What changed in this filing

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Item 1. Financial Statements

2021-05-05 compared with 2020-11-03 · 391 added, 535 removed, 793 unchanged (54% of the section changed)

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(in thousands, except share data)

December 31, 2019 September 30, 2020

December 31, 2020 March 31, 2021

Current assets:

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Credit facility 46,064 27,282

Convertible subordinated notes due 2021 5,971 —

Senior notes due 2026 395,968 396,122

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Common stock, $ 0.01 par value;

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

80,000,000 shares authorized and 26,020,494 and 26,073,693 shares issued, respectively and 17,995,155 and 18,048,354 shares outstanding, respectively

Additional paid-in capital 239,989 238,056

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Treasury stock, at cost;

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

8,025,339 at both December 31, 2020 and March 31, 2021

( 102,050 ) ( 102,050 )

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(unaudited and in thousands, except per share data)

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

2019 2020 2019 2020

Three months ended March 31,

Service revenue $ 40,732 $ 47,757

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Home office depreciation and amortization 382 289

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

Net loss (gain) on divestitures and impairments charges 14,693 ( 308 )

Operating income 2,150 26,246

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Accretion of discount on convertible subordinated notes ( 65 ) ( 20 )

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

Other, net ( 4 ) ( 68 )

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

Expense for income taxes ( 930 ) ( 2,851 ) ( 5,551 ) ( 4,014 )

Income (loss) before income taxes ( 6,347 ) 18,574

Benefit (expense) for income taxes 2,136 ( 5,758 )

Tax adjustment related to discrete items 14 117

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

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

Basic earnings per common share:

Total benefit (expense) for income taxes 2,150 ( 5,641 )

Net income (loss) $ ( 4,197 ) $ 12,933

Basic earnings (loss) per common share:

$ ( 0.23 ) $ 0.72

Diluted earnings per common share:

Diluted earnings (loss) per common share:

$ ( 0.23 ) $ 0.71

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(unaudited and in thousands)

Nine months ended September 30,

Three months ended March 31,

Cash flows from operating activities:

Net income $ 11,964 $ 7,725

Net income (loss) $ ( 4,197 ) $ 12,933

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

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Amortization of deferred financing costs 200 193

Amortization of capitalized commissions on preneed contracts 417 430

Amortization of capitalized commissions and non-compete agreements 328 320

Accretion of discount on convertible subordinated notes 65 20

Accretion of debt discount, net of debt premium on senior notes 75 80

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

Net loss on sale of other assets 193 245

Gain on insurance reimbursements ( 638 ) ( 54 )

Net loss on extinguishment of debt — 6

Net loss (gain) on divestiture and impairment charges 14,693 ( 308 )

Net loss on disposal of other assets 60 329

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

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Cash flows from investing activities:

Acquisitions — ( 28,011 )

Proceeds from insurance reimbursements 1,247 97

Acquisition of businesses ( 28,000 ) —

Acquisition of real estate — (350)

Proceeds from divestitures and sale of other assets 78 2,800

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Payments against the credit facility ( 33,000 ) ( 34,068 )

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

Repurchase of the 2.75 % convertible subordinated notes

( 27 ) ( 4,563 )

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

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

Conversions and maturity of the convertible subordinated notes due 2021 — ( 3,980 )

Payments of debt issuance costs and transaction costs ( 14 ) ( 7 )

Payments on acquisition debt and obligations under finance leases ( 487 ) ( 233 )

Payments on contingent consideration recorded at acquisition date ( 169 ) ( 461 )

Proceeds from the exercise of stock options and employee stock purchase plan contributions 1,155 921

Taxes paid on restricted stock vestings and exercise of non-qualified options ( 194 ) ( 281 )

Proceeds from the exercise of stock options and employee stock purchase plan 361 625

Taxes paid on restricted stock vestings and exercise of stock options ( 234 ) ( 642 )

Dividends paid on common stock ( 1,339 ) ( 1,799 )

Purchase of treasury stock ( 7,756 ) —

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

Net increase in cash and cash equivalents 5,168 9

Net cash provided by (used in) financing activities 28,318 ( 25,397 )

Net increase (decrease) in cash and cash equivalents 11,204 ( 483 )

Cash and cash equivalents at beginning of period 716 889

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(unaudited and in thousands)

Three months ended September 30, 2019

Outstanding Common

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Earnings Treasury

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

Net income — — — 577 — 577

Issuance of common stock 18 1 211 — — 212

Cancellation and retirement of restricted common stock and stock options ( 4 ) — ( 16 ) — — ( 16 )

Stock-based compensation expense — — 513 — — 513

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

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

Three months ended September 30, 2020

Outstanding Common

Stock Additional

Capital Retained

Earnings Treasury

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

Net income — — — 5,525 — 5,525

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

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

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

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

Stock-based compensation expense — — 730 — — 730

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

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

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

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

CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited and in thousands)

Nine months ended September 30, 2019

Outstanding Common

Stock Additional

Capital Retained

Earnings Treasury

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

Net income — — — 11,964 — 11,964

Issuance of common stock 58 1 683 — — 684

Exercise of stock options 71 1 471 — — 472

Net loss - 2020 — — — ( 4,197 ) — ( 4,197 )

Issuance of common stock from employee stock purchase plan 27 — 361 — — 361

Issuance of common stock to directors 9 — 142 — — 142

Issuance of restricted common stock 10 — — — — —

Cancellation and retirement of restricted common stock and stock options ( 21 ) — ( 195 ) — — ( 195 )

Cancellation and surrender of restricted common stock ( 10 ) — ( 234 ) — — ( 234 )

Stock-based compensation expense — — 689 — — 689

Dividends on common stock — — ( 1,339 ) — — ( 1,339 )

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

Other 18 — 468 — — 468

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

Nine months ended September 30, 2020

Balance – March 31, 2020 17,909 $ 259 $ 242,234 $ 82,016 $ ( 102,050 ) $ 222,459

Outstanding Common

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Net income - 2021 — — — 12,933 — 12,933

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

Issuance of common stock from employee stock purchase plan 18 1 478 — — 479

Issuance of common stock to directors 5 — 177 — — 177

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

Issuance of restricted common stock 9 — — — — —

Cancellation and retirement of restricted common stock and stock options ( 11 ) — ( 250 ) — — ( 250 )

Exercise of stock options 30 — ( 148 ) — — ( 148 )

Cancellation and surrender of restricted common stock ( 9 ) — ( 347 ) — — ( 347 )

Stock-based compensation expense — — 1,130 — — 1,130

Dividends on common stock — — ( 1,799 ) — — ( 1,799 )

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

Other 18 — 468 — — 468

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

Convertible notes conversions — — ( 1,424 ) — — ( 1,424 )

Balance – March 31, 2021 18,048 $ 261 $ 238,056 $ 115,236 $ ( 102,050 ) $ 251,503

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

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

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

As of March 31, 2021, we operated 173 funeral homes in 26 states and 32 cemeteries in 12 states.

Our operations are reported in two business segments:

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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.

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

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.

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Our unaudited consolidated financial statements have been prepared in a manner consistent with the accounting principles described in our Annual Report on Form 10-K for the year ended December 31, 2020 unless otherwise disclosed herein, and should be read in conjunction therewith.

On March 11, 2020, the World Health Organization declared the 2019 novel coronavirus disease (“COVID-19”), to be a pandemic, which has spread across the globe and is impacting worldwide economic activity.

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

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.

Certain reclassifications have been made to prior period amounts on our Consolidated Statements of Cash Flows related to the amortization of non-compete agreements and on our Statement of Changes in Stockholders Equity related to the issuance of common stock to conform to the current period financial statement presentation with no effect on our previously reported Consolidated Statements of Operations and Consolidated Balance Sheet.

Use of Estimates

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

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

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

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

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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.

We do not accrue interest on preneed receivables if they are not paid in accordance with the contractual payment terms given the nature of our merchandise and services, the nature of our contracts with customers and the timing of the delivery of our services.

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.

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

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 the contract is cancelled or payment is received.

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.

Our allowance for credit losses reflects our best estimate of expected credit losses over the term of both our funeral and cemetery receivables.

Our policy is to write off receivables when we have determined they will no longer be collectible.

Write-offs are applied as a reduction to the allowance for credit losses and any recoveries of previous write-offs are netted against bad debt expense in the period recovered.

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

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

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

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

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

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

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.

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

See Note 5 to the Consolidated Financial Statements herein for additional information related to our funeral and cemetery receivables.

Inventory 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.

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

During the three months ended March 31, 2020, we acquired one funeral home and cemetery combination business in Lafayette, California for $ 33.0 million in cash, of which $ 5.0 million was deposited in escrow in 2019 and $ 28.0 million was paid at closing in 2020.

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

Divested Operations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

See Notes 3 and 4 to the Consolidated Financial Statements herein for additional information related to our divestitures.

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.

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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.

Our intent is to perform a quantitative impairment test at least once every three years and perform a qualitative assessment during the remaining two years.

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

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

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

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

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

Under current guidance,we are permitted to first assess qualitative factors to determine whether it is more-likely-than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test.

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

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

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

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

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

Additionally, after each divestiture, we will test the goodwill remaining in the portion of the reporting unit to be retained for impairment using a qualitative assessment unless we deem a quantitative assessment to be appropriate.

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

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

See Note 3 to the Consolidated Financial Statements included herein for additional information related to our goodwill.

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

In addition to our annual test, we assess the impairment of intangible assets whenever certain events or changes in circumstances indicate that the carrying value of the intangible asset may be greater than the fair value.

Factors that could trigger an interim impairment

review include, but are not limited to, significant under-performance relative to historical or projected future operating results and significant negative industry or economic trends.

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

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

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

Under current guidance, we are permitted to first assess qualitative factors to determine whether it is more-likely-than not that the fair value of the tradename is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative impairment test.

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

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.

Factors that could trigger an interim impairment review include, but are not limited to, significant under-performance relative to historical or projected future operating results and significant negative industry or economic trends.

See Note 9 to the Consolidated Financial Statements included herein for additional information related to our intangible assets.

