UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM	10-Q

(Mark One)


x ☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2019~~2020


o ☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ____________



Commission File Number:	1-11961

CARRIAGE SERVICES, INC.

(Exact name of registrant as specified in its charter)



~~DELAWARE~~Delaware	76-0423828
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

~~3040 Post Oak Boulevard, Suite 300~~
~~Houston, Texas, 77056~~
~~(Address of principal executive offices)~~

~~(713)~~ 3040 Post Oak Boulevard, Suite 300

Houston, Texas, 77056

(Address of principal executive offices)

(713) 332-8400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $.01 per share	CSV	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx☒ No o☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx☒ No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.



Large accelerated filer	o☐	Accelerated filer	x☒
Non-accelerated filer	o☐ (Do not check if a smaller reporting company)	Smaller reporting company	o☐
		Emerging growth company	o☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x☒

~~Securities registered pursuant to Section 12(b) of the Act:~~



~~Title of each class~~	~~Trading Symbol~~	~~Name of each exchange on which registered~~
~~Common Stock, par value $.01 per share~~	~~CSV~~	~~New York Stock Exchange~~

The number of shares of the registrant’s Common Stock, $.01 par value per share, outstanding as of ~~October 25, 2019~~July 29, 2020 was ~~17,826,103.~~17,933,918.

CARRIAGE SERVICES, INC.

INDEX



	Page
PART I – FINANCIAL INFORMATION

Item 1. Financial Statements	3

Consolidated Balance Sheet as of December 31, ~~2018~~2019 and ~~September~~June 30, ~~2019~~2020	3

Consolidated Statements of Operations for the Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2018~~2019 and ~~2019~~2020	4

Consolidated Statements of Cash Flows for the ~~Nine~~Six Months ended ~~September~~June 30, ~~2018~~2019 and ~~2019~~2020	5

Consolidated Statements of Changes in Stockholders' Equity for the ~~Nine~~Three and Six Months ended ~~September~~June 30, ~~2018~~2019 and ~~2019~~2020	6

Condensed Notes to Consolidated Financial Statements	8

Cautionary Statement on Forward–Looking Statements	4039

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	4140

Item 3. Quantitative and Qualitative Disclosures About Market Risk	57

~~Item 4. Controls and Procedures~~	58

~~PART II – OTHER INFORMATION~~

~~Item 1. Legal Proceedings~~	59

Item 4. Controls and Procedures	60

PART II – OTHER INFORMATION

Item 1. Legal Proceedings	61

Item 1A. Risk Factors	5961

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	5962

Item 3. Defaults Upon Senior Securities	5963

Item 4. Mine Safety Disclosures	5963

Item 5. Other Information	5963

Item 6. Exhibits	5963

SIGNATURE	6164

INDEX OF EXHIBITS	6265

PART I – FINANCIAL INFORMATION


Item 1.	Financial Statements.

CARRIAGE SERVICES, INC.

CONSOLIDATED BALANCE SHEET

(in thousands, except share data)


				(unaudited)						(unaudited)
	December 31, 2018			September 30, 2019			December 31, 2019			June 30, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	644		$	5,812		$	716		$	692
Accounts receivable, net	18,897			17,699			21,478			20,033
Inventories	6,751			6,692			6,989			7,410
Prepaid and other current assets	3,011			1,764			10,667			12,087
Total current assets	29,303			31,967			39,850			40,222
Preneed cemetery trust investments	62,432			68,333			72,382			72,569
Preneed funeral trust investments	82,074			87,059			96,335			90,235
Preneed cemetery receivables, net	18,441			19,467			20,173			20,238
Receivables from preneed trusts	17,073			17,989
Receivables from preneed trusts, net							18,024			17,471
Property, plant and equipment, net	260,838			258,035			279,200			277,564
Cemetery property, net	74,958			75,064			87,032			101,509
Goodwill	303,887			299,181			398,292			396,861
Intangible and other non-current assets, net	24,425			24,028			32,116			33,348
Operating lease right-of-use assets	—			22,628			22,304			21,407
Cemetery perpetual care trust investments	44,071			48,397			64,047			63,228
Total assets	$	917,502		$	952,148		$	1,129,755		$	1,134,652
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	2,015		$	1,679
Current portion of finance lease obligations	312			282
Current portion of operating lease obligations	—			1,524
Current portion of debt and lease obligations							$	3,150		$	3,456
Accounts payable	9,987			6,135			8,413			8,042
Accrued and other liabilities	22,644			29,270			24,026			23,267
Convertible subordinated notes due 2021							—			6,115
Total current liabilities	34,958			38,890			35,589			40,880
Long-term debt, net of current portion	6,925			6,135
Acquisition debt, net of current portion							5,658			5,285
Credit facility	26,145			17,099			82,182			88,327
Convertible subordinated notes due 2021	5,732			5,902			5,971			—
Senior notes due 2026	319,108			319,577			395,447			395,668
Obligations under finance leases, net of current portion	6,143			5,929			5,854			5,696
Obligations under operating leases, net of current portion	—			21,758			21,533			20,583
Deferred preneed cemetery revenue	45,997			45,195			46,569			47,657
Deferred preneed funeral revenue	28,606			29,522			29,145			28,660
Deferred tax liability	31,263			32,533			41,368			46,765
Other long-term liabilities	3,133			1,935			1,737			1,524
Deferred preneed cemetery receipts held in trust	62,432			68,333			72,382			72,569
Deferred preneed funeral receipts held in trust	82,074			87,059			96,335			90,235
Care trusts’ corpus	43,494			47,771			63,416			62,312
Total liabilities	696,010			727,638			903,186			906,161
Commitments and contingencies:
Stockholders’ equity:
Common stock, $.01 par value; 80,000,000 shares authorized and 25,703,490 and 25,851,442 shares issued at December 31, 2018 and September 30, 2019, respectively	257			259
Common stock, $.01 par value; 80,000,000 shares authorized and 25,880,362 and 25,959,257 shares issued at December 31, 2019 and June 30, 2020, respectively							259			260
Additional paid-in capital	243,849			242,657			242,147			241,868
Retained earnings	71,680			83,644			86,213			88,413
Treasury stock, at cost; 7,625,339 and 8,025,339 at December 31, 2018 and September 30, 2019, respectively	(94,294		)	(102,050		)
Treasury stock, at cost; 8,025,339 at both December 31, 2019 and June 30, 2020							(102,050		)	(102,050		)
Total stockholders’ equity	221,492			224,510			226,569			228,491
Total liabilities and stockholders’ equity	$	917,502		$	952,148		$	1,129,755		$	1,134,652

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

CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share data)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three months ended June 30,						Six months ended June 30,
	2018			2019			2018			2019			2019			2020			2019			2020
Revenue:
Service revenue	$	33,003		$	34,133		$	103,660		$	105,444		$	34,659		$	38,880		$	71,311		$	79,612
Property and merchandise revenue	27,026			28,002			84,741			85,458			28,877			32,642			57,456			63,913
Other revenue	4,212			3,990			13,074			12,056			4,216			5,955			8,066			11,442
	64,241			66,125			201,475			202,958			67,752			77,477			136,833			154,967
Field costs and expenses:
Cost of service	18,085			18,011			54,031			54,062			17,955			18,622			36,052			39,679
Cost of merchandise	22,505			21,972			67,796			66,544			22,311			24,612			44,572			49,675
Cemetery property amortization	964			972			2,763			2,990			1,169			1,097			2,018			1,974
Field depreciation expense	3,047			3,106			8,925			9,250			3,059			3,247			6,144			6,537
Regional and unallocated funeral and cemetery costs	2,114			3,597			8,662			10,008			3,622			3,717			6,411			6,473
Other expenses	412			411			1,171			1,197			386			1,022			786			2,298
	47,127			48,069			143,348			144,051			48,502			52,317			95,983			106,636
Gross profit	17,114			18,056			58,127			58,907			19,250			25,160			40,850			48,331
Corporate costs and expenses:
General, administrative and other	6,344			5,755			19,342			17,059			5,692			6,540			11,304			12,486
Home office depreciation and amortization	505			357			1,412			1,115			369			354			758			736
Impairment of goodwill and other intangibles													—			—			—			(14,693		)
Operating income													13,189			18,266			28,788			20,416
	6,849			6,112			20,754			18,174
Operating income	10,265			11,944			37,373			40,733
Interest expense	(6,285		)	(6,283		)	(14,763		)	(18,907		)	(6,296		)	(8,352		)	(12,624		)	(16,780		)
Accretion of discount on convertible subordinated notes	(246		)	(61		)	(1,961		)	(178		)	(60		)	(66		)	(117		)	(131		)
Net loss on early extinguishment of debt	—			—			(936		)	—
Other, net	(347		)	(4,076		)	(345		)	(3,914		)	175			(2		)	162			(6		)
Income before income taxes	3,387			1,524			19,368			17,734			7,008			9,846			16,209			3,499
Provision for income taxes	(1,028		)	(930		)	(5,423		)	(5,551		)
Tax adjustment related to certain discrete items	(159		)	(17		)	358			(219		)
Total provision for income taxes	(1,187		)	(947		)	(5,065		)	(5,770		)
Expense for income taxes													(2,043		)	(3,299		)	(4,620		)	(1,163		)
Tax adjustment related to discrete items													(103		)	(150		)	(202		)	(136		)
Total expense for income taxes													(2,146		)	(3,449		)	(4,822		)	(1,299		)
Net income	$	2,200		$	577		$	14,303		$	11,964		$	4,862		$	6,397		$	11,387		$	2,200

Basic earnings per common share:	$	0.11		$	0.03		$	0.80		$	0.66		$	0.27		$	0.36		$	0.63		$	0.12
Diluted earnings per common share:	$	0.11		$	0.03		$	0.78		$	0.66		$	0.27		$	0.36		$	0.63		$	0.12

Dividends declared per common share:	$	0.075		$	0.075		$	0.225		$	0.225		$	0.075		$	0.075		$	0.150		$	0.150

Weighted average number of common and common equivalent shares outstanding:
Basic	19,060			17,737			17,701			17,917			17,959			17,860			18,008			17,833
Diluted	19,161			17,768			18,273			17,951			17,988			17,889			18,043			17,862

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

CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)

Nine Months Ended September 30,
2018 2019
Cash flows from operating activities:
Net income $ 14,303
$ 11,964
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 13,100
13,355
Provision for losses on accounts receivable 1,511
1,188
Stock-based compensation expense 2,924
1,616
Deferred income tax expense 3,547
1,270
Amortization of deferred financing costs 420
289
Amortization of capitalized commissions on preneed contracts 449
417
Accretion of discount on convertible subordinated notes 1,961
178
Accretion of debt discount on senior notes 154
366
Net loss on early extinguishment of debt 936
—
Net loss on sale of business and other assets 408
4,067
Gain on insurance reimbursements —
(638 )
Goodwill and other impairments —
730
Other —
121

Changes in operating assets and liabilities that provided (used) cash:
Accounts and preneed receivables (3,010 ) (2,495 )
Inventories, prepaid and other current assets (1,911 ) 1,138
Intangible and other non-current assets (345 ) (241 )
Preneed funeral and cemetery trust investments (6,104 ) (4,376 )
Accounts payable (735 ) (3,852 )
Accrued and other liabilities 3,761
6,749
Deferred preneed funeral and cemetery revenue 6,292
804
Deferred preneed funeral and cemetery receipts held in trust 1,056
3,411
Net cash provided by operating activities 38,717
36,061

Cash flows from investing activities:
Acquisitions and land for new construction (37,970 ) —
Proceeds from insurance reimbursements —
1,247
Proceeds from the sale of business and other assets —
967
Capital expenditures (9,037 ) (11,479 )
Net cash used in investing activities (47,007 ) (9,265 )

Cash flows from financing activities:
Payments against the term loan (127,500 ) —
Borrowings from the credit facility 96,000
28,200
Payments against the credit facility (188,000 ) (37,300 )
Payment of debt issuance costs related to long-term debt (1,551 ) (113 )
Redemption of the 2.75% convertible subordinated notes (75,229 ) (27 )
Payment of transaction costs related to the redemption of the 2.75% convertible subordinated notes (845 ) —
Proceeds from the issuance of the 6.625% senior notes 320,125
—
Payments of debt issuance costs related to the 6.625% senior notes (1,367 ) —
Payments on other long-term debt and obligations under finance leases (1,031 ) (1,370 )
Payments on contingent consideration recorded at acquisition date (138 ) (162 )
Proceeds from the exercise of stock options and employee stock purchase plan contributions 1,075
1,155
Taxes paid on restricted stock vestings and exercise of non-qualified options (651 ) (194 )
Dividends paid on common stock (4,076 ) (4,061 )
Purchase of treasury stock —
(7,756 )
Net cash provided by (used in) financing activities 16,812
(21,628 )

Net increase in cash and cash equivalents 8,522
5,168
Cash and cash equivalents at beginning of period 952
644
Cash and cash equivalents at end of period $ 9,474
$ 5,812



	Six months ended June 30,
	2019			2020
Cash flows from operating activities:
Net income	$	11,387		$	2,200
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	8,920			9,247
Provision for bad debt and credit losses	724			1,507
Stock-based compensation expense	1,103			1,546
Deferred income tax expense	1,309			4,867
Amortization of deferred financing costs	189			393
Amortization of capitalized commissions on preneed contracts	277			285
Accretion of discount on convertible subordinated notes	117			131
Accretion of debt discount, net of debt premium on senior notes	242			151
Net loss on sale and disposal of other assets	168			96
Goodwill and other intangible asset impairments	—			14,693
Other	121			19

Changes in operating assets and liabilities that provided (required) cash:
Accounts and preneed receivables	(1,116		)	2,231
Inventories, prepaid and other current assets	1,446			(6,610		)
Intangible and other non-current assets	(212		)	(150		)
Preneed funeral and cemetery trust investments	(5,033		)	214
Accounts payable	(3,156		)	(516		)
Accrued and other liabilities	61			(411		)
Deferred preneed funeral and cemetery revenue	863			1,054
Deferred preneed funeral and cemetery receipts held in trust	4,502			54
Net cash provided by operating activities	21,912			31,001

Cash flows from investing activities:
Acquisitions	—			(28,011		)
Net proceeds from the sale of other assets	100			78
Capital expenditures	(8,654		)	(5,786		)
Net cash used in investing activities	(8,554		)	(33,719		)

Cash flows from financing activities:
Borrowings from the credit facility	23,300			75,900
Payments against the credit facility	(25,800		)	(70,000		)
Redemption of the 2.75% convertible subordinated notes	(27		)	—
Payments of debt issuance costs related to the 6.625% senior notes	—			(66		)
Payments on acquisition debt and obligations under finance leases	(910		)	(679		)
Payments on contingent consideration recorded at acquisition date	(162		)	(169		)
Proceeds from the exercise of stock options and employee stock purchase plan contributions	942			624
Taxes paid on restricted stock vestings and exercise of non-qualified options	(179		)	(234		)
Dividends paid on common stock	(2,725		)	(2,682		)
Purchase of treasury stock	(7,756		)	—
Net cash provided by (used in) financing activities	(13,317		)	2,694

Net increase (decrease) in cash and cash equivalents	41			(24		)
Cash and cash equivalents at beginning of period	644			716
Cash and cash equivalents at end of period	$	685		$	692

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

CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited and in thousands)

Shares
Outstanding

Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

Treasury
Stock
Total
Balance – December 31, 2017 16,098
$ 226
$ 216,158
$ 57,904
$ (76,632 ) $ 197,656
Effect of adoption of topic 606 —
—
—
2,131
—
2,131
Balance – January 1, 2018 16,098
$ 226
$ 216,158
$ 60,035
$ (76,632 ) $ 199,787
Net income —
—
—
9,356
—
9,356
Issuance of shares 91
1
307
—
—
308
Exercise of stock options 112
1
319
—
—
320
Cancellation and retirement of restricted common stock and stock options (15 ) —
(296 ) —
—
(296 )
Stock-based compensation expense —
—
1,100
—
—
1,100
Dividends on common stock —
—
(1,207 ) —
—
(1,207 )
Other 6
—
145
—
—
145
Balance – March 31, 2018 16,292
$ 228
$ 216,526
$ 69,391
$ (76,632 ) $ 209,513
Net income —
—
—
2,747
—
2,747
Issuance of shares 13
—
220
—
—
220
Exercise of stock options 27
1
(197 ) —
—
(196 )
Cancellation and retirement of restricted common stock and stock options (2 ) —
(4 ) —
—
(4 )
Stock-based compensation expense —
—
909
—
—
909
Dividends on common stock —
—
(1,433 ) —
—
(1,433 )
Convertible notes exchange 2,823
28
28,194
—
—
28,222
Balance – June 30, 2018 19,153
$ 257
$ 244,215
$ 72,138
$ (76,632 ) $ 239,978
Net income —
—
—
2,200
—
2,200
Issuance of shares 24
—
229
—
—
229
Cancellation and retirement of restricted common stock and stock options (2 ) —
(156 ) —
—
(156 )
Stock-based compensation expense —
—
915
—
—
915
Dividends on common stock —
—
(1,436 ) —
—
(1,436 )
Convertible notes exchange —
—
102
—
—
102
Balance – September 30, 2018 19,175
$ 257
$ 243,869
$ 74,338
$ (76,632 ) $ 241,832



	Three months ended June 30, 2019
	Shares Outstanding		Common Stock		Additional Paid-in Capital			Retained Earnings		Treasury Stock			Total
Balance – March 31, 2019	18,203		$	258	$	243,940		$	78,205	$	(94,294	)	$	228,109
Net income	—		—		—			4,862		—			4,862
Issuance of common stock	17		—		197			—		—			197
Cancellation and retirement of restricted common stock and stock options	(8	)	—		(5		)	—		—			(5		)
Stock-based compensation expense	—		—		518			—		—			518
Dividends on common stock	—		—		(1,365		)	—		—			(1,365		)
Treasury stock acquired	(400	)	—		—			—		(7,756		)	(7,756		)
Balance – June 30, 2019	17,812		$	258	$	243,285		$	83,067	$	(102,050	)	$	224,560



	Three months ended June 30, 2020
	Shares Outstanding	Common Stock			Additional Paid-in Capital			Retained Earnings		Treasury Stock			Total
Balance – March 31, 2020	17,909	$	259		$	242,234		$	82,016	$	(102,050	)	$	222,459
Net income	—	—			—			6,397		—			6,397
Issuance of common stock to employees	17	1			262			—		—			263
Issuance of common stock to directors	8	—		��	147			—		—			147
Stock-based compensation expense	—	—			568			—		—			568
Dividends on common stock	—	—			(1,343		)	—		—			(1,343		)
Balance – June 30, 2020	17,934	$	260		$	241,868		$	88,413	$	(102,050	)	$	228,491

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)


																Six months ended June 30, 2019
	Shares Outstanding		Common Stock		Additional Paid-in Capital			Retained Earnings		Treasury Stock			Total			Shares Outstanding		Common Stock		Additional Paid-in Capital			Retained Earnings		Treasury Stock			Total
Balance – December 31, 2018	18,078		$	257	$	243,849		$	71,680	$	(94,294	)	$	221,492		18,078		$	257	$	243,849		$	71,680	$	(94,294	)	$	221,492
Net income	—		—		—			6,525		—			6,525			—		—		—			11,387		—			11,387
Issuance of shares	48		—		275			—		—			275
Issuance of common stock																40		—		472			—		—			472
Exercise of stock options	71		1		471			—		—			472			71		1		471			—		—			472
Cancellation and retirement of restricted common stock and stock options	(9	)	—		(174		)	—		—			(174		)
Stock-based compensation expense	—		—		585			—		—			585
Dividends on common stock	—		—		(1,360		)	—		—			(1,360		)
Other	15		—		294			—		—			294
Balance – March 31, 2019	18,203		$	258	$	243,940		$	78,205	$	(94,294	)	$	228,109
Net income	—		—		—			4,862		—			4,862
Issuance of shares	17		—		197			—		—			197
Issuance of restricted common stock																25		—		—			—		—			—
Cancellation and retirement of restricted common stock and stock options	(8	)	—		(5		)	—		—			(5		)	(17	)	—		(179		)	—		—			(179		)
Stock-based compensation expense	—		—		518			—		—			518			—		—		1,103			—		—			1,103
Dividends on common stock	—		—		(1,365		)	—		—			(1,365		)	—		—		(2,725		)	—		—			(2,725		)
Treasury stock acquired	(400	)	—		—			—		(7,756		)	(7,756		)	(400	)	—		—			—		(7,756		)	(7,756		)
Other																15		—		294			—		—			294
Balance – June 30, 2019	17,812		$	258	$	243,285		$	83,067	$	(102,050	)	$	224,560		17,812		$	258	$	243,285		$	83,067	$	(102,050	)	$	224,560
Net income	—		—		—			577		—			577
Issuance of shares	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



	Six months ended June 30, 2020
	Shares Outstanding		Common Stock		Additional Paid-in Capital			Retained Earnings		Treasury Stock			Total
Balance – December 31, 2019	17,855		$	259	$	242,147		$	86,213	$	(102,050	)	$	226,569
Net income	—		—		—			2,200		—			2,200
Issuance of common stock to employees	44		1		624			—		—			624
Issuance of common stock to directors	17		—		294			—		—			294
Issuance of restricted common stock	10		—		—			—		—			—
Cancellation and retirement of restricted common stock and stock options	(10	)	—		(235		)	—		—			(234		)
Stock-based compensation expense	—		—		1,252			—		—			1,252
Dividends on common stock	—		—		(2,682		)	—		—			(2,682		)
Other	18		—		468			—		—			468
Balance – June 30, 2020	17,934		$	260	$	241,868		$	88,413	$	(102,050	)	$	228,491

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

CARRIAGE SERVICES, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Carriage Services, Inc. (“Carriage,” the “Company,” “we,” “us,” or “our”) is a leading ~~U.S.~~ provider of funeral and cemetery services and ~~merchandise.~~merchandise in the United States. As of ~~September~~June 30, ~~2019,~~2020, we operated ~~179~~186 funeral homes in 29 states and 2932 cemeteries in 11 states. Our operations are reported in ~~two~~2 business segments: Funeral Home Operations, which currently account for approximately 80% of our revenue and Cemetery Operations, which currently account for approximately 20% of our revenue.

Our funeral ~~homes offer a complete range~~home operations are principally service businesses that generate revenue from sales of ~~high value personal~~burial and cremation services ~~to meet a family’s funeral needs, including~~and related merchandise, such as caskets and urns. Funeral services include consultation, the removal and preparation of remains, ~~the sale of caskets and related funeral merchandise,~~ the use of funeral home facilities for visitation and remembrance services and transportation services. ~~Our cemeteries~~We provide ~~interment rights (grave sites and mausoleum spaces) and related merchandise, such as markers and outer burial containers. We market~~ funeral ~~and cemetery~~ 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). We provide cemetery services and products on both an atneed and preneed basis.

Principles of Consolidation and Interim Condensed Disclosures

Our unaudited consolidated financial statements include the Company and its subsidiaries. All intercompany balances and transactions have been eliminated. Our interim consolidated financial statements are unaudited but include all adjustments, which consist of normal, recurring accruals, that are necessary for a fair presentation of our financial position and results of operations as of and for the interim periods presented. Our unaudited consolidated financial statements have been prepared in a manner consistent with the accounting principles described in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 unless otherwise disclosed herein, and should be read in conjunction therewith.

~~Reclassifications~~

~~Certain reclassifications have been made~~On March 11, 2020, the World Health Organization declared the 2019 novel coronavirus disease (“COVID-19”), to ~~prior period amounts~~be a pandemic, which has spread across the globe and is impacting worldwide economic activity. In light of the recent developments relating to ~~conform to~~COVID-19, the ~~current period financial statement presentation with no effect~~Company has evaluated the impact of COVID-19 on our ~~previously reported results of operations, consolidated financial position, or cash flows.~~Consolidated Financial Statements and related disclosures.

Cash and Cash Equivalents

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

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. We base our estimates on historical experience, third-party data and assumptions that we believe to be reasonable under the circumstances. The results of these considerations form the basis for making judgments about the amount and timing of revenue and expenses, the carrying value of assets and the recorded amounts of liabilities. Actual results may differ from these estimates and such estimates may change if the underlying conditions or assumptions change. Historical performance should not be viewed as indicative of future performance, as there can be no assurance that our results of operations will be consistent from year to year.

Inventory

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

Revenue Recognition ~~- Funeral Home Operations~~

Our funeral home operations are principally service businesses that generate revenue from sales of burial and cremation services and related merchandise, such as caskets and urns. Funeral services include consultation, the removal and preparation of remains, the use of funeral home facilities for visitation and remembrance services and transportation services. We provide funeral services and products on both an atneed and preneed basis.

Funeral ~~arrangements sold at the time of death are referred to as atneed funeral contracts. The performance obligation on these atneed contracts for both merchandise~~ and services are bundled as a single performance obligation, as the performance of these obligations occur within a short time frame (usually within a few days) from the time of death to the funeral service. Although our performance activities are transferred in sequence such as, embalming the body, delivering the casket, obtaining service related items like flowers and performing the service, these activities are all essential to satisfy our contractual obligation to the customer, thus, bundled into a single performance obligation.Cemetery Operations Revenue is recognized ~~on the date of funeral service, as all performance~~

~~obligations have been satisfied. Payment is due at or before time of transfer. Outstanding balances due from customers, if any, on atneed funeral contracts are included in~~ ~~Accounts receivable~~ ~~on our Consolidated Balance Sheet.~~

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

~~we have the right to payment;~~

~~the customer has title to merchandise;~~

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

~~the customer directed the use~~ of the merchandise or services is transferred to the ~~plan~~customer. Our performance obligations include the delivery of ~~the service.~~

~~Funeral arrangements sold prior~~funeral and cemetery merchandise and services and cemetery property interment rights. Control transfers when merchandise is delivered or services are performed. For cemetery property interment rights, control transfers to ~~death occurring are referred to as preneed funeral contracts. In many instances,~~ the customer ~~pays for~~when the ~~preneed contract over~~property is developed and the interment right has been sold and can no longer be marketed or sold to another customer. Sales taxes collected are recognized on a ~~period of time. For preneed funeral~~net basis in our consolidated financial statements. On our atneed contracts, we generally deliver the merchandise and ~~service contracts,~~perform the performance obligation occurs at the time of need (when death occurs) and revenue is recognized on the date of delivery of merchandise or performance of service. We do not deliver merchandise on preneed contracts or provide service prior to the time of death. The performance obligation for preneed funeral contracts is similar to the elements of the performance obligation of atneed funeral contracts. For preneed funeral services, all preneed funeral contracts are re-written upon the date of death as an atneed contract. The performance obligation is satisfied at the date of the service.

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

Memorial services frequently include performance obligations to direct the service, provide facilities and motor vehicles, catering, flowers, and stationary products. All other performance obligations on these contracts, including arrangement, removal, preparation, embalming, cremation, interment, and delivery of urns and caskets and related memorialization merchandise are ~~intended to fund preneed funeral contracts, cover the original contract price and generally include an element of growth (earnings) designed to offset future inflationary cost increases.~~

~~Revenue from preneed funeral contracts, along with accumulated earnings, is deferred until~~fulfilled at the time ~~the~~of need. Personalized marker merchandise ~~is delivered or the service is performed. The principal~~ and ~~accumulated earnings of the trusts are withdrawn at maturity (death) or cancellation. The cumulative trust income earned and the increases in insurance benefits~~marker installation services sold on ~~the insurance products~~atneed contracts are recognized when control is transferred to the ~~service~~customer, generally when the marker is ~~performed. The amounts deposited~~delivered and installed in ~~trusts~~the cemetery.

Due to limitations on gatherings imposed to mitigate the spread of COVID-19, some customers have requested that we ~~control are included in~~delay the ~~non-current asset section of our Consolidated Balance Sheet. Balances due on undelivered preneed funeral trust contracts~~memorial service until after the limitations have been ~~reclassified to reduce~~ ~~Deferred preneed~~lifted.

Ancillary funeral service revenue, on which is recorded in Other revenue, represents revenue from our ~~Consolidated Balance Sheet, as noted~~flower shop, pet cremation business and online cremation business in ~~our table of Deferred Revenue in Note 4 to the Consolidated Financial Statements included herein.~~Texas.

The earnings from our preneed ~~funeral~~ trust investments, as well as trust management fees charged by our wholly-owned registered investment advisory firm (“CSV RIA”) are recorded as in Other revenue~~, as noted in our table of disaggregated revenue in Note 4 to the Consolidated Financial Statements included herein.~~. As of ~~September~~June 30, ~~2019,~~2020, CSV RIA provided ~~these~~investment management and advisory services to ~~one institution, which has custody of~~ approximately ~~76%~~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.

~~When~~Balances due on undelivered preneed funeral trust contracts ~~are funded through third-party insurance policies, we earn a commission on the sale of the policies. Insurance commissions are subject~~have been reclassified to ~~refund (charge-back) if the~~reduce Deferred preneed ~~policy is cancelled within a year or if there is an imminent death of beneficiary before the first year anniversary of the policy. We record these insurance commissions as~~ ~~Other~~funeral revenue, as noted in our table of disaggregated revenue in Note 5 to the Consolidated Financial Statements included herein, when the commission is no longer subject to refund, which is typically one year after the policy is issued. All selling costs incurred pursuant to the sale of the insurance funded preneed contracts are expensed as incurred. Preneed funeral contracts to be funded at maturity by third-party insurance policies totaled $388.2 million at September 30, 2019 and are not recorded on our Consolidated Balance ~~Sheet.~~

~~Generally,~~Sheet of $8.9 million and $8.6 million at ~~the time of the sale of either the preneed insurance or preneed trust contract, the intent is that the beneficiary has made a commitment to assign the proceeds to us for the fulfillment of the service~~December 31, 2019 and merchandise obligations on the preneed contract at the time of need. However, this commitment is revocable and the proceeds from the policy are portable, so the customer can choose to use an alternative provider at the time of need.

~~Revenue Recognition - Cemetery Operations~~

~~Cemetery arrangements sold at the time of death are referred to as atneed cemetery contracts. The performance obligation on~~June 30, 2020, respectively. As these ~~atneed contracts for cemetery property, merchandise and services are distinct. The~~ performance obligations ~~from the time of death~~are to ~~the disposition of the remains, include delivering cemetery property, unearthing the ground, interring remains and~~

installing merchandise on the cemetery grounds. Each item on the contract is recognized as a distinct good or service. The performance obligation is satisfied and revenue is recognized on the purchase date of the interment right, onbe completed after the date of death, we cannot quantify the ~~cemetery service, and on the date~~recognition of ~~delivery~~revenue in future periods. However, we estimate an average maturity period of ~~the merchandise (set on cemetery grounds). Payment is due at or before time of transfer. Outstanding balances due from customers, if any, on completed atneed contracts are included in~~ ~~Accounts receivable~~ ~~on our Consolidated Balance Sheet.~~

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

~~we have the right to payment;~~

~~the customer has title to merchandise;~~

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

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

Cemetery arrangements sold prior to death occurring are referred to as preneed cemetery contracts. For preneed cemetery interment rights, the performance obligation is the sale of the interment right and revenue is recognized at the time the contract is signed. Control of cemetery interment rights is transferred to the customer upon execution of the contract as customers select a specific location and space for their interment right, thus, restricting us from other use or transfer of the contracted cemetery property. The interment right is deeded to the customer when the contract is paid in full.

For preneed cemetery merchandise and service, the performance obligation occurs at the time of need (when death occurs) and revenue is recognized on the date of delivery of merchandise or performance of service. We do not deliver merchandise on preneed contracts or provide service prior to the time of death. The performance obligationten years for preneed ~~cemetery merchandise and service is similar to the elements of the performance obligation of atneed cemetery merchandise and service.~~funeral contracts.

Preneed cemetery contracts are usually financed through interest-bearing installment sales contracts, generally with terms of up to five years. In substantially all cases, we receive an initial down payment at the time the contract is signed. Earnings on these installment contracts are not recognized until the time the merchandise is transferred or the service is performed and are recorded as ~~Other revenue, as noted in our table of disaggregated revenue in Note 4 to the Consolidated Financial Statements included herein.~~

The performance of the preneed cemetery contracts is secured by placing the funds collected, less amounts that we may retain under state regulations, in trust for the benefit of the customer, the proceeds of which will pay for such services at the time of need. This method is intended to fund preneed contracts, cover the original contract price and generally include an element of growth (earnings) designed to offset future inflationary cost increases. The amounts deposited in trusts that we control are included in the non-current asset section of our Consolidated Balance Sheet. The earnings from preneed cemetery contracts placed in trust, as well as the trust management fees charged by our CSV RIA are recorded as ~~Other revenue, as noted in our table of disaggregated revenue in Note 5 to the Consolidated Financial Statements included herein.~~

Balances due from customers on delivered preneed cemetery contracts are included in Accounts receivable, net and Preneed cemetery receivables, net on our Consolidated Balance Sheet. Balances due on undelivered preneed cemetery contracts have been reclassified to reduce Deferred preneed cemetery revenue on our Consolidated Balance ~~Sheet, as noted~~Sheet. The transaction price allocated to preneed merchandise and service performance obligations that were unfulfilled were $4.8 million and $6.7 million at December 31, 2019 and June 30, 2020, respectively. As these performance obligations are to be completed after the date of death, we cannot quantify the recognition of revenue in ~~our table~~future periods. However, we estimate an average maturity period of ~~Deferred Revenue~~ ~~in Note 5~~eight years for preneed cemetery contracts.

