $3.3 million .

Prior to such cancellation, each of the Agreements provided for contingent compensation, which was payable to such individuals in shares of common stock, based on our performance over a five -year period from the date of grant.

We recorded stock-based compensation expense, which is included in General, administrative and other expenses, for performance awards of $0.7 million , $4.4 million and $0.2 million during the years ended December 31, 2017 , 2018 and 2019 , respectively.

The 2018 expense includes the write-off due to the cancellation of the performance awards.

These performance awards were cancelled on November 29, 2019.

We recorded stock-based compensation expense, which is included in Regional and unallocated funeral and cemetery costs and General, administrative and other expenses, for performance awards of $ 4.4 million, $ 0.2 million and $ 0.9 million during the years ended December 31, 2018, 2019 and 2020, respectively.

Employee Stock Purchase Plan

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In 2018, employees purchased a total of 49,938 shares at a weighted average price of $ 18.56 per share.

We recorded stock-based compensation expense, which is included in General, administrative and other expenses, for our ESPP of approximately $0.2 million , $0.2 million and $0.3 million during the years ended December 31, 2017 , 2018 and 2019 , respectively.

The fair values of the right (option) to purchase shares under the ESPP are estimated at the date of purchase with the four quarterly purchase dates using the following assumptions:

We recorded stock-based compensation expense, which is included in Regional and unallocated funeral and cemetery costs and General, administrative and other expenses, for our ESPP of approximately $ 0.2 million, $ 0.3 million and $ 0.4 million during the years ended December 31, 2018, 2019 and 2020, respectively.

The fair values of the right to purchase shares under the ESPP are estimated at the date of purchase with the four quarterly purchase dates using the following assumptions:

Years Ended December 31,

2018 2019 2020

Dividend yield 1.4 % 1.4 % 1.5 %

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1.54 %, 1.57 %, 1.57 %, 1.56 %

2.42%, 2.51%, 2.56%, 2.60%

Expected life (years) 0.25 , 0.50 , 0.75 , 1.00

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0.25 , 0.50 , 0.75 , 1.00

.25, .50, .75, 1.00

Expected volatilities are based on the historical volatility during the previous twelve months of the underlying common stock.

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The expected life of the ESPP grants represents the calendar quarters from the beginning of the year to the purchase date (end of each quarter).

Good To Great Incentive Program

On February 19, 2020, we issued 17,991 shares of our common stock to certain employees, which were valued at approximately $ 0.4 million at a grant date stock price of $ 25.00 .

During 2019, we issued 14,844 shares of our common stock to certain employees, which were valued at approximately $ 0.3 million at a grant date stock price of $ 19.92 .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Director Compensation Plans

Our Director Compensation Policy provides for the following:

(i) each independent director is entitled to an annual retainer of $75,000 , payable in quarterly installments of $18,750 each at the end of the quarter;

and (ii) the Lead Director and chairman of our Audit Committee are entitled to an additional annual retainer of $10,000 , payable in quarterly installments of $2,500 each at the end of each quarter, and the chairman of our Corporate Governance and Compensation Committees are entitled to an additional annual retainer of $5,000 , payable in quarterly installments of $1,250 each at the end of each quarter.

Any new independent director will receive upon admission to the Board a grant of $25,000 (in addition to the independent director annual retainer prorated at the time the new director is admitted to the Board) which can be taken in cash or restricted shares of our common stock.

During 2018, we issued 5,712 shares of our common stock to certain employees, which were valued at approximately $ 0.1 million at a grant date stock price of $ 25.43 .

Director (Non-Employee) Compensation Plans

On February 19, 2020, our Board revised the Director Compensation Policy to provide that each independent director is entitled to a quarterly retainer of $ 35,000 payable in cash and/or unrestricted shares of our common stock at the end of each quarter.

The Lead Director and chairman of our Audit Committee are entitled to an additional annual retainer of $10,000, payable in quarterly installments of $2,500 each at the end of each quarter, and the chairman of our Corporate Governance and Compensation Committees are entitled to an additional annual retainer of $5,000, payable in quarterly installments of $1,250 each at the end of each quarter.

The number of shares of such common stock will be determined by dividing the cash amount by the closing price of our common stock on the date of grant, which will be the date of admission to the Board.