Preneed and Perpetual Care Trust Funds

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

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

Such trusts include (i) preneed funeral trusts;

(ii) preneed cemetery merchandise and service trusts;

and (iii) cemetery perpetual care trusts.

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

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

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

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

The fixed income 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.

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

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

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.

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

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

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

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

Any changes in fair value are recognized in earnings.

In accordance with ASC Topic 326, we present our credit losses for fixed income securities as an allowance rather than as a write-down on the fixed income securities we do not intend to sell and it is likely that we will not be required to sell prior to their anticipated recovery.

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

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Fair Value Measurements

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

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

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

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

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

We measure the securities held by our funeral merchandise and service, cemetery merchandise and service, and cemetery perpetual care trusts at fair value on a recurring basis in accordance with ASC Topic 820.

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

The guidance establishes a three-level valuation hierarchy for disclosure of fair value measurements.

The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.

We disclose the extent to which fair value is used to measure financial assets and liabilities, the inputs utilized in calculating valuation measurements, and the effect of the measurement of significant unobservable inputs on earnings, or changes in net assets, as of the measurement date.

We currently do not have any assets that have fair values determined by Level 3 inputs and no liabilities measured at fair value.

We have not elected to measure any additional financial instruments and certain other items at fair value that are not currently required to be measured at fair value.

See Notes 6 and 8 to the Consolidated Financial Statements herein for additional required disclosures related to our fair value measurement of our financial assets and liabilities.

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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.

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

The selling costs related to the sales of cemetery interment rights, which include real property and other costs related to cemetery development activities, continue to be expensed using the specific identification method in the period in which the sale of the cemetery interment right is recognized as revenue.

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

Property, plant and equipment is comprised of the following at December 31, 2019 and September 30, 2020 (in thousands):

December 31, 2019 September 30, 2020

Long-lived assets, such as property, plant and equipment subject to depreciation and amortization, are reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC Topic 360 – Property, Plant and Equipment.

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

December 31, 2020 March 31, 2021

Land $ 82,615 $ 81,981

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Property, plant and equipment, net $ 269,051 $ 267,055

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.

During the three months ended September 30, 2020, we divested six funeral homes that had a carrying value of property, plant and equipment of $ 6.5 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, described in Note 5 to the Consolidated Financial Statements included herein.

In addition, our growth and maintenance capital expenditures totaled $ 10.0 million for the nine months ended September 30, 2020, for property, plant, equipment and cemetery development.

We recorded depreciation expense of $ 3.5 million for both the three months ended September 30, 2019 and 2020 and $ 10.4 million and $ 10.8 million for the nine months ended September 30, 2019 and 2020, respectively.

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

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.

During the three months ended March 31, 2021, we acquired land for $0.4 million.

We also divested two funeral homes that had a carrying value of property, plant and equipment of $ 1.5 million, which was included in the gain on sale of divestitures and recorded in Net loss (gain) on divestitures and impairment charges on our Consolidated Statements of Operations, described in Note 4 to the Consolidated Financial Statements included herein.

Our growth and maintenance capital expenditures totaled $ 2.7 million and $ 4.3 million for the three months ended March 31, 2020 and 2021, respectively, for property, plant, equipment and cemetery development.

In addition, we recorded depreciation expense of $ 3.6 million and $ 3.4 million for the three months ended March 31, 2020 and 2021, respectively.

Cemetery Property

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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 $ 101.3 million, net of accumulated amortization of $ 41.7 million and $ 45.1 million at December 31, 2019 and September 30, 2020, respectively.

Cemetery property was $ 101.1 million at both December 31, 2020 and March 31, 2021, net of accumulated amortization of $ 46.6 million and $ 48.1 million, respectively.

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

We recorded amortization expense for cemetery interment rights of $ 1.0 million and $ 1.5 million for the three months ended September 30, 2019 and 2020, respectively and $ 3.0 million and $ 3.4 million for the nine months ended September 30, 2019 and 2020, respectively.

We recorded amortization expense for cemetery interment rights of $ 0.9 million and $ 1.5 million for the three months ended March 31, 2020 and 2021, respectively.

We have operating and finance leases.

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

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.

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

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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.

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.

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.

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.

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 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.

See Notes 13 to the Consolidated Financial Statements included herein for additional information related to our leases.

Equity Plans and Stock-Based Compensation

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

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”).

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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 options or awards containing options is determined using the Black-Scholes valuation model or the Monte-Carlo simulation pricing model.

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

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

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

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

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

See Note 14 to the Consolidated Financial Statements included herein for additional information related to our equity plans and stock-based compensation.

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

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

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

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

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

As of March 31, 2021, CSV RIA provided investment management and advisory services to approximately 80 % of our trust assets, for a fee based on the market value of trust assets.

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

Balances due on undelivered preneed funeral trust contracts have been reclassified to reduce Deferred preneed funeral revenue on our Consolidated Balance Sheet of $ 8.9 million and $ 8.0 million at December 31, 2019 and September 30, 2020, respectively.

Balances due on undelivered preneed funeral trust contracts have been reclassified to reduce Deferred preneed funeral revenue on our Consolidated Balance Sheet of $ 8.2 million and $ 8.1 million at December 31, 2020 and March 31, 2021, respectively.

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

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

The transaction price allocated to preneed merchandise and service performance obligations that were unfulfilled were $ 4.8 million and $ 7.2 million at December 31, 2019 and September 30, 2020, respectively.

The transaction price allocated to preneed merchandise and service performance obligations that were unfulfilled were $ 7.9 million and $ 8.5 million at December 31, 2020 and March 31, 2021, respectively.

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

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

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

See Note 16 to the Consolidated Financial Statements herein for additional information related to revenue.

We and our subsidiaries file a consolidated U.

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

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

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

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

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

(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 net operating losses generated in the tax year ending December 31, 2018.

The refund claim from the 2018 tax year was received on August 7, 2020, and we have included the impact in our current provision.

In an effort to maximize the expected benefits afforded by the CARES Act, we plan to amend our 2018 tax return to include the additional first year depreciation deduction for qualified improvement property.

The Consolidated Appropriations Act was signed into law on December 27, 2020.

This Act included several tax provisions directly benefiting individual and corporate taxpayers.

The primary benefit in this legislation is a temporary allowance for full deduction for business meals paid or incurred between December 31, 2020 and January 1, 2023.

We filed carryback refund claims for the 2018 and 2019 tax years as allowed by the legislative changes included in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted March 27, 2020.

As a result of requesting a tax refund in excess of $5 million, we must receive Joint Committee approval and undergo an audit for the tax year ending December 31, 2018.

This audit is currently in progress.

In 2020, the 2018 tax return was amended to take full advantage of the CARES Act legislative benefits resulting in additional losses that increase the amount of our carryback refund claim.

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

Due to the uncertainty of the timing of receiving Internal Revenue Service (“IRS”) approval for non-automatic accounting method changes, a reserve has been recorded against the benefit derived from this carrying back that the net operating losses generated;

therefore, for the nine months ended September 30, 2020, the reserve for uncertain tax positions was $ 2.9 million.

There was no reserve recorded at September 30, 2019.

Additionally, we plan to file a claim for a refund for the net operating losses generated in the tax year ending December 31, 2019, in the fourth quarter of 2020.

Due to the uncertainty of receiving Internal Revenue Service (“IRS”) approval regarding our non-automatic accounting method changes, a reserve has been recorded against the benefit derived from this carrying back that the net operating losses generated.

At both December 31, 2020 and March 31, 2021, the reserve for uncertain tax positions was $ 3.7 million.

Income tax expense during interim periods is based on our forecasted annual effective tax rate plus any discrete items, which are recorded in the period in which they occur.

Discrete items include, but are not limited to, such events as changes in estimates due to finalization of income tax returns, tax audit settlements, tax effects of exercised or vested stock-based awards and increases or decreases in valuation allowances on deferred tax assets.

Our income tax expense was $ 0.9 million and $ 2.9 million for the three months ended September 30, 2019 and 2020, respectively and $ 5.8 million and $ 4.2 million for the nine months ended September 30, 2019 and 2020, respectively.

Our operating tax rate before discrete items was 61.0 % and 34.0 % for the three months ended September 30, 2019 and 2020, respectively and 31.3 % and 33.8 % for the nine months ended September 30, 2019 and 2020, respectively.

The increase in our overall effective tax rate for the nine months ended September 30, 2019 is due to the unfavorable tax impact of impairment of goodwill and other intangibles recorded in the first quarter of 2020 for businesses that were previously acquired through stock acquisitions.

Our income tax benefit was $ 2.2 million for the three months ended March 31, 2020 compared to an income tax expense of $ 5.6 million for the three months ended March 31, 2021.

Our operating tax rate before discrete items was 33.6 % and 31.0 % for the three months ended March 31, 2020 and 2021, respectively.

Computation of Earnings Per Common Share

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

See Note 16 to the Consolidated Financial Statements included herein for the additional information related to computation of earnings per share.

See Note 15 to the Consolidated Financial Statements included herein related to the computation of earnings per share.

Subsequent Events

We have evaluated events and transactions during the period subsequent to September 30, 2020 through the date the financial statements were issued for potential recognition or disclosure in the accompanying financial statements covered by this report.

We have evaluated events and transactions during the period subsequent to March 31, 2021 through the date the financial statements were issued for potential recognition or disclosure in the accompanying financial statements covered by this report.

See Note 18 to the Consolidated Financial Statements included herein for additional information related to our subsequent events.

RECENTLY ISSUED ACCOUNTING STANDARDS

Financial Instruments - Credit Losses

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

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

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.

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

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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 nine months ended September 30, 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 is reflected in 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 September 30, 2020.

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

Initial Purchase Price Allocation Adjustments Adjusted Purchase Price Allocation

Current assets $ 2,662 $ ( 107 ) $ 2,555

Preneed trust assets 9,089 — 9,089

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

Cemetery property 14,753 82 14,835

Goodwill 12,916 656 13,572

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

Assumed liabilities ( 489 ) — ( 489 )

Deferred tax liability ( 527 ) ( 3 ) ( 530 )

Preneed trust liabilities ( 9,089 ) — ( 9,089 )

Deferred revenue ( 541 ) — ( 541 )

Purchase price $ 33,000 $ — $ 33,000

The current assets primarily relate to preneed cemetery receivables.