See Notes 17 to the Consolidated Financial Statements ~~included herein.~~

We sell memorialization merchandise and personalized marker merchandise, such as urns and markers that are supplied by a small number of national providers. We order the memorialized merchandise through a third-party on behalf of our customer. The merchandise and its memorialization is provided by the third-party. We deliver the merchandise after the time of death to the customer upon completion of the memorialization or we set the merchandise on our cemetery grounds.

Cemetery property was $75.0 million and $75.1 million, net of accumulated amortization of $37.7 million and $40.6 million at December 31, 2018 and September 30, 2019, respectively. Interment right costs, which include real property and other costs related to cemetery development, are expensed using the specific identification method in the period in which the sale of the interment right is recognized as revenue. We recorded amortization expense for cemetery interment rights of $1.0 million for both the three months ended September 30, 2018 and 2019 and $2.8 million and $3.0 million for the nine months ended September 30, 2018 and 2019, respectively.

~~See Note 5 to the Consolidated Financial Statements included~~ herein for additional information ~~on our~~related to revenue.

Arrangements with Multiple Performance Obligations

Some of our contracts with customers include multiple performance obligations. For these contracts, we allocate the transaction price to each performance obligation based on its relative standalone selling price, which is based on prices charged to customers per our general price list. Packages for service and ancillary items are offered to help the customer make decisions during emotional and stressful times. Package discounts are reflected net in Revenue. We recognize revenue when the merchandise is transferred or the service is performed, in satisfaction of the corresponding performance obligation. Sales taxes collected are recognized on a net basis in our Consolidated Financial Statements.

Preneed Funeral and Cemetery Trust Funds

Our preneed and perpetual care trust funds are reported in accordance with the principles of consolidating Variable Interest Entities (“VIE’s”). In the case of preneed trusts, the customers are the legal beneficiaries. In the case of perpetual care trusts, we do not have a right to access the corpus in the perpetual care trusts. We have recognized financial interests of third parties in the trust funds in our financial statements as Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus. The investments of such trust funds are classified as available-for-sale and are reported at fair market value; therefore, the unrealized gains and losses, as well as accumulated and undistributed income and realized gains and losses are recorded to Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus on our Consolidated Balance Sheet. Our future obligations to deliver merchandise and services are reported at estimated settlement amounts. Preneed funeral and cemetery trust investments are reduced by the trust investment earnings that we have been allowed to withdraw in certain states prior to maturity. These earnings, along with preneed contract collections not required to be placed in trust, are recorded in Deferred preneed funeral revenue and Deferred preneed cemetery revenue until the service is performed or the merchandise is delivered.

In accordance with respective state laws, we are required to deposit a specified amount into perpetual and memorial care trust funds for each interment right and certain memorials sold. Income from the trust funds is distributed to us and used to provide for the care and maintenance of the cemeteries and mausoleums. Such trust fund income is recognized as revenue when realized by the trust and distributable to us. We are restricted from withdrawing any of the principal balances of these funds.

An enterprise is required to perform an analysis to determine whether the enterprise’s variable interest(s) give it a controlling financial interest in a VIE. This analysis identifies the primary beneficiary of a VIE as the enterprise that has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. Our analysis continues to support our position as the primary beneficiary in the majority of our funeral and cemetery trust funds.

We determine whether or not the assets in the preneed trusts have an other-than-temporary impairment on a security-by-security basis. This assessment is made based upon a number of criteria including the length of time a security has been in a loss position, changes in market conditions and concerns related to the specific issuer. If a loss is considered to be other-than-temporary, the cost basis of the security is adjusted downward to its fair market value. Any reduction in the cost basis of the investment due to an other-than-temporary impairment is likewise recorded as a reduction to ~~Deferred preneed funeral and cemetery receipts held in trust~~ ~~and~~ ~~Care trusts’ corpus~~ on our Consolidated Balance Sheet. There will be no impact on earnings unless and until such time that the investment is withdrawn from the trust in accordance with state regulations at an amount that is less than its original basis.

See Notes 6 7 and 97 to the Consolidated Financial Statements herein for additional information related to our preneed funeral and cemetery trust funds.

~~Allowances for bad debts~~Funeral and ~~customer cancellations~~Cemetery Receivables

Our funeral receivables are recorded in Accounts Receivable, net and primarily consist of amounts due for funeral services already ~~performed~~performed. Our cemetery receivables generally consist of preneed sales of cemetery interment rights and related products and services, which ~~were $8.5 million~~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 ~~$7.9 million at December 31, 2018~~services, the nature of our contracts with customers and ~~September 30, 2019, respectively. We estimate an allowance for doubtful accounts on these~~the timing of the delivery of our services. Atneed cemetery receivables ~~based on~~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 ~~historical experience, which amounted to 2.2% and 2.6% of~~ funeral receivables, we have a collections policy where statements are sent to the customer at ~~December 31, 2018~~30 days past due. Past due notification letters are sent at 45 days and September 30, 2019, respectively. In addition, our other funeral receivables not related to funeral services performed were $0.7 million and $0.6 million at December 31, 2018 and September 30, 2019, respectively.

Our cemetery financed receivables totaled $37.2 million and $39.5 million at December 31, 2018 and September 30, 2019, respectively. The unearned finance charges associated with these receivables were $4.6 million and $4.5 million at December 31, 2018 and September 30, 2019, respectively. If a preneedcontinue until payment is received or the contract is ~~canceled prior to delivery, state law determines the amount of the refund owed to the customer. Allowances for bad debts and customer cancellations on~~placed with a third-party collections agency. For our preneed cemetery ~~financed~~ receivables, are provided at the date that the sale is recognized as revenue and are based on our historical experience. We also monitor changes in delinquency rates and provide additional bad debt and cancellation reserves when warranted. Wewe have a collections policy where past due ~~notifications~~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”). Prior to adoption of Topic 326, we provided allowances for bad debt and contract cancellations on our receivables based on an analysis of historical trends of collection activity.

For both funeral and cemetery receivables, we determine our allowance for credit losses by using a loss-rate methodology, in which we assess our historical write-off of receivables against our total receivables over several years. From this historical loss-rate approach, we also consider the current and forecasted economic conditions expected to be in place over the life of our receivables. These estimates are impacted by a number of factors, including changes in the economy, demographics and competition in our local communities. We ~~reserve 100%~~monitor our ongoing credit exposure through an active review of our customers’ receivables balance against contract terms and due dates. Our activities include timely performance of our accounts receivable reconciliations, assessment of our aging of receivables, dispute resolution and payment confirmation. We will also monitor any change in our historical write-off of receivables utilized in our loss-rate methodology and assess forecasted changes in market conditions within our credit reserve. In the first six months of 2020, we increased our allowance for credit losses on our receivables by $0.6 million as a result of the ~~receivables~~economic impact of COVID-19.

See Notes 2 and 5 to the Consolidated Financial Statements herein for additional information related the adoption of Topic 326 on ~~contracts~~January 1, 2020 and the additional disclosures required.

Business Combinations

Tangible and intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is recognized for any difference between the price of the acquisition and fair value. We recognize the assets acquired, the liabilities assumed and any non-controlling interest in ~~which~~ the ~~revenue has been~~acquiree at the acquisition date, measured at the fair value as of that date. Acquisition related costs are recognized separately from the acquisition and ~~payments~~are expensed as incurred. We customarily estimate related transaction costs known at closing. To the extent that information not available to us at the closing date subsequently becomes available during the allocation period, we may adjust goodwill, intangible assets, assets or liabilities associated with the acquisition.

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

~~are 90 days past due or more, which was 4.6% and 4.2%~~

Goodwill

The excess of the ~~total receivables~~purchase price over the fair value of identifiable net assets of funeral home businesses and cemeteries acquired is recorded as goodwill. Goodwill has an indefinite life and is not subject to amortization. As such, we test goodwill for impairment on an annual basis as of August 31^steach year. In addition to our annual test, we assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value of a reporting unit may be greater than fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant negative industry or economic trends and significant adverse changes in the business climate, which may be indicated by a decline in our market capitalization or decline in operating results.

As a result of economic conditions caused by the response to COVID-19, we performed a quantitative assessment of our goodwill at ~~December~~March 31, ~~2018~~2020 and ~~September~~we recorded an impairment for goodwill of $13.6 million during the quarter ended March 31, 2020, as the carrying amount of our funeral homes in the Eastern Reporting Unit exceeded the fair value. The discounted cash flow valuation uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows. During the three months ended June 30, ~~2019, respectively.~~ 2020, we did not identify any new factors or events that would trigger us to perform an additional interim assessment of our goodwill. We will perform our annual goodwill impairment test as of August 31, 2020.

See Note 74 to the Consolidated Financial Statements included herein for additional information ~~on cemetery financed receivables.~~

~~Our cemetery receivables recorded in~~ ~~Accounts Receivable, net~~ ~~also include $1.8 million and $0.1 million~~ related to ~~perpetual care income receivables~~our goodwill.

Intangible Assets

Our intangible assets include tradenames resulting from acquisitions and are included in Intangible and other non-current assets, net on our Consolidated Balance Sheet. Our tradenames are considered to have an indefinite life and are not subject to amortization. As such, we test our intangible assets for impairment on an annual basis as of August 31^steach 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 the response to COVID-19, we performed a quantitative assessment of our tradenames at ~~December~~March 31, ~~2018~~2020 and ~~September~~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. The discounted cash flow valuation uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows and the determination and application of an appropriate royalty rate and discount rate. During the three months ended June 30, ~~2019, respectively.~~ 2020, we did not identify any new factors or events that would trigger us to perform an additional interim assessment of our tradenames. We will perform our annual intangible assets impairment test as of August 31, 2020.

See Note 9 to the Consolidated Financial Statements included herein for additional information onrelated to our ~~perpetual care trust investments.~~

~~Accounts receivable is comprised of the following at December 31, 2018 and September 30, 2019 (in thousands):~~

December 31, 2018 September 30, 2019
Funeral receivables, net of allowance for bad debt of $189 and $206, respectively $ 9,002
$ 8,342
Cemetery receivables, net of allowance for bad debt of $580 and $596, respectively 9,688
9,144
Other receivables 207
213
Accounts receivable, net $ 18,897
$ 17,699

~~Preneed cemetery receivables represent payments expected to be received beyond one year from the balance sheet date.~~ ~~Preneed cemetery receivables, net~~ ~~are comprised of the following at December 31, 2018 and September 30, 2019 (in thousands):~~

December 31, 2018 September 30, 2019
Preneed cemetery receivables $ 25,568
$ 26,618
Less: unearned finance charges (2,821 ) (2,712 )
Less: allowance for bad debt and contract cancellation (1,228 ) (1,225 )
Less: balances due on undelivered cemetery preneed contracts (3,078 ) (3,214 )
Preneed cemetery receivables, net $ 18,441
$ 19,467

Bad debt expense totaled $0.6 million and $0.5 million for the three months ended September 30, 2018 and 2019, respectively and $1.5 million and $1.2 million for the nine months ended September 30, 2018 and 2019, respectively.intangible assets.

Capitalized Commissions on Preneed Contracts

We capitalize sales commissions and other direct selling costs related to preneed cemetery merchandise and services and preneed funeral trust contracts as these costs are incremental and recoverable costs of obtaining a contract with a customer. Our capitalized commissions on preneed contracts are amortized on a straight-line basis over the average maturity period for our preneed cemetery merchandise and services contracts and preneed funeral trust contracts, of eight and ten years, respectively. Amortization expense totaled $156,000 and $140,000 for the three months ended September 30, 2018 and 2019, respectively and $449,000 and $417,000 for the nine months ended September 30, 2018 and 2019, respectively.

The selling costs related to the sales of cemetery interment rights, which include real property and other costs related to cemetery development activities, continue to be expensed using the specific identification method in the period in which the sale of the cemetery interment right is recognized as revenue. The selling costs related to preneed funeral insurance contracts continue to be expensed in the period incurred as these contracts are not included on our Consolidated Balance Sheet.

See Note 119 to the Consolidated Financial Statements ~~included~~ herein for additional information related to our capitalized commissions on preneed contracts.

Leases

We have operating and finance leases. We lease certain office facilities, certain funeral homes and equipment under operating leases with original terms ranging from one to nineteen years. Many leases include one or more options to renew, some of which include options to extend the leases for up to 26 years. We lease certain funeral homes under finance leases with original terms ranging from ten to forty years. We do not have lease agreements with residual value guarantees, sale-leaseback terms, material restrictive covenants or related parties. We do not have any material sublease arrangements.

We determine if an arrangement is a lease at inception based on the facts and circumstances of the agreement. A right-of-use (“ROU”) asset represents our right to use the underlying asset for the lease term and the lease liability represents our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized on our Consolidated Balance Sheet at the lease commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The lease terms used to calculate the ROU asset and related lease liability include options to extend the lease when it is reasonably certain that we will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense, while the expense for finance leases (formerly

capital leases) is recognized as depreciation expense and interest expense using the accelerated interest method of recognition. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage, are not included in the ROU assets or liabilities. These are expensed as incurred and recorded as variable lease expense. We have real estate lease agreements which require payments for lease and non-lease components and account for these as a single lease component. Leases with an initial term of 12 months or less, that do not include an option to renew the underlying asset, are not recorded on our Consolidated Balance Sheet and expense is recognized on a straight-line basis over the lease term.

Operating lease ROU assets are included in Operating lease right-of-use assets and operating lease liabilities are included in Current portion of operating lease obligations and Obligations under operating leases, net of current portion on our Consolidated Balance Sheet. Finance lease ROU assets are included in Property, plant and equipment, net and finance lease liabilities are included in Current portion of finance lease obligations and Obligations under finance leases, net of current portion on our Consolidated Balance Sheet.

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

See Notes ~~2 and 15~~13 to the Consolidated Financial Statements included herein for additional information related to our leases.

Property, Plant and Equipment

Property, plant and equipment (including equipment under finance ~~leases )~~leases) are stated at cost. The ~~cost~~costs of ordinary maintenance and repairs are charged to operations as incurred, while renewals and major replacements that extend the useful economic life of the asset are capitalized. Depreciation of property, plant and equipment (including equipment under finance leases) is computed based on the straight-line ~~method.~~method over the estimated useful lives of the assets.

Property, plant and equipment is comprised of the following at December 31, ~~2018~~2019 and ~~September~~June 30, ~~2019~~2020 (in thousands):



	December 31, 2019			June 30, 2020
Land	$	84,608		$	85,014
Buildings and improvements	242,641			244,582
Furniture, equipment and automobiles	88,046			90,399
Property, plant and equipment, at cost	415,295			419,995
Less: accumulated depreciation	(136,095		)	(142,431		)
Property, plant and equipment, net	$	279,200		$	277,564

December 31, 2018 September 30, 2019
Land $ 81,012
$ 80,801
Buildings and improvements 223,646
226,290
Furniture, equipment and automobiles 81,125
84,002
Property, plant and equipment, at cost 385,783
391,093
Less: accumulated depreciation (124,945 ) (133,058 )
Property, plant and equipment, net $ 260,838
$ 258,035
During the six months ended June 30, 2020, we acquired $1.7 million of property, plant and equipment related to our acquisition described in Note 3 to the Consolidated Financial Statements included herein. In addition, our growth and maintenance capital expenditures totaled $5.8 million for the six months ended June 30, 2020, for property, plant, equipment and cemetery development.

We recorded depreciation expense of ~~$3.6~~$3.4 million and ~~$3.5~~$3.6 million for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~2020, respectively and ~~$10.3~~$6.9 million and ~~$10.4~~$7.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~2020, respectively.

~~Goodwill~~

~~The excess of the purchase price over the fair value of identifiable net~~Long-lived assets, ~~of funeral home businesses acquired is recorded~~such as ~~goodwill. Goodwill has primarily been recorded in connection with the acquisition of funeral home businesses. Goodwill has an indefinite life~~property, plant and ~~is not~~equipment subject to ~~amortization. As such, we test goodwill~~depreciation and amortization, are reviewed for impairment ~~on an annual basis. Our intent is to perform a quantitative impairment test~~ at least ~~once every three years unless certain indicators~~annually or ~~events suggest otherwise and perform a qualitative assessment during the remaining two years.~~

~~We perform our annual goodwill impairment test as of August 31~~^steach year. Under current guidance, we are permitted to first assess qualitative factors to determine whether it is more-likely-than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. We conducted qualitative assessments in 2017 and 2018; however, we performed a quantitative assessment in 2019. In addition to our annual test, we assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying ~~value~~amount of ~~a reporting unit~~an asset may not be ~~greater than fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant adverse changes~~recoverable in ~~the business climate, which may be indicated by a decline in our market capitalization or decline in operating results.~~

Our quantitative goodwill impairment test involves estimates and management judgment. In the quantitative analysis, we compare the fair value of each reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, the goodwill of that reporting unit is not considered impaired. We determine fair value for each reporting unit using both an income approach, weighted 90%, and a market approach, weighted 10%. Our methodology for determining an income-based fair value is based on discounting projected future cash flows. The projected future cash flows include assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows discounted at our weighted average cost of capital based on market participant assumptions. Our methodology for determining a market approach fair value utilizes the guideline public company method, in which we rely on market multiples of comparable companies operating

~~in the same industry as the individual reporting units. In~~ accordance with the ~~guidance, if the fair value~~Property, Plant and Equipment topic of the ~~reporting unit is less than its carrying amount an~~Accounting Standards Codification (“ASC”) 360. In connection with the goodwill and intangible impairment ~~charge is recorded~~tests performed at March 31, 2020, we also evaluated the long-lived assets of our funeral homes in ~~an amount equal to~~ the ~~difference.~~

~~For our 2019 quantitative assessment,~~Eastern Reporting Unit and concluded that there was no impairment to ~~goodwill as~~our long-lived assets. During the ~~fair value~~three months ended June 30, 2020, we did not identify any new factors or events that would trigger us to perform an additional assessment of our ~~reporting units was greater than the carrying value. However,~~long-lived assets.

Cemetery Property

When we ~~recorded~~acquire a ~~goodwill impairment of $0.5 million during the three~~cemetery, we utilize an internal and ~~nine months ended September 30, 2019 related~~external approach to a funeral home business (at a leased facility) that we intend to cease operating in the fourth quarter of 2019. No impairments were recorded to our goodwill during the three and nine months ended September 30, 2018.

~~Intangible Assets~~

~~Our intangible assets include tradenames resulting from acquisitions and are included in~~ ~~Intangible and other non-current assets, net~~ on our Consolidated Balance Sheet. Our tradenames are considered to have an indefinite life and are not subject to amortization. As such, we test our intangible assets for impairment on an annual basis. Our intent is to perform a quantitative impairment test at least once every three years unless certain indicators or events suggest otherwise and perform a qualitative assessment during the remaining two years.

~~We perform our annual intangible assets impairment test as of August 31~~^steach year. Under current guidance, we are permitted to first assess qualitative factors to determine whether it is more-likely-than not that the fair value of the tradename is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative impairment test. We conducted qualitative assessments in 2017 and 2018; however, we performed a quantitative assessment in 2019. In addition to our annual test, we assess the impairment of intangible assets whenever certain events or changes in circumstances indicate that the carrying value of the intangible asset may be greater than the fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant under-performance relative to historical or projected future operating results and significant negative industry or economic trends.

Our quantitative intangible asset impairment test involves estimates and management judgment. Our quantitative analysis is performed using the relief from royalty method, which measures the tradenames by determining the value of the royalties that we are relieved from paying due to our ownership of the asset. We determine the fair value of the ~~asset by discounting the cash flows~~cemetery property. From an external perspective, we obtain an accredited appraisal to provide reasonable assurance for property existence, property availability (unrestricted) for development, property lines, available spaces to sell, identifiable obstacles or easements and general valuation inclusive of known variables in that ~~represent~~market. From an internal perspective, we conduct a ~~savings in lieu of paying a royalty fee for use~~detailed analysis of the ~~tradename. The discounted cash flow valuation uses projections~~acquired cemetery property using other cemeteries in our portfolio as a benchmark. This provides the added benefit of ~~future cash flows~~relevant and ~~includes assumptions concerning future operating performance~~accurate data that is not available to third party appraisers. Through this thorough internal process, the Company is able to identify viable costs of property based on historical experience, particular markets and ~~economic conditions that may differ from actual future cash flows~~demographics, reasonable margins, practical retail prices and ~~the determination~~park infrastructure and ~~application~~condition.

Cemetery property was $87.0 million and $101.5 million, net of ~~an appropriate royalty rate~~accumulated amortization of $41.7 million and ~~discount rate. To estimate~~$43.6 million at December 31, 2019 and June 30, 2020, respectively. When cemetery property is sold, the royalty rates for the individual tradename, we mainly rely on the profit split method, but also consider the comparable third-party license agreements and the return on asset method. A scorecard is used to assess the relative strength of the individual tradename to further adjust the royalty rates selected under the profit-split method for qualitative factors. In accordance with the guidance, if the fair value of the ~~tradename~~cemetery property (interment right costs) is ~~less than its carrying amount, then an impairment charge~~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 ~~in an amount equal to the difference.~~

~~For our 2019 quantitative assessment, we recorded an impairment~~amortization expense for ~~tradenames~~cemetery interment rights of ~~$0.2~~$1.2 million and $1.1 million for the three ~~and nine~~ months ended ~~September~~June 30, 2019 asand 2020, respectively and $2.0 million for both the six months ended June 30, 2019 and 2020.

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 ~~tradenames~~effect of ~~certain businesses was greater than~~changes in Level 3 inputs should be based on changes that could occur at the ~~carrying value. No impairments were recorded~~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.

See Notes 6 and 8 to the Consolidated Financial Statements herein for additional required disclosures related to our ~~intangible~~fair value measurement of our financial assets ~~during the three~~ and ~~nine months ended September 30, 2018.~~liabilities.

Stock Plans and Stock-Based Compensation

We have stock-based employee and director compensation plans under which we grant stock, restricted stock, stock options and performance awards. We also have an employee stock purchase plan ~~(the “ESPP”~~(“ESPP”). We recognize compensation expense in an amount equal to the fair value of the stock-based awards expected to vest or to be purchased over the requisite service period. We recognize the effect of forfeitures in compensation cost when they occur and any previously recognized compensation cost for an award is reversed in the period that the award is forfeited.

Fair value is determined on the date of the grant. The fair value of restricted stock is determined using the stock price on the grant date. The fair value of options or awards containing options is determined using the Black-Scholes valuation model. 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 performance awards related to internal performance metrics is determined using the stock price on the grant date.~~ The fair value of the ESPP is determined based on the discount element offered to employees and the embedded option element, which is determined using an option calculation model.

See Note 1715 to the Consolidated Financial Statements included herein for additional information related to our stock-based compensation plans.

Income Taxes

We and our subsidiaries file a consolidated ~~U.S.~~U. S. federal income tax return, separate income tax returns in 15 states in which we operate and combined or unitary income tax returns in 14 states in which we operate. We record deferred taxes for temporary differences between the tax basis and financial reporting basis of assets and liabilities.

We classify our deferred tax liabilities and assets as non-current on our Consolidated Balance Sheet.

We record a valuation allowance to reflect the estimated amount of deferred tax assets for which realization is uncertain. Management reviews the valuation allowance at the end of each quarter and makes adjustments if it is determined that it is more likely than not that the tax benefits will be realized.

We analyze ~~the~~ tax benefits for uncertain tax positions and how they are to be recognized, measured, and derecognized in the financial statements; provide certain disclosures of uncertain tax matters; and specify how reserves for uncertain tax positions should be classified on our Consolidated Balance Sheet. Our unrecognized tax benefits reserve for uncertain tax positions primarily relates to pending accounting method changes filed for the tax year ended December 31, 2018. During the latter half of 2020, we

plan to modify the proposed accounting method filed to exclude the tax position that resulted in the need for an uncertain tax position reserve.

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

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

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

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

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

Although the CARES Act allows for a carryback of the net operating losses generated in 2018 and 2019, due to uncertainty in the timing of receiving Internal Revenue Service 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 six months ended June 30, 2020, the reserve for uncertain tax positions was $2.9 million. The 2018 refund claim was filed June 30, 2020. There is no reserve recorded at June 30, 2019. Although we expect to take advantage of certain tax relief provisions of the CARES Act, we do not believe it will have a significant impact on our short-term or long-term liquidity position.

Income tax expense during interim periods is based on our ~~estimated~~forecasted annual effective ~~income~~ 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.

~~Income~~Our income tax expense was ~~$1.2~~$2.1 million and ~~$0.9~~$3.4 million for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~2020, respectively and ~~$5.1~~$4.8 million and ~~$5.8~~$1.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~2020, respectively.

~~Below is a breakdown of our income~~ Our operating tax ~~expense and effective~~ rate ~~for the three and nine months ended September 30, 2018 and 2019 (in thousands except percentages):~~

Three Months Ended September 30, Nine Months Ended September 30,
2018 2019 2018 2019
Income tax expense on operations at estimated rate $ 1,028
$ 70
$ 5,423
$ 4,691
Impact of discrete items 159
17
(358 ) 219
Impact of divested business —
860
—
860
Total tax provision $ 1,187
$ 947
$ 5,065
$ 5,770

Tax rate on operations (including discrete items) 35.0 % 5.7 % 26.2 % 27.7 %
Impact of divested business — % 56.4 % — % 4.8 %
Total effective tax rate 35.0 % 62.1 % 26.2 % 32.5 %

~~We recorded income taxes~~ before discrete items ~~at an estimated rate of 30.3%~~was 29.2% and ~~4.6%~~33.5% for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~2020, respectively and ~~28.0%~~28.5% and ~~26.5%~~33.3% for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~2020, respectively.

The increase in our ~~total~~overall effective tax rate is ~~primarily~~ due to the ~~additional~~unfavorable tax ~~expense we~~impact of impairment of goodwill and other intangibles recorded ~~related to a divested business~~in the first quarter of 2020 for businesses that were previously acquired through stock acquisitions.

Computation of Earnings Per Common Share

Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of stock options.

Share-based awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are recognized as aparticipating securities and included in the computation of both basic and diluted earnings per share. Our grants of restricted stock ~~acquisition during three~~awards to our employees and ~~nine months ended September 30, 2019.~~ 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 416 to the Consolidated Financial Statements included herein for ~~a discussion~~the additional information related to computation of ~~our divested businesses.~~earnings per share.

Subsequent Events

~~Management has~~We have evaluated ~~the~~ events and transactions during the period subsequent to ~~September~~June 30, ~~2019~~2020 through the date the financial statements were issued for potential recognition or disclosure in the accompanying financial statements covered by this report.

See Note 2119 to the Consolidated Financial Statements included herein for additional information related to our subsequent events.

2.RECENTLY ISSUED ACCOUNTING STANDARDS

~~Leases~~

~~In February 2016, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) related to~~ ~~Leases (Topic 842)~~ and subsequent amendments, collectively referred to as (“Topic 842”) to increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease liabilities on the balance sheet for all leases, including operating leases. The ROU asset represents the right to use the underlying asset for the lease term and the lease liability represents the obligation to make lease payments arising from the lease. Finance leases were not impacted by Topic 842, as finance lease liabilities and the corresponding ROU assets were already recorded on the balance sheet under the previous guidance Topic 840, ~~Leases~~.

On January 1, 2019, we adopted Topic 842 using the modified retrospective method for all lease arrangements at the beginning of the period of adoption. Results for reporting periods beginning January 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with Topic 840. While Topic 842 had a material impact on our Consolidated Balance Sheet, it did not have an impact on our Consolidated Statements of Operations or Cash Flows, or liquidity measures, such as debt covenant ratios. It also did not have a material impact on our effective tax rate for the reporting

period. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. For leases that commenced before the effective date of Topic 842, we elected the permitted practical expedients to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. We also elected to exclude leases with a term of 12 months or less in the recognized ROU assets and lease liabilities. We have real estate lease agreements which require payments for lease and non-lease components and have elected to account for these as a single lease component. We have elected the short-term lease recognition exemption for all applicable classes of underlying assets.

On January 1, 2019, we recorded operating lease ROU assets of $16.5 million and operating lease liabilities of $17.3 million, related to our real estate and equipment leases, based on the present value of the future lease payments on the date of adoption. Our opening operating lease ROU asset balance included prepaid lease expense and lease incentives on our Consolidated Balance Sheet at December 31, 2018. The cumulative effect of changes made to our opening Consolidated Balance Sheet on January 1, 2019 for the adoption of Topic 842 is as follows (in thousands):

December 31, 2018 Effect of Adoption of
Topic 842 January 1, 2019
Assets
Prepaid expenses $ 1,456
$ (148 ) $ 1,308
Operating lease right-of-use assets —
16,470
16,470
$ 16,322

Liabilities
Accrued and other liabilities $ 22,644
$ (274 ) $ 22,370
Other long-term liabilities 3,133
(692 ) 2,441
Current portion of operating lease obligations —
2,633
2,633
Obligations under operating leases, net of current portion —
14,655
14,655
$ 16,322

~~See Note 15 to the Consolidated Financial Statements included herein for the additional disclosures required by Topic 842.~~

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

~~Accounting Pronouncements Not Yet Adopted~~

Financial Instruments - Credit Losses

~~In June 2016, the FASB issued ASU,~~ ~~Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments~~ ~~and subsequent amendments collectively known as (Topic 326). This ASU~~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 ~~utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. The CECL model~~ requires all expected credit losses to be measured based on historical experience, current conditions and reasonable and supportable forecasts about collectability. In addition, 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.

~~This~~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 5 and 6 to the Consolidated Financial Statements herein for additional disclosures required by Topic 326.

Income Taxes

In December 2019, the FASB issued ASU, isIncome Taxes (“Topic 740”), to simplify the accounting for income taxes. The amendments in this update are effective for fiscal years beginning after December 15, ~~2019, and interim periods within those fiscal years,~~2020, with ~~earlier application permitted for all entities. We plan to adopt~~early adoption permitted. On January 1, 2020, we early adopted the provisions of this ASU ~~for our fiscal year beginning January 1, 2020~~ using the ~~modified retrospective approach.~~

We are in the process of implementing changes to our accounting policies and procedures for this ASU and believe the most notable impact will relate to our processes around the assessment of the adequacy of our allowance for doubtful accounts on trade receivablesprospective method and the ~~allowance for contract cancellations on financed receivables and the recognition of credit losses. We do~~impact was not ~~expect the adoption of this ASU to have a material impact on our consolidated financial statements.~~

In addition, for available-for-sale debt securities, the new guidance prospectively replaces the other-than-temporary impairment model and requires the recognition of an allowance for reductions in a security's fair value attributable to declines in credit quality, instead of a direct write-down of the security, when a valuation decline is determined to be other-than-temporary. We do not expect the impact of the new guidance on available-for-sale securities to be material to our ~~consolidated financial statements upon adoption.~~Consolidated Financial Statements.

Accounting Pronouncements Not Yet Adopted

Reference Rate Reform

In March 2020, the FASB issued ASU, Reference Rate Reform (“Topic 848”) to provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. Generally Accepted Accounting Principles (“GAAP”) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference London InterBank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company did not utilize the optional expedients and exceptions provided by this ASU during the six months ended June 30, 2020.

3. ACQUISITIONS

On January 3, 2020, we acquired one funeral home and cemetery combination business in Lafayette, California for $33.0 million in cash, of which $5.0 million was deposited in escrow in 2019 and $28.0 million was paid at closing in 2020. We acquired substantially all of the assets and assumed certain operating liabilities of these businesses.

The pro forma impact of this acquisition on prior periods is not presented, as the impact is not significant to our reported results. The results of the acquired business is reflected in our Consolidated Statements of Operations from the date of acquisition.

3.~~GOODWILL~~

~~Many~~During the three months ended June 30, 2020, we recorded adjustments to the purchase price allocation for our acquisition made during the first quarter of 2020. The following table summarizes the former owners and staff of our acquired funeral homes and certain cemeteries have provided high quality service to families for generations, which often represents a substantial portion of the value of a business. The excessbreakdown of the purchase price ~~over~~allocation for these businesses and the subsequent adjustments made based on additional information which became available prior to June 30, 2020 (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						14,753
Goodwill	12,916			110			13,026
Intangible and other non-current assets	2,506						2,506
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 ~~identifiable net assets~~tradenames. The assumed liabilities primarily relate to the obligations associated with delivered preneed merchandise that was not paid for prior to acquisition. As of ~~funeral home~~June 30, 2020, our accounting for cemetery receivables, cemetery property, deferred revenue and deferred tax liabilities for this acquisition has not been finalized.

During the six months ended June 30, 2020, we 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 ~~acquired is recorded as goodwill. Goodwill has primarily been~~and the subsequent adjustments made based on additional information which became available prior to June 30, 2020 (in thousands):



	Initial Purchase Price Allocation			Adjustments			Adjusted Purchase Price Allocation
Current assets	$	1,482		$	187		$	1,669
Preneed trust assets	15,891			—			15,891
Property, plant & equipment	21,680			—			21,680
Cemetery property	11,994			(45		)	11,949
Goodwill	99,344			(825		)	98,519
Intangible and other non-current assets	8,269			—			8,269
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 three months ended June 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 ~~connection with the acquisition of funeral home businesses.~~

~~See Note 1~~Current assets, related to the ~~Consolidated Financial Statements included herein,~~closing of all operating bank accounts in place prior to the acquisition. As of June 30, 2020, our accounting for ~~a discussion of the methodology used~~cemetery receivables, cemetery property, deferred revenue and deferred tax liabilities for our ~~annual goodwill impairment test.~~2019 acquisitions has not been finalized.