Effective May 16, 2018, our Board revised the Director Compensation Policy such that any Director may elect to receive their annual retainer, which is paid in quarterly installments, in unrestricted shares of our common stock, $0.01 par value by providing written notice as set forth in the Director Compensation Policy.

The number of shares of such common stock shall be determined by dividing the cash amount of the retainer by the closing price of our common stock on the date of grant, which shall be the last business day of each quarter.

Such common stock shall vest immediately upon grant.

Any written notice to receive the retainer in common stock shall remain effective until notice otherwise is made in writing.

Our Board also revised the Director Compensation Policy such that the new Director grant of $25,000 shall vest immediately.

Prior to this change, the stock grant vested 50% immediately and 25% on each of the first and second anniversaries of admission.

Pursuant to the revised Director Compensation Policy described above, for the year ended December 31, 2019 , we granted 7,458 shares of our common stock to two Directors, which were valued at $0.2 million at a weighted average stock price of $20.78 .

We recorded compensation expense, which is included in General, administrative and other expenses, related to annual retainers and restricted stock awards of $0.4 million , $0.5 million and $0.5 million during the years ended December 31, 2017 , 2018 and 2019 , respectively.

On April 23, 2020, as part of our broad-based effort to respond to COVID-19, the Board approved a temporary reduction of the quarterly retainer for our non-employee directors from $ 35,000 per quarter to $ 29,750 per quarter (or 15 %) effective April 19, 2020.

On June 26, 2020, the Board voted to reinstate the quarterly retainer back to 100 % effective as of June 28, 2020.

On July 30, 2020, the Board elected Dr.

Achille Messac to serve as a Class II Director until the 2022 annual meeting of shareholders.

Messac was appointed to serve on the Audit, Compensation and Corporate Governance Committees.

Pursuant to the revised Director Compensation Policy described above, for the year ended December 31, 2020, we granted 30,883 shares of our common stock to six Directors, which were valued at $ 0.7 million at a weighted average stock price of $ 21.16 .

For the year ended December 31, 2019, we granted 7,458 shares of our common stock to two Directors, which were valued at $ 0.2 million at a weighted average stock price of $ 20.78 .

For the year ended December 31, 2018, we granted 7,403 shares of our common stock to three Directors, which were valued at $ 0.2 million at a weighted average stock price of $ 20.52 .

We recorded compensation expense, which is included in General, administrative and other expenses, related to annual retainers, including the value of stock granted to Directors above, of $ 0.5 million, $ 0.5 million and $ 0.9 million during the years ended December 31, 2018, 2019 and 2020, respectively.

Cash Dividends

For the years ended December 31, 2018 and 2019 , our Board declared the following dividends payable on the dates below (in thousands, except per share amounts):

On May 19, 2020, the Board approved an increase of $ 0.05 per share to our annual dividend beginning with the dividend declaration in the third quarter.

On October 27, 2020, the Board approved an additional increase of $ 0.0125 per share for a total annual dividend of $ 0.40 per share beginning with the dividend declaration in the fourth quarter.

O ur Board declared the following dividends payable on the dates below (in thousands, except per share amounts):

2020 Per Share Dollar Value

March 1st $ 0.0750 $ 1,339

June 1st $ 0.0750 $ 1,343

September 1st $ 0.0875 $ 1,569

December 1st $ 0.1000 $ 1,797

2019 Per Share Dollar Value

March 1st $ 0.0750 $ 1,360

June 1st $ 0.0750 $ 1,365

September 1st $ 0.0750 $ 1,336

Accumulated other comprehensive income

Our components of Accumulated other comprehensive income are as follows (in thousands):

Accumulated Other Comprehensive Income

Balance at December 31, 2018

Decrease in net unrealized gains associated with available-for-sale securities of the trusts

Reclassification of net unrealized gain activity attributable to the Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus’

Balance at December 31, 2019

December 1st $ 0.0750 $ 1,337

SHARE REPURCHASE PROGRAM

On February 25, 2016 , our Board approved a share repurchase program authorizing us to purchase up to an aggregate of $25.0 million of our common stock in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

On October 25, 2017 , our Board approved a $15.0 million increase in its authorization for repurchases bringing the total authorized repurchase amount to $40.0 million .

On July 31, 2019, our Board approved an additional $25.0 million for repurchases of our common stock in accordance with the Exchange Act.