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

The assumed liabilities primarily relate to the obligations associated with delivered preneed

merchandise that was not paid for prior to acquisition.

As of September 30, 2020, our accounting for cemetery receivables, cemetery property, deferred revenue and deferred tax liabilities for this acquisition has not been finalized.

During the nine months ended September 30, 2020, we also recorded adjustments to the purchase price allocation for three acquisitions closed in the fourth quarter of 2019.

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 prior to September 30, 2020 (in thousands):

Initial Purchase Price Allocation Adjustments Adjusted Purchase Price Allocation

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

Preneed trust assets 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 )

Preneed trust liabilities ( 15,463 ) — ( 15,463 )

Deferred revenue ( 1,633 ) 992 ( 641 )

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

During the nine months ended September 30, 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, recorded in Current assets, related to the closing of all operating bank accounts in place prior to the acquisition.

As of September 30, 2020, our accounting for our 2019 acquisitions is complete.

The following table presents changes in goodwill in the accompanying Consolidated Balance Sheet for the year ended December 31, 2019 and the nine months ended September 30, 2020 (in thousands):

December 31, 2019 September 30, 2020

The Company did not utilize the optional expedients and exceptions provided by this ASU during the three months ended March 31, 2021.

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

December 31, 2020 March 31, 2021

Goodwill at the beginning of the period $ 398,292 $ 392,978

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Goodwill at the end of the period $ 392,978 $ 391,972

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

During the three months ended March 31, 2021, we allocated $ 1.0 million of goodwill to the sale of one funeral home for a loss recorded in Net loss (gain) on divestitures and impairment charges .

DIVESTED OPERATIONS

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

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

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

During the three months ended March 31, 2021, we sold two funeral homes for $ 2.8 million.

During the three months ended March 31, 2020, we did not sell any funeral homes or cemeteries.

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

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

2019 2020 2019 2020

Three months ended March 31,

Revenue $ — $ 282

Operating income (loss) ( 31 ) ( 112 ) 4 70

Net loss on divestitures (1)

( 3,863 ) ( 4,917 ) ( 3,874 ) ( 4,917 )

Income tax benefit 1,149 1,710 1,211 1,638

Net loss from divested operations, after tax $ ( 2,745 ) $ ( 3,319 ) $ ( 2,659 ) $ ( 3,209 )

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

Operating income — 60

Gain on divestitures (1)

Income tax expense — ( 114 )

Net income from divested operations, after tax $ — $ 254

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

Accounts Receivable

Accounts receivable is comprised of the following at December 31, 2019 and September 30, 2020 (in thousands):

December 31, 2019

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

March 31, 2021

Funeral Cemetery Corporate Total

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Other receivables 426 2,769 1,395 4,590

Allowance for bad debt and contract cancellation ( 223 ) ( 626 ) — ( 849 )

Allowance for credit losses ( 284 ) ( 999 ) — ( 1,283 )

Accounts receivable, net $ 9,969 $ 14,221 $ 1,395 $ 25,585

September 30, 2020

December 31, 2020

Funeral Cemetery Corporate Total

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

During the nine months ended September 30, 2020, we increased our allowance for credit losses on our Accounts Receivables by $ 0.1 million as a result of the economic impact of COVID-19.

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

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

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

The following table summarizes the activity in our allowance for credit losses by portfolio segment for nine months ended September 30, 2020 (in thousands):

January 1, 2020 Provision for Credit Losses Allowance Recorded at Acquisition Write Offs Recoveries September 30, 2020

The following table summarizes the activity in our allowance for credit losses by portfolio segment (in thousands):

January 1, 2021 Provision for Credit Losses Write Offs Recoveries March 31, 2021

Trade and financed receivables:

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Total allowance for credit losses on Trade and financed receivables $ ( 1,287 ) $ ( 342 ) $ 653 $ ( 307 ) $ ( 1,283 )

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 $ 0.6 million on these acquired receivables ($ 0.3 million current portion shown above in Accounts Receivable, net and $ 0.3 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 100 % of the face value.

Bad debt expense for accounts receivable totaled $ 0.3 million and $ 0.8 million for the three and nine months ended September 30, 2019.

Preneed Cemetery Receivables

Our preneed cemetery receivables are comprised of the following at December 31, 2019 and September 30, 2020 (in thousands):

December 31, 2019 September 30, 2020

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

December 31, 2020 March 31, 2021

Cemetery interment rights $ 36,696 $ 38,108

Cemetery merchandise and services 10,526 10,789

Preneed cemetery receivables $ 41,316 $ 45,339

The components of our preneed cemetery receivables at December 31, 2019 and September 30, 2020 are as follows (in thousands):

December 31, 2019 September 30, 2020

Cemetery financed receivables $ 47,222 $ 48,897

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

December 31, 2020 March 31, 2021

Preneed cemetery receivables $ 47,222 $ 48,897

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Preneed cemetery receivables, at amortized cost $ 42,874 $ 44,389

allowance for contract cancellation and credit losses ( 1,916 ) ( 2,925 )

allowance for credit losses ( 2,604 ) ( 2,864 )

balances due on undelivered cemetery preneed contracts ( 7,919 ) ( 8,540 )

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Preneed cemetery receivables, net $ 21,081 $ 21,533

The following table summarizes the activity in our allowance for credit losses for Preneed cemetery receivables, net for the nine months ended September 30, 2020 (in thousands):

January 1, 2020 Provision for Credit Losses Allowance Recorded at Acquisition Write Offs September 30, 2020

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

January 1, 2021 Provision for Credit Losses Write Offs March 31, 2021

Total allowance for credit losses on Preneed cemetery receivables, net

$ ( 1,644 ) $ ( 246 ) $ 25 $ ( 1,865 )

During the nine months ended September 30, 2020, we increased our allowance for credit losses on our Preneed cemetery receivables, net by $ 0.4 million as a result of the economic impact of COVID-19.

Bad debt expense for our preneed cemetery receivables totaled $ 0.2 million and $ 0.4 million for the three and nine months ended September 30, 2019.

The amortized cost basis of our preneed cemetery receivables by year of origination as of September 30, 2020 is as follows (in thousands):

The amortized cost basis of our preneed cemetery receivables by year of origination as of March 31, 2021 is as follows (in thousands):

2021 2020 2019 2018 2017 Prior Total

Total preneed cemetery receivables, at amortized cost $ 7,913 $ 16,490 $ 9,585 $ 5,118 $ 2,814 $ 2,469 $ 44,389

The aging of past due preneed cemetery receivables as of September 30, 2020 is as follows (in thousands):

The aging of past due preneed cemetery receivables as of March 31, 2021 is as follows (in thousands):

Past Due 61-90

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

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

These earnings are recognized as earned, in Other revenue , when a service is performed or merchandise is delivered.

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

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

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

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

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

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

This trust fund income is recognized, as earned, in Other revenue.

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.

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See Note 8 to the Consolidated Financial Statements included herein for further information of the fair value measurement.

As of September 30, 2020, we have net unrealized losses of $ 7.3 million in our trusts.

At September 30, 2020, these net unrealized losses represented 3 % of our original cost basis of $ 245.8 million.

Our trusts have been and continue to be impacted by current market conditions in the U.S.

and global financial markets.

The decline in fair value is largely due to changes in interest rates and other market conditions.

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

In addition, 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.

Changes in unrealized gains and/or losses related to these securities are reflected in Other comprehensive income and offset by the Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus interests in those unrealized gains and/or losses.

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.

For available-for-sale debt 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.

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 available-for-sale debt securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors.

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.

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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.

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Preneed Cemetery Trust Investments

The components of Preneed cemetery trust investments on our Consolidated Balance Sheet at December 31, 2019 and September 30, 2020 are as follows (in thousands):

December 31, 2019 September 30, 2020

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

December 31, 2020 March 31, 2021

Preneed cemetery trust investments, at market value $ 89,081 $ 94,882

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Preneed cemetery trust investments $ 86,604 $ 92,363

The cost and market values associated with preneed cemetery trust investments at September 30, 2020 are detailed below (in thousands):

The cost and market values associated with preneed cemetery trust investments at March 31, 2021 are detailed below (in thousands):

Fair Value Hierarchy Level Cost Unrealized

9 unchanged sentences

Mutual funds:

Equity 1 27 1 — 28

Fixed Income 2 8,110 1,729 ( 137 ) 9,702

26 unchanged sentences

Market value as a percentage of cost 106.7 %

The following table summarized our fixed income securities within our preneed cemetery trust investments in an unrealized loss position at September 30, 2020, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):

September 30, 2020

The following table summarized our fixed income securities (excluding mutual funds) within our preneed cemetery trust investments in an unrealized loss position at March 31, 2021, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):

March 31, 2021

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

4 unchanged sentences

Preferred stock 3,912 ( 324 ) 837 ( 36 ) 4,749 ( 360 )

Mortgage-backed securities — — 134 ( 189 ) 134 ( 189 )

Total fixed income securities with an unrealized loss $ 7,237 $ ( 447 ) $ 2,028 $ ( 624 ) $ 9,265 $ ( 1,071 )

The following table summarized our fixed income securities (excluding mutual funds) within our preneed cemetery trust investments in an unrealized loss position at December 31, 2020, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):

December 31, 2020

7 unchanged sentences

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

Preneed cemetery trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2020 are as follows (in thousands):

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

2019 2020 2019 2020

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

Three months ended March 31,

Investment income $ 319 $ 467

1 unchanged sentence

Realized losses ( 1,372 ) ( 2,518 )

Unrealized gains (losses), net ( 16,305 ) 9,708

Expenses and taxes ( 187 ) ( 327 )

Net change in deferred preneed cemetery receipts held in trust 15,629 ( 11,422 )

$ — $ — $ — $ —

Purchases and sales of investments in the preneed cemetery trusts for the three and nine months ended September 30, 2019 and 2020 are as follows (in thousands):