4.GOODWILL

The following table presents changes in goodwill in the accompanying Consolidated Balance Sheet for the year ended December 31, ~~2018~~2019 and ~~period~~the six months ended ~~September~~June 30, ~~2019~~2020 (in thousands):



	December 31, 2019			June 30, 2020
Goodwill at the beginning of the period	$	303,887		$	398,292
Net increase in goodwill related to acquisitions	99,344			12,201
Decrease in goodwill related to divestitures	(4,939		)	—
Decrease in goodwill related to impairments	—			(13,632		)
Goodwill at the end of the period	$	398,292		$	396,861

December 31, 2018 September 30, 2019
Goodwill at the beginning of the period $ 287,956
$ 303,887
Increase in goodwill related to acquisitions 16,777
—
Decrease in goodwill related to divestitures —
(4,197 )
Decrease in goodwill related to impairments (846 ) (509 )
Goodwill at the end of the period $ 303,887
$ 299,181

~~During the three months ended September 30, 2019, we sold a funeral home business with a $4.2 million carrying value of goodwill for a loss recorded in~~ ~~Other, net~~. See ~~Note 4~~Notes 1 and 3 to the Consolidated Financial Statements included herein, for a discussion of the methodology used for our ~~divested businesses.~~

~~We also recorded a~~ goodwill impairment test and discussion of ~~$0.5 million in~~ ~~Other, net, related to a funeral home business (at a leased facility) that we intend to cease operating in the fourth quarter of 2019.~~our acquisitions, respectively.


5.	RECEIVABLES

4.~~DIVESTED OPERATIONS~~Accounts Receivable

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



	December 31, 2019
	Funeral			Cemetery			Corporate		Total
Trade and financed receivables	$	10,046		$	10,508		$	—	$	20,554
Other receivables	935			157			681		1,773
Allowance for bad debt and contract cancellation	(223		)	(626		)	—		(849		)
Accounts receivable, net	$	10,758		$	10,039		$	681	$	21,478



	June 30, 2020
	Funeral			Cemetery			Corporate		Total
Trade and financed receivables	$	8,899		$	11,277		$	—	$	20,176
Other receivables	352			617			214		1,183
Allowance for credit losses	(306		)	(1,020		)	—		(1,326		)
Accounts receivable, net	$	8,945		$	10,874		$	214	$	20,033

During ~~2019,~~the six months ended June 30, 2020, we ~~ceased to operate a funeral home business whose lease expired and sold a funeral home business~~increased our allowance for $0.9 million. In addition, we merged a funeral home business with a business in an existing market. During 2018, our management agreement with a Florida municipality expired and, as a result, we ceased to operate three of our cemetery businesses. We continually review locations to optimize the sustainable earning power and returncredit losses on our ~~invested capital. We may decide to sell certain non-strategic businesses~~Accounts Receivables by $0.2 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. We do not provide an allowance for credit losses for these ~~reviews.~~receivables as we have historically not had any collectability issues nor do we expect any in the foreseeable future.

The ~~operating results of these divested businesses are reflected~~following table summarizes the activity in our ~~Consolidated Statements of Operations as shown in the table below~~allowance for credit losses by portfolio segment for six months ended June 30, 2020 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2018 2019 2018 2019
Revenue $ 1,478
$ 108
$ 4,712
$ 471

Operating income (loss) 345
(31 ) 1,130
4
Other, net⁽¹⁾
(349 ) (3,863 ) (349 ) (3,874 )
Income tax benefit (provision) 1
1,149
(219 ) 1,211
Net income (loss) from divested operations $ (3 ) $ (2,745 ) $ 562
$ (2,659 )



	January 1, 2020			Provision for Credit Losses			Allowance Recorded at Acquisition			Write Offs		Recoveries			June 30, 2020
Trade and financed receivables:
Funeral	$	(223	)	$	(682	)	$	—		$	1,042	$	(443	)	$	(306	)
Cemetery	(626		)	(320		)	(287		)	213		—			(1,020		)
Total allowance for credit losses on Trade and financed receivables	$	(849	)	$	(1,002	)	$	(287	)	$	1,255	$	(443	)	$	(1,326	)

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 ($0.2 million current portion shown above in Accounts Receivable, net and $0.4 million non-current portion shown below in Preneed Cemetery Receivables, net). 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 $0.5 million for the three and six months ended June 30, 2019.

Preneed Cemetery Receivables

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




~~(1)~~	~~Reflects the net loss on disposal of divested businesses.~~



	December 31, 2019		June 30, 2020
Cemetery interment rights	$	31,366	$	34,301
Cemetery merchandise and services	9,950		10,028
Preneed cemetery receivables	$	41,316	$	44,329

5.~~REVENUE FROM CONTRACTS WITH CUSTOMERS~~

~~Revenue~~

~~Our operations are reported in two business segments: Funeral Home Operations and Cemetery Operations. Revenue, disaggregated by major source for each~~The components of our ~~reportable segments~~preneed cemetery receivables at December 31, 2019 and June 30, 2020 are as follows (in thousands):



	December 31, 2019			June 30, 2020
Preneed cemetery receivables	$	41,316		$	44,329
Less: unearned finance charges	(4,522		)	(4,159		)
Preneed cemetery receivables, at amortized cost	$	36,794		$	40,170
Less: allowance for contract cancellation and credit losses	(1,916		)	(3,007		)
Less: balances due on undelivered cemetery preneed contracts	(4,823		)	(6,668		)
Less: amounts in accounts receivable	(9,882		)	(10,257		)
Preneed cemetery receivables, net	$	20,173		$	20,238

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



	January 1, 2020			Provision for Credit Losses			Allowance Recorded at Acquisition			Write Offs		June 30, 2020
Total allowance for credit losses on Preneed cemetery receivables, net	$	(1,290	)	$	(505	)	$	(318	)	$	126	$	(1,987	)

During the six months ended June 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 $0.1 million and $0.2 million for the three and six months ended June 30, 2019.

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

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



	2020		2019		2018		2017		2016		Prior		Total
Total preneed cemetery receivables, at amortized cost	$	9,891	$	13,590	$	7,390	$	4,495	$	2,432	$	2,372	$	40,170

Three Months Ended September 30, 2018
Funeral Cemetery Total
Services $ 30,231
$ 2,774
$ 33,005
Merchandise 17,525
2,064
19,589
Cemetery property —
7,435
7,435
Other revenue 2,087
2,125
4,212
Total $ 49,843
$ 14,398
$ 64,241

Nine Months Ended September 30, 2019
Funeral Cemetery Total
Services $ 97,308
$ 8,136
$ 105,444
Merchandise 56,261
5,791
62,052
Cemetery property —
23,406
23,406
Other revenue 6,618
5,438
12,056
Total $ 160,187
$ 42,771
$ 202,958

Nine Months Ended September 30, 2018
Funeral Cemetery Total
Services $ 94,818
$ 8,850
$ 103,668
Merchandise 55,539
6,386
61,925
Cemetery property —
22,808
22,808
Other revenue 6,612
6,462
13,074
Total $ 156,969
$ 44,506
$ 201,475

~~Deferred Revenue~~

~~Deferred revenue is presented net~~The aging of ~~amounts~~past due ~~on undelivered~~ preneed ~~contracts shown below~~cemetery receivables as of ~~December 31, 2018 and September~~June 30, ~~2019~~2020 is as follows (in thousands):



	31-60 Past Due		61-90 Past Due		91-120 Past Due		>120 Past Due		Total Past Due		Current		Total
Recognized revenue	$	728	$	508	$	266	$	2,128	$	3,630	$	29,394	$	33,024
Deferred revenue	186		166		81		397		830		10,475		11,305
Total contracts	$	914	$	674	$	347	$	2,525	$	4,460	$	39,869	$	44,329

December 31, 2018 September 30, 2019
Contract liabilities:
Deferred preneed cemetery revenue $ 50,445
$ 49,903
Less: Balances due on undelivered cemetery preneed contracts⁽¹⁾
(4,448 ) (4,708 )
Deferred preneed cemetery revenue, net $ 45,997
$ 45,195

Deferred preneed funeral revenue $ 36,912
$ 37,973
Less: Balances due on undelivered funeral preneed contracts⁽²⁾
(8,306 ) (8,451 )
Deferred preneed funeral revenue, net $ 28,606
$ 29,522




~~(1)~~	$1.4 million and $1.5 million of cemetery accounts receivables have been reclassified to reduce deferred preneed cemetery revenue at December 31, 2018 and September 30, 2019, respectively and $3.1 million and $3.2 million of preneed cemetery receivables have been reclassified to reduce deferred preneed cemetery revenue at December 31, 2018 and September 30, 2019, respectively.
~~(2)~~	~~$8.3 million and $8.5 million of preneed funeral receivables have been reclassified to reduce deferred preneed funeral revenue at December 31, 2018 and September 30, 2019, respectively.~~

Our merchandise and service performance obligations related to our preneed contracts are considered fulfilled at the point in time the merchandise is delivered or the burial, cremation or interment service is performed. The transaction price allocated to preneed merchandise and service performance obligations that were unfulfilled at December 31, 2018 and September 30, 2019 was $4.4 million and $4.7 million for preneed cemetery contracts and $8.3 million and $8.5 million for preneed funeral contracts, respectively. As these performance obligations are to be completed after the date of death, we cannot quantify the recognition of revenue for any given period. However, we estimate an average maturity period of eight years for preneed cemetery contracts and ten years for preneed funeral contracts.


6.	~~PRENEED~~ TRUST INVESTMENTS

Preneed ~~Cemetery Trust Investments~~

~~Preneed cemetery~~ trust investments represent trust fund assets that we are generally permitted to withdraw as ~~merchandise~~the services and ~~services~~merchandise are provided to customers. Preneed funeral and cemetery contracts are secured by payments from customers, less ~~retained~~ amounts not required by law to be deposited into trust. Preneed ~~cemetery trust investments can be reduced by the trust earnings we have been allowed to withdraw in certain states prior to our performance.~~

~~The components of~~ ~~Preneed cemetery trust investments~~ ~~on our Consolidated Balance Sheet at December 31, 2018 and September 30, 2019 are as follows (in thousands):~~

December 31, 2018 September 30, 2019
Preneed cemetery trust investments, at market value $ 64,549
$ 70,503
Less: allowance for contract cancellation (2,117 ) (2,170 )
Preneed cemetery trust investments, net $ 62,432
$ 68,333

Upon cancellation of a preneed cemetery contract, a customer is generally entitled to receive a refund of the corpus, and in some instances, a portion of all of the earnings held in trust. In certain jurisdictions, we may be obligated to fund any shortfall if the amounts deposited by the customer exceed the funds in trust, including investment income. As a result, when realized or unrealized losses of a trust result in the trust being underfunded, we assess whether we are responsible for replenishing the corpus of the trust, in which case a loss provision is recorded. At September 30, 2019, none of our preneed cemetery trust investments were underfunded.

Earnings from our preneed cemetery trust investments are recognized as revenue when a service is performed or merchandise is delivered. Trust management fees charged by CSV RIA are included in revenue in the period in which they are earned.

Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy. Our Level 1 investments include cash and common stock. Where quoted market prices are not available for the specific security, fair values are estimated by using quoted prices of similar securities in active

markets or other inputs other than quoted prices that can corroborate observable market data. These investments are fixed income securities, including foreign debt, corporate debt, preferred stocks, mortgage-backed securities and fixed income mutual funds, all of which are classified within Level 2 of the valuation hierarchy. We review and update our fair value hierarchy classifications quarterly. There were no transfers between Levels 1 and 2 in the three and nine months ended September 30, 2019. There are no Level 3 investments in the preneed cemetery trust investment portfolio. See Note 10 to the Consolidated Financial Statements included herein for further information on the fair value measurement and the three-level hierarchy.

~~The cost and fair market values associated with preneed cemetery trust investments at September 30, 2019 are detailed below (in thousands, except percentages):~~

Fair Value Hierarchy Level Cost
Unrealized
Gains

Unrealized
Losses

Fair Market
Value
Cash and money market accounts 1 $ 7,657
$ —
$ —
$ 7,657
Fixed income securities:
Foreign debt 2 6,380
125
(471 ) 6,034
Corporate debt 2 17,404
812
(660 ) 17,556
Preferred stock 2 13,193
1,000
(137 ) 14,056
Mortgage-backed securities 2 567
—
(210 ) 357
Common stock 1 25,679
1,169
(4,231 ) 22,617
Mutual funds:
Fixed Income 2 1,462
36
(69 ) 1,429
Trust securities $ 72,342
$ 3,142
$ (5,778 ) $ 69,706
Accrued investment income $ 797
$ 797
Preneed cemetery trust investments $ 70,503
Market value as a percentage of cost 96.4 %

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

Due in one year or less $ —
Due in one to five years 2,582
Due in five to ten years 12,924
Thereafter 22,497
Total $ 38,003

~~The cost and fair market values associated with preneed cemetery trust investments at December 31, 2018 are detailed below (in thousands, except percentages):~~

Fair Value Hierarchy Level Cost
Unrealized
Gains

Unrealized
Losses

Fair Market
Value
Cash and money market accounts 1 $ 16,194
$ —
$ —
$ 16,194
Fixed income securities:
Foreign debt 2 3,802
43
(511 ) 3,334
Corporate debt 2 13,987
362
(1,026 ) 13,323
Preferred stock 2 11,068
54
(1,146 ) 9,976
Mortgage-backed securities 2 666
161
(14 ) 813
Common stock 1 24,867
903
(5,436 ) 20,334
Trust securities $ 70,584
$ 1,523
$ (8,133 ) $ 63,974
Accrued investment income $ 575
$ 575
Preneed cemetery trust investments $ 64,549
Market value as a percentage of cost 90.6 %

We determine whether or not the assets in the preneed cemetery trust investments have an other-than-temporary impairment on a security-by-security basis. This assessment is made based upon a number of criteria, including the length of time a security has been in a loss position, changes in market conditions and concerns related to the specific issuer. If a loss is considered to be

other-than-temporary, the cost basis of the security is adjusted downward to its fair market value. Any reduction in the cost basis of the investment due to an other-than-temporary impairment is likewise recorded as a reduction in ~~Deferred preneed cemetery receipts held in trust~~ on our Consolidated Balance Sheet. In the three and nine months ended September 30, 2018 and 2019, we did not record any impairments for other-than-temporary declines in the fair value related to unrealized losses on certain investments. There is no impact on earnings until such time that the loss is realized in the trusts, allocated to preneed contracts and the services are performed or the merchandise is delivered, causing the contract to be withdrawn from the trust in accordance with state regulations.

At September 30, 2019, we had certain investments within our preneed cemetery trust investments that had tax lots in loss positions for more than one year. Based on our analyses of these securities, the companies’ businesses and current market conditions, we determined that these investment losses were temporary in nature.

Our preneed cemetery trust investment unrealized losses, their associated fair market values, and the duration of unrealized losses as of September 30, 2019 are shown in the following table (in thousands):

September 30, 2019
In Loss Position Less than 12 months In Loss Position Greater than 12 months Total
Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses
Fixed income securities:
Foreign debt $ 1,824
$ (130 ) $ 1,057
$ (341 ) $ 2,881
$ (471 )
Corporate debt 3,465
(434 ) 4,777
(226 ) 8,242
(660 )
Preferred stock 2,282
(26 ) 2,477
(111 ) 4,759
(137 )
Mortgage-backed securities —
—
357
(210 ) 357
(210 )
Common stock 12,130
(2,791 ) 2,970
(1,440 ) 15,100
(4,231 )
Mutual Funds:
Fixed Income 662
(69 ) —
—
662
(69 )
Total temporary impaired securities $ 20,363
$ (3,450 ) $ 11,638
$ (2,328 ) $ 32,001
$ (5,778 )

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

December 31, 2018
In Loss Position Less than 12 months In Loss Position Greater than 12 months Total
Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses
Fixed income securities:
Foreign debt $ 2,140
$ (245 ) $ 895
$ (266 ) $ 3,035
$ (511 )
Corporate debt 9,918
(813 ) 443
(213 ) 10,361
(1,026 )
Preferred stock 5,253
(399 ) 3,767
(747 ) 9,020
(1,146 )
Mortgage-backed securities —
—
51
(14 ) 51
(14 )
Common stock 14,191
(4,012 ) 1,190
(1,424 ) 15,381
(5,436 )
Total temporary impaired securities $ 31,502
$ (5,469 ) $ 6,346
$ (2,664 ) $ 37,848
$ (8,133 )

~~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, 2018 and 2019 are as follows (in thousands):~~

Three Months Ended September 30, Nine Months Ended September 30,
2018 2019 2018 2019
Investment income $ 315
$ 323
$ 1,214
$ 1,308
Realized gains 1,376
1,180
2,247
5,001
Realized losses (1,141 ) (1,527 ) (2,498 ) (3,163 )
Expenses and taxes (365 ) (396 ) (637 ) (1,081 )
Net change in deferred preneed cemetery receipts held in trust (185 ) 420
(326 ) (2,065 )
$ —
$ —
$ —
$ —

~~Purchases and sales of investments in the preneed cemetery trusts for the three and nine months ended September 30, 2018 and 2019 are as follows (in thousands):~~

Three Months Ended September 30, Nine Months Ended September 30,
2018 2019 2018 2019
Purchases $ (8,165 ) $ (13,488 ) $ (18,423 ) $ (33,299 )
Sales 8,878
11,672
22,776
24,690

~~Preneed Funeral Trust Investments~~

Preneed funeral trust investments represent trust fund assets that we are permitted to withdraw as services and merchandise are provided to customers. Preneed funeral contracts are secured by payments from customers, less retained amounts not required to be deposited into trust. Preneed funeral trust investments are reduced by the trust earnings we have been allowed to withdraw in certain states prior to our performance.

~~The components of~~ ~~Preneed funeral trust investments~~ ~~on our Consolidated Balance Sheet at December 31, 2018 and September 30, 2019 are as follows (in thousands):~~

December 31, 2018 September 30, 2019
Preneed funeral trust investments, at market value $ 84,803
$ 89,802
Less: allowance for contract cancellation (2,729 ) (2,743 )
Preneed funeral trust investments, net $ 82,074
$ 87,059

~~Upon cancellation of a preneed funeral contract, a customer is generally entitled to receive a refund of the corpus and in some instances, a portion of all~~ These earnings held in trust. In certain jurisdictions, we may be obligated to fund any shortfall if the amounts deposited by the customer exceed the funds in trust, including investment income. As a result, when realized or unrealized losses of a trust result in the trust being underfunded, we assess whether we are responsible for replenishing the corpus of the trust, in which case a loss provision is recorded. At September 30, 2019, none of our preneed funeral trust investments were underfunded.

~~Earnings from our preneed funeral trust investments~~ are recognized as earned, in Other revenue, when a service is performed or merchandise is delivered. Trust management fees charged by CSV RIA are included inas revenue in the period in which they are earned.

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.

Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy. Our Level 1 investments include cash, U.S. treasury debt, common stock and ~~common stock.~~equity mutual funds. Where quoted market prices are not available for the specific security, then fair values are estimated by using quoted prices of similar securities in active markets or ~~other~~ inputs other than quoted prices that can corroborate observable market data. These investments are fixed income securities, including foreign debt, corporate debt, preferred stocks, mortgage-backed securities and fixed income mutual funds and other investments, all of which are classified within Level 2 of the valuation hierarchy. We review and update our fair value hierarchy classifications quarterly. ~~There were no transfers between Levels 1 and 2 for the three and nine months ended September 30, 2019. There are no Level 3 investments in the preneed funeral trust investment portfolio.~~ See Note 108 to the Consolidated Financial Statements included herein for further information onof the fair value ~~measurement and the three-level hierarchy.~~measurement.

~~The cost and fair market values associated with preneed funeral trust investments at~~ ~~September~~As of June 30, ~~2019~~ ~~are detailed below (in thousands, except percentages):~~

Fair Value Hierarchy Level Cost
Unrealized
Gains

Unrealized
Losses

Fair Market
Value
Cash and money market accounts 1 $ 24,535
$ —
$ —
$ 24,535
Fixed income securities:
U.S treasury debt 1 822
—
—
822
Foreign debt 2 6,371
122
(455 ) 6,038
Corporate debt 2 16,774
799
(649 ) 16,924
Preferred stock 2 13,002
993
(140 ) 13,855
Mortgage-backed securities 2 645
—
(217 ) 428
Common stock 1 24,960
1,125
(3,979 ) 22,106
Mutual funds:
Fixed income 2 1,415
37
(54 ) 1,398
Other investments 2 2,913
—
—
2,913
Trust securities $ 91,437
$ 3,076
$ (5,494 ) $ 89,019
Accrued investment income $ 783
$ 783
Preneed funeral trust investments $ 89,802
Market value as a percentage of cost 97.4 %

~~The estimated maturities~~2020, we have net unrealized losses of ~~the fixed income securities included above are as follows (in thousands):~~

Due in one year or less $ —
Due in one to five years 3,480
Due in five to ten years 12,483
Thereafter 22,104
Total $ 38,067

~~The cost and fair market values associated with preneed funeral trust investments at December 31, 2018 are detailed below (in thousands, except percentages):~~

Fair Value Hierarchy Level Cost
Unrealized
Gains

Unrealized
Losses

Fair Market
Value
Cash and money market accounts 1 $ 31,375
$ —
$ —
$ 31,375
Fixed income securities:
U.S. treasury debt 1 1,319
3
(19 ) 1,303
Foreign debt 2 3,748
44
(503 ) 3,289
Corporate debt 2 14,195
294
(1,025 ) 13,464
Preferred stock 2 11,500
54
(1,194 ) 10,360
Mortgage-backed securities 2 772
168
(18 ) 922
Common stock 1 24,803
887
(5,389 ) 20,301
Mutual funds:
Fixed income 2 275
—
(29 ) 246
Other investments 2 3,006
—
—
3,006
Trust securities $ 90,993
$ 1,450
$ (8,177 ) $ 84,266
Accrued investment income $ 537
$ 537
Preneed funeral trust investments $ 84,803
Market value as a percentage of cost 92.6 %

~~We determine whether or not the assets~~$10.8 million in ~~the preneed funeral trust investments have other-than-temporary impairments on a security-by-security basis. This assessment is made based upon a number~~our trusts. At June 30, 2020, these net unrealized losses represented 4% of criteria including the length of time a security has been in a loss position, changes in market conditions and concerns related to the specific issuer. If a loss is considered to be other-than-temporary, theour original cost basis of ~~the security~~$242.1 million. The decline in fair value is ~~adjusted downward~~largely due to ~~its fair~~changes in interest rates and other market ~~value. Any reduction~~conditions. Our trusts have been and continue to be impacted by adverse conditions in the ~~cost basis of the investment due to an other-than-temporary impairment is likewise recorded~~U.S. and global financial markets primarily as a ~~reduction~~result of COVID-19. 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~~on our Consolidated Balance Sheet. In the three~~ and ~~nine months ended September 30, 2018 and 2019, we did not record any impairments for other-than-temporary declines~~Care trusts’ corpus interests in ~~the fair value related to~~those unrealized ~~losses on certain investments.~~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.

~~At September~~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. 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. In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If our assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any unrealized loss that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

We rely on our trust investments to provide funding for the various contractual obligations that arise upon maturity of the underlying preneed contracts. Because of the long-term relationship between the establishment of trust investments and the required performance of the underlying contractual obligations, the impact of current market conditions that may exist at any given time is not necessarily indicative of our ability to generate profit on our future performance obligations.

Preneed Cemetery Trust Investments

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



	December 31, 2019			June 30, 2020
Preneed cemetery trust investments, at market value	$	74,572		$	74,914
Less: allowance for contract cancellation	(2,190		)	(2,345		)
Preneed cemetery trust investments	$	72,382		$	72,569

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



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	2,844	$	—	$	—		$	2,844
Fixed income securities:
Foreign debt	2	12,628		867		(1,014		)	12,481
Corporate debt	2	15,911		794		(1,500		)	15,205
Preferred stock	2	13,586		334		(1,341		)	12,579
Mortgage-backed securities	2	394		—		(227		)	167
Common stock	1	27,093		5,453		(7,544		)	25,002
Mutual funds:
Fixed Income	2	5,700		494		(277		)	5,917
Trust securities		$	78,156	$	7,942	$	(11,903	)	$	74,195
Accrued investment income		$	719						$	719
Preneed cemetery trust investments									$	74,914
Market value as a percentage of cost									94.9		%

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



Due in one year or less	$	1
Due in one to five years	8,738
Due in five to ten years	9,703
Thereafter	21,990
Total fixed income securities	$	40,432

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



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	5,729	$	—	$	—		$	5,729
Fixed income securities:
Foreign debt	2	5,609		312		(243		)	5,678
Corporate debt	2	16,916		1,044		(649		)	17,311
Preferred stock	2	14,206		904		(164		)	14,946
Mortgage-backed securities	2	517		—		(114		)	403
Common stock	1	28,569		2,766		(3,017		)	28,318
Mutual funds:
Fixed income	2	1,463		72		(85		)	1,450
Trust Securities		$	73,009	$	5,098	$	(4,272	)	$	73,835
Accrued investment income		$	737						737
Preneed cemetery trust investments									$	74,572
Market value as a percentage of cost									101.1		%

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



	June 30, 2020
	In Loss Position Less than 12 months					In Loss Position Greater than 12 months					Total
	Fair market value		Unrealized Losses			Fair market value		Unrealized Losses			Fair market value		Unrealized Losses
Fixed income securities:
Foreign debt	$	3,149	$	(334	)	$	311	$	(680	)	$	3,460	$	(1,014	)
Corporate debt	3,140		(989		)	4,227		(511		)	7,367		(1,500		)
Preferred stock	9,882		(1,341		)	—		—			9,882		(1,341		)
Mortgage-backed securities	—		—			167		(227		)	167		(227		)
Total fixed income securities with an unrealized loss	$	16,171	$	(2,664	)	$	4,705	$	(1,418	)	$	20,876	$	(4,082	)



	December 31, 2019
	In Loss Position Less than 12 months					In Loss Position Greater than 12 months					Total
	Fair market value		Unrealized Losses			Fair market value		Unrealized Losses			Fair market value		Unrealized Losses
Fixed income securities:
Foreign debt	$	268	$	(42	)	$	758	$	(201	)	$	1,026	$	(243	)
Corporate debt	1,368		(168		)	4,520		(481		)	5,888		(649		)
Preferred stock	4,135		(164		)	—		—			4,135		(164		)
Mortgage-backed securities	—		—			402		(114		)	402		(114		)
Total fixed income securities with an unrealized loss	$	5,771	$	(374	)	$	5,680	$	(796	)	$	11,451	$	(1,170	)

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



	Three months ended June 30,						Six months ended June 30,
	2019			2020			2019			2020
Investment income	$	414		$	653		$	985		$	972
Realized gains	2,363			1,619			3,821			3,535
Realized losses	(1,001		)	(2,200		)	(1,636		)	(3,572		)
Expenses and taxes	(407		)	(438		)	(685		)	(625		)
Net change in deferred preneed cemetery receipts held in trust	(1,369		)	366			(2,485		)	(310		)
	$	—		$	—		$	—		$	—

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



	Three months ended June 30,						Six months ended June 30,
	2019			2020			2019			2020
Purchases	$	(8,186	)	$	(13,597	)	$	(10,258	)	$	(32,454	)
Sales	10,026			12,135			13,899			25,366

Preneed Funeral Trust Investments

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



	December 31, 2019			June 30, 2020
Preneed funeral trust investments, at market value	$	99,246		$	93,110
Less: allowance for expected credit losses and cancellations	(2,911		)	(2,875		)
Preneed funeral trust investments	$	96,335		$	90,235

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



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	19,920	$	—	$	—		$	19,920
Fixed income securities:
U.S treasury debt	1	820		13		—			833
Foreign debt	2	12,400		857		(955		)	12,302
Corporate debt	2	14,637		738		(1,432		)	13,943
Preferred stock	2	12,871		316		(1,295		)	11,892
Mortgage-backed securities	2	433		1		(226		)	208
Common stock	1	25,825		5,377		(7,052		)	24,150
Mutual funds:
Fixed income	2	4,942		462		(189		)	5,215
Other investments	2	3,982		—		—			3,982
Trust securities		$	95,830	$	7,764	$	(11,149	)	$	92,445
Accrued investment income		$	665						$	665
Preneed funeral trust investments									$	93,110
Market value as a percentage of cost									96.5		%

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



Due in one year or less	$	—
Due in one to five years	9,528
Due in five to ten years	8,481
Thereafter	21,169
Total fixed income securities	$	39,178

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



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	24,160	$	—	$	—		$	24,160
Fixed income securities:
U.S. treasury debt	1	822		—		—			822
Foreign debt	2	5,587		309		(232		)	5,664
Corporate debt	2	16,109		992		(646		)	16,455
Preferred stock	2	14,094		874		(198		)	14,770
Mortgage-backed securities	2	585		—		(117		)	468
Common stock	1	27,652		2,773		(2,869		)	27,556
Mutual funds:
Equity	1	772		617		(4		)	1,385
Fixed income	2	4,364		107		(107		)	4,364
Other investments	2	2,902		—		—			2,902
Trust securities		$	97,047	$	5,672	$	(4,173	)	$	98,546
Accrued investment income		$	700						$	700
Preneed funeral trust investments									$	99,246
Market value as a percentage of cost									101.5		%

The following table summarized our fixed income securities within our preneed funeral trust ~~investments that had tax lots~~investment in an unrealized loss ~~positions for more than one year. Based on our analyses~~position at June 30, 2020, aggregated by major security type and length of ~~these securities, the companies’ businesses and current market conditions, we determined that these investment losses were temporary~~time in ~~nature.~~

~~Our preneed funeral trust investment~~a continuous unrealized ~~losses, their associated fair market values, and the duration of unrealized losses as of September 30, 2019 are shown in the following table~~loss position (in thousands):


	September 30, 2019															June 30, 2020
	In Loss Position Less than 12 months					In Loss Position Greater than 12 months					Total					In Loss Position Less than 12 months					In Loss Position Greater than 12 months					Total
	Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair market value		Unrealized Losses			Fair market value		Unrealized Losses			Fair market value		Unrealized Losses
Fixed income securities:
U.S. treasury debt	$	822	$	—		$	—	$	—		$	822	$	—
Foreign debt	1,878		(133		)	1,015		(322		)	2,893		(455		)	$	3,093	$	(332	)	$	288	$	(623	)	$	3,381	$	(955	)
Corporate debt	2,908		(424		)	4,702		(225		)	7,610		(649		)	3,125		(984		)	4,012		(448		)	7,137		(1,432		)
Preferred stock	2,077		(26		)	2,550		(114		)	4,627		(140		)	9,493		(1,295		)	—		—			9,493		(1,295		)
Mortgage-backed securities	4		—			395		(217		)	399		(217		)	4		—			175		(226		)	179		(226		)
Common stock	11,736		(2,687		)	2,848		(1,292		)	14,584		(3,979		)
Mutual Funds:
Fixed income	345		(43		)	264		(11		)	609		(54		)
Total temporary impaired securities	$	19,770	$	(3,313	)	$	11,774	$	(2,181	)	$	31,544	$	(5,494	)
Total fixed income securities with an unrealized loss																$	15,715	$	(2,611	)	$	4,475	$	(1,297	)	$	20,190	$	(3,908	)

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

December 31, 2018
In Loss Position Less than 12 months In Loss Position Greater than 12 months Total
Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses
Fixed income securities:
U.S. treasury debt $ —
$ —
$ 1,181
$ (19 ) $ 1,181
$ (19 )
Foreign debt 2,180
(251 ) 850
(252 ) 3,030
(503 )
Corporate debt 9,990
(814 ) 434
(211 ) 10,424
(1,025 )
Preferred stock 5,967
(460 ) 3,673
(734 ) 9,640
(1,194 )
Mortgage-backed securities 11
—
120
(18 ) 131
(18 )
Common stock 14,327
(4,035 ) 1,155
(1,354 ) 15,482
(5,389 )
Mutual funds:
Fixed income —
—
246
(29 ) 246
(29 )
Total temporary impaired securities $ 32,475
$ (5,560 ) $ 7,659
$ (2,617 ) $ 40,134
$ (8,177 )



	December 31, 2019
	In Loss Position Less than 12 months					In Loss Position Greater than 12 months					Total
	Fair market value		Unrealized Losses			Fair market value		Unrealized Losses			Fair market value		Unrealized Losses
Fixed income securities:
Foreign debt	$	274	$	(43	)	$	723	$	(189	)	$	997	$	(232	)
Corporate debt	1,403		(172		)	4,433		(474		)	5,836		(646		)
Preferred stock	4,412		(198		)	—		—			4,412		(198		)
Mortgage-backed securities	—		—			439		(117		)	439		(117		)
Total fixed income securities with an unrealized loss	$	6,089	$	(413	)	$	5,595	$	(780	)	$	11,684	$	(1,193	)