During the year ended December 31, 2018, we repurchased 1,101,969 shares of common stock for a total cost of $ 17.7 million at an average cost of $ 16.03 per share pursuant to our share repurchase program.

During the year ended December 31, 2018 , we repurchased 1,101,969 shares of common stock for a total cost of $17.7 million at an average cost of $16.03 per share pursuant to our share repurchase program.

On July 31, 2019, our Board approved an additional $ 25.0 million under our share repurchase program in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended.

During the year ended December 31, 2019, we repurchased 400,000 shares of common stock for a total cost of $ 7.8 million at an average cost of $ 19.39 per share pursuant to our share repurchase program.

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Shares purchased pursuant to the repurchase program are currently held as treasury shares.

During the year ended December 31, 2020, we did not repurchase any common shares.

At December 31, 2020, we had approximately $ 25.6 million available for repurchase under our share repurchase program.

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Share-based awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities and included in the computation of both basic and diluted earnings per share.

Our grants of restricted stock awards to our employees and directors are considered participating securities and we have prepared our earnings per share calculations to exclude outstanding unvested restricted stock awards, using the two-class method, in the basic and diluted weighted average shares outstanding calculation.

The following table sets forth the computation of the basic and diluted earnings per share for the years ended December 31, 2017 , 2018 and 2019 (in thousands, except per share data):

Our grants of stock awards to our employees are considered participating securities and we have prepared our earnings per share calculations to exclude earnings allocated to unvested restricted stock awards, using the two-class method, in the basic and diluted weighted average shares outstanding calculation.

The following table sets forth the computation of the basic and diluted earnings per share (in thousands, except per share data):

Years Ended December 31,

2018 2019 2020

Numerator for basic and diluted earnings per share:

Net income $ 11,645 $ 14,533 $ 16,090

Earnings allocated to unvested restricted stock ( 57 ) ( 62 ) ( 46 )

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Stock options 66 118 196

Convertible subordinated notes

Convertible Notes 337 10 9

Denominator for diluted earnings per common share - weighted average shares outstanding 18,374 18,005 18,077

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Diluted earnings per common share $ 0.63 $ 0.80 $ 0.89

The fully diluted weighted average shares outstanding for the years ended December 31, 2017 , 2018 and 2019 , and the corresponding calculation of fully diluted earnings per share, included 941,000 , 337,000 and 10,000 shares that would have been issued upon the conversion of our convertible subordinated notes as a result of the application of the if-converted method prescribed by the FASB ASC 260.

The fully diluted weighted average shares outstanding for the years ended December 31, 2018, 2019 and 2020, and the corresponding calculation of fully diluted earnings per share, included approximately 337,000 , 10,000 and 9,000 shares that would have been issued upon the conversion of our convertible subordinated notes as a result of the application of the if-converted method prescribed by the FASB ASC 260.

During the year ended December 31, 2020, no stock options were excluded from the computation of diluted earnings per share.

For the years ended December 31, 2018 and 2019, there were 1,660,919 and 338,440 stock options excluded from the computation of diluted earnings per share because the inclusion of such stock options would result in an antidilutive effect.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

MAJOR SEGMENTS OF BUSINESS

SEGMENT REPORTING

We conduct funeral and cemetery operations only in the United States.

The following table presents revenue, operating income (loss), income (loss) before income taxes, depreciation and amortization, interest expense, income tax expense (benefit), total assets, long-lived assets, capital expenditures and number of operating locations by segment (in thousands, except number of operating locations):

Revenue, disaggregated by major source for each of our reportable segments was as follows (in thousands):

Year Ended, December 31, 2020

Funeral Cemetery Total

Services $ 150,283 $ 14,701 $ 164,984

Merchandise 84,787 10,778 95,565

Cemetery property — 44,065 44,065

Other revenue 14,068 10,766 24,834

Total $ 249,138 $ 80,310 $ 329,448

Year Ended, December 31, 2019

Funeral Cemetery Total

Services $ 131,636 $ 10,918 $ 142,554

Merchandise 75,682 7,665 83,347

Cemetery property — 31,167 31,167

Other revenue 9,550 7,489 17,039

Total $ 216,868 $ 57,239 $ 274,107

Year Ended, December 31, 2018

Funeral Cemetery Total

Services $ 127,262 $ 11,342 $ 138,604

Merchandise 74,644 8,158 82,802

Cemetery property — 29,451 29,451

Other revenue 8,819 8,316 17,135

Total $ 210,725 $ 57,267 $ 267,992

The following table presents operating income (loss), income (loss) before income taxes, depreciation and amortization, interest expense, income tax expense (benefit), total assets, long-lived assets, capital expenditures and number of operating locations by segment (in thousands, except number of operating locations):