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

2019 2020 2019 2020

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

Three months ended March 31,

Purchases $ ( 18,857 ) $ ( 8,411 )

1 unchanged sentence

Preneed Funeral Trust Investments

The components of Preneed funeral trust investments on our Consolidated Balance Sheet at December 31, 2019 and September 30, 2020 are as follows (in thousands):

December 31, 2019 September 30, 2020

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

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

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

December 31, 2020 March 31, 2021

Preneed funeral trust investments, at market value $ 104,166 $ 108,131

1 unchanged sentence

Preneed funeral trust investments $ 101,235 $ 105,201

The cost and market values associated with preneed funeral trust investments at September 30, 2020 are detailed below (in thousands):

The cost and market values associated with preneed funeral trust investments at March 31, 2021 are detailed below (in thousands):

Fair Value Hierarchy Level Cost Unrealized

7 unchanged sentences

Preferred stock 2 10,816 637 ( 340 ) 11,113

Mortgage-backed securities 2 351 — ( 187 ) 164

Common stock 1 29,618 7,546 ( 3,120 ) 34,044

Mutual funds:

Equity 1 26 1 — 27

Fixed income 2 6,600 1,534 ( 87 ) 8,047

23 unchanged sentences

Mutual funds:

Equity 1 772 617 ( 4 ) 1,385

Fixed income 2 6,475 1,198 ( 121 ) 7,552

4 unchanged sentences

Market value as a percentage of cost 105.7 %

The following table summarized our fixed income securities within our preneed funeral trust investment in an unrealized loss position at September 30, 2020, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):

September 30, 2020

The following table summarized our fixed income securities (excluding mutual funds) within our preneed funeral trust investment in an unrealized loss position at March 31, 2021, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):

March 31, 2021

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

4 unchanged sentences

Preferred stock 3,750 ( 311 ) 599 ( 29 ) 4,349 ( 340 )

Mortgage-backed securities — — 137 ( 187 ) 137 ( 187 )

Total fixed income securities with an unrealized loss $ 6,725 $ ( 420 ) $ 1,709 $ ( 558 ) $ 8,434 $ ( 978 )

The following table summarized our fixed income securities (excluding mutual funds) within our preneed funeral trust investment in an unrealized loss position at December 31, 2020, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):

December 31, 2020

7 unchanged sentences

Total fixed income securities with an unrealized loss $ 3,494 $ ( 238 ) $ 4,918 $ ( 1,159 ) $ 8,412 $ ( 1,397 )

Preneed funeral trust investment security transactions recorded in Other, net on the Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2020 are as follows (in thousands):

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

2019 2020 2019 2020

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

Three months ended March 31,

Investment income $ 258 $ 369

1 unchanged sentence

Realized losses ( 1,129 ) ( 2,368 )

Unrealized gains (losses), net ( 15,274 ) 9,319

Expenses and taxes ( 97 ) ( 196 )

Net change in deferred preneed funeral receipts held in trust 13,691 ( 10,995 )

$ — $ — $ — $ —

Purchases and sales of investments in the preneed funeral trusts for the three and nine months ended September 30, 2019 and 2020 are as follows (in thousands):

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

2019 2020 2019 2020

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

Three months ended March 31,

Purchases $ ( 18,538 ) $ ( 7,628 )

2 unchanged sentences

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, 2019 and September 30, 2020 are as follows (in thousands):

December 31, 2019 September 30, 2020

The components of Care trusts’ corpus are as follows (in thousands):

December 31, 2020 March 31, 2021

Cemetery perpetual care trust investments, at market value $ 70,828 $ 75,815

Obligations due to (from) trust ( 631 ) ( 204 )

Obligations due from trust ( 1,121 ) ( 455 )

Care trusts’ corpus $ 69,707 $ 75,360

The following table reflects the cost and fair market values associated with the trust investments held in perpetual care trust funds at September 30, 2020 (in thousands):

The following table reflects the cost and fair market values associated with the trust investments held in perpetual care trust funds at March 31, 2021 (in thousands):

Fair Value Hierarchy Level Cost Unrealized

6 unchanged sentences

Preferred stock 2 10,518 558 ( 299 ) 10,777

Mortgage-backed securities 2 256 — ( 150 ) 106

Common stock 1 25,151 6,436 ( 2,945 ) 28,642

Mutual funds:

Equity 1 20 1 21

Fixed Income 2 6,739 1,374 ( 164 ) 7,949

21 unchanged sentences

Mutual funds:

Equity 1 233 146 ( 1 ) 378

Fixed income 2 6,444 1,054 ( 220 ) 7,278

3 unchanged sentences

Market value as a percentage of cost 106.6 %

The following table summarized our fixed income securities within our perpetual care trust investment in an unrealized loss position at September 30, 2020, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):

September 30, 2020

The following table summarized our fixed income securities (excluding mutual funds) within our perpetual care trust investment in an unrealized loss position at March 31, 2021, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):

March 31, 2021

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

4 unchanged sentences

Preferred stock 2,973 ( 246 ) 1,318 ( 53 ) 4,291 ( 299 )

Mortgage-backed securities — — 106 ( 149 ) 106 ( 149 )

Total fixed income securities with an unrealized loss $ 5,332 $ ( 332 ) $ 2,267 $ ( 544 ) $ 7,599 $ ( 876 )

The following table summarized our fixed income securities (excluding mutual funds) within our perpetual care trust investment in an unrealized loss position at December 31, 2020, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):

December 31, 2020

7 unchanged sentences

Total fixed income securities with an unrealized loss $ 3,462 $ ( 308 ) $ 3,867 $ ( 990 ) $ 7,329 $ ( 1,298 )

Perpetual care trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2020 are as follows (in thousands):

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

2019 2020 2019 2020

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

Three months ended March 31,

Realized gains $ 709 $ 691

Realized losses ( 679 ) ( 420 )

Unrealized gains (losses), net ( 13,525 ) 7,699

Net change in Care trusts’ corpus 13,495 ( 7,970 )

Total $ — $ —

Perpetual care trust investment security transactions recorded in Other revenue on our Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2020 are as follows (in thousands):

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

2019 2020 2019 2020

Perpetual care trust investment security transactions recorded in Other revenue on our Consolidated Statements of Operations are as follows (in thousands):

Three months ended March 31,

Investment income $ 1,405 $ 2,513

Realized gains (losses), net ( 232 ) 63 ( 512 ) 53

Realized losses, net ( 36 ) ( 138 )

Total $ 1,369 $ 2,375

Purchases and sales of investments in the perpetual care trusts for the three and nine months ended September 30, 2019 and 2020 are as follows (in thousands):

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

2019 2020 2019 2020

Purchases and sales of investments in the perpetual care trusts are as follows (in thousands):

Three months ended March 31,

Purchases $ ( 14,612 ) $ ( 6,137 )

3 unchanged sentences

We account for these investments at cost.

As of December 31, 2019 and September 30, 2020, receivables from preneed trusts are as follows (in thousands):

December 31, 2019 September 30, 2020

Receivables from preneed trusts are as follows (in thousands):

December 31, 2020 March 31, 2021

Preneed trust funds, at cost $ 17,365 $ 17,502

1 unchanged sentence

Receivables from preneed trusts, net $ 16,844 $ 16,976

The following summary reflects the composition of the assets held in trust and controlled by third parties to satisfy our future obligations under preneed arrangements related to the preceding contracts at September 30, 2020 and December 31, 2019.

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 September 30, 2020 is as follows (in thousands):

The composition of the preneed trust funds at March 31, 2021 is as follows (in thousands):

Cost Basis Fair Value

13 unchanged sentences

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 acquisition debt and Credit Facility (as defined in Note 11) are classified within Level 2 of the Fair Value Measurements hierarchy.

The fair values of the acquisition 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.

The fair value of the Convertible Notes (as defined in Note 12) was approximately $ 2.9 million at September 30, 2020 based on the last traded or broker quoted price.

The fair value of the Senior Notes (as defined in Note 13) was approximately $ 422.3 million at September 30, 2020 based on the last traded or broker quoted price.

The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate the fair values of those instruments due to the short-term nature of the instruments.

The fair values of our receivables on preneed cemetery contracts are impracticable to estimate because of the lack of a trading market and the diverse number of individual contracts with varying terms.

Our acquisition debt and Credit Facility (as defined in Note 10) and Senior Notes (as defined in Note 12) are classified within Level 2 of the Fair Value Measurements hierarchy.

At March 31, 2021, the carrying value and fair value of our Credit Facility was $ 28.3 million.

We believe that our Credit Facility bears interest at a rate that approximates prevailing market rates for instruments with similar characteristics and therefore, the carrying value of our Credit Facility approximates fair value.

We estimate the fair value of our acquisition debt utilizing an income approach, which uses a present value calculation to discount payments based on current market rates as of the reporting date.

At March 31, 2021, the carrying value of our acquisition debt was $ 5.4 million, which approximated its fair value.

The fair value of our Senior Notes was approximately $ 417.6 million at March 31, 2021 based on the last traded or broker quoted price.

At December 31, 2020 and March 31, 2021, we did not have any assets that had fair values determined by Level 3 inputs and no liabilities measured at fair value.

We identified investments in fixed income securities, common stock and mutual funds presented within the preneed and perpetual care trust investments categories on our Consolidated Balance Sheet as having met the criteria for fair value measurement.

As of December 31, 2019 and September 30, 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 Note 7 to our Consolidated Financial Statements herein for the fair value hierarchy levels of our trust investments.

Our receivables from preneed trusts represent assets in trusts which are controlled and operated by third parties in which we do not have a controlling financial interest (less than 50%) in the trust assets.

We account for these investments at cost.

See Notes 6 and 7 to our Consolidated Financial Statements herein for the fair value hierarchy levels of our trust investments.

INTANGIBLE AND OTHER NON-CURRENT ASSETS

Intangible and other non-current assets at December 31, 2019 and September 30, 2020 are as follows (in thousands):

December 31, 2019 September 30, 2020

Intangible and other non-current assets are as follows (in thousands):

December 31, 2020 March 31, 2021

Tradenames $ 23,565 $ 23,565

2 unchanged sentences

Intangible and other non-current assets, net $ 29,542 $ 29,502

During the three months ended September 30, 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.