Preneed funeral trust investment security transactions recorded in Other, net on the Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019~~2020 are as follows (in thousands):



	Three months ended June 30,						Six months ended June 30,
	2019			2020			2019			2020
Investment income	$	409		$	604		$	982		$	862
Realized gains	2,486			1,606			3,806			4,157
Realized losses	(1,007		)	(2,053		)	(424		)	(3,182		)
Expenses and taxes	(513		)	(253		)	(285		)	(350		)
Net change in deferred preneed funeral receipts held in trust	(1,375		)	96			(4,079		)	(1,487		)
	$	—		$	—		$	—		$	—

Three Months Ended September 30, Nine Months Ended September 30,
2018 2019 2018 2019
Investment income $ 362
$ 328
$ 1,253
$ 1,310
Realized gains 1,425
1,114
4,332
4,920
Realized losses (1,232 ) (1,540 ) (2,623 ) (1,964 )
Expenses and taxes (190 ) (226 ) (668 ) (511 )
Net change in deferred preneed funeral receipts held in trust (365 ) 324
(2,294 ) (3,755 )
$ —
$ —
$ —
$ —

Purchases and sales of investments in the preneed funeral trusts for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and 2020 are as follows (in thousands):



	Three months ended June 30,						Six months ended June 30,
	2019			2020			2019			2020
Purchases	$	(8,436	)	$	(13,153	)	$	(19,195	)	$	(31,691	)
Sales	10,816			11,888			13,601			27,856

Cemetery Perpetual Care Trust Investments

Care trusts’ corpus on our Consolidated Balance Sheet represent the corpus of those trusts plus undistributed income. The components of Care trusts’ corpus as of December 31, 2019 and June 30, 2020 are as follows (in thousands):



	December 31, 2019			June 30, 2020
Cemetery perpetual care trust investments, at market value	$	64,047		$	63,228
Obligations due to (from) trust	(631		)	(916		)
Care trusts’ corpus	$	63,416		$	62,312

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



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	1,646	$	—	$	—		$	1,646
Fixed income securities:
Foreign debt	2	10,794		707		(872		)	10,629
Corporate debt	2	13,182		757		(1,213		)	12,726
Preferred stock	2	12,332		288		(1,234		)	11,386
Mortgage-backed securities	2	316		—		(181		)	135
Common stock	1	22,459		4,517		(6,288		)	20,688
Mutual funds:
Fixed Income	2	5,336		380		(318		)	5,398
Trust securities		$	66,065	$	6,649	$	(10,106	)	$	62,608
Accrued investment income		$	620						$	620
Cemetery perpetual care investments									$	63,228
Market value as a percentage of cost									94.8		%

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

Three Months Ended September 30, Nine Months Ended September 30,
2018 2019 2018 2019
Purchases $ (9,144 ) $ (12,129 ) $ (19,584 ) $ (31,325 )
Sales 9,424
11,393
23,636
24,994



Due in one year or less	$	—
Due in one to five years	7,115
Due in five to ten years	7,936
Thereafter	19,825
Total fixed income securities	$	34,876

The following table reflects the cost and fair market values associated with the trust investments held in perpetual care trust funds at December 31, 2019 (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	4,624	$	—	$	—		$	4,624
Fixed income securities:
Foreign debt	2	4,200		238		(175		)	4,263
Corporate debt	2	11,658		802		(534		)	11,926
Preferred stock	2	10,782		666		(106		)	11,342
Mortgage-backed securities	2	324		—		(71		)	253
Common stock	1	21,594		3,399		(1,911		)	23,082
Mutual funds:
Equity	1	233		146		(1		)	378
Fixed income	2	7,156		618		(107		)	7,667
Trust securities		$	60,571	$	5,869	$	(2,905	)	$	63,535
Accrued investment income		$	512						$	512
Cemetery perpetual care investments									$	64,047
Market value as a percentage of cost									104.9		%

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



	June 30, 2020
	In Loss Position Less than 12 months					In Loss Position Greater than 12 months					Total
	Fair market value		Unrealized Losses			Fair market value		Unrealized Losses			Fair market value		Unrealized Losses
Fixed income securities:
Foreign debt	$	2,833	$	(272	)	$	276	$	(600	)	$	3,109	$	(872	)
Corporate debt	2,523		(795		)	3,772		(418		)	6,295		(1,213		)
Preferred stock	8,849		(1,234		)	—		—			8,849		(1,234		)
Mortgage-backed securities	—		—			134		(181		)	134		(181		)
Total fixed income securities with an unrealized loss	$	14,205	$	(2,301	)	$	4,182	$	(1,199	)	$	18,387	$	(3,500	)



	December 31, 2019
	In Loss Position Less than 12 months					In Loss Position Greater than 12 months					Total
	Fair market value		Unrealized Losses			Fair market value		Unrealized Losses			Fair market value		Unrealized Losses
Fixed income securities:
Foreign debt	$	168	$	(26	)	$	549	$	(149	)	$	717	$	(175	)
Corporate debt	1,057		(196		)	3,253		(338		)	4,310		(534		)
Preferred stock	2,989		(106		)	—		—			2,989		(106		)
Mortgage-backed securities	—		—			252		(71		)	252		(71		)
Total fixed income securities with an unrealized loss	$	4,214	$	(328	)	$	4,054	$	(558	)	$	8,268	$	(886	)

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



	Three months ended June 30,						Six months ended June 30,
	2019			2020			2019			2020
Realized gains	$	670		$	439		$	1,024		$	1,148
Realized losses	(270		)	(606		)	(441		)	(1,285		)
Net change in Care trusts’ corpus	(400		)	167			(583		)	137
Total	$	—		$	—		$	—		$	—

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



	Three months ended June 30,				Six months ended June 30,
	2019		2020		2019			2020
Investment income	$	1,107	$	1,942	$	2,194		$	3,347
Realized gain (losses), net	10		27		(280		)	(9		)
Total	$	1,117	$	1,969	$	1,914		$	3,338

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



	Three months ended June 30,						Six months ended June 30,
	2019			2020			2019			2020
Purchases	$	(5,117	)	$	(11,066	)	$	(14,274	)	$	(25,678	)
Sales	6,278			9,458			7,980			22,152


7.	~~PRENEED CEMETERY RECEIVABLES~~

Preneed sales of cemetery interment rights and related products and services are usually financed through interest-bearing installment sales contracts, generally with terms of up to five years, with such interest income reflected as ~~Other revenue. In substantially all cases, we receive an initial down payment at the time the contract is signed.~~

~~Our cemetery financed receivables at December 31, 2018 and September 30, 2019 are as follows (in thousands):~~

December 31, 2018 September 30, 2019
Accounts receivable, including unearned finance charges and allowance for contract cancellations of $2,405 and $2,412, respectively $ 11,676
⁽¹⁾
$ 12,903
⁽¹⁾
Preneed receivables, including unearned finance charges and allowance for contract cancellations of $4,049 and $3,937, respectively
25,568
⁽²⁾
26,618
⁽²⁾
Preneed cemetery financed receivables $ 37,244
$ 39,521




~~(1)~~	~~$1.4 million and $1.5 million of cemetery accounts receivables have been reclassified to reduce deferred preneed cemetery revenue at December 31, 2018 and September 30, 2019, respectively.~~
~~(2)~~	~~$3.1 million and $3.2 million of preneed cemetery receivables have been reclassified to reduce deferred preneed cemetery revenue at December 31, 2018 and September 30, 2019, respectively.~~

~~The unearned finance charges associated with these receivables are $4.6 million and $4.5 million at December 31, 2018 and September 30, 2019, respectively.~~

We determine an allowance for customer cancellations and refunds on contracts in which revenue has been recognized on sales of cemetery interment rights. We have a collections policy where past due notifications are sent to the customer beginning at 15 days past due and periodically thereafter until the contract is cancelled or payment is received. We reserve 100% of the receivables on contracts in which the revenue has been recognized and payments are 90 days past due or more, which was 4.2% of the total receivables on recognized sales at September 30, 2019. An allowance is recorded at the date that the contract is executed and periodically adjusted thereafter based upon actual collection experience at the business level.

~~For the nine months ended September 30, 2019, the change in the allowance for contract cancellations is as follows (in thousands):~~

September 30, 2019
Beginning balance $ 1,808
Write-offs and cancellations (598 )
Provision 611
Ending balance $ 1,821

~~The aging of preneed cemetery financed receivables as of September 30, 2019 is as follows (in thousands):~~

31-60
Past Due

61-90
Past Due

91-120
Past Due

>120
Past Due

Total Past
Due
Current
Total Financed
Receivables
Recognized revenue $ 510
$ 288
$ 101
$ 1,151
$ 2,050
$ 27,676
$ 29,726
Deferred revenue 203
81
63
279
626
9,169
9,795
Total $ 713
$ 369
$ 164
$ 1,430
$ 2,676
$ 36,845
$ 39,521


8.	RECEIVABLES FROM PRENEED TRUSTS

~~The receivables~~Our Receivables from preneed trusts represent assets in trusts which are controlled and operated by third parties in which we do not have a controlling financial interest (less than 50%) in the trust assets. We account for these investments at cost. As of December 31, ~~2018~~2019 and ~~September~~June 30, ~~2019,~~2020, receivables from preneed trusts are as follows (in thousands):



	December 31, 2019			June 30, 2020
Preneed trust funds, at cost	$	18,581		$	18,012
Less: allowance for contract cancellation	(557		)	(541		)
Receivables from preneed trusts, net	$	18,024		$	17,471

December 31, 2018 September 30, 2019
Preneed trust funds, at cost $ 17,601
$ 18,545
Less: allowance for contract cancellation (528 ) (556 )
Receivables from preneed trusts, net $ 17,073
$ 17,989

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~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019. The cost basis includes reinvested interest and dividends that have been earned on the trust assets. Fair value includes ~~the~~ unrealized gains and losses on trust assets.

~~The composition of the preneed trust funds at September 30, 2019 is as follows (in thousands):~~

Historical
Cost Basis
Fair Value
Cash and cash equivalents $ 4,443
$ 4,443
Fixed income investments 11,558
11,558
Mutual funds and common stocks 2,539
2,618
Annuities 5
5
Total $ 18,545
$ 18,624

The composition of the preneed trust funds at December 31, ~~2018~~2019 is as follows (in thousands):



	Historical Cost Basis		Fair Value
Cash and cash equivalents	$	4,533	$	4,533
Fixed income investments	11,603		11,603
Mutual funds and common stocks	2,440		2,518
Annuities	5		5
Total	$	18,581	$	18,659

Historical
Cost Basis
Fair Value
Cash and cash equivalents $ 4,172
$ 4,172
Fixed income investments 10,668
10,668
Mutual funds and common stocks 2,755
2,709
Annuities 6
6
Total $ 17,601
$ 17,555

9.~~CEMETERY PERPETUAL CARE TRUST INVESTMENTS~~

~~Care trusts’ corpus on our Consolidated Balance Sheet represents~~The composition of the ~~corpus of those trusts plus undistributed income. The components of~~ ~~Care trusts’ corpus~~ ~~as of December 31, 2018 and September~~preneed trust funds at June 30, ~~2019 are~~2020 is as follows (in thousands):



	Historical Cost Basis		Fair Value
Cash and cash equivalents	$	4,425	$	4,425
Fixed income investments	11,324		11,324
Mutual funds and common stocks	2,259		2,397
Annuities	4		4
Total	$	18,012	$	18,150

December 31, 2018 September 30, 2019
Trust assets, at market value $ 44,071
$ 48,397
Obligations due from trust (577 ) (626 )
Care trusts’ corpus $ 43,494
$ 47,771

We are required by various state laws to pay a portion of the proceeds from the sale of cemetery property interment rights into perpetual care trust funds. The income earned from these perpetual care trusts offsets maintenance expenses for cemetery property and memorials. This trust fund income is recognized, as earned, in ~~Other revenue.~~ ~~Trust management fees charged by CSV RIA are included in revenue in the period in which they are earned. At September 30, 2019, none of our cemetery perpetual care trust investments were underfunded.~~

Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy. Our Level 1 investments include cash and common stock. Where quoted market prices are not available for the specific security, then fair values are estimated by using quoted prices of similar securities in active markets or other inputs other than quoted prices that can corroborate observable market data. These investments are fixed income securities, including foreign debt, corporate debt, preferred stock, mortgage-backed securities and fixed income mutual funds, all of which are classified within Level 2 of the valuation hierarchy. We review and update our fair value hierarchy classifications quarterly. There were no transfers between Levels 1 and 2 in the three and nine months ended September 30, 2019. There are no Level 3 investments in the cemetery perpetual care trust investment portfolio. See Note 10 to the Consolidated Financial Statements included herein for further information of the fair value measurement and the three-level valuation hierarchy.

~~The following table reflects the cost and fair market values associated with the trust investments held in perpetual care trust funds at September 30, 2019 (in thousands, except percentages):~~

Fair Value Hierarchy Level Cost
Unrealized
Gains

Unrealized
Losses

Fair Market
Value
Cash and money market accounts 1 $ 4,182
$ —
$ —
$ 4,182
Fixed income securities:
Foreign debt 2 4,683
98
(336 ) 4,445
Corporate debt 2 11,935
654
(500 ) 12,089
Preferred stock 2 10,191
708
(94 ) 10,805
Mortgage-backed securities 2 355
—
(132 ) 223
Common stock 1 16,101
687
(2,577 ) 14,211
Mutual funds:
Fixed Income 2 1,901
63
(77 ) 1,887
Trust securities $ 49,348
$ 2,210
$ (3,716 ) $ 47,842
Accrued investment income $ 555
$ 555
Cemetery perpetual care investments $ 48,397
Market value as a percentage of cost 96.9 %

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

Due in one year or less $ —
Due in one to five years 1,710
Due in five to ten years 8,600
Thereafter 17,252
Total $ 27,562

~~The following table reflects the cost and fair market values associated with the trust investments held in perpetual care trust funds at December 31, 2018 (in thousands, except percentages):~~

Fair Value Hierarchy Level Cost
Unrealized
Gains

Unrealized
Losses

Fair Market
Value
Cash and money market accounts 1 $ 11,144
$ —
$ —
$ 11,144
Fixed income securities:
Foreign debt 2 2,872
27
(385 ) 2,514
Corporate debt 2 9,956
227
(730 ) 9,453
Preferred stock 2 8,141
37
(820 ) 7,358
Mortgage-backed securities 2 417
101
(9 ) 509
Common stock 1 15,562
542
(3,395 ) 12,709
Trust securities $ 48,092
$ 934
$ (5,339 ) $ 43,687
Accrued investment income $ 384
$ 384
Cemetery perpetual care investments $ 44,071
Market value as a percentage of cost 90.8 %

We determine whether or not the assets in the cemetery perpetual care trusts have an other-than-temporary impairment on a security-by-security basis. This assessment is made based upon a number of criteria including the length of time a security has been in a loss position, changes in market conditions and concerns related to the specific issuer. If a loss is considered to be other-than-temporary, the cost basis of the security is adjusted downward to its fair market value. Any reduction in the cost basis due to an other-than-temporary impairment is also recorded as a reduction to ~~Care trusts’ corpus~~. In the three and nine months ended September 30, 2018 and 2019, we did not record any impairments for other-than-temporary declines in the fair value related to unrealized losses on certain investments. There is no impact on earnings until such time that the loss is realized in the trusts, allocated to preneed contracts and the services are performed or the merchandise is delivered, causing the contract to be withdrawn from the trust in accordance with state regulations.

At September 30, 2019, we had certain investments within our perpetual care trust investments that had tax lots in loss positions for more than one year. Based on our analyses of these securities, the companies’ businesses and current market conditions, we determined that these investment losses were temporary in nature.

Our perpetual care trust investment unrealized losses, their associated fair market values, and the duration of unrealized losses for the periods ended September 30, 2019 are shown in the following table (in thousands):

September 30, 2019
In Loss Position Less than 12 months In Loss Position Greater than 12 months Total
Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses
Fixed income securities:
Foreign debt $ 1,368
$ (88 ) $ 734
$ (248 ) $ 2,102
$ (336 )
Corporate debt 1,971
(342 ) 3,425
(158 ) 5,396
(500 )
Preferred stock 2,542
(25 ) 1,549
(69 ) 4,091
(94 )
Mortgage-backed securities —
—
223
(132 ) 223
(132 )
Common stock 7,753
(1,703 ) 1,885
(874 ) 9,638
(2,577 )
Mutual Funds:
Fixed Income 601
(77 ) —
—
601
(77 )
Total temporary impaired securities $ 14,235
$ (2,235 ) $ 7,816
$ (1,481 ) $ 22,051
$ (3,716 )

Our perpetual care trust investment unrealized losses, their associated fair market values, and the duration of unrealized losses for the periods ended December 31, 2018 are shown in the following table (in thousands):

December 31, 2018
In Loss Position Less than 12 months In Loss Position Greater than 12 months Total
Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses
Fixed income securities:
Foreign debt $ 1,619
$ (189 ) $ 639
$ (196 ) $ 2,258
$ (385 )
Corporate debt 7,006
(587 ) 301
(143 ) 7,307
(730 )
Preferred stock 3,586
(279 ) 2,787
(541 ) 6,373
(820 )
Mortgage-backed securities —
—
32
(9 ) 32
(9 )
Common stock 9,010
(2,557 ) 733
(838 ) 9,743
(3,395 )
Total temporary impaired securities $ 21,221
$ (3,612 ) $ 4,492
$ (1,727 ) $ 25,713
$ (5,339 )

~~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, 2018 and 2019 are as follows (in thousands):~~

Three Months Ended September 30, Nine Months Ended September 30,
2018 2019 2018 2019
Realized gains $ 435
$ 291
$ 739
$ 1,315
Realized losses (363 ) (414 ) (889 ) (855 )
Net change in care trusts’ corpus (72 ) 123
150
(460 )
Total $ —
$ —
$ —
$ —

~~Perpetual care trust investment security transactions recorded in~~ ~~Other revenue~~ ~~for the three and nine months ended September 30, 2018 and 2019 are as follows (in thousands):~~

Three Months Ended September 30, Nine Months Ended September 30,
2018 2019 2018 2019
Investment income $ 1,158
$ 1,220
$ 3,749
$ 3,414
Realized loss, net (241 ) (232 ) (955 ) (512 )
Total $ 917
$ 988
$ 2,794
$ 2,902

~~Purchases and sales of investments in the perpetual care trusts for the three and nine months ended September 30, 2018 and 2019 are as follows (in thousands):~~

Three Months Ended September 30, Nine Months Ended September 30,
2018 2019 2018 2019
Purchases $ (5,185 ) $ (7,680 ) $ (11,856 ) $ (21,954 )
Sales 6,149
6,599
15,545
14,578


~~10.~~8.	FAIR VALUE MEASUREMENTS

We ~~evaluate~~evaluated our financial assets and liabilities for those financial assets and liabilities that ~~meet~~met the criteria of the disclosure requirements and fair value framework. The carrying values of cash and cash equivalents, trade receivables, and trade payables approximate the fair values of those instruments due to the short-term nature of the instruments. The fair values of receivables on preneed funeral and cemetery contracts are impracticable to estimate because of the lack of a trading market and the diverse number of individual contracts with varying terms. Our ~~long-term~~acquisition debt isand Credit Facility (as defined in Note 10) are classified within Level 2 of the Fair Value ~~Measurement~~Measurements hierarchy.

The fair values of ~~our long-term~~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 ~~2.75% convertible subordinated notes due 2021~~Convertible Notes (as defined in Note 11) was ~~$7.1~~approximately $6.4 million at ~~September~~June 30, ~~2019~~2020 based on the last traded or broker quoted price. The fair value of the ~~6.625% senior notes due 2026~~Senior Notes (as defined in Note 12) was ~~$334.0~~approximately $419.9 million at ~~September~~June 30, ~~2019~~2020 based on the last traded or broker quoted price. We identified investments in fixed income securities, common stock and mutual funds presented within the preneed and perpetual care trust ~~investment~~investments categories on our Consolidated Balance Sheet as having met the criteria for fair value measurement.

As of ~~September~~December 31, 2019 and June 30, ~~2019,~~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 ~~the~~ standards of financial accounting and reporting for investments in equity instruments that have readily determinable fair values and for all investments in debt securities. See ~~Notes~~Note 6 ~~and 9~~ to our Consolidated Financial Statements ~~included~~ herein for the fair value hierarchy levels of our trust investments.


~~11.~~9.	INTANGIBLE AND OTHER NON-CURRENT ASSETS

~~Intangibles~~Intangible and other non-current assets at December 31, ~~2018~~2019 and ~~September~~June 30, ~~2019~~2020 are as follows (in thousands):



	December 31, 2019		June 30, 2020
Prepaid agreements not-to-compete, net of accumulated amortization of $7,195 and $7,548, respectively	$	3,915	$	3,617
Tradenames	25,233		26,649
Capitalized commissions on preneed contracts, net of accumulated amortization of $1,127 and $1,412, respectively	2,818		2,989
Other	150		93
Intangible and other non-current assets, net	$	32,116	$	33,348

December 31, 2018 September 30, 2019
Prepaid agreements not-to-compete, net of accumulated amortization of $6,672 and $7,185, respectively $ 4,048
$ 3,631
Tradenames 17,635
17,414
Capitalized commissions on preneed contracts, net of accumulated amortization of $569 and $986, respectively 2,717
2,805
Other 25
178
Intangible and other non-current assets, net $ 24,425
$ 24,028

Prepaid agreements not-to-compete are amortized over the term of the respective agreements, ranging generally from one to ten years. Amortization expense ~~for our prepaid agreements not-to-compete~~ was ~~$160,000~~$168,000 and ~~$177,000~~$166,000 for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~2020, respectively and ~~$452,000~~$336,000 and ~~$513,000~~$353,000 for the ~~nine~~six months ended ~~September 30, 2018 and 2019, respectively.~~

Our tradenames have indefinite lives and therefore are not amortized. For our 2019 quantitative assessment, we recorded an impairment for tradenames of $0.2 million for the three and nine months ended SeptemberJune 30, 2019 ~~as the fair value of the tradenames of certain businesses was greater than the carrying value.~~and 2020, respectively.

~~We capitalize sales commissions and other direct selling costs~~Amortization expense 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~~totaled $139,000 and ~~services contracts and preneed funeral trust contracts, of eight and ten years, respectively. Amortization expense totaled $156,000 and $140,000~~$144,000 for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~2020, respectively and ~~$449,000~~$277,000 and ~~$417,000~~$285,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~2020, respectively.

~~12.LONG-TERM DEBT~~

~~On May 31, 2018, we completed the issuance of $325.0 million in aggregate principal amount of our 6.625% Senior~~See Notes ~~due 2026 (the “Senior Notes”)~~1 and ~~related guarantees in a private offering under Rule 144A and Regulation S of the Securities Act. See Note 13~~3 to the Consolidated Financial Statements included herein, for ~~further~~a discussion of the methodology used for our indefinite-lived intangible asset impairment test and discussion of our ~~Senior Notes.~~acquisitions, respectively.

~~On May 31, 2018, we used $291.4~~

10.CREDIT FACILITY AND ACQUISITION DEBT

At June 30, 2020, our Credit Facility was comprised of: (i) a $190.0 million of the net proceeds from the sale of the Senior Notes to repay all amounts outstanding under our former secured credit facility, dated as of August 20, 2012 (as amended, the “Former Credit Agreement”). In connection with the repayment in full of all amounts due thereunder, the Former Credit Agreement was retired.

~~On May 31, 2018, we entered into a $150.0 million senior secured~~ revolving credit facility, ~~(the “Credit Facility”) with the financial institutions party thereto, as lenders,~~including a $15.0 million subfacility for letters of credit and ~~Bank of America, N.A., as administrative agent. Our obligations under the Credit Facility are unconditionally guaranteed on~~ a ~~joint~~$10.0 million swingline, and several basis by the same subsidiaries which guarantee the Senior Notes and certain of our subsequently acquired or organized domestic subsidiaries (collectively, the “Credit Facility Guarantors”). The Credit Facility also contains(ii) an accordion ~~provision feature~~or incremental option allowing for future increases in the facility size by an additional amount of up to $75.0 ~~million.~~million in the form of increased revolving commitments or incremental term loans. The final maturity of the Credit Facility ~~matures~~will occur on May 31, 2023.

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 June 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. These financial maintenance covenants are calculated for the Company and its subsidiaries on a consolidated basis. As more fully described below, we were not in compliance with the Total Leverage Ratio covenant for the quarter ended March 31, 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 June 30, 2020.

Our ~~long-term~~Credit Facility and Acquisition debt consisted of the following at December 31, ~~2018~~2019 and ~~September~~June 30, ~~2019~~2020 (in thousands):



	December 31, 2019				June 30, 2020
Credit Facility	$	83,800			$	89,700
Debt issuance costs, net of accumulated amortization of $337 and $582, respectively	(1,618		)		(1,373		)
Total Credit Facility	$	82,182			$	88,327

Acquisition debt	$	6,964			$	6,427
Less: current portion	(1,306		)	—	(1,142		)
Total acquisition debt, net of current portion	$	5,658			$	5,285

December 31, 2018 September 30, 2019
Credit Facility $ 27,100
$ 18,000
Acquisition debt 8,940
7,813
Debt issuance costs, net of accumulated amortization of $109 and $276, respectively (955 ) (900 )
Less: current portion (2,015 ) (1,679 )
Total long-term debt $ 33,070
$ 23,234

~~As of September 30, 2019, we had outstanding borrowings under the Credit Facility of $18.0 million.~~ We ~~had~~have one letter of credit ~~issued on November 30, 2018 and~~ outstanding under the Credit Facility issued on November 30, 2019 for approximately $2.0 million, which bears interest at 2.125% and will expire on November 25, ~~2019.~~2020. The letter of credit automatically renews annually and secures our obligations under our various self-insured policies. 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~~June 30, ~~2019,~~2020, the prime rate margin was equivalent to ~~1.00%~~2.00% and the LIBOR rate margin was ~~2.00%~~3.00%. The weighted average interest rate on our Credit Facility was 3.6% and 3.9% for the three and six months ended June 30, 2020, respectively. The weighted average interest rate on our Credit Facility was 3.9% and 4.0% for the three and ~~nine months ended September 30, 2019, respectively. The weighted average interest rate on our Former Credit Agreement was 4.0% for the~~ six months ended June 30, ~~2018.~~2019, respectively.

~~We have no material assets or operations independent of our subsidiaries. All assets~~The interest expense and operations are held and conducted by subsidiaries, each of which have fully and unconditionally guaranteed our obligations under the Credit Facility. Additionally, we do not currently have any significant restrictions on our ability to receive dividends or loans from any Credit Facility Guarantors.

~~We were in compliance with the covenants contained in the Credit Facility as of September 30, 2019, with a leverage ratio of 4.89 to 1.00 and a fixed charge coverage ratio of 2.20 to 1.00.~~

~~Amortization~~amortization of debt issuance costs related to our Credit Facility was $59,000 and $167,000 for the three and nine months ended September 30, 2019, respectively and amortization of debt issuance costs related to our Former Credit Agreement was $41,000 and $172,000 forduring the three and six months ended June 30, ~~2018, respectively.~~2019 and 2020 is as follows (in thousands):



	Three months ended June 30,				Six months ended June 30,
	2019		2020		2019		2020
Credit Facility interest expense	$	362	$	1,106	$	740	$	2,336
Credit Facility amortization of debt issuance costs	54		118		108		245

Acquisition debt ~~consisted~~consists of deferred purchase price and promissory notes payable to sellers. ~~Imputed~~A majority of the deferred purchase price and notes bear no interest and are discounted at imputed interest rates ranging from 7.3% to 10.0%. Original maturities range from five to twenty years.

The imputed interest expense related to our acquisition debt ~~was $191,000 and $152,000 for~~during the three and six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019, respectively and $616,000 and $481,000 for the nine months ended September 30, 2018 and 2019, respectively.~~2020 is as follows (in thousands):



	Three months ended June 30,				Six months ended June 30,
	2019		2020		2019		2020
Acquisition debt imputed interest expense	$	161	$	124	$	329	$	251

~~13.~~11.CONVERTIBLE SUBORDINATED NOTES

~~On March 19, 2014, we issued $143.75 million aggregate principal amount~~The carrying values of the liability and equity components of our 2.75% convertible subordinated notes due ~~March 15,~~ 2021 (the “Convertible Notes”). at December 31, 2019 and June 30, 2020 are reflected on our Consolidated Balance Sheet as follows (in thousands):



	December 31, 2019			June 30, 2020
Current liabilities:
Principal amount	$	6,319		$	6,319
Unamortized discount of liability component	(319		)	(187		)
Convertible Notes issuance costs, net of accumulated amortization of $130 and $142, respectively	(29		)	(17		)
Carrying value of the liability component	$	5,971		$	6,115

Carrying value of the equity component	$	789		$	789

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 June 30, 2020.

The fair value of the Convertible Notes, have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and were offered only to “qualified institutional buyers” in compliance with Rule 144A under the Securities Act.which are Level 2 measurements, was $6.4 million at June 30, 2020. The Convertible Notes are ~~governed by an indenture dated as of~~due in March ~~19, 2014 between Wilmington Trust, National Association, as Trustee,~~2021 and ~~us. The Convertible Notes~~ bear interest at 2.75% per ~~year. Interest on the Convertible Notes began to accrue on March 19, 2014 and~~year, which is payable semi-annually in arrears on March 15 and September 15 of each year.

~~On May 7, 2018, we completed privately-negotiated exchanges (the “Exchange”) of $115.0 million in aggregate principal amount of Convertible Notes, which represented 80% of~~At June 30, 2020, the aggregate principal amount of our Convertible Notes then outstanding, with a limited number of convertible noteholders, for $74.8 million in cash (plus accrued interest of $0.4 million totaling $75.2 million) and 2,822,859 newly issued shares of our common stock, par value $.01 per share, pursuant to a private placement in reliance on Section 4(a)(2) of the Securities Act. The cash portion of the exchange consideration was funded from our Former Credit Agreement. Following the settlement of the Exchange, the aggregate principal amount of our Convertible Notes outstanding was reduced to $28.8 million. See Note 12 to the Consolidated Financial Statements included herein for further discussion of our Former Credit Agreement.

On December 24, 2018, we completed privately-negotiated repurchases of an additional $22.4 million in aggregate principal amount of Convertible Notes, which represented 78% of the aggregate principal amount of our Convertible Notes then outstanding for $22.9 million in cash (plus accrued interest of approximately $0.2 million totaling $23.0 million). The consideration for the repurchases was funded from our Credit Facility. Following these repurchases, the aggregate principal amount of our Convertible Notes outstanding was reduced to $6.3 million.

~~On April 4, 2019, we completed a privately-negotiated repurchase of an additional $25,000 in aggregate principal amount of Convertible Notes then outstanding for $27,163.~~

initial conversion rate of the Convertible Notes, as of March 19, 2014, was 44.3169 shares of our common stock per $1,000 principal amount of Convertible Notes, equivalent to an initial conversion price of $22.56 per share of common stock. The adjusted conversion rate of the Convertible Notes ~~in effect at September 30, 2019, is 45.3695~~was 45.7053 shares of our common stock per $1,000 principal amount of Convertible Notes, equivalent to an adjusted conversion price of ~~$22.04~~$21.88 per share of common stock.

The ~~carrying values of the liability and equity components of the Convertible Notes at December 31, 2018 and September 30, 2019 are reflected on our Consolidated Balance Sheet as follows (in thousands):~~

December 31, 2018 September 30, 2019
Long-term liabilities:
Principal amount $ 6,346
$ 6,319
Unamortized discount of liability component (560 ) (382 )
Convertible Notes issuance costs, net of accumulated amortization of $106 and $125, respectively (54 ) (35 )
Carrying value of the liability component $ 5,732
$ 5,902

Carrying value of the equity component $ 789
$ 789

~~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, 2018 and September 30, 2019.~~

~~The fair value of the Convertible Notes, which are Level 2 measurements, was $7.1 million at September 30, 2019.~~

~~Interest expense on the Convertible Notes included contractual coupon~~ interest expense and accretion of ~~$198,000~~debt discount and $43,000 for the three months ended September 30, 2018 and 2019, respectively and $1,700,000 and $131,000 for the nine months ended September 30, 2018 and 2019, respectively. Accretion of the discount on the Convertible Notes was $246,000 and $61,000 for the three months ended September 30, 2018 and 2019, respectively and $1,961,000 and $178,000 for the nine months ended September 30, 2018 and 2019, respectively. Amortization of debt issuance costs related to our Convertible Notes ~~was $27,000 and $6,000 for~~during the three and six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019, respectively and $221,000 and $19,000 for the nine months ended September 30, 2018 and 2019, respectively.~~2020 is as follows (in thousands):



	Three months ended June 30,				Six months ended June 30,
	2019		2020		2019		2020
Convertible Notes interest expense	$	44	$	43	$	87	$	87
Convertible Notes accretion of debt discount	59		66		117		131
Convertible Notes amortization of debt issuance costs	5		6		11		12

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 17approximately eight months of the Convertible Notes. The effective interest rate on the unamortized debt discount for both the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019~~2020 was 11.4%. The effective interest rate on the ~~unamortized~~ debt issuance costs for both the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019~~2020 was 3.2%.