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Funeral Cemetery Corporate Consolidated

Operating income (loss):

2020 $ 57,622 $ 26,859 $ ( 27,254 ) $ 57,227

2019 58,756 15,983 ( 27,296 ) 47,443

2018 60,035 14,717 ( 32,640 ) 42,112

Income (loss) before income taxes:

2020 $ 56,875 $ 27,087 $ ( 59,320 ) $ 24,642

2019 58,844 16,025 ( 52,453 ) 22,416

2018 58,896 15,108 ( 55,738 ) 18,266

Depreciation and amortization:

2020 $ 11,586 $ 6,376 $ 1,427 $ 19,389

2019 11,128 5,227 1,416 17,771

2018 10,726 4,891 1,813 17,430

Interest expense:

2020 $ 1,004 $ 13 $ 31,498 $ 32,515

2019 1,142 — 24,380 25,522

2018 1,339 — 19,770 21,109

Income tax expense (benefit):

2020 $ 19,738 $ 9,401 $ ( 20,587 ) $ 8,552

2019 20,694 5,635 ( 18,446 ) 7,883

2018 21,349 5,476 ( 20,204 ) 6,621

Total assets:

2020 $ 764,535 $ 366,964 $ 14,326 $ 1,145,825

2019 790,459 314,413 24,883 1,129,755

2018 686,470 226,475 4,557 917,502

Long-lived assets:

2020 $ 619,588 $ 172,122 $ 995 $ 792,705

2019 650,179 145,158 1,303 796,640

2018 572,916 89,654 1,538 664,108

Capital expenditures:

2020 $ 6,997 $ 7,025 $ 1,176 $ 15,198

2019 8,403 5,772 1,204 15,379

2018 8,296 3,989 1,241 13,526

Number of operating locations at year end:

2020 178 32 — 210

2019 186 31 — 217

2018 182 29 — 211

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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Balance Sheet

The detail of certain balance sheet accounts as of December 31, 2018 and 2019 is as follows (in thousands):

The detail of certain balance sheet accounts is as follows (in thousands):

Prepaids and other current assets:

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Total other current assets $ 10,667 $ 2,076

Current portion of debt and lease obligations:

Current portion of acquisition debt $ 1,306 $ 1,027

Current portion of finance lease obligations 290 323

Current portion of operating lease obligations 1,554 2,082

Total current portion of debt and lease obligations $ 3,150 $ 3,432

Accrued and other liabilities:

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Accrued ad valorem and franchise taxes 678 435

Employer payroll tax deferral — 1,773

Accrued commissions 560 634

Perpetual care trust taxes payable 401 908

Deferred rent

Income tax payable — 798

Other accrued liabilities 1,357 1,825

Unrecognized tax benefit — 3,656

Total accrued and other liabilities $ 24,026 $ 31,138

Other long-term liabilities:

Deferred rent

Incentive compensation $ 1,267 $ 2,975

Contingent consideration 470 —

Employer payroll tax deferral — 1,773

Total other long-term liabilities $ 1,737 $ 4,748

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QUARTERLY FINANCIAL DATA (UNAUDITED)

The tables below set forth consolidated operating results by fiscal quarter for the years ended December 31, 2018 and 2019 (in thousands, except earnings per share):

Basic earnings per common share:

Diluted earnings per common share:

The tables below set forth consolidated operating results by fiscal quarter (in thousands, except earnings per share):

Quarter Second

Quarter Third

Quarter Fourth

Revenue $ 77,490 $ 77,477 $ 84,393 $ 90,088

Gross profit 23,171 25,160 27,874 29,718

Net income (loss) $ ( 4,197 ) $ 6,397 $ 5,525 $ 8,365

Basic earnings (loss) per common share:

(a) $ ( 0.23 ) $ 0.36 $ 0.31 $ 0.47

Diluted earnings (loss) per common share:

(a) $ ( 0.23 ) $ 0.36 $ 0.31 $ 0.46

Revenue $ 69,081 $ 67,752 $ 66,125 $ 71,149

Gross profit 21,600 19,250 18,056 20,679

Net income $ 6,525 $ 4,862 $ 577 $ 2,569

Basic earnings per common share:

(a) $ 0.36 $ 0.27 $ 0.03 $ 0.14

Diluted earnings per common share:

Earnings per share are computed independently for each of the quarters presented.