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.

Our tradenames have indefinite lives and therefore are not amortized.

Prepaid Agreements

Prepaid agreements not-to-compete are amortized over the term of the respective agreements, ranging generally from one to ten years .

Amortization expense was $ 177,000 and $ 175,000 for the three months ended September 30, 2019 and 2020, respectively and $ 513,000 and $ 551,000 for the nine months ended September 30, 2019 and 2020, respectively.

During the three months ended September 30, 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.

Amortization expense related to capitalized commissions totaled $ 140,000 and $ 145,000 for the three months ended September 30, 2019 and 2020, respectively and $ 417,000 and $ 430,000 for the nine months ended September 30, 2019 and 2020, respectively.

The aggregate amortization expense for our intangible assets subject to amortization as of September 30, 2020 is as follows (in thousands):

Amortization expense was $ 187,000 and $ 168,000 for the three months ended March 31, 2020 and 2021, respectively.

Capitalized Commissions

We capitalize our selling costs related to preneed cemetery merchandise and services and preneed funeral trust contracts.

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

Amortization expense related to capitalized commissions totaled $ 141,000 and $ 152,000 for the three months ended March 31, 2020 and 2021, respectively.

The aggregate amortization expense for our non-compete agreements and capitalized commissions as of March 31, 2021 is as follows (in thousands):

Non-Compete Agreements Capitalized Commissions

4 unchanged sentences

CREDIT FACILITY AND ACQUISITION DEBT

At September 30, 2020, our senior secured revolving credit facility (“Credit Facility”) was comprised of:

At March 31, 2021, our $ 190.0 million senior secured revolving credit facility (the “Credit Facility”) was comprised of:

(i) a $ 190.0 million revolving credit facility, including a $ 15.0 million subfacility for letters of credit and a $ 10.0 million swingline, and (ii) an accordion or incremental option allowing for future increases in the facility size by an additional amount of up to $ 75.0 million in the form of increased revolving commitments or incremental term loans.

The final maturity of the Credit Facility will occur on May 31, 2023.

The Credit Facility is secured by a first-priority perfected security interest in and lien on substantially all of the Company’s personal property assets and those of the Credit Facility Guarantors.

In the event the Company’s actual Total Leverage Ratio is not at least 0.25 less than the required Total Leverage Ratio covenant level, at the discretion of the Administrative Agent, the Administrative Agent may unilaterally compel the Company and the Credit Facility Guarantors to grant and perfect first-priority mortgage liens on fee-owned real property assets which account for no less than 50 % of funeral operations EBITDA.

The Credit Facility contains customary affirmative covenants, including, but not limited to, covenants with respect to the use of proceeds, payment of taxes and other obligations, continuation of the Company’s business and the maintenance of existing rights and privileges, the maintenance of property and insurance, amongst others.

In addition, the Credit Facility also contains customary negative covenants, including, but not limited to, covenants that restrict (subject to certain exceptions) the ability of the Company and its subsidiaries 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.

As of September 30, 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.

In addition, the Credit Facility also contains customary negative covenants, including, but not limited to, covenants that restrict (subject to certain exceptions) the ability of the Company and its subsidiaries party thereto as guarantors (the “Credit Facility Guarantors”) to incur additional indebtedness, grant liens on assets, make investments, engage in mergers and acquisitions, and pay dividends and other restricted payments, and certain financial covenants.

As of March 31, 2021, we were subject to the following financial covenants under our Credit Facility:

(A) a Total Leverage Ratio not to exceed 5.50 to 1.00, (B) a Senior Secured Leverage Ratio (as defined in the Credit Facility) not to exceed 2.00 to 1.00 as of the end of any period of four consecutive fiscal quarters, and (C) a Fixed Charge Coverage Ratio (as defined in the Credit Facility) of not less than 1.20 to 1.00 as of the end of any period of four consecutive fiscal quarters.

These financial maintenance covenants are calculated for the Company and its subsidiaries on a consolidated basis.

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 2.75 % convertible subordinated notes due 2021 (the “Convertible Notes”).

See Note 12 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 as of September 30, 2020.

Our Credit Facility and Acquisition debt consisted of the following at December 31, 2019 and September 30, 2020 (in thousands):

December 31, 2019 September 30, 2020

We were in compliance with the total leverage ratio, fixed charge coverage ratio and senior secured leverage ratio covenants contained in our Credit Facility as of March 31, 2021.

Our Credit Facility and Acquisition debt consisted of the following (in thousands):

December 31, 2020 March 31, 2021

Credit Facility $ 47,200 $ 28,300

5 unchanged sentences

Total acquisition debt, net of current portion $ 4,482 $ 4,442

We have one letter of credit outstanding under the Credit Facility issued on November 30, 2019 for approximately $ 2.0 million, 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 25, 2020.

The letter of credit automatically renews annually and secures our obligations under our various self-insured policies.

At March 31, 2021, we had outstanding borrowings under the Credit Facility of $ 28.3 million.

We also had one letter of credit for $ 2.1 million outstanding under the Credit Facility, which bears interest at 3.125 % and will expire on November 25, 2021.

The letter of credit will automatically renew annually and secures our obligations under our various self-insured policies.

At March 31, 2021, we had $ 159.6 million of availability under the Credit Facility after giving effect to the $ 2.1 million of the outstanding letter of credit.

Outstanding borrowings under our Credit Facility bear interest at either a prime rate or a LIBOR rate, plus an applicable margin based upon our leverage ratio.

As of September 30, 2020, the prime rate margin was equivalent to 2.00 % and the LIBOR rate margin was 3.00 %.

The weighted average interest rate on our Credit Facility was 3.9 % for both the three months ended September 30, 2019 and 2020 and 3.9 % and 4.0 % for the nine months ended September 30, 2019 and 2020, respectively.

T he interest expense and amortization of debt issuance costs related to our Credit Facility during the three and nine months ended September 30, 2019 and 2020 are as follows (in thousands):

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

2019 2020 2019 2020

At March 31, 2021, the prime rate margin was equivalent to 1.5 % and the LIBOR rate margin was 2.5 %.

The weighted average interest rate on our Credit Facility was 4.3 % and 3.3 % for the three months ended March 31, 2020 and 2021, respectively.

T he interest expense and amortization of debt issuance costs related to our Credit Facility are as follows (in thousands):

Three months ended March 31,

Credit Facility interest expense $ 1,230 $ 445

Credit Facility amortization of debt issuance costs 126 118

See Note 18 to the Consolidated Financial Statements herein for additional information related to our Credit Facility.

Acquisition debt consists of deferred purchase price and promissory notes payable to sellers.

1 unchanged sentence

Original maturities range from five to twenty years .

The imputed interest expense related to our acquisition debt during the three and nine months ended September 30, 2019 and 2020 is as follows (in thousands):

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

2019 2020 2019 2020

The imputed interest expense related to our acquisition debt is as follows (in thousands):

Three months ended March 31,

Acquisition debt imputed interest expense $ 127 $ 97

CONVERTIBLE SUBORDINATED NOTES

On September 9, 2020, we completed privately-negotiated repurchases (the “Repurchases”) of $ 3.8 million in aggregate principal amount of the Convertible Notes for $ 4.5 million in cash (plus accrued interest of $ 0.1 million totaling $ 4.6 million) and recorded $ 0.8 million for the reacquisition of the equity component.

The Repurchases represented approximately 60 % of the aggregate principal amount of Convertible Notes then outstanding.

Following the settlement of the Repurchases, the aggregate principal amount of the Convertible Notes was reduced to approximately $ 2.6 million.

The carrying values of the liability and equity components of our Convertible Notes at December 31, 2019 and September 30, 2020 are reflected on our Consolidated Balance Sheet as follows (in thousands):

December 31, 2019 September 30, 2020

During the three months ended March 31, 2021, we converted approximately $ 2.4 million in aggregate principal amount of our 2.75 % convertible subordinated notes due 2021 (the “Convertible Notes”) held by certain holders for approximately $ 3.8 million in cash and recorded $ 1.4 million for the reacquisition of the equity component.

The Convertible Notes matured on March 15, 2021, at which time all Convertible Notes outstanding, approximately $ 0.2 million in aggregate principal amount, were paid in full in cash at par value.

Therefore, no Convertible Notes remain outstanding at March 31, 2021.

The carrying values of the liability and equity components of our Convertible Notes are reflected on our Consolidated Balance Sheet as follows (in thousands):

December 31, 2020 March 31, 2021

Current liabilities:

4 unchanged sentences

Carrying value of the equity component $ 319 $ —

The carrying value of the liability component and the carrying value of the equity component are recorded in Convertible subordinated notes due 2021 and Additional paid-in capital , respectively, on our Consolidated Balance Sheet at December 31, 2019 and September 30, 2020.

The fair value of the Convertible Notes, which are Level 2 measurements, was $ 2.9 million at September 30, 2020.

The Convertible Notes are due in March 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.

At September 30, 2020, the adjusted conversion rate of the Convertible Notes was 45.8380 shares of our common stock per $1,000 principal amount of Convertible Notes, equivalent to an adjusted conversion price of $ 21.82 per share of common stock.

The interest expense and accretion of debt discount and debt issuance costs related to our Convertible Notes during the three and nine months ended September 30, 2019 and 2020 is as follows (in thousands):

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

2019 2020 2019 2020

The interest expense and accretion of debt discount and debt issuance costs related to our Convertible Notes are as follows (in thousands):

Three months ended March 31,

Convertible Notes interest expense $ 43 $ 18

1 unchanged sentence

Convertible Notes amortization of debt issuance costs 6 1

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 five months of the Convertible Notes.

The effective interest rate on the unamortized debt discount for both the three and nine months ended September 30, 2019 and 2020 was 11.4 %.

The effective interest rate on the debt issuance costs for both the three months ended September 30, 2019 and 2020 was 3.2 % and for the nine months ended September 30, 2019 and 2020 was 3.2 % and 3.1 % , respectively.