~~14.~~12.SENIOR NOTES

~~On May 31, 2018, we completed the issuance of $325.0 million in aggregate principal amount~~The carrying value of our 6.625% Senior Notes due 2026 (the “Senior Notes”) at December 31, 2019 and ~~related guarantees in a private offering under Rule 144A and Regulation S~~June 30, 2020 is reflected on our Consolidated Balance Sheet as follows (in thousands):



	December 31, 2019			June 30, 2020
Long-term liabilities:
Principal amount	$	400,000		$	400,000
Debt premium, net of accumulated amortization of $0 and $109, respectively	1,688			1,579
Debt discount, net of accumulated amortization of $765 and $1,025, respectively	(4,110		)	(3,850		)
Debt issuance costs, net of accumulated amortization of $216 and $352, respectively	(2,131		)	(2,061		)
Carrying value of the Senior Notes	$	395,447		$	395,668

The fair value of the ~~Securities Act.~~

~~We received proceeds of $320.1~~Senior Notes, which are Level 2 measurements, was $419.9 million net of a 1.5% debt discount of $4.9 million, of which we used $291.4 million to repay our existing indebtedness under our Former Credit Agreement. We incurred $1.4 million in transaction costs related to the Senior Notes. See Note 12 to the Consolidated Financial Statements included herein for further discussion of the repayment of our Former Credit Agreement.

at June 30, 2020. The Senior Notes are due on June 1, 2026 and bear interest at 6.625% per ~~year. Interest on the Senior Notes began to accrue on May 31, 2018 and~~year which is payable semi-annually in arrears on June 1 and December 1 of each ~~year, beginning on December 1, 2018~~year.

The interest expense and amortization of debt discount, debt premium and debt issuance costs related to ~~holders of record on each May 15 and November 15 preceding an interest payment date. The~~our Senior Notes ~~mature on~~during the three and six months ended June ~~1, 2026, unless earlier redeemed or purchased. The Senior Notes are unsecured, senior obligations~~30, 2019 and ~~are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally, by certain of our existing subsidiaries.~~2020 is as follows (in thousands):



	Three months ended June 30,				Six months ended June 30,
	2019		2020		2019		2020
Senior Notes interest expense	$	5,383	$	6,625	$	10,766	$	13,250
Senior Notes amortization of debt discount	122		131		242		260
Senior Notes amortization of debt premium	—		55		—		109
Senior Notes amortization of debt issuance costs	34		69		68		136

The debt discount, ~~of $4.9 million~~the debt premium and the debt issuance costs ~~of $1.4 million~~ are being amortized using the effective interest method over the remaining term of 80approximately 71 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~~six months ended ~~September~~June 30, ~~2018~~2020 was 6.87% and ~~2019 was 6.87%.~~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~~six months ended ~~September~~June 30, ~~2018~~2020 was 6.20% and ~~2019 was 6.69%.~~

~~The carrying value of the Senior Notes at December 31, 2018 and September 30, 2019 is reflected on our Consolidated Balance Sheet as follows (in thousands):~~

December 31, 2018 September 30, 2019
Long-term liabilities:
Principal amount $ 325,000
$ 325,000
Debt discount, net of accumulated amortization of $273 and $639, respectively (4,602 ) (4,236 )
Debt issuance costs, net of accumulated amortization of $77 and $180, respectively (1,290 ) (1,187 )
Carrying value of the Senior Notes $ 319,108
$ 319,577

~~The fair value of the Senior Notes, which are Level 2 measurements, was $334.0 million at September 30, 2019.~~

Interest expense on the Senior Notes included contractual coupon interest expense of $5.4 million for both the three months ended September 30, 2018 and 2019 and $7.2 million and $16.1 million for the nine months ended September 30, 2018 and 2019, respectively. Amortization of the debt discount on the Senior Notes was $116,000 and $124,000 for the three months ended September 30, 2018 and 2019, respectively and $154,000 and $366,000 for the nine months ended September 30, 2018 and 2019, respectively. Amortization of debt issuance costs on the Senior Notes was $33,000 and $35,000 for the three months ended September 30, 2018 and 2019, respectively and $44,000 and $103,000 for the nine months ended September 30, 2018 and 2019,6.90%, respectively.

~~15.LEASES~~

~~On January 1, 2019, we adopted Topic 842 using the modified retrospective method for all~~

13.LEASES

Our lease ~~arrangements at the beginning~~obligations consist of ~~the period of adoption. Results for reporting periods beginning January 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted~~operating and ~~continue to be reported in accordance with Topic 840. On January 1, 2019, we recorded operating lease right-of-use assets of $16.5 million and operating lease liabilities of $17.3 million,~~finance leases related to real estate and ~~equipment leases, based on the present value of the future lease payments on the date of adoption.~~

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


							Three months ended June 30,				Six months ended June 30,
	Income Statement Classification	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019		Income Statement Classification	2019		2020		2019		2020
Operating lease cost	Facilities and grounds expense⁽¹⁾	$	899	$	2,762	Facilities and grounds expense⁽¹⁾	$	942	$	954	$	1,862	$	1,911
Short-term lease cost	Facilities and grounds expense⁽¹⁾	$	73	$	206	Facilities and grounds expense⁽¹⁾	59		39		133		96

Finance lease cost:
Depreciation of leased assets	Depreciation and amortization⁽²⁾	$	131	$	395	Depreciation and amortization⁽²⁾	$	131	$	109	$	263	$	218
Interest on lease liabilities	Interest expense	129		392		Interest expense	131		125		263		251
Total finance lease cost		260		787			262		234		526		469
Total lease cost		$	1,232	$	3,755		$	1,263	$	1,227	$	2,521	$	2,476




(1)	Facilities and grounds expense is included within Cost of service and General, administrative and other on our Consolidated Statements of Operations.
(2)	Depreciation and amortization expense is included within Field depreciation and Home office depreciation and amortization on our Consolidated Statements of Operations.

Variable lease expense was immaterial for thethree and ~~nine~~six months ended ~~September~~ June 30, ~~2019.~~2019 and 2020.

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


			Six months ended June 30,
	Nine Months Ended September 30, 2019		2019		2020
Cash paid for operating leases included in operating activities	$	2,921	$	1,947	$	1,507
Cash paid for finance leases included in financing activities	669		457		400

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


	Nine Months Ended September 30, 2019		Six months ended June 30,
Right-of-use assets obtained in exchange for new operating lease liabilities⁽¹⁾	$	8,175
			2019		2020
Right-of-use assets obtained in exchange for new operating lease liabilities			$	8,175	$	77
Right-of-use assets obtained in exchange for new finance lease liabilities	—		—		—




~~(1)~~	During the three months ended June 30, 2019, we modified an existing operating lease to extend the term through 2030. As a result of this modification, we increased our lease liabilities and right-of-use assets by $8.2 million.

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

Lease Type Balance Sheet Classification September 30, 2019
Operating lease right-of-use assets Operating lease right-of-use assets $ 22,628
Finance lease right-of-use assets⁽¹⁾
Property, plant and equipment, net 5,322
Total right-of-use assets $ 27,950

Operating lease current liabilities Current portion of operating lease obligations $ 1,524
Finance lease current liabilities Current portion of finance lease obligations 282
Total current lease liabilities 1,806

Operating lease non-current liabilities Obligations under operating leases, net of current portion 21,758
Finance lease non-current liabilities Obligations under finance leases, net of current portion 5,929
Total non-current lease liabilities 27,687

Total lease liabilities $ 29,493




~~(1)~~	~~Finance lease right-of-use assets are presented net of accumulated depreciation of $2.0 million.~~



Lease Type	Balance Sheet Classification	December 31, 2019			June 30, 2020
Operating lease right-of-use assets	Operating lease right-of-use assets	$	22,304		$	21,407

Finance lease right-of-use assets	Property, plant and equipment, net	$	6,770		$	6,770
Accumulated depreciation	Property, plant and equipment, net	(1,566		)	(1,784		)
Finance lease right-of-use assets, net		5,204			4,986

Operating lease current liabilities	Current portion of operating lease obligations	$	1,554		$	2,008
Finance lease current liabilities	Current portion of finance lease obligations	290			306
Total current lease liabilities		1,844			2,314

Operating lease non-current liabilities	Obligations under operating leases, net of current portion	21,533			20,583
Finance lease non-current liabilities	Obligations under finance leases, net of current portion	5,854			5,696
Total non-current lease liabilities		27,387			26,279

Total lease liabilities		$	29,231		$	28,593

The average lease terms and discount rates as of ~~September~~June 30, ~~2019~~2020 are as follows:



	Weighted-average remaining lease term (years)	Weighted-average discount rate
Operating leases	10.5	8.1	%
Finance leases	6.4	8.2	%

Weighted-average remaining lease term (years) Weighted-average discount rate
Operating leases 11.2 8.1 %
Finance leases 7.2 8.2 %

The aggregate future lease payments for operating and finance leases as of ~~September~~June 30, ~~2019~~2020 are as follows (in thousands):



	Operating			Finance
Lease payments due:
Remainder of 2020	$	1,874		$	428
2021	3,725			836
2022	3,365			860
2023	3,267			860
2024	3,262			791
Thereafter	17,799			6,291
Total lease payments	33,292			10,066
Less: Interest	(10,701		)	(4,064		)
Present value of lease liabilities	$	22,591		$	6,002

Operating Finance
Lease payments due:
Remainder of 2019 $ 975
$ 206
2020 3,277
828
2021 3,632
836
2022 3,283
860
2023 3,186
860
Thereafter 20,934
7,082
Total lease payments 35,287
10,672
Less: Interest (12,005 ) (4,461 )
Present value of lease liabilities $ 23,282
$ 6,211

As of~~September~~June 30, ~~2019,~~2020, we had no additional significant operating or finance leases that had not yet commenced.


~~16.~~14.	COMMITMENTS AND CONTINGENCIES

Litigation

We are a party to various litigation matters and proceedings. For each of our outstanding legal matters, we evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies, and the likelihood of an unfavorable outcome. If we determine that an unfavorable outcome is probable and can be reasonably estimated, we establish the necessary accruals. We hold certain insurance policies that may reduce cash outflows with respect to an adverse outcome of certain of these litigation matters.

Faria, et al. v. Carriage Funeral Holdings, Inc., Superior Court of California, Contra Costa County, Case No. MSC18-00606. On March 26, 2018, six Plaintiffs filed a putative class action against Carriage Funeral Holdings, Inc., our subsidiary, their alleged employer, on behalf of themselves and all similarly situated current and former employees. Plaintiffs seek monetary damages and claim that Carriage Funeral Holdings, Inc. failed to pay minimum wages, provide meal and rest breaks, provide accurately itemized

wage statements, reimburse employees for required expenses, and provide wages when due. Plaintiffs also claim that Carriage Funeral Holdings, Inc. violated California Business and Professions Code §17200 et seq. On June 5, 2018, Plaintiffs filed a First Amended Complaint to add a claim under the California Private Attorney General Act. On October 23, 2018, the parties mediated this matter and executed a Memorandum of Understanding for class settlement. In February 2019, a Class Action Settlement Agreement was fully executed ~~which~~and was ~~preliminarily~~ approved by the ~~Court. The class claims process is underway. At December 31, 2018, we accrued $650,000 for~~Court in October 2019. We paid $0.7 million under the ~~estimated~~ settlement ~~amount related to this case.~~

~~See Note 21 to the Consolidated Financial Statements included herein for further discussion of the expected final settlement of this matter.~~agreement in November 2019. This case was formally closed on May 25, 2020.

~~17.~~15.STOCKHOLDERS’ EQUITY

~~Stock-Based Compensation Plans~~

During the nine months ended September 30, 2019, we had two stock benefits plans under which restricted stock, stock options and performance awards have been granted or remain outstanding: the Second Amended and Restated 2006 Long-Term Incentive Plan (the “Amended and Restated 2006 Plan”) and the 2017 Omnibus Incentive Plan (the “2017 Plan”). The Amended and Restated 2006 Plan was terminated upon the approval of the 2017 Plan at the annual shareholders meeting on May 17, 2017, however, the termination of the Amended and Restated 2006 Plan does not affect the awards previously issued and outstanding under the Amended and Restated 2006 Plan.

All stock-based plans are administered by the Compensation Committee appointed by our Board of Directors (the “Board”). The 2017 Plan provides for grants of options as non-qualified options or incentive stock options, restricted stock and performance awards. The 2017 Plan expires on May 17, 2027.

~~The status of each of the plans at September 30, 2019 is as follows (shares in thousands):~~

Shares
Reserved Shares
Available to
Issue Options
Outstanding
Performance Awards Outstanding ⁽²⁾
Amended and Restated 2006 Plan —
—
940
—
2017 Plan 2,709
⁽¹⁾
1,952
136
501
Total 2,709
1,952
1,076
501




~~(1)~~	Amount includes approximately 1,154,000 shares granted from the Amended and Restated 2006 Plan that were returned to the Company due to cancellations, to pay taxes on restricted stock vestings and to pay option price and taxes on option exercises.
~~(2)~~	~~Performance Awards are reserved at 200% of shares granted which is equal to the maximum payout in shares.~~

Restricted Stock

During the six months ended June 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 ~~$215,000~~$211,000 and ~~$196,000,~~$183,000, for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~2020, respectively and ~~$681,000~~$428,000 and ~~$624,000~~$368,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~2020, respectively.

As of ~~September~~June 30, ~~2019,~~2020, we had ~~$1.7~~$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 ~~1.7~~1.4 years.

Stock Options

During the six months ended June 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. The fair value of these options was $0.1 million. On June 26, 2020, we cancelled 100,000 options in connection with the resignation of our President and Chief Operating Officer.

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:



	2020
Dividend yield	1.67	%
Expected volatility	38.54	%
Risk-free interest rate	0.25	%
Expected holding period (years)	3.74
Black-Scholes value	$4.61

We recorded stock-based compensation expense, which is included in General, administrative and other expenses, for stock options of ~~$238,000~~$149,000 and ~~$160,000,~~$122,000, for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~2020, respectively and ~~$955,000~~$353,000 and ~~$513,000~~$337,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~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 54 months.

On June 25, 2020, we granted an additional 13,974 performance awards to our Vice-President of Cemetery Sales and Marketing with the same vesting criteria described above with a fair value of $0.2 million. On June 26, 2020, we cancelled 33,538 performance awards in connection with the resignation of our President and Chief Operating Officer.

The fair values of the performance awards granted during the three months ended June 30, 2020 were determined by using the Monte-Carlo simulation pricing model with the following assumptions:



	May 19, 2020		June 25, 2020
Performance period	May 19, 2020 - December 31, 2024		June 25, 2020 - December 31, 2024
Simulation period (years)	4.62		4.52
Share price at grant date	$15.79		$18.02
Expected volatility	34.54	%	36.24	%
Risk-free interest rate	0.33	%	0.29	%

We recorded stock-based compensation expense, which is included in General, administrative and other expenses, for performance awards of ~~$344,000~~$58,000 and ~~$61,000~~$182,000 for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~2020, respectively and ~~$964,000~~$77,000 and ~~$138,000~~$303,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~2020, respectively.

Employee Stock Purchase Plan

During the six months ended June 30, 2020, employees purchased a total of 43,314 shares at a weighted average price of $14.39 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:



	2020
Dividend yield	0.01	%
Expected volatility	48.63	%
Risk-free interest rate	1.54%,1.57%,1.57%,1.56%
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~~$61,000 and $80,000 for ~~both~~ the three months ended ~~September~~June 30, ~~2018 and~~ 2019 and ~~$208,000~~2020, respectively and ~~$224,000~~$166,000 and $244,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~2020, respectively.

Good to Great Incentive Program

During the six months ended June 30, 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.

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.

For the six months ended June 30, 2020, we granted an aggregate of 16,680 shares of our common stock to 5 of our non-employee directors, which were valued at $0.3 million at a weighted average stock price of $17.08.

We recorded stock-based compensation expense, which is included in General, administrative and other expenses, related to annual retainers and common stock awards of ~~$133,000~~$114,000 and ~~$113,000~~$201,000 for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~2020, respectively and ~~$336,000~~$228,000 and ~~$341,000~~$402,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~2020, respectively.

Share Repurchase

During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we ~~repurchased 400,000~~did not repurchase any shares of our common stock ~~for a total cost of $7.8 million at an average cost of $19.39 per share~~ pursuant to our share repurchase program. At ~~September~~June 30, ~~2019,~~2020, we had approximately ~~$0.6~~$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 next dividend declaration in the third quarter of 2020. During the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~2020, our Board declared the following dividends payable on the dates below (in thousands, except per share amounts):



2019	Per Share		Dollar Value
March 1^st	$	0.075	$	1,360
June 1^st	$	0.075	$	1,365

2020	Per Share		Dollar Value
March 1^st	$	0.075	$	1,339
June 1^st	$	0.075	$	1,343

2018 Per Share Dollar Value
March 1^st
$ 0.075
$ 1,207
June 1^st
$ 0.075
$ 1,433
September 1^st
$ 0.075
$ 1,436

2019 Per Share Dollar Value
March 1^st
$ 0.075
$ 1,360
June 3^rd
$ 0.075
$ 1,365
September 1^st
$ 0.075
$ 1,336

Accumulated other comprehensive income

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



Three months ended June 30, 2020
	Accumulated Other Comprehensive Income
~~Balance at December~~March 31, ~~2018~~2020	$	—
~~Decrease in net~~Net unrealized gains associated with available-for-sale securities of the trusts	~~(6,560~~34,301		)
Reclassification of net unrealized ~~gain~~gains activity attributable to the Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus	~~6,560~~(34,301		)
Balance at ~~September~~June 30, 2020	$	—



Six months ended June 30, 2020
	Accumulated Other Comprehensive Income
Balance at December 31, 2019	$	—
Net unrealized losses associated with available-for-sale securities of the trusts	(10,803		)
Reclassification of net unrealized losses activity attributable to the Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus	10,803
Balance at June 30, 2020	$	—

~~18.~~

16.EARNINGS PER SHARE

The following table sets forth the computation of the basic and diluted earnings per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019~~2020 (in thousands, except per share data):



	Three months ended June 30,						Six months ended June 30,
	2019			2020			2019			2020
Numerator for basic and diluted earnings per share:
Net income	$	4,862		$	6,397		$	11,387		$	2,200
Less: Earnings allocated to unvested restricted stock	(21		)	(18		)	(52		)	(8		)
Income attributable to common stockholders	$	4,841		$	6,379		$	11,335		$	2,192

Denominator:
Denominator for basic earnings per common share - weighted average shares outstanding	17,959			17,860			18,008			17,833
Effect of dilutive securities:
Stock options	29			29			35			29
Denominator for diluted earnings per common share - weighted average shares outstanding	17,988			17,889			18,043			17,862

Basic earnings per common share:	$	0.27		$	0.36		$	0.63		$	0.12
Diluted earnings per common share:	$	0.27		$	0.36		$	0.63		$	0.12

Three Months Ended September 30, Nine Months Ended September 30,
2018 2019 2018 2019
Numerator for basic and diluted earnings per share:
Net income $ 2,200
$ 577
$ 14,303
$ 11,964
Less: Earnings allocated to unvested restricted stock (11 ) (3 ) (79 ) (52 )
Income attributable to common stockholders $ 2,189
$ 574
$ 14,224
$ 11,912

Denominator:
Denominator for basic earnings per common share - weighted average shares outstanding 19,060
17,737
17,701
17,917
Effect of dilutive securities:
Stock options 101
31
123
34
Convertible Notes —
—
449
—
Denominator for diluted earnings per common share - weighted average shares outstanding 19,161
17,768
18,273
17,951

Basic earnings per common share: $ 0.11
$ 0.03
$ 0.80
$ 0.66
Diluted earnings per common share: $ 0.11
$ 0.03
$ 0.78
$ 0.66

~~The fully diluted weighted average shares outstanding for~~For the ~~nine~~three and six months ended ~~September~~June 30, ~~2018~~2019 and ~~the corresponding calculation of fully diluted earnings per share, include 449,000~~2020, there were 0 shares that would have been issued upon conversion of our Convertible Notes as a result of the application ofunder 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~~June 30, ~~2018,~~2019 and 2020, there were ~~no shares that would have been issued upon conversion under~~1,094,070 and 1,017,383 stock options, respectively and 1,200,404 and 1,025,734 for the ~~if-converted method. For the three and nine~~six months ended ~~September~~June 30, 2019 ~~there were no shares that would have been issued upon conversion under the if-converted method.~~

~~For the three~~ and ~~nine months ended September 30, 2018, 1,065,000 and 1,041,000 stock options were~~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 the three and ~~nine~~six months ended ~~September~~June 30, ~~2019, 901,000 and 974,000 stock options were~~2020, 349,357 performance awards have been excluded from the computation of diluted earnings per share ~~because~~as the ~~inclusion~~performance criteria have not been met.

17.SEGMENT REPORTING

Revenue, disaggregated by major source for each of ~~such stock options would result in an antidilutive effect.~~our reportable segments was as follows (in thousands):



Three months ended June 30, 2020
	Funeral		Cemetery		Total
Services	$	35,653	$	3,227	$	38,880
Merchandise	20,121		2,512		22,633
Cemetery property	—		10,009		10,009
Other revenue	3,347		2,608		5,955
Total	$	59,121	$	18,356	$	77,477



Three months ended June 30, 2019
	Funeral		Cemetery		Total
Services	$	31,931	$	2,728	$	34,659
Merchandise	18,378		1,953		20,331
Cemetery property	—		8,546		8,546
Other revenue	2,198		2,018		4,216
Total	$	52,507	$	15,245	$	67,752

~~19.MAJOR SEGMENTS OF BUSINESS~~



Six months ended June 30, 2020
	Funeral		Cemetery		Total
Services	$	73,212	$	6,400	$	79,612
Merchandise	40,821		4,798		45,619
Cemetery property	—		18,294		18,294
Other revenue	6,830		4,612		11,442
Total	$	120,863	$	34,104	$	154,967



Six months ended June 30, 2019
	Funeral		Cemetery		Total
Services	$	65,908	$	5,403	$	71,311
Merchandise	38,343		3,731		42,074
Cemetery property	—		15,382		15,382
Other revenue	4,419		3,647		8,066
Total	$	108,670	$	28,163	$	136,833

We conduct funeral and cemetery operations only in the United States. The following table presents ~~revenue, operating~~Operating income (loss), ~~income~~Income (loss) before income taxes and ~~total~~Total assets by segment (in thousands):



	Funeral		Cemetery		Corporate			Consolidated
Operating income (loss):
Three months ended June 30, 2020	$	19,869	$	5,291	$	(6,894	)	$	18,266
Three months ended June 30, 2019	14,624		4,626		(6,061		)	13,189

Six months ended June 30, 2020	$	24,180	$	9,458	$	(13,222	)	$	20,416
Six months ended June 30, 2019	32,700		8,150		(12,062		)	28,788

Income (loss) before income taxes:
Three months ended June 30, 2020	$	19,674	$	5,348	$	(15,176	)	$	9,846
Three months ended June 30, 2019	14,418		4,852		(12,262		)	7,008

Six months ended June 30, 2020	$	23,792	$	9,453	$	(29,746	)	$	3,499
Six months ended June 30, 2019	32,279		8,438		(24,508		)	16,209

Total assets:
June 30, 2020	$	768,462	$	341,522	$	24,668		$	1,134,652
December 31, 2019	790,459		314,413		24,883			1,129,755

Funeral Cemetery Corporate Consolidated
Revenue:
Three Months Ended September 30, 2019 $ 51,517
$ 14,608
$ —
$ 66,125
Three Months Ended September 30, 2018 49,843
14,398
—
64,241

Nine Months Ended September 30, 2019 $ 160,187
$ 42,771
$ —
$ 202,958
Nine Months Ended September 30, 2018 156,969
44,506
—
201,475

Operating income (loss):
Three Months Ended September 30, 2019 $ 14,124
$ 3,932
$ (6,112 ) $ 11,944
Three Months Ended September 30, 2018 13,644
3,470
(6,849 ) 10,265

Nine Months Ended September 30, 2019 $ 46,824
$ 12,083
$ (18,174 ) $ 40,733
Nine Months Ended September 30, 2018 45,962
12,165
(20,754 ) 37,373

Income (loss) before income taxes:
Three Months Ended September 30, 2019 $ 9,312
$ 3,885
$ (11,673 ) $ 1,524
Three Months Ended September 30, 2018 13,417
3,560
(13,590 ) 3,387

Nine Months Ended September 30, 2019 $ 41,591
$ 12,324
$ (36,181 ) $ 17,734
Nine Months Ended September 30, 2018 45,244
12,406
(38,282 ) 19,368

Total assets:
September 30, 2019 $ 693,718
$ 237,825
$ 20,605
$ 952,148
December 31, 2018 686,470
226,475
4,557
917,502

~~20.~~18.SUPPLEMENTARY DATA

Balance Sheet

The following table presents the detail of certain balance sheet accounts as of December 31, ~~2018~~2019 and ~~September~~June 30, ~~2019~~2020 (in thousands):



	December 31, 2019		June 30, 2020
Prepaid and other current assets:
Prepaid expenses	$	1,596	$	1,403
Deposit on pending acquisition	5,000		—
Federal income taxes receivable	2,973		9,949
State income taxes receivable	986		616
Other current assets	112		119
Total prepaid and other current assets	$	10,667	$	12,087

Current portion of debt and lease obligations:
Current portion of acquisition debt	$	1,306	$	1,142
Current portion of finance lease obligations	290		306
Current portion of operating lease obligations	1,554		2,008
Total current portion of debt and lease obligations	$	3,150	$	3,456

Accrued and other liabilities:
Accrued salaries and wages	$	4,323	$	3,820
Accrued incentive compensation	9,199		3,248
Accrued vacation	2,880		3,208
Accrued insurance	2,329		2,888
Accrued interest	2,299		2,363
Accrued ad valorem and franchise taxes	678		1,785
Employer payroll tax deferral	—		867
Accrued commissions	560		719
Perpetual care trust payable	401		180
Other accrued liabilities	1,357		1,329
Unrecognized tax benefit	—		2,860
Total accrued and other liabilities	$	24,026	$	23,267

Other long-term liabilities:
Incentive compensation	$	1,267	$	1,524
Contingent consideration	470		—
Total other long-term liabilities	$	1,737	$	1,524

December 31, 2018 September 30, 2019
Prepaid and other current assets:
Prepaid expenses $ 1,456
$ 1,479
Federal income taxes receivable 923
—
State income taxes receivable 422
173
Other current assets 210
112
Total prepaid and other current assets $ 3,011
$ 1,764

Accrued and other liabilities:
Accrued salaries and wages $ 4,088
$ 2,804
Accrued incentive compensation 7,395
5,846
Accrued vacation 2,358
2,304
Accrued insurance 3,188
3,700
Accrued interest 1,856
7,235
Accrued ad valorem and franchise taxes 904
2,158
Accrued commissions 441
553
Federal income taxes payable 962
3,359
Deferred rent 274
—
Other accrued liabilities 1,178
1,311
Total accrued and other liabilities $ 22,644
$ 29,270

Other long-term liabilities:
Deferred rent $ 692
$ —
Incentive compensation 1,563
1,246
Contingent consideration 878
689
Total other long-term liabilities $ 3,133
$ 1,935

~~21.~~19.SUBSEQUENT EVENTS

On ~~October 9, 2019,~~July 2, 2020, we ~~acquired four~~sold one funeral home business in Florida for $0.8 million.

On July 10, 2020, we sold two funeral home businesses in ~~Buffalo, New York~~Colorado for ~~$15.3 million in cash. The consideration for this acquisition was funded through a combination of cash on hand and borrowings under our Credit Facility.~~$3.2 million.

On October 28, 2019, we acquired one funeral home and cemetery combination business, two funeral home businesses and ancillary services and businesses, which include an onsite crematory, care center, flower shop and pet cremation in the Dallas, Texas area for $23.6 million in cash. The consideration for this acquisition was funded through borrowings under our Credit Facility.

~~On October 29, 2019, the court issued final approval of the~~ ~~Faria, et al. v. Carriage Funeral Holdings, Inc.,~~ ~~Class Action Settlement Agreement and the settlement amount of $676,000 is expected to be paid in the fourth quarter of 2019.~~

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. 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; 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. 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. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenue and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:

~~the~~our ability to find and retain skilled personnel;

our ability to execute our growth strategy;

the effects of competition;

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

~~the effects of competition;~~

changes in the number of deaths in our markets;

changes in consumer preferences;

our ability to generate preneed sales;

the investment performance of our funeral and cemetery trust funds;

fluctuations in interest rates;

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

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

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

the financial condition of third-party insurance companies that fund our preneed funeral contracts;

increased or unanticipated costs, such as insurance or taxes;

our level of indebtedness and the cash required to service our indebtedness;

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

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;

consolidation of the funeral and cemetery industry;

our ability to consummate the divestiture of low performing businesses as currently expected, if at all, including expected use of proceeds related thereto;

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

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

For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see (i) Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q and (ii) Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW

General

Carriage Services, Inc. (“Carriage,” the “Company,” “we,” “us,” or “our”) was ~~founded in 1991 to consolidate and operate funeral homes and cemeteries~~incorporated in the ~~fragmented death care industry. We are~~State of Delaware in December 1993 and is a leading U.S. provider of funeral and cemetery services and merchandise. We operate in two business segments: Funeral Home Operations, which currently account for approximately 80% of our revenue, and Cemetery Operations, which currently account for approximately 20% of our revenue.

At June 30, 2020, we operated 186 funeral homes in 29 states and 32 cemeteries in 11 states. We compete with other publicly held and independent operators of funeral and cemetery companies. We believe we are a market leader in most of our markets.

Our funeral homes offer a complete range of high value personal services to meet a family’s funeral needs, including consultation, the removal and preparation of remains, the sale of caskets and related funeral merchandise, the use of funeral home facilities for visitation and remembrance services and transportation services. Our cemeteries provide interment rights (grave sites and mausoleum spaces) and related merchandise, such as markers and outer burial containers. We provide funeral and cemetery services and products on both an “atneed” (time of death) and “preneed” (planned prior to death) basis.

Recent Developments

Credit Facility

On May 18, 2020, we received a waiver under our Credit Facility for the failure to comply with the Total Leverage Ratio covenant for the fiscal quarter ended March 31, 2020. In connection with the waiver, the Credit Facility was also amended to increase the interest rate margin applicable to borrowings by up to 0.625% at each pricing level based on the Total Leverage Ratio. We ~~operate~~are in ~~two~~compliance with the total leverage ratio, fixed charge coverage ratio and senior secured leverage ratio covenants contained in our Credit Facility as of June 30, 2020.

Dividend Increase

On May 19, 2020, the Board of Directors (the “Board”) approved an increase of $0.05 to our annual dividend beginning with the next dividend declaration in the third quarter. The annual dividend is now $0.35 per share.

Performance Awards

On May 19, 2020, we cancelled all the Performance Awards previously awarded to all individuals in 2019 and 2020 and the Compensation Committee of the Board approved a new Performance Award Agreement (the “New Agreement”) for certain eligible employees. Pursuant to the New Agreement, the target share awards for each of the eligible employees will vest on December 31, 2024 if 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.

Executive Leadership Changes

On June 25, 2020, William W. Goetz resigned as President and Chief Operating Officer effective June 26, 2020. Mr. Goetz further agreed to resign from his position as a director on the Board, also effective as of June 26, 2020. The resignation was not the result of any disagreement Mr. Goetz had with the Company on any matter relating to the Company’s operations, policies, and practices.

On June 25, 2020, Carlos Quezada joined the Company as Vice President of Cemetery Sales and Marketing. His primary responsibilities include building High Performance sales teams and standardized sales systems across our portfolio of cemetery businesses. Prior to joining Carriage, Mr. Quezada was a Managing Director for another publicly traded deathcare company. He also has held prior leadership roles in sales and operations in the deathcare and hospitality industries.

Executive Management reduction in base salaries

On April 19, 2020, the Company initiated measures to address potential future challenges from the COVID-19 pandemic. These measures included cost reduction efforts, including, among other things, a temporary reduction in the base salaries for the Company’s executive officers. The Compensation Committee of the Board approved the temporary reductions in compensation.

On June 26, 2020, the Compensation Committee of the Board voted to reinstate the 2020 annual base salaries for the executive officers back to 100% due to the Company’s performance. The reinstatement of 2020 annual base salaries is effective as of June 28, 2020. The annual base salary reductions for the Company’s executive officers from April 19, 2020 through June 27, 2020 have been treated as a temporary pay cut, and the lost wages from that time period will not be paid.

Board of Directors reduction in retainer fees

On April 23, 2020, 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 compensation fees back to 100%, effective as of June 28, 2020.