Therefore, the sum of the quarterly per share amounts may not equal the total computed for 2018 and 2019 due to rounding.

(a) $ 0.36 $ 0.27 $ 0.03 $ 0.14

(a) Earnings per share are computed independently for each of the quarters presented.

Therefore, the sum of the quarterly per share amounts may not equal the total computed due to rounding.

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

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Years Ended December 31,

2018 2019 2020

Cash paid for interest and financing costs $ 18,858 $ 23,870 $ 30,935

Cash paid for taxes $ 3,543 $ 378 $ 2,555

Fair value of stock, stock options and performance awards issued to directors, officers, and certain other employees

Cash refund received for taxes $ — $ — $ 7,012

SUBSEQUENT EVENTS

On January 3, 2020 , we acquired a funeral home and cemetery combination business in Lafayette, California for $33.0 million in cash.

The consideration for this acquisition was funded through borrowings under our Credit Facility.

On January 25, 2021, the Company detected that its information technology (“IT”) system was affected by a ransomware incident.

Upon learning of the incident, the Company undertook immediate steps to address the incident, including engaging IT security and forensics experts and working diligently with these experts to assess the impact on the Company’s IT systems, implementing additional security measures to help prevent a similar incident in the future, and to restore any of its IT systems that were impacted by the incident.

We have insurance coverage to protect against this type of ransomware attack and therefore the Company expects that recovery of the losses related to the incident is likely after a deductible.

As of February 11, 2021, the restoration of any impacted systems was complete.

While we are taking all appropriate measures to safeguard the integrity of our IT infrastructure, data, and employee, customer and vendor information and prevent such an event from reoccurring, we cannot provide reasonable assurance that similar incidents may occur in the future.

Refer to Part I, Item 1A.

Risk Factors for risks related to our business.

On January 28, 2021, we received a conversion notice from a holder of our Convertible Notes exercising their right to convert.

Following receipt of the conversion notice, in accordance with the terms of the Indenture, we provided notice to settle such conversion in cash, which will settle on the third business day immediately following the applicable 25-day period observation period, as more fully described in the Indenture.

On February 17, 2021, the Company entered into an amendment to the employment agreement of Melvin C.

Payne, the Company’s Chief Executive Officer and Chairman of the Board (the “Amendment”), to extend the term of his employment to February 17, 2028.

The Amendment also increases the minimum amount for Mr.

Payne’s base salary to $900,000 and includes consideration paid by the Company to Mr.

Payne in the form of Company stock options that only vest if the price of the Company's stock reaches predetermined price targets.

CARRIAGE SERVICES, INC.

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(in thousands)

Balance at end

Description Balance at

of year Charged to

expenses Deduction Balance at

Year ended December 31, 2018:

Allowance for bad debts, current portion $ 835 $ 1,111 $ 1,177 $ 769

Allowance for receivables from preneed funeral and cemetery trusts and contract cancellations, non-current portion

Allowance for bad debts of preneed cemetery receivables, non-current portion $ 2,278 $ 730 $ 1,781 $ 1,227

Employee severance accruals $ — $ 1,649 $ 508 $ 1,141

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Allowance for bad debts, current portion $ 769 $ 1,088 $ 1,008 $ 849

Allowance for receivables from preneed funeral and cemetery trusts and contract cancellations, non-current portion

Allowance for bad debts of preneed cemetery receivables, non-current portion $ 1,227 $ 532 $ 469 $ 1,290

Employee severance accruals $ 1,141 $ 1,265 $ 1,569 $ 837

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Year ended December 31, 2020:

Allowance for bad debts, current portion

Allowance for receivables from preneed funeral and cemetery trusts and contract cancellations, non-current portion

Allowance for credit losses, current portion $ 849 $ 1,617 $ 1,179 $ 1,287

Allowance for credit losses of preneed cemetery receivables, non-current portion $ 1,290 $ 701 $ 347 $ 1,644

Employee severance accruals $ 837 $ 596 $ 1,271 $ 162

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data