The carrying value of our 6.625 % Senior Notes due 2026 (the “Senior Notes”) at December 31, 2019 and September 30, 2020 is reflected on our Consolidated Balance Sheet as follows (in thousands):

December 31, 2019 September 30, 2020

The effective interest rate on the unamortized debt discount for both the three months ended March 31, 2020 and 2021 was 11.4 %.

The effective interest rate on the debt issuance costs for the three months ended March 31, 2020 and 2021 was 3.2 % and 3.1 % , respectively.

The carrying value of our 6.625 % senior notes due 2026 (the “Senior Notes”) is reflected on our Consolidated Balance Sheet as follows (in thousands):

December 31, 2020 March 31, 2021

Long-term liabilities:

6 unchanged sentences

Carrying value of the Senior Notes $ 395,968 $ 396,122

The fair value of the Senior Notes, which are Level 2 measurements, was $ 422.3 million at September 30, 2020.

The Senior Notes are due on June 1, 2026 and bear interest at 6.625 % per year which is payable semi-annually in arrears on June 1 and December 1 of each year.

The interest expense and amortization of debt discount, debt premium and debt issuance costs related to our Senior Notes during the three and nine months ended September 30, 2019 and 2020 are as follows (in thousands):

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

2019 2020 2019 2020

At March 31, 2021, the fair value of the Senior Notes, which are Level 2 measurements, was $ 417.6 million.

The Senior Notes were issued under an indenture, dated as of May 31, 2018 (the “Indenture”), among us, certain of our existing subsidiaries (collectively, the “Subsidiary Guarantors”), as guarantors, and Wilmington Trust, National Association., as trustee.

The Senior Notes are unsecured, senior obligations and are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally, by each of the Subsidiary Guarantors.

The Senior Notes are due on June 1, 2026 unless earlier redeemed or repurchased and bear interest at 6.625 % per year, which is payable semi-annually in arrears on June 1 and December 1 of each year.

We may redeem all or part of the Senior Notes at any time prior to June 1, 2021 at a redemption price equal to 100 % of the principal amount of Senior Notes redeemed, plus a “make whole” premium, and accrued and unpaid interest, if any, to the date of redemption.

We have the right to redeem the Senior Notes at any time on or after June 1, 2021 at the redemption prices described in the Indenture, plus accrued and unpaid interest, if any, to the date of redemption.

Additionally, at any time before June 1, 2021, we may redeem up to 40 % of the aggregate principal amount of the Senior Notes issued with an amount equal to the net proceeds of certain equity offerings, at a price equal to 106.625 % of the principal amount of the Senior Notes, plus accrued and unpaid interest, if any, to the date of redemption;

provided that (1) at least 60 % of the aggregate principal amount of the Senior Notes (including any additional Senior Notes) originally issued under the Indenture remain outstanding immediately after the occurrence of such redemption (excluding Senior Notes held by us);

and (2) each such redemption must occur within 180 days of the date of the closing of each such equity offering.

If a “change of control” occurs, holders of the Senior Notes will have the option to require us to purchase for cash all or a portion of their Senior Notes at a price equal to 101 % of the principal amount of the Senior Notes, plus accrued and unpaid interest.

In addition, if we make certain asset sales and do not reinvest the proceeds thereof or use such proceeds to repay certain debt, we will be required to use the proceeds of such asset sales to make an offer to purchase the Senior Notes at a price equal to 100 % of the principal amount of the Senior Notes, plus accrued and unpaid interest.

The Indenture contains restrictive covenants limiting our ability and our Restricted Subsidiaries (as defined in the Indenture) to, among other things, incur additional indebtedness or issue certain preferred shares, create liens on certain assets to secure debt, pay dividends or make other equity distributions, purchase or redeem capital stock, make certain investments, sell assets, agree to certain restrictions on the ability of Restricted Subsidiaries to make payments to us, consolidate, merge, sell or otherwise dispose of all or substantially all assets, or engage in transactions with affiliates.

The Indenture also contains customary events of default.

The interest expense and amortization of debt discount, debt premium and debt issuance costs related to our Senior Notes are as follows (in thousands):

Three months ended March 31,

Senior Notes interest expense $ 6,625 $ 6,625

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The debt discount, the debt premium and the debt issuance costs are being amortized using the effective interest method over the remaining term of approximately 62 months of the Senior Notes.

The effective interest rate on the unamortized debt discount and the unamortized debt issuance costs for the initial Senior Notes, which were issued in May 2018, for both the three and nine months ended September 30, 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 both the three and nine months ended September 30, 2020 was 6.20 % and 6.90 %, respectively.

We may redeem all or part of the Senior Notes at any time prior to June 1, 2021 at a redemption price equal to 100% of the principal amount of Senior Notes redeemed, plus a “make whole” premium, and accrued and unpaid interest, if any, to the date of redemption.

The effective interest rate on the unamortized debt discount and the unamortized debt issuance costs for the Senior Notes, issued in May 2018, for both three months ended March 31, 2020 and 2021 was 6.87 % and 6.69 %, respectively.

The effective interest rate on the unamortized debt premium and the unamortized debt issuance costs for the Senior Notes, issued in December 2019, for both three months ended March 31, 2020 and 2021 was 6.20 % and 6.88 %, respectively.

On April 30, 2021, we delivered a notice of conditional redemption to the trustee for the Senior Notes to call for redemption on June 1, 2021, all of the outstanding aggregate principal amount of the Senior Notes at a redemption price of 104.969% of the principal amount thereof, plus accrued and unpaid interest up to, but excluding, the scheduled redemption date.

See Note 18 to the Consolidated Financial Statements herein for additional information regarding the notice of conditional redemption for our Senior Notes.

Our lease obligations consist of operating and finance leases related to real estate and equipment.

The components of lease cost for the three and nine months ended September 30, 2019 and 2020 are as follows (in thousands):

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

The components of lease cost are as follows (in thousands):

Three months ended March 31,

Income Statement Classification 2020 2021

Operating lease cost Facilities and grounds expense (1)

$ 899 $ 927 $ 2,762 $ 2,838

Short-term lease cost Facilities and grounds expense (1)

73 52 206 148

Variable lease cost Facilities and grounds expense (1)

Finance lease cost:

Depreciation of leased assets Depreciation and amortization (2)

$ 131 $ 111 $ 395 $ 329

Interest on lease liabilities Interest expense 126 120

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(2) Depreciation and amortization expense is included within Field depreciation and Home office depreciation and amortization on our Consolidated Statements of Operations.

Variable lease expense was immaterial for the three and nine months ended September 30, 2019 and 2020.

Supplemental cash flow information related to our leases for the nine months ended September 30, 2019 and 2020 is as follows (in thousands):

Nine months ended September 30,

Supplemental cash flow information related to our leases is as follows (in thousands):

Three months ended March 31,

Cash paid for operating leases included in operating activities $ 696 $ 965

Cash paid for finance leases included in financing activities 200 209

Right-of-use assets obtained in exchange for new leases for the nine months ended September 30, 2019 and 2020 is as follows (in thousands):

Nine months ended September 30,

Right-of-use assets obtained in exchange for new leases is as follows (in thousands):

Three months ended March 31,

Right-of-use assets obtained in exchange for new operating lease liabilities $ 77 $ 56

Right-of-use assets obtained in exchange for new finance lease liabilities — —

Supplemental balance sheet information related to leases as of December 31, 2019 and September 30, 2020 is as follows (in thousands):

Lease Type Balance Sheet Classification December 31, 2019 September 30, 2020

Supplemental balance sheet information related to leases is as follows (in thousands):

Lease Type Balance Sheet Classification December 31, 2020 March 31, 2021

Operating lease right-of-use assets Operating lease right-of-use assets $ 21,201 $ 20,747

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Total lease liabilities $ 28,238 $ 27,709

The average lease terms and discount rates as of September 30, 2020 are as follows:

The average lease terms and discount rates at March 31, 2021 are as follows:

Weighted-average remaining lease term (years) Weighted-average discount rate

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Finance leases 5.6 8.2 %

The aggregate future lease payments for operating and finance leases as of September 30, 2020 are as follows (in thousands):

The aggregate future lease payments for operating and finance leases as of March 31, 2021 are as follows (in thousands):

Operating Finance

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Present value of lease liabilities $ 21,933 $ 5,776

As of September 30, 2020, we had no additional significant operating or finance leases that had not yet commenced.

At March 31, 2021, we had no additional significant operating or finance leases that had not yet commenced.

STOCKHOLDERS ’ EQUITY

Restricted Stock

During the three months ended September 30, 2020, we did not issue restricted stock.

During the nine months ended September 30, 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 approximately $ 0.3 million at a weighted average stock price of $ 25.00 .

We recorded stock-based compensation expense, which is included in General, administrative and other expenses , for restricted stock awards of $ 196,000 and $ 183,000 , for the three months ended September 30, 2019 and 2020, respectively and $ 624,000 and $ 551,000 for the nine months ended September 30, 2019 and 2020, respectively.

As of September 30, 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 1.2 years.

During the three months ended March 31, 2021, we issued restricted stock to certain employees totaling 9,300 shares that vest over a three -year period and had an aggregate grant date market value of $ 324,000 at a weighted average stock price of $ 34.79 .

During the three months ended March 31, 2020, we issued restricted stock to certain employees totaling 10,200 shares that vest over a three -year period and had an aggregate grant date market value of $ 255,000 at a weighted average stock price of $ 25.00 .

We recorded stock-based compensation expense, which is included in General, administrative and other expenses , for restricted stock awards of $ 184,000 and $ 121,000 , for the three months ended March 31, 2020 and 2021, respectively.

Stock Options

During the three months ended September 30, 2020, we did not issue stock options.

During the nine months ended September 30, 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.

During the three months ended March 31, 2021, we granted 701,400 options to certain key employee at a weighted average price of $ 34.79 .

These options will vest in one-fifth increments over a five-year period and have a ten-year term.

The fair value of these options was $ 7.1 million.

On June 26, 2020, we cancelled 100,000 options in connection with the resignation of our President and Chief Operating Officer.