Business Impact under the Macroeconomic Environment of COVID-19

On March 11, 2020, COVID-19 was deemed a global pandemic and since then, the Company has continued to proactively monitor and assess the pandemic’s current and potential impact to the Company’s operations. Since early March, the Company’s senior leadership team has taken certain steps to assist our businesses in appropriately adjusting and adapting to the conditions resulting from the COVID-19 pandemic. Our businesses have been designated as essential services and, therefore, each one of the Company’s business ~~segments: funeral home operations, which currently account for approximately 80%~~locations remains open and ready to provide service to their communities in this time of need. While our businesses provide an essential public function, along with a critical responsibility to the communities and families they serve, the health and safety of our ~~revenue,~~employees and ~~cemetery operations, which currently account for approximately 20%~~the families we serve remain our top priority. The Company has taken additional steps during this time to continually review and update our processes and procedures to comply with all regulatory mandates and procure additional supplies to ensure that each of our ~~revenue.~~businesses have appropriate personal protective equipment to provide these essential services. Additionally, in many of our business locations, we have also updated staffing and service guidelines, such as reducing the number of team members present for a service, restricting the size and number of attendees and adjusting other operating procedures. The Company has also implemented additional safety and precautionary measures as it concerns our businesses’ day-to-day interaction with the families and communities they serve.

~~At September 30, 2019,~~The overall impact of the macroeconomic environment to the deathcare industry from COVID-19 may provide varying results as compared to other industries. Our industry’s revenues are impacted by various factors, including the number of funeral services performed, the average price for a service and the mix of traditional burial versus cremation contracts. Changes in the macroeconomic environment as a result of the pandemic may not necessarily impact volume, but could create situations where people choose to spend less on funerals by purchasing less expensive caskets, minimize the scale of services and visitations, or elect not to make a preneed funeral or cemetery arrangement. During this time, our businesses have been focused on being innovative and resourceful, providing some type of immediate service as part of the grieving process. Gathering and travel restrictions across many areas of the country have limited our ability to provide large, in-person memorialization services and we ~~operated 179 funeral homes~~have seen client families elect webcasting and livestreaming services, hold services with smaller attendance or rotating visitors, or in ~~29 states~~some cases, choose to delay services to a future date. We have also offered various incentives to our customers and ~~29 cemeteries~~sales counselors to continue to foster sales in ~~11 states.~~our cemeteries.

Within our financial reporting environment, we have considered various areas that could affect the results of our operations, though the scope, severity and duration of these impacts remain uncertain at this time because the COVID-19 pandemic is continually evolving and the ultimate impact of COVID-19 remains uncertain. Certain estimates inherently involve assumptions about future events and annual results, making reliable estimates for those matters challenging in periods of economic instability. We ~~compete with other publicly held funeral and cemetery companies and smaller, privately-owned independent operators. We~~do not believe we are ~~a market leader in most~~vulnerable to certain concentrations, whether by geographic area, revenue for specific products or our relationships with our vendors. Our relationships with our vendors and suppliers have remained consistent and we continue to receive utmost service. Remote working arrangements have not adversely affected our ability to maintain and support operations, including financial reporting systems, internal controls over financial reporting, and disclosure controls and procedures.

We believe our access to capital, the cost of our ~~markets.~~capital, or the sources and uses of our cash should be relatively consistent in the near term, but given the unprecedented nature of COVID-19, we also believe, it is prudent for us to take a broad-based approach to ensuring we maintain financial flexibility throughout the expected duration of the pandemic. We have, as part of a larger plan, taken steps to reduce overall expenses throughout the rest of 2020. For example, discretionary spending, such as growth capital expenditures (primarily cemetery inventory development) will be tightly managed and minimized during this time. Moreover, our executive officers and non-employee directors voluntarily agreed to temporary reductions in salary compensation from April 19, 2020 through June 28, 2020 (see above herein). While the expected duration of the pandemic is unknown, we have not currently experienced any material impacts to our liquidity position, access to capital, or cash flows as a result of COVID-19. See Liquidity within Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for additional information related to our liquidity position.

We have also applied certain measures of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020, which we anticipate should provide a cash benefit in the form of a tax payment refund, tax credits related to employee retention, cash deferral for the employer portion of the Social Security tax and anticipated minimal cash taxes for 2020. Although we expect to take advantage of certain tax relief provisions of the CARES Act, we do not believe it will have a significant impact on our short-term or long-term liquidity position. See Item 1, Financial Statements and Supplementary Data, Note 1 for additional information related to the CARES Act.

The COVID-19 pandemic, and related gathering restrictions issued by state and local officials, did impact, while not material, aspects of our financial results in the second quarter and year to date, including revenue, volume, preneed cemetery sales, and average revenue per contract. We will continue to assess these impacts and implement appropriate procedures, plans, strategy, and issue any disclosures that may be required, as the situation surrounding the pandemic and related gathering restrictions evolves.

Funeral Home Operations

Our funeral homes offer a complete range of high value personal services to meet a family’s funeral needs, including consultation, the removal and preparation of remains, the sale of caskets and related funeral merchandise, the use of funeral home facilities for visitation and remembrance services and transportation services. Factors affecting our funeral operating results include, but are not limited to: demographic trends relating to population growth and average age, which impact death rates and number of deaths; establishing and maintaining leading market share positions supported by strong local heritage and relationships; effectively responding to increasing cremation trends by selling complementary services and merchandise; controlling salary and merchandise costs; and exercising pricing leverage to increase average revenue per contract.

Cemetery Operations

Our cemeteries provide interment rights (grave sites and mausoleum spaces) and related merchandise, such as markers and outer burial containers both on an atneed and preneed basis. Factors affecting our cemetery operating results include, but are not limited to: the size and success of our sales organization; local perceptions and heritage of our cemeteries; our ability to adapt to changes in the economy and consumer confidence; and our response to fluctuations in capital markets and interest rates, which affect investment earnings on trust funds, finance charges on installment contracts and our securities portfolio within the trust funds.

Business Strategy

Our business strategy is based on strong, local leadership with entrepreneurial principles that is focused on sustainable long-term market share, revenue, and profitability growth in each local business. We believe Carriage has the most innovative operating model in the funeral and cemetery industry, which we are able to achieve through a decentralized, high-performance culture and operating framework linked with incentive compensation programs that attract top-quality ~~industry~~ talent to our organization.

Our Mission Statement states that “we are committed to being the most professional, ethical and highest quality funeral and cemetery service organization in our industry” and our Guiding Principles state our core values, which are comprised of:

Honesty, Integrity and Quality in All That We Do

Hard work, Pride of Accomplishment, and Shared Success Through Employee Ownership

Belief in the Power of People Through Individual Initiative and Teamwork

Outstanding Service and Profitability Go Hand-in-Hand

Growth of the Company Is Driven by Decentralization and Partnership

Our five Guiding Principles collectively embody our Being The Best high-performance culture, operating framework. Our operations and business strategy are built upon the execution of the following three models:

Standards Operating Model

4E Leadership Model

Strategic Acquisition Model

Our belief in our Mission Statement and Guiding Principles that define us and proper execution of the following three models that define our strategy, have given us the competitive advantage in any market in which we compete. We believe that we can execute our three models without proportionate incremental investment in our consolidation platform infrastructure and without additional fixed regional and corporate overhead. This gives us a competitive advantage that is evidenced by the sustained earning power of our portfolio as defined by our EBITDA margin.

Standards Operating Model

Our Standards Operating Model is focused on growing local market share, ~~service~~providing personalized high-value services to our client families and ~~guest experience~~guests, and ~~key~~ operating ~~and~~ financial metrics that drive long-term, sustainable revenue growth and improved earning power of our portfolio of businesses by employing leadership and entrepreneurial principles that fit the nature of our high-value personal service business. Standards Achievement is the measure by which we judge the success of each business and incentivize our local managers and their teams. Our Standards Operating Model is not designed to produce maximum short-term

earnings because we believe such performance is unsustainable and will ultimately stress the business, which very often leads to declining market share, revenue and earnings.

4E Leadership Model

Our 4E Leadership Model requires strong local leadership in each business to grow an entrepreneurial, decentralized, high-value, personal service and sales business at sustainable profit margins. Our 4E Leadership Model is based upon principles established by the late Jack Welch during his tenure at General Electric, and is based upon 4E qualities essential to succeed in a high-performance culture: Energy to get the job done; the ability to Energize others; the Edge necessary to make difficult decisions; and the ability to Execute and produce results. To achieve a high level within our Standards in a business year after year, we require local Managing Partners that have the 4E Leadership skills to entrepreneurially grow the business by hiring, training and developing highly motivated and productive local teams.

Strategic Acquisition Model

Our Standards Operating Model led to the development of our Strategic Acquisition Model, which guides our acquisition strategy. We believe that both models, when executed effectively, will drive long-term, sustainable increases in market share, revenue, earnings and cash flow. We believe a primary driver of higher revenue and profits in the future will be the execution of our Strategic Acquisition Model using strategic ranking criteria to assess acquisition candidates. As we execute this strategy over time, we expect to acquire larger, higher margin strategic businesses.

We have learned that the long-term growth or decline of a local branded funeral and cemetery business is reflected by several criteria that correlate strongly with five to ten year performance in volumes (market share), revenue and sustainable field-level earnings before interest, taxes, depreciation and amortization (“EBITDA”) margins (a non-GAAP measure). We use criteria such as cultural alignment, volume and price trends, size of business, size of market, competitive standing, demographics, strength of brand and barriers to entry to evaluate the strategic position of potential acquisition candidates. Our ~~belief in our~~ ~~Mission Statement~~ ~~and~~ ~~Guiding Principles~~ ~~that define us and proper execution~~financial valuation of the ~~three models~~acquisition candidate is then determined through the application of an appropriate after-tax cash return on investment that ~~define~~exceeds our strategy have given us the competitive advantage in any market in which we compete. We believe that we can execute our three models without proportionate incremental investment in our consolidation platform infrastructure and without additional fixed regional and corporate overhead. This gives us a competitive advantage that is evidenced by the sustained earning powercost of ~~our portfolio as defined by our EBITDA margin.~~capital.

LIQUIDITY AND CAPITAL RESOURCES

Overview

Our primary sources of liquidity and capital resources are internally generated cash flows from operating activities and availability under our ~~senior secured revolving credit facility (the “Credit Facility”).~~Credit Facility.

We generate cash in our operations primarily from atneed sales and delivery of preneed sales. We also generate cash from earnings on our cemetery perpetual care trusts. Based on our recent operating results, current cash position, steps taken to reduce overall expenses throughout the rest of 2020, and anticipated future cash flows, we do not anticipate any significant liquidity constraints in the foreseeable future. However, if our capital expenditures, acquisition or ~~acquisition~~divestiture plans, or business impacts from the pandemic change, we may need to access the capital markets to obtain additional funding. Further, to the extent operating cash flow or access to and cost of financing sources are materially different than expected, future liquidity may be adversely affected. ~~Please~~For additional information regarding known material factors that could cause cash flow or access to and cost of finance sources to differ from our expectations, please read (i) Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q and (ii) Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

~~We intend~~Our plan is to remain focused on integrating our newly acquired businesses and to use cash on hand and ~~future~~ borrowings under our Credit Facility ~~to acquire funeral home and cemetery businesses and~~primarily for ~~internal growth projects, such as cemetery inventory development and funeral home expansion projects,~~general corporate purposes and for payment of dividends and our debt obligations. Discretionary spending, such as internal growth projects and expenditures (primarily cemetery inventory development, along with funeral home expansion projects) will be tightly managed and minimized during the remainder of 2020. We also expect increased divestiture activity for the next 12-18 months which we anticipate will yield approximately $15 million of additional cash from the proceeds of the sale. From time to time we may also use ~~our~~available cash resources (including borrowings under our Credit Facility) to, subject to satisfying certain financial covenants in our Credit Facility, repurchase shares of our common stock and our remaining 2.75% convertible subordinated notes due 2021 (“Convertible Notes”) in open market or privately negotiated transactions. We have the ability to draw on our Credit Facility, subject to its customary terms and conditions.

As of June 30, 2020, we have net unrealized losses of $10.8 million in our trusts. At June 30, 2020, these net unrealized losses represented 4% of our original cost basis of $242.1 million. The decline in fair value is largely due to changes in interest rates and other market conditions as a result of COVID-19. 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.

In light of recent developments relating to COVID-19, we believe that our existing and anticipated cash resources will be sufficient to meet our anticipated working capital requirements, capital expenditures, scheduled debt payments, commitments ~~dividends~~ and ~~acquisitions~~dividends for the ~~foreseeable future.~~

next 12 months.

Cash Flows

We began ~~2019~~2020 with ~~$0.6~~$0.7 million in cash and other liquid investments and ended the ~~third~~second quarter with ~~$5.8~~$0.7 million. As of ~~September~~June 30, ~~2019,~~2020, we had borrowings of ~~$18.0~~$89.7 million outstanding on our Credit Facility compared to ~~$27.1~~$83.8 million ~~outstanding~~ as of December 31, ~~2018.~~2019.

The following table sets forth the elements of cash flow for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019~~2020 (in thousands):

Nine Months Ended September 30,
2018 2019
Cash at beginning of year $ 952
$ 644

Cash flow from operating activities 38,717
36,061

Acquisitions and land for new construction (37,970 ) —
Proceeds from insurance reimbursements —
1,247
Proceeds from the sale of business and other assets —
967
Growth capital expenditures (2,841 ) (5,298 )
Maintenance capital expenditures (6,196 ) (6,181 )
Cash flow from investing activities (47,007 ) (9,265 )

Net payments on long-term debt obligations (220,531 ) (10,470 )
Payment of debt issuance costs related to long-term debt (1,551 ) (113 )
Redemption of the Convertibles Notes (75,229 ) (27 )
Payment of transaction costs related to the redemption of the Convertibles Notes (845 ) —
Proceeds from the issuance of the Senior Notes 320,125
—
Payment of debt issuance costs related to the Senior Notes (1,367 ) —
Net proceeds from employee equity plans 286
799
Dividends paid on common stock (4,076 ) (4,061 )
Purchase of treasury stock —
(7,756 )
Cash flow from financing activities 16,812
(21,628 )

Cash at end of the period $ 9,474
$ 5,812



	Six months ended June 30,
	2019			2020
Cash at beginning of year	$	644		$	716

Net cash provided by operating activities	21,912			31,001

Acquisitions	—			(28,011		)
Net proceeds from the sale of other assets	100			78
Capital expenditures	(8,654		)	(5,786		)
Net cash used in investing activities	(8,554		)	(33,719		)

Net borrowings (payments) on our Credit Facility, acquisition debt and finance lease obligations	(3,410		)	5,221
Redemption of the Convertibles Notes	(27		)	—
Payment of debt issuance costs related to the Senior Notes	—			(66		)
Net proceeds from employee equity plans	763			390
Dividends paid on common stock	(2,725		)	(2,682		)
Purchase of treasury stock	(7,756		)	—
Other financing costs	(162		)	(169		)
Net cash provided by (used in) financing activities	(13,317		)	2,694

Cash at end of the period	$	685		$	692

Operating Activities

For the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, cash ~~flow~~ provided by operating activities was ~~$36.1~~$31.0 million compared to ~~cash flow provided by operating activities of $38.7~~$21.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The ~~decrease~~increase of ~~$2.7~~$9.1 million ~~was due primarily~~is a reflection of the resilient cash generating ability of our portfolio of high-quality funeral home and cemetery operations. Our operating income (excluding the non-cash $14.7 million impairment charge of goodwill and tradenames recorded in the first quarter) increased $6.3 million in addition to ~~non-favorable~~other favorable working capital ~~changes during the period.~~changes.

Investing Activities

Our investing activities, resulted in a net cash outflow of ~~$9.3~~$33.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$47.0~~$8.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018, a decrease~~2019, an increase of ~~$37.7~~$25.1 million.

During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we ~~received proceeds of $1.2 million from our property insurance policy for the reimbursement of renovation costs for our~~acquired a funeral home and cemetery ~~businesses that were damaged~~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 also paid an additional $0.2 million 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, which was offset by ~~Hurricane Michael.~~

~~During~~ the ~~nine months ended September 30, 2019, we sold a funeral home business for $0.9~~receipt of $0.2 million ~~and we sold real property for $0.1 million~~in cash related to the ~~funeral home we merged with another business~~sellers closing all operating bank accounts in ~~an existing market.~~

~~During~~place prior to the ~~nine months ended September 30, 2018, we purchased four funeral home businesses for approximately $38.0 million.~~acquisition.

For the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, capital expenditures totaled ~~$11.5~~$5.8 million compared to ~~$9.0~~$8.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018, an increase~~2019, a decrease of ~~$2.5~~$2.9 million. The following tables present our growth and maintenance capital expenditures (in thousands):

Nine Months Ended September 30,
2018 2019
Growth
Cemetery development $ 1,622
$ 3,109
Renovations at certain businesses⁽¹⁾
1,219
2,189
Total $ 2,841
5,298




~~(1)~~	During the nine months ended September 30, 2019, we spent $1.4 million for renovations on four businesses that were affected by Hurricane Michael, of which $1.2 million was reimbursed by our property insurance policy.


	Nine Months Ended September 30,				Six months ended June 30,
					2019		2020
Growth
Cemetery development					$	2,673	$	2,127
Renovations at certain businesses					1,727		319
Live streaming equipment					23		388
Other					56		54
Total growth expenditures					$	4,479	$	2,888
	2018		2019
Maintenance
Facility repairs and improvements	$	1,551	$	1,565	$	922	$	694
Vehicles	2,013		1,641		1,179		634
General equipment and furniture	1,666		2,245		1,545		1,176
Paving roads and parking lots	477		651		362		181
Information technology infrastructure improvements	489		79
Total	$	6,196	$	6,181
Other					167		213
Total maintenance expenditures					$	4,175	$	2,898

Total capital expenditures					$	8,654	$	5,786

Financing Activities

Our financing activities resulted in a net cash ~~outflow~~inflow of ~~$21.6~~$2.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to a net cash ~~inflow~~outflow of ~~$16.8~~$13.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018, a decrease~~2019, an increase of ~~$38.4~~$16.0 million. During the ~~nine~~six months ended ~~September~~June 30, 2020, we had net borrowings on our Credit Facility of $5.9 million and payments on our acquisition debt and finance leases of $0.7 million and paid $2.7 million in dividends.

During the six months ended June 30, 2019, we had net payments on our ~~long-term~~Credit Facility of $2.5 million, payments on our acquisition debt ~~obligations~~and finance leases of ~~$10.5~~$0.9 million, we paid ~~$4.1~~$2.7 million in dividends and repurchased treasury stock for $7.8 million.

During the nine months ended September 30, 2018, we had net borrowings on our Senior Notes of $318.8 million, offset by net payments on our long-term debt obligations of $222.1 million and a payment of $76.1 million to exchange or repurchase our Convertible Notes. We also paid $4.1 million in dividends.

Dividends

During the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019,~~2020, our Board declared the following dividends payable on the dates below (in thousands, except per share amounts):


2018	Per Share		Dollar Value
March 1^st	$	0.075	$	1,207
June 1^st	$	0.075	$	1,433
September 1^st	$	0.075	$	1,436

2019	Per Share		Dollar Value		Per Share		Dollar Value
March 1^st	$	0.075	$	1,360	$	0.075	$	1,360
June 3^rd	$	0.075	$	1,365
September 1^st	$	0.075	$	1,336
June 1^st					$	0.075	$	1,365



2020	Per Share		Dollar Value
March 1^st	$	0.075	$	1,339
June 1^st	$	0.075	$	1,343

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

Share ~~Repurchase~~Repurchases

During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we ~~repurchased 400,000~~did not repurchase any shares of common stock ~~for a total cost of $7.8 million at an average cost of $19.39 per share~~ pursuant to our share repurchase program. At ~~September~~June 30, ~~2019,~~2020, we had approximately ~~$0.6~~$25.6 million available for repurchases under our share repurchase program.

~~Long-term Debt and~~

Credit Facility, Lease Obligations and Acquisition Debt

The outstanding principal of our ~~long-term debt and~~Credit Facility, lease obligations and acquisition debt at ~~September~~June 30, ~~2019~~2020 is as follows (in thousands):


	September 30, 2019		June 30, 2020
Credit Facility	$	18,000	$	89,700
Finance leases	6,211		6,002
Operating leases	23,282		22,591
Acquisition debt	7,813		6,427
Total long-term debt and lease obligations	$	55,306
Total			$	124,720

Credit Facility

~~On May 31, 2018, we completed the issuance of $325.0~~At June 30, 2020, our Credit Facility was comprised of: (i) a $190.0 million ~~in aggregate principal amount of our 6.625% Senior Notes due 2026 (the “Senior Notes”) and related guarantees in a private offering under Rule 144A and Regulation S of the Securities Act.~~

~~On May 31, 2018, we used $291.4 million of the net proceeds from the sale of the Senior Notes to repay all amounts outstanding under our former secured~~revolving credit facility, ~~dated as~~including a $15.0 million subfacility for letters of ~~August 20, 2012 (as amended, the “Former Credit Agreement”). In connection with the repayment in full of all amounts due thereunder, the Former Credit Agreement was retired.~~

~~On May 31, 2018, we entered into~~credit and a ~~$150.0~~$10.0 million ~~Credit Facility with the financial institutions party thereto, as lenders,~~swingline, and Bank of America, N.A., as administrative agent. Our obligations under the Credit Facility are unconditionally guaranteed on a joint and several basis by the same subsidiaries which guarantee the Senior Notes and certain of our subsequently acquired or organized domestic subsidiaries (collectively, the “Credit Facility Guarantors”). The Credit Facility also contains(ii) an accordion ~~provision feature~~or incremental option allowing for future increases in the facility size by an additional amount of up to $75.0 ~~million.~~million in the form of increased revolving commitments or incremental term loans. The final maturity of the Credit Facility ~~matures~~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.

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

We were in compliance with the total leverage ratio, fixed charge coverage ratio and senior secured leverage ratio covenants contained in our Credit Facility as of June 30, 2020.

We have one letter of credit ~~issued on November 30, 2018 and~~ outstanding under the Credit Facility issued on November 30, 2019 for approximately $2.0 million, which bears interest at 2.125% and will expire on November 25, ~~2019.~~2020. The letter of credit automatically renews annually and secures our obligations under our various self-insured policies. 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~~June 30, ~~2019,~~2020, the prime rate margin was equivalent to ~~1.00%~~2.00% and the LIBOR rate margin was ~~2.00%~~3.00%. The weighted average interest rate on our Credit Facility was 3.6% and 3.9% for the three and six months ended June 30, 2020, respectively. The weighted average interest rate on our Credit Facility was 3.9% and 4.0% for the three and ~~nine months ended September 30, 2019, respectively. The weighted average interest rate on our Former Credit Agreement was 4.0% for the~~ six months ended June 30, ~~2018.~~2019, respectively.

~~We were in compliance with the covenants contained in the Credit Facility as of September 30, 2019, with a leverage ratio of 4.89 to 1.00 and a fixed charge coverage ratio of 2.20 to 1.00.~~



	Three months ended June 30,				Six months ended June 30,
	2019		2020		2019		2020
Credit Facility interest expense	$	362	$	1,106	$	740	$	2,336
Credit Facility amortization of debt issuance costs	54		118		108		245

Lease Obligations

~~On January 1, 2019, we adopted Topic 842 using the modified retrospective method for all~~Our lease ~~arrangements at the beginning~~obligations consist of ~~the period of adoption. As a result, we recorded~~ operating and finance leases. We lease ~~right-of-use (“ROU”) assets of $16.5 million and operating lease liabilities of $17.3 million related to real estate~~certain office facilities, certain funeral homes and equipment under operating leases ~~based on~~with original terms ranging from one to nineteen years. Many leases include one or more options to renew, some of which include options to extend the ~~present value of the future~~leases for up to 26 years. We lease ~~payments on the date of adoption. Lease expense~~certain funeral homes under finance leases with original terms ranging from ten to forty years.

The lease cost related to our operating leases and short-term leases ~~was $0.9 million~~ and ~~$0.1 million, respectively, for the three months ended September 30, 2019~~depreciation expense and ~~$2.8 million and $0.2 million, respectively, for the nine months ended September 30, 2019. Depreciation~~interest expense related to our finance leases ~~was $0.1 million and $0.4 million for~~during the three and ~~nine~~six months ended ~~September~~June 30, 2019 ~~respectively. Interest expense related to our finance leases was $0.1 million~~ and ~~$0.4 million for the three and nine months ended September 30, 2019, respectively.~~2020 are as follows (in thousands):

During the nine months ended September 30, 2019, we modified an existing operating lease to extend the term through 2030. As a result of this modification, we increased our lease liabilities and right-of-use assets by $8.2 million.



	Three months ended June 30,				Six months ended June 30,
	2019		2020		2019		2020
Operating lease cost	$	942	$	954	$	1,862	$	1,911
Short-term lease cost	59		39		133		96

Finance lease cost:
Depreciation of lease right-of-use assets	$	131	$	109	$	263	$	218
Interest on lease liabilities	131		125		263		251

Acquisition Debt



	Three months ended June 30,				Six months ended June 30,
	2019		2020		2019		2020
Acquisition debt imputed interest expense	$	161	$	124	$	329	$	251

Convertible Subordinated Notes due 2021

~~On March 19, 2014, we issued $143.75 million aggregate~~At June 30, 2020, the principal amount of the liability component of our ~~2.75% convertible notes due March 15, 2021 (the “Convertible Notes”).~~Convertible Notes was $6.3 million, the net carrying amount was $6.1 million and the carrying amount of the equity component was $0.8 million. The fair value of the Convertible Notes, which are Level 2 measurements, was $6.4 million at June 30, 2020. The Convertible Notes are due in March 2021 and bear interest at 2.75% per ~~year. Interest on the Convertible Notes began to accrue on March 19, 2014 and~~year, which is payable semi-annually in arrears on March 15 and September 15 of each year.

~~On May 7, 2018, we completed privately-negotiated exchanges (the “Exchange”)~~The interest expense and accretion of ~~$115.0 million in aggregate principal amount of Convertible Notes, which represented 80% of the aggregate principal amount of~~debt discount and debt issuance costs related to our Convertible Notes ~~then outstanding, with a limited number of convertible noteholders, for $74.8 million in cash (plus accrued interest of $0.4 million totaling $75.2 million)~~during the three and 2,822,859 newly issued shares of our common stock, par value $.01 per share, pursuant to a private placement in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The cash portion of the exchange consideration was funded from our Former Credit Agreement. Following the settlement of the Exchange, the aggregate principal amount of our Convertible Notes outstanding was reduced to $28.8 million.

~~On April 4, 2019, we completed a privately-negotiated repurchase of an additional $25,000 in aggregate principal amount of Convertible Notes then outstanding for $27,163.~~

~~At September~~six months ended June 30, 2019 ~~the carrying amount of the equity component was $0.8 million, the principal amount of the liability component was $6.3 million~~ and ~~the net carrying amount was $5.9 million.~~ 2020 is as follows (in thousands):



	Three months ended June 30,				Six months ended June 30,
	2019		2020		2019		2020
Convertible Notes interest expense	$	44	$	43	$	87	$	87
Convertible Notes accretion of debt discount	59		66		117		131
Convertible Notes amortization of debt issuance costs	5		6		11		12

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 eight months of the Convertible Notes. The effective interest rate on the unamortized debt discount for both the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019~~2020 was 11.4%. The effective interest rate on the ~~unamortized~~ debt issuance costs for both ~~the~~ three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019~~2020 was 3.2%.

~~Interest expense~~

Senior Notes due 2026

At June 30, 2020, the principal amount of our Senior Notes was $400.0 million. The fair value of the Senior Notes, which are Level 2 measurements, was $419.9 million at June 30, 2020. The Senior Notes are due on ~~the Convertible Notes included contractual coupon~~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 ~~$198,000~~debt discount, debt premium and $43,000 for the three months ended September 30, 2018 and 2019, respectively and $1,700,000 and $131,000 for the nine months ended September 30, 2018 and 2019, respectively. Accretion of the discount on the Convertible Notes was $246,000 and $61,000 for the three months ended September 30, 2018 and 2019, respectively and $1,961,000 and $178,000 for the nine months ended September 30, 2018 and 2019, respectively. Amortization of debt issuance costs related to our ~~Convertible~~Senior Notes ~~was $27,000 and $6,000 for~~during the three and six months ended ~~September 30, 2018 and 2019, respectively and $221,000 and $19,000 for the nine months ended September 30, 2018 and 2019, respectively.~~

The Convertible Notes are general unsecured obligations and are subordinated in the right of payment to all of our existing and future senior indebtedness and equal in right of payment with our other existing and future subordinate indebtedness. The initial conversion rate of the Convertible Notes, as of March 19, 2014, was 44.3169 shares of our common stock per $1,000 principal amount of Convertible Notes, equivalent to an initial conversion price of $22.56 per share of common stock. The adjusted conversion rate of the Convertible Notes, in effect at SeptemberJune 30, 2019 and 2020 is ~~45.3695 shares of our common stock per $1,000 principal amount of Convertible Notes, equivalent to an adjusted conversion price of $22.04 per share of common stock.~~as follows (in thousands):

~~Senior Notes due 2026~~

On May 31, 2018, we completed the issuance of $325.0 million in aggregate principal amount of our Senior Notes and related guarantees in a private offering under Rule 144A and Regulation S of the Securities Act.

We received proceeds of $320.1 million, net of a 1.5% debt discount of $4.9 million, of which we used $291.4 million to repay our existing indebtedness under our Former Credit Agreement. We incurred $1.4 million in transaction costs related to the Senior Notes.

The Senior Notes bear interest at 6.625% per year. Interest on the Senior Notes began to accrue on May 31, 2018 and is payable semi-annually in arrears on September 1 and December 1 of each year, beginning on December 1, 2018 to holders of record on each May 15 and November 15 preceding an interest payment date. The Senior Notes mature on September 1, 2026, unless earlier redeemed or purchased, as such redemption or purchase may be allowed pursuant to the indenture governing the

Senior Notes. The Senior Notes are unsecured, senior obligations and are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally, by certain of our existing subsidiaries.



	Three months ended June 30,				Six months ended June 30,
	2019		2020		2019		2020
Senior Notes interest expense	$	5,383	$	6,625	$	10,766	$	13,250
Senior Notes amortization of debt discount	122		131		242		260
Senior Notes amortization of debt premium	—		55		—		109
Senior Notes amortization of debt issuance costs	34		69		68		136

~~Financial Highlights~~FINANCIAL HIGHLIGHTS

Below are our financial highlights for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2019~~2020 (in thousands except for volumes and averages):


	Three Months Ended September 30,				Three months ended June 30,
	2018		2019		2019		2020
Revenue	$	64,241	$	66,125	$	67,752	$	77,477
Funeral contracts	8,672		9,238		9,366		11,737
Average revenue per contract, including preneed funeral trust earnings	$	5,691	$	5,516
Average revenue per funeral contract					$	5,557	$	4,908
Preneed interment rights (property) sold	1,697		1,901		2,056		2,338
Average price per interment right sold	$	3,521	$	3,622
Average price per preneed interment right sold					$	3,660	$	3,988
Gross profit	$	17,114	$	18,056	$	19,250	$	25,160
Net income	$	2,200	$	577	$	4,862	$	6,397

Revenue for the three months ended ~~September~~June 30, ~~2019 and 2018 was $66.1~~2020 increased $9.7 million ~~and $64.2 million, respectively, an increase of $1.9 million, or 2.9%. Funeral revenue increased $1.7 million~~compared to ~~$51.5 million and cemetery revenue increased $0.2 million to $14.6 million in~~ the three months ended ~~September~~June 30, 2019, compared to the same period in 2018. However, cemetery revenue increased $1.7 million, excluding revenue from the three cemetery businesses divested in the second half of 2018, in the three months ended September 30, 2018. For the quarter comparatives,as we experienced a ~~6.5%~~25.3% increase in total funeral contracts ~~while~~primarily due to the funeral home acquisitions made in the fourth quarter of 2019 and first quarter of 2020, offset by a decrease in the average revenue per funeral contract ~~decreased 3.1%~~of 11.7%. ~~Excluding the divested cemetery businesses,~~In addition, we experienced an increase of ~~12.0%~~13.7% in the number of preneed interment rights (property) sold primarily due to the cemetery acquisitions made in the fourth quarter of 2019 and first quarter of 2020, as well as an increase ~~of 2.9%~~ in the average price per interment right ~~sold. Further discussion~~sold of ~~Revenue for our funeral home and cemetery segments is presented herein under “Results of Operations.”~~9.0%.

Gross profit for the three months ended ~~September~~June 30, ~~2019~~2020 increased ~~$0.9~~$5.9 million ~~or 5.5%,~~compared to ~~$18.1 million, from $17.1 million for~~ the three months ended ~~September~~June 30, ~~2018,~~2019, primarily due to the increase in ~~same store~~revenue from both our funeral ~~revenue~~home and ~~better management of expenses. This is a result of changes implemented~~cemetery segments due to the acquisitions made in the fourth quarter of 2019 and first quarter of 2020, as well as measures the Company has taken to control costs during the COVID-19 pandemic.

Net income for the three months ended June 30, 2020 increased $1.5 million compared to the three months ended June 30, 2019, primarily due to the increase in ~~2018, which included~~gross profit, offset by the ~~revision~~increase in interest expense related to our Senior Notes and Credit Facility.