The fair value of the options granted were estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

Grant date June 25, 2020

During the three months ended March 31, 2020, we did not issue any stock options.

The fair value of the options granted were estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

Grant date February 17, 2021

Dividend yield 1.15 %

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Black-Scholes value $ 10.14

We recorded stock-based compensation expense, which is included in General, administrative and other expenses , for stock options of $ 160,000 and $ 165,000 , for the three months ended September 30, 2019 and 2020, respectively and $ 513,000 and $ 502,000 for the nine months ended September 30, 2019 and 2020, respectively.

Performance Awards

On May 19, 2020, we cancelled all Performance Award Agreements previously awarded to all individuals in 2019 and 2020.

Concurrently with the cancellation, the Compensation Committee of the Board of Directors (the “Board”) approved a new performance award to be issued to certain employees.

We granted 368,921 performance awards to certain eligible employees, payable in shares.

These awards will vest (if at all) on December 31, 2024 provided that the Company’s common stock reaches one of five pre-determined 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, which are expected to be recognized over the remaining term of 51 months.

On June 26, 2020, we cancelled 33,538 performance awards in connection with the resignation of our President and Chief Operating Officer.

The following table reflects the performance awards granted during the nine months ended September 30, 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

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

During the three months ended March 31, 2021, employees exercised 101,000 stock options at a weighted average exercise price of $ 24.18 with an aggregate intrinsic value of $ 1.3 million.

We received $ 147,000 in cash for payment of the option price and we withheld $ 295,000 for payment of payroll taxes.

In addition, we accelerated 12,980 options in connection with the resignation of an employee which resulted in an additional $129,000 of stock-based compensation expense.

During the three months ended March 31, 2021, we also granted an additional 150,000 options to a certain key employee at a weighted average price of $ 34.79 .

These options will vest when the price of our common stock closes at or above the specified prices below for three consecutive days within the ten-year term and the employee has remained continuously employed by us through such date.

The fair value of these options was $ 1.7 million.

The fair value of the options granted were estimated on the date of grant using the Monte-Carlo simulation pricing model using the following assumptions:

Grant date February 17, 2021 February 17, 2021

Awards granted 50,000 100,000

Fair value (in millions) $ 0.5 $ 1.2

Simulation period (years) 4.62 4.52 4.42 4.33

Share price at grant date $ 15.79 $ 18.02 $ 23.10 $ 22.14

Vesting share price $ 53.39 $ 77.34

Dividend yield 1.15 % 1.15 %

Expected volatility 34.08 % 34.08 %

Risk-free interest rate 1.29 % 1.29 %

We recorded stock-based compensation expense, which is included in General, administrative and other expenses , for performance awards of $ 61,000 and $ 286,000 for the three months ended September 30, 2019 and 2020, respectively and $ 138,000 and $ 589,000 for the nine months ended September 30, 2019 and 2020, respectively.

We recorded stock-based compensation expense, which is included in General, administrative and other expenses , for stock options, including the accelerated stock options discussed above of $ 215,000 and $ 560,000 , for the three months ended March 31, 2020 and 2021, respectively.

Performance Awards

During the three months ended March 31, 2021, we did not issue any performance awards and we cancelled 27,948 performance awards in connection with the resignation of two employees.

During the three months ended March 31, 2020, we issued 237,500 performance awards to certain employees, payable in shares, with a fair value of $ 2.8 million.

On May 19, 2020, we cancelled all performance award agreements previously awarded to all individuals during 2019 and the February 19, 2020 award.

Concurrently with the cancellation, the Compensation Committee of the Board of Directors (the “Board”) approved 368,921 new performance awards to be issued to certain employees.

These new performance awards were treated as a modification of the cancelled awards and resulted in an additional $ 1.7 million of incremental compensation costs.

We recorded stock-based compensation expense, which is included in General, administrative and other expenses , for performance awards of $ 121,000 and $ 237,000 for the three months ended March 31, 2020 and 2021, respectively.

Employee Stock Purchase Plan

During the three months ended September 30, 2020, employees purchased a total of 15,706 at a weighted average price of $ 18.96 per share.

During the nine months ended September 30, 2020, employees purchased a total of 59,020 shares at a weighted average price of $ 15.6 per share.

During the three months ended March 31, 2021, employees purchased a total of 18,182 shares at a weighted average price of $ 26.32 per share.

During the three months ended March 31, 2020, employees purchased a total of 26,294 shares at a weighted average price of $ 13.73 per share.

The fair value of the right (option) to purchase shares under the ESPP is estimated at the date of purchase with the four quarterly purchase dates using the following assumptions:

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Expected life (years) 0.25 , 0.50 , 0.75 , 1.00

We recorded stock-based compensation expense, which is included in General, administrative and other expenses and Regional and unallocated funeral and cemetery costs , for the ESPP totaling $ 58,000 and $ 95,000 for the three months ended September 30, 2019 and 2020, respectively and $ 224,000 and $ 339,000 for the nine months ended September 30, 2019 and 2020, respectively.

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 .

We recorded stock-based compensation expense, which is included in General, administrative and other expenses and Regional and unallocated funeral and cemetery costs , for the ESPP totaling $ 163,000 and $ 206,000 for the three months ended March 31, 2020 and 2021, respectively.

Non-Employee Director Compensation

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 at the end of the quarter.

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.

During the three months ended September 30, 2020, we granted 8,540 shares of our common stock to six of our non-employee directors, which were valued at $ 0.2 million at a weighted average stock price of $ 22.41 .

For the nine months ended September 30, 2020, we granted an aggregate of 25,220 shares of our common stock to six of our non-employee directors, which were valued at $ 0.5 million at a weighted average stock price of $ 18.88 .

We recorded stock-based compensation expense, which is included in General, administrative and other expenses , related to annual retainers and common stock awards of $ 114,000 and $ 250,000 for the three months ended September 30, 2019 and 2020, respectively and $ 341,000 and $ 653,000 for the nine months ended September 30, 2019 and 2020, respectively.

During the three months ended March 31, 2021, we granted 5,040 shares of our common stock to six Directors, which were valued at $ 177,000 at a weighted average stock price of $ 35.19 .

During the three months ended March 31, 2020, we granted 8,821 shares of our common stock to five Directors, which were valued at $ 147,000 at a weighted average stock price of $ 16.15 .

We recorded stock-based compensation expense, which is included in General, administrative and other expenses , related to annual retainers, including the value of stock granted to Directors above, of $ 201,000 and $ 231,000 for the three months ended March 31, 2020 and 2021, respectively.

Share Repurchase

During the three and nine months ended September 30, 2020, we did not repurchase any shares of our common stock pursuant to our share repurchase program.

At September 30, 2020, we had approximately $ 25.6 million available for repurchases under 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 three months ended March 31, 2021, we did not repurchase any shares of our common stock.

At March 31, 2021, we had approximately $ 25.6 million available for repurchases under our share repurchase program.

Cash Dividends

On May 19, 2020, the Board approved an increase of $ 0.05 to our annual dividend beginning with the dividend declaration in the third quarter of 2020.

During the nine months ended September 30, 2020 and 2019, our Board declared the following dividends payable on the dates below (in thousands, except per share amounts):

O ur Board declared the following dividends payable on the dates below (in thousands, except per share amounts):

2021 Per Share Dollar Value

$ 0.100 $ 1,799

$ 0.0750 $ 1,343

September 1 st

$ 0.0875 $ 1,569

2020 Per Share Dollar Value

$ 0.075 $ 1,339

$ 0.0750 $ 1,365

September 1 st

$ 0.0750 $ 1,336

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

Accumulated other comprehensive income

Our components of accumulated other comprehensive income are as follows (in thousands):

Three months ended September 30, 2020

Accumulated Other Comprehensive Income

June 30, 2020 $ —

Net unrealized gains associated with available-for-sale securities of the trusts 3,540

Reclassification of net unrealized gains activity attributable to the Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus

Balance at September 30, 2020 $ —

Nine months ended September 30, 2020

Accumulated Other Comprehensive Income

Balance at December 31, 2019 $ —

Net unrealized losses associated with available-for-sale securities of the trusts ( 7,263 )

Reclassification of net unrealized losses activity attributable to the Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus

Balance at September 30, 2020 $ —

EARNINGS PER SHARE

The following table sets forth the computation of the basic and diluted earnings per share for the three and nine months ended September 30, 2019 and 2020 (in thousands, except per share data):

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

2019 2020 2019 2020

The following table sets forth the computation of the basic and diluted earnings per share (in thousands, except per share data):

Three months ended March 31,

Numerator for basic and diluted earnings per share:

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

Earnings allocated to unvested restricted stock ( 3 ) ( 14 ) ( 52 ) ( 23 )

Income attributable to common stockholders $ 574 $ 5,511 $ 11,912 $ 7,702

Denominator for basic earnings per common share -

weighted average shares outstanding 17,737 17,895 17,917 17,853

Net income (loss) $ ( 4,197 ) $ 12,933

Loss (earnings) allocated to unvested restricted stock 13 ( 27 )

Income (loss) attributable to common stockholders $ ( 4,184 ) $ 12,906

Denominator for basic earnings per common share - weighted average shares outstanding 17,805 17,965

Effect of dilutive securities:

Stock options — 234

Convertible Notes — 3 — 1

Denominator for diluted earnings per common share - weighted average shares outstanding 17,805 18,199

Basic earnings per common share:

Basic earnings (loss) per common share:

$ ( 0.23 ) $ 0.72

Diluted earnings per common share:

Diluted earnings (loss) per common share:

$ ( 0.23 ) $ 0.71

For the three and nine months ended September 30, 2019 and 2020, there were 3,000 and 1,000 shares, respectively that would have been issued upon conversion of our Convertible Notes as a result of the application under the if-converted method prescribed by the FASB ASC 260, Earnings Per Share for the fully diluted weighted average shares outstanding and the corresponding calculation of fully diluted earnings per share.

For the three months ended September 30, 2019 and 2020, there were 900,856 and 765,722 stock options, respectively and 974,290 and 848,513 for the nine months ended September 30, 2019 and 2020, respectively, excluded from the computation of diluted earnings per share because the inclusion of such stock options would result in an antidilutive effect.

For both the three and nine months ended September 30, 2020, 359,137 performance awards have been excluded from the computation of diluted earnings per share as the performance criteria have not been met.

For the three months ended March 31, 2020 there were 1,034,084 stock options excluded from the computation of diluted earnings per share because the inclusion of such stock options would result in an antidilutive effect and 27,085 shares were excluded from the computation of diluted earnings per share amounts because the loss attributable to common stockholders was a loss, not income.

For the three months ended March 31, 2021, no stock options were excluded from the computation of diluted earnings per share.

SEGMENT REPORTING

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

Three months ended September 30, 2020

Funeral Cemetery Total

Services $ 36,987 $ 4,231 $ 41,218

Merchandise 20,846 3,019 23,865

Cemetery property — 12,433 12,433

Other revenue 3,601 3,276 6,877

Total $ 61,434 $ 22,959 $ 84,393

Three months ended September 30, 2019

Funeral Cemetery Total

Services $ 31,400 $ 2,733 $ 34,133

Merchandise 17,918 2,060 19,978

Cemetery property — 8,024 8,024

Other revenue 2,199 1,791 3,990

Total $ 51,517 $ 14,608 $ 66,125

Nine months ended September 30, 2020

Three months ended March 31, 2021

Funeral Cemetery Total

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Total $ 71,774 $ 24,863 $ 96,637

Nine months ended September 30, 2019

Three months ended March 31, 2020

Funeral Cemetery Total

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Total $ 61,742 $ 15,748 $ 77,490

We conduct funeral and cemetery operations only in the United States.

The following table presents Operating income (loss), Income (loss) before income taxes and Total assets by segment (in thousands):

The following table presents operating income (loss), income (loss) before income taxes and total assets (in thousands):

Funeral Cemetery Corporate Consolidated

Operating income (loss):

Three months ended September 30, 2020 $ 13,975 $ 8,982 $ ( 6,463 ) $ 16,494

Three months ended September 30, 2019 9,531 3,932 ( 6,112 ) 7,351

Nine months ended September 30, 2020 $ 38,155 $ 18,440 $ ( 19,685 ) $ 36,910

Nine months ended September 30, 2019 42,220 12,083 ( 18,174 ) 36,129

Three months ended March 31, 2021 $ 25,876 $ 9,493 $ ( 9,123 ) $ 26,246

Three months ended March 31, 2020 4,311 4,167 ( 6,328 ) 2,150

Income (loss) before income taxes:

Three months ended September 30, 2020 $ 13,753 $ 9,024 $ ( 14,393 ) $ 8,384

Three months ended September 30, 2019 9,312 3,885 ( 11,673 ) 1,524

Nine months ended September 30, 2020 $ 37,481 $ 18,538 $ ( 44,136 ) $ 11,883

Nine months ended September 30, 2019 41,591 12,324 ( 36,181 ) 17,734

Three months ended March 31, 2021 $ 25,718 $ 9,476 $ ( 16,620 ) $ 18,574

Three months ended March 31, 2020 4,119 4,105 ( 14,571 ) ( 6,347 )

Total assets:

September 30, 2020 $ 758,088 $ 348,288 $ 14,273 $ 1,120,649

March 31, 2021 $ 763,761 $ 378,945 $ 15,020 $ 1,157,726

December 31, 2020 764,535 366,964 14,326 1,145,825

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Balance Sheet

The following table presents t he detail of certain balance sheet accounts as of December 31, 2019 and September 30, 2020 (in thousands):

December 31, 2019 September 30, 2020

The following table presents t he detail of certain balance sheet accounts (in thousands):

December 31, 2020 March 31, 2021

Prepaid and other current assets:

Prepaid expenses $ 1,919 $ 1,913

Deposit on pending acquisition 5,000 —

Federal income taxes receivable 2,973 649

State income taxes receivable 986 —

Other current assets 157 163

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Incentive compensation $ 2,975 $ 351

Contingent consideration 470 —

Employer payroll tax deferral 1,773 1,773

Accrued severance — 553

Total other long-term liabilities $ 4,748 $ 2,677

The following information is supplemental disclosure for the Consolidated Statements of Cash Flows (in thousands):

Three months ended March 31,

Cash paid for interest and financing costs $ 1,337 $ 616

Cash paid for taxes 96 532

Fair value of donated real property — 635

SUBSEQUENT EVENTS

October 27, 2020, the Board approved an increase to its quarterly dividend of $ 0.10 per share and subsequently declared a quarterly dividend payable on December 1, 2020 to common share record holders as of November 9, 2020.

In connection with the increased dividend, the Board withdrew and cancelled its previous dividend declaration on October 21, 2020.

On October 30, 2020, we sold one funeral home for $ 0.5 million in West Virginia.

Upon divesting this business, we no longer have operations in that state.

New Notes Purchase Agreement

On April 29, 2021, we and certain of our existing subsidiaries (the “Subsidiary Guarantors”) entered into a Purchase Agreement with BofA Securities, Inc., as representative of the several initial purchasers named therein (collectively, the “Purchasers”), under which we agreed to sell $400 million in aggregate principal amount of 4.25% Senior Notes due 2029 (the “New Notes”) in a private placement to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A and to certain non-U.S.

persons outside of the United States pursuant to Regulation S, each under the Securities Act of 1933, as amended.

The New Notes will be issued pursuant to an indenture to be entered into among the Company, the Subsidiary Guarantors and Wilmington Trust, National Association, as trustee.

The sale of the New Notes to the Purchasers is expected to settle on May 13, 2021, subject to customary closing conditions, and is expected to result in approximately $394 million in net proceeds to us after deducting the Purchasers’ discount and estimated offering expenses payable by us.

We intend to use the net proceeds of the sale of the New Notes, together with borrowings under the amended and restated credit facility, which we expect to enter into concurrently with the settlement of the sale of the New Notes, to redeem all of our existing Senior Notes.

The New Notes will be our unsecured senior obligations and will bear interest at a rate of 4.25% per year.

Interest will be payable semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2021.

The New Notes will mature on May 15, 2029, unless earlier repurchased or redeemed.

The New Notes will be guaranteed on a senior unsecured basis by the Subsidiary Guarantors.

Notice of Conditional Redemption

Our redemption obligation is conditioned on and subject to the completion of the offering of New Notes and the entry into an amended and restated credit facility in connection with the closing of the offering.

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q contains certain statements and information that may constitute forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

In addition to historical information, this Quarterly Report on Form 10-Q contains certain statements and information that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

All statements, other than statements of historical information, should be deemed to be forward-looking statements.

These statements include, but are not limited to, statements regarding any projections of earnings, revenue, asset sales, cash flow, debt levels or other financial items;

any statements of the plans, strategies and objectives of management for future operations;

any statements regarding future economic conditions or performance;

The words “may”, “will”, “estimate”, “intend”, “believe”, “expect”, “seek”, “project”, “forecast”, “foresee”, “should”, “would”, “could”, “plan”, “anticipate” and other similar words or expressions are intended to identify forward-looking statements, which are generally not historical in nature.

These forward-looking statements include, but are not limited to, statements regarding any projections of earnings, revenue, asset sales, cash flow, debt levels or other financial items;

any statements of the plans, strategies and objectives of management for future operations or future acquisitions;

any statements of the plans, timing and objectives of management for acquisition and divestiture activities;

any statements of the plans, timing, expectations and objectives of management for future financing activities;

any statements regarding future economic and market conditions or performance;

any statements of belief;

and any statements of assumptions underlying any of the foregoing and are based on our current expectations and beliefs concerning future developments and their potential effect on us.

While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate.

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• our ability to find and retain skilled personnel;

• the effects of our incentive and compensation plans and programs, including such effects on our Standards Operating Model and our operational and financial performance;

• our ability to execute our growth strategy;

• the execution of our Standards Operating, 4E Leadership and Strategic Acquisition Models;

• the effects of competition;

• the execution of our Standards Operating, 4E Leadership and Standard Acquisition Models;

• changes in the number of deaths in our markets;

• changes in consumer preferences;

• our ability to generate preneed sales;

• changes in consumer preferences and our ability to adapt to or meet those changes;

• our ability to generate preneed sales, including implementing our cemetery portfolio sales strategy;

• the investment performance of our funeral and cemetery trust funds;

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• our ability to obtain debt or equity financing on satisfactory terms to fund additional acquisitions, expansion projects, working capital requirements and the repayment or refinancing of indebtedness;

• our ability to meet the timing, objectives and cost saving expectations related to anticipated financing activities, including our deleveraging program, forecasts and planned uses of free cash flow, expected plans for refinancing our senior notes, and future capital allocation;

• our ability to meet the timing, objectives and cost saving expectations related to anticipated financing activities, including our deleveraging program, forecasts and planned uses of free cash flow, expected plans and projections for refinancing our senior notes and future capital allocation, including potential acquisitions, share repurchases, dividend increases, or debt repayment plans;

• our ability to meet the projected financial performance metrics included in our updated Milestone Two-Year Scenario, if at all;

• the timely and full payment of death benefits related to preneed funeral contracts funded through life insurance contracts;

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• changes in federal income tax laws and regulations and the implementation and interpretation of these laws and regulations by the Internal Revenue Service;

• the potential impact of epidemics and pandemics, including the COVID-19 coronavirus (“COVID-19”), on customer preferences and on our business;

• effects of litigation and burial practice claims;

• effects of the application of other applicable laws and regulations, including changes in such regulations or the interpretation thereof;

• the potential impact of epidemics and pandemics, including the COVID-19 coronavirus (“COVID-19”), on customer preferences and on our business;

• effects of litigation;

• consolidation of the funeral and cemetery industry;

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• our ability to integrate acquired businesses with our existing businesses, including expected performance and financial improvements related thereto;

• economic, financial and stock market fluctuations;

• interruptions or security lapses of our information technology, including any cybersecurity or ransomware incidents;

• our failure to maintain effective control over financial reporting;

• other factors and uncertainties inherent in the funeral and cemetery industry.

3 unchanged sentences

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-Q

Item 1. Financial Statements