Below are our financial highlights for the six months ended June 30, 2019 and 2020 (in thousands except for volumes and averages):



	Six months ended June 30,
	2019		2020
Revenue	$	136,833	$	154,967
Funeral contracts	19,247		23,230
Average revenue per funeral contract	$	5,597	$	5,069
Preneed interment rights (property) sold	3,518		4,206
Average price per preneed interment right sold	$	3,721	$	3,895
Gross profit	$	40,850	$	48,331
Net income	$	11,387	$	2,200

Revenue for the six months ended June 30, 2020 increased $18.1 million compared to the six months ended June 30, 2019, as we experienced a 20.7% increase in total funeral contracts primarily due to the funeral home acquisitions made in the fourth quarter of 2019 and first quarter of 2020, offset by a decrease in the average revenue per funeral contract of 9.4%. In addition, we experienced an increase of 19.6% in the number of preneed interment rights (property) sold primarily due to the cemetery acquisitions made in the fourth quarter of 2019 and first quarter of 2020, as well as an increase of 4.7% in the average price per interment right sold.

Gross profit for the six months ended June 30, 2020 increased $7.5 million compared to the six months ended June 30, 2019, primarily due to the increase in revenue from both our funeral home and cemetery ~~operating standards with a larger focus~~segments due to ~~grow revenue~~the acquisitions made in the fourth quarter of 2019 and ~~market share, assessing leadership~~first quarter of 2020, as well as measures the Company has taken to control costs during the COVID-19 pandemic.

Net income for the six months ended June 30, 2020 decreased $9.2 million compared to the six months ended June 30, 2019, primarily due to the $14.7 million impairment of goodwill and ~~support teams at each business~~tradenames recorded in the first quarter and $4.2 million increase in interest expense related to ~~ensure an optimal personnel mix, improving social media presence, investment~~our Senior Notes and Credit facility, offset by the $7.5 million increase in ~~new product inventory for sale at our cemeteries and reviewing pricing on merchandise and services to maximize operational efficiencies.~~gross profit.

Further discussion of Revenue and the components of Gross profit for our funeral home and cemetery segments is presented herein under ~~“Results~~“– Results of Operations.”

Net income for the three months ended September 30, 2019 decreased $1.6 million to $0.6 million, equal to $0.03 per diluted share, compared to net income of $2.2 million, equal to $0.11 per diluted share, for the three months ended September 30, 2018. Further discussion of General, administrative and other expenses, Home office depreciation and amortization expense, Interest expense, Income taxes and other components of income and expenses are presented herein under ~~“Other Financial Statement Items.”~~

~~Below are our financial highlights for the nine months ended September 30, 2018 and 2019 (in thousands except for volumes and averages):~~

Nine Months Ended September 30,
2018 2019
Revenue $ 201,475
$ 202,958
Funeral contracts 27,437
28,485
Average revenue per contract, including preneed funeral trust earnings $ 5,671
$ 5,571
Preneed interment rights (property) sold 4,907
5,419
Average price per interment right sold $ 3,578
$ 3,687
Gross profit $ 58,127
$ 58,907
Net income $ 14,303
$ 11,964

Revenue for the nine months ended September 30, 2019 and 2018 was $203.0 million and $201.5 million, respectively, an increase of $1.5 million, or 0.7%. Funeral revenue increased $3.2 million to $160.2 million and cemetery revenue decreased $1.7 million to $42.8 million in the nine months ended September 30, 2019 compared to the same period in 2018. However, cemetery revenue increased $3.1 million, excluding revenue from the three cemetery businesses divested in the second half of 2018, in the nine months ended September 30, 2018. For the period comparatives, we experienced a 3.8% increase in total funeral contracts, while we experienced a 1.8% decrease in the average revenue per funeral contract. Excluding the divested cemetery businesses, we experienced an increase of 10.4% in the number of preneed interment rights (property) sold and an increase of 3.0% in the average price per interment right sold. Further discussion of Revenue for our funeral home and cemetery segments is presented herein under “Results of Operations.”

Gross profit for the nine months ended September 30, 2019 decreased $0.8 million, or 1.3%, to $58.9 million, from $58.1 million for the nine months ended September 30, 2018, primarily due to the three cemetery businesses that were divested in the second half of 2018. Further discussion of the components of Gross profit for our funeral home and cemetery segments is presented herein under “Results of Operations.”

Net income for the nine months ended September 30, 2019 decreased $2.3 million to $12.0 million, equal to $0.66 per diluted share, compared to net income of $14.3 million, equal to $0.78 per diluted share, for the nine months ended September 30, 2018. Further discussion of General, administrative and other expenses, Home office depreciation and amortization expense, Interest expense, Income taxes and other components of income and expenses are presented herein under “Other“– Other Financial Statement Items.”

REPORTING AND NON-GAAP FINANCIAL MEASURES

We also present our financial performance in our “Operating and Financial Trend Report” (“Trend Report”) as reported in our earnings release for the ~~quarter~~three and six months ended ~~September~~June 30, ~~2019~~2020 dated ~~October~~July 28, ~~2019~~2020 and discussed in the corresponding earnings conference call. This Trend Report is used as a supplemental financial ~~measurement~~ statement by management and investors to compare our current financial performance with our previous results and with the performance of other companies. We do not intend for this information to be considered in isolation or as a substitute for other measures of performance prepared in accordance with United States generally accepted accounting principles (“GAAP”). The Trend Report is a non-GAAP statement that also provides insight into underlying trends in our business. ~~The Trend Report is not a part of or incorporated by reference into this Quarterly Report on Form 10-Q.~~

Below is a reconciliation of Net income (a GAAP measure) to Adjusted net income (a non-GAAP measure) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019~~2020 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2018 2019 2018 2019
Net income $ 2,200
$ 577
$ 14,303
$ 11,964
Special items ⁽¹⁾, net of tax except for items noted by **

Severance and retirement costs —
235
—
889
Accretion of discount on convertible subordinated notes** 246
61
1,961
178
Net loss on early extinguishment of debt —
—
740
—
Loss on sale of businesses and other costs 277
3,143
277
3,143
Goodwill and other impairments —
577
—
577
Litigation reserve —
74
—
454
Tax expense related to divested business** —
860
—
860
Gain on insurance reimbursements —
(504 ) —
(504 )
Adjusted net income⁽²⁾
$ 2,723
$ 5,023
$ 17,281
$ 17,561



	Three months ended June 30,				Six months ended June 30,
	2019		2020		2019		2020
Net income	$	4,862	$	6,397	$	11,387	$	2,200
Special items, net of tax⁽¹⁾
Acquisition and divestiture expenses	—		36		—		126
Severance and separation costs	483		217		654		445
Performance awards cancellation and exchange	—		56		—		56
Accretion of discount on Convertible Notes⁽¹⁾	60		66		117		131
Net impact of impairment of goodwill and other intangibles⁽²⁾	—		51		—		9,808
Litigation reserve	281		154		380		213
Natural disaster and pandemic costs	—		657		—		768
Other special items	—		371		—		371
Adjusted net income⁽³⁾	$	5,686	$	8,005	$	12,538	$	14,118




(1)	Special items are defined as charges or credits included in our GAAP financial statements that can vary from period to period and are not reflective of costs incurred in the ordinary course of our operations. Special ~~items~~Items are ~~typically~~ taxed at the federal statutory rate of 21% for the three and six months ended June 30, 2019 and 2020, except for the Accretion of the discount on ~~convertible subordinated notes,~~the Convertible Notes, as this is a non-tax deductible item and ~~Tax expense related to divested business.~~the Net impact of impairment of goodwill and other intangibles (described below).
(2)	The Net impact of impairment of goodwill and other intangibles special item is net of the operating tax rate of 33.3%.
(3)	Adjusted net income is defined as Net income plus adjustments for Special items and other expenses or gains that we believe do not directly reflect our core operations and may not be indicative of our normal business operations.

Below is a reconciliation of Gross profit (a GAAP measure) to Operating profit (a non-GAAP measure) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019~~2020 (in thousands):



	Three months ended June 30,				Six months ended June 30,
	2019		2020		2019		2020
Gross profit	$	19,250	$	25,160	$	40,850	$	48,331

Cemetery property amortization	1,169		1,097		2,018		1,974
Field depreciation expense	3,059		3,247		6,144		6,537
Regional and unallocated funeral and cemetery costs	3,622		3,717		6,411		6,473
Operating profit⁽¹⁾	$	27,100	$	33,221	$	55,423	$	63,315




(1)	Operating profit is defined as Gross profit less Cemetery property amortization, Field depreciation expense and Regional and unallocated funeral and cemetery costs.

Three Months Ended September 30, Nine Months Ended September 30,
2018 2019 2018 2019
Gross profit $ 17,114
$ 18,056
$ 58,127
$ 58,907

Cemetery property amortization 964
972
2,763
2,990
Field depreciation expense 3,047
3,106
8,925
9,250
Regional and unallocated funeral and cemetery costs 2,114
3,597
8,662
10,008
Operating profit $ 23,239
$ 25,731
$ 78,477
$ 81,155

Our operations are reported in two business segments: Funeral Home and Cemetery. Below is a breakdown of Operating profit (a non-GAAP measure) by ~~segment~~Segment for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2019~~2020 (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three months ended June 30,						Six months ended June 30,
	2018			2019			2018			2019			2019			2020			2019			2020
Funeral Home	$	18,109		$	19,647		$	61,154		$	63,234		$	20,420		$	25,552		$	43,587		$	49,826
Cemetery	5,130			6,084			17,323			17,921			6,680			7,669			11,836			13,489
Operating profit	$	23,239		$	25,731		$	78,477		$	81,155		$	27,100		$	33,221		$	55,423		$	63,315

Operating profit margin⁽¹⁾	36.2		%	38.9		%	39.0		%	40.0		%	40.0		%	42.9		%	40.5		%	40.9		%




(1)	Operating profit margin is defined as Operating profit as a percentage of Revenue.

Further discussion of Operating profit for our funeral home and cemetery segments is presented herein under ~~“Results~~“– Results of Operations.”

RESULTS OF OPERATIONS

The following is a discussion of our results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019 compared to the same period of 2018.~~ 2020 and 2019.

The term “same store” refers to funeral homes and cemeteries acquired prior to January 1, ~~2015~~2016 and owned and operated for the entirety of each period being ~~presented. Funeral~~presented, excluding certain funeral home businesses that we intend to divest in the near future.

The term “acquired” refers to funeral homes and cemeteries purchased after December 31, ~~2014 are referred~~2015, excluding any funeral home businesses that we intend to ~~as “acquired.”~~divest in the near future. This classification of acquisitions has been important to management and investors in monitoring the results of these businesses and to gauge the leveraging performance contribution that a selective acquisition program can have on total company performance.

The term “divested” when discussed in the Funeral Home Segment, refers to the three funeral home businesses whose building leases expired, one funeral home business we sold ~~or businesses~~and a funeral home business we ~~ceased to operate~~merged with a business in an existing market in 2019.

“Planned divested” in the ~~periods presented. The term “divested” when discussed in the Cemetery~~Funeral Home Segment refers to ~~three cemetery~~the funeral home businesses that we ~~ceased~~intend to ~~operate on September 30, 2018, as a result of an expired management agreement.~~ divest in the near future.

“Ancillary” in the Funeral Home Segment represents our flower shop, pet cremation business and online cremation business in Texas.

Cemetery property amortization, Field depreciation expense and Regional and unallocated funeral and cemetery costs, are not included in Operating profit, a non-GAAP financial measure. Adding back these items will result in Gross profit, a GAAP financial measure.

Funeral Home Segment

The following ~~tables set~~table sets forth certain information ~~related to~~regarding our Revenue and Operating profit from our funeral home operations for the three months ended ~~September~~June 30, ~~2019~~2020 compared to the three months ended ~~September~~June 30, ~~2018~~2019 (in thousands):


	Three Months Ended September 30,					Three months ended June 30,
	2018		2019			2019		2020
Revenue:
Same store operating revenue	$	40,189	$	41,470		$	41,690	$	42,664
Acquired operating revenue	7,400		7,750			6,298		11,337
Divested revenue	177		109
Divested/planned divested revenue						2,390		1,852
Ancillary funeral services revenue						—		1,117
Preneed funeral insurance commissions	360		436			329		326
Preneed funeral trust earnings	1,717		1,752
Preneed funeral trust and insurance						1,800		1,825
Total	$	49,843	$	51,517		$	52,507	$	59,121

Operating profit:
Same store operating profit	$	13,788	$	14,994		$	15,550	$	18,026
Acquired operating profit	2,522		2,737			2,445		4,672
Divested operating profit (loss)	23		(6		)
Divested/planned divested operating profit						535		562
Ancillary funeral services operating profit						—		321
Preneed funeral insurance commissions	93		213			134		160
Preneed funeral trust earnings	1,683		1,709
Preneed funeral trust and insurance						1,756		1,811
Total	$	18,109	$	19,647		$	20,420	$	25,552

The following measures reflect the significant metrics over this comparative period:


	Three Months Ended September 30,						Three months ended June 30,
	2018			2019			2019			2020
Same store:
Contract volume	7,420			7,910			7,844			8,785
Average revenue per contract, excluding preneed funeral trust earnings	$	5,416		$	5,243		$	5,315		$	4,856
Average revenue per contract, including preneed funeral trust earnings	$	5,619		$	5,436		$	5,512		$	5,037
Burial rate	39.8		%	37.7		%	38.5		%	36.2		%
Cremation rate	52.1		%	54.8		%	53.7		%	57.5		%

Acquired:
Contract volume	1,224			1,309			961			2,350
Average revenue per contract, excluding preneed funeral trust earnings	$	6,046		$	5,921		$	6,554		$	4,824
Average revenue per contract, including preneed funeral trust earnings	$	6,113		$	5,997		$	6,681		$	4,894
Burial rate	42.4		%	41.6		%	47.0		%	40.6		%
Cremation rate	49.8		%	50.6		%	46.1		%	54.9		%

Funeral home same store operating revenue for the three months ended ~~September~~June 30, ~~2019~~2020 increased $1.3 million. In the fourth quarter of 2018, we revised our funeral home standards operating model by eliminating the average revenue per contract standard to emphasize our focus on growing operating revenue and serving more families. As a result, we experienced a 6.6% increase in same store contract volumes, while we experienced a decrease of 3.2% in the average revenue per contract$1.0 million compared to the three months ended ~~September~~June 30, ~~2018.~~2019. The increase in operating revenue is primarily due to a 12.0% same store contract volume increase in the three months ended June 30, 2020 compared to the same period in 2019. The increase was offset by a decrease in contract averages excluding preneed interest of 8.6%. The decrease in funeral contract averages for the three months ended June 30, 2020 compared to the same period in 2019 is primarily due to a 230 basis point decrease in the burial rate. In addition, in the three months ended June 30, 2020, we experienced a decrease in services performed due to the restrictions placed on gatherings mandated by state and local governments due to COVID-19. For both burial and cremation contracts for which memorial services were performed, we experienced a 940 and 1240 basis point decrease in the number of these contracts, respectively, in the three months ended June 30, 2020.

~~Same~~Funeral same store operating profit for the three months ended ~~September~~June 30, ~~2019~~2020 increased ~~$1.2~~$2.5 million when compared to the three months ended ~~September~~June 30, ~~2018~~2019, and the comparable operating profit margin increased ~~190~~500 basis points to ~~36.2%~~42.3%. The increase in operating margin is primarily due to the increase in same store operating revenue and ~~better management of expenses as~~a 5.0% decrease in operating ~~expenses remained flat~~costs. Same

store salaries and benefits for the ~~comparable period. We experienced significant savings~~three months ended June 30, 2020 had the largest decrease of $0.4 million or 1.6% compared to the three months ended June 30, 2019. The decrease in salaries and benefits ~~which decreased 1.6% as a percentage of revenue, as~~was primarily due to the decrease in part-time funeral staff needed to assist with memorial services, offset by an increase in the demand for pickup and embalming services due to increased contracts. The decrease in other operating costs was a result of ~~changes implemented in the fourth quarter in 2018, which included assessing leadership~~disciplined expense and ~~support teams~~cost management by local leaders at each business ~~to ensure an optimal personnel mix, improving social media presence and reviewing pricing on merchandise and services to maximize operational efficiencies.~~during the COVID-19 pandemic.

Funeral home acquired operating revenue for the three months ended ~~September~~June 30, ~~2019~~2020 increased ~~$0.4~~$5.0 million, as our funeral home acquired portfolio for the three months ended ~~September~~June 30, 2020 included nine funeral home businesses added through four acquisitions in the fourth quarter of 2019 ~~included four businesses~~and one business acquired in the ~~third~~first quarter of ~~2018~~2020 not present ~~for~~in the ~~full~~ three months ended ~~September~~June 30, ~~2018.~~2019.

Acquired operating profit for the three months ended ~~September~~June 30, ~~2019~~2020 increased ~~$0.2~~$2.2 million when compared to the three months ended ~~September~~June 30, ~~2018.~~2019. Operating profit margin increased ~~120~~240 basis points to ~~35.3%~~41.2% for the three months ended ~~September~~June 30, ~~2019~~2020 compared to the same period in ~~2018.~~2019. The increase is primarily due to certain measures taken to control costs during the ~~increase in~~COVID-19 pandemic, slightly offset by lower margins for our most recent acquisition compared to our other acquired ~~revenue and better management of expenses as operating expenses increased $0.2 million for the comparable period. We experienced significant savings in~~businesses, particularly with regard to higher salaries and benefits expenses. We expect the operating margins for our recently acquired business to improve as we focus on integrating this business into our high performance framework of the Standards Operating Model.

Ancillary funeral services revenue, which ~~decreased 2.4% as a percentage of~~is recorded in Other revenue ~~as a result of changes implemented~~, represents revenue from our flower shop, pet cremation business and online cremation business in Texas, which were acquired in the fourth quarter ~~in 2018 described above.~~of 2019. Operating profit from our ancillary funeral service businesses was $0.3 million for the three months ended June 30, 2020, with an operating profit margin of 28.7%.

Preneed funeral insurance commissions and preneed funeral trust ~~earnings, which are~~and insurance, also recorded in Other revenue, on a combined basis, remained flat for the three months ended June 30, 2020 compared to the same period in 2019. Operating profit for preneed funeral insurance commissions and preneed trust and insurance, on a combined basis, increased $0.1 million or ~~5.3%~~4.3% for the ~~three months ended September 30, 2019 compared to the~~ same comparative period in ~~2018. The increase is~~2019 primarily due to a ~~21.1% increase in preneed funeral insurance commissions and a 2.0% increase~~reduction in preneed trust ~~earnings. Preneed funeral commission revenue is deferred for one year after the preneed funeral contracts are sold. The number of preneed~~and insurance ~~contracts sold increased 22.9% and face value of the products that earn commissions increased 52.7% for the three months ending September 2018 compared to the same period in 2017.~~

~~Operating profit for the two categories of~~ ~~Other revenue~~, on a combined basis, increased 8.2% for the three months ending September 30, 2019 compared to the same period in 2018 primarily due to the increase in preneed funeral commission revenue coupled with a decrease in preneed expenses.

The following ~~tables set~~table sets forth certain information ~~related to~~regarding our Revenue and Operating profit from our funeral home operations for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 (in thousands):


	Nine Months Ended September 30,				Six months ended June 30,
	2018		2019		2019		2020
Revenue:
Same store operating revenue	$	129,574	$	128,757	$	86,565	$	87,249
Acquired operating revenue	20,228		24,372		13,032		22,859
Divested revenue	569		471
Divested/planned divested revenue					4,780		4,062
Ancillary funeral services revenue					—		2,268
Preneed funeral insurance commissions	974		1,124		688		692
Preneed funeral trust earnings	5,624		5,463
Preneed funeral trust and insurance					3,605		3,733
Total	$	156,969	$	160,187	$	108,670	$	120,863

Operating profit:
Same store operating profit	$	48,261	$	48,233	$	33,564	$	35,152
Acquired operating profit	6,968		9,073		5,162		8,900
Divested operating profit	128		113
Divested/planned divested operating profit					1,074		1,169
Ancillary funeral services operating profit					—		616
Preneed funeral insurance commissions	285		478		266		321
Preneed funeral trust earnings	5,512		5,337
Preneed funeral trust and insurance					3,521		3,668
Total	$	61,154	$	63,234	$	43,587	$	49,826

The following measures reflect the significant metrics over this comparative period:


	Nine Months Ended September 30,						Six months ended June 30,
	2018			2019			2019			2020
Same store:
Contract volume	24,067			24,327			16,113			17,508
Average revenue per contract, excluding preneed funeral trust earnings	$	5,384		$	5,293		$	5,372		$	4,983
Average revenue per contract, including preneed funeral trust earnings	$	5,591		$	5,485		$	5,565		$	5,170
Burial rate	39.8		%	38.5		%	38.9		%	36.4		%
Cremation rate	52.6		%	53.9		%	53.3		%	56.4		%

Acquired:
Contract volume	3,284			4,073			1,966			4,516
Average revenue per contract, excluding preneed funeral trust earnings	$	6,160		$	5,984		$	6,629		$	5,062
Average revenue per contract, including preneed funeral trust earnings	$	6,234		$	6,082		$	6,757		$	5,131
Burial rate	42.8		%	42.4		%	48.5		%	41.1		%
Cremation rate	49.6		%	49.8		%	44.6		%	54.3		%

Funeral home same store operating revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2019 decreased $0.8 million. In spite of~~2020 increased $0.7 million compared to the ~~high~~six months ended June 30, 2019. The increase in operating revenue is due to an 8.7% same store contract volume ~~we had~~increase in the ~~first quarter of 2018 due to a severe flu season, we experienced a 1.1% increase in contract volume in the nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the same period in ~~2018,~~2019. The increase was offset by a decrease in contract averages excluding preneed interest of 7.2%. The decrease in funeral contract averages for the six months ended June 30, 2020 compared to the same period in 2019 is primarily due to a 250 basis point decrease in the ~~revision~~burial rate. Beginning in the latter half of ~~our funeral home standards operating model~~March 2020, we saw a decrease in services performed due to the restrictions placed on gatherings mandated by ~~eliminating~~state and local governments as the ~~average revenue per contract standard~~COVID-19 pandemic became more prominent and individuals began to ~~emphasize our focus on growing operating revenue~~practice social distancing to comply with applicable shelter in place and ~~serving more families.~~related orders. For both burial and cremation contracts for which memorial services were performed, we experienced a 580 and 820 basis point decrease in the number of these contracts, respectively, in the six months ended June 30, 2020.

~~Same~~Funeral same store operating profit for the ~~nine~~six months ended ~~September~~June 30, ~~2019 was relatively flat~~2020 increased $1.6 million when compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019, and the comparable operating profit margin increased 30150 basis points to ~~37.5%~~40.3%. ~~Operating expenses decreased $0.8 million primarily~~The increase in operating margin is due to the increase in same store operating revenue and a 1.5% decrease in ~~salaries and benefits~~operating costs. Same store promotional costs for the six months ended June 30, 2020 had the largest decrease of ~~$1.0~~$0.4 million or ~~0.6% as a percentage of revenue. This is a result of changes implemented~~0.5% compared to the six months ended June 30, 2019. The decrease in promotional costs and other operating costs resulted from cost control measures undertaken during the fourth quarter in 2018, which included assessing leadership and support teams at each business to ensure an optimal personnel mix, improving social media presence and reviewing pricing on merchandise and services to maximize operational efficiencies.COVID-19 pandemic.

Funeral home acquired operating revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 increased ~~$4.1~~$9.8 million, as our funeral home acquired portfolio for the ~~nine~~six months ended ~~September~~June 30, 2020 included nine funeral home businesses added through four acquisitions in the fourth quarter of 2019 ~~included four businesses~~and one business acquired in the ~~third~~first quarter of ~~2018~~2020 not ~~fully~~ present in the ~~nine~~six months ended ~~September~~June 30, ~~2018. Although we experienced an increase in acquired contract volumes, we experienced decreases in acquired average revenue per burial and cremation contracts due to increased discounts.~~2019.

Acquired operating profit for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 increased ~~$2.1~~$3.7 million when compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018 and the comparable operating~~2019. Operating profit margin ~~increased 280~~decreased 70 basis points to ~~37.2%.~~38.9% for the six months ended June 30, 2020 compared to the same period in 2019. The ~~increase~~decrease is primarily due to the ~~increase in~~recently acquired ~~revenue and better management of expenses~~businesses (discussed above), as operating ~~expenses increased $2.0 million~~profit margins for ~~the comparable period. We experienced significant savings in~~these businesses were lower compared to our other acquired businesses, particularly with regard to higher salaries and benefits expenses. However, the operating margins for our 2019 acquired businesses have increased 440 basis points in the second quarter of 2020 compared to the first quarter of 2020 and we expect continuous improvement as we focus on integrating all of our newly acquired businesses into our high performance framework of the Standards Operating Model.

Ancillary funeral services revenue, which ~~decreased 3.8% as a percentage of~~is recorded in Other revenue ~~as a result of changes implemented~~, represents revenue from our flower shop, pet cremation business and online cremation business in Texas, which were acquired in the fourth quarter ~~in 2018 described above.~~of 2019. Operating profit from our ancillary funeral service businesses was $0.6 million for the six months ended June 30, 2020, with an operating profit margin of 27.2%.

Preneed funeral insurance commissions and preneed funeral trust ~~earnings, which are~~and insurance, also recorded in Other revenue, on a combined basis, ~~remained flat~~increased $0.1 million or 3.1% for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the same period in ~~2018. While we experienced a 15.4%~~2019. The increase is due to the increase in preneed trust and insurance. Operating profit for preneed funeral insurance commissions ~~we also experienced a decrease in~~and preneed trust ~~earnings of 2.9%. Preneed funeral commission revenue is deferred for one year after the preneed funeral contracts are sold. The number of preneed~~and insurance, contracts sold increased 14.3% and face value of the products that earn commissions increased 17.6% for the nine months ending September 2018 compared to the same period in 2017. Preneed funeral trust earnings decreased due to a reduction in preneed maturities at a certain business.

~~Operating profit for the two categories of~~ ~~Other revenue~~, on a combined basis, ~~also remained flat~~increased $0.2 million or 5.3% for the same comparative period in 2019, primarily due to the increase in ~~preneed funeral commission~~ revenue ~~offset by the decrease in~~and reduction of preneed trust ~~earnings.~~and insurance expenses.

Cemetery Segment

The following ~~tables set~~table sets forth certain information ~~related to~~regarding our Revenue and Operating profit from our cemetery operations for the three months ended ~~September~~June 30, ~~2019~~2020 compared to the three months ended ~~September~~June 30, ~~2018~~2019 (in thousands):


	Three Months Ended September 30,				Three months ended June 30,
	2018		2019		2019		2020
Revenue:
Same store operating revenue	$	11,091	$	12,817	$	13,227	$	11,694
Divested revenue	1,479		—
Cemetery trust earnings	1,392		1,446
Acquired operating revenue					—		4,055
Preneed cemetery trust and insurance					1,623		2,367
Preneed cemetery finance charges	436		345		395		240
Total	$	14,398	$	14,608	$	15,245	$	18,356

Operating profit:
Same store operating profit	$	3,007	$	4,439	$	4,808	$	3,674
Divested operating profit	407		—
Cemetery trust earnings	1,280		1,300
Acquired operating profit					—		1,434
Preneed cemetery trust and insurance					1,477		2,321
Preneed cemetery finance charges	436		345		395		240
Total	$	5,130	$	6,084	$	6,680	$	7,669

The following measures reflect the significant metrics over this comparative ~~period (dollars in thousands):~~period:


	Three Months Ended September 30,						Three months ended June 30,
	2018			2019			2019			2020
Same store:
Preneed revenue as a percentage of operating revenue	60		%	62		%	64		%	61		%
Preneed revenue	$	6,623		$	7,889
Preneed revenue (in thousands)							$	8,455		$	7,089
Atneed revenue (in thousands)							$	4,772		$	4,605
Number of preneed interment rights sold	1,697			1,901			2,056			1,786
Atneed revenue	$	4,468		$	4,928
Average price per interment right sold							$	3,660		$	3,900


Acquired:
Preneed revenue as a percentage of operating revenue							n/a			62		%
Preneed revenue (in thousands)							n/a			$	2,522
Atneed revenue (in thousands)							n/a			$	1,533
Number of preneed interment rights sold							n/a			552
Average price per interment right sold							n/a			$	4,273

Cemetery same store ~~operating~~preneed revenue for the three months ended ~~September~~June 30, ~~2019 increased $1.7~~2020 decreased $1.4 million ~~or 15.6%,~~due to the decrease in cemetery property revenue as we experienced a ~~12.0% increase~~13.1% decrease in the number of preneed interment rights sold, ~~as well as~~offset by a ~~2.9%~~6.6% increase in the average price per interment right sold. The decrease in the number of ~~interments~~preneed interment rights sold ~~for the three months ended September 30, 2019 compared~~is primarily due to the ~~same period~~COVID-19 pandemic as individuals began practicing social distancing to comply with applicable shelter in ~~2018. Same~~place and related orders, which resulted in our preneed sales personnel being unable to meet with families at our businesses, in certain areas of the country, during this time. In addition, these restrictions impacted our ability to host annual events at certain cemeteries notably the Ching Ming festival during April and Memorial Day festivities during May. Cemetery same store atneed revenue, which represents ~~approximately 38%~~39.0% of our same store operating revenue ~~increased $0.5~~decreased $0.2 million, as we experienced a ~~9.4% increase~~3.1% decrease in the average sale per ~~contract.~~contract, while the number of atneed contracts sold remained flat.

Cemetery same store operating profit for the three months ended ~~September~~June 30, ~~2019 increased $1.4~~2020 decreased $1.1 million from the same period in ~~2018.~~2019. The comparable operating profit margin ~~increased 750~~decreased 490 basis points to ~~34.6%~~31.4% for the three months ended ~~September~~June 30, ~~2019~~2020 from ~~27.1%~~36.3% in the same period in ~~2018.~~2019. The ~~higher~~decrease in operating profit margin is athe result of the changes implemented in the fourth quarter of 2018, which included the revision of our cemetery operating standards with a larger focus to grow revenue and market share, the hiring of talented sales managers for our larger cemetery businesses along with investment in new product inventory for sale.

~~Total cemetery expenses only increased 4.0% compared to the 15.6% increase~~an 11.6% decrease in operating revenue, offset by a 4.8% decrease in operating costs. Operating expense as a percent of operating revenue increased in two categories for the three months ended ~~September~~June 30, ~~2019~~2020 compared to the same period in ~~2018,~~2019. Most notably, salaries and benefits increased 1.2% as ~~we experienced operational efficiencies~~a percentage of revenue and ~~better management~~the allowance for credit losses expense increased 2.4% as a percentage of ~~cemetery expenses, particularly,~~revenue.

The increase in salaries and benefits ~~for maintenance personnel, facilities and grounds expenses and promotional expenses, which include marketing costs and commissions paid~~is due to ~~sales teams as these expenses did not grow proportionally to~~additional support staff hired in the latter half of 2019. The increase in ~~revenue.~~the allowance for credit losses is due to slower payments on financed receivables particularly in the states most affected by COVID-19.

Our acquired cemetery portfolio includes two businesses acquired during the fourth quarter of 2019 and one business acquired during the first quarter of 2020. These three businesses contributed $4.1 million in operating revenue and $1.4 million in operating profit for the three months ended June 30, 2020.

Preneed cemetery trust ~~earnings~~and insurance and preneed cemetery finance charges, which are recorded in Other revenue~~remained flat~~, on a combined basis increased $0.6 million for the three months ended ~~September~~June 30, ~~2019~~2020 compared to the same period in ~~2018.~~2019. Earnings in our perpetual care trust fund increased $0.6 million due to our acquisitions. Operating profit for the two categories of Other revenue, on a combined basis, ~~also remained flat~~increased $0.7 million for the three months ended June 30, 2020 compared to the same ~~comparative period.~~

period in 2019, primarily due to the increase in perpetual care trust fund revenue. The increase in our trust fund income is primarily due to our major capital deployment during and after the COVID-19 market crash in March 2020, which we expect will produce sustainable increases in both revenue and operating profit throughout the year.

The following ~~tables set~~table sets forth certain information ~~related to~~regarding our Revenue and Operating profit from our cemetery operations for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 (in thousands):


	Nine Months Ended September 30,				Six months ended June 30,
	2018		2019		2019		2020
Revenue:
Same store operating revenue	$	34,228	$	37,333	$	24,516	$	22,639
Divested revenue	4,712		—
Cemetery trust earnings	4,327		4,320
Acquired operating revenue					—		6,854
Preneed cemetery trust and insurance					2,874		4,128
Preneed cemetery finance charges	1,239		1,118		773		483
Total	$	44,506	$	42,771	$	28,163	$	34,104

Operating profit:
Same store operating profit	$	10,753	$	12,909	$	8,469	$	6,825
Divested operating profit	1,376		—
Cemetery trust earnings	3,955		3,894
Acquired operating profit					—		2,261
Preneed cemetery trust and insurance					2,594		3,920
Preneed cemetery finance charges	1,239		1,118		773		483
Total	$	17,323	$	17,921	$	11,836	$	13,489

The following measures reflect the significant metrics over this comparative ~~period (dollars in thousands):~~period:


	Nine Months Ended September 30,						Six months ended June 30,
	2018			2019			2019			2020
Same store:
Preneed revenue as a percentage of operating revenue	59		%	62		%	62		%	59		%
Preneed revenue	$	20,067		$	23,003
Preneed revenue (in thousands)							$	15,114		$	13,400
Atneed revenue (in thousands)							$	9,402		$	9,239
Number of preneed interment rights sold	4,907			5,419			3,518			3,354
Atneed revenue	$	14,161		$	14,330
Average price per interment right sold							$	3,721		$	3,762


Acquired:
Preneed revenue as a percentage of operating revenue							n/a			62		%
Preneed revenue (in thousands)							n/a			$	4,258
Atneed revenue (in thousands)							n/a			$	2,596
Number of preneed interment rights sold							n/a			852
Average price per interment right sold							n/a			$	4,422

Cemetery same store ~~operating~~preneed revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2019 increased $3.1~~2020 decreased $1.7 million ~~or 9.1%,~~due to the decrease in cemetery property revenue as we experienced a ~~10.4%~~4.7% decrease in the number of preneed interments sold compared to the same period in 2019, offset slightly by a 1.1% increase in the average price per interment right sold. The decrease in the number of preneed interment rights sold ~~as well as a 3.0% increase in the average price of interments sold for the nine months ended September 30, 2019 compared~~is primarily due to the ~~same period~~COVID-19 pandemic as individuals began practicing social distancing to comply with applicable shelter in ~~2018. Same~~place and related orders, which resulted in our preneed sales personnel being unable to meet with families at our businesses, in certain areas of the country, during this time. Cemetery same store atneed revenue, which represents ~~approximately 38%~~41% of our same store operating revenue, ~~increased~~decreased $0.2 million as we experienced a ~~2.7% increase~~1.3% decrease in the average sale per contract, ~~partially offset by a 1.5% decrease in~~while the number of atneed contracts ~~sold.~~sold remained flat.

Cemetery same store operating profit for the ~~nine~~six months ended ~~September~~June 30, ~~2019 increased $2.2~~2020 decreased $1.6 million from the same period in ~~2018.~~2019. The comparable operating profit margin ~~increased 320~~decreased 440 basis points to ~~34.6%~~30.1% for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 from ~~31.4%~~34.5% in the same period in ~~2018.~~2019. The ~~higher~~decrease in operating profit margin is a result of ~~the changes implemented in the fourth quarter of 2018, which included the revision of our cemetery operating standards with~~ a ~~larger focus to grow revenue and market share, the hiring of talented sales managers for our larger cemetery businesses along with investment in new product inventory for sale.~~

~~Total cemetery expenses only increased 4.0% compared to the 9.1% increase~~7.7% decrease in operating revenue ~~for~~and a 1.5% decrease in operating costs. Operating expense as a percent of operating revenue increased in three categories in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the same period in ~~2018,~~2019. Our allowance for credit losses expense increased 1.7%, promotional expense increased 1.2% and salaries and wages increased 1.0% as ~~we experienced operational efficiencies and better management~~a percentage of ~~cemetery expenses,~~revenue. The increase in the allowance for credit losses is due to slower payments on financed receivables particularly in ~~salaries~~the states most affected by COVID-19. The increase in promotional expenses is due to the addition of marketing personnel and increased counselor bonuses at certain cemeteries. Salaries and benefits ~~for maintenance personnel, facilities and grounds expenses and bad debt expense as these expenses did not grow proportionally~~related to the ~~increase~~beautification and maintenance of our cemetery grounds were fairly flat but increased as a percentage of revenue.

Our acquired cemetery portfolio includes two businesses acquired during the fourth quarter of 2019 and one business acquired during the first quarter of 2020. These three businesses contributed $6.9 million in ~~revenue.~~operating revenue and $2.3 million in operating profit for the six months ended June 30, 2020.

Preneed cemetery trust ~~earnings~~and insurance and preneed cemetery finance charges, which are recorded in Other revenue, on a combined basis ~~decreased $0.1~~increased $1.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the same period in ~~2018.~~2019. Earnings in our perpetual care trust fund increased $1.4 million primarily from acquisitions and an increase in realized gains and was partially offset by $0.3 million decrease in finance charge revenue. The decrease in finance charge revenue is due to our enhanced preneed cemetery property sales strategy of reducing interest rates on preneed ~~contracts which has led to the increase in our cemetery same store operating revenue in 2019.~~contracts. Operating profit for the two categories of Other revenue, on a combined basis, ~~decreased $0.2~~also increased $1.0 million for the six months ended June 30, 2020 compared to the same ~~comparative period. The decrease is~~period in 2019 due to the ~~decrease~~increase in ~~preneed cemetery finance charges~~revenue. The increase in ~~addition~~our trust fund income is primarily due to ~~higher third-party fees related to preneed trust investment management.~~our major capital deployment during and after the COVID-19 market crash in March 2020, which we expect will produce sustainable increases in both revenue and operating profit throughout the year.

Cemetery property amortization. Cemetery property amortization totaled $1.1 million for the three months ended June 30, 2020, a decrease of $0.1 million compared to the three months ended June 30, 2019. Cemetery property amortization remained flat at ~~$1.0~~$2.0 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

Field depreciation. Depreciation expense for our field businesses increased $0.2 million for the three months ended ~~September~~June 30, ~~2019~~2020 compared to the three months ended ~~September~~June 30, 2018, although property revenue increased $0.6 million during this period. This was primarily due to an increase of $0.5 million in second interment rights sold during the period for which there was no additional cost associated with these rights. Cemetery property amortization totaled $3.0 million for the nine months ended September 30, 2019, an increase of $0.2 million compared to the nine months ended September 30, 2018. The increase in the nine months ended September 30, 2019, was primarily attributable to the increases in interment rights sold in 2019 compared to 2018.

~~Field depreciation.~~ 2019. Depreciation expense for our field businesses ~~remained flat at $3.1~~increased $0.4 million for the ~~three~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the ~~three~~six months ended ~~September~~June 30, ~~2018. However, depreciation expense for our field businesses increased $0.3 million to $9.3 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.~~2019. The increase ~~in the nine months ended September 30, 2019, with no increase in the three month period~~ was primarily attributable to additional depreciation expense from the assets ~~becoming fully depreciated in the~~acquired through our 2019 and first quarter ~~of 2019.~~2020 acquisitions.

Regional and unallocated funeral and cemetery costs.Regional and unallocated funeral and cemetery costs consist of salaries and benefits for regional management, field incentive compensation and other related costs for field infrastructure. Regional and unallocated funeral and cemetery costs totaled ~~$3.6~~$3.7 million for the three months ended ~~September~~June 30, ~~2019,~~2020, an increase of ~~$1.5~~$0.1 million primarily due to a ~~$1.0~~$0.4 million increase ~~in incentive compensation expenses,~~related to a state audit assessment, a $0.3 million increase in ~~severance expense from~~expenses related to the ~~separation of certain operational leadership,~~COVID-19 pandemic and a ~~$0.2~~$0.1 million increase in other general and administrative ~~costs.~~costs, offset by a $0.7 million decrease in severance expense.

Regional and unallocated funeral and cemetery costs totaled ~~$10.0~~$6.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, an increase of ~~$1.3~~$0.1 million primarily due to a ~~$1.0~~$0.4 million increase related to a state audit assessment, a $0.4 million increase in ~~severance expense from~~expenses due to the ~~separation of certain operational leadership and a $0.5 million increase in incentive compensation expenses,~~COVID-19 pandemic, offset by a ~~$0.2~~$0.6 million decrease in severance expense and a $0.1 million decrease in other general administrative costs.

Other Financial Statement Items

General, administrative and other. General, administrative and other expenses totaled ~~$5.8~~$6.5 million for the three months ended ~~September~~June 30, ~~2019, a decrease~~2020, an increase of ~~$0.6~~$0.8 million compared to the three months ended ~~September~~June 30, ~~2018.~~2019. The ~~decrease~~increase was primarily attributable to a ~~$0.2~~$0.6 million ~~decrease~~increase in incentive ~~and stock-based~~ compensation, ~~expenses,~~ a $0.3 million ~~decrease~~increase in ~~salaries and benefits,~~public company costs, a ~~$0.1~~$0.2 million increase in litigation reserve, offset by a $0.2 million decrease in other general administrative ~~costs.~~costs and a $0.1 million decrease in acquisition expenses.

General, administrative and other expenses totaled ~~$17.1~~$12.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019, a decrease~~2020, an increase of ~~$2.3~~$1.2 million compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The ~~decrease~~increase was primarily attributable to a ~~$1.3~~$0.5 million increase in salaries, benefits and severance costs, a $0.4 million increase in incentive and equity compensation, a $0.3 million increase in public company costs, a $0.3 million increase in litigation reserve and a $0.1 million increase in acquisition expenses, offset by a $0.4 million decrease in stock-based compensation expenses and a $1.0 million decrease in salaries and benefits. These decreases are primarily related to both the separation of executive operating leadership and the cancellation of our performance awards in late 2018.other general administrative costs.

Home office depreciation and amortization. Home office depreciation and amortization expense remained flat at $0.4 million and $0.7 million for the three and six months ended June 30, 2020, compared to the three and six months ended June 30, 2019 primarily due to machinery and equipment at the home office becoming fully depreciated in 2019, offset by additional software assets purchased in the latter half of 2019.

Impairment of goodwill and other intangibles. As a result of the economic conditions caused by the response to COVID-19, we performed a quantitative assessment of our goodwill and indefinite-lived intangible assets at March 31, 2020. We recorded a goodwill impairment of $13.6 million related to our funeral homes in the Eastern Reporting Unit as the carrying value of goodwill exceeded the fair value at March 31, 2020. We also recorded a $1.1 millionimpairment charge to certain of our tradenames as the carrying amount of these tradenames exceeded the fair value.

Interest expense. Interest expense totaled ~~$0.4~~$8.4 million for the three months ended ~~September~~June 30, ~~2019, a decrease~~2020, an increase of ~~$0.1~~$2.1 million compared to the three months ended ~~September~~June 30, ~~2018 and $1.1~~2019. Interest expense totaled $16.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019, a decrease~~2020, an increase of ~~$0.3~~$4.2 million compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The ~~decreases were~~increase was primarily ~~attributable~~due to ~~corporate machinery~~increased borrowings on our Credit Facility and ~~equipment becoming fully depreciated in~~ the ~~first quarter~~$75.0 million of ~~2019.~~

~~Interest expense. Interest expense remained flat at $6.3 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018.~~

Interest expense was $18.9 million for the nine months ended September 30, 2019 compared to $14.8 million for the nine months ended September 30, 2018, an increase of $4.1 million, which was attributable to the following: (i) an increase of $9.2 million related to ouradditional Senior Notes ~~that were~~we issued in May 2018; offset by (ii) a decrease of $3.1 million related to our Former Credit Agreement; (ii) a decrease of $1.8 million related to the exchange of our Convertible Notes; and (iii) a decrease of $0.2 million related to other miscellaneous interest expense.on December 19, 2019.

Accretion of discount on convertible subordinated notes. ~~Accretion~~We recognized accretion of the discount on our Convertible Notes ~~totaled~~of $0.1 million for both the three months ended June 30, 2020 and 2019 and $0.1 million for both the six months ended June 30, 2020 and 2019.

Income taxes. We calculate our quarterly income tax expense using a forecasted annual effective tax rate and we adjust for any discrete items arising during the quarter. Our income tax expense was $3.4 million and $2.1 million for the three months ended ~~September~~June 30, 2020 and 2019, ~~a decrease of $0.1~~respectively and $1.3 million ~~compared to the three months ended September 30, 2018~~ and ~~$0.2~~$4.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019, a decrease of $1.8 million compared to the nine months ended September 30, 2018. The decreases were attributable to the exchange of our Convertible Notes.~~

~~Other, net.~~ ~~The components of Other, net for the three and nine months ended September 30, 2018~~2020 and 2019, ~~are as follows (in thousands):~~

Three Months Ended September 30, Nine Months Ended September 30,
2018 2019 2018 2019
Loss on sale of business (349 ) (3,863 ) (349 ) (3,874 )
Goodwill impairment —
(509 ) —
(509 )
Tradename impairment —
(221 ) —
(221 )
Gain on insurance reimbursements —
638
—
638
Other (loss) gain 2
(121 ) 4
52
Total $ (347 ) $ (4,076 ) $ (345 ) $ (3,914 )

~~Income taxes.~~ ~~Income~~respectively. Our operating tax ~~expense~~rate before discrete items was ~~$0.9 million~~33.5% and 29.2% for the three months ended ~~September~~June 30, 2020 and 2019, ~~a decrease of $0.3 million compared to~~and 33.3% and 28.5% for the ~~three~~six months ended ~~September~~June 30, ~~2018. Income tax expense was $5.8 million for the nine months ended September 30, 2019, an increase of $0.7 million compared to the nine months ended September 30, 2018.~~

~~Below is a breakdown of our income tax expense and effective rate for the three and nine months ended September 30, 2018~~2020 and 2019, ~~(in thousands except percentages):~~respectively.

We recorded income taxes before discrete items at an estimated rate of 30.3% and 4.6% for the three months ended September 30, 2018 and 2019, respectively and 28.0% and 26.5% for the nine months ended September 30, 2018 and 2019, respectively. The increase in our ~~total~~overall effective tax rate is ~~primarily~~ due to the ~~additional~~unfavorable tax ~~expense we~~impact of impairment of goodwill and other intangibles recorded ~~related to a divested business~~in the first quarter of 2020 for businesses that were previously acquired asthrough stock acquisitions.

In connection with the CARES Act, we expect to file a ~~stock acquisition~~claim for a refund during ~~three and nine months ended September 30, 2019.~~

~~We have $33.0 million of state net operating loss carry forwards that will expire between~~ 2020 ~~and 2040, if not utilized. Based on management’s assessment of~~to carryback the ~~various state~~ net operating losses itgenerated in the tax years ending December 31, 2018 and 2019 and have included the anticipated 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 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 approval for non-automatic accounting method changes, a reserve has been ~~determined~~recorded against the benefit derived from this carrying back that ~~it is more likely than not that we will not be able to realize~~ the tax benefits of certain portions of the state losses. Accordingly, a valuation allowance has been established and is reviewed quarterly. At September 30, 2019, the valuation allowance totaled $0.2 million.net operating losses generated.

OVERVIEW OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the Consolidated Financial Statements requires us to make estimates and judgments that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. We base our estimates on historical experience, third-party data and assumptions that we believe to be reasonable under the circumstances. The results of these considerations form the basis for making judgments about the amount and timing of revenue and expenses, the carrying value of assets and the recorded amounts of liabilities. Actual results may differ from these estimates and such estimates may change if the underlying conditions or assumptions change. Historical performance should not be viewed as indicative of future performance because there can be no assurance that our margins, operating income and net income, as a percentage of revenue, will be consistent from year to year.

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is based upon our Consolidated Financial Statements presented herewith, which have been prepared in accordance with GAAP. Our critical accounting policies are discussed in MD&A in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

SEASONALITY

Our business can be affected by seasonal fluctuations in the death rate. Generally, the death rate is higher during the winter months because the incidences of death from influenza and pneumonia are higher during this period than other periods of the year.


Item 3.	Quantitative and Qualitative Disclosures About Market Risk.

In the ordinary course of business, we are typically exposed to a variety of market risks. Currently, these are primarily related to interest rate risk and changes in the values of securities associated with the preneed and perpetual care trusts. Management is actively involved in monitoring exposure to market risk and developing and utilizing appropriate risk management techniques when appropriate and when available for a reasonable price. We are not exposed to any other significant market ~~risks.~~risks other than those related to COVID-19 which are described in more detail in Item 1A - Risk Factors below.

The following quantitative and qualitative information is provided about financial instruments to which we are a party at ~~September~~June 30, ~~2019~~2020 and from which we may incur future gains or losses from changes in market conditions. We do not enter into derivative or other financial instruments for speculative or trading purposes.

Hypothetical changes in interest rates and the values of securities associated with the preneed and perpetual care trusts chosen for the following estimated sensitivity analysis are considered to be reasonable near-term changes generally based on consideration of past fluctuations for each risk category. However, since it is not possible to accurately predict future changes in interest rates, these hypothetical changes may not necessarily be an indicator of probable future fluctuations.

The following information about our market-sensitive financial instruments constitutes a “forward-looking statement.”

In connection with our preneed funeral operations and preneed cemetery merchandise and service sales, the related funeral and cemetery trust funds own investments in equity and debt securities and mutual funds, which are sensitive to current market prices. Cost and market values of such investments as of ~~September~~June 30, ~~2019~~2020 are presented in Item 1, “Condensed Notes to Consolidated Financial Statements,” Notes 6 7 and 97 to our Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The sensitivity of the fixed income securities is such that a 0.25% change in interest rates ~~could~~causes an approximate 1.59% change in the value of the fixed income ~~securities by 1.67%.~~securities.

We monitor current and forecasted interest rate risk in the ordinary course of business and seek to maintain optimal financial flexibility, quality and solvency. As of ~~September~~June 30, ~~2019,~~2020, we had outstanding borrowings under the Credit Facility of ~~$18.0~~$89.7 million. Any ~~future~~further borrowings or voluntary prepayments against the Credit Facility or any change in the floating rate would cause a change in interest expense. We have the option to pay interest under the Credit Facility at either prime rate or the LIBOR rate plus a margin. At ~~September~~June 30, ~~2019,~~2020, the prime rate margin was equivalent to ~~1.00%~~2.00% and the LIBOR rate margin was ~~2.00%~~3.00%. Assuming the outstanding balance remains unchanged, a change of 100 basis points in our borrowing rate would result in a change in income before taxes of ~~$0.2~~$0.9 million. We have not entered into interest rate hedging arrangements in the past. Management continually evaluates the cost and potential benefits of interest rate hedging arrangements.

Our Convertible Notes bear interest at athe fixed annual rate of 2.75% ~~per year.~~. The Convertible Notes do not contain a call feature. At ~~September~~June 30, ~~2019,~~2020, the ~~cost~~carrying value of the Convertible Notes on our Consolidated Balance Sheet was ~~$5.9~~$6.1 million and the fair value of ~~these notes~~the Convertible Notes was ~~$7.1~~$6.4 million based on the last traded or broker quoted price, as reported by the Financial Industry Regulatory Authority, Inc. (“~~FINRA”)~~FINRA)”. Increases in market interest rates may cause the value of the Convertible Notes to decrease, but such changes will not affect our interest costs.

Our Senior Notes bear interest at athe fixed annual rate of 6.625% ~~per 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,~~indenture governing the Senior Notes, plus accrued and unpaid interest, if any, to the date of redemption. At ~~September~~June 30, ~~2019,~~2020, the ~~cost~~carrying value of the Senior Notes on our Consolidated Balance Sheet was ~~$319.6~~$395.7 million and the fair value of ~~these notes~~the Senior Notes was ~~$334.0~~$419.9 million based on the last traded or broker quoted price, as reported by FINRA. Increases in market interest rates may cause the value of the Senior Notes to decrease, but such changes will not affect our interest costs.

The remainder of our long-term debt and leases ~~consists~~consist of non-interest bearing notes and fixed rate instruments that do not trade in a market and do not have a quoted market value. Any increase in market interest rates ~~could cause~~causes the fair value of those liabilities to decrease, but such changes will not affect our interest costs.


Item 4.	Controls and Procedures.

Management’s Evaluation of Disclosure Controls and Procedures

Our management, including our principal executive and principal financial officers, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the ~~Securities~~ Exchange Act ~~of 1934, as amended (the “Exchange Act”)~~ as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the ~~Securities and Exchange Commission~~SEC rules and forms, and to ensure that such information is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and principal financial officers concluded that our disclosure controls and procedures are effective as of ~~September~~June 30, ~~2019~~2020 and that the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations, and cash flows for the periods presented in conformity with US GAAP.

Changes in Internal Control over Financial Reporting

There was no change in our system of internal control over financial reporting (defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION


Item 1.	Legal Proceedings.

We and our subsidiaries are parties to a number of legal proceedings that arise from time to time in the ordinary course of our business. While the outcome of these proceedings cannot be predicted with certainty, we do not expect these matters to have a material adverse effect on our financial statements.

We self-insure against certain risks and carry insurance with coverage and coverage limits for risk in excess of the coverage amounts consistent with our assessment of risks in our business and of an acceptable level of financial exposure. Although there can be no assurance that self-insurance reserves and insurance will be sufficient to mitigate all damages, claims, or contingencies, we believe that the reserves and our insurance provides reasonable coverage for known asserted and unasserted claims. In the event we sustain a loss from a claim and the insurance carrier disputes coverage or coverage limits, we may record a charge in a different period than the recovery, if any, from the insurance carrier.

~~Information regarding legal proceedings is set forth in Notes 16 and 21 in~~See Part I, Item 1, ~~of this Form 10-Q, which~~Financial Statements and Supplementary Data, Note 14 for additional information ~~is hereby incorporated by reference herein.~~related to our legal proceedings.


Item 1A.	Risk Factors.

~~There have been no material changes in our~~Risk Factor Update

In light of the rapidly evolving COVID-19 outbreak, we are also supplementing the risk factors ~~as previously disclosed in Part I, Item 1A “Risk~~set out under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018. Readers~~2019 (the “2019 Form 10-K”) with the new risk factor set out below. The risk factors below should ~~carefully consider~~be read in conjunction with the risk factors ~~discussed in Part I, Item 1A “Risk Factors”~~set out in our ~~Annual Report on~~2019 Form ~~10-K for the year ended December 31, 2018, which~~10-K:

Unfavorable economic conditions, including as a result of health and safety concerns, could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K for the year ended December 31, 2018 are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.

Our business and operational results could be adversely affected by general conditions in the U.S. economy, including conditions that are outside of our control, such as the impact of health and safety concerns from the COVID-19 pandemic. The most recent U.S. and global economic and financial conditions related to COVID-19 resulted in extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn, and the related adverse economic and health consequences could result in a variety of risks to our business, financial condition or results from operations, including weakened demand from our client families, decreased preneed sales, increased preneed installment contract defaults, increased cremation rates, reduced access to capital and credit markets or delays in obtaining client family payments. A weak or declining economy could also strain our supply partners. Additionally, our business relies heavily on our employees, including key employees due to the localized and personal nature of our business, and adverse events such as health-related concerns, the inability to travel and other matters affecting the general work environment could harm our business. In the event of a major disruption caused by the outbreak of pandemic diseases such as COVID-19, we may lose the services of a number of our key employees or experience system interruptions, which could lead to impacts to our regular business operations, inefficiencies and reputational harm. Due to the uncertainty around the ultimate impact of COVID-19 to our business and operations, the impact on our business and operational results cannot be reasonably estimated at this time. Any of the foregoing could harm our business and we cannot anticipate all the ways in which the current COVID-19 pandemic and financial market conditions could adversely impact our business.

Covenant restrictions in our debt instruments may limit our flexibility to operate and grow our business, and if we are not able to comply with such covenants, our lenders could accelerate our indebtedness, proceed against certain collateral or exercise other remedies, which could have a material adverse effect on us.

The covenants in our Credit Facility and the indenture governing our Senior Notes contain a number of provisions that impose operating and financial restrictions which, subject to certain exceptions, limit our ability and the ability of our subsidiaries to, among other things: incur additional indebtedness (including guarantees); pay dividends or make distributions or redeem or repurchase our common stock; make investments; grant liens on assets; make capital expenditures; enter into transactions with affiliates; enter into sale-leaseback transactions; sell or dispose assets; and acquire the assets of, or merge or consolidate with, other companies.

We are required to comply with certain financial covenants in our Credit Facility. Complying with these financial covenants and other restrictive covenants, as well as those that may be contained in any future ~~results.~~debt agreements, may limit our ability to finance our future operations or working capital needs or to take advantage of future business opportunities. Our ability to comply with these covenants will depend on our future performance, which may be affected by events beyond our control. Our failure to comply with any of these covenants or restrictions could result in a default under any future debt instrument, which could lead to

an acceleration of the debt under that instrument and, in some cases, the acceleration of debt under other instruments that contain cross-default or cross-acceleration provisions, each of which could have a material adverse effect on us. In the case of an event of default, or in the event of a cross-default or cross-acceleration, we may not have sufficient funds available to make the required payments under our debt instruments. If we are unable to repay amounts owed under the terms of our Credit Facility, the lenders thereunder may choose to exercise their remedies in respect of the collateral, including a foreclosure of their lien which results in a sale of certain of our funeral assets to satisfy our obligations under the Credit Facility.

Pursuant to the terms of our Credit Facility, we must comply with, amongst other things, a maximum Total Leverage Ratio covenant which is measured quarterly. If we are unable to comply with the maximum Total Leverage Ratio, we will be in immediate default under the Credit Facility. The COVID-19 pandemic may have a future impact on our business which could result in our inability to comply with this Total Leverage Ratio covenant and other covenants in our Credit Facility. There can be no assurance that the lenders will agree to amend the Credit Facility in the future to adjust or eliminate this covenant or whether the lenders may agree to waive any non-compliance with this financial covenant or any other covenant in the future.

Moreover, if we do not maintain compliance with our continuing obligations or any covenants, terms and conditions of the Credit Facility, we could be in default and required to repay outstanding borrowings on an accelerated basis, which could subject us to decreased liquidity and other negative impacts on our business, results of operations and financial condition. It may be difficult for us to find an alternative lending source under these circumstances. Without access to borrowings under the Credit Facility, our liquidity would be adversely affected and we would lack sufficient working capital to operate our business as presently conducted. Any disruption in access to credit could force us to take measures to conserve cash.

New or revised tax regulations could have a material effect on our financial statements

New tax laws or regulations could be enacted at any time, and existing tax laws or regulations could be interpreted, amended, or applied in a manner that has a material effect on us, which could materially impact our business and financial condition. For example, on March 27, 2020, the CARES Act was enacted in response to the macroeconomic environment conditions posed by COVID-19. The CARES Act is a sweeping stimulus bill intended to bolster the U.S. economy, among other things, and provide emergency assistance to qualifying businesses and individuals. Based on available guidance, we anticipate that the legislative changes will have a positive impact on our earnings and cash flow. We have conducted an initial analysis into determining the impact of the legislative changes on our provision for income taxes. As the enacted legislation includes provisions that would expire after certain periods of time, the fact that our business has the potential to change its operating situation, and the existence of potential changes by state tax authorities related to conformity with federal tax regulations, the possibility exists that the future benefit of the legislation could change. In addition, it is uncertain if, and to what extent, various states will conform to the CARES Act, or any newly enacted or revised federal tax legislation. Under the CARES Act, the primary areas that should be considered for future earnings and cash impact are the changes to the interest expense limitation threshold and the technical correction to the Tax Cuts and Jobs Act regarding the qualified improvement property now being eligible for full expensing. We continue to work to determine the full impact that the recent tax legislation as a whole will have on us.

Please also refer to the complete set of Risk Factors under Item 1A in the Company’s 2019 Form 10-K, filed with the U.S. Securities and Exchange Commission on February 28, 2020, for additional risks and uncertainties to the Company that may have an adverse effect on the Company’s business, financial condition and results of operations.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.

The following table sets forth certain information with respect to repurchases of our common stock during the quarter ended ~~September~~June 30, ~~2019:~~2020:

Period
Total Number of Shares Purchased⁽¹⁾
Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program
Dollar Value of Shares That May Yet Be Purchased Under the Program⁽²⁾

July 1, 2019 - July 31, 2019 —
$ —
—
$ 601,446
August 1, 2019 - August 31, 2019 702
$ 22.18
—
$ 601,446
September 1, 2019 - September 30, 2019 —
$ —
—
$ 601,446
Total for quarter ended September 30, 2019 702
—



Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Dollar Value of Shares That May Yet Be Purchased Under the Program⁽¹⁾

April 1, 2020 - April 30, 2020	—	$	—	—	$	25,601,446
May 1, 2020 - May 31, 2020	—	$	—	—	$	25,601,446
June 1, 2020 - June 30, 2020	—	$	—	—	$	25,601,446
Total for quarter ended June 30, 2020	—			—




(1)	~~Represents shares surrendered by employees to pay taxes withheld upon the vesting of restricted stock awards.~~
~~(2)~~	See Note 1715 to the Consolidated Financial Statements included herein for additional information on our publicly announced share repurchase program.


Item 3.	Defaults Upon Senior Securities.

Not applicable.


Item 4.	Mine Safety Disclosures.

Not applicable.


Item 5.	Other Information.

None.


Item 6.	Exhibits.

The exhibits required to be filed pursuant to the requirements of Item 601 of Regulation S-K are set forth in the Exhibit Index accompanying this Quarterly Report on Form 10-Q and are incorporated herein by reference.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		CARRIAGE SERVICES, INC.
Date:	~~October 30, 2019~~August 4, 2020	/s/ Viki K. Blinderman
		Viki K. Blinderman
		Senior Vice President, ~~Principal Financial~~Chief Accounting Officer and Secretary
		(Principal Financial Officer)

CARRIAGE SERVICES, INC.

INDEX OF EXHIBITS



Exhibit No.		Description
10.1		Limited Waiver and Fourth Amendment to Credit Agreement, dated as of May 18, 2020, by and among Carriage Services, Inc., the financial institutions party thereto, as lenders, and Bank of America, as administrative agent, swing line lender and L/C issuer. Incorporated by reference to exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 22, 2020.

10.2		Form of Performance Award Agreement under Carriage Services, Inc. 2017 Omnibus Incentive Plan. Incorporated by reference to exhibit 10.2 to the Company's Current Report on Form 8-K filed on May 22, 2020.

*31.1		Certification of Periodic Financial Reports by Melvin C. Payne in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2		Certification of Periodic Financial Reports by Viki K. Blinderman in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002.

**32		Certification of Periodic Financial Reports by Melvin C. Payne and Viki K. Blinderman in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350.

*101		Interactive Data Files.

__________________



(*)	Filed herewith.
(**)	Furnished herewith.

- 6265 -



	December 31, 2018		September 30, 2019
Funeral receivables, net of allowance for bad debt of $189 and $206, respectively	$	9,002	$	8,342
Cemetery receivables, net of allowance for bad debt of $580 and $596, respectively	9,688		9,144
Other receivables	207		213
Accounts receivable, net	$	18,897	$	17,699



	December 31, 2018		Effect of Adoption of Topic 842			January 1, 2019
Assets
Prepaid expenses	$	1,456	$	(148	)	$	1,308
Operating lease right-of-use assets	—		16,470			16,470
			$	16,322
Liabilities
Accrued and other liabilities	$	22,644	$	(274	)	$	22,370
Other long-term liabilities	3,133		(692		)	2,441
Current portion of operating lease obligations	—		2,633			2,633
Obligations under operating leases, net of current portion	—		14,655			14,655
			$	16,322



Three Months Ended September 30, 2018
	Funeral		Cemetery		Total
Services	$	30,231	$	2,774	$	33,005
Merchandise	17,525		2,064		19,589
Cemetery property	—		7,435		7,435
Other revenue	2,087		2,125		4,212
Total	$	49,843	$	14,398	$	64,241



Nine Months Ended September 30, 2018
	Funeral		Cemetery		Total
Services	$	94,818	$	8,850	$	103,668
Merchandise	55,539		6,386		61,925
Cemetery property	—		22,808		22,808
Other revenue	6,612		6,462		13,074
Total	$	156,969	$	44,506	$	201,475



	December 31, 2018			September 30, 2019
Contract liabilities:
Deferred preneed cemetery revenue	$	50,445		$	49,903
Less: Balances due on undelivered cemetery preneed contracts⁽¹⁾	(4,448		)	(4,708		)
Deferred preneed cemetery revenue, net	$	45,997		$	45,195

Deferred preneed funeral revenue	$	36,912		$	37,973
Less: Balances due on undelivered funeral preneed contracts⁽²⁾	(8,306		)	(8,451		)
Deferred preneed funeral revenue, net	$	28,606		$	29,522



Due in one year or less	$	—
Due in one to five years	2,582
Due in five to ten years	12,924
Thereafter	22,497
Total	$	38,003



Due in one year or less	$	—
Due in one to five years	3,480
Due in five to ten years	12,483
Thereafter	22,104
Total	$	38,067



	December 31, 2018			September 30, 2019
Accounts receivable, including unearned finance charges and allowance for contract cancellations of $2,405 and $2,412, respectively	$	11,676	⁽¹⁾	$	12,903	⁽¹⁾
Preneed receivables, including unearned finance charges and allowance for contract cancellations of $4,049 and $3,937, respectively	25,568		⁽²⁾	26,618		⁽²⁾
Preneed cemetery financed receivables	$	37,244		$	39,521



	September 30, 2019
Beginning balance	$	1,808
Write-offs and cancellations	(598		)
Provision	611
Ending balance	$	1,821



	December 31, 2018			September 30, 2019
Trust assets, at market value	$	44,071		$	48,397
Obligations due from trust	(577		)	(626		)
Care trusts’ corpus	$	43,494		$	47,771



Due in one year or less	$	—
Due in one to five years	1,710
Due in five to ten years	8,600
Thereafter	17,252
Total	$	27,562



	Shares Reserved		Shares Available to Issue	Options Outstanding	Performance Awards Outstanding ⁽²⁾
Amended and Restated 2006 Plan	—		—	940	—
2017 Plan	2,709	⁽¹⁾	1,952	136	501
Total	2,709		1,952	1,076	501



Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Dollar Value of Shares That May Yet Be Purchased Under the Program⁽²⁾

July 1, 2019 - July 31, 2019	—	$	—	—	$	601,446
August 1, 2019 - August 31, 2019	702	$	22.18	—	$	601,446
September 1, 2019 - September 30, 2019	—	$	—	—	$	601,446
Total for quarter ended September 30, 2019	702			—